<PAGE> 1
As filed with the Securities and Exchange Commission on August 8, 1997
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
Registration Statement Under the Securities Act of 1933
CHARTER ONE FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 6120 34-1567092
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) No.)
</TABLE>
ROBERT J. VANA, ESQ.
1215 SUPERIOR AVENUE CHARTER ONE FINANCIAL, INC.
CLEVELAND, OHIO 44114 1215 SUPERIOR AVENUE
(216) 589-8320 CLEVELAND, OHIO 44114
(216) 589-8320
<TABLE>
<S> <C>
(Address, including ZIP code, and telephone (Name, address, including ZIP code,
number, including area code, of registrant's and telephone number, including area
principal executive offices) code, of agent for service)
</TABLE>
COPIES TO:
<TABLE>
<S> <C> <C>
BARRY P. TAFF, P.C. WILLIAM A. VALERIAN F. RONALD O'KEEFE, ESQ.
JAMES S. FLEISCHER, P.C. PRESIDENT AND CHIEF EXECUTIVE OFFICER HAHN LOESER PARKS, L.L.P.
SILVER, FREEDMAN & TAFF, L.L.P. HAVERFIELD CORPORATION 3300 BP AMERICA BUILDINGATION
1100 NEW YORK AVENUE, N.W. TERMINAL TOWER 200 PUBLIC SQUAREAL TOWER
WASHINGTON, D.C. 20005 50 PUBLIC SQUARE, SUITE 444 CLEVELAND, OHIO 44114-2301
CLEVELAND, OHIO 44113-2203
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES
TO THE PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
----------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<TABLE>
<CAPTION>
Calculation of Registration Fee
================================================================================================================================
Proposed maximum Proposed maximum
Title of each class of Amount to offering price aggregate offering Amount of
securities to be registered be registered(2) per share(3) price(3) registration fee(4)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value(1) 1,360,609 shares $ 39.34 $ 53,521,751.06 $16,219
================================================================================================================================
</TABLE>
(1) Includes one attached Right per share to purchase preferred stock upon the
occurrence of certain events. See "COMPARISON OF RIGHTS OF STOCKHOLDERS OF
CHARTER ONE FINANCIAL, INC. AND HAVERFIELD CORPORATION - Rights Agreement"
(2) Based upon the estimated maximum number of shares of Common Stock of
Charter One Financial, Inc. ("Charter One"), that may be issued upon
consummation of the merger of Haverfield Corporation ("Haverfield") with
and into a wholly owned subsidiary of Charter One described herein (the
"Merger"), and upon exercise of securities exercisable for shares of
Charter One Common Stock.
(3) Estimated solely for the purpose of calculating the registration fee.
Pursuant to Rule 457(f)(1) and 457(c), and solely for purposes of
calculating the registration fee, the proposed maximum aggregate offering
price is $53,521,751.06, which equals (x) the average of the high and low
sale prices of the common stock, par value $.01 per share, of Haverfield
("Haverfield Common Stock"), of $26.90625 as reported on the Nasdaq
National Market on August 6, 1997, multiplied by (y) 1,989,194, the total
number of shares of Haverfield Common Stock (including shares issuable
pursuant to the exercise of outstanding options to purchase Haverfield
Common Stock) to be cancelled in the Merger. The proposed maximum offering
price per share is equal to the proposed maximum aggregate offering price
determined in the manner described in the preceding sentence divided by
the maximum number of shares of Common Stock that could be issued in the
Merger.
(4) In accordance with Rule 457(b), the filing fee of $6,942 paid pursuant to
Section 14(g) of the Securities Exchange Act of 1934 and Rule 0-11
thereunder at the time of the filing of the Proxy Statement/Prospectus
contained in the Registration Statement as preliminary proxy materials of
Haverfield has been credited to offset the $16,219 registration fee that
would otherwise be payable.
================================================================================
<PAGE> 2
[HAVERFIELD LETTERHEAD]
August __, 1997
Dear Stockholder:
You are invited to attend a special meeting of stockholders of
Haverfield Corporation ("Haverfield") scheduled to be held in the English Oak
Room, Tower City on the Avenue, 230 Huron Road, N.W., Cleveland, Ohio on
Wednesday, September 17, 1997 at 9:00 a.m., local time. Notice of the Special
Meeting, a Proxy Statement/Prospectus and a form of proxy are enclosed.
At the Special Meeting, stockholders will be asked to vote upon a
proposal to adopt an Agreement and Plan of Merger and Reorganization, dated
April 22, 1997 (the "Merger Agreement"), pursuant to which, among other things,
a newly formed Ohio business corporation and first-tier Subsidiary of Charter
One Financial, Inc. will be merged with and into Haverfield (the "Merger").
Charter One Financial, Inc. will issue shares of its common stock (and related
rights) to stockholders of Haverfield, other than such stockholders who have
properly exercised dissenters' rights. The terms of the proposed Merger,
including the method for determining the number of shares of Charter One
Financial, Inc. common stock to be issued, are explained in detail in the
accompanying Proxy Statement/Prospectus.
Consummation of the Merger is conditioned upon, among other things,
receipt of all required stockholder and regulatory approvals. Adoption of the
Merger Agreement requires the affirmative vote of at least 66 2/3 percent of the
votes entitled to be cast at the meeting by the holders of Haverfield common
stock.
On May 21, 1997, Charter One Financial, Inc. announced that it had
entered into an agreement to acquire RCSB Financial, Inc., the holding company
of Rochester Community Savings Bank. RCSB Financial, Inc. is based in Rochester,
New York. Certain information relating to this transaction is set forth in the
accompanying Proxy Statement/Prospectus.
Should any other matters be 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 Notice of
Special Meeting and Proxy Statement/Prospectus which contain a detailed
description of the Merger and other important information relating to Charter
One, Haverfield and the combined companies.
THE BOARD OF DIRECTORS HAS APPROVED AND ADOPTED THE MERGER AGREEMENT
AND BELIEVES THAT THE MERGER IS IN THE BEST INTEREST OF HAVERFIELD AND ITS
STOCKHOLDERS. CHARLES WEBB & COMPANY, HAVERFIELD'S FINANCIAL ADVISOR, HAS
ADVISED YOUR BOARD OF DIRECTORS THAT IN ITS OPINION THE CONSIDERATION TO BE PAID
TO HAVERFIELD'S STOCKHOLDERS IS FAIR FROM A FINANCIAL POINT OF VIEW.
ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ADOPTION OF THE
MERGER AGREEMENT, INCLUDING THE MERGER. A FAILURE TO VOTE, EITHER BY NOT
RETURNING THE ENCLOSED PROXY OR BY CHECKING THE "ABSTAIN" BOX THEREON, WILL HAVE
THE SAME EFFECT AS A VOTE AGAINST ADOPTION OF THE MERGER AGREEMENT. EVEN IF YOU
PLAN TO ATTEND THE MEETING IN PERSON, PLEASE COMPLETE THE ENCLOSED PROXY, SIGN
AND DATE IT AND MAIL IT PROMPTLY IN THE ENCLOSED POSTAGE PAID, RETURN ADDRESSED
ENVELOPE.
Sincerely,
William A. Valerian
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
HAVERFIELD CORPORATION
Terminal Tower
50 Public Square, Suite 444
Cleveland, Ohio 44113-2203
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 17, 1997
A Special Meeting of Stockholders (the "Special Meeting") of Haverfield
Corporation ("Haverfield") is scheduled to be held in the English Oak Room,
Tower City on the Avenue, 230 Huron Road, N.W., Cleveland, Ohio, on Wednesday,
September 17, 1997 at 9:00 a.m., local time.
A PROXY CARD AND A PROXY STATEMENT/PROSPECTUS FOR THE SPECIAL MEETING
ARE ENCLOSED.
The Special Meeting is for the purpose of considering and voting upon
the following matters:
1. Approval of the proposal to adopt the Agreement and Plan of
Merger and Reorganization (the "Merger Agreement"), dated as
of April 22, 1997, by and among Charter One Financial, Inc.
("Charter One"), Charter-Michigan Bancorp, Inc., Charter One
Bank, F.S.B., Haverfield and Home Bank, F.S.B., including the
merger pursuant to which a newly formed Ohio business
corporation and first-tier Subsidiary of Charter One will be
merged with and into Haverfield (the "Merger").
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 adopt the Merger Agreement at the time
of the Special Meeting; provided, however, that no proxy which
is voted against the Merger Agreement 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.
Each holder of Haverfield common stock may have the right to dissent
from the Merger and to demand payment of the fair value of his or her shares in
the event the Merger Agreement is adopted and the Merger is consummated. Any
right of any such stockholder to receive such payment would be contingent upon
strict compliance with the requirements set forth in Section 1701.85 of the Ohio
General Corporation Law, the full text of which is attached as Appendix III to
the accompanying Proxy Statement/Prospectus.
Stockholders of record at the close of business on __________, 1997,
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 ON BEHALF OF 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
Nancy J. Hansen
Assistant Secretary
Cleveland, Ohio
_____________, 1997
- --------------------------------------------------------------------------------
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE HAVERFIELD 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.
- --------------------------------------------------------------------------------
<PAGE> 4
PROXY STATEMENT
OF
HAVERFIELD CORPORATION
FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 17, 1997
---------------
PROSPECTUS
OF
CHARTER ONE FINANCIAL, INC.
UP TO 1,360,609 SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE
---------------
This Proxy Statement/Prospectus relates to the adoption of the
Agreement and Plan of Merger and Reorganization (the "Merger Agreement"), dated
as of April 22,1997, by and among Charter One Financial, Inc. ("Charter One"),
Charter-Michigan Bancorp, Inc. ("Charter Michigan"), Charter One Bank, F.S.B.
("Charter One Bank"), Haverfield Corporation ("Haverfield") and Home Bank,
F.S.B. ("Home Bank"), including the merger pursuant to which a newly formed Ohio
business corporation and first-tier Subsidiary of Charter One will be merged
with and into Haverfield (the "Merger") in a stock-for-stock exchange. See
"SUMMARY - Summary of Certain Aspects of the Merger" and "THE MERGER." The
Merger Agreement is included at Appendix I and incorporated herein by reference.
The Merger Agreement provides that at the Effective Time (as defined
herein) all of the issued and outstanding shares of common stock, par value $.01
per share, of Haverfield (the "Haverfield Common Stock"), excluding shares held
by Charter One, Haverfield or any of their subsidiaries and excluding shares
held by stockholders who have properly exercised dissenter's rights
(collectively "Excluded Shares") will be cancelled and converted into the number
of shares of common stock, par value $.01 per share, of Charter One (the
"Charter One Common Stock") including a corresponding number of rights
associated with the Charter One Common Stock pursuant to the Rights Agreement
(as defined herein), determined by multiplying the number of shares of such
Haverfield Common Stock by the "Exchange Ratio." The Exchange Ratio will be (i)
equal to $27.00 divided by the average closing sales price of Charter One Common
Stock over the 20 consecutive full trading-day period ending five business days
before the closing of the Merger (the "Charter One Closing Price") if the
Charter One Closing Price is equal to or greater than $41.09 and less than or
equal to $55.60; (ii) .4856 if the Charter One Closing Price is greater than
$55.60; (iii) .6571 if the Charter One Closing Price is less than $41.09 but
equal to or greater than $38.05; (iv) equal to $25.00 divided by the Charter One
Closing Price if the Charter One Closing Price is less than $38.05 but equal to
or greater than $36.55; and (v) .6840 if the Charter One Closing Price is less
than $36.55, subject to Haverfield's right to terminate the Merger Agreement. If
Haverfield elects to terminate the Merger Agreement as a result of a Charter One
Closing Price below $36.55, such termination shall only occur if Haverfield
gives Charter One written notice of its election to terminate and Charter One
fails to agree to an Exchange Ratio of $25.00 divided by the Charter One Closing
Price. See "THE MERGER - Exchange Ratio."
This Proxy Statement/Prospectus is being furnished to the holders of
shares of Haverfield Common Stock in connection with the solicitation of proxies
on behalf of the Board of Directors of Haverfield for use at a Special Meeting
of Stockholders of Haverfield (the "Special Meeting") scheduled to be held in
the English Oak Room, Tower City on the Avenue, 230 Huron Road, N.W.,
Cleveland, Ohio, on Wednesday, September 17, 1997 at 9:00 a.m., local time, and
at any and all adjournments thereof. This Proxy Statement/Prospectus, and the
accompanying notices and forms of proxy, are first being mailed to stockholders
of Haverfield on or about ________, 1997
This Proxy Statement/Prospectus also constitutes a prospectus of
Charter One, filed as part of the Registration Statement (defined below) with
respect to up to 1,360,609 shares of Charter One Common Stock to be issued
upon consummation of the Merger pursuant to the terms of the Merger Agreement.
<PAGE> 5
On May 21, 1997, Charter One Financial, Inc. announced that it had
entered into an agreement to acquire RCSB Financial, Inc. ("RCSB"), a Delaware
corporation and the holding company of Rochester Community Savings Bank
("Rochester"), based in Rochester New York. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE," "SUMMARY," "RECENT DEVELOPMENTS," "UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS," "UNAUDITED PRO FORMA PER SHARE DATA" and
"MANAGEMENT AND OPERATIONS AFTER THE RCSB MERGER."
---------------
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 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 Proxy Statement/Prospectus is _________, 1997
ii
<PAGE> 6
AVAILABLE INFORMATION
Charter One, RCSB and Haverfield 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
"Commission"). Such reports, proxy statements and other information filed by
Charter One, RCSB and Haverfield can be inspected and copied, from the public
reference facilities of the Commission 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 Commission 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 60611 and 7 World Trade Center, 13th Floor, New York,
New York 10048. In addition, the Commission maintains a Web sight that contains
reports, proxy and information statements and other information regarding the
electronic filings of Charter One, RCSB and Haverfield with the Commission. The
address of the Commission's Website is "http://www.sec.gov".
Charter One has filed with the Commission a registration statement on
Form S-4 (333-_____) (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
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 Commission. The Registration Statement is
available for inspection and copying as set forth above. Statements contained in
this Proxy Statement/Prospectus or in any document incorporated by reference in
this 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 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 PROXY
STATEMENT/PROSPECTUS IS DELIVERED BY OR ON BEHALF OF HAVERFIELD, UPON THE
WRITTEN OR ORAL REQUEST OF SUCH PERSON, IN THE CASE OF DOCUMENTS RELATING TO
CHARTER ONE OR RCSB, 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
HAVERFIELD, TO NANCY J. HANSEN, ASSISTANT SECRETARY, HAVERFIELD CORPORATION,
TERMINAL TOWER, 50 PUBLIC SQUARE, SUITE 444, CLEVELAND, OHIO 44113-2203,
TELEPHONE (216) 348-2800. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS
PRIOR TO THE SPECIAL MEETING, ANY REQUEST SHOULD BE MADE BY SEPTEMBER 12, 1997.
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 Commission by Charter
One (File No. 0-16311) pursuant to the Exchange Act are hereby incorporated by
reference in this Proxy Statement/Prospectus:
1. The Annual Report on Form 10-K of Charter One for the year
ended December 31, 1996, as amended on Form 10-K/A (the
"1996 Charter One 10-K").
2. All other reports filed by Charter One pursuant to section
13(a) or 15(d) of the Exchange Act since the end of the fiscal
year covered by the 1996 Charter One 10-K (including Charter
One's Current Reports on Form 8-K dated April 22, 1997, May
21, 1997, July 29, 1997 and August 8, 1997 and its Quarterly
Reports on Form 10-Q for the quarterly periods ended March
31, 1997, as amended on Form 10-Q/A and June 30, 1997).
3. The portions of Charter One's proxy statement for the Annual
Meeting of Stockholders held April 24, 1997 that have been
incorporated by reference in the 1996 Charter One 10-K.
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).
iii
<PAGE> 7
5. The description of the rights issued pursuant to the Rights
Agreement, dated as of November 20, 1989 (the "Rights
Agreement"), by and between Charter One and The First National
Bank of Boston, as rights agent, contained in Charter One's
Registration Statement on Form 8-A with respect thereto dated
November 21, 1989, as amended on May 26, 1995 (and any further
amendment or report filed for the purpose of updating the
description).
The following documents previously filed with the Commission by
Haverfield (File No. 0-17947) pursuant to the Exchange Act are hereby
incorporated by reference in this Proxy Statement/Prospectus:
1. The Annual Report on Form 10-K of Haverfield for the year
ended December 31, as amended on Form 10-K/A 1996 (the
"1996 Haverfield 10-K").
2. All other reports filed by Haverfield pursuant to Section
13(a) or 15(d) of the Exchange Act since the end of the fiscal
year covered by the 1996 Haverfield 10-K (including
Haverfield's Current Report on Form 8-K dated April 22, 1997
and its Quarterly Reports on Form 10-Q for the quarterly
periods ended March 31, 1997 and June 30, 1997).
3. The portions of Haverfield's proxy statement for the Annual
Meeting of Stockholders held on April 23, 1997 that have been
incorporated by reference in the 1996 Haverfield 10-K.
The following documents previously filed with the Commission by RCSB
(File No. 0-17709) pursuant to the Exchange Act are hereby incorporated by
reference in this Proxy Statement/Prospectus:
1. The Annual Report on Form 10-K of RCSB for the year ended
November 30, 1996 (the "1996 RCSB 10-K").
2. All other reports filed by RCSB pursuant to Section 13(a) or
15(d) of the Exchange Act since the end of the fiscal year
covered by the 1996 RCSB 10-K (including RCSB's Quarterly
Reports on Form 10- Q for the quarterly periods ended February
28, 1997 and May 31, 1997).
3. The portions of RCSB 's proxy statement for the Annual Meeting
of Stockholders held on April 9, 1997 that have been
incorporated by reference in the 1996 RCSB 10-K.
All documents filed by Charter One, Haverfield and RCSB with the
Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
after the date of effectiveness of this Proxy Statement/Prospectus and prior to
the date of the Special Meeting 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 this Proxy Statement/Prospectus or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this 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 Proxy Statement/Prospectus.
All information contained in this Proxy Statement/Prospectus with
respect to Charter One, RCSB and their subsidiaries has been supplied by Charter
One, and all information with respect to Haverfield and its subsidiaries has
been supplied by Haverfield.
---------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROXY STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS 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
iv
<PAGE> 8
SUCH JURISDICTION. NEITHER THE DELIVERY OF THE PROXY STATEMENT/PROSPECTUS NOR
ANY DISTRIBUTION OF SECURITIES PURSUANT TO THIS PROXY STATEMENT PROSPECTUS
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF CHARTER ONE, HAVERFIELD, RCSB OR ANY OF THEIR
RESPECTIVE SUBSIDIARIES, OR IN THE INFORMATION SET FORTH HEREIN, SINCE THE DATE
OF THIS PROXY STATEMENT/PROSPECTUS.
---------------
THIS PROXY STATEMENT/PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
BUSINESS OF CHARTER ONE FOLLOWING THE CONSUMMATION OF THE MERGER AND THE RCSB
MERGER, INCLUDING STATEMENTS RELATING TO THE COST SAVINGS AND FUNDING ADVANTAGES
THAT ARE EXPECTED TO BE REALIZED FROM THE MERGER AND THE RCSB MERGER AND THE
EXPECTED IMPACT OF THE MERGER AND THE RCSB MERGER ON CHARTER ONE'S FINANCIAL
PERFORMANCE AND EARNINGS ESTIMATES FOR THE COMBINED COMPANY. SEE "THE MERGER --
BACKGROUND OF AND REASONS FOR THE MERGER" AND "UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS." THESE FORWARD-LOOKING STATEMENTS INVOLVE CERTAIN RISKS
AND UNCERTAINTIES. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS INCLUDE, AMONG
OTHERS, THE FOLLOWING POSSIBILITIES: (1) EXPECTED COST SAVINGS FROM THE MERGER
AND THE RCSB MERGER CANNOT BE FULLY REALIZED; (2) DEPOSIT ATTRITION, CUSTOMER
LOSS OR REVENUE LOSS FOLLOWING THE MERGER AND THE RCSB MERGER; (3) COMPETITIVE
PRESSURE IN THE BANKING INDUSTRY INCREASES SIGNIFICANTLY; (4) COSTS OR
DIFFICULTIES RELATED TO THE INTEGRATION OF THE BUSINESSES OF CHARTER ONE,
HAVERFIELD AND RCSB ARE GREATER THAN EXPECTED; (5) CHANGES IN THE INTEREST RATE
ENVIRONMENT REDUCE MARGINS MORE THAN PLANNED; (6) GENERAL ECONOMIC CONDITIONS,
EITHER NATIONALLY OR REGIONALLY, ARE LESS FAVORABLE THAN EXPECTED, RESULTING IN,
AMONG OTHER THINGS, A DETERIORATION IN CREDIT QUALITY; (7) THE IMPACT OF
REGULATORY CHANGES IS OTHER THAN EXPECTED; (8) CHANGES IN BUSINESS CONDITIONS
AND INFLATION; AND (9) CHANGES IN THE SECURITIES MARKETS. FURTHER INFORMATION ON
OTHER FACTORS WHICH COULD AFFECT THE FINANCIAL RESULTS OF CHARTER ONE AFTER THE
MERGER AND THE RCSB MERGER IS INCLUDED IN THE COMMISSION FILINGS INCORPORATED BY
REFERENCE HEREIN.
---------------
v
<PAGE> 9
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
AVAILABLE INFORMATION..............................................................................................
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................................................
TABLE OF CONTENTS..................................................................................................
SUMMARY............................................................................................................
The Special Meeting.......................................................................................
The Parties to the Merger.................................................................................
Summary of Certain Aspects of the Merger..................................................................
Comparative Stock Prices and Dividend Information.........................................................
Selected Consolidated Financial and Other Data of Charter One Financial, Inc..............................
Selected Consolidated Financial and Other Data of Haverfield Corporation..................................
THE SPECIAL MEETING................................................................................................
Time and Date; Record Date................................................................................
Matters to Be Considered..................................................................................
Voting Rights; Vote Required..............................................................................
Proxies and Proxy Solicitation............................................................................
Dissenters' Rights........................................................................................
CHARTER ONE FINANCIAL, INC., CHARTER MICHIGAN BANCORP, INC.
AND CHARTER ONE BANK, F.S.B.....................................................................................
HAVERFIELD CORPORATION AND HOME BANK, F.S.B........................................................................
Haverfield Corporation....................................................................................
Beneficial Ownership of Certain Persons...................................................................
RECENT DEVELOPMENTS................................................................................................
THE MERGER.........................................................................................................
General...................................................................................................
Background of and Reasons for the Merger..................................................................
Recommendation of the Haverfield Board of Directors.......................................................
Opinion of Financial Advisor..............................................................................
Exchange Ratio............................................................................................
Fractional Shares.........................................................................................
Treatment of Haverfield Stock Options.....................................................................
Effective Time............................................................................................
Exchange of Certificates; Lost Certificates...............................................................
Interests of Certain Persons in the Merger................................................................
Management after the Merger...............................................................................
Representations and Warranties............................................................................
Conditions to the Merger..................................................................................
Regulatory Approvals......................................................................................
Amendment; Termination; Break-Up Fee......................................................................
Conduct of Business Pending the Merger....................................................................
Consolidation of Haverfield and Home Bank.................................................................
Expenses..................................................................................................
Accounting Treatment......................................................................................
Resale of Charter One Common Stock by Affiliates..........................................................
Certain Federal Income Tax Consequences of the Merger.....................................................
Nasdaq Listing............................................................................................
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS..................................................................
Unaudited Pro Forma Combined Statement of Financial Condition.............................................
Unaudited Pro Forma Combined Statements of Income.........................................................
Notes to Unaudited Pro Forma Combined Financial Statements................................................
UNAUDITED PRO FORMA PER SHARE DATA.................................................................................
</TABLE>
vi
<PAGE> 10
<TABLE>
<S> <C>
MANAGEMENT AND OPERATIONS AFTER THE RCSB MERGER ...................................................................
Directors After the Merger................................................................................
Officers After the Merger.................................................................................
Consolidation of Operations...............................................................................
Post-Merger Dividend Policy...............................................................................
DESCRIPTION OF CHARTER ONE FINANCIAL, INC. CAPITAL STOCK...........................................................
General...................................................................................................
Common Stock..............................................................................................
Preferred Stock...........................................................................................
COMPARISON OF RIGHTS OF STOCKHOLDERS OF CHARTER ONE
FINANCIAL, INC. AND HAVERFIELD CORPORATION........................................................................
Introduction..............................................................................................
Issuance of Capital Stock.................................................................................
Payment of Dividends......................................................................................
Advance Notice Requirements for Nominations of Directors and
Presentation of New Business at Annual Meetings of Stockholders..........................................
Cumulative Voting for Election of Directors...............................................................
Restrictions on Voting Rights; Quorum.....................................................................
Number and Term of Directors..............................................................................
Removal of Directors......................................................................................
Filling Vacancies on the Board of Directors...............................................................
Amendment of Charter Documents............................................................................
Amendment and Repeal of Code of Regulations and Bylaws....................................................
Control Share Acquisitions................................................................................
Business Combinations with Certain Persons................................................................
Prevention of Greenmail...................................................................................
Limitations on Directors' Liability.......................................................................
Indemnification...........................................................................................
Mergers, Acquisitions and Certain Other Transactions......................................................
Action Without a Meeting..................................................................................
Special Meetings of Stockholders..........................................................................
Preemptive Rights.........................................................................................
Loans to Interested Parties...............................................................................
Rights of Dissenting Stockholders.........................................................................
Special Provisions to Charter One's Bylaws................................................................
Rights Agreement..........................................................................................
LEGAL MATTERS......................................................................................................
EXPERTS............................................................................................................
STOCKHOLDER PROPOSALS..............................................................................................
INDEPENDENT ACCOUNTANTS............................................................................................
OTHER MATTERS......................................................................................................
APPENDICES
I. Agreement and Plan of Merger and Reorganization (omitting schedules and exhibits)
II. Fairness Opinion of Charles Webb & Company.
III. Section 1701.85 of the Ohio General Corporation Law
IV. Haverfield Audit Report, Audited Financial Statements as of and for the periods ended December 31,
1996 and Management's Discussion and Analysis
V. Haverfield Financial Statements as of and for the periods ended March 31, 1997 and Management's
Discussion and Analysis
</TABLE>
vii
<PAGE> 11
- --------------------------------------------------------------------------------
SUMMARY
The following is a brief summary of certain information contained
elsewhere or incorporated by reference in this Proxy Statement/Prospectus.
Certain capitalized terms used in this summary are defined elsewhere in this
Proxy Statement/Prospectus. This summary is necessarily incomplete and is
qualified in its entirety by, and reference is made to, the more detailed
information contained elsewhere in this Proxy Statement/Prospectus, the
accompanying Appendices and the documents referred to and incorporated by
reference herein.
THE SPECIAL MEETING
Meeting Date; Record Date. The Special Meeting is scheduled to be held
in the English Oak Room, Tower City on the Avenue, 230 Huron Road, N.W.,
Cleveland, Ohio, on Wednesday, September 17, 1997 at 9:00 a.m., local time,
unless adjourned or postponed. Only holders of record of Haverfield Common Stock
at the close of business on ________, 1997 (the "Record Date"), are entitled to
notice of and to vote at the Special Meeting.
Matters to be Considered. At the Special Meeting, holders of shares of
Haverfield Common Stock will vote on a proposal to adopt the Merger Agreement
and the Merger. See "-- Summary of Certain Aspects of the Merger" and "THE
MERGER." Haverfield stockholders also may consider and vote upon such other
matters as are properly brought before the Special Meeting, including proposals
to adjourn the Special Meeting to permit further solicitation of proxies by
Haverfield's Board of Directors in the event that there are not sufficient votes
to adopt any proposal at the time of the Special Meeting; provided, however,
that no proxy which is voted against adoption of the Merger Agreement will be
voted in favor of adjournment to solicit further proxies for such proposal.
HAVERFIELD'S BOARD OF DIRECTORS RECOMMENDS THAT HAVERFIELD'S
STOCKHOLDERS VOTE FOR THE PROPOSAL TO ADOPT THE MERGER AGREEMENT AND THE MERGER.
Vote Required. Adoption of the Merger Agreement and the Merger requires
the affirmative vote of two-thirds of the outstanding shares of Haverfield
Common Stock entitled to vote at the Special Meeting. As of the Record Date,
Haverfield directors and executive officers and their affiliates beneficially
owned _____ shares (excluding options underlying _______ shares of Haverfield
Common Stock) or ____ percent of the outstanding Haverfield Common Stock. As of
the Record Date, Charter One, its directors and executive officers and their
affiliates did not own any shares of Haverfield Common Stock. No vote of the
stockholders of Charter One is required to adopt the Merger Agreement. See "THE
SPECIAL MEETING."
The directors of Haverfield have entered into voting agreements with
Charter One (the "Charter One Voting Agreements") whereby such directors have
agreed to vote the shares of Haverfield Common Stock owned by them for the
Merger Agreement and the Merger. See "THE SPECIAL MEETING -- Voting Rights; Vote
Required."
Adoption of the Merger Agreement and the Merger by the stockholders of
Haverfield 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 Assistant Secretary of Haverfield at Terminal Tower, 50 Public Square,
Suite 444, Cleveland, Ohio 44113-2203 on or before the taking of the vote at the
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 Haverfield Common
Stock, or by attending the Special Meeting and voting in person. Attendance at
the Special Meeting will not in itself constitute the revocation of a proxy.
Dissenters' Rights. Holders of Haverfield Common Stock will be entitled
to dissenters' rights pursuant to Section 1701.84 of the Ohio General
Corporation Law ("OGCL"), subject to various procedural requirements and the
satisfaction of certain conditions. See "THE SPECIAL MEETING -- Dissenters'
Rights."
1
<PAGE> 12
THE PARTIES TO THE MERGER
Haverfield Corporation and Home Bank. Haverfield, an Ohio corporation,
is the holding company for Home Bank, a federally chartered savings bank
headquartered in Cleveland, Ohio. As of March 31, 1997, Haverfield had total
consolidated assets of $341.7 million, deposits of $273.2 million and
stockholders' equity of $28.7 million. Haverfield's business has consisted
primarily of the business of Home Bank and its subsidiaries. Haverfield's
executive offices are located at Terminal Tower, 50 Public Square, Suite 444,
Cleveland, Ohio 44113-2203, and its telephone number is (216) 348-2800.
For additional information see "-- Selected Consolidated Financial and
Other Data of Haverfield Corporation," "HAVERFIELD CORPORATION AND HOME BANK,
F.S.B." and "UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS." Information
concerning Haverfield and Home Bank is also included in the Haverfield documents
set forth in Appendices IV and V, and incorporated by reference herein. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
Charter One, Charter Michigan and Charter One Bank. Charter One, a
Delaware corporation, is the holding company for Charter Michigan, a Michigan
corporation, which is the holding company for Charter One Bank, a federally
chartered savings bank headquartered in Cleveland, Ohio. As of March 31, 1997,
Charter One had total consolidated assets of $14.0 billion, deposits of $7.8
billion and stockholder's equity of $951.5 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.
For additional information see "SUMMARY -- Selected Consolidated
Financial And Other Data of Charter One Financial, Inc.," "CHARTER ONE
FINANCIAL, INC., CHARTER-MICHIGAN BANCORP, INC. AND CHARTER ONE BANK, F.S.B."
and "UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS." Information concerning
Charter One, Charter Michigan and Charter One Bank is also included in the
Charter One documents incorporated by reference herein. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE."
SUMMARY OF CERTAIN ASPECTS OF THE MERGER
General. The stockholders of Haverfield are each being asked to
consider and vote upon a proposal to adopt the Merger Agreement and the Merger,
pursuant to which a newly formed Ohio business corporation and first-tier
subsidiary of Charter One will be merged with and into Haverfield in a
"stock-for-stock exchange" transaction. If the Merger is consummated, each share
of Haverfield Common Stock issued and outstanding prior to the Effective Time
(as defined herein), other than Excluded Shares, will be converted into the
right to receive shares of Charter One Common Stock, including the right to
receive a corresponding number of rights associated with the Charter One Common
Stock pursuant to the Rights Agreement. See "THE MERGER -- Exchange Ratio." For
a description of the Rights Agreement, see "COMPARISON OF RIGHTS OF STOCKHOLDERS
OF CHARTER ONE FINANCIAL, INC. AND HAVERFIELD CORPORATION -- Rights Agreement."
For a description of dissenters' rights, see "THE SPECIAL MEETING -- Dissenters'
Rights."
Background of and Reasons for the Merger; Recommendation of the Board
of Directors. At a Board of Directors meeting held on April 22, 1997, after
considering the terms and conditions of the Merger Agreement and obtaining the
advice of its financial advisor, the Haverfield Board of Directors (the
"Haverfield Board") unanimously adopted (with six directors present and one
director absent, with the absent director subsequently approving and adopting
such action) the Merger Agreement and the Merger. The Haverfield Board believes
that the Exchange Ratio offered pursuant to the Merger Agreement is fair to the
stockholders of Haverfield and, accordingly, recommends that stockholders vote
FOR adoption of the Merger Agreement and Merger. For a discussion of the
circumstances surrounding the Merger and the factors considered by the
Haverfield Board in making its recommendation, see "THE MERGER -- Background of
and Reasons for the Merger."
Exchange Ratio. The Merger Agreement provides that at the Effective
Time all of the issued and outstanding shares of Haverfield Common Stock (other
than Excluded Shares) will be cancelled and converted into the number of shares
of Charter One Common Stock (including the corresponding number of rights
associated with Charter One
2
<PAGE> 13
Common Stock pursuant to the Rights Agreement) determined by multiplying the
number of shares of such Haverfield Common Stock by the "Exchange Ratio." The
Exchange Ratio will be (i) equal to $27.00 divided by the average closing sales
price of Charter One Common Stock over the 20 consecutive full trading-day
period ending five business days before the closing of the Merger (the "Charter
One Closing Price") if the Charter One Closing Price is equal to or greater than
$41.09 and less than or equal to $55.60; (ii) .4856 if the Charter One Closing
Price is greater than $55.60; (iii) .6571 if the Charter One Closing Price is
less than $41.09 but equal to or greater than $38.05; (iv) equal to $25.00
divided by the Charter One Closing Price if the Charter One Closing Price is
less than $38.05 but equal to or greater than $36.55; and (v) .6840 if the
Charter One Closing Price is less than $36.55, subject to Haverfield's right to
terminate the Merger Agreement. If Haverfield elects to terminate the Merger
Agreement as a result of a Charter One Closing Price below $36.55, such
termination shall only occur if Haverfield gives Charter One written notice of
its election to terminate and Charter One fails to agree to an Exchange Ratio of
$25.00 divided by the Charter One Closing Price. See "THE MERGER -- Exchange
Ratio." For a discussion on the Rights Agreement, see "COMPARISON OF RIGHTS OF
STOCKHOLDERS OF CHARTER ONE FINANCIAL, INC. AND HAVERFIELD CORPORATION -- Rights
Agreement."
The Haverfield Board currently intends to exercise its right to
terminate the Merger Agreement ("Termination Right") if the Charter One Closing
Price is less than $36.55. In the event the Haverfield Board does not exercise
its Termination Right, the Haverfield Board will take such actions as are
consistent with its fiduciary duties, including receipt of a new fairness
opinion and the resolicitation of Haverfield stockholders.
The average closing sales price of Charter One Common Stock over the 20
consecutive full trading-day period as of the date of this Proxy
Statement/Prospectus was $______, which would result in an Exchange Ratio of
_____ shares of Charter One Common Stock for each share of Haverfield Common
Stock issued and outstanding as of the Effective Time (excluding any shares
owned by Charter One and its affiliates) and would also result in the issuance
of __________ shares of Charter One Common Stock in the Merger (assuming all
options for Haverfield Common Stock were exercised). There can be no assurance
that the Exchange Ratio will equal _____ at the time it is to be calculated
pursuant to the Merger Agreement, and Haverfield's stockholders are urged to
obtain current market price quotations for the shares of Haverfield Common Stock
and Charter One Common Stock. The maximum number of shares of Charter One Common
Stock (assuming all options for Haverfield Common Stock are exercised) which may
be issued in connection with the Merger (based upon the highest Exchange Ratio
available prior to Haverfield's Termination Right) is 1,360,609.
Fluctuations in the market price of Charter One Common Stock could
result in an increase or decrease in the value of the merger consideration to be
received by Haverfield stockholders in the Merger. An increase in the market
value of Charter One Common Stock could 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 could 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. The Exchange Ratio was determined through
arm's-length negotiations between Charter One and Haverfield, and Haverfield was
advised during such negotiations by its financial advisor. See "THE MERGER --
Background of and Reasons for the Merger."
Treatment of Haverfield Stock Options. As of the Record Date, there
were options ("Haverfield Stock Options") outstanding with respect to 82,846
shares of Haverfield Common Stock under the Haverfield Stock Compensation
Program (including Plans I and II thereto) and the Haverfield 1995 Stock Option
Plan (collectively, the "Haverfield Option Plans"). The Haverfield Option Plans
and each Haverfield Stock Option outstanding thereunder as of the date of the
Merger Agreement and remaining outstanding immediately prior to the Effective
Time (as defined below) shall, at the Effective Time, be assumed by Charter One
and each such option shall be converted automatically into an option to purchase
shares of Charter One Common Stock, upon the same terms and conditions under the
relevant option as were applicable immediately prior to the Effective Time,
except the number of Charter One Common Stock shares subject to such options and
the exercise price per share will be proratably adjusted as described in the
Merger Agreement. See "THE MERGER -- Treatment of Haverfield Stock Options."
Opinion of Financial Advisor. Charles Webb & Company ("Webb"), a
division of Keefe, Bruyette & Woods, has delivered its written opinion to the
Haverfield Board that as of April 22, 1997, and confirmed as of the date of this
Proxy Statement/Prospectus, the Exchange Ratio is fair, from a financial point
of view, to the holders of Haverfield
3
<PAGE> 14
Common Stock. A copy of the Webb opinion dated April 22, 1997 is attached to
this Proxy Statement/Prospectus as Appendix II and is incorporated by reference
herein. For information on the assumptions made, matters considered and limits
of the review by Webb, see "THE MERGER -- Opinion of Financial Advisor."
Effective Time. The Merger shall become effective at the time and on
the date the certificate of merger relating to the Merger is filed with the Ohio
Secretary of State (the "Effective Time"). Such filing will occur only after the
receipt of all requisite regulatory approvals, adoption of the Merger Agreement
and the Merger by the requisite vote of Haverfield's stockholders and the
satisfaction or waiver of all other conditions to the Merger.
Exchange of Certificates and No Fractional Shares. As soon as
practicable after the Effective Time, Charter One will mail to Haverfield
stockholders a transmittal letter and instructions to be used in surrendering
their Haverfield Common Stock certificates for Charter One Common Stock
certificates as calculated pursuant to the Exchange Ratio. See "THE MERGER --
Exchange of Certificates; Lost Certificates." No fractional shares of Charter
One Common Stock will be issued in the Merger to holders of Haverfield Common
Stock. Each holder of Haverfield Common Stock who otherwise would have been
entitled to a fraction of a share of Charter One Common Stock shall receive a
cash payment in lieu thereof. See "THE MERGER -- Fractional Shares."
Interests of Certain Persons in the Merger. Certain members of
Haverfield's management and the Haverfield Board may be deemed to have certain
interests in the Merger in addition to their interests as stockholders of
Haverfield. Haverfield has an existing employment agreement with William A.
Valerian, as well as severance agreements with five other executive officers.
Upon consummation of the Merger, Mr. Valerian and the other executive officers
will be entitled to receive, based upon their effective termination of
employment, approximately $670,000 in aggregate pursuant to the change in
control provisions in such agreements. Charter One has agreed to assume these
obligations. See "THE MERGER -- Interests of Certain Persons in the Merger."
Haverfield also maintains the Haverfield Option Plans. At the Record
Date, directors and executive officers (13 persons) of Haverfield held in the
aggregate 82,846 Haverfield Stock Options which will be converted into options
to purchase Charter One Common Stock. See "THE MERGER -- Treatment of Haverfield
Stock Options."
In connection with the Merger, Charter One Investments, Inc., a
wholly-owned second tier subsidiary of Charter One, has entered into an
employment agreement with Mr. Valerian. The employment agreement is for a term
of three years which is to commence as of the Effective Time. Mr. Valerian is to
receive a salary of $225,000 per year plus certain other benefits and
perquisites pursuant to the Agreement. See "THE MERGER -- Interests of Certain
Persons in The Merger."
Charter One has also agreed to assume certain indemnification
provisions provided for by Haverfield and under Ohio law, and to maintain
directors and officers liability insurance and fiduciary liability insurance for
the benefit of directors and officers of Haverfield. See "THE MERGER -- Interest
of Certain Persons in the Merger."
Management after the Merger. The Merger will not result in a change in
Charter One's directors and executive officers. However, Charter One has entered
into a merger agreement with RCSB pursuant to which RCSB will be merged with and
into Charter Michigan and Rochester will be merged with and into Charter One
Bank, (the "RCSB Merger"). Upon consummation of the RCSB Merger (which is
subject to adoption by Charter One stockholders and RCSB stockholders, as well
as receipt of certain regulatory approvals) certain directors and executive
officers of RCSB will become directors and executive officers of Charter One,
Charter Michigan and Charter One Bank. See "THE MERGER -- Management after the
Merger," "RECENT DEVELOPMENTS," "UNAUDITED PRO FORMA COMBINED FINANCIAL
STATEMENTS," "UNAUDITED PRO FORMA PER SHARE DATA" and "MANAGEMENT AND OPERATIONS
AFTER THE RCSB MERGER."
Representations and Warranties. The Merger Agreement contains customary
representations and warranties of Haverfield and Home Bank on the one hand, and
Charter One and Charter One Bank on the other hand. See "THE MERGER --
Representations and Warranties."
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
4
<PAGE> 15
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 Haverfield of
certain opinions and the satisfaction of certain other conditions. See "THE
MERGER -- Conditions to the Merger."
Regulatory Approvals. Consummation of the Merger is subject to the
approval of the Office of Thrift Supervision (the "OTS"). The Merger may not be
consummated for a period of 30 days after receipt of the OTS's final approval,
unless the OTS has not received any adverse comment from the United States
Department of Justice (the "Department of Justice") during the first 15 days
following final approval, in which case the Merger may be consummated on or
after the 15th day after final approval by the OTS. Charter One filed an
application for approval of the Merger with the OTS on May 29, 1997 and received
OTS approval on July 23, 1997. See "THE MERGER -- Regulatory Approvals."
Amendment; Termination; Break-Up Fee. Subject to applicable law, the
Merger Agreement may be amended by action of the Charter One and Haverfield
Boards at any time before or after adoption of the Merger by the stockholders of
Haverfield; provided that, after adoption of the Merger by the stockholders of
Haverfield, no amendment may change the value or form of the merger
consideration to be received by Haverfield stockholders in the Merger without
their approval. See "THE MERGER -- Amendment; Termination; Break-Up Fee."
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 Haverfield stockholders, either by mutual consent of the Boards of
Directors of Haverfield and Charter One 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 December 31, 1997, or such later date as may be
agreed to by the parties; (iii) the required stockholder approval is 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, 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. In addition,
Haverfield may terminate the Merger Agreement prior to the Effective Time if the
Charter One Closing Price is less than the $36.55 and (i) Haverfield gives
Charter One timely notice of its election to terminate and (ii) Charter One
fails to agree to an Exchange Ratio of $25.00 divided by the Charter One Closing
Price. See "THE MERGER -- Amendment; Termination; Break-Up Fee."
In the event that the Merger Agreement is terminated by a party solely
by reason of a material breach by the other party, then the non-breaching party
is entitled to seek such remedies and relief as are available at law or in
equity, including specific performance by the breaching party. Alternatively,
(i) if the Merger is not consummated as a result of certain actions by
Haverfield, then Haverfield will be required to pay Charter One liquidated
damages of $3,000,000 plus up to $200,000 in third-party expenses and (ii) in
the event Charter One refuses to consummate the Merger or otherwise abandons the
Merger in material breach of the Merger Agreement, then Charter One will be
required to pay Haverfield liquidated damages of $3,200,000. See "THE MERGER --
Amendment; Termination; Break-Up Fee."
Conduct of Business Pending the Merger. Haverfield and Home Bank have
agreed to certain covenants with respect to the conduct of their businesses and
other matters pending the closing of the Merger. See "THE MERGER -- Conduct of
Business Pending the Merger."
Accounting Treatment. It is intended that the Merger will be accounted
for as a "purchase" in accordance with generally accepted accounting principles.
Accordingly, upon consummation of the Merger, the assets and liabilities of
Haverfield will be recorded on the books and records of Charter One at their
respective fair values at the time of consummation of the Merger. See "THE
MERGER -- Accounting Treatment."
Federal Income Tax Consequences of the Merger. It is a condition to the
obligations of Charter One and Haverfield to consummate the Merger that they
have received an opinion of Silver, Freedman & Taff, L.L.P. to the effect, among
other things, 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 or Haverfield or any Haverfield
stockholder upon receipt solely of Charter One Common Stock in the Merger
(except with respect to cash received by a Haverfield stockholder in lieu
5
<PAGE> 16
of a fractional share interest in Charter One Common Stock). Haverfield
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 Haverfield 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
Haverfield governing the rights of Charter One and Haverfield stockholders, see
"COMPARISON OF RIGHTS OF STOCKHOLDERS OF CHARTER ONE FINANCIAL, INC. AND
HAVERFIELD CORPORATION." For information regarding the financial impact of the
Merger to the respective stockholders of Charter One and Haverfield, see the
combined financial condition of Charter One and Haverfield upon the consummation
of the Merger, including unaudited pro forma per share data, under "UNAUDITED
PRO FORMA COMBINED FINANCIAL STATEMENTS."
COMPARATIVE STOCK PRICES AND DIVIDEND INFORMATION
Charter One Common Stock and Haverfield Common Stock are traded on the
Nasdaq National Market (symbols: COFI and HVFD, respectively). The following
table sets forth the reported high and low sales prices of shares of Charter One
Common Stock and Haverfield Common Stock, as reported on the Nasdaq National
Market, and the quarterly cash dividends per share declared, for the periods
indicated. The stock prices and dividend amounts have been restated to give
effect to stock splits and stock dividends. The stock prices do not include
retail mark-ups, mark-downs or commissions.
<TABLE>
<CAPTION>
CHARTER ONE Haverfield
COMMON STOCK Common Stock
----------------------------------- -----------------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
-------- ----- --------- ------ ----- ---------
<S> <C> <C> <C> <C> <C> <C>
1995 CALENDAR YEAR
First Quarter........................ $21.08 $17.98 $.16 $ 14.32 $ 12.95 $ .127
Second Quarter....................... 25.71 19.05 .18 13.64 11.82 .127
Third Quarter........................ 29.29 23.22 .18 14.75 12.27 .127
Fourth Quarter....................... 31.79 26.79 .19 14.75 13.50 .135
1996 CALENDAR YEAR
First Quarter........................ 33.57 27.14 .19 15.00 13.50 .135
Second Quarter....................... 36.19 29.34 .22 19.25 14.75 .135
Third Quarter........................ 40.56 32.03 .22 19.25 17.00 .135
Fourth Quarter....................... 44.75 38.13 .23 19.75 18.25 .135
1997 CALENDAR YEAR
First Quarter........................ 50.13 41.13 .25 24.00 17.75 .14
Second Quarter....................... 54.00 42.25 .25 26.25 21.25 .14
Third Quarter........................
(through _______ __, 1997).........
</TABLE>
Nothing contained in the Merger Agreement will preclude Haverfield from
declaring and paying cash dividends on Haverfield Common Stock at a quarterly
rate not to exceed $.14 per share in a manner, on dates and with respect to
record dates consistent with past practice (except for the payment of the last
dividend prior to consummation of the Merger which shall be coordinated with,
and subject to the prior approval of, Charter One to preclude any duplication of
dividends). Haverfield shall not declare or pay any other dividends or make any
other the capital distribution with respect to capital without the prior written
consent of Charter One. The Haverfield Board is under no obligation to pay
dividends on Haverfield Common Stock.
The timing and amount of the future dividends of Charter One will
depend upon earnings, cash requirements, Charter One's financial condition and
other factors deemed relevant by the Charter One Board. Dividends may also be
limited by certain regulatory restrictions.
6
<PAGE> 17
The following table sets forth the last reported sale prices per share
of Charter One Common Stock and Haverfield Common Stock and the equivalent per
share price for Haverfield Common Stock giving effect to the Merger on (i) April
21, 1997, the last trading day preceding public announcement of the signing of
the Merger Agreement; and (ii) _____ __, 1997, the last practicable date prior
to the mailing of this Proxy Statement/Prospectus.
The equivalent per share price of Haverfield Common Stock at April 21,
1997 represents the closing market price of a share of Charter One Common Stock
on such date multiplied by .6571, an assumed Exchange Ratio determined using a
Charter One Closing Price of between $41.09 and $55.60. The equivalent per share
price of Haverfield Common Stock on _________, 1997 represents the closing
market price of a share of Charter One Common Stock on such date multiplied by
______, an assumed Exchange Ratio determined using the average closing sales
price of a share of Charter One Common Stock over the 20 consecutive full
trading-day period ended on such date. See "THE MERGER -- Exchange Ratio."
<TABLE>
<CAPTION>
CHARTER ONE HAVERFIELD EQUIVALENT PRICE PER
COMMON STOCK COMMON STOCK HAVERFIELD SHARE
--------------- ------------------- -----------------------
<S> <C> <C> <C>
April 21, 1997..................... $43.00 $23.75 $28.26
______, 1997.......................
</TABLE>
As of _____ __, 1997, the _____ outstanding shares of Charter One
Common Stock were held by approximately ____ record owners and the 1,906,349
outstanding shares of Haverfield Common Stock were held by approximately _____
record owners.
Haverfield stockholders are advised to obtain current market quotations
for Charter One Common Stock. The market price of Charter One Common Stock may
fluctuate between the date of this Proxy Statement/Prospectus and the Effective
Time. Fluctuations in the market price of Charter One Common Stock may result in
an increase or decrease in the value of the merger consideration to be received
by holders of Haverfield Common Stock in the Merger. An increase in the market
value of Charter One Common Stock may 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 may have the opposite effect. The market value of the
merger consideration at the time of the Merger will depend upon the market value
of a share of Charter One Common Stock at such time. No assurance can be given
concerning the market price of Charter One Common Stock before or after the
Effective Time. See "THE MERGER -- Exchange Ratio."
7
<PAGE> 18
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF CHARTER ONE FINANCIAL, INC.
AT AND FOR THE THREE
MONTHS ENDED MARCH 31, AT AND FOR THE YEAR ENDED DECEMBER 31,(1)
---------------------- ---------------------------------------
1997 1996 1996 1995 1994
----------- --------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income ............................... $ 255,793 $ 243,048 $ 1,004,478 $ 1,087,410 $ 1,006,180
Interest expense .............................. 158,267 151,046 621,086 769,594 694,207
----------- ----------- ----------- ----------- -----------
Net interest income ......................... 97,526 92,002 383,392 317,816 311,973
Provision for loan and lease losses ........... 220 1,000 4,001 1,032 2,948
----------- ----------- ----------- ----------- -----------
Net interest income after provision for loan
and lease losses ............................ 97,306 91,002 379,391 316,784 309,025
Other income:
Net (loss)(1) gain .......................... 87 577 1,893 (92,303) (145,786)
Other ....................................... 15,094 11,262 55,245 44,467 35,397
Administrative expenses(2) .................... 46,697 44,583 244,024 215,743 175,961
----------- ----------- ----------- ----------- -----------
Income before federal income taxes,
extraordinary item and cumulative effect
of change in accounting principle ......... 65,790 58,258 192,505 53,205 22,675
Federal income taxes .......................... 21,704 19,808 64,783 19,173 7,056
----------- ----------- ----------- ----------- -----------
Income before extraordinary item and
cumulative effect of change in
accounting principle ...................... 44,086 38,450 127,722 34,032 15,619
Extraordinary item - early extinguishment of
debt, net of tax benefit of $6,361......... $ -- -- -- -- (12,348)
Cumulative effect of change in accounting
principle(3) ................................ -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Net income .................................. $ 44,806 $ 38,450 $ 127,722 $ 34,032 $ 3,271
=========== =========== =========== =========== ===========
PER SHARE DATA:
Earnings per common and common
equivalent share(4):
Income before extraordinary item and
cumulative effect of change in accounting
principle ................................ $ .93 $ .80 $ 2.67 $ .71 $ .32
Extraordinary item ............................
Early extinguishment of debt, net of tax
benefit of $6,361 ....................... -- -- -- -- (.26)
Cumulative effect of change in accounting
principle ................................. -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Net income .................................. $ .93 $ .80 $ 2.67 $ .71 $ .06
=========== =========== =========== =========== ===========
Dividends declared and paid per common
share(5) .................................... $ .23 $ .19 $ .86 $ .71 $ .56
FINANCIAL CONDITION:
Total assets .................................. $14,031,588 $13,167,893 $13,893,841 $13,558,361 $14,522,180
Mortgage-backed securities .................... 4,564,928 5,082,153 4,704,074 5,314,749 6,628,591
Other investment securities ................... 281,448 236,489 243,632 407,427 467,247
Loans and Leases, net ......................... 8,472,041 7,053,473 8,100,342 6,678,600 6,592,975
Deposits ...................................... 7,839,479 7,010,797 7,841,197 7,012,491 7,089,153
FHLB Advances and other borrowings ............ 5,028,856 5,059,375 4,955,291 5,461,684 6,383,595
Stockholders' equity .......................... 945,767 905,471 921,724 884,873 823,671
OTHER PERIOD-END DATA:
Number of full service offices ................ 174 155 172 155 157
Number of loan origination offices ............ 9 9 9 9 6
</TABLE>
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED
DECEMBER 31,(1)
------------------------
1993 1992
----------- -----------
<S> <C> <C>
OPERATING DATA:
Interest income ............................... $ 1,082,156 $ 1,131,758
Interest expense .............................. 774,762 884,752
----------- -----------
Net interest income ......................... 307,394 247,006
Provision for loan and lease losses ........... 7,549 12,544
----------- -----------
Net interest income after provision for loan
and lease losses . ........................ 299,845 234,462
Other income:
Net (loss)(1) gain .......................... 6,832 25,078
Other ....................................... 33,027 28,414
Administrative expenses(2) .................... 178,889 167,516
----------- -----------
Income before federal income taxes,
extraordinary item and cumulative effect
of change in accounting principle ......... 160,815 120,438
Federal income taxes .......................... 56,415 42,270
----------- -----------
Income before extraordinary item and
cumulative effect of change in
accounting principle ...................... 104,400 78,168
Extraordinary item - early extinguishment of
debt, net of tax benefit of $6,361......... -- --
Cumulative effect of change in accounting
principle(3) ................................ -- 14,825
----------- -----------
Net income .................................. $ 104,400 $ 92,993
=========== ===========
PER SHARE DATA:
Earnings per common and common
equivalent share(4):
Income before extraordinary item and
cumulative effect of change in accounting
principle ................................ $ 2.18 $ 1.87
Extraordinary item ............................
Early extinguishment of debt, net of tax
benefit of $6,361 ....................... -- --
Cumulative effect of change in accounting
principle ................................. -- .35
----------- -----------
Net income .................................. $ 2.18 $ 2.22
=========== ===========
Dividends declared and paid per common
share(5) .................................... $ .40 $ .30
FINANCIAL CONDITION:
Total assets .................................. $14,447,508 $13,634,860
Mortgage-backed securities .................... 6,718,615 5,946,949
Other investment securities ................... 428,579 687,285
Loans and Leases, net ......................... 6,562,088 6,234,954
Deposits ...................................... 7,280,125 7,088,649
FHLB Advances and other borrowings ............ 6,009,255 5,478,732
Stockholders' equity .......................... 902,239 733,851
OTHER PERIOD-END DATA:
Number of full service offices ................ 170 173
Number of loan origination offices ............ 3 4
</TABLE>
8
<PAGE> 19
<TABLE>
<CAPTION>
AT AND FOR THE THREE
MONTHS ENDED MARCH 31, AT AND FOR THE YEAR ENDED DECEMBER 31,(1)
------------------------- ----------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------ ------ ------ ------ ------ ------ ------
(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 ............................ 2.88% 2.92% 2.92% 2.23% 2.24% 2.18% 1.86%
Return on average stockholders' equity ...... 18.67 17.18 13.89 3.93 .39 12.28 13.49
Return on average stockholders' equity (prior
to SAIF assessment, restructuring, merger
related charges and cumulative effect of
change in accounting principle, net) ...... 18.67 17.18 17.93 14.61 14.02 12.28 11.34
Return on average assets .................... 1.26 1.19 .94 .23 .02 .72 .68
Return on average assets (prior to SAIF
assessment, restructuring, merger related
charges and cumulative effect of change in
accounting principle, net) ................ 1.26 1.19 1.22 .86 .82 .72 .57
Average stockholders' equity to average
assets .................................... 6.77 6.92 6.80 5.91 5.84 5.84 5.01
- -------------------------------
<FN>
(1) 1995 includes $101.8 million of merger-related costs, $66.1 million after tax. 1994 includes $152.8 million in restructuring
charges, $100.9 million after tax.
(2) 1996 includes $56.3 million from special SAIF assessment. 1995 includes $37.5 million of merger expenses.
(3) During 1992, Charter One changed its method of accounting for income taxes by adopting Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes."
(4) All historical earnings per share have been restated to reflect the 5% stock dividend issued on September 30, 1996. During 1995
and 1992, the Company completed mergers which were accounted for as pooling of interests.
(5) The amounts presented herein are historical per share amounts declared and paid by Charter One, as adjusted for stock splits
and stock dividend. No adjustment has been made for mergers accounted for as pooling of interests.
</TABLE>
9
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF HAVERFIELD CORPORATION
<TABLE>
<CAPTION>
AT AND FOR THE THREE
MONTHS ENDED MARCH 31, AT AND FOR THE YEAR ENDED DECEMBER 31,
---------------------- ---------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- ---------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Interest income ............................ $ 6,803 $ 6,869 $ 27,292 $ 26,505 $ 21,784 $ 22,964 $ 25,156
Interest expenses .......................... 3,725 3,804 14,742 15,195 11,057 11,150 13,988
Provision for loan losses .................. 96 34 309 123 97 897 750
Noninterest income ......................... 566 521 2,005 2,204 2,160 3,735 2,799
Noninterest expenses(1) .................... 2,318 2,585 11,962 10,376 10,421 11,321 9,928
Provision for income taxes ................. 418 329 777 1,020 669 1,138 1,318
Extraordinary item, net of tax ............. -- -- -- -- -- -- (67)
--------- --------- --------- --------- --------- --------- ---------
Net Income ................................. $ 812 $ 638 $ 1,507 $ 1,995 $ 1,700 $ 2,193 $ 1,904
========= ========= ========= ========= ========= ========= =========
PER SHARE DATA:
Net income
Primary ................................. $ .43 $ .34 $ .79 $ 1.06 $ 1.03 $ 1.45 $ 1.35
Fully-diluted ........................... .43 .34 .79 1.06 .96 1.33 1.35
Stockholders' equity ....................... 15.04 14.81 14.87 14.90 14.25 14.15 13.23
Tangible stockholders' equity .............. 15.04 14.76 14.86 14.82 13.73 13.11 11.43
Cash dividends declared and paid ........... .14 .135 .54 .52 .51 .48 .44
Dividend payout ratio ...................... 32.56% 39.71% 68.35% 49.06% 49.56% 33.30% 32.02%
FINANCIAL CONDITIONS:
Total Assets ............................... $ 341,664 $ 339,630 $ 346,856 $ 354,505 $ 316,768 $ 310,410 $ 317,640
Net loans .................................. 294,143 285,792 293,792 283,560 279,680 248,005 236,319
Cash and investments ....................... 37,014 42,357 42,401 59,327 24,997 33,783 50,099
Mortgage-backed securities ................. 1,965 2,603 2,010 2,754 3,101 5,961 13,138
Deposits ................................... 273,226 303,968 279,073 317,779 279,269 268,012 284,163
Borrowed money ............................. 32,000 -- 30,000 -- 2,000 6,348 2,000
Stockholders' equity ....................... 28,675 28,194 28,352 28,058 26,868 22,510 18,761
Amount of loans serviced for others ........ 127,999 133,219 132,693 139,498 161,968 177,763 183,592
Number of offices .......................... 10 10 10 10 11 10 10
SELECTED RATIOS:
Return on average assets ................... .96% .75% .44% .58% .55% .73% .65%
Return on average equity ................... 11.28 8.88 5.21 7.13 6.96 10.32 10.25
Average equity to average assets ........... 8.50 8.43 8.50 8.17 7.83 7.09 6.30
Weighted-average yield on interest earning
assets .................................. 8.10 8.18 8.19 7.92 7.18 7.91 8.77
Weighted-average cost of interest bearing
liabilities ............................. 4.89 4.96 4.83 4.93 3.92 4.10 5.17
Interest rate spread ....................... 3.21 3.22 3.36 2.99 3.26 3.81 3.60
Net interest margin ........................ 3.71 3.67 3.76 3.38 3.54 4.07 3.90
Stockholders' equity to total assets ....... 8.39 8.30 8.17 7.91 8.48 7.25 5.91
<FN>
(1) The year 1996 was significantly affected by the one-time, nonrecurring charge associated with the recapitalization of the
Savings Association Insurance Fund ("SAIF"), which, after tax, totaled $1.3 million or $.68 per share. Excluding this nonrecurring
SAIF assessment, earnings for the year ended December 31, 1996 totaled $2.8 million or $1.47 per share. Excluding the nonrecurring
SAIF assessment, 1996 earnings produced a return on average assets of .82% and a return on average equity of 9.68%.
</TABLE>
10
<PAGE> 21
THE SPECIAL MEETING
This Proxy Statement/Prospectus and the accompanying form of proxy are
being furnished to the stockholders of Haverfield in connection with the
solicitation of proxies by the Board of Directors of Haverfield for use at the
Special Meeting and at any adjournment or postponement thereof.
TIME AND DATE; RECORD DATE
The Special Meeting will be held in the English Oak Room, Tower City on
the Avenue, 230 Huron Road, N.W., Cleveland, Ohio, on Wednesday, September 17,
1997 at 9:00 a.m., local time. This Proxy Statement/Prospectus is being sent to
holders of record of Haverfield Common Stock as of the Record Date, and is
accompanied by a form of proxy which the Haverfield Board requests that
stockholders execute and return to Haverfield for use at the Special Meeting and
at any and all adjournments or postponements thereof.
The Haverfield Board has fixed the Record Date as of the close of
business on ______, 1997 as the time for determining holders of Haverfield
Common Stock who are entitled to notice of and to vote at the Special Meeting.
Only holders of record of Haverfield Common Stock on the Record Date will be
entitled to notice of and to vote at the Special Meeting. As of the Record Date,
there were outstanding and entitled to vote at the Special Meeting ___________
shares of Haverfield Common Stock.
MATTERS TO BE CONSIDERED
At the Special Meeting, holders of Haverfield Common Stock will be
asked to consider and vote upon a proposal to adopt the Merger Agreement and the
Merger. Holders of Haverfield Common Stock also may consider and vote upon such
other matters as are properly brought before the Special Meeting, including
proposals to adjourn the Special Meeting to permit further solicitation of
proxies by the Haverfield Board in the event there are not sufficient votes to
adopt the Merger Agreement and the Merger at the time of the Special Meeting;
provided, however, that no proxy which is voted against the Merger Agreement and
the Merger will be voted in favor of adjournment to solicit further proxies for
such proposal. As of the date hereof, the Haverfield Board knows of no business
that will be presented for consideration at the Special Meeting, other than the
matters described in this Proxy Statement/Prospectus.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
VOTING RIGHTS; VOTE REQUIRED
Each holder of record of Haverfield Common Stock on the Record Date
will be entitled to cast one vote for each share registered in his, her, or its
name on each matter presented for a vote of the stockholders at the Special
Meeting. Such vote may be exercised in person or by a properly executed proxy.
See "-- Proxies and Proxy Solicitation" below. Adoption of the Merger Agreement
and the Merger at the Special Meeting will require the affirmative vote of the
holders of two-thirds of the outstanding shares of Haverfield Common Stock
entitled to vote at the Special Meeting. For purposes of counting votes on this
proposal, failures to vote, 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 have the same effect as votes against the Merger
Agreement and the Merger. Adoption of the Merger Agreement and the Merger by the
stockholders of Haverfield is a condition to, and required for, consummation of
the Merger. See "THE MERGER -- Conditions to the Merger."
As of the Record Date, Haverfield directors and executive officers and
their affiliates beneficially owned 343,105 shares (excluding options underlying
82,846 shares of Haverfield Common Stock) or 18.0 percent of the outstanding
Haverfield Common Stock entitled to vote at the Special Meeting. In accordance
with the Charter One Voting Agreements, the directors of Haverfield have agreed
to vote the shares of Haverfield Common Stock owned or controlled by them for
the Merger Agreement and the Merger. The executive officers of Haverfield have
also indicated there intention to vote the shares of Haverfield Common Stock
owned by them for the Merger Agreement and the
11
<PAGE> 22
Merger. Accordingly, assuming such shares are so voted and the shares owned by
the Haverfield Corporation Employee Stock Ownership Plan are voted in favor of
adoption of the Merger Agreement and the Merger, adoption of the Merger
Agreement and the Merger will require the affirmative vote of the holders of
approximately an additional 45.5 percent of the outstanding shares of Haverfield
Common Stock entitled to be voted at the Special Meeting. See "HAVERFIELD
CORPORATION AND HOME BANK, F.S.B. -- Beneficial Ownership of Certain Persons."
As of the Record Date, Charter One, Charter One's directors and
executive officers and their affiliates did not own any shares of Haverfield
Common Stock. No vote of the stockholders of Charter One is required to adopt
the Merger Agreement.
PROXIES AND PROXY SOLICITATION
If a Haverfield stockholder properly executes and returns a proxy in
the form distributed by Haverfield, the proxies named will vote the shares
represented by that proxy at the Special Meeting. Where a stockholder specifies
a choice, the proxy will be voted in accordance with the stockholder's
specification. If no specific direction is given, the proxies will vote the
shares in favor of adoption of the Merger Agreement and the Merger. If other
matters are presented, the shares for which proxies have been received will be
voted in accordance with the discretion of the proxies.
The affirmative vote of a majority of the shares represented at the
Special Meeting may authorize the adjournment of the Special Meeting; provided,
however, that no proxy which is voted against the Merger Agreement and the
Merger will be voted in favor of adjournment to solicit further proxies for such
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 Assistant Secretary of Haverfield at Terminal Tower, 50 Public Square,
Suite 444, Cleveland, Ohio 44113-2203, on or before the taking of the vote at
the 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 Haverfield
Common Stock or by attending the Special Meeting and voting in person.
Attendance at the Special Meeting will not in itself constitute the revocation
of a proxy.
In addition to solicitation by mail, directors, officers, and employees
of Haverfield, who will not be specifically compensated for such services, may
solicit proxies from the stockholders of Haverfield, 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,
Haverfield has engaged _____________ ("_____") to assist Haverfield in
distributing proxy materials and contacting record and beneficial owners of
Haverfield Common Stock. Haverfield has agreed to pay _____ a fee of $______plus
out-of-pocket expenses for its services to be rendered on behalf of Haverfield.
Haverfield will bear its own expenses in connection with the solicitation of
proxies for the Haverfield Special Meeting, except that Charter One and
Haverfield shall bear equally all third-party printing expenses associated with
the Proxy Statement/Prospectus. See "THE MERGER--Expenses."
HOLDERS OF HAVERFIELD COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND
SIGN THE ACCOMPANYING FORM OF PROXY AND TO RETURN IT PROMPTLY TO HAVERFIELD
IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
DISSENTERS' RIGHTS
Ohio General Corporation Law ("OGCL") provides that stockholders of
Haverfield who are entitled to vote on the Merger may exercise certain rights as
dissenting stockholders' under Section 1701.84 of the OGCL. Stockholders of
Haverfield will not be entitled to such rights absent strict compliance with
Section 1701.85, and failure to take any one of the required steps may result in
termination or waiver of the right of the stockholder under the OGCL. The
obligation of Charter One to consummate the Merger is subject to a condition,
among others, that dissenting shares of Haverfield Common Stock shall not exceed
seven percent of the issued and outstanding Haverfield Common Stock. See "THE
MERGER -- Conditions to the Merger."
12
<PAGE> 23
The following discussion is a summary of the principal steps a
Haverfield stockholder must take to perfect dissenters' rights under the OGCL.
This summary does not purport to be complete and is qualified in its entirety by
reference to Section 1701.85 of the OGCL, a copy of which is attached hereto as
Appendix III. Any Haverfield stockholder contemplating the exercise of
dissenters' rights is urged to review carefully those provisions and to consult
an attorney, since dissenters' rights will be lost if the procedural
requirements of Section 1701.85 of the OGCL are not fully and precisely
satisfied.
Any holder of Haverfield Common Stock whose shares are not voted in
favor of the adoption of the Merger Agreement may be entitled to be paid the
"fair cash value" of such shares after the Effective Date. A vote in favor of
the Merger at the Special Meeting constitutes a waiver of dissenters' rights. A
proxy that is returned signed but on which no voting preference is indicated
will be voted in favor of the Merger and will be deemed a waiver of dissenters'
rights. A dissenting stockholder may revoke his, her, or its proxy at any time
before its exercise by filing with Haverfield an instrument revoking it or a
duly executed proxy bearing a later date, or by attending and giving notice of a
revocation of the proxy in an open meeting (although attendance at the Special
Meeting will not itself constitute revocation of a proxy).
To be entitled to payment of the "fair cash value," a dissenting
stockholder must deliver a written demand no later than ten days following the
Special Meeting and must otherwise comply with Section 1701.85 of the OGCL. Any
written demand must specify the stockholder's name and address, the number and
class of shares held by such stockholder on the Record Date, and the amount
claimed as the "fair cash value" of said shares. Such written demand must be
delivered to Haverfield at Terminal Tower, 50 Public Square, Suite 444,
Cleveland, Ohio 44113-2203, Attention: Secretary. It is recommended, although
not required, that such demand be sent by registered or certified mail, return
receipt requested. Voting against the Merger will not itself constitute a
demand. Haverfield will not send any notices to Haverfield stockholders as to
the date on which the ten-day period expires.
Because only stockholders of record may exercise dissenters' rights,
any person who beneficially owns shares that are held of record by a broker,
fiduciary, nominee or other holder and who wishes to exercise dissenters' rights
must instruct the record holder of the shares to satisfy the conditions set
forth under Section 1701.85 of the OGCL. If a record holder does not satisfy, in
a timely manner, all of the conditions outlined in Section 1701.85 of the OGCL,
the dissenters' rights for all of the shares held by that stockholder will be
lost.
If Haverfield requests, dissenting stockholders must submit their share
certificates to Haverfield within 15 days from the date of the making of such
request, for endorsement thereon by Haverfield that demand for the "fair cash
value" of such shares has been made. Such certificates will be promptly returned
to the dissenting stockholders by Haverfield. A dissenting stockholder's failure
to deliver such certificates terminates his, her, or its rights as a dissenting
stockholder, at the option of Haverfield, exercised by written notice sent to
the dissenting stockholder within 20 days after the lapse of the 15-day period,
unless a court for good cause shown otherwise directs.
In the event Haverfield and any dissenting stockholder have not reached
an agreement on the "fair cash value" of the shares of Haverfield Common Stock
within three months after service of the demand by the dissenting stockholder,
either party may file a petition in the Court of Common Pleas of Cuyahoga
County, Ohio, or join or be joined in an action similarly brought by another
dissenting Haverfield stockholder, for a judicial determination of the "fair
cash value" of such shares. The Court of Common Pleas may appoint one or more
appraisers to determine the "fair cash value," and if the court approves the
appraisers' report, judgment will be entered against Haverfield for the payment
thereof, with interest at such rate and from such date as the Court of Common
Pleas considers equitable. Costs of the proceedings, including reasonable
compensation to the appraiser or appraisers to be fixed by the Court of Common
Pleas, are to be apportioned or assessed as the Court considers equitable.
THE FOREGOING SUMMARY IS NECESSARILY INCOMPLETE AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SECTION 1701.85 OF THE OGCL, A COPY OF WHICH IS
ATTACHED HERETO AS APPENDIX III.
13
<PAGE> 24
CHARTER ONE FINANCIAL, INC., CHARTER MICHIGAN BANCORP, INC.
AND CHARTER ONE BANK, F.S.B.
Charter One is a Delaware corporation organized in 1987 for the purpose
of becoming a holding company and owning all of the outstanding common stock of
Charter One Bank in connection with Charter One Bank's 1988 conversion from a
federally chartered mutual savings bank to a federally chartered stock savings
bank. In 1996, Charter One formed a new subsidiary, Charter Michigan,
headquartered in Michigan. Charter One's ownership of Charter One Bank was
transferred to Charter Michigan to facilitate Charter One's multistate
operation. Charter One remains a unitary savings institution holding company
which, under existing laws, has very few restrictions on permissible types of
business activities. 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) 566-5300.
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,
in 1992, changed its name once again, to Charter One Bank, F.S.B.
On October 31, 1995, Charter One completed the most significant merger
in its history when it combined with FirstFed Michigan Corporation ("FirstFed")
in a merger of equals. The FirstFed merger was accounted for as a pooling of
interests and, accordingly, the financial statements for Charter One for all
periods prior to the FirstFed merger have been restated to include the results
of FirstFed. FirstFed's principal subsidiary, First Federal of Michigan, a
savings and loan association, was merged with and into Charter One Bank.
Headquartered in Cleveland, Ohio, Charter One Bank operates through 174
banking offices: 94 in Ohio and 80 in Michigan. Offices in Ohio serve the
Cleveland, Toledo, Youngstown, Portsmouth, Akron and Canton metropolitan areas.
The Michigan franchise continues to operate under the First Federal of Michigan
name and its markets include all of southeast Michigan, Lansing, Owosso and
Kalamazoo. In addition to the banking offices, Charter One has nine loan
production offices in Columbus, Dayton, Brimfield, Medina and Findlay, Ohio;
Grand Rapids and Clarkston, Michigan; Indianapolis, Indiana; and Ashland,
Kentucky.
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, multifamily,
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. Residential mortgage
lending remains Charter One Bank's most significant lending activity. Charter
One Bank also originates first mortgage loans on multifamily 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, mutual funds, and
property and casualty and life insurance and the development, operation and sale
of real estate. Additionally, in 1995, the Bank acquired companies, now owned as
subsidiaries, which engage in leasing of capital equipment and providing data
processing services. None of the subsidiary activities is considered to
constitute a business segment. Charter One Bank's earnings are affected by
general economic and competitive conditions, changes in market interest rates,
conditions in the real estate market, government policies and the actions of
federal and state regulatory authorities.
Charter One Bank is a member of the Federal Home Loan Bank ("FHLB") of
Cincinnati, which is a member of the FHLB System, and its deposits are insured
up to prescribed limits by the Federal Deposit Insurance Corporation ("FDIC").
Charter One Bank is subject to comprehensive examination, supervision and
regulation by its primary regulator, the OTS, and the FDIC.
For additional information, see "SUMMARY -- Selected Consolidated
Financial and Other Data of Charter One Financial, Inc." and "UNAUDITED PRO
FORMA COMBINED FINANCIAL STATEMENTS." Additional information concerning Charter
One, Charter Michigan and Charter One Bank also is included in the Charter One
documents incorporated herein by reference. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
14
<PAGE> 25
HAVERFIELD CORPORATION AND HOME BANK, F.S.B.
HAVERFIELD CORPORATION
Haverfield Corporation is a unitary savings and loan holding company
organized under the laws of the State of Ohio in 1989. Haverfield's principal
operating subsidiary is Home Bank which was originally organized in 1911.
Effective February 23, 1995, Haverfield's principal operating subsidiary changed
its corporate name from "Home Federal Savings Bank, Northern Ohio" to Home Bank,
F.S.B. Haverfield's principal executive offices are located in the Terminal
Tower, 50 Public Square, Suite 444, Cleveland, Ohio 44113-2203. Haverfield's
telephone number is (216) 348-2800. Haverfield's facsimile transmission number
is (216) 348-8840.
Haverfield's business currently is conducted through its corporate
headquarters in Cleveland, Ohio and is currently limited to the holding of Home
Bank's outstanding capital stock. Home Bank is Haverfield's only direct
subsidiary and its primary investment. The net income of Haverfield is presently
derived from the business of Home Bank.
Home Bank is principally engaged in the business of attracting deposits
from the general public and using such deposits, together with borrowings and
other funds, to make loans secured by real estate and, to a lesser extent,
various types of consumer loans and commercial loans in its market area. Home
Bank's income is derived predominantly from interest on loans and investments
and, to a lesser extent, noninterest income. Home Bank's principal expenses are
interest paid on deposits and borrowings, and normal operating costs. Home
Bank's operations are principally in the savings industry, which constitutes a
single industry segment. Home Bank's subsidiaries engage in real estate
development activities and investment counseling which are not material to its
operations as a whole. Home Bank's earnings are affected by general economic and
competitive conditions, changes in market interest rates, conditions in the real
estate market, government policies and the actions of federal and state
regulatory authorities.
Home Bank is a member of the FHLB of Cincinnati, which is a member of
the FHLB System, and its deposits are insured up to prescribed limits by the
FDIC. Home Bank is subject to comprehensive examination, supervision and
regulation by its primary regulator, the OTS, and the FDIC.
See "SUMMARY -- Selected Consolidated Financial and Other Data of
Haverfield Corporation," "HAVERFIELD CORPORATION AND HOME BANK, F.S.B." and
"UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS."
Additional information concerning Haverfield and Home Bank is included
under Appendices IV and V to this Proxy Statement/Prospectus and in the
Haverfield Corporation documents incorporated by reference herein. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
BENEFICIAL OWNERSHIP OF CERTAIN PERSONS
Persons and groups owning in excess of 5% of Haverfield Common Stock
are required to file certain reports regarding such ownership with Haverfield
and the Commission. Haverfield's directors and executive officers are also
required to file certain reports regarding their ownership of Haverfield Common
Stock with the Commission and the National Association of Securities Dealers,
Inc. Copies of those reports must also be furnished to Haverfield. A person is
considered the beneficial owner of Haverfield Common Stock with respect to which
such person has or shares voting or investment power or has the right to acquire
ownership at any time within 60 days, including, without limitation, through the
exercise of a stock option, warrant or right, or the conversion of a security.
The following table sets forth, as of the Record Date, the Haverfield Common
Stock beneficially owned by (1) persons or groups owning in excess of 5% of the
Haverfield Common Stock, (2) the directors of Haverfield, (3) certain executive
officers of Haverfield for which such disclosure is required under the Exchange
Act and (4) all directors and executive officers as a group (13 persons).
15
<PAGE> 26
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL NUMBER OF SHARES BENEFICIALLY PERCENT OF
OWNER OWNED AS OF THE RECORD DATE(1) COMMON STOCK
------------------------------ ------------------------------ -------------
PERSONS AND GROUPS OWNING IN EXCESS OF 5% OF HAVERFIELD COMMON STOCK
<S> <C> <C>
Haverfield Corporation 109,732(2) 5.76%
Employee Stock Ownership Plan
Harry F. Brockman, Trustee
Terminal Tower
50 Public Square, Suite 444
Cleveland, Ohio 44113-2203
William A. and Diane C. Valerian 140,728(3) 7.22%
18 Lyman Circle
Shaker Heights, Ohio 44122
Peter E. and Patricia J. Shimrak 100,716(4) 5.28%
17897 Captain's Cove
Lakewood, Ohio 44107
DIRECTORS AND CERTAIN EXECUTIVE OFFICERS
William A. Valerian, Chairman,
President and CEO 140,728(3) 7.22%
Michael T. Gaul, Director 2,310 *
Mark R. Magnotto, Director 60,356(5) 3.21%
Robert M. Mooney, Director 6,800 *
David A. Nolan, Director 1,000 *
Jacques C. Pomeroy, Director 11,000 *
Peter E. Shimrak, Director 100,716(4) 5.28%
Richard C. Ebner, Executive Vice
President, COO and CFO 49,229(6) 2.54%
Ennio F. Izzo, Vice President 3,880(7) *
Directors and executive officers as
a group (13 individuals) 425,951(8) 21.41%
<FN>
- ----------------------------
* Percentage of shares beneficially owned is less than one percent.
1. Information with respect to beneficial ownership is based on filings
made pursuant to the Exchange Act. With respect to shares beneficially
held by the Haverfield Corporation Employee Stock Ownership Plan
("ESOP"), including shares beneficially held by the ESOP for
participants therein, the information provided is as of December 31,
1996.
2. Although the ESOP may be deemed to share dispositive power over the
shares of Haverfield Common Stock which it holds, the trustee disclaims
beneficial ownership of such shares. The ESOP provides that the shares
of Haverfield Common Stock thereby are voted by the trustee at the
direction of either the participants or the Committee, depending on
whether or not the shares have been allocated to participant accounts.
3. Includes 85,547 shares held jointly by Mr. Valerian and his wife,
Diane, and 185 shares held by Mr. Valerian as custodian for his son,
Peter. Also includes 42,915 shares issuable upon the exercise of stock
options and 12,079 shares beneficially held under the ESOP. Mr. and
Mrs. Valerian disclaim beneficial ownership of any shares held by their
two eldest sons (both of whom are over 21 years of age; one of which
resides separately from his parents). Mr. Valerian is the Chairman,
President and Chief Executive Officer of Haverfield.
4. Includes 85,067 shares held jointly by Mr. Shimrak and his wife,
Patricia, and 15,649 shares beneficially held under the Haverfield
ESOP. Mr. and Mrs. Shimrak disclaim beneficial ownership of any shares
held by their children (all of whom are over 21 years of age and reside
separately from their parents). Mr. Shimrak is a director of
Haverfield.
</TABLE>
16
<PAGE> 27
5. Includes 60,062 shares held jointly by Mr. Magnotto and his wife, Pam,
and 294 shares held solely in the name of Pam Magnotto. Mr. and Mrs.
Magnotto disclaim beneficial ownership of any shares held by their
children (all of whom are over 21 years of age and reside separately
from their parents).
6. Includes 28,504 shares issuable upon the exercise of Haverfield Stock
Options and 6,689 shares beneficially held under the ESOP.
7. Includes 3,718 shares issuable upon the exercise of Haverfield Stock
Options and 162 shares beneficially held under the ESOP.
8. Includes 82,846 shares issuable upon the exercise of Haverfield Stock
Options and 51,020 shares beneficially held under the ESOP.
RECENT DEVELOPMENTS
On May 21, 1997, Charter One and RCSB entered into a definitive
agreement (the "RCSB Merger Agreement") to enter into a strategic alliance
through a tax-free stock-for-stock exchange. The RCSB Merger Agreement provides
for, among other things, the RCSB Merger pursuant to which RCSB will be merged
with and into Charter Michigan. Pursuant to the terms of the RCSB Merger
Agreement, Rochester will be merged into Charter One Bank.
Pursuant to the RCSB Merger Agreement and upon consummation of the RCSB
Merger, all shares of common stock of RCSB issued and outstanding immediately
prior to the "effective time" (as defined in the RCSB Merger Agreement) shall be
converted into the right to receive .91 shares of Charter One Common Stock,
including the right to receive a corresponding number of rights associated with
the Charter One Common Stock pursuant to the Rights Agreement.
Consummation of the RCSB Merger is subject to certain customary
conditions, including, among others, (i) adoption of the RCSB Merger Agreement
at the meetings of the stockholders of Charter One and RCSB, respectively, held
for such purpose and (ii) receipt of certain regulatory approvals.
In connection with the RCSB Merger Agreement, Charter One and RCSB
entered into a Stock Option Agreement, dated May 21, 1997 (the "RCSB Option
Agreement"), pursuant to which RCSB granted Charter One an irrevocable option to
purchase, under certain circumstances, shares equal to 19.9% of RCSB's currently
outstanding common stock. The RCSB Option Agreement was granted by RCSB as a
condition and inducement to Charter One's willingness to enter into the RCSB
Merger Agreement.
RCSB conducts virtually all of its operations through Rochester, its
wholly-owned subsidiary, and certain of Rochester's subsidiaries. The
consolidated group's primary lines of business are retail banking, mortgage
banking and automobile lending. RCSB's retail banking operation is conducted
primarily through 37 full service banking offices in western New York, while its
mortgage origination activities encompass 57 offices located mainly in the
eastern third of the United States. Automobile loans are originated through auto
dealers located in most areas of New York and Florida and in parts of
Connecticut, New Jersey and Pennsylvania.
Rochester generates net interest income by accepting deposits from the
general public and investing those deposits, together with funds from borrowings
and ongoing operations, in a variety of residential mortgage, automobile and
other consumer loans and mortgage-backed securities. Net interest income,
representing the difference between interest earned on asset portfolios and
interest paid on liabilities, is the most significant component of Rochester's
revenue. Rochester also generates significant noninterest revenues primarily by
providing retail banking services to its customers and by originating and
servicing loans through Rochester's mortgage banking subsidiary. Rochester's
earnings are affected by general economic and competitive conditions, changes in
market interest rates, conditions in the real estate market, government policies
and the actions of federal and state regulatory authorities.
RCSB's principal executive offices are located at 235 East Main Street,
Rochester, New York 14604. RCSB's telephone number is (716) 423-7270.
SEE "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," "UNAUDITED PRO
FORMA COMBINED FINANCIAL STATEMENTS," "UNAUDITED PRO FORMA PER SHARE DATA" and
"MANAGEMENT AND OPERATIONS AFTER THE RCSB MERGER."
17
<PAGE> 28
THE MERGER
The information in this 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 at Appendix I and incorporated by
reference herein. All stockholders are urged to read the Merger Agreement in its
entirety.
GENERAL
To implement the Merger, a newly formed Ohio business corporation and
first-tier wholly-owned subsidiary of Charter One will be merged with and into
Haverfield in a "stock-for-stock exchange" transaction. If the Merger is
consummated, each share of Haverfield Common Stock issued and outstanding prior
to the Effective Time, (other than Excluded Shares) will be converted into the
right to receive shares of Charter One Common Stock, including the right to
receive a corresponding number of rights associated with the Charter One Common
Stock pursuant to the Rights Agreement. See "-- Exchange Ratio" and "COMPARISON
OF RIGHTS OF STOCKHOLDERS OF CHARTER ONE FINANCIAL, INC. AND HAVERFIELD
CORPORATION -- Rights Agreement."
BACKGROUND OF AND REASONS FOR THE MERGER
The Haverfield Board determined in 1994 that Haverfield should
concentrate its efforts on expanding its commercial and consumer loan
origination. This decision was prompted by Haverfield's difficulties in
originating a significant volume of market rate first mortgage loans for sale in
the secondary market. The Haverfield Board determined that the process of
acquiring commercial and consumer loans could be accelerated by forming an
alliance with a strategic partner with expertise in these areas. These
discussions ultimately lead to Haverfield engaging Webb in May 1996 to render
investment banking advice to the Haverfield Board with respect to enhancement of
stockholder value. The scope of engagement included assistance in formulating
the business plan of Haverfield and advice regarding possible strategic
alliances of Haverfield.
Webb's assignment was approached in three stages: the evaluation of
Haverfield with the assumption of business as usual for the succeeding five
years; the identification of the areas providing the best feasible opportunity
for earnings enhancement; and the evaluation of Haverfield's stock assuming
various strategic alliance scenarios.
The initial evaluation of Haverfield indicated that significant
earnings improvement would have to be made. The efficiency ratio and expenses in
general became the focus. Haverfield hired a consulting firm to design a program
to help increase earnings primarily through expense reduction. The results of
the implementation of this program were positive, but did not raise the
anticipated earnings performance of Haverfield to the desired level.
The Acquisitions Committee (the "Committee") then instructed Webb to
evaluate the enhancement of shareholder value by means of strategic affiliation
alternatives of the following types: the acquisition of Haverfield by an
institution in Haverfield's market area; the acquisition of Haverfield by an
institution outside of Haverfield's market area; the merger of Haverfield with
an institution of equivalent size; and the acquisition by Haverfield of a
smaller institution. In addition, Webb was requested to evaluate the impact on
shareholder value of Haverfield remaining independent. On behalf of Haverfield,
Webb made limited inquiries for exploratory purposes to certain institutions
that were considered potential candidates for strategic alliances in one of
these four categories.
At the invitation of Webb, Charter One submitted a non-binding
indication of interest regarding a stock for stock acquisition of Haverfield on
February 11, 1997. In addition, Webb solicited from other potential strategic
alliance candidates indications of interest to acquire Haverfield on a stock for
stock basis and indications of interest from several other potential candidates
were received, reviewed and evaluated by Webb, which communicated such
indications of interest to the Committee of Haverfield.
Senior executives of Charter One and Haverfield then met to discuss the
possibility of a merger of the two companies and their respective subsidiary
savings institutions on March 4, 1997. Modifications were negotiated to the
initial indication of interest of Charter One, and subsequent non-binding
indications of interest were submitted by Charter One for Haverfield's
consideration. In connection with these indications of interest, the Chief
Executive Officer
18
<PAGE> 29
of Charter One and the Haverfield Board met again on March 5, 1997, to discuss
the possibility of a merger of the two companies and their respective subsidiary
savings institutions. These discussions focused on the benefits to Haverfield's
stockholders of Charter One's stronger relative market presence and the more
liquid market for Charter One Common Stock, as well as the greater potential for
long-term growth of Charter One. These discussions also reviewed the benefits to
Home Bank's customers from expanding lending and retail banking products and
services and convenient access to the combined offices of Charter One Bank and
Home Bank. Further, the benefits to Haverfield of the capital, administrative
and technological resources which would support the Home Bank retail banking
system were discussed.
On March 14, 1997, a revised indication of interest was submitted by
Charter One which expired on March 24, 1997 if not accepted by Haverfield. A
meeting of the Committee of the Haverfield Board was held on March 19, 1997, at
which representatives of Webb and counsel to Haverfield were present. Webb
reviewed with the Committee the affiliation alternatives available to
Haverfield. The Committee gave serious consideration to seeking a strategic
alliance by means of a stock for stock acquisition of Haverfield by an
"in-market" institution. In this connection, the Committee reviewed the proposal
of Charter One set forth in the March 14, 1997 non-binding indication of
interest. In addition, the Committee gave serious consideration to other
proposals for an "out-of-market" stock for stock acquisition and a "merger of
equals" business combination.
Webb then discussed with the Committee in detail the effects of the
possible alternative strategic alliance proposals on the various constituencies
of Haverfield, including the stockholders, the customers of Home Bank and
employees of Haverfield and its subsidiaries. At the conclusion of this
discussion, the Committee directed Webb to prepare additional analyses with
respect to these various alternatives and to present the results at the next
Committee meeting scheduled for March 21, 1997.
A meeting of the Committee was held on March 21, 1997, which was
followed immediately thereafter by a meeting of the Haverfield Board. At the
meeting of the Committee, the follow-up analyses prepared by Webb were
discussed. After additional discussion of the positives and negatives of the
various alternatives, including that of remaining independent, the Committee
resolved to recommend to the Board of Directors that the Board authorize the
Chief Executive Officer of Haverfield to pursue negotiations with Charter One
with respect to a strategic alliance in accordance with the terms of Charter
One's non-binding indication of interest dated March 14, 1997.
At the Board meeting on March 21, 1997, the Committee made its
recommendation to the Haverfield Board with respect to the strategic affiliation
proposal of Charter One. The representatives of Webb conducted a presentation to
the Board during which they reviewed the information and analyses previously
discussed with the Committee at the March 19 and March 21 meetings regarding the
various strategic affiliation alternatives. The Webb representatives pointed out
that the Charter One proposal was based on a fixed exchange ratio of 0.58 shares
of Charter One Common Stock for each share of Haverfield stock. The Webb
representatives pointed out that during the period from the date of the initial
indication of interest of Charter One, February 11, 1997 through March 20, 1997,
the daily closing price of the Charter One Common Stock had fluctuated between a
low of $44.62 and a high of $49.50, which would translate into values ranging
from $25.88 to $28.71 per share of Haverfield Common Stock at the fixed exchange
ratio of 0.58 referenced in the Charter One proposal. The value to Haverfield
stockholders offered by the Charter One proposal was higher than the values per
Haverfield share of the other proposals entertained at that time.
After consideration of the other potential strategic alliance
alternatives considered by the Committee prior to making its recommendation, the
Haverfield Board resolved to accept the recommendation of the Committee and
authorize the Chief Executive Officer to pursue negotiations with Charter One
regarding a strategic alliance in accordance with the terms outlined in Charter
One's non-binding indication of interest dated March 14, 1997 and to execute and
deliver to Charter One the non-binding indication of interest on behalf of
Haverfield. The executed non-binding indication of interest provided for
negotiation of a definitive merger agreement within forty days after the date of
acceptance of the non-binding indication of interest. From March 21, 1997
through the date of the execution of the Merger Agreement, April 22, 1997,
numerous conversations and negotiations between the parties, including their
respective financial advisors and legal counsel, were conducted. The parties
determined to substitute a floating exchange ratio for the fixed exchange ratio
initially proposed. See "--Exchange Ratio." Also during this period, the parties
negotiated a number of specific provisions of the Merger Agreement. On April 21
and 22, 1997, the Boards of Haverfield and Home Bank, respectively, met and
approved and authorized the execution of the Merger Agreement.
19
<PAGE> 30
The Merger Agreement was executed by duly authorized officers of Charter One,
Charter Michigan, Charter One Bank, Haverfield and Home Bank as of April 22,
1997.
The Haverfield Board considered the Merger and the terms of the Merger
Agreement, including the Exchange Ratio, in light of economic, financial, legal
and market factors and concluded that the Merger is in the best interest of
Haverfield, its stockholders, employees and customers. The terms of the Merger
Agreement are the result of arms' length negotiations between representatives of
Charter One and Haverfield. Among the factors considered by Haverfield's Board
were the historical operating results, current financial condition, business and
management and future financial and other prospects of Charter One and
Haverfield, respectively and combined, the Exchange Ratio in relation to the
historical trading prices of Haverfield's common stock and the advice of its
financial adviser as to the fairness to Haverfield stockholders, from a
financial point of view, of the Exchange Ratio. Also considered were the
operating philosophies, relative size, competitive position and geographic
market areas of Home Bank and Charter One Bank. Haverfield's Board also
considered the constraints imposed upon Haverfield's growth, operations and
ability to pay dividends due to Haverfield's size and its ability as a small,
independent institution to attract qualified management personnel. The
Haverfield Board believes that the Merger will afford Haverfield stockholders
the benefit of Charter One's stronger relative market presence and the more
liquid market for Charter One Common Stock, as well as the greater potential for
long-term growth and will offer enhanced abilities to meet the needs of the
Cleveland area communities served by Home Bank.
Based on the foregoing, the Haverfield Board unanimously recommends
that its stockholders vote FOR adoption of the Merger Agreement and the Merger.
RECOMMENDATION OF THE HAVERFIELD BOARD OF DIRECTORS
The Haverfield Board has unanimously approved and adopted (with six
directors present and one director absent, with the absent director subsequently
approving and adopting such action) the Merger Agreement and has determined that
the Merger is fair to, and in the best interests of, Haverfield and its
stockholders. THE HAVERFIELD BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
FOR ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
OPINION OF FINANCIAL ADVISOR
General. In May, 1996, Webb was retained by Haverfield to evaluate
Haverfield's strategic alternatives as part of a stockholder enhancement program
and to evaluate any specific proposals that might be received regarding an
acquisition of Haverfield. Webb, as part of its investment banking business, is
regularly engaged in the evaluation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, and distributions of
listed and unlisted securities. Webb is familiar with the market for common
stocks of publicly traded banks, thrifts and bank and thrift holding companies.
The Haverfield Board selected Webb on the basis of the firm's reputation and its
experience and expertise in transactions similar to the Merger and its prior
work for and relationship with Haverfield.
Pursuant to its engagement, Webb was asked to render an opinion as to
the fairness, from a financial point of view, of the consideration to
stockholders of Haverfield in the Merger (the "Merger Consideration"). The
Exchange Ratio, upon which the Merger Consideration will be based, was
determined through arm's-length negotiations between Charter One and Haverfield,
although Haverfield was advised during such negotiations by Webb. Webb delivered
its opinion to the Haverfield Board that, as of April 21, 1997, and confirmed as
of the date of this Proxy Statement/Prospectus, the Exchange Ratio is fair, from
a financial point of view, to the Haverfield stockholders. No limitations were
imposed by the Haverfield Board upon Webb with respect to the investigations
made or procedures followed by it in rendering its opinion. Webb has consented
to the inclusion herein of the summary of its opinion to the Haverfield Board
and to the reference to the entire opinion attached hereto as Appendix II.
20
<PAGE> 31
THE FULL TEXT OF THE OPINION OF WEBB, WHICH IS ATTACHED AS APPENDIX II
TO THIS PROXY STATEMENT/PROSPECTUS AND CONFIRMED BY WEBB AS OF THE DATE OF THIS
PROXY STATEMENT\PROSPECTUS, SETS FORTH CERTAIN ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY WEBB, AND SHOULD BE READ
IN ITS ENTIRETY. THE SUMMARY OF THE OPINION OF WEBB SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE OPINION.
In rendering its opinion, Webb (i) reviewed the Merger Agreement, (ii)
reviewed Haverfield's and Charter One's Annual Reports, Proxy Statements and
Form 10-K's for the years ended December 31, 1996, 1995, 1994 and certain other
internal financial analysis considered relevant, (iii) discussed with senior
management and the Boards of Directors of Haverfield and Home Bank the current
position and prospective outlook for Haverfield, (iv) discussed with senior
management of Charter One its operations, financial performance and future plans
and prospects, (v) considered historical quotations, levels of activity and
prices of recorded transactions in Haverfield Common Stock and Charter One
Common Stock, (vi) reviewed financial and stock market data of other thrifts in
a comparable asset range to Haverfield, (vii) reviewed financial and stock
market data of other thrifts in a comparable asset range to Charter One, (viii)
reviewed certain recent business combinations with thrifts as the acquired
company, which Webb deemed comparable in whole or in part, (ix) performed other
analyses which Webb considered appropriate.
In rendering its opinion, Webb assumed and relied upon the accuracy and
completeness of the financial information provided to it by Haverfield and
Charter One. In its review, with the consent of the Haverfield Board, Webb did
not undertake any independent verification of the information provided to it,
nor did it make any independent appraisal or evaluation of the assets or
liabilities of Haverfield or Charter One, and potential or contingent
liabilities of Haverfield or Charter One.
Analysis of Recent Comparable Acquisition Transactions. In rendering
its opinion, Webb analyzed certain comparable merger and acquisition
transactions of both pending and completed thrift deals, comparing the
acquisition price relative to tangible book value, last twelve month ("LTM")
earnings, total assets, total deposits, and premium to core deposits. The
analysis included a comparison of the median of the above ratios for completed
and pending acquisitions, based on the following five comparable groups: (i) all
thrift acquisitions since March 31, 1996 ("Recent Transactions"); (ii) all
thrift acquisitions with the target thrift having assets between $200 million
and $500 million ("Comparable Asset Size"); (iii) all acquisitions since March
31, 1996 with the selling thrift having equity to total assets of between 7.0%
and 9.0% ("Comparable Equity Ratio"); (iv) all thrift acquisitions since March
31, 1996 with the selling thrift having a return on average equity between 4.0%
and 6.0% ("Comparable Earnings Ratio"); and (v) all thrift acquisitions since
March 31, 1996 located in the Midwest ("Comparable Regional Deals").
The information in the following table summarizes the material
information analyzed by Webb with respect to the Merger. The summary does not
purport to be a complete description of the analysis performed by Webb and
should not be construed independently of the other information considered by
Webb in rendering its opinion. Selecting portions of Webb's analysis or
isolating certain aspects of the comparable transactions without considering all
analysis and factors, could create an incomplete or potentially misleading view
of the evaluation process.
21
<PAGE> 32
<TABLE>
<CAPTION>
Price to
-----------------------------------------------------------
Tangible LTM EPS(2) Deposits Assets Core
Book(1) (x) (%) (%) Deposit
(%) Premium(3)
<S> <C> <C> <C> <C> <C> <C>
CONSIDERATION - $27.00 PER SHARE 185.9 34.9 18.9 15.2 8.7
RECENT TRANSACTIONS Number Median for all deals since March 31, 1996
Completed 101 145.9 19.6 17.0 13.4 6.5
Pending 36 165.9 25.3 23.3 16.7 10.9
COMPARABLE ASSET SIZE
Competed 12 133.9 21.9 22.6 14.8 5.5
Pending 8 173.4 23.9 28.0 20.6 16.7
COMPARABLE EQUITY RATIO
Completed 29 158.3 19.4 16.2 12.9 6.6
Pending 10 187.4 19.0 22.5 15.9 12.3
COMPARABLE EARNINGS RATIO
Completed 25 130.0 27.6 18.0 14.4 6.3
Pending 9 151.9 26.5 24.4 17.6 10.0
COMPARABLE REGIONAL DEALS
Completed 27 126.7 23.2 23.0 17.8 5.0
Pending 13 151.9 28.4 24.6 17.6 12.8
<FN>
- ---------------------------
(1) Based on total deal value of $52.7 million and Haverfield equity of
$28.4 million at December 31, 1996.
(2) LTM earnings per share based on 1996 earnings.
(3) Based on total deal value of $52.7 million less equity of $28.4
million, divided by deposits of $279 million at December 31, 1996.
</TABLE>
Based on the above information Webb concluded that the multiples
implied by the $27.00 per share price and the implied Exchange Ratio were in the
ranges of each mentioned comparable group, and relative to price to tangible
book and price to LTM earnings per share exceeded significantly all of the
comparable groups.
In preparing its analysis, Webb made numerous assumptions with respect
to industry performance, business and economic conditions and other matters,
many of which are beyond the control of Webb and Haverfield. The analyses
performed by Webb are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
such analyses and do not purport to be appraisals or reflect the prices at which
a business may be sold.
Fees. Haverfield has paid Webb $23,000 for advisory services rendered
by Webb over the prior year. In connection with the Merger, Webb will receive a
fee of $526,000 for services rendered in connection with advising and issuing a
fairness opinion regarding the Merger. As of the date of this Proxy
Statement/Prospectus, Webb has received $50,000 of such fee and will receive
$25,000 upon the mailing of this Proxy Statement/Prospectus. The remainder of
the fee is due at the Effective Time.
EXCHANGE RATIO
The Merger Agreement provides that at the Effective Time all of the
issued and outstanding shares of Haverfield Common Stock (other than Excluded
Shares) will be cancelled and converted into the number of shares of Charter One
Common Stock (including the corresponding number of rights associated with
Charter One Common Stock pursuant to the Rights Agreement) determined by
multiplying the number of shares of such Haverfield Common Stock
22
<PAGE> 33
by the Exchange Ratio. The Exchange Ratio will be (i) equal to $27.00 divided by
the Charter One Closing Price if the Charter One Closing Price is equal to or
greater than $41.09 and less than or equal to $55.60; (ii) .4856 if the Charter
One Closing Price is greater than $55.60; (iii) .6571 if the Charter One Closing
Price is less than $41.09 but equal to or greater than $38.05; (iv) equal to
$25.00 divided by the Charter One Closing Price if the Charter One Closing Price
is less than $38.05 but equal to or greater than $36.55; and (v) .6840 if the
Charter One Closing Price is less than $36.55, subject to Haverfield's right to
terminate the Merger Agreement. If Haverfield elects to terminate the Merger
Agreement as a result of a Charter One Closing Price below $36.55, such
termination shall only occur if Haverfield gives Charter One timely written
notice of its election to terminate and Charter One fails to agree to an
Exchange Ratio of $25.00 divided by the Charter One Closing Price. For a
discussion on the Rights Agreement, see "COMPARISON OF RIGHTS OF STOCKHOLDERS OF
CHARTER ONE FINANCIAL, INC. AND HAVERFIELD CORPORATION -- Rights Agreement."
The Haverfield Board currently intends to exercise its Termination
Right if the Charter One Closing Price is less than $36.55. In the event the
Haverfield Board does not exercise its Termination Right, the Haverfield Board
will take such actions as are consistent with its fiduciary duties, including
receipt of a new fairness opinion and the resolicitation of Haverfield
stockholders.
The average closing sales price of Charter One Common Stock over the 20
consecutive full trading-day period as of the date of this Proxy
Statement/Prospectus was $______, which would result in an Exchange Ratio of
_____ shares of Charter One Common Stock for each share of Haverfield Common
Stock issued and outstanding as of the Effective Time (excluding any shares
owned by Charter One and its affiliates) and would also result in the issuance
of __________ shares of Charter One Common Stock in the Merger (assuming all
options for Haverfield Common Stock were exercised). There can be no assurance
that the Exchange Ratio will equal _____ at the time it is to be calculated
pursuant to the Merger Agreement, and Haverfield's stockholders are urged to
obtain current market price quotations for the shares of Haverfield Common Stock
and Charter One Common Stock. The maximum number of shares of Charter One Common
Stock (assuming all options for Haverfield Common Stock are exercised) which may
be issued in connection with the Merger (based upon the highest Exchange Ratio
available prior to Haverfield's Termination Right) is 1,360,609. See "SUMMARY --
Comparative Stock Prices and Dividend Information."
Fluctuations in the market price of Charter One Common Stock could
result in an increase or decrease in the value of the Merger Consideration to be
received by Haverfield stockholders in the Merger. An increase in the market
value of Charter One Common Stock could 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 could have the opposite effect. The market value of the
Merger Consideration at the time of the Merger will depend upon the market value
of a share of Charter One Common Stock at such time. The Exchange Ratio was
determined through arm's-length negotiations between Charter One and Haverfield,
and Haverfield was advised during such negotiations by its financial advisor.
See "-- Background of and Reasons for 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 Haverfield 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 as a stockholder of
Charter One. Each stockholder of Haverfield who would be entitled to a
fractional share in the Merger will receive a cash payment (without interest) in
an amount 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.
23
<PAGE> 34
TREATMENT OF HAVERFIELD STOCK OPTIONS
At the Record Date, there were Haverfield Stock Options outstanding
with respect to 82,846 shares of Haverfield Common Stock. At the Effective Time,
each Haverfield Stock Option shall be assumed by Charter One and shall
automatically be converted into an option to purchase shares of Charter One
Common Stock. The number of shares of Charter One Common Stock subject to such
converted option shall be equal to the number of shares of Haverfield Common
Stock subject to the Haverfield Stock Option multiplied by the Exchange Ratio,
with fractional shares rounded down. The exercise price per share of such
converted option shall be equal to the exercise price of the Haverfield Stock
Option divided by the Exchange Ratio, with the exercise price being rounded down
to the nearest cent. The duration and other terms and conditions under the
converted option will remain the same as they existed under the Haverfield Stock
Option.
EFFECTIVE TIME.
As soon as possible after the conditions to consummation of the Merger
have been satisfied or waived, and after the receipt of all requisite regulatory
approvals relating to the transactions contemplated by the Merger Agreement and
the adoption of the Merger Agreement and the Merger by the requisite vote of
Haverfield's stockholders, unless the Merger Agreement and Merger have been
terminated, a certificate of merger relating to the Merger will be filed with
the Secretary of State of Ohio. The Merger will become effective (i.e., the
Effective Time) upon the date and filing of the certificate of merger with the
Secretary of the State of Ohio.
EXCHANGE OF CERTIFICATES; LOST CERTIFICATES
Exchange of Certificates. As soon as reasonably practicable after the
Effective Time, an exchange agent designated by Charter One (the "Exchange
Agent") or Charter One, will deliver to each Haverfield holder of record of a
certificate or certificates, which immediately prior to the Effective Time
represented outstanding shares of Haverfield Common Stock (the "Certificates"),
a transmittal letter and instructions to be used in surrendering such
Certificates in exchange for (i) certificates representing the number of shares
of Charter One Common Stock into which their shares of Haverfield Common Stock
were converted pursuant to the Merger Agreement, and (ii) a check representing
the amount of cash in lieu of a fractional share, 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 Haverfield Common Stock.
CERTIFICATES FOR SHARES OF HAVERFIELD COMMON STOCK SHOULD NOT BE FORWARDED TO
THE EXCHANGE AGENT UNTIL AFTER RECEIPT OF THE LETTER OF TRANSMITTAL AND SHOULD
NOT BE RETURNED TO HAVERFIELD WITH THE ENCLOSED PROXY.
As of the Effective Time, holders of Certificates who do not surrender
and exchange such 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 such 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 or otherwise in proper form for transfer, and the holder
requesting such exchange must pay to the Exchange Agent in advance any transfer
or other taxes in connection therewith or establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not applicable.
After the Effective Time, there will be no further transfers on the
records of Haverfield 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.
Lost Certificates. 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, a certificate
24
<PAGE> 35
for the shares of Charter One Common Stock to the holder of such Certificate
under the terms of the Merger Agreement and any applicable cash in lieu of a
fractional share interest.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Haverfield's management and the Haverfield Board may
be deemed to have certain interests in the Merger in addition to their interests
as stockholders of Haverfield, generally. The Haverfield Board was aware of
these interests and considered them in adopting the Merger Agreement and the
transactions contemplated thereby. Set forth below are descriptions of interests
of directors and executive officers of Haverfield in the Merger in addition to
their interests as stockholders of Haverfield generally.
Employment Agreements. Charter One Investments, Inc. ("COI"), a
wholly-owned second-tier subsidiary of Charter One, has entered into an
employment agreement with Mr. William A. Valerian, effective as of the Effective
Time. The employment agreement is for a term of three years and a base salary of
$225,000 per year. Mr. Valerian will also be entitled to certain perquisites and
other benefits under such benefit plans as are applicable to officers of COI.
In August 1996, Haverfield and Home Bank entered into an employment
agreement (the "Haverfield Employment Agreement" or "Agreement") with William A.
Valerian pursuant to which he serves as president and chief executive officer of
Home Bank and, if he continues to be elected as a director of Haverfield, as an
officer and director of Haverfield. The initial term of the Agreement is three
years, but the term of the Agreement may be extended upon the first and each
subsequent anniversary date of the Agreement for an additional year by the Board
of Directors of Home Bank. Mr. Valerian's minimum base salary under the
Agreement is $175,000. The Agreement provides for, among other things,
participation in stock options, executive incentive compensation plans, group
life insurance, medical coverage, education and other retirement or employee
benefits applicable to executive personnel.
The Haverfield Employment Agreement provides for termination upon the
occurrence of certain events that constitute cause and in certain events
specified by federal regulations. The Agreement is also terminable by Home Bank
without cause whereupon Mr. Valerian would be entitled to the full amount of
salary remaining under the term of the Agreement. The Agreement provides for
payments to Mr. Valerian upon the occurrence of certain events constituting a
"change in control" of Haverfield or Home Bank if employment is terminated
involuntarily in connection with such change in control other than for cause.
The amount of these change in control payments equals 2.99 times the average
annual compensation which was includable in Mr. Valerian's gross income for
federal income tax purposes with respect to the five most recent tax years
ending prior to the change in control.
Upon a change in control resulting in the termination of Mr. Valerian,
Mr. Valerian shall also be entitled to continue to receive life, medical, dental
and disability coverage substantially identical to the coverage maintained by
Home Bank for Mr. Valerian prior to the change in control. In addition, Mr.
Valerian shall be entitled to receive the value of employer contributions that
would have been made on his behalf over the remaining term of the Agreement to
any tax-qualified retirement plan sponsored by Home Bank as of the date of his
termination. Such coverage and payments shall cease upon the expiration of
thirty-six (36) months from the date of his termination. Finally, Mr. Valerian
will be entitled to receive benefits due him under, or contributed by Haverfield
or Home Bank on his behalf, pursuant to any retirement, incentive, profit
sharing, bonus, performance, disability or other employee benefit plan
maintained by Haverfield or Home Bank to the extent that such benefits are not
otherwise paid to Mr. Valerian upon a change in control.
For purposes of Mr. Valerian's Agreement, a change in control shall be
deemed to occur if and when stockholders of Haverfield or Home Bank approve a
merger, consolidation, sale or disposition of all or substantially all of
Haverfield's or Home Bank's assets, or a plan of partial or complete
liquidation, as well as upon certain other events. Under the terms of the
Agreement he is entitled to the same benefits as if he were involuntarily
terminated in connection with a change in control if after a change in control
he voluntarily terminates his employment following any demotion, loss of title,
office or significant authority, reduction in his annual compensation or
benefits, or relocation of his principal place of employment by more than 30
miles from its location immediately prior to the change in control.
25
<PAGE> 36
Upon consummation of the Merger Mr. Valerian will not be an executive
officer or otherwise employed by Charter One or Charter One Bank. Rather, Mr.
Valerian will be assuming a position with COI, which position represents a
significant adverse change from his responsibilities with Haverfield and Home
Bank. Haverfield and Mr. Valerian have determined that this change in status
will constitute an effective termination of Mr. Valerian's employment under his
Agreement. As a consequence thereof Mr. Valerian will be entitled to receive
approximately $670,000 pursuant to the terms of the Agreement. Charter One has
agreed to honor this obligation.
Severance Agreements. In August 1996, Haverfield and Home Bank entered
into severance agreements with five executive officers of Haverfield and Home
Bank which provide for payments in the event of termination of employment
following a change in control. The severance agreements also provide for
benefits if the officer resigns following a change in control for good reason,
which includes a reduction in compensation, benefits or responsibilities, or
relocation more than 30 miles from the primary worksite of the officer. Benefits
under the severance agreements are equal to the officer's salary and bonus in
effect for the immediate fiscal year of Home Bank preceding the change in
control. The severance agreements provide for no benefits in the event the
officer is terminated for cause, in certain events specified under federal
regulations, or if the officer is terminated without cause, dies, or becomes
permanently disabled prior to a change in control. The initial term of the
severance agreements is a one-year period, which may be extended upon each
subsequent anniversary of the severance agreements for an additional year by the
Board of Directors of Home Bank. Upon consummation of the Merger the five
executive officers may assume a position with Charter One or Charter One Bank;
however, such employment is expected to be at reduced compensation levels and
with significant adverse changes from their responsibilities with Haverfield and
Home Bank. As of the date of this Proxy Statement/Prospectus only one of such
executive officers, Richard C. Ebner (the Executive Vice President, Chief
Operating Officer and Chief Financial Officer of Haverfield and Home Bank), has
been offered employment by Charter One Bank. Mr. Ebner has been offered
employment with Charter One Bank in its accounting department at an annual base
salary of $75,000, which represents a significant adverse change from his
current compensation and responsibilities with Haverfield and Home Bank. As a
consequence thereof, even if Mr. Ebner accepts employment with Charter One Bank,
he will be entitled to receive approximately $142,000 pursuant to the terms of
his severance agreement. Similarly, the four other executive officers, even if
they are offered and accept employment with Charter One Bank, will be entitled
to receive approximately $1,134,000 in the aggregate pursuant to their severance
agreements. Charter One has agreed to honor these obligations.
Stock Option Plans. Haverfield also maintains the Haverfield Option
Plans. At the Record Date, directors and executive officers (13 persons) of
Haverfield held in the aggregate 82,846 Haverfield Stock Options which will be
converted into options to purchase Charter One Common Stock. See "THE MERGER --
Treatment of Haverfield Stock Options."
Indemnification; Insurance. Pursuant to the Merger Agreement, Charter
One has agreed that from and after the Effective Time, all provisions for
indemnification and limitation on liability now existing in favor of employees,
agents, directors or officers of Haverfield, Home Bank or their subsidiaries, as
provided by law or regulation or in their respective Articles of Incorporation
or Code of Regulations prior to the Effective Time shall be assumed by Charter
One and shall continue in full force and effect with respect to acts or
omissions occurring prior to the Effective Time for a period of three years
thereafter. Charter One or Charter One Bank, respectively, shall also purchase
and keep in force for such three year period director's and officer's liability
insurance and fiduciary liability insurance to provide coverage for acts or
omissions of the type and in the amount currently covered by Haverfield's
existing directors and officers liability insurance and fiduciary liability for
acts and omissions occurring prior to the Effective Time, to the extent
commercially reasonable.
MANAGEMENT AFTER THE MERGER
The Merger will not result in a change in Charter One's directors and
executive officers. For information with respect to the management of Charter
One, see "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "MANAGEMENT AND
OPERATIONS AFTER THE RCSB MERGER."
26
<PAGE> 37
REPRESENTATIONS AND WARRANTIES
In the Merger Agreement, each of Haverfield and Home Bank, on the one
hand, and Charter One and Charter One Bank, on the other hand, has made
representations and warranties relating to, among other things, the party's
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 Proxy
Statement/Prospectus, the absence of certain legal proceedings, compliance with
laws, regulations, filing requirements and other requirements, corporate actions
in connection with the adoption and execution of the Merger Agreement, and
related documents, authority relative to the Merger Agreement, employment
arrangements, employee benefit plans, the accuracy of information furnished to
the other party, their respective property and assets, liabilities, material
agreements and contracts, tax and accounting matters, environmental matters,
loan portfolio, real estate loans, investments, inapplicability of anti-trust
provisions, insider interests and other customary representations and
warranties. For detailed information on such representations and warranties, see
the Merger Agreement attached hereto at Appendix I.
CONDITIONS TO THE MERGER
Conditions to the Obligations of the Parties. Notwithstanding any other
provision of the Merger Agreement, the obligations of Charter One, Charter
Michigan and Charter One Bank on the one hand, and Haverfield and Home Bank on
the other hand, to consummate the Merger are subject to the following conditions
precedent (except as to those which Charter One or Haverfield may chose to
waive): (i) no preliminary or permanent injunction or other order by any federal
or state court which prevents the consummation of the Merger shall have been
issued and shall remain in effect; nor shall there be any third party proceeding
pending to prevent the consummation of the Merger; (ii) the parties shall have
received all applicable regulatory approvals and consents to consummate the
transactions contemplated in the Merger Agreement and all required waiting
periods shall have expired; (iii) the Registration Statement shall have been
declared effective under the Securities Act and no stop orders shall be in
effect and no proceedings for such purpose shall be pending or threatened by the
Commission and, if the offering for sale of the Charter One Common Stock in the
Merger pursuant to the Merger Agreement is subject to the securities laws of any
state, the Registration Statement shall not be subject to a stop order of any
state securities authority; (iv) each party shall have received a tax opinion
that the Merger will be treated as a tax-free reorganization under Section
368(a) of the Code; and (v) the Charter One Common Stock to be issued to holders
of Haverfield Common Stock shall have been approved for listing on the Nasdaq
National Market subject to official notice of issuance.
Conditions to the Obligations of Charter One, Charter Michigan and
Charter One Bank. Notwithstanding any other provision of the Merger Agreement,
the obligations of Charter One, Charter Michigan and Charter One Bank to
consummate the Merger are subject to the following conditions precedent (except
as to those which Charter One may choose to waive): (i) all of the
representations and warranties made by Haverfield and Home Bank in the Merger
Agreement and in any documents or certificates provided by Haverfield and Home
Bank shall have been true and correct in all material respects as of the date of
the Merger Agreement and as of the Effective Time as though made on and as of
the Effective Time, subject to the cure provisions contained in the Merger
Agreement; (ii) Haverfield and Home Bank shall have performed in all material
respects all obligations and shall have complied in all material respects with
all agreements and covenants required by the Merger Agreement to be performed or
complied with by them prior to or at the Effective Time, subject to the cure
provisions contained in the Merger Agreement; (iii) there shall not have been
any action taken or any statute, rule, regulation or order enacted, promulgated
or issued or deemed applicable to the Merger by any federal or state government
or governmental agency or instrumentality or court, which would prohibit
ownership or operation of all or a portion of the business or assets of
Haverfield or any Haverfield subsidiary by Charter One, Charter Michigan or
Charter One Bank, or would compel Charter One, Charter Michigan or Charter One
Bank to dispose of all or a portion of the business or assets of Haverfield or
any Haverfield subsidiary, as a result of the Merger Agreement, or which would
render any party thereto unable to consummate the transactions contemplated by
the Merger Agreement; (iv) Haverfield shall not have suffered a Material Adverse
Effect (as defined in the Merger Agreement) after the execution of the Merger
Agreement; (v) no regulatory authority shall have imposed any non-standard or
unduly burdensome condition relating to the transactions contemplated by the
Merger Agreement such that it would substantially deprive Charter One of the
economic benefits of any of the transactions contemplated by the Merger
Agreement, as determined in the reasonable judgment of Charter One; (vi) Charter
One shall have received the
27
<PAGE> 38
opinion of Hahn Loeser Parks, L.L.P., counsel to Haverfield, in the form
acceptable to Charter One; (vii) Charter One shall have received a certificate
signed by the President and Chief Executive Officer of Haverfield and Home Bank,
dated as of the Effective Time, certifying that based upon his best knowledge,
the conditions set forth in items (i), (ii) and (iv) of this paragraph have been
satisfied; (viii) the directors of Haverfield who are stockholders of Haverfield
shall have executed and delivered to Charter One Voting Agreements in the form
acceptable to Charter One; (ix) Charter One shall have received the written
affiliates' agreements; and (x) Dissenters' shares shall not exceed seven
percent of the issued and outstanding Haverfield Common Stock.
Conditions to the Obligations of Haverfield and Home Bank.
Notwithstanding any other provision of the Merger Agreement, the obligations of
Haverfield and Home Bank to consummate the Merger are subject to the following
conditions precedent (except as to those which Haverfield may chose to waive):
(i) all of the representations and warranties made by Charter One in the Merger
Agreement and in any documents or certificates provided by Charter One shall
have been true and correct in all material respects as of the date of the Merger
Agreement and as of the Effective Time as though made on and as of the Effective
Time, subject to the cure provisions contained in the Merger Agreement; (ii)
Charter One shall have performed in all material respects all obligations and
shall have complied in all material respects with all agreements and covenants
required by the Merger Agreement to be performed or complied with by it prior to
or at the Effective Time, subject to the cure provisions contained in the Merger
Agreement; (iii) there shall not have been any action taken or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger by any federal or state government or governmental agency or
instrumentality or record, which would prohibit ownership or operation of all or
a portion of the business or assets of Haverfield or any Haverfield subsidiary
by Charter One, Charter Michigan or Charter One Bank, or which would render any
party hereto unable to consummate the transactions contemplated by the Merger
Agreement; (iv) no regulatory authority shall have imposed any nonstandard or
unduly burdensome condition relating to the Merger, such that it would
substantially deprive Haverfield of the economic benefits of the Merger, as
determined in the reasonable judgment of Haverfield; (v) Charter One shall not
have suffered a Material Adverse Effect after the execution of the Merger
Agreement; (vi) Haverfield shall have received the opinion of Silver, Freedman &
Taff, L.L.P., counsel to Charter One, in the form acceptable to Haverfield; and
(vii) Haverfield shall have received a certificate signed by the President and
Chief Executive Officer of Charter One, dated as of the Effective Time, that
based upon his best knowledge, the conditions set forth in items (i), (ii) and
(v) of this paragraph have been satisfied.
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 " -- Amendment;
Termination; Break-Up Fee."
REGULATORY APPROVALS
Consummation of the Merger is subject to the approval of the OTS. The
Merger may not be consummated for a period of 30 days after receipt of the OTS's
final approval, unless the OTS has not received any adverse comment from the
Department of Justice during the first 15 days following final approval, in
which case the Merger may be consummated on or after the 15th day after final
approval by the OTS. Charter One filed an application for approval of the Merger
with the OTS on May 29, 1997 and received OTS approval on July 23, 1997.
It is a condition to the consummation of the Merger that all requisite
regulatory approvals be obtained without any nonstandard or unduly burdensome
condition relating to any of the transactions contemplated by the Merger
Agreement such that it would substantially deprive Charter One of the economic
benefits of any of the transactions contemplated by the Merger Agreement as
determined in Charter One's reasonable judgment. The OTS approval did not
contain any such condition or restriction. See "-- Conditions to the Merger."
AMENDMENT; TERMINATION; BREAK-UP FEE
Amendment. The Merger Agreement may be amended by the parties thereto
by action taken by their respective Boards of Directors at any time before or
after adoption by the stockholders of Haverfield but, after such adoption, no
amendment shall be made which changes the form of consideration or the value of
the consideration to be received by the stockholders of Haverfield without the
approval of the stockholders of Haverfield.
28
<PAGE> 39
Termination. The Merger Agreement may be terminated at any time prior
to the Effective Time: (i) by the mutual written consent of the Boards of
Directors of Charter One and Haverfield; (ii) by Charter One or Haverfield if
there shall have been a final judicial or regulatory determination (as to which
all periods for appeal shall have expired and no appeal shall be pending) that
any material provision of the Merger Agreement is illegal, invalid or
unenforceable (unless the enforcement thereof is waived by the affected party)
or denying any regulatory application the approval of which is a condition
precedent to a party's obligations hereunder; (iii) at any time on or before
December 31, 1997, by Charter One or Haverfield in the event that any of the
conditions precedent to the obligations of the other party to the Merger are
rendered impossible to be satisfied or fulfilled December 31, 1997 (other than
by reason of a breach by the party seeking to terminate); (iv) by Charter One or
Haverfield at any time after the stockholders of Haverfield fail to approve the
Merger Agreement by the required vote at the Special Meeting; (v) by Charter One
or Haverfield, in the event of a material breach by the other party of any
representation, warranty, covenant or agreement contained in the Merger
Agreement or in any schedule or document delivered pursuant thereto, and which
breach cannot be or is not cured within thirty (30) days after written notice of
such breach is given by the non-breaching party to the party committing such
breach; (vi) by Charter One or Haverfield on or after December 31, 1997, in the
event the Merger has not been consummated by such date (provided, however, that
the right to terminate under this section shall not be available to any party
whose failure to perform an obligation under the Merger Agreement has been the
cause of, or has resulted in, the failure of the Merger to occur on or before
such date); or (vii) by Haverfield, if the Charter One Closing Price is less
than $36.55 and both of the following conditions are satisfied: (a) written
notice of its election to terminate is delivered by Haverfield to Charter One
within one business day after the first date upon which the Charter One Closing
Price can be determined; and (b) Charter One, within one business day after its
receipt of such written notice of election to terminate, fails to agree in
writing to an Exchange Ratio determined by dividing the Charter One Closing
Price into $25.00.
Remedies for Breach and Break-Up Fee. In the event that the Merger
Agreement is terminated by a party (the "Aggrieved Party") solely by reason of
the material breach by the other party ("Breaching Party") of any of its
representations, warranties, covenants or agreements contained in the Merger
Agreement then the Aggrieved Party shall be entitled to such remedies and relief
against the Breaching Party as are available at law or in equity, including
specific performance, but subject to the limitations hereinafter discussed.
In the event that the Special Meeting does not take place, the
Haverfield Board fails to recommend adoption of the Merger Agreement and the
Merger to the stockholders of Haverfield, or Haverfield's Board of Directors
adversely alters or modifies its favorable recommendation of the Merger
Agreement and the Merger to the stockholders of Haverfield, and the Merger
Agreement and the Merger are not adopted by the stockholders of Haverfield by
the required vote, and Charter One is not, as of the date of such event, in
material breach of the Merger Agreement, then, upon termination of the Merger
Agreement, Haverfield and/or Home Bank shall reimburse Charter One for its third
party expenses relating to the Merger Agreement and the transactions
contemplated thereby in an amount up to Two Hundred Thousand Dollars ($200,000)
and pay Charter One an additional amount of Three Million Dollars ($3,000,000)
as an agreed upon break-up fee and as the sole and exclusive remedy of Charter
One. In order to obtain the benefit of this expense reimbursement and break-up
fee, Charter One shall be required to execute a waiver of its rights to any
other form of relief against Haverfield and Home Bank, and shall not have taken
any action to enforce any other rights that it might have.
In the event that (i) an Acquisition Proposal (as defined in the Merger
Agreement) occurs prior to the time of the Special Meeting, (ii) the
stockholders of Haverfield fail to adopt the Merger Agreement and the Merger
under circumstances where the Board of Directors of Haverfield continuously
maintained its favorable recommendation of the Merger Agreement and the Merger
and (iii) Charter One was not, as of the date of such action, in material breach
of the Merger Agreement, then if a definitive agreement relating to an
Acquisition Proposal is executed by Haverfield or an Acquisition Proposal is
consummated, in either case within nine months after the termination of the
Merger Agreement, upon the happening of such event Haverfield and/or Home Bank
shall be obligated to pay Charter One a cash amount of Three Million Dollars
($3,000,000) as an agreed upon break-up fee and as the sole and exclusive remedy
of Charter One. In order to obtain the benefit of this break-up fee, Charter One
shall be required to execute a waiver of its rights to any other form of relief
against Haverfield and Home Bank, and shall not have taken any action to enforce
any other rights that it might have. Notwithstanding the foregoing, if the
average (rounded down to the nearest whole cent) of the closing sale price of
one share of Charter One Common Stock on the Nasdaq National Market for the 20
29
<PAGE> 40
full consecutive trading days ending on the day of the Special Meeting is less
than $36.55, Haverfield shall not be obligated to pay Charter One the break-up
fee discussed in this paragraph upon the termination of the Merger Agreement.
In the event that all of the conditions precedent to the consummation
of the Merger have been satisfied or would be satisfied by the delivery of
documents which are under the control of Charter One, and Charter One in
material breach of the Merger Agreement refuses to consummate the Merger or
otherwise willfully abandons the Merger in material breach of the Merger
Agreement, then in either case, Charter One shall pay Haverfield liquidated
damages in the amount of Three Million Two Hundred Thousand Dollars ($3,200,000)
as its sole and exclusive remedy against Charter One. In order to pursue this
liquidated damage remedy, Haverfield and Home Bank shall be required to execute
a waiver of their rights to any other form of relief against Charter One,
Charter Michigan and Charter One Bank, and they shall have not have taken any
action to enforce any other rights that they might have.
CONDUCT OF BUSINESS PENDING THE MERGER
The Merger Agreement contains covenants of Haverfield concerning the
conduct of its business. The covenants remain in effect until the Effective Time
or until the Merger has been terminated. They include, among other things, that
Haverfield and its subsidiaries shall continue to carry on their respective
businesses and discharge or incur obligations and liabilities, only in the
usual, regular and ordinary course of business, and Haverfield shall not, among
other things, without the prior written consent of Charter One: (i) issue any
capital stock or any options, warrants, or other rights to subscribe for or
purchase capital stock or any securities convertible into or exchangeable for
any capital stock, except pursuant to the Haverfield Stock Options outstanding
on the date of the Merger Agreement; (ii) directly or indirectly redeem,
purchase or otherwise acquire any capital stock or ownership interests of
Haverfield; (iii) effect a reclassification, recapitalization, split-up,
exchange of shares, readjustment or other similar change in or to any capital
stock or otherwise reorganize or recapitalize; (iv) change its charter, articles
of incorporation, code of regulations or bylaws; (v) enter into or modify any
employment agreement, severance agreement, change in control agreement, or plan
relative to the foregoing; or grant any increase (other than ordinary and normal
increases to rank and file employees consistent with past practices) in the
compensation payable or to become payable to directors, officers or employees
except as required by law; (vi) except for the short-term renewal of FHLB
advances outstanding as of the date of the Merger Agreement, raising short-term
funds against its existing line of credit with the FHLB and deposit-taking in
the ordinary course of its business, borrow or agree to borrow any funds,
including but not limited to repurchase transactions, or indirectly guarantee or
agree to guarantee any obligations of others; (vii) make or commit to make any
new loan or letter of credit, or any new or additional discretionary advance
under any existing loan or line of credit, or restructure any existing loan or
line of credit, subject to certain limits; (viii) cancel any material
indebtedness owing to it or any claims which it may possess or waive any rights
of material value; (ix) knowingly or wilfully commit any act or fail to commit
any act which will cause a material breach of any agreement, contract or
commitment; (x) purchase any real or personal property or make any capital
expenditure where the amount paid or committed therefore is in excess of
twenty-five thousand dollars ($25,000), except for outstanding commitments
previously disclosed; (xi) engage in any activity or transaction outside the
ordinary course of business; or (xii) take any action that would (a) materially
impede or delay the consummation of the transactions contemplated by the Merger
Agreement or the ability of the parties hereto to obtain any approval of any
regulatory authority required for the transactions contemplated by the Merger
Agreement or to perform its covenants and agreements under the Merger Agreement
or (b) prevent the Merger from qualifying as a pooling of interests for
accounting purposes or as a reorganization within the meaning of Section 368(a)
of the Code. FOR A MORE DETAILED AND COMPREHENSIVE LIST OF THE RESTRICTIONS ON
THE CONDUCT OF HAVERFIELD'S OPERATIONS PENDING THE MERGER, SEE THE MERGER
AGREEMENT ATTACHED HERETO AT APPENDIX I.
Haverfield may not declare or pay any dividend or make any other
distribution with respect to its capital stock whether in cash, stock or other
property, after the date of the Merger Agreement without the written consent of
Charter One, except that nothing contained in the Merger Agreement will preclude
Haverfield from declaring and paying cash dividends on Haverfield Common Stock
at a quarterly rate not to exceed $.14 per share in a manner, on dates and with
respect to record dates consistent with past practice (except for the payment of
the last dividend prior to consummation of the Merger which shall be coordinated
with, and subject to the approval of, Charter One to preclude duplication of
dividends). The Haverfield Board is under no obligation to pay dividends on
Haverfield Common Stock.
30
<PAGE> 41
CONSOLIDATION OF HAVERFIELD AND HOME BANK
Immediately following the Merger Haverfield will be merged (the
"Michigan Merger") with and into Charter Michigan, a Michigan corporation and a
wholly-owned first-tier subsidiary of Charter One and then Home Bank will be
merged (the "Bank Merger") with and into Charter One Bank, a federally chartered
savings bank and a wholly-owned subsidiary of Charter Michigan as contemplated
by the Merger Agreement.
The Michigan Merger and the Bank Merger shall become effective at the
time and on the date of the filing of certificates of merger with the
appropriate authorities of Michigan and Ohio and the articles of combination
with the OTS. Such filings will occur only after the Effective Time.
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 Haverfield shall bear equally all third
party printing expenses associated with this Proxy Statement/Prospectus.
ACCOUNTING TREATMENT
The Merger is intended to be treated as a purchase for accounting
purposes. Accordingly, the assets and liabilities of Haverfield will be recorded
on the books and records of Charter One at their respective fair values at the
time of consummation of the Merger.
The unaudited pro forma combined financial information contained in
this Proxy Statement/Prospectus has been prepared treating the Merger as a
purchase for accounting purposes and using the pooling of interests accounting
method for the RCSB Merger. See "UNAUDITED PRO FORMA COMBINED FINANCIAL
STATEMENTS." Representatives of Deloitte & Touche LLP, Haverfield's independent
accountants, are expected to be present at the 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.
RESALE OF CHARTER ONE COMMON STOCK BY AFFILIATES
The shares of Charter One Common Stock to be issued to stockholders of
Haverfield in connection with 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" (as defined
under the Securities Act, but generally including directors, certain executive
officers and ten percent or more stockholders) of Haverfield or Charter One at
the time of the Special Meeting.
Rules 144 and 145 promulgated under the Securities Act restrict the
sale of Charter One Common Stock received in the Merger by affiliates and
certain of their family members and related interests. Generally speaking,
during the one year following the Effective Time, affiliates of Charter One and
Haverfield may not resell publicly the Charter One Common Stock received by them
in connection with the Merger except in compliance with certain limitations as
to the amount of Charter One Common Stock sold in any three-month period and as
to the manner of sale. After the one-year period, such affiliates of Haverfield
who are not affiliates of Charter One may resell their shares without
restriction. The ability of affiliates to resell shares of Charter One Common
Stock received in the Merger under Rule 144 or 145 as summarized herein
generally will be subject to Charter One having satisfied its Exchange Act
reporting requirements for specified periods prior to the time of sale.
Affiliates also would be permitted to resell Charter One Common Stock received
in the Merger pursuant to an effective registration statement under the
Securities Act covering such shares or an available exemption from the
Securities Act registration requirements. This Proxy Statement/Prospectus does
not cover any resales of Charter One Common Stock received by persons who may be
deemed to be affiliates of Charter One or Haverfield.
31
<PAGE> 42
The Merger Agreement provides that Haverfield will use its best efforts
to cause each director, executive officer and other person who is deemed by
Haverfield to be an affiliate (for purposes of Rule 145) of Haverfield to
execute and deliver a written agreement with Charter One intended to ensure
compliance with the Securities Act.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion is a summary description of the anticipated
material federal income tax consequences of the Merger to Charter One,
Haverfield and Haverfield 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 adoption of the Merger Agreement and the Merger. Further,
the discussion does not address the tax consequences that may be relevant to a
particular Haverfield stockholder subject to special treatment under certain
federal income tax laws, such as dealers in securities, banks, insurance
companies, tax-exempt organizations, non-United States persons and stockholders
who acquired their shares as compensation, nor any consequences arising under
the laws of any state, locality or foreign jurisdiction. The discussion is based
upon the Internal Revenue Code of 1986, as amended, 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 HAVERFIELD 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.
Under current federal income tax law, and based upon assumptions and
representations to be made by Charter One and Haverfield, and assuming that the
Merger is consummated in the manner set forth in the Merger Agreement, it is
anticipated that the following federal income tax consequences would result: (i)
the Merger will constitute a tax-free reorganization within the meaning of
Section 368(a) of the Code and neither Charter One nor Charter Michigan nor
Haverfield will recognize any gain or loss as a direct consequence of
consummating the Merger; (ii) no gain or loss will be recognized by any
Haverfield stockholder upon the exchange of Haverfield Common Stock solely for
Charter One Common Stock pursuant to the Merger, and the tax basis of the
Charter One Common Stock received by each stockholder of Haverfield who
exchanges Haverfield Common Stock for Charter One Common Stock in the Merger
will be the same as the aggregate tax basis of the Haverfield 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); (iii) the holding period of the shares of Charter One Common
Stock received by a Haverfield stockholder in the Merger will include the
holding period of the Haverfield Common Stock surrendered in exchange therefor,
provided that such shares of Haverfield Common Stock were held as a capital
asset by such stockholder at the Effective Time; and (iv) cash received in the
Merger by a Haverfield 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 Haverfield
Common Stock surrendered in exchange therefor was held as a capital asset by
such stockholder at the Effective Time).
Silver Freedman & Taff, L.L.P., counsel to Charter One, will render an
opinion, dated as of the Effective Time, that the Merger will qualify as a
reorganization under the Code with the consequences set forth above. The Silver,
Freedman & Taff, L.L.P. opinion will 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 Haverfield, which waiver is not expected to be made, consummation of the
Merger is conditioned upon the receipt by Charter One and Haverfield of the
opinion of Silver, Freedman & Taff, L.L.P. See "-- Conditions to the Merger."
In the event that Silver, Freedman & Taff, L.L.P. is unable to furnish
the opinion as described herein, the tax consequences of the Merger are
materially different than described above, and both Charter One and Haverfield
waive the condition of receipt of the opinion of Silver, Freedman & Taff,
L.L.P., Haverfield stockholders will be resolicited
32
<PAGE> 43
and provided updated information regarding the material federal income tax
consequences of the Merger prior to consummation of 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, Haverfield or Haverfield 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.
NASDAQ LISTING
Both Charter One Common Stock and Haverfield 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
Haverfield pursuant to the Merger Agreement will be quoted on the Nasdaq
National Market. See "-- Conditions to the Merger."
33
<PAGE> 44
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Combined Statement of Financial
Condition as of March 31, 1997 combines the historical consolidated statements
of financial condition of Charter One and its subsidiaries with Haverfield and
its subsidiaries and RCSB and its subsidiaries as if Charter One had consummated
the Merger and the RCSB Merger on March 31, 1997, after giving effect to certain
pro forma adjustments described in the accompanying notes. The following
Unaudited Pro Forma Combined Statements of Income for the three-month periods
ended March 31, 1997 and 1996 and for each of the years in the three-year period
ended December 31, 1996 present the combined historical results of operations of
Charter One and its subsidiaries with Haverfield and its subsidiaries and RCSB
and its subsidiaries as if Charter One had consummated the Merger and the RCSB
Merger on January 1, 1994. Both Charter One's and Haverfield's fiscal years end
December 31. Since RCSB has a fiscal year end as of November 30, all financial
information for RCSB is stated as of the respective quarter ended May 31, 1997
and 1996 or year ended November 30, 1996, 1995 and 1994. Pro forma per share
amounts are based on the Exchange Ratio (based on the market price of Charter
One Common Stock as of March 31, 1997 of $44.00 per share) of .6136 shares of
Charter One Common Stock for each share of Haverfield Common Stock and an
exchange ratio of .91 shares of Charter One Common Stock for each share of RCSB
Common Stock. See "RECENT DEVELOPMENTS" and "THE MERGER - Exchange Ratio." The
Merger and the RCSB Merger are expected to close in the late third quarter or
early fourth quarter of 1997.
The Unaudited Pro Forma Combined Financial Statements and related
footnotes account for the Merger as a purchase for accounting purposes and the
RCSB Merger using the pooling of interests method of accounting. Under the
pooling of interests method of accounting, the recorded assets, liabilities,
stockholders' equity, income and expenses of Charter One and RCSB are combined
and recorded at their historical cost-based amounts, except as noted below and
in the footnotes.
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 and the RCSB Merger
been consummated as of the date or at the beginning of the periods presented.
The Unaudited Pro Forma Combined Statements of Income do not reflect the cost to
effect the Merger, the RCSB Merger and to combine operations, or any expected
cost savings therefrom. 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 Haverfield, which are incorporated by reference herein. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." See also "MANAGEMENT AND
OPERATIONS AFTER THE RCSB MERGER -- Consolidation of Operations."
34
<PAGE> 45
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED STATEMENT OF FINANCIAL CONDITION
AT MARCH 31, 1997
---------------------------------------------------------------------------------------
COMBINED
HAVERFIELD PRO FORMA FOR
CHARTER ONE HAVERFIELD PRO FORMA CHARTER ONE/
AS REPORTED AS REPORTED ADJUSTMENTS HAVERFIELD
------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents ................ $ 168,357 $ 5,302 -- $ 173,659
Mortgage-backed securities:
Available for sale ................... 1,069,830 1,965 -- 1,071,795
Held to maturity ..................... 3,495,098 -- -- 3,495,098
Investment securities:
Available for sale ..................... 281,448 28,863 -- 310,311
Held to maturity ..................... -- -- -- --
Loans and leases, net .................... 8,472,041 294,143 $ 273 (1) 8,766,457
Federal Home Loan Bank stock ............. 217,917 2,849 -- 220,766
Premises and equipment ................... 115,167 4,324 -- 119,491
Accrued interest receivable .............. 76,962 2,548 -- 79,510
Equipment on operating leases ............ 19,979 -- -- 19,979
Real estate owned ........................ 6,330 -- -- 6,330
Loan servicing assets .................... 2,605 -- 1,627 (2) 4,232
Goodwill ................................. 63,330 -- 24,372 (3) 87,702
Other assets ............................. 42,524 1,670 -- 44,194
----------- -------- -------- ------------
Total assets ........................... $14,031,588 $341,664 $ 26,272 $ 14,399,524
=========== ======== ======== ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES: .............................
Deposits ............................... $ 7,839,479 $273,226 $ 2,393 (4) 8,115,098
Federal Home Loan Bank Advances ........ 3,081,274 32,000 1,086 (5) 3,114,360
Reverse repurchase agreements .......... 1,735,966 -- -- 1,735,966
Other borrowings ....................... 211,616 -- -- 211,616
Advance payments by borrowers for
taxes and insurance ................. 40,303 3,531 -- 43,834
Accrued interest payable ............... 40,777 1,995 -- 42,772
Accrued expenses and other liabilities . 136,406 2,237 -- 138,643
----------- -------- -------- ------------
Total liabilities ................. 13,085,821 312,989 3,479 13,402,289
----------- -------- -------- ------------
STOCKHOLDERS' EQUITY:
Common stock and paid-in capital ....... 322,466 16,529 (16,529)(7) 373,934
51,468 (6)
Retained earnings ...................... 666,703 12,692 (12,692)(7) 666,703
Loans to employee stock plan ........... -- -- -- --
Treasury stock ......................... (44,560) (122) 122 (7) (44,560)
Net unrealized gain (loss) on securities 1,158 (424) 424 (7) 1,158
----------- -------- -------- ------------
Total stockholders' equity ......... 945,767 28,675 22,793 997,235
----------- -------- -------- ------------
Total liabilities and
stockholders' equity ........... $14,031,588 $341,664 $ 26,272 $ 14,399,524
=========== ======== ======== ============
<CAPTION>
UNAUDITED PRO FORMA COMBINED STATEMENT OF FINANCIAL CONDITION
AT MARCH 31, 1997
-------------------------------------------------------------
RCSB COMBINED PRO FORMA
RCSB AS PRO FORMA FOR CHARTER ONE
REPORTED ADJUSTMENTS /HAVERFIELD/RCSB
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents ................ $ 75,916 $ (52,500)(8) $ 197,075
Mortgage-backed securities:
Available for sale ................... 15,808 -- 1,087,603
Held to maturity ..................... 1,544,536 -- 5,039,634
Investment securities:
Available for sale ..................... 6,131 -- 316,442
Held to maturity ..................... 76 -- 76
Loans and leases, net .................... 2,196,707 -- 10,963,164
Federal Home Loan Bank stock ............. 41,568 -- 262,334
Premises and equipment ................... 39,528 (26,500)(8) 132,519
Accrued interest receivable .............. 22,289 -- 101,799
Equipment on operating leases ............ -- -- 19,979
Real estate owned ........................ 6,111 -- 12,441
Loan servicing assets .................... 93,206 -- 97,438
Goodwill ................................. 7,545 -- 95,247
Other assets ............................. 54,946 24,000 (9) 123,140
------------ ------------ ------------
Total assets ........................... $ 4,104,367 $ (55,000) $ 18,448,891
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES: .............................
Deposits ............................... $ 2,342,879 -- $ 10,457,977
Federal Home Loan Bank Advances ........ 112,150 -- 3,226,510
Reverse repurchase agreements .......... 1,113,468 -- 2,849,434
Other borrowings ....................... 479 -- 212,095
Advance payments by borrowers for
taxes and insurance ................. 92,061 -- 135,895
Accrued interest payable ............... 5,087 -- 47,859
Accrued expenses and other liabilities . 125,666 -- 264,309
------------ ------------ ------------
Total liabilities ................. 3,791,790 -- 17,194,079
------------ ------------ ------------
STOCKHOLDERS' EQUITY:
Common stock and paid-in capital ....... 176,562 $ (28,912)(10) 521,584
Retained earnings ...................... 171,485 (55,000)(11) 783,188
Loans to employee stock plan ........... (2,805) -- (2,805)
Treasury stock(18)...................... (28,912) 28,912 (11) (44,560)
Net unrealized gain (loss) on securities (3,753) -- (2,595)
------------ ------------ ------------
Total stockholders' equity ......... 312,577 (55,000) 1,254,812
------------ ------------ ------------
Total liabilities and
stockholders' equity ........... $ 4,104,367 $ (55,000) $ 18,448,891
============ ============ ============
</TABLE>
See "Notes to Unaudited Pro Forma Combined Financial Statements."
35
<PAGE> 46
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997
----------------------------------------------------------------------------------
Combined
Pro Forma
for Charter
Charter One Haverfield Pro Forma One/ RCSB as
as Reported as Reported Adjustments Haverfield Reported
----------- ----------- ----------- ---------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Interest income......................... $ 255,793 $ 6,803 ($6)(12) $ 262,590 $ 76,158
Interest expense........................ 158,267 3,725 (225)(13) 161,767 42,786
------------ ------------ ---- ----------- -------------
Net interest income................... 97,526 3,078 219 100,823 33,372
Provision for loan and lease losses..... 220 96 --- 316 4,092
-------------- ------------- ------ ------------- -------------
Net interest income after provision for
loan and lease losses................ 97,306 2,982 219 100,507 29,280
Net gain on sales....................... 87 --- --- 87 0
Other income............................ 15,094 566 (36)(14) 15,624 15,790
Other expenses.......................... 46,697 2,318 406 (15) 49,421 32,502
------------- ------------ --- ---------- -------------
Income before income taxes.............. 65,790 1,230 (223) 66,797 12,568
Provision for income taxes.............. 21,704 418 --- 22,122 4,332
------------ ------------ ------ ----------- --------------
Net income.............................. $ 44,086 $ 812 ($223) $ 44,675 $ 8,236
============ ============ ===== =========== =============
Earnings per common and common
equivalent share(16):
Primary.............................. $ .93 $ .43 $ 0.92 $ 0.55
============= ============= ============= ============
Fully diluted........................ $ .93 $ .43 $ 0.92 $ 0.55
============= ============= ============= ============
Weighted average common and
common equivalent shares(16):
Primary.............................. 47,625,723 1,906,349 48,795,459 14,941,966
========== ========= ========== ==========
Fully diluted........................ 47,627,721 1,906,349 48,797,457 14,998,306
========== ========= ========== ==========
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, 1997
----------------------
Combined
Pro Forma
for Charter One
/Haverfield/RCSB
----------------
<S> <C>
Interest income......................... $ 338,748
Interest expense........................ 204,553
-------------
Net interest income................... 134,195
Provision for loan and lease losses..... 4,408
-------------
Net interest income after provision for
loan and lease losses................ 129,787
Net gain on sales....................... 87
Other income............................ 31,414
Other expenses.......................... 81,923
-------------
Income before income taxes.............. 79,365
Provision for income taxes.............. 26,454
-------------
Net income.............................. $ 52,911
=============
Earnings per common and common
equivalent share(16):
Primary.............................. $ 0.85
============
Fully diluted........................ $ 0.85
============
Weighted average common and
common equivalent shares(16):
Primary.............................. 62,392,648
============
Fully diluted........................ 62,445,915
============
</TABLE>
See "Notes to Unaudited Pro Forma Combined Financial Statements."
36
<PAGE> 47
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------------------------
COMBINED
PRO FORMA
FOR CHARTER
CHARTER ONE HAVERFIELD PRO FORMA ONE/ RCSB AS
AS REPORTED AS REPORTED ADJUSTMENTS HAVERFIELD REPORTED
----------- ----------- ----------- ---------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Interest income....................... $1,004,478 $ 27,292 ($ 25) $ 1,031,745 $ 293,618
Interest expense...................... 621,086 14,742 (1,677) 634,151 164,237
----------- ----------- ------ ------------ -----------
Net interest income................. 383,392 12,550 1,652 397,594 129,381
Provision for loan and lease losses... 4,001 309 --- 4,310 13,548
------------ ------------- ------ ------------- -----------
Net interest income after provision
for loan and lease losses.......... 379,391 12,241 1,652 393,284 115,833
Net gain on sales..................... 1,893 --- --- 1,893 1,900
Other income.......................... 55,245 2,005 (149) 57,101 63,259
Federal deposit insurance special
assessment.......................... 56,258 1,962 --- 58,220 ---
Other administrative expenses......... 187,766 10,000 1,625 199,391 123,442
---------- ----------- ------ ------------ -----------
Income before income taxes............ 192,505 2,284 (122) 194,667 57,550
Provision for income taxes............ 64,783 777 --- 65,560 17,845
---------- ----------- ------ ------------ ----------
Net income............................ $ 127,722 $ 1,507 ($122) $ 129,107 $ 39,705
========== =========== ===== ============ ==========
Earnings per common and common
equivalent share (16):
Primary............................ $ 2.67 $ .79 $ 2.63 $ 2.67
=========== ========== ============ ==========
Fully diluted...................... $ 2.64 $ .79 $ 2.61 $ 2.36
=========== ========== ============ ==========
Weighted average common and
common equivalent shares (16):
Primary............................ 47,916,192 1,901,094 49,082,703 13,920,621
=========== ========== ========== ==========
Fully diluted...................... 48,297,472 1,901,094 49,463,983 16,811,699
=========== ========== ========== ==========
<CAPTION>
UNAUDITED PRO FORMA COMBINED
STATEMENTS OF INCOME
FOR THE YEAR ENDED
DECEMBER 31, 1996
--------------------
COMBINED
PRO FORMA
FOR CHARTER ONE
/HAVERFIELD/RCSB
----------------
<S> <C>
Interest income....................... $1,325,363
Interest expense...................... 798,388
----------
Net interest income................. 526,975
Provision for loan and lease losses... 17,858
----------
Net interest income after provision
for loan and lease losses.......... 509,117
Net gain on sales..................... 3,793
Other income.......................... 120,360
Federal deposit insurance special
assessment.......................... 58,220
Other administrative expenses......... 322,833
----------
Income before income taxes............ 252,217
Provision for income taxes............ 83,405
----------
Net income............................ $ 168,812
==========
Earnings per common and common
equivalent share (16):
Primary............................ $ 2.69
==========
Fully diluted...................... $ 2.61
==========
Weighted average common and common
equivalent shares (16):
Primary............................ 61,750,468
==========
Fully diluted...................... 64,762,629
==========
</TABLE>
See "Notes to Unaudited Pro Forma Combined Financial Statements."
37
<PAGE> 48
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Pursuant to the Merger Agreement and consistent with generally accepted
accounting principles, Charter One, Haverfield and RCSB expect that costs
incurred to effect the Merger and the RCSB Merger, which would include
transaction costs of the Merger, the RCSB Merger and costs to combine
operations, will be deducted in determining net income in the period in which
they are incurred. 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, Haverfield and RCSB.
(1) Adjustment of loan portfolio to estimated fair value.
(2) To record estimated fair value of loan servicing portfolio.
(3) To record cost in excess of fair value of assets acquired.
(4) Adjustment of savings deposit accounts to fair value.
(5) Adjustment of FHLB advances to fair value.
(6) To reflect the issuance of 1,169,736 shares of Charter One Financial
common stock at $44.00 per share.
(7) Elimination of Haverfield equity accounts.
(8) Transaction costs of the Merger and the RCSB Merger (primarily
investment banker and other professional fees) and costs to combine
operations are expected to be in the range of $73 million to $85
million pre-tax (the "Expected Range") or $50 million to $60 million
after-tax. 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 ($79 million). It is anticipated that these charges will
be incurred and recognized by Charter One, Haverfield, and RCSB and
substantially paid by the end of 1997. The following table provides
details of the estimated charges by type of cost:
<TABLE>
<CAPTION>
EXPECTED RANGE OF EXPECTED RANGE OF
TYPE OF COST PRE-TAX COST AFTER-TAX COST
<S> <C> <C>
Transaction costs $7 to $9 million $7 to $9 million
Costs to combined operations:
Severance and other employee termination costs $31 to $37 million $20 to $24 million
Duplicative systems, facilities costs, and related intangibles $25 to $28 million $16 to $18 million
Other costs incidental to the Merger and the RCSB Merger $10 to $11 million $7 to $9 million
Total transaction costs and costs to combine operations $73 to $85 million $50 to $60 million
</TABLE>
(9) Represents the expected income tax benefit associated with the pro
forma adjustments.
(10) Adjustments to eliminate the Haverfield and RCSB treasury stock
accounts.
(11) Represents the expected after-tax effect of the pro forma adjustments,
as described in note (1) above, assuming a federal income tax rate of
35%.
(12) Pro forma amortization of purchase accounting premiums of loans.
(13) Pro forma amortization of the purchase accounting premiums on
interest-bearing liabilities.
38
<PAGE> 49
(14) Pro forma amortization of the purchase accounting premium relating to
loan servicing assets.
(15) Pro forma amortization of goodwill.
(16) The pro forma combined per share data has been computed based on the
combined historical income before extraordinary items and on the
combined historical weighted average common and common equivalent
shares outstanding assuming the issuance of .6136 shares of Charter One
Common Stock for each share of Haverfield Common Stock based on the
Exchange Ratio (based on the market price of Charter One Stock as of
March 31, 1997) and .91 shares of Charter One Common Stock for each
share of RCSB Common Stock. See "THE MERGER -- Exchange Ratio."
(17) The estimated pro forma effect on future periods' results of operations
of the amortization of purchase accounting valuation adjustments in
connection with Charter One Financial's acquisition of Haverfield on
the basis of assumptions explained herein would be as follows:
(18) On August 8, 1997 Charter One terminated its stock repurchase program.
<TABLE>
<CAPTION>
ACCRETION
OF PREMIUM
ACCRETION OF ACCRETION OF ON INTEREST- AMORTIZATION OF NET EFFECT
PREMIUM ON PREMIUM ON LOAN BEARING INTANGIBLE ON RESULTS OF
PERIOD LOANS SERVICING ASSET LIABILITIES ASSETS ACQUIRED OPERATIONS
- ------------------------------------------- ------------ ---------------- ------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
Pro forma Historical:
Year ended December 31, 1996 $ (25) $ (149) $1,677 $ (1,625) $ (122)
Three months ended March 31, 1997 (6) (36) 225 (406) (223)
-------- --------- -------- ---------- ---------
Total (31) (185) 1,902 (2,031) (345)
------- -------- ------- --------- ---------
Pro forma Projected:
Nine months ended December 31, 1997 (15) (89) 650 (1,219) (673)
Year ended December 31, 1998 (19) (113) 449 (1,625) (1,308)
Year ended December 31, 1999 (17) (101) 191 (1,625) (1,552)
Year ended December 31, 2000 (15) (89) 168 (1,625) (1,561)
Year ended December 31, 2001 (14) (83) 72 (1,625) (1,650)
Year ended December 31, 2002 (13) (77) 47 (1,625) (1,668)
Year ended December 31, 2003- (149) (890) 0 (12,997) (14,036)
------ --------- ---------- --------- ---------
Total (242) (1,442) 1,577 (22,341) (22,448)
------ -------- ------- --------- ---------
Total $(273) $(1,627) $3,479 $(24,372) $(22,793)
====== ======== ====== ========= =========
</TABLE>
Premiums on acquired interest earning assets and interest-bearing liabilities
are expected to be amortized using the level- yield method over the contractual
lives adjusted for estimated prepayments. The cores deposit intangible will be
amortized over the estimated life of the related deposits. Goodwill will be
amortized straight line over 15 years.
39
<PAGE> 50
UNAUDITED PRO FORMA PER SHARE DATA
The following table presents selected per share data for Charter One,
Haverfield and RCSB on an historical and a pro forma basis as if Charter One had
consummated the Merger and the RCSB Merger as of the dates or at the beginning
of each of the periods indicated. The Merger is expected to be treated as a
purchase for accounting purposes, the RCSB 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 methods.
The information shown below should be read in conjunction with the
historical consolidated financial statements of Charter One, Haverfield and RCSB
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 "UNAUDITED PRO FORMA COMBINED FINANCIAL
STATEMENTS-- Notes to Unaudited Pro Forma Combined Financial Statements" for a
description of assumptions and adjustments used in preparing the unaudited pro
forma financial data. Both Charter One's and Haverfield's fiscal years end
December 31. Since RCSB has a fiscal year end as of November 30, all financial
information for RCSB is stated as of the respective quarter ended May 31, 1997
and 1996 or year ended November 30, 1996, 1995 and 1994. 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>
COMBINED COMBINED
PRO FORMA PRO FORMA PRO FORMA
FOR CHARTER HAVERFIELD FOR CHARTER
CHARTER ONE HAVERFIELD ONE/ EQUIVALENT RCSB AS ONE/HAVERFIELD
AS REPORTED AS REPORTED HAVERFIELD SHARES REPORTED /RCSB
----------- ----------- ---------- ------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
Book value per common share at(1):
March 31, 1997............................... $20.41 $15.04 $20.51 $12.58 $21.42 $21.17
December 31, 1996............................. 19.85 14.87 19.95 12.24 21.12 20.69
Shares outstanding at:
March 31, 1997................................ 46,338,721 1,906,349 47,508,457 --- 14,590,975 60,786,244
December 31, 1996............................. 46,442,723 1,906,349 47,612,459 --- 15,331,282 61,563,925
Cash dividends declared per common share for
the period ended(2):
March 31, 1997................................ 0.23 0.14 0.23 0.14 0.15 0.21
December 31, 1996............................. 0.86 0.54 0.86 0.53 0.51 0.86
Income per common and common equivalent
share before extraordinary item
(primary) for the period ended(3):
March 31, 1997................................ 0.93 0.43 0.92 0.56 0.55 0.85
December 31, 1996............................. 2.67 0.79 2.63 1.61 2.67 2.69
Income per common and common equivalent
share before extraordinary item (fully
diluted) for the period ended(3):
March 31, 1997................................ 0.93 0.43 0.92 0.56 0.55 0.85
December 31, 1996............................. 2.64 0.79 2.61 1.60 2.36 2.61
</TABLE>
40
<PAGE> 51
- ------------------------
(1) The pro forma combined book value per common share represents the
historical combined stockholders' equity for Charter One, Haverfield
and RCSB 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 Haverfield Common Stock outstanding at the dates indicated
and the Exchange Ratio of .6136 plus the product of the number of
shares of RCSB common stock outstanding at the dates indicated and the
exchange ratio of .91). The Haverfield pro forma equivalent book value
per common share represents the pro forma combined book value per
common share multiplied by the Exchange Ratio of .6136. See "THE MERGER
-- Exchange Ratio."
(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 Haverfield 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 .6136.
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" and "THE MERGER -- Exchange Ratio."
(3) The pro forma combined per share income amounts are based upon the
combined historical income amounts before extraordinary items for
Charter One, Haverfield and RCSB 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 weighted average number of common and
common equivalent shares of Haverfield Common Stock outstanding for the
periods indicated and the Exchange Ratio of .6136 plus the product of
the weighted average number of common and common equivalent shares of
RCSB common stock outstanding for the periods indicated and the
exchange ratio of .91. The Haverfield pro forma equivalent per share
income amounts represent the pro forma combined per share income
amounts multiplied by the Exchange Ratio of .6136. See "THE MERGER --
Exchange Ratio."
MANAGEMENT AND OPERATIONS AFTER THE RCSB MERGER
DIRECTORS AFTER THE MERGERS
The Charter One Board will not change as a result of the Merger.
However, immediately following consummation of the RCSB Merger (which is subject
to adoption by Charter One stockholders and RCSB stockholders, as well as
receipt of certain regulatory approvals) Leonard S. Simon, the current Chairman,
President and Chief Executive Officer of RCSB and Rochester will be appointed to
the Charter One Board to serve for a term expiring at Charter One's annual
meeting held in the year 2000. Mr. Simon will serve as a Vice Chairman of the
Charter One Board. Furthermore, subject to adoption of an amendment to Charter
One's Certificate of Incorporation by Charter One stockholders, the size of the
Charter One Board will be increased to 19 members and Messrs. Michael P. Morley,
Ronald F. Poe and John P. Tierney, each of whom is currently serving as a
director of RCSB, will be appointed to the Charter One Board. Messrs. Morley,
Poe and Tierney will be appointed to such classes of directors of Charter One as
the Charter One Board shall designate. Messrs. Simon, Morley, Poe and Tierney
will each be appointed to the Board of Directors of Charter Michigan and,
subject to regulatory approval, to the Charter One Bank Board, to serve for the
same term as his term as a director of Charter One.
41
<PAGE> 52
Set forth below is certain information, as of the date of this Proxy
Statement/Prospectus, with respect to each individual who currently is, or is
expected to become, a member of the Charter One Board and the Charter One Bank
Board upon consummation of Merger and RCSB Merger.
<TABLE>
<CAPTION>
YEAR BECAME A
DIRECTOR OF CHARTER PRINCIPAL OCCUPATION
NAME ONE(C) OR RCSB(R) AGE DURING PAST FIVE YEARS
---- ----------------- --- ----------------------
<S> <C> <C>
Eugene B. Carroll, Sr. 1987(C) 72 President of Employer Sponsored Plans, Inc. (third-
party health plan administrator); agent for New
England Mutual Life Insurance Co.
Phillip W. Fisher 1997(C) 46 Chairman of Durakon Industries, Principal of the
Fisher Group, Partner in the Chase Company and
General Partner in Edcor Data Services
Denise M. Fugo 1993(C) 43 President of City Life Inc. (restaurant, banquet and
catering company)
Mark D. Grossi 1992(C) 42 Executive 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(C)(1) 71 Retired President, Chief Operating Officer and
Director of The Detroit Edison Company (public
utility)
Charles F. Ipavec 1987(C) 74 General counsel to Charter One Bank; President of
LaPorte and Ipavec Co., L.P.A.
Charles John Koch (2) 1987(C) 51 Chairman of the Board, President and Chief
Executive Officer of Charter One and Charter One
Bank
John D. Koch (2) 1995(C) 45 Executive Vice President of Charter One; Executive
Vice President/Chief Lending and Credit Officer of
Charter One Bank
Philip J. Meathe 1976(C)(1) 70 Retired Chairman of the Board and Chief Executive
Officer of Smith, Hinchman & Grylls Associates,
Inc. (firm composed of architects, engineers and
planners)
Michael P. Morely 1995(R)(3) 54 Senior Vice President and Director of Human
Resources of Eastman Kodak Company of
Rochester, New York
Richard W. Neu 1992(C)(1) 41 Executive Vice President and Chief Financial
Officer of Charter One and Executive Vice
President/Chief Financial Officer of Charter One
Bank since October 1995; Treasurer of FirstFed
prior to the FirstFed Merger
Henry R. Nolte, Jr. 1983(C)(1) 72 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
Ronald F. Poe 1988(R)(3) 58 Chairman and Chief Executive Officer of Dorman
&Wilson, Inc., a real estate investment banking
firm; Director of the Federal Home Loan Mortgage
Corporation
Victor A. Ptak 1989(C) 64 General partner and manager of J.C. Bradford & Co.
office (investment firm)
</TABLE>
42
<PAGE> 53
<TABLE>
<CAPTION>
YEAR BECAME A
DIRECTOR OF CHARTER PRINCIPAL OCCUPATION
NAME ONE(C) OR RCSB(R) AGE DURING PAST FIVE YEARS
---- ----------------- --- ----------------------
<S> <C> <C>
Jerome L. Schostak 1985(C)(1) 63 Chairman of the Board of Schostak Brothers &
Company, Inc. (full service real estate company),
and served as President until 1994
Mark Shaevsky 1985(C)(1) 61 Partner in Honigman Miller Schwartz and Cohn,
Attorneys at Law
Leonard S. Simon 1984(R)(2) 60 Chairman of the Board and Chief Executive
Officer of RCSB and Rochester since July 1983;
President of RCSB and Rochester since
September 1993
John P. Tierney 1996(R)(3) 65 Retired Chairman and Chief Executive Officer of
Chrysler Financial Corporation; Director of
ContiFinancial Corporation
Eresteen R. Williams 1979(C)(1) 70 Retired Medical Office Manager for D.G. Williams,
Jr., M.D., P.C.
<FN>
- --------------------------------------
(1) These directors were previously directors of FirstFed who became
directors in connection with Charter One's acquisition of FirstFed in
October 1995. With respect to such directors, includes service as a
member of the Board of Directors of First Federal prior to the
formation of FirstFed.
(2) Messrs. Charles John Koch and John D. Koch are brothers.
(3) Includes service as a member of the Board of Directors of Rochester
prior to the formation of RCSB.
</TABLE>
Charter One has agreed to take all necessary corporate action to
effectuate the foregoing which includes the Director Amendment. The amendments
to the charter of Charter One Bank are subject to the prior approval of the OTS.
OFFICERS AFTER THE MERGERS
The executive officers of Charter One and Charter One Bank will not
change as a result of the Merger. However, upon consummation of the RCSB Merger
(which is subject to approval of Charter One stockholders and RCSB stockholders,
as well as receipt of certain regulatory approvals) 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 - Executive Vice President and Chief Financial
Officer of Charter One and Executive Vice President/Chief Financial Officer of
Charter One Bank; John D. Koch - Executive Vice President of Charter One and
Executive Vice President/Chief Lending and Credit Officer of Charter One Bank;
Mark D. Grossi - Executive Vice President of Charter One and Executive Vice
President/Retail Banking of Charter One Bank; Leonard S. Simon - Vice Chairman
of the Charter One Board; Edward J. Pettinella - Executive Vice President of
Business Development of Charter One and Charter One Bank; and Robert J. Vana -
Chief Corporate Counsel and Secretary of Charter One and Charter One Bank. All
of the foregoing officers, except for Messrs. Simon and Pettinella, currently
serve in such capacities with Charter One and/or Charter One Bank. Mr. Simon
currently serves as Chairman of the Board, President and Chief Executive Officer
of RCSB and Rochester. Mr. Pettinella currently serves as an Executive Vice
President of RCSB and Rochester.
CONSOLIDATION OF OPERATIONS
Upon consummation of the Merger and, subject to consummation of the
RCSB Merger, the combined company will be headquartered in Cleveland. The
combined institution will have 218 full service offices located in Ohio,
Michigan and New York, with approximately $10 billion in total deposits. After
consummation of the Merger and the RCSB Merger, Charter One will remain a well
capitalized institution under current regulatory requirements.
43
<PAGE> 54
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 consummation of
the Merger and the RCSB Merger 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. Any dividend declared by the Charter One Board will
be consistent with its analysis of the factors detailed above, and there can be
no assurance as to any future dividends. See also "Comparative Stock Prices and
Dividend Information."
DESCRIPTION OF CHARTER ONE FINANCIAL, INC. CAPITAL STOCK
The following information does not purport to be complete and is
subject to and qualified in its entirety by reference to the provisions of the
Charter One Certificate of Incorporation (the "Charter One Certificate").
GENERAL
The Charter One Certificate authorizes the issuance by Charter One of
up to 200,000,000 shares of its capital stock consisting of 180,000,000 shares
of Charter One Common Stock (par value $.01 per share) and 20,000,000 shares of
Charter One Preferred Stock (par value $.01 per share). As of the Record Date
_________ shares of Charter One Common Stock and no shares of Charter One
Preferred Stock were issued and outstanding. The Charter One Common Stock is
traded on the Nasdaq National Market under the symbol "COFI." See "SUMMARY --
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.
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. See "COMPARISON
OF RIGHTS OF STOCKHOLDERS OF CHARTER ONE FINANCIAL, INC. AND HAVERFIELD
CORPORATION -- Restrictions on Voting Rights; Quorum" and "Rights 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. Attached to each share of Charter One Common Stock is a
"Right" entitling the holder thereof to purchase shares of Series A
Participating Preferred Stock of Charter One upon the occurrence of certain
events as more fully described in the Rights Agreement. See "COMPARISON OF
RIGHTS OF STOCKHOLDERS OF CHARTER ONE FINANCIAL, INC. AND HAVERFIELD
CORPORATION."
44
<PAGE> 55
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 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 20,000,000 shares of Charter One Preferred Stock (par value $.01 per
share), none of which was issued and outstanding as of the Record Date 1997.
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 HAVERFIELD CORPORATION -- Rights Agreement."
COMPARISON OF RIGHTS OF STOCKHOLDERS OF
CHARTER ONE FINANCIAL, INC. AND HAVERFIELD CORPORATION
INTRODUCTION
Upon the consummation of the Merger, holders of Haverfield's Common
Stock, whose rights are presently governed by Ohio law and Haverfield's articles
of incorporation and Code of Regulations (the "Haverfield Articles" and
"Haverfield Regulations," respectively) and, indirectly, Home Bank'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 ("DGCL") and the Charter One Certificate and bylaws of Charter One (the
"Charter One Bylaws") and, indirectly, Charter Michigan's articles of
incorporation (the "Charter Michigan Articles") and bylaws (the "Charter
Michigan Bylaws") and Charter One Bank's charter and bylaws. Certain differences
arise from the change in governing law, as well as from differences between the
Haverfield Articles and Haverfield Regulations and the Charter One Certificate
and Charter One Bylaws and between the charter and bylaws of Home Bank 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 OGCL, the DGCL, the Charter One Certificate and the Charter One Bylaws, the
Haverfield Articles and the Haverfield Bylaws, the Charter Michigan Articles and
the Charter Michigan Bylaws, and the respective charters and bylaws of Home Bank
and Charter One Bank.
ISSUANCE OF CAPITAL STOCK
The Haverfield Articles authorize the issuance of 5,000,000 shares of
common stock, par value $0.01 per share, and 1,000,000 shares of preferred
stock, par value $1.00 per share. The Charter One Certificate currently
authorizes the issuance of 180,000,000 shares of common stock, par value $.01
per share, and 20,000,000 shares of serial preferred
45
<PAGE> 56
stock, par value $.01 per share. As of the Record Date, ________ and
____________ shares of common stock (and no shares of preferred stock) of
Haverfield and Charter One, respectively, were issued and outstanding. For
information regarding the number of shares of Charter One's Common Stock that
would have been issued on a pro forma basis upon the consummation of the Merger
as of that date, see "UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS."
Haverfield and Charter One are each authorized to issue additional shares of
capital stock without stockholder approval up to the amount authorized.
PAYMENT OF DIVIDENDS
The ability of Charter One and Haverfield to pay dividends on their
common stock is governed by Delaware and Ohio corporate law, respectively.
Delaware corporations may pay dividends out of surplus or, if there is no
surplus, out of net profits for the fiscal year in which declared and for the
preceding fiscal year. Section 170 of the DGCL also provides that dividends may
not be paid out of net profits if, after the payment of the dividends, the
capital of the corporation is less than the capital represented by the
outstanding stock of all classes having a preference upon the distribution of
assets.
Section 1701.33 of the OGCL provides that dividends may be paid out of
surplus in cash, property or shares of the corporation's capital stock. The
dividend may not exceed the combination of the surplus of the corporation and
the difference between (i) the reduction in surplus resulting from recognition
of the transition obligation under Statement of Financial Accounting Standards
No. 106 ("SFAS No. 106") issued by the Financial Accounting Standards Board and;
(ii) the aggregate of the transition obligation that would have been recognized
at the date of the declaration of dividend if the corporation had elected to
amortize its recognition of the transition obligation under SFAS No. 106. The
OGCL further provides that a corporation must notify its stockholders if a
dividend is paid out of capital surplus.
The ability of Haverfield 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 "SUMMARY --
Comparative Stock Prices and Dividend Information" for additional information.
ADVANCE NOTICE REQUIREMENTS FOR NOMINATIONS OF DIRECTORS AND PRESENTATION OF NEW
BUSINESS AT ANNUAL MEETINGS OF STOCKHOLDERS
The Haverfield Regulations generally provide that any stockholder
desiring to bring a proposal for new business before any annual meeting of
stockholders must submit written notice to Haverfield at least five days in
advance of the meeting, together with certain information. In order to make a
nomination for the election of a director under the Haverfield Regulations, a
stockholder must provide Haverfield with written notice of such nomination, in
prescribed form, not less than 45 days nor more than 90 days prior to a meeting
where directors are to be elected; provided that if less than 60 days notice of
the meeting is given, notice must be received by Haverfield not more than 15
days following the date on which notice of the meeting was mailed or made
publicly available.
The Charter One Bylaws specify that notice of any stockholder
nomination or proposal for new business must be received by Charter One at least
60 but no more than 90 days in advance of the annual 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 no later than the
tenth day following the earlier of the date such notice is given or public
disclosure made.
CUMULATIVE VOTING FOR ELECTION OF DIRECTORS
Both the Haverfield Articles and the Charter One Certificate provide
that stockholders are not permitted to cumulate their votes 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.
46
<PAGE> 57
RESTRICTIONS ON VOTING RIGHTS; QUORUM
The Haverfield Articles do not contain any restrictions on voting
rights. The Charter One Certificate currently restricts the voting rights of any
Related Person (as defined in the Charter One Certificate) with respect to each
vote in excess of 20% of the voting power of the outstanding shares to 1/100 of
a vote.
The Haverfield Regulations provide that the holders of a majority of
shares of common stock entitled to vote present in person or by proxy 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 voting power will be considered for purposes of determining a quorum.
NUMBER AND TERM OF DIRECTORS
Pursuant to the Haverfield Regulations, the Board of Directors shall
consist of not less than 7 nor more than 15 members. The Haverfield Regulations
provide that the Board of Directors shall consist of 7 directors unless the
Board of Directors determines otherwise. The Haverfield Regulations further
provide that the Board of Directors will be divided into two classes each of
which will have at least three directors with the term of office of each class
lasting three years.
The Charter One Certificate provides that its Board may consist of
between seven and 16 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 April 24, 1997, Charter One's directors
resolved that the Board of Directors shall consist of 15 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. See
"MANAGEMENT AND OPERATIONS AFTER THE RCSB MERGER" and "-- Special Provisions to
Charter One's Bylaws."
REMOVAL OF DIRECTORS
The Haverfield Regulations provide that directors may be removed (i)
for cause by the vote of the majority of the shares entitled to vote and (ii)
without cause by the vote of at least two-thirds of the shares entitled to vote,
cast at a meeting of stockholders called for such purpose.
Charter One's Certificate provides 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 an annual meeting of stockholders or at a
meeting of stockholders called expressly for that purpose. 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
Both the Haverfield Regulations and the Charter One Certificate 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
hold office for a term expiring at the meeting of stockholders at which the term
of the class to which they have been elected expires.
AMENDMENT OF CHARTER DOCUMENTS
To amend an Ohio corporation's articles of incorporation, Section
1701.71 of the OGCL requires the approval of stockholders holding two-thirds of
the voting power of the corporation or, in cases when class voting is required,
of stockholders holding two-thirds of the voting power of each such class,
unless otherwise specified in such corporation's articles of incorporation. The
Haverfield Articles require that amendments be approved by the affirmative vote
of the holders of a majority of the voting power entitled to vote on such
matter, except that the affirmative vote of the holders
47
<PAGE> 58
of not less than 75% of the shares having voting power with respect to such
matters are required to amend, change or adopt any provisions inconsistent with,
or to repeal the provisions of the Haverfield Articles dealing with, control
share acquisitions and business combinations.
Section 242 of the DGCL requires approval of stockholders holding in
majority of the voting power of a corporation's voting stock in order to amend a
corporation's certificate of incorporation. 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 the provision 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.
AMENDMENT AND REPEAL OF REGULATIONS AND BYLAWS
Section 1701.11 of the OGCL provides that only the stockholders of a
corporation have the power to adopt, amend and repeal the corporation's Code of
Regulations. Haverfield's Regulations may be changed, amended, or repealed in
whole or in part and a new Code of Regulation may be adopted by a majority of
Haverfield's shares entitled to vote at any annual or special meeting at which
proper notice of the proposed amendment was given.
Section 109 of the DGCL places the power to adopt, amend or repeal
by-laws in the corporation's stockholders, but permits the corporation, in its
certificate of incorporation, to vest such power with the board of directors
also. Charter One's Bylaws may be adopted, amended or repealed by the
affirmative vote of the holders of shares of at least 75% of the total votes
eligible to be cast at a meeting duly called and held or by a resolution adopted
by a majority of the Charter One Board.
CONTROL SHARE ACQUISITIONS
Ohio Control Share Acquisitions Statue. Under Section 1701.831 of the
OGCL, unless the articles of incorporation or regulations of a corporation
otherwise provide, any "control share acquisition" of an issuing public
corporation can only be made with the affirmative vote of a majority of the
voting power of the corporation and a majority of the voting power of the
corporation, excluding the voting power of the interested shares. A "control
share acquisition" is defined as any acquisition of shares of a corporation
that, when added to all other shares of that corporation owned by the acquiring
person, or in respect to which that person may exercise or direct the voting
power, would entitle that person to exercise levels of voting power in the
following ranges; at least 20% but less than 33 1/3%, at least 33 1/3% but less
than a majority, or a majority or more.
Neither Delaware law nor the Charter One Certificate contains a
control share acquisition statute or provision. See " -- Business Combinations
with Certain Persons" for certain restrictions imposed by Ohio and Delaware law
and the Charter One Certificate.
BUSINESS COMBINATIONS WITH CERTAIN PERSONS
Ohio Business Combination Statute. Chapter 1704 of the OGCL prohibits
an interested stockholder from engaging in a wide range of business combinations
similar to those prohibited by Section 203 of the DGCL. Under Chapter 1704 of
the OGCL an interested stockholder includes a stockholder who directly or
indirectly exercises or directs the exercise of 10% or more of the voting power
of the corporation. Chapter 1704 restrictions do not apply under certain
circumstances including, but not limited to, the following: (a) if the directors
of the corporation have approved the transaction or the interested stockholder's
acquisition of shares of the corporation prior to the date the interested
48
<PAGE> 59
stockholder became an interested stockholder, and (b) if the corporation, by
action of its stockholders holding 66 2/3% of the voting power of the
corporation, adopts an amendment to its articles of incorporation specifying
that Chapter 1704 shall not be applicable to the corporation. Haverfield's
Articles provide that such a transaction must be approved by the affirmative
vote of the holders of at least 75% of the voting shares and at least a majority
of the voting shares not held by an interested stockholder.
Delaware Business Combination Statute. Section 203 of the DGCL
("Section 203"), which applies to Charter One, regulates transactions with major
stockholders after they become major stockholders. Section 203 prohibits a
Delaware corporation from engaging in mergers, dispositions of 10% or more of
its assets, issuances of stock and other transactions ("business combinations")
with a person or group that owns 15% or more of the voting stock of the
corporation (an "interested stockholder"), for a period of three years after the
interested stockholder crosses the 15% threshold. These restrictions on
transactions involving an interested stockholder do not apply in certain
circumstances, including those in which (a) before the interested stockholder
owned 15% or more of the voting stock, the board of directors approved the
business combination or the transaction that resulted in the person or group
becoming an interested stockholder; (b) in the transaction that resulted in the
person or group becoming an interested stockholder, the person or group acquired
at least 85% of the voting stock other than stock owned by inside directors and
certain employee stock plans; (c) after the person or group became an interested
stockholder, the board of directors and at least two-thirds of the voting stock
other than stock owned by the interested stockholder approved the business
combination; or (d) certain competitive bidding circumstances were present.
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 Transaction"),
involving a "related person" (generally, a beneficial owner of 10% or more of
Charter One's outstanding voting stock), unless, during the five years following
the related person's acquisition of 10% of Charter One's voting power, the
Business Transaction is approved by 90% of the holders of Charter One's voting
stock unless the Business Transaction or the transaction by which the related
person acquires such status is first approved by a majority of Charter One's
Continuing Directors (as defined in the Charter One Certificate). Business
Transactions 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.
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 of any class, 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 (as defined in the Charter One Certificate). The Haverfield
Articles do not contain a similar restriction.
49
<PAGE> 60
LIMITATIONS ON DIRECTORS' LIABILITY
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; (iii) under
Section 174 of the DGCL which imposes liability on directors for unlawful
payment of dividends or unlawful stock repurchases; or (iv) for any transactions
from which the director derived any improper personal benefit. Further, the
Charter One Certificate provides that if Delaware law is subsequently amended to
eliminate or limit director liability with respect to these actions, then the
liability of the directors shall be eliminated or limited to the fullest extent
of the law. 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.
Neither Ohio law nor the Haverfield Articles contain a similar provision. Ohio
law, however, does limit generally a directors' liability to only those
situations where it is determined by a court of competent jurisdiction that such
director's action or failure to act involved an act or omission undertaken with
deliberate intent to cause injury to the corporation or with reckless disregard
for the best interests of the corporation.
Under federal regulations, there is no provision for limitation of
directors' liability to Home Bank and Charter One Bank, and neither Home Bank
nor Charter One Bank's charter or bylaws contains any limitation on the
liability of directors of Home Bank and Charter One Bank for conduct in their
official capacities.
INDEMNIFICATION
Under Section 1701.13 of the OGCL, Ohio corporations are permitted to
indemnify directors, officers, employees and agents within prescribed limits and
must indemnify them under certain circumstances. Generally, if it is determined
that a director, officer, employee, or agent acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful, indemnification is
discretionary except as otherwise provided by a corporation's articles of
incorporation, code of regulations, or by contract, and except with respect to
the advancement of expenses of directors (as discussed in the next paragraph).
The OGCL does not authorize indemnification by a corporation (i) of a director,
officer, employee, or agent after a finding of negligence or misconduct in a
derivative suit absent a court order or (ii) of a director in an action
involving the unlawful distribution of loans, dividends or assets.
Indemnification with respect to expenses is required, however, to the extent
such person succeeds on the merits or otherwise. The statutory right to
indemnification is not exclusive in Ohio, and Ohio corporations may, among other
things, purchase insurance to indemnify those persons.
The OGCL provides that a director (but not an officer, employee, or
agent), subject to certain exceptions, is entitled to mandatory advancement of
expenses, including attorneys' fees, incurred in defending any action, including
derivative actions, brought against the director, provided the director agrees
to cooperate with the corporation concerning the matter and to repay the amount
advanced if it is proved by clear and convincing evidence that his act or
failure to act was done with deliberate intent to cause injury to the
corporation or with reckless disregard for the corporation's best interests.
Haverfield's Regulations provide that Haverfield shall indemnify each
director and officer, each former director and officer, and each person who is
serving or has served at its request as a director, trustee or officer of
another enterprise (and the heirs and personal representatives of each such
director, trustee and officer) and may indemnify any employee or agent, any
former employee or agent, and any person who is serving or has served at its
request as an employee or agent of any other enterprise (and the heirs and
personal representatives of each such employee or agent) to the fullest extent
permitted by the laws of the State of Ohio in the event any of such persons
shall be made, or be threatened to be made, a party to any action, suit or
proceeding, whether criminal, civil, administrative or investigative. The
Haverfield Articles further provide that this indemnification is treated as a
contract between Haverfield and the indemnified individual and thus continues
beyond the date on which the individual terminates his or her service as a
50
<PAGE> 61
director, officer, employee or agent of Haverfield and continues in affect
despite repeal or modification of the indemnification provisions of the
Haverfield Articles. 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 Home
Bank are deemed to be serving as such at the request of Haverfield.
Under Section 145 of the DGCL, directors, officers, employees and other
individuals may be indemnified against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative or
investigative (other than an action by, or in the right of the corporation - a
"derivative action") if they acted in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the corporation,
and, regarding any criminal action or proceeding, had no reasonable cause to
believe their conduct was unlawful. A similar standard is applicable in the case
of derivative actions, except that indemnification only extends to expenses
(including attorneys' fees) incurred in connection with the defense or
settlement of such actions. In the case of derivative actions, the DGCL requires
court approval before there can be any indemnification when the person seeking
indemnification has been found liable to the corporation. To the extent that a
person otherwise eligible to be indemnified is successful on the merits or
otherwise of any claim or defense described above, indemnification for expenses
(including attorneys' fees) actually and reasonably incurred is made mandatory
by the DGCL.
In addition to the indemnification provisions contained in the DGCL,
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. The Charter One Certificate
also provides for the continuation of indemnification after the termination of
the person's association with the company.
MERGERS, ACQUISITIONS AND CERTAIN OTHER TRANSACTIONS
Section 1701.78 of the OGCL generally requires approval of mergers,
dissolutions, dispositions of all or substantially all of a corporation's
assets, and majority share acquisitions and combinations involving issuance of
shares with one-sixth or more of the voting power of the corporation, by
two-thirds of the voting power of the corporation, unless the articles of
incorporation specify a different proportion (not less than a majority). The
Haverfield Articles provide that certain "Business Combinations" with
"Interested Shareholders" must be approved by the vote of holders of at least
75% of the voting power of Haverfield and by an "Independent Majority of
Shareholders" (as those terms are defined in the Haverfield Articles).
Section 1701.59 of the OGCL permits a director, in determining what he
reasonably believes to be in the best interests of the corporation, to consider,
in addition to the interests of the corporation's stockholders, any of the
following: (i) the interests of the corporation's employees, suppliers,
creditors, and customers; (ii) the economy of the state and nation; (iii)
community and societal considerations; and (iv) the long-term as well as
short-term interests of the corporation and its stockholders, including the
possibility that these interests may be best served by the continued
independence of the corporation. The DGCL does not contain a statutory provision
permitting a director to consider outside interests in determining a course of
action, however, Charter One's Certificate of Incorporation does.
Section 252 of the DGCL requires approval of mergers, consolidations
and dispositions of all or substantially all of a corporation's assets by a
majority of the voting power of the corporation (other than in so-called parent-
subsidiary mergers), unless the certificate of incorporation specifies a
different percentage. The DGCL does not require stockholder approval for
majority share acquisitions or for combinations involving the issuance of less
than 20% of the voting power of the corporations, except for "business
combinations" subject to Section 203 of the DGCL.
51
<PAGE> 62
ACTION WITHOUT A MEETING
Under Section 1701.54 of the OGCL, any action that may be taken by
stockholders at a meeting may be taken without a meeting with the unanimous
written consent of all stockholders entitled to vote thereat unless otherwise
provided in the company's articles or regulations.
Section 228 of the DGCL permits any action required or permitted to be
taken at a stockholder's meeting to be taken by written consent signed by the
holders of the number of shares that would have been required to effect the
action at an actual meeting of the stockholders. Generally, holders of a
majority of outstanding shares can effect such an action. The DGCL also provides
that a corporation's certificate of incorporation may restrict or prohibit
stockholders' actions without a meeting. The Charter One Certificate prohibits
stockholders' action without a meeting.
SPECIAL MEETINGS OF STOCKHOLDERS
Under Section 1701.40 of the OGCL, the holders of at least 25% of the
outstanding shares of a corporation, unless the corporation's regulations
specify another percentage, which may in no case be greater than 50%, the
directors by action at a meeting or a majority of the directors acting without a
meeting, the chairman of the board, the president, or in case of the president's
death or disability, the vice president authorized to exercise the authority of
the president, and such other officers or persons as the articles or the
regulations authorize to call such meetings, have the authority to call special
meetings of stockholders. Haverfield's Regulations provide that a special
meeting can be called at any time by any of the following: the Chairman of the
Board, the President, or in the case of the President's absence, death or
disability, the Vice President entitled to exercise the President's authority,
the majority of the Board of Directors or by written request of persons holding
at least 40% of all outstanding voting shares.
Under Section 211(d) of the DGCL, the board of directors or those
persons authorized by the corporation's certificate of incorporation or by-laws
may call a special meeting of the corporation's stockholders. The Charter One
Certificate provides that a special meeting may only be called by a majority of
the board of directors, including a majority of Continuing Directors (as defined
in the Charter One Certificate).
PREEMPTIVE RIGHTS
Section 1701.15 of the OGCL provides that, subject to certain
limitations and conditions contained in the OGCL and unless the articles of
incorporation provide otherwise, stockholders shall have preemptive rights to
purchase additional securities of the corporation. Haverfield's Articles
expressly eliminate preemptive rights.
Under Section 102 of the DGCL, no statutory preemptive rights will
exist, unless a corporation's certificate of incorporation specifies otherwise.
Charter One's Certificate does not provide for preemptive rights.
LOANS TO INTERESTED PARTIES
Under 1701.95 of the OGCL, directors of an Ohio corporation who vote
for or assent to the making of loans (other than in the usual course of
business) to an officer, director, or stockholder of a corporation are jointly
and severally liable to the corporation for the amount of the loan, with
interest thereon at the rate of six percent per annum, until the loan has been
paid unless at the time of the making of the loan, a majority of the
disinterested directors of the corporation voted for the loan and, taking into
account the terms and provisions of the loan and other relevant factors,
determined that the making of the loan could reasonably be expected to benefit
the corporation or if the corporation is engaged in banking or in the making of
loans generally.
Section 143 of the DGCL permits a corporation to lend money to,
guarantee an obligation of, or otherwise assist an Officer or other employee of
the corporation or any subsidiary thereof, including an officer or employee who
is also a director of the corporation or of any of its subsidiaries, whenever
that loan or guarantee may, in the judgment of the directors, reasonably be
expected to benefit the corporation. The DGCL generally does not impose
liability on the directors who vote for or assent to the making of a loan to an
officer, director or stockholder.
52
<PAGE> 63
RIGHTS OF DISSENTING STOCKHOLDER
Under Section 1701.84 of the OGCL, dissenting stockholders are entitled
to appraisal rights in connection with the lease, sale, exchange, transfer, or
other disposition of all or substantially all of the assets of a corporation and
in connection with certain amendments to the corporation's articles of
incorporation. Stockholders of an Ohio corporation being merged into or
consolidated with another corporation are also entitled to appraisal rights.
Under the DGCL, among other procedural requirements, a stockholder's written
demand for appraisal of shares must be received before the taking of the vote on
the matter giving rise to appraisal rights. Under the OGCL, a stockholder's
written demand must be delivered to the corporation not later than ten days
after the taking of the vote on the matter giving rise to appraisal rights. See
"MERGER -- Appraisal and Dissenters' Rights."
Under Section 262 of the DGCL, appraisal rights are available to
dissenting stockholders in connection with certain mergers or consolidations.
However, unless the certificate of incorporation otherwise provides, Section 262
does not provide for appraisal rights (i) if the shares of the corporation are
listed on a national securities exchange or designated as a national market
systems security on an inter-dealer quotations system by the National
Association of Securities Dealers, Inc. or held of record by more than 2,000
stockholders (as long as the stockholders receive in the merger shares of the
surviving corporation or of any other corporation the shares of which are listed
on a national securities exchange or designated as a national market systems
security on an inter-dealer quotations system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000 stockholders) or
(ii) if the corporation is the surviving corporation and no vote of its
stockholders is required on the merger. The DGCL does not provide appraisal
rights to stockholders who dissent from the sale of all or substantially all of
a corporation's assets or from an amendment to the corporation's certificate of
incorporation, although a corporation's certificate of incorporation may so
provide. Charter One's Certificate does not provide appraisal rights beyond
those specifically provided under the DGCL.
SPECIAL PROVISIONS TO CHARTER ONE'S BYLAWS
In accordance with the Agreement and Plan of Merger by and between
Charter One and FirstFed, dated May 30, 1995, Charter One adopted certain
provisions to its Bylaws to govern directors, executive officers and committees
to the exclusion of any other provision in the Bylaws.
The provisions provide that the Board of Directors of Charter One shall
consist of 16 directors (subsequently reduced to 15), one-half of whom were
selected by Charter One and one-half of whom were selected by FirstFed. For a
period of four years following the effective date of the merger with FirstFed,
Charles J. Koch and Jerome L. Schostak shall serve as Chairman and Vice
Chairman, respectively, of the Board of Directors. The Charter One Bylaws also
provide that for four years following the effective date of the merger with
FirstFed, if any person leaves the Board of Directors, their successor will be
the person recommended by the directors who were directors of Charter One prior
to the merger with FirstFed, or their successors, if such departing director was
a director of Charter One prior to the merger with FirstFed, or by the directors
who were directors of FirstFed prior to its merger with Charter One, or their
successors, if the departing director was a director of FirstFed prior to its
merger with Charter One.
The Charter One Bylaws also provide that for a period of four years
following the effective date of the merger, a vote of two-thirds of the entire
Board of Directors of Charter One shall be necessary to approve (i) any
amendment to the Certificate of Incorporation or Bylaws of Charter One, (ii) any
merger, acquisition, sale of substantially all of its assets or other
extraordinary corporate transaction involving Charter One, Charter One Bank or
any other significant financial institution subsidiary of Charter One or (iii)
the dismissal or replacement of any of the executive officers of Charter One or
Charter One Bank or other significant financial institution subsidiary.
The Charter One Bylaws also provide that for a period of at least four
years following the merger with FirstFed, the Board of Directors of Charter One
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, the Charter One Certificate and the Charter One Bylaws.
53
<PAGE> 64
RIGHTS AGREEMENT
On November 20, 1989, the Charter One Board declared a dividend
distribution of one Right for each outstanding share of common stock of Charter
One to stockholders of record at the close of business on December 1, 1989 (the
"Rights Record Date"). As long as the Rights are attached to the common stock,
Charter One will issue one Right with each new share of common stock so that
each outstanding share will have an attached Right. Except as set forth below,
each Right, when exercisable, entitles the registered holder to purchase from
Charter One 1/100 share of preferred stock designated as Series A Participating
Preferred Stock, par value $0.01 per share (the "Series A Preferred Stock"), at
a price of $40.00 (the "Purchase Price"), subject to adjustment. The description
and terms of the Rights are set forth in a Rights Agreement between Charter One
and The First National Bank of Boston, as Rights Agent. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE."
The Rights are attached to all certificates representing shares of
Charter One's outstanding common stock, and no separate Rights Certificates (as
defined below) 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 Charter One (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 Distribution 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
earlier redemption or expiration of the Rights), the surrender for transfer of
any certificates for common stock outstanding as of the Distribution 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 earlier 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 number 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, or certain convertible securities having
the same or more favorable rights, privileges and preferences as the Series A
Preferred Stock at less than the current market price of the Series A Preferred
Stock, or (iii) upon the distribution to holders of the Series A Preferred Stock
of evidences of indebtedness or assets (excluding regular quarterly cash
dividends out of earnings or retained earnings) or of subscription rights or
warrants (other than those referred to above).
In the event that a person becomes an Acquiring Person (unless pursuant
to a Permitted Offer), proper provision shall be made so that each holder of a
Right (other than an Acquiring Person) will for a 60-day period thereafter have
the right to receive upon exercise that number of 1/100 share of Series A
Preferred Stock equal to the number of shares of Charter One Common Stock having
a market value (immediately prior to the triggering of the Right) of two times
the exercise price of the Right, to the extent available, and then (after all
authorized and unreserved shares of Series A Preferred Stock have been issued)
an equal number of an equivalent security (such as another equity security with
at least the same economic value as 1/100 share of Series A Preferred Stock)
(such right being called the "Flip-In Right"). In addition, Charter One shall be
entitled (but not required) to deliver, upon exercise of the Flip-In Right, in
lieu of 1/100
54
<PAGE> 65
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 $40.00 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 $80.00 for
$40.00.
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
$40.00 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 $80.00 (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 $40.00.
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 10 business days prior notice. Upon the effective date of the
redemption of the Rights, the right to exercise the Rights will terminate and
the only right of the holders of Rights will be to receive the Redemption Price.
The Series A Preferred Stock purchasable upon exercise of the Rights
will be nonredeemable. Each share of Series A Preferred Stock will have a
preferential quarterly dividend in an amount equal to 100 times the dividend
declared on each share of Common Stock, but in no event less than $1.00. In the
event of liquidation, the holders of Series A Preferred Stock will receive a
preferred liquidation payment per 1/100 share thereof equal to the greater of
the issuance price thereof or the payment made per each share of Charter One
Common Stock.
Each share of Series A Preferred Stock will have 100 votes, voting
together with the shares of Charter One Common Stock.
55
<PAGE> 66
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 600,000 shares of Preferred Stock
for issuance upon exercise of the Rights. As of July 25, 1997, there were
46,216,386 shares of Charter One Common Stock, and therefore 46,216,386 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, see "UNAUDITED PRO FORMA COMBINED FINANCIAL
STATEMENTS."
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.
Haverfield has not issued any similar rights or entered into any
similar agreement with respect to its common stock.
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 Haverfield by
Hahn Loeser Parks, LLP, Cleveland, Ohio.
EXPERTS
The consolidated financial statements incorporated in this Proxy
Statement/Prospectus by reference from the 1996 Charter One 10-K have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
56
<PAGE> 67
The consolidated financial statements of Haverfield and subsidiaries as
of December 31, 1996 and 1995, and for each of the years in the three-year
period ended December 31, 1996, attached hereto in Appendix IV and incorporated
by reference herein in this Proxy Statement/Prospectus, have been audited by
Deloitte & Touche 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.
The consolidated financial statements of RCSB Financial, Inc. and its
subsidiaries as of November 30, 1996 and 1995 and for each of the years in the
three-year period ended November 30, 1996, included in RCSB's 1996 Form 10-K and
incorporated by reference into this Proxy Statement/Prospectus, have been
incorporated by reference herein and in the Registration Statement on Form S-4
of which this Proxy Statement/Prospectus is a part, in reliance upon the report
of KPMG Peat Marwick LLP, independent auditors, included in RCSB's 1996 Form
10-K and incorporated by reference herein, and upon the authority of said firm
as experts in accounting and auditing.
STOCKHOLDER PROPOSALS
Haverfield will hold a 1998 Annual Meeting of Stockholders only if the
Merger is not consummated before the time of such meeting, which it is presently
expected to be held on or about April 22, 1998. In such event, as disclosed in
the proxy materials for Haverfield's 1997 Annual Meeting of Stockholders, in
order to be eligible for inclusion in Haverfield's proxy materials for the 1998
Annual Meeting of Stockholders, any stockholder proposal to take action at such
meeting must be received at the main office of Haverfield, Terminal Tower, 50
Public Square, Suite 444, Cleveland, Ohio 44113-2203, no later than November 18,
1997. Any such proposal shall be subject to the requirements of the proxy rules
adopted under the Exchange Act.
OTHER MATTERS
The Board of Directors of Haverfield is not aware of any business to
come before the Special Meeting other than those matters described above in this
Proxy Statement/Prospectus. However, if any other matter should properly come
before the Special Meeting, including proposals to adjourn the 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.
57
<PAGE> 68
APPENDIX I
-----------------------------------------------
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
CHARTER ONE FINANCIAL, INC.
CHARTER MICHIGAN BANCORP, INC.
CHARTER ONE BANK F.S.B.
HAVERFIELD CORPORATION
AND
HOME BANK, F.S.B.
-----------------------------------------------
----------------
April 22, 1997
----------------
I-1
<PAGE> 69
TABLE OF CONTENTS
ARTICLE I
THE MERGER AND RELATED MATTERS
1.1 Merger; Surviving Corporations and Resulting Institution...........2
1.2 Effective Time of the Merger.......................................2
1.3 Company Merger.....................................................3
1.4 Michigan Merger....................................................8
1.5 Bank Merger........................................................9
1.6 Closing............................................................9
1.7 Reservation of Right to Revise Transaction.........................9
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COFI AND CHARTER ONE BANK
2.1 Organization......................................................10
2.2 Authorization.....................................................11
2.3 Conflicts.........................................................11
2.4 Anti-takeover Provisions Inapplicable.............................12
2.5 Capitalization....................................................12
2.6 COFI Financial Statements; Material Changes.......................12
2.7 COFI Subsidiaries.................................................13
2.8 COFI Filings......................................................14
2.9 COFI Reports......................................................14
2.10 Compliance with Laws..............................................14
2.11 Registration Statement; Proxy Statement..........................15
2.12 Litigation........................................................16
2.13 Licenses..........................................................16
2.14 Taxes.............................................................16
2.15 Insurance.........................................................17
2.16 Loans; Investments................................................18
2.17 Allowance for Possible Loan Losses................................19
2.18 COFI Benefit Plans................................................19
2.19 Compliance With Environmental Laws................................21
2.20 Contracts and Commitments.........................................22
2.21 Defaults..........................................................23
2.22 Operations Since December 31, 1996................................23
2.23 Undisclosed Liabilities...........................................23
2.24 Assets............................................................24
2.25 Indemnification...................................................24
2.26 Insider Interests.................................................24
2.27 Brokers and Finders...............................................25
2.28 Accuracy of Information...........................................25
2.29 Governmental Approvals and Other Conditions.......................25
I-2
<PAGE> 70
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HAVERFIELD AND HOME BANK
3.1 Organization. ......................................................25
3.2 Authorization.......................................................26
3.3 Conflicts...........................................................26
3.4 Anti-takeover Provisions Inapplicable...............................26
3.5 Capitalization and Stockholders.....................................26
3.6 Haverfield Financial Statements; Material Changes...................27
3.7 Haverfield Subsidiaries.............................................28
3.8 Haverfield Filings..................................................29
3.9 Haverfield Reports..................................................29
3.10 Compliance With Laws................................................29
3.11 Registration Statement: Proxy Statement.............................30
3.12 Litigation..........................................................31
3.13 Licenses. .........................................................31
3.14 Taxes...............................................................31
3.15 Insurance...........................................................32
3.16 Loans; Investments..................................................33
3.17 Allowance for Possible Loan Losses..................................34
3.18 Haverfield Benefit Plans............................................35
3.19 Compliance with Environmental Laws..................................38
3.20 Contracts and Commitments...........................................39
3.21 Defaults............................................................42
3.22 Operations Since December 31, 1996..................................42
3.23 Corporate Records...................................................44
3.24 Undisclosed Liabilities.............................................45
3.25 Assets..............................................................45
3.26 Indemnification.....................................................46
3.27 Insider Interests...................................................46
3.28 Registration Obligations............................................46
3.29 Regulatory, Tax and Accounting Matters..............................46
3.30 Brokers and Finders.................................................46
3.31 Accuracy of Information.............................................47
3.32 Fairness Opinion....................................................47
3.33 Governmental Approvals and Other Conditions.........................47
ARTICLE IV
COVENANTS OF HAVERFIELD
4.1 Business in Ordinary Course.........................................47
4.2 Conforming Accounting and Reserve Policies; Restructuring Expenses..51
4.3 Certain Actions.....................................................51
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Inspection of Records; Confidentiality..............................53
I-3
<PAGE> 71
5.2 Registration Statement; Stockholder Approval........................53
5.3 Agreements of Affiliates............................................54
5.4 Expenses............................................................54
5.5 Cooperation.........................................................54
5.6 Regulatory Applications.............................................55
5.7 Financial Statements and Reports....................................55
5.8 Notice..............................................................55
5.9 Press Release.......................................................56
5.10 Delivery of Supplements to Disclosure Schedules.....................56
5.11 Litigation Matters..................................................56
5.12 Tax Opinion. ......................................................56
5.13 Written Agreements with Employees; Benefits and Related Matters.....57
5.14 Reservation of Shares to Satisfy Haverfield Stock Options...........58
5.15 Nasdaq Listing. ...................................................58
5.16 Directors' and Officers' Indemnification Insurance..................58
5.17 Reports to the SEC..................................................59
ARTICLE VI
CONDITIONS
6.1 Conditions to the Obligations of COFI, Charter Michigan and
Charter One Bank....................................................59
6.2 Conditions to the Obligations of Haverfield and Home Bank...........60
6.3 Conditions to the Obligations of the Parties........................61
ARTICLE VII
TERMINATION; AMENDMENT; WAIVER
7.1 Termination.........................................................62
7.2 Liabilities and Remedies; Break-Up Fee..............................63
7.3 Survival of Agreements..............................................65
7.4 Amendment...........................................................65
7.5 Waiver..............................................................65
ARTICLE VIII
GENERAL PROVISIONS
8.1 Survival............................................................66
8.2 Notices.............................................................66
8.3 Applicable Law......................................................67
8.4 Headings, Etc.......................................................67
8.5 Severability........................................................67
8.6 Entire Agreement; Binding Effect; Non-Assignment; Counterparts......67
8.7 No Employment Solicitation..........................................68
8.8 Additional Party....................................................68
I-4
<PAGE> 72
EXHIBIT LIST
Exhibit A - Form of Voting Agreement
Exhibit B - Directors of Resulting Institution
Exhibit C - Home and Other Offices of Resulting Institution
Exhibit D - Form of Affiliate Agreement
Exhibit E - Form of Hahn Loeser Parks L.L.P. Legal Opinion
Exhibit F - Form of Silver, Freedman & Taff, L.L.P. Legal Opinion
I-5
<PAGE> 73
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
-----------------------------------------------
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this "Agreement")
dated April 22, 1997, is by and among Charter One Financial, Inc., a Delaware
corporation ("COFI"), Charter Michigan Bancorp, Inc., a Michigan corporation and
a wholly owned first-tier subsidiary of COFI ("Charter Michigan"), Charter One
Bank F.S.B., a federally chartered savings bank and a wholly owned subsidiary of
Charter Michigan ("Charter One Bank"), Haverfield Corporation, an Ohio
corporation ("Haverfield"), and Home Bank, F.S.B., a federally chartered savings
bank and a wholly owned first-tier subsidiary of Haverfield ("Home Bank").
A. COFI , Charter One Bank, Charter Michigan, Haverfield and Home Bank
wish to provide for the terms and conditions of the following described business
combinations in which a newly formed Ohio business corporation and first-tier
subsidiary of COFI ("Merger Sub") will be merged (the "Company Merger") with and
into Haverfield, followed immediately by the merger (the "Michigan Merger") of
Haverfield into Charter Michigan and the merger (the "Bank Merger") of Home Bank
with and into Charter One Bank. The Company Merger, the Michigan Merger and the
Bank Merger are collectively referred to herein as the "Merger."
B. For federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended ("Code"), and this Agreement shall
constitute a plan of reorganization pursuant to Section 368 of the Code.
C. For accounting purposes, it is intended that the Merger shall be
accounted for as a pooling of interests.
D. The parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger.
E. Concurrently with the execution and delivery of this Agreement, and
as a condition to and inducement for COFI and Charter One Bank to enter into
this Agreement, COFI and each of the directors of Haverfield have entered into
voting agreements in the form attached hereto as Exhibit A ("Voting
Agreements").
Accordingly, and in consideration of the representations, warranties,
covenants, agreements and conditions herein contained, the parties hereto agree
as follows:
I-6
<PAGE> 74
ARTICLE I
THE MERGER AND RELATED MATTERS
1.1 MERGER; SURVIVING CORPORATIONS AND RESULTING INSTITUTION. Subject
to the terms and conditions of this Agreement, and pursuant to the provisions of
the Michigan Business Corporation Act ("MBCA"), the Ohio General Corporation Law
("OGCL"), the Federal Deposit Insurance Act ("FDIA"), the Home Owners' Loan Act
("HOLA") and the rules and regulations promulgated under HOLA ("Thrift
Regulations"), (a) at the Effective Time (as defined in Section 1.2 hereof),
Merger Sub shall be merged with and into Haverfield pursuant to the terms and
conditions set forth herein, (b) immediately after the Effective Time,
Haverfield shall be merged with and into Charter Michigan pursuant to the terms
and conditions set forth herein and (c) thereafter at the Bank Merger Effective
Time (as defined in Section 1.2 hereof), Home Bank shall be merged with and into
Charter One Bank pursuant to the terms and conditions set forth herein. Upon the
consummation of the Company Merger, the separate corporate existence of Merger
Sub shall cease and Haverfield shall continue as the surviving corporation under
the laws of the State of Ohio. Upon consummation of the Michigan Merger, the
separate corporate existence of Haverfield shall cease and Charter Michigan
shall continue as the surviving corporation under the laws of the State of
Michigan. Upon consummation of the Bank Merger, the separate corporate existence
of Home Bank shall cease and Charter One Bank shall continue as the resulting
institution under the laws of the United States of America. The name of
Haverfield as the surviving corporation of the Company Merger shall remain
"Haverfield Corporation". From and after the Effective Time, Haverfield, as the
surviving corporation of the Company Merger, shall possess all of the properties
and rights and be subject to all of the liabilities and obligations of Merger
Sub and Haverfield, all as more fully described in the OGCL. The name of Charter
Michigan as the surviving corporation of the Michigan Merger shall remain
"Charter Michigan Bancorp, Inc." From and after the effective time of the
Michigan Merger, Charter Michigan, as the surviving corporation of the Michigan
Merger, shall possess all of the properties and rights and be subject to all of
the liabilities and obligations of Charter Michigan and Haverfield, all as more
fully described in the MBCA and OGCL. The name of Charter One Bank, as the
resulting institution of the Bank Merger, shall remain "Charter One Bank
F.S.B.". From and after the Bank Merger Effective Time, Charter One Bank, as the
resulting 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 Home Bank (including any liquidation account of Home Bank
established in connection with its conversion from mutual to stock form), all as
more fully described in the Thrift Regulations.
1.2 EFFECTIVE TIME OF THE MERGER. As soon as practicable after each of
the conditions set forth in Article VI hereof have been satisfied or waived, the
parties will file, or cause to be filed, with the Ohio Secretary of State and
the Michigan Department of Commerce and the Office of Thrift Supervision ("OTS")
such certificates of merger, articles of combination and other documents as they
may deem necessary or appropriate for the Company Merger, the Michigan Merger
and the Bank Merger, which certificates of merger,
I-7
<PAGE> 75
articles of combination and other documents shall in each case be in the form
required by and executed in accordance with the applicable provisions of the
OGCL, MCBA and the Thrift Regulations, respectively. The Company Merger shall
become effective at the time the certificate of merger for such merger is filed
with the Ohio Secretary of State ("Effective Time"). The Michigan Merger shall
become effective at the time the certificate(s) of merger for such merger are
filed with the Ohio Secretary of State and the Michigan Department of Commerce.
The Bank Merger shall become effective at the time the articles of combination
for such merger are endorsed by the Secretary of the OTS pursuant to the Thrift
Regulations ("Bank Merger Effective Time"). The parties shall cause the Company
Merger to become effective immediately prior to the Michigan Merger, and the
Michigan Merger to become effective immediately prior to the Bank Merger.
1.3 COMPANY MERGER.
(a) CONVERSION OF HAVERFIELD STOCK. At the Effective
Time:
(i) Each share of common stock of Haverfield, $.01
par value per share (the "Haverfield Common Stock"), issued
and outstanding immediately prior thereto (except for
Dissenting Shares, if applicable, as defined in Section 1.3(d)
hereof) shall, by virtue of the Company Merger and without any
action on the part of the holder thereof, but subject to
Section 1.3(f) hereof, be converted into the right to receive
shares common stock of COFI, par value $.01 per share ("COFI
Common Stock") at the Exchange Ratio (as defined in Section
1.3(b)), including the corresponding number of rights
associated with the COFI Common Stock pursuant to the Rights
Agreement dated November 20, 1989, as amended on May 26, 1995,
between COFI and The First National Bank of Boston as Rights
Agent.
Notwithstanding any other provision of this
Agreement, any shares of Haverfield Common Stock issued and
outstanding immediately prior to the Effective Time which are
then owned beneficially or of record by COFI, Charter One
Bank, Haverfield, Home Bank or by any direct or indirect
Subsidiary (as hereinafter defined) of any of them or held in
the treasury of Haverfield (other than any shares of
Haverfield Common Stock held (A) directly or indirectly in
trust accounts, managed accounts and the like, or otherwise
held in a fiduciary capacity, that are beneficially owned by
third parties or (B) in respect of a debt previously
contracted) shall, by virtue of the Company Merger, be
canceled without payment of any consideration therefor and
without any conversion thereof.
(ii) Each share of Merger Sub common stock issued and
outstanding immediately prior to the Effective Time shall be
automatically converted into an identical number of issued and
outstanding shares of Haverfield common stock after the
Effective Time.
I-8
<PAGE> 76
(iii) The holders of certificates formerly
representing shares of Haverfield Common Stock shall cease to
have any rights as stockholders of Haverfield, except such
rights, if any, as they may have pursuant to the OGCL. Except
as provided above, until certificates representing shares of
Haverfield Common Stock are surrendered for exchange, the
certificates shall, after the Effective Time, represent for
all purposes only the right to receive the number of whole
shares of COFI Common Stock into which such shares of
Haverfield Common Stock shall have been converted by the
Company Merger as provided above and the right to receive the
cash value of any fraction of a share of COFI Common Stock as
provided below (collectively, the "Merger Consideration").
(b) EXCHANGE RATIO.
(i) If the Average COFI Stock Price (as hereinafter
defined) is equal to or greater than $41.09 and less than or
equal to $55.60, then the Exchange Ratio shall be (rounded to
the fourth decimal place) (A) $27.00, divided by (B) the
Average COFI Stock Price. The "Average COFI Stock Price" means
the average (rounded down to the nearest whole cent) of the
closing sale price of one share of COFI Common Stock on the
Nasdaq National Market for the 20 consecutive full trading
days ending on the fifth business day immediately prior to the
Closing Date.
(ii) If the Average COFI Stock Price is less than
$41.09 but equal to or greater than $38.05, then the Exchange
Ratio shall be .6571.
(iii) If the Average COFI Stock Price is less than
$38.05 but equal to or greater than $36.55, then the Exchange
Ratio shall be (rounded to the fourth decimal place) (A)
$25.00, divided by (B) the Average COFI Stock Price.
(iv) If the Average COFI Stock Price is less than
$36.55, then subject to the provisions of Section 7.1(g), the
Exchange Ratio shall be .6840.
(v) If the Average COFI Stock Price is greater than
$55.60, then the Exchange Ratio shall be .4856.
(vi) If, subsequent to the date of this Agreement but
prior to the Effective Time, the outstanding shares of COFI
Common Stock shall, through a reclassification,
recapitalization, stock dividend, stock split or reverse stock
split have been increased, decreased, changed into or
exchanged for a different number or kind of shares or
securities, appropriate adjustment will be made to the
Exchange Ratio.
(c) RESERVATION OF SHARES. Prior to the Effective Time, the
Board of Directors of COFI shall reserve for issuance a sufficient
number of shares of COFI
I-9
<PAGE> 77
Common Stock for the purpose of issuing its shares to the stockholders
of Haverfield in accordance herewith.
(d) DISSENTING SHARES. Any shares of Haverfield Common Stock
held by a holder who dissents from the Company Merger in accordance
with Section 1701.85 of the OGCL shall be herein called "Dissenting
Shares". Notwithstanding any other provision of this Agreement, any
Dissenting Shares shall not, after the Effective Time, be entitled to
vote for any purpose or receive any dividends or other distributions
and shall be entitled only to such rights as are afforded in respect of
Dissenting Shares pursuant to the OGCL.
(e) EXCHANGE OF HAVERFIELD COMMON STOCK.
(i) As soon as reasonably practirable after the
Effective Time, holders of record of certificates formerly
representing shares of Haverfield Common Stock
("Certificates") shall be instructed to tender such
Certificates to an independent exchange agent to be selected
by COFI (the "Exchange Agent") pursuant to a letter of
transmittal that COFI shall deliver or cause to be delivered
to such holders. Such letter of transmittal shall specify that
risk of loss and title to Certificates shall pass only upon
acceptance of such Certificates by COFI or the Exchange Agent.
(ii) After the Effective Time, each holder of a
Certificate that surrenders such Certificate to COFI or the
Exchange Agent will, upon acceptance thereof by COFI or the
Exchange Agent, be entitled to the Merger Consideration
payable in respect of the shares represented thereby.
(iii) COFI or the Exchange Agent shall accept
Certificates upon compliance with such reasonable terms and
conditions as COFI or the Exchange Agent may impose to effect
an orderly exchange thereof in accordance with customary
exchange practices. Certificates shall be appropriately
endorsed or accompanied by such instruments of transfer as
COFI or the Exchange Agent may reasonably require.
(iv) Each outstanding Certificate, other than those
representing Dissenting Shares, shall until duly surrendered
to COFI or the Exchange Agent be deemed to evidence the right
to receive the Merger Consideration.
(v) After the Effective Time, holders of Certificates
shall cease to have rights with respect to the Haverfield
Common Stock previously represented by such Certificates, and
their sole rights (other than the holders of Certificates
representing Dissenting Shares) shall be to exchange such
Certificates for the Merger Consideration. At the Effective
Time, Haverfield shall deliver a certified copy of a list of
its stockholders to COFI or the
I-10
<PAGE> 78
Exchange Agent. After the Effective Time, there shall be no
further transfer on the records of Haverfield of Certificates,
and if such Certificates are presented to Haverfield for
transfer, they shall be canceled against delivery of the
Merger Consideration. COFI shall not be obligated to deliver
the Merger Consideration to any holder of Haverfield Common
Stock until such holder surrenders the Certificates as
provided herein. No dividends declared will be remitted to any
person entitled to receive COFI Common Stock under this
Agreement until such person surrenders the Certificate
representing the right to receive such COFI Common Stock, at
which time such dividends on whole shares of COFI Common Stock
with a record date on or after the Effective Time shall be
remitted to such person, without interest and less any taxes
that may have been imposed thereon. Certificates surrendered
for exchange by any person constituting an "affiliate" of
Haverfield for purposes of Rule 145 under the Securities Act
of 1933 and the rules and regulations thereunder (the
"Securities Act") shall not be exchanged for certificates
representing COFI Common Stock until COFI has received a
written agreement from such person as specified in Section
5.3. Neither the Exchange Agent nor any party to this
Agreement nor any affiliate thereof shall be liable to any
holder of Haverfield Common Stock represented by any
Certificate for any consideration paid to a public official
pursuant to applicable abandoned property, escheat or similar
laws. COFI and the Exchange Agent shall be entitled to rely
upon the stock transfer books of Haverfield to establish the
identity of those persons entitled to receive consideration
specified in this Agreement, which books shall be conclusive
with respect thereto. In the event of a dispute with respect
to ownership of stock represented by any Certificate, COFI or
the Exchange Agent shall be entitled to deposit any
consideration in respect thereof in escrow with an independent
third party and thereafter be relieved with respect to any
claims thereto.
(vi) If the Merger Consideration is to be issued to a
person other than a person in whose name a surrendered
Certificate is registered, it shall be a condition of issuance
that the surrendered Certificate shall be properly endorsed or
otherwise in proper form for transfer and that the person
requesting such issuance shall pay to COFI or the Exchange
Agent any required transfer or other taxes or establish to the
satisfaction of COFI or the Exchange Agent that such tax has
been paid or is not applicable.
(vii) In the event any Certificate shall have been
lost, stolen or destroyed, the owner of such lost, stolen or
destroyed Certificate shall deliver to COFI or the Exchange
Agent an affidavit stating such fact, in form satisfactory to
COFI, and, at COFI's discretion, a bond in such reasonable sum
as COFI or the Exchange Agent may direct as indemnity against
any claim that may be made against COFI or Haverfield or its
successor or any other party with respect to the Certificate
alleged to have been lost, stolen or destroyed. Upon
I-11
<PAGE> 79
such delivery, the owner shall have the right to receive the
Merger Consideration with respect to the shares represented by
the lost, stolen or destroyed Certificate.
(f) NO FRACTIONAL SHARES. Notwithstanding any other provision
of this Agreement, neither certificates nor scrip for
fractional shares of COFI Common Stock shall be issued in the
Company Merger. Each holder who otherwise would have been
entitled to a fraction of a share of COFI Common Stock shall
receive in lieu thereof cash (without interest) in an amount
determined by multiplying the fractional share interest to
which such holder would otherwise be entitled by the COFI
Share Price on the last business day preceding the Effective
Time. The "COFI Share Price" shall mean the closing sale price
(rounded down to the nearest whole cent) of one share of COFI
Common Stock as reported on the Nasdaq National Market. No
such holder shall be entitled to dividends, voting rights or
any other rights in respect of any fractional share interest.
(g) STOCK OPTIONS. The Home Bank Stock Compensation Plan
including Plans I and II thereto ("1985 Option Plan") and the
Haverfield 1995 Stock Option Plan ("1995 Option Plan") and each option
granted thereunder outstanding on the date hereof and remaining
outstanding immediately prior to the Effective Time shall, at the
Effective Time, be assumed by COFI and each such option shall be
converted automatically into an option to purchase shares of COFI
Common Stock in an amount and at an exercise price determined as
provided below (and otherwise subject to the terms of the 1985 Option
Plan or 1995 Option Plan, whichever is applicable):
(i) the number of shares of COFI Common Stock to be
subject to the new option shall be equal to the product of the
number of shares of Haverfield Common Stock subject to the
original option and the Exchange Ratio, provided that any
fractional share of COFI Common Stock resulting from such
multiplication shall be rounded down to the nearest share; and
(ii) the exercise price per share of COFI Common
Stock under the new option shall be equal to the exercise
price per share of Haverfield Common Stock under the original
option divided by the Exchange Ratio, provided that such
exercise price shall be rounded down to the nearest cent.
The adjustment provided herein with respect to any options
which are "incentive stock options" (as defined in Section 422 of the
Code) shall be and is intended to be effected in a manner which is
consistent with Section 424(a) of the Code. The duration and other
terms of the new option shall be the same as the original option,
except that all references to Haverfield shall be deemed to be
references to COFI.
I-12
<PAGE> 80
(h) ARTICLES OF INCORPORATION AND CODE OF REGULATIONS OF THE
SURVIVING CORPORATION. The Articles of Incorporation and Code of
Regulations of Haverfield, as in effect immediately prior to the
Effective Time, shall be the Articles of Incorporation and Code of
Regulations of Haverfield, as the surviving corporation of the Company
Merger, until either is thereafter amended in accordance with
applicable law.
(i) DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The
directors and officers of Merger Sub immediately prior to the Effective
Time shall be the directors and officers of Haverfield, as the
surviving corporation of the Company Merger, until their respective
successors shall be duly elected and qualified or otherwise duly
selected.
1.4 MICHIGAN MERGER.
(a) CANCELLATION OF HAVERFIELD COMMON STOCK. At the effective
time of the Michigan Merger, each share of common stock of Haverfield
issued and outstanding immediately prior thereto shall, by virtue of
the Michigan Merger, be canceled. No new shares of capital stock or
other securities or obligations of Charter Michigan shall be issued
with respect to or in exchange for such canceled shares, and such
canceled shares of Haverfield common stock shall not be converted into
capital stock or other securities or obligations of Charter Michigan.
(b) ARTICLES OF INCORPORATION AND BYLAWS OF THE SURVIVING
CORPORATION. The Articles of Incorporation and Bylaws of Charter
Michigan, as in effect immediately prior to the Effective Time, shall
be the Articles of Incorporation and Bylaws of Charter Michigan, as the
surviving corporation of the Michigan Merger, until either is
thereafter amended in accordance with applicable law.
(c) DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The
directors and officers of Charter Michigan immediately prior to the
Effective Time shall be the directors and officers of Charter Michigan,
as the surviving corporation of the Michigan Merger, until their
respective successors shall be duly elected and qualified or otherwise
duly selected.
(d) SERVICE OF PROCESS. At the effective time of the Michigan
Merger, Charter Michigan, as the surviving corporation of the Michigan
Merger, consents to be sued and served with process in the State of
Ohio and irrevocably appoints the Secretary of State of the State of
Ohio as its agent to accept service of process in any proceeding in the
State of Ohio to enforce against it any obligation of Haverfield or to
enforce the right of the holders of Dissenting Shares.
(e) ADDITIONAL FILING REQUIREMENTS. Charter Michigan, as the
surviving corporation of the Michigan Merger, does not intend to
transact business in the State of Ohio and does not desire to be
licensed to transact business in the State of Ohio.
I-13
<PAGE> 81
Accordingly, at the time a certificate of merger relating to the
Michigan Merger is filed with the Secretary of State of the State of
Ohio, it shall be accompanied by the affidavits, receipts, certificates
or other evidence required by Division (H) of Section 1701.86 of the
OGCL with respect to Haverfield.
(f) PRINCIPAL OFFICE. The location of the principal office of
Charter Michigan, as the surviving corporation of the Michigan Merger,
in the State of Michigan is 13606 Michigan Avenue, 2nd Floor, Dearborn,
Michigan 48126.
1.5 BANK MERGER.
(a) CANCELLATION OF HOME BANK COMMON STOCK. At the Bank Merger
Effective Time, each share of common stock of Home Bank ("Home Bank
Common Stock") issued and outstanding immediately prior thereto shall,
by virtue of the Bank Merger, be canceled. No new shares of capital
stock or other securities or obligations of Charter One Bank shall be
issued with respect to or in exchange for such canceled shares, and
such canceled shares of Home Bank Common Stock shall not be converted
into capital stock or other securities or obligations of Charter One
Bank.
(b) CHARTER AND BYLAWS OF THE RESULTING INSTITUTION. The
charter and bylaws of Charter One Bank, as in effect immediately prior
to the Bank Merger Effective Time, shall, without any change, be the
charter and bylaws of Charter One Bank, as the resulting institution of
the Bank Merger, until either is thereafter amended in accordance with
applicable law.
(c) DIRECTORS OF THE RESULTING INSTITUTION. The directors of
Charter One Bank, as the resulting institution of the Bank Merger,
shall be those persons listed in Exhibit B to this Agreement. Such
directors shall continue in office until their successors are duly
elected and qualified or otherwise duly selected.
(d) OFFICES OF THE RESULTING INSTITUTION. The home and other
offices of Charter One Bank, as the resulting institution of the Bank
Merger, shall be as listed in Exhibit C to this Agreement.
1.6 CLOSING. Subject to the provisions of Article VI hereof, the
closing of the transactions contemplated by this Agreement (the "Closing") shall
take place as soon as practicable after satisfaction or waiver of all of the
conditions to Closing, and shall be at 10:00 a.m. on the first business day of
the first calendar month following the satisfaction of all of the conditions to
Closing, at the executive offices of COFI or at such other date, time and
location as is mutually agreed to by COFI and Haverfield, but in no event prior
to September 1, 1997. The date on which the Closing actually occurs is herein
referred to as the "Closing Date".
1.7 RESERVATION OF RIGHT TO REVISE TRANSACTION. After consultation
with Haverfield,
I-14
<PAGE> 82
COFI shall have the unilateral right to change the method of effecting the
Merger (including without limitation the provisions of this Article I), to the
extent permitted by applicable law and to the extent it deems such change to be
desirable, provided, however, that no such change shall (a) alter or change the
amount or kind of the Merger Consideration or the treatment of stock options as
set forth in Section 1.3(g) hereof, (b) diminish the benefits to be received by
the directors, officers or employees of Haverfield and Home Bank as set forth in
this Agreement or in any other agreements between the parties made in connection
with this Agreement, (c) materially impede or delay the consummation of the
Company Merger or (d) adversely affect the tax treatment of Haverfield
stockholders as a result of receiving the Merger Consideration. COFI may
exercise this right of revision by giving written notice thereof in the manner
provided in Section 8.2 of this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COFI AND CHARTER ONE BANK
COFI and Charter One Bank jointly and severally represent and warrant
to Haverfield and Home Bank that:
2.1 ORGANIZATION.
(a) COFI is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has all
requisite power and authority, corporate and otherwise, to own, operate
and lease its assets and properties and to carry on its business
substantially as it has been and is now being conducted. COFI is duly
qualified to do business and is in good standing in each jurisdiction
where the character of the assets or properties owned or leased by it
or the nature of the business transacted by it requires that it be so
qualified, except where the failure to so qualify would not have a
Material Adverse Effect (as defined in Section 2.1(b) hereof)) on COFI
or its ability to consummate the transactions contemplated herein. COFI
has all requisite corporate power and authority to enter into this
Agreement and, subject to the receipt of all requisite regulatory
approvals and the expiration of applicable waiting periods, to
consummate the transactions contemplated hereby. COFI is duly
registered as a savings and loan holding company under HOLA.
(b) As used in this Agreement, the term "Material Adverse
Effect" with respect to COFI or Haverfield means any condition, event,
change or occurrence that has or may reasonably be expected to have a
material adverse effect on the condition (financial or otherwise),
properties, business, operations, assets or deposit liabilities of such
entity taken together with its affiliated entities on a consolidated
basis; it being understood that a Material Adverse Effect shall not
include: (i) a change with respect to, or effect on, such entity and
its Subsidiaries resulting from a change in law, rule, regulation,
generally accepted accounting principles or regulatory accounting
principles, as such would apply to the financial statements of such
entity on a
I-15
<PAGE> 83
consolidated basis; (ii) a change with respect to, or effect on, such
entity and its Subsidiaries resulting from expenses (such as legal,
accounting and investment bankers' fees) incurred in connection with
this Agreement; (iii) a change with respect to, or effect on, such
entity and its Subsidiaries resulting from any other matter affecting
depository institutions generally including, without limitation,
changes in general economic conditions and changes in prevailing
interest and deposit rates; or (iv) in the case of Haverfield, any
financial change resulting from adjustments taken pursuant to Section
4.2 hereof.
2.2 AUTHORIZATION. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby have been
duly approved and authorized by the Boards of Directors of COFI, Charter
Michigan and Charter One Bank, and no other corporate action on their part is
required to be taken. This Agreement has been duly executed and delivered by
COFI, Charter Michigan and Charter One Bank and constitutes the valid and
binding obligation of each of them and is enforceable against each of them,
except to the extent that enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable
principles or doctrines.
2.3 CONFLICTS. Subject to the second sentence of this Section 2.3, the
execution and delivery of this Agreement does not, and the consummation of the
transactions contemplated hereby will not, conflict with or result in any
violation, breach or termination of, or default or loss of a material benefit
under, or permit the acceleration of any obligation under, or result in the
creation of any material lien, charge or encumbrance on any of the property or
assets under, any provision of the Certificate of Incorporation or Bylaws of
COFI or similar documents of any COFI Subsidiary or any mortgage, indenture,
lease, agreement or other instrument, permit, concession, grant, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to COFI or any COFI Subsidiary or their respective properties, other
than any such conflicts, violations or defaults which (i) will be cured or
waived prior to the Effective Time; (ii) are not material to the conduct of
business or operations of COFI or any COFI Subsidiary; or (iii) are disclosed in
Section 2.3 of that certain confidential writing delivered by COFI to Haverfield
within two business days prior to the date hereof (the "COFI Disclosure
Schedule"). No consent, approval, order or authorization of, or registration,
declaration or filing with, any federal or state governmental authority is
required by or with respect to COFI, Charter Michigan or Charter One Bank, in
connection with the execution and delivery of this Agreement or the consummation
by them of the transactions contemplated hereby except for: (a) the filing of
all required regulatory applications by COFI, Haverfield and/or their respective
Subsidiaries for approval of the transactions contemplated by this Agreement;
(b) the filing by COFI of the registration statement relating to the COFI Common
Stock to be issued pursuant to this Agreement ("Registration Statement") with
the United States Securities and Exchange Commission ("SEC") and various blue
sky authorities, which Registration Statement shall include the prospectus/proxy
statement ("Proxy Statement") for use in connection with the Haverfield
stockholders' meeting to approve the Company Merger ("Haverfield Stockholders'
Meeting"); (c) the filing of certificates of merger with respect to the Company
Merger and the Michigan
I-16
<PAGE> 84
Merger with the Ohio Secretary of State and the Michigan Department of Commerce
and the filing of additional documents with the State of Ohio as described in
Section 1.4(e); (d) the filing of the articles of combination with the OTS
relating to the Bank Merger; (e) any filings, approvals or no-action letters
with or from state securities authorities; and (f) any anti-trust filings,
consents, waivers or approvals.
2.4 ANTI-TAKEOVER PROVISIONS INAPPLICABLE. To the best knowledge of
COFI and Charter One Bank, no "business combination," "moratorium," "control
share" or other state anti-takeover statute or regulation (i) applies to the
Company Merger, (ii) prohibits or restricts the ability of COFI, Merger Sub,
Charter Michigan or Charter One Bank to perform its obligations under this
Agreement or its ability to consummate the transactions contemplated hereby,
(iii) would have the effect of invalidating or voiding this Agreement or any
provision hereof, or (iv) would subject Haverfield or Home Bank to any material
impediment or condition in connection with the exercise of any of its rights
under this Agreement.
2.5 CAPITALIZATION.
(a) As of the date hereof, the authorized capital stock of
COFI consists of (i) 180,000,000 shares of COFI Common Stock, $0.01 par
value per share, of which, as of February 28, 1997, 46,330,703 shares
were issued and outstanding and (ii) 20,000,000 shares of preferred
stock, $0.01 par value per share, of which none are issued and
outstanding. All of the issued and outstanding shares of COFI Common
Stock have been, and all of the shares of COFI Common Stock to be
issued in the Company Merger will be, at the Effective Time, duly and
validly authorized and issued, and are or will be, as the case may be,
fully paid and non-assessable. None of the outstanding shares of COFI
Common Stock has been issued in violation of any preemptive rights of
the current or past stockholders of COFI and none of the outstanding
shares of COFI Common Stock is or will be entitled to any preemptive
rights in respect of the Company Merger or any of the other
transactions contemplated by this Agreement.
(b) As of March 31, 1997, COFI does not have outstanding any
securities or rights convertible into or exchangeable for COFI Common
Stock or any commitments, contracts, understandings or arrangements by
which COFI is or may be bound to issue additional shares of COFI Common
Stock, except pursuant to employee and director stock options or as
otherwise set forth in Section 2.5 of the COFI Disclosure Schedule.
2.6 COFI FINANCIAL STATEMENTS; MATERIAL CHANGES. COFI has heretofore
delivered to Haverfield its audited consolidated financial statements for
calendar years ended December 31, 1996 and December 31, 1995 (together the "COFI
Financial Statements"). The COFI Financial Statements (x) are true and correct
in all material respects; (y) have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto); and (z) fairly
I-17
<PAGE> 85
present the consolidated financial position of COFI as of the dates thereof and
the consolidated results of its operations, shareholders' equity, cash flows and
changes in financial position for the periods then ended. Since December 31,
1996 to the date hereof, COFI and the COFI Subsidiaries have not undergone or
suffered any changes in their respective condition (financial or otherwise),
properties, business or operations which have been, in any case or in the
aggregate, materially adverse to COFI on a consolidated basis except as
disclosed in Section 2.6 of the COFI Disclosure Schedule. No facts or
circumstances have been discovered from which it reasonably appears that there
is a significant risk and reasonable probability that COFI will suffer or
experience a Material Adverse Effect.
2.7 COFI SUBSIDIARIES.
(a) All of the COFI Subsidiaries as of the date of this
Agreement are listed in Section 2.7 of the COFI Disclosure Schedule.
COFI owns directly or indirectly all of the issued and outstanding
shares of capital stock of the COFI Subsidiaries. No capital stock of
any of the COFI Subsidiaries is, or may become required to be, issued
(other than to COFI or another COFI Subsidiary) by reason of any
options, warrants, scrip, right to subscribe to, calls, or commitments
of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of the capital stock of
any COFI Subsidiary. All of the shares of capital stock of each COFI
Subsidiary held by COFI or a COFI Subsidiary are fully paid and
non-assessable and are owned free and clear of any claim, lien or
encumbrance, except as disclosed in Section 2.7 of the COFI Disclosure
Schedule.
(b) Each COFI Subsidiary is either a savings bank or a
corporation and is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated
or organized, and is duly qualified to do business and in good standing
in each jurisdiction where the character of the assets or properties
owned or leased by it or the nature of the business transacted by it
requires it to be so qualified, except where the failure to so qualify,
either individually or in the aggregate, would not have a Material
Adverse Effect on COFI or the ability of COFI, Merger Sub, Charter
Michigan or Charter One Bank to consummate the transactions
contemplated herein. Each COFI Subsidiary has the corporate power and
authority necessary for it to own, operate or lease its assets and
properties and to carry on its business as it has been and is now being
conducted.
(c) For purposes of this Agreement, an "COFI Subsidiary" or a
"Subsidiary" of COFI shall mean each corporation, savings bank and
other entity in which COFI owns or controls directly or indirectly 10%
or more of the outstanding equity securities; provided, however, there
shall not be included any such entity acquired in good faith through
foreclosure, or any such entity to the extent that the equity
securities of such entity are owned or controlled in a bona fide
fiduciary capacity.
(d) Charter One Bank is a member in good standing of the
Federal Home
I-18
<PAGE> 86
Loan Bank System. All eligible deposit accounts issued by Charter One
Bank are insured by the Federal Deposit Insurance Corporation ("FDIC")
through the Savings Association Insurance Fund ("SAIF") to the full
extent permitted under applicable law. Charter One Bank is, and at all
times since June 1, 1990 has been, a "domestic building and loan
association" as defined in Section 7701(a)(19) of the Code and a
"qualified thrift lender" as defined in Section 10(m) of HOLA.
2.8 COFI FILINGS. COFI has previously made available, or will make
available prior to the Effective Time, to Haverfield true and correct copies of
its (i) proxy statements relating to all meetings of its stockholders (whether
special or annual) during calendar years 1995, 1996, and 1997 and (ii) all other
reports, as amended, or filings, as amended, required to be filed under the
Securities and Exchange Act of 1934, as amended (the "Securities Exchange Act")
by COFI with the SEC since January 1, 1995 including without limitation on Forms
10-K, 10-Q and 8-K.
2.9 COFI REPORTS. Each of COFI and the COFI Subsidiaries has filed, and
will continue to file, all reports and statements, together with any amendment
required to be made with respect thereto, that it was, or will be required to
file with the SEC, the FDIC, the OTS, the National Association of Securities
Dealers ("NASD") and other applicable thrift, securities and other regulatory
authorities (except filings which are not material). As of their respective
dates (and without giving effect to any amendments or modifications filed after
the date of this Agreement with respect to reports and documents filed before
the date of this Agreement), each of such reports and documents, including the
financial statements, exhibits, and schedules thereto, complied in all material
respects with all of the statutes, rules and regulations enforced or promulgated
by the authority with which they were filed and did not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading. Other than normal examinations conducted
by the Internal Revenue Service, state and local taxing authorities, the OTS or
the FDIC in the regular course of the business of COFI or the COFI Subsidiaries,
no federal, state or local governmental agency, commission or other entity has
initiated any proceeding or, to the best knowledge of COFI and Charter One Bank,
investigation into the business or operations of COFI or the COFI Subsidiaries
within the past two (2) years except as set forth in Section 2.9 of the COFI
Disclosure Schedule. There is no unresolved violation, criticism or exception by
the SEC, OTS, FDIC or other agency, commission or entity with respect to any
report or statement referred to herein that is material to COFI or any COFI
Subsidiary on a consolidated basis.
2.10 COMPLIANCE WITH LAWS.
(a) Except as disclosed in Section 2.10 of the COFI Disclosure
Schedule, the businesses of COFI and the COFI Subsidiaries are not
being conducted in violation of any law, ordinance or regulation of any
governmental entity, including, without limitation, any laws affecting
financial institutions (including those pertaining to the Bank Secrecy
Act, the investment of funds, the lending of money, the collection of
I-19
<PAGE> 87
interest and the extension of credit), federal and state securities
laws, laws and regulations relating to financial statements and
reports, truth-in-lending, truth-in-savings, usury, fair credit
reporting, consumer protection, occupational safety, fair employment
practices, fair labor standards and laws and regulations relating to
employees and employee benefits, and any statutes or ordinances
relating to the properties occupied or used by COFI or any COFI
Subsidiary, except for possible violations which either singly or in
the aggregate do not and, insofar as reasonably can be foreseen in the
future, will not have a Material Adverse Effect on COFI.
(b) Except as disclosed in Section 2.10 of the COFI Disclosure
Schedule, no investigation or review by any governmental entity with
respect to COFI or any COFI Subsidiary is pending or, to the best
knowledge of COFI and Charter One Bank, threatened, nor has any
governmental entity indicated to COFI or any COFI Subsidiary an
intention to conduct the same, other than normal thrift regulatory
examinations and those the outcome of which will not have a Material
Adverse Effect on COFI.
(c) COFI and each of the COFI Subsidiaries, where applicable,
is in substantial compliance with the applicable provisions of the
Community Reinvestment Act of 1977 and the regulations promulgated
thereunder. As of the date of this Agreement, neither COFI nor Charter
One Bank has been advised of the existence of any fact or circumstance
or set of facts or circumstances which, if true, would cause COFI or
any of the COFI Subsidiaries to fail to be in substantial compliance
with such provisions. No COFI Subsidiary that is a financial
institution has received a rating from an applicable regulatory
authority which is less than "satisfactory."
2.11 REGISTRATION STATEMENT; PROXY STATEMENT. The information to be
supplied by COFI for inclusion in the Registration Statement will not, at the
time the Registration Statement is declared effective and at the Effective Time,
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
therein, in the light of the circumstances under which they were made, not
misleading. The information to be supplied by COFI for inclusion in the Proxy
Statement will not, on the date the Proxy Statement (or any amendment thereof or
supplement thereto) is first mailed to Haverfield's stockholders, at the time of
the Haverfield Stockholders' Meeting, and at the Effective Time, contain any
statement that, in light of the circumstances under which it is made, is false
or misleading with respect to any material fact, omits to state any material
fact necessary in order to make the statements made therein not false or
misleading, or omits to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Haverfield Stockholders' Meeting that has become false or
misleading. If, at any time prior to the Effective Time, any event relating to
COFI or any of its affiliates, officers, or directors is discovered by COFI that
should be set forth in an amendment to the Registration Statement or a
supplement to the Proxy Statement, COFI will promptly inform Haverfield and such
amendment or supplement will be promptly filed with the SEC and, as required by
law, disseminated to the stockholders of Haverfield. Notwithstanding the
foregoing, COFI makes
I-20
<PAGE> 88
no representation or warranty with respect to any information supplied by
Haverfield that is contained in any of the Registration Statement or the Proxy
Statement. The Proxy Statement and the Registration Statement will (with respect
to COFI) comply in all material respects as to form and substance with the
requirements of the Exchange Act, the Securities Act, and the rules and
regulations thereunder.
2.12 LITIGATION. Except as disclosed in Section 2.12 of the COFI
Disclosure Schedule, there is no suit, action, investigation or proceeding,
legal, quasi-judicial, administrative or otherwise, pending or, to the best
knowledge of COFI and Charter One Bank threatened, against or affecting COFI or
any COFI Subsidiary, or any of their respective officers, directors, employees
or agents, in their capacities as such, which if adversely determined, would
have a Material Adverse Effect on COFI or which would materially affect the
ability of COFI, Merger Sub, Charter Michigan or Charter One Bank to consummate
the transactions contemplated herein or which is seeking to enjoin consummation
of the transactions provided for herein or to obtain other relief in connection
with this Agreement or the transactions contemplated hereby, nor is there any
judgment, decree, injunction, rule or order of any court, governmental
department, commission agency, instrumentality or arbitrator outstanding against
COFI or any COFI Subsidiary or any of their respective officers, directors,
employees or agents, in their capacities as such, having, or which, insofar as
reasonably can be foreseen in the future, would have any such effect.
2.13 LICENSES. COFI and the COFI Subsidiaries hold all licenses,
certificates, permits, franchises and all patents, trademarks, service marks,
trade names, copyrights or rights thereto, and required authorizations,
approvals, consents, licenses, clearances and orders or registrations with all
appropriate federal, state or other authorities that are material to the conduct
of their respective businesses as now conducted and as presently proposed to be
conducted.
2.14 TAXES.
(a) Except as disclosed in Section 2.14 of the COFI Disclosure
Schedule, COFI and the COFI Subsidiaries have each timely filed all tax
and information returns required to be filed and have paid (or COFI has
paid on behalf of its Subsidiaries), or have accrued on their
respective books and set up an adequate reserve for the payment of, all
taxes reflected on such returns or required to be paid in respect of
the periods covered by such returns and have accrued on their
respective books and set up an adequate reserve for the payment of all
income and other taxes anticipated to be payable in respect of periods
through the end of the calendar month next preceding the date hereof.
Neither COFI nor any COFI Subsidiary is delinquent in the payment of
any tax, assessment or governmental charge. No deficiencies for any
taxes have been proposed, asserted or assessed against COFI or any COFI
Subsidiary that have not been resolved or settled, and no requests for
waivers of the time to assess any such tax are pending or have been
agreed to. Except as set forth in Section 2.14 of the COFI Disclosure
Schedule, neither COFI nor any COFI Subsidiary is currently subject to
I-21
<PAGE> 89
audit or examination of any of its income tax returns by the Internal
Revenue Service or any state, municipal or other taxing authority.
Neither COFI nor any COFI Subsidiary is a party to any action or
proceeding by any governmental authority for the assessment or the
collection of taxes. Deferred taxes of COFI and the COFI Subsidiaries
have been accounted for in accordance with generally accepted
accounting principles.
(b) COFI has not filed any consolidated federal income tax
return with an "affiliated group" (within the meaning of Section 1504
of the Code), where COFI was not the common parent of the group.
Neither COFI nor any COFI Subsidiary is, or has been a party to any tax
allocation agreement or arrangement pursuant to which it has any
contingent or outstanding liability to anyone other than COFI or a COFI
Subsidiary.
(c) COFI and the COFI Subsidiaries have each withheld amounts
from its employees, stockholders or holders of public deposit accounts
in compliance with the tax withholding provisions of applicable
federal, state and local laws, have filed all federal, state and local
returns and reports for all periods for which such returns or reports
would be due with respect to income tax withholding, social security,
unemployment taxes, income and other taxes and all payments or deposits
with respect to such taxes have been timely made and, except as set
forth in Section 2.14 of the COFI Disclosure Schedule have notified all
employees, stockholders, and holders of public deposit accounts of
their obligations to file all forms, statements and reports with it in
accordance with applicable federal, state and local tax laws and have
taken reasonable steps to insure that such employees, stockholders and
holders of public deposit accounts have filed all such forms,
statements and reports with it.
(d) For the purposes of this Agreement, the terms "tax" and
"taxes" include without limitation, any federal, state, local or
foreign income, leasing, franchise, excise, gross receipts, sales, use,
occupational, employment, real property, ad valorem, tangible and
intangible personal property and state taxes, payments in lieu of
taxes, levies, duties, imposts, business, operations or financial
condition, assessments, fees, charges and withholdings of any nature
whatsoever, together with any related penalties, fines, additions to
tax or interest thereon.
2.15 INSURANCE. COFI and the COFI Subsidiaries maintain insurance with
insurers which in the best judgment of management of COFI are sound and
reputable on their respective assets and upon their respective businesses and
operations against loss or damage, risks, hazards and liabilities as in their
judgment they deem appropriate. COFI and the COFI Subsidiaries maintain in
effect all insurance required to be carried by law or by any agreement by which
they are bound. All material claims under all policies of insurance maintained
by COFI and the COFI Subsidiaries have been filed in due and timely fashion.
I-22
<PAGE> 90
2.16 LOANS; INVESTMENTS.
(a) Except as otherwise disclosed in Section 2.16 of the COFI
Disclosure Schedule, each material loan reflected as an asset on the
COFI Financial Statements dated as of December 31, 1996 is evidenced by
appropriate and sufficient documentation and constitutes, to the best
knowledge of COFI and Charter One Bank, the legal, valid and binding
obligation of the obligor named therein, enforceable in accordance with
its terms, except to the extent that the enforceability thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws or equitable principles or doctrines. Except as set forth
in Section 2.16 of the COFI Disclosure Schedule, all such loans are,
and at the Effective Time will be, free and clear of any security
interest, lien, encumbrance or other charge.
(b) All guarantees of indebtedness owed to COFI or any COFI
Subsidiary, including but not limited to those of the Federal Housing
Administration, the Small Business Administration, and other state and
federal agencies, are, to the best knowledge of COFI and Charter One
Bank, valid and enforceable, except to the extent enforceability
thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles or
doctrines and except as would not have a Material Adverse Effect on
COFI.
(c) All interest rate swaps, caps, floors and option
agreements and other interest rate risk management arrangements to
which COFI or any COFI Subsidiary is a party or by which any of their
properties or assets may be bound were entered into in the ordinary
course of business and, to the best knowledge of COFI and Charter One
Bank, in accordance with then-customary practice and applicable rules,
regulations and policies of thrift regulatory authorities and with
counterparties believed to be financially responsible at the time and
are legal, valid and binding obligations and are in full force and
effect. COFI and the COFI Subsidiaries have duly performed in all
material respects all of their respective obligations thereunder to the
extent that such obligations to perform have accrued, and to the best
knowledge of COFI and Charter One Bank, there are no material breaches,
violations or defaults or allegations or assertions of such by any
party thereunder. None of the transactions contemplated by this
Agreement would permit (i) a counterparty under any interest rate swap,
cap, floor and option agreement or any other interest rate risk
management agreement or (ii) any party to any mortgage backed security
financing arrangement, to accelerate, discontinue, terminate, or
otherwise modify any such agreement or arrangement or would require
COFI or any COFI Subsidiary to recognize any gain or loss with respect
to such arrangement.
(d) Except as set forth in Section 2.16 of the COFI Disclosure
Schedule and except for pledges to secure public and trust deposits,
none of the investments reflected in the COFI Financial Statements
dated as of December 31, 1996 under the heading "Investment
Securities," and none of the investments made by COFI and the COFI
I-23
<PAGE> 91
Subsidiaries since December 31, 1996, is subject to any restriction,
whether contractual or statutory, which materially impairs the ability
of COFI or any COFI Subsidiary to freely dispose of such investment at
any time, other than those restrictions imposed on securities held for
investment under generally accepted accounting principles. With respect
to all material repurchase agreements to which COFI or any COFI
Subsidiary is a party, COFI or such Subsidiary has a valid, perfected
first lien, or security interest in the government securities or other
collateral securing each such repurchase agreement, and the value of
the collateral securing each such repurchase agreement equals or
exceeds the amount of the debt secured by such collateral under such
agreement.
2.17 ALLOWANCE FOR POSSIBLE LOAN LOSSES. The allowance for possible
loan losses shown on the COFI Financial Statements as of December 31, 1996, (and
as shown on any financial statements to be delivered by COFI to Haverfield
pursuant to Section 5.7 hereof), to the best knowledge of COFI and Charter One
Bank, as of such date was (and will be as of such subsequent financial statement
dates) adequate in all respects to provide for possible or specific losses, net
of recoveries relating to loans previously charged off, on loans outstanding,
and contained (or will contain) an additional amount of unallocated reserves for
unanticipated future losses at a level considered adequate under the standards
applied by applicable federal regulatory authorities and based upon generally
accepted accounting principles applicable to Charter One Bank. To the best
knowledge of COFI and Charter One Bank, the aggregate principal amount of loans
contained (or that will be contained) in the loan portfolio of COFI and the COFI
Subsidiaries as of December 31, 1996 (and as of the dates of any financial
statements to be delivered by COFI to Haverfield pursuant to Section 5.7
hereof), in excess of such reserve, was (and will be) fully collectible.
2.18 COFI BENEFIT PLANS.
(a) The term "COFI Benefit Plans" as used herein refers to
each compensation, consulting, employment, termination or collective
bargaining agreement, and each stock option, stock purchase, stock
appreciation right, life, health, accident or other insurance, bonus,
deferred or incentive compensation, severance or separation agreement
or any agreement providing any payment or benefit resulting from a
change in control, profit sharing, retirement, or other employee
benefit plan, practice, policy or arrangement of any kind, oral or
written, covering any employee, former employee, director or former
director of COFI or any COFI Subsidiary or his or her beneficiaries,
including, but not limited to, any employee benefit plans within the
meaning of Section 3(3) of the Employee Retirement Income Security Acts
of 1974, as amended ("ERISA"), which COFI or any COFI Subsidiary
maintains, to which COFI or any COFI Subsidiary contributes, or under
which any employee, former employee, director or former director of
COFI or any COFI Subsidiary is covered or has benefit rights and
pursuant to which any liability of COFI or any COFI Subsidiary exists
or is reasonably likely to occur, provided that the term "Plan or
"Plans" is used in this Agreement for convenience only and does not
constitute an acknowledgment that a
I-24
<PAGE> 92
particular arrangement is an employee benefit plan within the meaning
of Section 3(3) of ERISA. No COFI Benefit Plan is a multi-employer plan
within the meaning of Section 3(37) of ERISA.
(b) Each of the COFI Benefit Plans that is intended to be a
pension, profit sharing, stock bonus, thrift, savings or employee stock
ownership plan that is qualified under Section 401(a) of the Code
("COFI Qualified Plans") has been determined by the Internal Revenue
Service to qualify under Section 401(a) of the Code, or an application
for determination of such qualification has been timely made to the
Internal Revenue Service prior to the end of the applicable remedial
amendment period under Section 401(b) of the Code, and, to the best of
COFI's knowledge, there exist no circumstances likely to adversely
affect the qualified status of any such COFI Qualified Plan. All such
COFI Qualified Plans established or maintained by COFI or any of the
COFI Subsidiaries or to which COFI or any of the COFI Subsidiaries
contribute are in compliance in all material respects with all
applicable requirements of ERISA, and are in compliance in all material
respects with all applicable requirements (including qualification and
non-discrimination requirements) of the Code for obtaining the tax
benefits the Code thereupon permits with respect to such COFI Qualified
Plans. Neither COFI nor any COFI Subsidiary maintains, sponsors or
contributes to a Qualified Plan that is a defined benefit pension plan
subject to Title IV of ERISA. All accrued contributions and other
payments required to be made by COFI or any COFI Subsidiary to any COFI
Benefit Plan through December 31, 1996, have been made or reserves
adequate for such purposes as of December 31, 1996 have been set aside
therefor and reflected in the COFI Financial Statements dated as of
December 31, 1996. Neither COFI nor any COFI Subsidiary is in material
default in performing any of its respective contractual obligations
under any of the COFI Benefit Plans or any related trust agreement or
insurance contract, and there are no material outstanding liabilities
of any such Plan other than liabilities for benefits to be paid to
participants in such Plan and their beneficiaries in accordance with
the terms of such Plan.
(c) There is no pending or, to the best knowledge of COFI and
Charter One Bank, threatened litigation or pending claim (other than
benefit claims made in the ordinary course) by or on behalf of or
against any of the COFI Benefit Plans (or with respect to the
administration of any of such Plans) now or heretofore maintained by
COFI or any COFI Subsidiary which allege violations of applicable state
or federal law which are reasonably likely to result in a liability on
the part of COFI or any COFI Subsidiary or any such Plan.
(d) COFI and the COFI Subsidiaries and all other persons
having fiduciary or other responsibilities or duties with respect to
any COFI Benefit Plan are and have since the inception of each such
Plan been in substantial compliance with, and each such Plan is and has
been operated in substantial accordance with, its provisions and in
substantial compliance with the applicable laws, rules and regulations
governing such Plan, including, without limitation, the rules and
regulations promulgated by the
I-25
<PAGE> 93
Department of Labor, the Pension Benefit Guaranty Corporation ("PBGC")
and the Internal Revenue Service under ERISA, the Code or any other
applicable law. Notwithstanding the foregoing, no representation is
made with respect to compliance by a third party insurance company. No
"reportable event" (as defined in Section 4043(b) of ERISA) has
occurred with respect to any COFI Qualified Plan. Neither COFI, any
COFI Subsidiary nor any COFI Benefit Plan has incurred or is reasonably
likely to incur any liability for any "prohibited transactions" (as
defined in Section 406 of ERISA or Section 4975(a) of the Code), or any
material liability under Section 601 of ERISA or Section 4980 of the
Code.
(e) COFI and the COFI Subsidiaries have filed or caused to be
filed, and will continue to file or cause to be filed, in a timely
manner all filings pertaining to each COFI Benefit Plan with the
Internal Revenue Service, the PBGC, the Department of Labor, and as
prescribed by the Code or ERISA, or regulations issued thereunder. All
such filings, as amended, were complete and accurate in all material
respects as of the dates of such filings, and there were no
misstatements or omissions in any such filing which would be material
to the financial condition of COFI on a consolidated basis.
Notwithstanding the foregoing, no representation is made with respect
to filings by a third party insurance company.
2.19 COMPLIANCE WITH ENVIRONMENTAL LAWS.
(a) Except as set forth in Section 2.19 of the COFI Disclosure
Schedule: (i) to the best knowledge of COFI and Charter One Bank, the
operations of COFI and each of the COFI Subsidiaries comply in all
material respects with all applicable past and present Environmental
Laws (as defined below); (ii) to the best knowledge of COFI and Charter
One Bank, none of the operations of COFI or any COFI Subsidiary, no
assets presently or formerly owned or leased by COFI or any COFI
Subsidiary and no Mortgaged Premises or a Participating Facility (as
defined below) are subject to any judicial or administrative
proceedings alleging the violation of any past or present Environmental
Law, nor are they the subject of any claims alleging damages to health
or property, pursuant to which COFI, any COFI Subsidiary or any owner
of a Mortgaged Premises or a Participating Facility would be liable in
law or equity; (iii) none of the operations of COFI or any COFI
Subsidiary, no assets presently owned or, to the best knowledge of COFI
and Charter One Bank, formerly owned by COFI or any COFI Subsidiary,
and, to the best knowledge of COFI and Charter One Bank, no Mortgaged
Premises or Participating Facility are the subject of any federal,
state or local investigation evaluating whether any remedial action is
needed to respond to a release or threatened release of any Hazardous
Substance (as defined below), or any other substance into the
environment, nor has COFI or any COFI Subsidiary, or, to the best
knowledge of COFI and Charter One Bank, any owner of a Mortgaged
Premises or Participating Facility been directed to conduct such
investigation, formally or informally, by any governmental agency, nor
have any of them agreed with any governmental agency or private person
to conduct any such investigation; and (iv)
I-26
<PAGE> 94
neither COFI or any COFI Subsidiary, nor, to the best knowledge of COFI
and Charter One Bank, any owner of a Mortgaged Premises or a
Participating Facility has filed any notice under any Environmental Law
indicating past or present treatment, storage or disposal of a
Hazardous Substance or reporting a spill or release of a Hazardous
Substance, or any other substance into the environment.
(b) For purposes of this Section, "Mortgaged Premises" shall
mean each (i) real property interest (including without limitation any
fee or leasehold interest) which is encumbered or affected by any
mortgage, deed of trust, deed to secure debt or other similar document
or instrument granting to any party hereto or any of its Subsidiaries a
lien on or security interest in such real property interest and (ii)
any other real property interest upon which is situated assets or other
property affected or encumbered by any document or instrument granting
to any party hereto or any of its Subsidiaries a lien thereon or
security interest therein; provided, however, that the term "Mortgaged
Premises" shall not include one- to four-unit, single-family
residences, and in the case of COFI and the COFI Subsidiaries, any real
property interest securing a loan with a principal balance of less than
one million dollars. For purposes of this Section, "Participating
Facility" means any property in which any party hereto or any of its
Subsidiaries participates in the management of such property and, where
the context requires, includes the owner or operator of such property.
For purposes of this Agreement, "Hazardous Substance" has the meaning
set forth in Section 9601 of the Comprehensive Environmental Response
Compensation and Liability Act of 1980, 42 U.S.C.A., Section 9601 et
seq., and also includes any substance now or hereafter regulated by or
subject to any Environmental Laws (as defined below) and any other
pollutant, contaminant, or waste, including without limitation,
petroleum, asbestos, fiberglass, radon, and polychlorinated biphenyls.
For purposes of this Agreement, "Environmental Laws" means all laws
(civil or common), ordinances, rules, regulations, guidelines, and
orders that: (i) regulate air, water, soil, and solid waste management,
including the generation, release, containment, storage, handling,
transportation, disposition, or management of any Hazardous Substance;
(ii) regulate or prescribe requirements for air, water, or soil
quality; (iii) are intended to protect public health or the
environment; or (iv) establish liability for the investigation,
removal, or cleanup of, or damage caused by, any Hazardous Substance.
2.20 CONTRACTS AND COMMITMENTS. Section 2.20 of the COFI Disclosure
Schedule contains, and shall be supplemented by COFI and Charter One Bank, as
required by Section 5.10 hereof, so as to contain at the Closing Date copies of
each of the following documents, certified by an officer of COFI to be true and
correct copies of such documents on the dates of such certificates.
(a) The Certificate or Articles of Incorporation, Charters and
Bylaws of COFI and each COFI Subsidiary.
(b) All judgments, orders, injunctions, court decrees or
settlement
I-27
<PAGE> 95
agreements arising out of or relating to the labor and employment
practices or decisions of COFI or any COFI Subsidiary which, by their
terms, continue to bind or affect COFI or any COFI Subsidiary.
(c) All orders, decrees, memorandums, agreements or
understandings with regulatory agencies binding upon or affecting the
current operations of COFI or any COFI Subsidiary or any of their
directors or officers in their capacities as such.
2.21 DEFAULTS. There has not been any default in any material
obligation to be performed by COFI or any COFI Subsidiary under any material
contract or commitment, and neither COFI nor any COFI Subsidiary has waived, any
material right under any material contract or commitment. To the best knowledge
of COFI and Charter One Bank, no other party to any material contract or
commitment is in default in any material obligation to be performed by such
party.
2.22 OPERATIONS SINCE DECEMBER 31, 1996. Between December 31, 1996 and
the date hereof, except as set forth in Section 2.22 of the COFI Disclosure
Schedule, there has not been:
(a) any creation or assumption of indebtedness (including the
extension or renewal of any existing indebtedness, or the increase
thereof) by COFI or any COFI Subsidiary for borrowed money, or
otherwise, other than in the ordinary course of business, none of which
is in default;
(b) any change in COFI's independent auditors, historic
methods of accounting (other than as required by generally accepted
accounting principles or regulatory accounting principles), or in its
system for maintaining its equipment and real estate; or
(c) any event or condition of any character (other than
changes in legal, economic or other conditions which are not specially
or uniquely applicable to COFI or any COFI Subsidiary) materially
adversely affecting the business, operations or financial condition of
COFI on a consolidated basis.
2.23 UNDISCLOSED LIABILITIES. All of the obligations or liabilities
(whether accrued, absolute, contingent, unliquidated or otherwise, whether due
or to become due, and regardless of when asserted) arising out of transactions
or events heretofore entered into, or any action or inaction, including taxes
with respect to or based upon transactions or events heretofore occurring, that
are required to be reflected, disclosed or reserved against in audited
consolidated financial statements in accordance with generally accepted
accounting principles ("Liabilities") have, in the case of COFI and the COFI
Subsidiaries, been so reflected, disclosed or reserved against in the COFI
Financial Statements dated as of December 31, 1996 or in the notes thereto, and
COFI and the COFI Subsidiaries have no other Liabilities except (a) Liabilities
incurred since December 31, 1996 in the ordinary course of business or (b) as
disclosed in Section 2.23 of the COFI Disclosure Schedule.
I-28
<PAGE> 96
2.24 ASSETS.
(a) COFI and the COFI Subsidiaries have good, and marketable
title to their real properties, including any leaseholds and ground
leases, and their other assets and properties, all as reflected as
owned or held by COFI or any COFI Subsidiary in the COFI Financial
Statements dated as of December 31, 1996, and those acquired since such
date, except for (i) assets and properties disposed of since such date
in the ordinary course of business and (ii) liens, none of which, in
the aggregate, except as set forth in the COFI Financial Statements
dated as of December 31, 1996 or in Section 2.24 of the COFI Disclosure
Schedule, are material to the assets of COFI on a consolidated basis.
All buildings, structures, fixtures and appurtenances comprising part
of the real properties of COFI and the COFI Subsidiaries (whether owned
or leased) are in good operating condition and have been well
maintained, reasonable wear and tear excepted. Title to all real
property owned by COFI and the COFI Subsidiaries is held in fee simple,
except as otherwise noted in the COFI Financial Statements as of
December 31, 1996 or as set forth in Section 2.24 of the COFI
Disclosure Schedule. COFI and the COFI Subsidiaries have title or other
rights to its assets sufficient in all material respects for the
conduct of their respective businesses as presently conducted, and
except as set forth in the COFI Financial Statements dated as of
December 31, 1996, or in Section 2.24 of the COFI Disclosure Schedule,
such assets are free, clear and discharged of and from any and all
liens, charges, encumbrances, security interests and/or equities which
are material to COFI or any COFI Subsidiary.
(b) All leases pursuant to which COFI or any COFI Subsidiary,
as lessee, leases real or personal property which are material to the
business of COFI on a consolidated basis are, to the best knowledge of
COFI and Charter One Bank, valid, effective, and enforceable against
the lessor in accordance with their respective terms. There is not
under any of such leases any existing default, or any event which, with
notice or lapse of time or both, would constitute a default, with
respect to COFI or any COFI Subsidiary, or to the best knowledge of
COFI and Charter One Bank, the other party.
2.25 INDEMNIFICATION. To the best knowledge of COFI and Charter One
Bank, except as set forth in Section 2.25 of the COFI Disclosure Schedule, no
action or failure to take action by any director, officer, employee or agent of
COFI or any COFI Subsidiary has occurred which would give rise to a claim by any
such person for indemnification from COFI or any COFI Subsidiary under the
corporate indemnification provisions of such entity in effect on the date of
this Agreement.
2.26 INSIDER INTERESTS. All outstanding loans and other contractual
arrangements (including deposit relationships) between COFI or any COFI
Subsidiary and any of its officers, directors or employees conform to applicable
rules and regulations and requirements of all applicable regulatory agencies
which were in effect when such loans and other contractual arrangements were
entered into. Except as set forth in Section 2.26 of the COFI
I-29
<PAGE> 97
Disclosure Schedule, no officer, director or employee of COFI or any COFI
Subsidiary has any material interest in any property, real or personal, tangible
or intangible, used in or pertaining to the business of COFI or any COFI
Subsidiary.
2.27 BROKERS AND FINDERS. Neither COFI nor any COFI Subsidiary nor any
of their respective officers, directors or employees has employed any broker or
finder or incurred any liability for any financial advisory fees, brokerage
fees, commissions or finders' fees, and no broker or finder has acted directly
or indirectly for COFI or any COFI Subsidiary, in connection with this Agreement
or the transactions contemplated hereby.
2.28 ACCURACY OF INFORMATION. The statements of COFI and Charter One
Bank contained in this Agreement, the Schedules hereto and in any other written
document executed and delivered by or on behalf of COFI or Charter One Bank
pursuant to the terms of this Agreement are true and correct in all material
respects.
2.29 GOVERNMENTAL APPROVALS AND OTHER CONDITIONS. To the best knowledge
of COFI and Charter One Bank, there is no reason relating specifically to COFI
or any COFI Subsidiary why (a) the approvals that are required to be obtained
from regulatory authorities having approval authority in connection with the
transactions contemplated hereby should not be granted, (b) such regulatory
approvals should be subject to a condition which would differ from conditions
customarily imposed by such regulatory authorities in orders approving
acquisitions of the type contemplated hereby or (c) any of the conditions
precedent as specified in Article VI hereof to the obligations of any of the
parties hereto to consummate the transactions contemplated hereby are unlikely
to be fulfilled within the applicable time period or periods required for
satisfaction of such condition or conditions.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HAVERFIELD AND HOME BANK
Haverfield and Home Bank jointly and severally represent and warrant to
COFI and Charter One Bank that:
3.1 ORGANIZATION. Haverfield is a corporation duly organized, validly
existing and in good standing under the laws of the State of Ohio and has all
requisite power and authority, corporate and otherwise, to own, operate and
lease its assets and properties and to carry on its business substantially as it
has been and is now being conducted. Haverfield is duly qualified to do business
and is in good standing in each jurisdiction where the character of the assets
or properties owned or leased by it or the nature of the business transacted by
it requires that it be so qualified, except where the failure to so qualify
would not have a Material Adverse Effect on Haverfield or its ability to
consummate the transactions contemplated herein. Haverfield has all requisite
corporate power and authority to enter into this Agreement and, subject to the
approval of this Agreement and the Company Merger by its stockholders and the
receipt of all requisite regulatory approvals and the expiration of any
applicable waiting periods, to consummate the transactions contemplated hereby.
Haverfield
I-30
<PAGE> 98
is duly registered as a savings and loan holding company under HOLA.
3.2 AUTHORIZATION. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby have been
duly approved and authorized by the Boards of Directors of Haverfield and Home
Bank, and all necessary corporate action on the part of Haverfield and Home Bank
has been taken, subject to the approval of this Agreement and the Company Merger
by the holders of 2/3 of the issued and outstanding Haverfield Common Stock
("Required Vote"). This Agreement has been duly executed and delivered by
Haverfield and Home Bank and constitutes the valid and binding obligation of
each of them and is enforceable against each of them, except to the extent that
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles or doctrines.
3.3 CONFLICTS. Subject to the second sentence of this Section 3.3, the
execution and delivery of this Agreement does not, and the consummation of the
transactions contemplated hereby will not, conflict with or result in any
violation, breach or termination of, or default or loss of a material benefit
under, or permit the acceleration of any obligation under, or result in the
creation of any material lien, charge or encumbrance on any property or assets
under, any provision of the Articles of Incorporation or Code of Regulations of
Haverfield or similar documents of any Haverfield Subsidiary (as defined in
Section 3.7 hereof), or any mortgage, indenture, lease, agreement or other
instrument, permit, concession, grant, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Haverfield or
any Haverfield Subsidiary or their respective properties, other than any such
conflicts, violations or defaults which (i) will be cured or waived prior to the
Effective Time or (ii) are disclosed in Section 3.3 of that certain confidential
writing delivered by Haverfield to COFI within two business days prior to the
date hereof (the "Haverfield Disclosure Schedule"). No consent, approval, order
or authorization of, or registration, declaration or filing with, any federal or
state governmental authority is required by or with respect to Haverfield or
Home Bank in connection with the execution and delivery of this Agreement or the
consummation by Haverfield or Home Bank of the transactions contemplated hereby
except for the filings, approvals or waivers contemplated by Section 2.3 hereof.
3.4 ANTI-TAKEOVER PROVISIONS INAPPLICABLE. To the best knowledge of
Haverfield and Home Bank, no "business combination," "moratorium," "control
share" or other state anti-takeover statute or regulation, (i) applies to the
Company Merger or to the Voting Agreements, (ii) prohibits or restricts the
ability of Haverfield or Home Bank to perform its obligations under this
Agreement, or the ability of Haverfield to consummate the Company Merger or the
ability of Home Bank to consummate the Bank Merger, (iii) would have the effect
of invalidating or voiding this Agreement, any of the Voting Agreements, or any
provision hereof or thereof, or (iv) would subject COFI, Charter Michigan or
Charter One Bank to any material impediment or condition in connection with the
exercise of any of its right under this Agreement with respect to the Company
Merger or any of the Voting Agreements.
3.5 CAPITALIZATION AND STOCKHOLDERS.
I-31
<PAGE> 99
(a) As of the date hereof, the authorized capital stock of
Haverfield consists of (i) 5,000,000 shares of Haverfield Common Stock,
$0.01 par value, of which 1,915,892 shares are issued and outstanding
and 9,543 shares are held as treasury shares and (ii) 1,000,000 shares
of preferred stock, of which none are issued and outstanding. All of
the issued and outstanding shares of Haverfield Common Stock have been
duly and validly authorized and issued, and are fully paid and
non-assessable. None of the outstanding shares of Haverfield Common
Stock has been issued in violation of any preemptive rights of current
or past stockholders or are subject to any preemptive rights of the
current or past stockholders of Haverfield. All of the issued and
outstanding shares of Haverfield Common Stock will be entitled to vote
to approve this Agreement and the Company Merger.
(b) As of the date hereof, Haverfield had 189,127.6 shares of
Haverfield Common Stock reserved for issuance under the 1985 Option
Plan and 1995 Option Plan for the benefit of employees and directors of
Haverfield and the Haverfield Subsidiaries, pursuant to which options
covering 82,845.6 shares of Haverfield Common Stock are outstanding
(the "Haverfield Stock Options"). Except as set forth in this Section,
there are no shares of capital stock or other equity securities of
Haverfield outstanding and no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or
exchangeable for, shares of the capital stock of Haverfield, or
contracts, commitments, understandings, or arrangements by which
Haverfield is or may be bound to issue additional shares of its capital
stock or options, warrants, or rights to purchase or acquire any
additional shares of its capital stock. Section 3.5 of the Haverfield
Disclosure Schedule sets forth the name of the holder of each
Haverfield Stock Option and the date of grant of, number of shares
represented by exercise price and expiration of, each Haverfield Stock
Option.
3.6 HAVERFIELD FINANCIAL STATEMENTS; MATERIAL CHANGES. Haverfield has
heretofore delivered to COFI its audited consolidated financial statements for
calendar years ended December 31, 1996 and December 31, 1995 (together the
"Haverfield Financial Statements"). The Haverfield Financial Statements (x) are
true and correct in all material respects; (y) have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto);
and (z) fairly present the consolidated financial position of Haverfield as of
the dates thereof and the consolidated results of its operations, stockholders'
equity, cash flows and changes in financial position for the periods then ended.
Since December 31, 1996 to the date hereof, Haverfield and the Haverfield
Subsidiaries have not undergone or suffered any changes in their respective
condition (financial or otherwise), properties, business or operations which
have been, in any case or in the aggregate, materially adverse to Haverfield on
a consolidated basis except as disclosed in Section 3.6 of the Haverfield
Disclosure Schedule. No facts or circumstances have been discovered from which
it reasonably appears that there is a significant risk and reasonable
probability that Haverfield will suffer or experience a Material Adverse Effect.
I-32
<PAGE> 100
3.7 HAVERFIELD SUBSIDIARIES.
(a) All of the Haverfield Subsidiaries are listed in Section
3.7 of the Haverfield Disclosure Schedule. Except as set forth in
Section 3.7 of the Haverfield Disclosure Schedule, Haverfield owns
directly or indirectly all of the issued and outstanding shares of
capital stock of the Haverfield Subsidiaries. Section 3.7 of the
Haverfield Disclosure Schedule sets forth the number of shares of
authorized and outstanding capital stock of the Haverfield
Subsidiaries. Except for equity securities of the Federal Home Loan
Bank of Cincinnati or as set forth in Section 3.7 of the Haverfield
Disclosure Schedule, neither Haverfield nor the Haverfield Subsidiaries
own directly or indirectly any debt or equity securities, or other
proprietary interest in any other corporation, limited liability
company, joint venture, partnership, entity, association or other
business. No capital stock of any of the Haverfield Subsidiaries is or
may become required to be issued (other than to Haverfield) by reason
of any options, warrants, scrip, rights to subscribe to, calls, or
commitments of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for, shares of the capital
stock of any Haverfield Subsidiary. Other than as set forth in Section
3.7 of the Haverfield Disclosure Schedule there are no contracts,
commitments, understandings or arrangements relating to the rights of
Haverfield to vote or to dispose of shares of the capital stock of any
Haverfield Subsidiary. All of the shares of capital stock of each
Haverfield Subsidiary are fully paid and non-assessable and are owned
by Haverfield or another Haverfield Subsidiary free and clear of any
claim, lien or encumbrance, except as disclosed in Section 3.7 of the
Haverfield Disclosure Schedule.
(b) Each Haverfield Subsidiary is either a savings bank or a
corporation and is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated
or organized, and is duly qualified to do business and in good standing
in each jurisdiction where the character of the assets or properties
owned or leased by it or the nature of the business transacted by it
requires it to be so qualified, except where the failure to so qualify,
either individually or in the aggregate, would not have a Material
Adverse Effect on Haverfield or the ability of Haverfield or Home Bank
to consummate the transactions contemplated herein. Each Haverfield
Subsidiary has the corporate power and authority necessary for it to
own, operate or lease its assets and properties and to carry on its
business substantially as it has been and is now being conducted.
(c) For purposes of this Agreement, an "Haverfield Subsidiary"
or a "Subsidiary" of Haverfield shall mean each corporation, savings
bank, and other entity in which Haverfield owns or controls directly or
indirectly 10% or more of the outstanding equity securities; provided,
however, there shall not be included any such entity acquired in good
faith through foreclosure, or any such entity to the extent that the
equity securities of such entity are owned or controlled in a bona fide
fiduciary capacity.
I-33
<PAGE> 101
(d) Home Bank is a member in good standing of the Federal Home
Loan Bank System. All eligible deposit accounts issued by Home Bank are
insured by the FDIC through the SAIF to the full extent permitted under
applicable law. Home Bank is, and at all times since June 1, 1990 has
been, a "domestic building and loan association" as defined in Section
7701(a)(19) of the Code and a "qualified thrift lender" as defined in
Section 10(m) of HOLA. The liquidation account established by Home Bank
in connection with its conversion from mutual to stock form has been
maintained since its establishment in accordance with applicable laws.
3.8 HAVERFIELD FILINGS. Haverfield has previously made available, or
will make available prior to the Effective Time, to COFI true and correct copies
of the (i) proxy statements relating to all meetings of stockholders (whether
special or annual) of Haverfield during calendar years 1995, 1996 and 1997 and
(ii) all other reports, as amended, or filings, as amended, required to be filed
under the Securities Exchange Act by Haverfield with the SEC since January 1,
1995 including without limitation on Forms 10-K, 10-Q and 8-K.
3.9 HAVERFIELD REPORTS. Each of Haverfield and the Haverfield
Subsidiaries has filed, and will continue to file, all reports and statements,
together with any amendment required to be made with respect thereto, that it
has, or will be, required to file with the SEC, the FDIC, the OTS, the NASD, and
other applicable thrift, securities and other regulatory authorities (except
filings which are not material). As of their respective dates (and without
giving effect to any amendments or modifications filed after the date of this
Agreement with respect to reports and documents filed before the date of this
Agreement), each of such reports and documents, including the financial
statements, exhibits, and schedules thereto, complied in all material respects
with all of the statutes, rules and regulations enforced or promulgated by the
authority with which they were filed and did not contain any untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements made therein, in light of the circumstances under which they were
made, not misleading. Other than normal examinations conducted by the Internal
Revenue Service, state and local taxing authorities, the OTS or the FDIC in the
regular course of the business of Haverfield or the Haverfield Subsidiaries, no
federal, state or local governmental agency, commission or other entity has
initiated any proceeding or, to the best knowledge of Haverfield and Home Bank,
investigation into the business or operations of Haverfield or the Haverfield
Subsidiaries within the past two (2) years except as set forth in Section 3.9 of
the Haverfield Disclosure Schedule. There is no unresolved violation, criticism
or exception by the SEC, OTS, FDIC or other agency, commission or entity with
respect to any report or statement referred to herein that is material to
Haverfield or any Haverfield Subsidiary.
3.10 COMPLIANCE WITH LAWS.
(a) Except as disclosed in Section 3.10 of the Haverfield
Disclosure Schedule, and for violations which are not material to
Haverfield or any Haverfield Subsidiary, the businesses of Haverfield
and the Haverfield Subsidiaries are being conducted, in all material
respects, in compliance with all laws, ordinances or regulations of
governmental authorities, including without limitation, laws affecting
I-34
<PAGE> 102
financial institutions (including those pertaining to the Bank Secrecy
Act, the investment of funds, the lending of money, the collection of
interest and the extension of credit), federal and state securities
laws, laws and regulations relating to financial statements and
reports, truth-in-lending, truth-in-savings, usury, fair credit
reporting, consumer protection, occupational safety, fair employment
practices, fair labor standards and all other laws and regulations
relating to employees and employee benefits, and any statutes or
ordinances relating to the properties occupied or used by Haverfield or
any Haverfield Subsidiary.
(b) Except as disclosed in Section 3.10 of the Haverfield
Disclosure Schedule, no investigation or review by any governmental
entity with respect to Haverfield or any Haverfield Subsidiary is
pending or, to the best knowledge of Haverfield and Home Bank,
threatened, nor has any governmental entity indicated to Haverfield or
any Haverfield Subsidiary an intention to conduct the same, other than
normal thrift regulatory examinations.
(c) Haverfield and each of the Haverfield Subsidiaries, where
applicable, is in substantial compliance with the applicable provisions
of the Community Reinvestment Act of 1977 and the regulations
promulgated thereunder. As of the date of this Agreement, neither
Haverfield nor Home Bank has been advised of the existence of any fact
or circumstance or set of facts or circumstances which, if true, would
cause Haverfield or any of the Haverfield Subsidiaries to fail to be in
substantial compliance with such provisions. Home Bank has not received
since December 31, 1993 a rating from an applicable regulatory
authority which is less than "satisfactory."
3.11 REGISTRATION STATEMENT: PROXY STATEMENT. The information to be
supplied by Haverfield for inclusion in the Registration Statement will not, at
the time the Registration Statement is declared effective and at the Effective
Time, 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 therein, in the light of the circumstances under which they were
made, not misleading. The information to be supplied by Haverfield for inclusion
in the Proxy Statement will not, on the date of the Proxy Statement (or any
amendment thereof or supplement thereto) is first mailed to Haverfield's
stockholders, at the time of the Haverfield Stockholders' Meeting, and at the
Effective Time, contain any statement that, in light of the circumstances under
which it is made, is false or misleading with respect to any material fact,
omits to state any material fact necessary in order to make the statements made
therein not false or misleading, or omits to state any material fact necessary
to correct any statement in any earlier communication with respect to the
solicitation of proxies for the Haverfield Stockholders' Meeting that has become
false or misleading. If at any time prior to the Effective Time, any event
relating to Haverfield or any of its affiliates, officers or directors is
discovered by Haverfield that should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement, Haverfield will
promptly inform COFI, and such amendment or supplement will be promptly filed
with the SEC and, as required by law, disseminated to the stockholders of
Haverfield. Notwithstanding the foregoing,
I-35
<PAGE> 103
Haverfield makes no representation or warranty with respect to any information
supplied by COFI that is contained in the Registration Statement or the Proxy
Statement. The Proxy Statement will (with respect to Haverfield) comply in all
material respects as to form and substance with the requirements of the Exchange
Act and the rules and regulations thereunder.
3.12 LITIGATION. Except as disclosed in Section 3.12 of the Haverfield
Disclosure Schedule, there is no suit, action, investigation or proceeding,
legal, quasi-judicial, administrative or otherwise, pending or, to the best
knowledge of Haverfield and Home Bank threatened, against or affecting
Haverfield or any Haverfield Subsidiary, or any of their respective officers,
directors, employees or agents, in their capacities as such, which is seeking
equitable relief or damages against Haverfield, any Haverfield Subsidiary, or
any of their respective officers, directors, employees or agents, in their
capacities as such, in excess of $10,000, or which would materially affect the
ability of Haverfield or Home Bank to consummate the transactions contemplated
herein or which is seeking to enjoin consummation of the transactions provided
for herein or to obtain other relief in connection with this Agreement or the
transactions contemplated hereby, nor is there any judgment, decree, injunction,
rule or order of any court, governmental department, commission, agency,
instrumentality or arbitrator outstanding against Haverfield or any Haverfield
Subsidiary or any of their respective officers, directors, employees or agents,
in their capacities as such, having, or which, insofar as reasonably can be
foreseen in the future, would have any such effect.
3.13 LICENSES. Haverfield and the Haverfield Subsidiaries hold all
licenses, certificates, permits, franchises and all patents, trademarks, service
marks, trade names, copyrights or right thereto, and required authorizations,
approvals, consents, licenses, clearances and orders or registrations with all
appropriate federal, state or other authorities that are material to the conduct
of their respective businesses as now conducted and as presently proposed to be
conducted.
3.14 TAXES.
(a) Except as disclosed in Section 3.14 of the Haverfield
Disclosure Schedule, Haverfield and the Haverfield Subsidiaries have
each timely filed all tax and information returns required to be filed
and have paid (or Haverfield has paid on behalf of its Subsidiaries),
or have accrued on their respective books and set up an adequate
reserve for the payment of, all taxes reflected on such returns as
required to be paid in respect of the periods covered by such returns
and have accrued on their respective books and set up an adequate
reserve for the payment of all income and other taxes anticipated to be
payable in respect of periods through the end of the calendar month
next preceding the date hereof. Neither Haverfield nor any Haverfield
Subsidiary is delinquent in the payment of any tax, assessment or
governmental charge. No deficiencies for any taxes have been proposed,
asserted or assessed against Haverfield or any Haverfield Subsidiary
that have not been resolved or settled and no requests for waivers of
the time to assess any such tax are pending or have been agreed to. The
income tax returns of Haverfield and Haverfield Subsidiaries have not
been audited by the Internal Revenue Service, state, municipal or other
taxing
I-36
<PAGE> 104
authority after the 1991 tax year. Neither Haverfield nor any
Haverfield Subsidiary is a party to any action or proceeding by any
governmental authority for the assessment or the collection of taxes.
Deferred taxes of Haverfield and the Haverfield Subsidiaries have been
accounted for in accordance with generally accepted accounting
principles.
(b) Haverfield has not filed any consolidated federal income
tax return with an "affiliated group" (within the meaning of Section
1504 of the Code) where Haverfield was not the common parent of the
group. Neither Haverfield nor any Haverfield Subsidiary is, or has
been, a party to any tax allocation agreement or arrangement pursuant
to which it has any contingent or outstanding liability to anyone other
than Haverfield or any Haverfield Subsidiary. Neither Haverfield nor
any Haverfield Subsidiary is required to include in income any
adjustment pursuant to Section 481(a) of the Code and no such
adjustment has been proposed by the Internal Revenue Service. Neither
Haverfield nor any Haverfield Subsidiary has filed a consent pursuant
to Section 341(f) of the Code or agreed to have Section 341(f)(2) of
the Code apply.
(c) Haverfield and the Haverfield Subsidiaries have each
withheld amounts from its employees, stockholders, or holders of public
deposit accounts in compliance with the tax withholding provisions of
applicable federal, state and local laws, have filed all federal, state
and local returns and reports for all periods for which such returns or
reports would be due with respect to income tax withholding, social
security, unemployment taxes, income and other taxes and all payments
or deposits with respect to such taxes have been timely made and except
as set forth in Section 3.14 of the Haverfield Disclosure Schedule,
have notified all employees, stockholders and holders of public deposit
accounts of their obligations to file all forms, statements or reports
with it in accordance with applicable federal, state and local tax laws
and have taken reasonable steps to insure that such employees,
stockholders and holders of public deposit accounts have filed all such
forms statements and reports with it.
3.15 INSURANCE. Haverfield and the Haverfield Subsidiaries maintain
insurance with insurers which in the best judgment of management of Haverfield
are sound and reputable on their respective assets and upon their respective
businesses and operations against loss or damage, risks, hazards and liabilities
as in their judgment they deem appropriate. Haverfield and the Haverfield
Subsidiaries maintain in effect all insurance required to be carried by law or
by any agreement by which they are bound. All material claims under all policies
of insurance maintained by Haverfield and the Haverfield Subsidiaries have been
filed in due and timely fashion. Each of Haverfield and the Haverfield
Subsidiaries has taken or will timely take all requisite action (including
without limitation the making of claims and the giving of notices) pursuant to
its directors' and officers' liability insurance policy or policies in order to
preserve all rights thereunder with respect to all matters (other than matters
arising in connection with this Agreement and the transactions contemplated
hereby) occurring prior to the Effective Time. Neither Haverfield nor any of the
Haverfield Subsidiaries has, during the past three years, had an insurance
policy canceled or been denied insurance coverage for which any of such
companies has applied.
I-37
<PAGE> 105
3.16 LOANS; INVESTMENTS.
(a) Except as otherwise disclosed in Section 3.16 of the
Haverfield Disclosure Schedule, each loan reflected as an asset on the
Haverfield Financial Statement dated as of December 31, 1996, is
evidenced by appropriate and sufficient documentation and constitutes,
to the best knowledge of Haverfield and Home Bank, the legal, valid and
binding obligation of the obligor named therein, enforceable in
accordance with its terms, except to the extent that the enforceability
thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws or equitable principles or doctrines. Except
as set forth in Section 3.16 of the Haverfield Disclosure Schedule, all
such loans are, and at the Effective Time will be, free and clear of
any security interest, lien, encumbrance or other charge. Except as set
forth in Section 3.16 of the Haverfield Disclosure Schedule, there is
no loan or other asset of Haverfield or of any Haverfield Subsidiary
that has been classified by examiners or others as "Other Loans of
Concern," "Substandard," "Doubtful" or "Loss". Set forth in Section
3.16 of the Haverfield Disclosure Schedule is a complete list of the
real estate acquired through foreclosure, repossession or deed in lieu
thereof ("REO") of Haverfield and the Haverfield Subsidiaries as of
March 31, 1997.
(b) All guarantees of indebtedness owed to Haverfield or any
Haverfield Subsidiary, including but not limited to those of the
Federal Housing Administration, the Small Business Administration, and
other state and federal agencies, are, to the best knowledge of
Haverfield and Home Bank, valid and enforceable, except to the extent
enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws or equitable
principles or doctrines.
(c) All interest rate swaps, caps, floors and option
agreements and other interest rate risk management arrangements to
which Haverfield or any Haverfield Subsidiary is a party or by which
any of their properties or assets may be bound were entered into in the
ordinary course of business and, to the best knowledge of Haverfield
and Home Bank, in accordance with then-customary practice and
applicable rules, regulations and policies of thrift regulatory
authorities and with counterparties believed to be financially
responsible at the time and are legal, valid and binding obligations
and are in full force and effect. Haverfield and the Haverfield
Subsidiaries have duly performed in all material respects all of their
respective obligations thereunder to the extent that such obligations
to perform have accrued, and to the best knowledge of Haverfield and
Home Bank, there are no material breaches, violations or defaults or
allegations or assertions of such by any party thereunder. None of the
transactions contemplated by this Agreement would permit: (i) a
counterparty under any interest rate swap, cap, floor and option
agreement or any other interest rate risk management agreement or (ii)
any party to any mortgage-backed security financing arrangement, to
accelerate, discontinue, terminate or otherwise modify any such
agreement or arrangement or would require Haverfield or any Haverfield
Subsidiary to recognize any gain or loss with respect to such
arrangement.
I-38
<PAGE> 106
(d) Except as set forth in Section 3.16 of the Haverfield
Disclosure Schedule and except for pledges to secure public and trust
deposits, none of the investments reflected in the Haverfield Financial
Statements dated as of December 31, 1996 under the heading "Investment
Securities, " and none of the investments made by Haverfield and the
Haverfield Subsidiaries since December 31, 1996, is subject to any
restriction, whether contractual or statutory, which materially impairs
the ability of Haverfield or any Haverfield Subsidiary to freely
dispose of such investment at any time, other than those restrictions
imposed on securities held for investment under generally accepted
accounting principles. With respect to all material repurchase
agreements to which Haverfield or any Haverfield Subsidiary is a party,
Haverfield or such Subsidiary has a valid, perfected first lien or
security interest in the government securities or other collateral
securing each such repurchase agreement, and the value of the
collateral securing each such repurchase agreement equals or exceeds
the amount of the debt secured by such collateral under such agreement.
Except as set forth in Section 3.16 of the Haverfield Disclosure
Schedule and except for a transaction involving less than $50,000,
neither Haverfield nor any Haverfield Subsidiary has sold or otherwise
disposed of any assets in a transaction in which the acquiror of such
assets or other person has the right, either conditionally or
absolutely, to require Haverfield or any Haverfield Subsidiary to
repurchase or otherwise reacquire any such assets. Set forth in Section
3.16 of the Haverfield Disclosure Schedule is a complete and accurate
list of each investment and debt security, mortgage-backed and related
securities, marketable equity securities and securities purchased under
agreements to resell owned by Haverfield or any Haverfield Subsidiary
showing as of March 31, 1997 the carrying values and estimated fair
values of investment and debt securities, the gross carrying value and
estimated fair value of the mortgage-backed and related securities and
the estimated cost and estimated fair value of the marketable equity
securities.
(e) All United States Treasury securities, obligations of
other United States Government agencies and corporations, obligations
of States of United States and their political subdivisions, and other
investment securities classified as "held to maturity" and "available
for sale" held by Haverfield and the Haverfield Subsidiaries, as
reflected in the Haverfield Financial Statements dated December 31,
1996 were classified and accounted for in accordance with F.A.S.B. 115
and the intentions of management.
3.17 ALLOWANCE FOR POSSIBLE LOAN LOSSES.
(a) The allowance for possible loan losses shown on the
Haverfield Financial Statements as of December 31, 1996 (and as shown
on any financial statements to be delivered by Haverfield to COFI
pursuant to Section 5.7 hereof), to the best knowledge of Haverfield
and Home Bank, as of such date was (and will be as of such subsequent
financial statement dates) adequate in all respects to provide for
possible or specific losses, net of recoveries relating to loans
previously charged off, on loans outstanding, and contained (or will
contain) an additional amount of
I-39
<PAGE> 107
unallocated reserves for unanticipated future losses at a level
considered adequate under the standards applied by applicable federal
regulatory authorities and based upon generally accepted practices
applicable to Home Bank. To the best knowledge of Haverfield and Home
Bank, the aggregate principal amount of loans contained (or that will
be contained) in the loan portfolio of Haverfield and the Haverfield
Subsidiaries as of December 31, 1996 (and as of the dates of any
financial statements to be delivered by Haverfield to COFI pursuant to
Section 5.7 hereof), in excess of such reserve, was (and will be) fully
collectible.
(b) The sum of the aggregate amount of all Nonperforming
Assets (as defined below) and all troubled debt restructurings (as
defined under generally accepted accounting principles) on the books of
Haverfield and the Haverfield Subsidiaries does not exceed 1.2% of
total loans at the date hereof. "Nonperforming Assets" shall mean (i)
all loans and leases (A) that are contractually past due 90 days or
more in the payment of principal and/or interest, (B) that are on
nonaccrual status, (C) where a reasonable doubt exists, in the
reasonable judgment of Home Bank, as to the timely future
collectibility of principal and/or interest, whether or not interest is
still accruing or the loan is less than 90 days past due, (D) where the
interest rate terms have been reduced and/or the maturity dates have
been extended subsequent to the agreement under which the loan was
originally created due to concerns regarding the borrower's ability to
pay in accordance with such initial terms, (E) where a specific reserve
allocation exists in connection therewith, or (F) that have been
classified "Doubtful", "Loss" or the equivalent thereof by any
regulatory authority, and (ii) all assets classified as REO and other
assets acquired through foreclosure or repossession.
3.18 HAVERFIELD BENEFIT PLANS.
(a) Section 3.18 of the Haverfield Disclosure Schedule
contains a list and a true and correct copy (or, a description with
respect to any oral employee benefit plan, practice, policy or
arrangement), including all amendments thereto, of each compensation,
consulting, employment, termination or collective bargaining agreement,
and each stock option, stock purchase, stock appreciation right,
restricted stock, life, health, accident or other insurance, bonus,
deferred or incentive compensation, severance or separation agreement
or any agreement providing any payment or benefit resulting from a
change in control, profit sharing, retirement, or other employee
benefit plan, practice, policy or arrangement of any kind, oral or
written, covering any employee, former employee, director or former
director of Haverfield or any Haverfield Subsidiary or his or her
beneficiaries, including, but not limited to, any employee benefit
plans within the meaning of Section 3(3) of ERISA, which Haverfield or
any Haverfield Subsidiary maintains, to which Haverfield or any
Haverfield Subsidiary contributes, or under which any employee, former
employee, director or former director of Haverfield or any Haverfield
Subsidiary is covered or has benefit rights and pursuant to which any
liability of Haverfield or any Haverfield
I-40
<PAGE> 108
Subsidiary exists or is reasonably likely to occur (the "Haverfield
Benefit Plans"). Except as set forth in Section 3.18 of the Haverfield
Disclosure Schedule, Haverfield and the Haverfield Subsidiaries neither
maintain nor have entered into any Haverfield Benefit Plan or other
document, plan or agreement which contains any change in control
provisions which would cause an increase or acceleration of benefits or
benefit entitlements to employees or former employees of Haverfield or
any Haverfield Subsidiary or their respective beneficiaries, or other
provisions, which would cause an increase in the liability of
Haverfield or any Haverfield Subsidiary or to COFI or any COFI
Subsidiary as a result of the transactions contemplated by this
Agreement or any related action thereafter (a "Change in Control
Benefit"). The term "Haverfield Benefit Plans" as used herein refers to
all plans contemplated under the preceding sentences of this Section
3.18, provided that the term "Plan" or "Plans" is used in this
Agreement for convenience only and does not constitute an
acknowledgment that a particular arrangement is an employee benefit
plan within the meaning of Section 3(3) of ERISA. Except as disclosed
in Section 3.18 of the Haverfield Disclosure Schedule, no Benefit Plan
is a multi-employer plan within the meaning of Section 3(37) of ERISA.
(b) Each of the Haverfield Benefit Plans that is intended to
be a pension, profit sharing, stock bonus, thrift or savings plan that
is qualified under Section 401(a) of the Code ("Haverfield Qualified
Plans") has been determined by the Internal Revenue Service to qualify
under Section 401(a) of the Code, or an application for determination
of such qualification has been timely made to the Internal Revenue
Service prior to the end of the applicable remedial amendment period
under Section 401(b) of the Code (a copy of each such determination
letter or pending application is included in Section 3.18 of the
Haverfield Disclosure Schedule) and, to the best of Haverfield's
knowledge, there exist no circumstances likely to adversely affect the
qualified status of any such Haverfield Qualified Plan. All such
Haverfield Qualified Plans established or maintained by Haverfield or
any of the Haverfield Subsidiaries or to which Haverfield or any of the
Haverfield Subsidiaries contribute are in compliance in all material
respects with all applicable requirements of ERISA, and are in
compliance in all material respects with all applicable requirements
(including qualification and non-discrimination requirements ) of the
Code for obtaining the tax benefits the Code thereupon permits with
respect to such Haverfield Qualified Plans. Neither Haverfield nor any
Haverfield Subsidiary maintains, sponsors or contributes to a Qualified
Plan that is a defined benefit pension plan subject to Title IV of
ERISA. All accrued contributions and other payments required to be made
by Haverfield or any Haverfield Subsidiary to any Haverfield Benefit
Plan through December 31, 1996, have been made or reserves adequate for
such purposes as of December 31, 1996, have been set aside therefor and
are reflected in the Haverfield Financial Statements dated as of
December 31, 1996. Neither Haverfield nor any Haverfield Subsidiary is
in material default in performing any of its respective contractual
obligations under any of the Haverfield Benefit Plans or any related
trust agreement or insurance contract, and there are no material
outstanding liabilities of any such Plan other than liabilities
I-41
<PAGE> 109
for benefits to be paid to participants in such Plan and their
beneficiaries in accordance with the terms of such Plan.
(c) There is no pending or, to the best knowledge of
Haverfield and Home Bank, threatened litigation or pending claim (other
than routine benefit claims made in the ordinary course) by or on
behalf of or against any of the Haverfield Benefit Plans (or with
respect to the administration of any such Plans) now or heretofore
maintained by Haverfield or any Haverfield Subsidiary which allege
violations of applicable state or federal law which are reasonably
likely to result in a liability on the part of Haverfield or any
Haverfield Subsidiary or any such Plan.
(d) Haverfield and the Haverfield Subsidiaries and all other
persons having fiduciary or other responsibilities or duties with
respect to any Haverfield Benefit Plan are and have since the inception
of each such Plan been in substantial compliance with, and each such
Plan is and has been operated in substantial accordance with, its
provisions and in substantial compliance with the applicable laws,
rules and regulations governing such Plan, including, without
limitation, the rules and regulations promulgated by the Department of
Labor, the PBGC and the Internal Revenue Service under ERISA, the Code
or any other applicable law. Notwithstanding the foregoing, no
representation is made with respect to compliance by a third party
insurance company. No "reportable event" (as defined in Section 4043(b)
of ERISA) has occurred with respect to any Haverfield Qualified Benefit
Plan. Except as disclosed in Section 3.18 of the Haverfield Disclosure
Schedule, neither Haverfield, any Haverfield Subsidiary nor any
Haverfield Benefit Plan has incurred or is reasonably likely to incur
any liability for any "prohibited transactions" (as defined in Section
406 of ERISA or Section 4975 of the Code), or any material liability
under Section 601 of ERISA or Section 4980 of the Code. All Haverfield
Benefit Plans that are group health plans have been operated in
substantial compliance with the group health plan continuation
requirements of Section 4980B of the Code and Section 601 of ERISA.
(e) Except as set forth in Section 3.18 of the Haverfield
Disclosure Schedule, neither Haverfield nor any Haverfield Subsidiary
has made any payments, or is or has been a party to any agreement or
any Haverfield Benefit Plan, that under any circumstances could
obligate it or its successor to make payments that are not or will not
be deductible because of Sections 162(m) or 280G of the Code.
(f) Section 3.18 of the Haverfield Disclosure Schedule
describes any obligation that Haverfield or any Haverfield Subsidiary
has to provide health or welfare benefits to retirees or other former
employees, directors or their dependents (other than rights under
Section 4980B of the Code or Section 601 of ERISA), including
information as to the number of retirees, other former employees or
directors and dependents entitled to such coverage and their ages.
(g) Section 3.18 of the Haverfield Disclosure Schedule lists:
(i) each officer, employee and director of Haverfield and any
Haverfield Subsidiary who is
I-42
<PAGE> 110
eligible to receive a Change in Control Benefit, showing the amount of
each such Change in Control Benefit, the individual's participation in
any bonus or other employee benefit plan, and such individual's
compensation from Haverfield and each Haverfield Subsidiary for each of
the calendar years 1992 through 1996 as reported by Haverfield and a
Haverfield Subsidiary on Form W-2 or Form 1099; and (ii) a copy of each
option agreement relating to Haverfield Stock Options.
(h) To the best knowledge of Haverfield and Home Bank,
Haverfield and the Haverfield Subsidiaries have filed or caused to be
filed, and will continue to file or cause to be filed, in a timely
manner all filings pertaining to each Haverfield Benefit Plan with the
Internal Revenue Service, the Department of Labor and the PBGC, as
prescribed by the Code or ERISA, or regulations issued thereunder. To
the best knowledge of Haverfield and Home Bank, all such filings, as
amended, were complete and accurate in all material respects as of the
dates of such filings. Notwithstanding the foregoing, no representation
is made with respect to filings by a third party insurance company.
3.19 COMPLIANCE WITH ENVIRONMENTAL LAWS.
(a) Except as set forth in Section 3.19 of the Haverfield
Disclosure Schedule: (i) to the best knowledge of Haverfield and Home
Bank, the operations of Haverfield and each of the Haverfield
Subsidiaries comply in all material respects with all applicable past
and present Environmental Laws; (ii) to the best knowledge of
Haverfield and Home Bank, none of the operations of Haverfield or any
Haverfield Subsidiary, no assets presently or formerly owned or leased
by Haverfield or any Haverfield Subsidiary and no Mortgaged Premises or
Participating Facility are subject to any judicial or administrative
proceedings alleging the violation of any past or present Environmental
Law, nor are they the subject of any claims alleging damages to health
or property, pursuant to which Haverfield, any Haverfield Subsidiary or
any owner of a Mortgaged Premises or a Participating Facility would be
liable in law or equity; (iii) none of the operations of Haverfield or
any Haverfield Subsidiary, no assets presently owned or, to the best
knowledge of Haverfield and Home Bank, formerly owned by Haverfield or
any Haverfield Subsidiary, and to the best knowledge of Haverfield and
Home Bank, no Mortgaged Premises or a Participating Facility are the
subject of any federal, state or local investigation evaluating whether
any remedial action is needed to respond to a release or threatened
release of any Hazardous Substance, or any other substance into the
environment, nor has Haverfield or any Haverfield Subsidiary, or, to
the best knowledge of Haverfield and Home Bank, any owner of a
Mortgaged Premises or a Participating Facility been directed to conduct
such investigation, formally or informally, by any governmental agency,
nor have any of them agreed with any governmental agency or private
person to conduct any such investigation; and (iv) neither Haverfield
nor any Haverfield Subsidiary, nor, to the best knowledge of Haverfield
and Home Bank, any owner of a Mortgaged Premises or a Participating
Facility has filed any notice under any Environmental Law indicating
past or present treatment, storage or disposal of a Hazardous Substance
or reporting a
I-43
<PAGE> 111
spill or release of a Hazardous Substance, or any other substance into
the environment.
(b) With respect to the real property currently owned or, to
the best knowledge of Haverfield and Home Bank, formerly owned or
currently leased by Haverfield or any Haverfield Subsidiary
("Haverfield Premises"): (x) no part of the Haverfield Premises has
been used for the generation, manufacture, handling, storage, or
disposal of Hazardous Substances; (y) except as disclosed in Section
3.19 of the Haverfield Disclosure Schedule, the Haverfield Premises do
not contain, and have never contained, an underground storage tank; and
(z) the Haverfield Premises do not contain and are not contaminated by
any quantity of a Hazardous Substance from any source. With respect to
any underground storage tank listed in Section 3.19 of the Haverfield
Disclosure Statement as an exception to the foregoing, such underground
storage tank has been removed in compliance with the Environmental
Laws, and has not been the source of any release of a Hazardous
Substance into the environment, unless otherwise set forth in Section
3.19 of the Haverfield Disclosure Schedule.
3.20 CONTRACTS AND COMMITMENTS. Section 3.20 of the Haverfield
Disclosure Schedule contains, and shall be supplemented by Haverfield and Home
Bank, as required by Section 5.10 hereof, so as to contain at the Closing Date
copies of each of the following documents, certified by an officer of Haverfield
to be true and correct copies of such documents on the dates of such
certificates:
(a) a list and description of each outstanding loan agreement,
mortgage, pledge agreement or other similar document or commitment to
extend credit to any officer or director of Haverfield or any
Haverfield Subsidiary, as well as a listing of all deposits or deposit
surrogates, including the amount, type and interest being paid thereon,
to which Haverfield or any Haverfield Subsidiary is a party under which
it may (contingently or otherwise) have any liability involving any
officer or director of Haverfield or any Haverfield Subsidiary;
(b) a list and description of each outstanding letter of
credit and each commitment to issue a letter of credit in excess of
$25,000 to which Haverfield or any Haverfield Subsidiary is a party
and/or under which it may (contingently or otherwise) have any
liability;
(c) a list and description of each contract or agreement (not
otherwise included in the Haverfield Disclosure Schedule or
specifically excluded therefrom in accordance with the terms of this
Agreement) involving goods, services or occupancy and which (i) has a
term of more than six months; (ii) cannot be terminated on thirty days
(or less) written notice without penalty; and (iii) involves an annual
expenditure by Haverfield or any Haverfield Subsidiary in excess of
$25,000;
(d) a list and description of each contract or commitment
(other than Haverfield Permitted Liens as defined in Section 3.22(c))
hereof) affecting ownership
I-44
<PAGE> 112
of, title to, use of, or any interest in real property which is
currently owned by Haverfield or any Haverfield Subsidiary, and a list
and description of all real property owned, leased or licensed by
Haverfield or any Haverfield Subsidiary;
(e) a list of all fees, salaries, bonuses and other forms of
compensation including but not limited to, country club memberships,
automobiles available for personal use, and credit cards available for
personal use, provided by Haverfield or any Haverfield Subsidiary to
any employee, officer, or director or former employee, officer or
director of Haverfield or any Haverfield Subsidiary who earns in excess
of $50,000 annually;
(f) a list and description of each commitment made by
Haverfield or any Haverfield Subsidiary to or with any of its officers,
directors or employees extending for a period of more than six months
from the date hereof or providing for earlier termination only upon the
payment of a penalty or equivalent thereto;
(g) the Articles of Incorporation, Charters, Code or
Regulations, and Bylaws and specimen certificates of each type of
security issued by Haverfield and each Haverfield Subsidiary;
(h) a list and description of each other contract or
commitment providing for payment based in any manner upon outstanding
loans or profits of Haverfield or any Haverfield Subsidiary;
(i) a list and description of all powers of attorney granted
by Haverfield or any Haverfield Subsidiary which are currently in
force;
(j) a list and description of all policies of insurance
currently maintained by Haverfield or any Haverfield Subsidiary and a
list and description of all unsettled or outstanding claims of
Haverfield or any Haverfield Subsidiary which have been, or to the best
knowledge of Haverfield and Home Bank, will be, filed with the
companies providing insurance coverage for Haverfield or any Haverfield
Subsidiary (except for routine claims for health benefits);
(k) each collective bargaining agreement to which Haverfield
or any Haverfield Subsidiary is a party and all affirmative action
plans or programs covering employees of Haverfield or any Haverfield
Subsidiary, as well as all employee handbooks, policy manuals, rules
and standards of employment promulgated by Haverfield or any Haverfield
Subsidiary;
(l) each lease or license with respect to real or personal
property, whether as lessor, lessee, licensor or licensee, with annual
rental or other payments due thereunder in excess of $10,000 to which
Haverfield or any Haverfield Subsidiary is a
I-45
<PAGE> 113
party, which does not expire within six months from the date hereof and
cannot be terminated upon thirty days (or less) written notice without
penalty;
(m) all employment, consulting, financial advisory, investment
banking, and professional services contracts to which Haverfield or any
Haverfield Subsidiary is a party;
(n) all judgments, orders, injunctions, court decrees or
settlement agreements arising out of or relating to the labor and
employment practices or decisions of Haverfield or any Haverfield
Subsidiary which, by their terms, continue to bind or affect Haverfield
or any Haverfield Subsidiary;
(o) all orders, decrees, memorandums, agreements or
understandings with regulatory agencies binding upon or affecting the
current operations of Haverfield or any Haverfield Subsidiary or any of
their directors or officers in their capacities as such;
(p) all trademarks, trade names, service marks, patents, or
copyrights, whether registered or the subject of an application for
registration, which are owned by Haverfield or any Haverfield
Subsidiary or licensed from a third party;
(q) all policies formally adopted by the Board of Directors of
Haverfield or any Haverfield Subsidiary as currently in effect with
respect to environmental matters and copies of all policies that have
been in effect during the last five (5) years regarding the performance
of environmental investigations of properties accepted as collateral
for loans, including the effective dates of all such policies; and
(r) each other agreement to which Haverfield or any Haverfield
Subsidiary is a party (which does not expire within six months from the
date hereof and cannot be terminated upon thirty days (or less) written
notice without penalty) which individually during its term could commit
Haverfield or any Haverfield Subsidiary to an expenditure (either
individually or through a series of installments) in excess of $25,000
or which creates a material right or benefit to receive payments, goods
or services not referred to elsewhere in this Section 3.20 including
without limitation:
(i) each agreement of guaranty or indemnification
running to any person;
(ii) each agreement containing any covenant limiting
the right of Haverfield or any Haverfield Subsidiary to engage
in any line of business or to compete with any person;
(iii) each agreement with respect to any license,
permit and similar matter that is necessary to the operations
of Haverfield or any Haverfield
I-46
<PAGE> 114
Subsidiary;
(iv) each agreement that requires the consent or
approval of any other party in order to consummate the Merger;
(v) each agreement relating to the servicing of loans
and each mortgage forward commitment and similar agreement
pursuant to which Haverfield or any Haverfield Subsidiary
sells to others mortgages which it originates;
(vi) each contract relating to the purchase or sale
of financial or other futures, or any put or call option
relating to cash, securities or commodities and each interest
rate swap agreement or other agreement relating to the hedging
of interest rate risks and each agreement or arrangement
described in Section 3.16(d) hereof; and
(vii) each contract or agreement (with the exception
of the Federal National Mortgage Association or Federal Home
Loan Mortgage Corporation Seller's Guide), including but not
limited to each contract or agreement pursuant to which
Haverfield or any Haverfield Subsidiary has sold, transferred,
assigned or agreed to service any loan, which provides for any
recourse or indemnification obligation on the part of
Haverfield or any Haverfield Subsidiary; the name and address
of each person which might or could be entitled to recourse
against or indemnification from Haverfield or any Haverfield
Subsidiary; and the monetary amount of each actual or
potential recourse or indemnification obligation under each
such contract or agreement.
3.21 DEFAULTS. There has not been any default in any material
obligation to be performed by Haverfield or any Haverfield Subsidiary under any
contract or commitment, and neither Haverfield nor or any Haverfield Subsidiary
has waived, and will not waive prior to the Effective Time, any material right
under any contract or commitment. To the best knowledge of Haverfield and Home
Bank, no other party to any contract or commitment is in default in any material
obligation to be performed by such party.
3.22 OPERATIONS SINCE DECEMBER 31, 1996. Between December 31, 1996 and
the date hereof, except as set forth in Section 3.22 of the Haverfield
Disclosure Schedule, there has not been:
(a) any increase in the compensation payable or to become
payable by Haverfield or any Haverfield Subsidiary to any employee,
officer or director, other than routine annual increases to rank and
file employees consistent with past practices;
(b) except as permitted in Section 4.1(a) hereof, any payment
of dividends or other distributions by Haverfield to its stockholders
or any redemption by
I-47
<PAGE> 115
Haverfield of its capital stock;
(c) any mortgage, pledge or subjection to lien, charge or
encumbrance of any kind of or on any asset, tangible or intangible, of
Haverfield or any Haverfield Subsidiary, except the following (each of
which, whether arising before or after the date hereof, is herein
referred to as a "Haverfield Permitted Lien"): (i) liens arising out of
judgments or awards in respect of which Haverfield or any Haverfield
Subsidiary is in good faith prosecuting an appeal or proceeding for
review and in respect of which it has secured a subsisting stay of
execution pending such appeal of proceeding; (ii) liens for taxes,
assessments, and other governmental charges or levies, the payment of
which is not past due, or as to which Haverfield or any Haverfield
Subsidiary is diligently contesting in good faith and by appropriate
proceeding either the amount thereof or the liability therefor or both;
(iii) deposits, liens or pledges to secure payments of worker's
compensation, unemployment insurance, pensions, or other social
security obligations, or the performance of bids, tenders, leases,
contracts (other than contracts for the payment of money), public or
statutory obligations, surety, stay or appeal bonds, or similar
obligations arising in the ordinary course of business; (iv) zoning
restrictions, easements, licenses and other restrictions on the use of
real property or any interest therein, or minor irregularities in title
thereto, which do not materially impair the use of such property or the
merchantability or the value of such property or interest therein; (v)
purchase money mortgages or other purchase money or vendor's liens or
security interests (including, without limitation, finance leases),
provided that no such mortgage, lien or security interest shall extend
to or cover any other property of Haverfield or any Haverfield
Subsidiary other than that so purchased; and (vi) pledges and liens
given to secure deposits and other liabilities of Haverfield or any
Haverfield Subsidiary arising in the ordinary course of business;
(d) any creation or assumption of indebtedness (including the
extension or renewal of any existing indebtedness, or the increase
thereof) by Haverfield or any Haverfield Subsidiary for borrowed money,
or otherwise, other than in the ordinary course of business, none of
which is in default;
(e) the establishment of any new, modification of or amendment
to, or increase in the formula for contributions to or benefits under,
any Haverfield Benefit Plan by Haverfield or any Haverfield Subsidiary;
(f) any action by Haverfield or any Haverfield Subsidiary
seeking any cancellation of, or decrease in the insured limit under, or
increase in the deductible amount or the insured's retention (whether
pursuant to coinsurance or otherwise) of or under, any policy of
insurance maintained directly or indirectly by Haverfield or any
Haverfield Subsidiary on any of their respective assets or businesses,
including but not by way of limitation, fire and other hazard insurance
on its assets, automobile liability insurance, general public liability
insurance, and directors' and officers' liability insurance; and if an
insurer takes any such action, Haverfield shall promptly notify
I-48
<PAGE> 116
COFI;
(g) any change in Haverfield's independent auditors, historic
methods of accounting (other than as required by generally accepted
accounting principles or regulatory accounting principles), or in its
system for maintaining its equipment and real estate;
(h) any purchase, whether for cash or secured or unsecured
obligations (including finance leases) by Haverfield or any Haverfield
Subsidiary of any fixed asset which either (i) has a purchase price
individually or in the aggregate in excess of $50,000 or (ii) is
outside of the ordinary course of business;
(i) any sale or transfer of any asset in excess of $50,000 of
Haverfield or any Haverfield Subsidiary or outside of the ordinary
course of business with the exception of loans and marketable
securities that are held for sale and sold in the ordinary course of
business at market prices;
(j) any cancellation or compromise of any debt to, claim by or
right of, Haverfield or any Haverfield Subsidiary except in the
ordinary course of business;
(k) any amendment or termination of any contract or commitment
to which Haverfield or any Haverfield Subsidiary is a party, other than
in the ordinary course of business;
(l) any material damage or destruction to any assets or
property of Haverfield or any Haverfield Subsidiary whether or not
covered by insurance;
(m) any change in the loan underwriting policies or practices
of any Haverfield Subsidiary;
(n) any transaction of business or activity undertaken by
Haverfield or any Haverfield Subsidiary outside the ordinary course of
business consistent with past practices;
(o) any agreement or commitment to do any of the foregoing; or
(p) any event or condition of any character (other than
changes in legal, economic or other conditions which are not specially
or uniquely applicable to Haverfield or any Haverfield Subsidiary)
adversely affecting the business, operations or financial condition of
Haverfield on a consolidated basis.
3.23 CORPORATE RECORDS. The corporate record books, transfer books
and stock ledgers of Haverfield and each Haverfield Subsidiary are complete and
accurate in all material
I-49
<PAGE> 117
respects and reflect all meetings, consents and other material actions of the
organizers, incorporators, stockholders, Boards of Directors and committees of
the Boards of Directors of Haverfield and each such Subsidiary, and all
transactions in their respective capital stocks, since their respective
inceptions.
3.24 UNDISCLOSED LIABILITIES. All of the Liabilities have, in the case
of Haverfield and the Haverfield Subsidiaries, been reflected, disclosed or
reserved against in the Haverfield Financial Statements as of December 31, 1996
or in the notes thereto, and Haverfield and the Haverfield Subsidiaries have no
other Liabilities except (a) Liabilities incurred since December 31, 1996 in the
ordinary course of business or (b) as disclosed in Section 3.24 of the
Haverfield Disclosure Schedule.
3.25 ASSETS.
(a) Haverfield and the Haverfield Subsidiaries have good and
marketable title to their real properties, including any leaseholds and
ground leases, and their other assets and properties, all as reflected
as owned or held by Haverfield or any Haverfield Subsidiary in the
Haverfield Financial Statements dated as of December 31, 1996, and
those acquired since such date, except for (i) assets and properties
disposed of since such date in the ordinary course of business and (ii)
Haverfield Permitted Liens none of which, in the aggregate, except as
set forth in the Haverfield Financial Statements dated December 31,
1996 or in Section 3.25 of the Haverfield Disclosure Schedule, are
material to the assets of Haverfield on a consolidated basis. All
buildings, structures, fixtures and appurtenances comprising part of
the real properties of Haverfield and the Haverfield Subsidiaries
(whether owned or leased) are, in the opinion of management of
Haverfield and Home Bank, in good operating condition and have been
well maintained, reasonable wear and tear excepted. Title to all real
property owned by Haverfield and the Haverfield Subsidiaries is held in
fee simple, except as otherwise noted in the Haverfield Financial
Statements as of December 31, 1996 or as set forth in Section 3.25 of
the Haverfield Disclosure Schedule. Haverfield and the Haverfield
Subsidiaries have title or other rights to its assets sufficient in all
material respects for the conduct of their respective businesses as
presently conducted, and except as set forth in the Haverfield
Financial Statements dated as of December 31, 1996 or in Section 3.25
of the Haverfield Disclosure Schedule, such assets are free, clear and
discharged of and from any and all liens, charges, encumbrances,
security interests and/or equities which are material to Haverfield or
any Haverfield Subsidiary.
(b) All leases pursuant to which Haverfield or any Haverfield
Subsidiary, as lessee, leases real or personal property are, to the
best knowledge of Haverfield and Home Bank, valid, effective, and
enforceable against the lessor in accordance with their respective
terms. There is not under any of such leases any existing default, or
any event which with notice or lapse of time or both would constitute a
default, with respect to either Haverfield or any Haverfield
Subsidiary, or to the best knowledge of Haverfield and Home Bank, the
other party. Except as disclosed in Section 3.25 of
I-50
<PAGE> 118
the Haverfield Disclosure Schedule, none of such leases contains a
prohibition against assignment by Haverfield or any Haverfield
Subsidiary, by operation of law or otherwise, or any other provision
which would preclude the surviving corporation or resulting institution
or any Haverfield Subsidiary from possessing and using the leased
premises for the same purposes and upon the same rental and other terms
upon the consummation of the Merger as are applicable to the use by
Haverfield or any Haverfield Subsidiary as of the date of this
Agreement.
3.26 INDEMNIFICATION. To the best knowledge of Haverfield and Home
Bank, except as set forth in Section 3.26 of the Haverfield Disclosure Schedule,
no action or failure to take action by any director, officer, employee or agent
of Haverfield or any Haverfield Subsidiary has occurred which would give rise to
a claim by any such person for indemnification from Haverfield or any Haverfield
Subsidiary under the corporate indemnification provisions of Haverfield or any
Haverfield Subsidiary in effect on the date of this Agreement.
3.27 INSIDER INTERESTS. All outstanding loans and other contractual
arrangements (including deposit relationships) between Haverfield or any
Haverfield Subsidiary and any officer, director or employee of Haverfield or any
Haverfield Subsidiary conform to the applicable rules and regulations and
requirements of all applicable regulatory agencies which were in effect when
such loans and other contractual arrangements were entered into. Except as set
forth in Section 3.27 of the Haverfield Disclosure Schedule, no officer,
director or employee of Haverfield or any Haverfield Subsidiary has any material
interest in any property, real or personal, tangible or intangible, used in or
pertaining to the business of Haverfield or any Haverfield Subsidiary.
3.28 REGISTRATION OBLIGATIONS. Except as set forth in Section 3.28 of
the Haverfield Disclosure Schedule, neither Haverfield nor any Haverfield
Subsidiary is under any obligation, contingent or otherwise, which will survive
the Effective Time by reason of any agreement to register any of its securities
under the Securities Act or other federal or state securities laws or
regulations.
3.29 REGULATORY, TAX AND ACCOUNTING MATTERS. Haverfield and Home Bank
have not taken or agreed to take any action, nor does it have knowledge of any
fact or circumstance, that would (i) materially impede or delay the consummation
of the transactions contemplated by this Agreement or the ability of the parties
to obtain any approval of any regulatory authority required for the transactions
contemplated by this Agreement or to perform their covenants and agreements
under this Agreement or (ii) prevent the Merger from qualifying as a pooling of
interests for accounting purposes or the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
3.30 BROKERS AND FINDERS. Except as set forth in the agreement with
Charles Webb & Co., a division of Keefe, Bruyette & Woods, Inc., dated May 8,
1996 (which agreement has not been amended since such date), a copy of which has
previously been provided to COFI, neither Haverfield nor any Haverfield
Subsidiary nor any of their respective officers,
I-51
<PAGE> 119
directors or employees has employed any broker or finder or incurred any
liability for any financial advisory fees, brokerage fees, commissions or
finders' fees, and no other broker or finder has acted directly or indirectly
for Haverfield or any Haverfield Subsidiary in connection with this Agreement or
the transactions contemplated hereby.
3.31 ACCURACY OF INFORMATION. The statements of Haverfield and Home
Bank contained in this Agreement, the Schedules hereto and in any other written
document executed and delivered by or on behalf of Haverfield or Home Bank
pursuant to the terms of this Agreement are true and correct in all material
respects.
3.32 FAIRNESS OPINION. Haverfield has received from Charles Webb & Co.,
a division of Keefe, Bruyette & Woods, Inc. a fairness opinion, dated as of the
date of this Agreement, to the effect that the Merger Consideration to be
received by the holders of Haverfield Common Stock pursuant to this Agreement
and the Company Merger is fair to such holders from a financial point of view.
3.33 GOVERNMENTAL APPROVALS AND OTHER CONDITIONS. To the best knowledge
of Haverfield and Home Bank, there is no reason relating specifically to
Haverfield or any of its Subsidiaries why (a) the approvals that are required to
be obtained from regulatory authorities having approval authority in connection
with the transactions contemplated hereby should not be granted, (b) such
regulatory approvals should be subject to a condition which would differ from
conditions customarily imposed by such regulatory authorities in orders
approving acquisitions of the type contemplated hereby or (c) any of the
conditions precedent as specified in Article VI hereof to the obligations of any
of the parties hereto to consummate the transactions contemplated hereby are
unlikely to be fulfilled within the applicable time period or periods required
for satisfaction of such condition or conditions.
ARTICLE IV
COVENANTS OF HAVERFIELD
4.1 BUSINESS IN ORDINARY COURSE.
(a) Without the prior written consent of COFI, Haverfield
shall not declare or pay any dividend or make any other distribution
with respect to its capital stock whether in cash, stock or other
property, after the date of this Agreement, except it may declare and
pay its regular quarterly cash dividend of not more than $.14 per share
on Haverfield Common Stock; provided the declaration of the last
dividend by Haverfield prior to consummation of the Company Merger and
the payment thereof shall be coordinated with, and subject to the
approval of COFI, so as to preclude any duplication of dividend
benefit.
(b) Haverfield and the Haverfield Subsidiaries shall continue
to carry on, after the date hereof, their respective businesses and the
discharge or incurring of
I-52
<PAGE> 120
obligations and liabilities, only in the usual, regular and ordinary
course of business, as heretofore conducted, and by way of
amplification and not limitation, Haverfield and each of the Haverfield
Subsidiaries will not, without the prior written consent of COFI (which
consent in the case of subparts (xiv) and (xvii) below shall not be
unreasonably withheld or delayed):
(i) issue any capital stock or any options, warrants,
or other rights to subscribe for or purchase capital stock or
any securities convertible into or exchangeable for any
capital stock, except pursuant to the Haverfield Stock Options
outstanding on the date hereof;
(ii) directly or indirectly redeem, purchase or
otherwise acquire any capital stock or ownership interests of
Haverfield or any of the Haverfield Subsidiaries;
(iii) effect a reclassification, recapitalization,
split-up, exchange of shares, readjustment or other similar
change in or to any capital stock or otherwise reorganize or
recapitalize;
(iv) change its Charter, Articles of Incorporation,
Code of Regulations or Bylaws;
(v) enter into or modify any employment agreement,
severance agreement, change of control agreement, or plan
relative to the foregoing; or grant any increase (other than
ordinary and normal increases to rank and file employees
consistent with past practices) in the compensation payable or
to become payable to directors, officers or employees except
as required by law, pay or agree to pay any bonus, or adopt or
make any change in any bonus, insurance, pension, or other
Haverfield Benefit Plan and provided further that Haverfield
and Home Bank shall be permitted, consistent with past
practices, to make contributions to the employee stock
ownership plan and the 401(k) plan of Haverfield, pursuant to
its existing program for such contributions, which shall
accrue from the date hereof to the Closing Date;
(vi) except for the short-term renewal of Federal
Home Loan Bank ("FHLB") advances outstanding at the date of
this Agreement, raising short-term funds against its existing
line of credit with the FHLB and deposit-taking in the
ordinary course of its business, borrow or agree to borrow any
funds, including but not limited to repurchase transactions,
or indirectly guarantee or agree to guarantee any obligations
of others;
(vii) make or commit to make any new loan or letter
of credit, or any new or additional discretionary advance
under any existing loan or line of credit, or restructure any
existing loan or line of credit, (x) in the case of a
I-53
<PAGE> 121
consumer loan or extension of credit, in a principal amount in
excess of $250,000 or that would increase the aggregate credit
outstanding in this category to any one borrower (or group of
affiliated borrowers) to more than $250,000, (y) in the case
of a loan secured by an owner occupied single-family principal
residence, in a principal amount in excess of $350,000, or (z)
in the case of a commercial loan or mortgage in a principal
amount in excess of $500,000 or that would increase the
aggregate credit outstanding in this category to any one
borrower (or group of affiliated borrowers) to more than
$500,000, without the prior written consent of COFI acting
through its Chief Executive Officer in a written notice to
Haverfield, which approval or rejection shall be given on a
timely basis after delivery by Haverfield to such officer of
COFI of the complete loan package;
(viii) make any material changes in its policies
concerning loan underwriting or which persons may approve
loans;
(ix) enter into any securities transaction for its
own account or purchase or otherwise acquire any investment
security for its own account other than U.S. Treasury
obligations with maturities of less than one year and deposits
in an overnight account at the FHLB of Cincinnati, provided
COFI's consent shall not be unreasonably withheld or delayed
relating to the purchase of other readily marketable
investment securities;
(x) increase or decrease the rate of interest paid on
time deposits or on certificates of deposit, except in a
manner and pursuant to policies consistent with past
practices;
(xi) enter into, modify or extend any agreement,
contract or commitment out of the ordinary course of business
or having a term in excess of six months and involving an
expenditure in excess of ten thousand dollars ($10,000), other
than letters of credit, loan agreements, deposit agreements,
and other lending, credit and deposit documents made in the
ordinary course of business;
(xii) except in the ordinary course of business,
place on any of its assets or properties any mortgage, pledge,
lien, charge, or other encumbrance;
(xiii) cancel any material indebtedness owing to it
or any claims which it may possess or waive any rights of
material value;
(xiv) sell or otherwise dispose of any real property
or any material amount of tangible or intangible personal
property other than (a) properties acquired in foreclosure or
otherwise in the ordinary collection of indebtedness owed to
Home Bank, (b) student loans or (c) loans which are held for
sale by
I-54
<PAGE> 122
Home Bank and are sold in the secondary market within sixty
(60) days of origination;
(xv) foreclose upon or otherwise take title to or
possession or control of any real property without first
obtaining a phase one environmental report thereon; provided,
however, that Home Bank and its Subsidiaries shall not be
required to obtain such a report with respect to single
family, non-agricultural residential property of one acre or
less to be foreclosed upon unless it has reason to believe
that such property might contain Hazardous Substances;
(xvi) knowingly or wilfully commit any act or fail to
commit any act which will cause a material breach of any
agreement, contract or commitment;
(xvii) purchase any real or personal property or make
any capital expenditure where the amount paid or committed
therefor is in excess of twenty-five thousand dollars
($25,000), except for outstanding commitments set forth in
Section 3.20 of the Haverfield Disclosure Schedule;
(xviii) in the case of Home Bank, voluntarily make
any material changes in or to its asset and deposit mix;
(xix) engage in any activity or transaction outside
the ordinary course of business;
(xx) enter into or acquire any derivatives contract
or structured note;
(xxi) enter into any new, or modify, amend or extend
the terms of any existing contracts relating to the purchase
or sale of financial or other futures, or any put or call
option relating to cash, securities or commodities or any
interest rate swap agreements or other agreements relating to
the hedging of interest rate risk;
(xxii) take any action that would (A) materially
impede or delay the consummation of the transactions
contemplated by this Agreement or the ability of the parties
hereto to obtain any approval of any regulatory authority
required for the transactions contemplated by this Agreement
or to perform its covenants and agreements under this
Agreement or (B) prevent the Merger from qualifying as a
pooling of interests for accounting purposes or as a
reorganization within the meaning of Section 368(a) of the
Code; or
(xxiii) agree in writing or otherwise to take any of
the foregoing actions or engage in any of the foregoing
activities.
Nothing contained in this Section 4.1(b) is intended to impose
an obligation
I-55
<PAGE> 123
upon Haverfield or Home Bank to take any action in violation of the
fiduciary duties of its directors to its stockholders.
(c) Haverfield and the Haverfield Subsidiaries shall not,
without the prior written consent of COFI, engage in any transaction or
take any action that would render untrue any of the representations and
warranties of Haverfield contained in Article III hereof, if such
representations and warranties were given as of the date of such
transaction or action.
(d) Haverfield will, and will cause the Haverfield
Subsidiaries to, use their best efforts to maintain their respective
properties and assets in their present state of repair, order and
condition, reasonable wear and tear excepted, and to maintain and keep
in full force and effect all policies of insurance presently in effect,
including insurance of accounts with the FDIC. Haverfield will, and
will cause the Haverfield Subsidiaries to, take all requisite action
(including without limitation the making of claims and the giving of
notices) pursuant to its directors' and officers' liability insurance
policy or policies in order to preserve all rights thereunder with
respect to all matters which could reasonably give rise to a claim
prior to the Effective Time.
(e) Haverfield shall promptly notify COFI in writing of the
occurrence of any matter or event known to and directly involving
Haverfield or any Haverfield Subsidiary that is reasonably likely to
result in a Material Adverse Effect on Haverfield or impair the ability
of Haverfield or Home Bank to consummate the transactions contemplated
herein.
(f) Haverfield shall provide to COFI such reports on
litigation involving Haverfield and each of the Haverfield Subsidiaries as COFI
shall reasonably request, provided that Haverfield shall not be required to
divulge information to the extent that, in the good faith opinion of its
counsel, by doing so, it would risk waiver of the attorney-client privilege to
its detriment.
4.2 CONFORMING ACCOUNTING AND RESERVE POLICIES; RESTRUCTURING EXPENSES.
At the request of COFI, Home Bank agrees immediately prior to Closing and after
satisfaction or waiver of the conditions to Closing set forth in Article VI
hereof, to establish and take such reserves and accruals as COFI reasonably
shall request to conform Home Bank's loan, accrual, reserve and other accounting
policies to the policies of Charter One Bank, provided however, such requested
conforming adjustments shall not be taken into account in determining whether
Haverfield has experienced a Material Adverse Effect.
4.3 CERTAIN ACTIONS.
(a) Neither Haverfield (nor any of its Subsidiaries) (i) shall
solicit, initiate, participate in discussions of, or encourage or take
any other action to facilitate (including by way of the disclosing or
furnishing of any information that it is not
I-56
<PAGE> 124
legally obligated to disclose or furnish) any inquiry or the making of
any proposal relating to any Acquisition Proposal (as defined below)
with respect to itself or any of its Subsidiaries or (ii) shall (A)
solicit, initiate, participate in discussions of, or encourage or take
any other action to facilitate any inquiry or proposal, or (B) enter
into any agreement, arrangement, or understanding (whether written or
oral) regarding any proposal or transaction providing for or requiring
it to abandon, terminate or fail to consummate this Agreement, or
compensating it or any of its Subsidiaries under any of the instances
described in this clause. Haverfield and Home Bank shall immediately
instruct and otherwise use their best efforts to cause their directors,
officers, employees, agents, advisors (including, without limitation,
any investment banker, attorney, or accountant retained by it or any of
its Subsidiaries), consultants and other representatives to comply with
such prohibitions. Haverfield and Home Bank shall immediately cease and
cause to be terminated any existing activities, discussions, or
negotiations with any parties conducted heretofore with respect to such
activities. Notwithstanding the foregoing, Haverfield may provide
information at the request of or enter into negotiations with a third
party with respect to an Acquisition Proposal if the Board of Directors
of Haverfield determines, in good faith after consultation with
counsel, that the exercise of its fiduciary duties to Haverfield's
stockholders under applicable law requires it to take such action, and,
provided further, that Haverfield may not, in any event, provide to
such third party any information which it has not provided to COFI.
Haverfield shall promptly notify COFI orally and in writing in the
event it receives any such inquiry or proposal and shall provide
reasonable detail of all relevant facts relating to such inquiries.
This Section shall not prohibit accurate disclosure by Haverfield in
any document (including the Proxy Statement and the Registration
Statement) or other disclosure under applicable law if in the opinion
of the Board of Directors of Haverfield, disclosure is appropriate
under applicable law.
(b) "Acquisition Proposal" shall, with respect to Haverfield,
mean any of the following (other than the Merger): (i) a merger or
consolidation, or any similar transaction of any company with either
Haverfield or any Subsidiary of Haverfield, (ii) a purchase lease or
other acquisition of a material portion of all the assets of either
Haverfield or any Subsidiary of Haverfield, (iii) a purchase or other
acquisition of "beneficial ownership" by any "person" or "group" (as
such terms are defined in Section 13(d)(3) of the Exchange Act)
(including by way of merger, consolidation, share exchange, or
otherwise) which would cause such person or group to become the
beneficial owner of securities representing 25% or more of the voting
power of either Haverfield or any Subsidiary of Haverfield, (iv) a
tender or exchange offer to acquire securities representing 25% or more
of the voting power of Haverfield, (v) a public proxy or consent
solicitation made to stockholders of Haverfield seeking proxies in
opposition to any proposal relating to any of the transactions
contemplated by this Agreement, (vi) the filing of an application or
notice with the OTS or any other federal or state regulatory authority
(which application has been accepted for processing) seeking approval
to engage in one or more of the transactions referenced
I-57
<PAGE> 125
in clauses (i) through (iv) above, or (vii) the making of a bona fide
offer to the Board of Directors Haverfield or Home Bank by written
communication, that is or becomes the subject of public disclosure, to
engage in one or more of the transactions referenced in clauses (i)
through (v) above.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 INSPECTION OF RECORDS; CONFIDENTIALITY.
(a) COFI and Haverfield shall each afford to the other and to
the other's accountants, counsel and other representatives (and their
Subsidiaries) full access during normal business hours during the
period prior to the Effective Time to all of their respective
properties, books, contracts, commitments and records, including all
attorneys' responses to auditors' requests for information, and
accountants' work papers, developed by either of them or their
respective Subsidiaries or their respective accountants or attorneys,
and will permit each other and their respective representatives to
discuss such information directly with each other's officers,
directors, employees, attorneys and accountants. COFI and Haverfield
shall each use their best efforts to furnish to the other all other
information concerning its business, properties and personnel as such
other party may reasonably request; however, such access may be limited
by the party from whom access is sought so as to avoid unreasonable
disruption or interference with such party's business operations, as
such party may reasonably determine. Any failure to comply with this
covenant shall be disregarded if promptly corrected without material
adverse consequences to the other party. The availability or actual
delivery of information shall not affect the representations,
warranties, covenants, and agreements of the party providing such
information that are contained in this Agreement or in any certificates
or other documents delivered pursuant hereto.
(b) All information disclosed by any party to any other party
to this Agreement, whether prior or subsequent to the date of this
Agreement including, without limitation, any information obtained
pursuant to this Section 5.1, shall be kept confidential by such other
party and shall not be used by such other party otherwise as herein
contemplated. In the event that this Agreement is terminated, each
party shall return all documents furnished hereunder, shall destroy all
documents or portions thereof prepared by such other party that contain
information furnished by another party pursuant hereto and, in any
event, shall hold all information confidential unless or until such
information is or becomes a matter of public knowledge.
5.2 REGISTRATION STATEMENT; STOCKHOLDER APPROVAL. As soon as
practicable after the date hereof, COFI shall file the Registration Statement
with the SEC, and Haverfield and COFI shall use their best efforts to cause the
Registration Statement to become effective under
I-58
<PAGE> 126
the Securities Act. COFI will take any action required to be taken under the
applicable blue sky or securities laws in connection with the issuance of the
shares of COFI Common Stock in the Company Merger. Each party shall furnish all
information concerning it and the holders of its capital stock as the other
party may reasonably request in connection with such action. Haverfield shall
call the Haverfield Stockholders' Meeting as soon as reasonably practicable
after the date of this Agreement for the purpose of voting upon this Agreement
and the Company Merger. In connection with the Haverfield Stockholders' Meeting,
(i) COFI and Haverfield shall jointly prepare the Proxy Statement as part of the
Registration Statement and Haverfield shall mail the Proxy Statement to its
stockholders and (ii) the Board of Directors of Haverfield shall recommend to
its stockholders the approval of this Agreement and the Company Merger;
provided, however, that such recommendation may be withdrawn, modified, or
amended, or not made at all, after the receipt by Haverfield of an offer to
effect an Acquisition Proposal (as defined in Section 4.3 hereof) with
Haverfield to the extent the Board of Directors of Haverfield reasonably
determines that, in the exercise of its fiduciary obligations after consultation
with counsel, it has a duty to do so.
5.3 AGREEMENTS OF AFFILIATES. As soon as practicable after the date of
this Agreement, Haverfield shall deliver to COFI a letter, reviewed by its
counsel, identifying all persons whom Haverfield believes to be "affiliates" of
Haverfield for purposes of Rule 145 under the Securities Act or for purposes of
qualifying for pooling of interests accounting treatment for the Merger.
Haverfield shall use its best efforts to cause each person who is so identified
as an "affiliate" to deliver to COFI, as soon as practicable thereafter, a
written agreement, substantially in the form of Exhibit D, providing that from
the date of such agreement each such person will agree not to sell, pledge,
transfer or otherwise dispose of any shares of stock of Haverfield held by such
person or any shares of COFI Common Stock to be received by such person in the
Company Merger (i) during the period commencing 30 days prior to the Company
Merger and ending at the time of publication of financial results covering at
least 30 days of combined operations after the Company Merger and (ii) at any
time, except in compliance with the applicable provisions of the Securities Act
and other applicable laws and regulations. Prior to the Effective Time,
Haverfield shall amend and supplement such letter and use its best efforts to
cause each additional person who is identified as an "affiliate" to execute a
written agreement as set forth in this Section 5.3.
5.4 EXPENSES. Each party hereto shall bear its own expenses incident to
preparing, entering into and carrying out this Agreement and to consummating the
Merger. Notwithstanding the foregoing, COFI and Haverfield will share equally
all third party printing costs incurred with respect to the Registration
Statement and Proxy Statement in preliminary and final form. The printer shall
be Bowne or such other printer selected by COFI that is reasonably acceptable to
Haverfield.
5.5 COOPERATION. Each party covenants that it will use its best efforts
to bring about the transactions contemplated by this Agreement as soon as
practicable, unless this Agreement is terminated as provided herein. Subject to
the terms and conditions herein provided, each of the parties hereto agrees to
use all reasonable efforts to take, or cause to be
I-59
<PAGE> 127
taken, all action, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement at the earliest
practicable time. All third party costs and expenses incurred by Home Bank at
the direction of COFI in connection with making available to Home Bank's
customers materials relative to the combination of Home Bank and Charter One
Bank, shall be paid by COFI or Charter One Bank. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and/or directors of the parties,
shall take all such necessary action. Each party shall use its reasonable best
efforts to preserve for itself and the other parties hereto each available legal
privilege with respect to the confidentiality of their negotiations and related
communications, including the attorney-client privilege.
5.6 REGULATORY APPLICATIONS. The parties shall, as soon as practicable
after the date of this Agreement, file all necessary applications with all
applicable regulatory authorities, and shall use their best efforts to respond
as promptly as practicable to all inquiries received concerning said
applications. In the event the Merger is challenged or opposed by any
administrative or legal proceeding, whether by the United States Department of
Justice or otherwise, the determination of whether and to what extent to seek
appeal or review, administrative or otherwise, or other appropriate remedies
shall be made by COFI after consultation with Haverfield. The party filing an
application shall deliver a copy thereof to the other parties hereto in advance
of filing and copies of all responses from or written communications from
regulatory authorities relating to the Merger or this Agreement (to the extent
permitted by law), and the filing party shall also deliver a final copy of each
regulatory application to the other parties promptly after it is filed with the
appropriate regulatory authority. Each party shall advise the other parties
periodically of the status of each regulatory application.
5.7 FINANCIAL STATEMENTS AND REPORTS. From the date of this Agreement
and prior to the Effective Time: (a) Haverfield will deliver to COFI not later
than forty-five (45) days after the end of any fiscal quarter, the Report of
Condition and Income filed by Home Bank with the OTS; (b) COFI and Haverfield
shall deliver to each other not later than forty-five (45) days after the end of
each quarter, its Report on Form 10-Q for such quarter as filed with the SEC
which shall be prepared in conformity with generally accepted accounting
principles and the rules and regulations of the SEC; and (c) each party will
deliver to the others any and all other material reports filed with the SEC, the
FDIC, the OTS, or any other regulatory agency within five (5) business days of
the filing of any such report.
5.8 NOTICE. At all times prior to the Effective Time, each party shall
promptly notify the other in writing of the occurrence of any event which will
or may result in the failure to satisfy any of the conditions specified in
Sections 6.1 or 6.2 hereof. In the event that any party becomes aware of the
occurrence or impending occurrence of any event which would constitute or cause
a breach by it of any of its representations and warranties, covenants or
agreements herein in any material respect, or would have constituted or caused a
breach by it of its representations and warranties, covenants or agreements
herein in any
I-60
<PAGE> 128
respect, had such an event occurred or been known prior to the date hereof, said
party shall immediately give detailed and written notice thereof to the other
parties, and shall, unless the same has been waived in writing by the other
parties, use its reasonable efforts to remedy the same within 30 days, provided
that such efforts, if not successful, shall not be deemed to satisfy any
condition precedent to the Merger.
5.9 PRESS RELEASE. Except as provided in Section 4.3(a) or as otherwise
reasonably determined by a party to comply with its legal obligations, at all
times prior to the Effective Time, the parties shall mutually agree to the
issuance of any press release or other information to the press or any third
party for general circulation with respect to this Agreement or the transactions
contemplated hereby.
5.10 DELIVERY OF SUPPLEMENTS TO DISCLOSURE SCHEDULES. Five (5) business
days prior to the Effective Time, each party will supplement or amend its
Disclosure Schedule with respect to any matter hereafter arising which, if
existing or occurring at or prior to the date of this Agreement, would have been
required to be set forth or described in such Disclosure Schedule or which is
necessary to correct any information in the Disclosure Schedule or in any
representation and warranty made by the disclosing party which has been rendered
inaccurate thereby. For purposes of determining the accuracy of the
representations and warranties of COFI ,Haverfield and Home Bank contained,
respectively, in Articles II and III hereof in order to determine the
fulfillment of the conditions set forth in Section 6.1(a) and 6.2(a) hereof as
of the date of this Agreement, the Disclosure Schedule of each party shall be
deemed to include only that information contained therein on the date it is
initially delivered to the other party.
5.11 LITIGATION MATTERS. Haverfield and Home Bank will consult with
COFI about any proposed settlement, or any disposition of, any litigation
involving amounts in excess of $10,000.
5.12 TAX OPINION. COFI agrees to obtain a written opinion of Silver,
Freedman & Taff, L.L.P., addressed to COFI and Haverfield, dated the Closing
Date, subject to the representations and assumptions referred to therein, and
substantially to the effect that (i) the Company Merger will constitute a
tax-free reorganization within the meaning of Section 368(a) of the Code and
that COFI, Merger Sub and Haverfield will each be a party to a reorganization;
(ii) that no gain or loss would be recognized by any stockholder of Haverfield
upon the exchange of Haverfield Common Stock solely for COFI Common Stock in the
Company Merger, and that the basis of the COFI Common Stock received by each
stockholder of Haverfield who exchanges Haverfield Common Stock solely for COFI
Common Stock in the Company Merger will be the same as the basis of the
Haverfield Common Stock surrendered and exchanged therefor (subject to any
adjustments required as the result of receipt of cash in lieu of a fractional
share of COFI Common Stock); (iii) the holding period of the COFI Common Stock
received by a stockholder of Haverfield in the Company Merger will include the
holding period of the Haverfield Common Stock surrendered and exchanged
therefor, provided that such shares of Haverfield Common Stock were held as a
capital asset by such stockholder at the Effective Time; and (iv) that cash
I-61
<PAGE> 129
received by a Haverfield stockholder in lieu of a fractional share interest of
COFI 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 COFI Common Stock which such stockholder would otherwise be entitled
to receive and will qualify as a capital gain or loss (assuming the Haverfield
Common Stock was a capital asset in such stockholder's hands at the Effective
Time).
5.13 WRITTEN AGREEMENTS WITH EMPLOYEES; BENEFITS AND RELATED
MATTERS.
(a) WRITTEN AGREEMENTS WITH EMPLOYEES. COFI shall assume all
of the obligations of Home Bank under those five (5) Change In Control
Agreements between Haverfield, Home Bank and Ennio F. Izzo, Richard C.
Ebner, Marlene D. Culbertson, Nick J. Nero and Edward R. Turza, each
dated August 30, 1996 (the "Severance Agreements"), and shall assume
the Change In Control Benefit obligation of Home Bank under that
certain Employment Agreement between William A. Valerian, Haverfield,
and Home Bank dated August 28, 1996 (the "Employment Agreement")
subject to the characterization and method of payment thereof being
made in a manner that complies with accounting for the Merger as a
pooling of interests.
(b) GENERAL SEVERANCE. Each person employed by the Haverfield
Subsidiaries as of December 31, 1996 who is employed by the Haverfield
Subsidiaries immediately prior to the Effective Time (other than a
person named in subsection (a) above) will be entitled to receive (in
lieu of any other form of severance) the severance package described
below if such person's employment is terminated without cause within
one year after the Effective Time. In addition, any such employee of
the Haverfield Subsidiaries who voluntarily resigns after being
notified by COFI that, as a condition of employment, such employee must
work at a location outside of the Cleveland MSA or that such employee's
base salary will be decreased, in any case within one year after the
Effective Time, will be entitled to the severance package described
below. The severance package shall consist of (i) three (3) weeks base
pay for every year of full time service with the Haverfield
Subsidiaries prior to the Effective Time, up to a maximum of one year
of base pay, and (ii) continued health insurance coverage for a period
of 90 days after separation of service with Charter Resources Ohio,
Inc., a wholly owned subsidiary of Charter One Bank ("Charter
Resources") paying the employer's portion (50%) of the health insurance
premium. At the request of a severed employee who is entitled to the
aforesaid severance package, outplacement services will be provided by
Charter Resources. COFI acknowledges that the consummation of the
Merger will constitute both a change in control and change in
circumstances under the Severance Agreements and the Employment
Agreement.
(c) CONTINUING EMPLOYEES. To the extent permitted by
applicable law, the former employees of Home Bank (but specifically
excluding any person named in
I-62
<PAGE> 130
subsection (a) above whose employment is terminated and then rehired (a
"New Employee")) who become employees of Charter One Bank or any other
COFI Subsidiary (the "Continuing Employees") shall continue to
participate in the Haverfield Benefit Plans, except where any such Plan
is terminated at the request of COFI at the Effective Time. COFI or any
COFI Subsidiary may amend or terminate any Haverfield Benefit Plan at
any time after the Effective Time, provided, that if the termination or
amendment adversely affects the benefits provided to the Continuing
Employees, Charter One Bank or another COFI Subsidiary shall provide
the Continuing Employees with benefits that are substantially
equivalent to the benefits being received by other similarly situated
employees of Charter One Bank or such other COFI Subsidiary under
comparable plans then in effect, if any. Whenever a Continuing Employee
becomes a participant in an COFI Benefit Plan, such Continuing Employee
shall receive full credit for his past service with Home Bank for
purposes of determining eligibility to participate in and the vesting
benefits of such COFI Benefit Plan (but not for the purpose of accrual
of benefits thereunder). New Employees will not receive any past
service credit. However, both New Employees and Continuing Employees
will not be subject to any exclusion or penalty for pre-existing
conditions that were covered under the Home Bank health plan
immediately prior to the Effective Time or any waiting period relating
to coverage under the COFI health plan. COFI and Charter One Bank will
assume, or will arrange for a qualified person or entity to assume, the
duties of trustee under the Haverfield employee stock ownership plan as
of the Effective Time, and will assume administrative responsibility
for all employee benefit plans of Haverfield or Home Bank as of the
Effective Time.
5.14 RESERVATION OF SHARES TO SATISFY HAVERFIELD STOCK OPTIONS. COFI
shall take all corporate action necessary to reserve for issuance a sufficient
number of shares of COFI Common Stock for delivery upon exercise of Haverfield
Stock Options assumed by it in accordance with Section 1.3(g) hereof. As soon as
practicable after the Effective Time, COFI shall file an appropriate
registration statement with respect to the shares of COFI Common Stock subject
to such options and shall use its best efforts to maintain the effectiveness of
such registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as such
options remain outstanding.
5.15 NASDAQ LISTING. COFI shall use all reasonable efforts to cause the
shares of COFI Common Stock to be issued in the Company Merger, and the shares
of COFI Common Stock to be reserved for issuance upon exercise of Haverfield
Stock Options, to be approved for listing on the Nasdaq Stock Market (or such
other national securities exchange or stock market on which the COFI Common
Stock shall then be traded), subject to official notice of issuance, prior to or
as of the Closing.
5.16 DIRECTORS' AND OFFICERS' INDEMNIFICATION INSURANCE. COFI agrees
that the Merger shall not affect or diminish any of Haverfield's or Home Bank's
duties and obligations of indemnification existing immediately prior to the
Effective Time in favor of the directors, officers, employees and agents of
Haverfield or Home Bank arising by virtue of the
I-63
<PAGE> 131
Articles of Incorporation, Charter , Code of Regulations or Bylaws of Haverfield
or Home Bank in the form in effect at the date of this Agreement or arising by
operation of law, and such duties and obligations shall continue in full force
and effect for so long as they would (but for the Merger) otherwise survive and
continue in full force and effect. All provisions for indemnification and
limitation of liability now existing in favor of the employees, agents,
directors or officers of Haverfield, Home Bank or Haverfield Subsidiaries, as
provided by law or regulation or in their respective Articles of Incorporation
or Codes of Regulation shall survive the Merger, shall be assumed by COFI and
shall continue in full force and effect with respect to acts or omissions
occurring prior to the Effective Time for a period of three years thereafter or
in the case of matters occurring prior to the Effective Time which have not been
resolved prior to the third anniversary of the Effective Time, until such
matters are finally resolved. COFI or Charter One Bank, respectively, shall also
purchase and keep in force for such three year period director's and officer's
liability insurance and fiduciary liability insurance to provide coverage for
acts or omissions of the type and in the amount currently covered by
Haverfield's existing directors and officers liability insurance and fiduciary
liability insurance for acts or omissions occurring prior to the Effective Time,
to the extent such insurance may be purchased or kept in full force on
commercially reasonable terms taking into account the cost thereof and the
benefits provided thereby (provided that COFI may substitute or cause Haverfield
to substitute therefor single premium tail coverage with policy limits equal to
Home Bank's existing annual coverage limits). To the extent permitted by law,
COFI or Charter One Bank, respectively, shall advance expenses in connection
with the foregoing indemnification.
5.17 REPORTS TO THE SEC. On or after the Effective Time, COFI shall
continue to file all reports and data with the SEC necessary to permit
stockholders of Haverfield who may be deemed affiliates of Haverfield within the
meaning of Rule 145 under the Securities Act to sell COFI Common Stock held or
received by them in connection with the Merger pursuant to Rules 144 and 145
under the Securities Act if they would otherwise be so entitled.
ARTICLE VI
CONDITIONS
6.1 CONDITIONS TO THE OBLIGATIONS OF COFI, CHARTER MICHIGAN AND CHARTER
ONE BANK. Notwithstanding any other provision of this Agreement, the obligations
of COFI, Charter Michigan and Charter One Bank to consummate the Merger are
subject to the following conditions precedent (except as to those which COFI may
chose to waive):
(a) subject to the cure provisions set forth in Section 5.8,
all of the representations and warranties made by Haverfield and Home
Bank in this Agreement and in any documents or certificates provided by
Haverfield and Home Bank shall have been true and correct in all
material respects as of the date of this Agreement and as of the
Effective Time as though made on and as of the Effective Time;
I-64
<PAGE> 132
(b) subject to the cure provisions set forth in Section 5.8,
Haverfield and Home Bank shall have performed in all material respects
all obligations and shall have complied in all material respects with
all agreements and covenants required by this Agreement to be performed
or complied with by them prior to or at the Effective Time;
(c) there shall not have been any action taken or any statute,
rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger by any federal or state government or
governmental agency or instrumentality or court, which would prohibit
ownership or operation of all or a portion of the business or assets of
Haverfield or any Haverfield Subsidiary by COFI, Charter Michigan or
Charter One Bank, or would compel COFI, Charter Michigan or Charter One
Bank to dispose of all or a portion of the business or assets of
Haverfield or any Haverfield Subsidiary, as a result of this Agreement,
or which would render any party hereto unable to consummate the
transactions contemplated by this Agreement;
(d) since the date hereof, Haverfield shall not have suffered
a Material Adverse Effect;
(e) no regulatory authority shall impose any non-standard or
unduly burdensome condition relating to the Merger such that it would
substantially deprive COFI of the economic benefits of the Merger, as
determined in the reasonable judgment of COFI;
(f) COFI shall have received the opinion of Hahn Loeser Parks,
L.L.P., counsel to Haverfield, in the form of the attached Exhibit E;
(g) COFI shall have received a certificate signed by the
President and Chief Executive Officer of Haverfield and Home Bank,
dated as of the Effective Time, certifying that based upon his best
knowledge, the conditions set forth in Sections 6.1(a), (b), and (d)
hereof have been satisfied.
(h) simultaneous with the execution and delivery of this
Agreement, the directors of Haverfield who are stockholders of
Haverfield shall have executed and delivered to COFI Voting Agreements
in the form attached hereto as Exhibit A;
(i) COFI shall have received the written affiliates'
agreements described in Section 5.3 hereof; and
(j) Dissenting Shares shall not exceed 7% of the issued and
outstanding Haverfield Common Stock.
6.2 CONDITIONS TO THE OBLIGATIONS OF HAVERFIELD AND HOME BANK.
Notwithstanding any other provision of this Agreement, the obligations of
Haverfield and Home Bank to consummate the Merger are subject to the following
conditions precedent (except as to those
I-65
<PAGE> 133
which Haverfield may chose to waive):
(a) subject to the cure provisions set forth in Section 5.8,
all of the representations and warranties made by COFI in this
Agreement and in any documents or certificates provided by COFI shall
have been true and correct in all material respects as of the date of
this Agreement and as of the Effective Time as though made on and as of
the Effective Time;
(b) subject to the cure provisions set forth in Section 5.8,
COFI shall have performed in all material respects all obligations and
shall have complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with
by it prior to or at the Effective Time;
(c) there shall not have been any action taken or any statute,
rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger by any federal or state government or
governmental agency or instrumentality or record, which would prohibit
ownership or operation of all or a portion of the business or assets of
Haverfield or any Haverfield Subsidiary by COFI, Charter Michigan or
Charter Bank, or which would render any party hereto unable to
consummate the transactions contemplated by this Agreement;
(d) no regulatory authority shall impose any non-standard or
unduly burdensome condition relating to the Merger, such that it would
substantially deprive Haverfield of the economic benefits of the
Company Merger, as determined in the reasonable judgment of Haverfield;
(e) since the date hereof, COFI shall not have suffered a
Material Adverse Effect;
(f) Haverfield shall have received the opinion of Silver,
Freedman & Taff, L.L.P., counsel to COFI, in the form attached hereto
as Exhibit F; and
(g) Haverfield shall have received a certificate signed by the
President and Chief Executive Officer of COFI, dated as of the
Effective Time, that based upon his best knowledge, the conditions set
forth in Sections 6.2(a), (b) and (e) have been satisfied.
6.3 CONDITIONS TO THE OBLIGATIONS OF THE PARTIES. Notwithstanding any
other provision of this Agreement, the obligations of COFI, Charter Michigan and
Charter One Bank on the one hand, and Haverfield and Home Bank on the other
hand, to consummate the Merger are subject to the following conditions precedent
(except as to those which COFI or Haverfield may chose to waive):
(a) no preliminary or permanent injunction or other order by
any federal or state court which prevents the consummation of the
Merger shall have been issued and
I-66
<PAGE> 134
shall remain in effect; nor shall there be any third party proceeding
pending to prevent the consummation of the Merger;
(b) the parties shall have received all applicable regulatory
approvals and consents to consummate the transactions contemplated in
this Agreement and all required waiting periods shall have expired;
(c) the Registration Statement shall have been declared
effective under the Securities Act and no stop orders shall be in
effect and no proceedings for such purpose shall be pending or
threatened by the SEC and, if the offering for sale of the COFI Common
Stock in the Company Merger pursuant to this Agreement is subject to
the securities laws of any state, the Registration Statement shall not
be subject to a stop order of any state securities authority;
(d) each party shall have received the tax opinion addressed
to it referred to in Section 5.12 of this Agreement; and
(e) the COFI Common Stock to be issued to holders of
Haverfield Common Stock shall have been approved for listing on the
Nasdaq National Market subject to official notice of issuance.
ARTICLE VII
TERMINATION; AMENDMENT; WAIVER
7.1 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time:
(a) By the mutual written consent of the Boards of Directors
of COFI and Haverfield;
(b) At any time prior to the Effective Time, by COFI or
Haverfield if there shall have been a final judicial or regulatory
determination (as to which all periods for appeal shall have expired
and no appeal shall be pending) that any material provision of this
Agreement is illegal, invalid or unenforceable (unless the enforcement
thereof is waived by the affected party) or denying any regulatory
application the approval of which is a condition precedent to a party's
obligations hereunder;
(c) At any time on or before the date specified in 7.1(f)
hereof, by COFI or Haverfield in the event that any of the conditions
precedent to the obligations of the other party to the Merger are
rendered impossible to be satisfied or fulfilled by said date (other
than by reason of a breach by the party seeking to terminate);
(d) By COFI or Haverfield at any time after the stockholders
of Haverfield fail to approve this Agreement and the Company Merger by
the Required Vote at the
I-67
<PAGE> 135
Haverfield Stockholders' Meeting;
(e) By COFI or Haverfield, in the event of a material breach
by the other party of any representation, warranty, covenant or
agreement contained herein or in any schedule or document delivered
pursuant hereto, which breach would result in the failure to satisfy
the closing condition set forth in Section 6.1(a) or 6.1(b) in the case
of COFI, or Section 6.2(a) or 6.2(b) in the case of Haverfield, and
which breach cannot be or is not cured within thirty (30) days after
written notice of such breach is given by the non-breaching party to
the party committing such breach;
(f) By COFI or Haverfield on or after December 31, 1997, in
the event the Company Merger has not been consummated by such date
(provided, however, that the right to terminate under this Section
7.1(f) 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 Company Merger to occur on or before such date); or
(g) By Haverfield, if the Average COFI Stock Price is less
than $36.55 and both of the following conditions are satisfied:
(i) written notice of its election to terminate is
delivered by Haverfield to COFI within one business day after
the first date upon which the Average COFI Stock Price can be
determined, and
(ii) COFI, within one business day after its receipt
of such written notice of election to terminate, fails to
agree in writing to an Exchange Ratio determined by dividing
the Average COFI Stock Price into $25.00, which Exchange Ratio
shall be rounded to the fourth decimal place. Nothing herein
shall obligate COFI to adjust the Exchange Ratio and any such
action shall be elective on the part of COFI.
In the event a party elects to effect any termination pursuant
to Section 7.1(b) through 7.1(f) above, it shall give written notice to
the other party hereto specifying the basis for such termination and
certifying that such termination has been approved by the vote of a
majority of the members of its Board of Directors.
7.2 LIABILITIES AND REMEDIES; BREAK-UP FEE.
(a) In the event that this Agreement is terminated by a party
(the "Aggrieved Party") solely by reason of the material breach by the
other party ("Breaching Party") of any of its representations,
warranties, covenants or agreements contained herein then the Aggrieved
Party shall be entitled to such remedies and relief against the
Breaching Party as are available at law or in equity. Moreover, the
Aggrieved Party without terminating this Agreement shall be entitled to
specifically enforce the terms hereof against the Breaching Party in
order to cause the Merger to be consummated. Each party acknowledges
that there is not an adequate remedy at
I-68
<PAGE> 136
law to compensate the other parties relating to the non-consummation of
the Merger. To this end, each party, to the extent permitted by law,
irrevocably waives any defense it might have based on the adequacy of a
remedy at law which might be asserted as a bar to specific performance,
injunctive relief or other equitable relief.
(b) In the event that the Haverfield Stockholder's Meeting
does not take place, the Board of Directors of Haverfield fails to
recommend approval of this Agreement and the Company Merger to the
stockholders of Haverfield, or such Board of Directors shall adversely
alter or modify its favorable recommendation of this Agreement and the
Company Merger to the stockholders of Haverfield, and this Agreement
and the Company Merger is not approved by the stockholders of
Haverfield by the Required Vote, and neither COFI or Charter One Bank
is, as of the date of such event, in material breach of this Agreement,
then, upon termination of this Agreement, Haverfield and Home Bank
shall jointly and severally reimburse COFI and Charter One Bank for
their third party expenses relating to this Agreement and the
transactions contemplated hereby in an amount up to Two Hundred
Thousand Dollars ($200,000) and pay COFI in immediately available funds
an additional amount of Three Million Dollars ($3,000,000) as an agreed
upon break up fee and as the sole and exclusive remedy of COFI, Merger
Sub, Charter Michigan and Charter One Bank. In order to obtain the
benefit of the expense reimbursement and break-up fees provided in this
Section 7.2(b), COFI and Charter One Bank shall be required to execute
a waiver of their rights under Section 7.2(a) above, and shall not have
taken any action to enforce any right that they might have under
Section 7.2(a).
(c) In the event that an Acquisition Proposal occurs between
the date hereof and the time of the Haverfield Stockholders' Meeting
and the stockholders of Haverfield fail to approve this Agreement and
the Company Merger under circumstances where the Board of Directors of
Haverfield continuously maintained its favorable recommendation of this
Agreement and Company Merger, and neither COFI or Charter One Bank was,
as of the date of such action, in material breach of this Agreement,
then if a definitive agreement relating to an Acquisition Proposal is
executed by Haverfield or any Haverfield Subsidiary, or an Acquisition
Proposal is consummated, in either case within nine months after the
termination of this Agreement, then upon the happening of such event
Haverfield and Home Bank shall be jointly and severally obligated to
pay COFI a cash amount of Three Million Dollars ($3,000,000) as an
agreed upon break up fee and as the sole and exclusive remedy of COFI,
Merger Sub, Charter Michigan and Charter One Bank. Notwithstanding the
foregoing, if the average (rounded down to the nearest whole cent) of
the closing sale price of one share of COFI Common Stock on the Nasdaq
National Market for the 20 full trading days ending on the day of the
Haverfield Stockholders' Meeting is less than $36.55, the provisions of
this Section 7.2(c) shall not survive a termination of this Agreement
under Section 7.1(d) hereof. There shall be no duplication of remedy
under this Section 7.2(c) and 7.2(b). In order to obtain the benefit of
the expense reimbursement and break-up fees provided in this Section
7.2(c), COFI and Charter One Bank shall be required to execute a waiver
of their rights under Section 7.2(a)
I-69
<PAGE> 137
above, and shall not have taken any action to enforce any right that
they might have under Section 7.2(a).
(d) In the event that all of the conditions precedent to the
consummation of the Merger in Article VI have been satisfied or would
be satisfied by the delivery of documents which are under the control
of COFI and COFI in material breach of this Agreement refuses to
consummate the Company Merger, or if COFI otherwise willfully abandons
the Company Merger in material breach of this Agreement, then in either
case, COFI and Charter One Bank shall jointly and severally pay
Haverfield and Home Bank liquidated damages in the amount of Three
Million Two Hundred Thousand Dollars ($3,200,000) as their sole and
exclusive remedy against COFI, Merger Sub, Charter Michigan, and
Charter One Bank. In order to pursue the liquidated damage remedy
provided in this subsection, Haverfield and Home Bank shall be required
to execute a waiver of their rights under Section 7.2(a) hereof and
shall have not theretofore taken any action to enforce any right that
they might have under Section 7.2(a) hereof.
7.3 SURVIVAL OF AGREEMENTS. In the event of termination of this
Agreement by either COFI or Haverfield as provided in Section 7.1, this
Agreement shall forthwith become void and have no effect except that the
agreements contained in Sections 5.1(b), 5.4, and 7.2 hereof shall survive the
termination hereof.
7.4 AMENDMENT. This Agreement may be amended by the parties hereto by
action taken by their respective Boards of Directors at any time before or after
approval hereof by the stockholders of Haverfield but, after such approval, no
amendment shall be made which changes the form of consideration or the value of
the consideration to be received by the stockholders of Haverfield without the
approval of the stockholders of Haverfield. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto. The parties may, without approval of their respective Boards of
Directors, make such technical changes to this Agreement, not inconsistent with
the purposes hereof as may be required to effect or facilitate any regulatory
approval or acceptance of the Merger or of this Agreement or to effect or
facilitate any regulatory or governmental filing or recording required for the
consummation of any of the transactions contemplated hereby.
7.5 WAIVER. Any term, provision or condition of this Agreement (other
than the requirement of Haverfield stockholder approval) may be waived in
writing at any time by the party which is entitled to the benefits hereof. Each
and every right granted to any party hereunder, or under any other document
delivered in connection herewith or therewith, and each and every right allowed
it by law or equity, shall be cumulative and may be exercised from time to time.
The failure of a party at any time or times to require performance of any
provision hereof shall in no manner affect such party's right at a later time to
enforce the same. No waiver by any party of a condition or of the breach of any
term, covenant, representation or warranty contained in this Agreement, whether
by conduct or otherwise, in any one or more instances shall be deemed to be or
construed as a further or continuing waiver of any such condition or breach or a
waiver of any other condition or of the breach of
I-70
<PAGE> 138
any other term, covenant, representation or warranty of this Agreement. No
investigation, review or audit by a party of another party prior to or after the
date hereof shall estop or prevent such party from exercising any right
hereunder or be deemed to be a waiver of any such right.
ARTICLE VIII
GENERAL PROVISIONS
8.1 SURVIVAL. All representations, warranties, covenants and agreements
of the parties in this Agreement or in any instrument delivered by the parties
pursuant to this Agreement (other than the agreements, covenants and obligations
set forth herein which are contemplated to be performed after the Effective
Time) shall not survive the Effective Time, provided that no such
representations, warranties or covenants shall be deemed to be terminated or
extinguished so as to deprive any party (or any of its directors, officers,
employees or agents) of any defense in law or equity which otherwise would be
available against the claims of any person, including, without limitation, any
stockholder or former stockholder of either COFI or Haverfield, the aforesaid
representations, warranties, and covenants being material inducements to
consummation by the parties and the surviving corporation and resulting
institution of the transactions contemplated hereby.
8.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, by facsimile
transmission or by registered or certified mail to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice) and shall be deemed to be delivered on the date so delivered:
(a) if to COFI, Charter Michigan or Charter One Bank:
Mr. Charles J. Koch
Chief Executive Officer
Charter One Financial, Inc.
1215 Superior Avenue
Cleveland, OH 44114
copy to:
Mr. Robert J. Vana
Chief Corporate Counsel
Charter One Financial, Inc.
1215 Superior Avenue
Cleveland, OH 44114
and
I-71
<PAGE> 139
Barry P. Taff, Esq.
Silver, Freedman & Taff L.L.P.
ll00 New York Ave., N.W.
Washington, D.C. 20005
(b) if to Haverfield or Home Bank:
Mr. William A. Valerian
President
Haverfield Corporation
50 Terminal Tower
Suite 444
Cleveland, OH 44113
copy to:
F. Ronald O'Keefe, Esq.
Hahn Loeser Parks L.L.P.
330 BP America Building
200 Public Square
Cleveland, OH 44114-2301
8.3 APPLICABLE LAW. This Agreement shall be construed and interpreted
according to the laws of the State of Ohio without regard to conflicts of laws
principles thereof, except to the extent that the federal laws of the United
States apply.
8.4 HEADINGS, ETC. The article headings and section headings contained
in this Agreement are inserted for convenience only and shall not affect in any
way the meaning or interpretation of this Agreement.
8.5 SEVERABILITY. If any term, provision, covenant, or restriction
contained in this Agreement is held by a final and unappealable order of a court
of competent jurisdiction to be invalid, void, or unenforceable, then the
remainder of the terms, provisions, covenants, and restrictions contained in
this Agreement shall remain in full force and effect, and shall in no way be
affected, impaired, or invalidated unless the effect would be to cause this
Agreement to not achieve its essential purposes.
8.6 ENTIRE AGREEMENT; BINDING EFFECT; NON-ASSIGNMENT; COUNTERPARTS.
Except as otherwise expressly provided herein, this Agreement (including the
documents and instruments referred to herein) (a) constitutes the entire
agreement between the parties hereto and supersedes all other prior agreements
and undertakings, both written and oral, between the parties, with respect to
the subject matter hereof; and (b) is not intended to confer upon any other
person any rights or remedies hereunder except as specifically provided herein.
This Agreement shall be binding upon and inure to the benefit of the parties
named herein and
I-72
<PAGE> 140
their respective successors. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any party hereto without
the prior written consent of the other party hereto. This Agreement may be
executed in two or more counterparts which together shall constitute a single
agreement.
8.7 NO EMPLOYMENT SOLICITATION. Prior to the receipt of OTS approval of
the Merger, COFI and the COFI Subsidiaries shall not knowingly, actively solicit
the employment of any current director, officer or full time employee of
Haverfield or the Haverfield Subsidiaries.
8.8 ADDITIONAL PARTY. Upon the formation of Merger Sub, COFI shall
cause Merger Sub to take all necessary corporate action to approve this
Agreement and to become a party hereto for purposes of consummating the Company
Merger.
The undersigned have caused this Agreement to be executed as of the day
and year first above written.
CHARTER ONE FINANCIAL, INC.
By /s/ Charles John Koch
------------------------------
Authorized Officer
CHARTER MICHIGAN BANCORP, INC.
By /s/ Charles John Koch
------------------------------
Authorized Officer
CHARTER ONE BANK F.S.B.
By /s/ Charles John Koch
------------------------------
Authorized Officer
HAVERFIELD CORPORATION
By /s/ William A. Valerian
------------------------------
Authorized Officer
HOME BANK, F.S.B.
By /s/ William A. Valerian
------------------------------
Authorized Officer
I-73
<PAGE> 141
APPENDIX II
April 21, 1997
Board of Directors
Haverfield Corporation
Terminal Tower
50 Public Square, Suite 444
Cleveland, Ohio 44113-2203
Dear Gentlemen:
You have requested our opinion as an independent investment banking firm
regarding the fairness, from a financial point of view, to the stockholders of
Haverfield Corporation ("Haverfield" or the "Company"), of the consideration to
be received by such stockholders in the merger (the "Merger") between the
Company and Charter One Financial, Inc., a Delaware Corporation ("COFI"). We
have not been requested to opine as to, and our opinion does not in any manner
address, the Company's underlying business decision to proceed with or effect
the Merger.
Pursuant to the Agreement and Plan of Merger and Reorganization, dated April 22,
1997, by and among the Company and COFI (the "Agreement"), at the effective time
of the Merger, COFI will acquire all of the Company's issued and outstanding
shares of common stock (1,906,349 shares as of the date of the Agreement). The
holders of Company common stock will receive in exchange for each share of
Company common stock shares of common stock of COFI based on an Exchange Ratio
which equates to a $27.00 per share price, within a certain range, for each
share of Company common stock. For calculation purposes the "Average COFI Stock
Price" means the average closing price of COFI common on the Nasdaq National
Market System for the ten days ending on the fifth business day immediately
prior to closing. If Average COFI Stock Price averages between $41.09 and
$55.60, the Exchange Ratio will range from .6571 to .4856, respectively. The
Agreement details the provisions in the event the Average COFI Stock Price is
outside of the range.
In addition, the holders of unexercised and outstanding options awarded pursuant
to the Company's 1995 Stock Option Plan will receive merger consideration as
described in Section 1.3 (g) of the Agreement (82,845 unexercised options
outstanding as of the date of the Agreement). The complete terms of the proposed
transaction are described in the Agreement, and this summary is qualified in its
entirety by reference thereto.
Charles Webb & Company, as part of its investment banking business, is regularly
engaged in the evaluation of businesses and securities in connection with
mergers and acquisitions, negotiated underwritings, and distributions of listed
and unlisted securities. We are familiar with the market for common stocks of
publicly traded banks, savings institutions and bank and savings institution
holding companies.
In connection with this opinion we reviewed certain financial and other business
data supplied to us by the Company including (i) Annual Reports, Proxy
Statements and Form 10-Ks for the years ended December 31, 1994, 1995 and 1996,
(ii) Form 10-Qs for the quarters ended March 31, 1996, June 30, 1996, and
September 30, 1996, and (iii) certain other information we deemed relevant. We
discussed with senior management and the boards of directors of the Company and
its wholly owned subsidiary, Home Bank, the current position and prospective
outlook for the Company. We considered historical quotations and the prices of
recorded transactions in the Company's common stock since January 1992. We
reviewed financial and stock market data of other savings institutions,
particularly in the midwestern region of the United States, and the financial
and structural terms of several other recent transactions involving mergers and
acquisitions of savings institutions or proposed changes of control of
comparably situated companies.
II-1
<PAGE> 142
Board of Directors
Haverfield Corporation
April 21, 1997
Page 2
For COFI, we reviewed the audited financial statements for the fiscal years
ended December 31, 1996 and 1995, quarterly financial statements (unaudited) for
the quarters ending March 31, 1996, June 30, 1996 and September 30, 1996, and
certain other information deemed relevant.
For purposes of this opinion we have relied, without independent verification,
on the accuracy and completeness of the material furnished to us by the Company
and COFI and the material otherwise made available to us, including information
from published sources, and we have not made any independent effort to verify
such data. With respect to the financial information, including forecasts and
asset valuations we received from the Company, we assumed (with your consent)
that they had been reasonably prepared reflecting the best currently available
estimates and judgment of the Company's management. In addition, we have not
made or obtained any independent appraisals or evaluations of the assets or
liabilities, and potential and/or contingent liabilities of the Company or COFI.
We have further relied on the assurances of management of the Company and COFI
that they are not aware of any facts that would make such information inaccurate
or misleading. We express no opinion on matters of a legal, regulatory, tax or
accounting nature or the ability of the Merger, as set forth in the Agreement,
to be consummated.
In rendering our opinion, we have assumed that in the course of obtaining the
necessary approvals for the Merger, no restrictions or conditions will be
imposed that would have a material adverse effect on the contemplated benefits
of the Merger to the Company or the ability to consummate the Merger. Our
opinion is based on the market, economic and other relevant considerations as
they exist and can be evaluated on the date hereof.
Consistent with the engagement letter with you, we have acted as financial
advisor to the Company in connection with the Merger and will receive a fee for
such services, a majority of which is contingent upon the consummation of the
Merger. In addition, the Company has agreed to indemnify us for certain
liabilities arising out of our engagement by the Company in connection with the
Merger.
Based upon and subject to the foregoing, as outlined in the foregoing paragraphs
and based on such other matters as we considered relevant, it is our opinion
that as of the date hereof, the consideration to be received by the stockholders
of the Company in the Merger is fair, from a financial point of view, to the
stockholders of the Company.
This opinion may not, however, be summarized, excerpted from or otherwise
publicly referred to without our prior written consent, although this opinion
may be included in its entirety in the proxy statement of the Company used to
solicit stockholder approval of the Merger. It is understood that this letter is
directed to the Board of Directors of the Company in its consideration of the
Agreement, and is not intended to be and does not constitute a recommendation to
any stockholder as to how such stockholder should vote with respect to the
Merger.
Very truly yours,
/s/ Charles Webb & Company
Charles Webb & Company
II-2
<PAGE> 143
APPENDIX III
OHIO GENERAL CORPORATION LAW
1701.85 RELIEF FOR DISSENTING SHAREHOLDER; QUALIFICATION;
PROCEDURES.--(A)(1)
A shareholder of a domestic corporation is entitled to relief as a
dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.
(2) If the proposal must be submitted to the shareholders of
the corporation involved, the dissenting shareholder shall be a record holder of
the shares of the corporation as to which he seeks relief as of the date fixed
for the determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares as to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by him as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under
division (C) of section 1701.84 of the Revised Code in the case of a merger
pursuant to section 1701.80 of the Revised Code and a dissenting shareholder
entitled to relief under division (E) of section 1701.84 of the Revised Code in
the case of a merger pursuant to section 1701.801 of the Revised Code shall be a
record holder of the shares of the corporation as to which he seeks relief as of
the date on which the agreement of merger was adopted by the directors of that
corporation. Within twenty days after he has been sent the notice provided in
section 1701.80 or 1701.801 of the Revised Code, the dissenting shareholder
shall deliver to the corporation a written demand for payment with the same
information as that provided for in division (A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served
on the constituent corporation involved constitutes service on the surviving or
the new entity, whether the demand is served before, on, or after the effective
date of the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at
the address specified in his demand, a request for the certificates representing
the shares as to which he seeks relief, the dissenting shareholder, within
fifteen days from the date of the sending of such request, shall deliver to the
corporation the certificates requested so that the corporation may forthwith
endorse on them a legend to the effect that demand for the fair cash value of
such shares has been made. The corporation promptly shall return such endorsed
certificates to the dissenting shareholder. A dissenting shareholder's failure
to deliver such certificates terminates his rights as a dissenting shareholder,
at the option of the corporation, exercised by written notice sent to the
dissenting shareholding within twenty days after the lapse of the fifteen-day
period, unless a court for good cause shown otherwise directs. If shares
represented by a certificate on which such a legend has been endorsed are
transferred, each new certificate issued for them shall bear a similar legend,
together with the name of the original dissenting holder of such shares. Upon
receiving a demand for payment from a dissenting shareholder who is the record
holder of uncertificated securities, the corporation shall make an appropriate
notation of the demand for payment in its shareholder records. If uncertificated
shares for which payment has been demanded are to be transferred, any new
certificate issued for the shares shall bear the legend required for
certificated securities as provided in this paragraph. A transferee of the
shares so endorsed, or of uncertificated securities where such notation has been
made, acquires only such rights in the corporation as the original dissenting
holder of such shares had immediately after the service of a demand for payment
of the fair cash value of the shares. A request under this paragraph, by the
corporation is not an admission by the corporation that the shareholder is
entitled to relief under this section.
(B) Unless the corporation and the dissenting shareholder have come to
an agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation, which in the case of a merger or consolidation may be the surviving
or new entity, within three months after the service of the demand by the
dissenting shareholder, may file a complaint in the court of common pleas of the
county in which the principal office of the corporation that issued the shares
is located or was located when the
III-1
<PAGE> 144
proposal was adopted by the shareholders of the corporation, or, if the proposal
was not required to be submitted to the shareholders, was approved by the
directors. Other dissenting shareholders, within that three month period, may
join as plaintiffs or may be joined as defendants in any such proceeding, and
any two or more such proceedings may be consolidated. The complaint shall
contain a brief statement of the facts, including the vote and the facts
entitling the dissenting shareholder to the relief demanded. No answer to such a
complaint is required. Upon the filing of such a complaint, the court, on motion
of the petitioner, shall enter an order fixing a date for a hearing on the
complaint and requiring that a copy of the complaint and a notice of the filing
and of the date for hearing be given to the respondent or defendant in the
manner in which summons is required to be served or substituted service is
required to be made in other cases. On the day fixed for the hearing on the
complaint or any adjournment of it, the court shall determine from the complaint
and from such evidence as is submitted by either party whether the dissenting
shareholder is entitled to be paid the fair cash value of any shares and, if so,
the number and class of such shares. If the court finds that the dissenting
shareholder is so entitled, the court may appoint one or more persons as
appraisers to receive evidence and to recommend a decision on the amount of the
fair cash value. The appraisers have such power and authority as is specified in
the order of their appointment. The court thereupon shall make a finding as to
the fair cash value of a share and shall render judgment against the corporation
for the payment of it, with interest at such rate and from such date as the
court considers equitable. The costs of the proceeding, including reasonable
compensation to the appraisers to be fixed by the court, shall be assessed or
approportioned as the court considers equitable. The proceeding is a special
proceeding and final orders in it may be vacated, modified, or reversed on
appeal pursuant to the Rules of Appellate Procedure and, to the extent not in
conflict with those rules, Chapter 2505. of the Revised Code. If, during the
pendency of any proceeding instituted under this section, a suit or proceeding
is or has been instituted to enjoin or otherwise to prevent the carrying out of
the action as to which the shareholder has dissented, the proceeding instituted
under this section shall be stayed until the final determination of the other
suit or proceeding. Unless any provision in division (D) of this section is
applicable, the fair cash value of the shares that is agreed upon by the parties
or fixed under this section shall be paid within thirty days after the date of
final determination of such value under this division, the effective date of the
amendment to the articles, or the consummation of the other action involved,
whichever occurs last. Upon the occurrence of the last such event, payment shall
be made immediately to a holder of uncertificated securities entitled to such
payment. In the case of holders of shares represented by certificates, payment
shall be made only upon and simultaneously with the surrender to the corporation
of the certificates representing the shares for which the payment is made.
(C) If the proposal was required to be submitted to the shareholders of
the corporation, fair cash value as to those shareholders shall be determined as
of the day prior to the day on which the vote by the shareholders was taken,
and, in the case of a merger pursuant to section 1701.80 or 1701.801 of the
Revised Code, fair cash value as to shareholders of a constituent subsidiary
corporation shall be determined as of the day before the adoption of the
agreement of merger by the directors of the particular subsidiary corporation.
The fair cash value of a share for the purposes of this section is the amount
that a willing seller who is under no compulsion to sell would be willing to
accept and that a willing buyer who is under no compulsion to purchase would be
willing to pay, but in no event shall the fair cash value of a share exceed the
amount specified in the demand of the particular shareholder. In computing such
fair cash value, any appreciation or depreciation in market value resulting from
the proposal submitted to the directors or to the shareholders shall be
excluded.
(D) (1) The right and obligation of a dissenting shareholder to receive
such fair cash value and to sell such shares as to which he seeks relief, and
the right and obligation of the corporation to purchase such shares and to pay
fair cash value of them terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this
section, unless the corporation by its directors waives such failure;
(b) The corporation abandons the action involved or is finally
enjoined or prevented from carrying it out, or the shareholders rescind their
adoption, of the action involved;
(c) The dissenting shareholder withdraws his demand, with the
consent of the corporation by its directors;
(d) The corporation and the dissenting shareholder have not
come to an agreement as to the fair cash value per share, and neither the
shareholder nor the corporation filed or joined in a complaint under division
(B) of this section within the period provided in that division.
III-2
<PAGE> 145
(2) For purposes of division (D)(1) of this section, if the
merger or consolidation has become effective and the surviving or new entity is
not a corporation, action required to be taken by the directors of the
corporation shall be taken by the general partners of a surviving or new
partnership or the comparable representatives of any other surviving or new
entity.
(E) From the time of the dissenting shareholder's giving of the demand
until either the termination of the rights and obligations arising from it or
the purchase of the shares by the corporation, all other rights accruing from
such shares, including voting and dividend or distribution rights, are
suspended. If during the suspension, any dividend or distribution is paid in
money upon shares of such class or any dividend, distribution, or interest is
paid in money upon any securities issued in extinguishment of or in substitution
for such shares, an amount equal to the dividend, distribution, or interest
which, except for the suspension, would have been payable upon such shares or
securities, shall be paid to the holder of record as a credit upon the fair cash
value of the shares. If the right to receive fair cash value is terminated other
than by the purchase of shares by the corporation, all rights of the holder
shall be restored and all distributions which, except for the suspension, would
have been made shall be made to the holder of record of the shares at the time
of termination.
III-3
<PAGE> 146
APPENDIX IV
REPORT OF INDEPENDENT AUDITORS
The Shareholders and Board of Directors
Haverfield Corporation
We have audited the accompanying consolidated statements of financial condition
of Haverfield Corporation and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of Haverfield's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Haverfield Corporation and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
- -------------------------
Cleveland, Ohio
January 28, 1997
IV-1
<PAGE> 147
HAVERFIELD CORPORATION
Consolidated Statements of Financial Condition
(Dollars in thousands, except per share data)
================================================================================
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
-----------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,489 $ 7,647
Due from banks - interest bearing 100 100
Federal funds sold 2,822 4,396
Investment securities:
Available for sale, at fair value (Amortized cost of $34,367
in 1996 and $47,034 in 1995) 33,990 47,184
Mortgage-backed securities:
Available for sale, at fair value (Amortized cost of $1,937
in 1996 and $2,672 in 1995) 2,010 2,754
Loans (net of allowance for loan losses of $2,922 in 1996
and S2,734 in 1995) 293,792 283,560
Premises and equipment 4,176 3,953
Accrued interest and other assets 4,477 4,911
-------- --------
Total $346,856 $354,505
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Passbook/statement accounts $ 39,305 $ 45,564
Noninterest-bearing NOW accounts 7,115 11,072
Interest-bearing NOW accounts 17,188 13,804
Money market fund accounts 62,263 53,876
Certificates of deposit 153,202 193,463
-------- --------
Total deposits 279,073 317,779
Advances from Federal Home Loan Bank 30,000 -
Advances by borrowers for taxes and insurance 6,207 5,740
Accrued interest and other liabilities 3,224 2,928
-------- --------
Total liabilities 318,504 326,447
-------- --------
Shareholders' Equity:
Preferred stock; 1,000,000 shares authorized;
none issued - -
Common stock, par value $.01 per share; 5,000,000
shares authorized; issued: 1,915,892 shares in 1996
and 1,894,475 shares in 1995 19 19
Capital in excess of par value 16,510 16,353
Retained earnings 12,146 11,669
Net unrealized appreciation
(depreciation) in the fair value of securities
(net of tax of $(103) in 1996 and $79 in 1995) (201) 153
Common shares in treasury, at cost (9,543 shares in 1996 and
11,790 shares in 1995) (122) (136)
-------- --------
Total shareholders' equity 28,352 28,058
-------- --------
Total $346,856 $354,505
======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
IV-2
<PAGE> 148
HAVERFIELD CORPORATION
Consolidated Statements of Income
(Dollars in thousands, except per share data)
================================================================================
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME
Loans $24,529 $23,313 $20,472
Investment securities and other 2,572 2,952 1,011
Mortgage-backed securities 191 240 301
------- ------- -------
Total interest income 27,292 26,505 21,784
------- ------- -------
INTEREST EXPENSE
Deposits 13,932 15,138 10,614
Advances from Federal Home Loan Bank 810 57 213
Long-term borrowings - - 230
------- ------- -------
Total interest expense 14,742 15,195 11,057
------- ------- -------
Net interest income 12,550 11,310 10,727
Provision for loan losses 309 123 97
------- ------- -------
Net interest income after
provision for loan losses 12,241 11,187 10,630
------- ------- -------
NONINTEREST INCOME
Service fees and other charges 1,288 1,184 971
Servicing income 454 536 634
Gain on sale of loans - - 80
Other income 263 484 475
------- ------- -------
Total noninterest income 2,005 2,204 2,160
------- ------- -------
NONINTEREST EXPENSE
Employee compensation and benefits 3,810 3,965 4,280
Occupancy and equipment 2,077 1,896 1,992
Advertising 454 477 374
Insurance premiums 2,739 761 718
Amortization of intangibles 189 827 808
Data processing fees 350 351 346
Other expenses 2,343 2,099 1,903
------- ------- -------
Total noninterest expense 11,962 10,376 10,421
------- ------- -------
Income before income taxes 2,284 3,015 2,369
Provision for income taxes 777 1020 669
------- ------- -------
Net income $ 1,507 $ 1,995 $ 1,700
======= ======= =======
EARNINGS PER COMMON SHARE
Primary $ .79 $ 1.06 $ 1.03
======= ======= =======
Fully diluted $ .79 $ 1.06 $ .96
======= ======= =======
<FN>
See notes to consolidated financial statements.
</TABLE>
IV-3
<PAGE> 149
<TABLE>
<CAPTION>
HAVERFIELD CORPORATION
Consolidated Statements of Cash Flows
(Dollars in thousands)
Year Ended December 31,
---------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,507 $ 1,995 $ 1,700
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 309 123 97
Net gain on sale of loans - - (80)
Net gain on sale of premises and equipment (1) (309) (3)
Amortization of intangibles 189 827 808
Depreciation 721 782 803
Amortization of deferred loan fees (249) (167) (188)
Provision for deferred taxes 233 (69) (192)
Federal Home Loan Bank stock dividends (188) (169) (129)
Net change in other assets and other liabilities (415) 390 (4,374)
Net change in accrued interest receivable and accrued
interest payable 307 (981) (405)
Proceeds from sale of loans originated for resale - - 23,797
Disbursements on loans originated for resale - - (12,784)
Other 57 (232) (574)
-------- --------- ---------
Net cash provided by operating activities 2,470 2,190 8,476
-------- --------- ---------
INVESTING ACTIVITIES:
Disbursements on loans originated (84,562) (79,307) (110,460)
Proceeds from:
Loan repayments and maturities 84,299 76,229 81,528
Mortgage-backed security repayments and maturities 732 450 2,580
Investment security calls and maturities 26,000 19,400 4,405
Sale of premises and equipment 5 464 3
Sale of real estate owned 617 2 456
Purchases of:
Loans (10,401) (855) (364)
Investment securities (13,097) (54,514) (7,375)
Premises and equipment (953) (570) (1,066)
Decrease in due from banks - interest bearing - 100 1,100
Decrease in federal funds sold 1,575 2,504 12,300
Net cash and cash equivalents received in connection with
the acquisition of certain assets and liabilities of other
financial institutions - - 3,832
Other 254 83 165
-------- --------- ---------
Net cash provided by (used in) investing activities 4,469 (36,014) (12,896)
-------- --------- ---------
FINANCING ACTIVITIES:
Net increase (decrease) in passbook/statement, NOW,
and money market fund accounts 1,555 5,811 (12,180)
Net increase (decrease) in certificates of deposit (40,260) 32,698 19,329
Net increase (decrease) in mortgage escrow deposits 467 (295) 62
Proceeds from exercise of stock options 175 16 23
Proceeds from borrowings 41,000 - -
Repayments of borrowings (11,000) (2,016) (387)
Payment of cash dividends (1,030) (975) (858)
Purchase of treasury shares (4) (63) (7)
-------- -------- ---------
Net cash provided by (used in) financing activities (9,097) 35,176 5,982
-------- -------- ---------
Net increase (decrease) in cash and due from banks (2,158) 1,352 1,562
Cash and due from banks at beginning of year 7,647 6,295 4,733
-------- -------- ---------
Cash and due from banks at end of year $ 5,489 $ 7,647 $ 6,295
======== ======== =========
<FN>
See notes to consolidated financial statements.
</TABLE>
IV-4
<PAGE> 150
HAVERFIELD CORPORATION
Consolidated Statements of Shareholders' Equity
(Dollars in thousands, except per share data)
================================================================================
<TABLE>
<CAPTION>
Net
Capital Unrealized Borrowings
in Appreciation of
Excess (Depreciation) Employee Common
of in the Fair Stock Shares Total
Common Par Retained Value of Ownership in Shareholders'
Stock Value Earnings Securities Plan Treasury Equity
----- ----- -------- ---------- ---- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 $ 14 $10,097 $12,323 $ 219 $ (106) $ (37) $ 22,510
Net income 1,700 1,700
Issuance of 2,200 common shares upon
exercise of stock options 23 23
Issuance of 268,157 common shares
upon redemption of convertible
subordinated debt 3 3,703 3,706
Net unrealized depreciation in the
fair value of securities (283) (283)
Dividends paid - $.51 per share (858) (858)
Purchase of 2,029 treasury shares (36) (36)
Repayments of borrowings of ESOP 106 106
------ ------- ------- ----- ------ ----- ---------
BALANCE, DECEMBER 31, 1994 17 13,823 13,165 (64) - (73) 26,868
Net income 1,995 1,995
Issuance of 172,030 shares as a
10% stock dividend 2 2,514 (2,516) -
Issuance of 2,310 common shares upon
exercise of stock options 16 16
Net unrealized appreciation in the
fair value of securities 217 217
Dividends paid - $.52 per share (975) (975)
Purchase of 5,021 treasury shares (63) (63)
------ ------- ------- ----- ------ ----- ---------
BALANCE, DECEMBER 31, 1995 19 16,353 11,669 153 - (136) 28,058
Net income 1,507 1,507
Issuance of 23,906 common shares upon
exercise of stock options 157 18 175
Net unrealized depreciation
in the fair value of securities (354) (354)
Dividends paid - $.54 per share (1,030) (1,030)
Purchase of 242 treasury shares (4) (4)
------ ------- ------- ----- ------ ----- ---------
BALANCE, DECEMBER 31, 1996 $ 19 $16,510 $12,146 $(201) $ - $(122) $ 28,352
====== ======= ======= ===== ======= ===== =========
</TABLE>
See notes to consolidated financial statements.
IV-5
<PAGE> 151
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of Haverfield Corporation ("Haverfield" or the
"Company") conform to generally accepted accounting principles and prevailing
practices within the banking and thrift industry. A summary of the more
significant policies follows:
NATURE OF OPERATIONS - Haverfield is a unitary savings and loan holding company
whose principal operating subsidiary is Home Bank, F.S.B. ("Banking subsidiary"
or the "Bank"). Effective February 23, 1995, the Bank changed its corporate name
from "Home Federal Savings Bank, Northern Ohio" to Home Bank, F.S.B. The Company
is principally engaged in the business of attracting deposits from the general
public and using such deposits, together with borrowings and other funds, to
make loans secured by real estate, various types of consumer loans and
commercial loans in its market area. The Company's principal market area
consists of suburban communities of Cleveland, and the Company's business is
conducted through its corporate office located in Cleveland, Ohio and ten branch
offices located in Beachwood, Brooklyn, Cleveland, Euclid, Lakewood, Mayfield
Village, Mentor, Rocky River, University Heights, and Westlake, Ohio. Loans and
deposits are primarily generated from the areas where its banking offices are
located. The Company's income is derived predominately from interest on loans
and investments and, to a lesser extent, noninterest income. The Company's
principal expenses are interest paid on deposits and borrowings, and normal
operating costs. The Company's operations are principally in the savings
industry, which constitutes a single industry segment. The Bank's subsidiaries
engage in real estate development activities and investment counseling which are
not material to its operations as a whole and are not significant enough to
constitute a business segment.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of the Company, the Bank, and its wholly-owned subsidiaries. All
material intercompany accounts and transactions have been eliminated. Certain
amounts previously reported in the prior years consolidated financial statements
have been reclassified to conform with the current presentation.
INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES - Securities are classified
as either trading, available for sale or held to maturity. Securities classified
as trading would be carried at estimated market value with the adjustment, if
any, reflected in the statement of income. Securities classified as available
for sale are also carried at estimated market value; however, the adjustment, if
any, is reflected in shareholders' equity. Securities held to maturity are
carried at amortized cost. Gains or losses on the sale of securities,
representing the difference between net proceeds and carrying value, are
recorded in noninterest income on the trade date using the specific
identification method.
Loans - At the time of origination or purchase, loans are classified as held for
sale or held for investment, based upon management's intent. Critical to the
proper classification of, and accounting for, loans held for investment is the
intent and ability to hold them to maturity. Loans held for sale are accounted
for at the lower of cost or market, with any unrealized loss included in income.
Loans held for investment are stated at the principal amount outstanding
adjusted for amortization of premiums and accretion of discounts using the
interest method. Interest is accrued as earned. Transfers of loans held for sale
to the investment portfolio are recorded at the lower of cost or market value on
the transfer date.
A loan is classified as nonaccrual when collectability is in doubt (this is
generally when the borrower is 90 days past due on contractual principal or
interest payments). A loan may be considered impaired, but remain on accrual
status, when the borrower demonstrates (by continuing to make payments) a
willingness to keep the loan current. When a loan is placed on nonaccrual
status, unpaid interest is reversed and an allowance is established by a charge
to interest income equal to all accrued interest. Income is subsequently
recognized only to the extent that cash payments are received.
IV-6
<PAGE> 152
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
===============================================================================
Loans are returned to accrual status when, in management's judgment, the
borrower has the ability and intent to make periodic principal and interest
payments (this generally requires that the loan be brought current in accordance
with its original contractual terms).
A loan is considered to be impaired when, based on current information and
events, it is probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement. In general, the Bank
considers a loan on income-producing properties to be impaired when the debt
service ratio is less than 1.0. Loans on non-income producing properties are
considered impaired whenever fair value is less than book value. The Bank
performs a review of all loans over $500,000 to determine if the impairment
criteria have been met. If the impairment criteria have been met, a reserve is
calculated. For loans which are individually not significant ($500,000 or less)
and represent homogeneous populations, the Bank evaluates impairment based on
the level and extent of delinquencies. Such loans include all mortgage loans
secured by 14 family residential property, all consumer loans, and certain
multi-family real estate loans, nonresidential real estate loans, business loans
and leases. The Bank charges principal off at the earlier of (1) when a total
loss of principal has been deemed to have occurred as a result of the book value
exceeding the fair value or net realizable value or (2) when collection efforts
have ceased.
NONPERFORMING LOANS - Loans considered to be nonperforming include nonaccrual,
accruing loans delinquent 90 days or more, and restructured loans. Loans are
classified as nonaccrual when, in management's judgment, the borrower no longer
has the ability and intent to make periodic interest and principal payments.
Loans are classified as accruing loans delinquent 90 days or more when the loan
is 90 days or more past due, is fully secured, and, in management's judgment,
the borrower has the ability and intent to make periodic interest and principal
payments. Loans are classified as restructured when concessions are made to
borrowers with respect to the principal balance, interest rate or the term due
to the inability of the borrower to meet the obligation under the original
terms.
LOAN FEES - Loan origination fees received for loans held for investment, net of
certain direct origination costs, are deferred and amortized to interest income
over the contractual life of the loan using the level yield method. Loan
origination fees received for loans held for sale, net of certain direct
origination costs, are deferred and recognized as an adjustment of the basis on
sale of the loans. Fees received for loan commitments that are expected to be
drawn, based on the Bank's experience with similar commitments, are deferred and
amortized over the life of the loan using the level yield method. Fees for other
loan commitments are deferred and amortized over the loan commitment period on a
straight-line basis. Unamortized deferred loan fees related to loans paid off
are included in interest income in the period the loan is paid off. Amortization
of net deferred fees is discontinued for loans that are deemed to be
nonperforming.
ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is established at an
amount necessary to reduce the recorded balances of loans receivable to their
estimated net realizable value, and is increased by charges to income and
decreased by charge-offs (net of recoveries). The allowance for loan losses is
based on management's estimate of the value of the collateral, considering the
current and currently anticipated future operating or sales conditions, as well
as the Bank's past loan loss experience, known and inherent risks in the
portfolio, adverse situations which may affect the borrower's ability to repay,
and current economic conditions. Consequently, these estimates are particularly
susceptible to changes that could result in a material adjustment to results of
operations. Recovery of the carrying value of such loans is dependent on
economic, operating, and other conditions that are beyond the control of the
Company. In the opinion of management, the allowance for loan losses is recorded
in accordance with generally accepted accounting principles.
REAL ESTATE OWNED - Real estate owned consists of property acquired in
settlement of foreclosed loans. Real estate owned is carried at the lower of
fair value less estimated costs to sell or cost. Costs relating to the
development and improvement of property are capitalized, whereas those relating
to holding and maintaining the property are charged to expense. See Note 8 to
the consolidated financial statements.
PREMISES AND EQUIPMENT - Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is computed using the
straight-line method over the useful lives of the related assets for financial
reporting purposes. For tax purposes, depreciation on certain assets is computed
using accelerated methods.
IV-7
<PAGE> 153
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
================================================================================
INTANGIBLE ASSETS - Cost in excess of fair value of net assets acquired is being
amortized to expense using the interest method over a period of three years. The
amortization periods for intangible assets are continually monitored to
determine if events and circumstances require such periods to be reduced.
FEDERAL INCOME TAXES - The Company and its subsidiaries file a consolidated
income tax return on a calendar-year basis. Deferred income taxes reflect the
temporary tax consequences on future years of differences between the tax and
financial statement basis of assets and liabilities at the balance sheet date.
On August 20, 1996, legislation was signed into law which repealed the
percentage of taxable income method tax bad debt deduction available for thrift
institutions. This repeal is effective for the Company's taxable year beginning
January 1, 1996. In addition, the legislation requires the Company to include in
taxable income its bad debt reserves in excess of its base year reserve over a
6-8 year period depending upon the maintenance of certain loan origination
levels. The recapture amount of $1.2 million will result in payments totalling
$400,000, which has previously been accrued. Since the percentage of taxable
income method tax bad debt deduction and the corresponding increase in the tax
bad debt reserve in excess of the base year have been treated as temporary
differences pursuant to Statement of Financial Accounting Standards ("SFAS") No.
109, this change in tax law will have no effect on the Company's future
consolidated statement of operations.
EARNINGS PER COMMON SHARE - Primary earnings per common share was computed using
the weighted average number of common shares outstanding for the period. The
weighted average shares used in the computation of primary earnings per common
share was 1,901,094 shares, 1,883,795 shares, and 1,662,019 shares during the
years ended December 31, 1996, 1995 and 1994, respectively.
Fully diluted earnings per common share was computed giving appropriate
consideration to the dilutive effect of stock options and, for 1994, shares
issuable upon conversion of the 6.50% Convertible Subordinated Debentures. In
computing fully diluted earnings per common share for 1994, net income has been
adjusted to eliminate interest expense associated with the debentures, net of
estimated income taxes.
CONSOLIDATED STATEMENTS OF CASH FLOWS - For purposes of reporting cash flows,
cash and cash equivalents include cash and due from banks. Federal Reserve Board
regulations require depository institutions to maintain certain minimum reserve
balances. Included in cash and demand deposits were required deposits at the
Federal Reserve of $685,000 and $658,000 at December 31, 1996 and 1995,
respectively.
Income tax payments of $1,100,000, 1,000,000 and $1,050,000 were made in 1996,
1995 and 1994, respectively. Interest paid on deposits and other borrowings
totaled $14,665,000, $15,270,000 and $11,211,000 in 1996, 1995 and 1994,
respectively. There were no mortgage loans exchanged for mortgage-backed
securities in 1996, 1995 or 1994. There were no transfers from loans to real
estate owned in 1996. Transfers from loans to real estate owned for 1995 and
1994) were $168,000 and $750,000, respectively. There were no loans made to
finance the sale of real estate owned during 1996 or 1995. Loans made to finance
the sale of real estate owned for 1994 totaled $388,000.
NEW ACCOUNTING STANDARDS - The Company maintains compensation plans which
provide for grants of stock options to officers. The Company currently follows
Accounting Principles Board Opinion No.25 ("Opinion 25"), Accounting for Stock
Issued to Employees in accounting for its plans. In October 1995, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 123 entitled Accounting for
Stock-Based Compensation which encourages, but does not require, companies to
use a fair value based method of accounting for stock-based employee
compensation plans. Under this method, compensation cost is measured as of the
date stock awards are granted based on the fair value rather than the intrinsic
value of the award, and such cost is recognized over the service period, which
is usually the vesting period. The Company has elected to continue using the
intrinsic value based method under Opinion 25. Pro forma disclosures of net
income, as if the fair value based method had been applied, have been included
in Note 14.
In June 1996, the FASB issued SFAS No. 125 Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. SFAS 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. Those standards are based
on consistent application of a financial-components approach that focuses on
control. Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes the financial
IV-8
<PAGE> 154
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
================================================================================
assets when control has been surrendered, and derecognizes liabilities when
extinguished. This Statement provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. SFAS 125 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31, 1996, and
will be applied prospectively. The FASB has issued SFAS No. 127 that defers the
effective date of certain provisions of SFAS 125 related to secured borrowings
and collateral, repurchase agreements, dollar-rolls, securities lending, and
similar transactions until after December 31, 1997. Management intends to adopt
these statements when they become effective. The impact of adopting these
statements on the financial condition and results of operations of the Company
is not expected to be significant.
2. INVESTMENT SECURITIES
Amortized cost, estimated market values and weighted average end-of-period
yields of investment securities by contractual maturity are summarized as
follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------
1996 1995
------------------------------ -------------------------------
Amortized Market Amortized Market
Cost Value Yield Cost Value Yield
------------------------------ -------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Government obligations:
Due in 1 year or less $ 2,497 $ 2,499 5.82% $ 2,000 $ 2,016 5.81%
Due after 1 year through 5 years 9,490 9,411 6.68% 23,977 24,055 6.81%
Due after 5 years through 10 years 19,479 19,180 6.93% 18,443 18,499 6.97%
------ ------ ------ ------
Total 31,466 31,090 6.76% 44,420 44,570 6.83%
------ ------ ------ ------
Marketable equity securities 100 99 6.38% - - -
Federal Home Loan Bank stock 2,801 2,801 7.00% 2,614 2,614 7.00%
------ ------ ------ ------
Total $34,367 $33,990 6.78% $47,034 $47,184 6.84%
====== ====== ====== ======
</TABLE>
All investment securities are classified as available for sale at December 31,
1996 and 1995. There were no sales of investment securities in 1996, 1995 or
1994. There were no obligations or investments of any one issuer, other than the
federal government or an agency of the federal government, with an aggregate
carrying value in excess of 10% of the Company's shareholders' equity at
December 31, 1996. The Company's Banking subsidiary, as a member of the Federal
Home Loan Bank system, is required to maintain an investment in capital stock of
the Federal Home Loan Bank in an amount equal to the greater of 1% of its
outstanding home loans or 5% of advances from the Federal Home Loan Bank. No
ready market exists for this stock, and it has no quoted market value. For
presentation purposes, such stock is assumed to have a market value which is
equal to the price at which it may be resold to the Federal Home Loan Bank. The
Company's Banking subsidiary is contractually prohibited from disposing of the
stock in any other manner. The Federal Home Loan Bank stock does not have a
contractual maturity.
At December 31, 1996, investment securities totaling $2.0 million were pledged
as collateral for deposits, and investment securities totaling $1.5 million were
pledged as collateral for a revolving credit facility extended to the Company by
a third-party lender. The Federal Home Loan Bank stock was pledged as collateral
for the advances from the Federal Home Bank of Cincinnati.
IV-9
<PAGE> 155
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
================================================================================
Gross unrealized gains and losses are summarized as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1996 1995
----------------------- -----------------------
Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses
----------------------- -----------------------
(In thousands)
<S> <C> <C> <C> <C>
U.S. Government obligations $2 $378 $175 $25
Marketable equity securities - 1 - -
Federal Home Loan Bank stock - - - -
-- ---- ---- ---
Total $2 $379 $175 $25
== ==== ==== ===
</TABLE>
3. MORTGAGE-BACKED SECURITIES
Loans may be exchanged for mortgage-backed securities guaranteed by government
agencies. Although long-term and fixed-rate in nature, mortgage-backed
securities are more liquid than real estate loans since a large and active
secondary market exists. Mortgage-backed securities are generally subject to the
risk that mortgages collateralizing the securities may prepay more rapidly or
more slowly than expected, thereby affecting the yield of the securities and
future cash flows. There were no mortgage loans exchanged for mortgage-backed
securities in 1996, 1995 or 1994. At December 31, 1996, and 1995, all
mortgage-backed securities are classified as available for sale. There were no
sales of mortgage-backed securities in 1996, 1995 or 1994.
Amortized cost, estimated market values and weighted average end-of-period
yields of mortgage-backed securities by contractual maturity are summarized as
follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------
1996 1995
------------------------------ -------------------------------
Amortized Market Amortized Market
Cost Value Yield Cost Value Yield
------------------------------ -------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Pass-through certificates:
Federal Home Loan Mortgage Corporation:
Due after 5 years through 10 years $ 10 $ 10 7.50% $ 14 $ 14 7.50%
Due after 10 years 1,751 1,822 8.60% 2,085 2,168 8.62%
------ ------ ------ ------
Total 1,761 1,832 8.59% 2,099 2,182 8.61%
------ ------ ------ ------
Government National Mortgage Association:
Due after 1 year through 5 years - - - 1 1 8.35%
Due after 5 years through 10 years 176 178 9.02% 250 249 9.20%
------ ------ ------ ------
Total 176 178 9.02% 251 250 9.20%
------ ------ ------ ------
Collateralized mortgage obligations:
Due in 1 year or less - - - 201 201 5.47%
Due after l0 years - - - 121 121 5.68%
------ ------ ------ ------
Total - - - 322 322 5.55%
------ ------ ------ ------
Total $1,937 $2,010 8.63% $2,672 $2,754 8.30%
====== ====== ====== ======
</TABLE>
IV-10
<PAGE> 156
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
================================================================================
Gross unrealized gains and losses are summarized as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1996 1995
----------------------- -----------------------
Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses
----------------------- -----------------------
(In thousands)
<S> <C> <C> <C> <C>
Pass-through certificates:
Federal Home Loan Mortgage
Corporation $71 $ - $83 $ -
Government National Mortgage
Association 2 - - 1
--- --- --- --
Total $73 $ - $83 $1
=== === === ==
</TABLE>
At December 31, 1996, mortgage-backed securities totaling $841,000 were pledged
as collateral for public funds on deposit with the Company's Banking subsidiary.
4. LOANS
The composition of the loan portfolio is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Real estate - mortgage $239,302 $238,181
Real estate - construction 4,272 1,616
Land 3,682 4,461
Business loans 6,720 4,758
Consumer and other loans 45,028 40,055
-------- --------
299,004 289,071
LESS:
Undisbursed portion of loans in process (1,293) (1,711)
Unearned income on consumer loans (6) (18)
Amount due other financial institutions
relating to wrap-around mortgage loans (114) (145)
Net deferred loan fees (877) (903)
Allowance for loan losses (2,922) (2,734)
-------- --------
$293,792 $283,560
======== ========
</TABLE>
The loan portfolio is comprised primarily of residential and, to a lesser
extent, commercial real estate loans granted to customers residing in
northeastern Ohio. Although the Company has a diversified loan portfolio, its
debtors' ability to honor their contracts is substantially dependent upon the
general economic conditions of the region. Real estate loans to one borrower
cannot exceed 15% of unimpaired capital and surplus. This 15% limitation results
in a dollar limitation of approximately $4.0 million at December 31, 1996. The
Company's Banking subsidiary is in compliance with this regulation.
At December 31, 1996 and 1995, no real estate loans were held for sale.
IV-11
<PAGE> 157
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
================================================================================
Commercial real estate loans totaled $33.2 million and $30.7 million at December
31, 1996 and 1995, respectively. These loans are considered by management to be
of somewhat greater risk of uncollectibility due to the dependency on income
production or future development of the real estate. All real estate
collateralizing the commercial real estate loans is located in Ohio. The
following table presents information as to the number and type of commercial
real estate loans in the loan portfolio.
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
------------------- -------------------
Number Principal Number Principal
Security Type of Loans Balance of Loans Balance
- ------------- -------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Combination retail/residential 103 $14,818 122 $17,522
Stores and/or shopping centers 9 3,650 8 3,319
Office 14 10,379 9 5,980
Warehouse 2 1,014 3 1,907
Church 2 594 3 666
Other 8 2,789 6 1,342
--- ------- --- -------
138 $33,244 151 $30,736
=== ======= === =======
</TABLE>
The Company's Banking subsidiary's aggregate commercial real estate loans may
not exceed 400% of its capital as determined under the regulatory capital
standards. At December 31, 1996, the Company estimates that it would be
permitted under this limitation to add an additional $62.9 million of commercial
real estate loans to its existing portfolio.
Both adjustable and fixed interest rate loans are originated. The
adjustable-rate loans have interest rate adjustment limitations and are
generally indexed to the weekly U.S. Treasury constant maturity index. The
composition of these loans was as follows:
<TABLE>
<CAPTION>
Fixed Rate Adjustable Rate
- -------------------------------------- ------------------------------------
Book Value Term to Rate Book Value
Term to Maturity at December 31, Adjustment at December 31,
- ---------------- --------------- ---------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C>
1 mo. - 1 yr. $ 887 $ 43 1 mo. - 1 yr. $154,558 $181,976
1 yr. - 2 yr. 181 55 1 yr. - 2 yr. 24,654 14,366
2 yr. - 3 yr. 210 177 2 yr. - 3 yr. 36,861 23,621
3 yr. - 5 yr. 1,712 1,171 3 yr. - 5 yr. 8,930 6,845
5 yr. - 10 yr. 24,524 24,619
10 yr. - 20 yr. 16,729 12,461
Over 20 years 29,758 23,737
------- ------- -------- --------
$74,001 $62,263 $225,003 $226,808
======= ======= ======== ========
</TABLE>
IV-12
<PAGE> 158
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
================================================================================
Commitments to purchase or sell loans are summarized below:
<TABLE>
<CAPTION>
December 31,
--------------------
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Commitments to sell loans $ - $ -
Commitments to purchase loans 411 357
</TABLE>
Substantially all commitments disclosed in the table above are for fixed rate
loans.
In the ordinary course of business, the Company's Banking subsidiary has granted
loans to directors and executive officers, and to their associates. These loans
are made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
unrelated persons except that certain persons receive a reduction in the
interest rate for loans granted prior to August 9, 1989. The Company's Banking
subsidiary also grants mortgage loans to non-executive officers and employees at
rates based on a designated index. Of the 1996 and 1995 loans outstanding, none
were nonperforming. A summary of the aggregate activity related to loans to
directors and executive officers is shown below:
<TABLE>
<S> <C>
Balance at January 1, 1996 $2,431,000
Additions 804,000
Repayments 916,000
----------
Balance at December 31, 1996 $2,319,000
==========
</TABLE>
5. LOANS SERVICED FOR OTHERS
At December 31, 1996, 1995 and 1994, loans serviced for others amounted to
$132.7 million, $139.5 million and $162.0 million, respectively. The majority
of these loans are serviced for the Federal National Mortgage Association.
Servicing loans for others generally consists of collecting mortgage payments,
maintaining escrow accounts, disbursing payments to investors and foreclosure
processing. In connection with loans serviced for others, borrowers' escrow
balances of $2,354,000, $2,215,000 and $2,428,000 were held at December 31,
1996, 1995 and 1994, respectively.
6. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Beginning balance $2,734 $2,665 $2,612
Provision for loan losses 309 123 97
Loans charged off:
Mortgage loans (1) (8) (4)
Business loans (16) - -
Consumer loans (128) (52) (40)
Recoveries:
Mortgage loans 5 - -
Consumer loans 19 6 -
------ ------ ------
Ending balance $2,922 $2,734 $2,665
====== ====== ======
</TABLE>
IV-13
<PAGE> 159
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
================================================================================
Impaired loans at December 31, 1996 totaled $4,391,000 and was comprised of
$3,391,000 in loans with no related allowances and $1,045,000 of loans gross of
related allowances of $45,000. Impaired loans at December 31, 1995 totaled
$3,107,000 and was comprised of $2,099,000 in loans with no related allowances
and $1,088,000 of loans gross of related allowances of $80,000. The average
recorded investment in impaired loans during 1996, 1995, and 1994 was
$3,749,000, $4,481,000, and $4,641,000, respectively, while interest income
recognized on impaired loans during those periods was approximately $357,000,
$435,000 and $394,000, respectively.
7. PREMISES AND EQUIPMENT
The composition of premises and equipment is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Land and improvements $ 673 $ 669
Buildings and improvements 1,704 1,658
Furniture and fixtures 4,749 5,023
Leasehold improvements 1,892 1,799
------ ------
9,018 9,149
Accumulated depreciation and amortization 4,842 5,196
------ ------
$4,176 $3,953
====== ======
</TABLE>
In May, 1995, the Company's Banking subsidiary entered into a sale agreement on
its Madison office. The sale of the office was consummated in December, 1995,
and resulted in an after-tax gain of $204,000.
At December 31, 1996, the Company's Banking subsidiary was obligated under a
number of noncancelable leases for land and buildings. Minimum future rental
commitments under these lease agreements at December 31, 1996 are as follows:
$579,000 in 1997, $562,000 in 1998, $535,000 in 1999, $531,000 in 2000, $493,000
in 2001 and 4.1 million for years after 2001. Most of the operating leases
permit renewal of the leases at rentals specified by the lease agreements.
Rental expense under all leases aggregated $664,000 in 1996, $617,000 in 1995
and $569,000 in 1994.
8. ACCRUED INTEREST AND OTHER
Accrued interest receivable and other assets consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
1996 1995
---- ----
(In thousands)
<S> <C> <C>
Accrued interest receivable $2,372 $2,602
Purchased mortgage servicing rights 191 -
Real estate owned - 737
Cost in excess of fair value of net assets
acquired 21 166
Other assets 1,893 1,406
------ ------
$4,477 $4,911
====== ======
</TABLE>
Purchased mortgage servicing rights represent the cost of purchasing rights to
service loans. All such recorded rights relate to residential mortgage loans.
Servicing rights are presented net of accumulated amortization, which is
recorded in proportion to, and over the period of, net servicing income.
Servicing income is partially offset by this am-
IV-14
<PAGE> 160
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
================================================================================
ortization expense. The carrying value of purchased mortgage servicing rights is
periodically evaluated to determine that it is not greater than fair value. An
allowance is established in the event the recorded value exceeds the fair value
of the rights. No such allowance was required at December 31, 1996.
The balance of the allowance for losses on real estate owned was $57,000 and
$109,000 at December 31, 1996 and 1995, respectively. The provision for loss on
real estate owned was $80,000, $51,000 and $1,000 for 1996, 1995 and 1994,
respectively.
Accrued interest payable and other liabilities consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------
1996 1995
------ ------
(In thousands)
<S> <C> <C>
Accrued interest payable $ 753 $ 676
Collections on loans serviced 376 465
Other liabilities 2,095 1,787
------ ------
$3,224 $2,928
====== ======
</TABLE>
9. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the ordinary course of business, various commitments and contingent
liabilities arise, including commitments to originate real estate loans and
commitments to extend credit. Commitments to borrowers to originate loans and
for unused lines of credit are summarized below:
<TABLE>
<CAPTION>
December 31,
----------------
1996 1995
(In thousands)
<S> <C> <C>
Commitments to originate:
Fixed rate loans $ 3,415 $ 856
Variable rate loans 1,367 2,765
Unused lines of credit 70,712 57,134
</TABLE>
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since some of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company upon the credit extension, is based on
management's credit evaluation of the counter-party. The commitment amount
represents the amount of credit risk, however, the Company generally extends
credit on a secured basis. Collateral held usually includes residential and
commercial real estate.
IV-15
<PAGE> 161
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
================================================================================
10. DEPOSITS
The following table as of December 3l, 1996 presents, by various rate
categories, the amounts of certificates of deposit maturing during the periods
indicated:
<TABLE>
<CAPTION>
Accounts Maturing in the Twelve Months Ended December 31,
---------------------------------------------------------
2002 &
1997 1998 1999 2000 2001 Later Total
---- ---- ---- ---- ---- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
1.001 to 2.000% $ - $ - $ - $ - $ - $ 2,551 $ 2,551
2.001 to 3.000% 133 - - - - - 133
3.001 to 4.000% 4,617 501 - - - - 5,118
4.001 to 5.000% 31,494 879 638 43 1 104 33,159
5.001 to 6.000% 39,289 7,002 3,279 2,356 206 1,020 53,152
6.001 to 7.000% 17,915 3,496 1,902 1,032 110 464 24,919
7.001 to 8.000% 1,882 18,364 3,068 5,704 599 2,238 31,855
8.001 to 9.000% 29 583 539 340 - - 1,491
9.001 to 10.000% 4 415 339 - - - 758
10.001 to 11.000% 31 - - - - - 31
11.001 and over - - - 9 9 17 35
------- ------- ------ ------- ------- ------- ---------
$95,394 $31,240 $9,765 $ 9,484 $ 925 $ 6,394 $ 153,202
======= ======= ====== ======= ======= ======= =========
</TABLE>
Deposits are obtained primarily from persons who are residents of Ohio,
particularly the Cleveland area. The Company does not advertise for deposits
outside of Ohio, and management believes that an insignificant amount of the
deposits are from non-residents of Ohio at December 31, 1996.
11. ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank of Cincinnati (the "FHLB") at December
31, 1996 consist of:
<TABLE>
<CAPTION>
Maturity Date Balance Rate
- ------------- ------- ----
(In thousands)
<S> <C> <C>
June 20, 1997 $ 2,000 5.55%
September 23, 1997 2,000 5.65%
June 23, 1998 1,500 6.45%
July 2, 1998 4,000 5.75%
July 15, 1998 4,000 5.75%
July 17, 1998 4,000 5.75%
July 24, 1998 4,000 5.75%
August 23, 1998 2,000 5.75%
September 23, 1998 5,000 5.75%
September 23, 1998 1,500 6.55%
-------
$30,000
=======
</TABLE>
No advances were outstanding from the FHLB at December 31, 1995. At December 31,
1994, a $2 million advance with an interest rate of 10.30% and a maturity date
of June 26, 1995 was outstanding. This advance was repaid, including a
prepayment penalty of $16,000 on April 4, 1995. The Bank has pledged qualifying
collateral, primarily mortgage loans, with a market value of at least 150% of
the amount of the advances.
IV-16
<PAGE> 162
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
================================================================================
12. REGULATORY CAPITAL
The Company's Banking subsidiary is subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by regulators that, if undertaken, could have
a direct material effect on the Company's financial statements. The regulations
require the the Company's Banking subsidiary to meet specific capital adequacy
guidelines that involve quantitative measures of the Bank's assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital classification is also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company's Banking subsidiary to maintain minimum amounts and ratios
(set forth in the tables below) of tangible, core and total risk-based capital.
Prompt Corrective Action regulations require specific supervisory actions as
capital levels decrease.
As of December 31, 1996, the most recent notification from the Office of Thrift
Supervision categorized the Company's Banking subsidiary as well capitalized
under the regulatory framework for Prompt Corrective Action. To be categorized
as well capitalized, the Company's Banking subsidiary must maintain minimum
total risked-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in
the tables below. There are no conditions or events since that notification that
have changed the Bank's category.
<TABLE>
<CAPTION>
As of December 31, 1996
---------------------------------------------------
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-weighted assets) $26,888 11.04% $19,483 8.00% $24,354 10.00%
Tier 1 capital (to risk-weighted assets) 24,030 9.87% - - 14,612 6.00%
Tier I capital (to adjusted tangible assets) 24,030 6.95% 10,377 3.00% 17,296 5.00%
Tangible capital (to tangible assets) 24,030 6.95% 5,189 1.50% - -
</TABLE>
<TABLE>
<CAPTION>
As of December 3l, 1995
----------------------------------------------------
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-weighted assets) $26,122 11.39% $18,345 8.00% $22,931 10.00%
Tier 1 capital (to risk-weighted assets) 23,496 10.25% - - 13,759 6.00%
Tier 1 capital (to adjusted tangible assets) 23,496 6.66% 10,591 3.00% 17,660 5.00%
Tangible capital (to tangible assets) 23,496 6.66% 5,296 1.50% - -
</TABLE>
IV-17
<PAGE> 163
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
================================================================================
Management believes, as of December 31, 1996, that the Bank meets all capital
requirements to which it is subject. Events beyond management's control, such as
fluctuations in interest rates or a downturn in the local economy of
northeastern Ohio where the Company has most of its loans, could adversely
affect future earnings and, consequently, the Bank's ability to meet its future
capital requirements.
13. FEDERAL INCOME TAXES
The provision for income taxes consists of the following components:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Current income taxes $ 544 $ 1,089 $ 861
Deferred income taxes 233 (69) (192)
------- ------- -------
$ 777 $ 1,020 $ 669
======= ======= =======
</TABLE>
A reconciliation from the statutory income tax rate to the effective
consolidated income tax rate is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal income tax rate 35.0% 35.0% 35.0%
Increase (decrease) resulting from:
Benefit of graduated rates (1.0) (1.0) (1.0)
IRS examination - - (6.1)
Other .3 (.2) .3
---- ---- ----
Effective consolidated income tax rate 34.3% 33.8% 28.2%
==== ==== ====
</TABLE>
IV-18
<PAGE> 164
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
================================================================================
The lower effective income tax rate in 1994 resulted from receipt of a favorable
"no change" letter from the Internal Revenue Service regarding the 1991 tax
year, which allowed the Company to reduce its tax liabilities for certain
estimated contingent items. Significant components of the deferred tax assets
and liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Deferred tax assets:
Book loss reserves $(1,013) $(1,076) $(1,036)
Deferred loan fees (298) (307) (268)
Reserve for uncollected interest (33) (76) (58)
Excess servicing fees (78) (81) (144)
Mark-to-market accounting (103) -- (33)
Other (160) (67) (20)
------- ------- -------
Total deferred tax assets (1,685) (1,607) (1,559)
------- ------- -------
Deferred tax liabilities:
FHLB stock dividend 403 339 282
Tax bad debt reserves 418 429 338
Mark-to-market accounting -- 79 --
Difference between book and tax depreciation 2 27 19
Purchase accounting 46 19 182
Other 153 -- --
------- ------- -------
Total deferred tax liabilities 1,022 893 821
------- ------- -------
Net deferred tax liability (asset) $ (663) $ (714) $ (738)
======= ======= =======
</TABLE>
14. MANAGEMENT OPTION PLAN
The Company's stock option plan is administered by the Compensation Committee of
the Board of Directors, which is given absolute discretion under the Company's
stock option plan to select certain officers to whom rights will be granted, and
to determine the number of rights to be granted to each. Two kinds of rights
are contained in the Company's stock option plan and are available for grant:
incentive stock options and nonqualified compensatory stock options. No
compensatory stock options have been granted. A summary of incentive stock
option transactions is as follows:
<TABLE>
<CAPTION>
Stock Options Option Price
------------- ------------
<S> <C> <C>
January 1, 1994 67,177 $ 6.612-15.227
Granted 5,797 14.318
Exercised (2,420) 7.851-11.157
Lapsed or cancelled (1,100) 15.227
------ --------------
December 31, 1994 69,454 6.612-14.545
Granted 19,000 13.875
Exercised (2,420) 6.612
------ --------------
December 31, 1995 86,034 6.612-14.545
Granted 20,718 18.000-19.250
Exercised (23,906) 6.612-14.545
------ --------------
December 31, 1996 82,846 $ 6.818-19.250
====== ==============
</TABLE>
IV-19
<PAGE> 165
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
================================================================================
The 1985 Stock Option Plan terminated on July 23, 1995; however, 44,128 stock
options remain outstanding. The 1995 Stock Option Plan has 164,000 shares of
authorized but unissued common stock reserved for future issuance pursuant to
the exercise of stock options, subject to modification or adjustment to reflect
changes in the capitalization of the Company as, for example, in the case of a
merger, reorganization, or stock split. The exercise price of options granted
may not be less than the fair market value of the common stock at the date of
grant.
The following summarizes the pro forma net income as if the fair value method of
accounting for stock-based compensation plans (as described in SFAS No. 123) had
been utilized:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995
---- ----
(In thousands, except per share data)
<S> <C> <C>
As Reported:
Net income $ 1,507 $ 1,995
Earnings per common share .79 1.06
Proforma:
Net income 1,418 1,940
Earnings per common share .75 1.03
</TABLE>
The fair value of the 1996 and 1995 option grants were estimated using the Black
Scholes Options Pricing Method using the following assumptions: Volatility of
4O% for both years, dividend yield of 2.81% and 3.50%, risk-free interest rate
of 5.87% and 6.49%, and an expected life of 9 for both years. The fair value of
options granted during 1996 and 1995 was $135,000 and $83,000, respectively. The
weighted average remaining contractual life of options outstanding at December
31, 1996 was 6.5 years.
15. EMPLOYEE STOCK OWNERSHIP PLAN
Contributions to the employee stock ownership plan ("ESOP") by the Company are
made at the discretion of the Company. For the years ended December 31, 1996,
1995 and 1994, contributions in the amount of $31,000, $18,000, and $91,000,
respectively, were expensed as costs of the ESOP.
At December 31, 1996, the ESOP held approximately 7.3% of the total outstanding
shares of the Company.
16. FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair value estimates are made at a discrete point in time based on relevant
market information and information about the financial instruments. Because no
market exists for a significant portion of the Company's financial instruments,
fair value estimates are based on judgments regarding future expected loss
experience, current economic conditions, and risk characteristics of various
financial instruments. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly affect the
estimates.
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
Cash and short-term investments, accrued interest receivable, advances by
borrowers for taxes and insurance, and other liabilities. The carrying amounts
reported in the consolidated statement of financial condition are a reasonable
estimate of fair value.
Investment securities and mortgage-backed securities - Fair values for
securities are based on quoted market prices or dealer quotes. If quoted market
prices are not available, fair value is estimated using quoted market prices for
securities with similar coupons, maturities and credit ratings.
IV-20
<PAGE> 166
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
================================================================================
Loans held for investment - The fair value is based on the estimated future cash
flows, discounted at current market rates for similar loans.
Time deposits - The fair value is estimated using current market rates for
certificate of deposits of similar remaining maturities.
Other deposits - The fair values disclosed for deposit liabilities with no
stated maturity, including passbook/statement accounts, NOW accounts and money
market fund accounts, are the amounts payable on demand at year-end, which is
their carrying amounts.
Advances from Federal Home Loan Bank - The fair value is estimated by
discounting the future cash flows at the rate currently available on borrowings
with similar characteristics.
Off-balance sheet financial instruments - The fair value of the off-balance
sheet financial instruments, including commitments to originate loans, is
considered to be equivalent to the value of the current fees charged to enter
into the commitments. At December 31, 1996 and 1995, those fees were
approximately $44,000, and $33,000, respectively.
The following table presents the estimated fair values of the Company's
financial instruments:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
1996 1995
--------------------- ----------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
(In thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $ 8,411 $ 8,411 $ 12,143 $ 12,143
Investment securities 33,990 33,990 47,184 47,184
Mortgage-backed securities 2,010 2,010 2,754 2,754
Loans held for investment 293,792 294,135 283,560 284,782
Accrued interest receivable 2,372 2,372 2,602 2,602
Financial liabilities:
Time deposits 153,202 154,001 193,463 194,737
Other deposits 125,871 125,871 124,316 124,316
Advances from Federal Home Loan Bank 30,000 30,133 - -
Advances by borrowers for taxes and insurance 6,207 6,207 5,740 5,740
Other liabilities 1,129 1,129 1,141 1,141
</TABLE>
IV-21
<PAGE> 167
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
================================================================================
17. HAVERFIELD CORPORATION (Parent Company Only)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
------------------
1996 1995
---- ----
(Dollars in thousands, except per share data)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 3,554 $ 3,197
Investment securities, at fair value (Amortized cost
of $1,497 in 1996 and $1,493 in 1995) 1,498 1,514
Investment in Home Bank, F.S.B 23,869 23,802
Other assets 15 15
-------- --------
$ 28,936 $ 28,528
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Other liabilities $ 584 $ 470
Preferred stock; 1,000,000 shares authorized; none issued - -
Common stock, par value $.01 per share; 5,000,000 shares authorized;
issued: 1,915,892 shares in 1996 and 1,894,475 shares in 1995 19 19
Capital in excess of par value 16,510 16,353
Retained earnings 12,146 11,669
Net unrealized appreciation (depreciation) in the fair value of securities
(net of tax of $(103) in 1996 and $79 in 1995) (201) 153
Common shares in treasury, at cost (9,543 shares in 1996
and 11,790 shares in 1995) (122) (136)
-------- --------
$ 28,936 $ 28,528
======== ========
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
INCOME:
Dividends from subsidiary $1,400 $1,400 $1,550
Interest on investment securities 90 56 42
------ ------ ------
Total income 1,490 1,456 1,592
------ ------ ------
EXPENSE:
Interest on long-term borrowings - - 230
Employee compensation and benefits 31 18 91
Advertising 93 53 46
Other expenses 267 257 328
------ ------ ------
Total expense 391 328 695
------ ------ ------
Income before income taxes 1,099 1,128 897
Provision for income taxes - - -
------ ------ ------
Income before equity in undistributed net income
of subsidiary 1,099 1,128 897
Equity in undistributed net income of subsidiary 408 867 803
------ ------ ------
Net income $1,507 $1,995 $1,700
====== ====== ======
</TABLE>
IV-22
<PAGE> 168
HAVERFIELD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
================================================================================
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $1,507 $1,995 $1,700
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed net earnings of subsidiary (408) (867) (803)
Net change in other assets and other liabilities 104 133 32
Other operating flows 13 (14) (63)
------ ------ ------
Net cash provided by operating activities 1,216 1,247 866
------ ------ ------
INVESTING ACTIVITIES:
Purchases of investment securities - (1,492) -
Maturities of investment securities - 1,000 -
Proceeds from ESOP loan repayments - - 30
------ ------ ------
Net cash provided by (used in) investing activities - (492) 30
------ ------ ------
FINANCING ACTIVITIES:
Proceeds from exercise of stock options 175 16 23
Repayments of borrowings - - (387)
Payment of cash dividends
Purchase of treasury shares (1,030) (975) (858)
(4) (63) (7)
------ ------ ------
Net cash used in financing activities (859) (1,022) (1,229)
------ ------ ------
Increase (decrease) in cash and cash equivalents 357 (267) (333)
Cash and cash equivalents at beginning of year 3,197 3,464 3,797
------ ------ ------
Cash and cash equivalents at end of year $3,554 $3,197 $3,464
====== ====== ======
</TABLE>
18. SAVINGS ASSOCIATION INSURANCE FUND ASSESSMENT
On September 30, 1996, the President signed into law an omnibus appropriations
act for fiscal year 1997 that included, among other things, the recapitalization
of the Savings Association Insurance Fund ("SAIF") in a section entitled the
Deposit Insurance Funds Act of 1996. The Act included a provision whereby all
insured depository institutions would be charged a one-time special assessment
on their SAIF assessable deposits as of March 31, 1995. The Company recorded a
pretax charge of $2.0 million ($1.3 million after tax), which represented 65.7
basis points of the March 31, 1995 assessable deposits. This charge was recorded
upon enactment on September 30, 1996, and later paid on November 27, 1996. The
deposit insurance rate that had been in effect prior to this recapitalization
has been reduced to 6.5 basis points of insured deposits.
IV-23
<PAGE> 169
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis is intended to assist readers in
understanding the results of operations and changes in financial position for
the past three years. It should be read in conjunction with the audited
financial statements, accompanying footnotes and supplemental financial data
presented elsewhere in this Appendix A to the Proxy Statement
GENERAL OVERVIEW
- --------------------------------------------------------------------------------
Haverfield Corporation ("the Company") is a unitary savings and loan holding
company owning all the outstanding common stock of Home Bank, F.S.B. Effective
February 23, 1995, the Company changed the name of its banking subsidiary from
Home Federal Savings Bank, Northern Ohio to Home Bank, F.S.B. ("Banking
subsidiary" or the "Bank"). The financial statements and statistical data
presented herein are the financial statements and data for the Company on a
consolidated basis.
The operations of the Company and its Banking subsidiary are significantly
influenced by general economic conditions, monetary and fiscal policies of the
federal government, and policies of regulatory authorities, including the
Federal Reserve Board, the Securities and Exchange Commission, the Office of
Thrift Supervision (the "OTS"), the Federal Deposit Insurance Corporation (the
"FDIC") and the Office of the Comptroller of Currency. Deposit flows and cost of
funds are influenced by interest rates on competing investments and general
market rates of interest. Lending activities are affected by the demand for
mortgage financing and for consumer and other types of loans, which in turn are
affected by the interest rates at which such financing may be offered and other
factors affecting the supply of housing and the availability of funds.
The Company's net income for the year ended December 31, 1996 was $1,507,000 or
$.79 per share, compared with $1,995,000 or $1.06 per share for the year ended
December 31, 1995. The decrease in 1996 compared to 1995 was mainly due to the
one time, after tax charge associated with the recapitalization of the Savings
Association Insurance Fund ("SAIF"), which totaled $1.3 million or $.68 per
share. Excluding the nonrecurring SAIF assessment, earnings for the twelve
months ended December 31, 1996 totaled $2,802,000 or $1.47 per share. The
increase in earnings, excluding the SAIF assessment, is mainly attributable to
an 11.0% increase in net interest income and a 3.6% decrease in noninterest
expense. The Company's net interest margin increased to 3.76% compared to 3.38%
for the same period in 1995. Excluding the nonrecurring SAIF assessment, 1996
earnings produced a return on average assets of.82% and a return on average
equity of 9.68%.
The Company's net income in 1995 increased 17.4% over 1994. The Company's net
income for the year ended December 31, 1995 was $1,995,000 or $1.06 per share,
compared with $1,700,000 or $1.03 per share for the year ended December 31,
1994. The increase in 1995 compared to 1994 was due to the improvement in net
interest income, which increased from $10,727,000 in 1994 to $11,310,000 in 1995
primarily due to the effects of increases in volume, partially offset by lower
net interest margin.
NET INTEREST INCOME
- --------------------------------------------------------------------------------
Net interest income, the primary component of the Company's earnings, is
influenced by the distribution and volume of the assets and liabilities, and the
difference, or spread, between the yields earned and the rates paid on those
assets and liabilities.
For 1996, net interest income was $12.6 million, compared to $11.3 million in
1995. The increase in 1996 resulted from an increase in the yield on
interest-earning assets of 27 basis points, while the cost of interest-bearing
liabilities decreased 10 basis points.
For 1995, net interest income totaled $11.3 million compared to $10.7 million in
1994. The general level of interest rates increased during 1995, causing
interest-bearing liabilities, particularly deposits, to reprice more quickly
than interest-earning as sets, resulting in a decrease of 27 basis points in the
interest rate spread. The decline in the interest rate spread was offset by
increased volume of the assets and liabilities which contributed $887,000 to the
increase in net interest income.
IV-24
<PAGE> 170
An analysis of net interest income is presented in the following table. For each
major category of interest-earning assets and interest-bearing liabilities, the
average balance of funds employed during the period indicated is shown along
with the interest earned or paid on that balance for the period and the weighted
average rate earned or paid for that category. Average balances are determined
on a daily basis.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------
1996 1995 1994
---------------------------- -------------------------- ---------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ---- ------- -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans(1) $290,294 $24,529 8.45% $284,385 $23,313 8.20% $273,927 $20,472 7.47%
Investment securities
and other 40,637 2,572 6.33 47,301 2,952 6.24 25,395 1,011 3.98
Mortgage-backed
securities 2,414 191 7.91 2,991 240 8.02 4,031 301 7.47
-------- ------ ---- -------- ------ ---- -------- ------ ----
Total interest-earning assets 333,345 27,292 8.19 334,677 26,505 7.92 303,353 21,784 7.18
------ ---- ------ ---- ------ ----
Noninterest-earning assets 7,236 7,870 8,577
-------- -------- --------
Total assets $340,581 $342,547 $311,930
======== ======== ========
Interest-bearing liabilities:
Deposits
Passbook/statement
accounts $ 42,227 1,042 2.47 $ 50,308 1,241 2.47% $ 61,460 1,524 2.48%
NOW accounts 24,684 212 .86 24,699 245 .99 26,481 285 1.08
Money market fund
accounts 58,741 2,873 4.89 41,762 2,138 5.12 38,697 1,404 3.63
Certificates of deposit 165,832 9,805 5.91 191,049 11,514 6.03 149,693 7,401 4.94
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total deposits 291,484 13,932 4.78 307,818 15,138 4.92 276,331 10,614 3.84
FHLB advances 13,986 810 5.79 575 57 9.91 2,148 213 9.92
Long-term borrowings - - - - - - 3,323 230 6.92
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-bearing
liabilities 305,470 14,742 4.83 308,393 15,195 4.93 281,802 11,057 3.92
------- ---- ------- ---- ------- ----
Noninterest-bearing
liabilities 6,178 6,174 5,700
-------- -------- --------
Total liabilities 311,648 314,567 287,502
Shareholders' equity 28,933 27,980 24,428
-------- -------- --------
Total liabilities and
shareholders' equity $340,581 $342,547 $311,930
======== ======== ========
Net interest income/interest
rate spread $12,550 3.36% $11,310 2.99% $10,727 3.26%
======= ==== ======= ==== ======= ====
Net interest margin 3.76% 3.38% 3.54%
==== ==== ====
- ---------------------------
<FN>
(1) The average balance of loans includes the principal balance of nonaccrual
loans. Interest income includes amortization of deferred loan fees of
$249,000, $167,000 and $188,000 in 1996, 1995, and 1994, respectively.
</TABLE>
IV-25
<PAGE> 171
The effect on net interest income due to changes in interest rates and changes
in the amounts of interest-earning assets and interest-bearing liabilities is
shown in the following table. Changes in interest due to both rate and volume
have been allocated to change due to volume and change due to rate in proportion
to the absolute amounts of the change in each.
<TABLE>
<CAPTION>
Change Due To
Total -------------------
Change Volume Rate
------ ------ ----
(In thousands)
<S> <C> <C> <C>
1996 CHANGE FROM 1995
Interest income:
Loans $ 1,216 $ 160 $ 1,056
Investment securities and other (380) (421) 41
Mortgage-backed securities (49) (46) (3)
------- ------- -------
Total 787 (307) l,094
------- ------- -------
Interest expense:
Deposits (1,206) (789) (417)
FHLB advances 753 787 (34)
------- ------- -------
Total (453) (2) (451)
------- ------- -------
Change in net interest income $ 1,240 $ (305) $ 1,545
======= ======= =======
1995 CHANGE FROM 1994
Interest income:
Loans $ 2,841 $ 720 $ 2,121
Investment securities and other 1,941 1,171 770
Mortgage-backed securities (61) (82) 21
------- ------- -------
Total 4,721 1,809 2,912
------- ------- -------
Interest expense:
Deposits 4,524 1,308 3,216
FHLB advances (156) (156) -
Long-term borrowings (230) (230) -
------- ------- -------
Total 4,138 922 3,216
------- ------- -------
Change in net interest income $ 583 $ 887 $ (304)
======= ======= =======
</TABLE>
ASSET/LIABILITY MANAGEMENT
- --------------------------------------------------------------------------------
As with most financial institutions, the Company's interest income and cost of
funds are significantly affected by general economic conditions and by policies
of regulatory authorities. The function of asset/liability management is to
monitor the maturities and repricing schedules of the components of the
balance sheet, and to initiate actions to minimize the Company's vulnerability
to changing interest rates while maximizing current and expected net interest
yield. Asset/liability management seeks to ensure that assets and liabilities
respond to interest rate changes in a similar time frame. The less-than-one-year
period is monitored closely because it is in this time frame that the greatest
exposure to sudden rate movements occurs. The Company's objective with regard to
asset/liability management is to attempt to minimize the impact of interest rate
risk in the ensuing one-year time frame.
The Board of Directors establishes policies and objectives with regard to
asset/liability management while senior management oversees the implementation
of such policies. The Pricing Committee of the Bank meets weekly to review and
establish rates on loan and deposit products, as well as to establish strategies
to monitor the flow of funds and coordinate the sources, uses and pricing of
those funds. The Company does not use derivative financial instruments in its
asset/liability strategy.
Interest rate sensitivity arises from differences between the dollar amounts of
assets and liabilities which mature or reprice within a time period. These
differences, or "gaps", provide an indication of the extent to which net
interest income is affected by interest rate movements in future periods. Net
interest income is also affected by changes in the slope of the yield curve and
by the price sensitivity of assets and liabilities which may have different
effects on profit volatility - factors which cannot be quantified from gap data
alone. For example, a decline in short-term market rates may not result in
corresponding declines in the rates paid on consumer deposits. Interest rate
sensitivity gap data does not provide an absolute measure of net interest income
vulnerability; however, it is useful for identifying trends of changing interest
rate sensitivity over time within an institution, and for providing comparisons
between institutions. Although the interest rate sensitivity gap is subject to a
number of assumptions and is only one of a number of
IV-26
<PAGE> 172
measurements, management believes the measure is an important indication of the
Company's exposure to interest rate risk and the related volatility of net
interest income in a changing interest rate environment, However, even a perfect
interest rate sensitivity gap of 0% (i.e., where the repricing of
interest-earning assets and interest-bearing liabilities is perfectly matched)
does not assure a stable net interest margin in a period of changing interest
rates. Depending on which indices are affected and when the interest-earning
assets and interest-bearing liabilities reprice, the change in interest rates
may have a favorable or unfavorable impact on net interest income.
The following table sets forth at December 31, 1996 the amounts of
interest-earning assets and interest-bearing liabilities scheduled to mature or
reprice within a specified period. No prepayment assumptions or deposit decay
rates have been incorporated.
<TABLE>
<CAPTION>
Scheduled Maturity or Repricing
--------------------------------------------------------------------
6 Months 6 Months 1 Year 3 Years More
or to to to than
Less 1 Year 3 Years 5 Years 5 Years Total
---- ------ ------- ------- ------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Real estate loans:
Conventional:
Fixed-rate $ 976 $ 2,979 $ 8,666 $ 9,479 $ 49,670 $ 71,770
Adjustable-rate 26,328 77,588 56,479 7,137 - 167,532
Construction 2,772 - 1,500 - - 4,272
Land loans 2,372 530 780 - - 3,682
Consumer loans 34,852 9,355 522 195 104 45,028
Business loans 5,170 1,471 14 65 - 6,720
Loans in process,
allowance for loan losses
and net deferred loan fees - - - - (5,212) (5,212)
--------- -------- -------- -------- -------- --------
Total loans (1) 72,470 91,923 67,961 16,876 44,562 293,792
Investment securities and other 4,902 - 1,498 10,429 20,083 36,912
Mortgage-backed
securities 25 75 201 201 1,508 2,010
--------- -------- -------- -------- -------- --------
Total interest-earning assets $ 77,397 $ 91,998 $ 69,660 $ 27,506 $ 66,153 $332,714
========= ======== ======== ======== ======== ========
INTEREST-BEARING LIABILITIES:
Deposits:
Passbook and NOW
accounts(2) $ - $ - $ - $ - $ 56,493 $ 56,493
Money market fund
accounts 62,263 - - - - 62,263
Certificates of deposit 38,981 56,895 40,484 10,408 6,434 153,202
--------- -------- -------- -------- -------- --------
Total deposits 101,244 56,895 40,484 10,408 62,927 271,958
FHLB advances 27,000 - 3,000 - - 30,000
--------- -------- -------- -------- -------- --------
Total interest-bearing
liabilities $ 128,244 $ 56,895 $ 43,484 $ 10,408 $ 62,927 $301,958
========= ======== ======== ======== ======== ========
GAP $ (50,847) $ 35,103 $ 26,176 $ 17,098 $ 3,226 $ 30,756
Cumulative GAP $ (50,847) $(15,744) $ 10,432 $ 27,530 $ 30,756
- -------------------
<FN>
(1) Contractual maturities of loans do not reflect the actual term of the
Company's loan portfolio. The average life of mortgage loans is
substantially less than their contractual terms because of loan prepayments
and due-on-sale clauses.
(2) Management believes that a significant amount of passbook and NOW accounts
are core deposits.
</TABLE>
IV-27
<PAGE> 173
The Company is negatively mismatched on a one-year basis at December 31, 1996,
because more liabilities than assets are expected to mature or reprice in the
next twelve months. A negative mismatch implies that a decrease in interest rate
levels may have a positive impact on the Company's results of operations, while
an increase in interest rate levels may have the opposite effect. The Company
will continue to actively manage its interest rate sensitivity position to
maintain a reasonable balance between earnings and exposure to interest rate
fluctuations.
PROVISION FOR LOAN LOSSES
- --------------------------------------------------------------------------------
The provision for loan losses represents a charge against current earnings in
order to maintain the allowance for loan losses at a level believed adequate by
management to absorb potential losses in the loan portfolio. Management's
determination of the adequacy of the allowance is based upon an ongoing review
and analysis of the risk characteristics of the loan portfolio, historical
charge-offs and recoveries, current economic conditions, volume, growth and
composition of the loan portfolio, and other relevant factors. In 1996, based on
management's assessment of the adequacy of the allowance, the provision for loan
losses was $309,000, compared to $123,000 in 1995 and $97,000 in 1994 primarily
due to increased charge-offs and increased nonperforming loans. A significant
portion of the provision in 1995 and 1994 was for the purpose of maintaining the
general loan loss reserve. which covers potential losses inherent in the
portfolio which have not been specifically identified.
See "Credit Risk Management" for a discussion of the adequacy of the Company's
allowance for loan losses.
NONINTEREST INCOME
- --------------------------------------------------------------------------------
In 1996, noninterest income totaled $2.0 million, compared to $2.2 million in
1995 and $2.2 million in 1994. Included in the noninterest income category are
the following items: (i) service fees and other charges, (ii) servicing income,
(iii) gain on the sale of loans, and (iv) other income.
In 1996, service fees and other charges increased to $1.3 million, compared to
$1.2 million in 1995 and $971,000 in 1994. This increase resulted from a
revision of the service charges earned on certain deposit accounts and certain
automated teller machine transactions. Other income for 1995 includes a pre-tax
gain of $309,000 realized during the fourth quarter in connection with the sale
of the Bank's Madison Avenue office. This gain was largely offset by a reduction
in fee income earned by the Bank's financial services subsidiary, Home
Financial, Inc.
Servicing income was $454,000 in 1996, compared to $536,000 in 1995 and $634,000
in 1994. This decline is attributable to the decrease in the average balance of
loans serviced for others from $171.4 million in 1994 to $151.2 million in 1995
and to $130.4 million in 1996, due to loan repayments and no additional loan
sales in 1996 or 1995. Although the Company may resume its involvement in the
secondary market, on April 1, 1994, the Company changed its policy with regard
to current originations of fixed-rate loans to hold them for portfolio
investment; previously, such loans had been designated as held for sale. As
such, no loans were sold during 1996 and 1995. The volume of loans sold was
$23.7 million in 1994. Substantially all of the residential mortgage loans,
whether fixed-rate or adjustable-rate, are originated under terms, conditions,
and documentation which enable them to be sold in the secondary market. Under
its loan sale agreements, the Company continues to collect payments on loans as
they become due, to inspect the security property when appropriate, to make
certain insurance and tax payments on behalf of borrowers, and to otherwise
service the loans. The Company pays the purchaser under its participation and
sales agreements an agreed yield on the loans or participation interest in loans
sold. Amounts not paid to the purchaser are retained and recognized as servicing
income. Servicing income includes servicing fees from investors and certain
charges collected from borrowers, such as late payment fees. Servicing income is
partially offset by amortization expense representing the estimated diminution
in value over time of the Company's purchased mortgage servicing rights.
Although the rights to service loans can be sold in the secondary market to
generate additional revenue, the Company did not sell loan servicing rights
during 1996, 1995 or 1994.
IV-28
<PAGE> 174
NONINTEREST EXPENSE
- --------------------------------------------------------------------------------
Noninterest expense totaled $12.0 million in 1996, compared to $10.4 million in
1995 and $10.4 million in 1994. The increase in 1996 is mainly attributable to
the one time nonrecurring charge associated with the recapitalization of the
SAIF which totaled $2.0 million. Excluding the nonrecurring SAIF assessment,
noninterest expense for 1996 would have totaled $10.0 million, a 3.6% reduction
from 1995. Other expenses increased to $2.3 million in 1996 from $2.1 million in
1995 and $1.9 million in 1994. The composition of other expenses is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Business and management development $ 114 $ 163 $ 113
Examination/audit expense 190 224 245
OTS assessment 86 82 79
Postage 149 148 133
Supplies 126 114 159
Telephone 148 134 154
Franchise/sales tax 388 365 355
Director fees 98 92 90
Consulting fees 213 52 53
Legal fees 177 145 85
Provision for HUD indemnification claim 100 - -
Recovery of credit loss - standby letter of credit (322) - -
Loss (gain) on sale of real estate owned 25 (2) (150)
Provision for real estate owned losses 80 51 1
Miscellaneous expenses 771 531 586
------ ------ ------
$2,343 $2,099 $1,903
====== ====== ======
</TABLE>
Other expenses increased $244,000 due to a $100,000 loss provision recorded in
connection with an indemnification claim, an increase of $161,000 in consulting
fees as a result of a recently completed revenue enhancement study, costs
incurred in connection with the establishment of a new retail banking facility,
and general increases in the prices of goods and services, partially offset by a
$322,000 recovery of a credit loss provision.
During the first quarter of 1996, the Housing and Urban Development ("HUD")
Mortgagee Review Board proposed that the Bank indemnify HUD for HUD/FHA
insurance claims and associated costs paid against insured properties affected
by the indictment and guilty plea of a former loan originator of the Bank on
charges of fraud relating to loan activities from 1991. A settlement of these
claims was reached under which the Bank paid $545,000 to HUD in July, 1996. The
Bank submitted a proof of loss to its insurer who, less the policy deductible,
reimbursed the Bank in the fourth quarter of 1996.
The Bank was a 19.6% participant in a standby letter of credit totaling $10.2
million. This standby letter of credit was issued to guarantee the payment of
principal and interest on multi-family housing revenue bonds, issued to finance
a 240-unit apartment complex in Stone Mountain, Georgia. The Bank had
outstanding commitments under this standby letter of credit of $2.1 million at
December 31, 1995 and a $322,000 liability for credit loss for this standby
letter of credit. On July 15, 1996, this standby letter of credit was called and
the entire $2.1 million plus interest was advanced. The property was sold in
August, 1996, and the Bank received $1.7 million in cash and a second mortgage
position for $416,000. Since there was no longer any commitment outstanding
under the letter of credit and the Bank did not suffer any loss on the
transaction, the $322,000 liability for credit loss was recognized as a
recovery.
INCOME TAXES
- --------------------------------------------------------------------------------
The Company has provided $777,000 for federal income taxes in 1996, $1,020,000
in 1995 and $669,000 in 1994. Changes from year to year are primarily due to
changes in the level of pre-tax income. The 1994 provision reflects the receipt
of a favorable "no change" letter from the Internal Revenue Service regarding
the 1991 tax year, which allowed the Company to reduce its tax liabilities for
certain estimated contingent items. Refer to Note 13 in the consolidated
financial statements for additional analysis of the tax position of the Company.
IV-29
<PAGE> 175
REVIEW OF MAJOR ASSET PORTFOLIOS
- --------------------------------------------------------------------------------
The Company's total assets decreased $7.6 million from $354.5 million at
December 31, 1995 to $346.9 million at December 31, 1996. Although loans
increased $10.2 million, other earning assets decreased $15.5 million. The
following table shows each individual asset category as a percent of total
assets.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
1996 1995
------------------------ ---------------------
Percent of Percent of
Balance Assets Balance Assets
------- ------ ------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Due from banks-interest bearing $ 100 - $ 100 -
Federal funds sold 2,822 .8% 4,396 1.2%
Investment securities 33,990 9.8 47,184 13.3
Mortgage-backed securities 2,010 .6 2,754 .8
Loans-net 293,792 84.7 283,560 80.0
-------- ----- -------- -----
Total earning assets 332,714 95.9 337,994 95.3
Cash 5,489 1.6 7,647 2.2
Premises and equipment 4,176 1.2 3,953 1.1
Accrued interest and other assets 4,477 1.3 4,911 1.4
-------- ----- -------- -----
$346,856 100.0% $354,505 100.0%
======== ===== ======== =====
</TABLE>
The largest asset portfolio is loans. The following table reflects the
composition of the loan portfolio by type of loan at the dates indicated.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Real estate loans: (In thousands)
<S> <C> <C> <C> <C> <C>
Conventional:
One-to-four units $194,804 $194,894 $204,807 $174,250 $156,275
Over four units 14,254 12,551 10,354 12,516 12,528
Construction:
Residential 1,272 1,616 3,490 3,859 2,993
Commercial 3,000 - - 650 650
Commercial real estate 30,244 30,736 30,876 33,478 39,047
Land 3,682 4,461 3,359 1,611 801
Consumer loans 45,028 40,055 31,431 27,554 30,129
Business loans 6,720 4,758 1,673 999 -
-------- -------- -------- -------- --------
299,004 289,071 285,990 254,917 242,423
-------- -------- -------- -------- --------
Less:
Undisbursed portion of loans in process (1,293) (1,711) (2,640) (3,594) (3,019)
Unearned income on consumer loans (6) (18) (40) (69) (115)
Amount due other financial institutions
relating to wrap-around mortgage loans (114) (145) (175) (297) (472)
Net deferred loan fees (877) (903) (790) (340) (777)
Allowance for loan losses (2,922) (2,734) (2,665) (2,612) (1,721)
-------- -------- -------- -------- --------
(5,212) (5,511) (6,310) (6,912) (6,104)
-------- -------- -------- -------- --------
Total loans held for investment $293,792 $283,560 $279,680 $248,005 $236,319
======== ======== ======== ======== ========
Loans held for sale $ - $ - $ - $ 13,386 $ 7,750
======== ======== ======== ======== ========
</TABLE>
IV-30
<PAGE> 176
The following table shows the change in the Company's net loan portfolio,
including loans held for sale, for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Loans originated: (In thousands)
<S> <C> <C> <C> <C> <C>
Real estate loans:
Loans for purchase of existing property $65,517 $63,262 $101,399 $ 173,931 $154,791
Construction 3,322 1,211 5,916 6,845 5,429
Loans refinanced 7,171 7,587 12,372 19,163 18,942
------- ------- -------- --------- --------
Total real estate loans originated 76,010 72,060 119,687 199,939 179,162
Business loans originated 4,860 3,724 679 1,000 -
Other originations (1) 3,691 3,523 3,266 3,443 3,507
------- ------- -------- --------- --------
Total loans originated 84,561 79,307 123,632 204,382 182,669
Loans purchased 10,401 855 364 854 1,026
Loans sold - - (23,717) (79,600) (73,671)
Loan principal payments (84,299) (76,229) (81,528) (107,144) (91,777)
Other decreases (431) (53) (462) (1,170) (888)
------- ------- -------- --------- --------
Change in net loan portfolio including
loans held for sale $10,232 $ 3,880 $ 18,289 $ 17,322 $ 17,359
======= ======= ======== ========= ========
- -----------------------------
<FN>
(1) Other loans consist of MasterCard, property improvement, student, and
savings account loans.
</TABLE>
CREDIT RISK MANAGEMENT
- --------------------------------------------------------------------------------
The Company has consistently maintained a conservative posture with respect to
credit risk. The Company has no investment securities that are less than
investment grade, no foreign loans, nor significant loan concentrations to any
one borrower; The Company's credit policies emphasize evaluation of a borrower's
financial condition before a loan is approved and close monitoring of loan
repayment after credit is extended. Most loan delinquencies that occur are
remedied within 90 days as a result of actions taken by the Company's collection
staff. If a mortgage loan delinquency exceeds 90 days, measures are instituted
to enforce collection, including the commencement of a foreclosure action. Loss
experience as a result of foreclosure with respect to residential loans
originated by the Company has historically been very low. See Note 1 and Note 6
to the Consolidated Financial Statements for additional information on impaired
loans and the Company's policies related to such loans.
Net charge-offs (recoveries) as a percentage of average loans by portfolio type
are shown in the following table:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Residential real estate (.002)% .004% .002% (.007)% .012%
Commercial real estate - - - - 1.918%
Business .412% - - -
Consumer .236% .114% .126% .054% .080%
Net charge-offs/
average loans outstanding .042% .019% .016% .002% .380%
</TABLE>
IV-31
<PAGE> 177
The table below sets forth the amounts and categories of risk elements in the
loan portfolio. For all years presented, there has been no troubled debt
restructuring which involved forgiving a portion of interest or principal on any
loans or making loans at rates materially less than market rates. Repossessed
assets include assets acquired in settlement of loans. See Note 1 to the
Consolidated Financial Statements for a discussion of the Company's policy for
classifying loans as nonperforming.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-accruing loans:
Residential real estate $ 773 $1,002 $1,091 $ 591 $1,093
Commercial real estate 514 99 170 - 582
Business 1,170 - - - -
Consumer 240 202 54 280 273
------ ------ ------ ------ ------
Total 2,697 1,303 1,315 871 1,948
------ ------ ------ ------ ------
Accruing loans delinquent more than 90 days:
Residential real estate - - - - -
Commercial real estate - - - - -
Business - - - - -
Consumer 5 21 44 11 13
------ ------ ------ ------ ------
Total 5 21 44 11 13
------ ------ ------ ------ ------
Total nonperforming loans 2,702 1,324 1,359 882 1,961
------ ------ ------ ------ ------
Repossessed assets:
Residential real estate - 197 695 567 208
Commercial real estate - 540 - 103 922
Business - - - - -
Consumer - - - - -
------ ------ ------ ------ ------
Total - 737 695 670 1,130
------ ------ ------ ------ ------
Total nonperforming assets $2,702 $2,061 $2,054 $1,552 $3,091
====== ====== ====== ====== ======
Nonperforming loans as a percent of
total loans .90% .46% .48% .35% .81%
=== === === === ===
Nonperforming assets as a percent of
total assets .78% .58% .65% .50% .97%
=== === === === ===
</TABLE>
The loans included above are secured by real estate or other collateral which
limits the Company's exposure to loss. At December 31, 1996, there were no
commitments to lend additional funds to borrowers with nonperforming loans. As
of December 31, 1996, there were no concentrations of loans in any types of
industries which exceeded 10% of the total loans that are not included as a loan
category in the table above.
In addition to the loans disclosed in the table above, the Company's Banking
subsidiary has a $1.0 million loan secured by a strip shopping center located in
Northeast Ohio. The shopping center has experienced higher-than-expected
vacancies, and the cash flow from the property has not been sufficient to meet
the principal and interest due on the loan. The borrower has maintained the loan
current throughout 1996. The borrower is working to cure the vacancies; however,
continued high vacancies and cash flow shortages could cause management to place
this loan on nonaccrual status.
IV-32
<PAGE> 178
The ratio of nonperforming loans to total loans increased from December 31,
1995 to December 31, 1996. Management does not believe this increase represents
a trend. The increase is primarily due to the addition of one business loan
being placed on nonaccrual status. Excluding this loan, nonperforming loans as
a percent of total loans would have decreased from .46% at December 31, 1995 to
.44% at December 31, 1996. The Bank is working with the borrower on this
nonaccrual loan to cure the delinquency. Management does not anticipate a
material loss on this business loan which is secured by both real estate and
other collateral.
The ratio of nonperforming loans to total loans decreased significantly from
December 31, 1992 to December 31, 1993. This improvement resulted mainly from
the increased effectiveness of the Company's collections efforts. Repossessed
assets also decreased significantly during 1993, as a commercial property with a
carrying value of $573,000 was disposed of. The improvement in the ratio of
nonperforming assets to total assets from December 31, 1992 to December 31, 1993
reflects both the increased effectiveness of the Company's collections efforts
and the successful disposal of its largest foreclosed property.
A summary of the potential income from nonperforming loans based on their
original terms, the actual interest income recorded and the interest foregone
is set forth below:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Income potential based on original terms $81 $131 $130 $99 $191
Income recorded - - - - 1
--- ---- ---- --- ----
Interest foregone $81 $131 $130 $99 $190
=== ==== ==== === ====
Activity in the loan loss allowance over the past five years is presented below.
Year Ended December 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 2,734 $ 2,665 $ 2,612 $ 1,721 $ 1,839
Provision for loan losses 309 123 97 897 750
Charge-offs:
Residential real estate (1) (8) (4) - (27)
Commercial real estate - - - - (824)
Business (16) - - - -
Consumer (128) (52) (40) (18) (26)
--------- --------- --------- --------- ---------
Total charge-offs (145) (60) (44) (18) (877)
--------- --------- --------- --------- ---------
Recoveries:
Residential real estate 5 - - 12 9
Commercial real estate - - - - -
Business - - - - -
Consumer 19 6 - - -
--------- --------- --------- --------- ---------
Total recoveries 24 6 - 12 9
--------- --------- --------- --------- ---------
Net (charge-offs) recoveries (121) (54) (44) (6) (868)
--------- --------- --------- --------- ---------
Balance at end of year $ 2,922 $ 2,734 $ 2,665 $ 2,612 $ 1,721
========= ========= ========= ========= =========
Average loans $ 290,294 $ 284,385 $ 273,927 $ 255,661 $ 228,417
Loans at end of period 299,004 289,071 285,990 254,918 242,423
Allowance/average loans 1.01% .96% .97% 1.02% .75%
Allowance/end-of-period loans .98% .95% .93% 1.02% .71%
Net charge-offs/allowance 4.14% 1.98% 1.65% .23% 50.44%
Net charge-offs/provision for
loan losses 39.16% 43.90% 45.36% .67% 115.73%
Allowance/nonperforming loans 108.14% 206.50% 196.10% 296.15% 87.76%
Allowance/nonperforming assets 108.14% 132.65% 129.75% 168.30% 55.68%
</TABLE>
IV-33
<PAGE> 179
An allocation of the ending allowance for loan losses by major loan type
follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Residential real estate $1,353 $1,251 $1,293 $ 935 $ 510
Commercial real estate 729 665 643 684 1,009
Business 274 87 - - -
Consumer 206 179 143 114 184
Unallocated 360 552 586 879 18
------ ------ ------ ------ ------
$2,922 $2,734 $2,665 $2,612 $1,721
====== ====== ====== ====== ======
</TABLE>
The above allocation is made for analytical purposes. General reserves are
available to absorb losses from any segment of the portfolio.
The amount of the allowance for loan losses is based on management's analysis
of risks inherent in the various segments of the loan portfolio, management's
assessment of known or potential problem credits which have come to management's
attention during the ongoing analysis of credit quality, historical loss
experience, current economic conditions and other factors. If actual
circumstances and losses differ substantially from management' 5 assumptions and
estimates, such allowance for loan losses may not be sufficient to absorb all
future losses, and net earnings could be significantly and adversely affected.
Loan loss estimates are reviewed periodically, and adjustments, if any, are
reported in earnings in the period in which they become known. In addition, the
Company maintains a portion of the allowance to cover potential losses inherent
in the portfolio which have not been specifically identified.
Although management believes that it uses the best information available to make
such determinations and that the allowance for loan losses is adequate at
December 31, 1996, future adjustments to reserves may be necessary, and net
income could be significantly affected, if circumstances and/or economic
conditions differ substantially from the assumptions used in making the initial
determinations. Any downturn in the Ohio real estate market could result in the
Company experiencing increased levels of nonperforming assets and charge-offs,
significant provisions for loan losses and significant reductions in income.
Additionally, various regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for loan
losses. Such agencies may require the recognition of additions to the allowance
based on their judgments of information available to them at the time of their
examination.
DEPOSITS
- --------------------------------------------------------------------------------
The Company's deposits decreased $38.7 million from $317.8 million at December
31, 1995 to $279.1 million at December 31, 1996. The Company had no brokered
deposits at December 31, 1996, 1995 and 1994. The following table sets forth the
distribution of deposits at the dates indicated.
<TABLE>
<CAPTION>
December 31 1996 December 31, 1995 December 31, 1994
---------------- ----------------- -----------------
%of %of %of
Balance Deposits Balance Deposits Balance Deposits
------- -------- ------- -------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing NOW accounts $ 7,115 2.5% $ 11,072 3.5% $ 11,286 4.0%
NOW accounts 17,188 6.2 13,804 4.3 14,344 5.1
Passbook/statement accounts 39,305 14.1 45,564 14.3 56,533 20.2
Money market fund accounts 62,263 22.3 53,876 17.0 36,342 13.1
-------- ----- -------- ----- -------- -----
Total non-certificate accounts 125,871 45.1 124,316 39.1 118,505 42.4
-------- ----- -------- ----- -------- -----
Certificate accounts:
Time deposits ($100,000 and over) 10,860 3.9 7,825 2.5 7,792 2.8
7-31 day accounts 27 - 27 - 47 -
32-91 day accounts 1,162 .4 1,312 .4 920 .3
92-182 day accounts 9,643 4.5 14,178 4.5 14,348 5.2
Greater than 6 months through 1
year accounts 42,786 17.0 54,131 17.0 33,294 11.9
Greater than 1 year to 2 1/2 year
accounts 29,187 13.5 42,974 13.5 53,229 19.1
2 1/2 year and over accounts 59,537 23.0 73,016 23.0 51,134 18.3
-------- ----- -------- ----- -------- -----
Total certificate accounts 153,202 54.9 193,463 60.9 160,764 57.6
-------- ----- -------- ----- -------- -----
Total deposits $279,073 100.0% $317,779 100.0% $279,269 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
IV-34
<PAGE> 180
The following table provides the maturity distribution of time deposits in
amounts of $100,000 or more at December 31,1996,1995 and 1994.
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Time remaining to maturity:
Three months or less $ 3,445 $2,771 $3,015
Three through six months 2,696 1,000 901
Six through twelve months 2,168 1,100 723
Over twelve months 2,551 2,954 3,153
----- ----- -----
Total $10,860 $7,825 $7,792
======= ====== ======
</TABLE>
CAPITAL AND DIVIDENDS
- --------------------------------------------------------------------------------
Federal regulations prescribe three separate regulatory capital requirements for
savings associations: (i) a risk-based capital requirement, (ii) a leverage
limit (core capital requirement), and (iii) a tangible capital requirement.
Under the risk-based requirement, assets are risk-weighted from 0% to 100% with
cash and other non-risk assets requiring no risk weighting, certain
mortgage-backed securities 20%, qualifying (borne) mortgage loans 50% and
commercial loans, other non-residential loans and real estate owned 100%. The
risk-based regulation requires that risk-based capital be maintained in an
amount equal to at least 8% of risk-weighted assets. The leverage limit requires
that core capital, which is generally defined as shareholders' equity minus
non-qualifying intangible assets, be maintained in an amount not less than 3% of
adjusted total assets. Under the tangible capital requirement, tangible capital,
defined as core capital minus all intangible assets (other than a limited amount
of purchased mortgage servicing rights), must be maintained in an amount equal
to at least 1.5% of adjusted total assets. The Company's Banking subsidiary was
in compliance with these regulatory capital regulations on December 31, 1996 and
1995. See note 12 to the Consolidated Financial Statements.
At December 31, 1996, shareholders' equity totaled $28.4 million, an increase of
$294,000 over year-end 1995. The primary sources of this increase was the
retention of earnings.
Dividends have been increased each year since 1985, and amounted to $.54 per
share in 1996 for a dividend payout ratio of 68.35%. This increase reflects the
Company's policy of seeking to ensure a dividend return to its shareholders that
is reflective of the Company's capital position and earnings growth.
LIQUIDITY
- --------------------------------------------------------------------------------
The Company's liquidity is a measure of its ability to fund loans, withdrawals
of deposits and other cash outflows in a cost-effective manner. Deposits,
scheduled amortization and prepayments of loan principal, maturities of
investment securities and mortgage-backed securities, borrowings, and funds
provided by operations are the principal sources of funds. While loan payments
and maturing investment and mortgage-backed securities are relatively
predictable sources of funds, deposit flows and loan prepayments are greatly
influenced by general interest rates, economic conditions and competition.
As presented in the Consolidated Statements of Cash Flows, operating activities,
including net income, generally provide cash.
The primary investing activity during each period was lending. New loan
originations were funded by significant principal repayments and maturities on
loans and investment securities, which totaled $110.3 million in 1996, $95.6
million in 1995 and $85.9 million in 1994).
Under financing activities, cash was used in 1996 primarily to fund a net
decrease in certificate of deposit accounts, while cash was provided by
borrowings. In 1995 and 1994, funds were provided by net increases in
certificate of deposit accounts.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments. If
the Company requires funds beyond its ability to generate them internally,
borrowing agreements exist with the Federal Home Loan Bank of Cincinnati (the
"FHLB"), which provide an additional source of funds. Under these borrowing
agreements, the maximum level of advances available is generally limited to
IV-35
<PAGE> 181
25% of the Company's Banking subsidiary's total assets; however, the FHLB may
approve advances in excess of this limit based upon the Bank meeting all of its
regulatory capital requirements. At December 31, 1996, the Company had $30.0
million in outstanding borrowings from the FHLB.
Currently, the Company anticipates that it will have sufficient funds to meet
its existing loan commitments. At December 31, 1996, the commitments to
borrowers for unused lines of credit and to originate loans totaled $75.5
million. Certificates of deposit which were scheduled to mature in one year or
less at December 31, 1996 totaled $95.4 million.
As a member of the FHLB, the Company's Banking subsidiary is required to
maintain specific levels of "liquid" investments. Regulations currently in
effect require liquid assets of not less than 5% of net withdrawable accounts
plus short-term borrowings to assure that demands for repayment of debt and
withdrawals are met. This requirement may be changed from time to time to
reflect current economic conditions. The Company's Banking subsidiary was in
compliance with these regulations at December 31, 1996 and anticipates remaining
in compliance. It is the intention of the Company's cash management efforts to
keep liquidity levels within regulatory guidelines, but at minimal levels in
order to maximize interest income from investing in loans versus lower yielding
short-term investment securities.
In June, 1996, the Company renewed a one-year secured revolving credit facility
from a third-party lender in the amount of $l.0 million. The interest rate
associated with this credit facility is based on the prime rate. The Company has
not drawn on this credit facility.
IMPACT OF INFLATION AND CHANGING PRICES
- --------------------------------------------------------------------------------
The consolidated financial statements and related data contained herein have
been prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars. Changes in the relative purchasing power of money over time
due to inflation are not recognized in the financial statements.
Unlike most industrial companies, substantially all the assets and liabilities
of a financial institution are monetary in nature. As a result, interest rate
fluctuations generally have a more significant and direct impact on a financial
institution's performance than do the effects of inflation. To the extent
inflation affects interest rates, real estate values and other costs, the
Company's lending activities are impacted. Changes in inflation may cause
changes in interest rates. Significant increases in interest rates make it more
difficult for potential borrowers to qualify for business and mortgage loans. As
a result, the volume and related income on loan originations may be reduced.
Significant decreases in interest rates may result in higher loan prepayment
activity, although such conditions may enable potential borrowers to qualify for
a relatively high mortgage loan balance.
FOURTH QUARTER RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The Company's net income for the three months ended December 31, 1996 was
$830,000 or $.43 per share compared with $699,000 or $.37 per share for the
three months ended December 31, 1995. The 18.7% increase in 1996 compared to
1995 was due to an increase in net interest income to $3,155,000 for the three
months ended December 31, 1996, compared to $2,952,000 for the three months
ended December 31, 1995 resulting from an improvement in the spread between
the ratio of interest-earning assets to total assets and the ratio of
interest-bearing liabilities to total liabilities. In addition, noninterest
income for the fourth quarter of 1996 decreased $318,000 over the fourth
quarter of 1995, due mainly to the gain on the sale of the Bank's Madison
Avenue office in December 1995. Noninterest expense decreased $488,000 or 18.3%
compared to the same period in 1995, principally due to an insurance recovery
received in the fourth quarter of 1996.
IV-36
<PAGE> 182
QUARTERLY FINANCIAL DATA (UNAUDITED)
- --------------------------------------------------------------------------------
The following is a summary of selected quarterly financial data for the periods
indicated.
<TABLE>
<CAPTION>
1996
------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter(1) Quarter
------- ------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income $6,869 $6,694 $ 6,806 $6,923
Net interest income 3,065 3,193 3,137 3,155
Provision for loan losses 34 34 34 207
Noninterest income 521 462 534 488
Noninterest expense 2,585 2,651 4,547 2,179
Net income (loss) 638 640 (601) 830
Net income (loss) per share $ .34 $ .33 $(.31) $ .43
- ---------------------
<FN>
(1) Included in noninterest expense is a one-time, nonrecurring charge
associated with the recapitalization of the Savings Association Insurance
Fund ("SAIF") in the amount of $1,962. Excluding the nonrecurring SAIF
assessment, earnings for the third quarter of 1996 totaled $693 or $.37 per
share.
</FN>
1995
------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(In thousands, except per share data)
Interest income $5,953 $6,666 $6,873 $7,013
Net interest income 2,787 2,817 2,754 2,952
Provision for loan losses 31 30 30 32
Noninterest income 478 472 448 806
Noninterest expense 2,667 2,577 2,465 2,667
Net income 374 453 469 699
Net income per share $ .20 $ .24 $ .25 $ .37
</TABLE>
IV-37
<PAGE> 183
APPENDIX V
PART I. - FINANCIAL INFORMATION
HAVERFIELD CORPORATION
Consolidated Statements of Financial Condition (unaudited)
- --------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996 March 31, 1996
-------------- ----------------- --------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 3,914 $ 5,489 $ 5,088
Due from banks-interest bearing 100 100 100
Federal funds sold 1,288 2,822 2,359
Investment securities:
Available for sale, at fair value (Amortized
cost of $32,419, $34,367, and $35,224, respectively) 31,712 33,990 34,810
Mortgage-backed securities:
Available for sale, at fair value (Amortized
cost of $1,898, $1,937 and $2,541, respectively) 1,965 2,010 2,603
Loans (net of allowance for loan losses of $2,980,
$2,922 and $2,745, respectively) 294,143 293,792 285,792
Premises and equipment 4,324 4,176 3,949
Accrued interest and other assets 4,218 4,477 4,929
--------- --------- ---------
TOTAL $ 341,664 $ 346,856 $ 339,630
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Passbook/statement accounts $ 37,715 $ 39,305 $ 44,596
Non-interest-bearing NOW accounts 7,291 7,115 7,655
Interest-bearing NOW accounts 15,867 17,188 17,152
Money market fund accounts 63,338 62,263 59,208
Certificates of deposit 149,015 153,202 175,357
--------- --------- ---------
Total deposits 273,226 279,073 303,968
Advances from Federal Home Loan Bank 32,000 30,000 --
Advances by borrowers for taxes and insurance 3,531 6,207 2,621
Accrued interest and other liabilities 4,232 3,224 4,847
--------- --------- ---------
Total liabilities 312,989 318,504 311,436
--------- --------- ---------
Shareholders' Equity:
Preferred stock; 1,000,000 shares authorized;
none issued -- -- --
Common stock, par value $.01 per share; 5,000,000
shares authorized; 1,915,892 shares issued 19 19 19
Capital in excess of par value 16,510 16,510 16,494
Retained earnings 12,692 12,146 12,050
Net unrealized appreciation (depreciation) in the fair
value of securities (net of deferred income taxes
of $(218), $(103) and $(120), respectively) (423) (201) (233)
Common shares in treasury, at cost (9,543 shares,
9,543 shares and 11,790 shares, respectively) (122) (122) (136)
--------- --------- ---------
Total shareholders' equity 28,675 28,352 28,194
--------- --------- ---------
TOTAL $ 341,664 $ 346,856 $ 339,630
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
V-1
<PAGE> 184
HAVERFIELD CORPORATION
Consolidated Statements of Income (unaudited)
- --------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
---- ----
<S> <C> <C>
Interest income:
Loans $6,144 $6,033
Investment securities and other 619 783
Mortgage-backed securities 40 53
------ ------
Total interest income 6,803 6,869
------ ------
Interest expense:
Deposits 3,245 3,804
Advances from Federal Home Loan Bank 480 -
------ ------
Total interest expense 3,725 3,804
------ ------
Net interest income 3,078 3,065
Provision for loan losses 96 34
------ ------
Net interest income after provision for loan losses 2,982 3,031
------ ------
Noninterest income:
Service fees and other charges 359 333
Servicing income 103 121
Other income 104 67
------ ------
Total noninterest income 566 521
------ ------
Noninterest expense:
Employee compensation and benefits 972 989
Occupancy and equipment 468 488
Advertising 148 84
Insurance premiums 24 200
Data processing fees 95 94
Amortization of intangibles 30 84
Other expenses 581 646
------ ------
Total noninterest expense 2,318 2,585
------ ------
Income before income taxes 1,230 967
Provision for income taxes 418 329
------ ------
Net income $ 812 $ 638
====== ======
Net income per common share $ .43 $ .34
====== ======
Cash dividend paid per common share $ .14 $ .135
====== ======
</TABLE>
See notes to consolidated financial statements.
V-2
<PAGE> 185
HAVERFIELD CORPORATION
Consolidated Statements of Cash Flows (unaudited)
- --------------------------------------------------------------------------------
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 812 $ 638
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 96 34
Amortization of intangibles 30 84
Depreciation 190 164
Amortization of deferred loan fees (38) (52)
Federal Home Loan Bank stock dividends (48) (45)
Net change in other assets and other liabilities 58 199
Net change in accrued interest receivable and accrued interest payable 1,066 1,491
Other 223 262
-------- --------
Net cash provided by operating activities 2,389 2,775
-------- --------
INVESTING ACTIVITIES:
Disbursements on loans originated (20,481) (24,338)
Proceeds from:
Loan repayments and maturities 22,069 23,012
Mortgage-backed security repayments and maturities 38 130
Investment security calls and maturities 2,000 17,000
Purchases of:
Loans (1,995) (873)
Investment securities - (5,098)
Premises and equipment (339) (160)
Decrease (increase) in federal funds sold (1,534) 2,038
-------- --------
Net cash provided by investing activities 2,826 11,711
-------- --------
FINANCING ACTIVITIES:
Net decrease in certificates of deposit (4,187) (18,106)
Net increase (decrease) in passbook, NOW and money market fund accounts (1,660) 4,295
Payment of cash dividends (267) (257)
Proceeds from borrowings 2,000 -
Proceeds from exercise of stock options - 142
Net decrease in mortgage escrow deposits (2,676) (3,119)
-------- --------
Net cash used in financing activities (6,790) (17,045)
-------- --------
Net decrease in cash and due from banks (1,575) (2,559)
Cash and due from banks at beginning of period 5,489 7,647
-------- --------
Cash and due from banks at end of period $ 3,914 $ 5,088
======== ========
</TABLE>
See notes to consolidated financial statements.
V-3
<PAGE> 186
HAVERFIELD CORPORATION
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. The accounting policies of Haverfield Corporation ("Haverfield" or the
"Company") conform to generally accepted accounting principles and prevailing
practices within the banking and thrift industry. A summary of the more
significant policies follows:
NATURE OF OPERATIONS -- Haverfield is a unitary savings and loan holding
company whose principal operating subsidiary is Home Bank, F.S.B. (the "Bank").
The Company is principally engaged in the business of attracting deposits from
the general public and using such deposits, together with borrowings and other
funds, to make loans secured by real estate, various types of consumer loans
and commercial loans in its market area. The Company's principal market area
consists of suburban communities of Cleveland, and the Company's business is
conducted through its corporate office located in Cleveland, Ohio and ten
branch offices located in Beachwood, Brooklyn, Cleveland, Euclid, Lakewood,
Mayfield Village, Mentor, Rocky River, University Heights, and Westlake, Ohio.
Loans and deposits are primarily generated from the areas where its banking
offices are located. The Company's income is derived predominately from
interest on loans and investments and, to a lesser extent, noninterest income.
The Company's principal expenses are interest paid on deposits and borrowings,
and normal operating costs. The Company's operations are principally in the
savings industry, which constitutes a single industry segment. The Bank's
subsidiaries engage in real estate development activities, mezzanine lending
and investment counseling which are not material to its operations as a whole
and are not significant enough to constitute a business segment.
On April 22, 1997, Charter One Financial, Inc. ("Charter One"), the holding
company of Charter One Bank, F.S.B., and the Company entered into a definitive
agreement (the "Merger Agreement") to merge in a stock-for-stock exchange. The
merger, which would be accounted for as a pooling of interests, is expected to
close near the end of the third quarter of 1997. The Merger Agreement has been
approved by the boards of directors of both companies, however, the transaction
requires the approvals of the Office of Thrift Supervision and Haverfield
shareholders.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -- The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include
the accounts of the Company, the Bank, and its wholly-owned subsidiaries. All
material intercompany accounts and transactions have been eliminated. In the
opinion of management, the accompanying unaudited financial statements include
all adjustments (consisting only of normal recurring accruals) which the
Company considers necessary for a fair presentation of (a) the results of
operations for the three-month periods ended March 31, 1997 and 1996, (b) the
financial position at March 31, 1997, December 31, 1996 and March 31, 1996, and
(c) cash flows for the three-month periods ended March 31, 1997 and 1996. The
results of operations for the period ended March 31, 1997 are not necessarily
indicative of the results which may be expected for a full year. Certain
amounts previously reported in the prior years consolidated financial
statements have been reclassified to conform with the current presentation.
INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES -- Securities are
classified as either trading, available for sale or held to maturity.
Securities classified as trading would be carried at estimated market value
with the adjustment, if any, reflected in the statement of income. Securities
classified as available for sale are also carried at estimated market value;
however, the adjustment, if any, is reflected in shareholders' equity.
Securities held to maturity are carried at amortized cost. Gains or losses on
the sale of securities, representing the difference between net proceeds and
carrying value, are recorded in noninterest income on the trade date using the
specific identification method.
LOANS -- At the time of origination or purchase, loans are classified as held
for sale or held for investment, based upon management's intent. Critical to
the proper classification of, and accounting for, loans as investments is the
intent and ability to hold them to maturity. Loans held for sale are accounted
for at the lower of cost or market, with any unrealized loss included in
income. Loans held for investment are stated at the principal amount
outstanding adjusted for amortization of premiums and accretion of discounts
using the interest method. Interest is accrued as earned. Transfers of loans
held for sale to the investment portfolio are recorded at the lower of cost or
market value on the transfer date.
V-4
<PAGE> 187
A loan is classified as nonaccrual when collectability is in doubt (this is
generally when the borrower is 90 days past due on contractual principal or
interest payments). A loan may be considered impaired, but remain on accrual
status, when the borrower demonstrates (by continuing to make payments) a
willingness to keep the loan current. When a loan is placed on nonaccrual
status, unpaid interest is reversed and an allowance is established by a charge
to interest income equal to all accrued interest. Income is subsequently
recognized only to the extent that cash payments are received. Loans are
returned to accrual status when, in management's judgment, the borrower has the
ability and intent to make periodic principal and interest payments (this
generally requires that the loan be brought current in accordance with its
original contractual terms).
A loan is considered to be impaired when, based on current information and
events, it is probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement. In general, the Bank
considers a loan on income-producing properties to be impaired when the debt
service ratio is less than 1.0. Loans on non-income producing properties are
considered impaired whenever fair value is less than book value. The Bank
performs a review of all loans over $500,000 to determine if the impairment
criteria have been met. If the impairment criteria have been met, a reserve is
calculated. For loans which are individually not significant ($500,000 or less)
and represent homogeneous populations, the Bank evaluates impairment based on
the level and extent of delinquencies. Such loans include all mortgage loans
secured by 1-4 family residential property, all consumer loans, and certain
multi-family real estate loans, nonresidential real estate loans, business
loans and leases. The Bank charges principal off at the earlier of (1) when a
total loss of principal has been deemed to have occurred as a result of the book
value exceeding the fair value or net realizable value or (2) when collection
efforts have ceased.
NONPERFORMING LOANS -- Loans considered to be nonperforming include nonaccrual,
accruing loans delinquent 90 days or more, and restructured loans. Loans are
classified as nonaccrual when, in management's judgment, the borrower no longer
has the ability and intent to make periodic interest and principal payments.
Loans are classified as accruing loans delinquent 90 days or more when the loan
is 90 days or more past due, is fully secured, and, in management's judgment,
the borrower has the ability and intent to make periodic interest and principal
payments. Loans are classified as restructured when concessions are made to
borrowers with respect to the principal balance, interest rate or the term due
to the inability of the borrower to meet the obligation under the original
terms.
LOAN FEES -- Loan origination fees received for loans held for investment, net
of certain direct origination costs, are deferred and amortized to interest
income over the contractual life of the loan using the level yield method. Loan
origination fees received for loans held for sale, net of certain direct
origination costs, are deferred and recognized as an adjustment of the basis on
sale of the loans. Fees received for loan commitments that are expected to be
drawn, based on the Bank's experience with similar commitments, are deferred and
amortized over the life of the loan using the level yield method. Fees for other
loan commitments are deferred and amortized over the loan commitment period on a
straight-line basis. Unamortized deferred loan fees related to loans paid off
are included in interest income in the period the loan is paid off. Amortization
of net deferred fees is discontinued for loans that are deemed to be
nonperforming.
ALLOWANCE FOR LOAN LOSSES -- The allowance for loan losses is established at an
amount necessary to reduce the recorded balances of loans receivable to their
estimated net realizable value, and is increased by charges to income and
decreased by charge-offs (net of recoveries). The allowance for loan losses is
based on management's estimate of the value of the collateral, considering the
current and currently anticipated future operating or sales conditions, as well
as the Bank's past loan loss experience, known and inherent risks in the
portfolio, adverse situations which may affect the borrower's ability to repay,
and current economic conditions. Consequently, these estimates are particularly
susceptible to changes that could result in a material adjustment to results of
operations. Recovery of the carrying value of such loans is dependent on
economic, operating, and other conditions that are beyond the control of the
Company. In the opinion of management, the allowance for loan losses is recorded
in accordance with generally accepted accounting principles.
REAL ESTATE OWNED -- Real estate owned consists of property acquired in
settlement of foreclosed loans. Real estate owned is carried at the lower of
fair value less estimated costs to sell or cost. Costs relating to the
development and improvement of property are capitalized, whereas those relating
to holding and maintaining the property are charged to expense.
PREMISES AND EQUIPMENT -- Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is computed using the
straight-line method over the useful lives of the related assets for financial
reporting purposes. For tax purposes, depreciation on certain assets is computed
using accelerated methods.
V-5
<PAGE> 188
INTANGIBLE ASSETS -- Cost in excess of fair value of net assets acquired was
amortized to expense using the interest method over a period of three years.
FEDERAL INCOME TAXES -- The Company and its subsidiaries file a consolidated
income tax return. Deferred income taxes reflect the temporary tax consequences
on future years of differences between the tax and financial statement basis of
assets and liabilities at the balance sheet date. On August 20, 1996,
legislation was signed into law which repealed the percentage of taxable income
method tax bad debt deduction available for thrift institutions. This repeal was
effective for the Company's taxable year beginning January 1, 1996. In addition,
the legislation requires the Company to include in taxable income its bad debt
reserves in excess of its base year reserve over a six- to eight-year period
depending upon the maintenance of certain loan origination levels. The recapture
amount of $1.2 million will result in payments totaling $400,000, which has
previously been accrued. Since the percentage of taxable income method tax bad
debt deduction and the corresponding increase in the tax bad debt reserve in
excess of the base year have been treated as temporary differences pursuant to
Statement of Financial Accounting Standards ("SFAS") No. 109, this change in tax
law will have no effect on the Company's future consolidated statement of
operations.
EARNINGS PER COMMON SHARE -- Earnings per common share was computed using the
weighted average number of common shares outstanding for the period. The
weighted average shares used in the computation of earnings per common share was
1,906,349 shares, and 1,886,921 shares during the three-month periods ended
March 31, 1997 and 1996, respectively. The stock options are not dilutive for
computing earnings per share.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- For purposes of reporting cash flows,
cash and cash equivalents include cash and due from banks. Federal Reserve
Board regulations require depository institutions to maintain certain minimum
reserve balances. Included in cash and demand deposits were required deposits
at the Federal Reserve of $647,000 and $628,000 at March 31, 1997 and 1996,
respectively.
No income tax payments were required for the three months ended March 31, 1997.
Income tax payments made for the three months ended March 31, 1996 were
$200,000. Interest paid on deposits and other borrowings totaled $2,484,000 and
$2,387,000 for the three months ended March 31, 1997 and 1996, respectively.
There were no loans made to finance the sale of foreclosed real estate during
the three months ended March 31, 1997 and 1996. There were no acquisitions of
real estate property through foreclosure during the three months ended March 31,
1997 and 1996.
NEW ACCOUNTING STANDARDS -- In January, 1997 the Company adopted SFAS No. 125
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. SFAS 125 provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities.
Those standards are based on consistent application of a financial-components
approach that focuses on control. Under that approach, after a transfer of
financial assets, an entity recognizes the financial and servicing assets it
controls and the liabilities it has incurred, derecognizes the financial assets
when control has been surrendered, and derecognizes liabilities when
extinguished. This Statement provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. The adoption of this Statement did not have a material impact on the
financial condition and results of operations of the Company. The Financial
Accounting Standards Board ("FASB") has issued SFAS No. 127 that defers the
effective date of certain provisions of SFAS 125 related to secured borrowings
and collateral, repurchase agreements, dollar-rolls, securities lending, and
similar transactions until after December 31, 1997. This Statement requires
restatement of all prior-period EPS data presented. Management intends to adopt
this statement when it becomes effective. The impact of adopting this statement
on the financial condition and results of operations of the Company is not
expected to be significant.
In February 1997 the FASB issued SFAS No. 128 Earnings per Share. SFAS 128
revises the standards for computing earnings per share ("EPS") and makes them
comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. The Statement requires dual
presentation of basic and diluted EPS by entities with complex capital
structures and requires a reconciliation of the basic EPS computation to diluted
EPS. Basic EPS includes no dilution and is computed by dividing income available
to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution of
securities that could occur if securities or other contracts to issue common
stock were exercised or converted into common shares. This Statement is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods; earlier application is not permitted. This
Statement requires restatement of all prior-period EPS data presented.
Management intends to adopt this statement when it becomes effective. The impact
of adopting this statement on the financial condition and results of operations
of the Company is not expected to be significant.
V-6
<PAGE> 189
In February 1997 the FASB issued SFAS No. 129, Disclosure of Information about
Capital Structure. This Statement establishes standards for disclosing
information about an entity's capital structure. It supersedes specific
disclosure requirements of APB Opinions No. 10, Omnibus Opinion-1966, and No.
15, Earnings Per Share, and FASB Statement No. 47, Disclosure of Long-Term
Obligations, and consolidates them in this Statement for ease of retrieval and
for greater visibility to nonpublic entities. This Statement is effective for
financial statements for periods ending after December 15, 1997. It contains no
changes in disclosure requirements for entities that were previously subject to
the requirements of Opinions 10 and 15 and Statement 47 and, therefore, is not
expected to have a significant impact on the financial condition or results of
operations of the Company.
2. All investment securities are classified as available for sale. Amortized
cost, estimated market values and weighted average end-of-period yields of
investment securities by contractual maturity are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996 March 31, 1996
------------------------- -------------------------- --------------------------
Amortized Market Amortized Market Amortized Market
Cost Value Yield Cost Value Yield Cost Value Yield
------- ------- ---- ------- ------- ---- ------- ------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government obligations:
Due in one year or less $ 2,497 $ 2,499 5.74% $ 2,497 $ 2,499 5.82% $ 1,000 $ 1,011 7.25%
Due after 1 year through 5 years 7,492 7,386 6.55% 9,490 9,411 6.68% 15,988 15,890 6.34%
Due after 5 years through 10 years 19,481 18,876 6.93% 19,479 19,180 6.93% 15,477 15,149 6.90%
------- ------- ------- ------- ------- -------
Total 29,470 28,761 6.73% 31,466 31,080 6.76% 32,465 32,050 6.64%
------- ------- ------- ------- ------- -------
Marketable equity securities 100 102 6.41% 100 99 6.38% 100 101 6.41%
Federal Home Loan Bank stock 2,849 2,849 7.00% 2,801 2,801 7.00% 2,659 2,659 7.00%
------- ------- ------- ------- ------- -------
Total $32,419 $31,712 6.75% $34,367 $33,990 6.78% $35,224 $34,810 6.66%
======= ======= ======= ======= ======= =======
</TABLE>
At March 31, 1997, investment securities totaling $2.0 million were pledged as
collateral for deposits, and investment securities totaling $1.5 million were
pledged as collateral for a revolving credit facility extended to the Company by
a third-party lender. The Federal Home Loan Bank stock was pledged as
collateral for the advances from the Federal Home Bank of Cincinnati.
Gross unrealized gains and gross unrealized losses are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996 March 31, 1996
---------------------- --------------------- ----------------------
Gross Gross Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses Gains Losses
---------- ---------- ---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. government obligations $ 4 $713 $ 2 $378 $ 21 $436
Marketable equity securities 2 - - 1 1 -
Federal Home Loan Bank stock - - - - - -
---- ---- ---- ---- ---- ----
Total $ 6 $713 $ 2 $379 $ 22 $436
==== ==== ==== ==== ==== ====
</TABLE>
3. Loans may be exchanged for mortgage-backed securities guaranteed by
government agencies. Although long-term and fixed-rate in nature,
mortgage-backed securities are more liquid than real estate loans since a large
and active secondary market exists.
V-7
<PAGE> 190
Amortized cost, estimated market values and weighted average end-of-period
yields of mortgage-backed securities by contractual maturity are summarized as
follows:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996 March 31, 1996
-------------------------- ------------------------- --------------------------
Amortized Market Amortized Market Amortized Market
Cost Value Yield Cost Value Yield Cost Value Yield
--------- ------ ------ -------- ------ ------ --------- ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pass-through certificates:
Federal Home Loan Mortgage
Corporation:
Due after 5 years through 10 years $ 9 $ 9 7.50% $ 10 $ 10 7.50% $ 13 $ 13 7.50%
Due after 10 years 1,743 1,810 8.60% 1,751 1,822 8.60% 1,989 2,055 8.63%
------ ------ ------ ------ ------ ------
Total 1,752 1,819 8.59% 1,761 1,832 8.59% 2,002 2,068 8.62%
------ ------ ------ ------ ------ ------
Government National Mortgage
Association:
Due after 1 year through 5 years 146 146 8.95% - - - 143 141 9.14%
Due after 5 years through 10 years - - - 176 178 9.02% 99 98 9.20%
------ ------ ------ ------ ------ ------
Total 146 146 8.95% 176 178 9.02% 242 239 9.16%
------ ------ ------ ------ ------ ------
Collateralized mortgage obligations:
Due in 1 year or less - - - - - - 183 182 5.38%
Due after 10 years - - - - - - 114 114 5.44%
------ ------ ------ ------ ------ ------
Total - - - - - - 297 296 5.40%
------ ------ ------ ------ ------ ------
Total $1,898 $1,965 8.62% $1,937 $2,010 8.63% $2,541 $2,603 8.30%
====== ====== ====== ====== ====== ======
</TABLE>
At March 31, 1997, mortgage-backed securities totaling $765,000 were pledged as
collateral for public funds on deposit with the Bank.
Gross unrealized gains and gross unrealized losses are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996 March 31, 1996
--------------------- ----------------------- -----------------------
Gross Gross Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses Gains Losses
---------- ---------- ---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Pass-through certificates:
Federal Home Loan Mortgage
Corporation $67 $- $71 $- $66 $ -
Government National Mortgage
Association - - 2 - - 3
Collateralized mortgage obligations - - - - - 1
--- --- --- --- --- ---
Total $67 $- $73 $- $66 $ 4
=== === === === === ===
</TABLE>
4. The loan portfolio is comprised primarily of residential real estate loans
granted to customers residing in northeastern Ohio. Although the Company has a
diversified loan portfolio, its debtors' ability to honor their contracts is
substantially dependent upon the general economic conditions of the region.
V-8
<PAGE> 191
The composition of the loan portfolio is as follows:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996 March 31, 1996
-------------- ----------------- --------------
(In thousands)
<S> <C> <C> <C>
Real estate loans - mortgage $ 235,719 $ 239,302 $ 238,752
Real estate loans - construction 1,711 4,272 3,116
Land 3,415 3,682 4,188
Business loans 11,350 6,720 5,146
Consumer and other loans 46,895 45,028 40,468
--------- --------- ---------
299,090 299,004 291,670
LESS:
Undisbursed portion of loans in process (992) (1,293) (2,103)
Unearned income on consumer loans (4) (6) (13)
Amount due other financial institutions relating
to wrap around mortgage loans (111) (114) (143)
Deferred loan fees (860) (877) (874)
Allowance for loan losses (2,980) (2,922) (2,745)
--------- --------- ---------
$ 294,143 $ 293,792 $ 285,792
========= ========= =========
</TABLE>
At March 31, 1997, December 31, 1996 and March 31, 1996, loans serviced for
others amounted to $128.0 million, $132.7 million and $133.2 million,
respectively. There were no sales of mortgage loans during 1997 or 1996.
Servicing loans for others generally consists of collecting mortgage payments,
maintaining escrow accounts, disbursing payments to investors and foreclosure
processing.
5. The following table summarizes nonaccrual, past due and repossessed assets.
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996 March 31, 1996
-------------- ----------------- --------------
(Dollars in thousands)
<S> <C> <C> <C>
Nonaccrual loans $3,403 $2,697 $1,132
Loans past due 90 days and accruing 5 5 6
Repossessed assets - - 656
------ ------ ------
Total nonperforming assets $3,408 $2,702 $1,794
====== ====== ======
Percent of nonperforming loans to total loans 1.14% .90% .39%
Percent of nonperforming assets to total assets 1.00% .78% .53%
</TABLE>
The loans included above are secured by real estate or other collateral which
limits the Company's exposure to loss. At March 31, 1997, there were no
significant commitments outstanding to lend additional funds to borrowers with
nonperforming loans. For all periods presented, there have been no troubled debt
restructurings which involved forgiving a portion of interest or principal on
any loans or making loans at a rate materially less than market rates.
In addition to the loans disclosed in the table above, the Bank has a $1.0
million loan secured by a strip shopping center located in Northeast Ohio. The
shopping center has experienced higher-than-expected vacancies, and the cash
flow from the property has not been sufficient to meet the principal and
interest due on the loan. The borrower has maintained the loan current through
March 31, 1997. The borrower is working to cure the vacancies; however,
continued high vacancies and cash flow shortages could cause management to place
this loan on nonaccrual status.
V-9
<PAGE> 192
6. In the normal course of business, various commitments and contingent
liabilities arise, including commitments to originate real estate loans and
commitments to extend credit. Commitments to borrowers to originate loans and
for unused lines of credit are summarized below:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996 March 31, 1996
-------------- ----------------- --------------
(In thousands)
<S> <C> <C> <C>
Commitments to originate:
Fixed rate loans $ 2,804 $ 3,415 $ 2,722
Variable rate loans 3,184 1,367 6,555
Unused lines of credit 73,481 70,712 59,958
</TABLE>
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since some of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Each customer's creditworthiness is
evaluated on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Company upon the credit extension, is based on management's
credit evaluation of the counter-party. The commitment amount represents the
amount of credit risk; however, the Company generally extends credit on a
secured basis. Collateral held usually includes residential and commercial real
estate.
7. The composition of premises and equipment is as follows:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996 March 31, 1996
-------------- ----------------- --------------
(In thousands)
<S> <C> <C> <C>
Land and improvements $ 673 $ 673 $ 669
Buildings and improvements 1,704 1,704 1,667
Furniture and fixtures 5,025 4,749 5,037
Leasehold improvements 1,956 1,892 1,936
------ ------ ------
9,358 9,018 9,309
Accumulated depreciation and amortization 5,034 4,842 5,360
------ ------ ------
$4,324 $4,176 $3,949
====== ====== ======
</TABLE>
8. Accrued interest and other assets consists of the following:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996 March 31, 1996
-------------- ----------------- --------------
(In thousands)
<S> <C> <C> <C>
Accrued interest $2,548 $2,372 $2,528
Purchased mortgage servicing rights 184 191 -
Real estate owned - - 656
Cost in excess of fair value of net assets acquired - 21 82
Other assets 1,486 1,893 1,663
------ ------ ------
$4,218 $4,477 $4,929
====== ====== ======
</TABLE>
Purchased mortgage servicing rights represent the cost of purchasing rights to
service loans. All such recorded rights relate to residential mortgage loans.
Servicing rights are presented net of accumulated amortization, which is
recorded in proportion to, and over the period of, net servicing income.
Servicing income is partially offset by this amortization expense. The carrying
value of purchased mortgage servicing rights is periodically evaluated to
determine that it is not greater than fair value. An allowance is established in
the event the recorded value exceeds the fair value of the rights. No such
allowance was required at March 31, 1997 or December 31, 1996.
V-10
<PAGE> 193
9. Accrued interest and other liabilities consists of the following:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996 March 31, 1996
-------------- ----------------- --------------
(In thousands)
<S> <C> <C> <C>
Accrued interest payable $1,995 $ 753 $2,094
Collections on loans serviced 301 376 793
Other liabilities 1,936 2,095 1,960
------ ------ ------
$4,232 $3,224 $4,847
====== ====== ======
</TABLE>
10. In June, 1996, the Company renewed a one-year revolving credit facility
from a third-party lender in the amount of $1.0 million. The interest rate
associated with this credit facility is based on the prime rate. The Company has
not drawn on this credit facility.
11. Advances from the Federal Home Loan Bank of Cincinnati (the "FHLB") consist
of:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
Maturity Date Balance Rate Balance Rate
- ------------- ------- ---- ------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
April 25, 1997 $ 2,000 7.00% $ - -%
June 20, 1997 2,000 5.80% 2,000 5.55%
September 23, 1997 2,000 5.90% 2,000 5.65%
June 23, 1998 1,500 6.45% 1,500 6.45%
July 2, 1998 4,000 6.00% 4,000 5.75%
July 15, 1998 4,000 6.00% 4,000 5.75%
July 17, 1998 4,000 6.00% 4,000 5.75%
July 24, 1998 4,000 6.00% 4,000 5.75%
August 21, 1998 2,000 6.00% 2,000 5.75%
September 23, 1998 5,000 6.00% 5,000 5.75%
September 23, 1998 1,500 6.55% 1,500 6.55%
------- -------
$32,000 $30,000
======= =======
</TABLE>
No advances were outstanding from the FHLB at March 31, 1996. The Bank has
pledged qualifying collateral, primarily mortgage loans, with a market value of
at least 150% of the amount of the advances.
12. The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory, and possibly additional discretionary, actions
by regulators that, if undertaken, could have a direct material effect on the
Company's financial statements. The regulations require the Bank to meet
specific capital adequacy guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital classification is also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the tables
below) of tangible, core and total risk-based capital. Prompt Corrective Action
regulations require specific supervisory actions as capital levels decrease.
V-11
<PAGE> 194
As of March 31, 1997, the most recent notification from the Office of Thrift
Supervision categorized the Bank as well capitalized under the regulatory
framework for Prompt Corrective Action. To be categorized as well capitalized,
the Bank must maintain minimum total risked-based, Tier 1 risk-based and Tier
1 leverage ratios as set forth in the tables below. There are no conditions or
events since that notification that have changed the Bank's category.
<TABLE>
<CAPTION>
As of March 31, 1997
-------------------------------------------------------------------------
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------------- ---------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-weighted assets) $27,520 11.19% $19,683 8.00% $24,603 10.00%
Tier 1 capital (to risk-weighted assets) 24,589 9.99% - - 14,762 6.00%
Tier 1 capital (to adjusted tangible assets) 24,589 7.21% 10,228 3.00% 17,047 5.00%
Tangible capital (to tangible assets) 24,589 7.21% 5,114 1.50% - -
</TABLE>
Management believes that, as of March 31, 1997, the Bank meets all capital
requirements to which it is subject and, under the current regulations, the
capital requirements will continue to be met in the foreseeable future. However,
events beyond the control of management, such as fluctuations in interest rates
or a downturn in the local economy of northeastern Ohio where the Bank has most
of its loans, could adversely affect future earnings and, consequently, the
Bank's ability to meet its future capital requirements.
V-12
<PAGE> 195
HAVERFIELD CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 1997 was $812,000 as compared to
$638,000 for the three months ended March 31, 1996. The increase in net income
resulted from a $267,000 reduction in noninterest expense, which was mainly due
to lower deposit insurance premiums and an $80,000 decrease in the provision for
loss on real estate owned, partially offset by an increase in advertising
expenses. Return on average assets for the first quarter of 1997 was .96%
compared with .75% in the same period of 1996. Return on average equity was
11.28% for the first quarter of 1997, as compared with 8.88% for the same period
of 1996.
NET INTEREST INCOME
- --------------------------------------------------------------------------------
Net interest income for the three months ended March 31, 1997 was $3,078,000,
compared to $3,065,000 for the same period in 1996. The interest rate spread
decreased 1 basis point to 3.21%. Due to a general decrease in interest rates,
the weighted average yield on earning assets decreased 8 basis points, while the
yield paid on interest-bearing liabilities decreased 7 basis points. An analysis
of net interest income is presented in the following table. For each major
category of interest-earning assets and interest-bearing liabilities, the
average balance of funds employed during the period indicated is shown along
with the interest earned or paid on that balance for the period and the weighted
average annualized rate earned or paid for that category. Average balances are
determined on a daily basis.
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------------------------------------------
1997 1996
----------------------------------- -----------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans - net $295,205 $ 6,143 8.34% $285,481 $ 6,033 8.46%
Investments and other 39,421 620 6.29 47,436 783 6.54
Mortgage-backed securities 1,999 40 8.09 2,693 53 7.89
-------- -------- ---- -------- -------- ----
Total interest-earning assets 336,625 6,803 8.10 335,610 6,869 8.18
Noninterest-earning assets 6,973 -------- ---- 7,249 -------- ----
-------- --------
Total assets $343,598 $342,859
======== ========
Interest-bearing liabilities:
Passbook/statement accounts $ 38,349 232 2.45 $ 44,634 274 2.47
NOW accounts 23,925 48 .82 24,329 59 .97
Money market fund accounts 62,319 759 4.94 55,922 689 4.96
Certificates of deposit 150,976 2,206 5.93 183,635 2,782 6.09
-------- -------- ---- -------- -------- ----
Total deposits 275,569 3,245 4.78 308,520 3,804 4.96
FHLB advances 33,294 480 5.77 - - -
-------- -------- ---- -------- -------- ----
Total interest-bearing liabilities 308,863 3,725 4.89 308,520 3,804 4.96
Noninterest bearing liabilities 5,540 -------- ---- 5,436 -------- ----
-------- --------
Total liabilities 314,403 313,956
Shareholders' equity 29,195 28,903
-------- --------
Total liabilities and shareholders' equity $343,598 $342,859
======== ========
Net interest income/interest rate s $ 3,078 3.21 $ 3,065 3.22%
======== ==== ======== ====
Net interest margin 3.71% 3.67%
==== ====
</TABLE>
V-13
<PAGE> 196
The sensitivity of the Company's net interest income to general economic
conditions and the effect on net interest income due to changes in interest
rates and changes in amounts of interest-earning assets and interest-bearing
liabilities for the three months ended March 31, 1997 versus March 31, 1996 is
shown in the following table. Changes in interest due to both rate and volume
have been allocated to change due to volume and change due to rate in proportion
to the absolute amounts of the change in each.
<TABLE>
<CAPTION>
Change Due To
-----------------
Total Change Volume Rate
------------ ------ ----
(In thousands)
<S> <C> <C> <C>
Interest income:
Loans $ 111 $ 201 $ (90)
Investments and other (164) (128) (36)
Mortgage-backed securities (13) (14) 1
----- ----- -----
Total (66) 59 (125)
----- ----- -----
Interest expense:
Deposits (559) (394) (165)
FHLB advances 480 480 -
----- ----- -----
Total (79) 86 (165)
----- ----- -----
Increase in net interest income $ 13 $ (27) $ 40
===== ===== =====
</TABLE>
ALLOWANCE FOR LOAN LOSSES
- --------------------------------------------------------------------------------
The amount of the allowance for loan losses is based on management's analysis of
risks inherent in the various segments of the loan portfolio, management's
assessment of known or potential problem credits which have come to management's
attention during the ongoing analysis of credit quality, historical loss
experience, current economic conditions and other factors. Loan loss estimates
are reviewed periodically, and adjustments, if any, are reported in earnings in
the period in which they become known. In addition, the Company maintains a
portion of the allowance to cover potential losses inherent in the portfolio
which have not been specifically identified. Activity in the loan loss allowance
for the three months ended March 31, 1997 and March 31, 1996 is presented below.
<TABLE>
<CAPTION>
March 31,
--------------------------
1997 1996
---- ----
(Dollars in thousands)
<S> <C> <C>
Balance, January 1 $ 2,922 $ 2,734
Provision charged to expense 96 34
Loans (charged off) recoveries (38) (23)
--------- ---------
Balance, March 31 $ 2,980 $ 2,745
========= =========
Average loans $ 295,205 $ 285,481
Loans at end of period $ 299,090 $ 291,670
Allowance/average loans 1.01% .96%
Allowance/end-of-period loans 1.00% .94%
Allowance/nonperforming loans 87.44% 241.21%
Allowance/nonperforming assets 87.44% 153.01%
</TABLE>
Although management believes that it uses the best information available to make
such determinations and that the allowance for loan losses is adequate at March
31, 1997, future adjustments to reserves may be necessary, and net income could
be significantly affected, if circumstances and/or economic conditions differ
substantially from the assumptions used in making the initial determinations.
Nonperforming assets at March 31, 1997, December 31, 1996 and March 31, 1996 are
presented in note 5 of the financial statements.
V-14
<PAGE> 197
NONINTEREST INCOME
- --------------------------------------------------------------------------------
Noninterest income for the first three months of 1997 totaled $566,000, compared
to $521,000 for the same period in 1996. Other income increased $37,000 largely
due to the receipt of $65,000 in settlement of a legal dispute, offset by a
decrease in fee income earned by the Bank's financial services subsidiary.
Servicing income decreased $18,000 due to the decreased amount of loans serviced
for others.
NONINTEREST EXPENSE
- --------------------------------------------------------------------------------
Noninterest expense decreased to $2,318,000 for the three months ended March 31,
1997 compared to $2,585,000 for the same period in 1996 due primarily to lower
federal deposit premiums.
The composition of other expenses is as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Business and management development $ 27 $ 27
Examination/audit expense 43 47
OTS assessment 22 22
Postage 58 47
Supplies 28 32
Telephone 36 34
Franchise/sales tax 96 96
Director fees 26 23
Legal fees 38 46
Provision for loss on real estate owned - 80
Miscellaneous expenses 207 192
---- ----
$581 $646
==== ====
</TABLE>
The increase in miscellaneous expenses in 1997 is attributable to several
relatively minor increases in various expense items.
FINANCIAL CONDITION
- --------------------------------------------------------------------------------
Total assets at March 31, 1997 were $341.7 million compared to $346.9 million at
December 31, 1996. The decrease was primarily due to a decrease in cash and
investments totaling $5.4 million. Total deposit liabilities declined by $5.8
million from December 31, 1996 to March 31, 1997, due to lower rates being
offered on maturing certificates and increased competition for such deposits,
while advances from the Federal Home Loan Bank increased $2.0 million.
Shareholders' equity increased $323,000 to $28.7 million at March 31, 1997. The
following table shows shareholders' equity per share and tangible shareholders'
equity per share.
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996 March 31, 1996
-------------- ----------------- --------------
<S> <C> <C> <C>
Shareholders' equity per share $15.04 $14.87 $14.81
Tangible shareholders' equity per share $15.04 $14.86 $14.76
</TABLE>
The Board of Directors declared a first quarter dividend of $.14 per share which
was paid on March 28, 1997.
V-15
<PAGE> 198
ASSET/LIABILITY MANAGEMENT
- --------------------------------------------------------------------------------
The following table sets forth at March 31, 1997, the amounts of
interest-earning assets and interest-bearing liabilities scheduled to mature or
reprice within a specified period. No prepayment assumptions or deposit decay
rates have been incorporated. The table shows the excess or shortfall of
interest-earning assets less interest-bearing liabilities. This excess or
shortfall is called the "gap."
<TABLE>
<CAPTION>
Scheduled Maturity or Repricing
---------------------------------------------------------
1 Year 1 Year More than
or Less to 3 Years 3 Years Total
------- ---------- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest-earning assets:
Real estate loans:
Conventional:
Fixed-rate $ 4,039 $ 8,857 $ 58,795 $ 71,691
Adjustable-rate 102,653 55,195 6,180 164,028
Construction 1,711 - - 1,711
Land loans 2,640 775 - 3,415
Consumer loans 45,979 631 285 46,895
Business loans 10,982 13 355 11,350
Loans in process, allowance
for loan losses and net
deferred loan fees - - (4,947) (4,947)
--------- --------- --------- ---------
Total loans (1) 168,005 65,470 60,668 294,143
Mortgage-backed securities 99 196 1,670 1,965
Investment securities and others 3,384 1,499 28,217 33,100
--------- --------- --------- ---------
Total interest-earning assets $ 171,488 $ 67,165 $ 90,555 $ 329,208
======== ========= ========= =========
Interest-bearing liabilities:
Deposits:
Passbook and NOW accounts (2) $ - $ - $ 53,582 $ 53,582
Money market fund accounts 63,338 - - 63,338
Certificates of deposit 99,629 36,363 13,023 149,015
--------- --------- --------- ---------
Total deposits 162,967 36,363 66,605 265,935
FHLB advances 29,000 3,000 - 32,000
--------- --------- --------- ---------
Total interest bearing liabilities $ 191,967 $ 39,363 $ 66,605 $ 297,935
======== ========= ========= =========
GAP $ (20,479) $ 27,802 $ 23,950 $ 31,273
Cumulative GAP $ (20,479) $ 7,323 $ 31,273
Cumulative GAP as a percentage of total assets (5.99)% 2.14% 9.15%
- ------------------
<FN>
(1) Contractual maturities of loans do not reflect the actual term of the
Company's loan portfolio. The average life of mortgage loans is
substantially less than their contractual terms because of loan prepayments
and due-on-sale clauses.
(2) Management believes that a significant amount of passbook and NOW accounts
are core deposits.
</TABLE>
REGULATORY ISSUES
- --------------------------------------------------------------------------------
The Bank is subject to extensive regulation, supervision and examination by the
Office of Thrift Supervision (the "OTS"), as its chartering authority and
primary federal regulator, and by the Federal Deposit Insurance Corporation (the
"FDIC"), which insures its deposits up to applicable limits. Such regulation and
supervision establishes a comprehensive framework of activities in which an
institution can engage and is intended primarily for the protection of the
insurance fund and depositors. The regulatory structure also gives the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement activities. Any change in such regulation, whether by the OTS,
the FDIC or the Congress could have a material impact on the Bank and its
operations. Management cannot predict what, if any, future legislation may be
enacted or regulations adopted or what impact any such actions may have on the
Company or the Bank.
V-16
<PAGE> 199
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law sets forth
circumstances under which directors, officers, employees and agents of Charter
One may be insured or indemnified against liability which they may incur in
their capacities as such:
Section 145. INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND
AGENTS; INSURANCE. (a) A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (2) if there are no such directors, or if such directors
so direct, by independent legal counsel in a written opinion, or (3) by the
stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director
II-1
<PAGE> 200
or officer to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the corporation as authorized in this section.
Such expenses (including attorneys' fees) incurred by other employees and agents
may be so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as they would have with respect to such constituent corporation if
its separate existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expense provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer employee or agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction
to hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees).
Article TWELFTH of Charter One's certificate of incorporation further
provides as follows:
TWELFTH: Indemnification.
A. Actions, Suits or Proceedings Other than by or in the Right of
the Corporation. The Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to or is involved in
any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Corporation) by reason of the fact
that he or she, or a person of whom he or she is the legal
representative, is or was or has agreed to become a director or
officer of the Corporation, or is or was serving or has agreed to
serve at the request of
II-2
<PAGE> 201
the Corporation as a director, officer, partner, member or trustee of
another corporation, including, without limitation, any Subsidiary of
the Corporation, partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans,
or by reason of any action alleged to have been taken or omitted in
such capacity, against costs, charges, expenses (including attorneys'
fees and related disbursements), judgments, fines (including, without
limitation, ERISA excise taxes and penalties) and amounts paid in
settlement actually and reasonably incurred by such person or on such
person's behalf in connection with such action, suit or proceeding and
any appeal therefrom, if such person acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the
best interests of the Corporation, and with respect to any criminal
action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful; provided, however, that, except as provided in
paragraph F hereof with respect to proceedings seeking to enforce
rights of indemnification, the Corporation shall indemnify such person
seeking indemnification with respect to a proceeding (or part thereof)
initiated by such person only if such proceeding or part thereof was
authorized by a majority of the Continuing Directors. The termination
of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall
not, of itself, create a presumption that the person did not act in
good faith and in a manner which he or she reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had reasonable cause to
believe that his or her conduct was unlawful.
B. Actions or Suits by or in the Right of the Corporation. The
Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to or is involved in any threatened,
pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact
that he or she, or a person of whom he or she is the legal
representative, is or was or has agreed to become a director or
officer of the Corporation, or is or was serving or has agreed to
serve at the request of the Corporation as a director, officer,
partner, member or trustee of another corporation, including, without
limitation, any Subsidiary of the Corporation, partnership, joint
venture, trust or other enterprise, including service with respect to
employee benefit plans, or by reason of any action alleged to have
been taken or omitted in such capacity, against costs, charges and
expenses (including attorneys' fees and related disbursements)
actually and reasonably incurred by such person or on such person's
behalf in connection with the defense or settlement of such action or
suit and any appeal therefrom, if such person acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to
the best interests of the Corporation, except that no indemnification
shall be made in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of Delaware
or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of such liability but
in view of all the circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such costs, charges and
expenses which the Court of Chancery or such other court shall deem
proper. Notwithstanding the provisions of this paragraph B, the
Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such
person (except with respect to proceedings seeking to enforce rights
to indemnification pursuant to paragraph F), only if such proceeding
(or part thereof) was authorized by a majority of the Continuing
Directors.
C. Indemnification for Costs, Charges and Expenses of Successful
Party. Notwithstanding the other provisions of this Article TWELFTH,
to the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise, including,
without limitation, the dismissal of an action without prejudice, in
defense of any action, suit or proceeding referred to in paragraphs A
and B of this Article TWELFTH, or in defense of any claim, issue or
matter therein, such person shall be indemnified against all costs,
charges and expenses (including attorneys' fees) actually and
reasonably incurred by such person or on such person's behalf in
connection therewith.
D. Determination of Right to Indemnification. Any indemnification
under paragraphs A and B of this Article TWELFTH shall be made by the
Corporation as authorized in the specific case upon a determination
(i) by the Board of Directors by a majority vote of a quorum of the
directors who were not parties to such action, suit or proceeding, or
(ii) if such a quorum is not obtainable, or, even if obtainable,
II-3
<PAGE> 202
if a majority of a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion that indemnification of
the person seeking indemnification is proper in the circumstances
because he or she has met the applicable standard of conduct set forth
in paragraphs A and B of this Article TWELFTH. Should a determination
be made by the Corporation hereunder that indemnification is not
proper in the circumstances, a court may order the Corporation to make
indemnification pursuant to paragraphs A or B of this Article TWELFTH.
E. Advance of Costs, Charges and Expenses. Costs, charges and
expenses (including attorneys' fees and related disbursement) incurred
by a person referred to in paragraphs A or B of the Article TWELFTH in
defending a civil or criminal action, suit or proceeding shall be paid
by the Corporation in advance of the final disposition of such action,
suit or proceeding, provided, however, that, if the Delaware
Corporation Law so requires, the payment of such expenses incurred by
an officer or director of the Corporation in his or her capacity as a
director or officer (and not in any other capacity in which service
was or is rendered by such person while a director or officer,
including without limitation, service to an employee benefit plan) in
advance of the final disposition of such action, suit or proceeding
shall be made only upon receipt of an undertaking by or on behalf of
the director or officer to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not entitled
to be indemnified by the Corporation as authorized in this Article
TWELFTH. A majority of the Continuing Directors may, upon approval of
an indemnified person, authorize the Corporation's counsel to
represent such person, in any action, suit or proceeding, whether or
not the Corporation is a party to such action, suit or proceeding.
F. Procedure for Indemnification; Right of Claimant to Bring
Suit. Any indemnification under paragraphs A, B and C, or advance of
costs, charges and expenses under paragraph E of this Article TWELFTH,
shall be made promptly, and in any event within 60 days (or in the
case of any advance of costs, charges and expenses under paragraph E,
within 20 days), upon the written request of the person referred to in
such paragraphs. The right to indemnification or advances as granted
by this Article TWELFTH shall be enforceable by the persons referred
to in paragraphs A, B, C and E in any court of competent jurisdiction,
if the Corporation denies such request, in whole or in part, or if no
disposition thereof is made within the applicable time period
specified in the preceding sentence hereof. The costs, charges and
expenses incurred by a person referred to in paragraph A or B of this
Article TWELFTH in connection with successfully establishing his or
her right to indemnification, in whole or in part, in any such action
shall also be indemnified by the Corporation. It shall be a defense to
any such action (other than an action brought to enforce a claim for
the advance of costs, charges and expenses under paragraph E of this
Article TWELFTH, where the required undertaking, if any, has been
received by the Corporation) that the claimant has not met the
standard of conduct set forth in paragraphs A or B of this Article
TWELFTH, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its
Board of Directors, its independent legal counsel, and its
stockholders) to have made a determination prior to the commencement
of such action that indemnification of the claimant is proper in the
circumstances because the claimant has met the applicable standard of
conduct set forth in paragraphs A or B of this Article TWELFTH, nor
the fact that there has been an actual determination by the
Corporation (including its Board of Directors or its independent legal
counsel) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that
the claimant has not met the applicable standard of conduct.
G. Other Rights: Continuation of Right to Indemnification. The
indemnification and advancement of expenses provided by this Article
TWELFTH shall not be deemed exclusive of any other rights to which a
person seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), bylaw, agreement, vote
of stockholder or disinterested directors or otherwise, both as to
action in such person's official capacity and as to action in another
capacity while holding office or while employed by or acting as agent
for the Corporation, and the indemnification and advancement of
expenses provided by this Article TWELFTH shall continue as to a
person who has ceased to serve in a capacity referred to in paragraph
A or B and shall inure to the benefit of the estate, heirs, executors
and administrators of such person. Nothing contained in this Article
TWELFTH shall be deemed to prohibit, and the Corporation is
specifically authorized to enter into, agreements between the
Corporation and
II-4
<PAGE> 203
directors, officers, employees or agents providing indemnification
rights and procedures different from those set forth herein. All
rights to indemnification and advancement of expenses under this
Article TWELFTH shall be deemed to be a contract between the
Corporation and each person referred to in paragraph A or B of this
Article TWELFTH who serves or served in such capacity at any time
while this Article TWELFTH is in effect. Any repeal or modification of
this Article TWELFTH or any repeal or modification of relevant
provisions of the Delaware Corporation Law or any other applicable
laws shall not in any way diminish any rights to indemnification of
any person referred to in paragraph A or B of this Article TWELFTH or
the obligations of the Corporation arising hereunder with respect to
any action, suit or proceeding arising out of, or relating to, any
actions, transactions or facts occurring prior to the final adoption
of such modification or repeal.
H. Indemnification of Employees and Agents of the Corporation.
The Corporation may, to the extent authorized from time to time by a
majority vote of the disinterested directors, indemnify any employee
or agent of the Corporation or any person who is or was serving or has
agreed to serve at the request of the Corporation as an employee or
agent of any corporation, including, without limitation, any
Subsidiary of the Corporation, partnership, joint venture, trust or
other enterprise and pay the expenses incurred by any such person in
defending any proceeding in advance of its final disposition, to the
fullest extent of the provisions of this Article TWELFTH.
I. Insurance. The Corporation may purchase and maintain insurance
on behalf of any person who is or was or has agreed to become a
director, officer, employee or agent of the Corporation, or is or was
serving or has agreed to serve at the request of the Corporation as a
director, officer, partner, member, trustee, employee or agent of
another corporation, including, without limitation, any Subsidiary of
the Corporation, partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans,
against any liability asserted against such person and incurred by
such person or on his or her behalf in any such capacity, or arising
out of such person's status as such, whether or not the Corporation
would have the power to indemnify such person against such liability
under the provisions of this Article TWELFTH.
J. Savings Clause. If this Article TWELFTH or any portion hereof
shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify each
person referred to paragraph A or B of this Article TWELFTH as to any
cost, charge and expense (including attorneys' fees and related
disbursements), judgment, fine (including, without limitation, ERISA
excise taxes and penalties) and amount paid in settlement with respect
to any action, suit or proceeding; whether civil, criminal,
administrative or investigative, including an action by or in the
right of the Corporation, to the full extent permitted by any
applicable portion of this Article TWELFTH that shall not have been
invalidated and to the full extent permitted by applicable law.
K. Subsequent Legislation. If the Delaware Corporation Law is
hereafter amended to further expand the indemnification permitted to
persons referred to in paragraphs A and B of this Article TWELFTH then
the Corporation shall indemnify such persons to the fullest extent
permitted by the Delaware Corporation Law, as so amended.
Charter One has purchased director and officer liability insurance that
insures directors and officers against certain liabilities in connection with
the performance of their duties as directors and officers, and that provides for
payment to Charter One of costs incurred by it in indemnifying its directors and
officers.
II-5
<PAGE> 204
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS. See Exhibit Index
(b) FINANCIAL STATEMENT SCHEDULES. Not applicable.
(c) REPORTS, OPINIONS OR APPRAISALS. Not applicable.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) (section
230.424(b) of this chapter) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at the time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is apart of this registration statement, by any person or party
who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for the applicable registration form with respect to reofferings by persons who
may be deemed underwriters, in addition to the information called for by the
other Items of the applicable form.
(d) The undersigned Registrant undertakes that every prospectus (i)
that is filed pursuant to paragraph (c) immediately preceding, or (ii) that
purports to meet the requirements of section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the
II-6
<PAGE> 205
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suite or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(f) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(g) The undersigned Registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-7
<PAGE> 206
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Cleveland,
State of Ohio, on August 8, 1997.
CHARTER ONE FINANCIAL, INC.
By: /s/ Charles John Koch
----------------------------------------
Charles John Koch, Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature
- ---------
<S> <C>
/s/ Charles John Koch Date: August 8, 1997
- --------------------------------------
Charles John Koch
Director, President and
Chief Executive Officer
(Principal Executive Officer)
/s/ Richard W. Neu Date: August 8, 1997
- --------------------------------------
Richard W. Neu
Chief Financial Officer
(Principal Financial Officer)
/s/ Eugene B. Carroll, Sr. Date: August 8, 1997
- --------------------------------------
Eugene B. Carroll, Sr.
Director
/s/ Phillip W. Fisher Date: August 8, 1997
- --------------------------------------
Phillip W. Fisher
Director
/s/ Denise M. Fugo Date: August 8, 1997
- --------------------------------------
Denise M. Fugo
Director
/s/ Mark D. Grossi Date: August 8, 1997
- --------------------------------------
Mark D. Grossi
Director
/s/ Charles M. Heidel Date: August 8, 1997
- --------------------------------------
Charles M. Heidel
Director
</TABLE>
<PAGE> 207
<TABLE>
<S> <C>
/s/ Charles F. Ipavec Date: August 8, 1997
- --------------------------------------
Charles F. Ipavec
Director
/s/ John D. Koch Date: August 8, 1997
- --------------------------------------
John D. Koch
Director
/s/ Philip J. Meathe Date: August 8, 1997
- --------------------------------------
Philip J. Meathe
Director.
/s/ Henry R. Nolte, Jr. Date: August 8, 1997
- --------------------------------------
Henry R. Nolte, Jr.
Director
/s/ Victor A. Ptak Date: August 8, 1997
- --------------------------------------
Victor A. Ptak
Director
/s/ Jerome L. Schostak Date: August 8, 1997
- --------------------------------------
Jerome L. Schostak
Director
/s/ Mark Shaevsky Date: August 8, 1997
- --------------------------------------
Mark Shaevsky
Director
/s/ Eresteen R. Williams Date: August 8, 1997
- --------------------------------------
Eresteen R. Williams
Director
</TABLE>
<PAGE> 208
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ ------------------
2.1 Agreement and Plan of Merger and Reorganization by and
between, Charter One and Haverfield, included at Appendix I to
the accompanying Proxy Statement/Prospectus filed herewith.
2.2 The Agreement and Plan of Merger and Reorganization by and
among Charter One and RCSB Financial, Inc., which contains a
list briefly identifying the contents of all omitted schedules
and similar attachments, which Charter One agrees to furnish
supplementally to the Commission upon request, filed as an
exhibit to the Registrant's Report on Form 8-K dated May 21,
1997 (File No. 0- 16311), is incorporated herein by reference.
3.1 Registrant's Second Restated Certificate of Incorporation,
as amended and currently in effect, filed as an exhibit to
Registrant's Report on Form 8-K dated October 31, 1995 (File
No. 0-16311), is incorporated herein by reference.
3.2 Registrant's Bylaws, as amended and currently in effect.
4.1 Form of Certificate of Common Stock, filed on January 22,
1988 as Exhibit 4.2 to Registrant's Registration Statement
on Form S-1 (File No. 33-16207), is incorporated herein by
reference.
4.2 Shareholder Rights Agreement dated November 21, 1989, between
Charter One and First National Bank of Boston, as amended on
May 26, 1995, filed as Exhibit 4.2 to Registrant's Report on
Form 10-K for the fiscal year ended December 31, 1994 and
December 31, 1995, respectively, is incorporated herein by
reference.
5 Opinion and Consent of Silver, Freedman & Taff, L.L.P.
8 Tax Opinion and Consent of Silver, Freedman & Taff, L.L.P.
10.1 Registrant's Long-Term Stock Incentive Plan, filed on January
22, 1988 as Exhibit 10.1 to Registrant's Registration
Statement on Form S-1 (File No. 33-16207), is incorporated
herein by reference.
10.2 Registrant's Directors' Stock Option Plan, filed on January
22, 1988 as Exhibit 10.2 to Registrant's Registration
Statement on Form S-1 (File No. 33-16207), is incorporated
herein by reference.
10.3 Charter One Bank, F.S.B. Executive Incentive Goal Achievement
Plan, filed as Exhibit 10.8 to Registrant's Report on Form
10-K for the fiscal year ended December 31, 1994 (File No.
0-16311), is incorporated herein by reference.
10.4 Charter One Bank, F.S.B. Employee Savings Plan and Trust and
Amendments thereto, filed as Exhibit 10.10 to Registrant's
Report on Form 10-K for the fiscal year ended December 31,
1993 (File No. 0-16311), are incorporated herein by reference.
10.5 Amendments Number Three, Four, Five and Six to the Charter
One Bank, F.S.B. Employee Savings Plan and Trust.
10.6 Charter One Bank, F.S.B. Profit Sharing Plan and Amendments
thereto, filed as Exhibit 10.12 to Registrant's Report on Form
10-K for the fiscal year ended December 31, 1993 (File No.
0-16311), is incorporated herein by reference.
10.7 Amendments Number One through Seven to the Charter One Bank,
F.S.B. Profit Sharing Plan.
<PAGE> 209
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ ------------------
10.8 First American Savings Bank, F.S.B. Nonqualified Retirement
Plan and First Amendment thereto, filed as Exhibit 10.17 to
Registrant's Report on Form 10-K for the fiscal year ended
December 31, 1993 (File No. 0-16311), are incorporated herein
by reference.
10.9 FirstFed Michigan Corporation 1983 Stock Option Plan, filed on
November 1, 1995 as an exhibit to Registrant's Registration
Statement on Form S-8 (File No. 33-61273), is incorporated
herein by reference.
10.10 FirstFed Michigan Corporation 1991 Stock Option Plan, filed on
November 1, 1995 as an exhibit to Registrant's Registration
Statement on Form S-8 (File No. 33-61273), is incorporated
herein by reference.
10.11 Forms of Supplemental Retirement Agreements, dated October 31,
1995, between Charter One and Charles John Koch, Richard W.
Neu, John David Koch, Mark D. Grossi, and Robert J. Vana,
filed on July 25, 1995 as Exhibits 10.4 and 10.5 to
Registrant's Registration Statement on Form S-4 (File No.
33-61273), are incorporated herein by reference.
10.12 Forms of Employment Agreements, dated October 31, 1995,
between Charter One and Charles John Koch, Richard W. Neu,
John David Koch, Mark D. Grossi, and Robert J. Vana, filed on
July 25, 1995 as Exhibits 10.1, 10.2 and 10.3 to Registrant's
Registration Statement on Form S-4 (File No. 33-61273), are
incorporated herein by reference.
10.13 Employment Agreement, dated April 22, 1997, between Charter
One Investment, Inc. and William A. Valerian
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of KPMG Peat Marwick LLP
23.4 Consent of Silver, Freedman & Taff, L.L.P. (included in
Exhibits 5 and 8).
23.5 Consent of Hahn Loeser Parks, LLP
23.6 Consent of Charles Webb & Company
99.1 Consents of Certain Persons Named as Directors in the Proxy
Statement/Prospectus contained herein.
99.2 Form of Proxy
<PAGE> 1
FIRST AMENDMENT TO THE BYLAWS
OF CHARTER ONE FINANCIAL, INC.
Effective as of April 24, 1997, the Charter One Financial, Inc. Bylaws were
amended as follows:
Article III, Section 18(a) is deleted in its entirety, and is replaced with the
following:
The Board of Directors of the Corporation shall be fixed at 15
directors (the "Initial Directors"). For a period of four years following
the Company Merger Effective Time, Charles J. Koch and Jerome L.
Schostack shall serve as the Chairman and Vice Chairman, respectively, of
the Board of Directors of Charter as the Surviving Corporation.
<PAGE> 2
BYLAWS
OF
CHARTER ONE FINANCIAL, INC.
(A Delaware Corporation)
ARTICLE I
OFFICES
SECTION 1. Registered Office. The registered office of Charter One
Financial, Inc. (hereinafter referred to as the "Corporation") within the
State of Delaware is Corporation Trust Center No. 1209 Orange Street, City
of Wilmington, County of New Castle, and the name of the registered agent
at that address in charge thereof is The Corporation Trust Company.
SECTION 2. Other Offices. The Corporation may also have offices at
such other places, either within or without the State of Delaware, as the
Board of Directors may from time to time designate or the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Place of Meetings. All meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time
and place, either within or without the State of Delaware, as shall be
stated in the notice of meeting or in a duly executed waiver thereof.
SECTION 2. Annual Meeting. The annual meeting of stockholders,
commencing with fiscal year 1988, shall be held on the first Wednesday of
May in each fiscal year, if not a legal holiday, and if a legal holiday,
then on the next succeeding day not a legal holiday, at 2:00 P.M., or at
such other date and time as shall be designated from time to time by the
Board of Directors and stated in the notice of meeting or in a duly
executed waiver thereof. At such annual meeting, the stockholders shall
elect a Board of Directors and transact such other business as may properly
be brought before the meeting.
SECTION 3. Special Meetings. Special meetings of stockholders may only
be called as provided in Article NINTH of the Certificate of Incorporation.
SECTION 4. Notice of Meetings. Except as otherwise expressly required
by statute, written notice of each
1
<PAGE> 3
annual and special meeting of stockholders stating the place, date and hour
of the meeting, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be given to each
stockholder of record entitled to vote thereat not less than ten (10) nor
more than sixty (60) days before the date of the meeting. Notice shall be
given personally or by mail and, if by mail, shall be sent in a postage
prepaid envelope, addressed to the stockholder at his address as it appears
on the records of the Corporation. Notice by mail shall be deemed given at
the time when the same shall be deposited in the United States mail,
postage prepaid. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when such person attends the
meeting in person or by proxy for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened, or who, either before or after
the meeting, shall submit a signed written waiver of notice, in person or
by proxy. Neither the business to be transacted at, nor the purpose of, an
annual or special meeting of stockholders need be specified in any written
waiver of notice.
SECTION 5. Stockholders List. The officer who has charge of the stock
transfer books of the Corporation shall prepare and make, in the time and
manner required by applicable law, a list of stockholders entitled to vote
and shall make such list available for such purposes, at such places, at
such times and to such persons as required by applicable law. The stock
transfer books shall be the only evidence as to the identity of the
stockholders entitled to examine the stock transfer books or to vote in
person or by proxy at any meeting of stockholders.
SECTION 6. Quorum, Adjournments. The holders of a majority of the
voting power of the issued and outstanding stock of the Corporation
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum for the transaction of business at all meetings of
stockholders, except as otherwise provided by statute or by Article SIXTH
of the Certificate of Incorporation. The stockholders entitled to vote and
present at a duly called or held meeting at which a quorum is present may
continue to do business until adjournment, notwithstanding the withdrawal
of enough stockholders entitled to vote to leave less than a quorum then
present and represented. Any stockholders' meeting, annual or special,
whether or not a quorum is present or represented, may be adjourned from
time to time by the vote of the holders of a majority of the stock entitled
to vote thereat, the holders of which are either present in person or
represented by proxy, but
2
<PAGE> 4
in the absence of a quorum no other business may be transacted at such
meeting. At any adjourned meeting, at which a quorum should be present or
represented, any business may be transacted which might have been
transacted at the meeting as originally notified, except for such business
as was duly transacted at any earlier meeting. If the adjournment is for
more than thirty (30) days, or if after adjournment a new record date is
set, a notice of the adjourned meeting shall be given as in the case of an
original meeting to each stockholder of record entitled to vote at the
meeting.
SECTION 7. Organization. At each meeting of stockholders, the Chairman
of the Board or, in his absence or if one shall not have been elected, the
President or such other person as the Board of Directors may have
designated shall call to order any meeting of the stockholders and act as
chairman of the meeting. The Secretary or, in his absence or inability to
act, the person whom the chairman of the meeting shall appoint secretary of
the meeting shall act as secretary of the meeting and keep the minutes
thereof.
SECTION 8. Order of Business. The order of business and the procedure
at all meetings of the stockholders shall be as determined by the chairman
of the meeting, unless otherwise prescribed by law or regulation.
SECTION 9. Voting. Except as otherwise provided by statute or the
Certificate of Incorporation, each stockholder of the Corporation shall be
entitled at each meeting of stockholders to one vote for each share of
capital stock of the Corporation standing in his name on the record of
stockholders of the Corporation:
(a) on the date fixed pursuant to the provisions of Section 7 of
Article V of these Bylaws as the record date for the determination of
the stockholders who shall be entitled to notice of and to vote at
such meeting; or
(b) if no such record date shall have been so fixed, then at the
close of business on the day next preceding the day on which notice
thereof shall be given, or, if notice is waived, at the close of
business on the date next preceding the day on which the meeting is
held.
Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him by a proxy signed by
such stockholder or his attorney-in-fact, but no proxy shall be voted after
three
3
<PAGE> 5
years from its date, unless the proxy provides for a longer period. Any
such proxy shall be delivered to the secretary of the meeting at or prior
to the time designated in the order of business for so delivering such
proxies. When a quorum is present at any meeting, the vote of the holders
of a majority of the voting power of the issued and outstanding stock of
the Corporation entitled to vote thereon (after giving effect, if
applicable, to the provisions of Article SIXTH of the Certificate of
Incorporation), present in person or represented by proxy, shall decide any
question brought before such meeting, unless the question is one upon which
by express provision of statute or of the Certificate of Incorporation or
of these Bylaws, a different vote is required, in which case such express
provision shall govern and control the decision of such question. On a vote
by ballot, each ballot shall be signed by the stockholder voting, or by his
proxy, if there be such proxy, and shall state the number of shares voted.
SECTION 10. New Business. At an annual meeting of stockholders, only
such new business shall be conducted, and only such proposals shall be
acted upon as shall have been brought before the annual meeting (a) by, or
at the direction of, the majority of the Board of Directors, including a
majority of the Continuing Directors, or (b) by any stockholder of the
Corporation who complies with the notice procedures set forth in this
Section 10. For a proposal to be properly brought before an annual meeting
by a stockholder, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation. To be timely, a stockholder's
notice must be delivered to, or mailed and received at, the principal
executive offices of the Corporation not less than sixty (60) days nor more
than ninety (90) days prior to the scheduled annual meeting, regardless of
any postponements, deferrals or adjournments of that meeting to a later
date; provided, however, that if less than seventy (70) days' notice or
prior public disclosure of the date of the scheduled annual meeting is
given or made, notice by the stockholder, to be timely, must be so
delivered or received not later than the close of business on the tenth
(10th) day following the earlier of the day on which such notice of the
date of the scheduled annual meeting was mailed or the day on which such
public disclosure was made. A stockholder's notice to the Secretary shall
set forth as to each matter the stockholder proposes to bring before the
annual meeting (a) a brief description of the proposal desired to be
brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (b) the name and address, as they appear on
the Corporation's books, of the stockholder proposing such
4
<PAGE> 6
business and any other stockholder who is the record or Beneficial Owner of
any equity security of the Corporation known by such stockholder to be
supporting such proposal, (c) the class and number of shares of the
Corporation's equity securities which are Beneficially Owned and owned of
record by the stockholder giving the notice on the date of such stockholder
notice and by any other record or Beneficial Owners of the Corporation's
equity securities known by such stockholder to be supporting such proposal
on the date of such stockholder notice, and (d) any financial or other
interest of the stockholder in such proposal.
A majority of the Continuing Directors may reject any stockholder
proposal not timely made in accordance with the terms of this Section 10.
If a majority of the Continuing Directors determines that the information
provided in a stockholder's notice does not satisfy the informational
requirements of this Section 10 in any material respect, the Secretary of
the Corporation shall promptly notify such stockholder of the deficiency in
the notice. The stockholder shall have an opportunity to cure the
deficiency by providing additional information to the Secretary within such
period of time, not to exceed five days from the date such deficiency
notice is given to the stockholder, as the majority of the Continuing
Directors shall reasonably determine. If the deficiency is not cured within
such period, or if the majority of the Continuing Directors determines that
the additional information provided by the stockholder, together with
information previously provided, does not satisfy the requirements of this
Section 10 in any material respect, then a majority of the Continuing
Directors may reject such stockholder's proposal. The Secretary of the
Corporation shall notify a stockholder in writing whether his proposal has
been made in accordance with the time and information requirements of this
Section 10. Notwithstanding the procedures set forth in this paragraph, if
the majority of the Continuing Directors does not make a determination as
to the validity of any stockholder proposal, the presiding officer of the
annual meeting shall determine and declare at the annual meeting whether
the stockholder proposal was made in accordance with the terms of this
Section 10. If the presiding officer determines that a stockholder proposal
was not made in accordance with the terms of this Section 10, he shall so
declare at the annual meeting and any such proposal shall not be acted upon
at the annual meeting.
This provision shall not prevent the consideration and approval or
disapproval at the annual meeting of reports of officers, directors and
committees of the Board of Directors, but in connection with such reports,
no new
5
<PAGE> 7
business shall be acted upon at such annual meeting unless stated, filed
and received as herein provided.
SECTION 11. Inspectors. The Board of Directors may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at such
meeting or any adjournment thereof. If any of the inspectors so appointed
shall fail to appear or act, the chairman of the meeting shall, or if
inspectors shall not have been appointed, the chairman of the meeting may,
appoint one or more inspectors. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute
the duties of inspector at such meeting with strict impartiality and
according to the best of his ability. The inspectors shall determine the
number of shares of capital stock of the Corporation outstanding and the
voting power of each, the number of shares represented at the meeting, the
existence of a quorum, the authenticity, validity and effect of proxies,
and shall receive votes or ballots, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate
all votes or ballots, determine the results, and do such acts as are proper
to conduct the election or vote with fairness to all stockholders. If more
than one inspector has been appointed, the decision, act or certificate of
a majority of the inspectors is effective in all respects as the decision,
act or certificate of all of the inspectors. On request of the chairman of
the meeting, the inspectors shall make a report in writing of any
challenge, request or matter determined by them and shall execute a
certificate of any fact found by them. No director or candidate for the
office of director shall act as an inspector of an election of directors.
Inspectors need not be stockholders.
SECTION 12. Action by Consent. As provided in the Certificate of
Incorporation, the stockholders of the Corporation shall not be entitled to
take action by written consent in lieu of taking such action at an annual
or special meeting of stockholders.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors,
except as provided in the Certificate of Incorporation and these Bylaws.
The Board of Directors may exercise all such authority and powers of the
Corporation and do all such lawful acts and things as are not by statute or
the Certificate of
6
<PAGE> 8
Incorporation directed or required to be exercised or done by the
Continuing Directors or the stockholders.
SECTION 2. Number, Qualifications, Election and Term of Office. The
number of directors constituting the initial Board of Directors shall be
sixteen. Thereafter, the number of directors may be fixed, from time to
time, pursuant to a resolution adopted by the affirmative vote of a
majority of the Continuing Directors, as that term is defined in Article
FIFTH of the Certificate of Incorporation. The election of directors, the
division of directors into separate classes and the terms of directors,
shall be provided in Article SEVENTH of the Certificate of Incorporation.
SECTION 3. Nominations of Directors. Nominations of candidates for
election as directors at any annual meeting of stockholder may be made (i)
by, or at the direction of, a majority of the Board of Directors, including
a majority of the Continuing Directors or (ii) by any stockholder of record
entitled to vote at such annual meeting. Only persons nominated in
accordance with procedures set forth in this Section 3 shall be eligible
for election as directors at an annual meeting.
Nominations, other than those made by, or at the direction of, a
majority of the Board of Directors, including a majority of the Continuing
Directors, shall be made pursuant to timely notice in writing to the
Secretary of the Corporation as set forth in this Section 3. To be timely,
a stockholder's notice shall be delivered to, or mailed and received at,
the principal executive offices of the Corporation not less than sixty (60)
days nor more than ninety (90) days prior to the date of the date of the
scheduled annual meeting, regardless of postponements, deferrals, or
adjournments of that meeting to a later date; provided, however, that if
less than seventy (70) days' notice or prior public disclosure of the date
of the scheduled annual meeting is given or made, notice by the stockholder
to be timely must be so delivered or received not later than the close of
business on the tenth (10th) day following the earlier of the day on which
such notice of the date of the scheduled annual meeting was mailed or the
day on which such public disclosure was made. Such stockholder's notice
shall set forth (i) as to each person whom the stockholder proposes to
nominate for election as a director (a) the name, age, business address and
residence address of such person, (b) the principal occupation or
employment of such person, (c) the class and number of shares of the
Corporation's equity securities which are Beneficially Owned by such person
on the date of such stockholder notice and (d) any other information
7
<PAGE> 9
relating to such person that would be required to be disclosed pursuant to
Regulation 13D under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), in connection with the acquisition of shares, and pursuant
to Regulation 14A under the Exchange Act, in connection with the
solicitation of proxies with respect to nominees for election as directors,
regardless of whether such person is subject to the provisions of such
regulations, including, but not limited to, information required to be
disclosed by Items 4(b) and 6 of Schedule A of Regulation 14A and
information which would be required to be filed on Schedule B of Regulation
14A with the Securities and Exchange Commission (as such Items and
Schedules are in effect on the date hereof and such additional information
required by those provisions or successor provisions adopted after the date
hereof); and (ii) as to the stockholder giving the notice (a) the name and
address, as they appear on the Corporation's books, of such stockholder and
any other stockholder who is a record or Beneficial Owner of any equity
securities of the Corporation and who is known by such stockholder to be
supporting such nominee(s) and (b) the class and number of shares of the
Corporation's equity securities which are Beneficially Owned and owned of
record by such stockholder on the date of such stockholder notice and the
number of shares of the Corporation's equity securities Beneficially Owned
and owned of record by any Person known by such stockholder to be
supporting such nominee(s) on the date of such stockholder notice. At the
request of a majority of the Board of Directors, including a majority of
the Continuing Directors, any person nominated by, or at the direction of,
the Board of Directors for election as a director at an annual meeting
shall furnish to the Secretary of the Corporation that information required
to be set forth in a stockholder's notice of nomination which pertains to
the nominee. Ballots bearing the names of all the persons who have been
nominated for election as directors at an annual meeting in accordance with
the procedures set forth in this Section 3 shall be provided for use at the
annual meeting.
A majority of the Continuing Directors may reject any nomination by a
stockholder not timely made in accordance with the requirements of this
Section 3. If a majority of the Continuing Directors determines that the
information provided in a stockholder's notice does not satisfy the
informational requirements of this Section 3 in any material respect, the
Secretary of the Corporation shall promptly notify such stockholder of the
deficiency in the notice. The stockholder shall have an opportunity to cure
the deficiency by providing additional information to the Secretary within
such period of time, not to exceed five (5) days, from the date such
deficiency notice is given to
8
<PAGE> 10
the stockholder, as a majority of the Continuing Directors shall reasonably
determine. If the deficiency is not cured within such period, or if a
majority of the Continuing Directors reasonably determines that the
additional information provided by the stockholder, together with the
information previously provided, does not satisfy the requirements of this
Section 3 in any material respect, then a majority of the Continuing
Directors may reject such stockholder's nomination. The Secretary of the
Corporation shall notify a stockholder in writing whether his nomination
has been made in accordance with the time and informational requirements of
this Section 3. Notwithstanding the procedure set forth in this Section 3,
if the majority of the Continuing Directors does not make a determination
as to the validity of any nominations by a stockholder, the presiding
officer of the annual meeting shall determine and declare at the annual
meeting whether a nomination was not made in accordance with the terms of
this Section 3. If the presiding officer determines that a nomination was
not made in accordance with the terms of this Section 3, he shall so
declare at the annual meeting and the defective nomination shall be
disregarded.
SECTION 4. Place of Meetings. Meetings of the Board of Directors shall
be held at such place or places, within or without the State of Delaware,
as the Board of Directors may from time to time determine or as shall be
specified in the notice of any such meeting.
SECTION 5. Annual Meeting. The Board of Directors shall meet for the
purpose of organization, the election of officers and the transaction of
the other business, as soon as practicable after each annual meeting of
stockholders, on the same day and at the same place where such annual
meeting shall be held. Notice of such meeting need not be given. In the
event such annual meeting is not so held, the annual meeting of the Board
of Directors may be held at such other time or place, within or without the
State of Delaware, as shall be specified in a notice thereof given as
hereinafter provided in Section 8 of this ARTICLE III.
SECTION 6. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such time and place as the Board of Directors
may fix. If any day fixed for a regular meeting shall be a legal holiday at
the place where the meeting is to be held, then the meeting which would
otherwise be held on that day shall be held at the same hour on the next
succeeding business day. Notice of regular meetings of the Board of
Directors need not be given except as otherwise required by statute or
these Bylaws.
9
<PAGE> 11
SECTION 7. Special Meetings. Special meetings of the Board of
Directors may be called by (i) the Chairman of the Board, (ii) the
President or (iii) by the Secretary on the written request of a majority of
the members of the Board of Directors, including a majority of the
Continuing Directors.
SECTION 8. Notice of Meetings. Notice of each special meeting of the
Board of Directors (and of each regular meeting for which notice shall be
required) shall be given by the Secretary as hereinafter provided in this
Section 8, in which notice shall be stated the time and place of the
meeting. Except as otherwise required by these Bylaws, such notice need not
state the purpose or purposes of such meeting. Notice of each such meeting
shall be mailed, postage prepaid, to each director, addressed to him at his
residence or usual place of business, by first class mail, at least four
(4) days before the time of the meeting, or shall be sent addressed to him
at such place by telegraph, cable, telex, telecopier or other similar
means, or be delivered to him personally or be given to him by telephone or
other similar means, at least twelve (12) hours before the time of the
meeting. Notice of any such meeting need not be given to any director who
shall, either before or after the meeting, submit a signed waiver of notice
or who shall attend such meeting, except when he shall attend for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
SECTION 9. Quorum and Manner of Acting. At all meetings of the Board
of Directors, one-third (1/3) of the total number of directors, including
at least a majority of the Continuing Directors then in office shall be
necessary and sufficient to constitute a quorum for the transaction of
business, and, except as otherwise expressly required by statute or the
Certificate of Incorporation or these Bylaws, the act of a majority of the
directors present at any meeting at which a quorum is present shall be the
act of the Board of Directors. In the absence of a quorum at any meeting of
the Board of Directors, a majority of the directors present thereat may
adjourn such meeting to another time and place. Notice of the time and
place of any such adjourned meeting shall be given to all of the directors
unless such time and place were announced at the meeting at which the
adjournment was taken, in which case such notice shall only be given to the
directors who were not present thereat. At any adjourned meeting at which a
quorum is present, any business may be transacted which might have been
transacted at the meeting as originally
10
<PAGE> 12
called. The directors shall act only as a Board and the individual
directors shall have no power as such.
SECTION 10. Resignations. Any director of the Corporation may resign
at any time by giving written notice of his resignation to the Corporation.
Any such resignation shall take effect at the time specified therein or, if
the time when it shall become effective shall not be specified therein,
immediately upon its tender. Unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 11. Newly Created Directorships and Vacancies. Any vacancies
on the Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office, an increase in the number of
authorized directors, or other cause shall be filled as provided in Article
SEVENTH of the Certificate of Incorporation.
SECTION 12. Removal of Directors. A director may be removed only as
provided in Article SEVENTH of the Certificate of Incorporation.
SECTION 13. Compensation. Each director shall receive such fees and
other compensation, along with reimbursement of expenses incurred on behalf
of the Corporation or in connection with attendance at meetings, as the
Board of Directors may from time to time determine. No such payment of fees
or other compensation shall preclude any director from serving the
Corporation in any other capacity and receiving fees and compensation for
such services.
SECTION 14. Committees. Unless restricted by the Certificate of
Incorporation, the Board of Directors may, by resolution passed by a
majority of the entire Board of Directors, including a majority of the
Continuing Directors, designate one or more committees, including an
executive committee, each committee to consist of one or more of the
directors of the Corporation. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. Except to
the extent restricted by statute or the Certificate of Incorporation, each
such committee, to the extent provided in the resolution creating it, shall
have and may exercise all the powers and authority of the Board of Director
and may authorize the seal of the Corporation to be affixed to all papers
which require it. Each such committee shall serve at the pleasure of the
Board of Directors and have such name as may be determined from time
11
<PAGE> 13
to time by resolution adopted by the Board of Directors. Each committee
shall keep regular minutes of its meetings and report the same to the Board
of Directors. Members of either standing or special committees shall
receive such fees and other compensation, along with reimbursement of
expenses incurred on behalf of the Corporation or in connection with
attendance of meetings, as the Board of Directors may from time to time
determine. No such payment of fees or compensation shall preclude any
member of a committee from serving the corporation in any other capacity
and receiving fees and compensation for such services.
SECTION 15. Action by Consent. Any action required or permitted to be
taken by the Board of Directors or any committee thereof may be taken
without a meeting if all members of the Board of Directors or such
committee, as the case may be, consent thereto in writing, and the writing
or writings are filed with the minutes of the proceedings of the Board of
Directors or such committee, as the case may be.
SECTION 16. Telephonic Meeting. Any one or more members of the Board
of Directors or any committee of the Board of Directors may participate in
a meeting of the Board of Directors or such committee by means of a
conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other. Participation
by such means shall constitute presence in person at a meeting.
SECTION 17. Presumption of Assent. A director of the Corporation who
is present at a meeting of the Board of Directors at which action is taken
shall be presumed to have assented to the action taken unless his dissent
or abstention shall be entered in the minutes of the meeting or unless he
shall file a written dissent to such action with the person acting as the
secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the Secretary of the Corporation within
five days after the date a copy of the minutes of the meeting is received.
Such right to dissent shall not apply to a director who voted in favor of
such action.
SECTION 18. Directors, Executive Officers and Committees. In
accordance with Section 6.4 of the Agreement and Plan of Merger by and
between the Corporation and FirstFed Michigan Corporation, dated May 30,
1995 (the "Agreement"), the following provisions shall govern directors,
executive officers and committees to the exclusion of any provision in
these bylaws to the contrary.
12
<PAGE> 14
Terms capitalized but not otherwise defined in this Section shall have the
meaning given to them in the Agreement.
(a) At the Company Merger Effective Time, the Board of Directors of
Charter as the Surviving Corporation shall be fixed at either 16 directors,
if the shareholders of Charter at the Charter Stockholders Meeting approve
the amendment to Article Seventh of Charter's Restated Certificate of
Incorporation increasing the maximum number of directors to 16 persons by
the requisite vote, or 14 directors, if such amendment is not approved by
the requisite vote, (the "Initial Directors"), one-half of whom in either
case shall be selected by the Board of Directors of Charter and one-half of
whom shall be selected by the Board of Directors of FirstFed, in each case
prior to the Company Merger Effective Time. As soon as practicable, the
Boards of Directors of Charter and FirstFed shall each select those persons
it is to select who are to serve on the Board of Directors of Charter as
the Surviving Corporation. Thereafter, Charter and FirstFed shall agree as
to the class and term for each of the persons so selected as a director (it
being the intention that to the greatest extent practicable, the Charter
and FirstFed directors shall serve in equal number in each of the Surviving
Corporation's three classes of directors). Charter and its Board of
Directors shall take all necessary corporate action prior to the Company
Merger Effective Time to effectuate this agreement of the parties including
the election of the designated persons as directors of Charter as the
Surviving Corporation, effective at the Company Merger Effective Time, for
the agreed upon classes and terms. For a period of four years following the
Company Merger Effective Time, Charles J. Koch and Jerome L. Schostak shall
serve as the Chairman and Vice Chairman, respectively, of the Board of
Directors of Charter as the Surviving Corporation.
(b) It is the intention of Charter and FirstFed, and their respective
Boards of Directors, that until at least the fourth anniversary of the
Company Merger Effective Time, the Board of Directors of Charter as the
Surviving Corporation (and each of the committees thereof other than the
Executive Committee) shall consist of an equal number of persons serving on
or representing the Boards of Directors of Charter and FirstFed,
respectively, prior to the Company Merger Effective Time. In this regard,
if any Initial Director (or successor thereto) does not continue to serve
as a director of the Surviving Corporation for any reason whatsoever during
such four year period (a "Departing Director"), his/her successor will be
the person recommended (i) in the case of a Departing Director who either
was a director of Charter prior to the
13
<PAGE> 15
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 Bank or any other significant financial institution
subsidiary of Charter as the Surviving Corporation or (iii) the dismissal
or replacement of any of the executive officers of Charter as the Surviving
Corporation or Charter Bank or other significant financial institution
subsidiary. Charter and the Surviving Corporation shall take all necessary
corporate action, whether prior or subsequent to the Company Merger
Effective Time, to effectuate this agreement of the parties.
Notwithstanding anything to the contrary herein, amendment to the Restated
Certificate of Incorporation or Bylaws of Charter or the Surviving
Corporation specifically provided for or contemplated in this Agreement
shall require the vote of directors as set forth in Charter's Restated
Certificate of Incorporation or Bylaws.
(d) After the Company Merger Effective Time, those persons who served
as directors of either Charter or FirstFed prior to the Company Merger
Effective Time and who do not become the Initial Directors shall serve
(unless such person determines not to serve) as directors emeriti of
Charter as the Surviving Corporation with benefits at
14
<PAGE> 16
least as favorable as those currently provided to directors emeriti of
Charter.
(e) For a period of four years following the Company Merger Effective
Time, regularly scheduled meetings of the Board of Directors of Charter as
the Surviving Corporation shall be held such that there shall be equal
numbers of meetings during any such year at sites as selected by the
Initial Directors who were previously directors of Charter (including their
successors) and at sites as selected by the Initial Directors who were
previously directors of FirstFed (including their successors). Charter and
the Surviving Corporation shall take all necessary corporate action,
whether prior or subsequent to the Company Merger Effective Time, to
effectuate this agreement of the parties.
(f) 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 effective at the Company Merger
Effective Time 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 from the Company Merger Effective Time. 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
15
<PAGE> 17
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 the Corporation.
(j) This section shall expire on the fourth anniversary of the Company
Merger Effective Time.
ARTICLE IV
OFFICERS
SECTION 1. Number and Qualifications. The officers of the Corporation
shall be elected annually by the Board of Directors at the first meeting of
the Board held after each annual meeting of stockholders, or as soon
thereafter as possible, and shall include the President, one or more Vice
Presidents, the Secretary and the Treasurer. If the Board of Directors
wishes, it may also elect as an officer of the Corporation a Chairman of
the Board and may elect other officers (including one or more Assistant
Treasurers and one or more Assistant Secretaries) as may be necessary or
desirable for the business of the Corporation. Any two or more offices may
be held by the same person, and no officer except the Chairman of the Board
and the President need be a director. Each officer shall hold office until
his successor shall have been duly elected and qualified, or until his
death, resignation or removal, as hereinafter provided in these Bylaws. A
vacancy in any office because of death, resignation, removal,
disqualification or
16
<PAGE> 18
otherwise, shall be filled only by a majority vote of the Board of
Directors for the unexpired portion of the term.
SECTION 2. Resignations. Any officer of the Corporation may resign at
any time by giving written notice of his resignation to the Corporation.
Any such resignation shall take effect at the time specified therein or, if
the time when it shall become effective shall not be specified therein,
immediately upon receipt. Unless otherwise specified therein, the
acceptance of any such resignation shall not be necessary to make it
effective.
SECTION 3. Removal. Any officer of the Corporation may be removed,
either with or without cause, at any time, by the Board of Directors at any
meeting thereof, but such removal, other than for cause (as defined in any
contract between the officer and the Corporation), shall be without
prejudice to the contract rights, if any, of the person so removed.
SECTION 4. Chairman of the Board. The Chairman of the Board, if one
shall have been elected, shall be a member of the Board, may be the chief
executive officer of the Corporation and, if present, shall preside at each
meeting of the Board of Directors or the stockholders. He shall advise and
counsel with the President, and in his absence with other executives of the
Corporation, and shall perform such other duties as may from time to time
be assigned to him by the Board of Directors.
SECTION 5. The President. The President may be the chief executive
officer of the Corporation. He shall, in the absence of the Chairman of the
Board or if a Chairman of the Board shall not have been elected, preside at
each meeting of the Board of Directors or the stockholders. He shall
perform all duties incident to the office of President and chief executive
officer and such other duties as may from time to time be assigned to him
by the Board of Directors.
SECTION 6. Vice President. Each Vice President shall perform all such
duties as from time to time may be assigned to him by the Board of
Directors or the President. At the request of the President or in his
absence or in the event of his inability or refusal to act, the Vice
President, or if there shall be more than one, the Vice Presidents in the
order determined by the Board of Directors (or if there be no such
determination, then the Vice Presidents in the order of their election),
shall perform the duties of the President, and, when so acting, shall have
the powers of and be subject to the restrictions
17
<PAGE> 19
placed upon the President in respect of the performance of such duties.
SECTION 7. Treasurer. The Treasurer shall
(a) have charge and custody of, and be responsible for, all the
funds and securities of the Corporation;
(b) keep full and accurate accounts of receipts and disbursements
in books belonging to the Corporation;
(c) deposit all moneys and other valuables to the credit of the
Corporation in such depositaries as may be designated by the Board of
Directors or pursuant to its direction;
(d) receive, and give receipts for, moneys due and payable to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the
investments of its funds, taking proper vouchers therefor;
(f) render to the Board of Directors, whenever the Board of
Directors may require, an account of the financial condition of the
Corporation; and
(g) in general, perform all duties incident to the office of
Treasurer and such other duties as from time to time may be assigned
to him by the Board of Directors.
SECTION 8. Secretary. The Secretary shall
(a) keep or cause to be kept in one or more books provided for
the purpose, the minutes of all meetings of the Board of Directors,
the committees of the Board of Directors and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these Bylaws and as required by law;
(c) be custodian of the records and the seal of the Corporation
and affix and attest the seal to all certificates for shares of the
Corporation (unless the seal of the Corporation on such certificates
shall be a facsimile, as hereinafter provided) and affix and
18
<PAGE> 20
attest the seal to all other documents to be executed on behalf of the
Corporation under its seal;
(d) see that the books, reports, statements, certificates and
other documents and records required by law to be kept and filed are
properly kept and filed; and
(e) in general, perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned
to him by the Board of Directors.
SECTION 9. The Assistant Treasurer. The Assistant Treasurer, or if
there shall be more than one, the Assistant Treasurers in the order
determined by the Board of Directors (or if there be no such determination,
then in the order of their election), shall, in the absence of the
Treasurer or in the event of his inability or refusal to act, perform the
duties and exercise the powers of the Treasurer and shall perform such
other duties as from time to time may be assigned by the Board of
Directors.
SECTION 10. The Assistant Secretary. The Assistant Secretary, or if
there be more than one, the Assistant Secretaries in the order determined
by the Board of Directors (or if there be no such determination, then in
the order of their election), shall, in the absence of the Secretary or in
the event of his inability or refusal to act, perform the duties and
exercise the powers of the Secretary and shall perform such other duties as
from time to time may be assigned by the Board of Directors.
SECTION 11. Officers' Bonds or Other Security. If required by the
Board of Directors, any officer of the Corporation shall give a bond or
other security for the faithful performance of his duties, in such amount
and with such surety as the Board of Directors may require.
SECTION 12. Compensation. The compensation of the officers of the
Corporation for their services as such officers shall be fixed from time to
time by the Board of Directors. An officer of the Corporation shall not be
prevented from receiving compensation by reason of the fact that he is also
a director of the Corporation.
ARTICLE V
STOCK CERTIFICATES AND THEIR TRANSFER
SECTION 1. Stock Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate
19
<PAGE> 21
signed by, or in the name of the Corporation by, the Chairman of the Board
or the President or a Vice President and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the Corporation,
certifying the number of shares owned by him in the Corporation. If the
Corporation shall be authorized to issue more than one class of stock or
more than one series of any class, the designations, preferences and
relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restriction
of such preferences and/or rights shall be set forth in full or summarized
on the face or back of the certificate which the Corporation shall issue to
represent such class or series of stock, provided that, except as otherwise
provided in Section 202 of the General Corporation Law of the State of
Delaware, in lieu of the foregoing requirements, there may be set forth on
the face or back of the certificate which the Corporation shall issue to
represent such class or series of stock, a statement that the Corporation
will furnish without charge to each stockholder who so requests the
designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or
rights.
SECTION 2. Facsimile Signatures. Any or all of the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon
a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer, transfer agent
or registrar at the date of issue.
SECTION 3. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been
lost, stolen, or destroyed. When authorizing such issue of a new
certificate or certificates, the Board of Directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to give the Corporation a bond in such sum as it may direct
sufficient to indemnify it against any claim that may be made against the
Corporation on account of the alleged loss, theft or destruction of any
such certificate or the issuance of such new certificate.
20
<PAGE> 22
SECTION 4. Transfers of Stock. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the Corporation to issue a
new certificate to the person entitled thereto, cancel the old certificate
and record the transaction upon its records; provided, however, that the
Corporation shall be entitled to recognize and enforce any lawful
restriction on transfer, including, without limitation, the restrictions on
transfer set forth in Article FIFTH of the Certificate of Incorporation.
Whenever any transfer of stock shall be made for collateral security, and
not absolutely, it shall be so expressed in the entry of transfer if, when
the certificates are presented to the Corporation for transfer, both the
transferor and the transferee request the Corporation to do so. Persons
whose stock is pledged shall be entitled to vote, unless in the transfer by
the pledgor on the books of the Corporation he has expressly empowered the
pledgee to vote thereon, in which case only the pledgee, or his proxy, may
represent such stock and vote thereon.
SECTION 5. Transfer Agents and Registrars. The Board of Directors may
appoint, or authorize any officer or officers to appoint, one or more
transfer agents and one or more registrars.
SECTION 6. Regulations. The Board of Directors may make such
additional rules and regulations, not inconsistent with these Bylaws, as it
may deem expedient concerning the issue, transfer and registration of
certificates for shares of stock of the Corporation.
SECTION 7. Fixing the Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or entitled to receive payment
of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or
exchange of stock or for the purpose of any other lawful action, a majority
of the Board of Directors, including a majority of the Continuing
Directors, may fix, in advance, a record date, which shall not be more than
sixty nor less than ten days before the date of such meeting, nor more than
sixty days prior to any other action. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting; provided, however, that the Board
of Directors may fix a new record date for the adjourned meeting.
21
<PAGE> 23
SECTION 8. Registered Stockholders. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its records as
the owner of shares of stock to receive dividends and to vote as such
owner, shall be entitled to hold liable for calls and assessments a person
registered on its records as the owner of shares of stock, and shall not be
bound to recognize any equitable or other claim to or interest in such
share or shares of stock on the party of any other person, whether or not
its shall have express or other notice thereof, except as otherwise
provided by the laws of Delaware.
ARTICLE VI
GENERAL PROVISIONS
SECTION 1. Dividends. Subject to the provisions of statute and the
Certificate of Incorporation, dividends upon the shares of capital stock of
the Corporation may be declared by the Board of Directors at any regular or
special meeting. Dividends may be paid in cash, in property or in shares of
stock of the Corporation, unless otherwise provided by statute or the
Certificate of Incorporation.
SECTION 2. Seal. The seal of the Corporation shall be in such form as
shall be approved by the Board of Directors.
SECTION 3. Fiscal Year. The fiscal year of the Corporation shall be
fixed, and once fixed, may thereafter be changed, by resolution of the
Board of Directors. The Corporation shall be subject to an annual audit as
of the end of its fiscal year by independent public accountants appointed
by and responsible to the Board of Directors. The appointment of such
accountants shall be subject to annual ratification by the stockholders.
SECTION 4. Checks, Notes, Drafts, Etc. All checks, notes, drafts or
other orders for the payment of money of the Corporation shall be signed,
endorsed or accepted in the name of the Corporation by such officer,
officers, person or persons as from time to time may be designated by the
Board of Directors or by an officer or officers authorized by the Board of
Directors to make such designation.
SECTION 5. Execution of Contracts, Deeds, Etc. The Board of Directors
may authorize any officer or officers, agent or agents, in the name and on
behalf of the Corporation to enter into or execute and deliver any and all
deeds, bonds, mortgages, contracts and other
22
<PAGE> 24
obligations or instruments, and such authority may be general or confined
to specific instances.
SECTION 6. Voting of Stock in Other Corporations. Unless otherwise
provided by resolution of the Board of Directors, the Chairman of the Board
or the President, from time to time, may (or may appoint one or more
attorneys or agents to) cast the votes which the Corporation may be
entitled to cast as a stockholder or otherwise in any other corporation,
any of whose shares or securities may be held by the Corporation, at
meetings of the holders of the shares or other securities of such other
corporation. In the event one or more attorneys or agents are appointed,
the Chairman of the Board or the President may instruct the person or
persons so appointed as to the manner of casting such votes or giving such
consent. The Chairman of the Board or the President may, or may instruct
the attorneys or agents appointed to, execute or cause to be executed in
the name and on behalf of the Corporation and under its seal or otherwise,
such written proxies, consents, waivers or other instruments as may be
necessary or proper in the circumstances.
ARTICLE VII
DEFINITIONS
Capitalized terms in these Bylaws, not otherwise defined in these
Bylaws, have the meanings assigned to them in the Certificate of
Incorporation.
ARTICLE VIII
AMENDMENTS
These Bylaws may be amended or repealed or new bylaws adopted as
provided in Article FIFTEENTH of the Certificate of Incorporation.
23
<PAGE> 1
EXHIBIT 5
[LETTERHEAD OF SILVER, FREEDMAN & TAFF, L.L.P.]
August 8, 1997
Board of Directors
Charter One Financial, Inc.
1215 Superior Avenue
Cleveland, Ohio 44114
Members of the Board of Directors:
We have examined (i) the Registration Statement on Form S-4 (the
"Registration Statement") filed by Charter One Financial, Inc. (the "Company")
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act"), and the public
offering prospectus (the "Prospectus"), relating to the issuance by the Company
of up to 1,360,609 shares of common stock, par value $.01 per share (the
"Common Stock"), in the manner set forth in the Registration Statement and the
Prospectus, (ii) the Company's Second Restated Certificate of Incorporation and
Bylaws and (iii) records of the Company's corporate proceedings relative to its
organization and to the issuance of the Common Stock.
We have examined originals, or copies identified to our satisfaction, of
such corporate records of the Company and have made such examinations of law as
we have deemed relevant. In our examination, we have assumed and have not
verified (i) the genuineness of all signatures, (ii) the authenticity of all
documents submitted to us as originals, (iii) the conformity with the originals
of all documents supplied to us as copies, and (iv) the accuracy and
completeness of all corporate records and documents and all certificates and
statements of fact, in each case given or made available to us by the Company.
We have relied upon certificates and other written documents from public
officials and government agencies and departments and we have assumed the
accuracy and authenticity of such certificates and documents.
Based upon the foregoing, and having a regard for such legal considerations
as we deem relevant, we are of the opinion that the Common Stock will be, upon
<PAGE> 2
issuance, against payment therefore as contemplated in the Registration
Statement and the Prospectus, legally issued, fully paid and non-assessable.
We consent to the use of this opinion, to the incorporation by reference of
such opinion as an exhibit to the Registration Statement and to the reference to
our firm and our opinion under the heading "Legal Matters" in the Registration
Statement filed by the Company, and all amendments thereto. In giving this
consent, we do not admit that we are within the category of persons whose
consent is required under Section 7 of the Securities Act or the rules and
regulations of the Commission thereunder.
Very truly yours,
/s/ Silver, Freedman & Taff, L.L.P.
<PAGE> 1
EXHIBIT 8
[LAW OFFICES SILVER, FREEDMAN & TAFF, L.L.P. LETTERHEAD]
August 7, 1997
Board of Directors Board of Directors
Charter One Financial, Inc. Haverfield Corporation
1215 Superior Avenue 50 Terminal Tower, Suite 444
Cleveland, Ohio 44114 Cleveland, Ohio 44113
RE: FEDERAL INCOME TAX CONSEQUENCES ARISING FROM THE COMPANY MERGER
AND THE MICHIGAN MERGER CONTEMPLATED BY THAT CERTAIN AGREEMENT
AND PLAN OF MERGER AND REORGANIZATION BY AND BETWEEN CHARTER
ONE FINANCIAL, INC., CHARTER MICHIGAN BANCORP, INC., CHARTER
ONE F.S.B., HAVERFIELD CORPORATION AND HOME BANK, F.S.B. DATED
APRIL 22, 1997 (THE "AGREEMENT")
Ladies and Gentlemen:
In accordance with your request and to facilitate the processing of
the Registration Statement with the SEC relating to the transactions
contemplated by the Agreement, set forth hereinbelow is this firm's
opinion relating to certain federal income tax consequences applicable
to the proposed Company Merger and Michigan Merger contemplated by the
Agreement. Capitalized terms used herein which are not expressly
defined herein shall have the meaning assigned to them in the
Agreement.
FACTS
COFI is a stock corporation organized and existing under the laws
of the State of Delaware. Charter Michigan is a stock corporation
organized and existing under the laws of the State of Michigan and is a
first-tier wholly owned subsidiary of COFI. Charter One Bank is a
federal stock saving bank that is wholly owned by Charter Michigan.
Merger Sub is an Ohio stock corporation that was formed as a first-tier
wholly owned subsidiary of COFI for the sole purpose of facilitating
the Company Merger. Prior to the Company Merger, Merger Sub will not
engage in any business
<PAGE> 2
Boards of Directors
August 7, 1997
Page 2
-----------------------------------------------------------------------
activity. COFI's principal business consists of lending and deposit
taking activities through Charter One Bank.
Haverfield Corporation is a stock corporation organized and
existing under the laws of the State of Ohio. Home Bank is a federal
stock saving bank that is a first-tier wholly owned subsidiary of
Haverfield. Haverfield's principal business consists of lending and
deposit taking activities through Home Bank.
Pursuant to the Agreement, it is proposed that the Company Merger
will be implemented through the merger of Merger Sub with and into
Haverfield. In the Company Merger all of the outstanding Haverfield
Common Stock (other than Dissenting Shares) will be exchanged solely
for COFI Common Stock or cash in lieu of fractional share interests.
Immediately following the Company Merger, the Michigan Merger will be
consummated by the merger of Haverfield with and into Charter Michigan.
Immediately thereafter, it is contemplated that Home Bank will be
merged with and into Charter One Bank. Each merger, if undertaken, will
be a statutory merger under applicable state or federal law.
Prior to finalizing the Agreement, the parties discussed
implementing the Company Merger and the Michigan Merger in a one step
transaction by merging Haverfield in a statutory merger with and into
Charter Michigan with the share exchange to be accomplished in the same
manner as it is proposed to take place in the Company Merger. Due to
certain ambiguities in Ohio corporate law relating to anti-takeover
provisions and the potential for possible conflicting interpretations
thereof, counsel for Haverfield did not feel comfortable allowing
Haverfield to make anti-takeover representations and covenants in the
Agreement unless the first transaction (i.e., the "Company Merger")
resulted in Haverfield being the surviving corporation and that each
subsequent transaction (i.e., the Michigan Merger and the Bank Merger)
would be undertaken by COFI for independent business reasons. We have
been informed by COFI that the Michigan Merger is proposed to be
undertaken to eliminate the expenses of maintaining two separate
interim holding companies and the selection of Charter Michigan as the
survivor is based, in part, on the preference to be subject to the
corporate and tax laws of the State of Michigan. The Bank Merger is
expected to produce significant efficiencies and cost savings that
would not otherwise be realized if Charter One Bank and Home Bank were
operated as separate companies. COFI is under no obligation pursuant to
the Agreement or otherwise to consummate the Michigan Merger or the
Bank Merger.
LEGAL ANALYSIS OF COMPANY MERGER
AND MICHIGAN MERGER
The addition of triangular reorganizations to the Code (i.e.
sections 368(a)(2)(D) and 368(a)(2)(E) liberalized the historical
doctrine of "remote continuity of interest". However, where
<PAGE> 3
Boards of Directors
August 7, 1997
Page 3
-----------------------------------------------------------------------
the reorganization transaction involves a subsequent transfer of the
stock or assets of the acquired company to another member of the
consolidated group of the acquiring parent corporation, the traditional
safe-harbor to satisfy remote continuity concerns is to test the
multiple step transaction (i.e. initial reorganization and subsequent
transfer) under the more stringent standards applicable to a
reorganization under section 368(a)(1)(C) of the Code. SEE Rev. Rul.
67-274, 1967-2 CB 141 and Rev. Rul. 72-405, 1972-2 CB 17. In the
instant case, the Michigan Merger will technically result in a transfer
of all of the assets of Haverfield to Charter Michigan by statutory
merger after the Company Merger. However, neither the Company Merger
nor the combination of the Company Merger with the Michigan Merger
(i.e., the subsequent transfer) will satisfy the requirements of a
reorganization under section 368(a)(1)(C) of the Code because COFI, as
opposed to Charter Michigan, will be assuming the outstanding
Haverfield stock options. If Charter Michigan, rather than COFI assumed
the Haverfield stock options, there is a substantial likelihood that
the Company Merger coupled with the Michigan Merger would constitute a
reorganization under Section 368(a)(1)(C) of the Code, but then adverse
tax consequences are likely to arise upon the transfer by COFI of its
stock to Charter Michigan to satisfy the exercise of outstanding
Haverfield stock options.
We do not believe that the traditional "safe harbor" test (i.e.
qualification as a reorganization under Section 368(a)(1)(C) of the
Code) is required to be satisfied in connection with the Company Merger
and the Michigan Merger by virtue of the following: (a) the consistent
favorable private letter ruling position of the Internal Revenue
Service in the 1980s through the date hereof relating to successive
statutory mergers satisfying continuity of interest requirements; (b)
Income Tax Regulations Section 1.338-2(c)(3), effective for transfers
after October 26, 1995, treating the acquiring parent corporation in a
qualified stock purchase as the historical "old and cold" shareholder
of the acquired company for purposes of satisfying continuity
requirements in connection with the transfer of assets of the acquired
company to another controlled subsidiary of the acquiring company in a
reorganization under Section 368(a)(1)(A), (D) or (F) of the Code; and
(c) proposed Income Tax Regulations Section 1.368-1(f), issued January 2,
1997, to be effective when published in final form.
While private letter rulings ("PLRs") do not constitute precedent
for any other transaction, such PLRs in the area of successive
statutory mergers clearly reflect the consistent position of the
Internal Revenue Service permitting such transactions to satisfy remote
continuity of interest under the less stringent reorganization
standards of Section 368(a)(1)(A) of the Code as opposed to the more
stringent standards required under Section 368(A)(1)(C) of the Code. In
this regard, PLR 8619035 involved a transaction substantially similar
to the Company Merger and the Michigan Merger (i.e. a reverse
triangular merger followed by the target company being merged shortly
thereafter into another first-tier subsidiary of the parent company).
In that transaction, the parent company did not intend to undertake the
second merger on the day it completed the first merger, yet on the day
after completion of the first merger the parent changed its mind, and
undertook and completed the second merger on such day. The Internal
Revenue Service ruled that the two
<PAGE> 4
Boards of Directors
August 7, 1997
Page 4
-----------------------------------------------------------------------
transactions were independent of each other (not integral steps of a
single transaction) and treated the first merger as a reorganization
under Section 368(a)(1)(A) of the Code by virtue of Section
368(a)(2)(E) of the Code and the second merger as a reorganization
within the meaning of Section 368(a)(1)(A) of the Code. PLR 9644046
involved facts identical to the Company Merger and the Michigan Merger.
In that transaction, the target company was acquired by the parent
company in a reverse triangular merger and the target company was
immediately merged into another first tier subsidiary of the parent
company who continued the historic business of target. Both mergers
were integral parts of a single transaction. The Internal Revenue
Service disregarded the first merger and treated the second merger as
the only transaction occurring for federal income tax purposes. The
Internal Revenue reached the same conclusion in PLR 9539018 which
involved a forward triangular merger immediately followed by the merger
of the resulting entity into the parent company. The first merger was
disregarded and the transaction was treated for federal income tax
purposes as a merger of the target company directly into the parent
company. PLRs 9529034 and 9620013 deal specifically with continuity of
interest issues in connection with the acquisition by a parent company
of a target company in a triangular reorganization followed by the
subsequent merger of the resulting entity into another wholly owned
direct or indirect subsidiary of the parent company. In each of those
transactions, the Internal Revenue Service ruled that the second merger
would not prevent the first merger from satisfying the continuity
interest requirements of Income Tax Regulations Section 1.368-1(b) or
satisfying the "substantially all" requirements of Section 368(a)(2)(D)
or (E) of the Code and that the second merger would satisfy the
continuity of interest requirements of Income Tax Regulations
Section 1.368-1(b).
Prior to Income Tax Regulations Section 1.338-2(c)(3) becoming
effective, it was unclear based upon historical but outdated judicial
precedents whether a reverse triangular cash-out merger could be
followed by the merger of the acquired corporation into another member
of the consolidated group of the acquiring parent corporation without
the acquired corporation being subject to potential adverse corporate
level tax consequences. In this regard, the historical judicial
precedents concluded that the second-step merger could not qualify as a
tax-free reorganization because the historical shareholders of the
acquired corporation were cashed out in the first merger (i.e. cash-out
merger). The function of Income Tax Regulations Section 1.338-2(c)(3)
is to give clear guidance that corporate restructuring within the
consolidated group of the acquiring parent corporation after a reverse
triangular cash-out merger is permissible under Section 368(a) of the
Code. In reaching this conclusion the Regulations specifically provide
that in a qualified stock purchase transaction, such as a reverse
triangular cash-out merger, that qualifies as a carryover basis
transaction the acquiring parent corporation shall be deemed the
historical "old and cold" shareholder for purposes of continuity of
interest and a subsequent tax-free reorganization of the acquired
corporation within the consolidated group of the acquiring parent
corporation. In light of Income Tax Regulations Section 1.338-2(c)(3),
we do not believe it is realistic for the Internal Revenue Service
to conclude in circumstances such as the Company Merger and the
Michigan Merger, whether or not such transactions are deemed
<PAGE> 5
Boards of Directors
August 7, 1997
Page 5
-----------------------------------------------------------------------
to be independent of each other or as part of a single transaction,
that continuity of interest is lacking when in fact the historical
shareholders of Haverfield retain full continuity of ownership through
their receipt of COFI Common Stock in the Company Merger.
While we believe that the doctrine of "remote continuity of
interest" has been sufficiently liberalized to permit the Company
Merger and the Michigan Merger to qualify as a reorganization under
Section 368(a)(1)(A) of the Code by virtue of Section 368(a)(2)(D) of
the Code (viewing both transactions for federal income tax purposes as
a single transaction) or, alternatively, as two separate tax-free
reorganizations (the transactions being deemed independent of each
other) with the Company Merger qualifying as a reorganization under
Section 368(a)(1)(A) of the Code by virtue of Section 368(a)(2)(E) of
the Code and the Michigan Merger qualifying as a reorganization under
Section 368(a)(1)(A) of the Code, any uncertainty relating to this
issue will be clearly eliminated when proposed Income Tax Regulations
Section 1.368-1(f) are published, as proposed, in final form. In the
area of successive statutory mergers like the Company Merger and the
Michigan Merger, we believe that the referenced proposed Regulation is
a mere codification of existing permissible practices.
ASSUMPTIONS
A. The Company Merger and the Michigan Merger will be
implemented strictly in accordance with the terms of the Agreement.
B. All conditions precedent contained in the Agreement shall
be performed or waived prior to the Effective Time.
C. The representations of Haverfield and COFI to be made in
their respective tax representation letters to counsel as of the
Effective Time, in the form of Exhibits A and B hereto, shall be true
and correct.
D. All of the stockholders of Haverfield are citizens of the
United States of America.
OPINIONS
Subject to the foregoing and to the conditions and limitations
expressed elsewhere herein, we are of the opinion that for federal
income tax purposes:
1. the Company Merger will constitute a tax-free reorganization
within the meaning of Section 368(a)(1)(A) of the Code by virtue of
Section 368(a)(2)(E) of the Code and COFI, Merger Sub and Haverfield
will each be a party to such reorganization, and the Michigan Merger
will
<PAGE> 6
Boards of Directors
August 7, 1997
Page 6
-----------------------------------------------------------------------
constitute a tax-free reorganization within the meaning of Section
368(a)(1)(A) of the Code and Haverfield and Charter Michigan will each
be a party to such reorganization; or alternatively, the Company Merger
will be disregarded and the Michigan Merger will constitute a tax-free
reorganization within the meaning of Section 368(a)(1)(A) of the Code by
virtue of Section 368(a)(2)(D) of the Code and COFI, Haverfield and
Charter Michigan will each be a party to such reorganization;
2. no gain or loss will be recognized by any stockholder of
Haverfield upon the exchange of Haverfield Common Stock solely for COFI
Common Stock in the Company Merger, and that the basis of the COFI
Common Stock received by each stockholder of Haverfield who exchanges
Haverfield Common Stock solely for COFI Common Stock in the Company
Merger will be the same as the basis of the Haverfield Common Stock
surrendered and exchanged therefor (subject to any adjustments required
as the result of receipt of cash in lieu of a fractional share of COFI
Common Stock);
3. the holding period of the COFI Common Stock received by a
stockholder of Haverfield in the Company Merger will include the
holding period of the Haverfield Common Stock surrendered and exchanged
therefor, provided that such shares of Haverfield Common Stock were
held as a capital asset by such stockholder at the Effective Time; and
4. the cash received by a Haverfield stockholder in lieu of a
fractional share interest of COFI 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 COFI
Common Stock which such stockholder would otherwise be entitled to
receive and will qualify as a capital gain or loss (assuming the
Haverfield Common Stock was a capital asset in such stockholder's hands
at the Effective Time).
The foregoing opinion reflects our legal judgment based upon the
legal analysis discussed above solely on the issues presented herein.
This opinion has no official status or binding effect of any kind.
Accordingly, we cannot assure you that the Internal Revenue Service or
any court of competent jurisdiction will agree with this opinion.
We consent to the use of this opinion to the incorporation by
reference of such opinion as an exhibit to the Registration Statement
and to the reference to our firm and our opinion under the heading
"Legal Matters" in the Registration Statement filed by COFI, and all
amendments thereto. In giving this consent, we do not admit that we are
within the category of persons whose consent is required under Section
7 of the Securities Act or the rules and regulations of the SEC
thereunder.
Very truly yours,
/s/ Silver, Freedman & Taff, L.L.P.
SILVER, FREEDMAN & TAFF, L.L.P.
<PAGE> 7
Exhibit A
REPRESENTATION LETTER
---------------------
The undersigned, William A. Valerian, President of Haverfield Corporation
("Haverfield") and Home Bank, F.S.B.("Home Bank"), HEREBY CERTIFIES that (a) I
am familiar with the terms and conditions of the Agreement and Plan of Merger
and Reorganization by and between Charter One Financial, Inc. ("COFI"), Charter
Michigan Bancorp, Inc. ("Charter Michigan"), Charter One Bank F.S.B. ("Charter
One Bank"), Haverfield and Home Bank dated April 22, 1997 (the "Agreement")
including the schedules and exhibits thereto and (b) I am aware that this
Representation Letter will be relied on by Silver, Freedman and Taff, L.L.P. in
rendering its tax opinion to the Boards of Directors of COFI and Haverfield
pursuant to the Agreement and also in connection with filings with the SEC and
regulatory authorities relating to the transactions contemplated by the
Agreement. All capitalized terms not otherwise defined herein shall have the
meaning assigned to them in the Agreement.
The undersigned HEREBY FURTHER CERTIFIES, ON BEHALF OF HAVERFIELD and HOME
BANK, that:
(1) As of the date hereof, the facts which relate to the Company
Merger and related transactions as described in the Proxy Statement, insofar as
such facts pertain to Haverfield and Home Bank, are true, correct and complete
and, insofar as such facts pertain to COFI, Charter Michigan and Charter One
Bank, the managements of Haverfield and Home Bank have no reason to believe that
such facts are untrue, incorrect and incomplete.
(2) The Company Merger will be carried out strictly in accordance with
the Agreement and as described in the Proxy Statement.
(3) The aggregate fair market value of the consideration to be
received in the Company Merger by each holder of Haverfield Common Stock will be
approximately equal to the aggregate fair market value of the Haverfield Common
Stock surrendered in exchange therefor, as determined by arm's length
negotiations between Haverfield and COFI. Except with respect to Dissenting
Shares, no holder of Haverfield Common Stock will receive in exchange for such
stock, directly or indirectly, any consideration other than COFI Common Stock
and cash paid in lieu of a fractional share of COFI Common Stock.
<PAGE> 8
(4) There is no plan, intention or other arrangement (including any
option or pledge) on the part of the holders of 5% or more of the Haverfield
Common Stock and, to the best knowledge of management of Haverfield, there is no
plan, intention or other arrangement (including any option or pledge) on the
part of the other holders of Haverfield Common Stock to sell, exchange or
otherwise dispose of a number of shares of COFI Common Stock received by such
holders in the Company Merger that would reduce such holders' ownership of COFI
Common Stock to a number of shares having a value, as of the Effective Time, of
less than 50 percent of the value of all of the formerly outstanding Haverfield
Common Stock as of the same date. For purposes of this representation, shares of
Haverfield Common Stock exchanged for cash or other property, or exchanged for
cash in lieu of fractional shares of COFI Common Stock, will be treated as
outstanding at the Effective Time. Moreover, all shares of Haverfield Common
Stock and shares of COFI Common Stock held by Haverfield stockholders and
otherwise sold, redeemed, or disposed of before or after the Effective Time
(including Dissenting Shares) will be taken into account in making this
representation.
(5) Each of the liabilities of Haverfield and Home Bank were incurred
in the ordinary course of business.
(6) No assets of Haverfield have been or will be sold, transferred or
otherwise disposed of prior to the Effective Time which would prevent Charter
Michigan upon consummation of the Michigan Merger from continuing the historic
business of Haverfield or from using a significant portion of Haverfield's
historic business assets in a business following the Michigan Merger; and no
assets of Home Bank have been or will be sold, transferred or otherwise disposed
of prior to the Effective Time which would prevent Charter One Bank from
continuing the historic business of Home Bank or from using a significant
portion of Home Bank's historic business assets in a business following the Bank
Merger. To the best knowledge of management of Haverfield and Home Bank, none of
COFI, Charter Michigan or Charter One Bank has any plan or intention to sell,
exchange, distribute, transfer or otherwise dispose of, except in the ordinary
course of business and except for transfers permitted by Section 368(a)(2)(C) of
the Code, any of Haverfield's assets to be acquired by Charter Michigan in the
Michigan Merger or any of the assets of Home Bank to be acquired by Charter One
Bank in the Bank Merger.
(7) Haverfield, Home Bank, COFI, Merger Sub, Charter Michigan, Charter
One Bank and the stockholders of Haverfield will each pay their own expenses
incurred in connection with the Company Merger, the Michigan Merger and the Bank
Merger.
A-2
<PAGE> 9
(8) Haverfield has not paid and will not pay (and has not reimbursed
and will not reimburse), directly or indirectly, any expenses incurred by any
holder of Haverfield Common Stock in connection with the Company Merger or any
related transactions. Haverfield has not agreed to assume and will not directly
or indirectly assume any expense or other liability, whether fixed or
contingent, of any holder of Haverfield Common Stock.
(9) Neither Haverfield nor Home Bank is an "investment company" within
the meaning of Section 368(a)(2)(F) of the Code or a real estate investment
trust within the meaning of Section 856 of the Code.
(10) Neither Haverfield nor Home Bank is under the jurisdiction of a
court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A)
of the Code.
(11) The payment in the Company Merger of cash in lieu of fractional
shares of COFI Common Stock is solely for the purpose of avoiding the expense
and inconvenience to COFI of issuing fractional shares of COFI Common Stock and
does not represent separately bargained for consideration.
(12) At the Effective Time, both the total adjusted basis and the
total fair market value of the Haverfield assets will exceed the total
liabilities of Haverfield and both the total adjusted basis and the total fair
market value of the Home Bank assets will exceed the total liabilities of Home
Bank.
(13) No compensation received by any stockholder of Haverfield who is
an employee of Haverfield or Home Bank is or will be separate consideration for,
or allocable to, any of his or her shares of Haverfield Common Stock. None of
the shares of COFI Common Stock received by any stockholder of Haverfield who is
an employee of Haverfield or Home Bank is or will be separate consideration for,
or allocable to, any employment, consulting or other similar arrangement. The
compensation paid to each stockholder of Haverfield who is an employee of
Haverfield or Home Bank is and will be for services actually rendered and is an
amount commensurate with amounts paid to third parties bargaining at arm's
length for similar services.
(14) No indebtedness between Haverfield or any of its subsidiaries, on
the one hand, and COFI or any of its subsidiaries, on the other hand, exists or
will exist prior to the Effective Time that (a) was issued or acquired at a
discount or (b) will be settled, as a result of the Company Merger, at a
discount. No "installment obligation" (as the quoted term is defined for
purposes of Section 453 B of the Code) between Haverfield or Home Bank, on the
one hand, and COFI, Charter Michigan or
A-3
<PAGE> 10
Charter One Bank, on the other hand, exists or will exist prior to the Effective
Time that will be extinguished as a result of any of the transactions
contemplated by the Agreement.
(15) Haverfield has not redeemed any Haverfield Common Stock, made any
distribution with respect to Haverfield Common Stock or disposed of any of its
assets in anticipation of or as part of the Merger. Home Bank has not redeemed
any of the Home Bank common stock, made any distribution with respect to the
Home Bank common stock, or disposed of any of its assets in anticipation of or
as part of the transactions contemplated by the Agreement.
(16) Except for outstanding options under the 1985 Option Plan and the
1995 Option Plan as of April 22, 1997, there exists no options, warrants,
convertible securities or other rights to acquire Haverfield stock.
(17) No shares of Haverfield Common Stock are held by any affiliate of
Haverfield except as disclosed in Haverfield's most recent annual report on form
10- K.
(18) During the five-year period ending at the Effective Time, neither
COFI nor any affiliate of COFI has owned or owns, beneficially or of record, any
stock or securities of Haverfield or Home Bank or any predecessor thereof or any
instruments giving any of them the right to acquire any such stock or securities
except as disclosed in the Proxy Statement.
(19) To the best knowledge of management of Haverfield, neither COFI
nor any affiliate of COFI intends to acquire or redeem by purchase or otherwise
acquire any of the shares of COFI Common Stock to be issued pursuant to the
Company Merger, (except pursuant to the ordinary operation of a stock repurchase
program that may be implemented by COFI to acquire its shares in the open
market) or to make any distributions with respect to such stock, other than
regular, periodic dividends.
(20) Assuming the Michigan Merger and Bank Merger are consummated on
the same date as the Effective Time, Haverfield will transfer to Charter
Michigan and Charter Michigan will acquire from Haverfield in the Michigan
Merger assets representing at least 90 percent of the fair market value of
Haverfield's net assets and at least 70 percent of the fair market value of
Haverfield's gross assets held immediately prior to the Company Merger, and Home
Bank will transfer to Charter One Bank and Charter One Bank will acquire from
Home Bank in the Bank Merger assets representing at least 90 percent of the fair
market value of Home Bank's net assets and at least 70 percent of the fair
market value of Home Bank's gross assets
A-4
<PAGE> 11
held immediately prior to the Bank Merger. For purposes of this representation,
assets used (i) to pay reorganization expenses, (ii) for redemptions and
distributions (including payment for Dissenting Shares, but excluding normal,
regular dividends paid by Haverfield) and (iii) to pay other amounts, if any,
incurred in connection with the Company Merger, Michigan Merger and Bank Merger
will be included as assets immediately prior to the consummation of each such
transaction.
(21) To the best knowledge of management of Haverfield, COFI has no
plan or intention to liquidate Charter Michigan or Charter One Bank, to merge
Charter Michigan or Charter One Bank into another corporation, to sell or
otherwise dispose of any of the capital stock of Charter Michigan or Charter One
Bank, or to sell, transfer, or dispose any of the assets of Charter Michigan or
Charter One Bank outside the ordinary course of business in connection with or
following consummation of the transactions contemplated by the Agreement.
The undersigned agrees to promptly and timely notify Silver, Freedman
and Taff, L.L.P. if he has any reason to believe that any of the above
representations are untrue, incorrect or incomplete.
This Representation Letter is hereby executed on the ___ day of
______, 1997.
--------------------------------
By: William A. Valerian
President
A-5
<PAGE> 12
Exhibit B
REPRESENTATION LETTER
---------------------
The undersigned, Robert J. Vana, Chief Corporate Counsel and Secretary of
Charter One Financial, Inc. ("COFI"), Charter Michigan Bancorp, Inc. ("Charter
Michigan") and Charter One Bank F.S.B. ("Charter One Bank"), HEREBY CERTIFIES
that (a) I am familiar with the terms and conditions of the Agreement and Plan
of Merger and Reorganization by and between Haverfield Corporation
("Haverfield"), Home Bank, F.S.B. ("Home Bank"), COFI, Charter Michigan and
Charter One Bank dated April 22, 1997 (the "Agreement") including the schedules
and exhibits thereto and (b) I am aware that this Representation Letter will be
relied on by Silver, Freedman and Taff, L.L.P. in rendering its tax opinion to
the Boards of Directors of COFI and Haverfield pursuant to the Agreement and
also in connection with filings with the SEC and regulatory authorities relating
to the transactions contemplated by the Agreement. All capitalized terms not
otherwise defined herein shall have the meaning assigned to them in the
Agreement.
The undersigned HEREBY FURTHER CERTIFIES, ON BEHALF OF COFI, CHARTER
MICHIGAN AND CHARTER ONE BANK, that:
(1) As of the date hereof, the facts which relate to the transactions
contemplated by the Agreement, insofar as such facts pertain to COFI, Charter
Michigan and Charter One Bank, are true, correct and complete and, insofar as
such facts pertain to Haverfield and Home Bank, the managements of COFI, Charter
Michigan and Charter One Bank have no reason to believe that such facts are
untrue, incorrect and incomplete.
(2) The Company Merger, Michigan Merger and Bank Merger will be
carried out strictly in accordance with the Agreement.
(3) The aggregate fair market value of the consideration to be
received in the Company Merger by each holder of Haverfield Common Stock will be
approximately equal to the aggregate fair market value of the Haverfield Common
Stock surrendered in exchange therefor, as determined by arm's length
negotiations between COFI and Haverfield. Except with respect to Dissenting
Shares, no holder of Haverfield Common Stock will receive in exchange for such
stock, directly or indirectly, any consideration other than COFI Common Stock
and cash paid in lieu of a fractional share of COFI Common Stock.
<PAGE> 13
No cash or other property will be paid to any stockholder of
Haverfield pursuant to the Michigan Merger or the Bank Merger, and no shares of
stock will be issued pursuant to the Michigan Merger or the Bank Merger.
(4) The management of COFI is not aware of any plan, intention or
other arrangement (including any option or pledge) on the part of the holders of
5% or more of the Haverfield Common Stock or on the part of the other holders of
Haverfield Common Stock to sell, exchange or otherwise dispose of a number of
shares of COFI Common Stock received by such holders in the Company Merger that
would reduce such holders' ownership of COFI Common Stock to a number of shares
having a value, as of the Effective Time, of less than 50 percent of the value
of all of the formerly outstanding Haverfield Common Stock as of the same date.
For purposes of this representation, shares of Haverfield Common Stock exchanged
for cash or other property, or cash in lieu of fractional shares of COFI Common
Stock, will be treated as outstanding as of the Effective Time. Moreover, all
shares of Haverfield Common Stock and shares of COFI Common Stock held by
Haverfield stockholders and otherwise sold, redeemed, or disposed of before or
after the Effective Time (including Dissenting Shares) will be taken into
account in making this representation.
(5) Merger Sub will have no liabilities assumed by Haverfield, and
will not transfer to Haverfield any assets subject to liabilities, in the
Company Merger.
(6) The assumption by Charter Michigan of the liabilities of
Haverfield, and the acquisition by Charter Michigan of the assets of Haverfield
which are subject to liabilities, pursuant to the Michigan Merger, and the
assumption by Charter One Bank of the liabilities of Home Bank, and the
acquisition by Charter One Bank of the assets of Home Bank which are subject to
liabilities, pursuant to the Bank Merger, are each for a bona fide business
purpose, and the principal purpose for each such assumption of liabilities and
acquisition of assets subject to liabilities is not the avoidance of federal
income tax on the transfer of such assets.
(7) Neither COFI, Charter Michigan nor Charter One Bank has any plan
or intention to sell, exchange, distribute, transfer or otherwise dispose of,
except in the ordinary course of business and except for transfers permitted by
Section 368(a)(2)(C) of the Code, any of Haverfield's assets to be acquired by
Charter Michigan in the Michigan Merger or any of Home Bank's assets to be
acquired by Charter One Bank in the Bank Merger. It is the intention of the
management of Charter Michigan to continue the historic business of Haverfield
or to use a significant portion of Haverfield's historic business assets in a
business following the Michigan Merger, and it is the intention of the
management of Charter One Bank to continue the historic business of Home Bank or
to use a significant portion of Home Bank's historic business assets in a
business following the Bank Merger.
(8) Haverfield, Home Bank, COFI, Merger Sub, Charter Michigan,
Charter One Bank and the stockholders of Haverfield will each pay their own
expenses
B-2
<PAGE> 14
incurred in connection with the Company Merger, the Michigan Merger and the Bank
Merger.
(9) In the Company Merger, shares of Haverfield stock representing
control of Haverfield, as defined in Section 368(c) of the Code, will be
exchanged solely for voting common stock of COFI. For purposes of this
representation, Haverfield stock exchanged for cash or other property
originating with COFI will be treated as outstanding Haverfield stock at the
Effective Time.
(10) None of COFI, Charter Michigan or Charter One Bank has paid or
will pay (or has reimbursed or will reimburse), directly or indirectly, any
expenses incurred by any holder of Haverfield Common Stock in connection with
the transactions contemplated by the Agreement; and none of them has agreed to
assume or will directly or indirectly assume, any expense or other liability,
whether fixed or contingent, of any holder of Haverfield Common Stock.
(11) None of COFI, Charter Michigan or Charter One Bank is an
"investment company" within the meaning of Section 368(a)(2)(F) of the Code or a
real estate investment trust within the meaning of Section 856 of the Code.
(12) None of COFI, Charter Michigan or Charter One Bank is under the
jurisdiction of a court in a Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
(13) The payment of cash to Haverfield stockholders in lieu of
fractional shares of COFI Common Stock will not be separately bargained for
consideration, but will be undertaken solely for the purpose of avoiding the
expense and inconvenience of issuing and transferring fractional shares. The
total cash consideration that will be paid to Haverfield stockholders in lieu of
fractional shares of COFI Common Stock will represent less than one percent (1%)
of the total consideration issued in the transaction.
(14) None of the compensation received by any stockholder who is an
employee of Haverfield or Home Bank represents separate consideration for, or is
allocable to, any of his or her Haverfield Common Stock. None of the COFI Common
Stock that will be received by any stockholder who is an employee of Haverfield
or Home Bank in the Company Merger represents separately bargained for
consideration which is allocable to any employment agreement or arrangement.
(15) No indebtedness between COFI or any of its subsidiaries, on the
one hand, and Haverfield or any of its subsidiaries, on the other hand, exists
or will exist prior to the consummation of the transactions contemplated by the
Agreement that (a) was issued or acquired at a discount or (b) will be settled,
as a result of any of such transactions, at a discount. No "installment
obligation" (as the quoted term is defined for purposes of Section 453 B of the
Code) between COFI or any of its subsidiaries, on the one hand, and Haverfield
or any of its subsidiaries, on the other hand, exists or will exist prior to the
consummation of the transactions contemplated by the Agreement that will be
extinguished as a result thereof.
B-3
<PAGE> 15
(16) During the five-year period ending at the Effective Time,
neither COFI nor any affiliate of COFI has owned or owns, beneficially or of
record, any stock or securities of Haverfield or Home Bank or any predecessor
thereof or any instruments giving any of them the right to acquire any such
stock or securities except as disclosed in the Proxy Statement.
(17) COFI has no plan or intention to redeem or otherwise reacquire
any of its stock to be issued in the Company Merger, except for purchases of
stock in the open market in the normal course of business executed through an
independent broker in which COFI is not aware of the identity of any seller or
in private placement transactions in which the sellers are not former Haverfield
stockholders.
(18) To the best of COFI's knowledge and belief, the Company Merger,
if viewed independently, will qualify as a reorganization under Sections
368(a)(1)(A) and 368(a)(2)(E) of the Code.
(19) To the best of COFI's knowledge and belief, the Michigan Merger,
if viewed independently, will qualify as a reorganization under Section
368(a)(1)(A) or 368(a)(1)(D) of the Code.
(20) To the best of COFI's knowledge and belief, if the Company
Merger and the Michigan Merger were structured as a one step merger of
Haverfield with and into Charter Michigan, such transaction would qualify as a
reorganization under Sections 368(a)(1)(A) and 318(a)(2)(D) of the Code.
(21) Prior to the Michigan Merger and the Bank Merger, COFI will be
in control of Haverfield and Home Bank within the meaning of Section 368(c) of
the Code, and following the Michigan Merger and the Bank Merger, neither Charter
Michigan nor Charter One Bank will issue additional shares of its stock.
(22) At the time of the Company Merger and the Michigan Merger, both
the total adjusted basis and the total fair market value of the Haverfield
assets will exceed the total liabilities of Haverfield; and at the time of the
Bank Merger, both the total adjusted basis and the total fair market value of
the Home Bank assets will exceed the total liabilities of Home Bank. For
purposes of this representation, the undersigned is relying on the accuracy of
representation #12 in the Haverfield Representation Letter of even date
herewith.
(23) Immediately following the Company Merger and prior to the
Michigan Merger, Haverfield will hold at least 90 percent of the fair market
value of its net assets and at least 70 percent of the fair market value of its
gross assets, and at least 90 percent of the fair market value of Merger Sub's
net assets and at least 70 percent of the fair market value of Merger Sub's
gross assets held immediately prior to the Effective Time. Haverfield will
transfer to Charter Michigan and Charter Michigan will acquire from Haverfield
in the Michigan Merger assets representing at least 90 percent of the fair
market value of Haverfield's net assets and at least 70 percent of the fair
market value of Haverfield's gross assets held immediately prior to the Company
Merger and the Michigan Merger, and Home Bank will transfer to Charter One Bank
and Charter One Bank will acquire from Home Bank in the Bank Merger assets
representing at least 90 percent of the fair market value of Home Bank's net
assets and at least 70 percent of the fair market value of Home Bank's gross
assets held immediately prior to the Bank Merger. For purposes hereof, assets
used (i) to
B-4
<PAGE> 16
pay reorganization expenses, (ii) for redemptions and distributions (including
payment for Dissenting Shares, but excluding regular, normal dividends paid by
Haverfield) and (iii) to pay other amounts, if any, incurred in connection with
the Company Merger, Michigan Merger and Bank Merger will be included as assets
immediately prior to the consummation of each such transaction. For purposes
of this representation, the undersigned is relying on the accuracy of
representation #20 contained in the Haverfield Representation Letter of even
date herewith.
(24) COFI has no plan or intention to liquidate Charter Michigan or
Charter One Bank, to merge Charter Michigan or Charter One Bank into another
corporation, to sell or otherwise dispose of any stock of Charter Michigan or
Charter One Bank, or to sell, transfer or dispose of any assets of Charter
Michigan or Charter One Bank outside the ordinary course of business in
contemplation of or following the consummation of the transactions contemplated
by the Agreement.
(25) No stock of Charter Michigan or Charter One Bank will be issued
pursuant to the Michigan Merger or the Bank Merger.
(26) All shares of COFI Common Stock to be transferred to the
stockholders of Haverfield pursuant to the Company Merger will be newly issued
and will be transferred directly by COFI to such stockholders in the Company
Merger.
The undersigned agrees to promptly and timely notify Silver, Freedman
and Taff, L.L.P. if he has any reason to believe that any of the above
representations are untrue, incorrect or incomplete.
This Representation Letter is hereby executed on the ____ day of
_____, 1997.
-----------------------------
By: Robert J. Vana
Chief Corporate Counsel and
Secretary
B-5
<PAGE> 1
AMENDMENT NO. 3
TO THE
CHARTER ONE BANK, F.S.B.
EMPLOYEE SAVINGS PLAN AND TRUST
WHEREAS, First Federal Savings Bank, known as Charter One Bank, F.S.B.
(the "Company") effective October 1, 1992, previously established The First
Federal Savings Bank Employee Savings Plan as renamed effective October 1, 1992,
the Charter One Bank, F.S.B. Employee Savings Plan (the "Plan") and Trust
Agreement (the "Trust") which were originally effective January 1, 1985, most
recently restated effective July 1, 1992 and subsequently amended:
WHEREAS, Section 19.1 of the Plan and Trust provides that the Company
reserves the right to amend the Plan and Trust;
NOW THEREFORE RESOLVED, that Sections 4, 9, 10, 11 and 17 are amended
effective January 1, 1993, Section 1 is amended effective January 1, 1994 and
Section 7 is amended effective July 1, 1994 as follows:
Effective January 1, 1993:
- --------------------------
1. Section 4 is amended to restate the first paragraph of Subsection 4.1
in its entirety as follows:
4.1 Rollovers
The Administrator may authorize the Trustee to accept a
rollover contribution in cash, within the meaning of Code
section 402(c) or 408(d)(3)(A)(ii), directly from an Eligible
Employee or as a Direct Rollover, as such term is defined in
Section 11, from another qualified plan on behalf of the
Eligible Employee, even if he is not yet a Participant. The
Employee shall be responsible for furnishing satisfactory
evidence, in such manner as prescribed by the Administrator,
that the amount is eligible for rollover treatment. A rollover
contribution received directly from an Eligible Employee must
be paid to the Trustee in cash within 60 days after the date
received by the Eligible Employee from a qualified plan or
conduit individual retirement account. Contributions described
in this paragraph shall be posted to the applicable Employee's
Rollover Account as of the date received by the Trustee.
2. Section 9 is amended to restate Subsection 9.8 in its entirety as
follows:
9.8 Loan Application, Note and Security
A Participant shall apply for any loan in such manner and with
such advance notice as prescribed by the Administrator. All
loans shall be evidenced by a promissory note, secured only by
the portion of the Participant's Account from which the loan
is made, and the Plan shall have a lien on this portion of his
Account. The promissory note may be evidenced by the
Participant's endorsement on the check representing the loan
proceeds.
1
<PAGE> 2
CHARTER ONE BANK, F.S.B. AMENDMENT NO. 3
EMPLOYEE SAVINGS PLAN AND TRUST
3. Section 10 is amended to add a sentence prior to 10.4 (a), to restate
Subsection 10.4 (b), to add a new Subsection 10.4 (c), to restate
Subsection 10.4 (d) (formerly Subsection 10.4 (c)), to redesignate
existing Subsections, and to restate Subsection 10.4 (h) to delete the
last sentence thereof (formerly Subsection 10.4 (g)) as follows:
10.4 Withdrawal Processing
The terms Direct Rollover, Distributee, Eligible Rollover
Distribution and Eligible Retirement Plan as referenced below
are defined in Section 11.
(b) Application and Notice. A Participant shall apply for
any in-service withdrawal in such manner and with
such advance notice as prescribed by the
Administrator. Effective for in-service withdrawals
applied for after December 31, 1992, the Participant
shall be provided the notice prescribed by Code
section 402(f).
(c) Waiver of 30-Day Notice Requirement. If an in-service
withdrawal is one to which Code sections 401(a)(11)
and 417 do not apply, such in-service withdrawal may
commence less than 30 days after the aforementioned
notice is provided, if:
(1) the Participant is clearly informed that he
has the right to a period of at least 30
days after receipt of such notice to
consider his option to elect or not elect a
Direct Rollover for the portion, if any, of
his in-service withdrawal which will
constitute an Eligible Rollover
Distribution; and
(2) the Participant after receiving such notice,
affirmatively elects a Direct Rollover for
the portion, if any, of his in-service
withdrawal which will constitute an Eligible
Rollover Distribution or alternatively
elects to have such portion made payable
directly to him, thereby not electing a
Direct Rollover.
(d) Approval. The Administrator, or the Trustee if
otherwise authorized by the Administrator and
expressly agreed to by the Trustee, is responsible
for determining that an in-service withdrawal request
conforms to the requirements described in this
Section and granting such request.
(h) In-Service Withdrawals After December 31, 1992. With
respect to distributions made on or after January 1,
1993, notwithstanding any provision of the Plan to
the contrary that would otherwise limit a
Distributee's election under this Section, a
Distributee may elect, at the time and in the manner
prescribed by the Plan Administrator, to have any
portion of an Eligible Rollover Distribution paid
directly to an Eligible Retirement Plan specified by
the Distributee in a Direct Rollover.
2
<PAGE> 3
CHARTER ONE BANK, F.S.B. AMENDMENT NO. 3
EMPLOYEE SAVINGS PLAN AND TRUST
4. Section 11 is amended to restate the Heading thereof and to restate
Subsection 11.1 in its entirety as follows:
11 DISTRIBUTION ONCE EMPLOYMENT ENDS OR AS REQUIRED BY LAW
-------------------------------------------------------
11.1 Benefit Information, Notices and Election
A Participant, or his Beneficiary in the case of his
death, shall be provided with information regarding
all optional times and forms of distribution
available, to include the notices prescribed by Code
section 402(f), effective January 1, 1993, and Code
section 411(a)(11). Subject to the other requirements
of this Section, a Participant, or his Beneficiary in
the case of his death, may elect, in such manner and
with such advance notice as prescribed by the
Administrator, to have his vested Account balance
paid to him beginning upon any Settlement Date
following the Participant's termination of employment
with all Related Companies or, if earlier, at the
time required by law as set forth in Section 11.6.
If a distribution is one to which Code sections
401(a)(11) and 417 do not apply, such distribution
may commence less than 30 days after the
aforementioned notices are provided, if:
(a) the Participant is clearly informed that he
has the right to a period of at least 30
days after receipt of such notices to
consider the decision as to whether to elect
a distribution and if so to elect a
particular form of distribution and to elect
or not elect a Direct Rollover for all or a
portion, if any, of his distribution which
will constitute an Eligible Rollover
Distribution; and
(b) the Participant after receiving such notice,
affirmatively elects a distribution and a
Direct Rollover for all or a portion, if
any, of his distribution which will
constitute an Eligible Rollover Distribution
or alternatively elects to have all or a
portion made payable directly to him,
thereby not electing a Direct Rollover for
all or a portion thereof.
The terms Direct Rollover and Eligible Rollover
Distribution as referenced above are defined in
Section 11.4.
5. Section 17 is amended to restate Subsection 17.4 (a) in its entirety as
follows:
17.4 Tax Withholding and Payment
(a) Withholding. Effective for taxable distributions made
on or before December 31, 1992, the Trustee shall
calculate and withhold federal (and, if applicable,
state) income taxes in accordance with a
Participant's withholding election. Effective for
taxable distributions made after
3
<PAGE> 4
CHARTER ONE BANK, F.S.B. AMENDMENT NO. 3
EMPLOYEE SAVINGS PLAN AND TRUST
December 31, 1992, the Trustee shall calculate and
withhold federal (and, if applicable, state) income
taxes with regard to any Eligible Rollover
Distribution that is not paid as a Direct Rollover.
With regard to any taxable distribution that is not
an Eligible Rollover Distribution, the Trustee shall
calculate and withhold federal (and, if applicable,
state) income taxes in accordance with the
Participant's withholding election.
Effective January 1, 1994:
- --------------------------
6. Sections 1 is amended to restate Subsections 1.13 and 1.34 each in its
entirety as follows:
1.13 "Compensation". The sum of a Participant's Taxable Income and
salary reductions, if any, pursuant to Code sections 125,
402(e)(3), 402(h), 403(b), 414(h)(2) or 457.
For purposes of determining benefits under this Plan,
Compensation is limited to $150,000 (as indexed for the cost
of living pursuant to Code sections 401(a)(17) and 415(d)) per
Plan Year.
For purposes of the preceding sentence, in the case of an HCE
who is a 5% Owner or one of the 10 most highly compensated
Employees, (i) such HCE and such HCE's family group (as
defined below) shall be treated as a single employee and the
Compensation of each family group member shall be aggregated
with the Compensation of such HCE, and (ii) the limitation on
Compensation shall be allocated among such HCE and his family
group members in proportion to each individual's Compensation
before the application of this sentence. For purposes of this
Section, the term "family group" shall mean an Employee's
spouse and lineal descendants who have not attained age 19
before the close of the year in question.
For the purpose of determining HCEs and key employees,
Compensation for the entire Plan Year shall be used. For the
purpose of determining ADP and ACP, Compensation shall be
limited to amounts paid to an Eligible Employee while a
Participant.
1.34 "Pay". The base pay, including retroactive wages, salary
continuation and deceased pay paid to an Eligible Employee by
an Employer while a Participant during the current period.
Pay is neither increased nor decreased by any salary credit or
reduction pursuant to Code sections 125 or 402(e)(3). Pay is
limited to $150,000 (as indexed for the cost of living
pursuant to Code sections 401(a)(17) and 415(d)) per Plan
Year.
4
<PAGE> 5
CHARTER ONE BANK, F.S.B. AMENDMENT NO. 3
EMPLOYEE SAVINGS PLAN AND TRUST
Effective July 1, 1994:
- -----------------------
7. Section 7 is amended to restate Subsection 7.2 in its entirety as
follows:
7.2 Investment Fund Elections
Each Participant (or Beneficiary) shall direct the investment
of all of his Contribution Accounts.
A Participant shall make his investment election in any
combination of one or any number of the Investment Funds
offered in accordance with the procedures established by the
Administrator and Trustee. The Administrator may set a maximum
percentage of the total election that a Participant may direct
into any specific Investment Fund.
Date: June 20 ,1994 CHARTER ONE BANK, F.S.B.
------------------ --
By: /s/ Judith E. Peterson
----------------------------------
Title: Senior Vice President
------------------------
The provisions of the above amendment which relate to the Trustee are hereby
approved and executed.
Date: July 15 ,1994 WELLS FARGO BANK, NATIONAL ASSOCIATION
-------------------- --
By: /s/ ????
------------------------------------
Title: Vice President
----------------------------
Date: July 15 ,1994 WELLS FARGO BANK, NATIONAL ASSOCIATION
-------------------- --
By: /s/ ????
------------------------------------
Title: Vice President
----------------------------
5
<PAGE> 6
AMENDMENT NO. 4
TO THE
CHARTER ONE BANK, F.S.B. EMPLOYEE SAVINGS PLAN AND TRUST
WHEREAS, First Federal Savings Bank, known as Charter One Bank, F.S.B.
(the "Company") effective October 1, 1992, previously established The First
Federal Savings Bank Employee Savings Plan as renamed effective October 1, 1992,
the Charter One Bank, F.S.B. Employee Savings Plan (the "Plan") and Trust
Agreement (the "Trust") which were originally effective January 1, 1985, most
recently restated effective July 1, 1992 and subsequently amended;
WHEREAS, Section 19.1 of the Plan and Trust provides that the Company
reserves the right to amend the Plan and Trust;
NOW THEREFORE RESOLVED, that Section 1 is amended effective July 1,
1995 as follows:
1. Section 1 is amended to restate Subsections 1.18 and 1.34 each in its
entirety as follows:
1.18 "Eligible Employee". A full time Employee of an Employer who
is compensated on a salaried basis or an Employee of an
Employer who is compensated on a commission only basis, except
any Employee who is treated as an Employee because he or she
is a Leased Employee.
1.34 "Pay". All cash compensation paid to an Eligible Employee by
an Employer while a Participant during the current period. Pay
excludes reimbursements or other expense allowances, cash and
non-cash fringe benefits, moving expenses, deferred
compensation and welfare benefits.
Pay is neither increased by any salary credit or decreased by
any salary reduction pursuant to Code sections 125 or
402(e)(3). Pay is limited to $150,000 (as indexed for the cost
of living pursuant to Code sections 401(a)(17) and 415(d)) per
Plan Year.
Date: June 28 ,1995 CHARTER ONE BANK, F.S.B.
------------------ --
By: /s/ Judith E. Peterson
-------------------------------
Title: Senior Vice President
-----------------------
1
<PAGE> 7
CHARTER ONE BANK, F.S.B. AMENDMENT NO. 4
EMPLOYEE SAVINGS PLAN AND TRUST
The provisions of the above amendment which relate to the Trustee are hereby
approved and executed.
Date: September 21 ,1995 WELLS FARGO BANK, NATIONAL ASSOCIATION
-------------------- --
By: /s/
-----------------------------------
Title:
----------------------------
Date: September 21 ,1995 WELLS FARGO BANK, NATIONAL ASSOCIATION
-------------------- --
By: /s/
-----------------------------------
Title:
----------------------------
2
<PAGE> 8
AMENDMENT NO. 5
TO THE
CHARTER ONE BANK, F.S.B. EMPLOYEE SAVINGS PLAN AND TRUST
WHEREAS, First Federal Savings Bank, known as Charter One Bank, F.S.B.
(the "Company") effective October 1, 1992, previously established The First
Federal Savings Bank Employee Savings Plan as renamed effective October 1, 1992,
the Charter One Bank, F.S.B. Employee Savings Plan (the "Plan") and Trust
Agreement (the "Trust") which were originally effective January 1, 1985, most
recently restated effective July 1, 1992 and subsequently amended;
WHEREAS, Section 19.1 of the Plan and Trust provides that the Company
reserves the right to amend the Plan and Trust;
NOW THEREFORE RESOLVED, that Sections 1, 8, 14 and 19 are amended
effective July 1, 1992, Sections 3, 11 and 12 are amended effective January 1,
1993, Section 13 is amended effective January 1, 1995, Section 1 is amended
effective July 1, 1995 and Section 11 is amended as of the execution date of
this Amendment as follows:
Effective July 1, 1992:
- -----------------------
1. Section 1 is amended to restate Subsections 1.18 and 1.22 each in its
entirety as follows:
1.18 "Eligible Employee". An Employee of an Employer who is
compensated on a salaried basis, except any Employee who is
treated as an Employee because he is a Leased Employee.
1.22 "Forfeiture Account". An account holding amounts forfeited by
Participants who have left the Employer, invested in interest
bearing deposits of the Trustee, pending disposition as
provided in this Plan and Trust as directed by the
Administrator.
2. Section 8 is amended to restate Subsection 8.4 in its entirety as
follows:
8.4. Forfeitures
A Participant's non-vested Account balance shall be forfeited
as of the Settlement Date following the Sweep Date on which
the Administrator has reported to the Trustee that the
Participant's employment has terminated with all Related
Companies. Forfeitures from all Employer Contribution Accounts
shall be transferred to and maintained in a single Forfeiture
Account, which shall be invested in interest bearing deposits
of the Trustee. Forfeiture Account amounts shall be utilized
to restore Accounts, to pay Plan fees and expenses to reduce
Employer Matching Contributions as directed by the
Administrator.
1
<PAGE> 9
CHARTER ONE BANK, F.S.B. AMENDMENT NO. 5
EMPLOYEE SAVINGS PLAN AND TRUST
3. Section 14 is amended to restate Subsections 14.1(a) and (b) each in
its entirety as follows:
14.1 Top Heavy Definitions
When capitalized, the following words and phrases have the
following meanings when used in this Section:
(a) "Aggregation Group". The group consisting of each
qualified plan of an Employer (and its Related
Companies) (1) in which a Key Employee is a
participant or was a participant during the
determination period (regardless of whether such plan
has terminated), or (2) which enables another plan in
the group to meet the requirements of Code sections
401(a)(4) or 410(b). The Employer may also treat any
other qualified plan as part of the group if the
group would continue to meet the requirements of Code
sections 401(a)(4) and 410(b) with such plan being
taken into account.
(b) "Determination Date". The last day of the preceding
Plan Year, or with regard to the Plan's initial Plan
Year, the last day of that Plan Year.
4. Section 19 is amended to restate the Heading thereof, to add a new
Subsection 19.3, to redesignate each subsequent Subsection and to
restate Subsection 19.4 (formerly Subsection 19.3) in its entirety as
follows:
19 AMENDMENT, MERGER, DIVESTITURES AND TERMINATION
-----------------------------------------------
19.3 Divestitures
In the event of a sale by an Employer which is a
corporation of: (1) substantially all of the
Employer's assets used in a trade or business to an
unrelated corporation, or (2) a sale of such
Employer's interest in a subsidiary to an unrelated
entity or individual, lump sum distributions shall be
permitted from the Plan, except as provided below, to
Participants with respect to Employees who continue
employment with the corporation acquiring such assets
or who continue employment with such subsidiary, as
applicable.
Notwithstanding, distributions shall not be permitted
if the purchaser agrees, in connection with the sale,
to be substituted as the Company as the sponsor of
the Plan or to accept a transfer of the assets and
liabilities representing the Participants' benefits
into a plan of the purchaser or a plan to be
established by the purchaser.
19.4 Plan Termination
The Company may, at any time and for any reason,
terminate the Plan or completely discontinue
contributions. Upon either of these events,
2
<PAGE> 10
CHARTER ONE BANK, F.S.B. AMENDMENT NO. 5
EMPLOYEE SAVINGS PLAN AND TRUST
or in the event of a partial termination of the Plan
within the meaning of Code section 411(d)(3), the
Accounts of each affected Employee who has not yet
incurred a Break in Service shall be fully vested. If
no successor plan is established or maintained, lump
sum distributions shall be made in accordance with
the terms of the Plan as in effect at the time of the
Plan's termination or as thereafter amended provided
that a post-termination amendment shall not be
effective to the extent that it violates Section 19.1
unless it is required in order to maintain the
qualified status of the Plan upon its termination.
The Trustee's and Employer's authority shall continue
beyond the Plan's termination date until all Trust
assets have been liquidated and distributed. The
Employers hereby agree to indemnify the Trustee
against any and all liabilities resulting from the
termination of the Plan or Trust (1) including
(without limitation) any expenses reasonably
attributable to the Company's failure to apply for a
favorable determination from the Internal Revenue
Service with respect to the qualification of the Plan
upon its termination, any other expenses reasonably
incurred in the defense of any claim relating to this
Plan's termination, and amounts paid in any
settlement relating to any such liability, but (2)
excluding liability resulting from actions or
inactions made in bad faith, or resulting from the
gross negligence or willful misconduct of the
Trustee.
Effective January 1, 1993:
- --------------------------
1. Section 3 is amended to add a new last sentence to Subsection 3.5 and
to restate the preceding sentence (formerly the last sentence of
Subsection 3.5) as follows:
3.5 Refunds When Contribution Dollar Limit Exceeded
Refunds shall not include investment gain or loss for the
period between the end of the applicable calendar year and the
date of distribution. However, for calendar years ending
before December 31, 1993, refunds shall include investment
gain or loss for the period between the end of the applicable
calendar year and the date of distribution.
2. Section 11 is amended to restate Subsection 11.2 and the introduction
to Subsection 11.9 each in its entirety as follows:
11.2 Payment Form and Medium
Except to the extent otherwise provided by Section 11.3, a
Participant may elect to be paid in any of these forms:
(a) a single lump sum, or
3
<PAGE> 11
CHARTER ONE BANK, F.S.B. AMENDMENT NO. 5
EMPLOYEE SAVINGS PLAN AND TRUST
(b) a portion paid in a lump sum, and the remainder paid
later.
Distributions shall be made in cash, except to the extent a
distribution consists of a loan call as described in Section
9. Alternatively, a Participant may elect that a lump sum
payment be made in the form of whole shares of Company Stock
and cash in lieu of fractional shares to the extent invested
in the Company Stock Fund).
11.9 Payment to Beneficiary
Payment to a Beneficiary must either: (1) be completed by the
end of the calendar year that contains the fifth anniversary
of the Participant's death or (2) begin by the end of the
calendar year that contains the first anniversary of the
Participant's death and be completed within the period of the
Beneficiary's life or life expectancy, except that:
3. Section 12 is amended to restate Subsection 12.5 in its entirety as
follows:
12.5 Adjustment for Investment Gain or Loss
Any excess Deferrals or Contributions to be refunded to a
Participant or forfeited in accordance with Section 12.3 or
12.4 shall be adjusted for investment gain or loss. Refunds or
forfeitures shall not include investment gain or loss for the
period between the end of the applicable Plan Year and the
date of distribution. However, for Plan Years ending before
December 31, 1993, refunds shall include investment gain or
loss for the period between the end of the applicable Plan
Year and the date of distribution.
Effective January 1, 1995:
- --------------------------
1. Section 13 is amended to restate Subsection 13.2 in its entirety:
13.2 Maximum Annual Addition
The Annual Addition to a Participant's accounts under this
Plan and any other defined contribution plan maintained by any
Related Company for any Plan Year shall not exceed the lesser
of (1) 25% of his Taxable Income or (2) $30,000 (as adjusted
for the cost of living pursuant to Code section 415(d)).
Effective July 1, 1995:
- -----------------------
1. Section 1 is amended to restate Subsection 1.18 in its entirety as
follows:
1.18 "Eligible Employee". An Employee of an Employer who is
compensated on a salaried basis or an Employee of an Employer
who is compensated on a commission only basis, except any
Employee who is treated as an Employee because he is a Leased
Employee.
4
<PAGE> 12
CHARTER ONE BANK, F.S.B. AMENDMENT NO. 5
EMPLOYEE SAVINGS PLAN AND TRUST
Effective As Of The Execution Date Of The Amendment:
- ----------------------------------------------------
1. Section 11 is amended to restate Subsection 11.3, including the
Subheading thereof, in its entirety as follows:
11.3 Distribution of Small Amounts
If after a Participant's employment with all Related Companies
ends, the Participant's vested Account balance is $3,500 or
less, and if at the time of any prior withdrawal or
distribution the Participant's vested Account balance did not
exceed $3,500, the Participant's benefit shall be paid as a
single lump sum as soon as administratively feasible in
accordance with procedures prescribed by the Administrator.
Date: January 22 ,1996 CHARTER ONE BANK, F.S.B.
----------------- --
By: /s/ ???
-----------------------------------
Title: ???
------------------------------
The provisions of the above amendment which relate to the Trustee are hereby
approved and executed.
Date: May 24 ,1996 BZW BARCLAYS GLOBAL INVESTORS, N.A.
--------------------- --
By: /s/ ????
--------------------------------------
Title: Principal
--------------------------------
Date: May 24 ,1996 BZW BARCLAYS GLOBAL INVESTORS, N.A.
--------------------- --
By: /s/ Gwen E. Slack
--------------------------------------
Title: Principal
--------------------------------
5
<PAGE> 13
AMENDMENT NO. 6
TO THE
CHARTER ONE BANK, F.S.B. EMPLOYEES SAVINGS PLAN AND TRUST
WHEREAS, First Federal Savings Bank, known as Charter One Bank, F.S.B.
(the "Company") effective October 1, 1992, previously established The First
Federal Savings Bank Employee Savings Plan as renamed effective October 1, 1992,
the Charter One Bank, F.S.B. Employee Savings Plan (the "Plan") and Trust
Agreement (the "Trust") which were originally effective January 1, 1985, most
recently restated effective July 1, 1992 and subsequently amended;
WHEREAS, Section 19.1 of the Plan and Trust provides that the Company
reserves the right to amend the Plan and Trust;
NOW THEREFORE RESOLVED, that Section 1 is amended effective January 1,
1996 and Sections 1, 2, 9 and 10 are amended effective July 15, 1996 as follows:
Effective January 1, 1996:
- --------------------------
1. Section 1 is amended to restate Subsection 1.49 in its entirety as
follows:
1.49 "Trustee". BZW Barclays Global Investors, National
Association.
Effective July 15, 1996:
- ------------------------
1. Section 1 is amended to restate Subsection 1.16 in its entirety as
follows:
1.16 "Disability". An illness or injury of a potentially permanent
nature, expected to last for a continuous period of not less
than 12 months, certified by a physician selected by or
satisfactory to the Administrator, which prevents the Employee
from engaging in his occupation for wage or profit for which
the Employee is reasonably fitted by training, education or
experience.
2. Section 2 is amended to restate Subsection 2.3 in its entirety as
follows:
2.3 Ineligible or Former Participants
A Participant may not make or share in Plan Contributions, nor
be eligible for a new Plan loan, except as described in
Section 9.1, during the period he is Ineligible, but he shall
continue to participate for all other purposes. An Ineligible
Participant or former Participant shall automatically become
an active Participant on the date he again becomes an Eligible
Employee.
1
<PAGE> 14
CHARTER ONE BANK, F.S.B. AMENDMENT NO. 6
EMPLOYEES SAVINGS PLAN AND TRUST
3. Section 9 is amended to restate Subsection 9.1 in its entirety as
follows:
9.1 Participant Loans Permitted
Loans are permitted pursuant to the terms and conditions set
forth in this Section. Loans shall only be permitted to a
Participant or a Beneficiary who is an Employee and eligible
for loan repayment through payroll deduction or a
party-in-interest as defined in ERISA section 3(14). All loan
limits are determined as of the date the Trustee reserves
funds for the loan. The funds will be disbursed to the
Participant as soon as is administratively feasible after the
next following Settlement date.
4. Section 10 is amended to add a new Subsection 10.4 and to redesignate
each subsequent Subsection as follows:
10.4 Withdrawals for Disability
(a) Requirements. A Participant who is an Employee, who
has incurred a Disability and who is not receiving
compensation directly from his Employer may withdraw
from the Contribution Accounts listed in paragraph
(b) below.
(b) Account Sources for Withdrawal. The withdrawal amount
shall come only from the Participant's fully vested
Accounts, in the following priority order:
Rollover Account
Employee Account
Employer Matching Account
Prior Fixed Match Account
(c) Permitted Frequency. There is no restriction on the
number of times a Participant may withdraw from these
Accounts by reason of his Disability.
(d) Suspension from Further Contributions. A withdrawal
from a Participant's Accounts by reason of his
Disability shall not affect his ability to make
further Contributions.
Date: July 31 ,1996 CHARTER ONE BANK, F.S.B.
-------------- --
By: /s/ George M. Bourgon, Jr.
----------------------------------
Title: Sr. V.P., Manager of Administrative
Services
-----------------------------------
2
<PAGE> 15
CHARTER ONE BANK, F.S.B. AMENDMENT NO. 6
EMPLOYEES SAVINGS PLAN AND TRUST
The provisions of the above amendment which relate to the Trustee are hereby
approved and executed.
Date: August 27 ,1996 BZW BARCLAYS GLOBAL INVESTORS, NATIONAL ASSOCIATION
--------------- --
By: /s/
--------------------------------------------
Title:
--------------------------------------
Date: August 27 ,1996 BZW BARCLAYS GLOBAL INVESTORS, NATIONAL ASSOCIATION
--------------- --
By: /s/
--------------------------------------------
Title:
--------------------------------------
3
<PAGE> 1
AMENDMENT NO. 1 TO
------------------
THE CHARTER ONE BANK
--------------------
PROFIT SHARING PLAN
-------------------
This AMENDMENT NO. 1 is executed as of the date set forth
below by Charter One Bank, F.S.B. (the "Employer");
WITNESSETH:
-----------
WHEREAS, the Employer adopted the Charter One Bank Profit
Sharing Plan (the "Plan"), effective as of June l, l986; and
WHEREAS, the Plan was amended and restated in its entirety,
effective as of June l, l987 and January 1, 1990; and
WHEREAS, the Employer reserved the right, pursuant to Section
l7.1 of the Plan, to make amendments thereto; and
WHEREAS, the Employer desires to amend the Plan in order to
permit certain employees who are paid on a commission only basis to participate
in the Plan, to permit employees of ICX Corporation and GCCC, Inc. who satisfy
the age and service requirements of the Plan on February 1, 1995 to begin
participating in the Plan on such date, to give such employees credit for their
service with ICX Corporation or GCCC, Inc. for purposes of both eligibility and
vesting under the Plan, and to make certain other necessary or desirable changes
thereto;
NOW, THEREFORE, the Plan is hereby amended, effective as of
the dates hereinafter set forth, as follows:
l. Effective July 1, 1995, Section 2.18 of Article II of the
Plan is hereby amended by the deletion of said Section 2.18 in its entirety and
the substitution in lieu thereof of a new Section 2.18 to read as follows:
<PAGE> 2
"2.18 COVERED EMPLOYEE. The words "Covered Employee"
shall mean any Employee of a Participating Employer who is
compensated on either a salaried basis or a commission basis,
excluding an Employee who is neither a resident nor a citizen
of the United States of America and who receives no earned
income, within the meaning of Section 911(b) of the Code, from
the Participating Employers or their Affiliates which
constitutes income from sources within the United States,
within the meaning of Section 861(a)(3) of the Code. An
Employee shall cease to be a "Covered Employee" upon the
earliest to occur of:
(a) his Termination of Employment; or
(b) his becoming an Employee of a Participating
Employer who is compensated on an hourly
wage rate basis."
2. Effective February 1, 1995, Section 2.26 of Article II of
the Plan is hereby amended by the addition at the end of said Section 2.26 of a
new sentence to read as follows:
"Notwithstanding the foregoing, the words "Enrollment
Date" shall mean February 1, 1995 for any Employee of ICX
Corporation or GCCC, Inc. who satisfies the eligibility
requirements of Section 4.2 (a) and (b) hereof as of such
date."
3. Effective February 1, 1995, Section 2.54 of Article II of
the Plan is hereby amended by the deletion of the second
-2-
<PAGE> 3
paragraph of said Section 2.54 in its entirety and the substitution in lieu
thereof of a new paragraph to read as follows:
" Solely for the purposes of this Section 2.54, the
Date of Hire of an Employee who was employed by Girard Federal
Savings and Loan Association, Thrift Federal Savings and Loan
Association of Cleveland, First Federal Savings and Loan
Association of Akron, Western Reserve Savings Bank of
Cleveland, Ohio, People's Savings Association, First Federal
Savings and Loan Association of Willoughby, First Federal
Savings and Loan of Portsmouth, First American Savings Bank,
FSB, Women's Federal Savings Bank, Equitable Savings (a
division of Citizens Federal Bank, F.S.B.), ICX Corporation or
GCCC, Inc. ("Acquired Employers") prior to the date on which
such Acquired Employers were acquired by the Employer and who
became Employees on the dates on which such Acquired Employers
were acquired by the Employer shall be the date on which he
first commenced employment and worked at least one Hour for
such Acquired Employer."
4. Effective February 1, 1995, Section 3.4 of Article III of
the Plan is hereby amended by the deletion of said Section 3.4 in its entirety
and the substitution in lieu thereof of a new Section 3.4 to read as follows:
-3-
<PAGE> 4
"3.4 LIST OF PARTICIPATING EMPLOYERS. The
Participating Employers and their respective Adoption Dates
are as follows:
Participating Employer Adoption Date
---------------------- -------------
Charter One Bank, F.S.B.
(formerly known as The First
Federal Savings Bank) June 1, 1986
First Northern Insurance June 1, 1986
Agency, Inc.
Real Estate Appraisal Services, June 1, 1986
Inc.
ICX Corporation February 1, 1995
GCCC, Inc. February 1, 1995"
5. Effective August 5, 1993, Section 6.2 of Article VI of the
Plan is hereby amended by the deletion of said Section 6.2 in its entirety and
the substitution in lieu thereof of a new Section 6.2 to read as follows:
"6.2 PARTICIPANTS ELIGIBLE TO RECEIVE AN ALLOCATION.
The Participating Employers' contributions for any Plan Year
ending after the Restatement Date shall be allocated among the
Accounts of Active Participants who have completed twelve (12)
months of Service during such Plan Year, Participants who are
on Leaves of Absence under the Family and Medical Leave Act of
1993 as of the Allocation Date, and Participants who are
receiving benefits under a long-term disability program of a
Participating Employer as of the Allocation Date."
-4-
<PAGE> 5
IN WITNESS WHEREOF, the Employer has caused its duly
authorized officer to execute this Amendment No. 1 this 28th day of June, l995.
CHARTER ONE BANK, F.S.B.
("Employer")
By: /s/ Judith E. Peterson
---------------------------------
-5-
<PAGE> 6
AMENDMENT NO. 2 TO
------------------
THE CHARTER ONE BANK
--------------------
PROFIT SHARING PLAN
-------------------
This AMENDMENT NO. 2 is executed as of the date set forth
below by Charter One Bank, F.S.B. (the "Employer");
WITNESSETH:
-----------
WHEREAS, the Employer adopted the Charter One Bank Profit
Sharing Plan (the "Plan"), effective as of June l, l986; and
WHEREAS, the Plan was amended and restated in its entirety,
effective as of June l, l987 and January 1, 1990; and
WHEREAS, the Employer reserved the right, pursuant to Section
l7.1 of the Plan, to make amendments thereto; and
WHEREAS, the Employer desires to amend the Plan in order to
obtain a favorable determination letter from the Internal Revenue Service;
NOW, THEREFORE, Section 11.2 of Article XI of the Plan is
hereby amended, effective as of October 1, 1995, by the deletion of said Section
11.2 in its entirety and the substitution in lieu thereof of a new Section 11.2
to read as follows:
"11.2 NORMAL FORM OF DISTRIBUTION. Unless a Participant or
Beneficiary shall elect to receive amounts distributable to him
pursuant to this Section 11.2 in the form of a single lump sum payment,
Life Annuity, Qualified Joint and Survivor Annuity, or an optional form
described in Section 11.4 hereof, any such distribution shall be made
in nearly equal annual installment payments over a period of years
specified by such Participant or Beneficiary (or, if he shall die prior
to the
<PAGE> 7
completion of said installment payments, to his designated
beneficiary). Any such installment payments shall be made to such
Participant or Beneficiary over a period not longer than the greater
of:
(a) five (5) years; or
(b) in the case of a Participant whose Shares shall have
a fair market value in excess of $500,000 on the date
distribution commences, five (5) years plus one (1)
additional year (but not in excess of five (5)
additional years) for each $100,000 or fraction
thereof by which the fair market value of such Shares
shall exceed $500,000.
Such distribution shall be in the form of Shares, unless the
Participant shall elect to receive cash in lieu of Shares. The value of
any fractional Shares shall be distributed in the form of cash.
Notwithstanding the foregoing, this Section 11.2 shall not apply to any
Shares which are also Unpaid Shares.
In the event a Participant shall elect to receive his
distribution pursuant to an annuity form of distribution which is
described in Section 11.4 hereof, distribution shall be made to such
Participant in the form of a Qualified Joint and Survivor Annuity, if
such Participant is married on his date of distribution, or in the form
of a Life Annuity, if such Participant is unmarried on his date of
distribution, unless such Participant waives such form of distribution
and the Participant's spouse, if any, consents to such waiver pursuant
to Section 11.5 hereof."
-2-
<PAGE> 8
IN WITNESS WHEREOF, the Employer has caused its duly
authorized officer to execute this Amendment No. 2 this 22nd day of January,
l996.
CHARTER ONE BANK, F.S.B.
("Employer")
By: /s/ Charles John Koch, Pres.
-------------------------------
-3-
<PAGE> 9
AMENDMENT NO. 3 TO
------------------
THE CHARTER ONE BANK
--------------------
PROFIT SHARING PLAN
-------------------
This AMENDMENT NO. 3 is executed as of the date set forth
below by Charter One Bank, F.S.B. (the "Employer");
WITNESSETH:
-----------
WHEREAS, the Employer adopted the Charter One Bank Profit
Sharing Plan (the "Plan"), effective as of June 1, 1986; and
WHEREAS, the Plan was amended and restated in its entirety,
effective as of June 1, 1987 and January 1, 1990; and
WHEREAS, the Employer reserved the right, pursuant to Section
17.1 of the Plan, to make amendments thereto; and
WHEREAS, the Employer desires to amend the Plan in order to
provide for a special allocation for the plan year commencing January 1, 1995
and ending December 31, 1995 for those participants who were not eligible for an
allocation of excess assets under the Charter One Bank Pension Plan, as the
result of the termination of said Pension Plan;
NOW, THEREFORE, pursuant to Section 17.1 of the Plan, Section
6.2 of Article VI of the Plan is hereby amended, effective as of October 24,
1995, by the deletion of said Section 6.2 in its entirety and the substitution
in lieu thereof of a new Section 6.2 to read as follows:
"6.2 PARTICIPANTS ELIGIBLE TO RECEIVE AN ALLOCATION. The
Participating Employers' contributions for any Plan Year ending after
the Restatement Date shall be allocated among the Accounts of Active
Participants as of the Allocation Date,
<PAGE> 10
Active Participants who are on Leaves of Absence under the Family and
Medical Leave Act of 1993 as of the Allocation Date, and Active
Participants who are receiving benefits under a long-term disability
program of a Participating Employer as of the Allocation Date.
Notwithstanding the foregoing, the Participating Companies'
contributions for the Plan Year which commenced on January 1, 1995 and
ended on December 31, 1995 shall be allocated among the Accounts of
Special Participants. For this purpose, the term "Special Participants"
shall mean those Participants who are:
(a) Active Participants as of December 31, 1995; or
(b) Active Participants on Leaves of Absence under the
Family and Medical Leave Act of 1993 as of December
31, 1995; or
(c) Active Participants receiving benefits under a
long-term disability program of a Participating
Employer as of December 31, 1995;
provided that any such Participant did not receive an allocation of
excess assets under the Charter One Bank Pension Plan in connection
with the termination of said Plan."
IN WITNESS WHEREOF, the Employer has caused its duly
authorized officer to execute this Amendment No. 3 this 16th day of October,
l995.
CHARTER ONE BANK, F.S.B.
-------------------------------------
("Employer")
By: /s/ Charles John Koch
----------------------------------
-2-
<PAGE> 11
AMENDMENT NO. 4 TO
------------------
THE CHARTER ONE BANK
--------------------
PROFIT SHARING PLAN
-------------------
This AMENDMENT NO. 4 is executed as of the date set forth
below by Charter One Bank, F.S.B. (the "Employer");
WITNESSETH:
-----------
WHEREAS, the Employer adopted the Charter One Bank Profit
Sharing Plan (the "Plan"), effective as of June l, l986; and
WHEREAS, the Plan was amended and restated in its entirety,
effective as of June l, l987 and January 1, 1990; and
WHEREAS, the Employer reserved the right, pursuant to Section
l7.1 of the Plan, to make amendments thereto; and
WHEREAS, the Employer desires to amend the Plan in order to
obtain a favorable determination letter from the Internal Revenue Service;
NOW, THEREFORE, the Plan is hereby amended, effective as of
the dates hereinafter set forth, as follows:
l. Effective September 1, 1995, Article II of the Plan is
hereby amended by the deletion of Sections 2.36, 2.49 and 2.50 in their
entireties and by the renumbering of the remaining Sections of Article II as
appropriate.
2. Effective September 1, 1995, Section 8.2 of Article VIII of
the Plan is hereby amended by the deletion of said Section 8.2 in its entirety
and the substitution in lieu thereof of a new Section 8.2 to read as follows:
"8.2 COMMENCEMENT OF DISTRIBUTION. The Vested Interest
of a terminated Participant shall be distributed to him
<PAGE> 12
in accordance with the rules and procedures set forth in
Article XI hereof. Unless a Participant elects to defer
receipt of his distribution pursuant to Article XI hereof,
such distribution shall be made or commence to be made:
(a) as soon as practicable following his
Termination of Employment, if the amount to
be distributed does not exceed $3,500;
(b) on such administratively practicable date
following the date of his Termination of
Employment and prior to the April 1
following his attainment of age 70-1/2 as
the Participant shall select, in the form of
annual installments or in the form of a lump
sum payment."
3. Effective September 1, 1995, Article X of the Plan is
hereby amended by the deletion of said Article X in its entirety and the
substitution in lieu thereof of a new Article X to read as follows:
"ARTICLE X
DEATH BENEFITS
--------------
10.1 PRERETIREMENT DEATH BENEFIT. In the event of the
Termination of Employment of a Participant by reason of his death or
the death of a retired or terminated Participant prior to the date
distribution has been made or has commenced to be made to him, his
Beneficiary shall be entitled to receive a distribution of the
Participant's Account balance. Such amounts shall be distributed or
shall commence to be distributed in accordance with Article XI as soon
as
-2-
<PAGE> 13
practicable following such Participant's death but in any event not
later than sixty (60) days after the close of the Plan Year in which
his death occurs.
10.2 AUTOMATIC BENEFICIARY. Unless a Participant or former
Participant has designated a Beneficiary in accordance with the
provisions of Section 10.3 hereof, his Beneficiary shall be deemed to
be the person or persons in the first of the following classes in which
there are any survivors of such Participant:
(a) his spouse at the time of his death;
(b) his issue per stirpes;
(c) his parents; and
(d) the executor or administrator of his estate.
10.3 DESIGNATION OF BENEFICIARY. In lieu of having the
benefits payable pursuant to this Article X payable to a Beneficiary
determined in accordance with the provisions of Section 10.2 hereof, a
Participant or former Participant may sign a document designating a
Beneficiary or Beneficiaries to receive such benefits. Notwithstanding
the foregoing, no designation of a Beneficiary or Beneficiaries by a
married Participant under this Section 10.3 shall be valid unless:
(a) the Participant's surviving spouse has signed a
document, witnessed by a notary public, consenting
to such designation and acknowledging the effect of
any such designation; or
(b) it is established to the satisfaction of the
Administrator that the signature of such spouse
cannot be obtained because such spouse cannot be
-3-
<PAGE> 14
located or because of such other circumstances as
the Secretary of the Treasury may prescribe by
lawful regulations; or
(c) it is established to the satisfaction of the
Administrator that the Participant has no surviving
spouse.
Any consent given by a surviving spouse pursuant to
subparagraph (a) above shall be effective only with respect to such
spouse and shall not be effective with respect to any other spouse of
such Participant. In addition, any designations under this Section 10.3
shall be deemed to be automatically revoked in the event a Participant
remarries.
10.4 INSTRUCTIONS TO TRUSTEE. Upon the death of a Participant
or a former Participant, the Administrator shall immediately advise the
Trustee of the identity of such Participant's Beneficiary or
Beneficiaries. The Trustee shall be completely protected in making
payments to any person or persons in any sums in accordance with the
instructions it receives from the Administrator.
10.5 INCOMPLETE DISPOSITION. In the event that a Participant
or former Participant, dies at a time when he has a designation on file
with the Administrator which does not dispose of all of the amounts
distributable under this Plan upon his death, then the amounts
distributable on behalf of said Participant or former Participant, the
disposition of which was not determined by the deceased Participant's
or former Participant's designation, shall be distributed to a
-4-
<PAGE> 15
Beneficiary determined under the provisions of Section 10.2 hereof.
10.6 RESOLUTION OF AMBIGUITY. Any ambiguity in a Participant's
Beneficiary designation shall be resolved by the Administrator. Subject
to Section 10.2 hereof, the Administrator may direct a Participant to
clarify his designation and if necessary execute a new designation
containing such clarification."
4. Effective December 1, 1995, Article XI of the Plan is
hereby amended by the deletion of said Article XI in its entirety and the
substitution in lieu thereof of a new Article XI to read as follows:
"ARTICLE XI
DISTRIBUTIONS
-------------
11.1 DEFERRAL OF DISTRIBUTIONS. Distributions will normally
commence as of the dates specified in Articles VIII, IX and X hereof.
However, subject to Sections 11.3 and 11.5 hereof, a Participant,
former Participant or Beneficiary may elect in writing to defer any
distributions until a later date.
11.2 NORMAL FORM OF DISTRIBUTION. Unless a Participant
or Beneficiary shall elect to receive amounts distributable to
him pursuant to this Section 11.2 in a single lump sum
payment, any such distribution shall be made in nearly equal
-5-
<PAGE> 16
annual installment payments over a period of years specified by such
Participant or Beneficiary (or, if he shall die prior to the completion
of said installment payments, to his designated beneficiary). Any such
installment payments shall be made to such Participant or Beneficiary
over a period not longer than the greater of:
(a) five (5) years; or
(b) in the case of a Participant whose Shares shall have
a fair market value in excess of $500,000 on the date
distribution commences, five (5) years plus one (1)
additional year (but not in excess of five (5)
additional years) for each $100,000 or fraction
thereof by which the fair market value of such Shares
shall exceed $500,000.
Such distribution shall be in the form of Shares, unless the
Participant shall elect to receive cash in lieu of Shares. The value of
any fractional Shares shall be distributed in the form of cash.
Notwithstanding the foregoing, this Section 11.2 shall not apply to any
Shares which are also Unpaid Shares.
11.3 CASH-OUT OF SMALL BENEFITS. Notwithstanding any contrary
provision of this Plan, in the event that the Vested Interest of a
retired or terminated Participant has a value of Three Thousand Five
Hundred Dollars ($3,500) or less, the Administrator shall direct the
Trustee to make an immediate lump sum distribution of such
Participant's Vested Interest without the consent of the Participant or
his Beneficiary. Such distribution shall be in the form of Shares,
unless the
-6-
<PAGE> 17
Participant shall elect to receive cash in lieu of Shares. The value of
any fractional Shares shall be distributed in the form of cash. Any
such immediate lump sum payment shall be in full settlement of such
Participant's or Beneficiary's rights under the Plan.
11.4 DIRECT ROLLOVER. Any distribution made hereunder to a
Distributee shall be made directly to such Distributee unless he elects
a direct rollover pursuant to the second paragraph of this Section
11.4; provided, however, that the Distributee must acknowledge in
writing that he understands that any payment which includes more than
Two Hundred Dollars ($200.00) in cash and which, under Code Section
402(c), is eligible to be rolled over to an Eligible Retirement Plan
will be subject to withholding taxes.
Each Distributee shall have the right to direct that any
distribution which, under Code Section 402(c), qualifies as an Eligible
Rollover Distribution be transferred directly to an Eligible Retirement
Plan. A Distributee may direct that part of the distribution be
transferred directly to an Eligible Retirement Plan and the balance be
paid to him, provided that the amount directly transferred to the
Eligible Retirement Plan shall be at least Five Hundred Dollars
($500.00). A Distributee is not permitted to direct that his
distribution be transferred directly to more than one Eligible
Retirement Plan. In the event that a Distributee fails to make any
-7-
<PAGE> 18
direction, the distribution shall be paid directly to him after
deduction of appropriate withholding taxes.
Unless the context otherwise indicates, the following terms
shall have the following meanings whenever used in this Section 11.4:
(a) "Eligible Rollover Distribution" shall mean any
distribution of all or any portion of the balance to
the credit of the Distributee, except that an
Eligible Rollover Distribution does not include:
(i) any distribution that is one of a series of
substantially equal periodic payments (not
less frequently than annually) made for the
life (or life expectancy) of the Distributee
or the joint lives (or joint life
expectancies) of the Distributee and the
Distributee's designated beneficiary, or for
a specified period of ten (10) years or
more;
(ii) any distribution to the extent such
distribution is required under Section 11.5
hereof which reflect the requirements under
Section 401(a)(9) of the Code; and
(iii) the portion of any distribution that is not
includable in gross income (determined
without regard to the exclusion for net
unrealized appreciation with respect to
employer securities).
(b) "Eligible Retirement Plan" shall mean:
(i) an individual retirement account described
in Section 408(a) of the Code;
(ii) an individual retirement annuity described
in Section 408(b) of the Code;
(iii) an annuity plan described in Section 403(a)
of the Code; or
(iv) a qualified trust described in Section
401(a) of the Code;
-8-
<PAGE> 19
that accepts the Distributee's Eligible Rollover
Distribution.
Notwithstanding the foregoing, in the case of an
Eligible Rollover Distribution to the surviving
spouse of a deceased Employee, an "Eligible
Retirement Plan" only means an individual retirement
account or individual retirement annuity.
(c) "Distributee" shall mean:
(i) an Employee or former Employee; and
(ii) an Employee's or a former Employee's
surviving spouse and an Employee's or former
Employee's spouse or former spouse who is
the Alternate Payee under a Qualified
Domestic Relations Order, as defined in
Section 2.48 hereof, without regard to the
interest of the spouse or former spouse.
(d) "Direct Rollover" shall mean a payment by the Plan
to the Eligible Retirement Plan specified by the
Distributee.
11.5 MANDATORY DISTRIBUTION RULES. Notwithstanding any other
provisions of this Plan to the contrary, distributions made to a
Participant, former Participant or Beneficiary pursuant to this Article
XI shall be subject to the following limitations:
(a) in the case of a living Employee or former
Employee:
(i) distribution must commence on or before the
April 1 following the end of the calendar
year in which:
(A) he attains Age seventy and one-half
(70-1/2) or retires whichever is
later, if the Employee shall have
attained Age seventy and one-half
(70-1/2) prior to January 1, 1988
and was not a five percent (5%)
owner at any time after the
beginning of the Plan Year that ends
in
-9-
<PAGE> 20
the calendar year during which he
attained Age sixty-six and one-half
(66-1/2); or
(B) he attains Age seventy and one-half
(70-1/2) in all other cases; and
(ii) installment distributions shall not be
payable over a period of years in excess of
his life expectancy or the joint life
expectancies of himself and his spouse or
Beneficiary; and
(b) in the case of a deceased Participant, any
distribution commencing after his death shall be
payable either:
(i) within five (5) years of the date of his
death; or
(ii) if distribution commences to his Beneficiary
either:
(A) within one (1) year following the
date of his death or on a later date
permitted under any lawful
regulations issued by the Secretary
of the Treasury; or
(B) if his spouse is his beneficiary, by
the date such Participant would have
attained Age seventy and one-half
(70-1/2);
over a period not extending beyond the life
expectancy of such Beneficiary; or
(iii) if the Participant's distribution had
commenced prior to his death under a form of
payment meeting the requirements of
subparagraph (a)(ii) above, such
distribution must be completed by the
remainder of the period specified in said
subparagraph (a)(ii); and
(iv) if the Participant's spouse is entitled to a
distribution hereunder, but dies prior to
the commencement of such distribution, then
the limitations of this Section 11.5 shall
be applied as if the spouse were the
Participant.
-10-
<PAGE> 21
If distributions are made to a Participant's child, such distributions
shall be deemed to be made to the Participant's spouse if such
distributions will become distributable to such spouse upon such
child's reaching majority or any other event permitted under any lawful
regulations issued by the Secretary of the Treasury. The life
expectancy of a Participant and his spouse may be redetermined from
time to time but not more frequently than annually.
All distributions required under this Article XI shall be
determined and made in accordance with the regulations under Section
401(a)(9) of the Code, including the minimum distribution incidental
benefit requirement of Section 1.401(a)(9)-2 of the regulations.
11.6 PAYMENT OF DIVIDENDS. For purposes of this Article XI, the
number of Shares or fractional Shares to be distributed from a
Participant's Non Leveraged Stock Account, Debt Financed Share Account
or Transferred Stock Account and/or the value of the Participant's
interest in his Investment Account shall generally be determined as of
the date benefit payments commence. Notwithstanding the foregoing, a
Participant who is to receive a distribution of his Non Leveraged Stock
Account, his Debt Financed Share Account or his Transferred Stock
Account since the last Valuation Date as a result of his Termination of
Employment shall receive distribution of a certain number of Shares and
-11-
<PAGE> 22
an amount of cash which shall be attributable to dividends paid with
respect to Shares allocated to the Participant's Accounts after the
last Valuation Date and prior to the date of distribution to said
Participant from the Plan. The number of Shares purchased with
dividends that shall be distributable to such Participant shall be
equal to the number of Shares obtained by dividing (a) by (b) below
where:
(a) equals that portion of the dividends which is
attributable to Shares allocated to said
Participant's Accounts; and
(b) equals the average price per Share of Shares
purchased since the last Valuation Date with
dividends received on the Shares allocated to all
Participants' Accounts.
Such Shares and fractional Shares so distributable shall be added to
the Shares and fractional Shares which are credited to the
Participant's Non Leveraged Stock Account, Debt Financed Share Account
and Transferred Stock Account immediately prior to his date of
distribution.
Any such Participant shall also receive a distribution of an
amount of cash which shall be attributable to cash dividends paid on
Shares allocated to said Participant's Accounts, which dividends shall
not have been reinvested in Shares prior to his date of distribution.
11.7 PUT OPTION RIGHTS. In the event that Shares are distributed
to a Participant or a Beneficiary pursuant to this Article XI and such
Shares are not Publicly Traded or are subject to a trading limitation,
the Employer shall grant to
-12-
<PAGE> 23
certain holders of such Shares an option to require Charter to purchase
and redeem such Shares. Such option shall be granted to such
Participant or Beneficiary or to any donee of such Participant or
Beneficiary or to any person (including an estate or its distributee)
to whom the Shares pass by reason of such Participant's or
Beneficiary's death. Such option shall be exercisable by notice in
writing given to the Employer prior to the later of:
(i) fifteen (15) months after the date on which
the distribution of such Shares is made by
the Plan; and
(ii) sixty (60) days after the holder of such
Shares is notified of the Fair Market Value
of such Shares computed as of the first day
of the first Plan Year commencing more than
sixty (60) days after the date of
distribution of such Shares.
Such period of exercise shall be extended by a period of time equal to
the amount of time during which any distributee of this Plan is unable
to exercise the put option provided for herein due to the fact that
Charter is prohibited from honoring such put option obligation by
applicable law. If necessary, Charter shall be required to amend its
Certificate of Incorporation to reduce its stated capital or to make
any other changes necessary to enable distributees to exercise the put
option provided for under this Section 11.7. In the event Shares are
Publicly Traded without restriction when distributed but ceased to be
so traded within the period of exercise described above, the Employer
shall notify in
-13-
<PAGE> 24
writing, on or before the tenth (10th) day after the date the Shares
cease to be publicly traded, any stockholder or stockholders who would
have been entitled to exercise the foregoing put option had the Shares
not been publicly traded when distributed and shall grant to such
stockholder or stockholders a put option in accordance with this
Section 11.7 for the remainder of the period of exercise described
above. Such notice shall inform such stockholder or stockholders of the
terms of the put option extended to them and, if actually given later
than the tenth (10th) day after the date on which the Shares ceased to
be publicly traded, such notice shall provide that the put option shall
be extended beyond the period of exercise by the number of days between
such tenth (10th) day and the date on which notice is actually given.
If the foregoing option is not exercised within the exercise period and
any extensions thereof, it shall lapse.
11.8 PRICE TO BE PAID FOR SHARES. The price at which Shares shall
be purchased by Charter pursuant to Section 11.7 hereof shall be equal
to their Fair Market Value determined in good faith based upon all
relevant factors for determining the Fair Market Value of securities.
In the case of a transaction between the Plan and a disqualified person
(as defined in Section 4975 of the Code), such price must be determined
as of the date of the transaction. For all purposes under this Plan,
unless expressly stated otherwise, the Fair Market Value
-14-
<PAGE> 25
of Shares may be determined as of the immediately preceding Allocation
Date hereunder.
11.9 PAYMENT TERMS. In the event any put option provided for
pursuant to Section 11.7 hereof is exercised, payment by Charter
pursuant to the exercise of such option shall be made in substantially
equal annual installments over a period of time beginning not later
than thirty (30) days after the date the put option is exercised and
ending no later than five (5) years thereafter. The balance outstanding
at any time with respect to payment by Charter pursuant to the exercise
of such option shall bear interest at the prime rate determined as of
the first day of each quarter of the Plan Year but, in any event, not
in excess of the maximum rate permitted by law. Notwithstanding the
foregoing, Charter, in its discretion, may elect to make such payment
in a single lump sum payment within thirty (30) days after the date on
which the option is exercised.
11.10 CONDITIONS UPON PUT OPTION. Charter's obligation to pay, in
all or in part, the price for any Shares as to which a put option is
exercised pursuant to this Article XI shall be conditioned upon:
(a) receipt by Charter of appropriate share certificates
duly endorsed by the person exercising the put
option; and
(b) receipt of appropriate assurances that the Shares
tendered for purchase pursuant to the put option are
free and clear of any liens, encumbrances or adverse
claims or that such liens, encumbrances or
-15-
<PAGE> 26
adverse claims will be paid and satisfied forthwith
as a part of such purchase transaction.
11.11 RESTRICTION ON AMENDMENT OF PUT OPTION. Notwithstanding the
provisions of Section 17.1 hereof to the contrary, the provisions of
this Article XI with respect to the granting and exercise of put
options shall not be amended or terminated in any way which would
lessen the rights of a stockholder holding Shares to which the put
option relates or would relate. In addition, until distributed from the
Plan, Shares subject to a put pursuant to this Article XI shall not be
subject to a put, call or other option or buy-sell or similar
arrangement, other than the put option described in Section 11.7
hereof."
5. Effective January 1, 1996, Section 14.3 of Article XIV of the
Plan is hereby amended by the deletion of said Section 14.3 in its entirety and
the substitution in lieu thereof of a new Section 14.3 to read as follows:
"14.3 As used in this Article XIV --
(a) "Qualified Participant" shall mean a
Participant who has attained the Age of
fifty- five (55) and who has completed at
least ten (10) years of Service.
(b) "Qualified Election Period" shall mean the
six (6) Plan Year period beginning with the
later of (i) the Plan Year after the Plan
Year in which the Participant attains Age
fifty-five (55) or (ii) the Plan Year after
the Plan Year in which the Participant first
becomes a Qualified Participant."
-16-
<PAGE> 27
IN WITNESS WHEREOF, the Employer has caused its duly
authorized officer to execute this Amendment No. 4 this 22nd day of January,
l996.
CHARTER ONE BANK, F.S.B.
("Employer")
By: /s/
---------------------------------
-17-
<PAGE> 28
AMENDMENT NO. 5 TO
------------------
THE CHARTER ONE BANK
--------------------
PROFIT SHARING PLAN
-------------------
This AMENDMENT NO. 5 is executed as of the date set forth
below by Charter One Bank, F.S.B. (the "Employer");
WITNESSETH:
-----------
WHEREAS, the Employer adopted the Charter One Bank Profit
Sharing Plan (the "Plan"), effective as of June l, 1986; and
WHEREAS, the Plan was amended and restated in its entirety,
effective as of June 1, 1987 and January 1, 1990; and
WHEREAS, the Employer reserved the right, pursuant to
Section 17.1 of the Plan, to make amendments thereto; and
WHEREAS, the Employer desires to amend the Plan in order to
give certain employees credit for their service with First Fed Michigan
Corporation and First Nationwide Bank for purposes of both eligibility and
vesting under the Plan; and
WHEREAS, the Employer also desires to amend the Plan in order
to permit certain former employees of First Nationwide Bank who satisfy the age
and service requirements of the Plan on July 1, 1996 to begin participating in
the Plan on such date and to add Charter One Investments, Inc. and Renaissance
Insurance Agency, Inc. as Participating Employers under the Plan; and
WHEREAS, the Employer also desires to amend the Plan to make
certain other necessary or desirable changes thereto;
NOW, THEREFORE, the Plan is hereby amended, effective as of
the dates hereinafter set forth, as follows:
<PAGE> 29
1. Effective June 30, 1996, Section 2.26 of Article II of the
Plan is hereby amended by the addition at the end of said Section 2.26 of a new
sentence to read as follows:
"Notwithstanding the foregoing, the words "Enrollment Date"
shall mean July 1, 1996 for any Employee who was formerly
employed by First Nationwide Bank, who became an Employee as
of the date on which the Michigan division of First Nationwide
Bank was acquired by the Employer, and who satisfies the
eligibility requirements of Section 4.2 (a) and (b) hereof as
of July 1, 1996."
2. Effective October 31, 1995, Section 2.51 of Article II of
the Plan is hereby amended by the deletion of the second paragraph of
said Section 2.51 in its entirety and the substitution in lieu thereof of a new
paragraph to read as follows:
"Solely for the purposes of this Section 2.51, the
Date of Hire of an Employee who was employed by Girard Federal
Savings and Loan Association, Thrift Federal Savings and Loan
Association of Cleveland, First Federal Savings and Loan
Association of Akron, Western Reserve Savings Bank of
Cleveland, Ohio, People's Savings Association, First Federal
Savings and Loan Association of Willoughby, First Federal
Savings and Loan of Portsmouth, First American Savings Bank,
FSB, Women's Federal Savings Bank, Equitable Savings (a
division of Citizens Federal Bank, F.S.B.), ICX Corporation,
GCCC,
-2-
<PAGE> 30
Inc. or FirstFed Michigan Corporation (and its subsidiaries)
("Acquired Employers") prior to the date on which such
Acquired Employers were acquired by the Employer and who
became Employees on the dates on which such Acquired Employers
were acquired by the Employer shall be the date on which he
first commenced employment and worked at least one Hour for
such Acquired Employer."
3. Effective June 30, 1996, Section 2.51 of Article II of the
Plan is hereby amended by the deletion of the second paragraph of said
Section 2.51 in its entirety and the substitution in lieu thereof of a new
paragraph to read as follows:
"Solely for the purposes of this Section 2.51, the
Date of Hire of an Employee who was employed by Girard Federal
Savings and Loan Association, Thrift Federal Savings and Loan
Association of Cleveland, First Federal Savings and Loan
Association of Akron, Western Reserve Savings Bank of
Cleveland, Ohio, People's Savings Association, First Federal
Savings and Loan Association of Willoughby, First Federal
Savings and Loan of Portsmouth, First American Savings Bank,
FSB, Women's Federal Savings Bank, Equitable Savings (a
division of Citizens Federal Bank, F.S.B.), ICX Corporation,
GCCC, Inc., FirstFed Michigan Corporation (and its
subsidiaries) or the Michigan division of First Nationwide
Bank ("Acquired Employers") prior to the date
-3-
<PAGE> 31
on which such Acquired Employers were acquired by the Employer
and who became Employees on the dates on which such Acquired
Employers were acquired by the Employer shall be the date on
which he first commenced employment and worked at least one
Hour for such Acquired Employer."
4. Effective January 1,1996, Section 3.4 of Article III of
the Plan is hereby amended by the deletion of said Section 3.4 in
its entirety and the substitution in lieu thereof of a new Section 3.4 to read
as follows:
"3.4 LIST OF PARTICIPATING EMPLOYERS. The
Participating Employers and their respective Adoption Dates
are as follows:
Participating Employer Adoption Date
---------------------- -------------
Charter One Bank, F.S.B.
(formerly known as The First
Federal Savings Bank) June 1, 1986
First Northern Insurance June 1, 1986
Agency, Inc.
Real Estate Appraisal Services, June 1, 1986
Inc.
Charter One Investments, Inc. August 9, 1994
ICX Corporation February 1, 1995
GCCC, Inc. February 1, 1995
Renaissance Insurance Agency, January 1, 1996
Inc. (d.b.a. Renaissance
Investments, Inc.)"
5. Effective January 1, 1990, Section 4.6 of Article IV
of the Plan is hereby amended by the deletion of said Section 4.6
-4-
<PAGE> 32
in its entirety and the substitution in lieu thereof of a new Section 4.6 to
read as follows:
"4.6 REHIRED EMPLOYEES. In the event that a Participating
Employer shall reemploy a former Participant whose Service as a former
Employee is not excluded pursuant to Section 2.54 hereof, such former
Participant shall become a Participant in the Plan on his date of
rehire. Any other former Employee must requalify under the provisions
of Section 4.2 hereof before he shall become a Participant."
6. Effective December 1, 1995, Section 11.2 of Article XI of
the Plan is hereby amended by the deletion of said Section 11.2 in its entirety
and the substitution in lieu thereof of a new Section 11.2 to read as follows:
"11.2 NORMAL FORM OF DISTRIBUTION. Unless a Participant or
Beneficiary shall elect to receive amounts distributable to him
pursuant to this Section 11.2 in a single lump sum payment, any such
distribution shall be made in nearly equal annual installment payments
over a period of years specified by such Participant or Beneficiary
(or, if he shall die prior to the completion of said installment
payments, to his designated beneficiary). Any such installment payments
shall be made to such Participant or Beneficiary over a period not
longer than the greater of:
(a) five (5) years; or
(b) in the case of a Participant whose Account balance
under the Plan shall have a value in excess of
-5-
<PAGE> 33
$500,000 on the date distribution commences, five (5)
years plus one (1) additional year (but not in excess
of five (5) additional years) for each $100,000 or
fraction thereof by which the value of the
Participant's Account balance shall exceed $500,000.
Notwithstanding the foregoing, distribution of any Shares which are
also Unpaid Shares shall be made in the form of a single lump sum
payment.
Distributions to Participants and Beneficiaries pursuant to
this Section 11.2 shall be made in the form of Shares, unless the
Participant or Beneficiary shall elect to receive cash in lieu of
Shares. The value of any fractional Shares shall be distributed in the
form of cash.
Unless a distribution is required pursuant to Section
401(a)(9) or Section 409(o) of the Code, a distribution pursuant to
this Section 11.2 shall not be available to any Participant who has
committed theft, embezzlement or any other crime against a
Participating Employer or an Affiliate who has not made full
restitution to such Participating Employer or Affiliate or who is a
debtor of a Participating Employer or an Affiliate in connection with
his employment relationship who shall not have repaid such debt to such
Participating Employer or Affiliate, until such time as the Participant
shall make full restitution or repayment to the Participating Employer
or Affiliate or shall warrant to the Participating Employer or
Affiliate that any distribution from the Plan is to be used to make
restitution to the Participating Employer or Affiliate or
-6-
<PAGE> 34
to repay the debt owed the Participating Employer or Affiliate."
IN WITNESS WHEREOF, the Employer has caused its duly
authorized officer to execute this Amendment No. 5 this 20th day of June, 1996.
CHARTER ONE BANK, F.S.B.
("Employer")
By: /s/
---------------------------------
-7-
<PAGE> 35
AMENDMENT NO. 6 TO
------------------
THE CHARTER ONE BANK
--------------------
PROFIT SHARING PLAN
-------------------
This AMENDMENT NO. 6 is executed as of the date set forth
below by Charter One Bank, F.S.B. (the "Employer");
WITNESSETH:
-----------
WHEREAS, the Employer adopted the Charter One Bank Profit
Sharing Plan (the "Plan"), effective as of June 1, 1986; and
WHEREAS, the Plan was amended and restated in its entirety,
effective as of June 1, 1987 and January 1, 1990; and
WHEREAS, the Employer reserved the right, pursuant to
Section 17.1 of the Plan, to make amendments thereto; and
WHEREAS, the Employer desires to amend the Plan in order to
revise the allocation provisions thereof for the Plan Year commencing January 1,
1996 and ending December 31, 1996;
NOW, THEREFORE, pursuant to Section 17.1 of the Plan, Section
6.2 of Article VI of the Plan is hereby amended, effective as of December 30,
1996, by the deletion of said Section 6.2 in its entirety and the substitution
in lieu thereof of a new Section 6.2 to read as follows:
"6.2 PARTICIPANTS ELIGIBLE TO RECEIVE AN ALLOCATION. The
Participating Employers' contributions for any Plan Year ending after
the Restatement Date shall be allocated among the Accounts of Active
Participants as of the Allocation Date, Active Participants who are on
Leaves of Absence under the Family and Medical Leave Act of 1993 as of
the Allocation Date, and Active Participants who are receiving benefits
under
<PAGE> 36
a long-term disability program of a Participating Employer as of the
Allocation Date. Notwithstanding the foregoing, the Participating
Employers' contributions for the Plan Year which commenced on January
1, 1995 and ended on December 31, 1995 shall be allocated among the
Accounts of Special Participants. For this purpose, the term "Special
Participants" shall mean those Participants who are:
(a) Active Participants as of December 31, 1995; or
(b) Active Participants on Leaves of Absence under the
Family and Medical Leave Act of 1993 as of December
31, 1995; or
(c) Active Participants receiving benefits under a
long-term disability program of a Participating
Employer as of December 31, 1995;
provided that any such Participant did not receive an allocation of
excess assets under the Charter One Bank Pension Plan in connection
with the termination of said Plan.
Notwithstanding the foregoing, the Participating Employers'
contributions for the Plan Year ending December 31, 1996 shall be
allocated to the Accounts of Active Participants as of December 31,
1996, Active Participants who are on Leaves of Absence under the Family
and Medical Leave Act of 1993 as of December 31, 1996, and Active
Participants who are receiving benefits under a long-term disability
program of a Participating Employer as of December 31, 1996. Each such
Active Participant shall receive an allocation equal to three and
one-half percent (3.5%) of his Compensation, reduced by
-2-
<PAGE> 37
the excess assets allocated to such Active Participant under the
Retirement Plan For Salaried Employees of First Federal of Michigan as
the result of the termination of such Plan when such allocation of
excess assets is expressed as a percentage of his Compensation for the
1996 Plan Year."
IN WITNESS WHEREOF, the Employer has caused its duly
authorized officer to execute this Amendment No. 6 this 26th day of December,
1996.
CHARTER ONE BANK, F.S.B.
("Employer")
By: /s/
-----------------------------
-3-
<PAGE> 38
AMENDMENT NO. 7 TO
------------------
THE CHARTER ONE BANK
--------------------
PROFIT SHARING PLAN
-------------------
This AMENDMENT NO. 7 is executed as of the date set forth
below by Charter One Bank, F.S.B. (the "Employer");
WITNESSETH:
-----------
WHEREAS, the Employer adopted the Charter One Bank Profit
Sharing Plan (the "Plan"), effective as of June 1, 1986; and
WHEREAS, the Plan was amended and restated in its entirety,
effective as of June 1, 1987 and January 1, 1990; and
WHEREAS, the Employer reserved the right, pursuant to Section
17.1 of the Plan, to make amendments thereto; and
WHEREAS, the Employer desires to amend the Plan in order to
revise the definition of compensation to correct an inadvertent drafting error
therein for Plan Years commencing prior to December 31, 1995 and to revise the
definition of compensation for Plan Years commencing on and after January 1,
1996;
NOW, THEREFORE, pursuant to Section 17.1 of the Plan, Section
2.17 of Article II of the Plan is hereby amended, effective as of January 1,
1996, by the deletion of said Section 2.17 in its entirety and the substitution
in lieu thereof of a new Section 2.17 to read as follows:
"2.17 COMPENSATION. The word "Compensation" shall mean, for
Plan Years commencing prior to December 31, 1995, the total
compensation earned by a Participant for services rendered to the
Participating Employers or any Affiliates during such Plan Year while
he was a Covered Employee, and for
<PAGE> 39
Plan Years commencing on and after January 1, 1996, the total
compensation paid to a Participant by the Participating Employers or
any Affiliates during such Plan Year while he was a Covered Employee
which, in each case, is required to be reported on Form W-2 (including
any contributions made to a plan maintained by the Participating
Employers or any Affiliates pursuant to a salary reduction agreement
and which is not required to be reported on the Participant's Form W-2
pursuant to Code Section 125, 402(a)(8) or 402(h)), but excluding:
(a) any extra benefits such as payment by a
Participating Employer or any Affiliate of hospitalization,
group insurance, expense reimbursement, contributions made by
the Participating Employer or an Affiliate under this Plan or
any other employee benefit plan (other than as provided
above), or other special benefits; and
(b) any compensation earned by or paid to a
Participant (whichever shall be appropriate) for a Plan Year
to the extent such compensation is in excess of the limitation
set forth in Code Section 401(a)(17), plus, such adjustments
for increases in the cost of living as shall be prescribed by
the Secretary of the Treasury pursuant to said Code Section
401(a)(17); and
(c) amounts earned by or paid to an Employee
(whichever shall be appropriate) prior to the date on which
such Employee becomes a Participant or returns to Covered
Employee status.
Notwithstanding anything in this Section 2.17 to the contrary,
for any Plan Year in which the aggregate Compensation of Participants described
in Code Section 414(q) exceeds one-third (1/3) of the aggregate Compensation of
all Participants in the Plan, the amounts considered Compensation with respect
to
-2-
<PAGE> 40
Participants described in Code Section 414(q) shall be reduced, pro
rata, in an amount sufficient to reduce the aggregate Compensation of such
Participants to an amount not exceeding one-third (1/3) of the total
Compensation of all Participants in the Plan."
IN WITNESS WHEREOF, the Employer has caused its duly
authorized officer to execute this Amendment No. 7 this 26th day of June, 1997.
CHARTER ONE BANK, F.S.B.
("Employer")
By: /s/ George M. Bourgon, Jr.
--------------------------------
-3-
<PAGE> 1
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is entered into this 22d day of April, 1997, by
and between William A. Valerian ( the "Employee") and Charter One Investments,
Inc. (the "Employer"), a wholly owned, second tier subsidiary of Charter One
Bank, F.S.B. (the "Bank"), a wholly owned, second tier subsidiary of Charter One
Financial, Inc. ( the "Company"), but shall not be effective until the Effective
Date (as defined herein).
WHEREAS, the Employer desires to employ the Employee, and the Employee is
willing to be employed, on the terms set forth below, and
WHEREAS, the Board of Directors of the has approved the execution of this
Agreement.
NOW THEREFORE, in consideration of the mutual covenants contained herein
and upon the terms and considerations set forth below, the parties agree as
follows.
I. TERM. The term of this Agreement shall the period of three years (the
"Term") commencing on the day of the consummation of the acquisition of
Haverfield Corporation ("Haverfield") by the Company (the "Effective Date")
pursuant to the agreement dated April 22, 1997, under which Haverfield shall be
acquired by the Company and Haverfield's wholly owned subsidiary, Home Bank,
F.S.B. ("Home"), shall be merged into the Bank.
II. EMPLOYMENT; CONSULTING SERVICES FOR OTHERS.
-------------------------------------------
A. The Employee shall be employed under this Agreement as President of the
Employer. As such, he shall report to the Chief Executive Officer of the
Employer and shall have such duties and authority as are specified by the Chief
Executive Officer or the Board of Directors of the Employer from time to time.
B. The Employer agrees that the Employee, acting as a sole proprietor or in
connection with a consulting business established by him, may render consulting
services to others not affiliated with the Company so long as (i) such
activities do not interfere with the proper rendering of services pursuant to
this Agreement and (ii) the Employee does not violate Section IV of this
Agreement.
III. COMPENSATION. The Employer shall pay the Employee a salary of $225,000
per year in regular increments not less frequently than monthly. The Employer
shall pay
<PAGE> 2
on behalf of the Employee his Shaker Heights Country Club dues (annual and
monthly) and capital assessments and the Employee shall be entitled to benefits
under such benefit plans as are applicable to officers of the Employer, except
that the Employee shall not be entitled to participate in any incentive bonus
program offered by the Employer or any stock or stock option plan of the
Company. The Employer shall reimburse the Employee for reasonable expenses
incurred by him in connection with his duties under this Agreement in accordance
with the Employer's policies on reimbursement of expenses applicable to its
officers generally.
IV. COVENANT NOT TO COMPETE; CONFIDENTIAL INFORMATION.
--------------------------------------------------
A. The Employee hereby agrees that during the Term, without the prior
written consent of the Employer, he shall not serve as a director, employee or
officer of, or provide personal services to, any institution insured by the
Federal Deposit Insurance Corporation or the National Credit Union
Administration which has an office in the State of Ohio or any holding company
or other affiliate of such an institution. Notwithstanding the foregoing, it is
expressly understood by the parties that during the Term, the Employee may
render consulting services to others as set forth in Section II.B of this
Agreement.
B. The parties agree that by reason of his employment as President of Home
prior to the Effective Date and his services hereunder, the Employee has and
will have special knowledge of the business and plans of the Company and its
affiliates which has not been disclosed by the Company or any affiliate and
which constitutes confidential and proprietary business information
("Confidential Information"). The Employee agrees that, without the prior
written consent of the Employer, he shall not in any way disclose to any person
or entity other than the Company and its affiliates any Confidential Information
or written or other form of record containing Confidential Information.
Nothwithstanding the foregoing, the Employee may, consistent with the
performance of consulting services for persons and entities other than the
Company and its affiliates as permitted under Section II.B of this Agreement,
disclose knowledge of financial and economic principles that do not reflect
Confidential Information.
C. At the conclusion of the Term or upon earlier termination of this
Agreement, the Employee shall deliver to the Employer all copies of all written
or other records containing Confidential Information which are in his possession
or control.
D. The provisions of this Section IV shall survive termination of this
Agreement. In the event of a breach or threatened breach of this Section IV, the
Employer shall be entitled to an injunction restraining the Employee from
violating this Section IV in addition to any other remedies available to the
Employer, including but not limited to recovery of damages from the Employee.
2
<PAGE> 3
V. TERMINATION; REGULATORY PROVISIONS.
-----------------------------------
A. The Employer's Board of Directors may terminate the employment of the
Employee at any time, but such termination, other than Termination for Cause (as
defined below) shall not prejudice the Employee's right to compensation or other
benefits under this Agreement. "Termination for Cause" shall include termination
because of violation of the provisions of Section IV of this Agreement or the
Employee's personal dishonesty, incompetence, willful misconduct, breach of a
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of this Agreement. The Employee shall have no right to
compensation or other benefits for any period after Termination for Cause.
B. If the Employee is removed and/or permanently prohibited from
participating in the conduct of the affairs of the Bank by an order issued under
Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act ("FDIA"), 12
U.S.C. Section 1818(e)(4) and (g)(1), all obligations of the Employer under this
Agreement shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
C. If the Bank is in default (as defined in Section 3(x)(1) of the FDIA),
all obligations of the Employer under this Agreement shall terminate as of the
date of default, but this provision shall not affect any vested rights of the
contracting parties.
D. All obligations of the Employer under this Agreement shall be
terminated, except to the extent determined that continuation of this Agreement
is necessary for the continued operation of the Bank: (i) by the Director of the
Office of Thrift Supervision (the "Director") or his or her designee, at the
time the Federal Deposit Insurance Corporation enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
Section 13(c) of the FDIA; or (ii) by the Director or his or her designee, at
the time the Director or his or her designee approves a supervisory merger to
resolve problems related to operation of the Bank or when the Bank is determined
by the Director to be in an unsafe or unsound condition. Any rights of the
parties that have already vested, however, shall not be affected by any such
action.
E. Any payments to the Employee pursuant to this Agreement, or otherwise,
are subject to and conditioned upon compliance with 12 U.S.C. Section 1828(k)
and any rules and regulations promulgated thereunder.
F. In the event that the Employee dies during the Term, this Agreement
shall terminate upon the date of death and the Employer shall be obligated under
Section III only to pay salary and provide benefits accrued through such date.
3
<PAGE> 4
G. Notwithstanding any other provision of this Agreement, if the value and
amounts of benefits under this Agreement, together with any other amounts and
the value of benefits received or to be received by the Employee in connection
with a change in ownership or effective control or in the ownership of a
substantial portion of the assets of the Employer, the Bank or the Company,
would cause any amount to be nondeductible by the Employer, the Bank or the
Company for federal income tax purposes pursuant to Section 280G of the Internal
Revenue Code, of 1986, as amended, then the amounts and benefits under this
Agreement shall be reduced (not less than zero) to the extent necessary so as to
maximize amounts and the value of benefits to the Employee without causing any
amount to become nondeductible pursuant to or by reason of such Section 280G.
The Employee shall determine the allocation of such reduction among payments and
benefits to the Employee.
VI. ASSIGNMENT; SUCCESSORS. This Agreement may not be assigned by either
party, whether by agreement, operation of law or otherwise, without the consent
of the other, except that the Employer may assign this Agreement to the Company
or any affiliate of the Company, either directly or indirectly, or to a
successor by operation of law. This Agreement shall be binding upon and inure to
the benefit of the Employee and the Employer and their respective permitted
successors and assigns.
VII. PRIOR AGREEMENTS; AMENDMENTS; SEVERABILITY; WAIVER; HEADINGS. This
Agreement contains the entire agreement between the parties with respect to
employment of the Employee and his provision of consulting services to others
during the Term and supersedes any prior oral or written agreements or
understandings between them with respect to such employment and services. This
Agreement may be modified or amended only by an instrument in writing executed
by both parties. If any provision of this Agreement is determined to be invalid,
such invalidity shall not affect any other provisions, and such other provisions
shall continue in full force and effect to the full extent consistent with
applicable law. No term of condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against enforcement of any
provision of this Agreement, except by a writing signed by the party charged
with waiver or estoppel. No written waiver shall be deemed a continuing waiver
unless specifically stated therein and each waiver shall operate only as to the
specific term or condition waived. The headings used in this Agreement are
included solely for convenience and shall not affect, or be used in connection
with, the interpretation of this Agreement.
VIII. ARBITRATION. Except in the event that the Employer alleges a breach
or threatened breach of Section IV of this Agreement, any dispute or controversy
arising under or in connection with this Agreement shall be settled exclusively
by arbitration in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction.
4
<PAGE> 5
IX. NOTICES. Any notices pursuant to this Agreement shall be sent (i) if to
the Employee, to the home address he has most recently provided to the Employer
and (ii) if to the Employer, to Charter One Investments, Inc., 1215 Superior
Avenue, Cleveland, Ohio 44114, attention: John D. Koch, Chief Executive Officer.
X. GOVERNING LAW. This Agreement shall be governed by Ohio law to the
extent not pre-empted by federal law.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.
CHARTER ONE INVESTMENTS, INC.
-----------------------------
By:
Its:
Employee
-----------------------------
William A. Valerian
5
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
-----------------------------
Charter One Financial, Inc.
We consent to the incorporation by reference in this Registration Statement of
Charter One Financial, Inc. on Form S-4 of our report dated January 22, 1997
(August 6, 1997 as to Notes 22 and 23) which expresses an unqualified opinion,
refers to the report of other auditors on the consolidated financial statements
of a company that was merged with Charter One Financial, Inc., includes an
explanatory paragraph relating to an adjustment which was applied to restate
the 1994 consolidated financial statements to conform the adoption date of a
change in accounting principle as a result of a merger accounted for as a
pooling of interests and includes an explanatory paragraph relating to the
restatement of the consolidated financial statements to reclassify certain
mortgage-backed securities from held to maturity to available for sale,
appearing in the Annual Report on Form 10-K of Charter One Financial, Inc. for
the year ended December 31, 1996 as amended by Form 10-K/A filed on August 8,
1997 and to the reference to us under the heading "Experts" in the Proxy
Statement/Prospectus, which is part of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Cleveland, Ohio
August 8, 1997
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
-----------------------------
Charter One Financial, Inc.
We consent to the inclusion in and incorporation by reference in this
Registration Statement of Charter One Financial, Inc. on Form S-4 of our report
on the consolidated financial statements of Haverfield Corporation dated
January 28, 1997, incorporated by reference in the Annual Report on Form 10-K
of Haverfield Corporation for the year ended December 31, 1996 and to the
reference to us under the heading "Experts" in the Proxy Statement/Prospectus,
which is part of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Cleveland, Ohio
August 8, 1997
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITOR'S CONSENT
-----------------------------
The Board of Directors
RCSB Financial Inc.
We consent to the incorporation by reference in the Proxy Statement/Prospectus
and the Registration Statement on Form S-4 of Charter One Financial, Inc.
of our report dated December 13, 1996, relating to the consolidated statements
of condition of RCSB Financial, Inc. and subsidiaries as of November 30, 1996
and 1995 and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the years in the three year
period ended November 30, 1996, which report is incorporated by reference in
the November 30, 1996 annual report on Form 10-K of RCSB Financial, Inc. Our
report refers to changes in accounting for mortgage servicing rights in 1995.
We also consent to the reference to our firm under the heading "EXPERTS" in the
Proxy Statement/Prospectus.
/s/ KPMG Peat Marwick
Rochester, New York
August 7, 1997
<PAGE> 1
EXHIBIT 23.5
August 7, 1997
The Board of Directors
Charter One Financial, Inc.
1215 Superior Avenue
Cleveland, Ohio 44112
Re: Proxy Statement/Prospectus of Haverfield Corporation and Charter
One Financial, Inc. Regarding Merger.
Gentlemen:
We consent to the reference to our Firm under the caption "Legal Matters"
in the captioned Proxy Statement/Prospectus as respects our representation of
Haverfield Corporation with respect to the matters referenced therein.
Very truly yours,
/s/ Hahn Loeser Parks
<PAGE> 1
EXHIBIT 23.6
Charter One Financial, Inc.
1215 Superior Avenue
Cleveland, Ohio 44114
Gentlemen:
We hereby consent to the use of our name and to the description of our
opinion letter, dated the date of the Proxy Statement/Prospectus referred to
below, under the caption "THE MERGER--Opinions of Financial Advisor" in, and to
the inclusion of such opinion letter as Appendix II to, the Proxy
Statement/Prospectus of Charter One Financial, Inc. and Haverfield Corporation,
which Proxy Statement Prospectus is part of this Registration Statement on Form
S-4 of Charter One Financial, Inc. By giving such consent we do not thereby
admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "expert" as used in, or that we come
within the category of persons whose consent is required under, the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission promulgated thereunder.
/s/ Charles Webb & Company
Dublin, Ohio
August 8, 1997
<PAGE> 1
EXHIBIT 99.1
CONSENT
-------
Pursuant to Rule 438 of the General Rules and Regulations under the
Securities Act of 1933, I hereby consent to being named in the Proxy
Statement\Prospectus included in the Registration Statement on Form S-4 to which
this consent is an exhibit and confirm my consent to serve in such capacity.
By:/s/ Leonard S. Simon Dated: August 7, 1997
-------------------------
Leonard S. Simon
By:/s/ Michael P. Morely Dated: August 7, 1997
-------------------------
Michael P. Morely
By:/s/ Ronald G. Poe Dated: August 7, 1997
-------------------------
Ronald G. Poe
By:/s/ John P. Tierney Dated: August 7, 1997
-------------------------
John P. Tierney
<PAGE> 1
[FRONT]
REVOCABLE PROXY
HAVERFIELD CORPORATION
TERMINAL TOWER
50 PUBLIC SQUARE, SUITE 444
CLEVELAND, OHIO 44113-2203
SPECIAL MEETING OF SHAREHOLDERS * _________, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. IF THIS
PROXY IS PROPERLY EXECUTED AND DELIVERED, THE SHARES REPRESENTED BY THIS PROXY
WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THE SHARES WILL BE
VOTED FOR THE ADOPTION OF THE AGREEMENT AND PLAN OF MERGER AND REORGNAIZATION
DATED APRIL 22, 1997, BY AND AMONG CHARTER ONE FINANCIAL, INC, CHARTER MICHIGAN
BANCORP, INC., CHARTER ONE BANK, FSB, HAVERFIELD CORPORATION AND HOME BANK,
F.S.B. (THE "MERGER AGREEMENT"), INCLUDING THE MERGER PURSUANT TO WHICH A NEWLY
FORMED OHIO BUSINESS CORPORATION AND FIRST-TIER SUBSIDIARY OF CHARTER ONE WILL
BE MERGED WITH AND INTO HAVERFIELD IN A STOCK FOR STOCK EXCHANGE (THE "MERGER").
1. Adoption of the Merger Agreement and the Merger.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU
VOTE FOR ADOPTION OF THE MERGER AGREEMENT AND THE MERGER
---
IMPORTANT! - PLEASE DATE AND SIGN THIS CARD ON THE REVERSE SIDE.
[BACK]
The undersigned shareholder hereby appoints the Board of Directors of
Haverfield Corporation, and its survivors, with full power of substitution, to
act as attorneys and proxies to represent the shareholder and to vote and act,
with respect to all shares that the shareholder would be entitled to vote at the
special meeting of shareholders of Haverfield Corporation to be held on _______,
_________, 1997, at the ________ located at ___________ at ____ _.M., Cleveland
time, and at any adjournments of the meeting, on all matters that come before
the meeting. The affirmative vote of a majority of the shares represented at the
meeting may authorize the adjournment of the meeting; provided, however, that no
proxy which is voted against the Merger Agreement and the Merger will be vote in
favor of adjournment to solicit further proxies for the Merger Agreement and the
Merger.
The undersigned acknowledges receipt from Haverfield Corporation prior
to the execution of this proxy of Notice of the Special Meeting and a Proxy
Statement/Prospectus dated _________, 1997.
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS
ON THIS PROXY. IF SIGNING FOR ESTATES,
TRUSTS, CORPORATIONS OR PARTNERSHIPS,
TITLE OR CAPACITY SHOULD BE STATED. IF
SHARES ARE HELD JOINTLY, EACH HOLDER
SHOULD SIGN.
Signature:_________________Date:_________
Signature:_________________Date:_________
