Affiliation Agreement

AFFILIATION AGREEMENT
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THIS AFFILIATION AGREEMENT ("Agreement") is entered into as of the 12th day of September, 1997, by and among CITIZENS BANCSHARES, INC. ("Bancshares"), a corporation organized and existing under the laws of the State of Ohio and registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (the "BHCA"), THE CITIZENS BANKING COMPANY ("Citizens"), a state banking association organized and existing under the banking laws of the State of Ohio and a wholly-owned subsidiary of Bancshares, and UNIBANK ("Bank"), a state banking association organized and existing under the banking laws of the State of Ohio.


RECITALS
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Bancshares and Bank desire that Bank shall be merged with and into Citizens pursuant to an Agreement of Merger substantially in the form attached as Exhibit A hereto and made a part hereof (the "Merger" and the "Agreement of Merger," respectively).


NOW THEREFORE, in consideration of the premises and mutual covenants herein contained, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:


PLAN OF AFFILIATION
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Pursuant to this Agreement, Bancshares and Bank have agreed to a plan of affiliation intended to result in a tax-free plan of reorganization pursuant to Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). Upon consummation of the transactions contemplated by this Agreement, at the Effective Time (as hereinafter defined in Section 1.1), Bank will be merged into Citizens pursuant to the terms and conditions set forth herein and in the Agreement of Merger. Upon consummation of the Merger, the separate existence of Bank shall cease and Citizens shall continue as the surviving corporation and the offices of Bank will become branches of Citizens. 2


ARTICLE I


THE MERGER AND THE SHARE EXCHANGE
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Section 1.1. EFFECTIVE TIME. As soon as practicable after each of the conditions set forth in Article VIII of this Agreement and in the Agreement of Merger have been satisfied or waived, Bancshares will file or cause to be filed (i) a certificate of merger with the Secretary of State of the State of Ohio, and (ii) a certificate of merger with the Superintendent of the Division of Financial Institutions, which shall in each case be in the form required by and executed in accordance with applicable laws and regulations. The Merger shall become effective at the time the certificate of merger shall be filed with the Secretary of State of the State of Ohio (the "Effective Time").


Section 1.2. CONVERSION OF BANK COMMON SHARES INTO BANCSHARES COMMON SHARES.


(a) At the Effective Time, each issued and outstanding share of Bank ("Bank Common Shares"), other than treasury shares (if any) and Bank Common Shares as to which dissenters' rights have been exercised (collectively, "Excluded Stock"), thereupon and without further action shall be converted into and become 13.25 Bancshares common shares, without par value ("Bancshares Common Shares"). The foregoing conversion of Bank Common Shares into Bancshares Common Shares shall hereinafter be referred to as the "Share Exchange."


Notwithstanding the foregoing, in no event shall the holders of Bank Common Shares receive, in the aggregate, in Bancshares Common Shares with a Total Value (as hereinafter defined) plus cash in lieu of fractional shares that is less than 2.7 times the book value of Bank Common Shares on December 31, 1997. In such event, the parties shall adjust the number of Bancshares Common Shares into which each Bank Common Share shall be converted; provided, however, solely for purposes of this Section 1.2(a), in the event the book value of Bank Common Shares shall exceed Two Hundred and Fifty Dollars ($250.00) per share, Bancshares may elect to terminate this Agreement.


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(b) The term "NMS Closing Price" shall mean the price per share of the last sale of Bancshares Common Shares reported on the NASDAQ National Market System at the close of the trading day by the National Association of Securities Dealers, Inc. The term "Total Value" shall mean the arithmetic mean of the NMS Closing Prices for the twenty (20) trading days immediately preceding the tenth trading day, inclusive, immediately preceding the Effective Time.


(c) No fractional Bancshares Common Share or certificate or scrip therefor shall be issued as a result of the conversion of Bank Common Shares into Bancshares Common Shares. To the extent an outstanding Bank Common Share would otherwise have become a fractional Bancshares Common Share, the holder thereof shall be entitled to receive a cash payment therefor in accordance with the provisions of the Agreement of Merger. Such purchases of fractional interests are merely intended as a mechanism for "rounding off" fractional shares and do not constitute separately bargained for consideration in connection with the transactions contemplated by this Agreement.


Section 1.3. EXCHANGE OF CERTIFICATES. After the Effective Time, each holder of an outstanding certificate or certificates for Bank Common Shares converted to Bancshares Common Shares shall be entitled to receive a certificate or certificates representing the number of whole Bancshares Common Shares into which such holder's Bank Common Shares shall have been converted and, if applicable, a cash payment in lieu of any fractional share determined in accordance with the Agreement of Merger. In order to effect such surrender and exchange, each such holder of Bank Common Shares shall surrender the outstanding certificate(s) therefor to Bancshares' designated exchange agent (the "Exchange Agent"), duly endorsed for transfer or accompanied by a duly endorsed assignment separate from the certificate(s). In the event of a lost certificate, the Bank shareholder shall provide in lieu of the lost certificate an affidavit and a bond as required by Bank's Code of Regulations. Pending such surrender and exchange, such


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holder's certificate(s) for Bank Common Shares shall be deemed, for all corporate purposes (other than as set forth in Section 1.4 of this Agreement), to evidence the number of whole Bancshares Common Shares into which such Bank Common Shares shall have been converted by the Share Exchange. The Exchange Agent shall, upon receipt of the duly endorsed Bank certificate or certificate with a duly endorsed separate assignment, issue the Bancshares' Common Shares certificate to the surrendering Bank certificate holder, together with any cash payment in lieu of fractional shares, as applicable.


Section 1.4. PAYMENT OF DIVIDENDS. Unless and until any such outstanding certificate(s) for Bank Common Shares shall be so surrendered, no dividend (cash or stock) payable to holders of record of Bancshares Common Shares as of any date subsequent to the Effective Time shall be paid to the holder of such outstanding certificate(s). Upon the surrender of the Bank Common Share certificate(s), Bancshares shall pay to the record holder of Bancshares Common Shares issued in exchange therefor, the amount of dividends, if any, but without interest, that have theretofore become payable to such record holder.


Section 1.5. CHANGES IN BANCSHARES COMMON SHARES. If, during the interim period between the date of this Agreement and the Closing Date, the shares of Bancshares Common Shares shall be changed into a different number of shares or a different class or a different type of security by reason of any reclassification, recapitalization, pro rata rights offering, subdivision, split, combination or exchange of shares, or if a stock dividend thereon shall be declared with a record date within such interim period, the Share Exchange shall be adjusted appropriately to preserve the aggregate consideration to be exchanged for the Bank Common Shares.


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ARTICLE II


REPRESENTATIONS AND WARRANTIES BY BANCSHARES AND CITIZENS
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Bancshares and Citizens, as applicable, hereby represent and warrant to Bank that the following are true and correct on the date of this Agreement and shall be true and correct on the Closing Date (as hereinafter defined):


Section 2.1. DUE ORGANIZATION AND GOOD STANDING. Bancshares is a corporation duly organized, validly existing, and in good standing under the laws of the State of Ohio and is registered as a bank holding company under the BHCA and has full corporate authority and power to carry on its business as it is now being conducted. Citizens is a corporation duly organized, validly existing, and in good standing as a state banking association under the banking laws of the State of Ohio and is duly authorized to conduct the banking business in which it is engaged.


Section 2.2. AUTHORITY FOR TRANSACTION. The execution and performance of this Agreement and the Agreement of Merger by Bancshares and Citizens and their delivery to Bank have been duly authorized by all requisite corporate action (including, with respect to the Agreement of Merger, approval by Bancshares as the sole shareholder of Citizens) and are valid and binding upon Bancshares and Citizens, subject to receipt of required regulatory approvals and satisfaction of the other conditions contained herein and therein.


Section 2.3. BANCSHARES COMMON SHARES TO BE ISSUED. The Bancshares Common Shares to be issued to Bank shareholders pursuant to the Agreement of Merger, when so issued, will have been duly authorized and validly issued by Bancshares and will be fully paid and nonassessable.


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Section 2.4. BANCSHARES COMMON SHARES OUTSTANDING.


(a) STOCK. The authorized capital stock of Bancshares consists of (i) 12,000,000 Bancshares Common Shares, without par value, of which 5,897,540 shares are issued and outstanding and 2,250 shares are held in the treasury and (ii) 200,000 serial preferred shares, par value $10.00 per share, none of which are issued and outstanding and none of which are held in the treasury. Each outstanding Bancshares Common Share is duly authorized, validly issued, fully paid and nonassessable.


(b) OPTIONS AND OTHER SECURITIES. Except as set forth in Schedule 2.4(b) hereto, no options, warrants or other rights to purchase, agreements or other obligations to issue, or other rights to convert any obligation into any shares of Bancshares Common Shares have been authorized, granted or entered into by Bancshares. Other than as set forth in Section 2.4(a), there are no Bancshares debt or equity securities authorized or outstanding.


Section 2.5. FINANCIAL STATEMENTS; NO MATERIAL ADVERSE CHANGE. Bancshares has furnished to Bank (a) consolidated balance sheets of Bancshares and its subsidiaries as of December 31, 1995 and 1996, respectively, and consolidated statements of income, consolidated statements of cash flows and consolidated statements of changes in shareholders' equity for the years ended December 31, 1994, 1995 and 1996, respectively, all as certified by Crowe, Chizek and Company LLP, Bancshares' independent auditors, and (b) unaudited consolidated balance sheets and income statements of Bancshares and its subsidiaries for the periods ended March 31, 1997 and June 30, 1997. The aforesaid financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis and present fairly the consolidated financial position of Bancshares as of the dates thereof and for the periods covered thereby. Since December 31, 1996, there has not been any material adverse change in the financial condition, results of operations, assets, or business of Bancshares and its subsidiaries taken as a whole.


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Section 2.6. ABSENCE OF CONFLICTS. To the best of Bancshares' and Citizens' knowledge, neither the execution, performance or delivery of this Agreement or the Agreement of Merger by Bancshares or Citizens, respectively, nor the consummation of the transactions contemplated hereby or thereby will result in a violation or breach of, or permit any third party to modify or rescind any term or provision of, or constitute a default under, any indenture, mortgage, deed of trust, promissory note or other material contract, license or other agreement to which Bancshares or Citizens is a party or to which any of their respective properties is subject or will result in a breach of Bancshares' or Citizens' Articles of Incorporation or Regulations.


Section 2.7. BROKERAGE AND FINDER'S FEES. Bancshares has not employed any broker, finder, or agent, or agreed to pay or incurred any brokerage fee, finder's fee, commission or other similar form of compensation in connection with this Agreement or the transactions contemplated hereby.


Section 2.8. COMPLIANCE WITH SECURITIES LAWS. Bancshares has delivered to Bank true and correct copies of its Form 10-K (Annual Report) for the year ended December 31, 1996, and its Forms 10-Q (Quarterly Report) for the quarters ended March 31, 1997 and June 30, 1997, as filed with the SEC, all of which were prepared and filed in accordance with the applicable requirements and regulations of the SEC. Bancshares has also delivered to Bank true and correct copies of all documents and reports filed by Bancshares with the SEC pursuant to the Exchange Act since January 1, 1996 (the "Bancshares Reports"). Bancshares has filed and will continue to file all reports and other documents required to be filed with the SEC pursuant to the Exchange Act in a timely manner. All of the Bancshares Reports complied in all material respects with the Act and did not contain, as of their respective dates, any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made. To the best of its knowledge, Bancshares is in


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compliance with all federal and state securities laws and regulations, including but not limited to all filing requirements, except to the extent that additional filings will be required in connection with the transactions contemplated by this Agreement and the Agreement of Merger. All information provided in such filings is accurate and complete, in all material respects, to the extent required by such laws and regulations.


ARTICLE III


REPRESENTATIONS AND WARRANTIES BY BANK
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Bank hereby represents and warrants to Bancshares and Citizens that, except to the extent set forth in the Disclosure Schedule delivered to Bancshares and Citizens at the signing of this Agreement, which is attached hereto and made a part hereof, the following are true and correct on the date of this Agreement and shall be true and correct on the Closing Date:


Section 3.1. OUTSTANDING SECURITIES.


(a) STOCK. The authorized capital stock of Bank consists solely of 75,000 Bank Common Shares, par value $10.00 per share, of which 75,000 shares are issued and outstanding and none are held in the treasury. Each outstanding Bank Common Share is duly authorized, validly issued, fully paid, and nonassessable.


(b) OPTIONS AND OTHER SECURITIES. No options, warrants or other rights to purchase, agreements or other obligations to issue, or other rights to convert any obligation into any shares of Bank Common Shares have been authorized, granted or entered into by Bank. Other than as set forth in Section 3.1(a), there are no Bank debt or equity securities authorized or outstanding. Bank does not have, nor will it have at any time from the execution of this Agreement through the time of Closing (as hereinafter defined), any obligations or commitments related to the Common Shares which may require or permit Bank to issue or change the number of its issued or authorized Common Shares.


Section 3.2. DUE ORGANIZATION AND GOOD STANDING. Bank is a corporation duly


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organized, validly existing, and in good standing as a state banking association under the banking laws of the State of Ohio and is duly authorized to conduct the banking business in which it is engaged. Bank does not have any subsidiaries or affiliates (as such term is defined under Rule 405 of the Securities Act of 1933, as amended).


Section 3.3. AUTHORITY FOR TRANSACTION. The execution of this Agreement and the Agreement of Merger by Bank and their delivery to Bancshares and Citizens have been authorized by all requisite corporate action, other than approval by Bank shareholders. When this Agreement and the Agreement of Merger shall be approved and adopted in accordance with law by the Bank shareholders, no further corporate action will be necessary on the part of Bank to make them valid and binding upon Bank.


Section 3.4. ABSENCE OF CONFLICTS. Neither the execution, delivery or performance of this Agreement or the Agreement of Merger by Bank, nor the consummation of the transactions contemplated hereby or thereby will result in a violation or breach of, or permit any third party to modify or rescind any term or provision of, or constitute a default under, any indenture, mortgage, deed of trust, promissory note or other material contract, license or other agreement to which Bank is a party or to which any of its properties is subject or will result in a breach of Bank's Articles of Incorporation or Code of Regulations.


Section 3.5. FINANCIAL STATEMENTS. Bank has delivered to Bancshares (a) consolidated financial statements for each of the fiscal years ended December 31, 1993, 1994, 1995 and 1996, respectively, consisting of balance sheets and the related statements of income and retained earnings and cash flows for the fiscal years ended on such date, all as certified by Crowe, Chizek and Company LLP, Bank's independent auditors, and (b) unaudited consolidated financial statements for the interim periods ended March 31, 1997 and June 30, 1997, consisting of balance sheets and the related statements of income. The aforesaid financial statements, as of the dates thereof and for the periods covered thereby, have been prepared in conformity with


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generally accepted accounting principles, consistently applied throughout the periods indicated, and fairly present the financial position of Bank as of the dates thereof and the results of operations and cash flows for the periods indicated.


Section 3.6. TITLE TO ASSETS. Bank has good and marketable title in and to all of its assets, free and clear of any mortgage, conditional sale agreement, security interest, lease, pledge, hypothecation, lien or other encumbrance. All buildings and other structures material to Bank's business conform with all applicable ordinances, codes and regulations.


Section 3.7. CONDITION OF ASSETS. All of the assets necessary for the conduct of the business (whether real or personal, owned or leased) of Bank have been well maintained and are in normal operating condition, free from defects other than normal wear and tear and such minor defects as do not interfere with the continued use thereof in the conduct of normal operations.


Section 3.8. CONTRACTS. All contracts and commitments (whether written or oral) that may have a material effect on the business of Bank are disclosed on the Disclosure Schedules and copies of any such written contracts or commitments have been provided to Bancshares. All contracts and commitments for the lease or purchase of equipment or services have been entered into on an arm's length basis.


Section 3.9. INSURANCE OF DEPOSITS. The deposits of Bank are insured by the Federal Deposit Insurance Corporation in accordance with the Federal Deposit Insurance Act ("FDIA"). Bank has paid all assessments and filed all reports required under the FDIA and is in compliance with all regulatory requirements imposed in connection with the insurance of its deposits.


Section 3.10. LOANS AND INVESTMENTS. The reserves for possible loan losses on the outstanding loans of Bank, as reflected in the balance sheets of Bank as of December 31, 1996 (the "1996 Balance Sheet") and as of the Closing Date are, or will be, as the case may be, adequate to absorb all known and anticipated loan losses in the loan portfolio of Bank (net of recoveries relating to loans previously charged off). In addition, the reserves for possible loan


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losses on the outstanding loans of Bank, as reflected in the balance sheet of Bank as of the Closing Date, will be in amount(s) that, as a percentage of the Bank's loans, are at least equal to the reserves set forth on the 1996 Balance Sheet. Except as set forth in the Disclosure Schedule, there are no loans of Bank, the present principal balance of which is in excess of $10,000, that have been classified orally or in writing by bank examiners (regulatory or internal) as "Other Loans Specifically Mentioned," "Substandard," "Doubtful," or "Loss," as of the last examination date (which shall include the date on which any examination prior to the Effective Time). Each loan in the principal amount of $2,500 or greater reflected as an asset of Bank in the 1996 Balance Sheet or acquired by Bank since December 31, 1996, is the legal, valid and binding obligation of the obligor and any guarantor named therein, and no such loan is subject to any defense, offset or counterclaim. Except for pledges to secure public and trust deposits, none of the investments reflected in the 1996 Balance Sheet under the heading "Investment Securities," and, except as set forth on the Disclosure Schedule, none of the investments made by Bank since December 31, 1996, is subject to any restriction, whether contractual or statutory, which impairs the ability of Bank freely to dispose of such investment at any time. With respect to all repurchase agreements to which Bank is a party, Bank has a valid, perfected first lien or security interest in the government securities or other collateral securing the repurchase agreement and the value of the collateral securing each such repurchase agreement equals or exceeds the amount of the debt secured by such collateral under such agreement. Except as set forth in the Disclosure Schedule, and except for transactions aggregating less than $1,000, Bank has not sold or otherwise disposed of any assets in a transaction in which the acquirer of such assets or any other person has the right, either conditionally or absolutely, to require Bank to repurchase or otherwise re-acquire any such assets.


Section 3.11. LARGE DEPOSITS. Prior to the Closing, Bank will have provided Bancshares and Citizens with a list of all certificates of deposit or checking, savings or other deposits and a


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list of all certificates of deposit or checking, savings or other deposits owned by directors and officers of Bank and their affiliates as of the last day of the calendar month immediately prior to the Closing. In addition, Bank shall provide Bancshares and Citizens with a list of (i) all certificates of deposit, checking, savings or other deposits in excess of $25,000 and (ii) all customers with aggregate deposits in excess of $50,000.


Section 3.12. INSURANCE POLICIES. The Disclosure Schedule contains a list and a brief description of all insurance policies currently in force with respect to Bank. All premiums due on such policies have been paid, and such policies will continue to remain in force through the Effective Time. The Disclosure Schedule also contains a description of all claims in excess of $1,000 currently pending under such insurance policies, together with a list of all other claims in excess of $1,000 which have been filed during the last three (3) years and a description of the disposition thereof.


Section 3.13. EMPLOYMENT CONTRACTS AND EMPLOYEE BENEFIT PLANS. The Disclosure Schedule contains a complete list of each employee contract, bonus, savings, profit sharing, stock bonus, consulting, pension, retirement, insurance, severance or any union or collective bargaining agreements or any contract or agreement with any labor organization and other similar, analogous or related arrangement or plan, written or oral, including, without limitation, each "employee benefit plan" within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") (all of the foregoing hereinafter collectively referred to as the "Plans") with respect to any one or more employees of Bank. To the extent Plans have been reduced to writing, complete and accurate copies of all such Plans have been delivered to Bancshares. Each oral Plan, if any, has been accurately described in the Disclosure Schedule. A complete list (as of August 1, 1997) of all employees of Bank, their respective dates of hire, cash compensation, compensation pursuant to participation in each of the Plans and the amount of any indebtedness to Bank has been delivered to Bancshares. On or


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before the Closing Date, the Bank shall fully accrue for all amounts payable under any of the Plans. Bank has also delivered to Bancshares a list of all employees who are currently entitled to perquisites (including, but not limited to, automobiles and club memberships) as well as a brief description of each such perquisite. Since the date of such list, no employment contract or Plan has been instituted, agreed to, or changed by Bank, nor has there been any increase in the compensation payable or to become payable by Bank to any employee, whose total compensation for services rendered currently exceeds $15,000.00 annually, except with respect to certain merit increases set forth on the Disclosure Schedule which will be given by Bank on or before December 31, 1997.


Section 3.14. COMPLIANCE OF EMPLOYEE BENEFIT PLANS WITH ERISA AND INTERNAL REVENUE CODE. Bank hereby represents and warrants that:


(a) The Disclosure Schedule contains a complete list of all of Bank's retirement plans subject to ERISA and the Code (each such plan being referred to individually as a "Pension Plan" and collectively, as the "Pension Plans".


(1) A complete copy of each Pension Plan (including all amendments
thereto) and all related documents, including without limitation, trust
agreements, annuity contracts, insurance contracts, investment management
agreements, indemnification agreements, collective bargaining agreements;
forms of application, other forms and notices used in the administration
of the plan, and summary plan descriptions, have been delivered to
Bancshares;


(2) Each of the Pension Plans, from its inception, has been
determined by the Internal Revenue Service ("IRS") to be qualified under
Section 401(a) of the Code and, to the best of Bank's knowledge, has been
administered in all respects in accordance with Sections 401, 402(f), 410,
411, 414, 415, 416, and 417 and the regulations and rulings issued
thereunder; and, to the best of Bank's knowledge, nothing has occurred
prior to the Closing that could reasonably be expected to cause the IRS to
revoke such determination, or that would adversely affect the continued
qualified status of such plan under Section 401(a) of the Code;


(3) Each trust established in connection with a Pension Plan, from
its inception, has been determined to be exempt from federal income tax
under Section 501(a) of the Code and no facts or circumstances exist that
could adversely affect the continuing tax-exempt status of such trust, or ...