SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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 Under Rule 14a-12
CFS Bancshares, Inc.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common stock, $0.01 par value per hare
(2) Aggregate number of securities to which transaction applies: 139,220
shares and 10,450 options
(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): A maximum
of $65.04 per share for all of the outstanding shares of common stock
(139,220 shares). With respect to the 10,450 options to purchase
Registrant's common stock, holders thereof will receive the difference
between the per share merger consideration and the $18.50 per share
exercise price of the option.
(4) Proposed maximum aggregate value of transaction: $9,543,211.80
(5) Total fee owed: $877.98
[X] Fee paid previously with preliminary materials: A fee of
$875.86 was previously paid with the preliminary materials.
The remaining fee of $2.12 was recently paid.
[ ] 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:____________________________________________________
[CFS Bancshares, Inc. letterhead]
January 21, 2003
Dear Fellow Stockholder:
We cordially invite you to attend a special meeting of the
stockholders of CFS Bancshares, Inc. The meeting will be held in
the second floor auditorium located at 300 18th Street North,
Birmingham, Alabama, which is adjacent to the main office of
Citizens Federal Savings Bank, on Wednesday, February 19, 2003 at
2:00 p.m., Central Time.
At the special meeting, you will be asked to adopt a merger
agreement which provides for the merger of CFS Bancshares, Inc.
and a subsidiary of Citizens Trust Bank. If the merger is
completed, you will be entitled to receive a cash payment of
$65.04 for each share of CFS Bancshares stock that you own.
Upon completion of the merger, you will not own any stock or
other interest in CFS Bancshares, Inc. nor will you receive, as a
result of the merger, any stock of Citizens Trust Bank or its
parent holding company, Citizens Bancshares Corporation.
Your exchange of shares of CFS Bancshares stock for cash
generally will cause you to recognize taxable gain or loss for
federal, and possibly state and local, income tax purposes. You
should consult your personal tax advisor for a full understanding
of the tax consequences of the merger to you.
Completion of the merger is subject to certain conditions,
including receipt of various regulatory approvals and adoption of
the merger agreement by the affirmative vote of a majority of our
outstanding shares of common stock. As of December 27, 2002, the
directors and officers of CFS Bancshares, Inc. beneficially owned
approximately 35.3% of the shares of CFS Bancshares stock. We
expect that all of the shares held by our directors and officers
will be voted in favor of the merger.
We urge you to read the attached proxy statement carefully.
It describes the merger agreement in detail and includes a copy
of the merger agreement as Appendix A.
Your Board of Directors has unanimously approved the merger
agreement and recommends that you vote "FOR" adoption of the
merger agreement because the Board believes it to be in the best
interests of our stockholders.
It is very important that your shares be represented at the
special meeting. Whether or not you plan to attend the special
meeting, please complete, date and sign the enclosed proxy form
and return it promptly in the postage-paid envelope provided.
On behalf of the Board of Directors, I thank you for your
prompt attention to this important matter.
Sincerely,
/s/ Bunny Stokes, Jr.
Bunny Stokes, Jr.
Chairman of the Board and Chief
Executive Officer
CFS Bancshares, Inc.
1700 Third Avenue North
Birmingham, Alabama 35203
(205) 328-2041
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 19, 2003
NOTICE IS HEREBY GIVEN that a special meeting of
stockholders of CFS Bancshares, Inc. will be held in the second
floor auditorium located at 300 18th Street North, Birmingham,
Alabama, which is adjacent to the main office of Citizens Federal
Savings Bank, on February 19, 2003 commencing at 2:00 p.m.,
Central Time.
A proxy form and a proxy statement for the special meeting
are enclosed. The meeting is for the purpose of considering and
acting upon:
1. The adoption of the Agreement and Plan of Merger, dated
May 30, 2002, by and among Citizens Bancshares Corporation,
Citizens Trust Bank, CFS Bancshares, Inc. and Citizens Federal
Savings Bank, as amended on December 19, 2002. Pursuant to the
terms of the merger agreement, we will be merged with a wholly
owned subsidiary of Citizens Trust Bank and will become a wholly
owned subsidiary of Citizens Trust Bank. You will be entitled to
receive $65.04 in cash for each share of CFS Bancshares common
stock that you own. A copy of the merger agreement, including
the amendment adopted on December 19, 2002, is included as
Appendix A to the accompanying proxy statement;
2. The potential adjournment of the special meeting of
stockholders if necessary to solicit additional proxies; and
3. Such other matters as may properly come before the
special meeting or any adjournments or postponements thereof. We
are not aware of any other business to come before the special
meeting.
Our stockholders of record at the close of business on
December 27, 2002 are entitled to vote at the special meeting,
and any adjournments or postponements of the special meeting.
You have a right to dissent from the merger and obtain payment of
the fair value of your shares by complying with the Delaware law
provisions contained in Appendix C.
You are cordially invited to attend the special meeting.
However, to ensure your representation at the special meeting,
please complete, sign, date and promptly mail your proxy form in
the enclosed postage-paid envelope. The proxy form will not be
used if you attend and vote at the special meeting in person. If
you are a stockholder whose shares are not registered in your
name, you will need additional documentation from the holder of
record of your shares to vote in person at the meeting. The
prompt return of your proxy will save us the expense of further
requests for proxies.
By Order of the Board of Directors,
/s/ W. Kent McGriff
W. Kent McGriff
Secretary
Birmingham, Alabama
January 21, 2003
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND RECOMMENDS THAT YOU VOTE "FOR" ADOPTION OF THE
MERGER AGREEMENT.
TABLE OF CONTENTS
Page
----
Questions and Answers About Voting Procedures for the Special Meeting..... 1
Summary Term Sheet........................................................ 2
Selected Consolidated Financial and Other Information
About CFS Bancshares.................................................... 5
Where You Can Find More Information....................................... 6
The Special Meeting....................................................... 6
Place, Time and Date................................................... 6
Matters to Be Considered............................................... 7
Record Date; Vote Required............................................. 7
Beneficial Ownership of CFS Bancshares Common Stock.................... 7
Limited Market for CFS Bancshares Common Stock......................... 8
Proxies................................................................ 8
The Merger................................................................ 9
General................................................................ 9
The Companies.......................................................... 10
Background of the Merger............................................... 10
Our Reasons for the Merger; Recommendation of Your Board of Directors.. 13
The Consideration is Fair According to RP Financial, LC., Our
Financial Advisor.................................................... 14
You Will Receive Cash for Your Shares of CFS Bancshares Stock.......... 19
Treatment of Stock Options............................................. 19
Procedure for Surrendering Your Certificates........................... 20
Representations and Warranties Made by Us, Citizens Federal, Citizens
Bancshares and Citizens Trust Bank................................... 20
Conditions to the Merger............................................... 21
Conduct of Business Prior to the Completion of the Merger.............. 22
Approvals Needed to Complete the Merger................................ 24
Waiver and Amendment of the Merger Agreement........................... 25
Termination of the Merger Agreement.................................... 25
Interests of Directors and Officers in the Merger that are Different
from Your Interests.................................................. 27
Employees and Benefit Plans............................................ 28
You Have Dissenters' Rights of Appraisal............................... 28
Federal Income Tax Consequences of the Merger to You................... 31
Accounting Treatment of the Merger..................................... 31
Who Pays for What...................................................... 31
Certain Related Agreements................................................ 32
Bank Merger Agreement.................................................. 32
Directors Agreement.................................................... 32
Adjournment of the Special Meeting........................................ 32
Beneficial Ownership of CFS Bancshares Common Stock....................... 33
Stockholder Proposals..................................................... 35
Other Matters............................................................. 35
Appendix A -- Agreement and Plan of Merger, including the amendment
adopted on December 19, 2002 (excluding the exhibits thereto)........... A-1
Appendix B -- Opinion of Our Financial Advisor............................ B-1
Appendix C -- Section 262 of the Delaware General Corporation Law......... C-1
i
QUESTIONS AND ANSWERS
ABOUT VOTING PROCEDURES FOR THE SPECIAL MEETING
Q: What do I need to do now? Q: Can I change my vote?
A: After you have carefully read A: Yes. If you have not voted
this proxy statement, indicate through your broker or other
on your proxy form how you want nominee, there are three ways
your shares to be voted. Then you can change your vote
sign, date and mail your proxy after you have sent in your
form in the enclosed prepaid proxy form.
return envelope as soon as
possible. This will enable * First, you may send a
your shares to be represented written notice to the
and voted at the special person to whom you
meeting. submitted your proxy
stating that you would
Q: Why is my vote important? like to revoke your proxy.
A: The merger agreement must be * Second, you may complete
adopted by a majority of the and submit a new proxy
outstanding shares of CFS form. Any earlier proxies
Bancshares common stock. If will be revoked
you do not return your proxy automatically.
form or vote in person at the
special meeting, it will have * Third, you may attend the
the same effect as a vote special meeting and vote
against the merger agreement. in person. Any earlier
proxy will be revoked.
Q: If my shares are held in However, simply attending
street name by my broker, the special meeting
will my broker automatically without voting in person
vote my shares for me? will not revoke your
proxy.
A: No. Your broker will not be
able to vote your shares If you have instructed a
without instructions from broker or other nominee to
you. You should instruct vote your shares, you must
your broker to vote your follow directions you receive
shares, following the from your broker or other
directions your broker nominee to change your vote.
provides.
Q: Should I send in my stock
Q: What if I fail to instruct my certificates now?
broker?
A: No. You should not send in
A: If you fail to instruct your your stock certificates at
broker to vote your shares, this time.
it will have the same effect
as a vote against the merger Instructions for surrendering
agreement. your CFS Bancshares stock
certificates in exchange for
Q: Can I attend the meeting and $65.04 per share in cash will
vote my shares in person? be sent to you after we
complete the merger.
A: Yes. All stockholders are
invited to attend the special Q: Whom should I call with
meeting. Stockholders of questions?
record can vote in person at
the special meeting. If your A: You should call our
shares are held in street Secretary, W. Kent McGriff,
name, then you are not the at (205) 328-2041.
stockholder of record and you
must ask your broker or other
nominee how you can vote at
the special meeting.
1
SUMMARY TERM SHEET
This summary term sheet highlights selected information from
this proxy statement. It does not contain all the information
that may be important to you. We urge you to read carefully the
entire document and the other documents to which we refer,
including the merger agreement, to fully understand the merger.
You Will Be Entitled to * Immediately after the
Receive $65.04 in Cash Per merger, Citizens Federal
Share of CFS Bancshares Common Savings Bank will merge with
Stock (see pages 9 and 18). and into Citizens Trust Bank,
with Citizens Trust as the
When the merger is surviving bank (see page 9).
completed, each CFS Bancshares
stockholder will be entitled * The merger cannot occur
to receive $65.04 in cash for unless our stockholders adopt
each share of CFS Bancshares the merger agreement by the
common stock held. For affirmative vote of a majority
example, if you own 25 shares of the outstanding shares of
of CFS Bancshares common CFS Bancshares common stock
stock, you will be entitled to and we receive approvals from
receive $1,626 upon the banking regulators (see pages
surrender of your certificate 7 and 20).
for those shares.
* If the merger is not
Our Reasons for the Merger completed on or before
(see page 13). February 28, 2003, the merger
may be terminated by either
Our Board of Directors Citizens Bancshares or CFS
believes that the merger is in Bancshares, unless the failure
the best interests of CFS to close is due to a breach of
Bancshares and CFS Bancshares' the party seeking to terminate
stockholders and recommends (see page 24).
that stockholders vote "FOR"
the adoption of the merger * Bunny Stokes, Jr., our
agreement. The merger will Chairman of the Board and
enable our stockholders to Chief Executive Officer, will
realize significant value on be appointed to the Board of
their investment in CFS Directors of Citizens
Bancshares. In reaching its Bancshares. In addition, Mr.
decision to approve the merger Stokes will be appointed as
agreement, our Board President of Citizens Trust
considered various factors Bank, Alabama Division and
which are discussed in detail enter into an employment
in this proxy statement. agreement (see page 26).
Some Material Terms of the * In connection with the merger,
Merger Agreement. each of our directors entered
into a directors agreement
* As currently structured, with Citizens Bancshares.
CFS Bancshares will first Each of our directors agreed
merge with a newly formed, to cause all of their shares
wholly owned subsidiary of of CFS Bancshares common
Citizens Trust Bank and will stock to be voted in favor of
momentarily become a the adoption of the merger
subsidiary of Citizens Trust agreement and agreed to
Bank. Immediately after this restrict their employment
initial merger, CFS Bancshares opportunities with financial
will then be merged with and institutions located in
into Citizens Bancshares Jefferson and Tuscaloosa
Corporation, with Citizens Counties, Alabama (see page
Bancshares as the surviving 30).
corporation (see page 9).
2
* We have agreed not to Our Financial Advisor Says the
solicit or encourage a Merger Consideration is Fair
competing transaction to from a Financial Point of View
acquire us or Citizens Federal to Our Stockholders (see pages
Savings Bank, except where 14-18).
failure to do so would cause
our Board to breach its Our financial advisor, RP
fiduciary duties (see pages 22- Financial, LC. has given our
23). Board of Directors a written
opinion dated May 30, 2002 and
* We will pay Citizens updated as of January 21, 2003
Bancshares a liquidated that states the cash
damages fee of $250,000 plus consideration to be paid to
expenses up to $200,000 upon our stockholders is fair from
the occurrence of certain a financial point of view. A
events (see page 25). copy of the updated opinion is
attached to this proxy
* We and Citizens Federal statement as Appendix B. You
Savings Bank have agreed to should read it completely to
conduct our business according understand the assumptions
to particular requirements made, matters considered and
(see pages 21-23). limitations on the review
performed by our financial
* The completion of the advisor in issuing its
merger depends on a number of opinion. We have agreed to
conditions being satisfied or pay RP Financial, LC. a fee
waived (see page 20). equal to approximately
$101,559, of which $17,500 has
The Merger Will be Taxable to been paid to date, plus
Our Stockholders (see page reimbursement of certain out-
29). of-pocket expenses.
Our stockholders will You Have Dissenters' Rights
recognize gain or loss for (see pages 26-29).
federal, and possibly state
and local, income tax Under Delaware law, you
purposes, on the exchange of have dissenters' appraisal
their CFS Bancshares shares rights with respect to your
for cash. You will recognize CFS Bancshares shares. If you
gain or loss equal to the do not wish to accept the
difference between the amount $65.04 per share cash merger
of cash you receive and your consideration, you can dissent
tax basis in your CFS from the merger and instead
Bancshares shares. You should choose to have the fair value
determine the actual tax of your shares judicially
consequences of the merger to determined and paid to you in
you. They will depend on your cash. However, in order to
specific situation and factors exercise your rights, you must
not within our control. You follow specific procedures.
should consult your personal You should carefully read
tax advisor for a full Section 262 of the Delaware
understanding of the merger's General Corporation Law which
specific tax consequences to is included as Appendix C.
you.
The Merger Is Expected to Be
Our Board of Directors Completed in late February
Recommends Stockholder 2003 (see page 20).
Approval (see page 13).
The merger will only occur
Our Board of Directors after all the conditions to
believes that the merger is in its completion have been
the best interests of CFS satisfied or waived.
Bancshares and our Currently, we anticipate that
stockholders and has the merger will be completed
unanimously approved the on or about February 28, 2003.
merger agreement. Our Board
recommends that CFS Bancshares
stockholders vote "FOR"
adoption of the merger
agreement.
3
Financial Interests of CFS * Each member of the Board
Bancshares' Officers and of Directors of CFS Bancshares
Directors in the Merger (see will be appointed to an
pages 25-26). advisory board for at least
one year and will receive fees
Our directors and executive of at least $1,800 per year.
officers have interests in the Mr. Stokes will chair the
merger as individuals in advisory board. In addition,
addition to, or different Mr. Stokes will be appointed
from, their interests as to the Board of Directors of
stockholders, such as Citizens Bancshares and
receiving severance payments, Citizens Trust Bank and will
indemnification and insurance receive the same fees as those
coverage, and other benefits. directors receive.
* Mr. Stokes, our Chairman * Under the terms of the
of the Board and Chief merger agreement, each
Executive Officer, will be outstanding vested stock
entitled to receive a payment option will be cancelled in
under his employment agreement return for a cash payment
with Citizens Federal Savings equal to the difference
Bank. Two other officers of between the per share merger
CFS Bancshares - Cynthia Day consideration and the exercise
and W. Kent McGriff - are price of the option. The
entitled to severance payments aggregate value of payments
pursuant to change of control expected to be made to our
severance agreements entered directors and executive
into by each of them and officers for vested stock
Citizens Federal Savings Bank. options is approximately
The aggregate payments due $386,000.
under the employment and
change of control agreements * Citizens Bancshares has
are estimated to be agreed to indemnify our and
approximately $897,000. our subsidiaries' directors,
officers, employees and agents
* Citizens Federal paid for events that occurred
regular bonuses to its before the merger and to
officers and employees for the provide directors' and
year ending September 30, 2002 officers' insurance coverage
in an amount equal to $45,000 for a period of three years
in the aggregate. In after the merger, provided
addition, Citizens Federal that the cost of such
paid additional bonuses to Mr. insurance does not exceed
Stokes, Ms. Day, and Mr. $50,000 annually.
McGriff, in an aggregate
amount of $124,000. Our Board of Directors was
aware of these interests and
* Any employees of Citizens considered them in its
Federal Savings Bank, other decision to approve the merger
than Messrs. Stokes and agreement.
McGriff and Ms. Day, whose
employment is discontinued by
Citizens Bancshares or its
subsidiaries within one year
of the merger date, except
termination for cause, will be
entitled to receive severance
payments from Citizens Trust
Bank equal to their current
weekly salary times their
years of service, up to a
maximum of six weeks of salary
for our officers and four
weeks of salary for our non-
officer employees, plus any
accrued but unused vacation
leave for calendar 2002.
4
SELECTED CONSOLIDATED FINANCIAL AND OTHER
INFORMATION ABOUT CFS BANCSHARES
The following tables set forth selected historical
consolidated financial and other data about CFS Bancshares at the
dates and for the periods shown. The financial information for
the three years ended September 30, 2002 of CFS Bancshares is
based on, and qualified in its entirety by, our consolidated
financial statements, including the notes thereto, which have
been filed previously with the SEC. See "Where You Can Find More
Information."
At
September 30,
-----------------------------------
2002 2001 2000
-------- -------- --------
Selected Consolidated Financial (Dollars in thousands)
Condition Data:
Total assets $106,899 $103,328 $100,564
Cash and cash equivalents 7,200 6,119 3,594
Loans, net 36,549 41,110 48,238
Investment securities 57,286 48,471 42,904
Deposits 76,037 76,945 76,334
Borrowings 18,950 14,950 14,950
Stockholders' equity(1) 10,465 9,843 8,223
For the
Year Ended September 30,
------------------------------------
2002 2001 2000
-------- -------- --------
(Dollars in thousands, except per share data)
Interest income $6,065 $7,170 $6,708
Interest expense 2,684 3,730 3,524
------ ------ ------
Net interest income 3,381 3,440 3,184
Provision for (recovery of)
loan losses -- -- (104)
------ ------ ------
Net interest income after
provision for (recovery of)
loan losses 3,381 3,440 3,288
Net gain (loss) on sale of
securities and other assets 201 111 (6)
Other noninterest income 454 392 461
Noninterest expense 3,176 3,041 2,968
------ ------ ------
Income before income taxes 860 902 775
Income taxes 290 312 276
------ ------ ------
Net income $ 570 $ 590 $ 499
====== ====== ======
Basic earnings per share $ 4.17 $ 4.58 $ 3.67
Diluted earnings per share $ 4.09 $ 4.58 $ 3.40
________________________
(1) Includes common stock subject to a put obligation with respect to our
employee stock ownership plan.
5
For the
Year Ended September 30,
------------------------
2002 2001 2000
Selected Operating Ratios and Other Data: ---- ---- ----
Performance Ratios:
Yield on average interest-earning assets 6.10% 7.50% 7.54%
Rate paid on average interest-bearing liabilities 2.82 4.04 4.06
Net interest rate spread 3.28 3.46 3.48
Net interest margin 3.18 3.35 3.58
Noninterest expense as a percent of average assets 2.99 2.98 3.02
Return on average assets .54 .58 .52
Return on average equity 6.12 6.95 6.40
Ratio of average equity to average assets 9.79 9.37 8.18
Dividend payout ratio 20.78% 16.52 19.53%
Book value per share(1) $75.17 $70.70 $63.25
Asset Quality Ratios:
Nonperforming loans as a percent of total loans 1.67% 3.81% 3.46%
Nonperforming assets as a percent of total assets 1.10 1.78 1.83
Allowance for loan losses as a percent of total loans .96 .92 .67
Allowance for loan losses as a percent
of Nonperforming loans 59.48 25.31 19.50
Net loans charged-off (recovered) to average loans .08 (.12) (.28)
_____________________
(1) Includes common stock subject to a put obligation with respect to our
employee stock ownership plan.
WHERE YOU CAN FIND MORE INFORMATION
As a public company, we are obligated to file annual,
quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any reports,
statements or other information that we file at the SEC's public
reference room in Washington, D.C. Please call the SEC at 1-800-
SEC-0330 for further information on the public reference rooms.
In addition, our public filings are available to the public from
commercial document retrieval services and on the Internet World
Wide Website maintained by the SEC at "http://www.sec.gov."
THE SPECIAL MEETING
Place, Time and Date
The special meeting is scheduled to be held in the second
floor auditorium located at 300 18th Street North, Birmingham,
Alabama, which is adjacent to the main office of Citizens Federal
Savings Bank, on Wednesday, February 19, 2003 at 2:00 p.m.,
Central Time.
6
Matters to Be Considered
At the special meeting, you will be asked to approve a
proposal to adopt the merger agreement, a proposal to adjourn the
special meeting if necessary to solicit additional proxies, and
such other matters as are properly brought before the special
meeting. As of December 27, 2002, we do not know of any business
that will be presented for consideration at the special meeting
other than the adoption of the merger agreement and the proposal
to possibly adjourn the special meeting.
Record Date; Vote Required
Only our stockholders of record at the close of business on
December 27, 2002 are entitled to notice of and to vote at the
special meeting. As of December 27, 2002, there were 139,220
shares of our common stock outstanding and entitled to vote at
the special meeting.
Each outstanding share of our common stock will be entitled
to cast one vote per share at the special meeting. You may vote
in person or by submitting a properly executed proxy. The
presence, in person or by properly executed proxies, of the
holders of at least a majority of all the shares entitled to vote
at the special meeting will constitute a quorum. Abstentions and
broker non-votes will be treated as shares present at the special
meeting for purposes of determining the presence of a quorum. A
broker non-vote is an unvoted proxy submitted by a broker. Under
applicable rules, brokers or other nominees who hold shares in
street name for customers who are the beneficial owners of such
shares may not vote those shares with respect to the merger
agreement unless they have received specific instructions from
their customers.
To approve and adopt the merger agreement, the holders of a
majority of the outstanding shares of CFS Bancshares common stock
entitled to vote must vote in favor of the merger agreement.
Consequently, a failure to vote, an abstention or a broker non-
vote will have the same effect as voting against the merger
agreement. In addition, a majority of the votes cast at the
special meeting must vote in favor of the proposal to adjourn the
special meeting. Accordingly, abstentions will have the same
effect as voting against the proposal to adjourn the special
meeting. Broker non-votes will have no effect on this proposal.
Adoption of the merger agreement by our stockholders is one
of the conditions that must be satisfied to complete the merger.
See "The Merger - Conditions to the Merger."
Beneficial Ownership of CFS Bancshares Common Stock
As of December 27, 2002, our directors and executive officers
and their affiliates beneficially owned in the aggregate 49,088
shares (excluding stock options) of our common stock, or 35.3% of
our outstanding shares of common stock entitled to vote at the
special meeting. Each of our directors has entered into a
directors agreement with Citizens Bancshares agreeing, among other
things, to vote their shares of CFS Bancshares common stock in
favor of the adoption of the merger agreement. As of December 27,
2002, Citizens Bancshares did not own any shares of CFS Bancshares
common stock.
7
Limited Market for CFS Bancshares Common Stock
There is no active or liquid market for our common stock.
For the period from January 1, 2000 through May 30, 2002, the last
day prior to the announcement that we had entered into the merger
agreement, we are aware of approximately 10 trades in our common
stock. To our knowledge, all of these trades occurred at a price
of $18.50 per share. Subsequent to the execution of the merger
agreement through January 14, 2003, the last practicable date
prior to printing this proxy statement, we are not aware of any
trades in our common stock.
Proxies
Shares of our common stock represented by properly executed
proxies received prior to or at the special meeting will, unless
they have been revoked, be voted at the special meeting in
accordance with the instructions indicated in the proxies. If no
instructions are indicated on a properly executed proxy, the
shares will be voted "FOR" the adoption of the merger agreement
and "FOR" adjournment of the special meeting if necessary to
solicit additional proxies.
You should complete and return the proxy form accompanying
this proxy statement to ensure that your vote is counted at the
special meeting, regardless of whether you plan to attend the
special meeting. If you are the record holder of your shares, you
can revoke your proxy at any time before the vote is taken at the
special meeting by:
* submitting written notice of revocation to the Secretary of
CFS Bancshares,
* submitting a properly executed proxy of a later date, or
* voting in person at the special meeting, but simply attending
the special meeting without voting will not revoke an earlier
proxy.
Written notice of revocation and other communications about
revoking your proxy should be addressed to:
CFS Bancshares, Inc.
1700 Third Avenue North
Birmingham, Alabama 35203
Attention: W. Kent McGriff, Secretary
If any other matters are properly presented at the special
meeting for consideration, the proxy holders will have discretion
to vote on such matters in accordance with their best judgment.
As of January 21, 2003, we know of no other matters to be
presented at the meeting.
8
Certain material events or changes in circumstances
including a material amendment to the merger agreement or a
material revision of the fairness opinion issued by RP Financial
may result in a resolicitation of your vote. Under those
circumstances, we will provide you with supplemental information
about the material event or change in circumstances and give you
an opportunity to recast your vote.
If your CFS Bancshares common stock is held in street name,
you will receive instructions from your broker, bank or other
nominee that you must follow to have your shares voted. Your
broker, bank or other nominee may allow you to deliver your
voting instructions via telephone or the Internet. Please see
your instruction form provided by your broker, bank or other
nominee that accompanies this proxy statement.
In addition to solicitation by mail, our directors, officers
and employees, who will not receive additional compensation for
such services, may solicit proxies from our stockholders,
personally or by telephone, telegram or other forms of
communication. Brokerage houses, nominees, fiduciaries and other
custodians will be requested to forward soliciting materials to
beneficial owners and will be reimbursed for their reasonable
expenses incurred in sending proxy material to beneficial owners.
We will bear our own expenses in connection with the solicitation
of proxies for the special meeting. We also will reimburse
brokerage firms and other custodians, nominees and fiduciaries
for reasonable expenses incurred by them in sending the proxy
materials to the beneficial owners of CFS Bancshares common
stock.
You are requested to complete, date and sign the
accompanying proxy form and to return it promptly in the enclosed
postage-paid envelope.
You should not forward stock certificates with your proxy
forms.
THE MERGER
The information in this proxy statement concerning the terms
of the merger is qualified in its entirety by reference to the
full text of the merger agreement, which is attached as Appendix
A and incorporated by reference herein. All stockholders are
urged to read the merger agreement in its entirety, as well as
the opinion of our financial advisor attached as Appendix B.
General
As soon as possible after the conditions to consummation of
the merger described below have been satisfied or waived, and
unless the merger agreement has been terminated or an
alternative structure used as discussed below, CFS Bancshares and
a subsidiary of Citizens Trust Bank will merge in accordance with
Georgia and Delaware law. CFS Bancshares will be the surviving
corporation of the merger and will become a subsidiary of
Citizens Trust Bank. Immediately after the merger, CFS
Bancshares will be merged with Citizens Bancshares in accordance
with Georgia and Delaware law, with Citizens Bancshares being the
surviving corporation. Immediately, thereafter, Citizens Federal
Savings Bank will merge with and into Citizens Trust Bank.
Citizens Trust Bank will be the surviving bank.
Upon completion of the merger, our stockholders will be
entitled to receive $65.04 in cash for each share of CFS
Bancshares common stock they hold and will cease to be
stockholders of CFS Bancshares. Mr. Stokes will become President
of Citizens Trust Bank, Alabama Division, and a director of
Citizens Bancshares and Citizens Trust Bank.
9
The Companies
CFS Bancshares, Inc.
1700 Third Avenue North
Birmingham, Alabama 35203
(205) 328-2041
CFS Bancshares is a Delaware corporation and the parent
thrift holding company of Citizens Federal Savings Bank.
Citizens Federal Savings Bank is a federally chartered stock
savings bank which is headquartered in Birmingham, Alabama.
Citizens Federal Savings Bank operates from two offices located
in Birmingham, Alabama and one branch office in Eutaw, Alabama.
Citizens Bancshares Corporation
75 Piedmont Avenue, N.E.
Atlanta, Georgia 30302
(404) 659-5959
Citizens Bancshares is a Georgia corporation and the parent
bank holding company of Citizens Trust Bank. Citizens Trust Bank
is a Georgia chartered bank which is headquartered in Atlanta,
Georgia. Citizens Trust Bank operates 10 branch offices located
in the greater Atlanta metropolitan area and one branch office in
Columbus, Georgia.
Background of the Merger
Our Board of Directors and management have periodically
reviewed various strategic options to enhance stockholder value,
including continued independence, acquisitions of smaller
institutions and mergers with larger institutions. During this
time, we held informal merger discussions, but none of these
discussions became serious until 2001. In recent years, we found
it increasingly difficult to compete with larger financial
institutions who offered a broader array of financial products
and services. Accordingly, we experienced nominal balance sheet
growth in recent years. Our common stock has historically been
very illiquid, and our low stock price has resulted in pricing
ratios that have been highly discounted to the market for
publicly-traded thrifts. The few recent trades of our common
stock were at $18.50 per share prior to announcement of the
merger agreement.
In November 2000, our Chairman/CEO met with the chief
executive officer of Citizens Bancshares to discuss on a
preliminary basis the two companies. Citizens Bancshares is a
larger publicly-traded bank holding company offering a broader
array of products and services with a particular emphasis in
servicing the African American community. Following this
meeting, there were follow-up phone conversations regarding a
possible strategic affiliation with Citizens Bancshares,
centering on continuing common stock ownership by our
stockholders in the combined company, expansion of products and
services, and organizational/operational matters. It was our
understanding at the time that the potential merger price would
be in the range of book value per share in the form of cash and
stock. Subsequent conversations, however, revealed that the
market value of such proposal was below book value since Citizens
Bancshares was proposing a common stock exchange ratio based on
its book value per share while its stock had historically traded
at a discount to book value.
10
In early 2001, we engaged RP Financial to preliminarily
determine the range of fair value of our common stock pursuant to
a merger, to evaluate the financial and market pricing
characteristics of Citizens Bancshares and to assess the pro
forma impact of a potential cash and stock merger with Citizens
Bancshares taking into account the general terms that had been
previously discussed. The analysis presented by RP Financial to
our Board of Directors in January 2001 indicated a preliminary
fair value range pursuant to a merger of $65.00 to $70.00 per
share, and that Citizens Bancshares appeared to have the ability
to pay a price consistent with this range.
Our Board subsequently determined to invite Citizens
Bancshares to review certain financial and other information of
CFS Bancshares, subject to signing a confidentiality agreement.
Over the next three to four months, Citizens Bancshares presented
several alternative merger prices and forms of consideration, all
of which were at a lower price than $64.05 per share, after
taking into account the dilutive impact of the outstanding stock
options. Because the value of the proposals fell below the
preliminary fairness range determined by RP Financial, both
parties ended discussions of a potential merger during the summer
of 2001.
In early November 2001, we engaged RP Financial to
facilitate a Board and management planning retreat. The purpose
of the planning retreat was to evaluate (1) our financial, market
and competitive position, (2) viable strategic options to enhance
stockholder value as an independent institution and (3) review
key elements of our existing and proposed business plan. Our
Board and executive management, together with our financial
advisor, also reviewed the pro forma effect of various future
strategies on earnings per share, book value per share, return on
equity, other pertinent ratios and potential value to
stockholders. Our Board also compared quantitative measures of
our performance with those of other financial institutions and
monitored the regional financial institution merger market as
well as mergers involving other institutions catering to the
African American community. Finally, together with our financial
advisor, our Board analyzed the price we would likely receive in
a merger or acquisition transaction and compared such price to
the present value of the future returns to stockholders of
alternative strategies.
In view of the scope of the materials presented at the
November 28, 2001 planning retreat, the retreat participants
determined that it would be necessary to hold further discussions
before any conclusions could be reached regarding the appropriate
strategic direction. Over the course of the next two months, our
directors and executive management reviewed the planning retreat
materials and held related discussions among themselves as well
as with RP Financial.
As a result of these strategic planning meetings, our Board
concluded that in order to remain a competitive and viable
institution, it would be necessary to make a considerable
investment in technology, systems and personnel in order to
introduce alternative delivery systems (potentially including
automated teller machines, telephone banking and online banking)
and an expanded array of retail and commercial products and
services. The Board recognized that such investment may
adversely impact profitability in the intermediate term and that
such a strategy may involve considerable risk, and this presented
considerable uncertainty regarding the benefits of such strategy
to maximizing stockholder value. Additionally, our Board
considered potential management succession issues as an
independent institution.
11
As a result of these planning discussions, our Board of
Directors determined that, prior to developing and implementing a
revised business plan, it should first determine the nature and
value of potential merger interest in us by other financial
institutions. In this regard, we engaged RP Financial as our
financial advisor. The first step in RP Financial's engagement
was to identify prospective merger partners based on (1) their
perceived ability to pay a merger price consistent with the
preliminary fair value range and (2) those that would likely have
prospective interest in merging with us and continuing to serve
the African American community. RP Financial presented to the
Board an analysis of 17 regionally-based publicly-traded and
closely-held commercial banks and thrifts (including Citizens
Bancshares and one other institution catering to the African
American community) and three publicly-traded institutions
nationally that catered to the African American community. In
reviewing this list, the Board authorized RP Financial to contact
five of these institutions regarding their prospective interest
in a merger with us, including Citizens Bancshares.
The five institutions selected by the Board included four
institutions that catered to the African American community and
one regionally-based institution that was perceived to have a
relatively high proportion of African American customers. In
selecting these institutions, the Board was cognizant that nearly
one-third of its total deposits were from four governmental
agencies and that such deposits were potentially subject to
substantial reduction or withdrawal if we were to merge with a
larger financial institution that did not cater to the African
American community. Given such risk, it was perceived that
institutions catering to the African American community would
more likely retain such deposits and deposit relationships and
thus the merger price would not be adversely impacted by the risk
of loss of such deposits and deposit relationships.
All five institutions were determined to have the ability to
pay the updated range of fair prices preliminarily determined by
RP Financial. RP Financial revised the preliminary fair pricing
range to take into account stockholder approval of certain stock
option grants at our last annual meeting, updated financial
information for CFS Bancshares and new market information. The
revised preliminary fair pricing range was $61.00 to $66.00 per
share.
RP Financial commenced contacting all five institutions in
mid-February 2002, four of whom executed a confidentiality
agreement, and RP Financial provided a confidential memorandum to
these four institutions, including Citizens Bancshares. During
early to mid March, RP Financial communicated with each of these
parties regarding their interest in a merger with us. Two
institutions declined to make a proposal, one due to the distance
between the two institutions and one due to the relatively large
size of CFS Bancshares as compared to the prospective acquiror.
The third institution expressed interest in a merger but was not
willing to compete in a bidding process or pay a price as high as
the preliminary fairness range. Citizens Bancshares indicated a
$63.05 price per share in an all cash transaction. After
considering the responses from the prospective acquirors, the
indication of interest from Citizens Bancshares and the results
of the earlier strategic planning meetings, on March 26, 2002,
our Board authorized our Chairman/CEO, with the assistance of RP
Financial, to determine if a satisfactory merger agreement could
be negotiated with Citizens Bancshares. The negotiations
resulted in changes in Citizens Bancshares' proposal, ultimately
resulting in an increase in the cash price per share to $64.05
per share, which would increase monthly if we did not pay our
annual dividend in 2002. As a condition to receiving a price
increase, Citizens Bancshares required that we enter into a non-
binding letter of intent. On April 16, 2002, a non-binding
letter of intent was executed under the conditions that such
letter not be disclosed and that for a period of 30 days we would
negotiate exclusively with Citizens Bancshares. On May 13, 2002,
the letter of intent was extended until May 31, 2002.
From mid-April to early May, the financial advisors for
Citizens Bancshares conducted due diligence of CFS Bancshares.
From early May through May 30, 2002, we negotiated the terms of
the merger agreement with the assistance of our legal counsel and
RP Financial.
12
On May 23, 2002, our Board reviewed at length with our legal
counsel the draft merger agreement. The Board also discussed its
business plan and its strategic options, including continued
independence. In addition, RP Financial made a financial
presentation to our Board and reviewed the financial ratios of
the merger as well as other transactions and the value of the
merger consideration. RP Financial then presented its
preliminary analysis that the merger consideration was fair to
the stockholders from a financial point of view. The Board
reviewed this preliminary analysis carefully. The parties then
had further discussions over the following week.
On May 30, 2002, the Board convened to review with its legal
counsel the finalized merger agreement. RP Financial then
delivered its opinion that the merger consideration was fair to
our stockholders from a financial point of view. After
discussion, our Board unanimously approved the merger agreement.
Execution of the merger agreement was publicly announced on May
30, 2002.
The merger agreement as adopted on May 30, 2002 provided for
an acquisition price of $64.62 per share, subject to adjustment
if the merger was completed after August 31, 2002. The merger
agreement provided that the acquisition price would increase by
$.07 per share per month, as follows: to $64.69 per share if the
merger was completed in September 2002, to $64.76 per share if
the merger was completed in October 2002, to $64.83 per share if
the merger was completed in November 2002, and to $64.90 per
share if the merger was completed in December 2002. The original
merger agreement had a deadline of December 31, 2002 to complete
the merger.
On December 19, 2002, we agreed to amend the merger
agreement since the regulatory applications were still pending.
The amendment to the merger agreement extended the deadline from
December 31, 2002 to February 28, 2003 and provided for an
increase in the acquisition price to $64.97 per share if the
merger was completed in January 2003 and to $65.04 per share if
the merger is completed in February 2003.
Our Reasons for the Merger; Recommendation of Your Board of Directors
Our Board of Directors believes that the terms of the merger
agreement, which are the product of arm's length negotiations
between representatives of Citizens Bancshares and CFS
Bancshares, are in the best interests of our stockholders. In
the course of reaching its determination, our Board of Directors
considered the following factors:
* the merger consideration to be paid to our stockholders in
relation to the market value, book value and earnings per share
of our common stock,
* information concerning our financial condition, results of
operations, capital levels, asset quality and prospects,
* industry and economic conditions,
* our assessment of Citizens Bancshares' ability to pay the
aggregate merger consideration,
* the opinion of our financial advisor as to the fairness of
the merger consideration from a financial point of view to the
holders of our common stock,
* the compatibility of management and business philosophy,
including the fact that Citizens Trust Bank is also a minority
owned institution,
* the greater resources and product offerings that Citizens
Trust Bank will provide after the merger compared to those that
we currently offer,
13
* the impact of the merger on the depositors, employees,
customers and communities served by us through expanded
commercial, consumer and retail banking products and services,
* the results of our due diligence investigation of Citizens
Bancshares and Citizens Trust Bank, including the likelihood of
receiving the requisite regulatory approvals in a timely manner,
* the ability of Citizens Trust Bank after the merger to
compete in relevant banking markets, and
* our strategic alternatives to the merger, including the
investments in technology and expanded products and services we
believe would be needed if Citizens Federal Savings Bank
continued to operate as an independent financial institution.
In making its determination, our Board of Directors did not
ascribe any relative or specific weights to the factors which it
considered. The foregoing discussion of the factors considered
by our Board is not intended to be exhaustive, but it does
include the material factors considered by our Board.
Our Board of Directors believes that the merger is in the
best interests of CFS Bancshares and our stockholders. The Board
of Directors unanimously recommends that our stockholders vote
for the adoption of the merger agreement.
The Consideration is Fair According to RP Financial, LC., Our
Financial Advisor
CFS Banchares retained RP Financial in February 2002 to
contact and provide confidential information to prospective
acquirors regarding their interest in a merger with CFS
Bancshares, negotiate the merger terms and render its opinion
with respect to the fairness of the merger consideration from a
financial point of view to the shareholders of CFS Bancshares.
In requesting RP Financial's opinion, the CFS Bancshares Board
did not give any special instructions to RP Financial, nor did it
impose any limitations upon the scope of the investigation that
RP Financial might wish to conduct to enable it to give its
opinion. RP Financial has delivered to CFS Bancshares its
written opinion dated May 30, 2002, and its updated opinion as of
January 21, 2003, to the effect that, based upon and subject to
the matters set forth therein, as of the date thereof, the merger
consideration is fair to the CFS Bancshares shareholders from a
financial point of view. The opinion of RP Financial is directed
toward the consideration to be received by CFS Bancshares
shareholders and does not constitute a recommendation to any CFS
Bancshares shareholder to vote in favor of approval of the merger
agreement. A copy of the updated RP Financial opinion is set
forth as Appendix B to this proxy statement, and CFS Bancshares
shareholders should read it in its entirety. RP Financial has
consented to the inclusion and description of its written opinion
in this proxy statement.
RP Financial was selected by CFS Bancshares to act as its
financial advisor because of RP Financial's expertise in the
valuation of businesses and their securities for a variety of
purposes, including its expertise in connection with mergers and
acquisitions of savings and loan associations, savings banks,
savings and loan holding companies, commercial banks and bank
holding companies. RP Financial has provided other valuation and
strategic planning services to CFS Bancshares since 1989,
including annual valuations for CFS Bancshares' employee stock
ownership plan, the valuation in connection with CFS Bancshares'
stock option plan, strategic planning assistance in conjunction
with a prospective merger during 2001, the main office relocation
and other matters. Since 1989, RP Financial estimates that it
was paid approximately $71,500 in professional fees for these
other services.
14
In rendering its opinion, RP Financial reviewed the
following material:
(1) the merger agreement, including exhibits, and the
amendment to the merger agreement dated December 19, 2002;
(2) the following information for CFS Bancshares --
(a) annual financial statements for the fiscal years ended
September 30, 1997 through 2002 included in the annual report to
shareholders for each year, (b) shareholder, regulatory, audited
and internal financial and other reports through September 30,
2002, and (c) the annual proxy statement for the last five fiscal
years;
(3) discussions with CFS Bancshares' management regarding
past and current business, operations, financial condition,
future prospects and market value and the liquidity of our common
stock;
(4) an analysis of the pro forma impact of alternative
strategies as an independent institution;
(5) competitive, economic and demographic characteristics
nationally, regionally and in the local market area;
(6) the potential impact of regulatory and legislative
changes on financial institutions;
(7) the financial terms of other recently completed and
pending acquisitions of thrifts in Alabama, regionally and
nationally with similar characteristics; and
(8) the financial condition of Citizens Bancshares as of
September 30, 2002 regarding the perceived ability to complete
the merger from a cash and capital perspective.
In rendering its opinion, RP Financial relied, without
independent verification, on the accuracy and completeness of the
information concerning CFS Bancshares furnished by CFS Bancshares
to RP Financial for review for purposes of its opinion, as well
as publicly-available information regarding other financial
institutions and economic and demographic data. CFS Bancshares
did not restrict RP Financial as to the material it was permitted
to review. RP Financial did not perform or obtain any
independent appraisals or evaluations of the assets and
liabilities and potential and/or contingent liabilities of CFS
Bancshares.
RP Financial expresses no opinion on matters of a legal,
regulatory, tax or accounting nature or the ability of the
parties to consummate the merger. In rendering its opinion, RP
Financial assumed that, in the course of obtaining the necessary
regulatory and governmental approvals for the proposed merger, no
restriction will be imposed on Citizens Bancshares that would
have a material adverse effect on the ability of the merger to be
consummated as set forth in the merger agreement.
15
RP Financial's opinion was based solely upon the information
available to it and the economic, market and other circumstances
as they existed as of May 30, 2002 and January 21, 2003. Events
occurring after the most recent date could materially affect the
assumptions used in preparing the opinion. In connection with
rendering its opinion dated May 30, 2002, and updated as of
January 21, 2003, RP Financial performed a variety of financial
analyses that are summarized below. Although the evaluation of
the fairness, from a financial point of view, of the merger
consideration was to some extent subjective based on the
experience and judgment of RP Financial, and not merely the
result of mathematical analyses of financial data, RP Financial
relied, in part, on the financial analyses summarized below in
its determinations. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial
analyses or summary description. RP Financial believes its
analyses must be considered as a whole and that selecting
portions of such analyses and factors considered by RP Financial
without considering all such analyses and factors could create an
incomplete view of the process underlying RP Financial's opinion.
In its analyses, RP Financial took into account its
assessment of general business, market, monetary, financial and
economic conditions, industry performance and other matters, many
of which are beyond the control of CFS Bancshares, as well as RP
Financial's experience in securities valuation, its knowledge of
financial institutions, and its experience in similar
transactions. With respect to the comparable transactions
analysis described below, no public company utilized as a
comparison is identical to CFS Bancshares and such analyses
necessarily involve complex considerations and judgments
concerning the differences in financial and operating
characteristics of the companies and other factors that could
affect the acquisition values of the companies concerned. The
analyses were prepared solely for purposes of RP Financial
providing its opinion as to the fairness of the merger
consideration, and they do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities
actually may be sold. Any estimates contained in RP Financial's
analyses are not necessarily indicative of future results of
values, which may be significantly more or less favorable than
such estimates. None of the analyses performed by RP Financial
was assigned a greater significance by RP Financial than any
other.
Comparable Transactions Analysis. RP Financial compared the
merger on the basis of the multiples or ratios of reported
earnings, book value, tangible book value, assets, tangible book
premium to core deposits, and control premium relative to the pre-
announcement trading price of CFS Bancshares with the same
multiples or ratios of two groups of recently completed and
pending regional thrift mergers and acquisitions and other
minority banks and thrifts. The "Southeast Thrift Group" is
comprised of 19 acquisitions completed since January 1, 2000
located in the Southeast with total assets below $500 million,
but excluding acquisitions of thrifts in mutual holding company
form, mergers of equals transactions and those deals with limited
or no available deal data. In addition, RP Financial compared
the merger to the acquisitions nationwide of other minority banks
(two) and thrifts (two) from 1997 to present ("Minority Group").
The median selected financial data and acquisition pricing
multiples or ratios at announcement of the Southeast Thrift Group
and the Minority Group relative to the CFS Bancshares financial
data and pricing multiples or ratios are shown below:
16
Southeast Minority CFS
Thrift Group Group Bancshares(1)
------------ -------- -------------
Number of Companies 19 4
Assets (in millions) $119.199 $94.197 $106.899
Equity/Assets 13.22% 6.35% 9.79%
Non-Performing Assets/Assets 0.24% 1.52% 1.10%
Reserve Coverage Ratio 91.85% 118.01% 31.00%
Return on Average Assets (2) 0.72% 0.57% 0.54%
Return on Average Equity (2) 5.66% 6.30% 6.12%
Price/Earnings (2) 25.58x 11.93x(4) 15.60x
Price/Book 122.27% 127.39% 86.52%
Price/Tangible Book 126.11% 127.39% 86.52%
Price/Assets 18.16% 9.02% 8.47%
Tangible Book Premium/
Core Deposits 6.99% 2.42% (2.73)%
Control Premium (3) 34.47% n/a(5) 251.57%
_____________________
(1) Reflects financial data as of or for the trailing 12 months
ended September 30, 2002 and assumes the merger closes in
February 2003 at a price of $65.04 per share.
(2) Reflects earnings for the trailing 12 months prior to the
merger announcement.
(3) Merger price relative to trading price one day prior to
announcement.
(4) Includes two ratios considered not meaningful.
(5) Trading prices not available.
Note: Pricing ratios are based on shares outstanding, and
excludes the value of granted options.
In comparison to the Southeast Thrift Group, CFS Bancshares
has smaller assets; lower equity to assets; a higher ratio of
nonperforming assets and a significantly lower reserve coverage
ratio; and lower profitability relative to average assets but a
higher return on average equity. The pricing ratios or multiples
based on the merger consideration for the CFS Bancshares common
stock fell below the median pricing ratios or multiples except
for control premium. The merger pricing ratios for CFS
Bancshares fell within the range of the ratios of the individual
members of the Southeast Thrift Group except as follows: the
price/book and price/tangible book ratios for CFS Bancshares fell
below the range; and the control premium exceeded the range. RP
Financial also considered the higher proportion of CFS
Bancshares' large deposits by a small number of public unit
depositors.
17
In comparison to the Minority Group, CFS Bancshares
maintained a larger asset base; higher equity to assets; a lower
nonperforming assets ratio and reserve coverage ratio; and lower
profitability relative to average assets and average equity. The
pricing ratios or multiples based on the merger consideration for
the CFS Bancshares common stock fell below the median pricing
ratios in terms of price/book, price/tangible book, price/assets
and tangible book premium/core deposits and exceeded the median
pricing ratios in terms of price/earnings. The merger pricing
ratios for CFS Bancshares exceeded the range of ratios of the
individual members of the Minority Group for price/earnings, fell
within the range in terms of price/assets and fell below the
range in terms of price/book, price/tangible book and tangible
book premium/core deposits. Control premium information was not
available for any of the Minority Group members. In comparing
CFS Bancshares to the Minority Group, RP Financial considered
that two of the individual members were commercial banks. RP
Financial also considered the higher proportion of CFS
Bancshares' large deposits by a small number of public unit
depositors.
Discounted Cash Flow Analysis. Using the discounted cash
flow analysis, RP Financial estimated the present value per share
of future dividends and the terminal value to CFS Bancshares'
current shareholders based on a continuation of CFS Bancshares'
current operating strategies over a five-year period.
Specifically, RP Financial incorporated the following
historically derived assumptions into the discounted cash flow
analysis:
(1) annual asset growth of 3.5%;
(2) annual return on average assets of 0.46%;
(3) annual dividends of $0.85 per share; and
(4) fifth year terminal value multipliers for earnings per
share of 25.0 times and for book value per share of 1.25 times,
with 67% weight given to the earnings result and 33% weight given
to the book value result.
The cash flows were discounted to present value using
discount rates of 12.5% and 15%. In applying these assumptions,
RP Financial considered the following: (1) CFS Bancshares' has
grown its assets at a similar annual rate over the last five
years; (2) CFS Bancshares' average core profitability the last
five years has averaged 0.46% relative to average assets; (3) CFS
Bancshares is less financially comparable to the Southeast Thrift
Group, whose multiples were used for the terminal value
calculation; and (4) certain required investments in technology,
systems and personnel in the event CFS Bancshares remained
independent have not been incorporated. The merger consideration
falls above the range of the present values based on performance
consistent with CFS Bancshares' historical experience, or $54.09
per share at the high discount rate and $60.22 per share at the
low discount rate.
RP Financial also considered a more optimistic scenario,
incorporating a higher growth rate and more profitable scenario
while keeping the other assumptions constant. Specifically,
assets were assumed to grow 5.00% annually, and first year
profitability was assumed to be 0.50% of average assets in the
first year and increase by 0.02% annually. As in the
historically based scenario, earnings were not adjusted to
incorporate required investments in technology, systems and
personnel in the event CFS Bancshares were to remain independent.
Under this more optimistic scenario, the merger consideration
falls within the range of present values, or $64.42 per share at
the high discount rate and $71.75 at the low discount rate.
18
As described above, RP Financial's opinion and presentation
to the CFS Bancshares Board was one of many factors taken into
consideration by the CFS Bancshares Board in making its
determination to approve the merger agreement. Although the
foregoing summary describes the material components of the
analyses presented by RP Financial to the CFS Bancshares Board on
May 30, 2002, and updated as of January 21, 2003, in connection
with its opinion as of those dates, it does not purport to be a
complete description of all the analyses performed by RP
Financial and is qualified by reference to the written opinion of
RP Financial set forth as Appendix B, which CFS Bancshares
shareholders are urged to read in its entirety.
Pursuant to a letter agreement dated February 4, 2002 (the
"engagement letter"), RP Financial estimates that it will receive
from CFS Bancshares total professional fees of approximately
$101,559. Of this amount, $17,500 has been paid to date. RP
Financial's fee includes a $5,000 initial retainer fee, $25,000
for the initial and updated fairness opinion and a success fee of
0.75% based on the aggregate value of the merger consideration of
the outstanding shares and the granted options. The success fee
is payable upon completion of the merger. CFS Bancshares also
agreed to reimburse RP Financial for its out-of-pocket expenses,
provided that such expenses do not exceed $10,000 unless
otherwise agreed to by CFS Bancshares. In addition, CFS
Bancshares has agreed to indemnify and hold harmless RP
Financial, any affiliates of RP Financial, and the respective
directors, officers, agents and employees of RP Financial or
their successors and assigns who act for or on behalf of RP
Financial from and against any and all losses, claims, damages
and liabilities, joint or several, in connection with RP
Financial's services pursuant to the engagement letter, unless a
court determines that RP Financial was negligent or acted in bad
faith. Any time devoted by employees of RP Financial to
situations for which indemnification is provided shall be payable
by CFS Bancshares at the normal hourly professional rates of such
employees. CFS Bancshares will pay for or reimburse the
reasonable expenses, including attorneys' fees, incurred by RP
Financial in advance of the final disposition of any proceeding
if RP Financial undertakes to repay the advance if it is
ultimately determined that RP Financial is not entitled to
indemnification.
You Will Receive Cash for Your Shares of CFS Bancshares Stock
Upon completion of the merger, each outstanding share of CFS
Bancshares common stock (other than shares as to which
dissenters' rights have been asserted and perfected in accordance
with Delaware law, treasury shares and certain restricted shares
subject to restricted stock awards) shall be converted into and
represent the right to receive $65.04 in cash without any
interest thereon. The aggregate amount of the cash payment
represents the merger consideration. The merger consideration to
be paid in connection with the merger is expected to be
approximately $9.5 million, including payment for the
cancellation of all CFS Bancshares stock options, assuming all
such options are cancelled.
Treatment of Stock Options
At the effective time of the merger, each vested stock
option to purchase CFS Bancshares common stock issued pursuant to
the CFS Bancshares 2001 Stock Option and Incentive Plan that has
not been exercised before the merger is completed will be
canceled and the holder of the unexercised stock option will be
entitled to receive a cash payment equal to $65.04 less the
exercise price per share of the stock option, multiplied by the
number of shares of CFS Bancshares common stock subject to the
stock option, less any required tax withholding.
19
Procedure for Surrendering Your Certificates
Citizens Bancshares will appoint an exchange agent who will
be responsible for the process of exchanging CFS Bancshares
common stock certificates for the cash merger consideration.
Each holder of CFS Bancshares common stock certificates who
surrenders his or her CFS Bancshares certificates to the exchange
agent will be entitled to receive a cash payment of $65.04 per
share of CFS Bancshares common stock upon acceptance of the
shares by the exchange agent.
No later than three business days after the effective time
of the merger, a letter of transmittal will be mailed by the
exchange agent to CFS Bancshares stockholders. The letter of
transmittal will contain instructions for surrendering your
certificates of CFS Bancshares common stock.
You should not return your CFS Bancshares common stock
certificates with the enclosed proxy, and you should not send
your stock certificates to the exchange agent until you receive
the letter of transmittal.
If a certificate for CFS Bancshares common stock has been
lost, stolen or destroyed, the exchange agent is not obligated to
deliver payment until the holder of the shares delivers:
* an appropriate affidavit by the person claiming the loss,
theft or destruction of his or her certificate,
* an indemnity agreement, and
* if required by the exchange agent or Citizens Bancshares, a
bond.
Citizens Bancshares will not be liable to any former holder
of CFS Bancshares common stock for any amount delivered in good
faith to a public official pursuant to applicable abandoned
property laws.
Representations and Warranties Made by Us, Citizens Federal,
Citizens Bancshares and Citizens Trust Bank
The merger agreement contains representations and warranties
made by us, Citizens Federal, Citizens Bancshares and Citizens
Trust Bank which are customary for this type of merger
transaction, including, among others, representations and
warranties concerning:
* the organization, good standing and registration of CFS
Bancshares and Citizens Bancshares and their power to conduct
their businesses,
* their authority to execute, deliver and perform their
obligations under the merger agreement,
* the financial statements of CFS Bancshares and Citizens
Bancshares,
* the absence of undisclosed liabilities,
* the absence of certain changes or events,
* the truth and accuracy of the statements in this proxy
statement and other information called for under the merger
agreement, and
* the regulatory approvals required in order to complete the
merger.
20
We made certain additional representations and warranties
(which are also customary), among others, regarding our
capitalization, our subsidiaries, tax matters, the adequacy of
our allowance for possible loan losses, our good title to our
assets and the condition of our assets, our compliance with
environmental and other laws, labor matters, our employee benefit
plans, material contracts, litigation, our reports filed with the
SEC and other regulatory authorities, the absence of any
restrictions or impairments on Citizens Bancshares' ability to
exercise any rights as a stockholder of us and the absence of any
derivative contracts.
Citizens Bancshares has made additional representations that
it and Citizens Trust Bank both have the regulatory capital
necessary to complete the merger and that Citizens Trust Bank
will have sufficient cash funds to pay the aggregate merger
consideration.
Some of the representations and warranties in the merger
agreement are qualified by materiality. The representations,
warranties, agreements and covenants in the merger agreement will
expire at the effective time of the merger, except for agreements
and covenants that by their terms are to be performed after the
effective time of the merger.
Conditions to the Merger
The respective obligations of Citizens Bancshares, Citizens
Trust Bank, CFS Bancshares and Citizens Federal to effect the
merger are subject to the satisfaction or waiver of the following
conditions specified in the merger agreement:
* approval of the merger agreement by our stockholders,
* the receipt of all required regulatory approvals, consents
or waivers; provided that none of such approvals, consents or
waivers contain, in the reasonable opinion of either us or
Citizens Bancshares, any conditions or restrictions that would
materially adversely impact the economic or business benefits of
the merger such that completion of the merger is no longer
advisable,
* the receipt of all consents required to complete the merger
or to prevent any default under any contract or permit which
would have a material adverse effect on either us or Citizens
Bancshares,
* the absence of any law or order or any action taken by any
court, governmental or regulatory authority prohibiting,
restricting or making illegal the completion of the merger,
* the accuracy of the other party's representations and warranties,
* the performance by the other party of its obligations
contained in the merger agreement in all material respects, and
* the receipt of certain certificates.
Citizens Bancshares' and Citizens Trust Bank's obligation to
effect the merger also is subject to the following conditions:
* that each of the directors of CFS Bancshares has executed an
agreement to vote his or her shares of CFS Bancshares common
stock in favor of the adoption of the merger agreement, which
condition has been met, and
21
* that each of the directors and officers of CFS Bancshares
has represented to Citizens Bancshares that, with the exception
of one matter noted, he or she has no knowledge of any matter
which is likely to give rise to any claim for indemnification.
There can be no assurance that the conditions to
consummation of the merger will be satisfied or waived. The
merger will become effective when the certificate of merger is
filed with the Secretary of State of the State of Delaware and
articles of merger are filed with the Secretary of State of the
State of Georgia, or at a later time if specified in the
certificate of merger and articles of merger. It is currently
anticipated that the effective time of the merger will occur on
or about February 28, 2003.
Conduct of Business Prior to the Completion of the Merger
We have agreed that during the period from the date of the
merger agreement until the completion of the merger, unless we
have received the prior written consent of Citizens Bancshares
and except as expressly contemplated in the merger agreement, we
and our subsidiaries will:
* operate our business only in the usual, regular and ordinary
course,
* preserve intact our business organization and assets and
maintain our rights and franchises,
* use our reasonable efforts to cause our representations and
warranties in the merger agreement to be true and correct at all
times, and
* take no action which would either adversely affect the
ability of us or Citizens Bancshares to obtain any consents
required for the merger without any conditions or restrictions of
the type described in the merger agreement or materially
adversely affect the ability of any party to perform its
covenants and agreements under the merger agreement.
In addition, we agreed that, from the date of the merger
agreement until the completion of the merger or the termination
of the merger agreement, unless Citizens Bancshares has given its
prior written consent, we will not, and we will not permit any of
our subsidiaries to, do any of the following:
* amend our Articles of Incorporation, Bylaws or other
governing instruments,
* incur any additional debt obligation or other obligation for
borrowed money in excess of an aggregate of $25,000 except in
connection with the merger agreement or in the ordinary course of
the business consistent with past practices or impose, or, with
certain exceptions, suffer the imposition of any lien on our
assets or permit such lien to exist,
* repurchase, redeem or otherwise acquire or exchange (other
than in the ordinary course for our employee benefit plans),
directly or indirectly, any shares, or any securities convertible
into any shares, of our capital stock, or declare or pay any
dividend or make any other distribution in respect of our capital
stock,
* except for the merger agreement, or pursuant to the exercise
of outstanding stock options, issue, sell, pledge, encumber,
authorize the issuance of, or otherwise permit to become
outstanding, any additional shares of our common stock or any
other capital stock, or any other equity right,
22
* adjust, split, combine or reclassify any of our capital
stock or issue or authorize the issuance of any other securities
in respect of or in substitution for our shares,
* sell, lease, mortgage or otherwise dispose of or otherwise
encumber any asset having a book value in excess of $25,000 other
than in the ordinary course of business for reasonable and
adequate consideration,
* acquire direct or indirect control over, or invest in the
equity securities of any other person except for foreclosures in
the ordinary course of business or in the exercise of our
fiduciary duties,
* grant any increase in compensation or benefits to our
employees or officers, except in accordance with past practice or
as approved by our Board of Directors and previously disclosed to
Citizens Bancshares or as required by law; pay any severance or
termination pay or any bonus other than pursuant to written
policies or written contracts or understandings in effect on the
date of the merger agreement and previously disclosed to Citizens
Bancshares; enter into or amend any severance agreements with our
officers; grant any increase in fees or other increases in
compensation or other benefits to our directors; or voluntarily
accelerate the vesting of any stock options or other stock-based
compensation or employee benefits,
* enter into or amend any employment contract between us and
any person that we do not have the unconditional right to
terminate without liability at any time on or after the effective
date of the merger,
* adopt any new employee benefit plan or make any material
change in or to any of our existing employee benefit plans,
except as may be needed to maintain the plan's tax qualified
status,
* make any significant change in any tax or accounting methods
or systems of internal accounting controls, except to comply with
changes in laws, regulations or generally accepted accounting
principles,
* settle any litigation involving any liability for money
damages exceeding $25,000 or material restrictions upon our
operations, and
* except in the ordinary course of business, modify, amend or
terminate any material contract or waive, release, compromise or
assign any material rights or claims.
In addition, we have agreed that neither us nor any of our
subsidiaries or any of our respective officers, directors,
employees or representatives will directly or indirectly solicit
any acquisition proposal. An acquisition proposal is a tender
offer, exchange offer or merger proposal (other than our proposed
merger with Citizens Bancshares and its subsidiaries), an
acquisition of all or a substantial portion of our stock or
assets or other business combination. We also have agreed that,
except to the extent necessary for our Board of Directors to
comply with its fiduciary duties as advised by legal counsel, we
will not furnish any non-public information in connection with,
negotiate with respect to, or enter into any contract with
respect to, any acquisition proposal. We may however communicate
with our stockholders with respect to any acquisition proposal in
order to comply with our legal obligations or fiduciary duties as
advised by legal counsel. We have agreed that our Board of
Directors will not withdraw or modify its approval of the merger
or the merger agreement or its recommendation that you approve
the merger and the merger agreement and that we will not approve
or recommend any acquisition proposal or enter into any agreement
with respect to any acquisition proposal unless our Board of
Directors makes a
23
determination, after consulting with legal counsel, that failure
to do so would be inconsistent with its fiduciary duties to our
stockholders under law. In any event, before we could withdraw or
modify our approval or recommendation of the merger agreement or
the proposed merger with Citizens Bancshares, approve or recommend
an acquisition proposal with another party, or enter into an
agreement with respect to an acquisition proposal, we are required
to first provide Citizens Bancshares with notice that we have
received an acquisition proposal describing the material terms and
conditions of such proposal and identifying the person making the
proposal. We must send such notice to Citizens Bancshares at least
two business days before acting on such acquisition proposal and,
if we determine to enter into an agreement with respect to an
acquisition proposal, we must provide Citizens Bancshares written
notice by 12:00 noon on the day before we intend to enter into
such agreement. We are required to promptly inform Citizens
Bancshares of any requests for information or of any negotiations
or discussions regarding any acquisition proposal.
Approvals Needed to Complete the Merger
The Board of Governors of the Federal Reserve System and the
Department of Banking and Finance of the State of Georgia must
approve the merger. Applications for these approvals were filed
on or about September 11, 2002. The regulators' review of the
applications does not include an evaluation of the proposed
transaction from the financial perspective of the individual
stockholders of CFS Bancshares. Further, no stockholder should
construe an approval of the application by either regulator to be
a recommendation that the stockholders vote to approve the
proposal. Each stockholder entitled to vote should evaluate the
proposal to determine the personal financial impact of the
completion of the proposed transaction. Stockholders not fully
knowledgeable in such matters are advised to obtain the
assistance of competent professionals in evaluating all aspects
of the proposal, including any determination that the completion
of the proposed transaction is in the best financial interest of
the stockholder.
Under the Community Reinvestment Act of 1977, federal
banking regulators must consider the record of performance of
Citizens Federal Savings Bank and Citizens Trust Bank 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.
Citizens Federal Savings Bank and Citizens Trust Bank each
received an "outstanding" rating during their respective last
Community Reinvestment Act examinations.
In addition, a period of up to 30 days must expire following
approval by the Board of Governors of the Federal Reserve System,
within which period the United States Department of Justice may
file objections to the merger under the federal anti-trust laws.
Although we believe that the likelihood of such action by the
Department of Justice is remote in this merger, there can be no
assurance that the Department of Justice will not initiate such
proceeding. If such proceeding is instituted or challenge is
made, we cannot ensure a favorable result.
By letters dated January 10, 2003, the Federal Reserve Bank
of Atlanta, acting pursuant to delegated authority for the Board
of Governors of the Federal Reserve System, approved both the
application by Citizens Bancshares to acquire CFS Bancshares and
Citizens Federal Savings Bank and the application by Citizens
Trust Bank to merge with Citizens Federal Savings Bank. The
merger cannot be completed before the 15th calendar day following
January 10, 2003 or after three months from such date. It is
anticipated that the Department of Banking and Finance of the
State of Georgia will grant its approval shortly following our
special meeting of stockholders.
24
We are not aware of any other regulatory approvals required
for completion 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.
There can be no assurances that the remaining requisite
regulatory approvals will be received in a timely manner, in
which event the consummation of the merger may be delayed. If
the merger is not consummated on or before February 28, 2003, the
merger agreement may be terminated by either Citizens Bancshares
or us.
It is a condition to the consummation of the merger that the
regulatory approvals be obtained without any conditions or
requirements which, in the reasonable judgment of the board of
directors of either Citizens Bancshares or us, would materially
adversely impact the economic or business benefits of the
transactions contemplated by the merger agreement as to render
inadvisable the completion of the merger. The approvals from the
Federal Reserve Bank of Atlanta did not contain any such
conditions or requirements. No assurance can be provided that
any approvals from the Georgia Department of Banking and Finance
will not contain terms, conditions or requirements which fail to
satisfy this condition of the merger.
Waiver and Amendment of the Merger Agreement
Before the time that the merger is completed, either we or
Citizens Bancshares, or both of us, may waive any default in the
performance of any term of the merger agreement by the other
party, may waive or extend the time for the compliance or
fulfillment by the other party of any and all of its obligations
under the merger agreement, and may waive any of the conditions
precedent to the obligations of such party under the merger
agreement, except any condition that, if not satisfied, would
result in the violation of any applicable law or governmental
regulation. No waiver will be effective unless written and
unless signed by a duly authorized officer of Citizens Bancshares
or CFS Bancshares, as the case may be.
To the extent permitted by law, we and Citizens Bancshares
may amend the merger agreement by written amendment at any time
before our stockholders have approved the merger agreement.
After our stockholders have approved the merger agreement, under
the Delaware General Corporation Law, no amendment can modify the
form or change the merger consideration to be received by our
stockholders or change any of the terms of the merger agreement
in a manner that would adversely affect our stockholders unless
our stockholders also approve the amendment.
Termination of the Merger Agreement
The merger agreement may be terminated and the merger
abandoned at any time prior to the effective date of the merger:
* By the mutual consent of CFS Bancshares and Citizens
Bancshares or
* By CFS Bancshares or Citizens Bancshares:
- in the event of any material breach of any
representation or warranty of the other party
contained in the merger agreement that cannot be
or has not been cured within 30 days after giving
written notice to the breaching party of such
breach,
- in the event of a material breach by the other
party of any covenant or agreement contained in
the merger agreement which cannot be or has not
been cured within 30 days after the giving of
written notice to the breaching party of such
breach,
25
- any regulatory approval required to complete the
merger has been denied by final, nonappealable
action, or if any such regulatory denial is not
appealed within the time limit for appeal or if
our stockholders vote not to approve the merger
agreement,
- if the merger is not consummated by February 28,
2003, provided that the failure to consummate is
not due to a breach by the party electing to
terminate, or
- if any of the conditions to completing the merger cannot be
satisfied or fulfilled in a timely fashion.
* we may also terminate the merger agreement if our Board of
Directors, after consulting with legal counsel, determines that a
failure to enter into a definitive agreement with another party
with respect to an acquisition proposal would be inconsistent
with its fiduciary duties to stockholders.
In the event that the merger agreement is terminated, the
merger agreement will become void and have no effect, with
certain exceptions, including:
* provisions relating to confidential information, and
* provisions relating to expenses, which generally provide
that each of us and Citizens Bancshares will bear our own costs
and expenses related to the merger and will share filing fees and
the printing costs relating to this proxy statement. However, in
the event that Citizens Bancshares terminates the merger
agreement because:
* we have willfully breached any representation, warranty or
covenant, the satisfaction or performance of which was within our
control,
* our stockholders vote against approval of the merger
agreement after we have received an acquisition proposal from a
third party, or
* we have entered into a definitive agreement with respect to
an acquisition proposal by a third party,
then we have agreed to pay Citizens Bancshares a liquidated damages
fee of $250,000 plus its out-of-pocket costs and expenses up to
$200,000.
Similarly, if we terminate the merger agreement because
Citizens Bancshares has willfully breached any representation,
warranty or covenant, the satisfaction or performance of which
was within its control, then Citizens Bancshares has agreed to
pay us a liquidated damages fee of $250,000 plus our
out-of-pocket costs and expenses up to $200,000.
Interests of Directors and Officers in the Merger that are
Different from Your Interests
Some members of our management and Board of Directors may
have interests in the merger that are in addition to or different
from the interests of our stockholders. Our Board was aware of
these interests and considered them in approving the merger
agreement.
26
CFS Bancshares Stock Options. As of December 27, 2002, our
directors and executive officers held options to purchase in the
aggregate 8,300 shares of CFS Bancshares common stock under our
stock option plan. Each director and executive officer will
receive payment for their stock options as described earlier in
this proxy statement. The aggregate value of the payout for
these stock options will be approximately $386,000. See " -
Treatment of Stock Options."
CFS Bancshares Employee Stock Ownership Plan. As of
September 30, 2002, our ESOP held 3,338 shares of our common
stock which had not yet been allocated to participants and which
were pledged as collateral for the remaining $48,000 loan to the
ESOP. Participants in our ESOP will become fully vested in their
ESOP accounts and the ESOP will be terminated upon completion of
the merger, at which time the loan will be repaid with the cash
received by the ESOP in the merger. Based on the number of
unallocated shares and the current loan balance, the ESOP will
have approximately $205,000 of cash after repayment of the ESOP
loan, which cash will be allocated to the participants in
accordance with the terms of the ESOP and distributed to
participants in the ESOP following receipt of a favorable
determination letter from the Internal Revenue Service.
Employment and Change of Control Agreements. Citizens
Federal Savings Bank has previously entered into an employment
agreement with Mr. Stokes and change-in-control protective
agreements with Cynthia N. Day and W. Kent McGriff. Under Mr.
Stokes' agreement, he is entitled to a severance payment equal to
2.99 times his annual base amount, as defined, in the event of a
change-in-control and termination of his employment. The
agreements with Ms. Day and Mr. McGriff provide for similar
payments. In the merger agreement, Citizens Bancshares has
acknowledged the employment and change-in-control protective
agreements and has agreed to make the change-in-control payments
to Messrs. Stokes and McGriff and Ms. Day immediately prior to
the merger. The amount of these payments is expected to be
approximately $410,000 to Mr. Stokes, $265,000 to Ms. Day and
$221,000 to Mr. McGriff.
Bonus Payments. In recognition of their additional services
in connection with the merger, we paid special bonuses to
Messrs. Stokes and McGriff and Ms. Day during the year ended
September 30, 2002. These special bonuses equaled $69,600 for
Mr. Stokes, $27,200 for Ms. Day and $27,200 for Mr. McGriff.
These bonuses were in addition to our normal bonus payments.
New Employment Agreement. At the effective time of the
merger, Citizens Bancshares and/or Citizens Trust Bank will enter
into a new employment agreement with Mr. Bunny Stokes. Mr.
Stokes will serve as President of the Alabama Division of
Citizens Trust Bank and as a director of the bank. The
employment agreement has an initial term of two years from the
effective date of the merger but may be extended for an
additional year on each annual anniversary of the commencement at
the option of Citizens Bancshares with Mr. Stokes' consent. The
employment agreement provides that Mr. Stokes will receive a base
salary of $115,000 per year and certain other benefits.
Board of Directors. Upon completion of the merger, Mr.
Stokes will be appointed to the Boards of Directors of Citizens
Bancshares and Citizens Trust Bank and will receive the same fees
as those directors receive. At the effective time of the merger,
our directors will be appointed to a newly created Alabama
Advisory Board for Citizens Bancshares and/or Citizens Trust Bank
for at least a one-year period. Mr. Stokes will serve as
Chairman of the Alabama Advisory Board, and each member will
receive compensation of not less than $1,800 per year.
Protection of Directors, Officers and Employees Against
Claims. In the merger agreement, Citizens Bancshares has agreed
to indemnify our and our subsidiaries' directors, officers,
employees and agents after the completion of the merger to the
fullest extent permitted under law and our certificate of
incorporation and bylaws. Citizens Bancshares also has agreed to
maintain, for a period of three years
27
after the effective time of the merger, our current directors'
and officers' liability insurance policy, provided that the annual
cost of such policy does not exceed $50,000.
Employees and Benefit Plans
The merger agreement provides that our and our subsidiaries'
full-time employees who remain employed by Citizens Bancshares or
its subsidiaries after the effective time of the merger will be
eligible to participate in the benefit plans of Citizens
Bancshares or its subsidiaries that are generally available to
their employees. Continuing employees will receive credit for
years of service with us and our subsidiaries for purposes of
determining eligibility for participation and vesting (but not
for purposes of benefit accrual). Any of our employees, other
than Messrs. Stokes and McGriff and Ms. Day, whose employment is
discontinued by Citizens Bancshares or its subsidiaries within
one year of the merger date, except termination for cause, will
be entitled to receive severance payments from Citizens Trust
Bank equal to their current weekly salary times their years of
service, up to a maximum of six weeks of salary for our officers
and four weeks of salary for our non-officer employees, plus any
accrued but unused vacation leave for calendar 2002.
You Have Dissenters' Rights of Appraisal
Under Delaware law, if you do not wish to accept the cash
payment provided for in the merger agreement, you have the right
to dissent from the merger and to have an appraisal of the fair
value of your shares conducted by the Delaware Court of Chancery.
Stockholders electing to exercise dissenters' rights must
strictly comply with the provisions of Section 262 of the
Delaware General Corporation Law to perfect their rights. A copy
of Section 262 is attached as Appendix C.
The following is intended as a brief summary of the material
provisions of the Delaware statutory procedures required to
dissent from the merger and perfect a stockholder's dissenters'
rights. This summary, however, is not a complete statement of all
applicable requirements and is qualified in its entirety by
reference to Section 262 of the Delaware General Corporation Law.
Section 262 requires that stockholders be notified not less
than 20 days before the special meeting to vote on the merger
that dissenters' appraisal rights will be available. A copy of
Section 262 must be included with such notice. This proxy
statement constitutes our notice to you of the availability of
dissenters' rights in connection with the merger. If you wish to
consider exercising your dissenters' rights, you should carefully
review the text of Section 262 contained in Appendix C because
failure to timely and properly comply with the requirements of
Section 262 will result in the loss of your dissenters' rights
under Delaware law.
If you elect to demand appraisal of your shares, you must
satisfy all of the following conditions:
* You must deliver to us a written demand for appraisal of
your shares before the vote with respect to the merger is taken.
This written demand for appraisal must be in addition to and
separate from any proxy or vote abstaining from or against the
merger. Voting against or failing to vote for the merger by
itself does not constitute a demand for appraisal within the
meaning of Section 262.
* You must not vote in favor of the merger. An abstention or
failure to vote will satisfy this requirement, but a vote in
favor of the merger, by proxy or in person, will constitute a
waiver of your dissenters' rights in respect of the shares so
voted and will nullify any previously filed written demands for
appraisal.
28
* You must continuously hold your shares of CFS Bancshares
common stock through the effective time of the merger.
If you fail to comply with all of these conditions and the
merger is completed, you will be entitled to receive the cash
payment for any shares of CFS Bancshares common stock you hold as
of the effective time of the merger as provided for in the merger
agreement but will have no dissenters' rights of appraisal for
your shares of CFS Bancshares common stock.
All demands for appraisal should be addressed to the
Corporate Secretary, CFS Bancshares, Inc., 1700 Third Avenue
North, Birmingham, Alabama 35203, before the vote on the merger
is taken at the special meeting, and should be executed by, or on
behalf of, the record holder of the shares of CFS Bancshares
common stock. The demand must reasonably inform us of the
identity of the stockholder and the intention of the stockholder
to demand appraisal of his or her shares.
To be effective, a demand for appraisal by a holder of CFS
Bancshares common stock must be made by or in the name of such
registered stockholder, fully and correctly, as the stockholder's
name appears on his or her stock certificate(s) and cannot be
made by the beneficial owner if he or she does not also hold the
shares of record. The beneficial holder must, in such cases,
have the registered owner submit the required demand in respect
of such shares.
If shares are owned of record in a fiduciary capacity, such
as by a trustee, guardian or custodian, execution of a demand
for appraisal should be made in such capacity. If the shares are
owned of record by more than one person, as in a joint tenancy or
tenancy in common, the demand should be executed by or for all
joint owners. An authorized agent, including one of two or more
joint owners, may execute the demand for appraisal for a
stockholder of record. However, the agent must identify the
record owner or owners and expressly disclose the fact that, in
executing the demand, he or she is acting as agent for the
record owner. A record owner, such as a broker, who holds shares
as a nominee for others, may exercise his or her right of
appraisal with respect to the shares held for one or more
beneficial owners, while not exercising this right for other
beneficial owners. In such case, the written demand should state
the number of shares as to which appraisal is sought. Where no
number of shares is expressly mentioned, the demand will be
presumed to cover all shares held in the name of such record
owner.
If you hold your shares of CFS Bancshares common stock in a
brokerage account or in other nominee form and you wish to
exercise appraisal rights, you should consult with your broker or
such other nominee to determine the appropriate procedures for
the making of a demand for appraisal by such nominee.
Within ten days after the effective date of the merger,
Citizens Bancshares must give written notice that the merger has
become effective to each CFS Bancshares stockholder who has
properly filed a written demand for appraisal and who did not
vote in favor of the merger. Within 120 days after the effective
date, either Citizens Bancshares or any stockholder who has
complied with the requirements of Section 262 may file a petition
in the Delaware Court of Chancery demanding a determination of
the fair value of the shares held by all stockholders entitled to
appraisal. A dissenting stockholder may request from Citizens
Bancshares during this 120 day period a statement setting forth
(a) the aggregate number of shares not voted in favor of the
merger and with respect to which demands for appraisal have been
received, and (b) the aggregate number of holders of such shares.
We have been informed that Citizens Bancshares does not presently
intend to file such a petition in the event there are dissenting
stockholders and has no obligation to do so. Accordingly, your
failure to timely file a petition could nullify your demand for
appraisal.
29
At any time within 60 days after the effective date of the
merger, any stockholder who has demanded an appraisal has the
right to withdraw the demand and to accept the cash payment
specified by the merger agreement for his or her shares of CFS
Bancshares common stock. If a petition for appraisal is duly
filed by a stockholder and a copy of the petition is delivered to
Citizens Bancshares, Citizens Bancshares will then be obligated
within 20 days after receiving service of a copy of the petition
to provide the Chancery Court with a duly verified list
containing the names and addresses of all stockholders who have
demanded an appraisal of their shares. After notice to
dissenting stockholders, the Chancery Court is empowered to
conduct a hearing upon the petition, and to determine those
stockholders who have complied with Section 262 and who have
become entitled to the appraisal rights provided thereby. The
Chancery Court may require the stockholders who have demanded
payment for their shares to submit their stock certificates to
the Register in Chancery for notation thereon of the pendency of
the appraisal proceedings; and if any stockholder fails to comply
with such direction, the court may dismiss the proceedings as to
such stockholder.
After determination of the stockholders entitled to
appraisal of their shares of CFS Bancshares common stock, the
Chancery Court will appraise the shares, determining their fair
value exclusive of any element of value arising from the
accomplishment or expectation of the merger, together with a fair
rate of interest, if any. When the value is determined, the
court will direct the payment of such value, with interest
thereon accrued during the pendency of the proceeding if the
Chancery Court so determines, to the stockholders entitled to
receive the same, upon surrender by such holders of the
certificates representing such shares.
In determining fair value, the Chancery Court is required to
take into account all relevant factors. You should be aware that
the fair value of the shares as determined under Section 262
could be more, the same, or less than the value that you are
entitled to receive pursuant to the merger agreement.
Costs of the appraisal proceeding may be imposed upon
Citizens Bancshares and the stockholders participating in the
appraisal proceeding by the Chancery Court as the court deems
equitable in the circumstances. Upon the application of a
stockholder, the Chancery Court may order all or a portion of the
expenses incurred by any stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable
attorneys' fees and the fees and expenses of experts, to be
charged pro rata against the value of all shares entitled to
appraisal.
Any stockholder who demands appraisal rights will not, after
the effective date, be entitled to vote shares subject to such
demand for any purpose or to receive payments of dividends or
any other distribution with respect to such shares, other than
with respect to payment as of a record date prior to the
effective date; however, if no petition for appraisal is filed
within 120 days after the effective date, or if such stockholder
delivers a written withdrawal of his or her demand for appraisal
and an acceptance of the merger within 60 days after the
effective date, then the right of such stockholder to appraisal
will cease and such stockholder will be entitled to receive the
cash payment for shares of his or her CFS Bancshares common
stock pursuant to the merger agreement. Any withdrawal of a
demand for appraisal made more than 60 days after the effective
date of the merger may only be made with the written approval of
the surviving corporation.
In view of the complexity of Section 262, CFS Bancshares
stockholders who may wish to dissent from the merger and pursue
appraisal rights should consult their legal advisors.
30
Federal Income Tax Consequences of the Merger to You
The exchange of our common stock for cash pursuant to the
terms of the merger agreement will be a taxable transaction for
federal income tax purposes under the Internal Revenue Code, and
may also be a taxable transaction under state, local and other
tax laws. Similarly, any CFS Bancshares stockholders who
exercise their dissenters' appraisal rights and receive cash in
exchange for their shares of CFS Bancshares common stock will
recognize gain or loss for federal income tax purposes and may
recognize gain or loss under state, local and other tax laws. A
stockholder of CFS Bancshares will recognize gain or loss equal
to the difference between the amount of cash received by the
stockholder pursuant to the merger and the tax basis in the CFS
Bancshares common stock exchanged by such stockholder pursuant to
the merger. Gain or loss must be determined separately for each
block of CFS Bancshares common stock surrendered pursuant to the
merger. For purposes of federal tax law, a block consists of
shares of CFS Bancshares common stock acquired by the stockholder
at the same time and price.
Gain or loss recognized by the stockholder exchanging his or
her CFS Bancshares common stock pursuant to the merger or
pursuant to the exercise of dissenters' rights will be capital
gain or loss if such CFS Bancshares common stock is a capital
asset in the hands of the stockholder. If the CFS Bancshares
common stock has been held for more than one year, the gain or
loss will be long-term. Capital gains recognized by an
exchanging individual stockholder generally will be subject to
federal income tax at capital gain rates applicable to the
stockholder (up to a maximum of 38.6% for short-term capital
gains and 20% for long-term capital gains), and capital gains
recognized by an exchanging corporate stockholder generally will
be subject to federal income tax at a maximum rate of 35%.
Neither Citizens Bancshares nor CFS Bancshares has requested
or will request a ruling from the Internal Revenue Service as to
any of the tax effects to CFS Bancshares' stockholders of the
transactions discussed in this proxy statement, and no opinion of
counsel has been or will be rendered to CFS Bancshares'
stockholders with respect to any of the tax effects of the merger
to stockholders.
The federal income tax discussion set forth above is based
upon current law and is intended for general information only.
You are urged to consult your tax advisor concerning the specific
tax consequences of the merger to you, including the
applicability and effect of state, local or other tax laws and of
any proposed changes in those tax laws and the Internal Revenue
Code.
Accounting Treatment of the Merger
The merger will be accounted for under the purchase method
of accounting. Under this method of accounting, Citizens
Bancshares and CFS Bancshares will be treated as one company as
of the date of the merger, and Citizens Bancshares will record
the fair market value of CFS Bancshares' assets less liabilities
on its consolidated financial statements. Acquisition costs in
excess of the fair values of the net assets acquired, if any,
will be recorded as an intangible asset and amortized for
financial accounting purposes. The reported consolidated income
of Citizens Bancshares will include our operations after the
completion of the merger.
Who Pays for What
All out-of-pocket costs and expenses incurred in connection
with the merger (including, but not limited to, counsel fees)
will be paid by the party incurring such costs and expenses,
except that each of the parties shall pay for one-half of the
filing fees for the regulatory applications and the printing
costs relating to this proxy statement. In certain
circumstances, a party's expenses will be paid by the other
party. See "- Termination of the Merger Agreement."
31
CERTAIN RELATED AGREEMENTS
Bank Merger Agreement
In connection with the merger, Citizens Federal Savings Bank
and Citizens Trust Bank will enter into a bank merger agreement
under which Citizens Federal Savings Bank and Citizens Trust Bank
will merge, with Citizens Trust Bank being the surviving bank.
Directors Agreement
As an inducement for Citizens Bancshares and Citizens Trust
Bank to enter into the merger agreement, the directors of CFS
Bancshares entered into a directors agreement with Citizens
Bancshares and Citizens Trust Bank. Pursuant to the voting
agreement, our directors agreed to vote all of their shares of
CFS Bancshares common stock owned, controlled or for which they
possess voting power in favor of the adoption of the merger
agreement. Our directors also agreed not to directly or
indirectly serve as a consultant to, serve as a management
official of, or be or become a major stockholder of any financial
institution having an office in Jefferson County or Tuscaloosa
County, Alabama, other than Citizens Bancshares or Citizens Trust
Bank
ADJOURNMENT OF THE SPECIAL MEETING
Each proxy solicited requests authority to vote for an
adjournment of the special meeting, if an adjournment is deemed
to be necessary. CFS Bancshares may seek an adjournment of the
special meeting so that we can solicit additional votes in favor
of the merger agreement if the merger proposal has not received
the requisite vote of stockholders at the special meeting and has
not received the negative votes of the holders of a majority of
CFS Bancshares' stock. If CFS Bancshares desires to adjourn the
meeting, it will request a motion that the meeting be adjourned
for up to 29 days with respect to the merger proposal (and solely
with respect to the merger proposal, provided that a quorum is
present at the special meeting), and no vote will be taken on the
merger proposal at the originally scheduled special meeting.
Each proxy solicited, if properly signed and returned to CFS
Bancshares and not revoked prior to its use, will be voted on any
motion for adjournment in accordance with the instructions
contained therein. If no contrary instructions are given, each
proxy received will be voted in favor of any motion to adjourn
the meeting. Unless revoked prior to its use, any proxy
solicited for the special meeting will continue to be valid for
any adjourned meeting, and will be voted in accordance with
instructions contained therein, and if no contrary instructions
are given, for the proposal in question.
Any adjournment will permit CFS Bancshares to solicit
additional proxies and will permit a greater expression of the
stockholders' views with respect to the merger proposal. The
adjournment would be disadvantageous to stockholders who are
against the merger agreement because an adjournment will give CFS
Bancshares additional time to solicit favorable votes and thus
increase the chances of passing the merger proposal.
If a quorum is not present at the special meeting, no
proposal will be acted upon and the CFS Bancshares Board of
Directors will adjourn the special meeting to a later date to
solicit additional proxies on each of the proposals being
submitted to stockholders.
An adjournment for up to 29 days will not require either the
setting of a new record date or notice of the adjourned meeting
as in the case of an original meeting. CFS Bancshares has no
reason to believe that an adjournment of the special meeting will
be necessary at this time.
32
Because the Board of Directors recommends that stockholders
vote "FOR" the proposed merger agreement, the Board of Directors
also recommends that stockholders vote "FOR" the possible
adjournment of the special meeting on the merger proposal.
Approval of the proposal to adjourn the special meeting on the
merger proposal requires the approval of a majority of the votes
cast on the adjournment proposal.
BENEFICIAL OWNERSHIP OF CFS BANCSHARES COMMON STOCK
Stockholders of record as of the close of business on
December 27, 2002 will be entitled to one vote for each share of
our common stock then held. As of that date, we had 139,220
shares of common stock issued and outstanding. The following
table sets forth information regarding the share ownership of:
* each holder of more than 5% of our outstanding common stock,
including our Employee Stock Ownership Plan,
* each member of our Board of Directors and each executive
officer who is not a director, and
* all of our directors and executive officers as a group.
Shares Beneficially Percent of
Name of Beneficial Owner Owned(1)(2) Class
- ------------------------ ------------------- ----------
Citizens Federal Savings Bank 31,063 (3) 22.3%
Employee Stock Ownership Plan
1700 Third Avenue North
Birmingham, Alabama 35203
State Farm Insurance Co. 12,999 9.3%
State Farm Plaza
Bloomington, Illinois 61701
Directors:
Bunny Stokes, Jr. 27,886 (4) 19.7%
James W. Coleman 12,300 (5) 8.8%
Cynthia N. Day 3,621 (6) 2.6%
Dr. Ross E. Gardner 6,866 4.9%
Rev. John T. Porter 800 .6%
Odessa Woolfolk 800 .6%
Executive Officers:
W. Kent McGriff 5,115 (7) 3.6%
Directors and executive officers as
a group (7 persons) 57,388 (8) 38.9%
(Footnotes continued on following page)
33
__________________________
(1) Based upon filings made pursuant to the Securities Exchange
Act of 1934, as amended, and information furnished by the
respective individuals. Under regulations promulgated
pursuant to the Exchange Act, shares of common stock are
deemed to be beneficially owned by a person if he or she
directly or indirectly has or shares (a) voting power, which
includes the power to vote or to direct the voting of the
shares, or (b) investment power, which includes the power to
dispose or to direct the disposition of the shares. Unless
otherwise indicated, the named beneficial owner has sole (or
shares with spouse or other immediate family members) voting
and dispositive power with respect to the shares.
(2) Under applicable regulations, a person is deemed to have
beneficial ownership of any shares of CFS Bancshares common
stock which may be acquired within 60 days of the date shown
pursuant to the exercise of outstanding stock options.
Shares of CFS Bancshares common stock which are subject to
stock options are deemed to be outstanding for the purpose
of computing the percentage of outstanding common stock
owned by such person or group but not deemed outstanding for
the purpose of computing the percentage of CFS Bancshares
common stock owned by any other person or group. The
amounts set forth in the table include shares which may be
received upon the exercise of stock options pursuant to CFS
Bancshares' stock option plan within 60 days of the date
shown as follows: for each of the four non-employee
directors, 700 shares; for Mr. Stokes, 2,500 shares; for Ms.
Day, 2,000 shares; for Mr. McGriff, 1,000 shares; and for
all directors and executive officers as a group, 8,300
shares.
(3) Includes 27,831 shares allocated to ESOP participants, and
3,232 shares not yet allocated to participants. The
participants are entitled to direct the voting of the
allocated shares. The Trust Company of Sterne, Agee &
Leach, Inc., the trustee of the ESOP, may be deemed to own
beneficially the unallocated shares held by the ESOP.
Allocated shares as to which the trustee does not receive
timely voting directions from the participants and
unallocated shares will be voted by the trustee as directed
by the ESOP committee, consisting of Directors Woolfolk,
Coleman, and Lett. The committee will generally direct that
these shares be voted in the same proportion as allocated
shares are voted by participants, subject to the
requirements of applicable law and applicable fiduciary
duties.
(4) Includes 5,078 shares allocated to Mr. Stokes' ESOP account.
Mr. Stokes' business address is 1700 Third Avenue North,
Birmingham, Alabama 35203.
(5) Mr. Coleman's address is Route 1, Box 287, Sawyerville,
Alabama 36776.
(6) Includes 1,621 shares allocated to Ms. Day's ESOP account.
(7) Includes 2,557 shares allocated to Mr. McGriff's ESOP
account.
(8) This total includes shares beneficially owned by all
directors and executive officers listed in the table.
34
STOCKHOLDER PROPOSALS
If the merger is not consummated prior to the next regularly
scheduled annual meeting of our stockholders, any proposal which
a stockholder wished to have included in our proxy materials for
the next annual meeting of stockholders was required to be
received at our main office located at 1700 Third Avenue North,
Birmingham, Alabama 35203, Attention: W. Kent McGriff, Secretary,
no later than August 23, 2002. No stockholder proposals were
received by such date. Nothing in this paragraph shall be deemed
to require us to include in our proxy statement or the proxy
relating to any annual meeting any stockholder proposal which
does not meet all of the requirements for inclusion established
by the SEC in effect at the time such proposal is received. In
addition, all stockholder proposals must comply with our bylaws
and Delaware law.
Stockholder proposals, other than those submitted pursuant
to the Exchange Act, must be submitted in writing to the
Secretary of CFS Bancshares at the address given in the preceding
paragraph not less than 30 days nor more than 60 days prior to
the date of any such meeting; provided, however, that if less
than 40 days' notice of the meeting is given to stockholders,
such written notice shall be delivered or mailed, as prescribed,
to the Secretary of CFS Bancshares not later than the close of
business on the tenth day following the day on which notice of
the meeting was mailed to stockholders.
OTHER MATTERS
Each proxy solicited also confers discretionary authority on
our Board of Directors to vote the proxy with respect to the
approval of the minutes of the last meeting of stockholders,
matters incident to the conduct of the meeting, and upon such
other matters as may properly come before the special meeting.
Our Board of Directors is not aware of any business to come
before the special meeting other than those matters described
above in this proxy statement. However, if any other matter
should properly come before the special meeting, it is intended
that proxy holders will act in accordance with their best
judgment.
YOUR VOTE IS IMPORTANT! WE URGE YOU TO SIGN AND DATE THE
ENCLOSED PROXY FORM AND RETURN IT TODAY IN THE ENCLOSED POSTAGE-
PAID ENVELOPE.
35
Appendix A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
CITIZENS BANCSHARES CORPORATION,
CITIZENS TRUST BANK,
CFS BANCSHARES, INC.,
AND
CITIZENS FEDERAL SAVINGS BANK
TABLE OF CONTENTS
Page
Preamble............................................................... A-1
ARTICLE 1 TRANSACTIONS AND TERMS OF MERGER........................... A-1
1.1 Merger..................................................... A-1
1.2 Time and Place of Closing.................................. A-2
1.3 Effective Time............................................. A-2
ARTICLE 2 TERMS OF MERGER............................................ A-2
2.1 Articles of Incorporation.................................. A-2
2.2 Bylaws..................................................... A-2
2.3 Directors and Officers..................................... A-2
2.4 Name....................................................... A-3
ARTICLE 3 MANNER OF CONVERTING SHARES................................ A-3
3.1 Conversion of Shares....................................... A-3
3.2 Anti-Dilution Provisions................................... A-3
3.3 Shares Held by CFSB or CBC................................. A-3
3.4 Dissenting Shareholders.................................... A-3
3.5 CFSB Options............................................... A-4
ARTICLE 4 EXCHANGE OF SHARES......................................... A-4
4.1 Exchange Procedures........................................ A-4
4.2 Rights of Former CFSB Shareholders......................... A-4
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF CFSB..................... A-5
5.1 Organization, Standing, and Power.......................... A-5
5.2 Authority; No Breach By Agreement.......................... A-5
5.3 Capital Stock.............................................. A-6
5.4 CFSB Subsidiaries.......................................... A-6
5.5 Financial Statements....................................... A-7
5.6 Absence of Undisclosed Liabilities......................... A-7
5.7 Absence of Certain Changes or Events....................... A-7
5.8 Tax Matters................................................ A-7
5.9 Allowance for Possible Loan Losses......................... A-8
5.10 Assets..................................................... A-8
5.11 Environmental Matters...................................... A-9
5.12 Compliance with Laws....................................... A-9
5.13 Labor Relations............................................ A-10
5.14 Employee Benefit Plans..................................... A-10
A-i
5.15 Material Contracts......................................... A-12
5.16 Legal Proceedings.......................................... A-12
5.17 Reports.................................................... A-12
5.18 Statements True and Correct................................ A-13
5.19 Regulatory Matters......................................... A-13
5.20 Charter Provisions......................................... A-13
5.21 Derivatives Contracts...................................... A-13
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF CBC...................... A-14
6.1 Organization, Standing, and Power.......................... A-14
6.2 Authority; No Breach By Agreement.......................... A-14
6.3 Necessary Capital.......................................... A-15
6.4 CTB........................................................ A-15
6.5 Financial Statements....................................... A-15
6.6 Absence of Undisclosed Liabilities......................... A-16
6.7 Absence of Certain Changes or Events....................... A-16
6.8 Statements True and Correct................................ A-16
6.9 Regulatory Matters......................................... A-16
ARTICLE 7 CONDUCT OF BUSINESS PENDING CONSUMMATION................... A-17
7.1 Affirmative Covenants of CFSB.............................. A-17
7.2 Negative Covenants of CFSB................................. A-17
7.3 Adverse Changes in Condition............................... A-19
7.4 Reports.................................................... A-19
ARTICLE 8 ADDITIONAL AGREEMENTS...................................... A-19
8.1 Applications............................................... A-19
8.2 Filings with State Offices................................. A-19
8.3 Agreement as to Efforts to Consummate...................... A-19
8.4 Investigation and Confidentiality.......................... A-19
8.5 Press Releases............................................. A-20
8.6 Acquisition Proposals...................................... A-20
8.7 Indemnification............................................ A-21
8.8 Continuing Directors' and Officers' Liability Coverage..... A-21
8.9 Employee Benefits Matters.................................. A-22
8.10 Change of Control Agreements............................... A-23
8.11 Exemption from Liability Under Section 16(b)............... A-23
8.12 Organization of CBC Interim Corporation.................... A-24
ARTICLE 9 CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE.......... A-24
9.1 Conditions to Obligations of Each Party.................... A-24
9.2 Conditions to Obligations of CBC........................... A-24
9.3 Conditions to Obligations of CFSB.......................... A-25
A-ii
ARTICLE 10 TERMINATION................................................ A-26
10.1 Termination................................................ A-26
10.2 Effect of Termination...................................... A-27
10.3 Non-Survival of Representations and Covenants.............. A-27
ARTICLE 11 MISCELLANEOUS.............................................. A-27
11.1 Definitions................................................ A-27
11.2 Expenses................................................... A-34
11.3 Brokers and Finders........................................ A-35
11.4 Entire Agreement........................................... A-35
11.5 Amendments................................................. A-35
11.6 Waivers.................................................... A-35
11.7 Assignment................................................. A-36
11.8 Notices.................................................... A-36
11.9 Governing Law.............................................. A-37
11.10 Counterparts............................................... A-37
11.11 Captions................................................... A-37
11.12 Enforcement of Agreement................................... A-37
11.13 Severability............................................... A-37
A-iii
LIST OF EXHIBITS
----------------
Exhibit Number Description
- ------------- -----------
1. Form of Employment Agreement (Section 8.9(f)).
2. Form of Agreement of Directors of CFSB (Section 9.2(d)).
3. Form of Claims/Indemnification Letter (Section 9.2(e)).
A-iv
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made
and entered into as of May 30, 2002 by and between CITIZENS
BANCSHARES CORPORATION, INC. ("CBC"), a corporation organized and
existing under the laws of the State of Georgia, with its
principal office located in Atlanta, Georgia; CITIZENS TRUST BANK
("CTB"), a Georgia bank with its principal office located in
Atlanta, Georgia; CFS BANCSHARES, INC. ("CFSB"), a corporation
organized and existing under the laws of the State of Delaware,
with its principal office located in Birmingham, Alabama; and
CITIZENS FEDERAL SAVINGS BANK ("Citizens Federal"), a federal
savings bank with its principal office located in Birmingham,
Alabama.
Preamble
The Boards of Directors of CBC, CTB, CFSB and Citizens
Federal are of the opinion that the transactions described herein
are in the best interests of the parties and their respective
shareholders. CBC is the sole shareholder of CTB. CFSB is the
sole shareholder of Citizens Federal. This Agreement provides for
the acquisition of CFSB and Citizens Federal by CBC as described
in Article 1 below. At the Effective Time of such merger as
described in Article 1 below, the outstanding shares of capital
stock of CFSB shall be converted into the right to receive cash
as described in Article 3 below. CBC shall conduct the business
and operations of CFSB, and CTB shall conduct the business and
operations of Citizens Federal. The transactions described in
this Agreement are subject to the approvals by the shareholders
of CFSB, the Federal Reserve Board, the Georgia Department of
Banking and Finance, the Office of Thrift Supervision, and the
satisfaction of certain other conditions described in this
Agreement.
Certain terms used in this Agreement are defined in Section
11.1 of this Agreement.
NOW, THEREFORE, in consideration of the above and the mutual
warranties, representations, covenants and agreements set forth
herein, the Parties agree as follows:
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
1.1 Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time, CTB Interim Corporation, a
Georgia corporation which CTB will cause to be organized as a
wholly-owned subsidiary of CTB, will be merged into CFSB (the
"Interim Merger"). Immediately following the Interim Merger,
CFSB will be merged with and into CBC in accordance with the
provisions of Section 14-2-1101 of the GBCC and Section 252 of
the DGCL and with the effect provided for in Section 14-2-1156 of
the GBCC and Section 259 of the DGCL (the "Merger"). CBC shall
be the Surviving Corporation resulting from the Merger.
Immediately following the Merger, Citizens Federal will be merged
with and into CTB, in accordance with the provisions of Section
7-1-530 of the FICG and 12 C.F.R. Section 563.22, and with the
effect provided for in Section 7-1-536 of the FICG (the "Bank
Merger"). CTB shall be the Surviving Bank resulting from the
Bank Merger. The Interim Merger, the Merger and the Bank Merger
shall be consummated pursuant to the terms of this Agreement,
which has been approved and adopted by the respective Boards of
Directors of the Parties.
1.2 Time and Place of Closing. The Closing will take place
at 10:00 a.m. on the date that the Effective Time occurs (or the
immediately preceding day if the Effective Time is earlier than
10:00 a.m.), or at such other time as the Parties, acting through
their chief executive officers, may mutually agree. The place of
Closing shall be at the offices of Powell, Goldstein, Frazer &
Murphy LLP in Atlanta, Georgia, or such other place as may be
mutually agreed upon by the Parties.
1.3 Effective Time. The Interim Merger shall become
effective on the date and time the Certificate of Merger and the
Articles of Merger reflecting the Interim Merger shall become
effective with the Secretary of State of the State of Georgia and
the Secretary of State of the State of Delaware (the "Effective
Time"). The Merger and the Bank Merger shall then become
effective immediately following the Effective Time on the date
and at the time the Certificates of Merger reflecting the Merger
and the Bank Merger shall become effective with the Secretary of
State of the State of Georgia. Subject to the terms and
conditions hereof, unless otherwise mutually agreed upon in
writing by the chief executive officer of each Party, the
Effective Time shall occur on the fifth business day following
the last to occur of (a) the effective date (including expiration
of any applicable waiting period) of the last required Consent of
any Regulatory Authority having authority over and approving or
exempting the Merger, or (b) the date on which the shareholders
of CFSB approve this Agreement; or such other date as may be
mutually agreed upon in writing by the chief executive officer of
each Party.
ARTICLE 2
TERMS OF MERGER
2.1 Articles of Incorporation. The Certificate of
Incorporation of CFSB in effect immediately prior to the
Effective Time shall be the Certificate of Incorporation of the
resulting corporation after the Interim Merger. The Articles of
Incorporation of CBC in effect immediately prior to the Merger
shall be the Articles of Incorporation of the Surviving
Corporation until otherwise amended or repealed. The Articles of
Incorporation of CTB in effect immediately prior to the Bank
Merger shall be the Articles of Incorporation of the Surviving
Bank until otherwise amended or repealed.
2.2 Bylaws. The Bylaws of CFSB in effect immediately prior
to the Effective Time shall be the Bylaws of the resulting
corporation after the Interim Merger. The Bylaws of CBC in effect
immediately prior to the Merger shall be the Bylaws of the
Surviving Corporation until otherwise amended or repealed. The
Bylaws of CTB in effect immediately prior to the Bank Merger
shall be the Bylaws of the Surviving Bank until otherwise
amended or repealed.
2.3 Directors and Officers.
(a) The directors of the Surviving Corporation and the
Surviving Bank immediately following the Effective Time shall
consist of the directors of CBC and CTB, respectively, plus Bunny
Stokes, Jr., all of whom shall serve in accordance with the
Bylaws of the Surviving Corporation and of the Surviving Bank,
respectively.
(b) The officers of the Surviving Corporation and the
Surviving Bank immediately following the Effective Time shall
consist of the officers of CBC and CTB, respectively, plus Bunny
Stokes, Jr. and any others who may be appointed by CBC.
A-2
2.4 Name. After the Merger, the Surviving Corporation will
operate under the name "Citizens Bancshares Corporation." After
the Bank Merger, the Surviving Bank will operate under the name
"Citizens Trust Bank."
ARTICLE 3
MANNER OF CONVERTING SHARES
3.1 Conversion of Shares. Subject to the provisions of
this Article 3, at the Effective Time, by virtue of the Interim
Merger and without any action on the part of the holders thereof
the shares of the constituent corporations shall be converted as
follows:
(a) Each share of CBC Common Stock issued and
outstanding immediately prior to the Effective Time shall remain
issued and outstanding from and after the Effective Time.
(b) Each share of CFSB Common Stock other than
Dissenting Shares (defined at Section 3.4 below) shall be
converted into the right to receive $64.62 in cash, subject to
adjustment as set forth below (the "Merger Consideration"). If
the Effective Time is subsequent to August 31, 2002, the per
share Merger Consideration will be increased as follows: to
$64.69 if the Effective Time is in September 2002, to $64.76 if
the Effective Time is in October 2002, to $64.83 if the Effective
Time is in November 2002, and to $64.90 if the Effective Time is
in December 2002. Each CFSB Option Share shall be converted into
the right to receive cash equal to the Merger Consideration minus
the per share exercise price.
3.2 Anti-Dilution Provisions. In the event CFSB changes
the number of shares of CFSB Common Stock or CFSB Option Shares,
respectively, issued and outstanding prior to the Effective Time
as a result of a stock split, stock dividend or similar
recapitalization with respect to such stock and the record date
therefor (in the case of a stock dividend) or the effective date
therefor (in the case of a stock split or similar
recapitalization) shall be prior to the Effective Time, the
Merger Consideration shall be proportionately adjusted.
3.3 Shares Held by CFSB or CBC. Each of the shares of CFSB
Common Stock held by any CFSB Company or by any CBC Company, in
each case other than in a fiduciary capacity or as a result of
debts previously contracted, shall be canceled and retired at the
Effective Time and no consideration shall be issued in exchange
therefor.
3.4 Dissenting Shareholders. Any holder of shares of CFSB
Common Stock ("Dissenting Shares") who perfects such holder's
dissenters' rights of appraisal in accordance with and as
contemplated by Section 262 of the DGCL shall be entitled to
receive the value of such shares in cash as determined pursuant
to such provisions of Law; provided, that no such payment shall
be made to any dissenting shareholder unless and until such
dissenting shareholder has complied with the applicable
provisions of the DGCL and surrendered to CBC the certificate or
certificates representing the shares for which payment is being
made. In the event that after the Effective Time a dissenting
shareholder of CFSB fails to perfect, or effectively withdraws or
loses, such holder's right to appraisal and of payment for such
holder's shares, the Surviving Bank shall issue and deliver the
consideration to which such holder of shares of CFSB Common Stock
is entitled under this Article 3 (without interest) upon
surrender by such holder of the certificate or certificates
representing shares of CFSB Common Stock held by such holder.
A-3
3.5 CFSB Options. At the Effective Time, each CFSB Option
granted pursuant to the CFSB Option Plan that is then vested,
outstanding and unexercised shall be canceled, and in lieu
thereof the holder of such CFSB Option shall be paid in cash an
amount equal to the product of (a) the number of CFSB Option
Shares subject to such vested option at the Effective Time and
(b) the amount by which the per share Merger Consideration
exceeds the exercise price per share of such CFSB Option, net of
any cash which must be withheld under federal and state income
and employment tax requirements.
ARTICLE 4
EXCHANGE OF SHARES
4.1 Exchange Procedures. Unless the parties otherwise
agree, within three business days after the Effective Time, CBC
shall cause a qualified exchange agent reasonably satisfactory to
CFSB (the "Exchange Agent") to mail to the former holders of CFSB
Common Stock appropriate transmittal materials which shall
specify that delivery shall be effected, and risk of loss and
title to the certificates theretofore representing shares of CFSB
Common Stock shall pass, only upon proper delivery of such
certificates to the Exchange Agent. After the Effective Time,
each holder of shares of CFSB Common Stock (other than shares as
to which dissenters' rights have been perfected as provided in
Section 3.4 of this Agreement) issued and outstanding at the
Effective Time shall surrender the certificate or certificates
representing such shares to the Exchange Agent and shall promptly
upon surrender thereof receive in exchange therefor the
consideration provided in Section 3.1 of this Agreement. The
Exchange Agent shall not be obligated to deliver the
consideration to which any former holder of CFSB Common Stock is
entitled as a result of the Merger until such holder surrenders
his or her certificate or certificates representing the shares of
CFSB Common Stock for exchange as provided in this Section 4.1.
The certificate or certificates of CFSB Common Stock so
surrendered shall be duly endorsed as the Exchange Agent may
require. Any other provision of this Agreement notwithstanding,
CBC shall not be liable to a holder of CFSB Common Stock for any
amounts paid or property delivered in good faith to a public
official pursuant to any applicable abandoned property Law.
4.2 Rights of Former CFSB Shareholders. At the Effective
Time, the stock transfer books of CFSB shall be closed as to
holders of CFSB Common Stock immediately prior to the Effective
Time and no transfer of CFSB Common Stock by any such holder
shall thereafter be made or recognized. Until surrendered for
exchange in accordance with the provisions of Section 4.1 of this
Agreement, each certificate theretofore representing shares of
CFSB Common Stock (other than shares as to which dissenters'
rights have been perfected as provided in Section 3.4 of this
Agreement) shall from and after the Effective Time represent for
all purposes only the right to receive the consideration provided
in Section 3.1 of this Agreement in exchange therefor. Any
shareholders of CFSB who have not theretofore complied with this
Article 4 shall thereafter look only to CBC for payment of the
consideration provided in Section 3.1 of this Agreement in
exchange therefor.
A-4
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF CFSB
CFSB and Citizens Federal hereby represent and warrant to
CBC and CTB as follows:
5.1 Organization, Standing, and Power. CFSB is a
corporation duly organized, validly existing, and in good
standing under the Laws of the State of Delaware and is duly
registered as a savings and loan holding company under the Home
Owners' Loan Act. Citizens Federal, which is a wholly-owned
subsidiary of CFSB, is a federal savings bank duly organized and
in good standing under the laws of the United States of America.
CFSB has the corporate power and authority to carry on its
business as now conducted and to own, lease and operate its
Assets. CFSB is duly qualified or licensed to transact business
as a foreign corporation in good standing in the states of the
United States and foreign jurisdictions where the character of
its Assets or the nature or conduct of its business requires it
to be so qualified or licensed, except for such jurisdictions in
which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on CFSB.
5.2 Authority; No Breach By Agreement.
(a) CFSB and Citizens Federal have the corporate power
and authority necessary to execute, deliver and perform their
obligations under this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and
performance of this Agreement and the consummation of the
transactions contemplated herein, including the Merger, have been
duly and validly authorized by all necessary corporate action in
respect thereof on the part of CFSB and Citizens Federal, subject
to the approval of this Agreement and the transactions
contemplated hereby by the holders of a majority of the
outstanding shares of CFSB Common Stock, which is the only
shareholder vote required for approval of this Agreement and
consummation of the Merger by CFSB. Subject to such requisite
shareholder approval and any approvals required of Regulatory
Authorities, this Agreement represents a legal, valid and binding
obligation of CFSB and Citizens Federal, enforceable against CFSB
and Citizens Federal in accordance with its terms (except in all
cases as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or similar
Laws affecting the enforcement of creditors' rights generally and
except that the availability of the equitable remedy of specific
performance or injunctive relief is subject to the discretion of
the court before which any proceeding may be brought).
(b) Neither the execution and delivery of this
Agreement by CFSB or Citizens Federal, nor the consummation by
CFSB or Citizens Federal of the transactions contemplated hereby,
nor compliance by CFSB or Citizens Federal with any of the
provisions hereof will (i) conflict with or result in a breach of
any provision of CFSB's Certificate of Incorporation or Bylaws or
Citizens Federal's Charter or Bylaws, or (ii) except as disclosed
in Section 5.2(b) of the CFSB Disclosure Memorandum, constitute
or result in a Default under, or require any Consent pursuant to,
or result in the creation of any Lien on any Asset of any CFSB
Company under, any Contract or Permit of any CFSB Company, where
such Default or Lien, or any failure to obtain such Consent, is
reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on CFSB, or (iii) subject to receipt of
the requisite approvals referred to in Section 9.1(b) of this
Agreement, violate any Law or Order applicable to any CFSB
Company or any of their respective Assets.
A-5
(c) Other than in connection or compliance with the
provisions of the Securities Laws, and applicable state corporate
and securities Laws, and other than Consents required from
Regulatory Authorities, and other than notices to or filings with
the Internal Revenue Service or the Pension Benefit Guaranty
Corporation with respect to any employee benefit plans, and other
than Consents, filings or notifications which, if not obtained or
made, are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on CFSB, no notice to,
filing with, or Consent of any public body or authority is
necessary for the consummation by CFSB of the Merger and the
other transactions contemplated in this Agreement.
5.3 Capital Stock.
(a) The authorized capital stock of CFSB consists of
1,000,000 shares of CFSB Common Stock, of which 139,220 shares
are issued and outstanding as of the date of this Agreement, and
100,000 shares of preferred stock, none of which are issued and
outstanding as of the date of this Agreement. All of the issued
and outstanding shares of Capital Stock of CFSB are duly and
validly issued and outstanding and are fully paid and
nonassessable under the DGCL. None of the outstanding shares of
Capital Stock of CFSB has been issued in violation of any
preemptive rights of the current or past shareholders of CFSB.
CFSB has reserved 13,922 shares of CFSB Common Stock for issuance
under the CFSB Option Plan, pursuant to which options to purchase
not more than 10,450 shares of CFSB Common Stock are outstanding
as of the date of this Agreement and pursuant to which options to
purchase not more than 10,450 shares of CFSB Common Stock will be
outstanding at the Effective Time.
(b) Except as set forth in Section 5.3(a) of this
Agreement, or as disclosed in Section 5.3 of the CFSB Disclosure
Memorandum, there are no shares of capital stock or other equity
securities of CFSB outstanding and no outstanding Rights relating
to the capital stock of CFSB.
5.4 CFSB Subsidiaries. CFSB has disclosed in Section 5.4
of the CFSB Disclosure Memorandum all of the CFSB Subsidiaries as
of the date of this Agreement. Except as disclosed in
Section 5.4 of the CFSB Disclosure Memorandum, CFSB or one of its
Subsidiaries owns all of the issued and outstanding shares of
capital stock of each CFSB Subsidiary. No equity securities of
any CFSB Subsidiary are or may become required to be issued
(other than to another CFSB Company) by reason of any Rights, and
there are no Contracts by which any CFSB Subsidiary is bound to
issue (other than to another CFSB Company) additional shares of
its capital stock or Rights, or by which any CFSB Company is or
may be bound to transfer any shares of the capital stock of any
CFSB Subsidiary (other than to another CFSB Company), and there
are no Contracts by which any CFSB Company is bound to issue
(other than to another CFSB Company) additional shares of its
capital stock. There are no Contracts relating to the rights of
any CFSB Company to vote or to dispose of any shares of the
capital stock of any CFSB Subsidiary. All of the shares of
capital stock of each CFSB Subsidiary held by a CFSB Company are
fully paid and nonassessable under the applicable Law of the
jurisdiction in which such Subsidiary is incorporated or
organized and are owned by the CFSB Company free and clear of any
Lien. Each CFSB Subsidiary is either a bank, a trust company, a
savings association or a corporation and is duly organized,
validly existing, and (as to corporations) in good standing under
the Laws of the jurisdiction in which it is organized and has the
corporate power and authority necessary for it to own, lease and
operate its Assets and to carry on its business as now conducted.
Each CFSB Subsidiary is duly qualified or licensed to transact
business as a foreign corporation in good standing in the states
of the United States and foreign jurisdictions where the
character of its Assets or the nature or conduct of its business
requires it to be so qualified or licensed, except for such
jurisdictions in which
A-6
the failure to be so qualified or licensed is not reasonably
likely to have, individually or in the aggregate, a Material
Adverse Effect on CFSB. Each CFSB Subsidiary that is a depository
institution is an "insured institution" as defined in the Federal
Deposit Insurance Act and applicable regulations thereunder, and
the deposits in which are insured to applicable limits by the Bank
Insurance Fund or the Savings Association Insurance Fund, as
appropriate.
5.5 Financial Statements. CFSB has included in Section 5.5
of the CFSB Disclosure Memorandum copies of all CFSB Financial
Statements for the periods ended on or before March 31, 2002, and
will deliver to CBC copies of all CFSB Financial Statements
prepared subsequent to the date hereof. The CFSB Financial
Statements (as of the dates thereof and for the periods covered
thereby) (a) are, or if dated after the date of this Agreement
will be, in accordance with the books and records of the CFSB
Companies, which are or will be, as the case may be, complete and
correct and which have been or will have been, as the case may
be, maintained in accordance with good business practices, and
(b) present or will present, as the case may be, fairly the
consolidated financial position of the CFSB Companies as of the
dates indicated and the consolidated results of operations,
changes in shareholders' equity, and cash flows of the CFSB
Companies for the periods indicated, in accordance with GAAP
(subject to any exceptions as to consistency specified therein or
as may be indicated in the notes thereto or, in the case of
interim financial statements, to normal recurring year-end
adjustments that are not material in amount or effect).
5.6 Absence of Undisclosed Liabilities. No CFSB Company
has any Liabilities that are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on
CFSB except Liabilities which are reflected or otherwise accrued
or reserved against in the consolidated balance sheets of CFSB as
of March 31, 2002, included in the CFSB Financial Statements or
reflected in the notes thereto. No CFSB Company has incurred or
paid any Liability since March 31, 2002, except for such
Liabilities reflected or otherwise accrued or reserved against in
the CFSB Financial Statements, or as may have been incurred or
paid in the ordinary course of business consistent with past
business practice and which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on
CFSB.
5.7 Absence of Certain Changes or Events. Since March 31,
2002, except as disclosed in Section 5.7 of the CFSB Disclosure
Memorandum, (a) there have been no events, changes or occurrences
which have had, or are reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on CFSB, and (b) the
CFSB Companies have not taken any action, or failed to take any
action, prior to the date of this Agreement, which action or
failure, if taken after the date of this Agreement, would
represent or result in a material breach or violation of any of
the covenants and agreements of CFSB provided in Article 7 of
this Agreement.
5.8 Tax Matters.
(a) All Tax returns required to be filed by or on
behalf of any of the CFSB Companies have been timely filed or
requests for extensions have been timely filed and have not
expired for periods ended on or before December 31, 2001, except
to the extent that all such failures to file, taken together, are
not reasonably likely to have a Material Adverse Effect on CFSB
and all returns filed are complete and accurate in all material
respects to the Knowledge of CFSB. All Taxes shown as due on
filed returns have been paid. There is no audit, examination,
deficiency or refund Litigation with respect to any Taxes that is
reasonably likely to result in a determination that would have,
individually or in the aggregate, a Material Adverse Effect on
CFSB, except as reserved against in the
A-7
CFSB Financial Statements delivered prior to the date of this
Agreement or as disclosed in Section 5.8(a) of the CFSB Disclosure
Memorandum. All material Taxes and other Liabilities due with
respect to completed and settled examinations or concluded
Litigation have been paid.
(b) Except as disclosed in Section 5.8(b) of the CFSB
Disclosure Memorandum, none of the CFSB Companies has executed an
extension or waiver of any statute of limitations on the
assessment or collection of any Tax due that is currently in
effect, and no unpaid tax deficiency has been asserted in writing
against or with respect to any CFSB Company, which deficiency is
reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on CFSB.
(c) Adequate provision for any Taxes due or to become
due for any of the CFSB Companies for the period or periods
through and including the date of the respective CFSB Financial
Statements has been made and is reflected on such CFSB Financial
Statements.
(d) Deferred Taxes of the CFSB Companies have been
provided for in accordance with GAAP.
(e) Each of the CFSB Companies is in compliance in all
material respects with, and its records contain all information
and documents (including, without limitation, properly completed
IRS Forms W-9) necessary to comply in all material respects with,
all applicable information reporting and Tax withholding
requirements under federal, state and local Tax Laws, and such
records identify with specificity all accounts subject to backup
withholding under Section 3406 of the Internal Revenue Code,
except for such instances of noncompliance and such omissions as
are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on CFSB.
5.9 Allowance for Possible Loan Losses. The allowance for
possible loan or credit losses (the "Allowance") shown on the
consolidated balance sheets of CFSB included in the most recent
CFSB Financial Statements dated prior to the date of this
Agreement was, and the Allowance shown on the consolidated
balance sheets of CFSB included in the CFSB Financial Statements
as of dates subsequent to the execution of this Agreement will
be, as of the dates thereof, adequate (within the meaning of GAAP
and applicable regulatory requirements or guidelines) to provide
for losses relating to or inherent in the loan and lease
portfolios (including accrued interest receivables) of the CFSB
Companies and other extensions of credit (including letters of
credit and commitments to make loans or extend credit) by the
CFSB Companies as of the dates thereof except where the failure
of such Allowance to be so adequate is not reasonably likely to
have a Material Adverse Effect on CFSB.
5.10 Assets. Except as disclosed in Section 5.10 of the
CFSB Disclosure Memorandum or as disclosed or reserved against in
the CFSB Financial Statements, the CFSB Companies have good and
marketable title, free and clear of all Liens, to all of their
respective Assets. All material tangible properties used in the
businesses of the CFSB Companies are in good condition,
reasonable wear and tear excepted, and are usable in the ordinary
course of business consistent with CFSB's past practices. All
Assets which are material to CFSB's business on a consolidated
basis, held under leases or subleases by any of the CFSB
Companies, are held under valid Contracts enforceable in
accordance with their respective terms (except as enforceability
may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other Laws affecting the
enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court
before which any proceedings may be brought), and each such
Contract is in full force and effect. CFSB currently maintains
insurance in amounts, scope, and
A-8
coverage as disclosed in Section 5.10 of the CFSB Disclosure
Memorandum. CFSB has not received written notice from any insurance
carrier that (a) such insurance will be cancelled or that coverage
thereunder will be reduced or eliminated, or (b) premium costs with
respect to such policies of insurance will be substantially increased.
Except as disclosed in Section 5.10 of the CFSB Disclosure Memorandum,
to the Knowledge of CFSB, there are presently no claims pending under
such policies of insurance and no notices have been given by CFSB
under such policies. The Assets of the CFSB Companies include
all assets required to operate the business of the CFSB Companies
as presently conducted.
5.11 Environmental Matters.
(a) Except as disclosed in Section 5.11(a) of the CFSB
Disclosure Memorandum, to the Knowledge of CFSB, each CFSB
Company, its Participation Facilities and its Loan Properties
are, and have been, in compliance with all Environmental Laws,
except for violations which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on
CFSB.
(b) To the Knowledge of CFSB, there is no Litigation
pending or threatened before any court, governmental agency or
authority or other forum in which any CFSB Company or any of its
Loan Properties or Participation Facilities has been or, with
respect to threatened Litigation, may be named as a defendant or
potentially responsible party (i) for alleged noncompliance
(including by any predecessor) with any Environmental Law or
(ii) relating to the release into the environment of any
Hazardous Material (as defined below) or oil, whether or not
occurring at, on, under or involving a site owned, leased or
operated by any CFSB Company or any of its Loan Properties or
Participation Facilities, except for such Litigation pending or
threatened that is not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on CFSB and to the
Knowledge of CFSB, there is no reasonable basis for any such
Litigation.
(c) Except as disclosed in Section 5.11(c) of the CFSB
Disclosure Memorandum, to the Knowledge of CFSB, there have been
no releases of Hazardous Material or oil in, on, under or
affecting any Participation Facility or Loan Property, except
such as are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on CFSB.
5.12 Compliance with Laws. Each CFSB Company has in effect
all Permits necessary for it to own, lease or operate its Assets
and to carry on its business as now conducted, except for those
Permits the absence of which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on
CFSB, and there has occurred no Default under any such Permit,
other than Defaults which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on
CFSB. Except as disclosed in Section 5.12 of the CFSB Disclosure
Memorandum, no CFSB Company:
(a) is in violation of any Laws, Orders or Permits
applicable to its business or employees conducting its business,
except for violations which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on
CFSB; and
(b) has received any notification or communication
from any agency or department of federal, state, or local
government or any Regulatory Authority or the staff thereof (i)
asserting that any CFSB Company is not in compliance with any of
the Laws or Orders which such governmental authority or
Regulatory Authority enforces, where such noncompliance is
reasonably likely to have,
A-9
individually or in the aggregate, a Material Adverse Effect on
CFSB, (ii) threatening to revoke any Permits, the revocation
of which is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on CFSB, or (iii) requiring
any CFSB Company to enter into or consent to the issuance of a
cease and desist order, formal agreement, directive, commitment
or memorandum of understanding, or to adopt any Board resolution
or similar undertaking, which restricts materially the conduct of
its business, or in any manner relates to its capital adequacy,
its credit or reserve policies, its management, or the payment of
dividends.
5.13 Labor Relations. No CFSB Company is the subject of any
Litigation asserting that it or any other CFSB Company has
committed an unfair labor practice (within the meaning of the
National Labor Relations Act or comparable state law) or seeking
to compel it or any other CFSB Company to bargain with any labor
organization as to wages or conditions of employment, nor is
there any strike or other labor dispute involving any CFSB
Company, pending or, to its Knowledge, threatened, nor, to its
Knowledge, is there any activity involving any CFSB Company's
employees seeking to certify a collective bargaining unit or
engaging in any other organization activity.
5.14 Employee Benefit Plans.
(a) CFSB has disclosed in Section 5.14 of the CFSB
Disclosure Memorandum and delivered or made available to CBC
prior to the execution of this Agreement copies in each case of
all pension, retirement, profit-sharing, deferred compensation,
stock option, employee stock ownership, severance pay, vacation,
bonus, or other incentive plans, all other written employee
programs, arrangements, or agreements, all medical, vision,
dental, or other health plans, all life insurance plans, and all
other employee benefit plans or fringe benefit plans, including,
without limitation, "employee benefit plans" as that term is
defined in Section 3(3) of ERISA, currently adopted, maintained
by, sponsored in whole or in part by, or contributed to by any
CFSB Company or ERISA Affiliate thereof for the benefit of
employees, retirees, dependents, spouses, directors, independent
contractors, or other beneficiaries and under which employees,
retirees, dependents, spouses, directors, independent
contractors, or other beneficiaries are eligible to participate
(collectively, the "CFSB Benefit Plans"). Any of the CFSB
Benefit Plans which is an "employee pension benefit plan," as
that term is defined in Section 3(2) of ERISA, is referred to
herein as a "CFSB ERISA Plan."
(b) Except as to those plans disclosed in
Section 5.14(b) of the CFSB Disclosure Memorandum as tax-
qualified CFSB ERISA Plans (the "CFSB Qualified Plans"), no CFSB
Company maintains or previously maintained during the six years
preceding the date of this Agreement a CFSB Plan which meets or
was intended to meet the requirements of Code Section 401(a).
The Internal Revenue Service has issued favorable determination
letters to the effect that each CFSB Qualified Plan qualifies
under Code Section 401(a) and that any related trust is exempt
from taxation under Code Section 501(a), and such determination
letters remain in effect and have not been revoked. Copies of
the most recent determination letters and any outstanding
requests for a determination letter with respect to each CFSB
Qualified Plan have been delivered or made available to CBC.
Except as disclosed in Section 5.14(b) of the CFSB Disclosure
Memorandum, no CFSB Qualified Plan has been amended since the
issuance of each respective determination letter. The CFSB
Qualified Plans currently comply in form with the requirements
under Code Section 401(a), other than changes required by
statutes, regulations and rulings for which amendments are not
yet required. No issue concerning qualification of the CFSB
Qualified Plans is pending before or is threatened by the
Internal Revenue Service. The CFSB Qualified Plans have been
administered according to their terms (except for those terms
which are inconsistent with the changes required by statutes,
regulations, and rulings for
A-10
which changes are not yet required to be made, in which case the
CFSB Qualified Plans have been administered in accordance with
the provisions of those statutes, regulations and rulings) and in
accordance with the requirements of Code Section 401(a). No CFSB
Company, any ERISA Affiliate or any fiduciary of any CFSB Qualified
Plan has done anything thatwould adversely affect the qualified
status of the CFSB Qualified Plans or the related trusts. Any CFSB
Qualified Plan which is required to satisfy Code Section 401(k)(3)
and 401(m)(2) has been tested for compliance with, and has satisfied
the requirements of, Code Section 401(k)(3) and 401(m)(2) for each
plan year ending prior to the date of this Agreement.
(c) Except as to those plans disclosed in
Section 5.14(c) of the CFSB Disclosure Memorandum, all CFSB
Benefit Plans are in compliance in all material respects with the
applicable terms of ERISA, the Internal Revenue Code, and any
other applicable Laws the breach or violation of which are
reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on CFSB. To the Knowledge of CFSB, no
CFSB Company nor any other party has engaged in a transaction
with respect to any CFSB Benefit Plan that, assuming the taxable
period of such transaction expired as of the date hereof, would
subject any CFSB Company to a tax or penalty imposed by either
Section 4975 of the Internal Revenue Code or Section 502(i) of
ERISA in amounts which are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on
CFSB.
(d) Neither CFSB nor any ERISA Affiliate of CFSB
maintains or has during the six years preceding the date of this
Agreement maintained an "employee benefit pension plan," within
the meaning of Section 3(2) of ERISA that is or was subject to
Title IV of ERISA.
(e) Neither CFSB nor any ERISA Affiliate of CFSB has
any past, present or future obligation or liability to contribute
to any multi-employer plan, as defined in Section 3(37) of ERISA.
(f) Except as disclosed in Section 5.14(f) of the CFSB
Disclosure Memorandum, (i) no CFSB Company has any obligations
for retiree health and life benefits under any of the CFSB
Benefit Plans and (ii) there are no restrictions on the rights of
such CFSB Company to amend or terminate any such Plan without
incurring any Liability thereunder, which Liability is reasonably
likely to have a Material Adverse Effect on CFSB, other than for
benefits accrued before the date of such termination or
amendment.
(g) Except as disclosed in Section 5.14(g) of the CFSB
Disclosure Memorandum, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated
hereby will (i) result in any payment (including, without
limitation, severance payments, golden parachute or otherwise)
becoming due to any director or any employee of any CFSB Company
from any CFSB Company under any CFSB Benefit Plan or otherwise,
(ii) increase any benefits otherwise payable under any CFSB
Benefit Plan, or (iii) result in any acceleration of the time of
payment or vesting of any such benefit.
(h) The actuarial present values of all accrued
deferred compensation entitlements (including, without
limitation, entitlements under any executive compensation,
supplemental retirement, or employment agreement) of employees
and former employees of any CFSB Company and their respective
beneficiaries, other than entitlements accrued pursuant to funded
retirement plans subject to the provisions of Section 412 of the
Internal Revenue Code or Section 302 of ERISA, have been
reflected on the CFSB Financial Statements to the extent required
by and in accordance with GAAP.
A-11
(i) CFSB and each ERISA Affiliate of CFSB has complied
in all material respects with applicable continuation of coverage
requirements of Section 1001 of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, and ERISA Sections 601
through 608.
(j) Except as disclosed in Section 5.14(j) of the CFSB
Disclosure Memorandum, neither CFSB nor any ERISA Affiliate of
CFSB is obligated, contingently or otherwise, under any agreement
to pay any amount which would be treated as a "parachute
payment," as defined in Section 280G(b) of the Internal Revenue
Code (determined without regard to Section 280G(b)(2)(A)(ii) of
the Internal Revenue Code).
(k) Other than routine claims for benefits, there are
no actions, audits, investigations, suits or claims pending, or
threatened against any CFSB Benefit Plan, any trust or other
funding agency created thereunder, or against any fiduciary of
any CFSB Benefit Plan or against the assets of any CFSB Benefit
Plan.
5.15 Material Contracts. Except as disclosed in Section
5.15 of the CFSB Disclosure Memorandum or otherwise reflected in
the CFSB Financial Statements, none of the CFSB Companies, nor
any of their respective Assets, businesses or operations, is a
party to, or is bound or affected by, or receives benefits under,
(a) any employment, severance, termination, consulting or
retirement Contract providing for aggregate payments to any
Person in any calendar year in excess of $25,000, excluding "at
will" employment arrangements, (b) any Contract relating to the
borrowing of money by any CFSB Company or the guarantee by any
CFSB Company of any such obligation (other than Contracts
evidencing deposit liabilities, purchases of federal funds,
Federal Home Loan Bank advances, fully-secured repurchase
agreements, trade payables, and Contracts relating to borrowings
or guarantees made in the ordinary course of business), (c) any
Contracts between or among CFSB Companies, and (d) any other
Contract (excluding this Agreement) or amendment thereto that
would be required to be filed as an exhibit to a Form 10-KSB
filed by CFSB with the SEC as of the date of this Agreement that
has not been filed as an exhibit to CFSB's Form 10-KSB for the
fiscal year ended September 30, 2001 and identified to CBC
(together with all Contracts referred to in Sections 5.10 and
5.14(a) of this Agreement, the "CFSB Contracts"). None of the
CFSB Companies is in Default under any CFSB Contract, other than
Defaults which are not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on CFSB. Except as
to deposit liabilities and FHLB advances, all of the indebtedness
of any CFSB Company for money borrowed is prepayable at any time
by such CFSB Company without penalty or premium.
5.16 Legal Proceedings. Except as disclosed in Section 5.16
of the CFSB Disclosure Memorandum, there is no Litigation
instituted or pending, or, to the Knowledge of CFSB, threatened
(or unasserted but considered probable of assertion and which if
asserted would have at least a reasonable probability of an
unfavorable outcome) against any CFSB Company, or against any
Asset, interest, or right of any of them, that is reasonably
likely to have, individually or in the aggregate, a Material
Adverse Effect on CFSB, nor are there any Orders of any
Regulatory Authorities, other governmental authorities, or
arbitrators outstanding against any CFSB Company, that are
reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on CFSB.
5.17 Reports. Since January 1, 1999, each CFSB Company has
timely filed all reports and statements, together with any
amendments required to be made with respect thereto, that it was
required to file with (a) the SEC, including but not limited to
Form 10-KSB, Forms 10-QSB, Forms 8-K, and
A-12
proxy statements, (b) the Regulatory Authorities, and (c) any
applicable state securities or banking authorities (except, in the
case of state securities authorities, failures to file which are
not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on CFSB). As of their respective dates,
each of such reports and documents, including the financial
statements, exhibits, and schedules thereto, complied in all
material respects with all applicable Laws. As of its respective
date, each such report and document to CFSB's Knowledge did not,
in any material respects, contain any untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein, in
light of the circumstances under which they were made, not
misleading.
5.18 Statements True and Correct. No statement,
certificate, instrument or other writing furnished or to be
furnished by any CFSB Company to CBC pursuant to this Agreement
contains or will contain any untrue statement of material fact or
will omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading. None of the information supplied
or to be supplied by any CFSB Company for inclusion in the Proxy
Statement to be mailed to CFSB's shareholders in connection with
the CFSB Shareholders' Meeting, and any other documents to be
filed by any CFSB Company with the SEC or any other Regulatory
Authority in connection with the transactions contemplated
hereby, will, at the respective time such documents are filed,
and with respect to the Proxy Statement, when first mailed to the
shareholders of CFSB, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under
which they were made, not misleading, or, in the case of the
Proxy Statement or any amendment thereof or supplement thereto,
at the time of the CFSB Shareholders' Meeting, be false or
misleading with respect to any material fact, or omit to state
any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of any
proxy for the CFSB Shareholders' Meeting. All documents that any
CFSB Company is responsible for filing with any Regulatory
Authority in connection with the transactions contemplated hereby
will comply as to form in all material respects with the
provisions of applicable Law.
5.19 Regulatory Matters. No CFSB Company or, to the
Knowledge of CFSB, any Affiliate thereof has taken any action, or
agreed to take any action, or has any Knowledge of any fact or
circumstance that is reasonably likely to materially impede or
delay receipt of any Consents of Regulatory Authorities referred
to in Section 9.1(b) of this Agreement or result in the
imposition of a condition or restriction of the type referred to
in the second sentence of such Section. To the Knowledge of
CFSB, there exists no fact, circumstance or reason attributable
to CFSB why the requisite Consents referred to in Section 9.1(b)
of this Agreement cannot be received in a timely manner without
the imposition of any condition or restriction of the type
described in the second sentence of such Section 9.1(b).
5.20 Charter Provisions. Each CFSB Company has taken all
action so that the entering into of this Agreement and the
consummation of the Merger and the other transactions
contemplated by this Agreement do not and will not result in the
grant of any rights to any Person under the Certificate of
Incorporation, Bylaws or other governing instruments of any CFSB
Company or restrict or impair the ability of CBC to vote, or
otherwise to exercise the rights of a shareholder with respect
to, shares of any CFSB Company that may be acquired or controlled
by it.
5.21 Derivatives Contracts. Except as set forth in Section
5.21 of the CFSB Disclosure Memorandum, neither CFSB nor any of
its Subsidiaries is a party to or has agreed to enter into an
A-13
exchange-traded or over-the-counter swap, forward, future,
option, cap, floor or collar financial contract, or any other
interest rate or foreign currency protection contract not
included on its balance sheet which is a financial derivative
contract (including various combinations thereof).
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF CBC
CBC and CTB hereby represent and warrant to CFSB and
Citizens Federal as follows:
6.1 Organization, Standing, and Power. CBC is a
corporation duly organized, validly existing, and in good
standing under the Laws of the State of Georgia, and is duly
registered as a financial holding company pursuant to the
provisions of Section 103(1) of the Gramm-Leach-Bliley Act and
Section 225.82 of Regulation Y. CTB, which is a wholly-owned
subsidiary of CBC, is a bank duly organized, validly existing and
in good standing under the Laws of the State of Georgia. CBC has
the corporate power and authority to carry on its business as now
conducted and to own, lease and operate its Assets. CBC is duly
qualified or licensed to transact business as a foreign
corporation in good standing in the states of the United States
and foreign jurisdictions where the character of its Assets or
the nature or conduct of its business requires it to be so
qualified or licensed, except for such jurisdictions in which the
failure to be so qualified or licensed is not reasonably likely
to have, individually or in the aggregate, a Material Adverse
Effect on CBC.
6.2 Authority; No Breach By Agreement.
(a) CBC and CTB have the corporate power and authority
necessary to execute, deliver and perform their obligations under
this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated herein,
including the Merger, have been duly and validly authorized by
all necessary corporate action in respect thereof on the part of
CBC and CTB. Subject to any approvals required of Regulatory
Authorities, this Agreement represents a legal, valid and binding
obligation of CBC and CTB, enforceable against CBC and CTB in
accordance with its terms (except in all cases as such
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar Laws affecting
the enforcement of creditors' rights generally and except that
the availability of the equitable remedy of specific performance
or injunctive relief is subject to the discretion of the court
before which any proceeding may be brought).
(b) Neither the execution and delivery of this
Agreement by CBC or CTB, nor the consummation by CBC or CTB of
the transactions contemplated hereby, nor compliance by CBC or
CTB with any of the provisions hereof will (i) conflict with or
result in a breach of any provision of CBC's or CTB's Articles of
Incorporation or Bylaws, or (ii) constitute or result in a
Default under, or require any Consent pursuant to, or result in
the creation of any Lien on any Asset of any CBC Company under,
any Contract or Permit of any CBC Company, where such Default or
Lien, or any failure to obtain such Consent, is reasonably likely
to have, individually or in the aggregate, a Material Adverse
Effect on CBC, or (iii) subject to receipt of the requisite
approvals referred to in Section 9.1(b) of this Agreement,
violate any Law or Order applicable to any CBC Company or any of
their respective Assets.
A-14
(c) Other than Consents required from Regulatory
Authorities, and other than notices to or filings with the
Internal Revenue Service or the Pension Benefit Guaranty
Corporation with respect to any employee benefit plans, and other
than Consents, filings or notifications which, if not obtained or
made, are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on CBC, no notice to, filing
with, or Consent of any public body or authority is necessary for
the consummation by CBC of the Merger and the other transactions
contemplated in this Agreement.
6.3 Necessary Capital. Based on the financial condition of
CBC as reflected in the CBC Financial Statements, CBC and CTB
have the necessary capital required by the regulations of the
Federal Reserve Board and FDIC to consummate the transactions
contemplated by this Agreement. At the Effective Time, CTB will
have sufficient cash funds to pay the aggregate Merger
Consideration and will use such funds for the payment of the
Merger Consideration subject to the completion of the Merger in
accordance with the terms of this Agreement. CBC and its
Subsidiaries are, and will be immediately following completion of
the Merger, in material compliance with all capital, debt, and
financial and nonfinancial provisions applicable to each of them
under the BHC Act, the FICG and any other applicable Law or any
Contract to which they are a party.
6.4 CTB. CTB owns all of the issued and outstanding shares
of capital stock of CTB. All of the shares of capital stock of
CTB held by CBC are fully paid and nonassessable under the
applicable Law of the jurisdiction in which such Subsidiary is
incorporated or organized and are owned by CBC free and clear of
any Lien. CTB is duly organized, validly existing, and in good
standing under the Laws of the jurisdiction in which it is
organized and has the corporate power and authority necessary for
it to own, lease and operate its Assets and to carry on its
business as now conducted. CTB is duly qualified or licensed to
transact business as a foreign corporation in good standing in
the states of the United States and foreign jurisdictions where
the character of its Assets or the nature or conduct of its
business requires it to be so qualified or licensed, except for
such jurisdictions in which the failure to be so qualified or
licensed is not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on CBC. CTB is an "insured
institution" as defined in the Federal Deposit Insurance Act and
applicable regulations thereunder, and the deposits in which are
insured to applicable limits by the Bank Insurance Fund or the
Savings Association Insurance Fund, as appropriate.
6.5 Financial Statements. CBC has provided to CFSB copies
of all CBC Financial Statements for the periods ended on or
before March 31, 2002, and will deliver to CFSB copies of all CBC
Financial Statements prepared subsequent to the date hereof. The
CBC Financial Statements (as of the dates thereof and for the
periods covered thereby) (a) are, or if dated after the date of
this Agreement will be, in accordance with the books and records
of the CBC Companies, which are or will be, as the case may be,
complete and correct and which have been or will have been, as
the case may be, maintained in accordance with good business
practices, and (b) present or will present, as the case may be,
fairly the consolidated financial position of the CBC Companies
as of the dates indicated and the consolidated results of
operations, changes in shareholders' equity, and cash flows of
the CBC Companies for the periods indicated, in accordance with
GAAP (subject to any exceptions as to consistency specified
therein or as may be indicated in the notes thereto or, in the
case of interim financial statements, to normal recurring year-
end adjustments that are not material in amount or effect).
A-15
6.6 Absence of Undisclosed Liabilities. No CBC Company has
any Liabilities that are reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on CBC except
Liabilities which are reflected or otherwise accrued or reserved
against in the consolidated balance sheets of CBC as of March 31,
2002, included in the CBC Financial Statements or reflected in
the notes thereto. No CBC Company has incurred or paid any
Liabilities since March 31, 2002, except for such Liabilities
reflected or otherwise accrued or reserved against in the CBC
Financial Statements, or as may have been incurred or paid in the
ordinary course of business consistent with past business
practice and which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on
CBC.
6.7 Absence of Certain Changes or Events. Since March 31,
2002, there have been no events, changes or occurrences which
have had, or are reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on CBC.
6.8 Statements True and Correct. No statement,
certificate, instrument or other writing furnished or to be
furnished by any CBC Company to CFSB pursuant to this Agreement
contains or will contain any untrue statement of material fact or
will omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which
they were made, not misleading. None of the information
supplied or to be supplied by any CBC Company for inclusion in
the Proxy Statement to be mailed to CFSB's shareholders in
connection with the CFSB Shareholders' Meeting, and any other
documents to be filed by any CBC Company with the SEC or any
other Regulatory Authority in connection with the transactions
contemplated hereby, will, at the respective time such documents
are filed, and with respect to the Proxy Statement, when first
mailed to the shareholders of CFSB, be false or misleading with
respect to any material fact, or omit to state any material fact
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or, in
the case of the Proxy Statement or any amendment thereof or
supplement thereto, at the time of the CFSB Shareholders'
Meeting, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the
solicitation of any proxy for the CFSB Shareholders' Meeting.
All documents that any CBC Company is responsible for filing with
any Regulatory Authority in connection with the transactions
contemplated hereby will comply as to form in all material
respects with the provisions of applicable Law.
6.9 Regulatory Matters. No CBC Company or, to the
Knowledge of CBC, any Affiliate thereof has taken any action, or
agreed to take any action, or has any Knowledge of any fact or
circumstance that is reasonably likely to materially impede or
delay receipt of any Consents of Regulatory Authorities referred
to in Section 9.1(b) of this Agreement or result in the
imposition of a condition or restriction of the type referred to
in the second sentence of such Section. To the Knowledge of CBC,
there exists no fact, circumstance or reason attributable to CBC
why the requisite Consents referred to in Section 9.1(b) of this
Agreement cannot be received in a timely manner without the
imposition of any condition or restriction of the type described
in the second sentence of such Section 9.1(b).
A-16
ARTICLE 7
CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 Affirmative Covenants of CFSB. Unless the prior
written consent of CBC shall have been obtained, and except as
otherwise contemplated herein, CFSB shall, and shall cause each
of its Subsidiaries, from the date of this Agreement until the
Effective Time or termination of this Agreement: (a) to operate
its business in the usual, regular and ordinary course; (b) to
preserve intact its business organization and Assets and maintain
its rights and franchises; (c) to use its reasonable efforts to
cause its representations and warranties to be correct at all
times; and (d) to take no action which would (i) adversely affect
the ability of any Party to obtain any Consents required for the
transactions contemplated hereby without imposition of a
condition or restriction of the type referred to in the last
sentence of Section 9.1(b) or 9.1(c) of this Agreement or
(ii) adversely affect in any material respect the ability of
either Party to perform its covenants and agreements under this
Agreement.
7.2 Negative Covenants of CFSB. Except as contemplated
hereby, from the date of this Agreement until the earlier of the
Effective Time or the termination of this Agreement, CFSB
covenants and agrees that it will not do or agree or commit to
do, or permit any of its Subsidiaries to do or agree or commit to
do, any of the following without the prior written consent of the
chief executive officer of CBC, which consent shall not be
unreasonably withheld:
(a) amend the Articles of Incorporation, Charter,
Bylaws or other governing instruments of any CFSB Company, or
(b) incur any additional debt obligation or other
obligation for borrowed money (other than indebtedness of a CFSB
Company to another CFSB Company) in excess of an aggregate of
$25,000 (for the CFSB Companies on a consolidated basis) except
for obligations incurred (i) in connection with this Agreement
and the transactions contemplated hereby, or (ii) in the ordinary
course of the business of CFSB Companies consistent with past
practices (which shall include, for CFSB, advances against its
line of credit consistent with past practices, and for any of its
Subsidiaries, creation of deposit liabilities, purchases of
federal funds, advances from the Federal Reserve Bank or Federal
Home Loan Bank, and entry into repurchase agreements fully
secured by U.S. government or agency securities), or impose, or
suffer the imposition, on any Asset of any CFSB Company of any
Lien or permit any such Lien to exist (other than in connection
with deposits, repurchase agreements, bankers acceptances,
Federal Home Loan Bank advances, "treasury tax and loan" accounts
established in the ordinary course of business, the satisfaction
of legal requirements in the exercise of trust powers, and Liens
in effect as of the date hereof that are disclosed in Section
7.2(b) of the CFSB Disclosure Memorandum); or
(c) repurchase, redeem, or otherwise acquire or
exchange (other than repurchases or exchanges in the ordinary
course under employee benefit plans), directly or indirectly, any
shares, or any securities convertible into any shares, of the
capital stock of any CFSB Company, or declare or pay any dividend
or make any other distribution in respect of CFSB's Common Stock;
or
(d) except for this Agreement, or pursuant to the
exercise of stock options outstanding as of the date hereof and
pursuant to the terms thereof in existence on the date hereof, or
as disclosed in Section 7.2(d) of the CFSB Disclosure Memorandum,
issue, sell, pledge, encumber, authorize the issuance of or enter
into any Contract to issue, sell, pledge, encumber, or authorize
the issuance of or otherwise permit to become outstanding, any
additional shares of CFSB Common Stock
A-17
or any other capital stock of any CFSB Company, or any stock
appreciation rights, or any option, warrant, conversion, or other
right to acquire any such stock, or any security convertible into
any such stock; or
(e) adjust, split, combine or reclassify any capital
stock of any CFSB Company or issue or authorize the issuance of
any other securities in respect of or in substitution for shares
of CFSB Stock or sell, lease, mortgage or otherwise dispose of or
otherwise encumber (i) any shares of capital stock of any CFSB
Subsidiary (unless any such shares of stock are sold or otherwise
transferred to another CFSB Company) or (ii) any Asset having a
book value in excess of $25,000 other than in the ordinary course
of business for reasonable and adequate consideration; or
(f) acquire direct or indirect control over, or invest
in equity securities of, any Person, other than in connection
with (i) foreclosures in the ordinary course of business, or
(ii) acquisitions of control by a CFSB Subsidiary in its
fiduciary capacity; or
(g) grant any increase in compensation or benefits to
the employees or officers of any CFSB Company (including such
discretionary increases as may be contemplated by existing
employment agreements), except in accordance with past practice
or previously approved by the Board of Directors of CFSB, in each
case as disclosed in Section 7.2(g) of the CFSB Disclosure
Memorandum or as required by Law; pay any severance or
termination pay or any bonus other than pursuant to written
policies, written Contracts or understandings in effect on the
date of this Agreement and disclosed in Section 7.2(g) of the
CFSB Disclosure Memorandum; enter into or amend any severance
agreements with officers of any CFSB Company; grant any increase
in fees or other increases in compensation or other benefits to
directors of any CFSB Company; or voluntarily accelerate the
vesting of any stock options or other stock-based compensation or
employee benefits; or
(h) except as disclosed in Section 7.2(h) of the CFSB
Disclosure Memorandum, enter into or amend any employment
Contract between any CFSB Company and any Person (unless such
amendment is required by Law) that the CFSB Company does not have
the unconditional right to terminate without Liability (other
than Liability for services already rendered), at any time on or
after the Effective Time; or
(i) adopt any new employee benefit plan of any CFSB
Company or make any material change in or to any existing
employee benefit plans of any CFSB Company other than any such
change that is required by Law or that, in the opinion of
counsel, is necessary or advisable to maintain the tax qualified
status of any such plan; or
(j) make any significant change in any Tax or
accounting methods or systems of internal accounting controls,
except as may be appropriate to conform to changes in Tax Laws or
regulatory accounting requirements or GAAP; or
(k) settle any Litigation involving any Liability of
any CFSB Company for money damages in excess of $25,000 or
material restrictions upon the operations of any CFSB Company; or
(l) except in the ordinary course of business, modify,
amend or terminate any material Contract or waive, release,
compromise or assign any material rights or claims.
A-18
7.3 Adverse Changes in Condition. Each Party agrees to
give written notice promptly to the other Party upon becoming
aware of the occurrence or impending occurrence of any event or
circumstance relating to it or any of its Subsidiaries which
(a) is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on it or (b) is reasonably
likely to cause or constitute a material breach of any of its
representations, warranties, or covenants contained herein, and
to use its reasonable efforts to prevent or promptly to remedy
the same.
7.4 Reports. Each Party and its Subsidiaries shall file
all reports required to be filed by it with Regulatory
Authorities between the date of this Agreement and the Effective
Time and shall deliver to the other Party copies of all non-
confidential portions of such reports promptly after the same are
filed.
ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 Applications. The Parties shall promptly prepare and
file any applications, including without limitation, those with
the Federal Reserve Board, the Office of Thrift Supervision and
the Georgia Department of Banking and Finance seeking the
requisite Consents necessary to consummate the transactions
contemplated by this Agreement.
8.2 Filings with State Offices. Upon the terms and subject
to the conditions of this Agreement, the Parties shall execute
and file the Certificate of Merger with the Secretary of State of
the State of Georgia and with the Secretary of State of the State
of Delaware in connection with the Closing.
8.3 Agreement as to Efforts to Consummate. No Party shall
take, or cause to be taken, any action which may reasonably be
foreseen as delaying or otherwise adversely impacting
consummation of the Merger. Subject to the terms and conditions
of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable efforts to take, or cause to
be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable under applicable Laws, as promptly
as practicable so as to permit consummation of the Merger at the
earliest possible date and to otherwise enable consummation of
the transactions contemplated hereby and shall cooperate fully
with the other Party hereto to that end, including, without
limitation, using its reasonable efforts to lift or rescind any
Order adversely affecting its ability to consummate the
transactions contemplated herein and to cause to be satisfied the
conditions referred to in Article 9 of this Agreement. Each
Party shall use, and shall cause each of its Subsidiaries to use,
its reasonable efforts to obtain all Consents necessary or
desirable for the consummation of the transactions contemplated
by this Agreement.
8.4 Investigation and Confidentiality.
(a) Prior to the Effective Time, each Party will keep
the other Party advised of all material developments relevant to
its business and to consummation of the Merger and shall permit
the other Party to make or cause to be made such investigation of
the business and properties of it and its Subsidiaries and of
their respective financial and legal conditions as the other
Party reasonably requests, provided that such investigation shall
be reasonably related to the transactions contemplated hereby and
shall not interfere unnecessarily with normal operations. No
investigation by a Party shall affect the representations and
warranties of the other Party.
A-19
(b) Each Party shall, and shall cause its advisers and
agents to, maintain the confidentiality of all confidential
information furnished to it by the other Party concerning its and
its Subsidiaries' businesses, operations, and financial positions
and shall not use such information for any purpose except in
furtherance of the transactions contemplated by this Agreement.
In addition, CBC and CTB agree that the confidentiality letter
dated February 22, 2002 and executed by them shall continue in
full force and effect. If this Agreement is terminated prior to
the Effective Time, each Party shall promptly return all
documents and copies thereof and all work papers containing
confidential information received from the other Party.
(c) Each Party agrees to give the other Party notice
as soon as practicable after any determination by it of any fact
or occurrence relating to the other Party which it has discovered
through the course of its investigation and which represents, or
is reasonably likely to represent, either a material breach of
any representation, warranty, covenant or agreement of the other
Party or which has had or is reasonably likely to have a Material
Adverse Effect on the other Party.
8.5 Press Releases. Prior to the Effective Time, CFSB and
CBC shall agree with each other as to the form and substance of
any press release or other public disclosure materially related
to this Agreement or any other transaction contemplated hereby;
provided, however, that nothing in this Section 8.5 shall be
deemed to prohibit any Party from making any disclosure which its
counsel deems necessary or advisable in order to satisfy such
Party's disclosure obligations imposed by Law.
8.6 Acquisition Proposals.
(a) Except with respect to this Agreement and the
transactions contemplated hereby, no CFSB Company nor any
director, employee, investment banker, attorney, accountant or
other representative thereof (collectively, "Representatives")
retained by any CFSB Company shall directly or indirectly solicit
any Acquisition Proposal by any Person. Except to the extent
necessary to comply with the fiduciary duties of its Board of
Directors as advised by counsel, no CFSB Company nor
Representative thereof shall furnish any non-public information
in connection with, negotiate with respect to, or enter into any
Contract with respect to, any Acquisition Proposal, but CFSB may
communicate information about such an Acquisition Proposal to its
shareholders if and to the extent that it is required to do so in
order to comply with its legal obligations as advised by counsel.
CFSB shall promptly notify CBC orally and in writing in the event
that it receives any inquiry or proposal relating to any such
transaction.
(b) Except as set forth herein, CFSB shall not
(i) withdraw or modify, or propose to withdraw or modify, in a
manner adverse to CBC, the approval or recommendation of its
Board of Directors of this Agreement or the Merger, (ii) approve
or recommend, or propose to approve or recommend, any Acquisition
Proposal or (iii) enter into any agreement with respect to any
Acquisition Proposal. Notwithstanding the foregoing, if in the
opinion of the Board of Directors of CFSB, after consultation
with counsel, failure to do so would be inconsistent with its
fiduciary duties to its shareholders under applicable law, then
the Board of Directors of CFSB may (subject to the terms of this
section (b)) withdraw or modify its approval or recommendation of
this Agreement or the Merger, approve or recommend an Acquisition
Proposal, or enter into an agreement with respect to an
Acquisition Proposal, in each case at any time after the second
business day following the receipt of written notice (a "Notice
of Acquisition Proposal") by CBC advising it that CFSB has
received an Acquisition Proposal, specifying the material terms
and conditions of such proposal and identifying the
A-20
Person making such proposal; provided that CFSB shall not enter
into an agreement with respect to an Acquisition Proposal unless
it shall have furnished CBC with written notice no later than 12:00
noon Georgia time one (1) day in advance of any date that it intends
to enter into such agreement.
(c) In addition to the obligations set forth in
section (b) above, CFSB shall immediately advise CBC orally and
in writing of any request for information or of any Acquisition
Proposal, or any inquiry with respect to or which could lead to
an Acquisition Proposal, the material terms and conditions of
such request, Acquisition Proposal or inquiry, and the identity
of the Person making a request, Acquisition Proposal or inquiry.
CFSB shall keep CBC fully informed of the status and details
(including amendments or proposed amendments) of the material
terms of any such request, Acquisition Proposal or inquiry.
(d) Nothing contained in this Section 8.6 shall
prohibit CFSB from making any disclosure to its shareholders if,
in the opinion of its Board of Directors, after consultation with
counsel, failure to so disclose would be inconsistent with
federal securities laws or its fiduciary duties to its
shareholders under applicable law; provided that CFSB does not,
except as permitted by section (b) above, withdraw or modify, or
propose to withdraw or modify, its position with respect to the
Merger or approve or recommend, or propose to approve or
recommend, an Acquisition Proposal.
8.7 Indemnification.
(a) CBC shall indemnify, defend, and hold harmless the
present and former directors, officers, employees, and agents of
the CFSB Companies (each, an "Indemnified Party") against all
Liabilities arising out of actions or omissions occurring at or
prior to the Effective Time (including the transactions
contemplated by this Agreement) to the full extent to which such
Indemnified Parties were entitled under Delaware Law and CFSB's
Certificate of Incorporation and Bylaws as in effect on the date
hereof, including provisions relating to advances of expenses
incurred in the defense of any Litigation. Without limiting the
foregoing, in any case in which approval by CBC is required to
effect any indemnification, CBC shall direct, at the election of
the Indemnified Party, that the determination of any such
approval shall be made by independent counsel mutually agreed
upon between CBC and the Indemnified Party.
(b) If CBC or any of its successors or assigns shall
consolidate with or merge into any other Person and shall not be
the continuing or surviving Person of such consolidation or
merger or shall transfer all or substantially all of its assets
to any Person, then and in each case, proper provision shall be
made so that the successors and assigns of CBC shall assume the
obligations set forth in this Section 8.7.
(c) The provisions of this Section 8.6 are intended to
be for the benefit of and shall be enforceable by each
Indemnified Party, his or her heirs and representatives.
8.8 Continuing Directors' and Officers' Liability Coverage.
CBC shall provide and keep in force for a period of three years
after the Effective Time tail coverage and the current CFSB
directors and officers' liability insurance policy, said tail
coverage to insure directors and officers of CFSB for acts or
omissions occurring prior to the Effective Time, provided that
the cost of such coverage shall not exceed $50,000 annually.
A-21
8.9 Employee Benefits Matters.
(a) The employee benefit programs for officers and
employees of the Surviving Bank will be those of CBC. CBC and
its Subsidiaries also shall honor in accordance with their terms
all employment, severance, consulting and other compensation
Contracts disclosed in Section 8.9 of the CFSB Disclosure
Memorandum between any CFSB Company and any current or former
director, officer, or employee thereof and all provisions for
vested benefits accrued through the Effective Time under the CFSB
Benefit Plans. Section 8.9 of the CFSB Disclosure Memorandum
quantifies in reasonable detail the amount of payments which
would become due and payable (assuming the Merger is consummated
on or before December 31, 2002) under the employment or change in
control agreements as a result of a termination of employment
and/or a change in control of CFSB or Citizens Federal. The
total cash severance to be paid to the three officers with
employment or change in control agreements shall not exceed the
respective officer's Section 280G limit under the Code, to the
extent such officer is entitled to receive severance payments
under his or her respective agreement.
(b) Any person who is currently serving as an employee
of a CFSB Company and continues as such immediately prior to the
Effective Time (other than those employees covered by a written
employment or change in control agreement set forth in Section
8.9 of the CFSB Disclosure Memorandum)whose employment is
discontinued by the CBC Companies within one year after the
Effective Time (unless termination of such employment is for
Cause (as defined below)) shall be entitled to a severance
payment from CTB in an amount equal to their current salary of
one week for every year of service at the CFSB Companies, up to a
maximum severance of six weeks for current officers and four
weeks for current non-officer employees, together with any
accrued but unused vacation leave with respect to the 2002
calendar year. For purposes of this Section 8.9(b), "Cause"
shall mean termination because of the employee's personal
dishonesty, incompetence, willful misconduct, breach of fiduciary
duty involving personal profit, intentional failure to perform
stated duties or willful violation of any law, rule or regulation
(other than traffic violations or similar offenses).
(c) Subject to the provisions of this Section 8.9(c),
all employees of a CFSB Company immediately prior to the
Effective Time who are employed by a CBC Company immediately
following the Effective Time ("Transferred Employees") will be
eligible to participate in the respective CBC Company's employee
benefit plans on substantially the same basis as any employee of
the CBC Company in a comparable position. Except as otherwise
prohibited by law, Transferred Employees' service with a CFSB
Company shall be recognized as service with the CBC Companies for
purposes of eligibility to participate and vesting, if applicable
(but not for purposes of benefit accrual) under the benefit plans
of the CBC Companies, subject to applicable break-in-service
rules. CBC agrees that any pre-existing condition, limitation or
exclusion in its medical, long-term disability and life insurance
plans shall not apply to Transferred Employees or their covered
dependents who are covered under a medical or hospitalization
indemnity plan maintained by a CFSB Company on the Effective Time
and who then change coverage to the CBC Companies' medical or
hospitalization indemnity health plan at the time such
Transferred Employees are first given the option to enroll.
(d) CFSB shall take all necessary action to cause the
Citizens Federal employee stock ownership plan ("ESOP") to be
terminated as of the Effective Time. The Merger Consideration
received by the Citizens Federal ESOP trustee in connection with
the Merger with respect to the unallocated shares of CFSB Common
Stock shall be first applied by the Citizens Federal ESOP trustee
A-22
to the full repayment of the Citizens Federal ESOP loan. The
balance of the Merger Consideration received by the Citizens
Federal ESOP trustee with respect to the unallocated shares of
CFSB Common Stock shall be allocated as earnings to the accounts
of all participants in the Citizens Federal ESOP who have
accounts remaining in accordance with the provisions of the
Citizens Federal ESOP. The accounts of all participants and
beneficiaries in the Citizens Federal ESOP immediately prior to
the Effective Time shall become fully vested as of the Effective
Time. As soon as practicable after the date hereof, Citizens
Federal shall file or cause to be filed all necessary documents
with the IRS for a determination letter for termination of the
Citizens Federal ESOP as of the Effective Time. As soon as
practicable after the later of the Effective Time or the receipt
of a favorable determination letter for termination from the IRS,
the account balances in the Citizens Federal ESOP shall be
distributed to participants and beneficiaries or transferred to
an eligible individual retirement account or plan as a
participant or beneficiary may direct. Prior to the Effective
Time, no prepayments shall be made on the Citizens Federal ESOP
loan and contributions to the Citizens Federal ESOP and payments
on the Citizens Federal ESOP loan shall be made consistent with
past practices on the regularly scheduled payment dates.
(e) At the Effective Time, the directors of CFSB will
be appointed to a newly created Alabama Advisory Board for CBC
and/or CTB for a period of not less than one year. Mr. Bunny
Stokes, Jr. will chair the Advisory Board. Each Advisory Board
member shall be compensated for their services in a minimum
amount of $1,800 per annum, payable bi-monthly. The provisions
of this Section 8.9(e) are intended to be for the benefit of, and
shall be enforceable by, members of the Board of Directors of
CFSB.
(f) At the Effective Time, CBC and/or CTB shall offer
to enter into an employment agreement with Bunny Stokes, Jr. on
substantially the terms set forth in Exhibit 1.
8.10 Change of Control Agreements. CBC acknowledges the
change of control agreements between CFSB and Bunny Stokes, Jr.,
Cynthia N. Day and W. Kent McGriff. CBC will cause CFSB to make
the change of control payments to Mr. Stokes, Ms. Day and
Mr. McGriff immediately prior to the Effective Time in the
amounts set forth in Section 8.9 of the CFSB Disclosure
Memorandum.
8.11 Exemption from Liability Under Section 16(b). Assuming
that CFSB delivers to CBC the Section 16 Information (as defined
below) in a timely fashion, the Board of Directors of CBC, or a
committee of "Non-Employee Directors" thereof (as such term is
defined for purposes of Rule 16b-3(d) under the 1934 Act), shall
adopt a resolution providing that the receipt by CFSB Insiders
(as defined below) of cash in exchange for shares of CFSB Common
Stock and CFSB Options, in each case pursuant to the transactions
contemplated hereby and to the extent such securities are listed
in the Section 16 Information, are intended to be exempt from
liability pursuant to Section 16(b) under the 1934 Act.
"Section 16 Information" shall mean information accurate in all
respect regarding CFSB Insiders, the number of shares of CFSB
Common Stock held by each such CFSB Insider and expected to be
exchanged for cash in the Merger, and the number and description
of the CFSB Options held by each such CFSB Insider. "CFSB
Insiders" shall mean those officers and directors of CFSB who are
subject to the reporting requirements of Section 16(a) of the
1934 Act and who are listed in the Section 16 Information.
A-23
8.12 Organization of CBC Interim Corporation. CBC shall
cause CBC Interim Corporation to be organized under the laws of
the State of Georgia. The Board of CBC Interim Corporation shall
approve this Agreement and the Interim Merger, whereupon CBC
Interim Corporation shall become a party to, and be bound by,
this Agreement, and CBC shall adopt and ratify this Agreement in
its capacity as the sole shareholder of CBC Corporation.
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 Conditions to Obligations of Each Party. The
respective obligations of each Party to perform this Agreement
and consummate the Merger and the other transactions contemplated
hereby are subject to the satisfaction of the following
conditions, unless waived by both Parties to the extent permitted
by Law pursuant to Section 11.6 of this Agreement:
(a) Shareholder Approval. The shareholders of CFSB
shall have approved this Agreement, and the consummation of the
transactions contemplated hereby, including the Merger, as and to
the extent required by Law, or by the provisions of any governing
instruments.
(b) Regulatory Approvals. All Consents of, filings
and registrations with, and notifications to all Regulatory
Authorities required for consummation of the Merger shall have
been obtained or made and shall be in full force and effect and
all waiting periods required by Law shall have expired. No
Consent obtained from any Regulatory Authority which is necessary
to consummate the transactions contemplated hereby shall be
conditioned or restricted in a manner (including, without
limitation, requirements relating to the raising of additional
capital or the disposition of Assets) which in the reasonable
judgment of the Board of Directors of either Party would so
materially adversely impact the economic or business benefits of
the transactions contemplated by this Agreement as to render
inadvisable the consummation of the Merger.
(c) Consents and Approvals. Each Party shall have
obtained any and all Consents required for consummation of the
Merger (other than those referred to in Section 9.1(b) of this
Agreement) or for the preventing of any Default under any
Contract or Permit of such Party which, if not obtained or made,
is reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on such Party. No Consent so obtained
which is necessary to consummate the transactions contemplated
hereby shall be conditioned or restricted in a manner which in
the reasonable judgment of the Board of Directors of either party
would so materially adversely impact the economic or business
benefits of the transactions contemplated by this Agreement as to
render inadvisable the consummation of the Merger.
(d) Legal Proceedings. No court or governmental or
regulatory authority of competent jurisdiction shall have
enacted, issued, promulgated, enforced or entered any Law or
Order (whether temporary, preliminary or permanent) or taken any
other action which prohibits, restricts or makes illegal
consummation of the transactions contemplated by this Agreement.
9.2 Conditions to Obligations of CBC. The obligations of
CBC to perform this Agreement and consummate the Merger and the
other transactions contemplated hereby are subject to the
satisfaction of the following conditions, unless waived by CBC
pursuant to Section 11.6(a) of this Agreement:
A-24
(a) Representations and Warranties. For purposes of
this Section 9.2(a), the accuracy of the representations and
warranties of CFSB set forth or referred to in this Agreement
shall be assessed as of the date of this Agreement and as of
immediately prior to the Effective Time with the same effect as
though all such representations and warranties had been made on
and as of immediately prior to the Effective Time (provided that
representations and warranties which are confined to a specified
date shall speak only as of such date). The representations and
warranties of CFSB set forth in Section 5.3 of this Agreement
shall be true and correct (except for inaccuracies which are de
minimus in amount or effect). The representations and warranties
of CFSB set forth in Sections 5.19 and 5.20 of this Agreement
shall be true and correct in all material respects. There shall
not exist inaccuracies in the representations and warranties of
CFSB set forth in this Agreement (excluding the representations
and warranties set forth in Sections 5.3, 5.19 and 5.20) such
that the aggregate effect of such inaccuracies would have, or is
reasonably likely to have, a Material Adverse Effect on CFSB;
provided that, for purposes of this sentence only, those
representations and warranties which are qualified by references
to "material" or "Material Adverse Effect" shall be deemed not to
include such qualifications.
(b) Performance of Agreements and Covenants. Each and
all of the agreements and covenants of CFSB to be performed and
complied with pursuant to this Agreement and the other agreements
contemplated hereby prior to the Effective Time shall have been
duly performed and complied with in all material respects.
(c) Certificates. CFSB shall have delivered to CBC
(i) a certificate, dated as of the Effective Time and signed on
its behalf by its chief executive officer and its chief financial
officer, to the effect that the conditions to CBC's obligations
set forth in Sections 9.2(a) and 9.2(b) of this Agreement have
been satisfied, and (ii) certified copies of resolutions duly
adopted by CFSB's Board of Directors evidencing the taking of all
corporate action necessary to authorize the execution, delivery
and performance of this Agreement, and the consummation of the
transactions contemplated hereby, all in such reasonable detail
as CBC and its counsel shall request.
(d) Directors Agreements. Each of the directors of
CFSB shall have executed and delivered to CBC agreements in
substantially the form of Exhibit 2.
(e) Claims/Indemnification Letters. Each of the
directors and officers of CFSB shall have executed and delivered
to CBC letters in substantially the form of Exhibit 3.
9.3 Conditions to Obligations of CFSB. The obligations of
CFSB to perform this Agreement and consummate the Merger and the
other transactions contemplated hereby are subject to the
satisfaction of the following conditions, unless waived by CFSB
pursuant to Section 11.6(b) of this Agreement:
(a) Representations and Warranties. For purposes of
this Section 9.3(a), the accuracy of the representations and
warranties of CBC set forth or referred to in this Agreement
shall be assessed as of the date of this Agreement and as of
immediately prior to the Effective Time with the same effect as
though all such representations and warranties had been made on
and as of immediately prior to the Effective Time (provided that
representations and warranties which are confined to a specified
date shall speak only as of such date). The representations and
warranties of CBC set forth in
A-25
this Agreement shall be true and correct (except for inaccuracies
which are de minimus in amount or effect).
(b) Performance of Agreements and Covenants. Each and
all of the agreements and covenants of CBC to be performed and
complied with pursuant to this Agreement and the other agreements
contemplated hereby prior to the Effective Time shall have been
duly performed and complied with in all material respects.
(c) Certificates. CBC shall have delivered to CFSB
(i) a certificate, dated as of the Effective Time and signed on
its behalf by its chief executive officer and its chief financial
officer, to the effect that the conditions to CFSB's obligations
set forth in Section 9.3(a) and 9.3(b) of this Agreement have
been satisfied, and (ii) certified copies of resolutions duly
adopted by CBC's Board of Directors evidencing the taking of all
corporate action necessary to authorize the execution, delivery
and performance of this Agreement, and the consummation of the
transactions contemplated hereby, all in such reasonable detail
as CFSB and its counsel shall request.
ARTICLE 10
TERMINATION
10.1 Termination. Notwithstanding any other provision of
this Agreement, and notwithstanding the approval of this
Agreement by the shareholders of CFSB, this Agreement may be
terminated and the Merger abandoned at any time prior to the
Effective Time:
(a) By mutual consent of the Board of Directors of CBC
and the Board of Directors of CFSB; or
(b) By the Board of Directors of either Party
(provided that the terminating Party is not then in breach of any
representation or warranty contained in this Agreement under the
applicable standard set forth in Section 9.2(a) of this Agreement
in the case of CFSB and Section 9.3(a) in the case of CBC or in
material breach of any covenant or other agreement contained in
this Agreement) in the event of an inaccuracy of any
representation or warranty contained in this Agreement which
cannot be or has not been cured within thirty (30) days after the
giving of written notice to the breaching Party of such
inaccuracy and which inaccuracy would provide the terminating
Party the ability to refuse to consummate the Merger under the
applicable standard set forth in Section 9.2(a) of this Agreement
in the case of CFSB's representations and warranties and Section
9.3(a) of this Agreement in the case of CBC's representations and
warranties; or
(c) By the Board of Directors of either Party
(provided that the terminating Party is not then in breach of any
representation or warranty contained in this Agreement under the
applicable standard set forth in Section 9.2(a) of this Agreement
in the case of CFSB and Section 9.3(a) in the case of CBC or in
material breach of any covenant or other agreement contained in
this Agreement) in the event of a material breach by the other
Party of any covenant or agreement contained in this Agreement
which cannot be or has not been cured within thirty (30) days
after the giving of written notice to the breaching Party of such
breach; or
(d) By the Board of Directors of either Party in the
event (provided that the terminating Party is not then in breach
of any representation or warranty contained in this Agreement
A-26
under the applicable standard set forth in Section 9.2(a) of this
Agreement in the case of CFSB and Section 9.3(a) in the case of
CBC or in material breach of any covenant or other agreement
contained in this Agreement) (i) any Consent of any Regulatory
Authority required for consummation of the Merger and the other
transactions contemplated hereby shall have been denied by final
nonappealable action of such authority or if any action taken by
such authority is not appealed within the time limit for appeal,
or (ii) if the shareholders of CFSB fail to vote their approval
of this Agreement and the transactions contemplated hereby as
required by the DGCL, at the Shareholders' Meeting where the
transactions were presented to such shareholders for approval and
voted upon; or
(e) By the Board of Directors of either Party in the
event that the Merger shall not have been consummated on or
before December 31, 2002, but only if the failure to consummate
the transactions contemplated hereby on or before such date is
not caused by any breach of this Agreement by the Party electing
to terminate pursuant to this Section 10.1(e); or
(f) By the Board of Directors of either Party
(provided that the terminating Party is not then in breach of any
representation or warranty contained in this Agreement under the
applicable standard set forth in Section 9.2(a) of this Agreement
in the case of CFSB and Section 9.3(a) in the case of CBC or in
material breach of any covenant or agreement contained in this
Agreement) in the event that any of the conditions precedent to
the obligations of such Party to consummate the Merger (other
than as contemplated by Section 10.1(d) of this Agreement) cannot
be satisfied or fulfilled by the date specified in Section
10.1(e) of this Agreement; or
(g) By the Board of Directors of CFSB in connection
with such Party's entering into a definitive agreement in
accordance with Section 8.6(b), provided that it has compiled
with all provisions thereof, including the notice provisions
therein.
10.2 Effect of Termination. In the event of the termination
and abandonment of this Agreement pursuant to Section 10.1 of
this Agreement, this Agreement shall become void and have no
effect, except that the provisions of this Section 10.2 and
Sections 8.4(b), 11.2 and 11.12 of this Agreement shall survive
any such termination and abandonment, and a termination pursuant
to Sections 10.1(b) or 10.1(c) of this Agreement shall not
relieve the breaching Party from Liability under Sections 11.2(b)
or (c) of this Agreement for an uncured willful breach of a
representation, warranty, covenant, or agreement giving rise to
such termination.
10.3 Non-Survival of Representations and Covenants. The
respective representations, warranties, obligations, covenants,
and agreements of the Parties shall not survive the Effective
Time except for this Section 10.3, Articles 2, 3 and 4 and
Sections 8.7, 8.8, 8.9, 8.10, 11.2 and 11.12 of this Agreement.
ARTICLE 11
MISCELLANEOUS
11.1 Definitions. Except as otherwise provided herein, the
capitalized terms set forth below shall have the following
meanings:
"1933 Act" shall mean the Securities Act of 1933, as
amended.
A-27
"1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
"Acquisition Proposal" with respect to a Party shall
mean any tender offer or exchange offer or any proposal for
a merger (other than the Interim Merger, the Merger and the
Bank Merger), acquisition of all of the stock or Assets of,
or other business combination involving such Party or any of
its Subsidiaries or the acquisition of a substantial equity
interest in, or a substantial portion of the Assets of such
Party or any of its Subsidiaries.
"Affiliate" of a Person shall mean any person who is an
affiliate for purposes of Rule 145 under the 1933 Act and
for purposes of qualifying the Merger for pooling of
interests accounting treatment.
"Agreement" shall mean this Agreement and Plan of
Merger, including the Exhibits delivered pursuant hereto and
incorporated herein by reference.
"Allowance" shall have the meaning provided in Section
5.9 of this Agreement.
"Assets" of a Person shall mean all of the assets,
properties, businesses and rights of such Person of every
kind, nature, character and description, whether real,
personal or mixed, tangible or intangible, accrued or
contingent, or otherwise relating to or utilized in such
Person's business, directly or indirectly, in whole or in
part, whether or not carried on the books and records of
such Person, and whether or not owned in the name of such
Person or any Affiliate of such Person and wherever located.
"Bank Merger" shall mean the merger of Citizens Federal
with and into CBT referred to in Section 1.1 of this
Agreement.
"BHC Act" shall mean the federal Bank Holding Company
Act of 1956, as amended.
"CBC Capital Stock" shall mean, collectively, the CBC
Common Stock and any other class or series of capital stock
of CBC.
"CBC Common Stock" shall mean the $1 par value of
common stock of CBC.
"CBC Companies" shall mean, collectively, CBC and all
CBC Subsidiaries.
"CBC Financial Statements" shall mean (a) the
consolidated balance sheets (including related notes and
schedules, if any) of CBC as of December 31, 2001 and 2000,
and the related statements of income, changes in
shareholders' equity, and cash flows (including related
notes and schedules, if any) for each of the three years
ended December 31, 2001, 2000 and 1999 and (b) the
consolidated balance sheets (including related notes and
schedules, if any) of CBC and related statements of income,
changes in shareholders' equity, and cash flows (including
related notes and schedules, if any) with respect to
quarterly periods ended subsequent to December 31, 2001.
"CBC Subsidiaries" shall mean the direct and indirect
Subsidiaries of CBC.
A-28
"CFSB Benefit Plans" shall have the meaning set forth
in Section 5.14 of this Agreement.
"CFSB Common Stock" shall mean the $.01 par value
common stock of CFSB.
"CFSB Companies" shall mean, collectively, CFSB and all
CFSB Subsidiaries.
"CFSB Disclosure Memorandum" shall mean the written
information entitled "CFSB Disclosure Memorandum" delivered
on or prior to the date of this Agreement to CBC describing
in reasonable detail the matters contained therein.
"CFSB Financial Statements" shall mean (a) the
consolidated balance sheets (including related notes and
schedules, if any) of CFSB as of September 30, 2001 and
2000, and the related statements of operations, changes in
stockholders' equity, and cash flows (including related
notes and schedules, if any) for each of the three years
ended September 30, 2001, 2000 and 1999 and (b) the
consolidated balance sheets (including related notes and
schedules, if any) of CFSB and related statements of
operations and cash flows (including related notes and
schedules, if any) with respect to quarterly periods ended
subsequent to September 30, 2001.
"CFSB Options" means options to purchase shares of CFSB
Common Stock granted under the CFSB Option Plan.
"CFSB Option Plan" means the CFSB 2001 Stock Option and
Incentive Plan.
"CFSB Option Shares" shall mean any shares of CFSB
Stock underlying outstanding options to purchase CFSB Common
Stock.
"CFSB Subsidiaries" shall mean the direct and indirect
subsidiaries of CFSB.
"Closing" shall mean the closing of the transactions
contemplated hereby, as described in Section 1.2 of this
Agreement.
"Closing Date" shall mean the date on which the Closing
occurs.
"Consent" shall mean any consent, approval,
authorization, clearance, exemption, waiver, or similar
affirmation by any Person pursuant to any Contract, Law,
Order or Permit.
"Contract" shall mean any written or oral agreement,
arrangement, authorization, commitment, contract, indenture,
instrument, lease, obligation, plan, practice, restriction,
understanding or undertaking of any kind or character, or
other document to which any Person is a party or that is
binding on any Person or its capital stock, Assets or
business.
"Default" shall mean (a) any breach or violation of or
default under any Contract, Order or Permit, (b) any
occurrence of any event that with the passage of time or the
giving of notice or both would constitute a breach or
violation of or default under any Contract, Order or Permit,
or (c) any occurrence of any event that with or without the
passage of time or the giving of notice would give rise to a
right to terminate or revoke, change the current terms of, or
A-29
renegotiate, or to accelerate, increase, or impose any
Liability under, any Contract, Order or Permit.
"Delaware Certificate of Merger" shall mean the
Certificate of Merger to be filed with the Secretary of
State of the State of Delaware relating to the Merger
contemplated by Section 1.1 of this Agreement.
"DGCL" shall mean the Delaware General Corporation Law.
"Effective Time" shall mean the date and time at which
the Merger becomes effective as defined in Section 1.3 of
this Agreement.
"Environmental Laws" shall mean all Laws pertaining to
pollution or protection of the environment and which are
administered, interpreted or enforced by the United States
Environmental Protection Agency and state and local agencies
with primary jurisdiction over pollution or protection of
the environment.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended.
"ERISA Affiliate" shall refer to a relationship between
entities such that the entities would, now or at any time in
the past, constitute a "single employer" within the meaning
of Section 414 of the Code.
"ERISA Plan" shall have the meaning provided in Section
5.14 of this Agreement.
"Exhibits" 1 through 3, inclusive, shall mean the
Exhibits so marked, copies of which are attached to this
Agreement. Such Exhibits are hereby incorporated by
reference herein and made a part hereof and may be referred
to in this Agreement and any other related instrument or
document without being attached hereto.
"FDIC" means the Federal Deposit Insurance Corporation.
"Federal Reserve Board" means the Board of Governors of
the Federal Reserve System.
"FICG" shall mean the Financial Institutions Code of
Georgia.
"GAAP" shall mean generally accepted accounting
principles, consistently applied during the periods
involved.
"Georgia Certificate of Merger" shall mean the
Certificate of Merger to be filed with the Secretary of
State of the State of Georgia relating to the Merger as
contemplated by Section 1.1 of this Agreement.
"Hazardous Material" shall mean any pollutant,
contaminant, or toxic or hazardous substance, pollutant,
chemical or waste within the meaning of the Comprehensive
Environment Response, Compensation, and Liability Act, 42
U.S.C. Section 9601 et seq., or any similar federal,
A-30
state or local Law (and specifically shall include asbestos
requiring abatement, removal or encapsulation pursuant to the
requirements of governmental authorities, polychlorinated
biphenyls, and petroleum and petroleum products).
"Interim Merger" shall mean the merger of CTB Interim
Corporation into CFSB.
"Internal Revenue Code" shall mean the Internal Revenue
Code of 1986, as amended, and the rules and regulations
promulgated thereunder.
"Knowledge" as used with respect to CFSB or CBC, as the
case may be, shall mean the actual knowledge of the
Chairman, President, Chief Financial Officer, Chief
Accounting Officer, Chief Credit Officer, General Counsel,
any Assistant or Deputy General Counsel, or any Senior or
Executive Vice President of such Person.
"Law" shall mean any code, law, ordinance, regulation,
reporting or licensing requirement, rule or statute
applicable to a Person or its Assets, Liabilities or
business, including, without limitation, those promulgated,
interpreted or enforced by any of the Regulatory
Authorities.
"Liability" shall mean any direct or indirect, primary
or secondary, liability, indebtedness, obligation, penalty,
cost or expense (including, without limitation, costs of
investigation, collection and defense), claim, deficiency,
guaranty or endorsement of or by any Person (other than
endorsements of notes, bills, checks, and drafts presented
for collection or deposit in the ordinary course of
business) of any type, whether accrued, absolute or
contingent, liquidated or unliquidated, matured or
unmatured, or otherwise.
"Lien" shall mean any conditional sale agreement,
default of title, easement, encroachment, encumbrance,
hypothecation, infringement, lien, mortgage, pledge,
reservation, restriction, security interest, title retention
or other security arrangement, or any adverse right or
interest, charge or claim of any nature whatsoever of, on or
with respect to any property or property interest, other
than (a) Liens for current property Taxes not yet due and
payable and (b) for depository institution Subsidiaries of a
Party, pledges to secure deposits and other Liens incurred
in the ordinary course of the banking business.
"Litigation" shall mean any action, arbitration, cause
of action, claim, complaint, criminal prosecution, demand
letter, governmental or other examination or investigation,
hearing, inquiry, administrative or other proceeding, or
notice (written or oral) by any Person alleging potential
Liability or requesting information relating to or affecting
a Party, its business, its Assets (including, without
limitation, Contracts related to it), or the transactions
contemplated by this Agreement, but shall not include
regular, periodic examinations of depository institutions
and their Affiliates by Regulatory Authorities.
"Loan Property" shall mean any property owned by the
Party in question or by any of its Subsidiaries or in which
such Party or Subsidiary holds a security interest, and,
where required by the context, includes the owner or
operator of such property, but only with respect to such
property.
A-31
"Material" for purposes of this Agreement shall be
determined in light of the facts and circumstances of the
matter in question; provided that any specific monetary
amount stated in this Agreement shall determine materiality
in that instance.
"Material Adverse Effect" on a Party shall mean an
event, change or occurrence which has a material adverse
impact on (a) the financial position, business, or results
of operations of such Party and its Subsidiaries, taken as a
whole, or (b) the ability of such Party to perform its
obligations under this Agreement or to consummate the Merger
or the other transactions contemplated by this Agreement,
provided that "material adverse impact" shall not be deemed
to include the impact of (i) changes in banking and similar
Laws of general applicability or interpretations thereof by
courts or governmental authorities, (ii) changes in GAAP or
regulatory accounting principles generally applicable to
depository institutions and their holding companies,
(iii) actions and omissions of a Party (or any of its
Subsidiaries) taken with the prior informed written consent
of the other Party in contemplation of the transactions
contemplated hereby, (iv) the Merger and compliance with the
provisions of this Agreement on the operating performance of
the Parties, including expenses incurred in connection with
this Agreement and the transactions contemplated hereby or
(v) changes in economic or other conditions affecting the
banking industry in general, including changes in the
prevailing level of interest rates.
"Merger" shall mean the merger of CFSB with and into
CBC referred to in Section 1.1 of this Agreement.
"Merger Consideration" shall have the meaning provided
in Section 3.1(b) of this Agreement.
"NASD" shall mean the National Association of
Securities Dealers, Inc., including the Nasdaq.
"Order" shall mean any administrative decision or
award, decree, injunction, judgment, order, quasi-judicial
decision or award, ruling, or writ of any federal, state,
local or foreign or other court, arbitrator, mediator,
tribunal, administrative agency or Regulatory Authority.
"Participation Facility" shall mean any facility or
property in which the Party in question or any of its
Subsidiaries participates in the management (including any
property or facility held in a joint venture) and, where
required by the context, said term means the owner or
operator of such facility or property, but only with respect
to such facility or property.
"Party" shall mean CFSB, CBC, CTB, Citizens Federal or
(after it becomes a party to this Agreement) CBC Interim
Corporation, and "Parties" shall mean CFSB, CBC, CTB,
Citizens Federal and (after it becomes a party to this
Agreement) CBC Interim Corporation.
"Permit" shall mean any federal, state, local, and
foreign governmental approval, authorization, certificate,
easement, filing, franchise, license, notice, permit, or
right to which any Person is a party or that is or may be
binding upon or inure to the benefit of any Person or its
securities, Assets, Liabilities, or business.
A-32
"Person" shall mean a natural person or any legal,
commercial or governmental entity, such as, but not limited
to, a corporation, general partnership, joint venture,
limited partnership, limited liability company, trust,
business association, group acting in concert, or any person
acting in a representative capacity.
"Proxy Statement" shall mean the proxy statement used
by CFSB to solicit the approval of its shareholders of the
transactions contemplated by this Agreement.
"Regulatory Authorities" shall mean, collectively, the
Federal Trade Commission, the United States Department of
Justice, the Board of the Governors of the Federal Reserve
System, the Office of Thrift Supervision, the Office of the
Comptroller of the Currency, the FDIC, all state regulatory
agencies having jurisdiction over the Parties and their
respective Subsidiaries, the NASD and the SEC.
"Rights" shall mean all arrangements, calls,
commitments, Contracts, options, rights to subscribe to,
scrip, understandings, warrants or other binding obligations
of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for, shares of the
capital stock of a Person or by which a Person is or may be
bound to issue additional shares of its capital stock or
other Rights.
"SEC" shall mean the United States Securities and
Exchange Commission.
"SEC Documents" shall mean all forms, proxy statements,
registration statements, reports, schedules and other
documents filed, or required to be filed, by a Party or any
of its Subsidiaries with any Regulatory Authority pursuant
to the Securities Laws.
"Securities Laws" shall mean the 1933 Act, the 1934
Act, the Investment Company Act of 1940, as amended, the
Investment Advisors Act of 1940, as amended, the Trust
Indenture Act of 1939, as amended, and the rules and
regulations of any Regulatory Authority promulgated
thereunder.
"Shareholders' Meeting" shall mean the meeting of the
shareholders of CFSB to be held to approve the Merger and
the transactions contemplated by this Agreement, including
any adjournment or adjournments thereof.
"Subsidiaries" shall mean all those corporations,
banks, associations, partnerships or other entities or
ventures of which the entity in question owns or controls
50% or more of the outstanding equity securities or the
ownership interest, as the case may be, either directly or
through an unbroken chain of entities as to each of which
50% or more of the outstanding equity securities is owned
directly or indirectly by its parent; provided, however,
there shall not be included any such entity acquired through
foreclosure or any such entity the equity securities of
which are owned or controlled in a fiduciary capacity.
"Surviving Bank" shall mean CTB as the surviving bank
resulting from the Bank Merger.
A-33
"Surviving Corporation" shall mean CBC as the surviving
corporation resulting from the Merger.
"Tax" or "Taxes" shall mean any federal, state, county,
local or foreign income, profits, franchise, gross receipts,
payroll, sales, employment, use, property, withholding,
excise, occupancy and other taxes, assessments, charges,
fares or impositions, including interest, penalties and
additions imposed thereon or with respect thereto.
Any singular term in this Agreement shall be deemed to include
the plural, and any plural term the singular. Whenever the words
"include," "includes," or "including" are used in this Agreement,
they shall be deemed followed by the words "without limitation."
11.2 Expenses.
(a) Except as otherwise provided in this Section 11.2,
each of the Parties shall bear and pay all direct costs and
expenses incurred by it or on its behalf in connection with the
transactions contemplated hereunder, including filing,
registration and application fees, printing fees, and fees and
expenses of its own financial or other consultants, investment
bankers, accountants and counsel, except that each of the Parties
shall bear and pay (i) one-half of the filing fees payable in
connection with applications filed with Regulatory Authorities,
and (ii) one-half of the costs incurred in connection with the
printing or copying of the Proxy Statement.
(b) Notwithstanding the foregoing:
(i) if this Agreement is terminated by CBC pursuant
to either of Sections 10.1(b) or 10.1(c) due to
a willful breach by CFSB or Citizens Federal of
a representation, warranty or covenant, the
satisfaction or performance of which was within
their control, or
(ii) if this Agreement is terminated by CBC pursuant
to Section 10.1(d)(ii) (but only after receipt by
CFSB of an Acquisition Proposal), or
(iii) if this Agreement is terminated by CBC pursuant
to Section 10.1(g) of this Agreement,
then CFSB shall promptly pay to CBC $250,000 plus all the out-of-
pocket costs and expenses of CBC incurred in connection with the
transactions contemplated by this Agreement, including its
enforcement, including costs of counsel, consultants, investment
bankers, actuaries and accountants, up to but not exceeding
$200,000.
(c) Notwithstanding the foregoing, if this Agreement
is terminated by CFSB pursuant to either of Sections 10.1(b) or
10.1(c) due to a willful breach by CBC or CTB of a
representation, warranty or covenant the satisfaction or
performance of which was within their control, then CBC shall
promptly pay to CFSB $250,000 plus all the out-of-pocket costs
and expenses of CFSB incurred in connection with the transactions
contemplated by this Agreement, including its enforcement, and
including costs of counsel, consultants, investment bankers,
actuaries and accountants, up to but not exceeding $200,000.
A-34
(d) The Parties agree and acknowledge that they have
agreed upon Sections 11.2(b) and (c) above to liquidate the
amount of damages they estimate each Party would suffer in the
event of termination of this Agreement in the circumstances
described. Each Party acknowledges that such damages cannot be
estimated exactly, that each Party intends that the foregoing
provisions provide for damages rather than a penalty inserted for
the purpose of deterring a Party from breaching the Agreement and
penalizing such Party in the event of such breach, and that the
foregoing amount is agreed upon in good faith as a reasonable
estimate at this time of the damages that each Party would suffer
in the event of termination of the Agreement in the circumstances
described.
11.3 Brokers and Finders. Except as set forth in Section
11.3 of the CFSB Disclosure Memorandum, and with the exception of
RP Financial, Inc., CFSB represents and warrants that neither it
nor any of its officers, directors, employees or Affiliates has
employed any broker or finder or incurred any Liability for any
financial advisory fees, investment bankers' fees, brokerage
fees, commissions, or finders' fees in connection with this
Agreement or the transactions contemplated hereby. In the event
of a claim by any broker or finder (with the exception of RP
Financial, Inc.) based upon his or its representing or being
retained by or allegedly representing or being retained by CFSB,
CFSB agrees to indemnify and hold CBC harmless of and from any
Liability in respect of any such claim.
11.4 Entire Agreement. Except as otherwise expressly
provided herein, this Agreement (including the documents and
instruments referred to herein) constitutes the entire agreement
between the Parties with respect to the transactions contemplated
hereunder and supersedes all prior arrangements or understandings
with respect thereto, written or oral. Nothing in this
Agreement, expressed or implied, is intended to confer upon any
Person, other than the Parties or their respective successors,
any rights, remedies, obligations, or liabilities under or by
reason of this Agreement, other than as provided in Sections 8.7,
8.8, 8.9, 8.10 and 8.11 of this Agreement.
11.5 Amendments. To the extent permitted by Law, this
Agreement may be amended by a subsequent writing signed by each
of the Parties upon the approval of the Board of Directors of
each of the Parties; provided, however, that after any such
approval by the holders of CFSB Common Stock, there shall be made
no amendment that pursuant to the DGCL requires further approval
by such shareholders without the further approval of such
shareholders.
11.6 Waivers.
(a) Prior to or at the Effective Time, CBC, acting
through its Board of Directors, chief executive officer or other
authorized officer, shall have the right to waive any Default in
the performance of any term of this Agreement by CFSB, to waive
or extend the time for the compliance or fulfillment by CFSB of
any and all of its obligations under this Agreement, and to waive
any or all of the conditions precedent to the obligations of CBC
under this Agreement, except any condition which, if not
satisfied, would result in the violation of any Law. No such
waiver shall be effective unless in writing signed by a duly
authorized officer of CBC.
(b) Prior to or at the Effective Time, CFSB, acting
through its Board of Directors, chief executive officer or other
authorized officer, shall have the right to waive any Default in
the performance of any term of this Agreement by CBC, to waive or
extend the time for the compliance or fulfillment by CBC of any
and all of its obligations under this Agreement, and to waive any
or all of the conditions precedent to the obligations of CFSB
under this Agreement, except any condition which, if
A-35
not satisfied, would result in the violation of any Law. No such
waiver shall be effective unless in writing signed by a duly
authorized officer of CFSB.
(c) The failure of any Party at any time or times to
require performance of any provision hereof shall in no manner
affect the right of such Party at a later time to enforce the
same or any other provision of this Agreement. No waiver of any
condition or of the breach of any term contained in this
Agreement in one or more instances shall be deemed to be or
construed as a waiver of any other condition or of the breach of
any other term of this Agreement.
11.7 Assignment. Except as expressly contemplated hereby,
neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any Party hereto
(whether by operation of Law or otherwise) without the prior
written consent of the other Party. 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.
11.8 Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and
sufficient if delivered by hand, by facsimile transmission, by
registered or certified mail, postage pre-paid, or by courier or
overnight carrier, to the persons at the addresses set forth
below (or at such other address as may be provided hereunder),
and shall be deemed to have been delivered as of the date so
delivered:
CBC: Citizens Bancshares Corporation
175 John Wesley Dobbs Avenue, NE
P. O. Box 4485
Atlanta, Georgia 30303-4485
Fax: (404) 653-2883
Attn: James E. Young, President
With a copy (which shall not constitute notice) to:
Powell, Goldstein, Frazer & Murphy LLP
Sixteenth Floor, 191 Peachtree Street, NE
Atlanta, Georgia 30303
Fax: (404) 572-6999
Attn: Beth Lanier, Esq.
CFSB: CFS Bancshares, Inc.
1700 Third Avenue North
Birmingham, Alabama 35203
Fax: (205) 214-3071
Attn: Bunny Stokes, Jr., Chairman/CEO
A-36
With a copy (which shall not constitute notice) to:
Elias, Matz, Tiernan & Herrick L.L.P.
734 15th Street, N.W.
12th Floor
Washington, D.C. 20005
Fax: (202) 347-2172
Attn: Gerald F. Heupel, Jr., Esq.
11.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the Laws of the State of Georgia,
without regard to any applicable conflicts of Laws, except to the
extent that the federal laws of the United States may apply to
the Merger.
11.10 Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one and the
same instrument.
11.11 Captions. The captions contained in this
Agreement are for reference purposes only and are not part of
this Agreement.
11.12 Enforcement of Agreement. The Parties hereto
agree that irreparable damage would occur in the event that any
of the provisions of this Agreement was not performed in
accordance with its specific terms or was otherwise breached. It
is accordingly agreed that the Parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof 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.
11.13 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 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.
A-37
IN WITNESS WHEREOF, each of the Parties has caused this
Agreement to be executed on its behalf and its corporate seal to
be hereunto affixed and attested by officers thereunto as of the
day and year first above written.
ATTEST: CITIZENS BANCSHARES CORPORATION
/s/ Willard C. Lewis By: /s/ James E. Young
- ---------------------------- ----------------------------
Willard C. Lewis James E. Young
Secretary President/CEO
[CORPORATE SEAL]
ATTEST: CITIZENS TRUST BANK
/s/ Willard C. Lewis By: /s/ James E. Young
- ---------------------------- ----------------------------
Willard C. Lewis James E. Young
Secretary President/CEO
[CORPORATE SEAL]
ATTEST: CFS BANCSHARES, INC.
/s/ W. Kent McGriff By: /s/ Bunny Stokes, Jr.
- ---------------------------- ----------------------------
W. Kent McGriff Bunny Stokes, Jr.
Secretary Chairman/CEO
[CORPORATE SEAL]
ATTEST: CITIZENS FEDERAL SAVINGS BANK
/s/ Tawanda T. Heard By: /s/ Bunny Stokes, Jr.
- ---------------------------- ----------------------------
Tawanda T. Heard Bunny Stokes, Jr.
Secretary Chairman/CEO
[CORPORATE SEAL]
[Signatures Continued on Next Page]
A-38
CTB Interim Corporation has joined as a Party to this
Agreement on this ____ day of ______, 2003.
ATTEST: CTB INTERIM CORPORATION
By:
- ------------------------- -------------------------
Secretary James E. Young
President/CEO
A-39
AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
This Amendment (the "Amendment") to Agreement and Plan of
Merger dated May 30, 2002, by and among CITIZENS BANCSHARES
CORPORATION ("CBC"), CITIZENS TRUST BANK ("CTB"), CFS BANCSHARES,
INC. ("CFSB"), and CITIZENS FEDERAL SAVINGS BANK ("Citizens
Federal") (collectively, the "Parties") is made and entered into
as of this 19th day of December 2002, by and among the Parties.
WHEREAS, the Parties entered into that certain Agreement and
Plan of Merger dated as of May 30, 2002 (the "Agreement"),
whereby, among other things, CFS and Citizens Federal will merge
with and into CTB, the wholly-owned subsidiary of CBC, upon the
terms and conditions set forth in the Agreement;
WHEREAS, the Parties agree that the delay in receiving the
required regulatory approvals and the resulting delay in CFS
holding its shareholders' meeting will impede the Parties'
ability to complete the transaction by December 31, 2002;
NOW, THEREFORE, in consideration of the mutual agreements
herein contained, the Parties hereby agree as follows:
1. Amendment to Section 3.1(b). Section 3.1(b) is hereby
amended by striking the section in its entirety and inserting in
lieu thereof the following:
"(b) Each share of CFSB Common Stock other than
Dissenting Shares (defined at Section 3.4 below) shall
be converted into the right to receive $64.62 in cash,
subject to adjustment as set forth below (the "Merger
Consideration"). If the Effective Time is subsequent
to August 31, 2002, the per share Merger Consideration
will be increased as follows: to $64.69 if the
Effective Time is in September 2002, to $64.76 if the
Effective Time is in October 2002, to $64.83 if the
Effective Time is in November 2002, to $64.90 if the
Effective Time is in December 2002, to $64.97 if the
Effective Time is in January 2003, and to $65.04 if the
Effective Time is in February 2003. Each CFSB Option
Share shall be converted into the right to receive cash
equal to the Merger Consideration minus the per share
exercise price."
2. Amendment to Section 10.1(e). Section 10.1(e) is
hereby amended by striking the section in its entirety and
inserting in lieu thereof the following:
"(e) By the Board of Directors of either Party in
the event that the Merger shall not have been
consummated on or before February 28, 2003, but only if
the failure to consummate the transactions contemplated
hereby on or before such date is not caused by any
breach of this Agreement by the Party electing to
terminate pursuant to this Section 10.1(e); or"
A-40
3. No Other Changes. Except as set forth in this
Amendment, the other provisions of the Agreement shall remain in
full force and effect in accordance with their respective terms.
Nothing contained herein shall constitute a waiver of any rights
or claims of any party heretofore or hereafter arising under or
related to the Agreement.
4. Counterparts. This Amendment may be executed in one or
more counterparts, each of which shall be deemed to be an
original, and all of which together shall constitute one and the
same agreement.
A-41
IN WITNESS WHEREOF, the Parties have caused this Amendment
to be executed on the date first above written.
ATTEST: CITIZENS BANCSHARES CORPORATION
/s/ Willard C. Lewis By: /s/ James E. Young
- ---------------------------- ----------------------------
Willard C. Lewis James E. Young
Secretary President/CEO
[CORPORATE SEAL]
ATTEST: CITIZENS TRUST BANK
/s/ Willard C. Lewis By: /s/ James E. Young
- ---------------------------- ----------------------------
Willard C. Lewis James E. Young
Secretary President/CEO
[CORPORATE SEAL]
ATTEST: CFS BANCSHARES, INC.
/s/ W. Kent McGriff By: /s/ Bunny Stokes, Jr.
- ---------------------------- ----------------------------
W. Kent McGriff Bunny Stokes, Jr.
Secretary Chairman/CEO
[CORPORATE SEAL]
ATTEST: CITIZENS FEDERAL SAVINGS BANK
/s/ W. Kent McGriff By: /s/ Bunny Stokes, Jr.
- ---------------------------- ----------------------------
W. Kent McGriff Bunny Stokes, Jr.
Secretary Chairman/CEO
[CORPORATE SEAL]
A-42
[RP Financial letterhead]
Appendix B
January 21, 2003
Board of Directors
CFS Bancshares, Inc.
Citizens Federal Savings Bank
1700 Third North Avenue
Birmingham, Alabama 21229-5411
Members of the Board:
You have requested RP Financial, LC. ("RP Financial") to provide you
with its opinion as to the fairness, from a financial point of view, to CFS
Bancshares, Inc., Birmingham, Alabama ("CFSB"), holding company for Citizens
Federal Savings Bank ("Citizens Federal"), regarding the Agreement and Plan of
Merger (the "Agreement") dated May 30, 2002, by and among CFSB, Citizens
Federal and Citizens Bancshares Corporation, Inc., Atlanta, Georgia ("CBC"),
and Citizens Trust Bank ("CTB"), the wholly-owned subsidiary of CBC, whereby
CBC will acquire for cash all of the shares of CFSB Common Stock and CFSB will
merge with and into CBC (the "Merger"). On December 19, 2002, both parties to
the Merger entered into an amendment to the Agreement extending the time for
consummating the Merger from December 31, 2002 until February 28, 2003 (the
"Amendment"). The Agreement, inclusive of exhibits, and the Amendment, is
incorporated herein by reference. Unless otherwise defined, all capitalized
terms incorporated herein have the meanings ascribed to them in the Agreement.
Summary Description of Merger Consideration
At the Effective Time, each outstanding share of CFSB Common Stock
issued and outstanding at the Effective Time shall cease to exist and shall be
converted into the right to receive $64.62 in cash (the "Merger
Consideration"). If the Effective Time is subsequent to August 31, 2002, the
per share Merger Consideration will be increased as follows: to $64.69 if the
Effective Time is in September 2002, to $64.76 if the Effective Time is in
October 2002, to $64.83 if the Effective Time is in November 2002, to $64.90
if the Effective Time is in December 2002, to $64.97 if the Effective Time is
in January 2003 and to $65.04 if the Effective Time is in February 2003. It
is anticipated that the Effective Time of the Merger will be in February 2003.
Each CFSB option share shall be converted into the right to receive cash equal
to the Merger Consideration minus the per share exercise price. All shares of
CFSB Common Stock which are held in the treasury of CFSB or owned by CBC or
any direct or indirect wholly owned subsidiary or parent of CBC shall be
canceled and retired at the Effective Time and no consideration shall be
issued in exchange therefor. As of this date, there were 139,220 shares of
CFSB Common Stock issued and outstanding, and 10,450 granted stock options
with a weighted average exercise price of $18.50 per share.
B-1
Board of Directors
January 21, 2003
Page 2
RP Financial Background and Experience
RP Financial, as part of its financial institution valuation and
consulting practice, is regularly engaged in the valuation of insured
financial institution securities in connection with mergers and acquisitions,
initial and secondary stock offerings, mutual-to-stock conversions of thrift
institutions, and business valuations for other purposes for financial
institutions. As specialists in the securities of insured financial
institutions, RP Financial has experience in, and knowledge of, the markets
for the securities of such institutions, including institutions operating in
Alabama and in the Southern U.S.
Materials Reviewed
In rendering this opinion, RP Financial reviewed the following material:
(1) the Agreement, dated May 30, 2002, including the exhibits and the
Amendment, dated December 19, 2002; (2) the following information for CFSB --
(a) annual financial statements for the fiscal years ended September 30, 1997
through 2001 included in the Annual Report to the Stockholders for each year,
(b) shareholder, regulatory, audited and internal financial and other reports
through September 30, 2002, and (c) the annual proxy statement for the last
five fiscal years; (3) discussions with CFSB's management regarding past and
current business, operations, financial condition, future prospects and market
value and liquidity of the Common Stock; (4) an analysis of the pro forma
impact of alternative strategies as an independent institution; (5)
competitive, economic and demographic characteristics nationally, regionally
and in the local market area; (6) the potential impact of regulatory and
legislative changes on financial institutions; (7) the financial terms of
other recently completed and pending acquisitions of thrifts in Alabama,
regionally and nationally with similar characteristics; and (8) CBC's
financial condition as of September 30, 2002 regarding the perceived ability
to complete the merger from a cash and capital perspective.
In rendering its opinion, RP Financial relied, without independent
verification, on the accuracy and completeness of the information concerning
CFSB furnished by CFSB to RP Financial for review for purposes of its
opinion, as well as publicly available information regarding other
financial institutions and economic and demographic data. CFSB did not
restrict RP Financial as to the material it was permitted to review. RP
Financial did not perform or obtain any independent appraisals or evaluations
of the assets and liabilities and potential and/or contingent liabilities of
CFSB.
RP Financial expresses no opinion on matters of a legal, regulatory, tax
or accounting nature or the ability of the merger as set forth in the
Agreement to be consummated. In rendering its opinion, RP Financial assumed
that, in the course of obtaining the necessary regulatory and governmental
approvals for the proposed merger, no restriction will be imposed on CBC that
would have a material adverse effect on the ability of the merger to be
consummated as set forth in the Agreement.
B-2
Board of Directors
January 21, 2003
Page 3
Opinion
It is understood that this letter is directed to the Board of Directors
of CFSB in its consideration of the Agreement, and does not constitute a
recommendation to any shareholder of CFSB as to any action that such
shareholder should take in connection with the Agreement, or otherwise.
It is understood that this opinion is based on market conditions and
other circumstances existing on the date hereof.
It is understood that this opinion may be included in its entirety in
any communication by CFSB or its Board of Directors to the stockholders of
CFSB. It is also understood that this opinion may be included in its entirety
in any regulatory filing by CFSB or CBC, and that RP Financial consents to the
summary of this opinion in the proxy materials of CFSB, and any amendments
thereto. Except as described above, this opinion may not be summarized,
excerpted from or otherwise publicly referred to without RP Financial's prior
written consent.
Based upon and subject to the foregoing, and other such matters we
consider relevant, it is RP Financial's opinion that, as of the date hereof,
the Merger Consideration to be received by the holders of CFSB Common Stock,
as described in the Agreement, is fair to such shareholders from a financial
point of view.
Respectfully submitted,
/s/ RP Financial, LC.
RP FINANCIAL, LC.
B-3
Appendix C
DELAWARE CODE ANNOTATED
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
SECTION 262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds
shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who
continuously holds such shares through the effective date of the
merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor
of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an
appraisal by the Court of Chancery of the fair value of the
stockholder's shares of stock under the circumstances described
in subsections (b) and (c) of this section. As used in this
section, the word "stockholder" means a holder of record of stock
in a stock corporation and also a member of record of a nonstock
corporation; the words "stock" and "share" mean and include what
is ordinary meant by those words and also membership or
membership interest of a member of a nonstock corporation; and
the words "depository receipt" mean a receipt or other instrument
issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation,
which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of
any class or series of stock of a constituent corporation in a
merger or consolidation to be effected pursuant to Section 251
(other than a merger effected pursuant to Section 251(g) of this
title), Section 252, Section 254, Section 257, Section 258,
Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series
of stock, which stock, or depository receipts in respect thereof,
at the record date fixed to determine the stockholders entitled
to receive notice of and to vote at the meeting of stockholders
to act upon the agreement of merger or consolidation, were either
(i) 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
(ii) held of record by more than 2,000 holders; and further
provided that no appraisal rights shall be available for any
shares of stock of the constituent corporation surviving a merger
if the merger did not require for its approval the vote of the
stockholders of the surviving corporation as provided in
subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the
shares of any class or series of stock of a constituent
corporation if the holders thereof are required by the terms of
an agreement of merger or consolidation pursuant to Sections 251,
252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything
C-1
except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository
receipts in respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the
effective date of the merger or consolidation will be either
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 holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a.
and b. of this paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a.,
b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under Section 253 of this
title is not owned by the parent corporation immediately prior to
the merger, appraisal rights shall be available for the shares of
the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be
available for the shares of any class or series of its stock as a
result of an amendment to its certificate of incorporation, any
merger or consolidation in which the corporation is a constituent
corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains
such a provision, the procedures of this section, including those
set forth in subsections (d) and (e) of this section, shall apply
as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which
appraisal rights are provided under this section is to be
submitted for approval at a meeting of stockholders, the
corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date
for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof
that appraisal rights are available for any or all of the shares
of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the
appraisal of such stockholder's shares shall deliver to the
corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such
stockholder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand
the appraisal of such stockholder's shares. A proxy or vote
against the merger or
C-2
consolidation shall not constitute such a demand. A stockholder
electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective
date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not
voted in favor of or consented to the merger or consolidation of
the date that the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to
Section 228 or Section 253 of this title, then, either a
constituent corporation before the effective date of the merger
or consolidation, or the surviving or resulting corporation
within ten days thereafter, shall notify each of the holders of
any class or series of stock of such constituent corporation who
are entitled to appraisal rights of the approval of the merger or
consolidation and that appraisal rights are available for any or
all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this
section. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify
such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may,
within 20 days after the date of mailing of such notice, demand
in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such holder's shares. If such
notice did not notify stockholders of the effective date of the
merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date
of the merger or consolidation notifying each of the holders of
any class or series of stock of such constituent corporation that
are entitled to appraisal rights of the effective date of the
merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders
on or within 10 days after such effective date; provided,
however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to
appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the
secretary or assistant secretary or of the transfer agent of the
corporation that is required to give either notice that such
notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice,
each constituent corporation may fix, in advance, a record date
that shall be not more than 10 days prior to the date the notice
is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date
shall be such effective date. If no record date is fixed and the
notice is given prior to the effective date, the record date
shall be the close of business on the day next preceding the day
on which the notice is given.
(e) Within 120 days after the effective date of the merger
or consolidation, the surviving or resulting corporation or any
stockholder who has complied with subsections (a) and (d) hereof
and who is otherwise entitled to appraisal rights, may file a
petition in the Court of Chancery demanding a determination of
the value of the stock of all such stockholders. Notwithstanding
the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have
the right to withdraw such stockholder's demand for appraisal and
to accept the terms offered upon the merger or consolidation.
Within 120 days
C-3
after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections
(a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting
from the consolidation a statement setting forth the aggregate
number of shares not voted in favor of the merger or consolidation
and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written
statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is
received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for
appraisal under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder,
service of a copy thereof shall be made upon the surviving or
resulting corporation, which shall within 20 days after such
service file in the office of the Register in Chancery in which
the petition was filed a duly verified list containing the names
and addresses of all stockholders who have demanded payment for
their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting
corporation. If the petition shall be filed by the surviving or
resulting corporation, the petition shall be accompanied by such
a duly verified list. The Register in Chancery, if so ordered by
the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the
surviving or resulting corporation and to the stockholders shown
on the list at the addresses therein stated. Such notice shall
also be given by 1 or more publications at least 1 week before
the day of the hearing, in a newspaper of general circulation
published in the City of Wilmington, Delaware or such publication
as the Court deems advisable. The forms of the notices by mail
and by publication shall be approved by the Court, and the costs
thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall
determine the stockholders who have complied with this section
and who have become entitled to appraisal rights. The Court may
require the stockholders who have demanded an appraisal for their
shares and who hold stock represented by certificates to submit
their certificates of stock to the Register in Chancery for
notation thereon of the pendency of the appraisal proceedings;
and if any stockholder fails to comply with such direction, the
Court may dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an
appraisal, the Court shall appraise the shares, determining their
fair value exclusive of any element of value arising from the
accomplishment or expectation of the merger or consolidation,
together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such
fair value, the Court shall take into account all relevant
factors. In determining the fair rate of interest, the Court may
consider all relevant factors, including the rate of interest
which the surviving or resulting corporation would have had to
pay to borrow money during the pendency of the proceeding. Upon
application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding,
the Court may, in its discretion, permit discovery or other
pretrial proceedings and may proceed to trial upon the appraisal
prior to the final determination of the stockholder entitled to
an appraisal. Any stockholder whose name appears on the list
filed by the surviving or resulting corporation pursuant to
subsection (f)
C-4
of this section and who has submitted such stockholder's
certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is
finally determined that such stockholder is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of
the shares, together with interest, if any, by the surviving or
resulting corporation to the stockholders entitled thereto.
Interest may be simple or compound, as the Court may direct.
Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of
holders of shares represented by certificates upon the surrender
to the corporation of the certificates representing such stock.
The Court's decree may be enforced as other decrees in the Court
of Chancery may be enforced, whether such surviving or resulting
corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the
Court and taxed upon the parties as the Court deems equitable in
the circumstances. Upon application of a stockholder, the Court
may order all or a portion of the expenses incurred by any
stockholder in connection with the appraisal proceeding,
including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the
value of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded appraisal rights
as provided in subsection (d) of this section shall be entitled
to vote such stock for any purpose or to receive payment of
dividends or other distributions on the stock (except dividends
or other distributions payable to stockholders of record at a
date which is prior to the effective date of the merger or
consolidation); provided, however, that if no petition for an
appraisal shall be filed within the time provided in subsection
(e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such
stockholder's demand for an appraisal and an acceptance of the
merger or consolidation, either within 60 days after the
effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder
to an appraisal shall cease. Notwithstanding the foregoing, no
appraisal proceeding in the Court of Chancery shall be dismissed
as to any stockholder without the approval of the Court, and such
approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to
which the shares of such objecting stockholders would have been
converted had they assented to the merger or consolidation shall
have the status of authorized and unissued shares of the
surviving or resulting corporation. (Last amended by Ch. 82, L.
`01, eff. 7-1-01.)
C-5
CFS BANCSHARES, INC. Please mark
SPECIAL MEETING OF STOCKHOLDERS your votes as
indicated in [X] FOR
this example
The undersigned hereby appoints the Board of Directors of CFS Bancshares,
Inc. ("CFS Bancshares"), and its successors, with full power of substitution, to
act as attorneys and proxies for the undersigned to vote all shares of common
stock of CFS Bancshares which the undersigned is entitled to vote at CFS
Bancshares' special meeting of stockholders (the "Special Meeting"), to be held
on Wednesday, February 19, 2003, in the second floor auditorium located at 300
18th Street North, Birmingham, Alabama at 2:00 p.m., Central Time, and at any
and all adjournments and postponements thereof, as follows:
1.Adoption of the Agreement and Plan of Merger, dated FOR AGAINST ABSTAIN
May 30, 2002, by and among Citizens Bancshares
Corporation, Citizens Trust Bank, CFS Bancshares, Inc. [ ] [ ] [ ]
and Citizens Federal Savings Bank, as amended on
December 19, 2002.
2. Approval of motion FOR AGAINST ABSTAIN
to adjourn the
Special Meeting, if [ ] [ ] [ ]
necessary, to solicit
additional proxies
with respect to
approval of the
Agreement and Plan
of Merger.
Your Board of Directors
recommends a vote "FOR" I plan to attend the YES NO
proposals 1 and 2. Special Meeting.
[ ] [ ]
In their discretion, the proxies are authorized to vote
on any other business that may properly come before the
Special Meeting or any adjournment or postponement thereof.
This proxy will be voted as directed. If you date, sign and return this proxy
but do not provide specific voting instructions, this proxy will be voted FOR
Proposals 1 and 2. If any other business is presented at the Special Meeting,
this proxy will be voted by those named in this proxy in their best judgment.
At the present time, the Board of Directors knows of no other business to be
presented at the Special Meeting. The stockholder may revoke this proxy at any
time before it is voted.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned acknowledges receipt from CFS Bancshares, prior to the
execution of this proxy, of the Notice of the Special Meeting and the Proxy
Statement.
Dated:____________________________ ____________________________
Print Name of Stockholder(s)
__________________________________ ____________________________
Signature of Stockholder Signature of Stockholder
Please sign exactly as your name appears above on this form. When signing as
attorney, executor, administrator, trustee, guardian or corporate officer,
please give your full title. If shares are held jointly, each holder should
sign.
_______________________________________________________________________________
PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS PROXY IN
THE ENCLOSED POSTAGE-PAID ENVELOPE.
_______________________________________________________________________________