UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: May 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ___________
Commission File Number 0-17709
RCSB FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 16-1484699
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
235 EAST MAIN STREET, ROCHESTER, NEW YORK 14604
(Address of principal executive offices) (Zip Code)
(716) 423-7270
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
--- ---
Number of shares of common stock outstanding on June 30, 1996: 14,693,163
----------
-1-
<PAGE>
RCSB FINANCIAL, INC. AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended
May 31, 1997
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
May 31, 1997 and November 30, 1996 3
Consolidated Statements of Income for the three and six
months ended May 31, 1997 and 1996 4
Consolidated Statements of Changes in Shareholders' Equity
for the three and six months ended May 31, 1997 and 1996 5
Consolidated Statements of Cash Flows for the six months
ended May 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 12
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 23
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 24
SIGNATURES 25
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
RCSB FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(thousands)
MAY 31, November 30,
1997 1996
--------------- --------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 75,916 $ 56,639
Interest-bearing deposits in banks 3,767 7,654
Securities available for sale, at fair value (amortized cost
$20,486 in 1997 and $21,093 in 1996) 18,171 18,797
Securities held to maturity, at amortized cost (fair value
$1,524,609 in 1997 and $1,634,422 in 1996) 1,544,612 1,639,021
Loans receivable:
Residential mortgage 705,853 763,112
Automobile 1,241,943 994,749
Commercial mortgage 12,739 55,229
Consumer and other 92,740 85,334
Residential mortgage held for sale 169,769 150,437
--------------- --------------
Total loans receivable 2,223,044 2,048,861
Allowance for loan losses (26,337) (28,190)
--------------- --------------
Net loans receivable 2,196,707 2,020,671
Premises and equipment 39,528 39,583
Federal Home Loan Bank stock 41,568 34,650
Loan servicing assets 93,206 118,442
Other real estate 6,111 6,212
Other assets 84,781 72,648
--------------- --------------
Total assets $ 4,104,367 $ 4,014,317
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 2,342,879 $ 2,368,650
Federal Home Loan Bank:
Repurchase agreements 695,193 390,571
Other borrowings 112,150 232,450
Other repurchase agreements and borrowings 418,754 484,834
Mortgagors' deposits under escrow agreements 92,061 66,205
Other liabilities 130,753 147,744
--------------- --------------
Total liabilities 3,791,790 3,690,454
--------------- --------------
Commitments and contingent liabilities
SHAREHOLDERS' EQUITY:
Common stock, at par value 15,538 15,388
Paid-in capital in excess of par value 161,024 159,485
Surplus fund 51,070 51,070
Undivided profits 120,415 106,910
Loans to employee stock plan (2,805) (3,180)
Net unrealized holding loss on securities, net of taxes (3,753) (4,159)
Treasury stock, at cost (947 and 57 shares in
1997 and 1996, respectively) (28,912) (1,651)
--------------- --------------
Total shareholders' equity 312,577 323,863
--------------- --------------
Total liabilities and shareholders' equity $ 4,104,367 $ 4,014,317
=============== ==============
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
RCSB FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(thousands, except per share amounts)
Three Months Ended Six Months Ended
May 31, May 31,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 47,645 $ 44,348 $ 92,581 $ 87,948
Interest on mortgage-backed and other securities 28,382 30,098 57,651 57,525
Other interest income 131 67 222 263
----------- ----------- ----------- -----------
Total interest income 76,158 74,513 150,454 145,736
----------- ----------- ----------- -----------
Interest expense:
Interest on deposits 26,024 25,103 51,558 50,056
Interest on FHLB borrowings and
repurchase agreements 10,200 9,944 20,424 18,350
Interest on other repurchase agreements
and borrowings 6,562 6,457 12,870 12,598
----------- ----------- ----------- -----------
Total interest expense 42,786 41,504 84,852 81,004
----------- ----------- ----------- -----------
Net interest income 33,372 33,009 65,602 64,732
Provision for loan losses 4,092 3,478 8,092 6,220
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 29,280 29,531 57,510 58,512
----------- ----------- ----------- -----------
Noninterest income:
Mortgage banking 13,938 12,131 29,917 22,389
Retail banking 2,092 2,711 3,871 5,075
Automobile loan banking 62 1,116 113 1,585
Net securities sale gains - 995 85 995
Other (302) 29 (296) 66
----------- ----------- ------------ ----------
Total noninterest income 15,790 16,982 33,690 30,110
----------- ----------- ------------ ----------
Operating expenses:
Salaries, commissions and benefits 20,010 18,633 38,563 34,318
Occupancy 5,451 5,236 10,681 10,147
Marketing 980 1,047 1,667 1,226
Other 6,061 7,007 11,832 13,441
----------- ----------- ----------- -----------
Total operating expenses 32,502 31,923 62,743 59,132
----------- ----------- ----------- -----------
Income before income taxes 12,568 14,590 28,457 29,490
Provision for income taxes 4,332 5,106 10,529 10,322
----------- ----------- ----------- -----------
Net income $ 8,236 $ 9,484 $ 17,928 $ 19,168
=========== =========== =========== ===========
Net income per common share (fully diluted) $ 0.55 $ 0.54 $ 1.18 $ 1.07
=========== =========== =========== ===========
Net income applicable to common shares $ 8,236 $ 8,176 $ 17,928 $ 16,552
=========== =========== =========== ===========
Net income per common share (primary) $ 0.55 $ 0.63 $ 1.18 $ 1.24
=========== =========== =========== ===========
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
RCSB FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(Unaudited)
(thousands, except per share amounts)
Three Months Ended
May 31,
1997 1996
---------------- ----------------
<S> <C> <C>
Shareholders' equity at beginning of period $ 316,440 $ 371,295
Net income 8,236 9,484
Repurchase of RCSB common stock (11,683) (27,890)
Common stock options exercised 1,366 990
Dividends declared on preferred stock - (1,308)
Dividends declared on common stock ($0.15 and
$0.24 per share in 1997 and 1996, respectively) (2,171) (3,055)
Loan repayments from employee stock plan 190 383
Change in net unrealized holding loss on securities, net of taxes 199 (309)
---------------- ----------------
Shareholders' equity at end of period $ 312,577 $ 349,590
================ ================
Six Months Ended
May 31,
1997 1996
---------------- ----------------
Shareholders' equity at beginning of period $ 323,863 $ 375,927
Net income 17,928 19,168
Repurchase of RCSB common stock (27,261) (40,857)
Common stock options exercised 1,689 1,826
Dividends declared on preferred stock - (2,616)
Dividends declared on common stock ($0.30 and
$0.36 per share in 1997 and 1996, respectively) (4,423) (4,711)
Loan repayments from employee stock plan 375 760
Change in net unrealized holding loss on securities, net of taxes 406 93
---------------- ----------------
Shareholders' equity at end of period $ 312,577 $ 349,590
================ ================
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
RCSB FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(thousands)
Six Months Ended
May 31,
1997 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 17,928 $ 19,168
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Provision for loan losses 8,092 6,220
Amortization of loan servicing rights 6,782 6,779
Net gains on the sale of loans, securities, loan
servicing rights and other real estate (6,086) (870)
Amortization of intangible assets, hedging gains
or losses, and securities premiums or discounts 2,455 2,150
Depreciation and other amortization 4,057 3,800
Deferred income tax provision (benefit) 6,700 (1,500)
Decrease in allowance for foreclosed real estate (1,000) -
Increase in mortgage loans held for sale (19,332) (33,621)
(Increase) decrease in other assets, net (20,956) 66,876
Decrease in accrued expenses (1,034) (4,795)
Decrease in loans to employee stock plan 376 760
------------ ------------
Net cash provided (used) by operating activities (2,018) 64,967
------------ ------------
INVESTING ACTIVITIES:
Decrease in interest-bearing deposits in banks 3,887 3,267
Purchases of:
Securities available for sale (24,685) -
Securities held to maturity (25,744) (358,346)
Loans - (92)
Premises and equipment, net (4,002) (6,897)
Loan servicing rights, including those on originated loans (11,465) (28,379)
Loan originations:
Residential mortgage (4,170) (4,114)
Automobile (489,474) (322,282)
Other (7,180) (8,175)
Proceeds from sales of:
Securities available for sale 24,707 60,517
Commercial mortgage loans 38,923 -
Loan servicing rights 35,708 -
Other real estate 5,900 3,019
Principal repayments on:
Securities available for sale 649 3,114
Securities held to maturity 120,265 139,490
Loans 292,518 286,941
Increase in FHLB stock (6,918) -
------------ ------------
Net cash used by investing activities (51,081) (231,937)
------------ ------------
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
RCSB FINANCIAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(thousands)
Six Months Ended
May 31,
1997 1996
------------ ------------
(Continued)
<S> <C> <C>
FINANCING ACTIVITIES:
Increase (decrease) in deposits (25,771) 114,914
Increase in FHLB borrowings
and repurchase agreements 184,322 700
Increase (decrease) in other repurchase agreements
and borrowings (66,080) 151,252
Increase in mortgagors' escrow deposits 25,856 20,250
Decrease in other liabilities (15,956) (80,234)
Net proceeds from exercise of stock options 1,689 1,826
Purchase of RCSB common stock (27,261) (40,857)
Dividends paid on preferred stock - (2,616)
Dividends paid on common stock (4,423) (3,224)
------------ ------------
Net cash provided by financing activities 72,376 162,011
------------ ------------
Increase (decrease) in cash and cash equivalents 19,277 (4,959)
Cash and cash equivalents at beginning of period 56,639 78,877
------------ ------------
Cash and cash equivalents at end of period $ 75,916 $ 73,918
============ ============
Supplemental cash flow disclosures:
Cash paid during the period for:
Interest $ 86,657 $ 81,787
Income taxes 7,440 12,887
Non-cash activities:
Additions to other real estate through foreclosure 4,224 4,446
</TABLE>
-7-
<PAGE>
RCSB FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONDENSED)
MAY 31, 1997
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements, which include the accounts
of RCSB Financial, Inc. and its subsidiaries (RCSB or the Company), have been
prepared in accordance with the instructions for Form 10-Q, and therefore, do
not include all information and footnotes necessary for a complete
presentation of financial position, results of operations and cash flows in
accordance with generally accepted accounting principles. The financial
statements and the information under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" are prepared under
the presumption that the interim consolidated financial statements are read in
conjunction with the Company's Annual Report on Form 10-K for the year ended
November 30, 1996.
In the opinion of management, the unaudited, consolidated interim financial
statements of RCSB Financial, Inc. and subsidiaries reflect all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
the statements. The results of operations for the interim period are not
necessarily indicative of the results of operations which may be expected for
the entire year. For consistency among the periods presented, certain amounts
in the prior year's consolidated financial statements have been reclassified
to conform with the 1997 presentation.
2. PENDING MERGER WITH CHARTER ONE FINANCIAL, INC.
On May 21, 1997, the Board of Directors of RCSB announced a definitive
agreement to merge the Company with Charter One Financial, Inc. in a
stock-for-stock exchange. Terms of the agreement call for the tax-free
exchange of 0.91 shares of Charter One common stock for each RCSB common
share. The merger, which is intended to be accounted for as a pooling of
interests, is expected to be completed in the fourth quarter of 1997.
Approval to merge is required from banking regulatory authorities and both
companies' shareholders. In accordance with the merger agreement, RCSB has
agreed to abide by certain covenants regarding operations prior to
consummation of the merger. Charter One has announced that after-tax charges
in connection with the merger are expected to approximate $50.0 to $60.0
million.
Concurrent with signing the definitive merger agreement, Charter One was
granted an option to purchase, under certain circumstances, 2.9 million RCSB
common shares at $37.50 per share. Circumstances rendering the option
exercisable generally include (a) actions by RCSB designed to result in a
merger with or sale of significant assets to a third party, (b) the
acquisition of 20% or more of RCSB's common stock by a third party, (c)
withdrawal by RCSB's Board of Directors of the recommendation to merge with
Charter One or (d) failure of RCSB's shareholders to approve the Charter One
merger. The option agreement carries certain other features applicable under
indicated circumstances, such as the requirement that RCSB repurchase the
unexercised portion of the option and securities purchased by Charter One
pursuant to the option at a specified price.
3. ACCOUNTING CHANGES
RCSB adopted Financial Accounting Standards Board (FASB) Statement No. 121
entitled "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed
- 8 -
<PAGE>
Of" on December 1, 1996. The statement requires that long-lived assets and
certain identifiable intangibles to be held and used by a company be
reviewed for impairment whenever events or changes in circumstances indicate
the carrying amount of an asset may not be
recoverable. In performing the review for recoverability, companies are
required to estimate the future cash flows expected to result from the use of
the asset and its eventual disposition. Under Statement 121, an impairment
loss is recognized if the sum of the undiscounted future cash flows is less
than the carrying amount of the asset. The statement also establishes
standards for recording an impairment loss for certain assets subject to
disposal. Excluded from the scope of the statement are financial instruments,
mortgage and other loan servicing assets, deposit intangibles and deferred tax
assets. Implementing the provisions of Statement 121 had no material impact
on the Company's consolidated financial statements on the date of adoption.
RCSB adopted the disclosure requirements of FASB Statement No. 123 entitled
"Accounting for Stock-Based Compensation" effective December 1, 1996. Related
disclosures will be included in the Company's financial statements for the
full year ending November 30, 1997. Statement 123 permits, but does not
require, companies to use a fair-value-based method of accounting for
stock-based compensation plans including stock options and stock appreciation
rights. Under the fair value method, compensation cost is measured as of the
date stock awards are granted based on the value of the awards, and expense is
generally recognized over the vesting period. Companies such as RCSB that
elect to continue using the intrinsic-value-based method under Accounting
Principles Board (APB) Opinion No. 25, are required to provide pro forma
disclosures of net income and net income per share in annual financial
statements to show the effect of applying the fair-value-based method. Under
the intrinsic method, compensation cost is the excess, if any, of the market
price of the stock as of the grant date over the amount employees must pay to
acquire the stock or over the price established for determining appreciation.
Under RCSB's compensation policies, there is no such excess on the dates of
grant.
On January 1, 1997, RCSB adopted FASB Statement No. 125 entitled "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," which provides guidance for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.
The statement requires the application of a financial-components approach
which, following a transfer, results in recognizing in financial statements
the assets an entity controls and removing from financial statements assets it
no longer controls. A transferor has surrendered control, in general, only if
the transferred assets have been legally isolated from the transferor, the
transferee obtains the right to pledge or exchange the assets and there is no
agreement that entitles or obligates the transferor to repurchase the assets.
Liabilities are eliminated from financial statements only when they are
extinguished. The new standard applies to all transactions occurring after
December 31, 1996, except those involving collateral pledges and securities
repurchase agreements for which the rule change is delayed one year.
Application of the pronouncement had no material effect on the consolidated
financial position of RCSB.
4. CERTAIN COMMON STOCK TRANSACTIONS
Commencing in October 1996, RCSB's Board of Directors authorized the
repurchase of up to 1.5 million shares of the Company's common stock.
Repurchases had been terminated as a result of the pending merger with Charter
One Financial, Inc. Prior to such termination, 947,100 shares had been
repurchased at a cost of $28.9 million.
On June 25, 1997, the Board of Directors declared a cash dividend of $0.15 per
common share, payable August 1, 1997 to shareholders of record on July 15,
1997.
-9-
<PAGE>
5. NET INCOME PER SHARE
Primary net income per common share amounts for the three and six months ended
May 31, 1997 and 1996 were computed by dividing net income, reduced by
preferred stock dividends in 1996, by the weighted average number of common
shares and, in 1997, common stock equivalents outstanding during the periods.
The weighted average number of common shares utilized in the calculation
totaled 14,941,966 and 12,921,063 for the three months ended May 31, 1997 and
1996, respectively, and 15,182,961 and 13,324,966 for the six months ended May
31, 1997 and 1996, respectively. The 1997 second quarter and six-month
amounts included common stock equivalents totaling 404,469 and 411,787,
respectively, relating to outstanding stock options.
Fully diluted net income per common share for the three and six months ended
May 31, 1997 was computed by dividing net income by the weighted average
number of common and common equivalent shares outstanding. For the 1996
periods, net income was divided by the sum of the weighted average number of
common shares outstanding and the common shares issuable if all outstanding
preferred shares were converted to common at the beginning of the period. The
weighted average number of common shares utilized totaled 14,998,306 and
17,590,969 for the three months ended May 31, 1997 and 1996, respectively,
and 15,248,258 and 17,994,894 for the six months ended May 31, 1997 and 1996,
respectively. Common stock equivalents of 460,809 and 477,084, respectively,
were included in the 1997 second quarter and six-month amounts. There were no
materially dilutive common stock equivalents in 1996.
6. RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the FASB issued Statement No. 128 entitled "Earnings per
Share." The statement revises standards for computing and presenting net
income per share by (a) replacing primary net income per share with basic net
income per share, (b) requiring dual presentation of basic and diluted net
income per share for entities with complex capital structures and (c)
requiring a reconciliation of the basic net income per share computation with
diluted net income per share. Basic net income per share is calculated by
dividing net income available to common shareholders by the weighted-average
number of common shares outstanding for the period, without considering the
dilutive effect of potentially issuable common shares. Diluted net income per
share includes the effect of potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into
common shares. This statement is effective beginning in RCSB's 1998 fiscal
year, and all prior earnings per share data will be restated at the time of
adoption. Under the provisions of Statement 128, earnings per share for the
periods ending May 31, 1997 would be as follows.
<TABLE>
<CAPTION>
May 31, 1997
------------
Three Months Six Months
Ended Ended
------ ------
<S> <C> <C>
Basic earnings per share $ 0.57 $ 1.21
Diluted earnings per share 0.55 1.18
</TABLE>
-10-
<PAGE>
In June 1997, the FASB issued Statement No. 130 entitled "Reporting
Comprehensive Income." The statement establishes standards for the reporting
and display of comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general purpose financial statements.
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and
circumstances from nonowner sources. The impact of adopting Statement 130,
which is effective for RCSB's 1999 fiscal year, has not been determined.
In June 1997, the FASB also issued Statement No. 131 entitled "Disclosures
about Segments of an Enterprise and Related Information." The statement
requires publicly-held companies to report financial and other information
about key revenue-producing segments of the entity for which such information
is available and is utilized by the chief operating decision maker. Specific
information to be reported for individual segments includes profit or loss,
certain revenue and expense items and total assets. A reconciliation of
segment financial information to amounts reported in the financial statements
would be provided. Statement 131 is effective for RCSB's 1998 fiscal year.
At the present time, the effect of adopting the statement has not been
determined.
-11-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
RCSB Financial, Inc. and subsidiaries earned net income of $8.2 million or
$.55 per fully diluted share for the three months ended May 31, 1997, compared
to $9.5 million or $.54 per share in the second quarter of 1996. For the
first six months of 1997, RCSB's net income totaled $17.9 million or $1.18 per
share compared to $19.2 million or $1.07 per share in 1996. Earnings per
fully diluted share in the 1997 second quarter and six-month periods increased
by 1.9% and 10.3%, respectively. Common stock repurchases during 1996 and
1997 favorably affected earnings per share while resulting in incremental
interest expense. RCSB's earnings in the three and six month periods were
affected by higher stock-based compensation costs attributable to the recently
announced merger and the attendant increase in market price of the Company's
common stock.
Earnings in the second quarter were also influenced by a higher loan loss
provision and greater operating expenses relating to the expansion of RCSB's
lending networks. Partially offsetting the higher level of expenditures was a
rise in mortgage banking revenues generated by a $2.2 million gain on the sale
of mortgage servicing rights.
On May 21, 1997, the Board of Directors of RCSB announced a definitive
agreement to merge the Company with Charter One Financial, Inc. in a
stock-for-stock exchange. Terms of the agreement call for the tax-free
exchange of 0.91 shares of Charter One common stock for each RCSB common
share. The merger, which is intended to be accounted for as a pooling of
interests, is expected to be completed in the fourth quarter of 1997.
Approval to merge is required from banking regulatory authorities and both
companies' shareholders. In accordance with the merger agreement, RCSB has
agreed to abide by certain covenants regarding operations prior to
consummation of the merger. Charter One has announced that after-tax charges
in connection with the merger are expected to approximate $50.0 to $60.0
million.
Concurrent with signing the definitive merger agreement, Charter One was
granted an option to purchase, under certain circumstances, 2.9 million RCSB
common shares at $37.50 per share. Circumstances rendering the option
exercisable generally include (a) actions by RCSB designed to result in a
merger with or sale of significant assets to a third party, (b) the
acquisition of 20% or more of RCSB's common stock by a third party, (c)
withdrawal by RCSB's Board of Directors of the recommendation to merge with
Charter One or (d) failure of RCSB's shareholders to approve the Charter One
merger. The option agreement carries certain other features applicable under
indicated circumstances, such as the requirement that RCSB repurchase the
unexercised portion of the option and securities purchased by Charter One
pursuant to the option at a specified price.
-12-
<PAGE>
Second Quarter Review
Net interest income grew by 1.1% to $33.4 million in the second quarter of
1997 from $33.0 million in 1996. A 27.9% increase in average automobile loan
outstandings, combined with a widening of the average spread between interest
rates on RCSB's asset and liability portfolios, produced greater amounts of
net interest income. Loan growth was funded by higher levels of customer
deposits and repayments received on the Company's portfolio of mortgage-backed
securities. Net interest income was also affected by interest expense on
borrowings utilized by RCSB to repurchase common stock.
Automobile loan originations rose 74.0% to $315.2 million in the second
quarter of 1997 from $181.1 million in 1996. Higher originations were
achieved both in existing markets and by entering new markets. In December
1996, American Credit Services, Inc. (ACSI), the Company's automobile lending
subsidiary, expanded into the mid-Atlantic market with the opening of a
regional office in Baltimore, Maryland. Opportunities for expansion are
considered by ACSI on an ongoing basis.
The growth in RCSB's overall interest rate spread to 3.43% in 1997 from 3.25%
in 1996 resulted from a 0.18% increase in the average yield on
interest-earning assets without any increase in the average rate on
interest-bearing liabilities. Relatively stable interest rates during the
past year coupled with an increase in the portion of RCSB's assets invested in
automobile loans have resulted in the Company's greater overall spread.
Automobile loans, which have carried wider spreads over the cost of funds than
residential mortgage-related assets, totaled 31.5% of average interest-earning
assets in the second quarter of 1997, up from 24.6% in 1996. Net interest
margin, which is influenced by the overall interest rate spread and the
relationship of interest-earning asset volumes to interest-bearing
liabilities, rose to 3.56% in 1997 from 3.52% in 1996.
The following table presents information for the second quarter of 1997 and
1996 regarding interest yields and rates, average earning asset and liability
volumes, and the allocation of interest variations between amounts caused by
volumes and amounts attributable to rates. No tax equivalent adjustments have
been made for minor amounts of tax-exempt income earned by RCSB.
-13-
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, YIELDS AND RATES AND CHANGES IN INTEREST INCOME AND EXPENSE
(dollars in thousands)
Three Months Ended
--------------------------------------------------------------
MAY 31, 1997 May 31, 1996
--------------------------------------------------------------
Change
Average Yield/ Average Yield/ in Change due to
Balance Interest Rate Balance Interest Rate Interest Volume Rate
---------- --------- ------- ---------- --------- ------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING
ASSETS:
Federal funds and
interest-bearing deposits $ 3,952 $ 131 13.26% $ 13,064 $ 67 2.05% $ 64 $ (76) $ 140
Mortgage-backed and
other securities 1,642,975 28,382 6.91 1,723,727 30,098 6.98 (1,716) (1,398) (318)
Loans receivable, net 2,099,360 47,645 9.08 2,013,599 44,348 8.81 3,297 1,922 1,375
---------- --------- ---------- --------- ---------- -------- --------
Total interest-
earning assets $3,746,287 76,158 8.13 $3,750,390 74,513 7.95 1,645 448 1,197
========== --------- ========== --------- ---------- -------- --------
INTEREST-BEARING
LIABILITIES:
Transaction, money market
and savings deposits $1,096,462 6,577 2.38 $1,057,130 6,195 2.33 382 234 148
Term deposits 1,357,972 19,447 5.68 1,309,334 18,908 5.74 539 696 (157)
---------- --------- ---------- --------- ---------- -------- --------
Total deposits 2,454,434 26,024 4.21 2,366,464 25,103 4.22 921 930 (9)
FHLB borrowings
and repurchase agreements 702,131 10,200 5.76 692,364 9,944 5.71 256 141 115
Other repurchase agreements
and borrowings 456,343 6,562 5.70 456,417 6,457 5.63 105 (1) 106
---------- --------- ---------- --------- ---------- -------- --------
Total interest-
bearing liabilities $3,612,908 42,786 4.70% $3,515,245 41,504 4.70% 1,282 1,070 212
========== --------- ========== --------- ---------- -------- --------
Net interest income $ 33,372 $ 33,009 $ 363 $ (622) $ 985
========= ========= ========== ======== ========
Excess of interest-earning
assets over interest-bearing
liabilities $ 133,379 $ 235,145
RATIOS:
Interest rate spread 3.43% 3.25%
Net interest margin 3.56 3.52
</TABLE>
RCSB's provision for loan losses was $4.1 million in the second quarter of
1997, compared to $3.5 million in the prior year. The increased provision in
1997 was primarily due to growth in the automobile loan portfolio resulting
from higher volumes of loan originations in the quarter, and higher levels of
auto loan charge offs. Nationwide trends in the collection of consumer loans
have affected the Company's automobile loan portfolio, resulting in somewhat
higher delinquencies and charge offs compared with the year ago period.
Delinquency trends in the Company's automobile loan portfolio have improved,
however, since the first quarter of 1997.
-14-
<PAGE>
Also affecting the loan loss allowance in the second quarter was the sale of a
significant portion of RCSB's remaining commercial loan portfolio. In May
1997, the Company sold $41.3 million of performing commercial mortgage loans
for a loss of $0.3 million, after deducting $2.0 million of allocated
allowances from carrying value. At May 31, 1997, RCSB allocated $18.9 million
of its allowance for loan losses to automobile loans and $1.6 million to
commercial loans, representing 1.52% and 12.70%, respectively, of the
outstanding loan portfolios.
The adequacy of the Company's loan loss allowance is evaluated quarterly with
consideration given to the status of particular loans, the general risk
characteristics of the loan portfolio, historical charge-offs and recoveries,
the regulatory environment, current appraisals and economic and market
conditions. As of May 31, 1997, RCSB's allowance for loan losses totaled
$26.3 million or 104.2% of nonperforming loans, compared to $28.2 million or
116.7% of nonperforming loans at November 30, 1996. The average for all
publicly-held thrift institutions was approximately 72% as of December 31,
1996.
Mortgage banking noninterest income totaled $13.9 million in the second
quarter of 1997, compared to $12.1 million in 1996. The increase resulted
from a pretax gain of $2.2 million generated by the sale of servicing on
$838.3 million of residential mortgage loans, partially offset by lower
revenue from the sales of loans originated for sale. Residential mortgage
loan originations at American Home Funding, Inc. (AHF), RCSB's mortgage
banking subsidiary, were $419.0 million during the second quarter, slightly
lower than $421.6 million in the prior year. AHF's portfolio of loans serviced
for others declined to $7.6 billion at May 31, 1997, compared to $9.0 billion
at November 30, 1996 and $9.4 billion at May 31, 1996.
RCSB's retail banking unit, Rochester Community Savings Bank, generated
noninterest income of $2.1 million in the second quarter of 1997, compared to
$2.7 million in 1996. The decrease in revenue relates to the September 1996
transfer of securities brokerage activities to an independent third party
which offers securities products and services through RCSB's retail banking
offices. Earnings in this category represent fees and service charges
collected for various deposit-related activities, revenues from the bank's
insurance sales operation and prior to September 1996, commissions from
securities brokerage activities. Deposit-related fees and service charges rose
by $0.2 million in the 1997 quarter due to the Company's continued expansion
in the Buffalo, New York market. One branch office was opened during the
first quarter of 1997, and in June 1997, RCSB opened two additional offices
bringing the total number in Buffalo to 17. Revenues from insurance sales
activities increased by $0.2 million in 1997 due to greater sales of fixed
annuity products.
Automobile loan banking noninterest income was less than $0.1 million for the
second quarter of 1997, compared to $1.1 million in 1996. While ACSI earned
loan servicing fees in 1996 from securitized automobile loans owned by others,
the securities matured in 1996.
There were no gains or losses from securities sales in the 1997 second quarter
compared to $1.0 million in 1996. RCSB sold $59.5 million of mortgage-backed
securities from the available-for-sale portfolio in 1996 in response to
interest rate-related market opportunities.
Operating expenses in the second quarter of 1997 were $32.5 million compared
to $31.9 million in the prior year. The increase was primarily attributable to
higher expenses associated with the expansion of lending networks at AHF and
ACSI and incremental accruals for stock-based compensation costs resulting
from a 21.7% increase in RCSB's stock price in the 1997 quarter. These
expenses were partially offset by a reduction in the cost of carrying
foreclosed real estate.
-15-
<PAGE>
The Company's effective tax rate was 34.5% in the second quarter of 1997,
compared to 35.0% in 1996. Reductions in RCSB's deferred tax valuation
allowance during both years were the largest factors accounting for the
difference from normal rates of approximately 41.0%.
Six Month Review
For the first six months of 1997, RCSB's net interest income was $65.6
million, compared to $64.7 million in the prior year. The increase was
largely due to a 25.5% rise in average automobile loans outstanding and a
wider average interest rate spread. Automobile loan originations for the
first six months of 1997 totaled $489.5 million, up 51.9% from the prior year.
RCSB's interest rate spread climbed to 3.31% in 1997 from 3.12% in 1996,
primarily due to a widening of general marketplace spreads between short-term
and intermediate-term interest rates and an increase in the percentage of
RCSB's assets invested in automobile loans. Net interest margin was 3.51% in
both 1997 and 1996.
The following table presents information regarding interest yields and rates,
average earning asset and liability volumes, and the allocation of interest
variations between amounts caused by volumes and amounts attributable to rates
for the six months ended May 31, 1997 and 1996. No tax equivalent adjustments
have been made for minor amounts of tax-exempt income earned by RCSB.
-16-
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, YIELDS AND RATES AND CHANGES IN INTEREST INCOME AND EXPENSE
(dollars in thousands)
Six Months Ended
--------------------------------------------------------------
MAY 31, 1997 May 31, 1996
--------------------------------------------------------------
Change
Average Yield/ Average Yield/ in Change due to
Balance Interest Rate Balance Interest Rate Interest Volume Rate
---------- --------- ------- ---------- --------- ------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING
ASSETS:
Federal funds and
interest-bearing deposits $ 5,974 $ 222 7.43% $ 13,571 $ 263 3.88% $ (41) $ (198) $ 157
Mortgage-backed and
other securities 1,674,658 57,651 6.89 1,686,146 57,525 6.82 126 (393) 519
Loans receivable, net 2,060,013 92,581 8.99 1,990,589 87,948 8.84 4,633 3,103 1,530
---------- --------- ---------- --------- ---------- -------- --------
Total interest-
earning assets $3,740,645 150,454 8.04 $3,690,306 145,736 7.90 4,718 2,512 2,206
========== --------- ========== --------- ---------- -------- --------
INTEREST-BEARING
LIABILITIES:
Transaction, money market
and savings deposits $1,076,962 12,949 2.41 $1,035,454 12,163 2.35 786 493 293
Term deposits 1,363,179 38,609 5.68 1,298,199 37,893 5.84 716 1,853 (1,137)
---------- --------- ---------- --------- ---------- -------- --------
Total deposits 2,440,141 51,558 4.24 2,333,653 50,056 4.29 1,502 2,346 (844)
FHLB borrowings
and repurchase agreements 708,706 20,424 5.78 627,520 18,350 5.85 2,074 2,336 (262)
Other repurchase agreements
and borrowings 447,621 12,870 5.77 429,458 12,598 5.87 272 523 (251)
---------- --------- ---------- --------- ---------- -------- --------
Total interest-
bearing liabilities $3,596,468 84,852 4.73% $3,390,631 81,004 4.78% 3,848 5,205 (1,357)
========== --------- ========== --------- ---------- -------- --------
Net interest income $ 65,602 $ 64,732 $ 870 $(2,693) $ 3,563
========= ========= ========== ======== ========
Excess of interest-earning
assets over interest-bearing
liabilities $ 144,177 $ 299,675
RATIOS:
Interest rate spread 3.31% 3.12%
Net interest margin 3.51 3.51
</TABLE>
RCSB's provision for loan losses totaled $8.1 million in the first six months
of 1997 compared to $6.2 million in 1996. Growth in the automobile loan
portfolio and higher charge off levels produced a corresponding requirement
for greater loan loss provisions. Partially offsetting the increase in
automobile loan provisions was a decrease in requirements for commercial
mortgage allowances due to the reduced size of the portfolio.
Mortgage banking noninterest income was $29.9 million in 1997 up 33.6% from
$22.4 million in the prior year. The increase is primarily attributable to
two sales of servicing on residential mortgage loans which produced pretax
gains totaling $5.8 million. Residential mortgage originations at AHF totaled
$741.0 million during the first six months of 1997, compared to $748.8 million
in 1996.
-17-
<PAGE>
Retail banking fees and service charges earned for various deposit-related
activities grew by $0.4 million in the first six months of 1997. The overall
decline in retail banking noninterest income resulted from the late 1996
transfer of RCSB's securities brokerage business to an independent third
party. In 1997, the Company receives expense reimbursements from the
independent third party which operates in RCSB's banking offices.
Operating expenses incurred during the first six months of 1997 were $62.7
million compared to $59.1 million in the prior year. Higher expenses at AHF
and ACSI, resulting from the expansion of loan origination networks, and costs
associated with stock-based compensation were partially offset by a decline in
other real estate expenses.
The Company's effective tax rate was 37% in 1997 compared to 35% in 1996,
reflecting reductions in the deferred tax valuation allowance during both
years.
FINANCIAL CONDITION
At May 31, 1997, RCSB's total assets were $4.10 billion compared to $4.01
billion at November 30, 1996. Loans at the end of the 1997 second quarter
totaled $2.20 billion compared to $2.02 billion at November 30, 1996. Growth
in the automobile loan portfolio, which increased to $1.24 billion at May 31,
1997 from $994.7 million at the end of the 1996 fiscal year, was partially
offset by a decrease in residential mortgage loans and the sale of commercial
mortgage loans.
Securities held to maturity declined to $1.54 billion at May 31, 1997,
compared to $1.64 billion at November 30, 1996. Deposits of $2.34 billion at
May 31, 1997 decreased from $2.37 billion at November 30, 1996. Federal Home
Loan Bank borrowings, repurchase agreements and other borrowings totaled $1.23
billion at May 31, 1997, compared to $1.11 billion at November 30, 1996.
At May 31, 1997, the Company's portfolios are liability sensitive to interest
rate changes in the one-year timeframe to the extent of 10.1% of total assets.
The one-year gap was liability sensitive to the extent of 6.9% of assets at
November 30, 1996. Shareholders' equity totaled $312.6 million or $21.42 per
common share at May 31, 1997, compared to $323.9 million or $21.12 per common
share at November 30, 1996. The decrease in shareholders' equity resulted
from purchases of RCSB's common stock. The Company's stock repurchase program
was terminated in view of the pending merger with Charter One Financial, Inc.
A total of 0.9 million treasury shares with a cost of $28.9 million were held
by RCSB as of May 31, 1997.
-18-
<PAGE>
In accordance with requirements of the FDIC and the New York State Banking
Department, the Company's subsidiary, Rochester Community Savings Bank and its
subsidiaries (collectively, the Bank), must meet certain measures of capital
adequacy with respect to leverage and risk-based capital. At March 31, 1997,
the most recent FDIC reporting date, the Bank's capital ratios were in excess
of required levels as shown in the table below.
<TABLE>
<CAPTION>
BANK CAPITAL ADEQUACY
March 31, 1997
Actual Required Excess
--------------------------
<S> <C> <C> <C>
Core (Tier 1) leverage capital 7.25% 4.00% 3.25%
Risk-Based capital:
Core (Tier 1) capital 10.52 4.00 6.52
Total capital 11.49 8.00 3.49
</TABLE>
On June 30, 1997, the Board of Directors declared a cash dividend of $0.15 per
common share, payable August 1, 1997 to shareholders of record on July 15,
1997.
Allowance for Loan Losses and Nonperforming Assets
The determination of the allowance for loan losses is based on ongoing
analyses of the loan portfolio and reflects an amount which, in management's
judgment, is adequate to provide for potential losses. While management used
all currently available information to determine the adequacy of the
allowance, future additions may be necessary based on changes in economic and
market conditions, possible changes in strategies for resolving problem loans
and specific borrower situations. In addition, various regulatory agencies,
as an integral part of the examination process, periodically review the
Company's allowance for losses on loans. Such agencies may require the
Company to recognize additions to the allowance based on their judgments about
information available at the time of their examinations. RCSB's allowance for
loan losses at May 31, 1997 equaled 104.2% of nonperforming loans, which
exceeded the average of approximately 72% for all publicly-held thrifts as of
December 31, 1996, the most recent date for which such information is
available. Activity in RCSB's loan loss allowance during the first six months
of 1997 and 1996 and the allocation of the allowance for loan losses at May
31, 1997 and November 30, 1996 are presented below.
-19-
<PAGE>
<TABLE>
<CAPTION>
ALLOWANCE FOR LOAN LOSSES
(dollars in thousands)
Six Months Ended
May 31,
1997 1996
------------ ------------
<S> <C> <C>
Beginning balance $ 28,190 $ 26,091
Provision for loan losses 8,092 6,220
Loan charge offs (10,191) (8,090)
Loan recoveries 2,294 2,646
Allowances allocated to
commercial mortgage loans sold (2,048) -
------------ ------------
Ending balance $ 26,337 $ 26,867
============ ============
Annualized net charge-offs as a percent
of average loans:
Residential mortgage 0.23% 0.22%
Automobile 1.17 0.68
Commercial mortgage 0.10 2.75
Consumer and other 1.19 1.34
------------ ------------
Total 0.76% 0.54%
============ ============
Allowance as percent of:
Nonperforming loans 104.2% 102.7%
Nonperforming assets 83.9% 85.5%
Total loans 1.18% 1.30%
</TABLE>
-20-
<PAGE>
<TABLE>
<CAPTION>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(dollars in thousands)
MAY 31, November 30,
1997 1996
----------------- -------------------
As As
Percent Percent
of of
Related Related
Amount Loans Amount Loans
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Residential mortgage $ 4,643 0.53% $ 4,345 0.48%
Automobile 18,865 1.52 11,261 1.13
Commercial mortgage 1,618 12.70 11,190 20.26
Consumer and other 1,211 1.31 1,394 1.63
-------- -------- --------- --------
Total $ 26,337 1.18% $ 28,190 1.38%
======== ======== ======== ========
</TABLE>
Following the May 1997 sale of commercial mortgage loans, the Company
reallocated a portion of its loan loss allowance from the commercial mortgage
loan category to the automobile loan category. RCSB's remaining portfolio of
commercial mortgage loans declined to $12.7 million at the end of the 1997
second quarter, compared to $55.2 million as of the prior fiscal year end.
The portion of the Company's allowance for loan losses allocated to automobile
loans was $18.9 million or 1.52% of the outstanding portfolio at May 31, 1997,
while annualized net automobile loan charge offs for the three and six months
ending May 31, 1997 totaled 1.07% and 1.17%, respectively, of average loans.
-21-
<PAGE>
The Company's nonperforming asset disclosures encompass nonaccrual loans,
loans past due 90 days and accruing, restructured loans and other real estate.
Total nonperforming assets at May 31, 1997 were $31.4 million compared to
$30.4 million at November 30, 1996. The following table summarizes
nonperforming assets as of the end of the second quarter and the prior fiscal
year.
<TABLE>
<CAPTION>
NONPERFORMING ASSETS
(dollars in thousands)
MAY 31, November 30,
1997 1996
------------ ------------
<S> <C> <C>
Nonaccrual loans $ 18,968 $ 19,545
Loans past due 90 days and accruing 6,313 4,608
------------ ------------
Total nonperforming loans 25,281 24,153
Other real estate, net of allowances 6,111 6,212
------------ ------------
Total nonperforming assets $ 31,392 $ 30,365
============ ============
Nonperforming loans as percent of
total loans 1.14% 1.18%
Nonperforming assets as percent of
total assets 0.76% 0.76%
</TABLE>
-22-
<PAGE>
RCSB FINANCIAL, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of RCSB Financial, Inc. was held on April
9, 1997. Of the 14,825,880 shares eligible to vote at the annual meeting,
12,383,500 shares were represented in person or by proxy for the election of
directors, approval of the 1997 Long-Term Incentive Plan and appointment of
independent auditors. The following is a summary of matters voted upon at the
meeting.
<TABLE>
<CAPTION>
Number of Votes
---------------------------------------------
Broker
For Withheld Non-Votes
---------- --------- ----------
<S> <C> <C> <C> <C>
Nominees for Director for Three-
Year Term Expiring in 2000:
Matthew Augustine 12,257,932 124,400 1,168
Karen D. Petrou 12,257,575 124,757 1,168
Leonard Schutzman 12,257,440 124,892 1,168
John P. Tierney 12,258,761 123,571 1,168
Broker
For Against Abstentions Non-Votes
---------- --------- ----------- ---------
Approval of the Company's 1997
Long-Term Incentive Plan 10,725,368 1,493,532 163,432 1,168
Ratification of Appointment of
KPMG Peat Marwick LLP as
Independent Auditors 12,276,911 72,856 32,565 1,168
</TABLE>
-23-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
Exhibit
Number Document
------- --------
2 Agreement and Plan of Merger and Reorganization dated May 21,
1997, by and among Charter One Financial, Inc., Charter
Michigan Bancorp, Inc., Charter One Bank, F.S.B., RCSB
Financial, Inc. and Rochester Community Savings Bank
10 Stock Option Agreement, dated May 21, 1997, between Charter
One Financial, Inc. and RCSB Financial, Inc.
27 Article 9 Financial Data Schedule
(B) Reports on Form 8-K
None
-24-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RCSB FINANCIAL, INC.
--------------------
(registrant)
July 14, 1997 /s/ Leonard S. Simon
---------------- --------------------
Date Leonard S. Simon
Chairman of the Board, President
and Chief Executive Officer
July 14, 1997 /s/ Paul R. Wuest
---------------- -----------------
Date Paul R. Wuest
Senior Vice President and
Chief Financial Officer
-25-
<PAGE>
EXHIBIT INDEX
Regulation
S-K Exhibit
Number Document
------ --------
2 Agreement and Plan of Merger and Reorganization dated
May 21, 1997, by and among Charter One Financial, Inc.,
Charter Michigan Bancorp, Inc., Charter One Bank, F.S.B.,
RCSB Financial, Inc. and Rochester Community Savings Bank
10 Stock Option Agreement, dated May 21, 1997, between Charter
One Financial, Inc. and RCSB Financial, Inc.
27 Article 9 Financial Data Schedule
-26-
<PAGE>
Exhibit 2
-----------------------------------------------
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
by and among
CHARTER ONE FINANCIAL, INC.
CHARTER-MICHIGAN BANCORP, INC.
CHARTER ONE BANK F.S.B.
RCSB FINANCIAL, INC.
and
ROCHESTER COMMUNITY SAVINGS BANK
-----------------------------------------------
----------------
May 21, 1997
----------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I
THE MERGER AND RELATED MATTERS
<TABLE>
<CAPTION>
<S> <C>
1.1 Merger; Surviving Corporation and Resulting Institution.........................................2
1.2 Effective Time of the Merger....................................................................2
1.3 Company Merger..................................................................................3
1.4 Bank Merger.....................................................................................7
1.5 Closing.........................................................................................8
1.6 Reservation of Right to Revise Transaction......................................................8
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COFI AND CHARTER ONE BANK
2.1 Organization....................................................................................8
2.2 Authorization...................................................................................9
2.3 Conflicts.......................................................................................9
2.4 Anti-takeover Provisions Inapplicable..........................................................10
2.5 Capitalization.................................................................................10
2.6 COFI Financial Statements; Material Changes....................................................11
2.7 COFI Subsidiaries..............................................................................11
2.8 COFI Filings...................................................................................12
2.9 COFI Reports...................................................................................12
2.10 Compliance with Laws...........................................................................13
2.11 Registration Statement; Joint Proxy Statement.................................................13
2.12 Litigation.....................................................................................14
2.13 Licenses.......................................................................................14
2.14 Taxes..........................................................................................14
2.15 Insurance......................................................................................16
2.16 Loans; Investments.............................................................................16
2.17 Allowance for Possible Loan Losses.............................................................17
2.18 COFI Benefit Plans.............................................................................17
2.19 Compliance With Environmental Laws.............................................................19
2.20 Contracts and Commitments......................................................................20
2.21 Defaults.......................................................................................21
2.22 Operations Since December 31, 1996.............................................................21
2.23 Undisclosed Liabilities........................................................................21
2.24 Assets.........................................................................................22
2.25 Indemnification................................................................................22
</TABLE>
<PAGE>
<TABLE>
<S> <C>
2.26 Insider Interests..............................................................................23
2.27 Brokers and Finders............................................................................23
2.28 Accuracy of Information........................................................................23
2.29 Fairness Opinion...............................................................................23
2.30 Governmental Approvals and Other Conditions....................................................23
2.31 No Ownership in RCSB...........................................................................23
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF RCSB AND TARGET BANK
3.1 Organization. .................................................................................24
3.2 Authorization..................................................................................24
3.3 Conflicts......................................................................................24
3.4 Anti-takeover Provisions Inapplicable..........................................................25
3.5 Capitalization and Stockholders................................................................25
3.6 RCSB Financial Statements; Material Changes....................................................26
3.7 RCSB Subsidiaries..............................................................................26
3.8 RCSB Filings...................................................................................27
3.9 RCSB Reports...................................................................................27
3.10 Compliance With Laws...........................................................................28
3.11 Registration Statement: Joint Proxy Statement..................................................28
3.12 Litigation.....................................................................................29
3.13 Licenses. ....................................................................................29
3.14 Taxes..........................................................................................29
3.15 Insurance......................................................................................30
3.16 Loans; Investments.............................................................................31
3.17 Allowance for Possible Loan Losses.............................................................32
3.18 RCSB Benefit Plans.............................................................................33
3.19 Compliance with Environmental Laws.............................................................36
3.20 Contracts and Commitments......................................................................37
3.21 Defaults.......................................................................................39
3.22 Operations Since November 30, 1996.............................................................39
3.23 Corporate Records..............................................................................41
3.24 Undisclosed Liabilities........................................................................41
3.25 Assets.........................................................................................42
3.26 Indemnification................................................................................42
3.27 Insider Interests..............................................................................43
3.28 Registration Obligations.......................................................................43
3.29 Regulatory, Tax and Accounting Matters.........................................................43
3.30 Brokers and Finders............................................................................43
3.31 Accuracy of Information........................................................................43
3.32 Fairness Opinion...............................................................................44
3.33 Governmental Approvals and Other Conditions....................................................44
</TABLE>
ii
<PAGE>
ARTICLE IV
COVENANTS
<TABLE>
<S> <C>
4.1 Covenants of RCSB and Target Bank..............................................................44
4.2 Mutual Covenants...............................................................................49
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Inspection of Records; Confidentiality.........................................................50
5.2 Registration Statement; Stockholder Approval...................................................50
5.3 Agreements of Affiliates.......................................................................51
5.4 Expenses.......................................................................................51
5.5 Cooperation....................................................................................51
5.6 Regulatory Applications........................................................................52
5.7 Financial Statements and Reports...............................................................52
5.8 Notice.........................................................................................52
5.9 Press Release..................................................................................52
5.10 Delivery of Supplements to Disclosure Schedules................................................53
5.11 Litigation Matters.............................................................................53
5.12 Tax Opinion. .................................................................................53
5.13 Continuing Employees...........................................................................53
5.14 Reservation of Shares to Satisfy RCSB Stock Options............................................54
5.15 Nasdaq Listing. ..............................................................................54
5.16 Directors' and Officers' Indemnification Insurance.............................................54
5.17. Extraordinary COFI Dividend....................................................................55
ARTICLE VI
CONDITIONS
6.1 Conditions to the Obligations of COFI, Charter Michigan
and Charter One Bank..........................................................................55
6.2 Conditions to the Obligations of RCSB and Target Bank..........................................57
6.3 Conditions to the Obligations of the Parties...................................................57
</TABLE>
iii
<PAGE>
ARTICLE VII
TERMINATION; AMENDMENT; WAIVER
<TABLE>
<S> <C>
7.1 Termination....................................................................................58
7.2 Liabilities and Remedies.......................................................................59
7.3 Survival of Agreements.........................................................................59
7.4 Amendment......................................................................................59
7.5 Waiver.........................................................................................60
ARTICLE VIII
GENERAL PROVISIONS
8.1 Survival.......................................................................................60
8.2 Notices........................................................................................60
8.3 Applicable Law.................................................................................61
8.4 Headings, Etc..................................................................................62
8.5 Severability...................................................................................62
8.6 Entire Agreement; Binding Effect; Non-Assignment; Counterparts.................................62
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
-----------------------------------------------
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this
"Agreement") dated May 21, 1997, is by and among Charter One Financial, Inc., a
Delaware corporation ("COFI"), Charter-Michigan Bancorp, Inc., a Michigan
corporation and a wholly owned first-tier subsidiary of COFI ("Charter
Michigan"), Charter One Bank F.S.B., a federally chartered savings bank and a
wholly owned subsidiary of Charter Michigan ("Charter One Bank"), RCSB
Financial, Inc., a Delaware corporation ("RCSB"), and Rochester Community
Savings Bank, a New York chartered savings bank and a wholly owned first-tier
subsidiary of RCSB ("Target Bank").
A. COFI, Charter Michigan, Charter One Bank, RCSB and Target Bank wish
to provide for the terms and conditions of a strategic alliance in which RCSB
will be merged ("Company Merger") with and into Charter Michigan, followed
immediately by the merger of Target Bank with and into Charter One Bank ("Bank
Merger"). The Company Merger and the Bank Merger are collectively referred to
herein as the "Merger."
B. For federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended ("Code"), and this Agreement shall
constitute a plan of reorganization pursuant to Section 368 of the Code.
C. For accounting purposes, it is intended that the Merger shall be
accounted for as a pooling of interests.
D. The parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger.
E. As a condition to and inducement for COFI, Charter Michigan, and
Charter One Bank to enter into this Agreement, COFI and each of the directors of
RCSB will concurrently with the execution and delivery of this Agreement enter
into voting agreements in the form attached hereto as Exhibit A ("Voting
Agreements") and COFI and RCSB are entering into immediately after the execution
of this Agreement a stock option agreement dated as of the date hereof in the
form attached hereto as Exhibit B ("Stock Option Agreement") pursuant to which
RCSB shall grant to COFI an option to purchase shares of RCSB's common stock.
Accordingly, and in consideration of the representations, warranties,
covenants, agreements and conditions herein contained, the parties hereto agree
as follows:
<PAGE>
ARTICLE I
THE MERGER AND RELATED MATTERS
1.1 MERGER; SURVIVING CORPORATION AND RESULTING INSTITUTION. Subject to
the terms and conditions of this Agreement, and pursuant to the provisions of
the Michigan Business Corporation Act ("MBCA"), the Delaware General Corporation
Law ("DGCL"), the Federal Deposit Insurance Act ("FDIA"), the Home Owners' Loan
Act, as amended ("HOLA") and the rules and regulations promulgated under HOLA
and by the New York State Banking Department ("Thrift Regulations"), (a) at the
Effective Time (as defined in Section 1.2 hereof), RCSB shall be merged with and
into Charter Michigan pursuant to the terms and conditions set forth herein and
(b) thereafter at the Bank Merger Effective Time (as defined in Section 1.2
hereof), Target Bank shall be merged with and into COFI Bank pursuant to the
terms and conditions set forth herein. Upon the consummation of the Company
Merger, the separate corporate existence of RCSB shall cease and Charter
Michigan shall continue as the surviving corporation under the laws of the State
of Michigan. Upon consummation of the Bank Merger, the separate corporate
existence of Target Bank shall cease and Charter One Bank shall continue as the
resulting institution. The name of Charter Michigan as the surviving corporation
of the Company Merger shall remain "Charter Michigan Bancorp, Inc". From and
after the Effective Time, Charter Michigan, as the surviving corporation of the
Company Merger, shall possess all of the properties and rights and be subject to
all of the liabilities and obligations of Charter Michigan and RCSB, all as more
fully described in the MBCA and DGCL. The name of Charter One Bank, as the
resulting institution of the Bank Merger, shall remain "Charter One Bank
F.S.B.". From and after the Bank Merger Effective Time, Charter One Bank, as the
resulting institution of the Bank Merger, shall possess all of the properties
and rights and be subject to all of the liabilities and obligations of Charter
One Bank and Target Bank (including any liquidation account of Target Bank
established in connection with its conversion from mutual to stock form), all as
more fully described in the Thrift Regulations.
1.2 EFFECTIVE TIME OF THE MERGER. As soon as practicable after each of
the conditions set forth in Article VI hereof have been satisfied or waived, the
parties will file, or cause to be filed, with the Secretary of State of
Delaware, the Michigan Department of Commerce, the Office of Thrift Supervision
("OTS") and the New York State Banking Department ("Department") such
certificates of merger, articles of combination and other documents as they may
deem necessary or appropriate for the Company Merger and the Bank Merger, which
certificates of merger, articles of combination and other documents shall in
each case be in the form required by and executed in accordance with the
applicable provisions of the DGCL, MCBA and Thrift Regulations, respectively.
The Company Merger shall become effective at the time the certificate(s) of
merger for such merger are filed with the Secretary of State of Delaware and the
Michigan Department of Commerce ("Effective Time"). The Bank Merger shall become
effective at the time the articles of combination for such merger are endorsed
by the Secretary of the OTS pursuant to the Thrift Regulations ("Bank Merger
Effective Time"). The parties shall cause the Company Merger to become effective
immediately prior to the Bank Merger.
2
<PAGE>
1.3 COMPANY MERGER.
(a) CONVERSION OF RCSB STOCK. At the Effective Time:
(i) Each share of common stock of RCSB, $1.00 par
value per share (the "RCSB Common Stock"), issued and
outstanding immediately prior thereto shall, by virtue of the
Company Merger and without any action of the part of the
holder thereof, but subject to Section 1.3(d) hereof, be
converted into the right to receive from COFI .91 shares
("Exchange Ratio") of common stock of COFI, par value $.01 per
share ("COFI Common Stock"), 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. If, subsequent to the date of
this Agreement but prior to the Effective Time, the
outstanding shares of COFI Common Stock shall, through a
reclassification, recapitalization, stock dividend, stock
split or reverse stock split have been increased, decreased,
changed into or exchanged for a different number or kind of
shares or securities, appropriate adjustment will be made to
the Exchange Ratio.
Notwithstanding any other provision of this
Agreement, any shares of RCSB Common Stock issued and
outstanding immediately prior to the Effective Time which are
then owned beneficially or of record by COFI, Charter
Michigan, Charter One Bank, RCSB, Target Bank or by any direct
or indirect Subsidiary (as hereinafter defined) of any of them
or held in the treasury of RCSB (other than any shares of RCSB
Common Stock held (A) directly or indirectly in trust
accounts, managed accounts and the like, or otherwise held in
a fiduciary capacity, that are beneficially owned by third
parties or (B) in respect of a debt previously contracted)
shall, by virtue of the Company Merger, be canceled without
payment of any consideration therefor and without any
conversion thereof.
(ii) Each share of 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.
(iii) The holders of certificates representing shares
of RCSB Common Stock shall cease to have any rights as
stockholders of RCSB, except such rights, if any, as they may
have pursuant to the DGCL. Except as provided above, until
certificates representing shares of RCSB Common Stock are
surrendered for exchange, the certificates shall, after the
Effective Time, represent for all purposes only the right to
receive the number of whole shares of COFI Common Stock into
which such shares of RCSB Common Stock shall have been
converted by the
3
<PAGE>
Company Merger as provided above and the right to receive the
cash value of any fraction of a share of COFI Common Stock as
provided below (collectively, the "Merger Consideration").
(b) RESERVATION OF SHARES. Prior to the Effective Time, the
Board of Directors of COFI shall reserve for issuance a
sufficient number of shares of COFI Common Stock for the
purpose of issuing its shares to the stockholders of RCSB
in accordance herewith.
(c) EXCHANGE OF RCSB COMMON STOCK.
(i) As soon as reasonably practicable after the
Effective Time, holders of record of certificates formerly
representing shares of RCSB Common Stock ("Certificates")
shall be instructed to tender such Certificates to COFI, or at
the election of COFI, to an independent exchange agent to be
selected by COFI (the "Exchange Agent") pursuant to a letter
of transmittal that COFI shall deliver or cause to be
delivered to such holders. Such letter of transmittal shall
specify that delivery shall be effected, and risk of loss and
title to Certificates shall pass, only upon acceptance of such
Certificates by COFI or the Exchange Agent.
(ii) After the Effective Time, each holder of a
Certificate that properly surrenders such Certificate to COFI
or the Exchange Agent, together with a properly completed
letter of transmittal, duly executed, will, upon acceptance
thereof by COFI or the Exchange Agent, be entitled to the
Merger Consideration payable in respect of the shares
represented thereby, and the Certificates so surrendered shall
forthwith be cancelled.
(iii) COFI or the Exchange Agent shall accept
Certificates upon compliance with such reasonable terms and
conditions as COFI or the Exchange Agent may impose to effect
an orderly exchange thereof in accordance with customary
exchange practices. Certificates shall be appropriately
endorsed or accompanied by such instruments of transfer as
COFI or the Exchange Agent may reasonably require.
(iv) Each outstanding Certificate shall until duly
surrendered to COFI or the Exchange Agent be deemed to
evidence the right to receive the Merger Consideration.
(v) After the Effective Time, holders of Certificates
shall cease to have rights with respect to the RCSB Common
Stock previously represented by such Certificates, and their
sole rights shall be to exchange such Certificates for the
Merger Consideration. At the Effective Time, RCSB shall
deliver a certified copy of a list of its stockholders to COFI
or the Exchange Agent. After the Effective Time, there shall
be no further transfer on the records of RCSB of Certificates,
and
4
<PAGE>
if such Certificates are presented to RCSB for transfer, they
shall be canceled against delivery of the Merger
Consideration. COFI shall not be obligated to deliver the
Merger Consideration to any holder of RCSB Common Stock until
such holder surrenders the Certificates as provided herein. No
dividends declared will be remitted to any person entitled to
receive COFI Common Stock under this Agreement until such
person surrenders the Certificate representing the right to
receive such COFI Common Stock, at which time such dividends
on whole shares of COFI Common Stock with a record date on or
after the Effective Time shall be remitted to such person,
without interest and less any taxes that may have been imposed
thereon. Certificates surrendered for exchange by any person
constituting an "affiliate" of RCSB for purposes of Rule 145
under the Securities Act of 1933 and the rules and regulations
thereunder (the "Securities Act") shall not be exchanged for
certificates representing COFI Common Stock until COFI has
received a written agreement from such person as specified in
Section 5.3. Neither the Exchange Agent nor any party to this
Agreement nor any affiliate thereof shall be liable to any
holder of RCSB Common Stock represented by any Certificate for
any consideration paid to a public official pursuant to
applicable abandoned property, escheat or similar laws. COFI
and the Exchange Agent shall be entitled to rely upon the
stock transfer books of RCSB to establish the identity of
those persons entitled to receive consideration specified in
this Agreement, which books shall be conclusive with respect
thereto. In the event of a dispute with respect to ownership
of stock represented by any Certificate, COFI or the Exchange
Agent shall be entitled to deposit any consideration in
respect thereof in escrow with an independent third party and
thereafter be relieved with respect to any claims thereto.
(vi) If the Merger Consideration is to be issued to a
person other than a person in whose name a surrendered
Certificate is registered, it shall be a condition of issuance
that the surrendered Certificate shall be properly endorsed or
otherwise in proper form for transfer and that the person
requesting such issuance shall pay to COFI or the Exchange
Agent in advance any required transfer or other taxes or
establish to the satisfaction of COFI or the Exchange Agent
that such tax has been paid or is not applicable.
(vii) In the event any Certificate shall have been
lost, stolen or destroyed, the owner of such lost, stolen or
destroyed Certificate shall deliver to COFI or the Exchange
Agent an affidavit stating such fact, in form satisfactory to
COFI, and, at COFI's discretion, a bond in such reasonable sum
as COFI or the Exchange Agent may direct as indemnity against
any claim that may be made against COFI or RCSB or its
successor or any other party with respect to the Certificate
alleged to have been lost, stolen or destroyed. Upon such
delivery, the owner shall have the right to receive the Merger
Consideration with respect to the shares represented by the
lost, stolen or destroyed Certificate.
5
<PAGE>
(d) NO FRACTIONAL SHARES. Notwithstanding any other provision
of this Agreement, neither certificates nor scrip for fractional shares
of COFI Common Stock shall be issued in the Company Merger. Each holder
who otherwise would have been entitled to a fraction of a share of COFI
Common Stock (after taking into account all Certificates delivered by
such holder) shall receive in lieu thereof cash (without interest) in
an amount determined by multiplying the fractional share interest to
which such holder would otherwise be entitled by the COFI Share Price
on the last trading day preceding the Effective Time. The "COFI Share
Price" shall mean the closing sale price (rounded down to the nearest
cent) of one share of COFI Common Stock as reported on the Nasdaq
National Market. No such holder shall be entitled to dividends, voting
rights or any other rights in respect of any fractional share interest.
(e) STOCK OPTIONS. The Target Bank 1986 Stock Option Plan
("1986 Option Plan") and the Target Bank 1992 Stock-Based Compensation
Plan ("1992 Option Plan") and each option granted thereunder
outstanding on the date hereof (together with mandatory grants required
to be made to non-employee directors on May 28, 1997 under the 1992
Option Plan) and remaining outstanding immediately prior to the
Effective Time shall, at the Effective Time, be assumed by COFI and
each such 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 1986 Option Plan or 1992 Option Plan, whichever is
applicable):
(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 RCSB 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 RCSB 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 option which is
an "incentive stock option".
(f) ARTICLES OF INCORPORATION AND BYLAWS OF THE SURVIVING
CORPORATION. The Articles of Incorporation and Bylaws of Charter
Michigan, as in effect immediately prior to the Effective Time, shall
be the Articles of Incorporation and Bylaws of Charter Michigan, as the
surviving corporation of the Company Merger, until either is thereafter
amended in accordance with applicable law.
6
<PAGE>
(g) DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The
directors of Charter Michigan as the surviving corporation of the
Company Merger shall be those persons listed on Exhibit C to this
Agreement. Such directors shall continue in office until their
successors shall be duly elected and qualified or otherwise duly
selected. The officers of Charter Michigan immediately prior to the
Effective Time shall be the officers of Charter Michigan, as the
surviving corporation of the Company Merger, until their successors
shall be duly elected and qualified or otherwise duly selected.
(h) SERVICE OF PROCESS. At the Effective Time Charter
Michigan, as the surviving corporation of the Company Merger, consents
to be sued and served with process in the State of Delaware and
irrevocably appoints the Secretary of State of Delaware as its agent to
accept service of process in any proceeding in the State of Delaware to
enforce against it any obligation of RCSB.
(i) PRINCIPAL OFFICE. The location of the principal office of
Charter Michigan, as the surviving corporation of the Company Merger,
in the State of Michigan is 13606 Michigan Avenue, 2nd Floor,
Dearborn, Michigan 48126.
1.4 BANK MERGER.
(a) CANCELLATION OF TARGET BANK COMMON STOCK. At the Bank
Merger Effective Time, each share of common stock of Target Bank
("Target Bank Common Stock") issued and outstanding immediately prior
thereto shall, by virtue of the Bank Merger, be canceled. No new shares
of capital stock or other securities or obligations of Charter One Bank
shall be issued with respect to or in exchange for such canceled
shares, and such canceled shares of Target Bank Common Stock shall not
be converted into capital stock or other securities or obligations of
Charter One Bank.
(b) CHARTER AND BYLAWS OF THE RESULTING INSTITUTION. The
charter and bylaws of Charter One Bank, as in effect immediately prior
to the Bank Merger Effective Time, shall, without any change, be the
charter and bylaws of Charter One Bank, as the resulting institution of
the Bank Merger, until either is thereafter amended in accordance with
applicable law.
(c) DIRECTORS OF THE RESULTING INSTITUTION. The directors of
Charter One Bank, as the resulting institution of the Bank Merger,
shall be those persons listed in Exhibit C to this Agreement. Such
directors shall continue in office until their successors are duly
elected and qualified or otherwise duly selected.
(d) OFFICES OF THE RESULTING INSTITUTION. The home and other
offices of Charter One Bank, as the resulting institution of the Bank
Merger, shall be as listed in Exhibit D to this Agreement.
7
<PAGE>
1.5 CLOSING. Subject to the provisions of Article VI hereof, the
closing of the transactions contemplated by this Agreement (the "Closing") shall
take place as soon as practicable after satisfaction or waiver of all of the
conditions to Closing, and shall be at 10:00 a.m. on the first business day of
the first calendar month following the satisfaction of all of the conditions to
Closing, at the executive offices of COFI or at such other date, time and
location as is mutually agreed to by COFI and RCSB, but in no event prior to
September 1, 1997. The date on which the Closing actually occurs is herein
referred to as the "Closing Date".
1.6 RESERVATION OF RIGHT TO REVISE TRANSACTION. COFI shall have the
right to change the method of effecting the Merger in a manner reasonably
acceptable to RCSB (including without limitation the provisions of this Article
I), to the extent permitted by applicable law and to the extent it deems such
change to be desirable, provided, however, that no such change shall (a) alter
or change the amount or kind of the Merger Consideration or the treatment of
stock options as set forth in Section 1.3(e) hereof, (b) diminish the benefits
to be received by the directors, officers or employees of RCSB and Target Bank
as set forth in this Agreement or in any other agreements between the parties
made in connection with this Agreement, (c) materially impede or delay the
consummation of the Company Merger (d) adversely affect the tax treatment of
RCSB stockholders as a result of receiving the Merger Consideration or (e)
result in any representation or warranty of any party set forth in this
Agreement becoming incorrect in any material respect. COFI may exercise this
right of revision by giving written notice thereof in the manner provided in
Section 8.2 of this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COFI AND CHARTER ONE BANK
COFI and Charter One Bank jointly and severally represent and warrant
to RCSB and Target Bank that:
2.1 ORGANIZATION.
(a) COFI is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has all
requisite power and authority, corporate and otherwise, to own, operate
and lease its assets and properties and to carry on its business
substantially as it is now being conducted. COFI is duly licensed or
qualified to do business and is in good standing in each jurisdiction
where the character of the assets or properties owned or leased by it
or the nature of the business transacted by it requires that it be so
licensed or qualified, except where the failure to be so licensed or
qualified would not have a Material Adverse Effect (as defined in
Section 2.1(b) hereof)) on COFI or its ability to consummate the
transactions contemplated herein. COFI has all requisite corporate
power and authority to enter into this Agreement and, subject to the
approval of this Agreement and the Company Merger by its stockholders
and the receipt of all requisite regulatory approvals and the
expiration of applicable waiting periods, to
8
<PAGE>
consummate the Merger. COFI is duly registered as a savings and loan
holding company under HOLA.
(b) As used in this Agreement, the term "Material Adverse
Effect" with respect to COFI or RCSB means any condition, event, change
or occurrence that has or may reasonably be expected to have a material
adverse effect on the condition (financial or otherwise), properties,
business, operations, results of operations, assets or deposit
liabilities of such entity on a consolidated basis; it being understood
that a Material Adverse Effect shall not include: (i) a change with
respect to, or effect on, such entity and its Subsidiaries resulting
from a change in law, rule, regulation, generally accepted accounting
principles or regulatory accounting principles, as such would apply to
the financial statements of such entity on a consolidated basis; (ii) a
change with respect to, or effect on, such entity and its Subsidiaries
resulting from expenses (such as legal, accounting and investment
bankers' fees) incurred in connection with this Agreement; (iii) a
change with respect to, or effect on, such entity and its Subsidiaries
resulting from any other matter affecting depository institutions
generally including, without limitation, changes in general economic
conditions and changes in prevailing interest and deposit rates; or
(iv) in the case of RCSB, any financial change resulting from
adjustments taken pursuant to Section 4.1(h) hereof.
2.2 AUTHORIZATION. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby have been
duly approved and authorized by the Boards of Directors of COFI, Charter
Michigan and Charter One Bank, and all necessary corporate action on their part
has been taken, subject to the approval of this Agreement and the Company Merger
by the holders of a majority of the issued and outstanding COFI Common Stock.
This Agreement has been duly executed and delivered by COFI, Charter Michigan
and Charter One Bank and constitutes the valid and binding obligation of each of
them and is enforceable against each of them, except to the extent that
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles and
doctrines.
2.3 CONFLICTS. Subject to the second sentence of this Section 2.3, the
execution and delivery of this Agreement does not, and the consummation of the
transactions contemplated hereby will not, conflict with or result in any
violation, breach or termination of, or default or loss of a material benefit
under, or permit the acceleration of any obligation under, or result in the
creation of any material lien, charge or encumbrance on any of the property or
assets under, any provision of the Certificate of Incorporation or Bylaws of
COFI or similar documents of any COFI Subsidiary or any mortgage, indenture,
lease, agreement or other instrument, permit, concession, grant, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to COFI or any COFI Subsidiary or their respective properties, other
than any such conflicts, violations or defaults which (i) will be cured or
waived prior to the Effective Time; (ii) are not material to the conduct of
business or operations of COFI or any COFI Subsidiary; or (iii) are disclosed in
Section 2.3 of that certain confidential writing delivered by
9
<PAGE>
COFI to RCSB within two business days prior to the date hereof (the "COFI
Disclosure Schedule"). No consent, approval, order or authorization of, or
registration, declaration or filing with, any federal or state governmental
authority is required by or with respect to COFI, Charter Michigan or Charter
One Bank, in connection with the execution and delivery of this Agreement or the
consummation by them of the transactions contemplated hereby except for: (a) the
filing of all applicable regulatory applications by COFI, RCSB and/or their
respective Subsidiaries for approval of the transactions contemplated by this
Agreement; (b) the filing by COFI of the registration statement relating to the
COFI Common Stock to be issued pursuant to this Agreement ("Registration
Statement") with the United States Securities and Exchange Commission ("SEC")
and various blue sky authorities, which Registration Statement shall include the
prospectus/proxy statement ("Joint Proxy Statement") for use in connection with
the meetings of COFI's and RCSB's stockholders to vote on this Agreement and the
Company Merger; (c) the filing of one or more certificates of merger with
respect to the Company Merger with the Secretary of State of Delaware and the
Michigan Department of Commerce; (d) the filing of the articles of combination
with the OTS and the Department relating to the Bank Merger; (e) any filings,
approvals or no-action letters with or from state securities authorities; and
(f) any antitrust filings, consents, waivers or approvals.
2.4 ANTI-TAKEOVER PROVISIONS INAPPLICABLE. No "business combination,"
"moratorium," "control share" or other state anti-takeover statute or regulation
(i) prohibits or restricts the ability of COFI or Charter Michigan to perform
its obligations under this Agreement or its ability to consummate the
transactions contemplated hereby, (ii) would have the effect of invalidating or
voiding this Agreement or any provision hereof, or (iii) would subject RCSB to
any material impediment or condition in connection with the exercise of any of
its rights under this Agreement.
2.5 CAPITALIZATION.
(a) As of the date hereof, the authorized capital stock of
COFI consists of (i) 180,000,000 shares of COFI Common Stock, $0.01 par
value per share, of which, as of February 28, 1997, 46,330,703 shares
were issued and outstanding and (ii) 20,000,000 shares of preferred
stock, $0.01 par value per share, of which none are issued and
outstanding. All of the issued and outstanding shares of COFI Common
Stock have been, and all of the shares of COFI Common Stock to be
issued in the Company Merger will be, at the Effective Time, duly and
validly authorized and issued, and are or will be, as the case may be,
fully paid and non-assessable. None of the outstanding shares of COFI
Common Stock has been issued in violation of any preemptive rights of
the current or past stockholders of COFI and none of the outstanding
shares of COFI Common Stock is or will be entitled to any preemptive
rights in respect of the Company Merger or any of the other
transactions contemplated by this Agreement.
(b) As of April 30, 1997, COFI does not have outstanding any
securities or rights convertible into or exchangeable for COFI Common
Stock or any commitments, contracts, understandings or arrangements by
which COFI is or may be bound to issue
10
<PAGE>
additional shares of COFI Common Stock, except pursuant to an Agreement
and Plan of Merger and Reorganization with Haverfield Corporation and
Home Bank, F.S.B. dated April 22, 1997 ("Haverfield Definitive
Agreement"), employee and director stock options or as otherwise set
forth in Section 2.5 of the COFI Disclosure Schedule.
2.6 COFI FINANCIAL STATEMENTS; MATERIAL CHANGES. COFI has heretofore
delivered to RCSB its audited consolidated financial statements for calendar
years ended December 31, 1996 and December 31, 1995 (together the "COFI
Financial Statements"). The COFI Financial Statements (x) are true and correct
in all material respects; (y) have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto); and (z) fairly
present the consolidated financial position of COFI as of the dates thereof and
the consolidated results of its operations, shareholders' equity, cash flows and
changes in financial position for the periods then ended. Since December 31,
1996 to the date hereof, COFI and the COFI Subsidiaries have not undergone or
suffered any changes in their respective condition (financial or otherwise),
properties, business or operations which have been, in any case or in the
aggregate, materially adverse to COFI on a consolidated basis except as
disclosed in Section 2.6 of the COFI Disclosure Schedule. No facts or
circumstances have been discovered from which it reasonably appears that there
is a significant risk and reasonable probability that COFI will suffer or
experience a Material Adverse Effect.
2.7 COFI SUBSIDIARIES.
(a) All of the COFI Subsidiaries as of the date of this
Agreement are listed in Section 2.7 of the COFI Disclosure Schedule.
COFI owns directly or indirectly all of the issued and outstanding
shares of capital stock of the COFI Subsidiaries. No capital stock of
any of the COFI Subsidiaries is, or may become required to be, issued
(other than to COFI or another COFI Subsidiary) by reason of any
options, warrants, scrip, right to subscribe to, calls, or commitments
of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of the capital stock of
any COFI Subsidiary. All of the shares of capital stock of each COFI
Subsidiary held by COFI or a COFI Subsidiary are fully paid and
non-assessable and are owned free and clear of any claim, lien or
encumbrance, except as disclosed in Section 2.7 of the COFI Disclosure
Schedule.
(b) Each COFI Subsidiary is either a savings bank or a
corporation and is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated
or organized, and is duly licensed or qualified to do business and is
in good standing in each jurisdiction where the character of the assets
or properties owned or leased by it or the nature of the business
transacted by it requires it to be so licensed or qualified, except
where the failure to be so licensed or qualified, either individually
or in the aggregate, would not have a Material Adverse Effect on COFI
or the ability of Charter Michigan or Charter One Bank to consummate
the transactions contemplated herein.
11
<PAGE>
Each COFI Subsidiary has the corporate power and authority necessary
for it to own, operate or lease its assets and properties and to carry
on its business as it has been and is now being conducted.
(c) For purposes of this Agreement, an "COFI Subsidiary" or a
"Subsidiary" of COFI shall mean each corporation, savings bank and
other entity in which COFI owns or controls directly or indirectly 10%
or more of the outstanding equity securities; provided, however, there
shall not be included any such entity acquired in good faith through
foreclosure, or any such entity to the extent that the equity
securities of such entity are owned or controlled in a bona fide
fiduciary capacity.
(d) Charter One Bank is a member in good standing of the
Federal Home Loan Bank System. All eligible deposit accounts issued by
Charter One Bank are insured by the Federal Deposit Insurance
Corporation ("FDIC") through the Savings Association Insurance Fund
("SAIF") to the full extent permitted under applicable law. Charter One
Bank is, and at all times since June 1, 1990 has been, a "domestic
building and loan association" as defined in Section 7701(a)(19) of the
Code and a "qualified thrift lender" as defined in Section 10(m) of
HOLA.
2.8 COFI FILINGS. COFI has previously made available, or will make
available prior to the Effective Time, to RCSB true and correct copies of its
(i) proxy statements relating to all meetings of its stockholders (whether
special or annual) during calendar years 1995, 1996, and 1997 and (ii) all other
reports, as amended, or filings, as amended, required to be filed under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") by COFI with
the SEC since January 1, 1995, including without limitation on Forms 10-K, 10-Q
and 8-K.
2.9 COFI REPORTS. Each of COFI and the COFI Subsidiaries has filed, and
will continue to file, all material reports and statements, together with any
amendment required to be made with respect thereto, that it was, or will be
required to file with the SEC, the FDIC, the OTS, the National Association of
Securities Dealers, Inc. ("NASD") and other applicable thrift, securities and
other regulatory authorities (except filings which are not material). As of
their respective dates (and without giving effect to any amendments or
modifications filed after the date of this Agreement with respect to reports and
documents filed before the date of this Agreement), each of such reports and
documents, including the financial statements, exhibits, and schedules thereto,
complied in all material respects with all of the statutes, rules and
regulations enforced or promulgated by the authority with which they were filed
and did not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading. Other than
normal examinations conducted by the Internal Revenue Service, state and local
taxing authorities, the OTS or the FDIC in the regular course of the business of
COFI or the COFI Subsidiaries, no federal, state or local governmental agency,
commission or other entity has initiated any proceeding or, to the best
knowledge of COFI and Charter One Bank, investigation into the business or
operations of COFI or the COFI Subsidiaries within the past two years except
12
<PAGE>
as set forth in Section 2.9 of the COFI Disclosure Schedule. There is no
unresolved violation, criticism or exception by the SEC, OTS, FDIC or other
agency, commission or entity with respect to any report or statement referred to
herein that is material to COFI or any COFI Subsidiary.
2.10 COMPLIANCE WITH LAWS.
(a) Except as disclosed in Section 2.10 of the COFI Disclosure
Schedule, the businesses of COFI and the COFI Subsidiaries are not
being conducted in violation of any law, ordinance or regulation of any
governmental entity, including, without limitation, any laws affecting
financial institutions (including those pertaining to the Bank Secrecy
Act, the investment of funds, the lending of money, the collection of
interest and the extension of credit), federal and state securities
laws, laws and regulations relating to financial statements and
reports, truth-in-lending, truth-in-savings, usury, fair credit
reporting, consumer protection, occupational safety, fair employment
practices, fair labor standards and laws and regulations relating to
employees and employee benefits, and any statutes or ordinances
relating to the properties occupied or used by COFI or any COFI
Subsidiary, except for possible violations which either singly or in
the aggregate do not and, insofar as reasonably can be foreseen in the
future, will not have a Material Adverse Effect on COFI.
(b) Except as disclosed in Section 2.10 of the COFI Disclosure
Schedule, no investigation or review by any governmental entity with
respect to COFI or any COFI Subsidiary is pending or, to the best
knowledge of COFI and Charter One Bank, threatened, nor has any
governmental entity indicated to COFI or any COFI Subsidiary an
intention to conduct the same, other than normal or routine regulatory
examinations and those the outcome of which will not have a Material
Adverse Effect on COFI.
(c) COFI and each of the COFI Subsidiaries, where applicable,
is in substantial compliance with the applicable provisions of the
Community Reinvestment Act of 1977 and the regulations promulgated
thereunder. As of the date of this Agreement, neither COFI nor Charter
One Bank has been advised of the existence of any fact or circumstance
or set of facts or circumstances which, if true, would cause COFI or
any of the COFI Subsidiaries to fail to be in substantial compliance
with such provisions. No COFI Subsidiary that is a financial
institution has received a rating from an applicable regulatory
authority which is less than "satisfactory."
2.11 REGISTRATION STATEMENT; JOINT PROXY STATEMENT. The information to
be supplied by COFI for inclusion in the Registration Statement will not, at the
time the Registration Statement is declared effective and at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The information to be supplied by COFI for inclusion in the Joint
Proxy Statement will not, on the date the Joint Proxy Statement (or any
amendment thereof or supplement thereto) is first mailed to stockholders of COFI
or RCSB, or at the time of their respective meetings of stockholders to
13
<PAGE>
vote on this Agreement and the Company Merger, and at the Effective Time,
contain any statement that, in light of the circumstances under which it is
made, is false or misleading with respect to any material fact, omits to state
any material fact necessary in order to make the statements made therein not
false or misleading, or omits to state any material fact necessary to correct
any statement in any earlier communication with respect to the solicitation of
proxies for such meetings of stockholders that has become false or misleading.
If, at any time prior to the Effective Time, any event relating to COFI or any
of its affiliates, officers or directors is discovered by COFI that should be
set forth in an amendment to the Registration Statement or a supplement to the
Joint Proxy Statement, COFI will promptly inform RCSB and such amendment or
supplement will be promptly filed with the SEC and, as required by law,
disseminated to the stockholders of COFI and RCSB. Notwithstanding the
foregoing, COFI makes no representation or warranty with respect to any
information supplied by RCSB that is contained in any of the Registration
Statement or the Joint Proxy Statement. The Joint Proxy Statement and the
Registration Statement will (with respect to COFI) comply in all material
respects as to form and substance with the requirements of the Exchange Act, the
Securities Act, and the rules and regulations thereunder.
2.12 LITIGATION. Except as disclosed in Section 2.12 of the COFI
Disclosure Schedule, there is no suit, action, investigation or proceeding,
legal, quasi-judicial, administrative or otherwise, pending or, to the best
knowledge of COFI and Charter One Bank threatened, against or affecting COFI or
any COFI Subsidiary, or any of their respective officers, directors, employees
or agents, in their capacities as such, which if adversely determined, would
have a Material Adverse Effect on COFI or which would materially affect the
ability of COFI, Charter Michigan or Charter One Bank to consummate the
transactions contemplated herein or which is seeking to enjoin consummation of
the transactions provided for herein or to obtain other relief in connection
with this Agreement or the transactions contemplated hereby, nor is there any
judgment, decree, injunction, rule or order of any court, governmental
department, commission agency, instrumentality or arbitrator outstanding against
COFI or any COFI Subsidiary or any of their respective officers, directors,
employees or agents, in their capacities as such, having, or which, insofar as
reasonably can be foreseen in the future, would have any such effect.
2.13 LICENSES. COFI and the COFI Subsidiaries hold all licenses,
certificates, permits, franchises and all patents, trademarks, service marks,
trade names, copyrights or rights thereto, and required authorizations,
approvals, consents, licenses, clearances and orders or registrations with all
appropriate federal, state or other authorities that are material to the conduct
of their respective businesses as now conducted and as presently proposed to be
conducted.
2.14 TAXES.
(a) Except as disclosed in Section 2.14 of the COFI Disclosure
Schedule, COFI and the COFI Subsidiaries have each timely filed all tax
and information returns required to be filed and have paid (or COFI has
paid on behalf of its Subsidiaries), or have accrued on their
respective books and set up an adequate reserve for the payment of, all
14
<PAGE>
taxes reflected on such returns or required to be paid in respect of
the periods covered by such returns and have accrued on their
respective books and set up an adequate reserve for the payment of all
income and other taxes anticipated to be payable in respect of periods
through the end of the calendar month next preceding the date hereof.
Neither COFI nor any COFI Subsidiary is delinquent in the payment of
any tax, assessment or governmental charge. No deficiencies for any
taxes have been proposed, asserted or assessed against COFI or any COFI
Subsidiary that have not been resolved or settled, and no requests for
waivers of the time to assess any such tax are pending or have been
agreed to. Except as set forth in Section 2.14 of the COFI Disclosure
Schedule, neither COFI nor any COFI Subsidiary is currently subject to
audit or examination of any of its income tax returns by the Internal
Revenue Service or any state, municipal or other taxing authority.
Neither COFI nor any COFI Subsidiary is a party to any action or
proceeding by any governmental authority for the assessment or the
collection of taxes. Deferred taxes of COFI and the COFI Subsidiaries
have been accounted for in accordance with generally accepted
accounting principles.
(b) COFI has not filed any consolidated federal income tax
return with an "affiliated group" (within the meaning of Section 1504
of the Code), where COFI was not the common parent of the group.
Neither COFI nor any COFI Subsidiary is, or has been, a party to any
tax allocation agreement or arrangement pursuant to which it has any
contingent or outstanding liability to anyone other than COFI or a COFI
Subsidiary.
(c) COFI and the COFI Subsidiaries have each withheld amounts
from its employees, stockholders or holders of public deposit accounts
in compliance with the tax withholding provisions of applicable
federal, state and local laws, have filed all federal, state and local
returns and reports for all periods for which such returns or reports
would be due with respect to income tax withholding, social security,
unemployment taxes, income and other taxes and all payments or deposits
with respect to such taxes have been timely made and, except as set
forth in Section 2.14 of the COFI Disclosure Schedule, have notified
all employees, stockholders, and holders of public deposit accounts of
their obligations to file all forms, statements and reports with it in
accordance with applicable federal, state and local tax laws and have
taken reasonable steps to insure that such employees, stockholders and
holders of public deposit accounts have filed all such forms,
statements and reports with it.
(d) For the purposes of this Agreement, the terms "tax" and
"taxes" include, without limitation, any federal, state, local or
foreign income, leasing, franchise, excise, gross receipts, sales, use,
occupational, employment, real property, ad valorem, tangible and
intangible personal property and state taxes, payments in lieu of
taxes, levies, duties, imposts, business, operations or financial
condition, assessments, fees, charges and withholdings of any nature
whatsoever, together with any related penalties, fines, additions to
tax or interest thereon.
15
<PAGE>
2.15 INSURANCE. COFI and the COFI Subsidiaries maintain insurance with
insurers which in the best judgment of management of COFI are sound and
reputable on their respective assets and upon their respective businesses and
operations against loss or damage, risks, hazards and liabilities as in their
judgment they deem appropriate. COFI and the COFI Subsidiaries maintain in
effect all insurance required to be carried by law or by any agreement by which
they are bound. All material claims under all policies of insurance maintained
by COFI and the COFI Subsidiaries have been filed in due and timely fashion.
2.16 LOANS; INVESTMENTS.
(a) Except as otherwise disclosed in Section 2.16 of the COFI
Disclosure Schedule, each material loan reflected as an asset on the
COFI Financial Statements dated as of December 31, 1996 is evidenced by
appropriate and sufficient documentation and constitutes, to the best
knowledge of COFI and Charter One Bank, the legal, valid and binding
obligation of the obligor named therein, enforceable in accordance with
its terms, except to the extent that the enforceability thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws or equitable principles or doctrines. Except as set forth
in Section 2.16 of the COFI Disclosure Schedule, all such loans are,
and at the Effective Time will be, free and clear of any security
interest, lien, encumbrance or other charge.
(b) All guarantees of indebtedness owed to COFI or any COFI
Subsidiary, including but not limited to those of the Federal Housing
Administration, the Small Business Administration, and other state and
federal agencies, are, to the best knowledge of COFI and Charter One
Bank, valid and enforceable, except to the extent enforceability
thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles or
doctrines and except as would not have a Material Adverse Effect on
COFI.
(c) All interest rate swaps, caps, floors and option
agreements and other interest rate risk management arrangements to
which COFI or any COFI Subsidiary is a party or by which any of their
properties or assets may be bound were entered into in the ordinary
course of business and, to the best knowledge of COFI and Charter One
Bank, in accordance with then-customary practice and applicable rules,
regulations and policies of thrift regulatory authorities and with
counterparties believed to be financially responsible at the time and
are legal, valid and binding obligations and are in full force and
effect. COFI and the COFI Subsidiaries have duly performed in all
material respects all of their respective obligations thereunder to the
extent that such obligations to perform have accrued, and to the best
knowledge of COFI and Charter One Bank, there are no material breaches,
violations or defaults or allegations or assertions of such by any
party thereunder. None of the transactions contemplated by this
Agreement would permit (i) a counterparty under any interest rate swap,
cap, floor and option agreement or any other interest rate risk
management agreement or (ii) any party to any mortgage backed security
16
<PAGE>
financing arrangement, to accelerate, discontinue, terminate, or
otherwise modify any such agreement or arrangement or would require
COFI or any COFI Subsidiary to recognize any gain or loss with respect
to such arrangement.
(d) Except as set forth in Section 2.16 of the COFI Disclosure
Schedule and except for pledges to secure public and trust deposits,
none of the investments reflected in the COFI Financial Statements
dated as of December 31, 1996 under the heading "Investment
Securities," and none of the investments made by COFI and the COFI
Subsidiaries since December 31, 1996, is subject to any restriction,
whether contractual or statutory, which materially impairs the ability
of COFI or any COFI Subsidiary to freely dispose of such investment at
any time, other than those restrictions imposed on securities held for
investment under generally accepted accounting principles. With respect
to all material repurchase agreements to which COFI or any COFI
Subsidiary is a party, COFI or such Subsidiary has a valid, perfected
first lien, or security interest in the government securities or other
collateral securing each such repurchase agreement, and the value of
the collateral securing each such repurchase agreement equals or
exceeds the amount of the debt secured by such collateral under such
agreement.
2.17 ALLOWANCE FOR POSSIBLE LOAN LOSSES. The allowance for possible
loan losses shown on the COFI Financial Statements as of December 31, 1996, (and
as shown on any financial statements to be delivered by COFI to RCSB pursuant to
Section 5.7 hereof), to the best knowledge of COFI and Charter One Bank, as of
such date was (and will be as of such subsequent financial statement dates)
adequate in all respects to provide for possible or specific losses, net of
recoveries relating to loans previously charged off, on loans outstanding, and
contained (or will contain) an additional amount of unallocated reserves for
unanticipated future losses at a level considered adequate under the standards
applied by applicable federal regulatory authorities and based upon generally
accepted accounting principles applicable to Charter One Bank. To the best
knowledge of COFI and Charter One Bank, the aggregate principal amount of loans
contained (or that will be contained) in the loan portfolio of COFI and the COFI
Subsidiaries as of December 31, 1996 (and as of the dates of any financial
statements to be delivered by COFI to RCSB pursuant to Section 5.7 hereof), in
excess of such reserve, was (and will be) fully collectible.
2.18 COFI BENEFIT PLANS.
(a) The term "COFI Benefit Plans" as used herein refers to
each compensation, consulting, employment, termination or collective
bargaining agreement, and each stock option, stock purchase, stock
appreciation right, life, health, accident or other insurance, bonus,
deferred or incentive compensation, severance or separation agreement
or any agreement providing any payment or benefit resulting from a
change in control, profit sharing, retirement, or other employee
benefit plan, practice, policy or arrangement of any kind, oral or
written, covering any employee, former employee, director or former
director of COFI or any COFI Subsidiary or his or her beneficiaries,
including, but not limited to,
17
<PAGE>
any employee benefit plans within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
which COFI or any COFI Subsidiary maintains, to which COFI or any COFI
Subsidiary contributes, or under which any employee, former employee,
director or former director of COFI or any COFI Subsidiary is covered
or has benefit rights and pursuant to which any liability of COFI or
any COFI Subsidiary exists or is reasonably likely to occur, provided
that the term "Plan or "Plans" is used in this Agreement for
convenience only and does not constitute an acknowledgment that a
particular arrangement is an employee benefit plan within the meaning
of Section 3(3) of ERISA. No COFI Benefit Plan is a multi-employer plan
within the meaning of Section 3(37) of ERISA.
(b) Each of the COFI Benefit Plans that is intended to be a
pension, profit sharing, stock bonus, thrift, savings or employee stock
ownership plan that is qualified under Section 401(a) of the Code
("COFI Qualified Plans") has been determined by the Internal Revenue
Service to qualify under Section 401(a) of the Code, or an application
for determination of such qualification has been timely made to the
Internal Revenue Service prior to the end of the applicable remedial
amendment period under Section 401(b) of the Code, and, to the best of
COFI's knowledge, there exist no circumstances likely to adversely
affect the qualified status of any such COFI Qualified Plan. All such
COFI Qualified Plans established or maintained by COFI or any of the
COFI Subsidiaries or to which COFI or any of the COFI Subsidiaries
contribute are in compliance in all material respects with all
applicable requirements of ERISA, and are in compliance in all material
respects with all applicable requirements (including qualification and
non-discrimination requirements) of the Code for obtaining the tax
benefits the Code thereupon permits with respect to such COFI Qualified
Plans. Neither COFI nor any COFI Subsidiary maintains, sponsors or
contributes to a Qualified Plan that is a defined benefit pension plan
subject to Title IV of ERISA. All accrued contributions and other
payments required to be made by COFI or any COFI Subsidiary to any COFI
Benefit Plan through December 31, 1996, have been made or reserves
adequate for such purposes as of December 31, 1996 have been set aside
therefor and reflected in the COFI Financial Statements dated as of
December 31, 1996. Neither COFI nor any COFI Subsidiary is in material
default in performing any of its respective contractual obligations
under any of the COFI Benefit Plans or any related trust agreement or
insurance contract, and there are no material outstanding liabilities
of any such Plan other than liabilities for benefits to be paid to
participants in such Plan and their beneficiaries in accordance with
the terms of such Plan.
(c) There is no pending or, to the best knowledge of COFI and
Charter One Bank, threatened litigation or pending claim (other than
benefit claims made in the ordinary course) by or on behalf of or
against any of the COFI Benefit Plans (or with respect to the
administration of any of the such Plans) now or heretofore maintained
by COFI or any COFI Subsidiary which allege violations of applicable
state or federal law
18
<PAGE>
which are reasonably likely to result in a liability on the part of
COFI or any COFI Subsidiary or any such Plan.
(d) COFI and the COFI Subsidiaries and all other persons
having fiduciary or other responsibilities or duties with respect to
any COFI Benefit Plan are and have since the inception of each such
Plan been in substantial compliance with, and each such Plan is and has
been operated in substantial accordance with, its provisions and in
substantial compliance with the applicable laws, rules and regulations
governing such Plan, including, without limitation, the rules and
regulations promulgated by the Department of Labor, the Pension Benefit
Guaranty Corporation ("PBGC") and the Internal Revenue Service under
ERISA, the Code or any other applicable law. Notwithstanding the
foregoing, no representation is made with respect to compliance by a
third party insurance company. No "reportable event" (as defined in
Section 4043(b) of ERISA) has occurred with respect to any COFI
Qualified Plan. Neither COFI, any COFI Subsidiary nor any COFI Benefit
Plan has incurred or is reasonably likely to incur any liability for
any "prohibited transactions" (as defined in Section 406 of ERISA or
Section 4975(a) of the Code), or any material liability under Section
601 of ERISA or Section 4980 of the Code.
(e) COFI and the COFI Subsidiaries have filed or caused to be
filed, and will continue to file or cause to be filed, in a timely
manner all filings pertaining to each COFI Benefit Plan with the
Internal Revenue Service, the PBGC, the Department of Labor, and as
prescribed by the Code or ERISA, or regulations issued thereunder. All
such filings, as amended, were complete and accurate in all material
respects as of the dates of such filings. Notwithstanding the
foregoing, no representation is made with respect to filings by a third
party insurance company.
2.19 COMPLIANCE WITH ENVIRONMENTAL LAWS.
(a) Except as set forth in Section 2.19 of the COFI Disclosure
Schedule: (i) to the best knowledge of COFI and Charter One Bank, the
operations of COFI and each of the COFI Subsidiaries comply in all
material respects with all applicable past and present Environmental
Laws (as defined below); (ii) to the best knowledge of COFI and Charter
One Bank, none of the operations of COFI or any COFI Subsidiary, no
assets presently or formerly owned or leased by COFI or any COFI
Subsidiary and no Mortgaged Premises (as defined below) or a
Participating Facility (as defined below) are subject to any judicial
or administrative proceedings alleging the violation of any past or
present Environmental Law, nor are they the subject of any claims
alleging damages to health or property, pursuant to which COFI, any
COFI Subsidiary or any owner of a Mortgaged Premises or a Participating
Facility would be liable in law or equity; (iii) none of the operations
of COFI or any COFI Subsidiary, no assets presently owned or, to the
best knowledge of COFI and Charter One Bank, formerly owned by COFI or
any COFI Subsidiary, and, to the best knowledge of COFI and Charter One
Bank, no Mortgaged Premises or Participating Facility are the subject
of any federal, state or local investigation evaluating
19
<PAGE>
whether any remedial action is needed to respond to a release or
threatened release of any Hazardous Substance (as defined below), or
any other substance into the environment, nor has COFI or any COFI
Subsidiary, or, to the best knowledge of COFI and Charter One Bank, any
owner of a Mortgaged Premises or Participating Facility been directed
to conduct such investigation, formally or informally, by any
governmental agency, nor have any of them agreed with any governmental
agency or private person to conduct any such investigation; and (iv)
neither COFI or any COFI Subsidiary, nor, to the best knowledge of COFI
and Charter One Bank, any owner of a Mortgaged Premises or a
Participating Facility has filed any notice under any Environmental Law
indicating past or present treatment, storage or disposal of a
Hazardous Substance or reporting a spill or release of a Hazardous
Substance, or any other substance into the environment.
(b) For purposes of this Section, "Mortgaged Premises" shall
mean each (i) real property interest (including without limitation any
fee or leasehold interest) which is encumbered or affected by any
mortgage, deed of trust, deed to secure debt or other similar document
or instrument granting to any party hereto or any of its Subsidiaries a
lien on or security interest in such real property interest and (ii)
any other real property interest upon which is situated assets or other
property affected or encumbered by any document or instrument granting
to any party hereto or any of its Subsidiaries a lien thereon or
security interest therein; provided, however, that the term "Mortgaged
Premises" shall not include one- to four-unit, single-family
residences, and in the case of COFI and the COFI Subsidiaries, any real
property interest securing a loan with a principal balance of less than
one million dollars, and in the case of RCSB and the RCSB Subsidiaries,
any real property interest securing a loan with a principal balance of
less than five hundred thousand dollars. For purposes of this Section,
"Participating Facility" means any property in which any party hereto
or any of its Subsidiaries participates in the management of such
property and, where the context requires, includes the owner or
operator of such property. For purposes of this Agreement, "Hazardous
Substance" has the meaning set forth in Section 9601 of the
Comprehensive Environmental Response Compensation and Liability Act of
1980, 42 U.S.C.A., Section 9601 et seq., and also includes any
substance now or hereafter regulated by or subject to any Environmental
Laws (as defined below) and any other pollutant, contaminant, or waste,
including without limitation, petroleum, asbestos, fiberglass, radon,
and polychlorinated biphenyls. For purposes of this Agreement,
"Environmental Laws" means all laws (civil or common), ordinances,
rules, regulations, guidelines, and orders that: (i) regulate air,
water, soil, and solid waste management, including the generation,
release, containment, storage, handling, transportation, disposition,
or management of any Hazardous Substance; (ii) regulate or prescribe
requirements for air, water, or soil quality; (iii) are intended to
protect public health or the environment; or (iv) establish liability
for the investigation, removal, or cleanup of, or damage caused by, any
Hazardous Substance.
2.20 CONTRACTS AND COMMITMENTS. Section 2.20 of the COFI
Disclosure Schedule contains, and shall be supplemented by COFI, as required by
Section 5.10 hereof, so as to contain
20
<PAGE>
at the Closing Date copies of each of the following documents, certified by an
officer of COFI to be true and correct copies of such documents on the dates of
such certificates.
(a) The Certificate or Articles of Incorporation, Charters and
Bylaws of COFI and each COFI Subsidiary.
(b) All judgments, orders, injunctions, court decrees or
settlement agreements arising out of or relating to the labor and
employment practices or decisions of COFI or any COFI Subsidiary which,
by their terms, continue to bind or affect COFI or any COFI Subsidiary.
(c) All orders, decrees, memorandums, agreements or
understandings with regulatory agencies binding upon or affecting the
current operations of COFI or any COFI Subsidiary or any of their
directors or officers in their capacities as such.
2.21 DEFAULTS. There has not been any default in any material
obligation to be performed by COFI or any COFI Subsidiary under any material
contract or commitment, and neither COFI nor any COFI Subsidiary has waived, any
material right under any material contract or commitment. To the best knowledge
of COFI and Charter One Bank, no other party to any material contract or
commitment is in default in any material obligation to be performed by such
party.
2.22 OPERATIONS SINCE DECEMBER 31, 1996. Between December 31, 1996 and
the date hereof, except as set forth in Section 2.22 of the COFI Disclosure
Schedule, there has not been:
(a) any creation or assumption of indebtedness (including the
extension or renewal of any existing indebtedness, or the increase
thereof) by COFI or any COFI Subsidiary for borrowed money, or
otherwise, other than in the ordinary course of business, none of which
is in default;
(b) any change in COFI's independent auditors, historic
methods of accounting (other than as required by generally accepted
accounting principles or regulatory accounting principles), or in its
system for maintaining its equipment and real estate; or
(c) any event or condition of any character (other than
changes in legal, economic or other conditions which are not specially
or uniquely applicable to COFI or any COFI Subsidiary) materially
adversely affecting the business, operations or financial condition of
COFI on a consolidated basis.
2.23 UNDISCLOSED LIABILITIES. All of the obligations or liabilities
(whether accrued, absolute, contingent, unliquidated or otherwise, whether due
or to become due, and regardless of when asserted) arising out of transactions
or events heretofore entered into, or any action or inaction, including taxes
with respect to or based upon transactions or events heretofore occurring, that
are required to be reflected, disclosed or reserved against in audited
consolidated
21
<PAGE>
financial statements in accordance with generally accepted accounting principles
("Liabilities") have, in the case of COFI and the COFI Subsidiaries, been so
reflected, disclosed or reserved against in the COFI Financial Statements dated
as of December 31, 1996 or in the notes thereto, and COFI and the COFI
Subsidiaries have no other Liabilities except (a) Liabilities incurred since
December 31, 1996 in the ordinary course of business, (b) Liabilities under the
Haverfield Definitive Agreement or (c) as disclosed in Section 2.23 of the COFI
Disclosure Schedule.
2.24 ASSETS.
(a) COFI and the COFI Subsidiaries have good, and marketable
title to their real properties, including any leaseholds and ground
leases, and their other assets and properties, all as reflected as
owned or held by COFI in the COFI Financial Statements dated as of
December 31, 1996, and those acquired since such date, except for (i)
assets and properties disposed of since such date in the ordinary
course of business and (ii) liens, none of which, in the aggregate,
except as set forth in the COFI Financial Statements dated as of
December 31, 1996 or in Section 2.24 of the COFI Disclosure Schedule,
are material to the assets of COFI on a consolidated basis. All
buildings, structures, fixtures and appurtenances comprising part of
the real properties of COFI and the COFI Subsidiaries (whether owned or
leased) are in good operating condition and have been well maintained,
reasonable wear and tear excepted. Title to all real property owned by
COFI and the COFI Subsidiaries is held in fee simple, except as
otherwise noted in the COFI Financial Statements as of December 31,
1996 or as set forth in Section 2.24 of the COFI Disclosure Schedule.
COFI and the COFI Subsidiaries have title or other rights to its assets
sufficient in all material respects for the conduct of their respective
businesses as presently conducted, and except as set forth in the COFI
Financial Statements dated as of December 31, 1996, or in Section 2.24
of the COFI Disclosure Schedule, such assets are free, clear and
discharged of and from any and all liens, charges, encumbrances,
security interests and/or equities which are material to COFI or any
COFI Subsidiary.
(b) All leases pursuant to which COFI or any COFI Subsidiary,
as lessee, leases real or personal property which are material to the
business of COFI on a consolidated basis are, to the best knowledge of
COFI and Charter One Bank, valid, effective, and enforceable against
the lessor in accordance with their respective terms. There is not
under any of such leases any existing default, or any event which, with
notice or lapse of time or both, would constitute a default, with
respect to COFI or any COFI Subsidiary, or to the best knowledge of
COFI and Charter One Bank, and the other party.
2.25 INDEMNIFICATION. To the best knowledge of COFI and Charter One
Bank, except as set forth in Section 2.25 of the COFI Disclosure Schedule, no
action or failure to take action by any director, officer, employee or agent of
COFI or any COFI Subsidiary has occurred which would give rise to a claim by any
such person for indemnification from COFI or any COFI Subsidiary under the
corporate indemnification provisions of such entity in effect on the date of
this Agreement.
22
<PAGE>
2.26 INSIDER INTERESTS. All outstanding loans and other contractual
arrangements (including deposit relationships) between COFI or any COFI
Subsidiary and any of its officers, directors or employees conform to applicable
rules and regulations and requirements of all applicable regulatory agencies
which were in effect when such loans and other contractual arrangements were
entered into. Except as set forth in Section 2.26 of the COFI Disclosure
Schedule, no officer, director or employee of COFI or any COFI Subsidiary has
any material interest in any property, real or personal, tangible or intangible,
used in or pertaining to the business of COFI or any COFI Subsidiary.
2.27 BROKERS AND FINDERS. Neither COFI nor any COFI Subsidiary nor any
of their respective officers, directors or employees has employed any broker or
finder or incurred any liability for any financial advisory fees (other than in
connection with a fairness opinion), brokerage fees, commissions or finders's
fees, and no broker or finder has acted directly or indirectly for COFI or any
COFI Subsidiary, in connection with this Agreement or the transactions
contemplated hereby.
2.28 ACCURACY OF INFORMATION. The statements of COFI and Charter One
Bank contained in this Agreement, the Schedules hereto and in any other written
document executed and delivered by or on behalf of COFI or Charter One Bank
pursuant to the terms of this Agreement are true and correct in all material
respects.
2.29 FAIRNESS OPINION. COFI has received from Montgomery Securities a
fairness opinion, dated as of the date of this Agreement, to the effect that the
Company Merger is fair to the stockholders of COFI from a financial point of
view.
2.30 GOVERNMENTAL APPROVALS AND OTHER CONDITIONS. To the best knowledge
of COFI and Charter One Bank, there is no reason relating specifically to COFI
or any COFI Subsidiary why (a) the approvals that are required to be obtained
from regulatory authorities having approval authority in connection with the
transactions contemplated hereby should not be granted, (b) such regulatory
approvals should be subject to a condition which would differ from conditions
customarily imposed by such regulatory authorities in orders approving
acquisitions of the type contemplated hereby or (c) any of the conditions
precedent as specified in Article VI hereof to the obligations of any of the
parties hereto to consummate the transactions contemplated hereby are unlikely
to be fulfilled within the applicable time period or periods required for
satisfaction of such condition or conditions.
2.31 NO OWNERSHIP IN RCSB. Neither COFI nor any COFI Subsidiary owns
any RCSB Common Stock.
23
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF RCSB AND TARGET BANK
RCSB and Target Bank jointly and severally represent and warrant to
COFI and Charter One Bank that except as set forth in that certain confidential
writing delivered by RCSB to COFI on or before the date hereof (the "RCSB
Disclosure Schedule"):
3.1 ORGANIZATION. RCSB is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite power and authority, corporate and otherwise, to own, operate and
lease its assets and properties and to carry on its business substantially as it
is now being conducted. RCSB is duly licensed or qualified to do business and is
in good standing in each jurisdiction where the character of the assets or
properties owned or leased by it or the nature of the business transacted by it
requires that it be so licensed or qualified, except where the failure to be so
licensed or qualified would not have a Material Adverse Effect on RCSB or its
ability to consummate the transactions contemplated herein. RCSB has all
requisite corporate power and authority to enter into this Agreement and,
subject to the approval of this Agreement and the Company Merger by its
stockholders and the receipt of all requisite regulatory approvals and the
expiration of any applicable waiting periods, to consummate the transactions
contemplated hereby. RCSB is duly registered as a savings and loan holding
company under HOLA.
3.2 AUTHORIZATION. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and unanimously approved and authorized by the Boards of Directors of RCSB
and Target Bank, and all necessary corporate action on the part of RCSB and
Target Bank has been taken, subject to the approval of this Agreement and the
Company Merger by the holders of a majority of the issued and outstanding RCSB
Common Stock. This Agreement has been duly executed and delivered by RCSB and
Target Bank and constitutes the valid and binding obligation of each of them and
is enforceable against each of them, except to the extent that enforceability
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws or equitable principles or doctrines.
3.3 CONFLICTS. Subject to the second sentence of this Section 3.3, the
execution and delivery of this Agreement does not, and the consummation of the
transactions contemplated hereby will not, conflict with or result in any
violation, breach or termination of, or default or loss of a material benefit
under, or permit the acceleration of any obligation under, or result in the
creation of any lien, charge or encumbrance on any property or assets under, any
provision of the Certificate of Incorporation or Bylaws of RCSB or similar
documents of any RCSB Subsidiary (as defined in Section 3.7 hereof), or any
material mortgage, indenture, lease, agreement or other instrument, permit,
concession, grant, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to RCSB or any RCSB Subsidiary or their
respective properties, other than any such conflicts, violations or defaults
which (i) will be cured or waived prior to the Effective Time or (ii) are
disclosed in Section 3.3 of the RCSB Disclosure Schedule.
24
<PAGE>
No consent, approval, order or authorization of, or registration, declaration or
filing with, any federal or state governmental authority is required by or with
respect to RCSB or Target Bank in connection with the execution and delivery of
this Agreement or the consummation by RCSB or Target Bank of the transactions
contemplated hereby except for the filings, approvals or waivers contemplated by
Section 2.3 hereof and consents that are not material to the transactions
contemplated hereby.
3.4 ANTI-TAKEOVER PROVISIONS INAPPLICABLE. No "business combination,"
"moratorium," "control share" or other state anti-takeover statute or
regulation, (i) applies to the Merger, the Voting Agreements or the Stock Option
Agreement, (ii) prohibits or restricts the ability of RCSB or Target Bank to
perform its obligations under this Agreement, or its ability to consummate the
transactions contemplated hereby, (iii) would have the effect of invalidating or
voiding this Agreement, any of the Voting Agreements, or the Stock Option
Agreement, or any provision hereof or thereof, or (iv) would subject COFI,
Charter Michigan or Charter One Bank to any material impediment or condition in
connection with the exercise of any of its right under this Agreement, any of
the Voting Agreements, or the Stock Option Agreement.
3.5 CAPITALIZATION AND STOCKHOLDERS.
(a) The authorized capital stock of RCSB consists of (i)
50,000,000 shares of RCSB Common Stock, $1.00 par value per share, of
which 14,477,106 shares are issued and outstanding and 947,100 shares
are held as treasury shares, in each case as of the date of this
Agreement, and (ii) 50,000,000 shares of series preferred stock, $1.00
par value, consisting of 200,000 shares of Series A junior
participating preferred stock and 4,000,000 shares of 7% noncumulative,
convertible perpetual preferred stock Series B, of which none are
issued and outstanding. All of the issued and outstanding shares of
RCSB Common Stock have been duly and validly authorized and issued, and
are fully paid and non-assessable. None of the outstanding shares of
RCSB Common Stock has been issued in violation of any preemptive rights
of current or past stockholders or are subject to any preemptive rights
of the current or past stockholders of RCSB. All of the issued and
outstanding shares of RCSB Common Stock will be entitled to vote to
approve this Agreement and the Company Merger.
(b) As of the date hereof, RCSB had _______ shares of RCSB
Common Stock reserved for issuance under the 1986 Option Plan and 1992
Option Plan for the benefit of employees and directors of RCSB and the
RCSB Subsidiaries, pursuant to which options covering 759,464 shares of
RCSB Common Stock are outstanding (the "RCSB Stock Options"). Except as
set forth in this Section, there are no shares of capital stock or
other equity securities of RCSB outstanding and no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible
into or exchangeable for, shares of the capital stock of RCSB, or
contracts, commitments, understandings, or arrangements by which RCSB
is or may be bound to issue additional shares of its capital stock or
options, warrants, or rights to purchase or acquire any additional
shares of its capital stock. Section 3.5 of the RCSB
25
<PAGE>
Disclosure Schedule sets forth the name of the holder of each RCSB
Stock Option and the date of grant of, number of shares represented by,
exercise price and expiration of, and vesting or performance
requirements associated with, each RCSB Stock Option.
3.6 RCSB FINANCIAL STATEMENTS; MATERIAL CHANGES. RCSB has heretofore
delivered to COFI its audited consolidated financial statements for fiscal years
ended November 30, 1996 and November 30, 1995 (together the "RCSB Financial
Statements"). The RCSB Financial Statements (x) are true and correct in all
material respects; (y) have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto); and (z) fairly present the
consolidated financial position of RCSB as of the dates thereof and the
consolidated results of its operations, shareholders' equity, cash flows and
changes in financial position for the periods then ended. Since November 30,
1996 to the date hereof, RCSB and the RCSB Subsidiaries have not undergone or
suffered any changes in their respective condition (financial or otherwise),
properties, business or operations which have been, in any case or in the
aggregate, materially adverse to RCSB on a consolidated basis. No facts or
circumstances have been discovered from which it reasonably appears that there
is a significant risk or reasonable probability that RCSB will suffer or
experience a Material Adverse Effect.
3.7 RCSB SUBSIDIARIES.
(a) All of the RCSB Subsidiaries are listed in Section 3.7 of
the RCSB Disclosure Schedule. RCSB owns directly or indirectly all of
the issued and outstanding shares of capital stock of the RCSB
Subsidiaries. Section 3.7 of the RCSB Disclosure Schedule sets forth
the number of shares of authorized and outstanding capital stock of the
RCSB Subsidiaries. Except for equity securities of the Federal Home
Loan Bank of New York or as set forth in Section 3.7 of the RCSB
Disclosure Schedule, neither RCSB nor the RCSB Subsidiaries own
directly or indirectly any equity securities, or other proprietary
interest in any other corporation, limited liability company, joint
venture, partnership, entity, association or other business. No capital
stock of any of the RCSB Subsidiaries is or may become required to be
issued (other than to RCSB) by reason of any options, warrants, scrip,
rights to subscribe to, calls, or commitments of any character
whatsoever relating to, or securities or rights convertible into or
exchangeable for, shares of the capital stock of any RCSB Subsidiary.
There are no contracts, commitments, understandings or arrangements
relating to the rights of RCSB to vote or to dispose of shares of the
capital stock of any RCSB Subsidiary. All of the shares of capital
stock of each RCSB Subsidiary are fully paid and non-assessable and are
owned by RCSB or another RCSB Subsidiary free and clear of any claim,
lien or encumbrance, except as disclosed in Section 3.7 of the RCSB
Disclosure Schedule.
(b) Each RCSB Subsidiary is either a savings bank or a
corporation and is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated
or organized, and is duly licensed or qualified to do business and is
in good standing in each jurisdiction where the character of the assets
or properties owned or
26
<PAGE>
leased by it or the nature of the business transacted by it requires it
to be so licensed or qualified, except where the failure to be so
licensed or qualified would not have a Material Adverse Effect on RCSB.
Each RCSB Subsidiary has the corporate power and authority necessary
for it to own, operate or lease its assets and properties and to carry
on its business as it has been and is now being conducted.
(c) For purposes of this Agreement, an "RCSB Subsidiary" or a
"Subsidiary" of RCSB shall mean each corporation, savings bank, and
other entity in which RCSB owns or controls directly or indirectly 10%
or more of the outstanding equity securities; provided, however, there
shall not be included (i) Gateway American Bank, (ii) any entity that
is inactive on the date of this Agreement, (iii) any entity acquired in
good faith through foreclosure, or (iv) any entity to the extent that
the equity securities of such entity are owned or controlled in a bona
fide fiduciary capacity.
(d) Target Bank is a member in good standing of the Federal
Home Loan Bank System. All eligible deposit accounts issued by Target
Bank are insured by the FDIC through the Bank Insurance Fund ("BIF") or
the SAIF to the full extent permitted under applicable law. Target Bank
is, and at all times since June 1, 1990 has been, a "domestic building
and loan association" as defined in Section 7701(a)(19) of the Code.
The liquidation account established by Target Bank in connection with
its conversion from mutual to stock form has been maintained since its
establishment in accordance with applicable laws and the records with
respect to said account are complete and accurate in all material
respects.
3.8 RCSB FILINGS. RCSB has previously made available, or will make
available prior to the Effective Time, to COFI true and complete copies of the
(i) proxy statements relating to all meetings of stockholders (whether special
or annual) of RCSB during calendar years 1995, 1996 and 1997 and (ii) all other
reports, as amended, or filings, as amended, required to be filed under the
Exchange Act by RCSB with the SEC since its formation including without
limitation on Forms 10-K, 10-Q and 8-K.
3.9 RCSB REPORTS. Each of RCSB and the RCSB Subsidiaries has filed, and
will continue to file, all material reports and statements, together with any
amendment required to be made with respect thereto, that it has, or will be,
required to file with the SEC, FDIC, OTS, Department, NASD, and other applicable
thrift, securities and other regulatory authorities. As of their respective
dates (and without giving effect to any amendments or modifications filed after
the date of this Agreement with respect to reports and documents filed before
the date of this Agreement), each of such reports and documents, including the
financial statements, exhibits, and schedules thereto, complied in all material
respects with all of the statutes, rules and regulations enforced or promulgated
by the authority with which they were filed and did not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading. Other than normal examinations conducted
by the Internal Revenue Service, state and local taxing authorities, OTS,
Department or FDIC in the regular course of the business of
27
<PAGE>
RCSB or the RCSB Subsidiaries, no federal, state or local governmental agency,
commission or other entity has initiated any proceeding or, to the best
knowledge of RCSB and Target Bank, investigation into the business or operations
of RCSB or the RCSB Subsidiaries within the past two years except as set forth
in Section 3.9 of the RCSB Disclosure Schedule. There is no unresolved
violation, criticism or exception by the SEC, OTS, Department, FDIC or other
agency, commission or entity with respect to any report or statement referred to
herein that is material to RCSB or any RCSB Subsidiary.
3.10 COMPLIANCE WITH LAWS.
(a) Except as disclosed in Section 3.10 of the RCSB Disclosure
Schedule, the businesses of RCSB and the RCSB Subsidiaries are being
conducted, in all material respects, in compliance with all laws,
ordinances or regulations of governmental authorities, including
without limitation, laws affecting financial institutions (including
those pertaining to the Bank Secrecy Act, the investment of funds, the
lending of money, the collection of interest and the extension of
credit), federal and state securities laws, laws and regulations
relating to financial statements and reports, truth-in-lending,
truth-in-savings, usury, fair credit reporting, consumer protection,
occupational safety, fair employment practices, fair labor standards
and all other laws and regulations relating to employees and employee
benefits, and any statutes or ordinances relating to the properties
occupied or used by RCSB or any RCSB Subsidiary.
(b) Except as disclosed in Section 3.10 of the RCSB Disclosure
Schedule, no investigation or review by any governmental entity with
respect to RCSB or any RCSB Subsidiary is pending or, to the best
knowledge of RCSB and Target Bank, threatened, nor has any governmental
entity indicated to RCSB or any RCSB Subsidiary an intention to conduct
the same, other than normal or routine regulatory examinations.
(c) RCSB and each of the RCSB Subsidiaries, where applicable,
is in substantial compliance with the applicable provisions of the
Community Reinvestment Act of 1977 and the regulations promulgated
thereunder. As of the date of this Agreement, neither RCSB nor Target
Bank has been advised of the existence of any fact or circumstance or
set of facts or circumstances which, if true, would cause RCSB or any
of the RCSB Subsidiaries to fail to be in substantial compliance with
such provisions. Target Bank has not received a rating from an
applicable regulatory authority which is less than "satisfactory."
3.11 REGISTRATION STATEMENT: JOINT PROXY STATEMENT. The information to
be supplied by RCSB for inclusion in the Registration Statement will not, at the
time the Registration Statement is declared effective and at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The information to be supplied by RCSB for inclusion in the Joint
Proxy Statement will not, on the date of the Joint Proxy Statement (or any
amendment thereof or supplement thereto) is first mailed to the stockholders of
COFI or RCSB, or at the time of their respective meetings of
28
<PAGE>
stockholders to vote on this Agreement and the Company Merger, and at the
Effective Time, contain any statement that, in light of the circumstances under
which it is made, is false or misleading with respect to any material fact,
omits to state any material fact necessary in order to make the statements made
therein not false or misleading, or omits to state any material fact necessary
to correct any statement in any earlier communication with respect to the
solicitation of proxies for such meetings of stockholders that has become false
or misleading. If at any time prior to the Effective Time, any event relating to
RCSB or any of its affiliates, officers or directors is discovered by RCSB that
should be set forth in an amendment to the Registration Statement or a
supplement to the Joint Proxy Statement, RCSB will promptly inform COFI, and
such amendment or supplement will be promptly filed with the SEC and, as
required by law, disseminated to the stockholders of RCSB. Notwithstanding the
foregoing, RCSB makes no representation or warranty with respect to any
information supplied by COFI that is contained in the Registration Statement or
the Joint Proxy Statement. The Joint Proxy Statement will (with respect to RCSB)
comply in all material respects as to form and substance with the requirements
of the Exchange Act and the rules and regulations thereunder.
3.12 LITIGATION. Except as disclosed in Section 3.12 of the RCSB
Disclosure Schedule, there is no suit, action, investigation or proceeding,
legal, quasi-judicial, administrative or otherwise, pending or, to the best
knowledge of RCSB and Target Bank threatened, against or affecting RCSB or any
RCSB Subsidiary, or any of their respective officers, directors, employees or
agents, in their capacities as such, which is seeking equitable relief or
damages against RCSB, any RCSB Subsidiary, or any of their respective officers,
directors, employees or agents, in their capacities as such, in excess of
$50,000, or which would materially affect the ability of RCSB or Target Bank to
consummate the transactions contemplated herein or which is seeking to enjoin
consummation of the transactions provided for herein or to obtain other relief
in connection with this Agreement or the transactions contemplated hereby, nor
is there any judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or arbitrator
outstanding against RCSB or any RCSB Subsidiary or any of their respective
officers, directors, employees or agents, in their capacities as such, having,
or which, insofar as reasonably can be foreseen in the future, would have any
such effect.
3.13 LICENSES. RCSB and the RCSB Subsidiaries hold all licenses,
certificates, permits, franchises and all patents, trademarks, service marks,
trade names, copyrights or right thereto, and required authorizations,
approvals, consents, licenses, clearances and orders or registrations with all
appropriate federal, state or other authorities that are material to the conduct
of their respective businesses as now conducted and as presently proposed to be
conducted.
3.14 TAXES.
(a) Except as disclosed in Section 3.14 of the RCSB Disclosure
Schedule, RCSB and the RCSB Subsidiaries have each timely filed all tax
and information returns required to be filed and have paid (or RCSB or
Target Bank has paid on behalf of its Subsidiaries), or have accrued on
their respective books and set up an adequate reserve for the payment
of, all taxes reflected on such returns as required to be paid in
respect of the periods covered by such returns and have accrued on
their respective books and set up
29
<PAGE>
an adequate reserve for the payment of all income and other taxes
anticipated to be payable in respect of periods through the end of the
calendar month next preceding the date hereof. Neither RCSB nor any
RCSB Subsidiary is delinquent in the payment of any tax, assessment or
governmental charge. No deficiencies for any taxes have been proposed,
asserted or assessed against RCSB or any RCSB Subsidiary that have not
been resolved or settled and no requests for waivers of the time to
assess any such tax are pending or have been agreed to. The income tax
returns of RCSB and RCSB Subsidiaries have not been audited by the
Internal Revenue Service, state, municipal or other taxing authority
for any of the last two years. Neither RCSB nor any RCSB Subsidiary is
a party to any action or proceeding by any governmental authority for
the assessment or the collection of taxes. Deferred taxes of RCSB and
the RCSB Subsidiaries have been accounted for in accordance with
generally accepted accounting principles.
(b) RCSB has not filed any consolidated federal income tax
return with an "affiliated group" (within the meaning of Section 1504
of the Code) where RCSB was not the common parent of the group. Neither
RCSB nor any RCSB Subsidiary is, or has been, a party to any tax
allocation agreement or arrangement pursuant to which it has any
contingent or outstanding liability to anyone other than RCSB or any
RCSB Subsidiary. Neither RCSB nor any RCSB Subsidiary is required to
include in income any adjustment pursuant to Section 481(a) of the Code
and no such adjustment has been proposed by the Internal Revenue
Service. Neither RCSB nor any RCSB Subsidiary has filed a consent
pursuant to Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply.
(c) RCSB and the RCSB Subsidiaries have each withheld amounts
from its employees, stockholders, or holders of public deposit accounts
in compliance with the tax withholding provisions of applicable
federal, state and local laws, have filed all federal, state and local
returns and reports for all periods for which such returns or reports
would be due with respect to income tax withholding, social security,
unemployment taxes, income and other taxes and all payments or deposits
with respect to such taxes have been timely made and except as set
forth in Section 3.14 of the RCSB Disclosure Schedule, have notified
all employees, stockholders and holders of public deposit accounts of
their obligations to file all forms, statements or reports with it in
accordance with applicable federal, state and local tax laws and have
taken reasonable steps to insure that such employees, stockholders and
holders of public deposit accounts have filed all such forms statements
and reports with it.
3.15 INSURANCE. RCSB and the RCSB Subsidiaries maintain insurance with
insurers which in the best judgment of management of RCSB are sound and
reputable on their respective assets and upon their respective businesses and
operations against loss or damage, risks, hazards and liabilities as in their
judgment they deem appropriate. RCSB and the RCSB Subsidiaries maintain in
effect all insurance required to be carried by law or by any agreement by which
they are bound. All material claims under all policies of insurance maintained
by RCSB and the RCSB
30
<PAGE>
Subsidiaries have been filed in due and timely fashion. Each of RCSB and the
RCSB Subsidiaries has taken or will timely take all requisite action (including
without limitation the making of claims and the giving of notices) pursuant to
its directors' and officers' liability insurance policy or policies in order to
preserve all rights thereunder with respect to all matters (other than matters
arising in connection with this Agreement and the transactions contemplated
hereby) occurring prior to the Effective Time. Neither RCSB nor any of the RCSB
Subsidiaries has, during the past three years, had an insurance policy canceled
or been denied insurance coverage for which any of such companies has applied.
3.16 LOANS; INVESTMENTS.
(a) Except as otherwise disclosed in Section 3.16 of the RCSB
Disclosure Schedule, each material loan reflected as an asset on the
RCSB Financial Statement dated as of November 30, 1996, and each
material loan originated or acquired by RCSB or an RCSB Subsidiary
since such date, is evidenced by appropriate and sufficient
documentation and constitutes, to the best knowledge of RCSB and Target
Bank, the legal, valid and binding obligation of the obligor named
therein, enforceable in accordance with its terms, except to the extent
that the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws or equitable
principles or doctrines. Except as set forth in Section 3.16 of the
RCSB Disclosure Schedule and loans sold in the ordinary course of
business, all such loans are, and at the Effective Time will be, free
and clear of any security interest, lien, encumbrance or other charge.
Except as set forth in Section 3.16 of the RCSB Disclosure Schedule,
there is no loan or other asset of RCSB or of any RCSB Subsidiary that
has been classified by examiners or others as "Other Loans of Concern,"
"Substandard," "Doubtful" or "Loss" as of April 30, 1997. Set forth in
Section 3.16 of the RCSB Disclosure Schedule is a complete list of the
real estate acquired through foreclosure, repossession or deed in lieu
thereof ("REO") of RCSB and the RCSB Subsidiaries as of April 30, 1997.
(b) All material guarantees of indebtedness owed to RCSB or
any RCSB Subsidiary, including but not limited to those of the Federal
Housing Administration, the Small Business Administration, and other
state and federal agencies, are, to the best knowledge of RCSB and
Target Bank, valid and enforceable, except to the extent enforceability
thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles or
doctrines.
(c) All interest rate swaps, caps, floors and option
agreements and other interest rate risk management arrangements to
which RCSB or any RCSB Subsidiary is a party or by which any of their
properties or assets may be bound were entered into in the ordinary
course of business and, to the best knowledge of RCSB and Target Bank,
in accordance with then-customary practice and applicable rules,
regulations and policies of thrift regulatory authorities and with
counterparties believed to be financially responsible at the time and
are legal, valid and binding obligations and are in full force and
effect.
31
<PAGE>
RCSB and the RCSB Subsidiaries have duly performed in all material
respects all of their respective obligations thereunder to the extent
that such obligations to perform have accrued, and to the best
knowledge of RCSB and Target Bank, there are no material breaches,
violations or defaults or allegations or assertions of such by any
party thereunder. Except as set forth in Section 3.16 of the RCSB
Disclosure Schedule, none of the transactions contemplated by this
Agreement would permit: (i) a counterparty under any interest rate
swap, cap, floor and option agreement or any other interest rate risk
management agreement or (ii) any party to any mortgage-backed security
financing arrangement, to accelerate, discontinue, terminate or
otherwise modify any such agreement or arrangement or would require
RCSB or any RCSB Subsidiary to recognize any gain or loss with respect
to such arrangement.
(d) Except as set forth in Section 3.16 of the RCSB Disclosure
Schedule and except for pledges to secure public and trust deposits,
none of the investments reflected in the RCSB Financial Statements
dated as of November 30, 1996 under the heading "Investment Securities,
" and none of the investments made by RCSB and the RCSB Subsidiaries
since November 30, 1996, is subject to any restriction, whether
contractual or statutory, which materially impairs the ability of RCSB
or any RCSB Subsidiary to freely dispose of such investment at any
time, other than those restrictions imposed on securities held for
investment under generally accepted accounting principles. With respect
to all repurchase agreements to which RCSB or any RCSB Subsidiary is a
party, RCSB or such Subsidiary has a valid, perfected first lien or
security interest in the government securities or other collateral
securing each such repurchase agreement, and the value of the
collateral securing each such repurchase agreement equals or exceeds
the amount of the debt secured by such collateral under such agreement.
(e) All United States Treasury securities, obligations of
other United States Government agencies and corporations, obligations
of States of United States and their political subdivisions, and other
investment securities classified as "held to maturity" and "available
for sale" held by RCSB and the RCSB Subsidiaries, as reflected in the
RCSB Financial Statements dated November 30, 1996 were classified and
accounted for in accordance with F.A.S.B. 115 and the intentions of
management.
3.17 ALLOWANCE FOR POSSIBLE LOAN LOSSES.
(a) The allowance for possible loan losses shown on the RCSB
Financial Statements as of November 30, 1996 (and as shown on any
financial statements to be delivered by RCSB to COFI pursuant to
Section 5.7 hereof), to the best knowledge of RCSB and Target Bank, as
of such date was (and will be as of such subsequent financial statement
dates) adequate in all respects to provide for possible or specific
losses, net of recoveries relating to loans previously charged off, on
loans outstanding, and contained (or will contain) an additional amount
of unallocated reserves for unanticipated future losses at a level
considered adequate under the standards applied by applicable federal
32
<PAGE>
regulatory authorities and based upon generally accepted practices
applicable to Target Bank and the other RCSB Subsidiaries. To the best
knowledge of RCSB and Target Bank, the aggregate principal amount of
loans contained (or that will be contained) in the loan portfolio of
RCSB and the RCSB Subsidiaries as of November 30, 1996 (and as of the
dates of any financial statements to be delivered by RCSB to COFI
pursuant to Section 5.7 hereof), in excess of such reserve, was (and
will be) fully collectible.
(b) The sum of the aggregate amount of all Nonperforming
Assets (as defined below) and all troubled debt restructurings (as
defined under generally accepted accounting principles) on the books of
RCSB and the RCSB Subsidiaries does not exceed 1.8% of total loans as
of April 30, 1997. "Nonperforming Assets" shall mean (i) all loans and
leases (A) that are contractually past due 90 days or more in the
payment of principal and/or interest, (B) that are on nonaccrual
status, (C) where a reasonable doubt exists, in the reasonable judgment
of Target Bank or any other RCSB Subsidiary, as to the timely future
collectibility of principal and/or interest, whether or not interest is
still accruing or the loan is less than 90 days past due, (D) where the
interest rate terms have been reduced and/or the maturity dates have
been extended subsequent to the agreement under which the loan was
originally created due to concerns regarding the borrower's ability to
pay in accordance with such initial terms, (other than restructured
loans that have ceased to be nonperforming in accordance with
applicable regulatory guidelines and generally accepted accounting
principles), (E) where a specific reserve allocation exists in
connection therewith, or (F) that have been classified "Doubtful",
"Loss" or the equivalent thereof by any regulatory authority, and (ii)
all assets classified as REO and all other assets acquired through
foreclosure or repossession.
3.18 RCSB BENEFIT PLANS.
(a) Section 3.18 of the RCSB Disclosure Schedule contains a
list (or, a description with respect to any oral employee benefit plan,
practice, policy or arrangement), including all amendments thereto, of
each compensation, consulting, employment, termination or collective
bargaining agreement, and each stock option, stock purchase, stock
appreciation right ("SAR"), restricted stock, stock equivalent ("Stock
Equivalent"), life, health, accident or other insurance, bonus,
deferred or incentive compensation, severance or separation agreement
or any agreement providing any payment or benefit resulting from a
change in control, profit sharing, retirement, or other employee
benefit plan, practice, policy or arrangement of any kind, oral or
written, covering any employee, former employee, director or former
director of RCSB or any RCSB Subsidiary or his or her beneficiaries,
including, but not limited to, any employee benefit plans within the
meaning of Section 3(3) of ERISA, which RCSB or any RCSB Subsidiary
maintains, to which RCSB or any RCSB Subsidiary contributes, or under
which any employee, former employee, director or former director of
RCSB or any RCSB Subsidiary is covered or has benefit rights and
pursuant to which any liability of RCSB or any RCSB Subsidiary exists
or is reasonably likely to occur (the "RCSB Benefit Plans").
33
<PAGE>
Except as set forth in Section 3.18 of the RCSB Disclosure Schedule,
RCSB and the RCSB Subsidiaries neither maintain nor have entered into
any RCSB Benefit Plan or other document, plan or agreement which
contains any change in control provisions which would cause an increase
or acceleration of benefits or benefit entitlements to employees or
former employees of RCSB or any RCSB Subsidiary or their respective
beneficiaries, or other provisions, which would cause an increase in
the liability of RCSB or any RCSB Subsidiary or to COFI or any COFI
Subsidiary as a result of the transactions contemplated by this
Agreement or any related action thereafter (a "Change in Control
Benefit"). The term "RCSB Benefit Plans" as used herein refers to all
plans contemplated under the preceding sentences of this Section 3.18,
provided that the term "Plan" or "Plans" is used in this Agreement for
convenience only and does not constitute an acknowledgment that a
particular arrangement is an employee benefit plan within the meaning
of Section 3(3) of ERISA. Except as disclosed in Section 3.18 of the
RCSB Disclosure Schedule, no RCSB Benefit Plan is a multi-employer plan
within the meaning of Section 3(37) of ERISA.
(b) Each of the RCSB Benefit Plans that is intended to be a
pension, profit sharing, stock bonus, thrift, savings plan that is
qualified under Section 401(a) of the Code ("RCSB Qualified Plans") has
been determined by the Internal Revenue Service to qualify under
Section 401(a) of the Code, or an application for determination of such
qualification has been timely made to the Internal Revenue Service
prior to the end of the applicable remedial amendment period under
Section 401(b) of the Code (a copy of each such determination letter or
pending application is included in Section 3.18 of the RCSB Disclosure
Schedule) and, to the best of RCSB's knowledge, there exist no
circumstances likely to adversely affect the qualified status of any
such RCSB Qualified Plan. All such RCSB Qualified Plans established or
maintained by RCSB or any of the RCSB Subsidiaries or to which RCSB or
any of the RCSB Subsidiaries contribute are in compliance in all
material respects with all applicable requirements of ERISA, and are in
compliance in all material respects with all applicable requirements
(including qualification and non-discrimination requirements ) of the
Code for obtaining the tax benefits the Code thereupon permits with
respect to such RCSB Qualified Plans. Neither RCSB nor any RCSB
Subsidiary is a plan sponsor of, or contributes to, a defined benefit
pension plan. All accrued contributions and other payments required to
be made by RCSB or any RCSB Subsidiary to any RCSB Benefit Plan through
November 30, 1996, have been made or reserves adequate for such
purposes as of November 30, 1996, have been set aside therefor and are
reflected in the RCSB Financial Statements dated as of November 30,
1996. Neither RCSB nor any RCSB Subsidiary is in material default in
performing any of its contractual obligations under any of the RCSB
Benefit Plans or any related trust agreement or insurance contract, and
there are no material outstanding liabilities of any such Plan other
than liabilities for benefits to be paid to participants in such Plan
and their beneficiaries in accordance with the terms of such Plan.
(c) There is no pending or, to the best knowledge of RCSB and
Target Bank, threatened litigation or pending claim (other than routine
benefit claims made in the ordinary course) by or on behalf of or
against any of the RCSB Benefit Plans (or with
34
<PAGE>
respect to the administration of any such Plans) now or heretofore
maintained by RCSB or any RCSB Subsidiary which allege violations of
applicable state or federal law which are reasonably likely to result
in a liability on the part of RCSB or any RCSB Subsidiary or any such
Plan.
(d) RCSB and the RCSB Subsidiaries and all other person having
fiduciary or other responsibilities or duties with respect to any RCSB
Benefit Plan are and have since the inception of each such Plan been in
substantial compliance with, and each such Plan is and has been
operated in substantial accordance with, its provisions and in
substantial compliance with the applicable laws, rules and regulations
governing such Plan, including, without limitation, the rules and
regulations promulgated by the Department of Labor, the PBGC and the
Internal Revenue Service under ERISA, the Code or any other applicable
law. Notwithstanding the foregoing, no representation is made with
respect to compliance by a third party insurance company. No
"reportable event" (as defined in Section 4043(b) of ERISA) has
occurred with respect to any RCSB Benefit Plan. No RCSB Benefit Plan
has engaged in or been a party to a "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975(c) of the Code). All
RCSB Benefit Plans that are group health plans have been operated in
substantial compliance with the group health plan continuation
requirements of Section 4980B of the Code and Section 601 of ERISA.
(e) Except as set forth in Section 3.18 of the RCSB Disclosure
Schedule, neither RCSB nor any RCSB Subsidiary has made any payments,
or is or has been a party to any agreement or any RCSB Benefit Plan,
that under any circumstances could obligate it or its successor to make
payments that are not or will not be deductible because of Sections
162(m) or 280G of the Code.
(f) Section 3.18 of the RCSB Disclosure Schedule describes any
obligation that RCSB or any RCSB Subsidiary has to provide health or
welfare benefits to retirees or other former employees, directors or
their dependents (other than rights under Section 4980B of the Code or
Section 601 of ERISA), including information as to the number of
retirees, other former employees or directors and dependents entitled
to such coverage and their ages.
(g) Section 3.18 of the RCSB Disclosure Schedule lists: (i)
each officer, employee and director of RCSB and any RCSB Subsidiary who
is eligible to receive a Change in Control Benefit, showing the amount
of each such Change in Control Benefit, the individual's participation
in each bonus and other RCSB Benefit Plan, and such individual's
compensation from RCSB and each RCSB Subsidiary for each of the
calendar years 1992 through 1996 as reported by RCSB and a RCSB
Subsidiary on Form W-2 or Form 1099; and (ii) a copy of each form of
agreement relating to RCSB Stock Options, SARs and Stock Equivalents.
(h) RCSB and the RCSB Subsidiaries have filed or caused to be
filed, and will continue to file or cause to be filed, in a timely
manner all filings pertaining to each RCSB
35
<PAGE>
Benefit Plan with the Internal Revenue Service and the Department of
Labor, as prescribed by the Code or ERISA, or regulations issued
thereunder. All such filings, as amended, were complete and accurate in
all material respects as of the dates of such filings. Notwithstanding
the foregoing, no representation is made with respect to filings by a
third party insurance company.
3.19 COMPLIANCE WITH ENVIRONMENTAL LAWS.
(a) Except as set forth in Section 3.19 of the RCSB Disclosure
Schedule: (i) to the best knowledge of RCSB and Target Bank, the
operations of RCSB and each of the RCSB Subsidiaries comply in all
material respects with all applicable past and present Environmental
Laws; (ii) to the best knowledge of RCSB and Target Bank, none of the
operations of RCSB or any RCSB Subsidiary, no assets presently or
formerly owned or leased by RCSB or any RCSB Subsidiary and no
Mortgaged Premises or Participating Facility are subject to any
judicial or administrative proceedings alleging the violation of any
past or present Environmental Law, nor are they the subject of any
claims alleging damages to health or property, pursuant to which RCSB,
any RCSB Subsidiary or any owner of a Mortgaged Premises or a
Participating Facility would be liable in law or equity; (iii) none of
the operations of RCSB or any RCSB Subsidiary, no assets presently
owned or, to the best knowledge of RCSB and Target Bank, formerly owned
by RCSB or any RCSB Subsidiary, and to the best knowledge of RCSB and
Target Bank, no Mortgaged Premises or a Participating Facility are the
subject of any federal, state or local investigation evaluating whether
any remedial action is needed to respond to a release or threatened
release of any Hazardous Substance, or any other substance into the
environment, nor has RCSB or any RCSB Subsidiary, or, to the best
knowledge of RCSB and Target Bank, any owner or a Mortgaged Premises or
a Participating Facility been directed to conduct such investigation,
formally or informally, by any governmental agency, nor have any of
them agreed with any governmental agency or private person to conduct
any such investigation; and (iv) neither RCSB nor any RCSB Subsidiary,
nor, to the best knowledge of RCSB and Target Bank, any owner of a
Mortgaged Premises or a Participating Facility has filed any notice
under any Environmental Law indicating past or present treatment,
storage or disposal of a Hazardous Substance or reporting a spill or
release of a Hazardous Substance, or any other substance into the
environment.
(b) With respect to the real property currently owned or, to
the best knowledge of RCSB and Target Bank, formerly owned or currently
leased by RCSB or any RCSB Subsidiary ("RCSB Premises"): (x) no part of
the RCSB Premises has been used for the generation, manufacture,
handling, storage, or disposal of Hazardous Substances; (y) except as
disclosed in Section 3.19 of the RCSB Disclosure Schedule, the RCSB
Premises do not contain, and have never contained, an underground
storage tank; and (z) the RCSB Premises do not contain and are not
contaminated by any quantity of a Hazardous Substance from any source.
With respect to any underground storage tank listed in Section 3.19 of
the RCSB Disclosure Statement as an exception to the foregoing,
36
<PAGE>
such underground storage tank has been removed in compliance with the
Environmental Laws, and has not been the source of any release of a
Hazardous Substance into the environment, unless otherwise set forth in
Section 3.19 of the RCSB Disclosure Schedule.
3.20 CONTRACTS AND COMMITMENTS. Section 3.20 of the RCSB Disclosure
Schedule contains, and shall be supplemented by RCSB and Target Bank, as
required by Section 5.10 hereof, so as to contain at the Closing Date true and
correct copies of each of the following documents:
(a) a list of each outstanding loan agreement, mortgage,
pledge agreement or other similar document or commitment to extend
credit to any executive officer or director of RCSB or Target Bank;
(b) a list and description of each outstanding letter of
credit and each commitment to issue a letter of credit in excess of
$100,000 to which RCSB or any RCSB Subsidiary is a party and/or under
which it may (contingently or otherwise) have any liability;
(c) a list of each vendor or lease contract or agreement (not
otherwise included in the RCSB Disclosure Schedule or specifically
excluded therefrom in accordance with the terms of this Agreement)
involving goods, services or occupancy and which (i) does not expire
within six months from the date hereof, (ii) cannot be terminated on
thirty days (or less) written notice without penalty; and (iii)
involves an annual expenditure by RCSB or any RCSB Subsidiary in excess
of $100,000;
(d) a list of each contract or commitment (other than RCSB
Permitted Liens as defined in Section 3.22(c)) hereof) affecting
ownership of, title to, use of, or any interest in real property which
is currently owned by RCSB or any RCSB Subsidiary, and a list and
description of all real property owned (other than REO) or leased by
RCSB or any RCSB Subsidiary;
(e) a list of each commitment made by RCSB or Target Bank to
or with any of its executive officers or directors extending for a
period of more than six months from the date hereof or providing for
earlier termination only upon the payment of a penalty or equivalent
thereto;
(f) the Certificate or Articles of Incorporation, Charters,
and Bylaws of RCSB and each RCSB Subsidiary;
(g) except for powers of attorney executed in connection with
loan servicing activities in the ordinary course of business, a list of
all powers of attorney granted by RCSB or any RCSB Subsidiary which are
currently in force and cannot be terminated by
37
<PAGE>
RCSB or any RCSB Subsidiary upon the issuance of a written notice of
termination or revocation;
(h) a list of all policies of insurance currently maintained
by RCSB or any RCSB Subsidiary and a list and description of all
unsettled or outstanding claims of RCSB or any RCSB Subsidiary which
have been, or to the best knowledge of RCSB and Target Bank, will be,
filed with the companies providing insurance coverage for RCSB or any
RCSB Subsidiary (except for routine claims for benefits);
(i) each collective bargaining agreement to which RCSB or any
RCSB Subsidiary is a party and all affirmative action plans or programs
covering employees of RCSB or any RCSB Subsidiary, as well as all
employee handbooks, policy manuals, rules and standards of employment
promulgated by RCSB or any RCSB Subsidiary;
(j) each lease or license with respect to real or personal
property, whether as lessor, lessee, licensor or licensee, with annual
rental or other payments due thereunder in excess of $100,000 to which
RCSB or any RCSB Subsidiary is a party, which does not expire within
six months from the date hereof and cannot be terminated upon thirty
days (or less) written notice without penalty;
(k) all financial advisory, investment banking, and
professional (legal and accounting) services contracts to which RCSB or
any RCSB Subsidiary is a party; except those that may be terminated by
RCSB or an RCSB Subsidiary at anytime without any liability;
(l) all judgments, orders, injunctions, court decrees or
settlement agreements arising out of or relating to the labor and
employment practices or decisions of RCSB or any RCSB Subsidiary which,
by their terms, continue to bind or affect RCSB or any RCSB Subsidiary;
(m) all orders, decrees, memorandums, agreements or
understandings with bank regulatory agencies binding upon or affecting
the current operations of RCSB or any RCSB Subsidiary or any of their
directors or officers in their capacities as such;
(n) all material trademarks, trade names, service marks,
patents, or copyrights, whether registered or the subject of an
application for registration, which are owned by RCSB or any RCSB
Subsidiary or licensed from a third party;
(o) all policies formally adopted by the Board of Directors of
RCSB or any RCSB Subsidiary as currently in effect with respect to
environmental matters and copies of all policies that have been in
effect during the last five (5) years regarding the performance of
environmental investigations of properties accepted as collateral for
loans, including the effective dates of all such policies;
38
<PAGE>
(p) each agreement (other than those involving the sale or
purchase of mortgage loans or servicing rights) to which RCSB or any
RCSB Subsidiary is a party (which does not expire within six months
from the date hereof and cannot be terminated upon thirty days (or
less) written notice without penalty) which in an annual period could
commit RCSB or any RCSB Subsidiary to an expenditure (either
individually or through a series of installments) in excess of $100,000
or which creates a material right or benefit to receive payments, goods
or services not referred to elsewhere in this Section 3.20:
(q) each agreement containing any covenant limiting the right
of RCSB or any RCSB Subsidiary to engage in any line of business or to
compete with any person;
(r) each agreement with respect to any license, permit and
similar matter that is necessary to the operations of RCSB or any RCSB
Subsidiary; and
(s) each agreement that gives a third party any right to seek
judicial or administrative relief to enjoin, or other relief which may
prevent consummation of, the Merger.
3.21 DEFAULTS. There has not been any default in any material
obligation to be performed by RCSB or any RCSB Subsidiary under any material
contract or commitment, and neither RCSB nor or any RCSB Subsidiary has waived,
and will not waive prior to the Effective Time, any material right under any
material contract or commitment. To the best knowledge of RCSB and Target Bank,
no other party to any material contract or commitment is in default in any
material obligation to be performed by such party.
3.22 OPERATIONS SINCE NOVEMBER 30, 1996. Between November 30, 1996 and
the date hereof, except as set forth in Section 3.22 of the RCSB Disclosure
Schedule, there has not been:
(a) any increase in the compensation payable or to become
payable by RCSB or any RCSB Subsidiary to any employee, officer or
director, other than routine increases to employees consistent with
past practices;
(b) except as permitted in Section 4.1(a) hereof, any payment
of dividends or other distributions by RCSB to its stockholders or any
redemption by RCSB of its capital stock;
(c) any mortgage, pledge or subjection to lien, charge or
encumbrance of any kind of or on any asset, tangible or intangible, of
RCSB or any RCSB Subsidiary, except the following (each of which,
whether arising before or after the date hereof, is herein referred to
as a "RCSB Permitted Lien"): (i) liens arising out of judgments or
awards in respect of which RCSB or any RCSB Subsidiary is in good faith
prosecuting an appeal or proceeding for review and in respect of which
it has secured a subsisting stay of execution pending such appeal of
proceeding; (ii) liens for taxes, assessments, and other
39
<PAGE>
governmental charges or levies, the payment of which is not past due,
or as to which RCSB or any RCSB Subsidiary is diligently contesting in
good faith and by appropriate proceeding either the amount thereof or
the liability therefor or both; (iii) deposits, liens or pledges to
secure payments of worker's compensation, unemployment insurance,
pensions, or other social security obligations, or the performance of
bids, tenders, leases, contracts (other than contracts for the payment
of money), public or statutory obligations, surety, stay or appeal
bonds, or similar obligations arising in the ordinary course of
business; (iv) zoning restrictions, easements, licenses and other
restrictions on the use of real property or any interest therein, or
minor irregularities in title thereto, which do not materially impair
the use of such property or the merchantability or the value of such
property or interest therein; (v) purchase money mortgages or other
purchase money or vendor's liens or security interests (including,
without limitation, finance leases), provided that no such mortgage,
lien or security interest shall extend to or cover any other property
of RCSB or any RCSB Subsidiary other than that so purchased; and (vi)
pledges and liens given to secure deposits and other liabilities of
RCSB or any RCSB Subsidiary arising in the ordinary course of business;
(d) any creation or assumption of indebtedness (including the
extension or renewal of any existing indebtedness, or the increase
thereof) by RCSB or any RCSB Subsidiary for borrowed money, or
otherwise, other than in the ordinary course of business, none of which
is in default;
(e) the establishment of any new, modification of or amendment
to, or increase in the formula for contributions to or benefits under,
any RCSB Benefit Plan by RCSB or any RCSB Subsidiary;
(f) any action by RCSB or any RCSB Subsidiary seeking any
cancellation of, or decrease in the insured limit under, or increase in
the deductible amount or the insured's retention (whether pursuant to
coinsurance or otherwise) of or under, any policy of insurance
maintained directly or indirectly by RCSB or any RCSB Subsidiary on any
of their respective assets or businesses, including but not by way of
limitation, fire and other hazard insurance on its assets, automobile
liability insurance, general public liability insurance, and directors'
and officers' liability insurance; and if an insurer takes any such
action, RCSB shall promptly notify COFI;
(g) any change in RCSB's independent auditors, historic
methods of accounting (other than as required by generally accepted
accounting principles or regulatory accounting principles), or in its
system for maintaining its equipment and real estate;
(h) any purchase, whether for cash or secured or unsecured
obligations (including finance leases) by RCSB or any RCSB Subsidiary
of any fixed asset which
40
<PAGE>
either (i) has a purchase price individually or in the aggregate in
excess of $250,000 or (ii) is outside of the ordinary course of
business;
(i) any sale or transfer of any asset in excess of $50,000 of
RCSB or any RCSB Subsidiary or outside of the ordinary course of
business with the exception of (A) loans and marketable securities that
are held for sale and sold in the ordinary course of business at market
prices, (B) mortgage servicing rights that are sold in the ordinary
course of business at market prices, and (C) REO that is sold in the
ordinary course of business;
(j) any cancellation or compromise of any debt to, claim by
or right of, RCSB or any RCSB Subsidiary except in the ordinary course
of business;
(k) any amendment or termination of any contract or commitment
to which RCSB or any RCSB Subsidiary is a party, other than in the
ordinary course of business;
(l) any material damage or destruction to any assets or
property of RCSB or any RCSB Subsidiary whether or not covered by
insurance;
(m) any material change in the loan underwriting policies of
any RCSB Subsidiary not reflected in the written policies previously
provided by RCSB to COFI;
(n) any transaction of business or activity undertaken by RCSB
or any RCSB Subsidiary outside the ordinary course of business
consistent with past practices;
(o) any agreement or commitment to do any of the foregoing; or
(p) any event or condition, or series of events or conditions,
of any character (other than changes in legal, economic or other
conditions which are not specially or uniquely applicable to RCSB or
any RCSB Subsidiary) which, individually or in the aggregate, has had
or is reasonably likely to have a significant adverse impact on the
business, operations or financial condition of RCSB on a consolidated
basis.
3.23 CORPORATE RECORDS. The corporate record books, transfer books and
stock ledgers of RCSB and each RCSB Subsidiary are complete and accurate in all
material respects and reflect all meetings, consents and other material actions
of the organizers, incorporators, stockholders, Boards of Directors and
committees of the Boards of Directors of RCSB and each such Subsidiary, and all
transactions in their respective capital stocks, since their respective
inceptions.
3.24 UNDISCLOSED LIABILITIES. All of the Liabilities have, in the case
of RCSB and the RCSB Subsidiaries, been reflected, disclosed or reserved against
in the RCSB Financial Statements as of November 30, 1996 or in the notes
thereto, and RCSB and the RCSB Subsidiaries have no other Liabilities except (a)
Liabilities incurred since November 30, 1996 in
41
<PAGE>
the ordinary course of business or (b) as disclosed in Section 3.24 of the RCSB
Disclosure Schedule.
3.25 ASSETS.
(a) RCSB and the RCSB Subsidiaries have good and marketable
title to their real properties, including any leaseholds and ground
leases, and their other assets and properties, all as reflected as
owned or held by RCSB or any RCSB Subsidiary in the RCSB Financial
Statements dated as of November 30, 1996, and those acquired since such
date, except for (i) assets and properties disposed of since such date
in the ordinary course of business and (ii) liens and encumbrances none
of which, in the aggregate, except as set forth in the RCSB Financial
Statements dated November 30, 1996 or in Section 3.25 of the RCSB
Disclosure Schedule, are material to the assets of RCSB on a
consolidated basis. All buildings, structures, fixtures and
appurtenances comprising part of the real properties of RCSB and the
RCSB Subsidiaries (whether owned or leased) are in good operating
condition and have been well maintained, reasonable wear and tear
excepted. Title to all real property owned by RCSB and the RCSB
Subsidiaries is held in fee simple, except as otherwise noted in the
RCSB Financial Statements as of November 30, 1996 or as set forth in
Section 3.25 of the RCSB Disclosure Schedule. RCSB and the RCSB
Subsidiaries have title or other rights to its assets sufficient in all
material respect for the conduct of their respective businesses as
presently conducted, and except as set forth in the RCSB Financial
Statements dated as of November 30, 1996 or in Section 3.25 of the RCSB
Disclosure Schedule, such assets are free, clear and discharged of and
from any and all liens, charges, encumbrances, security interests
and/or equities which are material to RCSB or any RCSB Subsidiary.
(b) All material leases pursuant to which RCSB or any RCSB
Subsidiary, as lessee, leases real or personal property are, to the
best knowledge of RCSB and Target Bank, valid, effective, and
enforceable against the lessor in accordance with their respective
terms. There is not under any of such leases any existing default, or
any event which with notice or lapse of time or both would constitute a
default, with respect to either RCSB or any RCSB Subsidiary, or to the
best knowledge of RCSB and Target Bank, the other party. Except as
disclosed in Section 3.25 of the RCSB Disclosure Schedule, none of such
leases contains a prohibition against assignment by RCSB or any RCSB
Subsidiary, by operation of law or otherwise, or any other provision
which would preclude the surviving corporation or resulting institution
or any RCSB Subsidiary from possessing and using the leased premises
for the same purposes and upon the same rental and other terms upon the
consummation of the Merger as are applicable to the use by RCSB or any
RCSB Subsidiary as of the date of this Agreement.
3.26 INDEMNIFICATION. To the best knowledge of RCSB and Target Bank,
except as set forth in Section 3.26 of the RCSB Disclosure Schedule, no action
or failure to take action by any director, officer, employee or agent of RCSB or
any RCSB Subsidiary has occurred which
42
<PAGE>
would give rise to a claim or a potential claim by any such person for
indemnification from RCSB or any RCSB Subsidiary under the corporate
indemnification provisions of RCSB or any RCSB Subsidiary.
3.27 INSIDER INTERESTS. All outstanding loans and other contractual
arrangements (including deposit relationships) between RCSB or any RCSB
Subsidiary and any officer, director or employee of RCSB or any RCSB Subsidiary
conform to the applicable rules and regulations and requirements of all
applicable regulatory agencies which were in effect when such loans and other
contractual arrangements were entered into. Except as set forth in Section 3.27
of the RCSB Disclosure Schedule, no officer, director or employee of RCSB or any
RCSB Subsidiary has any material interest in any property, real or personal,
tangible or intangible, used in or pertaining to the business of RCSB or any
RCSB Subsidiary.
3.28 REGISTRATION OBLIGATIONS. Except as set forth in Section 3.28 of
the RCSB Disclosure Schedule, neither RCSB nor any RCSB Subsidiary is under any
obligation, contingent or otherwise, which will survive the Effective Time by
reason of any agreement to register any of its securities under the Securities
Act or other federal or state securities laws or regulations.
3.29 REGULATORY, TAX AND ACCOUNTING MATTERS. RCSB and Target Bank have
not taken or agreed to take any action, nor does it have knowledge of any fact
or circumstance, that would (i) materially impede or delay the consummation of
the transactions contemplated by this Agreement or the ability of the parties to
obtain any approval of any regulatory authority required for the transactions
contemplated by this Agreement or to perform their covenants and agreements
under this Agreement or (ii) prevent the Merger from qualifying as a pooling of
interests for accounting purposes or the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
3.30 BROKERS AND FINDERS. Except as set forth in the agreement with
Lehman Brothers, dated April 30, 1997 (which agreement has not been amended
since such date), a copy of which has previously been provided to COFI, neither
RCSB nor any RCSB Subsidiary nor any of their respective officers, directors or
employees has employed any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions or finder's fees, and no
other broker or finder has acted directly or indirectly for RCSB or any RCSB
Subsidiary in connection with this Agreement or the transactions contemplated
hereby. Section 3.30 of the RCSB Disclosure Schedule sets forth bona fide
estimates of the amounts of all fees and expenses to be paid by RCSB to all
third parties in connection with this Agreement and the transactions
contemplated hereby.
3.31 ACCURACY OF INFORMATION. The statements of RCSB and Target Bank
contained in this Agreement, the Schedules hereto and any other written document
executed and delivered by or on behalf of RCSB or Target Bank pursuant to the
terms of this Agreement are true and correct in all material respects.
43
<PAGE>
3.32 FAIRNESS OPINION. RCSB has received from Lehman Brothers a
fairness opinion, dated as of the date of this Agreement, to the effect that the
Merger Consideration to be received by the holders of RCSB Common Stock pursuant
to this Agreement and the Company Merger is fair to such holders from a
financial point of view.
3.33 GOVERNMENTAL APPROVALS AND OTHER CONDITIONS. To the knowledge of
RCSB and Target Bank, there is no reason relating specifically to RCSB or any of
its Subsidiaries why (a) the approvals that are required to be obtained from
regulatory authorities having approval authority in connection with the
transactions contemplated hereby should not be granted, (b) such regulatory
approvals should be subject to a condition which would differ from conditions
customarily imposed by such regulatory authorities in orders approving
acquisitions of the type contemplated hereby or (c) any of the conditions
precedent as specified in Article VI hereof to the obligations of any of the
parties hereto to consummate the transactions contemplated hereby are unlikely
to be fulfilled within the applicable time period or periods required for
satisfaction of such condition or conditions.
ARTICLE IV
COVENANTS
4.1 COVENANTS OF RCSB AND TARGET BANK.
(a) Without the prior written consent of COFI, RCSB shall not
declare or pay any dividend or make any other distribution with respect
to its capital stock whether in cash, stock or other property, after
the date of this Agreement, except it may declare and pay its regular
quarterly cash dividend of not more than $.15 per share on RCSB Common
Stock; provided the declaration of the last dividend by RCSB prior to
consummation of the Company Merger and the payment thereof shall be
coordinated with, and subject to the approval of COFI, so as to
preclude any duplication of dividend benefit.
(b) Except as specifically contemplated by this Agreement,
RCSB and the RCSB Subsidiaries shall continue to carry on, after the
date hereof, their respective businesses and the discharge or incurring
of obligations and liabilities, only in the usual, regular and ordinary
course of business, as heretofore conducted, and in substantial
compliance with their existing business plan, a copy of which has been
heretofore delivered by RCSB to COFI (the "1997 RCSB Business Plan"),
and by way of amplification and not limitation, RCSB and each of the
RCSB Subsidiaries will not, without the prior written consent of COFI
(which consent in the case of subparts (vi), (vii) and (xxii) shall not
be unreasonably withheld or delayed):
(i) issue any capital stock or any options, warrants,
or other rights to subscribe for or purchase capital stock or
any securities convertible into or exchangeable for any
capital stock, or any SARs or Stock Equivalents, except
44
<PAGE>
pursuant to the RCSB Stock Options outstanding on the date
hereof (including those stock options that are required to be
granted to non-employee directors on May 28, 1997 under the
1992 Option Plan) and the Stock Option Agreement;
(ii) directly or indirectly redeem, purchase or
otherwise acquire any capital stock or ownership interests
of RCSB or any of the RCSB Subsidiaries;
(iii) effect a reclassification, recapitalization,
split-up, exchange of shares, readjustment or other similar
change in or to any capital stock or otherwise reorganize or
recapitalize;
(iv) change its Charter, Certificate or Articles of
Incorporation or Bylaws;
(v) enter into or modify any employment agreement,
severance agreement, change in control agreement, or plan
relative to the foregoing; or grant any increase (other than
ordinary and normal increases to employees (excluding
executive officers of RCSB and Target Bank) consistent with
past practices) in the compensation payable or to become
payable to directors, officers or employees except as required
by law, pay or agree to pay any bonus, or adopt or make any
change in any bonus, insurance, pension, or other RCSB Benefit
Plan;
(vi) except for the short-term renewal of Federal
Home Loan Bank ("FHLB") advances outstanding at the date of
this Agreement, raising funds against its existing line of
credit with the FHLB for durations not in excess of 3 years,
and deposit-taking and repurchase transactions in the ordinary
course of its business, borrow or agree to borrow any funds or
indirectly guarantee or agree to guarantee any obligations of
others;
(vii) except in the ordinary course of business
consistent with prior practice, change the pricing or
methodology for pricing any of its loan products;
(viii) make any material changes in its policies
concerning loan underwriting or which persons may approve any
significant or material loan;
(ix) enter into any securities transaction for its
own account or purchase or otherwise acquire any investment
security for its own account other than U.S. Treasury
obligations with maturities of less than one year and deposits
in an overnight account at the FHLB of New York, provided
COFI's consent shall not be unreasonably withheld or delayed
relating to the purchase of other readily marketable
investment securities;
45
<PAGE>
(x) increase or decrease the rate of interest paid on
time deposits or on certificates of deposit, except in a
manner and pursuant to policies consistent with past
practices;
(xi) enter into, modify or extend any agreement,
contract or commitment out of the ordinary course of business
or having a term in excess of six months and involving an
expenditure in excess of $50,000, other than letters of
credit, loan agreements, deposit agreements, and other
lending, credit and deposit documents made in the ordinary
course of business;
(xii) except in the ordinary course of business and
in substantial compliance with the 1997 RCSB Business Plan,
place on any of its assets or properties any mortgage, pledge,
lien, charge, or other encumbrance;
(xiii) cancel any material indebtedness owing to it
or any claims which it may possess or waive any rights of
material value;
(xiv) sell or otherwise dispose of any real property
or any material amount of tangible or intangible personal
property, except in the ordinary course of business consistent
with past practices;
(xv) foreclose upon or otherwise take title to or
possession or control of any real property without first
obtaining a phase one environmental report thereon; provided,
however, that Target Bank and its Subsidiaries shall not be
required to obtain such a report with respect to single
family, non-agricultural residential property of one acre or
less to be foreclosed upon unless it has reason to believe
that such property might contain Hazardous Substances;
(xvi) knowingly or wilfully commit any act or fail to
commit any act which will cause a material breach of any
material agreement, contract or commitment;
(xvii) knowingly or wilfully violate any law,
statute, rule, governmental regulation, or order in any
material respect;
(xviii) purchase any fixed asset where the amount
paid or committed therefor is in excess of $50,000, except for
written commitments outstanding on or prior to May 15, 1997;
(xix) engage in any activity or transaction(s) that
could result in the consolidated loan servicing assets of RCSB
and the RCSB Subsidiaries to exceed $130,000,000;
46
<PAGE>
(xx) except as permitted under subpart (xxi)
immediately below, enter into or acquire any derivatives
contract or structured note;
(xxi) except in connection with hedging activities
consistent with past practices pertaining to residential first
mortgage loan originations, enter into any new, or modify,
amend or extend the terms of any existing contracts relating
to the purchase or sale of financial or other futures, or any
put or call option relating to cash, securities or commodities
or any interest rate swap agreements or other agreements
relating to the hedging of interest rate risk;
(xxii) in the case of Target Bank, (A)voluntarily
make any material changes in or to its asset or deposit mix
other than those contemplated by the 1997 RCSB Business Plan,
(B) voluntarily convert any Community Value checking account
to any other type of checking account, (C) open any new
branch, deposit taking facility or loan production office
other than the two new offices currently in construction, (D)
close any existing branch or other facility, or (E) incur any
liability or obligation relating to retail banking and branch
merchandising, marketing and advertising activities and
initiatives in excess of the amounts budgeted in the 1997 RCSB
Business Plan;
(xxiii) in the case of the RCSB Subsidiaries (other
than Target Bank), (A) open any sales, hub or other type of
office or facility or (B) hire any additional employees except
to fill current job vacancies and future vacancies arising
from attrition; or
(xxiv) agree in writing or otherwise to take any of
the foregoing actions or engage in any of the foregoing
activities.
(c) During the period commencing July 1, 1997, and ending the
last day of the calendar month coinciding with or immediately preceding
the Closing Date, RCSB and the RCSB Subsidiaries shall cause units with
a Fair Issac Corporation Auto Score (as calculated by the RCSB
Subsidiary based on maker or co-maker in its reports prepared in the
ordinary course of business consistent with past practice) of 599 or
less not to exceed 8% of the total auto unit production originated by
RCSB and the RCSB Subsidiaries during such period on a consolidated
basis.
(d) RCSB will, and will cause the RCSB Subsidiaries to, use
their reasonable efforts to maintain their respective properties and
assets in their present state of repair, order and condition,
reasonable wear and tear excepted, and to maintain and keep in full
force and effect all policies of insurance presently in effect,
including in the case of Target Bank insurance of accounts with the
FDIC. RCSB will, and will cause the RCSB Subsidiaries to, take all
requisite action (including without limitation the making of claims and
the giving of notices) pursuant to its directors' and officers'
liability insurance policy or
47
<PAGE>
policies in order to preserve all rights thereunder with respect to all
matters which could reasonably give rise to a claim prior to the
Effective Time.
(e) RCSB shall promptly notify COFI in writing of the
occurrence of any matter or event known to and directly involving RCSB
or any RCSB Subsidiary that is reasonably likely to result in a
Material Adverse Effect on RCSB or impair the ability of RCSB or Target
Bank to consummate the transactions contemplated herein.
(f) RCSB shall provide to COFI such reports on litigation
involving RCSB and each of the RCSB Subsidiaries as COFI shall
reasonably request, provided that RCSB shall not be required to divulge
information to the extent that, in the good faith opinion of its
counsel, by doing so, it would risk waiver of the attorney-client
privilege to its detriment.
(g) Neither RCSB (nor any of its Subsidiaries) (i) shall
solicit, initiate, participate in discussions of, or encourage or take
any other action to facilitate (including by way of the disclosing or
furnishing of any information that it is not legally obligated to
disclose or furnish) any inquiry or the making of any proposal relating
to any Acquisition Transaction (as defined below) or a potential
Acquisition Transaction with respect to itself or any of its
Subsidiaries or (ii) shall (A) solicit, initiate, participate in
discussions of, or encourage or take any other action to facilitate any
inquiry or proposal, or (B) enter into any agreement, arrangement, or
understanding (whether written or oral) regarding any proposal or
transaction providing for or requiring it to abandon, terminate or fail
to consummate this Agreement, or compensating it or any of its
Subsidiaries under any of the instances described in this clause. RCSB
and Target Bank shall immediately instruct and otherwise use their best
efforts to cause their directors, officers, employees, agents, advisors
(including, without limitation, any investment banker, attorney, or
accountant retained by it or any of its Subsidiaries), consultants and
other representatives to comply with such prohibitions. RCSB and Target
Bank shall immediately cease and cause to be terminated any existing
activities, discussions, or negotiations with any parties conducted
heretofore with respect to such activities. Notwithstanding the
foregoing, RCSB may provide information at the request of or enter into
negotiations with a third party with respect to an Acquisition
Transaction if the Board of Directors of RCSB determines, in good faith
after consultation with counsel, that the exercise of its fiduciary
duties to RCSB's stockholders under applicable law requires it to take
such action, and, provided further, that RCSB may not, in any event,
provide to such third party any information which it has not provided
to COFI. RCSB shall promptly notify COFI orally and in writing in the
event it receives any such inquiry or proposal and shall provide
reasonable detail of all relevant facts relating to such inquiries.
This Section shall not prohibit accurate disclosure by RCSB in any
document (including the Joint Proxy Statement and the Registration
Statement) or other disclosure under applicable law if in the opinion
of the Board of Directors of RCSB, disclosure is appropriate under
applicable law. "Acquisition Transaction" shall, with respect to RCSB,
mean any of the following (other
48
<PAGE>
than the Merger): (i) a merger or consolidation, or any similar
transaction of any company with either RCSB or any Subsidiary of RCSB,
(ii) a purchase, lease or other acquisition of a material portion of
all the assets of either RCSB or any Subsidiary of RCSB, (iii) a
purchase or other acquisition of "beneficial ownership" by any "person"
or "group" (as such terms are defined in Section 13(d)(3) of the
Exchange Act) (including by way of merger, consolidation, share
exchange, or otherwise) which would cause such person or group to
become the beneficial owner of securities representing 10% or more of
the voting power of either RCSB or any Subsidiary of RCSB, (iv) a
tender or exchange offer to acquire securities representing 19.9% or
more of the voting power of RCSB, (v) a public proxy or consent
solicitation made to stockholders of RCSB seeking proxies in opposition
to any proposal relating to any of the transactions contemplated by
this Agreement, (vi) the filing of an application or notice with the
OTS, the Department, or any other federal or state regulatory authority
(which application has been accepted for processing) seeking approval
to engage in one or more of the transactions referenced in clauses (i)
through (iv) above, or (vii) the making of a bona fide offer to the
Board of Directors of RCSB or Target Bank by written communication,
that is or becomes the subject of public disclosure, to engage in one
or more of the transactions referenced in clauses (i) through (v)
above.
(h) At the request of COFI, Target Bank agrees immediately
prior to Closing and after satisfaction or waiver of the conditions to
Closing set forth in Article VI hereof, to establish and take such
reserves and accruals as COFI reasonably shall request to conform
Target Bank's loan, accrual, reserve and other accounting policies to
the policies of Charter One Bank, provided however, such requested
conforming adjustments shall not be taken into account in determining
whether RCSB has experienced a Material Adverse Effect.
4.2 MUTUAL COVENANTS. No party to this Agreement shall voluntarily take
any action that would (A) materially impede or delay the consummation of the
transactions contemplated by this Agreement or the ability of the parties hereto
to obtain any approval of any regulatory authority required for the transactions
contemplated by this Agreement or to perform its covenants and agreements under
this Agreement or (B) prevent the Merger from qualifying as a pooling of
interests for accounting purposes or as a reorganization within the meaning of
Section 368(a) of the Code. The exercise by COFI of its rights under the Stock
Option Agreement shall not be deemed a violation of this Section or a breach of
any representation made by COFI under this Agreement.
49
<PAGE>
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 INSPECTION OF RECORDS; CONFIDENTIALITY.
(a) COFI and RCSB shall each afford to the other and to the
other's accountants, counsel and other representatives (and their
Subsidiaries) full access during normal business hours during the
period prior to the Effective Time to all of their respective
properties, books, contracts, commitments and records, including all
attorneys' responses to auditors' requests for information, and
accountants' work papers, developed by either of them or their
respective Subsidiaries or their respective accountants or attorneys,
and will permit each other and their respective representatives to
discuss such information directly with each other's officers,
directors, employees, attorneys and accountants. COFI and RCSB shall
each use their best efforts to furnish to the other all other
information concerning its business, properties and personnel as such
other party may reasonably request. Any failure to comply with this
covenant shall be disregarded if promptly corrected without material
adverse consequences to the other party. The availability or actual
delivery of information shall not affect the representations,
warranties, covenants, and agreements of the party providing such
information that are contained in this Agreement or in any certificates
or other documents delivered pursuant hereto.
(b) All information disclosed by any party to any other party
to this Agreement, whether prior or subsequent to the date of this
Agreement including, without limitation, any information obtained
pursuant to this Section 5.1, shall be kept confidential by such other
party and shall not be used by such other party otherwise as herein
contemplated. In the event that this Agreement is terminated, each
party shall return all documents furnished hereunder, shall destroy all
documents or portions thereof prepared by such other party that contain
information furnished by another party pursuant hereto and, in any
event, shall hold all information confidential unless or until such
information is or becomes a matter of public knowledge.
5.2 REGISTRATION STATEMENT; STOCKHOLDER APPROVAL. As soon as
practicable after the date hereof, COFI shall file the Registration Statement
with the SEC, and RCSB and COFI shall use their best efforts to cause the
Registration Statement to become effective under the Securities Act. COFI will
take any action required to be taken under the applicable blue sky or securities
laws in connection with the issuance of the shares of COFI Common Stock in the
Company Merger. Each party shall furnish all information concerning it and the
holders of its capital stock as the other party may reasonably request in
connection with such action. Each of COFI and RCSB shall call a meeting of its
stockholders as soon as practicable after the Registration Statement is declared
effective by the SEC for the purpose of voting upon this Agreement and the
50
<PAGE>
Company Merger and shall schedule such meeting based on consultation with the
other party. In connection with said stockholders' meetings, (i) COFI and RCSB
shall jointly prepare the Joint Proxy Statement as part of the Registration
Statement and they shall mail the Joint Proxy Statement to their respective
stockholders and (ii) the Board of Directors of COFI and RCSB shall recommend to
their respective stockholders the approval of this Agreement and the Company
Merger; provided, however, that such recommendation may be withdrawn, modified,
or amended, or not made at all, after the receipt by RCSB of an offer to effect
an Acquisition Transaction (as defined in Section 4.1(g) hereof) with RCSB to
the extent the Board of Directors of RCSB reasonably determines that, in the
exercise of its fiduciary obligations after consultation with counsel, it has a
duty to do so.
5.3 AGREEMENTS OF AFFILIATES. As soon as practicable after the date of
this Agreement, RCSB shall deliver to COFI a letter, reviewed by its counsel,
identifying all persons whom RCSB believes to be "affiliates" of RCSB for
purposes of Rule 145 under the Securities Act or for purposes of qualifying for
pooling of interests accounting treatment for the Merger. RCSB shall use its
best efforts to cause each person who is so identified as an "affiliate" to
deliver to COFI, as soon as practicable thereafter, a written agreement,
substantially in the form of Exhibit E, providing that from the date of such
agreement each such person will agree not to sell, pledge, transfer or otherwise
dispose of any shares of stock of RCSB held by such person or any shares of COFI
Common Stock to be received by such person in the Company Merger (i) during the
period commencing 30 days prior to the Company Merger and ending at the time of
publication of financial results covering at least 30 days of combined
operations after the Company Merger and (ii) at any time, except in compliance
with the applicable provisions of the Securities Act and other applicable laws
and regulations. Prior to the Effective Time, RCSB shall amend and supplement
such letter and use its best efforts to cause each additional person who is
identified as an "affiliate" to execute a written agreement as set forth in this
Section 5.3. COFI shall deliver to RCSB within five (5) business days after the
date hereof a certified copy of the minutes of a meeting of the Board of
Directors of COFI at which the restrictions on resales of COFI Common Stock
under the pooling of interests method of accounting rules were discussed.
5.4 EXPENSES. Each party hereto shall bear its own expenses incident to
preparing, entering into and carrying out this Agreement and to consummating the
Merger.
5.5 COOPERATION. Each party agrees that it will use its best efforts to
bring about the transactions contemplated by this Agreement as soon as
practicable, unless this Agreement is terminated as provided herein. Subject to
the terms and conditions herein provided, each of the parties hereto agrees to
use all reasonable efforts to take, or cause to be taken, all action, and to do,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement at the earliest practicable time. In case at any
time after the Effective Time any further action is necessary or desirable to
carry out the purposes of this Agreement, the proper officers and/or directors
of the parties, shall take all such necessary action. Each party shall use its
reasonable best efforts to preserve for itself and the other parties hereto each
available legal privilege with
51
<PAGE>
respect to the confidentiality of their negotiations and related communications,
including the attorney-client privilege.
5.6 REGULATORY APPLICATIONS. The parties shall, as soon as practicable
after the date of this Agreement, file all necessary applications with all
applicable regulatory authorities, and shall use their best efforts to respond
as promptly as practicable to all inquiries received concerning said
applications. In the event the Merger is challenged or opposed by any
administrative or legal proceeding, whether by the United States Department of
Justice or otherwise, the determination of whether and to what extent to seek
appeal or review, administrative or otherwise, or other appropriate remedies
shall be made by COFI after consultation with RCSB. The party filing an
application shall deliver a copy thereof to the other parties hereto in advance
of filing and copies of all responses from or written communications from
regulatory authorities relating to the Merger or this Agreement (to the extent
permitted by law), and the filing party shall also deliver a final copy of each
regulatory application to the other parties promptly after it is filed with the
appropriate regulatory authority. Each party shall advise the other parties
periodically of the status of each regulatory application.
5.7 FINANCIAL STATEMENTS AND REPORTS. From the date of this Agreement
and prior to the Effective Time: (a) RCSB will deliver to COFI not later than
forty-five (45) days after the end of any calendar quarter, the Report of
Condition and Income filed by Target Bank with the Department and FDIC; (b) COFI
and RCSB shall deliver to each other not later than forty-five (45) days after
the end of each fiscal quarter, its Report on Form 10-Q for such quarter as
filed with the SEC which shall be prepared in conformity with generally accepted
accounting principles and the rules and regulations of the SEC; and (c) each
party will deliver to the others any and all other material reports filed with
the SEC, FDIC, OTS, Department or any other regulatory agency within five (5)
business days of the filing of any such report.
5.8 NOTICE. At all times prior to the Effective Time, each party shall
promptly notify the others in writing of the occurrence of any event which will
or may result in the failure to satisfy any of the conditions specified in
Sections 6.1 or 6.2 hereof. In the event that any party becomes aware of the
occurrence or impending occurrence of any event which would constitute or cause
a breach by it of any of its representations and warranties, covenants or
agreements herein in any material respect, or would have constituted or caused a
breach by it of its representations and warranties, covenants or agreements
herein in any respect, had such an event occurred or been known prior to the
date hereof, said party shall immediately give detailed and written notice
thereof to the other parties, and shall, unless the same has been waived in
writing by the other parties, use its reasonable efforts to remedy the same
within 30 days, provided that such efforts, if not successful, shall not be
deemed to satisfy any condition precedent to the Merger.
5.9 PRESS RELEASE. Except as provided in Section 4.1(g) or as
otherwise reasonably determined by a party to comply with its legal obligations,
at all times prior to the Effective Time, the parties shall mutually agree to
the issuance of any press release or other information to the
52
<PAGE>
press or any third party for general circulation with respect to this Agreement
or the transactions contemplated hereby.
5.10 DELIVERY OF SUPPLEMENTS TO DISCLOSURE SCHEDULES. Five business
days prior to the Effective Time, each party will supplement or amend its
Disclosure Schedule with respect to any matter hereafter arising which, if
existing or occurring at or prior to the date of this Agreement, would have been
required to be set forth or described in such Disclosure Schedule or which is
necessary to correct any information in the Disclosure Schedule or in any
representation and warranty made by the disclosing party which has been rendered
inaccurate thereby. For purposes of determining the accuracy of the
representations and warranties of COFI and Charter One Bank, and RCSB and Target
Bank contained, respectively, in Articles II and III hereof in order to
determine the fulfillment of the conditions set forth in Section 6.1(a) and
6.2(a) hereof as of the date of this Agreement, the Disclosure Schedule of each
party shall be deemed to include only that information contained therein on the
date it is initially delivered to the other party together with any nonmaterial
information that was inadvertently left out of a party's Disclosure Schedule as
initially delivered and is subsequently provided in writing as soon as
practicable after the omission is discovered by the disclosing party.
5.11 LITIGATION MATTERS. RCSB and Target Bank will consult with COFI
about any proposed settlement, or any disposition of, any litigation involving
settlement amounts in excess of $50,000.
5.12 TAX OPINION. COFI agrees to obtain a written opinion of Silver,
Freedman & Taff, L.L.P., addressed to COFI and RCSB, dated the Closing Date,
subject to the representations and assumptions referred to therein, and
substantially to the effect that the Company Merger will constitute a tax-free
reorganization within the meaning of Section 368(a) of the Code and that COFI,
Charter Michigan and RCSB will each be a party to a reorganization.
5.13 CONTINUING EMPLOYEES. To the extent permitted by applicable law,
the former employees of RCSB and RCSB Subsidiaries who become employees of
Charter One Bank or any other COFI Subsidiary (the "Continuing Employees") shall
continue to participate in the RCSB Benefit Plans, except where any such Plan is
terminated at request of COFI prior to or at the Effective Time. At or after the
Effective Time, COFI may merge any RCSB Benefit Plan with and into an COFI
Benefit Plan or merge an COFI Benefit Plan with and into an RCSB Benefit Plan.
At or after the Effective Time, COFI or any COFI Subsidiary may amend or
terminate any RCSB Benefit Plan, provided, that if the termination or amendment
adversely affects the benefits provided to the Continuing Employees, Charter One
Bank or another COFI Subsidiary shall provide the Continuing Employees with
benefits that are substantially equivalent to the benefits being received by
other similarly situated employees of Charter One Bank or such other COFI
Subsidiary under comparable plans then in effect, if any. Whenever a Continuing
Employee becomes a participant in an COFI Benefit Plan, such Continuing Employee
shall receive full credit for his past service with RCSB or any RCSB Subsidiary
for purposes of determining eligibility to participate in and the vesting of
benefits under such COFI Benefit Plan (but not for the purpose
53
<PAGE>
of accrual of benefits thereunder). Continuing Employees will not be subject to
any exclusion or penalty for pre-existing conditions that were covered under the
RCSB health plan immediately prior to the Effective Time or any waiting period
relating to coverage under the COFI health plan.
5.14 RESERVATION OF SHARES TO SATISFY RCSB STOCK OPTIONS. COFI shall
take all corporate action necessary to reserve for issuance a sufficient number
of shares of COFI Common Stock for delivery upon exercise of RCSB Stock Options
assumed by it in accordance with Section 1.3(e) hereof. As soon as practicable
after the Effective Time, COFI shall file an appropriate registration statement
with respect to the shares of COFI Common Stock subject to such options and
shall use its best efforts to maintain the effectiveness of such registration
statement or registration statements (and maintain the current status of the
prospectus or prospectuses contained therein) for so long as such options remain
outstanding.
5.15 NASDAQ LISTING. COFI shall use all reasonable efforts to cause the
shares of COFI Common Stock to be issued in the Company Merger, and the shares
of COFI Common Stock to be reserved for issuance upon exercise of RCSB Stock
Options, to be approved for listing on the Nasdaq Stock Market (or such other
national securities exchange or stock market on which the COFI Common Stock
shall then be traded), subject to official notice of issuance, prior to or as of
the Closing.
5.16 DIRECTORS' AND OFFICERS' INDEMNIFICATION INSURANCE. For a period
of six years following the Effective Time, COFI shall indemnify, defend and hold
harmless the present and former directors, officers and employees of RCSB and
the RCSB Subsidiaries (each, an "Indemnified Party") against all costs or
expenses (including reasonable attorneys' fees), judgments, fines, losses,
claims, damages or liabilities incurred in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal, administrative or
investigative, and arising out of matters existing or occurring at or prior to
the Effective Time (including the transactions contemplated by this Agreement
and the agreements executed pursuant to this Agreement), whether asserted or
claimed prior to, at or after the Effective Time, to the fullest extent that
RCSB would have been permitted under Delaware law and its Certificate of
Incorporation or Bylaws in effect on the date of this Agreement to indemnify
such person (and COFI will also advance expenses as incurred to the fullest
extent permitted under applicable law so long as the person to whom expenses are
advanced provides an undertaking to repay such advances if it is ultimately
determined that such person is not entitled to indemnification); PROVIDED
HOWEVER, that (a) any determination required to be made with respect to whether
a person's conduct complies with the standards set forth under Delaware law and
RCSB's Certificate of Incorporation and Bylaws shall be made by independent
counsel mutually agreed upon between COFI and the Indemnified Party, and (b)
COFI shall be obligated pursuant to this Section 5.16 to pay for only one firm
of counsel for all Indemnified Parties, unless an Indemnified Party shall have
reasonably concluded, based on the advice of counsel, that in order to be
adequately represented, separate counsel is necessary for such Indemnified
Party, in which case COFI shall be obligated to pay for such separate counsel.
COFI shall cause the persons serving as officers and directors of RCSB and the
RCSB Subsidiaries immediately prior to the Effective
54
<PAGE>
Time to be covered for a period of six years following the Effective Time by the
directors' and officers' liability insurance policy maintained by COFI and
Charter One Bank (provided that COFI may substitute or cause RCSB to substitute
therefor single premium tail coverage with a policy limit equal to RCSB's
existing annual coverage limit) with respect to acts or omissions occurring
prior to the Effective Time which were committed by such officers and directors
in their capacity as such, provided that the additional premium cost to COFI
does not exceed 200% of RCSB's present annual premium cost (the "Maximum
Amount") and that the insurance is available. If the amount of the premium
necessary to maintain or procure such coverage exceeds the Maximum Amount, COFI
shall use all reasonable efforts to maintain the most advantageous policies of
directors' and officers' insurance obtainable for a premium equal to the Maximum
Amount.
5.17. EXTRAORDINARY COFI DIVIDENDS. Between the date of this Agreement
and the Effective Time or the termination of this Agreement (whichever occurs
first), COFI shall not declare, set aside or pay any extraordinary dividend or
make any other extraordinary distribution (other than a stock dividend) with
respect to COFI Common Stock.
ARTICLE VI
CONDITIONS
6.1 CONDITIONS TO THE OBLIGATIONS OF COFI, CHARTER MICHIGAN AND CHARTER
ONE BANK. Notwithstanding any other provision of this Agreement, the obligations
of COFI, Charter Michigan and Charter One Bank to consummate the Merger are
subject to the following conditions precedent (except as to those which COFI may
chose to waive):
(a) subject to the cure provisions set forth in Section 5.8,
all of the representations and warranties made by RCSB and Target Bank
in this Agreement and in any documents or certificates provided by RCSB
and Target Bank shall have been true and correct in all material
respects as of the date of this Agreement and as of the Effective Time
(after giving effect to the Disclosure Supplements delivered by RCSB
pursuant to Section 5.10 relating to intervening events) as though made
on and as of the Effective Time;
(b) subject to the cure provisions set forth in Section 5.8,
RCSB and Target Bank shall have performed in all material respects all
obligations and shall have complied in all material respects with all
agreements and covenants required by this Agreement to be performed or
complied with by them prior to or at the Effective Time;
(c) there shall not have been any action taken or any statute,
rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger by any federal or state government or
governmental agency or instrumentality or court, which would prohibit
ownership or operation of all or a portion of the business or assets of
RCSB or any RCSB Subsidiary by COFI, Charter Michigan or Charter One
Bank, or would compel
55
<PAGE>
COFI, Charter Michigan or Charter One Bank to dispose of all or a
portion of the business or assets of RCSB or any RCSB Subsidiary, as a
result of this Agreement, or which would render any party hereto unable
to consummate the transactions contemplated by this Agreement;
(d) since the date hereof, RCSB shall not have suffered
Material Adverse Effect;
(e) no regulatory authority shall impose any non-standard or
unduly burdensome condition relating to the Merger, as determined in
the reasonable judgment of COFI;
(f) COFI shall have received the opinion of Harris Beach &
Wilcox, L.L.P., counsel to RCSB, in the form of the attached Exhibit
F;
(g) COFI shall have received a certificate signed by the
President and Chief Executive Officer of RCSB and Target Bank, dated as
of the Effective Time, certifying that based upon his best knowledge,
the conditions set forth in Sections 6.1(a), (b), (d), (l) and (m)
hereof have been satisfied.
(h) simultaneous with the execution and delivery of this
Agreement, (i) the directors of RCSB who are stockholders of RCSB shall
have executed and delivered to COFI Voting Agreements in the form
attached hereto as Exhibit A and (ii) immediately after the execution
and delivery of this Agreement, the Stock Option Agreement shall have
been executed and delivered by COFI and RCSB in the form attached
hereto as Exhibit B;
(i) COFI shall have received from Deloitte & Touche L.L.P. a
letter, in the form then customarily issued by such accountants in
transactions of this type, to the effect that the Merger will qualify
for pooling of interests accounting treatment;
(j) COFI shall have received the letters referred to in
Section 5.3 from all executive officers and directors of RCSB and all
stockholders who are affiliates of RCSB;
(k) Within five days prior to mailing the Joint Proxy
Statement to the stockholders of COFI, COFI shall have received from
Montgomery Securities (or another investment banking firm reasonably
acceptable to COFI) a written opinion to the effect that the Company
Merger is fair to the COFI stockholders from a financial point of view;
(l) Since November 30, 1996 to the Closing Date, the average
monthly originations of auto loans and leases of RCSB and the RCSB
Subsidiaries shall not exceed $92,000,000 (or a pro rata portion
thereof in the case of the calendar month that Closing occurs); and
56
<PAGE>
(m) monthly net charge-offs for the auto indirect portfolio of
RCSB and the RCSB Subsidiaries based upon current charge-off accounting
methodology utilized by American Credit Services, Inc., on the date of
this Agreement shall not exceed .125% of the monthly average
outstanding portfolio balance for any two calendar months commencing
May, 1997.
6.2 CONDITIONS TO THE OBLIGATIONS OF RCSB AND TARGET BANK.
Notwithstanding any other provision of this Agreement, the obligations of RCSB
and Target Bank to consummate the Merger are subject to the following conditions
precedent (except as to those which RCSB may chose to waive):
(a) subject to the cure provisions set forth in Section 5.8,
all of the representations and warranties made by COFI in this
Agreement and in any documents or certificates provided by COFI shall
have been true and correct in all material respects as of the date of
this Agreement and as of the Effective Time (after giving effect to the
Disclosure Supplements delivered by COFI pursuant to Section 5.10
relating to intervening events) as though made on and as of the
Effective Time;
(b) subject to the cure provisions set forth in Section 5.8,
COFI shall have performed in all material respects all obligations and
shall have complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with
by it prior to or at the Effective Time;
(c) since the date hereof, COFI shall not have suffered a
Material Adverse Effect;
(d) RCSB shall have received the opinion of Silver, Freedman &
Taff, L.L.P., counsel to COFI, in the form attached hereto as Exhibit
G;
(e) RCSB shall have received a certificate signed by the
President and Chief Executive Officer of COFI, dated as of the
Effective Time, that based upon his best knowledge, the conditions set
forth in Sections 6.2(a), (b) and (c) have been satisfied.
(f) Within five days prior to mailing the Joint Proxy
Statement to the stockholders of RCSB, RCSB shall have received from
Lehman Brothers (or another investment banking firm reasonably
acceptable to RCSB) a written opinion to the effect that the Merger
Consideration is fair to the RCSB stockholders from a financial point
of view.
6.3 CONDITIONS TO THE OBLIGATIONS OF THE PARTIES. Notwithstanding any
other provision of this Agreement, the obligations of COFI, Charter Michigan and
Charter One Bank on the one hand, and RCSB and Target Bank on the other hand, to
consummate the Merger are subject to the following conditions precedent (except
as to those which COFI or RCSB may chose to waive):
57
<PAGE>
(a) No preliminary or permanent injunction or other order by
any federal or state court which prevents the consummation of the
Merger shall have been issued and shall remain in effect; nor shall
there be any third party proceeding pending to prevent the consummation
of the Merger;
(b) The parties shall have received all applicable regulatory
approvals and consents to consummate the transactions contemplated in
this Agreement and all required waiting periods shall have expired;
(c) The respective holders of a majority of the outstanding
COFI Common Stock and RCSB Common Stock shall have approved this
Agreement and the Company Merger;
(d) The Registration Statement shall have been declared
effective under the Securities Act and no stop orders shall be in
effect and no proceedings for such purpose shall be pending or
threatened by the SEC;
(e) Each party shall have received the tax opinion addressed
to it referred to in Section 5.12 of this Agreement; and
(f) The COFI Common Stock to be issued to holders of RCSB
Common Stock shall have been approved for listing on the Nasdaq
National Market subject to official notice of issuance.
ARTICLE VII
TERMINATION; AMENDMENT; WAIVER
7.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time:
(a) By the mutual written consent of the Boards of Directors
of COFI and RCSB;
(b) At any time prior to the Effective Time, by COFI or RCSB
if there shall have been a final judicial or regulatory determination
(as to which all periods for appeal shall have expired and no appeal
shall be pending) that any material provision of this Agreement is
illegal, invalid or unenforceable (unless the enforcement thereof is
waived by the affected party) or denying any regulatory application the
approval of which is a condition precedent to a party's obligations
hereunder;
(c) At any time on or before the date specified in 7.1(e)
hereof, by COFI or RCSB in the event that any of the conditions
precedent to the obligations of the other
58
<PAGE>
party to the Merger are rendered impossible to be satisfied or
fulfilled by said date (other than by reason of a breach by the party
seeking to terminate);
(d) By COFI or RCSB, in the event of a material breach by the
other party of any representation, warranty, covenant or agreement
contained herein or in any schedule or document delivered pursuant
hereto, which breach would result in the failure to satisfy the closing
condition set forth in Section 6.1(a) or 6.1(b) in the case of COFI, or
Section 6.2(a) or 6.2(b) in the case of RCSB, and which breach cannot
be or is not cured within thirty (30) days after written notice of such
breach is given by the non-breaching party to the party committing such
breach; or
(e) By COFI or RCSB on or after December 31, 1997, in the
event the Company Merger has not been consummated by such date
(provided that the terminating party is not then in material breach of
any representation, warranty, covenant or other agreement contained
herein).
In the event a party elects to effect any termination pursuant
to Section 7.1(b) through 7.1(e) above, it shall give written notice to
the other party hereto specifying the basis for such termination and
certifying that such termination has been approved by the vote of a
majority of the members of its Board of Directors.
7.2 LIABILITIES AND REMEDIES. In the event that this Agreement is
terminated by a party (the "Aggrieved Party") solely by reason of the willful
and material breach by the other party ("Breaching Party") of any of its
representations or warranties or the material breach by the Breaching Party of
any of its covenants or agreements contained herein then the Aggrieved Party
shall be entitled to such remedies and relief against the Breaching Party as are
available at law or in equity. Moreover, the Aggrieved Party without terminating
this Agreement shall be entitled to specifically enforce the terms hereof
against the Breaching Party in order to cause the Merger to be consummated. Each
party acknowledges that there is not an adequate remedy at law to compensate the
other parties relating to the non-consummation of the Merger. To this end, each
party, to the extent permitted by law, irrevocably waives any defense it might
have based on the adequacy of a remedy at law which might be asserted as a bar
to specific performance, injunctive relief or other equitable relief.
7.3 SURVIVAL OF AGREEMENTS. In the event of termination of this
Agreement by either COFI or RCSB as provided in Section 7.1, this Agreement
shall forthwith become void and have no effect except that the agreements
contained in Sections 5.1(b), 5.4, and 7.2 hereof shall survive the termination
hereof.
7.4 AMENDMENT. This Agreement may be amended by the parties hereto by
action taken by their respective Boards of Directors at any time before or after
approval hereof by the stockholders of COFI and RCSB but, after such approval,
no amendment shall be made which changes the form of consideration or the value
of the consideration to be received by the stockholders of RCSB without the
approval of the stockholders of COFI and RCSB. This
59
<PAGE>
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto. The parties may, without approval of their
respective Boards of Directors, make such technical changes to this Agreement,
not inconsistent with the purposes hereof as may be required to effect or
facilitate any regulatory approval or acceptance of the Merger or of this
Agreement or to effect or facilitate any regulatory or governmental filing or
recording required for the consummation of any of the transactions contemplated
hereby.
7.5 WAIVER. Any term, provision or condition of this Agreement (other
than the requirement of COFI and RCSB stockholder approval) may be waived in
writing at any time by the party which is entitled to the benefits hereof. Each
and every right granted to any party hereunder, or under any other document
delivered in connection herewith or therewith, and each and every right allowed
it by law or equity, shall be cumulative and may be exercised from time to time.
The failure of a party at any time or times to require performance of any
provision hereof shall in no manner affect such party's right at a later time to
enforce the same. No waiver by any party of a condition or of the breach of any
term, covenant, representation or warranty contained in this Agreement, whether
by conduct or otherwise, in any one or more instances shall be deemed to be or
construed as a further or continuing waiver of any such condition or breach or a
waiver of any other condition or of the breach of any other term, covenant,
representation or warranty of this Agreement. No investigation, review or audit
by a party of another party prior to or after the date hereof shall estop or
prevent such party form exercising any right hereunder or be deemed to be a
waiver of any such right.
ARTICLE VIII
GENERAL PROVISIONS
8.1 SURVIVAL. All representations, warranties, covenants and agreements
of the parties in this Agreement or in any instrument delivered by the parties
pursuant to this Agreement (other than the agreements, covenants and obligations
set forth herein which are contemplated to be performed after the Effective
Time) shall not survive the Effective Time, provided that no such
representations, warranties or covenants shall be deemed to be terminated or
extinguished so as to deprive any party (or any of its directors, officers,
employees or agents) of any defense in law or equity which otherwise would be
available against the claims of any person, including, without limitation, any
stockholder or former stockholder of either COFI or RCSB, the aforesaid
representations, warranties, and covenants being material inducements to
consummation by the parties and the surviving corporation and resulting
institution of the transactions contemplated hereby.
8.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, by facsimile
transmission or by registered or certified mail to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice) and shall be deemed to be delivered on the date so delivered:
60
<PAGE>
(a) if to COFI, Charter Michigan or Charter One Bank:
Mr. Charles J. Koch
Chief Executive Officer
Charter One Financial, Inc.
1215 Superior Avenue
Cleveland, OH 44114
copy to:
Mr. Robert J. Vana
Chief Corporate Counsel
Charter One Financial, Inc.
1215 Superior Avenue
Cleveland, OH 44114
and
Barry P. Taff, Esq.
Silver, Freedman & Taff L.L.P.
1100 New York Ave., N.W.
Washington, D.C. 20005
(b) if to RCSB or Target Bank:
Mr. Leonard S. Simon
Chairman of the Board, President
and Chief Executive Officer
RCSB Financial, Inc.
235 East Main Street
Rochester, NY 14604
copy to:
Thomas E. Willett, Esq.
Harris Beach & Wilcox, LLP
Granite Building
130 East Main Street
Rochester, NY 14604
8.3 APPLICABLE LAW. This Agreement shall be construed and
interpreted according to the laws of the State of Delaware without regard to
conflicts of laws principles thereof, except to the extent that the federal laws
of the United States apply.
61
<PAGE>
8.4 HEADINGS, ETC. The article headings and section headings
contained in this Agreement are inserted for convenience only and shall not
affect in any way the meaning or interpretation of this Agreement.
8.5 SEVERABILITY. If any term, provision, covenant, or restriction
contained in this Agreement is held by a final and unappealable order of a court
of competent jurisdiction to be invalid, void, or unenforceable, then the
remainder of the terms, provisions, covenants, and restrictions contained in
this Agreement shall remain in full force and effect, and shall in no way be
affected, impaired, or invalidated unless the effect would be to cause this
Agreement to not achieve its essential purposes.
8.6 ENTIRE AGREEMENT; BINDING EFFECT; NON-ASSIGNMENT; COUNTERPARTS.
Except as otherwise expressly provided herein, this Agreement (including the
documents and instruments referred to herein) (a) constitutes the entire
agreement between the parties hereto and supersedes all other prior agreements
and undertakings, both written and oral, between the parties, with respect to
the subject matter hereof; and (b) is not intended to confer upon any other
person any rights or remedies hereunder except as specifically provided herein.
This Agreement shall be binding upon and inure to the benefit of the parties
named herein and their respective successors. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any party
hereto without the prior written consent of the other party hereto. This
Agreement may be executed in two or more counterparts which together shall
constitute a single agreement.
62
<PAGE>
The undersigned have caused this Agreement to be executed as of the day
and year first above written.
CHARTER ONE FINANCIAL, INC.
By /s/ Charles J. Koch
______________________________
Authorized Officer
CHARTER MICHIGAN BANCORP, INC.
By /s/ Charles J. Koch
______________________________
Authorized Officer
CHARTER ONE BANK F.S.B.
By /s/ Charles J. Koch
______________________________
Authorized Officer
RCSB FINANCIAL, INC.
By /s/ Leonard S. Simon
______________________________
Authorized Officer
ROCHESTER COMMUNITY SAVINGS BANK
By /s/ Leonard S. Simon
______________________________
Authorized Officer
63
Exhibit 10
OPTION AGREEMENT
OPTION AGREEMENT ("Option Agreement") dated May 21, 1997, among Charter
One Financial, Inc. ("COFI"), a Delaware corporation registered as a savings and
loan holding company under the Home Owners' Loan Act, as amended ("HOLA"), and
RCSB Financial, Inc. ("RCSB"), a Delaware corporation registered as a savings
and loan holding company under HOLA.
W I T N E S S E T H:
WHEREAS, the Boards of Directors of COFI and RCSB have approved an
Agreement and Plan of Merger and Reorganization dated as of even date herewith
(the "Merger Agreement") providing for, among other things, the merger of RCSB
with and into a subsidiary of COFI;
WHEREAS, as a condition to COFI entering into the Merger Agreement,
COFI has required that RCSB agree, and RCSB has agreed, to grant to COFI the
option set forth herein to purchase authorized but unissued shares of COFI
Common Stock.
NOW, THEREFORE, in consideration of the premises herein contained, the
parties agree as follows:
1. Definitions.
-----------
Capitalized terms used but not defined herein shall have the same
meanings as in the Merger Agreement.
<PAGE>
2. Grant of Option.
---------------
Subject to the terms and conditions set forth herein, RCSB hereby
grants to COFI an option (the "Option") to purchase from RCSB up to 2,880,944
authorized and unissued shares of RCSB Common Stock at a price of $37.50 per
share (the "Purchase Price") payable in cash as provided in Section 4 hereof.
3. Exercise of Option.
------------------
(a) COFI may exercise the Option, in whole or in part, at any time or
from time to time if a Purchase Event (as defined below) shall have occurred;
PROVIDED, HOWEVER, that (i) to the extent the Option shall not have been
exercised, it shall terminate and be of no further force and effect upon the
earliest to occur of (A) the Effective Time of the Company Merger, (B) the
termination of the Merger Agreement in accordance with Section 7.1 other than a
termination by COFI pursuant to Section 7.1(d) thereof, and (C) eighteen months
following the termination of the Merger Agreement by COFI in accordance with
Section 7.1(d) thereof, PROVIDED that if such termination pursuant to subpart
(B) above follows an Extension Event (as defined below), the Option shall not
terminate until the date that is 12 months following such termination; (ii) if
the Option cannot be exercised on such day because of any injunction, order or
similar restraint issued by a court of competent jurisdiction, the Option shall
expire on the 30th business day after such injunction, order or restraint shall
have been dissolved or when such injunction, order or restraint shall have
become permanent and no longer subject to appeal, as the case may be; and (iii)
that any such exercise shall be subject to compliance with applicable law,
including the HOLA.
(b) As used herein, a "Purchase Event" shall mean any of the
following events:
(i) RCSB or any of the RCSB Subsidiaries, without having
received prior written consent from COFI, shall have entered into,
authorized, recommended, proposed or publicly
2
<PAGE>
announced its intention to enter into, authorize, recommend, or
propose, an agreement, arrangement or understanding with any person
(other than COFI or an COFI Subsidiary to (A) effect a merger or
consolidation or similar transaction involving RCSB or any RCSB
Subsidiary (other than internal mergers, reorganizing actions,
consolidations or dissolutions involving only existing RCSB
Subsidiaries), (B) purchase, lease or otherwise acquire 35% or more of
the consolidated assets of RCSB, or (C) purchase or otherwise acquire
(including by way of merger, consolidation, share exchange or similar
transaction) Beneficial Ownership (as defined below) of common stock
representing 20% or more of the voting power of RCSB or any RCSB
Subsidiary;
(ii) any person or group (other than COFI or an COFI
Subsidiary, or RCSB or any RCSB Subsidiary acting in a fiduciary
capacity) shall have acquired Beneficial Ownership or the right to
acquire Beneficial Ownership of 20% or more of the voting power of
RCSB; or
(iii) RCSB's Board of Directors shall have withdrawn or
modified in a manner adverse to COFI the recommendation of the Board of
Directors with respect to the Merger Agreement and the Company Merger,
in each case after an Extension Event; or
(iv) the holders of RCSB Common Stock shall not have approved
the Merger Agreement and the Company Merger at the RCSB stockholders'
meeting held for such purpose, or such meeting shall not have been held
or shall have been canceled prior to termination of the Merger
Agreement in accordance with its terms, in each case after an Extension
Event. (c) As used herein, the term "Extension Event" shall mean any of
the following events:
(i) a Purchase Event of the type specified in clauses (b)
(i) and (b) (ii) above;
3
<PAGE>
(ii) any person or group (other than COFI or an COFI
Subsidiary,) shall have "commenced" (as such term is defined in Rule
14d-2 under the Exchange Act), or shall have filed a registration
statement under the Securities Act with respect to, a tender offer or
exchange offer to purchase shares of RCSB Common Stock such that, upon
consummation of such offer, such person or group would have Beneficial
Ownership or the right to acquire Beneficial Ownership of 20% or more
of the voting power of RCSB;
(iii) any person or group (other than COFI or an COFI
Subsidiary) shall have publicly announced its willingness, or shall
have publicly announced a proposal, or publicly disclosed an intention
to make a proposal, (x) to make an offer described in clause (ii) above
or (y) to engage in a transaction described in clause (i) above; or
(iv) any person, by public proxy, consent solicitation or
other process made to the RCSB stockholders, shall seek proxies in
opposition to the Merger Agreement and Company Merger. (d) As used
herein, the terms "Beneficial Ownership" and "Beneficially Own" shall
have the meanings ascribed to them in Rule 13d-3 under the Exchange
Act.
(e) In the event COFI wishes to exercise the Option, it shall deliver
to RCSB a written notice (the date of which being herein referred to as the
"Notice Date") specifying (i) the total number of shares of RCSB Common Stock it
intends to purchase pursuant to such exercise and (ii) a place and date not
earlier than three business days nor later than 60 calendar days from the Notice
Date for the closing of such purchase (the "Closing Date").
4
<PAGE>
4. Payment and Delivery of Certificates.
------------------------------------
(a) At the closing referred to in Section 3 hereof, COFI shall pay to
RCSB the aggregate Purchase Price for the shares of RCSB Common Stock purchased
pursuant to the exercise of the Option in immediately available funds by wire
transfer to a bank account designated by RCSB.
(b) At such closing, simultaneously with the delivery of cash as
provided in Section 4(a), RCSB shall deliver to COFI a certificate or
certificates representing the number of shares of RCSB Common Stock purchased by
COFI, registered in the name of COFI or a nominee designated in writing by COFI,
and COFI shall deliver to RCSB a letter agreeing that COFI shall not offer to
sell, pledge or otherwise dispose of such shares in violation of applicable law
or the provisions of this Option Agreement.
(c) If at the time of issuance of any RCSB Common Stock pursuant to any
exercise of the Option, RCSB shall have issued any share purchase rights or
similar securities to holders of RCSB Common Stock, then each such share of RCSB
Common Stock shall also represent rights with terms substantially the same as
and at least as favorable to COFI as those issued to other holders of RCSB
Common Stock.
(d) Certificates for RCSB Common Stock delivered at any closing
hereunder shall be endorsed with a restrictive legend which 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 RCSB Financial, Inc. dated May 21, 1997, a copy of which is
on file at the principal office of RCSB Financial, Inc., and to resale
restrictions arising under the Securities Act of 1933 and any
applicable state securities laws. A copy of such agreement will be
provided to the holder hereof without charge upon receipt by RCSB
Financial, Inc. of a written request therefor.
It is understood and agreed that the above legend shall be removed by delivery
of substitute certificate(s) without such legend if COFI shall have delivered to
RCSB an opinion of counsel, in
5
<PAGE>
form and substance reasonably satisfactory to RCSB and its counsel, to the
effect that such legend is not required for purposes of the Securities Act and
any applicable state securities laws.
5. Authorization, etc.
------------------
(a) RCSB hereby represents and warrants to COFI that:
(i) RCSB has full corporate authority to execute and deliver
this Option Agreement and, subject to Section 11(i), to consummate the
transactions contemplated hereby;
(ii) such execution, delivery and consummation have been
authorized by its Board of Directors, and no other corporate actions
are necessary therefor;
(iii) this Option Agreement has been duly and validly
executed and delivered and represents a valid and legally binding
obligation of RCSB, enforceable against RCSB in accordance with its
terms; and
(iv) RCSB has taken all necessary corporate action to
authorize and reserve and, subject to Section 11(i), permit it to issue
and, at all times from the date hereof through the date of the exercise
in full or the expiration or termination of the Option, shall have
reserved for issuance upon exercise of the Option, 2,880,944 shares of
RCSB Common Stock, all of which, upon issuance pursuant hereto, shall
be duly authorized, validly issued, fully paid and nonassessable, and
shall be delivered free and clear of all claims, liens, encumbrances,
restrictions (other than federal and state securities restrictions) and
security interests and not subject to any preemptive rights.
6
<PAGE>
(b) COFI hereby represents and warrants to RCSB that:
(i) COFI has full corporate authority to execute and deliver
this Option Agreement and, subject to Section 11(i), to consummate the
transactions contemplated hereby;
(ii) such execution, delivery and consummation have been
authorized by all requisite corporate action by COFI, and no other
corporate proceedings are necessary therefor;
(iii) this Option Agreement has been duly and validly executed
and delivered and represents a valid and legally binding obligation of
COFI, enforceable against COFI in accordance with its terms; and
(iv) any RCSB Common Stock or other securities acquired by
COFI upon exercise of the Option will not be taken with a view to the
public distribution thereof and will not be transferred or otherwise
disposed of except in compliance with the Securities Act.
6. Adjustment upon Changes in Capitalization.
-----------------------------------------
In the event of any change in RCSB Common Stock by reason of dividends,
split-ups, recapitalizations or the like, the type and number of shares subject
to the Option, and the purchase price per share, as the case may be, shall be
adjusted appropriately. In the event that any additional shares of RCSB Common
Stock are issued after the date of this Option Agreement (other than pursuant to
an event described in the preceding sentence or pursuant to this Option
Agreement), the number of shares of RCSB Common Stock subject to the Option
shall be adjusted so that, after such issuance, it equals at least 19.9% of the
number of shares of RCSB Common Stock then issued and outstanding (without
considering any shares subject to or issued pursuant to the Option).
7
<PAGE>
7. Repurchase.
----------
(a) Subject to Section 11(i), at the request of COFI at any time
commencing upon the occurrence of a Purchase Event and ending 13 months
immediately thereafter (the "Repurchase Period"), RCSB (or any successor entity
thereof) shall repurchase the Option from COFI together with all (but not less
than all, subject to Section 10) shares of RCSB Common Stock purchased by COFI
pursuant thereto with respect to which COFI then has Beneficial Ownership, at a
price (per share, the "Per share Repurchase Price") equal to the sum of:
(i) The exercise price paid by COFI for any shares of RCSB
Common Stock acquired pursuant to the Option;
(ii) The difference between (A) the "Market/Tender Offer
Price" for shares of RCSB Common Stock (defined as the higher of (x)
the highest price per share at which a tender or exchange offer has
been made for shares of RCSB Common Stock or (y) the highest closing
mean of the "bid" and the "ask" price per share of RCSB Common Stock
reported by the Nasdaq, the automated quotation system of the National
Association of Securities Dealers, Inc., for any day within that
portion of the Repurchase Period which precedes the date COFI gives
notice of the required repurchase under this Section 7) and (B) the
exercise price as determined pursuant to Section 2 hereof (subject to
adjustment as provided in Section 6), multiplied by the number of
shares of RCSB Common Stock with respect to which the Option has not
been exercised, but only if the Market/Tender Offer Price is greater
than such exercise price; and
(iii) The difference between the Market/Tender Offer Price and
the exercise price paid by COFI for any shares of RCSB Common Stock
purchased pursuant to the exercise of
8
<PAGE>
the Option, multiplied by the number of shares so purchased, but only
if the Market/Tender Offer Price is greater than such exercise price.
(b) In the event COFI exercises its rights under this Section 7,
RCSB shall, within ten business days thereafter, pay the required amount to COFI
by wire transfer of immediately available funds to an account designated by COFI
and COFI shall surrender to RCSB the Option and the certificates evidencing the
shares of RCSB Common Stock purchased thereunder with respect to which COFI then
has Beneficial Ownership, and COFI shall warrant that it has sole record and
Beneficial Ownership of such certificates and that the same are free and clear
of all liens, claims, charges, restrictions and encumbrances of any kind
whatsoever.
(c) In determining the Market/Tender Offer Price, the value of any
consideration other than cash shall be determined by an independent nationally
recognized investment banking firm selected by COFI and reasonably acceptable to
RCSB.
8. Repurchase at Option of RCSB and First Refusal.
----------------------------------------------
(a) Except to the extent that COFI shall have previously exercised its
rights under Section 7, at the request of RCSB during the six-month period
commencing 13 months following the first occurrence of a Purchase Event, RCSB
may repurchase from COFI, and COFI shall sell to RCSB, all (but not less than
all, subject to Section 10) of the RCSB Common Stock acquired by COFI pursuant
hereto and with respect to which COFI has Beneficial Ownership at the time of
such repurchase at a price per share equal to the greater of (i) 110% of the
Market/Tender Offer Price per share, (ii) the Per Share Repurchase Price or
(iii) the sum of (A) the aggregate Purchase Price of the shares so repurchased
plus (B) interest on the aggregate Purchase Price paid for the shares so
repurchased from the date of purchase to the date of repurchase at the highest
rate of interest announced by COFI Bank as its prime or base lending or
reference rate during such period, less any
9
<PAGE>
dividends received on the shares so repurchased, plus (C) COFI's reasonable
out-of-pocket expenses incurred in connection with the transactions contemplated
by the Merger Agreement, including, without limitation, legal, accounting and
investment banking fees. Any repurchase under this Section 8(a) shall be
consummated in accordance with Section 7(b).
(b) If, at any time after the occurrence of a Purchase Event and prior
to the earlier of (i) the expiration of 18 months immediately following such
Purchase Event or (ii) the expiration or termination of the Option, COFI shall
desire to sell, assign, transfer or otherwise dispose of the Option or all or
any of the shares of RCSB Common Stock acquired by it pursuant to the Option, it
shall give RCSB written notice of the proposed transaction (an "Offeror's
Notice"), identifying the proposed transferee, and setting forth the terms of
the proposed transaction. An Offeror's Notice shall be deemed an offer by COFI
to RCSB, which may be accepted within five business days of the receipt of such
Offeror's Notice, on the same terms and conditions and at the same price at
which COFI is proposing to transfer the Option or such shares to a third party.
The purchase of the Option or any such shares by RCSB shall be closed within
five business days of the date of the acceptance of the offer and the purchase
price shall be paid to COFI by wire transfer of immediately available funds to
an account designated by COFI. In the event of the failure or refusal of RCSB to
purchase the Option or all the shares covered by the Offeror's Notice or if any
regulatory authority disapproves RCSB's proposed purchase of the Option or such
shares, COFI may, within 60 days from the date of the Offeror's Notice, sell
all, but not less than all, of the Option or such shares to such third party at
no less than the price specified and on terms no more favorable to the purchaser
than those set forth in the Offeror's Notice. The requirements of this Section
8(b) shall not apply to (i) any disposition as a result of which the proposed
transferee would Beneficially Own not more than 2%
10
<PAGE>
of the voting power of RCSB or (ii) any disposition of RCSB Common Stock by a
person to whom COFI has sold RCSB Common Stock issued upon exercise of the
Option.
9. Registration Rights.
-------------------
At any time after a Purchase Event, RCSB shall, if requested by any
holder or beneficial owner of shares of RCSB Common Stock issued upon exercise
of the Option (except any beneficial holder who acquired all of such holder's
shares in a transaction exempt from the requirements of Section 8(b) by reason
of clause (i) thereof) (each a "Holder"), as expeditiously as possible file a
registration statement on a form for general use under the Securities Act if
necessary in order to permit the sale or other disposition of the shares of RCSB
Common Stock that have been acquired upon exercise of the Option in accordance
with the intended method of sale or other disposition requested by any such
Holder (it being understood and agreed that any such sale or other disposition
shall be effected on a widely distributed basis so that, upon consummation
thereof, no purchaser or transferee shall Beneficially Own more than 2% of the
shares of RCSB Common Stock then outstanding). Each such Holder shall provide
all information reasonably requested by RCSB for inclusion in any registration
statement to be filed hereunder. RCSB shall use its best efforts to cause such
registration statement first to become effective and then to remain effective
for such period not in excess of 180 days from the day such registration
statement first becomes effective as may be reasonably necessary to effect such
sales or other dispositions. The registration effected under this Section 9
shall be at RCSB's expense except for underwriting commissions and the fees and
disbursements of such Holders' counsel attributable to the registration of such
RCSB Common Stock. In no event shall RCSB be required to effect more than one
registration hereunder. The filing of the registration statement hereunder may
be delayed for such period of time as may reasonably be required to facilitate
any public distribution by RCSB of RCSB Common Stock or if a special
11
<PAGE>
audit of RCSB would otherwise be required in connection therewith. If requested
by any such Holder in connection with such registration, RCSB shall become a
party to any underwriting agreement relating to the sale of such certificates,
but only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in such
underwriting agreements for parties similarly situated. Upon receiving any
request for registration under this Section 9 from any Holder, RCSB agrees to
send a copy thereof to any other person known to RCSB to be entitled to
registration rights under this Section 9, in each case by promptly mailing the
same, postage prepaid, to the address of record of the persons entitled to
receive such copies.
10. Severability.
------------
Any term, provision, covenant or restriction contained in this Option
Agreement held by a court or a regulatory authority of competent jurisdiction to
be invalid, void or unenforceable, shall be ineffective to the extent of such
invalidity, voidness or unenforceability, but neither the remaining terms,
provisions, covenants or restrictions contained in this Option Agreement nor the
validity or enforceability thereof in any other jurisdiction shall be affected
or impaired thereby. Any term, provision, covenant or restriction contained in
this Option Agreement that is so found to be so broad as to be unenforceable
shall be interpreted to be as broad as is enforceable. If for any reason such
court or regulatory authority determines that applicable law will not permit
COFI or any other person to acquire, or RCSB to repurchase or purchase, the full
number of shares of RCSB Common Stock provided in Section 2 hereof (as adjusted
pursuant to Section 6 hereof), it is the express intention of the parties hereto
to allow COFI or such other person to acquire, or RCSB to repurchase or
purchase, such lesser number of shares as may be permissible, without any
amendment or modification hereof.
12
<PAGE>
11. Miscellaneous.
-------------
(a) EXPENSES. Each of the parties hereto shall 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, except as otherwise
provided herein.
(b) ENTIRE AGREEMENT. Except as otherwise expressly provided herein,
this Option Agreement and the Merger Agreement contain the entire agreement
between the parties with respect to the transactions contemplated hereunder and
supersedes all prior arrangements or understandings with respect thereto,
written or oral.
(c) SUCCESSORS; NO THIRD PARTY BENEFICIARIES. The terms and conditions
of this Option Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns. Nothing in
this Option Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors and
assigns, any rights, remedies, obligations, or liabilities under or by reason of
this Option Agreement, except as expressly provided herein.
(d) ASSIGNMENT. Other than as provided in Sections 8 and 9 hereof,
neither of the parties hereto may sell, transfer, assign or otherwise dispose of
any of its rights or obligations under this Option Agreement or the Option
created hereunder to any other person (whether by operation of law or
otherwise), without the express written consent of the other party.
(e) NOTICES. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered in
accordance with Section 8.2 of the Merger Agreement (which is incorporated
herein by reference).
13
<PAGE>
(f) COUNTERPARTS. This Option Agreement may be executed in
counterparts, and each such counterpart shall be deemed to be an original
instrument, but both such counterparts together shall constitute but one
agreement.
(g) SPECIFIC PERFORMANCE. The parties hereto agree that if for any
reason COFI or RCSB shall have failed to perform its obligations under this
Option Agreement, then either party hereto seeking to enforce this Option
Agreement against such non-performing party shall be entitled to specific
performance and injunctive and other equitable relief, and the parties hereto
further agree to waive any requirement for the securing or posting of any bond
in connection with the obtaining of any such injunctive or other equitable
relief. This provision is without prejudice to any other rights that either
party hereto may have against the other party hereto for any failure to perform
its obligations under this Option Agreement.
(h) GOVERNING LAW. This Option Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
agreements made and entirely to be performed within such state. Nothing in this
Option Agreement shall be construed to require any party (or any subsidiary or
affiliate of any party) to take any action or fail to take any action in
violation of applicable law, rule or regulation.
(i) REGULATORY APPROVALS; SECTION 16(b). If, in connection with (A) the
exercise of the Option under Section 3 or a sale by COFI to a third party under
Section 8, (B) a repurchase by RCSB under Section 7 or a repurchase or purchase
by RCSB under Section 8, prior notification to or approval of the OTS or any
other regulatory authority is required, then the required notice or application
for approval shall be promptly filed and expeditiously processed and periods of
time that otherwise would run pursuant to such Sections shall run instead from
the date on which any such required notification period has expired or been
terminated or such approval has been obtained, and
14
<PAGE>
in either event, any requisite waiting period shall have passed. In the case of
clause (A) of this subsection (i), such filing shall be made by COFI, and in the
case of clause (B) of this subsection (i), such filing shall be made by RCSB,
provided that each of COFI and RCSB shall use its best efforts to make all
filings with, and to obtain consents of, all third parties and Regulatory
Authorities necessary to the consummation of the transactions contemplated
hereby. Periods of time that otherwise would run pursuant to Sections 3, 7 or 8
shall also be extended to the extent necessary to avoid liability under Section
16(b) of the Exchange Act.
(j) NO BREACH OF AGREEMENT AUTHORIZED. Nothing contained in this
Option Agreement shall be deemed to authorize RCSB to issue any shares of RCSB
Common Stock in breach of, or otherwise breach any of, the provisions of the
Merger Agreement.
(k) WAIVER AND AMENDMENT. Any provision of this Agreement may be waived
at any time by the party that is entitled to the benefits of such provision.
This Option Agreement may not be modified, amended, altered or supplemented
except upon the execution and delivery of a written agreement executed by the
parties hereto.
15
<PAGE>
Each of the parties hereto has executed this Option Agreement as of the
date first written above.
CHARTER ONE FINANCIAL, INC.
By: /s/ Charles J. Koch
_____________________________
Name: Charles J. Koch
Title: Chief Executive Officer
RCSB FINANCIAL, INC.
By: /s/ Leonard S. Simon
_____________________________
Name: Leonard S. Simon
Title: Chief Executive Officer
16
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RCSB
FINANCIAL, INC'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MAY 31,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000840068
<NAME> RCSB FINANCIAL, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> MAY-31-1997
<CASH> 75,916
<INT-BEARING-DEPOSITS> 3,767
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 18,171
<INVESTMENTS-CARRYING> 1,544,612
<INVESTMENTS-MARKET> 1,524,609
<LOANS> 2,223,044
<ALLOWANCE> 26,337
<TOTAL-ASSETS> 4,104,367
<DEPOSITS> 2,342,879
<SHORT-TERM> 1,081,872
<LIABILITIES-OTHER> 222,814
<LONG-TERM> 144,225
0
0
<COMMON> 15,538
<OTHER-SE> 297,039
<TOTAL-LIABILITIES-AND-EQUITY> 4,104,367
<INTEREST-LOAN> 92,581
<INTEREST-INVEST> 57,651
<INTEREST-OTHER> 222
<INTEREST-TOTAL> 150,454
<INTEREST-DEPOSIT> 51,558
<INTEREST-EXPENSE> 84,852
<INTEREST-INCOME-NET> 65,602
<LOAN-LOSSES> 8,092
<SECURITIES-GAINS> 85
<EXPENSE-OTHER> 62,743
<INCOME-PRETAX> 28,457
<INCOME-PRE-EXTRAORDINARY> 17,928
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,928
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.18
<YIELD-ACTUAL> 3.51
<LOANS-NON> 18,968
<LOANS-PAST> 6,313
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 28,190
<CHARGE-OFFS> 12,239
<RECOVERIES> 2,294
<ALLOWANCE-CLOSE> 26,337
<ALLOWANCE-DOMESTIC> 26,337
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
