<PAGE> 1
As filed with the Securities and Exchange Commission on September 8, 1995
Registration No. 33-61273
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT
NO. ONE TO
FORM S-4
Registration Statement Under the Securities Act of 1933
CHARTER ONE FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 6120 34-1567092
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) No.)
</TABLE>
<TABLE>
<S> <C>
ROBERT J. VANA, ESQ.
1215 SUPERIOR AVENUE CHARTER ONE FINANCIAL, INC.
CLEVELAND, OHIO 44114 1215 SUPERIOR AVENUE
(216) 589-8320 CLEVELAND, OHIO 44114
(216) 589-8320
(Address, including ZIP code, and telephone (Name, address, including ZIP code,
number, including area code, of registrant's and telephone number, including area
principal executive offices) code, of agent for service)
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COPIES TO:
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<S> <C> <C>
BARRY P. TAFF, P.C. C. GENE HARLING HARRY K. KANTARIAN, ESQ.
CHRISTOPHER R. KELLY, P.C. PRESIDENT AND CHIEF EXECUTIVE OFFICER K. SCOTT FIFE, ESQ.
SILVER, FREEDMAN & TAFF, L.L.P. FIRSTFED MICHIGAN CORPORATION HOUSLEY GOLDBERG KANTARIAN &
1100 NEW YORK AVENUE, N.W. 1001 WOODWARD AVENUE BRONSTEIN, P.C.
WASHINGTON, D.C. 20005 DETROIT, MICHIGAN 48226 1220 19TH STREET, N.W.
WASHINGTON, D.C. 20036
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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<PAGE> 2
CHARTER ONE FINANCIAL, INC.
Cross Reference Sheet Pursuant to
Item 501(b) of Regulation S-K
(Showing the location in the Joint Proxy Statement/Prospectus of responses
to the Items of Part I of Form S-4)
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<CAPTION>
Location or Heading in Joint Proxy
----------------------------------
Item Caption Statement/Prospectus
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1. Forepart of Registration Statement and Outside Outside Front Cover Page
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Inside Front Cover Page; Available Information;
Prospectus Incorporation of Certain Documents by Reference;
Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges Summary; Recent Developments; Comparative Stock
and Other Information Prices and Dividend Information; Selected
Consolidated Financial and Other Data of Charter
One Financial, Inc.; Selected Consolidated
Financial and Other Data of FirstFed Michigan
Corporation; The Merger; Unaudited Pro Forma
Combined Financial Statements
4. Terms of the Transaction Summary; The Merger; Comparison of Rights of
Stockholders of Charter One Financial, Inc. and
FirstFed Michigan Corporation; Description of
Charter One Financial, Inc. Capital Stock
5. Pro Forma Financial Information Summary; Unaudited Pro Forma Combined Financial
Statements
6. Material Contracts with the Company Being Acquired Summary; The Merger; Certain Related
Transactions
7. Additional Information Required for Reoffering by Not Applicable
Persons and Parties Deemed to be Underwriters
8. Interests of Named Experts and Counsel Not Applicable
9. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act Liabilities
10. Information with Respect to S-3 Registrants Incorporation of Certain Documents by Reference;
Summary; Comparative Stock Prices and Dividend
Information; Charter One Financial, Inc. and
Charter One Bank, F.S.B.
11. Incorporation of Certain Information by Reference Incorporation of Certain Documents by Reference
12. Information with Respect to S-2 or S-3 Registrants Not Applicable
13. Incorporation of Certain Information by Reference Not Applicable
14. Information with Respect to Registrants Other Than Not Applicable
S-3 or S-2 Registrants
15. Information with Respect to S-3 Companies Incorporation of Certain Documents by Reference;
Summary; Comparative Stock Prices and Dividend
Information; FirstFed Michigan Corporation and
First Federal of Michigan
16. Information with Respect to S-2 or S-3 Companies Not Applicable
17. Information with Respect to Companies Other Than Not Applicable
S-3 or S-2 Companies
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<CAPTION>
Location or Heading in Joint Proxy
----------------------------------
Item Caption Statement/Prospectus
---- ------- --------------------
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18. Information if Proxies, Consents or Authorizations Introduction; Incorporation of Certain Documents
are to be Solicited by Reference; Summary; The Special Meetings; The
Merger
19. Information if Proxies, Consents or Authorizations Not Applicable
are not to be Solicited or in an Exchange Offer
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<PAGE> 4
[CHARTER ONE LOGO]
__________, 1995
Dear Stockholder:
The directors and management of Charter One Financial, Inc. are
proposing a "merger of equals" between Charter One and FirstFed Michigan
Corporation (the "Merger"). The Board of Directors of Charter One has
carefully reviewed the proposed Merger and has unanimously concluded that the
transaction is in the best interests of Charter One and its stockholders.
Charter One's financial advisor, Montgomery Securities, has issued its opinion
that the consideration to be paid by Charter One in the Merger is fair to the
stockholders of Charter One from a financial point of view.
The Merger will create an institution, called Charter One Financial,
Inc., with approximately $13 billion in assets and $7 billion in deposits.
Based on assets, the combined company will be the seventh largest publicly held
thrift in the country and the largest in the Midwest. Upon the Merger we will
serve our customers through 156 full service offices in Ohio and Michigan. The
Board of Directors believes that FirstFed's branch network in Michigan is a
natural fit with Charter One's presence in Ohio, presenting an exceptional
opportunity to unite two of the largest thrifts in the Midwest into one of the
strongest thrifts in the region. The resulting entity will be well
capitalized, enhancing the ability to expand retail operations and to pursue
other attractive strategic and financial initiatives that may arise over time.
I urge you to vote FOR the Merger proposal. You may cast that vote by
marking the enclosed proxy card and returning it to us in the enclosed prepaid
envelope. Please do so as soon as possible.
The special meeting of stockholders (the "Special Meeting") to
consider the Merger proposal and certain amendments to Charter One's Restated
Certificate of Incorporation will be held at the _______________________,
____________________, Cleveland, Ohio, on ___________, 1995 at __:__ _.m.,
local time. I encourage you to attend.
The terms of the proposed Merger, including an explanation of the
amount of Charter One stock to be issued to FirstFed stockholders as well as
other important information relating to Charter One, FirstFed and the combined
company, are explained in the accompanying Joint Proxy Statement/Prospectus.
Please give this document your prompt attention.
Consummation of the Merger is subject to certain conditions, including
regulatory approvals and approval by the requisite votes of the stockholders of
both Charter One and FirstFed.
At the Special Meeting you will also be asked to approve amendments to
Charter One's Restated Certificate of Incorporation to (i) increase the number
of authorized shares of Charter One common and preferred stock, (ii) increase
the number of authorized directors to 16 and (iii) make certain other revisions
to the Restated Certificate of Incorporation, all as more fully described in
the accompanying Joint Proxy Statement/Prospectus. I encourage you to vote FOR
each of these proposals, all of which will support the corporate and business
objectives of the combined entity.
<PAGE> 5
I encourage you to attend the Special Meeting in person. Whether or
not you do, I hope you will read the Joint Proxy Statement/Prospectus and then
complete, sign and date the proxy card and return it in the enclosed
postage-paid envelope. This will save Charter One additional expense in
soliciting proxies and will ensure that your shares are represented. Please
note that you may vote in person at the Special Meeting even if you have
previously returned the proxy.
Thank you for your attention to this important matter.
Sincerely,
Charles John Koch
Chairman of the Board, President
and Chief Executive Officer
<PAGE> 6
[FIRSTFED LOGO]
FIRSTFED MICHIGAN CORPORATION
_________, 1995
Dear Stockholder:
You are invited to attend a special meeting of stockholders of
FirstFed Michigan Corporation scheduled to be held in the __________ of the
__________, __________, Detroit, Michigan, on __________, __________, 1995 at
____ _.m., local time. Notice of the special meeting, a Joint Proxy
Statement/Prospectus and a form of proxy are enclosed.
The special meeting has been called in connection with the proposed
merger of FirstFed and its principal subsidiary, First Federal of Michigan,
with Charter One Financial, Inc. and its principal subsidiary, Charter One
Bank, F.S.B. The Board of Directors believes that FirstFed's branch network is
a natural fit with Charter One's presence in Ohio, presenting an exceptional
opportunity to unite two of the largest thrifts in the Midwest into one of the
strongest thrifts in the region. The resulting entity will be well
capitalized, providing the ability to expand retail operations and to pursue
other attractive strategic and financial initiatives that may arise over time.
The merger would be a "merger of equals" under which FirstFed's stockholders
would own approximately 50% of the combined company and members of FirstFed's
Board of Directors would represent 50% of the combined company's Board of
Directors. Each share of FirstFed common stock outstanding at the time of the
merger would be converted into 1.2 shares of Charter One common stock.
Following the merger, Charter One would be the resulting holding company, and
Charter One Bank would be the resulting savings institution. Consummation of
the merger is conditioned upon, among other things, receipt of all required
stockholder and regulatory approvals.
The terms of the Merger Agreement were negotiated by the Board of
Directors in light of various factors, including FirstFed's and Charter One's
recent operating results, current financial condition and future prospects.
Salomon Brothers Inc, FirstFed's financial advisor, has advised your Board of
Directors that in its opinion the exchange ratio is fair to FirstFed's
stockholders from a financial point of view.
At the special meeting, FirstFed's stockholders will consider and vote
upon approval of the merger. The Board of Directors has approved the merger
and believes that the merger is in the best interest of FirstFed and its
stockholders. Accordingly, the Board of Directors recommends that you vote FOR
approval of the merger.
If any other matters are properly brought before the special meeting,
the persons named in the accompanying form of proxy will vote the shares
represented by such proxy upon such matters as determined by a majority of the
Board of Directors. You are urged to read the accompanying Joint Proxy
Statement/Prospectus, which provides information regarding the merger and
related matters.
Your vote is important, regardless of the number of shares you own.
ON BEHALF OF THE BOARD OF DIRECTORS, I URGE YOU TO SIGN, DATE AND RETURN THE
ENCLOSED PROXY AS SOON AS POSSIBLE EVEN IF YOU CURRENTLY PLAN TO ATTEND THE
SPECIAL MEETING. This will not prevent you from voting in person but will
assure that your vote is counted if you do not attend the special meeting.
Sincerely,
C. Gene Harling
Chairman of the Board, President
and Chief Executive Officer
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME.
YOU WILL RECEIVE INSTRUCTIONS FOLLOWING THE MERGER
FOR EXCHANGE OF STOCK CERTIFICATES.
<PAGE> 7
CHARTER ONE FINANCIAL, INC.
[CHARTER LOGO] 1215 SUPERIOR AVENUE
CLEVELAND, OHIO 44114
(216) 566-5300
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FRIDAY, ___________, 1995
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the
"Special Meeting") of Charter One Financial, Inc. ("Charter One") will be held
on Friday, ___________, 1995, at ____ _.m., local time, at the
_________________________, Cleveland, Ohio, for the following purposes:
(1) To approve and adopt the Agreement and Plan of Merger
(the "Merger Agreement"), dated as of May 30, 1995, by and between
FirstFed Michigan Corporation ("FirstFed") and Charter One, a copy of
which is included in the accompanying Joint Proxy Statement/Prospectus
at Appendix I, and the transactions contemplated thereby, including
the merger of FirstFed into Charter One, pursuant to which each
outstanding share of FirstFed common stock would be converted into 1.2
shares of Charter One common stock (with cash paid in lieu of
fractional share interests), and the merger of First Federal of
Michigan into Charter One Bank, F.S.B.
(2) To approve and adopt an amendment to Charter One's
Restated Certificate of Incorporation (the "Charter One Certificate")
to increase the number of authorized shares of Charter One common and
preferred stock to 180,000,000 and 20,000,000, respectively (the
"Shares Amendment").
(3) To approve and adopt an amendment to the Charter One
Certificate to increase the number of authorized directors from 15 to
16 (the "Director Amendment").
(4) To approve and adopt certain amendments to Articles FIFTH
and SIXTH of the Charter One Certificate, including raising from 10%
to 20% the threshold level of Charter One common stock ownership that
is subject to voting restrictions, as more fully described in the
accompanying Joint Proxy Statement/Prospectus (the "Other Certificate
Amendments" and, together with the Shares Amendment and the Director
Amendment, the "Certificate Amendments").
(5) To transact such other business as may properly come
before the Special Meeting or any and all adjournments and
postponements thereof.
The Board of Directors of Charter One is not aware of any other
business to come before the Special Meeting.
A Proxy Card and a Joint Proxy Statement/Prospectus for the Special
Meeting are enclosed.
Any action may be taken on the foregoing proposals at the Special
Meeting on the date specified above or on any date or dates to which the
Special Meeting may be adjourned or postponed. Pursuant to the Bylaws, the
Board of Directors has fixed the close of business on September 8, 1995 as the
record date for the determination of stockholders entitled to notice of and to
vote at the Special Meeting. Only holders of common stock of record at the
close of business on that date will be entitled to notice of and to vote at the
Special Meeting and any and all adjournments and postponements thereof. In the
event that there are not sufficient votes to approve any one or more of the
foregoing proposals at the time of the Special Meeting, the Special Meeting may
be adjourned to permit further solicitation of proxies by Charter One;
provided, however, that no proxy which is voted against any such proposal will
be voted in favor of adjournment to solicit further proxies for such proposal.
A list of Charter One stockholders entitled to vote at the Special Meeting will
be available for examination, for any purpose germane to the Special Meeting,
at the main office of Charter One during ordinary business hours for at least
ten days prior to the Special Meeting, as well as at the Special Meeting.
The affirmative vote of the holders of a majority of the outstanding
shares of Charter One common stock is required to approve the proposals to
adopt the Merger Agreement and the Shares Amendment. The affirmative vote of
the holders of 75% of the outstanding shares of Charter One common stock is
required to approve the proposals to adopt the Director Amendment and the Other
Certificate Amendments. The adoption of the Merger
<PAGE> 8
Agreement is not conditioned upon stockholder approval of the Certificate
Amendments, and the adoption of the Certificate Amendments is not conditioned
upon stockholder approval of the Merger Agreement.
You are requested to complete, sign and date the enclosed form of
proxy, which is solicited on behalf of the Board of Directors, and to mail it
promptly in the enclosed postage-paid envelope. The proxy will not be used if
you attend and vote at the Special Meeting in person.
Remember, if your shares are held in the name of a broker, only your
broker can vote your shares and only after receiving your instructions. Please
contact the person responsible for your account and instruct him/her to execute
a proxy card on your behalf.
If you have any questions or require assistance, please call
_________________, which is assisting us in the solicitation of proxies, at
(800) ___-____.
By Order of the Board of Directors,
Charles John Koch
Chairman of the Board, President
and Chief Executive Officer
Cleveland, Ohio
_____ __, 1995
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR
NOT YOU PLAN TO BE PRESENT AT THE SPECIAL MEETING, PLEASE SIGN, DATE AND
COMPLETE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE> 9
[FIRSTFED LOGO]
FIRSTFED MICHIGAN CORPORATION
1001 Woodward Avenue
Detroit, Michigan 48226-1904
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON ________, 1995
A Special Meeting of Stockholders (the "Special Meeting") of FirstFed
Michigan Corporation ("FirstFed") is scheduled to be held in the __________ of
the __________, __________, Detroit, Michigan, on __________, __________, 1995
at ____ _.m., local time.
A PROXY CARD AND A JOINT PROXY STATEMENT/PROSPECTUS FOR THE SPECIAL
MEETING ARE ENCLOSED.
The Special Meeting is for the purpose of considering and acting upon:
1. The approval of the Agreement and Plan of Merger (the
"Merger Agreement"), dated as of May 30, 1995, by and between FirstFed
and Charter One Financial, Inc. ("Charter One"), a copy of which is
included in the accompanying Joint Proxy Statement/Prospectus at
Appendix I, and the transactions contemplated thereby, including the
merger of FirstFed into Charter One, pursuant to which each
outstanding share of FirstFed common stock would be converted into 1.2
shares of Charter One common stock (with cash paid in lieu of
fractional share interests), and the merger of First Federal of
Michigan into Charter One Bank, F.S.B.
2. Such other matters as may properly come before the
Special Meeting or any adjournments thereof, including proposals to
adjourn the Special Meeting to permit further solicitation of proxies
by the Board of Directors in the event that there are not sufficient
votes to approve any proposal at the time of the Special Meeting;
provided, however, that no proxy which is voted against the foregoing
proposal will be voted in favor of adjournment to solicit further
proxies for such proposal.
The Board of Directors is not aware of any other business to come
before the Special Meeting.
Any action may be taken on any of the foregoing proposals at the
Special Meeting on the date specified, or on any dates to which, by original or
later adjournment, the Special Meeting may be adjourned. Stockholders of
record at the close of business on __________, 1995, are the stockholders
entitled to vote at the Special Meeting and any adjournments thereof.
YOU ARE REQUESTED TO FILL IN AND SIGN THE ENCLOSED FORM OF PROXY WHICH
IS SOLICITED BY THE BOARD OF DIRECTORS AND TO MAIL IT PROMPTLY IN THE ENCLOSED
ENVELOPE. THE PROXY WILL NOT BE USED IF YOU ATTEND AND VOTE AT THE SPECIAL
MEETING IN PERSON.
By Order of the Board of Directors
C. GENE HARLING
Chairman of the Board, President
and Chief Executive Officer
Detroit, Michigan
, 1995
--------
--------------------------
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE FIRSTFED THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO ENSURE A QUORUM. AN ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN
THE UNITED STATES.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME
<PAGE> 10
JOINT PROXY STATEMENT
OF
CHARTER ONE FINANCIAL, INC.
AND
FIRSTFED MICHIGAN CORPORATION
FOR SPECIAL MEETINGS OF THEIR
RESPECTIVE STOCKHOLDERS
TO BE HELD ON ________, 1995
-----------------------------------
PROSPECTUS
OF
CHARTER ONE FINANCIAL, INC.
UP TO 23,657,954 SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE
-----------------------------------
This Joint Proxy Statement/Prospectus relates to the proposed merger
of FirstFed Michigan Corporation, a Michigan corporation ("FirstFed"), with and
into Charter One Financial, Inc., a Delaware corporation ("Charter One"), and
the merger of FirstFed's principal subsidiary, First Federal of Michigan, into
Charter One's principal subsidiary, Charter One Bank, F.S.B. (collectively, the
"Merger"), in a "merger of equals" transaction as contemplated by the Agreement
and Plan of Merger, dated as of May 30, 1995 (the "Merger Agreement'), by and
between FirstFed and Charter One. As a merger of equals transaction, the
Merger is a combination of Charter One and FirstFed under which Charter One's
and FirstFed's respective stockholders would each own approximately 50% of the
combined company and members of Charter One's and FirstFed's respective Boards
of Directors would each represent 50% of the combined company's Board of
Directors. The Merger Agreement is included in Appendix I and incorporated
herein by reference.
This Joint Proxy Statement/Prospectus is being furnished to the
holders of shares of common stock, par value $.01 per share, of Charter One
("Charter One Common Stock") in connection with the solicitation of proxies by
the Board of Directors of Charter One for use at a Special Meeting of
Stockholders of Charter One (the "Charter One Special Meeting") scheduled to be
held at _____ _.m., local time, on Friday, __________, 1995 at the
________________, ______________________, Cleveland, Ohio, and at any and all
adjournments or postponements thereof.
This Joint Proxy Statement/Prospectus also is being furnished to the
holders of shares of common stock, par value $.01 per share, of FirstFed
("FirstFed Common Stock") in connection with the solicitation of proxies by the
Board of Directors of FirstFed for use at a Special Meeting of Stockholders of
FirstFed (the "FirstFed Special Meeting" and, together with the Charter One
Special Meeting, the "Special Meetings") scheduled to be held in the __________
of the __________, __________, Detroit, Michigan, on __________, __________,
1995 at ____ _.m., local time, and at any and all adjournments thereof.
At the Charter One Special Meeting, the holders of Charter One Common
Stock will consider and vote upon a proposal to approve and adopt the Merger
Agreement. Also at the Charter One Special Meeting, holders of Charter One
Common Stock will consider and vote upon proposals to (i) amend Charter One's
Restated Certificate of Incorporation (the "Charter One Certificate") to
increase the numbers of authorized shares of Charter One Common Stock and
preferred stock to 180,000,000 and 20,000,000, respectively (the "Shares
Amendment"), (ii) amend the Charter One Certificate to increase the number of
authorized directors from 15 to 16 (the "Director Amendment"), and (iii) adopt
certain other amendments to Articles FIFTH and SIXTH of the Charter One
Certificate (the "Other Certificate Amendments" and together with the Shares
Amendment and the Director Amendment, the "Certificate Amendments"), as more
fully described herein. The adoption of the Merger Agreement is not
conditioned upon stockholder approval of the Certificate Amendments, and the
adoption of the Certificate Amendments is not conditioned upon stockholder
approval of the Merger Agreement.
<PAGE> 11
At the FirstFed Special Meeting, the holders of FirstFed Common Stock
will consider and vote upon a proposal to approve the Merger Agreement and the
transactions contemplated thereby.
Subject to the terms, conditions and procedures set forth in the
Merger Agreement, each share of FirstFed Common Stock issued and outstanding
immediately prior to the Merger will be converted into the right to receive 1.2
shares of Charter One Common Stock (the "Exchange Ratio"), with cash paid in
lieu of fractional share interests. Based on the last reported sale price for
Charter One Common Stock on the Nasdaq National Market on ________, 1995
($__.__ per share), the value of 1.2 shares of Charter One Common Stock as of
that date would have been approximately $__.__. The last reported sale price
for FirstFed Common Stock on the Nasdaq National Market on that date was $__.__
per share. As of May 26, 1995, the last trading day preceding public
announcement of the proposed Merger, the last reported sale prices for Charter
One Common Stock and FirstFed Common Stock on the Nasdaq National Market were
$24.75 and $26.38, respectively. Charter One's and FirstFed's respective
financial advisors have rendered opinions to the effect that as of __________,
1995, from a financial point of view, the Exchange Ratio was fair to the
respective stockholders of Charter One and FirstFed. The Merger is subject to
certain conditions, including the approval of the stockholders of Charter One
and FirstFed and the approval of the Office of Thrift Supervision. For
additional information regarding the Merger Agreement and the terms of the
Merger, see "The Merger."
This Joint Proxy Statement/Prospectus also constitutes a prospectus of
Charter One, filed as part of the Registration Statement (defined below) with
respect to up to 23,657,954 shares of Charter One Common Stock to be issued
upon consummation of the Merger pursuant to the terms of the Merger Agreement.
This Joint Proxy Statement/Prospectus does not cover any resales of
the Charter One Common Stock offered hereby to be received by the stockholders
deemed to be affiliates of Charter One or FirstFed upon consummation of the
Merger. No person is authorized to make use of this Joint Proxy
Statement/Prospectus in connection with such resales, although such securities
may be traded without the use of this Joint Proxy Statement/Prospectus by those
stockholders of Charter One not deemed to be affiliates of Charter One or
FirstFed.
This Joint Proxy Statement/Prospectus, and the accompanying notices
and forms of proxy, are first being mailed to stockholders of Charter One and
FirstFed on or about ________, 1995.
---------------------------------
THE SHARES OF CHARTER ONE COMMON STOCK OFFERED HEREBY HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, THE OFFICE
OF THRIFT SUPERVISION, ANY STATE SECURITIES COMMISSION OR ANY OTHER
GOVERNMENTAL AGENCY, AND NEITHER THE SECURITIES AND EXCHANGE COMMISSION, THE
OFFICE OF THRIFT SUPERVISION, ANY STATE SECURITIES COMMISSION NOR ANY OTHER
AGENCY HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE SHARES OF CHARTER ONE COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK
INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER
GOVERNMENTAL AGENCY.
---------------------------------
The date of this Joint Proxy Statement/Prospectus is _________, 1995
ii
<PAGE> 12
AVAILABLE INFORMATION
Charter One and FirstFed are subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and, in accordance therewith, file reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). Such
reports, proxy statements and other information filed by Charter One and
FirstFed can be obtained, upon payment of prescribed fees, from the Public
Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington D.C. 20549. In addition, such information can be inspected and
copied at the public reference facilities of the SEC located at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549 and at the SEC's Regional
Offices located at Northwestern Atrium Center, Suite 1400, 500 West Madison
Street, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York,
New York 10048.
Charter One has filed with the SEC a registration statement on Form
S-4 (together with all amendments, schedules, and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the shares of Charter One Common Stock to be
issued pursuant to and as contemplated by the Merger Agreement. This Joint
Proxy Statement/Prospectus does not contain all the information set forth in
the Registration Statement, certain parts of which have been omitted in
accordance with the rules and regulations of the SEC. The Registration
Statement is available for inspection and copying as set forth above.
Statements contained in this Joint Proxy Statement/Prospectus or in any
document incorporated by reference in this Joint Proxy Statement/Prospectus as
to the contents of any contract or other document are not necessarily complete,
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS
(EXCLUDING EXHIBITS NOT SPECIFICALLY INCORPORATED BY REFERENCE) ARE AVAILABLE,
WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS
JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED BY OR ON BEHALF OF CHARTER ONE OR
FIRSTFED, UPON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, IN THE CASE OF
DOCUMENTS RELATING TO CHARTER ONE, TO ROBERT J. VANA, CHIEF CORPORATE COUNSEL
AND CORPORATE SECRETARY, CHARTER ONE FINANCIAL, INC., 1215 SUPERIOR AVENUE,
CLEVELAND, OHIO 44114, TELEPHONE (216) 566-5300; OR IN THE CASE OF DOCUMENTS
RELATING TO FIRSTFED, TO W. STANLEY FAMBROUGH, SECRETARY, FIRSTFED MICHIGAN
CORPORATION, 1001 WOODWARD AVENUE, DETROIT, MICHIGAN 48226-1904, TELEPHONE
(313) 965-1400. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO
THE SPECIAL MEETINGS, ANY REQUEST SHOULD BE MADE BY ________, 1995. PERSONS
REQUESTING COPIES OF EXHIBITS TO DOCUMENTS WHICH ARE NOT SPECIFICALLY
INCORPORATED BY REFERENCE IN SUCH DOCUMENTS MAY BE CHARGED THE COST OF
REPRODUCTION AND MAILING.
The following documents previously filed with the SEC by Charter One
(File No. 0-16311) are hereby incorporated by reference in this Joint Proxy
Statement/Prospectus:
1. The Annual Report on Form 10-K of Charter One for the fiscal
year ended December 31, 1994.
2. The Quarterly Reports on Form 10-Q of Charter One for the
quarterly periods ended March 31 and June 30, 1995.
3. The Current Reports on Form 8-K of Charter One dated January
18, 1995 and May 31, 1995 (as amended).
4. The description of the Charter One Common Stock contained in
Charter One's Registration Statement on Form 8-A with respect
thereto dated January 12, 1988 (and any amendment or report
filed for the purpose of updating the description).
5. The description of the rights issued pursuant to the Rights
Agreement, dated as of November 20, 1989 (the "Rights
Agreement"), by and between Charter One and The First National
Bank of Boston, as rights agent, contained in Charter One's
Registration Statement on Form 8-A with respect thereto dated
November 21, 1989 (and any amendment or report filed for the
purpose of updating the description).
iii
<PAGE> 13
The following documents previously filed with the SEC by FirstFed
(File No. 0-17829) are hereby incorporated by reference in this Joint Proxy
Statement/Prospectus:
1. The Annual Report on Form 10-K of FirstFed for the fiscal year
ended December 31, 1994.
2. The Quarterly Reports on Form 10-Q of FirstFed for the
quarterly periods ended March 31 and June 30, 1995.
3. The Current Report on Form 8-K of FirstFed dated May 31, 1995
(as amended).
All documents filed by Charter One or FirstFed, respectively, with the
SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after
the date of this Joint Proxy Statement/Prospectus and prior to the date of the
Special Meetings shall be deemed to be incorporated by reference herein and to
be a part hereof from the date of filing such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Joint Proxy Statement/Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is deemed to be incorporated by reference herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Joint Proxy
Statement/Prospectus.
---------------------------------
All information contained in this Joint Proxy Statement/Prospectus
with respect to Charter One and its subsidiaries has been supplied by Charter
One, and all information with respect to FirstFed and its subsidiaries has been
supplied by FirstFed.
No person is authorized to give any information or to make any
representation other than those contained or incorporated by reference in this
Joint Proxy Statement/Prospectus, and, if given or made, such information or
representation should not be relied upon as having been authorized. This Joint
Proxy Statement/Prospectus does not constitute an offer to sell, or a
solicitation of an offer to purchase, the securities offered by this Joint
Proxy Statement/Prospectus, or the solicitation of a proxy, in any
jurisdiction, to or from any person to whom or from whom it is unlawful to make
such offer, solicitation of an offer or proxy solicitation in such
jurisdiction.
--------------------------------
iv
<PAGE> 14
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . iii
TABLE OF CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
SUMMARY 1
The Parties to the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Charter One Financial, Inc. and Charter One Bank, F.S.B. . . . . . . . . . . . . . . . 1
FirstFed Michigan Corporation and First Federal of Michigan . . . . . . . . . . . . . 1
The Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Charter One Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
FirstFed Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Reasons for the Merger; Recommendations of the Boards of Directors . . . . . . . . . . 4
Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Treatment of FirstFed Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . 5
Opinions of Financial Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Effective Time and Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
No Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . . . 6
Conditions to the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Waiver and Amendment; Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Covenants Pending Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Federal Income Tax Consequences of the Merger . . . . . . . . . . . . . . . . . . . . 8
Effects of the Merger on Stockholders . . . . . . . . . . . . . . . . . . . . . . . . 8
Nasdaq Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Management and Operations After the Merger . . . . . . . . . . . . . . . . . . . . . . . . 8
Directors After the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Officers After the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Consolidation of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Certain Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Stock Option Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Amendment to Charter One Rights Agreement . . . . . . . . . . . . . . . . . . . . . . 10
The Bank Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
RECENT DEVELOPMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
COMPARATIVE STOCK PRICES AND DIVIDEND INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 12
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF
CHARTER ONE FINANCIAL, INC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF
FIRSTFED MICHIGAN CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
CHARTER ONE FINANCIAL, INC. AND CHARTER ONE BANK, F.S.B. . . . . . . . . . . . . . . . . . . . . . 18
Charter One Financial, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Charter One Bank, F.S.B. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
FIRSTFED MICHIGAN CORPORATION AND FIRST FEDERAL OF MICHIGAN . . . . . . . . . . . . . . . . . . . . 18
FirstFed Michigan Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
First Federal of Michigan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
THE SPECIAL MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Charter One Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
FirstFed Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
v
<PAGE> 15
<TABLE>
<S> <C>
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Background of and Reasons for the Merger . . . . . . . . . . . . . . . . . . . . . . . . . 23
Recommendations of the Boards of Directors . . . . . . . . . . . . . . . . . . . . . . . . 28
Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Treatment of FirstFed Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Opinions of Charter One's Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . 29
Opinions of FirstFed's Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . 33
Effective Time and Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
No Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . . . . . 38
Effect on Employees and Employee Benefit Plans
of FirstFed and Charter One . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Conditions to the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Waiver and Amendment; Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Covenants Pending Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Resales of Charter One Common Stock by Affiliates . . . . . . . . . . . . . . . . . . . . 49
Federal Income Tax Consequences of the Merger . . . . . . . . . . . . . . . . . . . . . . 49
Nasdaq Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
MANAGEMENT AND OPERATIONS AFTER THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Directors After the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Officers After the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Consolidation of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Post-Merger Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
CERTAIN RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Stock Option Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Amendment to Charter One Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . 57
The Bank Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 58
Unaudited Pro Forma Combined Statement of Financial Condition . . . . . . . . . . . . . . 59
Unaudited Pro Forma Combined Statements of Income . . . . . . . . . . . . . . . . . . . . 60
Notes to Unaudited Pro Forma Combined Financial Statements . . . . . . . . . . . . . . . . 65
Unaudited Pro Forma Per Share Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Pro Forma Regulatory Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
DESCRIPTION OF CHARTER ONE FINANCIAL, INC. CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . 70
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
COMPARISON OF RIGHTS OF STOCKHOLDERS OF CHARTER ONE
FINANCIAL, INC. AND FIRSTFED MICHIGAN CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . 71
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Issuance of Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Payment of Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Special Meetings of Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Meetings of Creditors and/or Stockholders . . . . . . . . . . . . . . . . . . . . . . . . 72
Advance Notice Requirements for Nominations of Directors and
Presentation of New Business at Annual Meetings of Stockholders . . . . . . . . . . . . . 72
Cumulative Voting for Election of Directors . . . . . . . . . . . . . . . . . . . . . . . 73
Restrictions on Voting Rights; Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Number and Term of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Removal of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Filling Vacancies on the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . 74
</TABLE>
vi
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<TABLE>
<S> <C>
Amendment of Articles of Incorporation, Bylaws, Restated Certificate
of Incorporation and Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Control Share Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Business Combinations with Certain Persons . . . . . . . . . . . . . . . . . . . . . . . . 74
Prevention of Greenmail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Limitations on Directors' Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Financial Impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
AMENDMENTS TO RESTATED CERTIFICATE OF INCORPORATION
OF CHARTER ONE FINANCIAL, INC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Increase in Authorized Shares of Capital Stock . . . . . . . . . . . . . . . . . . . . . . 80
Increase in Authorized Number of Directors . . . . . . . . . . . . . . . . . . . . . . . . 81
Other Certificate Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
EXPERTS 83
STOCKHOLDER PROPOSALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
APPENDICES
</TABLE>
I. Agreement and Plan of Merger (including the Stock Option
Agreements, the Bank Merger Agreement and the Amendment to the
Rights Agreement but omitting other schedules and exhibits)
II. Text of proposed amendments to Restated Certificate of
Incorporation of Charter One
III. Fairness Opinion of Montgomery Securities
IV. Fairness Opinion of Salomon Brothers Inc
vii
<PAGE> 17
SUMMARY
The following is a brief summary of certain information contained
elsewhere or incorporated by reference in this Joint Proxy
Statement/Prospectus. Certain capitalized terms used in this summary are
defined elsewhere in this Joint Proxy Statement/Prospectus. This summary is
not intended to be a complete description of all material facts regarding
Charter One, FirstFed and the matters to be considered at the Special Meetings
and is qualified in its entirety by, and reference is made to, the more
detailed information contained elsewhere in this Joint Proxy
Statement/Prospectus, the accompanying Appendices and the documents referred to
and incorporated by reference herein.
THE PARTIES TO THE MERGER
CHARTER ONE FINANCIAL, INC. AND CHARTER ONE BANK, F.S.B.
Charter One, a Delaware corporation, is the holding company for
Charter One Bank, F.S.B. ("Charter Bank"), a federally chartered savings bank
headquartered in Cleveland, Ohio. As of June 30, 1995, Charter One had total
consolidated assets of $6.3 billion, deposits of $4.4 billion and stockholders'
equity of $410 million. Charter One's business has consisted primarily of the
business of Charter Bank and its subsidiaries. The executive offices of
Charter One are located at 1215 Superior Avenue, Cleveland, Ohio 44114, and the
telephone number is (216) 589-8320.
Charter Bank, which commenced operations in 1934, operates through 94
banking offices in the Cleveland, Toledo, Youngstown, Portsmouth, Akron and
Canton metropolitan areas of Ohio and seven loan production offices in
Brimfield, Columbus, Dayton, Findlay and Medina, Ohio, Ashland, Kentucky and
Indianapolis, Indiana. Based on total consolidated assets as of June 30, 1995,
Charter One Bank was the largest thrift institution based in Ohio and among the
largest thrift institutions in the country. The business of Charter Bank
consists primarily of attracting deposits from the general public and using
such deposits, together with borrowings and other funds, to make residential
mortgage, multi-family, commercial real estate, consumer and business loans.
Charter Bank has traditionally focused its lending activities on origination,
for its portfolio, of loans secured by conventional first mortgages on
owner-occupied one-to-four family residences located in its primary market
areas in Ohio. Residential mortgage lending remains Charter Bank's most
significant lending activity. Charter Bank also originates first mortgage
loans on multi-family and commercial real estate located primarily in its local
market areas, as well as construction, consumer and business loans. Through
subsidiaries, Charter Bank engages in real estate appraisal, sales of
tax-deferred annuities and mutual funds, sales of property and casualty
insurance, the development, operation and sale of real estate, the leasing of
capital equipment, and data processing services. See "Selected Consolidated
Financial and Other Data of Charter One Financial, Inc.," "Charter One
Financial, Inc. and Charter One Bank, F.S.B." and "Unaudited Pro Forma Combined
Financial Statements."
Additional information concerning Charter One and Charter Bank is
included in the Charter One documents incorporated by reference herein. See
"Incorporation of Certain Documents by Reference."
FIRSTFED MICHIGAN CORPORATION AND FIRST FEDERAL OF MICHIGAN
FirstFed is a Michigan corporation incorporated in October 1988 as a
savings and loan holding company. As of June 30, 1995, FirstFed had total
consolidated assets of $8.5 billion, deposits of $2.9 billion and stockholders'
equity of $481 million. FirstFed's executive offices are located at 1001
Woodward Avenue, Detroit, Michigan 48226-1904, and its telephone number is
(313) 965-1400.
Essentially all of FirstFed's assets are currently held in, and
operations are conducted through, First Federal of Michigan and its
subsidiaries (collectively, "First Federal"). First Federal, which commenced
operations in 1934, is a federally chartered savings and loan association with
61 banking and two loan production offices located in Michigan, 53 banking and
two loan production offices in Southeast Michigan and four banking offices each
in the Kalamazoo and Lansing areas. Based on total consolidated assets at June
30, 1995, First Federal is the second largest savings and loan association
headquartered in Michigan and among the largest savings and loan associations
1
<PAGE> 18
in the United States. First Federal is engaged in the business of obtaining
funds in the form of deposits and borrowings and investing such funds in
secured loans, mortgage-backed securities and investment-grade securities.
First Federal's primary lending activity is granting loans to enable borrowers
to purchase existing homes, construct new homes or refinance existing home
loans. The majority of loan originations are conventional first mortgage
single-family loans on properties located in Michigan. Additionally, in 1994,
First Federal introduced a home equity line of credit which has a variable rate
and complements First Federal's residential lending experience and customer
base. See "Selected Consolidated Financial and Other Data of FirstFed Michigan
Corporation," "FirstFed Michigan Corporation and First Federal of Michigan" and
"Unaudited Pro Forma Combined Financial Statements."
Additional information concerning FirstFed and First Federal is
included in the FirstFed documents incorporated by reference herein. See
"Incorporation of Certain Documents by Reference."
THE SPECIAL MEETINGS
CHARTER ONE SPECIAL MEETING
Meeting Date. The Charter One Special Meeting will be held on
__________, 1995, at the _____________________________,
__________________________, Cleveland, Ohio, at _____ _.m., local time, and any
and all adjournments or postponements thereof.
Record Date. Only holders of record of Charter One Common Stock at
the close of business on September 8, 1995 (the "Charter One Record Date") are
entitled to notice of and to vote at the Charter One Special Meeting.
Matters to be Considered. At the Charter One Special Meeting, holders
of shares of Charter One Common Stock will vote on the following proposals (the
"Charter One Proposals"): the approval and adoption of the Merger Agreement
and the transactions contemplated thereby, including the Merger of FirstFed
with and into Charter One and the issuance by Charter One of up to 23,657,954
shares of Charter One Common Stock in connection with the Merger; and the
approval and adoption of amendments to the Charter One Certificate to (i)
increase the numbers of authorized shares of Charter One Common Stock from
90,000,000 to 180,000,000 and preferred stock, par value $.01 per share, of
Charter One ("Charter One Preferred Stock") from 10,000,000 to 20,000,000 (the
"Shares Amendment"), (ii) increase the number of authorized directors from 15
to 16 (the "Director Amendment") and (iii) make certain amendments to Articles
FIFTH and SIXTH of the Charter One Certificate, including raising from 10% to
20% the threshold level of Charter One Common Stock ownership that is subject
to voting restrictions, as more fully described herein (the "Other Certificate
Amendments"). See "The Merger" and "Amendments to Restated Certificate of
Incorporation of Charter One Financial, Inc." Charter One's Board of Directors
recommends that Charter One stockholders vote FOR each of the Charter One
Proposals. Charter One stockholders may also consider and vote upon such other
matters as are properly brought before the Charter One Special Meeting,
including proposals to adjourn the Charter One Special Meeting to permit
further solicitation of proxies by Charter One's Board of Directors in the
event that there are not sufficient votes to approve any proposal at the time
of the Charter One Special Meeting; provided, however, that no proxy which is
voted against any such proposal will be voted in favor of adjournment to
solicit further proxies for such proposal.
Votes Required. The affirmative vote of the holders of a majority of
the outstanding shares of Charter One Common Stock is required for approval and
adoption of the Merger Agreement and the Shares Amendment. The affirmative
vote of the holders of 75% of the outstanding shares of Charter One Common
Stock is required for approval and adoption of the Director Amendment and the
Other Certificate Amendments. As of the Charter One Record Date, there were
____________ shares of Charter One Common Stock entitled to be voted at the
Charter One Special Meeting.
With a quorum, or in the absence of such, the affirmative vote of a
majority of the shares represented at the Charter One Special Meeting may
authorize the adjournment of the meeting. Proxies returned with a vote against
the Merger proposal, however, may not be voted by the holder thereof for
adjournment of the meeting pursuant to such holder's discretionary authority.
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Approval of the Merger Agreement by the stockholders of Charter One is
a condition to, and required for, consummation of the Merger. See "The
Merger--Conditions to the Merger." The adoption of the Merger Agreement is not
conditioned upon stockholder approval of the Certificate Amendments, and the
adoption of the Certificate Amendments is not conditioned upon stockholder
approval of the Merger Agreement.
Proxies. Any proxy given pursuant to this solicitation or otherwise
may be revoked by the person giving it at any time before it is voted either by
delivering to the Secretary of Charter One at 1215 Superior Avenue, Cleveland,
Ohio 44114 on or before the taking of the vote at the Charter One Special
Meeting, a written notice of revocation bearing a later date than the date of
the proxy or a later dated proxy relating to the same shares or by attending
the Charter One Special Meeting and voting in person. Attendance at the
Charter One Special Meeting will not in itself constitute the revocation of a
proxy.
Security Ownership. As of the Charter One Record Date, directors and
executive officers of Charter One and their affiliates were beneficial owners
of _________ shares (excluding shares underlying stock options), or _____% of
the then outstanding shares, of Charter One Common Stock. The directors of
Charter One have entered into voting agreements with FirstFed (the "FirstFed
Voting Agreements") whereby such directors have agreed to vote or cause to be
voted the shares of Charter One Common Stock owned by them (_______ shares in
the aggregate) for approval and adoption of the Merger Agreement at the Charter
One Special Meeting. As of the Charter One Record Date, directors and
executive officers of FirstFed and their affiliates did not beneficially own
any shares of Charter One Common Stock.
For additional information, see "The Special Meetings--Charter One
Special Meeting."
FIRSTFED SPECIAL MEETING
Meeting Date. The FirstFed Special Meeting is scheduled to be held in
the __________ of the __________, __________, Detroit, Michigan, on __________,
__________, 1995 at ____ _.m., local time, unless adjourned or postponed.
Record Date. Only holders of record of FirstFed Common Stock at the
close of business on ________, 1995 (the "FirstFed Record Date"), are entitled
to notice of and to vote at the FirstFed Special Meeting.
Matters to be Considered. At the FirstFed Special Meeting, holders of
shares of FirstFed Common Stock will vote on a proposal (the "FirstFed
Proposal") to approve the Merger Agreement and the transactions contemplated
thereby. FirstFed's Board of Directors recommends that FirstFed's stockholders
vote FOR the FirstFed Proposal. FirstFed stockholders also may consider and
vote upon such other matters as are properly brought before the FirstFed
Special Meeting, including proposals to adjourn the FirstFed Special Meeting to
permit further solicitation of proxies by FirstFed's Board of Directors in the
event that there are not sufficient votes to approve any proposal at the time
of the FirstFed Special Meeting; provided, however, that no proxy which is
voted against the FirstFed Proposal will be voted in favor of adjournment to
solicit further proxies for such proposal.
Vote Required. The affirmative vote of the holders of a majority of
the outstanding shares of FirstFed Common Stock entitled to vote at the
FirstFed Special Meeting is required for approval of the FirstFed Proposal. As
of the FirstFed Record Date, there were ______ shares of FirstFed Common Stock
entitled to be voted at the FirstFed Special Meeting.
With a quorum, or in the absence of such, the affirmative vote of a
majority of the shares of FirstFed Common Stock represented at the FirstFed
Special Meeting may authorize the adjournment of the meeting.
Approval of the FirstFed Proposal by the stockholders of FirstFed is a
condition to, and required for, consummation of the Merger. See "The
Merger--Conditions to the Merger."
Proxies. Any proxy given pursuant to this solicitation or otherwise
may be revoked by the person giving it at any time before it is voted by
delivering to the Secretary of FirstFed at 1001 Woodward Avenue, Detroit,
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Michigan 48226-1904 on or before the taking of the vote at the FirstFed
Special Meeting, a written notice of revocation bearing a later date than the
proxy or a later dated proxy relating to the same shares of FirstFed Common
Stock or by attending the FirstFed Special Meeting and voting in person.
Attendance at the FirstFed Special Meeting will not in itself constitute the
revocation of a proxy.
Security Ownership. As of the FirstFed Record Date, directors and
executive officers of FirstFed and their affiliates beneficially owned
_________ shares (excluding shares underlying stock options), or ____% of the
then outstanding shares, of FirstFed Common Stock. The directors of FirstFed
have entered into voting agreements with Charter One (the "Charter One Voting
Agreements") whereby such directors have agreed to vote the shares of FirstFed
Common Stock owned by them (________ shares in the aggregate) for approval of
the Merger Agreement. As of the FirstFed Record Date, directors and executive
officers of Charter One and their affiliates did not beneficially own any
shares of FirstFed Common Stock.
For additional information, see "The Special Meetings--FirstFed Special
Meeting."
THE MERGER
The following summary is qualified in its entirety by reference to the
full text of the Merger Agreement, which is attached hereto in Appendix I and
incorporated by reference herein.
GENERAL
The stockholders of Charter One and FirstFed, respectively, are each
being asked to consider and vote upon, among other things, a proposal to
approve the Merger Agreement, pursuant to which FirstFed will be merged with
and into Charter One in a "merger of equals" transaction, under which Charter
One's and FirstFed's respective stockholders would each own approximately 50%
of the combined company and members of Charter One's and FirstFed's respective
Boards of Directors would each represent 50% of the combined company's Board of
Directors. The name of the surviving corporation following consummation of the
Merger will be "Charter One Financial, Inc." See "The Merger--General."
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
General. The Boards of Directors of Charter One and FirstFed believe
that the terms of the Merger are fair to and in the best interest of their
respective companies and stockholders and that the Merger should produce a well
capitalized institution with a strong retail lending franchise and other
competitive advantages. See "The Merger--Background of and Reasons for the
Merger."
Charter One. The Charter One Board of Directors (the "Charter One
Board") has unanimously adopted the Merger Agreement and approved the
transactions contemplated thereby and has determined that the Merger and the
issuance of the shares of Charter One Common Stock pursuant thereto are fair
to, and in the best interests of, Charter One and its stockholders. THE
CHARTER ONE BOARD THEREFORE RECOMMENDS A VOTE FOR APPROVAL OF THE CHARTER ONE
PROPOSALS AT THE CHARTER ONE SPECIAL MEETING.
For a discussion of the factors considered by the Charter One Board in
reaching its decision to adopt the Merger Agreement and approve the
transactions contemplated thereby, see "The Merger--Background of and Reasons
for the Merger."
FirstFed. The FirstFed Board of Directors (the "FirstFed Board") has
adopted the Merger Agreement and approved the transactions contemplated thereby
and has determined that the Merger is fair to, and in the best interests of,
FirstFed and its stockholders. THE FIRSTFED BOARD THEREFORE RECOMMENDS THAT
STOCKHOLDERS VOTE FOR APPROVAL OF THE FIRSTFED PROPOSAL AT THE FIRSTFED SPECIAL
MEETING.
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For a discussion of the factors considered by the FirstFed Board in
reaching its decision to adopt the Merger Agreement and approve the
transactions contemplated thereby, see "The Merger--Background of and Reasons
for the Merger."
MERGER CONSIDERATION
Subject to the terms, conditions and procedures set forth in the
Merger Agreement, each share of FirstFed Common Stock issued and outstanding
immediately prior to the Merger will be converted into the right to receive 1.2
shares (the "Exchange Ratio") of Charter One Common Stock (the "Merger
Consideration," respectively). See "The Merger--Merger Consideration." Each
share of Charter One Common Stock issued and outstanding at the Effective Time
(as hereinafter defined) will remain outstanding and unchanged as a result of
the Merger.
The number of shares of Charter One Common Stock to be received for
each share of FirstFed Common Stock has been fixed at 1.2. Based on the last
reported sale price for Charter One Common Stock on the Nasdaq National Market
on ________, 1995 ($__.__ per share), the value of 1.2 shares of Charter One
Common Stock as of that date would have been approximately $__.__. The last
reported sale price for FirstFed Common Stock on the Nasdaq National Market on
that date was $__.__ per share. The market value of Charter One Common Stock
to be received in the Merger, however, is subject to fluctuation. Fluctuations
in the market price of Charter One Common Stock would result in an increase or
decrease in the value of the Merger Consideration to be received by FirstFed
stockholders in the Merger. An increase in the market value of Charter One
Common Stock would increase the market value of the Merger Consideration to be
received in the Merger. A decrease in the market value of Charter One Common
Stock would have the opposite effect. See "The Merger--Merger Consideration."
Following the Effective Time (as hereinafter defined), the former
stockholders of FirstFed would own approximately _______ shares, or _____%, of
the outstanding Charter One Common Stock.
TREATMENT OF FIRSTFED STOCK OPTIONS
At the FirstFed Record Date, there were options ("FirstFed Stock
Options") outstanding with respect to 977,110 shares of FirstFed Common Stock
under the stock option plans of FirstFed (the "FirstFed Option Plans"). Except
as described below, at the Effective Time, each FirstFed Stock Option shall
become an option to purchase the number of shares of Charter One Common Stock
that would have been received by the holder of such option in the Merger had
the option been exercised in full for shares of FirstFed Common Stock
immediately prior to the Effective Time, upon the same terms and conditions
under the relevant option as were applicable immediately prior to the Effective
Time, except the exercise price per share will be proratably adjusted by the
Exchange Ratio and any fractional shares. Notwithstanding the foregoing,
FirstFed's First Vice Presidents who do not continue as officers of Charter One
after the Merger who are holders of FirstFed Stock Options which will not have
vested prior to the Effective Time (with respect to up to 51,600 shares of
FirstFed Common Stock in the aggregate as of the FirstFed Record Date) will
receive, in lieu of assumption of such non-vested options, the number of shares
of Charter One Common Stock (based on the closing price of the Charter One
Common Stock on the last trading day immediately prior to the Effective Time)
equal to the fair value of such options, such fair value to be determined by
Charter One and FirstFed with the advice of a financial advisor to be selected
by Charter One and FirstFed, based on the exercise prices and vesting schedules
of such options, the market prices of Charter One and FirstFed Common Stock and
an analysis of option pricing models to be determined at that time. See "The
Merger--Treatment of FirstFed Stock Options."
OPINIONS OF FINANCIAL ADVISORS
Charter One. Charter One has retained Montgomery Securities
("Montgomery") as its financial advisor in connection with the transactions
contemplated by the Merger Agreement and to evaluate the financial terms of the
Merger. See "The Merger--Background of and Reasons for the Merger."
Montgomery has delivered opinions to the Charter One Board that as of
May 30 and ________, 1995, the consideration to be paid by Charter One in the
Merger is fair to Charter One and its stockholders from a financial
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<PAGE> 22
point of view. A copy of Montgomery's opinion dated ______, 1995, is attached
to this Joint Proxy Statement/Prospectus as Appendix III and is incorporated by
reference herein. See "The Merger--Opinions of Charter One's Financial
Advisor."
FirstFed. FirstFed has retained Salomon Brothers Inc ("Salomon") as
its financial advisor in connection with the transactions contemplated by the
Merger Agreement and to evaluate the financial terms of the Merger. See "The
Merger--Background of and Reasons for the Merger."
Salomon has delivered its written opinions to the FirstFed Board that
as of May 30 and _______ 1995, the Exchange Ratio in the Merger is fair, from a
financial point of view, to the holders of FirstFed Common Stock. A copy of
Salomon's opinion dated _______, 1995 is attached to this Joint Proxy
Statement/Prospectus as Appendix IV and is incorporated by reference herein.
See "The Merger--Opinions of FirstFed's Financial Advisor."
EFFECTIVE TIME AND CLOSING DATE
The Merger shall become effective at the time and on the date (the
"Effective Time") of the filing of certificates of merger with the appropriate
authorities of Delaware and Michigan. Such filings will occur only after the
receipt of all requisite regulatory approvals, approval of the Merger Agreement
by the requisite vote of Charter One's and FirstFed's respective stockholders
and the satisfaction or waiver of all other conditions to the Merger. The
closing of the Merger shall occur within 30 days after the satisfaction or
waiver of all conditions and obligations precedent of Charter One and FirstFed
to consummate the Merger, or at another time agreed to by Charter One and
FirstFed (the "Closing Date"). The parties have agreed to use their best
efforts to cause the Closing Date to occur by the end of 1995; however, there
can be no assurance that the Closing Date will occur on or prior to such date.
NO APPRAISAL RIGHTS
Stockholders of Charter One and FirstFed will not have appraisal
rights under the Delaware General Corporation Law (the "DGCL") and the Michigan
Business Corporation Act (the "MBCA"), respectively, in connection with the
Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Charter One's management and the Charter One Board,
and FirstFed's management and the FirstFed Board, respectively, may be deemed
to have certain interests in the Merger in addition to their interests as
stockholders of Charter One and FirstFed, as the case may be, generally. The
Charter One Board and the FirstFed Board were aware of these interests and
considered them, among other matters, in approving the Merger Agreement and the
transactions contemplated thereby. See "The Merger--Interests of Certain
Persons in the Merger."
CONDITIONS TO THE MERGER
The respective obligations of the parties to consummate the Merger are
subject to the satisfaction or waiver of certain conditions specified in the
Merger Agreement, including, among other things, the receipt of the requisite
regulatory and stockholder approvals, the accuracy of the representations and
warranties contained therein, the performance of all obligations imposed
thereby, the receipt by Charter One and FirstFed of certain accounting and tax
opinions and the satisfaction of certain other conditions. See "The
Merger--Conditions to the Merger."
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<PAGE> 23
REGULATORY APPROVALS
The Merger is subject to the approval of the Office of Thrift
Supervision (the "OTS"). On July 3, 1995, Charter One filed an application for
approval of the Merger with the OTS. Charter One received OTS approval of the
Merger on August 29, 1995.
Under federal law, a period of 15 days must expire following approval
by the OTS within which period the United States Department of Justice (the
"Department of Justice") may file objections to the Merger under the federal
antitrust laws. The Department of Justice did not file any such objection
during the period.
It is a condition to the consummation of the Merger that all requisite
regulatory approvals be obtained without any condition or restriction that
would have or result in a material adverse effect on Charter One as the
surviving corporation, as Charter One and FirstFed may reasonably and in good
faith agree. The OTS approval did not contain any such condition or
restriction. See "The Merger--Regulatory Approvals."
WAIVER AND AMENDMENT; TERMINATION
Prior to the Effective Time, the Charter One and FirstFed Boards may
extend the time for performance of any obligations under the Merger Agreement,
waive any inaccuracies in the representations and warranties contained in the
Merger Agreement and waive compliance with any agreements or conditions of the
Merger Agreement.
Subject to applicable law, the Merger Agreement may be amended by
action of the Charter One and FirstFed Boards at any time before or after
approval of the Merger Agreement by the stockholders of Charter One and
FirstFed; provided that, after approval of the Merger Agreement by the
stockholders of Charter One and FirstFed, no amendment may change the amount or
form of the Merger Consideration to be received by FirstFed stockholders in the
Merger without their approval.
The Merger Agreement may be terminated at any time prior to the
Effective Time, whether prior to or after approval of the matters presented
herein by Charter One and FirstFed stockholders, either by mutual consent of
the parties in writing or by either party if, among other things, (i) the
required regulatory approvals are not obtained; (ii) the Merger is not
consummated by May 31, 1996, or such later date as may be agreed to by the
parties; (iii) the required stockholder approvals are not obtained; (iv) the
other party has not met one or more of its conditions or obligations under the
Merger Agreement; (v) the other party has materially breached any
representation, warranty, covenant or agreement set forth in the Merger
Agreement and has failed to, or cannot, cure in a timely manner such breach
after receiving written notice of such breach (and the breach, in the
reasonable opinion of the non-breaching party, would have or be reasonably
likely to have a material adverse effect on the breaching party or upon
consummation of the Merger) or (vi) any event occurs which renders impossible
the satisfaction in any material respect of one or more of the conditions to
that party's obligations to effect the Merger and noncompliance with that
covenant has not been waived by the terminating party. See "The Merger--Waiver
and Amendment; Termination."
COVENANTS PENDING CLOSING
Each of Charter One and FirstFed has agreed to certain covenants with
respect to the conduct of its businesses and other matters pending the closing
of the Merger. See "The Merger--Covenants Pending Closing."
EXPENSES
All expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby are to be paid by the party incurring such
expenses, except that Charter One and FirstFed shall bear equally all printing
and mailing expenses associated with this Joint Proxy Statement/Prospectus.
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<PAGE> 24
ACCOUNTING TREATMENT
It is intended that the Merger will be accounted for as a "pooling of
interests" in accordance with generally accepted accounting principles. A
condition to the consummation of the Merger is the receipt by Charter One and
FirstFed of letters from their respective independent accountants to the effect
that the Merger qualifies for pooling of interests accounting treatment. See
"The Merger--Accounting Treatment." If Charter One and FirstFed agree to waive
the pooling of interest condition and utilize purchase accounting for the
Merger, shareholders will be resolicited on the Merger proposal only in the
event that such a change in the accounting treatment results in a material
change in the pro forma combined financial or other information contained
herein.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
It is a condition to the obligations of Charter One and FirstFed to
consummate the Merger that each shall have received an opinion of its counsel
to the effect that the Merger will be treated as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), and for federal income tax purposes no gain or loss will be recognized
as a result of the Merger by Charter One, FirstFed, Charter Bank, First
Federal, any Charter One stockholder or any FirstFed stockholder upon receipt
solely of Charter One Common Stock in the Merger (except with respect to cash
received by a FirstFed stockholder in lieu of a fractional share interest in
Charter One Common Stock). Each of these conditions is waivable at the option
of the party entitled to receipt of the requisite opinion. FirstFed
stockholders are urged to consult their tax advisors concerning the specific
tax consequences to them of the Merger, including the applicability and effect
of various state, local and foreign tax laws. See "The Merger--Federal Income
Tax Consequences of the Merger" and "--Conditions to the Merger."
EFFECTS OF THE MERGER ON STOCKHOLDERS
As a result of the Merger, holders of FirstFed Common Stock who
receive shares of Charter One Common Stock in the Merger will become
stockholders of Charter One. For a comparison of applicable law and the
corporate charters and bylaws of Charter One and FirstFed governing the rights
of Charter One and FirstFed stockholders, see "Comparison of Rights of
Stockholders of Charter One Financial, Inc. and FirstFed Michigan Corporation."
For information regarding the financial impact of the Merger to the respective
stockholders of Charter One and FirstFed, see the combined financial condition
of Charter One and FirstFed upon the consummation of the Merger, including
unaudited pro forma per share data, in "Unaudited Pro Forma Combined Financial
Statements."
NASDAQ LISTING
Both Charter One Common Stock and FirstFed Common Stock currently are
quoted on the Nasdaq National Market (symbols: COFI and FFOM, respectively).
It is a condition to consummation of the Merger that the Charter One Common
Stock to be issued to the stockholders of FirstFed pursuant to the Merger
Agreement will be quoted on the Nasdaq National Market. See "The
Merger--Conditions to the Merger."
REGISTRATION RIGHTS
In connection with the Merger Agreement, Charter One has agreed to
file a registration statement under the Securities Act with respect to the
resale of certain shares of Charter One Common Stock held by affiliates of
FirstFed who receive in the Merger more than 1% of the issued and outstanding
shares of Charter One Common Stock immediately after the Effective Time. See
"The Merger--Registration Rights."
MANAGEMENT AND OPERATIONS AFTER THE MERGER
DIRECTORS AFTER THE MERGER
As provided in the Merger Agreement, if the Charter One stockholders
approve the Director Amendment, the Charter One Board as of the Effective Time
will consist of 16 members, one-half of whom will be selected by
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<PAGE> 25
the Charter One Board and one-half by the FirstFed Board, in each case prior
to the Effective Time. For the list of individuals currently expected to become
a member of the Charter One Board as of the Effective Time, see "Management and
Operations After the Merger - Directors After the Merger." The class and term
of each of the directors has not been determined. If the Charter One
stockholders fail to approve the Director Amendment, the Charter One Board as of
the Effective Time will consist of 14 members, one-half of whom will be selected
by the Charter One Board and one-half by the FirstFed Board, in each case prior
to the Effective Time and, it is anticipated, from the above-referenced list of
individuals, based upon criteria the respective Boards deem appropriate at such
time. Other than Mr. C. Gene Harling, those persons who served as Charter One
or FirstFed directors prior to the Effective Time who do not become Charter One
directors as of the Effective Time (anticipated to be, from Charter One - Dr.
Norman R. Auburn, Otty J. Cerny, Robert L. Moore, George M. Jones and Charles A.
Shirk, and from FirstFed - Fred C. Reynolds) will be entitled under the Merger
Agreement to serve as directors emeriti of Charter One and to be paid fees at
least as favorable as those currently provided to directors emeriti of Charter
One.
In addition, during the four-year period following the Effective Time,
(i) Charles John Koch and Jerome L. Schostak will serve as the Chairman and
Vice Chairman, respectively, of the Charter One Board; (ii) the Charter One
Board and the Board of Directors of Charter Bank (the "Charter Bank Board")
(and each of the committees thereof, other than the Executive Committee) will
each consist of an equal number of persons serving on or representing the
Charter One Board and the FirstFed Board, respectively, prior to the Effective
Time; (iii) any vacancy on the Charter One Board caused by the departure of a
director who was a director of Charter One or FirstFed prior to the Effective
Time, or a successor thereto, will be filled with a person recommended by the
remaining directors who prior to the Effective Time were directors of Charter
One or FirstFed, respectively; (iv) a vote of two-thirds of the entire Charter
One Board will be necessary to approve certain matters; (v) subject to any
necessary OTS approval, the members of the Charter One Board will also be the
members of the Charter Bank Board; and (vi) the members of the Executive
Committee of the Charter One Board and the Charter Bank Board will be Charles
John Koch (Chairman), Jerome L. Schostak, John D. Koch, Mark D. Grossi and
Richard W. Neu. With respect to item (v) above, no person who is a director of
FirstFed or First Federal will be subject to an age restriction relating to
service as a director of Charter Bank.
OFFICERS AFTER THE MERGER
As of the Effective Time, the executive officers of Charter One and
Charter Bank will be as follows: Charles John Koch - Chairman of the Board,
President and Chief Executive Officer of Charter One and Charter Bank; Richard
W. Neu - Senior Vice President and Treasurer of Charter One and Executive Vice
President/Chief Financial Officer of Charter Bank; John D. Koch - Senior Vice
President of Charter One and Executive Vice President/Chief Lending and Credit
Officer of Charter Bank; Mark D. Grossi - Senior Vice President of Charter One
and Executive Vice President/Retail Banking of Charter Bank; and Robert J. Vana
- Chief Corporate Counsel and Secretary of Charter One and Charter Bank.
Messrs. C. Koch, J. Koch, Grossi and Vana currently serve in such capacities
with Charter One and Charter Bank. Mr. Neu currently serves as Treasurer of
FirstFed and Executive Vice President and Chief Financial Officer of First
Federal. In addition, C. Gene Harling, Chairman of the Board, President and
Chief Executive Officer of FirstFed and First Federal, will serve Charter One
in an advisory capacity for at least one year following the Effective Time to
assist in the consolidation of operations following the Merger as well as other
matters. Other senior management positions of Charter One and Charter Bank
generally are expected to be filled by persons currently employed by Charter
One or FirstFed.
CONSOLIDATION OF OPERATIONS
Upon consummation of the Merger, the combined company will be
headquartered in Cleveland, with a Michigan Division headquartered in the
current FirstFed facility in Detroit. The combined institution will have 156
full service offices located in Ohio and Michigan, with approximately $7
billion in total deposits. It is anticipated that all of such branches will
remain open after the Merger and that certain operational functions of Charter
One currently performed in Cleveland will be integrated into similar functions
of FirstFed to be performed in Detroit.
Concurrently with or shortly following the consummation of the Merger,
Charter One and FirstFed anticipate executing a plan to reposition the combined
statement of financial condition of Charter One and FirstFed
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<PAGE> 26
to conform the interest rate risk profile of the combined company to that of
Charter One before the Merger. The repositioning of the combined statement of
financial condition is expected to reduce the asset size of the combined company
from approximately $15 billion to approximately $13 billion. Based on market
interest rate levels as of June 30, 1995 and December 31, 1994, costs related to
this repositioning, together with an estimated $20 million pre-tax Merger
transaction charge, would have been expected to result in an after-tax charge to
earnings of approximately $67 million and $133 million, respectively. On a pro
forma combined basis, net income for the fiscal year ended December 31, 1994,
and the six months ended June 30, 1995, would have been $15.6 million (including
FirstFed's restructuring charge of $146 million) and $60.4 million,
respectively, without the repositioning.
For additional information regarding the directors and executive
officers of Charter One after the Merger, as well as other information
concerning the consolidation of operations and Charter One's post-merger
dividend policy, see "Management and Operations After the Merger" and
"Unaudited Pro Forma Combined Financial Statements."
CERTAIN RELATED TRANSACTIONS
STOCK OPTION AGREEMENTS
As an inducement and a condition to entering into the Merger
Agreement, each of Charter One and FirstFed received a stock option to purchase
shares of the other party's common stock representing up to 19.9% of the issued
and outstanding shares of such common stock. The options may be exercised only
upon the occurrence of an "Initial Triggering Event," such as a person
commencing a tender offer for 25% or more of either issuer's outstanding common
stock, followed by a "Subsequent Triggering Event," such as a person acquiring
25% or more of the issuer's common stock or the issuer, without the grantee's
consent, entering into an agreement with an other person to enter into various
forms of acquisition transactions. No triggering event has occurred as of the
date hereof. Pursuant to the Charter One Stock Option Agreement, Charter One
granted to FirstFed an option to purchase up to 4,481,589 shares of Charter One
Common Stock at an exercise price of $24.75 per share, subject to the terms and
conditions set forth therein. Pursuant to the FirstFed Stock Option Agreement,
FirstFed granted to Charter One an option to purchase up to 3,724,173 shares of
FirstFed Common Stock at an exercise price of $26.50 per share, subject to the
terms and conditions set forth therein.
The Stock Option Agreements are intended to increase the likelihood
that the Merger will be consummated in accordance with the terms of the Merger
Agreement. Consequently, certain aspects of the Stock Option Agreements may
have the effect of discouraging persons who might now or prior to the Effective
Time be interested in acquiring all or a significant interest in either Charter
One or FirstFed from considering or proposing such an acquisition, even if such
persons were prepared to pay a higher price per share for FirstFed Common Stock
than the price per share implicit in the Merger Consideration or a higher price
per share for Charter One Common Stock than the then-current market price of
such shares.
Copies of the Stock Option Agreements are attached to this Joint Proxy
Statement/Prospectus at Appendix I. For additional information regarding the
Stock Option Agreements, see "Certain Related Transactions--Stock Option
Agreements."
AMENDMENT TO CHARTER ONE RIGHTS AGREEMENT
In connection with the Merger Agreement, Charter One amended the
Rights Agreement, among other things, to exempt the Merger Agreement, the
FirstFed Stock Option Agreement, the Charter One Voting Agreements and the
transactions contemplated thereby from the application of the terms of the
Rights Agreement and to raise from 10% to 20% the triggering beneficial
ownership thresholds. See "Certain Related Transactions--Amendment to Charter
One Rights Agreement" and "Comparison of Rights of Stockholders of Charter One
Financial, Inc. and FirstFed Michigan Corporation--Rights Agreement."
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<PAGE> 27
THE BANK MERGER AGREEMENT
Pursuant to a Plan of Merger, dated May 30, 1995 (the "Bank Merger
Agreement"), by and between Charter Bank and First Federal, First Federal will
be merged with and into Charter Bank (the "Bank Merger") immediately following
the Company Merger. See "Certain Related Transactions--The Bank Merger
Agreement."
RECENT DEVELOPMENTS
The deposits of savings associations such as Charter Bank and First
Federal are presently insured by the Savings Association Insurance Fund (the
"SAIF"), which together with the Bank Insurance Fund (the "BIF"), are the two
insurance funds administered by the Federal Deposit Insurance Corporation (the
"FDIC"). On August 8, 1995, the FDIC revised the premium schedule for
BIF-insured banks to provide a range of .04% to .31% of deposits (as compared
to the current range of .23% to .31% of deposits for both BIF and SAIF-insured
institutions) in anticipation of the BIF achieving its statutory reserve ratio.
As a result, BIF members generally would pay lower premiums than the SAIF
members. The lower premiums for BIF members are expected to take effect no
later than the third quarter of 1995. It is anticipated that the SAIF will not
be adequately recapitalized until 2002, absent a substantial increase in
premium rates or the imposition of special assessments or other significant
developments, such as a merger of the SAIF and the BIF. As a result of this
disparity, SAIF members could be placed at a significant, competitive
disadvantage to BIF members due to higher costs for deposit insurance. A
recapitalization plan under consideration by the Treasury Department, the FDIC,
the OTS and the Congress reportedly provides for a one-time assessment of .85%
to .90% to be imposed on all deposits assessed at the SAIF rates in order to
recapitalize the SAIF and eliminate the disparity. No assurance can be given,
however, as to whether the recapitalization plan will be implemented or as to
the nature or extent of any competitive disadvantage which may be experienced
by SAIF member institutions such as Charter Bank and First Federal. Using a
special assessment range of .85% to .90% on SAIF-insured deposits at the
anticipated measurement dates of December 31, 1994 and March 31, 1995, the
approximate SAIF assessment for the combined company is expected to range from
$39 to $44 million, after tax. If the recapitalization plan includes a charter
conversion to that of a commercial bank which requires the "recapture" into
taxable income of retained earnings not previously taxed, as is currently under
consideration, the amount of such retained earnings for the combined companies
would be $157 million, or a potential after-tax charge to earnings of $55
million.
11
<PAGE> 28
COMPARATIVE STOCK PRICES AND DIVIDEND INFORMATION
Charter One Common Stock and FirstFed Common Stock are quoted on the
Nasdaq National Market (symbols: COFI and FFOM, respectively). The following
table sets forth the reported high and low sales prices of shares of Charter
One Common Stock and FirstFed Common Stock, as reported on the Nasdaq National
Market, and the quarterly cash dividends per share declared, for the periods
indicated. The stock prices and dividend amounts have been restated to give
effect to stock splits and stock dividends. The stock prices do not include
retail mark-ups, mark-downs or commissions.
<TABLE>
<CAPTION>
CHARTER ONE FIRSTFED
COMMON STOCK COMMON STOCK
----------------------------------- -----------------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
1993 CALENDAR YEAR
First Quarter . . . . . . . . . . . . . . . . $22.83 $17.33 $.08 $22.83 $15.08 $.11
Second Quarter . . . . . . . . . . . . . . . . 22.17 17.00 .11 21.33 16.50 .12
Third Quarter . . . . . . . . . . . . . . . . 24.67 18.50 .11 27.00 18.67 .12
Fourth Quarter . . . . . . . . . . . . . . . . 25.00 18.00 .12 26.38 21.75 .12
1994 CALENDAR YEAR
First Quarter . . . . . . . . . . . . . . . . 20.25 17.75 .12 25.75 20.63 .13
Second Quarter . . . . . . . . . . . . . . . . 23.37 18.00 .15 25.13 21.50 .13
Third Quarter . . . . . . . . . . . . . . . . 24.00 19.12 .15 25.88 22.88 .14
Fourth Quarter . . . . . . . . . . . . . . . . 21.00 17.75 .17 24.63 17.38 .14
1995 CALENDAR YEAR
First Quarter . . . . . . . . . . . . . . . . 22.13 18.88 .17 26.38 19.63 .15
Second Quarter . . . . . . . . . . . . . . . . 27.00 20.00 .19 30.63 23.25 .15
Third Quarter (through _____, 1995) . . . . .
</TABLE>
Under the terms of the Merger Agreement, Charter One and FirstFed may
pay cash dividends consistent with past practice including specified increases
over time, and FirstFed may pay a cash dividend if the first Charter One cash
dividend following the Merger is scheduled to be paid more than 90 days after
the payment of the last regular FirstFed cash dividend prior to the Merger, so
that the dividend payment periods of the respective companies can be conformed.
For additional information, see "The Merger--Covenants Pending Closing."
The following table sets forth the last reported sale prices per share
of Charter One Common Stock and FirstFed Common Stock and the equivalent per
share price for FirstFed Common Stock giving effect to the Merger on (i) May
26, 1995, the last trading day preceding public announcement of the signing of
the Merger Agreement; and (ii) _____ __, 1995, the last practicable date prior
to the mailing of this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
CHARTER ONE FIRSTFED EQUIVALENT PRICE PER
COMMON STOCK COMMON STOCK FIRSTFED SHARE (1)
------------------ -------------------- --------------------------
<S> <C> <C> <C>
May 26, 1995 . . . . . . . . . . . $24.75 $26.38 $29.70
_, 1995 . . . . . . . . . . .
</TABLE>
---------------------------
(1) The equivalent price per share of FirstFed Common Stock at each specified
date was determined by multiplying (i) the last reported sale price of
Charter One Common Stock on such date and (ii) the Exchange Ratio of 1.2.
As of _____ __, 1995, the _____ outstanding shares of Charter One
Common Stock were held by approximately ____ record owners and the ___________
outstanding shares of FirstFed Common Stock by approximately _____ record
owners.
12
<PAGE> 29
The number of shares of Charter One Common Stock to be received for
each share of FirstFed Common Stock has been fixed at 1.2. FirstFed
stockholders are advised to obtain current market quotations for Charter One
Common Stock. The market price of Charter One Common Stock may fluctuate
between the date of this Joint Proxy Statement/Prospectus and the Effective
Time. Fluctuations in the market price of Charter One Common Stock would
result in an increase or decrease in the value of the Merger Consideration to
be received by holders of FirstFed Common Stock in the Merger. An increase in
the market value of Charter One Common Stock would increase the market value of
the Merger Consideration to be received in the Merger. A decrease in the
market value of Charter One Common Stock would have the opposite effect. The
market value of the Merger Consideration at the time of the Merger will depend
upon the market value of a share of Charter One Common Stock at such time. See
"The Merger--Merger Consideration."
The timing and amount of the future dividends of Charter One will
depend upon earnings, cash requirements, Charter One's financial condition and
other factors deemed relevant by the Charter One Board. Dividends may also be
limited by certain regulatory restrictions. See "Management and Operations
After the Merger--Post-Merger Dividend Policy."
13
<PAGE> 30
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
OF CHARTER ONE FINANCIAL, INC.
<TABLE>
<CAPTION>
AT AND FOR THE SIX
MONTHS ENDED JUNE 30, AT AND FOR THE YEAR ENDED DECEMBER 31,(1)
---------------------- ------------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---------- ----------- ----------- ------------- ------------- ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income . . . . . . . . $ 234,723 $ 185,623 $ 395,630 $ 358,408 $ 346,696 $ 357,981 $ 326,429
Interest expense . . . . . . . . 143,142 98,437 217,486 188,115 210,671 251,116 241,073
----------- ---------- ----------- ---------- ----------- ----------- ----------
Net interest income . . . . . 91,581 87,186 178,144 170,293 136,025 106,865 85,356
Provision for loan losses . . . . 516 1,493 2,798 5,149 6,544 7,035 10,510
------------ ----------- ------------ ----------- ------------ ------------ -----------
Net interest income after
provision for loan losses . . 91,065 85,693 175,346 165,144 129,481 99,830 74,846
Other income:
Net gain from sales . . . . . . 505 1,496 3,962 4,983 7,161 20,857 15,202
Other . . . . . . . . . . . . . 15,513 11,807 24,094 21,204 18,557 16,010 15,257
Other expenses . . . . . . . . . 52,816 49,402 102,103 97,930 88,726 74,067 66,767
---------- ---------- ----------- ----------- ----------- ----------- ----------
Income before income taxes and
cumulative effect of change in
accounting principle . . . . 54,267 49,594 101,299 93,401 66,473 62,630 38,538
Federal income taxes . . . . . . 18,251 16,490 33,686 31,965 23,165 22,317 15,040
----------- ---------- ----------- ----------- ----------- ----------- ----------
Income before cumulative effect
of change in accounting
principle . . . . . . . . . 36,016 33,104 67,613 61,436 43,308 40,313 23,498
Cumulative effect of change in
accounting principle(2)(3) . . --- --- --- 7,020 --- --- (45,515)
----------- ---------- ----------- ---------- ----------- ----------- ----------
Net income (loss) . . . . . . $ 36,016 $ 33,104 $ 67,613 $ 68,456 $ 43,308 $ 40,313 $ (22,017)
========== ========== =========== ========== ========== ========== ==========
PER SHARE DATA:
Earnings per common and common
equivalent share(4):
Income before cumulative effect
of change in accounting
principle . . . . . . . . . $ 1.56 $ 1.43 $ 2.92 $ 2.67 $ 2.20 $ 2.10 $ 1.24
Cumulative effect of change in
accounting principle . . . . ---- --- --- .31 --- --- (2.41)
----------- ---------- ----------- ---------- ----------- ----------- ----------
Net income (loss) . . . . . . $ 1.56 $ 1.43 $ 2.92 $ 2.98 $ 2.20 $ 2.10 $ (1.17)
========== ========== =========== ========== ========== ========== ==========
Dividends declared and paid per
common share(5) . . . . . . . . $ .36 $ .27 $ .59 $ .42 $ .31 $ .28 $ .25
FINANCIAL CONDITION:
Total assets . . . . . . . . . . $6,325,584 $5,829,047 $6,130,172 $5,215,426 $4,261,850 $4,359,083 $3,771,996
Mortgage-backed securities . . . 2,014,842 1,876,503 2,038,598 1,495,512 1,197,864 1,164,673 685,227
Other debt securities . . . . . . 134,993 140,302 99,414 135,795 134,703 171,987 275,890
Loans, net . . . . . . . . . . . 3,721,012 3,453,179 3,542,539 3,219,777 2,573,721 2,612,997 2,487,337
Deposits . . . . . . . . . . . . 4,410,618 4,268,342 4,368,245 4,179,364 3,643,427 3,832,259 3,124,071
Borrowings . . . . . . . . . . . 1,420,716 1,125,926 1,318,737 604,229 304,915 230,798 402,988
Stockholders' equity
(substantially restricted)(6) . 409,810 366,576 369,105 369,647 252,610 212,005 174,383
</TABLE>
14
<PAGE> 31
<TABLE>
<CAPTION>
AT AND FOR THE SIX
MONTHS ENDED JUNE 30, AT AND FOR THE YEAR ENDED DECEMBER 31,(1)
--------------------- -------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- ---------- ---------- ---------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER PERIOD-END DATA:
Number of shares outstanding(7) . 22,430,551 22,603,063 22,569,626 22,520,963 18,914,346 18,676,827 18,490,209
Number of full service offices . 95 99 96 95 92 92 82
Number of loan origination offices 7 4 4 2 3 6 7
SELECTED RATIOS(8):
Net yield on average interest-
earning assets for the period . 3.06% 3.28% 3.23% 3.53% 3.32% 2.83% 2.60%
Return on average stockholders'
equity . . . . . . . . . . . . 18.54 17.21 17.92 20.13 18.70 20.78 (13.25)
Return on average stockholders'
equity (prior to cumulative
effect of change in accounting
principle) . . . . . . . . . . 18.54 17.21 17.92 18.07 18.70 20.78 14.14
Return on average assets . . . . 1.15 1.20 1.18 1.37 1.01 1.03 (.64)
Return on average assets (prior to
cumulative effect of change in
accounting principle) . . . . 1.15 1.20 1.18 1.23 1.01 1.03 .69
Average stockholders' equity to
average assets . . . . . . . . 6.21 6.96 6.59 6.78 5.42 4.96 4.86
Dividends declared to earnings per
share . . . . . . . . . . . . . . 23.08 18.88 20.21 14.09 14.09 13.33 N/M(9)
</TABLE>
-------------------------------
(1) Charter One purchased assets totalling $794.9 million in the first quarter
of 1993, $806.5 million in the third quarter of 1991 and $1.2 billion in
the second quarter of 1990.
(2) During 1993, Charter One changed its method of accounting for income
taxes. See Note 9 to the Consolidated Financial Statements of Charter One
included in Charter One's Annual Report on Form 10-K for the year ended
December 31, 1994, which is incorporated by reference herein. See
"Incorporation of Certain Documents by Reference."
(3) During 1990, Charter One changed its method of amortizing costs in excess
of fair value of net assets acquired from straight-line to an accelerated
method under Statement of Financial Accounting Standards ("SFAS") No. 72.
(4) During 1992, Charter One completed a merger which was accounted for as a
pooling of interests. Earnings per share for the 1992 merger have been
restated to reflect the pooling of interests.
(5) The amounts presented herein are historical per share amounts declared and
paid by Charter One, prior to the 1992 merger accounted for as a pooling
of interests, as adjusted for stock splits.
(6) As the holding company of a federally chartered savings bank, Charter One
is subject to various restrictions on its ability to obtain dividends from
Charter Bank. For additional information, see "Management and Operations
After the Merger--Post-Merger Dividend Policy" and Charter One's Annual
Report on Form 10-K for the year ended December 31, 1994, which is
incorporated by reference herein.
(7) Adjusted to reflect 3-for-2 stock splits in November 1993 and May 1992 and
for a 1992 merger accounted for as a pooling of interests.
(8) Selected ratios for interim periods have been annualized.
(9) Not meaningful.
15
<PAGE> 32
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
OF FIRSTFED MICHIGAN CORPORATION
<TABLE>
<CAPTION>
AT AND FOR THE SIX
MONTHS ENDED JUNE 30, AT AND FOR THE YEAR ENDED DECEMBER 31,
------------------------- ----------------------------------------------------------------
1995 1994(1) 1994(1) 1993 1992 1991 1990
------------ ----------- ------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Interest income . . . . . . . . . $ 314,184 $ 304,170 $ 610,550 $ 723,748 $ 785,062 $ 901,315 $1,032,057
Interest expense . . . . . . . . 251,616 234,190 476,721 586,647 674,081 799,235 930,005
---------- --------- ---------- ---------- ---------- ---------- ----------
Net interest income . . . . . . 62,568 69,980 133,829 137,101 110,981 102,080 102,052
Provision for loan losses . . . . --- 150 150 2,400 6,000 7,225 6,043
---------- --------- ---------- ---------- ---------- ---------- ----------
Net interest income after
provision for
loan losses . . . . . . . . . 62,568 69,830 133,679 134,701 104,981 94,855 96,009
Gain (losses) on loans
and securities and other . . . 3,701 2,561 3,504 557 14,832 27,779 (24,551)
Loss on termination of interest
rate exchange agreements . . . . --- 155,364 155,364 --- --- --- ---
Other income, net . . . . . . . . 5,379 5,389 11,612 10,433 10,129 20,865 39,060
General and administrative
expenses . . . . . . . . . . . . 34,374 37,848 72,055 79,840 77,345 88,853 92,646
---------- ---------- ---------- ----------- ----------- ----------- ----------
Earnings (loss) before federal
income taxes, extraordinary
items and accounting changes . 37,274 (115,432) (78,624) 65,851 52,597 54,646 17,872
Federal income tax expense
(benefit) . . . . . . . . . . . 12,935 (35,240) (26,630) 24,450 18,300 20,540 6,850
----------- ---------- ----------- ----------- ----------- ----------- -----------
Earnings (loss) before
extraordinary
items and accounting changes . 24,339 (80,192) (51,994) 41,401 34,297 34,106 11,022
Extraordinary items, net of
federal income tax effect . . . --- (9,147) (12,348) --- --- (66) (1,811)
Cumulative effect of
accounting changes(1)(2) . . --- (31,948) (31,948) --- 7,000 --- ---
---------- --------- ----------- ---------- ---------- ---------- ----------
Net earnings (loss) . . . . $ 24,339 $(121,287) $ (96,290) $ 41,401 $ 41,297 $ 34,040 $ 9,211
========== ========= =========== ========== ========== ========== ==========
PER SHARE DATA(3):
Primary earnings (loss):
Before extraordinary items
and accounting changes . . . $ 1.28 $(4.30) $(2.79) $2.21 $2.03 $2.03 $.66
Net earnings (loss) . . . . . . 1.28 (6.50) (5.16) 2.21 2.45 2.03 .55
Fully diluted earnings (loss):
Before extraordinary items
and accounting changes . . . 1.27 (4.30) (2.79) 2.19 1.91 1.91 .66
Net earnings (loss) . . . . . 1.27 (6.50) (5.16) 2.19 2.28 1.91 .55
Dividends declared . . . . . . . .30 .26 .54 .47 .42 .10 .40
FINANCIAL CONDITION:
Total assets . . . . . . . . . . $8,537,988 $8,314,071 $8,399,155 $9,264,030 $9,399,351 $9,415,180 $10,675,764
Mortgage-backed securities . . . 4,335,611 4,579,023 4,589,993 5,223,103 4,749,085 4,147,478 3,956,834
Other debt securities . . . . . . 919,905 205,008 367,833 292,784 552,582 1,282,804 2,389,921
Loans receivable . . . . . . . . 2,935,646 3,139,412 3,050,436 3,342,311 3,661,233 3,539,305 3,812,950
Deposits . . . . . . . . . . . . 2,872,014 2,573,473 2,720,908 3,100,761 3,445,222 3,778,216 3,659,139
Borrowings . . . . . . . . . . . 4,999,615 5,044,532 5,064,858 5,405,026 5,173,817 4,830,602 6,127,614
Stockholders' equity . . . . . . 480,876 441,870 454,566 564,540 507,732 472,838 440,313
</TABLE>
16
<PAGE> 33
<TABLE>
<CAPTION>
AT AND FOR THE SIX
MONTHS ENDED JUNE 30, AT AND FOR THE YEAR ENDED DECEMBER 31,
----------------------- -------------------------------------------------------------
1995 1994(1) 1994(1) 1993 1992 1991 1990
-------- ---------- ---------- ---------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER PERIOD-END DATA:
Number of shares outstanding(3) . 18,727,092 18,667,934 18,685,854 18,641,534 16,786,050 16,712,552 16,687,686
Number of full-service offices . 61 73 61 75 81 81 84
Number of loan origination
offices . . . . . . . . . . . . 2 2 2 1 1 1 1
SELECTED RATIOS:
Net yield on average interest-
earning assets for the period . 1.44% 1.64% 1.61% 1.48% 1.21% 1.06% .93%
Return on average assets . . . . .56 (1.12)(4) (1.12) .43 .43 .34 .08
Return on average stockholders'
equity . . . . . . . . . . . . . . 10.39 (20.28)(4) (20.74) 7.63 8.40 7.47 2.06
Average stockholders' equity to
average assets . . . . . . . . 5.42 5.55 5.40 5.67 5.17 4.60 3.96
Dividends declared to primary
earnings per share . . . . . . 23.44 N/M(5) N/M(5) 21.27 17.14 4.93 72.73
</TABLE>
----------------------
In the first quarter of 1994, FirstFed undertook a financial
restructuring, which included the sale of mortgage-backed securities,
termination of interest rate exchange agreements and related liabilities,
and prepayment of FHLB advances. FirstFed also changed its method of
amortizing costs in excess of fair value of net assets acquired from the
straight-line to the accelerated method under SFAS No. 72. The
restructuring, including the change in accounting, resulted in a net loss,
after tax, of $146 million, or $7.82 per share. For additional
information, see FirstFed's Annual Report on Form 10-K for the year ended
December 31, 1994, which is incorporated by reference herein.
(2) During 1992, FirstFed implemented SFAS No. 109, changing its method of
accounting for income taxes.
(3) Adjusted to reflect 3-for-2 stock split in third quarter of 1993.
(4) The net loss of $146 million from the restructuring and change in
accounting principle has not been annualized.
(5) Not meaningful.
17
<PAGE> 34
CHARTER ONE FINANCIAL, INC. AND CHARTER ONE BANK, F.S.B.
CHARTER ONE FINANCIAL, INC.
Charter One is a Delaware corporation organized in July 1987 for the
purpose of becoming a holding company for Charter Bank in connection with
Charter Bank's conversion on January 29, 1988 from mutual to stock form.
Charter One is a unitary savings institution holding company which, under
existing laws, generally is not restricted in the types of business activities
in which it may engage. Charter One's business has consisted primarily of the
business of Charter Bank and its subsidiaries. As of June 30, 1995, Charter
One had total consolidated assets of $6.3 billion, deposits of $4.4 billion and
stockholders' equity of $410 million. The executive offices of Charter One are
located at 1215 Superior Avenue, Cleveland, Ohio 44114, and the telephone
number is (216) 589-8320.
CHARTER ONE BANK, F.S.B.
Charter Bank, chartered in 1934 as The First Federal Savings and Loan
Association of Cleveland, was the first federally chartered savings and loan
association in Ohio. In 1982, Charter Bank converted to a federally chartered
savings bank, changing its name to The First Federal Savings Bank and,
effective October 1, 1992, changed its name again to Charter One Bank, F.S.B.
Headquartered in Cleveland, Ohio, Charter Bank operates through 94 banking
offices in the Cleveland, Toledo, Youngstown, Portsmouth, Akron and Canton
metropolitan areas of Ohio and seven loan production offices in Brimfield,
Columbus, Dayton, Findlay and Medina, Ohio, Ashland, Kentucky and Indianapolis,
Indiana. Based on total consolidated assets as of June 30, 1995, Charter Bank
was the largest thrift institution based in Ohio and among the largest thrift
institutions in the country.
The business of Charter Bank consists primarily of attracting deposits
from the general public and using such deposits, together with borrowings and
other funds, to make residential mortgage, multi-family, commercial real
estate, consumer and business loans. Charter Bank has traditionally focused
its lending activities on origination, for its portfolio, of loans secured by
conventional first mortgages on owner-occupied one-to-four family residences
located in its primary market areas in Ohio. Residential mortgage lending
remains Charter Bank's most significant lending activity. Charter Bank also
originates first mortgage loans on multi-family and commercial real estate
located primarily in its local market areas, as well as construction, consumer
and business loans. Through subsidiaries, Charter Bank engages in real estate
appraisal, sales of tax-deferred annuities and mutual funds, sales of property
and casualty insurance, the development, operation and sale of real estate, the
leasing of capital equipment, and data processing services.
Charter Bank is a member of the Federal Home Loan Bank ("FHLB") System
and the FHLB of Cincinnati, and its deposits are insured up to prescribed
limits by the Federal Deposit Insurance Corporation ("FDIC"). Charter Bank is
subject to comprehensive examination, supervision and regulation by the OTS and
the FDIC.
For additional information, see "Selected Consolidated Financial and
Other Data of Charter One Financial, Inc." and "Unaudited Pro Forma Combined
Financial Statements." Additional information concerning Charter One and
Charter Bank also is included in the Charter One documents incorporated by
reference herein. See "Incorporation of Certain Documents by Reference."
FIRSTFED MICHIGAN CORPORATION AND FIRST FEDERAL OF MICHIGAN
FIRSTFED MICHIGAN CORPORATION
FirstFed is a Michigan corporation incorporated in October 1988 as a
savings and loan holding company. Essentially all of FirstFed's assets are
currently held in, and operations are conducted through, First Federal and its
subsidiaries. FirstFed's executive offices are located at 1001 Woodward
Avenue, Detroit, Michigan 48226-1904 and its telephone number is (313)
965-1400.
18
<PAGE> 35
FIRST FEDERAL OF MICHIGAN
First Federal is a federally chartered savings and loan association
with 61 banking and two loan production offices located in Michigan. During
1993 and 1994, First Federal completed divesture of operations and branches
outside the State of Michigan. First Federal operates 53 banking and two loan
production offices within the Detroit area, the nation's sixth most populous
metropolitan area, and four banking offices each in the Kalamazoo and Lansing
areas. At December 31, 1992, Bay Savings Bank, FSB ("Bay Savings"), and Omni
Savings Bank, FSB ("Omni Savings") were federal savings banks with offices in
Virginia and South Carolina, respectively, and were indirect subsidiaries of
First Federal. In 1993, Omni Savings was merged into Bay Savings and, in 1994,
Bay Savings was merged into First Federal. In 1994, the South Carolina and
Virginia branches and accompanying deposits were sold to other institutions.
On the basis of total consolidated assets at June 30, 1995, First Federal was
the second largest savings and loan association headquartered in Michigan and
among the largest savings and loan associations in the United States. First
Federal is engaged in the business of obtaining funds in the form of deposits
and borrowings and investing such funds in secured loans, mortgage-backed
securities and investment-grade securities. First Federal's primary lending
activity is granting loans to enable borrowers to purchase existing homes,
construct new homes or refinance existing home loans. The majority of loan
originations are conventional first mortgage single-family loans on properties
located in Michigan. Additionally, in 1994, First Federal introduced a home
equity line of credit which has a variable rate and complements First Federal's
residential lending experience and customer base. At June 30, 1995, First
Federal had approximately 287,000 retail deposit accounts and 71,000 loan
customers.
First Federal was chartered in 1933 as First Federal Savings and Loan
Association of Detroit, and in December 1983 converted from a federal mutual
savings and loan association to a federal stock savings and loan association.
In 1989, FirstFed acquired all of the outstanding stock of First Federal as
part of the reorganization of First Federal into the holding company form of
ownership.
First Federal has been a member of the FHLB since its inception, and
since that time its savings accounts have been insured up to the applicable
limits by the Federal Savings and Loan Insurance Corporation and its successor,
the Savings Association Insurance Fund, which is administered by the FDIC.
First Federal's primary regulator is the OTS.
For additional information, see "Selected Consolidated Financial and
Other Data of FirstFed Michigan Corporation" and "Unaudited Pro Forma Combined
Financial Statements." Additional information concerning FirstFed and First
Federal also is included in the FirstFed documents incorporated by reference
herein. See "Incorporation Of Certain Documents By Reference."
THE SPECIAL MEETINGS
CHARTER ONE SPECIAL MEETING
Place, Time and Date. The Charter One Special Meeting is scheduled to
be held at the _____________________________, __________________________,
Cleveland, Ohio at _____ _.m., local time, on __________, 1995. This Joint
Proxy Statement/Prospectus is being sent to holders of record, and certain
beneficial owners, of Charter One Common Stock as of the Charter One Record
Date and is accompanied by a form of proxy which the Charter One Board requests
that stockholders execute and return to Charter One for use at the Charter One
Special Meeting and at any and all adjournments or postponements thereof.
Matters to Be Considered. At the Charter One Special Meeting, holders
of shares of Charter One Common Stock will vote on the following proposals (the
"Charter One Proposals"): the approval and adoption of the Merger Agreement
and the transactions contemplated thereby, including the Merger of FirstFed
with and into Charter One and the issuance by Charter One of up to 23,657,954
shares of Charter One Common Stock in connection with the Merger; and the
approval and adoption of amendments to Charter One's Restated Certificate of
Incorporation (the "Charter One Certificate") to (i) increase the number of
authorized shares of Charter One Common Stock from 90,000,000 to 180,000,000
and Charter One Preferred Stock from 10,000,000 to 20,000,000 (the "Shares
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Amendment"), (ii) increase the number of authorized directors from 15 to 16
(the "Director Amendment") and (iii) make certain amendments to Articles FIFTH
and SIXTH of the Charter One Certificate, including raising from 10% to 20% the
threshold level of Charter One Common Stock ownership that is subject to voting
restrictions, as more fully described herein (the "Other Certificate
Amendments"). See "The Merger" and "Amendments to Restated Certificate of
Incorporation of Charter One Financial, Inc." Charter One stockholders also
may consider and vote upon such other matters as may properly be brought before
the Charter One Special Meeting, including proposals to adjourn the Charter One
Special Meeting in the event there are not sufficient votes to approve any
proposal at the time of the Charter One Special Meeting; provided, however,
that no proxy which is voted against any such proposal will be voted in favor
of adjournment to solicit further proxies for such proposal.. As of the date
hereof, the Charter One Board knows of no business that will be presented for
consideration at the Charter One Special Meeting other than the matters
described in this Joint Proxy Statement/Prospectus.
Charter One Record Date; Votes Required. The Charter One Board has
fixed the close of business on September 8, 1995 as the Charter One Record Date
for determining holders of Charter One Common Stock who are entitled to notice
of and to vote at the Charter One Special Meeting. Only holders of record of
Charter One Common Stock at the close of business on the Charter One Record
Date will be entitled to notice of and to vote at the Charter One Special
Meeting. As of the Charter One Record Date, there were outstanding and
entitled to vote at the Charter One Special Meeting ___________ shares of
Charter One Common Stock.
Each holder of record of shares of Charter One Common Stock on the
Charter One Record Date will be entitled to cast one vote per share on the
Charter One Proposals at the Charter One Special Meeting. Such vote may be
exercised in person or by properly executed proxy. The presence, in person or
by properly executed proxy, of the holders of a majority of the outstanding
shares of Charter One Common Stock entitled to vote at the Charter One Special
Meeting is necessary to constitute a quorum. Abstentions and broker non-votes
(i.e., proxies from brokers or nominees indicating that such persons have not
received instructions from the beneficial owners or other persons as to certain
proposals on which such beneficial owners or persons are entitled to vote their
shares but with respect to which the brokers or nominees have no discretionary
power to vote without such instructions) will be treated as shares present at
the Charter One Special Meeting for purposes of determining the presence of a
quorum.
With a quorum, or in the absence of such, the affirmative vote of a
majority of the shares represented at the Charter One Special Meeting may
authorize the adjournment of the meeting.
The affirmative vote of the holders of a majority of the outstanding
shares of Charter One Common Stock is required for approval and adoption of the
Merger Agreement and the Shares Amendment. The affirmative vote of the holders
of 75% of the outstanding shares of Charter One Common Stock is required for
approval and adoption of the Director Amendment and the Other Certificate
Amendments. Therefore, abstentions and broker non-votes will have the same
effect as votes against approval of the Charter One Proposals.
Approval of the Merger Agreement by the stockholders of Charter One is
a condition to, and required for, consummation of the Merger. See "The
Merger--Conditions to the Merger." The adoption of the Merger Agreement is not
conditioned upon stockholder approval of the Certificate Amendments, and the
adoption of the Certificate Amendments is not conditioned upon stockholder
approval of the Merger Agreement.
As of the Charter One Record Date, the directors and executive
officers of Charter One and their affiliates beneficially owned in the
aggregate _________ shares (excluding shares underlying stock options), or
approximately __% of the then outstanding shares, of Charter One Common Stock
entitled to vote at the Charter One Special Meeting. The directors of Charter
One have entered into the FirstFed Voting Agreements whereby such directors
have agreed to vote all shares of Charter One Common Stock owned by them
(_______ shares in the aggregate) for approval of the Merger Agreement. As of
the Charter One Record Date, the directors and executive officers of FirstFed
and their affiliates did not beneficially own any shares of Charter One Common
Stock.
Proxies. Shares of Charter One Common Stock represented by properly
executed proxies received prior to or at the Charter One Special Meeting will,
unless such proxies have been revoked, be voted at the Charter One Special
Meeting and any adjournments or postponements thereof, in accordance with the
instructions indicated in
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<PAGE> 37
the proxies. If no instructions are indicated on a properly executed proxy,
the shares will be voted FOR the Charter One Proposals.
Any proxy given pursuant to this solicitation or otherwise may be
revoked by the person giving it at any time before it is voted either by
delivering to the Secretary of Charter One at 1215 Superior Avenue, Cleveland,
Ohio 44114 on or before the taking of the vote at the Charter One Special
Meeting, a written notice of revocation bearing a later date than the date of
the proxy or a later dated proxy relating to the same shares or by attending
the Charter One Special Meeting and voting in person. Attendance at the
Charter One Special Meeting will not in itself constitute the revocation of a
proxy.
If any other matters are properly presented at the Charter One Special
Meeting for consideration, the persons named in the proxy or acting thereunder
will have discretion to vote on such matters in accordance with their best
judgment. As of the date hereof, the Charter One Board knows of no such other
matters.
In addition to solicitation by mail, directors, officers and employees
of Charter One, who will not be specifically compensated for such services, may
solicit proxies from the stockholders of Charter One, 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.
In addition, Charter One has engaged __________ ("______") to assist Charter
One in distributing proxy materials and contacting record and beneficial owners
of Charter One Common Stock. Charter One has agreed to pay _________
approximately $____ plus out-of-pocket expenses for its services to be rendered
on behalf of Charter One. Charter One will bear its own expenses in connection
with the solicitation of proxies for the Charter One Special Meeting, except
that Charter One and FirstFed shall bear equally all printing and mailing
expenses associated with the Joint Proxy Statement/Prospectus.
HOLDERS OF CHARTER ONE COMMON STOCK ARE REQUESTED TO COMPLETE, DATE
AND SIGN THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO CHARTER ONE IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
FIRSTFED SPECIAL MEETING
Place, Time and Date. The FirstFed Special Meeting is scheduled to be
held in the _______ of the _______, ________, Detroit, Michigan, on _______,
_______, 1995 at ____ _.m., local time. This Joint Proxy Statement/Prospectus
is being sent to holders of record, and certain beneficial owners, of FirstFed
Common Stock as of the FirstFed Record Date, and is accompanied by a form of
proxy which the FirstFed Board requests that stockholders execute and return to
FirstFed for use at the FirstFed Special Meeting and at any and all
adjournments or postponements thereof.
Matters to Be Considered. At the FirstFed Special Meeting, holders of
FirstFed Common Stock as of the FirstFed Record Date will vote upon a proposal
(the "FirstFed Proposal") to approve the Merger Agreement and the transactions
contemplated thereby. Holders of FirstFed Common Stock also may consider and
vote upon such other matters as are properly brought before the FirstFed
Special Meeting, including proposals to adjourn the FirstFed Special Meeting to
permit further solicitation of proxies by FirstFed's Board of Directors in the
event that there are not sufficient votes to approve any proposal at the time
of the FirstFed Special Meeting; provided, however, that no proxy which is
voted against the FirstFed Proposal will be voted in favor of adjournment to
solicit further proxies for such proposal. As of the date hereof, the FirstFed
Board knows of no business that will be presented for consideration at the
FirstFed Special Meeting, other than the matters described in this Joint Proxy
Statement/Prospectus.
FirstFed Record Date; Vote Required. The FirstFed Board has fixed the
close of business on ______, 1995 (the "FirstFed Record Date") as the time for
determining holders of FirstFed Common Stock who are entitled to notice of and
to vote at the FirstFed Special Meeting. Only holders of record of FirstFed
Common Stock on the FirstFed Record Date will be entitled to notice of and to
vote at the FirstFed Special Meeting. As of the FirstFed
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<PAGE> 38
Record Date, there were outstanding and entitled to vote at the FirstFed
Special Meeting ___ shares of FirstFed Common Stock.
Each holder of record of shares of FirstFed Common Stock on the
FirstFed Record Date will be entitled to cast one vote per share on the
FirstFed Proposal at the FirstFed Special Meeting. Such vote may be exercised
in person or by properly executed proxy. The presence, in person or by
properly executed proxy, of the holders of a majority of the outstanding shares
of FirstFed Common Stock entitled to vote at the FirstFed Special Meeting is
necessary to constitute a quorum. Abstentions and broker non-votes (i.e.,
proxies from brokers or nominees indicating that such persons have not received
instructions from the beneficial owners or other persons as to certain
proposals on which such beneficial owners or persons are entitled to vote their
shares but with respect to which the brokers or nominees have no discretionary
power to vote without such instructions) will be treated as shares present at
the FirstFed Special Meeting for purposes of determining the presence of a
quorum.
With a quorum, or in the absence of such, the affirmative vote of a
majority of the shares represented at the FirstFed Special Meeting may
authorize the adjournment of the meeting.
Approval of the FirstFed Proposal at the FirstFed Special Meeting will
require the affirmative vote of the holders of a majority of the outstanding
shares of FirstFed Common Stock entitled to vote at the FirstFed Special
Meeting. As a result, abstentions and broker non-votes will have the same
effect as votes against the FirstFed Proposal.
As of the FirstFed Record Date, the directors and executive officers
of FirstFed and their affiliates beneficially owned in the aggregate ________
shares (excluding shares underlying stock options), or ___% of the then
outstanding shares, of FirstFed Common Stock entitled to vote at the FirstFed
Special Meeting. The directors of FirstFed have entered into the Charter One
Voting Agreements whereby such directors have agreed to vote all shares of
FirstFed Common Stock owned by them (_______ shares in the aggregate) for
approval of the Merger Agreement. As of the FirstFed Record Date, the
directors and executive officers of Charter One and their affiliates did not
beneficially own any shares of FirstFed Common Stock.
Proxies. Shares of FirstFed Common Stock represented by properly
executed proxies received prior to or at the FirstFed Special Meeting will,
unless such proxies have been revoked, be voted at the FirstFed Special Meeting
and any adjournments or postponements thereof 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 FirstFed Proposal.
Any proxy given pursuant to this solicitation or otherwise may be
revoked by the person giving it at any time before it is voted by delivering to
the Secretary of FirstFed at 1001 Woodward Avenue, Detroit, Michigan
48226-1904 on or before the taking of the vote at the FirstFed Special Meeting,
a written notice of revocation bearing a later date than the proxy or a later
dated proxy relating to the same shares of FirstFed Common Stock or by
attending the FirstFed Special Meeting and voting in person. Attendance at the
FirstFed Special Meeting will not in itself constitute the revocation of a
proxy.
If any other matters are properly presented at the FirstFed Special
Meeting for consideration, the persons named in the proxy or acting thereunder
will have discretion to vote on such matters in accordance with their best
judgment. As of the date hereof, the FirstFed Board knows of no such other
matters.
In addition to solicitation by mail, directors, officers, and
employees of FirstFed, who will not be specifically compensated for such
services, may solicit proxies from the stockholders of FirstFed, 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.
In addition, FirstFed has engaged Corporate Investor Communications, Inc.
("CIC") to assist FirstFed in distributing proxy materials and contacting
record and beneficial owners of FirstFed Common Stock. FirstFed has agreed to
pay CIC a fee of $7,500 plus out-of-pocket expenses for its services to be
rendered on behalf of FirstFed. FirstFed will bear its own expenses in
connection with the solicitation of proxies for the FirstFed Special Meeting,
except that Charter One and FirstFed shall bear
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<PAGE> 39
equally all printing and mailing expenses associated with the Joint Proxy
Statement/Prospectus. See "The Merger--Expenses."
HOLDERS OF FIRSTFED COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND
SIGN THE ACCOMPANYING FORM OF PROXY AND TO RETURN IT PROMPTLY TO FIRSTFED IN
THE ENCLOSED POSTAGE-PAID ENVELOPE.
HOLDERS OF FIRSTFED COMMON STOCK SHOULD NOT FORWARD STOCK CERTIFICATES
WITH THEIR PROXY CARDS.
THE MERGER
The information in this Joint Proxy Statement/Prospectus concerning
the terms of the Merger is qualified in its entirety by reference to the full
text of the Merger Agreement, which is attached hereto in Appendix I and
incorporated by reference herein. All stockholders are urged to read the
Merger Agreement in its entirety.
GENERAL
Pursuant to the Merger Agreement, FirstFed will be merged with and
into Charter One, with Charter One being the surviving entity (the "Company
Merger") and, pursuant to the Bank Merger Agreement, concurrently with or
immediately thereafter, First Federal will be merged with and into Charter
Bank, with Charter Bank as the surviving institution (the "Bank Merger" and,
together with the Company Merger, the "Merger"), in a "merger of equals" under
which Charter One's and FirstFed's respective stockholders would each own
approximately 50% of the combined company and members of Charter One's and
FirstFed's respective Boards of Directors would each represent 50% of the
combined company's Board of Directors. 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 as provided below,
Charter One and FirstFed will file certificates of merger with the Secretary of
State of Delaware and the Department of Commerce of Michigan (the "Michigan
Department of Commerce") for the Company Merger, and articles of combination
with the OTS for the Bank Merger. The Company Merger will become effective
upon the later of the filing of the certificate of merger with the Secretary of
State of Delaware and the Michigan Department of Commerce. The Bank Merger
will become effective at the time the articles of combination are endorsed by
the OTS pursuant to Section 552.13(k) of the regulations promulgated by the
OTS. The time at which the Company Merger becomes effective is referred to
herein as the "Effective Time." See also "- Effective Time and Closing Date."
The parties have agreed to effect the Bank Merger immediately following the
Company Merger.
Upon consummation of the Merger, each outstanding share of FirstFed
Common Stock shall be converted into 1.2 shares of Charter One Common Stock,
each stockholder of FirstFed shall be entitled to exchange FirstFed Common
Stock certificates for Charter One Common Stock certificates and thereupon
shall cease to be a stockholder of FirstFed, and the separate existence and
corporate organization of FirstFed shall cease.
BACKGROUND OF AND REASONS FOR THE MERGER
Background of the Merger. From time to time, both Charter One and
FirstFed have reviewed their strategic alternatives for enhancing profitability
and maximizing stockholder value, particularly in light of the changes in the
thrift industry in recent years. During the late 1980s and early 1990s, many
thrift institutions were adversely affected by softened economic conditions and
deteriorated real estate markets. The thrift industry has also been subject to
intensifying competition from commercial banks, as well as from non-bank
financial services providers. Despite the competitive and economic pressures
on Charter One and FirstFed, both institutions have performed well during
recent periods and established strategic plans to benefit from their relative
financial strength.
Since the late 1980s, Charter One has pursued a strategic plan that
includes the expansion of its existing and related businesses and the
acquisition of smaller thrift institutions or branch offices in, or contiguous
to, its
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<PAGE> 40
market area. In furtherance of this plan, between 1989 and 1993 Charter One
acquired (i) Western Reserve Savings Bank of Cleveland, Ohio, (ii) First
Federal Savings and Loan Association of Akron (Ohio), (iii) First American
BanCorp (Canton, Ohio), (iv) Women's Federal Savings Bank (Cleveland, Ohio) and
(v) $1.8 billion of assets from the Resolution Trust Corporation (the "RTC").
Since 1991, FirstFed has pursued a strategic plan which established a
goal of increasing capital levels, increasing the level of assets funded by
retail deposits and maintaining positive core earnings, while minimizing
credit, liquidity, overhead and interest rate risks. Consistent with this
strategic plan, FirstFed engaged in several operating initiatives in 1993 and
1994 which reduced its operating cost structure and eliminated all out of state
branch activities. Additionally, a financial restructuring was executed in the
first quarter of 1994 which reduced the level of FirstFed's secondary market
assets and liabilities and reduced its level of interest rate risk. An
after-tax charge to earnings of $146 million was recognized as a result of the
restructuring.
Both institutions have continued to review their strategic
alternatives, including possible expansion of their existing and related
businesses, acquisitions of smaller thrift institutions and branches, strategic
alliances with comparably sized or larger institutions and other capital
management opportunities, such as stock repurchase or dividend enhancement
programs.
In September 1993, in conjunction with Montgomery's ongoing
relationship with Charter One, representatives of Montgomery contacted Charter
One's President and Chief Executive Officer, Charles John Koch, regarding their
view that a business combination with FirstFed could enhance stockholder value.
As a result of this meeting, Charter One's President authorized Montgomery to
contact FirstFed regarding a combination with Charter One and to prepare
analyses of such a combination. In November 1993, representatives of
Montgomery met with FirstFed's Chairman of the Board, President and Chief
Executive Officer, C. Gene Harling, and Executive Vice President and Chief
Financial Officer, Richard W. Neu, regarding a combination with Charter One.
During late 1993 and early 1994, representatives of Montgomery met several
times with senior officers of Charter One to discuss a combination with
FirstFed. These discussions addressed a wide range of issues, including
business and financial considerations. During that period, mutual
confidentiality agreements were executed, and there were tentative discussions
among senior officers of Charter One and FirstFed regarding a business
combination until, in February 1994, it was mutually determined to discontinue
those discussions as the transaction structure initially considered, a
"purchase" acquisition, would not have resulted in a sufficient benefit to
either Charter One or FirstFed stockholders.
Consistent with Charter One's strategic objectives of growing its
franchise within its market area and in areas contiguous thereto, at various
times during 1994, including during periods when Charter One was in discussions
with FirstFed, Charter One submitted bids to the RTC and other financial
institutions for the acquisition of branch offices, and in connection therewith
Charter One acquired four Ohio branches from Citizens Federal Bank in May 1994.
In July 1994, Charter One authorized Montgomery to contact FirstFed to
suggest reconsideration of a business combination with Charter One due,
primarily, to the financial benefits realized by FirstFed from its first
quarter financial restructuring announced to the public in March 1994, and the
consideration given to using the merger of equals transaction structure. In
July 1994, representatives of Montgomery made a presentation to senior officers
of FirstFed regarding the possible merits of a business combination with
Charter One, as a result of which management of FirstFed determined to invite
representatives of Salomon to attend a special meeting of the FirstFed Board to
present a general update on the financial services environment.
At a special meeting of the FirstFed Board in August 1994, Salomon
provided an overview of the operating dynamics of the financial services
industry, and at the regular meeting of the FirstFed Board later that month,
after discussion of Montgomery's and Salomon's recent presentations, the Board
authorized management of FirstFed to advise Charter One that upon the execution
of a mutual confidentiality agreement FirstFed would be interested in exploring
strategic alliance opportunities with Charter One. Later that month, a mutual
confidentiality agreement was executed, and Messrs. Koch and Harling resumed
discussions regarding a combination of Charter One and FirstFed.
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<PAGE> 41
In September 1994, the parties began exchanging documents and other
information (including corporate minutes, asset quality reports, business
plans, policy statements and internal financial statements) and conducting
preliminary on-site due diligence in accordance with the confidentiality
agreement. In November 1994, Charter One formally retained Montgomery to
provide financial advice and assistance, including financial analysis and
evaluation and related services in connection with the potential combination.
In December 1994, the FirstFed Board authorized management to engage Salomon as
FirstFed's financial advisor for the sole purpose of assisting in the
evaluation of a strategic alliance with Charter One. Also in November and
December 1994, officers of Charter One and FirstFed met to discuss the existing
operations of the companies and the possible synergies of the combined
companies, including discussion of the compatibility of the companies' retail
operations and conservative operating philosophies and the enhanced
compatibility of the companies that would result from a financial repositioning
by the combined company to reduce FirstFed's higher level of interest rate risk
(see "Unaudited Pro Forma Combined Financial Statements" for a discussion of
such repositioning). From January 1995 through May 1995, the companies
conducted comprehensive due diligence reviews of each other, including
extensive on-site due diligence in February and March 1995. In January 1995,
management of FirstFed met with representatives of Salomon, and Salomon began
reviewing the operations and financial profiles of FirstFed and Charter One.
In early February 1995, Charter One's President met with several
directors of FirstFed and Max M. Fisher, a substantial stockholder of FirstFed
(Mr. Fisher and members of his family and related entities beneficially own
approximately 11% of the outstanding FirstFed Common Stock) to discuss business
philosophies and prospects for a combination of Charter One and FirstFed. In
late February and early March 1995, directors and senior officers of Charter
One and FirstFed, along with representatives of the companies' respective
financial advisors, met to discuss terms and conditions on which a combination
of the companies might be effected, including discussions of business and
financial issues, the composition of the boards of directors and committees
thereof, the officers of the resulting entities, the proposed terms of
employment and retirement agreements to be entered into with officers of the
companies, the structure of the combination transaction and various factors
that might be taken into account in determining the relative amounts of stock
of the combined company to be held immediately following the combination by the
former stockholders of Charter One and FirstFed.
From February through early May 1995, directors and senior officers of
Charter One and FirstFed and the companies' respective financial advisors and
legal counsel engaged in negotiations concerning the structure and terms of a
business combination, including negotiations relating to definitive merger and
other agreements (i.e., the stock option, bank merger and voting agreements).
Also, between mid-February and mid-March 1995, directors and senior officers of
FirstFed received unsolicited inquiries from three larger financial
institutions with respect to the possibility of engaging in a business
combination with FirstFed. In each instance, representatives of FirstFed met
with representatives of the inquiring institution, FirstFed and the institution
executed a mutual confidentiality agreement, and representatives of the
respective parties shared limited information and conducted preliminary
discussions with respect to the possibility of engaging in a business
combination, without conducting extensive due diligence and without reaching
negotiation of any terms of a combination. Each set of such discussions
involved a business combination that, due to the size of the inquiring
institution, would have constituted an acquisition of FirstFed, rather than a
merger of equals. However, the FirstFed Board had not made any decision to
sell FirstFed as a strategic alternative, and in each case the directors and
senior officers of FirstFed concluded that the inquiring institution was not
prepared to pay a sufficient acquisition premium to FirstFed's stockholders
over the market price of FirstFed's stock. By the end of May 1995, each set of
discussions had ended with FirstFed and the inquiring company mutually
determining that a business combination on such basis would not be feasible.
The terms discussed by senior officers of Charter One and FirstFed
with respect to a merger of equals were reviewed with the Charter One Board at
a meeting held on May 16, 1995 and with the FirstFed Board at a meeting held on
May 17, 1995. Also discussed at the board meetings was the Exchange Ratio that
had been discussed between the managements of Charter One and FirstFed. The
Exchange Ratio of 1.2 had been arrived at by the respective managements after
considering a variety of factors over the previous months, including analyses
of various possible exchange ratios provided by Montgomery and Salomon, other
financial data provided by Montgomery and Salomon (including data indicating
that the Exchange Ratio is expected to be immediately accretive to Charter One
Common Stock; see also "- Opinions of Charter One's Financial Advisor-Dilution
Analysis") and the respective managements' views as to the contribution each
company would make to the combined company's
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assets, liabilities, equity and long and short term earnings prospects. Cost
savings opportunities expected to result from the merger from downsizing
back-office functions, various terms of a merger agreement and reciprocal stock
options to be granted by each of Charter One and FirstFed to the other (see
"Certain Related Transactions - Stock Option Agreements"), as well as proposed
employment and retirement arrangements to be entered into by Charter One with
Charles John Koch, John D. Koch, Richard W. Neu, Mark A. Grossi and Robert J.
Vana were also discussed by the respective Boards of Directors (see also
"Interests of Certain Persons in the Merger - New Employment Agreements" and
"Supplemental Retirement Agreements"). In addition, the FirstFed Board
considered the results of management's ongoing discussions with the other
financial institutions that had inquired with respect to the possibility of
engaging in a business combination with FirstFed. At each of the meetings, the
respective company's financial advisor presented its analysis of the merger of
equals of Charter One and FirstFed based on the terms then under consideration
and the respective company's legal counsel discussed the status of the
negotiations with respect to various terms of the transaction, after which
comments and questions were expressed by the directors and addressed by the
representatives of the financial advisor and legal counsel. At the conclusion
of the meetings, the Boards of Directors of Charter One and FirstFed authorized
the management of the respective institutions to continue discussions and
negotiations of definitive agreements regarding a merger of Charter One and
FirstFed on the terms discussed at such meetings. Such discussions and
negotiations continued through late May 1995, including a special meeting of
the FirstFed Board on May 23 during which senior officers of Charter One made a
presentation to the FirstFed Board.
At separate meetings held on May 30, 1995, the Boards of Directors of
Charter One and FirstFed reviewed with their respective senior management
officials, financial advisors and legal counsel, the terms of the Merger, the
Merger Agreement and the Stock Option Agreements and the transactions
contemplated thereby, as well as the background of the transactions, the
potential financial and strategic benefits of the transactions, the results of
due diligence reviews, financial and valuation analyses of the transactions and
the terms of the proposed transaction agreements. At the meeting of the
Charter One Board, Montgomery rendered its opinion to the Board that, as of May
30, 1995, the consideration to be paid by Charter One in the Merger was fair to
Charter One from a financial point of view. At such meeting, the Charter One
Board unanimously adopted and approved the Merger, the Merger Agreement, the
Stock Option Agreements and the transactions contemplated thereby. At the
meeting of the FirstFed Board, Salomon rendered its opinion to the Board that
as of May 30, 1995, the Exchange Ratio was fair, from a financial point of
view, to the holders of FirstFed Common Stock. At such meeting, all of the
directors of FirstFed present at the meeting adopted and approved the Merger,
the Merger Agreement, the Stock Option Agreements and the transactions
contemplated thereby. One director was absent from the meeting due to health
reasons.
Reasons for the Merger. The Charter One Board and the FirstFed
Board have each determined that the Merger and the Merger Agreement are fair
to, and in the best interests of, their respective company and stockholders.
In reaching their determinations, the Charter One Board and the FirstFed Board
consulted with their respective financial advisors with respect to the
financial aspects and fairness of the transaction. In arriving at their
determinations, the Charter One Board and the FirstFed Board also considered a
number of factors which indicated that the Merger should produce an institution
that is well capitalized, and one which will enjoy an enhanced retail lending
franchise as well as a number of balance sheet and financial benefits that
should foster the potential for earnings growth. The factors considered by the
Charter One Board and the FirstFed Board included, but were not limited to, the
following:
(i) Information concerning the businesses, earnings, operations,
financial condition, prospects, capital levels and asset quality of Charter One
and FirstFed, both individually and as combined. An integral component of this
consideration was the determination that the operating philosophies of the two
companies were compatible and the conclusion that benefits could be realized by
combining First Federal's retail network with Charter One's retail products and
expertise. In this regard, it was determined that concurrently with or shortly
following the consummation of the Merger, the companies would anticipate taking
actions necessary to conform the interest rate risk profile of the combined
company to that of Charter One before the Merger. See "Management and
Operations After the Merger--Consolidation of Operations."
(ii) The financial advice rendered by the respective financial
advisors to Charter One and FirstFed that, with respect to Charter One, the
consideration to be paid by Charter One in the Merger is fair, from a financial
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point of view, to Charter One and, with respect to FirstFed, that the Exchange
Ratio is fair, from a financial point of view, to FirstFed and its
stockholders. See "--Opinion of Charter One's Financial Advisor" and
"--Opinion of FirstFed's Financial Advisor."
(iii) The terms of the Merger Agreement, the Stock Option Agreements
and the other documents executed in connection with the Merger, all of which
were reciprocal.
(iv) The anticipated cost savings and efficiencies available to the
combined company as a result of the Merger.
(v) The current and prospective economic, competitive and regulatory
environment facing each institution and other financial institutions.
(vi) The fact that the Board of Directors of the combined company,
for at least four years after the Effective Time, would consist of equal
numbers of members selected by Charter One and FirstFed, respectively, and the
current management of each company would have a significant influence in the
management of the combined company. See "Management and Operations After the
Merger."
(vii) The results of the due diligence investigations conducted by
the managements of Charter One and FirstFed, including assessment of credit
policies, asset quality, interest rate risk, litigation and adequacy of loan
loss reserves.
(viii) The expectation that the Merger would be tax free to Charter
One and FirstFed, and their respective stockholders, for federal income tax
purposes and accounted for under the pooling of interests method of accounting.
See "--Federal Income Tax Consequences of the Merger" and "--Accounting
Treatment."
(ix) The nature and compatibility of the respective management and
business philosophies of Charter One and FirstFed, including the compatible
nature of the companies' retail operations and the enhanced compatibility of
the companies' interest rate risk profile that would result from financial
repositioning by the resulting company (see "Unaudited Pro Forma Combined
Financial Statements" for a discussion of such repositioning).
(x) The prospects for growth and expanded products and services, and
other anticipated impacts on depositors, employees, customers and communities
served by Charter One and FirstFed, respectively.
(xi) The equitable ownership of the combined company by stockholders of
Charter One and FirstFed.
In addition, the Charter One Board considered the complementary nature
of FirstFed's retail branch network with its existing presence in Ohio
(particularly the proximity of Detroit to Toledo, one of Charter Bank's
strongest markets), First Federal's extensive retail network in the
southeastern Michigan metropolitan area, one of the nation's largest markets,
access to additional deposits to fund retail lending activities, that the
corporate headquarters of the combined company would be located in Cleveland
and the other alternatives available to Charter One, such as remaining
independent and growing internally or through future acquisitions. The
FirstFed Board also considered the proposed transaction in light of its
business plan strategy. FirstFed had recently embarked on a series of efforts
designed to strengthen its retail franchise, and the FirstFed Board concluded
that the Merger would significantly accelerate that process while preserving
FirstFed's existing momentum and capital growth opportunities. The FirstFed
Board also considered that certain functions of the combined company would be
located in Detroit.
In reaching their determinations to approve and recommend the
Merger, the Charter One Board and the FirstFed Board did not assign any
specific or relative weights to the foregoing factors, and individual
directors may have given differing weights to different factors.
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RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Charter One. The Charter One Board has unanimously adopted and
approved the Merger Agreement and the transactions contemplated thereby and has
determined that the Merger and the issuance of the shares of Charter One Common
Stock pursuant thereto are in the best interests of Charter One and its
stockholders. THE CHARTER ONE BOARD THEREFORE RECOMMENDS A VOTE FOR APPROVAL
OF THE MERGER AGREEMENT.
For a discussion of factors considered by the Charter One Board in
reaching its decision to approve the Merger Agreement, see "-- Background of
and Reasons for the Merger."
FirstFed. The FirstFed Board has adopted the Merger Agreement and
approved the transactions contemplated thereby and has determined that the
Merger is fair to, and in the best interests of, FirstFed and its stockholders.
THE FIRSTFED BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
For a discussion of factors considered by the FirstFed Board in
reaching its decision to approve the Merger Agreement, see "-- Background of
and Reasons for the Merger."
MERGER CONSIDERATION
Subject to the terms, conditions and procedures set forth in the
Merger Agreement, each share of FirstFed Common Stock issued and outstanding
immediately prior to the Merger will be converted into 1.2 (the "Exchange
Ratio") shares of Charter One Common Stock (the "Merger Consideration"). The
Exchange Ratio was determined through arm's-length negotiations between Charter
One and FirstFed, each of which was advised during such negotiations by its
financial advisor. See "--Background of and Reasons for the Merger." Based
upon the outstanding shares of Charter One Common Stock and FirstFed Common
Stock as of _________, 1995, the stockholders of FirstFed would own
approximately ___% of the Charter One Common Stock outstanding immediately
following the Effective Time.
Each share of Charter One Common Stock issued and outstanding at the
Effective Time will remain outstanding and unchanged as a result of the Merger.
No fractional shares of Charter One Common Stock will be issued in the Merger,
and FirstFed stockholders who otherwise would be entitled to receive a
fractional share of Charter One Common Stock will receive a cash payment in
lieu thereof. See "--Fractional Shares."
The number of shares of Charter One Common Stock to be received for
each share of FirstFed Common Stock has been fixed at 1.2. Based on the last
reported sale price for Charter One Common Stock on the Nasdaq National Market
on ________, 1995 ($__.__ per share), the value of 1.2 shares of Charter One
Common Stock as of that date would have been approximately $__.__. The last
reported sale price for FirstFed Common Stock on the Nasdaq National Market on
that date was $__.__ per share. Based on the $____ per share closing price of
the Charter One Common Stock reported on the Nasdaq National Market for
________, 1995, the market value of the Merger Consideration would be $____ per
share of FirstFed Common Stock. The market value of Charter One Common Stock
to be received in the Merger, however, is subject to fluctuation. Fluctuations
in the market price of Charter One Common Stock would result in an increase or
decrease in the value of the Merger Consideration to be received by FirstFed
stockholders in the Merger. An increase in the market value of Charter One
Common Stock would increase the market value of the Merger Consideration to be
paid in the Merger. A decrease in the market value of Charter One Common Stock
would have the opposite effect. The market value of the Merger Consideration
at the time of the Merger will depend upon various factors, including the
market value of a share of Charter One Common Stock at such time and any effect
of the Merger itself.
TREATMENT OF FIRSTFED STOCK OPTIONS
At the FirstFed Record Date, there were FirstFed Stock Options
outstanding with respect to 977,110 shares of FirstFed Common Stock. Except as
described below, at the Effective Time, each FirstFed Stock Option shall become
an option to purchase the number of shares of Charter One Common Stock that
would have been received
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by the holder of such option in the Merger had the option been exercised in
full for shares of FirstFed Common Stock immediately prior to the Effective
Time, upon the same terms and conditions under the relevant option as were
applicable immediately prior to the Effective Time, except the exercise price
per share will be proratably adjusted by the Exchange Ratio and any fractional
shares. Charter One has agreed to make prior to the Effective Time all filings
under federal and state securities laws necessary to permit the exercise of
such options for Charter One Common Stock and the sale of the shares of Charter
One Common Stock received by the optionees upon such exercise, and to continue
to make such filings thereafter as may be necessary to permit the continued
exercise of options and sale of shares. Notwithstanding the foregoing,
FirstFed's First Vice Presidents who do not continue as officers of Charter One
after the Merger and who are holders of FirstFed Stock Options which will not
have vested prior to the Effective Time (with respect to up to 51,600 shares of
FirstFed Common Stock in the aggregate as of the FirstFed Record Date) will
receive, in lieu of assumption of such non-vested options, the number of shares
of Charter One Common Stock (based on the closing price of the Charter One
Common Stock on the last trading day immediately prior to the Effective Time)
equal to the fair value of such options, such fair value to be determined by
Charter One and FirstFed with the advice of a financial advisor to be selected
by Charter One and FirstFed, based on the exercise prices and vesting schedules
of such options, the market prices of Charter One and FirstFed Common Stock and
an analysis of option pricing models to be determined at that time.
OPINIONS OF CHARTER ONE'S FINANCIAL ADVISOR
General. Pursuant to an engagement letter dated November 25, 1994
(the "Engagement Letter") between Charter One and Montgomery, Charter One
retained Montgomery to render opinions with respect to the fairness from a
financial point of view to Charter One of the consideration to be paid by
Charter One in connection with the merger of equals with FirstFed. Montgomery
is a nationally recognized firm and, as part of its investment banking
activities, is regularly engaged in the valuation of businesses and their
securities in connection with merger transactions and other types of
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. Charter One selected Montgomery as its financial adviser on the
basis of its experience and expertise in transactions similar to the Merger and
its reputation in the savings and loan, banking and investment communities.
At the May 30, 1995 meeting of the Charter One Board, Montgomery
delivered its oral opinion, subsequently confirmed in writing as of the date of
this Joint Proxy Statement/Prospectus, that the consideration to be paid by
Charter One in the Merger was fair to Charter One from a financial point of
view, as of such date. No limitations were imposed by Charter One on
Montgomery with respect to the investigations made or procedures followed in
rendering its opinions. THE FULL TEXT OF MONTGOMERY'S WRITTEN OPINION TO THE
CHARTER ONE BOARD, DATED THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS, IS
ATTACHED HERETO AS APPENDIX III AND IS INCORPORATED HEREIN BY REFERENCE AND
SHOULD BE READ CAREFULLY AND IN ITS ENTIRETY IN CONNECTION WITH THIS JOINT
PROXY STATEMENT/PROSPECTUS. THE FOLLOWING SUMMARY OF MONTGOMERY'S OPINION IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION.
MONTGOMERY'S OPINION IS ADDRESSED TO THE CHARTER ONE BOARD ONLY AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY CHARTER ONE OR FIRSTFED STOCKHOLDER AS TO
HOW SUCH STOCKHOLDER SHOULD VOTE AT THE RESPECTIVE SPECIAL MEETING. IN
FURNISHING ITS OPINION, MONTGOMERY DID NOT ADMIT THAT IT IS AN EXPERT WITHIN
THE MEANING OF THE TERM "EXPERT" AS USED IN THE SECURITIES ACT AND THE RULES
AND REGULATIONS PROMULGATED THEREUNDER.
In connection with its opinions, Montgomery has, among other things:
(i) reviewed certain publicly available financial and other data with respect
to Charter One and FirstFed, including the consolidated financial statements
for recent years and interim periods to March 31, 1995 and certain other
relevant financial and operating data relating to Charter One and FirstFed made
available to Montgomery from published sources and from the internal records of
Charter One and FirstFed; (ii) reviewed the Merger Agreement; (iii) reviewed
certain historical market prices and trading volumes of Charter One Common
Stock and FirstFed Common Stock in the over-the-counter market as reported on
the Nasdaq National Market; (iv) compared Charter One and FirstFed from a
financial point of view with certain other savings and loan institutions which
Montgomery deemed to be relevant; (v) considered the financial terms, to the
extent publicly available, of selected recent business combinations of
companies, including transactions which Montgomery deemed to be mergers of
equals, in the savings and loan and banking industries which Montgomery deemed
to be comparable, in whole or in part, to the Merger; (vi) reviewed
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and discussed with representatives of the management of Charter One and FirstFed
certain information of a business and financial nature regarding Charter One and
FirstFed, furnished to Montgomery by Charter One and FirstFed, including
financial forecasts and related assumptions of Charter One and FirstFed; (vii)
made inquiries regarding and discussed the Merger and the Merger Agreement and
other matters related thereto with Charter One's counsel; and (viii) performed
such other analyses and examinations as Montgomery deemed appropriate.
In connection with its review, Montgomery did not independently verify
any of the foregoing information, relied on such information and assumed all
such information was complete and accurate in all material respects. With
respect to the financial forecasts for Charter One and FirstFed provided to
Montgomery by their respective managements, Montgomery assumed for purposes of
its opinion that the forecasts were reasonably prepared on bases reflecting the
best available estimates and judgments of their respective managements at the
time of preparation as to the future financial performance of Charter One and
FirstFed and that they provided a reasonable basis upon which Montgomery could
form its opinion. Montgomery also assumed that there were no material changes
in Charter One's or FirstFed's assets, financial condition, results of
operations, business or prospects since the respective dates of their last
financial statements made available to Montgomery. Montgomery relied on advice
of counsel as to all legal matters with respect to Charter One, FirstFed, the
Merger and the Merger Agreement, including the legal status of FirstFed. In
addition, Montgomery is not an expert in the valuation of loan portfolios for
purposes of assessing the adequacy of the allowances for losses with respect
thereto and assumed, with Charter One's consent, that such allowances for each
of Charter One and FirstFed are in the aggregate adequate to cover such losses.
In addition, Montgomery did not review any individual credit files, and
Montgomery did not make an independent evaluation, appraisal or physical
inspection of the assets or individual properties of Charter One or FirstFed,
nor was Montgomery furnished with any such appraisals. Further, Montgomery's
opinion was based on economic, monetary and market and other conditions
existing as of May 30, 1995.
Set forth below is a brief summary of the report presented by
Montgomery to the Charter One Board on May 30, 1995 in connection with its
opinion.
Comparable Company Analysis. Using public and other available
information, Montgomery compared certain financial ratios (namely the closing
price of the stock to estimated earnings per share and dividend yield) of
Charter One to those of a group consisting of the 25 largest publicly traded
thrift institutions (the "Comparable Thrifts"). The figures for the Comparable
Thrifts produced: (i) a median ratio of stock price to the calendar year 1995
estimated earnings per share of 9.81; (ii) a median ratio of stock price to
calendar year 1996 estimated earnings per share of 8.05; and (iii) a median
dividend yield of 2.12%. The closing price of Charter One Common Stock on May
26, 1995 was $24.75. In comparison, the figures produced for Charter One
produced: (i) a ratio of stock price to the calendar year 1995 estimated
earnings per share of 7.87; (ii) a ratio of stock price to the calendar year
1996 estimated earnings per share of 7.27; and (iii) a dividend yield of 3.17%.
No company used in the analysis is identical to Charter One. The analysis
necessarily involved complex considerations and judgments concerning
differences in financial and operating characteristics of the companies.
Analysis of Selected Merger of Equals Transactions. Montgomery
reviewed the consideration paid in 29 transactions which it viewed as involving
mergers of equals in the savings and loan and banking industries announced
since January 1990 (the "MOEs"). For each thrift or bank merged or to be
merged in such transactions, Montgomery compiled figures illustrating, among
other things, the ratio of premium to core deposits, transaction price to
deposits and transaction price to book value.
The figures for the MOEs produced: (i) a median ratio of premium to
core deposits (expressed as a percentage) of 0.67%; (ii) a median ratio of
transaction price to deposits (expressed as a percentage) of 11.95%; and (iii)
a median ratio of transaction price to book value of 1.10. In comparison,
based upon an exchange ratio in the Merger of 1.2 shares of Charter One Common
Stock for each share of FirstFed Common Stock, representing shares of Charter
One Common Stock with a value of $29.70 per share (based on the $24.75 per
share closing price of the Charter One Common Stock as reported on the Nasdaq
National Market on May 26, 1995), Montgomery determined that the consideration
to be received by the holders of FirstFed Common Stock in the Merger
represented a ratio of premium to core deposits (expressed as a percentage) of
3.47%, a ratio of transaction price to deposits (expressed as a percentage) of
17.49% and a ratio of transaction price to book value of 1.15.
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No other company or transaction used in the above analysis as a
comparison is identical to Charter One, FirstFed or the Merger. Accordingly,
an analysis of the results of the foregoing is not mathematical; rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the companies and other factors that
could affect the public trading volume of the companies to which Charter One,
FirstFed and the Merger are being compared.
Analysis of Selected Thrift Merger Transactions and Acquisitions.
Montgomery reviewed the consideration paid in recently announced transactions
whereby certain thrift institutions were merged or acquired. Specifically,
Montgomery reviewed 114 transactions involving mergers and acquisitions of
thrift institutions in the Midwest region of the United States announced since
January 1991 (the "Midwest Mergers"). For each thrift institution merged or
acquired or to be merged or acquired in such transactions, Montgomery compiled
figures illustrating, among other things, the ratio of the premium (i.e.,
transaction price in excess of book value) to core deposits, transaction price
to deposits and transaction price to book value.
The figures for the Midwest Mergers produced: (i) a median ratio of
premium to core deposits (expressed as a percentage) of 5.46%; (ii) a median
ratio of transaction price to deposits (expressed as a percentage) of 14.57%;
and (iii) a median ratio of transaction price to book value of 1.49. For a
comparison to the Merger, see "--Analysis of Selected Merger of Equals
Transactions."
No other company or transaction used in the above analysis as a
comparison is identical to Charter One, FirstFed or the Merger. Accordingly,
an analysis of the results of the foregoing is not mathematical; rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the companies and other factors that
could affect the public trading value of the companies to which Charter One,
FirstFed and the Merger are being compared.
Balance Sheet and Income Statement Projections. Montgomery assisted
in preparing and reviewed balance sheet and income statement projections for
the pro forma combined company for the year ended 1995 using flat rate, falling
rate and rising rate scenarios. Montgomery utilized a yield curve based on
rates for U.S. Treasury securities as of May 24, 1995 (the "Flat Rate") for the
flat rate scenario, a rate equal to the Flat Rate minus 100 basis points for
the falling rate scenario and a rate equal to the Flat Rate plus 100 basis
points for the rising rate scenario. Each of the scenarios reflects certain
pro forma adjustments, in the amount of approximately $2.4 billion, relating to
anticipated balance sheet restructuring. The flat rate scenario currently
applies to the Charter One operating environment.
For each scenario, Montgomery compiled figures relating to, among
other things, the projected ratio of total equity to total assets, the
projected return on average equity and the projected return on average assets.
The flat rate, falling rate and rising rate scenarios produced: (i) projected
ratios of total equity to total assets of 6.67%, 6.81% and 6.48%, respectively;
(ii) projected returns on average equity of 5.6%, 7.9% and 2.5%, respectively;
and (iii) projected returns on average assets of 0.36%, 0.49% and 0.16%,
respectively. Excluding certain pro forma adjustments relating to the
anticipated balance sheet restructuring, the flat rate, falling rate and rising
rate scenarios produced: (i) projected ratios of total equity to total assets
of 6.07%, 6.19% and 5.96%, respectively; (ii) projected returns on average
equity of 13.3%, 15.1% and 11.5%, respectively; and (iii) projected returns on
average assets of 0.78%, 0.90% and 0.67%, respectively.
Contribution Analysis. Montgomery analyzed the contribution of each
of Charter One and FirstFed to, among other things, total equity and net income
of the pro forma combined company for the years ended 1994, 1995 and 1996,
using the above-referenced flat rate, falling rate and rising rate scenarios.
For the year ended 1994, this analysis showed, among other things, that Charter
One would have contributed 44.8% of the total equity and 56.3% of the net
income for the pro forma combined company. For the year ended 1995, this
analysis showed, among other things, that, in the flat rate, falling rate and
rising rate scenarios, Charter One would have contributed 49.4%, 48.7% and
50.2%, respectively, of the total equity and 59.0%, 54.0% and 61.7%,
respectively, of the net income for the pro forma combined company. For the
year ended 1996, this analysis showed, among other things, that, in the flat
rate, falling rate and rising rate scenarios, Charter One would have
contributed 49.6%, 48.5% and 50.6%, respectively, of the total equity and
51.2%, 48.0% and 53.5%, respectively, of the net income for the pro
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forma combined company. Based upon an exchange ratio in the Merger of 1.2
shares of Charter One Common Stock for each share of FirstFed Common Stock,
holders of Charter One Common Stock would own approximately 49.7% of the
combined company based on the shares outstanding on May 30, 1995.
Dilution Analysis. Using estimates prepared by the respective
managements of Charter One and FirstFed, Montgomery compared the calendar year
1996 estimated earnings per share of Charter One Common Stock on a stand-alone
basis to the calendar year 1996 estimated earnings per share of the common
stock for the pro forma combined company using the above-referenced flat rate,
falling rate and rising rate scenarios. For the calendar year 1996, this
analysis showed that, in the flat rate, falling rate and rising rate scenarios,
the proposed transaction would be accretive to the earnings per share of
Charter One Common Stock by 3.55%, 8.29% and 1.88%, respectively.
Montgomery also compared the calendar year 1995 and 1996 estimated
book value per share of Charter One Common Stock on a stand-alone basis to the
calendar year 1995 and 1996 estimated book value per share of common stock for
the pro forma combined company using the above-referenced flat rate, falling
rate and rising rate scenarios. Based on a flat rate scenario, the proposed
transaction would be accretive to the earnings per share of Charter One Common
Stock by 0.60% and 0.46%, respectively, in 1995 and 1996. Based on a falling
rate scenario, the proposed transaction would be accretive to the earnings per
share of Charter One Common Stock by 1.51% and 1.96%, respectively, in 1995 and
1996. Based on a rising rate scenario, the proposed transaction would be
dilutive to the earnings per share of Charter One Common Stock by 2.09% and
2.19%, respectively, in 1995 and 1996.
Exchange Ratio Analysis. Montgomery analyzed the ratio of closing
prices of Charter One Common Stock to FirstFed Common Stock as quoted on the
Nasdaq National Market on a quarterly basis during the period from January 29,
1988 to May 17, 1995. The analysis showed that this ratio ranged from 0.6633
to 2.7426, with an average ratio of 1.3130 for the seven-year period.
Montgomery also analyzed this ratio on a weekly basis over the latest twelve
months from May 13, 1994 to May 17, 1995. This analysis showed this ratio
ranged from 0.9684 to 1.2024, with an average of 1.0913. Finally, Montgomery
analyzed this ratio from December 30, 1994 to May 17, 1995. This ratio ranged
from 0.9814 to 1.2407, with an average of 1.1064 during this period.
Montgomery noted that the ratio at May 26, 1995, the last trading day prior to
the meeting of the Board of Directors, was 1.0657, and that the exchange ratio
in the Merger is 1.2 shares of Charter One Common Stock for each share of
FirstFed Common Stock. The premium represented by the merger consideration
(calculated as the closing price of the Charter One Common Stock multiplied by
the exchange ratio) over the closing price per share of FirstFed Common Stock
on May 26, 1995 was 12.61%. The closing prices per share of Charter One Common
Stock and FirstFed Common Stock on May 26, 1995 were $24.75 and $26.38,
respectively.
In connection with its written opinion dated the date of this Joint
Proxy Statement/Prospectus, Montgomery performed procedures to reconfirm, as
necessary, certain of the analyses described above and reviewed the assumptions
on which such analyses were based and the factors considered in connection
therewith. Montgomery did not perform any analyses in addition to those
described above in rendering its opinion.
The summary set forth above does not purport to be a complete
description of the presentation by Montgomery to the Charter One Board or of
the analyses performed by Montgomery. The preparation of a fairness opinion is
not necessarily susceptible to partial analysis or summary description.
Montgomery believes that its analyses and the summary set forth above must be
considered as a whole and that selecting portions of its analyses and of the
factors considered, without considering all analyses and factors, would create
an incomplete view of the process underlying the analyses set forth in its
presentation to the Charter One Board. In addition, Montgomery may have given
various analyses more or less weight than other analyses, and may have deemed
various assumptions more or less probable than other assumptions, so that the
ranges of valuations resulting from any particular analysis described above
should not be taken to be Montgomery's view of the actual value of Charter One
or the combined company. The fact that any specific analysis has been referred
to in the summary above is not meant to indicate that such analysis was given
greater weight than any other analysis.
In performing its analyses, Montgomery made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Charter One
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or FirstFed. The analyses performed by Montgomery are not necessarily
indicative of actual values or actual future results, which may be
significantly more or less favorable than those suggested by such analyses.
Such analyses were prepared solely as part of Montgomery's analysis of the
fairness of the consideration to be paid in the Merger by Charter One and were
provided to the Charter One Board in connection with the delivery of
Montgomery's opinion. The analyses do not purport to be appraisals or to
reflect the prices at which a company might actually be sold or acquired or the
prices at which any securities may trade at the present time or at any time in
the future. Montgomery used in its analyses various projections of future
performance prepared by the managements of Charter One and FirstFed. The
projections are based on numerous variables and assumptions (similar to those
used in the preparation of the Unaudited Pro Forma Combined Financial
Statements contained elsewhere herein) which are inherently unpredictable and
must be considered not certain of occurrence as projected. See "Unaudited Pro
Forma Combined Financial Statements." Accordingly, actual results could vary
significantly from those set forth in such projections.
As described above, Montgomery's opinions and presentation to the
Charter One Board were among the many factors taken into consideration by the
Board in making its determination to approve the Merger Agreement.
Pursuant to the Engagement Letter, Charter One paid Montgomery a
retainer fee of $75,000, which will be credited against any other fee to be
paid to Montgomery under the Engagement Letter. Upon execution of the Merger
Agreement, Charter One paid Montgomery a fee equal to $540,000, and Charter One
will pay Montgomery an additional fee equal to approximately $2.16 million upon
consummation of the Merger. Accordingly, the payment of a substantial majority
of Montgomery's fees is subject to the consummation of the Merger. Charter One
has also agreed to reimburse Montgomery for its reasonable out-of-pocket
expenses, including legal fees, in an amount not to exceed $75,000 without the
prior approval of Charter One. Charter One has agreed to indemnify Montgomery,
its affiliates, and their respective partners, directors, officers, agents,
consultants, employees and controlling persons against certain liabilities,
including liabilities under the federal securities laws.
In the ordinary course of its business, Montgomery actively trades
equity securities of Charter One and FirstFed for its own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
OPINIONS OF FIRSTFED'S FINANCIAL ADVISOR
Salomon has delivered its written opinions to the Board of Directors
of FirstFed that, as of May 30, 1995 and as of the date of this Joint Proxy
Statement/Prospectus, the Exchange Ratio in the Merger is fair, from a
financial point of view, to the holders of FirstFed Common Stock.
THE FULL TEXT OF THE OPINION OF SALOMON DATED THE DATE HEREOF, WHICH
SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW
UNDERTAKEN BY SALOMON, IS ATTACHED HERETO AS APPENDIX IV. THIS OPINION IS
SUBSTANTIALLY IDENTICAL TO THE OPINION RENDERED ON MAY 30, 1995, AND
STOCKHOLDERS OF FIRSTFED ARE URGED TO READ THIS OPINION IN ITS ENTIRETY.
SALOMON'S OPINIONS ARE DIRECTED ONLY TO THE EXCHANGE RATIO IN THE MERGER AND DO
NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF FIRSTFED AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE AT THE FIRSTFED SPECIAL MEETING. THE SUMMARY OF THE
OPINION OF SALOMON SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In connection with its opinion dated the date hereof, Salomon reviewed
and analyzed, among other things, (i) the Merger Agreement and the Stock Option
Agreements; (ii) draft versions of the Joint Proxy Statement/Prospectus; (iii)
certain publicly available reports filed with the SEC by FirstFed and by
Charter One; (iv) certain of the publicly available financial and other
information concerning FirstFed and Charter One and the trading markets for the
publicly traded securities of FirstFed and Charter One; (v) certain other
internal information, including projections, relating to FirstFed and Charter
One, prepared by the management of each of FirstFed and Charter One and
furnished to Salomon for the purposes of its analysis; and (vi) certain
publicly available information concerning certain other depository institutions
and holding companies, the trading markets for their securities and the nature
and terms of certain other merger transactions Salomon believed relevant to its
inquiry. Salomon also met with certain officers and representatives of
FirstFed and Charter One to discuss the foregoing as well as other matters that
Salomon believed relevant to its inquiry. Salomon also considered such
financial and other factors as
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it deemed appropriate under the circumstances and took into account its
assessment of general economic, market and financial conditions and its
experience in other transactions, as well as its experience in securities
valuation and its knowledge of depository institutions and holding companies
generally. Salomon's opinion was necessarily based upon conditions as they
existed and could be evaluated on the date thereof and the information made
available to Salomon through the date thereof.
In conducting its review and arriving at its opinion dated the date
hereof, Salomon relied upon and assumed the accuracy and completeness of the
financial and other information provided to it or publicly available and did
not independently attempt to verify the same. Salomon relied upon the
management of each of FirstFed and Charter One as to the reasonableness and
achievability of the projections (and the assumptions and bases therefor)
provided to Salomon, and assumed that such projections reflected the best
currently available estimates and judgments of the management of each of
FirstFed and Charter One and that such projections would be realized in the
amounts and in the time periods estimated by the management of each of FirstFed
and Charter One. Salomon also assumed, without independent verification, that
the pro forma loan loss reserve of the combined company would be adequate on a
pro forma basis for the combined company. Salomon did not make or obtain any
evaluations or appraisals of the properties of FirstFed or Charter One, nor did
Salomon examine any individual loan credit files. Salomon was retained by the
FirstFed Board to express an opinion as to the fairness, from a financial point
of view, to the holders of FirstFed Common Stock of the Exchange Ratio in the
Merger. Salomon did not address FirstFed's underlying business decision to
proceed with the Merger and did not make any recommendation to the FirstFed
Board or to the stockholders of FirstFed with respect to any approval of the
Merger.
In connection with rendering its opinions to the FirstFed Board,
Salomon performed a variety of financial analyses which are summarized below.
Salomon believes that its analyses must be considered as a whole and that
selecting portions of such analyses and the factors considered therein, without
considering all factors and analyses, could create an incomplete view of the
analyses and the processes underlying Salomon's opinions. The preparation of a
fairness opinion is a complex process involving subjective judgments and is not
necessarily susceptible to partial analysis or summary description. The
projections prepared by the management of each of FirstFed and Charter One
underlying Salomon's analyses are not necessarily indicative of future results
or values, which may be significantly more or less favorable than such
projections. FirstFed and Charter One do not publicly disclose internal
management projections of the type provided to Salomon in connection with the
review of the Merger. Such projections were not prepared with a view towards
public disclosure. The projections were based on numerous variables and
assumptions which are inherently uncertain including, without limitation,
factors related to general economic and competitive conditions. Accordingly,
actual results could vary significantly from those set forth in such
projections. Estimates of values of companies do not purport to be appraisals
or necessarily reflect the prices at which companies or their securities
actually may be sold. None of the analyses performed by Salomon was expressly
assigned a greater significance by Salomon than any other.
The following is a brief summary of analyses performed by Salomon in
connection with its opinion dated May 30, 1995:
(i) Summary Pro Forma Financial Impact. Salomon reviewed the
projections prepared by the management of each of FirstFed and Charter
One for calendar years 1995, 1996, 1997, 1998 and 1999. On the basis
of these projections, Salomon analyzed earnings per share, book value
per share, certain regulatory capital ratios, certain profitability
ratios for FirstFed and Charter One on a projected pro forma basis for
1996 through 1999 (assuming a pre-tax merger restructuring charge of
$20 million and combined pre-tax synergies of $15 million, of which
75% are assumed to be realized in 1996 and 100% are assumed to be
realized in 1997, 1998 and 1999). The analysis showed, among other
things, that the Merger would result in a projected range of
increases, from a FirstFed stand-alone basis, to the holders of
FirstFed Common Stock during such four-year period in projected fully
diluted earnings per share between a low of 0.6% and a high of 12.6%.
The analysis also showed that the Merger would result in a decrease in
book value per share to the holders of FirstFed Common Stock between a
low of 5.6% and a high of 9.8%. Salomon also analyzed the effect of
the Merger on FirstFed's regulatory capital ratios on a projected pro
forma basis for 1996 through 1999. The analysis showed (A) a
projected range of increases, from a FirstFed stand-alone basis,
during such period in FirstFed's projected leverage capital ratio from
a
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minimum of 34 basis points to a maximum of 78 basis points and (B) a
projected range of decreases in FirstFed's projected risk-based
capital ratio from a minimum of 241 basis points to a maximum of 332
basis points. Salomon also analyzed the effect of the Merger on
FirstFed's profitability ratios on a projected pro forma basis for
1996 through 1999. This analysis showed a projected range of
increases, from a FirstFed stand-alone basis, during such period in
FirstFed's projected return on average assets from a minimum of 18
basis points to a maximum of 29 basis points and in FirstFed's
projected return on average common equity from a minimum of 182 basis
points to a maximum of 264 basis points. Salomon also indicated that,
based upon the actual annual dividend payable on shares of Charter One
Common Stock and FirstFed Common Stock at March 31, 1995, the Exchange
Ratio would result in an increase in the annual dividend payable to
FirstFed stockholders of 52% from a FirstFed stand-alone basis.
(ii) Historical Exchange Ratio Analysis. Salomon analyzed
the historical ratio of the closing price per share of FirstFed Common
Stock to that of Charter One Common Stock over various time periods
during the period from May 29, 1990 through May 26, 1995. This
analysis showed that such ratio ranged from a high of 1.8529 to a low
of 0.6471, with a mean value of 1.0695 and a median value of 1.0397
over the five year period ending May 26, 1995 and ranged from a high
of 1.2407 to a low of 0.9161 with a mean value of 1.0896 and a median
value of 1.0703 over the six month period then ended. This analysis
further showed that for the three month period ending May 26, 1995,
such ratio ranged from a high of 1.2407 to a low of 1.0000, with a
mean value of 1.1293 and a median value of 1.1537 and for the one
month period ending May 26, 1995, such ratio ranged from a high of
1.0729 to a low of 1.0000, with a mean value of 1.0446 and a median
value of 1.0489. This analysis further showed that, for the one week
period preceding the meeting of the FirstFed Board on May 30, 1995,
such ratio ranged from a high of 1.0657 to a low of 1.0587 and had an
average of 1.0619. Salomon also analyzed such ratio on a weekly basis
during the five-year period ending May 26, 1995 and such analysis
showed a range from 0.66 to 1.78 and an average of 1.07. Salomon
further analyzed such ratio on a daily basis over the two-year period
from May 26, 1993 through May 26, 1995. This analysis showed that
this ratio ranged from 0.91 to 1.37 and averaged 1.10 for the two-year
period. Salomon noted that the ratio at May 26, 1995, the last
trading day prior to the meeting of the Board of Directors, was 1.07,
and that the Exchange Ratio in the Merger was 1.20 shares of Charter
One Common Stock for each share of FirstFed Common Stock.
(iii) Contribution Analysis. Using publicly available
historical financial statements and the projections provided by the
management of each of FirstFed and Charter One, Salomon analyzed
certain historical balance sheet and income statement data for
FirstFed and Charter One for the years ended December 31, 1991, 1992,
1993, 1994 and at March 31, 1995 and computed the contribution
attributable to FirstFed for certain projected income statement and
balance sheet data for the combined entity for calendar years 1995,
1996, 1997, 1998 and 1999. The income statement and balance sheet
data analyzed included core income (excluding non-recurring gains and
losses), reportable net income, tangible common equity, total assets,
total loans, total deposits and market capitalization. The projected
analysis showed, among other things, that FirstFed's contribution to
the combined company on the basis of such data ranged from a low of
36.5% (projected total deposits for 1997, 1998 and 1999) to a high of
53.7% (tangible common equity for 1995). At the Exchange Ratio of
1.20 shares of Charter One Common Stock for each share of FirstFed
Common Stock, the holders of FirstFed Common Stock will own 50.3% of
the shares of Charter One Common Stock on a fully diluted basis.
Salomon also analyzed the tangible book value of FirstFed and Charter
One, as provided by the managements of FirstFed and Charter One and
marked-to-market. This analysis showed a contribution attributable to
each of FirstFed and Charter One of 50%.
(iv) Discounted Cash Flow Analysis. Salomon performed
discounted cash flow analyses with respect to FirstFed on a stand-
alone basis and with respect to FirstFed and Charter One on a pro
forma combined basis, using projections provided by management of each
of FirstFed and Charter One for 1995, 1996, 1997, 1998 and 1999.
Salomon utilized discount rates ranging from 13.0% to 19.0% and
terminal values derived by applying terminal value multiples ranging
from 9.0x to 14.5x to 1999 forecasted earnings. These analyses
resulted in (A) a range of present values from $24.73 to $36.67 per
share for FirstFed on a stand-alone basis and from $27.33 to $40.76
for the combined entity (adjusted for the Exchange Ratio applicable to
such FirstFed shares) on a pro forma combined basis, (compared to a
closing
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price per share of $26.38 and an equivalent per share price, giving
effect to the Merger and based on the $24.75 closing price per share
of the Charter One Common Stock, of $29.70, in each case as of May 26,
1995) and (B) an implied terminal value ranging from 1.40x to 2.41x
1999 projected book value for FirstFed on a stand-alone basis and from
1.75x to 2.82x 1999 projected book value for the combined entity on a
pro forma combined basis. These analyses did not purport to be
indicative of actual values or expected values of the shares of
FirstFed Common Stock before or Charter One Common Stock after the
Merger. Salomon noted that the discounted cash flow analysis is a
widely used valuation methodology, but noted that it relies on
numerous assumptions, including earnings growth rates, dividend payout
rates, terminal values and discount rates. Discount rates and
terminal values were selected to reflect a range of implied costs of
capital for FirstFed and Charter One, trading values for FirstFed,
Charter One and comparable depository institutions and acquisition
multiples for comparable depository institutions. Present values were
determined by discounting terminal values by discount rates calculated
by estimating the cost of equity capital for FirstFed and Charter One.
(v) Analysis of Other Merger of Equals Transactions. Salomon
analyzed other merger-of-equals transactions involving consideration
to stockholders of over $250 million for (i) commercial banking
institutions in the United States over the period from January 1, 1982
to May 26, 1995 and (ii) thrift institutions in the United States over
the period from January 1, 1986 to May 26, 1995. The nine commercial
bank merger-of-equals transactions analyzed were Southern National
Corporation/BB&T Financial Corporation, Society Corporation/KeyCorp,
Comerica Incorporated/Manufacturers National Corporation, Chemical
Banking Corporation/Manufacturers Hanover Corp., Sovran Financial
Corporation/The Citizens and Southern Corp., Pennbancorp/Union
National Corporation, Fleet Financial Group, Inc./Norstar Bancorp
Inc., CBT Corporation/Bank of New England Corporation and Pittsburgh
National Corporation/Provident National Corporation. The thrift
merger-of-equals transaction analyzed was Dime Bancorp, Inc./Anchor
Bancorp, Inc. This analysis, which was based on publicly available
financial information for the 12 months preceding the announcement of
the relevant transaction, showed (discounts)/premiums to market price
ranging from (1.2)% to 17.1%, and from (11.6)% to 19.8% for one day
and one month prior to announcement, respectively, for the commercial
bank transactions analyzed, and of 20.3% and 29.2%, for one day and
one month prior to announcement, respectively, for the thrift
transaction analyzed. The comparable premiums to market prices of the
FirstFed Common Stock implied by the Merger Consideration were 12.6%
and 24.4% as of one day and one month, respectively, prior to the
announcement of the transaction. This analysis also showed that the
median premium to market price one month prior to announcement for all
nine commercial bank transactions was zero (i.e., no premium). This
analysis also showed that, for all merger-of-equals transactions
analyzed by Salomon, the median for the percentage ownership of the
new entity attributable to the non-surviving institution was 47.5%,
and the median for the contribution to pro forma combined net income
of the new entity attributable to the non-surviving institution was
45.4%. The percentage ownership of the combined entity attributable
to FirstFed stockholders will be 50.3% and the percentage of the net
income of the combined entity (adjusted to exclude non-recurring gains
or losses for Charter One and FirstFed over the latest 12 month period
ending March 31, 1995) attributable to FirstFed stockholders will be
43.9%. This analysis also showed that the ratio of (i) the proportion
of the common stock of the combined entity on a pro forma basis to be
received by stockholders of the non-surviving institution in the
merger to (ii) the proportion of the combined entity's pro forma net
income to be contributed by the non-surviving institution ranged from
1.25x to 0.89x for the commercial banks analyzed and was 1.12x for the
thrift analyzed, with a median for all transactions of 1.035x.
In connection with the opinion dated the date of this Joint Proxy
Statement/Prospectus, Salomon performed procedures to update, as necessary,
certain of the analyses described above and reviewed the assumptions on which
such analyses were based and the factors considered in connection therewith.
Salomon did not perform any analysis in addition to those described above in
updating its opinion.
Salomon is an internationally recognized investment banking firm and
is continually engaged in the valuation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
bidding, secondary distributions of listed and unlisted securities and
valuations for corporate, estate and
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other purposes. FirstFed selected Salomon as its financial advisor because of
its reputation and because of its substantial experience in transactions
similar to the Merger.
In addition to the financial advisory services referred to above, for
which Salomon has received fees of $350,000 to date (see below), Salomon has
from time to time provided investment banking and financial advisory services
to FirstFed, for which Salomon has received fees of $50,000 for its advice in
connection with FirstFed's restructuring in early 1994. In addition, Salomon
has purchased and sold various securities from or to FirstFed from time to
time, for which Salomon has received customary compensation. In the ordinary
course of its business, Salomon actively trades the equity securities of
FirstFed and Charter One for its own account and for the accounts of its
customers and, accordingly, at any time may hold a long or short position in
such securities.
FirstFed and Salomon have entered into a letter agreement dated May
16, 1995 (the "Salomon Engagement Letter"), which superseded prior engagement
letters, relating to the services to be provided by Salomon in connection with
the Merger. FirstFed will pay Salomon's fees as follows: (i) $100,000 payable
following FirstFed's execution of the Salomon Engagement Letter (which has been
paid); (ii) an additional fee of $250,000 payable upon the execution of the
Merger Agreement (which has been paid) and (iii) an additional fee of
approximately $2.65 million, contingent upon consummation of the Merger.
Accordingly, the payment of a substantial majority of Salomon's fees is subject
to the consummation of the Merger. In the Salomon Engagement Letter, FirstFed
also has agreed to reimburse Salomon for the reasonable fees and disbursements
of Salomon's counsel and Salomon's reasonable travel and other out-of-pocket
expenses. Pursuant to an additional letter agreement dated March 3, 1995,
FirstFed also has agreed to indemnify Salomon against certain liabilities,
including liabilities under the federal securities laws.
EFFECTIVE TIME AND CLOSING DATE
The Merger shall become effective at the time and on the date of the
later of the filing of a certificate of merger with (i) the Secretary of State
of Delaware and (ii) the Michigan Department of Commerce (the "Effective
Time"). Such filing will occur only after the receipt of all requisite
regulatory approvals, the approval of the Merger Agreement by the requisite
vote of Charter One's and FirstFed's respective stockholders and the
satisfaction or waiver of all other conditions to the Merger. The closing of
the Merger shall occur within 30 days after the satisfaction or waiver of all
conditions and obligations precedent of Charter One and FirstFed to consummate
the Merger, or at another time agreed to by Charter One and FirstFed (the
"Closing Date"). The parties have agreed to use their best efforts to cause
the Closing Date to occur by the end of 1995; however, there can be no
assurance that the Closing Date will occur on or prior to such date.
NO APPRAISAL RIGHTS
Stockholders of Charter One and FirstFed will have no appraisal rights
under the DGCL and the MBCA, respectively, in connection with the Merger.
FRACTIONAL SHARES
No certificates or scrip representing fractional shares of Charter One
Common Stock will be issued upon the surrender for exchange of certificates
representing FirstFed Common Stock, no dividend or distribution of Charter One
will relate to any fractional shares, and such fractional share interests will
not entitle the owner thereof to vote or to any rights of a stockholder of
Charter One. Each stockholder of FirstFed who would be entitled to a
fractional share in the Merger will receive a cash payment (without interest)
determined by multiplying (i) the closing price of one share of Charter One
Common Stock as reported on the Nasdaq National Market on the trading day
immediately preceding the Effective Time by (ii) the fractional share interest
to which the holder would otherwise be entitled pursuant to the terms of the
Merger Agreement.
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EXCHANGE OF CERTIFICATES
As soon as practicable after the Effective Time, an exchange agent
designated by Charter One and FirstFed (the "Exchange Agent") will deliver to
each FirstFed holder of record of a certificate or certificates, which
immediately prior to the Effective Time represented outstanding shares of
FirstFed Common Stock (the "Certificates"), a transmittal letter and
instructions to be used in surrendering Certificates in exchange for (i)
certificates representing the number of shares of Charter One Common Stock into
which their shares of FirstFed Common Stock were converted pursuant to the
Merger Agreement, and (ii) a check representing the amount of cash in lieu of
fractional shares, if any, which such stockholder has the right to receive in
respect of the Certificates surrendered in connection with the Merger. No
interest will be paid or accrued on the cash in lieu of fractional shares
payable to holders of FirstFed Common Stock.
FIRSTFED STOCKHOLDERS SHOULD NOT FORWARD THEIR FIRSTFED STOCK
CERTIFICATES UNTIL THEY RECEIVE THE TRANSMITTAL LETTER AND INSTRUCTIONS.
Until such surrender and subject to the effect, if any, of applicable
law, the Certificates will as of the Effective Time represent ownership of the
number of shares of Charter One Common Stock into which such shares were
converted in the Merger, and the holders will be entitled to all rights and
privileges of holders of Charter One Common Stock, except that holders of
Certificates will not be entitled to receive dividends or any other
distributions declared by Charter One until the Certificates are so
surrendered. Following surrender of the Certificates in accordance with the
terms of the Merger Agreement, the holders of newly issued Charter One
certificates will be paid, without interest, any dividends or other
distributions with respect to the shares of Charter One Common Stock the record
date for which is after the Effective Time (less any taxes that may have been
imposed thereon).
Any Certificate representing shares of Charter One Common Stock to be
issued in a name other than that in which the Certificate is registered must be
properly endorsed and otherwise in proper form for transfer, and the holder
requesting such exchange must pay to the Exchange Agent in advance any transfer
or other taxes in connection therewith.
In the event any Certificate has been lost, stolen or destroyed, upon
the mailing of an affidavit of that fact by the holder of such Certificate and
the posting of any bond required by Charter One or the Exchange Agent, Charter
One or the Exchange Agent will issue for such lost, stolen or destroyed
Certificate, the shares of Charter One Common Stock and deliver cash due to the
holder of such Certificate under the terms of the Merger Agreement.
After the Effective Time, there will be no further transfers on the
records of FirstFed of the Certificates, and, if such Certificates are
presented to Charter One for transfer, they will be cancelled against delivery
of certificates for Charter One Common Stock.
After the Effective Time, holders of unsurrendered Certificates shall
be entitled to vote at any meeting of Charter One stockholders at which holders
of Charter One Common Stock are eligible to vote, regardless of whether such
holders have exchanged their Certificates.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Set forth below are descriptions of interests of directors and
executive officers of FirstFed and Charter One in the Merger in addition to
their interests as stockholders of FirstFed and Charter One generally. The
respective FirstFed and Charter One Boards were aware of these interests and
considered them in approving the Merger Agreement and the transactions
contemplated thereby.
Summary. Upon the consummation of the Merger, the positions currently
held by FirstFed's directors, including FirstFed's Chairman of the Board and
Chief Executive Officer, C. Gene Harling, and First Federal's Chief Financial
Officer, Richard W. Neu, will be eliminated. Additionally, FirstFed's defined
benefit pension plan, supplemental executive retirement plan, equity
performance appreciation plan and management incentive award plan
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will be terminated, with appropriate distributions being made. In accordance
with the terms of his existing employment agreement, Mr. Harling will receive
severance benefits, including a severance payment and the acceleration of
unvested benefit plan awards, including awards to be made for the 1995 partial
fiscal year, and he will enter into a one-year employment agreement with
Charter One which provides for eligibility to participate in various Charter
One employee benefit plans. Mr. Neu will receive payments, which are
primarily limited to acceleration of benefit plan awards, including
awards to be made for the 1995 partial fiscal year, and he will cancel his
employment agreement with FirstFed and enter into a five-year employment
agreement and a supplemental retirement agreement with Charter One. Director
Jerome L. Schostak will be entitled to serve as Vice Chairman of the Charter
One Board for four years. Of First Federal's other seven directors, six are
expected to become directors of Charter One for at least four years, and one is
expected to become a director emeritus of Charter One. Excluding amounts
previously earned and recognized as income by the foregoing persons and/or
accrued as expense by FirstFed, amounts of salaries, directors' fees and other
benefits to be paid or accrued in the future and amounts of benefits which
would have become payable in any event within the terms of their respective
employment agreements, the amounts of payments currently expected to be
received by Messrs. Harling and Neu as a result of the Merger under the terms
of the Merger Agreement and FirstFed's employee benefit plans and agreements
are approximately $1,815,000 and $50,000, respectively. No other directors of
FirstFed are expected to receive payments or other benefits as a result of the
Merger other than future compensation for service as directors of Charter One
and Charter Bank.
Upon consummation of the Merger, Charter One's Chairman of the Board
and President, Charles John Koch, Senior Vice President, John D. Koch, Senior
Vice President, Mark D. Grossi, and Chief Corporate Counsel, Robert J. Vana,
will cancel their existing employment agreements and/or salary continuation
agreements with Charter Bank and enter into five-year employment agreements
and supplemental retirement agreements with Charter One. Mr. C. Koch will be
entitled to serve as Chairman of the Board of the Charter One Board for four
years. Of Charter One's eleven directors other than Mr. C. Koch, six,
including Mr. J. Koch, are expected to become directors of Charter One for at
least four years, and five are expected to become directors emeriti of Charter
One. Mr. Grossi also is expected to become a director of Charter One for at
least four years. No directors of Charter One are expected to receive
payments or other benefits as a result of the Merger other than future
compensation for service as directors of Charter One and Charter Bank.
For additional information, see below and Sections 3.13 and 6.4 of the
Merger Agreement attached hereto in Appendix I.
Existing Employment and Severance Agreements. FirstFed and/or First
Federal has entered into employment agreements (the "FirstFed Employment
Agreements") with C. Gene Harling and Richard W. Neu, which would expire in
February 1996 if not extended, and change in control agreements with 13 other
senior officers (the "Senior Officers") of First Federal (the "Change in
Control Agreements" and, together with the FirstFed Employment Agreements, the
"Contract Severance Agreements"). As more fully described below, the Contract
Severance Agreements provide for certain severance benefits in the event the
executive is involuntarily terminated following a change in control of
FirstFed. Charter One and FirstFed have recognized and acknowledged that the
Merger constitutes a change in control for purposes of the Contract Severance
Agreements. Charter One has agreed that it and Charter Bank will honor each
Contract Severance Agreement (including the severance benefits provided for
therein) unless the executive covered thereby enters into a new agreement with
Charter Bank cancelling his or her Contract Severance Agreement (see "--New
Employment Agreements" and "--New Severance Agreements"), the term of which
will be not less than four months.
With respect to the FirstFed Employment Agreement with C. Gene
Harling, Charter One and FirstFed have recognized and acknowledged that the
change in Mr. Harling's position that will result from the Merger constitutes
"good reason" under such agreement and, accordingly, at the Effective Time (or
as soon thereafter as practical with respect to item (ii) below) (i) Mr.
Harling will receive a lump sum severance payment of approximately $1.4 million
under the terms of his FirstFed Employment Agreement; (ii) Charter One will
disburse the annual award and vest and disburse certain long term awards under
the First Federal of Michigan Management Incentive Award Plan (the "MIAP") to
Mr. Harling; and (iii) all FirstFed Stock Options held by Mr. Harling will vest
and become immediately exercisable. See also "--New Employment Agreements,"
"--Supplemental Retirement Agreements" and "Management and Operations After the
Merger--Officers After the Merger."
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As of the Effective Time, Richard W. Neu will serve as Senior Vice
President and Treasurer of Charter One and Executive Vice President and Chief
Financial Officer of Charter Bank. In connection therewith, Mr. Neu will enter
into an employment agreement and a supplemental retirement agreement with
Charter One, and his FirstFed Employment Agreement will be cancelled. See
"--New Employment Agreements" and "-- Supplemental Retirement Agreements."
The Change in Control Agreements provide that, if within two years of
a change in control of FirstFed the employee is discharged or the employee's
executive position or responsibilities are significantly changed or reduced, or
if the employee is required to move his or her personal residence outside the
State of Michigan, or the employee's compensation is reduced without his or her
consent, and the employee resigns, the employee will be entitled to receive, in
one lump sum, an amount equal to two and one-half times the sum of his or her
base salary being paid immediately prior to the change in control plus any
bonus, profit sharing, incentive compensation and benefits paid or payable to
him or her in respect to the fiscal year preceding the fiscal year in which his
or her termination occurs, together with a lump sum payment equal to the cost
to the employee of obtaining, for 30 months, continued life insurance, medical,
disability, dental and hospitalization benefits. In addition, the Change in
Control Agreements provide for immediate vesting of the employee's interests in
the MIAP, FirstFed's Equity Performance and Appreciation Plan (the "EPAP") and
stock options. However, the cash payment and the present value of the other
benefits provided under the agreement, to the extent the benefits are
considered as parachute payments under Section 280G of the Code, shall not
exceed 2.99 times the employee's "base amount" as defined in Section 280G(b)(3)
of the Code. The agreements expire on February 28, 1996, but apply to a change
in control occurring on or before that date. Any Senior Officer whose
employment is terminated within two years after the Effective Time under any of
the circumstances described above will be entitled to receive the severance
benefits under his or her respective Change in Control Agreement unless such
Senior Officer enters into a new agreement with Charter Bank (see "--New
Severance Agreements").
Each employee of Charter Bank who does not have an agreement with
Charter Bank comparable to a Contract Severance Agreement (i) who holds a
similar position at Charter Bank to that held by an employee of First Federal
with a Contract Severance Agreement and (ii) whose employment is involuntarily
terminated due to a "job elimination" (which includes discharge for a reason
other than "just cause" or resignation as a result of either a reduction in
cash compensation or relocation of more than 50 miles) at or within two years
after the Effective Time will be entitled to a severance payment identical to
that which a similarly situated employee of FirstFed would be entitled under
his or her Contract Severance Agreement under the same circumstances as
described above.
New Employment Agreements. Under the terms of the Merger Agreement,
Charter One will enter into employment agreements (the "New Agreements") with
Charles John Koch, John D. Koch, Richard W. Neu, Mark D. Grossi and Robert J.
Vana. In connection therewith and in consideration therefor, the existing
employment agreements between Charter Bank and Messrs. C. Koch, J. Koch, Grossi
and Vana, and between First Federal and Mr. Neu will terminate upon the
commencement of the New Agreements (the "Commencement Date"), which will occur
as of the Effective Time. The New Agreements provide for an initial term of
five years, with one-year extensions of the term on each anniversary of the
Commencement Date beginning with the third anniversary thereof, unless the
officer receives notice that such term will not be extended and an
unsatisfactory performance review by the Charter One Board or the Board of
Directors of Charter Bank (the "Charter Bank Board").
The New Agreements provide for an annual base salary in an amount not
less than the executive's base salary as of the Commencement Date, subject to
reduction for amounts paid to the executive by any Charter One subsidiary. The
New Agreements also entitle each executive to participate in an equitable
manner with all other executive officers in such performance-based and
discretionary bonuses, if any, as are authorized and declared by the Charter
One Board or the Charter Bank Board, and in Charter One's and Charter Bank's
employee benefit, fringe benefit and welfare plans and programs.
In the event an executive experiences an "Involuntary Termination" (as
defined below) of employment during the term of his New Agreement, and the
executive has offered to continue to provide services as contemplated by the
New Agreement, the New Agreements obligate Charter One to pay the executive,
during the lesser period of the remaining term of the agreement or three years
following the date of termination, monthly
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payments equal to one-twelfth of his annual base salary in effect immediately
prior to the date of termination and one-twelfth of the average annual amount
of cash bonus and cash incentive compensation of the executive for the two full
fiscal years preceding the date of termination. The payments as described
above will be reduced by any cash compensation actually paid to the executive
by Charter One's subsidiaries during the three-year period following
termination, as well as amounts received by the executive for services other
than to Charter One or Charter One's subsidiaries during the unexpired term of
his New Agreement or the three-year period following termination.
In addition, the New Agreement with Mr. Neu provides that if Mr. Neu's
employment is Involuntarily Terminated prior to the second anniversary of the
Commencement Date, he will be entitled to the following in lieu of the benefits
described in the immediately preceding paragraph: (i) full and immediate
vesting of all employee stock options for securities of Charter One held by him
which had not vested prior to the date of termination; and (ii) a lump sum
payment in an amount equal to the sum of (A) 2.5 times the amount Mr. Neu would
have received under his FirstFed Employment Agreement for termination of
employment following a change in control of FirstFed plus (B) $17,500;
provided, however, if such payment, together with any other amounts and the
value of benefits received or to be received by the executive in connection
with the Change in Control would cause any amount to be non-deductible by
Charter One for federal income tax purposes under Section 280G of the Code,
then such payment will be reduced to the extent necessary so as to maximize the
amounts and the value of benefits to be received by the executive without
causing any amount to become nondeductible by Charter One under Section 280G
(such reduction to be referred to herein as a "280G Reduction").
In the event an executive experiences an Involuntary Termination of
employment within 12 months preceding or 24 months following a "Change in
Control" (as defined below), the New Agreements require Charter One, in
addition to its other payment obligations under the New Agreements (described
above), to make a lump sum payment to the executive in an amount equal to 299%
of the executive's "base amount" as determined under Section 280G of the Code,
subject to a 280G Reduction.
For purposes of the New Agreements, the term "Involuntarily
Termination" means the termination of the employment of the executive (i) by
either Charter One or Charter Bank or both without his express written consent;
or (ii) by the executive by reason of a material diminution of or interference
with his duties, responsibilities or benefits, including (without limitation)
any of the following actions, unless consented to in writing by the executive:
(A) a requirement that the executive be based at any place other than
Cleveland, Ohio, (and in the case of Mr. Neu, Detroit, Michigan or Cleveland,
Ohio) or within 50 miles thereof, except for reasonable travel on Charter One
or Charter Bank business; (B) a material demotion of the executive; (C) a
material reduction in the number or seniority of personnel reporting to the
executive or a material reduction in the frequency with which, or in the nature
of the matters with respect to which such personnel are to report to the
executive, other than as part of a bank- or company-wide reduction in staff;
(D) a reduction in the executive's salary or a material adverse change in the
executive's perquisites, benefits, contingent benefits or vacation, other than
as part of an overall program applied uniformly and with equitable effect to
all members of the senior management of Charter Bank or Charter One; (E) a
material permanent increase in the required hours of work or the workload of
the executive; (F) a requirement that the executive (other than Mr. C. Koch) in
his capacity as a Charter One employee report directly to anyone other than the
Chief Executive Officer of Charter One or that the executive in his capacity as
a Charter Bank employee report directly to anyone other than the Chief
Executive Officer of Charter Bank; or, (G) with respect to Mr. C. Koch, the
failure of the Charter One Board to elect him as Chairman or Chief Executive
Officer of Charter One or any action by the Charter One Board removing him from
any of such offices, or the failure of the Charter Bank Board to elect him as
Chairman or Chief Executive Officer of Charter Bank or any action by the
Charter Bank Board removing him from any of such offices. In addition, under
the New Agreement with Mr. Neu, Involuntary Termination will include
termination of employment by Mr. Neu, prior to the second anniversary of the
Commencement Date, based upon his relocation to Cleveland, Ohio.
For purposes of the New Agreements, a "Change in Control" includes the
following: (i) an acquisition of securities of Charter One that is determined
by the Board of Directors to constitute a change in control of Charter One or
Charter Bank within the meaning of the Home Owners' Loan Act of 1933, as
amended (the "HOLA") and 12 C.F.R. Part 574 as in effect on the Commencement
Date; (ii) an event that would be required to be reported
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in response to Item 1 of the current report on Form 8-K under the Exchange Act,
as in effect on the Commencement Date; (iii) any person is or becomes the
beneficial owner directly or indirectly of securities of Charter One or Charter
Bank representing 25% or more of the combined voting power of Charter One's or
Charter Bank's outstanding securities; (iv) individuals who are members of the
Charter One Board on the Commencement Date (the "Incumbent Board") cease for
any reason to constitute at least a majority thereof; or (v) approval by
Charter One's stockholders of a plan of reorganization, merger, consolidation,
sale of all or substantially all of the assets of Charter One, a similar
transaction in which Charter One is not the resulting entity, or a transaction
at the completion of which the former stockholders of the acquired corporation
become the holders of more than 40% of the outstanding common stock of Charter
One and Charter One is the resulting entity of such transaction.
New Severance Agreements. Under the terms of the Merger Agreement,
Senior Officers may enter into change in control agreements (the "New Change in
Control Agreements") in consideration for cancelling their existing Change in
Control Agreements. The New Change in Control Agreements provide that, if
within two years of the Merger the employee is terminated without cause, or the
employee is materially demoted, or if the employee is transferred more than 50
miles, or the employee's base salary is reduced below his or her salary at the
time of the Merger or the employee's benefits are materially and adversely
changed (other than as part of a company-wide program), the employee will be
entitled to received, in one lump sum, an amount equal to two and one-half
times the sum of his or her base salary being paid immediately prior to the
termination plus any bonus, profit-sharing, deferred salary or other
compensation paid for 1994, plus $17,500. In addition, the New Change in
Control Agreements provide, upon termination, for immediate vesting of the
employee's options held as of the Merger. The New Change in Control Agreements
also provide for certain outplacement services not to exceed $10,000 in value
upon the employee's request. However, the cash payment and the present value
of the other benefits provided under the agreement, to the extent the benefits
are considered as parachute payments under Section 280G of the Code shall not
exceed 2.99 times the employee's "base amount" as defined in Section 280G(b)(3)
of the Code.
Supplemental Retirement Agreements. Under the terms of the Merger
Agreement, Charter One will enter into Supplemental Retirement Agreements (the
"Retirement Agreements") with Charles John Koch, John D. Koch, Richard W. Neu,
Mark D. Grossi and Robert J. Vana, which will be effective upon consummation of
the Merger. The Retirement Agreements are intended to be unfunded,
non-qualified agreements which provide for a monthly retirement benefit during
the lifetime of the executive equal to a percentage of his Average Monthly
Compensation (as therein defined) based upon his length of service with Charter
One and any entity acquired by Charter One. The percentage amount is equal to
1% for each of the first 15 years of service plus 3.5% for each year of service
thereafter. However, the monthly benefit can not exceed $33,333 in the case of
Messrs. C. Koch and J. Koch or $20,833 in the case of the other named
executives. "Average Monthly Compensation" is the highest compensation
(salary, bonus and incentive compensation but excluding stock-based
compensation) earned by the executive from Charter One and its subsidiaries
during any three annual periods (whether or not consecutive) divided by 36.
Benefits under each Retirement Agreement cannot commence until after the
executive's employment with Charter One ceases and he attains the age of 58.
In the event of death of an executive who is survived by his spouse, the spouse
will be entitled to receive 50% of such executive's benefit for the remainder
of her life. If the executive is not survived by a spouse, benefits cease. In
the case of Messrs. C. Koch, J. Koch and Vana, the Retirement Agreements
replace their existing salary continuation agreements and they will not receive
any benefits under their salary continuation agreements.
Indemnification; Insurance. Pursuant to the Merger Agreement, Charter
One has agreed to honor and assume the existing indemnification agreements (the
"Indemnification Agreements") between FirstFed and each of its directors which
provide for the indemnification of such persons under certain circumstances.
In addition, Charter One has agreed that from and after the Effective Time, it
will indemnify, defend and hold harmless, to the extent permitted by Charter
One's or FirstFed's governing corporate documents (as appropriate) and
applicable state law, each person who is, has been or becomes prior to the
Effective Time, an officer, director or employee of FirstFed or any of their
respective Subsidiaries (as defined in the Merger Agreement) (the "Indemnified
Parties") against all losses, claims, damages, liabilities, costs, expenses
(including attorney's fees and expenses in advance of the final disposition of
any such claim to each Indemnified Party to the fullest extent permitted by
applicable law upon receipt of any undertaking required by applicable law),
judgments and amounts that are paid in settlement of or in connection with any
threatened or actual claim, action, suit, proceeding or investigation (each a
"Claim"), based
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in whole or in part on, or arising in whole or in part out of, or pertaining to
(i) the fact that such person is or was a director, officer or employee of
Charter One or FirstFed or any of their Subsidiaries or (ii) the Merger
Agreement or any of the transactions contemplated thereby, regardless of
whether such Claim is asserted or arises before or after the Effective Time;
provided, however, that from and after the Effective Time, the Indemnified
Parties who become directors, officers or employees of Charter One as the
surviving corporation in the Merger shall have indemnification rights only on a
prospective basis (other than with respect to the indemnification rights
provided by the Indemnification Agreements and in the Merger Agreement).
Charter One has further agreed, for a period of six years after the
Effective Time, to cause the persons serving as officers and directors of
FirstFed immediately prior to the Effective Time to be covered by FirstFed's
current directors' and officers' liability insurance policy (provided that
Charter One may substitute therefor policies of at least the same coverage and
amounts containing terms and conditions which are substantially no less
advantageous or, if such coverage is provided through Charter One's insurer,
policies on terms and conditions, other than coverage and amount, consistent
with Charter One's coverage) with respect to claims arising from facts or
events occurring prior to the Effective Time which were committed by such
officers and directors in their capacity as such. Following consummation of
the Merger, directors and officers of Charter One as the surviving corporation
will be covered by liability insurance maintained by Charter One.
Directors and Executive Officers. For information regarding the
directors and executive officers of Charter One after the Effective Time, see
"Management and Operations After the Merger."
EFFECT ON EMPLOYEES AND EMPLOYEE BENEFIT PLANS OF FIRSTFED AND CHARTER ONE
Employee Severance Benefits. Each employee of FirstFed, Charter One
and their respective subsidiaries (other than employees who currently have
Contract Severance Agreements) whose employment is involuntarily terminated
within one year after the Effective Time due to a job elimination will receive
a severance payment as follows: (i) First Vice Presidents of FirstFed or its
subsidiaries, and their respective counterparts at Charter One, will receive a
lump sum payment of 100% of his or her annual base salary as in effect at the
Effective Time; and (ii) each other employee will receive a lump sum payment of
two weeks base salary, as in effect at the Effective Time, for every year or
partial year of service with FirstFed, Charter One or any of their respective
subsidiaries, up to a maximum payment of 26 weeks of base salary. Each such
employee of FirstFed or its subsidiaries also will receive a lump sum payment
of $900 which is deemed to represent an amount equivalent to the cost that
FirstFed and its subsidiaries would have incurred to provide group dental
coverage for such employee for a period of 18 months following termination of
his or her employment. In addition, each full-time employee who is
involuntarily terminated due to a job elimination will be entitled to continued
medical and group-term life insurance coverage for a period of 18 months after
such termination, and may continue the medical coverage for an additional 18
months at a maximum cost to each employee of $500 per month. Charter One will
continue certain "outplacement" programs and practices for the benefit of
employees of FirstFed and Charter One and their subsidiaries. For purposes of
determining eligibility for the above-described benefits, an employee will be
deemed to have been involuntarily terminated if (i) Charter One or one of its
subsidiaries discharges the employee for reasons other than "just cause" or
(ii) the employee resigns from employment with Charter Bank as a result of
either a reduction in the employee's base compensation as in effect at the
Effective Time or a requirement that the employee perform his or her principal
services at a location more than 50 miles from the employee's primary office at
the Effective Time.
Continuing Employees. Employees of FirstFed and its subsidiaries who
continue as employees of Charter One and its subsidiaries after the Effective
Time ("Continuing Employees") will have their respective salaries increased by
an amount equivalent on an after-tax basis to the cost that FirstFed and its
subsidiaries were incurring to provide group dental insurance for their
employees, not to exceed $50 per month. The vacation, leave and sick day
policies of FirstFed and its subsidiaries will be continued for the benefit of
their employees, including any Continuing Employees, through December 31, 1995.
If the Effective Time occurs after December 31, 1995, FirstFed and its
subsidiaries have agreed to adopt as of January 1, 1996, the vacation, leave
and sick day policies of Charter One and its subsidiaries, provided that such
adoption may be contingent upon consummation of the Merger. All Continuing
Employees will receive credit for their past employment with FirstFed and its
subsidiaries
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(including service with any entity acquired by FirstFed or First
Federal) for purposes of determining vacation benefits provided by Charter One
and its subsidiaries. Salaries of, and employment policies applicable to,
employees of Charter One and its subsidiaries who continue as employees of
Charter One and its subsidiaries after the Effective Time will not be affected
by the Merger.
Employee Benefit Plans. After the Effective Time, the existing
post-retirement benefit adjustment plan, retiree medical plan and retiree life
insurance program of FirstFed will be continued for the benefit of those
retirees receiving such benefits as of the date of the Merger Agreement unless
FirstFed amends its existing defined benefit plan to provide the
post-retirement adjustments provided under such plans.
Except for those plans and agreements specifically described above,
after the Effective Time, Charter One and its subsidiaries may continue, amend
or terminate any of the employee benefit and welfare plans of FirstFed and its
subsidiaries in existence as of the date of the Merger Agreement. Any
Continuing Employee will be entitled, after the Effective Time, to participate
in the Charter One employee benefit and welfare plans and programs, except to
the extent that coverage is provided to a Continuing Employee under a
continuing FirstFed plan, on the same basis as similarly situated employees of
Charter One and its subsidiaries. For purposes of eligibility, participation
and vesting in such Charter One plans, the Continuing Employees will receive
credit for their past service with FirstFed and it subsidiaries and will not be
subject to any exclusion or penalty for pre-existing conditions that were
covered under the FirstFed medical plan immediately prior to the Effective
Time. Other than as set forth above, none of the benefit plans currently
offered by Charter One will be affected by the Merger.
REPRESENTATIONS AND WARRANTIES
In the Merger Agreement each of FirstFed and Charter One has made
representations and warranties relating to, among other things, the parties'
respective organization, capitalization, ownership of subsidiaries, accuracy of
financial statements, the absence of material adverse changes in its business,
financial condition, operations or properties, the truth and accuracy of
information prepared and provided by them in connection with this Joint Proxy
Statement/Prospectus, the absence of certain legal proceedings, compliance with
laws, regulations and other requirements, corporate actions in connection with
the approval and execution of the Merger Agreement, the Bank Merger Agreement
and related documents, authority relative to the merger agreements, employment
arrangements, employee benefit plans, the accuracy of information furnished to
other party, their respective property and assets, material agreements and
contracts, tax matters, environmental matters, loan portfolio, real estate
loans and investments and financial derivative contracts. For detailed
information on such representations and warranties, see the Merger Agreement
attached hereto in Appendix I.
CONDITIONS TO THE MERGER
The respective obligations of FirstFed and Charter One to consummate
the Merger are subject to the satisfaction or mutual waiver at or prior to the
Effective Time of the following conditions: (i) the Merger Agreement shall
have been approved by the requisite vote of the respective stockholders of
Charter One and FirstFed; (ii) the shares of Charter One Common Stock to be
issued to FirstFed stockholders upon consummation of the Merger shall have been
authorized for inclusion on the Nasdaq National Market subject to official
notice of issuance; (iii) all requisite governmental approvals of the Merger
shall have been obtained and shall remain in full force and effect without the
imposition of any condition or restriction which would have a Material Adverse
Effect (as defined in the Merger Agreement and described below) on Charter One
as the surviving corporation, and all applicable waiting periods shall have
expired; (iv) the Registration Statement relating to the shares of Charter One
Common Stock to be issued in the Merger shall have been declared effective and
shall not be subject to a stop order or any threatened stop order; (v) neither
Charter One nor FirstFed shall be subject to any order of a court or agency of
competent jurisdiction which restrains or prohibits the consummation of the
Merger; (vi) each party shall have received from its respective counsel an
opinion to the effect that, among other things, the Company Merger and the Bank
Merger will each constitute a reorganization within the meaning of Section
368(a) of the Code and, accordingly, for federal income tax purposes no gain or
loss will be recognized by Charter One, Charter Bank, FirstFed or First Federal
as a result of the Merger; (vii) each party shall have obtained all consents
and approvals required to be obtained in connection with the Merger other than
those which, individually or in the aggregate,
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would not have a material adverse effect on Charter One as the surviving
corporation; (viii) each party shall have received a letter from its
independent accountants to the effect that the Merger will qualify for pooling
of interests accounting treatment; (ix) each party shall have received from the
"affiliates" of the other party certain letters with respect to the resale of
shares of Charter One Common Stock received by them in the Merger; and (x)
there shall not exist any impediment or restriction upon Charter One as the
surviving corporation to enter into the employment agreements and supplemental
executive retirement agreements contemplated in the Merger Agreement. For
additional information, see Section 4.1 of the Merger Agreement attached hereto
in Appendix I.
The obligation of Charter One to consummate the Merger is subject to
the satisfaction by FirstFed or waiver by Charter One of the following
conditions: (i) the receipt from counsel to FirstFed of opinions with respect
to certain matters set forth in the Merger Agreement; (ii) the receipt from the
independent auditors of FirstFed of a letter regarding certain financial
information included in this Joint Proxy Statement/Prospectus; (iii) between
the date of the Merger Agreement and the Closing Date, FirstFed shall not have
experienced a Material Adverse Effect; (iv) the representations and warranties
of FirstFed contained in the Merger Agreement shall be true as of the Effective
Time (or on the date when made in the case of any representation or warranty
which specifically relates to an earlier date), and FirstFed shall have
performed all obligations and complied with each covenant, in all material
respects, and satisfied all conditions under the Merger Agreement to be
performed or complied with by it prior to the Effective Time; and (v) neither
FirstFed or any of its subsidiaries shall be subject to any pending litigation
which, if determined adversely, would have a Material Adverse Effect on
FirstFed and its subsidiaries, taken as a whole. For additional information,
see Section 4.2 of the Merger Agreement attached hereto in Appendix I.
The obligation of FirstFed to consummate the Merger is subject to the
satisfaction by Charter One or waiver by FirstFed of the following conditions:
(i) the receipt from counsel to Charter One of opinions with respect to
certain matters set forth in the Merger Agreement; (ii) the receipt from the
independent auditors of Charter One of a letter regarding certain financial
information included in this Joint Proxy Statement/Prospectus; (iii) between
the date of the Merger Agreement and the Closing Date, Charter One shall not
have experienced a Material Adverse Effect; (iv) the representations and
warranties of Charter One contained in the Merger Agreement shall be true as of
the Effective Time (or on the date when made in the case of any representation
or warranty which specifically relates to an earlier date), and Charter One
shall have performed all obligations and complied with each covenant, in all
material respects, and satisfied all conditions under the Merger Agreement to
be performed or complied with by it prior to the Effective Time; (v) a
certificate for the number of shares of Charter One Common Stock and cash for
fractional share interests necessary to effectuate the exchange of FirstFed
Common Stock for the Merger Consideration shall have been delivered to the
Exchange Agent; (vi) neither Charter One or any of its subsidiaries shall be
subject to any pending litigation which, if determined adversely, would have a
Material Adverse Effect on Charter One and its subsidiaries, taken as a whole;
and (vii) neither a Distribution Date nor a Stock Acquisition Date (as such
terms are defined in the Rights Agreement) shall have occurred, and the Rights
shall not have become nonredeemable and shall not become nonredeemable upon
consummation of the Merger. For additional information, see Section 4.3 of the
Merger Agreement attached hereto in Appendix I.
For purposes of the Merger Agreement, a "Material Adverse Effect"
means an effect which (i) is materially adverse to the business, financial
condition, results of operations or prospects of Charter One or FirstFed and
its respective subsidiaries taken as a whole or (ii) enables any person to
prevent the Merger and the transactions contemplated thereby; provided,
however, that a Material Adverse Effect shall not include any effect resulting
from (A) actions or omissions of Charter One or FirstFed taken with the prior
consent of the other in contemplation of the transactions provided for in the
Merger Agreement or (B) circumstances affecting the savings institution
industry generally (including changes in laws or regulations, accounting
principles or general levels of interest rates including, without limitation,
the effects of changes in interest rates on earnings, portfolio market value
and interest rate risk exposure).
There can be no assurance that the conditions to consummation of the
Merger will be satisfied or waived. In the event the conditions to either
party's obligations become impossible of satisfaction in any material respect,
the other party may elect to terminate the Merger Agreement. See "Waiver and
Amendment; Termination."
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REGULATORY APPROVALS
The Merger is subject to the approval of the OTS. On July 3, 1995,
Charter One filed an application for approval of the Merger with the OTS.
Charter One received OTS approval of the Merger on August 29, 1995.
Under federal law, a period of 15 days must expire following approval
by the OTS within which period the United States Department of Justice (the
"Department of Justice") may file objections to the Merger under the federal
antitrust laws. The Department of Justice did not file any such objection
during the period.
It is a condition to the consummation of the Merger that all requisite
regulatory approvals be obtained without any condition or restriction that
would have or result in a material adverse effect on Charter One as the
surviving corporation, as Charter One and FirstFed may reasonably and in good
faith agree. The OTS approval did not contain any such condition or
restriction. See "--Conditions to the Merger."
WAIVER AND AMENDMENT; TERMINATION
Prior to the Effective Time, the Boards of Directors of Charter One
and FirstFed may by written action (i) extend the time for performance of any
obligations or other acts required by the Merger Agreement; (ii) waive any
inaccuracies in the representations and warranties contained in the Merger
Agreement or in any document delivered pursuant to the Merger Agreement; and
(iii) waive compliance with any agreements or conditions contained in the
Merger Agreement. Subject to applicable law, the Merger Agreement may be
amended or modified by action of the Boards of Directors of Charter One and
FirstFed at any time before or after approval of the Merger Agreement by
Charter One and FirstFed stockholders; provided, however, that after approval
of the Merger Agreement by Charter One and FirstFed stockholders, no amendment
may change the amount or form of the Merger Consideration without the further
approval of Charter One and FirstFed stockholders.
The Merger Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval by the stockholders of Charter
One or FirstFed, (i) by mutual consent of the parties; (ii) by either party if
(A) the Merger has not been consummated on or before May 31, 1996 or such later
date as may be agreed to by the parties (provided that the failure to
consummate the Merger was not a result of the terminating party's nonobservance
of the terms of the Merger Agreement), (B) any regulatory authority has denied,
or indicated an intent to deny, approval or authorization of the Merger,
requested the withdrawal of an application for approval of the Merger, or
indicated an intent to impose a condition on its approval or authorization of
the Merger which would have a Material Adverse Effect on Charter One as the
surviving corporation in the Merger, or (C) approval of the stockholders of
FirstFed or Charter One, as the case may be, required for consummation of the
Merger has not been obtained (provided that the electing party is not then in
breach of its obligations under the Merger Agreement with respect thereto);
(iii) by Charter One upon delivery of written notice of termination to FirstFed
if any event occurs which renders impossible of satisfaction in any material
respect one or more of the conditions to the obligations of Charter One to
effect the Merger as set forth in the Merger Agreement and noncompliance is not
waived by Charter One; (iv) by FirstFed upon delivery of written notice of
termination to Charter One if any event occurs which renders impossible of
satisfaction in any material respect one or more of the conditions to the
obligations of FirstFed to effect the Merger as set forth in the Merger
Agreement and noncompliance is not waived by FirstFed; (v) by either party if
there has been a material breach of the other party's representations,
warranties, covenants or agreements set forth in the Merger Agreement which has
not been fully cured or cannot be fully cured within the earlier of (A) 30 days
after written notice of such breach has been received by the breaching party or
(B) five days prior to the Closing Date, and which breach would have, or be
reasonably likely to have, a Material Adverse Effect on the breaching party and
its subsidiaries, taken as a whole, or upon consummation of the transactions
contemplated by the Merger Agreement; (vi) by Charter One if (A) the FirstFed
Board has withdrawn, modified or changed its approval or recommendation of the
Merger Agreement in a manner adverse to Charter One, (B) the FirstFed Board has
authorized FirstFed to enter into any agreement, letter of intent or agreement
in principle with the intent to pursue or effect a Takeover Proposal (as
defined below) or (C) as a result of an unsolicited Takeover Proposal, the
Charter One Board has withdrawn, modified or changed its recommendation of the
Merger Agreement upon its determination in good faith after consultation with
legal counsel and an investment banking firm that such recommendation would
constitute a breach of its fiduciary duties; and (vii) by FirstFed if (A) the
Charter One Board
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has withdrawn, modified or changed its approval or recommendation of the Merger
Agreement in a manner adverse to FirstFed, (B) the Charter One Board has
authorized Charter One to enter into any agreement, letter of intent or
agreement in principle with the intent to pursue or effect a Takeover Proposal
(as defined below) or (C) as a result of an unsolicited Takeover Proposal, the
FirstFed Board has withdrawn, modified or changed its recommendation of the
Merger Agreement upon its determination in good faith after consultation with
legal counsel and an investment banking firm that such recommendation would
constitute a breach of its fiduciary duties. For additional information, see
Section 4.4 of the Merger Agreement attached hereto in Appendix I.
For purposes of the Merger Agreement, a "Takeover Proposal" shall mean
any proposal, other than as contemplated by the Merger Agreement, for a merger
or other business combination involving Charter One, Charter Bank, FirstFed or
First Federal or for the acquisition of a 25% or greater equity interest in
Charter One, Charter Bank, FirstFed or First Federal, or for the acquisition of
a substantial portion of the assets of Charter One, Charter Bank, FirstFed or
First Federal.
The representations, warranties and agreements of the parties set
forth in the Merger Agreement shall not survive the Effective Time, and shall
be terminated and extinguished at such time. From and after the Effective
Time, neither of the parties shall have any liability to the other on account
of any breach or failure of any of the representations, warranties and
agreements in the Merger Agreement, except with respect to agreements of the
parties which by their terms are intended to be performed after the Effective
Time and with respect to liability for fraud, deception or intentional
misrepresentation.
COVENANTS PENDING CLOSING
Charter One and FirstFed have agreed to use their best efforts, and to
take all actions necessary or appropriate, to consummate the Merger and the
other transactions contemplated by the Merger Agreement at the earliest
practicable date.
Pursuant to the Merger Agreement, each of Charter One and FirstFed has
agreed, with respect to it and its subsidiaries, to conduct its business only
in the ordinary course consistent with past practices except as otherwise
contemplated by the Merger Agreement, to maintain its books and records in
accordance with past practices, to use reasonable efforts to preserve intact
its existing businesses and business relationships and to take no action that
would adversely affect its ability to receive the necessary governmental
approvals of the Merger or perform its obligations under the Merger Agreement,
the Bank Merger Agreement and the Stock Option Agreements. Each of Charter One
and FirstFed has further agreed that it and its subsidiaries shall not, without
the prior written approval of the other party, (i) declare, set aside or pay
any dividend or make any other distribution with respect to its capital stock
(except that Charter One and FirstFed may pay cash dividends consistent with
past practice including specified increases over time and provided that
FirstFed may pay a special cash dividend if the first Charter One cash dividend
following the Effective Time is scheduled to be paid more than 90 days after
the payment of the last regular FirstFed cash dividend prior to the Effective
Time); (ii) reacquire or buy any of its outstanding shares of common stock;
(iii) issue, sell or buy any shares of its capital stock (other than pursuant
to the applicable Stock Option Agreement or upon the exercise of stock options
previously disclosed to the other party); (iv) effect any stock split, stock
dividend or other reclassification of its common stock; (v) grant any options
or issue any warrants exercisable for, or securities convertible or
exchangeable into, capital stock of it or any of its subsidiaries, or grant any
stock appreciation or other rights with respect to shares of it or any of its
subsidiaries (other than with respect to the applicable Stock Option
Agreement); or (vi) purchase or acquire any of the outstanding shares of
capital stock of the other party or any subsidiary thereof (other than as
contemplated by the applicable Stock Option Agreement or the Merger Agreement).
In addition, pursuant to the Merger Agreement, each of Charter One and
FirstFed, has agreed that it and its subsidiaries shall not, without the prior
written approval of the other party, (i) sell, dispose of or pledge any
significant assets other than in the ordinary course of business consistent
with past practice, or in connection with the borrowing of funds (subject to
certain limitations set forth below and in the Merger Agreement); (ii) merge or
consolidate with or into another entity or otherwise acquire any other entity
or, except in accordance with its written business plan, acquire any
significant assets; (iii) sell or pledge, or agree to sell or pledge, or permit
any lien to exist on any stock of its subsidiaries; (iv) change the governing
instruments of it or its subsidiaries, except as
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contemplated in the Merger Agreement; (v) engage in any lending activities
other than in the ordinary course of business consistent with past practices
and subject to certain limitations set forth in the Merger Agreement; (vi) form
any new subsidiary (except in the case of Charter One with respect to a
consumer finance subsidiary) or cause or permit a material change in the
activities presently conducted by any subsidiary, or make additional
investments in subsidiaries in excess of $25 million (except in the case of
Charter One's leasing subsidiary which investment shall not exceed $100
million) or make any new loans in excess of $15 million to any group of common
borrowers, guarantors, partners or other related individuals; (vii) engage in
any off-balance sheet interest rate swap, cap or floor agreement (except to
hedge interest rate risk on certificates of deposit with respect to Charter
One); (viii) engage in any activity not contemplated by its written business
plan; (ix) purchase any equity securities other than Federal Home Loan Bank
stock; (x) make any investment which would cause Charter Bank or First Federal,
as appropriate, not to be a qualified thrift lender under Section 10(m) of the
HOLA or a domestic building and loan association under Section 7701(a)(19) of
the Code; (xi) authorize capital expenditures other than in the ordinary course
of business; (xii) implement or adopt any change in its accounting principles,
practices or methods (other than as required by generally accepted accounting
principles); (xiii) engage any independent auditors other than such auditors
engaged as of the date of the Merger Agreement; (xiv) with respect to FirstFed
and its subsidiaries, incur any debt obligation (excluding deposits) or other
obligation for borrowed money with terms in excess of one year; (xv) with
respect to Charter One and its subsidiaries, incur any additional debt
obligation (excluding deposits) or other obligation for borrowed money other
than replacing existing debt with other debt and creating additional debt
consistent with its written business plan; (xvi) allow the use of its common
stock by optionees to pay any option exercise price or to satisfy tax
liabilities under the FirstFed Option Plans or the option plans of Charter One;
(xvii) grant any general increase in compensation or benefits to its employees
or officers or pay any bonuses to its employees or officers except in
accordance with existing policies or budgets; (xviii) enter into, amend or
otherwise change any employment or severance agreements with any of its
directors, officers or employees (except as contemplated by the Merger
Agreement); (xix) grant any increase in fees or other increases in compensation
or other benefits to any of its present or former directors in such capacity;
(xx) except as contemplated by the Merger Agreement, establish any new or
change any existing employee benefit plan or benefit arrangement (unless such
change is required by applicable law or necessary to maintain continued
qualification of any tax-qualified plan that provides for retirement benefits);
(xxi) conduct its lending activities other than in accordance with the
limitations set forth in the Merger Agreement; (xxii) authorize or permit any
officer, director, employee, investment banker, financial consultant, attorney,
accountant or other representative of its or its subsidiaries, directly or
indirectly, to initiate contact with any person or entity in an effort to
solicit, initiate or encourage any "Takeover Proposal" (as such term is defined
in the Merger Agreement and described above) except as the fiduciary duties of
the Board of Directors may require; or (xxiii) make a commitment to do any of
the above.
For additional information, see Article III of the Merger Agreement
attached hereto in Appendix I.
EXPENSES
All expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby are to be paid by the party incurring such
expenses, except that Charter One and FirstFed shall bear equally all printing
and mailing expenses associated with this Joint Proxy Statement/Prospectus.
ACCOUNTING TREATMENT
Consummation of the Merger is conditioned upon qualification of the
Merger under the pooling of interests method of accounting and the receipt by
Charter One and FirstFed of opinions from their respective independent
accountants to the effect that the Merger qualifies for pooling of interests
method of accounting treatment if consummated in accordance with the terms of
the Merger Agreement. Under the pooling of interests method of accounting, the
historical cost basis of the assets and liabilities of Charter One and FirstFed
will be combined and carried forward at their previously recorded amounts, and
the stockholders' equity accounts of Charter One and FirstFed will be combined
on Charter One's consolidated statement of financial condition. Income and
other financial statements of Charter One issued after consummation of the
Merger will be restated retroactively to reflect the consolidated operations of
Charter One and FirstFed as if the Merger had taken place prior to the periods
covered by such financial statements. See "--Conditions to the Merger."
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<PAGE> 65
The unaudited pro forma combined financial information contained in
this Joint Proxy Statement/Prospectus has been prepared using the pooling of
interests accounting method. See "Unaudited Pro Forma Combined Financial
Statements." If Charter One and FirstFed agree to waive the pooling of
interests condition and utilize purchase accounting for the Merger,
stockholders will be resolicited on the Merger proposal only in the event that
such a change in the accounting treatment results in a material change in the
pro forma combined financial or other information contained herein.
RESALES OF CHARTER ONE COMMON STOCK BY AFFILIATES
The shares of Charter One Common Stock to be issued in the Merger will
be registered under the Securities Act and will be freely transferable under
the Securities Act, except for shares issued to any stockholder who may be
deemed to be an "affiliate" of Charter One or FirstFed for purposes of Rule 145
under the Securities Act as of the date of the Special Meetings. Affiliates of
Charter One or FirstFed may not sell their shares of Charter One Common Stock
acquired in connection with the Merger except pursuant to an effective
registration statement under the Securities Act covering such shares or in
compliance with Rule 145 or another applicable exemption from the registration
requirements of the Securities Act. Persons who may be deemed to be affiliates
of Charter One or FirstFed generally include individuals or entities that
control, are controlled by or are under common control with Charter One or
FirstFed, and may include certain officers and directors of Charter One and
FirstFed as well as certain principal stockholders of Charter One and FirstFed.
SEC guidelines regarding qualifying for the pooling of interests
method of accounting also limit sales by affiliates of Charter One or FirstFed
in the Merger. SEC guidelines indicate that the pooling of interests method
of accounting generally will not be challenged on the basis of sales by
affiliates if they do not dispose of any of the shares of either combining
company they owned prior to the consummation of a merger or shares of the
surviving company received in connection with a merger during the period
beginning 30 days before the merger and ending when financial results covering
at least 30 days of post-Merger operations of the surviving company have been
published.
Each of Charter One and FirstFed has agreed in the Merger Agreement to
use its best efforts to cause each director, executive officer and other person
who may be deemed an affiliate (for purposes of Rule 145 and for purposes of
qualifying the Merger for the pooling of interests method of accounting
treatment) thereof to execute and deliver a written agreement intended to
ensure compliance with the Securities Act and to ensure that the Merger will
qualify as a pooling of interests.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
Set forth below is a discussion of federal income tax consequences of
the Merger to Charter One, Charter One stockholders, FirstFed and FirstFed
stockholders who are citizens or residents of the United States. THE FOLLOWING
DISCUSSION DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR LISTING OF ALL
POTENTIAL TAX EFFECTS RELEVANT TO A DECISION WHETHER TO VOTE IN FAVOR OF
APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
FURTHER, THE DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES THAT MAY BE
RELEVANT TO A PARTICULAR CHARTER ONE OR FIRSTFED STOCKHOLDER SUBJECT TO SPECIAL
TREATMENT UNDER CERTAIN FEDERAL INCOME TAX LAWS, SUCH AS DEALERS IN SECURITIES,
BANKS, INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS, NON-UNITED STATES PERSONS
AND STOCKHOLDERS WHO ACQUIRED THEIR SHARES AS COMPENSATION, NOR ANY
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCALITY OR FOREIGN
JURISDICTION. THE DISCUSSION IS BASED UPON THE INTERNAL REVENUE CODE OF 1986,
AS AMENDED (THE "CODE"), TREASURY REGULATIONS THEREUNDER AND ADMINISTRATIVE
RULINGS AND COURT DECISIONS AS OF THE DATE HEREOF. ALL OF THE FOREGOING ARE
SUBJECT TO CHANGE, AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING VALIDITY OF
THIS DISCUSSION.
HOLDERS OF FIRSTFED COMMON STOCK ARE URGED TO CONSULT THEIR TAX
ADVISERS AS TO THE PARTICULAR EFFECT OF THEIR OWN PARTICULAR FACTS AND
CIRCUMSTANCES ON THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO THEM, AND
ALSO AS TO THE EFFECT OF ANY STATE, LOCAL, FOREIGN AND OTHER FEDERAL TAX LAWS.
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<PAGE> 66
Under current federal income tax law, and based upon assumptions and
representations to be made by Charter One and FirstFed, and assuming that the
Company Merger and the Bank Merger are each consummated in the manner set forth
in the Merger Agreement, it is anticipated that the following federal income
tax consequences would result:
(i) the Company Merger and the Bank Merger will each qualify
as a reorganization under Section 368(a) of the Code;
(ii) no gain or loss will be recognized by Charter One,
Charter Bank, Charter One stockholders, FirstFed or First Federal as a
result of the Company Merger or the Bank Merger;
(iii) no gain or loss will be recognized by any FirstFed
stockholder upon the exchange of FirstFed Common Stock solely for
Charter One Common Stock pursuant to the Merger (except with respect
to cash received in lieu of a fractional share interest in Charter One
Common Stock, if any, as discussed below);
(iv) the aggregate tax basis of the Charter One Common Stock
received by each stockholder of FirstFed who exchanges FirstFed Common
Stock for Charter One Common Stock in the Merger will be the same as
the aggregate tax basis of the FirstFed Common Stock surrendered in
exchange therefor (subject to any adjustments required as the result
of receipt of cash in lieu of a fractional share interest in Charter
One Common Stock);
(v) the holding period of the shares of Charter One Common
Stock received by a FirstFed stockholder in the Merger will include
the holding period of the FirstFed Common Stock surrendered in
exchange therefor, provided that such shares of FirstFed Common Stock
were held as a capital asset by such stockholder at the Effective
Time; and
(vi) cash received in the Merger by a FirstFed stockholder in
lieu of a fractional share interest of Charter One Common Stock will
be treated as having been received as a distribution in full payment
in exchange for the fractional share interest of Charter One Common
Stock which such stockholder would otherwise be entitled to receive,
and will qualify as capital gain or loss (assuming the FirstFed Common
Stock surrendered in exchange therefor was held as a capital asset by
such stockholder at the Effective Time).
Based upon representations to be made by Charter One and FirstFed are
true as of the Effective Time, Silver Freedman & Taff, L.L.P., counsel to
Charter One, and Housley Goldberg Kantarian & Bronstein, P.C., counsel to
FirstFed, will each render an opinion, dated as of the Effective Time, that the
Company Merger and the Bank Merger will each qualify as a reorganization under
the Code with the consequences set forth above. Each opinion also would be
subject to the assumptions that the Company Merger and the Bank Merger are
consummated in the manner and in accordance with the terms of the Merger
Agreement, that the Company Merger will qualify as a merger under the
applicable laws of Michigan and Delaware and that the Bank Merger will qualify
as a merger under applicable federal law. Both opinions would be based
entirely upon the Code, regulations then in effect or proposed thereunder,
then-current administrative rulings and practice and judicial authority, all of
which would be subject to change, possibly with retroactive effect. Subject to
waiver by both Charter One and FirstFed, which waiver is not expected to be
made, consummation of the Merger is conditioned upon the receipt by Charter One
of the opinion of Silver, Freedman & Taff, L.L.P. and the receipt by FirstFed
of the opinion of Housley Goldberg Kantarian & Bronstein, P.C. See
"--Conditions to the Merger."
No ruling has been or will be requested from the Internal Revenue
Service ("IRS"), including any ruling as to federal income tax consequences of
the Merger to Charter One, FirstFed or FirstFed stockholders. Unlike a ruling
from the IRS, the opinions of counsel are not binding on the IRS. There can be
no assurance that the IRS will not take a position contrary to the positions
reflected in such opinions or that such opinions would be upheld by the courts
if challenged.
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<PAGE> 67
NASDAQ LISTING
Both Charter One Common Stock and FirstFed Common Stock currently are
quoted on the Nasdaq National Market. It is a condition to consummation of the
Merger that the Charter One Common Stock to be issued to the stockholders of
FirstFed pursuant to the Merger Agreement will be quoted on the Nasdaq National
Market. See "--Conditions to the Merger."
REGISTRATION RIGHTS
Under the Merger Agreement, Charter One has agreed, during the three
year period following the Effective Time and upon written request by an
Eligible Affiliate (as defined below) of FirstFed, to file with the SEC (and
any requested state securities authorities) an appropriate registration
statement under the Securities Act registering for transfer the shares of
Charter One Common Stock received by any affiliate of FirstFed who delivered a
certain affiliate letter to Charter One (as contemplated in the Merger
Agreement) and received as a result of the Merger in excess of 1% of the issued
and outstanding shares of Charter One Common Stock, to be determined
immediately subsequent to the Effective Time (an "Eligible Affiliate").
Charter One shall make its best efforts to have such registration statement
declared effective under the Securities Act and remain effective for up to six
months (with the right of an Eligible Affiliate to request an extension for up
to an additional three month period) to facilitate the transfer of Charter One
Common Stock held by such Eligible Affiliate. Upon receipt of a request for
registration by an Eligible Affiliate, Charter One shall use all reasonable
efforts to notify all other Eligible Affiliates (who have not joined in such
request) of such request and invite all such other Eligible Affiliates to join
in such registration, with respect to the Charter One Common Stock received by
them in the Merger. Charter One is obligated to make only two registrations
with respect to all shares of Charter One Common Stock received by Eligible
Affiliates in the Merger, and is obligated to make the registration(s) at its
expense (excluding any underwriting or brokerage commissions or discounts, fees
and expenses of counsel for such Eligible Affiliates and any applicable
transfer taxes).
MANAGEMENT AND OPERATIONS AFTER THE MERGER
DIRECTORS AFTER THE MERGER
As provided in the Merger Agreement, the Charter One Board as of the
Effective Time will consist of 16 members, one-half by the Charter One Board
and one-half of whom will be selected by the FirstFed Board, in each case prior
to the Effective Time. The list of individuals currently expected to become a
member of the Charter One Board as of the Effective Time is set forth in the
table below. If the Charter One stockholders fail to approve the Director
Amendment, the Charter One Board as of the Effective Time will consist of 14
members, one-half of whom will be selected by the Charter One Board and
one-half by the FirstFed Board, in each case prior to the Effective Time and,
it is anticipated, from the list of individuals set forth below, based upon
criteria the respective Boards deem appropriate at such time. The class and
term of each of the directors has not yet been determined. Charter One and
FirstFed shall agree as to the class and term for the members of the Charter
One Board as of the Effective Time with the intention that, to the greatest
extent practicable, the Charter One and FirstFed directors will serve in equal
number in each of the Charter One Board's three classes of directors. The
Merger Agreement provides that the fees and benefits to be received by members
of the Charter One Board and the Charter Bank Board after the Effective Time
will be at least as favorable as the greater of those currently provided to the
directors of either Charter One or FirstFed and Charter Bank or First Federal,
respectively. In addition, Jerome L. Schostak, the initial Vice Chairman of
the Charter One Board after the Effective Time, will receive compensation in an
amount equal to 115% of the compensation he currently receives as chairman of
FirstFed's Executive Committee (currently $10,000 per month). Other than Mr.
C. Gene Harling, those persons who served as Charter One or FirstFed directors
prior to the Effective Time who do not become Charter One directors as of the
Effective Time (anticipated to be, from Charter One - Dr. Norman R. Auburn,
Otty J. Cerny, Robert L. Moore, George M. Jones and Charles A. Shirk, and from
FirstFed - Fred C. Reynolds) will be entitled under the Merger Agreement to
serve as directors emeriti of Charter One and to be paid fees at least as
favorable as those currently provided to directors emeriti of Charter One.
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<PAGE> 68
In addition, during the four-year period following the Effective Time,
(i) Charles John Koch and Jerome L. Schostak will serve as the Chairman and
Vice Chairman, respectively, of the Charter One Board; (ii) the Charter One
Board and the Charter Bank Board (and each of the committees thereof, other
than the Executive Committee) will each consist of an equal number of persons
serving on or representing the Charter One Board and the FirstFed Board,
respectively, prior to the Effective Time; (iii) any vacancy on the Charter One
Board caused by the departure of a director who was a director of Charter One
prior to the Effective Time, or a successor thereto, will be filled with a
person recommended by the remaining directors of Charter One who were directors
of Charter One prior to the Effective Time; (iv) any vacancy on the Charter One
Board caused by the departure of a director who was a director of FirstFed
prior to the Effective Time, or a successor thereto, will be filled with a
person recommended by the remaining directors of Charter One who were directors
of FirstFed prior to the Effective Time; (v) a vote of two-thirds of the entire
Charter One Board will be necessary to approve (A) any amendment to the Charter
One Certificate or Bylaws, (B) any merger, acquisition, sale of substantially
all of its assets, or other extraordinary transaction involving Charter One or
Charter Bank or another significant financial institution subsidiary or (C) the
dismissal or replacement of any of the executive officers of Charter One or
Charter Bank or other significant financial institution subsidiary of Charter
One; (vi) subject to any necessary OTS approval, the members of the Charter One
Board will also be the members of the Charter Bank Board; and (vii) the members
of the Executive Committee of the Charter One Board and the Charter Bank Board
will be Charles John Koch (Chairman), Jerome L. Schostak, John D. Koch, Mark D.
Grossi and Richard W. Neu. With respect to item (vi) above, no person who is a
director of FirstFed or First Federal will be subject to an age restriction
relating to service as a director of Charter Bank.
The Executive Committees of the Charter One and Charter Bank Boards
each shall act by majority vote to carry out the policies, plans, practices and
directions previously approved by the respective Board (or by 80% of the
members of such committee) and otherwise to enable Charter One and Charter Bank
to conduct their business in the normal and regular course consistent with then
current policies, plans, practices and directions. All other determinations by
each Executive Committee shall require the affirmative vote of 80% of its
members.
Set forth below is certain information, as of July 1, 1995, with
respect to each individual who currently is expected to become a member of the
Charter One Board and the Charter Bank Board as of the Effective Time.
<TABLE>
<CAPTION>
YEAR BECAME A
DIRECTOR OF CHARTER PRINCIPAL OCCUPATION
NAME ONE(C) OR FIRSTFED(F) AGE DURING PAST FIVE YEARS
----------------------- -------------------------- --------- -----------------------------------------
<S> <C> <C> <C>
Eugene B. Carroll, Sr. 1987(C) 71 President of Employer Sponsored Plans,
Inc. (third-party health plan administrator);
agent for New England Mutual Life Insurance Co.
Denise M. Fugo 1993(C) 42 President of City Life Inc. (restaurant,
banquet and catering company)
Mark D. Grossi ---(C) 41 Senior Vice President of Charter One and
Executive Vice President/Retail Banking
of Charter Bank since September 1992;
President and Chief Executive Officer of
First American Savings Bank from December
1989 through September 1992
Charles M. Heidel 1980(F) 69 Retired President, Chief Operating
Officer and Director of The Detroit
Edison Company (public utility)
Charles F. Ipavec 1987(C) 73 General counsel to Charter Bank;
President of LaPorte and Ipavec Co.,
L.P.A.
</TABLE>
52
<PAGE> 69
<TABLE>
<CAPTION>
YEAR BECAME A
DIRECTOR OF CHARTER PRINCIPAL OCCUPATION
NAME ONE(C) OR FIRSTFED(F) AGE DURING PAST FIVE YEARS
----------------------- -------------------------- --------- -----------------------------------------
<S> <C> <C> <C>
Richard J. Jacob 1987(F) 75 President of Richard J. Jacob and
Associates (private investing and
consulting firm) since 1993; owner of
Jacob-Dourlet & Associates (real estate
investment firm) from 1987 to 1993;
Director of Durakon Industries
Charles John Koch 1987(C) 49 Chairman of the Board, President and
Chief Executive Officer of Charter One
and Charter Bank
John D. Koch 1995(C) 43 Senior Vice President of Charter One;
Executive Vice President/Chief Lending
and Credit Officer of Charter Bank
Philip J. Meathe 1976(F) 69 Retired Chairman of the Board and Chief
Executive Officer of Smith, Hinchman &
Grylls Associates, Inc. (firm composed of
architects, engineers and planners)
Richard W. Neu 1992(F) 39 Treasurer of FirstFed; Executive Vice
President and Chief Financial Officer of
First Federal; Secretary of FirstFed and
First Federal from July 1993 to May 1994
Henry R. Nolte, Jr. 1983(F) 71 Of Counsel to Miller, Canfield, Paddock
and Stone, Attorneys at Law, and was
senior partner from 1989 to 1993; retired
as Vice President/General Counsel of Ford
Motor Company in 1989
Alonzo H. Poll 1987(C) 73 Retired Chairman of H. Poll Electric
Company
Victor A. Ptak 1989(C) 62 General partner and manager of J.C.
Bradford & Co. office (investment firm)
Jerome L. Schostak 1985(F) 61 Chairman of the Board and Chief Executive
Officer of Schostak Brothers & Company,
Inc. (full service real estate company),
and served as President until 1994
Mark Shaevsky 1985(F) 59 Partner in Honigman Miller Schwartz and
Cohn, Attorneys at Law
Eresteen R. Williams 1979(F) 70 Retired Medical Office Manager for D.G.
Williams, Jr., M.D., P.C.
</TABLE>
--------------------------------------
(1) With respect to the directors of FirstFed, includes service as a
member of the Board of Directors of First Federal prior to the
formation of FirstFed.
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<PAGE> 70
Charter One has agreed to take all necessary corporate action to
effectuate the foregoing which includes the Director Amendment and certain
amendments to the Bylaws of Charter One and to the Charter and Bylaws of
Charter Bank. See "Amendments to Restated Certificate of Incorporation of
Charter One Financial, Inc.--Increase in Authorized Number of Directors." The
amendments to the Charter and Bylaws of Charter Bank are subject to the prior
approval of the OTS, which had not been received as of the date of this Joint
Proxy Statement/Prospectus.
OFFICERS AFTER THE MERGER
As of the Effective Time, the executive officers of Charter One and
Charter Bank will be as follows: Charles John Koch - Chairman of the Board,
President and Chief Executive Officer of Charter One and Charter Bank; Richard
W. Neu - Senior Vice President and Treasurer of Charter One and Executive Vice
President/Chief Financial Officer of Charter Bank; John D. Koch - Senior Vice
President of Charter One and Executive Vice President/Chief Lending and Credit
Officer of Charter Bank; Mark D. Grossi - Senior Vice President of Charter One
and Executive Vice President/Retail Banking of Charter Bank; and Robert J. Vana
- Chief Corporate Counsel and Secretary of Charter One and Charter Bank.
Messrs. C. Koch, J. Koch, Grossi and Vana currently serve in such capacities
with Charter One and Charter Bank. Mr. Neu currently serves as Treasurer of
FirstFed and Executive Vice President and Chief Financial Officer of First
Federal. Pursuant to the Merger Agreement, for a period of four years after
the Effective Time, a vote of two-thirds of the members of the Charter One
Board will be required to dismiss or replace any of the executive officers of
Charter One and Charter Bank.
In addition, C. Gene Harling, Chairman of the Board, President and
Chief Executive Officer of FirstFed and First Federal, will serve Charter One
in an advisory capacity for at least one year following the Effective Time to
assist in the consolidation of operations following the Merger as well as other
matters. Other senior management positions of Charter One and Charter Bank are
generally expected to be filled by persons currently employed by Charter One
and FirstFed.
CONSOLIDATION OF OPERATIONS
Upon consummation of the Merger, the combined company will be
headquartered in Cleveland, with a Michigan Division headquartered in the
current FirstFed facility in Detroit. The combined institution will have 156
full service offices located in Ohio and Michigan, with approximately $7
billion in total deposits. It is anticipated that all of such branches will
remain open after the Merger and that certain operational functions of Charter
One currently performed in Cleveland will be integrated into similar functions
of FirstFed to be performed in Detroit.
Concurrent with or shortly following the consummation of the Merger,
Charter One and FirstFed anticipate executing a plan to reposition the combined
statement of financial condition of Charter One and FirstFed to conform the
interest rate risk profile of the combined company to that of Charter One
before the Merger. This will be accomplished by terminating the $850 million
combined interest rate swap position that would remain outstanding at December
31, 1995. The repositioning also is expected to include the liquidation of
approximately $2 billion of lower-yielding, fixed-rate assets and the
application of the proceeds therefrom to repay approximately $2 billion of
short-term liabilities. The repositioning of the statement of financial
condition is expected to reduce the asset size of the combined company from
approximately $15 billion to approximately $13 billion. Based on market
interest rate levels as of June 30, 1995 and December 31, 1994, costs related
to this repositioning of the statement of financial condition, together with an
estimated $20 million pre-tax merger transaction charge, would have been
expected to result in an after-tax charge to earnings of approximately $67
million and $133 million, respectively. See "Unaudited Pro Forma Combined
Financial Statements."
The implementation of the strategies described above are subject to
business, regulatory, market and other considerations which may change between
the date of this Joint Proxy Statement/Prospectus and the Effective Time.
Consequently, there can be no assurance that such strategies will be
implemented as described above.
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<PAGE> 71
POST-MERGER DIVIDEND POLICY
Charter One is a legal entity, separate and distinct from Charter Bank
and its subsidiaries. As a holding company with no significant operations of
its own, Charter One's principal sources of funds are its net earnings and any
dividends paid to it by Charter Bank, which are subject to certain federal
regulatory limitations. The Charter One Board after the Effective Time will
consider the payment and level of dividends on Charter One Common Stock as it
deems appropriate to do so, taking into account federal regulatory
restrictions, Charter One's level of net income and financial condition, its
future prospects, economic conditions, industry practices and other factors.
It is currently anticipated that after the Effective Time Charter One initially
will pay dividends at an annual rate of at least $.76 per share (which, after
taking into account the Exchange Ratio, equates to $.91 per share of FirstFed
Common Stock); provided, however, that any dividend declared by the Charter One
Board will be consistent with its analysis of the factors detailed above, and
there can be no assurance as to any future dividends. See also "Comparative
Stock Prices and Dividend Information."
CERTAIN RELATED TRANSACTIONS
STOCK OPTION AGREEMENTS
The information in this Joint Proxy Statement/Prospectus concerning
the terms of the Stock Option Agreements is qualified in its entirety by
reference to the full text of the Stock Option Agreements which are attached
hereto in Appendix I and incorporated by reference herein.
General. As an inducement and a condition to entering into the Merger
Agreement, each of Charter One and FirstFed received an option to purchase
shares of the other party's common stock representing approximately 19.9% of
the issued and outstanding shares of such common stock. The options may only
be exercised upon the occurrence of certain events (none of which has occurred
as of the date hereof). Pursuant to the stock option agreement dated as of May
31, 1995, between Charter One as issuer and FirstFed as grantee (the "Charter
One Stock Option Agreement"), Charter One granted to FirstFed an option (the
"Charter One Option") to purchase up to 4,481,589 shares of Charter One Common
Stock at an exercise price of $24.75 per share, subject to the terms and
conditions set forth therein. Pursuant to the stock option agreement dated as
of May 31, 1995, between FirstFed as issuer and Charter One as grantee (the
"FirstFed Stock Option Agreement" and, together with the Charter One Stock
Option Agreement, the "Stock Option Agreements"), FirstFed granted to Charter
One an option (the "FirstFed Option" and, together with the Charter One Option,
the "Options") to purchase up to 3,724,173 shares of FirstFed Common Stock at
an exercise price of $26.50 per share, subject to the terms and conditions set
forth therein.
Effect of Stock Option Agreements. The Stock Option Agreements are
intended to increase the likelihood that the Merger will be consummated in
accordance with the terms of the Merger Agreement. Consequently, certain
aspects of the Stock Option Agreements may have the effect of discouraging
persons who might now or prior to the consummation of the Merger be interested
in acquiring all of or a significant interest in either FirstFed or Charter One
from considering or proposing such an acquisition, even if such persons were
prepared to pay a higher price per share for the FirstFed Common Stock than the
value per share contemplated by the Merger Agreement or a higher price per
share for Charter One Common Stock than the then-current market price of such
shares. The acquisition of the issuer or an interest in the issuer, or an
agreement to do either, could cause the Option to become exercisable. The
existence of such Option could significantly increase the cost to a potential
acquiror of acquiring the issuer compared to its cost had the Stock Option
Agreement not been entered into. Such increased costs might discourage a
potential acquiror from considering or proposing an acquisition or might result
in a potential acquiror proposing to pay a lower per share price to acquire the
issuer than it might otherwise have proposed to pay. The exercise of either
Option may prohibit any acquiror of the issuer from accounting for an
acquisition of the issuer using the pooling of interests accounting method for
a period of two years. This could discourage or preclude an acquisition of
FirstFed or Charter One.
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<PAGE> 72
Terms of Stock Option Agreements. The following is a brief summary of
certain provisions of the Stock Option Agreements, which are attached hereto in
Appendix I. The terms of the Stock Option Agreements are identical in all
material respects other than with respect to the number and kind of shares
which may be purchased pursuant thereto and the exercise prices. The following
summary is qualified in its entirety by reference to the Stock Option
Agreements. For purposes of this summary, the term "Issuer" refers to Charter
One with respect to the Charter One Stock Option Agreement and FirstFed with
respect to the FirstFed Stock Option Agreement, and the term "Grantee" refers
to FirstFed with respect to the Charter One Stock Option Agreement and Charter
One with respect to the FirstFed Stock Option Agreement.
Pursuant to the Stock Option Agreements, each Option becomes
exercisable in whole or in part at any time after the occurrence of both an
Initial Triggering Event (as hereinafter defined) and a Subsequent Triggering
Event (as hereinafter defined). An "Initial Triggering Event" will occur if
(i) Issuer, without receiving Grantee's prior consent, enters into an agreement
with any person (other than Grantee) to effect (A) a merger, consolidation or
similar transaction involving Issuer or any of its Significant Subsidiaries (as
defined in Rule 1-02 of Regulation S-X promulgated by the SEC), (B) the
purchase, lease or other acquisition of all or substantially all of the assets
of Issuer or any of its Significant Subsidiaries, or (C) the purchase or other
acquisition (including by way of merger, consolidation, share exchange or
otherwise) of beneficial ownership of securities representing 25% or more of
the voting power of Issuer or its Significant Subsidiaries (any of the
foregoing being hereinafter referred to as an "Acquisition Transaction";
provided, however, that any internal merger or consolidation involving only
Issuer and/or its subsidiaries will not be considered an Acquisition
Transaction); (ii) any person (other than Grantee, a subsidiary of Grantee or a
subsidiary of Issuer acting in a fiduciary capacity (each, an "Excluded
Person")), alone or together with affiliates and associates, acquires
beneficial ownership of, or the right to acquire beneficial ownership of, or
any group is formed (other than a group of which an Excluded Person is a
member) that beneficially owns, 25% or more of the then outstanding shares of
Issuer Common Stock; (iii) any person (other than Grantee or a subsidiary of
Grantee) makes a proposal to Issuer or its stockholders to (A) engage in an
Acquisition Transaction or (B) commences a tender or exchange offer, the
consummation of which would result in such person acquiring beneficial
ownership of securities representing 25% or more of Issuer's voting power; (iv)
the Board of Directors of Issuer fails to recommend to its stockholders the
adoption of the Merger Agreement or withdraws, modifies or changes its
recommendation in a manner adverse to Grantee; (v) Issuer, following a proposal
by a third party (other than an Excluded Person) to engage in an Acquisition
Transaction, intentionally and knowingly breaches any representation, warranty,
covenant or agreement contained in the Merger Agreement which entitles Grantee
to terminate the Merger Agreement in accordance with its terms and which has
not been cured prior to written notice to Issuer by Grantee of its intention to
exercise the Option; or (vi) any person (other than Grantee or a subsidiary of
Grantee), without the prior consent of Grantee, files an application or notice
with the OTS or other federal or state bank regulatory authority for approval
to engage in an Acquisition Transaction, which application or notice has been
accepted for processing.
A "Subsequent Triggering Event" will occur if (i) any person, other
than an Excluded Person, acquires beneficial ownership of 25% or more of the
then outstanding shares of Issuer Common Stock or (ii) Issuer, without
receiving Grantee's prior consent, enters into an agreement with any person
(other than Grantee) to effect an Acquisition Transaction.
Each Option expires upon the earliest to occur of (i) the Effective
Time, (ii) the termination of the Merger Agreement in accordance with its terms
prior to the occurrence of an Initial Triggering Event and (iii) 12 months
after termination of the Merger Agreement, if such termination follows or
occurs at the same time as an Initial Triggering Event. Any purchase of shares
pursuant to a Stock Option Agreement is subject to compliance with applicable
law.
The number and type of securities subject to the Options and the
purchase price of such securities will be appropriately adjusted for any change
in Issuer Common Stock by reason of a stock dividend, split-up, merger,
recapitalization, combination, exchange of shares or similar transaction. The
number of shares of Issuer Common Stock subject to each Option will also be
adjusted in the event Issuer issues additional shares of its common stock such
that the number of shares of Issuer Common Stock subject to the Option,
together with shares previously
56
<PAGE> 73
purchased pursuant thereto, represents 19.9% of Issuer Common Stock then issued
and outstanding, without giving effect to shares subject to or issued pursuant
to the Option.
In the event Issuer enters into any agreement to (i) consolidate with
or merge into any person other than Grantee or one of its subsidiaries, such
that the Issuer is not the surviving corporation, (ii) permit any person, other
than Grantee or one of its subsidiaries, to merge into Issuer and Issuer is the
surviving corporation, but, in connection with such merger, the then
outstanding shares of Issuer Common Stock are changed into or exchanged for
stock or other securities of any other person or cash or any other property, or
the outstanding shares of Issuer Common Stock immediately prior to such merger
shall after such merger represent less than 50% of the outstanding shares and
share equivalents of the merged company, or (iii) sell or otherwise transfer
all or substantially all of its assets to any person other than Grantee or one
of its subsidiaries, then, and in each such case, the agreement governing the
transaction must provide that, upon consummation of the transaction, the Option
will be converted into or exchanged for an option (the "Substitute Option") to
purchase securities (the "Substitute Common Stock") of either the acquiring
person, a person that controls the acquiring person, Issuer (if Issuer is the
surviving entity) or the transferee of all or substantially all of Issuer's
assets, in all cases at the election of Grantee. In no event will the
Substitute Option be exercisable for more than 19.9% of the Substitute Common
Stock outstanding prior to the exercise of the Substitute Option.
The Stock Option Agreements also provide each respective Grantee with
certain registration rights with respect to shares of Issuer Common Stock
acquired by Grantee upon exercise of the Option. These rights require that
Issuer file up to two registration statements under the Securities Act if
requested by Grantee at the time of and together with the written notice of
exercise required under the Stock Option Agreements. The first of such
registration statements will be at Issuer's expense, while the second will be
at Grantee's expense.
AMENDMENT TO CHARTER ONE RIGHTS AGREEMENT
In connection with the Merger Agreement, Charter One and The First
National Bank of Boston executed an amendment to the Rights Agreement. For a
more detailed description of the Rights Agreement, see "Comparison of Rights of
Stockholders of Charter One Financial, Inc. and FirstFed Michigan
Corporation--Rights Agreement." The Rights Agreement was amended (i) to revise
the definition of "Acquiring Person" set forth in the Rights Agreement to
provide that neither FirstFed nor any of its subsidiaries will become an
Acquiring Person by virtue of the fact that FirstFed is the Beneficial Owner
(as defined in the Rights Agreement) solely of shares of FirstFed Common Stock
(A) of which FirstFed or any such subsidiary was the Beneficial Owner on May
26, 1995, (B) acquired or acquirable pursuant to the grant or exercise of the
Charter One Option granted under the Charter One Stock Option Agreement, (C)
acquired or acquirable pursuant to the Charter One Voting Agreements, (D) held
directly or indirectly in trust accounts, managed accounts and the like or
otherwise held in a fiduciary capacity for third parties and (E) held in
respect of a debt previously contracted; provided, however, that if FirstFed or
any of its subsidiaries acquires beneficial ownership of any shares of Charter
One Common Stock other than the shares described in clauses (A)-(E) above, then
the shares described in clauses (A)-(C) above, together with the subsequently
acquired shares, will be considered in determining whether FirstFed or any of
its subsidiaries has become an Acquiring Person; (ii) to raise from 10% to 20%
the triggering beneficial ownership thresholds; and (iii) to clarify that
neither any rights holder nor any other "Person" (as defined in the Rights
Agreement) shall be deemed to have been given any legal or equitable rights or
claims under the Rights Agreement in connection with any transactions
contemplated by the Merger Agreement, the Charter One Stock Option Agreement or
the Charter One Voting Agreements. This information is qualified in its
entirety by reference to the full text of the amendment to the Rights
Amendment, which is attached hereto in Appendix I.
57
<PAGE> 74
THE BANK MERGER AGREEMENT
In connection with the Merger, Charter Bank and First Federal executed
the Bank Merger Agreement on May 30, 1995. Pursuant to the Bank Merger
Agreement, First Federal will be merged with and into Charter Bank following
the Company Merger. The respective obligations of Charter Bank and First
Federal to consummate the Bank Merger are conditioned upon the satisfaction or
waiver by Charter One and FirstFed of all conditions to consummation of the
Merger set forth in the Merger Agreement and approval by the OTS. The Bank
Merger Agreement will terminate automatically upon any termination of the
Merger Agreement.
This information is qualified in its entirety by reference to the full
text of the Bank Merger Agreement which is included as Exhibit A to the Merger
Agreement attached hereto in Appendix I.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The Unaudited Pro Forma Combined Financial Statements and related
footnotes account for the Merger using the pooling of interests method of
accounting. Under this method of accounting, the recorded assets, liabilities,
stockholders' equity, income and expenses of Charter One and FirstFed are
combined and recorded at their historical cost-based amounts, except as noted
below and in the footnotes. The following Unaudited Pro Forma Combined
Statement of Financial Condition as of June 30, 1995 combines the historical
consolidated statements of financial condition of Charter One and subsidiaries
and FirstFed and subsidiaries as if the Merger had been effective on June 30,
1995, after giving effect to certain pro forma adjustments described in the
accompanying notes. The following Unaudited Pro Forma Combined Statements of
Income for the six-month periods ended June 30, 1995 and 1994 and for each of
the years in the three-year period ended December 31, 1994 present the combined
historical results of operations of Charter One and subsidiaries and FirstFed
and subsidiaries as if the Merger had been effective January 1, 1992. Both
Charter One's and FirstFed's fiscal years end December 31. Pro forma per share
amounts are based on the Exchange Ratio of 1.2 shares of Charter One Common
Stock for each share of FirstFed Common Stock.
The Unaudited Pro Forma Combined Financial Statements are intended for
informational purposes and are not necessarily indicative of the future
consolidated financial position or future results of operations of the combined
entity or the consolidated financial position or results of operations of the
combined entity that would have been achieved had the Merger been consummated
as of the date or at the beginning of the periods presented. The Unaudited Pro
Forma Combined Statement of Financial Condition reflects the anticipated
repositioning of the combined entity's statement of financial condition, which
is expected to be completed at or shortly after the consummation of the Merger,
to conform the interest rate risk position of the combined company with the
pre-Merger interest rate risk position of Charter One. It also reflects
estimated losses/gains associated with such repositioning based on interest
rates in effect at June 30, 1995, as well as estimated costs to effect the
Merger and combine operations. Estimated amounts and ranges of amounts of
these costs are shown in the Notes to Unaudited Pro Forma Combined Financial
Statements. Any change in interest rates or prices between that date and the
actual date(s) the repositioning transactions are consummated could result in
losses/gains that differ significantly from the amounts presented herein. The
Unaudited Pro Forma Combined Statements of Income do not reflect the cost to
reposition the statement of financial condition or the costs to effect the
Merger and combine operations, or any expected cost savings as a result of the
Merger. These Unaudited Pro Forma Combined Financial Statements should be read
in conjunction with, and are qualified in their entirety by, the separate
historical consolidated financial statements and notes thereto of Charter One
and FirstFed, which are incorporated by reference herein. See "Incorporation
of Certain Documents by Reference." See also "Management and Operations After
the Merger--Consolidation of Operations."
58
<PAGE> 75
UNAUDITED PRO FORMA COMBINED STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
AT JUNE 30, 1995
-----------------------------------------------------------------------------------
CHARTER ONE FIRSTFED PRO FORMA PRO FORMA
AS REPORTED AS REPORTED ADJUSTMENTS COMBINED
------------------------ -------------------- -------------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents . . . . . . . . . . $ 182,494 $ 100,737 $ --- $ 283,231
Mortgage-backed securities:
Available for sale . . . . . . . . . . . . 321,770 --- --- 321,770
Held to maturity . . . . . . . . . . . . . 1,693,072 4,335,611 (900,000)(2) 5,128,683
Other securities - available for sale . . . . 134,993 919,905 (700,000)(2) 354,898
Loans, net . . . . . . . . . . . . . . . . . 3,721,012 2,935,646 (400,000)(2) 6,256,658
Federal Home Loan Bank stock . . . . . . . . 71,766 94,004 --- 165,770
Premises and equipment . . . . . . . . . . . 60,954 42,979 --- 103,933
Real estate owned . . . . . . . . . . . . . . 8,225 3,961 --- 12,186
Accrued interest receivable . . . . . . . . . 29,420 57,378 --- 86,798
Other assets . . . . . . . . . . . . . . . . 101,878 47,767 31,800(5) 181,445
----------- ----------- ----------- ------------
Total assets . . . . . . . . . . . . . . . . $ 6,325,584 $8,537,988 $(1,968,200) $ 12,895,372
=========== ========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Deposits . . . . . . . . . . . . . . . . . . $ 4,410,618 $ 2,872,014 $ (393,000)(3) $ 6,889,632
Federal Home Loan Bank advances . . . . . . . 1,344,117 1,502,200 (384,200)(3) 2,462,117
Reverse repurchase agreements . . . . . . . . --- 3,359,678 (1,124,000)(3) 2,235,678
Other borrowings . . . . . . . . . . . . . . 76,599 137,737 --- 214,336
Advance payments by borrowers for taxes
and insurance . . . . . . . . . . . . . . . 29,541 60,136 --- 89,677
Accrued interest payable, accrued expenses
and other liabilities . . . . . . . . . . . 54,899 125,347 --- 180,246
----------- ---------- ----------- -----------
Total liabilities . . . . . . . . . . 5,915,774 8,057,112 (1,901,200) 12,071,686
----------- ---------- ----------- -----------
Stockholders' equity:
Common stock and paid-in capital . . . . . . 127,307 108,543 --- 235,850
Retained earnings . . . . . . . . . . . . . . 323,807 369,424 (67,000)(4) 626,231
Treasury stock . . . . . . . . . . . . . . . (4,104) --- --- (4,104)
Net unrealized gain (loss) on securities . . (37,200) 2,909 --- (34,291)
----------- ---------- ----------- -----------
Total stockholders' equity . . . . . 409,810 480,876 (67,000) 823,686
----------- ---------- ----------- -----------
Total liabilities and stockholders' equity . . $6,325,584 $8,537,988 $(1,968,200) $12,895,372
========== ========== =========== ===========
</TABLE>
See "Notes to Unaudited Pro Forma Combined Financial Statements."
59
<PAGE> 76
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1995
-----------------------------------------------------------------------
CHARTER ONE FIRSTFED PRO FORMA PRO FORMA
AS REPORTED AS REPORTED ADJUSTMENTS COMBINED
------------------- ---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income . . . . . . . . . . . . . . $ 234,723 $ 314,184 $ --- $ 548,907
Interest expense . . . . . . . . . . . . . 143,142 251,616 --- 394,758
----------- ----------- ----------- -----------
Net interest income . . . . . . . . . . . . 91,581 62,568 --- 154,149
Provision for loan losses . . . . . . . . . 516 --- --- 516
----------- ----------- ----------- -----------
Net interest income after provision for
loan losses . . . . . . . . . . . . . . 91,065 62,568 --- 153,633
Net gain on sales . . . . . . . . . . . . . 505 3,701 --- 4,206
Other income . . . . . . . . . . . . . . . 15,513 5,379 --- 20,892
Other expenses(6) . . . . . . . . . . . . . 52,816 34,374 --- 87,190
----------- ----------- ----------- -----------
Income before federal income taxes,
extraordinary items and cumulative
effect of changes in accounting
principles . . . . . . . . . . . . . . . 54,267 37,274 --- 91,541
Federal income taxes(7) . . . . . . . . . . 18,251 12,935 --- 31,186
----------- ----------- ----------- -----------
Income before extraordinary items and
cumulative effect of changes in
accounting principles . . . . . . . . . $ 36,016 $ 24,339 $ --- $ 60,355
=========== =========== =========== ===========
Per share income before extraordinary
items and cumulative effect of changes
in accounting principles(8):
Primary . . . . . . . . . . . . . . . . $ 1.56 $ 1.28 $ --- $ 1.32
=========== =========== =========== ===========
Fully diluted . . . . . . . . . . . . . $ 1.56 $ 1.27 $ --- $ 1.31
=========== =========== =========== ===========
Weighted average common and common
equivalent shares(8):
Primary . . . . . . . . . . . . . . . . 23,018,526 19,026,058 --- 45,849,796
========== ========== =========== ==========
Fully diluted . . . . . . . . . . . . . 23,060,501 19,120,024 --- 46,004,530
========== ========== =========== ==========
</TABLE>
See "Notes to Unaudited Pro Forma Combined Financial Statements."
60
<PAGE> 77
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1994
-----------------------------------------------------------------------
CHARTER ONE FIRSTFED PRO FORMA PRO FORMA
AS REPORTED AS REPORTED ADJUSTMENTS COMBINED
------------------- ---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income . . . . . . . . . . . . . . $ 185,623 $ 304,170 $ --- $ 489,793
Interest expense . . . . . . . . . . . . . 98,437 234,190 --- 332,627
------------ ------------ ----------- -----------
Net interest income . . . . . . . . . . . . 87,186 69,980 --- 157,166
Provision for loan losses . . . . . . . . . 1,493 150 --- 1,643
------------- ------------- ----------- ------------
Net interest income after provision for
loan losses . . . . . . . . . . . . . . 85,693 69,830 --- 155,523
Net gain on sales . . . . . . . . . . . . . 1,496 2,561 --- 4,057
Net loss on termination of interest rate
exchange agreements . . . . . . . . . . . --- 155,364 --- 155,364
Other income . . . . . . . . . . . . . . . 11,807 5,389 --- 17,196
Other expenses(6) . . . . . . . . . . . . . 49,402 37,848 --- 87,250
------------ ------------ ----------- -----------
Income (loss) before federal income taxes,
extraordinary items and cumulative
effect of changes in accounting
principles . . . . . . . . . . . . . . . 49,594 (115,432) --- (65,838)
Federal income taxes (benefit)(7) . . . . . 16,490 (35,240) --- (18,750)
------------ ------------ ----------- -----------
Income (loss) before extraordinary items
and cumulative effect of changes in
accounting principles . . . . . . . . . $ 33,104 $ (80,192) $ --- $ (47,088)
=========== =========== =========== ===========
Per share income (loss) before
extraordinary items and cumulative
effect of changes in accounting
principles(8):
Primary . . . . . . . . . . . . . . . . $ 1.43 $ (4.30) $ --- $ (1.03)
=========== =========== =========== ===========
Fully diluted . . . . . . . . . . . . . $ 1.43 $ (4.30) $ --- $ (1.03)
=========== =========== =========== ===========
Weighted average common and common
equivalent shares(8):
Primary . . . . . . . . . . . . . . . . 23,190,553 18,647,534 --- 45,567,594
========== ========== =========== ==========
Fully diluted . . . . . . . . . . . . . 23,203,359 18,647,534 --- 45,580,400
========== ========== =========== ==========
</TABLE>
See "Notes to Unaudited Pro Forma Combined Financial Statements."
61
<PAGE> 78
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1994
-----------------------------------------------------------------------
CHARTER ONE FIRSTFED PRO FORMA PRO FORMA
AS REPORTED AS REPORTED ADJUSTMENTS COMBINED
------------------- ---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income . . . . . . . . . . . . . . $ 395,630 $ 610,550 $ --- $1,006,180
Interest expense . . . . . . . . . . . . . 217,486 476,721 --- 694,207
--------- ----------- ----------- ----------
Net interest income . . . . . . . . . . . . 178,144 133,829 --- 311,973
Provision for loan losses . . . . . . . . . 2,798 150 --- 2,948
--------- ----------- ----------- ----------
Net interest income after provision for
loan losses . . . . . . . . . . . . . . 175,346 133,679 --- 309,025
Net gain on sales . . . . . . . . . . . . . 3,962 3,504 --- 7,466
Net loss on termination of interest rate
exchange agreements . . . . . . . . . . . --- 155,364 --- 155,364
Other income . . . . . . . . . . . . . . . 24,094 11,612 --- 35,706
Other expenses(6) . . . . . . . . . . . . . 102,103 72,055 --- 174,158
--------- ----------- ----------- ----------
Income (loss) before federal income taxes,
extraordinary items and cumulative
effect of changes in accounting
principles . . . . . . . . . . . . . . . 101,299 (78,624) --- 22,675
Federal income taxes (benefit)(7) . . . . . 33,686 (26,630) --- 7,056
--------- ----------- ----------- ----------
Income (loss) before extraordinary items
and cumulative effect of changes in
accounting principles . . . . . . . . . $ 67,613 $ (51,994) $ --- $ 15,619
========= =========== =========== ==========
Per share income (loss) before
extraordinary items and cumulative
effect of changes in accounting
principles(8):
Primary . . . . . . . . . . . . . . . . $ 2.92 $ (2.79) $ --- $ .34
========= ========== =========== ==========
Fully diluted . . . . . . . . . . . . . $ 2.92 $ (2.79) $ --- $ .34
========= ========== =========== ==========
Weighted average common and common
equivalent shares(8):
Primary . . . . . . . . . . . . . . . . 23,194,714 18,662,939 --- 45,590,241
========== ========== =========== ==========
Fully diluted . . . . . . . . . . . . . 23,194,854 18,662,939 --- 45,590,381
========== ========== =========== ==========
</TABLE>
See "Notes to Unaudited Pro Forma Combined Financial Statements."
62
<PAGE> 79
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1993
-----------------------------------------------------------------------
CHARTER ONE FIRSTFED PRO FORMA PRO FORMA
AS REPORTED AS REPORTED ADJUSTMENTS COMBINED
------------------- ---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income . . . . . . . . . . . . . . . $ 358,408 $ 723,748 $ --- $1,082,156
Interest expense . . . . . . . . . . . . . . 188,115 586,647 --- 774,762
----------- ----------- ---------- ----------
Net interest income . . . . . . . . . . . . . 170,293 137,101 --- 307,394
Provision for loan losses . . . . . . . . . . 5,149 2,400 --- 7,549
----------- ----------- ---------- ----------
Net interest income after provision for loan
losses . . . . . . . . . . . . . . . . . . 165,144 134,701 --- 299,845
Net gain on sales . . . . . . . . . . . . . . 4,983 557 --- 5,540
Other income . . . . . . . . . . . . . . . . 21,204 10,433 --- 31,637
Other expenses(6) . . . . . . . . . . . . . . 97,930 79,840 (1,563) 176,207
----------- ----------- --------- ----------
Income before federal income taxes,
extraordinary items and cumulative effect
of changes in accounting principles . . . 93,401 65,851 1,563 160,815
Federal income taxes(7) . . . . . . . . . . . 31,965 24,450 --- 56,415
----------- ----------- ---------- ----------
Income before extraordinary items and
cumulative effect of changes in
accounting principles . . . . . . . . . . $ 61,436 $ 41,401 $ 1,563 $ 104,400
=========== =========== ========== ==========
Per share income before extraordinary
items and cumulative effect of changes in
accounting principles(8):
Primary . . . . . . . . . . . . . . . . . $ 2.67 $ 2.21 $ --- $ 2.29
=========== =========== =========== ==========
Fully diluted . . . . . . . . . . . . . . $ 2.67 $ 2.19 $ --- $ 2.28
=========== =========== =========== ==========
Weighted average common and common
equivalent shares(8):
Primary . . . . . . . . . . . . . . . . . 23,010,420 18,872,522 --- 45,657,446
========== ========== ========== ==========
Fully diluted . . . . . . . . . . . . . . 23,054,160 19,019,589 --- 45,877,667
========== ========== ========== ==========
</TABLE>
See "Notes to Unaudited Pro Forma Combined Financial Statements."
63
<PAGE> 80
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1992
-----------------------------------------------------------------------
CHARTER ONE FIRSTFED PRO FORMA PRO FORMA
AS REPORTED AS REPORTED ADJUSTMENTS COMBINED
------------------- ---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income . . . . . . . . . . . . . . $ 346,696 $ 785,062 $ --- $1,131,758
Interest expense . . . . . . . . . . . . . 210,671 674,081 --- 884,752
----------- ----------- --------- ----------
Net interest income . . . . . . . . . . . . 136,025 110,981 --- 247,006
Provision for loan losses . . . . . . . . . 6,544 6,000 --- 12,544
----------- ------------ --------- ----------
Net interest income after provision for
loan losses . . . . . . . . . . . . . . 129,481 104,981 --- 234,462
Net gain on sales . . . . . . . . . . . . . 7,161 14,832 --- 21,993
Other income . . . . . . . . . . . . . . . 18,557 10,129 --- 28,686
Other expenses(6) . . . . . . . . . . . . . 88,726 77,345 (1,368) 164,703
----------- ------------ --------- ----------
Income before federal income taxes,
extraordinary items and cumulative
effect of changes in accounting
principles . . . . . . . . . . . . . . . 66,473 52,597 1,368 120,438
Federal income taxes(7) . . . . . . . . . . 23,165 18,300 --- 41,465
----------- ------------ --------- ----------
Income before extraordinary items and
cumulative effect of changes in
accounting principles . . . . . . . . . $ 43,308 $ 34,297 $ 1,368 $ 78,973
=========== =========== ========= ==========
Per share income before extraordinary
items and cumulative effect of changes
in accounting principles(8):
Primary . . . . . . . . . . . . . . . . $ 2.20 $ 2.03 $ --- $ 1.98
=========== =========== ========= ==========
Fully diluted . . . . . . . . . . . . . $ 2.20 $ 1.91 $ --- $ 1.90
=========== =========== ========= ==========
Weighted average common and common
equivalent shares(8):
Primary . . . . . . . . . . . . . . . . 19,642,673 16,879,832 --- 39,898,471
========== ========== ========= ==========
Fully diluted . . . . . . . . . . . . . 19,714,447 18,741,991 --- 42,204,836
========== ========== ========= ==========
</TABLE>
See "Notes to Unaudited Pro Forma Combined Financial Statements."
64
<PAGE> 81
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Pursuant to the Merger Agreement and consistent with generally
accepted accounting principles, Charter One and FirstFed expect that costs
incurred to effect the Merger, which would include the cost of repositioning
the combined entity's statement of financial condition to conform the interest
rate risk position of the combined company with the pre-Merger interest rate
risk position of Charter One, as well as transaction costs of the Merger and
costs to combine operations, will be deducted in determining net income in the
period in which they are incurred. Adjustments to conform the accounting
policies of the entities are reflected in these Unaudited Pro Forma Combined
Financial Statements and are discussed in the following notes. The pro forma
financial statements do not give effect to any cost savings which may be
realized in connection with the consolidation of the respective operations of
Charter One and FirstFed.
(1) Transaction costs of the Merger (primarily investment banker and other
professional fees) and costs to combine operations are expected to be
in the range of $15 million to $25 million (the "Expected Range").
The Unaudited Pro Forma Combined Statements of Income do not reflect
these charges. The Unaudited Pro Forma Combined Statement of
Financial Condition reflects these charges at the mid-point of the
Expected Range ($20 million). It is anticipated that these charges
will be incurred and recognized by Charter One and FirstFed and
substantially paid by the end of 1995. The following table provides
details of the estimated charges by type of cost:
<TABLE>
<CAPTION>
TYPE OF COST EXPECTED RANGE
OF PRE-TAX COST
<S> <C>
Transaction costs $7 to $9 million
Costs to combine operations:
Severance and other employee termination costs $6 to $12 million
Duplicative systems and facilities costs $1 to $2 million
Other costs incidental to the Merger $1 to $2 million
Total transaction costs and costs to combine operations $15 to $25 million
</TABLE>
(2) Adjustments reflect the expected sales of (i) $900 million of
fixed-rate mortgage-backed securities held to maturity at an estimated
loss of $24 million, (ii) $400 million of fixed-rate loans at an
estimated loss of $16 million and (iii) $700 million of other
securities available for sale at a gain of $4 million. The net
proceeds from these sales will be used to reduce certain deposits,
reverse repurchase agreements and FHLB advances.
(3) Represents the reduction of deposits and borrowings resulting from the
use of the proceeds from the sales of assets described above.
Concurrent with the reduction of these liabilities, the combined
company is expected to terminate interest rate exchange agreements
with a notional value of $850 million at an estimated loss of $86
million. The Unaudited Pro Forma Combined Statement of Financial
Condition has been prepared assuming that a portion of the liabilities
hedged by the agreements are eliminated and the related loss is
charged to operations, while the remaining loss is deferred and
amortized over the original term of the agreements.
(4) Represents the expected after-tax effect of the pro forma adjustments,
as described in notes (1), (2) and (3) above, assuming a federal
income tax rate of 35%.
(5) Represents the expected income tax benefit associated with the pro
forma adjustments.
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(6) FirstFed adopted Statement of Financial Accounting Standards ("SFAS")
No. 72, "Accounting for Certain Acquisitions of Banking and Thrift
Institutions," effective on January 1, 1994, giving retroactive effect
to business combinations that were initiated or completed prior to
September 30, 1982. FirstFed's historical results for 1994 included
an adjustment of $31.9 million to reflect the cumulative effect of the
change in accounting principle related to the adoption of SFAS No. 72.
Charter One adopted SFAS No. 72 in 1990 and recorded an adjustment of
$45.5 million as the cumulative effect of this change in accounting
principle on years prior to 1990. The Unaudited Pro Forma Combined
Statements of Income reflect the adjustment of cost in excess of fair
value of assets acquired ("goodwill") amortization resulting from the
retroactive restatement of FirstFed's adoption of SFAS No. 72 in order
to conform to Charter One's effective date of adoption. Previously
reported other expense amounts for FirstFed for the years ended
December 31, 1993 and 1992 were decreased by $1.6 million and $1.4
million, respectively.
(7) Charter One adopted SFAS No. 109, "Accounting for Income Taxes," on
January 1, 1993 and recorded an adjustment of $7.0 million at that
time to reflect the cumulative effect of this change in accounting
principle on prior years. FirstFed adopted this standard on January
1, 1992 and recorded a cumulative effect adjustment of $7.0 million.
The Unaudited Pro Forma Combined Statements of Income reflect the
adjustment of federal income taxes resulting from the retroactive
restatement of Charter One's adoption of SFAS No. 109 in order to
conform to FirstFed's effective date of adoption. The impact of the
adjustment was not significant.
(8) The pro forma combined per share data has been computed based on the
combined historical income (loss) before extraordinary items and
cumulative effect of changes in accounting principles (adjusted for
retroactive changes in goodwill amortization as discussed in Note (6)
above) and on the combined historical weighted average common and
common equivalent shares outstanding assuming the issuance of 1.2
shares of Charter One Common Stock for each share of FirstFed Common
Stock based on the Exchange Ratio. Shares assumed to be issued in
computing the weighted average number of common and common equivalent
shares outstanding used to compute primary per share earnings for the
six month periods ended June 30, 1995 and 1994 were 22,831,270 and
22,377,041, respectively. Shares assumed to be issued in computing
the weighted average number of common and common equivalent shares
outstanding used to compute primary per share earnings for the years
ended December 31, 1994, 1993 and 1992 were 22,395,527, 22,647,026 and
20,255,798, respectively.
Shares assumed to be issued in computing the weighted average number
of common and common equivalent shares outstanding used to compute
fully diluted per share earnings for the six month periods ended June
30, 1995 and 1994 were 22,944,029 and 22,377,041, respectively.
Shares assumed to be issued in computing the weighted average number
of common and common equivalent shares outstanding used to compute
fully diluted per share earnings for the years ended December 31,
1994, 1993 and 1992 were 22,395,527, 22,823,507 and 22,490,389,
respectively.
(9) In May 1995, the Financial Accounting Standards Board issued SFAS No.
122, "Accounting for Mortgage Servicing Rights." This standard is
effective for fiscal years beginning after December 15, 1995, and
applies to transactions in which an enterprise sells or securitizes
mortgage loans with servicing rights retained. It also addresses
impairment evaluations of all amounts capitalized as mortgage
servicing rights. The expected future impact of adopting this
statement on the combined financial condition and results of
operations has not been determined.
UNAUDITED PRO FORMA PER SHARE DATA
The following table presents selected per share data for Charter One
and FirstFed on an historical and a pro forma basis as if the Merger had been
effective as of the dates or at the beginning of each of the periods indicated.
The Merger is expected to be accounted for under the pooling of interests
method of accounting, and the unaudited pro forma financial data is derived in
accordance with such method.
The information shown above should be read in conjunction with the
historical consolidated financial statements of Charter One and FirstFed and
related notes thereto, which are incorporated by reference herein, and
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<PAGE> 83
the unaudited pro forma financial data included herein. See "Incorporation of
Certain Documents by Reference" and "--Notes to Unaudited Pro Forma Combined
Financial Statements" for a description of assumptions and adjustments used in
preparing the unaudited pro forma financial data. The pro forma per share data
has been included for comparative purposes only and does not purport to be
indicative of the results that actually would have been obtained if the Merger
had been effected at the beginning of the periods or on the dates indicated, as
applicable, or of those results that may be obtained in the future.
<TABLE>
<CAPTION>
AT AND FOR THE AT AND FOR THE
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
------------------------ ------------------------------------
1995 1994 1994 1993 1992
----------- ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Per share income (loss) before extraordinary items and
cumulative effect of changes in accounting principles
- primary:
Charter One historical . . . . . . . . . . . . . . . $ 1.56 $ 1.43 $ 2.92 $ 2.67 $ 2.20
FirstFed historical . . . . . . . . . . . . . . . . . 1.28 (4.30) (2.79) 2.21 2.03
Pro forma combined(1) . . . . . . . . . . . . . . . . 1.32 (1.03) .34 2.29 1.98
FirstFed pro forma equivalent(1) . . . . . . . . . 1.58 (1.24) .41 2.75 2.38
Per share income (loss) before extraordinary items and
cumulative effect of changes in accounting principles
- fully diluted:
Charter One historical . . . . . . . . . . . . . . . 1.56 1.43 2.92 2.67 2.20
FirstFed historical . . . . . . . . . . . . . . . . . 1.27 (4.30) (2.79) 2.19 1.91
Pro forma combined(1) . . . . . . . . . . . . . . . . 1.31 (1.03) .34 2.28 1.90
FirstFed pro forma equivalent(1) . . . . . . . . . . 1.57 (1.24) .41 2.74 2.28
Cash dividends declared per share:
Charter One historical . . . . . . . . . . . . . . . .36 .27 .59 .42 .31
FirstFed historical . . . . . . . . . . . . . . . . . .30 .26 .54 .47 .42
Pro forma combined(2) . . . . . . . . . . . . . . . . .36 .27 .59 .42 .31
FirstFed pro forma equivalent(2) . . . . . . . . . . .43 .32 .71 .50 .37
Book value per share:
Charter One historical . . . . . . . . . . . . . . . 18.27 16.22 16.35 --- ---
FirstFed historical . . . . . . . . . . . . . . . . . 25.68 23.67 24.33 --- ---
Pro forma combined(3) . . . . . . . . . . . . . . . . 18.34 16.47 16.82 --- ---
FirstFed pro forma equivalent(3) . . . . . . . . . . 22.01 19.76 20.18 --- ---
</TABLE>
--------------
(1) The pro forma combined per share income (loss) amounts are based upon
the combined historical income (loss) amounts before extraordinary
items and cumulative effect of changes in accounting principles for
Charter One and FirstFed (adjusted for retroactive changes to conform
certain accounting principles) and pro forma combined weighted average
common and common equivalent shares outstanding. The pro forma
weighted average common and common equivalent shares outstanding
represent the weighted average
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<PAGE> 84
number of common and common equivalent shares of Charter One Common
Stock outstanding for the periods indicated plus the product of the
weighted average number of common and common equivalent shares of
FirstFed Common Stock outstanding for the periods indicated and the
Exchange Ratio of 1.2. The FirstFed pro forma equivalent per share
income (loss) amounts represent the pro forma combined per share
income (loss) amounts multiplied by the Exchange Ratio of 1.2.
(2) The pro forma combined cash dividends declared per common share
represent the historical cash dividends declared per share of Charter
One Common Stock. The FirstFed pro forma equivalent cash dividends
declared per share represent the cash dividends declared on one share
of Charter One Common Stock multiplied by the Exchange Ratio of 1.2.
No assurance can be made that equivalent dividends will be paid in the
future. The amount of dividends payable will be dependent upon, among
other things, the earnings and financial condition of the combined
company. See also "Management and Operations After the
Merger--Post-Merger Dividend Policy."
(3) The pro forma combined book value per common share represents the
historical combined stockholders' equity for Charter One and FirstFed
(as adjusted for 1993 for retroactive changes to conform certain
accounting principles, the effect of the expected repositioning of the
combined entity's statement of financial condition to conform the
interest rate risk position of the combined company with the
pre-Merger interest rate risk position of Charter One and the
after-tax effect of expected transaction costs and costs to combine
operations, reflecting the mid-point of the Expected Range) divided by
the pro forma outstanding common shares of the combined entity (based
on the number of shares of Charter One Common Stock outstanding at the
dates indicated plus the product of the number of shares of FirstFed
Common Stock outstanding at the dates indicated and the Exchange Ratio
of 1.2). The FirstFed pro forma equivalent book value per common
share represents the pro forma combined book value per common share
multiplied by the Exchange Ratio of 1.2.
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<PAGE> 85
PRO FORMA REGULATORY CAPITAL
The following table sets forth the tangible, core and risk-based
capital levels of Charter Bank and First Federal on an historical basis and
Charter Bank on a pro forma basis as of June 30, 1995 as if the Merger had been
consummated as of that date. This table and the related notes should be read
in conjunction with and are qualified in their entirety by the historical
consolidated financial statements of Charter One and FirstFed and the related
notes thereto, which are incorporated by reference herein, and the unaudited
pro forma data included herein. See "Incorporation of Certain Documents by
Reference" and "--Notes to Unaudited Pro Forma Combined Financial Statements."
See also "Recent Developments."
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------------------
PRO FORMA
CHARTER BANK FIRST FEDERAL CHARTER BANK
---------------------------- ---------------------------- -------------------------
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
AMOUNT ASSETS(1) AMOUNT ASSETS(1) AMOUNT ASSETS(1)
------------ --------------- ---------- ---------------- --------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tangible Capital:
Tangible Capital . . . . . . $412,119 6.65% $464,628 5.45% $809,747 6.35%
Requirement . . . . . . . . . 92,943 1.50 127,785 1.50 191,205 1.50
-------- ------ -------- ----- -------- -----
Excess . . . . . . . . . . . $319,176 5.15% $336,843 3.95% $618,542 4.85%
======== ====== ======== ===== ======== =====
Core Capital:
Core Capital . . . . . . . . $412,119 6.65% $464,628 5.45% $809,747 6.35%
Requirement(2) . . . . . . . 185,886 3.00 255,571 3.00 382,411 3.00
-------- ------ --------- ----- -------- -----
Excess . . . . . . . . . . . $226,233 3.65% $209,057 2.45% $427,336 3.35%
======== ====== ======== ===== ======== =====
Risk-Based Capital:
Total Capital(3) . . . . . . $439,024 13.70% $490,378 17.43% $862,402 15.40%
Requirement . . . . . . . . . 256,365 8.00 225,121 8.00 448,058 8.00
-------- ------ -------- ----- -------- -----
Excess . . . . . . . . . . . $182,659 5.70% $265,257 9.43% $414,344 7.40%
======== ====== ======== ===== ======== =====
</TABLE>
--------------
(1) Percentage of adjusted total assets for the purposes of the tangible
and core capital requirements and risk-weighted assets for the purpose
of the risk-based capital requirement.
(2) The OTS has proposed an increase to the core capital requirement for
all but the most highly rated savings institutions to a range of
4.00-5.00%. Based upon the pro forma presentation herein, the
combined entity would meet these contemplated requirements, as well as
existing requirements for regulatory classification as "adequately
capitalized."
(3) In 1993, the OTS issued a regulation adding an interest rate risk
component to its risk-based capital rule. Savings associations with a
greater than normal level of interest rate risk exposure will be
subject to a deduction from total capital for purposes of calculating
the risk-based capital requirement. Interest rate risk exposure is
determined based on the change in the net market value of an
institution's assets, liabilities and off-balance sheet items under
specific interest rate scenarios. Implementation of this regulation,
originally scheduled in 1994, has been delayed, and it is not known
whether or when it will go into effect. If the regulation had been in
effect at June 30, 1995, First Federal's risk-based capital ratio
would have been reduced from 17.43% to 15.39% and Charter One's ratio
would have been unaffected. The effect on the pro forma risk-based
capital ratio cannot be quantified at this time, but it is expected to
be less than the effect on First Federal's ratio due to the planned
balance sheet repositioning and the increased asset size of the
combined company.
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<PAGE> 86
DESCRIPTION OF CHARTER ONE FINANCIAL, INC. CAPITAL STOCK
The following description contains a summary of all of the material
features of the capital stock of Charter One but does not purport to be
complete and is subject to and qualified in its entirety by reference to the
Charter One Certificate which is filed as an exhibit to the Registration
Statement of which this Joint Proxy Statement/Prospectus is a part.
GENERAL
The Charter One Certificate authorizes the issuance by Charter One of
up to 100,000,000 shares of its capital stock consisting of 90,000,000 shares
of Charter One Common Stock (par value $.01 per share) and 10,000,000 shares of
Charter One Preferred Stock (par value $.01 per share). As of _______, 1995,
_________ shares of Charter One Common Stock and no shares of Charter One
Preferred Stock were issued and outstanding. The Charter One Common Stock is
quoted on the Nasdaq National Market under the symbol "COFI." See "Comparative
Stock Prices and Dividend Information." The stock transfer agent and registrar
for the Charter One Common Stock is The First National Bank of Boston.
The Charter One Board has approved a proposed amendment to the Charter
One Certificate which would increase the number of authorized shares of Charter
One capital stock from 100,000,000 to 200,000,000, to consist of 180,000,000
shares of Charter One Common Stock and 20,000,000 shares of Charter One
Preferred Stock. Upon consummation of the Merger, Charter One anticipates that
approximately ____________ shares of Charter One Common Stock and no shares of
Charter One Preferred Stock will be outstanding. The Charter One Board
believes that the authorization of additional shares of Charter One Common
Stock and Charter One Preferred Stock is advisable to provide Charter One with
the flexibility to take advantage of opportunities to issue such stock in order
to obtain capital, as consideration for possible acquisitions, and for other
purposes (including, without limitation, stock splits and stock dividends in
appropriate circumstances). See "Amendments to Restated Certificate of
Incorporation of Charter One Financial, Inc."
COMMON STOCK
Each share of the Charter One Common Stock has the same relative
rights and is identical in all respects with each other share of the Charter
One Common Stock. The Charter One Common Stock represents non-withdrawable
capital, is not of an insurable type and is not insured by the FDIC or any
other government agency.
Subject to any prior rights of the holders of any Charter One
Preferred Stock then outstanding, holders of the Charter One Common Stock are
entitled to receive such dividends as are declared by the Charter One Board out
of funds legally available therefor. Full voting rights are vested in the
holders of Charter One Common Stock, each share being entitled to one vote,
subject to the rights of the holders of any Charter One Preferred Stock then
outstanding. The Charter One Certificate authorizes the Charter One Board to
issue authorized shares of Charter One Common Stock without stockholder
approval. However, Charter One Common Stock is included for quotation on the
Nasdaq National Market which requires stockholder approval of the issuance of
additional shares of Charter One Common Stock under certain circumstances,
including the issuance of Charter One Common Stock pursuant to the Merger
Agreement. Subject to any prior rights of the holders of any Charter One
Preferred Stock then outstanding, in the event of liquidation, dissolution or
winding up of Charter One, holders of shares of Charter One Common Stock are
entitled to receive pro rata, any assets distributable to stockholders in
respect of shares held by them. Holders of shares of Charter One Common Stock
do not have any preemptive rights to subscribe for any additional securities
which may be issued by Charter One or cumulative voting rights. The
outstanding shares of Charter One Common Stock are fully paid and
non-assessable.
Certain provisions of the Charter One Certificate may have the effect
of delaying, deferring or preventing a change in control of Charter One
pursuant to an extraordinary corporate transaction involving Charter One,
including a merger, reorganization, tender offer, transfer of substantially all
of its assets or a liquidation. See "Comparison of Rights of Stockholders of
Charter One Financial, Inc. and FirstFed Michigan Corporation."
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<PAGE> 87
The foregoing discussion of the Charter One Common Stock is qualified
in its entirety be reference to the description of the Charter One Common Stock
contained in Charter One's Registration Statement on Form 8-A (as amended) with
respect thereto, which is incorporated by reference in this Joint Proxy
Statement/Prospectus. See "Incorporation of Certain Documents by Reference."
PREFERRED STOCK
The Charter One Certificate authorizes the issuance by Charter One of
up to 10,000,000 shares of Charter One Preferred Stock (par value $.01 per
share), none of which was issued and outstanding as of _________, 1995. The
Charter One Board has approved a proposed amendment to the Charter One
Certificate which would increase the number of authorized shares of Charter One
Preferred Stock from 10,000,000 to 20,000,000. The Charter One Board believes
that the authorization of additional shares of Charter One Common Stock is
advisable to provide Charter One with the flexibility to take advantage of
opportunities to issue such stock in order to obtain capital, as consideration
for possible acquisitions, and for other purposes (including, without
limitation, the issuance of additional shares of Charter One Common Stock
through stock splits and stock dividends in appropriate circumstances). See
"Amendments to Restated Certificate of Incorporation of Charter One Financial,
Inc."
The Charter One Preferred Stock may be issued in one or more series at
such time or times and for such consideration or considerations as the Charter
One Board may determine. The Charter One Board is expressly authorized at any
time, and from time to time, to provide for the issuance of Charter One
Preferred Stock with such voting and other powers, preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, as shall be stated and expressed in the
Charter One Board resolution providing for the issuance thereof. The Charter
One Board is authorized to designate the series and the number of shares
comprising such series, the dividend rate on the shares of such series, the
redemption rights, if any, any purchase, retirement or sinking fund provisions,
any conversion rights and any special voting rights. The ability of the
Charter One Board to issue Charter One Preferred Stock without stockholder
approval could make an acquisition by an unwanted suitor of a controlling
interest in Charter One more difficult, time-consuming or costly, or otherwise
discourage an attempt to acquire control of Charter One.
Shares of Charter One Preferred Stock redeemed or acquired by Charter
One may return to the status of authorized but unissued shares, without
designation as to series, and may be reissued by the Charter One Board.
See also "Comparison of Rights of Stockholders of Charter One
Financial, Inc. and FirstFed Michigan Corporation--Rights Agreement."
COMPARISON OF RIGHTS OF STOCKHOLDERS OF
CHARTER ONE FINANCIAL, INC. AND FIRSTFED MICHIGAN CORPORATION
INTRODUCTION
Upon the consummation of the Merger, holders of FirstFed's common
stock, whose rights are presently governed by Michigan law and FirstFed's
articles of incorporation and bylaws (the "FirstFed Articles" and "FirstFed
Bylaws," respectively) and, indirectly, First Federal's charter and bylaws,
will become stockholders of Charter One, a Delaware corporation. Accordingly,
their rights will be governed by the Delaware General Corporation Law and the
Charter One Certificate and bylaws of Charter One (the "Charter One Bylaws")
and, indirectly, Charter One Bank's charter and bylaws. Certain differences
arise from the change in governing law, as well as from differences between the
FirstFed Articles and Bylaws and the Charter One Certificate and Bylaws and
between the charter and bylaws of First Federal and Charter One Bank. The
following discussion summarizes material differences affecting the rights of
stockholders but is not intended to be a complete statement of all differences
and is qualified in its entirety by reference to the Michigan Business
Corporation Act (the "MBCA"), the Delaware General Business Corporation Law
(the "DGCL"), the Charter One Certificate and Bylaws, the FirstFed Articles and
Bylaws and the respective charters and bylaws of First Federal and Charter One
Bank.
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<PAGE> 88
ISSUANCE OF CAPITAL STOCK
The FirstFed Articles authorize the issuance of 100,000,000 shares of
common stock, par value $0.01 per share, and 40,000,000 shares of preferred
stock, no par value. The Charter One Certificate currently authorizes the
issuance of 90,000,000 shares of common stock, par value $.01 per share, and
10,000,000 shares of serial preferred stock, par value $.01 per share. At
__________, 1995, ___________ and ____________ shares of common stock (and no
shares of preferred stock) of FirstFed and Charter One, respectively, were
issued and outstanding. For information regarding a proposal to increase the
number of authorized shares of common and preferred stock of Charter One, see
"Amendments to Restated Certificate of Incorporation of Charter One Financial,
Inc.--Increase in Authorized Shares of Capital Stock." For information
regarding the number of shares of Charter One's common stock that would have
been issued on a pro forma basis upon the consummation of the Merger as of that
date, see "Unaudited Pro Forma Combined Financial Statements." Under the
FirstFed Articles and the Charter One Certificate, FirstFed and Charter One are
authorized to issue additional shares of capital stock up to the amount
authorized without stockholder approval.
PAYMENT OF DIVIDENDS
The ability of FirstFed and Charter One to pay dividends on their
common stock is governed by Michigan and Delaware corporate law, respectively.
Under Michigan corporate law, a dividend may be made unless, after giving it
effect, the corporation would not be able to pay its debts as they become due
in the usual course of business or the corporation's total assets would be less
than the sum of its total liabilities plus the amount that would be needed, if
the corporation were to be dissolved at the time of the distribution, to
satisfy the preferential rights upon dissolution of stockholders whose
preferential rights are superior to those receiving the distribution. Under
Delaware corporate law, dividends may be paid in cash, in property or in shares
of Charter One's capital stock either out of Charter One's surplus (defined as
the excess of the net assets over the stated capital of Charter One) or, in
case there is no surplus, out of the net profits for the fiscal year in which
the dividend is declared and/or the preceding fiscal year.
The ability of FirstFed and Charter One to pay dividends on their
common stock also is affected by restrictions upon their receipt of dividends
from their respective subsidiary savings institutions. See "Comparative Stock
Prices and Dividend Information" for additional information.
SPECIAL MEETINGS OF STOCKHOLDERS
Special meetings of the holders of FirstFed's common stock may be
called by the Chairman of the Board, the President, the Secretary or an
Assistant Secretary at the direction of the Board of Directors and must be
called by the Chairman of the Board, the President or the Secretary upon the
written request of the holders of not less than one-tenth of all the
outstanding capital stock of FirstFed entitled to vote at the meeting. The
Charter One Certificate provides that special meetings of stockholders of
Charter One may be called only by a majority of the Board of Directors,
including a majority of the "continuing directors" as defined in the Charter
One Certificate.
MEETINGS OF CREDITORS AND/OR STOCKHOLDERS
The FirstFed Articles provide that when a compromise, arrangement or
plan of reorganization is proposed between FirstFed and its creditors (or any
class of them), a court of equity jurisdiction within Michigan, upon
application of one of the affected parties, may order a meeting of creditors or
of stockholders. If a majority of the number representing three-fourths in
value of the creditors or stockholders (or class thereof) agree to the proposed
compromise, arrangement or plan of reorganization, the plan shall be binding on
all parties affected. The Charter One Certificate does not include any similar
provision.
ADVANCE NOTICE REQUIREMENTS FOR NOMINATIONS OF DIRECTORS AND PRESENTATION OF
NEW BUSINESS AT ANNUAL MEETINGS OF STOCKHOLDERS
The FirstFed Bylaws generally provide that any stockholder desiring to
make a nomination for the election of directors or bring a proposal for new
business before any annual or special meeting of stockholders must submit
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<PAGE> 89
written notice to FirstFed at least 60 days in advance of the meeting, together
with certain information; however, in the event that fewer than 60 days' notice
or prior public disclosure of the date of the meeting is given or made, written
notice must be submitted within seven days after such notice or disclosure.
The Charter One Bylaws contain a similar provision with the exception that the
Charter One Bylaws specify that notice any stockholder nomination or proposal
must be received by Charter One at least 60 but no more than 90 days in advance
of any meeting; however, in the event that fewer than 70 days' notice or prior
public disclosure of the date of the meeting is given or made, written notice
must be submitted within ten days after such notice is given.
CUMULATIVE VOTING FOR ELECTION OF DIRECTORS
The FirstFed Articles provide that stockholders may cumulate their
votes in the election of directors. Cumulative voting entitles each
stockholder to cast a number of votes in the election of directors equal to the
number of such stockholder's shares of common stock multiplied by the number of
directors to be elected, and to distribute such votes among one or more of the
nominees to be elected. The Charter One Certificate does not provide for
cumulative voting in the election of directors. The absence of cumulative
voting rights effectively means that the holders of a majority of the shares
voted at a meeting of stockholders may, if they so choose, elect all directors
of Charter One to be selected at that meeting, thus precluding minority
stockholder representation on the Charter One Board.
RESTRICTIONS ON VOTING RIGHTS; QUORUM
The Charter One Certificate currently restricts the voting rights of
any related person (with respect to each vote in excess of 10% of the voting
power of the outstanding shares) to 1/100 vote. The FirstFed Articles do not
include any similar provision. For information regarding a proposal to amend
this provision to provide that voting rights will be restricted only with
respect to each vote in excess of 20% of the voting power, see "Amendments to
Restated Certificate of Incorporation of Charter One Financial, Inc.--Other
Certificate Amendments."
The FirstFed Bylaws provide that the holders of a majority of shares
of common stock entitled to vote at a meeting of stockholders constitutes a
quorum at any such meeting. The Charter One Bylaws also provide that the
holders of a majority of shares entitled to vote at a meeting constitutes a
quorum. Pursuant to the Charter One Certificate, however, to the extent the
voting rights of any related person are reduced, such reduced power will be
considered for purposes of determining a quorum.
NUMBER AND TERM OF DIRECTORS
Pursuant to the FirstFed Articles, the Board of Directors shall
consist of not less than nine nor more than 18 members with the specific number
to be specified in the FirstFed Bylaws. As of ________, 1995, the FirstFed
Bylaws provide that the Board of Directors shall consist of ten directors. The
FirstFed Articles further provide that the Board of Directors will be divided
into three classes as nearly equal in number as possible, with the term of
office of one class expiring each year. The Charter One Certificate provides
that its Board may consist of between seven and 15 directors, as fixed by a
resolution adopted by the affirmative vote of a majority of Charter One's
continuing directors as set forth in the Charter One Bylaws. As of
____________, 1995, Charter One's directors had duly resolved that the Board of
Directors shall consist of 12 members. The Charter One Certificate also
provides that the Board of Directors shall be divided into three classes with
the term of office of one class expiring each year. For information regarding
a proposal to amend the Charter One Certificate to increase the maximum size of
the Board of Directors to 16 members, see "Amendments to Restated Certificate
of Incorporation of Charter One Financial, Inc.--Increase in Authorized Number
of Directors."
REMOVAL OF DIRECTORS
The FirstFed Bylaws and the Charter One Certificate provide that
directors may be removed only for cause by a vote of a majority of the shares
entitled to be cast in the election of directors. The Charter One Certificate
provides that a vote to remove a director may only occur at any annual meeting
of stockholders. The Charter One Certificate limits what will constitute cause
for removal to conviction of a felony by a court of competent jurisdiction, an
adjudication by a court of competent
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jurisdiction of gross negligence on the part of a director or misconduct in the
performance of such director's duty to Charter One.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
The FirstFed Bylaws provide that any vacancy that occurs on the Board
of Directors may be filled by a majority vote of the Board of Directors and
that any director so chosen shall serve only until the next election of
directors by stockholders. The Charter One Certificate also provides that any
vacancy occurring on the Board of Directors shall be filled by a majority vote
of the Board of Directors. Directors so chosen serve until the expiration of
the term of office of the class to which they have been elected.
AMENDMENT OF ARTICLES OF INCORPORATION, BYLAWS, RESTATED CERTIFICATE OF
INCORPORATION AND BYLAWS
The FirstFed Articles generally may be amended upon the approval of
the holders of a majority of FirstFed's outstanding voting stock with the
exception that amendments to certain provisions of the FirstFed Articles
(Article V governing the size of the Board of Directors, Article VI governing
preemptive rights, Article VII governing limitation of director liability,
Article VIII governing indemnification and Article IX governing amendments to
the article of incorporation) must be approved by the affirmative vote of the
holders of two-thirds of FirstFed's voting stock. In addition, in each case,
if any class or series of shares is entitled to vote thereon as a class, the
required vote of a majority or two-thirds, respectively, of each such series or
class is required. The Charter One Certificate generally may be amended by a
majority vote of its Board of Directors and also by a majority of the
outstanding shares of its voting stock; however, approval of 90% of the
outstanding voting stock is required to amend provisions of the Charter One
Certificate providing for approval by 90% of the stockholders of certain
business combinations with a 10% or greater stockholder and approval of 75% of
the outstanding voting stock is generally required to amend certain other
provisions (including provisions relating to the number, classification,
election and removal of directors; the call of special stockholder meetings;
criteria for evaluating certain offers; certain business combinations;
limitations on payment of greenmail; stockholder action without a meeting;
indemnification of directors; limitation of directors' liability; and
amendments to the Charter One Certificate and Bylaws). In addition, the
provisions regarding certain business combinations and greenmail that call for
approval by a "super-majority" of the outstanding voting stock, excluding the
vote of the 10% or greater or 5% or greater stockholder, respectively, may be
amended only by the same "super-majority" called for by those provisions.
The FirstFed Bylaws provide that any amendment to the bylaws (not
inconsistent with the FirstFed Articles) or the adoption of new bylaws in lieu
thereof may be approved by either the affirmative vote of (i) a majority of the
shares of stock entitled to vote thereon and, in addition, if any class or
series of shares is entitled to vote thereon as a class, the affirmative vote
of a majority of each such class or series or (ii) a majority of the directors
then in office at any regular or special meeting of the Board of Directors.
The Charter One Bylaws generally may be amended either by a resolution adopted
by the Board of Directors, including a majority of the continuing directors, or
upon the approval of the holders of 75% of Charter One's outstanding voting
stock.
CONTROL SHARE ACQUISITIONS
FirstFed has elected in the FirstFed Bylaws not to be governed by
Michigan's control share acquisition statute. Delaware law does not contain a
control share acquisition statute and therefore does not contain any similar
requirement. See "--Business Combinations with Certain Persons" for certain
restrictions imposed by Michigan and Delaware law and the Charter One
Certificate.
BUSINESS COMBINATIONS WITH CERTAIN PERSONS
Michigan law generally provides for the merger or consolidation of
FirstFed with another corporation, the sale of all or substantially all of
FirstFed's assets or the dissolution of FirstFed upon the approval of the
holders of a majority of FirstFed's outstanding voting stock. Although
Michigan law also contains provisions requiring a super-majority approval
requirement in the instance of business combinations with "interested
stockholders" (generally defined as a stockholder owning, directly or
indirectly, 10% or more of the voting power of the then
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outstanding shares), FirstFed has opted out of this requirement in the FirstFed
Articles. Delaware law generally provides for the merger or consolidation of
Charter One with another corporation, the sale of all or substantially all of
Charter One's assets or the dissolution of Charter One upon the approval of the
holders of a majority of Charter One's outstanding voting stock. However, a
merger or consolidation or disposition of assets or securities issued by
Charter One involving an interested stockholder (generally defined as a
stockholder owning, directly or indirectly, 15% or more of the outstanding
voting stock of the corporation) generally would be prohibited under Delaware
law for three years after the interested stockholder acquired 15% of Charter
One's voting stock, unless either (i) before such acquisition, the Charter One
Board approved either the acquisition or the proposed transaction, (ii) upon
such acquisition, the interested stockholder owned at least 85% of Charter
One's voting stock, or, (iii) on or after the acquisition date, the proposed
transaction is approved by the Charter One Board and the holders of two-thirds
of Charter One's outstanding voting stock not owned by the interested
stockholder.
Additionally, the Charter One Certificate sets forth stockholder
approval requirements for mergers and other similarly important corporate
transactions involving substantial stockholders. The Charter One Certificate
generally would prohibit a merger or consolidation, sale of $5 million or more
of assets, issuance or transfer of $5 million or more of securities of Charter
One, the adoption of a plan or proposal calling for the liquidation or
dissolution of Charter One or a subsidiary, the reclassification of Charter
One's securities or any agreement, contract or other arrangement providing,
directly or indirectly for any of the foregoing (a "Business Combination"),
involving a "related person" (generally, a beneficial owner of 10% or more of
Charter One's outstanding voting stock), unless, during the five years
following the related person's acquisition of 10% of Charter One's voting
power, the Business Transaction is approved by 90% of the holders of Charter
One's voting stock unless the Business Transaction or the transaction by which
the related person acquires such status is first approved by a majority of
Charter One's continuing directors. Business Combinations with related persons
after five years from the date the related person achieves such status require
the approval of at least 75% of the holders of Charter One's voting stock not
owned by the related person (at a meeting held no earlier than five years after
the date the related person acquires such status) unless the proposed
transaction either is approved by a majority of the continuing directors, is
solely between Charter One and any subsidiary thereof or the Business
Combination satisfies certain fair price criteria and various procedural
requirements designed to ensure that Charter One's stockholders receive a fair
price for their shares. FirstFed does not have any similar provision in the
FirstFed Articles.
Charter One is seeking stockholder approval to amend the definition of
a related person to refer to a beneficial owner of 20% or more of Charter One's
voting power. The proposed amendment provides, however, that for purposes of
determining the stockholder vote required to approve a Business Combination
with a related person, the 10% beneficial ownership threshold shall still
apply. See "Amendments to the Restated Certificate of Incorporation of Charter
One Financial, Inc.--Other Certificate Amendments."
PREVENTION OF GREENMAIL
The Charter One Certificate generally would prohibit Charter One from
acquiring, directly or indirectly, from an "interested person" (generally, a
beneficial owner of 5% or more of Charter One's voting stock) any of its equity
securities traded on a national securities exchange or the Nasdaq National
Market, unless (i) the acquisition is approved by the holders of at least 75%
of Charter One's voting stock not owned by the interested person, (ii) the
acquisition is made as part of a tender or exchange offer by Charter One or a
subsidiary thereof to purchase securities of the same class on the same terms
to all holders of such securities and in compliance with the Exchange Act and
the rules and regulations thereunder; (iii) the acquisition is pursuant to an
open market purchase program approved by a majority of the Board of Directors,
including a majority of the Continuing Directors; or (iv) the acquisition is at
or below the market price (generally, the highest sale price for the stock on
the acquisition date on the Nasdaq National Market) and is approved by a
majority of the Board of Directors, including a majority of the continuing
directors. The FirstFed Articles do not contain any similar provision.
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LIMITATIONS ON DIRECTORS' LIABILITY
Under Michigan law and the FirstFed Articles, a director of FirstFed
generally could not be found to have violated his or her duties as a director
unless it were proved by clear and convincing evidence that the director failed
to perform the duties of his or her office (i) in good faith, (ii) in a manner
he or she reasonably believed to be in or not opposed to the best interests of
FirstFed or (iii) with the care an ordinarily prudent person in a like position
would exercise under similar circumstances, and a director could be subject to
liability to FirstFed or its stockholders for monetary damages for an action he
or she takes or fails to take as a director only if it were proved by clear and
convincing evidence that his or her action or failure to act involved an act or
omission undertaken with either deliberate intent to cause injury to FirstFed
or reckless disregard for the best interests of FirstFed. Under Delaware law,
a Delaware corporation may include in its certificate of incorporation a
provision that eliminates or limits a director's personal liability for
monetary damages for breach of his or her fiduciary duty, subject to certain
limitations. The Charter One Certificate provides that a director shall not be
personally liable to Charter One or its stockholders for monetary damages
arising out of the director's breach of his or her duty of care, except (i) for
any breach of a director's duty of loyalty to Charter One or its stockholders;
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; or (iii) under Section 174 of the
Delaware General Corporation Law which imposes liability on directors for
unlawful payment of dividends or unlawful stock repurchases (unless Delaware
law is subsequently amended to eliminate or limit director liability with
respect to these actions). These provisions do not, however, relieve directors
of their duty to act with due care. In addition, these provisions do not
prevent a stockholder from seeking equitable remedies, including an injunction
prohibiting a proposed action or transaction or rescission of a consummated
action or transaction.
Under federal regulations, there is no provision for limitation of
directors' liability to First Federal and Charter Bank, and neither First
Federal nor Charter Bank's charter or bylaws contains any limitation on the
liability of directors of First Federal and Charter Bank for conduct in their
official capacities.
INDEMNIFICATION
The FirstFed Articles provide that FirstFed shall, to the fullest
extent permitted by law, indemnify any director or officer of FirstFed (and, to
the extent provided in a resolution of the Board of Directors or by contract,
may indemnify any employee or agent of FirstFed) who was or is a party to or
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding of any kind, including an action by or in the right of
FirstFed, as a result of the fact that such person was or is serving as a
director, officer or employee or agent of FirstFed or was serving at the
request of the Board of Directors as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, partnership, or
other enterprise, against expenses (including attorney's fees), judgments,
penalties, fines or amounts paid in settlement in connection therewith. The
FirstFed Articles further provide that this indemnification continues beyond
the date on which the individual terminates his or her service as a director or
officer of FirstFed and, if so provided by a resolution of the Board of
Directors or in any contract between FirstFed and such person, after an
individual ceases to be an employee or agent of FirstFed. To the extent a
party is entitled to indemnification after ceasing service, such
indemnification shall inure to the benefit of heirs, executors and
administrators of such person. All directors and officers of First Federal are
deemed to be serving as such at the request of FirstFed.
The MBCA limits the instances when FirstFed may provide
indemnification. Under Michigan law, a corporation may provide indemnification
(except in connection with a proceeding by or in the right of the corporation)
only if the person being indemnified acted in good faith and in a manner he or
she reasonably believed to be in the best interests of the corporation or its
stockholders and, with respect to any criminal action or proceeding, if the
person had no reasonable cause to believe his or her conduct was unlawful. The
termination of any action by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not meet the above-described statutory standard
of conduct. A Michigan corporation is required to provide indemnification of
directors, officers, employees or agents against all reasonably incurred
expenses to the extent the individual has been successful on the merits or
otherwise in defense of an action, suit or proceeding. An individual may also
apply to the court conducting the proceeding or to another court of competent
jurisdiction for indemnification. Such a court may order indemnification if it
determines that
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the person is fairly and reasonably entitled to indemnification in view of all
the relevant circumstances, whether or not the applicable standard of conduct
described above has been satisfied.
The Charter One Certificate includes a similar indemnification
provision, as modified by Michigan law. As with Delaware law, the Charter One
Certificate limits the availability of indemnification to those instances where
the individual has acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of Charter One, and with
respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful. However, with respect to any action
by or in the right of Charter One, no indemnification will be available in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to Charter One unless and only to the extent that the
Court of Chancery of Delaware or the court in which such action was brought
shall determine that such person is fairly and reasonably entitled to
indemnity. Notwithstanding the foregoing, to the extent that a director,
officer, employee or agent has been successful on the merits or otherwise,
including, without limitation, the dismissal of an action without prejudice,
such person shall be indemnified against all costs actually and reasonably
incurred in connection therewith.
The Charter One Certificate also permits the payment of expenses in
advance of the final disposition of an action, to the extent permitted by law.
Additionally, Charter One's provision specifies that any indemnification
payment to which an individual is entitled must be made within 60 days of
receipt of a written request from the individual. Any advancement of expenses
must be made within 20 days of the receipt of a written request.
RIGHTS AGREEMENT
On November 20, 1989, the Charter One Board declared a dividend
distribution of one Right for each outstanding share of common stock of Charter
One to stockholders of record at the close of business on December 1, 1989 (the
"Record Date"). As long as the Rights are attached to the common stock,
Charter One will issue one Right with each new share of common stock so that
each outstanding share will have an attached Right. Except as set forth below,
each Right, when exercisable, entitles the registered holder to purchase from
Charter One 1/100 share of preferred stock designated as Series A Participating
Preferred Stock, par value $0.01 per share (the "Series A Preferred Stock"), at
a price of $90.00 (the "Purchase Price"), subject to adjustment. The
description and terms of the Rights are set forth in a Rights Agreement (the
"Rights Agreement") between Charter One and The First National Bank of Boston,
as Rights Agent.
In connection with the execution and delivery of the Merger Agreement
and the Charter One Stock Option Agreement, Charter One executed an amendment
to the Rights Agreement pursuant to which the triggering beneficial ownership
thresholds were raised from 10% to 20% and none of the execution and delivery
of the Merger Agreement or the Charter One Stock Option Agreement or the
consummation of the Merger or the purchase of shares of Charter One Common
Stock pursuant to the Charter One Stock Option Agreement would cause (i) the
rights issued under the Rights Agreement to become exercisable; (ii) FirstFed
or any permitted transferee under the Charter One Stock Option Agreement to
become an Acquiring Person; or (iii) a Distribution Date or Stock Acquisition
Date to occur upon, as a result of or in connection with any of the above
events.
The Rights are attached to all certificates representing shares of
Charter One's outstanding common stock, and no separate Rights Certificates
have been distributed. Until the earlier to occur of (i) a public announcement
that, without the prior consent of Charter One, a person or group of affiliated
or associated persons has acquired, or obtained the right to acquire,
beneficial ownership of securities having 20% or more of the voting power of
all outstanding voting securities of Charter One (an "Acquiring Person") or
(ii) ten days (unless such date is extended by the Charter One Board) following
the commencement of (or a public announcement of an intention to make) a tender
offer or exchange offer which would result in any person or group and related
persons becoming an Acquiring Person, without the prior consent of the Company
(the earlier of such dates being called the "Distribution Date"), the Rights
will be evidenced, with respect to any of the common stock certificates
outstanding as of the Record Date, by such common stock certificate. Until the
Distribution Date, the Rights will be transferred with, and only with, common
stock certificates. Until the Distribution Date (or earliest redemption or
expiration of the Rights), the surrender for transfer of any certificates for
common stock outstanding as of the Record Date will also constitute the
transfer of the Rights associated with the common stock represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Rights Certificates") will
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be mailed to holders of record of common stock as of the close of business on
the Distribution Date, and the separate Rights Certificates alone will evidence
the Rights.
The Rights are not exercisable until the Distribution Date. The
Rights will expire on the earliest of (i) December 1, 1999, (ii) consummation
of a merger transaction with a person or group who acquired Charter One Common
Stock pursuant to a Permitted Offer (generally, a tender offer or exchange
offer for all outstanding shares of Charter One Common Stock at a price and on
terms determined by at least a majority of the members of the Charter One Board
to be both adequate and otherwise in the best interests of Charter One and its
stockholders) and also is offering in the merger the same price per share and
form of consideration paid in the Permitted Offer, or (iii) redemption by
Charter One as described below.
The Purchase Price payable, and the numbers of shares of Series A
Preferred Stock or other securities or property issuable, upon exercise of the
Rights are subject to adjustment from time to time to prevent dilution (i) in
the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Series A Preferred Stock, (ii) upon the grant to
holders of the Series A Preferred Stock of certain rights or warrants to
subscribe for Series A Preferred Stock, certain convertible securities having
the same or more favorable rights, privileges and preferences as the Series A
Preferred Stock at less than the current market price of the Series A Preferred
Stock, or (iii) upon the distribution to holders of the Series A Preferred
Stock of evidences of indebtedness or assets (excluding regular quarterly cash
dividends out of earnings or retained earnings) or of subscription rights or
warrants (other than those referred to above).
In the event that a person becomes an Acquiring Person (unless
pursuant to a Permitted Offer), proper provision shall be made so that each
holder of a Right (other than an Acquiring Person) will for a 60-day period
thereafter have the right to receive upon exercise that number of 1/100 share
of Series A Preferred Stock equal to the number of shares of Charter One Common
Stock having a market value (immediately prior to the triggering of the Right)
of two times the exercise price of the Right, to the extent available, and then
(after all authorized and unreserved shares of Series A Preferred Stock have
been issued) an equal number of an equivalent security (such as another equity
security with at least the same economic value as 1/100 share of Series A
Preferred Stock) (such right being called the "Flip-In Right"). In addition,
Charter One shall be entitled (but not required) to deliver, upon exercise of
the Flip-In Right, in lieu of 1/100 share of Series A Preferred Stock, an equal
number of shares of common stock, to the extent they are available. For
example, at an exercise price of $90.00 per Right, each Right not owned by an
Acquiring Person following an event set forth in this paragraph would entitle
its holder to purchase common stock with a market value immediately prior to
the triggering of the Right of $180.00 for $90.00.
In the event that, after the first date of public announcement by
Charter One or an Acquiring Person that an Acquiring Person has become such,
Charter One is involved in a merger or other business combination transaction
in which its common stock is exchanged or changed, or 50% or more of Charter
One's assets or earning power is sold (in one transaction or a series of
transactions), proper provision shall be made so that each holder of a Right
(other than the Acquiring Person) shall thereafter have the right to receive,
upon the exercise thereof at the then current exercise price of the Right, that
number of shares of common stock of the acquiring company (or, in the event
there is more than one acquiring company, the acquiring company receiving the
greatest portion of the assets or earning power transferred) which at the time
of such transaction would have a market value (immediately prior to the
triggering of the Right) of two times the exercise price of the Right (such
Right being called the "Flip-Over Right"). For example, at an exercise price
of $90.00 per Right, each Right not owned by an Acquiring Person following an
event set forth in this paragraph would entitle its holder to purchase common
stock of the acquiring company with a market value immediately prior to the
triggering of the Right of $180.00 (or, in the event there is more than one
acquiring company, the acquiring company receiving the greatest portion of the
assets or earning power transferred) for $90.00.
The holder of a Right will continue to have the Flip-Over Right
whether or not such holder exercises the Flip-In Right. Upon the occurrence of
any of the events giving rise to the exercisability of the Flip-Over Right or
the Flip-In Right, any Rights that are or were at any time owned by an
Acquiring Person engaging in any of such transactions or receiving the benefits
thereof on or after the time the Acquiring Person becomes such shall become
void insofar as they related to the Flip-Over Right or the Flip-In Right.
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With certain exceptions, no adjustments in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractions of shares will be issued and, in lieu
thereof, an adjustment in cash will be made based on the market price of the
Common Stock on the last trading date prior to the date of exercise.
At any time prior to the earlier to occur of (i) a person becoming an
Acquiring Person or (ii) the expiration of the Rights, Charter One may redeem
the Rights in whole, but not in part, at a price of $0.01 per Right (the
"Redemption Price"), which redemption shall be effective upon the action of the
Charter One Board. Additionally, Charter One may thereafter redeem the then
outstanding Rights in whole, but not in part, at the Redemption Price, provided
that such redemption is incidental to a merger or other business combination
transaction or series of transactions involving Charter One but not involving
an Acquiring Person or any person who was an Acquiring Person or following an
event giving rise to, and the expiration of the exercise period for, the
Flip-In Right if and for as long as no Acquiring Person beneficially owns
securities representing 20% or more of the voting power of Charter One's voting
securities. The redemption of Rights described in the preceding sentence shall
be effective only as of such time when the Flip-In Right is not exercisable,
and in any event, only after 10 business days prior notice. Upon the effective
date of the redemption of the Rights, the right to exercise the Rights will
terminate and the only right of the holders of Rights will be to receive the
Redemption Price.
The Series A Preferred Stock purchasable upon exercise of the Rights
will be nonredeemable. Each share of Series A Preferred Stock will have a
preferential quarterly dividend in an amount equal to 100 times the dividend
declared on each share of Common Stock, but in no event less than $1.00. In
the event of liquidation, the holders of Series A Preferred Stock will receive
a preferred liquidation payment per 1/100 share thereof equal to the greater of
the issuance price thereof or the payment made per each share of Charter One
Common Stock.
Each share of Series A Preferred Stock will have 100 votes, voting
together with the shares of Charter One Common Stock.
In the event of any merger, consolidation or other transaction in
which shares of Charter One Common Stock are exchanged, each share of Series A
Preferred Stock will be entitled to receive 100 times the amount and type of
consideration received per share of common stock. The rights of the Series A
Preferred Stock as to dividends, liquidation and voting, and in the event of
mergers and consolidations, are protected by customary anti-dilution
provisions. Fractional shares of Series A Preferred Stock will be issuable;
however, Charter One may elect to distribute depository receipts in lieu of
such fractional shares. In lieu of fractional shares other than fractions that
are multiples of 1/100 share, an adjustment in cash will be made based on the
market price of the Series A Preferred Stock on the last trading date prior to
the date of exercise.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of Charter One, including, without limitation, the
right to vote or to receive dividends. While the distribution of the Rights
will not be taxable to stockholders or to Charter One, stockholders may,
depending upon the circumstances, recognize taxable income should the Rights
become exercisable or upon the occurrence of certain events thereafter.
Charter One and the Rights Agent may from time to time supplement or
amend the Rights Agreement without the consent of the holders of the Rights in
order to cure any ambiguity or to correct any defect or inconsistency contained
therein. In addition, prior to the Distribution Date, Charter One and the
Rights Agent may make such changes to the provisions of the Rights Agreement as
Charter One deems necessary or desirable. Following the Distribution Date,
Charter One and the Rights Agent may change or supplement the provisions of the
Rights Agreement in any manner which Charter One deems necessary or desirable
and which will not adversely affect the interests of the holders of the Rights.
Charter One currently has reserved __________ shares of Preferred
Stock for issuance upon exercise of the Rights. At ________ __, 1995, there
were ___________ shares of Charter One Common Stock, and therefore _________
Rights, outstanding. For information regarding the number of shares of Charter
One Common Stock, and therefore Rights, expected to be outstanding upon the
consummation of the Merger and the proposed increase in Charter One's
authorized common and preferred stock, see "Unaudited Pro Forma Combined
Financial
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Statements" and "Amendments to Restated Certificate of Incorporation of Charter
One Financial, Inc.--Increase in Authorized Shares of Capital Stock."
The Rights have certain anti-takeover effects. The Rights could cause
substantial dilution to a person or group that attempts to acquire Charter One
(other than pursuant to a Permitted Offer or with Charter One's prior approval)
without conditioning the offer on the Rights being redeemed or substantially
all of the Rights being acquired. However, the Rights should not interfere
with any merger or other business combination approved by Charter One with a
person other than an Acquiring Person because the Rights are redeemable under
those circumstances.
FirstFed has not issued any similar rights or entered any similar
agreement with respect to its common stock.
FINANCIAL IMPACT
For pro forma information regarding the combined financial condition
and results of operations of Charter One and FirstFed assuming the consummation
of the Merger, including unaudited pro forma per share data, see "Unaudited Pro
Forma Combined Financial Statements."
AMENDMENTS TO RESTATED CERTIFICATE OF INCORPORATION
OF CHARTER ONE FINANCIAL, INC.
GENERAL
The Charter One Board has approved certain proposed amendments to the
Charter One Certificate to (i) increase the numbers of authorized shares of
Charter One Common Stock from 90,000,000 to 180,000,000 and preferred stock,
par value $.01 per share, of Charter One ("Charter One Preferred Stock") from
10,000,000 to 20,000,000 (the "Shares Amendment"), (ii) increase the number of
authorized directors from 15 to 16 (the "Director Amendment") and (iii) make
certain amendments to Articles FIFTH and SIXTH of the Charter One Certificate,
including raising from 10% to 20% the threshold level of Charter One Common
Stock ownership that is subject to voting restrictions, as more fully described
herein (the "Other Certificate Amendments" and, together with the Shares
Amendment and the Director Amendment, the "Certificate Amendments"). The
affirmative vote of the holders of a majority of the outstanding shares of
Charter One Common Stock is required for approval and adoption of the Shares
Amendment. The affirmative vote of the holders of 75% of the outstanding
shares of Charter One Common Stock is required for approval and adoption of the
Director Amendment and the Other Certificate Amendments. The adoption of the
Merger Agreement is not conditioned upon approval of the Certificate Amendments
and the adoption of the Certificate Amendments is not conditioned upon approval
of the Merger Agreement.
The following description of the Certificate Amendments is qualified
in its entirety by reference to the full text thereof, which are attached as
Appendix II to this Joint Proxy Statement/Prospectus and incorporated by
reference herein. Stockholders are urged to read carefully the full text of
the Certificate Amendments.
INCREASE IN AUTHORIZED SHARES OF CAPITAL STOCK
General. Charter One is currently authorized to issue 90,000,000
shares of Charter One Common Stock. As of _______, 1995, ________ shares of
Charter One Common Stock were issued and outstanding and ________ shares were
reserved for issuance pursuant to the Charter One stock option plans. Charter
One is also currently authorized to issue 10,000,000 shares of Charter One
Preferred Stock, none of which were outstanding as of _______, 1995. The
Charter One Board has unanimously approved the proposed Shares Amendment to the
Charter One Certificate which would increase the number of authorized shares of
Charter One Common Stock from 90,000,000 to 180,000,000 and Charter One
Preferred Stock from 10,000,000 to 20,000,000.
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Purpose and Effects. Although there are sufficient authorized but
unissued shares of Charter One Common Stock to consummate the Merger and
satisfy Charter One's other obligations under the Merger Agreement, the Charter
One Board believes that the authorization of additional shares of Charter One
Common Stock and Charter One Preferred Stock is advisable to provide Charter
One with the flexibility to take advantage of opportunities to issue such stock
in order to obtain capital, as consideration for possible acquisitions or for
other purposes (including, without limitation, stock splits and stock dividends
in appropriate circumstances). There are, at present, no plans,
understandings, agreements or arrangements concerning the issuance of
additional shares of Charter One Common Stock or Charter One Preferred Stock,
except for the shares of Charter One Common Stock to be issued (i) pursuant to
the Merger, (ii) upon the exercise of Charter One stock options into which
FirstFed Stock Options will be converted, (iii) in exchange for, and in
consideration for the cancellation of, certain unvested FirstFed Stock Options
and (iv) upon the exercise of Charter One stock options currently outstanding.
Assuming the issuance of the maximum number of shares of Charter One Common
Stock pursuant to the obligations of Charter One described in clauses (i)
through (iv) above, there would be ________ shares of Charter One Common Stock
issued and outstanding.
Uncommitted authorized but unissued shares of Charter One Common Stock
and Charter One Preferred Stock may be issued from time to time to such persons
and for such consideration as the Charter One Board may determine, and holders
of the then-outstanding shares of Charter One Common Stock or Charter One
Preferred Stock may or may not be given the opportunity to vote thereon,
depending upon the nature of any such transactions, applicable law, the rules
and policies of the Nasdaq National Market and the judgment of the Charter One
Board regarding the submission of such issuance to a vote of the Charter One
stockholders. Charter One stockholders have no preemptive rights to subscribe
to newly issued shares.
Moreover, it is possible that additional shares of Charter One Common
Stock or Charter One Preferred Stock would be issued for the purpose of making
an acquisition by an unwanted suitor of a controlling interest in Charter One
more difficult, time-consuming or costly or to otherwise discourage an attempt
to acquire control of Charter One. Under such circumstances the availability
of authorized and unissued shares of Charter One Common Stock and Charter One
Preferred Stock may make it more difficult for stockholders to obtain a premium
for their shares. Such authorized and unissued shares could be used to create
voting or other impediments or to frustrate a person seeking to obtain control
of Charter One by means of a merger, tender offer, proxy contest or other
means. Such shares could be privately placed with purchasers who might
cooperate with the Charter One Board in opposing such an attempt by a third
party to gain control of Charter One or could also be used to dilute ownership
of a person or entity seeking to obtain control of Charter One. Although
Charter One does not currently contemplate taking such action, shares of
Charter One Common Stock or one or more series of Charter One Preferred Stock
could be issued for the purposes and effects described above and the Charter
One Board reserves its rights (if consistent with its fiduciary
responsibilities) to issue such stock for such purposes.
Although approval of the Shares Amendment is not a condition to the
Merger, as described above, the Charter One Board believes that the proposed
increase in the number of authorized shares of Charter One Common Stock and
Charter One Preferred Stock will provide flexibility needed to meet corporate
objectives and is in the best interests of Charter One and its stockholders.
THE CHARTER ONE BOARD RECOMMENDS THAT CHARTER ONE STOCKHOLDERS VOTE
FOR THE SHARES AMENDMENT.
INCREASE IN AUTHORIZED NUMBER OF DIRECTORS
Article SEVENTH of the Charter One Certificate currently provides that
the number of authorized directors of Charter One shall be not less than seven
nor more than 15 directors. Pursuant to the Merger Agreement, upon
consummation of the Merger, the Charter One Board will expand to 16 members,
one-half of whom will be selected by the directors of Charter One immediately
prior to the Effective Time and one-half of whom will be selected by the
directors of FirstFed immediately prior to the Effective Time. The Charter One
Board has unanimously approved the Director Amendment, which would amend
Article SEVENTH to provide for a number of authorized directors of Charter One
of not less than seven nor more than 16 members. In the event stockholders of
Charter
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One do not approve the Director Amendment, the Charter One Board upon
consummation of the Merger will consist of 14 members to be selected as
described above.
The Director Amendment is not conditioned upon consummation of the
Merger. Although Charter One does not presently intend to increase the size of
its Board, in the event the Merger does not occur, an increase in the number of
authorized directors will provide Charter One with the flexibility to, among
other things, place an additional person on the Charter One Board if prudent to
do so in connection with future acquisitions by Charter One or for other
reasons. Although approval of the Director Amendment is not a condition to the
Merger, the Charter One Board believes that the proposed increase in the number
of authorized directors will provide the optimal leadership for Charter One as
the surviving corporation and is in the best interests of Charter One and its
stockholders.
THE CHARTER ONE BOARD RECOMMENDS THAT CHARTER ONE STOCKHOLDERS VOTE
FOR THE DIRECTOR AMENDMENT.
OTHER CERTIFICATE AMENDMENTS
General. The Charter One Board has unanimously approved the proposed
Other Certificate Amendments to Articles FIFTH and SIXTH of the Charter One
Certificate, which are more fully described below and in Appendix II to this
Joint Proxy Statement/Prospectus. Approval of the Other Certificate Amendments
is not a condition to the Merger and the Other Certificate Amendments are not
conditioned upon consummation of the Merger.
Article FIFTH. It is proposed that the title, the introductory
paragraph and Paragraphs A through E of Article FIFTH be deleted from the
Charter One Certificate. Article FIFTH was designed to prevent the acquisition
by any person of 10% or more of the Charter One Common Stock during the five
years following the initial public offering of the Charter One Common Stock,
such five-year period having expired on January 29, 1993. Paragraphs F and G
(to be redesignated Paragraphs A and B, respectively) shall remain in Article
FIFTH as Paragraph F contains certain definitions used elsewhere in the Charter
One Certificate and Paragraph G provides the Charter One Board with the power
to make certain determinations with respect to the construction and application
of Article FIFTH.
It is further proposed that the definition of a "Related Person"
(generally, a beneficial owner of 10% or more of Charter One's outstanding
voting stock) contained in Paragraph F (to be redesignated Paragraph A) of
Article FIFTH be amended to the effect that (i) it will require the acquisition
of 20% of the outstanding voting stock of Charter One to be deemed a Related
Person, provided that with respect to Article TENTH, the threshold will remain
at 10%, and (ii) for purposes of Article SIXTH, a majority of the Continuing
Directors (as defined in the Charter One Certificate) may exempt an acquiror of
more than 20% of the outstanding voting stock of Charter One from being deemed
a Related Person. The effect of the amendment will be (i) to raise from 10% to
20% the threshold level of voting stock ownership that is subject to voting
restrictions, (ii) to continue to impose, under certain circumstances,
supermajority voting requirements for business combinations with holders of 10%
or more of Charter One's voting stock (i.e., Related Persons) and (iii) to
allow the Continuing Directors of the Charter One Board to approve certain
acquisitions of Charter One voting stock which would otherwise result in the
acquiror thereof being deemed a Related Person for purposes of Article SIXTH.
The Board believes that the amendment will provide current and future investors
in Charter One with more flexibility to invest in Charter One, without
weakening management and stockholder control over potential business
combinations. Increasing the Related Person threshold from 10% to 20%,
however, may permit a shareholder whose interests are not aligned with a
majority of the directors or stockholders to control a larger portion of
Charter One.
Article SIXTH. It is proposed that Paragraph F of Article SIXTH be
deleted from the Charter One Certificate. Paragraph F provides that Article
SIXTH shall be in effect upon such time as Paragraph A of Article FIFTH ceases
to be in effect, which occurred as of January 29, 1993. Therefore, Paragraph F
of Article SIXTH is no longer necessary.
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It is further proposed that Paragraph A of Article SIXTH be amended by
changing the term "ten percent (10%)" to "twenty percent (20%)," the effect of
which is to restrict the voting rights of a Related Person with respect to
votes in excess of 20% of the outstanding voting stock of Charter One. The
Charter One Board approved this amendment to Article SIXTH in conjunction with,
and in accordance with the reasons for, the similar amendment to Article FIFTH.
See "--Article FIFTH."
THE CHARTER ONE BOARD RECOMMENDS THAT CHARTER ONE STOCKHOLDERS VOTE
FOR THE OTHER CERTIFICATE AMENDMENTS.
LEGAL MATTERS
The validity of the shares of Charter One Common Stock offered hereby
will be passed upon for Charter One by Silver, Freedman & Taff, L.L.P. (a
limited liability partnership including professional corporations), Washington,
D.C. Certain other legal matters in connection with the Merger will be passed
upon for Charter One by Silver, Freedman & Taff, L.L.P., and for FirstFed by
Housley Goldberg Kantarian & Bronstein, P.C., Washington, D.C.
EXPERTS
The consolidated financial statements incorporated in this Joint Proxy
Statement/Prospectus by reference from Charter One's Annual Report on Form 10-K
for the year ended December 31, 1994 have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report, which is incorporated
herein by reference, and have been so incorporated in reliance upon the report
of such firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements of FirstFed and subsidiaries as
of December 31, 1994 and 1993, and for each of the years in the three-year
period ended December 31, 1994, included in FirstFed's Annual Report on Form
10-K for the year ended December 31, 1994 and incorporated by reference herein
in this Joint Proxy Statement/Prospectus, have been audited by KPMG Peat
Marwick LLP, independent certified public accountants, as stated in their
report incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
STOCKHOLDER PROPOSALS
As disclosed in the proxy materials for Charter One's 1995 Annual
Meeting of Stockholders, in order to be eligible for inclusion in Charter One's
proxy materials for the 1996 Annual Meeting of Stockholders, any stockholder
proposal to take action at such meeting must be received at the main office of
Charter One, 1215 Superior Avenue, Cleveland, Ohio 44114, no later than
November 18, 1995. Any such proposal shall be subject to the requirements of
the proxy rules adopted under the Exchange Act.
FirstFed will hold a 1996 Annual Meeting of Stockholders only if the
Merger is not consummated before the time of such meeting, which it is
presently expected would be held in mid-May 1996. In such event, as disclosed
in the proxy materials for FirstFed's 1995 Annual Meeting of Stockholders, in
order to be eligible for inclusion in FirstFed's proxy materials for the 1996
Annual Meeting of Stockholders, any stockholder proposal to take action at such
meeting must be received at the main office of FirstFed, 1001 Woodward Avenue,
Detroit, Michigan 48226-1904, no later than December 2, 1995. However, if such
1996 Annual Meeting is held after mid-June 1996, any stockholder proposal must
be received by FirstFed a reasonable time before the solicitation of proxies
for such Annual Meeting is made. Any such proposal shall be subject to the
requirements of the proxy rules adopted under the Exchange Act.
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<PAGE> 100
INDEPENDENT ACCOUNTANTS
Representatives of Deloitte & Touche LLP, Charter One's independent
accountants, are expected to be present at the Charter One Special Meeting.
They will be afforded the opportunity to make a statement if they desire to do
so and are expected to be available to respond to appropriate questions.
Representatives of KPMG Peat Marwick LLP, FirstFed's independent
accountants, are expected to be present at the FirstFed Special Meeting. They
will be afforded the opportunity to make a statement if they desire to do so
and are expected to be available to respond to appropriate questions.
OTHER MATTERS
The Boards of Directors of Charter One and FirstFed are not aware of
any business to come before the Special Meetings other than those matters
described above in this Joint Proxy Statement/Prospectus. However, if any
other matter should properly come before the Special Meetings, including
proposals to adjourn a Special Meeting to permit further solicitation of
proxies in the event that there are not sufficient votes to approve any
proposal at the time of the Special Meeting, it is intended that holders of the
proxies will act in accordance with their best judgment.
BY ORDER OF THE BOARD OF DIRECTORS BY ORDER OF THE BOARD OF DIRECTORS
OF CHARTER ONE FINANCIAL, INC. OF FIRSTFED MICHIGAN CORPORATION
CHARLES JOHN KOCH C. GENE HARLING
Chairman of the Board, President Chairman of the Board, President
and Chief Executive Officer and Chief Executive Officer
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APPENDIX I
----------------------------------------------------
AGREEMENT AND PLAN OF MERGER
By and Between
Charter One Financial, Inc.
And
FirstFed Michigan Corporation
Dated as of May 30, 1995
-----------------------------------------------------
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
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<S> <C>
Article I - The Merger and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-5
1.1 Merger; Surviving Corporation and Institution . . . . . . . . . . . . . . . . . . . . . . . . . I-5
1.2 Effective Time of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-5
1.3 Conversion of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-6
1.4 Surviving Corporation in the Company Merger . . . . . . . . . . . . . . . . . . . . . . . . . . I-6
1.5 Authorization for Issuance of Charter Common Stock;
Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-7
1.6 No Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-8
1.7 Stockholders' Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-8
1.8 FirstFed Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-9
1.9 Registration Statement; Prospectus/Joint Proxy Statement . . . . . . . . . . . . . . . . . . . . I-10
1.10 Cooperation; Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-11
1.11 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-12
1.12 Closing of Transfer Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-12
1.13 Bank Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-12
Article II - Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-12
2.1 Organization, Good Standing, Authority, Insurance, Etc. . . . . . . . . . . . . . . . . . . . . I-12
2.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-13
2.3 Ownership of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-13
2.4 Financial Statements and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-14
2.5 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-14
2.6 Prospectus/Joint Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-15
2.7 No Broker's or Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-15
2.8 Litigation and Other Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-15
2.9 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-15
2.10 Corporate Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-16
2.11 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-16
2.12 Employment Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-17
2.13 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-17
2.14 Information Furnished . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-18
2.15 Property and Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-18
2.16 Agreements and Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-18
2.17 Material Contract Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-18
2.18 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-19
2.19 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-19
2.20 Loan Portfolio; Portfolio Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-19
2.21 Real Estate Loans and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-20
2.22 Derivatives Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-20
2.23 Exceptions to Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . I-20
Article III - Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-21
3.1 Investigations; Access and Copies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-21
3.2 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-21
3.3 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-23
3.4 Stockholder Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-23
3.5 Accountants' Letters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-24
3.6 Resale Letter Agreements; Accounting and Tax Treatment . . . . . . . . . . . . . . . . . . . . . I-24
3.7 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-24
3.8 Cooperation Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-24
3.9 Additional Financial Statements and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . I-24
3.10 Dividend Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-24
3.11 Stock Exchange Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-25
</TABLE>
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<TABLE>
<S> <C>
3.12 Certificate of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-25
3.13 Employee Benefits and Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-25
3.14 Conforming Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-28
3.15 Amendments to Charter Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-28
Article IV - Conditions of the Merger; Termination of Agreement . . . . . . . . . . . . . . . . . . . . I-28
4.1 General Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-28
4.2 Conditions to Obligations of Charter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-30
4.3 Conditions to Obligations of FirstFed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-30
4.4 Termination of Agreement and Abandonment of Merger . . . . . . . . . . . . . . . . . . . . . . . I-31
Article V - Termination of Obligations; Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . I-32
5.1 Termination; Lack of Survival of Representations and Warranties . . . . . . . . . . . . . . . . I-32
5.2 Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-32
Article VI - Certain Post-Merger Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-32
6.1 Registration of Stock Underlying Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . I-32
6.2 Reports to the SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-33
6.3 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-33
6.4 Directors, Executive Officers and Committees of Surviving Corporation . . . . . . . . . . . . . I-34
6.5 Directors, Executive Officers and Committees of Charter Bank . . . . . . . . . . . . . . . . . . I-36
6.6 Publication of Combined Financial Results . . . . . . . . . . . . . . . . . . . . . . . . . . . I-37
6.7 Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-37
Article VII - General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-37
7.1 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-37
7.2 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-37
7.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-37
7.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-38
7.5 No Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-38
7.6 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-38
7.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-38
7.8 Construction and Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-38
7.9 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-38
7.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-39
7.11 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-39
7.12 No Employment Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-39
</TABLE>
Schedules:
Schedule I Disclosure Schedule for Charter*
Schedule II Disclosure Schedule for FirstFed*
Exhibits:
Exhibit A Charter Stock Option Agreement
Exhibit B FirstFed Stock Option Agreement
Exhibit C Form of Charter Voting Agreement*
Exhibit D Form of FirstFed Voting Agreement*
Exhibit 1.1(a) Bank Merger Agreement
Exhibit 1.8(d) List of Option Holders*
Exhibit 2.10(c) Rights Amendment
Exhibit 3.6(a) Form of Charter Affiliate Agreement*
Exhibit 3.6(b) Form of FirstFed Affiliate Agreement*
Exhibit 3.13(c) Severance Policy*
Exhibit 3.13(g) Form of Employment Agreement for Mr. Harling*
Exhibit 4.2(a) Form of Opinion of Counsel for FirstFed*
Exhibit 4.3(a) Form of Opinion of Counsel for Charter*
* Intentionally omitted.
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AGREEMENT AND PLAN OF MERGER
--------------------------------------------------------------------------------
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is dated as of May 30,
1995, by and among Charter One Financial, Inc., a Delaware corporation
("Charter") and FirstFed Michigan Corporation, a Michigan corporation
("FirstFed"). Each of Charter and FirstFed is sometimes individually referred
to herein as a "party," and Charter and FirstFed are sometimes collectively
referred to herein as the "parties."
RECITALS
WHEREAS, Charter, a non-diversified, unitary savings and loan holding
company, with principal offices in Cleveland, Ohio, owns all of the issued and
outstanding capital stock of Charter One Bank, F.S.B., a federally chartered
savings bank ("Charter Bank"), with principal offices in Cleveland, Ohio. As
of the date hereof, Charter has 90 million authorized shares of common stock,
par value $0.01 per share ("Charter Common Stock"), of which 22,520,551 shares
are outstanding, and 10 million authorized shares of preferred stock, none of
which is outstanding.
WHEREAS, FirstFed, a non-diversified, unitary savings and loan holding
company, with principal offices in Detroit, Michigan, owns all of the issued
and outstanding capital stock of First Federal of Michigan, a federally
chartered savings association ("FirstFed Bank"), with principal offices in
Detroit, Michigan. As of the date hereof, FirstFed has 100 million authorized
shares of common stock, par value $0.01 per share ("FirstFed Common Stock"), of
which 18,714,442 shares are outstanding, and 40 million authorized shares of
preferred stock, none of which is outstanding.
WHEREAS, Charter and FirstFed desire to combine their respective
holding companies through a tax-free, stock-for-stock merger so that the
respective stockholders of Charter and FirstFed will have an equity ownership
in the combined holding company.
WHEREAS, neither the Board of Directors of Charter nor the Board of
Directors of FirstFed seeks to sell its respective holding company at this time
but both Boards desire to merge their respective holding companies in a
transaction structured as a merger of equals.
WHEREAS, it is intended that to accomplish this result, FirstFed will
be merged with and into Charter, with Charter as the surviving corporation.
Such merger is referred to herein as the "Company Merger." Charter after the
Company Merger is sometimes referred to herein as the "Surviving Corporation."
WHEREAS, immediately following consummation of the Company Merger,
FirstFed Bank will be merged with and into Charter Bank, with Charter Bank as
the surviving savings institution. Such merger is referred to herein as the
"Bank Merger." The Company Merger and the Bank Merger are sometimes
collectively referred to herein as the "Merger."
WHEREAS, it is intended that (i) for federal income tax purposes the
Merger shall qualify as a reorganization within the meaning of Section 368 of
the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code") and
this Agreement shall constitute a plan of reorganization pursuant to Section
368 of the Internal Revenue Code and (ii) the Merger shall qualify for pooling
of interests accounting treatment under generally accepted accounting
principles.
WHEREAS, as an inducement to and condition of Charter's willingness to
enter into this Agreement and the Charter Stock Option Agreement, FirstFed will
grant to Charter on the first business day next following the date of execution
of this Agreement an option pursuant to the FirstFed Stock Option Agreement,
and as an inducement to and condition of FirstFed's willingness to enter into
this Agreement and the FirstFed Stock Option Agreement, Charter will grant to
FirstFed on the first business day next following the date of execution of this
Agreement an option pursuant to the Charter Stock Option Agreement. The
Charter Stock Option Agreement and the FirstFed
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Stock Option Agreement are attached hereto as Exhibits A and B, respectively.
References herein to the "Stock Option Agreement" shall refer in the case of
Charter to the Charter Stock Option Agreement and in the case of FirstFed to
the FirstFed Stock Option Agreement.
WHEREAS, concurrently with the execution and delivery of this
Agreement, and as a condition and inducement to the parties' willingness to
enter into this Agreement, Charter and each of the directors of FirstFed, and
FirstFed and each of the directors of Charter, have entered into voting
agreements in the forms attached hereto as Exhibits C and D, respectively (the
"Voting Agreements").
WHEREAS, the Boards of Directors of Charter and FirstFed (at meetings
duly called and held) have determined that this Agreement and the transactions
contemplated hereby are in the best interests of Charter and FirstFed,
respectively, and their respective stockholders and have approved this
Agreement and the Stock Option Agreement. Consummation of the Merger is
subject to the prior approval of the Office of Thrift Supervision ("OTS") and
the stockholders of Charter and FirstFed, among other conditions specified
herein.
NOW THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements hereinafter set forth,
the parties hereby agree as follows:
ARTICLE I
THE MERGER AND RELATED MATTERS
1.1 Merger; Surviving Corporation and Institution. Subject to the
terms and conditions of this Agreement, and pursuant to the provisions of the
Delaware General Corporation Law (the "DGCL"), the Michigan Business
Corporation Act ("MBCA"), the Home Owners Loan Act, as amended ("HOLA"), and
the rules and regulations promulgated thereunder (the "Thrift Regulations"),
(a) at the Company Merger Effective Time (as hereinafter defined), (i) FirstFed
shall be merged with and into Charter pursuant to the terms and conditions set
forth herein, (ii) the separate corporate existence of FirstFed shall cease,
and (iii) Charter as the Surviving Corporation shall continue to be governed by
the laws of the State of Delaware, and, (b) thereafter, at the Bank Merger
Effective Time (as hereinafter defined) FirstFed Bank shall be merged with and
into Charter Bank pursuant to the terms and conditions set forth herein and in
the Bank Merger Agreement substantially in the form attached hereto as Exhibit
1.1(a). The Company Merger shall have the effects specified in the DGCL and
the MBCA, Section 1.4(e) hereof and the Company Merger Agreement. Upon
consummation of the Bank Merger, the separate existence of FirstFed Bank shall
cease, and Charter Bank shall continue as the surviving institution of the Bank
Merger. The name of Charter Bank, as the surviving institution of the Bank
Merger, shall be "Charter One Bank, F.S.B." From and after the Bank Merger
Effective Time, Charter Bank as the surviving institution of the Bank Merger
shall possess all of the properties and rights and be subject to all of the
liabilities and obligations of Charter Bank and FirstFed Bank, all as more
fully set forth in the Thrift Regulations, Section 1.13 hereof and the Bank
Merger Agreement.
1.2 Effective Time of the Merger. As soon as practicable after
each of the conditions set forth in Article IV hereof has been satisfied or
waived, Charter and FirstFed will file, or cause to be filed, certificates of
merger with the appropriate authorities of Delaware and Michigan for the
Company Merger and articles of combination with the OTS for the Bank Merger,
which certificates of merger and articles of combination shall in each case be
in the form required by and executed in accordance with the applicable
provisions of law and the Thrift Regulations, respectively. The Company Merger
shall become effective at the time and date which is the later of the time at
which (i) the Delaware certificate of merger is filed with the appropriate
authorities of Delaware and (ii) the Michigan certificate of merger is filed
with the appropriate authorities of Michigan ("Company Merger Effective Time"),
which shall be immediately following the Closing (as defined in Section 1.11
hereof) and on the same day as the Closing if practicable, or at such other
date and time as may be agreed to by the parties and specified in the
certificates of merger in accordance with applicable law. The Bank Merger
shall become effective at the time the articles of combination for such merger
are endorsed by the OTS pursuant to Section 552.13(k) of the Thrift Regulations
(the "Bank Merger Effective Time"). The parties shall cause the Company Merger
to become effective before the Bank Merger.
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1.3 Conversion of Shares.
(a) At the Company Merger Effective Time, by virtue of
the Company Merger and without any action on the part of Charter or FirstFed or
the holders of shares of Charter or FirstFed Common Stock:
(i) Each outstanding share of FirstFed Common
Stock issued and outstanding at the Company Merger Effective Time, except as
provided in clause (a)(ii) of this Section and Section 1.6 hereof, shall cease
to be outstanding, shall cease to exist and shall be converted into and
represent solely 1.20 shares of Charter Common Stock (the "Conversion Ratio"),
including the corresponding number of rights associated with the Charter Common
Stock pursuant to the Rights Agreement, dated November 20, 1989, between
Charter and The First National Bank of Boston as Rights Agent (the "Charter
Rights Agreement"), (as amended as contemplated herein) and shall no longer be
a share of FirstFed Common Stock.
(ii) Any shares of FirstFed Common Stock which are
owned or held by either party hereto or any of their respective Subsidiaries
(as defined in Section 2.1 hereof) (other than in a fiduciary capacity) at the
Company Merger Effective Time shall cease to exist, the certificates for such
shares shall as promptly as practicable be cancelled, such shares shall not be
converted into or represent any shares of Charter Common Stock, and no shares
of capital stock of Charter shall be issued or exchanged therefor.
(iii) Each share of Charter Common Stock issued
and outstanding immediately before the Company Merger Effective Time shall
remain an outstanding share of Common Stock of Charter as the Surviving
Corporation.
(iv) The holders of certificates representing
shares of FirstFed Common Stock shall cease to have any rights as stockholders
of FirstFed, except such rights, if any, as they may have pursuant to
applicable law.
(v) Subject to Section 3.2 herein, if the issued
and outstanding shares of Charter or FirstFed Common Stock shall, during the
period commencing on the date hereof and ending with the Company Merger
Effective Time, through a reorganization, recapitalization, stock split,
reverse stock split, stock dividend, reclassification, combination of shares or
similar corporate rearrangement in the capitalization of Charter or FirstFed,
as the case may be, increase or decrease in number or be changed into or
exchanged for a different kind or number of securities, then an appropriate and
proportionate adjustment shall be made to the Conversion Ratio.
1.4 Surviving Corporation in the Company Merger.
(a) The name of the Surviving Corporation in the Company
Merger shall be "Charter One Financial, Inc.." The headquarters of the
Surviving Corporation shall be located in Cleveland, Ohio.
(b) The Restated Certificate of Incorporation of Charter
as in effect at the Company Merger Effective Time shall as of the Company
Merger Effective Time be amended as contemplated in Section 1.7(a) herein and
the Restated Certificate of Incorporation, as so amended, shall be the
Certificate of Incorporation of Charter as the Surviving Corporation until
amended as provided therein or by law; provided, however, if the Charter
stockholders shall fail to approve any of the amendments to Charter's Restated
Certificate of Incorporation as contemplated in Section 1.7(a) herein, then the
Restated Certificate of Incorporation of Charter as the Surviving Corporation
shall not include those amendments not so approved.
(c) At the Company Merger Effective Time, the Bylaws of
Charter, as then in effect shall be amended to conform to the agreements of the
parties as reflected in Section 6.4 herein, and such Bylaws, as so amended
shall be the Bylaws of Charter as the Surviving Corporation, until amended as
provided therein or as otherwise permitted by the DGCL.
(d) The directors and executive officers of Charter as
the Surviving Corporation following the Company Merger shall be as provided in
Section 6.4 herein until such directors or officers are replaced or
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additional directors or officers are elected or appointed in accordance with
the provisions of Section 6.4 of this Agreement, the Restated Certificate of
Incorporation or the Bylaws of Charter as the Surviving Corporation.
(e) From and after the Company Merger Effective Time:
(i) Charter as the Surviving Corporation shall
possess all assets and property of every description, and every interest in the
assets and property, wherever located, and the rights, privileges, immunities,
powers, franchises, and authority, of a public as well as of a private nature,
of each of Charter and FirstFed, and all obligations belonging or due to each
of Charter and FirstFed, all of which shall vest in Charter as the Surviving
Corporation without further act or deed. Title to any real estate or any
interest in the real estate vested in Charter or FirstFed shall not revert or
in any way be impaired by reason of the Company Merger.
(ii) Charter as the Surviving Corporation will be
liable for all the obligations of each of Charter and FirstFed. Any claim
existing, or action or proceeding pending, by or against Charter or FirstFed,
may be prosecuted to judgement, with right of appeal, as if the Company Merger
had not taken place, or Charter as the Surviving Corporation may be substituted
in its place.
(iii) All the rights of creditors of each of
Charter and FirstFed will be preserved unimpaired, and all liens upon the
property of Charter and FirstFed will be preserved unimpaired only on the
property affected by such liens immediately before the Company Merger Effective
Time.
1.5 Authorization for Issuance of Charter Common Stock; Exchange
of Certificates.
(a) Charter shall reserve for issuance a sufficient
number of shares of its common stock for the purpose of issuing its shares to
FirstFed's stockholders in accordance with this Article I.
(b) After the Company Merger Effective Time, holders of
certificates theretofore representing outstanding shares of FirstFed Common
Stock (other than as provided in Section 1.3(a)(ii) hereof), upon surrender of
such certificates to an exchange agent appointed jointly by Charter and
FirstFed on behalf of the Surviving Corporation (the "Exchange Agent"), shall
be entitled to receive certificates for the number of whole shares of Charter
Common Stock into which shares of FirstFed Common Stock theretofore evidenced
by the certificates so surrendered shall have been converted, as provided in
Section 1.3 hereof, and cash payments in lieu of fractional shares, if any, as
provided in Section 1.6 hereof. As soon as practicable after the Company
Merger Effective Time, the Exchange Agent will send a notice and transmittal
form to each FirstFed stockholder of record at the Company Merger Effective
Time whose FirstFed Common Stock shall have been converted into Charter Common
Stock advising such stockholder of the effectiveness of the Company Merger and
the procedure for surrendering to the Exchange Agent outstanding certificates
formerly representing FirstFed Common Stock in exchange for new certificates
for Charter Common Stock. Upon surrender, each certificate representing
FirstFed Common Stock shall be cancelled.
(c) Until surrendered as provided in this Section 1.5
hereof, each outstanding certificate which, before the Company Merger Effective
Time, represented FirstFed Common Stock (other than shares cancelled at the
Company Merger Effective Time pursuant to Section 1.3(a)(ii) hereof) will be
deemed for all corporate purposes to represent the number of whole shares of
Charter Common Stock into which the shares of FirstFed Common Stock formerly
represented thereby were converted and the right to receive cash in lieu of
fractional shares. However, until such outstanding certificates formerly
representing FirstFed Common Stock are so surrendered, no dividend or
distribution payable to holders of record of Charter Common Stock shall be paid
to any holder of such outstanding certificates, but upon surrender of such
outstanding certificates by such holder there shall be paid to such holder the
amount of any dividends or distribution, without interest, theretofore paid
with respect to such whole shares of Charter Common Stock, but not paid to such
holder, and which dividends or distribution had a record date occurring on or
after the Company Merger Effective Time and the amount of any cash, without
interest, payable to such holder in lieu of fractional shares pursuant to
Section 1.6 hereof. After the Company Merger Effective Time, there shall be no
further registration of transfers on the records of FirstFed of outstanding
certificates formerly representing shares of FirstFed Common Stock and, if a
certificate formerly representing such shares is presented to Charter as the
Surviving Corporation, it shall be forwarded to the Exchange
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Agent for cancellation and exchange for a certificate representing shares of
Charter Common Stock and cash for fractional shares (if any), as herein
provided. Following one year after the Company Merger Effective Time, the
Exchange Agent shall return to Charter as the Surviving Corporation any
certificates for Charter Common Stock and cash remaining in the possession of
the Exchange Agent (together with any dividends in respect thereof) and
thereafter shareholders of FirstFed shall look exclusively to Charter as the
Surviving Corporation for shares of the Charter Common Stock and cash to which
they are entitled hereunder.
(d) All shares of Charter Common Stock and cash in lieu
of any fractional share issued and paid upon the conversion of FirstFed Common
Stock in accordance with the above terms and conditions shall be deemed to have
been issued and paid in full satisfaction of all rights pertaining to such
FirstFed Common Stock.
(e) If any new certificate for Charter Common Stock is to
be issued in a name other than that in which the certificate surrendered in
exchange thereof is registered, it shall be a condition of the issuance
therefor that the certificate surrendered in exchange shall be properly
endorsed and otherwise in proper form for transfer and that the person
requesting such transfer pay to the Exchange Agent any transfer or other taxes
required by reason of the issuance of a new certificate representing shares of
Charter Common Stock in any name other than that of the registered holder of
the certificate surrendered, or establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not payable.
(f) In the event any certificate representing FirstFed
Common Stock shall have been lost, stolen or destroyed, the Exchange Agent
shall issue in exchange for such lost, stolen or destroyed certificate, upon
the making of an affidavit of that fact by the holder thereof, such shares of
Charter Common Stock and cash for fractional shares, if any, as may be required
pursuant hereto; provided, however, that the Surviving Corporation or the
Exchange Agent may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate to deliver a bond in such sum as it may direct as indemnity against
any claim that may be made against the Surviving Corporation, Charter,
FirstFed, the Exchange Agent or any other party with respect to the certificate
alleged to have been lost, stolen or destroyed.
1.6 No Fractional Shares. Notwithstanding any term or provision
hereof, no fractional shares of Charter Common Stock, and no certificates or
scrip therefor, or other evidence of ownership thereof, will be issued upon the
conversion of or in exchange for any shares of FirstFed Common Stock; no
dividend or distribution with respect to Charter Common Stock shall be payable
on or with respect to any fractional share interest; and no such fractional
share interest shall entitle the owner thereof to vote or to any other rights
of a stockholder of Charter as the Surviving Corporation. In lieu of such
fractional share interest, any holder of FirstFed Common Stock who would
otherwise be entitled to a fractional share of Charter Common Stock will, upon
surrender of his certificate or certificates representing FirstFed Common Stock
outstanding immediately before the Company Merger Effective Time, be paid the
applicable cash value of such fractional share interest, which shall be equal
to the product of the fraction of the share to which such holder would
otherwise have been entitled and the closing price of Charter Common Stock on
the trading day immediately prior to the Company Merger Effective Time. For
the purposes of determining any such fractional share interests, all shares of
FirstFed Common Stock owned by a FirstFed stockholder shall be combined so as
to calculate the maximum number of whole shares of Surviving Corporation Common
Stock issuable to such FirstFed stockholder.
1.7 Stockholders' Meetings.
(a) Charter shall, at the earliest practicable date, hold
a meeting of its stockholders (the "Charter Stockholders' Meeting") to submit
for stockholder approval this Agreement and the Merger. The affirmative vote
of a majority of the issued and outstanding shares of Charter Common Stock
entitled to vote shall be required for such approval. At the Charter
Stockholders' Meeting Charter shall also submit for stockholder approval
amendments to its Restated Certificate of Incorporation as follows:
(i) an amendment to Article FOURTH, paragraph A, increasing (A)
the number of authorized shares of all classes of stock to 200
million shares, (B) the number of authorized shares of common
stock to 180 million shares and (C) the number of authorized
shares of preferred stock to 20 million shares;
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(ii) an amendment to Article FIFTH (A) deleting the title thereof,
deleting the first full paragraph thereof and deleting
paragraphs A, B, C, D and E thereof and relettering paragraphs
F and G thereof as paragraphs A and B, and (B) revising clause
(vi) of paragraph F (as relettered as paragraph (A)) to read
as follows:
(vi) "Related Person" shall mean any
Person (other than the Corporation,
Subsidiaries of the Corporation,
pension, profit sharing, employee
stock ownership or other employee
benefit plans of the Corporation and
its Subsidiaries, entities organized
or established by the Corporation or
any Subsidiary of the Corporation
pursuant to the terms of such plans
and trustees of or fiduciaries with
respect to such plans acting in such
capacity) that purports, or is
deemed, to be the Beneficial Owner
of twenty percent (20%) (but for
purposes of Article TENTH such
percentage shall be ten percent
(10%)) or more of the issued and
outstanding shares of Voting Stock
of the Corporation without giving
effect to the provisions of
paragraph A of Article SIXTH.
Notwithstanding the foregoing,
except as used in Article TENTH, the
term "Related Person" shall not
include any Person acquiring
Beneficial Ownership of shares of
Voting Stock of the Corporation in
excess of twenty percent (20%) of
the issued and outstanding shares of
Voting Stock of the Corporation if
(i) the acquisition of Beneficial
Ownership of such shares in excess
of twenty percent (20%) of the
issued and outstanding shares of
Voting Stock of the Corporation was
approved in advance by a majority of
the Continuing Directors, or (ii)
Beneficial Ownership of such excess
shares was acquired at any time
directly from the Corporation or a
Subsidiary of the Corporation
pursuant to an agreement with the
Corporation or a Subsidiary of the
Corporation.
(iii) an amendment to Article SIXTH (A) deleting paragraph F therein
and (B) revising paragraph A therein by changing the term "ten
percent (10%)" to "twenty percent (20%)"; and
(iv) an amendment to Article SEVENTH, paragraph A, to increase the
maximum number of authorized directors to not more than 16
persons.
The votes to so amend Charter's Restated Certificate of Incorporation by the
Charter stockholders shall be as required by the DGCL and the Restated
Certificate of Incorporation (as may be applicable).
(b) FirstFed shall, at the earliest practicable date,
hold a meeting of its stockholders (the "FirstFed Stockholders' Meeting") to
submit for stockholder approval this Agreement, the Company Merger Agreement
and the Merger. The affirmative vote of a majority of the issued and
outstanding shares of FirstFed Common Stock entitled to vote shall be required
for such approval.
1.8 FirstFed Stock Options.
(a) At the Company Merger Effective Time, by virtue of
the Merger and without any action on the part of any holder of an option, each
outstanding option (other than those referenced in paragraph (d) to this
Section 1.8) under the stock option plans of FirstFed (the "FirstFed Option
Plans") shall continue outstanding as an option to purchase, in place of the
purchase of each share of FirstFed Common Stock, the number of shares (rounded
up to the nearest whole share) of Charter Common Stock that would have been
received by the optionee in the Merger had the option been exercised in full
(without regard to any limitations contained therein on exercise) for shares of
FirstFed Common Stock immediately before the Company Merger upon the same terms
and conditions under the relevant option as were applicable immediately before
the Company Merger Effective Time, except for appropriate pro rata adjustments
as to the relevant option price for shares of Charter Common Stock substituted
therefor so that the aggregate option exercise price of shares subject to an
option immediately following the assumption and substitution shall be the same
as the aggregate option exercise price for such shares immediately before such
assumption and substitution. The Surviving Corporation shall take such actions
as may be required to effectuate the foregoing. It is intended that the
foregoing assumption shall be undertaken consistent with and in a manner that
will not constitute a "modification" under Section 424 of the Internal Revenue
Code as to any stock option which is an "incentive stock option".
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(b) At all times after the Company Merger Effective Time,
the Surviving Corporation shall reserve for issuance such number of shares of
Charter Common Stock as necessary so as to permit the exercise of options
granted under the FirstFed Option Plans in the manner contemplated by this
Agreement and the instruments pursuant to which such options were granted.
Charter shall make all filings required under federal and state securities laws
no later than the Company Merger Effective Time so as to permit the exercise of
such options and the sale of the shares received by the optionee upon such
exercise at and after the Company Merger Effective Time and Charter and the
Surviving Corporation shall continue to make such filings thereafter as may be
necessary to permit the continued exercise of options and sale of such shares.
(c) Following the Company Merger Effective Time, in case
of any reclassification, reorganization, recapitalization, stock dividend or
distribution, subdivision, combination or exchange of the outstanding shares of
Charter Common Stock or in case of any consolidation or merger of Charter as
the Surviving Corporation with or into any other corporation, or in the case of
any sale or transfer of all or substantially all of Charter's assets, then, the
rights of the optionees who then hold outstanding options under the FirstFed
Option Plans shall be appropriately adjusted so that the optionees will be in
the same position as if their options had been exercised immediately before
such corporate action or transaction. The provisions hereof shall similarly
apply following the Company Merger Effective Time to successive
reclassifications, reorganizations, recapitalizations, stock dividends or
distributions, subdivisions, combinations or exchanges, consolidations,
mergers, sales or transfers.
(d) The holders of outstanding options under the FirstFed
stock option plans who are listed (together with the number of outstanding
non-vested options each such person holds) on Exhibit 1.8(d) hereto shall, but
only with respect to options not fully vested as of the Company Merger
Effective Time and in lieu of the assumption of their non-vested options by
Charter and notwithstanding that such option is not then exercisable, receive
as of the Company Merger Effective Time in exchange for such non-vested
options, and in cancellation of such option (to be reflected in a written
agreement), the number of shares of Charter Common Stock (rounded up to the
next whole share,) that have a value (based upon the closing price of the
Charter Common Stock on the trading day immediately prior to the Company Merger
Effective Time) equal to the fair value of such options. The fair value of
such options shall be determined in good faith by Charter and FirstFed with the
advice of a financial advisor, with experience in such valuations, selected by
Charter and FirstFed.
1.9 Registration Statement; Prospectus/Joint Proxy Statement.
(a) For the purposes (i) of holding the Charter
Stockholders' Meeting, (ii) of registering with the Securities and Exchange
Commission ("SEC") and with applicable state securities authorities the Charter
Common Stock to be issued to holders of FirstFed Common Stock in connection
with the Merger and (iii) of holding the FirstFed Stockholders' Meeting, the
parties shall cooperate in the preparation of an appropriate registration
statement (such registration statement, together with all and any amendments
and supplements thereto, is referred to herein as the "Registration
Statement"), including the Prospectus/Joint Proxy Statement satisfying all
applicable requirements of applicable state laws, and of the Securities Act of
1933 (the "Securities Act") and the Securities Exchange Act of 1934 (the
"Exchange Act") and the rules and regulations thereunder (such Prospectus/Joint
Proxy Statement, together with any and all amendments or supplements thereto,
is referred to herein as the "Prospectus/Joint Proxy Statement").
(b) Charter shall furnish such information concerning
Charter and its Subsidiaries as is necessary in order to cause the
Prospectus/Joint Proxy Statement, insofar as it relates to such entities, to
comply with Section 1.9(a) hereof. Charter agrees promptly to advise FirstFed
if at any time before the FirstFed or Charter Stockholders' Meeting any
information provided by Charter in the Prospectus/Joint Proxy Statement becomes
incorrect or incomplete in any material respect and to provide the information
needed to correct such inaccuracy or omission. Charter shall furnish FirstFed
with such supplemental information as may be necessary in order to cause such
Prospectus/Joint Proxy Statement, insofar as it relates to Charter and its
Subsidiaries, to comply with Section 1.9(a) hereof.
(c) FirstFed shall furnish Charter with such information
concerning FirstFed and its Subsidiaries as is necessary in order to cause the
Prospectus/Joint Proxy Statement, insofar as it relates to such
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entities, to comply with Section 1.9(a) hereof. FirstFed agrees promptly to
advise Charter if at any time before the Charter or FirstFed Stockholders'
Meeting any information provided by FirstFed in the Prospectus/Joint Proxy
Statement becomes incorrect or incomplete in any material respect and to
provide Charter with the information needed to correct such inaccuracy or
omission. FirstFed shall furnish Charter with such supplemental information as
may be necessary in order to cause the Prospectus/Joint Proxy Statement,
insofar as it relates to FirstFed and its Subsidiaries, to comply with Section
1.9(a).
(d) Charter shall promptly file the Registration
Statement with the SEC and applicable state securities agencies. Charter and
FirstFed shall use all reasonable efforts to cause the Registration Statement
to become effective under the Securities Act and applicable state securities
laws at the earliest practicable date. FirstFed authorizes Charter to utilize
in the Registration Statement the information concerning FirstFed and its
Subsidiaries provided to Charter for the purpose of inclusion in the
Prospectus/Joint Proxy Statement. Charter shall advise FirstFed promptly when
the Registration Statement has become effective and of any supplements or
amendments thereto, and Charter shall furnish FirstFed with copies of all such
documents. Before the Company Merger Effective Time or the termination of this
Agreement, each party shall consult with the other with respect to any material
(other than the Prospectus/Joint Proxy Statement) that might constitute a
"prospectus" relating to the Merger within the meaning of the Securities Act.
(e) Charter and FirstFed shall consult with each other in
order to identify all persons or entities who are or may be deemed to be
"affiliates" of either Charter or FirstFed ("Affiliates") within the meaning of
Rule 145 under the Securities Act. Each of Charter and FirstFed shall use
there best efforts to ensure that their respective Affiliates are aware of the
guidelines of the SEC with respect to the sale by affiliates of stock of
companies engaging in a business combination transaction to be accounted for as
a pooling of interests as set forth in Topic 2-E of the SEC staff accounting
bulletin series. Notwithstanding anything contained in this Agreement to the
contrary, all shares of Charter Common Stock issued to such Charter and
FirstFed Affiliates who do not enter into the written letter agreement
contemplated in Section 3.6 herein in connection with the Company Merger shall
bear a legend upon the face thereof stating that transfer of the securities is
or may be restricted by the provisions of the Securities Act and/or pooling of
interests accounting requirements, and notice shall be given to Charter's
transfer agent of such restriction for all Affiliates; provided that such
legend shall be removed by delivery of a substitute certificate without such
legend if (i) any such shares of Charter Common Stock shall have been
registered under the Securities Act for sale, transfer or other disposition and
are sold, transferred or otherwise disposed of, or (ii) any such shares of
stock are sold in accordance with the provisions of paragraphs (c), (e), (f)
and (g) of Rule 144 promulgated under the Securities Act, or (iii) such person
is not at the time an affiliate of Charter and has been the beneficial owner of
the Charter Common Stock for at least two years (or such period as may be
prescribed by the Securities Act and the rules and regulations promulgated
thereunder), or (iv) Charter shall have received a letter from the staff of the
SEC, or an opinion of counsel reasonably acceptable to Charter, to the effect
that the stock transfer restrictions and the legend are not required for
purposes of the Securities Act. So long as shares of such Charter Common Stock
are subject to the restrictions set forth in this Section 1.9, no transfer of
such Charter Common Stock shall be allowed unless and until the transfer agent
is provided with such information as may reasonably be requested by counsel for
Charter to ensure that such transfer will not violate applicable provisions of
the Securities Act or rules, regulations or policies of the SEC.
1.10 Cooperation; Regulatory Approvals. The parties shall
cooperate, and shall cause each of their respective affiliates and Subsidiaries
to cooperate, in the preparation and submission by them, as promptly as
reasonably practicable, of such applications, petitions, and other documents
and materials as any of them may reasonably deem necessary or desirable to the
OTS, Federal Trade Commission ("FTC"), Department of Justice ("DOJ"), SEC,
Secretary of State of Delaware and Michigan, other regulatory authorities,
holders of the voting shares of common stock of Charter and FirstFed, and any
other persons for the purpose of obtaining any approvals or consents necessary
to consummate the transactions contemplated hereby. Each party will have the
right to review and comment on such applications, petitions and other documents
and materials in advance and shall furnish to the other copies thereof promptly
after filing or submission thereof. Any such materials must be reasonably
acceptable to both Charter and FirstFed prior to filing with any regulatory
authority or transmission to stockholders or other third parties, except to the
extent that Charter or FirstFed is legally required to proceed prior to
obtaining the acceptance of the other party hereto. The parties agree to use
their best efforts to file applications with OTS within 30 days of the date of
this Agreement. Each party agrees to consult with the other with respect to
obtaining all
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necessary consents and approvals, and each will keep the other apprised of the
status of matters relating to such approvals and consents and the consummation
of the transactions contemplated hereby. At the date hereof, no party is aware
of any reason that the regulatory approvals required to be obtained by it would
not be obtained or would be obtained subject to conditions that would have or
result in a material adverse effect on Charter as the Surviving Corporation or
Charter Bank as the surviving institution in the Bank Merger.
1.11 Closing. If (i) this Agreement has been duly approved by the
stockholders of Charter and FirstFed, and (ii) all relevant conditions of this
Agreement have been satisfied or waived, a closing (the "Closing") shall take
place as promptly as practicable thereafter at the principal office of Charter,
or at such other place as the parties agree, at which the parties will exchange
certificates, opinions, letters and other documents as required hereby and will
make the filings described in Section 1.2 hereof. Such Closing will take place
within thirty (30) days after the satisfaction or waiver of all conditions
and/or obligations precedent to Closing contained in Article IV of this
Agreement, or at such other time as the parties agree. The parties shall use
their best efforts to cause the Closing to occur on or before December 31,
1995.
1.12 Closing of Transfer Books. At the Company Merger Effective
Time, the transfer books for FirstFed Common Stock shall be closed, and no
transfer of shares of FirstFed Common Stock shall thereafter be made on such
books.
1.13 Bank Merger.
(a) At the Bank Merger Effective Time, each share of
FirstFed Bank common stock issued and outstanding immediately prior thereto
shall, by virtue of the Bank Merger, be cancelled. No new shares of the
capital stock or other securities or obligations of FirstFed Bank shall be
issued or be deemed issued with respect to or in exchange for such cancelled
shares, and such cancelled shares of common stock of FirstFed Bank shall not be
converted into any shares or other securities or obligations of any other
entity.
(b) At the Bank Merger Effective Time, the charter and
bylaws of Charter Bank, as then in effect, shall be amended to conform to the
agreements of the parties as reflected in Section 6.5 herein, and such Charter
and Bylaws, as so amended, shall be the Charter and Bylaws of Charter Bank as
the surviving institution of the Bank Merger, and may thereafter be amended in
accordance with applicable law.
(c) The directors and executive officers of Charter Bank
as the surviving institution following the Bank Merger shall be as provided in
Section 6.5 hereof until such directors or officers are replaced or additional
directors or officers are elected or appointed in accordance with the
provisions of this Agreement, the Charter or Bylaws of Charter Bank.
(d) The liquidation account established by FirstFed Bank
pursuant to the plan of conversion adopted in connection with its conversion
from mutual to stock form shall continue to be maintained by Charter Bank after
the Bank Merger Effective Time for the benefit of those persons and entities
who had interests in the FirstFed liquidation account as of the Bank Merger
Effective Time and who continue to have rights therein. If required by the
rules and regulations of the OTS, Charter Bank shall amend its charter
specifically to provide for the continuation of the liquidation account
established by FirstFed Bank.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Charter represents and warrants to FirstFed, and FirstFed represents
and warrants to Charter, except as disclosed in the Disclosure Schedules
delivered by each party to the other pursuant to Section 2.23 herein, as
follows:
2.1 Organization, Good Standing, Authority, Insurance, Etc. It is
a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation. Section 2.1 of its Disclosure
Schedule lists each "subsidiary" of it within the meaning of Section
10(a)(1)(G) of HOLA (individually a "Subsidiary" and collectively the
"Subsidiaries"). Each of its Subsidiaries is duly organized, validly existing
and
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in good standing under the laws of the respective jurisdiction under which it
is organized, as set forth in Section 2.1 of its Disclosure Schedule. It and
each of its Subsidiaries have all requisite power and authority and to the
extent required by applicable law are licensed to own, lease and operate its
respective properties and conduct its respective business as it is now being
conducted. It has delivered to the other party a true, complete and correct
copy of the articles of incorporation, certificate of incorporation or other
organizing document and of the bylaws, as in effect on the date of this
Agreement, of it and each of its Subsidiaries. It and each of its Subsidiaries
are qualified to do business as foreign corporations and are in good standing
in each jurisdiction in which qualification is necessary under applicable law,
except to the extent that any failures to so qualify would not, in the
aggregate, have a material adverse effect on it and its Subsidiaries, taken as
a whole. Each of its Subsidiaries that is a federally insured savings
institution ("Bank Subsidiary") is a member in good standing of its applicable
Federal Home Loan Bank, and all eligible accounts issued by such institution
are insured by the Savings Association Insurance Fund ("SAIF") to the maximum
extent permitted under applicable law. Each of its Bank Subsidiaries is a
"domestic building and loan association" as defined in Section 7701(a)(19) of
the Internal Revenue Code and is a "qualified thrift lender" as defined in
Section 10(m) of the HOLA and the rules and regulations thereunder. It is duly
registered as a savings and loan holding company under the HOLA.
Its minute books and those of each of its Subsidiaries contain
complete and accurate records of all meetings and other corporate actions taken
by their respective stockholders and Boards of Directors (including the
committees of such Boards).
2.2 Capitalization. (a) Its authorized capital stock and the
number of issued and outstanding shares of its capital stock are accurately set
forth in the recitals in this Agreement, subject, in the case of Charter to an
increase in the authorized number of shares of its capital stock, common stock
and preferred stock as contemplated in Section 1.7(a) herein. All outstanding
shares of its common stock are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. Except (i) in the case of the
representations and warranties of Charter, with respect to preferred share
purchase rights outstanding under the Rights Agreement or (ii) as set forth in
Section 2.2 of its Disclosure Schedule or (iii) with respect to the Stock
Option Agreement, as of the date of this Agreement, there are no options,
convertible securities, warrants or other rights (preemptive or otherwise) to
purchase or acquire any of its capital stock from it and no oral or written
agreement, contract, arrangement, understanding, plan or instrument of any kind
to which it or any of its Subsidiaries is subject with respect to the issuance,
voting or sale of issued or unissued shares of its capital stock. A true and
complete copy of each plan or agreement pursuant to which such options,
convertible securities, warrants or other rights have been granted or issued,
as in effect on the date of this Agreement, is included in Section 2.2 of its
Disclosure Schedule. Only the holders of its common stock have the right to
vote at meetings of its stockholders on matters to be voted thereat (including
the Company Merger). It is not aware of any event or circumstance with respect
to its operations which would disqualify the Merger from being accounted for as
a pooling of interests (in this regard neither it nor any of its Subsidiaries
has at any time during the two year period immediately prior to the date hereof
repurchased or otherwise acquired any shares of its common stock, except as set
forth in Section 2.2 of its Disclosure Schedule).
(b) With respect to the shares of Charter Common Stock to
be issued in the Company Merger, Charter represents and warrants that such
shares when so issued in accordance with this Agreement will be duly
authorized, validly issued, fully paid and nonassessable and not subject to any
preemptive rights or other liens.
2.3 Ownership of Subsidiaries. All outstanding shares of capital
stock of its Subsidiaries are validly issued, fully paid, nonassessable and
owned beneficially and of record by it or one of its Subsidiaries free and
clear of any lien, claim, charge, restriction or encumbrance (collectively,
"Encumbrance"), except as set forth in Section 2.3 of its Disclosure Schedule.
There are no options, convertible securities, warrants or other rights
(preemptive or otherwise) to purchase or acquire any capital stock of any of
its Subsidiaries and no contracts to which it or any of its Subsidiaries is
subject with respect to the issuance, voting or sale of issued or unissued
shares of the capital stock of any of its Subsidiaries. Neither it nor any of
its Subsidiaries owns more than 2% of the capital stock or other equity
securities (including securities convertible or exchangeable into such
securities) of or more than 2% of the aggregate profit participations in any
"company" (as defined in Section 10(a)(1)(C) of the HOLA) other than a
Subsidiary or as otherwise set forth in Section 2.3 of its Disclosure Schedule.
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2.4 Financial Statements and Reports. (a) No registration
statement, offering circular, proxy statement, schedule or report filed by it
or any of its Subsidiaries with the SEC or the OTS under the Securities Act or
the Securities Exchange Act ("SEC Reports"), on the date of effectiveness in
the case of such registration statements, or on the date of filing in the case
of such reports or schedules, or on the date of mailing in the case of such
proxy statements, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. For the past five years, it and its Subsidiaries have timely
filed all reports and documents required to be filed by them with the SEC, the
OTS or the Federal Deposit Insurance Corporation ("FDIC") under various
securities and financial institution laws and regulations except to the extent
that all failures to so file, in the aggregate, would not have a material
adverse effect on the business, financial condition or results of operations of
it and its consolidated Subsidiaries, taken as a whole; and all such documents,
as finally amended, complied in all material respects with applicable
requirements of law and, as of their respective date or the date as amended,
did not 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
therein, in light of the circumstances under which they were made, not
misleading. Except to the extent stated therein, all financial statements and
schedules included in the documents referred to in the preceding sentences (or
to be included in similar documents to be filed after the date hereof) (i) are
or will be (with respect to financial statements in respect of periods ending
after March 31, 1995), in accordance with its books and records and those of
any of its consolidated Subsidiaries, and (ii) present (and in the case of
financial statements in respect of periods ending after March 31, 1995, will
present) fairly the consolidated financial position and the consolidated
results of operations or income, changes in stockholders' equity and cash flows
of it and its Subsidiaries as of the dates and for the period indicated in
accordance with generally accepted accounting principles applied on a basis
consistent with prior periods (except for the omission of notes to unaudited
statements and in the case of interim financial statements to normal recurring
year-end adjustments normal in nature and amounts). Its audited consolidated
financial statements at December 31, 1994 and for the year then ended and the
consolidated financial statements for all periods thereafter up to the Closing
reflect or will reflect, as the case may be, all liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise, whether due or to become due
and regardless of when asserted) as of such date of it and its Subsidiaries
required to be reflected in such financial statements according to generally
accepted accounting principles and contain or will contain (as the case may be)
adequate reserves for losses on loans and properties acquired in settlement of
loans, taxes and all other material accrued liabilities and for all reasonably
anticipated material losses, if any, as of such date in accordance with
generally accepted accounting principles. There exists no set of circumstances
that could reasonably be expected to result in any liability or obligation
material to it or its Subsidiaries, taken as a whole, except as disclosed in
such consolidated financial statements at December 31, 1994 or for transactions
effected or actions occurring or expected to be taken after December 31, 1994
(i) in the ordinary course of business, (ii) as permitted by this Agreement or
(iii) as disclosed in the SEC Reports filed with the SEC since January 1, 1992
and before the date of this Agreement. A true and complete copy of such
December 31, 1994 financial statements has been delivered by it to the other
party.
(b) It has delivered to the other party each SEC Report filed,
used or circulated by it with respect to periods since January 1, 1992 through
the date of this Agreement and will promptly deliver each such SEC Report
filed, used or circulated after the date hereof, each in the form (including
exhibits and any amendments thereto) filed with the SEC or the OTS (or, if not
so filed, in the form used or circulated), including, without limitation, its
Annual Reports on Form 10-K and its Quarterly Reports on Form 10-Q
2.5 Absence of Changes.
(a) Since December 31, 1994, there has been no material
adverse change affecting it and its Subsidiaries, taken as a whole. There is
no occurrence, event or development of any nature existing or, to its best
knowledge, threatened which may reasonably be expected to have a material
adverse effect upon it or any of its Subsidiaries.
(b) Except as set forth in Section 2.5 of its Disclosure
Schedule or in its SEC Reports filed with the SEC since January 1, 1992 and
before the date of this Agreement, since December 31, 1994, each of it and its
Subsidiaries has owned and operated its respective assets, properties and
businesses in the ordinary course of business and consistent with past
practice.
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2.6 Prospectus/Joint Proxy Statement. At the time the
Prospectus/Joint Proxy Statement is mailed to the stockholders of Charter and
FirstFed for the solicitation of proxies for the approvals referred to in
Section 1.7 hereof and at all times after such mailings up to and including the
times of such approvals, such Prospectus/Joint Proxy Statement (including any
supplements thereto), with respect to all information set forth therein
relating to it (including its Subsidiaries) and its stockholders, its common
stock, this Agreement, the Merger and the other transactions contemplated
hereby, will:
(a) Comply in all material respects with applicable
provisions of the Securities Act, the Securities Exchange Act and the rules and
regulations under such Acts; and
(b) Not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
in order to make the statements contained therein, in light of the
circumstances under which it is made, not misleading.
2.7 No Broker's or Finder's Fees. No agent, broker, investment
banker, person or firm acting on behalf or under authority of it or any of its
Subsidiaries is or will be entitled to any broker's or finder's fee or any
other commission or similar fee directly or indirectly in connection with the
Merger or any other transaction contemplated hereby, except as set forth in
Section 2.7 of its Disclosure Schedule.
2.8 Litigation and Other Proceedings. Except for matters which
would not have a material adverse effect on it and its Subsidiaries taken as a
whole, or except as set forth in Section 2.8 of its Disclosure Schedule or its
SEC Reports filed with the SEC since January 1, 1992, neither it nor any of its
Subsidiaries is a defendant in, nor is any of its property subject to, any
pending or, to its best knowledge, threatened claim, action, suit,
investigation or proceeding or subject to any judicial order, judgment or
decree.
2.9 Compliance with Law. Except as set forth in Section 2.9 of
its Disclosure Schedule or its SEC Reports filed with the SEC since January 1,
1992:
(a) It and each of its Subsidiaries are in compliance in
all material respects with all laws, regulations, ordinances, rules, judgments,
orders or decrees applicable to their respective operations or with respect to
which compliance is a condition of engaging in their respective business,
including without limitation the Equal Credit Opportunity Act, the Fair Housing
Act, the Community Reinvestment Act, the Home Owners' Disclosure Act and all
other applicable fair lending laws or other laws relating to discrimination.
Neither it nor any of its Subsidiaries has received notice from any federal,
state or local government or governmental agency of any material violation of,
and does not know of any material violations of, any of the above.
(b) It and each of its Subsidiaries have all permits,
licenses, certificates of authority, orders and approvals of, and have made all
filings, applications and registrations with, all federal, state, local and
foreign governmental or regulatory bodies that are required in order to permit
them to carry on their respective businesses as they are presently conducted.
(c) It and each of its Subsidiaries have received since
January 1, 1992 no notification or communication from any governmental entity
(including, but not limited to, the OTS and any other regulatory authority) or
the staff thereof (A) asserting that it or any of its Subsidiaries is not in
compliance with any of the statutes, regulations or ordinances that such
governmental entity administers or enforces; (B) threatening to revoke any
license, franchise, permit or governmental authorization; or (C) threatening or
contemplating revocation or limitation of, or which would have the effect of
revoking or limiting, the FDIC deposit insurance of any Bank Subsidiary (nor,
to the best knowledge of its executive officers, do any grounds for any of the
foregoing exist); and
(d) It and each of its Subsidiaries are not required to
give prior notice to any federal banking or savings institution regulatory
agency of the proposed addition of an individual to their respective board of
directors or the employment of an individual as a senior executive officer.
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2.10 Corporate Actions.
(a) Its Board of Directors (or its Bank Subsidiary that
is a named party to the Bank Merger Agreement, as applicable) has (i) duly
approved the Merger, this Agreement, the Bank Merger Agreement, each Stock
Option Agreement, and the Voting Agreements and authorized its officers to
execute and deliver this Agreement, the Bank Merger Agreement, each Stock
Option Agreement and the Voting Agreements and to take all action necessary to
consummate the Merger and the other transactions contemplated hereby, (ii)
authorized and directed the submission for stockholders' approval of this
Agreement, the Merger and any related matters requiring such approval
including, in the case of Charter, amendments to the Restated Certificate of
Incorporation of Charter as contemplated in Section 1.7(a) herein and, (iii) in
the case of the representations and warranties of Charter, (A) approved the
execution of the Charter Stock Option Agreement and authorized and approved the
Company Merger (before execution by Charter of this Agreement and before the
date of execution of the Charter Stock Option Agreement) in accordance with
Section 203 of the DGCL and (B) not taken any action to readopt the restriction
set forth in paragraph A of Article FIFTH of its Restated Certificate of
Incorporation, not extended the period through which such restriction operates
and such restriction is not presently in effect.
(b) Its Board of Directors has taken all necessary action
to exempt this Agreement, the Bank Merger Agreement, the Voting Agreements and
the Stock Option Agreement and the transactions contemplated hereby and thereby
from, and this Agreement, the Bank Merger Agreement and the Stock Option
Agreement and the transactions contemplated hereby and thereby are exempt from,
(i) any applicable state takeover laws, (ii) any state laws limiting or
restricting the voting rights of stockholders, (iii) any state laws requiring a
stockholder approval vote in excess of the vote normally required in
transactions of similar type not involving a "related person," "interested
stockholder" or person or entity of similar type and (iv) any provision in its
or any of its Subsidiaries' articles of incorporation, certificate of
incorporation, charter or bylaws, (A) restricting or limiting stock ownership
or the voting rights of stockholders or (B) requiring a stockholder approval
vote in excess of the vote normally required in transactions of similar type
not involving a "related person," interested stockholder" or person or entity
of similar type.
(c) In the case of the representations and
warranties of Charter, the Board of Directors of Charter has approved, and has
authorized Charter to enter into and keep in effect (including, to the extent
applicable, subsequent to termination of this Agreement) an amendment (the
"Rights Amendment") to the Charter Rights Agreement (a copy of which Rights
Amendment has been executed by both parties thereto and is attached hereto as
Exhibit 2.10(c)) pursuant to which none of the execution and delivery of this
Agreement, or the Charter Stock Option Agreement or consummation of the Merger
or the purchase of shares of Charter Common Stock pursuant to the Charter Stock
Option Agreement will cause (i) the rights issued pursuant to the Charter
Rights Agreement to become exercisable under the Rights Agreement, (ii)
FirstFed or any permitted transferee under the Charter Stock Option Agreement
to become an "Acquiring Person" (as such term is defined in the Charter Rights
Agreement) or (iii) a "Distribution Date" or "Stock Acquisition Date" (as such
terms are defined in the Rights Agreement) to occur upon, as a result of or in
connection with any such event.
2.11 Authority. Except as set forth in Section 2.11 of its
Disclosure Schedule, neither the execution and delivery of and performance of
its obligations under this Agreement, the Bank Merger Agreement and the Stock
Option Agreement by it or its applicable Bank Subsidiary nor consummation of
the Merger will violate any of the provisions of, or constitute a breach or
default under or give any person the right to terminate or accelerate payment
or performance under, (i) its articles of incorporation, certificate of
incorporation or bylaws, or the articles of incorporation, certificate of
incorporation, charter or bylaws of any of its Subsidiaries, (ii) any
regulatory restraint on the acquisition of it or control thereof, (iii) any
law, rule, ordinance or regulation or judgment, decree, order, award or
governmental or non-governmental permit or license to which it or any of its
Subsidiaries is subject or (iv) any material agreement, lease, contract, note,
mortgage, indenture, arrangement or other obligation or instrument ("Contract")
to which it or any of its Subsidiaries is a party or is subject or by which any
of its or their properties or assets is bound. The parties acknowledge that
the consummation of the Merger and the other transactions contemplated hereby
is subject to various regulatory approvals. It or its applicable Bank
Subsidiary has all requisite corporate power and authority to enter into this
Agreement, the Bank Merger Agreement and each Stock Option Agreement and to
perform its obligations hereunder and thereunder, except, with respect to this
Agreement and the Company Merger, the approval of its stockholders required
under applicable law. Other than
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the receipt of Governmental Approvals (as defined in Section 4.1(c)), the
approval of its stockholders and except as set forth in Section 2.11 of its
Disclosure Schedule with respect to any Contract, no consents or approvals are
required on its behalf or on behalf of any of its Subsidiaries in connection
with the consummation of the transactions contemplated by this Agreement, the
Bank Merger Agreement and each Stock Option Agreement. This Agreement and each
Stock Option Agreement constitute the valid and binding obligations of it, and
each is enforceable in accordance with its terms, except as enforceability may
be limited by applicable laws relating to bankruptcy, insolvency or creditors
rights generally and general principles of equity.
2.12 Employment Arrangements. Except as set forth in Section 2.12
of its Disclosure Schedule, there are no agreements, plans or other
arrangements with respect to employment, severance or other benefits with any
current or former directors, officers or employees of it or any of its
Subsidiaries which may not be terminated without penalty or expense (including
any augmentation or acceleration of benefits) on 30 days' or less notice to any
such person. Except as set forth in Section 2.12 of its Disclosure Schedule,
no payments and benefits (including any augmentation or acceleration of
benefits) to current or former directors, officers or employees of it or any of
its Subsidiaries resulting from the transactions contemplated hereby or the
termination of such person's service or employment within two years following
consummation of the Merger will cause the imposition of excise taxes under
Section 4999 of the Internal Revenue Code or the disallowance of a deduction to
it, the Surviving Corporation, or any of their respective Subsidiaries pursuant
to Sections 162, 280G or any other section of the Internal Revenue Code.
2.13 Employee Benefits. (a) Neither it nor any of its Subsidiaries
maintains any funded deferred compensation plans (including profit sharing,
pension, retirement savings or stock bonus plans), unfunded deferred
compensation arrangements or employee benefit plans as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
other than any plans ("Employee Plans") set forth in Section 2.13 of its
Disclosure Schedule (true and correct copies of which it has delivered to the
other party). Neither it nor any of its Subsidiaries has incurred or
reasonably expects to incur any liability to the Pension Benefit Guaranty
Corporation except for required premium payments which, to the extent due and
payable, have been paid. The Employee Plans intended to be qualified under
Section 401(a) of the Internal Revenue Code are so qualified, and it is not
aware of any fact which would adversely affect the qualified status of such
plans. Except as set forth in Section 2.13 of its Disclosure Schedule, neither
it nor any of its Subsidiaries (a) provides health, medical, death or survivor
benefits to any former employee, director or officer or beneficiary thereof or
(b) maintains any form of current (exclusive of base salary and base wages) or
deferred compensation, bonus, stock option, stock appreciation right, benefit,
severance pay, retirement, employee stock ownership, incentive, group or
individual health insurance, welfare or similar plan or arrangement for the
benefit of any single or class of directors, officers or employees, whether
active or retired (collectively "Benefit Arrangements").
(b) Except as disclosed in Section 2.13 of its Disclosure
Schedule, all Employee Plans and Benefit Arrangements which are in effect were
in effect for substantially all of calendar year 1994 and there has been no
material amendment thereof (other than amendments required to comply with
applicable law or as contemplated by Section 3.13 herein) or material increase
in the cost thereof or benefits payable thereunder on or after January 1, 1994.
(c) To its best knowledge, with respect to all Employee
Plans and Benefit Arrangements, it and each of its Subsidiaries are in
substantial compliance with the requirements prescribed by any and all
statutes, governmental or court orders or rules or regulations currently in
effect, including but not limited to ERISA and the Internal Revenue Code,
applicable to such Employee Plans or Benefit Arrangements. No condition exists
that could constitute grounds for the termination of any Employee Plan under
Section 4042 of ERISA; no "prohibited transaction," as defined in Section 406
of ERISA and Section 4975 of the Internal Revenue Code, has occurred with
respect to any Employee Plan, or any other employee benefit plan maintained by
it or any of its Subsidiaries which is covered by Title I of ERISA, which could
subject any person to liability under Title I of ERISA or to the imposition of
any tax under Section 4975 of the Internal Revenue Code which could have an
adverse effect on the business, assets, financial condition, results of
operations or prospects of it or any of its Subsidiaries; to its best
knowledge, no Employee Plan subject to Part III of Subtitle B of Title I of
ERISA or Section 412 of the Internal Revenue Code, or both, has incurred any
"accumulated funding deficiency," as defined in Section 412 of the Internal
Revenue Code, whether or not waived; neither it nor any of its Subsidiaries has
failed to make any
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contribution or pay any amount due and owing as required by the terms of any
Employee Plan or Benefit Arrangement. To its best knowledge, neither it nor
any of its Subsidiaries has incurred or expects to incur, directly or
indirectly, any liability under Title IV of ERISA arising in connection with
the termination of, or a complete or partial withdrawal from, any plan covered
or previously covered by Title IV of ERISA which could constitute a liability
of Charter as the Surviving Corporation or any of its Subsidiaries at or after
the Company Merger Effective Time. In the case of the representations and
warranties of FirstFed, (i) the present value of "benefit liabilities" (within
the meaning of 4001(a)(16) of ERISA) under the Defined Benefit Plan (as defined
in Section 3.13(a)), as of its latest valuation date and based upon the
actuarial assumptions currently prescribed for plan terminations by the Pension
Benefit Guaranty Corporation, did not exceed the then current value of the
assets of such plan allocable to such accrued benefits, and (ii) there have
been no reportable events under Section 4043 of ERISA (with respect to which
the 30-day notice requirement has not been waived by regulation) with respect
to the Defined Benefit Plan.
2.14 Information Furnished. No statement contained in any
schedule, certificate or other document furnished (whether before, on or after
the date of this Agreement) or to be furnished in writing by or on behalf of it
to the other party pursuant to this Agreement contains or will contain any
untrue statement of a material fact or any material omission. To its best
knowledge, no information which is material to the Merger and necessary to make
the representations and warranties herein not misleading has been withheld from
the other party.
2.15 Property and Assets. (i) It and its Subsidiaries have good
and marketable title to all of their real property reflected in the financial
statements at December 31, 1994, referred to in Section 2.4 hereof (other than
property sold or transferred in the ordinary course of business since the date
of such financial statements) or acquired subsequent thereto, free and clear of
all Encumbrances, except for (a) such items shown in such financial statements
or in the notes thereto, (b) liens for current real estate taxes not yet
delinquent, (c) customary easements, restrictions of record and title
exceptions that have no material adverse effect upon the value or use of such
property, (d) pledges or liens incurred in the ordinary course of business and
(e) as otherwise specifically indicated in its SEC Reports filed with the SEC
since January 1, 1992 and before the date of this Agreement or in Section 2.15
of its Disclosure Schedule. (ii) It and its Subsidiaries enjoy peaceful and
undisturbed possession under all material leases for the use of real property
under which they are the lessee; all of such leases are valid and binding and
in full force and effect, and neither it nor any of its Subsidiaries is in
default in any material respect under any such lease. No default will arise
under any material real property or material personal property lease by reason
of consummation of the Merger without the lessor's consent except as set forth
in Section 2.15 of its Disclosure Schedule. (iii) There has been no material
physical loss, damage or destruction, whether or not covered by insurance,
affecting the real properties of it and its Subsidiaries since December 31,
1994. Except as set forth in Section 2.15 of its Disclosure Schedule, all
property and assets material to its or any of its Subsidiaries' respective
business and currently used by it or any of its Subsidiaries are, in all
material respects, in good operating condition and repair.
2.16 Agreements and Instruments. Except as set forth in its SEC
Reports filed with the SEC since January 1, 1992 and before the date of this
Agreement or in Section 2.16 of its Disclosure Schedule, neither it nor any of
its Subsidiaries is a party to (a) any material agreement, arrangement or
commitment not made in the ordinary course of business, (b) any agreement,
indenture or other instrument relating to the borrowing of money by it or any
of its Subsidiaries or the guarantee by it or of its Subsidiaries of any such
obligation (other than Federal Home Loan Bank advances with a maturity of one
year or less from the date hereof), (c) any agreements to make loans or for the
provision, purchase or sale of goods, services or property between it or any of
its Subsidiaries and any director or officer of it or any of its Subsidiaries
or any affiliate or member of the immediate family of any of the foregoing, (d)
any agreements with or concerning any labor or employee organization to which
it or any of its Subsidiaries is a party, (e) any agreements between it or any
of its Subsidiaries and any five percent or more stockholder of it and (f) any
agreements, directives, orders or similar arrangements between or involving it
or any of its Subsidiaries and any state or federal savings institution
regulatory authority.
2.17 Material Contract Defaults. Neither it or any of its
Subsidiaries nor the other party thereto is in default in any respect under any
contract, agreement, commitment, arrangement, lease, insurance policy or other
instrument to which it or any Subsidiary of it is a party or by which its
respective assets, business or operations may be bound or affected or under
which it or its respective assets, business or operations receives benefits,
which default is reasonably expected to have either individually or in the
aggregate a material adverse effect on it or any
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of its Subsidiaries, and there has not occurred any event that, with the lapse
of time or the giving of notice or both, would constitute such a default.
2.18 Tax Matters. (a) It and each of its Subsidiaries have duly
and properly filed all federal, state, local and other tax returns and reports
required to be filed by them and have made timely payments of all taxes due and
payable, whether disputed or not; the current status of audits of such returns
or reports by the Internal Revenue Service ("IRS") and other applicable tax
authorities is as set forth in Section 2.18 of its Disclosure Schedule; and,
except as set forth in Section 2.18 of its Disclosure Schedule, there is no
agreement by it or any of its Subsidiaries for the extension of time or for the
assessment or payment of any taxes payable. Except as set forth in Section
2.18 of its Disclosure Schedule, neither the IRS nor any other taxing authority
is now asserting or, to its best knowledge, threatening to assert any
deficiency or claim for additional taxes (or interest thereon or penalties in
connection therewith), nor is it aware of any basis for any such assertion or
claim. It and each of its Subsidiaries have complied in all material respects
with applicable IRS backup withholding requirements. It and each of its
Subsidiaries have complied with all applicable state law tax collection and
reporting requirements.
(b) Adequate provision for any unpaid federal, state,
local or foreign taxes due or to become due from it or any of its Subsidiaries
for all periods through and including December 31, 1994 has been made and is
reflected in its December 31, 1994 consolidated financial statements referred
to in Section 2.4 and has been or will be made with respect to periods ending
after December 31, 1994.
2.19 Environmental Matters. To its best knowledge, except as set
forth in Section 2.19 of its Disclosure Schedule neither it nor any of its
Subsidiaries owns, leases or otherwise controls any property affected by toxic
waste, radon gas or other hazardous conditions or constructed in part with the
use of asbestos. Neither it nor any of its Subsidiaries is aware of, nor has
it or any of its Subsidiaries received written notice from any governmental or
regulatory body of, any past, present or future conditions, activities,
practices or incidents which may interfere with or prevent compliance or
continued compliance with hazardous substance laws or any regulation, order,
decree, judgment or injunction, issued, entered, promulgated or approved
thereunder or which may give rise to any common law or legal liability or
otherwise form the basis of any claim, action, suit, proceeding, hearing or
investigation based on or related to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling, or the emission,
discharge, release or threatened release into the environment, of any
pollutant, contaminant, chemical or industrial, toxic or hazardous substance or
waste. There is no civil, criminal or administrative claim, action, suit,
proceeding, hearing or investigation pending or, to its knowledge, threatened
against it or any of its Subsidiaries relating in any way to such hazardous
substance laws or any regulation, order, decree, judgment or injunction issued,
entered, promulgated or approved thereunder.
2.20 Loan Portfolio; Portfolio Management. (a) All evidences of
indebtedness reflected as assets in its financial statements at December 31,
1994, referred to in Section 2.4 herein, or originated or acquired since such
date, are (except with respect to those assets which are no longer assets of it
or any of its Subsidiaries) binding obligations of the respective obligers
named therein except as enforcement may be limited by bankruptcy, insolvency or
other similar laws affecting the enforcement of creditors rights generally and
except as to the availability of equitable remedies, including specific
performance, which are subject to the discretion of the court before which a
proceeding is brought, and the payment of no material amount thereof (either
individually or in the aggregate with other evidences of indebtedness) is
subject to any defenses or offsets which have been threatened or asserted
against it or any Subsidiary. All such indebtedness which is secured by an
interest in real property is secured by a valid and perfected mortgage lien
having the priority specified in the loan documents. All loans originated or
purchased by it or any of its Subsidiaries were at the time entered into and at
all times owned by it or its Subsidiaries in compliance in all material
respects with all applicable laws and regulations (including, without
limitation, all consumer protection laws and regulations). It and its
Subsidiaries (as applicable) administer their loan and investment portfolios
(including, but not limited to, adjustments to the interest rate and payment on
adjustable mortgage loans) in accordance with all applicable laws and
regulations and the terms of applicable instruments. The records of it and any
of its Subsidiaries (as applicable) regarding all loans outstanding on its
books are accurate in all material respects. The risk classification system
utilized by its Bank Subsidiaries has been established in accordance with the
requirements of the OTS.
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(b) Section 2.20 of its Disclosure Schedule sets forth a
list, accurate and complete in all material respects, of the aggregate amounts
of loans, extensions of credit and other assets of it and its Subsidiaries that
have been adversely designated, criticized or classified by it as of March 31,
1995, separated by category of classification or criticism (the "Asset
Classification"); and no amounts of loans, extensions of credit or other assets
that have been adversely designated, classified or criticized as of the date
hereof by any representative of any government entity as "Special Mention,"
"Substandard," "Doubtful," "Loss" or words of similar import are excluded from
the amounts disclosed in the Asset Classification, other than amounts of loans,
extensions of credit or other assets that were charged off by it or any of its
Subsidiaries before the date hereof.
2.21 Real Estate Loans and Investments. Except for properties
acquired in settlement of loans, there are no facts, circumstances or
contingencies known to it or any of its Subsidiaries which exist and would
require a material reduction under generally accepted accounting principles in
the present carrying value of any of the real estate investments, joint
ventures, construction loans, other investments or other loans of it or any of
its Subsidiaries (either individually or in the aggregate with other loans and
investments).
2.22 Derivatives Contracts. Neither it nor any of its Subsidiaries
is a party to or has agreed to enter into an exchange-traded or
over-the-counter swap, forward, future, option, cap, floor or collar financial
contract or any other contract not included in its financial statement as of
December 31, 1994 filed as part of its SEC Reports or disclosed in its Form
10-Q as filed with the SEC for the quarter ended March 31, 1995 (or in its
financial statement included therein) which is a derivatives contract
(including various combinations thereof) (each, a "Derivatives Contract") or
owns securities that are identified in Thrift Bulletin No. 65 or otherwise
referred to as structured notes (each, a "Structured Note"), except for those
Derivatives Contracts and Structured Notes set forth in Section 2.22 of its
Disclosure Schedule, including a list, as applicable, of any of its or any of
its Subsidiaries' assets pledged as security for a Derivatives Contract.
2.23 Exceptions to Representations and Warranties. (a) On or
before the date hereof, Charter has delivered to FirstFed and FirstFed has
delivered to Charter its respective Disclosure Schedule setting forth, among
other things, exceptions to any and all of its representations and warranties
in Article II, provided that each exception set forth in a Disclosure Schedule
shall be deemed disclosed for purposes of all representations and warranties if
such exception is contained in a section of the Disclosure Schedule
corresponding to a Section in Article II and provided further that (i) no such
exception is required to be set forth in a Disclosure Schedule if its absence
would not result in the related representation or warranty being deemed untrue
or incorrect under the standard established by Section 2.23(b) and (ii) the
mere inclusion of an exception in a Disclosure Schedule shall not be deemed an
admission by a party that such exception represents a material fact, event or
circumstance or would result in a material adverse effect or material adverse
change.
(b) No representation or warranty of Charter or FirstFed
contained in Article II shall be deemed untrue or incorrect, and no party shall
be deemed to have breached a representation or warranty contained herein, as a
consequence of the existence of any fact, circumstance or event if such fact,
circumstance or event, individually or taken together with all similar facts,
circumstances or events, would not, or in the case of Section 2.8 is not
reasonably likely to, have a material adverse effect or material adverse
change.
As used in this Agreement, the term "material adverse effect" or
"material adverse change" means an effect or change which (i) is materially
adverse to the business, financial condition, results of operations or
prospects of Charter or FirstFed and its respective Subsidiaries taken as a
whole or (ii) enables any person to prevent the consummation of the
transactions contemplated hereby; provided however that any effect or change
resulting from (A) actions or omissions of Charter or FirstFed taken with the
prior consent of the other in contemplation of the transactions provided for
herein or (B) circumstances affecting the savings institution industry
generally (including changes in laws or regulations, accounting principles or
general levels of interest rates including, without limitation, the effects of
changes in interest rates on earnings, portfolio market value and interest rate
risk exposure) shall be deemed not to be or have a material adverse effect or
material adverse change.
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ARTICLE III
COVENANTS
3.1 Investigations; Access and Copies. Between the date of this
Agreement and the Company Merger Effective Time, each party agrees to give to
the other party and its respective representatives and agents full access (to
the extent lawful) to all of the premises, books, records and employees of it
and its Subsidiaries at all reasonable times and to furnish and cause its
Subsidiaries to furnish to the other party and its respective agents or
representatives access to and true and complete copies of such financial and
operating data, all documents with respect to matters to which reference is
made in Article II of this Agreement or on any list, schedule or certificate
delivered or to be delivered in connection herewith and such other documents,
records, or information with respect to the business and properties of it and
its subsidiaries as the other party or its respective agents or representatives
shall from time to time reasonably request; provided however, that any such
inspection (a) shall be conducted in such manner as not to interfere
unreasonably with the operation of the business of the entity inspected and (b)
shall not affect any of the representations and warranties hereunder. Each
party will also give prompt written notice to the other party of any event or
development which, (x) had it existed or been known on the date of this
Agreement, would have been required to be disclosed under this Agreement, (y)
would cause any of its representations and warranties contained herein to be
inaccurate or otherwise materially misleading or (z) materially relates to the
satisfaction of the conditions set forth in Article IV of this Agreement.
Notwithstanding anything to the contrary herein, neither party hereto nor any
of its Subsidiaries shall be required to provide access to or to disclose
information where such access or disclosure would jeopardize the
attorney-client privilege of the institution in possession or control of such
information or contravene any law, rule, regulation, order, judgment, decree,
fiduciary duty or binding agreement entered into prior to the date of this
Agreement or, in the event of any litigation or threatened litigation between
the parties over the terms of this Agreement, where access to information may
be adverse to the interests of such party. To the extent reasonably
practicable, the parties hereto will make appropriate substitute disclosure
arrangements under circumstances in which the restrictions of the preceding
sentence apply.
3.2 Conduct of Business. Between the date of this Agreement and
the Company Merger Effective Time or the termination of this Agreement
(whichever occurs first), each party agrees, on behalf of itself and each of
its respective Subsidiaries, except as contemplated herein or insofar as the
Chief Executive Officer of Charter or the Chief Executive Officer or the Chief
Financial Officer of FirstFed shall otherwise consent in writing (which consent
shall not be unreasonably withheld):
(a) That it and its Subsidiaries shall (i) except as
contemplated in this Agreement, conduct their business only in the ordinary
course consistent with past practices, (ii) maintain their books and records in
accordance with past practices and (iii) use all reasonable efforts to preserve
intact their business organizations and assets, to maintain their rights,
franchises and existing relations with customers, suppliers, employees and
business associates and to take no action that would (A) adversely affect the
ability of any of them to obtain the Governmental Approvals (as defined in
Section 4.1(c) herein) or which would reasonably be expected to hinder or delay
receipt of the Governmental Approvals or (B) adversely affect its ability to
perform its obligations under this Agreement, the Company Merger Agreement, the
Bank Merger Agreement or the applicable Stock Option Agreement;
(b) That it and its Subsidiaries shall not: (i) declare,
set aside or pay any dividend or make any other distribution with respect to
its capital stock, except for (A) the payment of dividends consistent with
Section 3.10, (B) the declaration and payment of regular quarterly cash
dividends by Charter in an amount not in excess of $0.19 per outstanding share
of Charter Common Stock (except that beginning with the first dividend declared
by the Charter Board of Directors subsequent to October 1, 1995 and every six
months thereafter such dividend may be increased by $.02 per share from the
dividend last declared prior thereto) and the declaration and payment of
regular quarterly cash dividends by FirstFed in an amount not in excess of
$0.15 per outstanding share of FirstFed Common Stock (except that beginning
with the first dividend declared by the FirstFed Board of Directors subsequent
to July 1, 1995 and every six months thereafter such dividend may be increased
by $.01 per share from the dividend last declared prior thereto), in each case
with usual record and payment dates for such dividends consistent with such
parties' past dividend practices, and (C) dividends or distributions by a
wholly owned Subsidiary of such party to such party; (ii) reacquire or buy any
of its outstanding shares; (iii) issue or sell or buy
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any shares of capital stock of it or any of its Subsidiaries, except shares of
its common stock issued pursuant to the Stock Option Agreement and shares
issued pursuant to exercise of stock options previously issued and identified
in Section 2.2 of its Disclosure Schedule; (iv) effect any stock split, stock
dividend, reverse stock split other reclassification or recapitalization of its
common stock; or (v) except with respect to the Stock Option Agreement, grant
any options or issue any warrants exercisable for or securities convertible or
exchangeable into capital stock of it or any of its Subsidiaries or grant any
stock appreciation or other rights with respect to shares of capital stock of
it or of any of its Subsidiaries; or (vi) purchase or acquire any of the
outstanding shares of capital stock of the other party hereto or any Subsidiary
thereof other than as contemplated by the Stock Option Agreement or in
connection with the Merger as contemplated herein;
(c) That, except where the provisions herein are limited
to a specific party and/or its Subsidiaries, it and its Subsidiaries shall not:
(i) sell, dispose of or pledge any significant assets of it or of any of its
Subsidiaries other than in the ordinary course of business consistent with past
practices or in connection with the borrowing of funds consistent with the
provisions hereinafter contained; (ii) merge or consolidate it or any of its
Subsidiaries with or into any other entity or otherwise acquire any other
entity or except in accordance with its written business plan in effect on the
date hereof acquire any significant assets; (iii) sell or pledge or agree to
sell or pledge or permit any lien to exist on any stock of any of its
Subsidiaries owned by it; (iv) change the articles of incorporation or
certificate of incorporation, charter, bylaws or other governing instruments of
it or any of its Subsidiaries, except as contemplated in this Agreement; (v)
engage in any lending activities other than in the ordinary course of business
consistent with past practices but subject to the restrictions contained in
Section 3.2(e) hereof and provided Charter and FirstFed and their respective
Subsidiaries collectively shall limit their new loans to a Relationship (as
defined herein) to $15,000,000; for purposes of this Agreement, a
"Relationship" means common borrowers, guarantors or partners or other
relationships considered related or affiliated by management of the lending
entity; (vi) form any new subsidiary (except in the case of Charter it may form
a consumer finance subsidiary) or cause or permit a material change in the
activities presently conducted by any Subsidiary or make additional investments
in subsidiaries in excess of $25,000,000 except for Charter's leasing
subsidiary where such investment shall not exceed $100,000,000; (vii) except to
hedge interest rate risk on certificates of deposit with respect to Charter,
engage in any off balance sheet interest rate swap, cap or floor agreement;
(viii) engage in any activity not contemplated by its written business plan in
effect on the date hereof; (ix) purchase any equity securities other than
Federal Home Loan Bank stock; (x) make any investment which would cause any
Banking Subsidiary not to be a qualified thrift lender under Section 10(m) of
the HOLA or a "domestic building and loan association" as defined in Section
7701(a)(19) of the Internal Revenue Code; (xi) authorize capital expenditures
other than in the ordinary and usual course of business; (xii) implement or
adopt any change in its accounting principles, practices or methods other than
as may be required by generally accepted accounting principles; or (xiii)
engage any independent auditors other than such auditors engaged as of the date
hereof. The limitations contained in this Section 3.2(c) shall also be deemed
to constitute limitations as to the making of any commitment with respect to
any of the matters set forth in this Section 3.2(c).
(d) That, except where the provisions herein are limited to a
specific party and/or its Subsidiaries, it and its Subsidiaries shall not: (i)
in the case of FirstFed and its Subsidiaries incur any debt obligation
(excluding deposits) or other obligation for borrowed money with terms in
excess of one year; (ii) in the case of Charter and its Subsidiaries incur any
additional debt obligation (excluding deposits) or other obligation for
borrowed money other than replacing existing debt with other debt and creating
additional debt consistent with its written business plan in effect on the date
hereof; (iii) allow the use of its common stock by optionees to pay any option
exercise price or to satisfy tax liabilities under the FirstFed Option Plans or
the option plans of Charter; (iv) grant any general increase in compensation or
benefits to its employees or officers or pay any bonuses to its employees or
officers except in accordance with policies or budgets in effect on the date
hereof; (v) except as contemplated by Section 3.13 hereof, enter into, extend,
renew, modify, amend or otherwise change any employment or severance agreements
with any of its directors, officers or employees; (vi) grant any increase in
fees or other increases in compensation or other benefits to any of its present
or former directors in such capacity; or (vii) except as contemplated by
Section 3.13 hereof, establish or sponsor any new Employee Plan or Benefit
Arrangement or effect any change in its Employee Plans or Benefit Arrangements
(unless such change is required by applicable law or, in the opinion of its
counsel, is necessary to maintain continued qualification of any tax-qualified
plan that provides for retirement benefits).
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(e) That, except where the provisions herein are limited to a
specific party and/or its Subsidiaries, it and its Subsidiaries shall not: (i)
extend, restructure, modify or otherwise amend or alter any of the following
types of commercial real estate loans or commitments: (A) any loan secured by
real estate (or commitment to be secured by) real estate, in the case of
FirstFed and its Subsidiaries located in the State of Michigan or in the case
of Charter and its Subsidiaries located in the State of Ohio, with a loan
balance (or commitment amount) of $15,000,000 or greater if debt service
coverage in the prior year was 1.2 or greater, but if such debt service
coverage is less than 1.2 such limit shall be $3,000,000; (B) any loan or
commitment to a Relationship that has or would have (if the commitment was
fully implemented) loans exceeding $15,000,000; (C) any loan secured by (or
commitment to be secured by) real estate located outside the State of Michigan
in the case of FirstFed and its Subsidiaries or located outside the State of
Ohio in the case of Charter and its Subsidiaries with a loan balance of or a
commitment amount of $1,500,000 or greater; (D) any loan exceeding $1,000,000
as of the date of this Agreement which is more than 90 days delinquent as to
payment, in bankruptcy or foreclosure, or carried as a restructured troubled
debt; or (E) any loan with a balance of $500,000 or greater and internally
classified as Special Mention, Sub-Standard, Doubtful, or Loss as of the date
of this Agreement; for purposes of the dollar amounts set forth in subparts (A)
- (E) above any specific reserves or allocated general reserves shall be
reversed; (ii) foreclose upon, or take a deed-in-lieu of foreclosure to, any
commercial real estate securing a loan with an outstanding balance including
accrued interest of $1,000,000 or greater; (iii) take any individual commercial
mortgage or multi-family loan application in an amount greater than $10,000,000
or acquisition and development loan application in an amount greater than
$3,000,000; (iv) make any residential loan in an amount greater than
$1,000,000; (v) enter into or renew any contract for the purchase of consumer
loans (as defined by the rules and regulations of OTS), on a whole loan or
participation basis; or (vi) originate mobile home loans during calendar year
1995 (including pipeline loans in process) in an aggregate amount exceeding
$6,000,000.
3.3 No Solicitation. Each party agrees, on behalf of itself and
each of its Subsidiaries, that it will not authorize or permit any officer,
director, employee, investment banker, financial consultant, attorney,
accountant or other representative of it or any of its Subsidiaries, directly
or indirectly, to initiate contact with any person or entity in an effort to
solicit, initiate or encourage any "Takeover Proposal" (as such term is defined
below). Except as the fiduciary duties of its Board of Directors may otherwise
require (as determined in good faith after consultation with legal counsel),
each party agrees that it will not authorize or permit any officer, director,
employee, investment banker, financial consultant, attorney, accountant or
other representative of it or any of its Subsidiaries, directly or indirectly,
(A) to cooperate with, or furnish or cause to be furnished any non-public
information concerning its business, properties or assets to, any person or
entity in connection with any Takeover Proposal; (B) to negotiate any Takeover
Proposal with any person or entity; or (C) to enter into any agreement, letter
of intent or agreement in principle as to any Takeover Proposal. Each party
agrees that it shall promptly give written notice to the other upon becoming
aware of any Takeover Proposal, such notice to contain, at a minimum, the
identity of the persons submitting the Takeover Proposal, a copy of any written
inquiry or other communication, the terms of any Takeover Proposal, any
information requested or discussions sought to be initiated and the status of
any requests, negotiations or expressions of interest. As used in this
Agreement, "Takeover Proposal" shall mean any proposal, other than as
contemplated by this Agreement, for a merger or other business combination
involving either party or any of their respective Bank Subsidiaries or for the
acquisition of a twenty- five percent (25%) or greater equity interest in
either party or any of their respective Bank Subsidiaries, or for the
acquisition of a substantial portion of the assets of either party or any of
their respective Bank Subsidiaries.
3.4 Stockholder Approvals. The parties shall call the meetings of
their respective stockholders to be held for the purpose of voting upon the
Merger and related matters, as referred to in Section 1.7 hereof, as soon as
practicable. In connection with the Charter and FirstFed Stockholders'
Meetings, the respective Boards of Directors shall recommend approval of this
Agreement, the Merger and any other matters requiring stockholder action
(including, in the case of Charter, the amendments to its Restated Certificate
of Incorporation as contemplated in Section 1.7(a) herein) relating to the
transactions contemplated herein (and such recommendation shall be contained in
the Prospectus/Joint Proxy Statement) unless as a result of an unsolicited
Takeover Proposal received by a party after the date hereof, the Board of
Directors of such party determines in good faith after consultation with legal
counsel and an investment banking firm of recognized standing that to do so
would constitute a breach of the fiduciary duties of such Board of Directors to
the stockholders of such party. Each of the parties shall use its best efforts
to solicit from its stockholders proxies in favor of approval and to take all
other action necessary or helpful to secure a vote of the holders of the
outstanding shares of its common stock in favor of the Merger and, in the case
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of Charter, the amendments to its Restated Certificate of Incorporation as
contemplated in Section 1.7(a) herein, except as the fiduciary duties of its
Board of Directors may otherwise require.
3.5 Accountants' Letters. Each party agrees to use all reasonable
efforts to cause to be delivered to the other, and such other party's directors
and officers who sign the Registration Statement, a letter of its independent
auditors, dated (i) the date on which the Registration Statement shall become
effective and (ii) a date on or shortly prior to the date of the Closing, and
addressed to such other party, and such directors and officers, in form and
substance customary for "comfort" letters delivered by independent accountants
in connection with registration statements similar to the Registration
Statement.
3.6 Resale Letter Agreements; Accounting and Tax Treatment. After
execution of this Agreement, (i) each party shall use its respective best
efforts to cause to be delivered to the other from each Affiliate of it within
the meaning of Rule 145, a written letter agreement as of a date on or
immediately prior to the date of the Charter Stockholders' Meeting or the
FirstFed Stockholders' Meeting, respectively, in the forms as set forth in
Exhibits 3.6(a) and 3.6(b), regarding restrictions on resale of shares of the
Charter Common Stock, to ensure compliance with applicable restrictions imposed
under the federal securities laws and generally accepted accounting principles
for pooling of interests accounting treatment and prior to the Company Merger
Effective Time each of the parties shall use its best efforts to secure such
written letter agreement from persons who become an Affiliate of it subsequent
to the date of its Stockholders' Meeting, and (ii) neither party shall take any
action which would prevent the Merger and the other transactions contemplated
hereby from (A) qualifying for accounting treatment as a pooling of interests
or (B) qualifying as a reorganization within the meaning of Section 368 of the
Internal Revenue Code, provided that nothing hereunder shall limit the ability
of either party to exercise its rights under the Stock Option Agreement.
3.7 Publicity. Between the date of this Agreement and the Company
Merger Effective Time, neither party nor any of its Subsidiaries shall, without
the prior approval of the other party, issue or make, or permit any of its
directors, employees, officers or agents to issue or make, any press release,
disclosure or statement to the press or any third party with respect to the
Merger or the other transactions contemplated hereby, except as required by
law. The parties shall cooperate when issuing or making any press release,
disclosure or statement with respect to the Merger or the other transactions
contemplated hereby.
3.8 Cooperation Generally. Between the date of this Agreement and
the Company Merger Effective Time, the parties and their respective
Subsidiaries shall in conformance with the provisions of this Agreement use
their best efforts, and take all actions necessary or appropriate, to
consummate the Merger and the other transactions contemplated hereby at the
earliest practicable date.
3.9 Additional Financial Statements and Reports. As soon as
reasonably practicable after they become publicly available, each party shall
furnish to the other its statements of financial condition, statements of
operations or statements of income, statements of cash flows and statements of
changes in stockholders' equity at all dates and for all periods normally
prepared before the Closing. Such financial statements will be prepared in
conformity with generally accepted accounting principles applied on a
consistent basis and fairly present the financial condition, results of
operations and cash flows of the respective parties (subject, in the case of
unaudited financial statements, to (a) normal year-end audit adjustments, (b)
any other adjustments described therein and (c) the absence of notes which, if
presented, would not differ materially from those included with its most recent
audited consolidated financial statements), and all of such financial
statements will be prepared in conformity with the requirements of Form 10-Q or
Form 10-K, as applicable, under the Exchange Act.
3.10 Dividend Adjustment. If the customary payment date for the next
regular cash dividend payable after the Company Merger Effective Time on the
Common Stock of Charter as the Surviving Corporation which is eligible to be
received by the former holders of FirstFed Common Stock is more than ninety
(90) days after the payment date of the last regular cash dividend paid or to
be paid on the Common Stock of FirstFed prior to the Company Merger Effective
Time (such number of days over ninety (90) days being the "Dividend Lag
Period"), then FirstFed may declare and set aside immediately prior to the
Company Merger Effective Time, and may pay at a date it may select in its
discretion, a Special Pro-Rata Dividend pursuant to this Section 3.10. Any
such Special Pro-Rata Dividend shall be payable in cash, and shall not exceed
an amount per share which is the product of (i)
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the amount of the dividend permitted to be paid by FirstFed pursuant to Section
3.2(b)(1)(B) herein, times (ii) a fraction, the numerator of which is the
Dividend Lag Period and the denominator of which is ninety (90) days.
3.11 Stock Exchange Listing. Charter agrees to use all reasonable
efforts to cause to be listed on the NASDAQ National Market, subject to
official notice of issuance, the shares of Charter Common Stock to be issued in
the Merger.
3.12 Certificate of Incorporation. During the period that the
Charter Stock Option Agreement is in effect, and (if applicable) upon and
following purchase of the shares of Charter Common Stock pursuant to the terms
of the Charter Stock Option Agreement, (i) Charter shall not readopt the
restriction set forth in paragraph A of Article FIFTH of Charter's Restated
Certificate of Incorporation or otherwise seek to extend the period through
which such restriction operates and Charter shall not under any circumstances
seek to enforce Article FIFTH during such period, and (ii) except as
contemplated herein, without the prior written consent of FirstFed, Charter
shall not amend or seek to amend Articles FIFTH, SIXTH or TENTH of its Restated
Certificate of Incorporation.
3.13 Employee Benefits and Agreements. (a) The FirstFed Salaried
Employees' Retirement Plan, as amended and restated effective January 1, 1993
and as subsequently amended (the "Defined Benefit Plan"), FirstFed Supplemental
Executive Retirement Plan, as amended and restated effective January 1, 1994
(the "SERP"), FirstFed Equity Performance and Appreciation Plan (the "EPAP")
and FirstFed Management Incentive Award Plan ("MIAP") shall each be terminated
by FirstFed and its Subsidiaries at or prior to the Company Merger Effective
Time (or alternatively in the case of the Defined Benefit Plan and the SERP,
which shall both be frozen on the same date, frozen or continued following the
Company Merger Effective Time until excess assets under the Defined Benefit
Plan can be allocated on a plan termination basis in accordance with ERISA and
the Internal Revenue Code to participants, former participants, if applicable,
or their respective beneficiaries). To the extent permitted under applicable
law, FirstFed may at any time amend its Defined Benefit Pension Plan and SERP
to freeze the accrual of future benefits as of any date on or before the
Company Merger Effective Time, to permit participants and their beneficiaries
to elect to receive their accrued benefits in the form of a lump sum payment
rather than an annuity, and to adjust the formula and qualifications for
determining benefits under the Defined Benefit Plan in any manner associated
with assuring that any excess funding in said plan (as of the calculation date
for the termination of the Defined Benefit Plan) inures solely to the benefit
of individuals who have become participants in the Defined Benefit Pension Plan
at or prior to the Company Merger Effective Time. Notwithstanding the
foregoing, on and after the Company Merger Effective Time, no additional
material contributions shall be made to FirstFed's Defined Benefit Plan from
the assets of FirstFed, Charter or any of their respective Subsidiaries, and
FirstFed shall cause the Defined Benefit Plan to be terminated, frozen, or
continued in a manner that does not result in any material funding obligation
by FirstFed, Charter or any of their respective Subsidiaries. In this context,
an amount shall be presumed to be immaterial if it either totals less than
$100,000, is necessary to satisfy the minimum funding requirements under ERISA
or the Code, or is necessary for the Defined Benefit Plan to be fully funded on
a termination basis based on benefit levels in effect on the date of execution
of this Agreement.
FirstFed and its Subsidiaries may continue to make and to accrue
benefits or awards under the SERP and MIAP, as well as to continue to accrue
for existing awards under the EPAP for accounting purposes, until the Company
Merger Effective Time consistent with the methodology heretofore utilized by it
during calendar year 1995, except that FirstFed may adjust such methodology to
reflect a short fiscal year for purposes of providing benefits under the MIAP,
and may determine said accruals by projecting the future value of FirstFed's
Common Stock consistent with current methodology, and by adjusting their
financial results to disregard conforming or other charges undertaken pursuant
to Section 3.14 of this Agreement; provided that FirstFed and its Subsidiaries
may amend the SERP in order to offset any increase in benefits under the
Defined Benefit Plan due to amendments to the Defined Benefit Plan that
allocate any excess funding to participants in the Defined Benefit Plan (or the
beneficiaries of such individuals). Notwithstanding the termination of the
SERP, EPAP, and MIAP at or prior to the Company Merger Effective Time, (i)
outstanding rights and awards as of the date of termination thereof to
participants shall not be diminished or otherwise adversely affected by virtue
of such termination and, (ii) long-term awards under the MIAP shall become
fully vested and payable in a lump sum on or before the Company Merger
Effective Time. No further award or grant of benefits shall be made under the
EPAP. The full value of all benefits and awards under the SERP, MIAP and EPAP
shall, to the extent not previously accrued on or before December
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31, 1994, be accrued by FirstFed and its Subsidiaries for financial reporting
purposes prior to the Company Merger Effective Time.
(b) Pending the Company Merger Effective Time, FirstFed
and its Subsidiaries shall be entitled to make, or accrue for, employer
contributions to the FirstFed Salaried Employees' Profit Sharing Plan, as
amended and restated effective January 1, 1993 (the "Profit Sharing Plan") in a
manner consistent with the methodology heretofore utilized by it during
calendar year 1995 and consistent therewith the Plan may be amended to provide
that "Profit Sharing Earnings" (as defined in the Profit Sharing Plan) shall be
calculated through the Company Merger Effective Time and multiplied by 4.5% to
determine the employer contribution for the Plan Year in which the Merger
occurs, to specify the manner in which compensation of Plan participants is to
be determined for such period and to specify a date by which participants must
elect whether amounts contributed on their behalf shall be paid to them in cash
or contributed to the Plan; provided that FirstFed and its Subsidiaries may
determine said accruals by adjusting their financial results to disregard
conforming or other charges undertaken pursuant to Section 3.14 of this
Agreement. After the Company Merger Effective Time, Charter may terminate the
Profit Sharing Plan, continue the Profit Sharing Plan on terms consistent with
Section 3.13(h) hereof, or merge the Profit Sharing Plan with another
tax-qualified retirement plan maintained by Charter or its Subsidiaries, all in
its sole discretion, but in a manner consistent with ERISA and the applicable
provisions of the Internal Revenue Code. The vested benefits of participants
in the Profit Sharing Plan shall not be reduced by virtue of any such
termination, continuation, or merger of the Profit Sharing Plan.
(c) With the exception of those employees of FirstFed,
Charter and their respective Subsidiaries who currently have written
employment, change in control or severance agreements ("Contract Severance
Agreements"), each employee of FirstFed, Charter and their respective
Subsidiaries whose employment is involuntarily terminated due to a job
elimination by Charter or any of their respective Subsidiaries at or within one
year after the Company Merger Effective Time shall be entitled to receive (i) a
severance payment determined in accordance with Exhibit 3.13(c) hereto, and
(ii) for full-time employees only, continued medical coverage and group-term
life insurance under the then current Charter group plan for medical and
group-term life insurance coverage for a period of 18 months after such
termination at the same cost being paid by such employee for individual and
dependent coverage immediately prior to the Company Merger Effective Time.
Moreover, COBRA-like group medical coverage for each such employee shall be
made available to each such employee for up to an additional 18 month period,
at a maximum cost of $500 per month for an employee's family group medical
coverage (with Charter as the Surviving Corporation paying any premiums in
excess of $500 per month). For purposes hereof, an employee described in
subparagraph (1) of Exhibit 3.13(c) shall be deemed to have his or her
employment involuntarily terminated due to a job elimination if (i) Charter or
one of its Subsidiaries discharges the employee from employment for a reason
other than "just cause", or (ii) the employee resigns from employment with
Charter Bank as a result of either a reduction in the employee's cash
compensation as in effect on the Company Merger Effective Time, or a
requirement that the employee perform his or her principal services at a
location more than 50 miles from the employee's primary office on the Company
Merger Effective Time. The outplacement programs and practices that are
disclosed in Section 2.13 of FirstFed Disclosure Schedule hereto shall be
continued for the benefit of employees of FirstFed and its Subsidiaries.
(d) With respect to those former employees of FirstFed
and its Subsidiaries who continue as employees of Charter and its Subsidiaries
after the Company Merger Effective Time (the "Continuing Employees"), their
regular salary in effect at FirstFed and its Subsidiaries on the Company Merger
Effective Time shall be increased on the Company Merger Effective Time by an
amount equivalent on an after-tax basis to the cost, at said time, that
FirstFed and its Subsidiaries were incurring to provide group dental insurance
for their employees (but not to exceed $50 per month). The vacation, leave and
sick day policies currently in effect at FirstFed and its Subsidiaries shall be
continued for the benefit of their employees through December 31, 1995, and if
the Company Merger Effective Time occurs prior to January 1, 1996, Charter and
its Subsidiaries shall continue such policies through December 31, 1995 for the
benefit of Continuing Employees. If the Company Merger Effective Time takes
place after December 31, 1995, FirstFed and its Subsidiaries shall adopt the
vacation, leave and sick day policies of Charter and its Subsidiaries effective
as of January 1, 1996; provided that FirstFed's adoption of said policies may,
in FirstFed's discretion, be contingent on the Company Merger becoming
effective. The Continuing Employees shall receive past service credit for
purposes of determining vacation benefits provided by Charter and its
Subsidiaries for their employment with FirstFed and its Subsidiaries (including
service with any entity acquired
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by FirstFed or FirstFed Bank).
The post-retirement benefit adjustment plan, retiree medical
plan and retiree life insurance program that are disclosed in Section 2.13 of
FirstFed Disclosure Schedule shall be continued for the benefit of those
retirees from FirstFed and its Subsidiaries currently receiving such benefits,
except that the post-retirement benefit adjustment plan may be terminated by
FirstFed and its Subsidiaries prior to the Company Merger Effective Time and
FirstFed may amend the Defined Benefit Plan to provide the post-retirement
adjustments formerly provided under said plan (and the full value of all
benefits and awards thereunder shall, to the extent not previously accrued on
or before December 31, 1994, be accrued by FirstFed and its Subsidiaries for
financial reporting purposes prior to the Company Merger Effective Time).
(e) Charter and FirstFed recognize and acknowledge that
the Company Merger constitutes a change in control for purposes of FirstFed's
Contract Severance Agreements. Charter and Charter Bank shall honor each
FirstFed Contract Severance Agreement in effect on the date hereof that is
disclosed in Section 2.12 of FirstFed Disclosure Schedule, unless the executive
covered thereby enters into a new agreement with Charter Bank cancelling his
FirstFed Contract Severance Agreement. Charter and FirstFed agree that any
such new agreement shall provide for a term of employment following the Company
Merger Effective Time of not less than four months.
(f) Each employee of Charter Bank that does not have a
Contract Severance Agreement and (i) holds a similar position at Charter Bank
to that held by an employee of FirstFed Bank with a Contract Severance
Agreement and (ii) whose employment is involuntarily terminated by Charter Bank
due to a job elimination at or within two years after the Company Merger
Effective Time shall be entitled to the identical severance payment that would
be provided to a similarly situated FirstFed Bank employee under the same
circumstances pursuant to Section 3.13(e) above.
(g) Charter agrees to continue to employ Messrs. Charles
John Koch, John D. Koch, Mark D. Grossi, and Robert J. Vana and to employ
Richard W. Neu as of the Company Merger Effective Time pursuant to employment
agreements and supplemental retirement agreements to be negotiated in good
faith and in a form to be mutually acceptable to Charter, FirstFed and each of
the individuals within 15 business days from the date hereof, in exchange for
the cancellation and termination of their existing employment agreements,
salary continuation agreements, and other existing employment rights with
Charter and Charter Bank or FirstFed and FirstFed Bank, as applicable. Charter
agrees to employ C. Gene Harling as of the Company Merger Effective Time
pursuant to a new employment agreement in the form attached hereto as Exhibit
3.13(g). Charter and FirstFed recognize and acknowledge that the change in
Mr. Harling's position that will result from the Company Merger constitutes
"Good Reason" under his existing Contract Severance Agreement with FirstFed and
FirstFed Bank. Accordingly, at the Company Merger Effective Time, Charter and
Charter Bank shall pay severance benefits to Mr. Harling in the amounts set
forth in his existing Contract Severance Agreement and shall otherwise honor
the terms of his Contract Severance Agreement.
(h) Subject to the provisions set forth in Section
3.13(a), (b), (c) and (d) above, from and after the Company Merger Effective
Time, Charter and its Subsidiaries shall have the right to continue, amend, or
terminate any of the employee benefit and welfare plans and programs of
FirstFed and its Subsidiaries. To the extent permitted by applicable law, from
and after the Company Merger Effective Time the former employees of FirstFed
and its Subsidiaries who are continuing employees of Charter or its
Subsidiaries (the "Continuing Employees") shall be entitled to participate in
the Charter employee benefit and welfare plans and programs (except to the
extent that coverage is provided under a continuing FirstFed plan or program,
it being agreed and understood that there shall be no duplication of benefits)
on the same basis that similarly-situated employees of Charter and its
Subsidiaries are entitled to participate in such plans and programs including,
but not limited to tax-qualified retirement plans and Charter's Executive Goal
Achievement Plan (but not earlier than January 1, 1996 in the case of
participation in Charter's Executive Goal Achievement Plan or similar
calendar-year incentive bonus plans) and supplemental health and life insurance
programs for similarly-situated executive employees. For 1995 payments or
awards under Charter's Executive Goal Achievement Plan and its similar
calendar-year incentive bonus plans, determinations will be calculated by
adjusting the financial results of Charter and its Subsidiaries to disregard
conforming or other charges undertaken pursuant to Section 3.14 of this
Agreement, and will be made by the Initial Directors who prior to the Company
Merger Effective Time served as directors of Charter, consistent with prior
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practice. For purposes of eligibility, participation and vesting in such
Charter plans and programs, the Continuing Employees shall receive past service
credit for their full-time employment with FirstFed and its Subsidiaries
(including service with any entity acquired by FirstFed or FirstFed Bank). The
Continuing Employees will not be subject to any exclusion or penalty for
pre-existing conditions that were covered under the FirstFed medical plan
immediately prior to the Company Merger Effective Time or any waiting period
relating to coverage under the Charter medical plan and they will receive full
credit for prior service and payment of current and past premiums, co-payments
and deductibles. If, on or after the date hereof, Charter or its Subsidiaries
adopts a new "employee benefit plan" within the meaning of ERISA for the
benefit of its employees generally, then to the extent participants receive a
credit for past service with Charter or its Subsidiaries, equivalent credit
shall be given to Continuing Employees for past service with FirstFed or its
Subsidiaries.
(i) Notwithstanding any other provision of this
Agreement, Charter agrees that FirstFed and its Subsidiaries may take such
actions on or before the Company Merger Effective Time as are necessary or
appropriate to effectuate the purposes of this Section 3.13, including but not
limited to (i) the adoption and execution of agreements and amendments relating
to the plans and programs referenced herein, and (ii) adoption and the
execution of agreements renewing the Contract Severance Agreements for an
additional term of two years, and (iii) the adoption and execution of any
amendment required by applicable law.
3.14 Conforming Adjustments. The parties and their respective
Subsidiaries shall cooperate in the establishment of additional accruals and
reserves ("Conforming Adjustments"). These Conforming Adjustments enable both
parties to conform accounting policies and practices as well as to conform
their interest rate risk position. The Conforming Adjustments shall, to the
extent determined by the parties, be made immediately prior to the Closing but
after the satisfaction or waiver of all conditions and/or obligations precedent
to Closing contained in Article IV of this Agreement as confirmed by the
parties at such time. Notwithstanding anything to the contrary contained in
this Agreement, (a) no Conforming Adjustment shall be taken into account for
purposes of determining contributions to qualified or non-qualified employee
benefit plans and (b) no Conforming Adjustment, or any litigation or regulatory
proceeding relating thereto, or any other effect on any party resulting from
its compliance with this Section 3.14, shall constitute or be deemed to be a
breach, violation of or failure to satisfy any representation, warranty,
covenant, condition or other provision of this Agreement or otherwise be
considered in determining whether any such breach, violation or failure to
satisfy shall have occurred or be deemed to constitute or cause a material
adverse effect or material adverse change on either party hereto or their
Subsidiaries, taken as a whole.
3.15 Amendments to Charter Rights Agreement. Charter shall cause the
Charter Rights Agreement to be further amended, effective as of the Company
Merger Effective Time, such that each time the percentage "10%" appears in
Sections 1(a) and 24(a)(ii) of the Charter Rights Agreement (and other
applicable sections thereof) it shall be deleted and replaced with the
percentage "20%".
ARTICLE IV
CONDITIONS OF THE MERGER;
TERMINATION OF AGREEMENT
4.1 General Conditions. The obligations of each party to effect
the Company Merger shall be subject to the satisfaction (or written waiver by
such party, to the extent such condition is waivable) of the following
conditions before the Company Merger Effective Time:
(a) Stockholder Approval. The holders of the outstanding
shares of Charter and FirstFed Common Stock shall have approved this Agreement
and the Company Merger as specified in Section 1.7 hereof or as otherwise
required by applicable law.
(b) No Proceedings. No order shall have been entered and
remain in force restraining or prohibiting the Merger in any legal,
administrative, arbitration, investigatory or other proceedings (collectively,
"Proceedings") by any governmental or judicial or other authority.
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(c) Governmental Approvals. To the extent required by
applicable law or regulation, all approvals of or filings with any governmental
authority (collectively, "Governmental Approvals"), including without
limitation those of the OTS, the FDIC, the FTC, the DOJ, the SEC and any state
securities authorities, shall have been obtained or made, and any waiting
periods shall have expired in connection with the consummation of the Merger,
provided however that none of the preceding shall be deemed obtained or made if
it shall be conditioned or restricted in a manner that would have or result in
a material adverse effect on Charter as the Surviving Corporation as the
parties hereto shall reasonably and in good faith agree. All other statutory
or regulatory requirements for the valid consummation of the Merger and related
transactions shall have been satisfied.
(d) Registration Statement. The Registration Statement
shall have been declared effective and shall not be subject to a stop order of
the SEC (and no proceedings for that purpose shall have been initiated or
threatened by the SEC) and, if the offer and sale of the Surviving Corporation
Common Stock in the Merger pursuant to this Agreement is subject to the
securities laws of any state, shall not be subject to a stop order of any state
securities authority.
(e) Federal Tax Opinion. Each party shall have received
an opinion of its tax counsel, dated as of the Company Merger Effective Time,
to the effect that for federal income tax purposes:
(i) The Company Merger and the Bank Merger will each qualify
as a "reorganization" under Section 368(a) of the Internal Revenue
Code.
(ii) No gain or loss will be recognized by Charter, Charter
Bank, FirstFed or FirstFed Bank by reason of the Company Merger or the
Bank Merger.
(iii) No gain or loss will be recognized by any stockholder
of FirstFed upon the exchange of FirstFed Common Stock solely for
Charter Common Stock in the Company Merger.
(iv) The basis of the Charter Common Stock received by each
stockholder of FirstFed who exchanges FirstFed Common Stock for
Charter Common Stock in the Company Merger will be the same as the
basis of the FirstFed Common Stock surrendered in exchange therefor
(subject to any adjustments required as the result of receipt of cash
in lieu of a fractional share of Surviving Corporation Common Stock).
(v) The holding period of the Charter Common Stock received
by a stockholder of FirstFed in the Company Merger will include the
holding period of the FirstFed Common Stock surrendered in exchange
therefore, provided that such shares of FirstFed Common Stock were
held as a capital asset by such stockholders at the Company Merger
Effective Time.
(vi) Cash received by a FirstFed shareholder in lieu of a
fractional share interest of Charter Common Stock as part of the
Company Merger will be treated as having been received as a
distribution in full payment in exchange for the fractional share
interest of Charter Common Stock which such stockholder would
otherwise be entitled to receive and will qualify as capital gain or
loss (assuming the FirstFed stock was a capital asset in such
stockholder's hands at the Company Merger Effective Time).
(f) Third Party Consents. All consents or approvals of all
persons (other than the Governmental Approvals referenced in Section 4.1(c)
herein) required for or in connection with the execution, delivery and
performance of this Agreement and the consummation of the Merger shall have
been obtained and shall be in full force and effect, unless the failure to
obtain any such consent or approval is not reasonably likely to have,
individually or in the aggregate, a material adverse effect on Charter as the
Surviving Corporation as the parties hereto shall reasonably and in good faith
agree.
(g) Listing. The shares of Charter Common Stock to be issued
in the Company Merger shall have been approved for listing on the National
Association of Securities Dealers Automated Quotation National Market ("NASDAQ
National Market"), subject to official notice of issuance.
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(h) Accountants' Pooling Letter. Each party shall have
received a letter, dated as of the Company Merger Effective Time, from its
independent auditors to the effect that the Merger will qualify for
pooling-of-interests accounting treatment under Accounting Principles Board
Opinion No. 16 and SEC Accounting Series Releases 130 and 135, as amended, if
consummated in accordance with this Agreement.
(i) Affiliates Letters. Each party shall have received from
the other party hereto the letter agreements from all affiliates of the other
as contemplated in Section 3.6 herein.
(j) Employment Agreements. There shall exist no impediment
or restriction upon the ability of Charter as the Surviving Corporation to
enter into the employment agreements and supplemental executive retirement
agreements contemplated by Section 3.13(g) hereof.
4.2 Conditions to Obligations of Charter. The obligations of
Charter to effect the Merger and the other transactions contemplated hereby
shall be subject to the satisfaction or written waiver by Charter of the
following additional conditions before the Company Merger Effective Time:
(a) Opinion of Counsel for FirstFed. Charter shall have
received the opinions of counsel to FirstFed, dated the date of the Closing,
substantially in the form set forth in Exhibit 4.2(a) hereof.
(b) Accountants' Letter. Charter shall have received
from FirstFed's independent auditors the letters referred to in Section 3.5
hereof.
(c) No Material Adverse Effect. Between the date of this
Agreement and the Closing, FirstFed shall not have been affected by any event
or change which has had or caused a material adverse effect or material adverse
change on FirstFed and its Subsidiaries, taken as a whole.
(d) Representations and Warranties to be True;
Fulfillment of Covenants and Conditions. (i) The representations and
warranties of FirstFed and its subsidiaries shall be true and correct (subject
to Section 2.23 hereof) as of the date hereof and at the Company Merger
Effective Time with the same effect as though made at the Company Merger
Effective Time (or on the date when made in the case of any representation or
warranty which specifically relates to an earlier date) except where the
failure to be true and correct would not have, or would not reasonably be
expected to have, a material adverse effect, on FirstFed and its Subsidiaries,
taken as a whole; (ii) FirstFed and its Subsidiaries shall have performed all
obligations and complied with each covenant, in all material respects, and
satisfied all conditions under this Agreement on its part to be satisfied at or
before the Company Merger Effective Time; and (iii) FirstFed shall have
delivered to Charter a certificate, dated the Company Merger Effective Time and
signed by its chief executive officer and chief financial officer, certifying
as to the satisfaction of clauses (i) and (ii) hereof.
(e) No Litigation. Neither FirstFed nor any FirstFed
Subsidiary shall be subject to any pending litigation which, if determined
adversely to FirstFed or any FirstFed Subsidiary, would have a material adverse
effect on FirstFed and its Subsidiaries, taken as a whole.
4.3 Conditions to Obligations of FirstFed. The obligations of
FirstFed to effect the Merger and the other transactions contemplated hereby
shall be subject to the satisfaction or written waiver by FirstFed of the
following additional conditions before the Company Merger Effective Time:
(a) Opinion of Counsel for Charter. FirstFed shall have
received the opinions of counsel to Charter, dated the date of the Closing,
substantially in the form set forth in Exhibit 4.3(a) hereto.
(b) Accountant's Letter. FirstFed shall have received
from Charter's independent auditors the letters referred to in Section 3.5
hereof.
(c) No Material Adverse Effect. Between the date of this
Agreement and Closing, Charter shall not have been affected by any event or
change which has had or caused a material adverse effect or material adverse
change on Charter and its Subsidiaries, taken as a whole.
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(d) Representations and Warranties to be True;
Fulfillment of Covenants and Conditions. (i) The representations and
warranties of Charter and its Subsidiaries shall be true and correct (subject
to Section 2.23 hereof) as of the date hereof and at the Company Merger
Effective Time with the same effect as though made at the Company Merger
Effective Time (or on the date when made in the case of any representation or
warranty which specifically relates to an earlier date) except where the
failure to be true and correct would not have, or would not reasonably be
expected to have, a material adverse effect on Charter and its Subsidiaries,
taken as a whole; (ii) Charter and its Subsidiaries shall have performed all
obligations and complied with each covenant, in all material respects, and
satisfied all conditions under this Agreement on its part to be satisfied at or
before the Company Merger Effective Time; and (iii) Charter shall have
delivered to FirstFed a certificate, dated the Company Merger Effective Time
and signed by its chief executive officer and chief financial officer,
certifying as to the satisfaction of clauses (i) and (ii) hereof.
(e) Surviving Corporation Common Stock. A certificate for
the required number of whole shares of Charter Common Stock, as determined
pursuant to Section 1.3 herein, and cash for fractional share interests, as so
determined, shall have been delivered to the Exchange Agent.
(f) No Litigation. Neither Charter nor any Charter
Subsidiary shall be subject to any pending litigation which, if determined
adversely to Charter or any Charter Subsidiary, would have a material adverse
effect on Charter and its Charter Subsidiaries, taken as a whole.
(g) Rights Agreement. Neither a Distribution Date nor a
Stock Acquisition Date (as such terms are defined in the Rights Agreement)
shall have occurred and the Charter Rights shall not have become nonredeemable
and shall not become nonredeemable upon consummation of the Merger.
4.4 Termination of Agreement and Abandonment of Merger. This
Agreement, the Company Merger Agreement and the Bank Merger Agreement may be
terminated at any time before the Company Merger Effective Time, whether before
or after approval thereof by the stockholders of Charter or FirstFed, as
provided below:
(a) Mutual Consent. By mutual consent of the parties,
evidenced by their written agreement.
(b) Closing Delay. At the election of either party,
evidenced by written notice, if (i) the Closing shall not have occurred on or
before May 31, 1996, or such later date as shall have been agreed to in writing
by the parties, provided however that the right to terminate under this Section
4.4(b) shall not be available to any party whose failure to perform an
obligation hereunder has been the cause of, or has resulted in, the failure of
the Closing to occur on or before such date; (ii) any approval or authorization
of any governmental entity, the lack of which would result in the failure to
satisfy the closing condition set forth in Section 4.1(c) hereof, shall have
been denied by such governmental entity, or such governmental entity shall have
requested the withdrawal of any application therefor or indicated an intention
to deny, or impose a condition of a type referred to in the proviso to Section
4.1(c) with respect to, such approval or authorization, or (iii) the approval
of the stockholders of Charter or FirstFed referred to in Section 4.1(a) shall
not have been obtained, provided that the electing party is not then in breach
of its obligations under Section 3.4 hereof.
(c) Conditions to Charter Performance Not Met. By
Charter upon delivery of written notice of termination to FirstFed if any event
occurs which renders impossible of satisfaction in any material respect one or
more of the conditions to the obligations of Charter to effect the Merger set
forth in Sections 4.1 and 4.2 and noncompliance is not waived in writing by
Charter.
(d) Conditions to FirstFed Performance Not Met. By
FirstFed upon delivery of written notice of termination to Charter if any event
occurs which renders impossible of satisfaction in any material respect one or
more of the conditions to the obligations of FirstFed to effect the Merger set
forth in Sections 4.1 and 4.3 and noncompliance is not waived in writing by
FirstFed.
(e) Breach. By either Charter or FirstFed if there has been
a material breach of the other party's representations and warranties (as
contemplated in this Agreement), covenants or agreements set forth in this
Agreement of which written notice has been given to such breaching party and
which has not been fully cured or
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cannot be fully cured within the earlier of (i) 30 days of receipt of such
notice or (ii) 5 days prior to the Closing and which breach would, in the
reasonable opinion of the non-breaching party, individually or in the
aggregate, have, or be reasonably likely to have, a material adverse effect on
the breaching party and its Subsidiaries, taken as a whole, or upon
consummation of the transactions contemplated by this Agreement.
(f) Charter Election. By Charter if (i) the Board of
Directors of FirstFed shall not have publicly recommended in the
Prospectus/Joint Proxy Statement that its stockholders approve and adopt this
Agreement or shall have withdrawn, modified or changed in a manner adverse to
Charter its approval or recommendation of this Agreement, (ii) the Board of
Directors of FirstFed shall have authorized FirstFed to enter into any
agreement, letter of intent or agreement in principle with the intent to pursue
or effect a Takeover Proposal or (iii) the Board of Directors of Charter shall
have failed to recommend to its stockholders the adoption of this Agreement or
shall have withdrawn, modified or changed such recommendation pursuant to the
exercise of its fiduciary obligations under Section 3.4 herein.
(g) FirstFed Election. By FirstFed if (i) the Board of
Directors of Charter shall not have publicly recommended in the
Prospectus/Joint Proxy Statement that its stockholders approve and adopt this
Agreement or withdrawn, modified or changed in a manner adverse to FirstFed its
approval or recommendation of this Agreement, (ii) the Board of Directors of
Charter shall have authorized Charter to enter into any agreement, letter of
intent or agreement in principle with the intent to pursue or effect a Takeover
Proposal or (iii) the Board of Directors of FirstFed shall have failed to
recommend to its stockholders the adoption of this Agreement or shall have
withdrawn, modified or changed such recommendation pursuant to the exercise of
its fiduciary obligations under Section 3.4 herein.
ARTICLE V
TERMINATION OF OBLIGATIONS; PAYMENT OF EXPENSES
5.1 Termination; Lack of Survival of Representations and
Warranties. In the event of the termination and abandonment of this Agreement
pursuant to Section 4.4 hereof, this Agreement shall become void and have no
effect, except (i) the provisions of Section 3.2(b)(vi), Sections 2.7 (No
Broker's or Finder's Fees), 3.7 (Publicity), 5.2 (Payment of Expenses) and 7.2
(Confidentiality) hereof shall survive any such termination and abandonment,
and (ii) a termination pursuant to Section 4.4(c), 4.4(d) or 4.4(e) of this
Agreement shall not relieve the breaching party from liability for any uncured
intentional and willful breach of a representation, warranty, covenant or
agreement giving rise to such termination.
The representations, warranties and agreements set forth in this
Agreement shall not survive the Company Merger Effective Time and shall be
terminated and extinguished at the Company Merger Effective Time, and from and
after the Company Merger Effective Time no party shall have any liability to
the other on account of any breach or failure of any of those representations,
warranties and agreements, provided however that the foregoing clause (i) shall
not apply to agreements of the parties which by their terms are intended to be
performed after the Company Merger Effective Time by the Surviving Corporation
or Charter Bank or otherwise and (ii) shall not relieve any party or person for
liability for fraud, deception or intentional misrepresentation.
5.2 Payment of Expenses. Each party shall bear and pay all costs
and expenses incurred by it or on its behalf in connection with the
transactions contemplated hereby, except that the costs of printing and mailing
the Prospectus/Joint Proxy Statement shall be shared equally by the parties.
ARTICLE VI
CERTAIN POST-MERGER AGREEMENTS
6.1 Registration of Stock Underlying Stock Options. In order to
permit the exercise of options to purchase Charter Common Stock which were
originally granted under the FirstFed Option Plans and are to be substituted
and assumed by Charter as the Surviving Corporation under the provisions of
Section 1.8 hereof, at and after the Company Merger Effective Time the
Surviving Corporation shall take all such actions as may be necessary or
appropriate in order to carry out fully the provisions of Section 1.8 hereof.
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6.2 Reports to the SEC. Subject to Section 6.6 herein, Charter as
the Surviving Corporation shall continue to file all reports and data with the
SEC necessary to permit stockholders of Charter and FirstFed who may be deemed
affiliates of Charter or FirstFed within the meaning of Rule 145 under the
Securities Act to sell the Surviving Corporation Common Stock held or received
by them in connection with the Merger pursuant to Rules 144 and 145 under such
Act if they would otherwise be so entitled. After the Company Merger Effective
Time, the Surviving Corporation will file with the SEC all reports, statements
and other materials required by the federal securities laws on a timely basis.
6.3 Indemnification. (a) Charter as the Surviving Corporation and
successor in interest to FirstFed, shall honor and assume the existing
Indemnification Agreements between FirstFed and its directors. In addition,
from and after the Company Merger Effective Time, Charter as the Surviving
Corporation shall indemnify, defend and hold harmless each person who is now,
or who has been at any time before the date hereof or who becomes before the
Company Merger Effective Time, an officer, director or employee of either
Charter or FirstFed or any of their respective Subsidiaries (the "Indemnified
Parties") against all losses, claims, damages, costs, expenses (including
attorney's fees), liabilities or judgments or amounts that are paid in
settlement (which settlement shall require the prior written consent of Charter
as the Surviving Corporation, which consent shall not be unreasonably withheld)
of or in connection with any claim, action, suit, proceeding or investigation,
whether civil, criminal, or administrative (each a "Claim"), in which an
Indemnified Party is, or is threatened to be made, a party or a witness based
in whole or in part on or arising in whole or in part out of the fact that such
person is or was a director, officer or employee of either Charter or FirstFed
or any of their respective Subsidiaries if such Claim pertains to any matter or
fact arising, existing or occurring before the Company Merger Effective Time
(including, without limitation, the Merger and the other transactions
contemplated hereby), regardless of whether such Claim is asserted or claimed
before, or at or after, the Company Merger Effective Time (the "Indemnified
Liabilities"), to the fullest extent permitted under applicable state or
federal law in effect as of the date hereof or as amended applicable to a time
before the Company Merger Effective Time and under Charter's or FirstFed's
governing corporation documents (as the case may be), and Charter as the
Surviving Corporation shall pay expenses in advance of the final disposition of
any such action or proceeding to each Indemnified Party to the full extent
permitted by applicable state or federal law in effect as of the date hereof or
as amended applicable to a time before the Company Merger Effective Time upon
receipt of any undertaking required by applicable law. Any Indemnified Party
wishing to claim indemnification under this Section 6.3(a), upon learning of
any Claim, shall notify Charter as the Surviving Corporation (but the failure
so to notify Charter as the Surviving Corporation shall not relieve it from any
liability which it may have under this Section 6.3(a) except to the extent such
failure materially prejudices Charter as the Surviving Corporation) and shall
deliver to Charter as the Surviving Corporation the undertaking, if any,
required by applicable law. Charter as the Surviving Corporation shall insure,
to the extent permitted under applicable law, that all limitations of liability
existing in favor of the Indemnified Parties as provided in Charter's or
FirstFed's governing corporation documents (as the case may be), as in effect
as of the date hereof, or allowed under applicable state or federal law as in
effect as of the date hereof or as amended applicable to a time before the
Company Merger Effective Time, with respect to claims or liabilities arising
from facts or events existing or occurring before the Company Merger Effective
Time (including, without limitation, the transactions contemplated hereby),
shall survive the Company Merger.
(b) From and after the Company Merger Effective Time, the
directors, officers and employees of Charter and FirstFed hereto or any of
their respective Subsidiaries who become directors, officers or employees of
Charter as the Surviving Corporation or any of its Subsidiaries, except for the
indemnification rights provided pursuant to the Indemnification Agreements
between FirstFed and its directors and as set forth in paragraph (a) of this
Section 6.3, shall have indemnification rights having prospective application
only. The prospective indemnification rights shall consist of such rights to
which directors, officers and employees of Charter as the Surviving Corporation
and its Subsidiaries are entitled under the provisions of the governing
corporation documents of Charter as the Surviving Corporation and its
Subsidiaries, as in effect from time to time after the Company Merger Effective
Time, as applicable, and provisions of applicable state and federal law as in
effect from time to time after the Company Merger Effective Time.
(c) For a period of six years from and after the Company
Merger Effective Time, Charter as the Surviving Corporation shall cause to be
maintained in effect the current policies of directors' and officers' liability
insurance maintained by FirstFed and the FirstFed Subsidiaries (provided that
Charter may substitute therefor
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policies from financially capable insurers of at least the same coverage and
amounts containing terms and conditions which are substantially no less
advantageous or in the event such coverage is provided through Charter's
insurer it may be on terms and conditions (other than coverage and amounts)
consistent with Charter's coverage) with respect to claims arising from facts
or events which occurred before the Company Merger Effective Time. Following
consummation of the Merger, the directors and officers of the Surviving
Corporation shall be covered by the directors' and officers' liability
insurance maintained by the Surviving Corporation.
(d) The obligations of Charter as the Surviving Corporation
provided under paragraphs (a) (b) and (c) of this Section 6.3 are intended to
be enforceable against the Surviving Corporation directly by the Indemnified
Parties and shall be binding on all respective successors and permitted assigns
of Charter as the Surviving Corporation.
6.4 Directors, Executive Officers and Committees of Surviving
Corporation.
(a) At the Company Merger Effective Time, the Board of
Directors of Charter as the Surviving Corporation shall be fixed at either 16
directors, if the shareholders of Charter at the Charter Stockholders Meeting
approve the amendment to Article Seventh of Charter's Restated Certificate of
Incorporation increasing the maximum number of directors to 16 persons by the
requisite vote, or 14 directors, if such amendment is not approved by the
requisite vote, (the "Initial Directors"), one-half of whom in either case
shall be selected by the Board of Directors of Charter and one-half of whom
shall be selected by the Board of Directors of FirstFed, in each case prior to
the Company Merger Effective Time. As soon as practicable, the Boards of
Directors of Charter and FirstFed shall each select those persons it is to
select who are to serve on the Board of Directors of Charter as the Surviving
Corporation. Thereafter, Charter and FirstFed shall agree as to the class and
term for each of the persons so selected as a director (it being the intention
that to the greatest extent practicable, the Charter and FirstFed directors
shall serve in equal number in each of the Surviving Corporation's three
classes of directors). Charter and its Board of Directors shall take all
necessary corporate action prior to the Company Merger Effective Time to
effectuate this agreement of the parties including the election of the
designated persons as directors of Charter as the Surviving Corporation,
effective at the Company Merger Effective Time, for the agreed upon classes and
terms. For a period of four years following the Company Merger Effective Time,
Charles J. Koch and Jerome L. Schostak shall serve as the Chairman and Vice
Chairman, respectively, of the Board of Directors of Charter as the Surviving
Corporation.
(b) It is the intention of Charter and FirstFed, and
their respective Boards of Directors, that until at least the fourth
anniversary of the Company Merger Effective Time, the Board of Directors of
Charter as the Surviving Corporation (and each of the committees thereof other
than the Executive Committee) shall consist of an equal number of persons
serving on or representing the Boards of Directors of Charter and FirstFed,
respectively, prior to the Company Merger Effective Time. In this regard, if
any Initial Director (or successor thereto) does not continue to serve as a
director of the Surviving Corporation for any reason whatsoever during such
four year period (a "Departing Director"), his/her successor will be the person
recommended (i) in the case of a Departing Director who either was a director
of Charter prior to the Company Merger Effective Time or was a successor to
such a director, by the remaining directors of Charter as the Surviving
Corporation who prior to the Company Merger Effective Time served as directors
of Charter and, if applicable, any successors to those Charter directors or
(ii) in the case of a Departing Director who either was a director of FirstFed
prior to the Company Merger Effective Time or was a successor to such a
director, by the remaining directors of Charter as the Surviving Corporation
who prior to the Company Merger Effective Time served as directors of FirstFed
and, if applicable, any successors to those FirstFed directors. Charter and
the Surviving Corporation shall take all necessary corporate action, whether
prior or subsequent to the Company Merger Effective Time, to effectuate this
agreement of the parties and, after the Company Merger Effective Time,
Charter's Board of Directors (or committee thereof) will nominate, support the
solicitation of proxies in favor of, and otherwise actively use its best
efforts to secure the election of directors on a basis consistent with the
foregoing.
(c) For a period of four years following the Company
Merger Effective Time, a vote of two-thirds of the entire Board of Directors of
the Surviving Corporation shall be necessary to approve (i) any amendment to
the Restated Certificate of Incorporation or Bylaws of the Surviving
Corporation, (ii) any merger, acquisition, sale of substantially all of its
assets or other extraordinary corporate transaction involving the Surviving
Corporation,
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Charter Bank or any other significant financial institution subsidiary of
Charter as the Surviving Corporation or (iii) the dismissal or replacement of
any of the executive officers of Charter as the Surviving Corporation or
Charter Bank or other significant financial institution subsidiary. Charter
and the Surviving Corporation shall take all necessary corporate action,
whether prior or subsequent to the Company Merger Effective Time, to effectuate
this agreement of the parties. Notwithstanding anything to the contrary
herein, amendment to the Restated Certificate of Incorporation or Bylaws of
Charter or the Surviving Corporation specifically provided for or contemplated
in this Agreement shall require the vote of directors as set forth in Charter's
Restated Certificate of Incorporation or Bylaws.
(d) After the Company Merger Effective Time, those
persons who served as directors of either Charter or FirstFed prior to the
Company Merger Effective Time and who do not become the Initial Directors shall
serve (unless such person determines not to serve) as directors emeriti of
Charter as the Surviving Corporation with benefits at least as favorable as
those currently provided to directors emeriti of Charter.
(e) For a period of four years following the Company
Merger Effective Time, regularly scheduled meetings of the Board of Directors
of Charter as the Surviving Corporation shall be held such that there shall be
equal numbers of meetings during any such year at sites as selected by the
Initial Directors who were previously directors of Charter (including their
successors) and at sites as selected by the Initial Directors who were
previously directors of FirstFed (including their successors). Charter and the
Surviving Corporation shall take all necessary corporate action, whether prior
or subsequent to the Company Merger Effective Time, to effectuate this
agreement of the parties.
(f) It is the intention of the parties that the fees and
benefits to be received by the directors of Charter as the Surviving
Corporation shall be no less favorable than those currently provided for
directors of either Charter or FirstFed, whichever is greater. In addition,
the Initial Vice Chairman of the Board of Charter as the Surviving Corporation
shall receive compensation in an amount equal to one hundred fifteen percent
(115%) of the compensation he is currently receiving as Chairman of FirstFed's
executive committees.
(g) The Executive Officers of the Surviving Corporation
following the Company Merger Effective Time shall be: Charles J. Koch -
Chairman of the Board, President and Chief Executive Officer; Richard W. Neu -
Senior Vice President and Treasurer; John D. Koch - Senior Vice President; Mark
D. Grossi - Senior Vice President; and Robert J. Vana - Chief Corporate Counsel
and Secretary.
(h) For a period of at least four years following the Company
Merger Effective Time, the Board of Directors of Charter as the Surviving
Corporation shall have a five person Executive Committee and such other
committees as the Board shall establish in accordance with Section 141 of the
DGCL, Charter's Certificate of Incorporation and the Bylaws. The five members
of the Executive Committee shall be Messrs. Charles J. Koch (who shall be the
Chairman of the Executive Committee), Jerome L. Schostak, John D. Koch, Mark D.
Grossi and Richard W. Neu and they shall each serve for a period of four years.
The Executive Committee shall not have such power or authority as is
specifically excluded to it pursuant to Section 141 of the DGCL. The Executive
Committee shall act by majority vote to carry out the policies, plans,
practices and directions previously approved by the Board of Directors (or
those approved by eighty percent (80%) of the members of the Executive
Committee) and to otherwise enable Charter, as the Surviving Corporation, to
conduct its business in the normal and regular course consistent with Charter's
then current policies, plans, practices and directions. All other
determinations by the Executive Committee shall require the affirmative vote of
eighty percent (80%) of its members. Prior to the Company Merger Effective
Time, Charter and FirstFed shall reasonably agree as to the initial members of
each other committee of the Board of Directors of Charter as the Surviving
Corporation. Each of such committees (other than the Executive Committee)
shall have an even number of members, and at the Company Merger Effective Time
and for four years thereafter, one-half of the members of each such other
committee shall consist of directors who served as directors of Charter prior
to the Company Merger Effective Time (or their successors) and the other half
shall consist of directors who served as directors of FirstFed prior to the
Company Merger Effective Time (or their successors).
(i) Notwithstanding anything to the contrary, none of the
persons who serve as directors of FirstFed shall be subject to an age
restriction relating to service as a director of Charter as the Surviving
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Corporation and Charter and the Surviving Corporation shall take all necessary
corporate action to effectuate this agreement of the parties.
(j) Those provisions of this Section 6.4 intended to survive
the Company Merger Effective Time shall survive the Company Merger Effective
Time and remain in effect until the fourth anniversary thereof, terminating
thereafter.
6.5 Directors, Executive Officers and Committees of Charter Bank.
(a) Subject to OTS approval if necessary, at the Bank
Merger Effective Time, the Board of Directors of Charter Bank shall be fixed at
the same number of persons who serve as directors of Charter as the Surviving
Corporation, all of whom shall be the same persons who become the Initial
Directors of the Surviving Corporation. Each such Initial Director shall
serve as a director of Charter Bank subsequent to the Bank Merger Effective
Time during the same period each serves as a director of the Surviving
Corporation. Charter Bank and its Board of Directors shall take all necessary
corporate action prior to the Bank Merger Effective Time to effectuate the
election of the designated persons as directors of Charter Bank, effective at
the Bank Merger Effective Time, for the agreed upon classes and terms.
Following the Bank Merger Effective Time, until the fourth anniversary
thereafter, the Board of Directors of Charter Bank shall consist of the same
persons who serve as directors of Charter as the Surviving Corporation and any
person who becomes a director of Charter as the Surviving Corporation shall
become a director of Charter Bank. Committees of Charter Bank following the
Bank Merger Effective Time (other than the Executive Committee) shall consist
of an equal number of persons who prior to the Bank Merger Effective Time
served as directors of Charter Bank and FirstFed Bank, or their successors.
Notwithstanding anything to the contrary, none of the persons who serve as
directors of FirstFed or FirstFed Bank shall be subject to an age restriction
relating to service as a director of Charter Bank and Charter Bank shall take
all necessary corporate action to effectuate this agreement of the parties.
(b) Meetings of Charter Bank's Board of Directors
following the Bank Merger Effective Time shall be held at the same dates and
sites as the meetings of the Surviving Corporation's Board of Directors.
(c) It is the intention of the parties that the fees and
benefits to be received by the directors of Charter Bank following the Bank
following the Bank Merger shall be no less favorable than those currently
provided for directors of either Charter Bank or FirstFed Bank, whichever is
greater.
(d) The Executive Officers of Charter Bank following the
Bank Merger Effective Time shall be: Charles J. Koch - Chairman, President and
Chief Executive Officer; Richard W. Neu - Executive Vice President - Chief
Financial Officer; John D. Koch - Executive Vice President - Chief Lending and
Credit Officer; Mark D. Grossi - Executive Vice President - Retail Banking; and
Robert J. Vana - Chief Corporate Counsel and Secretary.
(e) For a period of at least four years following the Bank
Merger Effective Time, the Board of Directors of Charter Bank shall have a five
person Executive Committee. The five members of the Executive Committee shall
be Messrs. Charles J. Koch (who shall be the Chairman of the Executive
Committee), Jerome L. Schostak, John D. Koch, Mark D. Grossi and Richard W. Neu
and they shall each serve for a period of four years. The Executive Committee
shall not have such power or authority as is specifically excluded pursuant to
Section 141 of the DGCL. The Executive Committee shall act by majority vote to
carry out the policies, plans, practices and directions previously approved by
the Board of Directors (or those approved by eighty percent (80%) of the
members of the Executive Committee) and to otherwise enable Charter Bank, to
conduct its business in the normal and regular course consistent with Charter
Bank's then current policies, plans, practices and directions. All other
determinations by the Executive Committee shall require the affirmative vote of
eighty percent (80%) of its members.
(f) Those provisions of this Section 6.5 intended to survive
the Company Merger Effective Time shall survive the Bank Merger Effective Time
and remain in effect until the fourth anniversary thereof.
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6.6 Publication of Combined Financial Results. The Surviving
Corporation shall publish no later than 30 days after the end of the first
month which includes at least 30 days of post-Merger combined operations,
combined sales and net income figures and any other financial information
necessary as contemplated by and in accordance with the terms of SEC Accounting
Series Release No. 135 and any related accounting rules.
6.7 Registration Rights. If, at any time during the three year
period following the Company Merger Effective Time, one or more of those
Affiliates that have delivered affiliate letters to Charter, as contemplated in
Section 3.6 herein, and who have received as a result of the Company Merger in
excess of one percent (1%) of the issued and outstanding shares of Charter
Common Stock immediately subsequent to the Closing of the Company Merger,
determine to transfer Charter Common Stock received in the Company Merger,
then, in such event, Charter shall, upon the written request of such Affiliate
making such demand, file with the SEC and with such state securities divisions
as are requested on behalf of such Affiliate, as promptly as practicable after
receiving such request, an appropriate registration statement under the
Securities Act registering such shares of Charter Common Stock and to make its
best efforts to have such registration declared effective under the Securities
Act and to remain effective for up to six months (with the right of such
Affiliate to request from Charter an extension for up to an additional three
month period) to facilitate the aforesaid transfer. Charter shall be obligated
to make only two (2) such registrations for all Affiliates. Upon receipt of
such written request for registration, Charter shall use all reasonable efforts
to notify in writing all other such Affiliates (who have not joined in such
request) of such request and invite all such other Affiliates to join in such
registration, with respect to the Charter Common Stock received by any other
such Affiliate(s) in the Merger. Charter shall be obligated to make this
registration at its expense (excluding any underwriting or brokerage commission
or discounts, fees and expenses of counsel for such Affiliates and any
applicable transfer taxes). Each such Affiliate demanding or joining in such a
registration shall provide all information reasonably requested by Charter for
inclusion in the registration statement to be filed hereunder. The filing of
any registration statement hereunder may be delayed for such period of time,
not to exceed 180 days, as may be reasonably required to facilitate any public
distribution by Charter of its Common Stock. Charter and such Affiliates
making or joining in the demand shall take all action as they shall mutually
agree in good faith in order to expedite or facilitate the registration and
sale of the shares hereunder, including without limitation filing amendments to
the registration statement, cooperating in customary due diligence, providing
customary indemnities, printing and distributing prospectuses, and entering
into customary underwriting and related agreements.
ARTICLE VII
GENERAL
7.1 Amendments. Subject to applicable law, this Agreement may be
amended, whether before or after any stockholder approval hereof, by an
agreement in writing executed in the same manner as this Agreement and
authorized or ratified by the Boards of Directors of the parties hereto,
provided that after the approval of this Agreement by the stockholders of
either party hereto, no such amendment may change the amount or form of the
consideration to be delivered hereunder pursuant to Section 1.3 herein without
their approval.
7.2 Confidentiality. All information disclosed by any party to
any other party, whether prior or subsequent to the date of this Agreement
including, without limitation, any information obtained pursuant to Section 3.1
hereof, shall be kept confidential by such other party and shall not be used by
such other party otherwise than as herein contemplated, all in accordance with
the terms of the existing confidentiality agreement between the parties (the
"Confidentiality Agreement"). In the event of the termination of this
Agreement, each party shall use all reasonable efforts to return upon request
to the other party all documents (and reproductions thereof) received from such
other party (and, in the case of reproductions, all such reproductions) that
include information subject to the confidentiality requirement set forth above.
7.3 Governing Law. This Agreement and the legal relations between
the parties shall be governed by and construed in accordance with the laws of
the State of Delaware without taking into account any provision regarding
choice of law, except to the extent certain matters may be governed by federal
law by reason of preemption.
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7.4 Notices. Any notices or other communications required or
permitted hereunder shall be sufficiently given if sent by registered mail or
certified mail, postage prepaid, addressed, as follows:
<TABLE>
<S> <C>
If to Charter, to
Charter One Financial, Inc.
1215 Superior Avenue
Cleveland, Ohio 44114
Attention: Charles J. Koch
Chairman of the Board and President
with a copy to:
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue, N.W.
Washington, D.C. 20006
Attention: Barry P. Taff, Esquire
If to FirstFed, to
FirstFed Michigan Corporation
1001 Woodward Avenue
Detroit, Michigan 48226
Attention: C. Gene Harling
Chairman of the Board and President
with a copy to:
Housley Goldberg Kantarian & Bronstein, P.C.
1220 19th Street, N.W., Suite 700
Washington, D.C. 20036
Attention: Harry K. Kantarian, Esquire
</TABLE>
or such other address as shall be furnished in writing by either party to the
other, and any such notice or communication shall be deemed to have been given
two business days after the date of such mailing (except that the notice of
change of address shall not be deemed to have been given until received by the
addressee). Notices may also be sent by telegram, telex, facsimile
transmission or hand delivery and in such event shall be deemed to have been
given as of the date received by the addressee.
7.5 No Assignment. This Agreement may not be assigned by any
party hereto, by operation of law or otherwise, except as contemplated hereby.
7.6 Headings. The descriptive headings of the several Articles
and Sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
7.7 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
party and delivered to each other party.
7.8 Construction and Interpretation. Except as the context
otherwise requires, all references herein to any state or federal regulatory
agency shall also be deemed to refer to any predecessor or successor agency,
and all references to state and federal statutes or regulations shall also be
deemed to refer to any successor statute or regulation.
7.9 Entire Agreement. This Agreement, together with the
schedules, lists, exhibits and certificates required to be delivered hereunder,
and any amendment hereafter executed and delivered in accordance with Section
7.1, constitutes the entire agreement of the parties and supersedes any prior
written or oral agreement or understanding among any parties pertaining to the
Merger, except that the Confidentiality Agreement shall remain in full force
and effect as contemplated in Section 7.2 herein and except with respect to the
applicable Stock Option
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Agreement.
7.10 Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law then such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of the
Agreement.
7.11 No Third Party Beneficiaries. Nothing in this Agreement shall
entitle any person (other than the parties hereto and their respective
successors and assigns permitted hereby) to any claim, cause of action, remedy
or right of any kind, except for those provisions which are intended to be for
the benefit of the persons covered thereby and may be enforced by such persons,
including without limitation, as provided in Sections 1.8, 3.13, 6.1, 6.3, 6.4,
6.5 and 6.7.
7.12 No Employment Solicitation. If this Agreement is terminated,
the parties hereto agree that, for a period of two years subsequent to such
termination (i) none of the parties shall, without first obtaining the prior
written consent of the other, directly or indirectly, actively solicit the
employment of any current director, officer or employee of the other party and
(ii) none of the parties will actively solicit business relationships with
clients of the other party solely as a result of review of the information
contemplated in Section 7.2 herein.
IN WITNESS WHEREOF, each party has caused this Agreement to be
executed on its behalf by its duly authorized officers as of the date set forth
above.
<TABLE>
<S> <C>
CHARTER ONE FINANCIAL, INC. FIRSTFED MICHIGAN CORPORATION
By: /s/ CHARLES JOHN KOCH By: /s/ C. GENE HARLING
---------------------------- ----------------------------------------
Name: Charles John Koch Name: C. Gene Harling
Title: President Title: Chairman and Chief Executive Officer
</TABLE>
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Exhibit A
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated May 31, 1995, between Charter One
Financial, Inc., a Delaware corporation ("Issuer"), and FirstFed Michigan
Corporation, a Michigan corporation ("Grantee").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger dated May 30, 1995 (the "Merger Agreement"), which agreement has been
executed by the parties hereto prior to this Agreement; and
WHEREAS, as a condition to Grantee's entering into the Merger
Agreement and in consideration therefor, Issuer has agreed to grant Grantee the
Option (as hereinafter defined):
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein and in the Merger Agreement, the
parties hereto agree as follows:
1.(a) Issuer hereby grants to Grantee an unconditional, irrevocable
option (the "Option") to purchase, subject to the terms hereof, up to 4,481,589
fully paid and nonassessable shares of its common stock, par value $0.01 per
share ("Common Stock"), at a price of $24.75 per share (such price, as adjusted
if applicable, the "Option Price"); provided, however, that in the event Issuer
issues or agrees to issue any shares of Common Stock (other than as permitted
under the Merger Agreement) at a price less than $24.75 per share such Option
Price shall be equal to such lesser price. The number of shares of Common
Stock that may be received upon the exercise of the Option and the Option Price
are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are issued
or otherwise become outstanding after the date of this Agreement (other than
pursuant to this Agreement), the number of shares of Common Stock subject to
the Option shall be increased so that, after such issuance, it equals 19.9% of
the number of shares of Common Stock then issued and outstanding without giving
effect to any shares subject or issued pursuant to the Option. Nothing
contained in this Section 1(b) or elsewhere in this Agreement shall be deemed
to authorize Issuer or Grantee to breach any provision of the Merger Agreement.
2.(a) The Holder (as hereinafter defined) may exercise the Option, in
whole or part, if, but only if, both an Initial Triggering Event (as
hereinafter defined) and a Subsequent Triggering Event (as hereinafter defined)
shall have occurred prior to the occurrence of an Exercise Termination Event
(as hereinafter defined), provided that the Holder shall have sent the written
notice of such exercise (as provided in subsection (e) of this Section 2)
within 180 days following the first such Subsequent Triggering Event. Each of
the following shall be an Exercise Termination Event: (i) the Company Merger
Effective Time (as defined in the Merger Agreement); (ii) termination of the
Merger Agreement in accordance with the provisions thereof if such termination
occurs prior to the occurrence of an Initial Triggering Event; or (iii) the
passage of twelve months after termination of the Merger Agreement if such
termination follows or occurs at the same time as the occurrence of an Initial
Triggering Event. The term "Holder" shall mean the holder or holders of the
Option (including Grantee or any subsequent transferee(s)).
(b) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each an "Issuer
Subsidiary"), without having received Grantee's prior written consent,
shall have entered into an agreement to engage in an Acquisition
Transaction (as hereinafter defined) with any person (the term
"person" for purposes of this Agreement having the meaning assigned
thereto in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange
Act of 1934, and the rules and regulations thereunder (the "1934 Act")
other than Grantee or any of its
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Subsidiaries (each a "Grantee Subsidiary"). For purposes of this
Agreement, "Acquisition Transaction" shall mean (x) a merger or
consolidation, or any similar transaction, involving Issuer or any
Significant Subsidiary (as defined in Rule 1-02 of Regulation S-X
promulgated by the SEC) of Issuer, (y) a purchase, lease or other
acquisition of all or substantially all of the assets of Issuer or any
Significant Subsidiary of Issuer, or (z) a purchase or other
acquisition (including by way of merger, consolidation, share exchange
or otherwise) of beneficial ownership of securities representing 25%
or more of the voting power of Issuer or any Significant Subsidiary of
Issuer; provided that the term "Acquisition Transaction" does not
include any internal merger or consolidation involving only the Issuer
and/or Issuer Subsidiaries;
(ii) (A) Any person other than Grantee, or any Grantee
Subsidiary, or any Issuer Subsidiary acting in a fiduciary capacity
(collectively, "Excluded Persons"), alone or together with such
person's affiliates and associates (as such terms are defined in Rule
12b-2 under the 1934 Act), shall have acquired beneficial ownership or
the right to acquire beneficial ownership of 25% or more of the
outstanding shares of Common Stock (the term "beneficial ownership"
for purposes of this Option Agreement having the meaning assigned
thereto in Section 13(d) of the 1934 Act, and the rules and
regulations thereunder) or (B) any group (as such term is defined in
Section 13(d)(3) of the 1934 Act), other than a group of which any
Excluded Person is a member, shall have been formed that beneficially
owns 25% or more of the shares of Common Stock then outstanding;
(iii) Any person other than Grantee or any Grantee Subsidiary
shall have made a bona fide proposal to Issuer or its shareholders by
public announcement or written communication that is or becomes the
subject of public disclosure to (A) engage in an Acquisition
Transaction or (B) commence a tender or exchange offer the
consummation of which would result in such person acquiring beneficial
ownership of securities representing 25% or more of Issuer's voting
power;
(iv) The Board of Directors of Issuer shall have failed to
recommend to its stockholders the adoption of the Merger Agreement or
shall have withdrawn, modified or changed in a manner adverse to
Grantee such recommendation;
(v) After a proposal is made by a third party (other than an
Excluded Person) to Issuer to engage in an Acquisition Transaction,
Issuer shall have intentionally and knowingly breached any
representation, warranty, covenant or agreement contained in the
Merger Agreement and such breach (x) would entitle Grantee to
terminate the Merger Agreement pursuant to Section 4.4(e) therein
(without regard to any grace period provided for therein) and (y)
shall not have been cured prior to the Notice Date (as defined below);
or
(vi) Any person other than Grantee or any Grantee Subsidiary,
other than in connection with a transaction to which Grantee has given
its prior written consent, shall have filed an application or notice
with the Office of Thrift Supervision ("OTS") or other federal or
state bank regulatory authority, which application or notice has been
accepted for processing, for approval to engage in an Acquisition
Transaction.
(c) The term "Subsequent Triggering Event" shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person other than an Excluded
Person of beneficial ownership of 25% or more of the then outstanding
Common Stock; or
(ii) The occurrence of the Initial Triggering Event described
in subparagraph (i) of subsection (b) of this Section 2.
(d) Issuer shall notify Grantee promptly in writing of the occurrence
of any Initial Triggering Event or Subsequent Triggering Event (together, a
"Triggering Event"), it being understood that the giving of such notice by
Issuer shall not be a condition to the right of the Holder to exercise the
Option.
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(e) In the event the Holder is entitled to and wishes to exercise the
Option, it shall send to Issuer a written notice (the date of which is herein
referred to as the "Notice Date") specifying (i) the total number of shares it
will purchase pursuant to such exercise and (ii) a place and date not earlier
than three business days nor later than 60 business days from the Notice Date
for the closing of such purchase (the "Closing Date"); provided that if prior
notification to or approval of the OTS or any other regulatory agency is
required in connection with such purchase, the Holder shall promptly file the
required notice or application for approval and shall expeditiously process the
same and the period of time that otherwise would run pursuant to this sentence
shall run instead from the date on which any required notification periods have
expired or been terminated or such approvals have been obtained and any
requisite waiting period or periods shall have passed. Any exercise of the
Option shall be deemed to occur on the Notice Date relating thereto.
(f) At each closing referred to in subsection (e) of this Section 2,
the Holder shall pay to Issuer the aggregate purchase price for the shares of
Common Stock purchased pursuant to the exercise of the Option in immediately
available funds by wire transfer to a bank account designated by Issuer,
provided that failure or refusal of Issuer to designate such a bank account
shall not preclude the Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (f) of this Section 2, Issuer shall
deliver to the Holder a certificate or certificates representing the number of
shares of Common Stock purchased by the Holder and, if the Option should be
exercised in part only, a new Option evidencing the rights of the Holder
thereof to purchase the balance of the shares purchasable hereunder.
(h) Certificates for Common Stock delivered at a closing hereunder may
be endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the registered
holder hereof and Issuer and to resale restrictions arising under the
Securities Act of 1933, as amended. A copy of such agreement is on
file at the principal office of Issuer and will be provided to the
holder hereof without charge upon receipt by Issuer of a written
request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933 ("1933 Act") in the above legend shall be removed
by delivery of substitute certificate(s) without such reference if the Holder
shall have delivered to Issuer a copy of a letter from the staff of the SEC, or
an opinion of counsel, in form and substance satisfactory to Issuer, to the
effect that such legend is not required for purposes of the 1933 Act; (ii) the
reference to the provisions of this Agreement in the above legend shall be
removed by delivery of substitute certificate(s) without such reference if the
shares have been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required by
law.
(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (e) of this Section 2 and
the tender of the applicable purchase price in immediately available funds, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
Issuer shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to the Holder. Issuer shall
pay all expenses, and any and all United States federal, state and local taxes
and other charges that may be payable in connection with the preparation, issue
and delivery of stock certificates under this Section 2 in the name of the
Holder or its assignee, transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock;
(ii) that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other voluntary
act, avoid or seek to avoid the
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observance or performance of any of the covenants, stipulations or conditions
to be observed or performed hereunder by Issuer; (iii) promptly to take all
action as may from time to time be required (including (x) complying with all
premerger notification, reporting and waiting period requirements specified in
15 U.S.C. Section 18a and regulations promulgated thereunder and (y) in the
event, under the Home Owners' Loan Act, as amended ("HOLA"), or the Change in
Bank Control Act of 1978, as amended, or any state banking law, prior approval
of or notice to the OTS, or to any state regulatory authority is necessary
before the Option may be exercised, cooperating fully with the Holder in
preparing such applications or notices and providing such information to the
OTS or such state regulatory authority as they may require) in order to permit
the Holder to exercise the Option and Issuer duly and effectively to issue
shares of Common Stock pursuant hereto; and (iv) promptly to take all action
provided herein to protect the rights of the Holder against dilution.
4. This Agreement (and the Option granted hereby) are exchangeable,
without expense, at the option of the Holder, upon presentation and surrender
of this Agreement at the principal office of Issuer, for other Agreements
providing for Options of different denominations entitling the holder thereof
to purchase, on the same terms and subject to the same conditions as are set
forth herein, in the aggregate the same number of shares of Common Stock
purchasable hereunder. The terms "Agreement" and "Option" as used herein
include any Stock Option Agreements and related Options for which this
Agreement (and the Option granted hereby) may be exchanged. Upon receipt by
Issuer of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Agreement, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Agreement, if mutilated, Issuer will execute and deliver a
new Agreement of like tenor and date. Any such new Agreement executed and
delivered shall constitute an additional contractual obligation on the part of
Issuer, whether or not the Agreement so lost, stolen, destroyed or mutilated
shall at any time be enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common
Stock that are purchasable upon exercise of the Option pursuant to Section 1 of
this Agreement, in the event of any change in Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations, subdivisions,
conversions, exchanges of shares, distributions, or the like, the type and
number, and/or the price, of shares of Common Stock purchasable upon exercise
hereof shall be appropriately adjusted.
6. Upon the occurrence of a Subsequent Triggering Event that occurs
prior to an Exercise Termination Event, Issuer shall, at the request of the
Holder delivered at the time of and together with a written notice of exercise
in accordance with Section 2(e) hereof (whether on its own behalf or on behalf
of any subsequent holder of this Option (or part thereof) or any of the shares
of Common Stock issued pursuant hereto), promptly prepare, file and keep
current a shelf registration statement under the 1933 Act covering any shares
issued or issuable pursuant to this Option and shall use its best efforts to
cause such registration statement to become effective and remain current in
order to permit the sale or other disposition of any shares of Common Stock
issued upon total or partial exercise of this Option ("Option Shares") in
accordance with any plan of disposition requested by the Holder. Issuer will
use its best efforts to cause such registration statement first to become
effective and then to remain effective for such period not in excess of 180
days from the day such registration statement first becomes effective or such
shorter time as may be reasonably necessary to effect such sales or other
dispositions. The Holder shall have the right to demand not more than two such
registrations under this Agreement and all other agreements for which this
agreement may be exchanged pursuant to Section 4 hereof; provided, however,
that Issuer shall be required to bear the expenses related only to the first
such registration, and the Holder shall bear such expenses to the extent
related to the second. The foregoing notwithstanding, if, at the time of any
request by the Holder for registration of Option Shares as provided above,
Issuer is in registration with respect to an underwritten public offering of
shares of Common Stock, and if in the good faith judgment of the managing
underwriter or managing underwriters, or, if none, the sole underwriter or
underwriters, of such offering the inclusion of the Holder's Option or Option
Shares would interfere with the successful marketing of the shares of Common
Stock offered by Issuer, the number of Option Shares otherwise to be covered in
the registration statement contemplated hereby may be reduced; and provided,
however, that after any such required reduction the number of Option Shares to
be included in such offering for the account of the Holder shall constitute at
least 25% of the total number of shares to be issued by the Holder and Issuer
in the aggregate; and provided further, however, that if such reduction occurs,
then the Issuer shall file a registration statement for the balance as promptly
as practical and no reduction shall thereafter
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occur. Each such Holder shall provide all information reasonably requested by
Issuer for inclusion in any registration statement to be filed hereunder. If
requested by any such Holder in connection with such registration, Issuer shall
become a party to any underwriting agreement relating to the sale of such
shares, but only to the extent of obligating itself in respect of
representations, warranties, indemnities and other agreements customarily
included in such underwriting agreements for the Issuer. Upon receiving any
request under this Section 6 from any Holder, Issuer agrees to send a copy
thereof to any other person known to Issuer to be entitled to registration
rights under this Section 6, in each case by promptly mailing the same, postage
prepaid, to the address of record of the persons entitled to receive such
copies.
7.(a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any person,
other than Grantee or one of its Subsidiaries, and shall not be the continuing
or surviving corporation of such consolidation or merger, (ii) to permit any
person, other than Grantee or one of its Subsidiaries, to merge into Issuer and
Issuer shall be the continuing or surviving corporation, but, in connection
with such merger, the then outstanding shares of Common Stock shall be changed
into or exchanged for stock or other securities of any other person or cash or
any other property or the then outstanding shares of Common Stock shall after
such merger represent less than 50% of the outstanding shares and share
equivalents of the merged company, or (iii) to sell or otherwise transfer all
or substantially all of its assets to any person, other than Grantee or one of
its Subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set
forth herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of the Holder, of either (x) the Acquiring
Corporation (as hereinafter defined) or (y) any person that controls the
Acquiring Corporation.
(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer (if
other than Issuer), (ii) Issuer in a merger in which Issuer is the
continuing or surviving person, and (iii) the transferee of all or
substantially all of Issuer's assets.
(2) "Substitute Common Stock" shall mean the shares of capital
stock (or similar equity interest) with the greatest voting power in
respect of the election of directors (or other persons similarly
responsible for direction of the business and affairs) of the issuer
of the Substitute Option.
(3) "Assigned Value" shall mean the highest of (i) the price
per share of common stock at which a tender offer or exchange offer
therefor has been made, (ii) the price per share of common stock to be
paid by any third party pursuant to an agreement with Issuer, or (iii)
in the event of a sale of all or substantially all of Issuer's assets,
the sum of the price paid in such sale for such assets and the current
market value of the remaining assets of Issuer as determined by a
nationally recognized investment banking firm selected by the Holder
or the Owner, as the case may be, divided by the number of shares of
Common Stock of Issuer outstanding at the time of such sale. In
determining the market/offer price, the value of consideration other
than cash shall be determined by a nationally recognized investment
banking firm selected by the Holder or Owner, as the case may be.
(4) "Average Price" shall mean the average closing price of a
share of the Substitute Common Stock for the six months immediately
preceding the consolidation, merger or sale in question, but in no
event higher than the closing price of the shares of Substitute Common
Stock on the day preceding such consolidation, merger or sale;
provided that if Issuer is the issuer of the Substitute Option, the
Average Price shall be computed with respect to a share of common
stock issued by the person merging into Issuer or by any company which
controls or is controlled by such person, as the Holder may elect.
(c) The Substitute Option shall have the same terms and conditions as
the Option, provided, that if any term or condition of the Substitute Option
cannot, for legal reasons, be the same as the Option, such term or condition
shall be as similar as possible and in no event less advantageous to the
Holder. The issuer of the Substitute Option
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<PAGE> 145
shall also enter into an agreement with the then Holder or Holders of the
Substitute Option in substantially the same form as this Agreement, which shall
be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of
shares of Substitute Common Stock as is equal to (i) the product of (A) the
Assigned Value and (B) the number of shares of Common Stock for which the
Option is then exercisable, divided by (ii) the Average Price. The exercise
price of the Substitute Option per share of Substitute Common Stock shall then
be equal to the Option Price multiplied by a fraction, the numerator of which
shall be the number of shares of Common Stock for which the Option is then
exercisable and the denominator of which shall be the number of shares of
Substitute Common Stock for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall
the Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute Option.
(f) Issuer shall not enter into any transaction described in
subsection (a) of this Section 8 unless the Acquiring Corporation and any
person that controls the Acquiring Corporation assume in writing all the
obligations of Issuer hereunder.
8. The 180-day period for exercise of certain rights under Sections 2
and 6 shall be extended: (i) to the extent necessary to obtain all regulatory
approvals for the exercise of such rights, and for the expiration of all
statutory waiting periods; and (iii) to the extent necessary to avoid liability
under Section 16(b) of the 1934 Act by reason of such exercise.
9. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporation power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Issuer and no other corporate proceedings on the part of
Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly
executed and delivered by Issuer. This Agreement is the valid and legally
binding obligation of Issuer.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof
through the termination of this Agreement in accordance with its terms will
have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common Stock at
any time and from time to time issuable hereunder, and all such shares, upon
issuance pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrance and security interests and not subject to any preemptive rights.
(c) Issuer has taken all necessary action to exempt this Agreement,
and the transactions contemplated hereby and thereby from, and this Agreement
and the transactions contemplated hereby and thereby are exempt from, (i) any
applicable state takeover laws, (ii) any state laws limiting or restricting the
voting rights of stockholders and (iii) any provision in its or any of its
subsidiaries' articles of incorporation, certificate of incorporation, charter
or bylaws restricting or limiting stock ownership or the voting rights of
stockholders. The Rights Amendment, as defined in the Merger Agreement, has
been executed by the parties thereto, is in full force and effect and will not
be rescinded, amended or terminated without the prior written consent of
Grantee. No other amendments will be made to the Rights Agreement (as defined
in the Merger Agreement) without the prior written consent of Grantee.
(d) The execution, delivery and performance of this Agreement does not
or will not, and the consummation by Issuer of any of the transactions
contemplated hereby will not, constitute or result in (i) a breach or violation
of, or a default under, its certificate of incorporation or bylaws, or the
comparable governing instruments of any of its subsidiaries, or (ii) a breach
or violation of, or a default under, any agreement, lease, contract, note,
mortgage, indenture, arrangement or other obligation of it or any of its
subsidiaries (with or without the giving of notice, the lapse of time or both)
or under any law, rule, ordinance or regulation or judgment, decree, order,
award
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<PAGE> 146
or governmental or nongovernmental permit or license to which it or any of its
subsidiaries is subject, that would, in any case referred to in this clause
(ii), give any other person the ability to prevent or enjoin Issuer's
performance under this Agreement in any material respect.
10. Grantee hereby represents and warrants to Issuer that:
(a) Grantee has corporate power and authority to enter into
this Agreement and, subject to any approvals or consents referred to herein, to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
Grantee. This Agreement has been duly executed and delivered by Grantee.
(b) This Option is not being acquired with a view to the
public distribution thereof and neither this Option nor any Option Shares will
be transferred or otherwise disposed of except in a transaction registered or
exempt from registration under applicable federal and state securities laws and
regulations.
11. Neither of the parties hereto may assign any of its rights or
obligations under this Option Agreement or the Option created hereunder to any
other person, without the express written consent of the other party, except
(i) to any wholly-owned Subsidiary or (ii) that in the event a Subsequent
Triggering Event shall have occurred prior to an Exercise Termination Event,
Grantee, subject to the express provisions hereof, may assign in whole or in
part its rights and obligations hereunder to one or more transferees.
12. Each of Grantee and Issuer will use its best efforts to make all
filings with, and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions contemplated by
this Agreement.
13. Notwithstanding anything to the contrary herein, in the event
that the Holder or Owner or any Related Person thereof is a person making an
offer or proposal to engage in an Acquisition Transaction (other than the
transactions contemplated by the Merger Agreement), then in the case of a
Holder or any Related Person thereof, the Option held by it shall immediately
terminate and be of no further force or effect. A Related Person of a Holder
or Owner means any Affiliate (as defined in Rule 12b-2 of the rules and
regulations under the 1934 Act) of the Holder or Owner and any person that is
the beneficial owner of 20% or more of the voting power of the Holder or Owner,
as the case may be.
14. The parties hereto acknowledge that damages would be an
inadequate remedy for a breach of this Agreement by either party hereto and
that the obligations of the parties hereto shall be enforceable by either party
hereto through injunctive or other equitable relief.
15. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this
Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated. If for any reason such court or regulatory
agency determines that the Holder is not permitted to acquire the full number
of shares of Common Stock provided in Section 1(a) hereof (as adjusted pursuant
to Section 1(b) or 5 hereof), it is the express intention of Issuer to allow
the Holder to acquire such lesser number of shares as may be permissible,
without any amendment or modification hereof.
16. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Merger Agreement.
17. This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof.
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<PAGE> 147
18. This Agreement may be executed in two or more counterparts, each
of which shall be deemed to be an original, but all of which shall constitute
one and the same agreement.
19. Except as otherwise expressly provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel. Notwithstanding anything to the contrary
contained herein or in the Merger Agreement, in the event a Subsequent
Triggering Event shall occur prior to an Exercise Termination Event Issuer
shall pay to Grantee upon demand the amount of the expenses incurred by Grantee
in connection with this Agreement and the Merger Agreement and the transactions
contemplated hereby and thereby.
20. Except as otherwise expressly provided herein, in the Voting
Agreements or in the Merger Agreement, this Agreement contains the entire
agreement between the parties with respect to the transactions contemplated
hereunder and supersedes all prior arrangements or understandings with respect
thereof, written or oral. The terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns. Nothing in this Agreement,
expressed or implied, is intended to confer upon any party, other than the
parties hereto, and their respective successors except as assigns, any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided herein.
21. Capitalized terms used in this Agreement and not defined herein
shall have the meanings assigned thereto in the Merger Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as of
the date first above written.
CHARTER ONE FINANCIAL, INC.
By:
-----------------------------------
President
FIRSTFED MICHIGAN CORPORATION
By:
-----------------------------------
President
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Exhibit B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated May 31, 1995, between FirstFed Michigan
Corporation, a Michigan corporation ("Issuer"), and Charter One Financial,
Inc., a Delaware corporation ("Grantee").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger dated May 30, 1995 (the "Merger Agreement"), which agreement has been
executed by the parties hereto prior to this Agreement; and
WHEREAS, as a condition to Grantee's entering into the Merger
Agreement and in consideration therefor, Issuer has agreed to grant Grantee the
Option (as hereinafter defined):
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein and in the Merger Agreement, the
parties hereto agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable
option (the "Option") to purchase, subject to the terms hereof, up to 3,724,173
fully paid and nonassessable shares of its common stock, par value $0.01 per
share ("Common Stock"), at a price of $26.50 per share (such price, as adjusted
if applicable, the "Option Price"); provided, however, that in the event Issuer
issues or agrees to issue any shares of Common Stock (other than as permitted
under the Merger Agreement) at a price less than $26.50 per share such Option
Price shall be equal to such lesser price. The number of shares of Common
Stock that may be received upon the exercise of the Option and the Option Price
are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are issued
or otherwise become outstanding after the date of this Agreement (other than
pursuant to this Agreement), the number of shares of Common Stock subject to
the Option shall be increased so that, after such issuance, it equals 19.9% of
the number of shares of Common Stock then issued and outstanding without giving
effect to any shares subject or issued pursuant to the Option. Nothing
contained in this Section 1(b) or elsewhere in this Agreement shall be deemed
to authorize Issuer or Grantee to breach any provision of the Merger Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option, in
whole or part, if, but only if, both an Initial Triggering Event (as
hereinafter defined) and a Subsequent Triggering Event (as hereinafter defined)
shall have occurred prior to the occurrence of an Exercise Termination Event
(as hereinafter defined), provided that the Holder shall have sent the written
notice of such exercise (as provided in subsection (e) of this Section 2)
within 180 days following the first such Subsequent Triggering Event. Each of
the following shall be an Exercise Termination Event: (i) the Company Merger
Effective Time (as defined in the Merger Agreement); (ii) termination of the
Merger Agreement in accordance with the provisions thereof if such termination
occurs prior to the occurrence of an Initial Triggering Event; or (iii) the
passage of twelve months after termination of the Merger Agreement if such
termination follows or occurs at the same time as the occurrence of an Initial
Triggering Event. The term "Holder" shall mean the holder or holders of the
Option (including Grantee or any subsequent transferee(s)).
(b) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each an "Issuer
Subsidiary"), without having received Grantee's prior written consent,
shall have entered into an agreement to engage in an Acquisition
Transaction (as hereinafter defined) with any person (the term
"person" for purposes of this Agreement having the meaning assigned
thereto in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange
Act of
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1934, and the rules and regulations thereunder (the "1934 Act") other
than Grantee or any of its Subsidiaries (each a "Grantee Subsidiary").
For purposes of this Agreement, "Acquisition Transaction" shall mean
(x) a merger or consolidation, or any similar transaction, involving
Issuer or any Significant Subsidiary (as defined in Rule 1-02 of
Regulation S-X promulgated by the SEC) of Issuer, (y) a purchase,
lease or other acquisition of all or substantially all of the assets
of Issuer or any Significant Subsidiary of Issuer, or (z) a purchase
or other acquisition (including by way of merger, consolidation, share
exchange or otherwise) of beneficial ownership of securities
representing 25% or more of the voting power of Issuer or any
Significant Subsidiary of Issuer; provided that the term "Acquisition
Transaction" does not include any internal merger or consolidation
involving only Issuer and/or Issuer Subsidiaries;
(ii) (A) Any person other than Grantee, or any Grantee
Subsidiary, or any Issuer Subsidiary acting in a fiduciary capacity
(collectively, "Excluded Persons"), alone or together with such
person's affiliates and associates (as such terms are defined in Rule
12b-2 under the 1934 Act), shall have acquired beneficial ownership or
the right to acquire beneficial ownership of 25% or more of the
outstanding shares of Common Stock (the term "beneficial ownership"
for purposes of this Option Agreement having the meaning assigned
thereto in Section 13(d) of the 1934 Act, and the rules and
regulations thereunder) or (B) any group (as such term is defined in
Section 13(d)(3) of the 1934 Act), other than a group of which any
Excluded Person is a member, shall have been formed that beneficially
owns 25% or more of the shares of Common Stock then outstanding;
(iii) Any person other than Grantee or any Grantee Subsidiary
shall have made a bona fide proposal to Issuer or its shareholders by
public announcement or written communication that is or becomes the
subject of public disclosure to (A) engage in an Acquisition
Transaction or (B) commence a tender or exchange offer the
consummation of which would result in such person acquiring beneficial
ownership of securities representing 25% or more of Issuer's voting
power;
(iv) The Board of Directors of Issuer shall have failed to
recommend to its stockholders the adoption of the Merger Agreement or
shall have withdrawn, modified or changed in a manner adverse to
Grantee such recommendation;
(v) After a proposal is made by a third party (other than an
Excluded Person) to Issuer to engage in an Acquisition Transaction,
Issuer shall have intentionally and knowingly breached any
representation, warranty, covenant or agreement contained in the
Merger Agreement and such breach (x) would entitle Grantee to
terminate the Merger Agreement pursuant to Section 4.4(e) therein
(without regard to any grace period provided for therein) and (y)
shall not have been cured prior to the Notice Date (as defined below);
or
(vi) Any person other than Grantee or any Grantee Subsidiary,
other than in connection with a transaction to which Grantee has given
its prior written consent, shall have filed an application or notice
with the Office of Thrift Supervision ("OTS") or other federal or
state bank regulatory authority, which application or notice has been
accepted for processing, for approval to engage in an Acquisition
Transaction.
(c) The term "Subsequent Triggering Event" shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person other than an Excluded
Person of beneficial ownership of 25% or more of the then outstanding
Common Stock; or
(ii) The occurrence of the Initial Triggering Event described
in subparagraph (i) of subsection (b) of this Section 2.
(d) Issuer shall notify Grantee promptly in writing of the occurrence
of any Initial Triggering Event or Subsequent Triggering Event (together, a
"Triggering Event"), it being understood that the giving of such notice by
Issuer shall not be a condition to the right of the Holder to exercise the
Option.
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(e) In the event the Holder is entitled to and wishes to exercise the
Option, it shall send to Issuer a written notice (the date of which is herein
referred to as the "Notice Date") specifying (i) the total number of shares it
will purchase pursuant to such exercise and (ii) a place and date not earlier
than three business days nor later than 60 business days from the Notice Date
for the closing of such purchase (the "Closing Date"); provided that if prior
notification to or approval of the OTS or any other regulatory agency is
required in connection with such purchase, the Holder shall promptly file the
required notice or application for approval and shall expeditiously process the
same and the period of time that otherwise would run pursuant to this sentence
shall run instead from the date on which any required notification periods have
expired or been terminated or such approvals have been obtained and any
requisite waiting period or periods shall have passed. Any exercise of the
Option shall be deemed to occur on the Notice Date relating thereto.
(f) At each closing referred to in subsection (e) of this Section 2,
the Holder shall pay to Issuer the aggregate purchase price for the shares of
Common Stock purchased pursuant to the exercise of the Option in immediately
available funds by wire transfer to a bank account designated by Issuer,
provided that failure or refusal of Issuer to designate such a bank account
shall not preclude the Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (f) of this Section 2, Issuer shall
deliver to the Holder a certificate or certificates representing the number of
shares of Common Stock purchased by the Holder and, if the Option should be
exercised in part only, a new Option evidencing the rights of the Holder
thereof to purchase the balance of the shares purchasable hereunder.
(h) Certificates for Common Stock delivered at a closing hereunder may
be endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the registered
holder hereof and Issuer and to resale restrictions arising under the
Securities Act of 1933, as amended. A copy of such agreement is on
file at the principal office of Issuer and will be provided to the
holder hereof without charge upon receipt by Issuer of a written
request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933 ("1933 Act") in the above legend shall be removed
by delivery of substitute certificate(s) without such reference if the Holder
shall have delivered to Issuer a copy of a letter from the staff of the SEC, or
an opinion of counsel, in form and substance satisfactory to Issuer, to the
effect that such legend is not required for purposes of the 1933 Act; (ii) the
reference to the provisions of this Agreement in the above legend shall be
removed by delivery of substitute certificate(s) without such reference if the
shares have been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required by
law.
(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (e) of this Section 2 and
the tender of the applicable purchase price in immediately available funds, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
Issuer shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to the Holder. Issuer shall
pay all expenses, and any and all United States federal, state and local taxes
and other charges that may be payable in connection with the preparation, issue
and delivery of stock certificates under this Section 2 in the name of the
Holder or its assignee, transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock;
(ii) that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other voluntary
act, avoid or seek to avoid the
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observance or performance of any of the covenants, stipulations or conditions
to be observed or performed hereunder by Issuer; (iii) promptly to take all
action as may from time to time be required (including (x) complying with all
premerger notification, reporting and waiting period requirements specified in
15 U.S.C. Section 18a and regulations promulgated thereunder and (y) in the
event, under the Home Owners' Loan Act, as amended ("HOLA"), or the Change in
Bank Control Act of 1978, as amended, or any state banking law, prior approval
of or notice to the OTS, or to any state regulatory authority is necessary
before the Option may be exercised, cooperating fully with the Holder in
preparing such applications or notices and providing such information to the
OTS or such state regulatory authority as they may require) in order to permit
the Holder to exercise the Option and Issuer duly and effectively to issue
shares of Common Stock pursuant hereto; and (iv) promptly to take all action
provided herein to protect the rights of the Holder against dilution.
4. This Agreement (and the Option granted hereby) are exchangeable,
without expense, at the option of the Holder, upon presentation and surrender
of this Agreement at the principal office of Issuer, for other Agreements
providing for Options of different denominations entitling the holder thereof
to purchase, on the same terms and subject to the same conditions as are set
forth herein, in the aggregate the same number of shares of Common Stock
purchasable hereunder. The terms "Agreement" and "Option" as used herein
include any Stock Option Agreements and related Options for which this
Agreement (and the Option granted hereby) may be exchanged. Upon receipt by
Issuer of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Agreement, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Agreement, if mutilated, Issuer will execute and deliver a
new Agreement of like tenor and date. Any such new Agreement executed and
delivered shall constitute an additional contractual obligation on the part of
Issuer, whether or not the Agreement so lost, stolen, destroyed or mutilated
shall at any time be enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common
Stock that are purchasable upon exercise of the Option pursuant to Section 1 of
this Agreement, in the event of any change in Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations, subdivisions,
conversions, exchanges of shares, distributions, or the like, the type and
number, and/or the price, of shares of Common Stock purchasable upon exercise
hereof shall be appropriately adjusted.
6. Upon the occurrence of a Subsequent Triggering Event that occurs
prior to an Exercise Termination Event, Issuer shall, at the request of the
Holder delivered at the time of and together with a written notice of exercise
in accordance with Section 2(e) hereof (whether on its own behalf or on behalf
of any subsequent holder of this Option (or part thereof) or any of the shares
of Common Stock issued pursuant hereto), promptly prepare, file and keep
current a shelf registration statement under the 1933 Act covering any shares
issued or issuable pursuant to this Option and shall use its best efforts to
cause such registration statement to become effective and remain current in
order to permit the sale or other disposition of any shares of Common Stock
issued upon total or partial exercise of this Option ("Option Shares") in
accordance with any plan of disposition requested by the Holder. Issuer will
use its best efforts to cause such registration statement first to become
effective and then to remain effective for such period not in excess of 180
days from the day such registration statement first becomes effective or such
shorter time as may be reasonably necessary to effect such sales or other
dispositions. The Holder shall have the right to demand not more than two such
registrations under this Agreement and all other agreements, for which this
agreement may be exchanged pursuant to Section 4 hereof; provided, however,
that Issuer shall be required to bear the expenses related only to the first
such registration, and the Holder shall bear such expenses to the extent
related to the second. The foregoing notwithstanding, if, at the time of any
request by the Holder for registration of Option Shares as provided above,
Issuer is in registration with respect to an underwritten public offering of
shares of Common Stock, and if in the good faith judgment of the managing
underwriter or managing underwriters, or, if none, the sole underwriter or
underwriters, of such offering the inclusion of the Holder's Option or Option
Shares would interfere with the successful marketing of the shares of Common
Stock offered by Issuer, the number of Option Shares otherwise to be covered in
the registration statement contemplated hereby may be reduced; and provided,
however, that after any such required reduction the number of Option Shares to
be included in such offering for the account of the Holder shall constitute at
least 25% of the total number of shares to be issued by the Holder and Issuer
in the aggregate; and provided further, however, that if such reduction occurs,
then the Issuer shall file a registration statement for the balance as promptly
as practical and no reduction shall thereafter
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occur. Each such Holder shall provide all information reasonably requested by
Issuer for inclusion in any registration statement to be filed hereunder. If
requested by any such Holder in connection with such registration, Issuer shall
become a party to any underwriting agreement relating to the sale of such
shares, but only to the extent of obligating itself in respect of
representations, warranties, indemnities and other agreements customarily
included in such underwriting agreements for the Issuer. Upon receiving any
request under this Section 6 from any Holder, Issuer agrees to send a copy
thereof to any other person known to Issuer to be entitled to registration
rights under this Section 6, in each case by promptly mailing the same, postage
prepaid, to the address of record of the persons entitled to receive such
copies.
7. (a) In the event that prior to an Exercise Termination Event,
Issuer shall enter into an agreement (i) to consolidate with or merge into any
person, other than Grantee or one of its Subsidiaries, and shall not be the
continuing or surviving corporation of such consolidation or merger, (ii) to
permit any person, other than Grantee or one of its Subsidiaries, to merge into
Issuer and Issuer shall be the continuing or surviving corporation, but, in
connection with such merger, the then outstanding shares of Common Stock shall
be changed into or exchanged for stock or other securities of any other person
or cash or any other property or the then outstanding shares of Common Stock
shall after such merger represent less than 50% of the outstanding shares and
share equivalents of the merged company, or (iii) to sell or otherwise transfer
all or substantially all of its assets to any person, other than Grantee or one
of its Subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set
forth herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of the Holder, of either (x) the Acquiring
Corporation (as hereinafter defined) or (y) any person that controls the
Acquiring Corporation.
(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer (if
other than Issuer), (ii) Issuer in a merger in which Issuer is the
continuing or surviving person, and (iii) the transferee of all or
substantially all of Issuer's assets.
(2) "Substitute Common Stock" shall mean the shares of capital
stock (or similar equity interest) with the greatest voting power in
respect of the election of directors (or other persons similarly
responsible for direction of the business and affairs) of the issuer
of the Substitute Option.
(3) "Assigned Value" shall mean the highest of (i) the price
per share of common stock at which a tender offer or exchange offer
therefor has been made, (ii) the price per share of common stock to be
paid by any third party pursuant to an agreement with Issuer, or (iii)
in the event of a sale of all or substantially all of Issuer's assets,
the sum of the price paid in such sale for such assets and the current
market value of the remaining assets of Issuer as determined by a
nationally recognized investment banking firm selected by the Holder
or the Owner, as the case may be, divided by the number of shares of
Common Stock of Issuer outstanding at the time of such sale. In
determining the market/offer price, the value of consideration other
than cash shall be determined by a nationally recognized investment
banking firm selected by the Holder or Owner, as the case may be.
(4) "Average Price" shall mean the average closing price of a
share of the Substitute Common Stock for the six months immediately
preceding the consolidation, merger or sale in question, but in no
event higher than the closing price of the shares of Substitute Common
Stock on the day preceding such consolidation, merger or sale;
provided that if Issuer is the issuer of the Substitute Option, the
Average Price shall be computed with respect to a share of common
stock issued by the person merging into Issuer or by any company which
controls or is controlled by such person, as the Holder may elect.
(c) The Substitute Option shall have the same terms and conditions as
the Option, provided, that if any term or condition of the Substitute Option
cannot, for legal reasons, be the same as the Option, such term or condition
shall be as similar as possible and in no event less advantageous to the
Holder. The issuer of the Substitute Option
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shall also enter into an agreement with the then Holder or Holders of the
Substitute Option in substantially the same form as this Agreement, which shall
be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of
shares of Substitute Common Stock as is equal to (i) the product of (A) the
Assigned Value and (B) the number of shares of Common Stock for which the
Option is then exercisable, divided by (ii) the Average Price. The exercise
price of the Substitute Option per share of Substitute Common Stock shall then
be equal to the Option Price multiplied by a fraction, the numerator of which
shall be the number of shares of Common Stock for which the Option is then
exercisable and the denominator of which shall be the number of shares of
Substitute Common Stock for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall
the Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute Option.
(f) Issuer shall not enter into any transaction described in
subsection (a) of this Section 8 unless the Acquiring Corporation and any
person that controls the Acquiring Corporation assume in writing all the
obligations of Issuer hereunder.
8. The 180-day period for exercise of certain rights under Sections 2
and 6 shall be extended: (i) to the extent necessary to obtain all regulatory
approvals for the exercise of such rights, and for the expiration of all
statutory waiting periods; and (iii) to the extent necessary to avoid liability
under Section 16(b) of the 1934 Act by reason of such exercise.
9. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporation power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Issuer and no other corporate proceedings on the part of
Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly
executed and delivered by Issuer. This Agreement is the valid and legally
binding obligation of Issuer.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof
through the termination of this Agreement in accordance with its terms will
have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common Stock at
any time and from time to time issuable hereunder, and all such shares, upon
issuance pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrance and security interests and not subject to any preemptive rights.
(c) Issuer has taken all necessary action to exempt this Agreement,
and the transactions contemplated hereby and thereby from, and this Agreement
and the transactions contemplated hereby and thereby are exempt from, (i) any
applicable state takeover laws, (ii) any state laws limiting or restricting the
voting rights of stockholders and (iii) any provision in its or any of its
subsidiaries' articles of incorporation, certificate of incorporation, charter
or bylaws restricting or limiting stock ownership or the voting rights of
stockholders.
(d) The execution, delivery and performance of this Agreement does not
or will not, and the consummation by Issuer of any of the transactions
contemplated hereby will not, constitute or result in (i) a breach or violation
of, or a default under, its certificate of incorporation or bylaws, or the
comparable governing instruments of any of its subsidiaries, or (ii) a breach
or violation of, or a default under, any agreement, lease, contract, note,
mortgage, indenture, arrangement or other obligation of it or any of its
subsidiaries (with or without the giving of notice, the lapse of time or both)
or under any law, rule, ordinance or regulation or judgment, decree, order,
award or governmental or nongovernmental permit or license to which it or any
of its subsidiaries is subject, that would, in any case referred to in this
clause (ii), give any other person the ability to prevent or enjoin Issuer's
performance under this Agreement in any material respect.
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10. Grantee hereby represents and warrants to Issuer that:
(a) Grantee has corporate power and authority to enter into
this Agreement and, subject to any approvals or consents referred to herein, to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
Grantee. This Agreement has been duly executed and delivered by Grantee.
(b) This Option is not being acquired with a view to the
public distribution thereof and neither this Option nor any Option Shares will
be transferred or otherwise disposed of except in a transaction registered or
exempt from registration under applicable federal and state securities laws and
regulations.
11. Neither of the parties hereto may assign any of its rights or
obligations under this Option Agreement or the Option created hereunder to any
other person, without the express written consent of the other party, except
(i) to any wholly-owned Subsidiary or (ii) that in the event a Subsequent
Triggering Event shall have occurred prior to an Exercise Termination Event,
Grantee, subject to the express provisions hereof, may assign in whole or in
part its rights and obligations hereunder to one or more transferees.
12. Each of Grantee and Issuer will use its best efforts to make all
filings with, and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions contemplated by
this Agreement.
13. Notwithstanding anything to the contrary herein, in the event
that the Holder or Owner or any Related Person thereof is a person making an
offer or proposal to engage in an Acquisition Transaction (other than the
transactions contemplated by the Merger Agreement), then in the case of a
Holder or any Related Person thereof, the Option held by it shall immediately
terminate and be of no further force or effect. A Related Person of a Holder
or Owner means any Affiliate (as defined in Rule 12b-2 of the rules and
regulations under the 1934 Act) of the Holder or Owner and any person that is
the beneficial owner of 20% or more of the voting power of the Holder or Owner,
as the case may be.
14. The parties hereto acknowledge that damages would be an
inadequate remedy for a breach of this Agreement by either party hereto and
that the obligations of the parties hereto shall be enforceable by either party
hereto through injunctive or other equitable relief.
15. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this
Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated. If for any reason such court or regulatory
agency determines that the Holder is not permitted to acquire the full number
of shares of Common Stock provided in Section 1(a) hereof (as adjusted pursuant
to Section 1(b) or 5 hereof), it is the express intention of Issuer to allow
the Holder to acquire such lesser number of shares as may be permissible,
without any amendment or modification hereof.
16. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Merger Agreement.
17. This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof.
18. This Agreement may be executed in two or more counterparts, each
of which shall be deemed to be an original, but all of which shall constitute
one and the same agreement.
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19. Except as otherwise expressly provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel. Notwithstanding anything to the contrary
contained herein or in the Merger Agreement, in the event a Subsequent
Triggering Event shall occur prior to an Exercise Termination Event Issuer
shall pay to Grantee upon demand the amount of the expenses incurred by Grantee
in connection with this Agreement and the Merger Agreement and the transactions
contemplated hereby and thereby.
20. Except as otherwise expressly provided herein, in the Voting
Agreement or in the Merger Agreement, this Agreement contains the entire
agreement between the parties with respect to the transactions contemplated
hereunder and supersedes all prior arrangements or understandings with respect
thereof, written or oral. The terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns. Nothing in this Agreement,
expressed or implied, is intended to confer upon any party, other than the
parties hereto, and their respective successors except as assigns, any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided herein.
20. Capitalized terms used in this Agreement and not defined herein
shall have the meanings assigned thereto in the Merger Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as of
the date first above written.
FIRSTFED MICHIGAN CORPORATION
By:
----------------------------------
President
CHARTER ONE FINANCIAL, INC.
By:
----------------------------------
President
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Exhibit 1.1(a)
PLAN OF MERGER
OF
FIRST FEDERAL OF MICHIGAN
INTO
CHARTER ONE BANK, F.S.B.
PLAN OF MERGER, dated as of the 30th day of May, 1995 by and between
Charter One Bank, F.S.B., a savings bank chartered under the laws of the United
States of America (the "Bank" or the "Resulting Association"), and First
Federal of Michigan, a savings association chartered under the laws of the
United States of America ("First Federal"), such institutions being sometimes
hereinafter called the "Constituent Associations" or, individually,
"Constituent Association".
WITNESSETH:
WHEREAS, all of the outstanding capital stock of the Bank is owned
directly or indirectly by Charter One Financial, Inc. ("Charter");
WHEREAS, Charter, parent corporation of the Bank, and FirstFed
Michigan Corporation ("FirstFed"), parent corporation of First Federal, have
entered into an Agreement and Plan of Merger ("Merger Agreement") pursuant to
which, following the merger of FirstFed with and into Charter, First Federal
shall be merged with and into the Bank.
WHEREAS, the Boards of Directors of the Bank and First Federal each
believe that it is in the best interests of the institutions and their
stockholders to merge the Bank and First Federal into a single federally
chartered savings bank in order that (i) the merged institution may operate
with an improved competitive position and operating efficiency and (ii) the
parent company of the Bank, Charter, will retain the advantage of a unitary
savings and loan holding company status.
NOW, THEREFORE, in consideration of the mutual covenants, agreements
and provisions hereinafter contained, and for the purpose of prescribing the
terms and conditions of said merger and mode of carrying the same into effect,
the Bank and First Federal have agreed and do hereby agree and covenant as
follows:
1. Plan of Merger: The merger provided for herein shall be
effected as follows:
(a) The execution and delivery of this Agreement by the
Bank and First Federal shall have been duly approved by at least a two-thirds
(2/3) vote of the Board of Directors of the Bank and First Federal,
respectively.
(b) The Office of Thrift Supervision or any successor
thereto ("OTS") shall have approved the merger.
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<PAGE> 157
(c) The merger shall be approved by the shareholder of
the Bank and by the shareholder of First Federal.
(d) Thereupon First Federal shall be merged with and into
the Bank.
2. Effect of Merger. When this Plan of Merger shall become
effective in accordance with the laws and regulations of the United States of
America:
(a) The separate existence of First Federal shall cease
and First Federal shall be merged into the Bank, which shall be the savings
bank resulting from the merger and shall continue its existence under the name
"Charter One Bank, F.S.B." The date on which such merger becomes effective is
hereinafter called the "Effective Time".
(b) The Charter and Bylaws of the Bank, as then in
effect, shall be amended to conform to the agreements of Charter and FirstFed
as reflected in Section 6.5 of the Merger Agreement and such Charter and
Bylaws, as so amended, shall be the Charter and Bylaws of the Resulting
Association and may thereafter be amended in accordance with applicable law.
(c) The Directors of the Resulting Association from and
after the Effective Time shall be either sixteen (16) or fourteen (14) in
number, to be determined in accordance with Sections 6.4 and 6.5 of the Merger
Agreement, and shall be those persons whose name, residence address and terms
of office are identified in Exhibit 1 hereto. The directors of the Bank
following the Effective Time shall be elected in accordance with the procedures
set forth in Section 6.5 of the Merger Agreement and committees thereof shall
be as provided in such Section 6.5. Notwithstanding anything to the contrary,
none of the persons who serve as directors of First Federal shall be subject to
an age restriction relating to service as a director of the Bank and the Bank
shall take all necessary corporate action to effectuate this agreement of the
parties. Meetings of the Bank's Board of Directors following the Effective
Time shall be held at the same dates and sites as the meetings of Charter's
Board of Directors, as is contemplated in Section 6.4 of the Merger Agreement.
Those provisions of this Section 2(c) intended to survive the Effective Time
shall survive the Effective Time and remain in effect until the fourth
anniversary thereof.
(d) The executive officers of the Bank following the
Effective Time shall be Charles J. Koch - Chairman, President and Chief
Executive Officer; Richard W. Neu - Executive Vice President - Chief Financial
Officer; John D. Koch - Executive Vice President - Chief Lending and Credit
Officer; Mark D. Grossi - Executive Vice President - Retail Banking; and Robert
J. Vana - Chief Corporate Counsel and Secretary.
(e) All savings accounts of First Federal shall be and
become savings accounts in the Resulting Association without change in their
respective terms, maturity, minimum required balances or withdrawal value.
Each savings account of First Federal shall, as of the Effective Time, be
considered, for purpose of interest declared by the Resulting Association
thereafter, as if it had been a savings account of the Resulting Association at
the time said savings account was opened in First Federal and at all times
thereafter until such account ceases to be a savings account of the Resulting
Association. Appropriate evidence of savings account ownership interest in the
Resulting Association shall be provided, as necessary, after consummation of
the merger by the Resulting Association to each savings account holder of First
Federal.
(f) All savings accounts of the Bank prior to
consummation of the merger shall continue to be savings accounts in the
Resulting Association after consummation of the merger without any change
whatsoever in any of the provisions of such savings accounts, including,
without limitation, their respective terms, maturity, minimum required balances
or withdrawal value.
(g) All of the assets, properties, obligations and
liabilities of every kind and character, real, personal and mixed, tangible and
intangible, choses in action, rights, and credits then owned by either the Bank
or First Federal, or which would inure or be subject to either of them, shall
immediately by operation of law and without any conveyance or transfer and
without any further act or deed, be vested in and become the property and
obligations of the Resulting Association which shall have, hold and enjoy the
same in its own right as fully and to
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the same extent as the same were possessed, held and enjoyed by the Bank and
First Federal immediately prior to the consummation of the merger. The
Resulting Association shall be deemed to be and shall be a continuation of the
entity and identity both of the Bank and of First Federal and the rights and
obligations of the Bank and of First Federal shall remain unimpaired; and the
Resulting Association, upon the consummation of the merger, shall succeed to
all of such rights and obligations and the duties and liabilities connected
therewith.
(h) The main office of the Bank at 1215 Superior Avenue,
Cleveland, Ohio, shall be the main office of the Resulting Association and
branch offices thereof will be located at the locations set forth in Exhibit 2
hereof.
(i) The liquidation account of First Federal as in effect
as of the Effective Time shall be assumed in full by the Resulting Association.
3. Disposition of Shares:
(a) All of the shares of First Federal capital stock
issued and outstanding on the Effective Time, and all rights in respect
thereof, shall be cancelled.
(b) The shares of capital stock of the Bank outstanding
immediately prior to consummation of the merger shall constitute the only
outstanding shares of capital stock of the Resulting Association following
consummation of the merger.
4. Effective Time of Merger. The merger provided for herein
shall become effective on the date of endorsement of the Articles of
Combination by the Secretary of the OTS (the "Effective Time"). The merger
shall not be effective unless and until approved by the OTS. The merger shall
also not be effective until after the effective time of the merger of FirstFed
with and into Charter as set forth in the Merger Agreement by and between
FirstFed and Charter.
5. Action by Shareholders: The shareholders of the Bank and
First Federal, respectively, shall take appropriate action to vote to approve
this Plan of Merger.
6. Condition of Closing: The obligations of the parties hereto
to consummate the transactions contemplated herein shall be subject to approval
by the OTS and fulfillment or wavier (as may be applicable) of the conditions
set forth in Article IV of the Merger Agreement.
7. Amendment: This Agreement may be amended or modified at any
time by a written instrument signed by the Bank and First Federal.
8. Paragraph Headings: The paragraph headings in this Plan of
Merger are for convenience only; they form no part of this Plan of Merger and
shall not affect its interpretation.
9. Governing Law: This Plan of Merger shall be governed by the
laws of the State of Ohio, except to the extent federal law governs.
10. Termination. This Plan of Merger shall automatically terminate
without any further action of the parties hereto upon termination of the Merger
Agreement.
11. Miscellaneous: This Plan of Merger may be executed in
counterparts, each of which shall be deemed an original and all of which
constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Plan of Merger
to be executed on their behalf by their duly authorized representatives as of
the day and year first above written.
<TABLE>
<S> <C>
FIRST FEDERAL OF MICHIGAN CHARTER ONE BANK, F.S.B.
By: By:
------------------------------ ------------------------------------
Name: Name:
Title: Title:
By: By:
------------------------------ ------------------------------------
Name: Name:
Title: Secretary Title: Secretary
</TABLE>
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<PAGE> 160
EXHIBIT 2.10(c)
AMENDMENT TO RIGHTS AGREEMENT
AMENDMENT, dated as of May 26, 1995 to the Rights Agreement,
dated as of November 20, 1989 (the "Rights Agreement"), between Charter One
Financial, Inc., a Delaware corporation (the "Company"), and The First National
Bank of Boston, as Rights Agent (the "Rights Agent").
W I T N E S E T H:
WHEREAS, the Company and the Rights Agent have heretofore
executed and entered into the Rights Agreement; and
WHEREAS, no Distribution Date (as defined in the Rights Agreement) has
occurred; and
WHEREAS, pursuant to Section 27 of the Rights Agreement, the
Company may from time to time supplement or amend the Rights Agreement in
accordance with the provisions of Section 27 thereof; and
WHEREAS, it is proposed that the Company enter into an
Agreement and Plan of Merger (as it may be amended or supplemented from time to
time, the "Merger Agreement"), substantially in the form set forth in Exhibit A
to this Amendment, between the Company and FirstFed Michigan Corporation
("FirstFed"), as the same may be amended from time to time (all capitalized
terms used in this Amendment and not otherwise defined herein shall have the
meaning ascribed thereto in the Merger Agreement); and
WHEREAS, it is proposed that the Company enter into a Stock
Option Agreement (as it may be amended or supplemented from time to time, the
"Option Agreement"), substantially in the form set forth in Exhibit B to this
Amendment, between the Company and FirstFed, as the same may be amended from
time to time; and
WHEREAS, it is proposed that each member of the Board of
Directors of the Company enter into a Voting Agreement (as it may be amended or
supplemental from time to time, the "Voting Agreements"), substantially in the
form set forth in Exhibit C to this Amendment, between the members of the Board
of Directors of the Company and FirstFed, as the same may be amended from time
to time; and
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WHEREAS, the Board of Directors has determined that the merger
and the other transactions contemplated by the Merger Agreement, the Option
Agreement and the Voting Agreements are fair to and in the best interests of
the Company and its shareholders; and
WHEREAS, the Board of Directors has determined that it is in
the best interest of the Company and its shareholders to amend the Rights
Agreement to exempt the Merger Agreement, the Option Agreement, the Voting
Agreements and the transactions contemplated thereby (including, without
limitation, the option granted by the Company pursuant to the Option Agreement
and the agreement of the members of the Board of Directors of the Company to
vote in favor of the Merger Agreement pursuant to the Voting Agreements) from
the application of the Rights Agreement; and
WHEREAS, the Board of Directors of the Company has approved
and adopted this Amendment and directed that the proper officers take all
appropriate steps to execute and put into effect this Amendment.
NOW, THEREFORE, the Company hereby amends the Rights Agreement
as follows:
1. Section 1(a) of the Rights Agreement is hereby
modified and amended by deleting the percentage 10% wherever it appears and
substituting the percentage 20%.
2. Section 1(a) of the Rights Agreement is hereby
further modified and amended by adding the following proviso at the end
thereof:
"; provided, further, that neither FirstFed Michigan
Corporation, a Michigan corporation ("FirstFed"), nor any of
its subsidiaries, nor any other Person, shall be deemed to be
an Acquiring Person by virtue of the Agreement and Plan of
Merger (as it may be amended or supplemented from time to
time, the "Merger Agreement"), to be entered into on or about
May 30, 1995 between the Company and FirstFed, the Stock
Option Agreement (as it may be amended or supplemented from
time to time, the "Option Agreement") to be entered into on or
about May 31, 1995 between the Company and FirstFed, the
Voting Agreements (as they may be amended or supplemented from
time to time, the "Voting Agreements") to be entered into on
or about May 30, 1995 between the members of the Board of
Directors of the Company and FirstFed, or by virtue of any of
the transactions contemplated by the Merger Agreement, the
Option Agreement and the Voting Agreements. Without limiting
the foregoing, neither FirstFed nor any of its subsidiaries,
nor with respect to clauses (ii)-(v) below, any other Person,
shall be deemed to be an Acquiring Person by virtue of the
fact that FirstFed or its permitted transferee is the
Beneficial Owner solely of Common Stock of the Company (i) of
which FirstFed or such subsidiary was the Beneficial Owner on
May 26, 1995, (ii) acquired or acquirable pursuant to the
grant or exercise of the option granted pursuant to the Option
Agreement, (iii) acquired or acquirable pursuant to the Voting
Agreements, (iv) held directly or indirectly in trust
accounts, managed accounts and the like or otherwise held in a
fiduciary capacity for third parties and (v) held in respect
of a debt previously contracted; and provided further,
however, that in the event that
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FirstFed or any of its subsidiaries acquires beneficial
ownership of any shares of Common Stock other than the shares
described in clauses (i)-(v) above ("Subsequently Acquires
Shares"), then the shares described in clauses (i)-(iii)
above, together with such Subsequently Acquired Shares, shall
be considered in determining whether FirstFed or any of its
subsidiaries shall have become an Acquiring Person."
3. Section 24(a)(ii) of the Rights Agreement is hereby
modified and amended by deleting the percentage 10% wherever it appears and
substituting the percentage 20%.
4. Section 30 of the Rights Agreement is hereby modified
and amended to add the following sentence at the end thereof:
"Nothing in this Agreement shall be construed to give any
holder of Rights or any other Person any legal or equitable
rights, remedy or claim under this Agreement in connection with
any transactions contemplated by the Merger Agreement, the
Option Agreement or the Voting Agreements."
5. This Amendment shall be effective immediately upon
its execution and the Rights Agreement shall continue in full force and effect
as amended hereby.
6. This Amendment may be executed in counterparts.
IN WITNESS WHEREOF, this Amendment has been duly executed by the
Company and the Rights Agent as of the day and year first written above.
CHARTER ONE FINANCIAL, INC.
---------------------------------------
By:
THE FIRST NATIONAL BANK OF BOSTON
as Rights Agent
---------------------------------------
By:
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<PAGE> 163
APPENDIX II
PROPOSED REVISIONS TO THE RESTATED CERTIFICATE OF INCORPORATION OF
CHARTER ONE FINANCIAL, INC.
FOURTH: A. Authorized Shares. The total number of
shares of all classes of stock which the Corporation shall have
authority to issue is two hundred million (200,000,000), of which one
hundred eighty million (180,000,000) shall be common stock, par value
$.01 per share, and twenty million (20,000,000) shall be preferred
stock, par value $.01 per share. The number of authorized shares of
preferred stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of
a majority of the stock of the Corporation entitled to vote generally
in the election of directors without a vote of holders of preferred
stock as a class, except to the extent that any such vote may be
required by any resolution providing for the issuance of series of
preferred stock.
FIFTH:
A. Certain Definitions. For purposes of this
Certificate of Incorporation:
(i) "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms under Rule 12b-2 of
the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") as in
effect on the date of the original filing of this Certificate
of Incorporation; provided, however, that the Continuing
Directors of the Corporation, the officers and employees of
the Corporation and its Subsidiaries, the directors of
subsidiaries of the Corporation, the Corporation and its
Subsidiaries, the employee benefit plans of the Corporation
and its Subsidiaries, entities organized or established by the
Corporation or any Subsidiary thereof pursuant to the terms of
such plans, and trustees and fiduciaries with respect to such
plans acting in such capacity shall not be deemed to be
Affiliates or Associates of each other solely by virtue of
their being directors, officers, employees or Beneficial
Owners of securities of the Corporation or any Subsidiary
thereof or by virtue of such continuing directors of the
Corporation, such officers and employees of the Corporation
and its Subsidiaries and such directors of Subsidiaries of the
Corporation being fiduciaries or beneficiaries of an employee
benefit plan of the Corporation or a Subsidiary of the
Corporation.
(ii) A Person shall be considered the "Beneficial
Owner" of any security (whether or not owned of record):
(a) with respect to which such Person or
any Affiliate or Associate of such Person directly or
indirectly has or shares (i) voting power, including
the power to vote or to direct the voting of such
securities and/or (ii) investment power, including
the power to dispose of or to direct the disposition
of such security;
(b) which such Person or any Affiliate
or Associate of such Person has (i) the right or
obligation to acquire (whether such right or
obligations is exercisable immediately or only after
the passage of time) pursuant to any agreement,
arrangement or understanding (whether or not in
writing) or upon the exercise of conversion rights,
exchange rights, warrants or options, or otherwise,
and/or (ii) the right to vote pursuant to any
agreement, arrangement or understanding (whether or
not in writing and whether or not such right is
exercisable immediately or only after the passage of
time); or
(c) which is Beneficially Owned within
the meaning of (a) or (b) of this paragraph by any
other Person with which such first-mentioned Person
or any of its Affiliates or Associates has any
agreement, arrangement or understanding (whether or
not in writing), with respect to (x) acquiring,
holding, voting or disposing of such
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security or any security convertible into or
exchangeable or exercisable for such security, or (y)
acquiring, holding or disposing of all or
substantially all off the assets or businesses of the
Corporation or a Subsidiary of the Corporation.
For the purpose only of determining whether a Person is the
Beneficial Owner of a percentage specified in this Certificate
of Incorporation of the outstanding shares of a class of
security, such shares shall be deemed to include any shares of
such class of security which may be issuable pursuant to any
agreement, arrangement or understanding or upon the exercise
of conversion rights, exchange rights, warrants, options or
otherwise and which are deemed to be Beneficially Owned by
such Person pursuant to the foregoing provisions of this
paragraph.
(iii) "Beneficially Owned" or "Beneficial
Ownership" with reference to any security shall mean any
security as to which a Person is the Beneficial Owner.
(iv) "Continuing Director" shall mean any member
of the Board of Directors of the Corporation who is not a
Related Person or an Affiliate or Associate of a Related
Person and who was a member of the Board of Directors prior to
the first time that a Person became a Related Person, and any
successor to a director if such successor is designated
(before his or her initial election as a director) as a
Continuing Director by a majority of Continuing Directors who
are then members of the Board of Directors. If the total
number of Continuing Directors, as defined in the preceding
sentence, constitutes less than one-third (1/3) of the members
of the Board of Directors then in office, "Continuing
Director" shall mean any member of the Board of Directors.
(v) "Person" means any individual, corporation,
partnership, bank, association, joint stock company, trust,
syndicate, unincorporated organization or similar company, or
a group of "persons" acting or agreeing to act together for
the purpose of acquiring, holding, voting or disposing of
securities of the Corporation, including any group of "person"
seeking to combine or pool their voting or other interests in
the securities of the Corporation for a common purpose,
pursuant to any contract, understanding, relationship,
agreement or other arrangement, whether written or otherwise.
Notwithstanding the foregoing, no one or more Continuing
Directors shall be deemed to be a group of persons acting or
agreeing to act together for the purpose of voting securities
of the Corporation by virtue of proxies granted to them by a
stockholder of the Corporation. In addition, the Continuing
Directors of the Corporation, the officers and employees of
the Corporation and its Subsidiaries, the directors of
Subsidiaries of the Corporation, the employee benefit plans of
the Corporation and its Subsidiaries, entities organized or
established by the Corporation or any Subsidiary thereof
pursuant to the terms of such plans, and trustees and
fiduciaries with respect to such plans acting in such
capacities shall not be deemed to be a group with respect to
their Beneficial Ownership of Voting Stock of the Corporation
solely by virtue of their being such directors, officers or
employees of the Corporation and its Subsidiaries or by virtue
of such Continuing Directors of the Corporation, such officers
and employees of the Corporation and its Subsidiaries and such
directors of Subsidiaries of the Corporation being fiduciaries
or beneficiaries of any employee benefit plan of the
Corporation or a Subsidiary of the Corporation.
(vi) "Related Person" shall mean any Person (other
than the Corporation, Subsidiaries of the Corporation,
pension, profit sharing, employee stock ownership or other
employee benefit plans of the Corporation and its
Subsidiaries, entities organized or established by the
Corporation or any Subsidiary of the Corporation pursuant to
the terms of such plans and trustees of or fiduciaries with
respect to such plans acting in such capacity) that purports
or is deemed, to be the Beneficial Owner of twenty percent
(20%) (but for purposes of Article TENTH such percentage shall
be ten percent (10%)) or more of the issued and outstanding
shares of Voting Stock of the Corporation without giving
effect to the provisions of paragraph A of this Article SIXTH.
Notwithstanding the foregoing, except as used in Article
TENTH, the term "Related Person" shall not include any Person
acquiring Beneficial Ownership of shares of Voting Stock of
the Corporation in excess of twenty percent (20%) of the
issued and outstanding shares of
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Voting Stock of the Corporation if (i) the acquisition of
Beneficial Ownership of such shares in excess of twenty
percent (20%) of the issued and outstanding shares of Voting
Stock of the Corporation was approved in advance by a majority
of the Continuing Directors, or (ii) Beneficial Ownership of
such excess shares was acquired at any time directly from the
Corporation or a Subsidiary of the Corporation pursuant to an
agreement with the Corporation or a Subsidiary of the
Corporation.
(vii) "Savings Bank" means Charter One Bank,
F.S.B., Cleveland, Ohio.
(viii) "Subsidiary" means any Person a majority of
the Voting Stock (after giving effect to any securities
convertible into or exchangeable or exercisable for any Voting
Stock) of which is owned by the Corporation or by one or more
Subsidiaries of the Corporation.
(ix) "Voting Stock" of any entity means the then
outstanding shares of the entity entitled to vote generally in
the election of directors, partners or trustees.
B. Determinations by the Continuing Directors. A
majority of the Continuing Directors shall have the power to make all
determinations, which shall be conclusive and binding, with respect to
this Article FIFTH, including, without limitation, (i) the amount of
securities Beneficially Owned by any Person, (ii) whether a Person is
an Affiliate or Associate of another, (iii) whether a Person has an
agreement, arrangement or understanding with another as to the matters
referred to in the definition of Beneficial Ownership, (iv) the
application of any other definition or operative provision of this
Article FIFTH to the given facts, or (v) any other matter relating to
the applicability or effect of this Article FIFTH. The Corporation
may, by bylaw or by resolution approved by the affirmative vote of a
majority of the Continuing Directors, adopt such provisions or
resolutions as are necessary to provide for the enforcement of this
Article FIFTH which shall be final and conclusive. Any construction,
application, or determination made by the Continuing Directors in good
faith pursuant to this Article FIFTH shall be conclusive and binding
upon the Corporation and its stockholder, including any Related
Person. Nothing contained in this Article FIFTH shall be construed to
relive any Related Person from any fiduciary obligation imposed by
law.
SIXTH A. Restrictions on Voting Rights. If at anytime
there exists a Related Person, the record holders of Voting Stock of
the Corporation Beneficially Owned by such Related Person shall have
only the voting rights set forth in this Article SIXTH on any matter
requiring their vote or consent. With respect to each vote in excess
of twenty percent (20%) of the voting power of the outstanding shares
of Voting Stock of the Corporation which such record holders would
otherwise be entitled to cast without giving effect to this Article
SIXTH, the record holders in the aggregate shall be entitled to cast
only one hundredth (1/100) of a vote and the aggregate voting power of
such record holders, so limited, for all shares of Voting Stock of the
Corporation Beneficially Owned by the Related Person shall be
allocated proportionately among such record holders. For each such
record holder, this allocation shall be accomplished by multiplying
the aggregate voting power, as so limited, of the outstanding shares
of Voting Stock of the Corporation Beneficially Owned by the Related
Person by a fraction whose numerator is the number of votes
represented by the shares of Voting Stock of the Corporation owned of
record by such record holder (and which are Beneficially Owned by the
Related Person) and whose denominator is the total number of votes
represented by the shares of Voting Stock of the Corporation
Beneficially Owned by the Related Person. A Person who is a record
owner of shares of Voting Stock of the Corporation that are
Beneficially Owned simultaneously by more than one person shall have,
with respect to such shares, the right to cast the least number of
votes that such Person would be entitled to cast under this Article
SIXTH by virtue of such shares being so Beneficially Owned by any of
such Persons.
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B. Exclusion for Employee Benefit Plans, Directors,
Officers, Employees and Certain Proxies. The restriction contained in
this Article SIXTH shall not apply to (i) any underwriter or member of
an underwriting or selling group involving a public sale or resale of
securities of the Corporation or a Subsidiary thereof; provided,
however, that upon completion of the sale or resale of such
securities, no such underwriter or member of such selling group is a
Related Person, or (ii) any proxy granted to one or more Continuing
Directors by a stockholder of the Corporation. In addition, the
Continuing Directors of the Corporation, the officers and employees of
the Corporation and its Subsidiaries, the directors of Subsidiaries of
the Corporation, the employee benefit plans of the Corporation and its
Subsidiaries, entities organized or established by the Corporation or
any Subsidiary thereof pursuant to the terms of such plans and
trustees and fiduciaries with respect to such plans acting in such
capacity shall not be deemed to be a group with respect to their
Beneficial Ownership of Voting Stock of the Corporation solely by
virtue of their being directors, officers or employees of the
Corporation or a Subsidiary thereof or by virtue of the Continuing
Directors of the Corporation, the officers and employees of the
Corporation and its Subsidiaries and the directors of Subsidiaries of
the Corporation being fiduciaries or beneficiaries of an employee
benefit plan of the Corporation or a Subsidiary of the Corporation.
Notwithstanding the foregoing, no director, officer or employee of the
Corporation or any of its Subsidiaries or group of any of them shall
be exempt from the provisions of this Article SIXTH should any such
Person or group become a Related Person.
C. Determinations by the Continuing Directors. A
majority of the Continuing Directors shall have the power to make all
determinations, which shall be conclusive and binding, with respect to
this Article SIXTH, including, without limitation, (i) the amount of
securities Beneficially Owned by any Person, (ii) whether a Person is
an Affiliate or Associate of another, (iii) whether a Person has an
agreement, arrangement or understanding with another as to the matters
referred to in the definition of Beneficial Ownership, (iv) the
application of any other definition or operative provisions of this
Article SIXTH to the given facts, or (v) any other matter relating to
the applicability or effect of this Article SIXTH. The Corporation
may, by bylaw or by resolution approved by the affirmative vote of a
majority of the Continuing Directors, adopt such provisions or
resolutions as are necessary to provide for the enforcement of this
Article SIXTH which shall be final and conclusive. Any construction,
application, or determination made by the Continuing Directors in good
faith pursuant to this Article SIXTH shall be conclusive and binding
upon the Corporation and its stockholders, including any Related
Person. Nothing contained in this Article SIXTH shall be construed to
relieve any Related Person from any fiduciary obligation imposed by
law.
D. Right of Continuing Directors to Demand Certain
Information From Related Person. A majority of the Continuing
Directors shall have the right to demand that any Person who after
reasonable inquiry is believed to be a Related Person or a holder of
record of shares of Voting Stock of the Corporation or securities
convertible into, or exchangeable or exercisable for, Voting Stock of
the Corporation which is believed to be Beneficially Owned by a
Related Person, furnish the Corporation with accurate and complete
information as to (i) the record owner(s) of all shares or securities
Beneficially Owned by such Person who is so believed to be a Related
Person, (ii) the number of, and class or series of, shares or
securities Beneficially Owned by such Person who is so believed to be
a Related Person and held of record by each such record owner and the
number(s) of the stock certificate(s) or instrument(s) evidencing such
shares or securities, and (iii) any other factual matter relating to
the applicability or effect of this Article SIXTH, as may reasonably
be requested of such Person, and such Person shall furnish such
information within ten days after the receipt of such demand.
E. Quorum. Except as otherwise provided by law or
expressly provided in this Certificate of Incorporation, the presence,
in person or by proxy, of the holders of record of shares of capital
stock of the Corporation entitling the holders thereof to cast a
majority of the votes (after giving effect, if applicable, to the
provisions of Article FIFTH and this Article SIXTH) entitled to be
cast by the holders of shares of capital stock of the Corporation
entitled to vote shall constitute a quorum at all meetings of the
stockholders, and every reference in this Certificate of Incorporation
to a majority or other proportion of capital stock (or the holders
thereof) for purposes of determining any quorum requirement or any
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<PAGE> 167
requirement for stockholder consent or approval shall be deemed to
refer to such majority or other proportion of the votes (or the
holders thereof) then entitled to be cast in respect of such capital
stock.
SEVENTH: A. Board of Directors. The business and affairs
of the Corporation shall be under the direction of a board of
directors (the "Board of Directors"), except as provided in this
Certificate of Incorporation or in the Bylaws as in effect at the time
of the consummation of the conversion of the Savings Bank to a capital
stock savings bank and the Savings Bank concurrently becoming a
subsidiary of the Corporation. The authorized number of directors
shall consist of not less than seven directors nor more than 16
directors. The exact number of directors shall be fixed from time to
time pursuant to a resolution adopted by the affirmative vote of a
majority of the Continuing Directors, in the manner provided by the
Bylaws of the Corporation.
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APPENDIX III
[Form of Fairness Opinion for Montgomery Securities]
________, 1995
Members of the Board of Directors
Charter One Financial, Inc.
1215 Superior Avenue
Cleveland, OH 44114
Gentlemen:
Charter One Financial, Inc., a Delaware corporation (the "Company"),
and FirstFed Michigan Corporation, a Michigan corporation ("FirstFed"), have
entered into a Merger Agreement dated May 30, 1995 (the "Merger Agreement"),
pursuant to which FirstFed will be merged with and into the Company, which will
be the surviving entity (the "Merger"). Pursuant to the Merger, as more fully
described in the Merger Agreement, we understand that each outstanding share of
the common stock, $0.01 par value per share, of FirstFed, other than those
shares held or owned by either party to the Merger Agreement or any of their
respective subsidiaries, will be converted into the right to receive 1.20
shares of the common stock, $0.01 par value per share, of the Company (the
"Company Stock"), subject to certain adjustments (the "Consideration").
You have asked for our opinion as to whether the Consideration to be
paid by the Company pursuant to the Merger is fair to the Company and its
stockholders from a financial point of view, as of the date hereof.
In connection with our opinion, we have, among other things: (i)
reviewed certain publicly available financial and other data with respect to
FirstFed and the Company, including the consolidated financial statements for
recent years and interim periods to March 31, 1995 and certain other relevant
financial and operating data relating to FirstFed and the Company made
available to us from published sources and from the internal records of
FirstFed and the Company; (ii) reviewed the Merger Agreement; (iii) reviewed
certain historical market prices and trading volumes of the common stock of
FirstFed and the Company Stock in the over-the-counter market as reported by
the National Association of Securities Dealers Automated Quotation System; (iv)
compared FirstFed and the Company from a financial point of view with certain
other savings and loan institutions which we deemed to be relevant; (v)
considered the financial terms, to the extent publicly available, of selected
recent business combinations of companies, including transactions which we deem
to be mergers of equals, in the banking and savings and loan industries which we
deemed to be comparable, in whole or in part, to the Merger; (vi) reviewed,
analyzed and discussed with representatives of the management of FirstFed and
the Company certain information of a business and financial nature regarding
FirstFed and the Company, furnished to us by them, including financial
forecasts and related assumptions of FirstFed and the Company; (vii) made
inquiries regarding and discussed the Merger and the
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Merger Agreement and other matters related thereto with the Company's counsel;
and (viii) performed such other analyses and examinations as we have deemed
appropriate.
In connection with our review, we have relied on the accuracy and
completeness of the foregoing information and have not assumed any obligation
independently to verify such information. With respect to the financial
forecasts for FirstFed and the Company provided to us by their respective
managements, we have assumed for purposes of our opinion that the forecasts
have been reasonably prepared on bases reflecting the best available estimates
and judgments of their respective managements at the time of preparation as to
the future financial performance of FirstFed and the Company and that they
provide a reasonable basis upon which we can form our opinion. We have also
assumed that there have been no material changes in FirstFed's or the Company's
assets, financial condition, results of operations, business or prospects since
the respective dates of their last financial statements made available to us.
We have relied on advice of counsel as to all legal matters with respect to
FirstFed, the Company, the Merger and the Merger Agreement, including the legal
status of FirstFed. In addition, we are not experts in the evaluation of loan
portfolios for purposes of assessing the adequacy of the allowances for losses
with respect thereto and have assumed, with your consent, that such allowances
for each of the Company and FirstFed are in the aggregate adequate to cover
such losses. In addition, we have not reviewed any individual credit files,
and we have not made an independent evaluation, appraisal or physical
inspection of the assets or individual properties of the Company or FirstFed,
nor have we been furnished with any such appraisals. Finally, our opinion is
based on economic, monetary and market and other conditions as in effect on,
and the information made available to us as of, the date hereof.
In the ordinary course of our business, we actively trade the equity
securities of the Company and FirstFed for our own account and for the accounts
of customers and, accordingly, may at any time hold a long or short position in
such securities.
Based upon the foregoing and in reliance thereon, it is our opinion
that, as of the date hereof, the Consideration to be paid by the Company
pursuant to the Merger is fair to the Company and its stockholders from a
financial point of view.
This opinion is furnished pursuant to our engagement letter, dated
November 25, 1994, and is solely for the benefit of the Board of Directors of
the Company. Except as provided in such engagement letter, this opinion may
not be used or referred to by the Company, or quoted or disclosed to any person
in any manner without our prior written consent. In furnishing this opinion,
we do not admit that we are experts within the meaning of the term "experts" as
used in the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder. This opinion is not intended to be and shall not be
deemed to be a recommendation to any shareholder as to how such shareholder
should vote with respect to the Merger.
Very truly yours,
MONTGOMERY SECURITIES
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APPENDIX IV
[FORM OF FAIRNESS OPINION]
May 30, 1995
The Board of Directors
FirstFed Michigan Corporation
1001 Woodward Avenue
Detroit, MI 48226-1967
Members of the Board:
You have requested our opinion as investment bankers as to the fairness, from a
financial point of view, to the common stockholders of FirstFed Michigan
Corporation ("FirstFed") of the exchange ratio for the exchange of shares of
FirstFed common stock, par value $.01 per share (the "FirstFed Common Stock"),
in the proposed merger (the "Merger") of FirstFed with and into Charter One
Financial, Inc. ("Charter One") pursuant to the proposed Agreement and Plan of
Merger by and between Charter One and FirstFed (the "Agreement"). Under the
terms of the proposed Agreement (as set forth in the draft thereof dated May
30, 1995), in the Merger each outstanding share of FirstFed Common Stock will
be converted into 1.20 shares (the "Exchange Ratio") of newly issued common
stock, par value $.01 per share, of Charter One (the "Charter One Common
Stock"). In the Merger FirstFed stockholders will receive cash in lieu of
fractional shares of Charter One Common Stock. The terms of the Merger are
more fully set forth in the Agreement.
In connection with and as a condition of the proposed Agreement, we understand
that Charter One and FirstFed will enter into separate stock option agreements
(the "Stock Option Agreements") by which Charter One would grant to FirstFed an
option to purchase up to 19.9% of the outstanding shares of Charter One Common
Stock at a price per share and on the terms and conditions set forth therein,
and FirstFed would grant to Charter One an option to purchase up to 19.9% of
the outstanding shares of FirstFed Common Stock at a price per share and on the
terms and conditions set forth therein.
In connection with our opinion we have assumed, with your consent, that the
Merger will qualify for pooling-of-interests accounting treatment and will be
treated as a reorganization under Section 368(a) of the Internal Revenue Code.
We have acted as financial advisor to FirstFed in connection with the proposed
Merger and will receive a fee for our services, significant portions of which
are payable upon execution of the Agreement and upon consummation of the
Merger. As you are aware, from time to time we have also provided certain
other investment banking and financial advisory services to FirstFed for which
we have received customary compensation. In addition, in the ordinary course
of our securities business we actively trade the equity securities of FirstFed
and Charter One for our own account and the accounts of our customers and,
accordingly, at any time may hold a long or short position in such securities.
In arriving at our opinion, we have reviewed and analyzed, among other things,
the following: (i) drafts dated May 30, 1995, of the proposed Agreement and the
proposed Stock Option Agreements, (ii) the Annual Reports on Form 10-K of each
of FirstFed and Charter One for each year in the three-year period ended
December 31, 1994, (iii) the Quarterly Reports on Form 10-Q of each of FirstFed
and Charter One for the quarter ended March 31, 1995, (iv) certain other
publicly available financial and other information concerning FirstFed and
Charter One and the trading markets for the publicly-traded securities of
FirstFed and Charter One; (v) certain
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other internal information, including projections, relating to FirstFed and
Charter One (on a stand-alone basis and for the combined company upon
consummation of the Merger), prepared by the managements of FirstFed and
Charter One and furnished to us for purposes of our analysis; and (vi) publicly
available information concerning other depository institutions and holding
companies, the trading markets for their securities and the nature and terms of
certain other merger transactions we believe relevant to our inquiry. We have
also met with certain officers and representatives of FirstFed and Charter One
to discuss the foregoing as well as other matters we believe relevant to our
inquiry. We have assumed that the Agreement as entered into will not differ in
any material respect from the draft provided to us.
In conducting our review and in arriving at our opinion, we have relied upon
and assumed the accuracy and completeness of the financial and other
information provided to us or publicly available and have not assumed any
obligations independently to verify the same. We have relied upon the
managements of FirstFed and of Charter One as to the reasonableness and
achievability of the projections (and the assumptions and bases therefor)
provided to us, and we have assumed that such projections reflect the best
currently available estimates and judgments of such managements and that such
projections will be realized in the amounts and in the time periods currently
estimated by such managements. We also have assumed, without independent
verification, that the loan loss reserve will be adequate on a pro forma basis
for the combined company. We have not made or obtained any evaluations or
appraisals of the property of First Fed or Charter One, nor have we examined
any individual loan credit files. It is understood that we have been retained
by the Board of Directors of FirstFed and that our opinion is limited to the
fairness, from a financial point of view, to the holders of FirstFed Common
Stock of the Exchange Ratio and does not address FirstFed's underlying business
decision to effect the Merger.
In connection with our opinion we have considered such financial and other
factors as we have deemed appropriate under the circumstances, including among
others the following: (i) the historical and current financial condition and
results of operations of FirstFed and Charter One, including interest income,
interest expense, net interest income, net interest margin, non-interest
income, non-interest expense, net income, dividends, book value, intangible
assets, return on assets, return on stockholders' equity, capitalization, the
amount of non-performing assets and the allowance for loan losses, all as set
forth in the financial statements for FirstFed and Charter One; (ii) the assets
and liabilities of FirstFed and Charter One, including the loan and investment
portfolios, deposits, other liabilities, historical and current liability
sources and costs and liquidity; (iii) certain pro forma combined financial
information of FirstFed and Charter One; (iv) historical and current market
data for FirstFed Common Stock and Charter One Common Stock; and (v) the nature
and terms of certain other merger transactions involving depository
institutions and holding companies. We also have taken into account our
assessment of general economic, market and financial conditions and our
experience in similar transactions as well as our experience in securities
valuation and our knowledge of depository institutions and holding companies
generally.
Our opinion is necessarily based upon conditions as they exist and can be
evaluated on the date hereof and the information made available to us through
the date hereof. This letters does not constitute a recommendation to the
Board of Directors or any holder of FirstFed Common Stock with respect to any
approval of the Merger Agreement.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that, as of the date hereof, the Exchange Ratio is fair, from a
financial point of view, to the holders of FirstFed Common Stock.
Very truly yours,
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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law sets forth
circumstances under which directors, officers, employees and agents of Charter
One may be insured or indemnified against liability which they may incur in
their capacities as such:
Section 145. INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND
AGENTS; INSURANCE. (a) A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation and except that no indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court
of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this
section (unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances because
he has met the applicable standard of conduct set forth in subsections (a) and
(b) of this section. Such determination shall be made (1) by a majority vote
of the directors who are not parties to such action, suit or proceeding, even
if less than a quorum, or (2) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (3)
by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount
if it shall ultimately be determined that he is not entitled to be indemnified
by the corporation as authorized in this section. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon
such terms and conditions, if any, as the board of directors deems appropriate.
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(f) The indemnification and advancement of expenses provided by,
or granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out
of his status as such, whether or not the corporation would have the power to
indemnify him against such liability under this section.
(h) For purposes of this section, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and
employees or agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under this section with respect to
the resulting or surviving corporation as they would have with respect to such
constituent corporation if its separate existence had continued.
(i) For purposes of this section, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to any employee
benefit plan; and references to "serving at the request of the corporation"
shall include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to in
this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive
jurisdiction to hear and determine all actions for advancement of expenses or
indemnification brought under this section or under any bylaw, agreement, vote
of stockholders or disinterest directors, or otherwise. The Court of Chancery
may summarily determine a corporation's obligation to advance expenses
(including attorneys' fees).
Article TWELFTH of Charter One's certificate of incorporation further
provides as follows:
TWELFTH: Indemnification.
A. Actions, Suits or Proceedings Other than by or in the
Right of the Corporation. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to or is
involved in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason
of the fact that he or she, or a person of whom he or she is the legal
representative, is or was or has agreed to become a director or
officer of the Corporation, or is or was serving or has agreed to
serve at the request of the Corporation as a director, officer,
partner, member or trustee of another corporation, including, without
limitation, any Subsidiary of the Corporation, partnership, joint
venture, trust or other enterprise, including service with respect to
employee benefit plans, or by reason of any action alleged to have
been taken or omitted in such capacity, against costs, charges,
expenses (including attorneys' fees and related disbursements),
judgments, fines (including, without limitation, ERISA excise taxes
and penalties) and amounts paid in settlement actually and reasonably
incurred by such person or on such person's behalf in connection with
such action, suit or proceeding and any appeal therefrom, if such
person acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the
Corporation, and with respect to any criminal
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action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful; provided, however, that, except as provided in
paragraph F hereof with respect to proceedings seeking to enforce
rights of indemnification, the Corporation shall indemnify such person
seeking indemnification with respect to a proceeding (or part thereof)
initiated by such person only if such proceeding or part thereof was
authorized by a majority of the Continuing Directors. The termination
of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall
not, of itself, create a presumption that the person did not act in
good faith and in a manner which he or she reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had reasonable cause to
believe that his or her conduct was unlawful.
B. Actions or Suits by or in the Right of the
Corporation. The Corporation shall indemnify any person who was or is
a party or is threatened to be made a party to or is involved in any
threatened, pending or completed action or suit by or in the right of
the Corporation to procure a judgment in its favor by reason of the
fact that he or she, or a person of whom he or she is the legal
representative, is or was or has agreed to become a director or
officer of the Corporation, or is or was serving or has agreed to
serve at the request of the Corporation as a director, officer,
partner, member or trustee of another corporation, including, without
limitation, any Subsidiary of the Corporation, partnership, joint
venture, trust or other enterprise, including service with respect to
employee benefit plans, or by reason of any action alleged to have
been taken or omitted in such capacity, against costs, charges and
expenses (including attorneys' fees and related disbursements)
actually and reasonably incurred by such person or on such person's
behalf in connection with the defense or settlement of such action or
suit and any appeal therefrom, if such person acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to
the best interests of the Corporation, except that no indemnification
shall be made in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of Delaware
or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of such liability but
in view of all the circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such costs, charges and
expenses which the Court of Chancery or such other court shall deem
proper. Notwithstanding the provisions of this paragraph B, the
Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such
person (except with respect to proceedings seeking to enforce rights
to indemnification pursuant to paragraph F), only if such proceeding
(or part thereof) was authorized by a majority of the Continuing
Directors.
C. Indemnification for Costs, Charges and Expenses of
Successful Party. Notwithstanding the other provisions of this
Article TWELFTH, to the extent that a director, officer, employee or
agent of the Corporation has been successful on the merits or
otherwise, including, without limitation, the dismissal of an action
without prejudice, in defense of any action, suit or proceeding
referred to in paragraphs A and B of this Article TWELFTH, or in
defense of any claim, issue or matter therein, such person shall be
indemnified against all costs, charges and expenses (including
attorneys' fees) actually and reasonably incurred by such person or on
such person's behalf in connection therewith.
D. Determination of Right to Indemnification. Any
indemnification under paragraphs A and B of this Article TWELFTH shall
be made by the Corporation as authorized in the specific case upon a
determination (i) by the Board of Directors by a majority vote of a
quorum of the directors who were not parties to such action, suit or
proceeding, or (ii) if such a quorum is not obtainable, or, even if
obtainable, if a majority of a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion that
indemnification of the person seeking indemnification is proper in the
circumstances because he or she has met the applicable standard of
conduct set forth in paragraphs A and B of this Article TWELFTH.
Should a determination be made by the Corporation hereunder that
indemnification is not proper in the circumstances, a court may order
the Corporation to make indemnification pursuant to paragraphs A or B
of this Article TWELFTH.
E. Advance of Costs, Charges and Expenses. Costs,
charges and expenses (including attorneys' fees and related
disbursement) incurred by a person referred to in paragraphs A or B of
the Article TWELFTH in defending a civil or criminal action, suit or
proceeding shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding; provided, however,
that, if the Delaware Corporation Law so requires, the payment of such
expenses incurred by an officer or director of the Corporation in his
or her capacity as a director
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or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including without
limitation, service to an employee benefit plan) in advance of the
final disposition of such action, suit or proceeding shall be made
only upon receipt of an undertaking by or on behalf of the director or
officer to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be
indemnified by the Corporation as authorized in this Article TWELFTH.
A majority of the Continuing Directors may, upon approval of an
indemnified person, authorize the Corporation's counsel to represent
such person, in any action, suit or proceeding, whether or not the
Corporation is a party to such action, suit or proceeding.
F. Procedure for Indemnification; Right of Claimant to
Bring Suit. Any indemnification under paragraphs A, B and C, or
advance of costs, charges and expenses under paragraph E of this
Article TWELFTH, shall be made promptly, and in any event within 60
days (or in the case of any advance of costs, charges and expenses
under paragraph E, within 20 days), upon the written request of the
person referred to in such paragraphs. The right to indemnification
or advances as granted by this Article TWELFTH shall be enforceable by
the persons referred to in paragraphs A, B, C and E in any court of
competent jurisdiction, if the Corporation denies such request, in
whole or in part, or if no disposition thereof is made within the
applicable time period specified in the preceding sentence hereof.
The costs, charges and expenses incurred by a person referred to in
paragraph A or B of this Article TWELFTH in connection with
successfully establishing his or her right to indemnification, in
whole or in part, in any such action shall also be indemnified by the
Corporation. It shall be a defense to any such action (other than an
action brought to enforce a claim for the advance of costs, charges
and expenses under paragraph E of this Article TWELFTH where the
required undertaking, if any, has been received by the Corporation)
that the claimant has not met the standard of conduct set forth in
paragraphs A or B of this Article TWELFTH, but the burden of proving
such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, its independent legal
counsel, and its stockholders) to have made a determination prior to
the commencement of such action that indemnification of the claimant
is proper in the circumstances because the claimant has met the
applicable standard of conduct set forth in paragraphs A or B of this
Article TWELFTH, nor the fact that there has been an actual
determination by the Corporation (including its Board of Directors or
its independent legal counsel) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable
standard of conduct.
G. Other Rights: Continuation of Right to
Indemnification. The indemnification and advancement of expenses
provided by this Article TWELFTH shall not be deemed exclusive of any
other rights to which a person seeking indemnification or advancement
of expenses may be entitled under any law (common or statutory),
bylaw, agreement, vote of stockholder or disinterested directors or
otherwise, both as to action in such person's official capacity and as
to action in another capacity while holding office or while employed
by or acting as agent for the Corporation, and the indemnification and
advancement of expenses provided by this Article TWELFTH shall
continue as to a person who has ceased to serve in a capacity referred
to in paragraph A or B and shall inure to the benefit of the estate,
heirs, executors and administrators of such person. Nothing contained
in this Article TWELFTH shall be deemed to prohibit, and the
Corporation is specifically authorized to enter into, agreements
between the Corporation and directors, officers, employees or agents
providing indemnification rights and procedures different from those
set forth herein. All rights to indemnification and advancement of
expenses under this Article TWELFTH shall be deemed to be a contract
between the Corporation and each person referred to in paragraph A or
B of this Article TWELFTH who serves or served in such capacity at any
time while this Article TWELFTH is in effect. Any repeal or
modification of this Article TWELFTH or any repeal or modification of
relevant provisions of the Delaware Corporation Law or any other
applicable laws shall not in any way diminish any rights to
indemnification of any person referred to in paragraph A or B of this
Article TWELFTH or the obligations of the Corporation arising
hereunder with respect to any action, suit or proceeding arising out
of, or relating to, any actions, transactions or facts occurring prior
to the final adoption of such modification or repeal.
H. Indemnification of Employees and Agents of the
Corporation. The Corporation may, to the extent authorized from time
to time by a majority vote of the disinterested directors, indemnify
any employee or agent of the Corporation or any person who is or was
serving or has agreed to serve at the request of the Corporation as an
employee or agent of any corporation, including, without limitation,
any Subsidiary of the Corporation, partnership, joint venture, trust
or other enterprise and pay the expenses incurred by any such person
in defending any proceeding in advance of its final disposition, to
the fullest extent of the provisions of this Article TWELFTH.
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I. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was or has agreed to
become a director, officer, employee or agent of the Corporation, or
is or was serving or has agreed to serve at the request of the
Corporation as a director, officer, partner, member, trustee, employee
or agent of another corporation, including, without limitation, any
Subsidiary of the Corporation, partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit
plans, against any liability asserted against such person and incurred
by such person or on his or her behalf in any such capacity, or
arising out of such person's status as such, whether or not the
Corporation would have the power to indemnify such person against such
liability under the provisions of this Article TWELFTH.
J. Savings Clause. If this Article TWELFTH or any
portion hereof shall be invalidated on any ground by any court of
competent jurisdiction, then the Corporation shall nevertheless
indemnify each person referred to paragraph A or B of this Article
TWELFTH as to any cost, charge and expense (including attorneys' fees
and related disbursements), judgment, fine (including, without
limitation, ERISA excise taxes and penalties) and amount paid in
settlement with respect to any action, suit or proceeding; whether
civil, criminal, administrative or investigative, including an action
by or in the right of the Corporation, to the full extent permitted by
any applicable portion of this Article TWELFTH that shall not have
been invalidated and to the full extent permitted by applicable law.
K. Subsequent Legislation. If the Delaware Corporation
Law is hereafter amended to further expand the indemnification
permitted to persons referred to in paragraphs A and B of this Article
TWELFTH then the Corporation shall indemnify such persons to the
fullest extent permitted by the Delaware Corporation Law, as so
amended.
Charter One has purchased director and officer liability insurance
that insures directors and officers against certain liabilities in connection
with the performance of their duties as directors and officers, and that
provides for payment to Charter One of costs incurred by it in indemnifying its
directors and officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following Exhibits are filed as part of this Registration
Statement.
<TABLE>
<S> <C>
2.1 Agreement and Plan of Merger, dated as of May
30, 1995, by and between Charter One Financial,
Inc. and FirstFed Michigan Corporation, which
contains a list briefly identifying the contents
of all omitted schedules and similar attachments,
which Charter One agrees to furnish supplementally to
the Commission upon request (previously filed with
Charter One's Current Report on Form 8-K for the
event on May 31, 1995 (as amended), and incorporated
herein by reference)
2.2 Stock Option Agreement dated as of May 31, 1995, by
and between Charter One Financial, Inc. as Issuer and
FirstFed Michigan Corporation as Grantee (included
as Exhibit A to Exhibit 2.1)
2.3 Stock Option Agreement dated as of May 31,
1995, by and between FirstFed Michigan Corporation
as Issuer and Charter One Financial, Inc. as Grantee
(included as Exhibit B to Exhibit 2.1)
2.4 Plan of Merger, dated May 30, 1995, by and between
Charter One Bank, F.S.B. and First Federal of
Michigan (included as Exhibit 1.1(a) to Exhibit 2.1)
4.1 Restated Certificate of Incorporation and an
Amendment Thereto (previously filed with Charter
One's Annual Report on Form 10-K for the year
ended December 31, 1993, and incorporated herein by
reference)
4.2 Bylaws (previously filed with Charter One's
Registration Statement on Form S-1, dated January
22, 1988, and incorporated herein by reference)
4.3 Form of Certificate of Common Stock (previously
filed with Charter One's Registration Statement on
Form S-1, dated January 22, 1988, and
incorporated herein by reference)
</TABLE>
II-5
<PAGE> 177
<TABLE>
<S> <C>
4.4 Shareholder Rights Agreement between Charter One
Financial, Inc. and First National Bank of Boston,
dated November 20, 1989, and Amendment Thereto,
dated May 26, 1995 (agreement previously filed with
Charter One's Annual Report on Form 10-K for the year
ended December 31, 1994, and incorporated herein by
reference; amendment included as Exhibit 2.10(c) to
Exhibit 2.1)
5 Opinion of Silver, Freedman & Taff, L.L.P. as to
the legality of the securities being registered**
8.1 Opinion of Silver, Freedman & Taff, L.L.P. regarding
tax matters
8.2 Opinion of Housley Goldberg Kantarian & Bronstein,
P.C. regarding tax matters
10.1 Employment Agreement between Charter One Financial,
Inc. and Charles John Koch **
10.2 Employment Agreement between Charter One Financial,
Inc. and Richard W. Neu**
10.3 Form of Employment Agreements between Charter One
Financial, Inc. and John D. Koch, Mark D. Grossi and
Robert J. Vana**
10.4 Supplemental Retirement Agreement between Charter One
Financial, Inc. and Charles John Koch
10.5 Supplemental Retirement Agreement between Charter One
Financial, Inc. and John D. Koch
10.6 Supplemental Retirement Agreement between Charter One
Financial, Inc. and Richard W. Neu
10.7 Supplemental Retirement Agreement between Charter One
Financial, Inc. and Mark D. Grossi
10.8 Supplemental Retirement Agreement between Charter One
Financial, Inc. and Robert J. Vana
10.9 Form of Voting Agreement between Charter One
Financial, Inc. and each of the Directors of FirstFed
Michigan Corporation (included as Exhibit C to Exhibit
2.1)
10.10 Form of Voting Agreement between FirstFed Michigan
Corporation and each of the Directors of Charter One
Financial, Inc. (included as Exhibit D to Exhibit 2.1)
10.11 Form of Severance Agreement between Charter One
Financial, Inc., Charter One Bank, F.S.B. and
certain senior officers
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consents of Silver, Freedman & Taff, L.L.P. (included
in Exhibits 5 and 8.1)
23.4 Consent of Montgomery Securities*
23.5 Consent of Salomon Brothers Inc*
23.6 Consent of certain persons anticipated to become
Directors of Charter One Financial, Inc.*
23.7 Consent of Housley Goldberg Kantarian & Bronstein,
P.C. (included in Exhibit 8.2)
24 Power of Attorney (contained on signature page)**
99.1 Form of proxy card of Charter One Financial, Inc.**
99.2 Form of proxy card of FirstFed Michigan Corporation**
</TABLE>
----------------
* To be filed by amendment.
** Previously filed.
II-6
<PAGE> 178
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the information
set forth in the Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
Charter One's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of
a prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(d) Charter One undertakes that every prospectus (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities and at
that time shall be deemed to be the initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of Charter One pursuant to the foregoing provisions, or otherwise,
Charter One has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Charter One
of expenses incurred or paid by a director, officer or controlling person of
Charter One in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, Charter One will, unless in the opinion of its
counsel the matter has been settled by
II-7
<PAGE> 179
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
(g) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt
of such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through
the date of responding to the request.
II-8
<PAGE> 180
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Charter
One has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized in the City of Cleveland, State of
Ohio, on September 7, 1995.
CHARTER ONE FINANCIAL, INC.
Date: September 7, 1995 By:/s/ CHARLES JOHN KOCH
---------------------------- -----------------------------------------
Charles John Koch
Chairman of the Board, President and
Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
We, the undersigned directors and officers of the Registrant, hereby
severally constitute and appoint Charles John Koch, Charles F. Ipavec and
Robert J. Vana, and each of them, our true and lawful attorneys and agents, to
do any and all things in our names in the capacities indicated below which said
Charles John Koch, Charles F. Ipavec and/or Robert J. Vana may deem necessary
or advisable to enable the Registrant to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission, in connection with the registration statement on Form
S-4 relating to the offering of the registrant's common stock, including
specifically, but not limited to, power and authority to sign for us in our
names in the capacities indicated below this registration statement and any and
all amendments (including post-effective amendments) thereto; and, we hereby
approve, ratify and confirm all that said Charles John Koch, Charles F. Ipavec
and/or Robert J. Vana shall do or cause to be done by virtue thereof.
By:/s/ CHARLES JOHN KOCH By: *
-------------------------------------- ----------------------------------
Charles John Koch Leonard A. Krysinski
Chairman of the Board, President Executive Vice President, Chief
and Chief Executive Officer Financial Officer and Treasurer
(Principal Executive Officer) (Principal Financial and
Accounting Officer)
Date: September 7, 1995 Date:
------------------------------------ --------------------------------
By: * By: *
-------------------------------------- ----------------------------------
Dr. Norman P. Auburn Eugene B. Carroll
Director Director
Date: Date:
------------------------------------ --------------------------------
<PAGE> 181
By: * By: *
-------------------------------------- ----------------------------------
Otto J. Cerny Denise M. Fugo
Director Director
Date: Date:
------------------------------------ --------------------------------
By: * By: *
-------------------------------------- ----------------------------------
Charles F. Ipavec George M. Jones
Director Director
Date: Date:
------------------------------------ --------------------------------
By: * By: *
-------------------------------------- ----------------------------------
John D. Koch Robert L. Moore
Director and Executive Vice President Director
Date: Date:
------------------------------------ --------------------------------
By: * By: *
-------------------------------------- ----------------------------------
Alonzo H. Poll Victor A. Ptak
Director Director
Date: Date:
------------------------------------ --------------------------------
By: * By:/s/ CHARLES JOHN KOCH
-------------------------------------- ----------------------------------
Charles A. Shirk Charles John Koch
Director As Attorney-in-Fact
Date: Date: September 7, 1995
------------------------------------ --------------------------------
<PAGE> 182
<TABLE>
<CAPTION>
EXHIBIT INDEX
<S> <C>
2.1 Agreement and Plan of Merger, dated as of May 30,
1995, by and between Charter One Financial, Inc.
and FirstFed Michigan Corporation, which contains a
list briefly identifying the contents of all omitted
schedules and similar attachments, which Charter One
agrees to furnish supplementally to the Commission
upon request (previously filed with Charter One's
Current Report on Form 8-K for the event on May 31,
1995 (as amended), and incorporated herein by
reference)
2.2 Stock Option Agreement dated as of May 31, 1995, by
and between Charter One Financial, Inc. as Issuer and
FirstFed Michigan Corporation as Grantee (included as
Exhibit A to Exhibit 2.1)
2.3 Stock Option Agreement dated as of May 31,
1995, by and between FirstFed Michigan Corporation
as Issuer and Charter One Financial, Inc. as Grantee
(included as Exhibit B to Exhibit 2.1)
2.4 Plan of Merger, dated May 30, 1995, by and between
Charter One Bank, F.S.B. and First Federal of
Michigan (included as Exhibit 1.1(a) to Exhibit 2.1)
4.1 Restated Certificate of Incorporation and an
Amendment Thereto (previously filed with Charter
One's Annual Report on Form 10-K for the year
ended December 31, 1993, and incorporated herein by
reference)
4.2 Bylaws (previously filed with Charter One's
Registration Statement on Form S-1, dated January
22, 1988, and incorporated herein by reference)
4.3 Form of Certificate of Common Stock (previously
filed with Charter One's Registration Statement on
Form S-1, dated January 22, 1988, and incorporated
herein by reference)
4.4 Shareholder Rights Agreement between Charter One
Financial, Inc. and First National Bank of Boston,
dated November 20, 1989, and Amendment Thereto,
dated May 26, 1995 (agreement previously filed with
Charter One's Annual Report on Form 10-K for the year
ended December 31, 1994, and incorporated herein by
reference; amendment included as Exhibit 2.10(c) to
Exhibit 2.1)
5 Opinion of Silver, Freedman & Taff, L.L.P. as to
the legality of the securities being registered**
8.1 Opinion of Silver, Freedman & Taff, L.L.P. regarding
tax matters
8.2 Opinion of Housley Goldberg Kantarian & Bronstein, P.C.
regarding tax matters
10.1 Employment Agreement between Charter One Financial,
Inc. and Charles John Koch **
10.2 Employment Agreement between Charter One Financial,
Inc. and Richard W. Neu**
10.3 Form of Employment Agreements between Charter One
Financial, Inc. and John D. Koch, Mark D. Grossi and
Robert J. Vana**
10.4 Supplemental Retirement Agreement between Charter One
Financial, Inc. and Charles John Koch
10.5 Supplemental Retirement Agreement between Charter One
Financial, Inc. and John D. Koch
10.6 Supplemental Retirement Agreement between Charter One
Financial, Inc. and Richard W. Neu
10.7 Supplemental Retirement Agreement between Charter One
Financial, Inc. and Mark D. Grossi
10.8 Supplemental Retirement Agreement between Charter One
Financial, Inc. and Robert J. Vana
10.9 Form of Voting Agreement between Charter One
Financial, Inc. and each of the Directors of
FirstFed Michigan Corporation (included as
Exhibit C to Exhibit 2.1)
</TABLE>
<PAGE> 183
<TABLE>
<S> <C>
10.10 Form of Voting Agreement between FirstFed Michigan
Corporation and each of the Directors of Charter One
Financial, Inc. (included as Exhibit D to Exhibit 2.1)
10.11 Form of Severance Agreement between Charter One
Financial, Inc., Charter One Bank, F.S.B. and certain
senior officers
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consents of Silver, Freedman & Taff, L.L.P. (included
in Exhibits 5 and 8.1)
23.4 Consent of Montgomery Securities*
23.5 Consent of Salomon Brothers Inc*
23.6 Consent of certain persons anticipated to become
Directors of Charter One Financial, Inc.*
23.7 Consent of Housley Goldberg Kantarian & Bronstein, P.C.
(included in Exhibit 8.2)
24 Power of Attorney (contained on signature page)**
99.1 Form of proxy card of Charter One Financial, Inc.**
99.2 Form of proxy card of FirstFed Michigan Corporation**
</TABLE>
----------------
* To be filed by amendment.
** Previously filed.
<PAGE> 1
EXHIBIT 8.1
law offices
Silver, Freedman & Taff, L.L.P.
a limited liability partnership including professional corporations
<TABLE>
<S> <C> <C>
SIDNEY J. SILVER, P.C. 1100 NEW YORK AVENUE, N.W. TELECOPIER NUMBER
ROBERT L. FREEDMAN, P.C. WASHINGTON, D.C. 20005-3934 (202) 682-0354
BARRY P. TAFF, P.C. (202) 414-6100
HOWARD J. ROSS, P.C. OF COUNSEL
DAVID B. MYATT, P.C. EARL L. METHENY, P.C.
JAMES S. FLEISCHER, P.C. JOHN B. SELMAN*
JEFFREY M. WERTHAN, P.C. JAMES W. LANCE*
KIP A. WEISSMAN, P.C. NANCY M. STILES
MARTIN L. MEYROWITZ, P.C. SHEILA FOOTER
RICHARD S. GARABEDIAN, P.C. ROBERT I. LIPSHER
RICHARD E. BYER, P.C. MARTIN J. O'RIORDAN*
CHRISTOPHER R. KELLY, P.C.
DAVE M. MUCHNIKOFF, P.C. WRITER'S DIRECT DIAL NUMBER
JANE K. STORERO, P.C. September 7, 1995 (202) 414-6103
STEVEN M. ABRAMSON, P.C.
BRIAN L. ALPERT, P.C.
GARY A. LAX, P.C.
MARK F. VILARDO
BETH A. FREEDMAN*
ROBERT T. PLESNARSKI*
MICHAEL S. SADOW
G. SCOTT LESMES*
BRIAN S. TAFF
MICHAEL R. CLAMPITT*
*NOT ADMITTED IN D.C.
</TABLE>
Charter One Financial, Inc.
1215 Superior Avenue
Cleveland, Ohio 44114
Gentlemen:
We have acted as your counsel in connection with the Registration
Statement on Form S-4 filed on the date hereof with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"). The Registration Statement relates to the proposed mergers
of (i) FirstFed of Michigan Corporation ("FirstFed") with and into Charter One
Financial, Inc. ("Charter One") and (ii) First Federal of Michigan ("First
Federal") with and into Charter One Bank, F.S.B. (the "Charter Bank"). This
opinion is delivered in accordance with the requirements of Item 601(b)(8) of
Regulation S-K under the Securities Act.
In connection with this opinion, we have examined and are familiar
with originals or copies, certified or otherwise identified to our
satisfaction, of the Registration Statement, the Joint Proxy
Statement/Prospectus included therein and such other documents as we have
deemed necessary or appropriate.
We hereby confirm that the discussion in the Joint Proxy
Statement/Prospectus relating to the federal income tax consequences of the
mergers to the corporate parties thereto and their stockholders under the
caption "Federal Income Tax Consequences of the Merger" is a fair and accurate
summary of the matters addressed therein, under current law
<PAGE> 2
Charter One Financial, Inc.
September 7, 1995
Page 2
and the assumptions stated or referred to therein. There can be no assurance
that contrary positions may not be taken by the Internal Revenue Service.
We hereby consent to the filing of this opinion as Exhibit 8.1 to the
Registration Statement and to the use of our name under the caption "Federal
Income Tax Consequences of the Merger" in the Joint Proxy Statement/Prospectus.
In giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act.
Very truly yours,
/s/ Barry P. Taff
Barry P. Taff, P.C.
BPT/cjm
<PAGE> 1
EXHIBIT 8.2
September 7, 1995
FirstFed Michigan Corporation
1001 Woodward Avenue
Detroit, Michigan 48226
Gentlemen:
We have acted as special counsel to FirstFed Michigan Corporation
("FirstFed"), a Michigan corporation, in connection with the proposed merger
(the "Company Merger") of FirstFed with and into Charter One Financial, Inc.
("Charter"), a Delaware corporation, and the subsequent merger (the "Bank
Merger") of First Federal of Michigan with and into Charter One Bank, F.S.B., a
wholly-owned subsidiary of Charter. Both the Company Merger and the Bank
Merger are pursuant to the Agreement and Plan of Merger dated as of May 30,
1995, by and between Charter and FirstFed (the "Agreement") and are described
in Amendment No. 1 to the Registration Statement on Form S-4 to be filed today
by Charter One with the Securities and Exchange Commission (the "Registration
Statement"). Terms used but not defined herein, whether capitalized or not,
shall have the meaning given to them in the Joint Proxy Statement/Prospectus of
FirstFed and Charter included in the Registration Statement (the "Joint Proxy
Statement/Prospectus"). This opinion is being rendered pursuant to the
requirements of Item 21(a) of Form S-4 under the Securities Act of 1933, as
amended (the "Securities Act").
For purposes of this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
(i) the Agreement, (ii) the Registration Statement, including the Joint Proxy
Statement/Prospectus, and (iii) such other documents as we have deemed
necessary or appropriate in order to enable us to render the opinion below.
In our examination, we have assumed the genuineness of all signatures where due
execution and delivery are requirements to the effectiveness thereof, the legal
capacity of all natural persons, the authenticity of all documents submitted to
us as originals, the conformity to original documents of all documents
submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such copies.
We have also assumed that the transactions contemplated by the
Agreement will be consummated strictly in accordance with the Agreement and as
described in the Joint Proxy Statement/Prospectus, that the Company Merger will
qualify as a statutory merger under the applicable laws of the State of
Michigan and the State of Delaware, and that the Bank Merger will qualify as a
statutory merger under applicable federal law. This opinion is subject to the
receipt by this firm prior to the Effective Time of certain written
representations of FirstFed and Charter.
Based upon and subject to the foregoing, the discussion contained in
the Joint Proxy Statement/Prospectus under the caption "Federal Income Tax
Consequences of the Merger," to the extent of legal conclusions enumerated
therein and except as otherwise indicated, expresses our opinion as to the
material federal income tax consequences of the Merger applicable to holders of
FirstFed Common Stock. You should be aware, however, that the discussion under
the caption "Federal Income Tax Consequences of the Merger" in the Joint Proxy
Statement/ Prospectus represents our conclusions as to the application of
existing law to the instant transactions. There can be no assurance that
contrary positions may not be taken by the Internal Revenue Service.
This opinion is furnished to you solely for use in connection with the
Registration Statement. We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the references to this firm under
the heading "Federal Income Tax Consequences of the Merger" in the Joint Proxy
Statement/Prospectus included therein. In giving such consent, we do not
hereby admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act.
Very truly yours,
HOUSLEY GOLDBERG
KANTARIAN & BRONSTEIN, P.C.
By: /s/ Harry K. Kantarian
--------------------------
Harry K. Kantarian
<PAGE> 1
EXHIBIT 10.4
SUPPLEMENTAL RETIREMENT AGREEMENT
THIS SUPPLEMENTAL RETIREMENT AGREEMENT dated as of the ____ day of
_____________, 1995 (but effective as of the Effective Date) by and between
CHARTER ONE FINANCIAL, INC., its successors and assigns (the "Company") and
CHARLES J. KOCH (the "Executive").
WITNESSETH:
WHEREAS, the Executive is a member of the senior management team of
the Company whose duties will become more demanding and whose responsibilities
will be expanded by virtue of the combination between the Company and FirstFed
Michigan Corporation ("FirstFed") and their respective savings bank
subsidiaries;
WHEREAS, the Executive has heretofore performed his duties in an
exemplary and efficient manner, resulting in the substantial growth, success
and profitability of the Company and its subsidiaries;
WHEREAS, the Company wishes to provide the Executive with
supplemental retirement benefits commensurate with his executive duties on
behalf of the Company and its subsidiaries, as well as comparable to the
non-qualified retirement benefits of like kind provided to similarly situated
executives with comparable responsibilities, duties and functions; and
WHEREAS, the Company believes that the supplemental retirement
benefits to be provided to the Executive pursuant to this Agreement will induce
continued service by the Executive with the Company, which continued service is
deemed essential for the future growth and success of the Company and its
subsidiaries after its combination with FirstFed.
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and intending to be
legally bound hereby, the Company and the Executive hereby agree as follows:
1. DEFINITIONS.
In this Agreement, the following words and phrases shall have
the following meanings:
(a) ACCRUED BENEFIT PERCENTAGE shall mean .25% for each of the
first 60 calendar quarters that the Executive has heretofore been or is
hereinafter employed by the Company or any of its subsidiaries (or any
predecessors or successors thereto by merger or purchase) plus .875% for each
calendar quarter of employment thereafter, calculated through the last day of
the calendar quarter in which the Executive (i) experiences a Separation from
Service or (ii) attains Normal Retirement Age, whichever shall first occur.
There shall be no duplication of the Accrued Benefit Percentage for service
with more than one employer.
(b) ADMINISTRATOR shall mean the person or committee appointed
by the Board of Directors of the Company to administer this Agreement.
(c) AVERAGE COMPENSATION shall mean the amount determined as of
the Benefit Commencement Date by dividing by 36 the total monetary compensation
earned by the Executive from the Company and its subsidiaries (or any
predecessors or successors thereto by merger or purchase), including but not
limited to salary, bonuses and incentive compensation (but excluding
specifically stock based compensation, including but not limited to restricted
stock, stock options and stock appreciation rights) during the 3 annual periods
(whether or not consecutive) that results in the largest total. An annual
period shall consist of any 12 month consecutive period.
- 2 -
<PAGE> 3
(d) BENEFIT COMMENCEMENT DATE shall mean the last day of the
calendar month following the earliest of (i) Normal Retirement Age, (ii) the
date the Executive attains (or but for his death would have attained) age 65 if
prior thereto he experiences a Separation from Service for Cause, (iii) the
date of the Executive's Separation from Service without Cause provided the
Executive is then age 58 or older, (iv) the date the Executive attains (or but
for his death would have attained) the age of 58 years if he experiences a
Separation from Service without Cause prior to his attaining age 58 or (v) 6
months after the date of death of the Executive if he dies while employed by
the Company.
(e) CAUSE shall mean a Separation from Service that arises from
a "Termination for Cause" (as such term is defined in the written employment
agreement (the "Employment Agreement") between the Company and the Executive of
even date herewith).
(f) EFFECTIVE DATE shall mean the date that FirstFed is merged
into the Company.
(g) MONTHLY BENEFIT shall mean the Average Compensation
multiplied by the Accrued Benefit Percentage; provided, however, in no event
will the Monthly Benefit exceed $33,333.33.
(h) NORMAL RETIREMENT AGE shall mean the date the Executive
attains or but for his death would have attained age 65.
(i) SEPARATION FROM SERVICE shall mean the date of cessation of
the employment relationship between the Executive and the Company and its
subsidiaries (including any successor in interest, if applicable).
- 3 -
<PAGE> 4
(j) SPOUSE shall mean the person to whom the executive is
married immediately prior to his death.
2. PAYMENT OF BENEFITS.
(a) DURING THE LIFE OF THE EXECUTIVE.
If the Executive is living on the Benefit Commencement
Date, the Company shall pay to him the Monthly Benefit on each of the Benefit
Commencement Date and on the last day of each calendar month thereafter during
his lifetime.
(b) FOLLOWING THE DEATH OF THE EXECUTIVE.
(i) If the Executive is not living on the Benefit
Commencement Date but the Spouse is then living, the Company shall pay to the
Spouse 50% of the Monthly Benefit on each of the Benefit Commencement Date and
the last day of each calendar month thereafter during the lifetime of the
Spouse; or
(ii) If the Executive dies after the Benefit Commencement
Date and is survived by the Spouse, the Company shall pay to the Spouse 50% of
the Monthly Benefit on each of the last day of the calendar month next
following the death of the Executive and the last day of each calendar month
thereafter during the lifetime of the Spouse; and
(iii) After the death of both the Executive and the
Spouse, no amounts will be payable under this Agreement other than previously
due amounts which were not paid and any amount payable for the calendar month
that death occurred.
3. MISCELLANEOUS.
(a) WITHHOLDING. To the extent amounts payable under this
Agreement are determined by the Administrator, in good faith, to be subject to
federal, state or local income
- 4 -
<PAGE> 5
tax, the Company may withhold from each such payment an amount necessary to
meet the employer's obligation to withhold amounts under the applicable
federal, state or local law.
(b) GENERAL ASSETS AND FUNDING. The amounts payable under this
Agreement are payable from the general assets of the Company and no special
fund or arrangement is intended to be established hereby nor shall the Company
be required to earmark, place in trust or otherwise segregate assets with
respect to this Agreement or any benefits hereunder. The Administrator
reserves the right to determine how the Company will fund its obligation
undertaken by this Agreement. Should the Administrator elect to fund this
Agreement, in whole or in part, through the medium of life insurance or
annuities, or both, the Company shall be the owner and beneficiary of the
policy. The Company reserves the absolute right, in its sole discretion, to
terminate such life insurance or annuities, as well as any other funding
program, at any time, in whole or in part. Such termination shall in no way
affect the Company's obligation to pay the Executive and Spouse as provided in
this Agreement. At no time shall the Executive or Spouse be deemed to have any
right, title, or interest in or to any specific asset or assets of the Company,
including but not by way of restriction, any insurance or annuity contract and
contracts or the proceeds therefrom.
(c) GOVERNING LAW. This Agreement shall be construed under the
laws of the State of Ohio, without regard to its principles of conflict of
laws.
(d) FUTURE EMPLOYMENT. This Agreement shall not be construed
as providing the Executive the right to be continued in the employ of the
Company or its subsidiaries; and the terms and conditions of his employment are
the subject of the Employment Agreement which shall control the employment
relationship.
- 5 -
<PAGE> 6
(e) NO PLEDGE OR ATTACHMENT. No benefit which is or may become
payable under this Agreement shall be subject to any anticipation, alienation,
sale, transfer, pledge, encumbrance or hypothecation or subject to any
attachment, levy or similar process and any attempt to effect any such action
shall be null and void.
(f) AMENDMENT OF AGREEMENT. This Agreement may be amended, in
whole or in part, only upon the mutual written agreement of the Company and the
Executive.
(g) BINDING EFFECT. This Agreement and the obligations of the
Company herein shall be binding upon the successors and assigns of the Company.
The Spouse shall be deemed a beneficiary of this Agreement.
(h) PARTICIPATION IN PLANS. Nothing contained in this
Agreement shall be construed to alter, abridge, or in any manner affect the
rights and privileges of the Executive to participate in and be covered by any
pension, profit sharing, group insurance, bonus, incentive, or other employee
plans which the Company or its subsidiaries may now or hereafter have.
(i) NO RIGHTS PRIOR TO EFFECTIVE DATE. This Agreement shall
become effective on the Effective Date if the Executive is employed by the
Company on such date. Until the Effective Date or earlier termination of this
Agreement as provided herein, this Agreement shall remain executory in nature.
In the event the Executive experiences a Separation from Service prior to the
Effective Date or that certain Agreement and Plan of Merger dated May 30, 1995
between the Company and FirstFed is terminated, in either such event, this
Agreement shall thereupon cease, determine and terminate.
- 6 -
<PAGE> 7
(j) TERMINATION OF SALARY CONTINUATION AGREEMENT. If this
Agreement becomes effective on the Effective Date, then that certain Salary
Continuation Agreement between the Executive and First Federal Savings Bank
(now known as "Charter One Bank, F.S.B. "by name change) dated as of January 1,
1987 shall thereupon terminate and be replaced by this Agreement.
The parties have caused this Agreement to be executed and delivered
as of the date first above written.
CHARTER ONE FINANCIAL, INC.
BY:
----------------------------------
MARK D. GOSSI
SENIOR VICE PRESIDENT
EXECUTIVE
-------------------------------------
CHARLES J. KOCH
- 7 -
<PAGE> 1
EXHIBIT 10.5
SUPPLEMENTAL RETIREMENT AGREEMENT
THIS SUPPLEMENTAL RETIREMENT AGREEMENT dated as of the ____ day of
_____________, 1995 (but effective as of the Effective Date) by and between
CHARTER ONE FINANCIAL, INC., its successors and assigns (the "Company") and
JOHN D. KOCH (the "Executive").
WITNESSETH:
WHEREAS, the Executive is a member of the senior management team of
the Company whose duties will become more demanding and whose responsibilities
will be expanded by virtue of the combination between the Company and FirstFed
Michigan Corporation ("FirstFed") and their respective savings bank
subsidiaries;
WHEREAS, the Executive has heretofore performed his duties in an
exemplary and efficient manner, resulting in the substantial growth, success
and profitability of the Company and its subsidiaries;
WHEREAS, the Company wishes to provide the Executive with
supplemental retirement benefits commensurate with his executive duties on
behalf of the Company and its subsidiaries, as well as comparable to the
non-qualified retirement benefits of like kind provided to similarly situated
executives with comparable responsibilities, duties and functions; and
WHEREAS, the Company believes that the supplemental retirement
benefits to be provided to the Executive pursuant to this Agreement will induce
continued service by the Executive with the Company, which continued service is
deemed essential for the future growth and success of the Company and its
subsidiaries after its combination with FirstFed.
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and intending to be
legally bound hereby, the Company and the Executive hereby agree as follows:
1. DEFINITIONS.
In this Agreement, the following words and phrases shall have
the following meanings:
(a) ACCRUED BENEFIT PERCENTAGE shall mean .25% for each of the
first 60 calendar quarters that the Executive has heretofore been or is
hereinafter employed by the Company or any of its subsidiaries (or any
predecessors or successors thereto by merger or purchase) plus .875% for each
calendar quarter of employment thereafter, calculated through the last day of
the calendar quarter in which the Executive (i) experiences a Separation from
Service or (ii) attains Normal Retirement Age, whichever shall first occur.
There shall be no duplication of the Accrued Benefit Percentage for service
with more than one employer.
(b) ADMINISTRATOR shall mean the person or committee appointed
by the Board of Directors of the Company to administer this Agreement.
(c) AVERAGE COMPENSATION shall mean the amount determined as of
the Benefit Commencement Date by dividing by 36 the total monetary compensation
earned by the Executive from the Company and its subsidiaries (or any
predecessors or successors thereto by merger or purchase), including but not
limited to salary, bonuses and incentive compensation (but excluding
specifically stock based compensation, including but not limited to
restructured stock, stock options and stock appreciation rights) during the 3
annual periods (whether or not consecutive) that results in the largest total.
An annual period shall consist of any 12 month consecutive period.
- 2 -
<PAGE> 3
(d) BENEFIT COMMENCEMENT DATE shall mean the last day of the
calendar month following the earliest of (i) Normal Retirement Age, (ii) the
date of the Executive's Separation from Service without Cause provided the
Executive is then age 55 or older, (iii) the date the Executive attains (or but
for his death would have attained) the age of 55 years if he experiences a
Separation from Service without Cause prior to his attaining age 55 or (iv) 6
months after the date of death of the Executive if he dies while employed by
the Company.
(e) CAUSE shall mean a Separation from Service that arises from
a "Termination for Cause" (as such term is defined in the written employment
agreement (the "Employment Agreement") between the Company and the Executive of
even date herewith).
(f) EFFECTIVE DATE shall mean the date that FirstFed is merged
into the Company.
(g) MONTHLY BENEFIT shall mean the Average Compensation
multiplied by the Accrued Benefit Percentage; provided, however, in no event
will the Monthly Benefit exceed $33,333.00.
(h) NORMAL RETIREMENT AGE shall mean the date the Executive
attains or but for his death would have attained age 65.
(i) SEPARATION FROM SERVICE shall mean the date of cessation of
the employment relationship between the Executive and the Company and its
subsidiaries (including any successor in interest, if applicable).
(j) SPOUSE shall mean the person to whom the executive is
married immediately prior to his death.
- 3 -
<PAGE> 4
2. PAYMENT OF BENEFITS.
(a) DURING THE LIFE OF THE EXECUTIVE.
If the Executive is living on the Benefit Commencement
Date, the Company shall pay to him the Monthly Benefit on each of the Benefit
Commencement Date and on the last day of each calendar month thereafter during
his lifetime.
(b) FOLLOWING THE DEATH OF THE EXECUTIVE.
(i) If the Executive is not living on the Benefit
Commencement Date but the Spouse is then living, the Company shall pay to the
Spouse 50% of the Monthly Benefit on each of the Benefit Commencement Date and
the last day of each calendar month thereafter during the lifetime of the
Spouse; or
(ii) If the Executive dies after the Benefit Commencement
Date and is survived by the Spouse, the Company shall pay to the Spouse 50% of
the Monthly Benefit on each of the last day of the calendar month next
following the death of the Executive and the last day of each calendar month
thereafter during the lifetime of the Spouse; and
(iii) After the death of both the Executive and the
Spouse, no amounts will be payable under this Agreement other than previously
due amounts which were not paid and any amount payable for the calendar month
that death occurred.
3. MISCELLANEOUS.
(a) WITHHOLDING. To the extent amounts payable under this
Agreement are determined by the Administrator, in good faith, to be subject to
federal, state or local income tax, the Company may withhold from each such
payment an amount necessary to meet the employer's obligation to withhold
amounts under the applicable federal, state or local law.
- 4 -
<PAGE> 5
(b) GENERAL ASSETS AND FUNDING. The amounts payable under this
Agreement are payable from the general assets of the Company and no special
fund or arrangement is intended to be established hereby nor shall the Company
be required to earmark, place in trust or otherwise segregate assets with
respect to this Agreement or any benefits hereunder. The Administrator
reserves the right to determine how the Company will fund its obligation
undertaken by this Agreement. Should the Administrator elect to fund this
Agreement, in whole or in part, through the medium of life insurance or
annuities, or both, the Company shall be the owner and beneficiary of the
policy. The Company reserves the absolute right, in its sole discretion, to
terminate such life insurance or annuities, as well as any other funding
program, at any time, in whole or in part. Such termination shall in no way
affect the Company's obligation to pay the Executive and Spouse as provided in
this Agreement. At no time shall the Executive or Spouse be deemed to have any
right, title, or interest in or to any specific asset or assets of the Company,
including but not by way of restriction, any insurance or annuity contract and
contracts or the proceeds therefrom.
(c) GOVERNING LAW. This Agreement shall be construed under the
laws of the State of Ohio, without regard to its principles of conflict of
laws.
(d) FUTURE EMPLOYMENT. This Agreement shall not be construed
as providing the Executive the right to be continued in the employ of the
Company or its subsidiaries; and the terms and conditions of his employment are
the subject of the Employment Agreement which shall control the employment
relationship.
(e) NO PLEDGE OR ATTACHMENT. No benefit which is or may become
payable under this Agreement shall be subject to any anticipation, alienation,
sale, transfer,
- 5 -
<PAGE> 6
pledge, encumbrance or hypothecation or subject to any attachment, levy or
similar process and any attempt to effect any such action shall be null and
void.
(f) AMENDMENT OF AGREEMENT. This Agreement may be amended, in
whole or in part, only upon the mutual written agreement of the Company and the
Executive.
(g) BINDING EFFECT. This Agreement and the obligations of the
Company herein shall be binding upon the successors and assigns of the Company.
The Spouse shall be deemed a beneficiary of this Agreement.
(h) PARTICIPATION IN PLANS. Nothing contained in this
Agreement shall be construed to alter, abridge, or in any manner affect the
rights and privileges of the Executive to participate in and be covered by any
pension, profit sharing, group insurance, bonus, incentive, or other employee
plans which the Company or its subsidiaries may now or hereafter have.
(i) NO RIGHTS PRIOR TO EFFECTIVE DATE. This Agreement shall
become effective on the Effective Date if the Executive is employed by the
Company on such date. Until the Effective Date or earlier termination of this
Agreement as provided herein, this Agreement shall remain executory in nature.
In the event the Executive experiences a Separation from Service prior to the
Effective Date or that certain Agreement and Plan of Merger dated May 30, 1995
between the Company and FirstFed is terminated, in either such event, this
Agreement shall thereupon cease, determine and terminate.
(j) TERMINATION OF SALARY CONTINUATION AGREEMENT. If this
Agreement becomes effective on the Effective Date, then that certain Salary
Continuation Agreement between the Executive and First Federal Savings Bank
(now known as "Charter One
- 6 -
<PAGE> 7
Bank, F.S.B. "by name change) dated as of January 1, 1987 shall thereupon
terminate and be replaced by this Agreement.
The parties have caused this Agreement to be executed and delivered
as of the date first above written.
CHARTER ONE FINANCIAL, INC.
BY:
----------------------------------
CHARLES J. KOCH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
EXECUTIVE
-------------------------------------
JOHN D. KOCH
- 7 -
<PAGE> 1
EXHIBIT 10.6
SUPPLEMENTAL RETIREMENT AGREEMENT
THIS SUPPLEMENTAL RETIREMENT AGREEMENT dated as of the ____ day of
_____________, 1995 (but effective as of the Effective Date) by and between
CHARTER ONE FINANCIAL, INC., its successors and assigns (the "Company") and
RICHARD W. NEU (the "Executive").
WITNESSETH:
WHEREAS, the Executive has heretofore been a member of the senior
management team of the FirstFed Michigan Corporation ("FirstFed") and its
subsidiaries and will become a member of the senior management team of the
Company upon consummation of the combination of FirstFed with the Company;
WHEREAS, the Executive's duties will become more demanding and his
responsibilities will be expanded by virtue of the combination of FirstFed with
the Company;
WHEREAS, the Executive has heretofore performed his duties in an
exemplary and efficient manner;
WHEREAS, the Company wishes to provide the Executive with
supplemental retirement benefits commensurate with his executive duties on
behalf of the Company and its subsidiaries, as well as comparable to the
non-qualified retirement benefits of like kind provided to similarly situated
executives with comparable responsibilities, duties and functions; and
WHEREAS, the Company believes that the supplemental retirement
benefits to be provided to the Executive pursuant to this Agreement will induce
continued service by the
<PAGE> 2
Executive with the Company, which continued service is deemed essential for the
future growth and success of the Company and its subsidiaries after its
combination with FirstFed.
NOW, THEREFORE, in consideration of the premises and intending to be
legally bound hereby, the Company and the Executive hereby agree as follows:
1. DEFINITIONS.
In this Agreement, the following words and phrases shall have
the following meanings:
(a) ACCRUED BENEFIT PERCENTAGE shall mean .25% for each of the
first 60 calendar quarters that the Executive has heretofore been or is
hereinafter employed by the Company or any of its subsidiaries (or any
predecessors or successors thereto by merger or purchase) plus .875% for each
calendar quarter of employment thereafter, calculated through the last day of
the calendar quarter in which the Executive (i) experiences a Separation from
Service or (ii) attains Normal Retirement Age, whichever shall first occur.
There shall be no duplication of the Accrued Benefit Percentage for service
with more than one employer.
(b) ADMINISTRATOR shall mean the person or committee appointed
by the Board of Directors of the Company to administer this Agreement.
(c) AVERAGE COMPENSATION shall mean the amount determined as of
the Benefit Commencement Date by dividing by 36 the total monetary compensation
earned by the Executive from the Company and its subsidiaries (or any
predecessors or successors thereto by merger or purchase), including but not
limited to salary, bonuses and incentive compensation (but excluding
specifically stock based compensation, including but not limited to restricted
stock, stock options and stock appreciation rights) during the 3 annual periods
(whether or not
- 2 -
<PAGE> 3
consecutive) that results in the largest total. An annual period shall consist
of any 12 month consecutive period.
(d) BENEFIT COMMENCEMENT DATE shall mean the last day of the
calendar month following the earliest of (i) Normal Retirement Age, (ii) the
date the Executive attains (or but for his death would have attained) age 65 if
prior thereto he experiences a Separation from Service for Cause, (iii) the
date of the Executive's Separation from Service without Cause provided the
Executive is then age 58 or older, (iv) the date the Executive attains (or but
for his death would have attained) the age of 58 years if he experiences a
Separation from Service without Cause prior to his attaining age 58 or (v) 6
months after the date of death of the Executive if he dies while employed by
the Company.
(e) CAUSE shall mean a Separation from Service that arises from
a "Termination for Cause" (as such term is defined in the written employment
agreement (the "Employment Agreement") between the Company and the Executive of
even date herewith).
(f) EFFECTIVE DATE shall mean the date that FirstFed is merged
into the Company.
(g) MONTHLY BENEFIT shall mean the Average Compensation
multiplied by the Accrued Benefit Percentage; provided, however, in no event
will the Monthly Benefit exceed $20,833.00.
(h) NORMAL RETIREMENT AGE shall mean the date the Executive
attains or but for his death would have attained age 65.
- 3 -
<PAGE> 4
(i) SEPARATION FROM SERVICE shall mean the date of cessation of
the employment relationship between the Executive and the Company and its
subsidiaries (including any successor in interest, if applicable).
(j) SPOUSE shall mean the person to whom the executive is
married immediately prior to his death.
2. PAYMENT OF BENEFITS.
(a) DURING THE LIFE OF THE EXECUTIVE.
If the Executive is living on the Benefit Commencement
Date, the Company shall pay to him the Monthly Benefit on each of the Benefit
Commencement Date and on the last day of each calendar month thereafter during
his lifetime.
(b) FOLLOWING THE DEATH OF THE EXECUTIVE.
(i) If the Executive is not living on the Benefit
Commencement Date but the Spouse is then living, the Company shall pay to the
Spouse 50% of the Monthly Benefit on each of the Benefit Commencement Date and
the last day of each calendar month thereafter during the lifetime of the
Spouse; or
(ii) If the Executive dies after the Benefit Commencement
Date and is survived by the Spouse, the Company shall pay to the Spouse 50% of
the Monthly Benefit on each of the last day of the calendar month next
following the death of the Executive and the last day of each calendar month
thereafter during the lifetime of the Spouse; and
(iii) After the death of both the Executive and the
Spouse, no amounts will be payable under this Agreement other than previously
due amounts which were not paid and any amount payable for the calendar month
that death occurred.
- 4 -
<PAGE> 5
3. MISCELLANEOUS.
(a) FORFEITURE. Notwithstanding anything contained in this
Agreement to the contrary, if prior to the expiration of two years after the
Effective Date the Executive experiences a Voluntary Termination or Termination
for Cause under the Employment Agreement, or an Involuntary Termination under
Section 1(e)(iii) of the Employment Agreement, then in any such event, no
benefits shall be payable to the Executive or the Spouse under or by virtue of
this Agreement and any and all obligations of the Company herein to the
Executive and Spouse shall cease, determine and terminate.
(b) WITHHOLDING. To the extent amounts payable under this
Agreement are determined by the Administrator, in good faith, to be subject to
federal, state or local income tax, the Company may withhold from each such
payment an amount necessary to meet the employer's obligation to withhold
amounts under the applicable federal, state or local law.
(c) GENERAL ASSETS AND FUNDING. The amounts payable under this
Agreement are payable from the general assets of the Company and no special
fund or arrangement is intended to be established hereby nor shall the Company
be required to earmark, place in trust or otherwise segregate assets with
respect to this Agreement or any benefits hereunder. The Administrator
reserves the right to determine how the Company will fund its obligation
undertaken by this Agreement. Should the Administrator elect to fund this
Agreement, in whole or in part, through the medium of life insurance or
annuities, or both, the Company shall be the owner and beneficiary of the
policy. The Company reserves the absolute right, in its sole discretion, to
terminate such life insurance or annuities, as well as any other funding
program, at any time, in whole or in part. Such termination shall in no way
affect the
- 5 -
<PAGE> 6
Company's obligation to pay the Executive and Spouse as provided in this
Agreement. At no time shall the Executive or Spouse be deemed to have any
right, title, or interest in or to any specific asset or assets of the Company,
including but not by way of restriction, any insurance or annuity contract and
contracts or the proceeds therefrom.
(d) GOVERNING LAW. This Agreement shall be construed under the
laws of the State of Ohio, without regard to its principles of conflict of
laws.
(e) FUTURE EMPLOYMENT. This Agreement shall not be construed
as providing the Executive the right to be continued in the employ of the
Company or its subsidiaries; and the terms and conditions of his employment are
the subject of the Employment Agreement which shall control the employment
relationship.
(f) NO PLEDGE OR ATTACHMENT. No benefit which is or may become
payable under this Agreement shall be subject to any anticipation, alienation,
sale, transfer, pledge, encumbrance or hypothecation or subject to any
attachment, levy or similar process and any attempt to effect any such action
shall be null and void.
(g) AMENDMENT OF AGREEMENT. This Agreement may be amended, in
whole or in part, only upon the mutual written agreement of the Company and the
Executive.
(h) BINDING EFFECT. This Agreement and the obligations of the
Company herein shall be binding upon the successors and assigns of the Company.
The Spouse shall be deemed a beneficiary of this Agreement.
(i) PARTICIPATION IN PLANS. Nothing contained in this
Agreement shall be construed to alter, abridge, or in any manner affect the
rights and privileges of the Executive
- 6 -
<PAGE> 7
to participate in and be covered by any pension, profit sharing, group
insurance, bonus, incentive, or other employee plans of the Company or its
subsidiaries.
(j) NO RIGHTS PRIOR TO EFFECTIVE DATE. This Agreement shall
become effective on the Effective Date if the Executive is employed by the
Company on such date. Until the Effective Date or earlier termination of this
Agreement as provided herein, this Agreement shall remain executory in nature.
In the event the Executive is not employed by the Company on the Effective Date
or that certain Agreement and Plan of Merger dated May 30, 1995 between the
Company and FirstFed is terminated, in either such event, this Agreement shall
thereupon cease, determine and terminate.
The parties have caused this Agreement to be executed and delivered
as of the date first above written.
CHARTER ONE FINANCIAL, INC.
BY:
----------------------------------
CHARLES J. KOCH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
EXECUTIVE
-------------------------------------
RICHARD W. NEU
- 7 -
<PAGE> 1
EXHIBIT 10.7
SUPPLEMENTAL RETIREMENT AGREEMENT
THIS SUPPLEMENTAL RETIREMENT AGREEMENT dated as of the ____ day of
_____________, 1995 (but effective as of the Effective Date) by and between
CHARTER ONE FINANCIAL, INC., its successors and assigns (the "Company") and
MARK D. GROSSI (the "Executive").
WITNESSETH:
WHEREAS, the Executive is a member of the senior management team of
the Company whose duties will become more demanding and whose responsibilities
will be expanded by virtue of the combination between the Company and FirstFed
Michigan Corporation ("FirstFed") and their respective savings bank
subsidiaries;
WHEREAS, the Executive has heretofore performed his duties in an
exemplary and efficient manner, resulting in the substantial growth, success
and profitability of the Company and its subsidiaries;
WHEREAS, the Company wishes to provide the Executive with
supplemental retirement benefits commensurate with his executive duties on
behalf of the Company and its subsidiaries, as well as comparable to the
non-qualified retirement benefits of like kind provided to similarly situated
executives with comparable responsibilities, duties and functions; and
WHEREAS, the Company believes that the supplemental retirement
benefits to be provided to the Executive pursuant to this Agreement will induce
continued service by the Executive with the Company, which continued service is
deemed essential for the future growth and success of the Company and its
subsidiaries after its combination with FirstFed.
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and intending to be
legally bound hereby, the Company and the Executive hereby agree as follows:
1. DEFINITIONS.
In this Agreement, the following words and phrases shall have
the following meanings:
(a) ACCRUED BENEFIT PERCENTAGE shall mean .25% for each of the
first 60 calendar quarters that the Executive has heretofore been or is
hereinafter employed by the Company or any of its subsidiaries (or any
predecessors or successors thereto by merger or purchase) plus .875% for each
calendar quarter of employment thereafter, calculated through the last day of
the calendar quarter in which the Executive (i) experiences a Separation from
Service or (ii) attains Normal Retirement Age, whichever shall first occur.
There shall be no duplication of the Accrued Benefit Percentage for service
with more than one employer.
(b) ADMINISTRATOR shall mean the person or committee appointed
by the Board of Directors of the Company to administer this Agreement.
(c) AVERAGE COMPENSATION shall mean the amount determined as of
the Benefit Commencement Date by dividing by 36 the total monetary compensation
earned by the Executive from the Company and its subsidiaries (or any
predecessors or successors thereto by merger or purchase), including but not
limited to salary, bonuses and incentive compensation (but excluding
specifically stock based compensation, including but not limited to
restructured stock, stock options and stock appreciation rights) during the 3
annual periods (whether or not consecutive) that results in the largest total.
An annual period shall consist of any 12 month consecutive period.
- 2 -
<PAGE> 3
(d) BENEFIT COMMENCEMENT DATE shall mean the last day of the
calendar month following the earliest of (i) Normal Retirement Age, (ii) the
date of the Executive's Separation from Service without Cause provided the
Executive is then age 55 or older, (iii) the date the Executive attains (or but
for his death would have attained) the age of 55 years if he experiences a
Separation from Service without Cause prior to his attaining age 55, or (iv) 6
months after the date of death of the Executive is he dies while employed by
the Company.
(e) CAUSE shall mean a Separation from Service that arises from
a "Termination for Cause" (as such term is defined in the written employment
agreement (the "Employment Agreement") between the Company and the Executive of
even date herewith).
(f) EFFECTIVE DATE shall mean the date that FirstFed is merged
into the Company.
(g) MONTHLY BENEFIT shall mean the Average Compensation
multiplied by the Accrued Benefit Percentage; provided, however, in no event
will the Monthly Benefit exceed $20,833.00.
(h) NORMAL RETIREMENT AGE shall mean the date the Executive
attains or but for his death would have attained age 65.
(i) SEPARATION FROM SERVICE shall mean the date of cessation of
the employment relationship between the Executive and the Company and its
subsidiaries (including any successor in interest, if applicable).
(j) SPOUSE shall mean the person to whom the executive is
married immediately prior to his death.
- 3 -
<PAGE> 4
2. PAYMENT OF BENEFITS.
(a) DURING THE LIFE OF THE EXECUTIVE.
If the Executive is living on the Benefit Commencement
Date, the Company shall pay to him the Monthly Benefit on each of the Benefit
Commencement Date and on the last day of each calendar month thereafter during
his lifetime.
(b) FOLLOWING THE DEATH OF THE EXECUTIVE.
(i) If the Executive is not living on the Benefit
Commencement Date but the Spouse is then living, the Company shall pay to the
Spouse 50% of the Monthly Benefit on each of the Benefit Commencement Date and
the last day of each calendar month thereafter during the lifetime of the
Spouse; or
(ii) If the Executive dies after the Benefit Commencement
Date and is survived by the Spouse, the Company shall pay to the Spouse 50% of
the Monthly Benefit on each of the last day of the calendar month next
following the death of the Executive and the last day of each calendar month
thereafter during the lifetime of the Spouse; and
(iii) After the death of both the Executive and the
Spouse, no amounts will be payable under this Agreement other than previously
due amounts which were not paid and any amount payable for the calendar month
that death occurred.
3. MISCELLANEOUS.
(a) WITHHOLDING. To the extent amounts payable under this
Agreement are determined by the Administrator, in good faith, to be subject to
federal, state or local income tax, the Company may withhold from each such
payment an amount necessary to meet the employer's obligation to withhold
amounts under the applicable federal, state or local law.
- 4 -
<PAGE> 5
(b) GENERAL ASSETS AND FUNDING. The amounts payable under this
Agreement are payable from the general assets of the Company and no special
fund or arrangement is intended to be established hereby nor shall the Company
be required to earmark, place in trust or otherwise segregate assets with
respect to this Agreement or any benefits hereunder. The Administrator
reserves the right to determine how the Company will fund its obligation
undertaken by this Agreement. Should the Administrator elect to fund this
Agreement, in whole or in part, through the medium of life insurance or
annuities, or both, the Company shall be the owner and beneficiary of the
policy. The Company reserves the absolute right, in its sole discretion, to
terminate such life insurance or annuities, as well as any other funding
program, at any time, in whole or in part. Such termination shall in no way
affect the Company's obligation to pay the Executive and Spouse as provided in
this Agreement. At no time shall the Executive or Spouse be deemed to have any
right, title, or interest in or to any specific asset or assets of the Company,
including but not by way of restriction, any insurance or annuity contract and
contracts or the proceeds therefrom.
(c) GOVERNING LAW. This Agreement shall be construed under the
laws of the State of Ohio, without regard to its principles of conflict of
laws.
(d) FUTURE EMPLOYMENT. This Agreement shall not be construed
as providing the Executive the right to be continued in the employ of the
Company or its subsidiaries; and the terms and conditions of his employment are
the subject of the Employment Agreement which shall control the employment
relationship.
(e) NO PLEDGE OR ATTACHMENT. No benefit which is or may become
payable under this Agreement shall be subject to any anticipation, alienation,
sale, transfer,
- 5 -
<PAGE> 6
pledge, encumbrance or hypothecation or subject to any attachment, levy or
similar process and any attempt to effect any such action shall be null and
void.
(f) AMENDMENT OF AGREEMENT. This Agreement may be amended, in
whole or in part, only upon the mutual written agreement of the Company and the
Executive.
(g) BINDING EFFECT. This Agreement and the obligations of the
Company herein shall be binding upon the successors and assigns of the Company.
The Spouse shall be deemed a beneficiary of this Agreement.
(h) PARTICIPATION IN PLANS. Nothing contained in this
Agreement shall be construed to alter, abridge, or in any manner affect the
rights and privileges of the Executive to participate in and be covered by any
pension, profit sharing, group insurance, bonus, incentive, or other employee
plans which the Company or its subsidiaries may now or hereafter have.
(i) NO RIGHTS PRIOR TO EFFECTIVE DATE. This Agreement shall
become effective on the Effective Date if the Executive is employed by the
Company on such date. Until the Effective Date or earlier termination of this
Agreement as provided herein, this Agreement shall remain executory in nature.
In the event the Executive experiences a Separation from Service prior to the
Effective Date or that certain Agreement and Plan of Merger dated May 30, 1995
between the Company and FirstFed is terminated, in either such event, this
Agreement shall thereupon cease, determine and terminate.
- 6 -
<PAGE> 7
The parties have caused this Agreement to be executed and delivered
as of the date first above written.
CHARTER ONE FINANCIAL, INC.
BY:
----------------------------------
CHARLES J. KOCH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
EXECUTIVE
-------------------------------------
MARK D. GROSSI
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<PAGE> 1
EXHIBIT 10.8
SUPPLEMENTAL RETIREMENT AGREEMENT
THIS SUPPLEMENTAL RETIREMENT AGREEMENT dated as of the ____ day of
_____________, 1995 (but effective as of the Effective Date) by and between
CHARTER ONE FINANCIAL, INC., its successors and assigns (the "Company") and
ROBERT J. VANA (the "Executive").
WITNESSETH:
WHEREAS, the Executive is a member of the senior management team of
the Company whose duties will become more demanding and whose responsibilities
will be expanded by virtue of the combination between the Company and FirstFed
Michigan Corporation ("FirstFed") and their respective savings bank
subsidiaries;
WHEREAS, the Executive has heretofore performed his duties in an
exemplary and efficient manner, resulting in the substantial growth, success
and profitability of the Company and its subsidiaries;
WHEREAS, the Company wishes to provide the Executive with
supplemental retirement benefits commensurate with his executive duties on
behalf of the Company and its subsidiaries, as well as comparable to the
non-qualified retirement benefits of like kind provided to similarly situated
executives with comparable responsibilities, duties and functions; and
WHEREAS, the Company believes that the supplemental retirement
benefits to be provided to the Executive pursuant to this Agreement will induce
continued service by the Executive with the Company, which continued service is
deemed essential for the future growth and success of the Company and its
subsidiaries after its combination with FirstFed.
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and intending to be
legally bound hereby, the Company and the Executive hereby agree as follows:
1. DEFINITIONS.
In this Agreement, the following words and phrases shall have
the following meanings:
(a) ACCRUED BENEFIT PERCENTAGE shall mean .25% for each of the
first 60 calendar quarters that the Executive has heretofore been or is
hereinafter employed by the Company or any of its subsidiaries (or any
predecessors or successors thereto by merger or purchase) plus .875% for each
calendar quarter of employment thereafter, calculated through the last day of
the calendar quarter in which the Executive (i) experiences a Separation from
Service or (ii) attains Normal Retirement Age, whichever shall first occur.
There shall be no duplication of the Accrued Benefit Percentage for service
with more than one employer.
(b) ADMINISTRATOR shall mean the person or committee appointed
by the Board of Directors of the Company to administer this Agreement.
(c) AVERAGE COMPENSATION shall mean the amount determined as of
the Benefit Commencement Date by dividing by 36 the total monetary compensation
earned by the Executive from the Company and its subsidiaries (or any
predecessors or successors thereto by merger or purchase), including but not
limited to salary, bonuses and incentive compensation (but excluding
specifically stock based compensation, including but not limited to
restructured stock, stock options and stock appreciation rights) during the 3
annual periods (whether or not consecutive) that results in the largest total.
An annual period shall consist of any 12 month consecutive period.
- 2 -
<PAGE> 3
(d) BENEFIT COMMENCEMENT DATE shall mean the last day of the
calendar month following the earliest of (i) Normal Retirement Age, (ii) the
date of the Executive's Separation from Service without Cause provided the
Executive is then age 55 or older, (iii) the date the Executive attains (or but
for his death would have attained) the age of 55 years if he experiences a
Separation from Service without Cause prior to his attaining age 55, or (iv) 6
months after the date of death of the Executive if he dies while employed by
the Company.
(e) CAUSE shall mean a Separation from Service that arises from
a "Termination for Cause" (as such term is defined in the written employment
agreement (the "Employment Agreement") between the Company and the Executive of
even date herewith).
(f) EFFECTIVE DATE shall mean the date that FirstFed is merged
into the Company.
(g) MONTHLY BENEFIT shall mean the Average Compensation
multiplied by the Accrued Benefit Percentage; provided, however, in no event
will the Monthly Benefit exceed $20,833.00.
(h) NORMAL RETIREMENT AGE shall mean the date the Executive
attains or but for his death would have attained age 65.
(i) SEPARATION FROM SERVICE shall mean the date of cessation of
the employment relationship between the Executive and the Company and its
subsidiaries (including any successor in interest, if applicable).
(j) SPOUSE shall mean the person to whom the executive is
married immediately prior to his death.
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<PAGE> 4
2. PAYMENT OF BENEFITS.
(a) DURING THE LIFE OF THE EXECUTIVE.
If the Executive is living on the Benefit Commencement
Date, the Company shall pay to him the Monthly Benefit on each of the Benefit
Commencement Date and on the last day of each calendar month thereafter during
his lifetime.
(b) FOLLOWING THE DEATH OF THE EXECUTIVE.
(i) If the Executive is not living on the Benefit
Commencement Date but the Spouse is then living, the Company shall pay to the
Spouse 50% of the Monthly Benefit on each of the Benefit Commencement Date and
the last day of each calendar month thereafter during the lifetime of the
Spouse; or
(ii) If the Executive dies after the Benefit Commencement
Date and is survived by the Spouse, the Company shall pay to the Spouse 50% of
the Monthly Benefit on each of the last day of the calendar month next
following the death of the Executive and the last day of each calendar month
thereafter during the lifetime of the Spouse; and
(iii) After the death of both the Executive and the
Spouse, no amounts will be payable under this Agreement other than previously
due amounts which were not paid and any amount payable for the calendar month
that death occurred.
3. MISCELLANEOUS.
(a) WITHHOLDING. To the extent amounts payable under this
Agreement are determined by the Administrator, in good faith, to be subject to
federal, state or local income tax, the Company may withhold from each such
payment an amount necessary to meet the employer's obligation to withhold
amounts under the applicable federal, state or local law.
- 4 -
<PAGE> 5
(b) GENERAL ASSETS AND FUNDING. The amounts payable under this
Agreement are payable from the general assets of the Company and no special
fund or arrangement is intended to be established hereby nor shall the Company
be required to earmark, place in trust or otherwise segregate assets with
respect to this Agreement or any benefits hereunder. The Administrator
reserves the right to determine how the Company will fund its obligation
undertaken by this Agreement. Should the Administrator elect to fund this
Agreement, in whole or in part, through the medium of life insurance or
annuities, or both, the Company shall be the owner and beneficiary of the
policy. The Company reserves the absolute right, in its sole discretion, to
terminate such life insurance or annuities, as well as any other funding
program, at any time, in whole or in part. Such termination shall in no way
affect the Company's obligation to pay the Executive and Spouse as provided in
this Agreement. At no time shall the Executive or Spouse be deemed to have any
right, title, or interest in or to any specific asset or assets of the Company,
including but not by way of restriction, any insurance or annuity contract and
contracts or the proceeds therefrom.
(c) GOVERNING LAW. This Agreement shall be construed under the
laws of the State of Ohio, without regard to its principles of conflict of
laws.
(d) FUTURE EMPLOYMENT. This Agreement shall not be construed
as providing the Executive the right to be continued in the employ of the
Company or its subsidiaries; and the terms and conditions of his employment are
the subject of the Employment Agreement which shall control the employment
relationship.
(e) NO PLEDGE OR ATTACHMENT. No benefit which is or may become
payable under this Agreement shall be subject to any anticipation, alienation,
sale, transfer,
- 5 -
<PAGE> 6
pledge, encumbrance or hypothecation or subject to any attachment, levy or
similar process and any attempt to effect any such action shall be null and
void.
(f) AMENDMENT OF AGREEMENT. This Agreement may be amended, in
whole or in part, only upon the mutual written agreement of the Company and the
Executive.
(g) BINDING EFFECT. This Agreement and the obligations of the
Company herein shall be binding upon the successors and assigns of the Company.
The Spouse shall be deemed a beneficiary of this Agreement.
(h) PARTICIPATION IN PLANS. Nothing contained in this
Agreement shall be construed to alter, abridge, or in any manner affect the
rights and privileges of the Executive to participate in and be covered by any
pension, profit sharing, group insurance, bonus, incentive, or other employee
plans which the Company or its subsidiaries may now or hereafter have.
(i) NO RIGHTS PRIOR TO EFFECTIVE DATE. This Agreement shall
become effective on the Effective Date if the Executive is employed by the
Company on such date. Until the Effective Date or earlier termination of this
Agreement as provided herein, this Agreement shall remain executory in nature.
In the event the Executive experiences a Separation from Service prior to the
Effective Date or that certain Agreement and Plan of Merger dated May 30, 1995
between the Company and FirstFed is terminated, in either such event, this
Agreement shall thereupon cease, determine and terminate.
(j) TERMINATION OF SALARY CONTINUATION AGREEMENT. If this
Agreement becomes effective on the Effective Date, then that certain Salary
Continuation Agreement between the Executive and First Federal Savings Bank
(now known as "Charter One
- 6 -
<PAGE> 7
Bank, F.S.B. "by name change) dated as of January 1, 1987 shall thereupon
terminate and be replaced by this Agreement.
The parties have caused this Agreement to be executed and delivered
as of the date first above written.
CHARTER ONE FINANCIAL, INC.
BY:
----------------------------------
CHARLES J. KOCH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
EXECUTIVE
-------------------------------------
ROBERT J. VANA
- 7 -
<PAGE> 1
EXHIBIT 10.11
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (the "Agreement") is made and entered into
this ___ day of _________________, 1995, by and between Charter One Financial,
Inc. (the Company") and its wholly-owned subsidiary, Charter One Bank, F.S.B.
(the "Bank"), and _______________ (the "Employee").
WHEREAS, the Bank will become the successor in interest to First
Federal of Michigan ("First Fed") on the Effective Date (as herein defined);
WHEREAS, on March 10, 1994, the Employee and First Fed entered into an
agreement, and on August 17, 1994, entered into the first amendment of such
agreement, providing for certain compensation and benefits to the Employee in
the event of termination of employment following a change in control of First
Fed (as so amended, the "Prior Severance Agreement"); and
WHEREAS, the boards of directors of the Company and the Bank have
approved and authorized the execution of this Agreement with the Employee in
consideration of the Employee's agreement to terminate the Prior Severance
Agreement;
NOW THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
The term "Cause" shall mean the Employee's personal dishonesty,
incompetence, willful misconduct, breach of a fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule, or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order, or material breach of any provision of this
Agreement. No act or failure to act by the Employee shall be considered
willful unless the Employee acted or failed to act with an absence of good
faith and without a reasonable belief that his action or failure to act was in
the best interest of the Company.
The term "Date of Termination" shall mean the date on which employment
shall have terminated.
The term "Effective Date" shall mean the date on which the merger of
First Fed and the Bank becomes effective.
The term "Involuntary Termination" shall mean (i) termination of
employment of the Employee without Cause such that the Employee is no longer
employed by the Bank or any subsidiary thereof; (ii) a reduction in the amount
of the Employee's base salary compared to the amount of Employee's base salary
as of the Effective Date; (iii) a material adverse change in the Employee's
benefits, contingent benefits or vacation, other than as part of an overall
<PAGE> 2
program applied uniformly and with equitable effect on all senior officers of
the Company or the Bank; (iv) a requirement that the Employee perform services
principally at a location more than 50 miles from ________________; or (v) a
material demotion of the Employee.
2. Acknowledgments.
The parties hereby acknowledge that as of the Effective Date a change
in control of First Fed occurs for purposes of the Employee's Prior Severance
Agreement but that no event occurs under the Prior Severance Agreement that
would entitle the Employee to any of the compensation or benefits provided for
in the Prior Severance Agreement. The parties agree that the Prior Severance
Agreement shall terminate as of the Effective Date and be replaced by this
Agreement. The parties acknowledge that the Company is a party to this
Agreement solely for purposes of its obligations, if any, under Section 3(a) of
this Agreement.
3. Involuntary Termination.
In the event of Involuntary Termination prior to termination of this
Agreement:
(a) all options for Company securities held by the Employee as of the
Effective Date shall become fully vested and immediately exercisable on the
Date of Termination;
(b) the Bank shall pay to the Employee in a lump sum in cash, subject
to customary tax and other withholding, and subject to reduction pursuant to
Section 4 of this Agreement, the sum of (i)__________ dollars
($___________);(1) and (ii) seventeen thousand five hundred dollars ($17,500);
and
(c) on written request by the Employee within 30 days following the
Date of Termination, the Bank shall pay the reasonable fees, not to exceed ten
thousand dollars ($10,000) in the aggregate, of Jannotta Bray & Associates, or
a similar agency, for the purpose of counselling the Employee concerning
employment opportunities.
4. Reduction of Compensation and Benefits.
Notwithstanding any other provision of this Agreement, if the
compensation or benefits ("Payments") under this Agreement, together with any
other Payments received or to be received by the Employee from the Company
(including amounts received from any of the Company's subsidiaries or from any
entities acquired by the Company or any of its subsidiaries) would
----------------------------------
(1) This amount should be 2.5 times the sum of Employee's annual base
salary at the rate in effect immediately prior to the Date of Termination, the
Employee's compensation other than base salary and bonus reportable on Form W-2
for the calendar year 1994, and the Employee's deferred salary, bonus or
profit-sharing, if any, for the calendar year 1994 not reportable on Form W-2
for such year.
2
<PAGE> 3
cause any amount to be nondeductible by the Company or any of its subsidiaries
for federal income tax purposes pursuant to Section 280G or any other section
of the Internal Revenue Code of 1986, as amended, then the Payments under this
Agreement shall be reduced (not less than zero) to the extent necessary so as
to maximize Payments to the Employee without causing any amount to become
nondeductible by the Company or any of its subsidiaries.
5. Notice of Involuntary Termination.
In the event that the Employee determines in good faith that he has
experienced Involuntary Termination prior to the termination of this Agreement,
the Employee shall send a written notice to the Bank, stating the circumstances
that constitute such Involuntary Termination and the Date of Termination.
6. Termination of this Agreement.
This Agreement shall terminate on the second anniversary of the
Effective Date.
7. Attorneys Fees.
In the event the Bank or any subsidiary thereof purports to terminate
the employment of the Employee for Cause, but it is determined by a court of
competent jurisdiction or by an arbitrator pursuant to Section 15 of this
Agreement that cause did not exist for such termination, or if in any event it
is determined by any such court or arbitrator that the Company or the Bank has
failed to make timely payment of any amounts owed to the Employee under this
Agreement, the Employee shall be entitled to reimbursement for all reasonable
costs, including attorneys' fees, incurred in challenging such termination or
collecting such amounts. Such reimbursement shall be in addition to all rights
to which the Employee is otherwise entitled under this Agreement.
8. Successors and Assigns.
This Agreement is personal to each of the parties hereto, and neither
party may assign or delegate any of its rights or obligations hereunder without
first obtaining the written consent of the other party; provided, however, that
the Company and the Bank each shall require any successor or assign (whether
direct or indirect, by purchase, merger, consolidation or otherwise) by an
assumption agreement in form and substance satisfactory to the Employee, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company or the Bank, as applicable, would be required
to perform it if no such succession or assignment had taken place. Failure of
the Company or the Bank to obtain such an assumption agreement prior to the
effectiveness of any such succession or assignment shall be a breach of this
Agreement and shall entitle the Employee to compensation and benefits from the
Company and the Bank pursuant to Section 4 of this Agreement as if Involuntary
Termination had occurred. For purposes of implementing the provisions of this
Section 8, the date on which any such succession becomes effective shall be
deemed the Date of Termination.
3
<PAGE> 4
This Agreement and all rights of the Employee hereunder shall inure to
the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees.
9. Regulatory Provisions.
(1) Temporary Suspension or Prohibition. If the Employee is
suspended and/or temporarily prohibited from participating in the conduct of
the Bank's affairs by a notice served under Section 8(e)(3) or (g)(1) of the
Federal Deposit Insurance Act (the "FDIA"), 12 U.S.C. Section 1818(e)(3) and
(g)(1), the Company's and the Bank's obligations under this Agreement shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion (i)
pay the Employee all or part of the compensation withheld while its obligations
under this Agreement were suspended and (ii) reinstate in whole or in part any
of its obligations which were suspended.
(2) Permanent Suspension or Prohibition. If the Employee is
removed and/or permanently prohibited from participating in the conduct of the
Bank's affairs by an order issued under Section 8(e)(4) or (g)(1) of the FDIA,
12 U.S.C. Section 1818(e)(4) and (g)(1), all obligations of the Company and the
Bank under this Agreement shall terminate as of the effective date of the
order, but vested rights of the contracting parties shall not be affected.
(3) Default of the Bank. If the Bank is in default (as
defined in Section 3(x)(1) of the FDIA), all obligations under this Agreement
shall terminate as of the date of default, but this provision shall not affect
any vested rights of the contracting parties.
(4) Termination by Regulators. All obligations under this
Agreement shall be terminated, except to the extent determined that
continuation of this Agreement is necessary for the continued operation of the
Bank: (i) by the Director of the Office of Thrift Supervision (the "Director")
or his or her designee, at the time the Federal Deposit Insurance Corporation
or the Resolution Trust Corporation enters into an agreement to provide
assistance to or on behalf of the Bank under the authority contained in Section
13(c) of the FDIA; or (ii) by the Director or his or her designee, at the time
the Director or his or her designee approves a supervisory merger to resolve
problems related to operation of the Bank or when the Bank is determined by the
Director to be in an unsafe or unsound condition. Any rights of the parties
that have already vested, however, shall not be affected by any such action.
(5) Prohibited Payments. Any payments made to the Employee
pursuant to this Agreement, or otherwise, are subject to and conditioned upon
their compliance with 12 U.S.C. 1828(k) and any regulations promulgated
thereunder.
10. Notices.
For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when
4
<PAGE> 5
personally delivered or sent by certified mail, return receipt requested,
postage prepaid, to the Bank at the Bank's home office, to the attention of
the Bank's Chief Executive Officer, or, if to the Employee, to such home or
other address as the Employee has most recently provided in writing to the
Bank.
11. Amendments.
No amendments or additions to this Agreement shall be binding unless
in writing and signed by both parties.
12. Headings.
The headings used in this Agreement are included solely for
convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
13. Severability.
The provisions of this Agreement shall be deemed severable and the
invalidity or unenforceability of any provision shall not affect the validity
or enforceability of the other provisions hereof.
14. Governing Law.
This Agreement shall be governed the laws of the State of [Michigan
or Ohio].
15. Arbitration.
Any dispute or controversy arising under or in connection with this
Agreement, including but not limited to whether the Employee was properly
terminated for Cause, shall be settled exclusively by arbitration in accordance
with the rules of the American Arbitration Association then in effect.
Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
CHARTER ONE FINANCIAL, INC.
Attest:
--------------------- ---------------------------
Secretary By:
CHARTER ONE BANK, F.S.B.
Attest:
---------------------- ---------------------------
Secretary By:
Employee
---------------------------
6
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
Charter One Financial, Inc.
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 33-61273 of Charter One Financial, Inc. on Form S-4
of our report dated January 25, 1995 (which expresses an unqualified opinion
and includes an explanatory paragraph relating to the change in method of
accounting for debt and equity securities in 1994 and for income taxes in
1993), incorporated by reference in the Annual Report on Form 10-K of Charter
One Financial, Inc. for the year ended December 31, 1994 and to the references
to us under the headings "Experts" and "Independent Accountants" in the Joint
Proxy Statement/Prospectus, which is part of such Registration Statement.
/s/Deloitte & Touche LLP
Cleveland, Ohio
September 5, 1995
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
FirstFed Michigan Corporation:
We consent to the use of our reports incorporated herein by reference and to
the reference to our firm under the headings "Experts" and "Independent
Accountants" in the Joint Proxy Statement/Prospectus.
/s/ KPMG PEAT MARWICK LLP
Detroit, Michigan
September 5, 1995
