As filed with the Securities and Exchange Commission on October 10, 1996
Registration No. 333-_____
====================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
CRESTAR FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
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Virginia 6711 54-0722175
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(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
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919 East Main Street
P.O. Box 26665
Richmond, Virginia 23261-6665
(804) 782-5000
(Address, including zip code, and telephone
number, including area code, of registrant's
principal executive offices)
JOHN C. CLARK, III
Corporate Senior Vice President and General Counsel
Crestar Financial Corporation
919 East Main Street
P.O. Box 26665
Richmond, Virginia 23261-6665
(804) 782-7445
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies To:
LATHAN M. EWERS, JR. CLEAVELAND D. MILLER
Hunton & Williams Semmes, Bowen & Semmes
951 East Byrd Street 250 West Pratt Street
Richmond, Virginia 23219-4074 Baltimore, Maryland 21201
(804) 788-8269 (410) 576-4798
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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===================================================================================================================================
Title of Each Class of Maximum Amount Proposed Maximum Proposed Maximum Amount of
Securities To Be Registered To Be Registered Offering Price Per Unit Aggregate Offering Price Registration Fee
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock, $5.00 par value per share 13,200,000 shares(1) $48.4375(2) $639,375,000(2) $193,750
Preferred Share Purchase Rights(3) 13,200,000 rights N/A N/A N/A
===================================================================================================================================
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(1) This Registration Statement covers the maximum number of shares of common
stock of the Registrant which are expected to be issued in connection with
the transactions described herein.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f)(1) for Citizens Bancorp Common Stock, with the
market value of Citizens Bancorp Common Stock being exchanged in the
transaction for Crestar Financial Corporation Common Stock based on the
average of the high and low prices for Citizens Bancorp Common Stock on
The Nasdaq National Market on October 4, 1996.
(3) The Rights to purchase Participating Cumulative Preferred Stock, Series C
will be attached to and will trade with shares of the Common Stock of
Crestar Financial Corporation.
-----------------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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CRESTAR FINANCIAL CORPORATION
CROSS-REFERENCE SHEET
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Item of Form S-4 Location in Prospectus
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1. Forepart of Registration Statement and Facing Page; Cross Reference Sheet; Outside Front
Outside Front Cover Page of Prospectus Cover Page of Prospectus
2. Inside Front and Outside Back Cover Inside Front Cover Page of Prospectus; Table of
Pages of Prospectus Contents; Available Information; Incorporation of
Certain Information by Reference
3. Risk Factors, Ratio of Earnings to Fixed Summary; Comparative Per Share Data
Charges and Other Information
4. Terms of the Transaction Summary; The Holding Company Merger;
Comparative Rights of Shareholders; Annex I; Annex
II; Annex III
5. ProForma Financial Information Pro Forma Condensed Financial Information
6. Material Contracts with the Company Not Applicable
Being Acquired
7. Additional Information Required for Not Applicable
Reoffering by Persons and Parties
Deemed to be Underwriters
8. Interests of Named Experts and Counsel Legal Opinions
9. Disclosure of Commission's Position on Not Applicable
Indemnification for Securities Act
Liabilities
10. Information with Respect to S-3 Available Information; Incorporation of Certain
Registrants Information by Reference; Summary
11. Incorporation of Certain Information by Incorporation of Certain Information by Reference
Reference
12. Information with Respect to S-2 or S-3 Not Applicable
Registrants
13. Incorporation of Certain Information by Not Applicable
Reference
14. Information with Respect to Registrants Not Applicable
Other than S-2 or S-3 Registrants
15. Information with Respect to S-3 Available Information; Incorporation of Certain
Companies Information by Reference; Summary; Supervision and
Regulation; Business of Citizens; Price Range of
Citizens Common Stock and Dividend Policy; Experts
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16. Information with Respect to S-2 or S-3 Not Applicable
Companies
17. Information with Respect to Companies Not Applicable
other than S-2 or S-3 Companies
18. Information if Proxies, Consents or Incorporation of Certain Information By Reference;
Authorizations are to be Solicited Summary -- Shareholder Meetings; The Holding
Company Merger; Summary -- No Dissenters' Rights
19. Information if Proxies, Consents or Not Applicable
Authorizations are not to be Solicited, or
in an Exchange Offer
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<PAGE>
[Citizens Bancorp Letterhead]
____________ __, 1996
Dear Shareholders:
You are cordially invited to attend a special meeting of shareholders
(the "Special Meeting") of Citizens Bancorp ("Citizens") to be held at 14401
Sweitzer Lane, Laurel, Maryland, on December 19, 1996 at 11:00 a.m. This is a
very important meeting regarding your investment in Citizens.
At the Special Meeting, you will be asked to consider and vote upon the
Agreement and Plan of Reorganization, dated as of September 15, 1996, by and
among Citizens, Citizens Bank of Maryland, Crestar Financial Corporation
("Crestar"), CDM Acquisition Subsidiary, Inc. and Crestar Bank DC, and a related
Holding Company Plan of Merger (together, the "Agreement") pursuant to which,
Citizens will be acquired by Crestar (the "Holding Company Merger").
In connection with the Holding Company Merger, each share of Citizens
Common Stock outstanding immediately prior to consummation of the Holding
Company Merger (other than shares held directly by Crestar) will be converted
into 0.835 shares of Crestar Common Stock (the "Exchange Ratio"), as described
in the accompanying Joint Proxy Statement/Prospectus.
Your Board of Directors unanimously recommends that you vote in favor
of the Agreement and the Holding Company Merger, which the Board believes is in
the best interests of the shareholders of Citizens. The Board of Directors has
received the opinion of Keefe, Bruyette & Woods, Inc. that the Exchange Ratio is
fair to shareholders of Citizens from a financial point of view.
The exchange of Citizens Common Stock for Crestar Common Stock (other
than cash paid in lieu of fractional shares) will be a tax-free transaction for
federal income tax purposes.
We have enclosed a Notice of the Special Meeting, a Joint Proxy
Statement/Prospectus containing a discussion of the Agreement and the Holding
Company Merger and a proxy card to record your vote on the matter. Please
complete, sign and date the enclosed proxy card and return it as soon as
possible in the envelope provided. If you decide to attend the Special Meeting,
you may vote your shares in person whether or not you have previously submitted
a proxy. It is important to understand that the Agreement and Holding Company
Merger must be approved by the holders of two-thirds of all outstanding shares
of Citizens Common Stock and that the failure to vote will have the same effect
as a vote against the proposal. On behalf of the Board, thank you for your
attention to this important matter.
Sincerely,
Alfred H. Smith, Jr.
Chairman of the Board
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CITIZENS BANCORP
14401 Sweitzer Lane
Laurel, Maryland 20707
(301) 206-6000
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held On December 19, 1996
TO THE SHAREHOLDERS OF CITIZENS BANCORP:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders has been
called by the Board of Directors of Citizens Bancorp ("Citizens") and will be
held at 14401 Sweitzer Lane, Laurel, Maryland, on December 19, 1996 at 11:00
a.m. for the purpose of considering and voting upon the following matters:
1. Proposed Transaction. To consider and vote upon the Agreement
and Plan of Reorganization dated September 15, 1996 and a related Plan of Merger
(together, the "Agreement") among Crestar Financial Corporation ("Crestar"), CDM
Acquisition Subsidiary, Inc., Crestar Bank DC, Citizens and Citizens Bank of
Maryland providing for the acquisition of Citizens by Crestar by the merger of
CDM Acquisition Subsidiary, Inc., a wholly owned subsidiary of Crestar, into
Citizens. The Agreement is attached to the accompanying Joint Proxy
Statement/Prospectus as Annex I.
2. Other Business. To consider and vote upon such other matters
as may properly come before the meeting.
Only those holders of Citizens Common Stock of record at the close of
business on November 1, 1996 are entitled to notice of and to vote at the
Special Meeting. The affirmative vote of the holders of two-thirds of the issued
and outstanding shares of Citizens Common Stock entitled to vote at the Special
Meeting is required to approve the Agreement.
By Order of the Board of Directors,
Jean G. Salamone
Secretary
November 15, 1996
Laurel, Maryland
THE BOARD OF DIRECTORS OF CITIZENS UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF
CITIZENS COMMON STOCK VOTE TO APPROVE THE HOLDING COMPANY MERGER PROPOSAL.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. PLEASE SIGN,
DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING POSTAGE-PAID
ENVELOPE SO THAT YOUR SHARES WILL BE REPRESENTED AT THE MEETING. SHAREHOLDERS
ATTENDING THE MEETING MAY PERSONALLY VOTE ON ALL MATTERS WHICH ARE CONSIDERED,
IN WHICH EVENT THE SIGNED PROXIES ARE REVOKED. ANY PROXY MAY BE REVOKED BY YOU
IN WRITING OR IN PERSON AT ANY TIME.
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[Crestar Financial Corporation Letterhead]
___________ __, 1996
Dear Shareholders:
You are cordially invited to attend a Special Meeting of Shareholders
of Crestar Financial Corporation to be held at 919 East Main Street, Richmond,
Virginia, on December 19, 1996 at 11:00 a.m.
At the Special Meeting, you will have an opportunity, in accordance
with the shareholder approval policy of the New York Stock Exchange, to consider
and vote on the issuance of up to 13,200,000 shares of Crestar Common Stock
(including shares to be issued pursuant to Crestar options issued to replace
Citizens options) in accordance with an Agreement and Plan of Reorganization
(the "Agreement") that provides for the acquisition by Crestar of Citizens
Bancorp ("Citizens"). These additional shares and options represent
approximately 31% of the shares of Crestar Common Stock outstanding as of
November 1, 1996, and shareholder approval of their issuance is a condition to
the consummation of the transactions provided for in the Agreement.
The Agreement generally provides for a tax-free exchange of Crestar
Common Stock and options for shares of Citizens Common Stock and options. The
terms of the proposed merger, including the methods for valuing Citizens common
stock and determining the exchange ratio, are explained in detail in the
accompanying Joint Proxy Statement/Prospectus and we urge you to read it
carefully.
Your Board of Directors unanimously recommends that you vote in favor
of the Agreement, which the Board believes is in the best interests of the
shareholders of Crestar. The Board of Directors has received the opinion of
Morgan Stanley & Co. Incorporated, its financial advisor, that as of the date of
such opinion and subject to the considerations set forth therein, the Exchange
Ratio pursuant to the Agreement is fair from a financial point of view to
Crestar.
Since the affirmative vote of a majority of votes cast on the proposal
is required for approval of the proposed issuance of Crestar common stock and
options pursuant to the Agreement, it is important that your shares be voted FOR
the proposal. If you cannot attend the meeting in person, please complete, date,
sign and promptly return the proxy in the envelope provided.
Sincerely,
Richard G. Tilghman
Chairman of the Board and Chief Executive Officer
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CRESTAR FINANCIAL CORPORATION
919 East Main Street
Richmond, Virginia 23219
(804) 782-5171
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on December 19, 1996
TO THE SHAREHOLDERS OF CRESTAR FINANCIAL CORPORATION:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders has been
called by the Board of Directors of Crestar Financial Corporation ("Crestar")
and will be held at 919 East Main Street, Richmond, Virginia, on December 19,
1996 at 11:00 a.m., for the purpose of considering and voting upon the following
matters:
1. Proposed Transaction. To consider and vote upon a proposal for the
issuance by Crestar of up to 13,200,000 shares of Crestar Common Stock pursuant
to the terms of an Agreement and Plan of Reorganization dated September 15, 1996
and a related Plan of Merger (the "Agreement") among Crestar, CDM Acquisition
Subsidiary, Inc., Crestar Bank DC, Citizens Bancorp ("Citizens") and Citizens
Bank of Maryland, providing for the acquisition by Crestar of Citizens Bancorp.
The Agreement is attached to the accompanying Joint Proxy Statement/Prospectus
as Annex I.
2. Other Business. To consider and vote upon such other
matters as may properly come before the meeting.
Only those holders of Crestar Common Stock of record at the close of
business on November 1, 1996 are entitled to notice of and to vote at the
Special Meeting. New York Stock Exchange policies provide that the affirmative
vote of a majority of the votes cast on the proposal, provided that the total
number of votes cast represents more than 50% of the shares entitled to vote, is
required to approve the proposed issuance of Crestar Common Stock.
By Order of the Board of Directors,
Linda F. Rigsby
Senior Vice President,
Deputy General Counsel and
Corporate Secretary
November 15, 1996
Richmond, Virginia
THE BOARD OF DIRECTORS OF CRESTAR UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF
CRESTAR COMMON STOCK VOTE TO APPROVE THE PROPOSAL.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. PLEASE SIGN,
DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING POSTAGE-PAID
ENVELOPE SO THAT YOUR SHARES WILL BE REPRESENTED AT THE MEETING. SHAREHOLDERS
ATTENDING THE MEETING MAY PERSONALLY VOTE ON ALL MATTERS WHICH ARE CONSIDERED,
IN WHICH EVENT THE SIGNED PROXIES ARE REVOKED. ANY PROXY MAY BE REVOKED BY YOU
IN WRITING OR IN PERSON AT ANY TIME.
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JOINT PROXY STATEMENT
CRESTAR FINANCIAL CITIZENS
CORPORATION BANCORP
Special Meeting Special Meeting
to be Held on to be Held on
December 19, 1996 December 19, 1996
------------
PROSPECTUS
OF
CRESTAR FINANCIAL CORPORATION
Common Stock
------------
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
11:00 a.m. on December 19, 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 11:00 a.m. on December 19, 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 _______ __, 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."
<PAGE>
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 15, 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.
The date of this Joint Proxy Statement/Prospectus is November [ ], 1996.
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TABLE OF CONTENTS
PAGE
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AVAILABLE INFORMATION.......................................................................................... 1
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE............................................................... 1
SUMMARY ....................................................................................................... 3
Parties to the Transaction............................................................................. 3
Shareholder Meetings................................................................................... 4
Votes Required; Record Dates........................................................................... 4
The Holding Company Merger............................................................................. 5
The Exchange Ratio..................................................................................... 5
Reasons for the Holding Company Merger; Recommendations of the Crestar Board and the
Citizens Board................................................................................ 5
Opinions of Financial Advisors......................................................................... 6
No Dissenter's Rights.................................................................................. 6
Conditions to Consummation............................................................................. 7
Business of Crestar and Citizens Pending the Holding Company Merger.................................... 7
Waiver and Amendment; Termination...................................................................... 7
Interests of Certain Persons in the Holding Company Merger............................................. 7
Resale of Crestar Common Stock......................................................................... 8
Certain Federal Income Tax Consequences of the Transaction............................................. 8
Effective Time......................................................................................... 8
Stock Option Agreement................................................................................. 8
Market Prices Prior to Announcement of the Holding Company Merger...................................... 8
Comparative Per Share Data............................................................................. 9
COMPARATIVE PER SHARE DATA...................................................................................... 10
Selected Financial Data................................................................................ 10
SELECTED FINANCIAL DATA......................................................................................... 11
NOTES TO SELECTED FINANCIAL DATA................................................................................ 14
THE SHAREHOLDER MEETINGS........................................................................................ 16
Crestar Special Meeting................................................................................ 16
Citizens Special Meeting............................................................................... 16
Votes Required......................................................................................... 17
Recommendations........................................................................................ 18
THE HOLDING COMPANY MERGER...................................................................................... 18
Background of the Holding Company Merger............................................................... 18
Reasons for the Holding Company Merger; Recommendations of the Crestar Board and the
Citizens Board................................................................................ 19
Opinions of Financial Advisors......................................................................... 20
Effective Time of the Holding Company Merger........................................................... 29
Determination of Exchange Ratio and Exchange for Crestar Common Stock.................................. 29
Business of Citizens and Crestar Pending the Holding Company Merger.................................... 30
Conditions to Consummation of the Holding Company Merger............................................... 31
i
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Stock Option Agreement.......................................................................................... 32
Waiver and Amendment; Termination...................................................................... 33
Accounting Treatment................................................................................... 34
Operations after the Holding Company Merger............................................................ 34
Interests of Certain Persons in the Holding Company Merger............................................. 34
Stock Options.......................................................................................... 36
Effect on Citizens Employee Benefits Plans............................................................. 36
Certain Federal Income Tax Consequences................................................................ 37
PRO FORMA CONDENSED FINANCIAL INFORMATION....................................................................... 38
NOTES TO PRO FORMA CONDENSED FINANCIAL INFORMATION.............................................................. 45
CAPITALIZATION.................................................................................................. 46
NOTES TO CAPITALIZATION......................................................................................... 47
BUSINESS OF CRESTAR............................................................................................. 48
Recent Development..................................................................................... 48
BUSINESS OF CITIZENS............................................................................................ 49
PRICE RANGE OF CITIZENS COMMON STOCK
AND DIVIDEND POLICY............................................................................................. 50
PRICE RANGE OF CRESTAR COMMON STOCK
AND DIVIDEND POLICY............................................................................................. 51
OWNERSHIP OF CITIZENS COMMON STOCK BY
CERTAIN BENEFICIAL OWNERS....................................................................................... 52
OWNERSHIP OF CRESTAR COMMON STOCK
BY CERTAIN BENEFICIAL OWNERS.................................................................................... 54
SUPERVISION AND REGULATION...................................................................................... 54
Bank Holding Companies................................................................................. 54
Capital Requirements................................................................................... 55
Limits on Dividends and Other Payments................................................................. 56
Subsidiary Banks....................................................................................... 56
Other Safety and Soundness Regulations................................................................. 57
DESCRIPTION OF CRESTAR CAPITAL STOCK............................................................................ 57
Common Stock........................................................................................... 57
Preferred Stock........................................................................................ 57
Rights .............................................................................................. 58
Virginia Stock Corporation Act......................................................................... 58
COMPARATIVE RIGHTS OF SHAREHOLDERS............................................................................. 59
Capitalization......................................................................................... 59
Amendment of Articles or Bylaws........................................................................ 60
Required Shareholder Vote for Certain Actions.......................................................... 60
Director Nominations................................................................................... 60
ii
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Directors and Classes of Directors; Vacancies and Removal of Directors................................. 60
Anti-Takeover Provisions............................................................................... 61
Preemptive Rights...................................................................................... 62
Assessment............................................................................................. 62
Conversion; Redemption; Sinking Fund................................................................... 63
Liquidation Rights..................................................................................... 63
Dividends and Other Distributions...................................................................... 63
Special Meetings of Shareholders....................................................................... 64
Indemnification........................................................................................ 64
Shareholder Proposals.................................................................................. 64
Shareholder Inspection Rights; Shareholder Lists....................................................... 65
Shareholder Rights Plan................................................................................ 65
Dissenters' Rights..................................................................................... 65
RESALE OF CRESTAR COMMON STOCK.................................................................................. 66
EXPERTS ....................................................................................................... 66
LEGAL OPINIONS.................................................................................................. 66
SHAREHOLDER PROPOSALS........................................................................................... 66
OTHER MATTERS................................................................................................... 67
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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.
iii
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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 12, 1996.
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 and June 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'
1
<PAGE>
Quarterly Reports on Form 10-Q for the periods ended March 31, 1996 and June 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.
2
<PAGE>
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 and is qualified in all respects by the information
appearing elsewhere or incorporated by reference in this Joint Proxy
Statement/Prospectus, the Annexes hereto and the documents referred to herein.
Shareholders are urged to carefully read all such information.
Parties to the Transaction
Crestar. Crestar is the holding company for Crestar Bank (Virginia),
Crestar Bank N.A. (Washington, D.C.), Crestar Bank MD (Maryland) and Crestar
Bank FSB, a federal savings bank (collectively, the "Bank Subsidiaries"). At
June 30, 1996, Crestar had approximately $18.5 billion in total assets, $12.8
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 serves customers through a network of 379 banking offices and
380 automated teller machines (as of June 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 conversion of Crestar Bank N.A. from a national
banking association to a Virginia banking corporation. After conversion of
Crestar Bank N.A. into Crestar Bank DC, 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 DC (renamed
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.
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 over 103 banking
locations in Maryland, Virginia and Washington, D.C. as of June 30, 1996.
Citizens offers deposit, loan and trust services to both retail and commercial
customers.
3
<PAGE>
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 19, 1996
at 11:00 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."
Citizens. The Citizens Special Meeting will be held on December 19,
1996 at 11:00 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 _________ 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, _________ shares or
approximately ___% 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 __________ 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, _________ shares or
approximately [ ]% 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,
4
<PAGE>
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. The
"Average Closing Price" is the average of the closing sales price of Crestar
Common Stock as recorded 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
5
<PAGE>
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. Morgan
Stanley will be paid a fee for its services at the closing of the Holding
Company Merger. 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.
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. Keefe Bruyette will be paid a fee for its services at the closing
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.
6
<PAGE>
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 of Certain Persons in the Holding Company Merger
Certain members of Citizens' management and the Citizens Board have
interests 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
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. For additional information
concerning the employment agreements, including the amount that could be paid
following a change of control of Citizens, see "The Holding Company Merger --
Interests of Certain Persons in the Holding Company Merger." All Citizens
Options are issued pursuant to plans previously approved by the shareholders of
Citizens.
7
<PAGE>
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, to the effect that the Merger will
qualify as a tax-free "reorganization" as defined in Section 368(a) of the Code
with the result 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 the receipt of cash by Citizens
shareholders 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
tax-free 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."
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.
8
<PAGE>
Equivalent
Historical Pro Forma
Crestar Citizens Citizens(a)
Common Stock......................... $61.375 $32.250 $51.248
- ----------------
(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.
9
<PAGE>
COMPARATIVE PER SHARE DATA
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Years Ended
June 30, December 31,
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C>
Book Value Per Share at Period End(1):
Crestar historical $ 33.46 $ 32.73 $ 33.90 $ 30.47 $ 28.58
Citizens historical 22.87 21.43 22.20 20.52 19.63
Pro forma combined per Crestar common share(2) 31.57 31.13 32.24 29.13 27.45
Equivalent pro forma per Citizens common share 26.36 26.00 26.92 24.32 22.92
Cash Dividends Declared Per Common Share(1):
Crestar historical $ 0.97 $ 0.85 $ 1.75 $ 1.53 $ 1.14
Citizens historical 0.58 0.56 1.12 1.08 1.08
Pro forma combined per Crestar common share(3) 0.97 0.85 1.75 1.53 1.14
Equivalent pro forma per Citizens common share 0.81 0.71 1.46 1.28 0.95
Net Income Per Share:
Crestar historical $ 2.58 $ 2.32 $ 4.12 $ 4.24 $ 3.49
Citizens historical 1.31 1.16 2.40 2.09 1.82
Pro forma combined per Crestar common share(4) 2.35 2.11 3.84 3.85 3.20
Equivalent pro forma per Citizens common share: 1.97 1.76 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 678,500
Citizens common shares at an average price per share of $22.81 were
outstanding at June 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 June 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
10
<PAGE>
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."
SELECTED FINANCIAL DATA (1)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30, Years ended December 31,
--------------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- -------
(Dollars in millions, except per share data)
<S> <C>
Earnings:
Net interest income
Crestar............................ $ 363.5 $ 340.7 $ 682.8 $ 650.6 $ 591.0 $ 550.9 $ 483.3
Citizens........................... 69.2 68.7 136.1 131.9 121.4 114.9 101.8
Crestar and Citizens pro forma..... 432.8 409.4 818.9 782.5 712.5 665.7 585.1
Provision for loan losses
Crestar............................ 42.8 24.0 59.6 30.3 51.9 106.3 220.9
Citizens........................... 3.9 3.3 6.7 6.2 11.5 14.5 15.0
Crestar and Citizens pro forma..... 46.7 27.3 66.3 36.5 63.3 120.8 236.0
Net interest income after
provision for loan losses
Crestar............................ 320.7 316.7 623.2 620.3 539.2 444.5 262.3
Citizens........................... 65.4 65.4 129.4 125.7 110.0 100.4 86.8
Crestar and Citizens pro forma..... 386.1 382.1 752.7 745.9 649.1 544.9 349.1
Noninterest income
Crestar............................ 166.1 139.4 288.5 259.2 246.5 227.4 243.8
Citizens........................... 21.5 18.6 40.4 35.7 35.6 33.4 27.3
Crestar and Citizens pro forma..... 187.6 158.0 329.0 294.9 282.2 260.7 271.1
Noninterest expense
Crestar............................ 311.2 302.0 619.4 599.7 561.8 553.6 447.6
Citizens........................... 55.5 56.1 111.8 111.7 104.8 99.4 85.2
Crestar and Citizens pro forma..... 366.8 358.1 731.2 711.4 666.5 653.0 532.8
Income before income taxes
Crestar............................ 175.6 154.1 292.4 279.8 223.9 118.4 58.5
Citizens........................... 31.3 27.9 58.1 49.7 40.8 34.3 28.9
Crestar and Citizens pro forma..... 206.9 182.0 350.5 329.4 264.8 152.6 87.4
Income tax expense
Crestar............................ 63.4 52.7 112.6 95.6 71.1 24.4 14.1
Citizens........................... 11.5 10.5 22.0 18.6 14.0 11.0 8.6
Crestar and Citizens pro forma..... 74.9 63.2 134.6 114.3 85.2 35.4 22.7
Net income
Crestar............................ 112.2 101.4 179.8 184.1 152.8 93.9 44.4
Citizens........................... 19.8 17.4 36.1 31.0 26.8 23.3 20.3
Crestar and Citizens pro forma..... 132.0 118.8 215.9 215.2 179.6 117.2 64.7
Net income applicable to
common shares
Crestar............................ 112.2 101.4 179.8 184.1 150.5 91.4 41.8
Citizens........................... 19.8 17.4 36.1 31.0 26.8 23.3 20.3
Crestar and Citizens pro forma..... 132.0 118.8 215.9 215.2 177.4 114.7 62.1
Per Common Share Data:
Net income (per common share)
Crestar............................ $2.58 $2.32 $4.12 $4.24 $3.49 $2.35 $1.11
Citizens........................... 1.31 1.16 2.40 2.09 1.82 1.62 1.44
Crestar and Citizens pro forma(2).. 2.35 2.11 3.84 3.85 3.20 2.25 1.26
Dividends declared
Crestar(3)......................... 0.97 0.85 1.75 1.53 1.14 0.80 0.86
Citizens........................... 0.58 0.56 1.12 1.08 1.08 1.08 1.08
Crestar and Citizens pro forma(4).. 0.97 0.85 1.75 1.53 1.14 0.80 0.86
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Six Months
Ended June 30, Years ended December 31,
--------------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- -------
(Dollars in millions, except per share data)
<S> <C>
Book value
Crestar............................ 33.46 32.73 33.90 30.47 28.58 25.65 23.62
Citizens........................... 22.87 21.43 22.20 20.52 19.63 18.84 18.25
Crestar and Citizens pro forma(2)(5) 31.57 31.13 32.24 29.13 27.45 24.94 23.05
Average Common Share and
Common Share Equivalents
Outstanding (thousands)(8)
Crestar............................ 43,467 43,711 43,685 43,398 43,103 38,903 37,682
Citizens........................... 15,106 14,976 15,007 14,879 14,748 14,419 14,083
Crestar and Citizens pro forma(2).. 56,080 56,216 56,216 55,821 55,418 50,943 49,442
Selected Period-End Balances:
Total assets
Crestar............................$ 18,488.3 $ 17,211.6 $ 18,302.7 $ 16,482.9 $ 15,653.5 $ 14,459.7 $ 13,829.9
Citizens........................... 4,179.8 3,822.5 4,039.7 3,688.1 3,270.6 3,243.2 2,981.5
Crestar and Citizens pro forma..... 22,668.1 21,034.0 22,342.4 20,171.0 18,924.1 17,702.9 16,811.5
Loans (net of unearned income)
Crestar............................ 11,387.5 11,853.0 11,806.4 11,241.6 8,893.0 7,880.2 8,679.8
Citizens........................... 2,317.9 2,048.3 2,226.4 1,953.2 1,773.5 1,699.9 1,755.1
Crestar and Citizens pro forma..... 13,705.4 13,901.3 14,032.8 13,194.8 10,666.5 9,580.1 10,434.9
Allowance for loan losses
Crestar............................ 237.0 237.7 240.3 232.9 225.6 220.2 224.3
Citizens........................... 35.9 33.2 34.1 32.2 29.1 24.1 19.0
Crestar and Citizens pro forma..... 272.9 271.0 274.4 265.2 254.7 244.3 243.3
Nonperforming assets(6)
Crestar............................ 88.8 97.7 93.4 115.6 128.7 261.6 399.5
Citizens........................... 45.5 48.7 48.9 50.6 58.0 73.4 48.2
Crestar and Citizens pro forma..... 134.2 146.4 142.3 166.2 186.7 335.0 447.7
Total deposits
Crestar............................ 12,777.8 12,693.2 13,253.4 12,416.8 11,590.6 11,048.0 10,505.3
Citizens........................... 3,075.4 2,933.6 3,046.9 2,782.3 2,841.6 2,838.2 2,599.9
Crestar and Citizens pro forma..... 15,853.2 15,626.7 16,300.3 15,199.0 14,432.2 13,886.2 13,105.2
Long-term debt
Crestar............................ 696.7 705.7 671.3 715.1 604.0 334.4 283.4
Citizens........................... -- -- -- -- -- -- --
Crestar and Citizens pro forma..... 696.7 705.7 671.3 715.1 604.0 334.4 283.4
Common shareholders' equity
Crestar............................ 1,431.2 1,404.7 1,451.4 1,295.2 1,219.4 1,063.0 890.5
Citizens........................... 346.0 321.5 334.2 306.4 290.7 276.3 258.1
Crestar and Citizens pro forma(5).. 1,749.1 1,726.2 1,785.6 1,601.5 1,510.1 1,339.3 1,148.6
Total shareholders' equity
Crestar............................ 1,431.2 1,404.7 1,451.4 1,295.2 1,219.4 1,108.0 935.5
Citizens........................... 346.0 321.5 334.2 306.4 290.7 276.3 258.1
Crestar and Citizens pro forma(5).. 1,749.1 1,726.2 1,785.6 1,601.5 1,510.1 1,384.3 1,193.6
Average Balances:
Total assets
Crestar............................$ 17,488.9 $ 16,427.8 $ 16,639.6 $ 15,938.1 $ 14,567.8 $ 13,799.8 $ 13,523.2
Citizens........................... 4,014.1 3,750.0 3,800.4 3,445.2 3,258.6 3,112.6 2,809.6
Crestar and Citizens pro forma..... 21,503.0 20,177.8 20,440.0 19,383.3 17,826.4 16,912.4 16,332.8
Loans (net of unearned income)
Crestar............................ 11,534.1 11,575.5 11,632.4 9,984.7 8,241.9 8,226.9 8,958.6
Citizens........................... 2,254.4 1,991.2 2,060.3 1,826.6 1,708.5 1,724.7 1,752.4
Crestar and Citizens pro forma..... 13,788.4 13,566.8 13,692.7 11,811.3 9,950.4 9,951.5 10,711.0
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Six Months
Ended June 30, Years ended December 31,
--------------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- -------
(Dollars in millions, except per share data)
<S> <C>
Total deposits
Crestar............................ 12,810.8 12,476.3 12,548.5 12,338.7 11,152.5 11,114.4 10,245.1
Citizens........................... 3,040.3 2,798.0 2,879.3 2,806.7 2,831.0 2,710.1 2,399.3
Crestar and Citizens pro forma..... 15,851.1 15,274.4 15,427.7 15,145.4 13,983.5 13,824.6 12,644.5
Long-term debt
Crestar............................ 707.6 709.4 695.5 588.3 463.7 308.5 259.9
Citizens........................... -- -- -- -- -- -- --
Crestar and Citizens pro forma..... 707.6 709.4 695.5 588.3 463.7 308.5 259.9
Common shareholders' equity
Crestar............................ 1,426.9 1,362.0 1,395.9 1,261.9 1,145.9 941.8 881.8
Citizens........................... 340.9 314.3 320.7 299.4 285.1 270.0 259.1
Crestar and Citizens pro forma..... 1,767.8 1,676.3 1,716.7 1,561.3 1,431.1 1,211.8 1,141.0
Total shareholders' equity
Crestar............................ 1,426.9 1,362.0 1,395.9 1,261.9 1,189.8 986.8 926.8
Citizens........................... 340.9 314.3 320.7 299.4 285.1 270.0 259.1
Crestar and Citizens pro forma..... 1,767.8 1,676.3 1,716.7 1,561.3 1,475.0 1,256.8 1,186.0
Ratios:
Return on average assets
Crestar............................ 1.28% 1.23% 1.08% 1.16% 1.05% 0.68% 0.33%
Citizens........................... 0.99 0.93 0.95 0.90 0.82 0.75 0.72
Crestar and Citizens pro forma..... 1.23 1.18 1.06 1.11 0.99 0.68 0.38
Return on average
shareholders' equity
Crestar............................ 15.72 14.89 12.88 14.59 12.84 9.52 4.79
Citizens........................... 11.70 11.15 11.25 10.37 9.41 8.63 7.82
Crestar and Citizens pro forma..... 14.93 14.17 12.58 13.78 12.18 9.33 5.45
Return on average common.............
shareholders' equity
Crestar............................ 15.72 14.89 12.88 14.59 13.14 9.71 4.74
Citizens........................... 11.70 11.15 11.25 10.37 9.41 8.63 7.82
Crestar and Citizens pro forma..... 14.93 14.17 12.58 13.78 12.39 9.47 5.44
Net interest margin(7)
Crestar............................ 4.66 4.62 4.61 4.57 4.59 4.57 4.10
Citizens........................... 3.72 3.99 3.86 4.18 4.13 4.07 4.03
Crestar and Citizens pro forma..... 4.47 4.52 4.46 4.50 4.50 4.47 4.09
Nonperforming assets to
loans and foreclosed
properties at period end
Crestar............................ 0.78 0.82 0.79 1.03 1.44 3.28 4.54
Citizens........................... 1.95 2.36 2.18 2.57 3.23 4.25 2.71
Crestar and Citizens pro forma..... 0.98 1.05 1.01 1.26 1.74 3.45 4.23
Net charge-offs to average loans
Crestar............................ 0.78 0.43 0.52 0.39 0.83 1.46 1.81
Citizens........................... 0.19 0.09 0.23 0.17 0.38 0.55 0.94
Crestar and Citizens pro forma..... 0.69 0.38 0.48 0.35 0.75 1.30 1.66
Allowance for loan losses to
loans at period end
Crestar............................ 2.08 2.01 2.04 2.07 2.54 2.79 2.58
Citizens........................... 1.55 1.62 1.53 1.65 1.64 1.42 1.08
Crestar and Citizens pro forma..... 1.99 1.95 1.96 2.01 2.39 2.55 2.33
Allowance for loan losses to
nonperforming loans at period end
Crestar............................ 319 307 317 273 247 143 79
Citizens........................... 143 99 124 99 91 52 81
Crestar and Citizens pro forma..... 274 244 266 225 206 122 79
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Six Months
Ended June 30, Years ended December 31,
--------------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- -------
(Dollars in millions, except per share data)
<S> <C>
Allowance for loan losses to
nonperforming assets at period end
Crestar............................ 267 243 257 201 175 84 56
Citizens........................... 79 68 70 64 50 33 39
Crestar and Citizens pro forma..... 203 185 193 160 136 73 54
Total shareholders' equity
to total assets at period end
Crestar............................ 7.74 8.16 7.93 7.86 7.79 7.66 6.76
Citizens........................... 8.49 8.38 8.44 8.69 8.75 8.68 9.22
Crestar and Citizens pro forma(5).. 7.72 8.21 7.99 7.94 7.98 7.82 7.10
Capital Ratios at Period End:
Tier 1 risk-adjusted capital
Crestar............................ 8.8 9.0 8.8 9.4 10.4 10.4 8.0
Citizens........................... 12.1 12.9 12.3 12.8 13.2 12.3 11.5
Crestar and Citizens pro forma(5).. 9.2 9.6 9.3 9.9 10.9 10.7 8.5
Total risk-adjusted capital
Crestar............................ 12.0 12.3 12.0 13.0 13.1 13.5 10.4
Citizens........................... 13.3 14.1 13.5 14.1 14.5 13.4 12.3
Crestar and Citizens pro forma(5).. 12.1 12.6 12.3 13.1 13.3 13.5 10.7
Tier 1 leverage......................
Crestar............................ 7.4 7.6 7.5 7.6 7.5 7.6 6.6
Citizens........................... 8.5 8.5 8.8 8.8 8.7 8.8 9.0
Crestar and Citizens pro forma(5).. 7.5 7.7 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 June 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.
14
<PAGE>
(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.
15
<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 19,
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 19, 1996, at 14401 Sweitzer Lane, Laurel, Maryland 20707. Only
holders of record of Citizens Common Stock at the close
16
<PAGE>
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 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 (i) 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 ________ 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 ___________ shares (representing
approximately ___% 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 _____________ shares of
Citizens Common Stock outstanding and entitled to vote at the Citizens Special
Meeting, with each share being entitled to one vote.
17
<PAGE>
As of the Citizens Record Date, the directors and executive officers of
Citizens and their affiliates beneficially owned a total of _______ shares
(representing approximately [ ]% 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 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.
Notwithstanding these strategic acquisitions, Crestar's coverage of GWR
in Montgomery and Prince George's counties, Maryland, was incomplete and, for a
number of years, Crestar has carried on friendly but 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. 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) through 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.
18
<PAGE>
Crestar engaged Morgan Stanley as its financial advisor to assist in
the negotiations and to provide a fairness opinion, and Citizens engaged Keefe
Bruyette 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 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, 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 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.
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.
The Citizens Board did not assign any relative or specific weights to the
factors 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
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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.
(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 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
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Common Stock as to how to vote at the Crestar Special Meeting. The summary of
the opinion of Morgan Stanley set forth in this Joint Proxy Statement/Prospectus
is qualified in its entirety by reference to the full text of such opinion.
In connection with rendering its written opinion dated as of this Joint
Proxy Statement/Prospectus, Morgan Stanley, among other things: (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; (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 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
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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.
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 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.
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
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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. Because such estimates are inherently subject
to uncertainty, except as otherwise provided by applicable law, none of Crestar,
Citizens, Morgan Stanley, or any other person assumes responsibility for their
accuracy.
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.
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, Morgan Stanley has provided financial advisory and investment banking
services to Crestar, for which services Morgan Stanley received customary fees.
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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. THE FOLLOWING
SUMMARY OF THE OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THE OPINION.
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
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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 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 also considered such
financial and other factors as it deemed appropriate under the circumstances and
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.
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
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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, among other things, 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%.
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).
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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 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 summary set forth above does not purport to be a complete
description of the analyses performed 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
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should not be taken to be Keefe Bruyette's view of the actual value of Citizens
and Crestar. 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.
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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, 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 valued Citizens Common Stock for purposes of the exchange at
the Exchange Ratio. The Exchange Ratio was determined through negotiations
between Citizens and Crestar, and was directly related to stock market
conditions generally, and more specifically, to the market value 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 June 30, 1996, there were 15,130,036 shares of Citizens Common Stock
outstanding. In addition, options to purchase an additional 678,500 shares of
Citizens Common Stock were outstanding at June 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 June 30, 1996, and an Exchange
Ratio of 0.835, Crestar would issue 12,633,580 shares of Crestar Common Stock in
exchange for Citizens Common Stock, and convert the outstanding options to
purchase Citizens Common Stock into 566,548 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.
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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, 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
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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, 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
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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.
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,
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 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.
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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: (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
33
<PAGE>
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.
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 of Certain Persons in the Holding Company Merger
Certain members of Citizens' management may be deemed to have interests
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 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.
34
<PAGE>
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.
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.
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.
35
<PAGE>
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 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.
36
<PAGE>
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 to the effect 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 to the effect 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.
37
<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 June 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.
PRO FORMA CONDENSED STATEMENT OF FINANCIAL CONDITION
June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Crestar &
(Dollars in thousands, except per share data) Adjustments Citizens
increase pro forma
Crestar Citizens (decrease) combined
<S> <C>
ASSETS
Cash and due from banks $765,724 $182,008 $ $ 947,732
Securities held to maturity 75,597 988,246 1,063,843
Securities available for sale 3,430,814 597,464 4,028,278
Money market investments 905,952 -- 905,952
Mortgage loans held for sale 997,943 -- 997,943
Loans, net of unearned income 11,387,514 2,317,904 13,705,418
Less: Allowance for loan losses (237,020) (35,876) (272,896)
------- ------ -------
Loans -- net 11,150,494 2,282,028 13,432,522
Premises and equipment, net 357,718 55,119 412,837
Intangible assets -- net 188,006 853 188,859
Foreclosed properties -- net 14,390 20,358 34,748
Other assets 601,679 53,723 655,402
----------- ---------- -----------
Total Assets $18,488,317 $4,179,799 $ -- $22,668,116
=========== ========== ========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand deposits $2,475,872 $657,978 $ $3,133,850
Interest bearing deposits 10,301,967 2,417,413 12,719,380
----------- ---------- -----------
Total deposits 12,777,839 3,075,391 15,853,230
Short-term borrowings 3,245,350 743,610 3,988,960
Other liabilities 337,277 14,806 28,000(1) 380,083
Long-term debt 696,697 -- 696,697
---------- ----------- -------- -----------
Total Liabilities 17,057,163 3,833,807 28,000 20,918,970
38
<PAGE>
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 42,768,051 actual shares and
55,401,631 pro forma combined shares 213,840 -- 63,168 (2) 277,008
Common stock, $2.50 par value,
authorized 125,000,000 shares;
outstanding 15,130,036 shares -- 37,825 (37,825)(2) --
Capital surplus 392,694 122,057 (25,343)(2) 489,408
Retained earnings 876,354 185,284 (28,000)(1) 1,033,638
Net unrealized gain (loss) on
securities available for sale (51,734) 826 -- (50,908)
---------- -------- --------- ----------
Total Shareholders' Equity 1,431,154 345,992 (28,000) 1,749,146
Total Liabilities and
Shareholders' Equity $18,488,317 $4,179,799 $ -- $22,668,116
=========== ========== ========== ===========
</TABLE>
See Notes to Pro Forma Condensed Financial Information.
39
<PAGE>
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
Six Months Ended June 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands except per share data) Crestar &
Citizens
pro forma
Crestar Citizens combined (3)
<S> <C>
Interest Income
Interest and fees on loans $505,275 $91,122 $596,397
Interest and dividends on securities 103,878 43,694 147,572
Other interest income 37,163 116 37,279
------- ------ -------
Total interest income 646,316 134,932 781,248
------- ------- -------
Interest Expense
Interest on deposits 198,663 49,820 248,483
Interest on short-term borrowings 58,941 15,886 74,827
Interest on long-term debt 25,188 -- 25,188
------- ------ -------
Total interest expense 282,792 65,706 348,498
------- ------ -------
Net interest income
Net interest income 363,524 69,226 432,750
Provision for loan losses 42,800 3,860 46,660
------ ------ -------
Net interest income after provision for loan losses 320,724 65,366 386,090
------- ------ -------
Noninterest income
Service charges on deposit accounts 44,801 10,436 55,237
Trust and investment advisory income 31,079 646 31,725
Securities gains 2,643 -- 2,643
Other noninterest income 87,590 10,396 97,986
------ ------ ------
Total noninterest income 166,113 21,478 187,591
------- ------ -------
Noninterest expense
Personnel expense 171,479 30,232 201,711
Occupancy expense, net 24,681 6,784 31,465
Equipment expense 15,377 4,110 19,487
Other noninterest expense 99,710 14,398 114,108
------ ------ -------
Total noninterest expense 311,247 55,524 366,771
------- ------ -------
Net income
Income before income taxes 175,590 31,320 206,910
Income tax expense 63,438 11,485 74,923
------- ------ ------
Net income $112,152 $19,835 $131,987
======== ======= ========
Per common share data (2)
Net income per common share $ 2.58 $ 1.31 $ 2.35
======== ======= ========
Weighted average shares outstanding (4) 43,467,000 15,106,000 56,080,000
========== ========== ==========
</TABLE>
See Notes to Pro Forma Condensed Financial Information
40
<PAGE>
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
Six Months Ended June 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
Crestar &
(Dollars in thousands except per share data Citizens
pro forma
Crestar Citizens combined (3)
<S> <C>
Interest Income
Interest and fees on loans $502,250 $83,402 $585,652
Interest and dividends on securities 84,476 44,974 129,450
Other interest income 22,014 -- 22,014
------- ------ -------
Total interest income 608,740 128,376 737,116
------- ------- -------
Interest Expense
Interest on deposits 194,585 40,998 235,583
Interest on short-term borrowings 48,073 18,677 66,750
Interest on long-term debt 25,334 -- 25,334
------ --- ------
Total interest expense 267,992 59,675 327,667
------- ------ -------
Net interest income
Net interest income 340,748 68,701 409,449
Provision for loan losses 24,037 3,295 27,332
------- ------ -------
Net interest income after provision for loan losses 316,711 65,406 382,117
------- ------ -------
Noninterest income
Service charges on deposit accounts 44,033 9,915 53,948
Trust and investment advisory income 27,738 554 28,292
Securities gains (losses) (3,460) 133 (3,327)
Other noninterest income 71,055 8,003 79,058
------ ----- ------
Total noninterest income 139,366 18,605 157,971
------- ------ -------
Noninterest expense
Personnel expense 165,533 28,117 193,650
Occupancy expense, net 23,960 7,701 31,661
Equipment expense 15,674 3,726 19,400
Other noninterest expense 96,830 16,551 113,381
------ ------ -------
Total noninterest expense 301,997 56,095 358,092
------- ------ -------
Net income
Income before income taxes 154,080 27,916 181,996
Income tax expense 52,656 10,538 63,194
-------- ------- --------
Net income $101,424 $17,378 $118,802
======== ======= ========
Per common share data (2)
Net income per common share $2.32 $1.16 $2.11
===== ===== =====
Weighted average shares outstanding (4) 43,711,000 14,976,000 56,216,000
========== ========== ==========
</TABLE>
See Notes to Pro Forma Condensed Financial Information
41
<PAGE>
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands except per share data) 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
42
<PAGE>
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1994
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands except per share data) 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
43
<PAGE>
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1993
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands except per share data) 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
44
<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.
(3) No pro forma income on expense 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.
45
<PAGE>
CAPITALIZATION
The following table sets forth (i) the unaudited historical
capitalization of Crestar as of June 30, 1996, (ii) the unaudited historical
capitalization of Citizens as of June 30, 1996 and (iii) the unaudited pro forma
capitalization of Crestar and Citizens assuming the Holding Company Merger had
been consummated on June 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.
CAPITALIZATION
June 30, 1996
(Unaudited)
<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 $149,674 $149,674
8 1/4% Subordinated notes due 2002 125,000 125,000
8 5/8% Subordinated notes due 1998 49,981 49,981
7-8 1/4% Mortgage indebtedness maturing
through 2009 8,981 8,981
8 5/8-14 3/8% Capital lease obligations
maturing through 2006 1,055 1,055
4 3/8-7 3/8% Federal Home Loan Bank
obligations payable through 2015 345,272 345,272
7 7/8%-11 1/4% Collateralized mortgage
obligation bonds maturing
through 2019 16,734 16,734
Citizens:
Long-term debt (none) -- --
------- -------- ---------- --------
Total long-term debt and capital
lease obligations 696,697 -- -- 696,697
------- -------- ---------- --------
Shareholders' Equity:
Crestar:
Preferred stock, authorized
2,000,000 shares,
none issued -- --
Common stock, $5 par value, authorized
100,000,000 shares;
outstanding 42,768,051 shares
actual and 55,401,631 shares
pro forma combined 213,840 63,168 (1) 277,008
Capital surplus 392,694 96,714 (1) 489,408
46
<PAGE>
Retained earnings 876,354 185,284 (1) 1,033,638
(28,000)(2)
Net unrealized loss on securities
available for sale (51,734) 826 (3) (50,908)
Citizens:
Preferred stock, authorized 2,500,000
shares, none issued --
Common stock, $2.50 par value, authorized
125,000,000 shares,
outstanding 15,130,036 shares 37,825 (37,825)(1)
Paid-in capital 122,057 (122,057)(1)
Retained earnings 185,284 (185,284)(1)
Net unrealized gain on
securities available for sale 826 (826)(3) --
--------- ------- -------- ---------
Total shareholders' equity 1,431,154 345,992 (28,000) 1,749,146
Total long-term debt, capital lease --------- ------- -------- ---------
obligations and
shareholders' equity $2,127,851 $345,992 ($28,000) $2,445,843
========== ======== ========= ==========
</TABLE>
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 12,633,580 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 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.
47
<PAGE>
BUSINESS OF CRESTAR
Crestar is the holding company for Crestar Bank, Crestar Bank N.A.,
Crestar Bank MD and Crestar Bank FSB (collectively, the "Bank Subsidiaries").
Prior to the Effective Time of the Holding Company Merger, Crestar expects to
consolidate the Bank Subsidiaries into a single Virginia banking corporation to
be named Crestar Bank. At June 30, 1996, Crestar had approximately $18.5 billion
in total assets, $12.8 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 379 banking offices and
380 automated teller machines (as of June 30, 1996). The Bank Subsidiaries offer
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, including mutual funds and annuities, 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. Crestar's Operations Center is located in
Richmond. Regional headquarters are located in Norfolk and Roanoke, Virginia,
Washington, D.C., and Baltimore, Maryland.
Recent Development
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.
48
<PAGE>
BUSINESS OF CITIZENS
Citizens is the holding company for Citizens Bank of Maryland. At June
30, 1996, Citizens had approximately $4.2 billion in total assets, $3.1 billion
in total deposits, and $346.0 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.
Citizens serves customers through a network of 103 banking locations
and 124 automated teller machines, as of June 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.
49
<PAGE>
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:
Dividends Declared
High Low Per Share
1996
Fourth Quarter (through October 4, 1996) $ 48.75 $ 47.75 $ --
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
On November 1, 1996, the Record Date, the outstanding shares of
Citizens Common Stock were held by approximately _____ record holders. The
closing price per share of Citizens Common Stock on _________ __, 1996 on The
Nasdaq National Market was $_____.
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."
50
<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:
Dividends Declared
High Low Per Share
1996
Fourth Quarter (through November ___, 1996) $ $ $
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
First Quarter $ 61 $ 55 $ .45
Second Quarter 58 3/8 47 3/4 .45
Third Quarter 49 1/4 43 1/8 .45
Fourth Quarter 44 1/4 37 .40
1994
First Quarter $ 45 5/8 $ 36 1/8 $ .40
Second Quarter 49 3/4 44 5/8 .40
Third Quarter 49 1/2 40 3/4 .40
Fourth Quarter 46 39 3/8 .33
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."
51
<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 of
Stock Options Total Class
Directors:
<S> <C>
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).
52
<PAGE>
(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.
(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.
53
<PAGE>
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:
Name and Address Amount and Nature
of Beneficial Owner of Beneficial Ownership Percent of Class
Crestar Bank as Trustee for
Crestar Employees' Thrift
and Profit Sharing Plan 3,355,933 shares(1) 7.8%
919 East Main Street
Richmond, VA 23219
Delaware Management Holdings, Inc. 2,628,424 shares (2) 6.1%
One Commerce Square
Philadelphia, PA 19103
- --------------------
(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 December 31, 1995.
(2) Shares attributed to Delaware Management Holdings, Inc. include shares
held by Delaware Management Company, Inc., a mutual fund manager. Delaware
Management Holdings, Inc. reports that it has sole voting power with
respect to 196,146 shares; shared voting power with respect to 2,300
shares; sole dispositive power for 2,514,824 shares; and shared
dispositive power for 113,600 shares. Delaware Management Holdings, Inc.
information is as of December 31, 1995 and was obtained from a 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 state in which the operations of
such acquiring bank holding company's banking subsidiaries are
54
<PAGE>
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 June 30, 1996 were 8.8% and 12.0% respectively, and of
Citizens as of the same date were 12.1% and 13.3%, 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 June 30, 1996, was 7.4% 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.
55
<PAGE>
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
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 June 30, 1996, without obtaining
prior regulatory approval, Crestar Bank Subsidiaries could have paid additional
dividends of approximately $295 million to Crestar, and Citizens' Bank
Subsidiaries could have paid $74 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 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.
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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").
Common Stock
Crestar had 42,768,051 shares of Common Stock outstanding at June 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 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
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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 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
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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.
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. This summary does not purport to be a
complete discussion of, and is qualified in its entirety by reference to, the
governing law and the Articles of Incorporation or Charter and Bylaws of each
entity.
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
______ 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."
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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.
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.
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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 law by the Citizens Board. A Maryland corporation may adopt an
amendment to its charter electing not to be subject
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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.
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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.
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."
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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.
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.
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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.
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.
65
<PAGE>
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
from Citizens' Annual Report on Form 10-K for the year ended December 31, 1995
have been audited by Deloitte & Touche LLP, independent auditors, as stated
in their report, which is incorporated by reference, and has been so
incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
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 ______________, 199___.
66
<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 ______________, 199___.
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.
67
<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
<PAGE>
<TABLE>
<S> <C> INDEX
Page
ARTICLE I
General
1.1. Holding Company Merger................................................................... 2
1.2. Issuance of Crestar Common Stock......................................................... 2
1.3. Taking of Necessary Action............................................................... 2
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...................................................... 2
2.2. Manner of Exchange....................................................................... 3
2.3. No Fractional Shares..................................................................... 4
2.4. Dissenting Shares........................................................................ 5
2.5. Assets................................................................................... 5
2.6. Liabilities.............................................................................. 5
ARTICLE III
Representations and Warranties
3.1. Representations and Warranties of Citizens............................................... 5
(a) Organization, Standing and Power.................................................... 5
(b) Capital Structure................................................................... 6
(c) Authority........................................................................... 6
(d) Investments......................................................................... 8
(e) Financial Statements................................................................ 8
(f) Absence of Undisclosed Liabilities.................................................. 9
(g) Tax Matters......................................................................... 9
(h) Options, Warrants and Related Matters............................................... 11
(i) Property............................................................................ 11
(j) Additional Schedules Furnished to Crestar........................................... 12
(k) Agreements in Force and Effect...................................................... 13
(l) Legal Proceedings; Compliance with Laws............................................. 13
(m) Employee Benefit Plans.............................................................. 14
(n) Insurance........................................................................... 17
(o) Loan Portfolio...................................................................... 18
(p) Absence of Changes.................................................................. 19
(q) Brokers and Finders................................................................. 19
(r) Subsidiaries........................................................................ 19
(s) Reports............................................................................. 19
(t) Environmental Matters............................................................... 20
(u) Accounting; Tax; Regulatory Matters................................................. 21
(v) Regulatory Approvals................................................................ 22
(w) Citizens Stock Buyback Program...................................................... 22
(x) Disclosure.......................................................................... 22
(i)
<PAGE>
3.2. Representations and Warranties of Crestar,
Crestar Bank and Subsidiary.............................................................. 22
(a) Organization, Standing and Power.................................................... 22
(b) Capital Structure................................................................... 23
(c) Authority........................................................................... 24
(d) Financial Statements................................................................ 25
(e) Absence of Undisclosed Liabilities.................................................. 26
(f) Absence of Changes.................................................................. 26
(g) Subsidiaries........................................................................ 26
(h) Reports............................................................................. 26
(i) Tax Matters......................................................................... 27
(j) Property............................................................................ 27
(k) Agreements in Force and Effect...................................................... 28
(l) Legal Proceedings; Compliance with Laws............................................. 28
(m) Employee Benefit Plans.............................................................. 29
(n) Regulatory Approvals................................................................ 30
(o) Crestar Stock Buyback Program....................................................... 30
(p) Disclosure.......................................................................... 30
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.......................................................................... 31
4.2. Registration Statement, Proxy Statement,
Shareholder Approval..................................................................... 32
4.3. (a) Operation of the Business of Citizens........................................... 33
4.4. No Solicitation.......................................................................... 35
4.5. Dividends................................................................................ 35
4.6. Regulatory Filings; Best Efforts......................................................... 36
4.7. Public Announcements..................................................................... 36
4.8. Operating Synergies; Conformance to Reserve
Policies, Etc............................................................................ 36
4.9. Crestar Rights Agreement................................................................. 37
4.10. Agreement as to Efforts to Consummate.................................................... 37
4.11. Adverse Changes in Condition............................................................. 37
4.12. NYSE Listing............................................................................. 37
4.13. Updating of Schedules.................................................................... 38
4.14. Transactions in Crestar Common Stock..................................................... 38
ARTICLE V
Conditions of Merger
5.1. Conditions of Obligations of Crestar and
Crestar Bank............................................................................. 38
(a) Representations and Warranties;
Performance of Obligations.......................................................... 38
(b) Authorization of Transaction........................................................ 39
(c) Opinion of Counsel.................................................................. 39
(d) The Registration Statement.......................................................... 39
(ii)
<PAGE>
(e) Tax Opinion......................................................................... 39
(f) Regulatory Approvals................................................................ 40
(g) Affiliate Letters................................................................... 40
(h) Title Matters....................................................................... 40
(i) NYSE Listing........................................................................ 41
(j) Citizens Rights Plan................................................................ 41
(k) Accounting Treatment................................................................ 41
(l) Crestar Shareholder Approval........................................................ 41
(m) Acceptance by Crestar and Crestar Bank
Counsel............................................................................. 41
5.2. Conditions of Obligations of Citizens and
Citizens Bank............................................................................ 41
(a) Representations and Warranties;
Performance of Obligations.......................................................... 41
(b) Authorization of Transaction........................................................ 42
(c) Opinion of Counsel.................................................................. 42
(d) The Registration Statement.......................................................... 42
(e) Regulatory Approvals................................................................ 42
(f) Tax Opinion......................................................................... 42
(g) NYSE Listing........................................................................ 43
(h) Citizens Shareholder Approval....................................................... 43
(i) Acceptance by Citizens' Counsel..................................................... 43
ARTICLE VI
Closing Date; Effective Time
6.1. Closing Date............................................................................. 43
6.2. Filings at Closing....................................................................... 43
6.3. Effective Time........................................................................... 44
ARTICLE VII
Termination; Survival of Representations,
Warranties and Covenants; Waiver and Amendment
7.1. Termination.............................................................................. 44
7.2. Effect of Termination.................................................................... 46
7.3. Survival of Representations, Warranties and
Covenants................................................................................ 47
7.4. Waiver and Amendment..................................................................... 47
ARTICLE VIII
Additional Covenants
8.1. Indemnification of Citizens Officers and
Directors; Liability Insurance........................................................... 47
8.2. Employee Matters......................................................................... 48
8.3. Employee Benefit Matters................................................................. 48
8.4. Crestar Bank/GWR or Maryland Advisory Board of
Directors................................................................................ 50
8.5. Stock Options............................................................................ 50
8.6. Crestar Board of Directors............................................................... 50
8.7. Further Action Respecting Structure...................................................... 50
(iii)
<PAGE>
8.8. Branch Closing Law....................................................................... 51
ARTICLE IX
Miscellaneous
9.1. Expenses................................................................................. 51
9.2. Entire Agreement......................................................................... 51
9.3. Descriptive Headings..................................................................... 51
9.4. Notices.................................................................................. 51
9.5. Counterparts............................................................................. 52
9.6. Governing Law............................................................................ 52
</TABLE>
Exhibit A - Holding Company Plan of Merger of Citizens into
Crestar
Exhibit B - Opinion of Semmes, Bowen & Semmes, counsel to
Citizens and Citizens Bank
Exhibit C - Opinion of Hunton & Williams, counsel to
Crestar and Crestar Bank
Exhibit D - Form of Affiliate's Undertaking
(iv)
<PAGE>
INDEX TO SCHEDULES
<TABLE>
<S> <C>
Section in
Schedule Description Agreement
A Securities Owned by Citizens and 3.1(d)
Citizens Bank
B Citizens and Citizens Bank Financial 3.1(e)
Statements
C Citizens Taxes Being Contested, etc. 3.1(g)
D Salary Rates, Citizens Common Stock 3.1(b);
Held by Certain Employees and 3.1(h);
Directors of Citizens and Citizens 3.1(j)(1)
Bank, Options
E Notes, Bonds, Mortgages, Indentures, 3.1(j)(2)
Licenses, Lease Agreements and Other
Contracts of Citizens and Citizens
Bank
F Employment Contracts, Employee Benefit 3.1(j)(3);
Plans, and Related Matters of Citizens 3.1(m)(1);
and Citizens Bank 3.1(m)(7);
3.1(m)(8);
3.1(m)(9);
4.3(a)
G Real Estate Owned or Leased by 3.1(j)(4)
Citizens and Citizens Bank
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 3.1(r)
Ventures
N Citizens Environmental Matters 3.1(t)
O Crestar Financial Statements
P Crestar Taxes Being Contested, etc. 3.2(i)
</TABLE>
(v)
<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.
-1-
<PAGE>
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
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").
-2-
<PAGE>
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
-3-
<PAGE>
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.
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
-4-
<PAGE>
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
-5-
<PAGE>
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 Bylaws.
(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 Citizens,
enforceable in accordance with its terms, except as
enforceability may be limited by
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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 Bylaws 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,
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<PAGE>
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);
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(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).
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
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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
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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.
(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
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<PAGE>
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
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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 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,
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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
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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
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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
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.
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(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
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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
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.
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(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"),
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(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 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.
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"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 byproduct 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
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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.
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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 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
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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
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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.
(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
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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
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(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 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
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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
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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.
(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
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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
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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 priof 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) 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,
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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 StatementProspectus") 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
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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 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
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contract or obligation, except in the ordinary course of business; (ix) other
than as provided in (a) below with respect to the workout 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;
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(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
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effect in the second quarter of 1996. Citizens agrees not to pay a dividend for
the first calendar quarter of 1997 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
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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
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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.
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(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 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
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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
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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.
(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
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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
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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").
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
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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
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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 $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.
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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
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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.
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
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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
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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 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.
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8.8. Branch Closing Law. Citizens and Citizens Bank
agree to cooperate with Crestar in achieving compliance with the Federal Branch
Closing Law.
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
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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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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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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.
/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
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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.
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(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
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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
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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.
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.
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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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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:
1. Definitions.
Capitalized terms defined in the Merger Agreement and used herein shall
have the same meanings as in the Merger Agreement.
2. 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.
3. Exercise of Option.
(a) 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
<PAGE>
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.
(b) 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);
(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
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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.
(c) 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.
(d) 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.
4. Payment and Delivery of Certificates.
(a) 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.
(b) 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.
(c) 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."
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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.
5. Representations.
Citizens represents, warrants and covenants to Crestar as follows:
(a) 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.
(b) 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.
6. 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.
7. 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
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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.
8. 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.
9. Miscellaneous.
(a) 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.
(b) 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,
-5-
<PAGE>
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.
(c) 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 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.
(d) 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.
(e) 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.
(f) 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.
(g) 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.
-6-
<PAGE>
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
-7-
<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;
<PAGE>
(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;
(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.
<PAGE>
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
<PAGE>
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
<PAGE>
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; (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.
<PAGE>
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.]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Officers and Directors
The Crestar Articles implement the provisions of the VSCA, which
provide for the indemnification of Crestar's directors and officers in a variety
of circumstances, which may include indemnification for liabilities under the
Securities Act of 1933. Under sections 13.1-697 and 13.1-702 of the VSCA, a
Virginia corporation generally is authorized to indemnify its directors and
officers in civil or criminal actions if they acted in good faith and believed
their conduct to be in the best interests of the corporation and, in the case of
criminal actions, had no reasonable cause to believe that the conduct was
unlawful. The Crestar Articles require indemnification of directors and officers
with respect to certain liabilities, expenses and other amounts imposed upon
them by reason of having been a director or officer, except in the case of
willful misconduct or a knowing violation of criminal law. Crestar also carries
insurance on behalf of directors, officers, employees or agents that may cover
liabilities under the Securities Act of 1933. In addition, the VSCA and the
Crestar Articles eliminate the liability of a director or officer of Crestar in
a stockholder or derivative proceeding. This elimination of liability will not
apply in the event of willful misconduct or a knowing violation of the criminal
law or any federal or state securities law. Sections 13.1-692.1 and 13.1-696 to
- -704 of the VSCA are hereby incorporated herein by reference.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
2(a) Agreement and Plan of Merger, dated as of September
15, 1996 (attached to the Proxy Statement/Prospectus
as Annex I)
2(b) Stock Option Agreement dated as of September 15,
1996, between Crestar and Citizens (attached to the
Proxy Statement/Prospectus as Annex II)
5 Opinion of Hunton & Williams with respect to legality
8(a) Opinion of Hunton & Williams with respect to tax
consequences of the Merger
8(b) Opinion of Semmes, Bowen & Semmes with respect to tax
consequences of the Merger
24(a) Consent of KPMG Peat Marwick LLP (Crestar Financial
Corporation)
24(b) Consent of Deloitte & Touche LLP (Citizens Bancorp)
24(c) Consent of Morgan Stanley & Co., Incorporated
(Crestar Financial Corporation)
24(d) Consent of Keefe, Bruyette & Woods (Citizens Bancorp)
24(e) Consent of Hunton & Williams (included in Exhibit 5
and Exhibit 8(a))
24(f) Consent of Semmes, Bowen & Semmes (included in
Exhibit 8(b))
25 Power of Attorney (included on signature pages of the
Registration Statement)
28(a) Form of Citizens Proxy
28(b) Form of Crestar Proxy
II-1
<PAGE>
(b) Financial Statement Schedules -- [None]
(c) Report, Opinion or Appraisal -- (attached to the
Proxy Statement/Prospectus as Annex III and Annex IV)
Item 22. Undertakings
(a) The undersigned Registrant hereby undertakes as follows:
1. To file, during any period in which offers or sales
are being made, a post-effective amendment to this
registration statement.
(i) To include any prospectus required by
section 10(a)(3) of the Securities Act of
1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of
the registration statement (or the most
recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in the registration
statement.
(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in the registration
statement or any material change to such
information in the registration statement.
Provided, however, that paragraphs (a)(1)(i) and
(a)(1)(ii) do not apply if the registration statement
is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports
filed by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the
registration statement.
2. That, for the purpose of determining any liability
under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
registration statement relating to the securities
offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona
fide offering thereof.
3. To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of
the offering.
4. That prior to any public reoffering of the securities
registered hereunder through the use of a prospectus
which is a part of this registration statement, by
any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the
Registrant undertakes that such reoffering prospectus
will contain the information called for by the
applicable registration form with respect to
reofferings by persons who may be deemed
underwriters, in addition to the information called
for by the other items of the applicable form.
5. That every prospectus (i) that is filed pursuant to
the paragraph immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3)
of the Securities Act of 1933 and is used in
connection with an offering of securities subject to
Rule 415, will be filed as part of an amendment to
the registration statement and will not be used until
such amendment is effective, and that, for the
purposes of determining any liability under the
Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new
II-2
<PAGE>
registration statement relating to the securities
offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona
fide offering thereof.
6. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission
such indemnification is against public policy as
expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other
than the payment by the Registrant of expenses
incurred or paid by a director, officer or
controlling person of the Registrant in the
successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling
person in connection with the securities being
registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first-class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly cause this registration to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Richmond, Commonwealth of
Virginia, on October 10, 1996.
CRESTAR FINANCIAL CORPORATION
(Registrant)
By: /s/ Richard G. Tilghman
-----------------------
Richard G. Tilghman
Chairman of the Board &
Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on October 10, 1996. Each of the directors and/or officers
of Crestar Financial Corporation whose signature appears below hereby appoints
John C. Clark, III, Lathan M. Ewers, Jr. and David M. Carter, and each of them
severally, as his attorney-in-fact to sign in his name and behalf, in any and
all capacities stated below and to file with the Commission, any and all
amendments, including post-effective amendments to this registration statement,
making such changes in the registration statement as appropriate, and generally
to do all such things in their behalf in their capacities as officers and
directors to enable Crestar Financial Corporation to comply with the provisions
of the Securities Act of 1933, and all requirements of the Securities and
Exchange Commission.
Signature Title
/s/ Richard G. Tilghman Chairman of the Board & Chief Executive
- ----------------------- Officer and Director
Richard G. Tilghman (Principal Executive Officer)
/s/ James M. Wells, III President and Director
- -----------------------
James M. Wells, III
/s/ Richard F. Katchuk Corporate Executive Vice President
- ---------------------- & Chief Financial Officer
Richard F. Katchuk (Principal Financial Officer)
/s/ James D. Barr Group Executive Vice President,
- ----------------- Controller & Treasurer
James D. Barr (Principal Accounting Officer)
II-4
<PAGE>
/s/ J. Carter Fox Director
- -----------------
J. Carter Fox
________________________ Director
Bonnie Guiton Hill
/s/ Gene A. James Director
- -----------------
Gene A. James
/s/ H. Gordon Leggett, Jr. Director
- --------------------------
H. Gordon Leggett, Jr.
/s/ Charles R. Longsworth Director
- -------------------------
Charles R. Longsworth
/s/ Patrick J. Maher Director
- --------------------
Patrick J. Maher
________________________ Director
Frank E. McCarthy
/s/ Paul D. Miller Director
- ------------------
Paul D. Miller
/s/ G. Gilmer Minor, III Director
- ------------------------
G. Gilmer Minor, III
________________________ Director
Gordon F. Rainey, Jr.
/s/ Frank S. Royal, M.D. Director
- ------------------------
Frank S. Royal, M. D.
II-5
<PAGE>
__________________________ Director
Eugene P. Trani
/s/ L. Dudley Walker Director
- --------------------
L. Dudley Walker
/s/ Karen Hastie Williams Director
- -------------------------
Karen Hastie Williams
II-6
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
----------- -----------
2(a) Agreement and Plan of Merger, dated as of September
15, 1996 (attached to the Proxy Statement/Prospectus
as Annex I)
2(b) Stock Option Agreement dated as of September 15,
1996, between Crestar and Citizens (attached to the
Proxy Statement/Prospectus as Annex II)
5 Opinion of Hunton & Williams with respect to legality
8(a) Opinion of Hunton & Williams with respect to tax
consequences of the Merger
8(b) Opinion of Semmes, Bowen & Semmes with respect to tax
consequences of the Merger
24(a) Consent of KPMG Peat Marwick LLP (Crestar Financial
Corporation)
24(b) Consent of Deloitte & Touche LLP (Citizens Bancorp)
24(c) Consent of Morgan Stanley & Co., Incorporated
(Crestar Financial Corporation)
24(d) Consent of Keefe, Bruyette & Woods (Citizens Bancorp)
24(e) Consent of Hunton & Williams (included in Exhibit 5
and Exhibit 8(a))
24(f) Consent of Semmes, Bowen & Semmes (included in
Exhibit 8(b))
25 Power of Attorney (included on signature pages of the
Registration Statement)
28(a) Form of Citizens Proxy
28(b) Form of Crestar Proxy
Exhibit 5
HUNTON & WILLIAMS
951 EAST BYRD STREET
RICHMOND, VA 23219
October 9, 1996
Board of Directors
Crestar Financial Corporation
919 East Main Street
Richmond, Virginia 23219
Registration Statement on Form S-4
Citizens Bancorp
Ladies and Gentlemen:
We are acting as counsel for Crestar Financial Corporation (the
"Company") in connection with the registration under the Securities Act of 1933
of 12,635,720 shares of its common stock (the "Common Stock"). The transaction
in which the Common Stock will be issued is described in the Company's
Registration Statement on Form S-4 (the "Registration Statement") filed with the
Securities and Exchange Commission on October 9, 1996 and relating to the
Company's acquisition of Citizens Bancorp. In connection with the filing of the
Registration Statement you have requested our opinion concerning certain
corporate matters.
We are of the opinion that:
1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the Commonwealth of Virginia.
2. The Common Stock has been duly authorized and, when the shares have
been issued as described in the Registration Statement, will be legally issued,
fully paid and nonassessable.
We consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement and to the references to us in the Proxy
Statement/Prospectus included therein. In giving this consent, we do not admit
that we are within the category of persons whose consent is required by section
7 of the Securities Act of 1933 or the rules and regulations promulgated
thereunder by the Securities and Exchange Commission.
Very truly yours,
HUNTON & WILLIAMS
<PAGE>
10/9/96
Exhibit 8(a)
HUNTON & WILLIAMS
951 EAST BYRD STREET
RICHMOND, VA 23219
October 9, 1996
Crestar Financial Corporation
919 East Main Street
Richmond, Virginia 23219
Merger of Citizens Bancorp
And Crestar Financial Corporation
Certain Federal Income Tax Consequences
Ladies and Gentlemen:
We have acted as counsel to Crestar Financial Corporation ("Crestar")
in connection with the proposed merger of CDM Acquisition Subsidiary, Inc.
("Subsidiary"), a Maryland corporation, into Citizens Bancorp ("Citizens"), a
Maryland corporation (the "Holding Company Merger"). Crestar plans to cause
Citizens to merge into Crestar (the "Citizens/Crestar Merger") immediately after
the Holding Company Merger.
The only outstanding class of Citizens stock is common stock. In the
Holding Company Merger, each outstanding share of Citizens common stock (other
than shares held directly by Crestar) is to be converted into 0.835 of a share
of Crestar common stock, subject to adjustment to reflect any stock split or
similar event. Any Citizens shareholder who becomes entitled to a fractional
share of Crestar common stock as a result of the Holding Company Merger, after
aggregating all the shareholder's shares of Citizens common stock, will receive
cash from Crestar in lieu of the fractional share. Citizens shareholders are not
entitled to exercise dissenter's rights with respect to the Holding Company
Merger.
You have requested our opinion concerning certain federal income tax
consequences of the Holding Company Merger and the Citizens/Crestar Merger
(collectively, the "Holding Company Combination"). In giving this opinion, we
have reviewed the Agreement and Plan of
<PAGE>
Reorganization, dated as of September 15, 1996, among Crestar, Subsidiary,
Crestar Bank DC, Citizens, and Citizens Bank of Maryland; the Plan of Merger
relating to the Holding Company Merger; the form S-4 Registration Statement
under the Securities Act of 1933 relating to the Holding Company Merger (the
"S-4"); and such other documents as we have considered necessary. In addition,
we have assumed the following:
1. The fair market value of the Crestar common stock (including any
fractional share interest) received by a Citizens shareholder in exchange for
Citizens common stock will be approximately equal to the fair market value of
the Citizens common stock surrendered in the exchange.
2. None of the compensation received by any shareholder-employee of
Citizens will be separate consideration for, or allocable to, any shares of
Citizens common stock; none of the shares of Crestar common stock received by
any shareholder-employee in the Holding Company Merger will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employee will be for services actually
rendered and will be commensurate with amounts paid to third parties bargaining
at arm's length for similar services.
3. No share of Citizens common stock has been or will be redeemed in
anticipation of the Holding Company Merger, and Citizens has not made and will
not make any extraordinary distribution with respect to its stock in
anticipation of the Holding Company Merger.
4. Crestar has no plan or intention to reacquire any of its stock
issued in the Holding Company Merger or to make any extraordinary distribution
with respect to such stock.
5. There is, and on the effective date of the Holding Company Merger
(the "Effective Date") will be, no plan or intention by shareholders of Citizens
to sell, exchange, or otherwise dispose of a number of shares of Crestar common
stock received in the Holding Company Merger that would reduce the Citizens
share-holders' ownership of Crestar common stock to a number of shares having a
fair market value, as of the Effective Date, of less than 50 percent of the fair
market value of all the formerly outstanding Citizens common stock as of the
Effective Date. For this purpose, shares of Citizens common stock exchanged for
cash in lieu of fractional shares of Crestar common stock are treated as
outstanding Citizens common stock on the Effective Date. Moreover, shares of
Citizens common stock and shares of Crestar common stock held by Citizens
shareholders and otherwise sold, redeemed, or disposed of before or after the
Holding Company Merger are considered in making the above determination.
6. Following the Holding Company Combination, Crestar will continue the
historic business of Citizens or use a significant portion of Citizens' historic
business assets in a business.
7. The liabilities of Citizens and the liabilities, if any, to which
the assets of Citizens are subject were incurred and, as of the effective date
of the Citizens/Crestar Merger, will have been incurred by Citizens in the
ordinary course of business.
8. There is, and on the Effective Date will be, no intercorporate
indebtedness existing between (a) Citizens or any subsidiary of Citizens and (b)
Crestar or any subsidiary of Crestar.
<PAGE>
9. Neither Crestar nor any subsidiary of Crestar (a) owns beneficially
any Citizens common stock or will acquire any Citizens common stock in
anticipation of the Holding Company Merger, (b) has transferred or will transfer
cash or other property to Citizens or any subsidiary of Citizens in anticipation
of the Holding Company Combination, or (c) has made or will make any loan to
Citizens or any subsidiary of Citizens in anticipation of the Holding Company
Combination.
10. On each of the Effective Date and the effective date of the
Citizens/Crestar Merger, the fair market value of the assets of Citizens will
exceed the sum of Citizens' liabilities plus the amount of liabilities, if any,
to which its assets are subject.
11. Crestar has no plan or intention to sell or otherwise dispose of
any of the assets of Citizens, except for (a) dispositions made in the ordinary
course of business and (b) the possible disposition of (i) the stock of Citizens
Bank of the District of Columbia upon its merger into Citizens Bank of Maryland
and (ii) the stock of Citizens Bank of Maryland upon its merger into Crestar
Bank DC or another first-tier banking subsidiary of Crestar.
12. Crestar, Citizens, and the shareholders of Citizens will pay their
respective expenses, if any, incurred in connection with the Holding Company
Merger and the Citizens/Crestar Merger.
13. For each of Crestar and Citizens, not more than 25 percent of the
fair market value of its total assets, excluding cash, cash items (including
accounts receivable and cash equivalents), and United States government
securities, consists (and, immediately before the Holding Company Combination,
will consist) of stock and securities of any one issuer, and not more than 50
percent of the fair market value of such total assets consists (and, immediately
before the Holding Company Combination, will consist) of stock and securities of
five or fewer issuers. For purposes of the preceding sentence, (a) a
corporation's total assets exclude stock and securities issued by any subsidiary
at least 50 percent of the voting power or 50 percent of the total fair market
value of the stock of which is owned by the corporation, but the corporation is
treated as owning directly a ratable share (based on the percentage of the fair
market value of the subsidiary's stock owned by the corporation) of the assets
owned by any such subsidiary, and (b) all corporations that are members of the
same "controlled group" within the meaning of section 1563(a) of the Internal
Revenue Code (the "Code") are treated as a single issuer.
14. Citizens has not filed, and does not and will not hold any asset
subject to, a consent pursuant to section 341(f) of the Code and regulations
thereunder.
15. Citizens is not a party to, and does not and will not hold any
asset subject to, a "safe harbor lease" under former section 168(f)(8) of the
Code and regulations thereunder.
16.Subsidiary has not engaged and will not engage in any business or
other activity, and has not held and will not hold any assets, except as
necessary to effect the Holding Company Merger.
On the basis of the foregoing, and assuming that (a) the Holding
Company Merger will be consummated in accordance with the Plan of Merger, and
(b) the Citizens/Crestar Merger will
<PAGE>
be consummated in accordance with a plan of merger we have approved as to form
and substance, we are of the opinion that (under existing law) for federal
income tax purposes:
1. The Holding Company Combination will be treated as a single
transaction qualifying as a reorganization within the meaning of section
368(a)(1)(A) of the Code.
2. Citizens will not recognize gain or loss (a) on the transfer of its
assets to Crestar in exchange for Crestar common stock and the assumption of
Citizens' liabilities or (b) on the constructive distribution of Crestar common
stock to Citizens shareholders.
3. Neither Crestar nor Subsidiary will recognize gain or loss on the
acquisition of Citizens' assets in exchange for Crestar common stock and the
assumption of Citizens' liabilities.
We are also of the opinion that the material federal income tax
consequences of the Holding Company Combination to Crestar and Citizens are
fairly summarized in the S-4 under the headings "Summary--Certain Federal Income
Tax Consequences of the Transaction" and "The Holding Company Merger--Certain
Federal Income Tax Consequences." We consent to the use of this opinion as an
exhibit to the S-4 and to the reference to this firm under such headings. In
giving this consent, we do not admit that we are within the category of persons
whose consent is required by section 7 of the Securities Act of 1933 or the
rules and regulations promulgated thereunder by the Securities and Exchange
Commission.
Very truly yours,
HUNTON & WILLIAMS
Exhibit 8(b)
[Semmes, Bowen & Semmes Letterhead]
October 9, 1996
Citizens Bancorp
14401 Sweitzer Lane
Laurel, Maryland 20707
Attention: Jeffrey R. Springer
President
Gentlemen:
We have acted as counsel to Citizens Bancorp, a Maryland corporation
("Citizens") in connection with the proposed merger of CDM Acquisition
Subsidiary, Inc., a Maryland corporation ("Subsidiary"), into Citizens (the
"Holding Company Merger"). Subsidiary is wholly owned by Crestar Financial
Corporation, a Virginia corporation ("Crestar"). Crestar plans to cause Citizens
to merge into Crestar (the "Citizens/Crestar Merger") immediately after the
Holding Company Merger.
The only outstanding class of Citizens stock is common stock. In the
holding Company Merger, each outstanding share of Citizens common stock (other
than shares held directly by Crestar) is to be converted into 0.835 of a share
of Crestar common stock, subject to adjustment to reflect any stock split or
similar event. Any Citizens' shareholder who becomes entitled to a fractional
share of Crestar common stock as a result of the Holding Company Merger, after
aggregating all the shareholders' shares of Citizens common stock, will receive
cash from Crestar in lieu of the fractional share. Citizens shareholders are not
entitled to exercise dissenter's rights with respect to the Holding Company
Merger.
You have requested our opinion concerning certain federal income tax
consequences of the Holding Company Merger and the Citizens/Crestar Merger
(collectively, the "Holding Company Combination"). In giving this opinion, we
have reviewed the Agreement and Plan of Reorganization, dated as of September
15, 1996, among Crestar, Subsidiary, Crestar Bank DC, Citizens, and Citizens
Bank of Maryland; the Plan of Merger relating to the Holding Company Merger; the
form S-4 Registration Statement under the Securities Act of 1933 relating to the
Holding Company Merger (the "S-4"); and such other documents as we have
considered necessary. In addition, we have assumed but do not know of our own
knowledge nor have we verified the following:
1. The fair market value of the Crestar common stock (including any
fractional share interest) received by a Citizens shareholder in exchange for
Citizens common stock will be approximately equal to the fair market value of
the Citizens common stock surrendered in the exchange.
<PAGE>
Citizens Bancorp
October 9, 1996
Page 2
2. The payment of cash to Citizens shareholders in lieu of fractional
shares is simply a mechanical rounding off that was not separately bargained for
and is solely for the purpose of saving Crestar the expense and inconvenience of
issuing and transferring fractional shares.
3. None of the compensation received by any shareholder-employee of
Citizens will be separate consideration for, or allocable to, any shares of
Citizens common stock; none of the shares of Crestar common stock received by
any such shareholder-employee in the Holding Company Merger will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any such shareholder-employee will be for services actually
rendered and will be commensurate with amounts paid to third parties bargaining
at arm's length for similar services.
4. No share of Citizens common stock has been or will be redeemed in
anticipation of the Holding Company Merger, and Citizens has not made and will
not make any extraordinary distribution with respect to its stock in
anticipation of the Holding Company Merger.
5. Crestar has no plan or intention to reacquire any of its stock
issued in the Holding Company Merger or to make any extraordinary distribution
with respect to such stock.
6. There is, and on the effective date of the Holding Company Merger
(the "Effective Date") will be, no plan or intention by shareholders of Citizens
to sell, exchange, or otherwise dispose of a number of shares of Crestar common
stock received in the Holding Company Merger that would reduce the Citizens
shareholders' ownership of Crestar common stock to a number of shares having a
fair market value, as of the Effective Date, of less than 50 percent of the fair
market value of all the formerly outstanding Citizens common stock as of the
Effective Date. For this purpose, shares of Citizens common stock exchanged for
cash in lieu of fractional shares of Crestar common stock are treated as
outstanding Citizens common stock on the Effective Date. Moreover, shares of
Citizens common stock and shares of Crestar common stock held by Citizens
shareholders and otherwise sold, redeemed, or disposed of before or after the
Holding Company Merger are considered in making the above determination.
7. Following the Holding Company Combination, Crestar will continue the
historic business of Citizens or use a significant portion of Citizens' historic
business assets in a business.
8. The liabilities of Citizens and the liabilities, if any, to which
the assets of Citizens are subject were incurred and, as of the effective date
of the Citizens/Crestar Merger, will have been incurred by Citizens in the
ordinary course of business.
<PAGE>
Citizens Bancorp
October 9, 1996
Page 3
9. There is, and on the Effective Date will be, no intercorporate
indebtedness existing between (a) Citizens or any subsidiary of Citizens and (b)
Crestar or any subsidiary of Crestar.
10. Neither Crestar nor any subsidiary of Crestar (a) owns beneficially
any Citizens common stock or will acquire any Citizens common stock in
anticipation of the Holding Company Merger, (b) has transferred or will transfer
cash or other property to Citizens or any subsidiary of Citizens in anticipation
of the Holding Company Combination, or (c) has made or will make any loan to
Citizens or any subsidiary of Citizens in anticipation of the Holding Company
Combination.
11. On each of the Effective Date and the effective date of the
Citizens/Crestar Merger, the fair market value of the assets of Citizens will
exceed the sum of Citizens' liabilities plus the amount of liabilities, if any,
to which its assets are subject.
12. Crestar has no plan or intention to sell or otherwise dispose of
any of the assets of Citizens, except for (a) dispositions made in the ordinary
course of business and (b) the possible disposition of (i) the stock of Citizens
Bank of the District of Columbia upon its merger into Citizens Bank of Maryland
and (ii) the stock of Citizens Bank of Maryland upon its merger into Crestar
Bank DC or another first-tier banking subsidiary of Crestar.
13. Crestar, Citizens, and the shareholders of Citizens will pay their
respective expenses, if any, incurred in connection with the Holding Company
Merger and the Citizens/Crestar Merger.
14. For each of Crestar and Citizens, not more than 25 percent of the
fair market value of its total assets, excluding cash, cash items (including
accounts receivable and cash equivalents), and United States government
securities, consists (and, immediately before the Holding Company Combination,
will consist) of stock and securities of any one issuer, and not more than 50
percent of the fair market value of such total assets consists (and, immediately
before the Holding Company Combination, will consist) of stock and securities of
five or fewer issuers. For purposes of the preceding sentence, (a) a
corporation's total assets exclude stock and securities issued by any subsidiary
at least 50 percent of the voting power or 50 percent of the total fair market
value of the stock of which is owned by the corporation, but the corporation is
treated as owning directly a ratable share (based on the percentage of the fair
market value of the subsidiary's stock owned by the corporation) of the assets
owned by any such subsidiary, and (b) all corporations that are members of the
same "controlled group" within the meaning of section 1563(a) of the Internal
Revenue Code of 1986, as amended (the "Code") are treated as a single issuer.
<PAGE>
Citizens Bancorp
October 9, 1996
Page 4
15. Subsidiary has not engaged and will not engage in any business or
other activity, and has not held and will not hold any assets, except as
necessary to effect the Holding Company Merger.
On the basis of the foregoing, and assuming that the proposed Holding
Company Merger and Holding Company Combination will be consummated as proposed,
it is our opinion that, pursuant to the Code, the consequences will be that:
1. The Holding Company Combination will be treated as a single
transaction qualifying a reorganization within the meaning of Section 368(a) of
the Code.
2. 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.
3. A Citizens' shareholder's basis in Crestar common stock (including a
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.
4. 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.
5. 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.
We are also of the opinion that the material federal income tax
consequences of the Holding Company Combination to Citizens shareholders are
fairly summarized in the S-4 under the headings "Summary--Certain Federal Income
Tax Consequences of the Transaction" and "The Holding Company Merger--Certain
Federal Income Tax Consequences." We consent to the use of this opinion as an
exhibit to the S-4 and to the reference to this firm under such headings. In
giving this consent, we do not admit that we are within the category of persons
whose consent is required by Section 7 of the Securities Act of 1933 or the
rules and regulations promulgated thereunder by the Securities and Exchange
Commission.
Very truly yours,
/s/ SEMMES, BOWEN & SEMMES
10/8/96
Exhibit 24(a)
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Crestar Financial Corporation:
We consent to the use of our report included in Crestar Financial Corporation's
Annual Report on Form 10-K for the year ended December 31, 1995 incorporated
herein by reference and to the reference to our firm under the heading "Experts"
in the Joint Proxy Statement/Prospectus. Our report refers to a change in
accounting for certain investments in debt and equity securities.
/s/ KPMG PEAT MARWICK LLP
Richmond, Virginia
October 7, 1996
10/10/96
Exhibit 24(b)
CONSENT OF DELOITTE & TOUCHE
We consent to the incorporation by reference in this Registration Statement of
Crestar Financial Corporation on Form S-4 of our report dated January 19, 1996,
appearing in the Annual Report on Form 10-K of Citizens Bancorp for the year
ended December 31, 1995, and to the reference to us under the heading "Experts"
in the Joint Proxy Statement/Prospectus, which is a part of this Registration
Statement.
/s/ DELOITTE & TOUCHE LLP
Washington, D.C.
October 9, 1996
10/9/96
Exhibit 24(c)
CONSENT OF MORGAN STANLEY & CO. INCORPORATED
October 10, 1996
Crestar Financial Corporation
919 East Main Street
Richmond, VA 23261
Dear Sirs:
We hereby consent to the inclusion in the Registration Statement of
Crestar Financial Corporation ("Crestar") on Form S-4, relating to the proposed
merger of a subsidiary of Crestar with and into Citizens Bancorp, of our opinion
letter appearing as Annex III to the Joint Proxy Statement/Prospectus which is a
part of the Registration Statement, and to the references of our firm name
therein. In giving such consent, we do not thereby admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations adopted by the Securities
and Exchange Commission thereunder nor do we admit that we are experts with
respect to any part of such Registration Statement within the meaning of the
term "experts" as used in the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ Donald A. Moore, Jr.
------------------------
Donald A. Moore, Jr.
Managing Director
<PAGE>
10/9/96
Exhibit 24(d)
CONSENT OF KEEFE, BRUYETTE & WOODS, INC.
Crestar Financial Corporation
919 East Main Street
Richmond, VA 23261
Dear Sirs:
We hereby consent to the use in this Registration Statement on Form S-4
of our letter to the Board of Directors of Citizens Bancorp included as Annex C
the Proxy Statement/Prospectus forming a part of this Registration Statement on
Form S-4 and to all references to our firm in such Proxy Statement/Prospectus.
In giving such consent, we do not hereby admit that we come within the category
of persons whose consent is required under Section 7 of the Securities Act of
1933 or the rules and regulations of the Securities and Exchange Commission
thereunder, nor do we admit that we are experts with respect to any part of such
Registration Statement within the meaning of the term "experts" as used in the
Securities Act or the rules and regulations of the Securities Act or the rules
and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
KEEFE, BRUYETTE & WOODS, INC.
By: /s/ Robert J. Stapleton
-----------------------
Robert J. Stapleton
Senior Vice President
Dated: 10/10/96
<PAGE>
10/8/96
Exhibit 28(a)
CITIZENS BANCORP
REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints _______________ and _______________,
either one of whom may act with full power of substitution, to act as proxies
for the undersigned and to vote all shares of Common Stock of Citizens Bancorp
("Citizens") which the undersigned is entitled to vote at the Special Meeting of
Shareholders to be held on December 19, 1996 at 11:00 a.m., local time, at
Citizens' office located at 14401 Sweitzer Lane, Laurel, Maryland, and at any
and all adjournments thereof.
THIS PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS EXERCISED.
This proxy, when properly executed, will be voted as directed. If no
direction is made, this proxy will be voted FOR each of the proposals listed. If
any other business is properly presented at the Special Meeting, this proxy will
be voted by the proxies in their discretion.
The Board of Directors recommends that shareholders vote FOR Proposal 1.
1. FOR [ ] AGAINST [ ] ABSTAIN [ ]
Approval and adoption of the Agreement and Plan of Reorganization and
related Plan of Merger dated September 15, 1996 (the "Agreement"), among
Crestar Financial Corporation ("Crestar"), CDM Acquisition Subsidiary,
Inc., Crestar Bank DC and Citizens and Citizens Bank of Maryland,
providing for Crestar's acquisition of Citizens as described in the
Joint Proxy Statement/Prospectus and pursuant to which each share of
Common Stock of Citizens outstanding as of the Effective Time of the
Holding Company Merger will be converted into and become the right to
receive 0.835 shares of Crestar Common Stock and associated stock
rights, and options to purchase Citizens Common Stock will be converted
into the right to acquire shares of Crestar Common Stock.
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Special Meeting or any
adjournment thereof.
The undersigned acknowledges receipt prior to the execution of this proxy of a
Notice of Special Meeting of Shareholders dated November 15, 1996, and of a
Joint Proxy Statement/Prospectus dated [ ], 1996.
<PAGE>
Please sign exactly as your name appears on this card. When signing as attorney,
executor, administrator, trustee or guardian, please give your full title. If
shares are held jointly, each holder may sign, but only one signature is
required.
Dated ____________________, 1996 ____________________________________
Signature
____________________________________
Signature
Please Mark, Sign, Date and Return the Proxy Card Promptly
Using the Enclosed Envelope.
<PAGE>
10/8/96
Exhibit 28(b)
PROXY
CRESTAR FINANCIAL CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE SPECIAL
MEETING OF SHAREHOLDERS ON DECEMBER 19, 1996.
The undersigned hereby appoints _______________, _________________ and
_______________, any one of whom may act and each with the power to appoint his
substitute, to represent and to vote all shares of Common Stock of Crestar
Financial Corporation ("Crestar") which the undersigned is entitled to vote at
the Special Meeting of Shareholders to be held on December 19, 1996, at
Crestar's office located at 919 East Main Street, Richmond, Virginia, and at any
adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
This proxy, when properly executed, will be voted as directed. If no
direction is made, this proxy will be voted FOR as recommended by the Board of
Directors. If any other business is properly presented at the Special Meeting,
this proxy will be voted by the proxies in their discretion.
1. FOR [ ] AGAINST [ ] ABSTAIN [ ]
Approval of the issuance of up to 13,200,000 shares of Crestar Common
Stock in accordance with the Agreement and Plan of Reorganization and
related Plan of Merger dated September 15, 1996 (the "Agreement"),
among Crestar Financial Corporation ("Crestar"), CDM Acquisition
Subsidiary, Inc., Crestar Bank DC, Citizens Bancorp and Citizens Bank
of Maryland, providing for Crestar's acquisition of Citizens Bancorp as
described in the Joint Proxy Statement/Prospectus and pursuant to which
each share of Common Stock of Citizens Bancorp outstanding as of the
Effective Time of the Holding Company Merger will be converted into and
become the right to receive 0.835 shares of Crestar Common Stock and
associated stock rights, and options to purchase Citizens Common Stock
will be converted into the right to acquire shares of Crestar Common
Stock.
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Special Meeting or any
adjournment thereof.
The undersigned acknowledges receipt of a Notice of Special Meeting of
Shareholders dated November 15, 1996, and of a Joint Proxy Statement/Prospectus
dated [ ], 1996.
_______________________________
Signature
_______________________________
Signature if held jointly
Dated _________________________, 1996
Please sign exactly as your name appears. When shares are held by joint tenants,
both should sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title. If a corporation, please sign with full
corporate name by president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
<PAGE>
