FILED PURSUANT TO RULE 424B(3)
FILE NO. 333-13871
JOINT PROXY STATEMENT
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CRESTAR FINANCIAL CORPORATION CITIZENS BANCORP
SPECIAL MEETING SPECIAL MEETING
TO BE HELD ON TO BE HELD ON
DECEMBER 30, 1996 DECEMBER 30, 1996
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PROSPECTUS
OF
CRESTAR FINANCIAL CORPORATION
COMMON STOCK
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This Joint Proxy Statement/Prospectus is being furnished to the holders of
common stock, par value $2.50 per share ("Citizens Common Stock"), of Citizens
Bancorp, a Maryland corporation ("Citizens"), in connection with the
solicitation of proxies by the Citizens Board of Directors (the "Citizens
Board") for use at the Special Meeting of Citizens shareholders to be held at
9:00 a.m. on December 30, 1996, at 14401 Sweitzer Lane, Laurel, Maryland (the
"Citizens Special Meeting").
This Joint Proxy Statement/Prospectus is also being furnished to holders of
common stock, par value $5 per share ("Crestar Common Stock"), of Crestar
Financial Corporation, a Virginia corporation ("Crestar" or "Crestar
Financial"), in connection with the solicitation of proxies by the Crestar Board
of Directors (the "Crestar Board") for use at the Special Meeting of Crestar
shareholders to be held at 10:00 a.m. on December 30, 1996 at 919 East Main
Street, Richmond, Virginia, (the "Crestar Special Meeting" and, together with
the Citizens Special Meeting, the "Shareholder Meetings").
CITIZENS SPECIAL MEETING
At the Citizens Special Meeting, shareholders of record of Citizens Common
Stock as of the close of business on November 1, 1996, will consider and vote
upon a proposal to approve the Agreement and Plan of Reorganization (the
"Agreement"), dated as of September 15, 1996, by and among Crestar, CDM
Acquisition Subsidiary, Inc., a wholly-owned subsidiary of Crestar
("Acquisition"), Crestar Bank DC, a Virginia banking corporation wholly-owned by
Crestar ("Crestar Bank"), Citizens and Citizens Bank of Maryland, a Maryland
banking corporation wholly-owned by Citizens ("Citizens Bank"), pursuant to
which, among other things, Acquisition will merge with and into Citizens (the
"Holding Company Merger"). Immediately thereafter, Citizens will merge into
Crestar (the "Citizens/Crestar Merger") (the Holding Company Merger, and the
Citizens/Crestar Merger are referred to together as the "Transaction"). Crestar
expects to merge Citizens Bank into Crestar Bank by the end of the first quarter
1997. Upon consummation of the Holding Company Merger, expected to occur by
December 31, 1996, each outstanding share of Citizens Common Stock (other than
shares held directly by Crestar, which will be canceled without payment
therefore) will be converted into 0.835 shares of Crestar Common Stock, subject
to adjustment in certain circumstances (the "Exchange Ratio"). Outstanding
options to purchase Citizens Common Stock will be converted into options to
purchase Crestar Common Stock using the same Exchange Ratio and such options
will cover up to 567,000 additional shares of Crestar Common Stock. Based on the
closing price of Crestar Common Stock on the New York Stock Exchange (the
"NYSE") on November , 1996, such shares and options had a market value of
$ . See "The Holding Company Merger -- Determination of Exchange Ratio and
Exchange of Crestar Common Stock." For a description of the Agreement, which is
included herein in its entirety as Annex I to this Joint Proxy
Statement/Prospectus, see "The Holding Company Merger."
CRESTAR SPECIAL MEETING
At the Crestar Special Meeting, the shareholders of record of Crestar
Common Stock as of the close of business on November 1, 1996, in accordance with
the shareholder approval policy of the NYSE, will consider and vote upon the
issuance of shares of Crestar Common Stock and options pursuant to the
Agreement.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of
Crestar in respect of the shares of Crestar Common Stock to be issued to
shareholders of Citizens in connection with the Holding Company Merger. The
outstanding shares of Crestar Common Stock are, and the shares offered hereby
will be, listed on the NYSE.
All information contained in this Joint Proxy Statement/Prospectus relating
to Crestar and its subsidiaries has been supplied by Crestar and all information
relating to Citizens and its subsidiaries has been supplied by Citizens. This
Joint Proxy Statement/Prospectus and the accompanying proxy appointment cards
are first being mailed to shareholders of Crestar and Citizens on or about
November 25, 1996.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF CRESTAR COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
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THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOVEMBER , 1996.
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TABLE OF CONTENTS
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AVAILABLE INFORMATION.................................................................................................. 1
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE...................................................................... 2
SUMMARY................................................................................................................ 3
Parties to the Transaction........................................................................................... 3
Shareholder Meetings................................................................................................. 3
Votes Required; Record Dates......................................................................................... 4
The Holding Company Merger........................................................................................... 4
The Exchange Ratio................................................................................................... 4
Reasons for the Holding Company Merger; Recommendations of the Crestar Board and the Citizens Board.................. 5
Opinions of Financial Advisors....................................................................................... 5
No Dissenter's Rights................................................................................................ 6
Conditions to Consummation........................................................................................... 6
Business of Crestar and Citizens Pending the Holding Company Merger.................................................. 6
Waiver and Amendment; Termination.................................................................................... 6
Interests and Conflicts of Interests of Certain Persons in the Holding Company Merger................................ 6
Resale of Crestar Common Stock....................................................................................... 7
Certain Federal Income Tax Consequences of the Transaction........................................................... 7
Effective Time....................................................................................................... 7
Stock Option Agreement............................................................................................... 7
Market Prices Prior to Announcement of the Holding Company Merger.................................................... 8
Comparative Per Share Data........................................................................................... 8
COMPARATIVE PER SHARE DATA............................................................................................. 9
Selected Financial Data.............................................................................................. 9
SELECTED FINANCIAL DATA................................................................................................ 10
NOTES TO SELECTED FINANCIAL DATA....................................................................................... 13
THE SHAREHOLDER MEETINGS............................................................................................... 14
Crestar Special Meeting.............................................................................................. 14
Citizens Special Meeting............................................................................................. 14
Votes Required....................................................................................................... 15
Recommendations...................................................................................................... 15
THE HOLDING COMPANY MERGER............................................................................................. 16
Background of the Holding Company Merger............................................................................. 16
Reasons for the Holding Company Merger; Recommendations of the Crestar Board and the Citizens Board.................. 17
Opinions of Financial Advisors....................................................................................... 18
Effective Time of the Holding Company Merger......................................................................... 24
Determination of Exchange Ratio and Exchange for Crestar Common Stock................................................ 25
Business of Citizens and Crestar Pending the Holding Company Merger.................................................. 25
Conditions to Consummation of the Holding Company Merger............................................................. 27
Stock Option Agreement............................................................................................... 28
Waiver and Amendment; Termination.................................................................................... 28
Accounting Treatment................................................................................................. 30
Operations after the Holding Company Merger.......................................................................... 30
Interests and Conflicts of Interest of Certain Persons in the Holding Company Merger................................. 30
Stock Options........................................................................................................ 31
Effect on Citizens Employee Benefits Plans........................................................................... 31
Certain Federal Income Tax Consequences.............................................................................. 32
PRO FORMA CONDENSED FINANCIAL INFORMATION.............................................................................. 33
NOTES TO PRO FORMA CONDENSED FINANCIAL INFORMATION..................................................................... 40
CAPITALIZATION......................................................................................................... 41
NOTES TO CAPITALIZATION................................................................................................ 42
BUSINESS OF CRESTAR.................................................................................................... 43
Recent Developments.................................................................................................. 43
BUSINESS OF CITIZENS................................................................................................... 43
PRICE RANGE OF CITIZENS COMMON STOCK AND DIVIDEND POLICY............................................................... 44
PRICE RANGE OF CRESTAR COMMON STOCK AND DIVIDEND POLICY................................................................ 45
OWNERSHIP OF CITIZENS COMMON STOCK BY CERTAIN BENEFICIAL OWNERS........................................................ 46
OWNERSHIP OF CRESTAR COMMON STOCK BY CERTAIN BENEFICIAL OWNERS......................................................... 47
SUPERVISION AND REGULATION............................................................................................. 47
Bank Holding Companies............................................................................................... 47
Capital Requirements................................................................................................. 48
Limits on Dividends and Other Payments............................................................................... 48
Subsidiary Banks..................................................................................................... 49
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Other Safety and Soundness Regulations............................................................................... 49
DESCRIPTION OF CRESTAR CAPITAL STOCK................................................................................... 49
Common Stock......................................................................................................... 50
Preferred Stock...................................................................................................... 50
Rights............................................................................................................... 50
Virginia Stock Corporation Act....................................................................................... 51
COMPARATIVE RIGHTS OF SHAREHOLDERS..................................................................................... 52
Capitalization....................................................................................................... 52
Amendment of Articles or Bylaws...................................................................................... 52
Required Shareholder Vote for Certain Actions........................................................................ 52
Director Nominations................................................................................................. 52
Directors and Classes of Directors; Vacancies and Removal of Directors............................................... 53
Anti-Takeover Provisions............................................................................................. 53
Preemptive Rights.................................................................................................... 54
Assessment........................................................................................................... 54
Conversion; Redemption; Sinking Fund................................................................................. 54
Liquidation Rights................................................................................................... 54
Dividends and Other Distributions.................................................................................... 55
Special Meetings of Shareholders..................................................................................... 55
Indemnification...................................................................................................... 55
Shareholder Proposals................................................................................................ 56
Shareholder Inspection Rights; Shareholder Lists..................................................................... 56
Shareholder Rights Plan.............................................................................................. 56
Dissenters' Rights................................................................................................... 56
RESALE OF CRESTAR COMMON STOCK......................................................................................... 57
EXPERTS................................................................................................................ 57
LEGAL OPINIONS......................................................................................................... 57
SHAREHOLDER PROPOSALS.................................................................................................. 57
OTHER MATTERS.......................................................................................................... 58
ANNEX I -- Agreement and Plan of Reorganization dated as of September 15, 1996 and related Holding Company Plan of
Merger
ANNEX II -- Stock Option Agreement dated as of September 15, 1996
ANNEX III -- Fairness Opinion of Morgan Stanley & Co. Incorporated
ANNEX IV -- Fairness Opinion of Keefe, Bruyette & Woods, Inc.
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AVAILABLE INFORMATION
Crestar and Citizens are subject to the reporting and informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith file reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). Reports,
proxy statements and other information filed with the SEC can be inspected and
copied at the public reference facilities maintained by the SEC at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at its Regional Offices
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60611-2511 or 7 World Trade Center, Suite 1300, (13th Floor), New York,
New York 10048. Copies of such material can be obtained from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. The SEC also maintains a web site that contains reports,
proxy statements, information statements and other information regarding
registrants that file electronically, including Crestar and Citizens, with the
SEC at http:\\www.sec.gov. Such reports, proxy statements and other information
also may be inspected at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005 for Crestar and at the offices of the National
Association of Securities Dealers, Inc. located at 1735 K Street, N.W.,
Washington, D.C. 20006 for Citizens. As permitted by the Rules and Regulations
of the SEC, this Joint Proxy Statement/Prospectus does not contain all the
information set forth in the Registration Statement on Form S-4, of which this
Joint Proxy Statement/Prospectus is a part, and exhibits thereto (together with
the amendments thereto, the "Registration Statement"), which has been filed by
Crestar with the SEC under the Securities Act of 1933, as amended (the "1933
Act"), with respect to Crestar Common Stock and to which reference is hereby
made.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED HEREIN IN CONNECTION WITH THE OFFER
CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY CRESTAR OR CITIZENS. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SECURITIES TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER
TO OR SOLICITATION OF ANY PERSON IN ANY JURISDICTION TO WHOM IT WOULD BE
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
JOINT PROXY STATEMENT/PROSPECTUS NOR THE DISTRIBUTION OF ANY OF THE SECURITIES
TO WHICH THIS JOINT PROXY STATEMENT/PROSPECTUS RELATES SHALL, AT ANY TIME, IMPLY
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE CERTAIN
DOCUMENTS RELATING TO CRESTAR AND CITIZENS THAT ARE NOT PRESENTED HEREIN OR
DELIVERED HEREWITH. CRESTAR DOCUMENTS ARE AVAILABLE WITHOUT CHARGE UPON REQUEST
FROM CRESTAR'S INVESTOR RELATIONS DEPARTMENT, CRESTAR FINANCIAL CORPORATION, P.
O. BOX 26665, 919 EAST MAIN STREET, RICHMOND, VIRGINIA 23261-6665, (804)
782-7152. CITIZENS DOCUMENTS ARE AVAILABLE WITHOUT CHARGE UPON REQUEST FROM THE
SECRETARY, CITIZENS BANCORP, 14401 SWEITZER LANE, LAUREL, MARYLAND 20707, (301)
206-6000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUESTS
SHOULD BE MADE BY DECEMBER 16, 1996.
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by Crestar with the SEC are incorporated by
reference in this Joint Proxy Statement/Prospectus: (i) Crestar's Annual Report
on Form 10-K for the year ended December 31, 1995; (ii) Crestar's Quarterly
Reports on Form 10-Q for the periods ended March 31, 1996, June 30, 1996 and
September 30, 1996; (iii) Crestar's Current Report on Form 8-K dated September
16, 1996; (iv) the description of Crestar Common Stock in Crestar's registration
statement filed under the Exchange Act with respect to Crestar Common Stock on
July 1, 1993; and (v) the description of the Rights in Crestar's registration
statement on Form 8-A filed under the Exchange Act with respect to the Rights on
June 26, 1989.
The following documents filed by Citizens with the SEC are incorporated by
reference in this Joint Proxy Statement/Prospectus: (i) Citizens' Annual Report
on Form 10-K for the year ended December 31, 1995; (ii) Citizens' Quarterly
Reports on Form 10-Q for the periods ended March 31, 1996, June 30, 1996 and
September 30, 1996; and (iii) Citizens' Current Report on Form 8-K dated
September 27, 1996.
All documents filed by Crestar and Citizens pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and prior
to the date of the Citizens Special Meeting are hereby incorporated by reference
in this Joint Proxy Statement/Prospectus and shall be deemed a part hereof from
the date of filing of such documents. Any statement contained in any supplement
hereto or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of the
Registration Statement and this Joint Proxy Statement/Prospectus to the extent
that a statement contained herein, in any supplement hereto or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of the Registration Statement, this Joint Proxy
Statement/Prospectus or any supplement hereto.
Also incorporated by reference herein is the Agreement and Plan of
Reorganization by and among Crestar, Acquisition, Crestar Bank, Citizens and
Citizens Bank, dated as of September 15, 1996, which is attached to this Joint
Proxy Statement/Prospectus as Annex I, and the Stock Option Agreement by and
among Crestar and Citizens dated as of September 15, 1996, which is attached to
this Joint Proxy Statement/Prospectus as Annex II.
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SUMMARY
THE FOLLOWING SUMMARY IS NOT INTENDED TO BE A COMPLETE DESCRIPTION OF ALL
MATERIAL FACTS REGARDING CRESTAR, CITIZENS AND THE MATTERS TO BE CONSIDERED AT
THE SHAREHOLDER MEETINGS. IN THE OPINION OF CRESTAR AND CITIZENS, THE
INFORMATION APPEARING ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, ANNEXES HERETO, AND THE DOCUMENTS REFERRED TO HEREIN,
CONTAIN ALL SUCH MATERIAL FACTS. SHAREHOLDERS ARE URGED TO CAREFULLY READ ALL
SUCH INFORMATION.
PARTIES TO THE TRANSACTION
CRESTAR. Crestar is the holding company for Crestar Bank, a Virginia
banking corporation. At September 30, 1996, Crestar had approximately $18.3
billion in total assets, $13.6 billion in total deposits and $1.4 billion in
total stockholders' equity.
In 1963, six Virginia banks combined to form United Virginia Bankshares
Incorporated ("UVB"), a bank holding company formed under the Bank Holding
Company Act of 1956 (the "BHCA"). UVB (parent company of United Virginia Bank)
extended its operations into the District of Columbia by acquiring NS&T Bank,
N.A. on December 27, 1985 and into Maryland by acquiring Bank of Bethesda on
April 1, 1986, and Loyola Federal Savings Bank, Baltimore, on December 31, 1995.
On September 1, 1987, UVB was renamed Crestar Financial Corporation and its bank
subsidiaries adopted their present names. Crestar's bank subsidiaries were
combined into a Virginia bank named Crestar Bank on November 14, 1996. See
"Business of Crestar -- Recent Developments."
Crestar serves customers through a network of 380 banking offices and 387
automated teller machines (as of September 30, 1996). Crestar offers a broad
range of banking services, including various types of deposit accounts and
instruments, commercial and consumer loans, trust and investment management
services, bank credit cards and international banking services. Crestar's
subsidiary, Crestar Insurance Agency, Inc., offers a variety of personal and
business insurance products. Securities brokerage and investment banking
services are offered by Crestar's subsidiary, Crestar Securities Corporation.
Mortgage loan origination, servicing and wholesale lending are offered by
Crestar Mortgage Corporation, and investment advisory services are offered by
Capitoline Investment Services Incorporated, both of which are subsidiaries of
Crestar Bank. These various Crestar subsidiaries provide banking and non-banking
services throughout Virginia, Maryland and Washington, D.C., as well as certain
non-banking services to customers in other states.
The executive offices of Crestar are located in Richmond, Virginia at
Crestar Center, 919 East Main Street. Regional headquarters are located in
Norfolk and Roanoke, Virginia, Washington, D.C., and Baltimore, Maryland.
Crestar's principal Operations Center is located in Richmond. See "Business of
Crestar."
CRESTAR BANK DC. Crestar Bank DC is a Virginia banking corporation formed
solely to facilitate the combination of the Crestar banks into one bank.
ACQUISITION. Acquisition was organized as a Maryland subsidiary of Crestar
solely to effectuate the Holding Company Merger. In the Holding Company Merger,
Acquisition will merge into Citizens, and immediately thereafter Citizens will
merge into Crestar. See "The Holding Company Merger."
CITIZENS. Citizens is the second largest bank holding company headquartered
in Maryland with assets of $4.2 billion and 103 banking locations and 125
automated teller machines in Maryland, Virginia and Washington, D.C. (as of
September 30, 1996). Citizens offers deposit, loan and trust services to both
retail and commercial customers. The executive offices of Citizens are located
at 14401 Sweitzer Lane, Laurel, Maryland 20707. See "Business of Citizens."
CITIZENS BANK. Citizens Bank is a Maryland banking corporation through
which Citizens conducts its banking business. Citizens Bank of Washington, n.a.
is expected to be merged into Citizens Bank in the first quarter of 1997.
Citizens Bank provides mortgage banking and investment services through its
subsidiary companies, CitizensBanc Mortgage Company, Inc., Citizens Insurance
Services, Inc., and Citizens Brokerage Services, Inc.
SHAREHOLDER MEETINGS
CRESTAR. The Crestar Special Meeting will be held on December 30, 1996 at
10:00 a.m. at 919 East Main Street, Richmond, Virginia. The purpose of the
Crestar Special Meeting is to consider and vote upon, pursuant to the
shareholder approval policy of the NYSE, the issuance of shares of Crestar
Common Stock and options to purchase Crestar Common Stock in connection with the
Holding Company Merger. See "The Shareholder Meetings."
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CITIZENS. The Citizens Special Meeting will be held on December 30, 1996 at
9:00 a.m. at 14401 Sweitzer Lane, Laurel, Maryland. The purpose of the Citizens
Special Meeting is to consider and vote upon a proposal to approve the Agreement
and the related Holding Company Plan of Merger. See "The Shareholder Meetings."
VOTES REQUIRED; RECORD DATES
CRESTAR. Only Crestar shareholders of record at the close of business on
November 1, 1996 (the "Crestar Record Date") will be entitled to vote at the
Crestar Special Meeting. The issuance of the shares of Crestar Common Stock and
options to purchase Crestar Common Stock pursuant to the Agreement requires the
affirmative vote of the holders of a majority of the shares of Crestar Common
Stock voting at the Crestar Special Meeting. As of the Crestar Record Date,
there were 42,353,235 shares of Crestar Common Stock entitled to be voted.
The directors and executive officers of Crestar and their affiliates
beneficially owned, as of the Crestar Record Date, 952,087 shares or
approximately 2.25% of outstanding Crestar Common Stock. Crestar has been
advised that the shares of Crestar Common Stock owned by such directors and
executive officers will be voted in favor of the issuance of shares of Crestar
Common Stock pursuant to the terms of the Agreement. The directors and executive
officers of Citizens and their affiliates beneficially owned, as of the Crestar
Record Date, a total of less than 1% of the outstanding shares of Crestar Common
Stock.
CITIZENS. Only Citizens shareholders of record at the close of business on
November 1, 1996 (the "Citizens Record Date") will be entitled to vote at the
Citizens Special Meeting. The affirmative vote of the holders of two-thirds of
the shares outstanding on such date is required to approve the Agreement. As of
the Citizens Record Date, there were 15,133,099 shares of Citizens Common Stock
entitled to be voted.
The directors and executive officers of Citizens and their affiliates
beneficially owned, as of the Citizens Record Date, 2,038,148 shares or
approximately 13.47% of the outstanding shares of Citizens Common Stock.
Citizens has been advised that such directors and executive officers intend to
vote their shares in favor of approval of the Agreement. The directors and
executive officers of Crestar and their affiliates beneficially owned, as of the
Citizens Record Date, a total of less than 1% of the outstanding shares of
Citizens Common Stock.
See "The Shareholder Meetings."
THE HOLDING COMPANY MERGER
Pursuant to the Agreement, at the Effective Time of the Holding Company
Merger (as defined herein), Acquisition will merge into Citizens in accordance
with the Holding Company Plan of Merger whereby the separate existence of
Acquisition will cease. Immediately following the Effective Time of the Holding
Company Merger, Citizens will merge into Crestar in accordance with a Plan of
Merger, and the separate existence of Citizens will cease. At the Effective Time
of the Holding Company Merger, each outstanding share of Citizens Common Stock
(other than shares held directly by Crestar, which shall be canceled without
payment therefore) and options to purchase Citizens Common Stock will be
converted into and represent the right to receive a number of shares of Crestar
Common Stock or options to purchase Crestar Common Stock determined by the
Exchange Ratio, subject to adjustment as set forth in the Agreement. Cash will
be paid in lieu of fractional shares of Crestar Common Stock. At the Effective
Time of the Holding Company Merger, each share of Citizens Common Stock held by
Crestar, excluding shares held in a fiduciary capacity, shall be canceled,
retired and cease to exist, and no exchange or payment shall be made with
respect thereto. Crestar does not directly hold any shares of Citizens Common
Stock.
Crestar expects to merge Citizens Bank into Crestar Bank by the end of the
first quarter of 1997.
THE EXCHANGE RATIO
In the Holding Company Merger, each share of Citizens Common Stock will be
converted into 0.835 shares of Crestar Common Stock. If the Average Closing
Price (as defined below) of Crestar Common Stock is $48 or less during the 10-
trading day period prior to the 10th day before the Closing Date, Citizens may
terminate the Agreement. In such case, however, Crestar can extend the Closing
Date for 15 trading days, and during the first 10 trading days of the extended
period a new Average Closing Price for Crestar Common Stock will be determined.
If the new Average Closing Price in the extended period is more than $48, no
termination occurs and the Agreement remains in effect. If the new Average
Closing Price is $48 or less, Crestar may increase the consideration to be
received by Citizens' shareholders by adjusting the Exchange Ratio to equal a
number equal to the quotient obtained by dividing $40.08 by the new Average
Closing Price; if Crestar elects not to do this, the Agreement terminates.
In no event is the adjusted Exchange Ratio to be less than 0.835 shares of
Crestar Common Stock. The "Average Closing Price" is the average of the closing
sales price
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of Crestar Common Stock as reported on the consolidated tape of the New York
Stock Exchange for each of the 10-day trading periods ending on the 10th day
prior to the Closing Date, and the new "Average Closing Price" is the same
average for 10 trading days in the extended period.
Outstanding options to purchase Citizens Common Stock that were granted
under Citizens' 1986 Stock Incentive Plan and 1988 Stock Option Plan (the
"Citizens Options") will be converted, based on the Exchange Ratio, into options
to acquire shares of Crestar Common Stock ("Crestar Options"). The exercise
price per share of Crestar Common Stock under a Crestar Option will be equal to
the exercise price per share of Citizens Common Stock under the Citizens Option
divided by the Exchange Ratio. The number of shares of Crestar Common Stock
subject to a Crestar Option will be equal to the number of shares of Citizens
Common Stock subject to the Citizens Option multiplied by the Exchange Ratio.
Other terms of a Crestar Option will be the same as the terms of the Citizens
Option.
REASONS FOR THE HOLDING COMPANY MERGER; RECOMMENDATIONS OF THE CRESTAR BOARD AND
THE CITIZENS BOARD
CRESTAR. The Crestar Board believes that the terms of the Holding Company
Merger and the Agreement are advisable and are fair to, and in the best
interests of, Crestar and its shareholders and has unanimously adopted the
Agreement. In considering the terms and conditions of the Holding Company
Merger, the Crestar Board considered, among other things, the financial terms of
the Holding Company Merger, its effect on future earnings, the strategic value
of enhancing Crestar's franchise in Maryland and the Greater Washington Region,
and the opinion of its financial advisor, Morgan Stanley & Co. Incorporated
("Morgan Stanley"), that as of the date of its opinion the Exchange Ratio
pursuant to the Agreement is fair from a financial point of view to Crestar. The
Board believes the Holding Company Merger will provide Crestar with a
competitive advantage by increasing future earnings, expanding distribution of
products, and building market share -- all without sacrificing asset quality.
The Crestar Board also considered that Crestar shareholders would incur modest
dilution in earnings per share in the first year following the Holding Company
Merger.
CITIZENS. The Citizens Board believes that the terms of the Holding Company
Merger and the Agreement are advisable and are fair to, and in the best
interests of, Citizens and its shareholders and has unanimously adopted the
Agreement. In considering the terms and conditions of the Holding Company
Merger, the Citizens Board considered, among other things: the financial terms
of the Holding Company Merger; the fact that the Holding Company Merger would
qualify as a tax-free reorganization; the financial condition and history of
performance of Crestar; the advantage of risk diversification associated with
ownership in an institution operating in a broader geographic area; the opinion
of its financial advisor, Keefe, Bruyette & Woods, Inc. ("Keefe Bruyette"), that
the consideration to be received in the Holding Company Merger is fair to the
holders of Citizens Common Stock from a financial point of view; and the
operational and competitive benefits of the Holding Company Merger. The Citizens
Board also considered that the historical dividends per share and net income per
share of the Crestar Common Stock to be received by the holders of Citizens
Common Stock, after giving effect to the Exchange Ratio, represent a substantial
increase in the historical dividends per share and net income per share of
Citizens Common Stock, although there can be no assurance that pro forma amounts
are indicative of future dividends or income per share of Crestar Common Stock.
See "The Holding Company Merger -- Background to the Holding Company Merger,"
" -- Reasons for the Holding Company Merger; Recommendations of the Crestar
Board and the Citizens Board," and " -- Opinions of Financial Advisors."
THE CITIZENS BOARD UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF CITIZENS COMMON
STOCK VOTE TO APPROVE THE PROPOSED HOLDING COMPANY MERGER.
OPINIONS OF FINANCIAL ADVISORS
CRESTAR. Crestar has received the opinion of Morgan Stanley that the
Exchange Ratio is fair from a financial point of view to Crestar. Morgan
Stanley's opinion is directed only to the Exchange Ratio and does not constitute
a recommendation to any holders of Crestar Common Stock as to how such holders
should vote at the Crestar Special Meeting or as to any other matter. Crestar
has agreed to pay Morgan Stanley an advisory fee of between $100,000 and
$150,000, payable if the Holding Company Merger is not consummated, and a
transaction fee of $3.5 million, payable upon consummation of the Holding
Company Merger. Any advisory fee paid will be credited against the transaction
fee. For additional information concerning Morgan Stanley and its opinion, see
"The Holding Company Merger -- Opinions of Financial Advisors." The opinion of
such firm, which sets forth the assumptions made, matters considered and limits
on the review undertaken, is attached as Annex III to this Joint Proxy
Statement/Prospectus.
5
<PAGE>
CITIZENS. Citizens has received the opinion of Keefe Bruyette that the
Exchange Ratio is fair to the holders of Citizens Common Stock from a financial
point of view. Keefe Bruyette's opinion is directed only to the Exchange Ratio
and does not constitute a recommendation to any holders of Citizens Common Stock
as to how such holders should vote at the Citizens Special Meeting or as to any
other matter. Citizens paid Keefe Bruyette a cash fee of $100,000 when the
Merger Agreement was signed and $200,000 when the Proxy Statement/Prospectus was
mailed, and will pay Keefe Bruyette $390,000 upon consummation of the Holding
Company Merger. For additional information concerning Keefe Bruyette and its
opinion, see "The Holding Company Merger -- Opinions of Financial Advisors." The
opinion of such firm, which sets forth the assumptions made, matters considered
and limits on the review undertaken, is attached as Annex IV to this Joint Proxy
Statement/Prospectus.
NO DISSENTER'S RIGHTS
Holders of Citizens Common Stock entitled to vote on the Agreement and the
related Holding Company Plan of Merger do not have dissenter's rights in
accordance with Maryland General Corporation Law.
CONDITIONS TO CONSUMMATION
The Holding Company Merger is to be accomplished by the statutory merger of
Acquisition into Citizens and is contingent upon approvals of the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"), the
Division of Financial Regulation of the Maryland Department of Labor, Licensing
and Regulation (the "Maryland Department") and the Bureau of Financial
Institutions of the State Corporation Commission of Virginia (the "SCC"), which
approvals have been applied for and are expected to be received. The Holding
Company Merger is also subject to other usual conditions, including receipt by
Crestar and Citizens of the legal opinions of Semmes, Bowen & Semmes, counsel to
Citizens, and of Hunton & Williams, counsel to Crestar, that the Holding Company
Merger and the Citizens/Crestar Merger together will constitute a tax-free
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code") and receipt by Crestar of a letter from KPMG Peat Marwick
LLP stating that the Transaction may be accounted for under the pooling-of-
interests accounting method. See "The Holding Company Merger -- Conditions to
Consummation of the Holding Company Merger."
BUSINESS OF CRESTAR AND CITIZENS PENDING THE HOLDING COMPANY MERGER
Citizens has agreed to carry on its operations only in the ordinary course
of business and not to take certain actions relating to the operation of its
business pending consummation of the Holding Company Merger without notice to or
the approval of Crestar, including the payment of cash dividends other than the
regular quarterly cash dividends consistent with its practice in effect in the
second quarter of 1996. Crestar has agreed that it will conduct its operations
only in the ordinary course of business consistent with past practice and not to
take certain actions. See "The Holding Company Merger -- Business of Crestar and
Citizens Pending the Holding Company Merger."
WAIVER AND AMENDMENT; TERMINATION
Crestar and Citizens may amend or modify the Agreement at any time, except
that, after the vote by the shareholders of Crestar and Citizens, no such
amendment or modification may be made which reduces or changes the form and
amount of consideration payable pursuant to the Agreement without further
shareholder approval. If at any time before the Effective Time of the Holding
Company Merger, a material term of the Agreement or Holding Company Plan of
Merger is amended, the Citizens Board will postpone or reschedule the Citizens
Special Meeting (or, if necessary, call additional shareholder meetings), to
vote on the Agreement and Holding Company Plan of Merger, as amended, and
resolicit proxies for use at such meeting.
Crestar and Citizens each has the right, acting unilaterally, to terminate
the Agreement should the Holding Company Merger not be consummated by June 30,
1997 and prior to that time upon the occurrence of certain events. See "The
Holding Company Merger -- Waiver and Amendment; Termination."
INTERESTS AND CONFLICTS OF INTERESTS OF CERTAIN PERSONS IN THE HOLDING COMPANY
MERGER
Certain members of Citizens' management and the Citizens Board have
interests and conflicts of interest in the Holding Company Merger in addition to
their interests as shareholders of Citizens generally. These include, among
other things, provisions in the Agreement requiring Crestar to honor existing
employment and severance agreements with Jeffrey R. Springer, Richard C.
Bandiere, Raymond L. Gazelle, Jr. and Gary N. Geisel, the offering to five to
eight members of the
6
<PAGE>
Citizens Board of a position on Crestar Bank's GWR or Maryland advisory board,
increasing the number of Crestar's and Crestar Bank's Board of Directors by two
and appointing Alfred H. Smith, Jr. and Jeffrey R. Springer to fill the
resulting vacancies, indemnification for Citizens directors and officers, and
eligibility for certain Crestar employee benefits. Under Mr. Springer's
agreement, he will receive a lump sum payment of approximately $1,483,040, and
Messrs. Bandiere, Gazelle and Geisel will receive cash severance payments over
30 months of $680,000, $595,000 and $672,500, respectively. Each of the five to
eight members of the Citizens Board named to a Crestar advisory board will be
paid retainer and meeting fees of up to approximately $5,000 per year. As
directors of Crestar, Messrs. Smith and Springer will be paid an annual retainer
(currently $18,000) and $1,000 per meeting attended, and an additional $500 for
a second meeting on the same day. Each also will participate in the Crestar
Directors' Equity Program, which annually awards Crestar Common Stock with a
value of $8,000 to directors as part of their compensation.
For additional information concerning the employment agreements, see "The
Holding Company Merger -- Interests and Conflicts of Interest of Certain Persons
in the Holding Company Merger." All Citizens Options are issued pursuant to
plans previously approved by the shareholders of Citizens.
RESALE OF CRESTAR COMMON STOCK
Shares of Crestar Common Stock received in the Holding Company Merger will
be freely transferable by the holders thereof, except for those shares held by
those holders who may be deemed to be "affiliates" of Citizens or Crestar under
applicable federal securities laws. See "Resale of Crestar Common Stock."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION
The Holding Company Merger and the Citizens/Crestar Merger are intended to
be treated as one transaction qualifying as a tax-free "reorganization" as
defined in Section 368(a) of the Code. (The Holding Company Merger and the
Citizens/Crestar Merger are sometimes referred to together as the "Merger".)
Crestar has received the opinion of Hunton & Williams, and Citizens has received
the opinion of Semmes, Bowen & Semmes, that the Merger will qualify as a
"reorganization" as defined in Section 368(a) of the Code. Citizens also has
received the opinion of Semmes, Bowen & Semmes that Citizens shareholders will
not recognize gain or loss on the exchange of Citizens Common Stock for Crestar
Common Stock (including the associated Rights), except with respect to cash paid
in lieu of fractional shares. A condition to consummation of the Merger is the
receipt by Crestar from Hunton & Williams and by Citizens from Semmes, Bowen &
Semmes of opinions as to the qualification of the Merger as a reorganization and
certain other federal income tax consequences of the Merger. See "The Holding
Company Merger -- Certain Federal Income Tax Consequences."
EFFECTIVE TIME
The Holding Company Merger will become effective on the date and time
specified in the Articles of Merger for the Holding Company Merger to be filed
with the State Department of Assessments and Taxation of Maryland ("SDAT") and
the State Corporation Commission of Virginia. The Effective Time of the Holding
Company Merger is to be not later than June 30, 1997, and is expected to occur
by December 31, 1996.
STOCK OPTION AGREEMENT
Crestar and Citizens have entered into a Stock Option Agreement, dated as
of September 15, 1996 (the "Option Agreement"), pursuant to which Citizens
issued to Crestar an option (the "Option") to purchase up to 3,012,000 shares of
Citizens Common Stock at a purchase price of $40.00 per share. The Option may be
exercised in whole or in part, at any time or from time to time if a Purchase
Event (as defined therein) shall have occurred and be continuing. The Option
Agreement provides that to the extent that it shall have not been exercised, the
Option shall terminate (i) on the Effective Date of the Holding Company Merger;
(ii) upon termination of the Agreement in accordance with the provisions thereof
(other than a termination resulting from a willful breach by Citizens of certain
specified covenants contained therein or, following the occurrence of a Purchase
Event (as defined therein), failure of Citizens shareholders to approve the
Agreement by the vote required under applicable law or under Citizens' charter);
or (iii) 12 months after termination of the Agreement due to a willful breach by
Citizens of certain specified covenants contained therein or, following the
occurrence of a Purchase Event (as defined therein), failure of Citizens
shareholders to approve the Holding Company Merger by the vote required under
applicable law or under Citizens' charter. The Option Agreement is attached
hereto as Annex II. See also "The Holding Company Merger -- Stock Option
Agreement."
7
<PAGE>
MARKET PRICES PRIOR TO ANNOUNCEMENT OF THE HOLDING COMPANY MERGER
The following table discloses the price per share of Crestar Common Stock
and Citizens Common Stock based on the last reported sales prices per share of
Crestar Common Stock on the NYSE Composite Transactions Tape and of Citizens
Common Stock on The Nasdaq National Market on September 13, 1996, the last
trading day preceding the public announcement of the proposed Transaction. See
"Price Range of Citizens Common Stock and Dividend Policy" for information
concerning recent market prices of the Citizens Common Stock.
<TABLE>
<CAPTION>
HISTORICAL EQUIVALENT
------------------- PRO FORMA
CRESTAR CITIZENS CITIZENS (A)
------- -------- ------------
<S> <C>
Common Stock..................................... $61.375 $ 32.250 $ 51.248
</TABLE>
- ---------------
(a) Computed by multiplying the historical sale price of Crestar Common Stock by
an assumed Exchange Ratio of 0.835.
COMPARATIVE PER SHARE DATA
The following table presents historical and pro forma per share data for
Crestar, and historical and equivalent pro forma per share data for Citizens.
The pro forma combined per Crestar common share amounts give effect to the
Exchange Ratio of 0.835 shares of Crestar Common Stock for each share of
Citizens Common Stock. The equivalent pro forma per Citizens common share
amounts allow comparison of historical information regarding one share of
Citizens Common Stock to the corresponding data regarding what one share of
Citizens Common Stock will equate to in the combined corporation; such amounts
are computed by multiplying the pro forma combined per Crestar common share
amounts by the Exchange Ratio. The following table is based on the assumption
that all issued and outstanding shares of Citizens Common Stock are converted
into shares of Crestar Common Stock. The Holding Company Merger is reflected
under the pooling-of-interests method of accounting and pro forma information is
derived accordingly.
The per share data included in the following table should be read in
conjunction with the consolidated financial statements of Crestar and the
consolidated financial statements of Citizens incorporated by reference herein
and the notes accompanying all such financial statements. The data presented
below are not necessarily indicative of the results of operations which would
have been obtained if the Holding Company Merger had been consummated in the
past or which may be obtainable in the future.
8
<PAGE>
COMPARATIVE PER SHARE DATA
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
---------------- --------------------------
1996 1995 1995 1994 1993
------ ------ ------ ------ ------
<S> <C>
Book Value Per Share at Period End(1):
Crestar historical......................................................... $33.84 $33.47 $33.90 $30.47 $28.58
Citizens historical........................................................ 23.43 21.79 22.20 20.52 19.63
Pro forma combined per Crestar common share(2)............................. 32.00 31.80 32.24 29.13 27.45
Equivalent pro forma per Citizens common share............................. 26.72 26.56 26.92 24.32 22.92
Cash Dividends Declared Per Common Share(1):
Crestar historical......................................................... $ 1.49 $ 1.30 $ 1.75 $ 1.53 $ 1.14
Citizens historical........................................................ 0.87 0.84 1.12 1.08 1.08
Pro forma combined per Crestar common share(3)............................. 1.49 1.30 1.75 1.53 1.14
Equivalent pro forma per Citizens common share............................. 1.24 1.09 1.46 1.28 0.95
Net Income Per Share:
Crestar historical......................................................... $ 3.44 $ 3.51 $ 4.12 $ 4.24 $ 3.49
Citizens historical........................................................ 2.06 1.79 2.40 2.09 1.82
Pro forma combined per Crestar common share(4)............................. 3.22 3.21 3.84 3.85 3.20
Equivalent pro forma per Citizens common share:............................ 2.69 2.68 3.21 3.22 2.67
</TABLE>
- ---------------
(1) Pro forma combined book value per share and cash dividends declared per
share for Crestar and Citizens do not reflect exercise of options to acquire
shares of Citizens Common Stock. Options to acquire 674,250 Citizens common
shares at an average price per share of $22.81 were outstanding at September
30, 1996. Assumed exercise of these options does not have a significant
impact upon the combined stockholders' equity of Crestar and Citizens or the
pro forma combined cash dividends declared per share.
(2) Pro forma combined book value per Crestar common share at September 30, 1996
represents combined common shareholders' equity amounts, less an amount
representing the after-tax impact of material, non-recurring adjustments
expected to be recorded in conjunction with the Holding Company Merger,
divided by pro forma combined period-end common shares outstanding. Certain
material, non-recurring adjustments of approximately $42 million, on a
pre-tax basis, will be recorded in conjunction with the Holding Company
Merger. These adjustments include approximately $9 million for settlement of
obligations under existing employment contracts, severance pay for
involuntary terminations, and related employee benefit costs, approximately
$18 million associated with branch closings and consolidations, and
approximately $15 million of expenses related to consummating the Holding
Company Merger, including signage and customer service expenses. On an
after-tax basis, these non-recurring adjustments are approximately $28
million.
(3) Pro forma combined dividends declared per Crestar common share represent
historical dividends per share declared by Crestar.
(4) Pro forma combined net income per Crestar common share represents combined
net income available to common shareholders, divided by pro forma combined
average primary common shares outstanding.
SELECTED FINANCIAL DATA
The following consolidated financial data of Crestar and consolidated
financial data of Citizens is qualified in its entirety by the information
included in the documents incorporated in this Joint Proxy Statement/Prospectus
by reference. Interim financial results for Crestar, in the opinion of Crestar
management, reflect all adjustments necessary for a fair presentation of the
results of operations, including adjustments related to completed acquisitions.
All such adjustments are of a normal nature. Interim financial results for
Citizens, in the opinion of Citizens management, reflect all adjustments
necessary for a fair presentation of the results of operations. The results of
operations for an interim period are not necessarily indicative of results that
may be expected for a full year or any other interim period. The Holding Company
Merger is reflected under the pooling-of-interests method of accounting and pro
forma information is derived accordingly. See "Incorporation of Certain
Information by Reference."
9
<PAGE>
SELECTED FINANCIAL DATA (1)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
<S> <C>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
EARNINGS:
Net interest income
Crestar.............................. $ 544.3 $ 510.0 $ 682.8 $ 650.6 $ 591.0 $ 550.9 $ 483.3
Citizens............................. 105.3 102.9 136.1 131.9 121.4 114.9 101.8
Crestar and Citizens pro forma....... 649.5 612.9 818.9 782.5 712.5 665.7 585.1
Provision for loan losses
Crestar.............................. 66.0 38.3 59.6 30.3 51.9 106.3 220.9
Citizens............................. 5.8 5.1 6.7 6.2 11.5 14.5 15.0
Crestar and Citizens pro forma....... 71.8 43.4 66.3 36.5 63.3 120.8 236.0
Net interest income after provision for
loan losses
Crestar.............................. 478.3 471.8 623.2 620.3 539.2 444.5 262.3
Citizens............................. 99.5 97.7 129.4 125.7 110.0 100.4 86.8
Crestar and Citizens pro forma....... 577.8 569.5 752.7 745.9 649.1 544.9 349.1
Noninterest income
Crestar.............................. 240.8 214.3 288.5 259.2 246.5 227.4 243.8
Citizens............................. 32.6 28.7 40.4 35.7 35.6 33.4 27.3
Crestar and Citizens pro forma....... 273.3 243.1 329.0 294.9 282.2 260.7 271.1
Noninterest expense
Crestar.............................. 502.4 450.6 619.4 599.7 561.8 553.6 447.6
Citizens............................. 83.0 83.3 111.8 111.7 104.8 99.4 85.2
Crestar and Citizens pro forma....... 585.5 533.9 731.2 711.4 666.5 653.0 532.8
Income before income taxes
Crestar.............................. 216.6 235.5 292.4 279.8 223.9 118.4 58.5
Citizens............................. 49.0 43.1 58.1 49.7 40.8 34.3 28.9
Crestar and Citizens pro forma....... 265.7 278.7 350.5 329.4 264.8 152.6 87.4
Income tax expense
Crestar.............................. 67.7 82.0 112.6 95.6 71.1 24.4 14.1
Citizens............................. 17.9 16.3 22.0 18.6 14.0 11.0 8.6
Crestar and Citizens pro forma....... 85.6 98.4 134.6 114.3 85.2 35.4 22.7
Net income
Crestar.............................. 149.0 153.5 179.8 184.1 152.8 93.9 44.4
Citizens............................. 31.1 26.8 36.1 31.0 26.8 23.3 20.3
Crestar and Citizens pro forma....... 180.1 180.3 215.9 215.2 179.6 117.2 64.7
Net income applicable to common shares
Crestar.............................. 149.0 153.5 179.8 184.1 150.5 91.4 41.8
Citizens............................. 31.1 26.8 36.1 31.0 26.8 23.3 20.3
Crestar and Citizens pro forma....... 180.1 180.3 215.9 215.2 177.4 114.7 62.1
Per Common Share Data:
Net income (per common share)
Crestar.............................. $ 3.44 $ 3.51 $ 4.12 $ 4.24 $ 3.49 $ 2.35 $ 1.11
Citizens............................. 2.06 1.79 2.40 2.09 1.82 1.62 1.44
Crestar and Citizens pro forma(2).... 3.22 3.21 3.84 3.85 3.20 2.25 1.26
Dividends declared
Crestar(3)........................... 1.49 1.30 1.75 1.53 1.14 0.80 0.86
Citizens............................. 0.87 0.84 1.12 1.08 1.08 1.08 1.08
Crestar and Citizens pro forma(4).... 1.49 1.30 1.75 1.53 1.14 0.80 0.86
Book value
Crestar.............................. 33.84 33.47 33.90 30.47 28.58 25.65 23.62
Citizens............................. 23.43 21.79 22.20 20.52 19.63 18.84 18.25
Crestar and Citizens pro forma(2)(5) 32.00 31.80 32.24 29.13 27.45 24.94 23.05
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C>
Average Common Share and Common Share
Equivalents Outstanding
(thousands)(8)
Crestar.............................. 43,282 43,702 43,685 43,398 43,103 38,903 37,682
Citizens............................. 15,114 14,992 15,007 14,879 14,748 14,419 14,083
Crestar and Citizens pro forma(2).... 55,903 56,221 56,216 55,821 55,418 50,943 49,442
SELECTED PERIOD-END BALANCES:
Total assets
Crestar.............................. $18,252.0 $17,305.0 $18,302.7 $16,482.9 $15,653.5 $14,459.7 $13,829.9
Citizens............................. 4,169.1 3,883.7 4,039.7 3,688.1 3,270.6 3,243.2 2,981.5
Crestar and Citizens pro forma....... 22,421.1 21,188.8 22,342.4 20,171.0 18,924.1 17,702.9 16,811.5
Loans (net of unearned income)
Crestar.............................. 11,237.0 11,733.4 11,806.4 11,241.6 8,893.0 7,880.2 8,679.8
Citizens............................. 2,333.8 2,132.2 2,226.4 1,953.2 1,773.5 1,699.9 1,755.1
Crestar and Citizens pro forma....... 13,570.8 13,865.6 14,032.8 13,194.8 10,666.5 9,580.1 10,434.9
Allowance for loan losses
Crestar.............................. 235.7 235.0 240.3 232.9 225.6 220.2 224.3
Citizens............................. 37.2 34.4 34.1 32.2 29.1 24.1 19.0
Crestar and Citizens pro forma....... 272.9 269.4 274.4 265.2 254.7 244.3 243.3
Nonperforming assets(6)
Crestar.............................. 83.7 89.1 93.4 115.6 128.7 261.6 399.5
Citizens............................. 40.7 45.0 48.9 50.6 58.0 73.4 48.2
Crestar and Citizens pro forma....... 124.4 134.0 142.3 166.2 186.7 335.0 447.7
Total deposits
Crestar.............................. 13,584.6 12,433.5 13,253.4 12,416.8 11,590.6 11,048.0 10,505.3
Citizens............................. 3,025.7 2,992.0 3,046.9 2,782.3 2,841.6 2,838.2 2,599.9
Crestar and Citizens pro forma....... 16,610.3 15,425.5 16,300.3 15,199.0 14,432.2 13,886.2 13,105.2
Long-term debt
Crestar.............................. 668.5 683.6 671.3 715.1 604.0 334.4 283.4
Citizens............................. -- -- -- -- -- -- --
Crestar and Citizens pro forma....... 668.5 683.6 671.3 715.1 604.0 334.4 283.4
Common shareholders' equity
Crestar.............................. 1,433.0 1,436.2 1,451.4 1,295.2 1,219.4 1,063.0 890.5
Citizens............................. 354.6 327.6 334.2 306.4 290.7 276.3 258.1
Crestar and Citizens pro forma(5).... 1,759.6 1,763.8 1,785.6 1,601.5 1,510.1 1,339.3 1,148.6
Total shareholders' equity
Crestar.............................. 1,433.0 1,436.2 1,451.4 1,295.2 1,219.4 1,108.0 935.5
Citizens............................. 354.6 327.6 334.2 306.4 290.7 276.3 258.1
Crestar and Citizens pro forma(5).... 1,759.6 1,763.8 1,785.6 1,601.5 1,510.1 1,384.3 1,193.6
AVERAGE BALANCES:
Total assets
Crestar.............................. $17,448.7 $16,489.9 $16,639.6 $15,938.1 $14,567.8 $13,799.8 $13,523.2
Citizens............................. 4,058.0 3,766.5 3,800.4 3,445.2 3,258.6 3,112.6 2,809.6
Crestar and Citizens pro forma....... 21,506.8 20,256.5 20,440.0 19,383.3 17,826.4 16,912.4 16,332.8
Loans (net of unearned income)
Crestar.............................. 11,427.1 11,578.4 11,632.4 9,984.7 8,241.9 8,226.9 8,958.6
Citizens............................. 2,273.9 2,022.2 2,060.3 1,826.6 1,708.5 1,724.7 1,752.4
Crestar and Citizens pro forma....... 13,701.0 13,600.7 13,692.7 11,811.3 9,950.4 9,951.5 10,711.0
Total deposits
Crestar.............................. 12,821.8 12,491.6 12,548.5 12,338.7 11,152.5 11,114.4 10,245.1
Citizens............................. 3,037.7 2,760.4 2,879.3 2,806.7 2,831.0 2,710.1 2,399.3
Crestar and Citizens pro forma....... 15,859.4 15,252.0 15,427.7 15,145.4 13,983.5 13,824.6 12,644.5
Long-term debt
Crestar.............................. 697.0 703.6 695.5 588.3 463.7 308.5 259.9
Citizens............................. -- -- -- -- -- -- --
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C>
Crestar and Citizens pro forma....... 697.0 703.6 695.5 588.3 463.7 308.5 259.9
Common shareholders' equity
Crestar.............................. 1,422.4 1,379.3 1,395.9 1,261.9 1,145.9 941.8 881.8
Citizens............................. 342.5 317.6 320.7 299.4 285.1 270.0 259.1
Crestar and Citizens pro forma....... 1,764.9 1,696.9 1,716.7 1,561.3 1,431.1 1,211.8 1,141.0
Total shareholders' equity
Crestar.............................. 1,422.4 1,379.3 1,395.9 1,261.9 1,189.8 986.8 926.8
Citizens............................. 342.5 317.6 320.7 299.4 285.1 270.0 259.1
Crestar and Citizens pro forma....... 1,764.9 1,696.9 1,716.7 1,561.3 1,475.0 1,256.8 1,186.0
RATIOS:
Return on average assets
Crestar.............................. 1.14% 1.24% 1.08% 1.16% 1.05% 0.68% 0.33%
Citizens............................. 1.03 0.95 0.95 0.90 0.82 0.75 0.72
Crestar and Citizens pro forma....... 1.12 1.19 1.06 1.11 0.99 0.68 0.38
Return on average shareholders' equity
Crestar.............................. 13.96 14.84 12.88 14.59 12.84 9.52 4.79
Citizens............................. 12.15 11.29 11.25 10.37 9.41 8.63 7.82
Crestar and Citizens pro forma....... 13.63 14.21 12.58 13.78 12.18 9.33 5.45
Return on average common shareholders'
equity
Crestar.............................. 13.96 14.84 12.88 14.59 13.14 9.71 4.74
Citizens............................. 12.15 11.29 11.25 10.37 9.41 8.63 7.82
Crestar and Citizens pro forma....... 13.63 14.21 12.58 13.78 12.39 9.47 5.44
Net interest margin(7)
Crestar................................ 4.65 4.62 4.61 4.57 4.59 4.57 4.10
Citizens............................. 3.72 3.94 3.86 4.18 4.13 4.07 4.03
Crestar and Citizens pro forma....... 4.47 4.51 4.46 4.50 4.50 4.47 4.09
Nonperforming assets to loans and
foreclosed properties at period end
Crestar.............................. 0.74 0.76 0.79 1.03 1.44 3.28 4.54
Citizens............................. 1.73 2.10 2.18 2.57 3.23 4.25 2.71
Crestar and Citizens pro forma....... 0.91 0.96 1.01 1.26 1.74 3.45 4.23
Net charge-offs to average loans
Crestar.............................. 0.81 0.48 0.52 0.39 0.83 1.46 1.81
Citizens............................. 0.16 0.11 0.23 0.17 0.38 0.55 0.94
Crestar and Citizens pro forma....... 0.71 0.42 0.48 0.35 0.75 1.30 1.66
Allowance for loan losses to loans at
period end
Crestar.............................. 2.10 2.00 2.04 2.07 2.54 2.79 2.58
Citizens............................. 1.59 1.61 1.53 1.65 1.64 1.42 1.08
Crestar and Citizens pro forma....... 2.01 1.94 1.96 2.01 2.39 2.55 2.33
Allowance for loan losses to
nonperforming loans at period end
Crestar.............................. 354 341 317 273 247 143 79
Citizens............................. 187 113 124 99 91 52 81
Crestar and Citizens pro forma....... 316 271 266 225 206 122 79
Allowance for loan losses to
nonperforming assets at period end
Crestar.............................. 282 264 257 201 175 84 56
Citizens............................. 91 76 70 64 50 33 39
Crestar and Citizens pro forma....... 219 201 193 160 136 73 54
Total shareholders' equity to total
assets at period end
Crestar.............................. 7.85 8.30 7.93 7.86 7.79 7.66 6.76
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C>
Citizens............................. 8.44 8.43 8.44 8.69 8.75 8.68 9.22
Crestar and Citizens pro forma(5).... 7.85 8.32 7.99 7.94 7.98 7.82 7.10
CAPITAL RATIOS AT PERIOD END:
Tier 1 risk-adjusted capital
Crestar.............................. 9.0 9.2 8.8 9.4 10.4 10.4 8.0
Citizens............................. 12.9 12.7 12.3 12.8 13.2 12.3 11.5
Crestar and Citizens pro forma(5).... 9.4 9.8 9.3 9.9 10.9 10.7 8.5
Total risk-adjusted capital
Crestar.............................. 12.2 12.6 12.0 13.0 13.1 13.5 10.4
Citizens............................. 14.1 14.0 13.5 14.1 14.5 13.4 12.3
Crestar and Citizens pro forma(5).... 12.3 12.8 12.3 13.1 13.3 13.5 10.7
Tier 1 leverage........................
Crestar.............................. 7.5 7.7 7.5 7.6 7.5 7.6 6.6
Citizens............................. 8.5 8.7 8.8 8.8 8.7 8.8 9.0
Crestar and Citizens pro forma(5).... 7.6 7.9 7.7 7.8 7.8 7.8 7.0
</TABLE>
NOTES TO SELECTED FINANCIAL DATA
(UNAUDITED)
(1) Amounts may not add due to rounding.
(2) Based on an assumed Exchange Ratio of 0.835 for conversion of Citizens
Common Stock into Crestar Common Stock. See "Summary -- The Exchange Ratio"
and "The Holding Company Merger -- Determination of Exchange Ratio and
Exchange for Crestar Common Stock" for additional discussion regarding
calculation of the Exchange Ratio.
(3) In April 1991, Crestar announced that, thereafter, its dividend declaration
would be made in the month following the end of each quarter instead of in
the last month of each quarter. As a result, 1991 included only three
dividend declarations; however, four dividend payments were made.
(4) Pro forma dividends declared represent historical dividends per share
declared by Crestar.
(5) Ratios derived from the Pro Forma Condensed Statement of Financial Condition
as of September 30, 1996 reflect certain material, non-recurring adjustments
of approximately $42 million, on an pre-tax basis, expected to be recorded
in conjunction with the Holding Company Merger. These adjustments include
approximately $9 million for settlement of obligations under existing
employment contracts, severance pay for involuntary terminations, and
related employee benefit costs; approximately $18 million associated with
branch closings and consolidations; and approximately $15 million of
expenses related to consummating the Holding Company Merger, including
signage and customer service expenses. On an after-tax basis, these
non-recurring adjustments approximately $28 million.
(6) Nonperforming assets include nonaccrual loans, restructured loans and
foreclosed properties.
(7) Net interest margin is calculated on a taxable equivalent basis, using a tax
rate of 35% for 1996, 1995, 1994 and 1993 and 34% for 1992 and 1991.
(8) Weighted average shares outstanding for Crestar is composed of the weighted
average number of common shares outstanding during the period, including
average common equivalent shares attributable to dilutive stock options.
Weighted average shares outstanding for Citizens is composed of the weighted
average number of common shares outstanding during the period; the dilutive
effect of Citizens stock options was not material for any period presented.
13
<PAGE>
THE SHAREHOLDER MEETINGS
CRESTAR SPECIAL MEETING
Each copy of this Joint Proxy Statement/Prospectus mailed to holders of
Crestar Common Stock is accompanied by a proxy appointment card furnished in
connection with Crestar's solicitation of proxies for use at the Crestar Special
Meeting. The Crestar Special Meeting is scheduled to be held on December 30,
1996, at 919 East Main Street, Richmond, Virginia. Only holders of record of
Crestar Common Stock at the close of business on November 1, 1996, are entitled
to receive notice of and to vote at the Crestar Special Meeting.
At the Crestar Special Meeting, shareholders will have the opportunity, in
accordance with the shareholder approval policy of the NYSE, to consider and
vote on a proposal to approve the issuance of shares of Crestar Common Stock and
options to purchase such Common Stock pursuant to the terms of the Agreement.
The NYSE requires, as a prerequisite to the listing of such shares on the NYSE,
shareholder approval of such issuance because the shares and the shares subject
to options will represent more than 20% of the shares of Crestar Common Stock
outstanding. Based on the Exchange Ratio, approximately 13,200,000 shares of
Crestar Common Stock will be required to acquire outstanding shares of Citizens
Common Stock in the Holding Company Merger and for Crestar options to replace
existing options covering shares of Citizens Common Stock. The Crestar shares to
be issued and the Crestar shares to become subject to the replacement options
will represent approximately 31% of shares of Crestar Common Stock outstanding
at the Crestar Record Date.
HOLDERS OF CRESTAR COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN
THE ACCOMPANYING PROXY APPOINTMENT CARD AND RETURN IT PROMPTLY TO CRESTAR IN THE
ENCLOSED, POSTAGE-PAID ENVELOPE.
Any holder of Crestar Common Stock who has executed and delivered a proxy
appointment may revoke it at any time before it is voted by attending and voting
in person at the Crestar Special Meeting or by giving written notice of
revocation or submitting a signed proxy appointment bearing a later date to
Crestar, Attention: Corporate Secretary, provided such notice or proxy
appointment is actually received by Crestar prior to the vote of shareholders. A
proxy appointment will not be revoked by the death or incapacity of the
shareholder executing it unless, before the shares are voted, notice of such
death or supervening incapacity is filed with the Corporate Secretary or other
person authorized to tabulate the votes on behalf of Crestar. The shares of
Crestar Common Stock represented by properly executed proxy appointments
received in time for the Crestar Special Meeting will be voted for approval of
the issuance of the shares of Crestar Common Stock pursuant to the terms of the
Agreement. If any other matters are properly presented for consideration at the
Crestar Special Meeting or any adjournment, the persons named in the Crestar
proxy appointment card enclosed herewith will have discretionary authority to
vote on such matters in accordance with their best judgment. Crestar is unaware
of any matter to be presented at the Crestar Special Meeting other than the
proposal for the issuance of the shares of Crestar Common Stock pursuant to the
terms of the Agreement.
The cost of soliciting proxies from holders of Crestar Common Stock will be
borne by Crestar. Such solicitation will be made by mail but also may be made by
telephone or in person by the directors, officers or employees of Crestar (who
will receive no additional compensation for doing so). In addition to such
solicitations, D. F. King & Co., Inc., a proxy solicitation firm, will assist
Crestar in soliciting proxies for the Crestar Special Meeting and will be paid a
fee of $10,000, plus out-of-pocket expenses. Crestar will make arrangements with
brokerage firms and other custodians, nominees and fiduciaries to send proxy
materials to their principals.
CITIZENS SPECIAL MEETING
Each copy of this Joint Proxy Statement/Prospectus mailed to holders of
Citizens Common Stock is accompanied by a proxy appointment card furnished in
connection with the Citizens Board's solicitation of proxies for use at the
Citizens Special Meeting. The Citizens Special Meeting is scheduled to be held
on December 30, 1996, at 14401 Sweitzer Lane, Laurel, Maryland 20707. Only
holders of record of Citizens Common Stock at the close of business on November
1, 1996 are entitled to receive notice of and to vote at the Citizens Special
Meeting. At the Citizens Special Meeting, shareholders will consider and vote
upon the proposal to approve the Agreement.
HOLDERS OF CITIZENS COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN
THE ACCOMPANYING PROXY APPOINTMENT CARD AND RETURN IT PROMPTLY TO CITIZENS IN
THE ENCLOSED, POSTAGE-PAID ENVELOPE. FAILURE TO RETURN YOUR PROPERLY EXECUTED
PROXY
14
<PAGE>
APPOINTMENT CARD OR TO VOTE AT THE MEETING WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE AGREEMENT.
Any holder of Citizens Common Stock who has delivered a proxy appointment
may revoke it any time before it is voted by attending and voting in person at
the meeting or by giving notice of revocation in writing or submitting a signed
proxy appointment bearing a later date to Citizens, 14401 Sweitzer Lane, Laurel,
Maryland 20707, Attention: Secretary, provided such notice or proxy appointment
is actually received by Citizens before the vote of shareholders. A proxy
appointment will not be revoked by death or supervening incapacity of the
shareholder executing the proxy appointment unless, before the shares are voted,
notice of such death or incapacity is filed with the Secretary or other person
responsible for tabulating votes on behalf of Citizens. The shares of Citizens
Common Stock represented by properly executed proxy appointments received at or
prior to the Citizens Special Meeting and not subsequently revoked will be voted
as directed by the shareholders submitting such appointments. If instructions
are not given, proxy appointments received will be voted FOR approval of the
Agreement. If any other matters are properly presented for consideration at the
Citizens Special Meeting or any adjournment, the persons named in the Citizens
proxy appointment card enclosed herewith will have discretionary authority to
vote on such matters in accordance with their best judgment. Citizens is unaware
of any matter to be presented at the Citizens Special Meeting other than those
indicated above.
The cost of soliciting proxies from holders of Citizens Common Stock will
be borne by Citizens. Such solicitation will be made by mail but also may be
made by telephone or in person by the directors, officers and employees of
Citizens and Citizens Bank (who will receive no additional compensation for
doing so). In addition to such solicitations, D. F. King & Co., a proxy
solicitation firm, will assist Citizens in soliciting proxies for the Citizens
Special Meeting and will be paid a fee of $4,000, plus out-of-pocket expenses.
Citizens will make arrangements with brokerage firms and other custodians,
nominees and fiduciaries to send proxy materials to their principals.
CITIZENS SHAREHOLDERS SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH THEIR
PROXY APPOINTMENT CARDS.
VOTES REQUIRED
CRESTAR. The affirmative vote of a majority of the shares of Crestar Common
Stock voting at the Crestar Special Meeting is required for approval of the
issuance of the shares of Crestar Common Stock pursuant to the terms of the
Agreement. As of the Crestar Record Date, there were 42,353,235 shares of
Crestar Common Stock outstanding and entitled to vote at the Crestar Special
Meeting, with each share being entitled to one vote.
As of the Crestar Record Date, the directors and executive officers of
Crestar beneficially owned a total of 925,087 shares (representing approximately
2.25% of the outstanding shares of Crestar Common Stock), and the directors and
officers of Citizens and their affiliates owned less than 1% of Crestar Common
Stock. Crestar has been advised that the shares of Crestar Common Stock owned by
the directors and executive officers of Crestar will be voted for approval of
the issuance of shares of Crestar Common Stock pursuant to the terms of the
Agreement.
CITIZENS. The affirmative vote of the holders of two-thirds of the
outstanding shares of Citizens Common Stock entitled to vote at the Citizens
Special Meeting is required in order to approve the Agreement. A failure to
return a properly executed proxy appointment or to vote in person at the
Citizens Special Meeting will have the same effect as a vote against the
Agreement. As of the Citizens Record Date, there were 15,133,099 shares of
Citizens Common Stock outstanding and entitled to vote at the Citizens Special
Meeting, with each share being entitled to one vote.
As of the Citizens Record Date, the directors and executive officers of
Citizens and their affiliates beneficially owned a total of 2,038,148 shares
(representing approximately 13.47% of the outstanding shares of Citizens Common
Stock), and the directors and executive officers of Crestar and their affiliates
owned less than 1% of the outstanding shares of Citizens Common Stock. Citizens
has been advised that the directors and executive officers of Citizens intend to
vote their shares in favor of approval of the Agreement.
RECOMMENDATIONS
CRESTAR. For the reasons described below, the Crestar Board believes the
Holding Company Merger is in the best interests of Crestar and its shareholders
and unanimously recommends that the shareholders of Crestar vote FOR approval of
the issuance of shares of Crestar Common Stock to the shareholders of Citizens
and the issuance of shares of Crestar Common Stock pursuant to Crestar Options
issued to replace Citizens Options. In making its recommendation, the Crestar
Board
15
<PAGE>
considered, among other things, the opinion of Morgan Stanley that the Exchange
Ratio pursuant to the Agreement is fair from a financial point of view to
Crestar.
CITIZENS. For the reasons described below, the Citizens Board has adopted
the Agreement, believes the Holding Company Merger is in the best interests of
Citizens and its shareholders and unanimously recommends that the shareholders
of Citizens vote FOR approval of the Agreement. In making its recommendation,
the Citizens Board considered, among other things, the opinion of Keefe Bruyette
that the Exchange Ratio was fair to Citizens shareholders from a financial point
of view.
THE HOLDING COMPANY MERGER
The detailed terms of the Holding Company Merger are contained in the
Agreement and Plan of Reorganization, attached as Annex I to this Joint Proxy
Statement/Prospectus. The following discussion describes the material features
of the proposed Holding Company Merger and the terms of the Agreement. This
description is qualified by reference to the Agreement which is incorporated by
reference herein.
BACKGROUND OF THE HOLDING COMPANY MERGER
Since its entry into the Greater Washington Region ("GWR") in 1985 by the
acquisition of NS&T Bankshares in the District of Columbia and the acquisition
of Bethesda Bancorporation in Maryland the following year, Crestar has sought to
increase its presence in GWR and, more recently, Baltimore, by a series of
strategic thrift and bank acquisitions. Since 1985, Crestar has acquired 24
banks and thrift institutions in GWR and Maryland. In 1995, Crestar acquired
branches of Chase Manhattan Bank of Maryland and Loyola Federal Savings Bank in
Baltimore. In 1996, Crestar acquired branches of Mellon Bank MD.
Crestar is an active acquirer of bank holding companies, commercial banks,
and thrifts, and a number of its officers have as one of their principal duties
contacting potential acquisition candidates. Since January 1, 1996, Crestar has
made no firm offer to acquire a financial institution other than Citizens. Since
January 1, 1996, Citizens has had no contact with or received any firm offer
from any financial institution other than Crestar, except that one financial
institution informally contacted Citizens to express interest in a possible
affiliation. Citizens has not had an active acquisition program and has had no
contact or made any firm offer with respect to acquiring any other financial
institution since January 1, 1996.
Notwithstanding the strategic acquisitions mentioned above , Crestar's
coverage of GWR in Montgomery and Prince George's counties, Maryland, was
incomplete and, for a number of years beginning in 1993, Crestar has carried on
friendly, sporadic and inconclusive discussions with Citizens' management with
respect to a possible acquisition. Citizens' management's position was that it
was willing to discuss affiliation with any potential acquiror, but its
discussions with Crestar were always inconclusive until a series of meetings
begun in July of this year.
At a social outing involving C. Garland Hagen, head of Crestar's investment
bank; William C. Harris, head of Crestar's GWR and Maryland operations; and
Jeffrey R. Springer, President of Citizens, the determination was made to
explore the benefits of a potential merger between Citizens and Crestar. The
determination was reached by Messrs. Hagen and Springer to informally exchange
information about the two companies. Following this social meeting, Mr. Springer
informed Mr. Harris by telephone that he had been authorized by Citizens'
Chairman Alfred H. Smith, Jr. to explore merger possibilities at a very high
level (involving only a few people from each company), and that Mr. Smith had
approved the exchange of information and further discussions. Thereafter,
Crestar notified Citizens of the type of information it would need to conduct
preliminary due diligence and, following receipt of this information, meetings
were held in August in Baltimore to discuss and clarify the information and also
to give the opportunity to Crestar to provide Citizens with its business plan
and ideas for combining the Crestar and Citizens organizations.
Crestar engaged Morgan Stanley on August 22, 1996, as its financial advisor
to assist in the negotiations and to provide a fairness opinion, and Citizens
engaged Keefe Bruyette on September 9, 1996, to provide a fairness opinion.
On August 22 and 23, 1996, Crestar's Policy Committee, comprising seven top
officers of Crestar, reviewed the negotiations to date and the Crestar mergers
and acquisitions staff's preliminary analysis and evaluation of Citizens, and
authorized Mr. Hagen to continue discussions. On Tuesday, August 27, 1996, at a
meeting in Baltimore, further information was exchanged, including information
regarding credit quality and pro forma projections for the combined enterprise,
information concerning Crestar's benefit plans and human resources practices,
the proposed due diligence process, and a possible deal structure. On Friday,
September 6, 1996, Crestar's Policy Committee met to discuss deal pricing and
structure, with Morgan
16
<PAGE>
Stanley's representatives participating by telephone. Late in the day, in a
series of telephone calls between Crestar's and Citizens' managements, a fixed
exchange ratio and the "walk-away" provisions were agreed to subject to
negotiation of the definitive agreement, Crestar's conduct of due diligence, and
approval by both boards of directors.
The definitive agreement was negotiated during the ensuing week in
negotiations participated in by top management officials of both corporations,
outside counsel, and financial advisors, resulting in an agreement which was
preliminarily approved by both boards of directors on Thursday, September 12,
1996, following receipt of fairness opinions from their respective financial
advisors and subject to Crestar's satisfactory completion of due diligence
during the ensuing weekend at Citizens locations.
The Crestar Board met on Sunday, September 15, 1996, at 5:00 p.m. and the
Citizens Board met one hour later at 6:00 p.m. The Crestar Board received a
favorable report on the due diligence investigation, and following receipt of
favorable opinions from their respective financial advisors, both boards
approved unanimously the Agreement and related documents.
REASONS FOR THE HOLDING COMPANY MERGER; RECOMMENDATIONS OF THE CRESTAR BOARD AND
THE CITIZENS BOARD
CRESTAR. The Crestar Board believes that the terms of the Holding Company
Merger and the Agreement are advisable and are fair to, and in the best
interests of, Crestar and its shareholders and has unanimously adopted the
Agreement. In considering the terms and conditions of the Holding Company
Merger, the Crestar Board considered, the financial terms of the Holding Company
Merger, its effect on future earnings, the strategic value of enhancing
Crestar's franchise in Maryland and the Greater Washington Region, and the
opinion of Morgan Stanley that as of the date of such opinion that the Exchange
Ratio pursuant to the Agreement is fair from a financial point of view to
Crestar. The Board believes the Holding Company Merger will provide Crestar with
a competitive advantage by increasing future earnings, expanding distribution of
products, and building market share -- all without sacrificing asset quality.
The Crestar Board also considered that Crestar shareholders would incur modest
dilution in earnings per share in the first year following the Holding Company
Merger. Although the financial terms of the Holding Company Merger were the most
important factor the Crestar Board considered, the Crestar Board is unable to
assign any relative or specific weight to the factors it considered.
The Crestar Board believes that issuance of Crestar Common Stock pursuant
to the Agreement is advisable and is fair to, and in the best interests of,
Crestar and its shareholders. The Crestar Board unanimously recommends that
Crestar shareholders vote for the issuance of the Crestar shares pursuant to the
Agreement.
CITIZENS. The Citizens Board believes that the terms of the Holding Company
Merger and the Agreement are advisable and are fair to, and in the best
interests of, Citizens and its shareholders. As explained below, this conclusion
is supported by the opinion of its independent financial advisor that the
consideration to be received in the Holding Company Merger is fair to Citizens
shareholders from a financial point of view. In considering the terms and
conditions of the Agreement, the Citizens Board considered a number of factors.
Although the financial terms of the Holding Company Merger were the most
important factor the Citizens Board considered, the Citizens Board is unable to
assign any relative or specific weight to the factors it considered. The
material factors considered were:
(i) The Financial Terms and Structure of the Holding Company Merger. The
Citizens Board was of the view that, based on historical and anticipated trading
ranges for Crestar Common Stock, the value of the consideration to be received
by Citizens shareholders resulting from the Exchange Ratio represented a fair
multiple of Citizens' per share book value and earnings. The Citizens Board also
considered that, under the proposed Exchange Ratio and based on the Citizens
Board's belief that Crestar would continue to pay dividends at its current rate,
the Holding Company Merger would result in a substantial increase in dividend
income to Citizens shareholders, although there can be no assurance that current
dividends are indicative of future dividends. See "Summary -- Comparative Per
Share Data." The Citizens Board also considered that the Holding Company Merger
would qualify as a tax-free reorganization under the Code. See " -- Certain
Federal Income Tax Consequences."
(ii) The Non-Financial Terms of the Holding Company Merger. The Citizens
Board considered the social and economic effect on the employees, depositors and
customers of, and others dealing with, Citizens and on the communities in which
Citizens is located or operates. In analyzing the Non-Financial Terms of the
Holding Company Merger, the Citizens Board took into account Crestar's
undertaking to used its best efforts to provide employment to customer-
contact employees of Citizens and to freeze hiring within the Crestar
organization in the Greater Washington Region to provide employment
opportunities to other Citizens' personnel. The Board also considered
the fact that the acquisition would give Citizens' customers access
to a more comprehensive branch network of banking offices in Maryland,
Virginia and the District of Columbia, and would provide commercial
customers expertise in greater credit availability from a leading
commercial bank lender in Maryland. In considering the effect
on the communities in which Citizens operates, the Board was aware
"outstanding" Community Reinvestment Act ratings of the Crestar
affiliates.
(iii) Certain Financial and Other Information Concerning Crestar. The
Citizens Board considered the business and financial condition of Crestar and
its favorable position among its peer group of national and regional financial
institutions in terms of profitability, capital adequacy and asset quality. The
Citizens Board also considered that the historical dividends per share and net
income per share of Crestar Common Stock to be received by Citizens stockholders
after giving effect to the Exchange Ratio, would represent a substantial
increase in the historical dividends per share and net income per share of
17
<PAGE>
Citizens Common Stock, although there can be no assurance that pro forma amounts
are indicative of future dividends or income per share of Crestar. The Citizens
Board further considered the reputation and business practices of Crestar and
its management as they would affect the employees of Citizens.
(iv) Other Possible Alternatives. Based in part on the advice of Keefe
Bruyette, the Citizens Board considered possible alternatives to the transaction
with Crestar, including remaining an independent institution.
(v) Opinion of Financial Advisor. The Citizens Board considered the opinion
of Keefe Bruyette as to the fairness of the consideration to be received in the
Holding Company Merger to Citizens shareholders from a financial point of view.
See " -- Opinion of Financial Advisor."
The Citizens Board believes that the Holding Company Merger and the
Agreement are advisable and are fair to, and in the best interests of, Citizens
and its shareholders. The Citizens Board unanimously recommends that Citizens
shareholders vote for the Agreement and the Holding Company Merger contemplated
thereby.
OPINIONS OF FINANCIAL ADVISORS
CRESTAR. Crestar retained Morgan Stanley to act as Crestar's financial
advisor in connection with the Holding Company Merger and related matters based
upon its qualifications, expertise and reputation, as well as Morgan Stanley's
prior investment banking relationship and familiarity with Crestar. At the
September 12, 1996 meeting of the Crestar Board, Morgan Stanley delivered an
oral opinion to the Crestar Board that, as of such date and subject to certain
considerations set forth in the written opinion of Morgan Stanley dated
September 15, 1996, the Exchange Ratio pursuant to the Agreement is fair from a
financial point of view to Crestar. Morgan Stanley subsequently confirmed its
September 15, 1996, opinion by delivery to the Crestar Board of a written
opinion dated as of the date of this Joint Proxy Statement/Prospectus.
The full text of Morgan Stanley's opinion, dated as of the date of this
Joint Proxy Statement/Prospectus, which sets forth, among other things,
assumptions made, procedures followed, matters considered, and limitations on
the review undertaken, is attached as Annex III to this Joint Proxy
Statement/Prospectus. Crestar stockholders are urged to, and should, read the
Morgan Stanley opinion carefully and in its entirety. Morgan Stanley's opinion
is directed to the Crestar Board and the fairness of the Exchange Ratio in the
Agreement from a financial point of view to Crestar, and it does not address any
other aspect of the Holding Company Merger nor does it constitute a
recommendation to any holder of Crestar Common Stock as to how to vote at the
Crestar Special Meeting.
In connection with rendering its written opinion dated as of this Joint
Proxy Statement/Prospectus, Morgan Stanley, (i) analyzed certain publicly
available financial statements and other information of Citizens and Crestar,
respectively; (ii) analyzed certain internal financial statements and other
financial and operating data concerning Citizens and Crestar prepared by the
managements of Citizens and Crestar, respectively; (iii) analyzed certain
financial projections of Citizens and Crestar prepared by the managements of
Citizens and Crestar, respectively; (iv) discussed the past and current
operations and financial condition and the prospects of Citizens and Crestar
with senior executives of Citizens and Crestar, respectively; (v) analyzed the
pro forma impact of the Merger on Crestar's earnings per share, consolidated
capitalization and financial ratios; (vi) reviewed the reported prices and
trading activity for the Citizens Common Stock and the Crestar Common Stock;
(vii) compared the financial performance of Citizens and Crestar and the prices
and trading activity of the Citizens Common Stock and the Crestar Common Stock
with that of certain other comparable publicly-traded companies and their
securities; (viii) discussed with independent auditors of Citizens their review
of the financial and accounting affairs of Citizens and with the independent
auditors of Crestar their review of the financial and accounting affairs of
Crestar; (ix) discussed the results of regulatory examinations of Citizens and
Crestar with the senior management of the respective companies; (x) discussed
the strategic objectives of the Merger and the plan for the combined company
with senior executives of Citizens and Crestar; (xi) reviewed and discussed with
senior management of Citizens and Crestar certain estimates of the cost savings
and revenue enhancements projected by Citizens and Crestar for the combined
company and compared such amounts to those estimated in certain precedent
transactions; (xii) reviewed the financial terms, to the extent publicly
available, of certain comparable precedent transactions; (xiii) participated in
discussions and negotiations among representatives of Citizens and Crestar and
their financial and legal advisors; and (xiv) reviewed the Agreement and certain
related documents; and (xv) considered such other factors as were deemed
appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon without
independent verification the accuracy and completeness of the information
reviewed by Morgan Stanley for the purposes of its opinion. With respect to the
financial projections, including the estimates of cost savings and revenue
enhancements expected to result from the Merger, Morgan
18
<PAGE>
Stanley assumed that they had been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the future financial
performance of Citizens and Crestar. Morgan Stanley has not made any independent
valuation or appraisal of the assets or liabilities of Citizens and Crestar, nor
has Morgan Stanley been furnished with any such appraisals, and Morgan Stanley
has not examined any individual loan credit files of Citizens and Crestar. In
addition, Morgan Stanley has assumed the Holding Company Merger will be
consummated in accordance with the terms set forth in the Agreement. Morgan
Stanley's opinion is necessarily based on economic, market and other conditions
as in effect on, and the information made available to it, as of the date of
such opinion.
The following is a brief summary of the financial analyses performed by
Morgan Stanley and reviewed with the Crestar Board on September 12, 1996 in
connection with rendering its opinion on such date.
COMPARABLE COMPANY ANALYSIS. As part of its analysis, Morgan Stanley
compared certain financial information of Citizens with corresponding publicly
available information of (i) a group of four publicly traded bank holding
companies that Morgan Stanley considered comparable in certain respects with
Citizens (the "Peer Group"), and (ii) 35 regional bank holding companies (the
"Morgan Stanley Bank Index" and together with the Peer Group, the
"Comparables"). Historical financial information used in connection with the
ratios provided below with respect to the Comparables is as of June 30, 1996.
Morgan Stanley analyzed the relative performance and value of Citizens by
comparing certain market trading statistics for Citizens with the Comparables.
Market information used in ratios provided below is as of September 11, 1996.
The market trading information used in the valuation analysis was market price
to book value (which was 1.4x in the case of Citizens; 1.6x in the case of the
average of the Peer Group; and 2.1 x in the case of the average of the Morgan
Stanley Bank Index) and market price to estimated earnings per share for 1996
(which was 11.8x in the case of Citizens; 12.6x in the case of the average of
the Peer Group; and 12.2x in the case of the average of the Morgan Stanley Bank
Index). Earnings per share estimates for Citizens were based on First Call
estimates as of September 11, 1996. Earnings per share estimates for the Morgan
Stanley Bank Index and the Peer Group were based on the most recent available
Institutional Brokers Estimate System ("I/B/E/S") estimates. I/B/E/S and First
Call are data services that monitor and publish compilations of earnings
estimates produced by selected research analysts regarding companies of interest
to institutional stockholders. The implied range of stand-alone values for
Citizens Common Stock derived from the analysis of the Comparables' market price
to book value and market price to 1996 estimated earnings per share ranged from
approximately $28 to $34.
DIVIDEND DISCOUNT ANALYSIS. Morgan Stanley performed a dividend discount
analysis to determine a range of present values per share of Citizens Common
Stock assuming Citizens continued to operate as a stand-alone entity. This range
was determined by adding (i) the present value of the estimated future dividend
stream that Citizens could generate, and (ii) the present value of the "terminal
value" of Citizens Common Stock at the end of year 2001. To determine a
projected dividend stream, Morgan Stanley assumed a constant equity/assets ratio
of 7%. The earnings projections which formed the basis for the dividends were
adapted from First Call estimates for 1996 and 1997 as of September 11, 1996,
and earnings growth rates ranging from 6% to 10% for estimating earnings for
1998 through 2001. The "terminal value" of Citizens Common Stock at the end of
the period was determined by applying two price-to-earnings multiples (10.5x and
11.5x) to year 2001 projected earnings. The dividend stream and terminal values
were discounted to present values using discount rates of 11% and 13% which
Morgan Stanley viewed as the appropriate discount rate range for a company with
Citizens' risk characteristics. Based on the above assumptions, the stand-alone
value of Citizens Common Stock ranged from approximately $28 to $37 per share.
IMPLIED ACQUISITION VALUE. As part of its analysis of the acquisition
valuation, Morgan Stanley assumed that the net present value of estimated cost
savings and revenue enhancements was added to the stand-alone value of Citizens
Common Stock calculated using First Call estimates as described above (see
"Dividend Discount Analysis" above). Based on cost savings ranging from $46 to
$58 million (40% to 50% of Citizens' non-interest expense base) and revenue
enhancements of $5-$10 million per year beginning in 1998 estimated by the
management of Crestar to result from the Holding Company Merger, discount rates
of 11% and 13%, a phase-in of cost savings over two years, a cost savings and
revenue enhancement growth rate of 2% after the phase-in period, merger and
reorganization charges equal to fully phased-in pre-tax cost savings incurred in
the first year following the Holding Company Merger and price-to-earnings
terminal multiples of 10.5x and 11.5x in the year 2001, Morgan Stanley estimated
the implied acquisition value of Citizens Common Stock to range from
approximately $46 to $57. Based on the closing market price on September 11,
1996 of $60.125 for Crestar Common Stock and the Common Exchange Ratio of 0.835,
the value to be received in the Merger per share of Citizens Common Stock would
be $50.20. The actual value received will depend on the value of Crestar Common
Stock at the Effective Time of the Holding Company Merger.
PRECEDENT TRANSACTION ANALYSIS. Morgan Stanley performed an analysis of
nine precedent transactions ("Precedent Transactions") by selected holding
companies of commercial banks that Morgan Stanley deemed comparable to the
Merger
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in order to calculate a valuation range for the Citizens Common Stock. Multiples
of book value and earnings implied by the consideration paid in Precedent
Transactions were applied to book value and 1997 estimated earnings per share of
Citizens to yield a range of values for Citizens Common Stock.
Ranges of multiples of book value and of estimated earnings (based on
I/B/E/S estimates prior to announcement) per share ranging from 1.9x to 2.3x and
from 13.5x to 16.5x, respectively, derived from the comparable transactions were
applied to the book value and 1997 estimated earnings (based on First Call
estimates as of September 11, 1996 per share of Citizens to yield an implied
range of values for Citizens Common Stock ranging from approximately $39 to $53.
Based on the closing market price on September 11, 1996 of $60.125 for Crestar
Common Stock and the Common Exchange Ratio of 0.835, the value to be received in
the Merger per share of Citizens Common Stock would be $50.20. The actual value
received will depend on the value of Crestar Common Stock at the Effective Time
of the Holding Company Merger.
PRO FORMA MERGER ANALYSIS. Morgan Stanley analyzed the financial impact of
the Holding Company Merger on the holders of Crestar Common Stock, using First
Call earnings estimates and Crestar's estimates for cost savings and revenue
enhancements expected to result from the Holding Company Merger. This analysis
showed that, after giving effect to the Holding Company Merger, before the
impact of one-time merger-related charges, current holders of Crestar Common
Stock would realize a decrease in fully diluted earnings per share in 1997 and
an increase in fully diluted earnings per share in 1998, in each case compared
to Crestar on a stand-alone basis. Morgan Stanley also analyzed the changes in
return on equity from Crestar on a stand-alone basis, noting that such return on
equity would increase following the Holding Company Merger. In addition, Morgan
Stanley calculated that the Exchange Ratio would result in an allocation between
the holders of Citizens Common Stock and Crestar Common Stock of pro forma fully
diluted ownership of the combined entity equal to 23% and 77%, respectively.
In connection with its written opinion dated as of the date of this Joint
Proxy Statement/Prospectus, Morgan Stanley confirmed the appropriateness of its
reliance on the analyses used to render its September 15, 1996 opinion by
performing procedures to update certain of such analyses and by reviewing the
assumptions upon which such analyses were based and the factors considered in
connection therewith.
No company or transaction used in the comparable company and comparable
transaction analyses is identical to Citizens or the Holding Company Merger.
Accordingly, the analysis of the results of the forgoing necessarily involves
complex considerations and judgments concerning financial and operating
characteristics of Citizens and other factors that could affect the public
trading value of the companies to which they are being compared. Mathematical
analysis (such as determining the average or median) is not in itself a
meaningful method of using comparable transaction data or comparable company
data.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. In
arriving at its opinion, Morgan Stanley considered the results of all its
analysis as a whole and did not attribute any particular weight to any analysis
or factor considered by it. Morgan Stanley believes that selecting any portion
of its analyses, without considering all analyses, would create an incomplete
view of the process underlying its opinion. In addition, Morgan Stanley may have
deemed various assumptions more or less probable than other assumptions, so that
the ranges of valuations resulting from any particular analysis described above
should not be taken to be Morgan Stanley's view of the actual value of Citizens.
In performing its analyses, Morgan Stanley made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Citizens or Crestar. The
analyses performed by Morgan Stanley are not necessarily indicative of actual
values, which may be significantly more or less favorable than suggested by such
analyses. Such analyses were prepared solely as a part of Morgan Stanley's
analysis of the fairness from a financial point of view of the Exchange Ratio
pursuant to the Agreement to the holders of Crestar Common Stock and were
conducted in connection with the delivery of Morgan Stanley's opinion. The
analyses do not purport to be appraisals or to reflect the prices at which
Citizens might actually be sold.
As described above, Morgan Stanley's opinion and the information provided
by Morgan Stanley to the Crestar Board were two of a number of factors taken
into consideration by the Crestar Board in making its determination to recommend
approval of the Agreement and the transactions contemplated thereby.
Consequently, the Morgan Stanley analyses described above should not be viewed
as determinative of the opinion of the entire Crestar Board or the view of the
management with respect to the value of Citizens. The Exchange Ratio pursuant to
the Agreement was determined through negotiations between Crestar and its
advisors and Citizens, and was approved by the entire Crestar Board.
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The Crestar Board retained Morgan Stanley based upon its experience and
expertise. Morgan Stanley is an internationally recognized investment banking
and advisory firm. As part of its investment banking business, Morgan Stanley is
regularly engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuation for estate, corporate and other purposes. Morgan Stanley makes a
market in Crestar Common Stock. In the course of its business, Morgan Stanley
and its affiliates may actively trade the debt and equity securities of Citizens
and Crestar for their own account and for the accounts of customers and,
accordingly may at times hold a long or short position in such securities. In
the past two years , Morgan Stanley has been paid fees of $650,000 for services
rendered to Crestar, including acting as lead managing underwriter for Crestar's
issuance of subordinated notes and for financial advisory services.
Pursuant to a letter dated August 22, 1996, Crestar has agreed to pay
Morgan Stanley: (i) an advisory fee estimated to be between $100,000 and
$150,000 which is payable if the Holding Company Merger is not consummated and
(ii) a transaction fee of $3.5 million which is payable upon the consummation of
the Holding Company Merger. Any advisory fee paid will be credited against the
transaction fee. In addition, Crestar has agreed, among other things, to
reimburse Morgan Stanley for all reasonable out-of-pocket expenses incurred in
connection with the services provided by Morgan Stanley, and to indemnify and
hold harmless Morgan Stanley and certain related parties from and against
certain liabilities and expenses, which may include certain liabilities under
the federal securities laws, in connection with its engagement.
CITIZENS. Citizens retained Keefe Bruyette to render an opinion with
respect to the fairness from a financial point of view of the consideration to
be received by the shareholders of Citizens in the Holding Company Merger. Keefe
Bruyette was selected to act as Citizens' financial advisor based upon its
qualifications, expertise and reputation. Keefe Bruyette specializes in the
securities of banking enterprises and regularly engages in the valuation of
banking businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.
In the ordinary course of its business as a broker-dealer, Keefe Bruyette
may, from time to time, purchase securities from, and sell securities to,
Citizens and Crestar, and as a market maker in securities, Keefe Bruyette may
from time to time have a long or short position in, and buy or sell, equity
securities of Citizens and Crestar for its own account and for the accounts of
its customers. To the extent that Keefe Bruyette has any such position as of the
date of the fairness opinion attached as Annex IV hereto, it has been disclosed
to Citizens.
On September 15, 1996, at the meeting at which the Citizens Board approved
and adopted the Agreement and the transactions contemplated thereby, Keefe
Bruyette rendered its oral opinion to the Citizens Board that, as of such date,
the Exchange Ratio was fair to the shareholders of Citizens from a financial
point of view. That opinion was updated as of the date of this Joint Proxy
Statement/Prospectus. In connection with its opinion dated the date of this
Joint Proxy Statement/Prospectus, Keefe Bruyette also confirmed the
appropriateness of its reliance on the analyses used to render its September 15,
1996 opinion by performing procedures to update certain of such analyses and by
reviewing the assumptions on which such analyses were based and the factors
considered in connection therewith. No limitations were imposed by the Citizens
Board upon Keefe Bruyette with respect to the investigations made or procedures
followed by Keefe Bruyette in rendering its opinions.
Keefe Bruyette's opinion is addressed to the Board of Directors of Citizens
and does not constitute a recommendation to any of the shareholders of Citizens
as to how such shareholders should vote with respect to the Merger Agreement.
The full text of the opinion of Keefe Bruyette, which sets forth a
description of the procedures followed, assumptions made, matters considered and
limits on the review undertaken, is attached to this Joint Proxy
Statement/Prospectus as Annex IV and is incorporated herein by reference.
shareholders are urged to read the opinion in its entirety.
In rendering its opinion, Keefe Bruyette reviewed, analyzed and relied upon
the following material relating to the financial and operating condition of
Citizens and Crestar: (i) the Agreement; (ii) Annual Reports to Shareholders for
the three years ended December 31, 1995 for Citizens and Crestar; (iii) certain
interim reports to shareholders of Citizens and Crestar and Quarterly Reports on
Form 10-Q of Citizens and Crestar and certain other communications from Citizens
and Crestar to their respective shareholders; (iv) other financial information
concerning the businesses and operations of Citizens and Crestar furnished to
Keefe Bruyette by Citizens and Crestar for the purpose of Keefe Bruyette's
analysis, including certain internal financial analyses and forecasts for
Crestar prepared by senior management of Crestar; (v) certain publicly available
information concerning the trading of, and the trading market for, the Common
Stock of Citizens and Crestar; and (vi) certain publicly available information
with respect to banking companies and the nature and terms of certain other
transactions that Keefe Bruyette considered relevant to its inquiry.
Additionally, in connection with its written opinion attached as Annex IV
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to this Joint Proxy Statement/Prospectus, Keefe Bruyette reviewed a draft of
this Joint Proxy Statement/Prospectus in substantially the form hereof. Keefe
Bruyette also held discussions with senior management of Citizens and Crestar
concerning their past and current operations, financial condition and prospects,
as well as the results of regulatory examinations. Keefe Bruyette took into
account its assessment of general economic, market and financial conditions and
its experience in similar transactions, as well as its experience in securities
valuation and its knowledge of banks, bank holding companies and thrift
institutions generally. Keefe Bruyette's opinion was necessarily based upon
conditions as they existed and could be evaluated on the date thereof and the
information made available to Keefe Bruyette through the date thereof.
In conducting its review and arriving at its opinion, Keefe Bruyette relied
upon and assumed the accuracy and completeness of all of the financial and other
information provided to it or publicly available, and Keefe Bruyette did not
attempt to verify such information independently. Keefe Bruyette relied upon the
management Crestar as to the reasonableness and achievability of the financial
and operating forecasts (the assumptions and bases therefor) provided to Keefe
Bruyette and assumed that such forecasts reflected the best available estimates
and judgments of Crestar management and that such forecasts will be realized in
the amounts and in the time periods estimated by Crestar management. Keefe
Bruyette also assumed, without independent verification, that the aggregate
allowances for loan losses for Citizens and Crestar are adequate to cover such
losses. Keefe Bruyette did not make or obtain any evaluations or appraisals of
the property of Citizens or Crestar, nor did Keefe Bruyette examine any
individual loan credit files. Keefe Bruyette was informed by Citizens, and
assumed for purposes of its opinion, that the Merger would be accounted for as a
pooling-of-interests under generally accepted accounting principles.
The following is a summary of the material financial analyses employed by
Keefe Bruyette in connection with providing its oral opinion of September 15,
1996 and does not purport to be a complete description of all analyses employed
by Keefe Bruyette, although all material elements of the opinion are included in
the summary.
ANALYSIS OF THE CRESTAR OFFER. Keefe Bruyette reviewed certain historical
financial information for Citizens and Crestar and calculated the imputed value
of the Crestar offer to holders of Citizens Common Stock. Keefe Bruyette
calculated the multiple which the Exchange Ratio represents, based on an assumed
per share purchase price of $51.25, when compared to June 30, 1996 stated book
value per share of $22.86, its stated tangible book value for the same period of
$22.26 per share, its trailing twelve months earnings per share of $2.49, its
1997 earnings estimate of $3.00 per share, its 1998 earnings estimate of $3.25
per share and its market price as of September 13, 1996 of $32.25. Based on
these assumptions, the price to stated book value multiple was 2.24 times, the
price to stated tangible book value was 2.30 times, the price to trailing twelve
month earnings per share was 20.61 times, the price to the 1997 earnings
estimate per share multiple was 17.08 times, the price to the 1998 earnings
estimate per share multiple was 15.77 times and the price to current market
price was 1.59 times.
SELECTED PEER GROUP ANALYSIS. Keefe Bruyette compared the financial
performance and market performance of Crestar based on various financial
measures of earnings performance, operating efficiency, capital adequacy and
asset quality and various measures of market performance, including market/book
values, price to earnings and dividend yields to those of a group of comparable
companies. For purposes of such analysis, the financial information used by
Keefe Bruyette for Crestar and the comparable companies was as of and for the
quarter ended June 30, 1996 and the market price information was as of September
13, 1996. The companies in the peer group had total assets ranging from
approximately $17.9 billion to $23.6 billion, and included SouthTrust
Corporation, Summit Bancorp, First of America Bank Corp., Southern National
Corp., Huntington Bancshares, Inc., Fifth Third Bancorp, Firstar Corporation,
AmSouth Bancorporation, Mercantile Bancorporation and Regions Financial
Corporation.
Keefe Bruyette's analysis showed the following concerning the financial
performance of Crestar: that the return on equity on an annualized basis was
15.36% compared to an average of 16.70% for the peer group; that return on
assets on an annualized basis was 1.28% compared to an average of 1.35% for the
group; that net interest margin on an annualized basis was 4.47% compared with
an average of 4.28%; that the efficiency ratio on an annualized basis was 58.25%
compared to an average of 55.68%; that the equity to assets ratio was 7.74%
compared to an average of 8.10%; that the tangible equity to assets ratio was
6.79% compared to an average of 7.10%; that the ratio of nonperforming assets to
total loans and other real estate loans was .78% compared to an average of .73%;
that the ratio of loan loss reserve to nonperforming loans was 319% compared to
an average of 279%.
Keefe Bruyette's analysis further showed the following concerning the
market performance of Crestar: that the price to earnings multiple based on 1997
estimated earnings was 10.49 times compared to an average of 11.49 times; that
the price to book value multiple was 1.80 times compared to an average of 2.09
times; that the price to tangible book value was 2.08 times compared to an
average of 2.41 times and that the dividend yield was 3.39% compared to an
average of 3.19%.
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ANALYSIS OF SELECTED MERGER TRANSACTIONS. Keefe Bruyette reviewed certain
financial data related to two sets of recent comparable bank acquisitions. The
first set was comprised of bank acquisitions announced from January 1, 1994 with
the acquiree's assets between $2.0 and $10.0 billion and included the following
transactions (identified by acquirer/acquiree): National Australia Bank/Michigan
National Corp., US Bancorp/West One Bancorp, BB&T Financial Corp/Southern
National, Union Bank/BanCal Tri-State, Boatmen's Bancshares/Fourth Financial,
NationsBank Corp/Bank South Corp, UJB Financial/Summit Bancorp, Banc One
Corporation/Premier Bancorp, First Bank System/FirsTier Financial, Boatmen's
Bancshares/Worthen Banking Corp., National Westminster/Citizens First Bancorp,
Regions Financial/First National Bancorp, Union Planters Corp./Grenada Sunburst,
and First Fidelity Bancorp/Baltimore Bancorp.
Keefe Bruyette calculated an average and median for the comparable group
(measured September 11, 1996) for the multiple of the targets' earnings
(trailing 12 months) of 16.2x and 13.9x respectively compared to a multiple of
20.6x associated with the Crestar proposal; an average and median premium to the
targets' stated book value of 197% compared to a multiple of 224% associated
with the Crestar proposal; an average and median premium to the targets'
tangible book value of 211% and 213% respectively compared to a multiple of 230%
associated with the Crestar proposal.
The second set was composed of bank acquisitions announced from January 1,
1995 with the acquiree's assets between $2.0 and $20.0 billion and included the
following transactions (identified by acquirer/acquiree): Bank of
Boston/BayBanks, Regions Financial/First National Bancorp, CoreStates
Financial/Meridian Bancorp, UJB Financial/Summit Bancorporation, NationsBank
Corp/Bank South Corporation, National City Corporation/Integra Financial,
Boatmen's Bancshares/Fourth Financial, First Bank System/FirsTier Financial,
Banc One Corporation/Premier Bancorp, PNC Bank Corp/Midlantic Corp, Union
Bank/BanCal Tri-State, US Bancorp/West One Bancorp, National Australia
Bank/Michigan National Corp.
Keefe Bruyette calculated an average and median for the group (measured
September 11, 1996) for the multiple of the targets' earnings (trailing 12
months) of 15.5x and 13.9x respectively compared to a multiple of 20.6x
associated with the Crestar proposal; an average and median premium to the
targets' stated book value of 197% and 198% respectively compared to a multiple
of 224% associated with the Crestar proposal; an average and median premium to
the targets' tangible book value of 213% and 215% respectively compared to a
multiple of 230% associated with the Crestar proposal.
No company or transaction used as a comparison in the above analysis is
identical to Citizens, Crestar or the Merger. Accordingly, an analysis of the
results of the foregoing is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading value of the companies to which they are being compared.
CONTRIBUTION ANALYSIS. Keefe Bruyette analyzed the relative contribution of
each of Citizens and Crestar to certain balance sheet, income statement and
asset quality items, including assets, deposits, shareholder's equity and
trailing twelve month earnings. The contribution analysis showed that under the
Crestar proposal, Citizens would contribute approximately 18% of the combined
assets, 19% of the combined deposits, 20% of the combined shareholder's equity
and 15% of the trailing twelve month earnings of the two companies (before cost
savings).
VALUE OF THE EXCHANGE. Based on the Exchange Ratio, Keefe Bruyette
determined the value to Citizen shareholders as measured by Citizens' June 1996
book value per share, 1997 earnings per share estimate, 1997 dividend per share
estimate and market value per share which were for Citizens $22.86, $3.00, $1.20
and $33.25 respectively. Applying the Exchange Ratio to Crestar's June 1996 book
value of $33.46, creates an increase in book value to Citizens' shareholders of
14.7% or $3.35, an increase in 1997 earnings per share estimate of 60.2% or
$1.81, an increase in 1997 dividend per share estimate of 44.7% or $.54 and an
increase in the market value per share of 58.9% or $19.00.
PRO FORMA EPS. Keefe Bruyette analyzed the pro forma earnings per share of
the combined company based on the Exchange Ratio of 0.835 shares of Crestar
Common Stock for each share of Citizens Common Stock. Based on the 1997 EPS
estimates of $3.00 and $5.85 for Citizens and Crestar respectively, the combined
company's pro forma EPS is estimated at $5.76 for 1997 including cost savings of
approximately $23.9 million (after tax) which represents 1.6% dilution to
Crestar's 1997 earnings. Based on the 1998 earnings estimates of $3.25 and $6.39
per share for Crestar and Citizens respectively, the combined company's pro
forma earnings per share is estimated at $6.43 for 1998 including cost saves of
approximately $34.3 million (after tax) which represents 0.6% accretion to
Crestar's 1998 earnings.
DISCOUNTED CASH FLOW ANALYSIS. Keefe Bruyette compared the present value of
future cash flows that would accrue to a holder of a share of Citizens Common
Stock assuming Citizens were to remain independent to the present value of
future cash flows that would accrue to a holder of 0.835 shares of Crestar
Common Stock assuming the Merger were to occur. This analysis assumed 10% and 9%
annual earnings per share growth for Citizens and Crestar respectively, 6% and
8% annual
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dividend growth for Citizens and Crestar respectively, a trading multiple of
10.5 times earnings for the year 2001 for Citizens, as well as a discount rate
of 14%. Based on such assumptions, Keefe Bruyette's analysis indicated that the
present value of a share of Citizens Common Stock, on a stand alone basis would
be $28.37 compared with a present value of $43.74 for 0.835 shares of Crestar
Common Stock. Keefe Bruyette also presented a table showing the foregoing
analysis with a range of discount rates from 10% to 15% and a range of price to
earnings multiples of 10 times to 15 times, resulting in a range of present
values for a share of Citizens Common Stock of $26.15 to $45.81. Keefe Bruyette
repeated the foregoing analysis under an alternative scenario in which each
entity is acquired in 2001 for a price equal to 15 times 2001 earnings per
share. Such analysis indicated a present value for a share of Citizens Common
Stock of $38.64, compared with a present value of .835 shares of Crestar Common
Stock of $60.69. Keefe Bruyette stated that the discounted cash flow analysis is
a widely-used valuation methodology but noted that it relies on numerous
assumptions, including asset and earnings growth rates, dividend payout rates,
terminal values and discount rates. The analysis did not purport to be
indicative of the actual values or expected values of Citizens Common Stock or
Crestar Common Stock.
MARKET REACTION. Keefe Bruyette analyzed the market's reaction to four
comparable bank acquisitions as measured by the change in the acquirors' price
subsequent to the announcement of the acquisition. The four transactions were
(as identified by acquiror/acquiree): NationsBank Corporation/Boatmen's
Bancshares, Bank of Boston/BayBanks, Inc., CoreStates Financial/Meridian Bancorp
and UJB Financial Corp./Summit Bancorporation. The change in acquiror's price
one day after announcement was -9.1%, -2.7%, -0.8% and -9.2% respectively. The
change in acquiror's price ten days after announcement was NA, -4.0%, .3% and
- -10.6%. The change in acquiror's price as of September 10, 1996 was -9.2%,
13.4%, 8.4% and 6.5% respectively. For comparison purposes, Keefe Bruyette
examined the change in Keefe Bank Index for the same periods which resulted in a
change in the Keefe Bank Index of 2.6%, 13.5%, 18.2% and 25.1% respectively.
The summary contained herein provides a description of the material
analyses prepared by Keefe Bruyette in connection with the rendering of its
opinion. The preparation of a fairness opinion is not necessarily susceptible to
partial analysis or summary description. Keefe Bruyette believes that its
analyses and the summary set forth above must be considered as a whole and that
selecting portions of its analyses without considering all analyses, or
selecting part of the above summary, without considering all factors and
analyses, would create an incomplete view of the processes underlying the
analyses set forth in Keefe Bruyette's presentations and opinion. The ranges of
valuations resulting from any particular analysis described above should not be
taken to be Keefe Bruyette's view of the actual value of Citizens and Crestar.
Although all material valuation methodologies employed by Keefe, Bruyette have
been disclosed, the fact that any specific analysis has been referred to in the
summary above is not meant to indicate that such analysis was given greater
weight than any other analyses.
In performing its analyses, Keefe Bruyette made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Citizens and Crestar. The
analyses performed by Keefe Bruyette are not necessarily indicative of actual
values or actual future results which may be significantly more or less
favorable than suggested by such analyses. Such analyses were prepared solely as
part of Keefe Bruyette's analysis of the fairness, from a financial point of
view, of the Exchange Ratio and were provided to the Citizens Board in
connection with the delivery of Keefe Bruyette's opinion. The analyses do not
purport to be appraisals or to reflect the prices at which a company actually
might be sold or the prices at which any securities may trade at the present
time or at any time in the future. In addition, as described above, Keefe
Bruyette's opinion, along with its presentation to the Citizens Board, was just
one of many factors taken into consideration by the Citizens Board in
unanimously approving the Agreement.
Pursuant to the Engagement Letter dated September 9, 1996, Citizens agreed
to pay Keefe Bruyette a cash fee of $100,000 promptly upon the signing of a
merger agreement between Citizens and Crestar, $200,000 upon the mailing of the
Proxy Statement/Prospectus relating to the proposed merger and $390,000 upon
consummation of the proposed merger. In addition, Citizens agreed to reimburse
Keefe, Bruyette for all reasonable out-of-pocket expenses, not to exceed
$10,000, incurred in connection with the services provided by Keefe, Bruyette,
and to indemnify and hold harmless Keefe, Bruyette and certain related parties
from and against certain liabilities and expenses, which may include certain
liabilities under the federal securities laws, in connection with its
engagement.
EFFECTIVE TIME OF THE HOLDING COMPANY MERGER
The Holding Company Merger is expected to be consummated by December 31,
1996. The Holding Company Merger will be effective on the date (the "Effective
Date") and the time (the "Effective Time") specified in the Articles of Merger
that are to be filed with the SDAT (Maryland) and the SCC (Virginia) as soon as
practicable following satisfaction of all the conditions to the consummation of
the Holding Company Merger set forth in the Agreement. Either Citizens or
Crestar,
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acting unilaterally, may terminate the Agreement if the Holding Company Merger
has not been consummated by June 30, 1997.
Until the Effective Time of the Holding Company Merger occurs, Citizens
shareholders will retain their rights as shareholders to vote on matters
submitted to them by the Citizens Board.
DETERMINATION OF EXCHANGE RATIO AND EXCHANGE FOR CRESTAR COMMON STOCK
Crestar and Citizens valued Citizens Common Stock at $48.50 per share and
valued Crestar Common Stock at $58 per share for the purpose of determining the
Exchange Ratio. Using these two values, an Exchange Ratio of 0.835 shares of
Crestar Common Stock for each share of Citizens Common Stock was negotiated. The
Exchange Ratio, as finally negotiated, was directly related to stock market
conditions generally and, more specifically, to the market value of Crestar
Common Stock. Crestar and Citizens recognized that a fixed Exchange Ratio would
result in a fluctuating value for Citizens Common Stock which reflects the
market price of Crestar Common Stock.
Each share of Citizens Common Stock (other than shares held directly by
Crestar, which will be canceled without payment therefor) will be converted into
0.835 shares of Crestar Common Stock, and an identical number of Rights.
Citizens has the right to terminate the Agreement during the five-day period
prior to the fifth day prior to the Closing Date if the Average Closing Price of
Crestar Common Stock is $48.00 or less during the 10-trading day period ending
on the 10th day prior to the Closing Date. If Citizens takes this action,
Crestar has the option during the five-day period following notice of
termination to postpone the Closing Date for 15 trading days, during the first
10 trading days on which an Adjusted Average Closing Price of Crestar Common
Stock will be determined. If the Adjusted Average Closing Price is more than
$48.00, no termination shall be deemed to have occurred and the Agreement will
remain in effect. If the Adjusted Average Closing Price is $48.00 or less,
Crestar has the option of increasing the consideration to be received by holders
of Citizens Common Stock hereunder by adjusting the Exchange Ratio to equal a
number equal to the quotient obtained by dividing $40.08 by the Adjusted Average
Closing Price. If Crestar increases the Exchange Ratio, no termination is deemed
to have occurred and the Agreement remains in force in accordance with its terms
(except as the Exchange Ratio shall have been so modified). In no event is the
modified Exchange Ratio to be less than 0.835 shares of Crestar Common Stock for
each share of Citizens Common Stock. The terms "Average Closing Price" and
"Adjusted Average Closing Price" mean the average of the closing sales price of
Crestar Common Stock as reported on the consolidated tape of the NYSE for each
of the 10 trading days in the relevant trading period.
At September 30, 1996, there were 15,132,599 shares of Citizens Common
Stock outstanding. In addition, options to purchase an additional 674,250 shares
of Citizens Common Stock were outstanding at September 30, 1996. Based on the
number of shares of Citizens Common Stock outstanding and the number of options
to purchase Citizens Common Stock outstanding as of September 30, 1996, and an
Exchange Ratio of 0.835, Crestar would issue 12,635,720 shares of Crestar Common
Stock in exchange for Citizens Common Stock, and convert the outstanding options
to purchase Citizens Common Stock into 562,999 outstanding options to purchase
Crestar Common Stock. The aggregate number of shares of Crestar Common Stock to
be issued in connection with the Holding Company Merger, and the number of
options to purchase Citizens Common Stock that will be converted into options to
purchase Crestar Common Stock, will vary to the extent that any outstanding
options to purchase Citizens Common Stock are exercised prior to the Effective
Time of the Holding Company Merger. See " -- Effect on Citizens Employee Benefit
Plans" below.
Following the Effective Time of the Holding Company Merger, former holders
of shares of Citizens Common Stock will be mailed a Letter of Transmittal which
will set forth the procedures that should be followed for exchange of Citizens
Common Stock for Crestar Common Stock.
Shareholders of Citizens who receive Crestar Common Stock will be entitled
to receive certificates representing the number of whole shares of Crestar
Common Stock for which such shares have been submitted for exchange and cash in
lieu of any fractional share interest on the basis of the Exchange Ratio.
BUSINESS OF CITIZENS AND CRESTAR PENDING THE HOLDING COMPANY MERGER
CRESTAR. Crestar has agreed that prior to the Effective Time of the Holding
Company Merger: (i) Crestar will and will cause each of its subsidiaries to
conduct their respective operations only in the ordinary course of business
consistent with
past practice and will use its best efforts to preserve intact their respective
business organizations, keep available the services of their officers and
employees and maintain satisfactory relationships with licensors, suppliers,
distributors, customers, clients and others having business relationships with
them; (ii) Crestar shall not, and shall not permit any of its subsidiaries to,
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take any action, engage in any transactions or enter into any agreement which
would adversely affect or delay in any material respect the ability of Crestar
or Citizens to obtain any necessary approvals, consents or waivers of any
governmental entity required for the transactions contemplated hereby or to
perform its covenants and agreements on a timely basis under the Agreement; and
(iii) Crestar will not issue any Crestar Common Stock except (A) under existing
stock option or employee or director benefit plans in accordance with past
practice and (B) in acquisitions accounted for as purchases where the stock to
be issued is acquired from a third party in a manner consistent with
pooling-of-interests accounting treatment for the Holding Company Merger.
CITIZENS. Citizens and Citizens Bank have agreed that prior to the
Effective Time of the Holding Company Merger, they will operate their respective
businesses substantially as presently operated and only in the ordinary course
and in general conformity with applicable laws and regulations, and, consistent
with such operation, they will use their best efforts to preserve intact their
present business organizations and relationships with persons having business
dealings with them. Without limiting the generality of the foregoing, Citizens
and Citizens Bank agree that they will not, without prior notice to Crestar, and
with respect to clauses (v), (vi), (xvi), and (xvii), with Crestar's prior
written consent, and unless required by regulatory authorities, (i) make any
change in the salaries, bonuses or title of any officer or any other employee,
other than those permitted by current employment policies in the ordinary course
of business, any of which changes shall be reported promptly to Crestar; (ii)
enter into any bonus, incentive compensation, deferred compensation, profit
sharing, thrift, retirement, pension, group insurance or other benefit plan or
any employment, severance or consulting agreement or increase benefits under
existing plans and agreements; (iii) create or otherwise become liable with
respect to any indebtedness for money borrowed or purchase money indebtedness
except in the ordinary course of business; (iv) amend its Articles of
Incorporation or By-laws; (v) issue or contract to issue any shares of Citizens
capital stock or securities exchangeable for or convertible into capital stock,
except (y) shares of Citizens Common Stock issuable pursuant to the Citizens
Options outstanding as of June 30, 1996, or pursuant to Citizens' 401(k) plan,
and (z) up to 3,012,000 shares of Citizens Common Stock pursuant to the Option
Agreement; (vi) purchase any shares of Citizens capital stock except shares
purchased under its stock buyback program and shares to be purchased for
employee benefit and stock option plans pursuant to a systematic program in
effect for at least two years; (vii) enter into or assume any material contract
or obligation, except in the ordinary course of business; (viii) other than as
provided in (a) below with respect to the work-out of nonperforming assets,
waive, release, compromise or assign any right or claim involving $1,000,000 or
more without compliance with Citizens Bank's credit policies; (ix) propose or
take any other action which would make any representation or warranty in Section
3.1 of the Agreement untrue; (x) introduce any new products or services or
change the rate of interest on any deposit instrument to above-market interest
rates; (xi) make any change in policies respecting extensions of credit or loan
charge-offs; (xii) change reserve requirement policies; (xiii) change securities
portfolio policies; (xiv) acquire a policy or enter into any new agreement,
amendment or endorsement or make any changes relating to insurance coverage,
including coverage for its directors and officers, which would result in an
additional payment obligation of $200,000 or more; (xv) propose or take any
action with respect to the closing of any branches; (xvi) amend the terms of the
Citizens Options or any other stock-based compensation plan for employees or
directors; (xvii) amend the terms of the written severance or employment
agreements identified in Schedule F to the Agreement; or (xviii) make any change
in any tax election or accounting method or system of internal accounting
controls, except as may be appropriate to conform to any change in regulatory
accounting requirements or generally accepted accounting principles.
Citizens and Citizens Bank have further agreed that they will consult and
cooperate with Crestar regarding all actions described in the immediately
preceding paragraph, and (a) with loan portfolio management, including
management and work-out of nonperforming assets, and credit review and approval
procedures, including notice to Crestar's Credit Review Department Management of
any new loans in excess of $1,000,000, and (b) with securities portfolio and
funds management, including management of interest rate risk.
Citizens and Citizens Bank have further agreed that neither Citizens,
Citizens Bank nor any of their executive officers, directors, representatives,
agents or affiliates shall, directly or indirectly, solicit or initiate
discussions or negotiations with any person other than Crestar concerning any
merger, sale of substantial assets, tender offer, sale of shares of stock or
similar transaction involving Citizens or Citizens Bank or disclose, directly or
indirectly, any information not customarily disclosed to the public concerning
Citizens or Citizens Bank, afford to any person other than Crestar access to the
properties, books or records of Citizens or Citizens Bank or otherwise assist
any person who may be preparing to make or who has made such an offer, or enter
into any agreement with any third party providing for a business combination
transaction, equity investment or sale of a significant amount of assets, except
in a situation in which a majority of the full Citizens Board has determined in
good faith, upon advice of counsel, that such Board has a fiduciary duty to
consider and respond to a bona fide proposal by a third party (which proposal
was not directly or indirectly solicited by Citizens or Citizens Bank or any of
their officers,
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directors, representatives, agents or affiliates) and provides written notice of
its intention to consider such proposal and the material terms thereof to
Crestar at least five days before responding to the proposal. Citizens and
Citizens Bank will promptly communicate to Crestar the terms of any proposal
which it may receive in respect to any of the foregoing transactions.
CONDITIONS TO CONSUMMATION OF THE HOLDING COMPANY MERGER
Consummation of the Holding Company Merger is conditioned upon the approval
of the holders of two-thirds of the outstanding Citizens Common Stock entitled
to vote at the Citizens Special Meeting and the approval of the holders of a
majority of Crestar Common Stock entitled to vote at the Crestar Special
Meeting. The Holding Company Merger must be approved by the Federal Reserve
Board, the SCC and the Maryland Department, applications for which have been
filed and approvals for which are expected to be received. The obligations of
Citizens and Crestar to consummate the Holding Company Merger are further
conditioned upon (i) the accuracy of the representations and warranties of
Citizens and Crestar contained in the Agreement, including without limitation
the representation and warranty that there has been no material adverse change
in the condition (financial or otherwise) of Crestar or Citizens since December
31, 1995 (other than changes resulting from or attributable to: (i) changes
since such date in laws or regulations, generally accepted accounting principles
or interpretations of either thereof that affect the banking or savings and loan
industries generally, (ii) changes since such date in the general level of
interest rates, (iii) expenses incurred in connection with the Transaction, and,
with respect to Citizens, (iv) accruals and reserves by Citizens or Citizens
Bank taken since such date pursuant to the Agreement, or (v) any other accruals,
reserves or expenses incurred by Citizens or Citizens Bank since such date with
Crestar's prior written consent); (ii) the performance of all covenants and
agreements contained in the Agreement, including without limitation the
establishment of the accruals, reserves and charge-offs as may be necessary to
conform Citizens' accounting and credit loss reserve practices and methods to
those of Crestar Bank as such practices and methods are to be applied from and
after the Effective Time of the Holding Company Merger; (iii) the receipt of
opinions of Hunton & Williams, counsel to Crestar and Crestar Bank, and Semmes,
Bowen & Semmes, counsel to Citizens and Citizens Bank, with respect to certain
of the tax consequences of the Transaction described herein under " -- Certain
Federal Income Tax Consequences;" (iv) the receipt by Crestar of certain
evidence of title relating to Citizens' and Citizens Bank's branch real estate;
(v) the approval for listing on the NYSE of the shares of Crestar Common Stock
at the Effective Time of the Holding Company Merger; (vi) the receipt of
opinions of counsel with respect to certain legal matters; (vii) the execution
and delivery of a commitment and undertaking by each shareholder of Citizens who
is an affiliate of Citizens to the effect that (A) beginning 30 days prior to
the Effective Date of the Holding Company Merger, such shareholder will not
sell, pledge, transfer or otherwise dispose of shares of Citizens Common Stock
or Crestar Common Stock until such times as financial results covering at least
30 days of combined operations of Crestar and Citizens have been published
within the meaning of Section 201.01 of the SEC's Codification of Financial
Reporting Policies, and in furtherance of this undertaking, shares of Crestar
Common Stock issued to affiliates in exchange for shares of Citizens Common
Stock shall not be transferable until such time as financial results covering at
least 30 days of combined operations of Crestar and Citizens 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 letter agreement referred to in Section 5.1(g) of the Agreement (and
Crestar shall be entitled to place restrictive legends upon certificates of
shares of Crestar Common Stock issued to affiliates of Citizens to enforce the
provisions of Section 5.1(g) of the Agreement), (B) such shareholder will
dispose of the shares of Crestar Common Stock received by him in connection with
the Holding Company Merger only in accordance with the provisions of paragraph
(d) of Rule 145 under the 1933 Act, (C) such shareholder will not dispose of any
of such shares until Crestar has received, at its expense, an opinion of counsel
acceptable to it that such proposed disposition is in compliance with the
provisions of paragraph (d) of Rule 145 and any applicable securities laws which
opinion shall be rendered promptly following counsel's receipt of such
shareholder's written notice of its intent to sell shares of Crestar Common
Stock and (D) the certificates representing said shares may bear a legend
referring to the foregoing restrictions; (viii) the shares of Crestar Common
Stock to be issued in the Holding Company Merger shall have been duly registered
under the 1933 Act and applicable state securities laws, and such registration
shall not be subject to a stop order or any threatened stop order by the SEC or
any applicable state securities authority; and (ix) in the case of Citizens, the
exemption of the Holding Company Merger from the operation of its Shareholder
Rights Plan.
Crestar and Citizens may waive any condition to their obligations to
consummate the Holding Company Merger except requisite approvals of Crestar and
Citizens shareholders and regulatory authorities.
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STOCK OPTION AGREEMENT
Crestar and Citizens have entered into a Stock Option Agreement, dated as
of September 15, 1996 (the "Option Agreement"), pursuant to which Citizens
issued to Crestar an option (the "Option") to purchase up to 3,012,000 shares of
Citizens Common Stock at a purchase price of $40.00 per share.
Crestar may exercise the Option upon the occurrence of certain events (each
a "Purchase Event"). The Option Agreement provides that a Purchase Event shall
mean the occurrence of any of the following events after the date of execution
of the Option Agreement: (i) Citizens or any banking subsidiary of Citizens (a
"Bank"), without having received Crestar's prior written consent, shall have
entered into an agreement with any person to: (x) merge, consolidate or enter
into any similar transaction, except as contemplated in the Agreement; (y)
purchase, lease or otherwise acquire all or substantially all of the assets of
Citizens or a Bank; or (z) purchase or otherwise acquire (including by way of
merger, consolidation, share exchange or any similar transaction) securities
representing 10% or more of the voting power of Citizens or a Bank; (ii) any
person (other than Citizens or a Bank in a fiduciary capacity, or Crestar or
Crestar Bank in a fiduciary capacity) shall have acquired beneficial ownership
or the right to acquire beneficial ownership of 15% or more of the outstanding
shares of Citizens Common Stock after the date of the Option Agreement; (iii)
any person shall have made a bona fide proposal to Citizens by public
announcement or written communication that is or becomes the subject of public
disclosure to acquire Citizens or a Bank by merger, consolidation, purchase of
all or substantially all of its assets or any other similar transaction, and
following such bona fide proposal the shareholders of Citizens vote not to adopt
the Agreement; or (iv) Citizens shall have willfully breached certain specified
covenants contained in the Agreement following a bona fide proposal to Citizens
or a Bank to acquire Citizens or a Bank by merger, consolidation, purchase of
all or substantially all of its assets or any other similar transaction, which
breach would entitle Crestar to terminate the Agreement (without regard to the
cure periods provided for therein) and such breach shall not have been cured
prior to the date on which Crestar shall notify Citizens of its intent to
exercise the Option.
The Option may be exercised in whole or in part, at any time or from time
to time if a Purchase Event shall have occurred and be continuing and before the
Option Agreement is terminated, unless Crestar shall have breached in any
material respect any material covenant or representation contained in the
Agreement and such breach has not been cured. The Option Agreement provides that
to the extent that it shall have not been exercised, the Option shall terminate
(i) on the Effective Date of the Holding Company Merger; (ii) upon the
termination of the Agreement in accordance with the provisions thereof (other
than a termination resulting from a willful breach by Citizens of certain
specified covenants contained therein or, following the occurrence of a Purchase
Event, failure of Citizens shareholders to approve the Holding Company Merger by
the vote required under applicable law or under Citizens' Charter); or (iii) 12
months after termination of the Agreement due to a willful breach by Citizens of
certain specified covenants contained therein or, following the occurrence of a
Purchase Event, failure of Citizens shareholders to approve the Holding Company
Merger by the vote required under applicable law or under Citizens' Charter.
Because the Option permits Crestar to purchase a significant number of
shares of Citizens Common Stock at a purchase price below the inferred value of
Citizens Common Stock reflected in the Exchange Ratio, any potential acquiror
triggering a Purchase Event would be required to absorb the difference between
the price Crestar would pay for shares of Citizens Common Stock upon exercise of
the Option ($40 per share), and the price the potential acquiror would be
required to offer to better the inferred value of Citizens Common Stock. This
could have the effect of deterring potential acquirors from topping the Crestar
offer.
WAIVER AND AMENDMENT; TERMINATION
WAIVER AND AMENDMENT. Prior to the Effective Time of the Holding Company
Merger, any term or provision of the Agreement may be waived in writing at any
time by the party which is, or whose shareholders are, entitled to the benefits
thereof and the Agreement may be amended or supplemented by written instructions
duly executed by all parties hereto at any time, whether before or after the
Crestar Special Meeting or the Citizens Special Meeting, excepting statutory
requirements and requisite approvals of shareholders and regulatory authorities,
provided that any such amendment or waiver executed after shareholders of
Crestar or Citizens have approved the Agreement and the Holding Company Plan of
Merger shall not modify either the amount or form of the consideration to be
received by such Citizens shareholders for their shares of Citizens Common Stock
or otherwise materially adversely affect such shareholders without their
approval.
TERMINATION. The Agreement shall be terminated, and the Transaction
abandoned, if the shareholders of Crestar or Citizens shall not have given the
approval of the Holding Company Merger. Notwithstanding such approval by such
shareholders, the Agreement may be terminated at any time prior to the Effective
Time of the Holding Company Merger, by:
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(i) the mutual consent of Crestar and Citizens, as expressed by their respective
Boards of Directors; (ii) either Crestar on the one hand or Citizens on the
other hand, as expressed by their respective Boards of Directors, if the Holding
Company Merger has not occurred by June 30, 1997, provided that the failure of
the Holding Company Merger to so occur shall not be due to a willful breach of
any representation, warranty, covenant or agreement by the party seeking to
terminate the Agreement; (iii) Crestar in writing authorized by its Board of
Directors if Citizens or Citizens Bank has, or by Citizens in writing authorized
by its Board of Directors, if Crestar or Crestar Bank has, in any material
respect, breached (A) any covenant or agreement contained therein, or (B) any
representation or warranty contained in the Agreement, in any case if such
breach has not been cured by the earlier of 30 days after the date on which
written notice of such breach is given to the party committing such breach or
the Closing Date (as defined in the Agreement); provided that it is understood
and agreed that either party may terminate the Agreement on the basis of any
such material breach of any representation or warranty which is not cured within
30 days of written notice thereof contained in the Agreement, notwithstanding
any qualification therein relating to the knowledge of the other party; (iv)
either Crestar on the one hand or Citizens on the other hand, as expressed by
their respective Boards of Directors, in the event that any of the conditions
precedent to the obligations of such parties to consummate the Holding Company
Merger have not been satisfied or fulfilled or waived by the party entitled to
so waive on or before the Closing Date, provided that no party shall be entitled
to terminate the Agreement pursuant to this subparagraph (d) if the condition
precedent or conditions precedent which provide the basis for termination can
reasonably be and are satisfied within a reasonable period of time, in which
case, the Closing Date shall be appropriately postponed; (v) Citizens, if the
Citizens Board shall have determined in its sole discretion, exercised in good
faith, that the Holding Company Merger has become inadvisable or impracticable
by reason of (A) the institution of any litigation, proceeding or investigation
(including under federal antitrust laws) to restrain or prohibit the
consummation of the Transaction or to obtain other relief in connection with the
Agreement, or (B) commencement of a competing offer for Citizens Common Stock
which is significantly better than Crestar's offer, and which Crestar has
certified to Citizens, in writing, it is unwilling to meet; (vi) Crestar, if the
Crestar Board shall have determined in its sole discretion, exercised in good
faith, that the Holding Company Merger, has become inadvisable or impracticable
by reason of (A) the institution of any litigation, proceeding or investigation
(including under federal antitrust laws) to restrain or prohibit the
consummation of the Transaction or to obtain other relief in connection with the
Agreement or (B) public commencement of a competing offer for Citizens Common
Stock which is significantly better than Crestar's offer, and which Crestar
certifies to Citizens, in writing, it is unwilling to meet; (vii) Crestar or
Citizens, if the Federal Reserve Board, the Maryland Department, or the SCC deny
approval of the Transaction and the time period for all appeals or requests for
reconsideration has run; and (viii) Citizens, by action of its Board of
Directors, at any time during the five-day period prior to the fifth day prior
to the Closing Date, if the Average Closing Price as defined below of Crestar
Common Stock shall be $48.00 or less, provided, however, that during the
five-day period following the provision by Citizens of written notice of
termination to Crestar pursuant to the Agreement Crestar shall have the option
of postponing the Closing Date for 15 trading days, during the first 10 trading
days of which a new Average Closing Price of Crestar Common Stock shall be
determined based on the closing sales price of Crestar Common Stock as reported
on the consolidated tape on the NYSE for each of such 10 trading days (the
"Adjusted Average Closing Price"). If the Adjusted Average Closing Price is more
than $48.00, no termination shall be deemed to have occurred, and the Agreement
shall remain in full force and effect in accordance with its terms. If the
Adjusted Average Closing Price is $48.00 or less, Crestar shall have the option
of increasing the consideration to be received by holders of Citizens Common
Stock hereunder by adjusting the Exchange Ratio to equal a number equal to the
quotient obtained by dividing $40.08 by the Adjusted Average Closing Price, in
which case Crestar shall give prompt written notice to Citizens of such election
and the revised Exchange Ratio and no termination shall be deemed to have
occurred, and the Agreement shall remain in full force and effect in accordance
with its terms (except as the Exchange Ratio shall have been so modified and any
references herein to "Exchange Ratio" shall thereafter be deemed to refer to the
Exchange Ratio as adjusted pursuant to the Agreement). In no event shall the
modified Exchange Ratio be less than 0.835 shares of Crestar Common Stock for
each share of Citizens Common Stock. The "Average Closing Price" shall be the
average of the closing sales price of Crestar Common Stock as reported on the
consolidated tape on the NYSE for each of the 10 trading days ending on the 10th
day prior to the Closing Date established pursuant to the Agreement.
In the event of the termination and abandonment of the Agreement and the
Holding Company Merger pursuant to the above, the Agreement, other than the
provisions of relating to confidentiality of information obtained by the parties
and to the payment of expenses relating to the Holding Company Merger, shall
become void and have no effect, without any liability on the part of any party
or its directors, officers or shareholders, provided that nothing contained in
the Agreement shall relieve any party from liability for any willful breach of
the Agreement.
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ACCOUNTING TREATMENT
Consummation of the Holding Company Merger is conditioned upon the receipt
by Crestar of a letter from KPMG Peat Marwick LLP to the effect that the Holding
Company Merger can be accounted for as a pooling-of-interests. See
" -- Conditions to Consummation of the Holding Company Merger." Under this
accounting treatment, as of the Effective Time of the Holding Company Merger,
the assets and liabilities of Citizens would be added to those of Crestar at
their recorded book values and the shareholders' equity accounts of Crestar and
Citizens would be combined on Crestar's consolidated balance sheet. On the
pooling-of-interests accounting basis, income and other financial statements of
Crestar issued after consummation of the Holding Company Merger would be
restated retroactively to reflect the consolidated combined financial position
and results of operations of Crestar and Citizens as if the Holding Company
Merger had taken place prior to the periods covered by such financial
statements.
OPERATIONS AFTER THE HOLDING COMPANY MERGER
After the consummation of the Holding Company Merger, Crestar will continue
generally to conduct the business presently conducted by Citizens.
INTERESTS AND CONFLICTS OF INTEREST OF CERTAIN PERSONS IN THE HOLDING COMPANY
MERGER
Certain members of Citizens' management may be deemed to have interests and
conflicts of interest in the Holding Company Merger in addition to their
interests as shareholders of Citizens generally. In each case, the Citizens
Board was aware of their potential interests and conflicts of interest, and
considered them, among other matters, in approving the Agreement and the
transactions contemplated thereby.
EMPLOYMENT AGREEMENTS. Crestar will honor the terms of the employment and
severance agreements with Jeffrey R. Springer, Richard C. Bandiere, Raymond L.
Gazelle, Jr. and Gary N. Geisel.
An employment agreement is currently in effect with Jeffrey R. Springer,
President and Chief Operating Officer of Citizens and Citizens Bank. Mr.
Springer is entitled to receive a minimum annual salary of $472,500, subject to
increases at the discretion of the board of directors, and annual cash bonuses.
During and following termination of employment, Mr. Springer is entitled to
receive health, disability and life insurance benefits. Mr. Springer
participates in retirement and pension plans and will receive guaranteed monthly
supplemental retirement benefit payments of approximately $21,000, assuming
retirement at age 55.
The agreement may be terminated by Mr. Springer or by Citizens for any
reason upon written notice to the other. If the agreement is terminated by Mr.
Springer for other than "good reason" or by Citizens for "strict cause" or due
to disability, Mr. Springer will not be entitled to receive any further
compensation and benefits other than certain retirement benefits and, in the
case of disability, life insurance coverage.
If the agreement is terminated by Mr. Springer for "good reason" or by
Citizens for any reason other than "strict cause," death or disability, Mr.
Springer shall be entitled to continuation of salary payments, insurance
benefits and certain retirement benefits for two years and to supplemental
retirement benefits. "Good reason" generally is defined as the assignment to Mr.
Springer without his consent, of duties materially inconsistent with his
responsibilities and status with Citizens Bank, the appointment of a higher
ranking full-time employee, the removal or failure to reelect Mr. Springer to
his current positions, or failure to pay him the compensation and benefits
provided in the agreement.
In the event the agreement is terminated by either party in anticipation of
or following a "change in control," including Mr. Springer's election to retire
for "good reason" following a change in control, then, Mr. Springer is entitled
to a lump sum cash payment equal to 2.99 times his average annual salary and
bonuses included in gross income for the preceding five years. A "change in
control" generally refers to the acquisition by any person of beneficial
ownership of 25% or more of the combined voting power of the then outstanding
securities of Citizens or the sale of all or substantially all of the capital
stock or assets of Citizens Bank. The aggregate lump sum payment to be made to
Mr. Springer, assuming termination of employment and following a change in
control as described above at December 31, 1996, is $1,483,040.
Citizens Bank has also entered into individual agreements with Messrs.
Bandiere, Gazelle, and Geisel providing for annual salaries, subject to annual
review adjustments, eligibility for annual cash bonuses based upon Citizens'
earnings and the executive's achievement of performance standards, annual
vacation and eligibility for stock options and for other benefits provided to
other employees of Citizens Bank. In the event an executive is terminated for
reasons other than death, disability or good cause, the agreements provide for
the continuation of salary payments and certain benefits for twelve months or
until employment by a financial services company in the Baltimore/Washington
area.
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In the event an executive's employment is terminated within two years of a
change in control and for reasons other than death, disability, or good cause,
or by the executive for "good reason," each of the agreements provides for the
continuation of salary payments and certain benefits for 30 months. Under this
provision and based on 1996 salaries, Messrs. Bandiere, Gazelle and Geisel would
be entitled to receive aggregate cash severance payments over 30 months of
$680,000, $595,000, and $672,500, respectively.
INDEMNIFICATION; LIABILITY INSURANCE. Crestar has agreed to provide
indemnification to the directors, employees and officers of Citizens and
Citizens Bank and the subsidiaries thereof for events occurring prior to or
subsequent to the Effective Time of the Holding Company Merger as if they had
been directors, employees or officers of Crestar, to the extent permitted under
the Virginia State Corporation Act and the Articles of Incorporation and Bylaws
of Crestar. Crestar will provide directors' and officers' liability insurance
coverage to Citizens and Citizens Bank directors and officers, whether or not
they become part of the Crestar organization after the Effective Time of the
Holding Company Merger, to the same extent it is provided to Crestar's officers
and directors.
ADVISORY BOARDS OF DIRECTORS. Crestar Bank will offer five to eight members
of the Citizens Board a position on Crestar Bank's GWR or Maryland advisory
boards. Members who agree to serve on an advisory board will be paid on the
usual terms and conditions that Crestar Bank pays other members of its GWR or
Maryland advisory boards, currently up to $5,000 per year depending on the
number of meetings attended.
CRESTAR BOARD OF DIRECTORS. Crestar will increase the number of members of
Crestar's and Crestar Bank's Board of Directors by two and appoint Alfred H.
Smith, Jr. and Jeffrey R. Springer to fill the resulting vacancies. As directors
of Crestar, Messrs. Smith and Springer will be paid an annual retainer
(currently $18,000) and $1,000 per meeting attended, and an additional $500 for
a second meeting on the same day. Each also will participate in the Crestar
Directors' Equity Program, which annually awards Crestar Common Stock with a
value of $8,000 to directors as part of their compensation.
STOCK OPTIONS
Holders of outstanding Citizens Options shall (a) exercise the Citizens
Options for Citizens Common Stock prior to the Closing Date (if such options are
by their terms then exercisable) and convert such Common Stock held as of the
Effective Time of the Holding Company Merger into Crestar Common Stock or (b)
have the Citizens Options converted into options to purchase Crestar Common
Stock.
EFFECT ON CITIZENS EMPLOYEE BENEFITS PLANS
All employees of Citizens or Citizens Bank (including subsidiaries)
immediately prior to the Effective Time of the Holding Company Merger who are
employed by Crestar, Crestar Bank or another Crestar subsidiary immediately
following the Effective Time of the Holding Company Merger ("Transferred
Employees") will be covered by Crestar's employee benefit plans as to which they
are eligible based on their length of service, compensation, location, job
classification, and position, including, where applicable, any incentive
compensation plan. Notwithstanding the foregoing, Crestar may determine to
continue any of the Citizens or Citizens Bank benefit plans for Transferred
Employees in lieu of offering participation in Crestar's benefit plans providing
similar benefits (e.g., medical and hospitalization benefits), to terminate any
of the Citizens or Citizens Bank benefit plans, or to merge any such benefit
plans with Crestar's benefit plans. Except as specifically provided in the
Agreement and as otherwise prohibited by law, Transferred Employees' service
with Citizens or Citizens Bank which is recognized by the applicable benefit
plan of Citizens or Citizens Bank at the Effective Time of the Holding Company
Merger shall be recognized as service with Crestar for purposes of eligibility
to participate and vesting, if applicable (but not for purposes of benefit
accrual) under the corresponding Crestar benefit plan, if any, subject to
applicable break-in-service rules.
Crestar agrees that any pre-existing condition, limitation or exclusion in
its health plans shall not apply to Transferred Employees or their covered
dependents who are covered under a medical or hospitalization indemnity plan
maintained by Citizens or Citizens Bank on the date of the Holding Company
Merger and who then change that coverage to Crestar's medical or hospitalization
indemnity health plan at the time such Transferred Employees are first given the
option to enroll in Crestar's health plans.
Crestar agrees that immediately following the Holding Company Merger, all
participants who then have accounts in the 401(k) plan maintained by Citizens or
Citizens Bank (the "401(k) Plan") shall be fully vested in their account
balances. Crestar, at its election, may continue the 401(k) Plan for the benefit
of Transferred Employees (as such plan may be amended as of the Effective Time
of the Holding Company Merger to provide current contributions and eligibility
provisions identical
31
<PAGE>
to those under the Crestar Employees' Thrift and Profit Sharing Plan (the
"Thrift Plan")), may merge the 401(k) Plan into the Thrift Plan or any other
defined contribution plan maintained by Crestar, or may cease additional benefit
accruals under and contributions to the 401(k) Plan and continue to hold the
assets of such Plan until they are distributable in accordance with its terms.
In the event of a merger of the 401(k) Plan into the Thrift Plan or a cessation
of accruals and contributions under the 401(k) Plan, the Thrift Plan will
recognize for purposes of eligibility to participate, early retirement, and
eligibility for vesting, all Transferred Employees' service which is recognized
under the 401(k) Plan, subject to applicable break-in-service rules.
The Retirement Plan for Employees of Crestar Financial Corporation and
Affiliated Corporations ("Crestar's Retirement Plan") will recognize for
purposes of eligibility to participate, vesting and eligibility for early
retirement, but not for benefit accrual purposes, all Transferred Employees'
service which is recognized under the qualified employees' defined benefit
pension plan of Citizens (the "Citizens Pension Plan"), subject to applicable
break-in-service rules. Crestar, at its option, may continue the Citizens
Pension Plan as a frozen plan or may terminate the Citizens Pension Plan and pay
out or annuitize benefits, or may merge the Citizens Pension Plan into Crestar's
Retirement Plan. If the Citizens Pension Plan is terminated or if benefit
accruals are suspended, or if the Citizens Pension Plan is merged into Crestar's
Retirement Plan, each Transferred Employee who becomes a participant in
Crestar's Retirement Plan will begin to accrue benefits under Crestar's
Retirement Plan on and after the date of such termination, suspension or merger
in accordance with the terms of Crestar's Retirement Plan.
Citizens and Citizens Bank have agreed to cooperate with Crestar in
implementing any decision made by Crestar under the Agreement with respect to
employee benefit plans and to provide to Crestar on or before the Effective Time
of the Holding Company Merger a schedule of service credit for prospective
Transferred Employees.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Crestar has received the opinion of Hunton & Williams and Citizens has
received the opinion of Semmes, Bowen & Semmes that for federal income tax
purposes: (i) the Holding Company Merger and the Citizens/Crestar Merger
together will constitute a reorganization within the meaning of Section 368(a)
of the Code; and (ii) neither Citizens, Acquisition nor Crestar will recognize
any taxable gain or loss upon consummation of the Holding Company Merger or the
Citizens/Crestar Merger. In addition, Citizens has received the opinion of
Semmes, Bowen & Semmes that the Holding Company Merger together with the
Citizens/Crestar Merger will result in the federal income tax consequences
summarized below for Citizens shareholders who receive Crestar Common Stock in
exchange for Citizens Common Stock pursuant to the Holding Company Merger. Such
opinions have been filed as exhibits to the Registration Statement. Receipt of
substantially the same opinions as of the Effective Date is a condition to
consummation of the Holding Company Merger. The opinions of Hunton & Williams
and Semmes, Bowen & Semmes are based on, and the opinions to be given as of the
Effective Date will be based on, certain customary assumptions and
representations regarding, among other things, the lack of previous dealings
between Citizens and Crestar, the existing and future ownership of Citizens
capital stock and Crestar capital stock and the future business plans for
Crestar.
A Citizens shareholder who receives solely Crestar Common Stock (including
the associated Rights) in exchange for his shares of Citizens Common Stock will
not recognize any gain or loss on the exchange. If a shareholder receives
Crestar Common Stock and cash in lieu of a fractional share of Crestar Common
Stock, the shareholder will recognize taxable gain or loss solely with respect
to such cash as if the fractional share had been received and then redeemed for
the cash. A shareholder will have an aggregate tax basis in his shares of
Crestar Common Stock (including any fractional share interest) received in the
Holding Company Merger equal to his tax basis in the shares of Citizens Common
Stock exchanged therefor. A shareholder's holding period for shares of Crestar
Common Stock (including any fractional share interest) received in the Holding
Company Merger will include his holding period for the shares of Citizens Common
Stock exchanged therefor if they are held as a capital asset at the Effective
Time of the Holding Company Merger.
THE PRECEDING DISCUSSION SUMMARIZES FOR GENERAL INFORMATION THE MATERIAL
FEDERAL INCOME TAX CONSEQUENCES OF THE HOLDING COMPANY MERGER TO CITIZENS
SHAREHOLDERS. IT DOES NOT DISCUSS ALL POTENTIALLY RELEVANT FEDERAL INCOME TAX
MATTERS OR CONSEQUENCES TO ANY FOREIGN OR OTHER SHAREHOLDERS SUBJECT TO SPECIAL
TAX TREATMENT, NOR DOES IT DISCUSS, AND NO OPINION HAS BEEN REQUESTED REGARDING,
ANY STATE OR LOCAL TAX CONSEQUENCES OF THE HOLDING COMPANY MERGER. THE TAX
CONSEQUENCES TO ANY PARTICULAR SHAREHOLDER MAY DEPEND ON THE SHAREHOLDER'S
INDIVIDUAL CIRCUMSTANCES. CITIZENS SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN
TAX ADVISORS WITH REGARD TO FEDERAL, STATE, AND LOCAL TAX CONSEQUENCES.
32
<PAGE>
PRO FORMA CONDENSED FINANCIAL INFORMATION
The following Pro Forma Condensed Financial Information and explanatory
notes are presented to show the impact of the Holding Company Merger on
Crestar's and Citizens' historical financial position and results of operations.
The Holding Company Merger is reflected in the Pro Forma Condensed Financial
Information under the pooling-of-interests method of accounting.
The Pro Forma Condensed Statement of Financial Condition presented assumes
that the Holding Company Merger was consummated on September 30, 1996 and the
Pro Forma Condensed Statements of Operations assume that the Holding Company
Merger was consummated at the beginning of each period presented.
The pro forma earnings are not necessarily indicative of the results of
operations had the Holding Company Merger occurred at the beginning of each
period presented, nor are they necessarily indicative of the results of future
operations.
33
<PAGE>
PRO FORMA CONDENSED STATEMENT OF FINANCIAL CONDITION
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
CRESTAR &
ADJUSTMENTS CITIZENS
INCREASE PRO FORMA
CRESTAR CITIZENS (DECREASE) COMBINED
----------- ---------- ----------- -----------
<S> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
Cash and due from banks............................................ $ 810,669 $ 198,145 $ $ 1,008,814
Securities held to maturity........................................ 69,849 1,000,859 1,070,708
Securities available for sale...................................... 3,520,740 545,425 4,066,165
Money market investments........................................... 742,036 -- 742,036
Mortgage loans held for sale....................................... 909,633 -- 909,633
Loans, net of unearned income...................................... 11,237,011 2,333,811 13,570,822
Less: Allowance for loan losses.................................. (235,747) (37,156) (272,903)
----------- ---------- ----------- -----------
Loans -- net..................................................... 11,001,264 2,296,655 13,297,919
Premises and equipment, net........................................ 365,905 56,471 422,376
Intangible assets -- net........................................... 183,784 863 184,647
Foreclosed properties -- net....................................... 17,030 20,927 37,957
Other assets....................................................... 631,101 49,790 680,891
----------- ---------- ----------- -----------
Total Assets.................................................. $18,252,011 $4,169,135 $ -- $22,421,146
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits.............................. $ 2,561,321 $ 654,507 $ $ 3,215,828
Interest bearing deposits........................................ 11,023,253 2,371,189 13,394,442
----------- ---------- ----------- -----------
Total deposits................................................ 13,584,574 3,025,696 16,610,270
Short-term borrowings.............................................. 2,083,096 772,466 2,855,562
Other liabilities.................................................. 482,915 16,389 28,000(1) 527,304
Long-term debt..................................................... 668,458 -- 668,458
----------- ---------- ----------- -----------
Total Liabilities............................................. 16,819,043 3,814,551 28,000 20,661,594
Shareholders' Equity
Preferred stock, authorized 2,000,000 shares, none issued........ -- -- --
Preferred stock, authorized 2,500,000 shares, none issued........ -- -- --
Common stock, $5 par value, authorized 100,000,000 shares;
outstanding 42,349,513 actual shares and 54,985,233 pro forma
combined shares............................................... 211,748 -- 63,178(2) 274,926
Common stock, $2.50 par value, authorized 125,000,000 shares;
outstanding 15,132,599 shares................................. -- 37,832 (37,832)(2) --
Capital surplus.................................................... 397,728 122,110 (25,346)(2) 494,492
Retained earnings.................................................. 863,907 192,207 (28,000)(1) 1,028,114
Net unrealized gain (loss) on securities available for sale........ (40,415) 2,435 -- (37,980)
----------- ---------- ----------- -----------
Total Shareholders' Equity.................................... 1,432,968 354,584 (28,000) 1,759,552
Total Liabilities and Shareholders' Equity.................... $18,252,011 $4,169,135 $ -- $22,421,146
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
See Notes to Pro Forma Condensed Financial Information.
34
<PAGE>
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CRESTAR &
CITIZENS
PRO FORMA
CRESTAR CITIZENS COMBINED (3)
---------- ---------- ------------
<S> <C>
INTEREST INCOME
Interest and fees on loans........................................................ $ 750,027 $ 137,821 $ 887,848
Interest and dividends on securities.............................................. 157,869 67,027 224,896
Other interest income............................................................. 58,485 116 58,601
---------- ---------- ------------
Total interest income.......................................................... 966,381 204,964 1,171,345
---------- ---------- ------------
INTEREST EXPENSE
Interest on deposits.............................................................. 297,162 74,142 371,304
Interest on short-term borrowings................................................. 87,529 25,561 113,090
Interest on long-term debt........................................................ 37,426 -- 37,426
---------- ---------- ------------
Total interest expense......................................................... 422,117 99,703 521,820
---------- ---------- ------------
NET INTEREST INCOME
Net interest income............................................................... 544,264 105,261 649,525
Provision for loan losses......................................................... 65,970 5,790 71,760
---------- ---------- ------------
Net interest income after provision for loan losses............................... 478,294 99,471 577,765
---------- ---------- ------------
NONINTEREST INCOME
Service charges on deposit accounts............................................... 68,908 15,682 84,590
Trust and investment advisory income.............................................. 47,541 976 48,517
Securities gains.................................................................. 2,740 -- 2,740
Other noninterest income.......................................................... 121,593 15,906 137,499
---------- ---------- ------------
Total noninterest income....................................................... 240,782 32,564 273,346
---------- ----------
NONINTEREST EXPENSE
Personnel expense................................................................. 259,272 45,800 305,072
Occupancy expense, net............................................................ 36,666 10,358 47,024
Equipment expense................................................................. 22,988 6,164 29,152
Other noninterest expense......................................................... 183,501 20,707 204,208
---------- ---------- ------------
Total noninterest expense...................................................... 502,427 83,029 585,456
---------- ---------- ------------
NET INCOME
Income before income taxes........................................................ 216,649 49,006 265,655
Income tax expense................................................................ 67,690 17,860 85,550
---------- ---------- ------------
Net income........................................................................ $ 148,959 $ 31,146 $ 180,105
---------- ---------- ------------
---------- ---------- ------------
PER COMMON SHARE DATA (2)
Net income per common share....................................................... $ 3.44 $ 2.06 $ 3.22
---------- ---------- ------------
---------- ---------- ------------
Weighted average shares outstanding (4)........................................... 43,282,000 15,114,000 55,903,000
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
See Notes to Pro Forma Condensed Financial Information
35
<PAGE>
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1995
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CRESTAR &
CITIZENS
PRO FORMA
COMBINED
CRESTAR CITIZENS (3)
----------- ----------- -----------
<S> <C>
Interest Income
Interest and fees on loans $ 756,320 $ 127,082 $ 883,402
Interest and dividends on securities 127,639 66,433 194,072
Other interest income 34,956 -- 34,956
----------- ----------- -----------
Total interest income 918,915 193,515 1,112,430
----------- ----------- -----------
Interest Expense
Interest on deposits 298,624 65,355 363,979
Interest on short-term borrowings 72,417 25,300 97,717
Interest on long-term debt 37,849 -- 37,849
----------- ----------- -----------
Total interest expense 408,890 90,655 499,545
----------- ----------- -----------
Net interest income
Net interest income 510,025 102,860 612,885
Provision for loan losses 38,268 5,120 43,388
----------- ----------- -----------
Net interest income after provision for loan losses 471,757 97,740 569,497
----------- ----------- -----------
Noninterest income
Service charges on deposit accounts 67,236 15,031 82,267
Trust and investment advisory income 42,802 880 43,682
Securities gains (losses) (3,529) 133 (3,396)
Other noninterest income 107,832 12,687 120,519
----------- ----------- -----------
Total noninterest income 214,341 28,731 243,072
----------- ----------- -----------
Noninterest expense
Personnel expense 247,801 42,822 290,623
Occupancy expense, net 35,845 11,377 47,222
Equipment expense 23,422 5,563 28,985
Other noninterest expense 143,499 23,561 167,060
----------- ----------- -----------
Total noninterest expense 450,567 83,323 533,890
----------- ----------- -----------
Net income
Income before income taxes 235,531 43,148 278,679
Income tax expense 82,031 16,321 98,352
----------- ----------- -----------
Net income $ 153,500 $ 26,827 $ 180,327
----------- ----------- -----------
----------- ----------- -----------
Per common share data (2)
Net income per common share $ 3.51 $ 1.79 $ 3.21
----------- ----------- -----------
----------- ----------- -----------
Weighted average shares outstanding (4) 43,702,000 14,992,000 56,221,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See Notes to Pro Forma Condensed Financial Information
36
<PAGE>
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CRESTAR &
CITIZENS
PRO FORMA
CRESTAR CITIZENS COMBINED (3)
---------- ----------- ------------
<S> <C>
INTEREST INCOME
Interest and fees on loans..................................................... $1,013,613 $ 171,594 $ 1,185,207
Interest and dividends on securities........................................... 174,155 88,378 262,533
Other interest income.......................................................... 48,347 -- 48,347
---------- ----------- ------------
Total interest income..................................................... 1,236,115 259,972 1,496,087
---------- ----------- ------------
INTEREST EXPENSE
Interest on deposits........................................................... 403,018 90,393 493,411
Interest on short-term borrowings.............................................. 100,365 33,464 133,829
Interest on long-term debt..................................................... 49,916 -- 49,916
---------- ----------- ------------
Total interest expense.................................................... 553,299 123,857 677,156
---------- ----------- ------------
NET INTEREST INCOME
Net interest income............................................................ 682,816 136,115 818,931
Provision for loan losses...................................................... 59,570 6,695 66,265
---------- ----------- ------------
Net interest income after provision for loan losses............................ 623,246 129,420 752,666
NONINTEREST INCOME
Service charges on deposit accounts............................................ 89,379 20,226 109,605
Trust and investment advisory income........................................... 60,645 1,152 61,797
Securities gains (losses)...................................................... (2,213) 146 (2,067)
Other noninterest income....................................................... 140,731 18,925 159,656
---------- ----------- ------------
Total noninterest income.................................................. 288,542 40,449 328,991
---------- ----------- ------------
NONINTEREST EXPENSE
Personnel expense.............................................................. 340,440 57,149 397,589
Occupancy expense, net......................................................... 48,650 14,199 62,849
Equipment expense.............................................................. 31,301 7,534 38,835
Other noninterest expense...................................................... 199,043 32,882 231,925
---------- ----------- ------------
Total noninterest expense................................................. 619,434 111,764 731,198
---------- ----------- ------------
NET INCOME
Income before income taxes..................................................... 292,354 58,105 350,459
Income tax expense............................................................. 112,557 22,015 134,572
---------- ----------- ------------
Net income..................................................................... $ 179,797 $ 36,090 $ 215,887
---------- ----------- ------------
PER COMMON SHARE DATA (2)
Net income per common share.................................................... $ 4.12 $ 2.40 $ 3.84
---------- ----------- ------------
---------- ----------- ------------
Weighted average shares outstanding (4)........................................ 43,685,000 15,007,000 56,216,000
---------- ----------- ------------
---------- ----------- ------------
</TABLE>
See Notes to Pro Forma Condensed Financial Information
37
<PAGE>
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CRESTAR &
CITIZENS
PRO FORMA
CRESTAR CITIZENS COMBINED (3)
----------- ----------- ------------
<S> <C>
INTEREST INCOME
Interest and fees on loans.................................................... $ 826,012 $ 143,118 $ 969,130
Interest and dividends on securities.......................................... 205,998 73,106 279,104
Other interest income......................................................... 56,634 603 57,237
----------- ----------- ------------
Total interest income.................................................... 1,088,644 216,827 1,305,471
----------- ----------- ------------
INTEREST EXPENSE
Interest on deposits.......................................................... 334,457 70,613 405,070
Interest on short-term borrowings............................................. 64,836 14,356 79,192
Interest on long-term debt.................................................... 38,756 -- 38,756
----------- ----------- ------------
Total interest expense................................................... 438,049 84,969 523,018
----------- ----------- ------------
NET INTEREST INCOME
Net interest income........................................................... 650,595 131,858 782,453
Provision for loan losses..................................................... 30,342 6,167 36,509
----------- ----------- ------------
Net interest income after provision for loan losses........................... 620,253 125,691 745,944
----------- ----------- ------------
NONINTEREST INCOME
Service charges on deposit accounts........................................... 83,824 19,868 103,692
Trust and investment advisory income.......................................... 55,609 896 56,505
Securities losses............................................................. (10,776) -- (10,776)
Other noninterest income...................................................... 130,579 14,941 145,520
----------- ----------- ------------
Total noninterest income................................................. 259,236 35,705 294,941
----------- ----------- ------------
NONINTEREST EXPENSE
Personnel expense............................................................. 329,273 54,106 383,379
Occupancy expense, net........................................................ 47,084 16,366 63,450
Equipment expense............................................................. 29,144 6,818 35,962
Other noninterest expense..................................................... 194,227 34,419 228,646
----------- ----------- ------------
Total noninterest expense................................................ 599,728 111,709 711,437
----------- ----------- ------------
NET INCOME
Income before income taxes.................................................... 279,761 49,687 329,448
Income tax expense............................................................ 95,643 18,647 114,290
----------- ----------- ------------
Net income.................................................................... $ 184,118 $ 31,040 $ 215,158
----------- ----------- ------------
----------- ----------- ------------
PER COMMON SHARE DATA (2)
Net income per common share................................................... $ 4.24 $ 2.09 $ 3.85
----------- ----------- ------------
----------- ----------- ------------
Weighted average shares outstanding (4)....................................... 43,398,000 14,879,000 55,821,000
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
See Notes to Pro Forma Condensed Financial Information
38
<PAGE>
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CRESTAR &
CITIZENS
PRO FORMA
CRESTAR CITIZENS COMBINED (3)
----------- ----------- ------------
<S> <C>
INTEREST INCOME
Interest and fees on loans.................................................... $ 695,819 $ 136,906 $ 832,725
Interest and dividends on securities.......................................... 223,010 65,158 288,168
Other interest income......................................................... 56,315 3,886 60,201
----------- ----------- ------------
Total interest income.................................................... 975,144 205,950 1,181,094
----------- ----------- ------------
INTEREST EXPENSE
Interest on deposits.......................................................... 302,663 81,013 383,676
Interest on short-term borrowings............................................. 48,387 3,506 51,893
Interest on long-term debt.................................................... 33,056 -- 33,056
----------- ----------- ------------
Total interest expense................................................... 384,106 84,519 468,625
----------- ----------- ------------
NET INTEREST INCOME
Net interest income........................................................... 591,038 121,431 712,469
Provision for loan losses..................................................... 51,860 11,465 63,325
----------- ----------- ------------
Net interest income after provision for loan losses........................... 539,178 109,966 649,144
----------- ----------- ------------
NONINTEREST INCOME
Service charges on deposit accounts........................................... 80,237 20,741 100,978
Trust and investment advisory income.......................................... 57,440 925 58,365
Securities gains.............................................................. 2,084 -- 2,084
Other noninterest income...................................................... 106,760 13,964 120,724
----------- ----------- ------------
Total noninterest income................................................. 246,521 35,630 282,151
----------- ----------- ------------
NONINTEREST EXPENSE
Personnel expense............................................................. 285,308 53,058 338,366
Occupancy expense, net........................................................ 42,777 13,694 56,471
Equipment expense............................................................. 27,817 5,931 33,748
Other noninterest expense..................................................... 205,892 32,067 237,959
----------- ----------- ------------
Total noninterest expense................................................ 561,794 104,750 666,544
NET INCOME
Income before income taxes.................................................... 223,905 40,846 264,751
Income tax expense............................................................ 71,149 14,016 85,165
----------- ----------- ------------
Net income.................................................................... 152,756 26,830 179,586
Preferred dividend requirement................................................ 2,221 -- 2,221
----------- ----------- ------------
Net income applicable to common shares........................................ $ 150,535 $ 26,830 $ 177,365
----------- -----------
----------- -----------
PER COMMON SHARE DATA (2)
Net income per common share................................................... $ 3.49 $ 1.82 $ 3.20
----------- ----------- ------------
----------- ----------- ------------
Weighted average shares outstanding (4)....................................... 43,103,000 14,748,000 55,418,000
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
See Notes to Pro Forma Condensed Financial Information
39
<PAGE>
NOTES TO PRO FORMA CONDENSED FINANCIAL INFORMATION
(UNAUDITED)
(1) Certain material, non-recurring adjustments of approximately $42 million, on
a pre-tax basis, will be recorded in conjunction with the Holding Company
Merger. These adjustments include approximately $9 million for settlement of
obligations under existing employment contracts, severance pay for
involuntary terminations, and related employee benefit costs; approximately
$18 million associated with branch closings and consolidations, and
approximately $15 million of expenses related to consummating the Holding
Company Merger, including signage and customer service expenses. On an
after-tax basis, these non-recurring adjustments approximate $28 million.
(2) Based on an Exchange Ratio of 0.835 for conversion of Citizens Common Stock
into Crestar Common Stock. See "Summary -- The Exchange Ratio" and "The
Holding Company Merger -- Determination of Exchange Ratio and Exchange for
Crestar Common Stock" for additional discussion regarding the Exchange
Ratio. At September 30, 1996, Crestar and Citizens had 42,349,513 and
15,132,599 common shares outstanding, respectively.
(3) No pro forma adjustments are necessary in the Pro Forma Condensed Statements
of Operations.
(4) Weighted average shares outstanding for Crestar is composed of the weighted
average number of common shares outstanding during the period, including
average common equivalent shares attributable to dilutive stock options.
Weighted average shares outstanding for Citizens is composed of the weighted
average number of common shares outstanding during the period; the dilutive
effect of Citizens stock options was not material for any period presented.
40
<PAGE>
CAPITALIZATION
The following table sets forth (i) the unaudited historical capitalization
of Crestar as of September 30, 1996, (ii) the unaudited historical
capitalization of Citizens as of September 30, 1996 and (iii) the unaudited pro
forma capitalization of Crestar and Citizens assuming the Holding Company Merger
had been consummated on September 30, 1996. For additional information,
reference is made to the historical consolidated financial statements and notes
thereto of Crestar, incorporated by reference herein, the historical
consolidated statements and notes thereto of Citizens, also incorporated by
reference herein, and the "Notes to Capitalization" which follow.
SEPTEMBER 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CRESTAR
AND
CITIZENS
PRO FORMA
CRESTAR CITIZENS ADJUSTMENTS COMBINED
---------- -------- ----------- ----------
<S> <C>
Long-term debt and capital lease obligations:
Crestar:
8 3/4% Subordinated notes due 2004................................. $ 149,683 $ 149,683
8 1/4% Subordinated notes due 2002................................. 125,000 125,000
8 5/8% Subordinated notes due 1998................................. 49,984 49,984
7-8 1/4% Mortgage indebtedness maturing through 2009............... 8,782 8,782
8 5/8-14 3/8% Capital lease obligations maturing through 2006...... 1,022 1,022
4 3/8-7 3/8% Federal Home Loan Bank obligations payable through
2015............................................................. 318,529 318,529
7 7/8%-11 1/4% Collateralized mortgage obligation bonds maturing
through 2019..................................................... 15,458 15,458
Citizens:
Long-term debt (none).............................................. -- --
---------- -------- ----------- ----------
Total long-term debt and capital lease obligations................. 668,458 -- -- 668,458
---------- -------- ----------- ----------
Shareholders' Equity:
Crestar:
Preferred stock, authorized 2,000,000 shares, none issued.......... -- --
Common stock, $5 par value, authorized 100,000,000 shares;
outstanding 42,349,513 shares actual and 54,985,233 shares pro
forma combined................................................... 211,748 63,178(1) 274,926
Capital surplus.................................................... 397,728 96,764(1) 494,492
Retained earnings.................................................. 863,907 192,207(1) 1,028,114
(28,000)(2)
Net unrealized loss on securities available for sale............... (40,415) 2,435(3) (37,980)
Citizens:
Preferred stock, authorized 2,500,000 shares, none issued.......... --
Common stock, $2.50 par value, authorized 125,000,000 shares,
outstanding 15,132,599 shares.................................... 37,832 (37,832)(1)
Paid-in capital.................................................... 122,110 (122,110)(1)
Retained earnings.................................................. 192,207 (192,207)(1)
Net unrealized gain on securities available for sale............... 2,435 (2,435)(3)
---------- -------- ----------- ----------
Total shareholders' equity......................................... 1,432,968 354,584 (28,000) 1,759,552
---------- -------- ----------- ----------
Total long-term debt, capital lease obligations and shareholders'
equity........................................................... $2,101,426 $354,584 ($ 28,000) $2,428,010
---------- -------- ----------- ----------
---------- -------- ----------- ----------
</TABLE>
41
<PAGE>
NOTES TO CAPITALIZATION
(UNAUDITED)
(1) Based on an Exchange Ratio of 0.835 for conversion of Citizens Common
Stock into Crestar Common Stock. See "Summary -- The Exchange Ratio"
and "The Holding Company Merger -- Determination of Exchange Ratio and
Exchange for Crestar Common Stock" for additional discussion regarding
the Exchange Ratio. Citizens common shares outstanding are assumed to
be converted into 12,635,720 shares of Crestar Common Stock, having a
par value of $5 per share.
(2) Certain material, non-recurring adjustments of approximately $42
million, on a pre-tax basis, will be recorded in conjunction with the
Holding Company Merger. These adjustments include approximately $9
million for settlement of obligations under existing employment
contracts, severance pay for involuntary terminations, and related
employee benefit costs; approximately $18 million associated with
branch closings and consolidations; and approximately $15 million of
expenses related to consummating the Holding Company Merger, including
signage and customer service expenses. On an after-tax basis, these
non-recurring adjustments approximate $28 million.
(3) At the time of the Holding Company Merger, Citizen's securities
available for sale portfolio will be merged with Crestar's securities
available for sale portfolio. Any net unrealized gain or loss on
securities available for sale of Crestar and Citizens will be reflected
in Shareholders' Equity as a combined balance.
42
<PAGE>
BUSINESS OF CRESTAR
Crestar is the holding company for Crestar Bank, a Virginia banking
corporation. At September 30, 1996, Crestar had approximately $18.3 billion in
total assets, $13.6 billion in total deposits, and $1.4 billion in total
stockholders' equity.
In 1963, six Virginia banks combined to form United Virginia Bankshares
Incorporated ("UVB"), a bank holding company formed under the Bank Holding
Company Act of 1956 (the "BHCA"). UVB (parent company of United Virginia Bank)
extended its operations into the District of Columbia by acquiring NS&T Bank,
N.A. on December 27, 1985 and into Maryland by acquiring Bank of Bethesda on
April 1, 1986. On September 1, 1987, UVB became Crestar Financial Corporation
and its Bank Subsidiaries adopted their present names.
Crestar serves customers through a network of 380 banking offices and 387
automated teller machines (as of September 30, 1996). Crestar Bank offers a
broad range of banking services, including various types of deposit accounts and
instruments, commercial and consumer loans, trust and investment management
services, bank credit cards and international banking services. Crestar
Insurance Agency, Inc., offers a variety of personal and business insurance
products. Securities brokerage and investment banking services, including mutual
funds and annuities, are offered by Crestar Securities Corporation. Mortgage
loan origination, servicing and wholesale lending are offered by Crestar
Mortgage Corporation, and investment advisory services are offered by Capitoline
Investment Services Incorporated, both of which are subsidiaries of Crestar
Bank. These various Crestar subsidiaries provide banking and non-banking
services throughout Virginia, Maryland and Washington, D.C., as well as certain
non-banking services to customers in other states.
The executive offices of Crestar are located in Richmond, Virginia at
Crestar Center, 919 East Main Street. Crestar's Operations Center is located in
Richmond. Regional headquarters are located in Norfolk and Roanoke, Virginia,
Washington, D.C., and Baltimore, Maryland.
RECENT DEVELOPMENTS
SAIF LEGISLATION. Crestar's third quarter earnings were affected by two
special items relating to recently passed legislation regarding recapitalization
of the Savings Association Insurance Fund ("SAIF") and repeal of the thrift bad
debt recapture rule. Third quarter earnings were adversely affected by a
one-time assessment on deposits insured by the SAIF; as a result of several
thrift acquisitions during recent years, approximately 45% of Crestar's deposit
base are SAIF insured. The one-time assessment, on an after tax basis, was
approximately $22 million. As a result of this one-time assessment and based on
announced rate schedules, future earnings of Crestar are expected to be
augmented by a reduction in ongoing SAIF assessments of approximately $6 million
annually, on an after tax basis.
Partially offsetting this one-time SAIF assessment, Crestar recognized a
one-time after tax gain of approximately $11 million in the third quarter as a
result of repeal of the tax law that required merging thrift institutions to
recapture into income pre-1988 loan loss reserves.
The combined effect of the two special items resulted in an after tax
charge to third quarter earnings of $11 million, or $.25 per share.
COMBINATION OF SUBSIDIARY BANKS. On November 14, 1996, Crestar combined its
subsidiary banks, Crestar Bank MD, Crestar Bank NA, and Crestar Bank (Virginia),
into one Virginia bank named Crestar Bank. A week earlier, Crestar Bank FSB had
been merged into Crestar Bank MD.
The combination of its subsidiary banks into one bank is expected to
achieve synergies and other cost savings, although the savings will be modest
since Crestar, for a number of years, has for all practical purposes operated
its subsidiary banks as if they were one combined banking enterprise. The
combination of the subsidiary banks into a Virginia bank is not expected to have
any effect on the services or products offered to customers or any other
substantive change in the way Crestar does business.
BUSINESS OF CITIZENS
Citizens is the holding company for Citizens Bank of Maryland. At September
30, 1996, Citizens had approximately $4.2 billion in total assets, $3.0 billion
in total deposits, and $354.6 million in total stockholders' equity.
Citizens was formed in 1982 as the holding company for Citizens Bank of
Maryland. Citizens extended its operations into the District of Columbia by
acquiring McLachlen Bancshares on August 31, 1988, and into Virginia by
acquiring Arlington Bank on May 30, 1989.
43
<PAGE>
Citizens serves customers through a network of 103 banking locations and
125 automated teller machines, as of September 30, 1996. Citizens Bank offers a
broad range of banking services, including deposit, loan and trust services to
both retail and commercial customers. Citizens provides mortgage banking and
investment services through its subsidiary CitizensBanc Mortgage Co., Inc.,
Citizens Insurance Services, Inc., and Citizens Brokerage Services, Inc.
Citizens Bank and its subsidiaries provide banking and banking services in
Maryland, Washington, D.C., and Northern Virginia.
Citizens' executive offices are located at 14401 Sweitzer Lane, Laurel,
Maryland.
PRICE RANGE OF CITIZENS COMMON STOCK AND DIVIDEND POLICY
Citizens Common Stock is traded on The Nasdaq National Market under the
symbol "CIBC." The following table sets forth the calendar periods indicated,
the high and low closing prices of Citizens Common Stock as reported on The
Nasdaq National Market for the following calendar quarters:
<TABLE>
<CAPTION>
DIVIDENDS
DECLARED
HIGH LOW PER SHARE
------ ------ ---------
<S> <C>
1996
Fourth Quarter (through November 19, 1996)............................. $56.25 $47.75 $ .29
Third Quarter.......................................................... 48.00 27.00 .29
Second Quarter......................................................... 30.38 29.00 .29
First Quarter.......................................................... 33.00 29.75 .29
1995
Fourth Quarter......................................................... $34.75 $31.75 $ .28
Third Quarter.......................................................... 33.25 29.00 .28
Second Quarter......................................................... 30.50 27.00 .28
First Quarter.......................................................... 27.00 25.00 .28
1994
Fourth Quarter......................................................... $30.25 $25.00 $ .27
Third Quarter.......................................................... 31.50 29.50 .27
Second Quarter......................................................... 29.25 30.50 .27
First Quarter.......................................................... 30.50 26.00 .27
</TABLE>
On November 1, 1996, the Record Date, the outstanding shares of Citizens
Common Stock were held by approximately 5,000 record holders. The closing price
per share of Citizens Common Stock on November 14, 1996 on The Nasdaq National
Market was $53.50.
Citizens has agreed that it will declare cash dividends consistent (in
terms of amount and timing of record and payment dates) with its practice in
effect in the second quarter of 1996 until the Effective Time of the Holding
Company Merger.
See "Comparative Rights of Shareholders -- Dividends and Other
Distributions."
44
<PAGE>
PRICE RANGE OF CRESTAR COMMON STOCK AND DIVIDEND POLICY
Crestar Common Stock is traded on the New York Stock Exchange under the
symbol "CF." The following table sets forth the calendar periods indicated, the
high and low closing prices of Crestar Common Stock as reported by the NYSE
Composite Tape for the following calendar quarters and the cash dividends paid
per share:
<TABLE>
<CAPTION>
DIVIDENDS
DECLARED
HIGH LOW PER SHARE
----------- ----------- ---------
<S> <C>
1996
Fourth Quarter (through November 19, 1996)............................... $ 67 1/2 $ 58 $ .52
Third Quarter............................................................ 61 3/8 52 3/8 .52
Second Quarter........................................................... 58 3/8 53 1/4 .52
First Quarter............................................................ 59 5/8 53 .45
1995
Fourth Quarter........................................................... $ 61 $ 55 $ .45
Third Quarter............................................................ 58 3/8 47 3/4 .45
Second Quarter........................................................... 49 1/4 43 1/8 .45
First Quarter............................................................ 44 1/4 37 .40
1994
Fourth Quarter........................................................... $ 45 5/8 $ 36 1/8 $ .40
Third Quarter............................................................ 49 3/4 44 5/8 .40
Second Quarter........................................................... 49 1/2 40 3/4 .40
First Quarter............................................................ 46 39 3/8 .33
</TABLE>
The payment of future dividends will be determined by Crestar's Board of
Directors in light of earnings, capital levels, cash requirements, Crestar's
financial condition and that of its subsidiaries, applicable government
regulations and policies and other factors deemed relevant by the Crestar Board,
including the amount of dividends payable to Crestar by its Bank Subsidiaries.
Various federal and state laws, regulations and policies limit the ability of
the Bank Subsidiaries to pay dividends to Crestar, which affects Crestar's
ability to pay dividends to shareholders. See "Supervision and Regulation."
45
<PAGE>
OWNERSHIP OF CITIZENS COMMON STOCK BY CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the beneficial
ownership of Citizens Common Stock as of September 27, 1996 by each of Citizens
directors and by all directors and executive officers of Citizens as a group.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP(1)
<TABLE>
<CAPTION>
DIRECT
OWNERSHIP
OF COMMON STOCK PERCENT
STOCK OPTIONS TOTAL OF CLASS
--------- ------- --------- --------
<S> <C>
Directors:
Alfred H. Smith, Jr.......................................................... 356,468(2) -0- 730,554(2) 4.828%
James D. Ward................................................................ 4,324 -0- 4,324 0.029
Robert M. Beall.............................................................. 8,223(3) -0- 11,424(3) 0.075
Fred W. Maier................................................................ 6,920(4) -0- 209,912(4) 1.387
Susan O'Malley............................................................... 1,000 -0- 1,000 0.006
Harry R. Smith............................................................... 123,053(5) -0- 589,493(5) 3.896
Albert W. Turner............................................................. 338,318(6) -0- 352,318(6) 2.328
Gordon T. Wells, II.......................................................... 128,198 -0- 182,190(7) 1.204
Executive Officers:
Jeffrey R. Springer.......................................................... 21,527(8) 206,500 229,551(8) 1.517
Richard C. Bandiere.......................................................... 1,794 82,750 84,544 0.559
Raymond L. Gazelle, Jr....................................................... -0- 65,250 65,250 0.431
Gary N. Geisel............................................................... 1,500(9) 77,250 78,750 0.520
All Directors and Executive Officers as a group (12 persons)................. 991,325 431,750 2,469,306(10) 16.32%
</TABLE>
- ---------------
(1) For the purposes of this table, pursuant to rules promulgated under the
Exchange Act, an individual is considered to "beneficially own" any shares
of Citizens Common Stock over which he or she has or shares, (a) voting
power, which includes the power to vote or direct the voting of the shares;
or (b) investment power, which includes the power to dispose or direct the
disposition of the shares. A person also is deemed to have beneficial
ownership of any shares of Citizens Common Stock which may be acquired
within 60 days pursuant to the exercise of stock options. Unless otherwise
indicated, the individuals listed in the table have sole voting power and
sole investment power with respect to the indicated shares. Shares of
Citizens Common Stock which may be acquired within 60 days of the Record
Date are deemed to be outstanding shares of Citizens Common Stock
beneficially owned by such person(s) but are not deemed to be outstanding
for the purposes of computing the percentage of Citizens Common Stock owned
by any other person.
(2) Direct Ownership includes 30,873 shares owned jointly with his spouse.
Total also includes 523 shares for which he has sole voting power as
custodian, 2,831 shares on which his spouse has sole voting power, 441
shares on which his spouse has shared voting power, and shared voting power
for 70,004 shares in a partnership owned equally with his brother, Director
Harry R. Smith (also reported for Harry R. Smith).
(3) Direct Ownership includes 897 shares registered jointly with his spouse.
Total also includes 1,350 shares in a corporate registration on which he
has shared voting power, 1,829 shares on which his spouse has sole voting
power, and 20 shares on which his spouse has sole voting power as
custodian.
(4) Direct Ownership includes 4,036 shares registered jointly with his spouse.
Total also includes 5,488 shares on which he has sole voting power as
trustee and 197,504 shares in a corporate registration on which he has
shared voting power.
(5) Direct Ownership includes 122,490 shares registered jointly with his
spouse. Total also includes 83,432 shares on which he has sole voting power
as trustee, 300,287 shares in a corporate registration on which he has sole
voting power, 70,0004 shares in a partnership owned equally with his
brother, Director Alfred H. Smith, Jr. (also reported for Alfred H. Smith,
Jr.), and 12,717 shares on which his spouse has sole voting power.
(6) Direct Ownership includes 62,750 shares registered jointly with his spouse.
Total also includes 14,000 shares on which he has sole voting power as
trustee.
(7) Total includes 53,992 shares on which his spouse has sole voting power.
46
<PAGE>
(8) Direct Ownership includes 19,231 shares on which he shares voting power
with his spouse. Total also includes 1,524 shares on which he has sole
voting power as trustee, and 206,500 stock options which are exercisable
within 60 days of the Record Date.
(9) Direct Ownership includes 1,000 shares registered jointly with his spouse.
(10) Total includes 431,750 in stock options exercisable within 60 days of the
Record Date, 1,455,767 shares on which reporting persons have sole voting
authority, and 509,055 shares on which the reporting persons have shared
voting power.
As of September 27, 1996, The Depository Trust Company owned of record, but
not beneficially, 5,089,504 shares (33.6%) of the outstanding Citizens Common
Stock. Such shares were held on behalf of more than 600 other entities. Citizens
is not aware of any other person or group which beneficially owns or controls
more than five percent of its outstanding Common Stock.
OWNERSHIP OF CRESTAR COMMON STOCK BY CERTAIN BENEFICIAL OWNERS
Based on Crestar's records and filings with the Securities and Exchange
Commission, Crestar is not aware of any persons who are beneficial owners of 5%
or more of Crestar's Common Stock, except as listed below:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------------------------------------------------- ----------------------- ----------------
<S> <C>
Crestar Bank as Trustee for
Crestar Employees' Thrift
and Profit Sharing Plan.................................... 3,368,281 shares(1) 7.9%
919 East Main Street
Richmond, VA 23219
Delaware Management Holdings, Inc............................ 4,043,447 shares (2) 9.5%
One Commerce Square
Philadelphia, PA 19103
</TABLE>
- ---------------
(1) Shares are held on behalf of Plan participants. Crestar Bank has no voting
rights or any investment or dispositive power with respect to the shares.
Plan information is as of November 1, 1996.
(2) Shares attributed to Delaware Management Holdings, Inc. include shares held
by Delaware Management Company, Inc. and Delaware Capital Management, Inc. a
Delaware Management Holdings, Inc. has sole voting power with respect to
2,968,624 shares; shared voting power with respect to 169 shares; sole
dispositive power for 3,885,547 shares; and shared dispositive power for
157,900 shares. Delaware Management Holdings, Inc. information is as of
October 31, 1996 and was obtained from Schedule 13G filed by Delaware
Management Holdings, Inc.
SUPERVISION AND REGULATION
Bank holding companies and banks operate in a highly regulated environment
and are regularly examined by federal and state regulators. The following
description briefly discusses certain provisions of federal and state laws and
certain regulations and the potential impact of such provisions on Crestar and
Citizens, and their respective bank subsidiaries. To the extent that the
following information describes statutory or regulatory provisions, it is
qualified in its entirety by reference to the particular statutory or regulatory
provisions.
BANK HOLDING COMPANIES
As bank holding companies registered under the BHCA, Crestar and Citizens
are subject to regulation by the Federal Reserve Board. The Federal Reserve
Board has jurisdiction under the BHCA to approve any bank or nonbank
acquisition, merger or consolidation proposed by a bank holding company. The
BHCA generally limits the activities of a bank holding company and its
subsidiaries to that of banking, managing or controlling banks, or any other
activity which is so closely related to banking or to managing or controlling
banks as to be a proper incident thereto.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
amended Section 3(d) of the BHCA by authorizing the FRB to approve on or after
September 29,1995 the acquisition by a bank holding company of more than 5% of
any class of the voting shares of, or substantially all the assets of, any bank
(or its holding company) located outside the
47
<PAGE>
state in which the operations of such acquiring bank holding company's banking
subsidiaries are principally conducted on the date such company became a bank
holding company, regardless of whether the acquisition would be prohibited by
state law. Effective June 1, 1997, the law will allow interstate bank mergers,
subject to earlier "opt-in" or "opt-out" action by individual states. The law
also allows interstate branch acquisitions and de novo branching if permitted by
the host state. Virginia, Maryland and the District of Columbia have adopted
early "opt-in" legislation that allows interstate bank mergers. These laws also
permit interstate branch acquisitions and de novo branching in Virginia,
Maryland and the District of Columbia by out-of-state banks if reciprocal
treatment is accorded Virginia, Maryland or District of Columbia banks (as the
case may be) in the state of the acquiror or entrant.
There are a number of obligations and restrictions imposed on bank holding
companies and their depository institution subsidiaries by federal law and
regulatory policy that are designed to reduce potential loss exposure to the
depositors of such depository institutions and to the FDIC insurance fund in the
event the depository institution becomes in danger of default or in default. For
example, under a policy of the Federal Reserve Board with respect to bank
holding company operations, a bank holding company is required to serve as a
source of financial strength to its subsidiary depository institutions and to
commit resources to support such institutions in circumstances where it might
not do so otherwise. In addition, the "cross-guarantee" provisions of federal
law require insured depository institutions under common control to reimburse
the FDIC for any loss suffered or reasonably anticipated by either the Savings
Association Insurance Fund ("SAIF") or the Bank Insurance Fund ("BIF") as a
result of the default of a commonly controlled insured depository institution or
for any assistance provided by the FDIC to a commonly controlled insured
depository institution in danger of default. The FDIC may decline to enforce the
cross-guarantee provisions if it determines that a waiver is in the best
interest of the SAIF or the BIF or both. The FDIC's claim for reimbursement is
superior to claims of shareholders of the insured depository institution or its
holding company but is subordinate to claims of depositors, secured creditors
and holders of subordinated debt (other than affiliates) of the commonly
controlled insured depository institution.
Crestar is registered under the bank holding company laws of Virginia, and
Citizens under similar laws in Maryland. Accordingly, Crestar and its bank
subsidiaries are subject to further regulation and supervision by the State
Corporation Commission of Virginia, and Citizens and its bank subsidiaries by
the Division of Financial Regulation of the Maryland Department of Labor,
Licensing and Regulations.
CAPITAL REQUIREMENTS
The Federal Reserve Board and the FDIC have issued substantially similar
risk-based and leverage capital guidelines applicable to banking organizations
they supervise. In addition, those regulatory agencies may from time to time
require that a banking organization maintain capital above the minimum levels
because of its financial condition or actual or anticipated growth. Under the
risk-based capital requirements of these federal bank regulatory agencies,
Crestar and Citizens each are required to maintain a minimum ratio of total
capital to risk-weighted assets of at least 8%. At least half of the total
capital is required to be "Tier 1 capital", which consists principally of common
and certain qualifying preferred stockholders' equity, less certain intangibles
and other adjustments. The remainder "Tier 2 capital" consists of a limited
amount of subordinated and other qualifying debt (including certain hybrid
capital instruments) and a limited amount of the general loan loss allowance.
The Tier 1 and total capital to risk-weighted asset ratios of Crestar as of
September 30, 1996 were 9.0% and 12.2% respectively, and of Citizens as of the
same date were 12.9% and 14.1%, respectively -- all exceeding the minimums
required.
In addition, each of the federal regulatory agencies has established a
minimum leverage capital ratio (Tier 1 capital to average tangible assets).
These guidelines provide for a minimum ratio of 3% for banks and bank holding
companies that meet certain specified criteria, including that they have the
highest regulatory examination rating and are not contemplating significant
growth or expansion. All other institutions are expected to maintain a leverage
ratio of at least 100 to 200 basis points above the minimum. The Tier 1 capital
leverage ratio of Crestar as of September 30, 1996, was 7.5% and of Citizens at
the same date was 8.5%. The guidelines also provide that banking organizations
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.
LIMITS ON DIVIDENDS AND OTHER PAYMENTS
Crestar and Citizens are legal entities separate and distinct from their
Bank Subsidiaries. Most of the revenues of Crestar and Citizens come from
dividends paid by their respective Bank Subsidiaries. There are various
limitations applicable to the payment of dividends to Crestar and Citizens as
well as the payment of dividends by Crestar and Citizens to their respective
48
<PAGE>
shareholders. Under federal law, prior approval from the bank regulatory
agencies is required if cash dividends declared by banks in any given year
exceed net income for that year plus retained earnings of the two preceding
years. Under these supervisory practices, at September 30, 1996, without
obtaining prior regulatory approval, Crestar Bank Subsidiaries could have paid
additional dividends of approximately $300 million to Crestar, and Citizens'
Bank Subsidiaries could have paid $76 million to Citizens. The payment of
dividends by Bank Subsidiaries, or Crestar or Citizens, may also be limited by
other factors, such as requirements to maintain capital above regulatory
guidelines. Bank regulatory agencies have authority to prohibit any bank or
holding company from engaging in an unsafe or unsound practice in conducting
their business. The payment of dividends, depending upon the financial condition
of the bank or holding company in question, could be deemed to constitute such
an unsafe or unsound practice. The Federal Reserve Board has stated that, as a
matter of prudent banking, a bank or bank holding company should not maintain
its existing rate of cash dividends on common stock unless (1) the
organization's net income available to common shareholders over the past year
has been sufficient to fund fully the dividends and (2) the prospective rate of
earnings retention appears consistent with the organization's capital needs,
asset quality, and overall financial condition.
SUBSIDIARY BANKS
Crestar's and Citizens' Bank Subsidiaries are supervised and regularly
examined by the Federal Reserve Board, the FDIC, the SCC, the MBC and the Office
of the Comptroller of the Currency ("OCC"), as the case may be. The bank
subsidiaries are also subject to various requirements and restrictions under
federal and state law such as limitations on the types of services that they may
offer, the nature of investments that they may make, and the amounts of loans
that may be granted. Various consumer and compliance laws and regulations also
affect the operations of the Bank Subsidiaries. In addition to the impact of
regulation, the bank subsidiaries are affected significantly by actions of the
Federal Reserve Board in attempting to control the money supply and the
availability of credit.
Each company's Bank Subsidiaries also are subject to the requirements of
the Community Reinvestment Act (the "CRA"). The CRA imposes on financial
institutions an affirmative and ongoing obligation to help meet the credit needs
of their local communities, including low- and moderate-income neighborhoods,
consistent with the safe and sound operation of those institutions. Each
financial institution's efforts in helping to meet community credit needs
currently are evaluated as part of the examination process pursuant to twelve
assessment factors. These factors also are considered in evaluating mergers,
acquisitions and applications to open branches. Each company's bank subsidiaries
have attained either an "outstanding" or "satisfactory" rating on their most
recent CRA performance evaluations.
As institutions with deposits insured by BIF and/or SAIF, each company's
bank subsidiaries also are subject to insurance assessments imposed by the FDIC.
Legislation that became effective on September 30, 1996 assesses a one-time
charge on deposits insured by the Savings Association Insurance Fund (SAIF). As
a result of acquisition of thrift institutions in recent years, approximately
45% of Crestar's deposit base is SAIF-insured and, as the result, the one-time
charge assessed against Crestar on an after-tax basis is approximately $22
million. See "Business of Crestar -- Recent Development." This charge was
recognized in Crestar's publicly announced third quarter 1996 earnings and will
have the effect of significantly reducing future premiums payable into the SAIF.
All of Citizens deposits are insured by the Bank Insurance Fund (BIF), and
Citizens was not subject to this one-time charge.
OTHER SAFETY AND SOUNDNESS REGULATIONS
The federal banking agencies have broad powers under current federal law to
take prompt corrective action to resolve problems of insured depository
institutions. The extent of these powers depends upon whether the institutions
in question are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized," as such terms are defined under uniform regulations defining
such capital levels issued by each of the federal banking agencies.
DESCRIPTION OF CRESTAR CAPITAL STOCK
The capital stock of Crestar consists of 100,000,000 authorized shares of
Common Stock and 2,000,000 authorized shares of Preferred Stock. The shares of
Preferred Stock are issuable in series, with relative rights, preferences and
limitations of each series fixed by the Crestar Board. The following summary
does not purport to be complete and is subject in all respects to applicable
Virginia law, Crestar's Restated Articles of Incorporation (the "Crestar
Articles") and Bylaws, and the Rights Agreement dated June 23, 1989 (described
below) (the "Rights Agreement").
49
<PAGE>
COMMON STOCK
Crestar had 42,349,513 shares of Common Stock outstanding at September 30,
1996. Each share of Common Stock is entitled to one vote on all matters
submitted to a vote of shareholders. Holders of Common Stock are entitled to
receive dividends when and as declared by the Crestar Board out of funds legally
available therefor. Dividends may be paid on the Common Stock only if all
dividends on any outstanding Preferred Stock have been paid or provided for.
The issued and outstanding shares of Common Stock are fully paid and
non-assessable. Holders of Common Stock have no preemptive or conversion rights
and are not subject to further calls or assessments by Crestar.
In the event of the voluntary or involuntary dissolution, liquidation or
winding up of Crestar, holders of Common Stock are entitled to receive, pro
rata, after satisfaction in full of the prior rights of creditors and holders of
Preferred Stock, if any, all the remaining assets of Crestar available for
distribution.
Directors are elected by a vote of the holders of Common Stock. Holders of
Common Stock are not entitled to cumulative voting rights. Chase Mellon
Shareholder Services acts as the transfer agent and registrar for the Common
Stock.
PREFERRED STOCK
The Crestar Board is authorized to designate with respect to each new
series of Preferred Stock the number of shares in each series, the dividend
rates and dates of payment, voluntary and involuntary liquidation preferences,
redemption prices, whether or not dividends shall be cumulative and, if
cumulative, the date or dates from which the same shall be cumulative, the
sinking fund provisions, if any, for redemption or purchase of shares, the
rights, if any, and the terms and conditions on which shares can be converted
into or exchanged for, or the rights to purchase, shares of any other class or
series, and the voting rights, if any. Any Preferred Stock issued will rank
prior to the Common Stock as to dividends and as to distributions in the event
of liquidation, dissolution or winding up of Crestar. The ability of the Crestar
Board to issue Preferred Stock, while providing flexibility in connection with
possible acquisitions and other corporate purposes, could, among other things,
adversely affect the voting powers of holders of Common Stock and, under certain
circumstances, may discourage an attempt by others to gain control of Crestar.
Pursuant to Crestar's Articles, the Crestar Board has designated a series
of 100,000 shares of Participating Cumulative Preferred Stock, Series C (the
"Series C Preferred Stock"), none of the shares of which are currently
outstanding. The Series C Preferred Stock was created in connection with
Crestar's shareholder rights plan which is described below.
RIGHTS
In 1989, pursuant to the Rights Agreement, Crestar distributed as a
dividend one Right for each outstanding share of Common Stock. Each Right
entitles the holder to buy one one-thousandth of a share of Junior Preferred
Stock at an exercise price of $115, subject to adjustment. The Rights will
become exercisable only if a person or group acquires or announces a tender
offer for 10% or more of the outstanding Common Stock. When exercisable, Crestar
may issue a share of Common Stock in exchange for each Right other than those
held by such person or group. If a person or group acquires 30% or more of the
outstanding Common Stock, each Right will entitle the holder, other than the
acquiring person, upon payment of the exercise price, to acquire Series C
Preferred Stock or, at the option of Crestar, Common Stock, having a value equal
to twice the Right's exercise price. If Crestar is acquired in a merger or other
business combination or if 50% of its earnings power is sold, each Right will
entitle the holder, other than the acquiring person, to purchase securities of
the surviving company having a market value equal to twice the exercise price of
the Right. The Rights will expire on June 23, 1999, and may be redeemed by
Crestar at any time prior to the tenth day after an announcement that a 10%
position has been acquired, unless such time period has been extended by the
Crestar Board.
Until such time as a person or group acquires or announces a tender offer
for 10% or more of the Common Stock, (i) the Rights will be evidenced by the
Common Stock certificates and will be transferred with and only with such Common
Stock certificates, and (ii) the surrender for transfer of any certificate for
Common Stock will also constitute the transfer of the Rights associated with the
Common Stock represented by such certificate. Rights may not be transferred,
directly or indirectly (i) to any person or group that has acquired, or obtained
the right to acquire, beneficial ownership of 10% or more of the Rights (an
"Acquiring Person"), (ii) to any person in connection with a transaction in
which such person becomes an Acquiring Person or (iii) to any affiliate or
associate of any such person. Any Right that is the subject of a purported
transfer to any such person will be null and void.
The Rights can be expected to have certain anti-takeover effects if an
acquisition transaction not approved by the Crestar Board is proposed by a
person or group. In such event, the Rights will cause substantial dilution to
any person or group that
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acquires more than 10% of the outstanding shares of Crestar Common Stock if
certain events thereafter occur without the Rights having been redeemed. For
example, if thereafter such acquiring person acquires 30% of Crestar's
outstanding Common Stock, or effects a business combination with Crestar, the
Rights permits shareholders to acquire securities having a value equal to twice
the amount of the purchase price specified in the Rights, but rights held by
such "acquiring person" are void to the extent permitted by law and may not be
exercised. Further, other shareholders may not transfer rights to such
"acquiring person" above his 10% ownership threshold. Because of these
provisions, it is unlikely that any person or group will propose an acquisition
transaction that is not approved by the Crestar Board. Thus, the Rights could
have the effect of discouraging acquisition transactions not approved by the
Crestar Board. The Rights do not interfere with any merger or other business
combination approved by the Crestar Board and shareholders because the rights
are redeemable with the concurrence of a majority of the "Continuing Directors,"
defined as directors in office when the Rights Agreement was adopted or any
person added thereafter to the Board with the approval of the Continuing
Directors.
VIRGINIA STOCK CORPORATION ACT
The Virginia Stock Corporation Act ("VSCA") contains provisions governing
"Affiliated Transactions." These provisions, with several exceptions discussed
below, require approval of material acquisition transactions between a Virginia
corporation and any holder of more than 10% of any class of its outstanding
voting shares (an "Interested Stockholder") by the holders of at least
two-thirds of the remaining voting shares. Affiliated Transactions subject to
this approval requirement include mergers, share exchanges, material
dispositions of corporate assets not in the ordinary course of business, any
dissolution of the corporation proposed by or on behalf of an Interested
Stockholder, or any reclassification, including reverse stock splits,
recapitalization or merger of the corporation with its subsidiaries which
increases the percentage of voting shares owned beneficially by an Interested
Stockholder by more than 5%.
For three years following the time that an Interested Stockholder becomes
an owner of 10% of the outstanding voting shares, a Virginia corporation cannot
engage in an Affiliated Transaction with such Interested Stockholder without
approval of two-thirds of the voting shares other than those shares beneficially
owned by the Interested Stockholder, and majority approval of the "Disinterested
Directors." A Disinterested Director means, with respect to a particular
Interested Stockholder, a member of the Crestar Board who was (1) a member on
the date on which an Interested Stockholder became an Interested Stockholder and
(2) recommended for election by, or was elected to fill a vacancy and received
the affirmative vote of, a majority of the Disinterested Directors then on the
Board. At the expiration of the three year period, the statute requires approval
of Affiliated Transactions by two-thirds of the voting shares other than those
beneficially owned by the Interested Stockholder.
The principal exceptions to the special voting requirement apply to
transactions proposed after the three year period has expired and require either
that the transaction be approved by a majority of the corporation's
Disinterested Directors or that the transaction satisfy the fair-price
requirements of the statute. In general, the fair-price requirement provides
that in a two-step acquisition transaction, the Interested Stockholder must pay
the shareholders in the second step either the same amount of cash or the same
amount and type of consideration paid to acquire the Virginia corporation's
shares in the first step.
None of the foregoing limitations and special voting requirements applies
to a transaction with an Interested Stockholder whose acquisition of shares
making such person an Interested Stockholder was approved by a majority of the
Virginia corporation's Disinterested Directors.
These provisions were designed to deter certain takeovers of Virginia
corporations. In addition, the statute provides that, by affirmative vote of a
majority of the voting shares other than shares owned by any Interested
Stockholder, a corporation can adopt an amendment to its articles of
incorporation or bylaws providing that the Affiliated Transactions provisions
shall not apply to the corporation. Crestar has not "opted out" of the
Affiliated Transactions provisions.
Virginia law also provides that shares acquired in a transaction that would
cause the acquiring person's voting strength to meet or exceed any of three
thresholds (20%, 33 1/3% or 50%) have no voting rights unless granted by a
majority vote of shares not owned by the acquiring person or any officer or
employee-director of the Virginia corporation. This provision empowers an
acquiring person to require the Virginia corporation to hold a special meeting
of shareholders to consider the matter within 50 days of its request.
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COMPARATIVE RIGHTS OF SHAREHOLDERS
At the Effective Time of the Holding Company Merger, shareholders of
Citizens automatically will become shareholders of Crestar, and their rights as
shareholders will be determined by the Crestar Articles and Crestar's Bylaws.
The following is a summary of the material differences in the rights of
shareholders of Crestar and Citizens.
CAPITALIZATION
CITIZENS. The Citizens Charter authorizes the issuance of up to 125,000,000
shares of Citizens Common Stock, par value $2.50 per share, of which 15,133,099
shares were issued and outstanding as of the Record Date and 2,500,000 shares of
preferred stock, par value $10.00 per share, no shares of which were outstanding
as of the Record Date.
CRESTAR. Crestar's authorized capital is set forth under "Description of
Crestar Capital Stock."
AMENDMENT OF ARTICLES OR BYLAWS
CITIZENS. Any proposed amendment of the Citizens Articles must be approved
by the stockholders by the affirmative vote of two thirds of all the votes
entitled to cast on the amendment. Citizens' Bylaws generally provide that the
Citizens Board may, by majority vote, amend its Bylaws.
CRESTAR. As permitted by the VSCA, the Crestar Articles provide that,
unless a greater vote is required by law, by the Crestar Articles or by a
resolution of the Crestar Board, the Crestar Articles may be amended if the
amendment is adopted by the Crestar Board and approved by a vote of the holders
of a majority of the votes entitled to be cast on the amendment by each voting
group entitled to vote thereon. To be amended, the Article providing for a
classified the Crestar Board and establishing criteria for removing Directors
requires the approving vote of a majority of "Disinterested Directors" and the
holders of at least two-thirds of the votes entitled to be cast on the
amendment.
Crestar's Bylaws generally provide that the Crestar Board may, by a
majority vote, amend its Bylaws.
REQUIRED SHAREHOLDER VOTE FOR CERTAIN ACTIONS
CITIZENS. Under Maryland law, a merger, consolidation or sale of
substantially all of the assets of Citizens can only be made when two-thirds of
the holders of the outstanding stock of the Company consent,unless the Company's
charter were to permit such action by less than a two-thirds vote. Citizens'
charter does not so provide.
CRESTAR. The VSCA generally requires the approval of a majority of a
corporation's Board of Directors and the holders of more than two-thirds of all
the votes entitled to be cast thereon by each voting group entitled to vote on
any plan of merger or consolidation, plan of share exchange or sale of
substantially all of the assets of a corporation not in the ordinary course of
business. The VSCA also specifies additional voting requirements for Affiliated
Transactions and transactions that would cause an acquiring person's voting
power to meet or exceed specified thresholds, as discussed under "Description of
Crestar Capital Stock -- Virginia Stock Corporation Act."
None of the additional voting requirements contained in the VSCA are
applicable to the Holding Company Merger since it is not an "Affiliated
Transaction."
DIRECTOR NOMINATIONS
CITIZENS. Citizens' Bylaws do not provide a procedure for the nomination of
individuals to serve as directors.
CRESTAR. The Bylaws of Crestar provide that any nomination for director
made by a shareholder must be made in writing to the Secretary of Crestar not
less than 15 days prior to the meeting of shareholders at which directors are to
be elected. If mailed, such notice shall be sent by certified mail, return
receipt requested, and shall be deemed to have been given when received by the
Secretary of Crestar. A shareholder's nomination for director shall set forth
(a) the name and business address of the shareholder's nominee, (b) the fact
that the nominee has consented to his name being placed in nomination, (c) the
name and address, as they appear on Crestar's books, of the shareholder making
the nomination, (d) the class and number of shares of Crestar's stock
beneficially owned by the shareholder, and (e) any material interest of the
shareholder in the proposed nomination.
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DIRECTORS AND CLASSES OF DIRECTORS; VACANCIES AND REMOVAL OF DIRECTORS
CITIZENS. The Citizens' Articles provides for three directors, but further
state that the number of directors may be increased or decreased pursuant to the
Bylaws. The Citizens' Articles provide that the directors shall be divided into
three classes with one class standing each year for election to a three year
term. The Citizens Bylaws provide that there shall be not less than five nor
more than 30 directors with the exact number of directors to be determined by a
majority resolution of the entire Board of Directors. The Citizens' Board
currently has fixed the number of directors at nine.
The Citizens' Bylaws provide that any vacancy occurring on the Citizens'
Board, including a vacancy resulting from an increase from the number of
directors, may be filled by the affirmative vote of the majority of the
remaining directors. Directors so chosen hold office for the remainder of the
departed Director's term and until the departed Director's successor is elected
and qualified. Directors chosen due to an increase in the authorized number of
directors hold office until the next annual meeting of stockholders at which
directors are elected. No decrease in the number of directors constituting the
Citizens' Board shall shorten the term of any incumbent director.
Citizens' Bylaws provide that the term of office of a Director of Citizens
shall expire upon the date of the Annual Meeting of Stockholders immediately
following the date upon which the Director reaches 70 years of age, unless the
Director had been elected at the 1988 Annual Meeting of Shareholders in which
case that Director was allowed to serve up to two additional terms if so
elected.
Citizens' Articles and Bylaws do not provide for the removal of directors.
CRESTAR. The Crestar Articles provide that the number of Directors shall be
set forth in the Bylaws, but the number of directors set forth in the Bylaws may
not be increased by more than four during any 12-month period except by the
affirmative vote of more than two-thirds of the votes entitled to be cast. The
Bylaws provide for a Board of Directors consisting of not less than five nor
more than 26 members, with the number to be fixed by the Board. The Crestar
Board currently has fixed the number of directors at 17. The Crestar Board is
divided into three classes, each as nearly equal in number as possible, with one
class being elected annually.
The Crestar Articles provide that any vacancy occurring on the Crestar
Board, including a vacancy resulting from an increase in the number of
Directors, may be filled by the affirmative vote of a majority of the remaining
directors, though less than a quorum of the Crestar Board. If at the time any
such vacancy is filled, any person, or any associate or affiliate of such person
(as those terms are defined in Rule 12b-2 of the General Rules and Regulations
under the Exchange Act, or any successor rule or regulation) is directly or
indirectly the beneficial owner of 10% (or more) of outstanding voting shares,
the vacancy shall be filled by the affirmative vote of a majority of the
remaining directors in the class of directors in which the vacancy has occurred.
Directors so chosen shall hold office for a term expiring at the next following
annual meeting of shareholders at which directors are elected. No decrease in
the number of directors constituting the Crestar Board shall shorten the term of
any incumbent director.
Subject to the rights of the holders of preferred stock then outstanding,
any director may be removed, with cause, only by the affirmative vote of the
holders of at least two-thirds of outstanding voting shares.
ANTI-TAKEOVER PROVISIONS
CITIZENS. The MGCL prohibits certain "business combinations" (including a
merger, consolidation, share exchange, or, in certain circumstances, an asset
transfer or issuance or reclassification of equity securities) between a
Maryland corporation and an "Interested Stockholder." Interested Stockholders
are all persons (a) who beneficially own 10% or more of the voting power of the
corporation's shares or (b) an affiliate or associate of the corporation who, at
any time within the two-year period prior to the date in question, was an
Interested Stockholder or an affiliate or an associate thereof. Such business
combinations are prohibited for five years after the most recent date on which
the Interested Stockholder became an Interested Stockholder. Thereafter, any
such business combination must be recommended by the board of directors of such
corporation and approved by the affirmative vote of at least (a) 80% of the
votes entitled to be case by all holders of voting shares of the corporation,
and (b) 66 2/3% of the votes entitled to be cast by all holders of voting shares
of the corporation other than voting shares held by the Interested Stockholder
or an affiliate or associate of the Interested Stockholder, with whom the
business combination is to be effected, unless, among other things, the
corporation's stockholders receive a minimum price (as defined in the MGCL) for
their shares and the consideration is received in cash or in the same form as
previously paid by the Interested Stockholder for its shares. These provisions
of Maryland law do not apply, however, to business combinations that are
approved or exempted by the Board of Directors of the corporation prior to the
time that the Interested Stockholder becomes an Interested Stockholder. Crestar
and its affiliates and associates were exempted from these provisions of
Maryland
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law by the Citizens Board. A Maryland corporation may adopt an amendment to its
charter electing not to be subject to the special voting requirements of the
foregoing legislation. Any such amendment would have to be approved by the
affirmative vote of at least 80% of the votes entitled to be cast by all holders
of outstanding shares of voting stock and 66 2/3% of the votes entitled to be
cast by holders of outstanding shares of voting stock who are not Interested
Stockholders.
The MGCL provides the "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquiror or by officers or directors who
are employees of the corporation. Control shares are voting shares of stock
which, if aggregated with all other shares of stock previously acquired by such
a person, would entitle the acquiror to exercise voting power in electing
directors within one of the following ranges of voting power: (a) 20% or more
but less than 33 1/3%; (b) 33 1/3% or more but less than a majority; or (c) a
majority of all voting power. Control Shares do not include shares of stock an
acquiring person is entitled to vote as a result of having previously obtained
stockholder approval. A control share acquisition means, subject to certain
exceptions, the acquisition of, ownership of or the power to direct the exercise
of voting power with respect to, control shares.
A person who has made or proposed to make a "control share acquisition,"
upon satisfaction of certain conditions (including an undertaking to pay
expenses), may compel the board of directors to call a special meeting of
shareholders to be held within 50 days of demand therefore to consider the
voting rights of the shares. If no request for a meeting is made, the
corporation may itself present the question at any shareholders' meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as permitted by the statute, then
subject to certain conditions and limitations, the corporation may redeem any or
all of the control shares (except those for which voting rights have previously
been approved) for fair value determined, without regard to voting rights, as of
the date of the last control share acquisition or of any meeting of shareholders
at which the voting rights of such shares are considered and not approved. If
voting rights for "control shares" are approved at a shareholders' meeting and
the acquiror becomes entitled to vote a majority of the shares entitled to vote,
all other shareholders may exercise appraisal rights. The fair value of the
stock as determined for purposes of such appraisal rights may not be less than
the highest price per share paid in the control share acquisition, and certain
limitations and restrictions otherwise applicable to the exercise of dissenters'
rights do not apply in the context of a "control share acquisition."
The control share acquisition statute does not apply to stock acquired in a
merger, consolidation or stock exchange if the corporation is a party to the
transaction, or to acquisitions previously approved or exempted by a provision
in the charter or by-laws of the corporation.
CRESTAR. For a description of certain provisions of VSCA which may be
deemed to have an anti-takeover effect, see "Description of Crestar Capital
Stock -- Virginia Stock Corporation Act."
PREEMPTIVE RIGHTS
Neither the shareholders of Crestar nor the shareholders of Citizens have
preemptive rights. Thus, if additional shares of Crestar Common Stock, Crestar
Preferred Stock or Citizens Common Stock or Citizens Preferred Stock are issued,
holders of such stock, to the extent they do not participate in such additional
issuance of shares, would own proportionately smaller interests in a larger
amount of outstanding capital stock.
ASSESSMENT
All outstanding shares of Citizens Common Stock are fully paid and
nonassessable.
All shares of Crestar Common Stock presently issued are, and those to be
issued pursuant to the Agreement will be, fully paid and nonassessable.
CONVERSION; REDEMPTION; SINKING FUND
Neither Crestar Common Stock nor Citizens Common Stock is convertible,
redeemable or entitled to any sinking fund.
LIQUIDATION RIGHTS
CITIZENS. Maryland law generally provides that a corporation's board of
directors may propose dissolution for submission to shareholders and that to be
authorized, the dissolution must be approved by the holders of more than
two-thirds of all votes entitled to be cast on the proposal, unless the charter
of the corporation requires a greater or lesser vote.
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CRESTAR. The VSCA generally provides that a corporation's board of
directors may propose dissolution for submission to shareholders and that to be
authorized, the dissolution must be approved by the holders of more than
two-thirds of all votes entitled to be cast on the proposal, unless the articles
of incorporation of the corporation require a greater or lesser vote. There are
no provisions in the Crestar Articles which would modify the statutory
requirements for dissolution under the VSCA.
DIVIDENDS AND OTHER DISTRIBUTIONS
CITIZENS. Maryland law permits the payment of dividends unless the
corporation would not be able to pay its debts as they become due in the usual
course of business or the corporation's total assets would be less than the sum
of the corporation's total liabilities plus, unless the charter permits
otherwise, the amount that would be needed, if the corporation were to be
dissolved at the time of such dividends, to satisfy the preferential rights upon
dissolution of shareholders whose preferential rights on dissolution are
superior to those receiving the dividends.
CRESTAR. The VSCA generally provides that a corporation may make
distributions to its shareholders unless, after giving effect to the
distribution, (i) the corporation would not be able to pay its debts as they
become due in the usual course of business or (ii) the corporation's total
assets would be less than the sum of its total liabilities plus (unless the
articles of incorporation permit otherwise, which the Crestar Articles do not)
the amount that would be needed, if the corporation were to be dissolved at the
time of the distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution. These requirements are applicable to Crestar as a Virginia
corporation.
In addition to the limitations set forth in the VSCA, there are various
regulatory requirements which are applicable to distributions by bank holding
companies such as Crestar and Citizens. For a description of the regulatory
limitations on distributions, see "Supervision and Regulation -- Limits on
Dividends and Other Payments."
SPECIAL MEETINGS OF SHAREHOLDERS
CITIZENS. A special meeting of the shareholders of Citizens may be called
by the Chairman of the Citizens Board or the President, by a majority of the
Citizens Board or by shareholders entitled to cast at least 25% of the votes at
such meeting. However, Maryland law provides that a special meeting need not be
called to consider any matter which is substantially the same as a matter voted
on at any special meeting of shareholders held during the preceding 12 months
unless the meeting is requested by shareholders entitled to cast a majority of
all the votes entitled to be cast at the meeting.
CRESTAR. The Bylaws of Crestar provide that special meetings of the
shareholders for any purpose or purposes may be called at any time by the
Chairman of the Crestar Board, by the President, or by a majority of the Crestar
Board.
INDEMNIFICATION
CITIZENS. The Citizens' Articles provide that each director and officer
shall be indemnified to the full extent permitted by the MGCL and that no
director or officer shall be personally liable to Citizens for money damages.
The Citizens' Bylaws provide that any individual who is serving as a
director, officer, employee or agent of Citizens who is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, shall be indemnified
and held harmless by Citizens to the fullest extent authorized by MGCL.
The MGCL permits a corporation to indemnify its directors and officers,
among others, against judgments, penalties, fines, settlements and reasonable
expenses actually incurred by them in connection with any proceeding to which
they may be made a party by reason of their service in those or other
capacities, unless it is established that (a) the act or omission of the
director or officer was material to the matter giving rise to such proceeding
and (i) was committed in bad faith or (ii) was the result of active and
deliberate dishonesty, (b) the director or officer actually received an improper
personal benefit in money, property or services, or (c) in the case of any
criminal proceeding, the director or officer had reasonably cause to believe
that the action or omission was unlawful.
CRESTAR. The Crestar Articles provide that to the full extent permitted by
the VSCA and any other applicable law, Crestar shall indemnify a director or
officer of Crestar who is or was a party to any proceeding by reason of the fact
that he is or was such a director or officer or is or was serving at the request
of the corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise. The Crestar Board is empowered, by majority vote of a quorum
of disinterested directors, to contract in advance to indemnify any director or
officer.
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SHAREHOLDER PROPOSALS
CITIZENS. Citizens' Bylaws do not have any provision for shareholder
proposals.
CRESTAR. The Bylaws of Crestar provide that at any meeting of shareholders
of Crestar, only that business that is properly brought before the meeting may
be presented to and acted upon by the shareholders. To be properly brought
before the meeting, business must be brought (a) by or at the direction of the
Crestar Board or (b) by a shareholder who has given written notice of business
he expects to bring before the meeting to the Secretary of Crestar not less than
15 days prior to the meeting. If mailed, such notice shall be sent by certified
mail, return receipt requested, and shall be deemed to have been given when
received by the Secretary of Crestar. A shareholder's notice to the Secretary
shall set forth as to each matter the shareholder proposes to bring before the
meeting (a) a brief description of the business to be brought before the meeting
and the reasons for conducting such business at the meeting, (b) the name and
address, as they appear on Crestar's books, of the shareholder proposing such
business, (c) the class and number of shares of Crestar's stock beneficially
owned by the shareholder, and (d) any material interest of the shareholder in
such business. No business shall be conducted at a meeting of shareholders
except in accordance with the procedures set forth in Crestar's Bylaws.
SHAREHOLDER INSPECTION RIGHTS; SHAREHOLDER LISTS
CITIZENS. Under Maryland law, any shareholder has the right to inspect and
copy the by-laws, minutes of the proceedings of shareholders, annual statement
of affairs, and voting trust agreements on file at the corporation's principal
office. Maryland law also provides that one or more persons who together have
been shareholders of record for at least six months and who together hold at
least 5% of the outstanding stock of any class may inspect and copy the
corporation's books of account, stock ledger and shareholders' list and may
require the corporation to produce a verified statement of affairs.
CRESTAR. Under the VSCA, the shareholder of a Virginia corporation is
entitled to inspect and copy certain books and records, including the articles
of incorporation and bylaws of the corporation if he gives the corporation
written notice of his demand at least five business days before the date on
which he wishes to inspect and copy. The shareholder of a Virginia corporation
is entitled to inspect and copy certain other books and records, including a
list of shareholders, minutes of any meeting of the board of directors and
accounting records of the corporation, if (i) the shareholder has been a
shareholder of record for at least six months immediately preceding his or her
written demand or is the holder of at least 5% of the corporation's outstanding
shares, (ii) the shareholder's demand is made in good faith and for a proper
purpose, (iii) the shareholder describes with reasonable particularity the
purpose of the request and the records desired to be inspected and (iv) the
records are directly connected with the stated purpose, and if he gives the
corporation written notice of his demand at least five business days before the
date on which he wishes to inspect and copy. The VSCA also provides that a
corporation shall make available for inspection by any shareholder during usual
business hours, at least 10 days before each meeting of shareholders, a complete
list of the shareholders entitled to vote at such meeting.
SHAREHOLDER RIGHTS PLAN
CITIZENS. On May 10, 1989, shareholders of Citizens Bancorp adopted a
Rights Plan which provides for substantial dilution to a person or group that
attempts to acquire Citizens on terms not approved by the Company's Board of
Directors, except in the event of an acquisition of at least 80% of the
outstanding Common Stock solely pursuant to a tender offer for all outstanding
shares at a uniform cash price open equally to all stockholders other than such
acquiring person or group. Citizens anticipates that it will amend the terms of
the Rights Plan so that the Plan will be terminated contemporaneously with the
closing contemplated by the Agreement.
CRESTAR. For a description of a shareholder rights plan which has been
adopted by Crestar, see "Description of Crestar Capital Stock -- Rights."
DISSENTERS' RIGHTS
CITIZENS. The provisions of Title 3 of the MGCL, which provide shareholders
of a Maryland corporation the right to demand and receive payment of the fair
value of their shares in the event of mergers, consolidations and certain other
corporate transactions, are applicable to Citizens as a Maryland corporation.
However, because Citizens Common Stock is designated as a national market system
security on an interdealer quotation system by the National Association of
Securities Dealers, Inc., shareholders of Citizens generally do not have rights
to demand and receive payment of the fair value of their shares in the event of
mergers, consolidations and certain other corporate transactions to which
Citizens is a party.
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CRESTAR. The provisions of Article 15 of the VSCA which provide
shareholders of a Virginia corporation the right to dissent from, and obtain
payment of the fair value of their shares in the event of, mergers,
consolidations and certain other corporate transactions are applicable to
Crestar as a Virginia corporation. However, because Crestar has more than 2,000
record shareholders, shareholders of Crestar generally do not have rights to
dissent from mergers, consolidations and certain other corporate transactions to
which Crestar is a party because Article 15 of the VSCA provides that holders of
shares of a Virginia corporation which has shares listed on a national
securities exchange or which has at least 2,000 record shareholders are not
entitled to dissenters' rights unless certain requirements are met.
RESALE OF CRESTAR COMMON STOCK
Crestar Common Stock has been registered under the 1933 Act, thereby
allowing such shares to be traded freely and without restriction by those
holders of Citizens Common Stock who receive such shares following consummation
of the Holding Company Merger and who are not deemed to be "affiliates" (as
defined under the 1933 Act, but generally including directors, certain executive
officers and 10% or more shareholders) of Citizens or Crestar. Each holder of
Citizens Common Stock who is deemed by Citizens to be an affiliate of it has
entered into an agreement with Crestar prior to the Effective Date of the
Holding Company Merger providing, among other things, that (A) such affiliate
acknowledges and agrees to support and vote such shares of Citizens Common Stock
beneficially owned by him to ratify and confirm the Agreement and the Holding
Company Merger, (B) such affiliate acknowledges and agrees beginning 30 days
prior to the Effective Date, that he will not sell, pledge, transfer or
otherwise dispose of shares of Citizens Common Stock or Crestar Common Stock
except in compliance with the applicable provisions of the 1933 Act and rules
and regulations thereunder and until such time as financial results covering at
least 30 days of combined operations of Crestar and Citizens have been published
within the meaning of Section 201.01 of the SEC's Codification of Financial
Reporting Policies, and (C) the certificates representing said shares may bear a
legend referring to the foregoing restrictions. This Joint Proxy
Statement/Prospectus does not cover any resales of Crestar Common Stock received
by affiliates of Citizens.
EXPERTS
The consolidated financial statements of Crestar Financial Corporation and
Subsidiaries incorporated in this Joint Proxy Statement/Prospectus by reference
to Crestar's Annual Report on Form 10-K for the year ended December 31, 1995
have been so incorporated in reliance upon the report of KPMG Peat Marwick LLP,
independent auditors, incorporated herein by reference, and upon the authority
of said firm as experts in accounting and auditing. The report of KPMG Peat
Marwick LLP refers to a change in accounting for certain investments in debt and
equity securities.
The consolidated financial statements of Citizens Bancorp and Subsidiaries
incorporated in this Joint Proxy Statement/Prospectus by reference to Citizens'
Annual Report on Form 10-K for the year ended December 31, 1995 have been so
incorporated in reliance upon the report of Deloitte & Touche LLP, independent
auditors, incorporated herein by reference, and upon the authority of said firm
as experts in accounting and auditing. The report of Deloitte & Touche LLP
refers to a change in accounting for postretirement benefits income taxes and
for certain investments in debt and equity securities.
LEGAL OPINIONS
The legality of the Crestar Common Stock to be issued in the Holding
Company Merger will be passed on for Crestar by Hunton & Williams, Richmond,
Virginia. Gordon F. Rainey, Jr., a partner in Hunton & Williams, is a director
of Crestar.
Certain legal matters will be passed on for Citizens by Semmes, Bowen &
Semmes, Baltimore, Maryland.
A condition to consummation of the Holding Company Merger is the delivery
by each of Semmes, Bowen & Semmes, counsel to Citizens, and Hunton & Williams,
counsel to Crestar, of an opinion concerning certain federal income tax
consequences of the Holding Company Merger. See "The Holding Company
Merger -- Certain Federal Income Tax Consequences."
SHAREHOLDER PROPOSALS
In order to be considered for inclusion in the proxy statement and form of
proxy to be used in connection with Crestar's 1997 annual meeting of
shareholders, shareholder proposals must be received by the Secretary of Crestar
no later than November 20, 1996.
57
<PAGE>
In order to be considered for inclusion in the proxy statement and form of
proxy to be used in connection with Citizens' 1997 annual meeting of
shareholders, if such meeting is held, shareholder proposals must be received by
the Secretary of Citizens no later than December 11, 1996.
OTHER MATTERS
As of the date of this Joint Proxy Statement/Prospectus, the Citizens Board
does not know of any other matters to be presented for action at the Citizens
Special Meeting other than procedural matters incident to the conduct of the
meeting. In addition, shareholders may make proposals for consideration at the
Citizens Special Meeting in accordance with the procedures specified in
Citizens' Bylaws. If such shareholder proposals are made or any other matters
not now known are properly brought before the Citizens Special Meeting, the
persons named in the accompanying proxy will vote such proxy in accordance with
the determination of a majority of the Citizens Board.
As of the date of this Joint Proxy Statement/Prospectus, the Crestar Board
does not know of any other matters to be presented for action at the Crestar
Special Meeting other than procedural matters incident to the conduct of the
meeting. In addition, shareholders may make proposals for consideration at the
Crestar Special Meeting in accordance with the procedures specified in Crestar's
Bylaws. If such shareholder proposals are made or any other matters not now
known are properly brought before the Crestar Special Meeting, the persons named
in the accompanying proxy will vote such proxy in accordance with the
determination of a majority of the Crestar Board.
58
<PAGE>
ANNEX I
AGREEMENT AND PLAN OF REORGANIZATION
AMONG
CRESTAR FINANCIAL CORPORATION,
CDM ACQUISITION SUBSIDIARY, INC.,
CRESTAR BANK DC,
CITIZENS BANCORP,
AND
CITIZENS BANK OF MARYLAND
SEPTEMBER 15, 1996
I-1
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
GENERAL
1.1. Holding Company Merger......................................................................................... I-6
1.2. Issuance of Crestar Common Stock............................................................................... I-6
1.3. Taking of Necessary Action..................................................................................... I-6
ARTICLE II
EFFECT OF TRANSACTION ON COMMON STOCK, ASSETS, LIABILITIES AND
CAPITALIZATION OF CRESTAR, CRESTAR BANK, CITIZENS AND CITIZENS BANK
2.1. Conversion of Stock; Exchange Ratio............................................................................ I-6
2.2. Manner of Exchange............................................................................................. I-7
2.3. No Fractional Shares........................................................................................... I-8
2.4. Dissenting Shares.............................................................................................. I-8
2.5. Assets......................................................................................................... I-8
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of Citizens..................................................................... I-8
(a) Organization, Standing and Power........................................................................... I-8
(b) Capital Structure.......................................................................................... I-8
(c) Authority.................................................................................................. I-8
(d) Investments................................................................................................ I-9
(e) Financial Statements....................................................................................... I-9
(f) Absence of Undisclosed Liabilities......................................................................... I-10
(g) Tax Matters................................................................................................ I-10
(h) Options, Warrants and Related Matters...................................................................... I-11
(i) Property................................................................................................... I-11
(j) Additional Schedules Furnished to Crestar.................................................................. I-11
(k) Agreements in Force and Effect............................................................................. I-11
(l) Legal Proceedings; Compliance with Laws.................................................................... I-12
(m) Employee Benefit Plans..................................................................................... I-12
(n) Insurance.................................................................................................. I-13
(o) Loan Portfolio............................................................................................. I-13
(p) Absence of Changes......................................................................................... I-14
(q) Brokers and Finders........................................................................................ I-14
(r) Subsidiaries............................................................................................... I-14
(s) Reports.................................................................................................... I-14
(t) Environmental Matters...................................................................................... I-14
(u) Accounting; Tax; Regulatory Matters........................................................................ I-15
(v) Regulatory Approvals....................................................................................... I-15
(w) Citizens Stock Buyback Program............................................................................. I-15
(x) Disclosure................................................................................................. I-15
3.2. Representations and Warranties of Crestar, Crestar Bank and Subsidiary......................................... I-15
(a) Organization, Standing and Power........................................................................... I-15
(b) Capital Structure.......................................................................................... I-16
(c) Authority.................................................................................................. I-16
(d) Financial Statements....................................................................................... I-17
(e) Absence of Undisclosed Liabilities......................................................................... I-17
(f) Absence of Changes......................................................................................... I-17
</TABLE>
I-2
<PAGE>
<TABLE>
<S> <C>
(g) Subsidiaries............................................................................................... I-17
(h) Reports.................................................................................................... I-17
(i) Tax Matters................................................................................................ I-17
(j) Property................................................................................................... I-18
(k) Agreements in Force and Effect............................................................................. I-18
(l) Legal Proceedings; Compliance with Laws.................................................................... I-18
(m) Employee Benefit Plans..................................................................................... I-18
(n) Regulatory Approvals....................................................................................... I-19
(o) Crestar Stock Buyback Program.............................................................................. I-19
(p) Disclosure................................................................................................. I-19
ARTICLE IV
CONDUCT AND TRANSACTIONS PRIOR TO
EFFECTIVE TIME OF THE MERGER
4.1. Access to Records and Properties of Crestar, Crestar Bank, Citizens and Citizens Bank; Confidentiality......... I-19
4.2. Registration Statement, Proxy Statement, Shareholder Approval.................................................. I-20
4.3. (a) Operation of the Business of Citizens...................................................................... I-20
4.4. No Solicitation................................................................................................ I-21
4.5. Dividends...................................................................................................... I-21
4.6. Regulatory Filings; Best Efforts............................................................................... I-22
4.7. Public Announcements........................................................................................... I-22
4.8. Operating Synergies; Conformance to Reserve Policies, Etc...................................................... I-22
4.9. Crestar Rights Agreement....................................................................................... I-22
4.10. Agreement as to Efforts toConsummate........................................................................... I-22
4.11. Adverse Changes in Condition................................................................................... I-22
4.12. NYSE Listing................................................................................................... I-22
4.13. Updating of Schedules.......................................................................................... I-23
4.14. Transactions in Crestar Common Stock........................................................................... I-23
ARTICLE V
CONDITIONS OF MERGER
5.1. Conditions of Obligations of Crestar and Crestar Bank.......................................................... I-23
(a) Representations and Warranties; Performance of Obligations................................................. I-23
(b) Authorization of Transaction............................................................................... I-23
(c) Opinion of Counsel......................................................................................... I-23
(d) The Registration Statement................................................................................. I-23
(e) Tax Opinion................................................................................................ I-23
(f) Regulatory Approvals....................................................................................... I-23
(g) Affiliate Letters.......................................................................................... I-24
(h) Title Matters.............................................................................................. I-24
(i) NYSE Listing............................................................................................... I-24
(j) Citizens Rights Plan....................................................................................... I-24
(k) Accounting Treatment....................................................................................... I-24
(l) Crestar Shareholder Approval............................................................................... I-24
(m) Acceptance by Crestar and Crestar Bank Counsel............................................................. I-24
5.2. Conditions of Obligations of Citizens and Citizens Bank........................................................ I-24
(a) Representations and Warranties; Performance of Obligations................................................. I-24
(b) Authorization of Transaction............................................................................... I-24
(c) Opinion of Counsel......................................................................................... I-25
(d) The Registration Statement................................................................................. I-25
(e) Regulatory Approvals....................................................................................... I-25
(f) Tax Opinion................................................................................................ I-25
</TABLE>
I-3
<PAGE>
<TABLE>
<S> <C>
(g) NYSE Listing............................................................................................... I-25
(h) Citizens Shareholder Approval.............................................................................. I-25
(i) Acceptance by Citizens' Counsel............................................................................ I-25
ARTICLE VI
CLOSING DATE; EFFECTIVE TIME
6.1. Closing Date................................................................................................... I-25
6.2. Filings at Closing............................................................................................. I-25
6.3. Effective Time................................................................................................. I-25
ARTICLE VII
TERMINATION; SURVIVAL OF REPRESENTATIONS,
WARRANTIES AND COVENANTS; WAIVER AND AMENDMENT
7.1. Termination.................................................................................................... I-26
7.2. Effect of Termination.......................................................................................... I-27
7.3. Survival of Representations, Warranties and Covenants.......................................................... I-27
7.4. Waiver and Amendment........................................................................................... I-27
ARTICLE VIII
ADDITIONAL COVENANTS
8.1. Indemnification of Citizens Officers and Directors; Liability Insurance........................................ I-27
8.2. Employee Matters............................................................................................... I-27
8.3. Employee Benefit Matters....................................................................................... I-28
8.4. Crestar Bank/GWR or Maryland Advisory Board of Directors....................................................... I-28
8.5. Stock Options.................................................................................................. I-28
8.6. Crestar Board of Directors..................................................................................... I-29
8.7. Further Action Respecting Structure............................................................................ I-29
8.8. Branch Closing Law............................................................................................. I-29
ARTICLE IX
MISCELLANEOUS
9.1. Expenses....................................................................................................... I-30
9.2. Entire Agreement............................................................................................... I-30
9.3. Descriptive Headings........................................................................................... I-30
9.4. Notices........................................................................................................ I-30
9.5. Counterparts................................................................................................... I-30
9.6. Governing Law.................................................................................................. I-30
</TABLE>
Exhibit A -- Holding Company Plan of Merger of Citizens into Crestar
[Remaining Exhibits Omitted]
I-4
<PAGE>
INDEX TO SCHEDULES
<TABLE>
<CAPTION>
SECTION IN
SCHEDULE DESCRIPTION AGREEMENT
- --------- ------------------------------------------------------------------------------------------------- ------------------
<S> <C>
A Securities Owned by Citizens and Citizens Bank 3.1(d)
B Citizens and Citizens Bank Financial Statements 3.1(e)
C Citizens Taxes Being Contested, etc. 3.1(g)
D Salary Rates, Citizens Common Stock Held by Certain 3.1(b); 3.1(h);
Employees and Directors of Citizens and Citizens Bank, Options 3.1(j)(1)
E Notes, Bonds, Mortgages, Indentures, Licenses, Lease 3.1(j)(2)
Agreements and Other Contracts of Citizens and Citizens Bank
F Employment Contracts, Employee Benefit Plans, and Related 3.1(j)(3);
Matters of Citizens and Citizens Bank 3.1(m)(1);
3.1(m)(7);
3.1(m)(8);
3.1(m)(9);
4.3(a)
G Real Estate Owned or Leased by Citizens and Citizens Bank 3.1(j)(4)
H Affiliates of Citizens 3.1(j)(5); 5.1(g)
I Legal Proceedings of Citizens 3.1(1)
J Insurance of Citizens 3.1(n)
K Citizens Loans 3.1(o)
L Material Adverse Changes of Citizens 3.1(p)
M Citizens Subsidiaries and Joint Ventures 3.1(r)
N Citizens Environmental Matters 3.1(t)
O Crestar Financial Statements
P Crestar Taxes Being Contested, etc. 3.2(i)
</TABLE>
I-5
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") dated as of
September 15, 1996 among CRESTAR FINANCIAL CORPORATION, a Virginia corporation
("Crestar"), CDM ACQUISITION SUBSIDIARY, INC., a Maryland corporation
("Subsidiary"), CRESTAR BANK DC, a Virginia banking corporation wholly-owned by
Crestar ("Crestar Bank"), CITIZENS BANCORP, a Maryland corporation ("Citizens")
and CITIZENS BANK OF MARYLAND, a Maryland banking corporation wholly-owned by
Citizens ("Citizens Bank" which term, for the purposes of this Agreement and
where the context requires, includes its subsidiaries), recites and provides:
A. Citizens and Crestar have reached agreement pursuant to which Crestar
will acquire Citizens in a statutory merger in exchange for Crestar Common
Stock.
B. The boards of directors of Crestar and Citizens deem it advisable to
merge Subsidiary into Citizens (the "Holding Company Merger") pursuant to this
Agreement and the Plan of Merger attached as Exhibit A (the "Holding Company
Plan of Merger") whereby the holders of shares of common stock ("Citizens Common
Stock") will receive common stock of Crestar ("Crestar Common Stock") in
exchange therefor.
C. To effectuate the foregoing, the parties desire to adopt this Agreement
and the Holding Company Plan of Merger, which shall represent a plan of
reorganization in accordance with the provisions of Section 368(a) of the United
States Internal Revenue Code, as amended (the "Code").
D. Simultaneously with the execution of this Agreement, Citizens and
Crestar are entering into a Stock Option Agreement (the "Option Agreement")
pursuant to which Citizen is granting an option to Crestar to purchase shares of
Citizens Common Stock in accordance with the terms of such Agreement.
NOW, THEREFORE, in consideration of the mutual benefits to be derived from
this Agreement, and of the representations, warranties, conditions and promises
herein contained, Crestar, Crestar Bank, Subsidiary, Citizens and Citizens Bank
hereby adopt this Agreement whereby at the "Effective Time of the Holding
Company Merger" (as defined in Article VI hereof) Subsidiary shall be merged
into Citizens in accordance with the Holding Company Plan of Merger. The
outstanding shares of Citizens Common Stock shall be converted into shares of
Crestar Common Stock as provided in this Agreement on the basis, terms and
conditions contained herein and in the Holding Company Plan of Merger.
In connection therewith, the parties hereto agree as follows:
ARTICLE I
GENERAL
1.1. HOLDING COMPANY MERGER. Subject to the provisions of this Agreement
and the Holding Company Plan of Merger, at the Effective Time of the Holding
Company Merger the separate existence of Subsidiary shall cease and Subsidiary
shall be merged with and into Citizens (the "Surviving Company").
1.2. ISSUANCE OF CRESTAR COMMON STOCK. Crestar agrees that at the Effective
Time of the Holding Company Merger it will issue Crestar Common Stock to the
extent set forth in, and in accordance with, the terms of this Agreement and the
Holding Company Plan of Merger.
1.3. TAKING OF NECESSARY ACTION. In case at any time after the Effective
Time of the Holding Company Merger any further action is necessary or desirable
to carry out the purposes of this Agreement and to vest the Surviving Company
with full title to all properties, assets, rights, approvals, immunities and
franchises of Subsidiary, the officers and directors of the Surviving Company
shall take all such necessary action.
ARTICLE II
EFFECT OF TRANSACTION ON COMMON STOCK, ASSETS,
LIABILITIES AND CAPITALIZATION OF CRESTAR,
CRESTAR BANK, CITIZENS AND CITIZENS BANK
2.1. CONVERSION OF STOCK; EXCHANGE RATIO. At the Effective Time of the
Holding Company Merger:
(a) CONVERSION OF STOCK. Each share of Citizens Common Stock which is
issued and outstanding at the Effective Time of the Holding Company Merger
(other than shares held directly by Crestar, which shall be canceled
without payment therefore) shall, and without any action by the holder
thereof, be converted into the number of shares of Crestar
I-6
<PAGE>
Common Stock determined in accordance with subsection 2.1(b). All such
shares shall be validly issued, fully paid and nonassessable.
(b) EXCHANGE RATIO. Each share of Citizens Common Stock (other than
shares held directly by Crestar and Dissenting Shares) shall be converted
into 0.835 shares of Crestar Common Stock (the "Exchange Ratio").
The Exchange Ratio at the Effective Time of the Holding Company Merger
shall be adjusted to reflect any consolidation, split-up, other
subdivisions or combinations of Crestar Common Stock, any dividend payable
in Crestar Common Stock, or any capital reorganization involving the
reclassification of Crestar Common Stock subsequent to the date of this
Agreement.
2.2. MANNER OF EXCHANGE.
(a) After the Effective Time of the Holding Company Merger, each
holder of a certificate for theretofore outstanding shares of Citizens
Common Stock, upon surrender of such certificate to Crestar Bank (which
shall act as exchange agent), accompanied by a Letter of Transmittal, which
shall be mailed to each holder of a certificate for theretofore outstanding
shares of Citizens Common Stock by Crestar Bank promptly following the
Effective Time of the Holding Company Merger, shall be entitled to receive
in exchange therefor a certificate or certificates representing the number
of full shares of Crestar Common Stock for which shares of Citizens Common
Stock theretofore represented by the certificate or certificates so
surrendered shall have been exchanged as provided in this Article II. Until
so surrendered, each outstanding certificate which, prior to the Effective
Time of the Holding Company Merger, represented Citizens Common Stock will
be deemed to evidence the right to receive the number of full shares of
Crestar Common Stock into which the shares of Citizens Common Stock
represented thereby may be converted in accordance with the Exchange Ratio;
and, after the Effective Time of the Holding Company Merger will be deemed
for all corporate purposes of Crestar to evidence ownership of the number
of full shares of Crestar Common Stock into which the shares of Citizens
Common Stock represented thereby were converted.
(b) Until such outstanding certificates formerly representing Citizens
Common Stock are surrendered, no dividend payable to holders of record of
Crestar Common Stock for any period as of any date subsequent to the
Effective Time of the Holding Company Merger shall be paid to the holder of
such outstanding certificates in respect thereof. After the Effective Time
of the Holding Company Merger, there shall be no further registry of
transfer on the records of Citizens of shares of Citizens Common Stock. If
a certificate representing such shares is presented to Crestar, it shall be
canceled and exchanged for a certificate representing shares of Crestar
Common Stock as herein provided. Upon surrender of certificates of Citizens
Common Stock in exchange for Crestar Common Stock, there shall be paid to
the recordholder of the certificates of Crestar Common Stock issued in
exchange therefor (i) the amount of dividends theretofore paid for such
full shares of Crestar Common Stock as of any date subsequent to the
Effective Time of the Holding Company Merger which have not yet been paid
to a public official pursuant to abandoned property laws and (ii) at the
appropriate payment date the amount of dividends with a record date after
the Effective Time of the Holding Company Merger but prior to surrender and
a payment date subsequent to surrender. No interest shall be payable on
such dividends upon surrender of outstanding certificates.
(c) At the Effective Time of the Holding Company Merger, each share of
Citizens Common Stock held by Crestar shall be canceled, retired and cease
to exist.
(d) At the Effective Time of the Holding Company Merger, each share of
Subsidiary Common Stock shall be converted into one share of common stock
of the Surviving Corporation.
(e) At the Effective Time of the Holding Company Merger and as
provided in the Holding Company Plan of Merger, outstanding options to
acquire Citizens Common Stock that were granted under Citizens' 1986 Stock
Incentive Plan and 1988 Stock Option Plan ("Citizens Options," as defined
in Section 3.1(j)(1) hereof), and which are identified on Schedule C,
shall, be converted, based on the Exchange Ratio, into options to acquire
Crestar Common Stock ("Crestar Options"). The exercise price per share of
Crestar Common Stock under a Crestar Option shall be equal to the exercise
price per share of Citizens Common Stock under the Citizens Option divided
by the Exchange Ratio (rounded up to the nearest cent). The number of
shares of Crestar Common Stock subject to a Crestar Option shall be equal
to the number of shares of Citizens Common Stock subject to the Citizens
Option multiplied by the Exchange Ratio (rounded down to the nearest whole
share). Except as provided in the preceding sentences regarding the price
of, and number of shares of Crestar Common Stock subject to, the Crestar
Option, the terms of the Crestar Option shall be the same as the terms of
the Citizens Option.
I-7
<PAGE>
2.3. NO FRACTIONAL SHARES. No certificates or scrip for fractional shares
of Crestar Common Stock will be issued. In lieu thereof, Crestar will pay the
value of such fractional shares in cash on the basis of the Average Closing
Price as defined in Section 7.1(h).
2.4. DISSENTING SHARES. Pursuant to Section 3-202 of the Maryland General
Corporation Law ("MGCL"), shareholders of Citizens do not have dissenter's
rights in the Holding Company Merger.
2.5. ASSETS. At the Effective Time of the Holding Company Merger, the
corporate existence of Subsidiary shall be merged into and continued in Citizens
as the Surviving Company. All rights, franchises and interests of Subsidiary in
and to any type of property and choses in action shall be transferred to and
vested in the Surviving Company, by virtue of the Holding Company Merger without
any deed or other transfer. The Surviving Company without any order or other
action on the part of any court or otherwise, shall hold and enjoy all rights of
property, franchises and interests, including appointments, designations and
nominations, and all other rights and interests as trustee, executor,
administrator, transfer agent or registrar of stocks and bonds, guardian of
estates, assignee, receiver and committee, and in every other fiduciary
capacity, in the same manner and to the same extent as such rights, franchises
and interests were held or enjoyed by Citizens at the Effective Time of the
Holding Company Merger, as provided in Section 3-114 of the MGCL.
2.6. LIABILITIES. At the Effective Time of the Holding Company Merger, the
Surviving Company shall be liable for all liabilities of Subsidiary. All
deposits, debts, liabilities and obligations of Subsidiary accrued, absolute,
contingent or otherwise, and whether or not reflected or reserved against on
balance sheets, books of accounts, or records of Subsidiary shall be those of
the Surviving Company and shall not be released or impaired by the Holding
Company Merger. All rights of creditors and other obligees and all liens on
property of Subsidiary shall be preserved unimpaired.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. REPRESENTATIONS AND WARRANTIES OF CITIZENS AND CITIZENS BANK. Citizens
and Citizens Bank (which for purposes of this Article III includes subsidiaries
of Citizens Bank) represent and warrant to Crestar and Crestar Bank as follows:
(a) ORGANIZATION, STANDING AND POWER. Citizens is a corporation duly
organized, validly existing and in good standing under the laws of Maryland
and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted, to perform
this Agreement and the Holding Company Plan of Merger, and to effect the
transactions contemplated hereby and thereby. Citizens has delivered to
Crestar complete and correct copies of (i) its Articles of Incorporation
and (ii) its By-laws.
Citizens Bank is a banking corporation duly organized, validly
existing and in good standing under the laws of Maryland and has all
requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted and to
perform this Agreement and to effect the transactions contemplated hereby.
Citizens Bank's deposits are insured by the Bank Insurance Fund of the FDIC
to the maximum extent permitted by law. Citizens Bank has delivered to
Crestar complete and correct copies of (i) its Articles of Incorporation
and (ii) its By-laws.
(b) CAPITAL STRUCTURE. The authorized capital stock of Citizens
consists of 125,000,000 shares of Citizens Common Stock, par value $2.50,
and 2,500,000 shares of preferred stock, par value $10.00. As of September
1, 1996, 15,132,599 shares of Citizens Common Stock and no shares of
preferred stock were outstanding. All of the outstanding shares of Citizens
Common Stock were validly issued, fully paid and nonassessable.
The authorized capital stock of Citizens Bank consists of 2,000,000
shares of Common Stock. As of September 1, 1996, 1,981,576 shares of
Citizens Bank Common Stock were outstanding and all of such outstanding
shares were validly issued, fully paid and nonassessable. Citizens owns all
of the issued and outstanding capital stock of Citizens Bank free and clear
of any liens, claims, encumbrances, charges or rights of third parties of
any kind whatsoever.
Citizens knows of no person who beneficially owns 5% or more of the
outstanding Citizens Common Stock as of the date hereof, except as
disclosed on Schedule D.
(c) AUTHORITY. Subject to the approval of this Agreement and the
Holding Company Plan of Merger by the shareholders of Citizens as
contemplated by Section 4.2, the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby and by the
Holding Company Plan of Merger have been duly and validly authorized by all
necessary action on the part of Citizens, and this Agreement is a valid and
binding obligation of
I-8
<PAGE>
Citizens, enforceable in accordance with its terms, except as
enforceability may be limited by laws affecting the enforcement of
creditors' rights generally and subject to any equitable principles
limiting the right to obtain specific performance. The execution and
delivery of this Agreement, the consummation of the transactions
contemplated hereby and by the Holding Company Plan of Merger and
compliance by Citizens with any of the provisions hereof or thereof will
not (i) conflict with or result in a breach of any provision of its
Articles of Incorporation or By-laws or a default (or give rise to any
right of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any note, bond, debenture, mortgage, indenture,
license, material agreement or other material instrument or obligation to
which Citizens is a party, or by which it or any of its properties or
assets may be bound, or (ii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Citizens or any of its properties
or assets. No consent or approval by any governmental authority, other than
compliance with applicable federal and state securities and banking laws,
and laws administered by and regulations of the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"), the Federal Deposit
Insurance Corporation (the "FDIC"), the Division of Financial Regulation of
the Maryland Department of Labor, Licensing and Regulation (the "Maryland
Department") is required in connection with the execution and delivery by
Citizens of this Agreement or the consummation by Citizens of the
transactions contemplated hereby or by the Holding Company Plan of Merger.
The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby and by the Bank Plan of Merger, as
applicable, have been duly and validly authorized by all necessary action
on the part of Citizens Bank, and this Agreement is a valid and binding
obligation of Citizens Bank, enforceable in accordance with its terms
except as enforceability may be limited by laws affecting insured
depository institutions and similar laws affecting the enforcement of
creditors' rights generally and subject to any equitable principles
limiting the right to obtain specific performance. The execution and
delivery of this Agreement, the consummation of the transactions
contemplated hereby and compliance by Citizens Bank with any of the
provisions hereof will not (i) conflict with or result in a breach of any
provision of its Articles of Incorporation or By-laws or a default (or give
rise to any right of termination, cancellation or acceleration) under any
of the terms, conditions or provisions of any note, bond, debenture,
mortgage, indenture, license, material agreement or other material
instrument or obligation to which Citizens Bank is a party, or by which it
or any of its properties or assets may be bound, or (ii) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to
Citizens Bank or any of its properties or assets. No consent or approval by
any governmental authority, other than compliance with applicable federal
and state banking laws, and laws administered by and regulations of the
Federal Reserve Board, the FDIC, and the Maryland Department is required in
connection with the execution and delivery by Citizens Bank of this
Agreement or the consummation by Citizens Bank of the transactions
contemplated hereby.
(d) INVESTMENTS. All securities owned by Citizens and Citizens Bank of
record and beneficially are free and clear of all mortgages, liens,
pledges, encumbrances or any other restriction, whether contractual or
statutory, which would materially impair the ability of Citizens or
Citizens Bank freely to dispose of any such security at any time, except as
noted on Schedule A. Any securities owned of record by Citizens and
Citizens Bank in an amount equal to 5% or more of the issued and
outstanding voting securities of the issuer thereof have been noted on such
Schedule A. There are no voting trusts or other agreements or undertakings
of which Citizens or Citizens Bank is a party with respect to the voting of
such securities. With respect to all repurchase agreements to which
Citizens or Citizens Bank is a party, Citizens or Citizens Bank has a
valid, perfected first lien or security interest in the government
securities or other collateral securing the repurchase agreement, and the
value of the collateral securing each such repurchase agreement equals or
exceeds the amount of the debt secured by such collateral under such
agreement.
(e) FINANCIAL STATEMENTS. Schedule B contains copies of the following
financial statements of Citizens (the "Citizens Financial Statements"):
(i) Consolidated Statement of Financial Condition as of June 30,
1996 and 1995 (unaudited) and as of December 31, 1995 and 1994
(audited);
(ii) Consolidated Statements of Operations for the three and six
month periods ended June 30, 1996 and 1995 (unaudited) and each of the
three years ended December 31, 1995, 1994, and 1993 (audited);
(iii) Consolidated Statements of Changes in Stockholders' Equity
for the three and six month periods ended June 30, 1996 and 1995
(unaudited) and each of the three years ended December 31, 1995, 1994
and 1993 (audited); and
(iv) Consolidated Statements of Cash Flows for the three and six
month periods ended June 30, 1996 and 1995 (unaudited) and each of the
three years ended December 31, 1995, 1994 and 1993 (audited).
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Such financial statements and the notes thereto have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated unless otherwise noted in
the Citizens Consolidated Financial Statements. Each of such consolidated
statements of financial condition, together with the notes thereto,
presents fairly as of its date the consolidated financial condition and
assets and liabilities of Citizens. The consolidated statements of
operations, changes in stockholders' equity and cash flows, together with
the notes thereto, present fairly the results of consolidated operations,
consolidated changes in stockholders' equity and consolidated cash flows of
Citizens or Citizens Bank for the periods indicated in accordance with
generally accepted accounting principles ("GAAP").
(f) ABSENCE OF UNDISCLOSED LIABILITIES. At June 30, 1996, and December
31, 1995 Citizens had no material obligations or liabilities (contingent or
otherwise) of any nature which were not reflected in the Citizens Financial
Statements or in the Citizens periodic reports filed with the Securities
and Exchange Commission ("SEC") under the Securities Exchange Act of 1934
(the "1934 Act") as of such dates, or disclosed in the notes thereto,
except for those which are disclosed in Schedules specifically referred to
herein or which in the aggregate are immaterial.
(g) TAX MATTERS. Citizens Bank and all other subsidiaries of Citizens
are members of the same "affiliated group," (as defined in Section
1504(a)(1) of the Code) as Citizens (collectively, the "Citizens Group"),
the Citizens Group files a consolidated federal income tax return, and
except as disclosed in Schedule C, no member of the Citizens Group has ever
filed a consolidated federal income tax return with (or been included in a
consolidated return of) any other affiliated group. Each member of the
Citizens Group has filed or caused to be filed or (in the case of returns
or reports not yet due) will file all tax returns and reports required to
have been filed by or for them before the Effective Time of the Holding
Company Merger, and all information set forth in such returns or reports is
or (in the case of such returns or reports not yet due) will be accurate
and complete in all material respects. Each member of the Citizens Group
has paid or made adequate provision for, or (with respect to returns or
reports not yet filed) before the Effective Time of the Holding Company
Merger will pay or make adequate provision for, all taxes, additions to
tax, penalties, and interest for all periods covered by those returns or
reports. There are, and at the Effective Time of the Holding Company Merger
will be, no unpaid taxes, additions to tax, penalties, or interest due and
payable by any member of the Citizens Group that are or could become a lien
on any asset, or otherwise materially adversely affect the business,
property or financial condition, of any member of the Citizens Group except
for taxes and any such related liability (a) incurred in the ordinary
course of business for which adequate provision has been made by any member
of the Citizens Group or (b) being contested in good faith and disclosed in
Schedule C. Each member of the Citizens Group has collected or withheld, or
will collect or withhold before the Effective Time of the Holding Company
Merger, all amounts required to be collected or withheld by it for any
taxes, and all such amounts have been, or before the Effective Time of the
Holding Company Merger will have been, paid to the appropriate governmental
agencies or set aside in appropriate accounts for future payment when due.
Each member of the Citizens Group is in material compliance with, and its
records contain all information and documents (including, without
limitation, properly completed IRS Forms W-9) necessary to comply in all
material respects with, all applicable information reporting and tax
withholding requirements under federal, state, and local laws, rules, and
regulations, and such records identify with specificity all accounts
subject to backup withholding under Section 3406 of the Code. The
consolidated statements of financial condition contained in the Citizens
Financial Statements fully and properly reflect, as of the dates thereof,
the aggregate liabilities of the members of the Citizens Group for all
accrued taxes, additions to tax, penalties and interest in accordance with
GAAP. For periods ending after June 30, 1996, the books and records of each
member of the Citizens Group fully and properly reflect their liability for
all accrued taxes, additions to tax, penalties and interest in accordance
with GAAP. Except as disclosed in Schedule C, no member of the Citizens
Group has granted (nor is it subject to) any waiver of the period of
limitations for the assessment of tax for any currently open taxable
period, no unpaid tax deficiency has been asserted in writing against or
with respect to any member of the Citizens Group by any taxing authority,
and there is no currently pending examination or other administrative
proceeding or any judicial proceeding relating to any tax (including any
refund thereof) of any member of the Citizens Group. No member of the
Citizens Group has made or entered into, or holds any asset subject to, a
consent filed pursuant to Section 341(f) of the Code and the regulations
thereunder or a "safe harbor lease"subject to former Section 168(f)(8) of
the Code and the regulations thereunder. Except as disclosed in Schedule C,
no member of the Citizens Group is obligated to make, or is a party to an
agreement that could obligate it to make, any payment that would not be
deductible by reason of Section 162(m) or 280G of the Code. Schedule C
describes all material tax elections, consents and agreements affecting any
member of the Citizens Group and lists all types of material taxes paid and
tax returns filed by or on behalf of each member of the Citizens Group. To
the best knowledge of Citizens, no Citizens shareholder is a "foreign
person" for purposes of Section 1445 of the Code.
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(h) OPTIONS, WARRANTS AND RELATED MATTERS. There are no outstanding
unexercised options, warrants, calls, commitments or agreements of any
character to which Citizens or Citizens Bank is a party or by which it is
bound, calling for the issuance of securities of Citizens or Citizens Bank
or any security representing the right to purchase or otherwise receive any
such security, except (i) as set forth on Schedule D and (ii) the Option
Agreement.
(i) PROPERTY. Citizens and Citizens Bank own (or enjoy use of under
capital leases) all property reflected on the Citizens Financial Statements
as of June 30, 1996 and December 31, 1995 (except property sold or
otherwise disposed of in the ordinary course of business). All property
shown as being owned is owned free and clear of all mortgages, liens,
pledges, charges or encumbrances of any nature whatsoever, except those
referred to in such Citizens Financial Statements or the notes thereto,
liens for current taxes not yet due and payable, any unfiled mechanics'
liens and such encumbrances and imperfections of title, if any, as are not
substantial in character or amount or otherwise materially impair Citizens'
consolidated business operations. The leases relating to leased property
are fairly reflected in such Citizens Financial Statements.
Except for Other Real Estate Owned ("OREO"), all property and assets
material to the business or operations of Citizens and Citizens Bank are in
substantially good operating condition and repair and such property and
assets are adequate for the business and operations of Citizens and
Citizens Bank as currently conducted.
(j) ADDITIONAL SCHEDULES FURNISHED TO CRESTAR. In addition to any
Schedules furnished to Crestar pursuant to other provisions of this
Agreement, Citizens has furnished to Crestar the following Schedules which
are correct and complete as of the date hereof:
(1) EMPLOYEES. Schedule D lists as of the date hereof (A) the names
of and current annual salary rates for all present employees of Citizens
and Citizens Bank who received, respectively, $150,000 or more in
aggregate compensation, whether in salary or otherwise but excluding
commission income as reported or would be reported on Form W-2, during
the year ended December 31, 1995 or are presently scheduled to receive
salary in excess of $150,000 during the year ending December 31, 1996,
(B) the number of shares of Citizens Common Stock owned beneficially by
each director of Citizens or Citizens Bank as of the date hereof, (C)
the names of and the number of shares of Citizens Common Stock owned by
each person known to Citizens who beneficially owns 5% or more of the
outstanding Citizens Common Stock as of the date hereof, and (D) the
names of, the number of outstanding options of, and the exercise price
of, each agreement to make stock awards granted to each person under
Citizens' 1986 Stock Incentive Plan and Citizens' 1988 Stock Option Plan
or any option granted to a director of Citizens or Citizens Bank
(collectively, "Citizens Options") and the exercise price of each such
Citizens Option.
(2) CERTAIN CONTRACTS. Schedule E lists all notes, bonds,
mortgages, indentures, licenses, lease agreements and other contracts
and obligations to which Citizens or Citizens Bank is an indebted party
or a lessee, licensee or obligee as of the date hereof except for those
entered into by Citizens or Citizens Bank in the ordinary course of its
business consistent with its prior practice and that do not involve an
amount remaining greater than $500,000.
(3) EMPLOYMENT CONTRACTS AND RELATED MATTERS. Except in all cases
as set forth on Schedule F, neither Citizens nor Citizens Bank or any
subsidiary thereof is a party to any employment contract or severance
agreement not terminable at the option of Citizens or Citizens Bank
without liability. Except in all cases as set forth on Schedule F,
neither Citizens nor Citizens Bank or any subsidiary thereof is a party
to (A) any retirement, profit sharing or pension plan or thrift plan or
agreement or employee benefit plan (as defined in Section 3 of the
Employee Retirement Income Security Act of 1974 ("ERISA")), (B) any
management or consulting agreement not terminable at the option of
Citizens or Citizens Bank without liability, or (C) any union or labor
agreement.
(4) REAL ESTATE. Schedule G (to be supplied by Citizens to Crestar
by October 15, 1996) describes, as of the date hereof, all interests in
real property owned, leased or otherwise claimed by Citizens and
Citizens Bank, including OREO.
(5) AFFILIATES. Schedule H sets forth the names and number of
shares of Citizens Common Stock owned as of the date hereof beneficially
or of record by any persons Citizens considers to be affiliates of
Citizens ("Citizens Affiliates") as that term is defined for purposes of
Rule 145 under the Securities Act of 1933 (the "1933 Act").
(k) AGREEMENTS IN FORCE AND EFFECT. All contracts, agreements, plans,
leases, policies and licenses referred to in any Schedule of Citizens or
Citizens Bank referred to herein to the best knowledge of Citizens'
management are valid and in full force and effect, and neither Citizens nor
Citizens Bank has breached any provision of, nor is in default in any
respect under the terms of, any such contract, agreement, lease, policy or
license, the effect of which breach or default
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would have a material adverse effect upon either the financial condition,
results of operations, or business of Citizens on a consolidated basis.
(l) LEGAL PROCEEDINGS; COMPLIANCE WITH LAWS. Schedule I describes all
legal, administrative, arbitration or other proceeding or governmental
investigation known to Citizens or Citizens Bank pending or, to the
knowledge of Citizens' and Citizens Bank's management, threatened or
probable of assertion against Citizens or Citizens Bank. Except as set
forth on Schedule I, no such proceeding or investigation, if decided
adversely, would have a material adverse effect on either the financial
condition, results of operations or business of Citizens on a consolidated
basis. Except as set forth in Schedule I, Citizens and Citizens Bank have
complied in all material respects with any laws, ordinances, requirements,
regulations or orders applicable to its business except where noncompliance
would not have a material adverse effect on either the financial condition,
results of operations or business of Citizens on a consolidated basis.
Citizens and Citizens Bank have all licenses, permits, orders or approvals
(collectively, the "Permits") of any federal, state, local or foreign
governmental or regulatory body that are necessary for the conduct of its
business and the absence of which would have a material adverse effect on
the financial condition, results of operations or business of Citizens on a
consolidated basis; the Permits are in full force and effect; no violations
are or have been recorded in respect of any Permits nor has Citizens or
Citizens Bank received written notice of any violations which would have a
material adverse effect on the financial condition, results of operations
or business of Citizens on a consolidated basis; and no proceeding is
pending or, to the knowledge of Citizens and Citizens Bank, threatened to
revoke or limit any Permit. Except as set forth in Schedule I, neither
Citizens nor Citizens Bank has entered into any agreements or written
understandings with the Federal Reserve, the Maryland Department, the FDIC
or any other regulatory agency having authority over it. Neither Citizens
nor Citizens Bank is subject to any judgment, order, writ, injunction or
decree which materially adversely affects, or might reasonably be expected
materially adversely to affect either the financial condition, results of
operations, or business of Citizens on a consolidated basis.
(m) EMPLOYEE BENEFIT PLANS.
(1) Schedule F includes a correct and complete list of, and Crestar
has been furnished a true and correct copy of (or an accurate written
description thereof in the case of oral agreements or arrangements) (A)
all qualified pension and profit-sharing plans, all deferred
compensation, consultant, severance, thrift, option, bonus and group
insurance contracts and all other incentive, welfare and employee
benefit plans, trust, annuity or other funding agreements, and all other
agreements (including oral agreements) that are presently in effect, or
have been approved prior to the date hereof, maintained for the benefit
of employees or former employees of Citizens or Citizens Bank or the
dependents or beneficiaries of any employee or former employee of
Citizens or Citizens Bank, whether or not subject to ERISA (the
"Employee Plans"), (B) the most recent actuarial and financial reports
prepared or required to be prepared with respect to any Employee Plan
and (C) the most recent annual reports filed with any governmental
agency, the most recent favorable determination letter issued by the
Internal Revenue Service, and any open requests for rulings or
determination letters, that pertain to any such qualified Employee Plan.
Schedule F identifies each Employee Plan that is intended to be
qualified under Section 401(a) of the Code and each such plan is
qualified.
(2) Neither Citizens, Citizens Bank nor any employee pension
benefit plan (as defined in Section 3(2) of ERISA (a "Pension Plan"))
maintained or previously maintained by it, has incurred or is expected
to incur any material liability to the Pension Benefit Guaranty
Corporation ("PBGC"), or to the Internal Revenue Service ("IRS") or to
the Department of Labor with respect to any Pension Plan. There is not
currently pending with the PBGC any filing with respect to any
reportable event under Section 4043 of ERISA nor has any reportable
event occurred as to which a filing is required and has not been made.
(3) Full payment has been made (or proper accruals have been
established) for all contributions which are required or for which
benefits have accrued, for periods prior to the Closing Date, as defined
in Section 6.1 hereof, under the terms of each Employee Plan, ERISA, or
a collective bargaining agreement, no accumulated funding deficiency (as
defined in Section 302 of ERISA or Section 412 of the Code) whether or
not waived, exists with respect to any Pension Plan (including any
Pension Plan previously maintained by Citizens or Citizens Bank), and
except as set forth on Schedule F, there is no "unfunded current
liability" (as defined in Section 412 of the Code) with respect to any
Pension Plan.
(4) No Employee Plan is a "multiemployer plan" (as defined in
Section 3(37) of ERISA). Neither Citizens nor Citizens Bank has incurred
any liability under Section 4201 of ERISA for a complete or partial
withdrawal from a
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multi-employer plan (as defined in Section 3(37) of ERISA). Neither
Citizens nor Citizens Bank has participated in or agreed to participate
in, a multiemployer plan (as defined in Section 3(37) of ERISA).
(5) All Employee Plans that are "employee benefit plans," as
defined in Section 3(3) of ERISA, that are maintained by Citizens or
Citizens Bank or previously maintained by Citizens or Citizens Bank
comply and have been administered in compliance in all material respects
with ERISA and all other applicable legal requirements, including the
terms of such plans, collective bargaining agreements, annual reporting
requirements of the IRS and the Department of Labor, and securities
laws. Neither Citizens nor Citizens Bank has any material liability
under any such plan that is not reflected in the Citizens Financial
Statements or on Schedule F hereto.
(6) Except as set forth on Schedule F, no prohibited transaction
has occurred with respect to any Employee Plan that is an "employee
benefit plan" (as defined in Section 3(3) of ERISA) maintained by
Citizens or Citizens Bank or previously maintained by Citizens or
Citizens Bank that would result, directly or indirectly, in material
liability under ERISA or in the imposition of a material excise tax
under Section 4975 of the Code.
(7) Schedule F identifies each Employee Plan that is an "employee
welfare benefit plan" (as defined in Section 3(1) of ERISA) and which is
funded. The funding under each such plan does not exceed the limitations
under Section 419A(b) or 419A(c) of the Code. Neither Citizens nor
Citizens Bank is subject to taxation on the income of any such plan or
any such plan previously maintained by Citizens or Citizens Bank.
(8) Schedule F identifies the method of funding (including any
individual accounting) for all post-retirement medical or life insurance
benefits for the employees of Citizens and Citizens Bank. Schedule F
also discloses the funded status of these Employee Plans.
(9) Schedule F identifies each corporate owned life insurance
policy, including any key man insurance policy and policy insuring the
life of any current or former director or employee of Citizens or
Citizens Bank, and indicates for each such policy, the face amount of
coverage, cash surrender value, if any, and annual premiums.
(10) No trade or business is, or has ever been, treated as a single
employer with Citizens or Citizens Bank for employee benefit purposes
under ERISA and the Code, other than a subsidiary identified on Schedule
M.
(n) INSURANCE. All policies or binders of fire, liability, product
liability, workmen's compensation, vehicular and other insurance held by or
on behalf of Citizens or Citizens Bank are described on Schedule J and are
valid and enforceable in accordance with their terms, are in full force and
effect, and insure against risks and liabilities to the extent and in the
manner customary for the industry and are deemed appropriate and sufficient
by Citizens and Citizens Bank. Neither Citizens nor Citizens Bank is in
default with respect to any provision contained in any such policy or
binder and has not failed to give any notice or present any claim under any
such policy or binder in due and timely fashion. Neither Citizens nor
Citizens Bank has received notice of cancellation or non-renewal of any
such policy or binder. Neither Citizens nor Citizens Bank has knowledge of
any inaccuracy in any application for such policies or binders, any failure
to pay premiums when due or any similar state of facts that might form the
basis for termination of any such insurance. Neither Citizens nor Citizens
Bank has knowledge of any state of facts or of the occurrence of any event
that is reasonably likely to form the basis for any material claim against
it not fully covered (except to the extent of any applicable deductible) by
the policies or binders referred to above. Neither Citizens nor Citizens
Bank has received notice from any of its insurance carriers that any
insurance premiums will be materially increased in the future or that any
such insurance coverage will not be available in the future on
substantially the same terms as now in effect.
(o) LOAN PORTFOLIO. Each loan outstanding on the books of Citizens and
Citizens Bank is in all respects what it purports to be, was made in the
ordinary course of business, was not known to be uncollectible at the time
it was made, accrues interest (except for loans recorded on Citizens Bank's
books as non-accrual) in accordance with the terms of the loan, and with
respect to loans originated by Citizens Bank was made in accordance with
Citizens Bank's standard loan policies as in effect at the time the loan
was negotiated except for loans to facilitate the sale of OREO or loans
with renegotiated terms and conditions. The records of Citizens Bank
regarding all loans outstanding and OREO owned by Citizens Bank are
accurate in all material respects, and the risk classifications for loans
outstanding are, in the best judgment of the management of Citizens,
appropriate. The allowance for loan losses, as reflected in the Citizens
Financial Statements, has been established in accordance with generally
accepted accounting principles. In the best judgment of the management of
Citizens, such reserves are adequate as of the date hereof and will be
adequate as of the Effective Time of the Holding Company Merger to absorb
all known and anticipated loan losses in the loan portfolio of Citizens
Bank. Except as identified on Schedule K, no loan in excess of $500,000 has
been classified by examiners (regulatory or internal) as "Special Mention",
"Substandard", "Doubtful", "Loss", or words of similar import. Except as
disclosed on
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Schedule G, the OREO included in any nonperforming asset of Citizens Bank
is recorded at the lower of cost or fair value less estimated costs to sell
based on independent appraisals that comply with the requirements of the
Financial Institutions Reform, Recovery and Enforcement Act of 1989 and
Uniform Standards of Professional Appraisal Practice. Except as identified
on Schedule K, to the knowledge of the management of Citizens and Citizens
Bank, each loan reflected as an asset on the Citizens Financial Statements
is the legal, valid and binding obligation of the obligor and any
guarantor, subject to bankruptcy, insolvency, fraudulent conveyance and
other laws of general applicability relating to or affecting creditors'
rights and to general principles of equity, and no defense, offset or
counterclaim has been asserted with respect to any such loan, which if
successful would have a material adverse effect on the financial condition,
results of operation or business of Citizens on a consolidated basis.
(p) ABSENCE OF CHANGES. Except as identified on Schedule L, since
December 31, 1995, there has not been any material adverse change in the
aggregate assets or liabilities, earnings or business of Citizens, other
than changes resulting from or attributable to (i) changes since such date
in laws or regulations, generally accepted accounting principles or
interpretations of either thereof that affect the banking or savings and
loan industries generally, (ii) changes since such date in the general
level of interest rates, (iii) expenses since such date incurred in
connection with the transactions contemplated by this Agreement, (iv)
accruals and reserves by Citizens or Citizens Bank since such date pursuant
to the terms of Section 4.8 hereof, or (v) any other accruals, reserves or
expenses incurred by Citizens or Citizens Bank since such date and noted on
Schedule L. Since December 31, 1995, the business of Citizens has been
conducted only in the ordinary course.
(q) BROKERS AND FINDERS. Neither Citizens, Citizens Bank nor any of
their officers, directors or employees have employed any broker or finder
or incurred any liability for any brokerage fees, commissions or finders'
fees in connection with the transactions contemplated herein except for the
engagement of Keefe, Bruyette & Woods, whose fee for its engagement shall
not exceed approximately $700,000.
(r) SUBSIDIARIES; PARTNERSHIPS AND JOINT VENTURES. Citizens' only
subsidiaries, direct or indirect, other than Citizens Bank, are set forth
in Schedule M. Such corporations are duly organized, validly existing and
in good standing under the laws of their jurisdiction of incorporation and
have all requisite corporate power and authority to own, lease and operate
their properties and to carry on their business as now being conducted in
all material respects. Citizens owns, directly or indirectly, all of the
issued and outstanding common stock of its subsidiaries free and clear of
any liens, claims, encumbrances, charges or rights of third parties of any
kind whatsoever and is not a party to any joint venture agreement or
partnership except as set forth in Schedule M.
(s) REPORTS. Since January 1, 1992 Citizens and Citizens Bank (and any
corporation merged into Citizens or Citizens Bank) have filed all material
reports and statements, together with any amendments required to be made
with respect thereto, that were required to be filed with (i) the FDIC,
(ii) the Maryland Department, (iii) the Office of the Comptroller of the
Currency ("OCC"), (iv) the Virginia Bureau of Financial Institutions (the
"Virginia Bureau"), (v) the SEC and (vi) any other governmental or
regulatory authority or agency having jurisdiction over their operations.
Each of such reports and documents, including the financial statements,
exhibits and schedules thereto, filed with the SEC pursuant to the 1934 Act
was in form and substance in compliance in all material respects with the
1934 Act. No such report or statement, or any amendments thereto, contains
any statement which, at the time and in light of the circumstances under
which it was made, was false or misleading with respect to any material
fact necessary in order to make the statements contained therein not false
or misleading. Citizens is a reporting company under Section 12(g) or 15(d)
of the 1934 Act and the regulations of the SEC.
(t) ENVIRONMENTAL MATTERS. For purposes of this subsection, the
following terms shall have the indicated meaning:
"Environmental Law" means any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction or agreement with
any governmental entity relating to (i) the protection, preservation or
restoration of the environment (including, without limitation, air,
water vapor, surface water, groundwater, drinking water supply, surface
soil, subsurface soil, plant and animal life or any other natural
resource), and/or (ii) the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling, production,
release or disposal of Hazardous Substances. The term "Environmental
Law" includes without limitation (i) the Comprehensive Environmental
Response, Compensation and Liability Act, as amended, 42 U.S.C. Section
9601, et seq; the Resource Conservation and Recovery Act, as amended, 42
U.S.C. Section 6901, et seq; the Clean Air Act, as amended, 42 U.S.C.
Section 7401, et seq; the Federal Water Pollution Control Act, as
amended, 33 U.S.C. Section 1251, et seq; the Toxic Substances Control
Act, as amended, 15 U.S.C. Section 9601, et seq; the Emergency Planning
and Community Right to Know Act, 42 U.S.C. Section 11001, et
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seq; the Safe Drinking Water Act, 42 U.S.C. Section 300f, et seq; and
all comparable state and local laws, and (ii) any common law (including
without limitation common law that may impose strict liability) that may
impose liability or obligations for injuries or damages due to, or
threatened as a result of, the presence of or exposure to any Hazardous
Substance.
"Hazardous Substance" means any substance presently listed,
defined, designated or classified as hazardous, toxic, radioactive or
dangerous, or otherwise regulated, under any Environmental Law, whether
by type or by quantity, including any material containing any such
substance as a component. Hazardous Substances include without
limitation petroleum or any derivative or by-product thereof, asbestos,
radioactive material, and polychlorinated biphenyls.
"Loan Portfolio Properties and Other Properties Owned" means those
properties owned or operated by Citizens or Citizens Bank or any of
their subsidiaries, provided, those properties serving as collateral for
any loans made and retained by Citizens or Citizens Bank or for which
Citizens or Citizens Bank serves in a trust relationship for the loans
retained in portfolio shall be included within this definition only to
the extent management of Citizens has actual knowledge of a violation of
any Environmental Law with respect to any such property.
Except as disclosed in Schedule N, to the best knowledge of Citizens
and Citizens Bank,
(i) Neither Citizens nor Citizens Bank is in violation of or liable
under any Environmental Law;
(ii) none of the Loan Portfolio Properties and Other Properties
Owned is in violation of or liable under any Environmental Law; and
(iii) there are no actions, suits, demands, notices, claims,
investigations or proceedings pending or threatened relating to the
liability of the Loan Portfolio Properties and Other Properties Owned
under any Environmental Law, including without limitation any notices,
demand letters or requests for information from any federal or state
environmental agency relating to any such liabilities under or
violations of Environmental Law.
(u) ACCOUNTING; TAX; REGULATORY MATTERS. Subject to action taken by
the Board of Directors of Citizens pursuant to or as a result of the
exception clause to the first sentence of Section 4.4 hereof, Citizens has
not taken or agreed to take any action or has any knowledge of any fact or
circumstance that would prevent the Holding Company Merger from qualifying
as a business combination accounted for as a pooling-of-interests, or
prevent the Holding Company Combination (as defined in Section 5.1(e)) from
qualifying as a reorganization within the meaning of Section 368 of the
Code, or that would materially impede or delay receipt of any approval
referred to in Section 4.6.
(v) REGULATORY APPROVALS. Neither Citizens nor Citizens Bank knows of
any reason why the approvals, consents and waivers of governmental
authorities referred to in Sections 5.1(f) and 5.2(e) hereof should not be
obtained on a timely basis without the imposition of any condition of the
type referred to in Section 5.1(f) hereof.
(w) CITIZENS STOCK BUYBACK PROGRAM. Citizens has terminated its stock
buyback program announced on August 8, 1996, and has no plans to commence a
stock buyback program.
(x) DISCLOSURE. Except to the extent of any subsequent correction or
supplement with respect thereto furnished prior to the date hereof, no
written statement, certificate, schedule, list or other written information
furnished by or on behalf of Citizens at any time to Crestar, in connection
with this Agreement, when considered as a whole, contains or will contain
any untrue statement of a material fact or omits or will omit to state a
material fact necessary in order to make the statements herein or therein,
in light of the circumstances under which they were made, not misleading.
Each document delivered or to be delivered by Citizens to Crestar is or
will be a true and complete copy of such document, unmodified except by
another document delivered by Citizens.
3.2. REPRESENTATIONS AND WARRANTIES OF CRESTAR, CRESTAR BANK AND
SUBSIDIARY. Crestar and Crestar Bank represent and warrant to Citizens and
Citizens Bank as follows:
(a) ORGANIZATION, STANDING AND POWER. Crestar is a corporation duly
organized, validly existing and in good standing under the laws of Virginia
and has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
Crestar has delivered to Citizens complete and correct copies of its
Articles of Incorporation and all amendments thereto to the date hereof and
its By-laws as amended to the date hereof.
Crestar Bank is a banking corporation duly organized, validly existing
and in good standing under the laws of Virginia and has all requisite
corporate power and authority to own, lease and operate its properties and
to carry on its
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business as now being conducted. At the date of this Agreement, Crestar
Bank has had no business operations. Crestar Bank has been formed to
facilitate a conversion of Crestar Bank N.A. from a national banking
association headquartered in the District of Columbia to a Virginia banking
corporation, headquartered in Fairfax County, Virginia. After conversion of
Crestar Bank N.A. into Crestar Bank, prior to the end of 1996 Crestar
contemplates merging Crestar Bank (Virginia) and Crestar Bank MD into
Crestar Bank DC. (Prior to that merger, Crestar Bank FSB will be merged
into Crestar Bank MD.) It is anticipated that at the Effective Time of the
Holding Company Merger, Crestar Bank will be the only banking subsidiary of
Crestar and will carry on the business formerly conducted by Crestar Bank
(Virginia), Crestar Bank N.A., Crestar Bank MD and Crestar Bank FSB.
(b) CAPITAL STRUCTURE.
(i) CRESTAR. The authorized capital stock of Crestar consists of
100,000,000 shares of Common Stock, par value $5 and 2,000,000 shares of
Preferred Stock, par value $100 of which 42,768,051 shares of Common
Stock and no shares of Preferred Stock were issued and outstanding as of
June 30, 1996. All of such issued and outstanding shares of Crestar
Common Stock were validly issued, fully paid and nonassessable at such
date.
(ii) CRESTAR BANK. The authorized capital stock of Crestar Bank
consists of 525,775 shares of common stock, $150 par value, of which no
shares were issued and outstanding as of June 30, 1996. All shares of
common stock of Crestar Bank, when issued, will be validly issued, fully
paid and nonassessable. Once issued, Crestar will own all of the issued
and outstanding capital stock of Crestar Bank free and clear of any
liens, claims, encumbrances, charges or rights of third parties of any
kind whatsoever.
(iii) SUBSIDIARY. The authorized capital stock of Subsidiary
consists of 1,000 shares of common stock, $5.00 par value, of which 100
shares were issued and outstanding as of the date of this Agreement. All
such issued and outstanding shares of common stock of Subsidiary were
validly issued, fully paid and nonassessable. Crestar owns all of the
issued and outstanding capital stock of Subsidiary free and clear of any
liens, claims, encumbrances, charges or rights of third parties of any
kind whatsoever. Subsidiary has been organized solely to facilitate the
acquisition of Citizens, and since its organization on September 11,
1996 has had no business operations, Subsidiary will have no business
operations prior to the Effective Time of the Holding Company Merger.
(c) AUTHORITY. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary action on the part of Crestar; and this
Agreement is a valid and binding obligation of Crestar, enforceable in
accordance with its terms. The execution and delivery of this Agreement,
the consummation of the transactions contemplated hereby and compliance by
Crestar with any of the provisions hereof will not (i) conflict with or
result in a breach of any provision of its Articles of Incorporation or By-
laws or a default (or give rise to any right of termination, cancellation
or acceleration) under any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, license, agreement or other instrument or
obligation to which Crestar is a party, or by which it or any of its
properties or assets may be bound or (ii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Crestar or
any of its properties or assets. No consent or approval by any governmental
authority, other than compliance with applicable federal and state
securities and banking laws, the rules of the New York Stock Exchange and
regulations of the Federal Reserve Board, the FDIC, the Maryland Department
and the Virginia Bureau is required in connection with the execution and
delivery by Crestar of this Agreement or the consummation by Crestar of the
transactions contemplated hereby or by the Holding Company Plan of Merger.
The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized
by all necessary action on the part of Crestar Bank, and this Agreement is
a valid and binding obligation of Crestar Bank, enforceable in accordance
with its terms. The execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby and compliance by
Crestar Bank with any of the provisions hereof will not (i) conflict with
or result in a breach of any provision of its Articles of Incorporation or
By-laws or a default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, agreement or
other instrument or obligation to which Crestar Bank is a party, or by
which it or any of its properties or assets may be bound, or (ii) violate
any order, writ, injunction, decree, statute, rule or regulation applicable
to Crestar Bank or any of its properties or assets. No consent or approval
by any government authority, other than compliance with applicable federal
and state securities and banking laws, and regulations of the Federal
Reserve Board, the FDIC, the Maryland Department and the Virginia Bureau,
is required in connection with the execution and delivery by Crestar Bank
of this Agreement or the consummation by Crestar Bank of the transactions
contemplated hereby.
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(d) FINANCIAL STATEMENTS. Schedule O contains copies of the following
consolidated financial statements of Crestar (the "Crestar Financial
Statements"):
(i) Consolidated Balance Sheets as of December 31, 1995 and 1994
(audited) and as of June 30, 1996 and 1995 (unaudited);
(ii) Consolidated Income Statements for each of the three years
ended December 31, 1995, 1994, and 1993 (audited) and the six months
ended June 30, 1996 and 1995 (unaudited);
(iii) Consolidated Statements of Changes in Shareholders' Equity
for each of the three years ended December 31, 1995, 1994 and 1993
(audited) and the three and six months ended June 30, 1996 and 1995
(unaudited); and
(iv) Consolidated Statements of Cash Flows for each of the three
years ended December 31, 1995, 1994 and 1993 (audited) and the six
months ended June 30, 1996 and 1995 (unaudited).
Such consolidated financial statements and the notes thereto have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated unless
otherwise noted in the Crestar Financial Statements. Each of such
consolidated balance sheets, together with the notes thereto, presents
fairly as of its date the financial condition and assets and liabilities of
Crestar. The consolidated income statements, statements of changes in
shareholders' equity and statements of cash flows, together with the notes
thereto, present fairly the results of operations, shareholders' equity and
cash flows of Crestar for the periods indicated in accordance with GAAP.
(e) ABSENCE OF UNDISCLOSED LIABILITIES. At June 30, 1996 and December
31, 1995, Crestar and its consolidated subsidiaries had no material
obligations or liabilities, (contingent or otherwise) of any nature which
were not reflected in the Crestar Financial Statement as of such dates, or
disclosed in the notes thereto, except for those which are disclosed in
Schedules specifically referred to herein or which in the aggregate are
immaterial.
(f) ABSENCE OF CHANGES. Since December 31, 1995 there has not been any
material adverse change in the condition (financial or otherwise),
aggregate assets or liabilities, earnings or business of Crestar, other
than changes resulting from or attributable to (i) changes since such date
in laws or regulations, generally accepted accounting principles or
interpretations of either thereof that affect the banking or savings and
loan industries generally, (ii) changes since such date in the general
level of interest rates, and (iii) expenses since such date incurred in
connection with the transactions contemplated by this Agreement. Since
December 31, 1995 the business of Crestar has been conducted only in the
ordinary course.
(g) SUBSIDIARIES. Crestar's first-tier subsidiaries are Crestar Bank
(a Virginia banking corporation separate and distinct from Crestar Bank
DC), Crestar Bank N.A., Crestar Bank MD, Crestar Bank FSB, Crestar
Insurance Agency, Inc., and Crestar Securities Corporation. Such
corporations are duly organized, validly existing and in good standing
under the laws of their respective jurisdictions of incorporation and have
all requisite corporate power and authority to own, lease and operate their
properties and to carry on their business as now being conducted in all
material respects. As of the date hereof, Crestar, Crestar Bank and Crestar
Securities Corporation (other than in a fiduciary capacity) do not own
directly or indirectly, or have any rights to acquire, any shares of
Citizens Common Stock.
(h) REPORTS. Since January 1, 1992, Crestar has filed all material
reports and statements, together with any amendments required to be made
with respect thereto, that were required to be filed with (i) the Federal
Reserve Board, (ii) the FDIC, (iii) the OCC, (iv) the Virginia Bureau, (v)
the Office of Thrift Suspension ("OTS"), (vi) the Maryland Department,
(vii) the SEC and (viii) any other governmental or regulatory authority or
agency having jurisdiction over their operations. Each of such reports and
documents, including the financial statements, exhibits and schedules
thereto, filed with the SEC pursuant to the 1934 Act was in form and
substance in compliance with the 1934 Act. No such report or statement, or
any amendments thereto, contains any statement which, at the time and in
light of the circumstances under which it was made, was false or misleading
with respect to any material fact necessary in order to make the statements
contained therein not false or misleading.
(i) TAX MATTERS. Each of Crestar, Crestar Bank, and all other
corporations that are members of the same "affiliated group," as defined in
Section 1504(a)(1) of the Code, as Crestar (collectively, the "Crestar
Group") has filed or caused to be filed or (in the case of returns or
reports not yet due) will file all tax returns and reports required to have
been filed by or for it before the Effective Time of the Holding Company
Merger. Each member of the Crestar Group has paid or made adequate
provision for or (with respect to returns or reports not yet filed) before
the Effective Time of the Holding Company Merger will pay or make adequate
provision for all taxes, additions to tax, penalties, and interest for all
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periods covered by those returns or reports. The consolidated balance
sheets contained in the Crestar Financial Statements fully and properly
reflect, as of the dates thereof, the aggregate liabilities of the members
of the Crestar Group for all accrued taxes, additions to tax, penalties and
interest in accordance with GAAP. For periods ending after December 31,
1995, the books and records of each member of the Crestar Group fully and
properly reflect its liability for all accrued taxes, additions to tax,
penalties and interest in accordance with GAAP. Except as disclosed in
Schedule P, no member of the Crestar Group has granted (nor is it subject
to) any waiver of the period of limitations for the assessment of tax for
any currently open taxable period, and no unpaid tax deficiency has been
asserted in writing against or with respect to any member of the Crestar
Group by any taxing authority.
(j) PROPERTY. Crestar and its subsidiaries own (or enjoy use of under
capital leases) all property reflected on the Crestar Financial Statements
as of June 30, 1996 and December 31, 1995 as being owned by them (except
property sold or otherwise disposed of in the ordinary course of business).
All property shown as being owned is owned free and clear of mortgages,
liens, pledges, charges or encumbrances of any nature whatsoever, except
those referred to in such Crestar Financial Statements or the notes
thereto, liens for current taxes not yet due and payable, any unfiled
mechanic's liens and such encumbrances and imperfections of title, if any,
as are not substantial in character or amount or otherwise would materially
impair Crestar's consolidated business operations. The leases relating to
leased property are fairly reflected in such Crestar Financial Statements.
All property and assets material to the business or operations of
Crestar and its subsidiaries are in substantially good operating condition
and repair, and such property and assets are adequate for the business and
operations of Crestar and its subsidiaries.
(k) AGREEMENTS IN FORCE AND EFFECT. All material contracts,
agreements, plans, leases, policies and licenses of Crestar and its
subsidiaries are valid and in full force and effect; and Crestar and its
subsidiaries have not breached any material provision of, or are in default
in any material respect under the terms of, any such contract, agreement,
lease, policy or license, the effect of which breach or default would have
a material adverse effect upon the financial condition, results of
operations or business of Crestar and its subsidiaries taken as a whole.
(l) LEGAL PROCEEDINGS; COMPLIANCE WITH LAWS. There is no legal,
administrative, arbitration or other proceeding or governmental
investigation pending, or, to the knowledge of Crestar's management,
threatened or probable of assertion which, if decided adversely, would have
a material adverse effect on the financial condition, results of
operations, business or prospects of Crestar on a consolidated basis.
Crestar and its subsidiaries have complied with any laws, ordinances,
requirements, regulations or orders applicable to their respective
businesses, except where noncompliance would not have a material adverse
effect on the financial condition, results of operations, business or
prospects of Crestar on a consolidated basis. Crestar and its subsidiaries
have all licenses, permits, orders or approvals of any federal, state,
local or foreign governmental or regulatory body that are necessary for the
conduct of the respective businesses of Crestar and its subsidiaries and
the absence of which would have a material adverse effect on the financial
condition, results of operations, business or prospects of Crestar on a
consolidated basis; the Permits are in full force and effect; Crestar is
not aware of any material violations that are or have been recorded in
respect of any Permit nor has Crestar or its subsidiaries received notice
of any violations; and no proceeding is pending or, to the knowledge of
Crestar, threatened to revoke or limit any Permit. Neither Crestar nor its
subsidiaries are subject to any judgment, order, writ, injunction or decree
which materially adversely affects, or might reasonably be expected to
materially adversely affect, the financial condition, results of
operations, business or prospects of Crestar on a consolidated basis.
(m) EMPLOYEE BENEFIT PLANS.
(1) Neither Crestar nor any of its subsidiaries, nor any employee
benefit pension plan (as defined in Section 3(2) of ERISA (a "Pension
Plan")) maintained by it, has incurred any material liability to the
PBGC or to the Internal Revenue Service with respect to any Pension
Plan, deferred compensation, consultant, severance, thrift, option,
bonus and group insurance contract or any other incentive, welfare and
employee benefit plan and agreement presently in effect, or approved
prior to the date hereof, for the benefit of employees or former
employees of Crestar and its subsidiaries or the dependents or
beneficiaries of any employee or former employee of Crestar or any
subsidiary (the "Crestar Employee Plans"). There is not currently
pending with the PBGC any filing with respect to any reportable event
under Section 4043 of ERISA nor has any reportable event occurred as to
which a filing is required and has not been made.
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(2) Full payment has been made (or proper accruals have been
established) of all contributions which are required for periods prior
to the Closing Date under the terms of each Crestar Employee Plan,
ERISA, or a collective bargaining agreement, and no accumulated funding
deficiency (as defined in Section 302 of ERISA or Section 412 of the
Code) whether or not waived, exists with respect to any Pension Plan.
(3) No Crestar Employee Plan is a "multiemployer plan" (as defined
in Section 3(37) of ERISA). Neither Crestar nor Crestar Bank has
incurred any material liability under Section 4201 of ERISA for a
complete or partial withdrawal from a multiemployer plan (as defined in
Section 3(37) of ERISA). Neither Crestar nor Crestar Bank has
participated in or agreed to participate in, a multiemployer plan (as
defined in Section 3(37) of ERISA).
(4) All "employee benefit plans," as defined in Section 3(3) of
ERISA, that are maintained by Crestar comply and have been administered
in compliance in all material respects with ERISA and all other
applicable legal requirements, including the terms of such plans,
collective bargaining agreements and securities laws. Neither Crestar
nor Crestar Bank has any material liability under any such plan that is
not reflected in the Crestar Financial Statements.
(5) No prohibited transaction has occurred with respect to any
"employee benefit plan" (as defined in Section 3(3) of ERISA) maintained
by Crestar or Crestar Bank that would result, directly or indirectly, in
material liability under ERISA or in the imposition of a material excise
tax under Section 4975 of the Code.
(n) REGULATORY APPROVALS. Crestar knows of no reason why the
approvals, consents and waivers of governmental authorities referred to in
Sections 5.1(f) and 5.2(e) hereof should not be obtained on a timely basis
without the imposition of any condition of the type referred to in Section
5.1(f) hereof.
(o) CRESTAR STOCK BUYBACK PROGRAM. Crestar has terminated its stock
buyback program announced July 11, 1996 and has no plans to commence a
stock buyback program.
(p) DISCLOSURE. Except to the extent of any subsequent correction or
supplement with respect thereto furnished prior to the date hereof, no
written statement, certificate, schedule, list or other written information
furnished by or on behalf of Crestar at any time to Citizens, in connection
with this Agreement when considered as a whole, contains or will contain
any untrue statement of a material fact or omits or will omit to state a
material fact necessary in order to make the statements herein or therein,
in light of the circumstances under which they were made, not misleading.
Each document delivered or to be delivered by Crestar to Citizens is or
will be a true and complete copy of such document, unmodified except by
another document delivered by Crestar.
ARTICLE IV
CONDUCT AND TRANSACTIONS PRIOR TO
EFFECTIVE TIME OF THE MERGER
4.1. ACCESS TO RECORDS AND PROPERTIES OF CRESTAR, CRESTAR BANK, CITIZENS
AND CITIZENS BANK; CONFIDENTIALITY. Between the date of this Agreement and the
Effective Time of the Holding Company Merger, Crestar on the one hand, and each
of Citizens and Citizens Bank on the other, agree to give to the other
reasonable access to all the premises and books and records (including tax
returns filed and those in preparation) of it and its subsidiaries and to cause
its officers to furnish the other with such financial and operating data and
other information with respect to the business and properties as the other shall
from time to time request for the purposes of verifying the representations and
warranties set forth herein, preparing the Registration Statement (as defined in
Section 4.2) and applicable regulatory filings (as set forth in Section 4.6),
and preparing unaudited financial statements of Citizens as of a date prior to
the Effective Time of the Holding Company Merger in order to facilitate
Crestar's performance of its post-Closing Date financial reporting requirements,
provided, however, that any such investigation shall be conducted in such manner
as not to interfere unreasonably with the operation of the respective business
of the other. Crestar and Citizens shall each maintain the confidentiality of
all confidential information furnished to it by the other party hereto
concerning the business, operations, and financial condition of the party
furnishing such information, and shall not use any such information except in
furtherance of the Holding Company Merger. If this Agreement is terminated, each
party hereto shall promptly return all documents and copies of, and all
workpapers containing, confidential information received from the other party
hereto. The obligations of confidentiality under this Section 4.1 shall survive
any such termination of this Agreement and shall remain in effect, except to the
extent that (a) one party shall have directly or indirectly acquired the assets
and business of the other party; (b) as to any particular confidential
information with respect to one party, such information (i) shall become
generally available to the public other than as a result of an unauthorized
disclosure by the other party or (ii) was available to the other party on a
nonconfidential basis prior to its disclosure by the first party; (c)
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disclosure by any party is required by subpoena or order of a court of competent
jurisdiction or by order of a regulatory authority of competent jurisdiction; or
(d) disclosure is required by the SEC or federal or state bank regulatory
authorities in connection with the transactions contemplated by this Agreement,
provided that the disclosing party has, prior to such disclosure, advised the
other party of the circumstances necessitating such disclosure and have reached
mutually agreeable arrangements relating to such disclosure.
4.2. REGISTRATION STATEMENT, PROXY STATEMENT, SHAREHOLDER APPROVAL.
Citizens and Crestar will duly call and will hold meetings of their respective
shareholders for the purpose of approving, in the case of Citizens, the Holding
Company Merger and, in the case of Crestar, the issuance of Crestar Common Stock
in the Holding Company Merger and will comply fully with the provisions of the
1933 Act and the 1934 Act and the rules and regulations of the SEC under such
acts to the extent applicable, and their respective Articles of Incorporation
and By-laws relating to the call and holding of meetings of shareholders for
such purpose. Subject, in the case of Citizens, to action taken by its Board of
Directors pursuant to or as a result of the exception clause to the first
sentence of Section 4.4 hereof, the boards of directors of Citizens and Crestar
will recommend to and actively encourage their respective shareholders that they
vote in favor of, in the case of Citizens, the Holding Company Merger and, in
the case of Crestar, the issuance of Crestar Common Stock in the Holding Company
Merger. If, in the case of Crestar, the fairness opinion received from Morgan
Stanley & Co. Incorporated on the date hereof, or in the case of Citizens, the
fairness opinion received from Keefe, Bruyette & Woods on the date hereof is
withdrawn, the board of directors of the party with respect to which such
fairness opinion has been withdrawn may, in its discretion, submit the matters
described in this Section 4.2 for shareholder approval without a recommendation
from the board of directors. Crestar and Citizens will jointly prepare the joint
proxy statement-prospectus to be used in connection with such meetings (the
"Proxy Statement-Prospectus") and Crestar will prepare and file with the SEC a
Registration Statement on Form S-4 (the "Registration Statement"), of which such
Proxy Statement- Prospectus shall be a part, and will use its best efforts
promptly to have the Registration Statement declared effective. In connection
with the foregoing, Crestar will comply with the requirements of the 1933 Act,
the 1934 Act, the rules and regulations of the SEC under such acts and the New
York Stock Exchange with respect to the offering and sale of Crestar Common
Stock in connection with the Holding Company Merger and with all applicable
state Blue Sky and securities laws. The notices of such meetings and the Proxy
Statement-Prospectus shall not be mailed to Crestar or Citizens shareholders
until the Registration Statement shall have become effective under the 1933 Act.
Citizens covenants that none of the information supplied by Citizens, and
Crestar covenants that none of the information supplied by Crestar, in the Proxy
Statement-Prospectus will, at the time of the mailing of the Proxy
Statement-Prospectus to Crestar and Citizens shareholders, contain any untrue
statement of a material fact nor will any such information omit any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances in which they were made, not misleading;
and at all times subsequent to the time of the mailing of the Proxy Statement-
Prospectus, up to and including the date of the meetings of Crestar and Citizens
shareholders to which the Proxy Statement-Prospectus relates, none of such
information in the Proxy Statement-Prospectus, as amended or supplemented, will
contain an untrue statement of a material fact or omit any material fact
required to be stated therein in order to make the statements therein, in light
of the circumstances in which they were made, not misleading.
Citizens, as the sole shareholder of Citizens Bank, and Crestar, as the
sole shareholder of Crestar Bank, hereby approve this Agreement.
4.3. (a) OPERATION OF THE BUSINESS OF CITIZENS AND CITIZENS BANK. Citizens
and Citizens Bank agree that from December 31, 1995 to the Effective Time of the
Holding Company Merger, they have operated, and they will operate, their
respective businesses substantially as presently operated and, only in the
ordinary course and in general conformity with applicable laws and regulations,
and, consistent with such operation, they will use their best efforts to
preserve intact their present business organizations and relationships with
persons having business dealings with them. Without limiting the generality of
the foregoing, Citizens and Citizens Bank agree that they will not, without
prior written notice to Crestar, and with respect to clauses (vi), (vii), (xvii)
and (xviii), with Crestar's prior written consent, and unless required by
regulatory authorities, (i) make any change in the salaries, bonuses or title of
any officer or any other employee, other than those permitted by current
employment policies in the ordinary course of business, any of which changes
shall be reported promptly to Crestar; (ii) RESERVED; (iii) enter into any
bonus, incentive compensation, deferred compensation, profit sharing, thrift,
retirement, pension, group insurance or other benefit plan or any employment,
severance or consulting agreement or increase benefits under existing plans and
agreements; (iv) create or otherwise become liable with respect to any
indebtedness for money borrowed or purchase money indebtedness except in the
ordinary course of business; (v) amend its Articles of Incorporation or By-laws;
(vi) issue or contract to issue any shares of Citizens capital stock or
securities exchangeable for or convertible into capital stock except (y) shares
of Citizens Common Stock issuable pursuant to Citizens Options outstanding as of
June 30, 1996, pursuant to Citizens' 401(k), and (z) up to 3,012,000 shares of
Citizens Common Stock pursuant to the Option
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Agreement; (vii) purchase any shares of Citizens capital stock except 0 shares
purchased under its stock buyback program and shares to be purchased for
employee benefit and stock option plans pursuant to a systematic program in
effect for at least two years; (viii) enter into or assume any material contract
or obligation, except in the ordinary course of business; (ix) other than as
provided in (a) below with respect to the work-out of nonperforming assets,
waive, release, compromise or assign any right or claim involving $1,000,000 or
more without compliance with Citizens Banks credit policies; (x) propose or take
any other action which would make any representation or warranty in Section 3.1
hereof untrue; (xi) introduce any new products or services or change the rate of
interest on any deposit instrument to above-market interest rates; (xii) make
any change in policies respecting extensions of credit or loan charge-offs;
(xiii) change reserve requirement policies; (xiv) change securities portfolio
policies; (xv) acquire a policy or enter into any new agreement, amendment or
endorsement or make any changes relating to insurance coverage, including
coverage for its directors and officers, which would result in an additional
payment obligation of $200,000 or more; (xvi) propose or take any action with
respect to the closing of any branches; (xvii) amend the terms of the Citizens
Options or any other stock-based compensation plan for employees or directors;
(xviii) amend the terms of the written severance or employment agreements
identified in Schedule F; or (xix) make any change in any tax election or
accounting method or system of internal accounting controls, except as may be
appropriate to conform to any change in regulatory accounting requirements or
generally accepted accounting principles.
Citizens and Citizens Bank further agree that, between the date of this
Agreement and the Effective Time of the Holding Company Merger, they will
consult and cooperate with Crestar regarding all actions described in the
immediately preceding paragraph, and (a) loan portfolio management, including
management and work-out of nonperforming assets, and credit review and approval
procedures, including notice to Crestar's Credit Review Department Management of
any new loans in excess of $1,000,000, and (b) securities portfolio and funds
management, including management of interest rate risk.
(b) CONDUCT OF THE BUSINESS OF CRESTAR. Crestar agrees that, except as
expressly permitted by this Agreement or otherwise consented to in writing by
Citizens, during the period from the date hereof to the Effective Time:
(i) Crestar will and will cause each of its subsidiaries to conduct
their respective operations only in the ordinary course of business
consistent with past practice and will use its best efforts to preserve
intact their respective business organizations, keep available the services
of their officers and employees and maintain satisfactory relationships
with licensors, suppliers, distributors, customers, clients and others
having business relationships with them;
(ii) Crestar shall not, and shall not permit any of its subsidiaries
to, take any action, engage in any transactions or enter into any agreement
which would adversely affect or delay in any material respect the ability
of Crestar or Citizens to obtain any necessary approvals, consents or
waivers of any governmental entity required for the transactions
contemplated hereby or to perform its covenants and agreements on a timely
basis under this Agreement; and
(iii) Crestar will not issue any Crestar Common Stock except (A) under
existing stock option or employee or director benefit plans in accordance
with past practice and (B) in acquisitions accounted for as purchases where
the stock to be issued is acquired from a third party in a manner
consistent with pooling-of-interests accounting treatment for the Holding
Company Merger.
4.4. NO SOLICITATION. Unless and until this Agreement shall have been
terminated pursuant to its terms, neither Citizens, Citizens Bank nor any of
their executive officers, directors, representatives, agents or affiliates
shall, directly or indirectly, encourage, solicit or initiate discussions or
negotiations (with any person other than Crestar) concerning any merger, sale of
substantial assets, tender offer, sale of shares of stock or similar transaction
involving Citizens or Citizens Bank or disclose, directly or indirectly, any
information not customarily disclosed to the public concerning Citizens or
Citizens Bank, afford to any other person access to the properties, books or
records of Citizens or Citizens Bank or otherwise assist any person preparing to
make or who has made such an offer, or enter into any agreement with any third
party providing for a business combination transaction, equity investment or
sale of significant amount of assets, except in a situation in which a majority
of the full Board of Directors of Citizens has determined in good faith, upon
advice of counsel, that such Board has a fiduciary duty to consider and respond
to a bona fide proposal by a third party (which proposal was not directly or
indirectly solicited by Citizens or Citizens Bank or any of their officers,
directors, representatives, agents or affiliates) and provides written notice of
its intention to consider such proposal and the material terms thereof to
Crestar at least five days before responding to the proposal. Citizens and
Citizens Bank will promptly communicate to Crestar the terms of any proposal
which it may receive in respect to any of the foregoing transactions.
4.5. DIVIDENDS. Citizens agrees that subsequent to June 30, 1996 and until
the Effective Time of the Holding Company Merger, it will declare cash dividends
consistent (in terms of amount and timing of record and payment dates) with its
practice in effect in the second quarter of 1996. Citizens agrees not to pay a
dividend for the first calendar quarter of 1997
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unless the Closing Date is designated after the record date for payment of
Crestar's first quarter dividend (which date is expected to be May 5, 1997), in
which event Citizens may declare a dividend for the first quarter (whose amount
shall comply with this Section 4.5) payable to Citizens shareholders of record
at the Effective Time of the Holding Company Merger.
4.6. REGULATORY FILINGS; BEST EFFORTS. Crestar and Citizens shall jointly
prepare all regulatory filings required to consummate the transactions
contemplated by the Agreement and the Plan of Merger and submit the filings for
approval with the Federal Reserve Board, the Maryland Department, the FDIC and
the Virginia Bureau as soon as practicable after the date hereof. Crestar and
Citizens shall use their best efforts to obtain approvals of such filings.
4.7. PUBLIC ANNOUNCEMENTS. Each party will consult with the other before
issuing any press release or calling a news conference with respect to the
Holding Company Merger and shall not issue any press release or call a news
conference prior to such consultations and approval of the other party, which
approval shall not be unreasonably withheld, except as may be required by law.
4.8. OPERATING SYNERGIES; CONFORMANCE TO RESERVE POLICIES, ETC. Between the
date hereof and the Effective Time of the Holding Company Merger, Citizens' and
Citizens Bank's management will work with Crestar to achieve appropriate
operating efficiencies following the Closing Date. Subject to Citizens'
approval, which will not be unreasonably withheld, Crestar notification to
Citizens Bank's customers and Crestar's direct contact with customers will
commence following receipt of Federal Reserve Board approval but not earlier
than 45 days prior to the Closing Date. At the request of Crestar and upon
receipt by Citizens and Citizens Bank of written confirmation from Crestar and
that there are no conditions to the obligations of Crestar under this Agreement
set forth in Article V which they believe will not be fulfilled so as to permit
them to consummate the Holding Company Merger and the other transactions
contemplated hereby, not earlier than three days prior to the Effective Time of
the Holding Company Merger Citizens shall establish such additional accruals,
reserves and charge-offs, through appropriate entries in its accounting books
and records, provided such adjustments are in accordance with GAAP and
applicable law and regulation as may be necessary to conform Citizens'
accounting and credit loss reserve practices and methods to those of Crestar
Bank (as such practices and methods are to be applied from and after the
Effective Time of the Holding Company Merger) and to Crestar Bank's plans with
respect to the conduct of the business of Citizens and Citizens Bank following
the Transaction, prior and the costs and expenses relating to the consummation
by Citizens and Citizens Bank of the Holding Company Merger and the other
transactions contemplated hereby. Any such accruals, reserves and charge-offs
shall not be deemed to cause any representation and warranty of Citizens and
Citizens Bank to be untrue or inaccurate as of the Effective Time of the Holding
Company Merger.
At the same time that the accruals referred to in the immediately preceding
paragraph are established, Citizens and Citizens Bank will convey any OREO
properties that are titled in its name to a Citizens subsidiary to be identified
by Crestar.
4.9. CRESTAR RIGHTS AGREEMENT. Crestar agrees that any rights issued
pursuant to the Rights Agreement adopted by it in 1989 shall be issued with
respect to each share of Crestar Common Stock issued pursuant to the terms
hereof and the Holding Company Plan of Merger, regardless whether there has
occurred a Distribution Date under the terms of such Rights Agreement prior to
the occurrence of the Effective Time of the Holding Company Merger.
4.10. AGREEMENT AS TO EFFORTS TO CONSUMMATE. Subject to action taken by the
Board of Directors of Citizens pursuant to or as a result of the exception
clause to the first sentence of Section 4.4 hereof and to the other terms and
conditions of this Agreement, each of Crestar and Citizens agrees to use all
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 and regulations to consummate and make effective, as soon as practicable
after the date of this Agreement, the transactions contemplated by this
Agreement, including, without limitation, using reasonable effort to lift or
rescind any injunction or restraining order or other order adversely affecting
the ability of the parties to consummate the transactions contemplated herein.
Each of Crestar and Citizens shall use its best efforts to obtain consents of
all third parties and governmental bodies necessary or desirable for the
consummation of the transactions contemplated by this Agreement.
4.11. ADVERSE CHANGES IN CONDITION. Crestar and Citizens each agrees to
give written notice promptly to the other concerning any event or circumstance
which would cause or constitute a breach of any of the representations,
warranties or covenants of such party contained herein. Each of Crestar and
Citizens shall use its best efforts to prevent or promptly to remedy the same.
4.12. NYSE LISTING. Crestar will file with the New York Stock Exchange a
Supplemental Listing Application for the shares of Crestar Common Stock to be
issued in the Holding Company Merger and have such shares approved for listing
on the New York Stock Exchange prior to the Effective Time of the Merger.
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4.13. UPDATING OF SCHEDULES. Citizens shall notify Crestar, and Crestar
shall notify Citizens, of any changes, additions or events which may cause any
change in or addition to any Schedules delivered by it under this Agreement,
promptly after the occurrence of same and at the Closing Date by delivery of
updates of all Schedules, including future quarterly and annual Citizens and
Crestar financial statements. No notification made pursuant to this Section 4.13
shall be deemed to cure any breach of any representation or warranty made in
this Agreement or any Schedule unless Crestar or Citizens, as the case may be,
specifically agree thereto in writing, nor shall any such notification be
considered to constitute or give rise to a waiver by Citizens or Citizens Bank
on the one hand, or Crestar or Crestar Bank on the other hand, of any condition
set forth in this Agreement.
4.14. TRANSACTIONS IN CRESTAR COMMON STOCK. Other than the issuance or
acquisition of Crestar Common Stock pursuant to Crestar employee benefit plans,
or the purchase or sale of Crestar Common Stock by Crestar Bank in its capacity
as trustee under Crestar employee benefit plans or in any other fiduciary
capacity in which it is directed to sell or purchase Crestar Common Stock, none
of Crestar, Crestar Bank, Citizens or Citizens Bank will, directly or
indirectly, purchase, publicly sell or publicly acquire any shares of Crestar
Common Stock on any trading day when the Average Closing Price of Crestar Common
Stock is being calculated as provided in Section 7.1(h).
ARTICLE V
CONDITIONS OF MERGER
5.1. CONDITIONS OF OBLIGATIONS OF CRESTAR AND CRESTAR BANK. The obligations
of Crestar and Crestar Bank to perform this Agreement are subject to the
satisfaction at or prior to the Effective Time of the Merger of the following
conditions unless waived by Crestar and Crestar Bank.
(a) REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. The
representations and warranties of Citizens and Citizens Bank set forth in
Section 3.l hereof shall be true and correct in all material respects as of
the date of this Agreement and as of the Effective Time of the Holding
Company Merger as though made on and as of the Effective Time of the
Holding Company Merger (or on the date when made in the case of any
representation and warranty which specifically relates to an earlier date);
Citizens and Citizens Bank shall have in all material respects performed
all obligations required to be performed by them and satisfied all
conditions required to be satisfied by them under this Agreement prior to
the Effective Time of the Merger; and Crestar and Crestar Bank shall have
received a certificate signed by the Chief Executive Officer and by the
Chief Financial Officer of Citizens and Citizens Bank, which may be to
their best knowledge after due inquiry, to such effects.
(b) AUTHORIZATION OF TRANSACTION. All action necessary to authorize
the execution, delivery and performance of this Agreement by Citizens and
Citizens Bank and the consummation of the transactions contemplated herein
(including the shareholder action referred to in Section 4.2) shall have
been duly and validly taken by the Boards of Directors of Citizens and
Citizens Bank and by the shareholders of Citizens and Citizens shall have
full power and right to acquire Subsidiary by merger on the terms provided
herein.
(c) OPINION OF COUNSEL. Crestar and Crestar Bank shall have received
an opinion of Semmes, Bowen & Semmes, counsel to Citizens and Citizens
Bank, dated the Closing Date and satisfactory in form and substance to
counsel to Crestar and Crestar Bank, in the form attached hereto as Exhibit
B.
(d) THE REGISTRATION STATEMENT. The Registration Statement shall be
effective under the 1933 Act and Crestar shall have received all state
securities laws or "blue sky" permits and other authorizations or there
shall be exemptions from registration requirements necessary to offer and
issue the Crestar Common Stock in connection with the Holding Company
Merger, and neither the Registration Statement nor any such permit,
authorization or exemption shall be subject to a stop order or threatened
stop order by the SEC or any state securities authority.
(e) TAX OPINION. Crestar shall have received, in form and substance
satisfactory to it, an opinion of Hunton & Williams to the effect that, for
federal income tax purposes, the Holding Company Merger and the subsequent
merger of Citizens into Crestar (collectively, the "Holding Company
Combination") will qualify as a "reorganization" under Section 368(a) of
the Code, and no taxable gain will be recognized by Crestar, Subsidiary or
Citizens in the Holding Company Combination (i) upon the transfer of
Citizens' assets to Crestar in exchange for Crestar Common Stock and the
assumption of Citizens' liabilities or (ii) upon the distribution of
Crestar Common Stock to Citizens' shareholders.
(f) REGULATORY APPROVALS. All required approvals from federal and
state regulatory authorities having jurisdiction to permit Crestar and
Crestar Bank to consummate the Holding Company Merger and to issue Crestar
Common Stock to
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Citizens shareholders shall have been received and shall have contained no
conditions deemed in good faith to be materially disadvantageous by
Crestar.
(g) AFFILIATE LETTERS. Within 60 days of the date hereof, each
shareholder of Citizens who is a Citizens Affiliate shall have executed and
delivered a commitment and undertaking in the form of Exhibit D to the
effect that (1) beginning 30 days prior to the Effective Date of the
Holding Company Merger, that he will not sell, pledge, transfer or
otherwise dispose of shares of Citizens Common Stock or Crestar Common
Stock until such times as financial results covering at least 30 days of
combined operations of Crestar and Citizens have been published within the
meaning of Section 201.01 of the SEC's Codification of Financial Reporting
Policies, and in furtherance of this undertaking, shares of Crestar Common
Stock issued to Affiliates in exchange for shares of Citizens Common Stock
shall not be transferable until such time as financial results covering at
least 30 days of combined operations of Crestar and Citizens 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 letter agreement referred to in this Section 5.1(g)
(and Crestar shall be entitled to place restrictive legends upon
certificates of shares of Crestar Common Stock issued to Affiliates of
Citizens to enforce the provisions of this Section 5.1(g)), (2) such
shareholder will dispose of the shares of Crestar Common Stock received by
him in connection with the Holding Company Merger only in accordance with
the provisions of paragraph (d) of Rule 145 under the 1933 Act; (3) such
shareholder will not dispose of any of such shares until Crestar has
received, at its expense, an opinion of counsel acceptable to it that such
proposed disposition will not violate the provisions of paragraph (d) of
Rule 145 and any applicable securities laws which opinion shall be rendered
promptly following counsel's receipt of such shareholder's written notice
of its intent to sell shares of Crestar Common Stock; and (4) the
certificates representing said shares may bear a legend referring to the
foregoing restrictions.
(h) TITLE MATTERS. Crestar shall have received evidence reasonably
satisfactory to it as to the accuracy of the representations made by
Citizens and Citizens Bank with respect to branch real estate in Section
3.1(i).
(i) NYSE LISTING. Shares of Crestar Common Stock to be issued in the
Holding Company Merger shall have been approved for listing, upon notice of
issuance, on the New York Stock Exchange.
(j) CITIZENS RIGHTS PLAN. Citizens shall have taken all action
necessary to exempt the Holding Company Merger from the operation of its
Shareholder Rights Plan.
(k) ACCOUNTING TREATMENT. Crestar shall have received a letter in form
and substance satisfactory to Crestar dated the Effective Date of the
Holding Company Merger from KPMG Peat Marwick LLP to the effect that the
Holding Company Merger can be accounted for as a pooling of interests.
(l) CRESTAR SHAREHOLDER APPROVAL. The holders of the requisite
majority of Crestar Common Stock shall have approved the Holding Company
Merger.
(m) ACCEPTANCE BY CRESTAR AND CRESTAR BANK COUNSEL. The form and
substance of all legal matters contemplated hereby and of all papers
delivered hereunder shall be reasonably acceptable to counsel for Crestar
and Crestar Bank.
5.2. CONDITIONS OF OBLIGATIONS OF CITIZENS AND CITIZENS BANK. The
obligations of Citizens and Citizens Bank to perform this Agreement are subject
to the satisfaction at or prior to the Effective Time of the Holding Company
Merger of the following conditions unless waived by Citizens and Citizens Bank:
(a) REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. The
representations and warranties of Crestar and Crestar Bank set forth in
Section 3.2 hereof shall be true and correct in all material respects as of
the date of this Agreement and as of the Effective Time of the Holding
Company Merger as though made on and as of the Effective Time of the
Holding Company Merger (or on the date when made in the case of any
representation and warranty which specifically relates to an earlier date);
Crestar and Crestar Bank shall have in all material respects performed all
obligations required to be performed by them and satisfied all conditions
required to be satisfied by them under this Agreement prior to the
Effective Time of the Holding Company Merger; and Citizens and Citizens
Bank shall have received a certificate signed by the Chief Executive
Officer and by the Chief Financial Officer of Crestar and Crestar Bank,
which may be to their best knowledge after due inquiry, to such effects.
(b) AUTHORIZATION OF TRANSACTION. All action necessary to authorize
the execution, delivery and performance of this Agreement by Crestar and
Crestar Bank and the consummation of the transactions contemplated herein
(including the shareholders' action referred to in Section 4.2) shall have
been duly and validly taken by the Boards of Directors of Crestar and
Crestar Bank and by the shareholders of Crestar, and Subsidiary shall have
full power and right to merge into Citizens on the terms provided herein.
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(c) OPINION OF COUNSEL. Citizens and Citizens Bank shall have received
an opinion of Hunton & Williams, counsel to Crestar and Crestar Bank, dated
the Closing Date and satisfactory in form and substance to counsel to
Citizens and Citizens Bank, in the form attached hereto as Exhibit C.
(d) THE REGISTRATION STATEMENT. The Registration Statement shall be
effective under the 1933 Act and Crestar shall have received all state
securities laws or "blue sky" permits and other authorizations or there
shall be exemptions from registration requirements necessary to offer and
issue the Crestar Common Stock in connection with the Holding Company
Merger, and neither the Registration Statement nor any such permit,
authorization or exemption shall be subject to a stop order or threatened
stop order by the SEC or any state securities authority.
(e) REGULATORY APPROVALS. All required approvals from federal and
state regulatory authorities having jurisdiction to permit Citizens to
consummate the Holding Company Merger and to permit Crestar to issue
Crestar Common Stock to Citizens shareholders shall have been received.
(f) TAX OPINION. Citizens shall have received, in form and substance
satisfactory to it, an opinion of Semmes, Bowen & Semmes to the effect
that, for federal income tax purposes, the Holding Company Combination will
qualify as a "reorganization" under Section 368(a) of the Code; no taxable
gain will be recognized by a Citizens shareholder on the exchange by such
shareholder of shares of Citizens Common Stock solely for shares of Crestar
Common Stock (including any fractional share interest) in the Holding
Company Merger; a Citizens shareholder's basis in Crestar Common Stock
(including any fractional share interest) received in the Holding Company
Merger will be the same as the shareholder's basis in the Citizens Common
Stock surrendered in exchange therefor; the holding period of such Crestar
Common Stock (including any fractional share interest) for a Citizens
shareholder will include the holding period of the Citizens Common Stock
surrendered in exchange therefor if such Citizens Common Stock is held as a
capital asset by the shareholder at the Effective Time of the Holding
Company Merger; and a Citizens common shareholder who receives cash in lieu
of a fractional share of Crestar Common Stock will recognize gain or loss
equal to any difference between the amount of cash received and the
shareholder's basis in the fractional share interest.
(g) NYSE LISTING. Shares of Crestar Common Stock to be issued in the
Holding Company Merger shall have been approved for listing, upon notice of
issuance, on the New York Stock Exchange.
(h) CITIZENS SHAREHOLDER APPROVAL. The holders of the requisite
majority of Citizens Common Stock shall have approved the Holding Company
Merger.
(i) ACCEPTANCE BY CITIZENS' COUNSEL. The form and substance of all
legal matters contemplated hereby and of all papers delivered hereunder
shall be acceptable to counsel for Citizens.
ARTICLE VI
CLOSING DATE; EFFECTIVE TIME
6.1. CLOSING DATE. Unless another date or place is agreed to in writing by
the parties, the closing of the transactions contemplated in this Agreement
shall take place at the offices of Hunton & Williams, 951 East Byrd Street,
Richmond, Virginia 23219, at 10:00 o'clock A.M., local time, on such date as
Crestar shall designate to Citizens at least 10 days prior to the designated
Closing Date and as reasonably acceptable to Citizens; provided, that the date
so designated shall not be earlier than 30 days after Federal Reserve Board
approval, and shall not be later than 60 days after such approval and, in no
event, shall be later than June 30, 1997 (the "Closing Date"). The parties agree
to use their best efforts to make the Merger effective on or before April 1,
1997.
6.2. FILINGS AT CLOSING. Subject to the provisions of Article V, at the
Closing Date, Crestar shall cause Articles of Merger relating to the Holding
Company Plan of Merger to be filed in accordance with the MGCL, the rules and
regulations of the Maryland Department and the Virginia Bureau, and each of
Crestar and Citizens shall take any and all lawful actions to cause the Holding
Company Merger to become effective.
6.3. EFFECTIVE TIME. Subject to the terms and conditions set forth herein,
including receipt of all required regulatory approvals, the Holding Company
Merger shall become effective at the time Articles of Merger filed with the
[Maryland Secretary of State] are made effective (the "Effective Time of the
Holding Company Merger").
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ARTICLE VII
TERMINATION; SURVIVAL OF REPRESENTATIONS,
WARRANTIES AND COVENANTS; WAIVER AND AMENDMENT
7.1. TERMINATION. This Agreement shall be terminated, and the Transaction
abandoned, if the shareholders of Crestar or Citizens shall not have given the
approval required by Section 4.2. Notwithstanding such approval by such
shareholders, this Agreement may be terminated at any time prior to the
Effective Time of the Holding Company Merger, by:
(a) The mutual consent of Crestar and Citizens, as expressed by their
respective Boards of Directors;
(b) Either Crestar on the one hand or Citizens on the other hand, as
expressed by their respective Boards of Directors, if the Holding Company
Merger has not occurred by June 30, 1997, provided that the failure of the
Holding Company Merger to so occur shall not be due to a willful breach of
any representation, warranty, covenant or agreement by the party seeking to
terminate this Agreement;
(c) By Crestar in writing authorized by its Board of Directors if
Citizens or Citizens Bank has, or by Citizens in writing authorized by its
Board of Directors, if Crestar or Crestar Bank has, in any material
respect, breached (i) any covenant or agreement contained herein, or (ii)
any representation or warranty contained herein, in any case if such breach
has not been cured by the earlier of 30 days after the date on which
written notice of such breach is given to the party committing such breach
or the Closing Date; provided that it is understood and agreed that either
party may terminate this Agreement on the basis of any such material breach
of any representation or warranty which is not cured within 30 days of
written notice thereof contained herein notwithstanding any qualification
therein relating to the knowledge of the other party;
(d) Either Crestar on the one hand or Citizens on the other hand, as
expressed by their respective Boards of Directors, in the event that any of
the conditions precedent to the obligations of such parties to consummate
the Holding Company Merger have not been satisfied or fulfilled or waived
by the party entitled to so waive on or before the Closing Date, provided
that no party shall be entitled to terminate this Agreement pursuant to
this subparagraph (d) if the condition precedent or conditions precedent
which provide the basis for termination can reasonably be and are satisfied
within a reasonable period of time, in which case, the Closing Date shall
be appropriately postponed;
(e) Citizens, if the Board of Directors of Citizens shall have
determined in its sole discretion, exercised in good faith, that the
Holding Company Merger has become inadvisable or impracticable by reason of
(A) the institution of any litigation, proceeding or investigation
(including under federal antitrust laws) to restrain or prohibit the
consummation of the Transaction or to obtain other relief in connection
with this Agreement, or (B) commencement of a competing offer for Citizens
Common Stock which is significantly better than Crestar's offer, and which
Crestar has certified to Citizens, in writing, it is unwilling to meet;
(f) Crestar, if the Board of Directors of Crestar shall have
determined in its sole discretion, exercised in good faith, that the
Holding Company Merger, has become inadvisable or impracticable by reason
of (A) the institution of any litigation, proceeding or investigation
(including under federal antitrust laws) to restrain or prohibit the
consummation of the Transaction or to obtain other relief in connection
with this Agreement or (B) public commencement of a competing offer for
Citizens Common Stock which is significantly better than Crestar's offer,
and which Crestar certifies to Citizens, in writing, it is unwilling to
meet;
(g) Crestar or Citizens, if the Federal Reserve Board, the Maryland
Department, the FDIC or the Virginia Bureau deny approval of the
Transaction and the time period for all appeals or requests for
reconsideration has run;
(h) Citizens, by action of its Board of Directors, at any time during
the five-day period prior to the fifth day prior to the Closing Date, if
the Average Closing Price as defined below of Crestar Common Stock shall be
$48.00 or less, provided, however, that during the five-day period
following the provision by Citizens of written notice of termination to
Crestar pursuant to this Section 7.1(h) Crestar shall have the option of
postponing the Closing Date for 15 trading days, during the first 10
trading days of which a new Average Closing Price of Crestar Common Stock
shall be determined based on the closing sales price of Crestar Common
Stock as reported on the consolidated tape on the New York Stock Exchange
for each of such 10 trading days (the "Adjusted Average Closing Price"). If
the Adjusted Average Closing Price is more than $48.00, no termination
shall be deemed to have occurred pursuant to this Section 7.1(h) and this
Agreement shall remain in full force and effect in accordance with its
terms. If the Adjusted Average Closing Price is $48.00 or less, Crestar
shall have the option of increasing the consideration to be received by
holders of Citizens Common Stock hereunder by adjusting the Exchange Ratio
to equal a number equal to the quotient obtained by dividing
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$40.08 by the Adjusted Average Closing Price, in which case Crestar shall
give prompt written notice to Citizens of such election and the revised
Exchange Ratio and no termination shall be deemed to have occurred pursuant
to this Section 7.1(h) and this Agreement shall remain in full force and
effect in accordance with its terms (except as the Exchange Ratio shall
have been so modified and any references herein to "Exchange Ratio" shall
thereafter be deemed to refer to the Exchange Ratio as adjusted pursuant to
this Section 7.1(h)). In no event shall the modified Exchange Ratio be less
than 0.835 shares of Crestar Common Stock for each share of Citizens Common
Stock.
For purposes of this Section 7.1(h), the "Average Closing Price" shall
be the average of the closing sales price of Crestar Common Stock as
reported on the consolidated tape on the New York Stock Exchange for each
of the 10 trading days ending on the 10th day prior to the Closing Date
established pursuant to Section 6.1 of this Agreement.
7.2. EFFECT OF TERMINATION. In the event of the termination and abandonment
of this Agreement and the Holding Company Merger pursuant to Section 7.1, this
Agreement, other than the provisions of Sections 4.1 (last three sentences) and
9.1, shall become void and have no effect, without any liability on the part of
any party or its directors, officers or shareholders, provided that nothing
contained in this Section 7.2 shall relieve any party from liability for any
willful breach of this Agreement.
7.3. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The respective
representations and warranties, obligations, covenants and agreements (except
for those contained in Sections 1.2, 1.3, 2.1, 2.2, 2.3, 2.4, 2.5, 2.6, 4.1
(last three sentences), 8.1, 8.2, 8.3, 8.4, 8.5, 8.6, 8.7, 8.8 and 9.1, which
shall survive the effectiveness of the Holding Company Merger) of Crestar,
Crestar Bank, Citizens and Citizens Bank contained herein shall expire with, and
be terminated and extinguished by, the effectiveness of the Holding Company and
shall not survive the Effective Time of the Holding Company Merger.
7.4. WAIVER AND AMENDMENT. Any term or provision of this Agreement may be
waived in writing at any time by the party which is, or whose shareholders are,
entitled to the benefits thereof and this Agreement may be amended or
supplemented by written instructions duly executed by all parties hereto at any
time, whether before or after the meeting of Crestar's or Citizens' shareholders
referred to in Section 4.2 hereof, excepting statutory requirements and
requisite approvals of shareholders and regulatory authorities, provided that
any such amendment or waiver executed after shareholders of Crestar or Citizens
have approved this Agreement and the Holding Company Plan of Merger shall not
modify either the amount or form of the consideration to be received by such
Citizens shareholders for their shares of Citizens Common Stock or otherwise
materially adversely affect such shareholders without their approval.
ARTICLE VIII
ADDITIONAL COVENANTS
8.1. INDEMNIFICATION OF CITIZENS OFFICERS AND DIRECTORS; LIABILITY
INSURANCE. After the Effective Time of the Holding Company Merger, Crestar
acknowledges its obligation to provide, and agrees to provide, indemnification
to the directors, employees and officers of Citizens and Citizens Bank and the
subsidiaries thereof for events occurring prior to or subsequent to the
Effective Time of the Holding Company Merger as if they had been directors,
employees or officers of Crestar prior to the Effective Time of the Holding
Company Merger, to the extent permitted under the Virginia State Corporation Act
and the Articles of Incorporation and Bylaws of Crestar as in effect as of the
date of this Agreement. Such indemnification shall continue for six years after
the Effective Time of the Holding Company Merger, provided that any right to
indemnification in respect of any claim asserted or made within such six year
period shall continue until final disposition of such claim. Crestar will
provide officers and directors liability insurance coverage to all Citizens and
Citizens Bank and subsidiaries thereof directors and officers, whether or not
they become part of the Crestar organization after the Effective Time of the
Holding Company Merger, to the same extent it is provided to Crestar's officers
and directors, provided that coverage will not extend to acts as to which a
claim has been made prior to the Effective Time of the Holding Company Merger.
The right to indemnification and insurance provided in this Section 8.1 is
intended to be for the benefit of directors, employees and officers of Citizens
and Citizens Bank and the subsidiaries thereof and as such may be personally
enforced by them at law or in equity.
8.2. EMPLOYEE MATTERS. Employment and Severance Agreements. Crestar will
honor the terms of the employment and severance agreements with Jeffrey R.
Springer, Richard C. Bandiere, Raymond L. Gazelle, Jr. and Gary N. Geisel
described on Schedule F.
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8.3. EMPLOYEE BENEFIT MATTERS.
(a) TRANSFERRED EMPLOYEES. All employees of Citizens or Citizens Bank
(including subsidiaries) immediately prior to the Effective Time of the
Merger who are employed by Crestar, Crestar Bank or another Crestar
subsidiary immediately following the Effective Time of the Merger
("Transferred Employees") will be covered by Crestar's employee benefit
plans as to which they are eligible based on their length of service,
compensation, location, job classification, and position, including, where
applicable, any incentive compensation plan. Notwithstanding the foregoing,
Crestar may determine to continue any of the Citizens or Citizens Bank
benefit plans for Transferred Employees in lieu of offering participation
in Crestar's benefit plans providing similar benefits (e.g., medical and
hospitalization benefits), to terminate any of the Citizens or Citizens
Bank benefit plans, or to merge any such benefit plans with Crestar's
benefit plans. Except as specifically provided in this Section 8.3 and as
otherwise prohibited by law, Transferred Employees' service with Citizens
or Citizens Bank which is recognized by the applicable benefit plan of
Citizens or Citizens Bank at the Effective Time of the Holding Company
Merger shall be recognized as service with Crestar for purposes of
eligibility to participate and vesting, if applicable (but not for purposes
of benefit accrual) under the corresponding Crestar benefit plan, if any,
subject to applicable break-in-service rules.
(b) HEALTH PLANS. Crestar agrees that any pre-existing condition,
limitation or exclusion in its health plans shall not apply to Transferred
Employees or their covered dependents who are covered under a medical or
hospitalization indemnity plan maintained by Citizens or Citizens Bank on
the date of the Holding Company Merger and who then change that coverage to
Crestar's medical or hospitalization indemnity health plan at the time such
Transferred Employees are first given the option to enroll in Crestar's
health plans.
(c) CITIZENS 401(K) PLAN. Crestar agrees that immediately following
the Merger, all participants who then have accounts in the 401(k) plan
maintained by Citizens or Citizens Bank (the "401(k) Plan") shall be fully
vested in their account balances. Crestar, at its election, may continue
the 401(k) Plan for the benefit of Transferred Employees (as such plan may
be amended as of the Effective Time of the Holding Company Merger to
provide current contributions and eligibility provisions identical to those
under the Crestar Employees' Thrift and Profit Sharing Plan (the "Thrift
Plan")), may merge the 401(k) Plan into the Thrift Plan or any other
defined contribution plan maintained by Crestar, or may cease additional
benefit accruals under and contributions to the 401(k) Plan and continue to
hold the assets of such Plan until they are distributable in accordance
with its terms. In the event of a merger of the 401(k) Plan into the Thrift
Plan or a cessation of accruals and contributions under the 401(k) Plan,
the Thrift Plan will recognize for purposes of eligibility to participate,
early retirement, and eligibility for vesting, all Transferred Employees'
service which is recognized under the 401(k) Plan, subject to applicable
break-in-service rules.
(d) CRESTAR RETIREMENT PLAN. The Retirement Plan for Employees of
Crestar Financial Corporation and Affiliated Corporations ("Crestar's
Retirement Plan") will recognize for purposes of eligibility to
participate, vesting and eligibility for early retirement, but not for
benefit accrual purposes, all Transferred Employees' service which is
recognized under the qualified employees' defined benefit pension plan of
Citizens (the "Citizens Pension Plan"), subject to applicable break-
in-service rules. Crestar, at its option, may continue the Citizens Pension
Plan as a frozen plan or may terminate the Citizens Pension Plan and pay
out or annuitize benefits, or may merge the Citizens Pension Plan into
Crestar's Retirement Plan. If the Citizens Pension Plan is terminated or if
benefit accruals are suspended, or if the Citizens Pension Plan is merged
into Crestar's Retirement Plan, each Transferred Employee who becomes a
participant in Crestar's Retirement Plan will begin to accrue benefits
under Crestar's Retirement Plan on and after the date of such termination,
suspension or merger in accordance with the terms of Crestar's Retirement
Plan.
(e) COOPERATION. Citizens and Citizens Bank agree to cooperate with
Crestar in implementing any decision made by Crestar under this Section 8.3
with respect to employee benefit plans and to provide to Crestar on or
before the Effective Time of the Holding Company Merger a schedule of
service credit for prospective Transferred Employees.
8.4. CRESTAR BANK/GWR OR MARYLAND ADVISORY BOARD OF DIRECTORS. Crestar Bank
will offer five to eight members of the Citizens board of directors a position
on Crestar Bank's GWR or Maryland Advisory Board. Members who agree to serve on
the GWR Advisory Board will be paid on the usual terms and conditions that
Crestar Bank pays members of its GWR or Maryland advisory board, and will be
subject to other generally applied conditions, including age eligibility.
Crestar, Citizens and Citizens Bank will cooperate in identifying the members of
the GWR or Maryland Advisory Board.
8.5. STOCK OPTIONS. Holders of outstanding Citizens Options shall (a)
exercise the Citizens Options for Citizens Common Stock prior to the Closing
Date (if such options are by their terms then exercisable) and convert such
Common Stock held as of the Effective Time of the Holding Company Merger into
Crestar Common Stock or (b) have the Citizens Options
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converted into options to purchase Crestar Common Stock as set forth in Section
2.2(e) hereof. Citizens agrees not to amend any option agreement to extend the
36 month period following termination of employment during which Citizens
Options may be exercised, or, except with the consent of Crestar, to otherwise
amend the terms of any outstanding option agreement.
8.6. CRESTAR BOARD OF DIRECTORS. Following the Effective Time of the
Holding Company Merger, Crestar agrees to increase the number of members of
Crestar's and Crestar Bank's Board of Directors by two and to appoint Alfred H.
Smith, Jr. and Jeffrey R. Springer to fill the resulting vacancies.
8.7. FURTHER ACTION RESPECTING STRUCTURE. Immediately following the Holding
Company Merger, Crestar expects to merge Citizens into Crestar pursuant to
provisions of Maryland and Virginia law. Citizens' Board of Directors, which
shall be the board of directors of the Surviving Corporation until such merger
is made effective, agree to approve and adopt all plans of merger and to take
any other action necessary to accomplish the Citizens/Crestar merger.
Crestar may merge Citizens Bank into Crestar Bank immediately following the
Holding Company Merger and the Crestar/ Citizens merger, or it may determine to
delay such merger depending on the outcome of certain federal bank regulatory
initiatives currently underway. The directors of Citizens Bank agree to adopt
any such plans of merger and to take any such further action as may be necessary
to accomplish the merger of Citizens Bank into Crestar Bank at such time as
Crestar elects to effect such merger.
8.8. BRANCH CLOSING LAW. Citizens and Citizens Bank agree to cooperate with
Crestar in achieving compliance with the Federal Branch Closing Law.
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ARTICLE IX
MISCELLANEOUS
9.1. EXPENSES. Each party hereto shall bear and pay the costs and expenses
incurred by it relating to the transactions contemplated hereby.
9.2. ENTIRE AGREEMENT. This Agreement contains the entire agreement among
Crestar, Crestar Bank, Subsidiary, Citizens and Citizens Bank with respect to
the Holding Company Merger and the related transactions and supersedes all prior
agreements, arrangements or understandings with respect thereto.
9.3. DESCRIPTIVE HEADINGS. Descriptive headings are for convenience only
and shall not control or affect the meaning or construction of any provisions of
this Agreement.
9.4. NOTICES. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or sent by registered or certified mail, postage prepaid, addressed as follows:
If to Crestar or Crestar Bank:
Crestar Financial Corporation
P. O. Box 26665
919 East Main Street
Richmond, Virginia 23261-6665
Attention: John C. Clark III
Corporate Senior Vice President,
Secretary and General Counsel
Copy to:
Lathan M. Ewers, Jr.
Hunton & Williams
951 East Byrd Street
Richmond, Virginia 23219
If to Citizens or Citizens Bank:
Citizens Bancorp Inc.
14401 Sweitzer Lane
Laurel, Maryland 20707
Attention: Jeffrey R. Springer
President
Copy to:
Cleaveland D. Miller
Semmes, Bowen & Semmes,
a Professional Corporation
250 West Pratt Street
Baltimore, Maryland 21201
9.5. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
9.6. GOVERNING LAW. Except as may otherwise be required by the laws of the
United States, this Agreement shall be governed by and construed in accordance
with the laws of Virginia.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed on its behalf and its corporate seal to be hereunto affixed and
attested by its officers thereunto duly authorized, all as of the day and year
first above written.
CRESTAR FINANCIAL CORPORATION
By /s/ Richard G. Tilghman_____________
Name: Richard G. Tilghman
Title: Chairman and CEO
CRESTAR BANK DC
By /s/ Richard G. Tilghman_____________
Name: Richard G. Tilghman
Title: Chairman and CEO
CDM ACQUISITION SUBSIDIARY, INC.
By /s/ Richard G. Tilghman_____________
Name: Richard G. Tilghman
Title: Chairman and CEO
CITIZENS BANCORP
By /s/ Jeffrey R. Springer_____________
Name: Jeffrey R. Springer
Title: President
CITIZENS BANK OF MARYLAND
By /s/ Jeffrey R. Springer_____________
Name: Jeffrey R. Springer
Title: President
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<PAGE>
All of the Directors of Citizens affix their signatures hereto for the
purpose of agreeing to vote all their shares of Citizens Common Stock
beneficially owned by them and with respect to which they have power to vote in
favor of the Merger and, subject to their fiduciary duties, to cause the Merger
to be recommended by the Board of Directors of Citizens to the shareholders of
Citizens in the proxy statement sent to shareholders in connection with such
shareholders' meeting.
<TABLE>
<S> <C>
/s/ Robert M. Beall /s/ Alfred H. Smith, Jr.
Robert M. Beall Alfred H. Smith, Jr.
/s/ Frank A. Hrabowski, III /s/ Harry R. Smith
Frank A. Hrabowski, III Harry R. Smith
/s/ Fred W. Maier /s/ Albert W. Turner
Fred W. Maier Albert W. Turner
/s/ Susan O'Malley /s/ James D. Ward
Susan O'Malley James D. Ward
/s/ Robert M. Beall /s/ Gordon T. Wells, II
Robert M. Beall Gordon T. Wells, II
</TABLE>
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<PAGE>
EXHIBIT A
PLAN OF MERGER
OF
CDM ACQUISITION SUBSIDIARY, INC.
INTO
CITIZENS BANCORP
SECTION 1. MERGER. CDM Acquisition Subsidiary, Inc., a Maryland corporation
("Subsidiary") wholly-owned by Crestar Financial Corporation; a Virginia
corporation ("Crestar") shall, upon the time that Articles of Merger are made
effective by the State Department of Assessments and Taxation of the State of
Maryland (the "Effective Time of the Holding Company Merger"), be merged (the
"Holding Company Merger") into Citizens Bancorp, a Maryland corporation
("Citizens"), which shall be the "Surviving Corporation".
SECTION 2. CONVERSION OF STOCK. At the Effective Time of the Holding
Company Merger:
(i) Each share of Subsidiary Common Stock outstanding immediately
prior to the Effective Time of the Holding Company Merger shall continue
unchanged as an outstanding share of Common Stock of the Surviving
Corporation.
(ii) Subject to Section 3, each share of Citizens Common Stock which
is issued and outstanding immediately prior to the Effective Time of the
Holding Company Merger (other than shares held of record by Crestar) and
which, under the terms of Section 4, is to be converted into Crestar Common
Stock, shall be converted into 0.835 shares of Crestar Common Stock.
(iii) At the Effective Time of the Holding Company Merger, Citizens'
transfer books shall be closed and no further transfer of Citizens Common
Stock shall be permitted.
(iv) Each outstanding option to acquire shares of Citizens Common
Stock ("Citizens Options") which has not been exercised shall be converted
into options to purchase Crestar Common Stock as set forth in the Agreement
and Plan of Reorganization dated September 16, 1996 among Crestar Financial
Corporation, Crestar Bank DC, Subsidiary, Citizens and Citizens Bank of
Maryland (the "Agreement").
SECTION 3. POSSIBLE ADJUSTMENT OF EXCHANGE RATIO. The Agreement may be
terminated by Citizens if its Board of Directors so determines at any time
during the five-day period prior to the fifth day prior to the Closing Date, if
the Average Closing Price (as defined in Section 7.1(h) of the Agreement) is
$48.00 or less; provided, however, that Crestar shall have the option of
increasing the consideration to be received by holders of Citizens Common Stock
by adjusting the Exchange Ratio to a number equal to the quotient obtained by
dividing $40.08 by the Adjusted Average Closing Price (as defined in the
Agreement) on the terms and conditions described in Section 7.1(h) of the
Agreement.
SECTION 4. MANNER OF CONVERSION. The manner in which each outstanding share
of Citizens Common Stock shall be converted into Crestar Common Stock, as
specified in Section 2, after the Effective Time of the Holding Company Merger,
shall be as follows:
(i) Each share of Citizens Common Stock, other than shares held of
record by Crestar, shall be exchanged for shares of Crestar Common Stock at
the exchange ratio described in Section 2(ii).
(ii) No fractional shares of Crestar Common Stock shall be issued, but
instead the value of fractional shares shall be paid in cash (subject to
all applicable withholding taxes), for which purpose the Average Closing
Price (as defined in the Agreement) shall be employed.
(iii) Certificates for shares of Citizens Common Stock shall be
submitted in exchange for Crestar Common Stock accompanied by a Letter of
Transmittal (to be promptly furnished by Crestar Bank to Citizens'
shareholders of record as of the Effective Time of the Holding Company
Merger). Until so surrendered, each outstanding certificate which, prior to
the Effective Time of the Holding Company Merger, represented Citizens
Common Stock, shall be deemed to evidence only the right to receive shares
of Crestar Common Stock at the exchange ratio described in Section 2(ii).
Until such outstanding shares formerly representing Citizens Common Stock
are so surrendered, no dividend payable to holders of record of Crestar
Common Stock as of any date subsequent to the Effective Time of the Holding
Company Merger shall be paid to the holder of such outstanding certificates
in respect thereof. Upon such surrender, dividends accrued or declared on
Crestar Common Stock shall be paid in accordance with Section 2.2 of the
Agreement.
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<PAGE>
SECTION 5. DISSENTING SHARES. Pursuant to Section 3-202 of the Maryland
General Corporation Law, shareholders of Citizens do not have dissenters' rights
in the Holding Company Merger.
SECTION 6. ARTICLES OF INCORPORATION, BYLAWS AND DIRECTORS OF THE SURVIVING
CORPORATION. At the Effective Time of the Holding Company Merger, there shall be
no change caused by the Holding Company Merger in the Articles of Incorporation
(except any change caused by the filing of Articles of Merger relating to the
Holding Company Merger), By-laws, or Board of Directors of the Surviving
Corporation.
SECTION 7. CONDITIONS TO MERGER. Consummation of the Holding Company Merger
is subject to the following conditions:
(i) The approving vote of the holders of the requisite majorities of
the outstanding shares of Citizens Common Stock and Crestar Common Stock.
(ii) The approval of the Holding Company Merger by the Board of
Governors of the Federal Reserve System, the Maryland Department of Labor,
Licensing and Regulation, and the State Corporation Commission of Virginia.
(iii) The satisfaction of the conditions contained in the Agreement or
the waiver of such conditions by the party for whose benefit they were
imposed.
SECTION 8. EFFECT OF THE MERGER. The Merger shall have the effect provided
by Section 3-114 of the Maryland General Corporation Law.
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<PAGE>
ANNEX II
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT ("Option Agreement") dated as of September 15,
1996, between CITIZENS BANCORP ("Citizens"), a Maryland corporation, and CRESTAR
FINANCIAL CORPORATION ("Crestar"), a Virginia corporation, recites and provides:
A. The Boards of Directors of Citizens and Crestar have approved an
Agreement and Plan of Reorganization dated as of September 16, 1996 (the "Merger
Agreement") providing for the merger (the "Merger") of Citizens with and into a
subsidiary of Crestar.
B. As a condition to and as consideration for Crestar's entry into the
Merger Agreement and to induce such entry, Citizens has agreed to grant to
Crestar the option set forth herein to purchase authorized but unissued shares
of Citizens Common Stock.
NOW, THEREFORE, the parties agree as follows:
I. DEFINITIONS.
Capitalized terms defined in the Merger Agreement and used herein shall
have the same meanings as in the Merger Agreement.
II. GRANT OF OPTION.
Subject to the terms and conditions set forth herein, Citizens hereby
grants to Crestar an option (the "Option") to purchase up to 3,012,000 shares of
Citizens Common Stock at an exercise price of $40.00 per share payable in cash
as provided in Section 4; provided, however, that in the event Citizens issues
or agrees to issue any shares of Citizens Common Stock (other than as permitted
under the Merger Agreement) at a price less than $40.00 per share (as adjusted
pursuant to Section 6), the exercise price shall be such lesser price.
III. EXERCISE OF OPTION.
(i) Unless Crestar shall have breached in any material respect any
material covenant or representation contained in the Merger Agreement and
such breach has not been cured, Crestar may exercise the Option, in whole
or part, at any time or from time to time if a Purchase Event (as defined
below) shall have occurred and be continuing; provided that to the extent
the Option shall not have been exercised, it shall terminate and be of no
further force and effect (i) on the Effective Date of the Merger, or (ii)
upon termination of the Merger Agreement in accordance with the provisions
thereof (other than a termination resulting from a willful breach by
Citizens of any Specified Covenant or, following the occurrence of a
Purchase Event, failure of Citizens's stockholders to approve the Merger
Agreement by the vote required under applicable law or under Citizens's
Charter), or (iii) 12 months after termination of the Merger Agreement due
to a willful breach by Citizens of any Specified Covenant or, following the
occurrence of a Purchase Event, failure of Citizens's stockholders to
approve the Merger Agreement by the vote required under applicable law or
under Citizens's Charter. Any exercise of the Option shall be subject to
compliance with applicable provisions of law.
(ii) As used herein, a "Purchase Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) Citizens or any banking subsidiary of Citizens (a "Bank"),
without having received Crestar's prior written consent, shall
have entered into an agreement with any person (x) to merge or
consolidate, or enter into any similar transaction, except as
contemplated in the Merger Agreement, (y) to purchase, lease
or otherwise acquire all or substantially all of the assets of
Citizens or a Bank, or (z) to purchase or otherwise acquire
(including by way of merger, consolidation, share exchange or
any similar transaction) securities representing 10% or more
of the voting power of Citizens or a Bank;
(ii) any person (other than Citizens or a Bank in a fiduciary
capacity, or Crestar, Crestar Bank, Crestar Bank N.A. or
Crestar Bank MD in a fiduciary capacity) shall have acquired
beneficial ownership or the right to acquire beneficial
ownership of 15% or more of the outstanding shares of
Citizens Common Stock after the date hereof (the term
"beneficial ownership" for purposes of this Option Agreement
having the meaning assigned thereto in Section 13(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") and the
regulations promulgated thereunder);
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<PAGE>
(iii) any person shall have made a bona fide proposal to Citizens
by public announcement or written communication that is or
becomes the subject of public disclosure to acquire Citizens
or a Bank by merger, consolidation, purchase of all or
substantially all of its assets or any other similar
transaction, and following such bona fide proposal the
stockholders of Citizens vote not to adopt the Merger
Agreement; or
(iv) Citizens shall have willfully breached any Specified Covenant
following a bona fide proposal to Citizens or a Bank to
acquire Citizens or a Bank by merger, consolidation, purchase
of all or substantially all of its assets or any other
similar transaction, which breach would entitle Crestar to
terminate the Merger Agreement (without regard to the cure
periods provided for therein) and such breach shall not have
been cured prior to the Notice Date (as defined below).
If more than one of the transactions giving rise to a Purchase Event under
this Section 3(b) is undertaken or effected, then all such transactions shall
give rise only to one Purchase Event, which Purchase Event shall be deemed
continuing for all purposes hereunder until all such transactions are abandoned.
As used in this Option Agreement, "person" shall have the meanings specified in
Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
(iii) In the event Crestar wishes to exercise the Option, it shall
send to Citizens a written notice (the date of which being
herein referred to as the "Notice Date") specifying (i) the
total number of shares it will purchase pursuant to such
exercise, and (ii) a place and date not earlier than three
business days nor later than 60 business days after the
Notice Date for the closing of such purchase ("Closing
Date"); provided that if prior notification to or approval of
any federal or state regulatory agency is required in
connection with such purchase, Crestar shall promptly file
the required notice or application for approval and shall
expeditiously process the same and the period of time that
otherwise would run pursuant to this sentence shall run
instead from the date on which any required notification
period has expired or been terminated or such approval has
been obtained and any requisite waiting period shall have
passed.
(iv) As used herein, "Specified Covenant" means any covenant
contained in Sections 4.1, 4.2, 4.3, 4.4, 4.5, 4.6, 4.8,
4.10, 4.11, 4.13, or 6.1 of the Merger Agreement.
IV. PAYMENT AND DELIVERY OF CERTIFICATES.
(i) At the closing referred to in Section 3, Crestar shall pay to
Citizens the aggregate purchase price for the shares of
Citizens Common Stock purchased pursuant to the exercise of
the Option in immediately available funds by a wire transfer
to a bank account designated by Citizens.
(ii) At such closing, simultaneously with the delivery of funds as
provided in subsection (a), Citizens shall deliver to Crestar
a certificate or certificates representing the number of
shares of Citizens Common Stock purchased by Crestar, and
Crestar shall deliver to Citizens a letter agreeing that
Crestar will not offer to sell or otherwise dispose of such
shares in violation of applicable law or the provisions of
this Option Agreement.
(iii) Certificates for Citizens Common Stock delivered at a closing
hereunder may be endorsed with a restrictive legend which
shall read substantially as follows:
"The transfer of the shares represented by this certificate is subject to
certain provisions of a Stock Option Agreement between the registered holder
hereof and Citizens Bancorp and to resale restrictions arising under the
Securities Act of 1933, as amended, a copy of which agreement is on file at the
principal office of Citizens Bancorp. A copy of such agreement will be provided
to the holder hereof without charge upon receipt by Citizens Bancorp of a
written request."
It is understood and agreed that the above legend shall be removed by
delivery of substitute certificate(s) without such legend if Crestar shall have
delivered to Citizens a copy of a letter from the staff of the Commission, or an
opinion of counsel, in form and substance satisfactory to Citizens, to the
effect that such legend is not required for purposes of the Securities Act of
1933, as amended.
V. REPRESENTATIONS.
Citizens represents, warrants and covenants to Crestar as follows:
(i) Citizens shall at all times maintain sufficient authorized but
unissued shares of Citizens Common Stock so that the Option
may be exercised without authorization of additional shares of
Citizens Common Stock.
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<PAGE>
(ii) The shares to be issued upon due exercise, in whole or in
part, of the Option, when paid for as provided herein, will
be duly authorized, validly issued, fully paid and
nonassessable.
VI. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
In the event of any change in Citizens Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations, exchanges of
shares or the like, the type and number of shares subject to the Option, and the
purchase price per share, as the case may be, shall be adjusted appropriately.
In the event that any additional shares of Citizens Common Stock are issued or
otherwise become outstanding after the date of this Option Agreement (other than
pursuant to this Option Agreement), the number of shares of Citizens Common
Stock subject to the Option shall be adjusted so that, after such issuance, it
equals 19.9% of the number of shares of Citizens Common Stock then issued and
outstanding without giving effect to any shares subject or issued pursuant to
the Option. Nothing contained in this Section 6 shall be deemed to authorize
Citizens to breach any provision of the Merger Agreement.
VII. REGISTRATION RIGHTS.
If requested by Crestar, Citizens shall as expeditiously as possible file a
registration statement on a form of general use under the Securities Act if
necessary in order to permit the sale or other disposition of the shares of
Citizens Common Stock that have been acquired upon exercise of the Option in
accordance with the intended method of sale or other disposition requested by
Crestar. Crestar shall provide all information reasonably requested by Citizens
for inclusion in any registration statement to be filed hereunder. Citizens will
use its best efforts to cause such registration statement first to become
effective and then to remain effective for such period not in excess of 270 days
from the day such registration statement first becomes effective as may be
reasonably necessary to effect such sales or other dispositions. The first
registration effected under this Section 7 shall be at Citizens's expense except
for underwriting commissions and the fees and disbursements of Crestar's counsel
attributable to the registration of such Citizens Common Stock. A second
registration may be requested hereunder at Crestar's expense. In no event shall
Citizens be required to effect more than two registrations hereunder. The filing
of any registration statement hereunder may be delayed for such period of time
as may reasonably be required to facilitate any public distribution by Citizens
of Citizens Common Stock. If requested by Crestar, in connection with any such
registration, Citizens will become a party to any underwriting agreement
relating to the sale of such shares, but only to the extent of obligating itself
in respect of representations, warranties, indemnities and other agreements
customarily included in such underwriting agreements. Upon receiving any request
from Crestar or assignee thereof under this Section 7, Citizens agrees to send a
copy thereof to Crestar and to any assignee thereof known to Citizens, in each
case by promptly mailing the same, postage prepaid, to the address of record of
the persons entitled to receive such copies.
VIII. SEVERABILITY.
If any term, provision, covenant or restriction contained in this Option
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Option
Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated. If for any reason such court or regulatory
agency determines that the Option will not permit the holder to acquire the full
number of shares of Citizens Common Stock provided in Section 2 (as adjusted
pursuant to Section 6), it is the express intention of Citizens to allow the
holder to acquire such lesser number of shares as may be permissible, without
any amendment or modification hereof.
IX. MISCELLANEOUS.
(i) EXPENSES. Except as otherwise provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its
behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
(ii) ENTIRE AGREEMENT. Except as otherwise expressly provided herein,
this Option Agreement contains 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.
The terms and conditions of this Option Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns. Nothing in this Option Agreement, expressed or
implied, is intended to confer upon any party, other than the parties
hereto, and their respective successors and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Option Agreement,
except as expressly provided herein.
(iii) ASSIGNMENT. Neither of the parties hereto may assign any of its
rights or obligations under this Option Agreement or the Option created
hereunder to any other person, without the express written consent of the
other party, except
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<PAGE>
that in the event a Purchase Event shall have occurred and be continuing
Crestar may assign in whole or in part its rights and obligations
hereunder; provided, however, that to the extent required by applicable
regulatory authorities, Crestar may not assign its rights under the Option
except in (i) a widely dispersed public distribution, (ii) a private
placement in which no one party acquires the right to purchase in excess of
2% of the voting shares of Citizens, (iii) an assignment to a single party
(e.g., a broker or investment banker) for the purpose of conducting a
widely dispersed public distribution on Crestar's behalf, or (iv) any other
manner approved by applicable regulatory authorities.
(iv) NOTICES. All notices or other communications which are required
or permitted hereunder shall be in writing and sufficient if delivered in
the manner and to the addresses provided for in or pursuant to Section 9.4
of the Merger Agreement.
(v) COUNTERPARTS. This Option Agreement may be executed in any number
of counterparts, and each such counterpart shall be deemed to be an
original instrument, but all such counterparts together shall constitute
but one agreement.
(vi) SPECIFIC PERFORMANCE. The parties agree that damages would be an
inadequate remedy for a breach of the provisions of this Option Agreement
by either party hereto and that this Option Agreement may be enforced by
either party hereto through injunctive or other equitable relief.
(vii) GOVERNING LAW. This Option Agreement shall be governed by and
construed in accordance with the laws of Virginia applicable to agreements
made and entirely to be performed within such state and such federal laws
as may be applicable.
IN WITNESS WHEREOF, each of the parties hereto has executed this Option
Agreement as of the day and year first written above.
CITIZENS BANCORP
By: /s/_JEFFREY R. SPRINGER____________
Jeffrey R. Springer
President
CRESTAR FINANCIAL CORPORATION
By: /s/_RICHARD G. TILGHMAN____________
Richard G. Tilghman
Chairman of the Board and
Chief Executive Officer
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<PAGE>
ANNEX III
MORGAN STANLEY
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
(212) 761-4000
September 15, 1996
Board of Directors
Crestar Financial Corporation
919 East Main Street
Richmond, VA 23261
Members of the Board:
We understand that Crestar Financial Corporation ("Crestar"), CDM
Acquisition Subsidiary, Inc. (the "Merger Sub"), Crestar Bank DC, each a wholly
owned subsidiary of Crestar, Citizens Bancorp ("Citizens") and Citizens Bank of
Maryland, a wholly owned subsidiary of Citizens, have entered into an Agreement
and Plan of Reorganization, dated as of September 15, 1996 (the "Merger
Agreement"), which provides, among other things, for the merger of the Merger
Sub with and into Citizens (the "Merger"). Pursuant to the Merger, each issued
and outstanding share of common stock, par value $2.50 per share, of Citizens
(the "Citizens Common Stock"), other than shares held in treasury or held by
Crestar or any wholly owned subsidiary of Crestar or Citizens, will be converted
into the right to receive 0.835 shares (the "Exchange Ratio") of common stock,
par value $5.00 per share, of Crestar (the "Crestar Common Stock"). The terms
and conditions of the Merger are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to
the Merger Agreement is fair from a financial point of view to Crestar.
For purposes of the opinion set forth herein, we have:
(i) analyzed certain publicly available financial statements and other
information of Citizens and Crestar, respectively;
(ii) analyzed certain internal financial statements and other financial
and operating data concerning Citizens and Crestar prepared by the
managements of Citizens and Crestar, respectively;
(iii) analyzed certain financial projections of Citizens and Crestar
prepared by the managements of Citizens and Crestar, respectively;
(iv) discussed the past and current operations and financial condition
and the prospects of Citizens and Crestar with senior executives of
Citizens and Crestar, respectively;
(v) analyzed the pro forma impact of the Merger on Crestar's earnings per
share, consolidated capitalization and financial ratios;
(vi) reviewed the reported prices and trading activity for the Citizens
Common Stock and the Crestar Common Stock;
(vii) compared the financial performance of Citizens and Crestar and the
prices and trading activity of the Citizens Common Stock and the
Crestar Common Stock with that of certain other comparable
publicly-traded companies and their securities;
(viii) discussed with independent auditors of Citizens their review of the
financial and accounting affairs of Citizens and with the
independent auditors of Crestar their review of the financial and
accounting affairs of Crestar;
(ix) discussed the results of regulatory examinations of Citizens and
Crestar with the senior managements of the respective companies;
(x) discussed the strategic objectives of the Merger and the plan for the
combined company with senior executives of Citizens and Crestar;
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(xi) reviewed and discussed with senior managements of Citizens and
Crestar certain estimates of the cost savings and revenue
enhancements projected by Citizens and Crestar for the combined
company and compared such amounts to those estimated in certain
precedent transactions;
(xii) reviewed the financial terms, to the extent publicly available, of
certain comparable precedent transactions;
(xiii) participated in discussions and negotiations among representatives
of Citizens and Crestar and their financial and legal advisors;
(xiv) reviewed the Merger Agreement and certain related documents;
(xv) considered such other factors as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, including the estimates
of cost savings and revenue enhancements expected to result from the Merger, we
have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the future financial
performance of Citizens and Crestar. We have not made any independent valuation
or appraisal of the assets or liabilities of Citizens and Crestar, nor have we
been furnished with any such appraisals and we have not examined any individual
loan credit files of Citizens or Crestar. In addition, we have assumed the
Merger will be consummated in accordance with the terms set forth in the Merger
Agreement. Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof.
We have acted as financial advisor to the Board of Directors of Crestar in
connection with this transaction and will receive a fee for our services. In the
past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for Crestar and have received fees for
the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of Crestar and may not be used for any other purpose without our prior
written consent, except that this opinion may be included in its entirety in any
filing with the Securities and Exchange Commission in connection with the
Merger. In addition, we express no opinion or recommendation as to how the
holders of Crestar Common Stock should vote at the stockholders' meeting held in
connection with the Merger.
Based on the foregoing, we are of the opinion on the date hereof that the
Exchange Ratio pursuant to the Merger Agreement is fair from a financial point
of view to Crestar.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By /s/ Donald A. Moore, Jr.
Donald A. Moore, Jr.
Managing Director
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ANNEX IV
KEEFE, BRUYETTE & WOODS, INC.
Specialists in Banking
Two World Trade Center 85th Floor
New York, NY 10048
Toll Free Telephone
1-800-966-1559
212-323-8300
[November 15, 1996]
Board of Directors
Citizens Bancorp
14401 Sweitzer Lane
Laurel, MD 20707
Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the shareholders of Citizens Bancorp
("Citizens") of the exchange ratio in the proposed merger (the "Merger of
Citizens with and into Crestar Financial Corporation ("Crestar "), pursuant to
the Agreement and Plan of Merger dated as of September 15, 1996 between Citizens
and Crestar (the "Agreement "). Under the terms of the Merger, each outstanding
share of common stock of Citizens will be exchanged for .835 shares of common
stock of Crestar (the "Exchange Ratio "). It is our understanding that the
Merger will be accounted for as a pooling-of-interests under generally accepted
accounting principles.
Keefe, Bruyette & Woods, Inc. as part of its investment banking business is
continually engaged in the valuation of banking businesses and their securities
in connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes. As
specialists in the securities of banking companies we have experience in, and
knowledge of, the valuation of banking enterprises. In the ordinary course of
our business as a broker-dealer, we may, from time to time, purchase securities
from, and sell securities to, Citizens and Crestar and as a market maker in
securities we may from time to time have a long or short position in, and buy or
sell, debt or equity securities of Citizens and Crestar for our own account and
for the accounts of our customers. To the extent we have any such position as of
the date of this opinion it has been disclosed to Citizens. We have acted as
financial advisor to the Board of Directors of Citizens in rendering this
fairness opinion and will receive a fee from Citizens for our services.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Registration Statement on Form S-4, Annual Reports to
Stockholders of Crestar and Citizens for the three years ended December 31,
1995; certain interim reports to stockholders and Quarterly Reports on Form 10-Q
of Citizens and Crestar, and certain internal financial analyses and forecasts
for Citizens and Crestar prepared by management. We also have held discussions
with members of the senior management of Citizens and Crestar regarding the past
and current business operations, regulatory relationships, financial condition
and future prospects of their respective companies. In addition, we have
compared certain financial and stock market information for Citizens and Crestar
with similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations in the banking industry and performed such other studies and
analyses as we have considered appropriate. In conducting our review and
arriving at our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information provided to us or
publicly available and we have not assumed any responsibility for independently
verifying any of such information. We have relied upon the management of
Citizens and Crestar as to the reasonableness and achievability of the financial
and operating forecasts and projections (and the assumptions and bases therefor)
provided to us, and we have assumed that such forecasts and projections reflect
the best currently available estimates and judgments of Citizens and Crestar and
that such forecasts and projections will be realized in the amounts and in the
time periods currently estimated by such management. We have also assumed that
the aggregate allowances for loan losses for Citizens and Crestar are adequate
to cover such losses. In rendering our opinion, we have not made or obtained any
evaluations or appraisals of the property of Citizens or Crestar, nor have we
examined any individual credit files.
We have considered such financial and other factors as we have deemed
appropriate under the circumstances, including among others the following: (i)
the historical and current financial position and results of operations of
Citizens and Crestar;
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(ii) the assets and liabilities of Citizens and Crestar; and (iii) the nature
and terms of certain other merger transactions involving banks and bank holding
companies. We have also taken into account our assessment of general economic,
market and financial conditions and our experience in other transactions, as
well as our experience in securities valuation and our knowledge of the banking
industry generally. Our opinion is necessarily based upon conditions as they
exist and can be evaluated on the date hereof and the information made available
to us through the date hereof.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the exchange ration in the Merger is fair, from a financial point
of view, to the Common Stockholders of Citizens.
Very truly yours,
[KEEFE, BRUYETTE & WOODS, INC.]
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