<PAGE> 1
As filed with the Securities and Exchange Commission on September 30, 1998
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 No.)
incorporation or organization) Classification Code Number)
<S> <C> <C>
ROBERT J. VANA, ESQ.
1215 SUPERIOR AVENUE CHARTER ONE FINANCIAL, INC.
CLEVELAND, OHIO 44114 1215 SUPERIOR AVENUE
(216) 589-8320 CLEVELAND, OHIO 44114
(216) 566-5300
<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)
COPIES TO:
<S> <C> <C>
MARTIN L. MEYROWITZ, P.C. FRELING H. SMITH, ESQ LINDA MATLACK
SILVER, FREEDMAN & TAFF, L.L.P. ALBANK FINANCIAL CORPORATION CLEARY, GOTTLIEB, STEER & HAMILTON
1100 NEW YORK AVENUE, N.W. 10 NORTH PEARL STREET 2000 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20005 ALBANY, NEW YORK 12207 WASHINGTON, D.C. 20006
</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) 33,000,000 shares $24.27 $801,051,529 $16,232.20
===============================================================================================================================
===============================================================================================================================
<FN>
(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 ALBANK Financial Corporation - Rights Agreement."
(2) Based upon the estimated maximum number of shares of common stock ("Charter One Common Stock"), par value $.01 per share
of Charter One Financial, Inc. ("Charter One"), that may be issued upon consummation of the merger (the "Merger") of
ALBANK Financial Corporation ("ALBANK") into Charter- Michigan Bancorp, Inc., a first-tier subsidiary of Charter One.
(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 $801,051,529, which
equals (x) the average of the high and low sale prices of the common stock, par value $1.00 per share, of ALBANK ("ALBANK
Common Stock"), of $55.1875 as reported on the Nasdaq National Market on September 23, 1998, multiplied by (y) 14,515,090,
the total number of shares of ALBANK Common Stock (including shares issuable pursuant to the exercise of outstanding
options to purchase ALBANK 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 $220,078 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 Joint Proxy Statement/Prospectus contained in the
Registration Statement as preliminary proxy materials of ALBANK has been credited to offset the $236,310.20 registration
fee that would otherwise be payable.
===============================================================================================================================
</FN>
</TABLE>
<PAGE> 2
[CHARTER ONE LETTERHEAD]
September 29, 1998
Dear Stockholder:
You are invited to attend a special meeting of stockholders (the
"Special Meeting") of Charter One Financial, Inc. ("Charter One") scheduled to
be held at the Forum Conference and Education Center, One Cleveland Center, 1375
East Ninth Street, Cleveland, Ohio on Friday, November 13, 1998 at 10:30 a.m.,
local time. Notice of the Special Meeting, a Joint Proxy Statement/Prospectus
and a proxy card are enclosed.
At the Special Meeting, stockholders will be asked to consider and vote
upon a proposal to approve the issuance of shares of Charter One common stock
(the "Charter One Share Issuance") in connection with the merger of ALBANK
Financial Corporation ("ALBANK") with and into Charter-Michigan Bancorp, Inc., a
wholly owned first-tier subsidiary of Charter One, in a stock-for-stock exchange
(the "Merger"). Approximately 33 million shares of Charter One common stock are
expected to be issued in connection with the Merger based on an exchange ratio
of 2.268 (which reflects the five percent stock dividend declared by Charter One
payable on September 30, 1998 to stockholders of record on September 14, 1998)
shares of Charter One common stock for each outstanding share of ALBANK common
stock (with cash paid in lieu of fractional share interests). Consummation of
the Merger is subject to certain conditions, including receipt of regulatory
approvals and the requisite votes of the stockholders of Charter One, with
respect to the Charter One Share Issuance, and of ALBANK, with respect to the
Merger. Approval of the Charter One Share Issuance requires the affirmative vote
of at least a majority of the total votes actually cast on the matter at the
Special Meeting by the holders of Charter One common stock.
THE BOARD OF DIRECTORS OF CHARTER ONE HAS CAREFULLY REVIEWED THE
PROPOSED CHARTER ONE SHARE ISSUANCE AND HAS UNANIMOUSLY CONCLUDED THAT THE
CHARTER ONE SHARE ISSUANCE IS ADVISABLE AND IN THE BEST INTERESTS OF CHARTER ONE
AND ITS STOCKHOLDERS. CHARTER ONE'S FINANCIAL ADVISOR, LEHMAN BROTHERS, INC.,
HAS ISSUED ITS OPINION THAT THE CONSIDERATION TO BE PAID BY CHARTER ONE IN THE
MERGER IS FAIR TO CHARTER ONE FROM A FINANCIAL POINT OF VIEW. ACCORDINGLY, I
URGE YOU TO VOTE FOR THE CHARTER ONE SHARE ISSUANCE.
At the Special Meeting you will also be asked to consider and vote upon
two additional proposals, as follows: (i) to adopt an amendment to Charter One's
Second Restated and Amended Certificate of Incorporation authorizing an increase
in the number of authorized shares of common stock from 180,000,000 to
360,000,000 (the "Charter One Certificate Amendment") and (ii) to approve the
Charter One Top Executive Incentive Goal Achievement Plan (the "TEIGAP"). The
Charter One Certificate Amendment and the TEIGAP are more fully described in the
accompanying Joint Proxy Statement/Prospectus. Adoption of the Charter One
Certificate Amendment requires the approval of at least a majority of the votes
entitled to be cast at the Special Meeting by the holders of Charter One common
stock on the matter. Approval of the TEIGAP requires the affirmative vote of at
least a majority of the total votes actually cast on the matter at the Special
Meeting by the holders of Charter One common stock. ACCORDINGLY, I URGE YOU TO
VOTE FOR THE CHARTER ONE CERTIFICATE AMENDMENT AND FOR THE TEIGAP.
Approval of the Charter One Share Issuance by the stockholders of
Charter One is a condition to, and required for, consummation of the Merger. No
proposal is conditioned on, or subject to, approval of any other proposal to be
considered and voted upon at the Charter One Special Meeting.
On April 23, 1998, we announced that Charter One had entered into an
agreement to acquire CS Financial Corporation, the holding company for The
Cuyahoga Savings Association. CS Financial Corporation is based in Cleveland,
Ohio. Certain information relating to this transaction is set forth in the
accompanying Joint Proxy Statement/Prospectus.
Should any other matters be properly brought before the Special
Meeting, the persons named in the accompanying proxy card 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 Joint Proxy Statement/Prospectus, which contain an explanation of
the amount of Charter One common stock to be issued to ALBANK stockholders, a
detailed description of the Merger as well as other important information
relating to Charter One, ALBANK and the combined companies.
<PAGE> 3
Your vote is important, regardless of the number of shares you own. ON
BEHALF OF THE BOARD OF DIRECTORS, I URGE YOU TO SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD AS SOON AS POSSIBLE EVEN IF YOU CURRENTLY PLAN TO ATTEND THE
SPECIAL MEETING. This will not prevent you from voting in person but will assure
that your vote is counted if you do not attend the Special Meeting.
Sincerely,
Charles John Koch
Chairman of the Board, President
and Chief Executive Officer
<PAGE> 4
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY
[ALBANK LOGO]
September 29, 1998
Dear Stockholder:
You are invited to attend a special meeting of stockholders (the
"Special Meeting") of ALBANK Financial Corporation ("ALBANK") scheduled to be
held at the ALBANK, FSB Operations Center, 833 Broadway, Albany, New York on
Friday, November 13, 1998 at 10:30 a.m. local time. Notice of the Special
Meeting, a Joint Proxy Statement/Prospectus and a proxy card are enclosed.
At the Special Meeting, stockholders will be asked to consider and vote
upon a proposal to adopt an Agreement and Plan of Merger, dated as of June 15,
1998 (the "Merger Agreement"), pursuant to which, among other things, ALBANK
will be merged with and into Charter-Michigan Bancorp, Inc. (the "Merger"), a
wholly owned first-tier subsidiary of Charter One Financial, Inc. ("Charter
One"). Consummation of the Merger is subject to certain conditions, including
receipt of regulatory approvals and the requisite votes of the stockholders of
ALBANK, with respect to the Merger Agreement, and of Charter One, with respect
to the issuance of shares of Charter One common stock in connection with the
Merger. Adoption of the Merger Agreement requires the affirmative vote of the
holders of a majority of the outstanding shares of ALBANK common stock entitled
to vote at the Special Meeting. The terms of the proposed Merger, including an
explanation of the amount of Charter One stock to be issued to ALBANK
stockholders based on an exchange ratio of 2.268 (which reflects the five
percent stock dividend declared by Charter One payable on September 30, 1998 to
stockholders of record on September 14, 1998) shares of Charter One common stock
for each outstanding share of ALBANK common stock (with cash paid in lieu of
fractional share interests), as well as other important information relating to
Charter One, ALBANK and the combined company, are contained in the accompanying
Joint Proxy Statement/Prospectus.
THE BOARD OF DIRECTORS OF ALBANK HAS UNANIMOUSLY VOTED TO APPROVE THE
MERGER AGREEMENT. ALBANK'S FINANCIAL ADVISOR, MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED, HAS ISSUED ITS OPINION THAT THE EXCHANGE RATIO TO BE OFFERED
TO ALBANK'S STOCKHOLDERS IN THE MERGER IS FAIR FROM A FINANCIAL POINT OF VIEW TO
ALBANK'S STOCKHOLDERS. ACCORDINGLY, I URGE YOU TO VOTE FOR THE MERGER.
On April 23, 1998, Charter One announced that it had entered into an
agreement to acquire CS Financial Corporation, the holding company for The
Cuyahoga Savings Association. Certain information relating to this transaction
is also set forth in the accompanying Joint Proxy Statement/Prospectus.
Should any other matters be properly brought before the Special
Meeting, the persons named in the accompanying proxy card will vote the shares
represented by such proxy upon such matters as determined by the majority of the
Board of Directors. You are urged to read the accompanying Notice of Special
Meeting and Joint Proxy Statement/Prospectus, which contain important
information relating to the Merger, ALBANK, Charter One and the combined
companies.
Your vote is important, regardless of the number of shares you own. ON
BEHALF OF THE BOARD OF DIRECTORS, I URGE YOU TO SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD AS SOON AS POSSIBLE, EVEN IF YOU CURRENTLY PLAN TO ATTEND
THE SPECIAL MEETING. This will not prevent you from voting in person but will
assure that your vote is counted if you do not attend the Special Meeting.
Sincerely,
Herbert G. Chorbajian
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> 5
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY
CHARTER ONE FINANCIAL, INC.
1215 Superior Avenue
Cleveland, Ohio 44114
(216) 566-5300
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 13, 1998
NOTICE IS HEREBY GIVEN THAT a Special Meeting of Stockholders (the
"Special Meeting") of Charter One Financial, Inc. ("Charter One") will be held
on Friday, November 13, 1998 at 10:30 a.m., local time, at the Forum Conference
and Education Center, One Cleveland Center, 1375 East Ninth Street, Cleveland,
Ohio for the following purposes:
(1) To consider and vote upon a proposal to approve the
issuance of shares of Charter One common stock, which includes shares
to be reserved for issuance in connection with the conversion of
certain ALBANK Financial Corporation ("ALBANK") stock options into
Charter One stock options (the "Charter One Share Issuance"), in
connection with the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of June 15, 1998, by and between Charter One,
Charter-Michigan Bancorp, Inc. ("Charter-Michigan") and ALBANK, a copy
of which is included in the accompanying Joint Proxy
Statement/Prospectus at Annex A, pursuant to which ALBANK will be
merged with and into Charter-Michigan, a wholly owned first-tier
subsidiary of Charter One, and each outstanding share of ALBANK common
stock will be converted into 2.268 (which reflects the five percent
stock dividend declared by Charter One payable on September 30, 1998 to
stockholders of record on September 14, 1998) shares of Charter One
common stock and the corresponding rights associated with such Charter
One common stock (with cash paid in lieu of fractional share
interests).
(2) To consider and vote upon a proposal to adopt an amendment
to the Charter One Second Restated and Amended Certificate of
Incorporation (the "Certificate of Incorporation") increasing the
authorized number of shares of common stock from 180,000,000 to
360,000,000 (the "Charter One Certificate Amendment").
(3) To consider and vote upon a proposal to approve the
Charter One Top Executive Incentive Goal Achievement Plan (the
"TEIGAP").
(4) Such other matters as may properly come before the Special
Meeting or any adjournments thereof, including proposals to adjourn the
Special Meeting to permit further solicitation of proxies by the Board
of Directors in the event that there are not sufficient votes to
approve the Charter One Share Issuance or adopt the Charter One
Certificate Amendment or approve the TEIGAP at the time of the Special
Meeting; provided, however, that no proxy which is voted against the
Charter One Share Issuance, the Charter One Certificate Amendment or
the TEIGAP 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.
A PROXY CARD AND A JOINT PROXY STATEMENT/PROSPECTUS FOR THE SPECIAL
MEETING ARE ENCLOSED.
Stockholders of record at the close of business on September 22, 1998,
are the stockholders entitled to vote at the Special Meeting and any
adjournments or postponements thereof. A list of Charter One stockholders
entitled to vote at the Special Meeting will be available for examination, for
any purpose germane to the Special Meeting, at the main office of Charter One
during ordinary business hours for at least ten days prior to the Special
Meeting, as well as at the Special Meeting.
<PAGE> 6
Approval of the Charter One Share Issuance and approval of the TEIGAP
require the affirmative vote of at least a majority of the total votes actually
cast at the Special Meeting by the holders of Charter One common stock on the
matter. Adoption of the Charter One Certificate Amendment requires the approval
of at least a majority of the votes entitled to be cast at the Special Meeting
by the holders of Charter One common stock on the matter. Approval of the
Charter One Share Issuance by the stockholders of Charter One is a condition to,
and required for, consummation of the Merger. No proposal is conditioned on, or
subject to, approval of any other proposal to be considered and voted upon at
the Special Meeting.
Remember, if your shares are held in the name of a broker, only your
broker can vote your shares and only after receiving your instructions. Please
contact the person responsible for your account and instruct him/her to execute
a proxy card on your behalf.
Should you have any questions or require assistance, please call
Georgeson & Company, Inc., which is assisting us in the solicitation of proxies,
at (800) 223-2064.
YOU ARE REQUESTED TO FILL IN AND SIGN THE ENCLOSED PROXY CARD WHICH IS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS, AND TO MAIL IT PROMPTLY IN THE
ENCLOSED ENVELOPE. THE PROXY CARD WILL NOT BE USED IF YOU ATTEND AND VOTE AT THE
SPECIAL MEETING IN PERSON.
By Order of the Board of Directors
Charles John Koch
Chairman of the Board, President
and Chief Executive Officer
Cleveland, Ohio
September 29, 1998
- -------------------------------------------------------------------------------
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT
YOU PLAN TO BE PRESENT AT THE SPECIAL MEETING, PLEASE SIGN, DATE AND COMPLETE
THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
- -------------------------------------------------------------------------------
<PAGE> 7
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY
ALBANK FINANCIAL CORPORATION
10 North Pearl Street
Albany, New York 12207
(518) 445-2100
------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 13, 1998
NOTICE IS HEREBY GIVEN THAT a Special Meeting of Stockholders (the
"Special Meeting") of ALBANK Financial Corporation ("ALBANK") will be held on
Friday, November 13, 1998 at 10:30 a.m., local time, at the ALBANK, FSB
Operations Center, 833 Broadway, Albany, New York for the following purposes:
(1) To consider and vote upon a proposal to adopt the
Agreement and Plan of Merger (the "Merger Agreement"), dated as of June
15, 1998, by and between Charter One Financial, Inc. ("Charter One"),
Charter-Michigan Bancorp, Inc. ("Charter-Michigan"), and ALBANK, a copy
of which is included in the accompanying Joint Proxy
Statement/Prospectus at Annex A, pursuant to which ALBANK will be
merged with and into Charter-Michigan, a wholly owned first-tier
subsidiary of Charter One, and each outstanding share of ALBANK common
stock will be converted into 2.268 (which reflects the five percent
stock dividend declared by Charter One payable on September 30, 1998 to
stockholders of record on September 14, 1998) shares of Charter One
common stock and the corresponding rights associated with such Charter
One common stock (with cash paid in lieu of fractional share
interests).
(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.
A PROXY CARD AND A JOINT PROXY STATEMENT/PROSPECTUS FOR THE SPECIAL
MEETING ARE ENCLOSED.
Stockholders of record at the close of business on September 22, 1998,
are the stockholders entitled to vote at the Special Meeting and any
adjournments or postponements thereof. A list of ALBANK stockholders entitled to
vote at the Special Meeting will be available for examination, for any purpose
germane to the Special Meeting, at the main office of ALBANK during ordinary
business hours for at least ten days prior to the Special Meeting, as well as at
the Special Meeting.
The affirmative vote of the holders of at least a majority of the
outstanding shares of ALBANK common stock entitled to vote at the Special
Meeting is required to approve the proposal to adopt the Merger Agreement.
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING IN PERSON.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO COMPLETE, SIGN
AND DATE THE ENCLOSED PROXY CARD, WHICH IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS, AND TO MAIL IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. THE
PROXY CARD WILL NOT BE USED IF YOU ATTEND AND VOTE AT THE SPECIAL MEETING IN
PERSON.
Remember, if your shares are held in the name of a broker, only your
broker can vote your shares and only after receiving your instructions. Please
contact the person responsible for your account and instruct him/her to execute
a proxy card on your behalf.
<PAGE> 8
Should you have any questions or require assistance, please call
Freling H. Smith, Senior Vice President, General Counsel and Corporate
Secretary, or Richard J. Heller, Executive Vice President and Chief Financial
Officer, at (518) 445-2100.
By Order of the Board of Directors
Freling H. Smith
Corporate Secretary
Albany, New York
September 29, 1998
- ------------------------------------------------------------------------------
IMPORTANT: THE PROMPT RETURN OF PROXY CARDS WILL SAVE ALBANK THE EXPENSE
OF FURTHER REQUESTS FOR PROXIES. AN ADDRESSED ENVELOPE IS ENCLOSED FOR
YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
- ------------------------------------------------------------------------------
<PAGE> 9
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY
JOINT PROXY STATEMENT
OF
CHARTER ONE FINANCIAL, INC.
AND
ALBANK FINANCIAL CORPORATION
FOR SPECIAL MEETINGS OF THEIR
RESPECTIVE STOCKHOLDERS
TO BE HELD ON NOVEMBER 13, 1998
PROSPECTUS
OF
CHARTER ONE FINANCIAL, INC.
UP TO 33,000,000 SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE
This Joint Proxy Statement/Prospectus is being furnished by ALBANK
Financial Corporation, a Delaware corporation ("ALBANK"), to holders of common
stock, par value $0.01 per share, of ALBANK ("ALBANK Common Stock"), as a proxy
statement in connection with the solicitation of proxies by the Board of
Directors of ALBANK (the "ALBANK Board") for use at a special meeting of
stockholders to be held at 10:30 a.m., local time, on Friday, November 13, 1998,
at the ALBANK, FSB Operations Center, 833 Broadway, Albany, New York, and at any
adjournments or postponements thereof (the "ALBANK Special Meeting").
This Joint Proxy Statement/Prospectus is also being furnished by
Charter One Financial, Inc., a Delaware corporation ("Charter One"), to holders
of common stock, par value $0.01 per share, of Charter One ("Charter One Common
Stock") as a proxy statement in connection with the solicitation of proxies by
the Board of Directors of Charter One (the "Charter One Board") for use at a
special meeting of stockholders to be held at 10:30 a.m., on Friday, November
13, 1998, at the Forum Conference and Education Center, located at One Cleveland
Center, 1375 East Ninth Street, Cleveland, Ohio, and at any adjournments or
postponements thereof (the "Charter One Special Meeting" and, together with the
ALBANK Special Meeting, the "Special Meetings"), and to holders of ALBANK Common
Stock as a Prospectus with respect to the shares of Charter One Common Stock
that are issuable upon consummation of the Merger (as hereinafter defined).
At the ALBANK Special Meeting, the holders of ALBANK Common Stock will
consider and vote upon a proposal to adopt the Agreement and Plan of Merger (the
"Merger Agreement"), dated as of June 15, 1998, by and among Charter One,
Charter-Michigan Bancorp, Inc. ("Charter-Michigan") and ALBANK, pursuant to
which ALBANK will be merged with and into Charter-Michigan in a stock-for-stock
exchange (the "Merger"). See "SUMMARY -- Summary of Certain Aspects of the
Merger" and "THE MERGER." The Merger Agreement, including exhibits thereto and
the Supplemental Letter dated June 15, 1998 between ALBANK, Charter One and
Charter-Michigan (the "Supplemental Letter") that is incorporated therein by
reference, are included at Annex A and incorporated herein by reference.
At the Charter One Special Meeting, the holders of Charter One Common
Stock will consider and vote upon proposals to (i) approve the issuance of the
shares of Charter One Common Stock to be issued in connection with the Merger,
which includes shares to be reserved for issuance in connection with the
conversion of certain ALBANK stock options into Charter One stock options (the
"Charter One Share Issuance"), (ii) adopt the amendment to the Second Restated
and Amended Certificate of Incorporation of Charter One (the "Charter One
Certificate") to increase the number of authorized shares of Charter One Common
Stock from 180,000,000 to 360,000,000 shares (the "Charter One Certificate
Amendment") and (iii) to approve the Charter One Top Executive Incentive Goal
Achievement Plan (the "TEIGAP"). See "SUMMARY," "THE MERGER," "AMENDMENT NUMBER
TWO TO THE SECOND RESTATED CERTIFICATE OF INCORPORATION OF CHARTER ONE
FINANCIAL, INC.," "APPROVAL OF THE CHARTER ONE TOP EXECUTIVE INCENTIVE GOAL
ACHIEVEMENT PLAN" and Annex A.
(Cover page continued on next page)
i
<PAGE> 10
The Merger Agreement provides that at the Effective Time (as defined
herein) each issued and outstanding share of ALBANK Common Stock, excluding any
shares of stock held by Charter One, ALBANK or their subsidiaries, other than in
a fiduciary capacity or in satisfaction of a debt previously contracted
("Excluded Shares"), will be canceled and converted into 2.16 (adjusted to 2.268
as a result of the five percent stock dividend declared by Charter One payable
on September 30, 1998 to stockholders of record on September 14, 1998 (the
"Charter One Stock Dividend") shares of Charter One Common Stock (the "Exchange
Ratio") including a corresponding number of rights associated with Charter One
Common Stock pursuant to the Rights Agreement (the "Rights Agreement") dated
November 20, 1989, as amended May 26, 1995, between Charter One and The First
National Bank of Boston as Rights Agent (the "Merger Consideration"). For a
discussion of the rights and the Rights Agreement, see "COMPARISON OF RIGHTS OF
STOCKHOLDERS OF CHARTER ONE FINANCIAL, INC. AND ALBANK FINANCIAL CORPORATION --
Rights Agreement." The Exchange Ratio is subject to possible adjustment. See
"THE MERGER -- Amendment; Termination; Liabilities and Remedies for Breach."
On April 23, 1998 Charter One entered into an agreement to acquire CS
Financial Corporation ("CSFC"), an Ohio corporation and the holding company of
The Cuyahoga Savings Association ("CSFC Bank"). CSFC and CSFC Bank are based in
Cleveland, Ohio. This Joint Proxy Statement/Prospectus contains certain
information relating to Charter One's proposed transaction with CSFC (the "CSFC
Acquisition"). See "RECENT DEVELOPMENTS."
This Joint Proxy Statement/Prospectus, and the accompanying notices and
forms of proxy, are first being mailed to stockholders of Charter One and ALBANK
on or about October 6, 1998.
---------------------------
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, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE OFFICE OF THE
COMPTROLLER OF THE CURRENCY, THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE
SYSTEM, ANY STATE SECURITIES COMMISSION OR ANY OTHER GOVERNMENTAL AGENCY, AND
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT
SUPERVISION, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE OFFICE OF THE
COMPTROLLER OF THE CURRENCY, THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE
SYSTEM, ANY STATE SECURITIES COMMISSION NOR ANY OTHER GOVERNMENTAL AGENCY HAS
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF CHARTER ONE COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE
FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
---------------------------
The date of this Joint Proxy Statement/Prospectus is September 29, 1998
ii
<PAGE> 11
AVAILABLE INFORMATION
Charter One and ALBANK 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 and ALBANK
can be obtained, upon payment of prescribed fees, from the Public Reference
Section 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 Commission's Regional Offices
located at the 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 site that contains reports,
proxy and information statements and other information regarding the electronic
filings of Charter One and ALBANK with the Commission. The address of the
Commission Web site 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
Joint Proxy Statement/Prospectus does not contain all the information set forth
in the Registration Statement, certain parts of which have been omitted in
accordance with the rules and regulations of the Commission. The Registration
Statement is available for inspection and copying as set forth above. Statements
contained in this Joint Proxy Statement/Prospectus or in any document
incorporated by reference in this Joint Proxy Statement/Prospectus as to the
contents of any contract or other document are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS
(EXCLUDING EXHIBITS NOT SPECIFICALLY INCORPORATED BY REFERENCE) ARE AVAILABLE,
WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS
JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED BY OR ON BEHALF OF CHARTER ONE OR
ALBANK, UPON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, IN THE CASE OF
DOCUMENTS RELATING TO CHARTER ONE, TO ROBERT J. VANA, CHIEF CORPORATE COUNSEL
AND CORPORATE SECRETARY, CHARTER ONE FINANCIAL, INC., 1215 SUPERIOR AVENUE,
CLEVELAND, OHIO 44114, TELEPHONE (216) 566-5300; OR IN THE CASE OF DOCUMENTS
RELATING TO ALBANK, TO FRELING H. SMITH, SENIOR VICE PRESIDENT, GENERAL COUNSEL
AND CORPORATE SECRETARY, ALBANK FINANCIAL CORPORATION, 10 NORTH PEARL STREET,
ALBANY, NEW YORK 12207, TELEPHONE (518) 445-2100. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETINGS, ANY REQUEST SHOULD BE
MADE BY November 3, 1998. 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) are hereby incorporated by reference in this Joint Proxy
Statement/Prospectus:
1. The Annual Report on Form 10-K of Charter One for the fiscal
year ended December 31, 1997 (the "1997 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 1997 Charter One 10-K (including Charter
One's Quarterly Reports on Form 10-Q for the quarterly periods
ended March 31, 1998 and June 30, 1998 and Current Report on
Form 8-K for the event on June 15, 1998).
3. The portions of Charter One's proxy statement for the Annual
Meeting of Stockholders held April 22, 1998 that have been
incorporated by reference in the 1997 Charter One 10-K.
iii
<PAGE> 12
4. The description of the Charter One Common Stock contained in
Charter One's Registration Statement on Form 8-A with respect
thereto dated January 12, 1988 (and any amendment or report
filed for the purpose of updating the description).
5. The description of the rights issued pursuant to the Rights
Agreement 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 amendment or report filed for
the purpose of updating the description).
The following documents previously filed with the Commission by ALBANK
(File No. 0-19843) are hereby incorporated by reference in this Joint Proxy
Statement/Prospectus:
1. The Annual Report on Form 10-K of ALBANK for the fiscal year
ended December 31, 1997 (the "1997 ALBANK 10-K").
2. All other reports filed by ALBANK pursuant to Section 13(a) or
15(d) of the Exchange Act since the end of the fiscal year
covered by the 1997 ALBANK 10-K (including ALBANK's Quarterly
Reports on Form 10-Q for the quarterly periods ended March 31,
1998 and June 30, 1998 and Current Report on Form 8-K for the
events on June 15, 1998).
3. The portions of ALBANK's proxy statement for the Annual
Meeting of Stockholders held on May 19, 1998 that have been
incorporated by reference in the 1997 ALBANK 10-K.
All documents filed by Charter One and ALBANK with the Commission
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this Joint Proxy Statement/Prospectus and prior to the date of the
Special Meetings shall be deemed to be incorporated by reference herein and to
be a part hereof from the date of filing such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Joint Proxy Statement/Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is deemed to be incorporated by reference herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Joint Proxy
Statement/Prospectus.
All information contained in this Joint Proxy Statement/Prospectus with
respect to Charter One, CSFC and their subsidiaries has been supplied by Charter
One, and all information with respect to ALBANK and its subsidiaries has been
supplied by ALBANK.
---------------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
JOINT PROXY STATEMENT/PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS JOINT
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS JOINT PROXY
STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION, TO OR
FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER,
SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF
SECURITIES PURSUANT TO THIS JOINT PROXY STATEMENT/PROSPECTUS SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF CHARTER ONE OR ALBANK OR ANY OF THEIR RESPECTIVE SUBSIDIARIES, OR IN
THE INFORMATION SET FORTH HEREIN, SINCE THE DATE OF THIS JOINT PROXY
STATEMENT/PROSPECTUS.
---------------------------
THIS JOINT 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 CSFC
ACQUISITION, INCLUDING STATEMENTS RELATING TO THE COST SAVINGS AND FUNDING
ADVANTAGES THAT ARE EXPECTED TO BE REALIZED FROM THE MERGER AND THE EXPECTED
IMPACT OF THE MERGER ON CHARTER ONE'S FINANCIAL
iv
<PAGE> 13
PERFORMANCE AND EARNINGS ESTIMATES FOR THE COMBINED COMPANY. SEE "THE MERGER --
BACKGROUND OF AND REASONS FOR THE MERGER," "-- OPINION OF CHARTER ONE'S
FINANCIAL ADVISOR," "-- OPINION OF ALBANK'S FINANCIAL ADVISOR," 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: (I) EXPECTED COST SAVINGS
FROM THE MERGER CANNOT BE FULLY REALIZED; (II) DEPOSIT ATTRITION, CUSTOMER LOSS
OR REVENUE LOSS FOLLOWING THE MERGER; (III) COMPETITIVE PRESSURE IN THE BANKING
INDUSTRY INCREASES; (IV) COSTS OR DIFFICULTIES RELATED TO THE INTEGRATION OF THE
BUSINESSES OF CHARTER ONE AND ALBANK ARE GREATER THAN EXPECTED; (V) CHANGES IN
THE INTEREST RATE ENVIRONMENT REDUCE MARGINS MORE THAN PLANNED; (VI) GENERAL
ECONOMIC CONDITIONS, EITHER NATIONALLY OR REGIONALLY, ARE LESS FAVORABLE THAN
EXPECTED, RESULTING IN, AMONG OTHER THINGS, A DETERIORATION IN CREDIT QUALITY;
(VII) THE IMPACT OF THE REGISTRATION OF CHARTER ONE AS A BANK HOLDING COMPANY,
OR OF REGULATORY CHANGES, IS OTHER THAN EXPECTED; (VIII) CHANGES IN BUSINESS
CONDITIONS AND INFLATION; AND (IX) CHANGES IN THE SECURITIES MARKETS. FURTHER
INFORMATION ON OTHER FACTORS WHICH COULD AFFECT THE FINANCIAL RESULTS OF CHARTER
ONE AFTER THE MERGER IS INCLUDED IN THE COMMISSION FILINGS INCORPORATED BY
REFERENCE HEREIN.
---------------------------
v
<PAGE> 14
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
AVAILABLE INFORMATION...........................................................................................iii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.................................................................iii
TABLE OF CONTENTS................................................................................................vi
SUMMARY...........................................................................................................1
The Special Meetings.....................................................................................1
Charter One Special Meeting.....................................................................1
ALBANK Special Meeting..........................................................................2
The Parties to the Merger................................................................................3
Charter One, Charter-Michigan and Charter One Bank..............................................3
ALBANK .......................................................................................3
Summary of Certain Aspects of the Merger.................................................................4
General .......................................................................................4
Background of and Reasons for the Merger; Recommendations of the Boards of Directors............4
Merger Consideration............................................................................4
Treatment of ALBANK Stock Options...............................................................5
Opinions of Financial Advisors..................................................................5
Effective Time..................................................................................6
Exchange of Certificates; No Fractional Shares..................................................6
Interests of Certain Persons in the Merger......................................................6
Management after the Merger.....................................................................6
Representations and Warranties..................................................................7
Conditions to the Merger........................................................................7
Regulatory Matters..............................................................................7
Amendment; Termination; Liabilities and Remedies for Breach.....................................7
Conduct of Business Pending the Merger and Certain Covenants....................................8
Accounting Treatment............................................................................8
Federal Income Tax Consequences of the Merger...................................................8
Effects of the Merger on Stockholders...........................................................9
Stock Option Agreement...................................................................................9
Comparative Stock Prices and Dividend Information.......................................................10
Selected Consolidated Financial and Other Data of Charter One Financial, Inc............................12
Selected Consolidated Financial and Other Data of ALBANK Financial Corporation..........................13
THE SPECIAL MEETINGS.............................................................................................14
Charter One Special Meeting.............................................................................14
ALBANK Special Meeting..................................................................................16
CHARTER ONE FINANCIAL, INC., CHARTER-MICHIGAN BANCORP, INC.
AND CHARTER ONE BANK, F.S.B.....................................................................................17
General ...............................................................................................17
Pending Structural Changes..............................................................................19
Beneficial Ownership of Certain Persons.................................................................21
ALBANK FINANCIAL CORPORATION, ALBANK, FSB AND
ALBANK COMMERCIAL...............................................................................................23
General ...............................................................................................23
Beneficial Ownership of Certain Persons.................................................................24
RECENT DEVELOPMENTS..............................................................................................26
THE MERGER.......................................................................................................26
General ...............................................................................................26
Background of and Reasons for the Merger................................................................26
Recommendation of the Charter One Board.................................................................31
Recommendation of the ALBANK Board......................................................................31
vi
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<PAGE> 15
<TABLE>
<CAPTION>
<S> <C>
Opinion of Charter One's Financial Advisor..............................................................31
Opinion of ALBANK's Financial Advisor...................................................................35
Merger Consideration....................................................................................40
Fractional Shares.......................................................................................41
Treatment of ALBANK Stock Options.......................................................................41
Effective Time..........................................................................................42
Exchange of Certificates................................................................................42
Interests of Certain Persons in the Merger..............................................................42
Representations and Warranties..........................................................................45
Conditions to the Merger................................................................................46
Regulatory Matters......................................................................................48
Amendment; Termination; Liabilities and Remedies for Breach.............................................49
Conduct of Business Pending the Merger and Certain Covenants............................................53
Expenses ...............................................................................................57
Accounting Treatment....................................................................................57
No Appraisal Rights.....................................................................................57
Resale of Charter One Common Stock by Affiliates........................................................57
Dividend Reinvestment Plan..............................................................................58
Federal Income Tax Consequences of the Merger...........................................................58
Nasdaq Listing..........................................................................................60
MANAGEMENT AND OPERATIONS AFTER THE MERGER.......................................................................60
Management..............................................................................................60
Consolidation of Operations.............................................................................60
Post-Merger Dividend Policy.............................................................................60
STOCK OPTION AGREEMENT...........................................................................................61
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS................................................................65
UNAUDITED PRO FORMA PER SHARE DATA...............................................................................73
DESCRIPTION OF CHARTER ONE FINANCIAL, INC. CAPITAL STOCK.........................................................75
General ...............................................................................................75
Common Stock............................................................................................75
Preferred Stock.........................................................................................75
COMPARISON OF RIGHTS OF STOCKHOLDERS OF
CHARTER ONE FINANCIAL, INC. AND ALBANK FINANCIAL CORPORATION....................................................76
Introduction............................................................................................76
Issuance of Capital Stock...............................................................................76
Payment of Dividends....................................................................................76
Advance Notice Requirements for Presentation of New Business and Nominations of
Directors at Annual Meetings of Stockholders...........................................................77
Cumulative Voting for Election of Directors.............................................................77
Restrictions on Voting Rights; Quorum...................................................................77
Number and Term of Directors............................................................................77
Removal of Directors....................................................................................78
Filling Vacancies on the Board of Directors.............................................................78
Amendment to the Certificate of Incorporation...........................................................78
Amendment and Repeal of Bylaws..........................................................................79
Control Share Acquisitions..............................................................................79
Business Combinations with Certain Persons..............................................................79
Prevention of Greenmail.................................................................................80
Limitations on Directors' Liability.....................................................................80
Indemnification.........................................................................................81
Mergers, Acquisitions and Certain Other Transactions....................................................81
Criteria for Evaluating Certain Offers..................................................................81
Action Without a Meeting................................................................................81
Special Meetings of Stockholders........................................................................82
vii
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<PAGE> 16
<TABLE>
<CAPTION>
<S> <C>
Preemptive Rights.......................................................................................82
Appraisal Rights of Dissenting Stockholders.............................................................82
Special Provisions to Charter One's Bylaws..............................................................82
Rights Agreement........................................................................................83
AMENDMENT NUMBER TWO TO THE SECOND RESTATED CERTIFICATE
OF INCORPORATION OF CHARTER ONE FINANCIAL, INC..................................................................85
General ...............................................................................................85
Increase in Authorized Shares of Capital Stock..........................................................86
APPROVAL OF THE CHARTER ONE TOP EXECUTIVE INCENTIVE
GOAL ACHIEVEMENT PLAN...........................................................................................87
Summary of the TEIGAP...................................................................................87
Effect of Shareholder Approval..........................................................................87
Vote Required...........................................................................................89
LEGAL MATTERS....................................................................................................89
EXPERTS..........................................................................................................90
STOCKHOLDER PROPOSALS............................................................................................90
OTHER MATTERS....................................................................................................90
ANNEXES
A. Agreement and Plan of Merger (including the Supplemental Letter)
B. Fairness Opinion of Lehman Brothers, Inc.
C. Fairness Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
D. Stock Option Agreement
E. Charter One Top Executive Incentive Goal Achievement Plan
viii
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<PAGE> 17
SUMMARY
The following is a brief summary of certain information contained
elsewhere or incorporated by reference in this Joint Proxy Statement/Prospectus.
Certain capitalized terms used in this summary are defined elsewhere in this
Joint Proxy Statement/Prospectus. This summary is necessarily incomplete and is
qualified in its entirety by, and reference is made to, the more detailed
information contained elsewhere in this Joint Proxy Statement/Prospectus, the
accompanying Annexes and the documents referred to and incorporated by reference
herein.
THE SPECIAL MEETINGS
CHARTER ONE SPECIAL MEETING
Meeting Date; Record Date. The Charter One Special Meeting is scheduled
to be held at the Forum Conference and Education Center, One Cleveland Center,
135 East Ninth Street, Cleveland, Ohio, on Friday, November 13, 1998 at 10:30
a.m., local time, unless adjourned or postponed. Only holders of record of
Charter One Common Stock at the close of business on September 22, 1998 (the
"Charter One Record Date"), are entitled to notice of and to vote at the Charter
One Special Meeting.
Matters to be Considered. At the Charter One Special Meeting, holders
of shares of Charter One Common Stock will consider and vote upon a proposal to
approve the Charter One Share Issuance. Approximately 30 million shares of
Charter One Common Stock are expected to be issued in connection with the
Merger. See "-- Summary of Certain Aspects of the Merger" and "THE MERGER." At
the Charter One Special Meeting, holders of Charter One Common Stock will also
consider and vote upon a proposal to adopt the Charter One Certificate Amendment
and a proposal to approve the TEIGAP. Charter One stockholders also may consider
and vote upon such other matters as are properly brought before the Charter One
Special Meeting, including proposals to adjourn the Charter One Special Meeting
to permit further solicitation of proxies by the Charter One Board in the event
that there are not sufficient votes to approve any proposal at the time of the
Charter One Special Meeting; provided, however, that no proxy which is voted
against the proposal to approve the Charter One Share Issuance or the proposal
to adopt the Charter One Certificate Amendment or the TEIGAP will be voted in
favor of adjournment to solicit further proxies for such proposal. As of the
date hereof, the Charter One Board knows of no business that will be presented
for consideration at the Charter One Special Meeting, other than the matters
described in this Joint Proxy Statement/Prospectus.
THE CHARTER ONE BOARD UNANIMOUSLY RECOMMENDS THAT CHARTER ONE
STOCKHOLDERS VOTE FOR THE CHARTER ONE SHARE ISSUANCE AND FOR THE CHARTER ONE
CERTIFICATE AMENDMENT AND FOR THE TEIGAP.
Vote Required. Approval of the Charter One Share Issuance and approval
of the TEIGAP require the affirmative vote of at least a majority of the
outstanding shares of Charter One Common Stock actually voted on the matter at
the Charter One Special Meeting. The affirmative vote of at least a majority of
the outstanding shares of Charter One Common Stock entitled to vote on the
matter at the Charter One Special Meeting is required to adopt the Charter One
Certificate Amendment. As of the Charter One Record Date, there were
126,220,205 shares of Charter One Common Stock entitled to be voted at the
Charter One Special Meeting.
The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of Charter One Common Stock entitled to vote at the
Special Meeting shall constitute a quorum for purposes of the Charter One
Special Meeting. The affirmative vote of at least a majority of shares
represented at the Charter One Special Meeting may authorize adjournment of the
meeting.
Approval of the Charter One Share Issuance by the stockholders of
Charter One is a condition to, and required for, consummation of the Merger. See
"THE MERGER -- Conditions to the Merger." No proposal is conditioned on, or
subject to, approval of any other proposal to be considered and voted upon at
the Charter One Special Meeting.
Proxies. Any proxy given pursuant to this solicitation or otherwise may
be revoked by the person giving it at any time before it is voted by delivering
to the Secretary of Charter One at 1215 Superior Avenue, Cleveland, Ohio
1
<PAGE> 18
44114 on or before the taking of the vote at the Charter One Special Meeting, a
written notice of revocation bearing a later date than the proxy or a later
dated proxy relating to the same shares of Charter One Common Stock, or by
attending the Charter One Special Meeting and voting in person. Attendance at
the Charter One Special Meeting will not in itself constitute the revocation of
a proxy.
No Appraisal Rights. Holders of Charter One Common Stock are not
entitled to appraisal rights under the Delaware General Corporation Law ("DGCL")
in connection with the Merger.
Security Ownership. As of the Charter One Record Date, directors and
executive officers of Charter One and their affiliates beneficially owned
7,000,644 shares (excluding 2,138,754 shares of Charter One Common Stock
underlying stock options), or 5.5% of the then-outstanding shares of Charter
One Common Stock entitled to be voted at the Charter One Special Meeting. The
directors and executive officers of Charter One have indicated their intention
to vote or cause to be voted the shares of Charter One Common Stock owned or
controlled by them for approval of the Charter One Share Issuance, adoption of
the Charter One Certificate Amendment and adoption of the TEIGAP at the Charter
One Special Meeting.
As of the Charter One Record Date, ALBANK, directors and executive
officers of ALBANK and their affiliates did not beneficially own any shares of
Charter One Common Stock.
For additional information, see "THE SPECIAL MEETINGS -- Charter One
Special Meeting."
ALBANK SPECIAL MEETING
Meeting Date; Record Date. The ALBANK Special Meeting will be held at
the ALBANK, FSB Operations Center, 833 Broadway, Albany, New York, on Friday,
November 13, 1998 at 10:30 a.m., local time, unless adjourned or postponed. Only
holders of record of ALBANK Common Stock at the close of business on September
22, 1998 (the "ALBANK Record Date"), are entitled to notice of and to vote at
the ALBANK Special Meeting.
Matters to be Considered. At the ALBANK Special Meeting, holders of
ALBANK Common Stock will consider and vote upon a proposal to adopt the Merger
Agreement. See " -- Summary of Certain Aspects of the Merger" and "THE MERGER."
ALBANK stockholders also may consider and vote upon such other matters as are
properly brought before the ALBANK Special Meeting, including proposals to
adjourn the ALBANK Special Meeting to permit further solicitation of proxies by
the ALBANK Board in the event that there are not sufficient votes to adopt the
Merger Agreement at the time of the ALBANK Special Meeting; provided, however,
that no proxy which is voted against the proposal to adopt the Merger Agreement
will be voted in favor of adjournment to solicit further proxies for such
proposal. As of the date hereof, the ALBANK Board knows of no business that will
be presented for consideration at the ALBANK Special Meeting, other than the
matters described in this Joint Proxy Statement/Prospectus.
THE ALBANK BOARD UNANIMOUSLY RECOMMENDS THAT ALBANK STOCKHOLDERS
VOTE FOR ADOPTION OF THE MERGER AGREEMENT.
Vote Required. Adoption of the Merger Agreement at the ALBANK Special
Meeting will require the affirmative vote of the holders of at least a majority
of the outstanding shares of ALBANK Common Stock entitled to vote at the ALBANK
Special Meeting. As of the ALBANK Record Date, there were 13,368,214 shares of
ALBANK Common Stock outstanding and entitled to be voted at the ALBANK Special
Meeting.
The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of ALBANK Common Stock entitled to vote at the Special
Meeting shall constitute a quorum for purposes of the ALBANK Special Meeting.
The affirmative vote of at least a majority of shares represented at the ALBANK
Special Meeting may authorize the adjournment of the meeting.
Adoption of the Merger Agreement by the stockholders of ALBANK is a
condition to, and required for, consummation of the Merger. See "THE MERGER --
Conditions to the Merger."
2
<PAGE> 19
Proxies. Any proxy given pursuant to this solicitation or otherwise may
be revoked by the person giving it at any time before it is voted by delivering
to the Secretary of ALBANK at 10 North Pearl Street, Albany, New York 12207, on
or before the taking of the vote at the ALBANK 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 ALBANK Common Stock or by attending the ALBANK
Special Meeting and voting in person. Attendance at the ALBANK Special Meeting
will not in itself constitute the revocation of a proxy.
No Appraisal Rights. Holders of ALBANK Common Stock are not entitled to
appraisal rights under the DGCL in connection with the Merger.
Security Ownership. As of the ALBANK Record Date, directors and
executive officers of ALBANK and their affiliates beneficially owned 662,538
shares (excluding 546,619 shares of ALBANK Common Stock underlying stock
options), or 5.0% of the then-outstanding shares of ALBANK Common Stock entitled
to be voted at the ALBANK Special Meeting. The directors and executive officers
of ALBANK have indicated their intention to vote or cause to be voted the shares
of ALBANK Common Stock owned or controlled by them for adoption of the Merger
Agreement at the ALBANK Special Meeting.
As of the ALBANK Record Date, Charter One, Charter One's directors and
executive officers and their affiliates did not beneficially own any shares of
ALBANK Common Stock.
For additional information, see "THE SPECIAL MEETINGS -- ALBANK Special
Meeting."
THE PARTIES TO THE MERGER
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, F.S.B. ("Charter One Bank"), a federally chartered savings
bank headquartered in Cleveland, Ohio. As of June 30, 1998, Charter One had
total consolidated assets of $19.8 billion, deposits of $10.9 billion and
stockholders' equity of $1.5 billion. 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.
For additional information see "-- 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."
ALBANK
ALBANK, a Delaware corporation, is the holding company for ALBANK, FSB,
a federal savings bank, and ALBANK Commercial, a New York chartered commercial
bank, each with its headquarters in Albany, New York. As of June 30, 1998,
ALBANK had total consolidated assets of $4.1 billion, deposits of $3.5 billion
and stockholders' equity of $379 million. ALBANK's business has consisted
primarily of the business of ALBANK, FSB and ALBANK Commercial and their
subsidiaries. ALBANK's executive offices are located at 10 North Pearl Street,
Albany, New York 12207 and its telephone number is (518) 445-2100.
For additional information see " -- Selected Consolidated Financial and
Other Data of ALBANK Financial Corporation," "ALBANK FINANCIAL CORPORATION,
ALBANK, FSB AND ALBANK COMMERCIAL" and "UNAUDITED PRO FORMA COMBINED FINANCIAL
STATEMENTS." Information concerning ALBANK is also included in the ALBANK
documents incorporated by reference herein. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
3
<PAGE> 20
SUMMARY OF CERTAIN ASPECTS OF THE MERGER
GENERAL
The stockholders of ALBANK are being asked to consider and vote upon a
proposal to adopt the Merger Agreement pursuant to which, among other things,
ALBANK will merge with and into Charter-Michigan, a first-tier subsidiary of
Charter One in a "stock-for-stock exchange" transaction. The stockholders of
Charter One are being asked to consider and vote upon, among other things, a
proposal to approve the Charter One Share Issuance in connection with the
Merger. Upon consummation of the Merger, each outstanding share of ALBANK Common
Stock, other than Excluded Shares, immediately prior to the Effective Time (as
defined below) will be converted into the right to receive 2.268 (which reflects
the Charter One Stock Dividend) 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 --
Merger Consideration." For a description of the Rights Agreement, see
"COMPARISON OF RIGHTS OF STOCKHOLDERS OF CHARTER ONE FINANCIAL, INC. AND ALBANK
FINANCIAL CORPORATION -- Rights Agreement." The Merger is currently expected to
be completed during the fourth quarter of 1998.
BACKGROUND OF AND REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF
DIRECTORS
Charter One. The Charter One Board has unanimously approved the Merger
Agreement and the transactions contemplated thereby. THE CHARTER ONE BOARD
THEREFORE UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE CHARTER ONE SHARE
ISSUANCE AT THE CHARTER ONE SPECIAL MEETING. See "THE MERGER -- Recommendation
of the Charter One Board."
For a discussion of the factors considered by the Charter One Board in
reaching its decision to approve the Merger Agreement and the transactions
contemplated thereby, see "THE MERGER -- Background of and Reasons for the
Merger."
It is currently anticipated that upon consummation of the Merger, full
implementation of Charter One's programs and completion of systems conversions,
future after tax revenue enhancements are estimated to be approximately $14 to
$24 million per annum and after tax cost savings are estimated to be
approximately $20 to $24 million per annum. Transaction costs of the Merger
(primarily investment banker and other professional fees) and costs to combine
operations are expected to be in the range of $40 to $50 million after tax.
ALBANK. The ALBANK Board has unanimously approved the Merger Agreement
and the transactions contemplated thereby. THE ALBANK BOARD THEREFORE
UNANIMOUSLY RECOMMENDS THAT ALBANK STOCKHOLDERS VOTE FOR ADOPTION OF THE MERGER
AGREEMENT AT THE ALBANK SPECIAL MEETING. See "THE MERGER -- Recommendation of
the ALBANK Board."
For a discussion of the factors considered by the ALBANK Board in
reaching its decision to approve the Merger Agreement and the transactions
contemplated thereby, see "THE MERGER -- Background of and Reasons for the
Merger."
MERGER CONSIDERATION
The Merger Agreement provides that each share of ALBANK Common Stock
issued and outstanding immediately prior to the Effective Time (as defined
below), other than any shares held by Charter One, ALBANK or their subsidiaries,
other than in a fiduciary capacity or in satisfaction of a debt previously
contracted ("Excluded Shares"), will be converted into 2.16 (adjusted to 2.268
as a result of the Charter One Stock Dividend) shares of Charter One Common
Stock, including a corresponding number of rights associated with Charter One
Common Stock pursuant to the Rights Agreement.
The Exchange Ratio has been fixed at 2.268 (which reflects the Charter
One Stock Dividend) (subject to possible adjustment as described below). Based
on the last reported sale price for Charter One Common Stock on the
4
<PAGE> 21
Nasdaq National Market on September 28, 1998 ($26.50 per share), the value of
2.268 shares of Charter One Common Stock as of that date would have been
approximately $60.102. The last reported sale price for ALBANK Common Stock on
the Nasdaq National Market on that date was $57.625 per share. The maximum
number of shares of Charter One Common Stock (assuming all options for ALBANK
Common Stock are exercised before the Merger) which may be issued in connection
with the Merger is approximately 33 million (which reflects the Charter One
Stock Dividend), which would result in the existing ALBANK stockholders holding
____% of the merged entity on a fully diluted basis (assuming approximately
___________ shares of Charter One Common Stock are issued pursuant to the CSFC
Acquisition). For a discussion of the CSFC Acquisition, see "RECENT
DEVELOPMENTS." The market value of Charter One Common Stock to be received in
the Merger, however, is subject to fluctuation. Fluctuations in the market
price of Charter One Common Stock would result in an increase or decrease in
the value of the Merger Consideration to be received by ALBANK stockholders in
the Merger. An increase in the market value of Charter One Common Stock would
increase the market value of the Merger Consideration to be paid in the Merger.
A decrease in the market value of Charter One Common Stock would have the
opposite effect. The Merger Consideration was determined through arm's-length
negotiations between Charter One and ALBANK, each of which was advised during
such negotiations by its respective financial advisor. See "THE MERGER --
Background of and Reasons for the Merger."
Under certain circumstances, the Charter One Board may determine to
increase the Exchange Ratio in the event of a substantial decline in the trading
price of Charter One Common Stock relative to the trading prices of the common
stock of a group of peer institutions. Such an increase in the Exchange Ratio,
if made, would be designed to minimize the effect of a decline in the trading
price of Charter One Common Stock relative to the trading prices of the common
stock of the peer group. See "THE MERGER -- Amendment; Termination; Liabilities
and Remedies for Breach" for a more detailed discussion of the terms and
conditions and the formula to be used for such an adjustment, as well as an
illustration of how the formula works.
TREATMENT OF ALBANK STOCK OPTIONS
As of the ALBANK Record Date, there were options ("ALBANK Stock
Options") outstanding with respect to 1,146,876 shares of ALBANK Common Stock
under the 1992 Stock Incentive Plan for Outside Directors, the 1995 Stock
Incentive Plan for Outside Directors, the 1992 Stock Incentive Plan for Key
Employees, the Marble Financial Corporation 1986 Stock Option Plan and the
Marble Financial Corporation 1994 Stock Option Plan (collectively, the "ALBANK
Option Plans"). The ALBANK Option Plans and each ALBANK Stock Option outstanding
thereunder as of the date of the Merger Agreement (or required to be granted to
non-employee directors on December 28, 1998, if and only if the Effective Time
(as defined below) has not occurred prior to such date) and remaining
outstanding immediately prior to the Effective Time shall, at the Effective
Time, be assumed by Charter One and each ALBANK Stock Option shall represent an
option to purchase shares of Charter One Common Stock, upon the same terms and
conditions as were applicable immediately prior to the Effective Time, except
the number of shares of Charter One Common Stock subject to such option and the
exercise price per share will be adjusted on a pro rata basis as described in
the Merger Agreement. In addition, all limited stock appreciation rights
outstanding as of the Effective Time will be canceled and the corresponding
options will be converted into rights to acquire Charter One Common Stock as
described above. See "-- Interests of Certain Persons in the Merger," "THE
MERGER -- Treatment of ALBANK Stock Options" and "THE MERGER - Interests of
Certain Persons in the Merger."
OPINIONS OF FINANCIAL ADVISORS
Charter One. Lehman Brothers, Inc. ("Lehman Brothers") has delivered
its written opinion to the Charter One Board that, as of June 15, 1998, the
consideration to be paid by Charter One in the Merger is fair to Charter One
from a financial point of view. As part of its engagement, Lehman Brothers is
not required to subsequently reconfirm its opinion. A copy of the Lehman
Brothers opinion dated June 15, 1998 is attached to this Joint Proxy
Statement/Prospectus at Annex B and is incorporated by reference herein. For
information on the assumptions made, matters considered and limits of the review
by Lehman Brothers, see "THE MERGER -- Opinion of Charter One's Financial
Advisor." Lehman Brothers will receive a total fee of $4,250,000 upon completion
of the Merger.
ALBANK. Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") delivered its written opinion to the ALBANK Board that, as of June 15,
1998, the Exchange Ratio is fair, from a financial point of view, to the
5
<PAGE> 22
holders of ALBANK Common Stock. Merrill Lynch reconfirmed its opinion in writing
as of the date of this Joint Proxy Statement/Prospectus. A copy of the Merrill
Lynch opinion dated September 29, 1998 is attached to this Joint Proxy
Statement/Prospectus at Annex C and is incorporated by reference herein. For
information on the assumptions made, matters considered and limits of the review
by Merrill Lynch, see "THE MERGER -- Opinion of ALBANK's Financial Advisor."
Merrill Lynch will receive a total fee of $5,000,000 upon completion of the
Merger.
EFFECTIVE TIME
On the fifth business day after the last of the conditions to
consummation of the Merger to be satisfied prior to the Effective Date has been
satisfied or waived (or, at the election of Charter One on the last business day
of the month in which such fifth business day occurs), or such other date to
which the parties may agree (the "Effective Date"), unless the Merger Agreement
has been terminated, certificates of merger relating to the Merger will be filed
with the Secretary of State of Delaware and the Michigan Department of Commerce.
The Merger will become effective (the "Effective Time") upon the filing of the
certificates of merger with the Secretary of State of Delaware and the Michigan
Department of Commerce or at such other time as may be set forth in such
certificates.
EXCHANGE OF CERTIFICATES; NO FRACTIONAL SHARES
As promptly as practicable after the Effective Time, Charter One or an
exchange agent selected by Charter One and reasonably acceptable to ALBANK (the
"Exchange Agent") will mail to ALBANK stockholders transmittal materials to be
used in exchanging their ALBANK Common Stock certificates for the Merger
Consideration. See "THE MERGER -- Exchange of Certificates." No fractional
shares of Charter One Common Stock will be issued in the Merger to holders of
ALBANK Common Stock. Each holder of ALBANK Common Stock who otherwise would have
been entitled to a fraction of a share of Charter One Common Stock will receive
a cash payment in lieu thereof. See "THE MERGER -- Fractional Shares."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of ALBANK's management and the ALBANK Board have
interests in the Merger in addition to their interests as stockholders of ALBANK
generally. These interests include, among other things: (i) the appointment at
the Effective Time of Herbert G. Chorbajian, Chairman, President and Chief
Executive Officer of ALBANK, and Karen R. Hitchcock, an ALBANK director, to the
Charter One Board and, subject to Office of Thrift Supervision ("OTS") approval
(if required), the election of John J. Nigro, an ALBANK director, to the Charter
One Board within twelve months of the Effective Date; (ii) the establishment of
an advisory board (the "Advisory Board") with all ALBANK Board members (other
than Mr. Chorbajian and Ms. Hitchcock) and two ALBANK executive officers
eligible for membership, at an annual retainer per member of $38,000; (iii) an
employment agreement between Charter One or Charter One Bank and Mr. Chorbajian
pursuant to which Mr. Chorbajian will receive an annual base salary of
approximately $442,100 per year, together with other benefits applicable
generally to similarly situated officers; (iv) a change in control payment to
Mr. Chorbajian in the amount of approximately $2.25 million and severance
payments to other executive officers of ALBANK in the event of termination of
employment in the aggregate amount of up to approximately $3.78 million (subject
to reduction); (v) the assumption by Charter One of all outstanding ALBANK Stock
Options on a basis that reflects the Exchange Ratio; and (vi) the continued
indemnification by Charter One of the former directors, officers and employees
of ALBANK and its subsidiaries following consummation of the Merger. See "THE
MERGER -- Interests of Certain Persons in the Merger."
MANAGEMENT AFTER THE MERGER
Certain directors and executive officers of ALBANK will become
directors, Advisory Board members or executive officers of Charter One,
Charter-Michigan and Charter One Bank following the Merger. See "MANAGEMENT AND
OPERATIONS AFTER THE MERGER."
6
<PAGE> 23
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties
of Charter One on the one hand, and ALBANK 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 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 ALBANK of certain opinions and the
satisfaction of certain other conditions. See "THE MERGER -- Conditions to the
Merger."
REGULATORY MATTERS
Because Charter One will become a bank holding company as a result of
its acquisition of ALBANK Commercial, consummation of the Merger is subject to
the prior approval of the Board of Governors of the Federal Reserve System (the
"FRB"). Charter One anticipates receiving the approval of the FRB in the fourth
quarter of 1998. Charter One filed an application for approval of the Merger
with the FRB on August 31, 1998. See "CHARTER ONE FINANCIAL, INC.,
CHARTER-MICHIGAN BANCORP, INC. AND CHARTER ONE BANK, F.S.B. -- Pending
Structural Change." Applications have also been filed with the New York
Superintendent of Banks for Charter One to acquire control of ALBANK Commercial
as a result of ALBANK's merger into Charter One, and with the OTS to merge
ALBANK, FSB into Charter One Bank (the "Bank Merger") simultaneously with the
closing of the Merger. The Merger Agreement does not make receipt of regulatory
approval for or consummation of the Bank Merger a condition to consummation of
the Merger. However, it is a condition to consummation of the Merger that all
regulatory approvals necessary for the merger of ALBANK into Charter One be
obtained.
The Merger may not be consummated for a period of 30 days after receipt
of the final approval of the FRB, unless no adverse comment has been received
from the United States Department of Justice (the "Department of Justice"), in
which case the Merger may be consummated on or after the 15th day after such
final approval. There can be no assurance as to the timing of such FRB approval,
or that it will be obtained. See "THE MERGER -- Regulatory Matters."
In addition, Charter One plans to file (i) applications to create a new
commercial bank as a subsidiary of Charter One ("New Commercial Bank") and to
permit the transfer of certain assets and liabilities of ALBANK Commercial to
New Commercial Bank, and (ii) with the Federal Deposit Insurance Corporation
(the "FDIC") for approval of federal deposit insurance for New Commercial Bank.
Charter One has requested in its application filed with the OTS approval to
merge ALBANK Commercial into, or in the alternative, to transfer certain assets
and liabilities of ALBANK Commercial to, Charter One Bank. Receipt of such
regulatory approvals is not a condition to consummation of the Merger. See "THE
MERGER -- Regulatory Matters."
AMENDMENT; TERMINATION; LIABILITIES AND REMEDIES FOR BREACH
The Merger Agreement may be amended at any time by an agreement in
writing between the parties; provided that, after the ALBANK Special Meeting,
the Merger Consideration to be received by ALBANK stockholders in the Merger may
not thereby be decreased. See "THE MERGER -- Amendment; Termination; Liabilities
and Remedies for Breach."
The Merger Agreement may be terminated at any time prior to the
Effective Time either (i) by mutual consent of Charter One and ALBANK or (ii) by
either party if, among other things, (A) any required regulatory approval has
been denied by final nonappealable action or any required stockholder approval
has not been obtained; (B) the Merger is not consummated by February 28, 1999
(provided that the failure of the Merger then to be consummated has not arisen
or resulted from the knowing action or inaction of the party seeking to
terminate); or (C) the other party has breached any representation or warranty
set forth in the Merger Agreement, which breach cannot be or has not been
7
<PAGE> 24
cured within 30 days after the giving of written notice of such breach (subject
to the Merger Agreement proviso that certain representations and warranties
shall not be deemed to be breached unless such breach has had or is reasonably
likely to have a Material Adverse Effect, as defined) or the other party has
breached in any material respect any covenant or agreement set forth in the
Merger Agreement, which breach cannot be or has not been cured within 30 days
after the giving of written notice of such breach. The Merger Agreement may
further be terminated (i) at any time prior to the ALBANK Special Meeting, by
Charter One if the ALBANK Board has failed to unanimously recommend adoption of
the Merger Agreement, withdrawn such recommendation or modified or changed such
recommendation in any manner adverse in any respect to the interests of Charter
One; or (ii) at any time prior to the Charter One Special Meeting, by ALBANK if
the Charter One Board has failed to unanimously recommend approval of the
Charter One Share Issuance, withdrawn such recommendation or modified or changed
such recommendation in a manner adverse in any respect to the interests of
ALBANK.
Additionally, in the event of a substantial decline in the trading
price of Charter One Common Stock relative to a group of peer institutions,
under certain circumstances as provided in the Merger Agreement, the ALBANK
Board may elect to terminate the Merger Agreement and the Merger. If such an
election were made, Charter One would have the option to avoid such termination
by electing to increase the Exchange Ratio to an amount determined by a formula
set forth in the Merger Agreement.
In the event of termination of the Merger Agreement, no party will have
any liability to any other party except that termination will not relieve a
breaching party from liability for any willful breach giving rise to such
termination and except that under certain circumstances a party may choose to
receive certain termination fees in lieu of seeking a remedy for breach. In
addition, Charter One may have certain rights under the Stock Option Agreement
in the event of a termination of the Merger Agreement. See "THE MERGER --
Amendment; Termination; Liabilities and Remedies for Breach" and "STOCK OPTION
AGREEMENT."
CONDUCT OF BUSINESS PENDING THE MERGER AND CERTAIN COVENANTS
ALBANK and Charter One have agreed to certain covenants with respect to
the conduct of their and their subsidiaries' businesses and other matters
pending the closing of the Merger, and Charter One has made certain additional
covenants with respect to its operation following the Merger. ALBANK has agreed
to conduct its business in the ordinary and usual course, and both parties have
agreed to use all reasonable efforts to preserve intact their material business
organization, assets and existing relationships. Both parties have agreed not to
take any action which would materially impair the consummation of the Merger.
See "THE MERGER -- Conduct of Business Pending the Merger and Certain
Covenants."
ACCOUNTING TREATMENT
It is intended that the Merger will be accounted for as a
"pooling-of-interests" in accordance with generally accepted accounting
principles ("GAAP"). In determining the appropriateness of the
"pooling-of-interests" method of accounting for the Merger and the pending CSFC
Acquisition, consideration has been given to Charter One's recission of any
outstanding stock repurchase authorization prior to consummation of the CSFC
Acquisition. It is a condition to the obligation of Charter One to consummate
the Merger that Charter One receive a letter from Deloitte & Touche LLP stating
its opinion that the Merger will qualify for "pooling-of-interests" accounting
treatment. Accordingly, upon consummation of the Merger, ALBANK's results of
operations will be included in Charter One's consolidated results of operations.
See "THE MERGER -- Accounting Treatment" and "-- Conditions to the Merger."
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
It is a condition to the obligations of Charter One and ALBANK to
consummate the Merger that they each have received an opinion from their
respective counsel to the effect that, among other things, the Merger will
constitute a reorganization within the meaning of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code"). It is expected that for federal
income tax purposes no gain or loss will be recognized as a result of the Merger
by Charter One or ALBANK or any ALBANK stockholder upon receipt solely of
Charter One Common Stock in the Merger (except with respect to cash received by
an ALBANK stockholder in lieu of a fractional share interest in Charter One
8
<PAGE> 25
Common Stock). ALBANK 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 ALBANK 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 ALBANK governing the rights of Charter One and ALBANK
stockholders, see "COMPARISON OF RIGHTS OF STOCKHOLDERS OF CHARTER ONE
FINANCIAL, INC. AND ALBANK FINANCIAL CORPORATION." For information regarding the
financial impact of the Merger to the respective stockholders of Charter One and
ALBANK, see the combined financial condition of Charter One and ALBANK upon the
consummation of the Merger, including unaudited pro forma per share data, under
"UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS" and "UNAUDITED PRO FORMA PER
SHARE DATA."
STOCK OPTION AGREEMENT
In connection with the execution of the Merger Agreement, Charter One
and ALBANK entered into a Stock Option Agreement, dated June 15, 1998 (the
"Stock Option Agreement"), pursuant to which ALBANK has issued to Charter One an
unconditional, irrevocable option (the "Option") to purchase up to 1,305,819
shares of ALBANK Common Stock (up to 9.9% of the outstanding shares of ALBANK
Common Stock) at an exercise price of $51.50 per share, subject to adjustment
under certain circumstances. The Option is exercisable only upon the occurrence
of certain events and provides Charter One the right, under certain
circumstances, to require ALBANK to purchase for cash the unexercised portion of
the Option and all shares of ALBANK Common Stock purchased by Charter One
pursuant thereto. The triggering events generally relate to a competing
transaction involving a merger, business combination or other acquisition of
ALBANK Common Stock or its assets. The Option, which Charter One required that
ALBANK grant as a condition to Charter One's entering into the Merger Agreement,
may increase the likelihood of consummation of the Merger by discouraging
competing offers for ALBANK. Certain aspects of the Stock Option Agreement may
have the effect of discouraging persons who may now, or prior to the Effective
Time, be interested in acquiring all of or a significant interest in ALBANK from
considering or proposing such an acquisition, even if such persons were prepared
to offer to pay consideration to stockholders of ALBANK which had a higher
current market price per share than the per share Merger Consideration to be
received for each share of ALBANK Common Stock pursuant to the Merger Agreement.
A copy of the Stock Option Agreement is attached to this Joint Proxy
Statement/Prospectus at Annex D and is incorporated by reference herein. For
additional information regarding the Stock Option Agreement, see "STOCK OPTION
AGREEMENT."
9
<PAGE> 26
COMPARATIVE STOCK PRICES AND DIVIDEND INFORMATION
Charter One Common Stock and ALBANK Common Stock are traded on the
Nasdaq National Market (symbols: COFI and ALBK, respectively). The following
table sets forth the reported high and low sales prices of shares of Charter One
Common Stock and ALBANK 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 (including the Charter One Stock Dividend). The stock
prices do not include retail mark-ups, mark-downs or commissions.
<TABLE>
<CAPTION>
Charter One ALBANK
Common Stock Common Stock
---------------------------------- ---------------------------------
High Low Dividends High Low Dividends
---- --- --------- ----- --- ----------
<S> <C> <C> <C> <C> <C> <C>
1996 FISCAL YEAR
First Quarter........................ $15.23 $12.31 $.09 $28.88 $22.92 $.12
Second Quarter....................... 16.42 13.30 .10 30.63 26.38 .12
Third Quarter........................ 18.40 14.52 .10 29.56 25.13 .12
Fourth Quarter....................... 20.30 17.30 .105 32.81 27.38 .15
1997 FISCAL YEAR
First Quarter........................ 22.73 18.66 .105 37.50 30.50 .15
Second Quarter....................... 24.50 19.16 .11 41.00 34.00 .15
Third Quarter........................ 27.90 23.36 .11 45.88 37.13 .18
Fourth Quarter....................... 30.48 25.77 .12 51.44 42.25 .18
1998 FISCAL YEAR
First Quarter........................ 32.44 22.86 .12 50.88 45.38 .18
Second Quarter....................... 34.89 28.57 .13 70.56 50.38 .21
Third Quarter........................
(through September 28, 1998)
</TABLE>
Nothing contained in the Merger Agreement will preclude ALBANK from
declaring and paying cash dividends on ALBANK Common Stock at a quarterly rate
not to exceed $.21 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, pursuant to the Merger Agreement,
ALBANK will be required to coordinate with, and will be subject to the prior
approval of, Charter One to preclude any duplication of dividends). Under the
Merger Agreement, ALBANK may not declare or pay any other dividends or make any
other capital distribution with respect to capital stock without the prior
written consent of Charter One. The ALBANK Board is under no obligation to pay
dividends on ALBANK 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. The Charter One Board has not yet
determined the dividend policy of Charter One after completion of the Merger.
10
<PAGE> 27
The following table sets forth the last reported sale prices per share
of Charter One Common Stock (adjusted to reflect the Charter One Stock Dividend)
and ALBANK Common Stock and the equivalent per share price for ALBANK Common
Stock giving effect to the Merger on (i) June 12, 1998, the last trading day
preceding public announcement of the signing of the Merger Agreement; and (ii)
September 28, 1998, the last practicable date prior to the mailing of this Joint
Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
Charter One ALBANK EQUIVALENT PRICE PER
Common Stock Common Stock ALBANK SHARE (1)
------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
June 12, 1998........................... $32.44 $51.50 $73.57
September 28, 1998...................... $26.50 $57.625 $60.102
<FN>
- ---------------
(1) The equivalent price per ALBANK share at each specified date represents
the closing market price of a share of Charter One Common Stock on that
date multiplied by the Exchange Ratio of 2.268.
</TABLE>
As of September 22, 1998, the 126,220,205 outstanding shares of
Charter One Common Stock were held by approximately 11,297 record owners and
the 13,368,214 outstanding shares of ALBANK Common Stock were held by
approximately _____ record owners.
ALBANK stockholders are advised to obtain current market quotations for
Charter One Common Stock. The market price of Charter One Common Stock may
fluctuate between the date of this Joint Proxy Statement/Prospectus and the
Effective Time. Fluctuations in the market price of Charter One Common Stock
will result in an increase or decrease in the value of the Merger Consideration
to be received by holders of ALBANK Common Stock in the Merger. An increase in
the market value of Charter One Common Stock will 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 will 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 -- Merger Consideration."
11
<PAGE> 28
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF CHARTER ONE FINANCIAL, INC.
<TABLE>
<CAPTION>
AT AND FOR THE SIX
MONTHS ENDED JUNE 30, AT AND FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1998 1997 1997 1996(1)
-------------- ------------------------------------------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING DATA(2):
<S> <C> <C> <C> <C>
Interest income ...................... $ 723,938 $ 667,777 $ 1,377,687 $ 1,293,883
Interest expense ..................... 439,790 407,691 850,724 785,323
------------ ------------ ------------ ------------
Net interest income ................ 284,148 260,086 526,963 508,560
Provision for loan and lease losses .. 10,156 9,625 40,861 17,549
------------ ------------ ------------ ------------
Net interest income after provision
for loan and lease losses ......... 273,992 250,461 486,102 491,011
Other income:
Net (loss) gain .................... 8,374 617 (3,074) 1,753
Other .............................. 79,535 64,936 113,885 114,484
Administrative expenses .............. 163,856 155,005 373,930 357,193
------------ ------------ ------------ ------------
Income before income taxes and
extraordinary item ............... 198,045 161,009 222,983 250,055
Income taxes ......................... 66,151 54,138 71,847 82,628
------------ ------------ ------------ ------------
Income before extraordinary item ..... 131,894 106,871 151,136 167,427
Extraordinary item - early
extinguishment of debt, net of
tax benefit ...................... -- -- (2,727) --
------------ ------------ ------------ ------------
Net income ......................... $ 131,894 $ 106,871 $ 148,409 $ 167,427
============ ============ ============ ============
PER SHARE DATA(3):
Basic earnings per share:
Income before extraordinary item ... $ .98 $ .81 $ 1.14 $ 1.26
Extraordinary item - early
extinguishment of debt, net of
tax benefit ..................... -- -- (.02) --
------------ ------------ ------------ ------------
Net income ......................... $ .98 $ .81 $ 1.12 $ 1.26
============ ============ ============ ============
Diluted earnings per share:
Income before extraordinary item ... $ .95 $ .79 $ 1.11 $ 1.20
Extraordinary item - early
extinguishment of debt .......... -- -- (.02) --
------------ ------------ ------------ ------------
Net income ......................... $ .95 $ .79 $ 1.09 $ 1.20
============ ============ ============ ============
Cash dividends declared and
paid per common share(4) ........... $ .25 $ .22 $ 45 $ 39
Book value per share ............... $ 11.04 $ 9.59 $ 10.27 $ 9.35
FINANCIAL CONDITION:
Total assets ......................... $ 19,813,254 $ 18,645,237 $ 19,760,265 $ 17,885,562
Mortgage-backed securities ........... 5,374,578 5,939,437 5,285,482 6,359,463
Investment securities ................ 30,759 362,324 582,589 246,060
Loans and leases, net ................ 13,299,606 11,253,493 12,701,805 10,118,066
Deposits ............................. 10,907,379 10,101,067 10,219,200 10,209,847
FHLB advances and other borrowings ... 7,075,835 6,789,377 7,696,825 6,063,145
Stockholders' equity ................. 1,479,382 1,288,081 1,376,889 1,245,587
OTHER PERIOD-END DATA:
Number of full service offices ....... 225 220 220 207
Number of loan origination offices ... 39 43 37 49
SELECTED RATIOS(2):
Net yield on average interest-earning
assets for the period .............. 2.99% 2.97% 2.93% 3.02%
Return on average stockholders' equity 18.32 16.74 11.28 13.25
Return on average assets ............. 1.33 1.18 0.79 0.96
Average stockholders' equity to
average assets ..................... 7.28 7.03 7.04 7.22
<CAPTION>
AT AND FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------
1995(1) 1994(1) 1993(1)
-------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING DATA(2):
<S> <C> <C> <C>
Interest income ...................... $ 1,356,831 $ 1,262,829 $ 1,331,566
Interest expense ..................... 918,804 825,532 914,101
------------ ------------ ------------
Net interest income ................ 438,027 437,297 417,465
Provision for loan and lease losses .. 8,664 19,044 20,580
------------ ------------ ------------
Net interest income after provision
for loan and lease losses ......... 429,363 418,253 396,885
Other income:
Net (loss) gain .................... (93,527) (116,736) 8,991
Other .............................. 90,343 82,409 96,426
Administrative expenses .............. 322,637 305,502 404,794
------------ ------------ ------------
Income before income taxes and
extraordinary item ............... 103,542 78,424 97,508
Income taxes ......................... 31,757 18,485 52,534
------------ ------------ ------------
Income before extraordinary item ..... 71,785 59,939 44,974
Extraordinary item - early
extinguishment of debt, net of
tax benefit ...................... -- (12,348) --
------------ ------------ ------------
Net income ......................... $ 71,785 $ 47,591 $ 44,974
============ ============ ============
PER SHARE DATA(3):
Basic earnings per share:
Income before extraordinary item ... $ .50 $ .42 $ .32
Extraordinary item - early
extinguishment of debt, net of
tax benefit ..................... -- (.10) --
------------ ------------ ------------
Net income ......................... $ .50 $ .32 $ .32
= =========== ============ ============
Diluted earnings per share:
Income before extraordinary item ... $ .50 $ .41 $ .32
Extraordinary item - early
extinguishment of debt .......... -- (.10) --
------------ ------------ ------------
Net income ......................... $ .50 $ .31 $ .32
============ ============ ============
Cash dividends declared and
paid per common share(4) ........... $ .32 $ .25 $ .18
Book value per share ............... $ 9.52 $ 8.86 $ 9.14
FINANCIAL CONDITION:
Total assets ......................... $ 17,450,299 $ 17,948,222 $ 18,636,766
Mortgage-backed securities ........... 6,794,491 7,915,186 7,872,284
Investment securities ................ 409,880 473,038 435,258
Loans and leases, net ................ 8,649,620 8,449,525 9,111,694
Deposits ............................. 9,235,461 9,165,967 9,970,224
FHLB advances and other borrowings ... 6,431,124 7,220,534 6,888,456
Stockholders' equity ................. 1,260,763 1,170,670 1,214,551
OTHER PERIOD-END DATA:
Number of full service offices ....... 189 187 214
Number of loan origination offices ... 56 48 43
SELECTED RATIOS(2):
Net yield on average interest-earning
assets for the period .............. 2.48% 2.50% 2.40%
Return on average stockholders' equity 5.85 4.08 3.88
Return on average assets ............. 0.39 0.26 0.25
Average stockholders' equity to
average assets ..................... 6.71 6.42 6.32
<FN>
- -------------------------------
(1) As restated for applicable mergers and acquisitions. See Note 2 to the
Charter One 1997 Consolidated Financial Statements incorporated by
reference herein.
(2) Due to the effect of acquisitions, amounts are not necessarily
indicative of future results.
(3) Restated to reflect the two-for-one Charter One stock split which was
paid as of May 20, 1998 to stockholders of record on May 6, 1998 (the
"Stock Split") and the 5% Charter One Stock Dividend to be paid on
September 30, 1998 to stockholders of record on September 14, 1998.
(4) Dividends are historical per share amounts declared and paid by Charter
One, as adjusted for stock splits and stock dividends (including the
Charter One Stock Dividend). No adjustment has been made for mergers
accounted for as a pooling of interests.
</TABLE>
12
<PAGE> 29
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF ALBANK FINANCIAL CORPORATION
<TABLE>
<CAPTION>
At and For the Six Months
Ended At and For the Year Ended December 31,
------------------------- --------------------------------------
June 30, June 30,
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(Dollars in thousands, except per share amounts)
SELECTED OPERATING DATA FOR THE PERIOD:
Interest income............................ $ 145,164 $ 130,048 $ 269,176 $ 248,526 $ 212,502
Interest expense........................... 71,737 63,562 132,430 122,885 104,015
---------- ----------- ----------- ----------- -----------
Net interest income........................ 73,427 66,486 136,746 125,641 108,487
Provision for loan losses.................. 3,600 3,600 7,200 5,775 4,500
---------- ----------- ----------- ----------- -----------
Net interest income after loan provision. 69,827 62,886 129,546 119,866 103,987
Noninterest income......................... 10,434 6,766 14,266 12,154 9,448
Noninterest expense........................ 48,965 40,012 84,390 90,303 65,804
---------- ----------- ----------- ----------- -----------
Income before taxes........................ 31,296 29,640 59,422 41,717 47,631
Income tax provision....................... 11,214 10,882 15,998 15,510 18,348
---------- ----------- ----------- ------------ -----------
Income before cumulative net effect of
changes in accounting principles........ 20,082 18,758 43,424 26,207 29,283
Cumulative net effect of changes in
accounting principles................... -- -- -- -- --
---------- ---------- ---------- ----------- -----------
Net income................................. $ 20,082 $ 18,758 $ 43,424 $ 26,207 $ 29,283
========== ========== ========== =========== ===========
Earnings per share:
Basic.................................... $ 1.56 $ 1.48 $ 3.41 $ 1.99 $ 2.08
Diluted.................................. 1.46 1.37 3.17 1.87 1.96
Cash dividends declared.................... 0.39 0.30 0.66 0.51 0.40
SELECTED CONSOLIDATED DATA AT PERIOD END:
Assets..................................... $4,130,868 $3,602,227 $4,083,097 $ 3,506,136 $ 2,970,170
Loans receivable, net...................... 2,836,062 2,580,457 2,826,932 2,535,535 1,923,435
Securities available for sale.............. 719,807 660,836 768,517 617,943 656,784
Investment securities...................... 94,101 99,322 94,971 116,322 160,957
Goodwill................................... 79,027 41,774 80,281 43,482 18,298
Deposits................................... 3,505,324 2,986,514 3,483,791 3,013,129 2,558,288
Borrowed funds............................. 88,166 132,988 88,808 72,407 1,290
Stockholders' equity....................... 379,445 331,506 359,613 319,125 323,182
OTHER SELECTED FINANCIAL DATA:
Book value per share....................... $ 28.70 $ 25.85 $ 27.86 $ 24.72 $ 23.37
Tangible book value per share.............. 22.72 22.59 21.64 21.35 22.05
Return on average stockholders' equity
("ROE").................................. 11.04% 11.67% 13.03% 8.20% 9.09%
Return on average assets ("ROA")........... 0.99 1.08 1.19 0.77 0.99
Net interest margin........................ 3.82 3.97 3.96 3.91 3.84
Net interest spread........................ 3.36 3.55 3.51 3.52 3.40
Equity to assets (period end).............. 9.19 9.20 8.81 9.10 10.88
Core net income(1)(2)...................... $ 20,023 $ 18,599 $ 37,139 $ 32,584 $ 30,013
Earnings per share based on "core net income":
Basic.................................... 1.55 1.46 2.91 2.48 2.14
Diluted.................................. 1.45 1.36 2.71 2.32 2.01
ROE based on "core net income"............. 11.00% 11.57% 11.14% 10.20% 9.32%
ROA based on "core net income"............. 0.99 1.07 1.02 0.96 1.01
<CAPTION>
At and For the
Year Ended December 31,
-----------------------------
1994 1993
-----------------------------
(Dollars in thousands, except
per share amounts)
SELECTED OPERATING DATA FOR THE PERIOD:
<S> <C> <C>
Interest income............................ $ 186,804 $ 183,986
Interest expense........................... 82,092 86,416
----------- -----------
Net interest income........................ 104,712 97,570
Provision for loan losses.................. 4,500 4,200
----------- -----------
Net interest income after loan provision. 100,212 93,370
Noninterest income......................... 10,091 10,035
Noninterest expense........................ 61,833 59,718
----------- -----------
Income before taxes........................ 48,470 43,687
Income tax provision....................... 19,898 18,289
----------- -----------
Income before cumulative net effect of
changes in accounting principles........ 28,572 25,398
Cumulative net effect of changes in
accounting principles................... -- 37
----------- -----------
Net income................................. $ 28,572 $ 25,435
=========== ===========
Earnings per share:
Basic.................................... $ 1.90 $ 1.55
Diluted.................................. 1.79 1.47
Cash dividends declared.................... 0.33 ---
SELECTED CONSOLIDATED DATA AT PERIOD END:
Assets..................................... $ 2,963,843 $ 2,773,223
Loans receivable, net...................... 1,768,287 1,527,480
Securities available for sale.............. 167,024 51,256
Investment securities...................... 805,850 962,204
Goodwill................................... 19,207 5,417
Deposits................................... 2,541,962 2,381,714
Borrowed funds............................. 15,300 4,200
Stockholders' equity....................... 316,789 313,283
OTHER SELECTED FINANCIAL DATA:
Book value per share....................... $ 21.27 $ 19.48
Tangible book value per share.............. 19.98 19.15
Return on average stockholders' equity
("ROE").................................. 9.11% 8.23%
Return on average assets ("ROA")........... 1.02 0.92
Net interest margin........................ 3.87 3.69
Net interest spread........................ 3.49 3.28
Equity to assets (period end).............. 10.69 11.30
Core net income(1)(2)...................... $ 28,572 $ 25,435
Earnings per share based on "core net income":
Basic.................................... 1.90 1.55
Diluted.................................. 1.79 1.47
ROE based on "core net income"............. 9.11% 8.23%
ROA based on "core net income"............. 1.02 0.92
<FN>
- ----------------------
(1) Core net income excludes, for the six month period ended June 30, 1998, the
after-tax effect of a partial recovery ($.06 million) of the 1995 write-off
of a capital investment in Nationar.
(2) Core net income excludes for the year ended December 31, 1997, a $6.0
million tax benefit that resulted from a corporate realignment and the
after-tax recovery of $0.3 million related to the 1995 Nationar write-off;
for the year ended December 31, 1996, the after-tax effect of the $6.4
million special assessment to recapitalize the Savings Association Insurance
Fund (the "SAIF"); and, for the year ended December 31, 1995, the after-tax
effect of a $0.7 million write-off of the capital investment in Nationar.
</TABLE>
13
<PAGE> 30
THE SPECIAL MEETINGS
This Joint Proxy Statement/Prospectus and the accompanying proxy card
are being furnished to the stockholders of Charter One and ALBANK in connection
with the solicitation of proxies by the Charter One Board and the ALBANK Board,
respectively, for use at the Special Meetings and at any adjournment or
postponement thereof.
CHARTER ONE SPECIAL MEETING
Time and Date; Record Date. The Charter One Special Meeting will be
held at the Forum Conference and Education Center, One Cleveland Center, 1375
East Ninth Street, Cleveland, Ohio, on Friday, November 13, 1998 at 10:30 a.m.,
local time, unless adjourned or postponed. This Joint Proxy Statement/Prospectus
is being sent to holders of record of Charter One Common Stock as of the Charter
One Record Date, and is accompanied by a proxy card which the Charter One Board
requests that stockholders execute and return to Charter One for use at the
Charter One Special Meeting and at any and all adjournments or postponements
thereof. This Joint Proxy Statement/Prospectus and the accompanying proxy card
are first being mailed to holders of Charter One Common Stock on or about
October 6, 1998.
The Charter One Board has fixed the Charter One Record Date as of the
close of business on September 22, 1998 as the time for determining holders of
Charter One Common Stock who are entitled to notice of and to vote at the
Charter One Special Meeting. Only holders of record of Charter One Common Stock
on the Charter One Record Date will be entitled to notice of and to vote at the
Charter One Special Meeting. As of the Charter One Record Date, there were
outstanding and entitled to vote at the Charter One Special Meeting 126,220,205
shares of Charter One Common Stock.
Matters to be Considered. At the Charter One Special Meeting, holders
of Charter One Common Stock will vote to approve proposals to (i) approve the
Charter One Share Issuance, (ii) adopt the Charter One Certificate Amendment and
(iii) approve the TEIGAP. Charter One stockholders also may consider and vote
upon such other matters as are properly brought before the Charter One Special
Meeting, including proposals to adjourn the Charter One Special Meeting to
permit further solicitation of proxies by the Charter One Board in the event
there are not sufficient votes to approve the Charter One Share Issuance, the
TEIGAP or adopt the Charter One Certificate Amendment at the time of the Charter
One Special Meeting; provided, however, that no proxy which is voted against the
proposal to approve the Charter One Share Issuance, the proposal to adopt the
Charter One Certificate Amendment or the proposal to approve the TEIGAP will be
voted in favor of adjournment to solicit further proxies for such proposal. As
of the date hereof, the Charter One Board knows of no business that will be
presented for consideration at the Charter One Special Meeting, other than the
matters described in this Joint Proxy Statement/Prospectus.
THE CHARTER ONE BOARD UNANIMOUSLY RECOMMENDS THAT CHARTER ONE
STOCKHOLDERS VOTE FOR APPROVAL OF THE CHARTER ONE SHARE ISSUANCE, FOR ADOPTION
OF THE CHARTER ONE CERTIFICATE AMENDMENT AND FOR APPROVAL OF THE TEIGAP.
Voting Rights; Vote Required. Each holder of record of Charter One
Common Stock on the Charter One 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 Charter One Special Meeting. Such vote may be
exercised in person or by a properly executed proxy. See "-- Proxy Solicitation"
below. Approval of the Charter One Share Issuance and the TEIGAP require the
affirmative vote of at least a majority of the total votes actually cast on the
matter at the Charter One Special Meeting by the holders of Charter One common
stock. Adoption of the Charter One Certificate Amendment requires the approval
of at least a majority of the votes entitled to be cast on the matter at the
Charter One Special Meeting by the holders of Charter One common stock. For
purposes of counting votes on these proposals, failures to vote, explicit
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 and 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 Charter One
Certificate Amendment; failures to vote and broker non-votes will have no effect
on the vote with respect to the Charter One Share Issuance or the TEIGAP, but
explicit abstentions will have the same effect as votes against the Charter One
14
<PAGE> 31
Share Issuance and the TEIGAP. No other proposal is conditioned on, or subject
to, approval of any other proposal to be considered and voted upon at the
Charter One Special Meeting.
The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of Charter One Common Stock entitled to vote at the
Charter One Special Meeting shall constitute a quorum for purposes of the
Charter One Special Meeting. Shares represented by a proxy on which the
stockholder has explicitly abstained from voting and broker non-votes will be
considered present for purposes of determining a quorum. The affirmative vote of
at least a majority of shares represented at the Charter One Special Meeting may
authorize the adjournment of the meeting.
As of the Charter One Record Date, directors and executive officers of
Charter One and their affiliates beneficially owned 7,000,644 shares (excluding
2,138,754 shares of Charter One Common Stock underlying stock options), or 5.5%
of the then-outstanding shares of Charter One Common Stock entitled to vote at
the Charter One Special Meeting. The directors and executive officers of Charter
One have indicated their intention to vote or cause to be voted the shares of
Charter One Common Stock owned or controlled by them for approval of the Charter
One Share Issuance, adoption of the Charter One Certificate Amendment and
approval of the TEIGAP at the Charter One Special Meeting. Accordingly, assuming
such shares are so voted and the shares owned by the Charter One Bank Employee
Stock Ownership Plan (the "Charter One ESOP") are voted in favor of the adoption
of the Charter One Certificate Amendment, such proposal will require the
affirmative vote of the holders of approximately an additional 44.6% of the
outstanding shares of Charter One Common Stock entitled to vote at the Charter
One Special Meeting. See CHARTER ONE FINANCIAL, INC., CHARTER-MICHIGAN BANCORP,
INC. AND CHARTER ONE BANK, F.S.B. -- Beneficial Ownership of Certain Persons."
As of the Charter One Record Date, ALBANK, ALBANK's directors and
executive officers and their affiliates did not own any shares of Charter One
Common Stock.
Proxies and Proxy Solicitation. If a Charter One stockholder properly
executes and returns a proxy in the form distributed by Charter One, the proxies
named will vote the shares represented by that proxy at the Charter One 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 approval of the Charter One
Share Issuance adoption of the Charter One Certificate Amendment and approval of
the TEIGAP. 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 at least a majority of the shares represented
at the Charter One Special Meeting may authorize the adjournment of the Charter
One Special Meeting; provided, however, that no proxy which is voted against a
proposal 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 Secretary of Charter One at 1215 Superior Avenue, Cleveland, Ohio, 44114, on
or before the taking of the vote at the Charter One Special Meeting, a written
notice of revocation bearing a later date than the proxy or a later dated proxy
relating to the same shares of Charter One Common Stock or by attending the
Charter One Special Meeting and voting in person. Attendance at the Charter One
Special Meeting will not in itself constitute the revocation of a proxy.
In addition to solicitation by mail, directors, officers, and employees
of Charter One, who will not be specifically compensated for such services, may
solicit proxies from the stockholders of Charter One, personally or by
telephone, telegram or other forms of communication. Brokerage houses, nominees,
fiduciaries and other custodians will be requested to forward soliciting
materials to beneficial owners and will be reimbursed for their reasonable
expenses incurred in sending proxy material to beneficial owners. In addition,
Charter One has engaged Georgeson & Company, Inc. ("Georgeson") to assist
Charter One in distributing proxy materials and contacting record and beneficial
owners of Charter One Common Stock. Charter One has agreed to pay Georgeson a
fee of $8,000 plus out-of-pocket expenses for its services to be rendered on
behalf of Charter One. Charter One will bear its own expenses in connection with
the solicitation of proxies for the Charter One Special Meeting. See "THE
MERGER--Expenses."
15
<PAGE> 32
HOLDERS OF CHARTER ONE COMMON STOCK ARE REQUESTED TO COMPLETE, DATE
AND SIGN THE ACCOMPANYING PROXY CARD AND TO RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
ALBANK SPECIAL MEETING
Time and Date; Record Date. The ALBANK Special Meeting will be held at
the ALBANK, FSB Operations Center, 833 Broadway, Albany, New York on Friday,
November 13, 1998 at 10:30 a.m., local time, unless adjourned or postponed. This
Joint Proxy Statement/Prospectus is being sent to holders of record of ALBANK
Common Stock as of the ALBANK Record Date, and is accompanied by a proxy card
which the ALBANK Board requests that stockholders execute and return to ALBANK
for use at the ALBANK Special Meeting and at any and all adjournments or
postponements thereof. This Joint Proxy Statement/Prospectus and the
accompanying proxy card are first being mailed to holders of ALBANK Common Stock
on or about October 6, 1998.
The ALBANK Board has fixed the ALBANK Record Date as of the close of
business on September 22, 1998 as the time for determining holders of ALBANK
Common Stock who are entitled to notice of and to vote at the ALBANK Special
Meeting. Only holders of record of ALBANK Common Stock on the ALBANK Record Date
will be entitled to notice of and to vote at the ALBANK Special Meeting. As of
the ALBANK Record Date, there were 13,368,214 shares of ALBANK Common Stock
outstanding and entitled to be voted at the ALBANK Special Meeting.
Matters to be Considered. At the ALBANK Special Meeting, holders of
ALBANK Common Stock will consider and vote upon a proposal to adopt the Merger
Agreement. Holders of ALBANK Common Stock also may consider and vote upon such
other matters as are properly brought before the ALBANK Special Meeting,
including proposals to adjourn the ALBANK Special Meeting to permit further
solicitation of proxies by the ALBANK Board in the event that there are not
sufficient votes to adopt the Merger Agreement at the time of the ALBANK Special
Meeting; provided, however, that no proxy which is voted against the proposal to
adopt the Merger Agreement will be voted in favor of adjournment to solicit
further proxies for such proposal. As of the date hereof, the ALBANK Board knows
of no business that will be presented for consideration at the ALBANK Special
Meeting, other than the matters described in this Joint Proxy
Statement/Prospectus.
THE ALBANK BOARD UNANIMOUSLY RECOMMENDS THAT ALBANK STOCKHOLDERS
VOTE FOR ADOPTION OF THE MERGER AGREEMENT.
Voting Rights; Vote Required. Each holder of record of ALBANK Common
Stock on the ALBANK 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 ALBANK 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 at the ALBANK Special Meeting will require the
affirmative vote of the holders of at least a majority of the outstanding shares
of ALBANK Common Stock entitled to vote at the ALBANK Special Meeting. For
purposes of counting votes on this proposal, failure to vote, explicit
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 and 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 adoption of the Merger
Agreement. Adoption of the Merger Agreement by the stockholders of ALBANK is a
condition to, and required for, consummation of the Merger. See "THE MERGER --
Conditions to the Merger."
The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of ALBANK Common Stock entitled to vote at the ALBANK
Special Meeting shall constitute a quorum for purposes of the ALBANK Special
Meeting. Shares represented by a proxy on which the stockholder has explicitly
abstained from voting and broker non-votes will be considered present for
purposes of determining a quorum, but, as noted above, explicit abstentions and
broker non-votes will have the same effect as a vote against adoption of the
Merger Agreement. The affirmative vote of at least a majority of shares
represented at the ALBANK Special Meeting may authorize the adjournment of the
meeting.
16
<PAGE> 33
As of the ALBANK Record Date, directors and executive officers of
ALBANK and their affiliates beneficially owned 662,538 shares (excluding
546,619 shares of ALBANK Common Stock underlying stock options), or 5.0% of
the then-outstanding shares, of ALBANK Common Stock entitled to be voted at the
ALBANK Special Meeting. The directors and executive officers of ALBANK have
indicated that they intend to vote or cause to be voted the shares of ALBANK
Common Stock owned or controlled by them for adoption of the Merger Agreement.
Accordingly, assuming such shares are so voted in favor of the Merger Agreement,
adoption of the Merger Agreement will require the affirmative vote of the
holders of approximately an additional 45.1% of the outstanding shares of ALBANK
Common Stock entitled to vote at the ALBANK Special Meeting. See "ALBANK
FINANCIAL CORPORATION -- Beneficial Ownership of Certain Persons."
As of the ALBANK Record Date, Charter One, Charter One's directors and
executive officers and their affiliates did not beneficially own any shares of
ALBANK Common Stock.
Proxies and Proxy Solicitation. If an ALBANK stockholder properly
executes and returns a proxy in the form distributed by ALBANK, the proxies
named will vote the shares represented by that proxy at the ALBANK 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. 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 at least a majority of the shares represented
at the ALBANK Special Meeting may authorize the adjournment of the ALBANK
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.
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 Corporate Secretary of ALBANK at 10 North Pearl Street, Albany, New York
12207, on or before the taking of the vote at the ALBANK 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 ALBANK Common Stock or by attending
the ALBANK Special Meeting and voting in person. Attendance at the ALBANK
Special Meeting will not in itself constitute the revocation of a proxy.
In addition to solicitation by mail, directors, officers and employees
of ALBANK, who will not be specifically compensated for such services, may
solicit proxies from the stockholders of ALBANK, 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. ALBANK will
bear its own expenses in connection with the solicitation of proxies for the
ALBANK Special Meeting; however, the cost of printing this Joint Proxy
Statement/Prospectus and filing fees at the Commission will be borne equally by
Charter One and ALBANK. See "THE MERGER--Expenses."
HOLDERS OF ALBANK COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN
THE ACCOMPANYING PROXY CARD AND TO RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-
PAID ENVELOPE.
CHARTER ONE FINANCIAL, INC., CHARTER-MICHIGAN BANCORP, INC.
AND CHARTER ONE BANK, F.S.B.
GENERAL
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 Charter-Michigan, which is headquartered in
Dearborn, Michigan. Charter One is currently a unitary
17
<PAGE> 34
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 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. On October 3, 1997, Charter One combined
with RCSB Financial, Inc. ("Rochester") in a strategic alliance (the "Rochester
Merger"). The Rochester Merger was also accounted for as a "pooling of
interests" and, accordingly, the financial statements for Charter One for all
periods prior to the Rochester Merger have been restated to include the results
of Rochester. Rochester's principal subsidiary, Rochester Community Savings
Bank, was merged with and into Charter One Bank. Moreover, Charter One acquired
First Nationwide's 21 branch offices located in the Detroit Metropolitan area,
and Haverfield Corporation ("Haverfield") in 1996 and 1997, respectively. The
Haverfield merger was accounted for as a purchase under GAAP.
On April 23, 1998 Charter One entered into an Agreement and Plan of
Merger and Reorganization with CSFC (the "CSFC Merger Agreement") pursuant to
which a newly organized, wholly owned subsidiary of Charter One will merge with
and into CSFC to be followed immediately by the merger of CSFC with and into
Charter One, and the Cuyahoga Savings Association, a wholly owned subsidiary of
CSFC ("CSFC Bank"), will be merged with and into Charter One Bank. The CSFC
Acquisition is currently pending and is subject to, among other conditions,
receipt of requisite regulatory approvals and approval of the CSFC stockholders.
See "RECENT DEVELOPMENTS." Charter One continues to explore other opportunities
to acquire financial institutions and other financial services-related
businesses in order to expand the scope of its services and its customer base.
Discussions are continually being carried on relating to such potential
acquisitions. It is not presently known whether, or on what terms, such
discussions will result in further acquisitions. It is the policy of Charter One
not to comment on such discussions or possible acquisitions until a definitive
agreement has been reached.
Headquartered in Cleveland, Ohio, as of June 30, 1998, Charter One Bank
operated through 225 banking offices: 103 in Ohio, 84 in Michigan (under the
name First Federal of Michigan), and 38 in Western New York (under the name
Rochester Community Savings Bank). The market areas served by the Charter One
Bank include approximately 41% of the population of Ohio, 51% of Michigan, and
12% of New York. As of June 30, 1998, Charter One had total consolidated assets
of $19.8 billion, deposits of $10. 9 billion and stockholders' equity of $1.5
billion.
Charter One Bank and the other subsidiaries of Charter One are engaged
in a variety of financial services businesses. In addition to the general
business of attracting deposits and making real estate and other loans, Charter
One is engaged in mortgage banking, automobile lending, equipment leasing, data
processing, real estate appraisal, and retail brokerage services. Charter One'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 FDIC. Charter One Bank is subject to
comprehensive examination, supervision and regulation by its primary regulator,
the OTS, and the FDIC.
18
<PAGE> 35
For additional information, see "SUMMARY -- Selected Consolidated
Financial and Other Data of Charter One Financial, Inc." 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."
PENDING STRUCTURAL CHANGES
In order to obtain ownership of the stock of ALBANK Commercial, Charter
One submitted an application to the FRB to become a bank holding company (the
"Holding Company Conversion"). Upon becoming a bank holding company, Charter One
will deregister with the OTS as a savings and loan holding company. No assurance
can be given whether the application submitted to the FRB will be approved, or,
if approved, whether the Holding Company Conversion will be consummated. Set
forth below is a summary of the material aspects of the regulation of bank
holding companies.
General. Bank holding companies, such as ALBANK, are subject to
comprehensive regulation by the FRB under the Bank Holding Company Act of 1956,
as amended (the "BHCA"), and the regulations of the FRB. As a bank holding
company, Charter One will be required to file reports with the FRB and such
additional information as the FRB may require, and will be subject to regular
inspections by the FRB. The FRB also has extensive enforcement authority over
bank holding companies, including, among others things, the ability to assess
civil money penalties, to issue cease and desist or removal orders and to
require that a holding company divest subsidiaries (including its bank
subsidiaries). In general, enforcement actions may be initiated for violations
of law and regulation as well as unsafe or unsound practices.
Under FRB policy, a bank holding company must serve as a source of
strength for its subsidiary banks. Under this policy the FRB may require, and
has required in the past, bank holding companies to contribute additional
capital to undercapitalized subsidiary banks. In addition, under the Federal
Deposit Insurance Act, a depository institution insured by the FDIC can be held
liable for any loss incurred by, or reasonably expected to be incurred by, the
FDIC in connection with (i) the default of a commonly controlled FDIC-insured
depository institution, or (ii) any assistance provided by the FDIC to a
commonly controlled FDIC-insured depository institution in danger of default.
"Default" is defined generally as the appointment of a conservator or receiver,
and "in danger of default" is defined generally as the existence of certain
conditions indicating that a default is likely to occur in the absence of
regulatory assistance.
Under the BHCA, a bank holding company must obtain FRB approval before,
among other matters: (i) acquiring, directly or indirectly, ownership or control
of any voting shares of another bank or bank holding company if, after such
acquisition, it would own or control more than 5% of such shares (unless it
already owns or controls the majority of such shares); (ii) acquiring all or
substantially all of the assets of another bank or bank holding company; or
(iii) merging or consolidating with another bank holding company.
As a savings and loan holding company, Charter One is generally not
subject to any activity restrictions, but as a bank holding company it will be
subject to the more restrictive activity limitations imposed on bank holding
companies. The BHCA prohibits a bank holding company, with certain exceptions,
from acquiring direct or indirect ownership or control of more than 5% of the
voting shares of any company which is not a bank or bank holding company, or
from engaging directly or indirectly in activities other than those of banking,
managing or controlling banks, or providing services for its subsidiaries. The
principal exceptions to these prohibitions involve certain non-bank activities
which, by statute or by FRB regulation or order, have been identified as
activities closely related to the business of banking or managing or controlling
banks. The list of activities permitted by the FRB includes, among other things,
operating a savings institution (such as Charter One Bank), mortgage company,
finance company, credit card company or factoring company; performing certain
data processing operations; providing certain investment and financial advice;
underwriting and acting as an insurance agent for certain types of
credit-related insurance; leasing property on a full-payout, non-operating
basis; selling money orders, travelers' checks and United States Savings Bonds;
real estate and personal property appraising; providing tax planning and
preparation services; and providing securities brokerage services for customers.
The scope of permissible activities may be expanded from time to time by the
FRB. Such activities may also be affected by federal legislation.
19
<PAGE> 36
Charter One Bank currently engages in the issuance and sale of savings
bank life insurance and has committed to the OTS to terminate such activities by
October 3, 1999. In addition, when it became a bank holding company, ALBANK
committed to the FRB that it would terminate the issuance and sale by ALBANK,
FSB of savings bank life insurance on or before October 10, 1999. Unless these
deadlines are extended by the FRB and the OTS, Charter One Bank and ALBANK, FSB,
if it has not been merged into Charter One Bank, will terminate savings bank
life insurance activities in October 1999.
Interstate Banking and Branching. In 1994, the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 (the "Riegle-Neal Act") was enacted
to ease restrictions on interstate banking. Effective September 29, 1995, the
Riegle-Neal Act allows the FRB to approve an application of an adequately
capitalized and adequately managed bank holding company to acquire control of,
or acquire all or substantially all of the assets of, a bank located in a state
other than such holding company's home state, without regard to whether the
transaction is prohibited by the laws of any state. The FRB may not approve the
acquisition of a bank that has not been in existence for the minimum time period
(not exceeding five years) specified by the statutory law of the host state. The
Riegle-Neal Act also prohibits the FRB from approving an application if the
applicant (and its depository institution affiliates) controls or would control
more than 10% of the insured deposits in the United States or 30% or more of the
deposits in the target bank's home state or in any state in which the target
bank maintains a branch. The Riegle-Neal Act does not affect the authority of
states to limit the percentage of total insured deposits in the state which may
be held or controlled by a bank or bank holding company to the extent such
limitation does not discriminate against out-of-state banks or bank holding
companies. Individual states may also waive the 30% state-wide concentration
limit contained in the Riegle-Neal Act.
Additionally, the federal banking agencies are authorized to approve
interstate merger transactions without regard to whether such transactions are
prohibited by the law of any state, unless the home state of one of the banks
opted out of the Riegle-Neal Act by adopting a law after the date of enactment
of the Riegle-Neal Act and prior to June 1, 1997 which applies equally to all
out-of-state banks and expressly prohibits merger transactions involving
out-of-state banks. Interstate acquisitions of branches are permitted only if
the law of the state in which the branch is located permits such acquisitions.
Interstate mergers and branch acquisitions are also subject to the nationwide
and statewide insured deposit concentration amounts described above.
The Riegle-Neal Act authorizes the OCC and the FDIC to approve
interstate branching de novo by national and state banks, respectively, only in
states which specifically allow for such branching. As required by the
Riegle-Neal Act, the OCC, FDIC and FRB have prescribed regulations which
prohibit any out-of-state bank from using the interstate branching authority
primarily for the purpose of deposit production, including guidelines to ensure
that interstate branches operated by an out-of-state bank in a host state
reasonably help to meet the credit needs of the communities which they serve.
As a federal thrift institution, Charter One Bank, subject to certain
conditions, has nationwide branching authority regardless of any state law.
Dividends. The FRB has issued a policy statement on the payment of cash
dividends by bank holding companies, which expresses the FRB's view that a bank
holding company should pay cash dividends only to the extent that its net income
for the past year is sufficient to cover both the cash dividends and a rate of
earning retention that is consistent with the holding company's capital needs,
asset quality and overall financial condition. The FRB also indicated that it
would be inappropriate for a company experiencing serious financial problems to
borrow funds to pay dividends. Furthermore, under the prompt corrective action
regulations adopted by the FRB, the FRB may prohibit a bank holding company from
paying any dividends if the holding company's bank subsidiary is classified as
"undercapitalized."
Bank holding companies are required to give the FRB prior written
notice of any purchase or redemption of its outstanding equity securities if the
gross consideration for the purchase or redemption, when combined with the net
consideration paid for all such purchases or redemptions during the preceding 12
months, is equal to 10% or more of their consolidated net worth. The FRB may
disapprove such a purchase or redemption if it determines that the proposal
would constitute an unsafe or unsound practice or would violate any law,
regulation, FRB order, or any condition imposed by, or written agreement with,
the FRB. This notification requirement does not apply to any company that
20
<PAGE> 37
meets the well-capitalized standard for commercial banks, has a safety and
soundness examination rating of at least a "2" and is not subject to any
unresolved supervisory issues.
Capital Requirements. The FRB has established capital requirements for
bank holding companies that generally parallel the capital requirements for
national banks and federal thrift institutions. As a savings and loan holding
company, Charter One is not subject to any minimum capital requirements.
Legislative and Regulatory Proposals. Any changes in the extensive
regulatory scheme to which Charter One is and will be subject, whether by any of
the Federal banking agencies or Congress, could have a material effect on
Charter One, and Charter One cannot predict what, if any, future actions may be
taken by legislative or regulatory authorities or what impact such actions may
have.
The Clinton Administration and Congressional leaders have been
considering measures to restructure the regulation of banks and savings
associations. Legislation pending in the Senate, which passed the House of
Representatives as H.R. 10, would, if ultimately enacted into law, provide for
sweeping financial modernization of the banking system. The stated purposes of
H.R. 10 are to enhance consumer choice in the financial services marketplace,
level the playing field among providers of financial services and increase
competition. As passed by the House of Representatives, H.R. 10 would remove
certain restrictions contained in the Glass-Steagall Act of 1933 and the BHCA,
thereby allowing qualified financial holding companies to control banks,
securities firms, insurance companies and other financial firms. Conversely,
securities firms, insurance companies and other financial firms would be allowed
to own or affiliate with commercial banks. Under the new framework, the FRB
would serve as an umbrella regulator to oversee the new financial holding
company structure. Securities affiliates would be required to comply with all
applicable federal securities laws, including registration and other
requirements applicable to broker-dealers. H.R. 10 would also provide that
insurance affiliates of banks be subject to applicable state insurance
regulations and supervision. With respect to the thrift industry, H.R. 10 would,
among other things, restrict the interstate branching authority of federal
savings associations to that applicable to banks, but permit institutions to
keep existing branches. In addition, the bill would merge the OTS and the OCC,
and would also merge the SAIF and the Bank Insurance Fund after a waiting
period. There can be no assurance of when or if the legislation described will
be enacted, or if enacted, what form such legislation will ultimately take.
BENEFICIAL OWNERSHIP OF CERTAIN PERSONS
Persons and groups owning in excess of 5% of Charter One Common Stock
are required to file certain reports regarding such ownership with Charter One
and the Commission. Charter One's directors and executive officers are also
required to file certain reports regarding their ownership of Charter One Common
Stock with the Commission. Copies of those reports must also be furnished to
Charter One. A person is considered the beneficial owner of Charter One 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 Charter
One Record Date, the Charter One Common Stock beneficially owned by persons or
groups owning in excess of 5% of the Charter One Common Stock (adjusted to
reflect the Stock Split and the Charter One Stock Dividend).
<TABLE>
<CAPTION>
PERCENT OF SHARES OF
NAME AND ADDRESS AMOUNT AND NATURE OF COMMON STOCK
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OUTSTANDING
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
FMR Corporation 8,340,150(1) 6.20%
82 Devonshire Street
Boston, MA 02109
<FN>
- -----------------
(1) ACCORDING TO THE SCHEDULE 13G/A FILED BY THE REPORTING PARTY ON
FEBRUARY 10, 1998, THE REPORTING PARTY HAS SOLE POWER TO VOTE
713,269 SHARES AND NO SHARES AS TO WHICH SHARED VOTING MAY BE
EXERCISED. THE REPORTING PARTY HAS SOLE POWER TO DISPOSE OF ALL
SHARES.
</TABLE>
21
<PAGE> 38
The following table sets forth information as of the Charter One Record
Date as to the shares of Charter One Common Stock beneficially owned by
directors of Charter One individually, by the five most highly compensated
executive officers of Charter One, including the Chief Executive Officer,
individually, and by executive officers and directors of Charter One as a group.
Ownership information is based upon information furnished by the respective
individuals.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF
NATURE OF SHARES OF
NAME OF BENEFICIAL COMMON STOCK
BENEFICIAL OWNER OWNERSHIP (1)(2)(3)(4) OUTSTANDING
--------------------------------------------------------------- ------------------------------------------------
<S> <C> <C>
Charles John Koch, Chairman of the Board, President and Chief Executive Officer 937,724 (5) *
Mark D. Grossi, Director and Executive Vice President 507,589 (6) *
John D. Koch, Director and Executive Vice President 555,043 (7) *
Richard W. Neu, Director, Executive Vice President and Chief Financial Officer 638,956 (8) *
Robert J. Vana, Senior Vice President, Chief Corporate Counsel and Secretary 238,937 (9) *
Eugene B. Carroll, Sr., Director 25,590 *
Phillip W. Fisher, Director 1,512,834(10) 1.13%
Denise M. Fugo, Director 14,223 *
Charles M. Heidel, Director 13,082(11) *
Charles F. Ipavec, Director 216,349 *
Philip J. Meathe, Director 37,986(12) *
Michael P. Morley, Director 10,024(13) *
Henry R. Nolte, Jr., Director 18,519(14) *
Ronald F. Poe, Director 19,197(15) *
Victor A. Ptak, Director 30,088(16) *
Melvin J. Rachel, Director 630 *
Jerome L. Schostak, Director 3,452,651(17) 2.58%
Mark Shaevsky, Director 70,345(18) *
Leonard S. Simon, Director 567,607(19) *
John P. Tierney, Director 9,747(20) *
Eresteen R. Williams, Director 7,746(21) *
All executive officers and directors as a group (22 persons) 9,139,398(22) 6.70%
- ----------------
* Does not exceed 1%
</TABLE>
(1) Shares held under the Charter One Bank's employee savings plan and the
Charter One ESOP are reported as of December 31, 1997.
(2) Assumes exercise of stock options held by beneficial owner exercisable
within 60 days.
(3) Included are shares owned directly or indirectly through a trust or
corporation or by spouses and minor children, as to which the
beneficial owner exercises sole voting and dispositive power, except as
otherwise noted herein.
(4) For the executive officers, included are shares allocated to such
executive officers under the Charter One ESOP, as well as a
proportionate share of the unallocated shares, which are deemed to be
beneficially owned by the executive officers as a result of the
executive officers' ability to direct the trustee's voting of such
shares through the vote of the executive officers' allocated shares.
(5) Included are 382,760 shares Mr. Charles John Koch has the right to
purchase pursuant to stock options exercisable within 60 days.
(6) Included are 216,862 shares Mr. Grossi has the right to purchase
pursuant to stock options exercisable within 60 days.
(7) Included are 250,052 shares Mr. John D. Koch has the right to purchase
pursuant to stock options exercisable within 60 days.
(8) Included are 608,553 shares Mr. Neu has the right to purchase pursuant
to stock options exercisable within 60 days.
(9) Included are 118,074 shares Mr. Vana has the right to purchase pursuant
to stock options exercisable within 60 days.
22
<PAGE> 39
(10) Included are 1,184,859 shares owned by Martinique Hotel, Inc., a
personal holding company as to which Mr. Fisher serves as a director
and is a shareholder.
(11) Included are 6,944 shares Mr. Heidel has the right to purchase pursuant
to stock options exercisable within 60 days.
(12) Included are 6,944 shares Mr. Meathe has the right to purchase pursuant
to stock options exercisable within 60 days.
(13) Included are 7,504 shares Mr. Morley has the right to purchase pursuant
to stock options exercisable within 60 days.
(14) Included are 6,944 shares Mr. Nolte has the right to purchase pursuant
to stock options exercisable within 60 days.
(15) Included are 11,516 shares Mr. Poe has the right to purchase pursuant
to stock options exercisable within 60 days.
(16) Included are 10,418 shares Mr. Ptak has the right to purchase pursuant
to stock options exercisable within 60 days.
(17) Included are 6,944 shares Mr. Schostak has the right to purchase
pursuant to stock options exercisable within 60 days.
(18) Included are 6,944 shares Mr. Shaevsky has the right to purchase
pursuant to stock options exercisable within 60 days.
(19) Included are 277,315 shares Mr. Simon has the right to purchase
pursuant to stock options exercisable within 60 days.
(20) Included are 5,497 shares Mr. Tierney has the right to purchase
pursuant to stock options exercisable within 60 days.
(21) Included are 6,944 shares Ms. Williams has the right to purchase
pursuant to stock options exercisable within 60 days.
(22) Included are 2,138,754 shares the directors and executive officers as a
group have the right to purchase pursuant to stock options exercisable
within 60 days.
ALBANK FINANCIAL CORPORATION, ALBANK, FSB AND
ALBANK COMMERCIAL
GENERAL
ALBANK is a Delaware corporation and is the holding company for ALBANK,
FSB, a federal savings bank, and ALBANK Commercial, a New York chartered
commercial bank. Both institutions are wholly owned subsidiaries of ALBANK and
are headquartered in Albany, New York. The executive offices of ALBANK are
located at 10 North Pearl Street, Albany, New York 12207, and the telephone
number is (518) 445-2100.
As of June 30, 1998, ALBANK had total consolidated assets of $4.1
billion, deposits of $3.5 billion and stockholders' equity of $379 million.
The businesses of ALBANK, FSB and ALBANK Commercial consist principally
of attracting retail and corporate deposits (and, in the case of ALBANK
Commercial, deposits from municipal/public entities in New York State) and
investing those deposits, together with funds generated from operations and
borrowings, in various loan products and investment securities. ALBANK, FSB also
engages in the provision of Savings Bank Life Insurance. Through its wholly
owned brokerage and insurance subsidiary, ALVEST Financial Services, Inc.,
ALBANK Commercial offers a wide range of financial products and services.
As of June 30, 1998, ALBANK, FSB operated through 72 banking offices,
51 in upstate New York, 9 in the metropolitan area of Springfield, Massachusetts
and 12 in Vermont, and ALBANK Commercial operated 37 banking offices, all in New
York State.
ALBANK, FSB is a member of the FHLB of New York, which is a member of
the FHLB System. The deposits of ALBANK, FSB and ALBANK Commercial are insured
up to prescribed limits by the FDIC. ALBANK, FSB and ALBANK Commercial are
subject to comprehensive examination, supervision and regulation by their
primary regulators, the OTS, in the case of ALBANK, FSB, and the New York
Superintendent of Banks and the FDIC, in the case of ALBANK Commercial. ALBANK,
as a bank holding company, is subject to examination, supervision and regulation
by the FRB.
23
<PAGE> 40
For additional information, see "SUMMARY -- Selected Consolidated
Financial and Other Data of ALBANK Financial Corporation." Additional
information concerning ALBANK is included in ALBANK documents incorporated
herein by reference. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
BENEFICIAL OWNERSHIP OF CERTAIN PERSONS
The following table sets forth certain information as to those persons
believed by management of ALBANK to be beneficial owners of more than 5% of the
outstanding shares of ALBANK Common Stock, as disclosed in certain reports
("Section 13G Reports") regarding such ownership filed as of February 10, 1998
with the Commission and with ALBANK pursuant to the Exchange Act. A person is
considered the beneficial owner of ALBANK 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. Other than those persons listed below, ALBANK is not aware of any
person or group that owned more than 5% of the ALBANK Common Stock as of the
ALBANK Record Date.
<TABLE>
<CAPTION>
PERCENT OF SHARES OF
NAME AND ADDRESS AMOUNT AND NATURE OF COMMON STOCK
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OUTSTANDING
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Employee Stock Ownership Plan and 914,380 6.83%
Trust of the ALBANK, FSB
Incentive Savings and Employee
Stock Ownership Plan (the "ALBANK
ESOP")
10 North Pearl Street
Albany, New York 12207(2)
----------------
(1)calculated using the total number of shares of ALBANK Common stock
outstanding on the ALBANK Record Date, which was 13,368,214 shares.
(2)The Human Resources Committee of the Board of Directors of ALBANK,
FSB administers the ALBANK ESOP. Bankboston, N.A. has been appointed
trustee for the ALBANK ESOP ("ESOP Trustee") by the Board of
Directors. Subject to its fiduciary duties, the ESOP Trustee must
vote all allocated shares (673,452 shares) held in the ALBANK ESOP
in accordance with the instructions of the participating employees.
Unallocated shares (759,007 shares) and allocated shares for which
no voting instructions have been received from participants will be
voted by the ESOP Trustee, subject to its fiduciary duties, in a
manner calculated to reflect most accurately the instructions it has
received from participants regarding the allocated ALBANK Common
Stock. The amount of shares set forth in the table reflects all
unallocated shares, plus allocated shares for which no voting
instructions were received in ALBANK's most recent meeting of
shareholders as of the date of the Section 13G Report.
</TABLE>
24
<PAGE> 41
The following table sets forth information as of the ALBANK Record Date
as to shares of ALBANK Common Stock beneficially owned by directors of ALBANK
individually, by the five most highly compensated executive officers of ALBANK,
fsb, including the Chief Executive Officer, individually, and by executive
officers and directors of ALBANK and ALBANK, fsb as a group. Ownership
information is based upon information furnished by the respective individuals.
<TABLE>
<CAPTION>
PERCENT OF SHARES OF
NAME OF AMOUNT AND NATURE OF COMMON STOCK
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OUTSTANDING
--------------------------------------------------------------- ----------------------- -------------------------
<S> <C> <C>
Herbert G. Chorbajian, Chairman of the Board, President and Chief Executive 489,798(1) 3.66%
Officer
John E. Maloy, Sr., Director 69,588(2) *
William J. Barr, Director 40,415(3) *
Anthony P. Tartaglia, Director 40,441(4) *
Susan J. Stabile, Director 100 *
Karen R. Hitchcock, Director 1,100(5) *
Francis L. McKone, Director 1,000(6) *
John J. Nigro, Director 250 *
Richard J. Heller, Executive Vice President and Chief Financial Officer 163,284(7) 1.22%
Barry G. Blenis, Executive Vice President 159,856(8) 1.19%
Clifford M. Apgar, Executive Vice President 59,583(9) *
Freling H. Smith, Senior Vice President, Secretary and General Counsel 87,448(10) *
All executive officers and directors of ALBANK and ALBANK, fsb as a
group (13 persons)
1,209,157(11) 9.04%
</TABLE>
_________________
* Does not exceed 1%.
(1) Included are 302,400 shares Mr. Chorbajian has the right to purchase
pursuant to ALBANK Stock Options which are exercisable within 60 days.
(2) Included are 33,000 shares Mr. Maloy has the right to purchase pursuant
to ALBANK Stock Options which are exercisable within 60 days.
(3) Included are 33,000 shares Mr. Barr has the right to purchase pursuant
to ALBANK Stock Options which are exercisable within 60 days.
(4) Included are 33,000 shares Mr. Tartaglia has the right to purchase
pursuant to ALBANK Stock Options which are exercisable within 60 days.
(5) Included are 1,100 shares Ms. Hitchcock has the right to purchase
pursuant to ALBANK Stock Options which are exercisable within 60 days.
(6) Included are 1,000 shares Mr. McKone has the right to purchase
pursuant to ALBANK Stock Options which are exercisable within 60 days.
(7) Included are 57,733 shares Mr. Heller has the right to purchase
pursuant to ALBANK Stock Options which are exercisable within 60 days.
(8) Included are 36,733 shares Mr. Blenis has the right to purchase
pursuant to ALBANK Stock Options which are exercisable within 60 days.
(9) Included are 9,733 shares Mr. Apgar has the right to purchase pursuant
to ALBANK Stock Options which are exercisable within 60 days.
(10) Included are 17,020 shares Mr. Smith has the right to purchase pursuant
to ALBANK Stock Options which are exercisable within 60 days.
(11) Included are 546,619 shares (including the shares referred to in
footnotes 1 through 10) the directors and executive officers as a group
have the right to purchase pursuant to ALBANK Option Plans which are
exercisable within 60 days.
25
<PAGE> 42
RECENT DEVELOPMENTS
On April 23, 1998, Charter One and Charter One Bank entered into the
CSFC Merger Agreement, which provides for, among other things, the CSFC
Acquisition, CSFC to be merged with and into Charter One, and CSFC Bank to be
merged with and into Charter One Bank.
Consummation of the CSFC Acquisition is subject to customary
conditions, including, among other things, (i) the approval of the CSFC Merger
Agreement by a majority vote of the outstanding shares of CSFC and (ii) receipt
of regulatory approvals. All regulatory applications have been filed and a
special meeting of CSFC's stockholders is scheduled for October 16, 1998.
Although there can be no assurance as to the timing of such approvals or that
they will be obtained, the CSFC Acquisition is currently expected to close
during the fourth quarter of 1998.
Upon consummation of the CSFC Acquisition, each of the 33,635 issued
and outstanding shares of CSFC common stock (other than shares held by Charter
One, CSFC, or any of their subsidiaries, and other than shares held by
stockholders who have exercised dissenters' rights under Ohio law) will be
canceled and converted into 63.37149 (which reflects the Charter One Stock
Dividend) shares of Charter One Common Stock, including a corresponding number
of rights associated with Charter One Common Stock pursuant to the Rights
Agreement.
CSFC is headquartered in Cleveland, Ohio and, through CSFC Bank,
operates a banking business in Ohio. At June 30, 1998, CSFC had total
consolidated assets of $392.9 million, deposits of $342.7 million and
stockholders' equity of $30.6 million. CSFC's principal executive offices are
located at 1360 East Ninth Street, Cleveland, Ohio 44114. CSFC's telephone
number is (216) 771-3550.
THE MERGER
The information in this Joint Proxy Statement/Prospectus concerning the
terms of the Merger is qualified in its entirety by reference to the full text
of the Merger Agreement, which is attached hereto at Annex A and incorporated by
reference herein. All stockholders are urged to read the Merger Agreement in its
entirety.
GENERAL
Pursuant to the Merger Agreement, ALBANK will be merged with and into
Charter-Michigan in a "stock-for- stock exchange" transaction. If the Merger is
consummated, each share of ALBANK Common Stock issued and outstanding
immediately prior to the Effective Time (other than Excluded Shares), will be
converted into the right to receive 2.268 (which reflects the Charter One Stock
Dividend) shares of Charter One Common Stock (subject to possible adjustment as
described in "-- Amendment; Termination; Liabilities and Remedies for Breach"),
including the right to receive a corresponding number of rights associated with
the Charter One Common Stock pursuant to the Rights Agreement. See "-- Merger
Consideration," and "COMPARISON OF RIGHTS OF STOCKHOLDERS OF CHARTER ONE
FINANCIAL, INC. AND ALBANK FINANCIAL CORPORATION -- Rights Agreement."
BACKGROUND OF AND REASONS FOR THE MERGER
Background of the Merger. Since its conversion from mutual to stock
form in 1992, ALBANK has followed a strategy of growth through internal
operations and acquisitions of banking companies and branch assets. Between
March 1993 and May 1998, ALBANK acquired (i) eight branches from The Dime
Savings Bank of New York, FSB ("Dime"), (ii) deposits of the closed Ludlow
Savings Bank from the FDIC, (iii) deposits of an additional branch of Dime, (iv)
Marble Financial Corporation, Rutland, Vermont, (v) six branches of Green
Mountain Bank, Rutland, Vermont, (vi) 35 New York branches of KeyBank National
Association, Albany, New York, and (vii) three New York branches of First Union
National Bank. The ALBANK Board has from time to time reviewed its strategic
alternatives for enhancing stockholder value, and while reiterating its
confidence in the future of ALBANK as an independent company,
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has indicated that management should, consistent with the ALBANK Board's
fiduciary obligation, consider bona fide offers that might enhance stockholder
value.
On December 8, 1997, Herbert G. Chorbajian, the Chairman, President and
Chief Executive Officer of ALBANK, was formally introduced to Charles J. Koch,
Chief Executive Officer of Charter One, by Leonard S. Simon, Vice Chairman of
Charter One and formerly Chief Executive Officer of Rochester, which Charter One
acquired in October 1997. Mr. Simon and Mr. Chorbajian have been acquainted for
a number of years through savings bank trade groups. After the initial meeting,
Mr. Koch called Mr. Chorbajian to suggest a meeting at which they could explore
a possible transaction, and on March 3, 1998, Mr. Chorbajian and Mr. Koch met
for this purpose.
The managements of Charter One and ALBANK have, over time, regularly
considered the possibility of acquisitions and strategic combinations with a
variety of other financial institutions. While each of Charter One and ALBANK
were exploring and engaged in discussions with other entities in connection with
the possibility of acquisition transactions at the time discussions in
connection with the Merger were being held, no alternative acquisitions or
combinations were contemplated by either party at that time and neither party
was engaged in any discussions with other entities with respect to the sale or
other disposition of such party.
At a regular meeting of the Charter One Board on March 20, 1998, Mr.
Koch briefly advised the Charter One Board of preliminary discussions with Mr.
Chorbajian concerning a possible transaction between Charter One and ALBANK. At
a regular meeting of the ALBANK Board on March 24, 1998, Mr. Chorbajian briefed
the Board in executive session, and the Board directed Mr. Chorbajian to explore
more formally the interest expressed by Charter One. On April 3, 1998, ALBANK
and Charter One executed a confidentiality agreement. Thereafter, and at another
regularly scheduled meeting of the Charter One Board on April 22, 1998, Mr. Koch
further updated the Charter One Board on the status of the discussions with
ALBANK, with such discussions still being viewed as preliminary. On April 23,
1998, senior management of ALBANK and Charter One met. On May 7, 1998, ALBANK
engaged Merrill Lynch as its financial advisor, and on June 10, 1998, Charter
One engaged Lehman Brothers as its financial advisor, in each case in connection
with a potential business combination involving Charter One and ALBANK. Between
January and June, several discussions were held between Charter One and Lehman
Brothers regarding the status of discussions with ALBANK. Between April 23 and
June 14, 1998, senior management of Charter One and senior management of ALBANK
and its financial advisors reviewed standard due diligence materials regarding
the operations of, and other matters with respect to, the companies, and engaged
in discussions regarding their respective financial circumstances, operations
and other matters. On-site due diligence began at Charter One on June 9 and at
ALBANK on June 11. In connection with the due diligence investigations
conducted, each of Charter One and ALBANK provided to the other party, among
other things, internal budget information for such company's respective 1998
fiscal year.
Also on April 23, 1998, Mr. Chorbajian met with Mr. Koch to discuss,
principally, the financial terms of the possible transaction including its
effects on ALBANK's employees. On April 29, 1998, Charter One provided ALBANK
with a term sheet setting forth the principal financial terms of its proposal
together with a draft of a proposed agreement. On May 6, 1998, Charter One
provided ALBANK with a draft of a supplement to the Merger Agreement relating to
employee benefit matters. On April 28 and May 19, 1998, Mr. Chorbajian further
briefed the ALBANK Board on the progress of discussions and was again authorized
to continue the discussions. At a regularly scheduled meeting of the Charter One
Board on May 21, 1998, a detailed review of the discussions and due diligence
performed to date was lead by Mr. Koch, with the assistance of his executive
management team. On May 29, 1998, Mr. Chorbajian and Mr. Koch met to discuss
outstanding issues, including those related to employee benefits for ALBANK
employees. Between April 29 and June 11, 1998, ALBANK and its legal and
financial advisors negotiated the terms of the Merger Agreement and the Stock
Option Agreement and ancillary documents with Charter One and its legal and
financial advisors.
At a meeting of the ALBANK Board held on June 11, 1998, Mr. Chorbajian
and other members of the ALBANK management team described the discussions which
had occurred since the briefing of the ALBANK Board on May 19 and presented the
terms of the Charter One proposal. Mr. Chorbajian discussed the financial terms
of the proposal, including the proposed exchange ratio of 2.16 (subsequently
adjusted to 2.268 as a result of the Charter One Stock Dividend) shares of
Charter One Common Stock for each share of ALBANK Common Stock, the potential
for retention of employees and discussions regarding employee benefits, the
representation of former ALBANK Board
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members on the Charter One Board and on the Advisory Board, and the management
capabilities, philosophies and potential of Charter One. See "-- Reasons of
ALBANK for the Merger." Merrill Lynch made a presentation regarding the
financial aspects of the process which had been conducted, the Charter One
proposal and the outlook for Charter One. Members of ALBANK's senior management
and ALBANK's legal advisors also made presentations to the ALBANK Board, in
which certain specific terms of the Charter One proposal and the proposed form
of a merger agreement and stock option agreement were discussed. No action was
taken by the ALBANK Board at this meeting. Following the meeting,
representatives of ALBANK and Charter One negotiated and finalized the terms of
the Merger Agreement and the Stock Option Agreement.
At the June 14, 1998 meeting of the Charter One Board, with special
legal counsel and financial advisors assisting, Mr. Koch presented the ALBANK
business combination to the Charter One Board for approval. After a detailed
discussion concerning the terms of the proposed Merger Agreement, a review of
the pricing of the transaction, and a review of management's due diligence, the
Charter One Board unanimously (with one director absent) approved the
combination.
On the evening of June 14, 1998, the ALBANK Board met again to consider
the Charter One proposal. At the meeting, members of ALBANK's senior management
and legal advisors discussed again the terms of the Merger Agreement. Merrill
Lynch rendered its opinion that the Exchange Ratio was fair from a financial
point of view to the stockholders of ALBANK. Mr. Koch of Charter One made a
presentation to the ALBANK Board by telephone, in which he expressed his views
as to the positive attributes of the proposed combination. The ALBANK Board then
unanimously approved the Merger Agreement and the Stock Option Agreement and the
transactions contemplated thereby as being in the best interests of ALBANK, its
stockholders and other constituencies. The Merger Agreement and the Stock Option
Agreement were executed by ALBANK and Charter One as of June 15, 1998.
Charter One's Reasons for the Merger. The Charter One Board has
determined that the terms of the Merger and the Merger Agreement and the Charter
One Share Issuance are advisable and fair to, and in the best interests of,
Charter One and its stockholders. In reaching its determination, the Charter One
Board consulted with its financial advisor with respect to the financial aspects
and fairness of the transaction. In arriving at its determination, the Charter
One Board also considered a number of factors which indicated that the Merger
should produce an institution that is well capitalized, and one which will enjoy
an enhanced retail lending franchise as well as a number of balance sheet and
financial benefits that should foster the potential for earnings growth. The
Charter One Board did not assign any specific or relative weights to the factors
considered, and individual directors may have given different weights to
different factors. The material factors considered were:
(i) Information concerning the businesses, earnings, operations,
financial condition, prospects, capital levels and asset quality of ALBANK,
individually and as combined with Charter One. From a financial perspective, it
was determined that ALBANK's net yield level of 3.95%, high equity to asset
ratio of 8.97%, and relatively low loan to deposit ratio of 79% served as a
complement to Charter One's balance sheet profile. Additionally, an integral
component of this consideration was the determination that it was a natural
continuation of the market extension efforts of Charter One in New York,
providing for one contiguous market area extending from southeastern Michigan
through to Springfield, Massachusetts.
(ii) The financial advice rendered by Charter One's financial advisor
that the Exchange Ratio to be paid by Charter One to the stockholders of ALBANK
in the Merger is fair, from a financial point of view, to Charter One. See "--
Opinion of Charter One's Financial Advisor."
(iii) The terms of the Merger Agreement, the Stock Option Agreement and
the other documents executed in connection with the Merger.
(iv) The anticipated cost savings and efficiencies available to the
combined company as a result of the Merger. Upon completion of systems
conversions in early 1999, it is anticipated that future after-tax cost savings
will be approximately $20 to $24 million per annum.
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(v) The current and prospective economic, competitive and regulatory
environment facing each institution and other financial institutions.
(vi) The results of the due diligence investigation conducted by the
management of Charter One, including assessment of credit policies, asset
quality, interest rate risk, litigation and adequacy of loan loss reserves.
(vii) The expectation that the Merger would be tax free to Charter One
for federal income tax purposes and accounted for under the
"pooling-of-interests" method of accounting. See "-- Federal Income Tax
Consequences of the Merger" and "-- Accounting Treatment."
(viii) The prospects for growth and expanded products and services, and
other anticipated impacts on depositors, employees, customers and communities
served by Charter One and ALBANK, respectively. Through efforts like the
expansion of retail banking programs currently offered by ALBANK, the
redeployment of excess liquidity into loans and the leveraging of capital, it is
estimated that future after-tax revenue enhancements will be approximately $14
to $24 million per annum.
In addition, the Charter One Board considered the complementary nature
of ALBANK's emphasis on commercial banking, its strong core deposit base and its
retail branch network.
THE CHARTER ONE BOARD UNANIMOUSLY RECOMMENDS THAT CHARTER ONE
STOCKHOLDERS VOTE FOR APPROVAL OF THE CHARTER ONE SHARE ISSUANCE.
ALBANK's Reasons for the Merger. In determining to approve the Merger
Agreement, the Stock Option Agreement and the transactions contemplated thereby,
the ALBANK Board considered the following material factors:
(i) The ALBANK Board considered the terms of the Merger Agreement, the
Stock Option Agreement and the transactions contemplated thereby. The ALBANK
Board took into account the historical trading ranges for the Charter One Common
Stock and the ALBANK Common Stock, the Exchange Ratio (noting, in particular,
that it reflected a 43% premium for the holders of ALBANK Common Stock based on
the closing prices of Charter One Common Stock and ALBANK Common Stock,
respectively, on June 12, 1998, the last trading day prior to the meeting of the
ALBANK Board at which the Merger was approved), the potential impact of the
Merger on the price of the Charter One Common Stock over the short term and the
long term, the resulting relative interests of ALBANK and Charter One
stockholders in the equity of the combined company, and the potential for
increased earnings per share and dividends for stockholders of ALBANK. The
ALBANK Board considered that under the Merger Agreement it would have the right
to terminate the Merger Agreement in the event of a specified significant
decline in the price of Charter One Common Stock prior to the consummation of
the Merger unless Charter One then elected to increase the Exchange Ratio in the
manner specified in the Merger Agreement. With respect to the Stock Option
Agreement, the ALBANK Board was aware that the existence of that Agreement,
together with the termination fee of $15 million, might discourage third parties
from seeking to acquire ALBANK by increasing the cost of such an acquisition
(noting, in this regard, a $25 million cap on the amount of profit which could
be realized by Charter One from the Option), and might also preclude any third
party from being able to effect a merger with ALBANK that would qualify for
"pooling-of-interests" accounting treatment. The ALBANK Board considered that
ALBANK would receive a $15 million termination fee if the transaction were not
consummated under certain circumstances. See "-- Amendment; Termination;
Liabilities and Remedies for Breach," and "STOCK OPTION AGREEMENT."
(ii) The ALBANK Board considered the advice of its financial advisor,
Merrill Lynch, and reviewed the detailed financial analyses, pro forma results
and other information presented by Merrill Lynch. The ALBANK Board took into
account the advice of Merrill Lynch that the multiples of earnings and tangible
book value and the market premium represented by the Exchange Ratio were
consistent with the average observed in recent mergers of comparable thrift
holding companies. The ALBANK Board considered the opinion of Merrill Lynch
(including the assumptions and financial information and projections relied upon
by it in arriving at such opinion) that, as of June 15, 1998 and based upon the
matters set forth in its written opinion as of that date, the Exchange Ratio was
fair from a financial point of view to ALBANK's stockholders. (For a discussion
of the opinion of Merrill Lynch, including a summary of the
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procedures followed, the matters considered, the scope of the review undertaken
and the assumptions made with respect thereto, see "Opinion of ALBANK's
Financial Advisor.")
(iii) The ALBANK Board considered that the combined company resulting
from the Merger would be the fourth largest thrift institution in the United
States in terms of assets and the third largest in terms of market
capitalization based on market prices as of June 12, 1998. The ALBANK Board
recognized that, as a result, the combined company would be more likely than
ALBANK alone to possess the financial resources to compete more effectively in
the rapidly changing marketplace for financial services and more effective in
fulfilling ALBANK's long-term objective of increasing its overall size and
enhancing its market presence, while maintaining its asset quality and credit
standards. The ALBANK Board also considered the opportunity for revenue
enhancement by offering Charter One's greater array of deposit and consumer loan
products through ALBANK's branches and offices. The ALBANK Board was aware that
the Merrill Lynch analysis had indicated that, based on First Call consensus
estimates and assuming Charter One management's estimates of total pre-tax cost
savings of $16.5 million in 1999 and $33 million in 2000, plus incremental
pre-tax income of approximately $30 million from revenue enhancements and
leveraging of excess capital, the Merger would result in estimated pro forma
earnings per share accretion of 0.74% in 1999 and estimated pro forma earnings
per share accretion of 1.09% in 2000 pro forma (assuming no one-time,
merger-related charges).
(iv) The ALBANK Board took into account Charter One's record of
successfully completing acquisitions and integrating the acquired companies and
the expectation that the Merger would result in economies of scale and cost
savings and efficiencies. The ALBANK Board was aware that the Merrill Lynch
analysis, in estimating accretion to pro forma earnings per share, assumed,
based on Charter One management estimates, pre-tax cost savings of $16.5 million
in 1999 and $33 million in 2000.
(v) The ALBANK Board took into account that Mr. Chorbajian would be
elected or appointed Vice Chairman of the Board of the combined company, that
Mr. Chorbajian and Ms. Hitchcock would be elected or appointed members of the
Charter One Board following consummation of the Merger, that Mr. Nigro would be
appointed to the Charter One Board within twelve months after the Merger was
consummated (subject to OTS approval) and that the other members of the ALBANK
Board and certain members of senior management would become members of the
Advisory Board. The ALBANK Board also considered the potential effects of the
Merger on ALBANK's employees, including the fact that the Merger was an
extension of Charter One's market and therefore was not anticipated to result in
branch closings. The Board noted that Charter One had agreed to keep in effect
the ALBANK severance plan for three years.
(vi) The ALBANK Board considered the complementary nature of the
businesses, business strategies and products of ALBANK and Charter One,
including the fact that ALBANK's loan portfolio, with its relatively greater
emphasis on commercial lending, would complement Charter One's portfolio, with
its relatively greater emphasis on consumer lending, that ALBANK's core deposits
would enhance Charter One's deposit mix and that ALBANK's branches would extend
and not compete with Charter One's existing branch network in New York.
(vii) The ALBANK Board considered the general impact the Merger would
have on the various constituencies served by ALBANK, including its customers,
its employees, its community and others. The ALBANK Board took into account that
the combined entity would be able to offer a more extensive range of products
and banking services to ALBANK's customers. The ALBANK Board also took into
account the satisfactory ratings of Charter One Bank under the Community
Reinvestment Act. The ALBANK Board considered that Charter One had agreed to
maintain for a period of five years the aggregate level of charitable
contributions in ALBANK markets equal to the amount that appears in the ALBANK
1998 budget.
(viii) The ALBANK Board considered information with respect to, among
other things, the historical financial results of Charter One and the projected
financial results provided by Charter One's management and reviewed information
with respect to Charter One's business, operations, financial condition, capital
levels and future prospects. The ALBANK Board considered the results of the due
diligence investigation conducted by ALBANK's management and legal and financial
advisers, including, among other things, assessments of Charter One's credit
policies, asset quality, year 2000 compliance, litigation risks and interest
rate risk.
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(ix) The ALBANK Board considered that the Merger is expected to be
tax-free for federal income tax purposes to ALBANK's stockholders to the extent
they receive shares of Charter One Common Stock in the Merger rather than cash,
and to be accounted for under the "pooling-of-interests" method of accounting.
See "-- Federal Income Tax Consequences of the Merger" and "-- Accounting
Treatment."
(x) The ALBANK Board considered the nature of, and likelihood of
obtaining, the regulatory approvals that it was then anticipated would be
required with respect to the Merger. See "-- Regulatory Matters." The ALBANK
Board considered the nature and scope of conditions to the Merger. The ALBANK
Board also considered the proposed restructuring of ALBANK Commercial, the
regulatory approvals necessary for such restructuring and that completion of
such restructuring was not a condition to consummation of the Merger. See "--
Regulatory Matters."
(xi) The ALBANK Board took into account the current and prospective
economic and competitive and regulatory environment facing the financial
services industry generally and each of ALBANK and Charter One in particular.
In reaching its determination to approve the Merger Agreement, the
Stock Option Agreement and the transactions contemplated thereby, the ALBANK
Board did not assign any relative or specific weights to the various factors
considered by it, and individual directors may have given differing weights to
different factors.
FOR THE REASONS DESCRIBED ABOVE, THE ALBANK BOARD UNANIMOUSLY APPROVED
THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT HOLDERS OF ALBANK COMMON
STOCK VOTE FOR ADOPTION OF THE MERGER AGREEMENT.
RECOMMENDATION OF THE CHARTER ONE BOARD
The Charter One Board has unanimously adopted the Merger Agreement and
approved the transactions contemplated thereby and has determined that the
Merger and the issuance of shares of Charter One Common Stock pursuant thereto
are fair to and in the best interests of Charter One and its stockholders. THE
CHARTER ONE BOARD THEREFORE UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
APPROVAL OF THE CHARTER ONE SHARE ISSUANCE AT THE CHARTER ONE SPECIAL MEETING.
RECOMMENDATION OF THE ALBANK BOARD
The ALBANK Board has unanimously approved the Merger Agreement and the
transactions contemplated thereby. THE ALBANK BOARD THEREFORE UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS VOTE FOR ADOPTION OF THE MERGER AGREEMENT AT THE
ALBANK SPECIAL MEETING.
OPINION OF CHARTER ONE'S FINANCIAL ADVISOR
Charter One has retained Lehman Brothers to act as its financial
advisor in connection with the Merger. Lehman Brothers has rendered its written
opinion to the Charter One Board, dated June 15, 1998, to the effect that, based
upon and subject to the factors and assumptions set forth in such opinion, and
as of the date of such opinion, the Exchange Ratio to be paid by Charter One to
the ALBANK stockholders in the Merger was fair to Charter One from a financial
point of view. As part of its engagement, Lehman Brothers is not required to
subsequently reconfirm its opinion. THE FULL TEXT OF THE LEHMAN BROTHERS
OPINION, WHICH SETS FORTH ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS
CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN BY LEHMAN BROTHERS, IS ATTACHED
HERETO AS ANNEX B. THE SUMMARY SET FORTH IN THIS JOINT PROXY
STATEMENT/PROSPECTUS OF THE MATERIAL CONSIDERATIONS SET FORTH IN THE OPINION OF
LEHMAN BROTHERS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
THE LEHMAN BROTHERS OPINION ATTACHED HERETO.
No limitations were imposed by Charter One on the scope of Lehman
Brothers' investigation or the procedures to be followed by Lehman Brothers in
rendering its opinion. Lehman Brothers was not requested to and did not make any
recommendation to the Charter One Board as to the form or amount of
consideration to be offered by Charter One to the ALBANK stockholders in the
Merger, which was determined through arm's-length negotiations between the
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parties. In arriving at its opinion, Lehman Brothers did not ascribe a specific
range of value to Charter One or ALBANK, but rather made its determination as to
the fairness, from a financial point of view, of the Exchange Ratio to be paid
by Charter One to the ALBANK stockholders in the Merger on the basis of the
financial and comparative analyses described below. Lehman Brothers' opinion is
for the use and benefit of the Charter One Board and was rendered to the Charter
One Board in connection with its consideration of the Merger. Lehman Brothers'
opinion is not intended to be and does not constitute a recommendation to any
stockholder of Charter One as to how such stockholder should vote with respect
to the Charter One Share Issuance. Lehman Brothers was not requested to opine as
to, and its opinion does not address, Charter One's underlying business decision
to proceed with or effect the Merger. Lehman Brothers has consented to the use
of its opinion and to the references to Lehman Brothers herein. In giving such
consent, Lehman Brothers does not admit that it comes 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 and does not admit that it is
an expert with respect to any part of this Joint Proxy Statement/Prospectus
within the meaning of the term "expert" as used in the Securities Act or the
rules and regulations of the Commission thereunder.
In arriving at its opinion, Lehman Brothers reviewed and analyzed: (1)
the Merger Agreement and the specific terms of the Merger, (2) such publicly
available information concerning Charter One and ALBANK that it believed to be
relevant to its analysis including, without limitation, the Forms 10-K for the
year ended December 31, 1997, quarterly reports on Form 10-Q for the period
ended March 31, 1998 and recent press releases for Charter One and ALBANK, (3)
financial and operating information with respect to the businesses and
operations of Charter One and ALBANK furnished to it by Charter One and ALBANK,
respectively, (4) trading histories of the common stocks of Charter One and
ALBANK and a comparison of those trading histories with those of other companies
that it deemed relevant, (5) a comparison of the historical financial results
and present financial condition of Charter One and ALBANK with those of other
companies that it deemed relevant, (6) published estimates of third party
research analysts regarding the future financial performances of Charter One and
ALBANK, (7) a comparison of the financial terms of the Merger with the financial
terms of certain other recent transactions that it deemed relevant, (8) the
relative contributions of Charter One and ALBANK on a pro forma basis to the
historical and projected financial condition and operations of the combined
company upon consummation of the Merger, and (9) the potential pro forma impact
of the Merger on Charter One. In addition, Lehman Brothers had discussions with
the managements of Charter One and ALBANK concerning their respective
businesses, operations, assets, liabilities, financial conditions and prospects,
and the potential cost savings, operating synergies, revenue enhancements
(including as a result of the use of excess capital) and other strategic
benefits expected to result from a combination of the business of Charter One
and ALBANK, and undertook such other studies, analyses and investigations as it
deemed appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by it
without assuming any responsibility for independent verification of such
information and further relied upon the assurances of managements of Charter One
and ALBANK that they were not aware of any facts or circumstances that would
make such information inaccurate or misleading. In arriving at its opinion, with
the consent of Charter One, Lehman Brothers was not provided with and did not
have any access to any financial forecasts or projections prepared by the
management of Charter One as to the projected financial performance of Charter
One or any financial forecasts or projections prepared by the management of
ALBANK as to the projected financial performance of ALBANK, and accordingly, in
performing its analysis, based upon advice of Charter One, Lehman Brothers
assumed, based on confirmations from Charter One and ALBANK, respectively, that
the publicly available estimates of research analysts are a reasonable basis
upon which to evaluate and analyze the future financial performance of Charter
One and ALBANK and that Charter One and ALBANK will perform substantially in
accordance with such estimates. With respect to the cost savings, operating
synergies, revenue enhancements (including as a result of the use of excess
capital) and other strategic benefits projected by the management of Charter One
to result from a combination of Charter One and ALBANK, upon advice of Charter
One, Lehman Brothers assumed that such cost savings, operating synergies,
revenue enhancements and other strategic benefits will be achieved substantially
in accordance with such projections. In arriving at its opinion, Lehman Brothers
did not conduct a physical inspection of the properties and facilities of ALBANK
or Charter One and did not make or obtain any evaluations or appraisals of the
assets or liabilities of ALBANK or Charter One. In addition, Lehman Brothers
noted that it is not expert in the evaluation of loan portfolios or allowances
for loan and real estate owned losses and, upon advice of Charter One, it
assumed that the allowances for loan and real estate owned losses provided to it
by Charter One and ALBANK were
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in the aggregate adequate to cover all such losses. Lehman Brothers' opinion
necessarily was based upon market, economic and other conditions as they existed
on, and could be evaluated as of, the date of its opinion.
In connection with the preparation and delivery of its opinion to the
Board of Directors of Charter One, Lehman Brothers performed a variety of
financial and comparative analyses, as described below. The preparation of a
fairness opinion involves various determinations as to the most appropriate and
relevant methods of financial and comparative analysis and the application of
those methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to summary description. Furthermore, in arriving at its
opinion, Lehman Brothers did not attribute any particular weight to any analysis
or factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Lehman
Brothers believes that its analyses must be considered as a whole and that
considering any portion of such analyses and factors, without considering all
analyses and factors, could create a misleading or incomplete view of the
process underlying its opinion. In its analyses, Lehman Brothers made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of Charter
One. Any estimates contained in these analyses were not necessarily indicative
of actual values or predictive of future results or values, which may be
significantly more or less favorable than as set forth therein. In addition,
analyses relating to the value of businesses did not purport to be appraisals or
to reflect the prices at which businesses may actually be sold.
Purchase Price Analysis. Based upon the Exchange Ratio, the closing
price of Charter One's Common Stock on June 12, 1998 of $34.06 represented a
value to be received by holders of ALBANK Common Stock of $73.58 per share.
Based on this implied transaction value per share, Lehman Brothers calculated
the price-to-market, price-to-book, price-to-tangible book, adjusted
price-to-tangible book (wherein price and tangible book value were adjusted to
reflect a tangible common equity to tangible asset ratio of 5.50%) and price to
earnings multiples, and the implied core deposit premium paid, in the Merger.
The implied transaction value per share yielded a premium of 43% over the
closing price of ALBANK Common Stock of $51.50 on June 12, 1998. This analysis
also yielded a price-to-book value multiple of 2.58x, a price-to-tangible book
value multiple of 3.30x, an adjusted price-to-tangible book value multiple of
4.28x, a price-to-estimated 1998 earnings multiple of 24.5x and a
price-to-estimated 1999 earnings multiple of 22.6x (based on median estimates of
ALBANK's 1998 and 1999 earnings published by I/B/E/S as of June 12, 1998), and
an implied core deposit premium of 22%. I/B/E/S is a data service that monitors
and publishes a compilation of earnings estimates produced by selected research
analysts regarding companies of interest to institutional investors.
Comparable Transaction Analysis. Using publicly available information,
Lehman Brothers reviewed certain terms and financial characteristics, including
historical price-to-earnings ratios, the price-to-book ratio, the price-to-
tangible book ratio, the adjusted price-to-tangible book ratio and the core
deposit premium paid at the time of transaction announcement, of six savings
institution "pooling-of-interests" merger or acquisition transactions (the
"Comparable Thrift Transactions Group") with values greater than $500 million
publicly announced since January 1, 1998. The Comparable Thrift Transactions
Group considered by Lehman Brothers in its analysis consisted of the following
transactions (identified by acquiror/acquiree): Roslyn Bancorp Inc./TR Financial
Corp., Astoria Financial/Long Island Bancorp, Washington Mutual/H.F. Ahmanson &
Co., Commercial Federal Corp./First Colorado Bancorp, Inc., Fifth Third
Bancorp/CitFed Bancorp, Inc. and Fifth Third Bancorp/State Savings Co. The
median values for these transactions for the price to latest twelve months
earnings ratio, price to 1998 estimated earnings ratio (based upon estimates
published by I/B/E/S), price-to-book ratio, price-to-tangible book ratio and
adjusted price-to-tangible book ratio were 27.2x, 24.2x, 3.20x, 3.53x and 4.30x,
respectively. The range of values for these parameters were from 22.4x to 33.2x,
20.1x to 30.5x, 2.4lx to 4.03x, 2.46x to 4.03x and 3.58x to 4.80x, respectively.
These compared to transaction multiples of 27.0x, 24.5x, 2.58x, 3.30x and 4.28x
for the Merger based on the closing price of Charter One Common Stock on June
12, 1998. The range of core deposit premiums paid in these transactions was 22%
to 42%, with a median value of 31% compared to an implied core deposit premium
of 22% for the Merger based on the closing price of Charter One Common Stock on
June 12, 1998.
Because the reasons for and circumstances surrounding each of the
transactions analyzed were different and because of the inherent differences in
the businesses, operations, financial conditions and prospects of Charter One,
ALBANK and the companies included in the Comparable Thrift Transactions Group,
Lehman Brothers did not rely on a purely quantitative analysis but also made
certain qualitative judgments concerning the differences between the
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characteristics of these transactions and the Merger which would affect the
acquisition values of the acquired companies and ALBANK.
Comparable Company Analysis. Using publicly available information,
Lehman Brothers compared the financial performance and stock market valuation of
ALBANK with the following selected savings institutions (the "Comparable Thrift
Group"): Anchor Bancorp Wisconsin, Bay View Capital Corp., Commonwealth Bancorp,
Dime Community Bancorp, Downey Financial Corp., JSB Financial, MAF Bancorp,
Queens County Bancorp, Reliance Bancorp, Roslyn Bancorp, St Paul Bancorp and
Webster Financial Corp. Lehman Brothers reviewed the ratio of price to estimated
1998 earnings (17.2x for ALBANK and a median of 18.7x for the Comparable Thrift
Group); the ratio of price-to-book (1.80x for ALBANK and a median of 1.94x for
the Comparable Thrift Group) and the ratio of price-to-tangible book (2.31x for
ALBANK and a median of 2.24x for the Comparable Thrift Group). These ratios for
the Comparable Thrift Group are based on public financial statements as of March
31, 1998, closing stock market prices on June 12, 1998 and the most recent
median earnings per share ("EPS") estimates for 1998 and 1999 earnings published
by I/B/E/S. These ratios for ALBANK are based on public financial statements as
of March 31, 1998, I/B/E/S 1998 and 1999 EPS estimates as of June 12, 1998 and
the closing price for ALBANK Common Stock of $51.50 as of close of business on
June 12, 1998.
Because of the inherent differences in the businesses, operations,
financial conditions and prospects of ALBANK and the companies included in the
Comparable Thrift Group, Lehman Brothers did not rely on a purely quantitative
analysis but also made certain qualitative judgments concerning the differences
between ALBANK and the companies included in the Comparable Thrift Group which
would affect the trading values of the comparable companies and ALBANK.
Discounted Cash Flow Analysis. Lehman Brothers discounted four years of
estimated cash flows of ALBANK and an estimated terminal value of ALBANK Common
Stock, assuming a dividend rate sufficient to maintain a tangible capital ratio
(defined as tangible common equity divided by tangible assets) of 6.00% and
using a range of discount rates from 10% to 13%. Lehman Brothers derived an
estimate of a range of terminal values by applying multiples ranging from 16
times to 20 times estimated year-end 2001 net income assuming I/B/E/S median
estimates for 1998 and 1999 and a growth rate of 10.5% for 2000 and 2001. This
analysis yielded a range of values for ALBANK Common Stock from approximately
$74.24 to $82.63 per share.
Pro Forma Merger Analysis. Lehman Brothers analyzed the impact of the
Merger on Charter One's estimated earnings per share based on the most recent
estimates for the 1998 earnings of Charter One published by I/B/E/S. In
connection with this analysis, management of Charter One provided Lehman
Brothers with projections for cost savings and operational synergies (including
through revenue enhancements and additional asset leverage) from the Merger,
which projections were incorporated in Lehman Brothers' analyses. Based on such
I/B/E/S estimates and management projections of cost savings and operations
synergies, Lehman Brothers concluded that the Merger would result in accretion
of at least 2.1% to Charter One's earnings per share in 1998 assuming such cost
savings and revenue enhancements would have been fully phased in for Charter
One's entire fiscal year. Lehman Brothers noted that on a pro forma basis as of
March 31, 1998, before acquisition adjustments, the Merger would be accretive to
book value per share by approximately 3.2% and would be neutral to tangible book
value per share.
Contribution Analysis. Lehman Brothers analyzed the respective
contributions of ALBANK and Charter One to the combined company's pro forma
balance sheet as of March 31, 1998 and pro forma historic net income for the
first quarter of 1998, without giving effect to any cost savings or operational
synergies resulting from the Merger. This analysis showed that ALBANK would have
contributed 17% of total assets, 18% of total gross loans, 20% of total equity
and 20% of common equity on a pro forma basis as of March 31, 1998 and that
ALBANK's contribution to the combined company's net income, adjusted for
non-recurring items, would have been 13%. Based upon the Exchange Ratio, ALBANK
stockholders would own an estimated 18.3% of the combined company upon
completion of the Merger.
Lehman Brothers is an internationally recognized investment banking
firm. Lehman Brothers, as part of its investment banking business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. The Charter One Board retained
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Lehman Brothers based upon Lehman Brothers' experience and expertise and its
familiarity with Charter One and transactions similar to the Merger. Lehman
Brothers is acting as financial advisor to Charter One in connection with the
Merger. Pursuant to a letter agreement dated June 10, 1998, between Charter One
and Lehman Brothers, Charter One has agreed to pay Lehman Brothers (i) a
retainer of $150,000 paid upon signing of the letter agreement, (ii) a fee of
$700,000 upon delivery of the opinion and the signing of a definitive agreement
and (iii) a fee of $4,250,000 (less any amounts paid to Lehman Brothers under
(i) and (ii)) for its services in connection with the Merger. The letter
agreement with Lehman Brothers also provides that Charter One will reimburse
Lehman Brothers for its out-of-pocket expenses and indemnify Lehman Brothers and
certain related persons and entities against certain liabilities, including
liabilities under securities laws, incurred in connection with its services
thereunder. Lehman Brothers has performed various investment banking services
for Charter One in the past, and has received customary fees for such services.
In the ordinary course of its business, Lehman Brothers and its affiliates
actively trade in the debt and equity securities of Charter One and ALBANK for
their own account and for the accounts of its customers and, accordingly, may at
any time hold a long or short position in such securities. Lehman Brothers has
received no fees from Charter One for investment banking services within the
past two years.
OPINION OF ALBANK'S FINANCIAL ADVISOR
ALBANK retained Merrill Lynch to act as its exclusive financial advisor
in connection with a possible business combination. On June 15, 1998, Merrill
Lynch rendered to the ALBANK Board its written opinion that, as of such date and
based upon and subject to the factors and assumptions set forth therein, the
Exchange Ratio was fair from a financial point of view to the holders of ALBANK
shares. Merrill Lynch reconfirmed its opinion in writing as of the date of this
Joint Proxy Statement/Prospectus (the "Merrill Lynch Opinion").
THE FULL TEXT OF THE MERRILL LYNCH OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED, AND QUALIFICATIONS AND LIMITATIONS ON THE
REVIEW UNDERTAKEN BY MERRILL LYNCH, IS ATTACHED AS ANNEX C TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. THE SUMMARY OF THE
MATERIAL CONSIDERATIONS SET FORTH IN THE MERRILL LYNCH OPINION SET FORTH IN THIS
JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF THE MERRILL LYNCH OPINION. STOCKHOLDERS OF ALBANK ARE URGED TO
READ SUCH OPINION IN ITS ENTIRETY. THE MERRILL LYNCH OPINION WAS PROVIDED TO THE
ALBANK BOARD FOR ITS INFORMATION AND IS DIRECTED ONLY TO THE FAIRNESS FROM A
FINANCIAL POINT OF VIEW OF THE EXCHANGE RATIO TO THE STOCKHOLDERS OF ALBANK,
DOES NOT ADDRESS THE MERITS OF THE UNDERLYING DECISION BY ALBANK TO ENGAGE IN
THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF ALBANK
AS TO HOW SUCH STOCKHOLDER SHOULD VOTE ON THE MERGER AGREEMENT. MERRILL LYNCH
HAS CONSENTED TO THE SUMMARIZATION OF ITS OPINION IN, AND THE ATTACHMENT OF ITS
OPINION TO, THIS JOINT PROXY STATEMENT/PROSPECTUS. MERRILL LYNCH HAS CONSENTED
TO THE USE OF ITS OPINION AND TO THE REFERENCES TO MERRILL LYNCH HEREIN. IN
GIVING SUCH CONSENT, MERRILL LYNCH DOES NOT ADMIT THAT IT COMES 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 AND DOES NOT ADMIT
THAT IT IS AN EXPERT WITH RESPECT TO ANY PART OF THIS JOINT PROXY
STATEMENT/PROSPECTUS WITHIN THE MEANING OF THE TERM "EXPERT" AS USED IN THE
SECURITIES ACT OR THE RULES AND REGULATIONS OF THE COMMISSION THEREUNDER.
The summary set forth below does not purport to be a complete
description of the analyses underlying the Merrill Lynch Opinion. The
preparation of a fairness opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
partial analysis or summary description. In arriving at its opinion, Merrill
Lynch did not attribute any particular weight to any analysis or factor
considered by it, but rather made qualitative judgments as to the significance
and relevance of each analysis and factor. Accordingly, Merrill Lynch believes
that its analyses must be considered as a whole and that selecting portions of
its analyses, without considering all analyses, would create an incomplete view
of the process underlying its opinion.
In performing its analyses, numerous assumptions were made with respect
to industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Merrill
Lynch, ALBANK or Charter One. Any estimates contained in the analyses performed
by Merrill Lynch are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested
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by such analyses. Additionally, estimates of the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
such businesses or securities might actually be sold. Accordingly, such analyses
and estimates are inherently subject to substantial uncertainty. In addition,
the Merrill Lynch Opinion was among several factors taken into consideration by
the ALBANK Board in making its determination to approve the Merger Agreement and
the Merger. Consequently, the Merrill Lynch analyses described below should not
be viewed as determinative of the decision of the ALBANK Board or ALBANK's
management with respect to the fairness of the Exchange Ratio.
In arriving at its opinion, Merrill Lynch, among other things, (i)
reviewed certain publicly available business and financial information relating
to ALBANK and Charter One which Merrill Lynch deemed to be relevant, (ii)
reviewed certain information, including financial forecasts, relating to the
respective businesses, earnings, cash flow, assets, liabilities and prospects of
ALBANK and Charter One furnished to Merrill Lynch by senior managements of
ALBANK and Charter One, as well as the amount and timing of the cost savings,
revenue enhancements and related expenses expected to result from the Merger
(the "Expected Synergies"), (iii) conducted discussions with members of senior
management and representatives of ALBANK and Charter One concerning the matters
described in clauses (i) and (ii) above, as well as their respective businesses
and prospects before and after giving effect to the Merger and the Expected
Synergies, (iv) reviewed the market prices and valuation multiples for the
ALBANK Common Stock and the Charter One Common Stock and compared them with
those of certain publicly traded companies which Merrill Lynch deemed to be
relevant, (v) reviewed the respective financial conditions and results of
operations of ALBANK and Charter One and compared them with those of certain
publicly traded companies which Merrill Lynch deemed to be relevant, (vi)
compared the proposed financial terms of the Merger with the financial terms of
certain other transactions which Merrill Lynch deemed to be relevant, (vii)
participated in certain discussions and negotiations among representatives of
ALBANK and Charter One and their financial and legal advisors, (viii) reviewed
the potential pro forma impact of the Merger, (ix) reviewed a draft of the
Merger Agreement dated June 12, 1998, and (x) reviewed such other financial
studies and analyses and took into account such other matters as Merrill Lynch
deemed necessary, including Merrill Lynch's assessment of general economic,
market and monetary conditions.
In preparing its opinion, Merrill Lynch assumed and relied on the
accuracy and completeness of all information supplied or otherwise made
available to Merrill Lynch, discussed with or reviewed by or for Merrill Lynch,
or publicly available, and Merrill Lynch did not assume any responsibility for
independently verifying such information and Merrill Lynch did not undertake an
independent evaluation or appraisal of any of the assets or liabilities of
ALBANK or Charter One nor was Merrill Lynch furnished with any such evaluation
or appraisal. Merrill Lynch is not an expert in the evaluation of allowances for
loan losses, and Merrill Lynch neither made an independent evaluation of the
adequacy of the allowance for loan losses of ALBANK or Charter One, nor reviewed
any individual credit files relating to ALBANK or Charter One, and, as a result,
Merrill Lynch assumed that the aggregate allowance for loan losses for each of
ALBANK and Charter One is adequate to cover such losses and will be adequate on
a pro forma basis for the combined entity. In addition, Merrill Lynch did not
assume any obligation to conduct, nor did it conduct, any physical inspection of
the properties or facilities of ALBANK or Charter One. With respect to the
financial forecast information and the Expected Synergies furnished to or
discussed with Merrill Lynch by ALBANK or Charter One, Merrill Lynch assumed
that they have been reasonably prepared and reflect the best currently available
estimates and judgment of senior management of ALBANK and Charter One as to the
future financial performance of ALBANK, Charter One or the combined entity, as
the case may be, and the Expected Synergies. Merrill Lynch further assumed that
the Merger will be accounted for as a "pooling-of-interests" under GAAP and that
it will qualify as a tax-free reorganization for U.S. federal income tax
purposes. Merrill Lynch also assumed that the final form of the Merger Agreement
would be substantially similar to the last draft reviewed by Merrill Lynch.
The Merrill Lynch Opinion is necessarily based upon market, economic
and other conditions as they existed on, and could be evaluated on, and on the
information made available to Merrill Lynch as of, the date of such opinion.
Merrill Lynch assumed that in the course of obtaining the necessary regulatory
or other consents or approvals (contractual or otherwise) for the Merger, no
restrictions, including any divestiture requirements or amendments or
modifications, will be imposed that will have a material adverse effect on the
contemplated benefits of the Merger. The Merrill Lynch Opinion is not an
expression of an opinion as to the prices at which ALBANK Common Stock or
Charter One Common Stock will trade following the announcement or consummation
of the Merger.
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The following is a brief summary of the material analyses presented to
the ALBANK Board in connection with the delivery of the Merrill Lynch Opinion.
In preparing these analyses, Merrill Lynch confirmed with ALBANK and Charter One
the reasonableness of publicly available analysts' estimates regarding ALBANK
and Charter One, respectively. No such confirmation was sought or obtained with
respect to the "ALBANK Comparable Companies" (as defined below) or the "Charter
One Comparable Companies" (as defined below).
Discounted Dividend Analysis - ALBANK. Using a discounted dividend
stream analysis, Merrill Lynch estimated the present value of ALBANK's net
income from which dividends can be paid from 1999 through 2003 on a stand-alone
basis. The analysis assumed earnings estimates for ALBANK based on publicly
available analysts' estimates of $3.25 per share for 1999 and $3.58 per share
for 2000 and a long-term annual growth rate of 10% per annum. Merrill Lynch also
assumed an asset growth rate of 5% for ALBANK and that ALBANK's tangible common
equity to tangible asset ratio would be maintained at a minimum 5.50% level.
Based on the closing price of ALBANK Common Stock of $51.50 on June 12, 1998,
2004 terminal multiples of 14.0x, 15.0x and 16.0x and discount rates of 12.00%,
13.50% and 15.00% (chosen to reflect different assumptions regarding required
rates of return of holders or prospective buyers of ALBANK Common Stock), the
discounted dividend stream analysis indicated a reference range of between
$48.87 and $61.06 per share for ALBANK Common Stock. This analysis is not
necessarily indicative of actual values or actual future results and does not
purport to reflect the prices at which any securities may trade at the present
or at any time in the future. Discounted dividend stream analysis is a widely
used valuation methodology, but the results of such methodology are highly
dependent upon the numerous assumptions that must be made, including earnings
growth rates, dividend payout rates, terminal values and discount rates.
Discounted Dividend Stream Analysis - Charter One. Using a discounted
dividend stream analysis, Merrill Lynch estimated the present value of Charter
One's net income from which dividends can be paid from 1999 through 2003 on a
stand-alone basis. The analysis assumed earnings estimates for Charter One based
on publicly available analysts' estimates of $2.37 per share for 1999 and $2.60
per share for 2000 and a long term annual growth rate of 10% per annum. Merrill
Lynch also assumed an asset growth rate of 5% for Charter One and that Charter
One's tangible common equity to tangible asset ratio would be maintained at a
minimum 5.50% level. Based on the closing stock price of Charter One Common
Stock of $34.06 on June 12, 1998, 2004 terminal multiples of 14.0x, 15.0x and
16.0x and discount rates of 12.00%, 13.50% and 15.00% (chosen to reflect
different assumptions regarding required rates of return of holders or
prospective buyers of Charter One Common Stock), the discounted dividend stream
analysis indicated a reference range of between $31.52 and $39.04 per share for
Charter One Common Stock. This analysis is not necessarily indicative of actual
values or actual future results and does not purport to reflect the prices at
which any securities may trade at the present or at any time in the future.
Discounted dividend stream analysis is a widely used valuation methodology, but
the results of such methodology are highly dependent upon the numerous
assumptions that must be made, including earnings growth rates, dividend payout
rates, terminal values and discount rates.
Comparison of Selected Comparable Companies - ALBANK. Merrill Lynch
compared selected operating and stock market results of ALBANK to the publicly
available corresponding data of certain other companies which Merrill Lynch
deemed to be relevant, including UST Corp., Webster Financial Corporation, TR
Financial Corp., Queens County BanCorp, Inc., TrustCo Bank Corp of NY, JSB
Financial, Inc., Banknorth Group, Inc. and Chittenden Corporation (collectively,
the "ALBANK Comparable Companies"). This comparison showed, among other things,
that at or for the last twelve months ended March 31, 1998, (i) ALBANK's
non-performing assets ("NPAs") to assets ratio was 0.72% compared with a mean
for the ALBANK Comparable Companies of 0.56%, (ii) ALBANK's non-performing loans
("NPLs") to loans ratio was 0.88% compared with a mean for the ALBANK Comparable
Companies of 0.73%, (iii) ALBANK's reserves to NPLs ratio was 118.45% compared
with a mean for the ALBANK Comparable Companies of 240.55% and (iv) ALBANK's
reserves to NPAs ratio was 100.46% compared with a mean for the ALBANK
Comparable Companies of 191.04%. The comparison also indicated that for the same
period (i) ALBANK's equity to assets ratio was 8.97% compared with a mean for
the ALBANK Comparable Companies of 9.79%, and (ii) ALBANK's tangible equity to
assets ratio was 7.16% compared with a mean for the ALBANK Comparable Companies
of 9.35%. The comparison also indicated that for the same period, (i) ALBANK's
projected five year EPS growth rate (based on First Call mean consensus
projections) was 11.00% compared with a mean for the ALBANK Comparable Companies
of 11.17%, (ii) ALBANK's net interest margin was 3.95% compared with a mean for
the ALBANK Comparable Companies of 4.19%, (iii) ALBANK's fee income to average
assets ratio was 0.40% compared with a mean for the ALBANK Comparable Companies
of 0.68%, (iv) ALBANK's efficiency ratio (defined as non-interest expenses
divided
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by the sum of non-interest income and net interest income before provision for
loan losses) was 53.30% compared with a mean for the ALBANK Comparable Companies
of 49.72%, (v) ALBANK's return on average assets was 1.16% compared with a mean
for the ALBANK Comparable Companies of 1.31%, and (vi) ALBANK's return on
average equity was 12.79% compared with a mean for the ALBANK Comparable
Companies of 14.99%. The comparison further indicated that as of March 31, 1998
(i) ALBANK's market price per share as a multiple of 1998 estimated EPS, based
on First Call mean consensus projections, was 17.28x compared with a mean and
median for the ALBANK Comparable Companies of 17.17x and 16.66x, respectively,
(ii) ALBANK's market price per share as a multiple of 1999 estimated EPS, based
on First Call mean consensus projections, was 15.85x compared with a mean and
median for the ALBANK Comparable Companies of 15.48x and 15.14x, respectively,
(iii) ALBANK's market price as a multiple of book value was 1.80x compared with
a mean and median for the ALBANK Comparable Companies of 2.60x and 2.52x,
respectively, (iv) ALBANK's market price as a multiple of tangible book value
was 2.31x compared with a mean and median for the ALBANK Comparable Companies of
2.77x and 2.74x, respectively, and (v) ALBANK's dividend yield per share was
1.59% compared with a mean for the ALBANK Comparable Companies of 2.21%.
No company in the ALBANK Comparable Companies is identical to ALBANK.
Accordingly, an analysis of the results of the foregoing necessarily involves
complex considerations and judgments concerning differences in financial and
operating characteristics of companies and other factors that could affect the
public trading value of ALBANK and the companies in the ALBANK Comparable
Companies.
Comparison of Selected Comparable Companies - Charter One. Merrill Lynch
compared selected operating and stock market results of Charter One to the
publicly available corresponding data of certain other companies which Merrill
Lynch deemed to be relevant, including Astoria Financial Corporation, People's
Bank, Dime Bancorp, Inc., GreenPoint Financial Corp., Peoples Heritage Financial
Group, Inc., Sovereign Bancorp, Inc., Webster Financial Corporation, Commercial
Federal Corporation and TCF Financial Corporation (collectively, the "Charter
One Comparable Companies"). This comparison showed, among other things, that at
or for the last twelve months ended March 31, 1998, (i) Charter One's NPAs to
assets ratio was 0.32% compared with a mean for the Charter One Comparable
Companies of 0.92%, (ii) Charter One's NPLs to loans ratio was 0.36% compared
with a mean for the Charter One Comparable Companies of 1.24%, (iii) Charter
One's reserves to NPLs ratio was 242.54% compared with a mean for the Charter
One Comparable Companies of 129.64% and (iv) Charter One's reserves to NPAs
ratio was 181.51% compared with a mean for the Charter One Comparable Companies
of 104.62%. The comparison also indicated that for the same period (i) Charter
One's equity to assets ratio was 7.37% compared with a mean for the Charter One
Comparable Companies of 7.29%, and (ii) Charter One's tangible equity to assets
ratio was 6.94% compared with a mean for the Charter One Comparable Companies of
6.08%. The comparison also indicated that for the same period, (i) Charter One's
projected five year EPS growth rate (based on First Call mean consensus
projections) was 13.00% compared with a mean for the Charter One Comparable
Companies of 12.89%, (ii) Charter One's net interest margin was 2.98% compared
with a mean for the Charter One Comparable Companies of 3.41%, (iii) Charter
One's fee income to average assets ratio was 0.72% compared with a mean for the
Charter One Comparable Companies of 0.98%, (iv) Charter One's efficiency ratio
(defined as non-interest expenses divided by the sum of non-interest income and
net interest income before provision for loan losses) was 44.74% compared with a
mean for the Charter One Comparable Companies of 54.30%, (v) Charter One's
return on average assets was 1.23% compared with a mean for the Charter One
Comparable Companies of 0.97%, and (vi) Charter One's return on average equity
was 17.28% compared with a mean for the Charter One Comparable Companies of
12.83%. The comparison further indicated that as of March 31, 1998 (i) Charter
One's market price per share as a multiple of 1998 estimated EPS, based on First
Call mean consensus projections, was 16.18x compared with a mean and median for
the Charter One Comparable Companies of 16.82x and 16.10x, respectively, (ii)
Charter One's market price per share as a multiple of 1999 estimated EPS, based
on First Call mean consensus projections, was 14.40x compared with a mean and
median for the Charter One Comparable Companies of 14.82x and 14.12x,
respectively, (iii) Charter One's market price as a multiple of book value was
3.05x compared with a mean and median for the Charter One Comparable Companies
of 2.46x and 2.59x, respectively, (iv) Charter One's market price as a multiple
of tangible book value was 3.25x compared with a mean and median for the Charter
One Comparable Companies of 3.16x and 3.18x, respectively, and (v) Charter One's
dividend yield per share was 1.62% compared with a mean for the Charter One
Comparable Companies of 1.50%.
No company in the Charter One Comparable Companies is identical to
Charter One. Accordingly, an analysis of the results of the foregoing
necessarily involves complex considerations and judgments concerning differences
in
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financial and operating characteristics of companies and other factors that
could affect the public trading value of ALBANK and the companies in the Charter
One Comparable Companies.
Analysis of Selected Comparable Transactions. Merrill Lynch reviewed the
financial terms, based on publicly available information, of thirteen selected
transactions in the thrift industry with total transaction values ranging from
$500 million to $2 billion that were announced since January 1, 1997. Merrill
Lynch reviewed the transaction multiples in the selected comparable transactions
compared with the transaction multiples in the Merger. The mean and median of
the offer values as multiples of fully diluted book value of the targets in the
selected comparable transactions were 2.74x and 2.41x, respectively, compared to
2.79x in the Merger (based on the implied price for each share of ALBANK Common
Stock in the Merger of $73.58). The mean and median of the offer values as
multiples of fully diluted tangible book value of the targets in the selected
comparable transactions were 2.82x and 2.57x, respectively, compared to 3.57x in
the Merger (based on the implied price for each share of ALBANK Common Stock in
the Merger of $73.58). The analysis also indicated that the mean and median
market premiums, based on the offer values in the selected comparable
transactions, were 18% and 14%, respectively, compared to the market premium in
the Merger of 43% (based on the implied price for each share of ALBANK Common
Stock in the Merger of $73.58 and ALBANK's closing trading price as of June 12,
1998 of $51.50). The analysis further indicated that the mean and median
premiums to thirty-day market prices of the sellers' common stock in the
selected comparable transactions, based on the offer values in the selected
comparable transactions, were 25% and 23%, respectively, compared to premium to
thirty-day market price of ALBANK Common Stock in the Merger of 41% (based on
the implied price for each share of ALBANK Common Stock in the Merger of $73.58
and ALBANK's thirty-day average closing trading prices prior to June 12, 1998 of
$52.05).
Merrill Lynch also compared the financial data of the sellers in the
selected comparable transactions to the financial data of ALBANK. The analysis
indicated that the mean and median of the equity to asset ratios of the sellers
in the selected comparable transactions were 8.25% and 7.85%, respectively,
compared to the equity to assets ratio of ALBANK of 8.97%. The mean and median
of the tangible equity to asset ratios of the sellers in the selected comparable
transactions were 8.05% and 7.66%, respectively, compared to the tangible equity
to assets ratio of ALBANK of 7.16%. The analysis also indicated that the mean
and median return on average assets of the sellers in the selected comparable
transactions were 0.98% and 0.96%, respectively, compared to ALBANK's return on
average assets of 1.16%. The mean and median return on average equity of the
sellers in the selected comparable transactions were 12.98% and 11.43%,
respectively, compared to ALBANK's return on average equity of 12.79%.
None of the selected thrift deals reviewed was identical to the Merger
and, accordingly, an analysis of the foregoing necessarily involves complex
considerations and judgments concerning differences in financial and operational
characteristics of the companies involved in the selected thrift deals and other
factors that could affect the acquisition values and the transaction multiples
in the selected thrift deals compared to the Merger.
Pro Forma Financial Impact. Based on projections provided by ALBANK and
Charter One, Merrill Lynch analyzed the pro forma financial per share impact of
the Merger on a variety of measures including, among other things, the EPS
during calendar years 1999 and 2000, the book value per share and the tangible
book value per share of ALBANK. Merrill Lynch assumed that the combined
companies would realize projected synergies in the amounts and within the time
periods estimated by ALBANK's and Charter One's management. Based on First Call
consensus estimates and assuming Charter One management's estimates of total
pre-tax cost savings of $16.5 million in 1999 and $33 million in 2000, plus
incremental pre-tax income of approximately $30 million from revenue
enhancements and leveraging of excess capital, the analysis indicated that the
Merger would result in estimated pro forma EPS accretion of 0.74% in 1999 and
estimated pro forma EPS accretion of 1.09% in 2000 (assuming no one-time,
merger-related charges). The pro forma analysis also indicated that the Merger
would result in book value per share dilution of 2.30% and tangible book value
per share dilution of 5.31%.
Transaction Pricing Multiples. Merrill Lynch analyzed the Merger
Consideration as a multiple of (i) ALBANK's market value, (ii) net income for
the last twelve months ("LTM"), (iii) estimated net income for 1998 and (iv)
estimated net income for 1999. Based on the closing price of ALBANK Common Stock
on June 12, 1998 of $51.50 and the closing price of Charter One Common Stock on
June 12, 1998 of $34.06 and the Exchange Ratio of 2.16 (prior to giving effect
to the Charter One Stock Dividend), the Merger Consideration as a multiple of
ALBANK's market value was 1.43x. The Merger Consideration as a multiple of
ALBANK's LTM net income, based on ALBANK's LTM net income
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for the period ended March 31, 1998, was 26.85x. Based on First Call mean
consensus estimates, the Merger Consideration as a multiple of ALBANK's
estimated net income for 1998 and ALBANK's estimated net income for 1999 were
24.69x and 22.64x, respectively.
Peer Group Stock Return Analysis. Merrill Lynch analyzed growth rates of
the stock prices, based on publicly available information, of certain companies
which Merrill Lynch deemed to be relevant, including, Astoria Financial
Corporation, Bank United Corp., Dime Bancorp, Inc., GreenPoint Financial Corp.,
Peoples Heritage Financial Group, Inc., Sovereign Bancorp, Inc. and Webster
Financial Corporation (collectively, "the Charter One Peer Group") as compared
to the growth rate of the stock price of Charter One, assuming reinvestment of
dividends in stock. The mean and median of the six-month growth rates for the
Charter One Peer Group were 23.31% and 19.26%, respectively, compared to 30.11%
for Charter One. The mean and median of the one-year growth rates for the
Charter One Peer Group were 47.83% and 47.05%, respectively, compared to 59.20%
for Charter One. The mean and median of the three-year growth rates for the
Charter One Peer Group were 48.05% and 47.23%, respectively, compared to 49.21%
for Charter One. The mean and median of the five-year growth rates for the
Charter One Peer Group were 36.70% and 36.18%, respectively, compared to 38.64%
for Charter One.
Pursuant to a letter agreement dated May 7, 1998 between ALBANK and
Merrill Lynch, ALBANK agreed to pay Merrill Lynch (i) a fee of $100,000 payable
in cash upon the execution of the letter agreement, (ii) a fee of $500,000
contingent upon and payable in cash upon the execution of the Merger Agreement
and (iii) an additional fee of $4,400,000 upon consummation of a business
combination with a purchaser (A) which Merrill Lynch identified, (B) as to which
Merrill Lynch advised ALBANK or (C) with which ALBANK and Merrill Lynch had
discussions regarding a business combination if, during the period that Merrill
Lynch is retained by ALBANK or within one year thereafter, such business
combination is consummated or ALBANK enters into an agreement with any such
purchaser for a business combination that is ultimately consummated.
Additionally, ALBANK agreed to reimburse Merrill Lynch for certain out-of-pocket
expenses incurred in connection with Merrill Lynch's activities under the letter
agreement. ALBANK has also agreed to indemnify Merrill Lynch and certain related
persons for certain liabilities related to or arising out of its engagement.
ALBANK retained Merrill Lynch based upon Merrill Lynch's experience and
expertise. Merrill Lynch is an internationally recognized investment banking and
advisory firm. Merrill Lynch, as part of its investment banking business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes.
Merrill Lynch has in the past two years provided financial advisory,
investment banking and other services to ALBANK and Charter One and received
customary fees for the rendering of such services, and has provided financing to
certain members of senior management of ALBANK in connection with their exercise
of options to purchase ALBANK Common Stock. ALBANK has paid Merrill Lynch
approximately $1.1 million for such services (excluding any fees paid in
connection with the Merger). In addition, in the ordinary course of its
securities business, Merrill Lynch and its affiliates may actively trade debt
and equity securities of ALBANK and Charter One and their respective affiliates
for their own account and the accounts of their customers and, accordingly, may
from time to time hold a long or short position in such securities.
MERGER CONSIDERATION
The Merger Agreement provides that at the Effective Time all of the
shares of ALBANK Common Stock (other than Excluded Shares) issued and
outstanding immediately prior to the Effective Time, will be converted into 2.16
(adjusted to 2.268 as a result of the Charter One Stock Dividend) shares of
Charter One Common Stock (subject to possible adjustment as described in "--
Amendment; Termination; Liabilities and Remedies for Breach"), including the
right to receive a corresponding number of rights associated with Charter One
Common Stock pursuant to the Rights Agreement. For a discussion of the Rights
Agreement, see "COMPARISON OF RIGHTS OF STOCKHOLDERS OF CHARTER ONE FINANCIAL,
INC. AND ALBANK FINANCIAL CORPORATION -- Rights Agreement." The Merger Agreement
also provides that if Charter One changes (or establishes a record date for
changing) the number of shares of Charter One Common Stock issued and
outstanding prior to the Effective Date as a result of a stock split,
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stock dividend, recapitalization or similar transaction with respect to the
outstanding Charter One Common Stock, the Exchange Ratio will be proportionately
adjusted.
The Exchange Ratio has been fixed at 2.268 (which reflects the Charter
One Stock Dividend)(subject to possible adjustment). Based on the last reported
sale price for Charter One Common Stock on the Nasdaq National Market on
September 28, 1998 ($26.50 per share), the value of 2.268 (which reflects the
Charter One Stock Dividend) shares of Charter One Common Stock as of that date
would have been approximately $60.102. The last reported sale price for ALBANK
Common Stock on the Nasdaq National Market on that date was $57.625 per share.
The maximum number of shares of Charter One Common Stock (assuming all options
for ALBANK Common Stock are exercised before the Merger) which may be issued in
connection with the Merger is approximately 33 million (which reflects the
Charter One Stock Dividend), which would result in the existing ALBANK
shareholders holding ____% of the merged entity on a fully diluted basis
(assuming approximately ___________ shares of Charter One Common Stock are
issued pursuant to the CSFC Merger). For a discussion of the CSFC Merger, see
"RECENT DEVELOPMENTS." The market value of Charter One Common Stock to be
received in the Merger, however, is subject to fluctuation. Fluctuations in the
market price of Charter One Common Stock would result in an increase or
decrease in the value of the Merger Consideration to be received by ALBANK
stockholders in the Merger. An increase in the market value of Charter One
Common Stock would increase the market value of the Merger Consideration to be
paid in the Merger. A decrease in the market value of Charter One Common Stock
would have the opposite effect. The market value of the Merger Consideration at
the time of the Merger will depend upon the market value of a share of Charter
One Common Stock at such time. The Merger Consideration was determined through
arm's-length negotiations between Charter One and ALBANK, each of whom was
advised during such negotiations by its respective financial advisor. See "--
Background of and Reasons for the Merger."
Under certain circumstances, the Charter One Board may determine to
increase the Exchange Ratio in the event of a substantial decline in the trading
price of Charter One Common Stock relative to the trading prices of the common
stock of a group of peer institutions. See "-- Amendment; Termination;
Liabilities and Remedies for Breach."
Charter One may, at any time prior to the Effective Time with the prior
consent of ALBANK (which consent may not be unreasonably withheld or delayed),
change the method of effecting the Merger or any related transactions, provided
that no such change will (i) alter or change the amount or kind of the Merger
Consideration, (ii) adversely affect the tax treatment of the holders of ALBANK
Common Stock as a result of receiving the Merger Consideration or the Merger
qualifying for "pooling-of-interests" accounting treatment, (iii) materially
impede or delay consummation of the Merger, (iv) result in any representation or
warranty of any party set forth in the Merger Agreement becoming incorrect in
any material respect, or (v) diminish the benefits to be received by the
directors, officers or employees of ALBANK and its subsidiaries as set forth in
the Merger Agreement or in any other agreements between the parties in
connection with the Merger Agreement. See "-- Interests of Certain Persons in
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 that
immediately prior to the Effective Time represented outstanding ALBANK Common
Stock (the "ALBANK Certificates"). Each stockholder of ALBANK who would be
entitled to a fractional share interest 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 by the Nasdaq
National Market (in The Wall Street Journal or if not reported therein, in
another authoritative source) on the trading day immediately preceding the
Effective Date by (ii) the fractional share interest to which the holder would
otherwise be entitled pursuant to the terms of the Merger Agreement.
TREATMENT OF ALBANK STOCK OPTIONS
At the ALBANK Record Date, there were ALBANK Stock Options outstanding
with respect to 1,146,876 shares of ALBANK Common Stock under the ALBANK Option
Plans. At the Effective Time, each ALBANK Stock Option outstanding under the
ALBANK Stock Option Plans as of the date of the Merger Agreement (or required to
be granted to non-employee directors on December 28, 1998, if and only if the
Effective Time has not occurred prior to such date) and remaining outstanding
immediately prior to the Effective Time shall be assumed by Charter One and
shall continue
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to be outstanding, but shall represent an option to purchase shares of Charter
One Common Stock. The number of shares of Charter One Common Stock subject to
such continuing option shall be equal to the number of shares of ALBANK Common
Stock subject to the ALBANK Stock Option multiplied by the Exchange Ratio, with
fractional shares rounded down to the nearest share. The exercise price per
share of such converted option shall be equal to the exercise price of the
ALBANK 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 ALBANK
Stock Option (with service on the Advisory Board and the Charter One Board
treated as continuing service under the ALBANK Stock Option Plans). In addition,
all limited stock appreciation rights outstanding as of the date of the Merger
Agreement shall be canceled and the corresponding options will be converted into
rights to acquire Charter One Common Stock based on the conversion methodology
described above for other outstanding options.
EFFECTIVE TIME
The Effective Date will be the fifth business day after the last of the
conditions to consummation of the Merger to be satisfied prior the Effective
Date has been satisfied or waived (or, at the election of Charter One, on the
last business day of the month in which the fifth business day occurs), or on
such other date to which the parties may agree, unless the Merger Agreement has
been terminated. On the Effective Date, certificates of merger relating to the
Merger will be filed with the Secretary of State of Delaware and the Michigan
Department of Commerce. The Merger will become effective (i.e., the Effective
Time) upon the filing of the certificates of merger with the Secretary of State
of Delaware and the Michigan Department of Commerce or at such other time as may
be set forth in such certificates.
EXCHANGE OF CERTIFICATES
As promptly as practicable after the Effective Date, Charter One or the
Exchange Agent will send to each ALBANK holder of record of ALBANK Certificates
transmittal materials to be used in exchanging such ALBANK Certificates for the
Merger Consideration. Charter One shall cause (i) certificates representing the
number of shares of Charter One Common Stock into which a stockholder's shares
of ALBANK Common Stock were converted on the Effective Date, and (ii) a check
representing the amount of cash in lieu of a fractional share interest, if any,
which such stockholder has the right to receive in respect of the ALBANK
Certificates surrendered in connection with the Merger to be delivered to such
stockholder upon delivery to the Exchange Agent of ALBANK Certificates
representing such shares of ALBANK Common Stock (or indemnity reasonably
satisfactory to Charter One and the Exchange Agent if any of such ALBANK
Certificates are lost, stolen or destroyed). No interest will be paid or accrued
on the cash in lieu of fractional share interests payable to holders of ALBANK
Common Stock. ALBANK CERTIFICATES REPRESENTING SHARES OF ALBANK COMMON STOCK
SHOULD NOT BE FORWARDED TO THE EXCHANGE AGENT UNTIL AFTER RECEIPT OF THE
TRANSMITTAL MATERIALS AND SHOULD NOT BE RETURNED WITH THE ENCLOSED PROXY CARD.
Holders of ALBANK Certificates who do not surrender and exchange such
certificates will not be entitled to receive dividends or any other
distributions with respect to Charter One Common Stock with a record date
occurring after the Effective Time until the ALBANK Certificates are so
surrendered. Following surrender of such ALBANK 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).
After the Effective Time, there will be no further transfers on the
stock transfer books of ALBANK or Charter- Michigan, as the surviving
corporation, of the ALBANK Certificates.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of ALBANK's management and the ALBANK Board have certain
interests in the Merger in addition to their interest as stockholders of ALBANK
generally. The ALBANK Board was aware of these interests and considered them in
approving and adopting the Merger Agreement and the transactions contemplated
thereby. Set forth below are descriptions of the interests of directors and
executive officers of ALBANK in the Merger in addition to their interests as
stockholders of ALBANK.
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Post-Merger Directors. At the Effective Time, Charter One has agreed to
take the necessary action to appoint Herbert G. Chorbajian as a director of
Charter One to serve for a term ending April 1999 with the expectation that Mr.
Chorbajian will be included in the Charter One slate of directors to be
nominated for a new term in April 1999. Charter One will also appoint Mr.
Chorbajian Vice Chairman of the Charter One Board. At the Effective Time,
Charter One will also take the necessary action to appoint Karen R. Hitchcock,
an ALBANK director, to the Charter One Board for a term expiring in April 2000.
Within twelve months of the Effective Date, subject to OTS approval (if
required), Charter One will cause John J. Nigro, an ALBANK director, to be
elected to the Charter One Board. See "MANAGEMENT AND OPERATIONS AFTER THE
MERGER -- Directors After the Merger."
Advisory Board. Charter One has also agreed to take all necessary action
at the Effective Time to establish an Albany, New York Advisory Board to advise
Charter One with respect to the geographic areas in which ALBANK, FSB and ALBANK
Commercial operate. Each member of the ALBANK Board other than Mr. Chorbajian
and Ms. Hitchcock will be offered the opportunity to become a member of the
Advisory Board for a five-year term and to receive an annual retainer of $38,000
during his or her term of service. In addition, Richard J. Heller, Executive
Vice President and Chief Financial Officer of ALBANK, and Freling H. Smith,
Senior Vice President and General Counsel of ALBANK, will also be offered an
opportunity to serve on the Advisory Board for a three-year term and a one-year
term, respectively, and to receive the same annual retainer. Service of Mr.
Heller or Mr. Smith on the Advisory Board will cease and terminate if his
employment is voluntarily terminated with Charter One or Charter One Bank with
or without good reason within six months after the Effective Time or if he
engages or becomes employed in the financial services industry while a member of
the Advisory Board. Any person serving on the Advisory Board who subsequently
becomes a director of Charter One or any of its subsidiaries will cease to be a
member of the Advisory Board on the date that he or she commences service as a
director.
Employment Agreements. At the Effective Time, Charter One or Charter One
Bank and Mr. Chorbajian will enter into an employment agreement commencing on
the Effective Date and terminating on September 30, 2003. Mr. Chorbajian will
aid Charter One in integrating operations, assuring customer retention and
customer development, facilitating long term strategic planning in the State of
New York and otherwise enhancing the acquired franchise. Mr. Chorbajian will
receive a salary of approximately $442,100 per year and such benefits as Charter
One or Charter One Bank provide to its similarly situated executive officers
during the term of the agreement. In addition, Charter One or Charter One Bank
will maintain a $2.5 million life insurance policy for Mr. Chorbajian's benefit
during the term of the agreement (including making gross up payments to Mr.
Chorbajian with respect to his tax liabilities relating to such benefit) and
provide supplemental disability retirement benefits and certain additional
fringe benefits. During his employment, Mr. Chorbajian will also be entitled to
receive annual stock option grants, at an exercise price per share equal to the
fair market value of Charter One Common Stock on the date of grant, on the same
basis and on the same terms as similarly situated executives of Charter One and
Charter One Bank, which will vest 100% on the third anniversary of their date of
grant. Mr. Chorbajian's first annual option grant will be for approximately
86,000 option shares consistent with the current practice of Charter One for
similarly situated executives. If Charter One or Charter One Bank terminates the
employment of Mr. Chorbajian without cause prior to September 30, 2003, he will
be entitled to receive a lump sum in cash equal to the remaining amount of
annual compensation that would otherwise be payable during his stated employment
term and to continue receiving any other benefits (excluding stock option
grants) provided to him under the employment agreement until September 30, 2003.
If Mr. Chorbajian's employment terminates prior to September 30, 2003 due to his
death or disability, he (or his beneficiaries) will be entitled to receive 25%
(in the case of death) or 75% (in the case of disability) of such lump sum
amount upon termination. Under the agreement, Mr. Chorbajian has also agreed
that, during his employment and for six months after his termination for any
reason, he will not accept employment with, or render services to, any
depository institution in the Albany metropolitan area or solicit (x) any
employees of Charter One or its affiliates to accept employment with another
depository institution or (y) customers of Charter One or its affiliates to
purchase products or services then sold by Charter One or its affiliates from
another entity. Mr. Chorbajian has also agreed to keep confidential certain
information regarding the business of Charter One.
As a consequence of the Merger, Mr. Chorbajian will be experiencing a
constructive termination of employment by virtue of his drastically diminished
duties and significantly reduced total compensation. Accordingly, Charter One
will pay to him at the Effective Time, or at the request of Charter One, ALBANK
will make such payment prior to the Effective Time, approximately $2.25 million,
representing severance entitlements under his existing employment
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agreements. At the Effective Time, Mr. Chorbajian will release ALBANK and
ALBANK, FSB and their successors in interest from any claims under his
employment agreement with each of them, dated April 1, 1992; such release will
not apply to the payment described in the preceding sentence if it has not yet
been paid.
Charter One Bank and Charter One will assume the employment agreements
of Clifford M. Apgar, Executive Vice President, Barry G. Blenis, Executive Vice
President, Frank J. Vaselewski, Senior Vice President, and Messrs. Heller and
Smith with ALBANK, FSB, and, in the case of Messrs. Blenis, Heller and Smith
with ALBANK, respectively, each dated April 1, 1992. At the Effective Time, each
such employment agreement will be amended to provide that if the executive is
involuntarily terminated by Charter One Bank or Charter One without cause (as
defined in the agreement) or the executive terminates for good reason (as
defined in the agreement) (other than a termination for good reason by the
executive during the period commencing on the Effective Date and terminating six
months thereafter, if the executive had been specifically requested by Charter
One Bank or Charter One in writing to remain employed during such period) prior
to the third anniversary of the Effective Date, then the terminated executive
will be entitled to receive (in lieu of certain severance benefits to which he
would otherwise have been entitled under his employment agreement) an amount in
cash equal to 2.99 times the aggregate of (x) his 1998 annual base salary and
(y) his 1998 target bonus and to continue to receive the benefits of Charter One
or Charter One Bank to which he would have been entitled under his employment
agreement for up to three years after the date of such termination, subject to
(i) certain so-called "golden parachute" excise tax limitations and (ii) the
execution by the executive of a general release of claims arising from his
employment agreement and employment relationship, subject to certain
limitations. In the event all of Messrs. Apgar, Blenis, Heller, Smith and
Vaselewski were to be terminated by Charter One or Charter One Bank without
cause or were to terminate their employment for good reason prior to the third
anniversary of the Effective Date, the aggregate lump sum severance payments
payable to the executives by Charter One or Charter One Bank under the amendment
to their employment agreements would be up to approximately $3.78 million,
subject to reductions in connection with the "golden parachute" excise tax
limitations referred to above.
Stock Option Plans. The directors and executive officers of ALBANK hold,
as of the ALBANK Record Date, in the aggregate, ALBANK Stock Options to purchase
546,619 shares of ALBANK Common Stock, granted under the ALBANK Option Plans.
Upon consummation of the Merger, pursuant to their terms, such options will
become fully and immediately exercisable, and, pursuant to the Merger Agreement,
such options will be converted into options to purchase Charter One Common
Stock. See "THE MERGER -- Treatment of ALBANK Stock Options."
Indemnification; Insurance. Pursuant to the Merger Agreement, Charter
One has agreed that, for a period of six years following the Effective Date,
Charter One will indemnify, defend and hold harmless the present and former
directors, officers and employees of ALBANK and its subsidiaries to the fullest
extent that ALBANK is permitted to indemnify (and advance expenses to) its
directors and officers under the laws of the State of Delaware, the ALBANK
certificate of incorporation (the "ALBANK Certificate of Incorporation") and the
ALBANK bylaws (the "ALBANK Bylaws") as in effect on the date of the Merger
Agreement. Charter One has also agreed, for a period of three years following
the Effective Date, to use its best efforts to provide that portion of
director's and officer's liability insurance that serves to reimburse the
present and former officers and directors of ALBANK or any of its subsidiaries
with respect to claims arising from facts or events occurring prior to the
Effective Time, which insurance will contain at least the same coverage and
amounts, and contain terms and conditions no less advantageous, as the coverage
currently provided by ALBANK, provided, that in no event will Charter One be
required to expend in the aggregate during the coverage period more than 300% of
the current annual amount expended by ALBANK for such insurance coverage (the
"Insurance Amount") and provided that if Charter One is unable to maintain or
obtain such insurance, it must use its reasonable best efforts to obtain as much
comparable insurance as is available for the Insurance Amount.
Retirement Plan of ALBANK, FSB. Under the Merger Agreement, the
Retirement Plan of ALBANK, FSB will be terminated and any surplus assets will be
used to increase benefits to participants (including Messrs. Chorbajian, Apgar,
Blenis, Heller, Smith and Vaselewski) in a manner consistent with the
requirements of the Code.
Other Plans. In addition to the foregoing, ALBANK has the following
other plans that benefit executive officers and directors and that will be
affected by the Merger:
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a. Basic Contributions Match Agreement. Pursuant to a written
agreement, ALBANK, FSB made certain contributions to a deferred
compensation account for the benefit of Mr. Chorbajian during a 60
month period ended June 1989. Immediately prior to the Effective Time,
ALBANK, FSB and Mr. Chorbajian will enter into an agreement providing
for the lump sum payment of this account to Mr. Chorbajian as of the
Effective Time or as soon thereafter as practicable.
b. Supplemental Employment Retirement Plan. ALBANK, ALBANK,
FSB and Mr. Chorbajian entered into a Supplemental Employment
Retirement Plan ("SERP") on May 8, 1996, in replacement of a similar
agreement dated June 17, 1985. The SERP will be honored by Charter One
and Mr. Chorbajian's service with Charter One or Charter One Bank will
count for vesting purposes under the SERP.
c. Life Insurance Contract. At the Effective Time, Charter One
or Charter One Bank will assume the life insurance contract between
ALBANK, FSB and Mr. Chorbajian, as evidenced by a written agreement
dated June 17, 1985.
d. ALBANK, FSB Directors Retirement Plan. The ALBANK, FSB
Directors Retirement Plan will be assumed by Charter One Bank at the
Effective Time. Current ALBANK, FSB directors, subject to their written
consent, will be paid their benefits in a single lump sum present value
payment.
e. ALBANK, FSB Deferred Compensation Plan for Directors. At
the Effective Time, the ALBANK, FSB Deferred Compensation Plan for
Directors will be assumed by Charter One Bank.
f. ALBANK, FSB Retirement Restoration Plan. The ALBANK, FSB
Retirement Restoration Plan will be terminated as of the later of
October 1, 1998 and the Effective Date and accrued benefits thereunder
will be paid in a lump sum payment as soon as practicable thereafter to
each participant therein, including Messrs.
Chorbajian, Apgar, Blenis, Heller, Smith and Vaselewski.
g. ALBANK, FSB Supplemental Deferred Compensation Plan. As
soon as practicable after the later of the Effective Time and December
31, 1998, the ALBANK, FSB Supplemental Deferred Compensation Plan will
be terminated and distributions will be made in a lump sum payment to
each participant therein, including Messrs. Chorbajian, Apgar, Blenis,
Heller, Smith and Vaselewski.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains representations and warranties of ALBANK
and Charter One as to, among other things: (i) the corporate organization and
existence of each party (including the due organization, valid existence and
good standing of each where organized and the due qualification to do business
and good standing of each in each jurisdiction where its ownership or leasing of
property or assets or the conduct of its business requires it to be so
qualified); (ii) the capitalization of each party (including the number of
shares of capital stock authorized, the number of shares and rights to acquire
shares outstanding and the number of shares reserved for issuance) and, in the
case of Charter One, the due authorization, valid issuance and fully paid and
nonassessable status of and lack of preemptive status with respect to the shares
of Charter One Common Stock to be issued in the Merger in accordance with the
Merger Agreement; (iii) ownership of all outstanding shares of capital stock by
each party of its subsidiaries (as defined in the Merger Agreement) and the due
organization, valid existence and good standing of such subsidiaries where
organized and the due qualification and good standing of each subsidiary in each
jurisdiction where its ownership or leasing of properties or the conduct of its
business requires it to be so qualified; (iv) the corporate power and authority
to carry on its business as it is now being conducted and to own all its
properties and assets, and the corporate power and authority of each party to
execute, deliver and perform its obligations under the Merger Agreement and the
Stock Option Agreement and to consummate the transactions contemplated thereby;
(v) subject to the requisite approval by stockholders of each party, the due
authorization of the Merger Agreement and the Stock Option Agreement and the
transactions contemplated thereby and the validity and legally binding status of
the Merger Agreement; (vi) absence of any required governmental and third-party
approvals other than those specified in the Merger Agreement and, subject to
receipt of such regulatory approvals and the expiration of related waiting
period whether the execution, delivery and
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<PAGE> 62
performance of the Merger Agreement and the Stock Option Agreement and the
consummation of the transactions contemplated thereby will constitute a breach,
violation or default under, give rise to any lien, acceleration or right of
termination or require any consent or approval under any law, rule or
regulation, any judgment, decree, order, governmental permit or license, or
material agreement, indenture or instrument of either party or the certificate
of incorporation or bylaws of either party; (vii) each party's financial
statements and filings with the Commission (including the fair presentation of
the financial condition and results of operations thereof and compliance with
GAAP); (viii) the absence of certain changes in each party's business since
December 31, 1997; (ix) the absence of material legal proceedings and
injunctions; (x) agreements between each party and regulatory agencies; (xi)
each party's compliance with applicable law; (xii) in the case of ALBANK, the
absence of material defaults under certain contracts; (xiii) broker fees with
respect to the Merger; (xiv) each party's employee benefit plans and related
matters (including operation and administration of such plans in accordance with
applicable law); (xv) in the case of ALBANK, the absence of any labor agreement
or any proceeding regarding unfair labor practices; (xvi) in the case of ALBANK,
the inapplicability to the Merger of the Delaware takeover law or Article Eighth
of the ALBANK Certificate; (xvii) in the case of Charter One, the
inapplicability to the Merger of the Delaware takeover law; (xviii) the absence
of environmental liabilities; (xix) the filing and accuracy of each party's tax
returns; (xx) in the case of ALBANK, the use of risk management instruments such
as swaps and options; (xxi) the maintenance of books and records of each party;
(xxii) insurance; (xxiii) qualification of the Merger for "pooling-of-interests"
accounting treatment; (xxiv) each party's "Year 2000" risk management plan and
material compliance with regulatory requirements with respect thereto; (xxv) the
absence of any pending or threatened reviews by governmental authorities other
than normal regulatory examinations; (xxvi) in the case of ALBANK, the receipt
of a fairness opinion from Merrill Lynch; (xxvii) in the case of Charter One,
the receipt of a fairness opinion from Lehman Brothers; (xxviii) in the case of
ALBANK, compliance with applicable requirements and laws with respect to the
servicing and administration of loans; and (xxix) the absence of untrue
statements of material facts or omissions of material facts. For detailed
information on such representations and warranties, see the Merger Agreement
included at Annex A and incorporated herein by reference.
CONDITIONS TO THE MERGER
Conditions to the Obligations of the Parties. The obligations of
Charter One, ALBANK and their respective subsidiaries to consummate the Merger
are subject to the following conditions precedent (except as to those which
Charter One and ALBANK may choose to waive in writing): (i) no governmental
authority of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, judgment, decree, injunction
or other order (whether temporary, preliminary or permanent) which is in effect
and prohibits consummation of the Merger; (ii) all regulatory approvals required
to consummate the Merger shall have been obtained and shall remain in full force
and effect and all statutory waiting periods in respect thereof shall have
expired and no such approvals shall contain (A) any conditions, restrictions or
requirements which the Charter One Board reasonably determines would either
before or after the Effective Time have a "Material Adverse Effect," as defined
below, on Charter One and its subsidiaries taken as a whole or (B) any
conditions, restrictions or requirements that are not customary and usual for
approvals of such type and which the Charter One Board reasonably determines
would either before or after the Effective Time be unduly burdensome; (iii) the
Merger Agreement shall have been adopted by the requisite vote of the holders of
ALBANK Common Stock and the Charter One Share Issuance shall have been approved
by the requisite vote of the holders of Charter One Common Stock; (iv) 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; (v) the Charter One Common
Stock to be issued to holders of ALBANK Common Stock shall have been approved
for listing on the Nasdaq National Market, subject to official notice of
issuance; (vi) all authorizations under state securities laws to consummate the
transactions contemplated by the Merger Agreement and to issue the shares of
Charter One Common Stock in the Merger shall have been received and be in full
force and effect; and (vii) each party shall have obtained all material permits,
authorizations, consents, waivers and approvals required for the lawful
consummation of the Merger. "Material Adverse Effect" means any effect that (i)
is material and adverse to the financial position, results of operations or
business of Charter One and its subsidiaries taken as a whole or ALBANK and its
subsidiaries taken as a whole, respectively, or (ii) would materially impair the
ability of Charter One, Charter-Michigan or ALBANK to perform its obligations
under the Merger Agreement or otherwise materially threaten or materially impede
the consummation of the Merger and the other transactions contemplated by the
Merger Agreement; provided, however, that Material Adverse Effect shall not be
deemed to include the impact of (a) changes in thrift, banking and similar laws
of general applicability or interpretations thereof by courts or governmental
authorities, or other changes affecting depository institutions generally,
including changes in general economic
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<PAGE> 63
conditions and changes in prevailing interest and deposit rates, (b) changes in
GAAP or regulatory accounting requirements applicable to thrifts, banks and
their holding companies generally, (c) any modifications or changes to valuation
policies and practices in connection with the Merger or the Bank Mergers or
restructuring charges taken in connection with the Merger of the Bank Mergers,
in each case in accordance with GAAP, (d) changes resulting from expenses (such
as legal, accounting and investment bankers' fees) incurred in connection with
the Merger Agreement and (e) actions or omissions of Charter One or ALBANK taken
with the prior written consent of ALBANK or Charter One, as applicable, in
contemplation of the transactions contemplated by the Merger Agreement.
Conditions to the Obligations of Charter One and its Subsidiaries. The
obligations of Charter One and its subsidiaries to consummate the Merger are
subject to the following conditions precedent (except as to those which Charter
One may choose to waive in writing): (i) the representations and warranties made
by ALBANK in the Merger Agreement 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, except that representations
and warranties that speak as of a particular date shall be true and correct as
of such date, and provided that certain representations and warranties specified
in the Merger Agreement shall not be deemed to be untrue or incorrect unless any
fact or circumstance relating thereto has had or is reasonably likely to have a
Material Adverse Effect; (ii) ALBANK and its subsidiaries shall have performed
in all material respects all obligations required by the Merger Agreement to be
performed by them prior to or at the Effective Time; (iii) Charter One shall
have received a certificate signed by the Chief Executive Officer and Chief
Financial Officer of ALBANK, dated as of the Effective Time, certifying that the
conditions set forth in items (i) and (ii) of this paragraph have been
satisfied; (iv) Charter One shall have received an opinion of Silver, Freedman &
Taff, L.L.P., dated the Effective Date, to the effect that the Merger and the
Bank Mergers constitute reorganizations under Section 368 of the Code; and (v)
Charter One shall have received from Deloitte & Touche LLP letters, dated the
date of or shortly prior to each of the mailing date of this Joint Proxy
Statement/Prospectus and the Effective Date, stating its opinion that the Merger
will qualify for "pooling-of-interests" accounting treatment. In addition, in
the consent decree in the matter of United States v. ALBANK, FSB et al., dated
August 13, 1997, ALBANK, FSB agreed to make $35 million of home mortgage loans
at 1.5% below market rates to homebuyers in the Connecticut cities of
Bridgeport, Hartford, New Britain, New Haven, Norwalk, Stamford and Waterbury
and $20 million in similarly discounted loans in lower Westchester County, New
York over five years and two years, respectively. ALBANK, FSB also agreed to
contribute $350,000 over five years to support home buying counseling and
education programs provided by local organizations in these areas and to spend
another $350,000, primarily in the form of services, for homebuyer education
programs put on by ALBANK, FSB. It is a condition to the obligations of Charter
One to consummate the Merger that ALBANK and ALBANK, FSB be in material
compliance with the terms of such decree and that Charter One shall have
received a certificate signed by the Chief Executive Officer and the General
Counsel of ALBANK dated the Effective Date certifying that such condition has
been satisfied.
Conditions to the Obligations of ALBANK. The obligations of ALBANK and
its subsidiaries to consummate the Merger are subject to the following
conditions precedent (except as to those which ALBANK may choose to waive in
writing): (i) the representations and warranties made by Charter One in the
Merger Agreement 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, except that representations and warranties that
speak as of a particular date shall be true and correct as of such date, and
provided that certain representations and warranties specified in the Merger
Agreement shall not be deemed to be untrue or incorrect unless any fact or
circumstance relating thereto has had or is reasonably likely to have a Material
Adverse Effect; (ii) Charter One and its subsidiaries shall have performed in
all material respects all obligations required by the Merger Agreement to be
performed by them prior to or at the Effective Time; (iii) ALBANK shall have
received a certificate signed by the Chief Executive Officer and the Chief
Financial Officer of Charter One, dated as of the Effective Time, that the
conditions set forth in items (i) and (ii) of this paragraph have been
satisfied; and (iv) ALBANK shall have received an opinion of Cleary, Gottlieb,
Steen & Hamilton, dated the Effective Date, to the effect that (a) the Merger
constitutes a reorganization under Section 368 of the Code and (b) no gain or
loss will be recognized by stockholders of ALBANK who receive shares of Charter
One Common Stock in exchange for shares of ALBANK Common Stock, except that gain
or loss may be recognized as to cash received in lieu of fractional share
interests.
There can be no assurance that the conditions to consummation of the
Merger will be satisfied or waived.
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For detailed information on conditions to the Merger, see the Merger
Agreement included at Annex A and incorporated herein by reference.
REGULATORY MATTERS
Federal Reserve Board; New York Superintendent of Banks. The Merger is
subject to prior approval by the FRB under Section 3 of the BHCA and prior
notice to the FRB under Section 4 of the BHCA. Charter One filed such
application and notice with the FRB on August 31, 1998. The BHCA requires the
FRB, when approving transactions such as the Merger, to take into consideration
the financial and managerial resources (including the competence, experience and
integrity of the officers, directors and principal stockholders) and future
prospects of the existing and proposed institutions and the convenience and
needs of the communities to be served. In considering financial resources and
future prospects, the FRB will, among other things, evaluate the adequacy of the
capital levels of the parties to a proposed transaction and of the resulting
institutions and the readiness of the computer systems of the resulting
institutions for the transition to the year 2000.
The BHCA prohibits the FRB from approving a merger if it would result
in a monopoly or be in furtherance of any combination or conspiracy to
monopolize or to attempt to monopolize the business of banking in any part of
the United States, or if its effect in any section of the country would be
substantially to lessen competition or to tend to create a monopoly, or it would
in any other manner result in a restraint of trade, unless the FRB finds that
the anticompetitive effects of a merger are clearly outweighed in the public
interest by the probable effect of the transaction in meeting the convenience
and needs of the communities to be served. In addition, under the Community
Reinvestment Act of 1977, as amended (the "CRA"), the FRB must take into account
the record of performance of the existing institutions in meeting the credit
needs of the entire community, including low- and moderate-income neighborhoods,
served by such institutions.
Under Section 4 of the BHCA and related regulations, the FRB must
consider whether the performance of the nonbanking activities of Charter One and
ALBANK can reasonably be expected to produce benefits to the public (such as
greater convenience, increased competition and gains in efficiency) that
outweigh possible adverse effects (such as undue concentration of resources,
decreased or unfair competition, conflicts of interest and unsound banking
practices).
This consideration includes an evaluation of the financial and managerial
resources of Charter One and ALBANK and the effect of the proposed transaction
on those resources.
Charter One has also filed an application with the New York
Superintendent of Banks to acquire control of ALBANK Commercial as a result of
ALBANK's merger into Charter One.
THE MERGER CANNOT PROCEED IN THE ABSENCE OF THE REQUISITE REGULATORY
APPROVALS. THERE CAN BE NO ASSURANCE THAT ALL SUCH REGULATORY APPROVALS WILL BE
OBTAINED OR AS TO THE DATES OF SUCH APPROVALS. THERE CAN ALSO BE NO ASSURANCE
THAT SUCH APPROVALS WILL NOT CONTAIN A CONDITION OR REQUIREMENT THAT CAUSES SUCH
APPROVALS TO FAIL TO SATISFY THE CONDITIONS SET FORTH IN THE MERGER AGREEMENT.
SEE " -- Conditions to the Merger."
The Merger may not be consummated for a period of 30 days after receipt
of the final approval of the FRB, unless no adverse comment has been received
from the Department of Justice, in which case the Merger may be consummated on
or after the 15th day after such final approval.
The Bank Merger and Creation of New Commercial Bank. The Bank Merger,
whereby ALBANK, FSB will be merged with and into Charter One Bank, is
anticipated to occur simultaneously with the Merger. An application has been
filed with the OTS for approval of the Bank Merger. A comment opposing, and
request for an informal meeting on, the application filed by Charter One was
filed by Inner City Press/Community on the Move with the OTS. The comment
opposing the application and the request for an informal meeting was
subsequently withdrawn in connection with an agreement reached between Charter
One and Inner City Press/Community on the Move. Charter One has agreed (i) to
cause its subsidiary, Charter One Mortgage Corp., to make $1 billion in normally
priced residential mortgage loans to low and moderate income borrowers over a
three year period beginning in 1999; and (ii) to require its Equity One Credit
Corporation subsidiary (a) to provide credit counseling information to all of
its applicants and to pay for initial credit counseling for delinquent
borrowers; (b) to develop a procedure to refer all retail residential mortgage
loan applicants with better than subprime lending histories to Charter One's
regular retail loan originators for normally priced loans; and (c) to develop a
second review program for all loans offered in low and moderate income areas.
The Merger Agreement does not make regulatory approval for or consummation of
the Bank Merger a condition to consummation of the Merger.
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<PAGE> 65
Charter One will take the necessary steps to create New Commercial Bank
as a subsidiary with applicable federal deposit insurance and to obtain approval
for the transfer of certain assets and liabilities of ALBANK Commercial to New
Commercial Bank. It is currently anticipated that some time after consummation
of the Merger, Charter One will cause ALBANK Commercial to transfer to New
Commercial Bank (i) all of its municipal deposits held in the State of New York
and all other Bank Insurance Fund deposits at its head office in Albany and (ii)
the head office in Albany, its fixed assets, mortgage-backed securities and cash
and certain other assets, as appropriate, and will cause ALBANK Commercial to
transfer to Charter One Bank its other offices, assets and liabilities. In its
application to the OTS, Charter One has sought approval for the transfer of
certain assets and liabilities of ALBANK Commercial to Charter One Bank (or, in
the alternative, for a merger of ALBANK Commercial into Charter One Bank).
Neither the creation of New Commercial Bank nor such transfers of assets and
liabilities of ALBANK Commercial is a condition to consummation of the Merger.
AMENDMENT; TERMINATION; LIABILITIES AND REMEDIES FOR BREACH
Amendment. The Merger Agreement may be amended at any time by an
agreement in writing between the parties; provided that, after the ALBANK
Special Meeting, the Merger Consideration to be received by ALBANK stockholders
in the Merger may not thereby be decreased.
Termination. The Merger Agreement may be terminated (i) at any time
prior to the Effective Time by the mutual consent of Charter One and ALBANK, if
the Charter One Board and the ALBANK Board each so determines by a majority
vote, (ii) at any time prior to the Effective Time by Charter One or ALBANK, if
its Board of Directors so determines by a majority vote, in the event of a
breach by the other party of any representation or warranty set forth in the
Merger Agreement, which breach cannot be or has not been cured within 30 days
after the giving of written notice of such breach (subject to the Merger
Agreement proviso that certain representations and warranties shall not be
deemed to be breached unless such breach has had or is reasonably likely to have
a Material Adverse Effect) or the other party has breached in any material
respect any covenant or agreement set forth in the Merger Agreement, which
breach cannot be or has not been cured within 30 days after the giving of
written notice of such breach; (iii) by Charter One or ALBANK, if its Board of
Directors so determines by a majority vote, on or after February 28, 1999, in
the event the Merger has not been consummated by such date (provided, however,
that this right to terminate shall not be available to the extent that the
failure of the Merger then to be consummated arises out of or results from the
knowing action or inaction of the party seeking to terminate pursuant to this
provision); (iv) by Charter One or ALBANK, if its Board of Directors so
determines by a majority vote, if the approval of any regulatory authorities
required for consummation of the Merger and the Bank Mergers is denied by final
nonappealable action of such authority; (v) by Charter One or ALBANK, if its
Board of Directors so determines by a majority vote, if any stockholder approval
required under the Merger Agreement is not obtained; (vi) at any time prior to
the ALBANK Special Meeting, by Charter One if the ALBANK Board has failed to
unanimously recommend adoption of the Merger Agreement, withdrawn such
recommendation or modified or changed such recommendation in any manner adverse
in any respect to the interests of Charter One; or (vii) at any time prior to
the Charter One Special Meeting, by ALBANK if the Charter One Board has failed
to unanimously recommend approval of the Charter One Share Issuance, withdrawn
such recommendation or modified or changed such recommendation in a manner
adverse in any respect to the interests of ALBANK.
In addition to the foregoing circumstances under which the Merger
Agreement may be terminated, ALBANK may also have the right to terminate the
Merger Agreement under certain circumstances described below if there is a
substantial decline in the trading price of Charter One Common Stock relative to
the trading prices of the common stock of a group of peer institutions. The
provisions in the Merger Agreement governing such right are complex and designed
to permit either a termination of the Merger Agreement or an adjustment to the
Exchange Ratio if, and only if, the market value of Charter One Common Stock has
declined substantially from the $34.625 ($32.976 after adjusting for the Charter
One Stock Dividend) market value on June 9, 1998 and the market value of Charter
One Common Stock has declined substantially more than an index comprising the
stock of 15 financial companies.
ALBANK may terminate the Merger Agreement, if the ALBANK Board so
determines by a majority vote, at any time during the ten-day period beginning
two days after the latest of (a) the day of expiration of the last waiting
period with respect to any approval of any regulatory agency required for
consummation of the Merger, (b) the day on which the last of such approvals is
obtained, and (c) the day on which the last of the required stockholder
approvals has
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been received (the "Determination Date") (or such shorter period of time from
the Determination Date to the effective Date as is contemplated by the
provisions of the Merger Agreement relating to setting the Effective Date) if
both the following occur (the "Termination Conditions"):
(i) For the ten consecutive full trading days ending at the
close of trading on the Determination Date, the average of the last
daily sale prices of Charter One Common Stock as reported on the Nasdaq
National Market (the "Average Closing Price") is less than $27.205 (the
product of 0.825 and $32.976 (which reflects the Charter One Stock
Dividend), the closing price of Charter One Common Stock on June 9,
1998); and
(ii)(a) the Average Closing Price divided by $32.976 (which
reflects the Charter One Stock Dividend) is less than (b) the "Index
Ratio", which is defined as (x) the weighted average of the closing
prices of the 15 financial companies (the "Index Group") identified
below (the "Index Price") on the Determination Date divided by $31.3817
(the Index Price on June 9, 1998, as adjusted) minus (y) 0.175.
The 15 financial companies are:
<TABLE>
<CAPTION>
Financial Companies Weighting
- -------------------------------------------------------------------------------------
<S> <C>
Bank United Corp. 3.6042%
Dime Bancorp, Inc. 13.0336
Dime Community Bancorp, Inc. 1.4190
Downey Financial Corp. 3.2047
GreenPoint Financial Corp. 9.6355
MAF Bancorp, Inc. 2.5717
North Fork Bancorporation, Inc. 16.2309
Northwest Bancorp, Inc. 5.3429
Old Kent Financial Corporation 10.9652
People's Bank (MHC) 7.3101
Peoples Heritage Financial Group, Inc. 10.0124
Queens County Bancorp 1.7022
St. Paul Bancorp, Inc. 4.6145
Washington Federal, Inc. 5.9779
Webster Financial Corporation 4.3751
----------
Total 100.0000%
========
</TABLE>
In the event that the common stock of any company in the Index Group
ceases to be publicly traded, or if there is a public announcement of a proposal
for any such company (i) to be acquired or that any such company intends to
acquire another company in a transaction with a value exceeding 25% of the
acquiror's market capitalization as of June 9, 1998 or (ii) to convert from a
mutual holding company to the stock form of organization, such company will be
removed from the Index Group and the weights (which have been determined based
on the number of outstanding shares of common stock) redistributed
proportionately for purposes of determining the Index Price (which occurred as a
result of the public announcement of a proposed transaction involving Star Banc
Corporation, a company that had been part of the original Index Group). In
addition, if any company in the Index Group or Charter One declares or effects a
stock split, stock dividend, recapitalization, exchange of shares or similar
transaction between June 9, 1998 and the Determination Date, the prices for the
common stock of such company or Charter One shall be appropriately adjusted for
the purposes of applying this provision of the Merger Agreement. Accordingly,
the price of Charter One Common Stock set forth in the discussion of this
provision has been adjusted to reflect the Charter One Stock Dividend and the
Index Price and weightings of the Index Group have been revised to reflect any
transactions of the type set forth above by any company in the Index Group.
If both of the Termination Conditions exist, then ALBANK will have the
right, upon prompt written notice to Charter One, to terminate the Merger
Agreement. If ALBANK exercises such right, then Charter One will have the right,
during the five-day period commencing with its receipt of ALBANK's termination
notice, to adjust the Exchange Ratio in lieu of such termination to equal the
lesser of:
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(i)(a) the product of $27.205 (which reflects the Charter One
Stock Dividend) and the Exchange Ratio as then in effect, divided by
(b) the Average Closing Price; and
(ii)(a) the product of the Index Ratio and the Exchange Ratio
as then in effect, divided by (b) the Average Closing Price divided by
$32.976 (which reflects the Charter One Stock Dividend) (the "Charter
One Ratio").
The adjustment of the Exchange Ratio in accordance with the foregoing
formula is designed to increase the number of shares of Charter One Common Stock
to be issued in exchange for each share of ALBANK Common Stock if the
Termination Conditions exist. If Charter One elects to adjust the Exchange
Ratio, it must give prompt written notice to ALBANK of such election and the
revised Exchange Ratio, whereupon no termination shall have occurred and the
Merger Agreement will remain in full force and effect in accordance with its
terms, except that the Exchange Ratio will have been modified and except that
the Effective Date may be delayed as a result of the foregoing procedures.
ILLUSTRATION. For purposes of the following illustration, assume that
the Average Closing Price is $25.00 and that the Index Price on the
Determination Date is $32.50 and all relevant prices have been appropriately
adjusted for the Charter One Stock Dividend and other relevant transactions
involving the Index Group split. Under these assumptions, ALBANK would have
the right to terminate the Merger Agreement because both Termination Conditions
would be met, as follows:
(i) the Average Closing Price of $25.00 would be less than
$27.205; and
(ii) the Average Closing Price of $25.00 divided by $32.976
would equal 0.758 and would be less than the Index Ratio of 0.8606.
Charter One would then have the right to adjust the Exchange
Ratio, to avoid termination of the Merger Agreement, to the lesser of
the following:
(i) 2.4680, which is the product of $27.205 and the Exchange
Ratio of 2.268, divided by the Average Closing Price of $25.00; and
(ii) 2.5750, which is the Index Ratio of 0.8606 multiplied by
the Exchange Ratio of 2.268, divided by the Charter One Ratio of 0.758.
Therefore, Charter One could elect to increase the exchange ratio to
2.4680 and proceed with the Merger. In that event, each share of ALBANK Common
Stock would be canceled at the Effective Time in exchange for the right to
receive 2.4680 shares of Charter One Common Stock. Alternatively, Charter One
could elect not to increase the Exchange Ratio and the Merger Agreement would
terminate.
The average closing price of Charter One Common Stock for the ten
trading days before September 28, 1998 was $25.006. Based on this price, neither
Termination Condition would be triggered and ALBANK would not have had any right
to terminate the Merger Agreement.
The determinations of whether the above tests are met, whether to
terminate the Merger Agreement and whether to avoid any such termination are all
subject to market conditions at the Determination Date and accordingly, such
determinations cannot be made until after the date of this Joint Proxy
Statement/Prospectus. If the above tests are met, there can be no assurances as
to whether the ALBANK Board of Directors will exercise its right to terminate
the Merger Agreement or, if so, whether Charter One will avoid such termination
by increasing the Exchange Ratio.
Liabilities and Remedies for Breach. In the event of termination of the
Merger Agreement, no party will have any liability to any other party under the
Merger Agreement except that termination will not relieve a breaching party from
liability for any willful breach giving rise to such termination. If, however,
Charter One or ALBANK pursues its respective rights to the termination fees
described below, then such party will not be entitled to any other relief.
Conversely, if Charter One or ALBANK pursues a remedy for willful breach, then
it will waive its rights to its respective
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termination fee. In addition, Charter One may have certain rights under the
Stock Option Agreement in the event of a termination of the Merger Agreement.
See "STOCK OPTION AGREEMENT."
Charter One Fee. If (i) the ALBANK Board fails to recommend approval
and adoption of the Merger Agreement to the ALBANK stockholders or withdraws
such recommendation or modifies or changes such recommendation in a manner
adverse in any respect to the interests of Charter One, (ii) ALBANK has provided
information to or entered into negotiations with a third party with respect to
an ALBANK Proposal (as defined below) after the ALBANK Board has received a
written opinion from its outside counsel to the effect that the failure to do so
would result in a breach of its fiduciary duties to its stockholders, (iii)
ALBANK is in material and willful breach of any of its covenants contained in
the Merger Agreement such that Charter One is entitled to terminate the Merger
Agreement, or (iv) the stockholders of ALBANK do not approve and adopt the
Merger Agreement at the ALBANK Special Meeting, in each case after there has
been proposed by a third party an ALBANK Acquisition Transaction, as defined
below (the "ALBANK Proposal"), then, in any such event, upon the actual
consummation of an ALBANK Acquisition Transaction with such third party within
15 months after the ALBANK Proposal, ALBANK is obligated to pay Charter One a
fee of $40 million. This fee will be reduced to $15 million if either (i)
Charter One has acquired any ALBANK Common Stock pursuant to the exercise of the
Option, ALBANK has repurchased the Option or ALBANK has paid the Surrender Fee
(as defined in "STOCK OPTION AGREEMENT"), or (ii) Charter One refuses to execute
and deliver a written release of all of its rights under the Stock Option
Agreement against delivery and payment of the full $40 million fee. See "STOCK
OPTION AGREEMENT." This fee is not payable if ALBANK has terminated, or has or
had the right to terminate, the Merger Agreement in the event of (i) certain
breaches by Charter One, (ii) the denial by final nonappealable action of any
approval of any regulatory authority required for consummation of the Merger and
the Bank Mergers, (iii) the Charter One stockholders not approving the Charter
One Share Issuance or (iv) the Charter One Board failing to recommend the
Charter One Share Issuance to its stockholders (or the withdrawal or
modification of such recommendation).
"ALBANK Acquisition Transaction" has the same meaning as "Acquisition
Transaction" under the Stock Option Agreement (see "STOCK OPTION AGREEMENT")
except that the percentage in clause (z) is 25% instead of 10%.
ALBANK Fee. If (i) the Charter One Board fails to recommend the Charter
One Share Issuance to its stockholders or withdraws such recommendation or
modifies or changes such recommendation in a manner adverse in any respect to
the interests of ALBANK, (ii) Charter One is in material and willful breach of
any of its covenants contained in the Merger Agreement such that ALBANK is
entitled to terminate the Merger Agreement, or (iii) the stockholders of Charter
One do not approve the Charter One Share Issuance at the Charter One Special
Meeting, in each case after there has been proposed by a third party a Charter
One Acquisition Transaction, as defined below (the "Charter One Proposal"),
then, in any such event, upon the actual consummation of a Charter One
Acquisition Transaction with such third party within 15 months after the Charter
One Proposal, Charter One is obligated to pay ALBANK a fee of $15 million. This
fee is not payable if Charter One has terminated, or has or had the right to
terminate, the Merger Agreement in the event of (i) certain breaches by ALBANK,
(ii) the denial by final nonappealable action of any approval of any regulatory
authority required for consummation of the Merger and the Bank Mergers, (iii)
the ALBANK stockholders not adopting the Merger Agreement or (iv) the ALBANK
Board failing to recommend the Merger Agreement (or the withdrawal or
modification of such recommendation).
"Charter One Acquisition Transaction" has the same meaning as the term
"ALBANK Acquisition Transaction" above except that Charter One shall be
substituted for ALBANK as the target of such acquisition transaction.
CONDUCT OF BUSINESS PENDING THE MERGER AND CERTAIN COVENANTS
From the date of the Merger Agreement until the Effective Time, except
as otherwise contemplated by the Merger Agreement, without the prior written
consent of Charter One, ALBANK will not, and will cause each of its subsidiaries
not to:
(a) conduct the business of ALBANK and its subsidiaries other than in
the ordinary and usual course or fail to use reasonable efforts to preserve
intact in any material respect their business organizations and assets and
maintain
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their rights, franchises and existing relations with customers, suppliers,
employees and business associates, or take any action reasonably likely to
materially impair ALBANK's ability to perform any of its obligations under the
Merger Agreement;
(b) except pursuant to the ALBANK Stock Options outstanding on the date
of the Merger Agreement (or required to be granted to outside directors on
December 28, 1998, if and only if the Effective Time has not occurred prior to
such date), issue, sell or otherwise permit to become outstanding, or authorize
the creation of, any additional shares of, or rights to acquire, ALBANK Common
Stock, enter into any agreement with respect to the foregoing, or permit any
additional shares of ALBANK Common Stock to become subject to new grants of
employee or director stock options, other stock rights or similar stock-based
employee rights;
(c) issue any other capital securities, capital stock of any
subsidiary, debentures or subordinated notes;
(d)(i) make, declare, pay or set aside for payment any dividend (other
than quarterly cash dividends in an amount not to exceed $0.21 per share
(provided the declaration and payment of the last quarterly dividend by ALBANK
prior to the Effective Time shall be coordinated with, and approved by, Charter
One in order to avoid duplication of dividend benefit) and dividends from wholly
owned subsidiaries) on or in respect of, or declare or make any distribution on,
any shares of ALBANK stock or (ii) directly or indirectly adjust, split,
combine, redeem, reclassify, purchase or otherwise acquire, any shares of
capital stock or rights related to such capital stock;
(e) enter into or amend or renew any employment, consulting, severance
or similar agreements with any director, officer or employee of ALBANK or its
subsidiaries, or grant any salary or wage increase or increase any employee
benefit, except (i) for normal individual increases in compensation to employees
in the ordinary course of business consistent with past practice, (ii) for other
changes that are required by applicable law, (iii) to satisfy previously
disclosed contractual obligations and planned programs existing on the date of
the Merger Agreement, or (iv) for oral at will employment agreements;
(f) enter into, establish, adopt or amend (except as may be required by
applicable law or to satisfy existing contractual obligations) any benefit plan
in respect of any director, officer or employee of ALBANK or its subsidiaries,
or take any action to accelerate the vesting or exercisability of stock options,
restricted stock or other compensation or benefits payable thereunder;
(g) except as previously disclosed to Charter One, sell, transfer,
mortgage, encumber or otherwise dispose of or discontinue any of its assets,
deposits, business or properties except in the ordinary course of business for
fair value and in a transaction that is not material to ALBANK and its
subsidiaries taken as a whole;
(h) except as previously disclosed to Charter One, acquire (other than
by way of foreclosures or acquisitions in a fiduciary capacity or in
satisfaction of debts previously contracted in good faith, in each case in the
ordinary and usual course of business consistent with past practice) all or any
portion of the assets, business, deposits or properties of any other entity;
(i) amend its or any subsidiaries' articles or certificate of
incorporation or bylaws;
(j) implement or adopt any change in its accounting principles,
practices or methods, other than as may be required by GAAP;
(k) except to satisfy previously disclosed written commitments
outstanding on the date of the Merger Agreement, enter into or terminate any
material contract or amend or modify in any material respect any of its existing
material contracts;
(l) except in the ordinary course of business consistent with past
practice, settle any claim, action or proceeding, except for those which do not
involve precedent for other material claims, actions or proceedings and which
involve solely money damages in an amount, individually or in the aggregate for
all such settlements, that is not material to ALBANK and its subsidiaries, taken
as a whole;
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(m) 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 ALBANK and its subsidiaries shall not be
required to obtain such a report with respect to one- to four-family,
non-agricultural residential property of five acres or less to be foreclosed
upon unless it has reason to believe that such property might be in violation of
or require remediation under environmental laws;
(n) in the case of ALBANK Commercial and ALBANK, FSB, (i) voluntarily
make any material changes in or to its deposit mix, (ii) 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 practice, (iii) except
as previously disclosed to Charter One, open any new branch or deposit taking
facility, (iv) except as previously disclosed to Charter One, close or relocate
any existing branch or other facility, or (v) incur any liability or obligation
relating to retail banking and branch merchandising, marketing and advertising
activities and initiatives materially in excess of the amounts budgeted in
ALBANK's 1998 business plan;
(o) enter into any securities transaction for its own account or
purchase or otherwise acquire any investment security for its own account except
purchases and sales of securities consistent with past practice in order to
maintain investment portfolios at ALBANK and its subsidiaries that have risk and
asset mix characteristics substantially similar to those of the respective
investment portfolios as of the date of the Merger Agreement;
(p) purchase or lease any fixed asset where the amount paid or
committed therefor is in excess of $300,000, except for previously disclosed
amounts budgeted in the 1998 budget;
(q)(i) make any material changes in its policies concerning loan
underwriting or which persons may approve loans or fail to comply with such
policies; or (ii) 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 (other than (A) in
the case of a consumer loan or extension of credit, in a principal amount not in
excess of $150,000 or an amount that would increase the aggregate credit
outstanding in this category to any one borrower (or group of affiliated
borrowers) to not more than $250,000, (B) in the case of a loan secured by a
first mortgage on an owner occupied one-to four-family principal residence, in a
principal amount not in excess of $350,000, (C) in the case of a loan secured by
a first mortgage on commercial or industrial real property, in a principal
amount not in excess of $2.5 million for any loan with personal recourse to the
borrower or $1.0 million for any loan without personal recourse to the borrower
or that would increase the aggregate credit outstanding in this category to any
one borrower (or group of affiliated borrowers) to not more than $12.0 million,
(D) in the case of any commercial loan secured by a first lien on accounts
receivable, inventory or other tangible assets, in a principal amount not in
excess of $2.5 million or that would increase in the aggregate credit
outstanding in this category to any one borrower (or group of affiliated
borrowers) to not more than $12.0 million, or (E) in the case of a new unsecured
commercial line of credit (x) to a borrower whose annual gross sales are $25.0
million or more, in a principal amount not in excess of $2.5 million or (y) to a
borrower whose annual gross sales are less than $25.0 million, in a principal
amount not in excess of $1.0 million and provided an existing unsecured
commercial line of credit may be renewed not in excess of its existing amount)
in each case without the prior written consent of Charter One acting through its
Chief Executive Officer or Executive Vice President of Lending in a written
notice to ALBANK, which approval or rejection shall be given within five
business days after delivery by ALBANK to such officer of Charter One of the
complete loan package;
(r)(i) take any action or fail to take any action while knowing that
such action or inaction would, or is reasonably likely to, prevent or impede (A)
the Merger from qualifying for "pooling-of-interests" accounting treatment or
(B) the Merger and the Bank Mergers from qualifying as reorganizations within
the meaning of Section 368 of the Code; or (ii) knowingly take any action or
fail to take any action that is intended or is reasonably likely to result in
(A) any of its representations and warranties set forth in the Merger Agreement
being or becoming untrue, (B) any of the conditions to the Merger not being
satisfied or (C) a material violation of any provision of the Merger Agreement
except, in each case, as may be required by applicable law or regulation;
(s) except as required by applicable law or regulation, (i) implement
or adopt any material change in its interest rate and risk management policies,
procedures or practices; (ii) fail to follow its existing policies or practices
with
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respect to managing its exposure to interest rate and other risk; or (iii) fail
to use commercially reasonable means to avoid any material increase in its
aggregate exposure to interest rate risk;
(t) incur any indebtedness for borrowed money other than in the
ordinary course of business and with a term of one year or less; or
(u) agree or commit to do any of the foregoing.
Pursuant to the Merger Agreement, ALBANK has also agreed that it shall
not, and shall cause its subsidiaries and its and its subsidiaries' officers,
directors, agents, advisors and affiliates not to, solicit or encourage
inquiries or proposals with respect to, or engage in any negotiations
concerning, or provide any confidential information to, or have any discussions
with, any person relating to, any ALBANK Proposal. It agreed to immediately
cease and cause to be terminated any activities, discussions or negotiations
conducted prior to the date of the Merger Agreement with any parties other than
Charter One with respect to any of the foregoing and to use its reasonable best
efforts to enforce any confidentiality or similar agreement relating to an
ALBANK Proposal in existence on the date of the Merger Agreement. ALBANK must
promptly (within 24 hours) advise Charter One following the receipt by ALBANK of
any ALBANK Proposal and the substance thereof (including the identity of the
person making such ALBANK Proposal), and advise Charter One of any material
developments with respect to such ALBANK Proposal immediately upon the
occurrence thereof. Notwithstanding the foregoing but only after receipt of an
ALBANK Proposal and during the period prior to the ALBANK Special Meeting,
ALBANK may provide information at the request of, or enter into negotiations
with a third party with respect thereto, if the ALBANK Board receives a written
opinion from its outside counsel to the effect that the failure to do so would
result in a breach of the fiduciary duties of the ALBANK Board to its
stockholders under applicable law.
From the date of the Merger Agreement until the Effective Time, except
as otherwise contemplated by the Merger Agreement, without the prior written
consent of ALBANK, Charter One will not, and will cause each of its subsidiaries
not to:
(a) fail to use reasonable efforts to preserve intact in any material
respect their business organizations and assets and maintain their rights,
franchises and existing relations with customers, suppliers, employees and
business associates, or take any action reasonably likely to materially impair
the ability of Charter One or Charter-Michigan to perform any of its obligations
under the Merger Agreement;
(b) make, declare, pay or set aside for payment any extraordinary cash
dividend or cash distribution;
(c)(i) take any action or fail to take any action while knowing that
such action or inaction would, or is reasonably likely to, prevent or impede (A)
the Merger from qualifying for "pooling-of-interests" accounting treatment or
(B) the Merger and the Bank Mergers from qualifying as reorganizations within
the meaning of Section 368 of the Code; or (ii) knowingly take any action or
fail to taken any action that is intended or is reasonably likely to result in
(A) any of its representations and warranties set forth in the Merger Agreement
being or becoming untrue, (B) any of the conditions to the Merger not being
satisfied or (C) a material violation of any provision of the Merger Agreement
except, in each case, as may be required by applicable law or regulation;
provided, however, that nothing contained in the Merger Agreement limits the
ability of Charter One to exercise its rights under the Stock Option Agreement;
(d) implement or adopt any material change in its accounting
principles, practices or methods, other than as may be required by GAAP;
(e) except as previously disclosed to ALBANK, acquire (other than by
way of foreclosures or acquisitions in a fiduciary capacity or in satisfaction
of debts previously contracted in good faith, in each case in the ordinary and
usual course of business consistent with past practice) all or a significant
portion of the assets, business, deposits or properties of any other entity
whose principal business is conducted in, or who maintains a significant
physical presence in, the CRA Assessment Areas of ALBANK, FSB or ALBANK
Commercial; or
(f) agree or commit to do any of the foregoing.
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Charter One has also agreed that for a period of five years following
the Effective Date, the aggregate level of charitable contributions in ALBANK
markets will not be less than the amount that appears in the ALBANK 1998 budget
(i.e., $456,000 annually).
The Merger Agreement also contains various covenants, including, among
other things, those requiring Charter One and ALBANK (i) to use their reasonable
best efforts in good faith to take all necessary actions to effect the Merger;
(ii) to recommend approval (subject to the fiduciary obligations of the Charter
One Board and the ALBANK Board, as described in the Merger Agreement) and to
take all action necessary to convene a stockholders' meeting of each company to
vote on (A) in the case of ALBANK, the Merger Agreement and (B) in the case of
Charter One, the Charter One Share Issuance; (iii) to cooperate in the
preparation of the Registration Statement and this Joint Proxy
Statement/Prospectus; (iv) to refrain from issuing press releases regarding the
Merger without the other party's prior approval (except as otherwise required by
applicable law or regulation or Nasdaq National Market rules, and then only
after making reasonable efforts to first consult with the other party); (v) to
provide the other party with reasonable access to information regarding such
party under the condition that such information be kept confidential as set
forth in the Merger Agreement; (vi) to take all steps within their control to
exempt the transactions contemplated by the Merger Agreement and the Stock
Option Agreement from any applicable state anti-takeover law; (vii) in the case
of Charter One, to use its best efforts to list, prior to the Effective Time, on
the Nasdaq National Market the shares of Charter One Common Stock to be issued
to the holders of ALBANK Common Stock in the Merger; (viii) to cooperate and use
their reasonable best efforts to prepare all documentation, to effect all
filings and to obtain all permits, consents, approvals and authorizations of all
third parties and regulatory authorities necessary to consummate the
transactions contemplated by the Merger Agreement; and (ix) to use their
reasonable best efforts to cause the consent decree entered in the matter of
United States v. ALBANK, FSB to be clarified prior to the Effective Time, as set
forth in the Merger Agreement.
The Merger Agreement and the Supplemental Letter incorporated by
reference therein also contain certain covenants relating to employee benefits,
including those that require (i) Charter One to assume and continue certain
ALBANK benefit and welfare plans for specified periods and to provide to each
full-time employee of ALBANK and its subsidiaries as of the Effective Time the
opportunity to participate in certain Charter One benefit and welfare plans for
similarly situated employees (provided that Charter One will not be obligated to
provide any benefits under a Charter One plan that duplicate those provided
under any ALBANK plan assumed by Charter One); (ii) Charter One Bank to continue
in effect the ALBANK, FSB severance pay plan until the third anniversary of the
Effective Date, and Charter One to refrain from terminating the employment of
any full-time employees of ALBANK or its subsidiaries prior to January 1, 1999,
except for cause; (iii) ALBANK, FSB to amend its post-retirement medical and
life benefit plan in certain respects in a manner reasonably acceptable to
Charter One; (iv) Charter One to continue the ALBANK ESOP through December 31,
1998, after which time such plan may be merged with another Charter One
qualified defined contribution plan; and (v) Charter One to continue ALBANK,
FSB's incentive plans through calendar year 1998. In addition, ALBANK will be
permitted to establish an enhanced severance plan and stay bonus program for
certain full-time employees of ALBANK and its subsidiaries (not including
directors and executive officers) up to an aggregate amount of $5 million.
For more information on the covenants and the conduct of ALBANK's and
Charter One's operations pending the Merger, see the Merger Agreement included
hereto at Annex A and incorporated by reference herein.
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, provided that printing expenses and Commission fees are to be shared
equally and in the event the Merger Agreement is terminated for any reason other
than by Charter One due to a breach by ALBANK or the ALBANK Board's failure to
recommend the adoption of the Merger Agreement (or its withdrawal or
modification of such recommendation) or due to the ALBANK stockholders failing
to approve the Merger Agreement, Charter One will promptly reimburse ALBANK for
up to $75,000 in third party expenses relating to the establishment of the New
National Bank (or for taking other steps to accomplish the same objectives). See
"-- Regulatory Matters."
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ACCOUNTING TREATMENT
The Merger is intended to be accounted for under the
"pooling-of-interests" method of accounting. Under the "pooling-of-interests"
method of accounting, the historical cost basis of the assets and liabilities of
Charter One and ALBANK will be combined and carried forward at their previously
recorded amounts, and the stockholders' equity accounts of Charter One and
ALBANK will be combined on Charter One's consolidated statement of financial
condition. Income and other financial statements of Charter One issued after
consummation of the Merger will be restated retroactively to reflect the
consolidated operations of Charter One and ALBANK as if the Merger had taken
place prior to the periods covered by such financial statements. In determining
the appropriateness of the "pooling-of-interests" method of accounting for the
Merger and the pending CSFC Acquisition, consideration has been given to Charter
One's rescission of any outstanding stock repurchase authorization prior to
consummation of the CSFC Acquisition. It is a condition of the Merger that
Charter One receive a letter from Deloitte & Touche LLP stating its opinion that
the Merger will qualify for "pooling-of-interests" accounting treatment. See "--
Conditions to the Merger."
The unaudited pro forma combined financial information contained in
this Joint Proxy Statement/Prospectus has been prepared reflecting the
"pooling-of-interests" accounting method. See "UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS."
NO APPRAISAL 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, and neither
the Charter One Certificate of Incorporation nor the ALBANK Certificate of
Incorporation does, Section 262 does not provide for appraisal rights (i) for
shares of stock of a corporation that are listed on a national securities
exchange or designated as a national market system security on an inter-dealer
quotation system by the National Association of Securities Dealers, Inc. (the
"NASD") or held of record by more than 2,000 stockholders (as long as the
stockholders receive in the merger (a) 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 system security on an inter-dealer
quotation system by the NASD or held of record by more than 2,000 stockholders
and (b) cash in lieu of fractional shares) or (ii) for shares of stock of the
surviving corporation in the merger if no vote of its stockholders is required
to approve the merger under the DGCL. Neither the Charter One Certificate of
Incorporation nor the ALBANK Certificate of Incorporation provide for appraisal
rights beyond those specifically provided under the DGCL. As a result, holders
of ALBANK Common Stock and Charter One Common Stock will have no appraisal
rights with respect to their shares of common stock in connection with the
Merger.
RESALE OF CHARTER ONE COMMON STOCK BY AFFILIATES
The shares of Charter One Common Stock to be issued to stockholders of
ALBANK 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 10% or more stockholders) of ALBANK or Charter One at the time of
the Special Meetings.
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
ALBANK 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 ALBANK 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 Joint Proxy
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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 ALBANK.
Commission guidelines regarding qualifying for the
"pooling-of-interests" method of accounting also limit sales by affiliates of
Charter One and ALBANK in the Merger. Commission guidelines indicate that the
"pooling-of-interests" method of accounting generally will not be challenged on
the basis of sales by affiliates if they do not dispose of any of the shares of
either combining company they owned prior to the consummation of a merger or
shares of the surviving company received in connection with a merger during the
period beginning 30 days before the consummation of the merger and ending when
financial results covering at least 30 days of post-merger operations of the
surviving company have been published.
The Merger Agreement provides that ALBANK will use its reasonable best
efforts to cause each director, executive officer and other person who is deemed
by ALBANK to be an affiliate (for purposes of Rule 145 and for purposes of
qualifying the Merger for the "pooling-of-interests" method of accounting
treatment) of ALBANK to execute and deliver a written agreement with Charter One
and ALBANK intended to ensure such affiliate's compliance with the Securities
Act and to ensure that the affiliate will not take any steps that would cause
the Merger not to qualify as a pooling-of-interests. The Merger Agreement also
provides that Charter One will use its reasonable best efforts to cause its
affiliates to execute and deliver a written agreement with Charter One for the
same purposes.
DIVIDEND REINVESTMENT PLAN
Charter One currently maintains an Automatic Dividend Reinvestment and
Cash Stock Purchase Plan. This plan provides stockholders of Charter One with a
simple and convenient method of investing cash dividends, as well as voluntary
cash payments, in additional shares of Charter One Common Stock. ALBANK
currently has a similar plan, which will be terminated prior to the Effective
Date. It is anticipated that, after the Effective Date, Charter One will
continue to offer its plan, and stockholders of ALBANK who become stockholders
of Charter One will be eligible to participate therein.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following summary of the anticipated material federal income tax
consequences of the Merger to holders who hold shares of ALBANK Common Stock as
capital assets deals only with holders who are (i) citizens or residents of the
United States, (ii) domestic corporations or (iii) otherwise subject to United
States federal income tax on a net income basis in respect of shares of ALBANK
Common Stock ("U.S. Holders"). This summary may not apply to certain classes of
taxpayers, including, without limitation, foreign persons, insurance companies,
tax-exempt organizations, financial institutions, dealers in securities, persons
who acquired or acquire shares of ALBANK Common Stock pursuant to the exercise
of employee stock options or otherwise as compensation and persons who hold
shares of ALBANK Common Stock in a hedging transaction or as part of a straddle
or conversion transaction. Also, the summary does not address state, local or
foreign tax consequences of the Merger. Consequently, each holder should consult
such holder's own tax adviser as to the specific tax consequences of the Merger
to such holder.
This summary is based on current law and the opinions of Silver,
Freedman & Taff, L.L.P., special counsel to Charter One, and Cleary, Gottlieb,
Steen & Hamilton, special counsel to ALBANK. Future legislative, judicial or
administrative changes or interpretations, which may be retroactive, could alter
or modify the statements set forth herein. This summary is based on, among other
things, assumptions relating to certain facts and circumstances of, and the
intentions of the parties to, the Merger, which assumptions have been made with
the consent of Charter One and ALBANK. Neither Charter One nor ALBANK intends to
request any ruling from the Internal Revenue Service as to the United States
federal income tax consequences of the Merger.
It is intended that the Merger be treated as a reorganization within
the meaning of Section 368(a) of the Code, and that, accordingly, for federal
income tax purposes no gain or loss would be recognized by either ALBANK or
Charter One as a result of the Merger.
Charter One's obligation to consummate the Merger is conditioned upon,
among other things, the receipt of an opinion of Silver, Freedman & Taff,
L.L.P., dated the Effective Date, to the effect that the Merger and the Bank
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Mergers constitute reorganizations within the meaning of Section 368 of the
Code. ALBANK's obligation to consummate the Merger is conditioned upon, among
other things, the receipt of an opinion of Cleary, Gottlieb, Steen & Hamilton,
dated the Effective Date, to the effect that (i) the Merger constitutes a
reorganization within the meaning of Section 368 of the Code and (ii) no gain or
loss will be recognized by stockholders of ALBANK who receive shares of Charter
One Common Stock in exchange for shares of ALBANK Common Stock, except with
respect to cash received in lieu of fractional share interests. Such opinions
will be based upon facts, representations and assumptions set forth therein. In
rendering such opinions, counsel may require and rely upon factual
representations contained in letters to be received from ALBANK, Charter One and
others.
The material federal income tax consequences of the Merger to each of
Charter One, ALBANK and U.S. Holders who exchange shares of ALBANK Common Stock
for shares of Charter One Common Stock pursuant to the Merger will be as
follows:
(i) no gain or loss will be recognized by Charter One or ALBANK as a
result of the consummation of the Merger;
(ii) no gain or loss will be recognized by a U.S. Holder who receives
shares of Charter One Common Stock in exchange for shares of ALBANK Common
Stock, except as described below with respect to a U.S. Holder who receives cash
in lieu of a fractional share interest in Charter One Common Stock;
(iii) the aggregate adjusted tax basis of shares of Charter One Common
Stock (including a fractional share interest in Charter One Common Stock deemed
received and redeemed as described below) received by a U.S. Holder will be the
same as the aggregate adjusted tax basis of the shares of ALBANK Common Stock
exchanged therefor;
(iv) the holding period of shares of Charter One Common Stock
(including a fractional share interest in Charter One Common Stock deemed
received and redeemed as described below) received by a U.S. Holder will include
the holding period of the ALBANK Common Stock exchanged therefor, provided such
shares of ALBANK Common Stock were held as capital assets at the Effective Time;
and
(v) a U.S. Holder who receives cash in lieu of a fractional share
interest in Charter One Common Stock will be treated as having received such
fractional share interest and then as having received the cash in redemption of
such fractional share interest. Under Section 302 of the Code, if such deemed
distribution were "substantially disproportionate" with respect to the U.S.
Holder or were "not essentially equivalent to a dividend" after giving effect to
the constructive ownership rules of the Code, the U.S. Holder would generally
recognize capital gain or loss equal to the difference between the amount of
cash received and the U.S. Holder's adjusted tax basis in the fractional share
interest (determined as described in (iii) above). Such capital gain or loss
would be long-term capital gain or loss if the U.S. Holder's holding period in
the fractional share interest (determined as described in (iv) above) is more
than one year. Long-term capital gain of a non-corporate U.S. Holder is
generally subject to a maximum tax rate of 20% if the holding period exceeds one
year.
Under the terms of the Merger Agreement, the conditions of the Merger,
including receipt by each party of opinions of counsel relating to tax matters,
may be waived by Charter One or ALBANK, as applicable. As of the date of this
Joint Proxy Statement/Prospectus, neither Charter One nor ALBANK intends to
waive the conditions as to the receipt of opinions of counsel on tax matters. In
the event, however, that either Charter One or ALBANK determines to waive this
condition to its obligation to consummate the Merger and the material federal
income tax consequences to Charter One stockholders or ALBANK stockholders, as
the case may be, are different from those described above, Charter One or
ALBANK, as the case may be, will resolicit their respective stockholders prior
to proceeding with consummation of the Merger.
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON
THE PARTICULAR CIRCUMSTANCES OF EACH HOLDER OF ALBANK COMMON STOCK AND OTHER
FACTORS, EACH SUCH HOLDER IS URGED TO CONSULT SUCH HOLDER'S OWN TAX ADVISOR AS
TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH HOLDER (INCLUDING THE
APPLICATION AND EFFECT OF FOREIGN, STATE AND LOCAL INCOME AND OTHER TAX LAWS).
59
<PAGE> 76
NASDAQ LISTING
Both Charter One Common Stock and ALBANK 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
ALBANK pursuant to the Merger Agreement will be approved for listing on the
Nasdaq National Market, subject to official notice of issuance. See "--
Conditions to the Merger."
MANAGEMENT AND OPERATIONS AFTER THE MERGER
MANAGEMENT
At the Effective Time, Herbert G. Chorbajian, the current Chairman,
President and Chief Executive Officer of ALBANK, will be appointed to the
Charter One Board to serve for a term expiring at Charter One's annual meeting
held in April 1999. Mr. Chorbajian will serve as a Vice Chairman of the Charter
One Board. Furthermore, Karen R. Hitchcock (who is currently a director of
ALBANK) will be appointed to the Charter One Board to serve for a term expiring
at Charter One's annual meeting held in April 2000 and, within twelve months of
the Effective Time, Charter One agrees to take all reasonable steps, subject to
OTS approval (if required), to cause John J. Nigro (who is currently a director
of ALBANK) to be elected to the Charter One Board. At the Effective Time,
Charter One will also establish an Albany, New York Advisory Board and offer
membership on the Advisory Board to certain current directors and executive
officers of ALBANK. See "THE MERGER -- Interests of Certain Persons in the
Merger." The directors and officers of Charter One in office immediately prior
to the Effective Time, together with such additional directors from ALBANK set
forth above, will serve as the directors and officers of Charter One from and
after the Effective Time. Information concerning the management of Charter One
is included in the documents incorporated by reference. See "INCORPORATION OF
CERTAIN DOCUMENT BY REFERENCE."
CONSOLIDATION OF OPERATIONS
Upon consummation of the Merger, the combined company will be
headquartered in Cleveland. The combined institution (including CSFC) will have
___ full service offices located in Ohio, Michigan and New York, with
approximately $__ billion in total deposits. After consummation of the Merger
and the CSFC Acquisition, Charter One is expected to remain a well capitalized
institution under current regulatory requirements.
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-Michigan, which in turn receives dividends
from Charter One Bank, which are subject to certain federal regulatory
limitations. The Charter One Board after the consummation of the 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 "SUMMARY -- Comparative Stock Prices and Dividend Information."
STOCK OPTION AGREEMENT
As an inducement to the willingness of Charter One to enter into the
Merger Agreement, on June 15, 1998, ALBANK entered into the Stock Option
Agreement with Charter One. The following description of the Stock Option
Agreement is qualified in its entirety by reference to the text of such Stock
Option Agreement, a copy of which is included at Annex D and which is
incorporated herein by reference.
60
<PAGE> 77
Pursuant to the Stock Option Agreement, ALBANK granted Charter One the
Option, which permits Charter One to purchase up to 1,305,819 shares of ALBANK
Common Stock (the "Option Shares"), subject to adjustment in certain cases as
described below but in no event exceeding 9.9% of the number of shares of ALBANK
Common Stock outstanding immediately before exercise of the Option. The exercise
price of the Option is $51.50 per share, subject to adjustment under specified
circumstances (such exercise price, as so adjusted, being referred to herein as
the "Option Price").
The Option will become exercisable in whole or in part if both an
"Initial Triggering Event" and a "Subsequent Triggering Event" occur with
respect to ALBANK prior to the occurrence of an "Exercise Termination Event," as
such terms are defined below. The purchase of any shares of ALBANK Common Stock
pursuant to the Option is subject to compliance with applicable law, including
the receipt of necessary approvals under the BHCA.
Under the Stock Option Agreement an "Initial Triggering Event" is any
of the following events:
(i) ALBANK, ALBANK Commercial or ALBANK, FSB, without Charter One's
prior written consent, shall have entered into an agreement to engage in an
"Acquisition Transaction" (as defined below) with a third party or the ALBANK
Board shall have recommended that the stockholders of ALBANK approve or accept
any Acquisition Transaction, other than the Merger;
(ii) A third party (other than the ALBANK ESOP) shall have acquired
beneficial ownership or the right to acquire beneficial ownership of 10% or more
of the outstanding shares of ALBANK Common Stock;
(iii) The stockholders of ALBANK shall have voted and failed to adopt
the Merger Agreement at the ALBANK Special Meeting or any adjournment or
postponement thereof or the ALBANK Special Meeting shall not have been held in
violation of the Merger Agreement or shall have been canceled prior to
termination of the Merger Agreement if, prior to such meeting (or if such
meeting shall not have been held or shall have been canceled, prior to such
termination), it shall have been publicly announced that any third party shall
have made, or publicly disclosed an intention to make, a proposal to engage in
an Acquisition Transaction with respect to ALBANK;
(iv) The ALBANK Board shall have withdrawn or modified (or publicly
announced its intention to withdraw or modify) in any manner adverse to Charter
One its recommendation that the stockholders of ALBANK adopt the Merger
Agreement at the ALBANK Special Meeting, or ALBANK or an ALBANK subsidiary,
without Charter One's prior written consent, shall have authorized, recommended
or proposed (or publicly announced its intention to authorize, recommend or
propose) an agreement to engage in an Acquisition Transaction with a third party
or ALBANK shall have provided information to or engaged in negotiations with a
third party relating to a possible Acquisition Transaction;
(v) A third party shall have made a proposal to ALBANK or its
stockholders to engage in an Acquisition Transaction and such proposal shall
have been publicly announced;
(vi) A third party shall have filed with the Commission a registration
statement with respect to a potential exchange offer that would constitute an
Acquisition Transaction (or filed a preliminary proxy statement with the
Commission with respect to a potential vote by its stockholders to approve the
issuance of shares to be offered in such an exchange offer);
(vii) ALBANK shall have willfully breached any covenant or obligation
contained in the Merger Agreement in anticipation of engaging in an Acquisition
Transaction, and following such breach Charter One would be entitled to
terminate the Merger Agreement (whether immediately or after the giving of
notice or passage of time or both); or
(viii) Other than in connection with a transaction to which Charter One
has given its prior written consent, a third party shall have filed an
application or notice with the relevant federal or state bank regulatory or
antitrust authority, which application or notice shall have been accepted for
processing, for approval to engage in an Acquisition Transaction.
As used in the Stock Option Agreement, the term "Acquisition
Transaction" means (x) a merger or consolidation, or any similar transaction,
involving ALBANK or any of its subsidiaries (other than mergers,
61
<PAGE> 78
consolidations or similar transactions (i) involving solely ALBANK and/or one or
more of its wholly owned (except for directors' qualifying shares and a de
minimis number of other shares) subsidiaries, provided that any such transaction
is not entered into in violation of the terms of the Merger Agreement or (ii) in
which the stockholders of ALBANK immediately prior to the completion of such
transaction own at least 50% of the ALBANK Common Stock (or the common stock of
the resulting or surviving entity in such transaction) immediately after
completion of such transaction, provided any such transaction is not entered
into in violation of the terms of the Merger Agreement), (y) a purchase, lease
or other acquisition of all or any substantial part of the assets or deposits of
ALBANK or any of its subsidiaries or (z) a purchase or other acquisition
(including by merger, consolidation, share exchange or otherwise) of securities
representing 10% or more of the voting power of ALBANK or any of its
subsidiaries other than by the ALBANK ESOP.
Under the Stock Option Agreement a "Subsequent Triggering Event" is any
of the following events or transactions: (i) the acquisition by a third party of
beneficial ownership of 25% or more of the then outstanding ALBANK Common Stock
or (ii) ALBANK or any of its subsidiaries, without having received the prior
written consent of Charter One, enters into an agreement to engage in an
Acquisition Transaction with a third party or the ALBANK Board recommends that
the stockholders of ALBANK approve or accept any Acquisition Transaction, other
than the Merger; provided, that for purposes of the definition of "Subsequent
Triggering Event," the percentage referred to in clause (z) of the definition of
"Acquisition Transaction" above shall be 25% rather than 10%.
Under the Stock Option Agreement an "Exercise Termination Event" is any
of (i) the Effective Time; (ii) termination of the Merger Agreement in
accordance with its terms, if such termination occurs prior to the occurrence of
an Initial Triggering Event, except a termination by Charter One if ALBANK
breaches, and does not timely cure any breach of, a representation, warranty,
covenant or other agreement contained in the Merger Agreement (but only if the
breach giving rise to the termination was willful) or if the ALBANK Board has
failed to recommend approval of the Merger to stockholders or has modified or
changed such recommendation (each, a "Listed Termination"); (iii) the passage of
15 months, subject to extension in order to obtain required regulatory
approvals, to comply with applicable regulatory waiting periods or to avoid
liability under Section 16(b) of the Exchange Act (the "Extension"), after
termination of the Merger Agreement if such termination is concurrent with or
follows the occurrence of an Initial Triggering Event or is a Listed
Termination; or (iv) the date on which the stockholders of Charter One shall
have voted and failed to approve the Charter One Share Issuance (unless ALBANK
is then in material breach of its covenants or agreements under the Merger
Agreement or on or prior to such date the stockholders of ALBANK shall have also
voted and failed to approve and adopt the Merger Agreement). Notwithstanding
anything to the contrary contained in the Stock Option Agreement, the Option may
not be exercised at any time when Charter One is in material breach of its
covenants or agreements contained in the Merger Agreement such that ALBANK would
be entitled to terminate the Merger Agreement pursuant to the terms thereof as a
result of a material breach, and the Stock Option Agreement shall automatically
terminate (x) upon the termination of the Merger Agreement by ALBANK pursuant to
the terms thereof as a result of a breach by Charter One of its covenants or
agreements contained therein or (y) by ALBANK or Charter One if the approval of
any regulatory authority required for consummation of the Merger and the Bank
Mergers shall have been denied by final nonappealable action of such authority.
If the Option becomes exercisable, it may be exercised in whole or in
part within six months following the applicable Subsequent Triggering Event
(subject to possible extension). The Option Price and the number of shares
issuable under the Option are subject to adjustment in the event of specified
changes in the capital stock of ALBANK.
Upon the occurrence of a Subsequent Triggering Event that occurs prior
to an Exercise Termination Event, at Charter One's request, Charter One will be
entitled to certain registration rights with respect to the shares of ALBANK
Common Stock issued or issuable pursuant to the Option.
The Stock Option Agreement also provides that at any time after the
occurrence of a "Repurchase Event" (as defined below), upon request delivered
prior to an Exercise Termination Event, ALBANK shall be obligated to repurchase
the Option and all or any part of the Option Shares. Such repurchase of the
Option shall be at a price per share equal to the amount by which the
"Market/Offer Price" (as defined below) exceeds the Option Price. A repurchase
of Option Shares shall be at a price per share equal to the Market/Offer Price.
The term "Market/Offer Price" means the highest of (i) the price per share at
which a tender or exchange offer has been made for ALBANK Common Stock, (ii) the
price per share of ALBANK Common Stock that any third party is to pay pursuant
to an agreement with ALBANK, (iii) the highest closing price per share of ALBANK
Common Stock within the six-month period
62
<PAGE> 79
immediately preceding the date that notice to repurchase is given or (iv) in the
event of a sale of all or substantially all of ALBANK's assets or deposits, the
sum of the price paid for such assets or deposits and the current market value
of the remaining assets (as determined by a nationally recognized investment
banking firm), divided by the number of shares of ALBANK Common Stock
outstanding at the time of such sale. The term "Repurchase Event" means (i) the
acquisition by any third party of beneficial ownership of 50% or more of the
then-outstanding shares of ALBANK Common Stock or (ii) the consummation of an
Acquisition Transaction; provided, that for purposes of the definition of
"Repurchase Event," the percentage referred to in clause (z) of the definition
of "Acquisition Transaction" above shall be 50% rather than 10%.
The Stock Option Agreement also provides that Charter One may, at any
time following a Repurchase Event and prior to an Exercise Termination Event,
surrender the Option (and any Option Shares obtained upon the exercise thereof
and still held by Charter One) for a cash surrender fee (the "Surrender Fee")
equal to $25 million (i) plus, if applicable, Charter One's purchase price with
respect to any Option Shares and (ii) minus, if applicable, any net cash
received pursuant to the sale of Option Shares to any third party (less the
purchase price of such Option Shares). Charter One may not exercise its rights
to surrender the Option and receive the Surrender Fee if ALBANK has previously
repurchased the Option (or any portion thereof) or any Option Shares as
described in the preceding paragraph.
Notwithstanding any other provision of the Stock Option Agreement, in
no event shall Charter One's total profit (as defined in the Stock Option
Agreement) resulting from the Stock Option Agreement exceed $25 million. If it
would otherwise exceed this amount, Charter One, at its election, shall either
(a) reduce the number of shares of ALBANK Common Stock subject to the Option,
(b) deliver to ALBANK for cancellation Option Shares previously purchased, (c)
pay cash to ALBANK, or (d) any combination of the above, so that Charter One's
actual total profit does not exceed $25 million. In addition, the Option may not
be exercised for a number of shares which would, as of the date of exercise,
have a net value to Charter One based on the closing price for ALBANK Common
Stock on the preceding trading day of more than $25 million.
Pursuant to the terms of the Stock Option Agreement, in the event that,
prior to an Exercise Termination Event, ALBANK enters into certain transactions
in which ALBANK is not the surviving corporation, certain fundamental changes in
the capital stock of ALBANK occur or ALBANK sells all or substantially all of
its or certain of its subsidiaries' assets, the Option will be converted into a
substitute option, with terms similar to those of the Option, to purchase
capital stock of the entity that is the effective successor to ALBANK.
The Stock Option Agreement provides that neither Charter One nor ALBANK
may assign any of its rights or obligations thereunder without the written
consent of the other party, except that in the event an Initial Triggering Event
occurs prior to an Exercise Termination Event, Charter One may, subject to
certain limitations, assign its rights and obligations thereunder in whole or in
part (subject to extension in certain cases).
Arrangements such as the Stock Option Agreement are customarily entered
into in connection with corporate mergers and acquisitions in an effort to
increase the likelihood that the transactions will be consummated in accordance
with their terms, and to compensate the grantee for the efforts undertaken and
the expenses, losses and opportunity costs incurred by it in connection with the
transactions if they are not consummated under certain circumstances involving
an acquisition or potential acquisition of the option issuer by a third party.
The Stock Option Agreement was entered into to accomplish these objectives. The
Stock Option Agreement may have the effect of discouraging offers by third
parties to acquire ALBANK prior to the Merger, even if such persons were
prepared to offer to pay consideration to ALBANK stockholders which has a higher
current market price than the shares of Charter One Common Stock to be received
by such holders pursuant to the Merger Agreement.
To the best knowledge of Charter One and ALBANK, no event giving rise
to the right to exercise the Option has occurred as of the date of this Joint
Proxy Statement/Prospectus.
63
<PAGE> 80
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Combined Statement of Financial
Condition as of June 30, 1998 combines the historical consolidated statements of
financial condition of Charter One and its subsidiaries and ALBANK and its
subsidiaries as if Charter One had consummated the Merger effective on June 30,
1998, after giving effect to certain pro forma adjustments described in the
accompanying notes. The following Unaudited Pro Forma Combined Statements of
Income for the six-month periods ended June 30, 1998 and 1997 and for each of
the years in the three-year period ended December 31, 1997 present the combined
historical results of operations of Charter One and its subsidiaries and ALBANK
and its subsidiaries as if Charter One had consummated the Merger effective as
of the first day of the period presented. Both Charter One's and ALBANK's fiscal
years end December 31. Pro forma per share amounts are based on an Exchange
Ratio of 2.268 (which reflects the Charter One Stock Dividend) shares of Charter
One Common Stock for each share of ALBANK Common Stock. See "THE MERGER --
Merger Consideration." The Merger is expected to close in the fourth quarter of
1998.
The Unaudited Pro Forma Combined Financial Statements and related
footnotes account for the 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 ALBANK 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 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
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 ALBANK,
which are incorporated by reference herein. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
64
<PAGE> 81
Unaudited Pro Forma Combined Statement of Financial Condition
<TABLE>
<CAPTION>
June 30, 1998
-------------------------------------------------------------------------
Combined
Pro Forma
Charter One ALBANK Pro Forma Amounts for
as Reported as Reported Adjustments the Merger
-------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents...................... $ 183,683 $ 209,393 $(53,000)(1) $ 340,076
Investment securities:
Available for sale, at fair value..... 30,759 328,257 --- 359,016
Held to maturity...................... --- 77,123 --- 77,123
Mortgage-backed securities:
Available for sale, at fair value..... 1,974,801 391,550 --- 2,366,351
Held to maturity...................... 3,399,777 16,978 --- 3,416,755
Loans and leases, net.......................... 13,072,147 2,836,062 --- 15,908,209
Loans held for sale............................ 227,459 --- --- 227,459
FHLB stock..................................... 374,098 25,864 --- 399,962
Premises and equipment......................... 159,060 56,005 (12,500)(1) 202,565
Accrued interest receivable.................... 99,301 27,149 --- 126,450
Real estate and other collateral owned......... 13,708 5,207 --- 18,915
Loans servicing assets......................... 72,576 481 --- 73,057
Goodwill....................................... 86,782 79,027 --- 165,809
Other assets................................... 119,103 77,772 20,500(2) 217,375
----------- ---------- -------- -----------
Total assets.......................... $19,813,254 $4,130,868 $(45,000) $23,899,122
=========== ========== ======== ===========
Liabilities and Stockholders' Equity:
Liabilities:
Deposits....................................... $10,907,379 $3,505,324 $ --- $14,412,703
FHLB Advances.................................. 5,036,901 62,061 --- 5,098,962
Reverse repurchase agreements.................. 1,799,846 --- --- 1,799,846
Other borrowings............................... 239,088 26,105 --- 265,193
Advance payments by borrowers for taxes
and insurance............................... 61,856 25,154 --- 87,010
Accrued interest payable....................... 51,633 1,159 --- 52,792
Accrued expenses and other liabilities......... 237,169 81,620 --- 318,789
----------- ---------- -------- -----------
Total liabilities..................... $18,333,872 $3,701,423 $ --- $22,035,295
----------- ---------- -------- -----------
Corporation-obligated mandatorily
redeemable capital securities of
subsidiary trust.............................. $ --- $ 50,000 $ --- $ 50,000
Stockholders' equity:
Common stock and paid-in capital............... $ 707,454 $ 184,705 $(66,289)(3) $ 825,870
Retained earnings.............................. 793,469 258,222 (45,000)(4) 1,006,691
Treasury stock................................. (53,526) (66,289) 66,289(3) (53,526)
Borrowings of employee investment and
stock ownership plan........................ (1,943) (4,785) --- (6,728)
Accumulated other comprehensive income......... 33,928 7,592 --- 41,520
----------- ---------- -------- ----------
Total stockholders' equity............ 1,479,382 379,445 (45,000)(4) 1,813,827
----------- ---------- -------- ----------
Total liabilities and stockholders'
equity................................ $19,813,254 $4,130,868 $(45,000) $23,899,122
=========== ========== ======== ===========
</TABLE>
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<PAGE> 82
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF CONDITION
(1) Transaction costs of the Merger (primarily investment banker and other
professional fees) and costs to combine operations are expected to be
in the range of $40.0 million to $50.0 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 pre-tax range
($65.5 million). It is anticipated that these charges will be incurred
and recognized prior to December 31, 1998. In addition, it is
anticipated that cash charges will be substantially paid by the end of
1998 or early in 1999. The following table provides details of the
estimated charges by type of cost:
<TABLE>
<CAPTION>
TYPE OF COST EXPECTED PRE-TAX RANGE EXPECTED AFTER-TAX RANGE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Transaction Costs $13 to $16 million $11 to $13 million
Costs to combine operations:
Severance and other employee $26 to $34 million $17 to $22 million
termination costs
Duplicative systems and facilities
costs $11 to $14 million $ 7 to $ 9 million
Other costs incidental to the merger $ 8 to $ 9 million $ 5 to $ 6 million
--- --- ---- ----
Total $58 to $73 million $40 to $50 million
=== === === ===
</TABLE>
(2) Represents the expected income tax benefit associated with the pro
forma adjustments.
(3) Elimination of ALBANK's treasury shares.
(4) Represents the after-tax effect of the pro forma adjustments, as
described in note (1) above, using a Federal income tax rate of 35%.
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<PAGE> 83
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1998
-------------------------------------------------------------
Combined
Pro Forma
Charter One as ALBANK as Amounts for
Reported Reported the Merger
-------------------------------------------------------------
(Dollars and shares in thousands, except per share amounts)
<S> <C> <C> <C>
Interest income........................................... $723,938 $145,164 $ 869,102
Interest expense.......................................... 439,790 71,737 511,527
--------- ------- --------------
Net interest income.............................. 284,148 73,427 357,575
Provision for loan and lease losses....................... 10,156 3,600 13,756
----------- --------- ----------------
Net interest income after provision for loan
and lease losses........................................ 273,992 69,827 343,819
Net gain on sales......................................... 8,374 258 8,632
Other income.............................................. 79,535 10,176 89,711
Other expenses............................................ 163,856 48,965 212,821
---------- ------- --------------
Income before income taxes................................ 198,045 31,296 229,341
Provision for income taxes................................ 66,151 11,214 77,365
---------- --------- ---------------
Net income................................................ $131,894 $ 20,082 $ 151,976
======== ======== =============
Earnings per share:
Basic............................................ $ .98 $ 1.56 $ .93
============ ========= =================
Diluted.......................................... $ .95 $ 1.46 $ .90
============ ========= =================
Weighted average shares:
Basic............................................ 134,406 12,890 163,640
======= ====== =======
Diluted.......................................... 138,551 13,771 169,785
======= ====== =======
</TABLE>
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<PAGE> 84
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1997
-----------------------------------------------------------
Combined
Pro Forma
Charter One ALBANK as Amounts for the
as Reported Reported Merger
----------------------------------------------------------
(Dollars and shares in thousands, except per share amounts)
<S> <C> <C> <C>
Interest income............................................ $ 667,777 $ 130,048 $ 797,825
Interest expense........................................... 407,691 63,562 471,253
------------- ------------- -------------
Net interest income............................... 260,086 66,486 326,572
Provision for loan and lease losses........................ 9,625 3,600 13,225
------------- ------------- -------------
Net interest income after provision for loan
and lease losses.......................................... 250,461 62,886 313,347
Net gain on sales.......................................... 617 375 992
Other income............................................... 64,936 6,391 71,327
Other expenses............................................. 155,005 40,012 195,017
------------- ------------- -------------
Income before income taxes................................. 161,009 29,640 190,649
Provision for income taxes................................. 54,138 10,882 65,020
------------- ------------- -------------
Net income................................................. $ 106,871 $ 18,758 $ 125,629
============= ============= =============
Earnings per share:
Basic............................................. $ .81 $ 1.48 $ .78
============= ============= =============
Diluted........................................... $ .79 $ 1.37 $ .76
============= ============= =============
Weighted average shares:
Basic............................................. 131,473 12,703 160,283
======= ====== =======
Diluted........................................... 135,031 13,665 166,023
======= ====== =======
</TABLE>
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<PAGE> 85
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997
-----------------------------------------------------------
Combined
Pro Forma
Charter One ALBANK as Amounts for the
as Reported Reported Merger
----------------------------------------------------------
(Dollars and shares in thousands, except per share amounts)
<S> <C> <C> <C>
Interest income............................................ $ 1,377,687 $ 269,176 $ 1,646,863
Interest expense........................................... 850,724 132,430 983,154
------------- ------------- --------------
Net interest income............................... 526,963 136,746 663,709
Provision for loan and lease losses........................ 40,861 7,200 48,061
------------- ------------- --------------
Net interest income after provision for loan
and lease losses........................................ 486,102 129,546 615,648
Net gain (loss) on sales................................... (3,074) 682 (2,392)
Other income............................................... 113,885 13,584 127,469
Merger expenses............................................ 60,617 --- 60,617
Other expenses............................................. 313,313 84,390 397,703
------------- ------------- --------------
Income before income taxes................................. 222,983 59,422 282,405
Provision for income taxes................................. 71,847 15,998 87,845
------------- ------------- --------------
Net income before extraordinary item....................... $ 151,136 $ 43,424 $ 194,560
============= ============= ==============
Earnings per share:
Basic............................................. $ 1.14 $ 3.41 $ 1.21
============= ============= ==============
Diluted........................................... $ 1.11 $ 3.17 $ 1.16
============= ============= ==============
Weighted average shares:
Basic............................................. 132,241 12,746 161,149
======= ====== =======
Diluted........................................... 135,986 13,700 167,057
======= ====== =======
</TABLE>
69
<PAGE> 86
<TABLE>
<CAPTION>
For the Year Ended December 31, 1996
-----------------------------------------------------------
Combined
Pro Forma
Charter One ALBANK as Amounts for the
as Reported Reported Merger
----------------------------------------------------------
(Dollars and shares in thousands, except per share amounts)
<S> <C> <C> <C>
Interest income............................................ $ 1,293,883 $ 248,526 $ 1,542,409
Interest expense........................................... 785,323 122,885 908,208
-------------- ------------ --------------
Net interest income............................... 508,560 125,641 634,201
Provision for loan and lease losses........................ 17,549 5,775 23,324
-------------- ------------ --------------
Net interest income after provision for loan
and lease losses........................................ 491,011 119,866 610,877
Net gain (loss) on sales................................... 1,753 712 2,465
Other income............................................... 114,484 11,442 125,926
Federal deposit insurance special assessment............... 56,258 10,397 66,655
Other expenses............................................. 300,935 79,906 380,841
-------------- ------------ --------------
Income before income taxes................................. 250,055 41,717 291,772
Provision for income taxes................................. 82,628 15,510 98,138
-------------- ------------ --------------
Net income................................................. $ 167,427 $ 26,207 $ 193,634
============= ============ =============
Earnings per share:
Basic............................................. $ 1.26 $ 1.99 $ 1.19
============= ============ =============
Diluted........................................... $ 1.20 $ 1.87 $ 1.13
============= ============ =============
Weighted average shares:
Basic............................................. 131,195 13,146 161,010
======= ====== =======
Diluted........................................... 139,956 14,048 171,818
======= ====== =======
</TABLE>
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<PAGE> 87
<TABLE>
<CAPTION>
For the Year Ended December 31, 1995
----------------------------------------------------------
Combined
Pro Forma
Charter One ALBANK as Amounts for the
as Reported Reported Merger
----------------------------------------------------------
(Dollars and shares in thousands, except per share amounts)
<S> <C> <C> <C>
Interest income............................................ $ 1,356,831 $ 212,502 $ 1,569,333
Interest expense........................................... 918,804 104,015 1,022,819
-------------- ------------ -------------
Net interest income............................... 438,027 108,487 546,514
Provision for loan and lease losses........................ 8,664 4,500 13,164
-------------- ------------ -------------
Net interest income after provision for loan
and lease losses........................................ 429,363 103,987 533,350
Net loss on sales.......................................... 93,527 836 94,363
Other income............................................... 90,343 10,284 100,627
Merger expenses............................................ 37,528 --- 37,528
Other expenses............................................. 285,109 65,804 350,913
-------------- ------------ -------------
Income before income taxes................................. 103,542 47,631 151,173
Provision for income taxes................................. 31,757 18,348 50,105
-------------- ------------ -------------
Net income................................................. $ 71,785 $ 29,283 $ 101,068
============== ============ =============
Earnings per share:
Basic............................................. $ .50 $ 2.08 $ .58
============== ============ =============
Diluted........................................... $ .50 $ 1.96 $ .57
============== ============ =============
Weighted average shares:
Basic............................................. 132,100 14,047 163,958
======= ====== =======
Diluted........................................... 144,615 14,957 178,538
======= ====== =======
</TABLE>
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<PAGE> 88
UNAUDITED PRO FORMA PER SHARE DATA
The following table presents selected per share data for Charter One
and ALBANK on an historical and a pro forma basis (after giving effect to the
Stock Split and the Charter One Stock Dividend) as if Charter One had
consummated the Merger effective as of the dates or at the beginning of each of
the periods indicated. The Merger is expected to close in the fourth quarter of
1998. The Merger is expected to be accounted for under the
"pooling-of-interests" method of accounting and the unaudited pro forma
financial data is derived in accordance with such method.
The information shown below should be read in conjunction with the
historical consolidated financial statements of Charter One and ALBANK 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 ALBANK's fiscal years end December
31. 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.
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<PAGE> 89
<TABLE>
<CAPTION>
Combined Pro Forma
Pro Forma ALBANK
Charter One ALBANK Amounts for Equivalent
as Reported as Reported the Merger Shares
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Book value per share at:
June 30, 1998.......................... $11.04 $28.70 $11.06 $25.08(1)
December 31, 1997...................... 10.27 $27.86 10.63 24.11(1)
Shares outstanding at:
June 30, 1998.......................... 134,016,326 13,222,104 164,004,058
December 31, 1997...................... 134,082,558 12,906,845 163,355,282
Cash dividends declared per common share for:
Six months ended June 30, 1998......... $.25 $0.39 $.25 $0.57(2)
Six months ended June 30, 1997......... .22 0.30 .22 0.50(2)
Year ended December 31, 1997........... .45 0.66 .45 1.02(2)
Year ended December 31, 1996........... .39 0.51 .39 0.88(2)
Year ended December 31, 1995........... .32 0.40 .32 0.73(2)
Basic earnings per share before extraordinary item for:
Six months ended June 30, 1998......... .98 1.56 .93 2.11(1)
Six months ended June 30, 1997......... .81 1.48 .78 1.77(1)
Year ended December 31, 1997........... 1.14 3.41 1.21 2.74(1)
Year ended December 31, 1996........... 1.26 1.99 1.19 2.70(1)
Year ended December 31, 1995........... .50 2.08 .58 1.32(1)
Diluted earnings per share before extraordinary item for:
Six months ended June 30, 1998......... .95 1.46 .90 2.04(1)
Six months ended June 30, 1997......... .79 1.37 .76 1.72(1)
Year ended December 31, 1997........... 1.11 3.17 1.16 2.63(1)
Year ended December 31, 1996........... 1.20 1.87 1.13 2.56(1)
Year ended December 31, 1995........... .50 1.96 .57 1.29(1)
</TABLE>
- -------------------
(1) Represents "Combined Pro Forma Amounts for the Merger" multiplied by
the Exchange Ratio of 2.268.
(2) Amounts reflect cash dividends declared per common share for Charter
One as Reported multiplied by the Exchange Ratio of 2.268.
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<PAGE> 90
DESCRIPTION OF CHARTER ONE FINANCIAL, INC. CAPITAL STOCK
The following information regarding the material terms of Charter One's
capital stock is subject to and qualified in its entirety by reference to the
provisions in the Charter One Certificate of Incorporation.
GENERAL
The Charter One Certificate of Incorporation currently 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 Charter One Record Date 126,220,205 shares of Charter One
Common Stock and no shares of Charter One Preferred Stock were issued and
outstanding. 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 Charter One Common
Stock is Boston EquiServe, L.P. See "AMENDMENT NUMBER TWO TO THE SECOND RESTATED
CERTIFICATE OF INCORPORATION OF CHARTER ONE FINANCIAL, INC."
COMMON STOCK
Each share of Charter One Common Stock has the same relative rights and
is identical in all respects with each other share of Charter One Common Stock.
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 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 ALBANK FINANCIAL
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 of Incorporation 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 ALBANK FINANCIAL
CORPORATION -- Rights Agreement."
The foregoing discussion of the Charter One Common Stock is qualified
in its entirety by reference to the description of the Charter One Common Stock
contained in Charter One's Registration Statement on Form 8-A (as amended) with
respect thereto, which is incorporated by reference in this Joint Proxy
Statement/Prospectus. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
PREFERRED STOCK
The Charter One Certificate of Incorporation 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 Charter One
Record Date.
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<PAGE> 91
The Charter One Preferred Stock may be issued in one or more series at
such time or times and for such consideration 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 ALBANK FINANCIAL CORPORATION -- Rights Agreement."
COMPARISON OF RIGHTS OF STOCKHOLDERS OF
CHARTER ONE FINANCIAL, INC. AND ALBANK FINANCIAL CORPORATION
INTRODUCTION
Upon the consummation of the Merger, holders of ALBANK Common Stock,
whose rights are presently governed by the DGCL and the ALBANK Certificate of
Incorporation and ALBANK Bylaws, will become stockholders of Charter One, also a
Delaware corporation. Accordingly, their rights will be governed by the DGCL and
the Charter One Certificate of Incorporation and Charter One Bylaws. The
following discussion summarizes the 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 DGCL, the Charter One
Certificate of Incorporation and the Charter One Bylaws, the ALBANK Certificate
of Incorporation and the ALBANK Bylaws.
ISSUANCE OF CAPITAL STOCK
The ALBANK Certificate of Incorporation authorizes the issuance of
50,000,000 shares of common stock, par value $.01 per share, and 25,000,000
shares of preferred stock, par value $.01 per share. The Charter One
Certificate of Incorporation 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 stock, par value $.01 per share. As of the ALBANK Record Date
and the Charter One Record Date, 13,368,214 and 126,220,205 shares of ALBANK
Common Stock and Charter One Common Stock, respectively, were issued and
outstanding. For information regarding the number of shares of Charter One
Common Stock that would have been issued on a pro forma basis upon the
consummation of the Merger as of certain dates, see "UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS." ALBANK and Charter One are each authorized to
issue additional shares of capital stock without stockholder approval up to the
amount authorized. Charter One has separately proposed to its stockholders to
amend its Certificate of Incorporation to increase the number of authorized
shares of common stock to 360,000,000 shares of common stock. The Charter One
Share Issuance is not conditioned upon stockholder adoption of the Charter One
Certificate Amendment. See "AMENDMENT NUMBER TWO TO THE SECOND RESTATED
CERTIFICATE OF INCORPORATION OF CHARTER ONE FINANCIAL, INC."
PAYMENT OF DIVIDENDS
The ability of Charter One and ALBANK to pay dividends on their common
stock is governed by Delaware law. 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
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<PAGE> 92
not be paid out of net profits if, after the payment of the dividends, the
capital of the corporation would be less than the capital represented by the
outstanding stock of all classes having a preference upon the distribution of
assets.
The ability of ALBANK and Charter One to pay dividends on their common
stock also is affected by restrictions upon their receipt of dividends from
their respective subsidiaries. See "SUMMARY -- Comparative Stock Prices and
Dividend Information" for additional information.
ADVANCE NOTICE REQUIREMENTS FOR PRESENTATION OF NEW BUSINESS AND NOMINATIONS OF
DIRECTORS AT ANNUAL MEETINGS OF STOCKHOLDERS
The ALBANK Bylaws specify that notice of any stockholder nomination or
proposal for new business must be received by ALBANK not less than 30 days
before the date of the annual meeting of stockholders; however, in the event
that fewer than 40 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, written notice to ALBANK must be
submitted no later than the tenth day following the earlier of the date such
notice is given or public disclosure made.
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 to Charter One 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
Under Section 214 of the DGCL, a corporation may permit cumulative
voting in its certificate of incorporation. The ALBANK stockholders and the
Charter One stockholders are not permitted to cumulate their votes in the
election of directors pursuant to the respective certificates of incorporation
of ALBANK and Charter One. 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 to be selected at that
meeting, thus precluding minority stockholder representation on such Board.
RESTRICTIONS ON VOTING RIGHTS; QUORUM
The ALBANK Certificate of Incorporation limits the voting rights of any
person who beneficially owns in excess of 10% of the then-outstanding ALBANK
Common Stock (a "10% Beneficial Owner," as more specifically defined in the
ALBANK Certificate of Incorporation) to 10% of the then-outstanding shares of
ALBANK Common Stock. The Charter One Certificate of Incorporation restricts the
voting rights of any Related Person (as defined in the Charter One Certificate
of Incorporation) with respect to each vote in excess of 20% of the voting power
of the outstanding shares to 1/100 of a vote.
The ALBANK Bylaws and the Charter One Bylaws both provide that the
presence, in person or by proxy, of holders of a majority of the shares of
common stock entitled to vote at a meeting of stockholders constitutes a quorum
at any such meeting. Pursuant to both the Charter One Certificate of
Incorporation and ALBANK Certificate of Incorporation, however, to the extent
the voting rights of any Related Person or 10% Beneficial Owner, as the case may
be, are reduced, such reduced voting power will be considered for purposes of
determining a quorum.
NUMBER AND TERM OF DIRECTORS
Pursuant to the ALBANK Certificate of Incorporation, the ALBANK Board
will consist of not more than 15 members and the number of directors shall be
determined by a resolution adopted by at least a majority of the ALBANK Board.
The ALBANK Certificate of Incorporation further provides that the ALBANK Board
will be divided into three classes, with each class to contain, as nearly as
possible, one-third of the total number of directors and with the term of office
of each class to last three years.
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<PAGE> 93
The Charter One Certificate of Incorporation provides that the Charter
One Board may consist of the number of directors fixed by, or in the manner
provided in, the Charter One Bylaws. The Charter One Bylaws provide that the
number of directors shall be determined by a resolution adopted by the
affirmative vote of a majority of Charter One's continuing directors. The
Charter Once Certificate of Incorporation also provides that the Charter One
Board shall be divided into three classes with the term of office of one class
expiring each year.
REMOVAL OF DIRECTORS
Both the ALBANK Certificate of Incorporation and the ALBANK Bylaws
provide that directors may be removed at any time but only for cause and only by
the affirmative vote of at least 80% of then-outstanding shares of Common Stock
entitled to vote in an election of directors (after giving effect to the
limitation on voting power of 10% Beneficial Owners).
The Charter One Certificate of Incorporation 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 of
Incorporation 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 of Incorporation 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 ALBANK Certificate of Incorporation and ALBANK Bylaws and the
Charter One Certificate of Incorporation 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 directors 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 TO THE CERTIFICATE OF INCORPORATION
Section 242 of the DGCL requires approval of a majority of the Board of
Directors and of stockholders holding a majority of the voting power of a
corporation's voting stock in order to amend a corporation's certificate of
incorporation.
The ALBANK Certificate of Incorporation requires the affirmative vote
of the holders of at least 80% of the voting power of the then-outstanding
shares of capital stock entitled to vote generally in the election of directors
(after giving effect to the limitation on voting power of 10% Beneficial Owners)
to amend the provisions of the ALBANK Certificate of Incorporation (i) limiting
voting rights, (ii) relating to approval of certain business combinations with a
10% or greater stockholder, (iii) calling special meetings, (iv) setting the
number and classification of directors, (v) relating to indemnification of
officers and directors, and (vi) relating to amendment of the ALBANK Certificate
of Incorporation and ALBANK Bylaws.
The Charter One Certificate of Incorporation generally may be amended
by both the majority vote of the Charter One Board and 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 of Incorporation 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 of Incorporation and Charter One 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 Related Persons and Interested Persons, respectively, as
those terms are defined in the Charter One Certificate of Incorporation) may be
amended only by the same "super-majority" called for by those provisions.
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<PAGE> 94
AMENDMENT AND REPEAL OF BYLAWS
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.
The ALBANK Bylaws may be adopted, amended or repealed by the
affirmative vote of the holders of at least 80% of the voting power of all of
the then-outstanding shares of the stock of ALBANK entitled to vote generally in
the election of directors (after giving effect to the limitation of voting power
of 10% Beneficial Owners). The ALBANK Bylaws may also be amended or repealed by
a resolution adopted by a majority of the "Whole Board" (which is equal to the
number of directors ALBANK would have if there were no vacancies on the ALBANK
Board).
The Charter One 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
Neither Delaware law, the ALBANK Certificate of Incorporation nor the
Charter One Certificate of Incorporation contains a control share acquisition
statute or provision. See " -- Business Combinations with Certain Persons" for
certain restrictions imposed by Delaware law, the ALBANK Certificate of
Incorporation and the Charter One Certificate of Incorporation regarding
business combinations.
BUSINESS COMBINATIONS WITH CERTAIN PERSONS
Delaware Business Combination Statute. Section 203 of the DGCL
("Section 203"), which applies to ALBANK and 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.
The ALBANK Certificate of Incorporation requires the affirmative vote
of the holders of at least 80% of the voting power of the then-outstanding
shares of stock entitled to vote in the election of directors to approve any
"business combination" unless the business combination in question is approved
by a majority of Disinterested Directors (as defined in the ALBANK Certificate
of Incorporation) or certain price, form of consideration and procedure
requirements are met. The ALBANK Certificate of Incorporation defines "business
combination" to include the following transactions involving a beneficial owner
of more than 10% of the voting stock of ALBANK (or certain former and successor
10% owners) (an "Interested Stockholder"): (i) any merger or consolidation of
ALBANK or any of its subsidiaries with or into any Interested Stockholder or any
of such Interested Stockholder's affiliates; (ii) any sale, lease, exchange,
mortgage, transfer or other disposition to or with any Interested Stockholder or
any of such Interested Stockholder's affiliates of 10% or more of the combined
fair market value (as defined) of the consolidated assets of ALBANK and its
subsidiaries; (iii) the purchase, exchange, lease or other acquisition by ALBANK
or any of its subsidiaries of all or substantially all of the assets or
businesses of any Interested Stockholder or any of such Interested Stockholder's
affiliates; (iv) the issuance or transfer to any Interested Stockholder or any
of such Interested Stockholder's affiliates by ALBANK or any of its subsidiaries
of any securities of ALBANK in exchange for cash, securities or other property
the value of which equals or exceeds 10% of the fair market value of the
outstanding ALBANK Common Stock (except pursuant to any employee stock ownership
or similar plan of ALBANK or any of its subsidiaries); (v) the adoption of any
plan for the liquidation or dissolution of ALBANK proposed by or on behalf
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<PAGE> 95
of any Interested Stockholder or any of such Interested Stockholder's
affiliates; and (vi) any reclassification of securities, recapitalization, or
merger or consolidation of ALBANK with any of its subsidiaries or any other
transaction (whether or not involving an Interested Stockholder) which has the
effect of increasing the proportionate share of any class of equity or
convertible securities of ALBANK owned, directly or indirectly, by an Interested
Stockholder or any of such Interested Stockholder's affiliates.
The Charter One Certificate of Incorporation sets forth stockholder
approval requirements for mergers and other similarly important corporate
transactions involving substantial stockholders. The Charter One Certificate of
Incorporation generally would prohibit the acquisition, merger or consolidation
of Charter One or any of its subsidiaries, the sale, lease, exchange, mortgage,
pledge, transfer or other disposition of $5 million or more of assets, the
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 other transaction which has the effect of increasing the voting power of a
"related person" (as defined below), whether or not involving a "related
person," 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 or
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 of Incorporation). 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 transaction satisfies certain fair price criteria and various
procedural requirements.
PREVENTION OF GREENMAIL
The Charter One Certificate of Incorporation 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.
The ALBANK Certificate of Incorporation does not contain a similar
restriction.
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. Both the ALBANK Certificate of Incorporation and
the Charter One Certificate of Incorporation provide that a director shall not
be personally liable to the corporation or its stockholders for monetary damages
arising out of the director's breach of his or her fiduciary duty as a director,
except (i) for any breach of a director's duty of loyalty to the corporation 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 ALBANK Certificate
of Incorporation and the Charter One Certificate of Incorporation each provide
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 fiduciary duty to act
with due care as a director.
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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.
INDEMNIFICATION
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.
Both the Charter One Certificate of Incorporation and the ALBANK
Certificate of Incorporation generally provide for the same indemnification as
the DGCL, including the payment of expenses in advance of the final disposition
of an action, to the extent permitted by law. Both the Charter One Certificate
of Incorporation and the ALBANK Certificate of Incorporation also provide for
the continuation of indemnification after the termination of the indemnified
person's association with Charter One or ALBANK, as the case may be.
MERGERS, ACQUISITIONS AND CERTAIN OTHER TRANSACTIONS
Section 251 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. Neither the Charter One Certificate of Incorporation nor
the ALBANK Certificate of Incorporation specifies a different percentage except
with regard to business combinations with certain persons, as discussed above.
CRITERIA FOR EVALUATING CERTAIN OFFERS
The ALBANK Certificate of Incorporation provides that the ALBANK Board,
when evaluating any offer of another person to (i) make a tender or exchange
offer for any equity security of ALBANK, (ii) merge or consolidate ALBANK with
another corporation or entity, or (iii) purchase or otherwise acquire all or
substantially all of the properties and assets of ALBANK, may, in connection
with the exercise of its judgment in determining what is in the best interest of
ALBANK and its stockholders, give due consideration to all relevant factors,
including, without limitation, the social and economic effects of acceptance of
such offer on ALBANK's present and future customers and employees and those of
its subsidiaries, on the communities in which ALBANK and its subsidiaries
operate or are located, and on the ability of ALBANK to fulfill its corporate
objectives as a financial institution holding company and on the ability of its
subsidiaries to fulfill their objectives under applicable statutes and
regulations. The Charter One Certificate of Incorporation generally provides the
Charter One Board with the same flexibility to consider these and other factors
deemed relevant in the exercise of its judgment in evaluating such offers.
ACTION WITHOUT A MEETING
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. Both the Charter One Certificate of
Incorporation and the ALBANK Certificate of Incorporation prohibit stockholders'
action without a meeting.
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SPECIAL MEETINGS OF STOCKHOLDERS
Under Section 211(d) of the DGCL, the board of directors or those
persons authorized by the corporation's certificate of incorporation or bylaws
may call a special meeting of the corporation's stockholders. The ALBANK Bylaws
state that a special meeting of stockholders for any purpose can be called at
any time by the vote of a majority of the Whole Board or by the Chief Executive
Officer. The Charter One Certificate of Incorporation 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 of
Incorporation).
PREEMPTIVE RIGHTS
Under Section 102 of the DGCL, no statutory preemptive rights will
exist, unless a corporation's certificate of incorporation specifies otherwise.
Under both the ALBANK Certificate of Incorporation and Charter One Certificate
of Incorporation, stockholders do not have preemptive rights.
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS
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) for shares of stock of a corporation
that are listed on a national securities exchange or designated as a national
market system security on an inter-dealer quotation system by the NASD or held
of record by more than 2,000 stockholders (as long as the stockholders receive
in the merger (a) 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 system security on an inter-dealer quotation
system by the NASD or held of record by more than 2,000 stockholders and (b)
cash in lieu of fractional shares) or (ii) for shares of stock of the surviving
corporation in the merger if no vote of its stockholders is required to approve
the merger under the DGCL. 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. Neither the ALBANK Certificate of Incorporation nor the Charter One
Certificate of Incorporation provide for 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 Charter One Board shall consist of 16
directors (subsequently increased to 21), 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, his or her 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
Charter One Board shall be necessary to approve (i) any amendment to the Charter
One Certificate of Incorporation or Bylaws, (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.
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The Charter One Bylaws also provide that for a period of at least four
years following the merger with FirstFed, the Charter One Board as the surviving
corporation shall have a five person Executive Committee and such other
committees as the Charter One Board shall establish in accordance with Section
141 of the DGCL, the Charter One Certificate of Incorporation and the Charter
One Bylaws.
RIGHTS AGREEMENT
Charter One Rights Agreement. On November 20, 1989, the Charter One
Board declared a dividend distribution of one Right for each outstanding share
of Charter One Common Stock to stockholders of record at the close of business
on December 1, 1989 (the "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 $20.00, as adjusted to reflect
the Stock Split (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 the Company (the earlier of such dates being called the "Distribution
Date"), the Rights will be evidenced, with respect to any of the common stock
certificates outstanding as of the 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
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of Charter One Common Stock having a market value (immediately prior to the
triggering of the Right) of two times the exercise price of the Right, to the
extent available, and then (after all authorized and unreserved shares of Series
A Preferred Stock have been issued) an equal number of an equivalent security
(such as another equity security with at least the same economic value as 1/100
share of Series A Preferred Stock) (such right being called the "Flip-In
Right"). In addition, Charter One shall be entitled (but not required) to
deliver, upon exercise of the Flip-In Right, in lieu of 1/100 share of Series A
Preferred Stock, an equal number of shares of common stock, to the extent they
are available. For example, at an exercise price of $20.00 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 $40.00 for $20.00.
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
$20.00 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 $40.00 (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 $20.00.
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.
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Each share of Series A Preferred Stock will have 100 votes, voting
together with the shares of Charter One Common Stock.
In the event of any merger, consolidation or other transaction in which
shares of Charter One Common Stock are exchanged, each share of Series A
Preferred Stock will be entitled to receive 100 times the amount and type of
consideration received per share of common stock. The rights of the Series A
Preferred Stock as to dividends, liquidation and voting, and in the event of
mergers and consolidations, are protected by customary anti-dilution provisions.
Fractional shares of Series A Preferred Stock will be issuable; however, Charter
One may elect to distribute depository receipts in lieu of such fractional
shares. In lieu of fractional shares other than fractions that are multiples of
1/100 share, an adjustment in cash will be made based on the market price of the
Series A Preferred Stock on the last trading date prior to the date of exercise.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of Charter One, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to stockholders or to Charter One, stockholders may, depending upon
the circumstances, recognize taxable income should the Rights become exercisable
or upon the occurrence of certain events thereafter.
Charter One and the Rights Agent may from time to time supplement or
amend the Rights Agreement without the consent of the holders of the Rights in
order to cure any ambiguity or to correct any defect or inconsistency contained
therein. In addition, prior to the Distribution Date, Charter One and the Rights
Agent may make such changes to the provisions of the Rights Agreement as Charter
One deems necessary or desirable. Following the Distribution Date, Charter One
and the Rights Agent may change or supplement the provisions of the Rights
Agreement in any manner which Charter One deems necessary or desirable and which
will not adversely affect the interests of the holders of the Rights.
Charter One currently has reserved 1,680,000 shares of Preferred Stock
(as adjusted to reflect the Stock Split and the Charter One Stock Dividend) for
issuance upon exercise of the Rights. As of the Charter One Record Date, there
were 126,220,205 shares of Charter One Common Stock, and therefore __________
Rights with respect to approximately 1,262,202 shares, 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.
ALBANK has not issued any similar rights or entered into any similar
agreements with respect to its common stock.
AMENDMENT NUMBER TWO TO THE SECOND RESTATED CERTIFICATE
OF INCORPORATION OF CHARTER ONE FINANCIAL, INC.
GENERAL
The Charter One Board has approved an Amendment Number Two to the
Second Restated Charter One Certificate of Incorporation to increase the number
of authorized shares of Charter One Common Stock from 180,000,000 to 360,000,000
(the "Charter One Certificate Amendment"). The affirmative vote of the holders
of a majority of the outstanding shares of Charter One Common Stock represented
in person or by proxy at the Charter One Special Meeting and entitled to vote on
the matter is required for approval and adoption of the Charter One Certificate
Amendment. The approval of the Charter One Share Issuance is not conditioned
upon adoption of the Charter One
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Certificate Amendment or any other proposal and the adoption of the Charter One
Certificate Amendment is not conditioned upon approval of the Charter One Share
Issuance or any other proposal.
INCREASE IN AUTHORIZED SHARES OF CAPITAL STOCK
General. Article FOURTH of the Charter One Certificate of Incorporation
currently provides that Charter One is authorized to issue 180,000,000 shares
of Charter One Common Stock. As of September 22, 1998, 126,220,205 shares of
Charter One Common Stock were issued and outstanding and 19,530,103 shares were
reserved for issuance pursuant to the Charter One stock option plans. Charter
One is also currently authorized to issue 20,000,000 shares of Charter One
Preferred Stock, none of which were outstanding as of September 22, 1998. The
Charter One Board has unanimously approved the proposed Charter One Certificate
Amendment, which would increase the number of authorized shares of Charter One
Common Stock from 180,000,000 to 360,000,000. Upon adoption of the Charter One
Certificate Amendment by the stockholders, Section A of Article FOURTH of the
Charter One Certificate of Incorporation will be amended in its entirety to
read as follows:
FOURTH: A. AUTHORIZED SHARES. The total number of shares of
all classes of stock which the Corporation shall have authority to
issue is three hundred eighty million (380,000,000), of which three
hundred sixty million (360,000,000) shall be common stock, par value
$.01 per share, and twenty million (20,000,000) shall be preferred
stock, par value $.01 per share. The number of authorized shares of
preferred stock may be increased or decreased (but not below the number
of shares thereof then outstanding) by the affirmative vote of a
majority of the stock of the Corporation entitled to vote generally in
the election of directors without a vote of holders of preferred stock
as a class, except to the extent that any such vote may be required by
any resolution providing for the issuance of series of preferred stock.
Purpose and Effects. Although there are sufficient authorized but
unissued shares of Charter One Common Stock to consummate the Merger and satisfy
Charter One's other obligations under the Merger Agreement, the Charter One
Board believes that the authorization of additional shares of Charter One Common
Stock is advisable to provide Charter One with the flexibility to take advantage
of opportunities to issue such stock in order to obtain capital, as
consideration for possible acquisitions or for other purposes (including,
without limitation, stock splits and stock dividends in appropriate
circumstances). There are, at present, no plans, understandings, agreements or
arrangements concerning the issuance of additional shares of Charter One Common
Stock, except for the shares of Charter One Common Stock to be issued (i)
pursuant to the Merger, (ii) upon the exercise of Charter One stock options into
which ALBANK Stock Options will be converted, (iii) upon the exercise of Charter
One stock options currently outstanding and (iv) pursuant to the CSFC
Acquisition. Assuming the issuance of the maximum number of shares of Charter
One Common Stock pursuant to the obligations of Charter One described in clauses
(i) through (iv) above, there would be 44,447,148 shares of Charter One Common
Stock issued and outstanding.
Uncommitted authorized but unissued shares of Charter One Common Stock
may be issued from time to time to such persons and for such consideration as
the Charter One Board may determine, and holders of the then-outstanding shares
of Charter One Common Stock may or may not be given the opportunity to vote
thereon, depending upon the nature of any such transactions, applicable law, the
rules and policies of the Nasdaq National Market and the judgment of the Charter
One Board regarding the submission of such issuance to a vote of the Charter One
stockholders. Charter One stockholders have no preemptive rights to subscribe
for newly issued shares.
Moreover, it is possible that additional shares of Charter One Common
Stock would be issued for the purpose of making an acquisition by an unwanted
suitor of a controlling interest in Charter One more difficult, time-consuming
or costly or to otherwise discourage an attempt to acquire control of Charter
One. Under such circumstances the availability of authorized and unissued shares
of Charter One Common Stock may make it more difficult for stockholders to
obtain a premium for their shares. Such authorized and unissued shares could be
used to create voting or other impediments or to frustrate a person seeking to
obtain control of Charter One by means of a merger, tender offer, proxy contest
or other means. Such shares could be privately placed with purchasers who might
cooperate with the Charter One Board in opposing such an attempt by a third
party to gain control of Charter One or could also be used to dilute ownership
of a person or entity seeking to obtain control of Charter One. Although Charter
One does not currently contemplate taking such action, shares of Charter One
Common Stock could be issued for the purposes and
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effects described above and the Charter One Board reserves its rights (if
consistent with its fiduciary responsibilities) to issue such stock for such
purposes.
Although approval of the Charter One Certificate Amendment is not a
condition to the Charter One Share Issuance, as described above, the Charter One
Board believes that the proposed increase in the number of authorized shares of
Charter One Common Stock will provide flexibility needed to meet corporate
objectives and is in the best interests of Charter One and its stockholders.
THE CHARTER ONE BOARD RECOMMENDS THAT CHARTER ONE STOCKHOLDERS VOTE
FOR THE CHARTER ONE CERTIFICATE AMENDMENT.
APPROVAL OF THE CHARTER ONE TOP EXECUTIVE INCENTIVE
GOAL ACHIEVEMENT PLAN
Shareholders are being asked to consider and approve the TEIGAP.
Section 162(m) of the Code limits the federal income tax deduction that the
Corporation may take for compensation paid to "Covered Employees" unless certain
requirements are satisfied. Code Section 162(m) places a $1,000,000 limit on the
deduction that may be taken for compensation paid to any Covered Employee unless
the compensation satisfies the criteria for an exemption. One exemption designed
to allow deductibility of compensation in excess of $1,000,000 applies to
compensation that is based on the attainment of objective performance measures
established in advance by a committee of two or more outside directors, if the
material terms of the performance measures under which the compensation is to be
paid are disclosed to and approved by shareholders. Covered Employees are the
chief executive officer and the four highest compensated officers (other than
the chief executive officer) of a publicly-traded corporation, as determined
pursuant to the executive compensation disclosure rules under the Exchange Act.
The TEIGAP is intended to preserve the deductibility of incentive compensation
paid to TEIGAP participants who are Covered Employees.
SUMMARY OF THE TEIGAP
The following summary of the TEIGAP is qualified in its entirety by
reference to the copy of the TEIGAP attached to this Proxy Statement as Annex E.
Objectives. The purpose of the TEIGAP is to provide incentive
compensation opportunities for certain senior officers of Charter One. The
TEIGAP is designed to promote stability and the achievement of Charter One's
performance objectives; to link top executive compensation to specific corporate
performance objectives and individual goals; to provide a competitive reward
structure for senior officers; and to encourage involvement and communication
regarding Charter One's strategic plans.
Participants in the TEIGAP have the opportunity to earn awards upon the
attainment of performance measures established by a committee consisting of two
or more members of the Board of Directors, each of whom is an outside director
as defined in Code Section 162(m) (the "Committee"). The members of the
Committee are appointed by the Board of Directors.
Eligibility. Eligibility is limited to individuals holding top
executive level positions whose functional responsibility encompasses the
establishment of strategic direction and long-range plans for Charter One,
including the Chief Executive Officer, Executive Vice Presidents and Senior Vice
Presidents, whose position grade levels are 49 or higher. Participants for each
plan year are eligible employees who are named by the Committee.
An employee who is hired, transferred or promoted into an eligible
position must be selected by the Committee to participate in the TEIGAP. An
employee who is hired, transferred or promoted into an eligible position within
the first six months of a plan year, and who is selected to participate, may
receive a prorated award for that plan year. An employee who is hired,
transferred or promoted into an eligible position in the last six months of a
plan year is eligible to be selected to participate in the following plan year.
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In general, a participant must be employed by Charter One on the last
day of the plan year to receive an award. A participant who retires, dies or
becomes disabled during a plan year may, at the discretion of the Committee,
receive a prorated award for that plan year. The Committee may determine whether
a participant who ceases employment after the end of a plan year, but before the
processing and distribution of awards for that plan year, is eligible to receive
an award for that plan year.
TEIGAP Administration. The Committee directs and controls the
administration of the TEIGAP, taking into consideration the recommendations of
the Chief Executive Officer. The Committee has the right and authority to
perform the following administrative tasks: (1) interpret the TEIGAP; (2) adopt,
amend or rescind rules and regulations relating to the administration and
interpretation of the TEIGAP; (3) make all other determinations necessary or
advisable for administering the TEIGAP; (4) exercise the powers conferred on the
Committee under the TEIGAP; and (5) correct any defect, supply any omission or
reconcile any inconsistency in the TEIGAP in the manner and to the extent it
shall deem expedient to carry it into effect, and it is the sole and final judge
of such expediency. The following persons currently are members of the
Committee: Michael P. Morley (Chairman), Phillip Wm. Fisher, Denise M. Fugo,
Charles M. Heidel, Henry R. Nolte, Jr. and Victor A. Ptak.
The Board of Directors has the exclusive authority to amend, modify,
suspend or terminate the TEIGAP at any time, with or without notice, except that
no amendment, modification, suspension or termination may in any manner
adversely affect the right of any participant to receive any award amount which
has been awarded to him or her. In addition, the Board of Directors has the
right to reduce the recommended award amount without the consent of any
participant. To qualify for the exemption from the deduction limitation of Code
Section 162(m), shareholders must approve certain material amendments to the
TEIGAP, such as a change in the business criteria upon which performance
measures are based, the maximum amount of a participant's bonus, and a change in
the class of employees eligible to participate in the TEIGAP.
Award Determination. Under the TEIGAP, a participant may be eligible to
receive an award for a plan year equal to a percentage of his or her annual base
salary at the end of the plan year, if the participant attains certain objective
individual goals and assists Charter One in achieving certain of its performance
objectives. The amount of a participant's award, if any, is based on the degree
to which the participant attains his or her objective individual goals and
Charter One achieves its performance objectives.
Charter One recognizes that the level of control and influence a
participant has to impact his or her objective individual goals and Charter
One's performance objectives is influenced by the participant's level of
responsibility. As such, the portions of a participant's award attributable to
the participant's attainment of his or her objective individual goals and to
Charter One's achievement of its performance objectives are weighted differently
based on the participant's level of responsibility. There are three levels of
responsibility recognized in the TEIGAP:
Level 1 Chief Executive Officer
Level 2 Executive Vice Presidents
Level 3 Senior Vice Presidents at position grade level 49 and above
In order for an award to be payable to a participant, both of the
following objectives must be met: (1) Charter One must achieve its performance
objectives; and (2) the participant must attain his or her objective individual
goals.
Thus, if a participant attains his or her objective individual goals
but Charter One fails to achieve its threshold performance objectives, no award
is paid to participants. Similarly, if Charter One achieves its performance
objectives, but a participant fails to attain his or her threshold objective
individual goals, no award is paid to that participant.
The awards granted pursuant to the TEIGAP are determined according to a
formula based on individual performance measures, corporate performance
measures, and each participant's annual base salary.
As soon as practicable but in any event within the first 90 days of
each plan year, the Committee will establish specific individual and corporate
performance measures, including threshold and one or more target levels
associated with each performance measure. The individual performance measures
for a plan year may be based on one or more of the following factors:
cost-savings, increased fee generation, increased production volumes, interest
rate spread and
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risk profiles, specific project completions, and compliance with budgets,
business plans and financial or business directives. Different performance
measures may be established for different participants. The corporate
performance measures for a plan year may be based on one or more of the
following factors: earnings per share, net average interest spread and risk
profile, recurring fees and other income, operating expenses, total loans and
leases, energized assets, new checking accounts, gap between the borrowing and
lending interest rates, gross income, net income, operating income, expense
levels, debt balance, return on assets, return on equity, production volumes,
sales, fee generation, loan generation or lease generation. The performance
measures may be based on the performance of Charter One and/or any one or more
of its subsidiaries, in the absolute or in relation to its peers, or the
performance of a particular employee, or the performance of a particular
division, department, branch, subsidiary or other unit to which a particular
employee is assigned. Each performance measure will be weighted to reflect its
relative importance to Charter One's business plan for the plan year. The sum of
the weightings of the target performance measures for a participant for the year
must equal 100 percent.
At the end of the plan year, each participant's objective individual
performance measures are addressed in his or her performance review and a
performance measure score is assigned to the participant by the Committee. The
Committee shall also evaluate Charter One's performance as compared to its
performance measures at the end of the plan year.
In addition to the awards based upon attainment of performance goals as
set forth above, from time to time, the Committee may, in its sole discretion,
grant ad hoc bonuses pursuant to the TEIGAP to any participant or group of
participants in such amount or amounts as it determines to be appropriate based
upon such factors as it deems to be relevant including but not limited to
successful merger completion. Any such ad hoc bonus will be paid in cash as soon
as practical after the bonus is awarded. Ad hoc bonuses are subject to the
deduction limitation of Code Section 162(m).
Payment of Awards. As promptly as practicable but in any event within
75 days after the end of each plan year, the Committee will certify the
performance measure scores for each participant. Each participant's award will
then be determined by multiplying the target award by applying the participant's
score to the formula and then adjusting down (but not up) such award for such
subjective factors as the Committee deems appropriate including whether overall
individual performance met expectations. At any time during a plan year, the
Committee will have the discretion to reduce (but not increase after the first
90 days of the plan year) the factors entering into the calculation of any
participant's award for the year. The maximum award that may be paid to any
participant in any year during the five-year term of the TEIGAP is $2,000,000.
Awards under the TEIGAP will be paid in cash as soon as practical following the
end of the plan year.
EFFECT OF SHAREHOLDER APPROVAL
If approved by the shareholders, the TEIGAP will be effective for the
five plan years beginning January 1, 1999 and ending December 31, 2003 and
awards paid under the TEIGAP will be exempt from the deduction limitation of
Code Section 162(m). Each plan year begins January 1 and ends December 31. It
would be necessary for the shareholders to approve the material terms of the
TEIGAP at their annual meeting held in 2003 for awards paid under the TEIGAP for
2004 to be exempt from the deductions limitation of Code Section 162(m).
VOTE REQUIRED
Approval of the TEIGAP requires the affirmative vote of a majority of
the shares of common stock present or represented at the Meeting and voting
thereon. Unless otherwise instructed or restricted, it is the intent of the
persons named in the Proxy to vote Proxies FOR the adoption of this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" THE PROPOSAL TO APPROVE THE TEIGAP.
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,
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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 ALBANK by
Cleary, Gottlieb, Steen & Hamilton.
EXPERTS
The consolidated financial statements incorporated in this Joint Proxy
Statement/Prospectus by reference from the 1997 Charter One 10-K have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report (which expresses an unqualified opinion and refers to the report of other
auditors on the consolidated financial statements of RCSB Financial, Inc. which
was merged with Charter One), which is incorporated herein by reference, and
have been so incorporated in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The consolidated financial statements of Charter One also rely in part
upon the financial statements of RCSB financial, Inc. (which was merged into
Charter One in 1997) as audited by KPMG Peat Marwick LLP, in reliance upon their
authority as experts in accounting and auditing.
The consolidated financial statements of ALBANK Financial Corporation
as of December 31, 1997 and 1996, and for each of the years of the three year
period ended December 31, 1997 have been incorporated by reference in this Joint
Proxy Statement/Prospectus in reliance upon the report of KPMG Peat Marwick,
L.L.P., independent certified public accountants, incorporated by reference
herein, and given upon the authority of said firm as experts in accounting and
auditing.
Representatives of Deloitte & Touche LLP are expected to be present at
the Charter One Special Meeting, and representatives of KPMG Peat Marwick,
L.L.P. are expected to be present at the ALBANK Special Meeting. In each case,
such representatives will have the opportunity to make a statement if they
desire to do so and are expected to be available to respond to appropriate
questions.
STOCKHOLDER PROPOSALS
As disclosed in the proxy materials for Charter One's 1998 Annual
Meeting of Stockholders, in order to be eligible for inclusion in Charter One's
proxy materials for the 1999 Annual Meeting of Stockholders, any stockholder
proposal to take action at such meeting must be received at the main office of
Charter One, 1215 Superior Avenue, Cleveland, Ohio 44114, no later than November
25, 1998. Any such proposal shall be subject to the requirements of the proxy
rules adopted under the Exchange Act.
As disclosed in the proxy materials for ALBANK's 1998 Annual Meeting of
Stockholders, in order to be eligible for inclusion in ALBANK's proxy materials
for the 1999 Annual Meeting of Stockholders, any stockholder proposal to take
action at such meeting (which meeting will only be held if the Merger is not
consummated) must be received at the main office of ALBANK, 10 North Pearl
Street, Albany, New York 12207, no later than December 3, 1998. Any such
proposal shall be subject to the requirements of the proxy rules adopted under
the Exchange Act.
OTHER MATTERS
The Boards of Directors of Charter One and ALBANK are not aware of any
business to come before the Special Meetings other than those matters described
above in this Joint Proxy Statement/Prospectus. However, if any other matter
should properly come before the Charter One Special Meeting or the ALBANK
Special Meeting, including proposals to adjourn either 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 such Special Meeting, it is intended that
holders of the proxies will act in accordance with their best judgment;
provided, however, that no proxy that is voted against a proposal will be voted
in favor of adjournment to solicit further proxies for such proposal.
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ANNEX A
================================================================================
AGREEMENT AND PLAN OF MERGER
dated as of June 15, 1998
by and between
CHARTER ONE FINANCIAL, INC.
CHARTER MICHIGAN BANCORP, INC.
and
ALBANK FINANCIAL CORPORATION
================================================================================
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TABLE OF CONTENTS
<TABLE>
ARTICLE I
CERTAIN DEFINITIONS
<S> <C> <C> <C>
1.01 Certain Definitions...............................................................1
ARTICLE II
THE TRANSACTION
2.01 Formation of National Credit Card Bank; Contribution of Assets and Liabilities....7
2.02 The Company Merger................................................................8
2.03 Bank Mergers......................................................................9
2.04 Effective Date and Effective Time................................................10
2.05 Reservation of Right to Revise Transaction.......................................10
ARTICLE III
CONSIDERATION; EXCHANGE PROCEDURES
3.01 Merger Consideration.............................................................11
3.02 Rights as Stockholders; Stock Transfers..........................................11
3.03 Fractional Shares................................................................11
3.04 Exchange Procedures..............................................................12
3.05 Anti-Dilution Provisions.........................................................13
3.06 Options..........................................................................14
ARTICLE IV
ACTIONS PENDING TRANSACTION
4.01 Forbearances of ALBANK...........................................................15
4.02 Forbearances of COFI.............................................................19
</TABLE>
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<TABLE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES
<S> <C> <C> <C>
5.01 Disclosure Schedules.........................................................20
5.02 Standard.....................................................................20
5.03 Representations and Warranties of ALBANK.....................................20
5.04 Representations and Warranties of COFI.......................................32
ARTICLE VI
COVENANTS
6.01 Reasonable Best Efforts......................................................38
6.02 Stockholder Approvals........................................................39
6.03 Registration Statement.......................................................39
6.04 Press Releases...............................................................40
6.05 Access; Information..........................................................40
6.06 ALBANK Proposal..............................................................41
6.07. Affiliate Agreements.........................................................42
6.08 Takeover Laws................................................................42
6.09 Certain Policies.............................................................42
6.10 NASDAQ Listing...............................................................42
6.11 Regulatory Applications......................................................43
6.12 Indemnification..............................................................43
6.14 Notification of Certain Matters..............................................45
6.15 Directors....................................................................46
6.16 Advisory Board Membership....................................................46
COFI Fee..........................................................................46
6.18 ALBANK Fee...................................................................47
6.19. Charitable Contributions.....................................................47
6.20 Consent Decree...............................................................47
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE COMPANY MERGER
7.01 Conditions to Each Party's Obligation to Effect the Company Merger...........48
7.02 Conditions to Obligation of ALBANK...........................................49
7.03 Conditions to Obligation of COFI.............................................50
</TABLE>
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<TABLE>
ARTICLE VIII
TERMINATION
<S> <C> <C> <C>
8.01 Termination..................................................................51
8.02 Effect of Termination and Abandonment........................................55
ARTICLE IX
MISCELLANEOUS
9.01 Survival.....................................................................55
9.02 Waiver; Amendment............................................................55
9.03 Counterparts.................................................................55
9.04 Governing Law................................................................55
9.05 Expenses.....................................................................56
9.06 Notices......................................................................56
9.07 Entire Understanding; No Third Party Beneficiaries...........................57
9.08 Interpretation; Effect.......................................................57
</TABLE>
EXHIBIT A Form of Stock Option Agreement
EXHIBIT B Form of Subsidiary Plan of Merger I
EXHIBIT C Form of Subsidiary Plan of Merger II
EXHIBIT D Form of ALBANK Affiliate Agreement
EXHIBIT E Form of COFI Affiliate Agreement
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AGREEMENT AND PLAN OF MERGER, dated as of June 15, 1998 (this
"Agreement"), by and between ALBANK Financial Corporation ("ALBANK"), Charter
One Financial, Inc. ("COFI") and Charter Michigan Bancorp, Inc., a wholly-owned
first-tier Subsidiary of COFI ("Charter Michigan").
RECITALS
A. ALBANK. ALBANK is a Delaware corporation, having its principal place
of business in Albany, New York.
B. COFI. COFI is a Delaware corporation, having its principal place of
business in Cleveland, Ohio.
C. Charter Michigan. Charter Michigan is a Michigan corporation, having
its principal place of business in Dearborn, Michigan.
D. Stock Option Agreement. As an inducement to the willingness of COFI
to enter into this Agreement , ALBANK has agreed to grant to COFI on the date
hereof an option pursuant to a stock option agreement ("Stock Option
Agreement"), in substantially the form of Exhibit A.
E. Intentions of the Parties. It is the intention of the parties to
this Agreement that the combination of ALBANK and Charter Michigan be accounted
for under the "pooling-of-interests" accounting method and that each of the
business combinations contemplated hereby be treated as a "reorganization" under
Section 368 of the Internal Revenue Code of 1986, as amended (the "Code").
F. Board Action. The respective Boards of Directors of each of COFI,
Charter Michigan and ALBANK have determined that it is in the best interests of
their respective companies and their stockholders to consummate a strategic
business alliance between ALBANK and COFI by the merger of ALBANK with and into
Charter Michigan and the other business combinations contemplated herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements contained herein the
parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.01 Certain Definitions. The following terms are used in this Agreement
with the meanings set forth below:
"Administrator" means the chief officer of the Michigan Department of
Commerce.
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"Agreement" means this Agreement, as amended or modified from time to time
in accordance with Section 9.02.
"ALBANK" has the meaning set forth in the preamble to this Agreement.
"ALBANK Acquisition Transaction" has the meaning set forth in Section 6.17.
"ALBANK Affiliate" has the meaning set forth in Section 6.07(a).
"ALBANK Board" means the Board of Directors of ALBANK.
"ALBANK By-Laws" means the Bylaws of ALBANK.
"ALBANK Certificate" means the Certificate of Incorporation of ALBANK.
"ALBANK Common Stock" means the common stock, par value $0.01 per share, of
ALBANK.
"ALBANK Meeting" has the meaning set forth in Section 6.02.
"ALBANK Preferred Stock" means the preferred stock, par value $0.01 per
share, of ALBANK.
"ALBANK Proposal" has the meaning set forth in Section 6.17.
"ALBANK Stock" means, collectively, ALBANK Common Stock and ALBANK
Preferred Stock.
"ALBANK Stock Option" has the meaning set forth in Section 3.06(a).
"ALBANK Stock Plans" means the ALBANK Financial Corporation 1992 Stock
Incentive Plan for Key Employees, as Amended and Restated as of March 25, 1996;
the ALBANK Financial Corporation 1992 Stock Incentive Plan for Outside
Directors; the ALBANK Financial Corporation 1995 Stock Incentive Plan for
Outside Directors; the Marble Financial Corporation 1986 Stock Option Plan; and
the Marble Financial Corporation 1994 Stock Option Plan.
"Average Closing Price" has the meaning set forth in Section 8.01(f).
"Bank Mergers" has the meaning set forth in Section 2.03.
"BHCA" means the Bank Holding Company Act of 1956, as amended.
"Charter Michigan" has the meaning set forth in the preamble to this
Agreement.
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"Charter Michigan Board" means the Board of Directors of Charter Michigan.
"CEBA" means the Competitive Equality Banking Act of 1987.
"Code" has the meaning set forth in the Recitals to this Agreement.
"COFI" has the meaning set forth in the preamble to this Agreement.
"COFI Affiliate" has the meaning set forth in Section 6.07(a).
"COFI Acquisition Transaction" has the meaning set forth in Section 6.18.
"COFI Board" means the Board of Directors of COFI.
"COFI Common Stock" means the common stock, par value $0.01 per share, of
COFI.
"COFI Meeting" has the meaning set forth in Section 6.02.
"COFI Proposal" has the meaning set forth in Section 6.18.
"COFI Ratio" has the meaning set forth in Section 8.01(f).
"Company Merger" has the meaning set forth in Section 2.02(a).
"Compensation and Benefit Plans" has the meaning set forth in Section
5.03(m).
"Costs" has the meaning set forth in Section 6.12(a).
"Credit Card Bank" has the meaning set forth in Section 2.01.
"Delaware Secretary" means the Secretary of State of the State of Delaware.
"Determination Date" has the meaning set forth in Section 8.01(f).
"DGCL" means the Delaware General Corporation Law.
"Disclosure Schedule" has the meaning set forth in Section 5.01.
"DOL" means the Department of Labor.
"Effective Date" means the date on which the Effective Time occurs.
"Effective Time" means the effective time of the Company Merger and the
Bank Mergers, as provided for in Section 2.04.
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"Environmental Laws" means all applicable local, state and federal
environmental, health and safety laws and regulations, including, without
limitation, the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation, and Liability Act, the Clean Water Act,
the Clean Air Act, and the Occupational Safety and Health Act, each as amended,
regulations promulgated thereunder, and state counterparts.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" has the meaning set forth in Section 5.03(m).
"ERISA Affiliate Plan" has the meaning set forth in Section 5.03(m).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder.
"Exchange Agent" has the meaning set forth in Section 3.04(a).
"Exchange Fund" has the meaning set forth in Section 3.04(a).
"Exchange Ratio" has the meaning set forth in Section 3.01(a).
"FDIC" means the Federal Deposit Insurance Corporation
"FFIEC" means the Federal Financial Institutions Examination Council.
"Governmental Authority" means any court, administrative agency or
commission or other federal, state or local governmental authority or
instrumentality.
"Indemnified Party" has the meaning set forth in Section 6.12(a).
"Index Group" has the meaning set forth in Section 8.01(f).
"Index Price" has the meaning set forth in Section 8.01(f).
"Index Ratio" has the meaning set forth in Section 8.01(f).
"Insurance Amount" has the meaning set forth in Section 6.12(b).
"IRS" means the Internal Revenue Service.
"Lien" means any charge, mortgage, pledge, security interest, restriction,
claim, lien, or encumbrance.
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"Material Adverse Effect" means, with respect to COFI or ALBANK, any effect
that (i) is material and adverse to the financial position, results of
operations or business of COFI and its Subsidiaries taken as a whole or ALBANK
and its Subsidiaries taken as a whole, respectively, or (ii) would materially
impair the ability of COFI, Charter Michigan or ALBANK to perform its
obligations under this Agreement or otherwise materially threaten or materially
impede the consummation of the Company Merger and the other transactions
contemplated by this Agreement; provided, however, that Material Adverse Effect
shall not be deemed to include the impact of (a) changes in thrift, banking and
similar laws of general applicability or interpretations thereof by courts or
governmental authorities, or other changes affecting depository institutions
generally, including changes in general economic conditions and changes in
prevailing interest and deposit rates, (b) changes in generally accepted
accounting principles or regulatory accounting requirements applicable to
thrifts, banks and their holding companies generally, (c) any modifications or
changes to valuation policies and practices in connection with the Company
Merger or Bank Mergers or restructuring charges taken in connection with the
Company Merger or Bank Mergers, in each case in accordance with generally
accepted accounting principles, (d) changes resulting from expenses (such as
legal, accounting and investment bankers' fees) incurred in connection with this
Agreement and (e) actions or omissions of COFI or ALBANK taken with the prior
written consent of ALBANK or COFI, as applicable, in contemplation of the
transactions contemplated hereby.
"MBCA" means the Michigan Business Corporation Act.
"Merger Consideration" has the meaning set forth in Section 2.05.
"NASDAQ" means The Nasdaq Stock Market, Inc.'s National Market System.
"New Certificates" has the meaning set forth in Section 3.04(a).
"Old Certificates" has the meaning set forth in Section 3.04(a).
"OTS" means the Office of Thrift Supervision.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Plan" has the meaning set forth in Section 5.03(m).
"Person" means any individual, bank, corporation, partnership, association,
joint-stock company, business trust or unincorporated organization.
"Previously Disclosed" by a party shall mean information set forth in its
Disclosure Schedule.
"Proxy Statement" has the meaning set forth in Section 6.03.
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"Registration Statement" has the meaning set forth in Section 6.03.
"Regulatory Authority" has the meaning set forth in Section 5.03(i).
"Representatives" means, with respect to any Person, such Person's
directors, officers, employees, legal or financial advisors or any
representatives of such legal or financial advisors.
"Rights" means, with respect to any Person, securities or obligations
convertible into or exercisable or exchangeable for, or giving any person any
right to subscribe for or acquire, or any options, calls or commitments relating
to, or any stock appreciation right or other instrument the value of which is
determined in whole or in part by reference to the market price or value of,
shares of capital stock of such Person.
"RRP Shares" means all awards under the ALBANK, FSB Recognition and
Retention Plan and Trust Agreement for Senior Executive Officers, the ALBANK,
FSB Recognition and Retention Plan and Trust Agreement for Officers and the
ALBANK, FSB Recognition and Retention Plan and Trust Agreement for Outside
Directors.
"SEC" means the Securities and Exchange Commission.
"SEC Documents" has the meaning set forth in Section 5.03(g).
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"Specified Representations" has the meaning set forth in Section 5.02.
"Starting Date" has the meaning set forth in Section 8.01(f).
"Starting Price" has the meaning set forth in Section 8.01(f).
"Stock Option Agreement" has the meaning set forth in the Recitals to this
Agreement.
"Subsidiary" has the meaning ascribed to it in Rule 1-02 of Regulation S-X
of the SEC.
"Surviving Corporation" has the meaning set forth in Section 2.02.
"Takeover Laws" has the meaning set forth in Section 5.03 (o).
"Tax" and "Taxes" means all federal, state, local or foreign taxes,
charges, fees, levies or other assessments, however denominated, including,
without limitation, all net income, gross income, gains, gross receipts, sales,
use, ad valorem, goods and services, capital, production, transfer, franchise,
windfall profits, license, withholding, payroll, employment, disability,
employer health, excise, estimated, severance, stamp, occupation, property,
environmental,
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unemployment or other taxes, custom duties, fees, assessments or charges of any
kind whatsoever, together with any interest and any penalties, additions to tax
or additional amounts, in each case imposed by any taxing or Governmental
Authority whether arising before, on or after the Effective Date.
"Tax Returns" means any return, amended return or other report (including
elections, declarations, disclosures, schedules, estimates and information
returns) required to be filed with any Governmental Authority with respect to
any Tax.
"Transaction" means the establishment of the Credit Card Bank, the Company
Merger, and the Bank Mergers.
"Treasury Stock" shall mean shares of ALBANK Stock held by ALBANK or any of
its Subsidiaries or by COFI or any of its Subsidiaries, in each case other than
in a fiduciary capacity or as a result of debts previously contracted in good
faith.
ARTICLE II
THE TRANSACTION
2.01 Formation of National Credit Card Bank; Contribution of Assets and
Liabilities. As soon as practicable after the date of this Agreement, ALBANK
shall cause its wholly-owned Subsidiary, ALBANK Commercial, a New York chartered
commercial bank, to file all necessary applications with state and federal
regulatory authorities to secure approval to establish a CEBA national credit
card bank (the "Credit Card Bank") with federal insurance of accounts up to the
maximum limit permitted by the FDIC. If the Credit Card Bank has been approved
and established, ALBANK shall use best efforts to cause the Credit Card Bank to
become a wholly-owned subsidiary of ALBANK Commercial at least five days prior
to the Effective Time. If the Credit Card Bank has been approved and
established, then after satisfaction or waiver of the conditions set forth in
Article VII and prior to the Effective Time, ALBANK shall use best efforts to
cause ALBANK Commercial to contribute or transfer to the Credit Card Bank (i)
all of its municipal deposits held in the State of New York and all other Bank
Insurance Fund deposits at its head office in Albany, at book value, consisting
of both principal and accrued interest and (ii) the head office in Albany, its
fixed assets, credit card assets and cash, if necessary, with a book value equal
to the aggregate of (x) the municipal deposits (principal plus accrued interest)
contributed and (y) any state or federal net worth requirement.
The parties hereto may agree on an alternative structure to accomplish the
result sought by the foregoing actions, provided, however, that regardless of
the structure employed, the creation of a Credit Card Bank or other mechanism to
receive the municipal deposits will not constitute a condition to the
obligations of either party to consummate the Company Merger, and COFI agrees to
use its reasonable best efforts to prepare all documentation, to effect all
filings and to obtain all permits, consents, approvals and authorizations of all
third parties and Governmental Authorities necessary to consummate the Company
Merger prior to the consummation of the
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establishment of the Credit Card Bank and the contribution or transfer of assets
and liabilities described in this Section 2.01.
2.02 The Company Merger.
(a) Merger. At the Effective Time, ALBANK shall merge with and
into Charter Michigan (the "Company Merger"), the separate corporate
existence of ALBANK shall cease and Charter Michigan shall survive and
continue to exist as a Michigan corporation (Charter Michigan, as the
surviving corporation in the Company Merger, sometimes being referred
to herein as the "Surviving Corporation").
(b) Corporate Law Filings. Subject to the satisfaction or
waiver of the conditions set forth in Article VII, the Company Merger
shall become effective upon the occurrence of the filing in the office
of the Delaware Secretary of a certificate of merger in accordance with
Section 252 of the DGCL and the filing in the office of and endorsement
by the Administrator of a certificate of merger in accordance with
Section 735 of the MBCA or such later date and time as may be set forth
in such certificates of merger.
(c) Effects of Company Merger. The Company Merger shall have
the effects prescribed in the DGCL and the MBCA, including but not
limited to, Charter Michigan, as the Surviving Corporation, thereupon
and thereafter possessing all of the rights, privileges, immunities and
franchises, of a public as well as of a private nature, of each of the
corporations so merged and Charter Michigan, as the Surviving
Corporation, becoming responsible and liable for all the liabilities,
obligations and penalties of each of the corporations so merged. All
rights of creditors and obligors and all liens on the property of each
of ALBANK and Charter Michigan shall be preserved unimpaired.
(d) Articles of Incorporation and By-Laws of Surviving
Corporation. The Articles of Incorporation and Bylaws of Charter
Michigan immediately after the Company Merger shall be those of Charter
Michigan as in effect immediately prior to the Effective Time.
(e) Directors and Officers of the Surviving Corporation. The
directors and officers of Charter Michigan immediately after the
Company Merger shall be the directors and officers of Charter Michigan
immediately prior to the Effective Time, until such time as their
successors shall be duly elected and qualified.
(f) Service of Process. At the Effective Time, Charter
Michigan, as the Surviving Corporation, consents to be sued and served
with process in the State of Delaware and irrevocably appoints the
Delaware Secretary as its agent to accept service of process in any
proceeding in the State of Delaware to enforce against it any
obligation of ALBANK.
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(g) Principal Office. The location of the principal office of
Charter Michigan, as the Surviving Corporation, in the State of
Michigan is 13606 Michigan Avenue, 2nd Floor, Dearborn, Michigan 48126.
(h) Plan of Merger. At the reasonable request of any party,
ALBANK, COFI and Charter Michigan shall enter into a separate plan of
merger reflecting the terms of the Company Merger for purposes of any
state law filing requirement.
2.03 Bank Mergers. At the Effective Time and simultaneously with the
Company Merger, each of ALBANK Commercial and ALBANK, FSB, a federally chartered
savings bank and wholly owned Subsidiary of ALBANK, shall be merged with and
into Charter One Bank F.S.B., a federally chartered savings bank and
wholly-owned Subsidiary of Charter Michigan ("Charter One Bank"). Such mergers
are hereinafter sometimes referred to as the "Bank Mergers". The Bank Mergers
shall be implemented pursuant to Subsidiary Plan of Merger I and Subsidiary Plan
of Merger II, in substantially the form of Exhibits B and C. In order to obtain
the necessary state and federal regulatory approvals for the Bank Mergers, the
parties hereto shall cause the following to be accomplished prior to the filing
of applications for regulatory approval: (a) ALBANK shall cause the Board of
Directors of ALBANK Commercial to approve Subsidiary Plan of Merger I, ALBANK as
the sole stockholder of ALBANK Commercial shall approve Subsidiary Plan of
Merger I, and ALBANK shall cause Subsidiary Plan of Merger I to be duly executed
by ALBANK Commercial and delivered to COFI; (b) ALBANK shall cause the Board of
Directors of ALBANK, FSB to approve Subsidiary Plan of Merger II, ALBANK as the
sole stockholder of ALBANK, FSB shall approve Subsidiary Plan of Merger II, and
ALBANK shall cause Subsidiary Plan of Merger II to be duly executed by ALBANK,
FSB and delivered to COFI; and (c) Charter Michigan shall cause the Board of
Directors of Charter One Bank to approve Subsidiary Plan of Merger I and
Subsidiary Plan of Merger II, Charter Michigan as the sole stockholder of
Charter One Bank shall approve Subsidiary Plan of Merger I and Subsidiary Plan
of Merger II, and Charter Michigan shall cause Subsidiary Plan of Merger I and
Subsidiary Plan of Merger II to be duly executed by Charter One Bank and
delivered to ALBANK. Prior to the Effective Time, ALBANK shall cause ALBANK
Commercial and ALBANK, FSB, and Charter Michigan shall cause Charter One Bank to
execute such certificate of merger and articles of combination as are necessary
to make effective the Bank Mergers and cause such documents to be timely and
appropriately filed and endorsed, where required, by the New York State Banking
Department and the OTS so that the Bank Mergers shall become effective at the
Effective Time. If necessary to prevent COFI from being deemed subject to the
BHCA for a moment in time, the Bank Mergers shall become effective immediately
prior to the Company Merger.
2.04 Effective Date and Effective Time. Subject to the satisfaction or
waiver of the conditions set forth in Article VII, the parties shall cause the
effective date of the Company Merger and the Bank Mergers (the "Effective Date")
to occur on (i) the fifth business day to occur after the last of the conditions
set forth in Article VII to be satisfied prior to the Effective Date shall have
been satisfied or waived in accordance with the terms of this Agreement (or, at
the election of COFI by written notice to ALBANK not later than two business
days after the last
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such condition in Article VII is satisfied, on the last business day of the
month in which such fifth business day occurs) or (ii) such other date to which
the parties may agree in writing. Except as provided in the last sentence of
Section 2.03, the time on the Effective Date when the Company Merger and the
Bank Mergers shall become effective is referred to as the "Effective Time."
2.05 Reservation of Right to Revise Transaction. COFI may at any time
prior to the Effective Time, with the prior consent of ALBANK (such consent not
to be unreasonably withheld or delayed), change the method of effecting the
Transaction or any part thereof if and to the extent it deems such change to be
necessary, appropriate or desirable; provided, however, that no such change
shall (i) alter or change the amount or kind of consideration to be issued to
holders of ALBANK Common Stock as provided for in this Agreement (the "Merger
Consideration"), (ii) adversely affect the tax treatment of ALBANK's
stockholders as a result of receiving the Merger Consideration or the Company
Merger qualifying for "pooling-of-interests" accounting treatment, (iii)
materially impede or delay consummation of the Transaction, (iv) result in any
representation or warranty of any party set forth in this Agreement becoming
incorrect in any material respect, or (v) diminish the benefits, including
membership on the COFI Board or COFI Advisory Board, to be received by the
directors, officers or employees of ALBANK and its Subsidiaries as set forth in
this Agreement or in any other agreements between the parties made in connection
with this Agreement.
ARTICLE III
CONSIDERATION; EXCHANGE PROCEDURES
3.01 Merger Consideration. Subject to the provisions of this Agreement,
at the Effective Time, automatically by virtue of the Company Merger and without
any action on the part of any Person:
(a) Outstanding ALBANK Common Stock. Each share, excluding
Treasury Stock, of ALBANK Common Stock issued and outstanding
immediately prior to the Effective Time shall become and be converted
into, subject to Sections 3.03, 3.05 and 8.01(f) hereof, 2.16 shares of
COFI Common Stock (the "Exchange Ratio"), 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. The
Exchange Ratio shall be subject to adjustment as set forth in Sections
3.05 and 8.01(f).
(b) Charter Michigan Common Stock. Each share of Charter
Michigan common stock issued and outstanding or held in treasury
immediately prior to the Effective Time shall remain issued and
outstanding or held in treasury and continue to be an identical issued
and outstanding or treasury share of Charter Michigan common stock
after the Effective Time.
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(c) Outstanding COFI Common Stock. Each share of COFI Common
Stock issued and outstanding or held in treasury immediately prior to
the Effective Time shall remain issued and outstanding or held in
treasury and shall be unaffected by the Company Merger.
(d) Treasury Shares. Each share of ALBANK Common Stock held as
Treasury Stock immediately prior to the Effective Time shall be
canceled and retired at the Effective Time, and no consideration shall
be issued in exchange therefor.
3.02 Rights as Stockholders; Stock Transfers. At the Effective Time,
holders of ALBANK Stock shall cease to be, and shall have no rights as,
stockholders of ALBANK, other than to receive any dividend or other distribution
with respect to such ALBANK Stock permitted under this Agreement with a record
date occurring prior to the Effective Time and the consideration provided under
this Article III. After the Effective Time, there shall be no transfers on the
stock transfer books of ALBANK or the Surviving Corporation of shares of ALBANK
Stock.
3.03 Fractional Shares. Notwithstanding any other provision hereof, no
fractional shares of COFI Common Stock and no certificates or scrip therefor, or
other evidence of ownership thereof, will be issued in the Company Merger;
instead, COFI shall pay to each holder of ALBANK Common Stock who would
otherwise be entitled to a fractional share of COFI Common Stock (after taking
into account all Old Certificates delivered by such holder) an amount in cash
(without interest) determined by multiplying such fraction by the closing sale
price of COFI Common Stock, as reported by the NASDAQ reporting system (as
reported in The Wall Street Journal or, if not reported therein, in another
authoritative source), for the last trading day immediately preceding the
Effective Date.
3.04 Exchange Procedures.
(a) Deposit of New Certificates, Etc. At or prior to the
Effective Time, COFI shall deposit, or shall cause to be deposited,
with an independent exchange agent to be selected by COFI and
reasonably acceptable to ALBANK (the "Exchange Agent"), for the benefit
of the holders of certificates formerly representing shares of ALBANK
Common Stock ("Old Certificates"), for exchange in accordance with this
Article III, certificates representing the shares of COFI Common Stock
("New Certificates") and an estimated amount of cash (such cash and New
Certificates, together with any dividends or distributions with a
record date occurring after the Effective Date with respect thereto
(without any interest on any such cash, dividends or distributions),
being hereinafter referred to as the "Exchange Fund") to be paid
pursuant to this Article III in exchange for outstanding shares of
ALBANK Common Stock.
(b) Transmittal and Deliveries. As promptly as practicable
after the Effective Date, COFI shall send or cause to be sent to each
former holder of record of shares of ALBANK Common Stock immediately
prior to the Effective Time transmittal materials
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(which shall specify that risk of loss and title to Old Certificates
shall pass only upon acceptance of such Old Certificates by COFI or the
Exchange Agent) for use in exchanging such stockholder's Old
Certificates for the consideration set forth in this Article III. COFI
shall cause the New Certificates into which shares of a stockholder's
ALBANK Common Stock are converted on the Effective Date and/or any
check in respect of any fractional share interests or dividends or
distributions which such person shall be entitled to receive to be
delivered to such stockholder upon delivery to the Exchange Agent of
Old Certificates representing such shares of ALBANK Common Stock (or
indemnity reasonably satisfactory to COFI and the Exchange Agent, if
any of such certificates are lost, stolen or destroyed) owned by such
stockholder. No interest will be paid on any such cash to be paid in
lieu of fractional share interests or in respect of dividends or
distributions which any such person shall be entitled to receive
pursuant to this Article III upon such delivery. Old Certificates
surrendered for exchange by any person identified by ALBANK pursuant to
Section 6.07 as an ALBANK Affiliate shall not be exchanged for New
Certificates representing COFI Common Stock until COFI has received a
written agreement from such person as specified in Section 6.07. COFI
and the Exchange Agent shall be entitled to rely upon the stock
transfer books of ALBANK 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 Old
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.
(c) Escheat. Notwithstanding the foregoing, neither the
Exchange Agent, if any, nor any party hereto shall be liable to any
former holder of ALBANK Stock for any amount properly delivered to a
public official pursuant to applicable abandoned property, escheat or
similar laws.
(d) Restrictions on the Payment of Dividends and Voting. No
dividends or other distributions with respect to COFI Common Stock with
a record date occurring after the Effective Time shall be paid to the
holder of any unsurrendered Old Certificate representing shares of
ALBANK Common Stock converted in the Company Merger into the right to
receive shares of such COFI Common Stock until the holder thereof shall
be entitled to receive New Certificates in exchange therefor in
accordance with the procedures set forth in this Section 3.04, and,
following 180 days after the Effective Date, no such shares of ALBANK
Common Stock shall be eligible to vote until the holder of Old
Certificates is entitled to receive New Certificates in accordance with
the procedures set forth in this Section 3.04. After becoming so
entitled in accordance with this Section 3.04, the record holder
thereof also shall be entitled to receive any such dividends or other
distributions, without any interest thereon, which theretofore had
become payable with respect to shares of COFI Common Stock such holder
had the right to receive upon surrender of the Old Certificates.
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(e) Return of Exchange Fund to COFI. Any portion of the
Exchange Fund that remains unclaimed by the stockholders of ALBANK for
twelve months after the Effective Time shall be paid to COFI. Any
stockholders of ALBANK who have not theretofore complied with this
Article III shall thereafter look only to COFI for payment of the
shares of COFI Common Stock, cash in lieu of any fractional shares and
unpaid dividends and distributions on COFI Common Stock deliverable in
respect of each share of ALBANK Common Stock such stockholder holds as
determined pursuant to this Agreement, in each case, without any
interest thereon.
3.05 Anti-Dilution Provisions. In the event COFI changes (or
establishes a record date for changing) the number of shares of COFI Common
Stock issued and outstanding prior to the Effective Date as a result of a stock
split, stock dividend, recapitalization or similar transaction with respect to
the outstanding COFI Common Stock and the record date therefor shall be prior to
the Effective Date, the Exchange Ratio shall be proportionately adjusted.
3.06 Options.
(a) Conversion. At the Effective Time, each option outstanding
on the date of this Agreement (together with any mandatory grants
required to be made to outside directors on the fourth Monday of
December, 1998 pursuant to Section 6(a)(2) of the 1995 Stock Incentive
Plan for Outside Directors, if and only if the Effective Time has not
occurred prior to such date) to purchase shares of ALBANK Common Stock
under the ALBANK Stock Plans (each, a "ALBANK Stock Option") and
remaining outstanding immediately prior to the Effective Time shall, at
the Effective Time, be assumed by COFI and each such ALBANK Stock
Option shall continue to be outstanding, but shall represent 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 applicable ALBANK Stock Plan and ALBANK Stock Option):
(i) the number of shares of COFI Common Stock to be
subject to the continuing option shall be equal to the product
of the number of shares of ALBANK 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 continuing option shall be equal to the
exercise price per share of ALBANK Common Stock under the
original option divided by the Exchange Ratio, provided that
such exercise price shall be rounded down to the nearest cent.
It is intended that the foregoing assumption shall be
undertaken consistent with and in a manner that will not constitute a
"modification" under Section 424 of the Code as to any ALBANK Stock
Option which is an "incentive stock option".
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(b) Reservation of COFI Common Stock and Securities Filings.
At all times after the Effective Time, COFI shall reserve for issuance
such number of shares of COFI Common Stock as necessary so as to permit
the exercise of continuing options in the manner contemplated by this
Agreement and the instruments pursuant to which such options were
granted. COFI shall make all filings required under federal and state
securities laws promptly after the Effective Time so as to permit the
exercise of such continuing options and the sale of the shares received
by the optionee upon such exercise at and after the Effective Time and
COFI shall continue to make such filings thereafter as may be necessary
to permit the continued exercise of continuing options and sale of such
shares.
ARTICLE IV
ACTIONS PENDING TRANSACTION
4.01 Forbearances of ALBANK. From the date hereof until the Effective
Time, except as expressly contemplated by this Agreement or any separate
agreement entered into by ALBANK and COFI on the date hereof, without the prior
written consent of COFI (which consent under subsections (k) and (m) shall not
be unreasonably withheld or delayed), ALBANK will not, and will cause each of
its Subsidiaries not to:
(a) Ordinary Course. Conduct the business of ALBANK and its
Subsidiaries other than in the ordinary and usual course or fail to use
reasonable efforts to (i) preserve intact in any material respect their
business organizations and assets and (ii) maintain their rights,
franchises and existing relations with customers, suppliers, employees
and business associates, or take any action reasonably likely to
materially impair ALBANK's ability to perform any of its obligations
under this Agreement.
(b) ALBANK Stock. Other than pursuant to Rights Previously
Disclosed and outstanding on the date hereof, (i) issue, sell or
otherwise permit to become outstanding, or authorize the creation of,
any additional shares of ALBANK Stock or any Rights, (ii) enter into
any agreement with respect to the foregoing, or (iii) permit any
additional shares of ALBANK Stock to become subject to new grants of
employee or director stock options, other Rights or similar stock-based
employee rights.
(c) Other Securities. Issue any other capital securities,
capital stock of any Subsidiary, debentures, or subordinated notes.
(d) Dividends, Etc. (i) Make, declare, pay or set aside for
payment any dividend (other than (A), quarterly cash dividends on
ALBANK Common Stock in an amount not to exceed $0.21 per share with
record and payment dates consistent with past practice, (provided the
declaration of the last quarterly dividend by ALBANK prior to the
Effective Time and the payment thereof shall be coordinated with, and
subject to the approval of COFI, so as to preclude any duplication of
dividend benefit) and (B)
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dividends from wholly owned Subsidiaries to ALBANK or another wholly
owned Subsidiary of ALBANK) on or in respect of, or declare or make any
distribution on any shares of ALBANK Stock or (ii) directly or
indirectly adjust, split, combine, redeem, reclassify, purchase or
otherwise acquire, any shares of its capital stock or Rights.
(e) Compensation; Employment Agreements, Etc. Enter into or
amend or renew any employment, consulting, severance or similar
agreements or arrangements with any director, officer or employee of
ALBANK or its Subsidiaries, or grant any salary or wage increase or
increase any employee benefit (including incentive or bonus payments)
except (i) for oral at will employment agreements, (ii) for normal
individual increases in compensation to employees in the ordinary
course of business consistent with past practice, (iii) for other
changes that are required by applicable law, or (iv) to satisfy
contractual obligations and planned programs existing as of the date
hereof that are Previously Disclosed
(f) Benefit Plans. Enter into, establish, adopt or amend
(except as may be required by existing contractual obligation or
applicable law) any pension, profit sharing, employee stock ownership,
retirement, stock option, stock appreciation, phantom stock, stock
purchase, savings, deferred compensation, consulting, bonus, group
insurance or other employee benefit, incentive or welfare contract,
plan or arrangement, or any trust agreement (or similar arrangement)
related thereto, in respect of any director, officer or employee of
ALBANK or its Subsidiaries, or take any action to accelerate the
vesting or exercisability of stock options, restricted stock or other
compensation or benefits payable thereunder.
(g) Dispositions. Except as Previously Disclosed, sell,
transfer, mortgage, encumber or otherwise dispose of or discontinue any
of its assets, deposits, business or properties except in the ordinary
course of business for fair value and in a transaction that is not
material to it and its Subsidiaries taken as a whole.
(h) Acquisitions. Except as Previously Disclosed, acquire
(other than by way of foreclosures or acquisitions of control in a bona
fide fiduciary capacity or in satisfaction of debts previously
contracted in good faith, in each case in the ordinary and usual course
of business consistent with past practice) all or any portion of, the
assets, business, deposits or properties of any other entity.
(i) Governing Documents. Amend the ALBANK Certificate, ALBANK
Bylaws or the certificate or articles of incorporation, charter or
by-laws (or similar governing documents) of any of ALBANK's
Subsidiaries.
(j) Accounting Methods. Implement or adopt any change in its
accounting principles, practices or methods, other than as may be
required by generally accepted accounting principles.
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(k) Contracts. Except to satisfy Previously Disclosed written
commitments outstanding on the date hereof, enter into or terminate any
material contract (as defined in Section 5.03(k)) or amend or modify in
any material respect or renew any of its existing material contracts.
(l) Claims. Except in the ordinary course of business
consistent with past practice, settle any claim, action or proceeding,
except for any claim, action or proceeding which does not involve
precedent for other material claims, actions or proceedings and which
involves solely money damages in an amount, individually or in the
aggregate for all such settlements, that is not material to ALBANK and
its Subsidiaries, taken as a whole.
(m) Foreclose. 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 ALBANK
and its Subsidiaries shall not be required to obtain such a report with
respect to one-to four-family, non-agricultural residential property of
five acres or less to be foreclosed upon unless it has reason to
believe that such property might be in violation of or require
remediation under Environmental Laws.
(n) Deposit Taking and Branch Activities. In the case of
ALBANK Commercial and ALBANK, FSB (i) voluntarily make any material
changes in or to its deposit mix; (ii) 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 practice; (iii)
except as Previously Disclosed open any new branch or deposit taking
facility; (iv) except as Previously Disclosed close or relocate any
existing branch or other facility; or (v) incur any liability or
obligation relating to retail banking and branch merchandising,
marketing and advertising activities and initiatives materially in
excess of the amounts budgeted in its 1998 business plan as Previously
Disclosed;
(o) Investments. Enter into any securities transaction for its
own account or purchase or otherwise acquire any investment security
for its own account except purchases and sales of securities consistent
with past practice in order to maintain investment portfolios at ALBANK
and its Subsidiaries that have risk and asset mix characteristics
substantially similar to those of the respective investment portfolios
as of the date hereof.
(p) Capital Expenditures. Purchase or lease any fixed asset
where the amount paid or committed thereof is in excess of $300,000,
except for Previously Disclosed amounts budgeted in the 1998 budget.
(q) Lending. (i) Make any material changes in its policies
concerning loan underwriting or which persons may approve loans or fail
to comply with such policies; or (ii) 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
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loan or line of credit (other than (A) in the case of a consumer loan
or extension of credit, in a principal amount not in excess of $150,000
or an amount that would increase the aggregate credit outstanding in
this category to any one borrower (or group of affiliated borrowers) to
not more than $250,000, (B) in the case of a loan secured by a first
mortgage on an owner one-to-four single-family principal residence, in
a principal amount not in excess of $350,000, (C) in the case of a loan
secured by a first mortgage on commercial or industrial real property
in a principal amount not in excess of $2,500,000 for any loan with
personal recourse to the borrower or $1,000,000 for any loan without
personal recourse to the borrower or that would increase the aggregate
credit outstanding in this category to any one borrower (or group of
affiliated borrowers) to not more than $12,000,000, (D) in the case of
any commercial loan secured by a first lien on accounts receivable,
inventory or other tangible assets, in a principal amount not in excess
of $2,500,000 or that would increase the aggregate credit outstanding
in this category to any one borrower (or group of affiliated borrowers)
to not more than $12,000,000, or (E) in the case of a new unsecured
commercial line of credit (x) to a borrower whose annual gross sales
are $25,000,000 or more, in a principal amount not in excess of
$2,500,000 or (y) to a borrower whose annual gross sales are less than
$25,000,000, in a principal amount not in excess of $1,000,000 and
provided an existing unsecured commercial line of credit may be renewed
not in excess of its existing amount) in each case without the prior
written consent of COFI acting through its Chief Executive Officer or
Executive Vice President of Lending in a written notice to ALBANK,
which approval or rejection shall be given within five business days
after delivery by ALBANK to such officer of COFI of the complete loan
package;
(r) Adverse Actions. (i) Take any action or fail to take any
action while knowing that such action or inaction would, or is
reasonably likely to, prevent or impede (A) the Company Merger from
qualifying for "pooling-of-interests" accounting treatment or (B) the
Company Merger and the Bank Mergers from qualifying as reorganizations
within the meaning of Section 368 of the Code; or (ii) knowingly take
any action or fail to take any action that is intended or is reasonably
likely to result in (A) any of its representations and warranties set
forth in this Agreement being or becoming untrue in any material
respect at any time at or prior to the Effective Time, (B) any of the
conditions to the Company Merger set forth in Article VII not being
satisfied or (C) a material violation of any provision of this
Agreement except, in each case, as may be required by applicable law or
regulation.
(s) Risk Management. Except as required by applicable law or
regulation, (i) implement or adopt any material change in its interest
rate and other risk management policies, procedures or practices; (ii)
fail to follow its existing policies or practices with respect to
managing its exposure to interest rate and other risk; or (iii) fail to
use commercially reasonable means to avoid any material increase in its
aggregate exposure to interest rate risk.
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(t) Indebtedness. Incur any indebtedness for borrowed money
other than in the ordinary course of business and with a term of one
year or less.
(u) Commitments. Agree or commit to do any of the foregoing.
4.02 Forbearances of COFI. From the date hereof until the Effective
Time, except as expressly contemplated by this Agreement, without the prior
written consent of ALBANK, (which consent under subsection (e) shall not be
unreasonably withheld or delayed), COFI will not, and will cause each of its
Subsidiaries not to:
(a) Preservation. Fail to use reasonable efforts to (i)
preserve intact in any material respect their business organizations
and assets and (ii) maintain their rights, franchises and existing
relations with customers, suppliers, employees and business associates,
or take any action reasonably likely to materially impair the ability
of COFI or Charter Michigan to perform any of its obligations under
this Agreement.
(b) Extraordinary Dividends. Make, declare, pay or set aside
for payment any extraordinary cash dividend or cash distribution.
(c) Adverse Actions. (i) Take any action or fail to take any
action while knowing that such action or inaction would, or is
reasonably likely to, prevent or impede (A) the Company Merger from
qualifying for "pooling-of-interests" accounting treatment or (B) the
Company Merger and the Bank Mergers from qualifying as reorganizations
within the meaning of Section 368 of the Code; or (ii) knowingly take
any action or fail to take any action that is intended or is reasonably
likely to result in (A) any of its representations and warranties set
forth in this Agreement being or becoming untrue in any material
respect at any time at or prior to the Effective Time, (B) any of the
conditions to the Company Merger set forth in Article VII not being
satisfied or (C) a material violation of any provision of this
Agreement except, in each case, as may be required by applicable law or
regulation; provided, however, that nothing contained herein shall
limit the ability of COFI to exercise its rights under the Stock Option
Agreement.
(d) Accounting Methods. Implement or adopt any material change
in its accounting principles, practices or methods, other than as may
be required by generally accepted accounting principles.
(e) Acquisitions. Except as Previously Disclosed, acquire
(other than by way of foreclosures or acquisitions of control in a bona
fide fiduciary capacity or in satisfaction of debts previously
contracted in good faith, in each case in the ordinary and usual course
of business consistent with past practice) all or a significant portion
of the assets, business, deposits or properties of any other entity
whose principal business is conducted in, or who maintains a
significant physical presence in, the Community Reinvestment Act
Assessment Areas of ALBANK, FSB or ALBANK Commercial.
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(f) Commitments. Agree or commit to do any of the foregoing.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01 Disclosure Schedules. On or prior to the date hereof, COFI has
delivered to ALBANK a schedule and ALBANK has delivered to COFI a schedule
(respectively, its "Disclosure Schedule") setting forth, among other things,
items the disclosure of which is necessary or appropriate either in response to
an express disclosure requirement contained in a provision hereof or as an
exception to one or more representations or warranties contained in Section 5.03
or 5.04 or to one or more of its covenants contained in Article IV; provided,
that (a) no such item is required to be set forth in a Disclosure Schedule as an
exception to a Specified Representation if its absence would not be reasonably
likely to result in the Specified Representation being deemed untrue or
incorrect under the standard established by Section 5.02, and (b) the mere
inclusion of an item in a Disclosure Schedule as an exception to a Specified
Representation shall not be deemed an admission by a party that such item
represents a material exception or fact, event or circumstance or that such item
is reasonably likely to result in a Material Adverse Effect on the party making
the representation. ALBANK's representations, warranties and covenants contained
in this Agreement shall not be deemed to be untrue or breached as a result of
effects arising solely from actions taken in compliance with a written request
of COFI.
5.02 Standard. No representation or warranty of ALBANK or COFI
contained in Section 5.03(a), (c)(iii), (d), (e), (f)(i), (h), (n), (o), (q),
(r), (s), (t), (v), (w) and (y) or 5.04(a), (c), (d), (e), (f)(i), (h), (k),
(m), (n), (o) (r), (s) and (t) (collectively, the "Specified Representations")
shall be deemed untrue or incorrect, and no party hereto shall be deemed to have
breached a Specified Representation, as a consequence of the existence of any
fact, event or circumstance unless such fact, circumstance or event,
individually or taken together with all other facts, events or circumstances
inconsistent with any Specified Representation has had or is reasonably likely
to have a Material Adverse Effect. For purposes of this Agreement, "knowledge"
shall mean, with respect to a party hereto, actual knowledge of any officer of
that party with the title, if any, ranking not less than senior vice president
and that party's in-house counsel, if any.
5.03 Representations and Warranties of ALBANK. Subject to Sections 5.01
and 5.02 and except as Previously Disclosed in a paragraph of its Disclosure
Schedule corresponding to the relevant paragraph below, ALBANK hereby represents
and warrants to COFI:
(a) Organization, Standing and Authority. ALBANK is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware. ALBANK is duly qualified to do
business and is in good standing in the states of the United States and
any foreign jurisdictions where its ownership or leasing of property or
assets or the conduct of its business requires it to be so qualified.
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(b) ALBANK Stock. The authorized capital stock of ALBANK
consists solely of (i) 50,000,000 shares of ALBANK Common Stock, of
which 13,190,091 shares were outstanding as of the day prior to the
date hereof (inclusive of RRP Shares), and (ii) 25,000,000 shares of
ALBANK Preferred Stock, of which no shares are outstanding. The
outstanding shares of ALBANK Stock have been duly authorized and are
validly issued and outstanding, fully paid and nonassessable, and
subject to no preemptive rights (and were not issued in violation of
any preemptive rights). As of the date hereof, except as Previously
Disclosed, there are no shares of ALBANK Stock authorized and reserved
for issuance, ALBANK does not have any Rights issued or outstanding
with respect to ALBANK Stock, and ALBANK does not have any commitment
to authorize, issue or sell any ALBANK Stock or Rights, other than
pursuant to this Agreement and the Stock Option Agreement. The number
of shares of ALBANK Common Stock which are issuable upon exercise of
each ALBANK Stock Option outstanding as of the date hereof and the
exercise price per share are Previously Disclosed.
(c) Subsidiaries. (i)(A) ALBANK has Previously Disclosed a
list of all of its Subsidiaries together with the jurisdiction of
organization of each such Subsidiary, (B) it owns, directly or
indirectly, all the issued and outstanding equity securities of each of
its Subsidiaries, (C) no equity securities of any of its Subsidiaries
are or may become required to be issued (other than to it or its
wholly-owned Subsidiaries) by reason of any Right or otherwise, (D)
there are no contracts, commitments, understandings or arrangements by
which any of such Subsidiaries is or may be bound to sell or otherwise
transfer any equity securities of any such Subsidiaries (other than to
it or its wholly-owned Subsidiaries), (E) there are no contracts,
commitments, understandings, or arrangements relating to its rights to
vote or to dispose of such securities and (F) all the equity securities
of each Subsidiary held by ALBANK or its Subsidiaries are fully paid
and nonassessable (except pursuant to 12 U.S.C. Section 55 and Section
114 of the New York Banking Law) and are owned by ALBANK or its
Subsidiaries free and clear of any Liens.
(ii) Neither ALBANK nor any ALBANK Subsidiary owns
beneficially any equity securities or similar interests of any
Person, or any interest in a partnership or joint venture of
any kind, other than a ALBANK Subsidiary.
(iii) Each of ALBANK's Subsidiaries has been duly
organized and is validly existing in good standing under the
laws of the jurisdiction of its organization, and is duly
qualified to do business and in good standing in the
jurisdictions where its ownership or leasing of property or
the conduct of its business requires it to be so qualified.
(d) Corporate Power. Each of ALBANK and its Subsidiaries has
the corporate power and authority to carry on its business as it is now
being conducted and to own all its properties and assets; and ALBANK
has the corporate power and authority to
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execute, deliver and perform its obligations under this Agreement and
the Stock Option Agreement and to consummate the transactions
contemplated hereby and thereby.
(e) Corporate Authority. Subject in the case of this Agreement
to receipt of the requisite approval of this Agreement (including the
agreement of merger set forth herein) by the holders of a majority of
the outstanding shares of ALBANK Common Stock entitled to vote thereon
(which is the only ALBANK shareholder vote required thereon), this
Agreement, the Stock Option Agreement and the transactions contemplated
hereby and thereby have been authorized by all necessary corporate
action of ALBANK and the ALBANK Board on or prior to the date hereof.
This Agreement is a valid and legally binding obligation of ALBANK,
enforceable in accordance with its terms (except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights or by general
equity principles).
(f) Regulatory Filings; No Defaults. (i) No consents or
approvals of, or filings or registrations with, any Governmental
Authority or with any third party are required to be made or obtained
by ALBANK or any of its Subsidiaries in connection with the execution,
delivery or performance by ALBANK of this Agreement or the Stock Option
Agreement or to consummate the Company Merger or the Bank Mergers
except for (A) filings of applications or notices with federal and New
York banking and thrift authorities, (B) filings with the SEC and state
securities authorities, and (C) the filing of (and endorsement of, if
required) certificates of merger and articles of combination with the
Delaware Secretary, the Administrator, the New York State Banking
Department and the OTS. As of the date hereof, ALBANK is not aware of
any reason why the approvals set forth in Section 7.01(b) will not be
received in a timely manner without the imposition of a condition,
restriction or requirement of the type described in Section 7.01(b).
(ii) Subject to receipt of the regulatory approvals referred
to in the preceding paragraph, and expiration of related waiting
periods, and required filings under federal and state securities laws,
the execution, delivery and performance of this Agreement and the Stock
Option Agreement and the consummation of the transactions contemplated
hereby and thereby do not and will not (A) constitute a breach or
violation of, or a default under, or give rise to any Lien, any
acceleration of remedies or any right of termination under, any law,
rule or regulation or any judgment, decree, order, governmental permit
or license, or material agreement, indenture or instrument of ALBANK or
of any of its Subsidiaries or to which ALBANK or any of its
Subsidiaries or properties is subject or bound, (B) constitute a breach
or violation of, or a default under, the ALBANK Certificate or the
ALBANK By-Laws, or (C) require any consent or approval under any such
law, rule, regulation, judgment, decree, order, governmental permit or
license, material agreement, indenture or instrument.
(g) Financial Reports and SEC Documents. (i) ALBANK's Annual
Reports on Form 10-K for the fiscal years ended December 31, 1995, 1996
and 1997, and all
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other reports, registration statements, definitive proxy statements or
information statements filed or to be filed by it or any of its
Subsidiaries subsequent to December 31, 1995 under the Securities Act,
or under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, in the
form filed or to be filed (collectively, ALBANK's "SEC Documents") with
the SEC, as of the date filed, (A) complied or will comply in all
material respects with the applicable requirements under the Securities
Act or the Exchange Act, as the case may be, and (B) did not and will
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; and each of the balance sheets or statements of
condition contained in or incorporated by reference into any such SEC
Document (including the related notes and schedules thereto) fairly
presents, or will fairly present, the financial position of ALBANK and
its Subsidiaries as of its date, and each of the statements of income
and changes in stockholders' equity and cash flows or equivalent
statements in such SEC Documents (including any related notes and
schedules thereto) fairly presents, or will fairly present, in all
material respects, the results of operations, changes in stockholders'
equity and cash flows, as the case may be, of ALBANK and its
Subsidiaries for the periods to which they relate, in each case in
accordance with generally accepted accounting principles consistently
applied during the periods involved, except in each case as may be
noted therein, subject to normal year-end audit adjustments and the
absence of footnotes in the case of unaudited statements.
(ii) Except for liabilities incurred in connection with
negotiation of and compliance with this Agreement and otherwise in
connection with the transactions contemplated hereby, since December
31, 1997, ALBANK and its Subsidiaries have not incurred any liability
other than in the ordinary course of business consistent with past
practice.
(iii) Since December 31, 1997, (A) ALBANK and its Subsidiaries
have conducted their respective businesses in the ordinary and usual
course consistent with past practice (excluding matters related to this
Agreement and the transactions contemplated hereby) and (B) no event
has occurred or circumstance arisen that, individually or taken
together with all other facts, circumstances and events (described in
any paragraph of Section 5.03 or otherwise), is reasonably likely to
have a Material Adverse Effect with respect to ALBANK.
(h) Litigation. No material litigation, claim or other
proceeding before any Governmental Authority is pending against ALBANK
or any of its Subsidiaries and, to ALBANK's knowledge, no such
litigation, claim or other proceeding has been threatened.
(i) Regulatory Matters. (i) Neither ALBANK nor any of its
Subsidiaries or properties is a party to or is subject to any order,
decree, agreement, memorandum of understanding or similar arrangement
with, or a commitment letter or similar submission
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to, or extraordinary supervisory letter from, any federal or state
governmental agency or authority charged with the supervision or
regulation of financial institutions (or their holding companies) or
issuers of securities or engaged in the insurance of deposits
(including, without limitation, the Office of the Comptroller of the
Currency, the Federal Reserve System, the OTS, the New York
Superintendent of Banks, the New York State Banking Department, and the
FDIC) or the supervision or regulation of it or any of its Subsidiaries
(collectively, the "Regulatory Authorities").
(ii) Neither it nor any of its Subsidiaries has been advised
by any Regulatory Authority that such Regulatory Authority is
contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such order, decree,
agreement, memorandum of understanding, commitment letter, supervisory
letter or similar submission.
(j) Compliance with Laws. Each of ALBANK and its Subsidiaries:
(i) is in substantial compliance with all applicable
federal, state, local and foreign statutes, laws, regulations,
ordinances, rules, judgments, orders or decrees applicable
thereto or to the employees conducting such businesses,
including, without limitation, the Equal Credit Opportunity
Act, the Fair Housing Act, the Community Reinvestment Act of
1977, the Home Mortgage Disclosure Act and all other
applicable fair lending laws and other laws relating to
discriminatory business practices;
(ii) has all permits, licenses, authorizations,
orders and approvals of, and has made all filings,
applications and registrations with, all Governmental
Authorities that are required in order to permit them to own
or lease their properties and to conduct their businesses as
presently conducted; all such permits, licenses, certificates
of authority, orders and approvals are in full force and
effect and, to ALBANK's knowledge, no suspension or
cancellation of any of them is threatened or will result from
the consummation of the transactions contemplated by this
Agreement; and
(iii) has received, since December 31, 1996, no
notification or communication from any Governmental Authority
(A) asserting that ALBANK or any of its Subsidiaries is not in
compliance in any material respect with any of the statutes,
regulations, or ordinances which such Governmental Authority
enforces or (B) threatening to revoke any material license,
franchise, permit, or governmental authorization (nor, to
ALBANK's knowledge, do any grounds for any of the foregoing
exist).
(k) Material Contracts; Defaults. Except for this Agreement,
the Stock Option Agreement and those agreements and other documents
filed as exhibits to its SEC Documents, neither it nor any of its
Subsidiaries is a party to, bound by or subject to any
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agreement, contract, arrangement, commitment or understanding (whether
written or oral) (i) that is a "material contract" within the meaning
of Item 601(b)(10) of the SEC's Regulation S-K or (ii) that restricts
or limits in any material way the conduct of business by it or any of
its Subsidiaries (it being understood that any non-compete or similar
provision shall be deemed material). Neither it nor any of its
Subsidiaries is in default in any material respect under any material
contract, agreement, commitment, arrangement, lease, insurance policy
or other instrument to which it is a party, by which its respective
assets, business, or operations may be bound or affected, or under
which it or its respective assets, business, or operations receive
benefits, and there has not occurred any event that, with the lapse of
time or the giving of notice or both, would constitute such a default.
(l) Brokers. No action has been taken by ALBANK that would
give rise to any valid claim against any party hereto for a brokerage
commission, finder's fee or other like payment with respect to the
transactions contemplated by this Agreement, excluding a Previously
Disclosed fee to be paid to Merrill Lynch.
(m) Employee Benefit Plans. (i) Section 5.03(m)(i) of ALBANK's
Disclosure Schedule contains a complete and accurate list of all
existing bonus, incentive, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus,
stock purchase, restricted stock, stock option, stock appreciation,
phantom stock, severance, welfare and fringe benefit plans, employment
or severance agreements and all similar practices, policies and
arrangements maintained by ALBANK or any of its Subsidiaries in which
any employee or former employee, consultant or former consultant or
director or former director of ALBANK or any of its Subsidiaries
participates or to which any such employees, consultants or directors
are a party other than plans and programs involving immaterial
obligations (the "Compensation and Benefit Plans"). Except as expressly
contemplated by a separate agreement entered into by ALBANK and COFI on
the date hereof, neither ALBANK nor any of its Subsidiaries has any
commitment to create any additional Compensation and Benefit Plan or to
modify or change any existing Compensation and Benefit Plan.
(ii) Each Compensation and Benefit Plan has been operated and
administered in all material respects in accordance with its terms and
with applicable law, including, but not limited to, ERISA, the Code,
the Securities Act, the Exchange Act, the Age Discrimination in
Employment Act, or any regulations or rules promulgated thereunder, and
all material filings, disclosures and notices required by ERISA, the
Code, the Securities Act, the Exchange Act, the Age Discrimination in
Employment Act and any other applicable law have been timely made. Each
Compensation and Benefit Plan which is an "employee pension benefit
plan" within the meaning of Section 3(2) of ERISA (a "Pension Plan")
and which is intended to be qualified under Section 401(a) of the Code
has received a favorable determination letter (including a
determination that the related trust under such Compensation and
Benefit Plan is exempt from tax under Section 501(a) of the Code) from
the IRS, and ALBANK is not aware of any circumstances likely
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to result in revocation of any such favorable determination letter.
There is no material pending or, to the knowledge of ALBANK, threatened
legal action, suit or claim relating to the Compensation and Benefit
Plans. Neither ALBANK nor any of its Subsidiaries has engaged in a
transaction, or omitted to take any action, with respect to any
Compensation and Benefit Plan that would reasonably be expected to
subject ALBANK or any of its Subsidiaries to a material tax or penalty
imposed by either Section 4975 of the Code or Section 502 of ERISA,
assuming for purposes of Section 4975 of the Code that the taxable
period of any such transaction expired as of the date hereof.
(iii) No material liability (other than for payment of
premiums to the PBGC which have been made or will be made on a timely
basis) under Title IV of ERISA has been or is expected to be incurred
by ALBANK or any of its Subsidiaries with respect to any ongoing,
frozen or terminated "single-employer plan", within the meaning of
Section 4001(a)(15) of ERISA, currently or formerly maintained by any
of them, or any single-employer plan of any entity (an "ERISA
Affiliate") which is considered one employer with ALBANK under Section
4001(a)(14) of ERISA or Section 414(b) or (c) of the Code (an "ERISA
Affiliate Plan"). None of ALBANK, any of its Subsidiaries or any ERISA
Affiliate has contributed, or has been obligated to contribute, to a
multiemployer plan under Subtitle E of Title IV of ERISA at any time
since September 26, 1980. No notice of a "reportable event", within the
meaning of Section 4043 of ERISA for which the 30-day reporting
requirement has not been waived, has been required to be filed for any
Compensation and Benefit Plan or by any ERISA Affiliate Plan within the
12-month period ending on the date hereof. The PBGC has not instituted
proceedings to terminate any Pension Plan or ERISA Affiliate Plan and,
to ALBANK's knowledge, no condition exists that presents a material
risk that such proceedings will be instituted by the PBGC. To the
knowledge of ALBANK, there is no pending investigation or enforcement
action by the PBGC, DOL or IRS or any other Governmental Authority with
respect to any Compensation and Benefit Plan. Under each Pension Plan
and ERISA Affiliate Plan, as of the date of the most recent actuarial
valuation performed prior to the date of this Agreement, the
actuarially determined present value of all "benefit liabilities",
within the meaning of Section 4001(a)(16) of ERISA (as determined on
the basis of the actuarial assumptions contained in such actuarial
valuation of such Pension Plan or ERISA Affiliate Plan), did not exceed
the then current value of the assets of such Pension Plan or ERISA
Affiliate Plan and since such date there has been neither a material
adverse change in the financial condition of such Pension Plan or ERISA
Affiliate Plan nor any amendment or other change to such Pension Plan
or ERISA Affiliate Plan that would increase the amount of benefits
thereunder which reasonably could be expected to change such result.
(iv) All material contributions required to be made under the
terms of any Compensation and Benefit Plan or ERISA Affiliate Plan or
any employee benefit arrangements under any collective bargaining
agreement to which ALBANK or any of its Subsidiaries is a party have
been timely made or have been reflected on ALBANK's financial
statements. Neither any Pension Plan nor any ERISA Affiliate Plan has
an
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"accumulated funding deficiency" (whether or not waived) within the
meaning of Section 412 of the Code or Section 302 of ERISA and all
required payments to the PBGC with respect to each Pension Plan or
ERISA Affiliate Plan have been made on or before their due dates. None
of ALBANK, any of its Subsidiaries or any ERISA Affiliate (x) has
provided, or would reasonably be expected to be required to provide,
security to any Pension Plan or to any ERISA Affiliate Plan pursuant to
Section 401(a)(29) of the Code, and (y) has taken any action, or
omitted to take any action, that has resulted, or would reasonably be
expected to result, in the imposition of a lien under Section 412(n) of
the Code or pursuant to ERISA.
(v) Except as Previously Disclosed, neither ALBANK nor any of
its Subsidiaries has any obligations to provide retiree health and life
insurance or other retiree death benefits under any Compensation and
Benefit Plan, other than benefits mandated by Section 4980B of the
Code. Except as Previously Disclosed, there has been no communication
to employees by ALBANK or any of its Subsidiaries that would reasonably
be expected to promise or guarantee such employees retiree health or
life insurance or other retiree death benefits on a permanent basis.
(vi) ALBANK and its Subsidiaries do not maintain any
Compensation and Benefit Plans covering foreign employees.
(vii) With respect to each Compensation and Benefit Plan, if
applicable, ALBANK has provided or made available to COFI, true and
complete copies of existing: (A) Compensation and Benefit Plan
documents and amendments thereto; (B) trust instruments and insurance
contracts; (C) two most recent Forms 5500 filed with the IRS; (D) most
recent actuarial report and financial statement; (E) the most recent
summary plan description; (F) forms filed with the PBGC (other than for
premium payments); (G) most recent determination letter issued by the
IRS; (H) any Form 5310 or Form 5330 filed with the IRS; and (I) most
recent nondiscrimination tests performed under ERISA and the Code
(including 401(k) and 401(m) tests).
(viii) Except as Previously Disclosed or expressly
contemplated by a separate agreement entered into by ALBANK and COFI on
the date hereof, the consummation of the transactions contemplated by
this Agreement would not, directly or indirectly (including, without
limitation, as a result of any termination of employment prior to or
following the Effective Time) reasonably be expected to (A) entitle any
employee, consultant or director to any payment (including severance
pay or similar compensation) or any increase in compensation, (B)
result in the vesting or acceleration of any benefits under any
Compensation and Benefit Plan or (C) result in any material increase in
benefits payable under any Compensation and Benefit Plan.
(ix) Neither ALBANK nor any of its Subsidiaries maintains any
compensation plans, programs or arrangements the payments under which
would not reasonably be
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expected to be deductible as a result of the limitations under Section
162(m) of the Code and the regulations issued thereunder.
(x) To the knowledge of ALBANK, as a result, directly or
indirectly, of the transactions contemplated by this Agreement
(including, without limitation, as a result of any termination of
employment prior to or following the Effective Time), none of COFI,
ALBANK or the Surviving Corporation, or any of their respective
Subsidiaries will be obligated to make a payment that would be
characterized as an "excess parachute payment" to an individual who is
a "disqualified individual" (as such terms are defined in Section 280G
of the Code), without regard to whether such payment is reasonable
compensation for personal services performed or to be performed in the
future (provided this representation does not take into account any
payments to be made pursuant to any employment agreement to be entered
into by COFI and the Chief Executive Officer of ALBANK).
(xi) There are no LSAR's, Tandem SARs, Stand-Alone SARs or
shares of Phantom Stock (as such terms are defined in the ALBANK Stock
Plans) outstanding under the ALBANK Stock Plans (other than LSARs
outstanding as of December 31, 1997 and Previously Disclosed including
the name of the holder and the strike prices of each holder's LSARs)
and except as Previously Disclosed neither ALBANK nor any ALBANK
Subsidiary has any commitment or obligation to make any awards thereof.
(xii) There are no phantom stock shares or awards outstanding,
except for those allocated under the ALBANK, FSB Supplemental Deferred
Compensation Plan, which shares or awards are set forth for each
participant in the Disclosure Schedule.
(n) Labor Matters. Neither ALBANK nor any of its Subsidiaries
is a party to or is bound by any collective bargaining agreement,
contract or other agreement or understanding with a labor union or
labor organization, nor is ALBANK or any of its Subsidiaries the
subject of a proceeding asserting that it or any such Subsidiary has
committed an unfair labor practice (within the meaning of the National
Labor Relations Act) or seeking to compel ALBANK or any such Subsidiary
to bargain with any labor organization as to wages or conditions of
employment, nor is there any strike or other labor dispute involving it
or any of its Subsidiaries pending or, to ALBANK's knowledge,
threatened, nor is ALBANK aware of any activity involving its or any of
its Subsidiaries' employees seeking to certify a collective bargaining
unit or engaging in other organizational activity.
(o) Takeover Laws; Dissenters Rights. Subject to the
continuing accuracy of COFI's representation in Section 5.04(q), this
Agreement, the Stock Option Agreement and the transactions contemplated
hereby and thereby are not subject to the requirements of any
"moratorium," "control share", "fair price", "affiliate transactions",
"business combination" or other antitakeover laws and regulations of
any state, including the provisions of Section 203 of the DGCL
("Takeover Laws") applicable to ALBANK or
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any ALBANK Subsidiary. Subject to the continuing accuracy of COFI's
representation in Section 5.04 (q), the provisions of Article EIGHTH of
the ALBANK Certificate do not apply to the entering into of this
Agreement, the Stock Option Agreement and the transactions contemplated
hereby and thereby, including the Company Merger. Subject to the
fulfillment of the conditions of Section 262(b) of the DGCL, holders of
ALBANK Common Stock will not have dissenters' rights in connection with
the Company Merger.
(p) Environmental Matters. To ALBANK's knowledge, neither the
conduct nor operation of ALBANK or its Subsidiaries nor any condition
of any property currently or previously owned or operated by any of
them (including, without limitation, in a fiduciary or agency
capacity), or on which any of them holds a Lien, results or resulted in
a material violation of any Environmental Laws and to ALBANK's
knowledge, no condition has existed or event has occurred with respect
to any of them or any such property that, with notice or the passage of
time, or both, is reasonably likely to result in any material liability
to ALBANK or any ALBANK Subsidiary under Environmental Laws. To
ALBANK's knowledge, except for any notice for which, in ALBANK's
reasonable judgment, there is no reasonable basis, neither ALBANK nor
any of its Subsidiaries has received any notice from any person or
entity that ALBANK or its Subsidiaries or the operation or condition of
any property ever owned, operated, or held as collateral or in a
fiduciary capacity by any of them are or were in material violation of
or otherwise are alleged to have material liability under any
Environmental Law, including, but not limited to, responsibility (or
potential responsibility) for the cleanup or other remediation of any
pollutants, contaminants, or hazardous or toxic wastes, substances or
materials at, on, beneath, or originating from any such property.
(q) Tax Matters. (i) (a) All Tax Returns that are required to
be filed by or with respect to ALBANK and its Subsidiaries have been
duly filed, or requests for extensions have been timely filed or an
extension is automatic) and any such extension has been granted and has
not been rescinded, (b) all Taxes shown to be due on Tax Returns
referred to in clause (a), if filed, and all Taxes required to be shown
on the Tax Returns for which extensions have been granted have been
paid in full or adequate provision has been made for such Taxes on
ALBANK's most recent balance sheet provided to COFI, (c) the Tax
Returns referred to in clause (a) that have been filed have been
examined by the IRS or the appropriate state, local or foreign taxing
authority or the period for assessment of the Taxes in respect of which
such Tax Returns were required to be filed has expired, (d) all
deficiencies asserted or assessments made as a result of such
examinations have been paid in full or non-material amounts are being
contested in good faith, (e) no material issues that have been raised
by the relevant taxing authority in connection with the examination of
any of the Tax Returns referred to in clause (a) are currently pending,
and (f) no waivers of statutes of limitation have been given by or
requested with respect to any Taxes of ALBANK or its Subsidiaries.
ALBANK has made available to COFI true and correct copies of the United
States federal income Tax Returns filed by ALBANK and its Subsidiaries
for each of the three most recent fiscal years ended on or before
December 31, 1997. Neither ALBANK nor any of its
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Subsidiaries has any material liability with respect to income,
franchise or similar Taxes that accrued on or before the end of the
most recent period covered by ALBANK's SEC Documents filed prior to the
date hereof in excess of the amounts accrued with respect thereto that
are reflected in the financial statements included in ALBANK's SEC
Documents filed on or prior to the date hereof. As of the date hereof,
neither ALBANK nor any of its Subsidiaries has any reason to believe
that any conditions exist that might prevent or impede the Company
Merger and the Bank Mergers from qualifying as reorganizations within
the meaning of Section 368(a) of the Code.
(ii) No Tax is required to be withheld pursuant to Section
1445 of the Code as a result of the transfer contemplated by this
Agreement.
(iii) ALBANK and its Subsidiaries will not be liable for any
taxes as a result of the Company Merger.
(r) Risk Management Instruments. All material interest rate
swaps, caps, floors, option agreements, futures and forward contracts
and other similar risk management arrangements, whether entered into
for ALBANK's own account, or for the account of one or more of ALBANK's
Subsidiaries or their customers (all of which are Previously
Disclosed), were entered into (i) in accordance with prudent business
practices and in all material respects in compliance with all
applicable laws, rules, regulations and regulatory policies and (ii)
with counterparties believed to be financially responsible at the time;
and each of them constitutes the valid and legally binding obligation
of ALBANK or one of its Subsidiaries, enforceable in accordance with
its terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer
and similar laws of general applicability relating to or affecting
creditors' rights or by general equity principles), and is in full
force and effect. Neither ALBANK nor its Subsidiaries, nor to ALBANK's
knowledge any other party thereto, is in breach of any of its
obligations under any such agreement or arrangement in any material
respect.
(s) Books and Records. The books and records of ALBANK and its
Subsidiaries have been fully, properly and accurately maintained in all
material respects, and there are no material inaccuracies or
discrepancies of any kind contained or reflected therein and they
fairly reflect the substance of events and transactions included
therein.
(t) Insurance. ALBANK's Disclosure Schedule sets forth all of
the material insurance policies, binders, or bonds maintained by ALBANK
or its Subsidiaries. ALBANK and its Subsidiaries are insured with
reputable insurers against such risks and in such amounts as the
management of ALBANK reasonably has determined to be prudent in
accordance with industry practices and in accordance in all material
respects with all contractual obligations. All such insurance policies
are in full force and effect; ALBANK and its Subsidiaries are not in
material default thereunder; and all material claims thereunder have
been filed in due and timely fashion.
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(u) Accounting Treatment. As of the date hereof, ALBANK is
aware of no reason why the Company Merger will fail to qualify for
"pooling-of-interests" accounting treatment.
(v) Year 2000. Neither ALBANK nor any of its Subsidiaries has
reason to believe that it will receive a rating of less than
"satisfactory" on any Year 2000 Report of Examination of any Regulatory
Authority. ALBANK has disclosed to COFI a complete and accurate copy of
its plan, including an estimate of the anticipated associated costs,
for addressing the issues set forth in the statements of the FFIEC
dated May 5, 1997, entitled "Year 2000 Project Management Awareness,"
and December 17, 1997, entitled "Safety and Soundness Guidelines
Concerning the Year 2000 Business Risk," as such issues affect it and
its Subsidiaries, and such plan is in material compliance with the
schedule set forth in the FFIEC statements.
(w) Governmental Reviews. No investigation or review by any
Governmental Authority with respect to ALBANK or any ALBANK Subsidiary
is pending or, to the knowledge of ALBANK, threatened, nor has any
Governmental Authority indicated to ALBANK or any ALBANK Subsidiary an
intention to conduct the same, other than normal or routine regulatory
examinations.
(x) Fairness Opinion. On the date of this Agreement, Merrill
Lynch & Co. has provided to the ALBANK Board a written fairness opinion
to the effect that the Exchange Ratio is fair to the stockholders of
ALBANK from a financial point of view.
(y) Compliance with Servicing Obligations. ALBANK and the
ALBANK Subsidiaries are in compliance in all material respects with all
contract, agency and investor requirements and guidelines, and all
applicable laws, rules and regulations of Governmental Authorities,
relating to the servicing and administration of loans by them, or any
of them, including but not limited to, properly and timely making
interest rate adjustments to adjustable rate loans.
(z) Disclosure. The representations and warranties contained
in this Section 5.03 do not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements and information contained in this Section 5.03 not
misleading.
5.04 Representations and Warranties of COFI. Subject to Sections 5.01
and 5.02 and except as Previously Disclosed in a paragraph of its Disclosure
Schedule corresponding to the relevant paragraph below, COFI hereby represents
and warrants to ALBANK as follows:
(a) Organization, Standing and Authority. COFI is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware. COFI is duly qualified to do
business and is in good standing in the states of the United
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States and foreign jurisdictions where its ownership or leasing of
property or assets or the conduct of its business requires it to be so
qualified.
(b) COFI Stock. (i) As of the date hereof, the authorized
capital stock of COFI consists solely of (i) 180,000,000 shares of COFI
Common Stock, of which no more than 128,164,618 shares were
outstanding, and 1,750,592 shares were held in treasury, as of the day
prior to the date hereof and (ii) 20,000,000 shares of preferred stock,
$0.01 par value per share, of which none were issued and outstanding on
the date hereof. As of the date hereof, COFI does not have any Rights
issued or outstanding with respect to COFI Common Stock and COFI does
not have any commitment to authorize, issue or sell any COFI Common
Stock or Rights, other than pursuant to (i) this Agreement, (ii) an
Agreement and Plan of Merger and Reorganization with CS Financial
Corporation and The Cuyahoga Savings Association dated April 23, 1998,
(iii) outstanding stock options (and any mandatory future awards under
stock option plans) that have been Previously Disclosed, (iv) its
dividend reinvestment plan on terms Previously Disclosed, and (v) the
Rights Agreement referred to in Section 3.01(a) hereof. The outstanding
shares of COFI Common Stock have been duly authorized and are validly
issued and outstanding, fully paid and nonassessable, and subject to no
preemptive rights (and were not issued in violation of any preemptive
rights).
(ii) The shares of COFI Common Stock to be issued in exchange
for shares of ALBANK Common Stock in the Company Merger, when issued in
accordance with the terms of this Agreement, will be duly authorized,
validly issued, fully paid and nonassessable and subject to no
preemptive rights.
(c) Subsidiaries. Each of COFI's Subsidiaries has been duly
organized and is validly existing in good standing under the laws of
the jurisdiction of its organization, and is duly qualified to do
business and is in good standing in the jurisdictions where its
ownership or leasing of property or the conduct of its business
requires it to be so qualified and COFI owns, directly or indirectly,
all the issued and outstanding equity securities of each of its
Subsidiaries.
(d) Corporate Power. Each of COFI and its Subsidiaries has the
corporate power and authority to carry on its business as it is now
being conducted and to own all its properties and assets; and each of
COFI and Charter Michigan has the corporate power and authority to
execute, deliver and perform its obligations under this Agreement and
in the case of COFI, the Stock Option Agreement and to consummate the
transactions contemplated hereby and thereby.
(e) Corporate Authority. Subject to the approval of the
issuance of COFI Common Stock to be issued in the Company Merger by the
holders of COFI Common Stock in accordance with the NASDAQ rules (which
is the only COFI stockholder vote required thereon), this Agreement,
the Stock Option Agreement and the transactions contemplated hereby and
thereby have been authorized by all necessary corporate action
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of COFI and Charter Michigan and the COFI Board and the Charter
Michigan Board on or prior to the date hereof. This Agreement is a
valid and legally binding agreement of COFI and Charter Michigan,
enforceable in accordance with its terms (except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights or by general
equity principles).
(f) Regulatory Approvals; No Defaults. (i) No consents or
approvals of, or filings or registrations with, any Governmental
Authority or with any third party are required to be made or obtained
by COFI or any of its Subsidiaries in connection with the execution,
delivery or performance by COFI or Charter Michigan of this Agreement
or to consummate the Company Merger or the Bank Mergers except for (A)
the filings referred to in Section 5.03(f)(i); (B) such filings as are
required to be made or approvals as are required to be obtained under
the securities or "Blue Sky" laws of various states in connection with
the issuance of COFI Common Stock in the Company Merger; and (C)
receipt of the approvals set forth in Section 7.01(b). As of the date
hereof, COFI is not aware of any reason why the approvals set forth in
Section 7.01(b) will not be received in a timely manner without the
imposition of a condition, restriction or requirement of the type
described in Section 7.01(b).
(ii) Subject to the satisfaction of the requirements referred
to in the preceding paragraph and expiration of the related waiting
periods, and required filings under federal and state securities laws,
the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby do not and will
not (A) constitute a breach or violation of, or a default under, or
give rise to any Lien, any acceleration of remedies or any right of
termination under, any law, rule or regulation or any judgment, decree,
order, governmental permit or license, or material agreement, indenture
or instrument of COFI or of any of its Subsidiaries or to which COFI or
any of its Subsidiaries or properties is subject or bound, (B)
constitute a breach or violation of, or a default under, the
certificate of incorporation or by-laws (or similar governing
documents) of COFI or any of its Subsidiaries, or (C) require any
consent or approval under any such law, rule, regulation, judgment,
decree, order, governmental permit or license, material agreement,
indenture or instrument.
(g) Financial Reports and SEC Documents; Material Adverse
Effect. (i) COFI's SEC Documents, as of the date filed, (A) complied or
will comply in all material respects with the applicable requirements
under the Securities Act or the Exchange Act, as the case may be, and
(B) did not and will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; and each of the balance
sheets or statements of condition contained in or incorporated by
reference into any such SEC Document (including the related notes and
schedules thereto) fairly presents, or will fairly present, the
financial position of COFI and its Subsidiaries as of its date, and
each of the statements of income or results of
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operations and changes in stockholders' equity and cash flows or
equivalent statements in such SEC Documents (including any related
notes and schedules thereto) fairly presents, or will fairly present,
in all material respects, the results of operations, changes in
stockholders' equity and cash flows, as the case may be, of COFI and
its Subsidiaries for the periods to which they relate, in each case in
accordance with generally accepted accounting principles consistently
applied during the periods involved, except in each case as may be
noted therein, subject to normal year-end audit adjustments in the case
of unaudited statements.
(ii) Since December 31, 1997, no event has occurred or
circumstance arisen that, individually or taken together with all other
facts, circumstances and events (described in any paragraph of Section
5.04 or otherwise), is reasonably likely to have a Material Adverse
Effect with respect to COFI.
(h) Litigation; Regulatory Action. (i) No material litigation,
claim or other proceeding before any Governmental Authority is pending
against COFI or any of its Subsidiaries and, to COFI's knowledge, no
such litigation, claim or other proceeding has been threatened.
(ii) Neither COFI nor any of its Subsidiaries or properties is
a party to or is subject to any order, decree, agreement, memorandum of
understanding or similar arrangement with, or a commitment letter or
similar submission to, or extraordinary supervisory letter from a
Regulatory Authority, nor has COFI or any of its Subsidiaries been
advised by a Regulatory Authority that such agency is contemplating
issuing or requesting (or is considering the appropriateness of issuing
or requesting) any such order, decree, agreement, memorandum of
understanding, commitment letter, supervisory letter or similar
submission.
(i) Compliance with Laws. Each of COFI and its Subsidiaries:
(i) is in substantial compliance with all applicable
federal, state, local and foreign statutes, laws, regulations,
ordinances, rules, judgments, orders or decrees applicable
thereto or to the employees conducting such businesses,
including, without limitation, the Equal Credit Opportunity
Act, the Fair Housing Act, the Community Reinvestment Act of
1977, the Home Mortgage Disclosure Act and all other
applicable fair lending laws and other laws relating to
discriminatory business practices; and
(ii) has all permits, licenses, authorizations,
orders and approvals of, and has made all filings,
applications and registrations with, all Governmental
Authorities that are required in order to permit them to
conduct their businesses substantially as presently conducted;
all such permits, licenses, certificates of authority, orders
and approvals are in full force and effect and, to the best of
its knowledge, no suspension or cancellation of any of them is
threatened or will
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result from the consummation of the transactions contemplated
by this Agreement; and
(iii) has received, since December 31, 1996, no
notification or communication from any Governmental Authority
(A) asserting that COFI or any of its Subsidiaries is not in
compliance in any material respect with any of the statutes,
regulations, or ordinances which such Governmental Authority
enforces or (B) threatening to revoke any material license,
franchise, permit, or governmental authorization (nor, to
COFI's knowledge, do any grounds for any of the foregoing
exist).
(j) Brokers. No action has been taken by COFI that would give
rise to any valid claim against any party hereto for a brokerage
commission, finder's fee or other like payment with respect to the
transactions contemplated by this Agreement, except for a fee to be
paid to Lehman Brothers.
(k) Takeover Laws. COFI has taken all action required to be
taken by it in order to exempt this Agreement, the Stock Option
Agreement and the transactions contemplated hereby and thereby from,
and this Agreement, the Stock Option Agreement and the transactions
contemplated hereby and thereby are exempt from, the requirements of
any Takeover Laws applicable to COFI or Charter Michigan or their
Subsidiaries.
(l) Environmental Matters. To COFI's knowledge, neither the
conduct nor operation of COFI or its Subsidiaries nor any condition of
any property currently or previously owned or operated by any of them
(including, without limitation, in a fiduciary or agency capacity), or
on which any of them holds a Lien, results or resulted in a material
violation of any Environmental Laws and to COFI's knowledge no
condition has existed or event has occurred with respect to any of them
or any such property that, with notice or the passage of time, or both,
is reasonably likely to result in any material liability to COFI or any
COFI Subsidiary under Environmental Laws. To COFI's knowledge, except
for any notice for which, in COFI's reasonable judgment, there is no
reasonable basis, neither COFI nor any of its Subsidiaries has received
any notice from any person or entity that COFI or its Subsidiaries or
the operation or condition of any property ever owned, operated, or
held as collateral or in a fiduciary capacity by any of them are or
were in material violation of or otherwise are alleged to have material
liability under any Environmental Law, including, but not limited to,
responsibility (or potential responsibility) for the cleanup or other
remediation of any pollutants, contaminants, or hazardous or toxic
wastes, substances or materials at, on, beneath, or originating from
any such property.
(m) Tax Matters. (i) All Tax Returns that are required to be
filed by or with respect to COFI and its Subsidiaries have been duly
filed, or requests for extensions have been timely filed (or an
extension is automatic) and any such extension has been granted and has
not been rescinded, (ii) all Taxes shown to be due on Tax Returns
referred to in
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clause (i), if filed, and all Taxes required to be shown on the Tax
Returns for which extensions have been granted have been paid in full
or adequate provision has been made for such Taxes on COFI's most
recent balance sheet provided to ALBANK, (iii) the Tax Returns referred
to in clause (i) that have been filed have been examined by the IRS or
the appropriate state, local or foreign taxing authority or the period
for assessment of the Taxes in respect of which such Tax Returns were
required to be filed has expired, (iv) all deficiencies asserted or
assessments made as a result of such examinations have been paid in
full, or non-material amounts are being contested in good faith, (v) no
material issues that have been raised by the relevant taxing authority
in connection with the examination of any of the Tax Returns referred
to in clause (i) are currently pending, and (vi) no waivers of statutes
of limitation have been given by or requested with respect to any Taxes
of COFI or its Subsidiaries. Neither COFI nor any of its Subsidiaries
has any material liability with respect to income, franchise or similar
Taxes that accrued on or before the end of the most recent period
covered by COFI's SEC Documents filed prior to the date hereof in
excess of the amounts accrued with respect thereto that are reflected
in the financial statements included in COFI's SEC Documents filed on
or prior to the date hereof. As of the date hereof, neither COFI nor
any of its Subsidiaries has any reason to believe that any conditions
exist that might prevent or impede the Company Merger and the Bank
Mergers from qualifying as reorganizations within the meaning of
Section 368(a) of the Code.
(n) Books and Records. The books and records of COFI and its
Subsidiaries have been fully, properly and accurately maintained in all
material respects, and there are no material inaccuracies or
discrepancies of any kind contained or reflected therein, and they
fairly present the substance of events and transactions included
therein.
(o) Insurance. COFI's Disclosure Schedule sets forth all of
the material insurance policies, binders, or bonds maintained by COFI
or its Subsidiaries. COFI and its Subsidiaries are insured with
reputable insurers against such risks and in such amounts as the
management of COFI reasonably has determined to be prudent in
accordance with industry practices and in all material respects in
accordance with all contractual obligations. All such insurance
policies are in full force and effect; COFI and its Subsidiaries are
not in material default thereunder; and all material claims thereunder
have been filed in due and timely fashion.
(p) Accounting Treatment. As of the date hereof, COFI is aware
of no reason why the Company Merger will fail to qualify for
"pooling-of-interests" accounting treatment.
(q) COFI Ownership of ALBANK Stock. Neither COFI nor any of
its Subsidiaries either beneficially owns any shares of ALBANK Common
Stock or, other than as contemplated by this Agreement and the Stock
Option Agreement, has any option, warrant or right of any kind to
acquire the beneficial ownership of any shares of ALBANK Common Stock.
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(r) Year 2000. Neither COFI nor any of its Subsidiaries has
reason to believe that it will receive a rating of less than
"satisfactory" on any OTS Year 2000 Report of Examination. COFI has
disclosed to ALBANK a complete and accurate copy of its plan, including
an estimate of the anticipated associated costs, for addressing the
issues set forth in the statements of the FFIEC dated May 5, 1997,
entitled "Year 2000 Project Management Awareness," and December 17,
1997, entitled "Safety and Soundness Guidelines Concerning the Year
2000 Business Risk," as such issues affect it and its Subsidiaries, and
such plan is in material compliance with the schedule set forth in the
FFIEC statements.
(s) Governmental Reviews. No investigation or review by any
Governmental Authority with respect to COFI or any of its Subsidiary is
pending or, to the knowledge of COFI, threatened, nor has any
Governmental Authority indicated to COFI or any of its Subsidiary an
intention to conduct the same, other than normal or routine regulatory
examinations.
(t) Risk Management Instruments. All material interest rate
swaps, caps, floors, option agreements, futures and forward contracts
and other similar risk management arrangements, whether entered into
for COFI's own account, or for the account of one or more of COFI's
Subsidiaries or their customers, were entered into (i) in accordance
with prudent business practices and in all material respects in
compliance with all applicable laws, rules, regulations and regulatory
policies and (ii) with counterparties believed to be financially
responsible at the time; and each of them constitutes the valid and
legally binding obligation of COFI or one of its Subsidiaries,
enforceable in accordance with its terms (except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors' rights or by general
equity principles), and is in full force and effect. Neither COFI nor
its Subsidiaries, nor to COFI's knowledge any other party thereto, is
in breach of any of its obligations under any such agreement or
arrangement in any material respect.
(u) Fairness Opinion. On the date of this Agreement, Lehman
Brothers has provided to the COFI Board a written fairness opinion to
the effect that the Exchange Ratio is fair to the stockholders of COFI
from a financial point of view.
(v) Disclosure. The representations and warranties contained
in this Section 5.04 do not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements and information contained in this Section 5.04 not
misleading
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ARTICLE VI
COVENANTS
6.01 Reasonable Best Efforts. Subject to the terms and conditions of
this Agreement, each of ALBANK and COFI agrees to use its reasonable best
efforts in good faith to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, proper or desirable, or advisable under
applicable laws, so as to permit consummation of the Transaction as promptly as
practicable and otherwise to enable consummation of the Transaction and shall
cooperate fully with the other party hereto to that end.
6.02 Stockholder Approvals. COFI and ALBANK agree to take, in
accordance with applicable law or NASDAQ rules and their certificates of
incorporation and by-laws, all action necessary to convene an appropriate
meeting of their stockholders to consider and vote upon, in the case of ALBANK,
the approval and adoption of this Agreement and in the case of COFI to approve
the issuance of COFI Common Stock to be issued in the Company Merger, and in
each case any other matter required to be approved by such stockholders for
consummation of the Company Merger (including any adjournment or postponement,
the "COFI Meeting" or "ALBANK Meeting", whichever is applicable), in each case
as promptly as practicable after the Registration Statement is declared
effective. The COFI Board and the ALBANK Board shall each recommend such
approval, and COFI and ALBANK shall take all reasonable, lawful action to
solicit such approval by its stockholders; provided if either the ALBANK Board
or COFI Board has received a written opinion from its outside counsel to the
effect that such recommendation would result in violation of its fiduciary
duties to stockholders under applicable law arising by virtue of ALBANK's
receipt of a ALBANK Proposal or COFI's receipt of a COFI Proposal, whichever is
applicable, then such Board will not be required to make such recommendation.
6.03 Registration Statement. (a) COFI agrees to prepare a registration
statement on Form S-4 (the "Registration Statement") to be filed by COFI with
the SEC in connection with the issuance of COFI Common Stock in the Company
Merger (including the joint proxy statement and prospectus and other proxy
solicitation materials of COFI and ALBANK constituting a part thereof (the
"Proxy Statement") and all related documents). ALBANK agrees to cooperate, and
to cause its Subsidiaries to cooperate, with COFI, its counsel and its
accountants, in preparation of the Registration Statement and the Proxy
Statement; and provided that ALBANK and its Subsidiaries have cooperated as
required above, COFI agrees to file the Registration Statement (or the form of
the Proxy Statement) in preliminary form with the SEC as promptly as reasonably
practicable and shall use reasonable efforts to cause such filing to occur
within 70 days after execution of this Agreement. If COFI files the Proxy
Statement in preliminary form, it agrees to file the Registration Statement with
the SEC as soon as reasonably practicable after any SEC comments with respect to
the preliminary Proxy Statement are resolved. Each of ALBANK and COFI agrees to
use all reasonable efforts to cause the Registration Statement to be declared
effective under the Securities Act as promptly as
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reasonably practicable after filing thereof. COFI also agrees to use all
reasonable efforts to obtain, prior to the effective date of the Registration
Statement, all necessary state securities law or "Blue Sky" permits and
approvals required to carry out the transactions contemplated by this Agreement.
ALBANK agrees to furnish to COFI all information concerning ALBANK, its
Subsidiaries, officers, directors and stockholders as may be reasonably
requested in connection with the foregoing.
(b) Each of ALBANK and COFI agrees, as to itself and its Subsidiaries,
that none of the information supplied or to be supplied by it for inclusion or
incorporation by reference in (i) the Registration Statement will, at the time
the Registration Statement and each amendment or supplement thereto, if any,
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and (ii) the Proxy
Statement and any amendment or supplement thereto will, at the date of mailing
to stockholders and at the time of the COFI Meeting or the ALBANK Meeting, as
the case may be, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading or any statement which, in the light of the
circumstances under which such statement is made, will be false or misleading
with respect to any material fact, or which will omit to state any material fact
necessary in order to make the statements therein not false or misleading or
necessary to correct any statement in any earlier statement in the Proxy
Statement or any amendment or supplement thereto. Each of ALBANK and COFI
further agrees that if it shall become aware prior to the Effective Date of any
information furnished by it that would cause any of the statements in the Proxy
Statement to be false or misleading with respect to any material fact, or to
omit to state any material fact necessary to make the statements therein not
false or misleading, to promptly inform the other party thereof and to take the
necessary steps to correct the Proxy Statement.
(c) COFI agrees to advise ALBANK, promptly after COFI receives notice
thereof, of the time when the Registration Statement has become effective or any
supplement or amendment has been filed, of the issuance of any stop order or the
suspension of the qualification of COFI Common Stock for offering or sale in any
jurisdiction, of the initiation or threat of any proceeding for any such
purpose, or of any request by the SEC for the amendment or supplement of the
Registration Statement or for additional information.
(d) Each of COFI and ALBANK, in consultation with the other, shall
employ professional proxy solicitors to assist it in contacting stockholders in
connection with soliciting votes on the matters to be considered and voted upon
at the COFI Meeting and ALBANK Meeting.
6.04 Press Releases. Each of ALBANK and COFI agrees that it will not,
without the prior approval of the other party, issue any press release or
written statement for general circulation relating to the transactions
contemplated hereby, except as otherwise required by applicable law or
regulation or NASDAQ rules, and then only after making reasonable efforts to
first consult with the other party.
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6.05 Access; Information. (a) Each of ALBANK and COFI agrees that upon
reasonable notice and subject to applicable laws relating to the exchange of
information, it shall afford the other party and the other party's
Representatives, such access during normal business hours throughout the period
prior to the Effective Time to the books, records (including, without
limitation, Tax Returns and work papers of independent auditors), properties,
personnel and to such other information as any party may reasonably request and,
during such period, it shall furnish promptly to such other party (i) a copy of
each material report, schedule and other document filed by it pursuant to the
requirements of federal or state securities or banking laws, and (ii) all other
information concerning the business, properties and personnel of it as the other
may reasonably request.
(b) Each of ALBANK and COFI agrees that it will not, and will cause its
Representatives not to, use any information obtained pursuant to this Section
6.05 (as well as any other information obtained prior to the date hereof in
connection with the entering into of this Agreement) for any purpose unrelated
to the consummation of the transactions contemplated by this Agreement. Subject
to the requirements of law, each party will keep confidential, and will cause
its Representatives to keep confidential, all information and documents obtained
pursuant to this Section 6.05 (as well as any other information obtained prior
to the date hereof in connection with the entering into of this Agreement)
unless such information (i) was already known to such party, (ii) becomes
available to such party from other sources not known by such party to be bound
by a confidentiality obligation, (iii) is disclosed with the prior written
approval of the party to which such information pertains or (iv) is or becomes
readily ascertainable from published information or trade sources. In the event
that this Agreement is terminated or the transactions contemplated by this
Agreement shall otherwise fail to be consummated, each party shall promptly
cause all copies of documents, extracts thereof or notes, analyses,
compilations, studies or other documents containing information and data as to
another party hereto to be returned to the party which furnished the same. No
investigation by either party of the business and affairs of the other shall
affect or be deemed to modify or waive any representation, warranty, covenant or
agreement in this Agreement, or the conditions to either party's obligation to
consummate the transactions contemplated by this Agreement.
(c) During the period from the date of this Agreement to the Effective
Time, each party shall promptly furnish the other with copies of all monthly and
other interim financial statements produced in the ordinary course of business
as the same shall become available.
6.06 ALBANK Proposal. ALBANK agrees that it shall not, and shall cause
its Subsidiaries and its and its Subsidiaries' officers, directors, agents,
advisors and affiliates not to, solicit or encourage inquiries or proposals with
respect to, or engage in any negotiations concerning, or provide any
confidential information to, or have any discussions with, any person relating
to, any ALBANK Proposal. It shall immediately cease and cause to be terminated
any activities, discussions or negotiations conducted prior to the date of this
Agreement with any parties other than COFI with respect to any of the foregoing
and shall use its reasonable best efforts to enforce any confidentiality or
similar agreement relating to a ALBANK Proposal in existence on the date hereof.
ALBANK shall promptly (within 24 hours) advise COFI following
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the receipt by ALBANK of any ALBANK Proposal and the substance thereof
(including the identity of the person making such ALBANK Proposal), and advise
COFI of any material developments with respect to such ALBANK Proposal
immediately upon the occurrence thereof. Notwithstanding the foregoing but only
after receipt of a ALBANK Proposal and during the period prior to the ALBANK
Meeting, ALBANK may provide information at the request of or enter into
negotiations with a third party with respect thereto, if the ALBANK Board
receives a written opinion from its outside counsel to the effect that the
failure to do so would result in a breach of the fiduciary duties of the ALBANK
Board to its stockholders under applicable law.
6.07. Affiliate Agreements. (a) Not later than the 15th day prior to
the mailing of the Proxy Statement, (i) COFI shall deliver to ALBANK a schedule
of each person that, to the best of its knowledge, is or is reasonably likely to
be, as of the date of the COFI Meeting, deemed to be an "affiliate" of COFI
(each, a "COFI Affiliate") as that term is used in SEC Accounting Series
Releases 130 and 135; and (ii) ALBANK shall deliver to COFI a schedule of each
person that, to the best of its knowledge, is or is reasonably likely to be, as
of the date of the ALBANK Meeting, deemed to be an "affiliate" of ALBANK (each,
a "ALBANK Affiliate") as that term is used in Rule 145 under the Securities Act
or SEC Accounting Series Releases 130 and 135.
(b) Each of ALBANK and COFI shall use its respective reasonable best
efforts to cause each person who may be deemed to be a ALBANK Affiliate or a
COFI Affiliate, as the case may be, to execute and deliver to ALBANK and COFI on
or before the date of mailing of the Proxy Statement an agreement in the form
attached hereto as Exhibit D or Exhibit E, respectively.
6.08 Takeover Laws. No party hereto shall take any action that would
cause the transactions contemplated by this Agreement or the Stock Option
Agreement to be subject to requirements imposed by any Takeover Law and each of
them shall take all necessary steps within its control to exempt (or ensure the
continued exemption of) the transactions contemplated by this Agreement from, or
if necessary challenge the validity or applicability of, any applicable Takeover
Law, as now or hereafter in effect.
6.09 Certain Policies. Prior to the Effective Date, ALBANK shall, and
shall cause its Subsidiaries, but only to the extent consistent with generally
accepted accounting principles and on a basis mutually satisfactory to it and
COFI, modify and change its loan, litigation and real estate valuation policies
and practices (including loan classifications and levels of reserves) so as to
be applied on a basis that is consistent with that of COFI; provided, however,
that ALBANK shall not be obligated to take any such action pursuant to this
Section 6.09 unless and until COFI acknowledges that all conditions to its
obligation to consummate the Transaction have been satisfied and certifies to
ALBANK that COFI's representations and warranties, subject to Section 5.02, are
true and correct as of such date and that COFI is otherwise in material
compliance with this Agreement. ALBANK's representations, warranties and
covenants contained in this Agreement shall not be deemed to be untrue or
breached in any respect for any purpose as a consequence of any modifications or
changes undertaken solely on account of this Section 6.09.
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6.10 NASDAQ Listing. COFI agrees to use its best efforts to list, prior
to the Effective Time, on the NASDAQ, subject to official notice of issuance,
the shares of COFI Common Stock to be issued to the holders of ALBANK Common
Stock in the Company Merger.
6.11 Regulatory Applications. (a) COFI and ALBANK and their respective
Subsidiaries shall cooperate and use their respective reasonable best efforts to
prepare all documentation, to effect all filings and to obtain all permits,
consents, approvals and authorizations of all third parties and Governmental
Authorities necessary to consummate the transactions contemplated by this
Agreement. Each of COFI and ALBANK shall have the right to review in advance,
and to the extent practicable each will consult with the other, in each case
subject to applicable laws relating to the exchange of information, with respect
to, all material written information submitted to any third party or any
Governmental Authority in connection with the transactions contemplated by this
Agreement. In exercising the foregoing right, each of the parties hereto agrees
to act reasonably and as promptly as practicable. Each party hereto agrees that
it will consult with the other party hereto with respect to the obtaining of all
material permits, consents, approvals and authorizations of all third parties
and Governmental Authorities necessary or advisable to consummate the
transactions contemplated by this Agreement and each party will keep the other
party apprised of the status of material matters relating to completion of the
transactions contemplated hereby.
(b) Each party agrees, upon request, to furnish the other party with
all information concerning itself, its Subsidiaries, directors, officers and
stockholders and such other matters as may be reasonably necessary or advisable
in connection with any filing, notice or application made by or on behalf of
such other party or any of its Subsidiaries to any third party or Governmental
Authority.
6.12 Indemnification. (a) Following the Effective Date and for a period
of six years thereafter, COFI shall indemnify, defend and hold harmless the
present and former directors, officers and employees of ALBANK and its
Subsidiaries (each, an "Indemnified Party") against all costs or expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages or liabilities (collectively, "Costs") incurred in connection with any
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of actions or omissions occurring
at or prior to the Effective Time (including, without limitation, the
transactions contemplated by this Agreement) to the fullest extent that ALBANK
is permitted to indemnify (and advance expenses to) its directors and officers
under the laws of the State of Delaware, the ALBANK Certificate and the ALBANK
By-Laws as in effect on the date hereof; provided that any determination
required to be made with respect to whether an officer's, director's or
employee's conduct complies with the standards set forth under Delaware law, the
ALBANK Certificate and the ALBANK By-Laws shall be made by independent counsel
(which shall not be counsel that provides material services to COFI) selected by
COFI and reasonably acceptable to such officer or director.
(b) For a period of three years from the Effective Time, COFI shall use
its best efforts to provide that portion of director's and officer's liability
insurance that serves to reimburse the
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present and former officers and directors of ALBANK or any of its Subsidiaries
(determined as of the Effective Time) (as opposed to ALBANK) with respect to
claims against such directors and officers arising from facts or events which
occurred before the Effective Time, which insurance shall contain at least the
same coverage and amounts, and contain terms and conditions no less
advantageous, as that coverage currently provided by ALBANK; provided, however,
that in no event shall COFI be required to expend in the aggregate during the
coverage period more than 300 percent of the current annual amount expended by
ALBANK (the "Insurance Amount") to maintain or procure such directors and
officers insurance coverage; provided, further, that if COFI is unable to
maintain or obtain the insurance called for by this Section 6.12(b), COFI shall
use its reasonable best efforts to obtain as much comparable insurance as is
available for the Insurance Amount; provided, further, that officers and
directors of ALBANK or any Subsidiary may be required to make application and
provide customary representations and warranties to COFI's insurance carrier for
the purpose of obtaining such insurance.
(c) Any Indemnified Party wishing to claim indemnification under
Section 6.12(a), upon learning of any claim, action, suit, proceeding or
investigation described above, shall promptly notify COFI thereof; provided that
the failure so to notify shall not affect the obligations of COFI under Section
6.12(a) unless and to the extent that COFI is actually prejudiced as a result of
such failure.
(d) If COFI or any of its successors or assigns shall consolidate with
or merge into any other entity and shall not be the continuing or surviving
entity of such consolidation or merger or shall transfer all or substantially
all of its assets to any entity, then and in each case, proper provision shall
be made so that the successors and assigns of COFI shall assume the obligations
set forth in this Section 6.12.
6.13 Benefit Plans.
-------------
(a) At the Effective Time, COFI or a COFI Subsidiary shall be
substituted for ALBANK or a ALBANK Subsidiary as the sponsoring
employer under those benefit and welfare plans with respect to which
ALBANK or any of its Subsidiaries is a sponsoring employer immediately
prior to the Effective Time, and shall assume and be vested with all of
the powers, rights, duties, obligations and liabilities previously
vested in ALBANK or its Subsidiary with respect to each such plan.
Except as expressly contemplated by a separate agreement entered into
by ALBANK and COFI on the date hereof, each such plan shall be
continued in effect by COFI or any applicable COFI Subsidiary after the
Effective Time without a termination or discontinuance thereof as a
result of the Company Merger or the Bank Mergers, subject to the power
reserved to COFI or any applicable COFI Subsidiary under each such plan
to subsequently amend or terminate the plan, which amendments or
terminations shall comply with applicable law. ALBANK, each ALBANK
Subsidiary, and COFI will use all reasonable efforts (i) to effect said
substitutions and assumptions, and such other actions contemplated
under this
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Agreement, and (ii) to amend such plans as to the extent necessary to
provide for said substitutions and assumptions, and such other actions
contemplated under this Agreement.
(b) At or as promptly as practicable after the Effective Time
as COFI shall reasonably determine, COFI shall provide, or cause a COFI
Subsidiary to provide, to each full time employee of ALBANK, and its
wholly-owned Subsidiaries as of the Effective Time ("ALBANK Employees")
the opportunity to participate in each employee benefit and welfare
plan maintained by COFI or a COFI Subsidiary, whichever is applicable,
for similarly-situated employees provided that with respect to such
plans maintained by COFI or a COFI Subsidiary, whichever is applicable,
ALBANK Employees shall be given credit for service recognized under the
corresponding plan of ALBANK and its Subsidiaries in determining
participation in, eligibility for and vesting in benefits thereunder,
and only with respect to severance and vacation plans, accrual of
benefits; provided further that ALBANK Employees shall not be subject
to any waiting periods or pre-existing condition exclusions under the
group health plan of COFI or any applicable COFI Subsidiary to the
extent that such periods are longer or restrictions impose a greater
limitation than the periods or limitations imposed under the applicable
ALBANK group health plan; and provided further that to the extent that
the initial period of coverage for ALBANK Employees under any plan of
COFI or a COFI Subsidiary, whichever is applicable, that is an
"employee welfare benefit plan" as defined in Section 3(1) of ERISA is
not a full 12-month period of coverage, ALBANK Employees shall be given
credit under the applicable welfare plan for any deductibles and
co-insurance payments made by such ALBANK Employees under the
corresponding ALBANK welfare plan during the balance of such 12-month
period of coverage. Nothing in the preceding sentence shall obligate
COFI or any COFI Subsidiary to provide or cause to be provided any
benefits duplicative to those provided under any ALBANK benefit or
welfare plan continued pursuant to subparagraph (a) above, including,
but not limited to, extending participation in any plan which is an
"employee pension benefit plan" under ERISA relative to any period of
time with respect to which allocations are made to ALBANK Employees
under any employee pension benefit plan maintained or sponsored by
ALBANK or a ALBANK Subsidiary. Except as otherwise provided in this
Agreement, the power of COFI or any COFI Subsidiary to amend or
terminate any benefit or welfare plans of ALBANK and its Subsidiaries
shall not be altered or affected. Moreover, this subsection 6.13(b)
shall not confer upon any ALBANK Employee any rights or remedies
hereunder and shall not constitute a contract of employment or create
any rights, to be retained or otherwise, in employment at COFI or any
COFI Subsidiary.
(c) Any separate agreement entered into by ALBANK and COFI on
the date hereof relating to employee or director benefits is
incorporated herein by reference and shall be deemed a part of this
Agreement.
6.14 Notification of Certain Matters. Each of ALBANK and COFI shall
give prompt notice to the other of any fact, event or circumstance known to it
that (i) is reasonably likely,
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individually or taken together with all other facts, events and circumstances
known to it, to result in any Material Adverse Effect with respect to it, (ii)
would cause or constitute a breach of any of its representations, warranties,
covenants or agreements contained herein as of the date of this Agreement or
(iii) would require any material amendment to any information Previously
Disclosed arising from events or circumstances after the date of this Agreement
or otherwise would cause a material breach of any of its representations,
warranties, covenants or agreements contained herein.
6.15 Directors. (i) At the Effective Time, COFI agrees to cause Herbert
Chorbajian to be elected to the COFI Board with the title of "Vice-Chairman" for
a term expiring in April 1999, and Karen Hitchcock to be elected to the COFI
Board for a term expiring in April 2000 and (iii) within 12 months of the
Effective Time, COFI agrees, subject to OTS approval, to cause John Nigro to be
elected to the COFI Board.
6.16 Advisory Board Membership. At the Effective Time, each member of
the ALBANK Board (other than Herbert Chorbajian and Karen Hitchcock) shall be
offered the opportunity to become a member of an advisory board to be
established by COFI for a five year term, which advisory board shall advise COFI
with respect to the geographic areas in which ALBANK, FSB and ALBANK Commercial
operate as of the date hereof; provided, however, any person serving on such
advisory board who subsequently becomes a director of COFI or any COFI
Subsidiary shall cease to be a member of the advisory board on the date that he
or she commences serving as a director of COFI or any COFI Subsidiary.
6.17 COFI Fee. If (a) the ALBANK Board shall have failed to unanimously
recommend approval and adoption of this Agreement to the ALBANK stockholders,
withdrawn such recommendation or modified or changed such recommendation in a
manner adverse in any respect to the interests of COFI, (b) ALBANK shall have
provided information to or entered into negotiations with a third party with
respect to a ALBANK Proposal as permitted by Section 6.06, (c) ALBANK shall be
in material and willful breach of any of its covenants contained in this
Agreement such that COFI shall be entitled to terminate this Agreement pursuant
to Section 8.01(b), or (d) the stockholders of ALBANK do not approve and adopt
this Agreement at the ALBANK Meeting, in each case after there has been proposed
by a third party a ALBANK Acquisition Transaction (the "ALBANK Proposal"), then,
in any such event, upon the actual consummation of a ALBANK Acquisition
Transaction with a third party within 15 months after the ALBANK Proposal,
ALBANK shall pay COFI a fee of $40 million. The fee to be paid pursuant to this
Section 6.17 shall be reduced to $15 million if either (a) COFI has acquired any
shares pursuant to the exercise of its Option (as defined in the Stock Option
Agreement), ALBANK has repurchased the Option pursuant to the Stock Option
Agreement or ALBANK has paid COFI the Surrender Price (as defined in the Stock
Option Agreement) pursuant to the Stock Option Agreement or (b) COFI refuses to
execute and deliver a written release of all of COFI's rights under the Stock
Option Agreement against delivery and payment of the full fee set forth in
the preceding sentence. Any payment made pursuant to this Section 6.17 shall be
made in immediately available funds.
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Notwithstanding anything to the contrary contained herein, the fee
provided for in this Section 6.17 shall not be payable if ALBANK has terminated,
or has or had the right to terminate, this Agreement pursuant to Section
8.01(b), 8.01(d)(i), 8.01(d)(ii) as a result of the COFI stockholders not
approving the issuance of COFI Common Stock to be issued in the Company Merger
or Section 8.01(e).
For purposes of the foregoing, "ALBANK Acquisition Transaction" shall
have the same meaning as the term "Acquisition Transaction" in the Stock Option
Agreement except that the percentage referred to in clause (z) of the second
sentence shall be 25%.
6.18 ALBANK Fee. If (a) the COFI Board shall have failed to unanimously
recommend to the COFI stockholders approval of the issuance of COFI Common Stock
to be issued in the Company Merger, withdrawn such recommendation or modified or
changed such recommendation in a manner adverse in any respect to the interests
of ALBANK, (b) COFI shall be in material and willful breach of any of its
covenants contained in this Agreement such that ALBANK shall be entitled to
terminate this Agreement pursuant to Section 8.01(b), or (c) the stockholders of
COFI do not approve the issuance of the COFI Common Stock to be issued in the
Company Merger at the COFI Meeting, in each case after there has been proposed
by a third party a COFI Acquisition Transaction (the "COFI Proposal"), then, in
any such event, upon the actual consummation of a COFI Acquisition Transaction
with a third party within 15 months after the COFI Proposal, COFI shall pay
ALBANK a fee of $15 million, in immediately available funds.
Notwithstanding anything to the contrary contained herein, the fee
provided for in this Section 6.18 shall not be payable if COFI has terminated,
or has or had the right to terminate, this Agreement pursuant to Section
8.01(b), 8.01(d)(i), 8.01(d)(ii) as a result of the ALBANK stockholders not
approving and adopting this Agreement or Section 8.01(e).
For purposes of the foregoing, "COFI Acquisition Transaction" shall
have the same meaning as the term ALBANK Acquisition Transaction as such term is
defined for purposes of Section 6.17, except that COFI shall be substituted for
ALBANK as the target of such acquisition transaction.
6.19. Charitable Contributions. Following the Effective Date, COFI
shall for a period of five years maintain the aggregate level of charitable
contributions in ALBANK markets equal to the amount that appears in the ALBANK
1998 budget.
6.20 Consent Decree. The parties shall use their reasonable best
efforts to cause the Consent Decree entered by the United States District Court
of the Northern District of New York in the matter of UNITED STATES OF AMERICA
v. ALBANK, FSB ET. AL. to be clarified prior to the Effective Time by amending
the last sentence of Paragraph 1 of Section VII to provide that in the event of
the consummation of the Transaction "All provisions of this Decree except as
further limited in Section III shall only apply to those geographic regions
where ALBANK, FSB or
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ALBANK Commercial did business during calendar year 1998 through the day next
preceding the Effective Date, directly or through correspondents".
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE COMPANY MERGER
7.01 Conditions to Each Party's Obligation to Effect the Company
Merger. The respective obligation of each of COFI, ALBANK and their respective
Subsidiaries to consummate the Company Merger is subject to the fulfillment or
written waiver by COFI and ALBANK prior to the Effective Time of each of the
following conditions:
(a) Stockholder Approvals. This Agreement shall have been duly
adopted by the requisite vote of the stockholders of ALBANK under the
DGCL and the issuance of COFI Common Stock as contemplated by this
Agreement shall have been approved by the requisite vote of the COFI
stockholders under NASDAQ rules.
(b) Regulatory Approvals. All regulatory approvals required to
consummate the Company Merger shall have been obtained and shall remain
in full force and effect and all statutory waiting periods in respect
thereof shall have expired and no such approvals shall contain (i) any
conditions, restrictions or requirements which the COFI Board
reasonably determines would either before or after the Effective Time
have a Material Adverse Effect on COFI and its Subsidiaries taken as a
whole or (ii) any conditions, restrictions or requirements that are not
customary and usual for approvals of such type and which the COFI Board
reasonably determines would either before or after the Effective Time
be unduly burdensome.
(c) No Injunction. No Governmental Authority of competent
jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, judgment, decree, injunction or
other order (whether temporary, preliminary or permanent) which is in
effect and prohibits consummation of the Company Merger.
(d) Registration Statement. The Registration Statement shall
have become effective under the Securities Act and no stop order
suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been
initiated or threatened by the SEC.
(e) Blue Sky Approvals. All permits and other authorizations
under state securities laws necessary to consummate the transactions
contemplated hereby and to issue the shares of COFI Common Stock to be
issued in the Company Merger shall have been received and be in full
force and effect.
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(f) Listing. The shares of COFI Common Stock to be issued in
the Company Merger shall have been approved for listing on the NASDAQ,
subject to official notice of issuance.
(g) Permits, Authorizations. Each of COFI and ALBANK shall
have obtained all material permits, authorizations, consents, waivers
and approvals required for the lawful consummation of the Company
Merger.
7.02 Conditions to Obligation of ALBANK. The obligation of ALBANK and
its Subsidiaries to consummate the Company Merger is also subject to the
fulfillment or written waiver by ALBANK prior to the Effective Time of each of
the following conditions:
(a) Representations and Warranties. The representations and
warranties of COFI set forth in this Agreement shall be true and
correct in all material respects, subject in the case of Specified
Representations to the standard set forth in Section 5.02, as of the
date of this Agreement and as of the Effective Date as though made on
and as of the Effective Date (except that (i) representations and
warranties that by their terms speak as of the date of this Agreement
or some other date shall be true and correct as of such date and (ii)
with respect to any information provided by COFI pursuant to Section
6.14(iii) relating to Section 5.04(l) on account of events arising
after the date of this Agreement the representations and warranties in
Section 5.04(l) shall be deemed true and correct as of the Effective
Date unless such information individually or taken together with other
facts, events and circumstances has resulted in or is reasonably likely
to result in a Material Adverse Effect on COFI), and ALBANK shall have
received a certificate, dated the Effective Date, signed on behalf of
COFI by the Chief Executive Officer and the Chief Financial Officer of
COFI to such effect.
(b) Performance of Obligations of COFI. COFI and its
Subsidiaries shall have performed in all material respects all
obligations required to be performed by them under this Agreement at or
prior to the Effective Time, and ALBANK shall have received a
certificate, dated the Effective Date, signed on behalf of COFI by the
Chief Executive Officer and the Chief Financial Officer of COFI to such
effect.
(c) Opinion of ALBANK's Counsel. ALBANK shall have received an
opinion of Cleary, Gottlieb, Steen and Hamilton, counsel to ALBANK,
dated the Effective Date, to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion, (i) the
Company Merger constitutes a "reorganization" within the meaning of
Section 368 of the Code and (ii) no gain or loss will be recognized by
stockholders of ALBANK who receive shares of COFI Common Stock in
exchange for shares of ALBANK Common Stock, except that gain or loss
may be recognized as to cash received in lieu of fractional share
interests. In rendering its opinion, Cleary, Gottlieb, Steen & Hamilton
may require and rely upon representations contained in letters from
ALBANK, COFI and others.
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7.03 Conditions to Obligation of COFI. The obligation of COFI and its
Subsidiaries to consummate the Company Merger is also subject to the fulfillment
or written waiver by COFI prior to the Effective Time of each of the following
conditions:
(a) Representations and Warranties. The representations and
warranties of ALBANK set forth in this Agreement shall be true and
correct in all material respects, subject in the case of Specified
Representations to the standard set forth in Section 5.02, as of the
date of this Agreement and as of the Effective Date as though made on
and as of the Effective Date (except that (i) representations and
warranties that by their terms speak as of the date of this Agreement
or some other date shall be true and correct as of such date and (ii)
with respect to any information provided by ALBANK pursuant to Section
6.14(iii) relating to Section 5.03(p) on account of events arising
after the date of this Agreement the representations and warranties in
Section 5.03(p) shall be deemed true and correct as of the Effective
Date unless such information individually or taken together with other
facts, events and circumstances has resulted in or is reasonably likely
to result in a Material Adverse Effect on ALBANK) and COFI shall have
received a certificate, dated the Effective Date, signed on behalf of
ALBANK by the Chief Executive Officer and the Chief Financial Officer
of ALBANK to such effect.
(b) Performance of Obligations of ALBANK. ALBANK and its
Subsidiaries shall have performed in all material respects all
obligations required to be performed by them under this Agreement at or
prior to the Effective Time, and COFI shall have received a
certificate, dated the Effective Date, signed on behalf of ALBANK by
the Chief Executive Officer and the Chief Financial Officer of ALBANK
to such effect.
(c) Opinion of COFI's Counsel. COFI shall have received an
opinion of Silver, Freedman & Taff, L.L.P., special counsel to COFI,
dated the Effective Date, to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion, the Company
Merger and the Bank Mergers constitute reorganizations under Section
368 of the Code. In rendering its opinion, Silver, Freedman & Taff,
L.L.P. may require and rely upon representations contained in letters
from COFI, ALBANK and others.
(d) Accounting Treatment. COFI shall have received from
Deloitte & Touche, LLP, COFI's independent auditors, letters, dated the
date of or shortly prior to each of the mailing date of the Proxy
Statement and the Effective Date, stating its opinion that the Company
Merger shall qualify for pooling-of-interests accounting treatment.
(e) Compliance with Consent Decree. ALBANK and the ALBANK
Subsidiaries shall be in compliance in all material respects with the
Consent Decree referred to in Section 6.20, and COFI shall have
received a certificate, dated the Effective Date, signed on behalf of
ALBANK by the Chief Executive Officer and General Counsel of ALBANK to
such effect.
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ARTICLE VIII
TERMINATION
8.01 Termination. This Agreement may be terminated, and the
Transactions may be abandoned:
(a) Mutual Consent. At any time prior to the Effective Time,
by the mutual consent of COFI and ALBANK, if the Board of Directors of
each so determines by vote of a majority of the members of its entire
Board.
(b) Breach. At any time prior to the Effective Time, by COFI
or ALBANK, if its Board of Directors so determines by vote of a
majority of the members of its entire Board, in the event of either:
(i) a breach by the other party of any representation or warranty
contained herein (subject in the case of Specified Representations to
the standard set forth in Section 5.02), which breach cannot be or has
not been cured within 30 days after the giving of written notice to the
breaching party of such breach; or (ii) a breach by the other party in
any material respect of any of the covenants or agreements contained
herein, which breach cannot be or has not been cured within 30 days
after the giving of written notice to the breaching party of such
breach.
(c) Delay. At any time prior to the Effective Time, by COFI or
ALBANK, if its Board of Directors so determines by vote of a majority
of the members of its entire Board, in the event that the Company
Merger is not consummated by February 28, 1999, except to the extent
that the failure of the Company Merger then to be consummated arises
out of or results from the knowing action or inaction of the party
seeking to terminate pursuant to this Section 8.01(c).
(d) No Approval. By ALBANK or COFI, if its Board of Directors
so determines by a vote of a majority of the members of its entire
Board, in the event (i) the approval of any Governmental Authority
required for consummation of the Company Merger and the Bank Mergers
shall have been denied by final nonappealable action of such
Governmental Authority or (ii) any stockholder approval required by
Section 7.01(a) herein is not obtained at the ALBANK Meeting or the
COFI Meeting.
(e) Failure to Recommend, Etc. At any time prior to the ALBANK
Meeting, by COFI if the ALBANK Board shall have failed to unanimously
recommend approval and adoption of this Agreement to the ALBANK
stockholders, withdrawn such recommendation or modified or changed such
recommendation in a manner adverse in any respect to the interests of
COFI; or at any time prior to the COFI Meeting, by ALBANK, if the COFI
Board shall have failed to unanimously recommend to the COFI
stockholders approval of the issuance of COFI Common Stock to be issued
pursuant to the Company Merger, withdrawn such recommendation or
modified or changed such recommendation in a manner adverse in any
respect to the interests of ALBANK.
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(f) Possible Adjustment. By ALBANK, if its Board of Directors
so determines by a vote of a majority of the members of its entire
Board, at any time during the ten-day period commencing two days after
the Determination Date (or such shorter period of time from the
Determination Date to the Effective Date as contemplated by Section
2.04(i)), if both of the following conditions are satisfied:
(i) the Average Closing Price shall be less
than the product of 0.825 and the Starting
Price; and
(ii) (A) the number obtained by dividing the
Average Closing Price by the Starting Price
(such number being referred to herein as the
"COFI Ratio") shall be less than (B) the
number obtained by dividing the Index Price
on the Determination Date by the Index Price
on the Starting Date and subtracting 0.175
from the quotient in this clause (ii)(B)
(such number being referred to herein as the
"Index Ratio");
subject, however, to the following three sentences. If ALBANK elects to
exercise its termination right pursuant to the immediately preceding
sentence, it shall give prompt written notice thereof to COFI;
provided, that such notice of election to terminate may be withdrawn at
any time within the above stated period. During the five-day period
commencing with its receipt of such notice, COFI shall have the option
of adjusting the Exchange Ratio to equal the lesser of (x) a number
equal to a quotient (rounded to the nearest one-ten-thousandth), the
numerator of which is the product of 0.825, the Starting Price and the
Exchange Ratio (as then in effect) and the denominator of which is the
Average Closing Price, and (y) a number equal to a quotient (rounded to
the nearest one-ten-thousandth), the numerator of which is the Index
Ratio multiplied by the Exchange Ratio (as then in effect) and the
denominator of which is the COFI Ratio. If COFI so elects, within such
five-day period, it shall give prompt written notice to ALBANK of such
election and the revised Exchange Ratio, whereupon no termination shall
have occurred pursuant to this Section 8.01(f) and this Agreement shall
remain in full force and effect in accordance with its terms (except as
the Exchange Ratio shall have been so modified and except that the
Effective Date shall occur on the later of the Effective Date as
determined pursuant to Section 2.04(i) or (ii) or on the fifth business
day after COFI's election as provided in the immediately preceding
sentence, and any references in this Agreement to "Exchange Ratio"
shall thereafter be deemed to refer to the Exchange Ratio as adjusted
pursuant to this Section 8.01(f).
For purposes of this Section 8.01(f), the following terms shall have
the meanings indicated:
"Average Closing Price" means the average of the daily last sale
prices of COFI Common Stock as reported on NASDAQ (as reported in The
Wall Street Journal or, if not reported therein, in another mutually
agreed upon authoritative source) for the ten
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consecutive full trading days in which such shares are traded on NASDAQ
ending at the close of trading on the Determination Date.
"Determination Date" means the day that is the latest of (i) the
day of expiration of the last waiting period with respect to any
approval of any Governmental Authority required for consummation of the
Company Merger, (ii) the day on which the last of such approvals is
obtained, and (iii) the day on which the last of the required
stockholder approvals has been received.
"Index Group" means the 16 financial institutions and financial
institution holding companies listed below, the common stock of all
which shall be publicly traded and as to which there shall not have
been, since the Starting Date and before the Determination Date, any
public announcement of a proposal for such company (a) to be acquired
or for such company to acquire another company or companies in a
transaction with a value exceeding 25% of the acquiror's market
capitalization as of the Starting Date or (b) to convert from a mutual
holding company to a stock form of organization. In the event that the
common stock of any such company ceases to be publicly traded or any
such announcement is made with respect to any such company, such
company will be removed from the Index Group and the weights (which
have been determined based on the number of outstanding shares of
common stock) redistributed proportionately for purposes of determining
the Index Price. The 16 financial institutions and financial
institution holding companies and the weights attributed to them are as
follows:
Holding Company Weighting
Bank United Corp. 3.4685%
Dime Bancorp, Inc. 12.5431%
Dime Community Bancorp, Inc. 1.3656%
Downey Financial Corp. 3.0841%
GP Financial Corp. 9.2729%
MAF Bancorp, Inc. 1.6500%
North Fork Bancorporation, Inc. 15.6202%
Northwest Bancorp, Inc. (MHC) 5.1418%
Old Kent Financial Corp. 10.0501%
People's Bank 7.0350%
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Peoples Heritage Financial Group, 6.1106%
Inc.
Queens County Bancorp 1.6381%
St. Paul Bancorp, Inc. 3.7666%
Star Banc Corp. 10.4913%
Washington Federal, Inc. 5.7529%
Webster Financial Corp. 3.0092%
-------
Total 100.00%
"Index Price" on a given date means the weighted average (weighted
in accordance with the factors listed above) of the closing prices of the
companies comprising the Index Group.
"Starting Date" means June 9, 1998.
"Starting Price" shall mean $34.625.
If any company belonging to the Index Group or COFI declares or
effects a stock split, stock dividend, recapitalization, exchange of shares
or similar transaction between the Starting Date and the Determination
Date, the prices for the common stock of such company or COFI shall be
appropriately adjusted for the purposes of applying this Section 8.01(f).
8.02 Effect of Termination and Abandonment. In the event of termination of
this Agreement and the abandonment of the Transaction pursuant to this Article
VIII, no party to this Agreement shall have any liability or further obligation
to any other party hereunder except (i) as set forth in Section 9.01 and (ii)
that termination will not relieve a breaching party from liability for any
willful breach of this Agreement giving rise to such termination. Provided,
however, if a party pursues its rights under Section 6.17 or 6.18, whichever is
applicable, then such party shall not be entitled to any other relief.
Conversely, if a party pursues a remedy pursuant to this Section 8.02, then it
shall waive its rights under Section 6.17 or 6.18, whichever is applicable.
Provided, further, that nothing contained herein shall diminish the rights of
COFI under the Stock Option Agreement which may be separately exercised and
enforced pursuant to the terms and provisions thereof.
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ARTICLE IX
MISCELLANEOUS
9.01 Survival. No representations, warranties, agreements and covenants
contained in this Agreement shall survive the Effective Time (other than the
agreements and covenants contained in Section 6.12, 6.13, 6.15, 6.16 and this
Article IX which shall survive the Effective Time) or the termination of this
Agreement if this Agreement is terminated prior to the Effective Time (other
than Sections 6.03(b), 6.04, 6.05(b), 6.17, 6.18, 8.02 and this Article IX which
shall survive such termination).
9.02 Waiver; Amendment. Prior to the Effective Time, any provision of this
Agreement may be (i) waived by the party benefitted by the provision, or (ii)
amended or modified at any time, by an agreement in writing between the parties
hereto executed in the same manner as this Agreement, except that after the
ALBANK Meeting, the consideration to be received by the ALBANK stockholders for
each share of ALBANK Common Stock shall not thereby be decreased.
9.03 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original.
9.04 Governing Law. This Agreement shall be governed by, and
interpreted in accordance with, the laws of the State of Delaware applicable to
contracts made and to be performed entirely within such State (except to the
extent that mandatory provisions of Federal law or of the MBCA are applicable).
9.05 Expenses. Each party hereto will bear all expenses incurred by it
in connection with this Agreement and the transactions contemplated hereby,
except that (i) printing expenses and SEC fees shall be shared equally between
ALBANK and COFI and (ii) in the event that this Agreement is terminated for any
reason other than by COFI pursuant to Section 8.01(b) or (e), or pursuant to
8.01(d)(ii) as a result of the stockholders of ALBANK failing to approve and
adopt this Agreement, COFI will promptly reimburse ALBANK for all third party
expenses incurred by ALBANK to the date of termination in complying or taking
any steps to comply with Section 2.01 in an amount up to but not to exceed
$75,000.
9.06 Notices. All notices, requests and other communications hereunder
to a party shall be in writing and shall be deemed given if personally
delivered, telecopied (with confirmation) or mailed by registered or certified
mail (return receipt requested) to such party at its address set forth below or
such other address as such party may specify by notice to the parties hereto.
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If to ALBANK, to:
ALBANK Financial Corporation
10 North Pearl Street
Albany, NY 12207
Attention: Herbert G. Chorbajian, Chief Executive Officer
With a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006-1470
Attn: Robert L. Tortoriello, Esq.
If to COFI or Charter Michigan, to:
Charter One Financial, Inc.
1215 Superior Avenue
Cleveland, OH 44114
Attention: Charles J. Koch, Chief Executive Officer
and
Robert J. Vana, Chief Corporate Counsel
With a copy to:
Silver, Freedman & Taff, LLP
Suite 700 East
1100 New York Avenue, N.W.
Washington, DC 20005-3934
Attn: Barry P. Taff, Esq.
9.07 Entire Understanding; No Third Party Beneficiaries. This Agreement,
the Stock Option Agreement, and any Supplemental Letter entered into by the
parties on the date hereof represent the entire understanding of the parties
hereto with reference to the transactions contemplated hereby and thereby and
this Agreement supersedes any and all other oral or written agreements
heretofore made (other than the Stock Option Agreement and any Supplemental
Letter). Except for Section 6.12, 6.13 and 6.15, nothing in this Agreement
expressed or implied, is intended to confer upon any person, other than the
parties hereto or their respective successors, any rights, remedies, obligations
or liabilities under or by reason of this Agreement.
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9.08 Interpretation; Effect. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of, or
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and are not part of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." No provision of this Agreement shall
be construed to require ALBANK, COFI or any of their respective Subsidiaries,
affiliates or directors to take any action which would violate applicable law
(whether statutory or common law), rule or regulation.
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* * *
The parties hereto have caused this Agreement to be executed in
counterparts by their duly authorized officers, all as of the day and year first
above written.
ALBANK FINANCIAL CORPORATION
By: /s/ Herbert G. Chorbajian
--------------------------
Name: Herbert G. Chorbajian
Title: Chairman of the Board
Chief Executive Officer
CHARTER ONE FINANCIAL, INC.
By: /s/ Charles John Koch
--------------------------
Name: Charles John Koch
Title: Chairman of the Board
Chief Executive Officer
CHARTER MICHIGAN BANCORP, INC.
By: /s/ Charles John Koch
--------------------------
Name: Charles John Koch
Title: Chairman of the Board
Chief Executive Officer
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<PAGE> 166
June 15, 1998
Charter One Financial, Inc.
Charter Michigan Bancorp Inc.
1215 Superior Avenue
Cleveland, Ohio 44114
Ladies and Gentlemen:
This letter is intended to supplement the Agreement and Plan of Merger by
and among Charter One Financial, Inc. ("COFI"), Charter Michigan Bancorp, Inc.
("Charter Michigan") and ALBANK Financial Corporation ("ALBANK") dated of even
date herewith (the "Merger Agreement") and sets out the agreements of the
parties relating to various issues not fully addressed in the Merger Agreement.
The provisions of this letter agreement are hereby incorporated into and made
part of Section 6.13 of the Merger Agreement as if set forth therein.
Capitalized terms used in this letter agreement, not otherwise defined in this
letter agreement, shall have the meanings ascribed to them in the Merger
Agreement. The provisions of this letter agreement shall survive consummation of
the Transactions under the Merger Agreement.
(1) DIRECTORS OF COFI AND ADVISORY BOARD MEMBERSHIP. As provided in
Sections 6.15 and 6.16 of the Merger Agreement, at the Effective Time, COFI
agrees to take the necessary action to appoint the ALBANK CEO as a director of
COFI to serve for a term ending April, 1999,and shall elect him to serve as a
Vice Chairman of the Board of Directors of COFI with the expectation that the
ALBANK CEO will be included on the management slate of directors to be nominated
to a new term in April 1999; and to appoint Karen Hitchcock as a director of
COFI to serve for a term ending April 2000. Within 12 months of the Effective
Date COFI agrees, subject to OTS approval, to cause John Nigro to be elected to
the COFI Board. Karen Hitchcock and John Nigro will be eligible during her or
his term of service as a director of COFI to participate in all director
compensation plans, including any non-qualified stock option awards, on the same
basis as nonemployee directors of COFI generally. COFI shall also take all
necessary action at the Effective Time to establish an Albany, New York advisory
board (the "Advisory Board") in accordance with the provisions of Section 6.16
of the Merger Agreement. Each ALBANK Board member who becomes a participating
advisory board member shall be entitled to receive an annual retainer of $38,000
during his or her term of service. In addition, at the Effective Time each of
Richard J. Heller and Freling H. Smith will be offered an opportunity to serve
on the Advisory Board for a term of three years and one year, respectively, at
an annual retainer of $38,000 during his term of service; provided, however if
either Mr. Heller or Mr. Smith shall voluntarily terminate his employment with
or without good reason within six months after the Effective Time or shall in
any manner engage or be employed in the financial services industry while a
member of the Advisory Board, then in any such event, his service as a member of
the Advisory Board shall thereupon cease and terminate.
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(2) COMPENSATION AND BENEFITS FOR ALBANK CEO.
(a) CHANGE IN CONTROL PAYMENT. The ALBANK CEO will be experiencing
a constructive termination of employment in the Transaction by virtue of
his duties being dramatically diminished and his compensation being
significantly reduced. Accordingly, COFI shall pay to the ALBANK CEO at the
Effective Time, or at the request of COFI, ALBANK shall make such payment
prior to the Effective Time, in an amount equal to 299% of his "base
amount" as defined under Section 280G of the Internal Revenue Code of 1986
as amended (the "Code") (utilizing W-2 box 1 wages for calendar years 1993
through 1997) after reduction or cutback for other change in control
benefits (i.e., parachute amounts) to reasonably assure that Section 280G
of the Code does not limit the deductibility of such payment by the
employer (the "ALBANK CEO Change in Control Payment"). There shall be no
reduction or cutback for the compensation and benefits to be received by
the ALBANK CEO under his new employment agreement with COFI or Charter One
Bank, as such amounts are reasonable compensation for future services to be
performed. The amount of the ALBANK CEO Change in Control Payment shall be
determined by accountants chosen by ALBANK but subject to the approval of
COFI's outside accountants. If the Internal Revenue Service challenges the
characterization of such payments or benefits as parachute payments or the
characterization of any other payments or benefits not as parachute
payments, upon a final determination with respect thereto, the ALBANK CEO
Change in Control Payment shall be recalculated using the newly determined
amount of parachute payments and, if such recalculated ALBANK CEO Change in
Control Payment is higher than the ALBANK CEO Change in Control Payment
already paid, COFI shall pay the difference to the ALBANK CEO in a lump sum
in cash and, if such recalculated ALBANK CEO Change in Control Payment is
lower than the ALBANK CEO Change in Control Payment already paid, the
ALBANK CEO shall pay the difference to COFI in a lump sum in cash, within
30 days following such determination. At the Effective Time, the ALBANK CEO
will execute a written instrument releasing ALBANK and ALBANK, FSB ("ALBANK
Bank") and their successors in interest from any and all claims, demands or
liabilities under an employment agreement between ALBANK and the ALBANK CEO
dated April 1, 1992 and a separate employment agreement between ALBANK Bank
and the ALBANK CEO dated April 1, 1992, provided such release should not
apply to the ALBANK CEO Change in Control Payment if it has not theretofore
been paid. Except as set forth in the preceding sentence, there are no
employment agreements between the ALBANK CEO and ALBANK or any ALBANK
Subsidiary.
(b) NEW EMPLOYMENT AGREEMENT. To maximize the value to be received
by COFI in the Transaction, COFI believes it is essential to retain the
services of the ALBANK CEO on a long-term basis in order to integrate
operations, to assure customer retention and customer development,
facilitate long term strategic planning in the State of New York, and to
otherwise enhance the acquired franchise. Accordingly, COFI or Charter One
Bank and the ALBANK CEO will, at the Effective Time, enter into an
employment agreement
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<PAGE> 168
commencing on the Effective Date and terminating on September 30, 2003
containing the following terms:
(i) ANNUAL COMPENSATION. approximately $442,100;
(ii) BENEFITS. continued participation in ALBANK Group Health
Plan through the later of the Effective Time and December 31, 1998 and
thereafter participation in the COFI Group Health Plan during the
employment term; COFI or Charter One Bank will maintain a $2 1/2
million life insurance policy for the benefit of the executive during
the employment term and will gross up the executive with respect to
the tax payable by the executive with respect to such benefit; COFI or
Charter One Bank shall pay the executive's fees and charges associated
with his membership in Wolfert's Roost Country Club and Fort Orange
Club during his employment consistent with the past practices of
ALBANK and will gross up the executive with respect to the tax payable
by the executive with respect to such benefit; the executive shall
also participate in all other welfare plans and programs of COFI or
Charter One Bank available to similarly situated executive officers of
COFI or Charter One Bank during the employment term;
(iii) VACATION. the vacation policy applicable to similarly
situated executive officers of COFI or Charter One Bank will apply;
(iv) NONDISCLOSURE; NONCOMPETE; NONSOLICITATION. same provisions
as provided in prior employment agreement;
(v) SUPPLEMENTAL DISABILITY RETIREMENT BENEFIT. same provisions
as provided in prior employment agreement;
(vi) INDEMNIFICATION; DIRECTORS AND OFFICERS INSURANCE. same
provisions as provided in prior employment agreement;
(vii) REIMBURSEMENT OF LEGAL FEES. same provisions as provided in
prior employment agreement. In addition, reimbursement for reasonable
legal fees and expenses incurred in connection with any determination
concerning application of Section 4999 of the Code to payments under
this Section 2;
(viii) COFI STOCK OPTIONS. During the period that the executive
is employed by COFI or Charter One Bank he will be entitled to receive
annual option grants, at an exercise price per share equal to the fair
market value of COFI Common Stock on the date of grant, on the same
basis and on the same terms as similarly situated executives of COFI
and Charter One Bank subject to three year cliff vesting from date of
grant; the first annual option grant will be for approximately 86,000
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<PAGE> 169
option shares consistent with current practice of COFI for similarly
situated executives; and
(ix) TERMINATION OF EMPLOYMENT. if COFI or Charter One Bank
terminates the employment term of the ALBANK CEO without cause prior
to September 30, 2003, the ALBANK CEO shall be entitled to receive a
lump sum amount in cash equal to the remaining amount of annual
compensation that would otherwise be payable during the stated
employment term (provided that if the employment term of the ALBANK
CEO terminates prior to September 30, 2003 due to the death or
disability of the ALBANK CEO, the ALBANK CEO (or his beneficiaries)
shall be entitled to receive 25% or 75%, respectively, of such lump
sum amount in cash) and, upon termination by COFI or Charter One Bank
without cause, the ALBANK CEO shall be entitled to continue receiving
any other benefits (excluding option grants) provided to him under the
employment agreement until September 30, 2003; provided that such
payments shall be subject to mitigation and offset; and provided any
COFI stock options granted to the ALBANK CEO shall lapse or be
forfeited in accordance with terms upon which such options were
granted. In the event of the retirement of the ALBANK CEO, any COFI
stock options granted to him shall be treated in a manner that is
consistent with the treatment of similarly situated executive officers
of COFI or Charter One Bank generally.
(c) LIFE INSURANCE CONTRACT. At the Effective Time, COFI or Charter
One Bank will assume the life insurance contract between ALBANK Bank and
the ALBANK CEO, as evidenced by a written agreement dated June 17, 1985;
provided COFI or Charter One Bank shall be entitled to continue to
self-insure the benefit consistent with current practices of ALBANK Bank
through the grantor trust established by ALBANK Bank.
(d) BASIC CONTRIBUTIONS MATCH AGREEMENT. ALBANK Bank and the ALBANK
CEO entered into a contract obliging ALBANK Bank to make certain
contributions to a deferred compensation account for the benefit of the
ALBANK CEO during a 60 month period ending in June 1989, as evidenced by an
agreement between said parties dated June 17, 1985, as amended by an
agreement dated May 14, 1991. Pursuant to said agreements the deferred
compensation account is being maintained in the ALBANK Bank grantor trust.
Immediately prior to the Effective Time, ALBANK Bank and the ALBANK CEO
will enter into an agreement providing for the lump sum payment of the
deferred compensation account to the ALBANK CEO as of the Effective Time or
as soon thereafter as is practicable.
(e) SERP. ALBANK, ALBANK Bank and the ALBANK CEO entered into a
Supplemental Employment Retirement Plan (the "SERP") dated May 8, 1996 in
replacement of a similar agreement dealing with the same subject matter
dated June 17, 1985. The SERP will be honored by COFI and the ALBANK CEO's
service with COFI or Charter One Bank will be taken into account for
vesting purposes under the SERP. ALBANK represents that as of the last day
of the calendar month preceding the Effective Time, it shall have accrued
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<PAGE> 170
for financial reporting purposes the full present value of the SERP benefit
(calculated on the basis that the ALBANK CEO is fully vested in such
benefit) in accordance with the assumptions applicable to the SERP benefit
and generally accepted accounting principles ("GAAP").
3. OTHER EMPLOYMENT AGREEMENTS; SEVERANCE AGREEMENTS; GENERAL SEVERANCE
PLAN.
(a) EMPLOYMENT AGREEMENTS WITH RICHARD J. HELLER, FRELING H. SMITH,
BARRY G. BLENIS, CLIFFORD M. APGAR AND FRANK J. VASELEWSKI. Pursuant to the
Merger Agreement and the provisions of the Employment Agreements between
the named executives and ALBANK Bank and, in the case of Messrs. Heller,
Smith and Blenis with ALBANK, respectively, each dated April 1, 1992 (the
"Employment Agreements"), Charter One Bank and COFI will assume the
Employment Agreements. Immediately prior to the Effective Time, ALBANK Bank
and ALBANK and each named executive shall enter into an amendment to his
Employment Agreement(s), in form and substance reasonably satisfactory to
COFI, providing for the substitution of the group life, medical and long-
and short-term disability plan of Charter One Bank in Section 10(e)(ii)(c)
thereof. In addition, each of Messrs. Heller, Smith and Blenis and ALBANK
shall at the time of the execution of the Merger Agreement provide to COFI
a letter acknowledging that there will be no duplication of benefits with
respect to the Employment Agreements with ALBANK Bank and ALBANK. As
additional consideration for each named executive agreeing to the foregoing
provisions, Charter One Bank and COFI agree to enter into an amendment to
each Employment Agreement at the Effective Time providing that if the named
executive is involuntarily terminated by Charter One Bank or COFI without
cause or the named executive terminates for good reason (other than a
termination for good reason by the named executive during the period
commencing on the Effective Date and terminating six (6) months thereafter,
if the named executive had been specifically requested by Charter One Bank
or COFI in writing to remain employed by Charter One Bank or COFI during
such period) prior to the third anniversary of the Effective Date, then the
terminated executive shall be entitled to receive in lieu of the benefit
provided in Section 10(e)(ii)(b) of his Employment Agreement an amount in
cash equal to 2.99 times the aggregate of (x) his 1998 annual base salary
and (y) his 1998 target bonus amount and shall be entitled to receive the
benefits set forth in Section 10(e)(ii)(c) with three (3) years replacing
two (2) years in provision (I) thereof; provided subject to (A) appropriate
reduction to reasonably assure that Section 280G of the Code does not limit
the deductibility of such payment by the employer and (B) the terminated
executive executing and delivering to Charter One Bank and COFI a general
release relinquishing all claims relating to or arising from his Employment
Agreement and his employment relationship other than with respect to any
benefits to be provided to such executive after his termination of
employment pursuant to his Employment Agreement or any benefit plan or as
required by law.
(b) SEVERANCE AGREEMENTS WITH JOHN LAW AND JOSEPH P. RICHARDSON. At
the Effective Time, Charter One Bank shall assume and perform the
obligations of ALBANK Bank under that certain Letter Severance Agreement
between John Law and ALBANK Bank
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<PAGE> 171
dated July 1, 1997 and that certain Letter Severance Agreement between
Joseph P. Richardson and ALBANK Bank dated December 12, 1997. Charter One
Bank shall also extend each such Letter Severance Agreement for at least
one year after the Effective Date.
(c) SEVERANCE PAY POLICY. Charter One Bank shall continue in effect
the Severance Pay Plan of ALBANK Bank as in effect on the date hereof until
the third anniversary of the Effective Date. None of the executives or
employees referred to in Section 2 or 3(a) hereof shall be entitled to
severance pursuant to this Section 3(c).
(d) COFI agrees that it shall not terminate the employment of, and
shall not cause or permit any of its Subsidiaries to terminate the
employment of, any full time employees of ALBANK or any of its wholly-owned
Subsidiaries prior to January 1, 1999, regardless of the date on which the
Effective Time occurs, except for cause.
4. WELFARE PLANS.
(a) GROUP MEDICAL AND DENTAL; GROUP LIFE; GROUP ACCIDENT AND
DISABILITY. Following the Effective Time, the group plans of ALBANK shall
be continued on their current terms through December 31, 1998. Following
the later of the Effective Time and December 31, 1998, continuing full time
employees of ALBANK and its wholly-owned Subsidiaries will become
participants in the group plans maintained by COFI or a COFI Subsidiary,
whichever is applicable, for its full time employees on a uniform and
nondiscriminatory basis. Continuing employees will not be subject to any
waiting period for group plan participation or any pre-existing medical
exclusion for which coverage was previously provided under the ALBANK group
medical plan.
(b) POST-RETIREMENT MEDICAL AND LIFE BENEFIT PLAN. As of the Effective
Time, ALBANK Bank shall amend its post-retirement medical and life benefit
plan in a manner reasonably acceptable to COFI so as to preclude future
participation by employees who will not have satisfied the age and years of
service requirement for eligibility as of the second anniversary of the
Effective Time. The amended plan shall be maintained for the exclusive
benefit of eligible retirees as of the second anniversary of the Effective
Time and those employees who are fully eligible active employees as of the
second anniversary of the Effective Time who subsequently retire. All of
the provisions, terms and conditions in effect under such plan as in effect
on the date hereof shall remain in effect with respect to the entire period
of the participation of such persons in such plan. For purposes of
clarification and without limiting the foregoing, the contribution required
to be made by such persons towards the cost of such plan, as a percentage
of the total cost of such plan, shall remain constant. ALBANK represents
that is has heretofore fully accrued the accumulated post-retirement
benefit obligation for medical and life coverage for financial reporting
based upon prudent and reasonable assumptions and in accordance with GAAP
and that it shall continue to do so on a monthly basis prior to the
Effective Time. At and after the Effective Time, Charter One Bank shall
honor the amended post-retirement medical and life benefit plan of
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ALBANK Bank with substitution of the Charter One Bank group medical and
life plans as of January 1, 1999.
(c) OTHER BENEFIT PLANS. Following the Effective Time, the following
plans and programs of ALBANK Bank -- the Executive Life Insurance Plan, the
Employee Assistance Plan and the Dependent Care Reimbursement Account Plan
-- shall be continued on their current terms through December 31, 1998.
Following the later of the Effective Time and December 31, 1998, continuing
full time employees will become participants in the corresponding plans
maintained by Charter One Bank for its full time employees, if any, on a
uniform and nondiscriminatory basis. With respect to the Supplemental
Pension Payments (COLA increases) for Retirees, Charter One Bank shall
continue such payments consistent with current practices of ALBANK Bank.
5. QUALIFIED PLANS.
(a) ESOP/401(k). This plan will be continued for the sole and
exclusive benefit of employees of ALBANK and its Subsidiaries who are
participants therein through December 31, 1998. Thereafter, it may be
merged with another qualified defined contribution plan of COFI or any COFI
Subsidiary. Prior to such merger of plans, the plan will be operated
consistent with the current terms and provisions thereof and in accordance
with the past practice of ALBANK. Pending the Effective Time, neither
ALBANK nor any ALBANK Subsidiary shall make any amendment or modification
to the plan, increase the level of contribution to the plan, accelerate any
benefits under the plan, prepay or increase the amount of payment on the
ESOP loan, or otherwise take any action to enhance the allocation of
unallocated ESOP shares to the accounts of participants. ALBANK represents
that it has and it shall continue to cause employer contributions to such
plan including, but not limited to, employer matching contributions to be
accrued monthly in substantially equal installments for financial reporting
until the Effective Time.
(b) DEFINED BENEFIT PENSION PLAN. This plan (the "Defined Benefit
Plan") shall be terminated by ALBANK as of the Effective Time and benefits
to the participants in the Defined Benefit Plan shall either be annuitized
or rolled over to ALBANK's or COFI's tax-qualified defined contribution
plan or otherwise distributed in any manner permitted by law. ALBANK may
amend the terms of the Defined Benefit Plan prior to the Effective Time to
allocate excess assets on a plan termination basis to all or some
participants under the Defined Benefit Plan in a manner that does not
adversely affect the tax qualified status of the plan or the ability of the
Company Merger to qualify for pooling-of-interests accounting treatment.
ALBANK shall also undertake to make such amendments as may be necessary to
the ALBANK Bank Retirement Restoration Plan, any supplemental retirement
plan contained in the Employment Agreements, the Deferred Compensation
Plans or the SERP (the "Other Agreements") to provide that the Other
Agreements shall not be affected by any amendment to the Defined Benefit
Plan. ALBANK shall use its best efforts to minimize the
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potential for any underfunding obligation relating to the Defined Benefit
Plan upon its termination.
6. ALBANK BANK DEFERRED COMPENSATION PLANS.
(a) SUPPLEMENTAL DEFERRED COMPENSATION PLAN FOR HIGHLY COMPENSATED
EMPLOYEES. There are 16 participants in the plan of which 6 have phantom
stock allocation accounts. Each participant's accumulated benefit (other
than phantom shares) is reflected in his supplemental deferred compensation
plan account in the ALBANK Bank grantor trust. Employer contributions will
continue to be made to the plan relating to the period through the later of
the Effective Time and December 31, 1998. As soon as practicable
thereafter, the plan will be terminated and distributions will be made in a
single lump sum payment. ALBANK represents that it has, and it shall
continue to make, monthly accruals for financial reporting in substantially
equal installments of employer contributions expected to be made to the
plan relating to calendar year 1998.
(b) DEFERRED COMPENSATION PLAN FOR DIRECTORS. Each participant's
accumulated benefit is reflected in his deferred director fund account in
the ALBANK Bank grantor trust. At the Effective Time, Charter One Bank will
assume this plan.
7. ALBANK BANK DIRECTORS RETIREMENT PLAN. At the Effective Time, this plan
will be assumed by Charter One Bank. ALBANK represents that it has fully accrued
for financial reporting the present value cost of the benefits for eligible
directors. Current directors shall, subject to their written consent, be paid
their benefits in a single lump sum present value payment calculated utilizing
the actuarial assumptions contained in Appendix B to the plan (but not taking
into account any discretionary exceptions thereto).
8. ALBANK BANK RETIREMENT RESTORATION PLAN. This plan shall be continued
through the later of the Effective Time and September 30, 1998 being the last
day of the plan year of the Basic Plan (i.e., qualified defined benefit plan).
Prior to the Effective Time, ALBANK Bank shall amend the plan, and procure the
written consent of the majority of the participants and beneficiaries to such
amendment, to provide that the plan will be frozen as of the later of the
Effective Time and September 30, 1998 and that accrued benefits shall be paid in
a single lump sum payment as soon as practicable following the termination of
the plan. Prior to the Effective Time, ALBANK Bank shall also take all necessary
action to cause the plan to be terminated as of October 1, 1998 or the date on
which the Effective Time shall occur, whichever is later. ALBANK represents that
the accrued benefits of all participants under the plan as of May 31, 1998 was
approximately $1,600,000. ALBANK further represents that it has, and it shall
continue, to accrue benefits for financial reporting under the plan during the
current plan year in substantially equal monthly installments.
9. INCENTIVE PLANS. ALBANK Bank maintains two incentive plans consisting of
the 1998 Management Incentive Plan (the "MIP") and the Branch Management
Incentive Plan (the "BMIP"). Such plans shall be continued through calendar year
1998. For purposes of determining
8
<PAGE> 174
satisfaction of performance goals or criteria under the MIP and BMIP for
calendar year 1998 in the event the Effective Time occurs prior to December 31,
1998, the performance goals or criteria will be annualized for the balance of
calendar year 1998 based upon the actual performance during the period January
1, 1998 through the last day of the calendar month preceding the Effective Time.
In the event that a participant in the MIP or BMIP terminates employment for any
reason at or after the Effective Time and prior to January 1, 1999, such
participant shall be entitled to a pro rata portion of the incentive award
earned based upon his or her length of service during calendar year 1998. COFI
and ALBANK agree that the amounts payable pursuant to the MIP and the BMIP shall
be adjusted to reflect any adverse effect on the satisfaction of performance
goals and criteria by ALBANK prior to the Effective Time as a result of a
request by COFI regarding the operation of ALBANK and its Subsidiaries. ALBANK
represents that the maximum amount to be awarded under the MIP relating to
calendar year 1998 performance shall not exceed $1 million and the amount to be
awarded under the BMIP relating to calendar year 1998 performance shall not
exceed $70,000. ALBANK further represents that it has, and it shall continue, to
accrue for such incentive compensation during calendar year 1998 for financial
reporting purposes the amount stated above in substantially equal monthly
installments. ALBANK Bank's Ad Hoc Incentive Plan, pursuant to which certain
bonuses are paid at the discretion of the ALBANK CEO, shall be paid out upon the
earlier of the Effective Date and December 31, 1998 in accordance with the
normal practice of the ALBANK CEO. ALBANK represents that the maximum amount to
be awarded under the Ad Hoc Incentive Plan relating to calendar year 1998 shall
not exceed $100,000.
10. STOCK OPTION PLANS.
(a) 1992 AND 1995 STOCK INCENTIVE PLAN FOR OUTSIDE DIRECTORS. Prior to
the Effective Time, ALBANK shall cause each holder of an LSAR under such
plans to cancel his or her LSARs in consideration for COFI converting the
corresponding options of the holder into a right to acquire COFI Common
Stock. Prior to the Effective Time, each optionholder under said plans
shall execute a written instrument waiving his or her rights to the
cash-out benefit provided in Section 8(c) of the plans. If necessary, the
stockholders of ALBANK shall at the time they take action to approve the
Merger Agreement also separately take action to approve an amendment to
each plan deleting Section 8(c) therefrom.
(b) 1992 STOCK INCENTIVE PLAN FOR KEY EMPLOYEES. Prior to the
Effective Time, ALBANK shall not honor any purported exercise of any LSAR.
COFI shall not assume or honor any LSAR. As of the Effective Time, ALBANK
shall cause the Committee under the plan to exercise its discretion under
Section 11(e)(B) of the plan to convert outstanding options to a right to
acquire COFI Common Stock based upon the conversion methodology contained
in the Merger Agreement
(c) MARBLE FINANCIAL CORPORATION 1986 STOCK OPTION PLAN AND THE MARBLE
FINANCIAL CORPORATION 1994 STOCK OPTION PLAN. As of the Effective Time,
ALBANK shall cause the Committee under these plans to take any action it
may deem necessary to convert
9
<PAGE> 175
outstanding options to a right to acquire COFI Common Stock based upon the
conversion methodology contained in the Merger Agreement.
11. ENHANCED SEVERANCE/STAY BONUS POOL. ALBANK shall be permitted to
establish an enhanced severance plan on a non-discriminatory basis for full time
employees of ALBANK and its Subsidiaries based upon criteria subject to the
reasonable approval of COFI and a stay bonus program for certain full time
employees of ALBANK and its Subsidiaries (who are deemed to be critical to the
Merger process) to be administered by a committee designated by the ALBANK
Board; provided (a) the aggregate of enhanced severance and stay bonuses
distributed pursuant to this program shall not exceed $5 million, (b) each
person receiving an enhanced severance or a stay bonus shall execute and deliver
to ALBANK, Charter One Bank or COFI a general release relinquishing all claims
relating to or arising from his or her employment relationship other than his or
her rights under the Severance Pay Plan of ALBANK Bank referred to in Section
3(c) above, if any, and his or her vested right in benefits under the employee
benefit plans of ALBANK Bank, if any, and (c) no person named in Sections 2 or
3(a) hereof shall be entitled to enhanced severance or stay bonuses pursuant to
this program.
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<PAGE> 176
Please indicate your agreement with the foregoing by signing one copy of
this letter in the space set forth below.
ALBANK Financial Corporation.
By: /s/ Herbert G. Chorbajian
---------------------------------------
Its: President and Chief Executive Officer
Acknowledged and agreed this 15th day of June, 1998.
Charter One Financial, Inc.
By: /s/ Charles John Koch
---------------------------------------
Its: President and Chief Executive Officer
Charter Michigan Bancorp, Inc.
By: /s/ Charles John Koch
---------------------------------------
Its: President and Chief Executive Officer
Charter One Bank F.S.B.
By: /s/ Charles John Koch
---------------------------------------
Its: President and Chief Executive Officer
11
<PAGE> 177
ANNEX B
[Letterhead of Lehman Brothers]
June 15, 1998
Board of Directors
Charter One Financial, Inc.
1215 Superior Avenue
Cleveland, OH 44114
Members of the Board:
We understand that Charter One Financial, Inc. ("Charter One" or the
"Company") and ALBANK Financial Corp. ("ALBANK") are proposing to enter into a
definitive merger agreement pursuant to which ALBANK will be merged with and
into Charter One and each share of common stock of ALBANK will be exchanged (the
"Exchange Ratio") for 2.16 shares of common stock of Charter One (the "Proposed
Transaction"). The terms and conditions of the Proposed Transaction are set
forth in more detail in the Agreement and Plan of Merger to be dated June 14,
1998 (the "Agreement").
We have been requested by the Board of Directors of Charter One to
render our opinion with respect to the fairness, from a financial point of view,
to Charter One of the Exchange Ratio to be paid to the stockholders of ALBANK in
the Proposed Transaction. 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 Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement
and the specific terms of the Proposed Transaction, (2) such publicly available
information concerning Charter One and ALBANK that we believe to be relevant to
our analysis, including, without limitation, Charter One's and ALBANK's Forms
10-K for the year ended December 31, 1997 and Charter One's and ALBANK'S Forms
10-Q for the quarter ended March 31, 1998, (3) financial and operating
information with respect to the businesses, operations and prospects of Charter
One and ALBANK furnished to us by Charter One and ALBANK, respectively, (4)
trading histories of the common stocks of Charter One and ALBANK from June 5,
1993 to the present and a comparison of those trading histories with those of
other companies that we deemed relevant, (5) a comparison of the historical
financial results and present financial conditions of Charter One and ALBANK
with those of other companies that we deemed relevant, (6) published estimates
of third party research analysts regarding the future financial performance of
Charter One and ALBANK, (7) a comparison of the financial terms of the Proposed
Transaction with the financial terms of certain other recent transactions that
we deemed relevant, (8) the relative contributions of Charter One and ALBANK on
a pro forma basis to the historical and projected financial condition and
operations of the combined company upon consumption of the Proposed Transaction,
and (9) the potential pro forma impact of the Proposed Transaction on Charter
One.
<PAGE> 178
In addition, we have had discussions with the managements of Charter
One and ALBANK concerning their respective businesses, operations, assets,
liabilities, financial conditions, and prospects and the potential cost savings,
operating synergies, revenue enhancements (including as a result of the use of
excess capital) and other strategic benefits expected by management of Charter
One to result from a combination of Charter One and ALBANK and have undertaken
such other studies, analyses and investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the
accuracy and completeness of the financial and other information used by us
without assuming any responsibility for independent verification of such
information and have further relied upon the assurances of the managements of
Charter One and ALBANK that they are not aware of any facts or circumstances
that would make such information inaccurate or misleading. In arriving at our
opinion, with the consent of Charter One, we were not provided with and did not
have access to any financial forecasts or projections prepared by the management
of Charter One as to the future financial performance of Charter One or any
financial forecasts or projections prepared by the management of ALBANK as to
the future financial performance of ALBANK and, accordingly, in performing our
analysis, based upon advice of Charter One we have assumed that the publicly
available estimates of research analysts are a reasonable basis upon which to
evaluate and analyze the future financial performance of Charter One and ALBANK
and that Charter One and ALBANK will perform substantially in accordance with
such estimates. With respect to the cost savings, operating synergies, revenue
enhancements (including as a result of the use of excess capital) and other
strategic benefits projected by management of Charter One to result from a
combination of Charter One and ALBANK, upon advice of Charter One we have
assumed that such cost savings, operating synergies, revenue enhancements and
other strategic benefits will be achieved substantially in accordance with such
projections.
Upon advice of Charter One and its legal and accounting advisors, we
have assumed that the merger will qualify for pooling-of-interests accounting
treatment. In arriving at our opinion, we have not conducted a physical
inspection of the properties and facilities of Charter One or ALBANK and have
not made or obtained any evaluations or appraisals of the assets of Charter One
or ALBANK. In addition, we are not experts in the evaluation of loan portfolios
or allowance for loan and real estate owned losses and, upon advice of the
Company, we have assumed that the allowances for loan and real estate owned
losses provided to us by Charter One and ALBANK and used by us in our opinion
are in the aggregate adequate to cover all such losses. Our opinion necessarily
is based upon market, economic and other conditions as they exist on, and can be
evaluated as of, the date of this letter.
Based upon and subject to the foregoing, we are of the opinion as of
the date hereof that, from a financial point of view, the Exchange Ratio to be
paid to the stockholders of ALBANK in the Proposed Transaction is fair to
Charter One.
We have acted as financial advisor to Charter One in connection with
the Proposed Transaction and will receive a fee for our services which is
contingent upon the consummation of the Proposed Transaction. In addition,
Charter One has agreed to indemnify us for certain liabilities that may arise
out of the rendering of this opinion. We also have performed various
<PAGE> 179
investment banking services for Charter One in the past and have received
customary fees for such services. In the ordinary course of our business, we
actively trade in the equity securities of Charter One for our own account and
for the accounts of our customers and, accordingly, may at any time hold a long
or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of
Charter One and is rendered to the Board of Directors in connection with its
consideration of the Proposed Transaction. This opinion is not intended to be
and does not constitute a recommendation to any stockholder of Charter One as to
how such stockholder should vote with respect to the Proposed Transaction.
Very truly yours,
LEHMAN BROTHERS
By: /s/ Sanjiv Sobti
----------------
Sanjiv Sobti
Managing Director
<PAGE> 180
ANNEX C
____________, 1998
Board of Directors
ALBANK Financial Corporation
10 North Pearl Street
Albany, NY 12207
Members of the Board:
We understand that ALBANK Financial Corporation ("ALBANK") and Charter One
Financial, Inc. ("Charter One") have entered into an Agreement and Plan of
Merger (the "Agreement"), dated as of June 15, 1998, pursuant to which ALBANK
will be merged with and into Charter Michigan Bancorp, Inc. in a transaction
(the "Merger") in which each outstanding share of ALBANK's common stock, par
value $0.01 per share (the "ALBANK Shares"), will be converted into the right to
receive 2.16 shares (the "Exchange Ratio") of common stock, par value $0.01 per
share, of Charter One (the "Charter One Shares"), all as set forth more fully in
the Agreement.
You have asked us whether, in our opinion, the Exchange Ratio is fair from
a financial point of view to the holders of ALBANK Shares.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly-available business and financial information
relating to ALBANK and Charter One that we deemed to be relevant;
(2) Reviewed certain information, including financial forecasts, relating
to the respective businesses, earnings, assets, liabilities and
prospects of ALBANK and Charter One furnished to us by senior
management of ALBANK and Charter One, as well as the amount and timing
of the cost savings, revenue enhancements and related expenses
expected to result from the Merger (the "Expected Synergies")
furnished to us by senior management of Charter One;
(3) Conducted discussions with members of senior management and
representatives of ALBANK and Charter One concerning the matters
described in clauses (1) and (2) above, as well as their respective
businesses and prospects before and after giving effect to the Merger
and the Expected Synergies;
<PAGE> 181
(4) Reviewed the market prices and valuation multiples for the ALBANK
Shares and the Charter One Shares and compared them with those of
certain publicly-traded companies that we deemed to be relevant;
(5) Reviewed the respective financial conditions and results of operations
of ALBANK and Charter One and compared them with those of certain
publicly-traded companies which we deemed to be relevant;
(6) Compared the proposed financial terms of the Merger with the financial
terms of certain other transactions that we deemed to be relevant;
(7) Participated in certain discussions and negotiations among
representatives of ALBANK and Charter One and their financial and
legal advisors;
(8) Reviewed the potential pro forma impact of the Merger;
(9) Reviewed the Agreement; and
(10) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of the assets or liabilities
of ALBANK or Charter One or been furnished with any such evaluation or
appraisal. We are not experts in the evaluation of allowances for loan losses,
and we have neither made an independent evaluation of the adequacy of the
allowance for loan losses of ALBANK or Charter One, nor have we reviewed any
individual credit files relating to ALBANK or Charter One, and, as a result, we
have assumed that the aggregate allowance for loan losses for both ALBANK and
Charter One is adequate to cover such losses and will be adequate on a pro forma
basis for the combined entity. In addition, we have not assumed any obligation
to conduct, nor have we conducted, any physical inspection of the properties or
facilities of ALBANK or Charter One. With respect to the financial forecast
information and the Expected Synergies furnished to or discussed with us by
ALBANK or Charter One, we have assumed that they have been reasonably prepared
and reflect the best currently available estimates and judgments of the senior
management of ALBANK and Charter One as to the future financial performance of
ALBANK, Charter One or the combined entity, as the case may be, and the Expected
Synergies. We have further assumed that the Merger will be accounted for as a
pooling-of-interests under generally accepted accounting principles and that it
will qualify as a tax-free reorganization for U.S. federal income tax purposes.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof. We have assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the Merger, no restrictions, including any divestiture
<PAGE> 182
requirements or amendments or modifications, will be imposed that will have a
material adverse effect on the contemplated benefits of the Merger.
In connection with the preparation of this opinion, we have not been
authorized by ALBANK or the Board of Directors to solicit, nor have we
solicited, third-party indications of interest for the acquisition of all or any
part of ALBANK.
We have been retained by the Board of Directors of ALBANK to act as
financial advisor to ALBANK in connection with the Merger and will receive a fee
for our services, a significant portion of which is contingent upon the
consummation of the Merger. In addition, ALBANK has agreed to indemnify us for
certain liabilities arising out of our engagement. We have in the past two years
provided financial advisory, investment banking and other services to ALBANK and
Charter One and received customary fees for the rendering of such services, and
we have provided financing to certain members of senior management of ALBANK in
connection with their exercise of options to purchase ALBANK common stock. In
the ordinary course of our securities business, we also may actively trade debt
and/or equity securities of ALBANK and Charter One and their respective
affiliates for our own account and the accounts of our customers, and we
therefore may from time to time hold a long or short position in such
securities.
This opinion is for the use and benefit of the Board of Directors of
ALBANK. Our opinion does not address the merits of the underlying decision by
ALBANK to engage in the Merger and does not constitute a recommendation to any
shareholder of ALBANK as to how such shareholder should vote on the proposed
Merger.
We are not expressing any opinion herein as to the prices at which ALBANK
Shares or Charter One Shares will trade following the announcement or
consummation of the Merger.
On the basis of and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Exchange Ratio is fair from a financial point of view
to the shareholders of ALBANK.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
<PAGE> 183
ANNEX D
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of June 15, 1998, between Charter One
Financial, Inc., a Delaware corporation ("Grantee"), and ALBANK Financial
Corporation, a Delaware corporation ("Issuer").
W I T N E S S E T H:
WHEREAS, Grantee, Charter Michigan Bancorp, Inc. and Issuer have entered
into an Agreement and Plan of Merger (the "Merger Agreement");
WHEREAS, as an inducement to the willingness of Grantee to enter into the
Merger Agreement, Issuer has agreed to grant Grantee the Option (as hereinafter
defined); and
WHEREAS, the Board of Directors of Issuer has approved the grant of the
Option and the Merger Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable
option (the "Option") to purchase, subject to the terms hereof, up to an
aggregate of 1,305,819 fully paid and nonassessable shares of the common stock,
par value $0.01 per share, of Issuer ("Common Stock") at a price per share equal
to the average of last reported sale prices per share of Common Stock as
reported on the NASDAQ National Market System on June 11 and 12, 1998; provided,
however, that in the event Issuer issues or agrees to issue any shares of Common
Stock (other than shares of Common Stock issued pursuant to stock options
granted pursuant to any employee benefit plan prior to the date hereof) at a
price less than such average price per share (as adjusted pursuant to subsection
(b) of Section 5), such price shall be equal to such lesser price (such price,
as adjusted if applicable, the "Option Price"); provided, further, that in no
event shall the number of shares for which this Option is exercisable exceed
9.9% of the issued and outstanding shares of Common Stock. The number of shares
of Common Stock that may be received upon the exercise of the Option and the
Option Price are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are issued or
otherwise become outstanding after the date of this Agreement (other than
pursuant to this Agreement and other than pursuant to an event described in
Section 5(a) hereof), the number of shares of Common Stock subject to the Option
shall be increased so that, after such issuance, such number together with any
shares of Common Stock previously issued pursuant hereto, equals 9.9% of the
number of shares of Common Stock then issued and outstanding without giving
effect to any shares subject or issued pursuant to the Option. Nothing contained
in this Section l(b) or elsewhere in this Agreement shall be deemed to authorize
Issuer to issue shares in breach of any provision of the Merger Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option, in
whole or part, if, but only if, both an Initial Triggering Event (as hereinafter
defined) and a Subsequent Triggering Event (as hereinafter defined) shall have
occurred prior to the occurrence of an Exercise Termination Event
<PAGE> 184
(as hereinafter defined), provided that the Holder shall have sent the written
notice of such exercise (as provided in subsection (e) of this Section 2) within
six (6) months following such Subsequent Triggering Event (or such later period
as provided in Section 10). Each of the following shall be an Exercise
Termination Event: (i) the Effective Time of the Company Merger; (ii)
termination of the Merger Agreement in accordance with the provisions thereof if
such termination occurs prior to the occurrence of an Initial Triggering Event
except a termination by Grantee pursuant to Section 8.01(b) or Section 8.01(e)
of the Merger Agreement (but only if the breach giving rise to the termination
was willful) (each, a "Listed Termination"); (iii) the passage of fifteen (15)
months (or such longer period as provided in Section 10) after termination of
the Merger Agreement if such termination follows the occurrence of an Initial
Triggering Event or is a Listed Termination or (iv) the date on which the
shareholders of the Grantee shall have voted and failed to approve the issuance
of Grantee common stock to be issued in the Company Merger (unless (A) Issuer
shall then be in material breach of its covenants or agreements contained in the
Merger Agreement or (B) on or prior to such date, the stockholders of Issuer
shall have also voted and failed to approve and adopt the Merger Agreement). The
term "Holder" shall mean the holder or holders of the Option. Notwithstanding
anything to the contrary contained herein, (i) the Option may not be exercised
at any time when Grantee shall be in material breach of any of its covenants or
agreements contained in the Merger Agreement such that Issuer shall be entitled
to terminate the Merger Agreement pursuant to Section 8.01(b) thereof as a
result of a material breach and (ii) this Agreement shall automatically
terminate upon the proper termination of the Merger Agreement (x) by Issuer
pursuant to Section 8.01(b)(ii) thereof as a result of the material breach by
Grantee of its covenants or agreements contained in the Merger Agreement, or (y)
by Issuer or Grantee pursuant to Section 8.01(d)(i).
(b) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring on or after the date hereof:
(i) Issuer or any Significant Subsidiary (as defined in Rule 1-02 of
Regulation S-X promulgated by the Securities and Exchange Commission (the
"SEC")) (an "Issuer Subsidiary"), without having received Grantee's prior
written consent, shall have entered into an agreement to engage in an
Acquisition Transaction (as hereinafter defined) with any person (the term
"person" for purposes of this Agreement having the meaning assigned
thereto in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of
1934, as amended (the "1934 Act"), and the rules and regulations
thereunder) other than Grantee or any of its Subsidiaries (each a "Grantee
Subsidiary") or the Board of Directors of Issuer (the "Issuer Board")
shall have recommended that the shareholders of Issuer approve or accept
any Acquisition Transaction other than the Company Merger. For purposes of
this Agreement, (a) "Acquisition Transaction" shall mean (x) a merger or
consolidation, or any similar transaction, involving Issuer or any Issuer
Subsidiary (other than mergers, consolidations or similar transactions (i)
involving solely Issuer and/or one or more wholly-owned (except for
directors' qualifying shares and a de minimis number of other shares)
Subsidiaries of the Issuer, provided, any such transaction is not entered
into in violation of the terms of the Merger Agreement or (ii) in which
the shareholders of Issuer immediately prior to the completion of such
transaction own at least 50% of the Common Stock of the Issuer (or the
resulting or surviving entity in such transaction)
-2-
<PAGE> 185
immediately after completion of such transaction, provided any such
transaction is not entered into in violation of the terms of the Merger
Agreement), (y) a purchase, lease or other acquisition of all or any
substantial part of the assets or deposits of Issuer or any Issuer
Subsidiary, or (z) a purchase or other acquisition (including by way of
merger, consolidation, share exchange or otherwise) of securities
representing 10% or more of the voting power of Issuer or any Issuer
Subsidiary other than by the ALBANK, FSB Incentive Savings and Employee
Stock Ownership Plan (the "ESOP") and (b) "Subsidiary" shall have the
meaning set forth in Rule 12b-2 under the 1934 Act;
(ii) Any person other than the Grantee or any Grantee Subsidiary and
other than the ESOP shall have acquired beneficial ownership or the right
to acquire beneficial ownership of 10% or more of the outstanding shares
of Common Stock (the term "beneficial ownership" for purposes of this
Agreement having the meaning assigned thereto in Section 13(d) of the 1934
Act, and the rules and regulations thereunder);
(iii) The shareholders of Issuer shall have voted and failed to
adopt the Merger Agreement at a meeting which has been held for that
purpose or any adjournment or postponement thereof, or such meeting shall
not have been held in violation of the Merger Agreement or shall have been
cancelled prior to termination of the Merger Agreement if, prior to such
meeting (or if such meeting shall not have been held or shall have been
cancelled, prior to such termination), it shall have been publicly
announced that any person (other than Grantee or any of its Subsidiaries)
shall have made, or publicly disclosed an intention to make, a proposal to
engage in an Acquisition Transaction;
(iv) (x) The Issuer Board shall have withdrawn or modified (or
publicly announced its intention to withdraw or modify) in any manner
adverse in any respect to Grantee its recommendation that the shareholders
of Issuer approve the transactions contemplated by the Merger Agreement,
(y) Issuer or any Issuer Subsidiary, without having received Grantee's
prior written consent, shall have authorized, recommended, proposed (or
publicly announced its intention to authorize, recommend or propose) an
agreement to engage in an Acquisition Transaction with any person other
than Grantee or a Grantee Subsidiary, or (z) Issuer shall have provided
information to or engaged in negotiations with a third party relating to a
possible Acquisition Transaction.
(v) Any person other than Grantee or any Grantee Subsidiary shall
have made a proposal to Issuer or its shareholders to engage in an
Acquisition Transaction and such proposal shall have been publicly
announced;
(vi) Any person other than Grantee or any Grantee Subsidiary shall
have filed with the SEC a registration statement or tender offer materials
with respect to a potential exchange or tender offer that would constitute
an Acquisition Transaction (or filed a preliminary proxy statement with
the SEC with respect to a potential vote by its shareholders to approve
the issuance of shares to be offered in such an exchange offer);
-3-
<PAGE> 186
(vii) Issuer shall have willfully breached any covenant or
obligation contained in the Merger Agreement in anticipation of engaging
in an Acquisition Transaction, and following such breach Grantee would be
entitled to terminate the Merger Agreement (whether immediately or after
the giving of notice or passage of time or both); or
(viii)Any person other than Grantee or any Grantee Subsidiary other
than in connection with a transaction to which Grantee has given its prior
written consent shall have filed an application or notice with the Board
of Governors of the Federal Reserve System (the "Federal Reserve Board")
or other federal or state bank regulatory or antitrust authority, which
application or notice has been accepted for processing, for approval to
engage in an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) The acquisition by any person (other than Grantee or any Grantee
Subsidiary) of beneficial ownership of 25% or more of the then outstanding
Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
clause (i) of subsection (b) of this Section 2, except that the percentage
referred to in clause (z) of the second sentence thereof shall be 25%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence of
any Initial Triggering Event or Subsequent Triggering Event (together, a
"Triggering Event"), it being understood that the giving of such notice by
Issuer shall not be a condition to the right of the Holder to exercise the
Option.
(e) In the event the Holder is entitled to and wishes to exercise the
Option (or any portion thereof), it shall send to Issuer a written notice (the
date of which being herein referred to as the "Notice Date") specifying (i) the
total number of shares it will purchase pursuant to such exercise and (ii) a
place and date not earlier than three business days nor later than 60 business
days from the Notice Date for the closing of such purchase (the "Closing Date");
provided, that if prior notification to or approval of the Federal Reserve Board
or any other regulatory or antitrust agency is required in connection with such
purchase, the Holder shall promptly file the required notice or application for
approval, shall promptly notify Issuer of such filing, and shall expeditiously
process the same and the period of time that otherwise would run pursuant to
this sentence shall run instead from the date on which any required notification
periods have expired or been terminated or such approvals have been obtained and
any requisite waiting period or periods shall have passed. Any exercise of the
Option shall be deemed to occur on the Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of this Section 2, the
Holder shall (i) pay to Issuer the aggregate purchase price for the shares of
Common Stock purchased pursuant to the exercise of the Option in immediately
available funds by wire transfer to a bank account designated by Issuer and (ii)
present and surrender this Agreement to Issuer at its principal executive
offices,
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provided that the failure or refusal of the Issuer to designate such a bank
account or accept surrender of this Agreement shall not preclude the Holder from
exercising the Option.
(g) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (f) of this Section 2, Issuer shall
deliver to the Holder a certificate or certificates representing the number of
shares of Common Stock purchased by the Holder and, if the Option should be
exercised in part only, a new Option evidencing the rights of the Holder thereof
to purchase the balance of the shares purchasable hereunder.
(h) Certificates for Common Stock delivered at a closing hereunder may be
endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the registered
holder hereof and Issuer and to resale restrictions arising under the
Securities Act of 1933, as amended. A copy of such agreement is on file at
the principal office of Issuer and will be provided to the holder hereof
without charge upon receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "1933 Act") in the above legend
shall be removed by delivery of substitute certificate(s) without such reference
if the Holder shall have delivered to Issuer a copy of a letter from the staff
of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to Issuer, to the effect that such legend is not required for
purposes of the 1933 Act; (ii) the reference to the provisions of this Agreement
in the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the shares have been sold or transferred in compliance
with the provisions of this Agreement and under circumstances that do not
require the retention of such reference in the opinion of Counsel to the Holder;
and (iii) the legend shall be removed in its entirety if the conditions in the
preceding clauses (i) and (ii) are both satisfied. In addition, such
certificates shall bear any other legend as may be required by law.
(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (e) of this Section 2 and
the tender of the applicable purchase price in immediately available funds, the
Holder shall be deemed, subject to the receipt of any necessary regulatory
approvals, to be the holder of record of the shares of Common Stock issuable
upon such exercise, notwithstanding that the stock transfer books of Issuer
shall then be closed or that certificates representing such shares of Common
Stock shall not then be actually delivered to the Holder. Issuer shall pay all
expenses, and any and all United States federal, state and local taxes and other
charges that may be payable in connection with the preparation, issue and
delivery of stock certificates under this Section 2 in the name of the Holder or
its assignee, transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by charter
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amendment or through reorganization, consolidation, merger, dissolution or sale
of assets, or by any other voluntary act, avoid or seek to avoid the observance
or performance of any of the covenants, stipulations or conditions to be
observed or performed hereunder by Issuer; (iii) promptly to take all action as
may from time to time be required (including (x) complying with all applicable
premerger notification, reporting and waiting period requirements specified in
15 U.S.C. Section 18a and regulations promulgated thereunder and (y) in the
event, under the Bank Holding Company Act of 1956, as amended (the "BHCA"), or
the Change in Bank Control Act of 1978, as amended, or any state or other
federal thrift or banking law, prior approval of or notice to the Federal
Reserve Board or to any state or other federal regulatory authority is necessary
before the Option may be exercised, cooperating fully with the Holder in
preparing such applications or notices and providing such information to the
Federal Reserve Board or such state or other federal regulatory authority as
they may require) in order to permit the Holder to exercise the Option and
Issuer duly and effectively to issue shares of Common Stock pursuant hereto; and
(iv) promptly to take all action provided herein to protect the rights of the
Holder against dilution.
4. This Agreement (and the Option granted hereby) are exchangeable,
without expense, at the option of the Holder, upon presentation and surrender of
this Agreement at the principal office of Issuer, for other Agreements providing
for Options of different denominations entitling the holder thereof to purchase,
on the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "Option" as used herein include any Agreements and
related Options for which this Agreement (and the Option granted hereby) may be
exchanged. Upon receipt by Issuer of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Agreement, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Agreement, if mutilated, Issuer will
execute and deliver a new Agreement of like tenor and date. Any such new
Agreement executed and delivered shall constitute an additional contractual
obligation on the part of Issuer, whether or not the Agreement so lost, stolen,
destroyed or mutilated shall at any time be enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common Stock
that are purchasable upon exercise of the Option pursuant to Section 1 of this
Agreement, the number of shares of Common Stock purchasable upon the exercise of
the Option and the Option Price shall be subject to adjustment from time to time
as provided in this Section 5.
(a) In the event of any change in, or distributions in respect of, the
Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges of shares
or the like, the type and number of shares of Common Stock purchasable upon
exercise hereof shall be appropriately adjusted and proper provision shall be
made so that, in the event that any additional shares of Common Stock are to be
issued or otherwise become outstanding as a result of any such change (other
than pursuant to an exercise of the Option), the number of shares of Common
Stock that remain subject to the Option shall be increased so that, after such
issuance and together with shares of Common Stock previously issued pursuant to
the exercise of the Option (as adjusted on account of any of the foregoing
changes in the Common Stock), it equals 9.9% of the number of shares of Common
Stock then issued and outstanding.
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(b) Whenever the number of shares of Common Stock purchasable upon
exercise hereof is adjusted as provided in this Section 5, the Option Price
shall be adjusted by multiplying the Option Price by a fraction, the numerator
of which shall be equal to the number of shares of Common Stock purchasable
prior to the adjustment and the denominator of which shall be equal to the
number of shares of Common Stock purchasable after the adjustment.
6. Upon the occurrence of a Subsequent Triggering Event that occurs prior
to an Exercise Termination Event, Issuer shall, at the request of Grantee
delivered within twelve (12) months (or such later period as provided in Section
10) of such Subsequent Triggering Event (whether on its own behalf or on behalf
of any subsequent holder of this Option (or part thereof) or any of the shares
of Common Stock issued pursuant hereto), promptly prepare, file and keep current
a registration statement under the 1933 Act covering any shares issued and
issuable pursuant to this Option and shall use its reasonable best efforts to
cause such registration statement to become effective and remain current in
order to permit the sale or other disposition of any shares of Common Stock
issued upon total or partial exercise of this Option ("Option Shares") in
accordance with any plan of disposition requested by Grantee. Issuer will use
its reasonable best efforts to cause such registration statement promptly to
become effective and then to remain effective for such period not in excess of
180 days from the day such registration statement first becomes effective or
such shorter time as may be reasonably necessary to effect such sales or other
dispositions. Grantee shall have the right to demand two such registrations. The
Issuer shall bear the costs of such registrations (including, but not limited
to, Issuer's attorneys' fees, printing costs and filing fees, except for
underwriting discounts or commissions, brokers' fees and the fees and
disbursements of Grantee's counsel related thereto). The foregoing
notwithstanding, if, at the time of any request by Grantee for registration of
Option Shares as provided above, Issuer is in registration with respect to an
underwritten public offering by Issuer of shares of Common Stock, and if in the
good faith judgment of the managing underwriter or managing underwriters, or, if
none, the sole underwriter or underwriters, of such offering the offer and sale
of the Option Shares would interfere with the successful marketing of the shares
of Common Stock offered by Issuer, the number of Option Shares otherwise to be
covered in the registration statement contemplated hereby may be reduced;
provided, however, that after any such required reduction the number of Option
Shares to be included in such offering for the account of the Holder shall
constitute at least 25% of the total number of shares to be sold by the Holder
and Issuer in the aggregate; and provided further, however, that if such
reduction occurs, then Issuer shall file a registration statement for the
balance as promptly as practicable thereafter as to which no reduction pursuant
to this Section 6 shall be permitted or occur and the Holder shall thereafter be
entitled to one additional registration and the twelve (12) month period
referred to in the first sentence of this section shall be increased to
twenty-four (24) months. Each such Holder shall provide all information
reasonably requested by Issuer for inclusion in any registration statement to be
filed hereunder. If requested by any such Holder in connection with such
registration, Issuer shall become a party to any underwriting agreement relating
to the sale of such shares, but only to the extent of obligating itself in
respect of representations, warranties, indemnities and other agreements
customarily included in such underwriting agreements for Issuer. Upon receiving
any request under this Section 6 from any Holder, Issuer agrees to send a copy
thereof to any other person known to Issuer to be entitled to registration
rights under this Section 6, in each case by promptly mailing the same, postage
prepaid, to the address of record of the persons entitled to receive such
copies.
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Notwithstanding anything to the contrary contained herein, in no event shall the
number of registrations that Issuer is obligated to effect be increased by
reason of the fact that there shall be more than one Holder as a result of any
assignment or division of this Agreement.
7. (a) At any time after the occurrence of a Repurchase Event (as defined
below) (i) at the request of the Holder, delivered prior to an Exercise
Termination Event (or such later period as provided in Section 10), Issuer (or
any successor thereto) shall repurchase the Option from the Holder at a price
(the "Option Repurchase Price") equal to the amount by which (A) the
market/offer price (as defined below) exceeds (B) the Option Price, multiplied
by the number of shares for which this Option may then be exercised and (ii) at
the request of the owner of Option Shares from time to time (the "Owner"),
delivered prior to an Exercise Termination Event (or such later period as
provided in Section 10), Issuer (or any successor thereto) shall repurchase such
number of the Option Shares from the Owner as the Owner shall designate at a
price (the "Option Share Repurchase Price") equal to the market/offer price
multiplied by the number of Option Shares so designated. The term "market/offer
price" shall mean the highest of (i) the price per share of Common Stock at
which a tender or exchange offer therefor has been made, (ii) the price per
share of Common Stock to be paid by any third party pursuant to an agreement
with Issuer, (iii) the highest closing price for shares of Common Stock within
the six-month period immediately preceding the date the Holder gives notice of
the required repurchase of this Option or the Owner gives notice of the required
repurchase of Option Shares, as the case may be, or (iv) in the event of a sale
of all or any substantial part of Issuer's assets or deposits, the sum of the
net price paid in such sale for such assets or deposits and the current market
value of the remaining net assets of Issuer as determined by a nationally
recognized investment banking firm selected by the Holder or the Owner, as the
case may be, and reasonably acceptable to Issuer, divided by the number of
shares of Common Stock of Issuer outstanding at the time of such sale. In
determining the market/offer price, the value of consideration other than cash
shall be determined by a nationally recognized investment banking firm selected
by the Holder or Owner, as the case may be, and reasonably acceptable to Issuer.
(b) The Holder and the Owner, as the case may be, may exercise its right
to require Issuer to repurchase the Option and any Option Shares pursuant to
this Section 7 by surrendering for such purpose to Issuer, at its principal
office, a copy of this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that the Holder
or the Owner, as the case may be, elects to require Issuer to repurchase this
Option and/or the Option Shares in accordance with the provisions of this
Section 7. As promptly as practicable, and in any event within five business
days after the surrender of the Option and/or certificates representing Option
Shares and the receipt of such notice or notices relating thereto, Issuer shall
deliver or cause to be delivered to the Holder the Option Repurchase Price
and/or to the Owner the Option Share Repurchase Price therefor or the portion
thereof that Issuer is not then prohibited under applicable law and regulation
from so delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from repurchasing the
Option and/or the Option Shares in full, Issuer shall immediately so notify the
Holder and/or the Owner and thereafter deliver or cause to be delivered, from
time to time, to the Holder and/or the Owner, as appropriate, the portion of the
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Option Repurchase Price and the Option Share Repurchase Price, respectively,
that it is no longer prohibited from delivering, within five business days after
the date on which Issuer is no longer so prohibited; provided, however, that if
Issuer at any time after delivery of a notice of repurchase pursuant to
paragraph (b) of this Section 7 is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from delivering to the
Holder and/or the Owner, as appropriate, the Option Repurchase Price and the
Option Share Repurchase Price, respectively, in full (and Issuer hereby
undertakes to use its reasonable best efforts to obtain all required regulatory
and legal approvals and to file any required notices as promptly as practicable
in order to accomplish such repurchase), the Holder or Owner may revoke its
notice of repurchase of the Option and/or the Option Shares whether in whole or
to the extent of the prohibition, whereupon, in the latter case, Issuer shall
promptly (i) deliver to the Holder and/or the Owner, as appropriate, that
portion of the Option Repurchase Price and/or the Option Share Repurchase Price
that Issuer is not prohibited from delivering; and (ii) deliver, as appropriate,
either (A) to the Holder, a new Agreement evidencing the right of the Holder to
purchase that number of shares of Common Stock obtained by multiplying the
number of shares of Common Stock for which the surrendered Agreement was
exercisable at the time of delivery of the notice of repurchase by a fraction,
the numerator of which is the Option Repurchase Price less the portion thereof
theretofore delivered to the Holder and the denominator of which is the Option
Repurchase Price, and/or (B) to the Owner, a certificate for the Option Shares
it is then so prohibited from repurchasing. If an Exercise Termination Event
shall have occurred prior to the date of the notice by Issuer described in the
first sentence of this subsection (c), or shall be scheduled to occur at any
time before the expiration of a period ending on the thirtieth day after such
date, the Holder shall nonetheless have the right to exercise the Option until
the expiration of such 30-day period.
(d) For purposes of this Section 7, a "Repurchase Event" shall be deemed
to have occurred upon the occurrence of any of the following events or
transactions after the date hereof:
(i) the acquisition by any person (other than Grantee or any Grantee
Subsidiary) of beneficial ownership of 50% or more of the then outstanding
Common Stock; or
(ii) the consummation of any Acquisition Transaction described in
Section 2(b)(i) hereof, except that the percentage referred to in clause
(z) shall be 50%.
8. (a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any person,
other than Grantee or a Grantee Subsidiary, or engage in a plan of exchange with
any person, other than Grantee or a Grantee Subsidiary and Issuer shall not be
the continuing or surviving corporation of such consolidation or merger or the
acquirer in such plan of exchange, (ii) to permit any person, other than Grantee
or a Grantee Subsidiary, to merge into Issuer or be acquired by Issuer in a plan
of exchange and Issuer shall be the continuing or surviving or acquiring
corporation, but, in connection with such merger or plan of exchange, the then
outstanding shares of Common Stock shall be changed into or exchanged for stock
or other securities of any other person or cash or any other property or the
then outstanding shares of Common Stock shall after such merger or plan of
exchange represent less than 50% of the outstanding shares and share equivalents
of the merged or acquiring company, or (iii)
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to sell or otherwise transfer all or a substantial part of its or the Issuer
Subsidiary's assets or deposits to any person, other than Grantee or a Grantee
Subsidiary, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of the Holder, of either (x) the Acquiring Corporation
(as hereinafter defined) or (y) any person that controls the Acquiring
Corporation.
(b) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (i) the continuing or
surviving person of a consolidation or merger with Issuer (if other than
Issuer), (ii) the acquiring person in a plan of exchange in which Issuer
is acquired, (iii) the Issuer in a merger or plan of exchange in which
Issuer is the continuing or surviving or acquiring person, and (iv) the
transferee of all or a substantial part of Issuer's assets or deposits (or
the assets or deposits of the Issuer Subsidiary).
(ii) "Substitute Common Stock" shall mean the common stock issued by
the issuer of the Substitute Option upon exercise of the Substitute
Option.
(iii) "Assigned Value" shall mean the market/offer price, as defined
in Section 7.
(iv) "Average Price" shall mean the average closing price of a share
of the Substitute Common Stock for one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of Substitute Common Stock on the day
preceding such consolidation, merger or sale; provided that if Issuer is
the issuer of the Substitute Option, the Average Price shall be computed
with respect to a share of common stock issued by the person merging into
Issuer or by any company which controls or is controlled by such person,
as the Holder may elect.
(c) The Substitute Option shall have the same terms as the Option,
provided that if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible and in no
event less advantageous to the Holder. The issuer of the Substitute Option shall
also enter into an agreement with the then Holder or Holders of the Substitute
Option in substantially the same form as this Agreement (after giving effect for
such purpose to the provisions of Section 9), which agreement shall be
applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares
of Substitute Common Stock as is equal to the Assigned Value multiplied by the
number of shares of Common Stock for which the Option was exercisable
immediately prior to the event described in the first sentence of Section 8(a),
divided by the Average Price. The exercise price of the Substitute Option per
share of Substitute Common Stock shall then be equal to the Option Price
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock for which the Option was exercisable immediately prior to the
event described in the first sentence of Section 8(a)
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and the denominator of which shall be the number of shares of Substitute Common
Stock for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 9.9% of the shares of Substitute
Common Stock outstanding prior to exercise of the Substitute Option. In the
event that the Substitute Option would be exercisable for more than 9.9% of the
shares of Substitute Common Stock outstanding prior to exercise but for this
clause (e), the issuer of the Substitute Option (the "Substitute Option Issuer")
shall make a cash payment to Holder equal to the excess of (i) the value of the
Substitute Option without giving effect to the limitation in this clause (e)
over (ii) the value of the Substitute Option after giving effect to the
limitation in this clause (e). This difference in value shall be determined by a
nationally recognized investment banking firm selected by the Holder.
(f) Issuer shall not enter into any transaction described in subsection
(a) of this Section 8 unless the Acquiring Corporation and any person that
controls the Acquiring Corporation assume in writing all the obligations of
Issuer hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the issuer of the Substitute Option (the
"Substitute Option Issuer") shall repurchase the Substitute Option from the
Substitute Option Holder at a price (the "Substitute Option Repurchase Price")
equal to the amount by which (i) the Highest Closing Price (as hereinafter
defined) exceeds (ii) the exercise price of the Substitute Option, multiplied by
the number of shares of Substitute Common Stock for which the Substitute Option
may then be exercised, and at the request of the owner (the "Substitute Share
Owner") of shares of Substitute Common Stock (the "Substitute Shares"), the
Substitute Option Issuer shall repurchase the Substitute Shares at a price (the
"Substitute Share Repurchase Price") equal to the Highest Closing Price
multiplied by the number of Substitute Shares so designated. The term "Highest
Closing Price" shall mean the highest closing price for shares of Substitute
Common Stock within the six-month period immediately preceding the date the
Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as the
case may be, may exercise its respective rights to require the Substitute Option
Issuer to repurchase the Substitute Option and the Substitute Shares pursuant to
this Section 9 by surrendering for such purpose to the Substitute Option Issuer,
at its principal office, the agreement for such Substitute Option (or, in the
absence of such an agreement, a copy of this Agreement) and/or certificates for
Substitute Shares accompanied by a written notice or notices stating that the
Substitute Option Holder or the Substitute Share Owner, as the case may be,
elects to require the Substitute Option Issuer to repurchase the Substitute
Option and/or the Substitute Shares in accordance with the provisions of this
Section 9. As promptly as practicable and in any event within five business days
after the surrender of the Substitute Option and/or certificates representing
Substitute Shares and the receipt of such notice or notices relating thereto,
the Substitute Option Issuer shall deliver or cause to be delivered to the
Substitute Option Holder the Substitute Option Repurchase Price and/or to the
Substitute Share
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<PAGE> 194
Owner the Substitute Share Repurchase Price therefor or the portion thereof
which the Substitute Option Issuer is not then prohibited under applicable law
and regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation, or as a consequence of administrative policy, from
repurchasing the Substitute Option and/or the Substitute Shares in part or in
full, the Substitute Option Issuer shall immediately so notify the Substitute
Option Holder and/or the Substitute Share Owner and thereafter deliver or cause
to be delivered, from time to time, to the Substitute Option Holder and/or the
Substitute Share Owner, as appropriate, the portion of the Substitute Option
Repurchase Price and/or the Substitute Share Repurchase Price, respectively,
which it is no longer prohibited from delivering, within five (5) business days
after the date on which the Substitute Option Issuer is no longer so prohibited;
provided, however, that if the Substitute Option Issuer is at any time after
delivery of a notice of repurchase pursuant to subsection (b) of this Section 9
prohibited under applicable law or regulation, or as a consequence of
administrative policy, from delivering to the Substitute Option Holder and/or
the Substitute Share Owner, as appropriate, the Substitute Option Repurchase
Price and the Substitute Share Repurchase Price, respectively, in full (and the
Substitute Option Issuer shall use its reasonable best efforts to receive all
required regulatory and legal approvals as promptly as practicable in order to
accomplish such repurchase), the Substitute Option Holder and/or Substitute
Share Owner may revoke its notice of repurchase of the Substitute Option or the
Substitute Shares either in whole or to the extent of prohibition, whereupon, in
the latter case, the Substitute Option Issuer shall promptly (i) deliver to the
Substitute Option Holder or Substitute Share Owner, as appropriate, that portion
of the Substitute Option Repurchase Price or the Substitute Share Repurchase
Price that the Substitute Option Issuer is not prohibited from delivering; and
(ii) deliver, as appropriate, either (A) to the Substitute Option Holder, a new
Substitute Option evidencing the right of the Substitute Option Holder to
purchase that number of shares of the Substitute Common Stock obtained by
multiplying the number of shares of the Substitute Common Stock for which the
surrendered Substitute Option was exercisable at the time of delivery of the
notice of repurchase by a fraction, the numerator of which is the Substitute
Option Repurchase Price less the portion thereof theretofore delivered to the
Substitute Option Holder and the denominator of which is the Substitute Option
Repurchase Price, and/or (B) to the Substitute Share Owner, a certificate for
the Substitute Option Shares it is then so prohibited from repurchasing. If an
Exercise Termination Event shall have occurred prior to the date of the notice
by the Substitute Option Issuer described in the first sentence of this
subsection (c), or shall be scheduled to occur at any time before the expiration
of a period ending on the thirtieth day after such date, the Substitute Option
Holder shall nevertheless have the right to exercise the Substitute Option until
the expiration of such 30-day period.
10. The 30-day, 6-month, 12-month, 18-month or 24-month periods for
exercise of certain rights under Sections 2, 6, 7, 9, 12 and 15 shall be
extended: (i) to the extent necessary to obtain all regulatory approvals for the
exercise of such rights (for so long as the Holder, Owner, Substitute Option
Holder or Substitute Share Owner, as the case may be, is using commercially
reasonable efforts to obtain such regulatory approvals), and for the expiration
of all statutory waiting periods; and (ii) to the extent necessary to avoid
liability under Section 16(b) of the 1934 Act by reason of such exercise.
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11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Issuer Board prior to the date hereof and no other corporate proceedings on the
part of Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof through
the termination of this Agreement in accordance with its terms will have
reserved for issuance upon the exercise of the Option, that number of shares of
Common Stock equal to the maximum number of shares of Common Stock at any time
and from time to time issuable hereunder, and all such shares, upon issuance
pursuant thereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrance and security interests and not subject to any preemptive rights.
12. Neither of the parties hereto may assign any of its rights or
obligations under this Agreement or the Option created hereunder to any other
person, without the express written consent of the other party, except that in
the event a Subsequent Triggering Event shall have occurred prior to an Exercise
Termination Event, Grantee, subject to the express provisions hereof, may assign
in whole or in part its rights and obligations hereunder; provided, however,
that until the date 15 days following the date on which the Federal Reserve
Board has approved an application by Grantee to acquire the shares of Common
Stock subject to the Option, Grantee may not assign its rights under the Option
except in (i) a widely dispersed public distribution, (ii) a private placement
in which no one party acquires the right to purchase in excess of 2% of the
voting shares of Issuer, (iii) an assignment to a single party (e.g., a broker
or investment banker) for the purpose of conducting a widely dispersed public
distribution on Grantee's behalf or (iv) any other manner approved by the
Federal Reserve Board.
13. Each of Grantee and Issuer will use its reasonable best efforts to
make all filings with, and to obtain consents of, all third parties and
governmental authorities necessary to the consummation of the transactions
contemplated by this Agreement, including, without limitation, applying to the
Federal Reserve Board under the BHCA for approval to acquire the shares issuable
hereunder, but Grantee shall not be obligated to apply to state banking
authorities for approval to acquire the shares of Common Stock issuable
hereunder until such time, if ever, as it deems appropriate to do so.
14. (a) Notwithstanding any other provision of this Agreement, in no event
shall the Grantee's Total Profit (as hereinafter defined) exceed $25 million
and, if it otherwise would exceed such amount, the Grantee, at its sole
election, shall either (a) reduce the number of shares of Common Stock subject
to this Option, (b) deliver to Issuer for cancellation Option Shares previously
purchased by Grantee, (c) pay cash to Issuer, or (d) any combination thereof, so
that Grantee's actually realized Total Profit shall not exceed $25 million after
taking into account the foregoing actions.
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(b) Notwithstanding any other provision of this Agreement, this Option may
not be exercised for a number of shares as would, as of the date of exercise,
result in a Notional Total Profit (as defined below) of more than $25 million;
provided that nothing in this sentence shall restrict any exercise of the Option
permitted hereby on any subsequent date.
(c) As used herein, the term "Total Profit" shall mean the aggregate
amount (before taxes) of the following: (i) the amount received by Grantee
pursuant to Issuer's repurchase of the Option (or any portion thereof) pursuant
to Section 7, (ii) (x) the amount received by Grantee pursuant to Issuer's
repurchase of Option Shares pursuant to Section 7, less (y) Grantee's purchase
price for such Option Shares, (iii) (x) the net cash amounts received by Grantee
pursuant to the sale of Option Shares (or any other securities into which such
Option Shares are converted or exchanged) to any unaffiliated party, less (y)
the Grantee's purchase price of such Option Shares, (iv) any amounts received by
Grantee on the transfer of the Option (or any portion thereof) to any
unaffiliated party, and (v) any amount equivalent to the foregoing with respect
to the Substitute Option.
(d) As used herein, the term 'Notional Total Profit" with respect to any
number of shares as to which Grantee may propose to exercise this Option shall
be the Total Profit determined as of the date of such proposed exercise assuming
that this Option were exercised on such date for such number of shares and
assuming that such shares, together with all other Option Shares held by Grantee
and its affiliates as of such date, were sold for cash at the closing market
price for the Common Stock as of the close of business on the preceding trading
day (less customary brokerage commissions).
15. (a) Grantee may, at any time following a Repurchase Event and prior to
the occurrence of an Exercise Termination Event (or such later period as
provided in Section 10), relinquish the Option (together with any Option Shares
issued to and then owned by Grantee) to Issuer in exchange for a cash fee equal
to the Surrender Price; provided, however, that Grantee may not exercise its
rights pursuant to this Section 15 if Issuer has repurchased the Option (or any
portion thereof) or any Option Shares pursuant to Section 7. The "Surrender
Price" shall be equal to $25 million (i) plus, if applicable, Grantee's purchase
price with respect to any Option Shares and (ii) minus, if applicable, the
excess of (A) the net cash amounts, if any, received by Grantee pursuant to the
arms' length sale of Option Shares (or any other securities into which such
Option Shares were converted or exchanged) to any unaffiliated party, over (B)
Grantee's purchase price of such Option Shares.
(b) Grantee may exercise its right to relinquish the Option and any Option
Shares pursuant to this Section 15 by surrendering to Issuer, at its principal
office, a copy of this Agreement together with certificates for Option Shares,
if any, accompanied by a written notice stating (i) that Grantee elects to
relinquish the Option and Option Shares, if any, in accordance with the
provisions of this Section 15 and (ii) the Surrender Price. The Surrender Price
shall be payable in immediately available funds on or before the second business
day following receipt of such notice by Issuer.
(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from paying the
Surrender Price to Grantee in full, Issuer shall
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immediately so notify Grantee and thereafter deliver or cause to be delivered,
from time to time, to Grantee, the portion of the Surrender Price that it is no
longer prohibited from paying, within five business days after the date on which
Issuer is no longer so prohibited; provided, however, that if Issuer at any time
after delivery of a notice of surrender pursuant to paragraph (b) of this
Section 15 is prohibited under applicable law or regulation, or as a consequence
of administrative policy, from paying to Grantee the Surrender Price in full,
(i) Issuer shall (A) use its reasonable best efforts to obtain all required
regulatory and legal approvals and to file any required notices as promptly as
practicable in order to make such payments, (B) within five days of the
submission or receipt of any documents relating to any such regulatory and legal
approvals, provide Grantee with copies of the same, and (c) keep Grantee advised
of both the status of any such request for regulatory and legal approvals, as
well as any discussions with any relevant regulatory or other third party
reasonably related to the same and (ii) Grantee may revoke such notice of
surrender by delivery of a notice of revocation to Issuer and, upon delivery of
such notice of revocation, the Exercise Termination Event shall be extended to a
date six months from the date on which the Exercise Termination Event would have
occurred if not for the provisions of this Section 15(c) (during which period
Grantee may exercise any of its rights hereunder, including any and all rights
pursuant to this Section 15).
16. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Agreement by either party hereto and that the
obligations of the parties hereto shall be enforceable by either party hereto
through injunctive or other equitable relief. In connection therewith both
parties waive the posting of any bond or similar requirement.
17. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not permitted to acquire, or Issuer is not permitted to
repurchase pursuant to Section 7, the full number of shares of Common Stock
provided in Section l(a) hereof (as adjusted pursuant to Section l(b) or Section
5 hereof), it is the express intention of Issuer to allow the Holder to acquire
or to require Issuer to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof.
18. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
fax, telecopy, or by registered or certified mail (postage prepaid, return
receipt requested) at the respective addresses of the parties set forth in the
Merger Agreement.
19. This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, without regard to the conflict of law
principles thereof (except to the extent that mandatory provisions of Federal
law are applicable).
20. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
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21. Except as otherwise expressly provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
22. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assignees.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors except as
assignees, any rights, remedies, obligations or liabilities under or by reason
of this Agreement, except as expressly provided herein.
23. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreement.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
ALBANK FINANCIAL CORPORATION
By: /s/ Herbert G. Chorbajian
--------------------------
Name: Herbert G. Chorbajian
Title: Chairman of the Board
Chief Executive Officer
CHARTER ONE FINANCIAL, INC.
By: /s/ Charles John Koch
--------------------------
Name: Charles John Koch
Title: Chairman of the Board
Chief Executive Officer
17
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ANNEX E
CHARTER ONE FINANCIAL, INC.
TOP EXECUTIVE INCENTIVE GOAL ACHIEVEMENT PLAN
<PAGE> 201
CHARTER ONE FINANCIAL, INC.
TOP EXECUTIVE INCENTIVE GOAL ACHIEVEMENT PLAN
TABLE OF CONTENTS
Page
Plan Objectives..............................................................1
Plan Duration................................................................1
Definitions..................................................................1
Eligibility for Participation................................................2
Award Opportunity............................................................2
Performance Measures.........................................................3
Award Determination..........................................................3
Annual Performance Evaluations...............................................4
Award Conditions.............................................................4
Payment of Awards............................................................4
Special Ad Hoc Bonuses.......................................................4
Maximum Total Awards.........................................................5
Plan Administration..........................................................5
Not an Employment Contract...................................................5
Alienation of Award..........................................................5
Approval of Shareholders.....................................................6
<PAGE> 202
CHARTER ONE FINANCIAL, INC.
TOP EXECUTIVE INCENTIVE GOAL ACHIEVEMENT PLAN
Plan Objectives
The purpose of the Plan is to achieve the following objectives:
greater than to promote stability and the achievement of
Charter One's performance objectives;
greater than to link top executive compensation to specific
corporate performance objectives and
individual goals;
greater than to provide a competitive reward structure for
senior officers; and
greater than to encourage involvement and communication
regarding Charter One's strategic plans.
PLAN DURATION
The Plan shall be effective for five consecutive Plan Years beginning on the
Effective Date and ending on December 31, 2003.
DEFINITIONS
When used in the Plan, the words and phrases below have the following meanings:
"Board" means the Corporation's Board of Directors.
"Charter One" means the Corporation, together with any other organization that
is required to be considered, along with the Corporation, a single employer in
accordance with consolidated financial reporting.
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
"Committee" means a committee appointed by the Board and consisting of two or
more members of the Board, each of whom is an outside director as defined in
Code Section 162(m).
"Corporation" means Charter One Financial, Inc., a Delaware corporation, and any
successor thereto.
"Effective Date" means January 1, 1999.
"Employee" means any individual employed by Charter One as a common law
employee, but does not mean any individual who renders service solely as a
director or independent contractor.
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"Participant" means an Employee who is named by the Committee as eligible to
participate in the Plan for a Plan Year.
"Plan" means the Charter One Financial, Inc. Top Executive Incentive Goal
Achievement Plan.
"Plan Year" means the calendar year beginning January l and ending December 31.
ELIGIBILITY AND PARTICIPATION
The Committee shall annually define the individual Employees eligible for
participation in the Plan.
Eligibility normally shall be limited to top executive-level Employees of
Charter One whose functional responsibility includes the establishment of
strategic direction and long-range plans for Charter One, including the Chief
Executive Officer, Executive Vice Presidents and Senior Vice Presidents, whose
position grade levels are 49 or higher.
An Employee who is hired, transferred or promoted into an eligible position must
be selected by the Committee to participate in the Plan. An Employee who is
hired, transferred or promoted into an eligible position within the first six
months of a Plan Year, and who is selected to participate, may receive a
prorated award for that Plan Year. An Employee who is hired, transferred or
promoted into an eligible position in the last six months of a Plan Year shall
be eligible to be selected to participate the following Plan Year.
In general, a Participant must be employed by Charter One on the last day of the
Plan Year to receive an award. A Participant who retires, dies or becomes
disabled during a Plan Year may, at the discretion of the Committee, receive a
prorated award for that Plan Year. The Committee shall have the authority to
determine whether a Participant who ceases employment after the end of the Plan
Year, but before the payment of awards for that Plan Year, is eligible to
receive an award for that Plan Year.
AWARD OPPORTUNITY
The Committee shall provide an award opportunity to Participants who attain
certain objective individual goals and assist Charter One in achieving certain
of its corporate performance objectives for a Plan Year. The award opportunity
shall be a percentage of each Participant's annual base salary at the end of the
Plan Year. Differences in the amount of impact on Charter One's success shall be
recognized by varying award opportunities for each Participant level. The amount
of a Participant's award, if any, shall be based on the degree to which the
Participant attains his or her objective individual goals and Charter One
achieves its performance objectives.
The Committee recognizes that the level of control and influence a Participant
has to impact his or her objective individual goals and the corporate
performance objectives is influenced by the Participant's level of
responsibility. As such, the portions of a Participant's award attributable to
the Participant's attainment of his or her objective individual goals and to
Charter One's
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achievement of its corporate performance objectives shall be weighted
differently based on the Participant's level of responsibility.
There are three levels of participation:
Level 1: Chief Executive Officer
Level 2: Executive Vice Presidents
Level 3: Senior Vice Presidents at position grade level 49 and above
PERFORMANCE MEASURES
As soon as practicable, but in any event within the first 90 days of each Plan
Year, the Committee shall establish specific individual performance measures and
corporate performance measures for Charter One, including threshold and one or
more target levels associated with each performance measure. The individual
performance measures for a Plan Year may be based on one or more of the
following criteria: cost-savings, increased fee generation, increased production
volumes, interest rate spread and risk profiles, specific project completions,
and compliance with budgets, business plans and financial or business
directives. The corporate performance measures for a Plan Year may be based on
one or more of the following criteria: earnings per share, net average interest
spread and risk profile, recurring fees and other income, operating expenses,
total loans and leases, energized assets, new checking accounts, gap between the
borrowing and lending interest rates, gross income, net income, operating
income, expense levels, debt balance, return on assets, return on equity,
production volumes, sales, fee generation, loan generation or lease generation.
The performance measures may be based on the performance of Charter One, in the
absolute or in relation to its peers, or the performance of a particular
Participant, or the performance of a particular division, department, branch,
subsidiary or other unit to which a particular Participant is assigned.
Different performance measures may be established for different Participants.
Each performance measure shall be weighted to reflect its relative importance to
Charter One's business plan for the Plan Year. The sum of the weightings of the
target performance measures for a Participant for the Plan Year must equal 100
percent.
AWARD DETERMINATION
Under the Plan, a Participant may be eligible to receive an award for a Plan
Year, equal to a percentage of his or her annual base salary at the end of the
Plan Year, if the Participant attains certain objective individual goals and
assists Charter One in achieving certain of its performance objectives.
The awards granted pursuant to the Plan shall be determined according to a
formula based on each Participant's objective individual performance measures,
Charter One's corporate performance measures, and each Participant's annual base
salary.
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ANNUAL PERFORMANCE EVALUATIONS
At the end of the Plan Year, each Participant's objective individual performance
measures shall be addressed in his or her performance review and a performance
measure score shall be assigned to the Participant by the Committee. The
Committee also shall evaluate Charter One's performance as compared to its
corporate performance objectives at the end of the Plan Year.
AWARD CONDITIONS
Participation in the Plan shall not entitle any Participant to an award. In
order for an award to be payable to a Participant, both of the following
objectives must be met:
greater than Charter One's threshold corporate performance objectives
must be achieved; and
greater than the Participant's threshold objective individual goals
must be attained.
Thus, for example, if a Participant attains his or her threshold objective
personal goals for a Plan Year but Charter One's threshold corporate performance
objectives are not met, no award will be paid to the Participant for that Plan
Year. Similarly, if Charter One's threshold corporate performance objectives for
a Plan Year are met, but a Participant fails to attain his or her threshold
objective individual goals, no award will be paid to that Participant for that
Plan Year.
PAYMENT OF AWARDS
As promptly as practicable but in any event within 75 days after the end of each
Plan Year, the Committee shall certify the performance measure scores for each
Participant. Each Participant's award shall be determined by multiplying the
target award by applying the Participant's score to the formula and then
adjusting down (but not up) such award for such subjective factors as the
Committee deems appropriate, including whether the Participant's overall
individual performance met expectations. Awards under the Plan shall be paid in
cash, subject to applicable withholding taxes, as soon as practical following
the end of the Plan Year.
SPECIAL AD HOC BONUSES
In addition to the Plan awards based upon attainment of performance goals as set
forth above, from time to time, the Committee may, in its sole discretion, grant
ad hoc bonus awards to any Participant or group of Participants in such amount
or amounts as it determines to be appropriate based upon such criteria as it
deems to be relevant, including but not limited to successful merger completion.
Any such ad hoc bonus award shall be paid in cash as soon as practical after the
bonus is awarded.
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MAXIMUM TOTAL AWARDS
The maximum award, including any special ad hoc bonus awards, that may be paid
to any Participant in any Plan Year is $2,000,000.
PLAN ADMINISTRATION
The Committee shall direct and control the administration of the Plan, taking
into consideration the recommendations of the Chief Executive Officer. The
Committee shall have the right and authority to perform the following
administrative tasks: (1) to interpret the Plan; (2) to adopt, amend or rescind
rules and regulations relating to the administration and interpretation of the
Plan; (3) to make all other determinations necessary or advisable for
administering the Plan; (4) to exercise the powers conferred on the Committee
under the Plan; and (5) to correct any defect, supply any omission or reconcile
any inconsistency in the Plan in the manner and to the extent it deems expedient
to carry it into effect, and it is the sole and final judge of such expediency.
The Board shall have the exclusive authority to amend, modify, suspend or
terminate the Plan at any time, with or without notice, except that no
amendment, modification, suspension or termination may in any manner adversely
affect the right of any Participant to receive any award amount which has been
awarded to him or her. To qualify for the exemption from the deduction
limitation of Code Section 162(m), shareholders must approve certain material
amendments to the Plan, such as a change in the business criteria upon which
performance measures are based, the maximum amount of a Participant's bonus, or
a change in the class of Employees eligible to participate in the Plan.
NOT AN EMPLOYMENT CONTRACT
The Plan does not, and shall not be deemed to, constitute a contract of
employment between Charter One and any Participant. Nothing in the Plan confers
on any Employee the right to remain in the employment of Charter One or limits
the right of Charter One to discharge the Employee.
ALIENATION OF AWARD
Because participation in the Plan does not guarantee any award under the Plan,
any attempt by an Employee to sell, transfer, assign, pledge, or otherwise
encumber any anticipated award shall be void, and Charter One shall not be
liable in any manner for or subject to the debts, contracts, liabilities,
engagements, or torts of any person who might anticipate an award under the
Plan.
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APPROVAL BY SHAREHOLDERS
Notwithstanding any other provision of the Plan, the Plan is subject to, and
shall become effective only upon, approval by the Corporation's shareholders at
the meeting of shareholders on November 13, 1998.
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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law sets forth
circumstances under which directors, officers, employees and agents of Charter
One may be insured or indemnified against liability which they may incur in
their capacities as such:
Section 145. INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND
AGENTS; INSURANCE. (a) A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person 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 the person 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 shall have power to 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 present or former director or officer 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, such person he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person 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 present or
former 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, with respect to a
person who is a director or officer at the time of such determination, (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) by a committee of such
directors designated by majority vote of such directors even though less than a
quorum, or (3) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (4) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that such person is not entitled to be
indemnified by the corporation as authorized in this section. Such expenses
(including attorneys' fees) incurred by former directors and
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officers or other employees and agents may be so paid upon such terms and
conditions, if any, as the corporation 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 such
person's 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 such
person and incurred by such person in any such capacity, or arising out of such
person status as such, whether or not the corporation would have the power to
indemnify such person 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 such person 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 such person
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 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),
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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, 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 under the circumstances, a court may
order the Corporation to make indemnification pursuant to paragraphs A
or B of this Article TWELFTH.
II-3
<PAGE> 211
E. Advance of Costs, Charges and Expenses. Costs, charges and
expenses (including attorneys' fees and related disbursements) 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 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.
II-4
<PAGE> 212
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> 213
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) (' 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 by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other Items of the applicable form.
(d) 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 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.
II-6
<PAGE> 214
(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> 215
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 September 29, 1998.
CHARTER ONE FINANCIAL, INC.
By: /s/ Charles John Koch
---------------------
Charles John Koch, Chairman of the Board
and Chief Executive Officer
KNOWN BY ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Charles John Koch and Richard W. Neu, and
each of them, his true and lawful attorney-in-fact and agent, with full power of
substitution and re-substitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto, and all other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-facts and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all said
attorney-in-facts and agents or their substitutes or substitute may lawfully do
or cause to be done by virtue hereof.
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.
Signature
- ---------
<TABLE>
<S> <C>
/s/ Charles John Koch Date: September 29, 1998
- ---------------------
Charles John Koch
Director, President and
Chief Executive Officer
(Principal Executive Officer)
/s/ Richard W. Neu Date: September 29, 1998
- ------------------
Richard W. Neu
Director, Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ Eugene B. Carroll, Sr. Date: September 29, 1998
- --------------------------
Eugene B. Carroll, Sr.
Director
/s/ Phillip W. Fisher Date: September 29, 1998
- ---------------------
Phillip W. Fisher
Director
/s/ Denise M. Fugo Date: September 29, 1998
- ------------------
Denise M. Fugo
Director
/s/ Mark D. Grossi Date: September 29, 1998
- ------------------
Mark D. Grossi
Director
</TABLE>
<PAGE> 216
<TABLE>
<S> <C>
/s/ Charles M. Heidel Date: September 29, 1998
- ---------------------
Charles M. Heidel
Director
/s/ Charles F. Ipavec Date: September 29, 1998
- ---------------------
Charles F. Ipavec
Director
/s/ John D. Koch Date: September 29, 1998
- ----------------
John D. Koch
Director
/s/ Philip J. Meathe Date: September 29, 1998
- --------------------
Philip J. Meathe
Director
/s/ Michael P. Morley Date: September 29, 1998
- ---------------------
Michael P. Morley
Director
/s/ Henry R. Nolte, Jr. Date: September 29, 1998
- -----------------------
Henry R. Nolte, Jr.
Director
/s/ Ronald F. Poe Date: September 29, 1998
- --------------------
Ronald F. Poe
Director
/s/ Victor A. Ptak Date: September 29, 1998
- ------------------
Victor A. Ptak
Director
/s/ Melvin J. Rachal Date: September 29, 1998
- --------------------
Melvin J. Rachal
Director
/s/ Jerome L. Schostak Date: September 29, 1998
- ----------------------
Jerome L. Schostak
Director
</TABLE>
<PAGE> 217
<TABLE>
<S> <C>
/s/ Mark Shaevsky Date: September 29, 1998
- -----------------
Mark Shaevsky
Director
/s/ Leonard S. Simon Date: September 29, 1998
- --------------------
Leonard S. Simon
Director
Date:
- --------------------
John P. Tierney
Director
/s/ Eresteen R. Williams Date: September 29, 1998
- ------------------------
Eresteen R. Williams
Director
</TABLE>
<PAGE> 218
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- --------------------------
<S> <C>
2.1 Agreement and Plan of Merger and Reorganization by and among, Charter One, Charter One Bank,
CSFC and CSFC Bank, included as Annex A to the accompanying Proxy Statement/Prospectus filed
herewith.
3.1 Registrant's Certificate of Amendment of Second Restated Certificate of Incorporation, filed
on July 28, 1998 as Exhibit 3.1 to Registrant's Registration Statement on Form S-4 (File No.
333-60045), is incorporated herein by reference.
3.2 Registrant's Second Restated Certificate of Incorporation (since amended by Exhibit 3.1
above), filed on November 15, 1995 as Exhibit 4.1 to Registrant's Report on Form 8-K (File
No. 000-16311), is incorporated herein by reference.
3.3 Registrant's Bylaws, as amended and currently in effect, filed on August 8, 1997 as Exhibit
3.2 to Registrant's Registration Statement on Form S-4 (File No. 333-33169), is incorporated
herein by reference.
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 20, 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.
8.1 Tax Opinion and Consent of Silver, Freedman & Taff, L.L.P.
8.2 Tax Opinion and Consent of Cleary, Gottlieb, Steen & Hamilton
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, filed on August 8, 1997 as Exhibit 10.5 to Registrants Registration Statement
on Form S-4 (File No. 333-33169), are incorporated herein by reference.
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), are incorporated herein by reference.
</TABLE>
<PAGE> 219
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- --------------------------
<S> <C>
10.7 Amendments Number One through Seven to the Charter One Bank, F.S.B. Profit Sharing Plan,
filed on August 8,1997 as Exhibit 10.7 to the Registrant's Registration Statement on Form S-4
(File No. 333- 33169), are 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), is 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.
23.1 Consent of Deloitte & Touche LLP (as accountants for the Registrant)
23.2 Consent of KPMG Peat Marwick L.L.P. (as accountants for ALBANK Financial Corporation)
23.3 Consent of KPMG Peat Marwick L.L.P. (as accountants for RCSB Financial, Inc.)
23.4 Consent of Lehman Brothers, Inc.
23.5 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated
23.6 Consent of Silver, Freedman & Taff, L.L.P. (included in Exhibit 5).
99.1 Consents of Certain Persons Named as Directors in the Proxy Statement/Prospectus contained herein.
99.2 Form of Proxy Card of Charter One Financial, Inc.
99.3 Form of Proxy Card of ALBANK Financial Corporation
</TABLE>
<PAGE> 1
EXHIBIT 5
[Letterhead of Silver, Freedman & Taff]
September 29, 1998
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 33,000,000 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 (as amended) and (iii) records of the Company's corporate proceedings
relative to the issuance of the Common Stock.
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 issuance, against payment therefore as contemplated in the
Registration Statement and the Prospectus, legally issued, fully paid and
non-assessable.
<PAGE> 2
We consent to the use of this opinion and of our opinion regarding
federal income tax consequences, to the incorporation by reference of such
opinions as exhibits to the Registration Statement and to the reference to our
firm and our opinions 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.
--------------------------------------
Silver, Freedman & Taff, L.L.P.
<PAGE> 1
EXHIBIT 8.1
[Letterhead of Silver, Freedman & Taff]
August 28, 1998
Board of Directors
Charter One Financial, Inc.
1215 Superior Avenue
Cleveland, Ohio 44114
RE: FEDERAL INCOME TAX CONSEQUENCES ARISING FROM THE COMPANY MERGER
CONTEMPLATED BY THAT CERTAIN AGREEMENT AND PLAN OF MERGER BY AND
BETWEEN CHARTER ONE FINANCIAL, INC., CHARTER MICHIGAN BANCORP,
INC., AND ALBANK FINANCIAL CORPORATION DATED JUNE 15, 1998 (THE
"AGREEMENT)
Ladies and Gentlemen:
In connection with filings to be made by COFI with the SEC and other
Governmental Authorities, set forth hereinbelow is this firm's opinion relating
to certain federal income tax consequences applicable to the proposed Company
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. COFI's principal business consists of lending and
deposit taking activities through its subsidiary financial institution.
ALBANK is a stock corporation organized and existing under the laws of
the State of Delaware. ALBANK's principal business consists of lending and
deposit taking activities through its two financial institution subsidiaries.
Pursuant to the Agreement, it is proposed that the Company Merger will
be implemented through the merger of ALBANK with and into Charter Michigan. In
the Company Merger all of the outstanding ALBANK Common Stock will be exchanged
solely for COFI Common Stock or cash in lieu of fractional share interests.
<PAGE> 2
ASSUMPTIONS
A. The Company 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 ALBANK and COFI made in their respective tax
representation letters to counsel shall be true and correct as of the Effective
Time.
D. All of the stockholders of ALBANK are citizens or residents of the
United States of America ("U.S. Holders"). For purposes hereof, U.S. Holders do
not include certain classes of taxpayers including but not limited to foreign
persons, insurance companies, tax-exempt organizations, financial institutions,
dealers in securities, persons who acquired or acquire ALBANK Common Stock
pursuant to the exercise of employee stock options or otherwise as compensation
and persons who hold shares of ALBANK Common Stock in a hedging transaction or
as part of a straddle or conversion transaction.
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)(D) of the Code and COFI, Charter Michigan and ALBANK will each be a
party to the reorganization;
2. no gain or loss will be recognized by COFI as a result of the
consummation of the Company Merger;
3. except as provided in paragraph 4 below, no gain or loss will be
recognized by any U.S. Holder upon the exchange of all such U.S. Holder's ALBANK
Common Stock solely for COFI Common Stock in the Company Merger; the aggregate
adjusted tax basis of shares of COFI Common Stock (including a fractional share
interest in COFI Common Stock deemed received and redeemed as described below)
received by such U.S. Holder will be the same as the aggregate adjusted tax
basis of the shares of the ALBANK Common Stock exchanged therefor;
4. the holding period of the COFI Common Stock received by a U.S.
Holder in the Company Merger will include the holding period of the ALBANK
Common Stock surrendered and exchanged therefor, provided that such shares of
ALBANK Common Stock were held as a capital asset by such U.S. Holder at the
Effective Time; and
5. a U.S. Holder who receives cash in lieu of a fractional share
interest in COFI Common Stock in the Company Merger will be treated as having
received such fractional share interest and then as having received the cash in
redemption of such fractional share interest. Under Section 302 of the Code, if
such deemed distribution was "substantially disproportionate" with respect to
the U.S. Holder or was "not essentially equivalent to a dividend" after giving
effect to the constructive ownership rules of the Code, the U.S. Holder would
generally recognize capital gain or loss equal to the difference between the
amount of cash received and the U.S. Holder's
<PAGE> 3
adjusted tax basis in the fractional share interest (determined as described in
paragraph 2 above). Such capital gain or loss would be long-term capital gain or
loss if the U.S. Holder's holding period in a fractional share interest
(determined as described in paragraph 3 above) is more than one year. Long-term
capital gain of a non-corporate U.S. Holder is generally subject to a maximum
tax rate of 20% if the holding period exceeds one year.
The foregoing opinion reflects our legal judgment based upon the facts
and assumptions presented herein. This opinion has no official status or binding
effect of any kind. Accordingly, we cannot assure you that the IRS or any court
of competent jurisdiction will agree with this opinion.
We hereby consent to the filing of this letter with the SEC as an
exhibit to the Registration Statement and to all references made to this letter
in the Registration Statement.
Very truly yours,
/s/ Barry P. Taff, P.C.
-----------------------
SILVER, FREEDMAN & TAFF, L.L.P.
<PAGE> 1
Exhibit 8.2
[Letterhead of Cleary, Gottlieb, Steen & Hamilton]
September 30, 1998
ALBANK Financial Corporation
10 North Pearl Street
Albany, New York 12207
Ladies and Gentlemen:
You have requested our opinion regarding certain U.S. federal
income tax consequences of the proposed merger (the "Merger") of ALBANK
Financial Corporation, a Delaware corporation ("ALBANK"), with and into Charter
Michigan Bancorp, Inc. ("Charter Michigan"), a wholly owned first tier
subsidiary of Charter One Financial, Inc. ("COFI"), with Charter Michigan as the
surviving entity. The Merger is to be effected pursuant to the Agreement and
Plan of Merger dated as of June 15, 1998 by and between ALBANK, Charter
Michigan and COFI (the "Merger Agreement"). Defined terms used but not defined
herein have the same meaning as in the Merger Agreement.
In arriving at the opinions expressed below, we have examined and
relied on the accuracy and completeness of the facts, information, covenants and
representations contained in originals, or copies certified or otherwise
identified to our satisfaction, of:
(i) the Merger Agreement;
(ii) the Joint Proxy Statement of ALBANK and COFI and the
Prospectus of COFI filed with the Securities and Exchange Commission (the
"Commission") by COFI in a Registration Statement on Form S-4 (the "Registration
Statement") in connection with the Merger;
(iii) certificates and representations of officers and
representatives of COFI and ALBANK and such other persons as we have deemed
necessary or appropriate; and
(iv) such other documents as we have deemed necessary or
appropriate as a basis for the opinions expressed below.
<PAGE> 2
Without limiting the generality of the foregoing, in arriving
at the opinions expressed below, we have examined and relied, without
independent verification of the statements contained therein, on representation
letters from each of COFI, Charter Michigan and ALBANK regarding certain tax
matters, and we have assumed that the representations contained in the
foregoing letters are accurate and will be accurate as of the Effective Time.
In arriving at the opinions expressed below, we have also
assumed, without making any independent investigation, that all documents as
furnished to us are complete and authentic, that the signatures on all documents
are genuine, and that all such documents have been, or in the case of drafts,
will be, duly authorized, executed and delivered. We have further assumed that
the parties to the Merger will act, and the Merger will be effected, in
accordance with such documents. In addition we have made such other
investigations of law as we have deemed appropriate as a basis for the opinions
expressed below.
The opinions expressed below are based on the Internal Revenue
Code of 1986, as amended (the "Code"), and applicable regulations, rulings and
decisions, in each case as in effect on the date hereof, and may be affected by
amendments to the Code or to the regulations thereunder or by subsequent
judicial or administrative interpretations thereof.
We express no opinion as to the laws of any jurisdiction other
than the federal income tax laws of the United States.
Based upon and subject to the foregoing, it is our opinion that
for U.S. federal income tax purposes:
(a) The Merger will constitute a reorganization within the
meaning of section 368(a) of the Code;
(b) No gain or loss will be recognized by ALBANK as a result of
the consummation of the Merger;
(c) Except as provided in paragraph (e) below, no gain or loss
will be recognized by a holder of ALBANK Common Stock upon the exchange of all
such holder's ALBANK Common Stock solely for COFI Common Stock in the Merger,
and the aggregate adjusted tax basis of shares of COFI Common Stock (including a
fractional share interest in COFI Common Stock deemed received and redeemed as
described below) received by such holder will be the same as the aggregate
adjusted tax basis of the shares of ALBANK Common Stock exchanged therefor;
(d) The holding period of the shares of COFI Common Stock
received by a holder of ALBANK Common Stock in the Merger will include the
holding period of the shares of ALBANK Common Stock surrendered and exchanged
therefor, provided that such shares of ALBANK Common Stock were held as a
capital asset by such stockholder at the Effective Time; and
<PAGE> 3
(e) A holder of ALBANK Common Stock who receives cash in lieu of
a fractional share interest in COFI Common Stock in The Merger will be treated
as having received such fractional share interest and then as having received
the cash in redemption of such fractional share interest. Under section 302 of
the Code, if such deemed distribution were "substantially disproportionate" with
respect to such holder or were "not essentially equivalent to a dividend" after
giving effect to the constructive ownership rules of the Code, the holder would
generally recognize capital gain or loss equal to the difference between the
amount of cash received and the holder's adjusted tax basis in the fractional
share interest (determined as described in paragraph (c) above). Such capital
gain or loss would be long-term capital gain or loss if the holder's holding
period in a fractional share interest (determined as described in paragraph (d)
above) were more than one year. Long-term capital gain of a non-corporate
stockholder is generally subject to a maximum tax rate of 20% if the holding
period exceeds one year.
The opinions expressed in paragraphs (c), (d) and (e) above apply
only to holders of ALBANK Common Stock who are (i) citizens or residents of the
United States, (ii) domestic corporations or (iii) otherwise subject to U.S.
federal income tax on a net income basis and are not insurance companies,
tax-exempt organizations, financial institutions, dealers in securities, or
other persons subject to taxation under special rules, persons who acquired or
acquire ALBANK Common Stock pursuant to the exercise of employee stock options
or otherwise as compensation or persons who hold shares of ALBANK Common Stock
in a hedging transaction or as part of a straddle or conversion transaction.
We hereby consent to the filing of this letter with the
Commission as an exhibit to the Registration Statement and to all references
made to this letter in the Registration Statement; provided, however, that in
giving such consent we do not admit that we are an expert with respect to any
part of the Registration Statement within the meaning of the term "expert" as
used in the Securities Act or the rules and regulations of the Commission
thereunder.
Very truly yours,
CLEARY, GOTTLIEB, STEEN & HAMILTON
By: /s/ James M. Peaslee
----------------------------
James M. Peaslee, a Partner
<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 27, 1998
(which expresses an unqualified opinion and refers to the report of other
auditors on the consolidated financial statements of RCSB Financial, Inc. which
was merged with Charter One Financial, Inc.), appearing in the Annual Report on
Form 10-K of Charter One Financial, Inc. for the year ended December 31, 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
September 23, 1998
<PAGE> 1
EXHIBIT 23.2
[Letterhead of KPMG Peat Marwick LLP]
ACCOUNTANTS' CONSENT
The Board of Directors
ALBANK Financial Corporation
We consent to the incorporation by reference in the registration statement on
Form S-4 of Charter One Financial (relating to the merger of Charter One
Financial and ALBANK Financial Corporation) of our report dated January 30,
1998, with respect to the consolidated statements of financial condition of
ALBANK Financial Corporation as of December 31, 1997, and the related
consolidated statements of earnings, changes in stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1997,
which report appears in the December 31, 1997, annual report on Form 10-K of
ALBANK Financial Corporation.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Albany, New York
September 23, 1998
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Charter One Financial, Inc.:
We consent to incorporation by reference in 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
Joint Proxy Statement/Prospectus.
/s/ KPMG Peat Marwick, LLP
September 23, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF LEHMAN BROTHERS
We hereby consent to the use of our opinion letter dated June 14, 1998
to the Board of Directors of Charter One Financial, Inc. (the "Company")
attached as Annex B to the Company's Joint Proxy Statement/Prospectus on Form
S-4 (the "Prospectus") and to the references to our firm in the Prospectus under
the headings "THE MERGER - Opinion of Charter One's Financial Advisor." In
giving such consent, we do not admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange Commission
thereunder and we do not thereby admit that we are experts with respect to any
part of the Registration Statement under the meaning of the term "expert" as
used in the Securities Act.
LEHMAN BROTHERS INC.
By: /s/Sanjiv Sobti
---------------------
Sanjiv Sobti
New York, New York
September 25, 1998
<PAGE> 1
EXHIBIT 23.5
[Letterhead of Merrill Lynch]
We hereby consent to the inclusion of our undated form of opinion
letter to the Board of Directors of ALBANK Financial Corporation as Annex C to
the Joint Proxy Statement/Prospectus which forms a part of the Registration on
Form S-4 relating to the proposed merger of ALBANK Financial Corporation with
and into Charter-Michigan Bancorp, Inc. and to the references to such opinion in
such Joint Proxy Statement/Prospectus. In giving such consent, we do not admit
that we come within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder, not do we
thereby admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities
Act, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
/s/Merrill Lynch, Pierce, Fenner & Smith, Incorporated
MERRILL LYNCH, PIERCE, FENNER & SMITH, INCORPORATED
September 29, 1998
<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/ Herbert G. Chorbajian
-------------------------
Dated: July 22, 1998
-------------------
Herbert G. Chorbajian
By: /s/ Karen R. Hitchcock
-------------------------
Dated: July 27, 1998
-------------------
Karen R. Hitchcock
<PAGE> 1
EXHIBIT 99.2
REVOCABLE PROXY
CHARTER ONE FINANCIAL, INC.
SPECIAL MEETING OF STOCKHOLDERS
_______ __, 1998
The undersigned hereby appoints the Board of Directors of Charter One
Financial, Inc. ("Charter One"), and its survivor, with full power of
substitution, to act as attorneys and proxies for the undersigned to vote all
shares of common stock of Charter One which the undersigned is entitled to vote
at Charter One's Special Meeting of Stockholders (the "Meeting"), to be held on
________, _______ __, 1998, at ___________________________________________,
located at __________________, ___________, Ohio at __:__ _.m., local time, and
at any and all adjournments and postponements thereof, as follows:
1. The approval of the issuance of shares of Charter One common stock,
which includes shares to be reserved for issuance in connection with
the conversion of certain ALBANK Financial Corporation ("ALBANK") stock
options into Charter One stock options (the "Charter One Share
Issuance"), in connection with the Agreement and Plan of Merger, dated
as of June 15, 1998, by and between Charter One, Charter-Michigan
Bancorp, Inc. and ALBANK.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. The adoption of an amendment to the Charter One Second Restated and
Amended Certificate of Incorporation increasing the authorized number
of shares of common stock from 180,000,000 to 360,000,000.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. The approval of the Charter One Top Executive Incentive Goal
Achievement Plan.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
In their discretion, the proxies are authorized to vote on any other
business that may properly come before the Meeting or any adjournment or
postponement thereof.
The Board of Directors recommends a vote "FOR"
each of the proposals listed above.
<PAGE> 2
- --------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR EACH OF THE PROPOSALS LISTED ABOVE. IF ANY OTHER
BUSINESS IS PRESENTED AT THE MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN
THIS PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS
KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
- --------------------------------------------------------------------------------
<PAGE> 3
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
This proxy may be revoked at any time before it is voted by: (i) filing
with the Secretary of Charter One at or before the Meeting a written notice of
revocation bearing a later date than this proxy; (ii) duly executing a
subsequent proxy relating to the same shares and delivering it to the Secretary
of Charter One at or before the Meeting; or (iii) attending the Meeting and
voting in person (although attendance at the Meeting will not in and of itself
constitute revocation of this proxy). If this proxy is properly revoked as
described above, then the power of such attorneys and proxies shall be deemed
terminated and of no further force and effect.
The undersigned acknowledges receipt from Charter One, prior to the
execution of this proxy, of Notice of the Meeting and a Joint Proxy
Statement/Prospectus.
Dated:
--------------------- ------------------------------------
PRINT NAME OF STOCKHOLDER
------------------------------------
SIGNATURE OF STOCKHOLDER
------------------------------------
PRINT NAME OF STOCKHOLDER
------------------------------------
SIGNATURE OF STOCKHOLDER
Please sign exactly as your name
appears on this card. When signing
as attorney, executor,
administrator, trustee or guardian,
please give your full title. If
shares are held jointly, each
holder should sign.
---------------------------------------------------------------------------
PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS PROXY IN
THE ENCLOSED POSTAGE-PAID ENVELOPE
---------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 99.3
REVOCABLE PROXY
ALBANK FINANCIAL CORPORATION
SPECIAL MEETING OF STOCKHOLDERS
_______ __, 1998
The undersigned hereby appoints the Board of Directors of ALBANK
Financial Corporation ("ALBANK"), and its survivor, with full power of
substitution, to act as attorneys and proxies for the undersigned to vote all
shares of common stock of ALBANK which the undersigned is entitled to vote at
ALBANK's Special Meeting of Stockholders (the "Meeting"), to be held on
________, _______ __, 1998, at ___________________________________________,
located at __________________, ___________, New York at __:__ _.m., local time,
and at any and all adjournments and postponements thereof, as follows:
The adoption of the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of June 15, 1998, by and between Charter
One Financial, Inc., Charter-Michigan Bancorp, Inc. and
ALBANK.
[ ] FOR [ ] AGAINST [ ]
ABSTAIN
In their discretion, the proxies are authorized to vote on any other
business that may properly come before the Meeting or any adjournment or
postponement thereof.
The Board of Directors recommends a vote "FOR"
adoption of the Merger Agreement.
- --------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR ADOPTION OF THE MERGER AGREEMENT. IF ANY OTHER BUSINESS
IS PRESENTED AT THE MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS
PROXY IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS
OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
- --------------------------------------------------------------------------------
<PAGE> 2
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
This proxy may be revoked at any time before it is voted by: (i) filing
with the Secretary of ALBANK at or before the Meeting a written notice of
revocation bearing a later date than this proxy; (ii) duly executing a
subsequent proxy relating to the same shares and delivering it to the Secretary
of ALBANK at or before the Meeting; or (iii) attending the Meeting and voting in
person (although attendance at the Meeting will not in and of itself constitute
revocation of this proxy). If this proxy is properly revoked as described above,
then the power of such attorneys and proxies shall be deemed terminated and of
no further force and effect.
The undersigned acknowledges receipt from ALBANK, prior to the
execution of this proxy, of Notice of the Meeting and a Joint Proxy
Statement/Prospectus.
Dated:
--------------------- ------------------------------------
PRINT NAME OF STOCKHOLDER
------------------------------------
SIGNATURE OF STOCKHOLDER
------------------------------------
PRINT NAME OF STOCKHOLDER
------------------------------------
SIGNATURE OF STOCKHOLDER
Please sign exactly as your name
appears on this card. When signing
as attorney, executor,
administrator, trustee or guardian,
please give your full title. If
shares are held jointly, each
holder should sign.
---------------------------------------------------------------------------
PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS PROXY IN
THE ENCLOSED POSTAGE-PAID ENVELOPE
---------------------------------------------------------------------------
