SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
( ) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
FIRST CITIZENS FINANCIAL CORPORATION
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
( ) No fee required
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
(X) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule, or Registration Statement No.:
3) Filing Party:
4) Date Filed:
[ FIRST CITIZENS LETTERHEAD ]
July 15, 1997
To First Citizens Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders
of First Citizens Financial Corporation ("First Citizens") to be held at the
DoubleTree Hotel, 1750 Rockville Pike, Rockville, Maryland on Wednesday, August
20, 1997 at 9:00 a.m. local time.
At the Annual Meeting, you will be asked to consider and vote on a
proposal to approve the Amended and Restated Agreement and Plan of Merger,
amended and restated as of July 14, 1997 (the "Merger Agreement"), by and
between Provident Bankshares Corporation ("Provident") and First Citizens,
pursuant to which First Citizens will merge (the "Merger") with and into
Provident and stockholders of First Citizens will receive .7665 shares (the
"Exchange Ratio") of the common stock of Provident for each share of First
Citizens common stock, plus cash in lieu of fractional shares and subject to
certain adjustments, all as more fully described in the enclosed Joint Proxy
Statement/Prospectus. The Merger Agreement originally provided for an exchange
ratio of .73 shares of Provident common stock for each share of First Citizens
common stock; this exchange ratio was adjusted pursuant to the Merger Agreement
as a result of the 5% stock dividend declared by the Board of Directors of
Provident to Provident's stockholders of record as of April 28, 1997.
Your Board of Directors unanimously approved the Merger and believes
that it is in the best interests of First Citizens and our stockholders.
Accordingly, the Board of Directors unanimously recommends that you vote FOR
approval of the Merger Agreement and the Merger provided for therein.
Your Board of Directors has retained the investment banking firm of
Endicott Financial Advisors, L.L.C. ("Endicott") to act as its financial advisor
in connection with the Merger. As discussed in the accompanying Joint Proxy
Statement/Prospectus, Endicott has delivered to the Board of Directors its
written opinion that, as of the date of such opinion, the Exchange Ratio is
fair, from a financial point of view, to the stockholders of First Citizens. The
written opinion of Endicott is included as Annex C to the accompanying Joint
Proxy Statement/Prospectus. You are urged to read these materials carefully.
In addition to voting on the Merger, you will be asked to vote for the
election of two directors to serve for three-year terms and until their
successors shall have been elected and qualified, or, if earlier, until the
proposed Merger is consummated.
Consummation of the Merger is subject to certain conditions, including
the approval of the Merger Agreement by the holders of the First Citizens common
stock and holders of Provident common stock and the approval of the Merger by
various regulatory agencies.
IT IS VERY IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THE ANNUAL
MEETING, WHETHER OR NOT YOU PLAN TO ATTEND IN PERSON. THE AFFIRMATIVE VOTE OF
A MAJORITY OF THE OUTSTANDING COMMON STOCK OF FIRST CITIZENS IS REQUIRED FOR
APPROVAL OF THE MERGER AGREEMENT. A FAILURE
TO VOTE FOR APPROVAL OF THE MERGER AGREEMENT WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE MERGER AGREEMENT. THEREFORE, I URGE YOU TO EXECUTE, DATE AND RETURN
THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE TO
ASSURE THAT YOUR SHARES WILL BE VOTED AT THE ANNUAL MEETING. IF YOU ATTEND THE
ANNUAL MEETING, YOU MAY REVOKE THE PROXY GIVEN ON SUCH FORM AND VOTE IN PERSON
IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR FORM OF PROXY.
Sincerely,
Herbert W. Jorgensen Enos K. Fry
Chairman of the Board and Vice Chairman and President
Chief Executive Officer
FIRST CITIZENS FINANCIAL CORPORATION
22 FIRSTFIELD ROAD
GAITHERSBURG, MARYLAND 20878
(301) 527-2400
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 20, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of First
Citizens Financial Corporation ("First Citizens"), Gaithersburg, Maryland will
be held at the DoubleTree Hotel, 1750 Rockville Pike, Rockville, Maryland on
August 20, 1997 at 9:00 a.m., local time, for the following purposes, all of
which are more completely set forth in the accompanying Joint Proxy
Statement/Prospectus:
1. To consider and vote upon a proposal to approve the Amended
and Restated Agreement and Plan of Merger, amended and
restated as of July 14, 1997 (the "Merger Agreement"), between
Provident Bankshares Corporation and First Citizens. A copy of
the Merger Agreement is attached as Annex A to this Joint
Proxy Statement/Prospectus.
2. To elect two directors of First Citizens for three-year terms
and until their successors shall have been elected and
qualified, or, if earlier, until the proposed merger is
consummated.
3. To transact such other business as may properly come before
the meeting or any adjournment thereof.
Pursuant to the by-laws, the board of directors has fixed July 14,
1997 as the record date for the determination of stockholders entitled to notice
of and to vote at the Annual Meeting and all adjournments or postponements
thereof. Only stockholders of record at the close of business on that date will
be entitled to notice of and to vote at the Annual Meeting. A list of First
Citizens stockholders entitled to vote at the Annual Meeting will be available
for examination for any purpose germane to the Annual Meeting, during ordinary
business hours, at the principal executive offices of First Citizens located at
22 Firstfield Road, Gaithersburg, Maryland for 10 days prior to the Annual
Meeting and will also be available at the Annual Meeting.
In the event that there are not sufficient votes to approve any one or
more of the foregoing proposals at the time of the Annual Meeting, the Annual
Meeting may be adjourned in order to permit further solicitation by First
Citizens.
By Order Of The Board Of Directors
Herbert W. Jorgensen
Chairman of the Board and
Chief Executive Officer
Enos K. Fry
Vice Chairman and President
Gaithersburg, Maryland
July 15, 1997
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO
APPROVE THE MERGER AGREEMENT.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE URGED TO
SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING PRE-ADDRESSED
ENVELOPE WHICH REQUIRES NO POSTAGE. YOUR PROXY MAY BE REVOKED PRIOR TO THE
VOTING BY FILING WITH THE SECRETARY OF THE COMPANY A WRITTEN REVOCATION OR A
DULY EXECUTED PROXY BEARING A LATER DATE, OR BY ATTENDING THE ANNUAL MEETING AND
VOTING IN PERSON.
PROVIDENT BANKSHARES CORPORATION
FIRST CITIZENS FINANCIAL CORPORATION
JOINT PROXY STATEMENT
--------------------
PROVIDENT BANKSHARES CORPORATION
PROSPECTUS
---------------------
2,745,945 SHARES OF COMMON STOCK
This Joint Proxy Statement/Prospectus relates to the proposed merger
(the "Merger") of First Citizens Financial Corporation, a Delaware corporation
("First Citizens"), with and into Provident Bankshares Corporation, a Maryland
corporation ("Provident"), with Provident as the surviving corporation in the
Merger, as contemplated by the Amended and Restated Agreement and Plan of Merger
(the "Merger Agreement"), amended and restated as of July 14, 1997, between
Provident and First Citizens. A copy of the Merger Agreement is attached as
Annex A hereto and is incorporated herein by reference.
This Joint Proxy Statement/Prospectus is being furnished to the
stockholders of Provident and First Citizens in connection with the solicitation
of proxies by the respective Boards of Directors of Provident and First Citizens
for use at the meetings of stockholders of Provident and First Citizens, each to
be held on August 20, 1997, including any adjournments or postponements of such
meetings (the "Meetings"). At their respective Meetings, stockholders of
Provident and First Citizens will consider and vote upon a proposal to approve
and adopt the Merger Agreement and the transactions contemplated thereby. In
addition, the stockholders of First Citizens will consider and vote on the
election of two directors to serve for the terms for which they are nominated
and until their successors shall have been elected and qualified, or, if
earlier, until the proposed Merger is consummated.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of
Provident with respect to up to 2,745,945 shares of common stock, par value
$1.00 per share, of Provident (the "Provident Common Stock") issuable to holders
of common stock, par value $.01 per share, of First Citizens ("First Citizens
Common Stock") in the Merger.
Upon consummation of the Merger, each outstanding share of First
Citizens Common Stock will, with certain exceptions, be converted into and
exchangeable for .7665 shares of Provident Common Stock. The Merger Agreement
originally provided for an exchange ratio of .73 shares of Provident Common
Stock for each share of First Citizens Common Stock; this exchange ratio was
adjusted pursuant to the Merger Agreement as a result of the 5% stock dividend
declared by the Board of Directors of Provident to Provident's stockholders of
record as of April 28, 1997 (the "Provident 5% Stock Dividend"). As used herein,
"Exchange Ratio" means .73, the original exchange ratio, or .7665, the original
exchange ratio, as adjusted for the Provident 5% Stock Dividend pursuant to the
Merger Agreement, as the context requires.
If the Average Closing Price (as defined below) is less than $33.929,
First Citizens may terminate the Merger Agreement unless Provident increases the
Exchange Ratio so that the shares of Provident Common Stock issued in exchange
for each share of First Citizens Common Stock have a value (based on the Average
Closing Price) of $26.006. If the Merger is approved by First Citizens'
stockholders, the Board of Directors of First Citizens (the "First Citizens
Board") may elect not to terminate the Merger Agreement and to consummate the
Merger without resoliciting First Citizens' stockholders if the Average Closing
Price is less than $33.929, even though, as a result of the application of the
Exchange Ratio, the value of the shares of Provident Common Stock (valued at the
Average Closing Price) issued in exchange for each share of First Citizens
Common Stock would be less than $26.006. The Average Closing Price is the
average closing sales price of the Provident Common Stock on the Nasdaq Stock
Market (the "Nasdaq") for the 10 consecutive trading days ending on the date on
which the last required regulatory approval for the Merger is obtained, without
regard to any requisite waiting periods in respect thereof. Under the terms of
the Merger Agreement, cash will be paid in lieu of the issuance of fractional
shares of Provident Common Stock. In addition, each share of Provident Common
Stock issued in the Merger will include the corresponding number of rights
attached thereto pursuant to the Provident Rights Agreement (as defined below).
See "The MERGER -- Exchange Ratio." No stockholder of First Citizens or
Provident is entitled to appraisal rights in connection with or as a result of
the Merger. See "The Merger -- No Appraisal Rights."
Because the market price of Provident Common Stock is subject to
fluctuation, the value of the shares of Provident Common Stock that holders of
First Citizens Common Stock would receive in the Merger may increase or decrease
prior to and after the Merger. See "MARKET PRICES AND DIVIDEND INFORMATION."
Upon consummation of the Merger, the holders of First Citizens Common Stock will
own approximately 20% of the outstanding shares of Provident Common Stock.
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 JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------------
THE SHARES OF PROVIDENT COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, BANK INSURANCE FUND OR
ANY OTHER GOVERNMENT AGENCY, NOR ARE THEY GUARANTEED BY ANY BANK OR BANK HOLDING
COMPANY.
----------------------------
2
This Joint Proxy Statement/Prospectus and the accompanying forms of
proxy are first being mailed to stockholders of Provident and First Citizens on
or about July 18, 1997.
The date of this Joint Proxy Statement/Prospectus is July 15, 1997.
No persons have been authorized to give any information or to make any
representations other than those contained in this Joint Proxy
Statement/Prospectus or incorporated by reference herein in connection with the
solicitation of proxies or the offering of securities made hereby and, if given
or made, such information or representations must not be relied upon as having
been authorized by Provident or First Citizens. This Joint Proxy
Statement/Prospectus does not constitute an offer to sell, or a solicitation of
an offer to buy, any securities, or the solicitation of a proxy, in any
jurisdiction to or from any person to whom it is not lawful to make any such
offer or solicitation in such jurisdiction. Neither the delivery of this Joint
Proxy Statement/Prospectus nor any distribution of securities made hereunder
shall, under any circumstances, create an implication that there has been no
change in the affairs of Provident or First Citizens since the date of this
Joint Proxy Statement/Prospectus or that the information herein or the documents
or reports incorporated by reference herein is correct as of any time subsequent
to such date. All information contained in this Joint Proxy Statement/Prospectus
relating to Provident and its subsidiaries has been supplied by Provident and
all information contained in this Joint Proxy Statement/Prospectus relating to
First Citizens and its subsidiaries has been supplied by First Citizens.
3
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION.............................................................................................8
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...................................................................9
SUMMARY ........................................................................................................11
Parties to the Merger...................................................................................11
Effects of the Merger...................................................................................13
Exchange Ratio..........................................................................................13
Recommendations of Boards of Directors; Reasons for the Merger..........................................14
Opinions of Financial Advisors..........................................................................14
Termination of the Merger Agreement.....................................................................16
Nasdaq Listing..........................................................................................16
Anticipated Accounting Treatment........................................................................16
Certain Federal Income Tax Consequences of the Merger...................................................16
No Appraisal Rights.....................................................................................17
Stock Option Agreement; Termination Fee.................................................................17
Comparison of Stockholder Rights........................................................................17
MARKET PRICES AND DIVIDEND INFORMATION...........................................................................18
SELECTED HISTORICAL FINANCIAL INFORMATION........................................................................20
PRO FORMA COMBINED SELECTED HISTORICAL
FINANCIAL INFORMATION...................................................................................22
COMPARATIVE PER SHARE DATA.......................................................................................24
PARTIES TO THE MERGER............................................................................................25
Provident...............................................................................................25
First Citizens..........................................................................................25
MEETING OF PROVIDENT STOCKHOLDERS................................................................................26
Date, Time and Place; Purpose of Meeting................................................................26
Record Date.............................................................................................26
Voting; Revocation of Proxies...........................................................................26
Vote Required to Approve the Merger; Principal Stockholders.............................................28
Solicitation of Proxies.................................................................................28
MEETING OF FIRST CITIZENS STOCKHOLDERS...........................................................................28
Date, Time and Place; Purpose of Meeting................................................................28
Record Date.............................................................................................29
Voting; Revocation of Proxies...........................................................................29
4
Vote Required to Approve the Merger; Principal Stockholders.............................................31
Solicitation of Proxies.................................................................................31
THE MERGER.......................................................................................................32
General.................................................................................................32
Exchange Ratio..........................................................................................32
Background of the Merger................................................................................34
Recommendation of the First Citizens Board; First Citizens' Reasons for the Merger......................38
Recommendation of the Provident Board; Provident's Reasons for the Merger...............................39
Opinion of First Citizens' Financial Advisor............................................................40
Opinion of Provident's Financial Advisor................................................................45
Interests of Certain Persons in the Merger..............................................................50
Management and Operations Following the Merger..........................................................54
Employee Matters........................................................................................54
Effective Time..........................................................................................55
Conversion of Shares; Procedures for Exchange of Certificates; Fractional Shares........................55
Conditions to the Merger................................................................................57
Regulatory Approvals Required for the Merger............................................................59
Conduct of Business Pending the Merger..................................................................61
Representations and Warranties..........................................................................63
Waiver and Amendment; Termination; Termination Fee......................................................63
Nasdaq Listing..........................................................................................65
Anticipated Accounting Treatment........................................................................65
Certain Federal Income Tax Consequences of the Merger...................................................66
Resales of Provident Common Stock by Affiliates.........................................................68
No Appraisal Rights.....................................................................................68
Expenses ...............................................................................................69
CERTAIN RELATED TRANSACTIONS.....................................................................................69
Stock Option Agreement; Termination Fee.................................................................69
Bank Merger Agreement...................................................................................74
CERTAIN REGULATORY CONSIDERATIONS................................................................................74
General ...............................................................................................74
Payment of Dividends....................................................................................75
Transactions with Affiliates............................................................................75
Holding Company Liability...............................................................................76
Prompt Corrective Action................................................................................76
Capital Adequacy........................................................................................77
Enforcement Powers of the Federal Banking Agencies......................................................78
FDIC Insurance Assessments..............................................................................78
Control Acquisitions....................................................................................79
Future Legislation......................................................................................80
5
DESCRIPTION OF PROVIDENT CAPITAL STOCK...........................................................................80
General.................................................................................................80
Common Stock............................................................................................80
Rights Plan.............................................................................................81
COMPARISON OF STOCKHOLDER RIGHTS.................................................................................84
General.................................................................................................84
Special Meeting of Stockholders.........................................................................85
Stockholder Action by Written Consent...................................................................85
Stockholder Nominations and Proposals for Business......................................................86
Certain Extraordinary Corporate Transactions ...........................................................87
Business Combinations Involving Interested Stockholders.................................................87
Removal of Directors....................................................................................88
Consideration of Other Constituencies...................................................................89
Personal Liability of Directors and Officers............................................................89
Indemnification of Officers and Directors...............................................................90
Amendments to By-laws...................................................................................90
Rights Plan.............................................................................................90
Appraisal Rights........................................................................................91
Dividends and Distributions.............................................................................91
PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS....................................................................................92
ELECTION OF FIRST CITIZENS DIRECTORS............................................................................100
Information as to Nominees and Other Directors.........................................................101
Other Executive Officers...............................................................................102
Corporate Governance and Other Matters.................................................................103
Compensation of Directors..............................................................................104
Executive Compensation and Other Information...........................................................106
Employment and Other Agreements........................................................................110
Report on Executive Compensation of the Boards of Directors of First Citizens and
Citizens Savings and First Citizens' Stock Option Committee..........................................113
Compensation Committee Interlocks and Insider Participation............................................114
Stock Performance Graph................................................................................117
Section 16(a) Beneficial Ownership Reporting Compliance................................................118
Certain Transactions...................................................................................118
Independent Public Accountants.........................................................................118
Stock Owned by Management..............................................................................119
Principal Holders of Voting Securities.................................................................120
LEGAL MATTERS...................................................................................................122
EXPERTS .......................................................................................................122
STOCKHOLDER PROPOSALS...........................................................................................123
6
ANNEX A Amended and Restated Agreement and Plan of Merger
ANNEX B Stock Option Agreement
ANNEX C Opinion of Endicott Financial Advisors, L.L.C.
ANNEX D Opinion of Keefe, Bruyette & Woods, Inc.
7
AVAILABLE INFORMATION
Provident and First Citizens are subject to the 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 "Commission"). The
reports, proxy statements and other information filed by Provident and First
Citizens with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices at 7 World
Trade Center, New York, New York 10048 and Northwestern Atrium Center, 500 West
Madison, Suite 1400, Chicago, Illinois 60661. Copies of such material also can
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates or from the Web Site
maintained by the Commission at "http://www.sec.gov." In addition, material
filed by Provident and First Citizens can be inspected at the offices of The
Nasdaq Stock Market, 1735 K Street, N.W., Washington, D.C. 20006.
Provident has filed with the Commission a Registration Statement on
Form S-4 (together with any amendments thereof, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the shares of Provident Common Stock to be issued pursuant to the
Merger Agreement. This Joint Proxy Statement/Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits thereto.
Such additional information may be inspected and copied as set forth above.
Statements contained in this Joint Proxy Statement/Prospectus or in any document
incorporated by reference in this Joint Proxy Statement/Prospectus as to the
contents of any contract or other document referred to herein or therein are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement or
such other document, each such statement being qualified in all respects by such
reference.
8
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Provident (File
No. 0-16421) and First Citizens (File No. 0-17912) pursuant to the Exchange Act
are incorporated by reference in this Joint Proxy Statement/Prospectus:
1. Provident's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (the "1996 Provident Form 10-K").
2. Provident's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997.
3. Provident's Current Report on Form 8-K, dated March 18, 1997.
4. The description of Provident Common Stock and Provident Class A
Preferred Stock ("Provident Class A Preferred Stock") and Preferred Share
Purchase Rights set forth in Provident's registration statements filed by
Provident pursuant to Section 12 of the Exchange Act including any amendment or
report filed for purposes of updating any such description.
5. The portions of Provident's Proxy Statement for the Annual Meeting
of Stockholders held on April 16, 1997 that have been incorporated by reference
in the 1996 Provident Form 10-K.
6. First Citizens' Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (the "1996 First Citizens Form 10-K").
7. First Citizens' Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997.
8. First Citizens' Current Report on Form 8-K, dated March 14, 1997.
9. The description of First Citizens Common Stock set forth in First
Citizens' Registration Statement filed by First Citizens pursuant to Section 12
of the Exchange Act including any amendment or report filed for purposes of
updating any such description.
All documents and reports filed by Provident or First Citizens with the
Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
after the date of this Joint Proxy Statement/Prospectus and prior to the date of
the Meetings shall be deemed to be incorporated by reference in this Joint Proxy
Statement/Prospectus and to be a part hereof from the dates of filing of such
documents or reports. Any statement contained in a document or report
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Joint Proxy Statement/Prospectus
to the extent that a statement contained herein, or in any other subsequently
filed document or report which also 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 this Joint Proxy Statement/Prospectus.
9
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS
(OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS IS
DELIVERED, ON WRITTEN OR ORAL REQUEST, IN THE CASE OF DOCUMENTS RELATING TO
PROVIDENT, TO PROVIDENT BANKSHARES CORPORATION, 114 EAST LEXINGTON STREET,
BALTIMORE, MARYLAND 21202, ATTENTION: ROBERT L. DAVIS, GENERAL COUNSEL,
TELEPHONE NUMBER (410) 281-7000, AND IN THE CASE OF DOCUMENTS RELATING TO FIRST
CITIZENS, TO FIRST CITIZENS FINANCIAL CORPORATION, 22 FIRSTFIELD ROAD,
GAITHERSBURG, MARYLAND 20878, ATTENTION: BARBARA J. GUY, CORPORATE SECRETARY,
TELEPHONE NUMBER (301) 527-2400. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, REQUESTS SHOULD BE RECEIVED BY AUGUST 13, 1997.
This Joint Proxy Statement/Prospectus contains certain forward looking
statements with respect to the financial condition, results of operations and
business of Provident following the consummation of the Merger. Factors that may
cause actual results to differ materially from those contemplated by such
forward looking statements include, among others, the following possibilities:
(1) expected cost savings or revenue enhancements from the Merger cannot be
fully realized; (2) deposit attrition, customer loss or revenue loss following
the Merger is greater than expected; (3) competitive pressure in the banking and
financial services industry increases significantly; (4) changes in the interest
rate environment reduce margins; and (5) general economic conditions, either
nationally or in the State of Maryland, are less favorable than expected.
10
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE
IN THIS JOINT PROXY STATEMENT/PROSPECTUS. AS THIS SUMMARY IS NECESSARILY
INCOMPLETE, REFERENCE IS MADE TO, AND THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY
BY, THE MORE DETAILED INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS
JOINT PROXY STATEMENT/PROSPECTUS AND THE ANNEXES HERETO. PROVIDENT AND FIRST
CITIZENS STOCKHOLDERS ARE URGED TO READ THIS JOINT PROXY STATEMENT/PROSPECTUS
AND THE ANNEXES HERETO IN THEIR ENTIRETY. CERTAIN CAPITALIZED TERMS WHICH ARE
USED BUT NOT DEFINED IN THIS SUMMARY ARE DEFINED ELSEWHERE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS.
PARTIES TO THE MERGER
PROVIDENT. Provident is a regional bank holding company organized under
the laws of the State of Maryland in 1987 and registered under the Bank Holding
Company Act of 1956, as amended (the "BHC Act"). Provident's direct subsidiary,
Provident Bank of Maryland ("Provident Bank"), operates 56 banking facilities
throughout the Baltimore metropolitan area and one in Hanover, Pennsylvania.
Provident Bank is a Maryland-chartered commercial bank which has operated since
1886. At December 31, 1996, Provident Bank was the second largest commercial
bank chartered under the laws of the State of Maryland in terms of assets.
At March 31, 1997, Provident had assets of $2.9 billion, deposits of
$1.9 billion and stockholders' equity of $199 million. Provident's principal
executive offices are located at 114 East Lexington Street, Baltimore, Maryland
21202 and its telephone number is (410) 281-7000.
For more information about Provident, reference is made to "PARTIES TO
THE MERGER -- Provident" and to the 1996 Provident Form 10-K which is
incorporated herein by reference. See "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
FIRST CITIZENS. First Citizens is a savings and loan holding company
organized under the laws of Delaware in 1989. First Citizens' primary
subsidiary, Citizens Savings Bank F.S.B. ("Citizens Savings"), operates 15
banking offices serving customers in Montgomery and Frederick Counties,
Maryland.
At March 31, 1997, First Citizens had total assets of $694 million,
deposits of $544 million and stockholders' equity of $42 million. First
Citizens' principal executive offices are located at 22 Firstfield Road,
Gaithersburg, Maryland 20878 and its telephone number is (301) 527-2400.
For more information about First Citizens, reference is made to
"PARTIES TO THE MERGER -- First Citizens" and to the 1996 First Citizens Form
10-K which is incorporated herein by reference. See "AVAILABLE INFORMATION"
REFERENCE."
11
THE MEETINGS
PROVIDENT. The special meeting of stockholders of Provident will be
held at 10:00 a.m. on August 20, 1997 at the offices of Provident, 114 East
Lexington Street, Baltimore, Maryland 21202 (including any adjournments or
postponements thereof, the "Provident Meeting "). The purpose of the Provident
Meeting is to consider and vote upon (i) a proposal to approve and adopt the
Merger Agreement, which is attached as Annex A to this Joint Proxy
Statement/Prospectus, and the consummation of the transaction contemplated
thereby, and (ii) such other matters as may properly be brought before the
Provident Meeting.
Only holders of record of Provident Common Stock at the close of
business on July 14, 1997 (the "Provident Record Date ") will be entitled to
vote at the Provident Meeting. The affirmative vote of the holders of two-thirds
of the outstanding shares of Provident Common Stock entitled to vote thereon is
required to approve and adopt the Merger Agreement. As of the Provident Record
Date, there were 9,052,418 shares of Provident Common Stock outstanding and
entitled to be voted at the Provident Meeting.
The directors and executive officers of Provident and their affiliates
beneficially owned, as of the Provident Record Date, 541,400 shares, or
approximately 6% of the outstanding shares, of Provident Common Stock entitled
to vote a the Provident Meeting and all such persons have indicated a present
intent to vote their shares in favor of the Merger. As of the Provident Record
Date, neither First Citizens nor its subsidiaries nor the directors and
executive officers of First Citizens beneficially owned any shares of Provident
Common Stock, except that one executive officer possesses shared investment
power with respect to 1,050 shares of Provident Common Stock. See "MEETING OF
PROVIDENT STOCKHOLDERS."
FIRST CITIZENS. The annual meeting of stockholders of First Citizens
will be held at 9:00 a.m. on August 20, 1997 at the DoubleTree Hotel, 1750
Rockville Pike, Rockville, Maryland (including any adjournments or postponements
thereof, the "First Citizens Meeting "). The purpose of the First Citizens
Meeting is to consider and vote upon (i) a proposal to approve and adopt the
Merger Agreement and the consummation of the transactions contemplated thereby,
(ii) the election of two directors of First Citizens for three-year terms and
until their successors shall have been elected and qualified, or, if earlier,
until the proposed Merger is consummated, and (iii) such other matters as may
properly be brought before the First Citizens Meeting.
Only holders of record of First Citizens Common Stock at the close of
business on July 14, 1997 (the "First Citizens Record Date") will be entitled to
vote at the First Citizens Meeting. The affirmative vote of holders of a
majority of the outstanding shares of First Citizens Common Stock entitled to
vote thereon is required to approve and adopt the Merger Agreement. Directors
are elected by a plurality vote pursuant to First Citizens By-laws. As of the
First Citizens Record Date, there were 2,901,433 shares of First Citizens Common
Stock outstanding and entitled to be voted at the First Citizens Meeting.
The directors and executive officers of First Citizens and their
affiliates beneficially owned, as of the First Citizens Record Date, 268,453
shares, or approximately 9.25% of the outstanding shares, of First Citizens
Common Stock entitled to vote at the First Citizens Meeting and all such persons
have indicated a present intent to vote their shares in favor of the Merger. As
of the First Citizens Record Date, neither Provident and its subsidiaries, nor
the directors and executive officers of Provident, beneficially owned any
outstanding shares of First Citizens Common Stock. See "MEETING OF FIRST
CITIZENS STOCKHOLDERS."
12
EFFECTS OF THE MERGER
Pursuant to the Merger Agreement, at the Effective Time (as defined
below), First Citizens will be merged with and into Provident, and First
Citizens stockholders will become stockholders of Provident. See "THE MERGER --
General."
Immediately following the consummation of the Merger, Citizens Savings
will merge with and into Provident Bank (the "Bank Merger"). Provident Bank will
continue as a Maryland-chartered commercial bank and a wholly owned subsidiary
of Provident. See "THE MERGER -- General" and "CERTAIN RELATED TRANSACTIONS --
Bank Merger Agreement."
EXCHANGE RATIO
At the Effective Time, each issued and outstanding share of First
Citizens Common Stock, except for shares held directly or indirectly by
Provident or First Citizens (other than shares held by Provident or First
Citizens in a fiduciary capacity ("Trust Account Shares") or in respect of a
debt previously contracted ("DPC Shares")) will be converted into and
exchangeable for .7665 shares of Provident Common Stock. The Merger Agreement
originally provided for an exchange ratio of .73 shares of Provident Common
Stock for each share of First Citizens Common Stock; this exchange ratio was
adjusted pursuant to the Merger Agreement as a result of the 5% stock dividend
declared by the Board of Directors of Provident to Provident's stockholders of
record as of April 28, 1997 (the "Provident 5% Stock Dividend"). As used herein,
"Exchange Ratio" means .73, the original exchange ratio, or .7665, the original
exchange ratio as adjusted for the Provident 5% Stock Dividend pursuant to the
Merger Agreement, as the context requires. If the Average Closing Price (as
defined below) is less than $33.929, First Citizens may terminate the Merger
Agreement unless Provident increases the Exchange Ratio such that the shares of
Provident Common Stock issued in exchange for each share of First Citizens
Common Stock have a value (based on the Average Closing Price) of $26.006. The
Average Closing Price is the average closing sales price per share of Provident
Common Stock on Nasdaq for the 10 consecutive trading days (the "Valuation
Period") ending on the date on which the last required regulatory approval for
the Merger is obtained, without regard to any requisite waiting periods in
respect thereof.
If the Average Closing Price is less than $33.929 and, in response to
an election by First Citizens to terminate the Merger Agreement, Provident
elects to increase the Exchange Ratio, the Exchange Ratio will be equal to the
quotient obtained by dividing (i) $26.006 by (ii) the Average Closing Price. If
the Merger is approved by First Citizens' stockholders, the First Citizens Board
may elect not to terminate the Merger Agreement and to consummate the Merger
without resoliciting First Citizens' stockholders if the Average Closing Price
is less than $33.929, even though, as a result of the application of the
Exchange Ratio, the value of the shares of Provident Common Stock (valued at the
Average Closing Price) issued in exchange for each share of First Citizens
Common Stock would be less than $26.006. In such a situation, in considering
whether to consummate the Merger without the resolicitation of First Citizens'
stockholders, the First Citizens Board will take into account, consistent with
its fiduciary duties, all relevant facts and circumstances that exist at such
time including, without limitation, the advice of its financial advisor and
legal counsel. See "THE MERGER -- Exchange Ratio" and "-- Waiver and
Amendment; Termination; Termination Fee."
13
Under the terms of the Merger Agreement, cash will be paid in lieu of
the issuance of fractional shares of Provident Common Stock. In addition, each
share of Provident Common Stock issued in the Merger will include the
corresponding number of rights attached thereto pursuant to the Provident Rights
Agreement (as defined below). See "DESCRIPTION OF PROVIDENT CAPITAL STOCK --
Rights Plan."
At the Effective Time, each outstanding and unexercised option to
purchase shares of First Citizens Common Stock (a "First Citizens Option") will
be assumed by Provident. See "THE MERGER -- Interests of Certain Persons in the
Merger."
RECOMMENDATIONS OF BOARDS OF DIRECTORS; REASONS FOR THE MERGER
FIRST CITIZENS. The First Citizens Board has unanimously approved the
Merger Agreement and has determined that the Merger is fair to, and in the best
interests of, First Citizens and its stockholders. THE FIRST CITIZENS BOARD
THEREFORE UNANIMOUSLY RECOMMENDS THAT FIRST CITIZENS' STOCKHOLDERS VOTE FOR
APPROVAL OF THE MERGER AGREEMENT. For a discussion of the factors considered by
the First Citizens Board in approving the Merger Agreement, see "THE MERGER --
Recommendation of the First Citizens Board; First Citizens' Reasons for the
Merger."
PROVIDENT. The Provident Board of Directors (the "Provident Board") has
unanimously approved the Merger Agreement and has determined that the Merger is
fair to, and in the best interests of, Provident and its stockholders. THE
PROVIDENT BOARD THEREFORE UNANIMOUSLY RECOMMENDS THAT PROVIDENT'S STOCKHOLDERS
VOTE FOR APPROVAL OF THE MERGER AGREEMENT. For a discussion of the factors
considered by the Provident Board in approving the Merger Agreement, see "THE
MERGER -- Recommendation of the Provident Board; Provident's Reasons for the
Merger."
OPINIONS OF FINANCIAL ADVISORS
Endicott Financial Advisors, L.L.C. ("Endicott") has rendered a written
opinion to the First Citizens Board, dated as of the date of this Joint Proxy
Statement/Prospectus, to the effect that, as of such date, the Exchange Ratio
was fair, from a financial point of view, to the holders of First Citizens
Common Stock. As discussed in "THE MERGER -- Recommendation of the First
Citizens Board; First Citizens' Reasons for the Merger," Endicott's opinion and
presentation to the First Citizens Board, together with a review by the First
Citizens Board of the assumptions used by Endicott, were among the factors
considered by the First Citizens Board in reaching its determination to approve
the Merger. The opinion of Endicott is attached as Annex C to this Joint Proxy
Statement/Prospectus. Stockholders are urged to read such opinion in its
entirety for a description of the procedures followed, assumptions made, matters
considered and qualifications on the review undertaken by Endicott in connection
therewith. See "THE MERGER -- Opinion of First Citizens' Financial Advisor."
Keefe, Bruyette & Woods, Inc. ("KBW") has rendered a written opinion to
the Provident Board, dated as of the date of this Joint Proxy
Statement/Prospectus, to the effect that, as of such date, the Exchange Ratio
was fair to Provident's stockholders from a financial point of view. As
discussed in "THE MERGER -- Recommendation of the Provident Board; Provident's
Reasons for the Merger," KBW's opinion and presentation to the Provident Board,
together with a review by the Provident Board of the assumptions used by KBW,
were among the factors considered by the Provident Board in reaching its
determination to approve the Merger. The opinion of KBW is attached as Annex D
to this Joint Proxy Statement/Prospectus.
14
Stockholders are urged to read such opinion in its entirety for a description of
the procedures followed, assumptions made, matters considered and qualifications
on the review undertaken by KBW in connection therewith. See "THE MERGER --
Opinion of Provident's Financial Advisor."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of First Citizens' management and the First Citizens
Board have interests in the Merger in addition to their interests as
stockholders of First Citizens generally. These include, among other things,
provisions in the Merger Agreement relating to indemnification, the payout of
cash benefits under certain existing employment agreements, the appointment to
the Provident Board of Messrs. Herbert W. Jorgensen and Enos K. Fry, the
provision by Provident of a new consulting and employment agreements for Messrs.
Jorgensen and Fry, respectively, and the creation of an advisory board. The
First Citizens Board was aware of these interests and considered them, among
other matters, in unanimously approving the Merger Agreement and the
transactions contemplated thereby. See "THE MERGER -- Interests of Certain
Persons in the Merger."
EMPLOYEE MATTERS
The Merger Agreement provides for Citizens Savings' employees who
continue to be employed by Provident to participate in benefit plans maintained
by Provident and provides, in certain instances, more specific provisions with
respect to such participation and treatment of Citizens Savings' benefit plans
following the Merger. See "THE MERGER -- Employee Matters."
EFFECTIVE TIME
The Merger will become effective at the date and time (the "Effective
Time ") set forth in the articles of merger which will be filed with the
Department of Assessment and Taxation of the State of Maryland (the
"Department") in accordance with applicable law. The articles will be filed on
the first day which is (i) the last business day of a month and (ii) at least
two business days after the satisfaction or waiver of the latest to occur of
certain conditions to the Merger specified in the Merger Agreement, unless
another date is agreed to by Provident and First Citizens. See "THE MERGER --
Effective Time."
CONDITIONS; REGULATORY APPROVALS
Consummation of the Merger is subject to various mutual conditions,
including, among others, receipt of the stockholder approvals solicited hereby,
receipt of necessary regulatory approvals, receipt of an opinion of counsel
regarding certain federal income tax consequences of the Merger, receipt of a
letter from Provident's independent accountants that the Merger qualifies for
pooling-of-interests accounting treatment and the satisfaction of certain other
customary closing conditions. See "THE MERGER -- Conditions to the Merger."
Consummation of the Merger and the transactions contemplated thereby
are subject to the prior approval of the FDIC and the Maryland Commissioner of
Financial Regulation and notification to the Federal Reserve Board and the
Office of Thrift Supervision ("OTS"). Applications have been filed with each of
the aforementioned agencies. On July 7, 1997, the FDIC approved the application
filed by Provident. On July 7, 1997, the Federal Reserve Board approved the
notification filed by Provident. See "THE MERGER -- Regulatory Approvals
Required for the Merger."
15
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the
Effective Time by the mutual consent of First Citizens and Provident and by
either of them individually under certain specified circumstances, including if
the Merger has not been consummated by December 31, 1997. In addition, the
Merger Agreement provides that First Citizens may elect to terminate the Merger
Agreement if the Average Closing Price is less than $33.929 unless Provident
agrees to increase the Exchange Ratio to an amount equal to $26.006 divided by
the Average Closing Price. See "THE MERGER -- Exchange Ratio" and "-- Waiver and
Amendment; Termination; Termination Fee." Additionally, following termination of
the Merger by Provident under certain circumstances, First Citizens will be
obligated to pay Provident a cash termination fee of $1,700,000. See "CERTAIN
RELATED TRANSACTIONS -- Stock Option Agreement; Termination Fee."
NASDAQ LISTING
The Provident Common Stock is listed on Nasdaq. Provident has agreed to
use reasonable efforts to cause the shares of Provident Common Stock to be
issued in the Merger to be approved for quotation on Nasdaq. See "THE MERGER --
Nasdaq Listing." The obligation of each of First Citizens and Provident to
consummate the Merger is subject to approval for quotation by Nasdaq of such
shares. See "THE MERGER -- Conditions to the Merger."
ANTICIPATED ACCOUNTING TREATMENT
The Merger is expected to qualify as a pooling-of-interests for
accounting and financial reporting purposes. Should there be an issuance of
shares of First Citizens Common Stock pursuant to the Stock Option Agreement (as
defined below), this may prevent the Merger from qualifying as a
pooling-of-interests for accounting and financial reporting purposes. It is a
condition to each of Provident's and First Citizens' obligation to consummate
the Merger that Provident receives a letter from its independent accountants to
the effect that the Merger qualifies for pooling-of-interests accounting
treatment. See "THE MERGER -- Conditions to the Merger" and "-- Anticipated
Accounting Treatment."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
It is a condition to the respective obligations of First Citizens and
Provident to consummate the Merger that First Citizens and Provident each shall
have received the opinion of Muldoon, Murphy & Faucette, dated as of the
Effective Time, in form and substance reasonably satisfactory to First Citizens
and Provident, respectively, to the effect that the Merger will be treated as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code") and that, accordingly, for federal income tax
purposes (i) no gain or loss will be recognized by First Citizens or Provident
as a result of the Merger except to the extent First Citizens or Citizens
Savings may be required to recognize any income due to the recapture of bad debt
reserves, (ii) no gain or loss will be recognized by the stockholders of First
Citizens who exchange all of their First Citizens Common Stock solely for
Provident Common Stock pursuant to the Merger (except with respect to cash
received in lieu of a fractional share interest in Provident Common Stock), and
(iii) the aggregate tax basis of Provident Common Stock received by stockholders
of First Citizens who exchange all of their First Citizens Common Stock solely
for Provident Common Stock pursuant to the Merger will be the same as the
aggregate tax basis of the First Citizens Common Stock
16
surrendered in exchange therefor (reduced by any amount allocable to a
fractional share interest for which cash is received). Each of First Citizens
and Provident, at its option, may waive such condition. First Citizens
stockholders are urged to consult their tax advisors concerning the specific tax
consequences to them related to the Merger, including the applicability and
effect of various state, local and foreign tax laws. See "THE MERGER -- Certain
Federal Income Tax Consequences of the Merger " and "-- Conditions to the
Merger."
NO APPRAISAL RIGHTS
No stockholder of First Citizens or Provident is entitled to appraisal
rights in connection with or as a result of the Merger. See "THE MERGER -- No
Appraisal Rights."
STOCK OPTION AGREEMENT; TERMINATION FEE
Execution of the Stock Option Agreement, dated as of March 10, 1997
(the "Stock Option Agreement"), by and between First Citizens and Provident, and
the inclusion of the provisions of the Merger Agreement relating to the
Termination Fee (as defined below) were conditions to Provident's merger
proposal. Pursuant to the Stock Option Agreement, First Citizens granted
Provident an option (the "Option") to purchase 291,388 shares of First Citizens
Common Stock, representing approximately 9.9% of the issued and outstanding
shares of such common stock without giving effect to the shares issuable upon
exercise of the Option, at an exercise price of $23.00, subject to the terms and
conditions set forth therein. The Option may only be exercised upon the
occurrence of certain events (none of which have occurred). The Merger Agreement
provides that, upon the termination of the Merger Agreement under certain
circumstances, First Citizens will pay Provident a cash termination fee of
$1,700,000 (the "Termination Fee "). The Termination Fee is only payable upon
the occurrence of certain events (none of which has occurred). The Merger
Agreement (which includes the provisions providing for the Termination Fee) and
the Stock Option Agreement are attached as Annex A and B, respectively, to this
Joint Proxy Statement/Prospectus. See "CERTAIN RELATED TRANSACTIONS -- Stock
Option Agreement; Termination Fee."
The Stock Option Agreement and the Termination Fee are intended to
increase the likelihood that the Merger will be consummated in accordance with
the terms of the Merger Agreement. Consequently, certain aspects of the Stock
Option Agreement and the Termination Fee may have the effect of discouraging
persons who might now or prior to the Effective Time be interested in acquiring
all or a significant interest in First Citizens from considering or proposing
such an acquisition, even if such persons were prepared to pay a higher price
per share for First Citizens Common Stock than the price per share implicit in
the Exchange Ratio.
COMPARISON OF STOCKHOLDER RIGHTS
At the Effective Time, First Citizens' stockholders automatically will
become stockholders of Provident and their rights as stockholders of Provident
will be governed by the Maryland General Corporation Law and by Provident's
Articles of Incorporation and Bylaws. The rights of stockholders of Provident
differ from the rights of the stockholders of First Citizens with respect to
certain important matters, including among others, the ability of stockholders
to call a special meeting of stockholders, the ability of stockholders to act by
written consent, the procedures governing stockholder nominations of directors
and proposals for business, the vote required for certain business combinations,
the provisions of the Provident stockholder rights plan, limitations on personal
liability of directors, consideration of constituencies other than stockholders,
amendment of bylaws, and the removal of directors. For a summary of these
differences, see "COMPARISON OF STOCKHOLDER RIGHTS."
17
MARKET PRICES AND DIVIDEND INFORMATION
Provident Common Stock is traded over the counter and quoted on Nasdaq
under the symbol "PBKS." First Citizens Common Stock is traded over the counter
and quoted on Nasdaq under the symbol "FCIT."
The following table sets forth, for the calendar periods indicated, the
high and low closing prices per share for the Provident Common Stock and First
Citizens Common Stock as reported on the Nasdaq, and the quarterly cash
dividends declared by Provident for the periods indicated. During the calendar
periods indicated, First Citizens has not paid any cash dividends to holders of
its common stock.
PROVIDENT COMMON STOCK(1) FIRST CITIZENS COMMON STOCK(1)
----------------------------------------- --------------------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
----------- ----------- ------------ --------- ---------- ------------
1995
Quarter ended March 31..................... $21.59 $19.11 .11 $13.02 $ 9.81 .00
Quarter ended June 30...................... 23.92 20.30 .12 17.05 11.98 .00
Quarter ended September 30................. 28.45 24.27 .14 16.94 15.69 .00
Quarter ended December 31.................. 30.61 26.75 .15 18.19 14.09 .00
1996
Quarter ended March 31..................... 30.50 25.06 .15 17.05 15.56 .00
Quarter ended June 30...................... 32.14 29.48 .16 19.09 16.81 .00
Quarter ended September 30................. 33.69 30.23 .18 18.63 16.00 .00
Quarter ended December 31.................. 37.27 33.09 .19 19.00 18.00 .00
1997
Quarter ended March 31..................... 40.83 33.67 .20 28.63 18.25 .00
Quarter ended June 30...................... 41.75 34.00 .21 31.00 24.25 .00
Quarter ended September 30
(Through July 14, 1997).................. 42.13 41.38 -- 32.50 30.75 --
- ---------------------------------
(1) Stock prices and dividends for both Provident and First Citizens have been
adjusted to reflect stock dividends.
18
The following table sets forth the closing price per share of Provident
Common Stock and First Citizens Common Stock and the equivalent per share price
for First Citizens Common Stock giving effect to the Merger on (i) March 10,
1997, the last business day preceding public announcement of the proposed
Merger; and (ii) July 14, 1997, the last practicable trading day prior to the
printing of this Joint Proxy Statement/Prospectus:
PROVIDENT COMMON FIRST CITIZENS EQUIVALENT PRICE PER
STOCK COMMON STOCK FIRST CITIZENS SHARE(1)
--------------------- -------------------- ---------------------------
March 10, 1997.................. $40.83 $24.75 $31.30
July 14, 1997................... $41.50 $31.75 $31.81
- -----------------------
(1) The equivalent price per share of First Citizens Common Stock at each
specified date was determined by multiplying the closing sales price of
Provident Common Stock on each specified date by the Exchange Ratio of
.7665 (see "THE MERGER -- Exchange Ratio").
First Citizens and Provident stockholders are advised to obtain current
market quotations for First Citizens Common Stock and Provident Common Stock. It
is expected that the market price of Provident Common Stock will fluctuate
between the date of this Joint Proxy Statement/Prospectus and the date on which
the Merger is consummated and thereafter. Because the number of shares of
Provident Common Stock to be received by First Citizens stockholders in the
Merger is fixed (subject to possible increase in certain limited circumstances)
and because the market price of the Provident Common Stock is subject to
fluctuation, the value of the shares of Provident Common Stock that holders of
First Citizens Common Stock would receive in the Merger may increase or decrease
prior to the Merger. No assurance can be given concerning the market price of
Provident Common Stock before or after the Effective Time. See "THE MERGER --
Exchange Ratio" and "-- Waiver and Amendment; Termination; Termination Fee."
19
SELECTED HISTORICAL FINANCIAL INFORMATION
(UNAUDITED)
The following tables set forth selected unaudited historical
consolidated financial information for Provident and First Citizens for the five
years ended December 31, 1996 and the three-month periods ended March 31, 1997
and 1996. The tables have been derived from, and should be read in conjunction
with, the historical financial statements of Provident and First Citizens,
including the related notes thereto, incorporated by reference in this Joint
Proxy Statement/Prospectus. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE." The financial information for the three-month periods ended March
31, 1997 and 1996 for Provident and First Citizens reflect, in the opinions of
the management of Provident and First Citizens, respectively, all adjustments
necessary for a fair presentation of such information and includes only normal
recurring items. Results for these interim periods are not necessarily
indicative of the results which may be expected for the full year or any other
interim period.
PROVIDENT BANKSHARES CORPORATION
SELECTED HISTORICAL FINANCIAL INFORMATION
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
---------------------- --------------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- --------- ---------- ------------- ------------ ------------ ----------
(Dollars in thousands, except per share data)
CONSOLIDATED SUMMARY OF OPERATIONS:
Interest income (tax-equivalent)(1). $53,814 $47,185 $200,226 $180,560 $134,639 $118,166 $116,722
Interest expense.................... 29,266 25,306 108,107 96,866 62,027 53,757 62,041
------- ------- -------- ------- ------- ------- -------
Net interest income (tax-equivalent) 24,548 21,879 92,119 83,694 72,612 64,409 54,681
Provision for loan losses........... 834 5,400 9,918 1,545 500 1,516 9,150
-------- ------- -------- -------- --------- --------- ---------
Net interest income after provision
for loan losses.................. 23,714 16,479 82,201 82,149 72,112 62,893 45,531
Non-interest income................. 9,513 8,772 39,979 31,976 26,699 24,161 13,876
Net securities gains (losses)....... 71 5,070 5,507 (2,729) 571 2,951 3,768
Non-interest expense................ 23,137 21,883 91,781 83,115 79,286 75,751 57,746
-------- -------- ------- --------- ------- -------- --------
Income before taxes and cumulative
effect of change in accounting
principle........................ 10,161 8,438 35,906 28,281 20,096 14,254 5,429
Income tax expense (tax-equivalent). 3,646 3,133 12,886 10,256 7,566 5,390 1,210
Cumulative effect of change in
accounting for purchased mortgage
servicing rights................. -- -- -- -- -- 733 --
------- ------- ---------- ---------- ----------- -------- ---------
Net income.......................... $ 6,515 $ 5,305 $23,020 $ 18,025 $ 12,530 $ 8,131 $ 4,219
======= ======= ======= ======== ======== ======== ========
CONSOLIDATED PER SHARE AMOUNTS (2):
Net income before cumulative
effect of change in accounting
principle..................... $ .70 $ .58 $2.50 $2.00 $1.54 $1.15 $ .56
Cumulative effect of change in
accounting principle.......... -- -- -- -- -- .10 --
------ ------ ------- ------ ------ ----- ------
Net income - primary............. $ .70 $ .58 $2.50 $2.00 $1.54 $1.05 $ .56
Net income - fully diluted....... .70 .58 2.48 2.00 1.54 1.05 .55
------ ------ ----- ----- ----- ------ -----
Cash dividends paid.............. $ .20 $ .15 $ .69 $ .51 $ .36 $ .25 $ .17
====== ====== ===== ===== ===== ===== =====
Tax-equivalent adjustment(1)........ $231 $189 $832 $754 $417 $317 $353
==== ==== ==== ==== ==== ==== ====
CONSOLIDATED BALANCE SHEET DATA
AT PERIOD END:
Total assets........................$2,945,641 $2,663,536 $2,798,839 $2,562,961 $2,283,762 $1,843,968 $1,633,963
Total stockholders' equity.......... 198,749 181,311 197,181 184,408 150,322 133,945 116,217
Return on average assets............ .93% .84% .86% .75% .66% .48% .27%
Return on average equity............ 13.16 11.81 12.24 10.77 9.16 6.71 3.71
Stockholders' equity to assets...... 6.75 6.81 7.05 7.20 6.58 7.26 7.11
Average equity to average assets.... 7.04 7.08 7.02 7.00 7.21 7.10 7.25
Dividend payout ratio............... 28.61 25.92 27.74 25.78 23.53 23.93 31.29
- ------------------
(1) Tax advantaged income has been adjusted to a tax-equivalent basis using the
combined statutory federal and state income tax rate in effect of 39.55% in
1997, 1996, 1995 and 1994, 38.62% in 1993 and 34.50% in 1992.
(2) The per share amounts for all periods presented have been given
retroactive treatment for the May 9, 1997 5% stock dividend.
20
FIRST CITIZENS FINANCIAL CORPORATION
SELECTED HISTORICAL FINANCIAL INFORMATION
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
--------------------- --------------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- -------- ---------- ------------ ------------ ----------- ------------
(Dollars in thousands, except per share data)
CONSOLIDATED SUMMARY OF OPERATIONS:
Interest income (tax-equivalent).... $ 12,904 $ 11,407 $ 48,085 $ 43,463 $ 37,339 $ 38,248 $ 41,202
Interest expense.................... 7,649 6,997 29,170 25,740 19,854 20,921 26,618
------ -------- -------- -------- -------- -------- --------
Net interest income (tax-equivalent) 5,255 4,410 18,915 17,723 17,485 17,327 14,584
Provision (recovery) for loan losses -- 148 94 (28) (635) 1,329 352
------ -------- -------- -------- -------- -------- --------
Net interest income after provision
for loan losses.................. 5,255 4,262 18,821 17,751 18,120 15,998 14,232
Non-interest income................. 652 1,347 3,469 2,597 2,423 3,936 4,448
Net securities gains................ -- 4 49 46 124 -- 105
Non-interest expense................ 3,580 3,984 17,557(1) 14,301 15,335 14,092 13,982
------ -------- -------- -------- -------- -------- --------
Income before taxes and cumulative
effect of change in accounting
principle........................ 2,327 1,629 4,782 6,093 5,332 5,842 4,803
Income tax expense (tax-equivalent). 912 551 1,614 1,986 1,697 1,473 1,914
Cumulative effect of change in
accounting for income tax........ -- -- -- -- -- 1,510 --
-------- -------- -------- -------- -------- -------- --------
Net income.......................... $ 1,415 $ 1,078 $ 3,168 $ 4,107 $ 3,635 $ 5,879 $ 2,889
======== ======== ======== ======== ======== ======== ========
CONSOLIDATED PER SHARE AMOUNTS:
Net income before cumulative
effect of change in accounting
principle.................... $ .44 $ .34 $ .99 $ 1.29 $ 1.17 $ 1.43 $ 1.02
Cumulative effect of change in
accounting for income tax...... -- -- -- -- -- .50 --
-------- -------- -------- -------- -------- -------- --------
Net income - primary............. $ .44 $ .34 $ .99 $ 1.29 $ 1.17 $ 1.93 $ 1.02
======== ======== ======== ======== ======== ======== ========
Net income-fully diluted......... $ .42 $ .34 $ .99 $ 1.29 $ 1.17 $ 1.93 $ 1.02
======== ======== ======== ======== ======== ======== ========
Cash dividends paid.............. -- -- -- -- -- -- --
Tax-equivalent adjustment........... -- -- -- -- -- -- --
CONSOLIDATED BALANCE SHEET DATA
AT PERIOD END:
Total assets........................ $693,803 $624,118 $687,196 $607,429 $558,288 $522,199 $541,297
Total stockholders' equity.......... 42,368 39,192 41,617 38,641 34,036 30,970 24,457
Return on average assets............ .83% .71% .49% .71% .68% 1.09% .53%
Return on average equity............ 13.62 11.10 7.95 11.37 11.21 20.88 12.67
Stockholders' equity to assets...... 6.11 6.28 6.06 6.36 6.10 5.93 4.52
Average equity to average assets.... 6.08 6.36 6.19 6.24 6.04 5.23 4.19
Dividend payout ratio............... N/A N/A N/A N/A N/A N/A N/A
- -----------------------
(1) Includes the SAIF special assessment of $3,029,000 paid in the third quarter
of 1996.
21
PRO FORMA COMBINED SELECTED HISTORICAL
FINANCIAL INFORMATION
The following tables set forth certain selected condensed financial
information for Provident and First Citizens on an unaudited pro forma combined
basis as if the Merger had become effective as of the dates indicated in the
case of the balance sheet information presented, and as if the Merger had become
effective at the beginning of the periods indicated, in the case of the income
statement information presented. The pro forma information in the tables assumes
that the Merger is accounted for using the pooling-of-interests method of
accounting. See "THE MERGER -- Anticipated Accounting Treatment." These tables
should be read in conjunction with, and are qualified in their entirety by, the
historical financial statements, including the notes thereto, of Provident and
First Citizens incorporated by reference herein and the more detailed pro forma
financial information, including the notes thereto, which include certain pro
forma assumptions not included herein, appearing elsewhere in this Joint Proxy
Statement/Prospectus. Certain First Citizens financial information has been
reclassified to conform with Provident financial information. See "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE" and "PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS."
The pro forma financial information set forth in the following tables
does not reflect the expected cost savings and revenue enhancement opportunities
that could result from the Merger or any other items of income or expense which
may result from the Merger, except as set forth in Note 7 to the "PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS". The unaudited pro forma combined
selected financial information is presented for informational purposes only and
is not necessarily indicative of the combined financial position or results of
operations that would have occurred if the Merger had been consummated on the
dates indicated, in the case of balance sheet information, or at the beginning
of the periods indicated, in the case of income statement information, or which
may be obtained in the future.
22
PROVIDENT BANKSHARES CORPORATION AND
FIRST CITIZENS FINANCIAL CORPORATION
PRO FORMA COMBINED SELECTED HISTORICAL FINANCIAL INFORMATION
(UNAUDITED)
THREE MONTHS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
----------------------------- ----------------------------------------------
1997 1996 1996 1995 1994
------------- ------------- ------------- ------------ ---------------
(In thousands, except ratios and per share amounts)
CONSOLIDATED SUMMARY OF OPERATIONS:
Interest income............................ $ 66,487 $ 58,403 $ 247,479 $ 223,269 $ 171,561
Interest expense........................... 36,915 32,303 137,277 122,606 81,881
---------- ---------- ---------- ---------- ----------
Net interest income........................ 29,572 26,100 110,202 100,663 89,680
Provision for loan losses.................. 834 5,548 10,012 1,517 (135)
Non-interest income........................ 10,165 10,119 43,448 34,573 29,122
Net security gains (losses)................ 71 5,074 5,556 (2,683) 695
Other real estate expense.................. (113) 204 (316) 99 1,810
Non-interest expense....................... 26,830 25,663 109,654 97,317 92,811
---------- ---------- ---------- ---------- ----------
Income before income taxes................. 12,257 9,878 39,856 33,620 25,011
Income tax expense......................... 4,327 3,495 13,668 11,488 8,846
---------- ---------- ---------- ---------- ----------
Net income................................. $ 7,930 $ 6,383 $ 26,188 $ 22,132 $ 16,165
========== ========== ========== ========== ==========
Weighted average common shares
outstanding(2):
Primary.............................. 11,805,462 11,583,945 11,674,076 11,463,462 10,512,969
Fully diluted......................... 11,873,809 11,602,331 11,717,876 11,463,462 10,512,969
Common shares outstanding at
period end(2)............................ 10,847,030 10,031,060 10,729,199 9,912,907 9,455,720
CONSOLIDATED PER SHARE DATA (3):
Earnings per share:
Primary............................... $ .67 $ .55 $ 2.24 $ 1.93 $ 1.54
Fully diluted......................... .67 .55 2.23 1.93 1.54
Cash dividends(1)(3)....................... .20 .15 .69 .51 .36
Stated book value at period end............ 21.58 21.98 22.26 22.50 19.50
Tangible book value at period end.......... 21.54 21.93 22.22 22.44 19.41
CONSOLIDATED BALANCE SHEET DATA AT
PERIOD END:
Securities available-for-sale.............. $1,056,448 $1,057,417 $ 968,154 $1,095,269 $ 430,066
Securities held-to-maturity................ 87,618 74,313 41,029 73,503 519,641
Loans, net of unearned income and fees..... 2,305,418 1,874,506 2,242,968 1,752,851 1,707,389
Allowance for loan losses.................. 34,841 28,749 31,759 28,922 28,535
Total assets............................... 3,638,095 3,287,654 3,486,035 3,170,390 2,842,050
Deposits................................... 2,449,376 2,147,311 2,305,122 2,056,436 1,905,584
Short-term borrowings...................... 576,576 500,637 578,217 517,641 479,250
Long-term debt............................. 336,794 330,502 331,017 343,005 247,490
Stockholders' equity....................... 232,466 220,503 238,798 223,049 184,358
CONSOLIDATED AVERAGE BALANCE SHEET DATA:
Securities................................. 1,119,076 1,140,949 1,099,745 952,394 623,255
Loans, net of unearned income & fees....... 2,252,737 1,824,887 2,029,020 1,839,248 1,613,751
Total assets............................... 3,546,002 3,164,976 3,321,824 2,968,168 2,433,429
Deposits................................... 2,354,077 2,103,146 2,198,207 1,972,943 1,759,882
Total borrowings........................... 912,213 809,018 861,524 759,694 475,759
Stockholders' equity....................... 242,946 219,731 227,843 203,467 169,231
- -----------------------------------
(1) Represents cash dividends declared on Provident Common Stock.
(2) Assumes an exchange ratio of .7665.
(3) The pro forma Combined Selected Historical Financial Information per
share data includes the effect of Provident's 5% stock dividend on
May 9, 1997. Per share amounts for all periods presented have been
given retroactive treatment.
23
COMPARATIVE PER SHARE DATA
(UNAUDITED)
THREE MONTHS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
--------------------------- ----------------------------------------------
1997 1996 1996 1995 1994
------------ ----------- ----------- ------------- ---------------
(In thousands, except ratios and per share amounts)
PRIMARY NET INCOME PER SHARE (1):
Provident(4)........................ $ .70 $ .58 $ 2.50 $ 2.00 $ 1.54
First Citizens...................... .44 .34 .99 1.29 1.17
Provident pro forma................. .67 .55 2.24 1.93 1.54
First Citizens pro forma equivalent. .51 .42 1.72 1.48 1.18
FULLY-DILUTED NET INCOME PER SHARE(1):
Provident(4)........................ $ .70 $ .58 $ 2.48 $ 2.00 $ 1.54
First Citizens...................... .42 .34 .99 1.29 1.17
Provident pro forma................. .67 .55 2.23 1.93 1.54
First Citizens pro forma equivalent. .51 .42 1.71 1.48 1.18
CASH DIVIDENDS DECLARED PER SHARE(2):
Provident(4)........................ .20 .15 .69 .51 .36
First Citizens...................... -- -- -- -- --
Provident pro forma................. .20 .15 .69 .51 .36
First Citizens pro forma equivalent. .15 .11 .53 .39 .28
BOOK VALUE PER SHARE AT
PERIOD END(3):
Stated:
Provident........................ 23.14 22.62 23.26 23.35 19.64
First Citizens................... 14.39 13.45 14.17 14.69 14.49
Provident pro forma.............. 21.58 21.98 22.26 22.50 19.50
First Citizens pro forma
equivalent..................... 16.54 16.85 17.06 17.25 14.94
Tangible:
Provident........................ 23.09 22.55 23.21 23.27 19.53
First Citizens................... 14.39 13.45 14.17 14.69 14.49
Provident pro forma.............. 21.54 21.93 22.22 22.44 19.41
First Citizens pro forma
equivalent..................... $16.51 $16.81 $17.03 $17.20 $14.88
- -----------------------
(1) Provident pro forma net income per share data is calculated using
historical income information for Provident and First Citizens divided by
the average pro forma shares of the combined entity. The average pro forma
shares of the combined entity have been calculated by combining Provident's
historical average shares with the historical average shares of First
Citizens as adjusted by the Exchange Ratio of .7665. The First Citizens pro
forma equivalent income per share amounts are computed by multiplying the
Provident pro forma amounts by the Exchange Ratio of .7665 (see "THE MERGER
-- Exchange Ratio").
(2) Provident pro forma cash dividends per share represent historical cash
dividends declared by Provident and assumes no changes in cash dividends
declared per share. First Citizens pro forma equivalent cash dividends per
share represent such amounts multiplied by the Exchange Ratio of .7665 (see
"THE MERGER -- Exchange Ratio").
(3) Provident pro forma stated and tangible book value per share amounts are
based on the historical total stockholders' equity of the combined entity
divided by the total pro forma common shares of the combined entity based
on the Exchange Ratio of .7665. The First Citizens pro forma equivalent
stated book value and tangible book value per share amounts are computed by
multiplying the Provident pro forma amounts by the Exchange Ratio of .7665.
(4) The Provident per share amounts for all periods presented has been given
retroactive treatment for the May 9, 1997 5% stock dividend.
24
PARTIES TO THE MERGER
PROVIDENT
Provident is a regional bank holding company organized under the laws
of the State of Maryland in 1987 and registered under the Bank Holding Company
Act of 1956, as amended ("BHC Act"). Provident's direct subsidiary, Provident
Bank of Maryland ("Provident Bank"), operates 56 banking facilities throughout
the Baltimore metropolitan area. Provident Bank is a Maryland chartered
commercial bank which has operated since 1886. At December 31, 1996, Provident
Bank was the second largest commercial bank chartered under the laws of the
State of Maryland in terms of assets.
Provident's principal activity consists of managing, controlling and
providing services and capital funds to its direct and indirect subsidiaries.
Provident Bank offers consumer and commercial banking services throughout its
market area and offers related financial services through its wholly owned
subsidiaries including mortgages through Provident Mortgage Corp., mutual funds
and annuities through Provident Investment Center Inc., and credit-related
insurance products to Provident Bank's loan customers through BankSure Insurance
Corporation. The deposits of Provident Bank are insured by the Federal Deposit
Insurance Corporation ("FDIC") in accordance with applicable regulations.
At March 31, 1997, Provident had assets of $2.9 billion, deposits of
$1.9 billion and stockholders' equity of $199 million. The principal executive
offices of Provident are located at 114 East Lexington Street, Baltimore,
Maryland 21202 and its telephone number is (410) 281-7000.
For more information about Provident, reference is made to the 1996
Provident Form 10-K which is incorporated herein by reference. See "AVAILABLE
INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
FIRST CITIZENS
First Citizens is a savings and loan holding company organized under
the laws of Delaware in 1989. Its primary subsidiary, Citizens Savings Bank,
F.S.B. ("Citizens Savings"), a federal savings bank, operates 15 banking offices
which serve Montgomery and Frederick Counties, in Maryland. Citizens Savings is
a consumer-oriented financial institution that emphasizes traditional savings
and loan operations, including single-family residential real estate lending,
consumer lending, corporate lending and retail deposit activities.
At March 31, 1997, First Citizens had total assets of $694 million,
deposits of $544 million and stockholders' equity of $42 million. The principal
executive offices of First Citizens are located at 22 Firstfield Road,
Gaithersburg, Maryland 20878 and its telephone number is (301) 527-2400.
For more information about First Citizens, reference is made to the
1996 First Citizens Form 10-K which is incorporated herein by reference. See
"AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
25
MEETING OF PROVIDENT STOCKHOLDERS
DATE, TIME AND PLACE; PURPOSE OF MEETING
This Joint Proxy Statement/Prospectus is being furnished to
stockholders of Provident in connection with the solicitation of proxies by the
Board of Directors of Provident (the "Provident Board") for use at the special
meeting of stockholders of Provident and at any adjournments or postponements
thereof (the "Provident Meeting") to be held at the offices of Provident, 114
East Lexington Street, Baltimore, Maryland 21202, on Wednesday, August 20, 1997
at 10:00 a.m. local time. At the Provident Meeting, the stockholders of
Provident will be asked to: (i) vote upon a proposal to approve and adopt the
Amended and Restated Agreement and Plan of Merger, amended and restated as of
July 14, 1997 (the "Merger Agreement") by and between Provident and First
Citizens and the consummation of the transactions contemplated thereby, which
are more fully described herein; and (ii) act upon such other matters as may
properly be brought before the Provident Meeting. A copy of the Merger Agreement
is attached as Annex A hereto.
THE PROVIDENT BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
HAS DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF,
PROVIDENT AND ITS STOCKHOLDERS. SEE "THE MERGER -- BACKGROUND OF THE MERGER" AND
"-- RECOMMENDATION OF THE PROVIDENT BOARD; PROVIDENT'S REASONS FOR THE MERGER."
THE PROVIDENT BOARD THEREFORE UNANIMOUSLY RECOMMENDS THAT PROVIDENT'S
STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
Record Date
The Provident Board has fixed July 14, 1997 as the record date (the
"Provident Record Date") for the determination of those Provident stockholders
entitled to notice of and to vote at the Provident Meeting. Only holders of
record of Provident Common Stock at the close of business on the Provident
Record Date will be entitled to notice of and to vote at the Provident Meeting.
As of the Provident Record Date, there were 9,052,418 shares of Provident Common
Stock outstanding, entitled to vote and held by approximately 2,682 holders of
record.
VOTING; REVOCATION OF PROXIES
Each holder of record of shares of Provident Common Stock on the
Provident Record Date is entitled to cast one vote per share on the proposal to
approve and adopt the Merger Agreement, and on any other matter properly
submitted for the vote of the Provident stockholders at the Provident Meeting.
The presence, either in person or by properly executed proxy, of the holders of
a majority of the outstanding shares of Provident Common Stock entitled to vote
at the Provident Meeting is necessary to constitute a quorum at the Provident
Meeting.
Provident intends to count shares of Provident Common Stock present in
person at the Provident Meeting but not voted, and shares of Provident Common
Stock for which it has received
26
proxies but with respect to which holders of shares have abstained on any
matter, as present at the Provident Meeting for purposes of determining the
presence or absence of a quorum for the transaction of business. Since the
approval and adoption of the Merger Agreement requires the affirmative vote of
the holders of two-thirds of the outstanding shares of Provident Common Stock
entitled to vote thereon, each such non-voting share and abstention will have
the effect of a vote AGAINST the approval and adoption of the Merger Agreement.
In addition, brokers who hold shares in street name for customers who are
beneficial owners of such shares are prohibited from giving a proxy to vote
shares held for such customers on the approval and adoption of the Merger
Agreement without specific instructions from such customers. Given that the
approval and adoption of the Merger Agreement requires the affirmative vote of
the holders of two-thirds of the outstanding shares of Provident Common Stock
entitled to vote thereon, the failures of any such customers to provide specific
instructions to his or her broker with respect to his or her shares of Provident
Common Stock (a "broker non-vote") will have the effect of a vote AGAINST the
approval and adoption of the Merger Agreement.
All shares of Provident Common Stock which are entitled to be voted and
are represented at the Provident Meeting by properly executed proxies received
prior to or at the Provident Meeting, and which are not revoked, will be voted
in accordance with the instructions indicated on such proxies. If no
instructions are indicated, such proxies will be voted: (i) FOR approval and
adoption of the Merger Agreement, and (ii) otherwise in the discretion of the
proxy holders as to any other matter which may come before the Provident
Meeting, including, among other things, a motion to adjourn or postpone the
Provident Meeting to another time and/or place, for the purpose of soliciting
additional proxies or otherwise; PROVIDED, HOWEVER, that no proxy which is voted
against the proposal to approve and adopt the Merger Agreement will be voted in
favor of any such adjournment or postponement.
If any other matters are properly presented for consideration at the
Provident Meeting, the persons named in the form of proxy enclosed herewith and
acting thereunder will have discretionary authority to vote on such matters in
accordance with their best judgment; PROVIDED, HOWEVER, that such discretionary
authority will only be exercised to the extent allowable under applicable
federal and state securities and corporation laws. Provident does not have any
knowledge of any matters to be presented at the Provident Meeting other than the
matters set forth above.
Any proxy given by a Provident stockholder pursuant to this
solicitation may be revoked by the person giving it at any time before it is
voted by (i) delivering to the Corporate Secretary of Provident, at or before
the taking of the vote at the Provident Meeting, a written notice of revocation
bearing a later date than the date of the proxy; (ii) duly executing a
later-dated proxy relating to the same shares and delivering it to the Corporate
Secretary of Provident before the taking of the vote at the Provident Meeting;
or (iii) attending the Provident Meeting and voting in person (although
attendance at the meeting will not in and of itself constitute revocation of the
proxy). Any written notice of revocation or subsequently executed proxy should
be sent so as to be delivered to Provident Bankshares Corporation, 114 East
Lexington Street, Baltimore, Maryland 21202, Attention: Corporate Secretary, or
hand delivered to Provident's Corporate Secretary at such address at or before
the taking of the vote at the Provident Meeting.
27
VOTE REQUIRED TO APPROVE THE MERGER; PRINCIPAL STOCKHOLDERS
The approval and adoption of the Merger Agreement by Provident
stockholders will require the affirmative vote of at least two-thirds of the
outstanding shares of Provident Common Stock entitled to vote. Such stockholder
approval is a condition to consummation of the Merger.
As of the Provident Record Date, directors and executive officers of
Provident and their affiliates may be deemed to be beneficial owners of 541,400
shares of Provident Common Stock, or approximately 6% of the shares of Provident
Common Stock outstanding as of the Provident Record Date. Such persons have
informed Provident that they intend to vote or direct the vote of all such
shares of Provident Common Stock FOR approval of the Merger Agreement. As of the
Provident Record Date, neither First Citizens and its subsidiaries, nor any of
the directors and executive officers of First Citizens, beneficially owned any
shares of Provident Common Stock, except that one executive officer of First
Citizens possesses shared investment power with respect to 1,050 shares of
Provident Common Stock.
SOLICITATION OF PROXIES
Provident will bear all expenses of this solicitation of proxies from
the holders of Provident Common Stock, except that the cost of preparing and
mailing this Joint Proxy Statement/Prospectus will be borne equally by First
Citizens and Provident. In addition to solicitation by use of the mails, proxies
may be solicited by directors, officers and employees of Provident in person or
by telephone, telegram or other means of communication. Such directors, officers
and employees will not be additionally compensated, but may be reimbursed for
reasonable out-of-pocket expenses in connection with such solicitation.
Provident has retained Corporate Investors Communications, Inc., a proxy
soliciting firm, to assist in such solicitation. The fee to be paid to such firm
is not expected to exceed $4,500, plus reasonable out-of-pocket costs and
expenses. In addition, Provident will make arrangements with brokerage firms and
other custodians, nominees and fiduciaries to send proxy materials to their
principals and will reimburse such parties for their expenses in doing so.
HOLDERS OF PROVIDENT COMMON STOCK ARE REQUESTED TO PROMPTLY COMPLETE,
SIGN AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY TO PROVIDENT IN
THE ENCLOSED POSTAGE-PAID PRE-ADDRESSED ENVELOPE.
MEETING OF FIRST CITIZENS STOCKHOLDERS
DATE, TIME AND PLACE; PURPOSE OF MEETING
This Joint Proxy Statement/Prospectus is being furnished to
stockholders of First Citizens in connection with the solicitation of proxies by
the Board of Directors of First Citizens (the "First Citizens Board") for use at
the annual meeting of stockholders of First Citizens and at any adjournments or
postponements thereof (the "First Citizens Meeting" and together with the
Provident Meeting, the "Meetings") to be held at the DoubleTree Hotel, 1750
Rockville Pike, Rockville,
28
Maryland on Wednesday, August 20, 1997 at 9:00 a.m. local time. At the First
Citizens Meeting, the stockholders of First Citizens will be asked to: (i) vote
on a proposal to approve and adopt the Merger Agreement and the consummation of
the transactions contemplated thereby, which are more fully described herein;
(ii) elect two directors of First Citizens for three-year terms and until their
successors shall have been elected and qualified, or if earlier, until the
proposed Merger transaction is consummated; and (iii) act upon such other
matters as may properly be brought before the First Citizens Meeting.
THE FIRST CITIZENS BOARD HAS APPROVED THE MERGER AGREEMENT AND HAS
DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, FIRST
CITIZENS AND ITS STOCKHOLDERS. SEE "THE MERGER -- BACKGROUND OF THE MERGER" AND
"-- RECOMMENDATION OF THE FIRST CITIZENS BOARD; FIRST CITIZENS' REASONS FOR THE
MERGER." THE FIRST CITIZENS BOARD THEREFORE UNANIMOUSLY RECOMMENDS THAT FIRST
CITIZENS' STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
Additional information with respect to the election of directors is set
forth in the section entitled "ELECTION OF FIRST CITIZENS DIRECTORS" contained
elsewhere in this Joint Proxy Statement/Prospectus.
RECORD DATE
The First Citizens Board has fixed July 14, 1997 as the record date
(the "First Citizens Record Date") for the determination of those First Citizens
stockholders entitled to notice of and to vote at the First Citizens Meeting.
Only holders of record of First Citizens Common Stock at the close of business
on the First Citizens Record Date will be entitled to notice of and to vote at
the First Citizens Meeting. As of the First Citizens Record Date, there were
2,901,433 shares of First Citizens Common Stock outstanding, entitled to vote
and held by approximately 848 holders of record.
VOTING; REVOCATION OF PROXIES
Each holder of record of shares of First Citizens Common Stock on the
First Citizens Record Date is entitled to cast one vote per share on the
proposal to approve and adopt the Merger Agreement and the other proposal
described herein, and on any other matter properly submitted for the vote of the
First Citizens stockholders at the First Citizens Meeting. The presence, either
in person or by properly executed proxy, of the holders of one-third of the
outstanding shares of First Citizens Common Stock entitled to vote at the First
Citizens Meeting is necessary to constitute a quorum at the First Citizens
Meeting.
First Citizens intends to count shares of First Citizens Common Stock
present in person at the First Citizens Meeting but not voting, and shares of
First Citizens Common Stock for which it has received proxies but with respect
to which holders of shares have abstained on any matter, as present at the First
Citizens Meeting for purposes of determining the presence or absence of a
29
quorum for the transaction of business. Since the approval and adoption of the
Merger Agreement requires the affirmative vote of a majority of the outstanding
shares of First Citizens Common Stock entitled to vote thereon, each such
non-voting share and abstention will have the same effect as a vote AGAINST the
approval and adoption of the Merger Agreement. In addition, brokers who hold
shares in street name for customers who are the beneficial owners of such shares
are prohibited from giving a proxy to vote shares held for such customers on the
approval and adoption of the Merger Agreement without specific instructions
from such customers. Given that the approval and adoption of the Merger
Agreement requires the affirmative vote of the holders of a majority of the
outstanding shares of First Citizens Common Stock entitled to vote thereon, any
"broker non-vote" with respect to such shares of First Citizens Common Stock
will have the same effect as a vote AGAINST the approval and adoption of the
Merger Agreement.
At the First Citizens Meeting, directors will be elected by a plurality
of the votes of the shares of First Citizens Common Stock represented at the
First Citizens Meeting and entitled to vote thereon. "Plurality" means that the
two nominees who receive the most votes at the First Citizens Meeting will be
elected as directors. Abstentions will not be counted as votes cast at the First
Citizens Meeting and therefore will have no effect on the outcome of the vote on
the election of directors. See "ELECTION OF FIRST CITIZENS DIRECTORS" included
elsewhere in this Joint Proxy Statement/Prospectus.
All shares of First Citizens Common Stock which are entitled to be
voted and are represented at the First Citizens Meeting by properly executed
proxies received prior to or at the First Citizens Meeting, and which are not
revoked, will be voted in accordance with the instructions indicated on such
proxies. If no instructions are indicated, such proxies will be voted: (i) FOR
approval and adoption of the Merger Agreement, (ii) FOR the election of the
First Citizens Board's two nominees for director, and (iii) otherwise in the
discretion of the proxy holders as to any other matter which may properly come
before the First Citizens Meeting, including, among other things, a motion to
adjourn or postpone the First Citizens Meeting to another time and/or place, for
the purpose of soliciting additional proxies or otherwise; PROVIDED, HOWEVER,
that no proxy which is voted against the proposal to approve and adopt the
Merger Agreement will be voted in favor of any such adjournment or postponement.
If any other matters are properly presented for consideration at the
First Citizens Meeting, the persons named in the form of proxy enclosed herewith
and acting thereunder will have discretionary authority to vote on such matters
in accordance with their best judgment; PROVIDED, HOWEVER, that such
discretionary authority will only be exercised to the extent allowable under
applicable federal and state securities and corporation laws. First Citizens
does not have any knowledge of any matters to be presented at the First Citizens
Meeting other than the matters set forth above.
Any proxy given by a First Citizens stockholder pursuant to this
solicitation may be revoked by the person giving it at any time before it is
voted by (i) delivering to the Corporate Secretary of First Citizens, at or
before the taking of the vote of the First Citizens Meeting, of a written notice
of revocation bearing a later date than the date of the proxy; (ii) duly
executing a later-dated proxy relating to the same shares and delivering it to
the Corporate Secretary of First Citizens before the
30
taking of the vote at the First Citizens Meeting; or (iii) attending the First
Citizens Meeting and voting in person (although attendance at the meeting will
not in and of itself constitute a revocation of the proxy). Any written notice
of revocation or subsequently executed proxy should be sent so as to be
delivered to First Citizens Financial Corporation, 22 Firstfield Road,
Gaithersburg, Maryland 20878, Attention: Corporate Secretary, or hand delivered
to First Citizens' Corporate Secretary at or before the taking of the vote at
the First Citizens Meeting.
VOTE REQUIRED TO APPROVE THE MERGER; PRINCIPAL STOCKHOLDERS
The approval and adoption of the Merger Agreement by First Citizens
stockholders will require the affirmative vote of at least a majority of the
outstanding shares of First Citizens Common Stock entitled to vote thereon. Such
stockholder approval is a condition to consummation of the Merger.
As of the First Citizens Record Date, directors and executive officers
of First Citizens and their affiliates beneficially owned 268,453 shares, or
approximately 9.25% of the outstanding shares, of First Citizens Common Stock
entitled to vote at the First Citizens Meeting. Such persons have informed First
Citizens that they intend to vote or direct the vote of all such shares of First
Citizens Common Stock FOR approval and adoption of the Merger Agreement and the
transactions contemplated thereby. As of the First Citizens Record Date, neither
Provident and its subsidiaries, nor any of the directors and executive officers
of Provident, beneficially owned any outstanding shares of First Citizens Common
Stock.
Information with respect to beneficial ownership of First Citizens
Common Stock by entities owning more than 5% of such stock and more detailed
information with respect to beneficial ownership of First Citizens Common Stock
by directors and executive officers of First Citizens is set forth under the
section entitled "ELECTION OF FIRST CITIZENS DIRECTORS -- Stock Owned by
Management" and "-- Principal Holders of Voting Securities" which is included
elsewhere in this Joint Proxy Statement/Prospectus.
SOLICITATION OF PROXIES
First Citizens will bear all expenses of this solicitation of proxies
from the holders of First Citizens Common Stock, except that the cost of
preparing and mailing this Joint Proxy Statement/Prospectus will be borne
equally by First Citizens and Provident. In addition to solicitation by use of
the mails, proxies may be solicited by directors, officers and employees of
First Citizens in person or by telephone, telegram or other means of
communication. Such directors, officers and employees will not be additionally
compensated, but may be reimbursed for reasonable out-of-pocket expenses in
connection with such solicitation. First Citizens has retained McCormick &
Pryor, a proxy soliciting firm, to assist in such solicitation. The fee to be
paid to such firm is not expected to exceed $8,500, plus reasonable
out-of-pocket costs and expenses. In addition, First Citizens will make
arrangements with brokerage firms and other custodians, nominees and fiduciaries
to send proxy materials to their principals and will reimburse such parties for
their expenses in doing so.
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HOLDERS OF FIRST CITIZENS COMMON STOCK ARE REQUESTED TO PROMPTLY
COMPLETE, SIGN AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY TO
FIRST CITIZENS IN THE ENCLOSED POSTAGE-PAID PRE-ADDRESSED ENVELOPE.
FIRST CITIZENS STOCKHOLDERS SHOULD NOT FORWARD ANY STOCK CERTIFICATES
WITH THEIR PROXY CARDS.
THE MERGER
THE FOLLOWING INFORMATION CONCERNING THE MERGER, INSOFAR AS IT RELATES
TO MATTERS CONTAINED IN THE MERGER AGREEMENT, DESCRIBES THE MATERIAL ASPECTS OF
THE MERGER BUT DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT WHICH IS INCORPORATED HEREIN
BY REFERENCE AND ATTACHED HERETO AS ANNEX A. PROVIDENT AND FIRST CITIZENS
STOCKHOLDERS ARE URGED TO READ CAREFULLY THE MERGER AGREEMENT.
GENERAL
Pursuant to the terms of the Merger Agreement, subject to the
satisfaction or waiver (where permissible) of certain conditions, including,
among other things, the receipt of all necessary regulatory approvals and the
approval of the Merger Agreement by the requisite vote of the stockholders of
First Citizens and Provident, First Citizens will be merged with and into
Provident and First Citizens' stockholders will become stockholders of
Provident. Provident will be the surviving corporation in the Merger, and will
continue its corporate existence under the laws of the State of Maryland. Upon
consummation of the Merger, the separate corporate existence of First Citizens
will terminate.
Immediately after the consummation of the Merger, Citizens Savings
Bank, F.S.B. ("Citizens Savings"), a federally chartered savings bank and wholly
owned subsidiary of First Citizens will merge with and into Provident Bank of
Maryland ("Provident Bank"), a Maryland-chartered commercial bank and a wholly
owned subsidiary of Provident. See "CERTAIN RELATED TRANSACTIONS -- Bank Merger
Agreement."
EXCHANGE RATIO
At the Effective Time, each issued and outstanding share of First
Citizens Common Stock, except for shares held directly or indirectly by First
Citizens or Provident (other than shares held by Provident or First Citizens in
a fiduciary capacity ("Trust Account Shares") or in respect of a debt previously
contracted ("DPC Shares")), will be converted into and exchangeable for .7665
shares of Provident Common Stock. The Merger Agreement originally provided for
an exchange ratio of .73 shares of Provident Common Stock for each share of
First Citizens Common Stock; this exchange ratio was adjusted pursuant to the
Merger Agreement as a result of the 5% stock dividend declared by the Board of
Directors of Provident to Provident's stockholders of record as of April 28,
1997 (the "Provident 5% Stock Dividend"). As used herein, "Exchange Ratio" means
.73, the
32
original exchange ratio, or .7665, the original exchange ratio as adjusted for
the Provident 5% Stock Dividend pursuant to the Merger Agreement, as the context
requires. If the Average Closing Price (as defined below) is less than $33.929,
First Citizens may terminate the Merger Agreement unless Provident increases the
Exchange Ratio such that the shares of Provident Common Stock issued in exchange
for each share of First Citizens Common Stock have a value (valued at the
Average Closing Price) of $26.006. The Average Closing Price is the average
closing sales price per share of the Provident Common Stock on The Nasdaq Stock
Market ("Nasdaq") for the 10 consecutive trading days (the "Valuation Period")
ending on the date on which the last required regulatory approval for the Merger
is obtained, without regard to any requisite waiting period in respect thereof.
Each share of Provident Common Stock issued in the Merger will include the
corresponding number of rights attached thereto pursuant to the Provident Rights
Agreement (as defined below) (see "DESCRIPTION OF PROVIDENT CAPITAL STOCK --
Rights Plan").
If the Average Closing Price is less than $33.929 and, in response to
an election by First Citizens to terminate the Merger Agreement, Provident
elects to increase the Exchange Ratio, the Exchange Ratio will be equal to the
quotient obtained by dividing (i) $26.006 by (ii) the Average Closing Price. See
"-- Waiver and Amendment; Termination; Termination Fee" below. If the Merger is
approved by the holders of First Citizens Common Stock, the First Citizens Board
may elect not to terminate the Merger Agreement and to consummate the Merger
without resoliciting First Citizens' stockholders if the Average Closing Price
is less than $33.929, even though, as a result of the application of the
Exchange Ratio, the value of the shares of Provident Common Stock (based on the
Average Closing Price) issued in exchange for each share of First Citizens
Common Stock would be less than $26.006. In such a situation, in considering
whether to terminate the Merger Agreement or to consummate the Merger without
the resolicitation of First Citizens' stockholders, the First Citizens Board
will take into account, consistent with its fiduciary duties, all relevant facts
and circumstances that exist at such time, including, without limitation,
information concerning the business, financial condition, results of operations
and prospects of Provident (including the recent performance of Provident Common
Stock, the historical financial data of Provident, customary statistical
measurements of Provident's financial performance and the future prospects for
Provident Common Stock following the Merger), and the advice of its financial
advisor and legal counsel. First Citizens' stockholders will have no vote in the
decision of the First Citizens Board to either terminate the Merger Agreement or
elect to consummate the Merger in the event that the Average Closing Price is
less than $33.929.
Provident is under no obligation to increase the Exchange Ratio, and
there can be no assurance that Provident would elect to increase the Exchange
Ratio if the First Citizens Board were to exercise its right to terminate the
Merger Agreement as set forth above. Any such decision would be made by the
Provident Board in light of all relevant facts and circumstances existing at
such time, including, without limitation, the advice of its financial advisor
and legal counsel. If Provident elects to increase the Exchange Ratio as set
forth in the Merger Agreement and as illustrated above, it must give First
Citizens prompt notice of that election and such increased Exchange Ratio, in
which case no termination of the Merger Agreement would occur as a result of the
Average Closing Price being less than $33.929.
33
Although Provident has the right in limited circumstances described
above to increase the Exchange Ratio, under no circumstances may the Exchange
Ratio be decreased. The Exchange Ratio was arrived at through arm's-length
negotiations between First Citizens and Provident. The Merger Agreement provides
that, if Provident effects a reclassification, recapitalization, split-up,
combination, exchange of shares or readjustment of the Provident Common Stock or
declares a stock dividend on such stock, an appropriate adjustment to the
Exchange Ratio will be made.
It is expected that the market price of Provident Common Stock will
fluctuate between the date of this Joint Proxy Statement/Prospectus and the date
on which the Merger is consummated and thereafter. Because the number of shares
of Provident Common Stock to be received by First Citizens' stockholders in the
Merger is fixed (subject to possible increase in the limited circumstances
described above) and because the market price of the Provident Common Stock is
subject to fluctuation, the value of the shares of Provident Common Stock that
holders of First Citizens Common Stock would receive in the Merger may increase
or decrease prior to the Merger. For further information concerning the market
prices of Provident and First Citizens Common Stock, see "MARKET PRICES AND
DIVIDEND INFORMATION." No assurance can be given concerning the market price of
Provident Common Stock before or after the Effective Time.
No fractional shares of Provident Common Stock will be issued in
connection with the Merger. In lieu of the issuance of fractional shares,
Provident will make a cash payment to each First Citizens stockholder who
otherwise would be entitled to receive a fractional share equal to the product
of (i) the fractional interest which a First Citizens stockholder would
otherwise receive and (ii) the average of the closing sale prices of Provident
Common Stock on the Nasdaq for the five consecutive trading days immediately
preceding the Effective Time.
Upon consummation of the Merger, any shares of First Citizens Common
Stock that were owned by First Citizens as treasury stock or that were held
directly or indirectly by Provident other than Trust Account Shares and DPC
Shares will be canceled and retired and no payment will be made with respect
thereto.
In addition, at the Effective Time, each outstanding and unexercised
option to purchase shares of First Citizens Common Stock (a "First Citizens
Option") will be assumed by Provident. After the Effective Time, each First
Citizens Option will be deemed to constitute an option to acquire, on the same
terms and conditions as were applicable under such First Citizens Option
immediately prior to the Effective Time, the number of shares of Provident
Common Stock equal to the product, rounded down to the nearest share, of the
number of shares of First Citizens Common Stock subject to the First Citizens
Option and the Exchange Ratio, at a price per share equal to the exercise price
per share of First Citizens Common Stock otherwise purchasable pursuant to such
First Citizens Option divided by the Exchange Ratio, rounded up to the nearest
cent.
BACKGROUND OF THE MERGER
Citizens Savings converted from the mutual to the stock form of
organization in 1986, and in 1989 First Citizens was organized to become the
holding company for Citizens Savings. The period since the Citizens Savings
conversion has been one of continuous and significant change in
34
the financial services industry, marked by steadily increasing competition and
widespread consolidation. In light of the First Citizens Board's belief that
continued consolidation and competition in the financial services industry would
make it increasingly difficult for smaller thrifts or thrift holding companies
such as First Citizens to maintain their competitive position and market share,
the First Citizens Board has from time to time considered and analyzed First
Citizens' strategic alternatives, including prospects for First Citizens
continuing as an independent entity and possible business combination
transactions with financial institutions of varying sizes and the effects of
such transactions on First Citizens and its stockholders, employees and the
communities it serves.
In April 1996, the First Citizens Board formed a Strategic Alternatives
Committee (the "Committee") to review First Citizens' strategic alternatives and
to make recommendations to the First Citizens Board. The members of the
Committee (all of whom are First Citizens directors) were Stanley Betts,
H. Deets Warfield, Jr., Melvin O. Wright and Herbert W. Jorgensen (ex officio
and non-voting member). Also during April 1996, First Citizens retained Endicott
Financial Advisors, L.L.C. ("Endicott") to serve as its financial advisor in
connection with its review of its strategic alternatives and potential merger
and acquisition transactions.
The Committee met numerous times throughout 1996 to discuss various
issues and topics affecting both First Citizens specifically and the financial
services industry in general. Such discussions included: (1) an ongoing review
of First Citizens' strategic alternatives; (2) a review of potential
acquisition, merger and sale candidates; (3) a review of the financial
institutions merger and acquisition market and recent regional transactions
which could impact First Citizens' ability to compete and First Citizens'
acquisition value; and (4) detailed reviews of certain potential merger
candidates and analyses of the pro forma impact of a business combination with
such candidates on First Citizens' stockholders.
In January 1997, the Committee again met to further discuss analyses of
selected potential merger candidates, to review the general merger and
acquisition environment and to further discuss strategic alternatives. Based on
these discussions, the Committee recommended that the First Citizens Board
authorize, and the First Citizens Board authorized, Endicott to contact
representatives of certain selected financial institutions to discuss their
interest in engaging in a potential business combination transaction with First
Citizens. These institutions were selected by the Committee based on their
suitability in light of certain characteristics including size, location,
performance, operating strategy, share value, pro forma impact, and the
possibility that a merger of First Citizens with any such institution could
result in the acquisition of the combined entity by another larger financial
institution.
In February 1997, Endicott approached ten financial institutions
concerning their interest in a business combination transaction with First
Citizens. Of these, eight institutions signed confidentiality agreements and
were given materials regarding First Citizens. Of this group, two institutions
responded with informal, preliminary indications of interest regarding a
potential combination with First Citizens, one of which was Provident. Both
preliminary indications of interest contemplated a stock-for-stock merger and
contemplated a preliminary range of value per share to be paid to First Citizens
stockholders. Provident's preliminary indication of interest contemplated an
implied value of $29.00 per share at the high end of its indicated range of per
share consideration, while the other
35
financial institution's preliminary indication of interest contemplated an
implied value of $28.00 per share at the high end of its indicated range of per
share consideration. Provident indicated that it expected to be able to offer a
per share consideration to First Citizens stockholders at the high end of its
preliminary range.
At a meeting of the Committee on February 28, 1997, Endicott reviewed
in detail with the Committee the two preliminary indications of interest and a
comparison of the two potential transactions, potential alternative acquisition
transactions and the alternative of remaining independent. Endicott reviewed
financial, operational and stock market capitalization data with respect to each
of the two institutions, as well as certain pro forma financial data giving
effect to a business combination with each of the two institutions. The
Committee discussed at length the various issues raised by Endicott's
presentation, as well as issues relating to the relative merits of a transaction
with each of the two institutions. Endicott also reviewed in general terms a
number of matters relating to the Committee's analyses in its previous meetings
of the strategic alternatives available to First Citizens, including: (i) the
general status of the financial services industry, including those entities
operating in First Citizens' region; (ii) valuation analyses of First Citizens
on a stand-alone basis; (iii) historic and current bank and thrift stock price
performance and the terms of recent financial institution mergers; (iv)
consolidation trends in the financial services industry generally and in
Maryland specifically; (v) the outlook for increasing the potential value of
First Citizens Common Stock and the lack of liquidity and dividends for the
shares of First Citizens Common Stock; (vi) prospects for First Citizens
continuing as an independent entity, including its prospects of acquiring
smaller institutions in the region or expanding its current business to further
increase size and earnings as an independent entity; and (vii) the results of
preliminary discussions with other potential merger partners. The discussion
also focused on the effects that a business combination transaction would have
on First Citizens' customers and employees and the communities served by First
Citizens and on the timing of a potential acquisition transaction.
At the close of the February 28 meeting, the Committee concluded that
further exploration and discussion of a business combination transaction
involving First Citizens and Provident was in the best interests of First
Citizens and its stockholders, based principally upon the fact that Provident's
preliminary indication of interest contemplated a range of value for per share
consideration to First Citizens stockholders which was higher than the range
contemplated by the other financial institution's preliminary indication of
interest, and that Provident had indicated that it expected to be able to offer
a per share consideration at the high end of its preliminary range. At the close
of the meeting, the Committee requested that Endicott continue its discussions
with Provident to determine if an acceptable transaction structure could be
agreed upon in an expedited manner.
Following the February 28 meeting and over the course of the next
several days, representatives of Endicott continued confidential discussions
with representatives of Provident to determine if an agreeable structure could
be negotiated to effect an acquisition of First Citizens by Provident.
On March 5, 1997, Endicott again met with the Committee to review the
status of Endicott's discussions with Provident. Provident had expressed its
interest in a stock-for-stock merger transaction having an indicated value to
First Citizens' stockholders of $30.11 per share based on a fixed exchange ratio
of .73 and the then-current market price of Provident Common Stock. The
36
Committee directed Endicott to continue its discussions with Provident with a
focus on (1) negotiating downside price protection, (2) clarifying certain
operating strategies for the combined company, (3) coordinating due diligence
investigations of each company by the other, and (4) negotiating a definitive
Merger Agreement with Provident.
Over the next several days, First Citizens' management and
representatives of Endicott held discussions and meetings with Provident's
management and representatives of Keefe, Bruyette & Woods, Inc. ("KBW"),
financial advisor to Provident, concerning the proposed transaction and the
terms of a definitive Merger Agreement, and representatives of each party and
their respective counsel conducted on-site due diligence at the offices of the
other party.
The Committee met again on March 10, 1997 to discuss the outcome of
these meetings and discussions, the due diligence review and the terms of the
proposed Merger Agreement and related agreements, including the Stock Option
Agreement. The members of the Committee reached a unanimous decision to
recommend to the First Citizens Board that the proposed merger with Provident
was in the best interests of the stockholders of First Citizens.
On March 10, 1997, the First Citizens Board met immediately following
the meeting of the Committee. Presentations were made by both Endicott and
Skadden, Arps, Slate, Meagher & Flom LLP, legal counsel to First Citizens.
Members of First Citizens' senior management, together with its legal and
financial advisors, reviewed the background of the proposed transaction, the
potential benefits of the transaction, a summary of the due diligence
investigation of Provident and financial and valuation analyses of the proposed
transaction. Endicott reviewed the financial analyses performed by it in
connection with the preparation of its fairness opinion (See, "--Opinion of
First Citizens Financial Advisor" below). Counsel reviewed the terms of the
proposed agreements and discussed the obligations of the First Citizens Board in
its consideration of the proposed merger with Provident.
Following review by the First Citizens Board of the foregoing matters
and the delivery by Endicott of its oral opinion that, as of such date, the
Exchange Ratio was fair to the holders of First Citizens Common Stock from a
financial point of view, the First Citizens Board unanimously approved the
Merger Agreement and related agreements and the Merger.
On March 10, 1997, the Provident Board considered and approved, by
unanimous vote, the Merger, the Merger Agreement, the Stock Option Agreement and
the related transactions. Presentations were made by both KBW and Muldoon,
Murphy & Faucette, Provident's legal counsel. At the special meeting, members
of Provident's senior management, together with Provident's legal and financial
advisors, reviewed with the Provident Board, among other things, the background
of the proposed transaction, the potential benefits of the transaction,
including the strategic rationale for the transaction, a summary of senior
management's due diligence findings, financial and valuation analyses of the
transaction and the terms of the proposed agreements. KBW reviewed the financial
analyses performed by it in connection with the preparation of its fairness
opinion. (See, "-- Opinion of Provident's Financial Advisor"). In addition, KBW
delivered to the Provident Board its oral opinion to the effect that, as of such
date, the Exchange Ratio was fair to Provident's stockholders from a financial
point of view.
37
Following the meeting of the First Citizens and Provident Boards, First
Citizens and Provident entered into the Merger Agreement and the Stock Option
Agreement.
RECOMMENDATION OF THE FIRST CITIZENS BOARD; FIRST CITIZENS' REASONS FOR THE
MERGER
The First Citizens Board believes that the Merger is fair to, and in
the best interests of, First Citizens and its stockholders. ACCORDINGLY, THE
FIRST CITIZENS BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT THE HOLDERS OF FIRST CITIZENS COMMON STOCK VOTE FOR THE APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT AND THE CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED THEREBY. See "-- Background of the Merger" above and "-- Opinion of
First Citizens' Financial Advisor" below.
The terms of the Merger, including the Exchange Ratio, are the result
of arm's-length negotiations between representatives of First Citizens and
Provident. In reaching its decision to approve the Merger Agreement, the First
Citizens Board consulted with its legal advisors regarding the legal terms of
the transaction and the First Citizens Board's obligations in its consideration
of the proposed transaction, with its financial advisor regarding the financial
aspects of the proposed transaction and the fairness of the Exchange Ratio, and
with management of First Citizens, and, without assigning any relative or
specific weights, considered a number of factors, both from a short-term and
long-term perspective, including, without limitation, the following:
(i) the First Citizens Board's familiarity with and review of First
Citizens' business, financial condition, results of operations and
prospects, including, without limitation, its potential growth and
profitability and the business risks associated therewith;
(ii) the current and prospective environment in which First Citizens
operates, including national and local economic conditions, the
competitive environment for savings banks and other financial
institutions generally and the increasing consolidation in the
financial services industry and the competitive effects of such
increased consolidation on smaller financial institutions such as First
Citizens;
(iii) the rapid technological advances impacting the financial
services industry in recent years, the significant capital investment
necessary for First Citizens to keep pace with such technological
advances, the competitive advantage and increased efficiency gained by
financial institutions possessing sufficient resources to enable them
to make such capital investments and to realize such efficiencies and
the comparable competitive disadvantage to smaller institutions such as
First Citizens which generally do not possess the resources necessary
to invest in such technological advances;
(iv) information concerning the business, financial condition,
results of operations and prospects of Provident, including the recent
performance of Provident Common Stock, the historical financial data of
Provident, customary statistical measurements of Provident's financial
performance and the future prospects for Provident Common Stock
following the Merger;
38
(v) the value to be received by holders of First Citizens Common
Stock pursuant to the Merger Agreement in relation to the historical
trading prices of First Citizens Common Stock;
(vi) the information presented by Endicott to the First Citizens
Board with respect to the Merger and the opinion of Endicott that, as
of the date of such opinion, the Exchange Ratio was fair to the holders
of First Citizens Common Stock from a financial point of view (see "--
Opinion of First Citizens' Financial Advisor" below);
(vii) the financial and other significant terms of the proposed
Merger with Provident, and the review by First Citizens with its legal
and financial advisors of the provisions of the Merger Agreement and
the Stock Option Agreement;
(viii) the expected impact of the Merger on First Citizens' business,
employees, customers and communities, the compatibility of the
respective businesses and management philosophies of Provident and
First Citizens, and the expectation that Provident will continue to
provide quality service to the customers and the communities served by
First Citizens;
(ix) the fact that Provident has agreed to employ Mr. Fry as an
executive officer following the Merger, to retain Mr. Jorgensen as a
consultant following the Merger and to appoint Messrs. Jorgensen and
Fry to the Provident Board, all of which are expected to provide a
degree of continuity and involvement by First Citizens following the
Merger, in the interests of First Citizens' stockholders, customers and
employees;
(x) the First Citizens Board's belief that the receipt of Provident
Common Stock in the Merger generally will permit holders of First
Citizens Common Stock to defer any federal income tax liability
associated with the increase in the value of their stock as a result of
the Merger (see "-- Certain Federal Income Tax Consequences of the
Merger" below) and to become shareholders of Provident, an institution
with strong operations, earnings performance, dividend payments and
share liquidity; and
(xi) the alternative strategic courses available to First Citizens,
including remaining independent and exploring other potential business
combination transactions.
RECOMMENDATION OF THE PROVIDENT BOARD; PROVIDENT'S REASONS FOR THE MERGER
In reaching its decision to approve the Merger Agreement, the Provident
Board consulted with its legal advisors regarding the legal terms of the
transaction and the Provident Board's obligations in its consideration of the
proposed transaction, its financial advisors regarding the financial aspects and
fairness of the proposed transaction, as well as with management of Provident,
and without assigning any relative or specific weights, considered a number of
factors, both from a short-term and a long-term perspective, including the
following:
39
(i) the Provident Board's familiarity with and review of Provident's
business, operations, financial condition, earnings and prospects,
including, but not limited to, its potential growth, development,
productivity and profitability and the business risks associated
therewith;
(ii) the Provident Board's review, based in part on a presentation of
Provident's management regarding its due diligence on First Citizens,
of the business, operations, earnings and financial condition of First
Citizens on a historical, prospective and pro forma basis, and the
enhanced opportunities for growth that the Merger makes possible;
(iii) a variety of factors affecting and relating to the overall
strategic focus of Provident including, without limitation,
opportunities for growth in deposits, assets and earnings, (including
ongoing potential acquisition opportunities) and opportunities
available to Provident in the market areas where First Citizens
conducts business;
(iv) the current and prospective economic, competitive and
regulatory environment facing financial institutions, including
Provident;
(v) the terms of the Merger Agreement, the Stock Option Agreement
and the other documents to be executed in connection with the Merger;
(vi) the anticipated revenue enhancement, cost savings and
efficiencies available from the Merger;
(vii) the expectation that the Merger would be treated as a tax-free
reorganization for federal income tax purposes (see "-- Certain Federal
Income Tax Consequences of the Merger" below) and accounted for as a
pooling-of-interests; and
(viii) the financial advice rendered by KBW as to the fairness to
Provident's stockholders of the Exchange Ratio from a financial point
of view. See "-- Opinion of Provident's Financial Advisor."
The Provident Board believes that the Merger is fair to, and in the
best interests of, Provident and its stockholders. ACCORDINGLY, THE PROVIDENT
BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT
PROVIDENT'S STOCKHOLDERS VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY.
OPINION OF FIRST CITIZENS' FINANCIAL ADVISOR
Pursuant to a letter agreement dated as of April 19, 1996 (the
"Endicott Agreement"), First Citizens retained Endicott as its financial advisor
in connection with strategic planning and merger and acquisition transactions.
Pursuant to the Endicott Agreement, Endicott assisted First Citizens in
negotiating and structuring the terms of the Merger, particularly the terms of
the Merger described under the caption "THE MERGER -- Exchange Ratio."
40
The investment banking business of Endicott includes the valuation of
financial institutions and their securities in connection with mergers and
acquisitions and other corporate transactions. The First Citizens Board chose
Endicott because of its expertise, experience and familiarity with the financial
institutions industry.
In connection with its acting as financial advisor to First Citizens,
at the March 10, 1997 meeting at which the First Citizens Board approved the
Merger Agreement, Endicott delivered its oral opinion to the First Citizens
Board that, as of such date, the Exchange Ratio was fair, from a financial point
of view, to the holders of shares of First Citizens Common Stock. Endicott has
also delivered to the First Citizens Board a written opinion (the "Endicott
Opinion") dated the date of this Joint Proxy Statement/Prospectus that, as of
the date of such opinion, the Exchange Ratio is fair, from a financial point of
view, to the holders of First Citizens Common Stock. The full text of the
Endicott Opinion is attached as Annex C to this Joint Proxy Statement/Prospectus
and is incorporated herein by reference. The description of such opinion set
forth herein is qualified in its entirety by reference to Annex C. Holders of
First Citizens Common Stock are urged to read the Endicott Opinion in its
entirety for a description of the procedures followed, assumptions made, matters
considered and qualifications on the review undertaken by Endicott in
connection therewith. The Endicott Opinion is directed only to the Exchange
Ratio and does not constitute a recommendation to any stockholder of First
Citizens as to how such stockholder should vote at the First Citizens Meeting.
No limitations were imposed on Endicott by the First Citizens Board
with respect to the investigation made or procedures followed by Endicott in
rendering its fairness opinion dated March 10, 1997. In connection with
rendering such fairness opinion to the First Citizens Board, Endicott performed
a variety of financial analyses. The following is a summary of the material
financial analyses performed by Endicott, but does not purport to be a complete
description of Endicott's analyses or presentation at the March 10, 1997 meeting
of the First Citizens Board. Endicott believes that its analyses must be
considered as a whole and that selecting portions of such analyses and the
factors considered therein, without considering all factors and analyses, could
create an incomplete view of the analyses and the processes underlying the
fairness opinion of Endicott dated March 10, 1997. The preparation of a fairness
opinion is a complex process involving subjective judgments and is not
necessarily susceptible to partial analyses or summary description. In its
analyses, Endicott made numerous assumptions with respect to industry
performance, business and economic conditions and various other matters, many of
which are beyond the control of First Citizens and Provident. Any estimates
contained in Endicott's analyses are not necessarily indicative of future
results or values, which may be significantly more or less favorable than such
estimates. Estimates of values of companies do not purport to be appraisals or
necessarily reflect the prices at which the companies or their securities may
actually be sold.
ANALYSES OF SELECTED MERGER TRANSACTIONS. Endicott reviewed merger and
acquisition transactions announced since January 1, 1990 involving public
savings institutions as acquirees and having a transaction value over $15
million (each a "Transaction"). Among these were: (i) Transactions announced
between January 1, 1996 and December 31, 1996 ("1996 Nationwide Transactions"),
(ii) Transactions announced between January 1, 1997 and March 9, 1997 ("1997
Nationwide Transactions") and (iii) Transactions involving institutions located
in the Mid-Atlantic
41
United States announced between January 1, 1996 and March 9, 1997 ("1996-1997
Regional Transactions"). Endicott reviewed the price to latest twelve months
earnings, price to book value, price-to-tangible book value, price to deposits,
price to assets and deposit premium paid in each such transaction and computed
high, low, mean and median ratios and premiums for the respective groups of
transactions. Endicott also computed the foregoing ratios for the Merger
assuming a price per share of First Citizens Common Stock in the Merger of
$31.03 based on a fixed exchange ratio of .73 and a price per share of $42.50
for Provident Common Stock (the closing price for such stock on March 7, 1997).
Endicott's computations yielded the following median multiples for the 1996
Nationwide Transactions, the 1997 Nationwide Transactions and the 1996-1997
Regional Transactions, respectively, as compared with the following indicated
multiples for the Merger: (i) price to latest twelve months earnings multiples
of 16.40x, 22.90x and 16.30x, compared with 18.90x for the Merger; (ii) price to
book value multiples of 148.1%, 194.8% and 165.0%, compared with 215.64% for the
Merger; (iii) price to tangible book value multiples of 148.5%, 195.4% and
170.1%, compared with 215.64% for the Merger; and (iv) core deposit premiums of
7.4%, 17.7% and 8.9%, compared with an indicated deposit premium in the Merger
of 11.40%. Based upon the median multiples for 1996 Nationwide Transactions,
Endicott derived an imputed range of values per share of First Citizens Common
Stock of $20.99 to $32.83. Based upon the median multiples for 1997 Nationwide
Transactions, Endicott derived an imputed range of values per share of First
Citizens Common Stock of $27.60 to $45.12. Based upon the median multiples for
the 1996-1997 Regional Transactions, Endicott derived an imputed range of values
per share of First Citizens Common Stock of $23.38 to $41.09.
DISCOUNTED EARNINGS STREAM AND TERMINAL VALUE ANALYSIS. Using a
discounted earnings stream and terminal value analysis, Endicott estimated the
future stream of earnings flows that First Citizens could be expected to produce
through 2001 under various circumstances, assuming First Citizens performed in
accordance with the earnings forecasts of First Citizens' management. To
approximate the terminal value of the First Citizens Common Stock at the end of
a five-year period (December 31, 2001), Endicott applied price to earnings
multiples ranging from 7 to 19 and applied multiples of tangible book value
ranging from 80 percent to 200 percent. The net income streams and terminal
values were then discounted to present values using different discount rates
(ranging from 9 percent to 13 percent) chosen to reflect different assumptions
regarding the required rates of return of holders or prospective buyers of First
Citizens Common Stock. This analysis assumed that First Citizens will continue
its policy of not paying cash dividends and indicated a total reference range of
between $10.07 and $35.19 per share of First Citizens Common Stock. When a 10.5
percent discount rate was applied to median merger multiples based on the price
to tangible book value multiples of 160 to 200 percent, the analysis indicated a
reference range between $26.16 and $32.70 per share of First Citizens Common
Stock. When the same discount rate of 10.5 percent was applied to merger market
multiples based on price to earnings per share multiples of 15x to 19x, the
discounted dividend stream analysis indicated a reference range between $24.09
and $30.29 per share of First Citizens Common Stock.
PRO FORMA MERGER ANALYSIS. Endicott performed pro forma merger analyses
that combined First Citizens' and Provident's current and projected income
statement and balance sheets based on earnings forecasts of First Citizens and
Provident management, respectively. Assumptions and analyses of the accounting
treatment, acquisition adjustments, operating efficiencies and other ad-
42
justments were made to arrive at a base case pro forma analysis to determine the
effect of the transaction on both First Citizens and Provident. Endicott noted
that, based on a fixed exchange ratio of .73 shares of Provident Common Stock
for each share of First Citizens Common Stock, the impact of the Merger on
Provident's earnings per share and tangible book value per share based on such
earnings forecasts did not appear to be material. The actual results achieved by
the combined company will vary from the projected results and such variations
may be material.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES. In preparing its
presentation, Endicott used publicly available information to compare selected
financial and market trading information, including book value, tangible book
value, earnings, asset quality ratios, loan loss reserve levels, profitability
and capital adequacy, for Provident and twenty-eight other publicly traded
regional commercial banks located in the Mid-Atlantic United States. This peer
group consisted of commercial bank holding companies with total assets between
$1 billion and $5 billion. Additionally, Endicott used similar data for
nationwide high-performing commercial banks in the same asset range that had a
return on equity for the last fiscal quarter greater than 15 percent and a
price-to-tangible book value greater than 150 percent. Endicott reviewed the
historical financial information for Provident and each member of the peer group
since December 31, 1991. Endicott calculated a range of stock market values for
the shares of Provident Common Stock based on the comparative market valuations
of the selected peer groups based on their valuation multiples at December 31,
1996 and March 7, 1997. The range for December 31, 1996 was $32.66 to $46.75 and
for March 7, 1997 was $35.18 to $54.02.
In connection with rendering its opinion dated March 10, 1997, Endicott
reviewed and considered, among other things: (a) the Merger Agreement; (b)
audited consolidated financial statements and management's discussion and
analysis of the financial condition and results of operations for First Citizens
for the three fiscal years ended December 31, 1993, December 31, 1994, and
December 31, 1995, and the unaudited consolidated financial statements of First
Citizens for the fiscal year ended December 31, 1996; (c) the audited
consolidated financial statements and management's discussion and analysis of
the financial condition and results of operations for Provident for the four
fiscal years ended December 31, 1993, December 31, 1994, December 31, 1995, and
December 31, 1996; (d) financial analyses and forecasts for First Citizens and
Provident prepared by and/or reviewed with the respective managements of First
Citizens and Provident; (e) the views of senior management of First Citizens and
Provident of their respective past and current business operations, results
thereof, financial condition and future prospects; (f) certain reported price
and trading activity for First Citizens Common Stock and Provident Common Stock,
including a comparison of certain financial and stock market information for
First Citizens and Provident with similar information for certain other
companies the securities of which are publicly traded; (g) the financial terms
of recent business combinations in the banking industry; (h) the pro forma
impact of the transaction on Provident; (i) the current market environment
generally and the banking environment in particular; and (j) such other
information, financial studies, analyses and investigations and financial,
economic and market criteria which Endicott considered relevant.
In connection with rendering the Endicott Opinion, Endicott confirmed
the appropriateness of its reliance on the analyses used to render its March 10,
1997 opinion by performing procedures to update certain of such analyses and by
reviewing the assumptions upon which such analyses were
43
based and the factors considered in connection therewith. The Endicott 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. Events
occurring after the date of the Endicott Opinion could materially affect the
assumptions used in preparing such opinion.
In performing its review, Endicott assumed and relied upon, without
independent verification, the accuracy and completeness of all the financial
information, analyses and other information reviewed by and discussed with it,
and did not make an independent evaluation or appraisal of the specific assets,
the collateral securing assets or the liabilities of Provident or First Citizens
or any or their subsidiaries, or the collectibility of any such assets (relying,
where relevant, on the analyses and estimates of Provident and First Citizens).
With respect to the financial projections reviewed with each company's
management, Endicott assumed that they reflect the best currently available
estimates and judgments of the respective managements of the respective future
financial performances of each of Provident and First Citizens and of the
combined company, and that such performances will be achieved. Endicott also
assumed that there has been no material change in Provident's or First Citizens'
assets, financial condition, results of operations, business or prospects since
the date of the last financial statements noted above. Endicott also assumed
without independent verification that the aggregate consolidated allowances for
loan losses for First Citizens and Provident were adequate to cover such losses,
and that the conditions precedent in the Merger Agreement are not waived.
Pursuant to the Endicott Agreement, First Citizens retained Endicott to
act as independent financial advisor, to render general advisory services and
also to specifically advise First Citizens in connection with its strategic
planning and merger and acquisition activities. Pursuant to the Endicott
Agreement, First Citizens paid Endicott a fee of $50,000 for rendering its
fairness opinion relating to the Merger at the March 10, 1997 meeting of the
First Citizens Board. Also pursuant to the Endicott Agreement, First Citizens is
obligated to pay Endicott quarterly retainer fees of $15,000 for the calendar
quarter ended June 30, 1996 and $7,500 for each quarter thereafter. First
Citizens has paid such quarterly retainer fees for all calendar quarters through
the quarter ended June 30, 1997. In addition, pursuant to the terms of the
Endicott Agreement, First Citizens will pay Endicott a transaction fee equal to
1.0% of the aggregate value of the consideration to be paid by Provident in the
Merger (calculated as of the Effective Time), of which approximately 25%, or
$260,989, was paid upon the signing of the Merger Agreement and the remaining
portion is payable at the closing of the Merger. Based on the closing price of
Provident Common Stock as of July 14, 1997 (the most recent practicable date
prior to the date of this Joint Proxy Statement/Prospectus), the remaining
portion of the transaction fee payable to Endicott at the Effective Time would
be $800,762. Endicott has agreed to credit the $50,000 fee for its fairness
opinion and four of the quarterly retainer payments against the portion of the
transaction fee due at the closing of the Merger. First Citizens also has agreed
to reimburse Endicott for its reasonable out-of-pocket expenses in connection
with its engagement and to indemnify Endicott and its affiliates and their
respective partners, directors, officers, employees, agents and controlling
persons against certain expenses and liabilities, including liabilities under
securities laws.
44
OPINION OF PROVIDENT'S FINANCIAL ADVISOR
Provident retained KBW to render an opinion with respect to the
fairness from a financial point of view of the consideration to be received by
the stockholders of Provident in the Merger. KBW was selected to act as
Provident's financial advisor based upon its qualifications, expertise and
reputation. KBW 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, KBW may,
from time to time, purchase securities from, and sell securities to, Provident
and First Citizens, and as a market maker in securities, KBW may from time to
time have a long or short position in, and buy or sell, equity securities of
Provident and First Citizens for its own account and for the accounts of its
customers. To the extent that KBW has any such position as of the date of the
fairness opinion attached as Annex D hereto, it has been disclosed to Provident.
On March 10, 1997, at the meeting at which the Provident Board approved
and adopted the Merger Agreement and the transactions contemplated thereby, KBW
rendered its oral opinion to the Provident Board that, as of such date, the
Exchange Ratio was fair to the stockholders of Provident 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, KBW also confirmed the appropriateness of its
reliance on the analyses used to render its March 10, 1997 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 Provident Board upon KBW with
respect to the investigations made or procedures followed by KBW in rendering
its opinions.
KBW's opinion is addressed to the Board of Directors of Provident and
does not constitute a recommendation to any of the stockholders of Provident as
to how such stockholders should vote with respect to the Merger.
THE FULL TEXT OF THE OPINION OF KBW, 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
D AND IS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS 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, KBW reviewed, analyzed and relied upon the
following material relating to the financial and operating condition of
Provident and First Citizens: (i) the Merger Agreement; (ii) Annual Reports to
Stockholders for the three years ended December 31, 1995 for Provident and First
Citizens; (iii) certain interim reports to stockholders of Provident and First
45
Citizens and quarterly reports on Form 10-Q of Provident and First Citizens and
certain other communications from Provident and First Citizens to their
respective stockholders; (iv) other financial information concerning the
businesses and operations of Provident and First Citizens furnished to KBW by
Provident and First Citizens for the purpose of KBW's analysis, including
certain internal financial analyses and forecasts for Provident and First
Citizens prepared by senior management of Provident and First Citizens; (v)
certain publicly available information concerning the trading of, and the
trading market for, the Common Stock of Provident and First Citizens; and (vi)
certain publicly available information with respect to banking companies and the
nature and terms of certain other transactions that KBW considered relevant to
its inquiry. Additionally, in connection with its written opinion attached as
Annex D to this Joint Proxy Statement/Prospectus, KBW reviewed a draft of this
Joint Proxy Statement/Prospectus in substantially the form hereof. KBW also held
discussions with senior management of Provident and First Citizens concerning
their past and current operations, financial condition and prospects, as well as
the results of regulatory examinations. KBW 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. KBW's opinion was necessarily based upon conditions as
they existed and could be evaluated on the date thereof and the information made
available to KBW through the date thereof.
In conducting its review and arriving at its opinion, KBW relied upon
and assumed the accuracy and completeness of all of the financial and other
information provided to it or publicly available, and KBW did not attempt to
verify such information independently. KBW relied upon the managements of
Provident and First Citizens as to the reasonableness and achievability of the
financial and operating forecasts (the assumptions and bases therefor) provided
to KBW and assumed that such forecasts reflected the best available estimates
and judgments of such managements and that such forecasts will be realized in
the amounts and in the time periods estimated by such managements. KBW also
assumed, without independent verification, that the aggregate allowances for
loan losses for Provident and First Citizens are adequate to cover such losses.
KBW did not make or obtain any evaluations or appraisals of the property of
Provident and First Citizens, nor did KBW examine any individual loan credit
files.
The following is a summary of the material financial analyses employed
by KBW in connection with providing its oral opinion of March 10, 1997 and does
not purport to be a complete description of all analyses employed by KBW.
SELECTED PEER GROUP ANALYSIS. KBW compared the financial performance
and market performance of Provident and First Citizens based on various
financial measures including 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 of comparable
companies. For purposes of such analyses, the financial information used by KBW
for Provident and First Citizens and the comparable companies was as of and for
the quarter ended December 31, 1996 and the market price information was as of
March 7, 1997.
46
The set of comparable companies used as peers against Provident was
comprised of Mid-Atlantic banking companies located in Maryland, Virginia and
Pennsylvania with average return on assets on an annualized basis of 1.17%,
return on average equity on an annualized basis of 12.60%, net interest margin
on an annualized basis of 4.45%, efficiency ratio on an annualized basis of
60.90%, equity to assets of 9.16%, tangible equity to tangible assets of 8.75%,
loan loss reserve to non-performing loans of 222% and non-performing assets to
loans and real estate owned of 1.13%. The analysis showed for Provident an
average return on assets on an annualized basis of 0.89%, return on average
equity on an annualized basis of 12.71%, net interest margin on an annualized
basis of 3.56%, efficiency ratio on an annualized basis of 69.51%, equity to
assets of 7.05%, tangible equity to tangible assets of 7.04%, loan loss reserve
to non-performing loans of 178% and non-performing assets to loans and real
estate owned of 0.85%.
KBW's analysis further showed, among other things, the following
concerning the market performance of the peer group: that the price to earnings
multiple based on 1997 and 1998 estimated earnings was 13.22 times and 12.06
times, respectively; that the price to book value multiple was 1.73 times; that
the price to tangible book value multiple was 1.81 times; and that the dividend
yield was 2.94%. The analysis showed for Provident that a price to earnings
multiple based on 1997 and 1998 estimated earnings was 14.21 times and 12.65
times, respectively; that the price to book value multiple was 1.83 times; that
the price to tangible book value multiple was 1.83 times; and that the dividend
yield was 1.98%.
The set of comparable companies used as peers against First Citizens
was comprised of Mid-Atlantic thrifts located in Maryland, New Jersey,
Pennsylvania and Delaware with average return on assets on an annualized basis
of 0.78%, return on average equity on an annualized basis of 10.86%, net
interest margin on an annualized basis of 3.09%, efficiency ratio on an
annualized basis of 54.18%, equity to assets of 7.27%, tangible equity to
tangible assets of 6.92%, loan loss reserve to non-performing loans of 94% and
non-performing assets to loans and real estate owned of 1.88%. The analysis also
showed for First Citizens an average return on assets on an annualized basis of
0.85%, return on average equity on an annualized basis of 14.31%, net interest
margin on an annualized basis of 3.09%, efficiency ratio on an annualized basis
of 67.44%, equity to assets of 6.06%, tangible equity to tangible assets of
6.06%, loan loss reserve to non-performing loans of 113% and non-performing
assets to assets of 2.83%.
KBW's analysis further showed, among other things, the following
concerning the market performance of the peer group: the price to earnings
multiple based on 1997 and 1998 estimated earnings was 12.21 times and 11.14
times, respectively; the price to book value multiple was 1.42 times; the price
to tangible book multiple was 1.49 times; the dividend yield was 2.17%. The
analysis showed for First Citizens a price to earnings multiple based on 1997
and 1998 estimated earnings of 13.86 times and 12.78 times, respectively; the
price to book value multiple was 1.62 times; and the price to tangible book
value multiple was 1.62 times. First Citizens does not pay a dividend.
SELECTED TRANSACTION ANALYSIS. KBW analyzed certain merger and
acquisition transactions for bank and thrift institutions based upon the
acquisition price (at announcement) relative to stated book value, stated
tangible book value and latest twelve months earnings. The information analyzed
47
was compiled by KBW from both internal sources and a data firm that monitors and
publishes transaction summaries and descriptions of mergers and acquisitions in
the financial services industry. The analysis included a review and comparison
of the average and median book value multiples and earnings multiples
represented by a sample of recently completed or announced transactions for
banks and thrifts. The bank transactions include: Allied Irish Banks and Dauphin
Deposit Corporation, Banc One Corporation and Liberty Bancorp, Keystone
Financial and Financial Trust Corp., Southern National Corporation and United
Carolina Bancshares, Mercantile Bancorporation and Mark Twain Bancshares, and
Crestar Financial Corporation and Citizens Bancorp. This analysis of bank
acquisitions yielded an average price to book multiple, price to tangible book
multiple and price to trailing twelve months earnings multiple of 2.45 times,
2.52 times and 19.10 times, respectively, and median price to book multiple,
price to tangible book multiple and price to trailing twelve months earnings
multiple of 2.48 times, 2.59 times and 19.31 times, respectively. The thrift
transactions include: Washington Mutual and Great Western Financial Corporation,
Summit Bancorp and Collective Bancorp, CCB Financial Corporation and American
Federal Bank, FSB, Keystone Financial and First Financial Bancorporation of
Western Maryland, ABN-AMRO Holding and Standard Federal Bancorporation, Southern
National Corporation and Fidelity Financial Bankshares Corporation, and
NationsBank Corporation and TAC Bancshares. This analysis of thrift acquisitions
yielded an average price to book multiple, price to tangible book multiple and
price to trailing twelve months earnings multiple of 2.24 times, 2.46 times and
16.80 times, respectively, and median price to book multiple, price to tangible
book multiple and price to trailing twelve months earnings multiple of 2.05
times, 2.52 times and 15.26 times, respectively.
In addition, KBW also analyzed comparable deal statistics since 1996
for regional and nationwide transactions for banks and thrifts. Comparable
Mid-Atlantic thrift transactions, 14 deals in total, comprised median price to
earnings multiple of 17.1 times with a 20% variance range of 13.7 times to 20.5
times and average price to book multiple of 1.62 times with a 20% variance range
of 1.30 times to 1.94 times. Comparable Mid-Atlantic bank and thrift
transactions, 41 deals in total, comprised median price to earnings multiple of
18.2 times with a 20% variance range of 14.6 times to 21.8 times and average
price to book multiple of 1.98 times with a 20% variance range of 1.58 times to
2.37 times. Comparable nationwide thrift transactions, 102 deals in total,
comprised median price to earnings multiple of 18.7 times with a 20% variance
range of 14.9 times to 22.4 times and average price to book multiple of 1.54
times with a 20% variance range of 1.23 times to 1.84 times. Comparable
nationwide bank and thrift transactions, 449 deals in total, comprised median
price to earnings multiple of 17.0 times with a 20% variance range of 13.6 times
to 20.4 times and average price to book multiple of 1.85 times with a 20%
variance range of 1.48 times to 2.22 times. The price to earnings and average
price to book for the Provident and First Citizens transactions was 19.4 times
and 2.15 times, using five-day average for Provident stock of $41.825.
CONTRIBUTION ANALYSIS. KBW analyzed the relative contribution made by
each of Provident and First Citizens to certain balance sheet and income
statement items of the combined company including assets, deposits,
shareholders' equity and trailing and estimated net income. Based on the
Exchange Ratio of .73 shares, the ownership percentage of the combined company
for First Citizens would be approximately 22%. The contribution analysis showed
that under the Merger, First Citizens would contribute approximately 19.7% of
the combined assets, 23.4% of the combined deposits, 19.1% of the combined
shareholders' equity before merger related expenses, 17.9% of the
48
combined 1996 earnings and 16.0% of the combined 1997 earnings before cost
savings and revenue enhancements.
PRO FORMA MERGER ANALYSIS. KBW analyzed the financial impact of the
Merger on the holders of Provident Common Stock, using projected earnings
estimates and Provident's estimates for cost savings and revenue enhancements
expected to result from the Merger that KBW generated based on consultation with
Provident management. This analysis showed that, after giving effect to the
Merger, before the impact of one-time restructuring charges, current holders of
Provident Common Stock would realize a slight decrease in 1997 estimated
earnings per share, book value and leverage ratio and a slight increase in
earnings per share in 1998. KBW also analyzed the changes in return on equity,
noting that such return on equity would slightly increase following the Merger.
INTERNAL RATE OF RETURN ANALYSIS. KBW analyzed the internal rate of
return of future free cash flows resulting from an initial investment of the
acquisition of First Citizens. This analysis assumed (i) projected net income
for the fiscal years 1997 and 1998 and an assumed 6% annual net income growth
for the fiscal years 1999, 2000 and 2001; (ii) projected average asset growth
for five fiscal years ranging from 3.28% to 5.78%; (iii) cost savings and
revenue enhancements expected by Provident; (iv) allocated capital to capitalize
the acquired assets and expected asset growth in order to maintain a 6.13%
leverage ratio; and (v) a range of terminal multiples of 13, 14 and 15 times
earnings for the fiscal year 2001. The analysis assumes that any excess capital
above the required amount to maintain the 6.13% leverage ratio is free cash and
the resulting total free cash flow for the five fiscal years is then present
valued at these terminal multiples using the purchase price as an initial
investment. These projections were generated by KBW based on consultations with
Provident management. Based on such assumptions, KBW's analysis indicated that
the internal rate of return for the investment would range between 13.67% and
16.45%. KBW stated that the internal rate of return analysis is a widely-used
valuation methodology but noted that it relies on numerous assumptions,
including asset and earnings growth rates, cost savings, revenue enhancements
and terminal values.
The summary contained herein provides a description of the material
analyses prepared by KBW 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 KBW in connection with the rendering of its opinion. The
preparation of a fairness opinion is not necessarily susceptible to partial
analysis or summary description. KBW 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 KBW's presentations
and opinion. The ranges of valuations resulting from any particular analysis
described above should not be taken to be KBW's view of the actual value of
Provident and First Citizens. 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 material analyses.
In performing its analyses, KBW made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Provident and First Citizens.
The analyses performed by KBW are not
49
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 KBW's analysis of the fairness, from a
financial point of view, of the Exchange Ratio, and were provided to the
Provident Board in connection with the delivery of KBW'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,
KBW's opinion, along with its presentation to the Provident Board, was just one
of many factors taken into consideration by the Provident Board in unanimously
approving the Merger Agreement.
Pursuant to the Engagement Letter dated March 10, 1997, Provident
agreed to pay KBW a cash fee of $350,000 in the following manner: $50,000 upon
signing a definitive agreement, $100,000 upon mailing of the Joint Proxy
Statement/Prospectus and the remaining $200,000 upon consummation of the
transaction. Provident has also agreed to reimburse KBW for its reasonable
out-of-pocket expenses, including the fees and expenses of legal counsel and any
other advisor retained by KBW. Provident has also agreed to indemnify KBW, its
affiliates, and their respective partners, directors, officers, agents,
consultants, employees and controlling persons against certain liabilities,
including liabilities under the federal securities laws.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of First Citizens' management and the First Citizens
Board may be deemed to have certain interests in the Merger that are in addition
to their interests as stockholders of First Citizens generally. The First
Citizens Board was aware of these interests and considered them, among other
matters, in approving the Merger Agreement and the transactions contemplated
thereby.
EXISTING EMPLOYMENT AGREEMENTS WITH FIRST CITIZENS. First Citizens
and/or one of its subsidiaries has entered into employment agreements with Mr.
Herbert W. Jorgensen, Chairman and Chief Executive Officer of First Citizens,
Mr. Enos K. Fry, Vice Chairman and President of First Citizens, Charles R. Duda,
Executive Vice President and Chief Operating Officer of First Citizens, and
Benjamin O. Delaney, Jr., President of First Citizens Mortgage Corporation. See
"ELECTION OF FIRST CITIZENS DIRECTORS -- Employment and Other Agreements" for a
description of the terms of such employment agreements. Pursuant to the terms of
the Merger Agreement, at the Effective Time, Messrs. Jorgensen and Fry will be
entitled to all cash severance payments which they would be entitled to receive
pursuant to the terms of their respective employment agreements upon certain
actual or constructive terminations of employment following a change in control,
and Mr. Jorgensen will also be entitled to continued participation in and
receipt of benefits under certain retirement, pension, deferred and incentive
compensation and other employee benefit and fringe benefit plans and policies of
Provident for a period of three years following the Effective Time as though Mr.
Jorgensen were employed by Provident for such three-year period. The Merger
Agreement also provides that if Mr. Fry's employment with Provident following
the Effective Time is terminated for any reason within the first three years
immediately following the Effective Time, Provident will provide him with
continued participation in and receipt of benefits under certain retirement,
pension, deferred and incentive compensation and other employee benefit and
fringe bene-
50
fit plans and policies of Provident beginning upon such termination and
continuing through the remainder of such three-year period as though Mr. Fry had
remained employed with Provident during such period. Furthermore, it is
anticipated that Messrs. Duda and Delaney will not be employed with Provident
following the Effective Time and will be entitled to receive cash severance
payments and other benefits, pursuant to the terms of their respective
employment agreements. See "ELECTION OF FIRST CITIZENS DIRECTORS -- Employment
and Other Agreements" for a description of the amounts of cash severance
payments and other benefits due under such agreements upon certain terminations
of employment following a change in control.
PROVIDENT BOARD OF DIRECTORS. Pursuant to the terms of the Merger
Agreement, at the Effective Time, Provident will cause its Board of Directors to
be expanded by two members and Messrs. Jorgensen and Fry will be appointed to
fill the newly created directorships. Provident has agreed to cause Mr.
Jorgensen to continue to serve on the Boards of Directors of each of Provident
and Provident Bank for at least two years following the Effective Time and to
cause Mr. Fry to continue to serve on such Boards of Directors for a period of
not less than three years following the Effective Time. In the event that either
Mr. Jorgensen or Mr. Fry is unable to serve as a director of Provident, such
executive shall select a substitute nominee to serve in his place as a director
of Provident, subject to Provident's approval which may not be unreasonably
withheld and in accordance with Provident's By-laws.
ADVISORY BOARD. Following the Effective Time, Provident will establish
an advisory board for its operations in Montgomery County, Maryland (the
"Advisory Board") and will maintain the Advisory Board for a period of three
years following the Effective Time. Mr. Jorgensen will serve as the chairman of
the Advisory Board, with the other members of the Advisory Board to be selected
by Provident. Each member of the Advisory Board will be entitled to receive
annual retainer fees and meeting fees as determined by the Provident Board. The
Advisory Board shall meet at such times and places as Provident shall determine.
NEW EMPLOYMENT, CHANGE IN CONTROL AND CONSULTING AGREEMENTS WITH
PROVIDENT. Pursuant to the Merger Agreement, at the Effective Time, Mr. Fry will
enter into an Employment Agreement (the "Employment Agreement") with Provident
and Provident Bank, pursuant to which Mr. Fry will be employed by Provident Bank
for a period of two years following the Effective Time (the "Employment
Period"). Mr. Fry will serve as Group Manager of Provident Bank for Montgomery
County, Maryland, as well as a member of the Board of Directors of each of
Provident and Provident Bank, throughout the Employment Period. Under the
Employment Agreement, Mr. Fry will be entitled to an annual base salary of not
less than $250,000, as well as participation in Provident's incentive
compensation plans and all other savings, retirement, welfare and fringe benefit
plans and programs of Provident and continuation of certain executive benefits
and perquisites to which Mr. Fry is currently entitled (including club
membership fees and reimbursement for related expenses and the use of a car and
reimbursement for car-related expenses).
In addition, the Employment Agreement will provide for the immediate
vesting of Mr. Fry's right to those benefits to which he would be entitled under
the Supplemental Retirement Agreement ("SRA"), dated March 6, 1996 between Mr.
Fry and Citizens Savings, had he terminated his employment at age 55 for "good
reason." Provident Bank will become obligated to pay such benefits to Mr. Fry
upon his termination of employment with Provident Bank for any reason, such
payment to commence on the later of the date of such termination or Mr. Fry's
attainment of age 65. Provident also intends to waive Mr. Fry's post-retirement
consulting and non-compete obligations set forth in the SRA. See "ELECTION OF
FIRST CITIZENS DIRECTORS -- Employment and Other Agreements" for a
51
description of the amount of retirement income which Mr. Fry will be entitled to
receive under the SRA.
Upon a termination of Mr. Fry's employment by Provident Bank other than
for "cause" or a termination by Mr. Fry of his employment for "good reason," Mr.
Fry will be entitled to receive: (i) all outstanding salary, accrued bonus and
other amounts owed to him under the Employment Agreement through the date of his
termination, (ii) his annual base salary as in effect immediately prior to the
date of termination, payable throughout the remainder of the Employment Period,
together with the highest annual bonus earned by Mr. Fry for any fiscal year in
the Employment Period and prior to the date of termination, payable with respect
to each full twelve-month period remaining in the Employment Period, (iii)
insurance benefits substantially similar to those provided before such
termination and at no greater cost to Mr. Fry, for the remainder of the
Employment Period and for one year following (provided, however, that such
benefits will be reduced to the extent benefits are made available to Mr. Fry by
another employer), and (iv) continued participation in the retirement plans in
which Mr. Fry was participating prior to termination, for the remainder of the
Employment Period except to the extent such participation is prohibited by law.
If Mr. Fry's employment is terminated by reason of his death or disability, by
Provident Bank for "cause" or by Mr. Fry for other than "good reason," Provident
Bank will be obligated to pay only the benefits under the SRA and to provide the
insurance benefits discussed in clause (iii) above.
At the Effective Time, Mr. Fry will also enter into Change in Control
Agreements with both Provident and Provident Bank (the "Change in Control
Agreements"). The Change in Control Agreements will have three year terms which
will be renewed automatically on a daily basis, such that the remaining terms
thereof will always be three years, unless and until either party gives notice
to the other not to extend the terms of such agreements. Under the Change in
Control Agreements, upon a termination of Mr. Fry's employment during the terms
of the agreements other than for cause, or if Mr. Fry terminates his employment
following demotion, loss of title, office or significant authority, a reduction
in annual compensation or benefits or relocation of his principal place of
employment by more than 20 miles immediately prior to a "Change in Control" (as
defined therein), Provident would be obligated to pay to Mr. Fry a sum equal to
approximately 2.99 times Mr. Fry's average annual taxable compensation for the
five most recent taxable years that Mr. Fry was employed by Provident or
Provident Bank (or such lesser number of years for which he was employed by
Provident or Provident Bank), subject to a reduction in the event that (x) the
foregoing formula would result in such payments becoming subject to taxation
under Section 280G of the Code, and (y) such reduction would result in Mr. Fry's
receiving a higher amount of termination payments on an after-tax basis.
Provident and Provident Bank will also continue Mr. Fry's life, medical, and
disability coverage. Such coverage shall cease upon the earlier of the
expiration of 36 full calendar months following the date of termination or the
date Mr. Fry secures comparable employment by an employer other than Provident
or Provident Bank. If Mr. Fry voluntarily resigns from Provident or Provident
Bank within one year following a Change in Control, but prior to an event of
termination described above, Mr. Fry would be entitled to receive a payout equal
to six (6) times his then-current monthly taxable compensation.
Pursuant to the Merger Agreement, at the Effective Time Mr. Jorgensen
will enter into a Consulting Agreement (the "Consulting Agreement") with
Provident pursuant to which Provident
52
will engage Mr. Jorgensen as a consultant for a period of three years commencing
upon the Effective Time (the "Consulting Period"). During the Consulting Period,
Mr. Jorgensen will serve as a member of the Boards of Directors of each of
Provident and Provident Bank and as Chairman of the Advisory Board. Under the
Consulting Agreement, Mr. Jorgensen will receive a monthly consulting fee of
$6,875.00, and will be provided with office space and reimbursement of all
expenses reasonably incurred in connection with his performance of consulting
services. Mr. Jorgensen will agree during the Consulting Period and for one year
thereafter not to compete directly or indirectly in any material respect with
the business conducted by Provident or its respective subsidiaries. In addition,
in the event that any payment or benefit under the Consulting Agreement is
subject to an excise tax pursuant to Section 4999 of the Code, Provident has
agreed to pay an additional amount sufficient to make Mr. Jorgensen whole with
respect to the imposition of such tax.
INDEMNIFICATION; INSURANCE. The Merger Agreement provides that, in the
event of any threatened or actual claim, action, suit, proceeding or
investigation in which any person who is or has been a director, officer or
employee of First Citizens is, or is threatened to be, made a party based in
whole or in part on, or pertaining to (i) the fact that such person was a
director, officer or employee of First Citizens, or (ii) the Merger Agreement or
transactions contemplated thereby, Provident will, subject to the conditions set
forth in the Merger Agreement, indemnify such person to the fullest extent
permitted by Maryland law against any liability or expense incurred in
connection with any such claim or proceedings for a period of six (6) years,
subject to certain conditions.
Provident has also agreed, for a period of three years after the
Effective Time, to maintain First Citizens' existing directors' and officers'
liability insurance policy (or a policy providing coverage on substantially the
same terms and conditions) for acts or omissions occurring prior to the
Effective Time by persons who are currently covered by such insurance policy
maintained by First Citizens; provided, however, that in no event will Provident
be obligated to expend on an annual basis, in order to provide such insurance
policy, more than 150% of the current amount expended by First Citizens (the
"Insurance Amount"). If the amount of the annual premiums necessary to maintain
or procure such insurance coverage exceeds the Insurance Amount, Provident will
be obligated to use all reasonable efforts to obtain as much comparable
insurance as available for the Insurance Amount.
TREATMENT OF STOCK OPTIONS. At the Effective Time, each outstanding and
unexercised First Citizens Option granted by First Citizens pursuant to the
First Citizens Director's Stock Option Plan, the First Citizens 1986 Stock
Option Plan (the "1986 Plan") or the First Citizens Employee Stock Option Plan
(the "1995 Plan," and collectively, the "First Citizens Option Plans") will be
converted into an option to acquire, on the same terms and conditions as were
applicable under such First Citizens Option immediately prior to the Effective
Time, that number of shares of Provident Common Stock equal to the product,
rounded down to the nearest share, of the number of shares of First Citizens
Common Stock subject to such First Citizens Option and the Exchange Ratio, and
at an exercise price per share equal to the exercise price per share of First
Citizens Common Stock otherwise purchasable pursuant to such First Citizens
Option divided by the Exchange Ratio, rounded up to the nearest cent.
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Additional information concerning awards granted to First Citizens'
directors and executive officers under the First Citizens Option Plans is set
forth herein under "ELECTION OF FIRST CITIZENS DIRECTORS -- Executive
Compensation and Other Information," "-- Stock Owned by Management" and "--
Principal Holders of Voting Securities."
DIRECTORS' COMPENSATION. See "ELECTION OF FIRST CITIZENS DIRECTORS --
Compensation of Directors" for a discussion of certain directors' retirement
benefits which vest upon a change in control.
PAYMENT OF PRORATED BONUSES. The Merger Agreement provides that First
Citizens may pay prorated cash bonuses to employees of Citizens Savings
immediately prior to the Effective Time based on the 1997 target amounts set
forth in the existing Citizens Savings bonus plan. See "-- Employee Matters."
MANAGEMENT AND OPERATIONS FOLLOWING THE MERGER
Pursuant to the terms of the Merger Agreement, at the Effective Time,
Provident will cause its Board of Directors to be expanded by two members and
Messrs. Jorgensen and Fry will be appointed to fill the newly created
directorships. Provident has agreed to cause Mr. Jorgensen to continue to serve
on the Board of Directors of each of Provident and Provident Bank for at least
two years following the Effective Time and to cause Mr. Fry to continue to serve
on such Boards of Directors for at a period of not less than three years
following the Effective Time. In the event that either Mr. Jorgensen or Mr. Fry
is unable to serve as a director of Provident, such executive shall select a
substitute nominee to serve in his place as a director of Provident, subject to
Provident's approval which may not be unreasonably withheld and in accordance
with Provident's Bylaws.
Following the Effective Time, Provident will establish an advisory
board for its operations in Montgomery County, Maryland (the "Advisory Board")
and will maintain the Advisory Board for a period of three years following the
Effective Time. Mr. Jorgensen will serve as the chairman of the Advisory Board,
with the other members of the Advisory Board to be selected by Provident. Each
member of the Advisory Board will be entitled to receive annual retainer fees
and meeting fees as determined by the Provident Board. The Advisory Board shall
meet at such times and places as Provident shall determine.
Following the Merger, the operations of Provident and Provident Bank
will not be substantially different.
EMPLOYEE MATTERS
Provident has agreed to honor in accordance with their terms all
employment, severance and other compensation agreements and arrangements between
Citizens Savings and its employees. Pursuant to the terms of the Merger
Agreement, employees of Citizens Savings who are employed by Provident or
Provident Bank immediately following the Effective Time shall be eligible to
participate in the employee benefit plans maintained by Provident on the same
terms and conditions as those applicable to newly hired employees of Provident,
except that such employees shall be granted credit for all past service with
Citizens Savings for certain purposes under such plans. Also pursuant to the
terms of the Merger Agreement, Provident may either merge the Citizens Savings
401(k) Savings Plan into the Provident Bank Employee Retirement Savings Plan or
terminate such plan in accordance with its terms immediately prior to, on or
after the Effective Time.
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The Merger Agreement also provides that First Citizens will pay
prorated cash bonuses to employees of Citizens Savings immediately prior to the
Effective Time based on the 1997 target amounts set forth in the existing
Citizens Savings bonus plan. Each employee of Citizens Savings will also be paid
amounts due for all sick leave accrued with respect to his or her period of
employment with Citizens Savings prior to December 31, 1989. Citizens Savings,
after consultation with Provident, is also permitted to pay to its employees, on
or prior to the Effective Date, reasonable retention bonuses in amounts not
exceeding $300,000 in the aggregate and $50,000 for any individual. In addition,
any employee of Citizens Savings whose employment is terminated by Provident or
Provident Bank shall receive severance benefits consistent with Provident's past
practice determined on an individual basis plus payment for any accrued but
unused vacation time.
EFFECTIVE TIME
The Merger will become effective at the date and time (the "Effective
Time") set forth in the articles of merger which will be filed with the
Department of Assessment and Taxation of the State of Maryland in accordance
with applicable law. The articles will be filed on the first day (the "Closing
Date") which is (i) the last business day of a month and (ii) at least two
business days after satisfaction or waiver of the latest to occur of certain
conditions to the Merger specified in the Merger Agreement, unless another date
is agreed to in writing by Provident and First Citizens. See "-- Conditions to
the Merger" below. There can be no assurance that such conditions will be
satisfied. The Merger Agreement may be terminated by either party if, among
other reasons, the Merger has not been consummated on or before December 31,
1997. See "-- Waiver and Amendment; Termination; Termination Fee" below.
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES
FIRST CITIZENS. As promptly as practicable after the Effective Time,
and in no event more than three business days thereafter, a bank or trust
company selected by Provident and reasonably satisfactory to First Citizens,
acting in the capacity of exchange agent (the "Exchange Agent"), will mail to
each former holder of record of First Citizens Common Stock a form of letter of
transmittal, together with instructions for the exchange of such holder's
certificates representing shares of First Citizens Common Stock for certificates
representing shares of Provident Common Stock and cash in lieu of fractional
shares.
HOLDERS OF FIRST CITIZENS COMMON STOCK SHOULD NOT SEND IN THEIR
CERTIFICATES UNTIL THEY RECEIVE THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS
FROM THE EXCHANGE AGENT, AND SHOULD NOT RETURN SUCH STOCK CERTIFICATES WITH THE
ENCLOSED PROXY.
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Upon surrender to the Exchange Agent of one or more certificates
representing shares of First Citizens Common Stock, together with a properly
completed letter of transmittal, there will be issued and mailed to the holder
of First Citizens Common Stock surrendering such items a certificate or
certificates representing the number of shares of Provident Common Stock to
which such holder is entitled, if any, and, where applicable, a check for the
amount representing any fractional share determined in the manner described
below, without interest. The First Citizens certificate or certificates so
surrendered will be canceled.
No dividend or other distribution declared after the Effective Time
with respect to Provident Common Stock will be paid to the holder of any
unsurrendered First Citizens certificate until the holder surrenders such
certificate, at which time the holder will be entitled to receive all previously
withheld dividends and distributions, without interest.
After the Effective Time, there will be no transfers on the stock
transfer books of First Citizens of shares of First Citizens Common Stock issued
and outstanding immediately prior to the Effective Time. If certificates
representing shares of First Citizens Common Stock are presented for transfer
after the Effective Time, they will be canceled and exchanged for certificates
representing shares of Provident Common Stock.
None of the Exchange Agent, Provident or First Citizens, or any other
person, will be liable to any former holder of First Citizens Common Stock for
any amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
If a certificate for First Citizens Common Stock has been lost, stolen
or destroyed, the Exchange Agent will issue the consideration properly payable
in accordance with the Merger Agreement upon receipt of appropriate evidence as
to such loss, theft or destruction, appropriate evidence as to the ownership of
such certificate by the claimant, and appropriate and customary indemnification.
No fractional shares of Provident Common Stock will be issued in the
Merger. Instead, the Merger Agreement provides that each holder of shares of
First Citizens Common Stock exchanged pursuant to the Merger who would otherwise
have been entitled to receive a fraction of a share of Provident Common Stock
will receive, in lieu thereof, cash in an amount equal to such fractional part
of a share of Provident Common Stock multiplied by the average of the closing
sale prices of Provident Common Stock on the Nasdaq for the five consecutive
trading days immediately preceding the Effective Time. No such holder will be
entitled to dividends, voting rights or any other rights as a stockholder in
respect of any fractional share which such holder would otherwise have been
entitled to receive.
PROVIDENT. Shares of Provident capital stock (including Provident
Common Stock) issued and outstanding immediately prior to the Effective Time
will remain issued and outstanding and be unaffected by the Merger, and holders
of such stock will not be required to exchange the certificates representing
such stock or take any other action by reason of the consummation of the Merger.
56
CONDITIONS TO THE MERGER
The respective obligations of Provident and First Citizens to effect
the Merger are subject to the satisfaction of the following conditions at or
prior to the Effective Time: (i) approval of the Merger Agreement by the
affirmative vote of the holders of at least a majority of the outstanding shares
of First Citizens Common Stock entitled to vote thereon and by the affirmative
vote of the holders of at least two-thirds of the outstanding shares of
Provident Common Stock entitled to vote thereon; (ii) the shares of Provident
Common Stock issuable to holders of First Citizens Common Stock pursuant to the
Merger shall have been authorized for quotation on the Nasdaq, subject to
official notice of issuance; (iii) approval of the Merger Agreement and the
transactions contemplated thereby (including the Merger and Bank Merger) by the
appropriate governmental authorities (all such governmental authorities being
referred to as the "Governmental Entities"), and the expiration of any statutory
waiting periods in respect thereof (collectively, the "Requisite Regulatory
Approvals") (see "-- Regulatory Approvals Required for the Merger" below); (iv)
the Registration Statement (of which this Joint Proxy Statement/Prospectus forms
a part) shall have become effective under the Securities Act and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been initiated or
threatened by the Commission; (v) no order, injunction or decree issued by any
court or agency of competent jurisdiction or other legal restraint or
prohibition (an "Injunction") which prohibits the consummation of the Merger,
the Bank Merger or any of the other transactions contemplated by the Merger
Agreement, the Bank Merger Agreement and the Stock Option Agreement will be in
effect; and (vi) no statute, rule, regulation, order, injunction or decree will
have been enacted, entered, promulgated or enforced by any Governmental Entity
which prohibits, restricts or makes illegal consummation of the Merger or the
Bank Merger.
The obligations of Provident to effect the Merger are further subject
to the satisfaction, or waiver by Provident, of the following conditions: (i)
the representations and warranties of First Citizens contained in the Merger
Agreement shall be true and correct in all material respects as of the date of
the Merger Agreement and (except to the extent that such representations and
warranties relate to an earlier date) as of the Closing Date as though made on
and as of the Closing Date; PROVIDED, HOWEVER, that such representations and
warranties shall be deemed to be true and correct in all material respects
unless the failure or failures of such representations and warranties to be so
true and correct, individually or in the aggregate, represent a material adverse
change from the business, financial condition or results of operations of First
Citizens and its subsidiaries taken as a whole as represented in the Merger
Agreement; (ii) First Citizens shall have duly performed in all material
respects all obligations required to be performed by it under the Merger
Agreement at or prior to the Closing Date; (iii) the consent, approval or waiver
of each person (other than the Governmental Entities) whose consent or approval
shall be required in order to permit the succession by the surviving corporation
or the surviving bank in the Merger or the Bank Merger, as the case may be, to
any obligation, right or interest of First Citizens or any subsidiary of First
Citizens under any agreement shall have been obtained, except where the failure
to obtain such consents or approvals would not have a Material Adverse Effect
(as defined below) on Provident (after giving effect to the transactions
contemplated by the Merger Agreement); (iv) no proceeding initiated by a
Governmental Entity seeking an Injunction shall be pending; (v) Provident shall
have received an opinion of Muldoon, Murphy & Faucette, in form and substance
reasonably satisfactory to
57
Provident, dated as of the Effective Time, to the effect that, on the basis of
facts, representations and assumptions set forth in such opinion, which are
consistent with the state of facts existing at the Effective Time, the Merger
will be treated as a reorganization within the meaning of Section 368(a) of the
Code and that, accordingly, for federal income tax purposes (A) no gain or loss
will be recognized by Provident or First Citizens as a result of the Merger,
except to the extent First Citizens or Citizens Savings may be required to
recognize any income due to the recapture of bad debt reserves, (B) no gain or
loss will be recognized by the stockholders of First Citizens who exchange all
of their First Citizens Common Stock solely for Provident Common Stock pursuant
to the Merger (except with respect to cash received in lieu of a fractional
share interest in Provident Common Stock), and (C) the aggregate tax basis of
the Provident Common Stock received by stockholders who exchange all of their
First Citizens Common Stock solely for Provident Common Stock pursuant to the
Merger will be the same as the aggregate tax basis of the First Citizens Common
Stock surrendered in exchange therefor (reduced by any amount allocable to a
fractional share interest for which cash is received) (see "-- Certain Federal
Income Tax Consequences of the Merger" below); (vi) Provident shall have
received a letter addressed to Provident, dated as of the Effective Time, from
Provident's independent public accountants to the effect that the Merger will
qualify for pooling-of-interests accounting treatment; and (vii) evidence of
good and marketable title or the evidence of valid and enforceable leases for
First Citizens' branch offices shall have been delivered to Provident in a form
reasonably satisfactory to Provident except where First Citizens' failure to
establish either good and marketable title or valid and enforceable leases would
not have a Material Adverse Effect on First Citizens.
The Merger Agreement defines a "Material Adverse Effect," when applied
to a party to the Merger Agreement, as any effect that (i) is material and
adverse to the business, results of operations or financial condition of such
party and its subsidiaries taken as whole, or (ii) materially impairs the
ability of such party to consummate the transactions contemplated by the Merger
Agreement; PROVIDED, HOWEVER, that Material Adverse Effect shall not be deemed
to include the impact of (a) changes in laws and regulations or interpretations
thereof that are generally applicable to the banking or savings and loan
industries, (b) changes in generally accepted accounting principles or
regulatory accounting principles that are generally applicable to the banking or
savings and loan industries, (c) expenses incurred in connection with the
transactions contemplated by the Merger Agreement, and (d) changes attributable
to or resulting from changes in general economic conditions, including changes
in the prevailing level of interest rates.
The obligations of First Citizens to effect the Merger are further
subject to the satisfaction, or waiver by First Citizens, of the following
conditions: (i) the representations and warranties of Provident contained in the
Merger Agreement shall be true and correct in all material respects as of the
date of the Merger Agreement and (except to the extent that such representations
and warranties relate to an earlier date) as of the Closing Date as though made
on and as of the Effective Time; PROVIDED, HOWEVER, that such representations
and warranties shall be deemed to be true and correct in all material respects
unless the failure or failures of such representations and warranties to be so
true and correct, individually or in the aggregate, represent a material adverse
change from the business, financial condition or results of operations of
Provident and its subsidiaries taken as a whole as represented in the Merger
Agreement; (ii) Provident shall have performed in all material respects all
obligations required to be performed by it under the Merger Agreement at or
prior to the
58
Closing Date; (iii) the consent, approval or waiver of each person (other than
the Governmental Entities) whose consent or approval shall be required in
connection with the transactions contemplated by the Merger Agreement under any
agreement to which Provident or any of its subsidiaries is a party or is
otherwise bound shall have been obtained, except those for which the failure to
obtain such consents and approvals would not, individually or in the aggregate,
have a Material Adverse Effect on Provident (after giving effect to the
transactions contemplated by the Merger Agreement); (iv) no proceeding initiated
by any Governmental Entity seeking an Injunction shall be pending; (v) First
Citizens shall have received an opinion of Muldoon, Murphy & Faucette, in form
and substance reasonably satisfactory to First Citizens, dated as of the
Effective Time, substantially to the effect that on the basis of facts,
representations and assumptions set forth in the opinion, which are consistent
with the state of facts existing at the Effective Time, the Merger will be
treated as a reorganization within the meaning of Section 368(a) of the Code and
that, accordingly, for federal income tax purposes (A) no gain or loss will be
recognized by Provident or First Citizens as a result of the Merger, except to
the extent First Citizens or Citizens Savings may be required to recognize any
income due to the recapture of bad debt reserves; (B) no gain or loss will be
recognized by the stockholders of First Citizens who exchange all of their First
Citizens Common Stock solely for Provident Common Stock pursuant to the Merger
(except with respect to cash received in lieu of a fractional share interest in
Provident Common Stock); and (C) the aggregate tax basis of the Provident Common
Stock received by stockholders who exchange all of their First Citizens Common
Stock solely for Provident Common Stock pursuant to the Merger will be the same
as the aggregate tax basis of the First Citizens Common Stock surrendered in
exchange therefor (reduced by any amount allocable to a fractional share
interest for which cash is received) (see "-- Certain Federal Income Tax
Consequences of the Merger" below); and (vi) Provident shall have received a
letter addressed to Provident, dated as of the Effective Time, from Provident's
independent public accountants to the effect that the Merger will qualify for
pooling-of-interests accounting treatment.
No assurance can be provided as to when, or whether, the regulatory
consents and approvals necessary to consummate the Merger will be obtained or
whether all of the other conditions precedent to the Merger will be satisfied or
waived by the party permitted to do so. See "-- Regulatory Approvals Required
for the Merger" below. If the Merger is not effected on or before December 31,
1997, the Merger Agreement may be terminated by a vote of a majority of the
Board of Directors of either Provident or First Citizens unless the failure to
effect the Merger by such date is due to the breach of the Merger Agreement by
the party seeking to terminate the Merger Agreement.
REGULATORY APPROVALS REQUIRED FOR THE MERGER
Consummation of the Merger is subject to a number of regulatory
approvals and consents. The Merger is subject to the prior approval of the FDIC
under the Bank Merger Act. In reviewing applications under the Bank Merger Act,
the FDIC must consider, among other factors, the financial and managerial
resources and future prospects of the existing and proposed institutions, and
the convenience and needs of the communities to be served. In addition, the FDIC
may not approve a transaction that will result in a monopoly or be in
furtherance of any combination or conspiracy to monopolize or to attempt to
monopolize the business of banking in any part of the United States, or
59
if its effect in any section of the country may be substantially to lessen
competition or to tend to create a monopoly, or if it would in any other manner
be a restraint of trade, unless the FDIC finds that the anticompetitive effects
of the transaction are clearly outweighed by the public interests and the
probable effect of the transaction on meeting the convenience and needs of the
communities to be served. Any transaction approved by the FDIC may not be
consummated until 30 days after such approval, during which time the Department
of Justice may challenge such transaction on antitrust grounds and seek the
divestiture of certain assets and liabilities. With the approval of the FDIC and
the Department of Justice, the waiting period may be reduced to no less than 15
days. On July 7, 1997, the FDIC approved the application filed by Provident.
Consummation of the Merger is also subject to the prior written notice
to the Board of Governors of the Federal Reserve System or the Federal Reserve
Bank of Richmond acting under delegated authority (together, the "Federal
Reserve") under Section 4(c)(8) of the BHC Act. In reviewing a notice under
Section 4(c)(8) of the BHC Act, the Federal Reserve will consider whether
performance of the nonbanking activity by a bank holding company or a subsidiary
of such company can reasonably be expected to produce benefits to the public,
such as greater convenience, increased competition, or gains in efficiency, that
outweigh possible adverse effects, such as undue concentration of resources,
decreased or unfair competition, conflicts of interests, or unsound banking
practices. The Federal Reserve also maintains authority to impose conditions on
a nonbanking acquisition under Section 4(c)(8) of the BHC Act.
Under the Community Reinvestment Act of 1977, as amended (the "CRA"),
the FDIC and the Federal Reserve Board must also take into account the record of
performance of each of the bank subsidiaries of Provident and First Citizens in
meeting the credit needs of the entire community, including low and moderate
income neighborhoods, served by each institution. As part of the review process,
the banking agencies frequently receive comments and protests from community
groups and others.
The Merger is also subject to the prior approval of the Maryland
Commissioner of Financial Regulation. In reviewing a Merger Agreement, the
Commissioner will consider, among other things, the adequacy of the capital
structure of the successor entity in relation to its deposit liabilities and
other activities, whether the agreement is fair, whether the proposed
transaction is against the public interest and whether the successor meets the
requirements of Maryland law for the formation of a commercial bank. Additional
approvals and/or notices under Maryland law also may be required in connection
with the indirect acquisition of certain subsidiaries of Citizens Savings.
In addition, notice of the Merger must be filed with the OTS pursuant
to the Home Owners' Loan Act, as amended, since a savings association will not
be the resulting institution from the Merger. The notice to the OTS, which may
be in the form of the application to the FDIC under the Bank Merger Act, must
demonstrate compliance with applicable stockholder or accountholder approval
requirements.
Provident is not aware of any other regulatory approvals that would be
required for consummation of the Merger, except as described above. Should any
other approvals be required, it is presently contemplated that such approvals
would be sought. There can be no assurance that any other approvals, if
required, will be obtained.
60
Applications have been submitted seeking approval of the FDIC and the
State of Maryland and notifications have been filed with the FRB and the OTS.
The Merger cannot proceed in the absence of the requisite regulatory approvals.
See "-- Conditions to the Merger" above and "-- Waiver and Amendment;
Termination; Termination Fee" below. On July 7, 1997, the FDIC approved the
application filed by Provident. There can be no assurance that the Department of
Justice or the Maryland State Attorney General will not challenge the Merger or,
if such challenge is made, as to the result thereof. On July 7, 1997, the
Federal Reserve approved the notice filed by Provident.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, First Citizens has agreed that until
the Effective Time, except as provided in the Merger Agreement, the Stock Option
Agreement or the Bank Merger Agreement (as defined below) or with the prior
consent of Provident, First Citizens and its subsidiaries will carry on their
respective businesses in the ordinary course consistent with past practice.
First Citizens has agreed to use its reasonable best efforts to (x) preserve its
business organization and that of its subsidiaries' intact, (y) keep available
to itself and Provident the present services of its and its subsidiaries'
employees and (z) preserve for itself and Provident the goodwill of its and its
subsidiaries' customers and others with whom business relationships exist.
The Merger Agreement also contains certain restrictions on the conduct
of First Citizens' business pending consummation of the Merger. In particular,
the Merger Agreement provides that, except as provided in the Merger Agreement
or with the prior written consent of Provident, First Citizens and its
subsidiaries may not, among other things, (i) solely in the case of First
Citizens, declare or pay any dividends on, or make other distributions in
respect of, any of its capital stock, (ii)(a) split, combine or reclassify any
shares of its capital stock or (b) repurchase, redeem or otherwise acquire
(except for the acquisition of Trust Account Shares and DPC Shares) any shares
of the capital stock of First Citizens or any of its subsidiaries or any
securities convertible into or exercisable therefor, (iii) subject to certain
exceptions, issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or securities convertible
into or exchangeable therefor or any rights, warrants or options to acquire, any
such shares or enter into any agreement with respect to any of the foregoing,
(iv) amend its Certificate of Incorporation, By-laws or other similar governing
documents, (v) make any capital expenditures other than in the ordinary course
of business or as necessary to maintain existing assets in good repair, and in
any event are in an amount of no more than $50,000, (vi) enter into any new line
of business, (vii) subject to certain exceptions, acquire or agree to acquire
any business or entity or otherwise acquire any assets which would be material,
individually or in the aggregate, to First Citizens, (viii) take any action that
is intended or may reasonably be expected to result in any of its
representations and warranties set forth in the Merger Agreement being or
becoming untrue in any material respect, or in any of the conditions to the
Merger not being satisfied, or in a violation of any provision of the Merger
Agreement or the Bank Merger Agreement, except as may be required by applicable
law, (ix) change its methods of accounting in effect at December 31, 1995,
subject to certain exceptions, (x)(a) adopt, amend, renew or terminate (except
as may be required by law) any employee benefit plan or agreement, arrangement,
plan or policy between First Citizens or any of its subsidiaries and any of its
current or former directors, officers and employees, or (b) except as required
by applicable law,
61
increase in any manner the compensation or fringe benefits of any director,
officer or employee or pay any benefit not required by any plan or agreement as
in effect as of the date of the Merger Agreement (including, without limitation,
the granting of stock options, stock appreciation rights, restricted stock,
restricted stock units or performance units or shares), or (c) enter into, or
amend the terms of, loans with any director, officer or employee on terms more
preferable than those terms offered to nonaffiliated parties; PROVIDED, HOWEVER,
that reasonable retention bonuses as contemplated by the Merger Agreement may be
paid by First Citizens to selected employees and officers of First Citizens
after consultation with Provident; (xi) other than in the ordinary course of
business consistent with past practice, sell, lease, encumber, assign, or
otherwise dispose of or agree to sell, lease, encumber, assign or otherwise
dispose of its material assets, properties or other rights or agreements, (xii)
other than in the ordinary course of business consistent with past practice,
incur any indebtedness for borrowed money, or assume, guarantee, endorse or
otherwise become responsible for the obligations of any other entity, (xiii)
file any application to relocate or terminate the operations of any of First
Citizens' banking offices, (xiv) subject to certain exceptions, invest or commit
to invest in real estate or any real estate development project, (xv) create,
renew, amend or terminate or give notice to do the same to any material
contract, agreement or lease for goods, services or office space to which First
Citizens or any of its subsidiaries is a party or by which First Citizens or any
of its subsidiaries or their respective property is bound, (xvi) take any action
which would cause the termination or cancellation by the FDIC of insurance in
respect of First Citizens' deposits, or (xvii) agree to do any of the foregoing.
First Citizens also has agreed in the Merger Agreement that neither it
nor any of its subsidiaries will authorize or permit any of its officers,
directors, employees or agents to directly or indirectly solicit, initiate or
encourage any inquiries relating to, or the making of any proposal which
constitutes, a "takeover proposal" (as defined below), or, except to the extent
legally required for the discharge of the fiduciary duties of the First Citizens
Board, (i) recommend or endorse any takeover proposal, (ii) participate in any
discussions or negotiations, or (iii) provide third parties with any non-public
information, relating to any such inquiry or proposal, provided that First
Citizens may communicate information about any such takeover proposal to its
stockholders if, in the judgment of the First Citizens Board, based upon the
advice of outside counsel, such communication is required under applicable law.
First Citizens has agreed to cease and cause to be terminated any activities,
discussions or negotiations previously conducted with any parties other than
Provident with respect to any of the foregoing. First Citizens will notify
Provident promptly if any such inquiries or takeover proposals are received by,
any such information is requested from, or any such negotiations or discussions
are sought to be initiated or continued with, First Citizens, and will promptly
inform Provident of the relevant details with respect to the foregoing. As used
in the Merger Agreement, "takeover proposal" means any tender or exchange offer,
proposal for a merger, consolidation or other business combination involving
First Citizens or any subsidiary of First Citizens or any proposal or offer to
acquire in any manner a substantial equity interest in, or a substantial portion
of the assets of, First Citizens or any subsidiary of First Citizens other than
the transactions contemplated or permitted by the Merger Agreement, the Bank
Merger Agreement and the Stock Option Agreement.
Pursuant to the Merger Agreement, Provident has also agreed that until
the Effective Time, except as provided in the Merger Agreement or the Bank
Merger Agreement or with the prior written
62
consent of First Citizens, Provident and its subsidiaries will carry on their
respective businesses in the ordinary course consistent with past practice and
consistent with prudent banking practice. In particular, the Merger Agreement
provides that, except as provided in the Merger Agreement or with the prior
written consent of First Citizens, Provident and its subsidiaries may not, among
other things, (i) solely in the case of Provident, declare, pay or make any
extraordinary or special dividends or distributions in respect of its capital
stock, except that nothing contained in the Merger Agreement will prohibit
Provident from increasing the quarterly cash dividend on the Provident Common
Stock in an amount consistent with past practice, (ii) take any action that is
intended or may reasonably be expected to result in any of its representations
and warranties set forth in the Merger Agreement being or becoming untrue in any
material respect, or in any of the conditions to the Merger not being satisfied,
or in a violation of any provision of the Merger Agreement, except as may be
required by applicable law, (iii) amend its Articles of Incorporation or By-laws
or other governing instrument in a manner which would adversely affect in any
manner the terms of the Provident Common Stock or the ability of Provident to
consummate the transactions contemplated by the Merger Agreement, (iv) make or
undertake any acquisition that could jeopardize the receipt of any Requisite
Regulatory Approvals or materially delay the consummation of the Merger or the
Bank Merger, or (vi) agree to do any of the foregoing.
REPRESENTATIONS AND WARRANTIES
In the Merger Agreement, each of Provident and First Citizens has made
certain customary representations and warranties relating to, among other
things, the parties' respective organization, authority relative to the Merger
Agreement, capitalization, subsidiaries, required consents and approvals, taxes,
employee benefit plans, material contracts, litigation, compliance with
applicable laws, environmental matters, reliability of financial statements and
the absence of material adverse changes in the parties' businesses, financial
condition or results of operations. For detailed information on such
representations and warranties, see the Merger Agreement attached hereto as
Annex A and incorporated by reference herein. Pursuant to the Merger Agreement,
it is a condition to each party's obligation to consummate the Merger that the
representations and warranties of the other party contained in the Merger
Agreement be true and correct in all material respects as of the date of the
Merger Agreement and as of the Effective Time; provided, however, that such
representations and warranties will be deemed to be true and correct in all
material respects unless the failure to be true and correct, individually or in
the aggregate, represents a material adverse change from the business, financial
condition or results of operations of the party making such representations and
warranties and its subsidiaries, taken as a whole, as represented in the Merger
Agreement. See "-- Conditions to the Merger."
WAIVER AND AMENDMENT; TERMINATION; TERMINATION FEE
Prior to the Effective Time, any provision of the Merger Agreement may
be waived by the party benefitted by the provision or, subject to applicable
law, amended or modified (including the structure of the transaction) by an
agreement in writing approved by the Boards of Directors of Provident and First
Citizens provided that, after the vote of the stockholders of Provident and/or
First Citizens, the Merger Agreement may not be amended, without further
approval of such stockholders,
63
to reduce the amount or change the form of the consideration to be received by
First Citizens' stockholders other than as contemplated by the Merger Agreement.
The Merger Agreement may be terminated at any time prior to the
Effective Time, either before or after approval of the matters presented in
connection with the Merger by the stockholders of both First Citizens and
Provident, as follows: (i) by the mutual consent of Provident and First Citizens
if the Boards of Directors of each so determines; (ii) by either Provident or
First Citizens upon written notice to the other (a) 30 days after the date on
which any request or application for a regulatory approval required for
consummation of the transactions contemplated by the Merger Agreement is denied
or withdrawn at the request of the Governmental Entity which must grant such
approval, unless within the 60-day period following such denial or withdrawal a
petition for rehearing or an amended application has been filed with the
applicable Governmental Entity (or unless the failure to obtain the necessary
regulatory approval is due to the failure of the party seeking to terminate the
Merger Agreement to perform or observe its covenants and agreements set forth in
the Merger Agreement) or (b) if any Governmental Entity of competent
jurisdiction issues a final nonappealable order enjoining or otherwise
prohibiting the consummation of any of the transactions contemplated by the
Merger Agreement; (iii) by either Provident or First Citizens in the event that
the Merger has not been consummated by December 31, 1997, unless the failure to
consummate the Merger is due to a breach of the Merger Agreement by the party
seeking to terminate the Merger Agreement; (iv) by either Provident or First
Citizens (provided that the terminating party is not in breach of its
obligations in the Merger Agreement with respect to the meeting of its
stockholders to approve the Merger Agreement) if any approval of the
stockholders of either of Provident or First Citizens required for consummation
of the Merger Agreement shall not have been obtained; (v) by either Provident or
First Citizens in the event of (a) a material breach by the other of any of its
representations or warranties contained in the Merger Agreement which is not
cured within 30 days after written notice of such breach is given to the
breaching party or which breach, by its nature, cannot be cured prior to the
Closing and which breach would allow the non-breaching party not to consummate
the Merger or (b) a material breach of any of the covenants or agreements
contained in the Merger Agreement by the other which is not cured within 30 days
after written notice of such breach is given to the breaching party; (vi) by
First Citizens by action of the First Citizens Board, by giving written notice
of such election to Provident within two business days after the Valuation
Period, in the event the Average Closing Price is less than $33.929, provided
that no right of termination will arise under this provision if Provident elects
within five business days of receipt of such written notice to increase the
Exchange Ratio such that the value of the Provident Common Stock (based on the
Average Closing Price) to be paid in respect of each share of First Citizens
Common Stock is not less than $26.006 (see "-- Exchange Ratio" above); (vii) by
Provident, if the First Citizens Board shall have withdrawn, modified or amended
in any respect materially adverse to Provident its recommendation to the
stockholders of First Citizens that they approve and adopt the Merger Agreement;
or (viii) by First Citizens, if the Provident Board shall have withdrawn,
modified or amended in any respect materially adverse to First Citizens its
recommendation to the stockholders of Provident that they approve and adopt the
Merger Agreement.
In the event of the termination of the Merger Agreement by either
Provident or First Citizens, neither Provident nor First Citizens will have any
further obligations under the Merger Agreement except (i) for certain specified
provisions of the Merger Agreement relating to confidentiality and
64
expenses and (ii) that no party will be relieved or released from any
liabilities or damages arising out of its willful breach of any provisions of
the Merger Agreement. In addition, in the event that both an Initial Triggering
Event and a Subsequent Triggering Event shall have occurred prior to the
occurrence of an Exercise Termination Event (as such terms are defined in the
Stock Option Agreement), then, in lieu of any other amounts payable by First
Citizens under the Merger Agreement, but in addition to the obligations of First
Citizens under the Stock Option Agreement, First Citizens shall pay to Provident
a termination fee of $1,700,000. See "CERTAIN RELATED TRANSACTIONS -- Stock
Option Agreement; Termination Fee."
NASDAQ LISTING
The Provident Common Stock is listed on the Nasdaq. Provident has
agreed to use reasonable efforts to cause the shares of Provident Common Stock
to be issued in the Merger to be approved for quotation on the Nasdaq, subject
to official notice of issuance, prior to or at the Effective Time. The
obligations of the parties to consummate the Merger are subject to approval for
quotation by the Nasdaq of such shares. See "-- Conditions to the Merger" above.
ANTICIPATED ACCOUNTING TREATMENT
The Merger is expected to qualify as a pooling-of-interests for
accounting and financial reporting purposes. Under this method of accounting,
the recorded amount of assets and liabilities of Provident and First Citizens
will be combined at the Effective Time and carried forward at their previously
recorded amounts and the stockholders' equity accounts of Provident and First
Citizens will be combined on Provident's consolidated balance sheet. Income and
other financial statements of Provident issued after the Effective Time will be
restated retroactively to reflect the consolidated operations of Provident and
First Citizens as if Provident and First Citizens have always been combined.
The Merger Agreement provides that a condition to each of Provident's
and First Citizens' obligation to consummate the Merger is the receipt of a
letter from Provident's independent accountants to the effect that the Merger
qualifies for pooling-of-interests accounting treatment. See "-- Conditions to
the Merger" above.
Should there be an issuance of shares of First Citizens Common Stock
pursuant to the Stock Option Agreement, this may prevent the Merger from
qualifying as a pooling-of-interests for accounting and financial reporting
purposes. See "CERTAIN RELATED TRANSACTIONS -- Stock Option Agreement;
Termination Fee."
For information concerning certain restrictions to be imposed on the
transferability of Provident Common Stock to be received by affiliates in order,
among other things, to ensure the availability of pooling-of-interests
accounting treatment, see "-- Resales of Provident Common Stock by Affiliates"
below.
The unaudited pro forma condensed combined financial information
contained in this Joint Proxy Statement/Prospectus has been prepared using the
pooling-of-interests accounting method to
65
account for the Merger. See "PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
THE MERGER. The following is a discussion of the material federal
income tax consequences of the Merger to Provident, First Citizens and holders
of First Citizens Common Stock. The discussion is based upon the Code, Treasury
regulations, Internal Revenue Service (the "Service") rulings, and judicial and
administrative decisions in effect as of the date hereof, all of which are
subject to change at any time, possibly with retroactive effect. This discussion
assumes that the First Citizens Common Stock is held as a "capital asset" within
the meaning of Section 1221 of the Code (I.E., property generally held for
investment). In addition, this discussion does not address all of the tax
consequences that may be relevant to a holder of First Citizens Common Stock in
light of his or her particular circumstances or to holders subject to special
rules, such as foreign persons, financial institutions, tax-exempt
organizations, dealers in securities or foreign currencies or insurance
companies. The opinions of counsel referred to in this section will be based on
facts existing at the Effective Time, and in rendering such opinions, such
counsel will require and rely upon representations contained in certificates of
officers of Provident, officers of First Citizens and others.
HOLDERS OF FIRST CITIZENS COMMON STOCK SHOULD CONSULT THEIR TAX
ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING
THE APPLICABILITY AND EFFECT OF ANY FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND
OTHER TAX LAWS.
It is a condition to the obligation of Provident and First Citizens to
consummate the Merger that Provident and First Citizens each shall have received
an opinion of Muldoon, Murphy & Faucette, counsel to Provident, dated as of the
Effective Time, in form and substance reasonably satisfactory to Provident and
First Citizens, respectively, to the effect that the Merger will be treated as a
reorganization within the meaning of Section 368(a) of the Code and that,
accordingly, for federal income tax purposes:
(i) no gain or loss will be recognized by Provident or
First Citizens as a result of the Merger except to
the extent First Citizens or Citizens Savings may be
required to recognize any income due to the recapture
of bad debt reserves,
(ii) no gain or loss will be recognized by the
stockholders of First Citizens who exchange all of
their First Citizens Common Stock solely for
Provident Common Stock pursuant to the Merger (except
with respect to cash received in lieu of a fractional
share interest in Provident Common Stock); and
(iii) the aggregate tax basis of the Provident Common Stock
received by a stockholder who exchange all of their
First Citizens Common Stock solely for Provident
Common Stock
66
pursuant to the Merger will be the same as the
aggregate tax basis of the First Citizens Common
Stock surrendered in exchange therefor (reduced by
any amount allocable to a fractional share interest
in Provident Common Stock for which cash is
received).
If such an opinion is not received by First Citizens and such condition
is waived by First Citizens, and the material federal income tax consequences to
holders of First Citizens Common Stock in the Merger are different from those
described herein, First Citizens will not proceed with the consummation of the
Merger unless the approval of the Merger by the stockholders of First Citizens
is obtained through a resolicitation of such shareholders with revised proxy
materials. First Citizens currently anticipates that such tax opinion will be
delivered and that it will not waive the condition requiring receipt of such
opinion. Based upon the current ruling position of the Service, cash received by
a holder of First Citizens Common Stock in lieu of a fractional share interest
in Provident Common Stock will be treated as received in exchange for such
fractional share interest, and gain or loss will be recognized for federal
income tax purposes measured by the difference between the amount of cash
received and the portion of the basis of the share of First Citizens Common
Stock allocable to such fractional share interest. Such gain or loss should be
long-term capital gain or loss if such share of First Citizens Common Stock has
been held for more than one year at the Effective Time.
BAD DEBT RESERVE RECAPTURE. Under prior law, Citizens Savings accounted
for bad debts using the reserve method under Section 593 of the Code. Recent
amendments to the Code (the "Amendments") eliminated the reserve method under
Section 593 effective for taxable years beginning after December 31, 1995. The
Amendments require thrift institutions that are treated as large banks, such as
Citizens Savings, to recapture their post-1987 bad debt reserves ratably over
the six taxable year period beginning after 1995. The Amendments are effective
for Citizens Savings' taxable years beginning on and after January 1, 1996.
Citizens Savings has accrued a deferred tax liability of approximately $228,000,
which is Citizens Savings management's current estimate of the amount of the tax
liability arising out of its post-1987 bad debt reserve to be recaptured.
Under the Amendments, whether any or all of Citizens Savings pre-1988
bad debt reserves would have to be recaptured as a result of the Bank Merger has
been left to be specified in Treasury regulations. Under the legislative history
to the Amendments, such regulations are to provide that "if an institution with
a pre-1988 reserve is merged or liquidated tax-free into a bank, the pre-1988
reserve should not be restored to income by reason of the merger or liquidation.
Rather, the bank will inherit the pre-1988 reserve . . . of the former thrift
institution, and Section 593(c) will apply to the bank as if it were a thrift
institution." Although there can be no assurance as to the content or the
operation of such Treasury regulations or as to when such regulations might be
issued, based on the legislative history to the Amendments, it appears that the
Bank Merger should not trigger the recapture of Citizens Savings' pre-1988
reserves and that, instead, Provident Bank will succeed to such reserves.
Nevertheless, such reserves are subject to future recapture.
67
RESALES OF PROVIDENT COMMON STOCK BY AFFILIATES
The shares of Provident Common Stock to be issued in the Merger will be
registered under the Securities Act and will be freely transferable under the
Securities Act except for shares issued to any First Citizens stockholder who
may be deemed to be an "affiliate" of First Citizens for purposes of Rule 145
under the Securities Act. Affiliates may not sell their shares of Provident
Common Stock acquired in connection with the Merger except pursuant to an
effective registration statement under the Securities Act covering such shares
or in compliance with Rule 145 or another applicable exemption from the
registration requirements of the Securities Act. This Joint Proxy
Statement/Prospectus does not cover any resales of Provident Common Stock
received in the Merger by persons who may be deemed to be affiliates of First
Citizens. Persons who may be deemed to be affiliates of First Citizens generally
include individuals or entities that control, are controlled by or are under
common control with First Citizens, and may include certain officers and
directors as well as principal stockholders of First Citizens.
Commission guidelines regarding qualifying for the pooling-of-interests
method of accounting also limit sales by affiliates of the acquiring and
acquired company in a business combination. Commission guidelines indicate
further that the pooling-of-interests method of accounting will generally not be
challenged on the basis of sales by affiliates of the acquiring or acquired
company if they do not dispose of any of the shares of the corporation they own
or shares of a corporation they receive in connection with a merger during the
period beginning 30 days before the effective date of the merger and ending when
financial results covering at least 30 days of post-merger operations of the
combined entity have been published. Provident has agreed in the Merger
Agreement to use its best efforts to publish such results no later than
forty-five (45) days after the end of the month in which the Effective Time
occurs.
Provident and First Citizens have each agreed in the Merger Agreement
to use their best efforts to cause each person who is an affiliate (for purposes
of Rule 145 of the Securities Act and for purposes of qualifying the Merger for
pooling-of-interests accounting treatment) of such party to deliver to the other
party a written agreement intended to ensure compliance with the Securities Act
and preserve the ability to treat the Merger as a pooling-of-interests.
NO APPRAISAL RIGHTS
Pursuant to Section 262(b) of the Delaware General Corporation law, the
stockholders of a constituent corporation in a merger generally are not entitled
to appraisal rights if the shares of stock they own are, as of the record date
fixed to determine stockholders entitled to notice of and to vote at the meeting
to act upon the agreement providing for such merger, either listed on a national
securities exchange or designated as a national market system security on
Nasdaq, or held of record by more than 2,000 stockholders. However, stockholders
that would otherwise not have appraisal rights pursuant to the provisions
described in the previous sentence are entitled to appraisal rights if such
stockholders are required by the terms of the merger to accept for their stock
anything except (i) shares of the corporation surviving the merger, (ii) shares
of stock which are either listed on a national securities exchange, designated
as a national market system security on Nasdaq or held of record by more than
2,000 stockholders, or (iii) cash in lieu of fractional shares of stock
described
68
in (i) and (ii) above or any combination thereof. First Citizens stockholders
are not entitled to appraisal rights generally because the shares of First
Citizens Common Stock are listed on the Nasdaq and such stockholders are not
entitled to appraisal rights in connection with the Merger because the shares of
Provident Common Stock to be issued in the Merger are shares of the surviving
corporation in the Merger and will be listed on the Nasdaq at the Effective
Time, subject to official notice of issuance. In addition, there are more than
2,000 holders of record of Provident Common Stock.
EXPENSES
All costs and expenses incurred in connection with the Merger
Agreement, the Stock Option Agreement and the transactions contemplated thereby
shall be paid by the party incurring such expense, except that Provident and
First Citizens shall share equally in the expenses incurred in connection with
printing and mailing this Joint Proxy Statement/Prospectus.
CERTAIN RELATED TRANSACTIONS
STOCK OPTION AGREEMENT; TERMINATION FEE
THE FOLLOWING IS A SUMMARY OF THE MATERIAL PROVISIONS OF THE STOCK
OPTION AGREEMENT, WHICH IS ATTACHED HERETO AS ANNEX B, AS WELL AS A SUMMARY OF
CERTAIN PROVISIONS OF THE MERGER AGREEMENT (WHICH IS ATTACHED HERETO AS ANNEX A)
WHICH PROVIDE FOR THE PAYMENT BY FIRST CITIZENS TO PROVIDENT OF A $1,700,000
CASH FEE (THE "TERMINATION FEE") IN CERTAIN CIRCUMSTANCES. THE FOLLOWING SUMMARY
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE STOCK OPTION AGREEMENT AND THE
RELEVANT PROVISIONS OF THE MERGER AGREEMENT. EXECUTION OF THE STOCK OPTION
AGREEMENT, AND THE INCLUSION IN THE MERGER AGREEMENT OF THE PROVISIONS RELATING
TO THE TERMINATION FEE, WERE CONDITIONS TO PROVIDENT'S MERGER PROPOSAL.
STOCK OPTION AGREEMENT. Pursuant to the Stock Option Agreement, First
Citizens granted to Provident an option (the "Option") to purchase up to 291,388
shares (the "Option Shares") of First Citizens Common Stock (representing
approximately 9.9% of the issued and outstanding shares of such First Citizens
Common Stock without giving effect to the shares that may be issued upon
exercise of such option) at an exercise price of $23.00 per share (the "Exercise
Price"), subject to the terms and conditions set forth therein.
The Stock Option Agreement provides that Provident may exercise the
Option, in whole or in part, subject to regulatory approval, if both an Initial
Triggering Event (as defined below) and a Subsequent Triggering Event (as
defined below) shall have occurred prior to the occurrence of an Exercise
Termination Event (as defined below); PROVIDED THAT Provident shall have sent to
First Citizens written notice of such exercise within 90 days following such
Subsequent Triggering Event (subject to extension as provided in the Stock
Option Agreement). The terms Initial Triggering Event and Subsequent Triggering
Event generally relate to attempts by one or more third parties to acquire a
significant interest in First Citizens. Any exercise of the Stock Option will be
deemed to occur on the date such notice is sent.
69
For purposes of the Stock Option Agreement:
(a) The term "Initial Triggering Event" means the occurrence of any of
the following events or transactions after March 10, 1997: (i) First Citizens or
any subsidiary of First Citizens, without Provident's prior written consent,
shall have entered into an agreement to engage in, or the First Citizens Board
authorizes, recommends or proposes (or publicly announces its intention to take
any of the foregoing actions with respect to) an Acquisition Transaction (as
defined below) with any person or group (other than as contemplated by the
Merger Agreement); (ii) any person, other than Provident or any subsidiary of
Provident, acquires beneficial ownership, or the right to acquire beneficial
ownership, of 10% or more of the outstanding shares of the First Citizens Common
Stock, or any person other than Provident or any subsidiary of Provident shall
have commenced (as such term is defined under the rules and regulations of the
Commission), or shall have filed or publicly disseminated a registration
statement or similar disclosure statement with respect to, a tender offer or
exchange offer to purchase any shares of First Citizens Common Stock such that,
upon consummation of such offer, such person would own or control 10% or more of
the then-outstanding shares of First Citizens Common Stock (such an offer being
referred to herein as a "Tender Offer" or an "Exchange Offer," respectively);
(iii)(A) the holders of First Citizens Common Stock shall not have approved the
Merger Agreement and the transactions contemplated thereby at the meeting of
such stockholders held for the purpose of voting on such agreement, (B) such
meeting shall not have been held or shall have been canceled prior to
termination of the Merger Agreement, or (C) the First Citizens Board shall have
publicly withdrawn or modified, or publicly announced its intent to withdraw or
modify, in any manner adverse to Provident, its recommendation that the
stockholders of First Citizens approve the transactions contemplated by the
Merger Agreement, in each case after it shall have been publicly announced that
any person other than Provident or any subsidiary of Provident shall have (x)
made, or disclosed an intention to make, a proposal to engage in an Acquisition
Transaction, (y) commenced a Tender Offer, or filed or publicly disseminated a
registration statement or similar disclosure statement with respect to an
Exchange Offer, or (z) filed an application (or given a notice), whether in
draft or final form, under any federal or state banking laws seeking regulatory
approval to engage in an Acquisition Transaction; or (iv) First Citizens shall
have breached any covenant or obligation or shall have willfully breached any
representation or warranty contained in the Merger Agreement and such breach
would entitle Provident to terminate the Merger Agreement in accordance with the
terms thereof (without regard to any cure periods provided for in the Merger
Agreement unless such cure is promptly effected without jeopardizing the
consummation of the Merger in accordance with the terms of the Merger Agreement)
after (A) a bona fide proposal is made by any person other than Provident or any
subsidiary of Provident to First Citizens or its stockholders to engage in an
Acquisition Transaction, (B) any person other than Provident or any subsidiary
of Provident states its intention to First Citizens or its stockholders to make
a proposal to engage in an Acquisition Transaction if the Merger Agreement
terminates, or (C) any person other than Provident or any subsidiary of
Provident shall have filed an application or notice, whether in draft or final
form, with any Governmental Entity to engage in an Acquisition Transaction;
(b) The term "Acquisition Transaction" means (w) a merger or
consolidation, or any similar transaction, involving First Citizens or any of
its subsidiaries (other than internal mergers, reorganizations, consolidations
or dissolutions involving only existing subsidiaries), (x) a purchase,
70
lease or other acquisition of all or a substantial portion of the consolidated
assets of First Citizens and its subsidiaries, or (y) a purchase or other
acquisition (including by way of merger, consolidation, Tender Offer or Exchange
Offer (as such terms are hereinafter defined), share exchange or otherwise) of
securities representing 10% or more of the voting power of First Citizens or any
of its subsidiaries; and
(c) The term "Subsequent Triggering Event" means the occurrence of
either of the following events or transactions after March 10, 1997: (i) the
acquisition by any person of beneficial ownership of 20% or more of the
then-outstanding shares of First Citizens Common Stock; or (ii) the occurrence
of the Initial Triggering Event described above in clause (a)(i), except that
for purposes of this clause (ii) the percentage referred to in subclause (y) of
the definition of "Acquisition Transaction" set forth above is 20%.
The Option will expire upon the occurrence of an "Exercise Termination
Event," defined as: (i) the Effective Time of the Merger; (ii) termination of
the Merger Agreement in accordance with the provisions thereof if such
termination occurs prior to the occurrence of an Initial Triggering Event; or
(iii) twelve months after the termination of the Merger Agreement if such
termination occurs after the occurrence of an Initial Triggering Event (PROVIDED
THAT if an Initial Triggering Event continues or occurs beyond such termination
of the Merger Agreement and prior to the passage of such twelve-month period,
the Option will terminate twelve months from the expiration of the last Initial
Triggering Event to expire, but in no event more than fifteen months after such
termination of the Merger Agreement).
The closing of a purchase of shares pursuant to the Stock Option
Agreement is subject to the obtaining of all necessary governmental approvals
including, without limitation, any approvals required under the BHC Act;
PROVIDED, HOWEVER, that if the Option cannot be exercised because of an
injunction, order or similar restraint issued by a court of competent
jurisdiction, the Option shall expire no earlier than on the 10th business day
after such injunction, order or restraint shall have been dissolved or shall
have become permanent and no longer subject to appeal, as the case may be.
As of the date of this Joint Proxy Statement/Prospectus, to the best
knowledge of Provident and First Citizens, no Initial Triggering Event or
Subsequent Triggering Event has occurred.
The number and type of securities subject to the Option and the
purchase price of shares will be adjusted for (i) any change in the First
Citizens Common Stock by reason of a stock dividend, stock split, split-up,
recapitalization, combination, exchange of shares or similar transaction or (ii)
the effect of any of the rights issued by First Citizens becoming exercisable,
such that Provident will receive (upon exercise of the Option) the same number
and type of securities as if the Option had been exercised immediately prior to
the occurrence of such event (or the record date therefore). The number of
shares of First Citizens Common Stock subject to the Option will also be
adjusted in the event First Citizens issues additional shares of First Citizens
Common Stock such that the number of shares of First Citizens Common Stock
subject to the option, together with shares previously purchased pursuant
thereto, represents 9.9% of the First Citizens Common Stock then issued and
outstanding, without giving effect to shares subject to or issuable pursuant to
the Option. In no event will the number of Option Shares for which the Option is
exercisable exceed 9.9% of First Citizens
71
Common Stock then issued and outstanding, without giving effect to the shares
subject to or issuable pursuant to the Option.
In the event First Citizens enters into any agreement (i) to merge into
or consolidate with any person other than Provident or one of its subsidiaries
such that First Citizens is not the surviving corporation, (ii) to permit any
person, other than Provident or one of its subsidiaries, to merge into First
Citizens and First Citizens is the surviving corporation, but, in connection
with such merger, the then-outstanding shares of First Citizens Common Stock are
changed into or exchanged for stock or other securities of First Citizens or any
other person or cash or any other property or the outstanding shares of First
Citizens Common Stock prior to such merger shall after such merger represent
less than 50% of the outstanding shares and share equivalents of the merged
company, or (iii) to sell or otherwise transfer all or substantially all of its
assets to any person other than Provident or one of its subsidiaries, then, and
in each such case, the agreement governing the transaction must provide that,
upon consummation of the transaction, the Option will be converted into or
exchanged for an option to purchase securities of either the acquiring person,
any person that controls the acquiring person or First Citizens (if First
Citizens is the surviving entity), in all cases at the election of Provident.
Provident has the right to require First Citizens to repurchase (i) the
Option and (ii) any Option Shares acquired pursuant to exercise of the Option of
which Provident has beneficial ownership, upon the occurrence of any of the
following circumstances (each a "Repurchase Event"):
(a) the acquisition by any person or group (other than Provident or any
of its subsidiaries) of beneficial ownership of 50% or more of the
then-outstanding shares of First Citizens Common Stock; or
(b) the consummation of any of the transactions described in clauses
(i) - (iii) of the preceding paragraph.
Such repurchase will be at an aggregate price equal to the sum of: (i)
the aggregate exercise price paid by Provident for any shares of First Citizens
Common Stock acquired pursuant to the Option with respect to which Provident
then has beneficial ownership; (ii) the excess, if any, of (x) the Applicable
Price (as defined below) for each share of First Citizens Common Stock over (y)
the exercise price of the Option, multiplied by the number of shares of First
Citizens Common Stock with respect to which the Option has not been exercised;
and (iii) the excess, if any, of the Applicable Price over the exercise price of
the Option paid by Provident for each share of First Citizens Common Stock with
respect to which the Option has been exercised and with respect to which
Provident then has beneficial ownership, multiplied by the number of such
shares. Provident's right to require such repurchase generally expires twelve
months after the first occurrence of a Repurchase Event. The aggregate amount
that First Citizens may be required to pay to Provident upon exercise of the
repurchase right described herein is capped at $3,500,000.
For purposes of the Stock Option Agreement, "Applicable Price" means
the highest of (i) the highest price per share of First Citizens Common Stock
paid for any such share by any person or group described in subsection (a) of
the second preceding paragraph, (ii) the price per share of First
72
Citizens Common Stock received by the holders of such common stock in connection
with any merger or other business combination referred to in subsection (b) of
the second preceding paragraph and (iii) the highest closing sales price per
share of First Citizens Common Stock quoted on Nasdaq (or, if the First Citizens
Common Stock is not quoted on Nasdaq, the highest bid price per share as quoted
on the principal trading market or securities exchange on which such shares are
traded as reported by a recognized source) during the 60 business days prior to
Provident's exercise of its right to require First Citizens to repurchase the
Option or the shares acquired upon exercise thereof, except that in the event of
a sale of less than all of First Citizens' assets, the Applicable Price shall be
the sum of the price paid in such sale for such assets and the current market
value of the remaining assets of First Citizens as determined by a nationally
recognized investment banking firm selected by Provident, divided by the number
of shares of First Citizens Common Stock outstanding at the time of such sale.
First Citizens has granted Provident certain registration rights with
respect to shares of First Citizens Common Stock acquired by Provident upon
exercise of the Option. These rights include requiring First Citizens to file up
to two registration statements under the Securities Act if requested by
Provident within two years of the date the Option first becomes exercisable (the
"Registration Period") provided such registration is necessary in order to
permit the sale or other disposition of the shares acquired by Provident. Any
such registration statement, and any sale covered thereby, will be at First
Citizens' expense other than underwriting discounts or commissions, brokers'
fees and the fees and disbursements of Provident's counsel related thereto. In
addition, in the event that during the Registration Period First Citizens
effects a registration under the Securities Act of First Citizens Common Stock
(other than on Form S-4 or Form S-8 or any form with respect to a dividend
reinvestment or similar plan), First Citizens will allow Provident to
participate in such registration, subject to certain limitations. In connection
with any registration described above, First Citizens and Provident will provide
to each other and any underwriter of the offering customary representations,
warranties, covenants, indemnifications and contributions.
Certain rights and obligations of Provident and First Citizens under
the Stock Option Agreement are subject to receipt of required regulatory
approvals. The approval of the Federal Reserve Board is required for the
acquisition by Provident of more than 5% of the outstanding shares of First
Citizens Common Stock.
TERMINATION FEE. In the event that the Merger Agreement is terminated
and both an Initial Triggering Event and a Subsequent Triggering Event have
occurred prior to the occurrence of an Exercise Termination Event, then, in lieu
of any other amounts payable by First Citizens under the Merger Agreement, but
in addition to the obligations of First Citizens under the Stock Option
Agreement, First Citizens will be obligated to pay to Provident a cash
termination fee of $1,700,000.
EFFECT OF STOCK OPTION AGREEMENT AND TERMINATION FEE. The Stock Option
Agreement and the Termination Fee are intended to increase the likelihood that
the Merger will be consummated in accordance with the terms of the Merger
Agreement. Consequently, certain aspects of the Stock Option Agreement and the
Termination Fee may have the effect of discouraging persons who might now or
prior to the Effective Time be interested in acquiring all of or a significant
interest in First Citizens from considering or proposing such an acquisition,
even if such persons were prepared to
73
pay a higher price per share for First Citizens Common Stock than the price per
share implicit in the Exchange Ratio. The acquisition of First Citizens or an
interest in First Citizens, or an agreement to acquire all or part of First
Citizens, could cause the Option to become exercisable and the Termination Fee
to become payable. The existence of the Option and the Termination Fee could
significantly increase the cost to a potential acquiror of acquiring First
Citizens compared to its cost had the Stock Option Agreement and the Merger
Agreement not been entered into. Such increased cost might discourage a
potential acquiror from considering or proposing an acquisition or might result
in a potential acquiror proposing to pay a lower per share price to acquire
First Citizens than it might otherwise have proposed to pay. Moreover, following
consultation with First Citizens' independent accountants, the management of
First Citizens believes that the exercise of the Option is likely to prohibit
any acquiror of First Citizens from accounting for any acquisition of First
Citizens using the pooling-of-interests accounting method for a period of two
years following such exercise. Accordingly, the existence of the Stock Option
Agreement may deter significantly, or completely preclude, an acquisition of
First Citizens by certain other banking organizations. The First Citizens Board
took this factor into account before approving the Stock Option Agreement. See
"THE MERGER -- Recommendation of the First Citizens Board; First Citizens'
Reasons for the Merger."
BANK MERGER AGREEMENT
In connection with the Merger, Provident Bank and Citizens Savings have
entered into the Bank Merger Agreement pursuant to which Citizens Savings will
be merged with and into Provident Bank, which will continue as a wholly owned
subsidiary of Provident. The Bank Merger Agreement may be terminated by mutual
consent of the parties at any time and will be terminated automatically in the
event the Merger Agreement is terminated.
CERTAIN REGULATORY CONSIDERATIONS
GENERAL
Provident is a bank holding company subject to supervision and
regulation by the Federal Reserve Board under the BHC Act. As a bank holding
company, Provident's activities and those of its banking and nonbanking
subsidiaries are limited to the business of banking and activities closely
related or incidental to banking, and Provident may not directly or indirectly
acquire the ownership or control of more than five percent of any class of
voting shares or substantially all of the assets of any company, including a
bank, without the prior approval of the Federal Reserve Board.
Provident Bank, as a Maryland-chartered FDIC-insured depository
institution, is subject to the supervision, regulation, and examination of the
State of Maryland and the FDIC. The FDIC has broad enforcement authority over
federally-insured depository institutions, including the power to terminate
deposit insurance, to appoint a conservator or receiver if any of a number of
conditions are met, and to impose substantial fines and other civil penalties.
Almost every aspect of the operations and financial condition of Provident Bank
is subject to extensive regulation and supervision and to various requirements
and restrictions under federal and state law, including requirements governing
capital adequacy, liquidity, earnings, dividends, reserves against deposits,
management practices,
74
branching, loans, investments, and the provision of services. Various consumer
protection laws and regulations also affect the operations of Provident Bank.
The deposits of Provident Bank are insured up to applicable limits by the FDIC.
Supervision and regulation of bank holding companies and their
subsidiaries is intended primarily for the protection of depositors, the deposit
insurance funds of the FDIC and the banking system as a whole, not for the
protection of bank holding company stockholders or creditors.
The following description summarizes some of the laws to which
Provident and Provident Bank are subject. To the extent statutory or regulatory
provisions or proposals are described, the description is qualified in its
entirety by reference to the particular statutory or regulatory provisions or
proposals.
PAYMENT OF DIVIDENDS
Provident is a legal entity separate and distinct from its
subsidiaries. The principal source of Provident's cash revenues is dividends
from Provident Bank and there are various legal and regulatory limitations under
federal law and state law on the extent to which a bank subsidiary can finance
and otherwise supply funds to its holding company.
Under federal law, a depository institution is prohibited from paying a
dividend if the depository institution would thereafter be "undercapitalized" as
determined by the federal bank regulatory agencies.
Under Maryland banking statutes, Provident Bank may not declare a cash
dividend except out of its undivided profits, or from its surplus in excess of
100% of its required capital stock with the prior approval of the Maryland
Commissioner of Financial Regulation both after providing for due or accrued
expenses, losses, interest and taxes.
In addition, Federal Reserve Board policy provides that, as a matter of
prudent banking, a bank holding company generally should not maintain a rate of
cash dividends unless its net income available to common stockholders has been
sufficient to fully fund the dividends, and the prospective rate of earnings
retention appears to be consistent with the holding company's capital needs,
asset quality and overall financial condition.
The relevant federal and state regulatory agencies also have authority
to prohibit a bank or bank holding company from engaging in what, in the opinion
of such regulatory body, constitutes an unsafe or unsound practice in conducting
its business. The payment of dividends could, depending upon the financial
condition of Provident and Provident Bank, be deemed to constitute such an
unsafe or unsound practice.
TRANSACTIONS WITH AFFILIATES
Provident Bank is subject to restrictions under federal law which limit
certain transactions with Provident and its nonbanking subsidiaries, including
loans, other extensions of credit,
75
investments or asset purchases. Such transactions by a banking subsidiary with
any one affiliate are limited in amount to ten percent of a bank's capital and
surplus and, with all affiliates together, to an aggregate of twenty percent of
such bank's capital and surplus. Furthermore, such loans and extensions of
credit, as well as certain other transactions, are required to be secured in
specified amounts. These and certain other transactions, including any payment
of money to Provident, must be on terms and conditions that are, or in good
faith would be, offered to nonaffiliated companies.
HOLDING COMPANY LIABILITY
Under Federal Reserve Board policy, a bank holding company is expected
to act as a source of financial strength to each of its banking subsidiaries and
to commit resources to their support. Such support may be required at times
when, absent this Federal Reserve Board policy, a holding company may not be
inclined to provide it. As discussed below under "Prompt Corrective Action," a
bank holding company in certain circumstances could be required to guarantee the
capital plan of an undercapitalized banking subsidiary.
In the event of a bank holding company's bankruptcy under Chapter 11 of
the U.S. Bankruptcy Code, the bankruptcy trustee will be deemed to have assumed
and is required to cure immediately any deficit under any commitment by the
debtor bank holding company to any of the federal banking agencies to maintain
the capital of an insured depository institution, and any claim for breach of
such obligation will generally have priority over most other unsecured claims.
PROMPT CORRECTIVE ACTION
Under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), the federal banking agencies must take prompt supervisory and
regulatory actions against undercapitalized depository institutions. Depository
institutions are assigned one of five capital categories: "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly undercapitalized,"
and "critically undercapitalized," and subjected to differential regulation
corresponding to the capital category within which the institution falls. Under
certain circumstances, a well capitalized, adequately capitalized or
undercapitalized institution may be treated as if the institution were in the
next lower capital category. A depository institution is generally prohibited
from making capital distributions (including paying dividends) or paying
management fees to a holding company if the institution would thereafter be
undercapitalized. Adequately capitalized institutions cannot accept, renew or
roll over brokered deposits except with a waiver from the FDIC, and are subject
to restrictions on the interest rates that can be paid on such deposits.
Undercapitalized institutions may not accept, renew, or roll over brokered
deposits.
The banking regulatory agencies are permitted or, in certain cases,
required to take certain actions with respect to institutions falling within one
of the three undercapitalized categories. Depending on the level of an
institution's capital, the agencies' corrective powers include, among other
things: prohibiting the payment of principal and interest on subordinated debt;
prohibiting the holding company from making distributions without prior
regulatory approval; placing limits on asset growth and restrictions on
activities; placing additional restrictions on transactions with affiliates;
restricting the interest rate the institution may pay on deposits; prohibiting
the institution
76
from accepting deposits from correspondent banks; and in the most severe cases,
appointing a conservator or receiver for the institution. A banking institution
that is undercapitalized is required to submit a capital restoration plan, and
such a plan will not be accepted unless, among other things, the banking
institution's holding company guarantees the plan up to a certain specified
amount. Any such guarantee from a depository institution's holding company is
entitled to a priority of payment in bankruptcy. As of March 31, 1997, Provident
Bank exceeded the required capital ratios for classification as "well
capitalized." See " -- Capital Adequacy."
CAPITAL ADEQUACY
RISK-BASED CAPITAL AND LEVERAGE RATIOS
RISK-BASED RATIOS
----------------------------------------------------------------------
TIER I TOTAL LEVERAGE
AS OF MARCH 31, 1997 CAPITAL CAPITAL RATIO
- ------------------------------------ ---------------------- ------------------- ---------------------
Provident........................... 9.48% 10.65% 7.20%
Provident Bank...................... 9.32% 10.49% 7.08%
Citizens Savings.................... 10.59% 10.59% 6.06%
Minimum required ratio.............. 4.00% 8.00% 3.00%*
"Well Capitalized" minimum
ratio............................... 6.00% 10.0% 5.00%
* For all but the most highly-rated bank holding companies and banks, the
leverage ratio is 3 percent plus an additional percentage of at least
100 to 200 basis points.
The Federal Reserve Board has adopted risk-based capital guidelines for
bank holding companies. The minimum ratio of total capital to risk-weighted
assets (which are the credit risk equivalents of balance sheet assets and
certain off balance sheet items such as standby letters of credit) is 8.0
percent. At least half of the total capital must be composed of common
stockholders' equity (including retained earnings), qualifying non-cumulative
perpetual preferred stock (and, for bank holding companies only, a limited
amount of qualifying cumulative perpetual preferred stock), and minority
interests in the equity accounts of consolidated subsidiaries, less goodwill,
other disallowed intangibles and disallowed deferred tax assets, among other
items ("Tier 1 capital"). The remainder may consist of a limited amount of
subordinated debt, other perpetual preferred stock, hybrid capital instruments,
mandatory convertible debt securities that meet certain requirements, as well as
a limited amount of reserves for loan losses ("Tier 2 capital"). The Federal
Reserve Board has also adopted a minimum leverage ratio for bank holding
companies, requiring Tier 1 capital of at least 3.0 percent of average total
consolidated assets for the most highly rated bank holding companies and at
least 100 to 200 basis points more for other bank holding companies.
The federal banking regulatory agencies have also established
risk-based and leverage capital guidelines which depository institutions are
required to meet. These regulations are generally similar to those established
by the Federal Reserve Board for bank holding companies. The capital ratios for
Provident, Provident Bank and Citizens Savings are provided in the chart above.
77
The federal banking agencies' risk-based and leverage ratios are
minimum supervisory ratios generally applicable to banking organizations that
meet certain specified criteria, assuming that they have the highest regulatory
rating. Banking organizations not meeting these criteria are expected to operate
with capital positions well above the minimum ratios. The federal banking
regulatory agencies may set capital requirements for a particular banking
organization that are higher than the minimum ratios when circumstances warrant.
Federal Reserve Board 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. In addition, the regulations
of the Federal Reserve Board provide that concentration of credit risk, interest
rate risk, and certain risks arising from nontraditional activities, as well as
an institution's ability to manage these risks, are important factors to be
taken into account by regulatory agencies in assessing an organization's overall
capital adequacy. The agencies have also adopted an adjustment to the risk-based
capital calculations to cover market risk in trading accounts of certain
institutions. Compliance by affected institutions with the market rate
adjustment is not mandatory until January 1, 1998.
As discussed below under "Enforcement Powers of the Federal Banking
Agencies," failure to meet the minimum regulatory capital requirements could
subject a banking institution to a variety of enforcement remedies available to
federal regulatory authorities, including, in the most severe cases, the
termination of deposit insurance by the FDIC and placing the institution into
conservatorship or receivership.
ENFORCEMENT POWERS OF THE FEDERAL BANKING AGENCIES
The federal banking agencies have broad enforcement powers, including
the power to terminate deposit insurance, impose substantial fines and other
civil and criminal penalties and appoint a conservator or receiver. Failure to
comply with applicable laws, regulations and supervisory agreements could
subject Provident and Provident Bank, as well as officers, directors and other
institution-affiliated parties of these organizations, to administrative
sanctions and potentially substantial civil money penalties. In addition to the
grounds discussed under "Prompt Corrective Action," the appropriate federal
banking agency may appoint the FDIC as conservator or receiver for a banking
institution (or the FDIC may appoint itself, under certain circumstances) if any
one or more of a number of circumstances exist, including, without limitation,
the fact that the banking institution is undercapitalized and has no reasonable
prospect of becoming adequately capitalized; fails to become adequately
capitalized when required to do so; fails to submit a timely and acceptable
capital restoration plan; or materially fails to implement an accepted capital
restoration plan.
FDIC INSURANCE ASSESSMENTS
The deposits of Provident Bank are primarily insured by the Bank
Insurance Fund ("BIF") of the FDIC to the extent provided by law. In addition,
the deposits of Citizens Savings and certain deposits of Provident Bank are
insured by the FDIC's Savings Association Insurance Fund ("SAIF").
78
The FDIC has adopted a risk-based assessment system under which the
assessment rate for an insured depository institution varies according to the
level of risk involved in its activities. Under this risk-based insurance
system, BIF-insured deposits are assessed at a rate of between 0 to 27 cents per
$100 of eligible deposits. Until recently, SAIF-insured deposits generally were
assessed at a rate above that assessed on BIF-insured deposits.
In response to concerns that the insurance premium disparity between
deposits insured by BIF and SAIF would have a negative effect on SAIF-insured
institutions and the SAIF, Congress passed legislation that was signed by the
President on September 30, 1996 that, among other things, imposed a special
one-time assessment on SAIF member institutions to recapitalize the SAIF. The
new legislation also spread the obligations for payment of the Financing
Corporation ("FICO") bonds across all SAIF and BIF members. BIF deposits are
currently assessed a FICO payment of 1.3 basis points, while SAIF deposits are
assessed a FICO payment of 6.48 basis points. Full pro rata sharing of the FICO
payments between BIF and SAIF members will occur on the earlier of January 1,
2000 or the date the BIF and SAIF are merged. The legislation specifies that the
BIF and SAIF will be merged on January 1, 1999, provided no savings associations
remain as of that time. FICO payments are to be paid directly by SAIF and BIF
institutions in addition to deposit insurance assessments.
In addition, the FDIC has lowered the rates on SAIF-assessable deposits
to a rate ranging from 0 to 27 basis points. Future SAIF assessment rates are
expected to depend primarily on the rate of any new losses from the SAIF. Under
the recent legislation, however, the FDIC is not permitted to establish SAIF
assessment rates that are lower than comparable BIF assessment rates.
CONTROL ACQUISITIONS
The Change in Bank Control Act (the "CBCA") prohibits a person or group
of persons from acquiring "control" of a bank holding company unless the Federal
Reserve Board has been notified and has not objected to the transaction. Under a
rebuttable presumption established by the Federal Reserve Board, the acquisition
of 10% or more of a class of voting stock of a bank holding company with a class
of securities registered under Section 12 of the Exchange Act, such as
Provident, would, under the circumstances set forth in the presumption,
constitute acquisition of control of Provident.
In addition, any company is required to obtain the approval of the
Federal Reserve Board under the BHC Act before acquiring 25% (5% in the case of
an acquiror that is a bank holding company) or more of the outstanding Common
Stock of Provident, or otherwise obtaining control or a "controlling influence"
over Provident.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
permits an adequately capitalized and adequately managed bank holding company,
with Federal Reserve Board approval, to acquire banking institutions located in
states other than the bank holding company's home state without regard to
whether the transaction is prohibited under state law. In addition, effective
June 1, 1997, national banks and state banks with different home states will be
permitted to merge across state lines, with the approval of the appropriate
federal banking agency, unless the home state of a participating banking
institution passes legislation prior to that date that expressly
79
prohibits interstate mergers. Such interstate mergers may be effected prior to
June 1, 1997 so long as the home state of each participating banking institution
has passed qualifying legislation that expressly permits such transactions. DE
NOVO interstate branching will be permitted, if authorized by the law of the
host state.
FUTURE LEGISLATION
Various legislation, including proposals to overhaul the bank
regulatory system, expand the powers of banking institutions and bank holding
companies and limit the investments that a depository institution may make with
insured funds, is from time to time introduced in Congress. Such legislation may
change banking statutes and the operating environment of Provident and its
subsidiaries in substantial and unpredictable ways. Provident cannot determine
the ultimate effect that potential legislation, if enacted, or implementing
regulations, would have upon the financial condition or results of operations of
Provident or its subsidiaries.
DESCRIPTION OF PROVIDENT CAPITAL STOCK
GENERAL
The authorized capital stock of Provident consists of 30,000,000 shares
of Provident Common Stock and 5,000,000 shares of preferred stock, par value
$1.00 per share ("Provident Preferred Stock"), issuable in one or more series
with such terms and at such times and for such consideration as the Provident
Board determines. As of July 14, 1997, 9,280,484 shares of Provident Common
Stock (including 228,066 shares of treasury stock) and no shares of Provident
Preferred Stock had been issued.
As of July 14, 1997, approximately 1,533,510 shares of Provident Common
Stock had been reserved for issuance upon the exercise of outstanding stock
options under Provident's Amended and Restated Stock Option Plan and 1,142,997
shares of Provident Common Stock were reserved for issuance pursuant to
Provident's dividend reinvestment and stock purchase plans. No shares have been
designated as Class A Preferred Stock, (the "Provident Class A Preferred
Stock"), as provided in the Rights Plan described below.
The following description contains a summary of all the material
features of the capital stock of Provident but does not purport to be complete
and is subject in all respects to the applicable provisions of the Maryland
General Corporate Law (the "MGCL") and is qualified in its entirety by reference
to the Articles of Incorporation of Provident (the "Provident Articles"), and
the terms of the Rights Agreement (the "Provident Rights Agreement"), between
Provident and Provident Bank, as Rights Agent, dated as of January 18, 1995,
described below.
COMMON STOCK
The outstanding shares of Provident Common Stock are fully paid and
nonassessable. Holders of Provident Common Stock are entitled to one vote for
each share held of record on all
80
matters submitted to a vote of the stockholders and have no preemptive rights.
Holders of Provident Common Stock are not entitled to cumulative voting rights
with respect to the election of directors. The Provident Common Stock is neither
redeemable nor convertible into other securities, and there are no sinking fund
provisions.
Subject to the preferences applicable to any shares of Provident
Preferred Stock outstanding at the time, holders of Provident Common Stock are
entitled to dividends when and as declared by the Provident Board from funds
legally available therefor and are entitled, in the event of liquidation, to
share ratably in all assets remaining after payment of liabilities.
The Provident Articles and Provident's By-laws provide that the
Provident Board is to be divided into three classes which shall be as nearly
equal in number as possible. Directors are elected by classes to three-year
terms, so that approximately one-third of the directors of Provident are elected
at each annual meeting of the stockholders. In addition, Provident's By-laws
provide that the power to fill vacancies is vested in the Provident Board. The
overall effect of such provisions may be to prevent a person or entity from
seeking to acquire control of Provident through an increase in the number of
directors on the Provident Board and the election of designated nominees to fill
such newly created vacancies.
RIGHTS PLAN
On January 18, 1995, the Provident Board declared a dividend
distribution of one right (a "Right") for each outstanding share of Provident
Common Stock to stockholders of record at the close of business on January 30,
1995. Each Right entitles the registered holder to purchase from Provident a
unit consisting of one one-hundredth of a share (a "Unit") of Provident Class A
Preferred Stock at a Purchase Price of $80 per Unit, subject to adjustment. The
description and terms of the Rights are set forth in the Provident Rights
Agreement. Unless otherwise defined herein, all capitalized terms used in this
section of the Joint Proxy Statement/Prospectus shall have the meanings set
forth in the Provident Rights Agreement.
The Rights will be evidenced by the Provident Common Stock certificates
until the close of business on the earlier of the date (either, the "Separation
Time") which is (i) the tenth business day (or such later date as the Provident
Board may from time to time fix by resolution adopted prior to the Separation
Time that would otherwise have occurred) after the date on which any Person (as
defined in the Rights Agreement) commences a tender or exchange offer which, if
consummated, would result in such Person's becoming an Acquiring Person, as
defined below, or (ii) the tenth business day (or such earlier or later date as
the Provident Board may from time to time fix by resolution adopted prior to the
Flip-in Date (as defined below) that would otherwise have occurred) after the
first date of public announcement by Provident that such Person has become an
Acquiring Person (the "Flip-in Date"); PROVIDED that if a tender or exchange
offer referred to in clause (i) is canceled, terminated or otherwise withdrawn
prior to the Separation Time without the purchase of any shares of stock
pursuant thereto, such offer shall be deemed never to have been made. An
Acquiring Person is any Person who is the Beneficial Owner (as defined in the
Rights Agreement) of 10% or more of the outstanding shares of Provident Common
Stock, PROVIDED, HOWEVER, such term shall not include (i) Provident, any
wholly-owned subsidiary of Provident or any employee
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stock ownership or other employee benefit plan of Provident, (ii) any person who
is the Beneficial Owner of 10% or more of the outstanding Provident Common Stock
as of the date of the Rights Agreement or who shall become the Beneficial Owner
of 10% or more of the outstanding Provident Common Stock solely as a result of
an acquisition of Provident Common Stock by Provident until such time as such
Person acquires additional Provident Common Stock, other than through a dividend
or stock split, (iii) any Person who becomes an Acquiring Person without any
plan or intent to seek or affect control of Provident if such Person, promptly
divests sufficient securities such that such 10% or greater Beneficial Ownership
ceases or (iv) any Person who Beneficially Owns shares of Provident Common Stock
consisting solely of (A) shares acquired pursuant to the grant or exercise of an
option granted by Provident in connection with an agreement to merge with, or
acquire, Provident prior to a Flip-in Date, (B) shares owned by such Person and
its Affiliates and Associates at the time of such grant (C) shares, amounting to
less than 1% of the outstanding Provident Common Stock, acquired by Affiliates
and Associates of such Person after the time of such grant and (D) shares which
are held by such Person in trust accounts, managed accounts and the like or
otherwise held in a fiduciary capacity, that are beneficially owned by third
persons who are not Affiliates or Associates of such Person or acting together
with such Person to hold such shares, or which are held by such Person in
respect of a debt previously contracted.
The Rights Agreement provides that, until the Separation Time, the
Rights will be transferred with and only with the Provident Common Stock.
Provident Common Stock certificates issued prior to the Separation Time shall
evidence one Right for each share of Provident Common Stock represented thereby
and shall contain a legend incorporating by reference the terms of the Rights
Agreement (as such may be amended from time to time). Notwithstanding the
absence of the aforementioned legend, certificates evidencing shares of
Provident Common Stock outstanding on or prior to January 30, 1995 shall also
evidence one Right for each share of Provident Common Stock evidenced thereby.
Promptly following the Separation Time, separate certificates evidencing the
Rights ("Rights Certificates") will be mailed to holders of record of Provident
Common Stock at the Separation Time.
The Rights will not be exercisable until the Business Day (as defined
in the Rights Agreement) following the Separation Time. The Rights will expire
on the earliest of (i) the Exchange Time (as defined below), (ii) the close of
business on January 18, 2005, (iii) the date on which the Rights are redeemed as
described below and (iv) upon the merger of Provident into another corporation
pursuant to an agreement entered into prior to a Flip-in Date (in any such case,
the "Expiration Time").
The Exercise Price and the number of Rights outstanding, or in certain
circumstances the securities purchasable upon exercise of the Rights, are
subject to adjustment from time to time to prevent dilution in the event of a
Provident Common Stock dividend on, or a subdivision or a combination into a
smaller number of shares of, Provident Common Stock, or the issuance or
distribution of any securities or assets in respect of, in lieu of or in
exchange for Provident Common Stock.
In the event that prior to the Expiration Time a Flip-in Date occurs,
each Right (other than Rights Beneficially Owned by the Acquiring Person or any
affiliate or associate thereof, which
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Rights shall become void) shall constitute the right to purchase from Provident,
upon the exercise thereof in accordance with the terms of the Rights Agreement,
that number of shares of Provident Common Stock having an aggregate Market Price
(as defined in the Rights Agreement), on the date of the public announcement of
an Acquiring Person's becoming such (the "Stock Acquisition Date") that gave
rise to the Flip-in Date, equal to twice the Exercise Price for an amount in
cash equal to the then-current Exercise Price. In addition, the Provident Board
may, at its option, at any time after a Flip-in Date and prior to the time an
Acquiring Person becomes the Beneficial Owner of more than 50% of the
outstanding shares of Provident Common Stock, elect to exchange all (but not
less than all) the then-outstanding Rights (other than Rights Beneficially Owned
by the Acquiring Person or any affiliate or associate thereof, which Rights
become void) for shares of Provident Common Stock at an exchange ratio of one
share of Provident Common Stock per Right, appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the date of
the Separation Time (the "Rights Exchange Ratio"). Immediately upon such action
by the Provident Board (the "Exchange Time"), the right to exercise the Rights
will terminate and each Right will thereafter represent only the right to
receive a number of shares of Provident Common Stock equal to the Rights
Exchange Ratio.
Whenever Provident shall become obligated under the preceding paragraph
to issue shares of Provident Common Stock upon exercise of or in exchange for
Rights, Provident, at its option, may substitute therefor shares of Provident
Class A Preferred Stock, at a ratio of one one-hundredth of a share of Provident
Class A Preferred Stock for each share of Provident Common Stock so issuable.
In the event that prior to the Expiration Time Provident enters into,
consummates or permits to occur a transaction or series of transactions after
the time an Acquiring Person has become such in which, directly or indirectly,
(i) Provident shall consolidate or merge or participate in a binding share
exchange with any other Person if, at the time of the consolidation, merger or
share exchange or at the time Provident enters into an agreement with respect to
such consolidation, merger or share exchange, the Acquiring Person Controls the
Provident Board (as defined in the Rights Agreement) and either (A) any term of
or arrangement concerning the treatment of shares of capital stock in such
merger, consolidation or share exchange relating to the Acquiring Person is not
identical to the terms and arrangements relating to other holders of Provident
Common Stock or (B) the Person with whom the transaction or series of
transactions occurs is the Acquiring Person or an Affiliate or Associate of the
Acquiring Person or (ii) Provident shall sell or otherwise transfer (or one or
more of its subsidiaries shall sell or otherwise transfer) assets (A)
aggregating more than 50% of the assets (measured by either book value or fair
market value) or (B) generating more than 50% of the operating income or cash
flow, of Provident and its subsidiaries (taken as a whole) to any other Person
(other than Provident or one or more of its wholly-owned subsidiaries) or to two
or more such Persons which are affiliated or otherwise acting in concert, if, at
the time such sale or transfer of assets or at the time Provident (or any such
subsidiary) enters into an agreement with respect to such sale or transfer, the
Acquiring Person Controls the Provident Board (a "Flip-over Transaction or
Event"), Provident shall take such action as shall be necessary to ensure, and
shall not enter into, consummate or permit to occur such Flip-over Transaction
or Event until it shall have entered into a supplemental agreement with the
Person engaging in such Flip-over Transaction or Event or the parent corporation
thereof (the "Flip-over Entity"), for the benefit of the holders of the Rights;
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PROVIDING THAT upon consummation or occurrence of the Flip-over Transaction or
Event (i) each Right shall thereafter constitute the right to purchase from the
Flip-over Entity, upon exercise thereof in accordance with the terms of the
Rights Agreement, that number of shares of common stock of the Flip-over Entity
having an aggregate Market Price on the date of consummation or occurrence of
such Flip-over Transaction or Event equal to twice the Exercise Price for an
amount in cash equal to the then-current Exercise Price and (ii) the Flip-over
Entity shall thereafter be liable for, and shall assume, by virtue of such
Flip-over Transaction or Event and such supplemental agreement, all the
obligations and duties of Provident pursuant to the Rights Agreement. For
purposes of the foregoing description, the term "Acquiring Person" shall include
any Acquiring Person and its Affiliates and Associates counted together as a
single Person.
The Provident Board may, at its option, at any time prior to the close
of business on the Flip-in Date, redeem all (but not less than all) the
then-outstanding Rights at a price of $.01 per Right (the "Redemption Price"),
as provided in the Rights Agreement. Immediately upon the action of the
Provident Board electing to redeem the Rights, without any further action and
without any notice, the right to exercise the Rights will terminate and each
Right will thereafter represent only the right to receive the Redemption Price
in cash for each Right so held.
The holders of Rights will, solely by reason of their ownership of
Rights, have no rights as stockholders of Provident including, without
limitation, the right to vote or to receive dividends.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire Provident in
a manner which causes the Rights to become discount Rights unless the offer is
conditional on a substantial number of Rights being acquired. The Rights,
however, should not affect any prospective offeror willing to make an offer at a
fair price and otherwise in the best interests of Provident and its stockholders
as determined by the Provident Board or willing to negotiate with the Provident
Board. The Rights should not interfere with any merger or other business
combination approved by the Provident Board since the Provident Board may, at
its option, at any time prior to the close of business on the Flip-in Date
redeem all but not less than all the then-outstanding Rights at the redemption
price.
COMPARISON OF STOCKHOLDER RIGHTS
GENERAL
Provident is incorporated under the laws of the State of Maryland and
First Citizens is incorporated under the laws of the State of Delaware. If the
Merger is consummated, the holders of First Citizens Common Stock, whose rights
as stockholders are currently governed by the Delaware General Corporate Law
(the "DGCL"), the First Citizens Certificate of Incorporation (the "First
Citizens Certificate") and the By-laws of First Citizens (the "First Citizens
By-laws") will, at the Effective Time, become holders of shares of Provident
Common Stock and their rights as such will be governed by the MGCL, the
Provident Articles and the By-laws of Provident (the "Provident Bylaws"). The
material differences between the rights of holders of First Citizens Common
Stock and the rights of holders of Provident Common Stock, resulting from the
differences in their governing documents and the application of the DGCL or the
MGCL thereto, are summarized below.
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The following summary does not purport to be a complete statement of
the rights of holders of Provident Common Stock under applicable Maryland law,
the Provident Articles and the Provident By-laws or a comprehensive comparison
with the rights of the holders of First Citizens Common Stock under applicable
Delaware law, the First Citizens Certificate and the First Citizens By-laws, or
a complete description of the specific provisions referred to herein. This
summary contains a list of the material differences but is not meant to be
relied upon as an exhaustive list or a detailed description of the provisions
discussed and qualified in its entirety by reference to the MGCL and the
governing corporate instruments of Provident (including the Provident Rights
Agreement) and to the DGCL and the governing corporate instruments of First
Citizens to which the holders of First Citizens Common Stock are referred.
Copies of such governing corporate instruments of Provident and First Citizens
are available, without charge, to any person, including any beneficial owner to
whom this Joint Proxy Statement/Prospectus is delivered by following the
instructions listed under "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
SPECIAL MEETING OF STOCKHOLDERS
PROVIDENT. Under the MGCL, a special meeting of stockholders may be
called by the president, the board of directors or any other person specified in
the corporation's charter or by-laws. Under the Provident By-laws, a special
meeting may be called by the Chairman of the Board, the President or the Board
of Directors or upon the written request of the holders of at least a majority
of the votes entitled to be cast at the meeting.
First Citizens. Under the DGCL, special stockholder meetings of a
corporation may be called by its board of directors and by any person or persons
authorized to do so by its certificate of incorporation or by-laws. Under the
First Citizens By-laws and Certificate of Incorporation, a special meeting of
stockholders may only be called by the Chairman of the Board, the President or
the Board of Directors.
STOCKHOLDER ACTION BY WRITTEN CONSENT
PROVIDENT. Under the MGCL, any action required or permitted to be taken
at a meeting of stockholders may be taken without a meeting if (i) a unanimous
written consent setting forth the action and signed by each stockholder entitled
to vote on such matters and (ii) a written waiver of any right to dissent signed
by each stockholder entitled to notice of the meeting but not entitled to vote
at it, are filed with the records of the stockholders meeting.
FIRST CITIZENS. Under the DGCL, unless otherwise provided in the
certificate of incorporation, any action which may be taken at an annual or
special meeting of stockholders may be taken without a meeting and without prior
notice, if a consent in writing, setting forth the action so taken, is signed by
the holders of outstanding shares having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted. The First
Citizens Certificate provides that stockholders may not act by written consent
unless such consent is unanimous.
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STOCKHOLDER NOMINATIONS AND PROPOSALS FOR BUSINESS
PROVIDENT. The Provident By-laws establish procedures that must be
followed for stockholders to nominate individuals to the Provident Board or to
propose business at an annual meeting of stockholders.
In order to nominate individuals to the Provident Board, a stockholder
must provide timely notice of such nomination in writing to the Secretary of
Provident. A stockholder's notice must set forth (a) as to each person whom the
stockholder proposed to nominate for election as director all information
relating to the person that is required to be made in connection with
solicitations of proxies for election of directors pursuant to Regulation 14A
under the Exchange Act; and (b) as to the stockholder giving such notice (i) the
name and record address of such stockholder, and (ii) the class and number of
shares of capital stock of Provident which are owned beneficially or of record
by such stockholder.
In order to properly propose that an item of business come before the
annual meeting of stockholders, a stockholder must provide timely notice in
writing to the Secretary of Provident, which notice must include (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on Provident's books, of the stockholder proposing
such business, (iii) the class and number of shares of Provident capital stock
beneficially owned by the stockholder giving such notice, and (iv) any material
interest of such stockholder in such business.
To be timely, a stockholder's notice of a nominee or proposed item of
business to the Secretary must be delivered to or mailed and received at the
principal executive offices of Provident not less than ninety (90) days prior to
the date of the meeting; PROVIDED, HOWEVER, that in the event that less than one
hundred (100) days' notice or prior disclosure of the date of the meeting is
given or made to stockholders, notice by the stockholder in order to be timely
must be so received not later than the close of business on the tenth (10th) day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure of the date of the meeting was made.
FIRST CITIZENS. The First Citizens By-laws establish similar procedures
that must be followed for stockholders to nominate individuals to the First
Citizens Board or to propose business at the annual meeting of stockholders. The
requirement to furnish certain information contained in the First Citizens
By-laws in order to advance nominations to the First Citizens Board and items of
business is substantially similar to that of Provident; except that a
stockholder proposing new business must furnish the name, address, number of
shares beneficially owned by, and any material interest in the new business, of
any other stockholder that, to the knowledge of such stockholder proposing the
new business, supports such proposal. In addition, the time requirements are
different. Under the First Citizens By-laws, in order to be timely, notice must
be delivered to First Citizens not less than thirty (30) days or more than
ninety (90) days prior to the meeting; PROVIDED, HOWEVER, that in the event that
less than 45 days' notice or prior public disclosures of the date of the meeting
is given or made to stockholders, notice by the stockholder to be timely must be
received not later than the 15th day following the day on which such notice of
the date of the meeting was mailed or such public disclosure of the date of the
meeting was made.
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CERTAIN EXTRAORDINARY CORPORATE TRANSACTIONS
PROVIDENT. Under the MGCL, the sale, lease, exchange or transfer of all
or substantially all of the assets of a corporation not in the ordinary course
of business conducted by it, as well as any merger, consolidation or share
exchange, requires approval by holders of two-thirds of the shares of the
corporation entitled to vote on such matters.
FIRST CITIZENS. The DGCL generally requires approval of any merger,
consolidation or sale of substantially all the assets of a corporation at a
meeting of stockholders by vote of the holders of a majority of all outstanding
shares entitled to vote thereon.
ACQUISITIONS OF AND OFFERS TO ACQUIRE STOCK
PROVIDENT. Neither the MGCL nor the Provident Articles restricts the
ability of a person or entity to acquire or to offer to acquire any amount of
the outstanding shares of the capital stock of Provident. However, the Change in
Bank Control Act prohibits any person or group of persons from acquiring 10% or
more of the outstanding shares of a class of voting stock of any bank holding
company with a class of securities registered under Section 12 of the Exchange
Act, including the Provident Common Stock, unless the Federal Reserve Board has
been notified and has not objected to such acquisition. See "CERTAIN REGULATORY
CONSIDERATIONS--Control Acquisitions."
FIRST CITIZENS. The First Citizens Certificate of Incorporation
provides that no person or group of persons may acquire 10% or more of the
outstanding shares of voting stock of First Citizens without obtaining the prior
approval of the holders of at least two-thirds of the outstanding shares of
capital stock of First Citizens entitled to vote generally in the election of
directors, as well as all required federal regulatory approvals. The First
Citizens Certificate of Incorporation further provides that no person or group
of persons may make any offer to acquire 10% or more of the outstanding shares
of voting stock of First Citizens, if its common stock is then traded on a
national securities exchange or quoted on the NASDAQ, unless either (i) such
offer has been approved by at least two-thirds of the directors of First
Citizens then in office at a duly constituted meeting of the First Citizens
Board called for such purpose, or (ii) such person or group has received the
prior approval of the OTS to acquire control of First Citizens pursuant to the
Home Owners' Loan Act and the Change in Bank Control Act.
BUSINESS COMBINATIONS INVOLVING INTERESTED STOCKHOLDERS
PROVIDENT. Under the MGCL, 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 shareholder who beneficially owns 10% or
more of the voting power of the corporation's shares or an affiliate of the
corporation who, at any time within the two-year period prior to the date in
question, was the beneficial owner of 10% or more of the voting power of the
then-outstanding voting stock of the corporation or an affiliate thereof are
prohibited for five years after the most recent date on which the interested
shareholder becomes an interested shareholder. Thereafter, any such business
combination must be recommended by the board of directors of the corporation and
approved by the affirmative vote of at least (i) 80% of the votes entitled to be
cast by holders of outstanding voting shares of the corporation and (ii)
two-thirds of the votes entitled to be cast by holders of outstanding voting
shares of the corporation other than shares held by the interested shareholders
with whom (or with whose affiliate) the business combination is to be effected,
unless, among other conditions, the corporation's shareholders 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
shareholder 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 shareholder
becomes an interested shareholder.
Under the Provident Articles, the voting requirements for the approval
of business combinations with interested stockholders are substantially similar
to the requirements under the MGCL.
FIRST CITIZENS. The DGCL prohibits a corporation from engaging in any
business combination with an interested stockholder (defined as a 15%
stockholder) for a period of three years after the date that stockholder became
an interested stockholder unless (i) before that date, the board of directors of
the corporation approved the business combination or the transaction
transforming the stockholder into an interested stockholder, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, that stockholder owned at least 85% of the outstanding
voting stock (excluding shares owned by directors, officers and certain employee
87
stock ownership plans) or (iii) on or after the date the stockholder became
"interested," the business combination gained the approval of both the
corporation directors and two-thirds of the outstanding voting shares not owned
by the interested stockholder voted at a meeting and not by written consent. A
Delaware corporation may negate this provision through an amendment to the
certificate of incorporation or by-laws adopted by a majority of the outstanding
voting shares.
The First Citizens Certificate provides that any Business Combination
(defined to include a merger or share exchange) involving First Citizens and any
Interested Shareholder (defined to include any beneficial owner of more than 10%
of the outstanding First Citizens capital stock entitled to vote ("First
Citizens Voting Stock")) must be approved by the holders of at least 80% of the
voting power of the outstanding First Citizens Voting Stock (the "80% Voting
Requirement"). For any Business Combination which has been approved by
two-thirds of the Continuing Directors (defined generally to include any
director on the First Citizens Board who is unaffiliated with, and not a
representative of, the Interested Shareholder and who either was a director
immediately prior to the time the Interested Shareholder became such a person or
was recommended or elected to succeed such a Continuing Director by a majority
of the Continuing Directors), the affirmative vote of two-thirds of the First
Citizens Voting Stock will be required to approve the Business Combination. In
addition to the approval of two-thirds of the Continuing Directors, certain
"fair price" (defined generally to mean that the consideration to be received by
stockholders in such Business Combination shall be at least equal to the higher
of, and in the same form as, the consideration paid by the Interested
Shareholder for the acquisition of First Citizens capital stock within the
two-year period immediately prior to the first public announcement of the
proposal of the Business Combination or in the transaction in which such person
became an Interested Shareholder) and other criteria must be met in order for
any such Business Combination to be consummated without the satisfaction of the
80% Voting Requirement.
REMOVAL OF DIRECTORS
PROVIDENT. The MGCL provides that, unless the articles of incorporation
provides otherwise, the stockholders of a corporation may remove any director,
with or without cause, by the affirmative vote of a majority of all the votes
entitled to be cast for the election of directors. The Provident Articles
provide that a director may be removed only for cause and then only by the
affirmative vote of the holders of at least 80% of the shares of stock entitled
to be cast for the election of directors.
FIRST CITIZENS. The DGCL provides that, unless the certificate of
incorporation provides otherwise, in the case of a corporation whose board of
directors is classified (as is the First Citizens Board), stockholders may
remove a director only for cause by a vote of the majority of the
then-outstanding shares of the corporation entitled to vote thereon. Further,
stockholders may not remove a director without cause. The First Citizens
Certificate provides that a director may be removed only for cause and then only
by an affirmative vote of at least two-thirds of the total votes eligible to be
voted.
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CONSIDERATION OF OTHER CONSTITUENCIES
PROVIDENT. The Provident Articles provide that the Provident Board in
determining what is in the best interests of the corporation and its
stockholders in actions that would or may involve a change in control, shall
give due consideration to all relevant factors, including, but not limited to
(a) the economic effect, both immediate and long term, upon Provident's
stockholders, (b) the social and economic effect on the employees, depositors
and customers of, and others dealing with, Provident and its subsidiaries and on
the communities in which Provident and its subsidiaries operate or are located,
(c) whether the proposal is acceptable based on the historical and current
operating results or financial condition of Provident, (d) whether a more
favorable price could be obtained, (e) the reputation and business practices of
the offer, (f) the future value of the stock of Provident, and (g) any antitrust
or other legal or regulatory issues raised by the proposal.
FIRST CITIZENS. The First Citizens Certificate does not contain any
provision specifically relating to the ability of the First Citizens Board of
Directors to consider the interests of any constituencies of First Citizens
other than its stockholders in considering whether to approve or oppose any
corporate action, including without limitation any proposal to acquire First
Citizens by means of a merger, tender offer or similar business combination.
However, pursuant to case law interpreting the provisions of the DGCL, the board
of directors of a Delaware corporation such as First Citizens generally may
consider the impact of such a proposal on First Citizens' other constituencies,
provided that doing so bears some reasonable relationship to general stockholder
interests.
PERSONAL LIABILITY OF DIRECTORS AND OFFICERS
PROVIDENT. The Provident Articles provide that, to the fullest extent
permitted by Maryland law, no director or officer shall be personally liable to
Provident or its stockholders for monetary damages. Maryland law permits such a
limitation generally, except to the extent there was an improper benefit or
profit received by the officer or director, or that a final adjudication or
judgment against the officer or director was based on a finding that the action
of such person was a result of active and deliberate dishonesty and that such
action was material to the result. The Provident Articles do not protect
directors and officers against claims for equitable relief, such as an
injunction or rescission based upon a breach of the duty of care.
FIRST CITIZENS. The DGCL allows a corporation, through its certificate
of incorporation, to limit or eliminate the personal liability of directors to
the corporation and its stockholders for monetary damages for breach of
fiduciary duty. However, this provision excludes any limitation on liability (i)
for any breach of the director duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of law, (iii) for willful or
negligent violation of the laws governing the payment of dividends or the
purchase or redemption of stock or (iv) for any transaction from which the
director derives an improper personal benefit. The liability of officers may not
be limited under Delaware law. The First Citizens Certificate contains a
provision limiting the liability of its directors for monetary damages for
breaches of fiduciary duty which tracks the Delaware statutory provision.
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INDEMNIFICATION OF OFFICERS AND DIRECTORS
PROVIDENT AND FIRST CITIZENS. Both the MGCL and the DGCL generally
provide that directors and officers as well as other employees and individuals
may be indemnified against expenses (including attorney's fees), judgments,
fines and amounts paid in settlement in connection with specified actions, suits
or proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation in a derivative action) if
they acted in good faith and in a manner they reasonably believed to be in, or
not opposed to, the best interests of the corporation, and, with respect to any
criminal action, suit or proceeding, if they had no reasonable cause to believe
their conduct was unlawful. The Provident By-laws provide that Provident shall
indemnify, to the fullest extent permitted by law, all persons who may be
indemnified pursuant to the MGCL. The First Citizens By-laws require
authorization of indemnification by (i) the Board of Directors by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding, (ii) if such a quorum is not obtainable, or even if
obtainable, a quorum of disinterested directors so directs, independent legal
counsel in a written opinion, or (iii) the shareholders, upon a determination
that indemnification is proper because such individual has met the applicable
standards of conduct as set forth in the First Citizens By-laws (which are
substantially similar to the requirements of the DGCL).
AMENDMENTS TO BY-LAWS
PROVIDENT. Under the MGCL, the exclusive power to change the by-laws
may be left with the stockholders, vested in the directors or shared by both
groups. The Provident Articles and By- laws provide that the By-laws may be
amended by the Provident Board.
FIRST CITIZENS. Under the DGCL, the power to change the by-laws belongs
to the stockholders and, although it may be shared by directors, the
stockholders may never be divested of this power. The First Citizens Certificate
and By-laws provide that the by-laws may be amended by either the First Citizens
Board (by the affirmative vote of at least two-thirds of the directors in
office) or the stockholders (by the affirmative vote of at least two-thirds of
the votes eligible to be voted).
RIGHTS PLAN
PROVIDENT. On January 18, 1995, the Provident Board of Directors
declared a dividend distribution of one right for each outstanding share of
Provident Common Stock to stockholders of record at the close of business on
January 30, 1995. For a description of the Rights and the related Provident
Rights Agreement, see "DESCRIPTION OF PROVIDENT CAPITAL STOCK -- Rights Plan."
FIRST CITIZENS. The First Citizens Board has not adopted a stockholder
rights plan.
90
APPRAISAL RIGHTS
PROVIDENT. Under the MGCL, shareholders of a corporation are entitled
to appraisal rights in certain mergers, consolidations or share exchanges
involving such corporation or upon the disposition of all or substantially all
of its assets, as well as when such corporation amends its articles of
incorporation in a way which alters the contractual rights of any outstanding
shares as expressly set forth in the articles of incorporation and substantially
adversely affects such shareholders' rights if the right to do so is not
reserved in the articles of incorporation. However, except with respect to
certain transactions involving an interested shareholder, shareholders generally
have no appraisal rights with respect to their shares if (i) the shares are
listed on a national securities exchange or are designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc., or (ii) the shares are that of the successor in the
merger, unless (a) the merger alters the contractual rights of the shares as
expressly set forth in the articles of incorporation or declaration of trust,
and the articles of incorporation or declaration of trust do not reserve the
right to do so, or (b) the shares are to be changed or converted in whole or in
part in the merger into something other than either shares in the successor or
cash, scrip, or other rights or interests arising out of provisions for the
treatment of fractional shares in the successor.
FIRST CITIZENS. Under the DGCL, appraisal rights are available in
connection with a statutory merger or consolidation in certain specified
situations. Appraisal rights are not available when a corporation is to be the
surviving corporation and no vote of its stockholders is required to approve the
merger under the DGCL. In addition, unless otherwise provided in the charter, no
appraisal rights are available to holders of shares of any class of stock which
is either: (a) listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or (b) held of record by more
than 2,000 stockholders, unless such stockholders are required by the terms of
the merger to accept anything other than: (i) shares of stock of the surviving
corporation, (ii) shares of stock of another corporation which are or will be
listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000 stockholders;
(iii) cash in lieu of fractional shares of such stock; or (iv) any combination
thereof. The First Citizens Certificate has no provisions regarding appraisal
rights, and First Citizens stockholders will not have appraisal rights in
connection with the Merger.
DIVIDENDS AND DISTRIBUTIONS
PROVIDENT. Under the MGCL, a board of directors may authorize a
corporation to make distributions to its shareholders, subject to any
restrictions in its articles and as provided under the MGCL. Under the MGCL, no
distribution is permitted, however, if, after giving effect to the distribution,
the corporation would not be able to pay its indebtedness as the indebtedness
becomes due in the usual course of business or the corporation's total assets
would be less than the sum of its total liabilities plus, unless the articles
permits otherwise, the amount 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 on dissolution are
superior to those receiving the distribution.
91
FIRST CITIZENS. The DGCL provides that, subject to any restrictions in
a corporation's certificate of incorporation, dividends may be declared from a
corporation's surplus or, if there is no surplus, from its net profits for the
fiscal year in which the dividend is declared and the preceding fiscal year.
However, if the corporation's capital (generally defined in the DGCL as the sum
of the aggregate par value of all shares of the corporation's capital stock,
where all such shares have a par value and the board of directors has not
established a higher level of capital) has been diminished to an amount less
than the aggregate amount of capital represented by the issued and outstanding
stock of all classes having a preference upon the distribution of assets,
dividends may not be declared and paid out of such net profits until the
deficiency in such capital has been repaired.
PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
The following statements set forth certain selected condensed financial
information for Provident and First Citizens on an unaudited pro forma combined
basis giving effect to the Merger as if the Merger had become effective on March
31, 1997, in the case of the balance sheet information presented, and as if the
Merger had become effective at the beginning of the periods indicated, in the
case of the income statement information presented. The pro forma information in
the statements assumes that the Merger is accounted for using the
pooling-of-interests method of accounting. See "THE MERGER -- Anticipated
Accounting Treatment." These statements should be read in conjunction with, and
are qualified in their entirety by, the historical financial statements,
including the notes thereto, of Provident and First Citizens incorporated by
reference herein. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
The pro forma financial information set forth in the following tables
does not reflect the expected cost savings and revenue enhancement opportunities
that could result from the Merger or any other items of income or expense which
may result from the Merger, except as set forth in Note 7 to the "Pro Forma
Condensed Combined Financial Statements." The unaudited pro forma combined
financial data is presented for informational purposes only and is not
necessarily indicative of the combined financial position or results of
operations that would have occurred if the Merger had been consummated on March
31, 1997 or at the beginning of the periods indicated or which may be obtained
in the future.
92
PROVIDENT BANKSHARES CORPORATION/
FIRST CITIZENS FINANCIAL CORPORATION
PRO FORMA COMBINED STATEMENT OF CONDITION
MARCH 31, 1997
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------
PRO FORMA PROVIDENT
PROVIDENT FIRST CITIZENS ADJUSTMENTS PRO FORMA
---------------- ----------------- ----------- ----------------
ASSETS:
Cash and due from banks................ $ 57,182 $ 16,764 $ -- $ 73,946
Short-term investments................. 1,455 -- -- 1,455
Mortgage loans held for sale........... 37,699 6,735 -- 44,434
Securities available for sale.......... 969,485 86,963 -- 1,056,448
Securities held-to-maturity............ 31,878 55,740 -- 87,618
Loans, net of unearned income and fees. 1,793,249 512,169 -- 2,305,418
Allowance for loan losses.............. (25,335) (6,921) (2,585) (3) (34,841)
---------- -------- ------- ----------
Net loans............................. 1,767,914 505,248 (2,585) 2,270,577
Premises and equipment, net............ 33,327 3,505 (822) (4) 36,010
Other assets........................... 46,701 18,848 2,058 (5) 67,607
---------- -------- ------- ----------
Total assets......................... $2,945,641 $693,803 $(1,349) $3,638,095
========== ======== ======= ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Non-interest bearing deposits.......... $ 164,403 $ 18,997 $ -- $ 183,400
Interest-bearing deposits.............. 1,740,512 525,464 -- 2,265,976
---------- -------- ----------
Total deposits....................... 1,904,915 544,461 -- 2,449,376
Short-term borrowings.................. 552,271 24,305 -- 576,576
Long-term debt......................... 263,444 73,350 -- 336,794
Other liabilities...................... 26,262 9,319 7,302 (6) 42,883
---------- -------- --------- ----------
Total liabilities.................... 2,746,892 651,435 7,302 3,405,629
STOCKHOLDERS' EQUITY:
Common stock........................... 8,818 29 2,227 (2) 11,074
Capital surplus........................ 97,136 27,325 (2,227)(2) 122,234
Retained earnings...................... 101,969 15,782 (8,651)(7) 109,100
Net unrealized gain (loss) on
debt securities...................... (6,684) (768) -- (7,452)
Treasury stock......................... (2,490) -- -- (2,490)
---------- -------- ---------- ----------
Total stockholders' equity........... 198,749 42,368 (8,651) 232,466
---------- -------- ---------- ----------
Total liabilities and stockholders'
equity............................. $2,945,641 $693,803 $ (1,349) $3,638,095
========== ======== ========== ==========
See "NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS."
93
PROVIDENT BANKSHARES CORPORATION/
FIRST CITIZENS FINANCIAL CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
PROVIDENT
PROVIDENT FIRST CITIZENS PRO FORMA
------------------- ----------------- -----------------
Interest income................................ $53,583 $12,904 $66,487
Interest expense............................... 29,266 7,649 36,915
------- ------- -------
Net interest income............................ 24,317 5,255 29,572
Provision for loan losses...................... 834 -- 834
------ -------- ------
Net interest income after
provision for loan losses................... 23,483 5,255 28,738
Non-interest income............................ 9,513 652 10,165
Net security gains............................. 71 -- 71
Non-interest expense........................... 23,137 3,580 26,717
------- ------- -------
Income before income taxes..................... 9,930 2,327 12,257
Provision for income taxes..................... 3,415 912 4,327
------ ------ ------
Net income..................................... $ 6,515 $ 1,415 $ 7,930
======= ======= =======
Pro forma weighted average shares
outstanding(2):
Primary..................................... 9,321,006 3,241,299 11,805,462
Fully-diluted............................... 9,321,006 3,330,467 11,873,809
Earnings per share(8):
Primary..................................... $ .70 $ .44 $ .67
Fully-diluted............................... $ .70 $ .42 $ .67
See "NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS."
94
PROVIDENT BANKSHARES CORPORATION/
FIRST CITIZENS FINANCIAL CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
PROVIDENT
PROVIDENT FIRST CITIZENS PRO FORMA
------------------- ----------------- -----------------
Interest income................................ $199,394 $48,085 $247,479
Interest expense............................... 108,107 29,170 137,277
------- ------ -------
Net interest income............................ 91,287 18,915 110,202
Provision for loan losses...................... 9,918 94 10,012
------- ------- -------
Net interest income after
provision for loan losses................... 81,369 18,821 100,190
Non-interest income............................ 39,979 3,469 43,448
Net security gains............................. 5,507 49 5,556
Non-interest expense........................... 91,781 17,557 109,338
------- ------- --------
Income before income taxes..................... 35,074 4,782 39,856
Provision for income taxes..................... 12,054 1,614 13,668
------- ------ -------
Net income..................................... $ 23,020 $ 3,168 $ 26,188
======== ======= ========
Pro forma weighted average shares
outstanding(2):
Primary..................................... 9,224,560 3,195,716 11,674,076
Fully-diluted............................... 9,268,360 3,207,160 11,726,648
Earnings per share(8):
Primary..................................... $ 2.50 $ .99 $ 2.24
Fully-diluted............................... $ 2.48 $ .99 $ 2.23
See "NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS."
95
PROVIDENT BANKSHARES CORPORATION/
FIRST CITIZENS FINANCIAL CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
PROVIDENT
PROVIDENT FIRST CITIZENS PRO FORMA
------------------- ----------------- -----------------
Interest income................................ $179,806 $43,463 $223,269
Interest expense............................... 96,866 25,740 122,606
------- ------- --------
Net interest income............................ 82,940 17,723 100,663
Provision (recovery) for loan losses........... 1,545 (28) 1,517
------- -------- -------
Net interest income after
provision for loan losses................. 81,395 17,751 99,146
Non-interest income............................ 31,976 2,597 34,573
Net security gains (losses).................... (2,729) 46 (2,683)
Non-interest expense........................... 83,115 14,301 97,416
------- ------- -------
Income before income taxes..................... 27,527 6,093 33,620
Provision for income taxes..................... 9,502 1,986 11,488
------- ------- -------
Net income..................................... $18,025 $4,107 $22,132
======= ====== =======
Pro forma weighted average shares
outstanding(2):
Primary..................................... 9,032,520 3,171,484 11,463,462
Fully-diluted............................... 9,032,520 3,174,533 11,465,800
Earnings per share(8):
Primary..................................... $ 2.00 $ 1.29 $ 1.93
Fully-diluted............................... $ 2.00 $ 1.29 $ 1.93
See "NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS."
96
PROVIDENT BANKSHARES CORPORATION/
FIRST CITIZENS FINANCIAL CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
PROVIDENT
PROVIDENT FIRST CITIZENS PRO FORMA
------------------- ----------------- -----------------
Interest income................................ $134,222 $37,339 $171,561
Interest expense............................... 62,027 19,854 81,881
------- ------- -------
Net interest income............................ 72,195 17,485 89,680
Provision (recovery) for loan losses........... 500 (635) (135)
------ -------- --------
Net interest income after
provision for loan losses................... 71,695 18,120 89,815
------- ------- -------
Non-interest income............................ 26,699 2,423 29,122
Net security gains............................. 571 124 695
Non-interest expense........................... 79,286 15,335 94,621
------- ------- -------
Income before income taxes..................... 19,679 5,332 25,011
Provision for income taxes..................... 7,149 1,697 8,846
------- ------- -------
Net income..................................... $12,530 $ 3,635 $16,165
======= ======= =======
Pro forma weighted average shares
outstanding(2):
Primary..................................... 8,127,610 3,112,014 10,512,969
Fully-diluted............................... 8,127,610 3,112,014 10,512,969
Earnings per share(8):
Primary..................................... $ 1.54 $ 1.17 $ 1.54
Fully-diluted............................... $ 1.54 $ 1.17 $ 1.54
See "NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS."
97
PROVIDENT BANKSHARES CORPORATION/
FIRST CITIZENS FINANCIAL CORPORATION
NOTES TO PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
(1) The pro forma financial information presented has been prepared in
conformity with generally accepted accounting principles and prevailing
practices within the financial services industry. Under generally
accepted accounting principals, the assets and liabilities of First
Citizens will be combined with those of Provident at book value. In
addition, the statements of income for First Citizens will be combined
with Provident as of the earliest period presented. Certain
reclassifications have been included in the pro forma financial
statements to conform to Provident's presentation.
(2) Pro forma adjustments to common stock and additional paid-in capital,
at March 31, 1997, reflect the Merger accounted for as a
pooling-of-interests, through: the exchange of 2,256,438 shares of
Provident Common Stock at March 31, 1997 (using the Exchange Ratio of
.7665) for 2,943,820 actual outstanding shares of First Citizens. The
pro forma weighted average shares outstanding for the three months
ended March 31, 1997, and for each of the combined three-year periods,
reflects the Exchange Ratio of .7665 shares of Provident Common Stock
for each share of First Citizens Common Stock.
(3) Principally reflects Provident's estimates of the effect of its intent
to accelerate the resolution of certain of First Citizens' problem
assets and its intent to discontinue certain business relationships.
Management believes that this strategy of accelerating the resolution
of certain problem assets is more cost effective than protracted
workout proceedings. In addition, the pro forma adjustment reflects
Provident's intent to apply its risk rating system to the First
Citizens' loan portfolio upon consummation of the Merger. As a result,
the allowance for loan losses will increase by approximately
$2.6 million, pre-tax. This strategy will enable management to
concentrate its efforts on growth and revenue enhancement of the
combined entity.
(4) This adjustment reflects management's intention to write-off certain
incompatible DP equipment and leasehold improvements at Citizens'
headquarters building. It is anticipated that a portion of this
building will remain vacant until the expiration of the lease in 1999.
(5) Adjustment reflects the total tax benefits of $3,738,000 from costs
incurred as a direct result of the Merger in addition to those for
expenses incurred in executing management's post-merger strategies. The
tax benefit is netted with an increase in the Other Real Estate Owned
valuation allowance of $1,680,000. The increase in the allowance is a
reflection of management's intention to accelerate the workout efforts
related to Other Real Estate Owned rather than using a long-term
workout approach which is believed to be less economical.
(6) Reflects a combination of direct non-recurring merger liabilities and
liabilities expected to be incurred as a result of the implementation
of management's post merger strategies. A summary of these respective
liabilities is as follows:
98
EXPECTED COSTS
------------------------------
(DOLLARS IN THOUSANDS)
Merger Liabilities....................................
Legal Fees $1,043
Advisory Fees 1,638
Contractual Severance Liabilities 2,582
Other Direct Liabilities 90
---------
Total Direct Merger Liabilities $5,553
Post-Merger Planned Liabilities
Lease Write-down 574
Contract Write-down 203
DP System Conversion Costs 416
Employee Costs 251
Marketing Costs 158
Other Expenses and Restructuring
Charges 347
---------
Total Post Merger Liabilities $1,949
Total Merger and Post-Merger Liabilities $7,302
=========
(7) The pro forma condensed balance sheet reflects all of the charges
presented in footnote 6 in addition to the $822,000 writedown in premises
and equipment discussed in footnote 4, and the increases in the
allowances for loan losses of $2,585,000 and in other real estate owned
of $1,680,000. Total merger and post merger expenses amount to $12.4
million pre-tax, or $8.7 million net of taxes, which will be recognized
upon consummation of the transaction. Such charges will reduce earnings
per share for the period in which such charge is recognized by
approximately $.73 (based on fully diluted pro forma weighted average
shares outstanding of 11,873,809 on March 31, 1997). The effect of the
proposed charge has been reflected in the pro forma condensed combined
balance sheet as of March 31, 1997; however, since this charge is
non-recurring, it has not been reflected in the pro forma combined
statement of income.
(8) The per share amounts for Provident have been given retroactive treatment
for the May 9, 1997 5% stock dividend.
99
ELECTION OF FIRST CITIZENS DIRECTORS
The board of directors of First Citizens currently consists of eight
members. The directors are divided into three classes as nearly equal in number
as possible. In general, the term of office of only one class expires in each
year and their successors are elected for terms of three years and until their
successors are elected and qualified. Stanley Betts, who currently serves as a
director in the class of directors whose terms of office expire at the First
Citizens Meeting, has reached the age limitation for directors set forth in the
First Citizens By-laws. Accordingly, effective at the First Citizens Meeting,
the size of the board of directors will be reduced from eight to seven members,
with the result that at the First Citizens Meeting, two directors will be
elected, each for a three-year term and until their successors are elected and
qualified (or, if earlier, until the Merger is consummated). As described below,
the board of directors' nominees are Enos K. Fry and Melvin O. Wright. THE FIRST
CITIZENS BOARD RECOMMENDS THAT YOU VOTE FOR THE FIRST CITIZENS BOARD'S TWO
NOMINEES FOR ELECTION AS DIRECTORS.
Unless otherwise specified on the proxy, it is the intention of the
persons named in the proxy to vote the shares represented by each properly
executed proxy for the election as directors of Messrs. Fry and Wright for
three-year terms. The First Citizens Board believes that such nominees will
stand for election and will serve if elected as directors. However, if any
person nominated by the First Citizens Board fails to stand for election or is
unable to accept election, the proxies will be voted for the election of such
other person or persons as a majority of the First Citizens Board may recommend.
Pursuant to the First Citizens By-laws, directors are elected by plurality vote.
100
INFORMATION AS TO NOMINEES AND OTHER DIRECTORS
The following table sets forth certain information regarding the First
Citizens Board's two nominees for election as directors and those directors who
will continue to serve as such after the First Citizens Meeting.
AGE AT POSITION(S) HELD
JULY 14, DIRECTOR FOR TERM WITH FIRST
1997 SINCE (1) TO EXPIRE CITIZENS
--------- --------- --------- ----------------
NOMINEES:
Enos K. Fry ................................... 54 1987 2000 Vice Chairman
and President
Melvin O. Wright............................... 68 1994 2000 Director
CONTINUING DIRECTORS:
Herbert W. Jorgensen........................... 68 1990 1998 Chairman of the
Board and Chief
Executive Officer
N. Richard Kimmel.............................. 67 1986 1998 Vice Chairman
Albert M. Cowell, Jr........................... 65 1987 1998 Director
William J. Walsh, III.......................... 52 1989 1999 Director
H. Deets Warfield, Jr.......................... 65 1973 1999 Director
- -----------------------------------------------
(1) Each of First Citizens' nominees for director and the continuing
directors (except for Messrs. Jorgensen, Walsh and Wright) has served as
a director of First Citizens since its formation in 1989. Messrs.
Jorgensen and Walsh became directors of First Citizens in 1990. Mr.
Wright became a director of First Citizens in 1994. Each director of
First Citizens also serves as a director of Citizens Savings, First
Citizens' principal subsidiary. The dates shown reflect the year in which
these persons were first elected directors of Citizens Savings.
ENOS K. FRY has served in various executive capacities since joining
Citizens Savings in 1974. In 1974, he became vice president of the loan
division, and in 1978 he was elected executive vice president. He was promoted
to president of Citizens Savings in 1982. Mr. Fry was elected a director of
Citizens Savings in 1987. Mr. Fry has served as president and a director of
First Citizens since its formation in 1989. He was named a vice chairman of the
board of directors of First Citizens and Citizens Savings in April 1994.
MELVIN O. WRIGHT was formerly a senior vice president and senior
executive with Dean Witter Reynolds, Inc. He became a director of First Citizens
and Citizens Savings in September 1994. Mr. Wright is currently a trustee and
past chairman of the Securities Industries Institute at the Wharton School of
Business. Presently, he is active as a business and financial consultant.
101
HERBERT W. JORGENSEN became chairman of the board and chief executive
officer of First Citizens and Citizens Savings in April 1994. Prior thereto, he
served as a vice chairman of the boards of directors of First Citizens and
Citizens Savings. From 1989 until April 1994, Mr. Jorgensen also served as First
Citizens' outside general counsel and from 1968 until April 1994 he served as
Citizens Savings' outside general counsel.
N. RICHARD KIMMEL retired in 1989 as secretary and treasurer of Kimmel
& Kimmel, Inc., general contractors. He is now engaged in real estate
development activities through Kimmel Properties. Mr. Kimmel was named a vice
chairman of Citizens Savings in December 1988 and has served as a vice chairman
of First Citizens since 1989.
ALBERT M. COWELL, JR. has been president of A. Myron Cowell, Inc., a
masonry contracting firm located in Gaithersburg, Maryland, since 1970. He is a
past director of Montgomery General Hospital in Olney, Maryland; past president
of the Olney Rotary Club; and past director of the Masonry Institute located in
Bethesda, Maryland.
WILLIAM J. WALSH, III is a senior vice president of Donohoe Real Estate
Services, the leasing and management division of the Donohoe Companies, Inc., a
full-service real estate, development and construction company. He has served as
a director of the Donohoe Companies, Inc., as well as Federal Center Plaza
Corp., a real estate corporation, and is a member of the Executive Committee and
past president of the Apartment and Office Building Association of Washington,
D.C.
H. DEETS WARFIELD, JR. has been president of Damascus Motor Co., Inc.,
a Chevrolet dealership in Damascus, Maryland, since 1974, and has been with
Damascus Motor Co., Inc., since 1955. He has been a member of the board of
directors of Farmers & Mechanics National Bank, Frederick, Maryland, since 1974
and also serves on the board of directors of F&M Bancorp. The Depository
Institution Management Interlocks Act imposes restrictions on service as an
officer or director of more than one insured depository institution or
depository institution holding company operating in the same metropolitan
statistical area. Mr. Warfield's service as a director of First Citizens and
Citizens Savings is grandfathered under the grandfathering provisions of such
Act until November 1998.
OTHER EXECUTIVE OFFICERS
The principal occupation during the past five years of First Citizens'
and Citizens Savings' other executive officers follows:
CHARLES R. DUDA (48) has served as executive vice president and chief
operating officer of First Citizens and Citizens Savings since March 1994. Mr.
Duda joined First Citizens and Citizens Savings in January 1994. Mr. Duda was
chairman of credit policy and executive vice president of First American
Bankshares, Inc., during 1992 and 1993. From 1989 to 1992, Mr. Duda was the
executive vice president and chief credit officer of First American Metro
Corporation.
WILLIAM C. SCOTT (51) has served as senior vice president and chief
financial officer of First Citizens and Citizens Savings since July 1994. Mr.
Scott joined First Citizens and Citizens Savings
102
in May 1994. From 1991 until joining Citizens Savings, Mr. Scott consulted with
various financial institutions. Mr. Scott is a Certified Public Accountant with
over 26 years' experience in financial management.
BENJAMIN O. DELANEY, JR. (52) has served as president of First Citizens
Mortgage Corporation, Citizens Savings' mortgage banking subsidiary, since
December 1983.
DAVID H. BOWMAN (38) has served as senior vice president, real estate
division of Citizens Savings, since March 1993. Mr. Bowman joined Citizens
Savings in September 1991 as vice president of the real estate division. Just
prior to joining Citizens Savings, Mr. Bowman acted as a consultant to the RTC
Northeast Consolidated Office.
TIMOTHY E. HALL (51) has served as senior vice president, corporate
lending division of Citizens Savings, since August 1994. Mr. Hall joined
Citizens Savings in March 1994. From 1990 through 1992, Mr. Hall was a regional
executive with First National Bank of Maryland and from 1992 to 1994 was group
vice president, deputy director - real estate resolution group, at First
American Bank.
LUANN LOEBER (41) HAS SERVED AS SENIOR VICE PRESIDENT, COMMUNITY
banking division of Citizens Savings, since October 1995. From 1991 until
joining Citizens Savings, Ms. Loeber was an independent consultant to financial
institutions.
MARK A. SCHISSLER (36) has served as a senior vice president, human
resources division of Citizens Savings, since November 1995. Mr. Schissler
joined Citizens Savings as vice president, human resources, in July 1994. From
1989 until joining Citizens Savings, Mr. Schissler served in various positions,
including regional human resources officer and commercial banking executive, at
First National Bank of Maryland.
J. TERRY THOMAS (54) has served as senior vice president, consumer
lending division of Citizens Savings, since February 1995. Mr. Thomas joined
Citizens Savings as vice president, consumer lending division, in March 1994.
Mr. Thomas was group vice president, consumer lending risk management, for First
American Metro Corporation from 1991 to 1994.
CORPORATE GOVERNANCE AND OTHER MATTERS
The First Citizens Board has appointed an audit committee whose members
currently consist of Messrs. Betts, Walsh, Warfield and Wright. The function of
the audit committee is to review the annual financial statements of First
Citizens, the scope of the annual audit and the independent accountant's letter
to management concerning the effectiveness of First Citizens' internal financial
and accounting controls and management's response thereto. In addition, the
committee reviews and recommends to the board of directors the firm to be
engaged as independent auditors. The audit committee held three meetings in
1996. Neither First Citizens nor Citizens Savings has a separate compensation
committee of the board.
103
The entire First Citizens Board acts as a nominating committee for
selecting management's nominees for election as directors and has made its
nominations for the First Citizens Meeting. The First Citizens By-laws require
that stockholder nominations for directors be made pursuant to timely notice in
writing to the secretary of First Citizens. To be timely, notice must be
delivered to, or mailed to and received at, the principal executive offices of
First Citizens not less than 30 days nor more than 90 days prior to the date of
the annual meeting, unless notice or public disclosure of the date of the
meeting occurs less than 45 days prior to the meeting, in which event
stockholders may deliver such notice not later than the tenth day following the
day on which notice of the date of the meeting was mailed or public disclosure
thereof was made. A stockholder's notice of nomination must set forth certain
information specified in Article III, Section 13 of the First Citizens By-laws
concerning each person the stockholder proposes to nominate for election and the
nominating stockholder. Stockholder nominations for the First Citizens Meeting
are required to be received on or before July 26, 1997. The First Citizens
By-laws provide that no person may be elected as a director unless nominated in
accordance with the procedures set forth in the First Citizens By-laws.
During 1996, no incumbent director of First Citizens attended less than
75% of the total number of meetings of the board of directors of First Citizens
and the total number of meetings held by all committees of the board on which he
served.
COMPENSATION OF DIRECTORS
During 1996, the First Citizens Board held six meetings and Citizens
Savings' board of directors held 11 meetings. No separate board fees were paid
to directors for attending meetings of the First Citizens Board during 1996.
Each director of First Citizens also serves as a director of Citizens Savings.
In 1996, non-employee directors of Citizens Savings were each paid an annual
retainer of $12,500, except for Citizens Savings' non-employee vice chairman who
received $17,500 and the chairman emeritus/director who received $25,000. In
addition, during 1996, non-employee directors of Citizens Savings received $750
for each board of directors meeting of Citizens Savings attended and $450 for
each meeting of committees of the board of directors of Citizens Savings
attended (or $225 if these committees met on the same day as the board of
directors). During 1996, Citizens Savings also paid premiums on term life
insurance for Citizens Savings' non-employee directors. The annual premium
expense was $65 for each non-employee director. Employee directors of Citizens
Savings do not receive fees for attendance at board or committee meetings.
Pursuant to First Citizens Directors' Stock Option Plan, any new
non-employee directors of First Citizens each receive a grant of a
non-qualifying option under the Plan for 6,669 shares of First Citizens Common
Stock upon the first anniversary of their election as non-employee directors of
First Citizens. Subsequently elected vice chairmen will receive additional
option grants of 6,669 shares each upon their election as vice chairmen.
Subsequently elected chairmen will receive additional option grants for 13,339
shares each upon their election to such position, reduced by any option granted
to them while serving as a vice chairman of the board. In each case, the grant
is subject to the person not serving at the time of grant as an officer or
employee of First Citizens or any of its subsidiaries. The per share exercise
price of such options equals the fair market value of a share of First Citizens
Common Stock on the date of grant.
104
Directors of First Citizens or Citizens Savings, as well as a director
or an advisory director of any successor entity to First Citizens or Citizens
Savings, who have completed at least three years of service as a director of
First Citizens or Citizens Savings are eligible to receive annual retirement
payments under the 1995 Directors Retirement Plan. The annual retirement payment
equals the annual retainer payable to directors (or chairman or vice chairman,
as applicable) in effect at the time of a Qualified Retirement (as defined),
reduced by an amount equal to the retirement benefit received under Citizens
Savings' pension plan (but not Citizens Savings' 401(k) plan) for any director
who served as a full-time employee of First Citizens or any subsidiary thereof.
The annual retirement payments are payable for a period equal to the number of
full years, plus whole months, of service at the time of a Qualified Retirement
but in no event longer than 10 years. Notwithstanding the foregoing, any person
who served as a director of Citizens Savings on December 21, 1991, and who
executed the supervisory agreement entered into by Citizens Savings with the OTS
(which agreement was subsequently terminated by the OTS), and who otherwise
meets the eligibility requirements, is entitled to receive retirement payments
for 10 years, regardless of the actual length of service to First Citizens or
Citizens Savings. If an eligible director serves as a director emeritus or
chairman emeritus of First Citizens or Citizens Savings, or both, after a
Qualified Retirement, such director also is entitled to receive 50% of the
annual retainer then paid to a director or chairman and 50% of the regular
meeting attendance fee for each meeting of the First Citizens Board actually
attended by such director emeritus or chairman emeritus.
Under the 1995 Directors' Retirement Plan, service as a director of
either First Citizens or Citizens Savings or as a director of both is counted in
determining the retirement period, but concurrent service as a director of both
First Citizens and Citizens Savings is counted as the same period of service. In
the case of a person serving as a director of both First Citizens and Citizens
Savings, such director does not become entitled to receive retirement payments
under the Plan until such director has ceased to be director of both First
Citizens and Citizens Savings by reason of a Qualified Retirement. A "Qualified
Retirement" under the Plan includes: (i) the failure of a director of First
Citizens or Citizens Savings to be renominated by reason of age, (ii)
resignation by reason of physical or other disability, (iii) resignation or a
determination not to stand for reelection after attaining the age of 65 or
older, (iv) death while serving as a director of First Citizens or Citizens
Savings, (v) resignation or retirement in the event that continued service
becomes prohibited under the Depository Institution Management Interlocks Act,
or (vi) ceasing to be a director in connection with a "change in control" (as
defined under OTS regulations). The board of directors of First Citizens may
terminate or amend the Plan at any time without any further liability on the
part of First Citizens, unless a change in control of First Citizens or Citizens
Savings has occurred; however, in no event may vested retirement benefits to
retired directors be reduced or terminated. The consummation of the Merger
constitutes a change in control under the 1995 Directors' Retirement Plan.
Following consummation of the Merger, all directors of First Citizens (other
than Mr. Betts who will retire effective as of the First Citizens Meeting) will
become fully vested in the retirement benefits provided for under the 1995
Directors' Retirement Plan, and First Citizens will be required to fully fund
the amount of such benefits at the Effective Time. The aggregate amount of
retirement benefits currently payable pursuant to the 1995 Directors' Retirement
Plan is $924,000. Mr. Betts will be entitled to receive an annual payment of
$25,000 for ten years following his retirement as a director effective as of the
date of the First Citizens Meeting. The first annual payment to all other First
Citizens directors under the Directors' Retirement Plan will be made within ten
days following the Effective Date of the Merger, with all subsequent annual
payments being made on the anniversary of the Effective Date of the Merger.
105
Under a director deferred fee plan adopted by First Citizens and
Citizens Savings in November 1995, effective commencing in 1996, directors of
First Citizens and Citizens Savings are permitted to defer all or a portion of
their director and committee fees until they cease to be directors. Directors of
First Citizens and Citizens Savings currently receive fees only for attending
meetings of the board of directors of Citizens Savings or committees thereof.
Interest is credited on the director's deferred account on each December 15 at
an annual rate compounded monthly equal to the "Prime Rate" of interest
published by Dow Jones & Company, Inc. in THE WALL STREET JOURNAL on the first
publication date of the calendar year. The interest crediting rate adjusts
annually on the first day of each year. A director's deferred account balance,
including interest, generally is payable to the director upon termination of
service as a director, in the event of a director's disability or following a
change in control of First Citizens or Citizens Savings. A director may elect to
receive a lump sum payment of his deferral account balance or to receive payment
over ten years. If the ten-year payment period is elected, the amount of the
accrued benefit payment will be calculated using the interest crediting rate on
the date the benefit payment commences. In the event of financial hardship (as
defined in the plan), a director may receive early payment of his account
balance. For 1996, Mr. Cowell elected to defer 80 percent of his annual retainer
and all committee fees; Mr. Warfield elected to defer his annual retainer and
all of the fees he received; and Mr. Wright elected to defer his annual
retainer. In the event of a director's death, if life insurance is obtained on
the life of any director, the plan also provides for a death benefit equal to
the projected age 70 benefit based on the director's deferral account balance
and projected further deferrals until age 70. If life insurance is not obtained
on the life of the director, the benefit equals the deferral account balance on
the date of death of such director. Any death benefits are payable in 120 equal
monthly installments commencing following the director's death. Citizens Savings
has purchased life insurance on the lives of Messrs. Cowell, Warfield and
Wright. The consummation of the Merger will constitute a change in control of
First Citizens under the deferred fee plan, and each of Messrs. Cowell,
Warfield, Wright and Kimmel will be entitled to receive an amount in cash equal
to such directors' deferred account balance at the Effective Time, payable
within 90 days following the Effective Time.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION. The following table
shows, for the years ended December 31, 1996, 1995 and 1994, the cash
compensation paid by Citizens Savings, as well as certain other compensation
paid or accrued for those years, to First Citizens' chief executive officer and
each of the four other highest paid executive officers of First Citizens whose
total annual salary and bonus exceeded $100,000 (the "named executive
officers"). First Citizens has not paid any compensation to its executive
officers since its formation in 1989. Each of the executive officers of First
Citizens currently holds a position with, and receives compensation from,
Citizens Savings.
106
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
- ----------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION AWARDS
- ----------------------------------------------------------------------------------------------------------------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND SALARY BONUS OPTIONS COMPENSATION
PRINCIPAL POSITION(S) YEAR ($) ($) (#) ($)
- --------------------- ---- --------- ------- --------- -----
Herbert W. Jorgensen (1) 1996 $136,000 $54,400 10,000 $2,981(2)
----
Chairman of the Board and 1995 124,000 35,000 11,000 3,300
----
Chief Executive Officer of 1994 67,307 0 12,705 3,150
----
First Citizens and Citizens
Savings
Enos K. Fry 1996 182,941 73,176 10,000 5,112(2)
----
Vice Chairman and 1995 182,941 54,882 11,000 3,314
----
President of First Citizens 1994 182,941 10,000 0 2,814
----
and Citizens Savings
Benjamin O. Delaney, Jr. 1996 150,000 40,000 7,500 3,563(2)
----
President, First Citizens 1995 150,000 0 8,250 2,340
----
Mortgage Corporation 1994 150,000 40,000 0 2,488
----
Charles R. Duda 1996 125,000 43,750 7,500 3,850(2)
----
Executive Vice President 1995 125,000 31,250 8,250 2,813
----
and Chief Operating Officer 1994 112,981 7,500 25,410 0
----
of First Citizens and
Citizens Savings
David H. Bowman 1996 85,000 40,000 1,000 2,550(2)
----
Sr. Vice President of 1995 83,200 15,000 1,100 1,931
----
Citizens Savings 1994 80,000 15,000 0 739
----
(1) Mr. Jorgensen became chairman and chief executive officer of First
Citizens and Citizens Savings in April 1994.
(2) The amounts shown in 1996 reflect the following: (a) matching
contributions made by Citizens Savings to the account of the named
executive officers under Citizens Savings' 401(k) plan of $2,981, $4,750,
$3,563, $3,750 and $2,550, respectively; and (b) benefit of discounted
rate loans made to named executive officers of $-0-, $362, $-0-, $100 and
$-0-, respectively.
OPTION GRANTS. The following table contains information with respect to
stock options granted during 1996 under the 1995 Plan to each of the named
executive officers. All options granted in 1996 were ten-year non-qualified
options.
107
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
INDIVIDUAL GRANTS PRICE APPRECIATION FOR
OPTION TERM (1)
- -----------------------------------------------------------------------------------------------------------------------------
% OF TOTAL
OPTIONS EXERCISE
OPTIONS GRANTED TO OR BASE
GRANTED EMPLOYEES PRICE EXPIRATION
NAME (#) (2) IN FISCAL YEAR ($/SH) (3) DATE 5% ($) 10% ($)
- --------- ------------- -------------- ---------- -------------- ------ -------
Herbert W. Jorgensen 10,000 13.12% $18.125 12/31/06 $114,188 $288,188
Enos K. Fry 10,000 13.12 18.125 12/31/06 114,188 288,188
Benjamin O. Delaney, Jr. 7,500 9.84 18.125 12/31/06 85,640 216,141
Charles R. Duda 7,500 9.84 18.125 12/31/06 85,640 216,141
David H. Bowman 1,000 1.31 18.125 12/31/06 11,419 28,819
- ----------------------
(1) Estimated market value of underlying securities at assumed annual rates
of stock price appreciation for option term minus the exercise or base
price.
(2) These options vested immediately.
(3) In each case, the exercise price equaled the fair market value of First
Citizens' Common Stock on the date of grant, determined in accordance
with the 1995 Plan.
OPTIONS EXERCISES AND HOLDINGS. The following table sets forth
information with respect to each of the named executive officers of First
Citizens concerning the exercise of stock options during 1996, the number of
securities underlying unexercised options at the 1996 year-end and the 1996
year-end value of all unexercised in-the-money options held by such individuals.
108
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
VALUE OF
SECURITIES
NUMBER OF UNDERLYING
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT
OPTIONS FY-END
AT FY-END (#) ($) (1)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ---- --------------- ------------ ------------- -------------
Herbert W. Jorgensen 0 0 60,381/0 $459,370/0
Enos K. Fry 0 0 61,020/0 707,059/0
Benjamin O. Delaney, Jr. 0 0 45,098/0 519,002/0
Charles R. Duda 0 0 41,160/0 225,928/0
David H. Bowman 0 0 10,293/0 141,659/0
- ----------
(1) Market value of underlying securities at year-end minus the exercise or
base price.
PENSION PLAN. Citizens Savings maintains a pension plan for the benefit
of full-time employees. Effective January 1, 1989, the benefit is based upon 1%
of an employee's final average earnings up to covered compensation (the
FICA-taxable wage base) times years of credited service, plus 1.65% of the
employee's final average earnings in excess of covered compensation times years
of credited service (to a maximum of 35 years). The following table illustrates
annual pension benefits under Citizens Savings' pension plan at age 65 for
various levels of average remuneration and years of service. Annual pension
benefits are currently subject to a statutory maximum of $125,000, subject to
cost-of-living adjustments. Currently, compensation in excess of $160,000
(subject to cost-of-living increases) may not be used in the calculation of
retirement benefits.
PENSION PLAN TABLE
YEARS OF SERVICE
----------------
REMUNERATION 15 20 25 30 35
- ------------ -- -- -- -- --
$125,000................................. $28,249 $37,665 $47,081 $56,498 $65,914
150,000 or more......................... 34,436 45,915 57,394 68,873 80,351
Messrs. Jorgensen, Fry, Delaney, Duda and Bowman have 3, 23, 13, 3 and
5 years, respectively, of credited service under the pension plan. Pursuant to
supplemental retirement agreements entered into with Messrs. Fry and Delaney,
Messrs. Fry and Delaney are entitled to receive certain supplemental retirement
benefits. See "Employment and Other Agreements."
109
EMPLOYMENT AND OTHER AGREEMENTS
In January 1995, First Citizens and Citizens Savings entered into new
employment agreements with Enos K. Fry and Charles R. Duda, as amended. Pursuant
to these employment agreements, Mr. Fry serves as president and Mr. Duda serves
as chief operating officer of First Citizens and Citizens Savings. The initial
terms of the employment agreements were for one year. First Citizens and
Citizens Savings may give written notice of an offer to renew the employment
agreements for one additional year on or before September 30 of each year, in
the event they desire to renew the agreements, and the employee has 15 days
within which to accept or decline any renewal offer. The employment agreements
were renewed in 1996 for additional terms of one year each expiring on December
31, 1997. (In the event of a "change in control" of First Citizens or Citizens
Savings, the terms of the employment agreements convert from one-year terms to
three-year terms commencing on the date the change in control occurs.) Messrs.
Fry and Duda's salaries for 1997 are $182,941 and $150,000, respectively. The
salary of the employee may not be decreased without the employee's consent.
Pursuant to the employment agreements, Messrs. Fry and Duda are eligible to
receive bonuses as determined in the discretion of the boards of directors of
First Citizens and of Citizens Savings of up to 50% of the employee's annual
salary. Messrs. Fry and Duda are also eligible to participate in retirement and
other benefit plans that First Citizens or Citizens Savings may adopt for the
benefit of executive employees.
The employment agreements with Messrs. Fry and Duda may be terminated
by the boards of directors of First Citizens and Citizens Savings at any time.
The employee would not be entitled to any benefits under his employment
agreement if his employment were terminated for "cause," as defined in the
agreement. If the employee is terminated "without cause," the employee would be
entitled to receive a lump sum cash payment as liquidated damages equal to the
employee's then-current salary (discounted to present value). If during the term
of the employment agreements a "change in control" (as defined therein) occurs
and the employee's employment is terminated, voluntarily or involuntarily, in
connection with or within one year after the change in control (other than by
reason of normal retirement, permanent and total disability or death), the
employee would be entitled to receive a severance payment equal to (i) one
year's current salary (discounted to present value), if the employee's
employment is voluntarily terminated without "good reason" (as defined therein)
or (ii) three times the employee's average annual compensation which was payable
by Citizens Savings and includible in the employee's gross income for Federal
income tax purposes (excluding for this purpose any income associated with the
exercise of stock options) with respect to the five most recent taxable years of
the employee ending prior to such change in control (or such portion of such
period during which the employee was a full-time employee of First Citizens or
Citizens Savings discounted to present value), if the employee's termination was
either voluntary with "good reason" or involuntary. In the event of termination
of employment without cause or following a change in control, the employee also
would be entitled to be paid for all accrued and unused vacation and sick days,
to continue to participate for the remaining term of the employment agreement in
all retirement and other employee benefit plans maintained by Citizens Savings
(to the extent permissible under the terms of the plans and applicable law) and
to have all director and officer liability insurance and indemnification
continue in effect until the running of applicable statutes of limitations. The
employee may elect to defer the payment of any liquidated damage or severance
amounts, in accordance with the terms of his employment agreement. The amounts
paid under such employment agreements and all other agreements may not exceed
the limit imposed by Section 280G of the Code.
110
In November 1995, First Citizens and Citizens Savings entered into a
new employment agreement with Mr. Jorgensen, as amended, pursuant to which Mr.
Jorgensen serves as chief executive officer of First Citizens and Citizens
Savings. Mr. Jorgensen's employment agreement is subject to annual renewal on
the same basis as the employment agreements with Messrs. Fry and Duda, and has
been extended through December 31, 1997. Other provisions of Mr. Jorgensen's
employment agreement are substantially the same as the employment agreements
with Messrs. Fry and Duda, except that Mr. Jorgensen would be entitled to
receive a severance payment equal to three years' current salary and bonus,
discounted to present value (but not to exceed three times his average
compensation from First Citizens and Citizens Savings for the five calendar
years preceding the year in which a change in control occurs, less one dollar),
in the event his employment were terminated in 1997 either involuntarily or
voluntarily with "good reason" in connection with or within one year following a
change in control of First Citizens or Citizens Savings.
First Citizens Mortgage Corporation ("FCMC"), Citizens Savings'
mortgage banking subsidiary, has entered into an employment agreement with Mr.
Delaney dated as of January 1, 1994, as amended, pursuant to which Mr. Delaney
serves as president of FCMC. The initial term of Mr. Delaney's employment
agreement was for three years ending on December 31, 1996. FCMC may renew the
employment agreement for one additional year on each December 31 during the term
of the agreement, unless Mr. Delaney gives contrary written notice prior to such
renewal date. Mr. Delaney's employment agreement was renewed in 1996 and
currently expires on December 31, 1999. Mr. Delaney's salary for 1997 under his
employment agreement is $150,000, and is subject to annual cost of living
increases and performance or merit increases as determined by the board of
directors of FCMC. Mr. Delaney would not be entitled to any benefits under his
employment agreement if his employment were terminated for "cause," as defined
in the employment agreement. If the employee is terminated "without cause," the
employee would be entitled to receive a lump sum cash payment as liquidated
damages equal to the employee's then-current salary applied to the remaining
term of the agreement (discounted to present value). Mr. Delaney would also be
111
entitled to have all director and officer liability insurance and
indemnification continue in effect until the running of applicable statutes of
limitations. In no event may the aggregate of such payments, however, exceed
three times Mr. Delaney's average annual compensation for the five most recent
taxable years. Mr. Delaney would also be entitled to receive a similar severance
payment in the event his employment was terminated voluntarily with "good
reason" or involuntarily after a change in control of First Citizens or Citizens
Savings.
Consummation of the Merger will constitute a "change in control" under
the employment agreements for each of Messrs. Jorgensen, Fry, Duda and
Delaney. Pursuant to the Merger Agreement, at the Effective Time, Messrs.
Jorgensen and Fry will be entitled to receive the cash severance payments and
other amounts that are payable to them under their respective employment
agreements upon an involuntary termination or a voluntary termination with "good
reason" following a change in control. The cash severance amounts payable to
Messrs. Jorgensen and Fry at the consummation of the Merger will be
approximately $246,235 and $552,374, respectively. Mr. Fry also will be entitled
to receive $131,045 in respect of accrued sick leave and $17,119 in accrued but
unused vacation time (subject to the limitations, if any, imposed by Section
280G of the Code), and will enter into new employment and change in control
agreements with Provident at the Effective Time. At the Effective Time, Mr.
Jorgensen also will enter into a consulting agreement with Provident. See "THE
MERGER--Interests of Certain Persons in the Merger."
In addition, it is expected that neither Mr. Duda nor Mr. Delaney will
remain employed with Provident following the Merger, and therefore that, at the
Effective Time, each of Messrs. Duda and Delaney will be entitled to receive the
cash severance payments and other amounts payable under their respective
employment agreements upon an involuntary termination or a voluntary termination
with "good reason" following a change in control. Mr. Duda will be entitled to
receive approximately $386,135 in cash severance, $16,227 in respect of accrued
sick leave, $15,125 in accrued but unused vacation time and certain additional
benefits provided for under his employment agreement having an aggregate present
value of approximately $25,000. The value of all payments and benefits to be
provided to Mr. Duda under his employment agreement may not exceed the limits
imposed by Section 280G of the Code. Mr. Delaney will be entitled to receive
approximately $473,660 in cash severance.
Citizens Savings and FCMC, respectively, have entered into supplemental
retirement agreements with Messrs. Fry and Delaney, as amended, under which
Messrs. Fry and Delaney are to receive annual payments equal to 70 percent and
60 percent, respectively, of their respective final two-year average annual cash
compensation, less amounts payable to them under certain qualified retirement
plans and other specified retirement income sources, for a period of 15 years or
life (whichever is longer) commencing following their retirement after age 65.
Mr. Fry has agreed to perform consulting services to Citizens Savings and Mr.
Delaney to FCMC during the 60-month period immediately following retirement from
active employment for up to 120 hours per year. No supplemental retirement
benefit will be paid for any month during which Mr. Fry or Mr. Delaney, as
applicable, is employed by a "substantial competitor" (as defined therein). If
either Mr. Fry or Mr. Delaney voluntarily terminates his employment before
attaining age 65 for any reason other than for "good reason" (as defined
therein), he will be entitled to receive a prorated supplemental retirement
benefit (reduced by five percent for each full year by which his age is less
than 55 years) commencing at age 65 but he will be subject to a noncompetition
agreement for a period of 36 months after such termination. If Mr. Fry's or Mr.
Delaney's employment is terminated for cause (as defined) before age 65, he will
forfeit his right to the supplemental retirement benefit. If Citizens Savings or
FCMC, as the case may be, terminates the employment of Mr. Fry or Mr. Delaney
before age 65 other than for cause, or he terminates his employment for "good
reason," he will be entitled to the prorated supplemental retirement benefit
beginning at age 65. If Mr. Fry or Mr. Delaney dies before the supplemental
benefit becomes payable, the beneficiary would receive 180 monthly payments
beginning on the first day of the month following the date of death, equal to
the monthly amount the decedent would have received at age 65. Based on their
annual compensation for the two most recent taxable years, Messrs. Fry and
Delaney would be entitled to annual payments under their respective supplemental
retirement agreements equal to the excess of $172,879 and $102,000,
respectively, over the sum of the amounts payable to them under certain
qualified retirement plans and other specified retirement income sources.
Pursuant to the terms of the Employment Agreement to be entered into by
Mr. Fry, Provident and Provident Bank at the Effective Time, the accrued
benefits which Mr. Fry would be entitled to receive under his supplemental
retirement agreement had he terminated his employment with First Citizens at age
55 for "good reason" will become immediately and fully vested and
non-forfeitable, and such benefits will be paid to Mr. Fry beginning upon the
later of the date of termination of his employment with Provident and his
attainment of age 65. See "THE MERGER -- Interests of Certain Persons in the
Merger."
Pursuant to Mr. Delaney's supplemental retirement agreement, following
consummation of the Merger, Mr. Delaney will be entitled to receive the prorated
supplemental retirement benefit described above beginning at age 65. In
addition, Provident will waive the post-retirement consulting and non-compete
obligations contained in the respective supplemental retirement agreements of
each of Messrs. Fry and Delaney.
112
REPORT ON EXECUTIVE COMPENSATION OF THE BOARDS OF DIRECTORS OF FIRST CITIZENS
AND CITIZENS SAVINGS AND FIRST CITIZENS' STOCK OPTION COMMITTEE
Decisions on executive compensation are made by Citizens Savings' board
of directors, except for the grant of stock options. First Citizens' Stock
Option Committee, consisting of three of First Citizens' non-employee directors,
makes all decisions concerning stock option grants. The decisions of the Stock
Option Committee are taken into account by the board of directors of Citizens
Savings in determining overall compensation levels for executive officers.
The executive compensation policies of First Citizens and Citizens
Savings are intended to provide competitive levels of compensation designed to
integrate pay with achievement of performance goals. Underlying this objective
are the following concepts: an individual pay-for-performance policy that
differentiates compensation levels based on corporate and individual
performance, motivating key senior officers to achieve strategic business
objectives and rewarding them for that achievement, providing competitive
compensation levels to enable First Citizens and Citizens Savings to compete for
and retain talented executives who are critical to First Citizens' long-term
success, and aligning the interests of executives with the long-term interests
of First Citizens' stockholders.
Compensation paid to Citizens Savings' executive officers in fiscal
1996 consisted of the following components:
BASE SALARY. The board of directors of Citizens Savings reviews
executive base salaries annually. In determining the level of salaries for 1996,
Citizens Savings' board of directors considered, among other factors, individual
performance, the number of employees and departments supervised, the
individual's contribution to the success of Citizens Savings and Citizens
Savings' earnings performance.
INCENTIVE BONUSES. Incentive bonuses paid to executive officers for
1996 were calculated under Citizens Savings' 1996 Management Incentive
Compensation Plan, which was implemented in 1996 to provide an opportunity for
senior management to share in the rewards of successful Citizens Savings
performance. Under the Plan, incentive bonuses for the president and the chief
operating officer were based on attainment of a net income goal for Citizens
Savings. The determination of bonuses for other executive officers was based on
two criteria: achievement of Citizens Savings' net income goal (50%) and
achievement of department operating goals (50%). Potential incentive bonus
payments ranged from up to 25% of base pay for the president, 20% of base pay
for the chief operating officer and up to 15% for the other executive officers,
with a possible 5% increase in the bonus amount with each 5% increase in
Citizens Savings' net income over budget. One of Citizens Savings' executive
officers received a discretionary bonus for 1996 of approximately 50% of base
salary.
STOCK OPTIONS. First Citizens provides a long-term incentive through
First Citizens' Stock Option Plans. Key employees, including executive officers,
are eligible to receive stock option grants. Awards are intended to provide
incentives for executive officers and key employees to enhance long-term
corporate performance, as reflected in stock price, thereby increasing
stockholder
113
value, and to provide non-cash compensation to such individuals as part of their
overall compensation package. During 1996, the Stock Option Committee made
option grants to executive officers to coincide with the following officer
levels: chief executive officer - 10,000; president - 10,000; executive vice
president and the president of FCMC - 7,500; senior vice presidents - l,000 and
vice presidents - 750.
OTHER. In addition to the compensation paid to executive officers as
described above, executive officers receive, along with and on the same terms as
other employees, certain benefits pursuant to Citizens Savings' pension plan,
matching contributions under Citizens Savings' 401(k) plan and participation in
Citizens Savings' employee and insider loan program. Citizens Savings and FCMC
also have entered into supplemental retirement agreements with two executive
officers. See "Employment and Other Agreements."
CEO COMPENSATION. The annual salary for the chairman and chief
executive officer of Citizens Savings was increased from $100,000 to $136,000
commencing in April 1995. For 1996, the board of directors of Citizens Savings
also awarded Mr. Jorgensen a bonus of $54,400. During 1996, Mr. Jorgensen also
was granted a stock option for 10,000 shares of First Citizens Common Stock. The
per share exercise price was $18.125, which equaled the fair market value of a
share of First Citizens Common Stock on the date of grant. In setting the chief
executive officer's annual salary at $136,000, the board of directors of
Citizens Savings took into consideration the amount of time required by the
position; the salaries paid chief executive officers of similar-sized banks; and
the overall performance of Citizens Savings and the increase in Citizens
Savings' profitability.
Boards of Directors Stock Option Committee
of First Citizens and Citizens Savings of First Citizens
- -------------------------------------- ----------------------
Herbert W. Jorgensen, Chairman Albert M. Cowell, Jr., Chairman
Enos K. Fry N. Richard Kimmel
N. Richard Kimmel Melvin O. Wright
Stanley Betts
Albert M. Cowell, Jr.
William J. Walsh, III
H. Deets Warfield, Jr.
Melvin O. Wright
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Jorgensen and Fry serve on the boards of directors of First
Citizens and Citizens Savings. As such, they participate in executive officer
compensation decisions. Neither Mr. Jorgensen nor Mr. Fry vote on or
participate in decisions on their own compensation. Mr. Betts, who is retiring
as a member of the board of directors of First Citizens and Citizens Savings
effective as of the First Citizens Meeting, is a former chief executive officer
of First Citizens and Citizens Savings.
114
Mr. Jorgensen is an attorney with, and during 1996 served on the
compensation committee of, the law firm of Heise Jorgensen & Stefanelli P.A.,
which performs various legal work for First Citizens and Citizens Savings.
During 1996, Citizens Savings paid $177,933 in legal fees to Heise Jorgensen &
Stefanelli P.A. Citizens Savings paid $269,514 in fees to Fenton Title Company
during 1996 in connection with home equity loan settlement services performed
for customers of Citizens Savings by that company. In March 1996, Mr. Jorgensen
retired as president of Fenton Title Company. His daughter is a 57 percent
stockholder of Fenton Title Company. First Citizens believes the fees paid to
the law firm of Heise Jorgensen & Stefanelli P.A. and Fenton Title Company were
no less favorable to Citizens Savings than fees that would have been paid to
other firms providing comparable services. Mr. Jorgensen does not perform legal
work for either First Citizens or Citizens Savings.
In 1996, Citizens Savings listed for sale a residential real estate
owned property with the Long & Foster real estate firm. Mr. Walsh's spouse was
the listing agent for the property. The sale price of the property was $246,000.
Citizens Savings paid Long & Foster a 5.5% sales commission on the sale of the
property, of which Mrs. Walsh received $6,150. First Citizens believes the
brokerage fees paid to Long & Foster were no less favorable to Citizens Savings
than brokerage fees that would have been paid to other firms providing
comparable services.
First Citizens, through Citizens Savings, makes loans to its directors,
executive officers and other employees for the financing of their homes, as well
as deposit account-secured, other consumer and commercial loans. In the ordinary
course of business, Citizens Savings also makes loans to relatives and
affiliates of First Citizens' directors, executive officers and employees. It is
the belief of management that these loans are made in the ordinary course of
business and neither involve more than the normal risk of collectibility nor
present other unfavorable features. Except for loans on owner-occupied
residences and automobile loans made to directors, executive officers and
employees, all loans to such persons are made on substantially the same terms
(including interest rates and collateral) as those prevailing at the time for
comparable transactions with non-affiliated persons. Effective November 21,
1996, following enactment of the Economic Growth and Regulatory Paper Reduction
Act of 1996, Citizens Savings modified its Employee and Insider Discounted
Interest Rate Loan Policies to provide discounted rate loans to directors and
executive officers on the same basis as made available to full-time employees of
Citizens Savings. On loans on owner-occupied residences made to directors,
executive officers and other employees (with at least one year of service), the
rate charged on the loan is generally 1% below the rate offered to the public,
but not below Citizens Savings' current cost of funds. Citizens Savings offers a
one-half percent interest rate discount on new or used automobile loans for
full-time employees and insiders of Citizens Savings. Interest charged is at the
discounted rate until such time, if at all, that the borrower's employment or
service is terminated with less than ten years of service (unless following a
change in control of Citizens Savings) or the borrower were to refinance the
loan at a lower prevailing rate of interest. Citizens Savings pays up to two
points and a one point origination fee on residential mortgage loans to
directors, executive officers and employees.
115
The following table sets forth certain information with regard to loans
at a discounted rate to directors of First Citizens which were outstanding in
amounts greater than $60,000 in the aggregate at any time since January 1, 1996.
HIGHEST
AMOUNT
OUTSTANDING UNPAID BALANCE
SINCE AS OF CURRENT YEAR
TYPE OF JANUARY 1, JUNE 30, INTEREST CONTRACT ORIGINALLY
NAME LOAN (1) 1996 1997 RATE RATE MADE
- ---- -------- ----------- -------------- -------- -------- ----------
Enos K. Fry Mortgage $436,250 $428,736 5.87% 6.87% 1996
N. Richard Kimmel Mortgage 591,859 577,614 8.50 9.50 1988
William J. Walsh, III Mortgage 365,000 363,428 5.625 6.625 1997
H. Deets Warfield, Jr. Mortgage 160,172 136,980 6.625 7.625 1988
Melvin O. Wright Mortgage 400,000 366,037 5.00 6.00 1997
- ----------------------
(1) All mortgage loans are for owner-occupied residences.
116
STOCK PERFORMANCE GRAPH
The following graph shows a five-year comparison of cumulative to total
returns for First Citizens, the Nasdaq-US Composite Index and the
Nasdaq-Financial Composite Index.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
FIRST CITIZENS FINANCIAL CORPORATION, NASDAQ-US AND NASDAQ-FINANCIAL
[Graph appears here--see plot points below]
SUMMARY
1991 1992 1993 1994 1995 1996
----------- ----------- ----------- ------------ ---------- -------------
First Citizens $100 $550 $1,299 $1,433 $2,304 $2,435
Nasdaq Stock Market (U.S.) 100 143 166 167 243 311
Nasdaq Financial 100 116 134 131 185 227
Assumes $100 invested on December 31, 1991 with full reinvestment of dividends,
if any.
117
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires First
Citizens' directors, officers and beneficial owners of more than 10 percent of
the outstanding Common Stock to file with the SEC initial reports of ownership
of First Citizens' equity securities and to file subsequent reports when there
are changes in such ownership. Based on a review of reports submitted to First
Citizens in 1996, First Citizens believes that all Section 16(a) filing
requirements for that year applicable to such persons were complied with on a
timely basis, except for Ms. Loeber and Mr. Kimmel who were each late in filing
one change of ownership report.
CERTAIN TRANSACTIONS
In December, 1996, Citizens Savings made a $300,000 residential
mortgage loan to Mr. Duda. The interest rate on the loan is 6.375% which
represents a one percent discount from the interest rate in effect at the time
the loan was made. Citizens Savings also paid two points and a one point
origination fee on the loan, which was made under Citizens Savings' Employee and
Insider Discounted Interest Rate Loan Policies.
For a description of certain transactions involving First Citizens and
certain of its directors, see "Compensation Committee Interlocks and Insider
Participation."
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Arthur Andersen LLP to act as
First Citizens' independent public accountants for 1997. Representatives of
Arthur Andersen will be present at the First Citizens Meeting. They will be
given an opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions.
On March 16, 1995, First Citizens appointed Arthur Andersen LLP as its
independent auditors for 1995. KPMG Peat Marwick LLP had been First Citizens'
independent auditors previously. KPMG Peat Marwick's reports on the First
Citizens financial statements for 1994 and 1993 did not contain an adverse
opinion or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles. The decision to retain Arthur
Andersen and not to re-hire KPMG Peat Marwick was recommended by the audit
committee of the First Citizens Board, and was based upon bids received from
those firms.
During the two fiscal years and the subsequent interim period
immediately preceding the change in independent auditors, there were no
disagreements with KPMG Peat Marwick on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure. First
Citizens did not, during the two fiscal years and the subsequent interim period
immediately prior to engaging Arthur Andersen, consult that firm regarding (i)
either (a) the application of accounting principles to a specific transaction,
either completed or proposed, or (b) the type of audit opinion that might be
rendered on First Citizens' financial statements; or (ii) any matter that was
either the subject of a disagreement with KPMG Peat Marwick or a "reportable
event" (as defined in the relevant SEC regulations).
118
STOCK OWNED BY MANAGEMENT
The following table sets forth information as of the First Citizens
Record Date with respect to the shares of First Citizens Common Stock
beneficially owned by each director of First Citizens, each named executive
officer of First Citizens and by all directors and executive officers as a
group. All persons shown in the table have sole investment or voting power,
except as otherwise indicated.
PERCENT OF FIRST CITIZENS
NAME AND POSITION(S) AMOUNT AND NATURE OF COMMON STOCK
WITH FIRST CITIZENS BENEFICIAL OWNERSHIP(1) OUTSTANDING
- ------------------- ----------------------- -------------------------
Herbert W. Jorgensen
Chairman of the Board 81,372(2)(3) 2.70%
and Chief Executive Officer
Enos K. Fry 82,891(3) 2.75
Vice Chairman and President
N. Richard Kimmel 174,050(4) 5.85
Vice Chairman
Stanley Betts 69,294 2.32
Director and Chairman Emeritus
Albert M. Cowell, Jr. 38,882(5) 1.31
Director
William J. Walsh, III 23,525(6) *
Director
H. Deets Warfield, Jr. 35,198(3) 1.19
Director
Melvin O. Wright 7,878 *
Director
Benjamin O. Delaney, Jr. 47,837 1.60
President, First Citizens Mortgage
Corporation
Charles R. Duda 42,370 1.42
Executive Vice President and
Chief Operating Officer
David H. Bowman 10,293 *
Sr. Vice President, Real Estate
Lending
119
PERCENT OF FIRST CITIZENS
NAME AND POSITION(S) AMOUNT AND NATURE OF COMMON STOCK
WITH FIRST CITIZENS BENEFICIAL OWNERSHIP(1) OUTSTANDING
- -------------------- ----------------------- --------------------------
All directors and executive 613,590 18.62
officers as a group
(11 persons)
- ----------
*Less than 1%.
(1) In accordance with Rule 13d-3 under the Securities Exchange Act of
1934, as amended, a person is deemed to be the beneficial owner of a
security for purposes of the Rule if he or she has or shares voting
power or investment power with respect to such security or has the
right to acquire such ownership within 60 days after the First Citizens
Record Date. This table includes 345,137 shares of First Citizens
Common Stock subject to outstanding options which are exercisable
within 60 days of the First Citizens Record Date. Of such shares, Mr.
Jorgensen holds options to purchase 60,381 shares; Mr. Fry holds
options to purchase 61,020 shares; Mr. Kimmel holds options to purchase
24,578 shares; Mr. Betts holds options to purchase 38,019 shares;
Messrs. Cowell and Walsh each hold options to purchase 20,006 shares;
Mr. Warfield holds options to purchase 17,908 shares; Mr. Wright holds
options to purchase 6,668 shares; Mr. Delaney holds options to purchase
45,098 shares; Mr. Duda holds options to purchase 41,160 shares; and
Mr. Bowman holds options to purchase 10,293 shares.
(2) Includes 11,763 shares held by Mr. Jorgensen as trustee of the Heise
Jorgensen & Stefanelli P.A. Profit Sharing Plan and Trust.
(3) Includes 4,154 shares, 673 shares, and 11,420 shares, respectively,
owned individually by the director's spouse.
(4) Includes 29,504 shares held by the Kimmel Grandchildren Trust, of which
Mr. Kimmel serves as trustee.
(5) Includes 11,861 shares held by two trust funds for which Mr. Cowell
serves as trustee.
(6) Includes 105 shares held individually by the director's children.
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth information as of the First Citizens
Record Date with respect to the ownership of shares of First Citizens Common
Stock by each person believed by management to be the beneficial owner of more
than 5% of First Citizens' outstanding Common Stock. The information is based on
the most recent Schedule 13D filed on behalf of such persons or other
information made available to First Citizens. Except as otherwise indicated, the
reporting persons have stated that they possess sole voting and sole dispositive
power over the entire number of shares reported.
120
PERCENT OF
FIRST CITIZENS
NAME AND ADDRESS OF AMOUNT AND NATURE OF COMMON STOCK
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OUTSTANDING
- ------------------- -------------------- --------------
Able Associates, Inc.
Box 180 336,839(1) 11.42%
Swarthmore, Pennsylvania 19081
N. Richard Kimmel
15821 Crabbs Branch Way 174,050(2) 5.85%
Rockville, Maryland 20855
- ----------
(1) The First Citizens Certificate prohibited, until after December 24,
1991, any person or company from directly or indirectly offering to
acquire or acquiring beneficial ownership of more than 10% of any class
of equity security of First Citizens. Thereafter, no person may offer
to acquire 10% or more of the outstanding voting stock of First
Citizens unless the offer shall first have been approved by the First
Citizens Board or the person making the offer shall have received
required regulatory approvals to consummate the proposed acquisition of
shares, and no person may acquire 10% or more of the outstanding voting
stock of First Citizens unless the acquisition has been approved prior
to its consummation by the affirmative vote of stockholders holding at
least two-thirds of the outstanding shares. Pursuant to the First
Citizens Certificate, any shares beneficially owned by any person in
excess of such 10% limit in effect until December 24, 1991 shall be
considered "excess shares" and shall not be voted by any person or
counted as voting shares in connection with any matter submitted to
stockholders for a vote. First Citizens believes that 49,128 of the
shares held by Able Associates, Inc. should be considered "excess
shares," which, pursuant to the terms of the First Citizens
Certificate, may not be voted or counted as voting shares in connection
with any matter submitted to stockholders for a vote. In June 1993,
Able Associates, Inc. and Dale L. Reese, Able Associates, Inc.'s sole
stockholder, entered into a rebuttal agreement with the OTS with
respect to Able Associates' ownership of shares of First Citizens
Common Stock. The rebuttal agreement, in general, provides that Able
Associates and Dale Reese will not, unless they shall have first filed
a notice under the Change in Control Act, or an application under the
Savings and Loan Holding Company Act, as appropriate, and either shall
have obtained approval of the application or clearance of the notice in
accordance with applicable Federal regulations: (i) seek or accept
representation of more than one member of the board of directors of
First Citizens or Citizens Savings; (ii) have or seek to have any
representative serve as chairman of the board of directors, or chairman
of an executive or similar committee of First Citizens' or Citizens
Savings' board of directors or as president or chief executive officer
of First Citizens or Citizens Savings; (iii) engage in any intercompany
transaction with First Citizens, Citizens Savings or their affiliates;
(iv) propose a director in opposition to nominees proposed by the
management of First Citizens or Citizens Savings for the board of
directors of First Citizens or Citizens Savings, other than as
permitted under (i) above; (v) solicit proxies or participate in any
solicitation of proxies with respect to any matter presented to the
stockholders of First Citizens other than in support of, or in
opposition to, a solicitation conducted on behalf of management of
First Citizens; and (vi) do any of the following, except as necessary
solely in connection with the performance by any representative of Able
Associates as a member of First Citizens or Citizens Savings' board of
directors: (a) influence or attempt to influence in any respect the
loan and credit
121
decisions or policies of First Citizens or Citizens Savings, the
pricing of services, any personnel decision, the location of any
offices, branching, the hours of operation or similar activities of
First Citizens or Citizens Savings; (b) influence or attempt to
influence the dividend policies and practices of First Citizens or
Citizens Savings or any decisions or policies of First Citizens or
Citizens Savings as to the offering or exchange of any securities; (c)
seek to amend, or otherwise take action to change, the by-laws,
articles of incorporation, or character of First Citizens or Citizens
Savings; (d) exercise, or attempt to exercise, directly or indirectly,
control or controlling influence over the management, policies or
business operations of First Citizens or Citizens Savings; or (e) seek
or accept any non-public information concerning First Citizens or
Citizens Savings.
(2) Includes 24,578 shares of First Citizens Common Stock subject to
outstanding options which are exercisable within 60 days of the First
Citizens Record Date.
LEGAL MATTERS
The validity of the shares of Provident Common Stock which will be issued
in the Merger will be passed upon for Provident by Muldoon, Murphy & Faucette,
Washington, D.C. In addition, Muldoon, Murphy & Faucette, Washington, D.C., will
pass upon the tax-free nature of the Merger for Provident and First Citizens.
EXPERTS
The consolidated financial statements of Provident and subsidiaries as of
December 31, 1996 and 1995 and for each of the years in the three-year period
ended December 31, 1996, included in the 1996 Provident Form 10-K incorporated
by reference into this Joint Proxy Statement/Prospectus, have been incorporated
by reference herein and in the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part in reliance upon the report of Coopers & Lybrand
L.L.P., independent auditors, included in the 1996 Provident Form 10-K and
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
The consolidated financial statements of First Citizens and its subsidiary
as of December 31, 1996 and 1995 and for each of the years then ended, included
in the 1996 First Citizens Form 10-K incorporated by reference into this Joint
Proxy Statement/Prospectus, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated on their report with respect
thereto, and are incorporated by reference in reliance upon the authority of
said firm as experts in giving said reports.
The consolidated statements of income, stockholders' equity, and cash
flows of First Citizens and its subsidiary for the year ended December 31, 1994,
included in the 1996 First Citizens Form 10-K incorporated by reference into
this Joint Proxy Statement/Prospectus, have been incorporated by reference
herein and in the Registration Statement of which the Joint Proxy
Statement/Prospectus is a part in reliance upon the report of KPMG Peat Marwick
LLP, independent auditors, included in the 1996 First Citizens Form 10-K and
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
122
STOCKHOLDER PROPOSALS
Any proposal of a stockholder intended to be presented at the 1998 Annual
Meeting of Provident must be received by Provident at 114 East Lexington Street,
Baltimore, Maryland 21202 prior to November 17, 1997 to be eligible for
inclusion in the proxy statement and form of proxy. In order to curtail
controversy as to compliance with this requirement, stockholders are urged to
submit proposals to the Secretary of Provident by Certified Mail-Return Receipt
Requested.
It is possible that First Citizens' next Annual Meeting of Stockholders
will be held prior to consummation of the Merger. Any stockholder who wishes to
submit a proposal for presentation to such annual meeting, and for inclusion, if
appropriate, in First Citizens' proxy statement and the form of proxy relating
to such annual meeting, must comply with the rules and regulations of the SEC
then in effect and must submit such proposal to the Corporate Secretary of First
Citizens. In the event that First Citizens' Annual Meeting of Stockholders is
held on or before April 23, 1998, any stockholder proposal must have been
received by First Citizens not later than November 24, 1997. In the event that
First Citizens' Annual Meeting of Stockholders is held after May 23, 1998,
any stockholder proposal must be received by First Citizens a reasonable time
before the solicitation of proxies for such meeting.
123
ANNEX A
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
PROVIDENT BANKSHARES CORPORATION
AND
FIRST CITIZENS FINANCIAL CORPORATION
AMENDED AND RESTATED AS OF JULY 14, 1997
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
ARTICLE I
THE MERGER
1.1. The Merger.......................................................... 2
1.2. Effective Time...................................................... 2
1.3. Effects of the Merger............................................... 2
1.4. Conversion of Company Common Stock.................................. 2
1.5. Stock Options....................................................... 4
1.6. Buyer Common Stock.................................................. 5
1.7. Articles of Incorporation........................................... 6
1.8. By-Laws............................................................. 6
1.9. Directors and Officers.............................................. 6
1.10. Tax Consequences.................................................... 6
ARTICLE II
EXCHANGE OF SHARES
2.1. Buyer to Make Shares Available...................................... 7
2.2. Exchange of Shares.................................................. 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.1. Corporate Organization.............................................. 10
3.2. Capitalization...................................................... 12
3.3. Authority; No Violation............................................. 14
3.4. Consents and Approvals.............................................. 16
3.5. Regulatory Reports; Examinations.................................... 17
3.6. Financial Statements................................................ 18
3.7. Broker's Fees....................................................... 19
3.8. Absence of Certain Changes or Events................................ 19
3.9. Legal Proceedings................................................... 20
3.10. Taxes............................................................... 21
3.11. Employees........................................................... 23
3.12. SEC Reports......................................................... 25
3.13. Company Information................................................. 26
3.14. Compliance with Applicable Law...................................... 26
3.15. Certain Contracts................................................... 26
3.16. Agreements with Regulatory Agencies................................. 28
3.17. Investment Securities............................................... 28
3.18. Takeover Provisions................................................. 28
3.19. Environmental Matters............................................... 29
3.20. Opinion............................................................. 30
3.21. Loan Portfolio...................................................... 31
3.22. Accounting for the Merger; Reorganization........................... 32
3.23. Property............................................................ 32
3.24. Approvals........................................................... 33
3.25. Equity and Real Estate Investments.................................. 33
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
4.1. Corporate Organization.............................................. 33
4.2. Capitalization...................................................... 35
4.3. Authority; No Violation............................................. 36
4.4. Consents and Approvals.............................................. 38
4.5. Financial Statements................................................ 39
4.6. Broker's Fees....................................................... 40
4.7. Absence of Certain Changes or Events................................ 40
4.8. Legal Proceedings................................................... 41
4.9. Compliance with Applicable Law...................................... 41
4.10. SEC Reports......................................................... 42
4.11. Buyer Information................................................... 42
4.12. Ownership of Company Common Stock................................... 43
4.13. Taxes............................................................... 43
4.14. Employees........................................................... 44
4.15. Agreements with Regulatory Agencies................................. 45
4.16. Regulatory Reports; Examinations.................................... 45
4.17. Environmental Matters............................................... 46
4.18. Accounting for the Merger; Reorganization........................... 47
4.19. Loan Portfolio...................................................... 47
4.20. Opinion............................................................. 49
4.21. Approvals........................................................... 49
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1. Covenants of the Company............................................ 49
5.2. Covenants of Buyer.................................................. 54
ARTICLE VI
ADDITIONAL AGREEMENTS
6.l. Regulatory Matters.................................................. 56
6.2. Access to Information............................................... 57
6.3. Shareholder Meetings................................................ 59
6.4. Legal Conditions to Merger.......................................... 59
6.5. Affiliates; Publication of Combined Financial Results............... 60
6.6. NASDAQ Approval..................................................... 60
6.7. Employee Benefit Plans; Existing Agreements; Employment
and Consulting Agreements........................................... 61
6.8. Indemnification..................................................... 64
6.9. Subsequent Interim Financial Statements............................. 67
6.10. Additional Agreements............................................... 67
6.11. Advice of Changes................................................... 68
6.12. Current Information................................................. 68
6.13. Directorships....................................................... 69
6.14. Accountants' Letters................................................ 69
6.15. Execution and Authorization of Bank Merger Agreement................ 70
ARTICLE VII
CONDITIONS PRECEDENT
7.1. Conditions to Each Party's Obligation To Effect the Merger.......... 70
7.2. Conditions to Obligations of Buyer.................................. 72
7.3. Conditions to Obligations of the Company............................ 75
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1. Termination......................................................... 77
8.2. Effect of Termination; Expenses..................................... 80
8.3. Amendment........................................................... 80
8.4. Extension; Waiver................................................... 81
ARTICLE IX
GENERAL PROVISIONS
9.1. Closing............................................................. 81
9.2. Nonsurvival of Representations...................................... 82
9.3. Expenses............................................................ 82
9.4. Notices............................................................. 82
9.5. Interpretation...................................................... 83
9.6. Counterparts........................................................ 84
9.7. Entire Agreement.................................................... 84
9.8. Governing Law....................................................... 84
9.9. Enforcement of Agreement............................................ 84
9.10. Severability........................................................ 84
9.11. Publicity........................................................... 85
9.12. Assignment; No Third Party Beneficiaries............................ 85
EXHIBIT LIST
Exhibit 3.2 - Option Agreement
Exhibit 6.7(e)(i) - Employment Agreement
Exhibit 6.7(e)(ii) - Change in Control Agreement
Exhibit 6.7(e)(iii) - Consulting Agreement
Exhibit 6.15 - Bank Merger Agreement
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of March 10, 1997, as amended
and restated as of July 14, 1997, by and between Provident Bankshares
Corporation, a Maryland corporation ("Buyer"), and First Citizens Financial
Corporation, a Delaware corporation (the "Company").
WHEREAS, the Boards of Directors of Buyer and the Company have
determined that it is in the best interests of their respective companies and
their shareholders to consummate the business combination transaction provided
for herein in which the Company will, subject to the terms and conditions set
forth herein, merge (the "Merger") with and into Buyer ; and
WHEREAS, as soon as practicable after the execution and delivery of
this Agreement, it is contemplated that Provident Bank of Maryland, a
Maryland-chartered commercial bank and a wholly owned subsidiary of Buyer
("Buyer Bank", and sometimes referred to herein as the "Surviving Bank"), and
Citizens Savings Bank, F.S.B., a federally chartered savings bank and a wholly
owned subsidiary of the Company (the "Bank"), will enter into a Subsidiary
Agreement and Plan of Merger (the "Bank Merger Agreement") providing for the
merger (the "Subsidiary Merger") of the Bank with and into Buyer Bank, and it is
intended that the Subsidiary Merger be consummated immediately following
consummation of the Merger; and
WHEREAS, the parties desire to make certain representations, warranties
and agreements in connection with the Merger and also to prescribe certain
conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, the parties agree as follows:
ARTICLE I
THE MERGER
1.1. The Merger. Subject to the terms and conditions of this Agreement,
in accordance with the Maryland General Corporate Law (the "MGCL"), at the
Effective Time (as defined in Section 1.2 hereof), the Company shall merge with
and into the Buyer. The Buyer shall be the surviving corporation (hereinafter
sometimes called the "Surviving Corporation") in the Merger, and shall continue
its corporate existence under the laws of the State of Maryland. The name of the
surviving corporation shall continue to be Provident Bankshares Corporation.
Upon consummation of the Merger, the separate corporate existence of the Company
shall terminate.
1.2. Effective Time. The Merger shall become effective at the date and
time set forth in the articles of merger (the "Articles of Merger") which shall
be filed with the Department of Assessment and Taxation of the State of Maryland
(the "Department") on the Closing Date (as defined in Section 9.1 hereof). The
term "Effective Time" shall be the date and time when the Merger becomes
effective, as set forth in the Articles of Merger.
1.3. Effects of the Merger. At and after the Effective Time, the
Merger shall have the effects set forth in Section 3-114 of the MGCL.
1.4. Conversion of Company Common Stock.
(a) At the Effective Time, subject to Sections 2.2(e) and
8.1(g) hereof and the last sentence of this Section 1.4(a), each share of the
common stock, par value $.01 per share, of the
2
Company (the "Company Common Stock") issued and outstanding immediately prior to
the Effective Time (other than shares of Company Common Stock held (1) in the
Company's treasury or (2) directly or indirectly by Buyer or the Company or any
of their respective Subsidiaries (as defined in Section 3.1(a)) which are not
Trust Account Shares or DPC shares (as such terms are defined in Section 1.4(b)
hereof)) shall, by virtue of this Agreement and without any action on the part
of the holder thereof, be converted into and exchangeable for .73 shares (the
"Exchange Ratio") of the common stock, par value $1.00 per share, of Buyer
("Buyer Common Stock") (together with the number of Buyer Rights (as defined in
Section 4.2 hereof) associated therewith). All of the shares of Company Common
Stock converted into Buyer Common Stock pursuant to this Article I shall no
longer be outstanding and shall automatically be cancelled and shall cease to
exist, and each certificate (each a "Certificate") previously representing any
such shares of Company Common Stock shall thereafter only represent the right to
receive (i) the number of whole shares of Buyer Common Stock and (ii) the cash
in lieu of fractional shares into which the shares of Company Common Stock
represented by such Certificate have been converted pursuant to this Section
1.4(a) and Section 2.2(e) hereof. Certificates previously representing shares of
Company Common Stock shall be exchanged for certificates representing whole
shares of Buyer Common Stock and cash in lieu of fractional shares issued in
consideration therefor upon the surrender of such Certificates in accordance
with Section 2.2 hereof, without any interest thereon. If, between the date
hereof and the Effective Time, the shares of Buyer Common Stock shall be changed
into a different number or class of shares by reason of any reclassification,
recapitalization, splitup, combination, exchange of shares or readjustment, or a
stock dividend thereon shall be declared with a record date within said period,
the Exchange Ratio shall be appropriately adjusted.
(b) At the Effective Time, all shares of Company Common Stock
that are owned by the Company as treasury stock and all shares of Company Common
Stock that are owned directly or
3
indirectly by Buyer or the Company or any of their respective Subsidiaries
(other than shares of Company Common Stock (x) held directly or indirectly in
trust accounts, managed accounts and the like or otherwise held in a fiduciary
capacity that are beneficially owned by third parties (any such shares, and
shares of Buyer Common Stock which are similarly held, whether held directly or
indirectly by Buyer or the Company, as the case may be, being referred to herein
as "Trust Account Shares") and (y) held by Buyer or the Company or any of their
respective Subsidiaries in respect of a debt previously contracted (any such
shares of Company Common Stock, and shares of Buyer Common Stock which are
similarly held, whether held directly or indirectly by Buyer or the Company,
being referred to herein as "DPC Shares")) shall be cancelled and shall cease to
exist and no stock of Buyer or other consideration shall be delivered in
exchange therefor. All shares of Buyer Common Stock that are owned by the
Company or any of its Subsidiaries (other than Trust Account Shares and DPC
Shares) shall become treasury stock of Buyer.
1.5. Stock Options. (a) At the Effective Time, each option granted by
the Company (a "Company Option") to purchase shares of Company Common Stock
which is outstanding and unexercised immediately prior thereto shall be
converted automatically into an option to purchase shares of Buyer Common Stock
in an amount and at an exercise price determined as provided below (and
otherwise subject to the terms of the Company's Director's Stock Option Plan,
the 1986 Stock Option Plan and the Employee Stock Option Plan (collectively, the
"Company Option Plans")):
(1) The number of shares of Buyer Common Stock to be subject
to the new option shall be equal to the product of the number of shares of
Company Common Stock subject to the original option and the Exchange Ratio,
provided that any fractional share of Buyer Common Stock resulting from such
multiplication shall be rounded down to the nearest share; and
4
(2) The exercise price per share of Buyer Common Stock under
the new option shall be equal to the exercise price per share of Company Common
Stock under the original option divided by the Exchange Ratio, provided that
such exercise price shall be rounded up to the nearest cent.
The adjustment provided herein with respect to any options which are "incentive
stock options" (as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code")) shall be and is intended to be effected in a manner
which is consistent with Section 424(a) of the Code. The duration and other
terms of the new option shall be the same as the original option, except that
all references to the Company shall be deemed to be references to Buyer.
(b) Prior to the Effective Time, Buyer shall reserve for
issuance, the number of shares of Buyer Common Stock necessary to satisfy
Buyer's obligations under this Section 1.5. Within thirty days after the
Effective Time, Buyer shall file with the Securities and Exchange Commission
(the "SEC") a registration statement on an appropriate form under the Securities
Act of 1933, as amended (the "Securities Act"), with respect to the shares of
Buyer Common Stock subject to options to acquire Buyer Common Stock issued
pursuant to Section 1.5(a) hereof, and shall use its reasonable best efforts to
maintain the current status of the prospectus contained therein, as well as
comply with applicable state securities or "blue sky" laws, for so long as such
options remain outstanding.
1.6. Buyer Common Stock. Except for shares of Buyer Common Stock
owned by the Company or any of its Subsidiaries (other than Trust Account Shares
and DPC Shares), which shall be converted into treasury stock of Buyer as
contemplated by Section 1.4 hereof, the shares of Buyer Common Stock outstanding
immediately prior to the Effective Time shall be unaffected by the Merger and at
the Effective Time, such shares shall remain issued and outstanding.
5
1.7. Articles of Incorporation. At the Effective Time, the Articles of
Incorporation of the Buyer, as in effect at the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation.
1.8. By-Laws. At the Effective Time, the By-Laws of the Buyer, as in
effect immediately prior to the Effective Time, shall be the By-Laws of the
Surviving Corporation until thereafter amended in accordance with applicable
law.
1.9. Directors and Officers. Except as provided in Section 6.13 hereof,
the directors and officers of the Buyer immediately prior to the Effective Time
shall be the directors and officers of the Surviving Corporation, each to hold
office in accordance with the Articles of Incorporation and ByLaws of the
Surviving Corporation until their respective successors are duly elected or
appointed and qualified.
1.10. Tax Consequences. It is intended that the Merger constitutes a
reorganization within the meaning of Section 368(a) of the Code, and that this
Agreement shall constitute a "plan of reorganization" for purposes of Section
368 of the Code.
6
ARTICLE II
EXCHANGE OF SHARES
2.1. Buyer to Make Shares Available. At or prior to the Effective Time,
Buyer shall deposit, or shall cause to be deposited, with a bank or trust
company (which may be a Subsidiary of Buyer) (the "Exchange Agent") selected by
Buyer and reasonably satisfactory to the Company, for the benefit of the holders
of Certificates, for exchange in accordance with this Article II, certificates
representing the shares of Buyer Common Stock and the cash in lieu of fractional
shares (such cash and certificates for shares of Buyer Common Stock, together
with any dividends or distributions with respect thereto, being hereinafter
referred to as the "Exchange Fund") to be issued pursuant to Section 1.4 and
paid pursuant to Section 2.2(a) in exchange for outstanding shares of Company
Common Stock.
2.2. Exchange of Shares. (a) As soon as practicable after the Effective
Time, and in no event more than three business days thereafter, the Exchange
Agent shall mail to each holder of record of a Certificate or Certificates a
form letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon delivery of
the Certificates to the Exchange Agent) and instructions for use in effecting
the surrender of the Certificates in exchange for certificates representing the
shares of Buyer Common Stock and the cash in lieu of fractional shares into
which the shares of Company Common Stock represented by such Certificate or
Certificates shall have been converted pursuant to this Agreement. The Company
shall have the right to review both the letter of transmittal and the
instructions. Upon surrender of a Certificate for exchange and cancellation to
the Exchange Agent, together with such letter of transmittal, duly
executed, the holder of such Certificate shall be entitled to receive in
exchange therefor (x) a certificate representing that number of whole shares of
Buyer Common Stock to which such holder of Company Common Stock shall have
become entitled
7
pursuant to the provisions of Article I hereof and (y) a check representing the
amount of cash in lieu of fractional share, if any, which such holder has the
right to receive in respect of the Certificate surrendered pursuant to the
provisions of this Article II, and the Certificate so surrendered shall
forthwith be cancelled. No interest will be paid or accrued on the cash in lieu
of fractional shares and unpaid dividends and distributions, if any, payable to
holders of Certificates.
(b) No dividends or other distributions declared after the
Effective Time with respect to Buyer Common Stock and payable to the holders of
record thereof shall be paid to the holder of any unsurrendered Certificate
until the holder thereof shall surrender such Certificate in accordance with
this Article II. After the surrender of a Certificate in accordance with this
Article II, the record holder thereof shall be entitled to receive any such
dividends or other distributions, without any interest thereon which theretofore
had become payable with respect to the shares of Buyer Common Stock represented
by such Certificate.
(c) If any certificate representing shares of Buyer Common
Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it shall be a condition of the
issuance thereof that the Certificate so surrendered shall be properly endorsed
(or accompanied by an appropriate instrument of transfer) and otherwise in
proper form for transfer, and that the person requesting such exchange shall pay
to the Exchange Agent in advance any transfer or other taxes required by reason
of the issuance of a certificate representing shares of Buyer
Common Stock in any name other than that of the registered holder of the
Certificate surrendered, or required for any other reason, or shall establish to
the satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
8
(d) After the Effective Time, there shall be no transfers on
the stock transfer books of the Company of the shares of Company Common Stock
which were issued and outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates representing such shares are presented
for transfer to the Exchange Agent, they shall be cancelled and exchanged for
certificates representing shares of Buyer Common Stock as provided in this
Article II.
(e) Notwithstanding anything to the contrary contained herein,
no certificates or scrip representing fractional shares of Buyer Common Stock
shall be issued upon the surrender for exchange of Certificates, no dividend or
distribution with respect to Buyer Common Stock shall be payable on or with
respect to any fractional share, and such fractional share interests shall not
entitle the owner thereof to vote or to any other rights of a shareholder of
Buyer. In lieu of the issuance of any such fractional share, Buyer shall pay to
each former stockholder of the Company who otherwise would be entitled to
receive a fractional share of Buyer Common Stock an amount in cash determined by
multiplying (i) the average of the closing sales prices of Buyer Common Stock on
the Nasdaq National Market ("NASDAQ") as reported by THE WALL STREET JOURNAL
(or, if not reported thereby, another authoritative source) for the five
consecutive trading days immediately preceding the date on which the Effective
Time shall occur by (ii) the fraction of a share of Buyer Common Stock to which
such holder would otherwise be entitled to receive pursuant to Section 1.4
hereof.
(f) Any portion of the Exchange Fund that remains unclaimed by
the stockholders of the Company for twelve months after the Effective Time shall
be paid to Buyer. Any stockholders of the Company who have not theretofore
complied with this Article II shall thereafter look only to Buyer for payment of
their shares of Buyer Common Stock, cash in lieu of fractional shares and unpaid
dividends and distributions on the Buyer Common Stock deliverable in respect of
each share of
9
Company Common Stock such stockholder holds as determined pursuant to this
Agreement, in each case, without any interest thereon. Notwithstanding the
foregoing, none of Buyer, the Company, the Exchange Agent or any other person
shall be liable to any former holder of shares of Company Common Stock for any
amount properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(g) In the event any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
Buyer, the posting by such person of a bond in such amount as Buyer may direct
as indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Certificate the shares of Buyer Common Stock and cash in lieu of
fractional shares deliverable in respect thereof pursuant to this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Buyer as follows:
3.1. Corporate Organization. (a) The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has the corporate power and authority to own or lease all
of its properties and assets and to carry on its business as it is now being
conducted, and is duly licensed or qualified to do business in each jurisdiction
in which the nature of the business conducted by it or the character or location
of the properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed or
10
qualified would not have a Material Adverse Effect (as defined below) on the
Company. The Company is duly registered as a savings and loan holding company
under the Home Owners' Loan Act of 1933, as amended. The Certificate of
Incorporation and Amended Bylaws of the Company, copies of which have previously
been delivered to Buyer, are true, complete and correct copies of such documents
as in effect as of the date of this Agreement. As used in this Agreement, the
term "Material Adverse Effect" means, with respect to Buyer or the Company, as
the case may be, any effect that (i) is material and adverse to the business,
results of operations or financial condition of Buyer and its Subsidiaries taken
as a whole or the Company and its Subsidiaries taken as a whole, respectively,
or (ii) materially impairs the ability of the Company or the Buyer to consummate
the transactions contemplated hereby; PROVIDED, HOWEVER, that Material Adverse
Effect shall not be deemed to include the impact of (a) changes in laws and
regulations or interpretations thereof that are generally applicable to the
banking or savings and loan industries, (b) changes in generally accepted
accounting principles or regulatory accounting principles that are generally
applicable to the banking or savings and loan industries, (c) expenses incurred
in connection with the transactions contemplated hereby and (d) changes
attributable to or resulting from changes in general economic conditions,
including changes in the prevailing level of interest rates. As used in this
Agreement, the word "Subsidiary" when used with respect to any party means any
corporation, partnership or other organization, whether incorporated or
unincorporated, which is consolidated with such party for financial reporting
purposes.
(b) The Bank is a stock savings bank duly organized, validly
existing and in good standing under the laws of the United States. The Bank is
the only Subsidiary of the Company that is a "Significant Subsidiary" as such
term is defined in Regulation S-X promulgated by the SEC. The deposits of the
Bank are insured by the Federal Deposit Insurance Corporation (the "FDIC")
through the Savings Association Insurance Fund to the fullest extent permitted
by law, and all premiums and
11
assessments required to be paid in connection therewith have been paid when due
by the Bank. Each of the Company's other Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization. Each of the Company's
Subsidiaries has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being conducted
and is duly licensed or qualified to do business in each jurisdiction in which
the nature of the business conducted by it or the character or the location of
the properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed or qualified
would not have a Material Adverse Effect on the Company. The charter and bylaws
of the Subsidiaries of the Company, copies of which have previously been made
available to Buyer, are true, complete and correct copies of such documents as
in effect as of the date of this Agreement.
(c) The minute books of the Company and each of its
Subsidiaries contain true, complete and accurate records in all material
respects of all meetings and other corporate actions held or taken since
December 31, 1993 of their respective stockholders and Boards of Directors
(including committees of their respective Boards of Directors).
3.2. Capitalization. (a) The authorized capital stock of the Company
consists of 8,000,000 shares of Company Common Stock and 2,000,000 shares of
preferred stock, par value $.01 per share (the "Company Preferred Stock"). As
of the date of this Agreement, there are (x) 2,943,320 shares of Company Common
Stock issued and outstanding and no shares of Company Common Stock held in the
Company's treasury, (y) no shares of Company Common Stock reserved for issuance
upon exercise of outstanding stock options except for (i) 639,126 shares of
Company Common Stock reserved for issuance pursuant to the Company Option Plans
and (ii) 291,388 shares of Company Common Stock
12
reserved for issuance upon exercise of the option issued to Buyer pursuant to
the Stock Option Agreement, dated March 10, 1997, between Buyer and the Company
(the "Option Agreement"), and (z) no shares of Company Preferred Stock issued or
outstanding, held in the Company's treasury or reserved for issuance upon
exercise of outstanding stock options or otherwise. All of the issued and
outstanding shares of Company Common Stock have been duly authorized and validly
issued and are fully paid, nonassessable and free of preemptive rights, with no
personal liability attaching to the ownership thereof. Except as referred to
above or reflected in Section 3.2(a) of the Disclosure Schedule which is being
delivered to Buyer concurrently herewith (the "Company Disclosure Schedule"),
the Company does not have and is not bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character calling for
the purchase or issuance of any shares of Company Common Stock, Company
Preferred Stock or any other equity security of the Company or any securities
representing the right to purchase or otherwise receive any shares of Company
Common Stock, Company Preferred Stock or any other equity security of the
Company. The names of the optionees, the date of each option to purchase
Company Common Stock granted, the number of shares subject to each such option,
the expiration date of each such option, and the price at which each such option
may be exercised under the Company Option Plans are set forth in Section 3.2(a)
of the Company Disclosure Schedule.
(b) Section 3.2(b) of the Company Disclosure Schedule sets
forth a true and correct list of all of the Subsidiaries of the Company as of
the date of this Agreement. Except as set forth in Section 3.2(b) of the Company
Disclosure Schedule, the Company owns, directly or indirectly, all of the issued
and outstanding shares of the capital stock of each of such Subsidiaries, free
and clear of all liens, charges, encumbrances and security interests whatsoever,
and all of such shares are duly authorized and validly issued and are fully
paid, nonassessable and free of preemptive rights, with no personal liability
13
attaching to the ownership thereof. No Subsidiary of the Company has or is bound
by any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any shares
of capital stock or any other equity security of such Subsidiary or any
securities representing the right to purchase or otherwise receive any shares of
capital stock or any other equity security of such Subsidiary. Assuming
compliance by Buyer with Section 1.5 hereof, at the Effective Time, there will
not be any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character by which the Company or any of its Subsidiaries will
be bound calling for the purchase or issuance of any shares of the capital stock
of the Company or any of its Subsidiaries.
3.3. Authority; No Violation. (a) The Company has full corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly approved by the Board of Directors of the Company. The Board of
Directors of the Company has directed that this Agreement and the transactions
contemplated hereby be submitted to the Company's stockholders for approval at a
meeting of such stockholders and, except for the adoption of this Agreement by
the requisite vote of the Company's stockholders, no other corporate proceedings
on the part of the Company are necessary to approve this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by the Company and (assuming due
authorization, execution and delivery by Buyer) constitutes a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except as enforcement may be limited by general principles of equity
whether applied in a court of law or a court of equity and by bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies generally.
14
(b) The Bank has full corporate power and authority to execute
and deliver the Bank Merger Agreement and to consummate the transactions
contemplated thereby. The execution and delivery of the Bank Merger Agreement
and the consummation of the transactions contemplated thereby will be duly and
validly approved by the Board of Directors of the Bank. Upon the due and valid
approval of the Bank Merger Agreement by the Company as the sole stockholder of
the Bank and by the Board of Directors of the Bank, no other corporate
proceedings on the part of the Bank will be necessary to consummate the
transactions contemplated thereby. The Bank Merger Agreement, upon execution and
delivery by the Bank, will be duly and validly executed and delivered by the
Bank and (assuming due authorization, execution and delivery by Buyer Bank) will
constitute a valid and binding obligation of the Bank, enforceable against the
Bank in accordance with its terms, except as enforcement may be limited by laws
affecting insured depository institutions, general principles of equity whether
applied in a court of law or a court of equity and by bankruptcy, insolvency and
similar laws affecting creditors' rights and remedies generally.
(c) Except as set forth in Section 3.3(c) of the Company
Disclosure Schedule, neither the execution and delivery of this Agreement and
the Option Agreement by the Company or the Bank Merger Agreement by the Bank,
nor the consummation by the Company or the Bank, as the case may be, of the
transactions contemplated hereby or thereby, nor compliance by the Company or
the Bank with any of the terms or provisions hereof or thereof, will (i) violate
any provision of the Certificate of Incorporation or Amended By-Laws of the
Company or the charter, bylaws or similar governing documents of any of its
Subsidiaries, or (ii) assuming that the consents and approvals referred to in
Section 3.4 hereof are duly obtained, (x) violate any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction applicable to the
Company or any of its Subsidiaries, or any of their respective properties or
assets, or (y) violate, conflict with, result in a breach of any provision of or
the
15
loss of any benefit under, constitute a default (or an event which, with notice
or lapse of time, or both, would constitute a default) under, result in the
termination of or a right of termination or cancellation under, accelerate the
performance required by, or result in the creation of any lien, pledge, security
interest, charge or other encumbrance upon any of the respective properties or
assets of the Company or any of its Subsidiaries under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which the Company
or any of its Subsidiaries is a party, or by which they or any of their
respective properties or assets may be bound or affected, except (in the case of
clause (y) above) for such violations, conflicts, breaches or defaults which,
either individually or in the aggregate, would not have or be reasonably likely
to have a Material Adverse Effect on the Company.
3.4. Consents and Approvals. Except for (a) the filing of applications
or notices, as applicable, with the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board") under the Bank Holding Company Act of 1956,
as amended (the "BHC Act") and approval of such applications or notices, (b) the
filing of an application with the FDIC under the Bank Merger Act and approval of
such application, (c) the filing of applications or notices, as applicable, with
the Office of Thrift Supervision (the "OTS") and the approval of such
applications or notices, (d) the filing of applications or notices, as
applicable, with the Commissioner of Financial Regulation of the State of
Maryland (the "Commissioner") and approval of such applications or notices, (e)
the filing with the SEC of a joint proxy statement in definitive form relating
to the meetings of the Company's stockholders and Buyer's stockholders to be
held in connection with this Agreement and the transactions contemplated hereby
(the "Proxy Statement"), (f) the approval of this Agreement by the requisite
vote of the stockholders of the Company, (g) the filing of the Articles of
Merger with the Department pursuant to the MGCL, (h) the filings required by the
Bank Merger Agreement, (i) the approval of the Bank Merger
16
Agreement by the Company as the sole stockholder of the Bank, and (j) such
filings, authorizations or approvals as may be set forth in Section 3.4 of the
Company Disclosure Schedule, no consents or approvals of or filings or
registrations with any court, administrative agency or commission or other
governmental authority or instrumentality or self-regulatory organization, as
defined in Section 3(a)(26) of the Exchange Act (each a "Governmental Entity"),
or with any third party are necessary on behalf of the Company in connection
with (1) the execution and delivery by the Company of this Agreement, (2) the
consummation by the Company of the Merger and the other transactions
contemplated hereby, (3) the execution and delivery by the Bank of the Bank
Merger Agreement, and (4) the consummation by the Bank of the Subsidiary Merger.
3.5. Regulatory Reports; Examinations. The Company and each of its
Subsidiaries have timely filed all material reports, registrations and
statements, together with any amendments required to be made with respect
thereto, that they were required to file since December 31, 1993 with any
Governmental Entity and have paid all fees and assessments due and payable in
connection therewith. Except for normal examinations conducted by a Governmental
Entity in the regular course of the business of the Company and its Subsidiaries
and except as set forth in Section 3.5 of the Company Disclosure Schedule, no
Governmental Entity has initiated any proceeding or, to the best knowledge of
the Company, investigation into the business or operations of the Company or any
of its Subsidiaries since December 31, 1993. There is no unresolved material
violation, criticism, or exception by any Governmental Entity with respect to
any report or statement relating to any examinations of the Company or any of
its Subsidiaries.
3.6. Financial Statements. The Company has previously delivered to
Buyer copies of (a) the consolidated statement of financial condition of the
Company and its Subsidiaries as of December 31,
17
1995, and the related consolidated statements of income, stockholders' equity
and cash flows for the fiscal year then ended, as reported in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (the
"1995 10-K") filed with the SEC under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), accompanied by the audit report of Arthur Andersen
LLP, independent public accountants with respect to the Company, (b) the
consolidated statement of financial condition of the Company and its
Subsidiaries as of December 31, 1994, and the related consolidated statements of
income, stockholders' equity and cash flows for the fiscal years 1993 and 1994,
as reported in the 1995 10-K, accompanied by the audit report of KPMG Peat
Marwick LLP, and (c) the unaudited consolidated statements of financial
condition of the Company and its Subsidiaries as of September 30, 1995 and
September 30, 1996 and the related unaudited consolidated statements of income,
cash flows and stockholders' equity for the nine month periods then ended as
reported in the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1996 filed with the SEC pursuant to the Exchange Act. The December
31, 1995 consolidated statement of financial condition of the Company (including
the related notes, where applicable) fairly presents the consolidated financial
position of the Company and its Subsidiaries as of the date thereof, and the
other financial statements referred to in this Section 3.6 (including the
related notes, where applicable) fairly present, and the financial statements
referred to in Section 6.9 hereof will fairly present (subject, in the case of
the unaudited statements, to recurring audit adjustments normal in nature and
amount), the results of the consolidated operations and consolidated financial
position of the Company and its Subsidiaries for the respective fiscal periods
or as of the respective dates therein set forth; each of such statements
(including the related notes, where applicable) comply, and the financial
statements referred to in Section 6.9 hereof will comply, in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto; and each of such statements
(including the related notes, where applicable) has been, and the financial
statements referred to in Section 6.9 hereof will be, prepared in
18
accordance with generally accepted accounting principles ("GAAP") consistently
applied during the periods involved, except as indicated in the notes thereto
or, in the case of unaudited statements, as permitted by Form 10-Q. The books
and records of the Company and its Subsidiaries have been, and are being,
maintained in all material respects in accordance with GAAP and any other
applicable legal and accounting requirements and reflect only actual
transactions.
3.7. Broker's Fees. Neither the Company nor any Subsidiary of the
Company nor any of their respective officers or directors has employed any
broker or finder or incurred any liability for any broker's fees, commissions or
finder's fees in connection with any of the transactions contemplated by this
Agreement, the Option Agreement or the Bank Merger Agreement, except that the
Company has engaged, and will pay a fee or commission to, Endicott Financial
Advisors L.L.C. ("Endicott") in accordance with the terms of a letter agreement
between the Company and Endicott, a true, complete and correct copy of which has
previously been delivered by the Company to Buyer.
3.8. Absence of Certain Changes or Events. (a) Except as may be set
forth in Section 3.8(a) of the Company Disclosure Schedule, (i) since September
30, 1996, neither the Company nor any of its Subsidiaries has incurred any
material liability, except in the ordinary course of their business consistent
with their past practices (excluding the incurrence of expenses in connection
with this Agreement and the transactions contemplated hereby), (ii) since
September 30, 1996, no event has occurred which has caused or would reasonably
be expected to cause, individually or in the aggregate, a Material Adverse
Effect on the Company, and (iii) for the period from September 30, 1996 to the
date of this Agreement, the Company and its Subsidiaries have carried on their
respective businesses in the ordinary course consistent with their past
practices (excluding the execution of this Agreement and related matters).
19
(b) Except as set forth in Section 3.8(b) of the Company
Disclosure Schedule, since September 30, 1996, neither the Company nor any of
its Subsidiaries has (i) increased the wages, salaries, compensation, pension,
or other fringe benefits or perquisites payable to any executive officer,
employee, or director from the amount thereof in effect as of September 30, 1996
(which amounts have been previously disclosed to Buyer), granted any severance
or termination pay, entered into any contract to make or grant any severance or
termination pay, or paid any bonus other than year end bonuses for fiscal 1996
as listed in Section 3.8 of the Company Disclosure Schedule, (ii) suffered any
strike, work stoppage, slowdown or other labor disturbance, (iii) been a party
to a collective bargaining agreement, contract or other agreement or
understanding with a labor union or organization, or (iv) had any union
organizing activities.
3.9. Legal Proceedings. (a) Except as set forth in Section 3.9 of the
Company Disclosure Schedule, neither the Company nor any of its Subsidiaries is
a party to any, and there are no pending or, to the best of the Company's
knowledge, threatened, legal, administrative, arbitral or other proceedings,
claims, actions or governmental or regulatory investigations of any nature
against the Company or any of its Subsidiaries or challenging the validity or
propriety of the transactions contemplated by this Agreement or the Bank Merger
Agreement as to which there is a reasonable probability of an adverse
determination and which, if adversely determined, would, individually or in the
aggregate, have or would be reasonably expected to have a Material Adverse
Effect on the Company.
(b) There is no injunction, order, judgment, decree or
regulatory restriction imposed upon the Company, any of its Subsidiaries or the
assets of the Company or any of its Subsidiaries which has had, or could
reasonably be expected to have, a Material Adverse Effect on the Company.
20
3.10. Taxes. (a) Except as set forth in Section 3.10 of the Company
Disclosure Schedule, each of the Company and its Subsidiaries has (i) duly and
timely filed (including applicable extensions granted without penalty) all
material Tax Returns (as hereinafter defined) required to be filed at or prior
to the Effective Time, and such Tax Returns are true, correct and complete in
all material respects, and (ii) paid in full or made adequate provision in the
financial statements of the Company (in accordance with GAAP) for all material
Taxes (as hereinafter defined). No deficiencies for any Taxes have been
proposed, asserted or assessed against or with respect to the Company or any of
its Subsidiaries. Except as set forth in Section 3.10 of the Company Disclosure
Schedule, (i) there are no liens for Taxes upon the assets of either the Company
or its Subsidiaries except for statutory liens for current Taxes not yet due,
(ii) neither the Company nor any of its Subsidiaries has requested any extension
of time within which to file any Tax Returns in respect of any fiscal year which
have not since been filed and no request for waivers of the time to assess any
Taxes are pending or outstanding, (iii) with respect to each taxable period of
the Company and its Subsidiaries, the federal and state income Tax Returns of
the Company and its Subsidiaries have been audited by the Internal Revenue
Service or appropriate state tax authorities or the time for assessing and
collecting income Tax with respect to such taxable period has closed and such
taxable period is not subject to review, (iv) neither the Company nor any of its
Subsidiaries has filed or been included in a combined, consolidated or unitary
income Tax Return other than one in which the Company was the parent of the
group filing such Tax Return, (v) neither the Company nor any of its
Subsidiaries is a party to any agreement providing for the allocation or sharing
of Taxes (other than the allocation of federal income taxes as provided by
Regulation 1.1552-l(a)(1) under the Code), (vi) neither the Company nor any of
its Subsidiaries is required to include in income any adjustment pursuant to
Section 481(a) of the Code (or any similar or corresponding provision or
requirement of state, local or foreign income Tax law), by reason of the
voluntary change in accounting method (nor has any taxing authority proposed in
writing any such adjustment or change of accounting
21
method), (vii) neither the Company nor any of its Subsidiaries has filed a
consent pursuant to Section 341(f) of the Code, and (viii) neither the Company
nor any of its Subsidiaries has made any payment or will be obligated to make
any payment in connection with this transaction (by contract or otherwise) which
will not be deductible by reason of Section 280G of the Code.
(b) For purposes of this Agreement, "Taxes" shall mean all
taxes, charges, fees, levies, penalties or other assessments imposed by any
United States federal, state, local or foreign taxing authority, including, but
not limited to income, excise, property, sales, transfer, franchise, payroll,
withholding, social security or other taxes, including any interest, penalties
or additions attributable thereto.
(c) For purposes of this Agreement, "Tax Return" shall mean
any return, report, information return or other document (including any related
or supporting information) with respect to Taxes.
3.11. Employees. (a) Section 3.11(a) of the Company Disclosure Schedule
sets forth a true and complete list of each employee benefit plan, arrangement
or agreement (including, without limitation, each employment, severance and
similar agreement) that is maintained or contributed to or required to be
contributed to as of the date of this Agreement (the "Plans") by the Company,
any of its Subsidiaries or by any trade or business, whether or not incorporated
(an "ERISA Affiliate"), all of which together with the Company would be deemed a
"single employer" within the meaning of Section 4001 of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), for the benefit of any
director, employee or former employee of the Company, any Subsidiary or any
ERISA Affiliate.
22
(b) The Company has heretofore delivered to Buyer true and
complete copies of each of the Plans and all related documents, including but
not limited to (i) the actuarial report for such Plan (if applicable) for each
of the last two years, and (ii) the most recent determination letter from the
Internal Revenue Service (if applicable) for such Plan.
(c) Except as set forth in Section 3.11(c) of the Company
Disclosure Schedule, (i) each of the Plans has been operated and administered in
all material respects including with respect to requirements of reporting and
disclosure, in accordance with its terms and applicable law, including but not
limited to ERISA and the Code, (ii) each of the Plans intended to be "qualified"
within the meaning of Section 401(a) of the Code either (1) has received a
favorable determination letter from the IRS, or (2) is or will be the subject of
an application for a favorable determination letter, and the Company is not
aware of any circumstances likely to result in the revocation or denial of any
such favorable determination letter nor is the Company aware of any
disqualifying defect which has been either voluntary corrected or corrected
under an administrative program sponsored by the Internal Revenue Service, (iii)
with respect to each Plan which is subject to Title IV of ERISA, the present
value of accrued benefits under such Plan, based upon the actuarial assumptions
used for funding purposes in the most recent actuarial report prepared by such
Plan's actuary with respect to such Plan, did not, as of its latest valuation
date, exceed the then current value of the assets of such Plan allocable to such
accrued benefits, (iv) no Plan provides benefits, including without limitation
death or medical benefits (whether or not insured), with respect to current or
former employees of the Company, its Subsidiaries or any ERISA Affiliate beyond
their retirement or other termination of service, other than (w) coverage
mandated by applicable law, (x) death benefits or retirement benefits under any
"employee pension plan," as that term is defined in Section 3(2) of ERISA, (y)
deferred compensation benefits accrued as liabilities on the books of the
Company, its Subsidiaries or the ERISA Affiliates or (z) benefits the full
23
cost of which is borne by the current or former employee (or his beneficiary),
(v) no liability under Title IV of ERISA has been incurred by the Company, its
Subsidiaries or any ERISA Affiliate that has not been satisfied in full, and no
condition exists that presents a risk to the Company, its Subsidiaries or an
ERISA Affiliate of incurring a liability thereunder, (vi) no Plan is a
"multiemployer pension plan," as such term is defined in Section 3(37) of ERISA,
(vii) all contributions or other amounts payable by the Company, its
Subsidiaries or any ERISA Affiliates as of the Effective Time with respect to
each Plan in respect of current or prior plan years have been paid or accrued in
accordance with generally accepted accounting practices and Section 412 of the
Code and the Company is not aware of any excise tax liability under Section 4972
of the Code, (viii) neither the Company, its Subsidiaries nor any ERISA
Affiliate has engaged in a transaction in connection with which the Company, its
Subsidiaries or any ERISA Affiliate could be subject to either a civil penalty
assessed pursuant to Section 409 or 502 (i) of ERISA or a tax imposed pursuant
to Section 4975 or 4976 of the Code, (ix) there are no pending, or, to the best
knowledge of the Company, threatened or anticipated claims (other than routine
claims for benefits) by, on behalf of or against any of the Plans or any trusts
related thereto and (x) the consummation of the transactions contemplated by
this Agreement will not (y) entitle any current or former employee or officer of
the Company or any ERISA Affiliate to severance pay, termination pay or any
other payment, except as expressly provided in this Agreement or (z) accelerate
the time of payment or vesting or increase the amount of compensation due any
such employee or officer.
3.12. SEC Reports. The Company has previously made available to Buyer
an accurate and complete copy of each (a) final registration statement,
prospectus, report, schedule and definitive proxy statement filed since January
1, 1994 by the Company with the SEC pursuant to the Securities Act or the
Exchange Act (the "Company Reports") and (b) communication mailed by the Company
to its stockholders since January 1, 1994, and no such Company Report (including
exhibits and amendments
24
thereto) or communication contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances in which
they were made, not misleading, except that information as of a later date shall
be deemed to modify information as of an earlier date. The Company has timely
filed all Company Reports and other documents required to be filed by it
pursuant to the Securities Act and the Exchange Act, and, as of their respective
dates, all Company Reports complied in all material respects with the published
rules and regulations of the SEC with respect thereto.
3.13. Company Information. The information relating to the Company and
its Subsidiaries to be contained or incorporated by reference in the Proxy
Statement and the registration statement on Form S-4 (the "S-4") of which the
Proxy Statement will be included as a prospectus, or in any other document filed
with any other Governmental Entity in connection herewith, will not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances in which they are
made, not misleading.
3.14. Compliance with Applicable Law. The Company and each of its
Subsidiaries hold, and have at all times held, all material licenses,
franchises, permits and authorizations necessary for the lawful conduct of their
respective businesses under and pursuant to all, and have complied with and are
not in default in any respect under any, applicable law, statute, order, rule,
regulation, policy and/or guideline of any Governmental Entity relating to the
Company or any of its Subsidiaries, except where the failure to hold such
license, franchise, permit or authorization or such noncompliance or default
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company, and neither the Company nor any of its Subsidiaries knows of, or
has received notice of, any material violations of any of the above.
25
3.15. Certain Contracts. (a) Except as set forth in Section 3.15(a) of
the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries
is a party to or bound by any contract, arrangement, plan, commitment or
understanding (whether written or oral) (i) with respect to the employment of
any directors, officers, employees or consultants, (ii) which, upon the
consummation of the transactions contemplated by this Agreement, will (either
alone or upon the occurrence of any additional acts or events) result in any
payment (whether of severance pay or otherwise) becoming due from Buyer, the
Company, the Bank, the Surviving Corporation, the Surviving Bank, or any of
their respective Subsidiaries to any officer or employee thereof, (iii) which is
a material contract (as defined in Item 601(b)(10) of Regulation S-K of the SEC)
to be performed after the date of this Agreement that has not been filed with or
incorporated by reference in the Company Reports, (iv) which is an agreement,
not otherwise described by clauses (i) through (iii) hereof, involving the
payment by the Company or any of its Subsidiaries of more than $100,000 per
annum, (v) which materially restricts the conduct of any line of business of the
Company or any of its Subsidiaries, or (vi) under which any of the benefits will
be increased, or the vesting of the benefits will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement, or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement (other than those plans,
agreements or arrangements set forth in Section 3.11(a) of the Company
Disclosure Schedule). Each contract, arrangement, plan, commitment or
understanding of the type described in this Section 3.15(a), whether or not set
forth in Section 3.15(a) of the Company Disclosure Schedule, is referred to
herein as a "Company Contract"). The Company has made available to Buyer true,
complete and correct copies of each Company Contract and any amendments or
modifications thereof.
(b) Except as set forth in Section 3.15(b) of the
Company Disclosure Schedule, (i) each Company Contract is valid and binding and
in full force and effect, (ii) the Company
26
and each of its Subsidiaries have performed all obligations required to be
performed by it to date under each Company Contract, except where such
noncompliance, individually or in the aggregate, would not have or be reasonably
expected to have a Material Adverse Effect on the Company, (iii) no event or
condition exists which constitutes or, after notice or lapse of time or both,
would constitute, a default on the part of the Company or any of its
Subsidiaries under any such Company Contract, except where such default,
individually or in the aggregate, would not have or be reasonably expected to
have a Material Adverse Effect on the Company and (iv) no other party to such
Company Contract is, to the best knowledge of the Company, in default in any
respect thereunder, except where such default, individually or in the aggregate,
would not have or be reasonably expected to have a Material Adverse Effect on
the Company.
3.16. Agreements with Regulatory Agencies. Except as set forth in
Section 3.16 of the Company Disclosure Schedule, neither the Company nor any of
its Subsidiaries is subject to any cease-and-desist or other order issued by, or
is a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from, or has adopted any board resolutions
at the request of (each, whether or not set forth on Section 3.16 of the Company
Disclosure Schedule, a "Regulatory Agreement"), any Governmental Entity that
restricts the conduct of its business or that in any manner relates to its
capital adequacy, its credit policies, its management or its business, nor has
the Company or any of its Subsidiaries been advised by any Governmental Entity
that it is considering issuing or requesting any Regulatory Agreement.
27
3.17. Investment Securities. Section 3.17 of the Company Disclosure
Schedule sets forth the book and market value as of December 31, 1996 of the
investment securities, mortgage backed securities and securities held for sale
of the Company and its Subsidiaries.
3.18. Takeover Provisions. The Board of Directors of the Company has
approved the transactions contemplated by this Agreement, the Bank Merger
Agreement and the Option Agreement such that the provisions of Section 203 of
the DGCL will not, assuming the accuracy of the representations contained in
Section 4.12 hereof, apply to this Agreement, the Bank Merger Agreement, the
Option Agreement or any of the transactions contemplated hereby or thereby.
3.19. Environmental Matters. Except as set forth in Section 3.19 of
the Company Disclosure Schedule:
(a) To the best of the Company's knowledge, each of the
Company, its Subsidiaries, the Participation Facilities and the Loan Properties
(each as hereinafter defined) are, and have been, in compliance with all
applicable federal, state and local laws including common law, regulations and
ordinances and with all applicable decrees, orders and contractual obligations
relating to pollution or the discharge of, or exposure to chemicals, pollutants,
contaminants, wastes, toxic substances, petroleum or other regulated substances
or materials (collectively, "Hazardous Materials") in the environment or
workplace ("Environmental Laws"), except for violations which, either
individually or in the aggregate, have not had and cannot reasonably be expected
to have a Material Adverse Effect on the Company.
(b) There is no suit, claim, action or proceeding, pending or,
to the best of the Company's knowledge, threatened, before any Governmental
Entity or other forum in which the
28
Company, any of its Subsidiaries, any Participation Facility or any Loan
Property, has been or, with respect to threatened proceedings, may be, named as
a defendant (x) for alleged noncompliance (including by any predecessor), with
any Environmental Laws, or (y) relating to the release, threatened release or
exposure to Hazardous Material whether or not occurring at or on a site owned,
leased or operated by the Company or any of its Subsidiaries, any Participation
Facility or any Loan Property, except where such noncompliance or release has
not had, and cannot be reasonably expected to result in, either individually or
in the aggregate, a Material Adverse Effect on the Company;
(c) During the period and, to the best knowledge of the
Company, prior to the period of (x) the Company's or any of its Subsidiaries'
ownership or operation of any of their respective current properties, (y) the
Company's or any of its Subsidiaries' participation in the management of any
Participation Facility, or (z) the Company's or any of its Subsidiaries' holding
of a security interest in a Loan Property, there has been no release of
Hazardous Materials in, on, under or affecting any such property, except where
such release has not had and cannot reasonably be expected to result in, either
individually or in the aggregate, a Material Adverse Effect on the Company; and
(d) The following definitions apply for purposes of this
Section 3.19: (x) "Loan Property" means any property in which the Company or any
of its Subsidiaries holds a security interest, and, where required by the
context, said term means the owner or operator of such property; and (y)
"Participation Facility" means any facility in which the Company or any of its
Subsidiaries participates in the management and, where required by the context,
said term means the owner or operator of such property.
29
3.20. Opinion. The Company has received a written opinion from Endicott
to the effect that, subject to the terms, conditions and qualifications set
forth therein, as of the date thereof, the consideration to be received by the
stockholders of the Company pursuant to this Agreement is fair to such
stockholders from a financial point of view. Such opinion has not been amended
or rescinded as of the date of this Agreement.
3.21. Loan Portfolio. (a) Except as set forth in Section 3.21 of the
Company Disclosure Schedule, as of February 28, 1997, neither the Company nor
any of its Subsidiaries is a party to any written or oral (i) loan agreement,
note or borrowing arrangement (including, without limitation, leases, credit
enhancements, commitments and guarantees) (collectively, "Loans"), other than
Loans the unpaid principal balance of which does not exceed $250,000, under the
terms of which the obligor is, as of the date of this Agreement, over 90 days
delinquent in payment of principal or interest or in default of any other
material provision, or (ii) Loan as of the date of this Agreement with any
director, executive officer or, to the best of the Company's knowledge, greater
than five percent stockholder of the Company or any of its Subsidiaries, or to
the best knowledge of the Company, any person, corporation or enterprise
controlling, controlled by or under common control with any of the foregoing,
other than Loans the unpaid principal balance of which does not exceed $150,000.
Section 3.21 of the Company Disclosure Schedule sets forth (i) all of the Loans
in original principal amount in excess of $250,000 of the Company or any of its
Subsidiaries that as of the date of this Agreement are classified by any bank
examiner (whether regulatory or internal) as "Other Loans Specially Mentioned",
"Special Mention" "Substandard", "Doubtful", "Loss", "Classified", "Criticized",
"Credit Risk Assets", "Concerned Loans", "Watch List" or words of similar
import, together with the principal amount of and accrued and unpaid interest on
each such Loan and the identity of the borrower thereunder, (ii) by category of
Loan (i.e., commercial, consumer, etc.), all of the other Loans of the Company
and its Subsidiaries that as of the
30
date of this Agreement are classified as such, together with the aggregate
principal amount of and accrued and unpaid interest on such Loans by category
and (iii) each asset of the Company that as of the date of this Agreement is
classified as "Other Real Estate Owned" and the book value thereof.
(b) Each Loan in original principal amount in excess of
$100,000 (i) is evidenced by notes, agreements or other evidences of
indebtedness which are true, genuine and what they purport to be, (ii) to the
extent secured, has been secured by valid liens and security interests which
have been perfected and (iii) is the legal, valid and binding obligation of the
obligor named therein, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent conveyance and other laws of general
applicability relating to or affecting creditors' rights and to general equity
principles, in each case other than Loans as to which the failure to satisfy the
foregoing standards would not have a Material Adverse Effect on the Company.
3.22. Accounting for the Merger; Reorganization. As of the date hereof,
the Company has no reason to believe that the Merger will fail to qualify (i)
for pooling-of-interests accounting treatment under GAAP or (ii) as a
reorganization under Section 368(a) of the Code.
3.23. Property. Except as set forth on Section 3.23 of the Company
Disclosure Schedule, each of the Company and its Subsidiaries has good and
marketable title, and has provided the Buyer with evidence of same, as of the
date hereof, free and clear of all liens, encumbrances, mortgages, pledges,
charges, defaults or equitable interests to all of the properties and assets,
real and personal, tangible or intangible, which, individually or in the
aggregate, are material, and which are reflected on the balance sheet of the
Company as of September 30, 1996 or acquired after such date, except (i) liens
for taxes not yet due and payable, (ii) pledges to secure deposits and other
liens incurred in the ordinary course of
31
banking business, (iii) such imperfections of title, easements and encumbrances,
if any, as are not material in character, amount or extent or (iv) for
dispositions and encumbrances of, or on, such properties or assets for adequate
consideration in the ordinary course of business. All leases pursuant to which
the Company or any Subsidiary of the Company, as lessee, leases real or personal
property which, individually or in the aggregate, are material and are valid and
enforceable in accordance with their respective terms, and the Company has
provided to Buyer evidence of same as of the date hereof, and neither the
Company nor any of its Subsidiaries nor, to the best knowledge of the Company,
any other party thereto is in default in any material respect thereunder.
3.24. Approvals. As of the date of this Agreement, the Company knows
of no reason why all regulatory approvals required for the consummation of the
transactions contemplated hereby (including, without limitation, the Merger and
the Subsidiary Merger) should not be obtained.
3.25. Equity and Real Estate Investments. Except as set forth in
Section 3.25 of the Company Disclosure Schedule, neither the Company nor any of
its Subsidiaries has any (i) equity investments other than investments in wholly
owned Subsidiaries, or (ii) investments in real estate, other than assets
classified as "other real estate owned", or real estate development projects.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Company as follows:
32
4.1. Corporate Organization. (a) Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Maryland. Buyer has the corporate power and authority to own or lease all of
its properties and assets and to carry on its business as it is now being
conducted, and is duly licensed or qualified to do business in each jurisdiction
in which the nature of the business conducted by it or the character or location
of the properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed or qualified
would not have a Material Adverse Effect on Buyer. Buyer is duly registered as a
bank holding company under the BHC Act. The Articles of Incorporation and Bylaws
of Buyer, copies of which have previously been delivered to the Company, are
true, complete and correct copies of such documents as in effect as of the date
of this Agreement.
(b) Buyer Bank is a commercial bank duly organized, validly
existing and in good standing under the laws of the State of Maryland. Buyer
Bank is the only Subsidiary of the Buyer that is a "significant subsidiary" as
such term is defined in Regulation S-X promulgated by the SEC. The deposits of
Buyer Bank are insured by the FDIC through the Bank Insurance Fund to the
fullest extent permitted by law, and all premiums and assessments required to be
paid in connection therewith have been paid when due by Buyer Bank. Each other
Subsidiary of Buyer is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation. Each Subsidiary of
Buyer has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being conducted,
and is duly licensed or qualified to do business in each jurisdiction in which
the nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed or qualified
would not have a Material Adverse Effect on Buyer. The certificate of
incorporation or bylaws of Buyer Bank and each other subsidiary of Buyer, copies
of which have been
33
previously delivered to the Company, are true, complete and correct copies of
such documents as in effect as of the date of this Agreement.
(c) The minute books of Buyer and each of its Subsidiaries
contain true, complete and accurate records in all material respects of all
meetings and other corporate actions held or taken since December 31, 1993 of
their respective stockholders and Boards of Directors (including committees of
their respective Boards of Directors).
4.2. Capitalization. (a) The authorized capital stock of Buyer consists
of 30,000,000 shares of Buyer Common Stock and 5,000,000 shares of preferred
stock, par value $1.00 per share ("Buyer Preferred Stock"), of which no shares
have been designated as Class A Preferred Stock of Buyer (the "Class A Preferred
Stock"). As of the date of this Agreement, there were 8,589,678 shares of Buyer
Common Stock and no shares of Buyer Preferred Stock issued and outstanding and
228,666 shares of Buyer Common Stock held in Buyer's treasury. As of the date of
this Agreement, no shares of Buyer Common Stock or Buyer Preferred Stock were
reserved for issuance, except that 1,148,926 shares of Buyer Common Stock were
reserved for issuance pursuant to the Buyer's dividend reinvestment plan,
1,430,953 shares of Buyer Common Stock were reserved for issuance pursuant to
the Buyer's Amended and Restated Stock Option Plan (the "Buyer Stock Plan") and
no shares of Class A Preferred Stock were reserved for issuance upon exercise of
the rights (the "Buyer Rights") distributed to holders of Buyer Common Stock
pursuant to the Stockholder Protection Rights Agreement, dated as of January 18,
1995, between Buyer and Buyer Bank, as Rights Agent (the "Buyer Rights
Agreement"). All of the issued and outstanding shares of Buyer Common Stock have
been duly authorized and validly issued and are fully paid, nonassessable and
free of preemptive rights, with no personal liability attaching to the ownership
thereof. The shares of Buyer Common Stock to be issued pursuant to the Merger
will be duly authorized
34
and validly issued and, at the Effective Time, all such shares will be fully
paid, nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof.
(b) Section 4.2(b) of the Disclosure Schedule which is being
delivered by Buyer to the Company herewith (the "Buyer Disclosure Schedule")
sets forth a true and correct list of all of the Subsidiaries of Buyer as of the
date of this Agreement. Except as set forth in Section 4.2(b) of the Buyer
Disclosure Schedule, Buyer owns, directly or indirectly, all of the issued and
outstanding shares of capital stock of each of the Subsidiaries of Buyer, free
and clear of all liens, charges, encumbrances and security interests whatsoever,
and all of such shares are duly authorized and validly issued and are fully
paid, nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof. No Subsidiary of Buyer has or is bound by
any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character with any party that is not a direct or indirect
Subsidiary of Buyer calling for the purchase or issuance of any shares of
capital stock or any other equity security of such Subsidiary or any securities
representing the right to purchase or otherwise receive any shares of capital
stock or any other equity security of such Subsidiary.
4.3. Authority; No Violation. (a) Buyer has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly approved by the Board of Directors of Buyer. The Board of Directors of
Buyer has directed that this Agreement and the transactions contemplated hereby
be submitted to Buyer's stockholders for approval at a meeting of such
stockholders and, except for the adoption of this Agreement by the requisite
vote of Buyer's stockholders, no other corporate proceedings on the part of
Buyer are necessary to consummate the transactions contemplated hereby. This
Agreement has been
35
duly and validly executed and delivered by Buyer and (assuming due
authorization, execution and delivery by the Company) constitutes a valid and
binding obligation of Buyer, enforceable against Buyer in accordance with its
terms, except as enforcement may be limited by general principles of equity
whether applied in a court of law or a court of equity and by bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies generally.
(b) Buyer Bank has full corporate power and authority to
execute and deliver the Bank Merger Agreement and to consummate the transactions
contemplated thereby. The execution and delivery of the Bank Merger Agreement
and the consummation of the transactions contemplated thereby will be duly and
validly approved by the Board of Directors of Buyer Bank. Upon the due and valid
approval of the Bank Merger Agreement by Buyer as the sole stockholder of Buyer
Bank, and by the Board of Directors of Buyer Bank, no other corporate
proceedings on the part of Buyer Bank will be necessary to consummate the
transactions contemplated thereby. The Bank Merger Agreement, upon execution and
delivery by Buyer Bank, will be duly and validly executed and delivered by Buyer
Bank and will (assuming due authorization, execution and delivery by the Bank)
constitute a valid and binding obligation of Buyer Bank, enforceable against
Buyer Bank in accordance with its terms, except as enforcement may be limited by
laws affecting insured depository institutions, general principles of equity
whether applied in a court of law or a court of equity and by bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies generally.
(c) Except as set forth in Section 4.3(c) of the Buyer
Disclosure Schedule, neither the execution and delivery of this Agreement by
Buyer or the Bank Merger Agreement by Buyer Bank, nor the consummation by Buyer
or Buyer Bank, as the case may be, of the transactions contemplated hereby or
thereby, nor compliance by Buyer or Buyer Bank, as the case may be, with any of
the terms or
36
provisions hereof or thereof, will (i) violate any provision of the Articles of
Incorporation or By-Laws of Buyer or the articles of incorporation or by-laws or
similar governing documents of any other Subsidiaries of Buyer or (ii) assuming
that the consents and approvals referred to in Section 4.4 are duly obtained,
(x) violate any statute, code, ordinance, rule, regulation, judgment, order,
writ, decree or injunction applicable to Buyer or any of its Subsidiaries or any
of their respective properties or assets, or (y) violate, conflict with, result
in a breach of any provision of or the loss of any benefit under, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any lien, pledge, security interest, charge or other
encumbrance upon any of the respective properties or assets of Buyer or any of
its Subsidiaries under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Buyer or any of its Subsidiaries is a party,
or by which they or any of their respective properties or assets may be bound or
affected, except (in the case of clause (y) above) for such violations,
conflicts, breaches or defaults which either individually or in the aggregate
will not have or be reasonably likely to have a Material Adverse Effect on
Buyer.
4.4. Consents and Approvals. Except for (a) the filing of applications
or notices, as applicable, with the Federal Reserve Board under the BHC Act and
approval of such applications or notices, (b) the filing of an application with
the FDIC under the Bank Merger Act and approval of such application, (c) the
filing of applications or notices, as applicable, with the OTS and approval of
such applications or notices, (d) the filing of applications or notices, as
applicable, with the Commissioner and approval of such applications and notices,
(e) the filing with the SEC of the Proxy Statement and with the SEC of the S-4,
(f) the approval of this Agreement by the requisite vote of the stockholders of
Buyer, (g) the filing of an application with NASDAQ to list the Buyer Common
Stock to be issued in the Merger on
37
the NASDAQ and the approval of such application, (h) the filing of the Articles
of Merger with the Department pursuant to the MGCL, (i) such filings and
approvals as are required to be made or obtained under the securities or "Blue
Sky" laws of various states in connection with the issuance of the shares of
Buyer Common Stock pursuant to this Agreement, (j) the filings required by the
Bank Merger Agreement, (k) the approval of the Bank Merger Agreement by Buyer as
the sole stockholder of Buyer Bank, and (l) such filings, authorizations or
approvals as may be set forth in Section 4.4 of the Buyer Disclosure Schedule,
no consents or approvals of or filings or registrations with any Governmental
Entity or with any third party are necessary on behalf of Buyer in connection
with (1) the execution and delivery by Buyer of this Agreement, (2) the
consummation by Buyer of the Merger and the other transactions contemplated
hereby, (3) the execution and delivery by Buyer Bank of the Bank Merger
Agreement, and (4) the consummation by Buyer Bank of the Subsidiary Merger.
4.5. Financial Statements. Buyer has previously delivered to the
Company copies of the consolidated statements of condition of Buyer and its
Subsidiaries as of December 31, 1995 and 1996 and the related consolidated
statements of income, changes in stockholders' equity and cash flows for the
fiscal years 1994 through 1996, inclusive, as reported in Buyer's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996 filed with the SEC
under the Exchange Act, in each case accompanied by the audit report of Coopers
& Lybrand L.L.P., independent public accountants with respect to Buyer. The
December 31, 1996 consolidated statement of condition of Buyer (including the
related notes, where applicable) fairly presents the consolidated financial
position of Buyer and its Subsidiaries as of the date thereof, and the other
financial statements referred to in this Section 4.5 (including the related
notes, where applicable) fairly present and the financial statements referred to
in Section 6.9 hereof will fairly present (subject, in the case of the unaudited
statements, to recurring audit adjustments normal in nature and amount) the
results of the consolidated operations and changes in
38
stockholders' equity and consolidated financial position of Buyer and its
Subsidiaries for the respective fiscal periods or as of the respective dates
therein set forth; each of such statements (including the related notes, where
applicable) comply, and the financial statements referred to in Section 6.9
hereof will comply, in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto; and each of such statements (including the related notes, where
applicable) has been, and the financial statements referred to in Section 6.9
hereof will be, prepared in accordance with GAAP consistently applied during the
periods involved, except as indicated in the notes thereto or, in the case of
unaudited statements, as permitted by Form 10-Q. The books and records of Buyer
and its Subsidiaries have been, and are being, maintained in all material
respects in accordance with GAAP and any other applicable legal and accounting
requirements and reflect only actual transactions.
4.6. Broker's Fees. Neither Buyer nor any Subsidiary of Buyer, nor any
of their respective officers or directors, has employed any broker or finder or
incurred any liability for any broker's fees, commissions or finder's fees in
connection with any of the transactions contemplated by this Agreement, the
Option Agreement or the Bank Merger Agreement, except that Buyer has engaged and
will pay a fee or commission to Keefe, Bruyette & Woods, Inc. ("KBW") in
accordance with the terms of a letter agreement between Buyer and KBW, a true,
complete and correct copy of which has previously been delivered by Buyer to the
Company.
4.7. Absence of Certain Changes or Events. Except as may be set forth
in Section 4.7 of the Buyer Disclosure Schedule, since December 31, 1996, (i)
neither Buyer nor any of its Subsidiaries has incurred any material liability,
except in the ordinary course of business consistent with their past practices
(excluding the incurrence of expenses in connection with this Agreement and the
transactions
39
contemplated hereby) and except in connection with acquisitions permitted by
Section 5.2(d) hereof, (ii) no event has occurred which has caused or would
reasonably be expected to cause, individually or in the aggregate, a Material
Adverse Effect on Buyer and (iii) for the period from December 31, 1996 to the
date of this Agreement, Buyer and its Subsidiaries have carried on their
respective businesses in the ordinary course consistent with their past
practices (excluding the execution of this Agreement and related matters).
4.8. Legal Proceedings. (a) Except as set forth in Section 4.8 of the
Buyer Disclosure Schedule, neither Buyer nor any of its Subsidiaries is a party
to any and there are no pending or, to the best of Buyer's knowledge,
threatened, material legal, administrative, arbitral or other proceedings,
claims, actions or governmental or regulatory investigations of any nature
against Buyer or any of its Subsidiaries or challenging the validity or
propriety of the transactions contemplated by this Agreement, the Bank Merger
Agreement or the Option Agreement as to which there is a reasonable probability
of an adverse determination and which, if adversely determined, would,
individually or in the aggregate, have or be reasonably expected to have or
would be reasonably expected to have a Material Adverse Effect on Buyer.
(b) There is no injunction, order, judgment, decree or
regulatory restriction imposed upon Buyer, any of its Subsidiaries or the assets
of Buyer or any of its Subsidiaries which has had, or could reasonably be
expected to have, a Material Adverse Effect on Buyer.
4.9. Compliance with Applicable Law. Buyer and each of its
Subsidiaries holds, and has at all times held, all material licenses,
franchises, permits and authorizations necessary for the lawful conduct of their
respective businesses under and pursuant to all, and have complied with and are
not in
40
default in any respect under any, applicable law, statute, order, rule,
regulation, policy and/or guideline of any Governmental Entity relating to Buyer
or any of its Subsidiaries, except where the failure to hold such license,
franchise, permit or authorization or such noncompliance or default would not,
individually or in the aggregate, have, or be reasonably likely to have, a
Material Adverse Effect on Buyer, and neither Buyer nor any of its Subsidiaries
knows of, or has received notice of violation of, any material violations of any
of the above.
4.10. SEC Reports. Buyer has previously made available to the Company
an accurate and complete copy of each (a) final registration statement,
prospectus, report, schedule and definitive proxy statement filed since January
1, 1994 by Buyer with the SEC pursuant to the Securities Act or the Exchange Act
(the "Buyer Reports") and (b) communication mailed by Buyer to its shareholders
since January 1, 1994, and no such Buyer Report (including exhibits and
amendments thereto) or communication contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading, except that information
as of a later date shall be deemed to modify information as of an earlier date.
Buyer has timely filed all Buyer Reports and other documents required to be
filed by it under the Securities Act and the Exchange Act, and, as of their
respective dates, all Buyer Reports complied in all material respects with the
published rules and regulations of the SEC with respect thereto.
4.11. Buyer Information. The information relating to Buyer and its
Subsidiaries to be contained or incorporated by reference in the Proxy Statement
and the S-4, or in any other document filed with any other Governmental Entity
in connection herewith, will not contain any untrue statement
41
of a material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances in which they are made, not
misleading.
4.12. Ownership of Company Common Stock. Except for the shares covered
by the Option Agreement and except as set forth in Section 4.12 of the Buyer
Disclosure Schedule, neither Buyer nor any of its affiliates or associates (as
such terms are defined under the Exchange Act) (i) beneficially owns, directly
or indirectly, or (ii) is a party to any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of any shares of
capital stock of the Company (other than Trust Account Shares and DPC Shares).
4.13. Taxes. Except as set forth in Section 4.13 of the Buyer
Disclosure Schedule, each of Buyer and its Subsidiaries has (i) duly and timely
filed (including applicable extensions granted without penalty) all material Tax
Returns (as hereinafter defined) required to be filed at or prior to the
Effective Time, and such Tax Returns are true, correct and complete in all
material respects, and (ii) paid in full or made adequate provision in the
financial statements of Buyer (in accordance with GAAP) for all material Taxes.
No deficiencies for any Taxes have been proposed, asserted, or assessed against
or with respect to Buyer or any of its Subsidiaries. Except as set forth in
Section 4.13 of the Buyer Disclosure Schedule, (i) there are no liens for Taxes
upon the assets of either Buyer or its Subsidiaries except for statutory liens
for current Taxes not yet due, (ii) neither Buyer nor any of its Subsidiaries
has requested any extension of time within which to file any Tax Returns in
respect of any fiscal year which have not since been filed and no request for
waivers of the time to assess any Taxes are pending or outstanding, (iii) with
respect to each taxable period of Buyer and its Subsidiaries, the federal and
state income Tax Returns of Buyer and its Subsidiaries have been audited by the
Internal Revenue Service or appropriate state tax authorities or the time for
assessing and collecting income Tax with respect to such taxable
42
period has closed and such taxable period is not subject to review, (iv) neither
Buyer nor any of its Subsidiaries has filed or been included in a combined,
consolidated or unitary income Tax Return other than one in which Buyer was the
parent of the group filing such Tax Return, (v) neither Buyer nor any of its
Subsidiaries is a party to any agreement providing for the allocation or sharing
of Taxes (other than the allocation of federal income taxes as provided by
Regulation 1.1552-l(a) (1) under the Code), (vi) neither Buyer nor any of its
Subsidiaries is required to include in income any adjustment pursuant to Section
481(a) of the Code (or any similar or corresponding provision or requirement of
state, local or foreign income Tax law), by reason of the voluntary change in
accounting method (nor has any taxing authority proposed in writing any such
adjustment or change of accounting method), (vii) neither Buyer nor any of its
Subsidiaries has filed a consent pursuant to Section 341(f) of the Code, and
(viii) neither Buyer nor any of its Subsidiaries has made any payment or will be
obligated to make any payment in connection with this transaction (by contract
or otherwise) which will not be deductible by reason of Section 280G of the
Code.
4.14. Employees. (a) Section 4.14(a) of the Buyer Disclosure Schedule
sets forth a true and complete list of each employee benefit plan, arrangement
or agreement (including, without limitation, each employment, severance and
similar agreement) that is maintained or contributed to or required to be
contributed to as of the date of this Agreement (the "Buyer Plans") by Buyer,
any of its Subsidiaries or by any trade or business, whether or not incorporated
(a "Buyer ERISA Affiliate"), all of which together with Buyer would be deemed a
"single employer" within the meaning of Section 4001 of ERISA, for the benefit
of any director, employee or former employee of Buyer, any Subsidiary or any
Buyer ERISA Affiliate.
43
(b) All of the Buyer Plans comply in all material respects
with all applicable requirements of ERISA, the Code and other applicable laws
and have been operated in material compliance with their terms; neither Buyer
nor any of its Subsidiaries has engaged in a "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) with respect to any
Buyer Plan which is likely to result in any material penalties or taxes to the
Buyer and its Subsidiaries under Section 502(i) of ERISA or Section 4975 of the
Code.
4.15. Agreements with Regulatory Agencies. Except as set forth in
Section 4.15 of the Buyer Disclosure Schedule, neither Buyer nor any of its
Subsidiaries is subject to any cease-and-desist or other order issued by, or is
a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from, or has adopted any board resolutions
at the request of (each, whether or not set forth in Section 4.15 of the Buyer
Disclosure Schedule, a "Buyer Regulatory Agreement"), any Governmental Entity
that restricts the conduct of its business or that in any manner relates to its
capital adequacy, its credit policies, its management or its business, nor has
Buyer or any of its Subsidiaries been advised by any Governmental Entity that it
is considering issuing or requesting any Buyer Regulatory Agreement.
4.16. Regulatory Reports; Examinations. Buyer and each of its
Subsidiaries have timely filed all material reports, registrations and
statements, together with any amendments required to be made with respect
thereto, that they were required to file since December 31, 1993 with any
Governmental Entity, and have paid all fees and assessments due and payable in
connection therewith. Except for normal examinations conducted by a Governmental
Entity in the regular course of the business of Buyer and its Subsidiaries, and
except as set forth in Section 4.16 of Buyer Disclosure Schedule, no
44
Governmental Entity has initiated any proceeding or, to the best knowledge of
Buyer, investigation into the business or operations of Buyer or any of its
Subsidiaries since December 31, 1993. There is no unresolved material violation,
criticism, or exception by any Governmental Entity with respect to any report or
statement relating to any examinations of Buyer or any of its Subsidiaries.
4.17. Environmental Matters. Except as set forth in Section 4.17 of
the Buyer Disclosure Schedule:
(a) To the best of Buyer's knowledge, each of Buyer, its
Subsidiaries, the Participation Facilities and the Loan Properties (each as
hereinafter defined) are, and have been, in compliance with all applicable
Environmental Laws, except for violations which, either individually or in the
aggregate, have not had and cannot reasonably be expected to have a Material
Adverse Effect on Buyer;
(b) There is no suit, claim, action or proceeding, pending or,
to the best of Buyer's knowledge, threatened, before any Governmental Entity or
other forum in which Buyer any of its Subsidiaries, any Participation Facility
or any Loan Property, has been or, with respect to threatened proceedings, may
be, named as a defendant (x) for alleged noncompliance (including by any
predecessor), with any Environmental Laws, or (y) relating to the release,
threatened release or exposure to Hazardous Material whether or not occurring at
or on a site owned, leased or operated by Buyer or any of its Subsidiaries, any
Participation Facility or any Loan Property, except where such noncompliance or
release has not had, and cannot be reasonably expected to result in, either
individually or in the aggregate, a Material Adverse Effect on Buyer;
45
(c) During the period or, to the best knowledge of Buyer,
prior to the period of (x) Buyer's or any of its Subsidiaries' ownership or
operation of any of their respective current properties, (y) Buyer's or any of
its Subsidiaries' participation in the management of any Participation Facility,
or (z) Buyer's or any of its Subsidiaries' holding of a security interest in a
Loan Property, there has been no release of Hazardous Materials in, on, under or
affecting any such property, except where such release has not had and cannot
reasonably be expected to result in, either individually or in the aggregate, a
Material Adverse Effect on Buyer; and
(d) The following definitions apply for purposes of this
Section 4.17: (x) "Loan Property" means any property in which Buyer or any of
its Subsidiaries holds a security interest, and, where required by the context,
said term means the owner or operator of such property; and (y) "Participation
Facility" means any facility in which Buyer or any of its Subsidiaries
participates in the management and, where required by the context, said term
means the owner or operator of such property.
4.18. Accounting for the Merger; Reorganization. Assuming compliance by
Buyer with Section 6.14 hereof, as of the date hereof, Buyer has no reason to
believe that the Merger will fail to qualify (i) for pooling-of-interests
accounting treatment under GAAP or (ii) as a reorganization under Section 368(a)
of the Code.
4.19. Loan Portfolio. (a) Except as set forth in Section 4.19 of the
Buyer Disclosure Schedule, as of December 31, 1996 neither Buyer nor any of its
Subsidiaries is a party to any written or oral (i) Loan, other than Loans the
unpaid principal balance of which does not exceed $250,000, under the terms of
which the obligor is, as of the date of this Agreement, over 90 days delinquent
in payment of principal or interest or in default of any other provision, or
(ii) Loan as of the date of this Agreement
46
with any director, executive officer or, to the best of Buyer's knowledge,
greater than five percent stockholder of Buyer or any of its Subsidiaries, or to
the best knowledge of Buyer, any person, corporation or enterprise controlling,
controlled by or under common control with any of the foregoing, other than
Loans the unpaid principal balance of which does not exceed $150,000. Section
4.19 of the Buyer Disclosure Schedule sets forth (i) all of the Loans in
original principal amount in excess of $250,000 of Buyer or any of its
Subsidiaries that as of the date of this Agreement are classified by any bank
examiner (whether regulatory or internal) as "Other Loans Specially Mentioned,"
"Special Mention," "Substandard," "Doubtful," "Loss," "Classified,"
"Criticized," "Credit Risk Assets," "Concerned Loans," "Watch List" or words of
similar import, together with the principal amount of and accrued and unpaid
interest on each such Loan and the identity of the borrower thereunder, (ii) by
category of Loan (i.e.,commercial, consumer, etc.), all of the other Loans of
Buyer and its Subsidiaries that as of the date of this Agreement are classified
as such, together with the aggregate principal amount of and accrued and unpaid
interest on such Loans by category and (iii) each asset of Buyer that as of the
date of this Agreement is classified as "Other Real Estate Owned" and the book
value thereof.
(b) Each Loan in original principal amount in excess of $100,000 (i) is
evidenced by notes, agreements or other evidences of indebtedness which are
true, genuine and what they purport to be, (ii) to the extent secured, has been
secured by valid liens and security interest which have been perfected and (iii)
is the legal, valid and binding obligation of the obligor named therein,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent conveyance and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles, in each case other
than Loans as to which the failure to satisfy the foregoing standards would not
have a Material Adverse Effect on Buyer.
47
4.20. Opinion. Buyer has received an opinion from KBW to the effect
that, subject to the terms, conditions and qualifications set forth therein, as
of the date thereof, the aggregate consideration to be issued by Buyer pursuant
to this Agreement is fair to Buyer and its stockholders from a financial point
of view. Such opinion has not been amended or rescinded as of the date of this
Agreement.
4.21. Approvals. As of the date of this Agreement, Buyer knows of no
reason why all regulatory approvals required for the consummation of the
transactions contemplated hereby (including, without limitation, the Merger and
the Subsidiary Merger) should not be obtained.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1. Covenants of the Company. During the period from the date of this
Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement, the Option Agreement or the Bank
Merger Agreement or with the prior written consent of Buyer, the Company and its
Subsidiaries shall carry on their respective businesses in the ordinary course
consistent with past practice. The Company will use its reasonable best efforts
to (x) preserve its business organization and that of its Subsidiaries intact,
(y) keep available to itself and Buyer the present services of the employees of
the Company and its Subsidiaries and (z) preserve for itself and Buyer the
goodwill of the customers of the Company and its Subsidiaries and others with
whom business relationships exist. Without limiting the generality of the
foregoing, and except to the extent that reasonable retention bonuses are paid
to certain Company employees pursuant to Section 5.1(k), as set forth in Section
5.1(k) or Section 5.1 of the Company Disclosure Schedule, or as otherwise
contemplated by this Agreement or consented to in writing by Buyer, the Company
shall not, and shall not permit any of its Subsidiaries to:
48
(a) solely in the case of the Company, declare or pay any
dividends on, or make other distributions in respect of, any shares of its
capital stock;
(b) (i) split, combine or reclassify any shares of its capital
stock or (ii) repurchase, redeem or otherwise acquire (except for the
acquisition of Trust Account Shares and DPC Shares, as such terms are defined in
Section 1.4(b) hereof) any shares of the capital stock of the Company or any
Subsidiary of the Company, or any securities convertible into or exercisable for
any shares of the capital stock of the Company or any Subsidiary of the Company;
(c) issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock or any securities
convertible into or exercisable for, or any rights, warrants or options to
acquire, any such shares, or enter into any agreement with respect to any of the
foregoing, other than (i) the issuance of Company Common Stock pursuant to stock
options or similar rights to acquire Company Common Stock granted pursuant to
the Company Option Plans and outstanding prior to the date of this Agreement, in
each case in accordance with their present terms and (ii) pursuant to the Option
Agreement;
(d) amend its Certificate of Incorporation, By-laws or other
similar governing documents;
(e) authorize or permit any of its officers, directors,
employees or agents to directly or indirectly solicit, initiate or encourage any
inquiries relating to, or the making of any proposal which constitutes, a
"takeover proposal" (as defined below), or, except to the extent legally
required for the discharge of the fiduciary duties of the Board of Directors of
the Company, (i) recommend or endorse
49
any takeover proposal, (ii) participate in any discussions or negotiations, or
(iii) provide third parties with any nonpublic information, relating to any such
inquiry or proposal; PROVIDED, HOWEVER, that the Company may communicate
information about any such takeover proposal to its stockholders if, in the
judgment of the Company's Board of Directors, based upon the advice of outside
counsel, such communication is required under applicable law. The Company will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations previously conducted with any parties other than
Buyer with respect to any of the foregoing. The Company will take all actions
necessary or advisable to inform the appropriate individuals or entities
referred to in the first sentence hereof of the obligations undertaken in this
Section 5.l(e). The Company will notify Buyer promptly if any such inquiries or
takeover proposals are received by, any such information is requested from, or
any such negotiations or discussions are sought to be initiated or continued
with, the Company, and the Company will promptly inform Buyer of all of the
relevant details with respect to the foregoing. As used in this Agreement,
"takeover proposal" shall mean any tender or exchange offer, proposal for a
merger, consolidation or other business combination involving the Company or any
Subsidiary of the Company or any proposal or offer to acquire in any manner a
substantial equity interest in, or a substantial portion of the assets of, the
Company or any Subsidiary of the Company other than the transactions
contemplated or permitted by this Agreement, the Option Agreement or the Bank
Merger Agreement;
(f) make any capital expenditures other than expenditures
which (i) are made in the ordinary course of business or are necessary to
maintain existing assets in good repair and (ii) in any event are in an amount
of no more than $50,000;
(g) enter into any new line of business;
50
(h) acquire or agree to acquire, by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial portion
of the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise acquire any assets, which would be material, individually or in the
aggregate, to the Company, other than in connection with foreclosures,
settlements in lieu of foreclosure or troubled loan or debt restructuring in the
ordinary course of business consistent with prudent banking practices;
(i) take any action that is intended or may reasonably be
expected to result in any of its representations and warranties set forth in
this Agreement being or becoming untrue in any material respect, or in any of
the conditions to the Merger set forth in Article VII not being satisfied, or in
a violation of any provision of this Agreement or the Bank Merger Agreement
except, in every case, as may be required by applicable law provided, however,
that nothing herein shall prevent the Company from taking any action required by
the Option Agreement;
(j) change its methods of accounting in effect at December 31,
1995, except as required by changes in GAAP or regulatory accounting principles
as concurred to by the Company's independent auditors;
(k) (i) except as required by applicable law or to maintain
qualification pursuant to the Code, adopt, amend, renew or terminate any Plan or
any agreement, arrangement, plan or policy between the Company or any Subsidiary
of the Company and one or more of its current or former directors, officers or
employees or (ii) except as set forth in Schedule 5.1(k) or except as required
by applicable law, increase in any manner the compensation or fringe benefits of
any director, officer or employee or pay any benefit not required by any plan or
agreement as in effect as of the date hereof
51
(including, without limitation, the granting of stock options, stock
appreciation rights, restricted stock, restricted stock units or performance
units or shares) or (iii) enter into or amend the terms of loans with any
director, officer or employee on terms more preferable than those terms offered
to non-affiliated parties; provided, however, that reasonable retention bonuses
as contemplated by Section 5.1(k) of the Company Disclosure Schedule may be paid
by the Company to selected employees and officers of the Company after
consultation with the Buyer;
(l) other than activities in the ordinary course of business
consistent with prior practice, sell, lease, encumber, assign or otherwise
dispose of, or agree to sell, lease, encumber, assign or otherwise dispose of,
any of its material assets, properties or other rights or agreements;
(m) other than in the ordinary course of business consistent
with past practice, incur any indebtedness for borrowed money, or assume,
guarantee, endorse or otherwise as an accommodation become responsible for the
obligations of any other individual, corporation or other entity;
(n) file any application to relocate or terminate the
operations of any banking office;
(o) make any equity investment or commitment to make such an
investment in real estate or in any real estate development project, other than
in connection with foreclosures, settlements in lieu of foreclosure or troubled
loan or debt restructuring in the ordinary course of business consistent with
prudent banking practices;
(p) create, renew, amend or terminate or give notice of a
proposed renewal, amendment or termination of, any material contract, agreement
or lease for goods, services or office
52
space to which the Company or any of its subsidiaries is a party or by which the
Company or any of its Subsidiaries or their respective properties is bound;
(q) take any action which would cause the termination or
cancellation by the FDIC of insurance in respect of the Bank's deposits; or
(r) agree to do any of the foregoing.
5.2. Covenants of Buyer. During the period from the date of this
Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement or the Bank Merger Agreement or with
the prior written consent of the Company, Buyer and its Subsidiaries shall carry
on their respective businesses in the ordinary course consistent with past
practice and consistent with prudent banking practice. Without limiting the
generality of the foregoing and except as set forth in Section 5.2 of the Buyer
Disclosure Schedule or as otherwise contemplated by this Agreement or consented
to in writing by the Company, Buyer shall not, and shall not permit any of its
Subsidiaries to:
(a) solely in the case of Buyer, declare or pay any
extraordinary or special dividends on or make any other extraordinary or special
distributions in respect of any of its capital stock; PROVIDED, HOWEVER, that
nothing contained herein shall prohibit Buyer from increasing the quarterly cash
dividend on the Buyer Common Stock in an amount consistent with past practice;
(b) take any action that is intended or may reasonably be
expected to result in any of its representations and warranties set forth in
this Agreement being or becoming untrue in any material respect, or in any of
the conditions to the Merger set forth in Article VII not being satisfied, or in
a
53
violation of any provision of this Agreement except, in every case, as may be
required by applicable law provided, however, that nothing contained herein
shall limit the ability of Buyer to exercise its rights under the Option
Agreement;
(c) amend its Articles of Incorporation or By-laws or other
governing instrument in a manner which would adversely affect in any manner the
terms of the Buyer Common Stock or the ability of Buyer to consummate the
transactions contemplated hereby;
(d) make or undertake any acquisition of any company or
business that could jeopardize the receipt of any Requisite Regulatory Approval
(as defined in Section 7.1(c)) or materially delay the consummation of the
Merger or the Subsidiary Merger; or
(e) agree to do any of the foregoing.
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ARTICLE VI
ADDITIONAL AGREEMENTS
6.l. Regulatory Matters. (a) The parties shall cooperate with respect
to the preparation of the Proxy Statement and the S-4 and shall promptly file
such documents with the SEC. The Buyer shall use all reasonable efforts to have
the S-4 declared effective by the SEC under the Securities Act as promptly as
practicable after the filing thereof, and each of the Company and Buyer shall
thereafter mail the Proxy Statement to each of its stockholders. Buyer shall use
all reasonable efforts to obtain all necessary state securities law or "Blue
Sky" permits and approvals required to carry out the transactions contemplated
by this Agreement, and the Company shall furnish all information concerning the
Company and the holders of Company Common Stock as may be reasonably requested
in connection with any such action.
(b) The parties hereto shall cooperate with each other and use
all reasonable efforts to promptly prepare and file all necessary documentation,
to effect all applications, notices, petitions and filings, and to obtain as
promptly as practicable all permits, consents, approvals and authorizations of
all third parties and Governmental Entities which are necessary or advisable to
consummate the transactions contemplated by this Agreement (including without
limitation the Merger and the Subsidiary Merger). The Company and Buyer shall
have the right to review in advance, and to the extent practicable each will
consult the other on, in each case subject to applicable laws relating to the
exchange of information, all the information relating to the Company or Buyer,
as the case may be, and any of their respective Subsidiaries, which appear in
any filing made with, or written materials submitted to, any third party or any
Governmental Entity in connection with the transactions contemplated by this
Agreement (including without limitation the Merger and the Subsidiary Merger).
In exercising the foregoing right, each of the
55
parties hereto shall act reasonably and as promptly as practicable. Each party
will keep the other apprised of the status of matters relating to completion of
the transactions contemplated herein.
(c) Buyer and the Company shall, upon request, furnish each
other with all information concerning themselves, their Subsidiaries, directors,
officers and stockholders and such other matters as may be reasonably necessary
or advisable in connection with the Proxy Statement, the S-4 or any other
statement, filing, notice or application made by or on behalf of Buyer, the
Company or any of their respective Subsidiaries to any Governmental Entity in
connection with the Merger, the Subsidiary Merger and the other transactions
contemplated by this Agreement.
(d) Buyer and the Company shall promptly advise each other
upon receiving any communication from any Governmental Entity whose consent or
approval is required for consummation of the transactions contemplated by this
Agreement which causes such party to believe that there is a reasonable
likelihood that any Requisite Regulatory Approval (as defined in Section 7.l(c))
will not be obtained or that the receipt of any such approval will be materially
delayed.
6.2. Access to Information. (a) Upon reasonable notice and subject to
applicable laws relating to the exchange of information, the Company shall, and
shall cause each of its Subsidiaries to, afford to the officers, employees,
accountants, counsel and other representatives of Buyer, access, during normal
business hours during the period prior to the Effective Time, to all its
properties, books, contracts, commitments, records, officers, employees,
accountants, counsel and other representatives and, during such period, the
Company shall, and shall cause its Subsidiaries to, make available to Buyer (i)
a copy of each report, schedule, registration statement and other document filed
or received by it during such period pursuant to the requirements of Federal
securities laws or Federal or state banking
56
laws (other than reports or documents which the Company is not permitted to
disclose under applicable law) and (ii) all other information concerning its
business, properties and personnel as Buyer may reasonably request. Neither
Buyer nor any of its Subsidiaries shall be required to provide access to or to
disclose information where such access or disclosure would violate or prejudice
the rights of the Company's customers, jeopardize any attorney client privilege
or contravene any law, rule, regulation, order, judgment, decree, fiduciary duty
or binding agreement entered into prior to the date of this Agreement. The
parties hereto will make appropriate substitute disclosure arrangements under
circumstances in which the restrictions of the preceding sentence apply. Buyer
will hold all such information in confidence to the extent required by, and in
accordance with, the provisions of the confidentiality agreement, dated February
3, 1997, between Buyer and the Company (the "Confidentiality Agreement").
(b) Upon reasonable notice and subject to applicable laws
relating to the exchange of information, Buyer shall, and shall cause its
Subsidiaries to, afford to the officers, employees, accountants, counsel and
other representatives of the Company, access, during normal business hours
during the period prior to the Effective Time, to such information regarding
Buyer and its Subsidiaries as shall be reasonably necessary for the Company to
fulfill its obligations pursuant to this Agreement to prepare the Proxy
Statement or which may be reasonably necessary for the Company to confirm that
the representations and warranties of Buyer contained herein are true and
correct and that the covenants of Buyer contained herein have been performed in
all material respects. Neither Buyer nor any of its Subsidiaries shall be
required to provide access to or to disclose information where such access or
disclosure would violate or prejudice the rights of Buyer's customers,
jeopardize any attorney-client privilege or contravene any law, rule,
regulation, order, judgment, decree, fiduciary duty or binding agreement entered
into prior to the date of this Agreement. The parties hereto will make
appropriate
57
substitute disclosure arrangements under circumstances in which the restrictions
of the preceding sentence apply. The Company will hold all such information in
confidence to the extent required by, and in accordance with, the provision of
the Confidentiality Agreement.
(c) No investigation by either of the parties or their
respective representatives shall affect the representations, warranties,
covenants or agreements of the other set forth herein.
6.3. Shareholder Meetings. The Company and Buyer each shall take all
steps necessary to duly call, give notice of, convene and hold a meeting of its
shareholders to be held as soon as is reasonably practicable after the date on
which the S-4 becomes effective for the purpose of voting upon the approval of
this Agreement and the consummation of the transactions contemplated hereby. The
Company and Buyer each will, through its Board of Directors, except to the
extent legally required for the discharge of the fiduciary duties of such board,
recommend to its respective shareholders approval of this Agreement and the
transactions contemplated hereby. The Company and Buyer shall coordinate and
cooperate with respect to the foregoing matters, with a view towards, among
other things, holding the respective meetings of each party's shareholders on
the same day.
6.4. Legal Conditions to Merger. Each of Buyer and the Company shall,
and shall cause its Subsidiaries to, use all reasonable efforts (a) to take, or
cause to be taken, all actions necessary, proper or advisable to comply promptly
with all legal requirements which may be imposed on such party or its
Subsidiaries with respect to the Merger or the Subsidiary Merger and to
consummate the transactions contemplated by this Agreement and (b) to obtain
(and to cooperate with the other party to obtain) any consent, authorization,
order or approval of, or any exemption by, any Governmental Entity and any other
third party which is required to be obtained by the Company or Buyer or any of
their respective
58
Subsidiaries in connection with the Merger or the Subsidiary Merger and the
other transactions contemplated by this Agreement, and to comply with the terms
and conditions of such consent, authorization, order or approval.
6.5. Affiliates; Publication of Combined Financial Results. (a) Each of
Buyer and the Company shall use its best efforts to cause each director,
executive officer and other person who is an "affiliate" (for purposes of Rule
145 under the Securities Act and for purposes of qualifying the Merger for
"pooling-of-interests" accounting treatment) of such party to deliver to the
other party hereto, as soon as practicable after the date of this Agreement, and
in any event prior to the earlier of the date of the stockholders meeting called
by the Company to approve this Agreement and the date of the stockholders
meeting called by Buyer to approve this Agreement, a written agreement, in the
form of Exhibit 6.5(a) hereto (in the case of affiliates of Buyer) or 6.5(b)
hereto (in the case of affiliates of the Company).
(b) Buyer shall use its best efforts to publish, not later
than forty-five (45) days after the end of the month in which the Effective Time
occurs, financial results covering at least thirty (30) days of post-Merger
combined operations as contemplated by and in accordance with the terms of SEC
Accounting Series Release No. 135.
6.6. NASDAQ Approval. Buyer shall use all reasonable efforts to cause
the shares of Buyer Common Stock to be issued in the Merger to be approved for
quotation on NASDAQ, subject to official notice of issuance, as of the Effective
Time.
6.7. Employee Benefit Plans; Existing Agreements; Employment and
Consulting Agreements. (a) The parties agree that, except as otherwise provided
in Section 6.7(b) below,
59
appropriate steps shall be taken to terminate all employee benefit plans of the
Company as of the Effective Time or as promptly as practicable thereafter.
Immediately following the termination of such plans, Buyer agrees that the
officers and employees of the Company or the Bank (each a "Company Employee")
who are employed by the Buyer or Buyer Bank immediately following the Effective
Time shall be eligible to participate in Buyer's employee benefit plans,
including welfare and fringe benefit plans, on the same basis as and subject to
the same conditions as are applicable to any newly-hired employee of Buyer (it
being understood that inclusion of Company Employees in Buyer's Plans may occur
at different times with respect to different plans); PROVIDED, HOWEVER, that
with respect to each Buyer Plan including, without limitation, severance
benefits and vacation entitlement, for purposes of determining eligibility to
participate, vesting, and entitlement to benefits, (but not for accrual of
pension benefits), service with the Company or the Bank shall be treated as
service with the Buyer or Buyer Bank; PROVIDED, HOWEVER, that such service shall
not be recognized to the extent that such recognition would result in a
duplication of benefits. Such service also shall apply for purposes of
satisfying any waiting periods, evidence of insurability requirements, or the
application of any preexisting condition limitations. Company Employees shall be
given credit for amounts paid under a corresponding benefit plan during the same
period for purposes of applying deductibles, co-payments and out-of-pocket
maximums as though such amounts had been paid in accordance with the terms and
conditions of the Buyer Plan or in the alternative, Buyer shall reimburse
employees of the Company for amounts paid under Buyers Plans for purpose of
applying deductibles, co-payments and out-of-pocket maximums.
(b) The parties further agree that Citizens Savings Bank,
F.S.B. 401(k) Savings Plan (the "Savings Plan") will either be merged into the
Employee Retirement Savings Plan of Provident Bank of Maryland (the "PB-Plan")
effective as of a date following the Effective Time of the Merger selected by
the Buyer or, if so elected by the Buyer, terminated immediately prior to, on,
or after the Effective
60
Time of the Merger. The determination as to whether the Savings Plan shall be
terminated or merged into the PB-Plan shall be made by the Buyer.
(c) Buyer agrees and acknowledges that, upon the Effective
Time, a "change in control" shall have occurred for purposes of the Plans.
(d) Following the Effective Time, Buyer shall honor and shall
cause the Surviving Corporation and the Surviving Bank to honor in accordance
with their terms all employment, severance and other compensation agreements and
arrangements, including but not limited to severance benefit plans, as in effect
prior to the execution of this Agreement and set forth in Section 6.7(d) of the
Company Disclosure Schedule (or as amended to the extent permitted under Section
5.1(k) hereof) except as provided in Section 6.7(e). Buyer shall (i) pay, or
cause to be paid, to Mr. Herbert W. Jorgensen, at the Effective Time, all
amounts set forth under Section 8(a)(ii) of the Employment Agreement, dated
November 22, 1995, between Mr. Jorgensen and the Company, (ii) provide to Mr.
Jorgensen, commencing at the Effective Time and continuing for a period of three
years, the benefits described under Section 7(a)(iii) of such Employment
Agreement, (iii) pay, or cause to be paid, to Mr. Enos K. Fry, at the Effective
Time, all amounts set forth under Section 9(a)(ii) of the Employment Agreement,
dated January 1, 1995, between Mr. Fry and the Company and (iv) provide to Mr.
Fry, commencing upon a termination of his employment with the Buyer prior to the
third anniversary of the Effective Date, and continuing for the balance of the
period from such termination through the third anniversary of the Effective
Date, the benefits described under Section 8(a)(iii) of such Employment
Agreement. Notwithstanding the foregoing, each of Messrs. Jorgensen, Fry and
Delaney shall have the option, if he so elects prior to the date of the meeting
of the Company's shareholders contemplated by Section 6.3 hereof, to receive the
cash payments payable to him pursuant to this Section 6.7(d) (in the case of
61
Messrs. Jorgensen and Fry) and pursuant to Section 9(e)(1) of his employment
agreement (in the case of Mr. Delaney) on a deferred basis over a period of time
specified by the electing executive and through a grantor trust meeting the
requirements of Section 670 of the Code pursuant to a trust agreement having
terms reasonably acceptable to such electing executive. The provisions of this
Section 6.7(d) are intended to be for the benefit of, and shall be enforceable
by, Messrs. Jorgensen, Fry and Delaney and each party to, or beneficiary of, the
foregoing agreements and arrangements, and his or her heirs and representatives.
The method of calculating the cash payments owed under the employment or other
agreements is set forth in Section 6.7(d) of the Company Disclosure Schedule.
(e) At the Effective Time, Buyer, the Surviving Bank and Mr.
Enos K. Fry shall enter into an Employment Agreement and Buyer, the Surviving
Bank and Mr. Fry shall enter into a Change in Control Agreement in the forms of
Exhibit 6.7(e)(i) and Exhibit 6.7(e)(ii), respectively, and Buyer and Mr.
Jorgensen shall enter into a Consulting Agreement in the form of Exhibit
6.7(e)(iii). The provisions of this Section 6.7(e) are intended to be for the
benefit of, and shall be enforceable by, each party to the foregoing agreements
and his or her heirs and representatives.
(f) As of the Effective Time all plans and arrangements of the
Company not otherwise addressed above, including any deferral fee or retirement
plan for directors or any supplemental retirement plan shall be terminated to
the extent the Buyer informs the Company that the Buyer shall not continue such
plan or arrangement. The payments owed under such agreements is set forth in
Section 6.7(f) of the Company Disclosure Schedule; provided, however, that any
such termination shall not affect an individual's right to any benefit accrued
under such plan or arrangement as of the Effective Time.
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(g) Any Company Employee whose employment with Buyer or Buyer
Bank is terminated shall receive severance benefits consistent with Buyer's past
practice determined on an individual basis plus any accrued but unused vacation
time pursuant to Buyer's vacation plan or policy following the Effective Time.
(h) Cash bonuses in respect to calendar year 1997 will be paid
to Company employees immediately following the Effective Time in an amount equal
to the product of (A) the amount that would have been paid to such Company
Employee under the Company's existing bonus plan in respect of calendar year
1997 assuming the Company had achieved its target level of performance
thereunder and (B) a fraction the numerator of which is the number of days for
which such Company Employee shall have been employed by the Company or the Bank
prior to the Effective Time and the denominator of which is 365; PROVIDED,
HOWEVER, that in calculating the amounts payable under such bonus plan, net
income as defined in the bonus plan shall be calculated without regard to merger
related costs and charges.
6.8. Indemnification. (a) In the event of any threatened or actual
claim, action, suit, proceeding or investigation, whether civil, criminal or
administrative, including, without limitation, any such claim, action, suit,
proceeding or investigation in which any person who is now, or has been at any
time prior to the date of this Agreement, or who becomes prior to the Effective
Time, a director or officer or employee of the Company or any of its
Subsidiaries (the "Indemnified Parties") is, or is threatened to be, made a
party based in whole or in part on, or arising in whole or in part out of, or
pertaining to (i) the fact that he is or was a director, officer or employee of
the Company, any of the Subsidiaries of the Company or any of their respective
predecessors or (ii) this Agreement or any of the transactions contemplated
hereby, whether in any case asserted or arising before or after the Effective
Time, the
63
parties hereto agree to cooperate and use their best efforts to defend against
and respond thereto. It is understood and agreed that after the Effective Time,
Buyer shall indemnify and hold harmless, as and to the fullest extent permitted
by Maryland law, each such Indemnified Party against any losses, claims,
damages, liabilities, costs, expenses (including reasonable attorney's fees and
expenses in advance of the final disposition of any claim, suit, proceeding or
investigation to each Indemnified Party to the fullest extent permitted by law
upon receipt of any undertaking required by applicable law), judgments, fines
and amounts paid in settlement in connection with any such threatened or actual
claim, action, suit, proceeding or investigation, and in the event of any such
threatened or actual claim, action, suit, proceeding or investigation (whether
asserted or arising before or after the Effective Time), the Indemnified Parties
may retain counsel reasonably satisfactory to them after consultation with
Buyer; PROVIDED, HOWEVER, that (1) Buyer shall have the right to assume the
defense thereof and upon such assumption Buyer shall not be liable to any
Indemnified Party for any legal expenses of other counsel or any other expenses
subsequently incurred by any Indemnified Party in connection with the defense
thereof, except that if Buyer elects not to assume such defense or counsel for
the Indemnified Parties reasonably advises that there are issues which raise
conflicts of interest between Buyer and the Indemnified Parties, the Indemnified
Parties may retain counsel reasonably satisfactory to them after consultation
with Buyer, and Buyer shall pay the reasonable fees and expenses of such counsel
for the Indemnified Parties, (2) Buyer shall in all cases be obligated pursuant
to this paragraph to pay for only one firm of counsel for all Indemnified
Parties, (3) Buyer shall not be liable for any settlement effected without its
prior written consent (which consent shall not be unreasonably withheld) and (4)
Buyer shall have no obligation hereunder to any Indemnified Party when and if a
court of competent jurisdiction shall ultimately determine, and such
determination shall have become final and nonappealable, that indemnification of
such Indemnified Party in the manner contemplated hereby is prohibited by
applicable law. Any Indemnified Party wishing to claim Indemnification under
this Section 6.8, upon
64
learning of any such claim, action, suit, proceeding or investigation, shall
promptly notify Buyer thereof, provided that the failure to so notify shall not
affect the obligations of Buyer under this Section 6.8 except to the extent such
failure to notify materially prejudices Buyer. Buyer's obligations under this
Section 6.8 shall continue in full force and effect for a period of six (6)
years from the Effective Time; PROVIDED, HOWEVER, that all rights to
indemnification in respect of any claim (a "Claim") asserted or made within such
period shall continue until the final disposition of such Claim.
(b) Buyer shall cause the Company to maintain the Company's
existing directors' and officers' liability insurance policy (or a policy
providing coverage on substantially the same terms and conditions) for acts or
omissions occurring prior to the Effective Time by persons who are currently
covered by such insurance policy maintained by the Company for a period of three
years following the Effective Time; PROVIDED, HOWEVER, that in no event shall
Buyer be required to expend on an annual basis more than 150% of the current
amount expended by the Company (the "Insurance Amount") to maintain or procure
insurance coverage, and further provided that if Buyer is unable to maintain or
obtain the insurance called for by this Section 6.8(b) Buyer shall use all
reasonable efforts to obtain as much comparable insurance as available for the
Insurance Amount.
(c) In the event Buyer or the Surviving Corporation or any of
its successors or assigns (i) consolidates with or merges into any other person
and shall not be the continuing or surviving corporation or entity of such
consolidation or merger, or (ii) transfers or conveys all or substantially all
of its properties and assets to any person, then, and in each such case, proper
provision shall be made so that the successors and assigns of Buyer or the
Surviving Corporation, as the case may be, assume the obligations set forth in
this section.
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(d) The provisions of this Section 6.8 are intended to be for
the benefit of, and shall be enforceable by, each Indemnified Party and his or
her heirs and representatives.
6.9. Subsequent Interim Financial Statements. As soon as reasonably
available, but in no event later than March 31, 1997, the Company will deliver
to Buyer, its Annual Reports on Form 10-K for the fiscal year ended December 31,
1996, as filed with the SEC under the Exchange Act. As soon as reasonably
available, but in no event more than 45 days after the end of each fiscal
quarter ending after the date of this Agreement, Buyer will deliver to the
Company, and the Company will deliver to Buyer, their respective Quarterly
Reports on Form 10-Q, as filed with the SEC under the Exchange Act.
6.10. Additional Agreements. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement or the Bank Merger Agreement or to vest the Surviving Corporation
or the Surviving Bank with full title to all properties, assets, rights,
approvals, immunities and franchises of any of the parties to the Merger or the
Subsidiary Merger, the proper officers and directors of each party to this
Agreement and their respective Subsidiaries shall take all such necessary action
as may be reasonably requested by Buyer.
6.11. Advice of Changes. Buyer and the Company shall promptly advise
the other party of any change or event having a Material Adverse Effect on it or
which it believes would or would be reasonably likely to cause or constitute a
material breach of any of its representations, warranties or covenants contained
herein. From time to time prior to the Effective Time (and on the date prior to
the Closing Date), each party will promptly supplement or amend the Disclosure
Schedules delivered in connection with the execution of this Agreement to
reflect any matter which, if existing, occurring or known at the date of this
Agreement, would have been required to be set forth or described in such
66
Disclosure Schedules or which is necessary to correct any information in such
Disclosure Schedules which has been rendered inaccurate thereby. No supplement
or amendment to such Disclosure Schedules shall have any effect for the purpose
of determining satisfaction of the conditions set forth in Sections 7.2(a) or
7.3(a) hereof, as the case may be, or the compliance by the Company or Buyer, as
the case may be, with the respective covenants and agreements of such parties
contained herein.
6.12. Current Information. During the period from the date of this
Agreement to the Effective Time, the Company will cause one or more of its
designated representatives to confer on a regular and frequent basis (not less
than monthly) with representatives of Buyer and to report the general status of
the ongoing operations of the Company and its Subsidiaries. Each of the parties
will promptly notify the other of any material change in the normal course of
business or in the operation of the properties of it or any of its Subsidiaries
and of any governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated), or the institution
or the threat of significant litigation involving it or any of its Subsidiaries,
and will keep the other fully informed of such events.
6.13. Directorships. (a) Buyer shall cause its Board of Directors to be
expanded by two members and shall appoint Herbert W. Jorgensen and Enos K. Fry
(such persons, and any substitute person as provided in the last sentence of
this paragraph, the "Nominees") to fill the vacancies on Buyer's Board of
Directors created by such increase as of the Effective Time. In the event any
Nominee shall be nominated and elected to a class of directors of Buyer which
provides for less than a two-year term following the Effective Time, Buyer shall
include such person on the list of nominees for director presented by the Board
of Directors of Buyer and for which said Board shall solicit proxies at the
annual meeting of shareholders of Buyer following the Effective Time at which
directors of Buyer are elected
67
for such class. In the event that any Nominee is unable to serve as a director
of Buyer as a result of illness, death, resignation or any other reason, such
Nominee (or in the event of the death of nominee, the other Nominee) shall
select a substitute nominee to serve as a member of the Board of Directors of
Buyer, subject to the approval of Buyer, which shall not be unreasonably
withheld and in accordance with the Buyer's Bylaws. The provisions of this
Section 6.13(a) are intended to be for the benefit of, and shall be enforceable
by, each Nominee.
(b) Following the Effective Time, Buyer shall establish an
advisory board with respect to its Montgomery County operations, which shall
meet at such times and at such places as Buyer shall determine. Each advisory
board member shall receive annual retainer and meeting fees as determined by the
Board of Directors of Buyer. Buyer's obligations under this Section 6.13(b)
shall continue for a period of three years following the Effective Time. Herbert
W. Jorgensen shall serve as the chairman of such advisory board.
6.14. Accountants' Letters. Each of Buyer and the Company shall use
its commercially reasonable efforts to cause to be delivered to the other party
a letter of its respective independent public accountants dated (i) the date on
which the S-4 shall become effective and (ii) a date shortly prior to the
Effective Time, and addressed to such other party, in form and substance
customary for "comfort" letters delivered by independent accountants in
accordance with Statement of Financial Accounting Standards No. 72.
6.15. Execution and Authorization of Bank Merger Agreement. As soon as
reasonably practicable after the date of this Agreement, (a) Buyer shall (i)
cause the Board of Directors of Buyer Bank to approve the Bank Merger Agreement,
(ii) cause Buyer Bank to execute and deliver the Bank
68
Merger Agreement, and (iii) approve the Bank Agreement as the sole shareholder
of Buyer Bank, and (b) the Company shall (i) cause the Board of Directors of the
Bank to approve the Bank Merger Agreement, (ii) cause the Bank to execute and
deliver the Bank Merger Agreement, and (iii) approve the Bank Merger Agreement
as the sole stockholder of the Bank. The Bank Merger Agreement shall be in the
form attached hereto as Exhibit 6.15.
ARTICLE VII
CONDITIONS PRECEDENT
7.1. Conditions to Each Party's Obligation To Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) Shareholder Approval. This Agreement shall have been
approved and adopted by the affirmative vote of the holders of at least
a majority of the outstanding shares of Company Common Stock entitled to vote
thereon and by the affirmative vote of the holders of at least two-thirds of the
outstanding shares of Buyer Common Stock entitled to vote thereon.
(b) NASDAQ Approval. The shares of Buyer Common Stock which
shall be issued to the stockholders of the Company upon consummation of the
Merger shall have been authorized for quotation on NASDAQ, subject to official
notice of issuance.
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(c) Other Approvals. All regulatory approvals required to
consummate the transactions contemplated hereby (including the Merger and the
Subsidiary Merger) shall have been obtained and shall remain in full force and
effect and all statutory waiting periods in respect thereof shall have expired
(all such approvals and the expiration of all such waiting periods being
referred to herein as the "Requisite Regulatory Approvals").
(d) S-4. The S-4 shall have become effective under the
Securities Act, and no stop order suspending the effectiveness of the S-4 shall
have been issued and no proceedings for that purpose shall have been initiated
or threatened by the SEC.
(e) No Injunctions or Restraints; No Illegality. No order,
injunction or decree issued by any court or agency of competent jurisdiction or
other legal restraint or prohibition (an "Injunction") preventing the
consummation of the Merger, the Subsidiary Merger or any of the other
transactions contemplated by this Agreement, the Bank Merger Agreement and the
Option Agreement shall be in effect. No statute, rule, regulation, order,
injunction or decree shall have been enacted, entered, promulgated or enforced
by any Governmental Entity which prohibits, restricts or makes illegal
consummation of the Merger or the Subsidiary Merger.
7.2. Conditions to Obligations of Buyer. The obligations of Buyer to
effect the Merger is also subject to the satisfaction or waiver by Buyer at or
prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
in all material respects as of the date of
70
this Agreement and (except to the extent such representations and warranties
speak as of an earlier date) as of the Closing Date as though made on and as of
the Closing Date; PROVIDED, HOWEVER, that such representations and warranties
shall be deemed to be true and correct in all material respects unless the
failure or failures of such representations and warranties to be so true and
correct, individually or in the aggregate, represent a material adverse change
from the business, financial condition or results of operations of the Company
and its Subsidiaries taken as a whole as represented herein. Buyer shall have
received a certificate signed on behalf of the Company by the Chief Executive
Officer and the Chief Financial Officer of the Company to the foregoing effect.
(b) Performance of Obligations of the Company. The Company
shall have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date, and Buyer
shall have received a certificate signed on behalf of the Company by the Chief
Executive Officer and the Chief Financial Officer of the Company to such effect.
(c) Consents Under Agreements. The consent, approval or waiver
of each person (other than the Governmental Entities referred to in Section
7.1(c)) whose consent or approval shall be required in order to permit the
succession by the Surviving Corporation or the Surviving Bank pursuant to the
Merger or the Subsidiary Merger, as the case may be, to any obligation, right or
interest of the Company or any Subsidiary of the Company under any loan or
credit agreement, note, mortgage, indenture, lease, license or other agreement
or instrument to which the Company or any of its Subsidiaries is a party or is
otherwise bound shall have been obtained, except those consents or approvals for
which failure to obtain would not, individually or in the aggregate, have a
Material Adverse Effect on Buyer (after giving effect to the transactions
contemplated hereby).
71
(d) No Pending Governmental Actions. No proceeding initiated
by any Governmental Entity seeking an Injunction shall be pending.
(e) Federal Tax Opinion. Buyer shall have received an opinion
of Muldoon, Murphy & Faucette, counsel to Buyer ("Buyer's Counsel"), in form and
substance reasonably satisfactory to Buyer, dated as of the Effective Time,
substantially to the effect that, on the basis of facts, representations and
assumptions set forth in such opinion which are consistent with the state of
facts existing at the Effective Time, the Merger will be treated as a
reorganization within the meaning of Section 368(a) of the Code and that,
accordingly, for federal income tax purposes:
(i) No gain or loss will be recognized by the Buyer
or the Company as a result of the Merger, except to the extent the
Company or the Bank may be required to recognize any income due to the
recapture of bad debt reserves.
(ii) No gain or loss will be recognized by the
stockholders of the Company who exchange all of their Company Common
Stock solely for Buyer Common Stock pursuant to the Merger (except with
respect to cash received in lieu of a fractional share interest in
Buyer Common Stock);
(iii) The aggregate tax basis of the Buyer Common
Stock received by shareholders who exchange all of their Company Common
Stock solely for Buyer Common Stock pursuant to the Merger will be the
same as the aggregate tax basis of the Company Common Stock surrendered
in exchange therefor (reduced by any amount allocable to a fractual
share interest for which cash is received).
72
In rendering such opinion, the Buyer's Counsel may require and rely
upon representations and covenants contained in certificates of officers of
Buyer, the Company and others.
(f) Pooling of Interests. Buyer shall have received a letter
from Coopers & Lybrand L.L.P., addressed to Buyer, dated as of the Effective
Time, to the effect that, based on a review of this Agreement and related
agreements (including without limitation the agreements referred to in Section
6.5 hereof) and the facts and circumstances then known to it, the Merger shall
be accounted for as a pooling-of-interests under GAAP.
(g) Proof of Title. The evidence of good and marketable title
or the evidence of valid and enforceable leases for the Company's branch
offices, as referred to in Section 3.23 of this Agreement, shall have been
delivered to the Buyer in a form reasonably satisfactory to the Buyer, except
where the Company's failure to establish either good and marketable title or
valid and enforceable leases would not have a Material Adverse Effect on the
Company.
7.3. Conditions to Obligations of the Company. The obligation of the
Company to effect the Merger is also subject to the satisfaction or waiver by
the Company at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Buyer set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date; PROVIDED, HOWEVER,
that such representations and warranties shall be deemed to be true and correct
in all material respects unless the
73
failure or failures of such representations and warranties to be so true and
correct, individually or in the aggregate, represent a material adverse change
from the business, financial condition or results of operations of Buyer and its
Subsidiaries taken as a whole as represented herein. The Company shall have
received a certificate signed on behalf of Buyer by the Chief Executive Officer
and the Chief Financial Officer of Buyer to the foregoing effect.
(b) Performance of Obligations of Buyer. Buyer shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and the Company shall
have received a certificate signed on behalf of Buyer by the Chief Executive
Officer and the Chief Financial Officer of Buyer to such effect.
(c) Consents Under Agreements. The consent, approval or waiver
of each person (other than the Governmental Entities referred to in Section
7.1(c)) whose consent or approval shall be required in connection with the
transactions contemplated hereby under any loan or credit agreement, note,
mortgage, indenture, lease, license or other agreement or instrument to which
Buyer or any of its Subsidiaries is a party or is otherwise bound shall have
been obtained, except those for which failure to obtain such consents and
approvals would not, individually or in the aggregate, have a Material Adverse
Effect on Buyer (after giving effect to the transactions contemplated hereby).
(d) No Pending Governmental Actions. No Pending proceeding
initiated by any Governmental Entity seeking an Injunction shall be pending.
74
(e) Federal Tax Opinion. The Company shall have received an
opinion of the Buyer's Counsel, in form and substance reasonably satisfactory to
the Company, dated as of the Effective Date, substantially to the effect set
forth in Section 7.2(e) herein.
(f) Pooling of Interests. Buyer shall have received a letter
from Coopers & Lybrand L.L.P, addressed to Buyer, dated as of the Effective
Time, to the effect that, based on a review of this Agreement and related
agreements (including without limitation the agreements referred to in Section
6.5 hereof) and the facts and circumstances then known to it, the Merger shall
be accounted for as a pooling-of-interests under GAAP.
75
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1. Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval of the matters presented
in connection with the Merger by the stockholders of the Company or Buyer:
(a) by mutual consent of the Company and Buyer in a written
instrument, if the Board of Directors of each so determines by a vote of a
majority of the members of its entire Board;
(b) by either Buyer or the Company upon written notice to the
other party (i) 30 days after the date on which any request or application for a
Requisite Regulatory Approval shall have been denied or withdrawn at the request
or recommendation of the Governmental Entity which must grant such Requisite
Regulatory Approval, unless within the 60-day period following such denial or
withdrawal a petition for rehearing or an amended application has been filed
with the applicable Governmental Entity, PROVIDED, HOWEVER, that no party shall
have the right to terminate this Agreement pursuant to this Section 8.1(b)(i) if
such denial or request or recommendation for withdrawal shall be due to the
failure of the party seeking to terminate this Agreement to perform or observe
the covenants and agreements of such party set forth herein or (ii) if any
Governmental Entity of competent jurisdiction shall have issued a final
nonappealable order enjoining or otherwise prohibiting the consummation of any
of the transactions contemplated by this Agreement;
(c) by either Buyer or the Company if the Merger shall not
have been consummated on or before December 31, 1997, unless the failure of the
Closing to occur by such date shall be due to
76
the failure of the party seeking to terminate this Agreement to perform or
observe the covenants and agreements of such party set forth herein;
(d) by either Buyer or the Company (provided that the
terminating party shall not be in material breach of any of its obligations
under Section 6.3 and any related obligations hereunder) if any approval of the
stockholders of either of the Company or Buyer required for the consummation of
the Merger shall not have been obtained by reason of the failure to obtain the
required vote at a duly held meeting of such stockholders or at any adjournment
or postponement thereof;
(e) by either Buyer or the Company (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained herein) if there shall have been
a material breach of any of the representations or warranties set forth in this
Agreement on the part of the other party, which breach is not cured within 30
days following written notice to the party committing such breach, or which
breach, by its nature, cannot be cured prior to the Closing; PROVIDED, HOWEVER,
that neither party shall have the right to terminate this Agreement pursuant to
this Section 8.l(e) unless the breach of any representation or warranty,
together with all other such breaches, would entitle the party receiving such
representation or warranty not to consummate the transactions contemplated
hereby under Section 7.2(a) (in the case of a breach of a representation or
warranty by the Company) or Section 7.3(a) (in the case of a breach of a
representation or warranty by Buyer);
(f) by either Buyer or the Company (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained herein) if there shall have been
a material breach of any of the covenants or agreements set forth in this
Agreement on
77
the part of the other party, which breach shall not have been cured within 30
days following receipt by the breaching party of written notice of such breach
from the other party hereto;
(g) by the Company, by action of its Board of Directors by
giving written notice of such election to Buyer within two business days after
the Valuation Period (as defined below) in the event the Average Closing Price
(as defined below), is less than $35.625 per share; PROVIDED, HOWEVER, that no
right of termination shall arise under this Section 8.1(g) if Buyer elects
within five business days of receipt of such written notice to notify the
Company in writing that it has increased the Exchange Ratio such that the value
of the product of such increased Exchange Ratio and the Average Closing Price is
not less than $26.006 per share. As used herein, the term "Average Closing
Price" means the average closing sales price per share of Buyer Common Stock on
NASDAQ (as reported by THE WALL STREET JOURNAL or, if not reported thereby,
another authoritative source), for the 10 consecutive trading days (the
"Valuation Period") ending on the date on which the last approval of all the
regulatory approvals required to consummate the transactions is obtained,
without regard to any requisite waiting period in respect thereof;
(h) by Buyer, if the Board of Directors of the Company does
not publicly recommend in the Proxy Statement that the Company's stockholders
approve and adopt this Agreement or if, after recommending in the Proxy
Statement that stockholders approve and adopt this Agreement, the Board of
Directors of the Company shall have withdrawn, modified or amended such
recommendation in any respect materially adverse to Buyer; or
(i) by the Company, if the Board of Directors of Buyer does
not publicly recommend in the Proxy Statement that Buyer's shareholders approve
and adopt this Agreement or if,
78
after recommending in the Proxy Statement that stockholders approve and adopt
this Agreement, the Board of Directors of Buyer shall have withdrawn, modified
or amended such recommendation in any respect materially adverse to the Company.
8.2. Effect of Termination; Expenses. In the event of termination of
this Agreement by either Buyer or the Company as provided in Section 8.1, this
Agreement shall forthwith become void and have no effect except that (i) the
last sentence of each of Sections 6.2(a) and 6.2(b), and Sections 8.2 and 9.3,
shall survive any termination of this Agreement, (ii) notwithstanding anything
to the contrary contained in this Agreement, no party shall be relieved or
released from any liabilities or damages arising out of its willful breach of
any provision of this Agreement and (iii) in the event that both an Initial
Triggering Event and a Subsequent Triggering Event shall have occurred prior to
the occurrence of an Exercise Termination Event (as such terms are defined in
the Option Agreement), then, in lieu of any other amounts payable by the Company
hereunder, but in addition to the Company's obligations under the Option
Agreement, the Company shall pay to Buyer a Termination Fee of $1,700,000.
8.3. Amendment. Subject to compliance with applicable law, this
Agreement may be amended by the parties hereto, by action taken or authorized by
their respective Boards of Directors, at any time before or after approval of
the matters presented in connection with the Merger by the stockholders of
either the Company or Buyer; PROVIDED, HOWEVER, that after any approval of this
Agreement by Buyer's or the Company's stockholders, there may not be, without
further approval of such stockholders, any amendment of this Agreement which
reduces the amount or changes the form of the consideration to be delivered to
the Company stockholders hereunder other than as contemplated by this Agreement.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
79
8.4. Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party, but such
extension or waiver or failure to insist on strict compliance with an
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
ARTICLE IX
GENERAL PROVISIONS
9.1. Closing. Subject to the terms and conditions of this Agreement and
the Bank Merger Agreement, the closing of the Merger (the "Closing") will take
place at 10:00 a.m. on the first day which is (a) the last business day of a
month and (b) at least two business days after the satisfaction or waiver
(subject to applicable law) of the latest to occur of the conditions set forth
in Sections 7.1(a) and 7.1(c) hereof (the "Closing Date"), at the offices of
Buyer's Counsel unless another time, date or place is agreed to in writing by
the parties hereto.
9.2. Nonsurvival of Representations, Warranties and Agreements. None of
the representations, warranties, covenants and agreements in this Agreement or
in any instrument delivered pursuant to this Agreement (other than pursuant to
the Option Agreement, which shall terminate in
80
accordance with its terms) shall survive the Effective Time, except for those
covenants and agreements contained herein and therein which by their terms apply
in whole or in part after the Effective Time.
9.3. Expenses. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expense, PROVIDED, HOWEVER, that the costs and expenses of
printing and mailing the Proxy Statement to the shareholders of the Company and
Buyer shall be borne equally by Buyer and the Company, and all filing and other
fees paid to the SEC or any other Governmental Entity in connection with the
Merger, the Subsidiary Merger and the other transactions contemplated hereby,
shall be borne equally by Buyer and the Company, PROVIDED FURTHER, HOWEVER, that
nothing contained herein shall limit either party's rights to recover any
liabilities or damages arising out of the other party's willful breach of any
provision of this Agreement.
9.4. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, telecopied (with
confirmation), mailed by registered or certified mail (return receipt requested)
or delivered by an express courier (with confirmation) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
81
(a) if to Buyer, to:
Provident Bankshares Corporation
114 East Lexington Street
Baltimore, Maryland 21202
Attn: Robert L. Davis
General Counsel and Secretary
with a copy to:
Muldoon, Murphy & Faucette
501 Wisconsin Avenue, NW, Suite 508
Washington, D.C. 20016
Attn: Mary M. Sjoquist, Esq.
(b) if to the Company, to:
First Citizens Financial Corp.
22 First Field Road
Gaithersburg, Maryland 20878
Attn: Enos K. Fry
Vice Chairman of the Board and
President
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attn: William S. Rubenstein, Esq.
9.5. Interpretation. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. The phrases "the date of this Agreement", "the date hereof" and terms
of similar import, unless the context otherwise requires, shall be deemed to
refer to March 10, 1997.
82
9.6. Counterparts. This Agreement may be executed in counterparts, all
of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart.
9.7. Entire Agreement. This Agreement (including the documents and the
instruments referred to herein) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof, other than the Bank Merger
Agreement, the Option Agreement and the Confidentiality Agreement.
9.8. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Maryland, without regard to any
applicable conflicts of law.
9.9. Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that the provisions contained in the
last sentence of Section 6.2(a) and the last sentence of Section 6.2(b) of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of the last sentence of
Section 6.2(a) and of the last sentence of Section 6.2(b) of this Agreement and
to enforce specifically the terms and provisions thereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
9.10. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or
83
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
9.11. Publicity. Except as otherwise required by law or the rules of
NASDAQ, so long as this Agreement is in effect, neither Buyer nor the Company
shall, or shall permit any of its Subsidiaries to, issue or cause the
publication of any press release or other public announcement with respect to,
or otherwise make any public statement concerning, the transactions contemplated
by this Agreement without the consent of the other party, which consent shall
not be unreasonably withheld.
9.12. Assignment; No Third Party Beneficiaries. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns. Except as otherwise
expressly provided herein, this Agreement (including the documents and
instruments referred to herein) is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder.
84
IN WITNESS WHEREOF, Buyer and the Company have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
PROVIDENT BANKSHARES CORPORATION
By: /s/ Carl W. Stearn
--------------------------------------
Name: Carl W. Stearn
Title: Chairman of the Board and
Chief Executive Officer
Attest:
/s/ Robert L. Davis
- -----------------------------
Name: Robert L. Davis
Title: General Counsel
FIRST CITIZENS FINANCIAL CORP.
By: /s/ Enos K. Fry
---------------------------------------
Name: Enos K. Fry
Title: Vice Chairman of the Board
and President
Attest:
/s/ Barbara Guy
- -----------------------------
Name: Barbara Guy
Title: Corporate Secretary
Exhibit 6.5(a)
--------------
____ __, 1997
[Company]
Gentlemen:
I have been advised that I might be considered to be an
"affiliate" of __________________, a Maryland Corporation (the "Buyer"), for
purposes of paragraphs (c) and (d) of Rule 145 promulgated by the Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "Act"), and for purposes of generally accepted accounting principles
("GAAP") as such term relates to pooling of interests accounting treatment for
certain business combinations under GAAP and the interpretations of the SEC or
its staff, including, without limitation, Section 201.01 of the SEC's
Codification of Financial Reporting Policies ("Section 201.01") and the SEC's
Staff Accounting Bulletin No. 65.
Buyer and ________________________, a Delaware corporation
(the "Company") have entered into an Agreement and Plan of Merger, dated as of
March __, 1997 (the "Merger Agreement"), pursuant to which, among other things,
the Company will merge with and into the Buyer (the "Merger").
A. I represent and warrant to, and agree with, the Company as follows:
1. I have read this Letter Agreement and the Merger Agreement and have
discussed their requirements and other applicable limitations upon my ability to
sell, pledge, transfer or otherwise dispose of shares of the Common Stock, par
value $1.00 per share, of Buyer ("Buyer Common Stock") and any other capital
stock of Buyer, and Company Common Stock and any other capital stock of the
[Company]
____ __, 1997
Page 2
Company, to the extent I felt necessary, with my counsel or counsel for the
Buyer.
2. Notwithstanding the foregoing and any other agreements on my part in
connection with the Buyer Common Stock and any other capital stock of Buyer
Common Stock and any other capital stock of the Buyer and Company, I hereby
agree that, without the consent of Company, I will not sell or otherwise reduce
my risk relative to any shares of Company Common Stock, Buyer Common Stock or
any other capital stock of the Company or Buyer during the period beginning
thirty days prior to the effective date of the Merger and continuing until
financial results covering at least thirty days of combined operations have been
published following the effective date of the Merger.
2
[Company]
________ __, 1997
Page 3
3. Stop transfer instructions will be given to the transfer agents of
Buyer with respect to the shares of Buyer Common Stock and and any other capital
stock of Buyer and of the Company, with respect to the shares of Company Common
Stock and any other shares of Capital Stock in the Company, in connection with
the restrictions set forth herein.
3
[Company]
________ __, 1997
Page 4
It is understood and agreed that this Letter Agreement shall terminate
and be of no further force and effect if the Merger Agreement is terminated in
accordance with its terms. It is also understood and agreed that this Letter
Agreement shall terminate and be of no further force and effect when financial
results covering at least thirty days of combined operations following the
effective date of the Merger have been published within the meaning of Section
201.01, provided, however, that this paragraph shall not prevent me from
selling, transferring or disposing (in each case, with prior approval of Buyer)
of such number of shares of Buyer Common Stock or Company Common Stock as will
not, in the reasonable judgment of the accountants of Buyer, interfere with or
prevent the Merger from being accounted for as a "pooling of interests", taking
into account the nature, extent and timing of such sale, transfer or disposition
and of similar sales, transfers or dispositions by all other affiliates of Buyer
and all other affiliates of the Company.
4
[Company]
________ __, 1997
Page 5
Execution of this letter should not be construed as an admission on my
part that I am an "affiliate" of Buyer as described in the first paragraph of
this letter or as a waiver of any rights I may have to object to any claim that
I am such an affiliate on or after the date of this letter.
This Letter Agreement shall be binding on my heirs, legal
representative and successors.
Very truly yours,
--------------------------------
Accepted this __ day
of ________ __, 1997
[Parent]
By
------------------------------
Name:
Title:
5
Exhibit 6.5(b)
--------------
________ __, 1997
[Buyer]
Gentlemen:
I have been advised that I might be considered to be an
"affiliate" of __________________, a Delaware corporation (the "Company"), for
purposes of paragraphs (c) and (d) of Rule 145 promulgated by the Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "Act"), and for purposes of generally accepted accounting principles
("GAAP") as such term relates to pooling of interests accounting treatment for
certain business combinations under GAAP and the interpretations of the SEC or
its staff, including, without limitation, Section 201.01 of the SEC's Codifica-
tion of Financial Reporting Policies ("Section 201.01") and the SEC's Staff
Accounting Bulletin No. 65.
________________________, a Maryland corporation ("Buyer"),
and the Company have entered into an Agreement and Plan of Merger, dated as of
__________ __, 1997 (the "Merger Agreement"), pursuant to which, among other
things, the Company will merge with and into Buyer (the "Merger"). Upon
consummation of the Merger, I will be entitled to receive shares of common
stock, par value $1.00 per share, of Buyer ("Buyer Common Stock") in exchange
for my shares of common stock, par value $.01 per share, of the Company
("Company Common Stock"). This agreement is hereinafter referred to as the
"Letter Agreement."
A. I represent and warrant to, and agree with, Buyer as follows:
1. I have read this Letter Agreement and the Merger Agreement
and have discussed their requirements and other applicable limitations upon my
ability to sell, pledge, transfer or otherwise dispose of shares of Buyer Common
Stock and any other capital stock of Buyer, and Company Common Stock and any
other capital stock of the Company, to the extent I felt necessary, with my
counsel or counsel for the Company.
[Parent]
___________, __ 1997
Page 2
2. I shall not make any offer, sale, pledge, transfer or other
disposition in violation of the Act or the rules and regulations of the SEC
thereunder of the shares of Buyer Common Stock I receive pursuant to the Merger.
3. Notwithstanding the foregoing and any other agreements on
my part in connection with the Buyer Common Stock and any other capital stock of
Buyer and Company Common Stock and any other capital stock of the Company, I
hereby agree that, without the consent of Buyer, I will not sell or otherwise
reduce my risk relative to any shares of Company Common Stock, Buyer Common
Stock or any other capital stock of the Company or Buyer during the period
beginning thirty days prior to the effective date of the Merger and continuing
until financial results covering at least thirty days of combined operations
have been published following the effective date of the Merger within the
meaning of Section 201.01, provided, however, that this paragraph shall not
prevent me from selling, transferring or disposing (in each case, with prior
approval of Buyer) of such number of shares of Buyer Common Stock or Company
Common Stock as will not, in the reasonable judgment of the accountants to
Buyer, interfere with or prevent the Merger from being accounted for as a
"pooling of interests," taking into account the nature, extent and timing of
such sale, transfer or disposition and of similar sales, transfers or
dispositions by all other affiliates of Buyer and all other affiliates of the
Company.
B. I understand and agree that:
1. I have been advised that any issuance of shares of Buyer
Common Stock to me pursuant to the Merger will be registered with the SEC. I
have also been advised, however, that, because I may be an "affiliate" of the
Company at the time the Merger will be submitted for a vote of the stockholders
of the Company and my disposition of such shares has not been registered under
the Act, I must hold such shares indefinitely unless (i) such disposition of
such shares is subject to an effective registration statement and to the
availability of a
2
[Parent]
___________, __ 1997
Page 3
prospectus under the Act, (ii) a sale of such shares is made in conformity with
the provisions of Rule 145(d) under the Act (and I agree to provide those
representations as Buyer may request in order to determine such conformity) or
(iii) in an opinion of counsel, in form and substance reasonably satisfactory to
Buyer, some other exemption from registration is available with respect to any
such proposed disposition of such shares.
2. Stop transfer instructions will be given to the transfer
agents of the Company with respect to the shares of Company Common Stock and
with respect to the shares of Buyer Common Stock and any other capital stock of
the Company and Buyer in connection with the restrictions set forth herein, and
there will be placed on the certificate representing shares of Buyer Common
Stock I receive pursuant to the Merger, or any certificates delivered in
substitution therefor, a legend stating in substance:
The shares represented by this certificate were issued in a transaction
to which Rule 145 under the Securities Act of 1933 applies. The shares
represented by this certificate may only be transferred in accordance
with the terms of an agreement between the registered holder hereof and
_____________, a copy of which agreement is on file at the principal
offices of __________. A copy of such agreement shall be provided to
the holder hereof without charge upon receipt by ___________ of a
written request.
3. Unless a transfer of my shares of Buyer Common Stock is a sale made
in conformity with the provisions of Rule 145(d), or made pursuant to any
effective registration statement under the Act, Buyer reserves the right to put
an appropriate legend on the certificates issued to my transferee.
4. I understand that Buyer is under no obligation to register the Buyer
Common Stock that I may wish to sell, transfer, or otherwise dispose of or to
take any
3
[Parent]
___________, __ 1997
Page 4
other action necessary in order to make compliance with an exemption from
registration available.
It is understood and agreed that this Letter Agreement shall terminate
and be of no further force and effect if the Merger Agreement is terminated in
accordance with its terms. It is also understood and agreed that this Letter
Agreement shall terminate and be of no further force and effect and the stop
transfer instructions set forth in Paragraph B.2. above shall be lifted
forthwith upon the later of (i) such time as financial results covering at least
thirty days of combined operations following the effective date of the Merger
have been published within the meaning of Section 201.01 and (ii) delivery by
the undersigned to Buyer of a copy of a letter from the staff of the SEC, an
opinion of counsel in form and substance reasonably satisfactory to Buyer, or
other evidence reasonably satisfactory to Buyer, to the effect that a transfer
of my shares of Buyer Common Stock will not violate the Act or any of the rules
and regulations of the SEC thereunder. In addition, it is understood and agreed
that the legend set forth in Paragraph B.2. above shall be removed forthwith
from the certificate or certificates representing my shares of Buyer Common
Stock if I shall have delivered to Buyer a copy of a letter from the staff of
the SEC, an opinion of counsel in form and substance reasonably satisfactory to
Buyer, or other evidence satisfactory to Buyer that a transfer of my shares of
Buyer Common Stock represented by such certificate or certificates will be a
sale made in conformity with the provisions of Rule 145(d), or made pursuant to
an effective registration statement under the Act.
5. I recognize and agree that the foregoing provisions also apply to
(i) my spouse, (ii) any relative of mine or my spouse occupying my home, (iii)
any trust or estate in which I, my spouse or any such relative owns at least 10%
beneficial interest or of which any of us serves as trustee, executor or in any
similar capacity and (iv) any corporation or other organization in which I, my
spouse or any such relative owns at least 10% of any class of equity securities
or of the equity interest.
4
[Parent]
___________, __ 1997
Page 5
6. I further recognize that in the event I become a director or officer
of Buyer upon consummation of the Merger, any purchase or sale of the capital
stock of Buyer by me may be subject to liability pursuant to Section 16(b) of
the Securities Exchange Act of 1934, as amended.
7. Execution of this letter should not be construed as an admission on
my part that I am an "affiliate" of the Company as described in the first
paragraph of this letter or as a waiver of any rights I may have to object to
any claim that I am such an affiliate on or after the date of this letter.
This Letter Agreement shall be binding on my heirs, legal
representative and successors.
Very truly yours,
--------------------------------
Accepted this __ day
of __________, 1997
[Buyer]
By
------------------------------
Name:
Title:
5
Exhibit 6.15
------------
SUBSIDIARY AGREEMENT AND PLAN OF MERGER
SUBSIDIARY AGREEMENT AND PLAN OF MERGER (this "Agreement"),
dated as of ________________ __, 1997, between [_________________________] (the
"Bank"), a savings bank organized under the laws of the United States of America
and a wholly owned subsidiary of [_________________________], a Delaware
corporation (the "Company"), and [_________________________] ("Parent Bank"), a
commercial bank organized under the laws of the State of Maryland and a direct
wholly owned subsidiary of [_________________________], a Maryland corporation
("Parent"). The principal banking office of the Bank is located at ____________,
______________. The principal banking office of Parent Bank is located at
- -------------------, -------------.
WHEREAS, the Boards of Directors of Parent and the Company have
approved, and deem it advisable and in the best interests of their respective
stockholders to consummate, the business combination transaction set forth in
the Agreement and Plan of Merger, dated as of ________________ __, 1997 (the
"Parent Merger Agreement"), by and between the Company and Parent, pursuant to
which, among other things, the Company will merge with and into Parent (the
"Parent Merger"); and
WHEREAS, not less than (a) two-thirds of the entire Board of Directors
of the Bank and (b) a majority of the entire Board of Directors of Parent Bank
have approved, and deem it advisable to consummate, the merger between the Bank
and Parent Bank (the "Subsidiary Merger") provided for herein, in accordance
with the provisions of 12 C.F.R. Section 552.13 and Md. Code Ann., Fin. Inst.
Section 3-703;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Parent Merger Agreement, and intending to be legally bound hereby, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 Effective Time of the Subsidiary Merger. Subject to the provisions
of this Agreement, the Subsidiary Merger shall become effective in accordance
with the
terms of the Certificate of Merger (the "Certificate of Merger") to be issued by
the Commissioner of Financial Regulation of the State of Maryland (the
"Commissioner"). The term "Subsidiary Merger Effective Time" shall mean the date
and time when the Subsidiary Merger becomes effective, as specified on the
Certificate of Merger, which shall be immediately following the effective time
of the Parent Merger.
1.2 Closing. Notwithstanding anything to the contrary contained in
the Parent Merger Agreement, the closing of the Subsidiary Merger will take
place immediately following the Parent Merger on the date and at the location
specified in the Parent Merger Agreement or at such other time, date or place as
may be agreed to by the parties hereto (the "Subsidiary Merger Closing Date").
1.3 Effects of the Merger. (a) At the Subsidiary Merger Effective Time,
(i) the separate existence of the Bank, shall cease and the Bank shall be merged
with and into Parent Bank (Parent Bank is sometimes referred to herein as the
"Surviving Bank") and the Bank's Charter shall be deemed cancelled as of the
Subsidiary Merger Effective Time and shall be surrendered to the Office of
Thrift Supervision (the "OTS") as soon as practicable thereafter, (ii) the
Charter of Parent Bank as in effect immediately prior to the Subsidiary Merger
Effective Time shall be the Charter of the Surviving Bank until duly amended in
accordance with applicable law, (iii) the name of the Surviving Bank shall be
"Provident Bank of Maryland," (iv) the By-laws of Parent Bank as in effect
immediately prior to the Subsidiary Merger Effective Time shall be the By-laws
of the Surviving Bank, (v) the main office and other offices of the Bank
established and authorized immediately prior to the Subsidiary Merger Effective
Time shall become established and authorized offices of the Surviving Bank and
(vi) except as set forth in Section 1.6, the directors and executive officers of
Parent Bank immediately prior to the Subsidiary Merger Effective Time shall be
the directors and executive officers of the Surviving Bank, each to hold office
in accordance with the Charter and By-laws of the Surviving Bank until their
respective successor are duly elected or appointed and qualified.
2
(b) At and after the Subsidiary Merger Effective Time, the Subsidiary
Merger shall have all the effects set forth in Md. Code Ann., Fin. Inst. Section
3-712.
1.4 Headquarters. The principal banking office of the Surviving Bank
shall be at [_________________________], and the other offices of the Surviving
Bank shall be located as listed in Appendix 1.4 hereto.
1.5 Savings Accounts. After the Subsidiary Merger Effective Time, the
Surviving Bank will continue to issue savings accounts on the same basis as
immediately prior to the Subsidiary Merger Effective Time.
1.6 Board of Directors. At the Subsidiary Merger Effective Time, the
Board of Directors of Parent Bank shall be expanded by two members and Herbert
W. Jorgensen and Enos K. Fry shall be appointed to such Board of Directors in
accordance with the terms of the Employment Agreement to be entered into as of
the Effective Time among Buyer, Buyer Bank and Mr. Fry and the Consulting
Agreement to be entered into at the Effective Time between Buyer and Mr.
Jorgensen, respectively.
ARTICLE II
CAPITAL STOCK OF THE CONSTITUENT BANKS
AND THE SURVIVING BANK
2.1 Bank Capital Stock. At the Subsidiary Merger Effective Time, by
virtue of the Subsidiary Merger and without any action on the part of the holder
of any shares of common stock, $[____] par value per share, of the Bank (the
"Bank Common Stock"), all shares of Bank Common Stock shall automatically be
cancelled and retired and shall cease to exist and no consideration shall be
delivered in exchange therefor.
2.2 Parent Bank Common Stock. The shares of common stock, $[_____] par
value per share, of Parent Bank issued and outstanding immediately prior to the
Subsidiary Merger Effective Time shall remain outstanding and unchanged after
the Subsidiary Merger.
2.3 Capital Stock of Surviving Bank. The authorized capital stock of
the Surviving Bank shall be
3
____ shares of common stock, par value ___ per share, and ___ shares of
preferred stock, par value ___ per share.
ARTICLE III
COVENANTS
3.1 Covenants of Parent Bank and the Bank. During the period from the
date of this Agreement and continuing until the Subsidiary Merger Effective
Time, each of the parties hereto agrees to observe and perform all agreements
and covenants of Parent and the Company in the Parent Merger Agreement that
pertain or are applicable to the Bank and Parent Bank, respectively. Each of the
parties hereto agrees to use all reasonable efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, subject to and in
accordance with the applicable provisions of the Parent Merger Agreement.
3.2 Liquidation Account. For the purposes of granting a limited
priority claim to the assets of the Surviving Bank in the unlikely event (and
only upon such event) of a complete liquidation of the Surviving Bank to persons
who continue to maintain savings accounts with the Surviving Bank after the
Subsidiary Merger and who, immediately prior to the Subsidiary Merger, had a
subaccount balance as defined in 12 C.F.R. Section 563b.3(f)(4) with respect to
the liquidation account of the Bank, the Surviving Bank shall, at the time of
the Subsidiary Merger, establish a liquidation account in an amount equal to the
liquidation account of the Bank immediately prior to the Subsidiary Merger,
which liquidation account shall participate PARI PASSU with Parent Bank's
existing liquidation account. If the balance in any savings account to which a
subaccount balance relates at the close of business on the last day of any
fiscal year of the Surviving Bank after consummation of the Subsidiary Merger is
less than the balance in such savings account at the close of business on the
last day of any other fiscal year of the Surviving Bank after consummation of
the Subsidiary Merger, such subaccount balance shall be reduced in an amount
proportionate to the reduction in such savings account balance. No subaccount
balance shall be increased, notwithstanding any increase in the balance of the
related savings account. If such related
4
savings account is closed, such subaccount shall be reduced to zero upon such
closing; PROVIDED, HOWEVER, that the subaccount balance shall be maintained for
as long as the account holder maintains an account with the Surviving Bank under
the same social security number. In the event of a complete liquidation of the
Surviving Bank, and only in such event, the amount distributable to each
accountholder will be determined in accordance with the rules and regulations
pertaining to conversions by a thrift from mutual to stock form of organization
set forth in 12 C.F.R. Section 563.3(f) on the basis of such accountholder's
subaccount balance with the Surviving Bank at the time of its liquidation. No
merger, consolidation, purchase of bulk assets with assumption of savings
accounts and other liabilities, or similar transaction, whether or not the
Surviving Bank is the surviving institution, will be deemed to be a complete
liquidation for this purpose, and, in any such transaction, the liquidation
account shall be assumed by the surviving institution.
ARTICLE IV
CONDITIONS PRECEDENT
4.1 Conditions to Each Party's Obligation to Effect the Subsidiary
Merger. The respective obligations of each party to effect the Subsidiary Merger
shall be subject to the satisfaction prior to the Subsidiary Merger Closing Date
of the following conditions:
(a) Consummation of Parent Merger. The Parent Merger shall have been
consummated in accordance with the terms and conditions of the Parent Merger
Agreement.
(b) No Injunctions or Restraints; Illegality. No order, injunction or
decree issued by any court or agency of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Subsidiary Merger
shall be in effect. No statute, rule, regulation, order, injunction or decree
shall have been enacted, entered, promulgated or enforced by any Governmental
Entity which prohibits, restricts or makes illegal the consummation of the
Subsidiary Merger.
(c) Stockholder Approvals. This Agreement and the transactions
contemplated hereby shall have
5
been duly approved, ratified and confirmed by the required vote of the
stockholders of each of Parent Bank and the Bank in accordance with the
provisions of 12 C.F.R. Section 552.13(h) and Md. Code Ann., Fin. Inst. ss.
3-703, respectively.
(d) Other Approvals and Notifications. All requisite regulatory
approvals and notifications relating to the Subsidiary Merger, including without
limitation (i) notification to the OTS as required by 12 U.S.C. Sections 552.13
and 563.22, (ii) approval of the Board of Governors of the Federal Reserve
System under the Bank Holding Company Act of 1956, as amended (12 U.S.C. Section
1843(i)), (iii) approval of the Federal Deposit Insurance Corporation under the
Bank Merger Act (12 U.S.C. Section 1828(c)(2)) and (iv) approval of the
Commissioner under Md. Code Ann., Fin. Inst. Section 3-709, shall have been
filed and/or obtained and shall continue to be in full force and effect, and all
applicable waiting periods shall have expired. In addition, all consents,
approvals and permits of and notices to non-governmental third parties that are
necessary to consummate the Subsidiary Merger shall have been filed and/or
obtained and shall continue to be in full force and effect.
ARTICLE V
TERMINATION AND AMENDMENT
5.1 Termination. This Agreement shall be terminated immediately
and without any further action on the part of the Bank or Parent Bank upon any
termination of the Parent Merger Agreement. This Agreement may be terminated at
any time prior to the Subsidiary Merger Effective Time by mutual consent of the
Bank and Parent Bank in a written instrument, if the Board of Directors of each
so determines by a vote of a majority of the members of its entire Board.
5.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 5.1 hereof, this Agreement shall forthwith
become void and there shall be no liability or obligation under this Agreement
on the part of the Bank, Parent Bank or their respective officers, directors or
affiliates, except that no party shall be relieved or released from any damages
or liabilities arising out of any willful breach of this Agreement.
6
5.3 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
ARTICLE VI
GENERAL PROVISIONS
6.1 Definitions. All capitalized terms which are used but not defined
herein shall have the meanings set forth in the Parent Merger Agreement.
6.2 Nonsurvival of Agreements. None of the agreements in this Agreement
or in any instrument delivered pursuant to this Agreement shall survive the
Subsidiary Merger Effective Time, except to the extent set forth herein or in
the Parent Merger Agreement.
6.3 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation) or mailed by registered or certified mail (return receipt
requested) to Parent Bank or the Bank, respectively, at the addresses for
notices to the Company or Parent, respectively, as set forth in the Parent
Merger Agreement, with copies to the persons referred to therein.
6.4 Counterparts. This Agreement may be adopted, certified and executed
in separate counterparts, each of which shall be considered one and the same
agreement and shall become effective when all counterparts have been signed by
each of the parties and delivered to the other party, it being understood that
both parties need not sign the same counterpart.
6.5 Entire Agreement. Except as otherwise set forth in this Agreement
or the Parent Merger Agreement (including the documents and the instruments
referred to herein or therein), this Agreement constitutes the entire agreement,
and supersedes all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof.
6.6 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the
7
State of Maryland without regard to any applicable conflicts of law.
6.7 Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the other
party.
8
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized officers as of the date first
above written.
[THE BANK]
By:________________________
Name:
Title:
ATTEST
- -------------------------
Name:
Title:
[PARENT BANK]
By:________________________
Name:
Title:
ATTEST
- -------------------------
Name:
Title:
9
APPENDIX 1.4
Branch Offices of
The Surviving Bank
Branch Name and Address Branch Name and Address
- ----------------------- -----------------------
ANNEX B
THE TRANSFER OF THIS AGREEMENT IS
SUBJECT TO CERTAIN PROVISIONS CONTAINED
HEREIN AND MAY BE SUBJECT TO TRANSFER RESTRICTIONS
UNDER THE FEDERAL SECURITIES LAWS
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of March 10, 1997 (the
"Agreement"), by and between First Citizens Financial Corporation, a Delaware
corporation ("Issuer"), and Provident Bankshares Corporation, a Maryland
corporation ("Grantee").
WHEREAS, Grantee and Issuer have entered into an Agreement and
Plan of Merger (the "Merger Agreement"), of even date herewith, providing for,
among other things, the merger of Issuer with Grantee; and
WHEREAS, as a condition and inducement to Grantee's execution
of the Merger Agreement, Grantee has requested that Issuer agree, and Issuer has
agreed, to grant Grantee the Option (as defined below);
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth
herein and in the Merger Agreement, and intending to be legally bound hereby,
Issuer and Grantee agree as follows:
1. Defined Terms. Capitalized terms which are used but not
defined herein shall have the meanings ascribed to such terms in the Merger
Agreement.
2. Grant of Option. Subject to the terms and conditions set
forth herein, Issuer hereby grants to Grantee an irrevocable option (the
"Option") to purchase up to 291,388 shares (subject to adjustment as set forth
herein) (the "Option Shares") of common stock, par value $0.01 per share, of
Issuer ("Issuer Common Stock") at a purchase price (subject to adjustment as set
forth herein) of $23.00 per Option Share (the "Purchase Price"), provided that
in no event shall the number of Option Shares for which the Option is
exercisable exceed 9.9% of the issued and outstanding shares of Issuer Common
Stock without giving effect to any shares subject to or issued pursuant to the
Option.
3. Exercise of Option. (a) Provided that (i) Grantee is not in
material breach of the agreements or covenants contained in the Merger Agreement
and (ii) no preliminary or permanent injunction or other order against the
delivery of Option Shares issued by any court of competent jurisdiction in the
United States shall be in effect, Grantee may exercise the Option, in whole or
in part, and from time to time, if, but only if, both an Initial Triggering
Event (as hereinafter defined) and a Subsequent Triggering Event (as hereinafter
defined) shall have occurred prior to the occurrence of an Exercise Termination
Event (as hereinafter defined); PROVIDED, HOWEVER, that Grantee shall have sent
the written notice of such exercise (as provided in subsection (d) of this
Section 3) within 90 days following such Subsequent Triggering Event; and
PROVIDED FURTHER, HOWEVER, that any purchase of shares upon exercise of the
Option shall be subject to compliance with applicable law; and PROVIDED FURTHER,
HOWEVER, that if the Option cannot be exercised on any day because of any
injunction, order or similar restraint issued by a court of competent
jurisdiction, the period during which the Option may be exercised shall be
extended so that the Option shall expire no earlier than on the 10th business
day after such injunction, order or restraint shall have been dissolved or when
such injunction, order or restraint shall have become permanent and no longer
subject to appeal, as the case may be. Each of the following shall be an
Exercise Termination Event: (i) the Effective Time; (ii) termination of the
Merger Agreement in accordance with the provisions thereof if such termination
occurs prior to the occurrence of an Initial Triggering Event; or (iii) the
passage of twelve months after termination of the Merger Agreement if such
termination follows the occurrence of an Initial Triggering Event; PROVIDED,
HOWEVER, that if an Initial Triggering Event continues or occurs beyond such
termination and prior to the passage of such twelve-month period, the Exercise
Termination Event shall be twelve months from the expiration of the Last
Triggering Event (as hereinafter defined) but in no event more than 15 months
after such termination of the Merger Agreement. The "Last Triggering Event"
shall mean the last Initial Triggering Event to expire. The rights set forth in
Section 8 hereof shall terminate at the time set forth in Section 8.
2
(b) The term "Initial Triggering Event" shall mean
any of the following events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries, without having
received Grantee's prior written consent, shall have entered into an
agreement to engage in an Acquisition Transaction (as hereinafter
defined) with any person (other than Grantee or any of its
Subsidiaries) or Issuer or any of its Subsidiaries, without having
received Grantee's prior written consent, shall have authorized,
recommended, proposed, or publicly announced its intention to
authorize, recommend or propose to engage in, an Acquisition
Transaction with any person other than Grantee or a Subsidiary of
Grantee. For purposes of this Agreement, "Acquisition Transaction"
shall mean (w) a merger or consolidation, or any similar transaction,
involving Issuer or any of its Subsidiaries (other than internal
mergers, reorganizations, consolidations or dissolutions involving only
existing Subsidiaries), (x) a purchase, lease or other acquisition of
all or a substantial portion of the consolidated assets of Issuer and
its Subsidiaries, or (y) a purchase or other acquisition (including by
way of merger, consolidation, Tender Offer or Exchange Offer (as such
terms are hereinafter defined), share exchange or otherwise) of
securities representing 10% or more of the voting power of Issuer or
any of its Subsidiaries;
(ii) Any person other than Grantee or any Subsidiary
of Grantee shall have acquired beneficial ownership or the right to
acquire beneficial ownership of 10% or more of the outstanding shares
of Issuer Common Stock (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, as amended (the "Exchange
Act"), and the rules and regulations thereunder) or any person other
than Grantee or any Subsidiary of Grantee shall have commenced (as such
term is defined under the rules and regulations of the Securities and
Exchange Commission (the "SEC")), or shall have filed or publicly
disseminated a registration statement or similar disclosure statement
with respect to, a tender offer or exchange
3
offer to purchase any shares of Issuer Common Stock such that, upon
consummation of such offer, such person would own or control 10% or
more of the then outstanding shares of Issuer Common Stock (such an
offer being referred to herein as a "Tender Offer" or an "Exchange
Offer," respectively);
(iii)(A) the holders of Issuer Common Stock shall not
have approved the Merger Agreement and the transactions contemplated
thereby, at the meeting of such stockholders held for the purpose of
voting on such agreement, (B) such meeting shall not have been held or
shall have been cancelled prior to termination of the Merger Agreement,
or (C) the Board of Directors of Issuer shall have publicly withdrawn
or modified, or publicly announced its intent to withdraw or modify, in
any manner adverse to Grantee, its recommendation that the stockholders
of Issuer approve the transactions contemplated by the Merger
Agreement, in each case after it shall have been publicly announced
that any person other than Grantee or any Subsidiary of Grantee shall
have (x) made, or disclosed an intention to make, a proposal to engage
in an Acquisition Transaction, (y) commenced a Tender Offer, or filed
or publicly disseminated a registration statement or similar disclosure
statement with respect to an Exchange Offer, or (z) filed an
application (or given a notice), whether in draft or final form, under
any federal or state banking laws seeking regulatory approval to engage
in an Acquisition Transaction; or
(iv) Issuer shall have breached any covenant or
obligation or shall have willfully breached any representation or
warranty contained in the Merger Agreement and such breach would
entitle Grantee to terminate the Merger Agreement in accordance with
the terms thereof (without regard to any cure periods provided for in
the Merger Agreement unless such cure is promptly effected without
jeopardizing the consummation of the Merger in accordance with the
terms of the Merger Agreement) after (A) a bona fide proposal is made
by any person other than Grantee or any Subsidiary of Grantee to Issuer
or its stockholders to engage in an Acquisition Transaction, (B) any
person other than Grantee or any Subsidiary of Grantee states its
intention to
4
Issuer or its stockholders to make a proposal to engage in an
Acquisition Transaction if the Merger Agreement terminates, or (C) any
person other than Grantee or any Subsidiary of Grantee shall have filed
an application or notice, whether in draft or final form, with any
Governmental Entity to engage in an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean
either of the following events or transactions occurring after the date hereof:
(i) The acquisition by any person of beneficial
ownership of 20% or more of the then outstanding shares of Issuer
Common Stock; or
(ii) The occurrence of the Initial Triggering Event
described in clause (i) of subsection (b) of this Section 3, except
that the percentage referred to in clause (y) shall be 20%.
As used in this Agreement, "Person" shall have the meaning specified in Sections
3(a)(9) and 13(d)(3) of the Exchange Act.
(d) In the event Grantee is entitled to
under the terms of this Agreement and wishes to exercise the Option, it shall
send to Issuer a written notice (the date of which being herein referred to as
the "Notice Date") specifying (i) the total number of Option Shares it intends
to purchase pursuant to such exercise and (ii) a place and date not earlier than
three business days nor later than 30 business days from the Notice Date for the
closing (the "Closing") of such purchase (the "Closing Date"). If prior
notification to or approval of any regulatory authority is required in
connection with such purchase, Issuer shall cooperate in good faith with Grantee
in the filing of the required notice or application for approval and the
obtaining of any such approval and the period of time that otherwise would run
pursuant to the preceding sentence shall run instead from the date on which, as
the case may be (i) any required notification period has expired or been
terminated or (ii) such approval has been obtained, and in either event, any
requisite waiting period shall have passed.
5
4. Payment and Delivery of Certificates. (a) On each
Closing Date, Grantee shall (i) pay to Issuer, in immediately available funds by
wire transfer to a bank account designated by Issuer, an amount equal to the
Purchase Price multiplied by the number of Option Shares to be purchased on such
Closing Date and (ii) present and surrender this Agreement to the Issuer at the
address of the Issuer specified in Section 13(f) hereof.
(b) At each Closing, simultaneously with the
delivery of immediately available funds and surrender of this Agreement as
provided in Section 4(a) hereof, Issuer shall deliver to Grantee (A) a
certificate or certificates representing the Option Shares to be purchased at
such Closing, which Option Shares shall be free and clear of all liens, claims,
charges and encumbrances of any kind whatsoever, and (B) if the Option is
exercised in part only, an executed new agreement with the same terms as this
Agreement evidencing the right to purchase the balance of the shares of Issuer
Common Stock purchasable hereunder. If Issuer shall have issued rights or any
similar securities ("Rights") pursuant to any shareholder rights, poison pill or
similar plan (a "Shareholder Rights Plan") prior or subsequent to the date of
this Agreement and such Rights remain outstanding at the time of the issuance of
any Option Shares pursuant to an exercise of all or part of the Option
hereunder, then each Option Share issued pursuant to such exercise shall also
represent the number of Rights issued per share of Issuer Common Stock with
terms substantially the same as and at least as favorable to Grantee as are
provided under the Shareholder Rights Plan as then in effect.
(c) In addition to any other legend that
is required by applicable law, certificates for the Option Shares delivered at
each Closing shall be endorsed with a restrictive legend which shall read
substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS
CERTIFICATE MAY BE SUBJECT TO RESTRICTIONS
ARISING UNDER THE FEDERAL SECURITIES LAWS AND
PURSUANT TO THE TERMS OF A STOCK OPTION
AGREEMENT DATED AS OF MARCH 10, 1997. A COPY OF
SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER
6
HEREOF WITHOUT CHARGE UPON RECEIPT BY THE ISSUER
OF A WRITTEN REQUEST THEREFOR.
It is understood and agreed that the above legend shall be removed by delivery
of substitute certificate(s) without such legend if Grantee shall have delivered
to Issuer a copy of a letter from the staff of the SEC, or an opinion of outside
counsel reasonably satisfactory to Issuer in form and substance reasonably
satisfactory to Issuer and its counsel, to the effect that such legend is not
required for purposes of the Securities Act of 1933, as amended (the "Securities
Act").
5. Representations and Warranties of Issuer. Issuer hereby
represents and warrants to Grantee as follows:
(a) Due Authorization. Issuer has full
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Issuer. This
Agreement has been duly and validly executed and delivered by Issuer.
(b) No Violation. Neither the execution
and delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, nor compliance by Issuer with any of the terms or
provisions hereof, will (i) violate any provision of the Certificate of
Incorporation (the "Organization Certificate") or Amended ByLaws of Issuer or
the certificates of incorporation, by-laws or similar governing documents of any
of its Subsidiaries or (ii) (x) assuming that all of the consents and approvals
required under applicable law for the purchase of Option Shares upon the
exercise of the Option are duly obtained, violate any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction applicable to
Issuer or any of its Subsidiaries, or any of their respective properties or
assets, or (y) violate, conflict with, result in a breach of any provisions of
or the loss of any benefit under, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, result in
the termination of or a right of termination or cancellation under, accelerate
the performance required by, or result in the
7
creation of any lien, pledge, security interest, charge or other encumbrance
upon any of the respective properties or assets of Issuer or any of its
Subsidiaries under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Issuer or any of its Subsidiaries is a party,
or by which they or any of their respective properties or assets may be bound or
affected.
(c) Authorized Stock. Issuer has taken
all necessary corporate and other action to authorize and reserve and to permit
it to issue, and, at all times from the date of this Agreement until the
obligation to deliver Issuer Common Stock upon the exercise of the Option
terminates, will have reserved for issuance, upon exercise of the Option, shares
of Issuer Common Stock necessary for Grantee to exercise the Option, and Issuer
will take all necessary corporate action to authorize and reserve for issuance
all additional shares of Issuer Common Stock (together with any Rights which may
have been issued with respect thereto) or other securities which may be issued
pursuant to Section 7 upon exercise of the Option. The shares of Issuer Common
Stock to be issued upon due exercise of the Option, including all additional
shares of Issuer Common Stock (together with any Rights which may have been
issued with respect thereto) or other securities which may be issuable pursuant
to Section 7, upon issuance pursuant hereto, shall be duly and validly issued,
fully paid and nonassessable, and shall be delivered free and clear of all
liens, claims, charges and encumbrances of any kind or nature whatsoever (except
any such lien or encumbrance created by Grantee), including any preemptive
rights of any stockholder of Issuer.
6. Representations and Warranties of Grantee. Grantee
hereby represents and warrants to Issuer that:
(a) Due Authorization. Grantee has corporate
power and authority to enter into this Agreement and, subject to any required
regulatory approvals or consents, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate
8
action on the part of Grantee. This Agreement has been duly executed and
delivered by Grantee.
(b) Purchase Not for Distribution. This Option
is not being acquired with a view to the public distribution thereof and neither
this Option nor any Option Shares will be transferred or otherwise disposed of
except in a transaction registered or exempt from registration under the
Securities Act.
7. Adjustment upon Changes in Capitalization, etc. (a) In the
event (i) of any change in Issuer Common Stock by reason of a stock dividend,
stock split, split-up, recapitalization, combination, exchange of shares or
similar transaction or (ii) that any Rights issued by Issuer shall become
exercisable, the type and number of shares or securities subject to the Option,
and the Purchase Price therefor, shall be adjusted appropriately, and, in the
case of any of the transactions described in clause (i) above, proper provision
shall be made in the agreements governing such transaction so that Grantee shall
receive, upon exercise of the Option, the number and class of shares or other
securities or property that Grantee would have received in respect of Issuer
Common Stock if the Option had been exercised immediately prior to such event,
or the record date therefor, as applicable. If any additional shares of Issuer
Common Stock are issued after the date of this Agreement (other than pursuant to
an event described in the first sentence of this Section 7(a)), the number of
shares of Issuer Common Stock subject to the Option shall be adjusted so that,
after such issuance, the Option, together with any shares of Issuer Common Stock
previously issued pursuant hereto, equals 9.9% of the number of shares of Issuer
Common Stock then issued and outstanding, without giving effect to any shares
subject or previously issued pursuant to the Option.
(b) In the event that Issuer shall enter into an
agreement (i) to consolidate with or merge into any person, other than Grantee
or one of its Subsidiaries, and shall not be the continuing or surviving
corporation of such consolidation or merger, (ii) to permit any person, other
than Grantee or one of its Subsidiaries, to merge into Issuer and Issuer shall
be the continuing or surviving corporation, but, in connection with such merger,
the then outstanding shares of Issuer Common
9
Stock shall be changed into or exchanged for stock or other securities of Issuer
or any other person or cash or any other property or the outstanding shares of
Issuer Common Stock immediately prior to such merger shall after such merger
represent less than 50% of the outstanding shares and share equivalents of the
merged company, or (iii) to sell or otherwise transfer all or substantially all
of its assets to any person, other than Grantee or one of its Subsidiaries,
then, and in each such case, the agreement governing such transaction shall make
proper provisions so that the Option shall, upon the consummation of any such
transaction and upon the terms and conditions set forth herein, be converted
into, or exchanged for, an option (the "Substitute Option"), at the election of
Grantee, of any of (I) the Acquiring Corporation (as defined below), (II) any
person that controls the Acquiring Corporation or (III) in the case of a merger
described in clause (ii), the Issuer (such person being referred to as the
"Substitute Option Issuer").
(c) The Substitute Option shall have the same terms
as the Option, provided that if the terms of the Substitute Option cannot, for
legal reasons, be the same as the Option, such terms shall be as similar as
possible and in no event less advantageous to Grantee. The Substitute Option
Issuer shall also enter into an agreement with the then holder or holders of the
Substitute Option in substantially the same form as this Agreement, which shall
be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for
such number of shares of the Substitute Common Stock (as hereinafter defined) as
is equal to the Assigned Value (as hereinafter defined) multiplied by the number
of shares of Issuer Common Stock for which the Option was theretofore
exercisable, divided by the Average Price (as hereinafter defined). The exercise
price of the Substitute Option per share of the Substitute Common Stock (the
"Substitute Purchase Price") shall then be equal to the Purchase Price
multiplied by a fraction in which the numerator is the number of shares of the
Issuer Common Stock for which the Option was theretofore exercisable and the
denominator is the number of shares of the Substitute Common Stock for which the
Substitute Option is exercisable.
10
(e) The following terms have the meanings
indicated:
(I) "Acquiring Corporation" shall mean (i) the continuing or surviving
corporation of a consolidation or merger with Issuer (if other than Issuer),
(ii) Issuer in a merger in which Issuer is the continuing or surviving person,
and (iii) the transferee of all or substantially all of the Issuer's assets (or
the assets of its Subsidiaries).
(II) "Substitute Common Stock" shall mean the common stock issued by
the Substitute Option Issuer upon exercise of the Substitute Option.
(III) "Assigned Value" shall mean the highest of (i) the price per
share of Issuer Common Stock at which a tender offer or exchange offer therefor
has been made by any person (other than Grantee), (ii) the price per share of
Issuer Common Stock to be paid by any person (other than the Grantee) pursuant
to an agreement with Issuer, and (iii) the highest closing sales price per share
of Issuer Common Stock quoted on National Association of Securities Dealers,
Inc. Automated Quotation/National Market System ("NASDAQ") (or if Issuer Common
Stock is not quoted on NASDAQ, the highest bid price per share as quoted on the
principal trading market or securities exchange on which such shares are traded
as reported by a recognized source) within the six-month period immediately
preceding the agreement referred to in Section 7(c) hereof; PROVIDED, HOWEVER,
that in the event of a sale of all or substantially all of Issuer's assets, the
Assigned Value shall be the sum of the price paid in such sale for such assets
and the current market value of the remaining assets of Issuer as determined by
a nationally recognized investment banking firm selected by Grantee or by a
Grantee Majority (as defined below), divided by the number of shares of Issuer
Common Stock outstanding at the time of such sale. In the event that an exchange
offer is made for the Issuer Common Stock or an agreement is entered into for a
merger or consolidation involving consideration other than cash, the value of
the securities or other property issuable or deliverable in exchange for the
Issuer Common Stock shall be determined by a nationally recognized investment
banking firm selected by Grantee (or a majority of interest of the Grantees if
there shall be more than one Grantee (a "Grantee Majori-
11
ty")) and reasonably acceptable to Issuer, which determination shall be
conclusive for all purposes of this Agreement.
(IV) "Average Price" shall mean the average closing price of a share of
the Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of the Substitute Common Stock on the day preceding
such consolidation, merger or sale; provided that if Issuer is the issuer of the
Substitute Option, the Average Price shall be computed with respect to a share
of common stock issued by Issuer, the person merging into Issuer or by any
company which controls or is controlled by such merging person, as Grantee may
elect.
(f) In no event, pursuant to any of the
foregoing paragraphs, shall the Substitute Option be exercisable for more than
9.9% of the aggregate of the shares of the Substitute Common Stock outstanding
prior to exercise of the Substitute Option. In the event that the Substitute
Option would be exercisable for more than 9.9% of the aggregate of the shares of
Substitute Common Stock but for this clause (f), the Substitute Option Issuer
shall make a cash payment to Grantee equal to the excess of (i) the value of the
Substitute Option without giving effect to the limitation in this clause (f)
over (ii) the value of the Substitute Option after giving effect to the
limitation in this clause (f). This difference in value shall be determined by a
nationally recognized investment banking firm selected by Grantee (or a Grantee
Majority).
(g) Issuer shall not enter into any
transaction described in subsection (b) of this Section 7 unless the Acquiring
Corporation and any person that controls the Acquiring Corporation assume in
writing all the obligations of Issuer hereunder and take all other actions that
may be necessary so that the provisions of this Section 7 are given full force
and effect (including, without limitation, any action that may be necessary so
that the shares of Substitute Common Stock are in no way distinguishable from or
have lesser economic value (other than any diminution in value resulting from
the fact that the shares of Substitute Common Stock may be restricted
securities, as defined in Rule 144 under the
12
Securities Act) than other shares of common stock issued by the Substitute
Option Issuer).
(h) The provisions of Sections 8, 9 and 10 shall
apply to any securities for which the Option becomes exercisable pursuant to
this Section 7 and, as applicable, references in such sections to "Issuer",
"Option", "Purchase Price" and "Issuer Common Stock" shall be deemed to be
references to "Substitute Option Issuer", "Substitute Option", "Substitute
Purchase Price" and "Substitute Common Stock", respectively.
8. Repurchase at the Option of Grantee. (a) At the
request of Grantee at any time commencing upon the first occurrence of a
Repurchase Event (as defined in Section 8(d) below) and ending 12 months
immediately thereafter, Issuer shall repurchase from Grantee (I) the Option and
(II) all shares of Issuer Common Stock purchased by Grantee pursuant hereto with
respect to which Grantee then has beneficial ownership. The date on which
Grantee exercises its rights under this Section 8 is referred to as the "Request
Date". Such repurchase shall be at an aggregate price (the "Section 8 Repurchase
Consideration") equal to the sum of:
(i) the aggregate Purchase Price paid by Grantee for
any shares of Issuer Common Stock acquired pursuant to the Option with
respect to which Grantee then has beneficial ownership;
(ii) the excess, if any, of (x) the Applicable Price
(as defined below) for each share of Issuer Common Stock over (y) the
Purchase Price (subject to adjustment pursuant to Section 7),
multiplied by the number of shares of Issuer Common Stock with respect
to which the Option has not been exercised; and
(iii) the excess, if any, of the Applicable Price
over the Purchase Price (subject to adjustment pursuant to Section 7)
paid (or, in the case of Option Shares with respect to which the Option
has been exercised but the Closing Date has not occurred, payable) by
Grantee for each share of Issuer Common Stock with respect to which the
Option has been exer-
13
cised and with respect to which Grantee then has beneficial ownership,
multiplied by the number of such shares.
(b) If Grantee exercises its rights under this
Section 8, Issuer shall, within 10 business days after the Request Date, pay the
Section 8 Repurchase Consideration to Grantee in immediately available funds by
wire transfer to a bank account designated by Grantee, and Grantee shall
surrender to Issuer the Option and the certificates evidencing the shares of
Issuer Common Stock purchased thereunder with respect to which Grantee then has
beneficial ownership, and Grantee shall warrant that it has sole record and
beneficial ownership of such shares and that the same are then free and clear of
all liens, claims, charges and encumbrances of any kind whatsoever.
Notwithstanding the foregoing, to the extent that prior notification to or
approval of any regulatory authority is required in connection with the payment
of all or any portion of the Section 8 Repurchase Consideration, Grantee shall
have the ongoing option to revoke its request for repurchase pursuant to Section
8 or to require that Issuer (a) deliver from time to time that portion of the
Section 8 Repurchase Consideration that it is not then so prohibited from paying
and (b) promptly file the required notice or application for approval and
expeditiously process the same (and each party shall cooperate with the other in
the filing of any such notice or application and the obtaining of any such
approval). If any regulatory authority disapproves of any part of Issuer's
proposed repurchase pursuant to this Section 8, Issuer shall promptly give
notice of such fact to Grantee and redeliver to Grantee the Option and/or Option
Shares it is then prohibited from repurchasing, and Grantee shall have the right
(x) to exercise the Option as to the number of Option Shares for which the
Option was exercisable at the Request Date less the number of shares covered by
the Option in respect of which payment has been made pursuant to Section
8(a)(ii) hereof or (y) to revoke its request for repurchase with respect to any
Option Shares in respect of which such payment has been made and exercise the
Option as to the number of Option Shares for which the Option was exercisable at
the Request Date. Notwithstanding anything herein to the contrary, (i) all of
Grantee's rights under this Section 8 shall terminate on the date of termination
of this Option pursuant to Section 3(a) hereof, unless this Option shall have
been
14
exercised in whole or part prior to the date of termination and (ii) if this
Option shall have been exercised in whole or in part prior to the date of
termination described in clause (i) above, then Grantee's rights under this
Section 8 shall terminate 12 months after such date of termination.
(c) For purposes of this Agreement, the
"Applicable Price" means the highest of (i) the highest price per share of
Issuer Common Stock paid for any such share by the person or groups described in
Section 8(d)(i) hereof, (ii) the price per share of Issuer Common Stock received
by holders of Issuer Common Stock in connection with any merger or other
business combination transaction described in Section 7(b)(i), 7(b)(ii) or
7(b)(iii) hereof or (iii) the highest closing sales price per share of Issuer
Common Stock quoted on NASDAQ (or if Issuer Common Stock is not quoted on
NASDAQ, the highest bid price per share as quoted on the principal trading
market or securities exchange on which such shares are traded as reported by a
recognized source) during the 60 business days preceding the Request Date;
PROVIDED, HOWEVER, that in the event of a sale of less than all of Issuer's
assets, the Applicable Price shall be the sum of the price paid in such sale for
such assets and the current market value of the remaining assets of Issuer, as
determined by a nationally recognized investment banking firm selected by
Grantee, divided by the number of shares of the Issuer Common Stock outstanding
at the time of such sale. If the consideration to be offered, paid or received
pursuant to either of the foregoing clauses (i) or (ii) shall be other than in
cash, the value of such consideration shall be determined in good faith by an
independent nationally recognized investment banking firm selected by Grantee
(or a Grantee Majority) and reasonably acceptable to Issuer, which determination
shall be conclusive for all purposes of this Agreement.
(d) As used herein, a "Repurchase Event"
shall occur if (i) any person (other than Grantee or any of its Subsidiaries)
shall have acquired beneficial ownership of (as such term is defined in Rule
13d-3 under the Exchange Act) or the right to acquire beneficial ownership of,
or any "group" (as such term is defined under the Exchange Act) (other than
Grantee or any Subsidiary of Grantee) shall have been formed which beneficially
owns or has the right to acquire beneficial owner-
15
ship of, 50% or more of the then outstanding shares of Issuer Common Stock or
(ii) any of the transactions described in Section 7(b)(i), 7(b)(ii) or 7(b)(iii)
hereof shall be consummated.
(e) Notwithstanding anything herein to the
contrary, the aggregate amount payable to Grantee pursuant to this Section 8
shall not exceed $3,500,000.
9. Registration Rights. Issuer shall, if requested by Grantee
(or if applicable, a Grantee Majority) at any time and from time to time within
two years of the date on which the Option first becomes exercisable, provided
that such period of time shall be extended by the number of days, if any, by
which Issuer shall delay the registration of the Issuer Common Stock pursuant to
the proviso contained at the end of this sentence, as expeditiously as possible
prepare and file up to two registration statements under the Securities Act if
such registration is necessary (or in any event up to two suitable disclosure
statements for federal securities law purposes if no such registration is
required under the Securities Act) in order to permit the sale or other
disposition of any or all shares of Issuer Common Stock or other securities that
have been acquired by or are issuable to Grantee upon exercise of the Option in
accordance with the intended method of sale or other disposition stated by
Grantee, including a "shelf" registration statement under Rule 415 under the
Securities Act or any successor provision, and Issuer shall use its best efforts
to qualify such shares or other securities under any applicable state securities
laws; PROVIDED, HOWEVER, that Issuer may delay for a period not to exceed 90
days filing a registration or equivalent statement if Issuer shall in good faith
determine that (i) any such registration would adversely affect an offering or
contemplated offering of securities by Issuer or (ii) the filing of such
registration or equivalent statement would, if not so delayed, materially and
adversely affect a then proposed or pending financial project, acquisition,
merger or corporate reorganization; and PROVIDED FURTHER, that nothing contained
herein shall limit or adversely affect in any manner Grantee's rights contained
in the fourth following sentence hereof. Issuer shall use its best efforts to
cause each such registration statement to become effective, to obtain all
consents or waivers of other parties which are required therefor and to keep
such
16
registration statement effective for such period not in excess of 180 days from
the day such registration statement first becomes effective as may be reasonably
necessary to effect such sale or other disposition. Any registration or similar
statement prepared and filed under this Section 9, and any sale covered thereby,
shall be at Issuer's expense except for underwriting discounts or commissions,
brokers' fees and the fees and disbursements of Grantee's counsel related
thereto. Grantee shall provide all information reasonably requested by Issuer
for inclusion in any registration or similar statement to be filed hereunder. If
during the time periods referred to in the first sentence of this Section 9
Issuer effects a registration under the Securities Act of Issuer Common Stock
for its own account or for any other stockholder of Issuer (other than on Form
S-4 or Form S-8, or any successor forms or any form with respect to a dividend
reinvestment or similar plan), it shall allow Grantee the right to participate
in such registration, and such participation shall not affect the obligation of
Issuer to effect two registration statements for Grantee under this Section 9;
PROVIDED, HOWEVER, that, if the managing underwriters of such offering advise
Issuer in writing that in their opinion the number of shares of Issuer Common
Stock requested by Grantee to be included in such registration, together with
the shares of Issuer Common Stock proposed to be included in such registration,
exceeds the number which can be sold in such offering, Issuer shall include the
shares requested to be included therein by Grantee pro rata with the shares
intended to be included therein by Issuer. In connection with any registration
pursuant to this Section 9, Issuer and Grantee shall provide each other and any
underwriter of the offering with customary representations, warranties,
covenants, indemnification and contribution in connection with such
registration. Notwithstanding anything to the contrary contained herein, Issuer
shall not be required to register Option Shares pursuant to this Section 9 (i)
prior to the occurrence of a Subsequent Triggering Event, (ii) within 90 days
after the effective date of a registration referred to in the second preceding
sentence pursuant to which Grantee was afforded the opportunity to register
Option Shares and such shares were registered as requested, (iii) unless a
request therefor is made to Issuer by a Grantee or Grantees which hold at least
25% of the aggregate number of Option Shares (including shares of Issuer Common
Stock
17
upon exercise of the Option) then outstanding and (iv) on more than two
occasions by reason of the fact that there shall be more than one Grantee as a
result of any assignment of this Agreement or division of this Agreement
pursuant to Section 11 hereof.
10. Listing. If Issuer Common Stock or any other securities to
be acquired upon exercise of the Option are then authorized for quotation on
NASDAQ or any securities exchange, Issuer, upon the request of Grantee, will
promptly file an application to authorize for quotation the shares of Issuer
Common Stock or other securities to be acquired upon exercise of the Option on
NASDAQ or such other securities exchange and will use its best efforts to obtain
approval of such listing as soon as practicable.
11. Division of Option. Upon the occurrence of a Subsequent
Triggering Event, this Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of Grantee, upon presentation and
surrender of this Agreement at the principal office of Issuer for other
Agreements providing for Options of different denominations entitling the holder
thereof to purchase in the aggregate the same number of shares of Issuer Common
Stock purchasable hereunder. The terms "Agreement" and "Option" as used herein
include any other Agreements and related Options for which this Agreement (and
the Option granted hereby) may be exchanged. Upon receipt by Issuer of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
12. Rights Agreement. Issuer shall not approve, adopt or
amend, or propose the approval and adoption or amendment of, any Shareholder
Rights Plan unless such Shareholder Rights Plan contains terms which provide, to
the reasonable satisfaction of Grantee, that (a) the Rights issued pursuant
thereto will not become exer-
18
cisable by virtue of the fact that Grantee is the Beneficial Owner of shares of
Issuer Common Stock (x) acquired or acquirable pursuant to the grant or exercise
of this Option and (y) held by Grantee or any of its Subsidiaries as Trust
Account Shares or DPC Shares and (b) no restrictions or limitations with respect
to the exercise of any Rights acquired or acquirable by Grantee will result or
be imposed to the extent such Rights relate to the shares of Issuer Common Stock
described in clause (a) of this Section 12. This covenant shall survive for so
long as Grantee is the Beneficial Owner of the shares of Issuer Common Stock
described in clause (a)(x) of this Section 12.
13. 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) Waiver and Amendment. Any provision of this
Agreement may be waived at any time by the party that is entitled to the
benefits of such provision. This Agreement may not be modified, amended, altered
or supplemented except upon the execution and delivery of a written agreement
executed by the parties hereto.
(c) Entire Agreement; No Third-Party
Beneficiary; Severability. This Agreement, together with the Merger Agreement
and the other agreements and instruments referred to herein and therein, (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof and (b) is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder. Notwithstanding
anything to the contrary contained in this Agreement or the Merger Agreement,
this Agreement shall be deemed to amend the confidentiality agreement, dated as
of February 3, 1997, between Issuer and Grantee so as to permit Grantee to enter
into this Agreement and exercise all of its rights hereunder, including its
right to acquire Issuer Common Stock upon exercise of the Option. If any term,
provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction or
19
a federal or state regulatory agency to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this 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 does not permit Grantee to acquire the full number of shares of
Issuer Common Stock as provided in Section 3 hereof (as adjusted pursuant to
Section 7 hereof), it is the express intention of Issuer to allow Grantee to
acquire such lesser number of shares as may be permissible without any amendment
or modification hereof.
(d) Governing Law. This Agreement shall
be governed and construed in accordance with the laws of the State of Maryland
without regard to any applicable conflicts of law rules.
(e) Descriptive Headings. The descriptive
headings contained herein are for convenience of reference only and shall not
affect in any way the meaning or interpretation of this Agreement.
(f) Notices. All notices and other
communications hereunder shall be in writing and shall be deemed given if
delivered personally, telecopied (with confirmation) or mailed by registered or
certified mail (return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
If to Issuer to:
First Citizens Financial Corporation
22 First Field Road
Gaithersburg, Maryland 20878
Attention: Chief Executive Officer
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: William S. Rubenstein, Esq.
20
If to Grantee to:
Provident Bankshares Corporation
114 East Lexington Street
Baltimore, Maryland 21202
Attention: Chief Executive Officer
with a copy to:
Muldoon, Murphy & Faucette
501 Wisconsin Avenue, N.W.
Suite 508
Washington, D.C. 20016
Attention: Mary M. Sjoquist, Esq.
(g) Counterparts. This Agreement and any
amendments hereto may be executed in two counterparts, each of which shall be
considered one and the same agreement and shall become effective when both
counterparts have been signed, it being understood that both parties need not
sign the same counterpart.
(h) Assignment. Neither this Agreement nor any
of the rights, interests or obligations hereunder or under the Option shall be
assigned by any of the parties hereto (whether by operation of law or otherwise)
without the prior written consent of the other party, except that Grantee may
assign this Agreement to a wholly owned subsidiary of Grantee and after the
occurrence of a Subsequent Triggering Event Grantee may assign its rights under
this Agreement to one or more third parties. Subject to the preceding sentence,
this Agreement shall be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns. As used in this
Agreement, Grantee shall include any person to whom this Agreement or the Option
shall be assigned by a previous Grantee in accordance with the terms hereof.
(i) Further Assurances. In the event of any
exercise of the Option by Grantee, Issuer and Grantee shall execute and deliver
all other documents and instruments and take all other action that may be
reasonably necessary in order to consummate the transactions provided for by
such exercise.
21
(j) Specific Performance. The parties hereto
agree that this Agreement may be enforced by either party through specific
performance, injunctive relief and other equitable relief. Both parties further
agree to waive any requirement for the securing or posting of any bond in
connection with the obtaining of any such equitable relief and that this
provision is without prejudice to any other rights that the parties hereto may
have for any failure to perform this Agreement.
22
IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock
Option Agreement to be signed by their respective officers thereunto duly
authorized, all as of the day and year first written above.
FIRST CITIZENS FINANCIAL CORPORATION
/s/ Enos K. Fry
By _________________________________
Name: Enos K. Fry
Title: President
PROVIDENT BANKSHARES CORPORATION
/s/ Carl W. Stearn
By _________________________________
Name: Carl W. Stearn
Title: Chairman and CEO
23
ANNEX C
July 15, 1997
Board of Directors
First Citizens Financial Corporation
22 Firstfield Road
Gaithersburg, Maryland 20878-1758
Attention: Mr. Herbert W. Jorgensen
Chairman of the Board
Directors:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of the outstanding shares of common stock, par value
$.01 per share (the "First Citizens Shares"), of First Citizens Financial
Corporation ("First Citizens") of the exchange ratio (as described below, the
"Exchange Ratio") pursuant to the Agreement and Plan of Merger, dated as of
March 10, 1997 (the "Agreement"), between First Citizens and Provident
Bankshares Corporation ("Bankshares").
Pursuant to the Agreement, First Citizens will merge with and into
Bankshares (the "Merger") and each First Citizens Share issued and outstanding
immediately prior to the Effective Time (subject to certain exceptions) shall be
converted into and exchangeable for .7665 shares (the "Exchange Ratio") of
common stock, par value $1.00 per share, of Bankshares ("Bankshares Common
Stock") and cash will be paid in lieu of fractional shares issued. It is our
understanding that the merger will be accounted for as a pooling-of-interests
under generally accepted accounting principles.
The investment banking business of Endicott Financial Advisors, L.L.C.
("Endicott") includes the valuation of financial institutions and their
securities in connection with mergers and acquisitions and other corporate
transactions.
In connection with this opinion, we have reviewed and considered, among
other things: (a) the Agreement; (b) audited consolidated financial statements
and management's discussion and analysis of the financial condition and results
of operations for First Citizens for the four fiscal years ended December 31,
1993, December 31, 1994, December 31, 1995 and December 31, 1996; (c) audited
consolidated financial statements and management's discussion and analysis of
the financial condition and results of operations for Bankshares for the four
fiscal years ended December 31, 1993, December 31, 1994, December 31, 1995 and
December 31, 1996; (d) unaudited consolidated financial statements and
management's discussion and analysis of the financial condition and results of
operations for each of First Citizens and Provident for the quarter ended March
31,
Board of Directors
First Citizens Financial Corporation
July 15, 1997
1997; (e) financial analyses and forecasts for First Citizens and Bankshares
prepared by and/or reviewed with the respective managements of First Citizens
and Bankshares; (f) the views of senior management of First Citizens and
Bankshares of their respective past and current business operations, results
thereof, financial condition and future prospects; (g) certain reported price
and trading activity for the First Citizens and Bankshares common stock,
including a comparison of certain financial and stock market information with
similar information for certain other companies the securities of which are
publicly traded; (h) the financial terms of recent business combinations in the
banking industry; (i) the pro-forma impact of the transaction on Bankshares; (j)
the current market environment generally and the banking environment in
particular; and (k) such other information, financial studies, analyses and
investigations and financial, economic and market criteria as we considered
relevant.
In performing our review, we have assumed and relied upon, without
independent verification, the accuracy and completeness of all of the financial
information, analyses and other information reviewed by and discussed with us,
and we did not make an independent evaluation or appraisal of the specific
assets, the collateral securing assets or the liabilities of First Citizens or
Bankshares or any of their subsidiaries, or the collectibility of any such
assets (relying, where relevant on the analyses and estimates of First Citizens
and Bankshares). With respect to the financial projections reviewed with
management, we have assumed that they reflect the best currently available
estimates and judgments of the respective managements of the respective future
financial performances of each of First Citizens and Bankshares and of the
combined company, and that such performances will be achieved. We have also
assumed that there has been no material change in First Citizens's or
Bankshares's assets, financial condition, results of operations, business or
prospects since the date of the last financial statements made available to us.
We have also assumed without independent verification that the aggregate
consolidated allowance for loan losses for First Citizens and Bankshares were
adequate to cover such losses. We have further assumed that the conditions
precedent in the Agreement are not waived.
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. Events occurring after the date hereof could materially affect the
assumptions used in preparing this opinion. We have not undertaken to reaffirm
or revise this opinion or otherwise comment upon any events occurring after the
date hereof.
We have acted as First Citizens's financial advisor in connection with the
Merger and will receive a fee for our services, a significant portion of which
is contingent upon consummation of the Merger. We will also receive a fee for
rendering this opinion.
It is understood that this opinion is not to be quoted or referred to, in
whole or in part, in a registration statement, prospectus, or proxy statement,
or in any other document used in connection with the offering or sale of
securities, nor shall this letter be used for any other purposes, without
Endicott's prior written consent, provided, however, that we hereby consent to
the inclusion of this
Board of Directors
First Citizens Financial Corporation
July 15, 1997
opinion in any registration statement or proxy statement used in connection
with the Merger so long as the opinion is quoted in full in such Registration
Statement or proxy statement.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair from a financial point of view to the
holders of First Citizen Shares.
Very truly yours,
/s/ Endicott Financial Advisors, L.L.C.
ENDICOTT FINANCIAL ADVISORS, L.L.C.
ANNEX D
July 15, 1997
Board of Directors
Provident Bankshares Corporation
1114 East Lexington Street
Baltimore, Maryland 21202
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 Provident Bankshares
Corporation ("Provident") of the exchange ratio in the proposed merger (the
"Merger") of First Citizens Financial Corporation ("First Citizens"), with and
into Provident, pursuant to the Merger Agreement and Plan of Merger dated as of
March 10, 1997, among Provident and First Citizens (the "Merger Agreement").
Under the terms of the Merger Agreement, each outstanding share of First
Citizens Common Stock will, with certain exceptions, be converted into and
exchangeable for .7665 shares, as adjusted for the 5% stock dividend (the
"Exchange Ratio") of Provident Common Stock. It is our understanding that the
Merger will be structured as a pooling-of-interests transaction under generally
accepted accounting practices.
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, First Citizens and Provident
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 First Citizens
and Provident for our own account and for the accounts of our customers. To the
extent we have any such position as of the date of this opinion it has been
disclosed to Provident. We have acted for the Board of Directors of Provident in
rendering this fairness opinion and will receive a fee from Provident for our
services.
Board of Directors
Provident Bankshares Corporation
Page 2
In connection with this opinion, we have reviewed, among other things,
(i) the Merger Agreement; (ii) the Registration Statement on Form S-4, including
the Joint Proxy Statement/Prospectus relating to the meetings of stockholders of
Provident and First Citizens at which such shareholders will be asked to approve
the Merger Agreement; (iii) Annual Reports to stock holders for the three years
ended December 31, 1995 for Provident and First Citizens; (iv) certain interim
reports to stockholders of Provident and First Citizens and Quarterly Reports on
Form 10-Q of Provident and First Citizens and certain other communications from
Provident and First Citizens to their respective stock holders; (v) other
financial information concerning the business and operations of Provident and
First Citizens furnished to KBW by Provident and First Citizens for the purpose
of KBW's analysis, including certain internal financial analyses and forecasts
for Provident and First Citizens prepared by senior management of Provident and
First Citizens; (vi) certain publicly available information concerning the
trading of, and the trading market for the Common Stock of Provident and First
Citizens; and (vii) certain publicly available information with respect to
banking companies and the nature and terms of certain other transactions that
KBW considered relevant to its inquiry. KBW also held discussions with senior
management of each of Provident and First Citizens regarding the past and
current business operations, regulatory relations, financial condition and
future prospects of their respective companies and such other matters as we have
deemed relevant to our inquiry. In addition, we have compared certain financial
and stock market information for Provident and First Citizens 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
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 Provident and First Citizens 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 each of Provident and First Citizens and that such
forecasts and projections will be realized in the amounts and in the time
periods currently estimated by such management. We also have assumed that the
aggregate allowances for loan losses for Provident and First Citizens are
adequate to cover such losses. In rendering our opinion, we have not made or
obtained any evaluations or appraisals of the property of Provident and First
Citizens, 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 each
of Provident and First Citizens; (ii) the assets and liabilities of each of
Provident and First Citizens; and (iii) the nature and terms of certain other
merger transactions involving banks and bank holding companies and thrifts and
thrift holding companies. We also have taken into account our assessment of
general economic, market and financial
Board of Directors
Provident Bankshares Corporation
Page 3
conditions and our experience in other transactions, as well as our experience
in securities valuation and our knowledge of the banking industry generally. Our
opinion is necessarily based upon conditions as they exist and can be evaluated
on the date hereof and the information made available to us through the date
hereof.
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the Exchange Ratio in the Merger is fair, from a financial
point of view, to the holders of Provident Common Stock.
Very truly yours,
/s/ Keefe, Bruyette & Woods, Inc.
KEEFE, BRUYETTE & WOODS, INC.
REVOCABLE PROXY
FIRST CITIZENS FINANCIAL CORPORATION
Annual Meeting of Stockholders
August 20, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of First Citizens Financial Corporation
(the "Company") hereby appoints Charles Duda and John Wright, and each of them
with full power of substitution, as proxy or proxies, to cast all votes, as
designated hereon, which the undersigned stockholder is entitled to cast at the
annual meeting of the stockholders of the Company to be held at 9 a.m. local
time on August 20, 1997, at the DoubleTree Hotel, 1750 Rockville Pike,
Rockville, Maryland, and any and all adjournments and postponements thereof (the
"Annual Meeting"), with all powers which the undersigned would possess if
personally present (i) as designated below with respect to the matters set forth
below and described in the accompanying Joint Proxy Statement/Prospectus, the
receipt of which is hereby acknowledged, and (ii) in their discretion with
respect to any other business that may properly come before the Annual Meeting.
The undersigned stockholder hereby revokes any proxy or proxies heretofore
given.
1. Election of the nominees named below to the Board of Directors
of the Company.
For Withhold For All Except
[ ] [ ] [ ]
Nominees: Enos K. Fry and Melvin O. Wright
INSTRUCTION: To withhold authority to vote for any
individual nominee, mark "For All Except" and write
that nominee's name in the space provided below.
-------------------------------------------
2. Approval and adoption of the Amended and Restated Agreement
and Plan of Merger, amended and restated as of July 14, 1997
(the "Merger Agreement"), by and between the Company and
Provident Bankshares Corporation ("Provident") pursuant to
which, among
other things, the Company will merge with and into Provident.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
This proxy will be voted in the manner directed by the undersigned
stockholder. If no direction is made, this proxy will be voted (1) FOR the
election of the nominees listed in Proposal 1 (2) FOR approval and adoption of
the Merger Agreement (as defined herein) and (3) In the discretion of the
proxies as to all other matters that may properly come before the Annual
Meeting.
This proxy may be revoked prior to the time it is voted by delivering
to the secretary of the Company either a written revocation or a proxy bearing a
later date or by appearing at the Annual Meeting and voting in person.
Dated: ___________________
Signature: _______________
Signature: _______________
Please date and sign here
exactly as name appears
hereon. When signing as
attorney, administrator,
trustee or guardian, give
full title as such; and
when stock has been issued
in the name of two or more
persons, all should sign.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTION OF THE NOMINEES LISTED
ABOVE TO THE BOARD OF DIRECTORS OF THE COMPANY AND FOR APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT.
PLEASE ACT PROMPTLY
SIGN, DATE AND MAIL YOUR PROXY CARD TODAY
IF YOU RECEIVE MORE THAN ONE PROXY CARD, PLEASE DATE,
SIGN AND RETURN ALL CARDS IN THE ACCOMPANYING ENVELOPE
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