[CRESTAR LOGO]
April 27, 1995
HIGHLY CONFIDENTIAL
Board of Directors
Loyola Capital Corporation
1300 North Charles Street
Baltimore, Maryland 21201
Attention: Joseph W. Mosmiller
Chairman of the Board and
Chief Executive Officer
Ladies and Gentlemen:
On behalf of Crestar Financial Corporation ("Crestar"), I am pleased to
make the following binding offer to acquire Loyola Capital Corporation
("Loyola") on the terms set forth in this letter.
1. STRUCTURE: VALUATION AND CONSIDERATION: LOYOLA CAPITALIZATION. The
transaction would be structured as a statutory merger of Loyola into Crestar
(the "Merger"). Crestar and Loyola would use their best efforts to make the
Merger effective on or before January 31, 1996, or, if applicable law or
regulatory authorities do not permit the Merger to be effective by this date, as
soon as practicable thereafter, but not later than March 31, 1996.
In the Merger, each share of Loyola common stock shall be converted into a
fraction of a share of Crestar common stock, determined in accordance with the
Exchange Ratio. The "Exchange Ratio" shall be calculated as follows:
(a) if the Average Closing Price (as defined below) is between
$43.478 and $46.375, the Exchange Ratio shall be 0.690 (the quotient of
(A) $32.00 divided by (B) $46.375).
Board of Directors
Loyola Capital Corporation
April 27, 1995
Page 2
(b) if the Average Closing Price is greater than $46.375, the
Exchange Ratio shall be the quotient of (A) $32.00 divided by (B) the
Average Closing Price, rounded to the nearest one-one thousandth of a
share, PROVIDED that the Exchange Ratio shall not be less than 0.640.
(c) if the Average Closing Price is less than ($43.478, the Exchange
Ratio shall be the quotient of (A) $30.00 divided by (B) the Average
Closing Price, rounded to the nearest one-one thousandth of a share,
PROVIDED that the Exchange Ratio shall not be greater than 0.750. The
Agreement may be terminated by Loyola, 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 is less than $40.00, PROVIDED,
HOWEVER, that Crestar shall have the option of increasing the consideration
to be received by holders of Loyola common stock hereunder by adjusting the
Exchange Ratio to a number equal to a quotient, the numerator of which is
the product of $40.00 times the Exchange Ratio then in effect and the
denominator of which is the Average Closing Price. In such case, Crestar
shall give prompt written notice to Loyola of such election and of the
revised Exchange Ratio, and in such event no termination shall be deemed
to have occurred and the Agreement shall remain in full force and effect in
accordance with its terms.
As used herein, "Average Closing Price" shall mean the average closing
price of Crestar common stock as reported on the New York Stock Exchange for
each of the 10 trading days ending on the tenth day prior to the closing date.
At March 31, 1995, Loyola had 8,107,750 shares of common stock issued and
outstanding and outstanding options ("Outstanding Options") covering 1,080,567
shares of Loyola common stock. Except for shares that may become issuable
pursuant to the Stock Option Agreement (referred to below) and shares issued
upon exercise of Outstanding Options, no additional shares of Loyola common
stock or Loyola preferred stock have been issued through the date hereof or
will be issued, and no options for Loyola common stock or Loyola preferred
stock have been granted since March 31, 1995, and none will be granted, between
the date of this letter and the effective date of the Merger.
2. LOYOLA OPTIONS. At the effective time of the Merger, Outstanding
Options granted by Loyola to purchase shares of Loyola common stock which are
unexercised immediately prior thereto shall be converted as to each whole share
subject to such Outstanding Option into an option (each, an "Exchange Option")
to purchase such number of shares of Crestar common stock at such exercise price
as is determined as provided below
Board of Directors
Loyola Capital Corporation
April 27, 1995
Page 3
(and otherwise having the same duration, tax consequences, and other terms as
the Outstanding Option):
(a) the number of shares of Crestar common stock to be subject to
the Exchange Option shall be equal to the product of (A) the number of
shares of the Loyola common stock subject to the Outstanding Option
multiplied by (B) the Exchange Ratio, the product being rounded, if
necessary, up or down, to the nearest whole share;
(b) the per share exercise price under the Exchange Option shall
be equal to (A) the per share exercise price under the Outstanding Option
divided by (B) the Exchange Ratio, with any fractional cent rounded up to
the next whole cent.
3. CERTAIN CONDITIONS. The Merger would be subject to satisfaction of
certain conditions precedent usual for transactions of this type, including the
following:
(a) Negotiation of a definitive agreement and plan of reorganization
(the "Agreement") incorporating the agreements expressed in this letter and
other terms and conditions usual for contracts of that type. Crestar and
Loyola would negotiate the Agreement in good faith, and we believe we
should be able to execute the Agreement by May 15, 1995. If we are unable
to execute the Agreement by May 31, 1995, however, either Crestar or Loyola
may terminate this letter of agreement, with no liability one to the other.
(b) Receipt of all necessary contractual, creditor, and regulatory
approvals for the Merger, including approvals of the Board of Governors of
the Federal Reserve System; the Bureau of Financial Institutions of the
Virginia State Corporation Commission; the Office of Thrift Supervision;
and any other federal or state regulatory authority having jurisdiction
over the Merger, and the expiration of all waiting periods required by law.
(c) Compliance with requirements of the Securities Act of 1933 and
applicable state securities laws, including filing a registration statement
covering Crestar common stock issuable in the Merger with the Securities
and Exchange Commission.
Board of Directors
Loyola Capital Corporation
April 27, 1995
Page 4
(d) Compliance with all applicable federal and state laws and
regulations concerning the Merger, the absence in all orders, decrees or
advisory letters of regulatory authorities concerning the Merger of any
conditions or requirements reasonably deemed objectionable to Crestar, and
the absence of any actual or threatened litigation under federal antitrust
laws. Crestar and Loyola agree to cooperate in taking all reasonable
necessary steps to obtain regulatory and corporate approvals, including, as
respects any meeting of Loyola shareholders, the favorable vote of holders
of the requisite majority of outstanding Loyola Common Stock. At the
signing of the definitive Agreement, the members of Loyola's board of
directors would agree to vote their shares in favor of the Merger.
(e) The receipt by Crestar and Loyola of opinions of their respective
counsel to the effect tat the Merger constitutes a tax-free reorganization
for federal income tax purposes.
(f) The taking by Crestar and Loyola of all corporate action
necessary for the Merger by (i) the board of directors and shareholders of
Loyola and (ii) the board of directors of Crestar, as and to the extent
required by law and their respective charters and bylaws.
(g) Receipt by Crestar prior to execution of the Agreement of an
acceptable letter from KPMG Peat Marwick to the effect that the Merger can
be accounted for as a "pooling of interests."
4. INDEMNIFICATION. Crestar acknowledges its obligation to provide, and
agrees to provide, indemnification to the directors and officers of Loyola
following the effective date of the Merger to the same extent as if Loyola were
maintaining its separate existence after such time.
5. GENERAL CONDITION: PREMERGER REVIEW: OPERATING SYNERGIES. The
obligation of Crestar to consummate the Merger would be subject to the condition
that, on the effective date of the Merger, since March 31, 1995, there shall
have been no change not previously agreed to by Crestar in Loyola's capital
structure, dividend policy, stock option plans, material contracts, branches,
credit policies, loan charge-off policies, reserve requirements and securities
portfolio management policies, all to be described in detail in the Agreement.
Without the approval of Crestar, Loyola shall not make any change in the
salaries or bonuses of any of its employees, other than those permitted by
their current
Board of Directors
Loyola Capital Corporation
April 27, 1995
Page 5
employment policies in the ordinary course of business, any of which changes
shall be reported promptly to Crestar.
Crestar's obligation to enter into the Agreement is subject to a review
(at Crestar's expense and with full cooperation of Loyola) to confirm the
accuracy of Loyola's representations and warranties to be contained on the
Agreement.
With appropriate exceptions and without effect on Loyola's incentive bonus
program, Loyola's management will work with Crestar to achieve appropriate
operating efficiencies and to make appropriate accruals for loan loss reserves
and expenses and, when indicated, charge-offs prior to consummation of the
Merger. Crestar representatives will be given full access to Loyola's books and
records in this undertaking. Loyola shall be under no obligation to make any
adjustments until such time as all terms and conditions of the Agreement have
been satisfied in full and all contingencies to closing have been eliminated.
6. OTHER PROPOSALS. Between the date of this letter and the earlier of
the termination of this letter of the execution of the Agreement, Loyola shall
not, and Loyola shall use its best efforts to ensure that its directors,
officers and advisors do not, institute, pursue, or, subject to the fiduciary
obligations of Loyola's Board of Directors to its shareholders, enter into any
discussions, negotiations, or agreements (whether preliminary or definitive)
with any person or entity other than Crestar contemplating or providing for any
merger, share exchange, acquisition, purchase or sale of a significant amount of
assets, or other business combination or change in control of Loyola.
7. EXPENSES. Each party shall bear its own expenses in connection with
the implementation of this letter of intent, regardless of whether or not the
definitive Agreement is executed.
8. STOCK OPTION AGREEMENT. Simultaneously with the execution of this
binding letter of agreement, Crestar and Loyola are entering into a Stock Option
Agreement pursuant to which Loyola will grant Crestar an option to purchase
1,613,442 of its authorized but unissued shares of common stock at $25.00 cash
per share, exercisable in certain events.
9. TERMINATION. The Agreement will provide for termination in the event
the Merger is not consummated by March 31, 1996.
Board of Directors
Loyola Capital Corporation
April 27, 1995
Page 6
10. BINDING LETTER OF AGREEMENT. This is a binding letter of agreement
that legally commits the parties to the Merger. The parties agree to negotiate
in good faith the Agreement, which will contain terms and conditions usual to
transactions of this type, and into which this binding letter of agreement will
be merged.
Very truly yours,
CRESTAR FINANCIAL CORPORATION
By /s/ Richard G. Tilghman
-------------------------------------
Richard G. Tilghman
Chairman of the Board and
Chief Executive Officer
Accepted and agreed to pursuant
to authorization of the Board
of Directors
LOYOLA CAPITAL CORPORATION
By /s/ Joseph W. Mosmiller
-------------------------------------
Joseph W. Mosmiller
Chairman of the Board and
Chief Executive Officer
Dated: April 27, 1995