<PAGE> 1
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SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
CHARTER ONE FINANCIAL, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CHARTER ONE FINANCIAL, INC.
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
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<PAGE> 2
[CHARTER ONE LOGO]
CHARTER ONE FINANCIAL, INC.
1215 Superior Avenue
Cleveland, Ohio 44114
(216) 566-5300
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY, APRIL 21, 1999
------------------------
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Shareholders of
Charter One Financial, Inc. will be held on Wednesday, April 21, 1999 at 2:00
p.m. local time, at the Forum Conference Center, 1375 East Ninth Street,
Cleveland, Ohio, for the following purposes:
1. To elect seven directors each for a three-year term (Proposal 1);
2. To ratify the appointment by the Board of Directors of the firm of
Deloitte & Touche LLP as independent auditors of Charter One for the
fiscal year ending December 31, 1999 (Proposal 2); and
3. To transact such other business as may properly come before the meeting
or any adjournments thereof.
The Board of Directors has fixed the close of business on March 2, 1999 as
the record date for the determination of shareholders entitled to notice of and
to vote at the annual meeting. A complete list of shareholders entitled to vote
at the annual meeting will be available for inspection by shareholders at the
executive offices of Charter One Financial, Inc. during the 10 days prior to the
annual meeting, as well as at the annual meeting. Only holders of common stock
of record at the close of business on March 2, 1999 will be entitled to notice
of and to vote at the annual meeting or any adjournment thereof. In the event
that there are not sufficient votes to approve any one or more of the foregoing
proposals at the time of the annual meeting, the annual meeting may be adjourned
to permit further solicitation of proxies by Charter One.
By Order of the Board of Directors
/s/ Charles John Koch
Charles John Koch
Chairman of the Board, President
and Chief Executive Officer
Cleveland, Ohio
March 26, 1999
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT YOU
PLAN TO BE PRESENT IN PERSON AT THE ANNUAL MEETING, PLEASE SIGN, DATE AND
COMPLETE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE> 3
CHARTER ONE FINANCIAL, INC.
1215 Superior Avenue
Cleveland, Ohio 44114
(216) 566-5300
------------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
APRIL 21, 1999
This Proxy Statement is furnished to shareholders of Charter One Financial,
Inc., a Delaware corporation, in connection with the solicitation by the Board
of Directors of Charter One of proxies to be used at the 1999 Annual Meeting of
Shareholders and any adjournments thereof. The Annual Meeting of Shareholders
will be held on April 21, 1999 at 2:00 p.m. local time, at the Forum Conference
Center, 1375 East Ninth Street, Cleveland, Ohio. This Proxy Statement is being
mailed to shareholders on or about March 26, 1999.
SOLICITATION AND REVOCABILITY OF PROXIES
Proxies are solicited to provide all shareholders of record on the voting
record date an opportunity to vote on matters scheduled for the annual meeting
and described in these materials. Shares of common stock can only be voted if
the shareholder is present in person at the annual meeting or by proxy. Shares
of common stock represented by properly executed proxies will be voted by the
individuals named in such proxy in accordance with the shareholder's
instructions. Where properly executed proxies are returned to Charter One with
no specific instruction as how to vote at the annual meeting, the persons named
in the proxy will vote the shares FOR Proposal 1 to elect the nominees of the
Board of Directors as directors and FOR Proposal 2 to ratify the appointment of
Deloitte & Touche LLP as independent auditors of Charter One for the year ending
December 31, 1999. Should any other matters be properly presented at the annual
meeting for action, the persons named in the enclosed proxy and acting
thereunder will have the discretion to vote on such matters in accordance with
their best judgment.
Any person giving a proxy may revoke it at any time before it is voted by
delivering to Robert J. Vana, Secretary of Charter One, at the company's
address, a written revocation or a proxy bearing a later date. Shareholders may
also revoke their proxies by attending the annual meeting in person and casting
a ballot. Attendance at the meeting will not in itself constitute the revocation
of a proxy.
Charter One will pay the costs of soliciting proxies. Charter One will
reimburse brokerage firms and other custodians, nominees and fiduciaries for
reasonable expenses incurred by them in sending proxy materials to the
beneficial owners of common stock. Charter One may engage a proxy soliciting
firm to assist in the solicitation of proxies at a cost of approximately $7,500.
In addition to solicitation by mail, directors, officers and employees of
Charter One may solicit proxies personally or by facsimile, telegraph or
telephone, without additional compensation.
OUTSTANDING VOTING SECURITIES
Shareholders of record as of the close of business on March 2, 1999 will be
entitled to notice of and to vote at the annual meeting. As of March 2, 1999,
Charter One had 165,792,053 shares of common stock issued and outstanding. Each
shareholder of record on March 2, 1999 is entitled to one vote per share on each
matter to be voted on at the annual meeting. Such vote may be exercised in
person or by a properly executed proxy as discussed above.
The presence, in person or by proxy, of at least the majority of the total
number of outstanding shares of common stock entitled to vote at the annual
meeting is necessary to constitute a quorum at the annual meeting. A quorum is
the number of shares of common stock required to permit Charter One to transact
the business specified in its Notice of Annual Meeting and described further in
this Proxy Statement. Abstentions, which may be specified on all proposals
except the election of directors, will be counted as votes cast on a particular
matter as well as shares present and represented for purposes of establishing a
quorum. Broker nonvotes (i.e., proxies from brokers or nominees indicating that
such persons have not received instructions from the beneficial owners or other
persons as to certain proposals on which such beneficial owners or persons are
entitled to vote their shares but with respect to which the brokers or nominees
have no discretionary power to vote without such instructions) will not be
treated as votes cast on a particular matter but will be treated as shares
present or represented for purposes of establishing a quorum.
1
<PAGE> 4
Listed on the following tables is information, as of the March 2, 1999
voting record date, regarding share ownership of: (i) those persons or entities
known by management to beneficially own more than five percent of Charter One's
common stock, (ii) each current member of the Charter One Board of Directors,
(iii) each executive officer of Charter One named in the Summary Compensation
Table appearing under "Executive Compensation," below and (iv) all current
directors and executive officers of Charter One as a group. The address of each
of the beneficial owners, except where otherwise indicated, is the same address
as Charter One. An asterisk (*) in the table indicates that an individual
beneficially owns less than one percent of the outstanding common stock of
Charter One.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF SHARES
NAME AND ADDRESS OF OF BENEFICIAL OF COMMON STOCK
BENEFICIAL OWNER OWNERSHIP OUTSTANDING
------------------- ----------------- -----------------
<S> <C> <C>
FMR Corporation............................................. 10,416,665(1) 6.28%
82 Devonshire Street
Boston, MA 02109
</TABLE>
- ---------------
(1) Included are 1,247,211 shares as to which the reporting party has sole power
to vote and no shares as to which shared voting may be exercised. The
reporting party has sole power to dispose of the entire 10,416,665 shares.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF SHARES
NAME OF OF BENEFICIAL OF COMMON STOCK
BENEFICIAL OWNER OWNERSHIP(1)(2) OUTSTANDING
---------------- ----------------- -----------------
<S> <C> <C>
Charles John Koch, Chairman of the Board, President and 1,064,181(3) *
Chief Executive Officer
Mark D. Grossi, Director and Executive Vice President 586,400(4) *
John D. Koch, Director and Executive Vice President 693,087(5) *
Richard W. Neu, Director, Executive Vice President and Chief 716,336(6) *
Financial Officer
Robert J. Vana, Senior Vice President, Chief Corporate 275,793(7) *
Counsel and Secretary
Eugene B. Carroll, Sr., Director 16,290(8) *
Herbert G. Chorbajian, Director 1,362,226(9) *
Phillip Wm. Fisher, Director 1,512,826(10) *
Denise M. Fugo, Director 17,723(11) *
Charles M. Heidel, Director 20,056(12) *
Karen R. Hitchcock, Ph.D., Director 13,834(13) *
Michael P. Morley, Director 12,127(14) *
Henry R. Nolte, Jr., Director 25,698(15) *
Ronald F. Poe, Director 19,204(16) *
Victor A. Ptak, Director 33,588(17) *
Melvin J. Rachal, Director 4,130(18) *
Jerome L. Schostak, Director 3,459,625(19) 2.09%
Mark Shaevsky, Director 77,319(20) *
Leonard S. Simon, Director 603,273(21) *
John P. Tierney, Director 9,749(22) *
Eresteen R. Williams, Director 14,720(23) *
All executive officers and directors as a group (23 persons) 10,886,909(24) 6.43%
</TABLE>
- ---------------
(1) Unless otherwise indicated, each beneficial owner listed above has
represented that he, she or it possesses sole voting and sole investment
power with respect to the shares beneficially owned by such person, entity
or group. Included are shares owned through trusts or corporations, or by
spouses and minor children, as to which the beneficial owner exercises sole
voting and investment power. The number of shares shown as beneficially
owned by such person, entity or group includes all shares issuable upon the
exercise of stock options currently exercisable or exercisable within 60
days of the March 2, 1999 voting record date.
(2) As to the executive officers of Charter One listed in the table, included
are shares allocated to such executive officers under the Charter One
Retirement Savings Plan. Shares held under the Plan are reported as of
December 31, 1997 since the Plan allocation for December 31, 1998 will not
be completed until April 1999. Shares allocated to the executive officers
under Charter One's other stock-based benefit plans are reported as of
December 31, 1998.
2
<PAGE> 5
(3) Includes 476,557 shares of common stock issuable upon exercise of Mr.
Charles John Koch's stock options.
(4) Includes 294,038 shares of common stock issuable upon exercise of Mr.
Grossi's stock options.
(5) Includes 317,229 shares of common stock issuable upon exercise of Mr. John
D. Koch's stock options.
(6) Includes 654,026 shares of common stock issuable upon exercise of Mr. Neu's
stock options.
(7) Includes 152,808 shares of common stock issuable upon exercise of Mr.
Vana's stock options.
(8) Includes 3,500 shares of common stock issuable upon exercise of Mr.
Carroll's stock options.
(9) Includes 917,179 shares of common stock issuable upon exercise of Mr.
Chorbajian's stock options.
(10) Includes 3,472 shares of common stock issuable upon exercise of Mr.
Fisher's stock options and 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) Includes 3,500 shares of common stock issuable upon exercise of Ms. Fugo's
stock options.
(12) Includes 13,918 shares of common stock issuable upon exercise of Mr.
Heidel's stock options.
(13) Includes 13,608 shares of common stock issuable upon exercise of Dr.
Hitchcock's stock options.
(14) Includes 7,507 shares of common stock issuable upon exercise of Mr.
Morley's stock options.
(15) Includes 13,918 shares of common stock issuable upon exercise of Mr.
Nolte's stock options.
(16) Includes 11,523 shares of common stock issuable upon exercise of Mr. Poe's
stock options.
(17) Includes 10,918 shares of common stock issuable upon exercise of Mr. Ptak's
stock options.
(18) Includes 3,500 shares of common stock issuable upon exercise of Mr.
Rachal's stock options.
(19) Includes 13,918 shares of common stock issuable upon exercise of Mr.
Schostak's stock options.
(20) Includes 13,918 shares of common stock issuable upon exercise of Mr.
Shaevsky's stock options.
(21) Includes 311,677 shares of common stock issuable upon exercise of Mr.
Simon's stock options.
(22) Includes 5,499 shares of common stock issuable upon exercise of Mr.
Tierney's stock options.
(23) Includes 13,918 shares of common stock issuable upon exercise of Ms.
Williams' stock options.
(24) Includes 3,505,011 shares of common stock issuable upon exercise of the
directors' and executive officers' stock options.
3
<PAGE> 6
PROPOSAL 1 -- ELECTION OF DIRECTORS
Seven directors will be elected at the annual meeting, each for a
three-year term. Unless otherwise specified on the proxy, it is the intention of
the persons named in the proxy to vote the shares represented by each properly
executed proxy for the election as directors of the persons named below as
nominees. Directors are elected by a plurality of the votes of the shares
present in person or represented by proxy at a meeting and entitled to vote on
the election of directors. Votes may be cast in favor of or withheld from each
nominee; votes that are withheld will be excluded entirely from the vote and
will have no effect on the outcome of the election of directors. If any of the
persons nominated by the Board of Directors is unable to serve, the shares
represented by proxies will be voted for the election of such other persons as
the Board of Directors may recommend, or the size of the Board may be reduced to
eliminate the vacancy. At this time, the Board knows of no reason why the
nominees might be unable to serve if elected. Except as disclosed in the Proxy
Statement, there are no arrangements or understandings between the nominees and
any other person pursuant to which the nominees were selected. See "Corporate
Governance and Other Matters" for information on conditions relating to the
election of directors of Charter One.
INFORMATION AS TO NOMINEES AND CONTINUING DIRECTORS
Charter One is the parent holding company of Charter Michigan Bancorp,
Inc., which is the parent company of Charter One Bank, F.S.B. In 1995, Charter
One completed a merger with FirstFed Michigan Corporation and its principal
subsidiary First Federal of Michigan. In 1997, Charter One acquired RCSB
Financial, Inc. and its principal subsidiary Rochester Community Savings Bank.
In 1998, Charter One acquired ALBANK Financial Corporation and its principal
subsidiaries ALBANK Savings F.S.B. and ALBANK Commercial.
The following tables set forth the names of the Board of Directors'
nominees for election as a director and those directors who will continue to
serve after the Annual Meeting. Also set forth is certain other information with
respect to each person's age at December 31, 1998, principal occupation or
employment during the past five years, the date the individual first became a
director of Charter One, FirstFed, RCSB, or ALBANK and, if applicable, positions
currently held with Charter One.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FIRST BECAME
NAME OR EMPLOYMENT AGE A DIRECTOR
---- -------------------- --- ------------
<S> <C> <C> <C>
Nominees for Terms Ending in 2002
Herbert G. Chorbajian Vice Chairman of Charter One since the ALBANK 60 1985
merger; Chairman of the Board and Chief
Executive Officer of ALBANK prior to its merger
with Charter One
Charles M. Heidel Retired President and Chief Operating Officer of 73 1980
The Detroit Edison Company, a public utility in
Detroit, Michigan
Richard W. Neu Executive Vice President and Chief Financial 42 1992
Officer of Charter One; Treasurer of FirstFed
prior to its merger with Charter One
Victor A. Ptak Vice President of Investments, Everen 66 1989
Securities, an investment advisor firm in
Cleveland, Ohio; through June 1998 was general
partner, manager of J.C. Bradford & Co., L.P.A.,
an investment banking firm in Cleveland, Ohio
Melvin J. Rachal President and Chief Operating Officer since 49 1998
1995, Midwest Stamping, Inc., an automotive
supplier in Bowling Green, Ohio; Vice President
from 1991 to 1995 of TRW/Koyo Seiko Steering
Company, Inc., an automotive supplier in
Knoxville, Tennessee
Leonard S. Simon Vice Chairman of Charter One since the RCSB 61 1984
merger; Chairman of the Board and Chief
Executive Officer of RCSB prior to its merger
with Charter One
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FIRST BECAME
NAME OR EMPLOYMENT AGE A DIRECTOR
---- -------------------- --- ------------
<S> <C> <C> <C>
Eresteen R. Williams Retired Medical Office Manager for D.G. 73 1979
Williams, Jr., M.D., P.C., a medical practice in
Detroit, Michigan
Continuing Directors Whose Terms End in 2001
Eugene B. Carroll, Sr. President, Employer Sponsored Plans, Inc., a 74 1975
third-party health plan administrator in
Cleveland, Ohio, and agent for New England
Mutual Life Insurance Co.
Denise M. Fugo President of City Life Inc., a restaurant, 45 1993
banquet and catering company in Cleveland, Ohio
Charles John Koch(1) Chairman of the Board, President and Chief 52 1973
Executive Officer of Charter One
Henry R. Nolte, Jr. Of Counsel to Miller, Canfield, Paddock and 74 1983
Stone, a law firm headquartered in Detroit,
Michigan; senior partner at Miller, Canfield
from 1989 to 1993; retired Vice
President/General Counsel of Ford Motor Company,
a vehicle manufacturer headquartered in
Dearborn, Michigan
Ronald F. Poe Senior advisor of Legg Mason Dorman & Wilson, 60 1988
Inc., a real estate investment banking firm in
White Plains, New York; retired as Chairman and
Chief Executive in August 1998; Director of
Freddie Mac
Jerome L. Schostak Vice Chairman of Charter One since the FirstFed 65 1985
merger; Chairman of the Board and Chief
Executive Officer of Schostak Brothers &
Company, Inc., a full service real estate
company in Southfield, Michigan
Mark Shaevsky Partner in Honigman Miller Schwartz and Cohn, a 63 1985
law firm headquartered in Detroit, Michigan
Continuing Directors Whose Terms End in 2000
Phillip Wm. Fisher Chairman of the Board of Directors of Durakon 47 1997
Industries, an automotive parts supplier in
Lapeer, Michigan; Principal of The Fisher Group,
an investment management firm in Detroit,
Michigan; Partner in The Chase Company, a
residential real estate development firm in
Bloomfield Hills, Michigan; General Partner in
Edcor Data Services, a data services firm in
Farmington Hills, Michigan
Mark D. Grossi Executive Vice President of Charter One; 45 1995
Director of Pacific Gateway Properties, a real
estate company in San Francisco, California;
Director of J.B. Oxford Holdings, Inc., a
discount broker in Beverly Hills, California;
Director of Meridian Point Realty Trust '83, a
company in San Francisco, California which holds
interests in income producing real estate
Karen R. Hitchcock, Ph.D. President of the University at Albany, Albany, 55 1996
New York, since 1996; Vice President of Academic
Affairs from 1991 to 1996, serving as interim
President until appointed President in April
1996
John D. Koch(1) Executive Vice President of Charter One 46 1995
Michael P. Morley Senior Vice President and Director of Human 55 1995
Resources of Eastman Kodak Company of Rochester,
New York
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FIRST BECAME
NAME OR EMPLOYMENT AGE A DIRECTOR
---- -------------------- --- ------------
<S> <C> <C> <C>
John P. Tierney Retired Chairman and Chief Executive Officer of 67 1996
Chrysler Financial Corporation; Director of
ContiFinancial Corporation, a consumer and
commercial finance company located in New York,
New York; Director of Dollar Thrifty Automotive
Group, a car rental company headquartered in
Tulsa, Oklahoma
</TABLE>
- ---------------
(1) Messrs. Charles John Koch and John D. Koch are brothers.
CORPORATE GOVERNANCE AND OTHER MATTERS
The Charter One Board acts as the nominating committee for selecting
nominees for election as directors. Although the Board will consider nominees
recommended by shareholders, it has not established any procedures for this
purpose. Directors Chorbajian and Hitchcock were appointed to their respective
class and position on the Charter One Board pursuant to the terms of the merger
agreement between Charter One and ALBANK. Mr. Chorbajian was appointed to the
Charter One Board to serve for a term ending April 1999 with the understanding
that he would be included as a director nominee at this year's annual meeting.
Charter One has also agreed to take all reasonable steps, subject to receipt of
any required regulatory approvals, to cause John J. Nigro to be elected to the
Charter One Board on or before November 30, 1999. Mr. Nigro was a director of
ALBANK prior to its merger with Charter One. Directors Simon, Morley, Poe and
Tierney were appointed to their respective class and position on the Charter One
Board pursuant to the terms of the merger agreement between Charter One and
RCSB.
Furthermore, the Charter One Bylaws require that until October 31, 1999,
the 16 member board of directors which resulted from the FirstFed merger consist
of an equal number of pre-FirstFed merger directors of Charter One ("Charter One
Initial Directors") and FirstFed ("FirstFed Initial Directors"). Any vacancy
with respect to these Board seats is to be filled based on the recommendation of
(i) the Charter One Initial Directors in the case of a departing Charter One
Initial Director and (ii) the FirstFed Initial Directors in the case of a
departing FirstFed Initial Director. An additional condition of the FirstFed
merger agreement stipulates that until October 31, 1999 Charles John Koch and
Jerome L. Schostak serve as Chairman and as a Vice Chairman, respectively, of
the Board of Directors.
The Charter One Board has a standing Audit Committee. The Audit Committee
recommends independent auditors to the Board, reviews the scope and results of
the auditors' services, reviews with management and the independent auditors the
systems of internal control and audit and ensures that the books and records of
Charter One are kept in accordance with generally accepted accounting
principles. The members of the Audit Committee currently are Directors Shaevsky
(Chairman), Carroll, Hitchcock, Rachal, Tierney, and Williams. In 1998, the
Audit Committee met seven times.
The Charter One Board has a standing Stock Option Committee which
administers its stock option plans. The Board also has a separate committee
which administers the Charter One Top Executive Incentive Goal Achievement Plan
("TEIGAP"), which was adopted by the Board and approved by shareholders in
October 1998. The members of these two committees are identical and consist of
Directors Morley (Chairman), Fugo, Heidel, Nolte, Fisher and Ptak. In addition,
Charter One has a Compensation Committee to administer all other compensation
matters. The members of the Board's Compensation Committee consists of all of
the members of the Stock Option and TEIGAP Committees, as well as Directors
Carroll and Schostak. In 1998, the Stock Option Committee met seven times, the
TEIGAP Committee met one time and the Compensation Committee met nine times.
In 1998, Charter One held 12 meetings of the Board of Directors. No
incumbent director attended fewer than 75% of the aggregate of the total number
of meetings held by the Board of Directors and the total number of meetings held
by all committees of the Board on which he or she served during the period that
he or she served.
COMPENSATION OF DIRECTORS
The Boards of Directors of Charter One, its wholly owned subsidiary Charter
Michigan, and Charter Michigan's wholly owned subsidiary, Charter One Bank, have
identical membership. Each director who is not an employee of Charter One or its
subsidiaries received, in the aggregate, a $1,950 monthly retainer for his or
her service as a director on these Boards. In addition, each of these
non-employee directors received: (i) $1,200 for each Charter One Bank Board
meeting attended and (ii) $300 per month for each Charter One Bank Board
committee they served on, except for the loan committee members who received
$500 per month and the chairmen of the Compensation and Audit
6
<PAGE> 9
Committees, who each received $600 per month. Non-employee directors did not
receive any fees for their service on Charter One or Charter Michigan Board
committees on which they served. Directors who were employed by Charter One or
its subsidiaries did not receive fees for their service on these Boards or for
any Board committees on which they served.
In addition to the Board fees described above, non-employee directors
participate in Charter One's 1997 Stock Option and Incentive Plan, pursuant to
which they may be granted options annually to purchase up to 10,500 shares of
Charter One common stock. On January 21, 1998, Directors Carroll, Fugo, Heidel,
Nolte, Ptak, Schostak, Shaevsky, Williams and Simon were each granted options to
purchase 10,500 shares of Charter One common stock at an exercise price of
$27.083 per share. On March 20, 1998, Director Rachal, as a new member of the
Charter One, Charter Michigan and Charter One Bank Boards, received an option to
purchase 10,500 shares of Charter One common stock at an exercise price of
$31.249. The options are exercisable for a period of 10 years and vest equally
over three years from the date of grant.
During 1998, Director Schostak also received $12,438 per month for services
rendered as a Vice Chairman of the Board of Directors. Additionally, Mr.
Schostak is Chairman and Chief Executive Officer of Schostak Brothers & Company,
Inc. which has provided lease management and real estate brokerage services to
Charter One and its subsidiaries. During 1998, Schostak Brothers & Company, Inc.
received from Charter One and its subsidiaries fees and commissions in the
amount of $354,400 for services rendered.
Director Simon, who serves as a Vice Chairman of the Board and as an
employee of Charter One, received $38,492 per month pursuant to his employment
agreement with Charter One. His agreement provides for a four-year term ending
October 3, 2001, and for other benefits as provided to similarly situated
officers. Mr. Simon, however, is not entitled to participate in any cash
incentive bonus programs or any stock or stock option plans, except in his
capacity as a non-employee director. Furthermore, in the event of a change in
control of Charter One where Charles John Koch will not continue to serve as
Chief Executive Officer of Charter One or its successor, Mr. Simon will have the
right to discontinue rendering services under his employment agreement and (i)
to receive a lump sum cash payment equal to the remaining annual compensation
that otherwise would be payable to him under the stated terms of his agreement
and (ii) to continue to receive during the remaining term of his agreement the
health and medical benefits set forth thereunder.
Director Chorbajian also serves as a Vice Chairman of the Board and is an
employee of Charter One. Mr. Chorbajian's employment agreement commenced on
November 30, 1998, the effective date of the ALBANK merger, and terminates on
September 30, 2003. He received $36,842 per month during 1998 pursuant to his
employment agreement with Charter One, as well as other benefits provided to
similarly situated officers. Mr. Chorbajian, however, is not entitled to
participate in any cash incentive bonus programs or any stock plans, except as
expressly set forth in his agreement. Mr. Chorbajian's employment agreement
specifically entitles him to receive stock option grants on the same basis and
terms as options awarded to similarly situated officers of Charter One, except
that (i) grants shall provide for three-year cliff vesting, (ii) the first grant
shall be for approximately 86,000 shares, and (iii) vesting of options shall be
calculated based on a daily proration. In addition, Charter One maintains a $2.5
million life insurance policy for Mr. Chorbajian's benefit during the term of
his employment agreement (including making gross up payments to him with respect
to his tax liabilities relating to such benefit) and provides supplemental
disability retirement benefits. In the event Mr. Chorbajian's employment with
Charter One is terminated without cause prior to September 30, 2003, he would
receive (i) a lump sum cash payment equal to the remaining annual compensation
that otherwise would be payable to him under the stated terms of his agreement
and (ii) any other benefits (excluding stock option grants) provided to him
under his employment agreement until September 30, 2003.
Director Carroll is President and Chief Executive Officer of Employer
Sponsored Plans, Inc. ("ESP, Inc.") which provides services for Charter One's
group life insurance policy. Mr. Carroll is also President and Chief Executive
Officer of Eugene B. Carroll, CLU, Inc. ("E.B.C., Inc.") which provides, on an
agency basis, group life insurance benefits for Charter One. During 1998, ESP,
Inc. and/or E.B.C., Inc. received from Charter One and its subsidiaries fees and
commissions in the amount of $66,800 for services rendered.
Director Shaevsky is a partner of the law firm of Honigman Miller Schwartz
and Cohn. The firm has been retained from time to time to provide legal services
to Charter One's subsidiaries primarily regarding real estate issues.
Director Nolte is of counsel with the law firm of Miller, Canfield,
Paddock, and Stone. The firm has been retained to provide legal services to
Charter One's subsidiaries regarding commercial litigation issues.
7
<PAGE> 10
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The Summary Compensation Table includes individual compensation information
on the Chief Executive Officer and the four other most highly paid executive
officers, for services rendered in all capacities during the fiscal years ended
December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------ ------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
NAME AND SALARY(1) BONUS COMPENSATION OPTIONS/SARS COMPENSATION(2)
PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
------------------ ---- --------- ------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Charles John Koch 1998 562,727 580,116 70,840(3) 218,400 15,566
Chief Executive 1997 469,122 339,351 -- 114,660 16,256
Officer 1996 398,907 366,208 -- 370,440 15,297
John D. Koch 1998 355,620 319,441 -- 134,400 11,379
Executive Vice 1997 309,441 191,086 -- 70,560 14,043
President 1996 270,216 213,781 -- 231,526 14,601
Richard W. Neu 1998 347,904 313,801 -- 134,400 9,862
Executive Vice 1997 301,291 186,965 -- 70,560 7,089
President and Chief 1996 267,752 212,362 -- 231,526 6,658
Financial Officer
Mark D. Grossi 1998 338,894 310,279 -- 134,400 10,259
Executive Vice 1997 282,557 174,335 -- 70,560 12,323
President 1996 238,048 201,531 -- 231,526 13,814
Robert J. Vana 1998 180,464 160,259 -- 63,000 11,331
Chief Corporate 1997 163,061 91,748 -- 33,075 12,962
Counsel and Secretary 1996 145,251 113,491 -- 104,188 12,081
</TABLE>
- ---------------
(1) Salary includes amounts deferred at the election of the executive officer
through the 401(k) feature of the Charter One Bank Retirement Savings Plan.
(2) Includes the Bank's contributions under the 401(k) and ESOP features of the
Charter One Bank Retirement Savings Plan, and life insurance premium
payments. Amounts paid to Messrs. C. Koch, J. Koch, Neu, Grossi and Vana for
1998 are as follows: 401(k) -- $5,000, $3,750, $3,750, $3,750, and $4,865,
respectively; ESOP -- $4,410, $4,410, $4,410, $4,410, and $4,410,
respectively; life insurance premium payments -- $6,156, $3,219, $1,702,
$2,099, and $2,056, respectively.
(3) Includes club memberships and dues totaling $66,973, including a one-time
assessment of approximately $54,000, as well as a car allowance for a
portion of the year.
STOCK OPTIONS GRANTED IN 1998
The following table sets forth information concerning stock options granted
under the 1997 Stock Option and Incentive Plan to Charter One's Chief Executive
Officer and the four most highly compensated executive officers in 1998. The
1998 grants, which vest 100% on January 21, 2001, have an exercise price equal
to the average of the high and low prices of the common stock on the grant date.
No stock appreciation rights ("SARs") were granted during 1998.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS EXERCISE STOCK APPRECIATION FOR OPTION
UNDERLYING GRANTED TO PRICE TERM (1)
OPTIONS EMPLOYEES PER EXPIRATION ------------------------------
NAME GRANTED IN 1998 SHARE DATE 5% 10%
---- ---------- ------------ -------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles John Koch.... 218,400 7.34% $27.083 1/21/08 $3,719,789 $9,426,799
John D. Koch......... 134,400 4.52 27.083 1/21/08 2,289,101 5,801,107
Richard W. Neu....... 134,400 4.52 27.083 1/21/08 2,289,101 5,801,107
Mark D. Grossi....... 134,400 4.52 27.083 1/21/08 2,289,101 5,801,107
Robert J. Vana....... 63,000 2.12 27.083 1/21/08 1,073,016 2,719,269
</TABLE>
- ---------------
(1) A 5% and 10% annually compounded increase in Charter One's common stock
price from the date of grant to the end of the 10-year option term would
result in stock prices of $44.115 and $70.246, respectively.
8
<PAGE> 11
OPTION/SAR EXERCISES IN 1998 AND YEAR-END HOLDINGS
The following table sets forth information regarding options exercised by
the Chief Executive Officer and the other named executive officers during 1998
and options and SARs held by such persons at the end of 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT FY-END OPTIONS/SARS AT FY-END(1)
ACQUIRED VALUE ------------------------- ----------------------------
ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
NAME (#) ($) (#) ($)
---- ----------- -------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Charles John Koch............ 86,617(2) 775,758 371,764/456,541 6,408,620/2,866,719
John D. Koch................. 59,028(3) 795,135 240,053/282,136 4,189,287/1,781,834
Richard W. Neu............... 33,965 556,737 577,740/282,146 12,025,352/1,781,983
Mark D. Grossi............... 36,800 874,957 216,862/282,136 3,616,376/1,781,834
Robert J. Vana............... 19,536(4) 112,473 118,078/130,805 2,058,806/813,683
</TABLE>
- ---------------
(1) The value of the options/SARs at fiscal year end was determined by
subtracting the applicable exercise price from the market value of the
underlying securities on December 31, 1998, which was $27.75 per share, and
multiplying the same by the number of options/SARs.
(2) Amount reported includes 65,117 shares acquired in connection with the
exercise of SARs, for a value realized of $374,887.
(3) Amount reported includes 32,558 shares acquired in connection with the
exercise of SARs, for a value realized of $187,443.
(4) Total amount reported represents shares acquired in connection with the
exercise of SARs.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Charles John Koch, John D. Koch, Richard W. Neu, Mark D. Grossi and Robert
J. Vana each have a supplemental retirement agreement with Charter One. The
retirement agreements are designed to provide monthly benefits to the executive
officers upon their retirement. The benefit payable to the executive officers
upon retirement is a function of years of service and the highest three years of
total compensation. Annual benefits under the retirement agreements are capped
at $400,000 for Charles John Koch and John D. Koch, and at $250,000 for Messrs.
Neu, Grossi and Vana. Generally, the earliest benefit payments under the
supplemental retirement agreement can commence is age 58, upon termination of
the executive's employment with Charter One; otherwise, benefit payments
generally will commence at age 65. As of December 31, 1998, the monthly benefit
payments that would be paid under the supplemental executive retirement
agreements would be $31,057, $9,668, $5,982, $4,843 and $5,013 to Charles John
Koch, John D. Koch, Richard W. Neu, Mark D. Grossi and Robert J. Vana,
respectively.
EMPLOYMENT AGREEMENTS
Charter One has employment agreements with Charles John Koch, John D. Koch,
Richard W. Neu, Mark D. Grossi and Robert J. Vana. The agreements provide for a
term of employment until July 1, 2001. Beginning on July 1, 1999, however, and
on each July 1 thereafter, the term of each employment agreement will be
extended for a period of one year in addition to the then-remaining term, unless
the officer receives an unsatisfactory performance review from the Board of
Directors or notice that the term of his agreement will not be extended.
The employment agreements provide for an annual base salary in an amount
not less than the executive's base salary as of October 31, 1995, the effective
date of the original employment agreements. Amounts paid by Charter One to the
executive under his agreement are subject to reduction for amounts paid to him
by any Charter One subsidiary. The agreements also entitle each executive to
participate in an equitable manner with all other executive officers in such
performance-based and discretionary bonuses, if any, as are authorized and
declared by the Board of Directors, and in other company employee benefit,
fringe benefit and welfare plans and programs.
In the event an executive's employment is terminated involuntarily, as that
term is defined in the employment agreements, Charter One would be obligated to
pay the executive for the remaining term of his agreement (i) monthly payments
equal to one-twelfth of his annual base salary in effect immediately prior to
the date of termination and (ii) one-twelfth of his average annual cash bonus
and cash incentive compensation for the two full fiscal years preceding the date
of termination. Charter One would also be obligated to maintain for the
remaining term of the executive's agreement substantially the same health and
other benefits available to him in effect immediately prior to such involuntary
termination. These payments would be reduced by any cash compensation or health
and other benefits actually paid to the executive by Charter One's subsidiaries
during such period following termination, as well as amounts received by the
executive for services other than to Charter One or its subsidiaries during the
unexpired term of his agreement.
9
<PAGE> 12
In the event an executive is involuntary terminated within 12 months
preceding or 24 months following a change in control, as that term is defined in
the agreements, in addition to Charter One's payment obligations described in
the immediately preceding paragraph, the Company would have to pay the executive
an amount equal to 299% of the executive's "base amount" as determined under
Section 280G of the Internal Revenue Code of 1986. In the event that any
payments or benefits provided or to be provided to the executive are subject to
an excise tax penalty under Section 4999 of the Internal Revenue Code, Charter
One would reimburse the executive for the amount of the excise tax penalty and
pay him an additional amount equal to 80% of the taxes payable by him due to
that reimbursement. Charter One would not be able to deduct as an expense the
amount of the payments or benefits subject to the excise tax penalty. Based on
current salaries, if Charles John Koch, John D. Koch, Richard W. Neu, Mark D.
Grossi or Robert J. Vana had terminated their employment as of December 31, 1998
under circumstances entitling them to severance pay as described above, they
would have been entitled to receive lump sum cash payments of $4.7 million, $2.5
million, $1.5 million, $1.7 million and $900,000, respectively.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Charter One's compensation plans and matters are administered by the Stock
Option Committee, the TEIGAP Committee and the Compensation Committee. The
members of the Stock Option Committee and the TEIGAP Committee are identical and
consist of Directors Morley (Chairman), Fugo, Heidel, Nolte, Fisher and Ptak.
The members of the Board's Compensation Committee consists of all of the members
of the Stock Option and TEIGAP Committees, as well as Directors Carroll and
Schostak. See "Compensation of Directors" under "Proposal I -- Election of
Directors" above.
1998 COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Charter One is a bank holding company which, through a subsidiary (Charter
Michigan), owns all of the outstanding capital stock of Charter One Bank.
Charter One's business has consisted primarily of the business of Charter One
Bank and its subsidiaries. The financial results of Charter One are a direct
function of the Bank's achievement of its goals as set forth in its annual
business plan. Executives are compensated for their contribution to the
achievement of these goals which benefit the shareholders, customers, employees
and the communities in which the Bank operates.
Charter One's Stock Option Committee and TEIGAP Committee are identical and
are composed exclusively of outside directors who meet the criteria of IRS
Section 162(m) and SEC Rule 16(b). The Compensation Committee, which addresses
all other compensation issues, includes the membership of the other two
committees and two additional outside directors. The Committees are dedicated to
the philosophy of linking executive pay to achievement of the Bank's goals and
the resulting performance of Charter One. The Committees review all issues
pertaining to executive compensation and submit their recommendations to the
full Board of Directors for approval.
EXECUTIVE COMPENSATION PHILOSOPHY
The executive compensation program is designed to guide the Compensation
Committee, the Stock Option Committee, and the TEIGAP Committee in formulating
an appropriate compensation structure for senior management. Its overall
objective is to align senior management compensation with the goals of the
Bank's annual business plan by creating strong incentives to manage the business
successfully from both a financial and operating perspective. The executive
compensation program is structured to accomplish the following specific
objectives:
1) Align the interests of management with the interests of the
shareholders;
2) Maintain a program which:
a) clearly motivates personnel to perform and succeed according to the
goals outlined in our annual business plan;
b) retains key personnel critical to our long-term success; and
c) emphasizes formula-based components, such as incentive plans, in order
to better focus management efforts in its execution of our annual
business plan.
3) Maintain pay for performance as an integral component of the program by
utilizing incentive plans that emphasize corporate success;
4) Maintain a corporate environment which encourages stability and a
long-term focus for both Charter One and its management; and
10
<PAGE> 13
5) Ensure that management:
a) fulfills its overall responsibility to its constituents, including
shareholders, customers, employees, the community and government
regulatory agencies;
b) conforms its business conduct to the highest ethical standards;
c) remains free from any influences that could impair or appear to impair
the objectivity and impartiality of its judgments or treatment of
Charter One's constituents; and
d) continues to avoid any conflict between its responsibilities to
Charter One and each member's personal interests.
Achievement of these objectives should result in a compensation structure
that reasonably tracks the total performance of Charter One. The program's
compensation elements include base salary as well as incentive plans. The
incentive plans have been designed to reflect corporate performance, individual
performance, and alignment with the interests of Charter One's shareholders.
The Committees rely upon survey market research to determine and maintain a
relevant peer group for total corporate performance, for base salary comparison
and for incentive compensation comparison. The peer group is national in scope
representing 21 publicly traded commercial banks and savings institutions of
comparable size to Charter One. The Committees believe the peer group is
representative of Charter One's competitors for business, personnel recruitment
and compensation. The peer group survey analyzes total corporate performance and
the relationship between performance, base pay and incentive compensation.
Performance comparisons include rankings based on return on average equity,
return on average assets, efficiency ratio and total return on the company's
stock price, among other factors. Compensation data utilized for comparisons is
generally annual cash compensation including base salary and most forms of cash
bonus and annual incentive awards.
BASE SALARY
Base salary forms the foundation of the compensation program as it
represents income not at risk. The Compensation Committee believes that base
salary should function as an anchor: large enough that the executive is
comfortable remaining in Charter One's employ, but not so large as to conflict
with the executive's motivation to work hard to increase shareholder value. An
individual's base salary is directly related to his or her position scope, job
responsibilities, accountability, performance and contribution to Charter One or
its subsidiaries. In general, the base salary of each executive officer is
intentionally set below the median of the peer group. However, superior
corporate or individual performance should result in incentive compensation
which, when combined with base salary and long-term incentives, would place
overall compensation above that of the peer group median.
INCENTIVE PLANS
Executive Incentive Goal Achievement Plan (the "EIGAP"). The purpose of the
EIGAP is to achieve the following objectives:
1) promote stability and the achievement of profitability and business
goals;
2) link executive compensation to specific objectives and individual goals;
3) provide a competitive reward structure for senior officers and other key
employees; and
4) encourage involvement and communication regarding our strategic plans.
Eligibility is normally limited to those management positions where the
functional responsibility encompasses the establishment of our strategic
direction and long-range plans, or operating results at the divisional level.
Other selected employees may also be eligible to participate as defined by
competitive compensation practices within our labor markets.
All awards are established as a percentage of each participant's base
salary. Award levels differ due to the varying impact on our success.
Participants earn awards by personally achieving their individual goals and
assisting Charter One in achieving its overall objectives. Awards are weighted
between company objectives and individual goals and vary by participant level.
The more control and influence a participant has on either company objectives or
individual goals, the greater the participant's weighting on that particular
factor. Individual goals and company objectives are established at the beginning
of each year. Charter One's objectives are established by the Chief Executive
Officer and the Compensation Committee. All measures under the EIGAP remain in
effect for the entire year.
11
<PAGE> 14
Should individual performance and goal achievement meet expectations but
Charter One fails to achieve certain of its objectives, no incentive award will
be made to any participant. Additionally, if Charter One achieves all of its
objectives but a participant's performance and/or goal achievement fails to meet
expectations, no incentive award will be made to that participant.
Stock Options. At least annually, the Stock Option Committee reviews the
appropriateness of granting stock options to senior management. The purposes of
this long-term element of the program are to:
1) provide an incentive to key employees to promote the success of the
business;
2) provide key officers with a long-term incentive to increase shareholder
value;
3) encourage ownership rights through purchase of Charter One common stock;
and
4) attract and retain the best available personnel.
In the past, the Stock Option Committee has been careful to grant options
based on an individual's performance and impact on Charter One's financial
results. All options granted to date have a term of 10 years and have contained
vesting requirements (usually three years). This element of the executive
compensation program is designed to align the interests of the executive with
corporate and shareholder objectives.
The 1997 Stock Option and Incentive Plan initially provided for a maximum
number of shares with respect to which awards may be made of 4,586,739. As a
result of merger and stock dividend activity during the year, the maximum number
of shares was increased to 16,283,299 pursuant to the adjustment provision under
the 1997 Stock Option and Incentive Plan.
Top Executive Incentive Goal Achievement Plan ("TEIGAP"). In October 1998,
shareholders approved the TEIGAP. The purpose of the TEIGAP is to provide
incentive compensation opportunities for certain senior officers of Charter One,
while preserving the deductibility of such incentive compensation by Charter
One. Compensation awards to executives participating under the TEIGAP will first
be considered in 1999, based on specific individual and corporate performance
measures established by the TEIGAP Committee.
Federal Income Tax Limitations. Section 162(m) of the Internal Revenue Code
generally limits to $1 million Charter One's federal income tax deduction for
compensation paid in any year to its Chief Executive Officer and each of its
four highest paid executive officers, to the extent that such compensation is
not "performance-based compensation" within the meaning of Section 162(m). In
structuring Charter One's compensation arrangements with its highest paid
executive officers, the Committee provides incentive formulas that qualify as
"performance-based compensation" under Section 162(m) in order to decrease the
after-tax cost of such arrangements.
CORPORATE PERFORMANCE AND EXECUTIVE PAY
Base Salary for 1998. Approximately 52% of the potential annual
compensation of Charles John Koch, the Chief Executive Officer of Charter One,
is paid as base salary, with the balance based upon the EIGAP and, therefore,
dependent upon specific corporate achievements in any given year. The base
salary is established by the Compensation Committee after consideration of his
current performance, his past base salary, comparison of the base salaries
within the peer group, and the overall performance and economic condition of
Charter One. On April 1, 1998, the Board of Directors, acting on the
recommendation of the Compensation Committee, increased Mr. Koch's salary by
20.7%. The increase in base salary was the result of Mr. Koch's outstanding
efforts, evidenced in particular by the achievement of record operating income
during 1997, the continued quality of Charter One's financial statements, the
growth in earnings, the successful implementation of the RCSB merger, and
continued compliance with governmental regulations, as well as to appropriately
align his base salary with the peer group. In comparing Mr. Koch's base salary
to the peer group, the Compensation Committee found that it had fallen
substantially below the median base salary for the peer group. Base salary for
Mr. Koch is targeted to fall slightly below the median of the peer group because
of Charter One's emphasis on incentive compensation for its executives.
Additionally, the Compensation Committee compares the total compensation package
of executive officers to the peer group to ensure that the total package is
competitive with the marketplace. All executive officers were also granted
salary increases effective April 1, 1998, based on the Committee's assessment of
the individual's leadership, technical knowledge, analytical ability, decision
making, planning, personnel development and communication effectiveness and its
objective review of the individual executive's goal achievement for the
performance period in areas such as: loan production, investment return, branch
operating efficiency, merger and acquisition integration and deposit retention.
12
<PAGE> 15
Incentive Awards for 1998. The EIGAP for 1998 provided for the cash bonus
awarded to Mr. Koch recognizing his contribution to the achievement of Charter
One's annual goals. The Compensation Committee reviewed Charter One's
performance relative to the percentage achievement of the goals established in
our 1998 business plan, which focused on core earnings, net worth, asset
quality, efficiency ratio, loan origination, deposit growth, and interest rate
risk. Charter One exceeded all financial and operational goals it set for 1998
which resulted in a bonus to Mr. Koch at the maximum level under the EIGAP. The
goals established in our annual business plan are designed such that if
achieved, Charter One's earnings should increase while maintaining the
institution's historical financial soundness. All executive officers were also
awarded cash bonuses which were functions of the achievement of Charter One's
aforementioned goals, in conjunction with the achievement of related individual
goals.
In addition to cash bonus awards, the Board of Directors, acting on the
recommendation of the Stock Option Committee, granted a total of 3,102,486 stock
options to officers and directors in 1998. Of the total, 218,400, or 7.04%, were
granted to Mr. Koch in recognition of his individual performance and impact on
Charter One's financial results.
Submitted by the members of the Compensation and Stock Option Committees
Michael P. Morley (Chairman)
Eugene B. Carroll, Sr.
Phillip Wm. Fisher
Denise M. Fugo
Charles M. Heidel
Henry R. Nolte, Jr.
Victor A. Ptak
Jerome L. Schostak
13
<PAGE> 16
COMPARATIVE PERFORMANCE BY CHARTER ONE
The following chart compares the cumulative total returns of Charter One,
the S&P 500 Index, and the KBW 50 Total Return Index which is published by Keefe
Bruyette & Woods ("KBW 50 "). The KBW 50 is a market-capitalization-weighted
bank stock index that includes all money-center banks and most regional bank
holding companies. Although Charter One is not included in the KBW 50, the index
provides a reliable measurement of industry performance. The chart assumes an
investment of $100 on January 1, 1994 and dividend reinvestment throughout the
period.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG CHARTER ONE FINANCIAL, INC., S&P 500 INDEX,
PERFORMANCE GRAPH AND KBW 50 INDEX
<TABLE>
<CAPTION>
CHARTER ONE S&P 500 KBW 50
----------- ------- ------
<S> <C> <C> <C>
'1993' 100.00 100.00 100.00
'1994' 96.20 98.46 94.90
'1995' 155.06 132.05 151.99
'1996' 223.29 158.80 215.00
'1997' 352.38 208.05 314.32
'1998' 325.31 263.53 340.33
</TABLE>
TRANSACTIONS WITH RELATED PARTIES
From time to time, Charter One Bank provides residential mortgage loans to
directors, officers and other employees. These loans are in the ordinary course
of business on substantially the same terms as those prevailing at the time for
comparable transactions with the general public, except for reduced interest
rates and fees. These loans, when made, have not involved more than the normal
risk of collectibility or presented other unfavorable features. During 1998, no
director or executive officer of Charter One or its subsidiaries had a loan with
preferential terms and an outstanding aggregate balance exceeding $60,000.
PROPOSAL 2 -- RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The firm of Deloitte & Touche LLP served as Charter One's independent
auditors for the fiscal year ending December 31, 1998. Representatives of
Deloitte & Touche LLP will be present at the annual meeting. They will be given
an opportunity to make a statement if they desire to do so and will be available
to respond to appropriate questions.
The Board of Directors has appointed the firm of Deloitte & Touche LLP to
continue as independent auditors for Charter One for the fiscal year ending
December 31, 1999, subject to ratification of such appointment by the
shareholders. Unless otherwise indicated, shares represented by properly
executed proxies will be voted in favor of ratifying the appointment of Deloitte
& Touche LLP, independent certified public accountants, to audit the books and
accounts of Charter One for the fiscal year ending December 31, 1999. This
proposal requires the affirmative vote of a majority of the votes actually cast
at the annual meeting. Abstentions will have the effect of a negative vote,
while broker nonvotes will have no effect on this proposal.
14
<PAGE> 17
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires directors and
executive officers, and persons who own more than 10% of Charter One's common
stock (or any other equity securities, of which there are none), to file with
the SEC initial reports of ownership and reports of changes in ownership of
Charter One's common stock. Officers, directors and greater than 10%
shareholders are required by SEC regulations to furnish Charter One with copies
of all Section 16(a) forms they file.
To Charter One's knowledge, based solely on a review of the copies of such
reports furnished to it and written representations that no other reports were
required during the fiscal year ended December 31, 1998, all Section 16(a)
filing requirements applicable to its executive officers, directors and greater
than 10% beneficial owners were complied with.
SHAREHOLDER PROPOSALS
In order to be eligible for inclusion in Charter One's proxy materials for
next year's Annual Meeting of Shareholders, any shareholder proposal must be
received at Charter One's executive office at 1215 Superior Avenue, Cleveland,
Ohio 44114 on or before November 26, 1999. To be considered for presentation at
next year's annual meeting, although not included in the proxy statement, any
shareholder proposal must be received at Charter One's executive office not less
than 60 days nor more than 90 days prior to the scheduled annual meeting,
regardless of any postponements, deferrals or adjournments of that meeting to a
later date; provided, however, that in the event that less than 70 days' notice
or prior public disclosure of the date of the scheduled annual meeting is given
or made, the shareholder proposal must be received on or before the close of
business on the tenth day following the day on which notice of the date of the
annual meeting was mailed or public announcement of the date of such meeting was
made, whichever occurs first.
All shareholder proposals for inclusion in Charter One's proxy materials
shall be subject to the requirements of the proxy rules adopted under the
Securities Exchange Act of 1934, as amended, and, as with any shareholder
proposal (regardless of whether it is included in Charter One's proxy
materials), Charter One's Certificate of Incorporation and Bylaws, and Delaware
law.
OTHER MATTERS
As of the date of this proxy statement, the Board of Directors does not
know of any other matters to be presented for action by the shareholders at the
annual meeting. If, however, any other matters not now known are properly
brought before the meeting, the persons named in the accompanying proxy will
vote such proxy in accordance with the determination of a majority of the Board
of Directors.
338-PS-99
15
<PAGE> 18
DETACH HERE
REVOCABLE PROXY
CHARTER ONE FINANCIAL, INC.
ANNUAL MEETING - APRIL 21, 1999
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
As a participant in the Haverfield Corporation Employee Stock Ownership Plan
(the "Plan"), I hereby direct the trustee of the Plan in which I participate to
vote all vested shares allocated to my account under such Plan as of March 2,
1999 in accordance with the instructions (on the reverse side of this card) or,
if I return this proxy card and have not given any instructions, my instructions
will be deemed to be to vote in accordance with the Board of Directors'
recommendations, on all items of business to come before the Annual Meeting of
Shareholders to be held on April 21, 1999 or any adjournment thereof. I
understand that if I do not return the proxy card, the Plan Trustee will not
vote the shares. I understand my vote shall be confidential and will be seen
only by BankBoston, N.A. in the tabulation of the vote.
The shares represented by this proxy, when properly executed, will be voted as
specified on the reverse hereof by the undersigned shareholder. If no
specification is made, this proxy will be voted FOR the election of directors
and FOR approval of proposal No. 2. The proxies may vote in their discretion as
to other matters which may come before the meeting.
THE UNDERSIGNED ACKNOWLEDGES RECEIPT FROM CHARTER ONE FINANCIAL, INC., PRIOR TO
THE EXECUTION OF THIS PROXY, OF NOTICE OF THE MEETING, A PROXY STATEMENT DATED
MARCH 26, 1999, AND CHARTER ONE'S ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1998.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE) | SEE REVERSE |
| SIDE |
<PAGE> 19
[X] Please mark
votes as in
this example.
The Board of Directors recommends a vote FOR ALL NOMINEES and FOR Proposal 2.
<TABLE>
<CAPTION>
1. Election of Directors
<S> <C>
NOMINEES: Herbert G. Chorbajian, Charles M. INSTRUCTIONS: To withhold authority to vote for an
Heidel, Richard W. Neu, Victor A. Ptak, individual nominee, mark the FOR ALL NOMINEES
Melvin J. Rachal, Leonard S. Simon, EXCEPT box and write that nominee's name for which
And Eresteen R. Williams you want to withhold authority to vote on the line
provided.
</TABLE>
FOR WITHHELD
ALL NOMINEES FROM ALL NOMINEES
[ ] [ ]
FOR
ALL
EXCEPT
[ ] ------------------------------------------------
FOR AGAINST ABSTAIN
2. Voting on selection of Deloitte & [ ] [ ] [ ]
Touche LLP as Independent
Auditors of the Company.
MARK HERE
FOR ADDRESS [ ]
CHANGE AND
NOTE AT LEFT
Please date and sign as name is imprinted hereon. Include designation as
executor, trustee, etc. If applicable, a corporation should sign in its
name by the president or other authorized officers.
Signature:_______________ Date:________ Signature:____________ Date:________
<PAGE> 20
DETACH HERE
REVOCABLE PROXY
CHARTER ONE FINANCIAL, INC.
ANNUAL MEETING - APRIL 21, 1999
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
As a participant in the Albany Savings Bank, F.S.B., Incentive Savings and
Employee Stock Ownership Plan (the "Plan"), I hereby direct the trustee of the
Plan in which I participate to vote all vested shares allocated or credited to
my account under such Plan as of March 2, 1999 in accordance with the
instructions (on the reverse side of this card) or, if I return this proxy card
and have not given any instructions, my instructions will be deemed to be to
vote in accordance with the Board of Directors' recommendations, on all items of
business to come before the Annual Meeting of Shareholders to be held on April
21, 1999 or any adjournment thereof. I understand that the Plan trustee will
vote all unallocated shares of Charter One common stock in the same proportion
as Plan participants vote their allocated shares. If I do not return this proxy
card, I understand that the Plan Trustee will not vote my shares. I understand
my vote shall be confidential and will be seen only by BankBoston, N.A. in the
tabulation of the vote.
The shares represented by this proxy, when properly executed, will be voted as
specified on the reverse hereof by the undersigned shareholder. If no
specification is made, this proxy will be voted FOR the election of directors
and FOR approval of proposal No. 2. The proxies may vote in their discretion as
to other matters which may come before the meeting.
THE UNDERSIGNED ACKNOWLEDGES RECEIPT FROM CHARTER ONE FINANCIAL, INC., PRIOR TO
THE EXECUTION OF THIS PROXY, OF NOTICE OF THE MEETING, A PROXY STATEMENT DATED
MARCH 26, 1999, AND CHARTER ONE'S ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1998.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE) | SEE REVERSE |
| SIDE |
<PAGE> 21
[X] Please mark
votes as in
this example.
The Board of Directors recommends a vote FOR ALL NOMINEES and FOR Proposal 2.
<TABLE>
<CAPTION>
1. Election of Directors
<S> <C>
NOMINEES: Herbert G. Chorbajian, Charles M. INSTRUCTIONS: To withhold authority to vote for an
Heidel, Richard W. Neu, Victor A. Ptak, individual nominee, mark the FOR ALL NOMINEES
Melvin J. Rachal, Leonard S. Simon, EXCEPT box and write that nominee's name for which
And Eresteen R. Williams you want to withhold authority to vote on the line
provided.
</TABLE>
FOR WITHHELD
ALL NOMINEES FROM ALL NOMINEES
[ ] [ ]
FOR
ALL
EXCEPT
[ ] ------------------------------------------------
FOR AGAINST ABSTAIN
2. Voting on selection of Deloitte & [ ] [ ] [ ]
Touche LLP as Independent
Auditors of the Company.
MARK HERE
FOR ADDRESS [ ]
CHANGE AND
NOTE AT LEFT
Please date and sign as name is imprinted hereon. Include designation as
executor, trustee, etc. If applicable, a corporation should sign in its
name by the president or other authorized officers.
Signature:_______________ Date:________ Signature:____________ Date:________
<PAGE> 22
DETACH HERE
REVOCABLE PROXY
CHARTER ONE FINANCIAL, INC.
ANNUAL MEETING - APRIL 21, 1999
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
As a participant in the Charter One Bank Retirement Savings Plan (the "Plan"), I
hereby direct the trustee of the Plan in which I participate to vote all vested
shares allocated or credited to my account under such Plan as of March 2, 1999
in accordance with the instructions (on the reverse side of this card) or, if I
return this proxy card and have not given any instructions, my instructions will
be deemed to be to vote in accordance with the Board of Directors'
recommendations, on all items of business to come before the Annual Meeting of
Shareholders to be held on April 21, 1999 or any adjournment thereof. I
understand that the Plan trustee will vote all unallocated shares of Charter One
common stock in the same proportion as Plan participants vote their allocated
shares. I understand that if I do not return the proxy card, the Plan Trustee
will vote the shares in its sole discretion. I understand my vote shall be
confidential and will be seen only by BankBoston, N.A. in the tabulation of the
vote.
The shares represented by this proxy, when properly executed, will be voted as
specified on the reverse hereof by the undersigned. If no specification is made,
this proxy will be voted FOR the election of directors and FOR approval of
proposal No. 2. The proxies may vote in their discretion as to other matters
which may come before the meeting.
THE UNDERSIGNED ACKNOWLEDGES RECEIPT FROM CHARTER ONE FINANCIAL, INC., PRIOR TO
THE EXECUTION OF THIS PROXY, OF NOTICE OF THE MEETING, A PROXY STATEMENT DATED
MARCH 26, 1999, AND CHARTER ONE'S ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1998.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE) | SEE REVERSE |
| SIDE |
<PAGE> 23
[X] Please mark
votes as in
this example.
The Board of Directors recommends a vote FOR ALL NOMINEES and FOR Proposal 2.
<TABLE>
<CAPTION>
1. Election of Directors
<S> <C>
NOMINEES: Herbert G. Chorbajian, Charles M. INSTRUCTIONS: To withhold authority to vote for an
Heidel, Richard W. Neu, Victor A. Ptak, individual nominee, mark the FOR ALL NOMINEES
Melvin J. Rachal, Leonard S. Simon, EXCEPT box and write that nominee's name for which
And Eresteen R. Williams you want to withhold authority to vote on the line
provided.
</TABLE>
FOR WITHHELD
ALL NOMINEES FROM ALL NOMINEES
[ ] [ ]
FOR
ALL
EXCEPT
[ ] ------------------------------------------------
FOR AGAINST ABSTAIN
2. Voting on selection of Deloitte & [ ] [ ] [ ]
Touche LLP as Independent
Auditors of the Company.
MARK HERE
FOR ADDRESS [ ]
CHANGE AND
NOTE AT LEFT
Please date and sign as name is imprinted hereon. Include designation as
executor, trustee, etc. If applicable, a corporation should sign in its
name by the president or other authorized officers.
Signature:_______________ Date:________ Signature:____________ Date:________
<PAGE> 24
DETACH HERE
REVOCABLE PROXY
CHARTER ONE FINANCIAL, INC.
ANNUAL MEETING - APRIL 21, 1999
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Charles John Koch and Jerome L. Schostak, and
each of them, proxies with power of substitution and authorizes them to
represent and to vote as designated on the reverse side hereof and in accordance
with their judgment upon any other matters properly presented at the annual
meeting, all the shares of Charter One common stock held of record by the
undersigned at the close of business on March 2, 1999, at the Annual Meeting of
Shareholders to be held on April 21, 1999, and any adjournments thereof.
The shares represented by this proxy, when properly executed, will be voted as
specified on the reverse hereof by the undersigned shareholder(s). If no
specification is made, this proxy will be voted FOR the election of directors
and FOR approval of proposal No. 2. The proxies may vote in their discretion as
to other matters which may come before the meeting.
THE UNDERSIGNED ACKNOWLEDGES RECEIPT FROM CHARTER ONE FINANCIAL, INC., PRIOR TO
THE EXECUTION OF THIS PROXY, OF NOTICE OF THE MEETING, A PROXY STATEMENT DATED
MARCH 26, 1999, AND CHARTER ONE'S ANNUAL REPORT TO SHAREHOLDERS FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1998.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE) | SEE REVERSE |
| SIDE |
<PAGE> 25
[X] Please mark
votes as in
this example.
The Board of Directors recommends a vote FOR ALL NOMINEES and FOR Proposal 2.
<TABLE>
<CAPTION>
1. Election of Directors
<S> <C>
NOMINEES: Herbert G. Chorbajian, Charles M. INSTRUCTIONS: To withhold authority to vote for an
Heidel, Richard W. Neu, Victor A. Ptak, individual nominee, mark the FOR ALL NOMINEES
Melvin J. Rachal, Leonard S. Simon, EXCEPT box and write that nominee's name for which
And Eresteen R. Williams you want to withhold authority to vote on the line
provided.
</TABLE>
FOR WITHHELD
ALL NOMINEES FROM ALL NOMINEES
[ ] [ ]
FOR
ALL
EXCEPT
[ ] ------------------------------------------------
FOR AGAINST ABSTAIN
2. Voting on selection of Deloitte & [ ] [ ] [ ]
Touche LLP as Independent
Auditors of the Company.
MARK HERE
FOR ADDRESS [ ]
CHANGE AND
NOTE AT LEFT
Please date and sign as name is imprinted hereon. Include designation as
executor, trustee, etc. If applicable, a corporation should sign in its
name by the president or other authorized officers.
Signature:_______________ Date:________ Signature:____________ Date:________
