<PAGE> 1
[CHARTER ONE LOGO] Filed Pursuant to Rule 424(b)(3)
Registration No. 33-61273
CHARTER ONE FINANCIAL, INC.
1215 SUPERIOR AVENUE
CLEVELAND, OHIO 44114
(216) 566-5300
September 25, 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 Forum Conference and Education Center, One
Cleveland Center, 1375 East Ninth Street, Cleveland, Ohio, on Friday, October
27, 1995 at 2:00 p.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.
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,
/s/ Charles John Koch
Chairman of the Board, President
and Chief Executive Officer
<PAGE> 2
FIRSTFED MICHIGAN CORPORATION
September 25, 1995
Dear Stockholder:
You are invited to attend a special meeting of stockholders of FirstFed
Michigan Corporation scheduled to be held in the Riverfront Room of the Westin
Hotel, Detroit, Michigan, on Friday, October 27, 1995 at 11:00 a.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> 3
[CHARTER ONE LOGO] CHARTER ONE FINANCIAL, INC.
1215 SUPERIOR AVENUE
CLEVELAND, OHIO 44114
(216) 566-5300
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FRIDAY, OCTOBER 27, 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,
October 27, 1995, at 2:00 p.m., local time, at the Forum Conference and
Education Center, One Cleveland Center, 1375 East Ninth Street, 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.
<PAGE> 4
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 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 Georgeson &
Company Inc., which is assisting us in the solicitation of proxies, at (800)
223-2064.
By Order of the Board of Directors,
Charles John Koch
Chairman of the Board, President
and Chief Executive Officer
Cleveland, Ohio
September 25, 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> 5
FIRSTFED MICHIGAN CORPORATION
1001 WOODWARD AVENUE
DETROIT, MICHIGAN 48226-1904
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 27, 1995
A Special Meeting of Stockholders (the "Special Meeting") of FirstFed
Michigan Corporation ("FirstFed") is scheduled to be held in the Riverfront Room
of the Westin Hotel, Detroit, Michigan, on Friday, October 27, 1995 at 11:00
a.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 September 8, 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
/s/ C. Gene Harling
C. Gene Harling
Detroit, Michigan Chairman of the Board, President
September 25, 1995 and Chief Executive Officer
***************************************************************************
* *
* 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> 6
JOINT PROXY STATEMENT
OF
CHARTER ONE FINANCIAL, INC.
AND
FIRSTFED MICHIGAN CORPORATION
FOR SPECIAL MEETINGS OF THEIR
RESPECTIVE STOCKHOLDERS
TO BE HELD ON OCTOBER 27, 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 Corpora-
tion, 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 2:00 p.m., local
time, on Friday, October 27, 1995 at the Forum Conference and Education Center,
One Cleveland Center, 1375 Ninth Street, 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 Riverfront
Room of the Westin Hotel, Detroit, Michigan, on Friday, October 27, 1995 at
11:00 a.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.
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.
<PAGE> 7
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 September 18, 1995
($30.13 per share), the value of 1.2 shares of Charter One Common Stock as of
that date would have been approximately $36.15. The last reported sale price for
FirstFed Common Stock on the Nasdaq National Market on that date was $35.13 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 September 19, 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 September 25, 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 SEPTEMBER 19, 1995
<PAGE> 8
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 OCTOBER 20, 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
i
<PAGE> 9
dated November 21, 1989 (and any amendment or report filed for the
purpose of updating the description).
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.
------------------------
ii
<PAGE> 10
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AVAILABLE INFORMATION................................................................. i
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... i
TABLE OF CONTENTS..................................................................... iii
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.......................................... 9
Directors After the Merger....................................................... 9
Officers After the Merger........................................................ 9
Consolidation of Operations...................................................... 10
Certain Related Transactions........................................................ 10
Stock Option Agreements.......................................................... 10
Amendment to Charter One Rights Agreement........................................ 11
The Bank Merger Agreement........................................................ 11
RECENT DEVELOPMENTS................................................................... 12
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
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
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
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................................................. 29
Opinions of Charter One's Financial Advisor......................................... 29
Opinions of FirstFed's Financial Advisor............................................ 33
Effective Time and Closing Date..................................................... 38
No Appraisal Rights................................................................. 38
Fractional Shares................................................................... 38
Exchange of Certificates............................................................ 38
Interests of Certain Persons in the Merger.......................................... 39
Effect on Employees and Employee Benefit Plans of FirstFed and Charter One.......... 44
Representations and Warranties...................................................... 45
Conditions to the Merger............................................................ 45
Regulatory Approvals................................................................ 46
Waiver and Amendment; Termination................................................... 47
Covenants Pending Closing........................................................... 48
Expenses............................................................................ 49
Accounting Treatment................................................................ 49
Resales of Charter One Common Stock by Affiliates................................... 50
Federal Income Tax Consequences of the Merger....................................... 50
Nasdaq Listing...................................................................... 52
Registration Rights................................................................. 52
MANAGEMENT AND OPERATIONS AFTER THE MERGER............................................ 52
Directors After the Merger.......................................................... 52
Officers After the Merger........................................................... 54
Consolidation of Operations......................................................... 55
Post-Merger Dividend Policy......................................................... 55
CERTAIN RELATED TRANSACTIONS.......................................................... 56
Stock Option Agreements............................................................. 56
Amendment to Charter One Rights Agreement........................................... 58
The Bank Merger Agreement........................................................... 58
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS..................................... 59
Unaudited Pro Forma Combined Statement of Financial Condition....................... 60
Unaudited Pro Forma Combined Statements of Income................................... 61
Notes to Unaudited Pro Forma Combined Financial Statements.......................... 66
Unaudited Pro Forma Per Share Data.................................................. 68
Pro Forma Regulatory Capital........................................................ 70
DESCRIPTION OF CHARTER ONE FINANCIAL, INC. CAPITAL STOCK.............................. 71
General............................................................................. 71
</TABLE>
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<TABLE>
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<S> <C>
Common Stock........................................................................ 71
Preferred Stock..................................................................... 72
COMPARISON OF RIGHTS OF STOCKHOLDERS OF CHARTER ONE
FINANCIAL, INC. AND FIRSTFED MICHIGAN CORPORATION................................... 73
Introduction........................................................................ 73
Issuance of Capital Stock........................................................... 73
Payment of Dividends................................................................ 73
Special Meetings of Stockholders.................................................... 73
Meetings of Creditors and/or Stockholders........................................... 74
Advance Notice Requirements for Nominations of Directors and Presentation of New
Business at Annual Meetings of Stockholders...................................... 74
Cumulative Voting for Election of Directors......................................... 74
Restrictions on Voting Rights; Quorum............................................... 74
Number and Term of Directors........................................................ 75
Removal of Directors................................................................ 75
Filling Vacancies on the Board of Directors......................................... 75
Amendment of Articles of Incorporation, Bylaws, Restated Certificate of
Incorporation and Bylaws......................................................... 75
Control Share Acquisitions.......................................................... 76
Business Combinations with Certain Persons.......................................... 76
Prevention of Greenmail............................................................. 77
Limitations on Directors' Liability................................................. 77
Indemnification..................................................................... 77
Rights Agreement.................................................................... 78
Financial Impact.................................................................... 81
AMENDMENTS TO RESTATED CERTIFICATE OF INCORPORATION OF
CHARTER ONE FINANCIAL, INC.......................................................... 82
General............................................................................. 82
Increase in Authorized Shares of Capital Stock...................................... 82
Increase in Authorized Number of Directors.......................................... 83
Other Certificate Amendments........................................................ 83
LEGAL MATTERS......................................................................... 84
EXPERTS............................................................................... 84
STOCKHOLDER PROPOSALS................................................................. 85
INDEPENDENT ACCOUNTANTS............................................................... 85
OTHER MATTERS......................................................................... 85
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
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<PAGE> 13
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 One 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 One 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 One Bank, which commenced operations in 1934, operates through 95
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 One 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 One 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 One Bank's most
significant lending activity. Charter One 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 One 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 One 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
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<PAGE> 14
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. 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 Friday,
October 27, 1995, at the Forum Conference and Education Center, One Cleveland
Center, 1375 East Ninth Street, Cleveland, Ohio, at 2:00 p.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 22,394,051
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.
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<PAGE> 15
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
1,033,388 shares (excluding shares underlying stock options), or 4.6% 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 (510,954 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
Riverfront Room of the Westin Hotel, Detroit, Michigan, on Friday, October 27,
1995 at 11:00 a.m., local time, unless adjourned or postponed.
Record Date. Only holders of record of FirstFed Common Stock at the close
of business on September 8, 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, 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
3
<PAGE> 16
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 1,932,257
shares (excluding shares underlying stock options), or 10.3% 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 (1,856,520 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.
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."
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<PAGE> 17
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"). 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
September 18, 1995 ($30.13 per share), the value of 1.2 shares of Charter One
Common Stock as of that date would have been approximately $36.15. The last
reported sale price for FirstFed Common Stock on the Nasdaq National Market on
that date was $35.13 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 22,485,422 shares, or 50.1%, 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 September 19, 1995, the consideration to be paid by Charter One in the
Merger is fair to Charter One and its stockholders from a financial point of
view. A copy of Montgomery's opinion dated September 19, 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."
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<PAGE> 18
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 September 19, 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 September 19, 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.
Excluding amounts previously earned and recognized as income by FirstFed's
Chairman of the Board and Chief Executive Officer, C. Gene Harling, or accrued
as an 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 term of his employment agreement,
the amount of payments currently expected to be received by Mr. Harling as a
result of the Merger under the terms of the Merger Agreement and FirstFed's
employee benefit plans and agreements is approximately $1,815,000. In addition,
Mr. Harling will enter into a one-year employment agreement with Charter One
which provides for a salary of $360,000. 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> 19
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 business 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.
7
<PAGE> 20
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 interests 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 One 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 unaudited pro forma combined financial information
regarding 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."
8
<PAGE> 21
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 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 One Bank (the "Charter One 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 One Bank Board; and (vi) the members of the Executive Committee of
the Charter One Board and the Charter One 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 One Bank.
OFFICERS AFTER THE MERGER
As of the Effective Time, the executive officers of Charter One and Charter
One Bank will be as follows: Charles John Koch -- Chairman of the Board,
President and Chief Executive Officer of Charter One and Charter One Bank;
Richard W. Neu -- Senior Vice President and Treasurer of Charter One and
Executive Vice President/Chief Financial Officer of Charter One Bank; John D.
Koch -- Senior Vice President of Charter One and Executive Vice President/Chief
Lending and Credit Officer of Charter One Bank; Mark D. Grossi -- Senior Vice
President of Charter One and Executive Vice President/Retail Banking of Charter
One Bank; and Robert J. Vana -- Chief Corporate Counsel and Secretary of Charter
One and Charter One Bank. Messrs. C. Koch, J. Koch, Grossi and Vana currently
serve in such capacities with Charter One and Charter One 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 One Bank generally are expected to be filled by persons
currently employed by Charter One or FirstFed.
9
<PAGE> 22
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 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 $10.3 million (including FirstFed's restructuring
charge of $146 million) and $57.7 million, respectively.
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."
10
<PAGE> 23
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."
THE BANK MERGER AGREEMENT
Pursuant to a Plan of Merger, dated May 30, 1995 (the "Bank Merger
Agreement"), by and between Charter One Bank and First Federal, First Federal
will be merged with and into Charter One Bank (the "Bank Merger") immediately
following the Company Merger. See "Certain Related Transactions -- The Bank
Merger Agreement."
11
<PAGE> 24
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
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
</TABLE>
14
<PAGE> 25
<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
---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
1990
----------
<S> <C>
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
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%
Return on average stockholders'
equity........................... 18.54 17.21 17.92 20.13 18.70 20.78
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
Return on average assets........... 1.15 1.20 1.18 1.37 1.01 1.03
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
Average stockholders' equity to
average assets................... 6.21 6.96 6.59 6.78 5.42 4.96
Dividends declared to earnings
per share........................ 23.08... 18.88 20.21 14.09 14.09 13.33
<CAPTION>
SELECTED RATIOS(8):
<S> <C>
Net yield on average
interest-earning assets for the
period........................... 2.60%
Return on average stockholders'
equity........................... (13.25)
Return on average stockholders'
equity (prior to cumulative
effect of change in accounting
principle)....................... 14.14
Return on average assets........... (.64)
Return on average assets (prior to
cumulative effect of change in
accounting principle)............ .69
Average stockholders' equity to
average assets................... 4.86
Dividends declared to earnings
per share........................ 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 One 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> 26
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
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
</TABLE>
16
<PAGE> 27
<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>
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>
- ---------------
(1) 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> 28
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 One Bank in connection with
Charter One 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 One 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 One 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 One 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 One Bank operates through 95 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 One 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 One 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 One Bank's most significant lending activity. Charter One 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 One 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 One 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 FDIC. Charter One 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 One 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.
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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 SAIF,
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 Forum Conference and Education Center, One Cleveland Center, 1375
East Ninth Street, Cleveland, Ohio at 2:00 p.m., local time, on Friday, October
27, 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 Amendment"), (ii)
increase the number of authorized
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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 22,394,051 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 1,033,388
shares (excluding shares underlying stock options), or approximately 4.6% 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 (510,954 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
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One 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 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 Georgeson & Company Inc. ("Georgeson") 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 Georgeson
approximately $8,000 plus out-of-pocket expenses up to $6,000 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 Riverfront Room of the Westin Hotel, Detroit, Michigan, on Friday,
October 27, 1995 at 11:00 a.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 September 8, 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
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<PAGE> 32
Meeting. As of the FirstFed Record Date, there were outstanding and entitled to
vote at the FirstFed Special Meeting 18,737,852 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 1,932,257
shares (excluding shares underlying stock options), or 10.3% 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 (1,856,520 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 up to $1,000 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
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Meeting, except that Charter One and FirstFed shall bear 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 One Bank, with
Charter One 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.
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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 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,
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a mutual confidentiality agreement was executed, and Messrs. Koch and Harling
resumed discussions regarding a combination of Charter One and FirstFed.
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
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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 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 FirstFed's
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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 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 "--Opinions of Charter One's Financial Advisor" and
"--Opinions 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.
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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.
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 September 8, 1995, the stockholders of FirstFed would own approximately 50.1%
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
September 18, 1995 ($30.13 per share), the value of 1.2 shares of Charter One
Common Stock as of that date would have been approximately $36.15. The last
reported sale price for FirstFed Common Stock on the Nasdaq National Market on
that date was $35.13 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
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.
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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 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 the 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.
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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, analyzed 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 relied on the accuracy and
completeness of the foregoing information and did not assume any obligation
independently to verify such information. With respect to the financial
forecasts for Charter One and FirstFed provided to Montgomery by their
respective managements, Montgomery assumed for purposes of its opinions 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 oral 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 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.
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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.
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 .36%, .49% and .16%, respectively.
Excluding
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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 .78%, .90%
and .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 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 .60% and .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 .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 .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 .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
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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 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. The Charter
One Board was aware of this fee structure, which is standard and customary in
the industry for transactions similar to the Merger, and took it into account in
considering Montgomery's opinion and in approving the Merger Agreement and the
transactions contemplated thereby. 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.
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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 analyses; 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 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
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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 .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 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 .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 .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
.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 .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
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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
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
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(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 .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 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. The FirstFed Board was aware of this fee
structure, which is standard and customary in the industry for transactions
similar to the Merger, and took it into account in considering Salomon's opinion
and in approving the Merger Agreement and the transactions contemplated thereby.
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.
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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.
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,
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<PAGE> 49
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 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 a salary of $360,000 and 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
FirstFed'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 One 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 One 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
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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 One 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 One 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 One 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."
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 One 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
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Agreement unless such Senior Officer enters into a new agreement with Charter
One Bank (see "-- New Severance Agreements").
Each employee of Charter One Bank who does not have an agreement with
Charter One Bank comparable to a Contract Severance Agreement (i) who holds a
similar position at Charter One 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 One 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 One Bank (the "Charter One 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 One Bank Board, and in Charter One's and Charter One 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 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").
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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 One 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 One 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 One 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 One
Bank employee report directly to anyone other than the Chief Executive Officer
of Charter One 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 One Bank Board to elect him as Chairman
or Chief Executive Officer of Charter One Bank or any action by the Charter One
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 One 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 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 One Bank representing 25%
or more of the combined voting power of Charter One's or Charter One 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.
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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
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
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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 One 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 (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
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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 One 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, 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;
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(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."
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
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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 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.
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<PAGE> 58
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 One Bank, FirstFed or
First Federal or for the acquisition of a 25% or greater equity interest in
Charter One, Charter One Bank, FirstFed or First Federal, or for the acquisition
of a substantial portion of the assets of Charter One, Charter One 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 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;
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<PAGE> 59
(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 FHLB stock; (x)
make any investment which would cause Charter One 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."
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
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<PAGE> 60
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 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> 61
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 One
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 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> 62
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 One 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 One 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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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 One 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 One Bank or
another significant financial institution subsidiary or (C) the dismissal or
replacement of any of the executive officers of Charter One or Charter One 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 One Bank Board; and (vii) the members of the
Executive Committee of the Charter One Board and the Charter One 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 One 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 One 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 One Bank Board as of the Effective Time.
<TABLE>
<CAPTION>
YEAR BECAME A
DIRECTOR OF
CHARTER ONE(C) PRINCIPAL OCCUPATION
NAME 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 One 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 One Bank;
President of LaPorte and Ipavec Co.,
L.P.A.
</TABLE>
53
<PAGE> 64
<TABLE>
<CAPTION>
YEAR BECAME A
DIRECTOR OF
CHARTER ONE(C) PRINCIPAL OCCUPATION
NAME 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 One 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.
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 One 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 One 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
One Bank will be as follows: Charles John Koch -- Chairman of the Board,
President and Chief Executive Officer of Charter One and Charter One Bank;
Richard W. Neu -- Senior Vice President and Treasurer of Charter One and
Executive Vice President/Chief Financial Officer of Charter One Bank; John D.
Koch -- Senior Vice President of Charter One and Executive Vice President/Chief
Lending and Credit Officer of Charter One Bank; Mark D.
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<PAGE> 65
Grossi -- Senior Vice President of Charter One and Executive Vice
President/Retail Banking of Charter One Bank; and Robert J. Vana -- Chief
Corporate Counsel and Secretary of Charter One and Charter One Bank. Messrs. C.
Koch, J. Koch, Grossi and Vana currently serve in such capacities with Charter
One and Charter One 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 One
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 One 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.
POST-MERGER DIVIDEND POLICY
Charter One is a legal entity, separate and distinct from Charter One 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 One 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
55
<PAGE> 66
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.
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
56
<PAGE> 67
(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 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
57
<PAGE> 68
(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.
THE BANK MERGER AGREEMENT
In connection with the Merger, Charter One 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 One 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.
58
<PAGE> 69
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."
59
<PAGE> 70
UNAUDITED PRO FORMA COMBINED STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
AT JUNE 30, 1995
----------------------------------------------------------
CHARTER
ONE FIRSTFED
AS AS PRO FORMA PRO FORMA
REPORTED 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."
60
<PAGE> 71
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(3).................... 143,142 251,616 4,095 398,853
----------- ----------- --- -----------
Net interest income.................... 91,581 62,568 (4,095) 150,054
Provision for loan losses.............. 516 -- -- 516
----------- ----------- --- -----------
Net interest income after provision for
loan losses.......................... 91,065 62,568 (4,095) 149,538
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 (4,095) 87,446
Federal income taxes(3)(7)............. 18,251 12,935 (1,433) 29,753
----------- ----------- --- -----------
Income before extraordinary items and
cumulative effect of changes in
accounting principles................ $ 36,016 $ 24,339 $ (2,662) $ 57,693
=========== =========== === ===========
Per share income before extraordinary
items and cumulative effect of
changes in accounting principles(8):
Primary.............................. $ 1.56 $ 1.28 $ -- $ 1.26
=========== =========== === ===========
Fully diluted........................ $ 1.56 $ 1.27 $ -- $ 1.25
=========== =========== === ===========
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."
61
<PAGE> 72
<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(3)......................... 98,437 234,190 4,095 336,722
----------- ----------- ----------- -----------
Net interest income......................... 87,186 69,980 (4,095) 153,091
Provision for loan losses................... 1,493 150 -- 1,643
----------- ----------- ----------- -----------
Net interest income after provision for loan
losses.................................... 85,693 69,830 (4,095) 151,428
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) (4,095) (69,933)
Federal income taxes (benefit)(3)(7)........ 16,490 (35,240) (1,433) (20,183)
----------- ----------- ----------- -----------
Income (loss) before extraordinary items and
cumulative effect of changes in accounting
principles................................ $ 33,104 $ (80,192) $ (2,662) (49,750)
=========== =========== =========== ===========
Per share income (loss) before extraordinary
items and cumulative effect of changes in
accounting principles(8):
Primary................................... $ 1.43 $ (4.30) $ -- $ (1.09)
=========== =========== =========== ===========
Fully diluted............................. $ 1.43 $ (4.30) $ -- $ (1.09)
=========== =========== =========== ===========
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."
62
<PAGE> 73
<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(3).................... 217,486 476,721 8,191 702,398
----------- ----------- ----------- -----------
Net interest income.................... 178,144 133,829 (8,191) 303,782
Provision for loan losses.............. 2,798 150 -- 2,948
----------- ----------- ----------- -----------
Net interest income after provision for
loan losses.......................... 175,346 133,679 (8,191) 300,834
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) (8,191) 14,484
Federal income taxes (benefit)(3)(7)... 33,686 (26,630) (2,866) 4,190
----------- ----------- ----------- -----------
Income (loss) before extraordinary
items and cumulative effect of
changes in accounting principles..... $ 67,613 $ (51,994) $(5,325) $ 10,294
========== ========== ========= ==========
Per share income (loss) before
extraordinary items and cumulative
effect of changes in accounting
principles(8):
Primary.............................. $ 2.92 $ (2.79) $ -- $ .23
========== ========== ========= ==========
Fully diluted........................ $ 2.92 $ (2.79) $ -- $ .23
========== ========== ========= ==========
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."
63
<PAGE> 74
<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."
64
<PAGE> 75
<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."
65
<PAGE> 76
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>
EXPECTED RANGE OF
TYPE OF COST 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 pre-tax loss of $86
million. The Unaudited Pro Forma Combined Statement of Financial
Condition has been prepared assuming that approximately 50% of the
liabilities hedged by the agreements are eliminated and the related
loss of $28 million net of tax is charged to operations, while the
remaining pre-tax loss of $43 million is deferred and amortized to
operations. The Unaudited Pro Forma Combined Statements of Income
include adjustments to interest expense and deferred income taxes to
reflect the amortization of the deferred loss and related tax benefit
from January 1, 1994 through the first quarter of 1999, the original
maturity date of the interest rate exchange contracts.
(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.
(6) FirstFed adopted 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
66
<PAGE> 77
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.
67
<PAGE> 78
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 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
SIX MONTHS AT AND FOR THE
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)................................. 1.26 (1.09) .23 2.29 1.98
FirstFed pro forma equivalent(1)...................... 1.51 (1.31) .28 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)................................. 1.25 (1.09) .23 2.28 1.90
FirstFed pro forma equivalent(1)...................... 1.50 (1.31) .28 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)................................. 18.17 16.42 16.70 -- --
FirstFed pro forma equivalent(3)...................... 21.80 19.70 20.04 -- --
</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 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
68
<PAGE> 79
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.
69
<PAGE> 80
PRO FORMA REGULATORY CAPITAL
The following table sets forth the tangible, core and risk-based capital
levels of Charter One Bank and First Federal on an historical basis and Charter
One 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 ONE BANK FIRST FEDERAL CHARTER ONE BANK
------------------------ ------------------------ ------------------------
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
AMOUNT ASSETS(1) AMOUNT ASSETS(1) AMOUNT ASSETS(1)
-------- ------------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
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.
70
<PAGE> 81
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 September 8, 1995,
22,394,051 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 44,879,473 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."
71
<PAGE> 82
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 September 8, 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."
72
<PAGE> 83
COMPARISON OF RIGHTS OF STOCKHOLDERS OF
CHARTER ONE FINANCIAL, INC. AND FIRSTFED MICHIGAN CORPORATION
INTRODUCTION
Upon the consummation of the Merger, holders of FirstFed 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 MBCA, 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.
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
September 8, 1995, 18,737,852 and 22,394,051 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 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 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
73
<PAGE> 84
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 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 of 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
FirstFed 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.
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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 September 8, 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 September 8, 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 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.
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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 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
Combination is approved by 90% of the holders of Charter One's voting stock
unless the Business Combination 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.
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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.
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 One Bank, and neither First
Federal nor Charter One Bank's charter or bylaws contains any limitation on the
liability of directors of First Federal and Charter One 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
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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 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 Delaware law. As with Michigan 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 Charter One Common Stock
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 Charter One Common
Stock, Charter One will issue one Right with each new share of Charter One
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 $.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
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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" (as
such terms are described below) to occur upon, as a result of or in connection
with any of the above events.
The Rights are attached to all certificates representing outstanding shares
of Charter One 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 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
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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.
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 ten 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.
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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 300,000 shares of Preferred Stock for
issuance upon exercise of the Rights. At September 8, 1995, there were
22,394,051 shares of Charter One Common Stock, and therefore 22,394,051 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
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."
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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 September 8, 1995, 22,394,051 shares of Charter
One Common Stock were issued and outstanding and 1,268,393 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 September 8, 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.
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 as of September 8, 1995, there would
be 46,901,918 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
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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 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.
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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.
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
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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.
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 BY ORDER OF
THE BOARD OF DIRECTORS THE BOARD OF DIRECTORS
OF CHARTER ONE FINANCIAL, INC. OF FIRSTFED MICHIGAN CORPORATION
/s/ Charles John Koch /s/ C. Gene Harling
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 OF CONTENTS
<TABLE>
<S> <C> <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-19
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-24
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-25
3.10 Dividend Adjustment............................................................ I-25
3.11 Stock Exchange Listing......................................................... I-25
3.12 Certificate of Incorporation................................................... I-25
3.13 Employee Benefits and Agreements............................................... I-25
3.14 Conforming Adjustments......................................................... I-28
3.15 Amendments to Charter Rights Agreement......................................... I-29
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE IV -- CONDITIONS OF THE MERGER; TERMINATION OF AGREEMENT....................... I-29
4.1 General Conditions............................................................. I-29
4.2 Conditions to Obligations of Charter........................................... I-30
4.3 Conditions to Obligations of FirstFed.......................................... I-31
4.4 Termination of Agreement and Abandonment of Merger............................. I-31
ARTICLE V -- TERMINATION OF OBLIGATIONS; PAYMENT OF EXPENSES........................... I-33
5.1 Termination; Lack of Survival of Representations and Warranties................ I-33
5.2 Payment of Expenses............................................................ I-33
ARTICLE VI -- CERTAIN POST-MERGER AGREEMENTS........................................... I-33
6.1 Registration of Stock Underlying Stock Options................................. I-33
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 One Bank............... I-36
6.6 Publication of Combined Financial Results...................................... I-37
6.7 Registration Rights............................................................ I-37
ARTICLE VII -- GENERAL................................................................. I-38
7.1 Amendments..................................................................... I-38
7.2 Confidentiality................................................................ I-38
7.3 Governing Law.................................................................. I-38
7.4 Notices........................................................................ I-38
7.5 No Assignment.................................................................. I-39
7.6 Headings....................................................................... I-39
7.7 Counterparts................................................................... I-39
7.8 Construction and Interpretation................................................ I-39
7.9 Entire Agreement............................................................... I-39
7.10 Severability................................................................... I-39
7.11 No Third Party Beneficiaries................................................... I-39
7.12 No Employment Solicitation..................................................... I-39
SCHEDULES:
Schedule I Disclosure Schedule for Charter One*................................. N/A
Schedule II Disclosure Schedule for FirstFed*.................................... N/A
EXHIBITS:
Exhibit A Charter One Stock Option Agreement................................... I-41
Exhibit B FirstFed Stock Option Agreement...................................... I-49
Exhibit C Form of Charter One Voting Agreement*................................ N/A
Exhibit D Form of FirstFed Voting Agreement*................................... N/A
Exhibit 1.1(a) Plan of Merger....................................................... I-57
Exhibit 1.8(d) List of Option Holders*.............................................. N/A
Exhibit 2.10(c) Amendment to Rights Agreement........................................ I-60
Exhibit 3.6(a) Form of Charter One Affiliate Agreement*............................. N/A
Exhibit 3.6(b) Form of FirstFed Affiliate Agreement*................................ N/A
Exhibit 3.13(c) Severance Policy*.................................................... N/A
Exhibit 3.13(g) Form of Employment Agreement for Mr. Harling*........................ N/A
Exhibit 4.2(a) Form of Opinion of Counsel for FirstFed*............................. N/A
Exhibit 4.3(a) Form of Opinion of Counsel for Charter One*.......................... N/A
</TABLE>
- ---------------
* 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 One 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 One Bank, with Charter One 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 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.
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<PAGE> 100
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 One
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
One Bank shall continue as the surviving institution of the Bank Merger. The
name of Charter One 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 One 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 One 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 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.
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(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 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
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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;
(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
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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".
(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
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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 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
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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 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
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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 One
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
One 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 One 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 One 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 One 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 One 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 One 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 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
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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
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Subsidiaries has owned and operated its respective assets, properties and
businesses in the ordinary course of business and consistent with past practice.
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
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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 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
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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 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
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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 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
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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.
(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
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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.
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
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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 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
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(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).
(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,
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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 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
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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) 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
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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 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
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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 One 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 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 One 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 One Bank that does not have a Contract
Severance Agreement and (i) holds a similar position at Charter One Bank to that
held by an employee of FirstFed Bank with a Contract Severance Agreement and
(ii) whose employment is involuntarily terminated by Charter One 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.
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(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 One
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 One 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 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
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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.
(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 One
Bank, FirstFed or FirstFed Bank by reason of the Company Merger or the
Bank Merger.
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(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.
(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.
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(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.
(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
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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 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.
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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
One 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.
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
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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 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
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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, Charter
One 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 One 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
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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 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 One Bank.
(a) Subject to OTS approval if necessary, at the Bank Merger Effective
Time, the Board of Directors of Charter One 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 One 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 One 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 One Bank shall consist of the same persons who serve as
directors of Charter as the Surviving Corporation and any
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person who becomes a director of Charter as the Surviving Corporation shall
become a director of Charter One 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 One 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 One Bank and Charter One Bank shall
take all necessary corporate action to effectuate this agreement of the parties.
(b) Meetings of Charter One 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 One Bank or FirstFed Bank, whichever is greater.
(d) The Executive Officers of Charter One 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 One 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 One Bank, to conduct its
business in the normal and regular course consistent with Charter One 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.
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
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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.
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
</TABLE>
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<TABLE>
<S> <C>
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 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.
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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 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
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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.
(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
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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 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
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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 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
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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 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,
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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 regulator 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 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.
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.
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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: /s/ CHARLES JOHN KOCH
--------------------------------------
President
FIRSTFED MICHIGAN CORPORATION
By: /s/ C. GENE HARLING
--------------------------------------
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 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
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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.
(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
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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 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
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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 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
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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 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,
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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.
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.
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(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.
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
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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.
FIRSTFED MICHIGAN CORPORATION
By: /s/ C. GENE HARLING
-----------------------------------
President
CHARTER ONE FINANCIAL, INC.
By: /s/ CHARLES JOHN KOCH
-----------------------------------
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".
W I T N E S S E T H:
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.
(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
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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, chosen 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 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.
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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.
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: /s/ C. GENE HARLING By: /s/ CHARLES JOHN KOCH
-------------------------------- --------------------------
Name: C. Gene Harling Name: Charles John Koch
Title: Chairman and Chief Executive Officer Title: President
By: /s/ W. S. FAMBROUGH By: /s/ ROBERT J. VANA
-------------------------------- -------------------------
Name: W. S. Fambrough Name: Robert J. Vana
Title: Secretary Title: Secretary
</TABLE>
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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 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
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
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"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 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: /s/ ROBERT J. VANA
-----------------------------
Robert J. Vana
Secretary
THE FIRST NATIONAL BANK OF BOSTON
as Rights Agent
By: /s/ COLLEEN H. SHEA
-----------------------------
Colleen H. Shea
Administration Manager
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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 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
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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 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.
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(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.
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
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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 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
[LOGO HERE]
Montgomery
September 19, 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 deemed 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
Montgomery Securities
Investment Banking, Brokerage, Asset Management
600 Montgomery Street, San Francisco, California 94111 Telephone 415 627-2000
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<PAGE> 162
Montgomery
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 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 stockholder as to how such stockholder should vote with
respect to the Merger.
Very truly yours,
MONTGOMERY SECURITIES
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APPENDIX IV
September 19, 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 Agreement and Plan of Merger
dated as of the 30th day of May, 1995 by and between Charter One and FirstFed
(the "Agreement"). Under the terms of the Agreement, 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 the Merger, Charter One and FirstFed entered into separate
stock option agreements (the "Stock Option Agreements") by which Charter One
granted 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 granted 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, a significant portion of which
is payable 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) the Agreement and the Stock Option Agreements; (ii) the Joint
Proxy Statement -- Prospectus dated the date hereof with respect to the Merger;
(iii) 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; (iv) the Quarterly
Reports on Form 10-Q of each of FirstFed and Charter One for the quarters ended
March 31, 1995 and June 30, 1995; (v) 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; (vi)
certain 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 (vii) 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
IV-1
<PAGE> 164
The Board of Directors
FirstFed Michigan Corporation
September 19, 1995
Page 2
officers and representatives of FirstFed and Charter One to discuss the
foregoing as well as other matters we believe relevant to our inquiry.
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 any of the assets of FirstFed 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 letter 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,
Salomon Brothers Inc.
IV-2
<PAGE> 165
CHARTER ONE FINANCIAL, INC.
SPECIAL MEETING, OCTOBER 27, 1995
PROXY SOLICITED BY BOARD OF DIRECTORS
P
R The undersigned hereby appoints Charles John Koch and John D. Koch, and
O each of them, proxies with power of substitution to vote on behalf of the
X shareholders of Charter One Financial, Inc. on October 27, 1995, and any
Y adjournments and postponements thereof, with all powers that the
undersigned would possess if personally present, with respect to the
proposals set forth on the reverse hereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED ON THE
REVERSE HEREOF, BUT IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED
FOR APPROVAL OF ALL PROPOSALS. THE PROXIES MAY VOTE IN THEIR DISCRETION AS
TO OTHER MATTERS WHICH MAY COME BEFORE THE MEETING.
The undersigned acknowledges receipt from Charter One Financial, Inc.
prior to the execution of this proxy of Notice of the Meeting and a Joint
Proxy Statement/Prospectus dated September 19, 1995.
SEE REVERSE
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE) SIDE
- --------------------------------------------------------------------------------
[X]PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE PROPOSALS.
<TABLE>
<S> <C>
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
1. The approval and adoption of the [ ] [ ] [ ] 3. The approval and adoption of an [ ] [ ] [ ]
Agreement and Plan of Merger, dated as amendment to Article SEVENTH of
of May 30, 1995, by and between Charter the Restated Certificate of
One Financial, Inc. and FirstFed Michigan Incorporation to increase the
Corporation, and the transactions number of authorized directors
contemplated thereby. from 15 to 18.
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
2. The approval and adoption of an [ ] [ ] [ ] 4. The approval and adoption of [ ] [ ] [ ]
amendment to Article FOURTH of the amendments to Article FIFTH and
Restated Certificate of Incorporation to SIXTH of the Restated Certificate
increase the number of authorized shares of Incorporation, including raising
of common stock and preferred stock. from 10% to 20% the threshold
level of common stock ownership
that is subject to voting restric-
tions, as more fully described in
the accompanying Joint Proxy
Statement/Prospectus.
A majority of the proxies or substitutes present at the
meeting may exercise all powers granted hereby.
Please date and sign as name is imprinted hereon, including
designation as executor, trustee, etc. if applicable. A corporation Signature: _________________________________ Date __________
must sign in its name by the president or other officers. All
co-owners must sign. Signature: _________________________________ Date __________
</TABLE>
<PAGE> 166
REVOCABLE PROXY
FIRSTFED MICHIGAN CORPORATION
P SPECIAL MEETING OF STOCKHOLDERS OCTOBER 27, 1995
R THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
O
X I hereby appoint Philip J. Meathe and Mark Shaevsky, with full powers
Y of substitution, as attorneys and proxies for me, to vote all shares of
common stock of FirstFed Michigan Corporation which I am entitled to vote
at the Special Meeting of Stockholders, to be held in the Riverfront Room
of the Westin Hotel, Rennissance Center, Detroit, Michigan on Friday,
October 27, 1995, at 11:00 a.m., local time, and at any and all
adjournments thereof, as indicated on the reverse side hereof.
Should I be present and elect to vote at the Meeting or at any
adjournment thereof and after notification to the Secretary of the
Corporation at the Meeting of the stockholder's decision to terminate this
proxy, then the power of said attorneys and proxies shall be deemed
terminated and of no further force and effect.
I acknowledge receipt from the Corporation prior to the execution of
this proxy of Notice of the Meeting and a Joint Proxy Statement/Prospectus.
- --------------------------------------------------------------------------------
[X]PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY WILL BE VOTED FOR THE PROPOSITION STATED. IF ANY OTHER BUSINESS IS
PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS
PROXY IN THEIR BEST JUDGMENT. AT THIS PRESENT TIME, THE BOARD OF DIRECTORS
KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE PROPOSAL.
<TABLE>
<S> <C> <C> <C>
1. The approval of the Agreement and Plan of Merger, dated as of May 30, FOR AGAINST ABSTAIN
1995, by and between the Corporation and Charter One Financial, Inc., and [ ] [ ] [ ]
the transactions contemplated thereby, including the merger of the
Corporation into Charter One, pursuant to which each outstanding share of
the Corporation's common stock would be converted into 1.2 shares of
Charter One Financial, Inc. 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.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY Signature: ____________________________ Date _____________
PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
Signature: ____________________________ Date _____________
</TABLE>
