November 17, 1997
Xxx X. Xxxxxxxx
Chairman of the Board
Xxxxxx X. Xxxx XX
President and Chief Executive
Officer
Century Financial Corporation
Xxx Xxxxxxx Xxxxx
Xxxxxxxxx, Xxxxxxxxxxxx 00000
Re: Century Financial Corporation
Gentlemen:
This letter constitutes a letter of intent by and between Citizens
Bancshares, Inc. and Century Financial Corporation ("Century") for the purpose
of setting forth the general terms and conditions under which Century will
affiliate with Bancshares (the "Affiliation"). Specifically we have agreed
as follows:
1. The Definitive Agreement.
-------------------------
It is contemplated that the Affiliation will be consummated pursuant to a
definitive agreement containing terms and conditions generally applicable to
transactions of this type (the "Definitive Agreement"). It is understood that
the terms and conditions of the Definitive Agreement will include, among other
things, the following:
a. Structure and Use of Century Name.
----------------------------------
The Affiliation will be effected by means of a merger of
Century with and into Bancshares, with Century's wholly-owned
banking subsidiary, Century National Bank and Trust Company
("CNB"), remaining as an independent subsidiary of Bancshares
for not less than six (6) months after consummation of the
merger. It is expected that the financial benefits of
consolidating CNB with one of Bancshares' banking subsidiaries,
The Citizens Banking Company ("Citizens"), will dictate a
long-term structure in which CNB will be operated as an
independent division of Citizens, retaining the valuable
Century name. As a division of Citizens, CNB will continue to
operate its existing group of offices as autonomously as
possible, receiving significant support from Bancshares. In
recognition of the profitable growth that is associated with
Century, the Affiliation will permit Century's name to remain
predominate on an ongoing basis in its marketplace.
b. Consideration; Exchange Ratio.
------------------------------
In the Affiliation, the outstanding shares of Century common
stock, par value $.835 per share (the "Century Stock") will be
converted into Bancshares common shares, without par value
(the "Bancshares Shares"), in a tax-free exchange. Outstanding
options on Century Stock (including those to be issued in
January, 1998), will be exchanged for options to purchase
Bancshares Shares at the same exchange ratio applicable to the
Century Stock. The exchange ratio for the conversion of
Century Stock into Bancshares Shares will be as follows:
At the effective time of the merger, each outstanding
share of Century Stock will be converted into .425 Bancshares
Shares (i.e., $26.67 per share for Century shareholders based
on Bancshares' closing stock price of $62.75 on November 7,
1997); subject, however, to the following adjustments:
(i) If the Average NMS Closing Price (as defined below) is
greater than $67.50, then each outstanding share of
Century Stock will be converted into that number of
Bancshares Shares that results from dividing $28.70 by
the Average NMS Closing Price; provided, however, that if
prior to the effective time of the merger, Bancshares
publicly announces that it has agreed to a transaction in
which control of Bancshares will be acquired by another
company, then in no event will the exchange ratio be less
than .3976; or
(ii) If the Average NMS Closing Price is less than $56.50, but
greater than or equal to $54.25, then each outstanding
share of Century Stock will be converted into that number
of Bancshares Shares that results from dividing $24.00 by
the Average NMS Closing Price; or
(iii)If the Average NMS Closing Price is less than $54.25, then
each outstanding share of Century Stock will be converted
into .4424 Bancshares Shares.
The term "NMS Closing Price" shall mean the price per share of the last
sale of Bancshares Shares reported on the NASDAQ National Market System at the
close of the trading day by the National Association of Securities Dealers,
Inc. The term "Average NMS Closing Price" shall mean the arithmetic mean of
the NMS Closing Prices for the ten (10) trading days immediately preceding the
fifth (5th) trading day prior to the consummation of the Affiliation.
c. Termination Events.
-------------------
(i) If the Average NMS Closing Price is less $46.50, then
Century may terminate the Definitive Agreement; or
(ii) If (i) the Average NMS Closing Price is less than
$54.25, and (ii) Bancshares' Average NMS Closing Price is
more than ten (10) percent lower than the average of the
NMS Closing Price of an index of selected, publicly
traded, peer group, commercial banking institutions in
Ohio, Pennsylvania and West Virginia, then Century may
terminate the Definitive Agreement.
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d. Employees.
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Bancshares recognizes that Century's employees are one of
its most valuable assets. Bancshares will seek to minimize the
impact of the Affiliation on those employees. To that end, the
Definitive Agreement will provide that there will be no
involuntary terminations (other than for "cause") of any of
Century's employees for at least six (6) months after the
consummation of the Affiliation. Bancshares will first seek to
accomplish changes in the workforce through job transfers,
internal job postings and attrition. Century employees should
have greater opportunities for professional growth within the
combined Bancshares-Century organization and it is Century's
hope that in the long-term, total employment at CNB will
actually increase as Bancshares continues to grow in western
Pennsylvania.
e. Employment Agreements.
----------------------
In connection with the Affiliation, Bancshares will honor the
Employment Agreements referred to in g hereof.
f. Post-Affiliation Board Structure.
---------------------------------
It is the practice of Bancshares and Citizens to structure
their respective Boards of Directors with individuals well
versed in business and having familiarity with local markets.
In keeping with past practices, 3 directors from Century's
Board of Directors will be invited to join the Board of
Bancshares (one of whom will be designated for membership on
the Board's Executive Committee) and 4 Century directors will
be invited to join the Citizens Board. The remaining Century
Board members will be asked to serve on the Century Advisory
Board.
g. Closing; Certain Conditions.
----------------------------
Subject to the receipt of required regulatory approvals, the
registration of the Bancshares Shares with the Securities and
Exchange Commission (and necessary state "blue sky"
compliance), and the approval of Century's and Bancshares'
shareholders, it is expected that the Affiliation will be
consummated by June 30, 1998 (or such other date as is mutually
agreed upon). The Affiliation will also be conditioned (i)
with respect to Xxxxxxxxxx, on the receipt of an opinion from
Bancshares' independent auditors that the transaction will be
treated as a "pooling of interests" business combination for
accounting purposes and reaching mutually agreed upon
employment agreements with the following Century executives:
Xxxxxx X. Xxxx XX, Xxxxxx X. Xxxxxxxxx, Xxxxx X. Xxxxxxxxx and
X. Xxxxx Xxxxxx (collectively, the "Employment Agreements") and
(ii) with respect to Century, on receipt of an opinion from
Century's counsel to the effect that the merger is tax-free for
Century shareholders.
2. Conditions to Execution of a Definitive Agreement:
--------------------------------------------------
The execution of the Definitive Agreement is subject to (i) negotiation of a
mutually acceptable Definitive Agreement and approval thereof by the Board of
Directors of each of Bancshares and Century; (ii) completion of satisfactory
due diligence investigations by Xxxxxxxxxx and Century of each other and (iii)
receipt by Century's Board of Directors of an opinion from its financial
advisor to the effect that the Affiliation is fair to Century's shareholders
from a financial point of view. We expect that on-site reviews will begin as
soon as possible and that both Bancshares' and Century's due diligence
investigations will be completed on or before December 2, 1997. Assuming the
successful completion of our due
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diligence efforts, we expect that the Definitive Agreement will be entered
into by December 2, 1997.
3. Confidentiality.
----------------
Bancshares and Century will treat in complete confidence any information
received from the other, and will use it solely for the purpose of evaluating
the Affiliation, as well as for the purpose of any subsequent negotiations.
4. Grant of Stock Option; Exclusive Dealing.
-----------------------------------------
In recognition of the time, expense, and resources to be expended by
Bancshares in working toward consummation of the Affiliation, Century hereby
(i) is granting to Bancshares an option to purchase Century Stock representing
up to 19.9% of the outstanding shares of Century Stock at an exercise price of
$18.00 per share payable in cash and (ii) is agreeing to negotiate exclusively
with Bancshares through December 31, 1997, all as more specifically set forth
in the Stock Option Agreement attached to and made a part of this letter (the
"Option Agreement").
5. Termination.
------------
This letter of intent may be terminated at any time by mutual consent of the
parties, or by either party by giving written notice thereof to the other
party at the party's executive offices, attn: President and Chief Executive
Officer. It is understood that paragraph 3 and the Option Agreement will
survive and continue in full force and effect in the event this letter of
intent is terminated.
6. Miscellaneous.
--------------
The parties do not intend to be legally bound unless and until the Definitive
Agreement is executed, and except as set forth in paragraph 3 hereof and in
the Option Agreement (which shall be binding upon Bancshares and Century and
our respective successors and assigns), no contractual rights or obligations
shall arise from this Offer. Each of us will be responsible for our own costs
and expenses incurred in connection with the Affiliation.
We believe that the Affiliation represents substantial value for Century
shareholders and exciting opportunities for your customers and employees. If
the foregoing accurately sets forth the basis upon which you are willing to
proceed with the Affiliation, please so indicate by signing and returning the
duplicate copy of this letter and the enclosed Option Agreement by midnight on
November 17, 1997.
Very truly yours,
CITIZENS BANCSHARES, INC.
By:/s/ Xxxxx X. Xxxxx
----------------------------
Xxxxx X. Xxxxx, President and
Chief Executive Officer
ACCEPTED AND AGREED to as of this 17th day of November 1997.
CENTURY FINANCIAL CORPORATION
By:/s/ Xxx X. Xxxxxxxx
------------------------------------
Xxx X. Xxxxxxxx, Chairman
By:/s/ Xxxxxx X. Xxxx, XX
------------------------------------
Xxxxxx X. Xxxx XX
President and Chief Executive Officer
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