<PAGE> 1
Filed Pursuant to Rule 424(b)(3)
Reg. No. 333-17797
MAGNA GROUP, INC.
PROSPECTUS
------------------------
HOMELAND BANKSHARES CORPORATION
PROXY STATEMENT
------------------------
This Prospectus of Magna Group, Inc., a Delaware corporation ("Magna"),
relates to up to 5,038,934 shares of common stock, par value $2.00 per share
("Magna Common Stock"), and attached preferred share purchase rights (the
"Rights"), of Magna (the Common Stock and Rights are collectively referred to
herein as the "Magna Common Stock") to be issued to the shareholders of
Homeland Bankshares Corporation, an Iowa corporation ("Homeland"), upon
consummation of the proposed merger (the "Merger") of Homeland with and into
HBC Acquisition Sub Inc., an Iowa corporation ("Merger Sub") and a wholly
owned subsidiary of Magna. The Merger will be consummated pursuant to the
Agreement and Plan of Reorganization, dated August 30, 1996, as amended
November 19, 1996, by and between Magna and Homeland (the "Merger Agreement"),
upon the terms and subject to the conditions thereof. This Prospectus also
serves as the Proxy Statement of Homeland for use in connection with the
solicitation of proxies by the Board of Directors of Homeland to be used at the
Special Meeting of Shareholders of Homeland (the "Special Meeting") to be held
on January 21, 1997, at 5:00 p.m., Central Time, at the office of Homeland
Bank, N.A. located at 100 East Park Avenue, Waterloo, Iowa, to approve and
adopt the Merger Agreement and Plan of Merger.
Upon consummation of the Merger, among other things, all of the outstanding
shares of Homeland common stock, par value $12.50 per share ("Homeland Common
Stock") (other than shares held by Homeland, Magna or any of their respective
wholly owned subsidiaries, in each case other than in a fiduciary capacity or
as a result of debts previously contracted (collectively, "Treasury Shares"),
all of which will be cancelled in the Merger, and other than shares held by
shareholders of Homeland who exercise their dissenters' rights ("Dissenting
Shares") under the Iowa Business Corporation Act (the "Iowa Act")), will be
converted into either (i) a number (the "Exchange Ratio") of shares of Magna
Common Stock determined as described in the Merger Agreement (the "Per Share
Stock Consideration") or (ii) an amount in cash without interest determined as
described in the Merger Agreement (the "Per Share Cash Consideration"). Cash
will be paid in lieu of fractional shares. The actual Per Share Stock
(Cover Page Continued on Next Page)
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMIS-
SION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRE-
SENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE SHARES OF MAGNA COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSUR-
ANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
--------------------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS DECEMBER 12, 1996.
<PAGE> 2
(Cover Page, Continued)
Consideration and the actual Per Share Cash Consideration each will be
determined as of the end of the ten consecutive trading-day period (the
"Valuation Period") during which shares of Magna Common Stock are traded on
the New York Stock Exchange ("NYSE") ending on the tenth calendar day
immediately prior to the anticipated effective time of the Merger (the
"Effective Time") to equalize the value of the Per Share Stock Consideration
and the Per Share Cash Consideration, all as more fully described herein. Each
Homeland shareholder may elect to receive all Magna Common Stock, all cash, a
mixture of 57% Magna Common Stock and 43% cash, or to make no election, subject
to certain limitations more fully described herein. Regardless of whether
Homeland shareholders elect to receive all Magna Common Stock, all cash or a
combination of 57% Magna Common Stock and 43% cash, for each share of Homeland
Common Stock held they will receive, subject to certain adjustments more fully
described herein, a value in cash or stock (as measured during the Valuation
Period) equal to the sum of (x) the product of the value of one share of Magna
Common Stock (as determined during the Valuation Period) multiplied by 0.8835
plus (y) $16.125. For example, based on the average closing-sale prices for
Magna Common Stock as reported on NYSE (as reported in The Wall Street Journal,
Midwest edition, or in the absence thereof, by another authoritative source)
(the "Average Closing Price") of $29.66, which represents the average closing
price for the ten-day trading period ending immediately prior to the date of
this Proxy Statement/Prospectus, a Homeland shareholder receiving all cash would
receive $42.33 per share, a Homeland shareholder receiving all Magna Common
Stock would receive 1.427 shares of Magna Common Stock and a Homeland
shareholder receiving a mix of cash and Magna Common Stock would receive $18.20
and 0.813 shares of Magna Common Stock for each share of Homeland Common Stock,
subject to the allocation procedures set forth below. Homeland shareholders
electing to receive a mixture of Magna Common Stock and cash will receive 57%
Magna Common Stock and 43% cash (as measured during the Valuation Period),
subject to the allocation procedures described below. The mixture of 57% Magna
Common Stock and 43% cash consideration is based on an initial exchange ratio of
1.55, the exchange ratio at the time the Merger Agreement was agreed to by Magna
and Homeland, and was established to enable Homeland shareholders to elect to
receive a combination of both stock and cash in the Merger. The merger
consideration distributed to holders electing a mixture of cash and Magna Common
Stock will remain at a fixed ratio of 57% Magna Common Stock and 43% cash based
upon the value of the Magna Common Stock as measured during the Valuation Period
and will not be adjusted for oversubscriptions unless Magna Common Stock is
oversubscribed and adjustments to holders of Homeland Common Stock electing all
Magna Common Stock and making no election do not alleviate the oversubscription.
The ratio of the mixture of consideration provided to holders who elect to
receive a mixture of stock and cash will not be altered based on the Average
Closing Price of Magna Common Stock prior to Effective Time. See "TERMS OF THE
PROPOSED MERGER--Merger Consideration" and "--Allocation." A table on page 15 of
this Proxy Statement/Prospectus sets forth the amount of cash and the number of
shares of Magna Common Stock to be issued in the Merger per share of Homeland
Common Stock based on various Average Closing Prices and an assumed total number
of shares of Homeland Common Stock outstanding during the Valuation Period.
Shareholders are advised to obtain current market quotations for Magna Common
Stock and Homeland Common Stock. Any Homeland shareholder wishing to estimate
the current value of the consideration to be received per share of Homeland
Common Stock, pursuant to the Merger, can obtain the current market price of a
share of Magna Common Stock, as quoted on the NYSE, multiply that price by
0.8835 and add $16.125. In addition, shareholders may call the offices of
Homeland at (319) 291-5260 or 1 (800) 568-5268 any time prior to the Special
Meeting to obtain current market quotations for the common stock of Homeland and
Magna and to ascertain the current value of the consideration to be paid for
each share of Homeland Common Stock in the Merger. See "TERMS OF THE PROPOSED
MERGER."
Magna Common Stock is quoted on the NYSE under the symbol "MGR." On December
11, 1996, the last sale price of Magna Common Stock as reported on the NYSE was
$29 1/4. Homeland Common Stock is quoted on the Nasdaq Stock Market National
Market ("Nasdaq") under the symbol "HLND." On December 11, 1996, the last sale
price for Homeland Common Stock as reported on the Nasdaq was $41 1/4.
This Proxy Statement/Prospectus, the Letter to Homeland Shareholders, the
Notice of Special Meeting and the form of proxy are first being mailed to the
shareholders of Homeland on or about December 16, 1996.
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AVAILABLE INFORMATION
Each of Magna and Homeland is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information
concerning either Magna or Homeland can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's
Regional Offices in New York (Suite 1300, Seven World Trade Center, New York,
New York 10048) and Chicago (Suite 1400, Citicorp Center, 500 West Madison
Street, Chicago, Illinois 60661). Copies of such material can also be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains an
Internet web site that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the
Commission. The address of that site is http://www.sec.gov. Magna Common Stock
is quoted on the NYSE, and such reports, proxy statements and other information
concerning Magna are available for inspection and copying at the offices of the
NYSE, 20 Broad Street, New York, NY 10005. Homeland Common Stock is quoted on
the Nasdaq, and such reports, proxy statements and other information concerning
Homeland are available for inspection and copying at the Public Reference
section of the Nasdaq at 1735 K Street, N.W., Washington, D.C. 20006.
This Proxy Statement/Prospectus does not contain all of the information set
forth in the Registration Statement on Form S-4 and exhibits thereto (together
with any amendments thereto, the "Registration Statement") covering the
securities offered hereby which has been filed by Magna with the Commission
under the Securities Act of 1933, as amended (the "Securities Act"). As
permitted by the rules and regulations of the Commission, this Proxy
Statement/Prospectus omits certain information contained or incorporated by
reference in the Registration Statement. Reference is hereby made to the
Registration Statement for further information with respect to Magna and the
securities offered hereby. Such additional information may be obtained from the
Commission's principal office in Washington, D.C. Statements contained in this
Proxy Statement/Prospectus or in any document incorporated by reference in this
Proxy Statement/Prospectus provide a fair summary of the contents of any
contract or other document referenced herein or therein but are not necessarily
complete, and in each instance reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement or such
other document, each such statement being qualified in all respects by such
reference.
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF THESE DOCUMENTS
(EXCLUDING EXHIBITS UNLESS SPECIFICALLY INCORPORATED BY REFERENCE HEREIN OR IN
SUCH DOCUMENTS) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON TO WHOM THIS PROXY
STATEMENT/PROSPECTUS IS DELIVERED UPON WRITTEN OR ORAL REQUEST TO THE
FOLLOWING:
<TABLE>
<CAPTION>
MAGNA DOCUMENTS HOMELAND DOCUMENTS
--------------- ------------------
<S> <C>
Gary D. Hemmer Robert S. Kahler
Executive Vice President, Executive Vice President and
Administration Chief Financial Officer
Magna Group, Inc. Homeland Bankshares Corporation
One Magna Place 229 East Park Avenue
1401 South Brentwood Boulevard Waterloo, Iowa 50704-5300
St. Louis, Missouri 63166-1401 (319) 291-5260
(314) 963-3016
</TABLE>
IN ORDER TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS, A REQUEST MUST BE
RECEIVED NO LATER THAN JANUARY 14, 1997.
The following documents filed with the Commission by Magna under the
Exchange Act are incorporated herein by reference:
(a) Magna's Annual Report on Form 10-K (Commission File No. 0-8234) for
the year ended December 31, 1995 (the "1995 Magna Form 10-K").
(b) Magna's Quarterly Reports on Form 10-Q (Commission File No. 0-8234)
for the quarters ended March 31, June 30 and September 30, 1996.
(c) The information contained in Magna's Proxy Statement dated March
29, 1996 for its Annual Meeting of Shareholders held on May 1, 1996
that has been incorporated by reference in the 1995 Magna Form 10-K.
(d) Magna's Current Report on Form 8-K (Commission File No. 0-8234)
dated August 30, 1996.
(e) The description of the Rights set forth in Item 1 of Magna's
Registration Statement on Form 8-A (Commission File No. 0-8234),
dated November 11, 1988, and any amendment or report filed for the
purpose of updating such description.
The following documents filed with the Commission by Homeland under the
Exchange Act are incorporated herein by reference:
(a) Homeland's Annual Report on Form 10-K (Commission File No. 0-14507)
for the year ended December 31, 1995 (the "1995 Homeland Form
10-K").
(b) Homeland's Quarterly Reports on Form 10-Q (Commission File No.
0-14507) for the quarters ended March 31, June 30 and September 30,
1996.
(c) The information contained in Homeland's Proxy Statement dated March
19, 1996 for its Annual Meeting of Shareholders held on April 16,
1996 that has been incorporated by reference in the 1995 Homeland
Form 10-K.
(d) Homeland's Current Report on Form 8-K (Commission File No. 0-14507)
dated August 30, 1996.
All documents filed with the Commission by Magna or Homeland pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Proxy Statement/Prospectus and prior to the date of the Special Meeting shall
be deemed to be incorporated by reference herein and made a part hereof from
the date any such document is filed. The information relating to Magna and
Homeland contained in this Proxy Statement/Prospectus does not purport to be
complete and should be read together with the information in the documents
incorporated by reference herein. Any statement contained herein or in a
document incorporated or deemed to be incorporated herein by reference
ii
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shall be deemed to be modified or superseded for all purposes to the extent
that a statement contained herein or in any other subsequently filed document
incorporated or deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part
hereof.
Any statements contained in this Proxy Statement/Prospectus involving
matters of opinion, whether or not expressly so stated, are intended as such
and not as representations of fact.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS OR IN THE
DOCUMENTS INCORPORATED BY REFERENCE HEREIN AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY MAGNA OR HOMELAND. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION IN WHICH, OR FROM ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OF AN OFFER OR PROXY
SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH IT RELATES SHALL IMPLY OR CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF MAGNA OR HOMELAND
OR ANY OF THEIR RESPECTIVE SUBSIDIARIES OR IN THE INFORMATION SET FORTH OR
INCORPORATED BY REFERENCE HEREIN SUBSEQUENT TO THE DATE HEREOF.
THIS PROXY STATEMENT/PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING STATEMENTS
WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF
MAGNA FOLLOWING THE CONSUMMATION OF THE MERGER. SEE "BACKGROUND AND REASONS
FOR THE MERGER; HOMELAND BOARD RECOMMENDATION," "OPINION OF HOMELAND'S
FINANCIAL ADVISOR" AND "PRO FORMA COMBINED FINANCIAL INFORMATION." THESE
FORWARD LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES. FACTORS
THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY
SUCH FORWARD LOOKING STATEMENTS INCLUDE, AMONG OTHERS, THE FOLLOWING
POSSIBILITIES: (1) EXPECTED COST SAVINGS FROM THE MERGER CANNOT BE FULLY
REALIZED; (2) DEPOSIT ATTRITION, CUSTOMER LOSS OR REVENUE LOSS FOLLOWING THE
MERGER IS GREATER THAN EXPECTED; (3) COMPETITIVE PRESSURE IN THE BANKING
INDUSTRY INCREASES SIGNIFICANTLY; (4) COSTS OR DIFFICULTIES RELATED TO THE
INTEGRATION OF THE BUSINESSES OF MAGNA AND HOMELAND ARE GREATER THAN EXPECTED;
(5) CHANGES IN THE INTEREST RATE ENVIRONMENT REDUCE MARGINS MORE THAN PLANNED;
(6) THE IMPACT OF REGULATORY CHANGES IS OTHER THAN AS EXPECTED; AND (7) GENERAL
ECONOMIC CONDITIONS, EITHER NATIONALLY OR REGIONALLY, ARE LESS FAVORABLE THAN
EXPECTED, RESULTING IN A DETERIORATION OF CREDIT QUALITY.
iii
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<TABLE>
TABLE OF CONTENTS
<CAPTION> PAGE
----
<S> <C>
AVAILABLE INFORMATION...................................... i
INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE................................. ii
SUMMARY INFORMATION........................................ 1
Business of Magna...................................... 1
Business of Merger Sub................................. 1
Business of Homeland................................... 1
Special Meeting of Homeland Shareholders............... 2
The Proposed Merger.................................... 2
Stock Option Agreement................................. 5
Reasons for the Merger; Homeland Board
Recommendation....................................... 5
Opinion of Homeland's Financial Advisor................ 5
Interests of Certain Persons in the Merger and
Potential Conflicts of Interest...................... 5
Regulatory Approval.................................... 6
Waiver and Amendment................................... 6
Accounting Treatment................................... 6
Employee Stock Options................................. 6
Federal Income Tax Consequences in General............. 7
Dissenters' Rights..................................... 7
Market and Market Prices............................... 7
Comparative Unaudited Per Share Data................... 8
Selected Financial Data................................ 9
INFORMATION REGARDING SPECIAL MEETING...................... 12
General................................................ 12
Date, Time and Place................................... 12
Record Date; Vote Required............................. 12
Voting and Revocation of Proxies....................... 12
Solicitation of Proxies................................ 13
TERMS OF THE PROPOSED MERGER............................... 14
The Merger............................................. 14
Merger Consideration................................... 14
Closing and Effective Time............................. 16
Election Procedures.................................... 16
Allocation............................................. 18
Surrender of Homeland Stock Certificates and Receipt of
Magna Common Stock................................... 19
Fractional Shares...................................... 20
Stock Option Agreement................................. 20
Background and Reasons for the Merger; Homeland Board
Recommendation....................................... 21
Opinion of Homeland's Financial Advisor................ 24
Interests of Certain Persons in the Merger and
Potential Conflicts of Interest...................... 28
Conditions of the Merger............................... 28
Termination of the Merger Agreement.................... 29
Regulatory Approval.................................... 30
<CAPTION> PAGE
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<S> <C>
Business Pending the Merger............................ 31
Waiver and Amendment................................... 32
Accounting Treatment................................... 33
Management and Operations After the Merger............. 33
Employee Benefits...................................... 33
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER...... 33
DISSENTERS' RIGHTS OF SHAREHOLDERS OF HOMELAND............. 37
PRO FORMA FINANCIAL INFORMATION............................ 38
Comparative Unaudited Per Share Data................... 38
Pro Forma Combined Consolidated Financial Statements
(Unaudited).......................................... 39
INFORMATION REGARDING MAGNA STOCK.......................... 45
General................................................ 45
Preferred Stock........................................ 45
Description of Magna Common Stock and Attached
Preferred Share Purchase Rights...................... 45
Reservation of Shares.................................. 47
Restrictions on Resale of Magna Capital Stock by
Affiliates; Affiliate Agreements..................... 47
Comparison of the Rights of Shareholders of Magna and
Homeland............................................. 47
SUPERVISION AND REGULATION................................. 49
General................................................ 49
Certain Transactions with Affiliates................... 49
Payment of Dividends................................... 49
Capital Adequacy....................................... 50
Support of Subsidiary Banks............................ 50
Liability of Commonly Controlled Institutions.......... 51
FDIC Insurance......................................... 51
Interstate Banking and Other Recent Legislation........ 52
LEGAL MATTERS.............................................. 53
EXPERTS.................................................... 53
OTHER MATTERS.............................................. 54
STOCKHOLDER PROPOSALS...................................... 54
ANNEXES
Annex A--Opinion of The Chicago Corporation, dated
August 30, 1996................................. A-1
Annex B--Dissenters' Rights Provisions under the Iowa
Business Corporation Act........................ B-1
Annex C--Agreement and Plan of Reorganization............ C-1
Annex D--Amendment to Agreement and Plan of
Reorganization.................................. D-1
Annex E--Stock Option Agreement.......................... E-1
</TABLE>
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SUMMARY INFORMATION
The following is a summary of certain terms of the Merger Agreement and
related information discussed elsewhere in this Proxy Statement/Prospectus, is
not intended to be complete and is qualified in all respects by the more
detailed information included in this Proxy Statement/Prospectus and the
documents incorporated herein by reference. As used in this Proxy
Statement/Prospectus, the terms "Magna" and "Homeland" refer to such
corporations, respectively, and, where the context requires, such corporations
and their respective subsidiaries on a consolidated basis. Shareholders of
Homeland are urged to read and consider carefully all of the information
contained or incorporated by reference in this Proxy Statement/Prospectus and
the annexes hereto. All information concerning Magna included in this Proxy
Statement/Prospectus has been furnished by Magna and all information concerning
Homeland included in this Proxy Statement/Prospectus has been furnished by
Homeland. Neither Magna nor Homeland warrants the accuracy or completeness of
information relating to the other.
BUSINESS OF MAGNA
Magna, a Delaware corporation, was organized in 1974 and is a registered
bank holding company under the Federal Bank Holding Company Act of 1956, as
amended ("BHCA"). Magna currently owns, indirectly, all of the capital stock
of Magna Bank, National Association, a national banking association which
operates over 100 community banking locations serving Missouri and Illinois.
Magna also owns Magna Trust Company and certain brokerage, insurance and
investment subsidiaries. Based on a deposit market share, Magna is the third
largest banking institution in the St. Louis metropolitan area and ranks as the
95th largest bank holding company in the country.
Magna primarily serves consumers and small- to mid-sized businesses in its
markets as a "super community bank," a company whose business centers on a
customer-focused community banking orientation, has cost efficiencies that do
not compromise quality and offers a broad product line that permits a full-
service customer relationship. As of September 30, 1996, Magna reported, on a
consolidated basis, total assets of $5.4 billion, total deposits of $4.2
billion, total loans of $3.4 billion and shareholders' equity of $460 million.
Magna's principal executive offices are located at One Magna Place, 1401
South Brentwood Boulevard, St. Louis, Missouri 63144-1401 and its telephone
number is (314) 963-2500.
For additional information, see "TERMS OF THE PROPOSED MERGER,"
"SUPERVISION AND REGULATION," "PRO FORMA FINANCIAL INFORMATION" and
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
BUSINESS OF MERGER SUB
Merger Sub, an Iowa corporation, was organized in 1996 as a wholly owned
subsidiary of Magna. Upon consummation of the Merger, Merger Sub will be a
registered bank holding company under the BHCA. Merger Sub will be the
surviving corporation upon consummation of the Merger.
The principal executive offices of Merger Sub are located at One Magna
Place, 1401 Brentwood Boulevard, St. Louis, Missouri 63144-1401 and its
telephone number is (314) 963-2500.
BUSINESS OF HOMELAND
Homeland, an Iowa corporation, was organized in 1981 and is a registered
bank holding company under the BHCA. From 1981 until 1994, Homeland was known
as "Iowa National Bankshares Corp." Homeland operates four wholly owned
commercial banks, one wholly owned savings and loan association, and three
indirect, wholly owned subsidiaries which provide retail financial services.
Based on total assets, at December 1995, Homeland was the second largest
bank holding company headquartered in Iowa, and the seventh largest bank
holding company conducting business in Iowa. As of September 30, 1996, Homeland
reported, on a consolidated basis, total assets of $1.2 billion, total deposits
of $938 million, total loans of $895 million and shareholders' equity of $131
million.
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<PAGE> 8
Homeland's principal executive offices are located at 229 East Park Avenue,
Waterloo, Iowa 50704 and its telephone number is (319) 291-5260.
For additional information, see "TERMS OF THE PROPOSED MERGER,"
"SUPERVISION AND REGULATION," "PRO FORMA FINANCIAL INFORMATION" and
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
SPECIAL MEETING OF HOMELAND SHAREHOLDERS
The Special Meeting will be held at the office of Homeland Bank, N.A.
located at 100 East Park Avenue, Waterloo, Iowa, on January 21, 1997, at 5:00
p.m., Central Time, at which the shareholders of Homeland will consider and
vote on a proposal to approve and adopt the Merger Agreement and will transact
such other business as may properly come before the Special Meeting or any
adjournment or postponement thereof. Approval by Homeland shareholders of the
Merger Agreement requires the affirmative vote of the holders of a majority of
the outstanding shares of Homeland Common Stock entitled to vote at the
meeting. Only holders of record of Homeland Common Stock at the close of
business on December 7, 1996 (the "Record Date") will be entitled to notice
of, and to vote at, the Special Meeting. At such date, there were 5,703,378
shares of Homeland Common Stock outstanding held by approximately 1,700 holders
of record. See "INFORMATION REGARDING SPECIAL MEETING."
As of the Record Date, directors and executive officers of Homeland and
certain of their affiliates owned beneficially an aggregate of 245,374 shares
of Homeland Common Stock, or approximately 4.30% of the shares entitled to vote
at the Special Meeting. All of Homeland's directors have indicated their
intention to vote their shares of Homeland Common Stock for the approval of the
Merger Agreement.
Any shareholder of Homeland giving a proxy may revoke it at any time prior
to the vote at the Special Meeting. Shareholders of Homeland wishing to revoke
a proxy prior to the vote may do so by delivering to UMB Bank, N.A., P.O. Box
410064, Kansas City, Missouri 64141-0064, the depository for proxies of
Homeland ("UMB Bank"), a written notice of revocation bearing a later date
than the proxy or any later dated proxy relating to the same shares, or by
attending the Special Meeting and voting in person. Attendance at the Special
Meeting will not in itself constitute the revocation of a proxy.
THE BOARD OF DIRECTORS OF HOMELAND HAS DETERMINED THAT THE TERMS OF THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE IN THE BEST
INTERESTS OF HOMELAND AND ITS SHAREHOLDERS. ACCORDINGLY, THE HOMELAND BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT HOMELAND SHAREHOLDERS VOTE FOR THE
---
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
THE PROPOSED MERGER
The Merger. Subject to the satisfaction of the terms and conditions set
forth in the Merger Agreement described below, Homeland will merge with and
into Merger Sub. Upon consummation of the Merger, Homeland's corporate
existence will terminate, with Merger Sub continuing as the surviving
corporation.
Merger Consideration. In the Merger, subject to the election and allocation
procedures described below, all outstanding shares of Homeland Common Stock
(other than Dissenting Shares and Treasury Shares) will be converted into
either: (i) the Per Share Stock Consideration or (ii) the Per Share Cash
Consideration. The actual Per Share Stock Consideration will be determined as
of the end of the Valuation Period by adjusting the number of shares of Magna
Common Stock to be exchanged for each share of Homeland Common Stock such that
the product of such number (rounded to the nearest 1/1000th of a share) and the
Average Closing Price will equal the Average Per Share Consideration. The Per
Share Cash Consideration will be adjusted to equal the Average Per Share
Consideration. Because the Per Share Stock Consideration and the Per Share
Cash Consideration will be determined based on closing prices of Magna Common
Stock following the Special Meeting, at the time of the Special Meeting
Homeland shareholders will not be able to determine precisely the value of
the consideration or the number of shares of Magna Common Stock to be
received per share of Homeland Common Stock.
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<PAGE> 9
The following terms have the following definitions:
"Average Per Share Consideration" means the Aggregate Consideration
divided by the Valuation Period Share Number (rounded to the nearest cent).
"Aggregate Consideration" means the sum of (x) the product of 1.55 times
the Average Closing Price times 0.57 times the Valuation Period Share Number
and (y) $37.50 times 0.43 times the Valuation Period Share Number.
"Valuation Period Share Number" means the total number of shares of
Homeland Common Stock outstanding (other than Treasury Shares) on the last day
of the Valuation Period.
Regardless of whether Homeland shareholders elect to receive all Magna
Common Stock, all cash or a combination, for each share of Homeland Common
Stock held they will receive, subject to certain adjustments more fully
described herein, a value in cash or stock (as measured during the Valuation
Period) equal to the sum of (x) the product of the value of one share of Magna
Common Stock (as determined during the Valuation Period) multiplied by 0.8835
plus (y) $16.125. A table on page 15 of this Proxy Statement/Prospectus sets
forth, based on various Average Closing Prices, the Per Share Stock
Consideration and the value of such consideration based on such Average Closing
Price, the Per Share Cash Consideration, and the percentages of shares of
Homeland Common Stock that would be converted into Magna Common Stock and cash.
For example, based on the Average Closing Price of Magna Common Stock of
$29.66, which represents the Average Closing Price for the ten-day trading
period ending immediately prior to the date of this Proxy Statement/Prospectus,
a Homeland shareholder receiving all cash would receive $42.33 per share, a
Homeland shareholder receiving all Magna Common Stock would receive 1.427 shares
of Magna Common Stock and a Homeland shareholder receiving a mix of cash and
Magna Common Stock would receive $18.20 and 0.813 shares of Magna Common Stock
for each share of Homeland Common Stock, subject to certain allocation
procedures set forth below. Shareholders are advised to obtain current market
quotations for Magna Common Stock and Homeland Common Stock. See "TERMS OF THE
PROPOSED MERGER--Merger Consideration" and "--Allocation."
Election and Allocation Procedures. Each Homeland shareholder may elect to
receive all Magna Common Stock, all cash, a mixture of stock and cash, or make
no election, subject to certain limitations.
At least thirty days prior to the anticipated Effective Time, Magna Trust
Company, which has been appointed the exchange agent (the "Exchange Agent"),
will send to each Homeland shareholder who is a shareholder of record as of
five business days prior to such date an election form (the "Election Form")
to be used by each such shareholder to elect to receive in the Merger either
all Magna Common Stock, all cash, or a mixture of 57% Magna Common Stock and
43% cash in respect of such shareholder's shares of Homeland Common Stock.
Under the Merger Agreement, the maximum aggregate number of shares of Magna
Common Stock that will be issued in the Merger (the "Stock Amount") is
5,038,934. In the event one type of consideration is oversubscribed, a pro rata
reduction in that type of consideration will be made among shareholders
electing solely that type of consideration such that the aggregate of that type
of consideration distributed equals the available amount. The remainder of the
merger consideration will be distributed according to the shareholder's
election. The mixture of 57% Magna Common Stock and 43% cash consideration is
based on an initial exchange ratio of 1.55, the exchange ratio at the time the
Merger Agreement was agreed to by Magna and Homeland, and was established to
enable Homeland shareholders to elect to receive a combination of both stock
and cash in the Merger. The merger consideration distributed to holders
electing a mixture of 57% Magna Common Stock and 43% cash will remain at a
fixed ratio of 57% Magna Common Stock and 43% cash based upon the value of the
Magna Common Stock as measured during the Valuation Period and will not be
adjusted for oversubscriptions unless Magna Common Stock is oversubscribed and
adjustments to holders of Homeland Common Stock electing all Magna Common Stock
and making no election does not alleviate the oversubscription. The ratio of
the mixture of consideration provided to holders who elect to receive a mixture
of stock and cash will not be altered based on the Average Closing Price of
Magna Common Stock prior to Effective Time. Homeland shareholders who do not
timely submit properly completed Election Forms by 5:00 p.m. on the fifth day
prior to the anticipated Effective Time will be deemed to have made no election
as to whether they receive cash or shares of Magna Common Stock in the Merger.
See "TERMS OF THE PROPOSED MERGER--Election Procedures" and "--Allocation."
3
<PAGE> 10
BECAUSE THE MAXIMUM AGGREGATE NUMBER OF SHARES OF MAGNA COMMON STOCK TO BE
ISSUED IN THE MERGER IS FIXED, NO ASSURANCE CAN BE GIVEN THAT AN ELECTION BY
ANY GIVEN HOMELAND SHAREHOLDER WILL BE HONORED. THEREFORE, HOMELAND
SHAREHOLDERS MAY NOT RECEIVE PRECISELY THE FORM OF CONSIDERATION REQUESTED. SEE
"TERMS OF THE PROPOSED MERGER--ELECTION PROCEDURES." AS A RESULT OF THE
ALLOCATION PROCEDURES TO BE EMPLOYED IN THE EVENT EITHER MAGNA COMMON STOCK OR
CASH IS OVERSUBSCRIBED, THERE IS A GREATER LIKELIHOOD THAT HOMELAND
SHAREHOLDERS ELECTING TO RECEIVE A MIXTURE OF MAGNA COMMON STOCK AND CASH
RATHER THAN THOSE ELECTING TO RECEIVE ALL MAGNA COMMON STOCK OR ALL CASH WILL
RECEIVE THE CONSIDERATION REQUESTED. SEE "TERMS OF THE PROPOSED
MERGER--ALLOCATION." IN THE EVENT A HOLDER OF HOMELAND COMMON STOCK RECEIVES
BOTH MAGNA COMMON STOCK AND CASH, THE RECEIPT OF CASH COULD BE SUBJECT TO TAX
AS A DIVIDEND. SEE "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
Conditions. Consummation of the Merger is subject to certain terms and
conditions, including, among other things, the approval of the Merger Agreement
by the affirmative vote of the holders of a majority of the outstanding shares
of Homeland Common Stock entitled to vote at the Special Meeting and receipt of
all requisite regulatory approvals. See "TERMS OF THE PROPOSED
MERGER--Conditions of the Merger" and "--Regulatory Approval."
Closing and Effective Time. Unless the parties otherwise agree, the Closing
(the "Closing") will take place at 10:00 a.m., local time, on the date (the
"Closing Date") on which the Effective Time of the Merger occurs, which shall
be such date as Magna notifies Homeland in writing but (i) not earlier than the
approval by Homeland shareholders of the Merger Agreement and the receipt of
all requisite regulatory approvals (the "Approval Date"), and (ii) subject to
clause (i), not later than the first business day of the first full calendar
month commencing at least five business days after the Approval Date. The
Approval Date may not be earlier than January 1, 1997. It is currently
anticipated that the Effective Time will occur during the first quarter of
1997 assuming the Merger Agreement is approved at the Special Meeting and
should occur no earlier than 30 days and no later than 75 days following the
date of the Special Meeting. See "TERMS OF THE PROPOSED MERGER--Closing and
Effective Time."
Termination. The Merger Agreement may be terminated at any time prior to
the Effective Time by the mutual consent of the parties or by either party upon
the occurrence of certain events, including if the Merger is not consummated by
June 30, 1997. The Merger Agreement also may be terminated by the Board of
Directors of Homeland within five days of the last day of the Valuation Period,
if (x) the average closing sale price of Magna Common Stock as reported by the
NYSE during the Valuation Period (the "Valuation Price") shall be less than
$20 and the Valuation Price shall have declined by 15% or more during such
Valuation Period compared to a defined index of comparable bank stocks. Thus,
even should the Valuation Price decline below $20, Homeland may not have the
right to terminate the Merger Agreement. See "TERMS OF THE PROPOSED MERGER--
Termination of the Merger Agreement."
In the event that the Valuation Price shall have declined below $20 and
by 15 percent more than the defined index, the Board of Directors of Homeland
will review all of the circumstances believed to have caused such decline and
determine at that time whether to proceed with the transaction or terminate
the Merger Agreement. Consistent with the exercise of the Board's fiduciary
duties, should the Board determine, based on its analysis of the causes of such
decline in the Valuation Price, that it is in the best interests of Homeland
shareholders to proceed with the Merger, the Board does have the ability under
the Agreement and applicable law to complete the transaction without further
shareholder approval; however, the Board may also determine, if necessary or
appropriate in the exercise of such duties, to resubmit the proposal to Homeland
shareholders.
Fractional Shares. No fractional shares of Magna Common Stock will be
issued to Homeland shareholders in connection with the Merger. Upon
consummation of the Merger, each former holder of Homeland Common Stock who
otherwise would have been entitled to receive a fraction of a share of Magna
Common Stock shall be entitled to receive in lieu thereof cash, without
interest, in an amount equal to the holder's fractional share interest
multiplied by the closing stock price of Magna Common Stock on the last
business day preceding the Effective Time. Cash received by Homeland
shareholders in lieu of fractional shares may give rise to taxable income. See
"CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
4
<PAGE> 11
STOCK OPTION AGREEMENT
In connection with the execution of the Merger Agreement, Magna and
Homeland entered into a stock option agreement, dated August 30, 1996 (the
"Stock Option Agreement"), pursuant to which Homeland has issued Magna an
option (the "Option") to purchase up to 1,134,972 shares of Homeland Common
Stock (or 19.9% of the outstanding shares of Homeland Common Stock as of the
Record Date, without including any shares subject to or issued pursuant to the
Option) at an exercise price of $34 per share. The Option is exercisable upon
the occurrence of certain events and provides Magna the right, under certain
circumstances, to require Homeland to purchase for cash the unexercised portion
of the Option and all shares of Homeland Common Stock purchased by Magna
pursuant thereto. The Option, which Magna required that Homeland grant as a
condition to Magna's entering into the Merger Agreement, may increase the
likelihood of consummation of the Merger. See "TERMS OF THE PROPOSED
MERGER--Stock Option Agreement."
REASONS FOR THE MERGER; HOMELAND BOARD RECOMMENDATION
The Board of Directors of Homeland has determined that the terms of the
Merger Agreement and the transactions contemplated thereby are in the best
interests of Homeland and its shareholders. Accordingly, Homeland's Board of
Directors unanimously recommends that Homeland shareholders vote FOR the
---
approval and adoption of the Merger Agreement.
The recommendation of Homeland's Board of Directors is based upon a number
of factors, including, but not limited to, the financial terms of the Merger,
information concerning the business, financial condition, results of
operations, and prospects of Magna and Homeland, the value anticipated to be
received by Homeland shareholders in the Merger in relation to the historical
trading prices of Homeland Common Stock, similarities between the community
banking philosophies of Homeland and Magna, potential enhancement of customer
services, increased ability to deal with future technological challenges, and
the financial advice and opinion rendered by Homeland's financial advisor, The
Chicago Corporation ("TCC").
See "TERMS OF THE PROPOSED MERGER--Background and Reasons for the Merger;
Homeland Board Recommendation--Opinion of Homeland's Financial Advisor."
OPINION OF HOMELAND'S FINANCIAL ADVISOR
TCC, Homeland's financial advisor, has delivered its written opinion to the
Board of Directors of Homeland stating that the consideration to be paid by
Magna pursuant to the Merger Agreement is fair, from a financial point of view,
to the holders of Homeland Common Stock. The full text of the written opinion
of TCC, which sets forth the assumptions made, the procedures followed, the
matters considered and the limits on the review undertaken by TCC, is attached
as Annex A to this Proxy Statement/Prospectus and holders of Homeland Common
-------
Stock are urged to read carefully the opinion in its entirety. See "TERMS OF
THE PROPOSED MERGER--Opinion of Homeland's Financial Advisor."
INTERESTS OF CERTAIN PERSONS IN THE MERGER AND POTENTIAL CONFLICTS OF INTEREST
In considering the recommendation of the Board of Directors of Homeland
with respect to the Merger Agreement, Homeland shareholders should be aware
that certain executive officers and directors of Homeland (or their affiliates)
have interests in the Merger that are different from and in addition to the
interests of Homeland shareholders generally. The Board of Directors of
Homeland was aware of these interests and took these interests into account in
adopting the Merger Agreement.
Change of Control Agreements. All change of control agreements with
Homeland employees in effect prior to the date of the Merger Agreement and
previously disclosed to Magna will be honored by Magna in accordance with their
terms; provided, however, that certain named executives may surrender their
existing change of control agreements in exchange for (i) Magna change of
control or employment agreements, and (ii) awards of restricted stock with a
value of one times Annualized Includible Compensation (as defined in the
applicable agreement) vesting ratably over five years, with accelerated vesting
if terminated without Cause or as result of a Change of Control (each as
defined in the applicable agreement) of Magna. As of the date of this Proxy
Statement/Prospectus, none of the
5
<PAGE> 12
employees of Homeland who currently have change of control agreements (which, if
honored, would provide payments from 1.5 to 2.5 times Annualized Includable
Compensation for those subject to said agreements) has entered into an
employment or change of control agreement with Magna, although several are
considering proposals. In addition, Erl A. Schmiesing, currently the Chairman,
President and Chief Executive Officer of Homeland, and Douglas K. Shull,
currently a Homeland director, will be proposed for election to the Board of
Directors of Magna and, if elected, will each receive an annual retainer of
$8,000 plus $1,000 for each meeting attended, which is the same amount currently
paid by Magna to its existing directors. It is intended that Mr. Schmiesing will
serve on the Board of Directors of Magna for three years following the Closing
Date.
Indemnification. In the Merger Agreement, Magna agreed that the Merger will
not affect or diminish any of Homeland's duties and obligations of
indemnification existing as of the Effective Time in favor of employees,
agents, directors or officers of Homeland or its subsidiaries arising by virtue
of their respective articles of incorporation or bylaws in the form in effect
on August 30, 1996, or arising by operation of law or by virtue of any contract,
resolution or other agreement or document existing on August 30, 1996, and Magna
agreed to use its reasonable best efforts to assume such duties and obligations
of indemnification in order that such duties and obligations will continue in
full force and effect for so long as they would (but for the Merger) otherwise
survive.
Other Interests. Certain executive officers, including certain directors,
of Homeland currently hold Homeland employee stock options which will be
converted at the Effective Time into rights with respect to Magna Common Stock.
See "TERMS OF THE PROPOSED MERGER--Interests of Certain Persons in the
Merger and Potential Conflicts of Interest" and "--Employee Benefits."
REGULATORY APPROVAL
The Merger is subject to the prior approval of the Board of Governors of
the Federal Reserve System (the "Federal Reserve Board") under the BHCA and
of the Superintendent of the Banking Division of the State of Iowa (the "State
Bank Regulator"). Applications for such approval have been or will be filed.
There can be no assurance that any necessary regulatory approval or action will
be received or taken or as to the timing of such approval or action. See
"TERMS OF THE PROPOSED MERGER--Regulatory Approval."
WAIVER AND AMENDMENT
Any term, condition or provision of the Merger Agreement may be waived in
writing at any time by the party which is, or whose shareholders are, entitled
to the benefits thereof. The Merger Agreement may be amended by or on behalf of
the Boards of Directors of Magna and Homeland at any time before or after
approval of the Merger Agreement by the shareholders of Homeland, by an
instrument in writing signed on behalf of each party; provided that, after any
such approval by the shareholders of Homeland, no such modification may alter
or change the amount or kind of consideration to be received by holders of
Homeland Common Stock in the Merger.
ACCOUNTING TREATMENT
It is intended that the Merger will be accounted for under the purchase
method of accounting. See "TERMS OF THE PROPOSED MERGER--Accounting
Treatment."
EMPLOYEE STOCK OPTIONS
At the Effective Time, all rights with respect to Homeland Common Stock
pursuant to Homeland employee stock options that are outstanding at the
Effective Time, whether or not then exercisable, will be converted into and
become rights with respect to Magna Common Stock, and Magna will assume each
Homeland employee stock option in accordance with the terms of the stock option
plan under which it was issued and the stock option agreement by which it is
evidenced. From and after the Effective Time, (i) each Homeland employee stock
option assumed by Magna will be exercisable solely for shares of Magna Common
Stock, (ii) the number of shares of Magna Common Stock subject to each Homeland
employee stock option will be equal to the number of shares of Homeland Common
Stock subject to such Homeland employee stock option immediately prior to the
Effective Time multiplied by the
6
<PAGE> 13
Exchange Ratio and (iii) the per share exercise price under each Homeland
employee stock option will be adjusted by dividing the per share exercise price
under such Homeland employee stock option by the Exchange Ratio and rounding
down to the nearest cent; provided, however, that the terms of each Homeland
employee stock option will, in accordance with its terms, be subject to further
adjustment as appropriate to reflect any stock split, stock dividend,
recapitalization or other similar transaction subsequent to the Effective Time.
It is intended that the foregoing assumption will be undertaken in a manner that
will not constitute a "modification" as defined in the Internal Revenue Code
of 1986, as amended (the "Internal Revenue Code"), as to any Homeland employee
stock option that is an "incentive stock option."
Certain executive officers, including certain directors, of Homeland
currently hold Homeland employee stock options which will be converted into
rights with respect to Magna Common Stock as described above.
FEDERAL INCOME TAX CONSEQUENCES IN GENERAL
Wachtell, Lipton, Rosen & Katz, special counsel to Magna, and Nyemaster,
Goode, McLaughlin, Voigts, West, Hansell & O'Brien, P.C. counsel to Homeland,
have delivered their opinions that, assuming the Merger occurs in accordance
with the Merger Agreement, and conditioned on the accuracy of certain
representations made by Magna and Homeland, no gain or loss will be recognized
by Homeland or Magna as a result of the Merger, and Homeland shareholders will
recognize no gain or loss as a result of the exchange of their Homeland Common
Stock solely for shares of Magna Common Stock pursuant to the Merger, except
with respect to cash received in lieu of fractional shares, if any. If the
consideration received in the Merger by a Homeland shareholder consists
entirely of cash, such shareholder should realize and recognize a taxable gain
or loss, represented by the difference between such shareholder's adjusted
basis in the Homeland Common Stock surrendered and the amount of cash received.
EACH HOMELAND SHAREHOLDER IS URGED TO CONSULT ITS OWN TAX ADVISOR TO DETERMINE
THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH SHAREHOLDER. See "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
DISSENTERS' RIGHTS
Under the Iowa Act, a holder of shares of Homeland Common Stock may, in
lieu of the consideration such shareholder would otherwise receive in the
Merger, seek payment of the "fair value" of such shares and receive payment
of such fair value in cash if the Merger is consummated by following certain
procedures set forth in Division XIII of the Iowa Act, the text of which is
attached as Annex B to this Proxy Statement/Prospectus. Failure to follow such
-------
procedures may result in a loss of such shareholder's dissenters' rights. Any
Homeland shareholder returning a blank executed proxy card will be deemed to
have approved the Merger Agreement, thereby waiving any such dissenters'
rights. See "DISSENTERS' RIGHTS OF SHAREHOLDERS OF HOMELAND."
MARKET AND MARKET PRICES
Magna Common Stock is currently quoted on the NYSE under the symbol
"MGR." On August 30, 1996, the last full trading day preceding public
announcement of the Merger, the last sale price of Magna Common Stock was
$24 7/8 per share as reported on the Nasdaq on which Magna Common Stock was
quoted prior to listing on the NYSE on November 20, 1996. On December 11, 1996,
the most recent practicable date prior to the mailing of this Proxy Statement/
Prospectus, the last sale price of Magna Common Stock was $29 1/4 per share as
reported on the NYSE. In the fourth quarter of 1996 (up to the date of this
Proxy Statement/Prospectus), the trading price for Magna Common Stock has ranged
from $26 to $31 1/4 per share.
Homeland Common Stock is currently quoted on the Nasdaq under the symbol
"HLND." On August 30, 1996, the last sale price of Homeland Common Stock was
$34 per share as reported on the Nasdaq. Based upon the price of Magna Common
Stock of $24 7/8 per share on August 30, 1996, on an equivalent per share
basis, the value of each share of Homeland Common Stock on such date was
$38.10, based upon the applicable Exchange Ratio of 1.532. On December 11,
1996 the last sale price of Homeland Common Stock was $41 1/4 per share as
reported on the Nasdaq.
Shareholders are advised to obtain current market quotations for Magna
Common Stock and Homeland Common Stock. Any Homeland shareholder wishing to
estimate the current value of the consideration to be received
7
<PAGE> 14
per share of Homeland Common Stock, pursuant to the Merger, can obtain the
current market price of a share of Magna Common Stock, as quoted on the NYSE,
multiply that price by 0.8835 and add $16.125. In addition, shareholders may
call the offices of Homeland at (319) 291-5260 or 1 (800) 568-5268 at any time
prior to the Special Meeting to obtain current market quotations for the common
stock of Homeland and Magna and to ascertain the current value of the
consideration to be paid for each share of Homeland Common Stock in the Merger.
There can be no assurance as to the market price of Magna Common Stock or
Homeland Common Stock before, at, or, in the case of Magna Common Stock, after,
the Effective Time. The following table sets forth for the periods indicated the
high and low last sale prices (as reported on the Nasdaq or NYSE, as applicable)
and per share cash dividend declared with respect to Magna Common Stock and
Homeland Common Stock.
<TABLE>
<CAPTION>
MAGNA HOMELAND
COMMON STOCK CASH COMMON STOCK CASH
--------------- DIVIDEND -------------- DIVIDEND
HIGH LOW DECLARED HIGH LOW DECLARED
---- --- -------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C>
1994
First Quarter.......................................... $20 1/2 $18 1/8 $.19 $25 1/2 $23 $.21
Second Quarter......................................... 20 3/8 17 5/8 .19 25 23 .21
Third Quarter.......................................... 21 3/8 19 .19 25 23 1/2 .21
Fourth Quarter......................................... 21 1/2 16 3/4 .19 24 1/4 22 1/4 .21
1995
First Quarter.......................................... $20 3/4 $17 1/8 $.20 $23 3/4 $21 $.21
Second Quarter......................................... 22 1/2 20 .20 24 20 3/4 .22
Third Quarter.......................................... 25 1/2 21 .20 29 3/4 23 1/4 .22
Fourth Quarter......................................... 26 3/8 23 .20 29 7/8 27 1/2 .22
1996
First Quarter.......................................... $24 $21 7/8 $.22 $29 3/4 $26 7/8 $.22
Second Quarter......................................... 24 1/2 21 3/4 .22 33 3/4 29 .23
Third Quarter.......................................... 28 1/8 22 .22 38 1/2 33 .23
Fourth Quarter (through December 11, 1996)............. $30 1/2 26 3/8 .22 41 3/4 37 1/2 .23
</TABLE>
The shares of Magna Common Stock to be issued in the Merger will be listed
on the NYSE.
Magna's Board of Directors has heretofore declared a regular quarterly cash
dividend of $.22 per share on shares of Magna Common Stock, payable on December
10, 1996 to holders of record on November 15, 1996. The Board of Directors of
Magna intends to maintain its present policy of paying quarterly cash dividends
on the Magna Common Stock, when justified by the financial condition of Magna
and its subsidiaries. The declaration and amount of future dividends will
depend on circumstances existing at the time, including Magna's earnings,
financial condition and capital requirements as well as on regulatory
limitations, note and indenture provisions and such other factors as the Board
of Directors may deem relevant. See "INFORMATION REGARDING MAGNA STOCK--
Description of Magna Common Stock and Attached Preferred Share Purchase
Rights--Dividends."
Pursuant to the Merger Agreement, Homeland has agreed that, during the
period from the date of the Merger Agreement to the Effective Time, Homeland
will not declare, set aside or pay any dividends or other distributions on the
Homeland Common Stock, except that Homeland may declare and pay regular
quarterly cash dividends of not more than $.23 per share on the Homeland Common
Stock provided that, Homeland may not declare or pay any dividends on Homeland
Common Stock for any period in which its shareholders will be entitled to
receive any regular quarterly dividend on the shares of Magna Common Stock to
be issued in the Merger.
The Board of Directors of Homeland has heretofore declared a regular
quarterly cash dividend of $.23 per share on shares of Homeland Common Stock,
payable on November 13, 1996 to holders of record on October 30, 1996.
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth for the periods indicated selected
historical per share data of Magna and Homeland and the corresponding pro forma
and pro forma equivalent per share amounts giving effect to the proposed
Merger. The data presented is based upon the supplemental consolidated
financial statements and related
8
<PAGE> 15
notes of Magna and the consolidated financial statements and related notes of
Homeland included in this Proxy Statement/Prospectus or in documents
incorporated herein by reference, and the pro forma combined consolidated
balance sheet and income statements, including the notes thereto, appearing
elsewhere herein. This information should be read in conjunction with such
historical and pro forma financial statements and related notes thereto. The
assumptions used in the preparation of this table appear in the notes to the pro
forma financial information appearing elsewhere in this Proxy Statement/
Prospectus. See "PRO FORMA FINANCIAL INFORMATION." This data is not
necessarily indicative of the results of the future operations of the combined
organization or the actual results that would have occurred if the Merger had
been consummated prior to the periods indicated.
<TABLE>
<CAPTION>
MAGNA/HOMELAND MAGNA/HOMELAND
MAGNA HOMELAND PRO FORMA PRO FORMA
HISTORICAL HISTORICAL COMBINED<F1> EQUIVALENT<F2>
---------- ---------- -------------- --------------
<S> <C> <C> <C> <C>
Book Value Per Common Share:
September 30, 1996.................................... $16.39 $22.98 $17.40 $26.97
December 31, 1995..................................... 15.93 22.18 17.00 26.35
Cash Dividends Declared Per Common Share:
Nine months ended September 30, 1996.................. .66 .68 .66 1.02
Year ended December 31, 1995.......................... .80 .87 .80 1.24
Fully Diluted Net Income Per Share:
Nine months ended September 30, 1996.................. 1.59 1.74 1.48 2.29
Year ended December 31, 1995.......................... 1.80 2.37 1.70 2.64
Market Price Per Common Share:
August 30, 1996<F3>................................... 24.88 34.00
December 11, 1996<F3>................................. 29.25 41.25
<FN>
- --------
<F1> Includes the effect of pro forma adjustments for the Merger. See "PRO
FORMA FINANCIAL INFORMATION."
<F2> Based upon the pro forma combined per share amounts multiplied by an
assumed Exchange Ratio of 1.55, which Exchange Ratio is subject to
adjustment. See "PRO FORMA FINANCIAL INFORMATION."
<F3> The market values of Magna Common Stock and Homeland Common Stock were
determined as of the last trading day preceding the public announcement of
the Merger and as of the most recent practicable date prior to the mailing
of this Proxy Statement/Prospectus based on the last sales price as
reported on the Nasdaq or the NYSE, as applicable.
</TABLE>
SELECTED FINANCIAL DATA
The following tables set forth for the periods indicated certain selected
historical consolidated financial information for Magna and Homeland.
The historical balance sheet data and income statement data included in the
selected financial data for the periods indicated are derived from financial
statements of Magna and Homeland as of and for such periods. These data include
all adjustments which are, in the opinion of the respective managements of
Magna and Homeland, necessary to present a fair statement of the results of
these periods and all such adjustments are of a normal recurring nature.
Results for interim periods are not necessarily indicative of results for the
entire year.
9
<PAGE> 16
The following information should be read in conjunction with the
consolidated financial statements of Magna and Homeland, and the related notes
thereto, included in documents incorporated herein by reference and in
conjunction with the unaudited pro forma combined consolidated financial
information, including notes thereto, appearing elsewhere in this Proxy
Statement/Prospectus. See "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE"
and "PRO FORMA FINANCIAL INFORMATION."
<TABLE>
MAGNA GROUP, INC.
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
(UNAUDITED) YEAR ENDED DECEMBER 31
------------------- -------------------------------------------------------------
1996 1995 1995 1994 1993 1992<F3> 1991
---- ---- ---- ---- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS (THOUSANDS)
Interest income........... $ 288,274 $ 255,769 $ 347,168 $ 289,561 $ 244,288 $ 274,312 $ 197,714
Interest expense.......... 143,141 119,455 164,317 116,742 99,025 127,539 108,627
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income....... 145,133 136,314 182,851 172,819 145,263 146,773 89,087
Provision for loan
losses.................. 7,781 7,491 9,992 4,900 9,589 20,544 29,468
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan
losses.................. 137,352 128,823 172,859 167,919 135,674 126,229 59,619
Noninterest income........ 37,316 35,302 47,863 47,503 45,840 38,184 21,936
Noninterest expense....... 104,169 110,110 146,217 150,213 131,321 129,767 78,127
Income tax expense
(benefit)............... 24,271 16,846 23,283 20,179 12,706 5,539 (410)
Extraordinary item less
applicable tax.......... -- -- -- -- -- (830) --
Cumulative effect
adjustment of accounting
change.................. -- -- -- -- -- 1,915 --
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net income................ $ 46,228 $ 37,169 $ 51,222 $ 45,030 $ 37,487 $ 30,192 $ 3,838
=========== ========== ========== ========== ========== ========== ==========
PER COMMON SHARE
Primary net income per
share:
Income before
extraordinary item
and cumulative
effect adjustment... $ 1.63 $ 1.34 $ 1.84 $ 1.69 $ 1.53 $ 1.36 $ .28
Extraordinary item.... -- -- -- -- -- (.04) --
Cumulative effect
adjustment.......... -- -- -- -- -- .09 --
Net income............ 1.63 1.34 1.84 1.69 1.53 1.41 .28
Fully diluted net income
per share:
Income before
extraordinary item
and cumulative
effect adjustment... 1.59 1.31 1.80 1.66 1.50 1.33 .28
Extraordinary item.... -- -- -- -- -- (.04) --
Cumulative effect
adjustment.......... -- -- -- -- -- .09 --
Net income............ 1.59 1.31 1.80 1.66 1.50 1.38 .28
Dividend declared......... .66 .60 .80 .76 .72 .68 .68
Book value per common
share................... 16.39 15.38 15.93 13.49 14.02 13.39 12.72
ENDING BALANCE SHEET DATA
(THOUSANDS)
Total assets.............. $ 5,384,481 $4,859,067 $4,947,499 $4,638,502 $4,128,462 $3,728,525 $3,777,304
Securities................ 1,596,466 1,361,331 1,364,864 1,217,174 1,213,673 1,088,410 932,670
Loans, net of unearned
income.................. 3,367,661 3,170,943 3,202,766 2,968,201 2,564,466 2,272,180 2,479,163
Reserve for loan losses... 45,093 41,630 42,623 43,991 40,065 38,194 55,976
Deposits.................. 4,164,860 3,779,936 3,888,266 3,672,755 3,494,825 3,224,661 3,334,623
Long-term debt............ 79,117 93,747 93,071 104,453 32,062 35,195 35,932
Stockholders' equity...... 459,902 428,829 446,044 371,312 360,649 322,295 249,640
Common shares
outstanding............. 28,053 27,881 27,998 27,512 25,729 24,074 19,471
SELECTED RATIOS <F1>
Return on average
assets.................. 1.18% 1.07% 1.09% 1.05% 1.02% .81% .17%
Return on average
equity.................. 13.54 12.46 12.57 12.41 11.25 10.88 2.04
Net interest rate margin
<F2>.................... 4.04 4.35 4.30 4.49 4.45 4.47 4.56
Average stockholders'
equity to average total
assets.................. 8.72 8.59 8.66 8.48 9.06 7.47 8.34
Loan reserve to total
loans................... 1.34 1.31 1.33 1.48 1.56 1.68 2.26
Loan reserve to
nonperforming loans..... 171.12 104.24 138.30 119.21 78.49 57.87 52.42
Dividend payout ratio..... 40.49 44.78 43.48 44.97 47.06 48.23 242.86
<FN>
- ----------
<F1> Ratios for the nine months ended September 30, 1996 and 1995 are
annualized.
<F2> Based on interest income on a fully tax-equivalent basis assuming an
income tax rate of 35%.
<F3> Effective January 1, 1992, Magna adopted the provisions of FAS No. 109
"Accounting for Income Taxes." The extraordinary item relates to the
early extinguishment of long-term debt.
</TABLE>
10
<PAGE> 17
<TABLE>
HOMELAND BANKSHARES CORPORATION
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
(UNAUDITED) YEAR ENDED DECEMBER 31
------------------- -------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS (THOUSANDS)
Interest income........... $ 68,723 $ 68,413 $ 92,480 $ 72,096 $ 56,786 $ 64,046 $ 73,573
Interest expense.......... 31,330 32,986 44,804 30,440 21,941 28,832 40,319
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income....... 37,393 35,427 47,676 41,656 34,845 35,214 33,254
Provision for loan
losses.................. 1,705 612 941 296 770 2,145 3,730
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan
losses.................. 35,688 34,815 46,735 41,360 34,075 33,069 29,524
Noninterest income........ 9,209 8,682 11,665 9,676 9,277 8,335 7,852
Noninterest expense....... 28,621 27,330 36,350 32,332 25,650 24,502 22,870
Income tax expense........ 6,301 6,215 8,429 6,443 5,682 5,346 4,144
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net income................ $ 9,975 $ 9,952 $ 13,621 $ 12,261 $ 12,020 $ 11,556 $ 10,362
=========== ========== ========== ========== ========== ========== ==========
PER COMMON SHARE
Primary net income per
share................... $ 1.74 $ 1.73 $ 2.37 $ 2.14 $ 2.11 $ 2.03 $ 1.79
Fully diluted net income
per share............... 1.74 1.73 2.37 2.14 2.11 2.03 1.79
Dividend declared......... .68 .65 .87 .84 .82 .79 .75
Book value per common
share................... 22.98 21.60 22.18 19.99 19.30 18.00 16.77
ENDING BALANCE SHEET DATA
(THOUSANDS)
Total assets.............. $ 1,206,943 $1,232,633 $1,232,907 $1,190,633 $ 865,032 $ 902,817 $ 940,008
Securities................ 190,759 257,594 217,556 282,450 279,077 306,295 312,333
Loans..................... 895,165 855,239 844,789 792,796 464,992 438,588 442,433
Reserve for loan losses... 9,278 8,954 8,603 9,082 7,315 7,412 5,946
Deposits.................. 937,986 942,234 962,719 949,360 708,805 736,452 799,362
Long-term debt............ 46,962 42,525 43,925 2,450 -- -- --
Stockholders' equity...... 131,072 123,935 127,321 114,742 109,601 102,228 97,431
Common shares
outstanding............. 5,703 5,739 5,741 5,739 5,679 5,678 5,811
SELECTED RATIOS <F1>
Return on average
assets.................. 1.10% 1.10% 1.11% 1.15% 1.36% 1.26% 1.14%
Return on average
equity.................. 10.25 11.15 11.27 10.86 11.30 11.67 11.01
Net interest rate margin
<F2>.................... 4.55 4.36 4.32 4.39 4.52 4.54 4.42
Average stockholders'
equity to average total
assets.................. 10.73 9.87 9.87 10.56 12.07 10.80 10.38
Loan reserve to total
loans................... 1.04 1.05 1.02 1.15 1.57 1.69 1.34
Loan reserve to
nonperforming loans..... 251.98 171.40 174.68 123.38 69.32 85.28 76.61
Dividend payout ratio..... 39.08 37.57 36.65 39.21 38.74 38.91 41.57
<FN>
- ----------
<F1> Ratios for the nine months ended September 30, 1996 and 1995 are
annualized.
<F2> Based on interest income on a fully tax-equivalent basis assuming an
income tax rate of 35%.
</TABLE>
11
<PAGE> 18
INFORMATION REGARDING SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of Homeland
Common Stock in connection with the solicitation of proxies by the Board of
Directors of Homeland for use at the Special Meeting and any adjournment or
postponement thereof at which the shareholders of Homeland will consider and
vote on a proposal to approve and adopt the Merger Agreement and will transact
such other business as may properly come before the Special Meeting or any
adjournment or postponement thereof. Each copy of this Proxy Statement/
Prospectus is accompanied by a Letter to Homeland Shareholders, the Notice of
Special Meeting of Shareholders of Homeland, a proxy card and a self-addressed
return envelope for the proxy card.
This Proxy Statement/Prospectus is also furnished by Magna to each holder
of Homeland Common Stock as a prospectus in connection with the issuance by
Magna of shares of Magna Common Stock to Homeland shareholders upon the
consummation of the Merger. This Proxy Statement/Prospectus, the Letter to
Homeland Shareholders, the Notice of Special Meeting and the form of proxy are
first being mailed to shareholders of Homeland on or about December 16, 1996.
DATE, TIME AND PLACE
The Special Meeting will be held at the office of Homeland Bank, N.A.
located at 100 East Park Avenue, Waterloo, Iowa, on January 21, 1997, at 5:00
p.m., Central Time.
RECORD DATE; VOTE REQUIRED
The Board of Directors of Homeland has fixed December 7, 1996, as the
Record Date for determination of shareholders of Homeland entitled to notice of
and to vote at the Special Meeting. Accordingly, only holders of record of
Homeland Common Stock at the close of business on December 15, 1996 will be
entitled to notice of, and to vote at, the Special Meeting. At the Record Date,
there were 5,703,378 shares of Homeland Common Stock outstanding and entitled
to vote which were held by approximately 1,700 holders of record. Each such
share is entitled to one vote on each matter properly brought before the
Special Meeting. The affirmative vote of the holders of a majority of the
outstanding shares of Homeland Common Stock entitled to vote at the meeting is
required to approve the Merger Agreement.
As of the Record Date, directors and executive officers of Homeland and
certain of their affiliates owned beneficially an aggregate of 245,374 shares
of Homeland Common Stock, or approximately 4.30% of the shares entitled to vote
at the Special Meeting. All of Homeland's directors have indicated their
intention to vote their shares of Homeland Common Stock for the approval of the
Merger Agreement.
VOTING AND REVOCATION OF PROXIES
Shares of Homeland Common Stock entitled to vote and which are represented
at the Special Meeting by a properly executed proxy received prior to the vote
at the Special Meeting will be voted at such Special Meeting in the manner
directed on the proxy card, unless such proxy is revoked in the manner set
forth herein in advance of such vote. ANY HOMELAND SHAREHOLDER RETURNING A
BLANK EXECUTED PROXY CARD WILL BE DEEMED TO HAVE VOTED FOR APPROVAL AND
---
ADOPTION OF THE MERGER AGREEMENT. Failure to return a properly executed proxy
card or to vote in person at the Special Meeting will have the practical effect
of a vote against the Merger Agreement.
Shares subject to abstentions will be treated as shares that are present at
the Special Meeting for purposes of determining the presence of a quorum and as
voted for the purposes of determining the base number of shares voting on the
proposal. If a broker or other nominee holder indicates on the proxy card that
it does not have discretionary authority to vote the shares it holds of record
on the proposal, those shares will not be treated as shares that are present at
the Special Meeting for purposes of determining the presence of a quorum and
will not be considered as voted for purposes of determining the approval of
shareholders on the proposal. Since the approval of the Merger Agreement
requires the affirmative vote of the holders of a majority of the outstanding
shares of Homeland Common Stock, abstentions and broker non-votes will have the
same effect as a vote against the approval of the Merger Agreement.
12
<PAGE> 19
Any shareholder of Homeland giving a proxy may revoke it at any time prior
to the vote at the Special Meeting. Shareholders of Homeland wishing to revoke
a proxy prior to the vote may do so by delivering to UMB Bank at P.O. Box
410064, Kansas City, MO 64141-0064, Attention: Securities Transfer Division, a
written notice of revocation bearing a later date than the proxy or any later
dated proxy relating to the same shares, or by attending the Special Meeting
and voting in person. Attendance at the Special Meeting will not in itself
constitute the revocation of a proxy.
The Board of Directors of Homeland is not currently aware of any business
to be brought before the Special Meeting other than that described herein. If,
however, other matters are properly brought before such Special Meeting, or any
adjournment or postponement thereof, the persons appointed as proxies will have
discretionary authority to vote the shares represented by duly executed proxies
in accordance with their discretion and judgment as to the best interest of
Homeland, except that no proxy that directs the proxy holders to vote the
shares represented thereby against, or to abstain from voting on, the Merger
shall be voted in favor of any adjournment or postponement of the Special
Meeting.
SOLICITATION OF PROXIES
Homeland will bear its own costs of soliciting proxies, except that Magna
will pay printing and mailing expenses and registration fees incurred in
connection with preparing this Proxy Statement/Prospectus. Proxies will
initially be solicited by mail, but directors, officers and selected other
employees of Homeland may also solicit proxies in person or by telephone,
telegram or other means of communication. Directors, officers and any other
employees of Homeland who solicit proxies will not be specially compensated for
such services, but may be reimbursed for reasonable out-of-pocket expenses in
connection with such solicitation. Brokerage houses, nominees, fiduciaries and
other custodians will be requested to forward proxy materials to beneficial
owners and will be reimbursed for their reasonable expenses incurred in
connection therewith. Homeland has retained Corporate Investor Communications,
Inc. to assist in the solicitation of proxies for an estimated fee of $3,000
plus reasonable out-of-pocket expenses.
HOLDERS OF HOMELAND COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
13
<PAGE> 20
TERMS OF THE PROPOSED MERGER
The following is a summary of the material provisions of the Merger
Agreement, a copy of which is attached hereto as Annex C. See "AVAILABLE
INFORMATION." This summary is qualified in its entirety by reference to the
Merger Agreement which is hereby incorporated by reference herein.
THE MERGER
The Merger Agreement provides that Homeland will merge at the Effective
Time with and into Merger Sub, subject to shareholder approval and the
satisfaction or waiver of the other conditions to the Merger. Upon consummation
of the Merger, Homeland's corporate existence will terminate, with Merger Sub
continuing as the surviving corporation.
MERGER CONSIDERATION
In the Merger, subject to the election and allocation procedures described
below, all outstanding shares of Homeland Common Stock (other than Dissenting
Shares and Treasury Shares) will be converted into either: (i) the Per Share
Stock Consideration or (ii) the Per Share Cash Consideration. The actual Per
Share Stock Consideration will be determined as of the end of the Valuation
Period by adjusting the number of shares of Magna Common Stock to be exchanged
for each share of Homeland Common Stock such that the product of such number
(rounded to the nearest 1/1000th of a share) and the Average Closing Price will
equal the Average Per Share Consideration. The Per Share Cash Consideration
will be adjusted to equal the Average Per Share Consideration. Because the
Per Share Stock Consideration and the Per Share Cash Consideration will be
determined based on closing prices of Magna Common Stock following the Special
Meeting, at the time of the Special Meeting Homeland shareholders will not be
able to determine precisely the value of the consideration or the number of
shares of Magna Common Stock to be received per share of Homeland Common Stock.
The following terms have the following definitions:
"Average Per Share Consideration" means the Aggregate Consideration
divided by the Valuation Period Share Number (rounded to the nearest cent).
"Aggregate Consideration" means the sum of (x) the product of 1.55 times
the Average Closing Price times 0.57 times the Valuation Period Share Number
and (y) $37.50 times 0.43 times the Valuation Period Share Number.
"Valuation Period Share Number" means the total number of shares of
Homeland Common Stock outstanding (other than Treasury Shares) on the last day
of the Valuation Period.
14
<PAGE> 21
Regardless of whether Homeland shareholders elect to receive all Magna
Common Stock, all cash or a combination, for each share of Homeland Common
Stock held they will receive, subject to certain adjustments more fully
described herein, a value in cash or stock (as measured during the Valuation
Period) equal to the sum of (x) the product of the value of one share of Magna
Common Stock (as determined during the Valuation Period) multiplied by 0.8835
plus (y) $16.125. The following table sets forth, based on various Average
Closing Prices, the Per Share Stock Consideration and the value of such
consideration based on such Average Closing Price, the Per Share Cash
Consideration, and the percentages of shares of Homeland Common Stock that
would be converted into Magna Common Stock and cash. The table is based on the
assumptions that the Valuation Period Share Number is 5,703,378 and that the
Stock Amount is 5,038,934 shares of Magna Common Stock. For purposes of the
table, rounding has been ignored. The table provides a selected range of likely
Average Closing Prices for Magna Common Stock. In the event the actual Average
Closing Price of Magna Common Stock is not included on the table, Homeland
shareholders may determine the value of the consideration to be received per
share of Homeland Common Stock in the Merger by reference to the formula
previously mentioned or by calling the offices of Homeland at (319) 291-5620
or 1 (800) 568-5268. In the event the price of Magna Common Stock is less than
$20.00 per share, Homeland may have certain termination rights under the Merger
Agreement. See "--Termination of the Merger Agreement."
<TABLE>
<CAPTION>
PERCENT OF SHARES
OF HOMELAND COMMON
VALUE OF STOCK TO RECEIVE:
AVERAGE PER SHARE PER SHARE PER SHARE -------------------------------
CLOSING STOCK STOCK CASH STOCK CASH
PRICE CONSIDERATION CONSIDERATION CONSIDERATION CONSIDERATION CONSIDERATION
- ------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$34.000 1.358 $46.16 $46.16 65.1% 34.9%
33.500 1.365 45.72 45.72 64.7 35.3
33.000 1.372 45.28 45.28 64.4 35.6
32.500 1.380 44.84 44.84 64.0 36.0
32.000 1.387 44.40 44.40 63.7 36.3
31.500 1.395 43.96 43.96 63.3 36.7
31.000 1.404 43.51 43.51 62.9 37.1
30.500 1.412 43.07 43.07 62.6 37.4
30.000 1.421 42.63 42.63 62.2 37.8
29.500 1.430 42.19 42.19 61.8 38.2
29.000 1.440 41.75 41.75 61.4 38.6
28.500 1.449 41.30 41.30 61.0 39.0
28.000 1.459 40.86 40.86 60.5 39.5
27.500 1.470 40.42 40.42 60.1 39.9
27.000 1.481 39.98 39.98 59.7 40.3
26.500 1.492 39.54 39.54 59.2 40.8
26.000 1.504 39.10 39.10 58.8 41.2
25.500 1.516 38.65 38.65 58.3 41.7
25.000 1.529 38.21 38.21 57.8 42.2
24.500 1.542 37.77 37.77 57.3 42.7
24.194 1.550 37.50 37.50 57.0 43.0
24.000 1.555 37.33 37.33 56.8 43.2
23.500 1.570 36.89 36.89 56.3 43.7
23.000 1.585 36.45 36.45 55.8 44.2
22.500 1.600 36.00 36.00 55.2 44.8
22.000 1.616 35.56 35.56 54.7 45.3
21.500 1.634 35.12 35.12 54.1 45.9
21.000 1.651 34.68 34.68 53.5 46.5
20.500 1.670 34.24 34.24 52.9 47.1
20.000 1.690 33.80 33.80 52.3 47.7
</TABLE>
The purpose of the equalization mechanism described above is to equalize
the value of the consideration to be received for each share of Homeland Common
Stock in the Merger as measured during the Valuation Period, regardless of
whether the Homeland shareholder elects to receive all Magna Common Stock, all
cash or a combination. This equalization mechanism was deemed to be desirable
because, while the aggregate number of shares of Magna Common Stock and the
amount of cash to be received by Homeland shareholders in the Merger is fixed,
the
15
<PAGE> 22
value of Magna shares will fluctuate. In order to ensure that the value of the
consideration for each share of Homeland Common Stock is as equal as possible
upon receipt by Homeland shareholders, regardless of the form of the
consideration, the equalization mechanism is to be applied based on Average
Closing Price as determined during the Valuation Period.
The shares of Magna Common Stock to be issued pursuant to the Merger will
be freely transferable except by certain shareholders of Homeland who are
deemed to be "affiliates" (as such term is defined under the Securities Act)
of Homeland. The shares of Magna Common Stock issued to such affiliates will be
restricted in their transfer-ability in accordance with the rules and
regulations promulgated by the Commission and pursuant to agreements entered
into by such affiliates and delivered to Magna. See "INFORMATION REGARDING
MAGNA STOCK--Restrictions on Resale of Magna Capital Stock by Affiliates;
Affiliate Agreements."
CLOSING AND EFFECTIVE TIME
Unless the parties otherwise agree, the Closing will take place at 10:00
a.m., local time, on the date on which the Effective Time occurs. The Effective
Date will occur on such date Magna notifies Homeland in writing (such notice to
be at least five days in advance of the Effective Date) but (i) not earlier
than the Approval Date and (ii) subject to clause (i), not later than the first
business day of the first full calendar month commencing at least five business
days after the Approval Date. In no event may the Approval Date occur prior to
January 1, 1997. It is currently anticipated that the Effective Time will occur
during the first quarter of 1997 assuming the Merger Agreement is approved at
the Special Meeting and should occur no earlier than 30 days and no later than
75 days following the Special Meeting.
ELECTION PROCEDURES
Homeland shareholders may elect to receive all Magna Common Stock, all
cash, a mixture of 57% Magna Common Stock and 43% cash (as described below), or
make no election, subject to certain limitations, including that the Stock
Amount is 5,038,934 shares of Magna Common Stock. Because the aggregate number
of shares of Magna Common Stock that will be issued in the Merger is fixed, the
extent to which elections by Homeland shareholders will be accommodated will
depend upon the respective numbers of Homeland shareholders who elect to
receive all cash, all Magna Common Stock, a mixture set solely at the ratio of
57% Magna Common Stock and 43% cash, or who make no election. In the event one
type of consideration is oversubscribed, a pro rata reduction in that type of
consideration will be made among shareholders electing solely that type of
consideration such that the aggregate of that type of consideration distributed
equals the available amount. The remainder of the merger consideration will be
distributed according to the shareholder's election. The mixture of 57% Magna
Common Stock and 43% cash consideration is based on an initial exchange ratio
of 1.55, the exchange ratio at the time the Merger Agreement was agreed to by
Magna and Homeland, and was established to enable Homeland shareholders to
elect to receive a combination of both stock and cash in the Merger. The merger
consideration distributed to holders electing a mixture of cash and Magna
Common Stock will remain at a fixed ratio of 57% Magna Common Stock and 43%
cash based upon the value of the Magna Common Stock as measured during the
Valuation Period and will not be adjusted for oversubscriptions unless Magna
Common Stock is oversubscribed and adjustments to holders of Homeland Common
Stock electing all Magna Common Stock and making no election do not alleviate
the oversubscription. The ratio of the mixture of consideration provided to
holders who elect to receive a mixture of stock and cash will not be altered
based on the Average Closing Price of Magna Common Stock prior to Effective
Time. There is a greater likelihood that Homeland shareholders electing to
receive a mixture of Magna Common Stock and cash, rather than those electing to
receive all Magna Common Stock or all cash, will receive the consideration
requested. See "--Allocation."
The percentage of Homeland shareholders receiving cash consideration will
vary based on the Average Closing Price of Magna Common Stock. Homeland
shareholders can receive cash consideration that constitutes as much as 47.7%
or as little as 34.9% of the total consideration, based on Average Closing
Prices ranging between $20 and $34.
NO ASSURANCE CAN BE GIVEN THAT THE CURRENT FAIR MARKET VALUE OF MAGNA
COMMON STOCK WILL BE EQUIVALENT TO THE FAIR MARKET VALUE OF MAGNA COMMON STOCK
ON THE DATE SUCH STOCK IS RECEIVED BY A HOMELAND SHAREHOLDER OR AT ANY OTHER
TIME. THE FAIR MARKET VALUE OF MAGNA COMMON STOCK RECEIVED BY A HOMELAND
SHAREHOLDER MAY BE GREATER OR LESS THAN THE CURRENT FAIR MARKET VALUE OF MAGNA
COMMON STOCK DUE TO NUMEROUS MARKET FACTORS.
16
<PAGE> 23
In addition to a properly completed Election Form, each shareholder of
Homeland will be required to submit to the Exchange Agent a properly executed
letter of transmittal and surrender to the Exchange Agent the stock
certificate(s) formerly representing shares of Homeland Common Stock
("Certificates") in order to obtain issuance of a new stock certificate
evidencing the shares of Magna Common Stock and/or cash to which such
shareholder is entitled. No dividends or other distributions will be paid to a
former Homeland shareholder with respect to shares of Magna Common Stock until
such person surrenders the Certificates, or documentation acceptable to the
Exchange Agent in lieu of lost or destroyed Certificates, at which time such
dividends will be remitted to such person, without interest and less any taxes
that may have been imposed thereon. See "--Surrender of Homeland Stock
Certificates and Receipt of Magna Common Stock."
Each Election Form will permit the holder (or the beneficial owner) either
(i) to elect to receive only Magna Common Stock with respect to such holder's
Homeland Common Stock ("Stock Election Shares"); (ii) to elect to receive
only cash with respect to such holder's Homeland Common Stock ("Cash Election
Shares"); (iii) to elect to receive Magna Common Stock with respect to 57% of
such holder's Homeland Common Stock and cash with respect to 43% of such
holder's Homeland Common Stock rounded, in each case, to the nearest whole
share ("Mixed Election Shares"), which represents the percent of shares of
Homeland to receive stock and cash consideration, respectively, based on an
assumed Exchange Ratio of 1.55; or (iv) to indicate that such holder makes no
election ("No Election Shares"). The Mixed Election Shares will be divided by
the Exchange Agent into such portion (to be approximately 57% in aggregate)
with respect to which the holder has elected to receive Magna Common Stock (the
"Mixed Stock Shares") and such portion (to be approximately 43% in aggregate)
with respect to which the holder has elected to receive cash (the "Mixed Cash
Shares") for the purposes of allocating the total consideration as specified
below, it being the intention that, to the fullest extent possible, subject to
all applicable constraints, all Mixed Election Shares receive the consideration
with respect to which a mixed election has been made without regard to the pro
rata selection process set forth below. Consideration for No Election Shares
will be allocated after consideration has been allocated to the Mixed Election
Shares, Stock Election Shares and Cash Election Shares. No Election Shares will
be allocated the stock and cash consideration, on a pro rata basis, in order to
provide holders of Mixed Election Shares, Stock Election Shares and Cash
Election Shares with the consideration requested, subject to certain
limitations including the Stock Amount. See "--Allocation." For purposes of
the election procedures, Dissenting Shares will be treated as Cash Election
Shares, provided, however, that holders of Dissenting Shares shall receive
payment for such shares in accordance with the provisions of the Iowa Act.
Subject to compliance with the applicable provisions of the Iowa Act, holders
of Dissenting Shares will receive the fair value of their shares of Homeland
Common Stock. Holders of Cash Election Shares will receive the Per Share Cash
Consideration, subject to the allocation procedures described below. See
"--Allocation." As a result, the value of the consideration received by
holders of Dissenting Shares may not be the same as the value of the
consideration received by holders of Cash Election Shares. Additionally, as a
result of the allocation procedures, holders of Cash Election Shares may not
receive precisely the type of consideration requested. See "DISSENTER'S RIGHTS
OF SHAREHOLDERS OF HOMELAND."
Any Homeland Common Stock with respect to which the holder (or the
beneficial owner, as the case may be) shall not have submitted to the Exchange
Agent an effective, properly completed Election Form on or before 5:00 p.m. on
the fifth day prior to the anticipated Effective Time (or such other time and
date as Magna and Homeland may mutually agree) (the "Election Deadline")
shall also be deemed to be No Election Shares.
TO MAKE AN EFFECTIVE ELECTION, A HOMELAND COMMON SHAREHOLDER MUST SUBMIT A
PROPERLY COMPLETED ELECTION FORM SO THAT IT IS ACTUALLY RECEIVED BY THE
EXCHANGE AGENT AT OR PRIOR TO THE ELECTION DEADLINE IN ACCORDANCE WITH THE
INSTRUCTIONS ON THE ELECTION FORM. AN ELECTION FORM WILL BE PROPERLY COMPLETED
ONLY IF ACCOMPANIED BY CERTIFICATE(S) REPRESENTING ALL SHARES OF HOMELAND
COMMON STOCK COVERED THEREBY. THE ELECTION DEADLINE IS 5:00 P.M. ON THE FIFTH
DAY PRIOR TO THE ANTICIPATED EFFECTIVE TIME OR SUCH OTHER DATE UPON WHICH MAGNA
AND HOMELAND MUTUALLY AGREE.
Magna will make available up to two separate Election Forms, or such
additional Election Forms as Magna in its sole discretion may permit, to all
persons who become holders (or beneficial owners) of Homeland Common Stock
between the day five business days prior to the date of mailing of the Election
Forms and close of business on the business day prior to the Election Deadline,
and Homeland will provide to the Exchange Agent all information reasonably
necessary for it to perform as specified in the Merger Agreement.
17
<PAGE> 24
An election will have been properly made only if the Exchange Agent will
have actually received a properly completed Election Form by the Election
Deadline. An Election Form will be deemed properly completed only if accompanied
by one or more Certificates (or customary affidavits and indemnification
regarding the loss or destruction of such Certificates or the guaranteed
delivery of such Certificates) representing all shares of Homeland Common Stock
covered by such Election Form, together with duly executed transmittal materials
included with the Election Form. Any Election Form may be revoked or changed by
the person submitting such Election Form at or prior to the Election Deadline.
In the event an Election Form is revoked prior to the Election Deadline, the
shares of Homeland Common Stock represented by such Election Form will become No
Election Shares and Magna will cause the Certificates to be promptly returned
without charge to the person submitting the Election Form upon written request
to that effect from the person who submitted the Election Form. Subject to the
terms of the Merger Agreement and of the Election Form, the Exchange Agent will
have reasonable discretion to determine whether any election, revocation or
change has been properly or timely made and to disregard immaterial defects in
the Election Forms, and any good faith decisions of the Exchange Agent regarding
such matters will be binding and conclusive. Neither Magna nor the Exchange
Agent will be under any obligation to notify any person of any defect in an
Election Form.
ALLOCATION
Within five business days after the Election Deadline, unless the Effective
Time has not yet occurred, in which case as soon thereafter as practicable,
Magna will cause the Exchange Agent to effect the allocation among the holders
of Homeland Common Stock of rights to receive Magna Common Stock or cash in the
Merger in accordance with the Election Forms.
If the number of shares of Magna Common Stock that would be issued upon
conversion in the Merger of the Stock Election Shares and the Mixed Stock
Shares is less than the Stock Amount, then: (i) all Mixed Stock Shares and
Stock Election Shares will be converted into the right to receive the Per Share
Stock Consideration, (ii) the Exchange Agent shall then select first from among
the No Election Shares (which include shares for which a properly completed
Election Form has not been submitted) and then (if necessary) from among the
Cash Election Shares, by a pro rata selection process (as described below), a
sufficient number of shares ("Stock Designated Shares") such that the number
of shares of Magna Common Stock that will be issued in the Merger equals as
closely as practicable the Stock Amount, and all Stock Designated Shares will
be converted into the right to receive the Per Share Stock Consideration, and
(iii) the Cash Election Shares and the No Election Shares (which include shares
for which a properly completed Election Form has not been submitted) which are
not Stock Designated Shares and all Mixed Cash Shares will be converted into
the right to receive the Per Share Cash Consideration.
If the number of shares of Magna Common Stock that would be issued upon the
conversion into Magna Common Stock of the Stock Election Shares is greater than
the Stock Amount, then (i) all Mixed Cash Shares, Cash Election Shares and No
Election Shares (which include shares for which a properly completed Election
Form has not been submitted) will be converted into the right to receive the
Per Share Cash Consideration, (ii) the Exchange Agent will then select from
among the Stock Election Shares, by a pro rata selection process (as described
below) a sufficient number of shares ("Cash Designated Shares") such that the
number of shares of Magna Common Stock that will be issued in the Merger equals
as closely as practicable the Stock Amount, and all Cash Designated Shares will
be converted into the right to receive the Per Share Cash Consideration, and
(iii) the Stock Election Shares which are not Cash Designated Shares and all
Mixed Stock Shares will be converted into the right to receive the Per Share
Stock Consideration.
If the number of shares of Magna Common Stock that would be issued upon
conversion into Magna Common Stock of the Stock Election Shares and Mixed Stock
Shares is equal or nearly equal (as determined by the Exchange Agent) to the
Stock Amount, then all Stock Election Shares and Mixed Stock Shares will be
converted into the right to receive the Per Share Stock Consideration and all
Cash Election Shares, Mixed Cash Shares and No Election Shares (which include
shares for which a properly completed Election Form has not been submitted)
will be converted into the right to receive the Per Share Cash Consideration.
If the number of shares of Magna Common Stock that would be issued upon the
conversion into Magna Common Stock of the Stock Election Shares, Mixed Stock
Shares and No Election Shares (which include shares for which a properly
completed Election Form has not been submitted) would equal or nearly equal (as
determined by
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the Exchange Agent) the Stock Amount, then all Cash Election Shares and Mixed
Cash Shares will be converted into the right to receive the Per Share Cash
Consideration and all Stock Election Shares, Mixed Stock Shares and No Election
Shares (which include shares for which a properly completed Election Form has
not been submitted) will be converted into the right to receive the Per Share
Stock Consideration.
If the number of shares of Magna Common Stock that would be issued upon the
conversion in the Merger into Magna Common Stock of the Mixed Stock Shares is
greater than the Stock Amount, then, (i) all Mixed Cash Shares, Cash Election
Shares, No Election Shares (which include shares for which a properly completed
Election Form has not been submitted) and Stock Election Shares will be
converted into the right to receive the Per Share Cash Consideration, (ii) the
Exchange Agent will select from among the Mixed Stock Shares by a pro rata
selection process (as described below) a sufficient number of shares ("Mixed
Designated Shares") such that the number of shares of Magna Common Stock that
will be issued in the Merger equals as closely as practicable the Stock Amount,
and all Mixed Designated Shares will be converted into the right to receive the
Per Share Cash Consideration, and (iii) the Mixed Stock Shares that are not
Mixed Designated Shares will be converted into the right to receive the Per
Share Stock Consideration.
The pro rata selection process to be used by the Exchange Agent will
consist of such equitable proration processes as will be mutually determined by
Magna and Homeland. It is anticipated that these processes will include pro
rata adjustments to all Homeland shares for which a given type of consideration
is elected.
BECAUSE THE TAX CONSEQUENCES OF RECEIVING CASH OR MAGNA COMMON STOCK WILL
DIFFER, HOMELAND SHAREHOLDERS ARE URGED TO READ CAREFULLY THE INFORMATION SET
FORTH UNDER "CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
SURRENDER OF HOMELAND STOCK CERTIFICATES AND RECEIPT OF MAGNA COMMON STOCK
At least thirty days prior to the anticipated Effective Time, holders of
record of Certificates will be instructed to tender such Certificates to the
Exchange Agent pursuant to a letter of transmittal that Magna will deliver or
cause to be delivered to such holders. The letter of transmittal will specify
that risk of loss and title to Certificates will pass only upon delivery of
such Certificates to the Exchange Agent.
Each previous holder of a Certificate that surrenders such Certificate
together with duly executed transmittal materials and the Election Form to
Magna or to the Exchange Agent will, after the Effective Time and upon
acceptance thereof by Magna or by the Exchange Agent, be entitled to a
certificate or certificates representing the number of full shares of Magna
Common Stock or cash into which the Certificate so surrendered will have been
converted pursuant to the Merger Agreement and any distribution theretofore
declared and not yet paid with respect to such shares of Magna Common Stock,
without interest. Magna or the Exchange Agent will accept Certificates upon
compliance with such reasonable terms and conditions as Magna or the Exchange
Agent may impose to effect an orderly exchange thereof in accordance with
customary exchange practices. Certificates must be appropriately endorsed or
accompanied by such instruments of transfer as Magna or the Exchange Agent may
reasonably require. Any Homeland Common Stock with respect to which the holder
(or the beneficial owner, as the case may be) shall not have submitted to the
Exchange Agent an effective, properly completed Election Form on or before the
Election Deadline shall also be deemed to be No Election Shares. See
"--Allocation."
Each outstanding Certificate will, until duly surrendered to Magna or the
Exchange Agent, be deemed to evidence ownership of the merger consideration
into which the stock previously represented by such Certificate will have been
converted in the Merger. After the Effective Time, holders of Certificates will
cease to have rights with respect to the stock previously represented by such
Certificates, and their sole right will be to exchange such Certificates for
the merger consideration. After the Effective Time, there will be no further
transfer on the records of Homeland of Certificates, and if such Certificates
are presented to Homeland for transfer, they will be cancelled against delivery
of the merger consideration.
Magna will not be obligated to deliver the merger consideration to which
any former holder of Homeland Common Stock is entitled as a result of the
Merger until such holder surrenders the Certificates as provided in the Merger
Agreement. No dividends declared on Magna Common Stock will be remitted to any
person entitled to receive Magna Common Stock in the Merger until such person
surrenders the Certificate representing the right to
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receive such Magna Common Stock, at which time such dividends will 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 Homeland for purposes of Rule 145 of the Securities Act will
not be exchanged for certificates representing Magna Common Stock until Magna
has received a written agreement from such person not to sell or otherwise
dispose of any shares of Magna Common Stock received by such person other than
in compliance with Rule 145 of the Securities Act. See "INFORMATION REGARDING
MAGNA STOCK--Restrictions on Resale of Magna Capital Stock by Affiliates;
Affiliate Agreements."
Neither the Exchange Agent, Homeland nor Magna, nor any affiliate thereof,
will be liable to any holder of stock represented by any Certificate for any
merger consideration paid to a public official pursuant to applicable abandoned
property, escheat or similar laws. Magna and the Exchange Agent will be
entitled to rely upon the stock transfer books of Homeland to establish the
identity of those persons entitled to receive merger consideration, which books
will be conclusive with respect thereto. In the event of a dispute with respect
to ownership of stock represented by any Certificate, Magna and the Exchange
Agent will be entitled to deposit any merger consideration represented thereby
in escrow with an independent third party and thereafter be relieved with
respect to any claims thereto.
SUBJECT TO POSSIBLE ADJUSTMENT AS DESCRIBED ABOVE, A FIXED NUMBER OF SHARES
OF MAGNA COMMON STOCK WILL BE ISSUED IN THE MERGER. ACCORDINGLY, THERE CAN BE
NO ASSURANCE THAT EACH HOMELAND COMMON SHARE HOLDER WILL RECEIVE THE FORM OF
CONSIDERATION THAT SUCH HOLDER ELECTS WITH RESPECT TO ANY OR ALL SHARES OF
HOMELAND COMMON STOCK HELD BY SUCH HOLDER. IF THE ELECTIONS RESULT IN AN
OVERSUBSCRIPTION IN RESPECT OF SHARES OF HOMELAND COMMON STOCK WHICH WOULD
OTHERWISE RECEIVE EITHER THE STOCK CONSIDERATION OR THE CASH CONSIDERATION, THE
PROCEDURES FOR ALLOCATING MAGNA COMMON STOCK AND CASH, DESCRIBED UNDER
"--ALLOCATION," WILL BE FOLLOWED BY THE EXCHANGE AGENT.
FRACTIONAL SHARES
No fractional shares of Magna Common Stock will be issued to the former
shareholders of Homeland in connection with the Merger. Each former holder of
Homeland Common Stock who otherwise would have been entitled to receive a
fraction of a share of Magna Common Stock will receive cash in lieu thereof,
without interest, in an amount equal to the holder's fractional share interest
multiplied by the closing stock price of Magna Common Stock on the NYSE as
reported in The Wall Street Journal (or in the absence thereof, by any other
authoritative source) on the last business day preceding the Effective Time. No
shareholder of Homeland entitled to receive cash in lieu of fractional shares
will be entitled to dividends, voting rights or any other rights in respect of
such fractional shares. Cash received by Homeland shareholders in lieu of
fractional shares may give rise to taxable income. See "CERTAIN FEDERAL INCOME
TAX CONSEQUENCES OF THE MERGER."
STOCK OPTION AGREEMENT
In connection with the execution of the Merger Agreement, Magna and
Homeland entered into the Stock Option Agreement pursuant to which Homeland has
issued Magna the Option to purchase up to 1,134,972 shares of Homeland Common
Stock (representing 19.9% of the outstanding shares of Homeland Common Stock as
of the Record Date, without including any shares subject to or issued pursuant
to the Option) at an exercise price of $34 per share. The Option is exercisable
(after receipt of the required regulatory approvals) upon the occurrence of one
of the following events: (i) Homeland or any of its subsidiaries, without
having received prior written consent from Magna, shall have entered into,
authorized, recommended, proposed or publicly announced its intention to enter
into, authorize, recommend, or propose, an agreement, arrangement or
understanding with any person (other than Magna or any of its subsidiaries) to
(1) effect a merger or consolidation or similar transaction involving Homeland
or any of its subsidiaries, (2) purchase, lease or otherwise acquire 15% or
more of the assets of Homeland and its subsidiaries, taken as a whole or (3)
purchase or otherwise acquire (including by way of merger, consolidation, share
exchange or similar transaction) Beneficial Ownership (as defined in Rule 13d-3
under the Exchange Act) of securities representing 10% or more of the voting
power of Homeland or any of its subsidiaries; (ii) any person (other than Magna
or any subsidiary of Magna, or Homeland or any subsidiary of Homeland in a
fiduciary capacity) shall have acquired
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Beneficial Ownership or the right to acquire Beneficial Ownership of 10% or more
of the voting power of Homeland; (iii) Homeland's Board of Directors shall have
withdrawn or modified in a manner adverse to Magna the recommendation of
Homeland's Board of Directors with respect to the Merger Agreement, in each case
after an Extension Event (as defined herein); or (iv) the holders of Homeland
Common Stock shall not have approved the Merger Agreement at the Special
Meeting, or such Special Meeting shall not have been held or shall have been
cancelled prior to termination of the Merger Agreement in accordance with its
terms, in each case after an Extension Event (each of the above-described events
is referred to herein as a "Triggering Event"). No Triggering Event has
occurred as of the date of this Proxy Statement/Prospectus.
The Option terminates (i) on the earlier of (x) the Effective Time of the
Merger and (y) the termination of the Merger Agreement, provided that, if such
termination follows an Extension Event, the Option will not terminate until 18
months following such termination or (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, 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. An "Extension Event" is defined in the
Stock Option Agreement as any of: (i) a Triggering Event of the type specified
in clauses (i) and (ii) in the preceding paragraph; (ii) any person (other than
Magna or any of its subsidiaries) 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 Homeland Common Stock such that, upon
consummation of such offer, such person would have Beneficial Ownership or the
right to acquire Beneficial Ownership of 10% or more of the voting power of
Homeland; or (iii) any person (other than Magna or any subsidiary of Magna, or
Homeland or any subsidiary of Homeland in a fiduciary capacity) 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) of this sentence or (y) to engage in a
transaction described in clause (i) of this sentence.
The Stock Option Agreement further provides that, to the extent not
terminated pursuant to its terms, from and after the date of a Triggering Event
until 13 months immediately thereafter (the "Repurchase Period"), Magna will
be entitled to require Homeland to repurchase for cash the Option from Magna
together with all (but not less than all) shares of Homeland Common Stock
purchased by Magna pursuant thereto, at a price equal to the sum of: (i) the
exercise price paid by Magna for any shares of Homeland Common Stock acquired
pursuant to the Option; (ii) the difference between (1) the "Market/Tender
Offer Price" for shares of Homeland 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 Homeland Common Stock or (y) the highest closing mean of the
"bid" and the "ask" price per share of Homeland Common Stock reported by
the Nasdaq for any day within that portion of the Repurchase Period which
precedes the date Magna gives notice of the required repurchase) and (2) the
exercise price, multiplied by the number of shares of Homeland 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; (iii) the
difference between the Market/Tender Offer Price and the exercise price paid by
Magna for any shares of Homeland Common Stock purchased pursuant to the
exercise of the Option, multiplied by the number of shares so purchased, but
only if the Market/Tender Offer Price is greater than such exercise price; and
(iv) Magna'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.
The Option, which Magna required that Homeland grant as a condition to
Magna's entering into the Merger Agreement, may increase the likelihood of
consummation of the Merger.
The foregoing is a summary of the material provisions of the Stock Option
Agreement, a copy of which is attached hereto as Annex D. See "AVAILABLE
INFORMATION." This summary is qualified in its entirety by reference to the
Stock Option Agreement which is incorporated herein by this reference.
BACKGROUND AND REASONS FOR THE MERGER; HOMELAND BOARD RECOMMENDATION
Background of the Merger. Over the past several years Homeland has pursued
its publicly stated strategy to remain an independent Iowa-based bank holding
company. However, at its regular meeting on July 18, 1995, Homeland's Board of
Directors engaged in considerable discussions regarding this strategy and
whether it should be re-examined. At this meeting, the Board determined that
Homeland should adopt a more open and receptive stance, including making
contacts with potential acquirors.
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For a number of years Homeland has had a relationship with TCC, a financial
services and investment banking firm. TCC has provided consulting services
regarding potential acquisitions and other matters and has also acted as a
primary market-maker for Homeland Common Stock. Due to its involvement with
Homeland and its extensive knowledge of Homeland and other financial services
entities, a representative of TCC was present at the Board's regular meeting on
September 19, 1995, for the purpose of providing the Board with an overview of
the current status of the banking environment, together with an assessment of
Homeland's position in the market and strategic challenges it would face both in
the context of being acquired and in remaining independent. There was also a
general discussion of companies in which Homeland may have an interest in
pursuing a relationship with and several major issues facing Homeland in the
near future, including charter consolidation and upgrading of data processing
systems.
During the Board's meeting held on October 17, 1995, Chairman Schmiesing
advised those present of a number of preliminary contacts that had been made by
himself and representatives of TCC in an attempt to measure the interest of
other entities in Homeland. The Board also considered and gave preliminary
approval to Mr. Schmiesing's request to formally engage TCC to act as
Homeland's financial advisor. Subsequently, senior management of Homeland, with
its legal counsel, negotiated an engagement letter with TCC dated November 30,
1995, which was entered into by Homeland on December 13, 1995, and ratified by
Board action on December 19, 1995.
Pursuant to the engagement letter, TCC was employed as the exclusive
financial advisor and agent for Homeland to provide financial advisory and
investment banking services in connection with a transaction in which Homeland
might be acquired or in a "merger of equals" where Homeland may or may not
have been the surviving entity. The letter enumerated a number of specific
services to be provided (including the rendering of an opinion regarding the
fairness, from a financial standpoint, of any transaction which might be
eventually entered into) and certain limitations on the manner in which TCC was
to conduct its activities on behalf of Homeland. The agreement also provided
for compensation of TCC; and should the proposed Merger be completed, TCC will
receive a fee equal to .65 percent of the value of the transaction plus
reimbursable expenses. See "--Opinion of Homeland's Financial Advisors."
As a result of a number of contacts made by TCC and Homeland's senior
management, representatives of TCC and Homeland visited three companies, two of
which (including Magna) were located in St. Louis. The visit to the St. Louis
companies occurred in February of 1996. Subsequently, representatives of Magna
visited Homeland on March 6, 1996, and several informal communications
transpired during the first quarter of 1996 in which it was indicated that Magna
had an interest in pursuing discussions with Homeland.
At this point in time, the focus of discussions began to narrow to a
possible combination with Magna, though Magna was not the exclusive potential
transactional party. Homeland remained receptive to other proposals; but no
serious inquiries or other indications of interest were received.
The Board met again on April 16, 1996, and at that meeting Mr. Schmiesing
discussed an informal visit that he and Director and Chief Financial Officer
Robert S. Kahler had made on March 29, 1996, to Magna's offices in St. Louis,
Missouri. A representative of TCC furnished some historical background on Magna
and noted the similarities between Homeland and Magna in their respective
management styles and community banking orientation. Information regarding
other potential acquirors was also reviewed by TCC's representative.
In order for the Board to learn more about Magna and its banking
philosophy, a Special Board Meeting was held on May 30, 1996. At this meeting
(attended by all directors, Homeland's legal counsel, and representatives of
TCC) senior management officials of Magna made a presentation covering the
corporate profile of Magna, its history, growth, structure, and financial
performance. Magna's objectives and strategic plans for the future were also
addressed. Following the formal presentation there was considerable dialogue,
based on questions posed by various members of Homeland's Board, regarding
Magna's approach to employment issues, community involvement, banking and
non-banking activities, and Magna's plans and ability to enhance its
shareholders' value. Board members also discussed challenges which would be
faced by Homeland in the future in the course of maintaining independence.
Mr. Schmiesing met with G. Thomas Andes, Chairman and Chief Executive
Officer of Magna, in Chicago, Illinois, on June 7, 1996, to explore a number of
management and organizational issues which the parties faced in the event of a
merger of the companies. At the Board's regular meeting on June 18, 1996, the
results of the Chicago meeting were reviewed and TCC's representatives
discussed various approaches to evaluations of both Homeland and Magna,
including an analysis of a hypothetical acquisition transaction. Also
considered were the financial implications of an acquisition of Homeland by
Magna, as compared to Homeland's future financial prospects if it remained
independent.
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At this meeting Homeland's Board determined to pursue serious discussions
with Magna regarding a negotiated transaction.
There followed a number of conversations between representatives of TCC and
representatives of Donaldson, Lufkin & Jenrette Securities Corporation,
financial advisors to Magna, and at the Board's meeting on July 16, 1996, a TCC
representative advised that Magna would not make an all stock proposal and
outlined a proposal for the transaction which would utilize a combination of one
half Magna Common Stock and one half cash, at a total value of $37.00 per share
plus, if certain requirements were met, an ability of Homeland to pay an
extraordinary dividend of $0.50 per share. After consideration of the proposal
and various economic and operational impacts thereof, and acknowledging concerns
that (i) shareholders electing cash or stock should receive similar values; and
(ii) shareholders may wish to minimize tax liabilities with respect to
consideration to be received, the Board determined that management and TCC
should make a counterproposal that the cash portion of the consideration be
limited to a maximum of 45 percent.
Subsequent to this meeting, there was additional negotiation between the
parties regarding the value of the transaction and the appropriate mix of
consideration. In addition, each party performed off-site due diligence of the
other party, the results of which were determined to be satisfactory, thereby
enabling the discussions to continue. However, due to market declines in the
value of Magna Common Stock and the inability of the parties and their
financial advisors to negotiate a mutually acceptable exchange ratio and mix of
consideration, discussions regarding the proposed acquisition were suspended.
By August 16, 1996, the parties had resumed negotiations, tentatively
agreeing to a 1.55 exchange ratio (subject to adjustment) and an overall
stock/cash consideration mix of approximately 57/43 percent, whereupon final
negotiations between counsel and financial advisors and senior management of
Homeland and Magna regarding the terms and conditions of a definitive Merger
Agreement and the related Stock Option Agreement were undertaken. Each of the
exchange ratio and the percentage allocation of each type of consideration to
be received by Homeland shareholders was arrived at in consideration of the
then current market value of Magna Common Stock and was to be subject to
adjustment to equalize the value of the cash and stock portions of the
consideration and to reflect changes in the subsequent market value of Magna
Common Stock. This initial exchange ratio established the relative values
between Magna Common Stock and Homeland Common Stock and became the basis
(subject to an equalization adjustment) for the terms of the definitive Merger
Agreement.
On August 30, 1996, the Homeland Board again met with its financial and
legal advisors. All Board members were present in person, except Philip G.
Lindner who participated in the meeting by telephone. Members of management of
Homeland and legal counsel reviewed with the Board the results of Homeland's
due diligence review of Magna, and Homeland's legal counsel gave an extensive
overview of the proposed Merger Agreement and Stock Option Agreement.
Representatives of TCC reviewed with the Board the financial terms of the
Merger Agreement and rendered to the Board TCC's written opinion that, as of
August 30, 1996, the proposed merger consideration is fair, from a financial
point of view, to Homeland's shareholders. Following discussion, the Homeland
Board concluded that the transaction contemplated by the Merger Agreement was
in the best interests of Homeland and its shareholders and, by unanimous vote
of the directors, the Board adopted the Merger Agreement and Stock Option
Agreement and directed that the Merger Agreement be submitted to a vote of the
shareholders of Homeland with the favorable recommendation of the Board. See
"--Opinion of Homeland's Financial Advisor."
On August 30, 1996, following the meeting of the Homeland Board, Homeland
and Magna executed the Merger Agreement and the Stock Option Agreement. On
September 3, 1996, the parties issued a press release announcing the Merger.
Homeland's Reasons for the Merger; Homeland's Board Recommendation. In
reaching its unanimous conclusion that the Merger is in the best interests of
Homeland and its shareholders, the Homeland Board carefully considered a
variety of factors. Among the factors considered were those described above and
the following:
* The financial terms of the Merger, including the belief that in
successfully negotiating for a portion of the consideration to be in the
form of Magna Common Stock, the Board has reached an agreement allowing
those shareholders of Homeland who receive Magna Common Stock pursuant to
the Merger to defer any tax liability resulting from any increase in the
value of their investment which is greater than the value of cash
received and to become shareholders of Magna, an organization whose future
prospects appear to the Board to be favorable.
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* A comparison of the financial terms of the Merger with comparable
transactions in Iowa and elsewhere in the Midwest during discussions with
TCC in which it was noted that the offer to book value of Homeland Common
Stock represented a multiple of 1.65 times book value while in other
comparable transactions reviewed by TCC, the median offers to book value
were 1.74 times book value (Midwest Transactions); 1.69 times book value
(Non-Chicago Transactions); and 1.50 times book value (Iowa Transactions).
See "--Opinion of Homeland's Financial Advisor -- Comparable Transaction
Analysis";
* Information concerning the business, financial condition, results of
operations, and future prospects of Magna and Homeland;
* The value anticipated to be received by Homeland shareholders in the
Merger in relation to the historical trading prices of Homeland Common
Stock. In this regard, the Board reviewed the trading range of Homeland
Common Stock, which during the past year had ranged from a closing sale
price on January 2, 1996 of $29.125 to a closing sale price of $33 on
August 28, 1996, the last day prior to the date of the Merger Agreement
on which shares of Homeland Common Stock were traded. Based on the
closing sale price of Magna Common Stock on August 30, 1996, the Merger
represented a price of $38.556 per share of Homeland Common Stock;
* The review by the Homeland Board with its legal and financial advisors of
all of the terms and conditions of the Merger Agreement and the Stock
Option Agreement;
* The financial advice rendered by TCC to the Homeland Board and the opinion
rendered by TCC that the proposed merger consideration is fair, from a
financial point of view, to Homeland shareholders;
* Similarities between the community banking philosophies of Homeland and
Magna, including Magna's policy to emphasize the local character of each
community in which it is located and to maintain advisory boards of
selected members of the communities in which Homeland is located;
* The prospect of enhanced service to Homeland's customers, including
through improved telephone banking services, additional ATMs and access to
automated loan machines, and increased ability to deal with the
technological challenges of the future; and
* The absence of any apparent regulatory impediments and the corresponding
likelihood that the proposed transaction would be consummated.
The foregoing discussion of the information and factors considered by the
Homeland Board is not intended to be exhaustive but includes all material
factors considered by the Homeland Board. While each member of the Homeland
Board individually considered the foregoing and other factors, the Homeland
Board did not collectively assign any specific or relative weights to the
factors considered and did not make any determination with respect to any
individual factor. The Board collectively made its determination with respect
to the Merger based on the unanimous conclusion reached by its members, in
light of the factors that each of them individually considered, as appropriate,
that the Merger is in the best interests of Homeland and its shareholders.
Magna's Reasons and Board Recommendation. In view of the increasingly
competitive banking and financial service industry, the Board of Directors of
Magna has determined that it is desirable to develop a presence in the State of
Iowa. Magna's Board of Directors believes that one of the most effective and
efficient means to achieve this presence is through the acquisition of an
established banking organization. Primarily as a result of Magna's Board of
Directors' assessment of the value of Homeland's franchise, its asset size and
the compatibility of the businesses of the two organizations, Magna determined
to pursue discussions with Homeland. Magna's Board of Directors believes that
the Merger will enable Magna to compete effectively in the State of Iowa, as it
will expand Magna's presence into this area through the addition of an
established banking organization with locations and a customer base which
complement Magna's existing franchise.
OPINION OF HOMELAND'S FINANCIAL ADVISOR
On December 13, 1995, the Board of Directors of Homeland entered into an
agreement with TCC, dated November 30, 1995, pursuant to which TCC agreed to
provide financial advisory and investment banking services to Homeland and the
Homeland Board in connection with the possible acquisition of Homeland. As part
of TCC's engagement, TCC agreed, if requested by the Homeland Board, to render
an opinion as to the fairness, from a financial point of view, of the
consideration to be received by the shareholders of Homeland in connection with
any such acquisition.
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TCC delivered a written opinion (the "Opinion") to the Homeland Board on
August 30, 1996 that, based upon and subject to the considerations set forth in
the Opinion, the consideration to be received by the shareholders of
Homeland in the Merger is fair, from a financial point of view. TCC has also
delivered an updated Opinion to the Board of Directors of Homeland dated as of
the date of this Proxy Statement/Prospectus. The updated Opinion is based upon a
review of the financial and other information reviewed by TCC in rendering its
opinion of August 30, 1996 along with a review of the information set forth in
this Proxy Statement/Prospectus and the financial results for Homeland and Magna
since August 30, 1996. The full text of the updated Opinion, which sets forth
assumptions made, matters considered, and limitations on the review undertaken,
is attached as Annex A to this Proxy Statement/Prospectus. Homeland shareholders
-------
are urged to read the updated Opinion in its entirety.
During the course of its engagement, and as a basis for arriving at the
Opinion, TCC reviewed and analyzed material bearing upon the financial and
operating condition of Homeland and Magna and material prepared in connection
with the Merger, including, among other things, the following: (i) the Merger
Agreement; (ii) certain publicly-available information concerning Homeland and
Magna, including financial statements and reports of condition and income for
each of the three fiscal years ended December 31, 1995, 1994, and 1993 and the
interim periods ended June 30, 1996; (iii) the operating characteristics of
certain other financial institutions deemed relevant to the contemplated
Merger; (iv) the nature and terms of recent sale and merger transactions
involving banks and bank holding companies and the other financial institutions
that TCC considered relevant; and (v) historical and current market data for
Homeland Common Stock and Magna Common Stock and financial and other
information provided to TCC by management of Homeland and Magna. In addition,
TCC conducted meetings with members of senior management of Homeland and Magna
for the purpose of reviewing the future prospects of Homeland and Magna. TCC
evaluated the pro forma ownership of Magna Common Stock by Homeland
shareholders, relative to the pro forma contribution of the assets,
liabilities, equity, and earnings of Homeland to the pro forma company. TCC
also took into account its experience in other transactions, as well as its
knowledge of the banking industry and its general experience in securities
valuation.
In preparing the Opinion, TCC assumed and relied upon the accuracy and
completeness of all financial and other information reviewed by it for purposes
of the Opinion, and did not independently verify such information or undertake
an independent evaluation or appraisal of the assets or liabilities of Homeland
or Magna, nor was it furnished with any such evaluation or appraisal. TCC is
not an expert in the evaluation of allowances for loan losses and has not made
an independent evaluation of the adequacy of the allowance for loan losses of
Homeland or Magna, nor has it reviewed any individual credit files; it assumed
that the aggregate allowances for loan losses is adequate to cover such losses.
TCC assumed and relied upon the senior managements of Homeland and Magna
referred to above as to the reasonableness and achievability of the financial
and operating forecasts and the assumptions furnished by Homeland and Magna.
The Opinion is necessarily based on economic, market, and other conditions as
in effect on, and the information made available to TCC as of August 30, 1996.
THE OPINION IS DIRECTED ONLY TO THE FINANCIAL CONSIDERATION TO BE PAID TO
THE HOMELAND SHAREHOLDERS AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
HOMELAND SHAREHOLDER AS TO HOW EACH SHAREHOLDER SHOULD VOTE AT THE SPECIAL
MEETING OR AS TO THE ADVISABILITY OF RETAINING OR DISPOSING OF SHARES OF MAGNA
COMMON STOCK RECEIVED PURSUANT TO THE MERGER.
COMPARABLE COMPANY ANALYSIS. TCC compared financial ratios for the twelve
months ended June 30, 1996 and trading multiples as of August 29, 1996 of
Homeland to those of selected comparable companies which TCC deemed to be
reasonably similar to Homeland in size, financial and operating character,
and/or geographic market. The comparable companies, which consist of selected
publicly-traded commercial bank holding companies headquartered in the Midwest
with total assets ranging from $1.0 billion to $2.5 billion, included:
Community First Bankshares, Inc.; Corus Bankshares, Inc.; First Financial
Bancorp.; Mid Am, Inc.; First Source Corporation; Firstbank of Illinois Co.;
First Commerce Bancshares, Inc.; Trans Financial, Inc.; Pikeville National
Corporation; Chemical Financial Corporation; Brenton Banks, Inc.; Park National
Corporation; Republic Bancorp Inc.; First Financial Corporation; Mid-America
Bancorp; Peoples First Corporation; Heritage Financial Services, Inc.; Irwin
Financial Corporation; Area Bancshares Corporation; F&M Bancorporation, Inc.;
Mississippi Valley Bancshares, Inc.; and National City Bancshares, Inc.
The analysis indicated that, as of August 29, 1996, Homeland Common Stock
sold at price of: (i) 12.9x trailing twelve months earnings per share, or EPS,
through June 30, 1996, compared to a median of 12.0x for the comparable
companies; (ii) 12.8x estimated 1996 EPS, compared to a median of 11.0x for the
comparable companies; (iii) 1.45x
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June 30, 1996 book value, compared to a median of 1.72x for the comparable
companies; (iv) 1.68x June 30, 1996 tangible book value, compared to 1.90x for
the comparable companies.
TCC also compared financial ratios for the twelve months ended June 30,
1996 and trading multiples as of August 29, 1996 of Magna to those of selected
comparable companies which TCC deemed to be reasonably similar to Magna in
size, financial and operating character, and/or geographic market. The
comparable companies, which consist of selected publicly-traded commercial bank
holding companies headquartered the Midwest with total assets ranging from $3.0
billion to $10.0 billion, included: Star Banc Corporation; Commerce Bancshares,
Inc.; Provident Bancorp, Inc.; UMB Financial Corporation; FirstMerit
Corporation; Old National Bancorp; Associated Banc-Corp.; CNB Bancshares, Inc.;
Citizens Banking Corporation; First Michigan Bank Corporation; Fort Wayne
National Corporation; and First Midwest Bancorp, Inc.
The analysis indicated that, as of August 29, 1996, Magna Common Stock sold
at price of: (i) 12.1x trailing twelve months EPS through June 30, 1996,
compared to a median of 13.6x for the comparable companies; (ii) 11.2x
estimated 1996 EPS, compared to a median of 12.8x for the comparable companies;
(iii) 1.50x June 30, 1996 book value, compared to a median of 1.72x for the
comparable companies; (iv) 1.61 x June 30, 1996 tangible book value, compared
to 1.91x for the comparable companies.
COMPARABLE TRANSACTION ANALYSIS. TCC reviewed three sets of comparable
merger and acquisition transactions based on publicly-available data: (i)
selected mergers and acquisitions of commercial banks and bank holding
companies in which the acquired company was headquartered in the Midwest and
had total assets ranging from $1.0 to $3.0 billion ("Midwest Transactions");
(ii) selected mergers and acquisitions of commercial banks and bank holding
companies in which the acquired company was headquartered in the Midwest
excluding the Chicago area and had total assets ranging from $1.0 to $3.0
billion ("Non-Chicago Transactions"); and (iii) selected mergers and
acquisitions of commercial banks, bank holding companies, and thrifts
headquartered in Iowa ("Iowa Transactions").
The twenty Midwest Transactions included (the acquiror is the first name
and is underlined followed by the seller): Taylor Investment Group, Cole Taylor
-----------------------
Bank; ABN-AMRO Holding NV, Comerica Bank-Illinois; Firstar Corporation,
------------------- -------------------
American Bancorporation; Mercantile Bancorporation Inc., Hawkeye
------------------------------
Bancorporation; Firstar Corporation, First Colonial Bankshares Corporation;
-------------------
Harris Bankcorp, Inc., Suburban Bancorp, Inc.; First Chicago Corporation, Lake
- --------------------- -------------------------
Shore Bancorp, Inc.; First Bank System, Inc., Boulevard Bancorp; National City
----------------------- -------------
Corporation, Ohio Bancorp; Norwest Corporation, Lincoln Financial Corporation;
- ----------- -------------------
First Bank System, Inc., Bank Shares, Incorporated; Banc One Corporation, First
- ----------------------- --------------------
Security Corporation of Kentucky; NBD Bancorp. Inc., Summcorp; First of America
----------------- ----------------
Bank Corporation, Security Bancorp Inc.; Mercantile Bancorporation Inc.,
- ---------------- ------------------------------
Ameribanc Inc.; Boatmen's Bancshares, Inc., First Interstate of Iowa, Inc.;
--------------------------
Banc One Corporation, First Illinois Corporation; NBD Bancorp Inc., Gainer
- -------------------- ----------------
Corporation; Norwest Corporation, Davenport Bank & Trust Company; Banc One
------------------- --------
Corporation, Marine Corporation.
- -----------
The thirteen Non-Chicago Transactions included (the acquiror is the first
name and is underlined followed by the seller): Firstar Corporation, American
-------------------
Bancorporation; Mercantile Bancorporation Inc., Hawkeye Bancorporation;
------------------------------
National City Corporation, Ohio Bancorp; Norwest Corporation, Lincoln Financial
- ------------------------- -------------------
Corporation; First Bank System, Inc., Bank Shares, Incorporated; Banc One
----------------------- --------
Corporation, First Security Corporation; NBD Bancorp, Inc., Summcorp; First of
- ----------- ----------------- --------
America Bank Corporation, Security Bancorp Inc.; Mercantile Bancorporation
- ------------------------ -------------------------
Inc., Ameribanc Inc.; Boatmen's Bancshares, Inc., First Interstate of Iowa,
- ---- --------------------------
Inc.; NBD Bancorp, Gainer Corporation; Norwest Corporation, Davenport Bank &
----------- -------------------
Trust Company; Banc One Corporation, Marine Corporation.
--------------------
The fifteen Iowa Transactions included (the acquiror is the first name and
is underlined followed by the seller): First Midwest Financial, Inc., Central
-----------------------------
West Bancorporation; Commercial Federal Corporation, Heritage Financial Ltd.;
------------------------------
BancSecurity Corporation, Marshalltown Financial Corporation; Firstar
- ------------------------ -------
Corporation, Harvest Financial Corporation; Mercantile Bancorporation Inc.,
- ----------- ------------------------------
Hawkeye Bancorporation; First Midwest Bancorp, CF Bancorp Inc.; Mercantile
--------------------- ----------
Bancorporation Inc., Plains Spirit Financial Corp.; Community First Bankshares,
- ------------------- --------------------------
Inc., Minowa Bancshares, Inc.; Firstier Financial, Inc., Cornerstone Bank
------------------------
Group; Mercantile Bancorporation Inc., Metro Bancorporation; Iowa National
------------------------------ -------------
Bankshares Corporation, MidAmerica Financial Corp.; Hawkeye Bancorporation,
- ---------------------- ----------------------
First Dubuque Corporation; Brenton Banks, Inc., Ames Financial Corporation;
-------------------
Boatmen's Bancshares, Inc., First Interstate of Iowa, Inc.; Norwest
- -------------------------- -------
Corporation, Davenport Bank & Trust Company.
- -----------
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<PAGE> 33
For the Midwest Transactions, the offer value to last twelve months EPS
ranged from a low of 10.7x to a high of 23.1x with a median of 14.9x; the offer
value to book value ranged from a low of 1.09x to a high of 2.77x with a median
of 1.74x; the offer value to tangible book value ranged from a low of 1.26x to
a high of 2.92x with a median of 1.99x. For the Non-Chicago Transactions, the
offer value to last twelve months EPS ranged from a low of 10.7x to a high of
17.8x with a median of 13.8x; the offer value to book value ranged from a low
of 1.09x to a high of 2.77x with a median of 1.69x; the offer value to tangible
book value ranged from a low of 1.26x to a high of 2.90x with a median of 1.69x.
For the Iowa Transactions, the offer value to last twelve months EPS ranged from
a low of 10.1x to a high of 17.3x with a median of 13.7x; the offer value to
book value ranged from a low of 1.12x to a high of 2.12x with a median of 1.50x;
the offer value to tangible book value ranged from a low of 1.12x to a high of
2.68x with a median of 1.55x.
The value of the merger consideration in the Merger represented a multiple
of 14.6x Homeland's trailing twelve months EPS through June 30, 1996; the value
of the merger consideration to Homeland's June 30, 1996 book value represented
a multiple of 1.65x; the value of the merger consideration to Homeland's June
30, 1996 tangible book value represented a multiple of 1.90x.
NET PRESENT VALUE ANALYSIS. TCC prepared a net present value analysis which
estimated future dividend streams that Homeland could produce over the period
from January 1, 1997 through December 31, 2000. These dividend streams were
discounted to a present value at a discount rate of 14%. TCC estimated the
terminal multiple of Homeland common equity at December 31, 2000 by applying
multiples of 14.9x, 13.0x, and 11.0x projected 2000 earnings. The range of
terminal multiples was chosen based on past and current trading multiples of
Homeland and comparable institutions and past and current multiples of
comparable merger and acquisition transactions. The results of this analysis
indicated a range of theoretical values per share of Homeland between $22.31
and $28.95. The market value of the merger consideration in the Merger was
$212.90 million, or approximately $37.32 per share of Homeland Common Stock,
based on the August 29, 1996 closing price of Magna Common Stock of $24.00 per
share.
TCC also analyzed theoretical net present values per share of Homeland
based on achieving various levels of annual asset growth and annual return on
average assets. Asset growth assumptions ranged from a low of 2.0% per year to
a high of 10.0% per year; return on average asset assumptions ranged from a low
of .9% to a high of 1.4%. The results of this analysis indicated a range of
theoretical values per share of Homeland between $19.60 and $38.48.
COMPARATIVE SHAREHOLDER RETURN. TCC analyzed two sets of theoretical
returns to a Homeland shareholder: (i) the Homeland shareholder receives 100%
Magna Common Stock; and (ii) the Homeland shareholder receives 57% Magna Common
Stock and 43% cash ($16.125 per share). The scenarios evaluated included
Homeland remaining independent, Homeland being acquired in 2000, and Homeland
being acquired by Magna in the proposed transaction. The analysis indicated a
return to shareholders of 10.3% for Homeland remaining independent; 12.6% for
Homeland being acquired in 2000; 20.3% based on the acceptance of the Magna
proposal with the Homeland shareholder receiving 100% Magna Common Stock; and
18.9% based on the acceptance of the Magna proposal with the Homeland
shareholder receiving 57% Magna Common Stock and 43% cash.
The summary of TCC analyses set forth above is a fair summary thereof but
does not purport to be a complete description of the presentations by TCC to
the Homeland Board. TCC believes that its analyses and the summary set forth
above must be considered as a whole and that selecting portions of the
analyses, without considering all factors, could create an incomplete view of
the process by which a fairness opinion is rendered. In connection with its
analyses, TCC assumed that there would not be any material adverse change in
general economic, business, market, and/or regulatory conditions, all of which
are beyond the control of Homeland and Magna. The analyses performed by TCC are
not necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses.
The Homeland Board retained TCC based upon its experience and expertise
with regard to the banking industry and merger and acquisition transactions.
TCC is an investment banking and securities firm with membership on all
principal U.S. security exchanges. As part of its investment banking services,
TCC is regularly engaged in the independent valuation of securities in
connection with negotiated underwritings, private placements, merger and
acquisition transactions, and recapitalizations.
Pursuant to its engagement of TCC to provide financial advisory and
investment banking services, Homeland agreed to pay TCC a cash fee of .65% of
the transaction value at Closing, or approximately $1,400,000. TCC will also
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<PAGE> 34
receive reimbursement for certain out-of-pocket expenses, and Homeland has
agreed to indemnify TCC against certain liabilities, including liabilities
which may arise under the securities laws.
INTERESTS OF CERTAIN PERSONS IN THE MERGER AND POTENTIAL CONFLICTS OF INTEREST
In considering the recommendation of the Homeland Board of Directors with
respect to the Merger Agreement, Homeland shareholders should be aware that
certain executive officers and directors of Homeland (or their affiliates) have
interests in the Merger that are different from and in addition to the
interests of Homeland shareholders generally. The Board of Directors of
Homeland was aware of these interests and took these interests into account in
adopting the Merger Agreement.
Change of Control Agreements. All change of control agreements with
Homeland employees in effect prior to the date of the Merger Agreement and
previously disclosed to Magna will be honored by Magna in accordance with their
terms; provided, however, that certain named executives may surrender their
existing change of control agreements in exchange for (i) Magna change of
control or employment agreements, and (ii) awards of restricted stock with a
value of one times Annualized Includible Compensation (as defined in the
applicable agreement) vesting ratably over five years, with accelerated vesting
if terminated without cause or as result of a Change of Control (each as
defined in the applicable agreement) of Magna. As of the date of this Proxy
Statement/Prospectus, none of the employees of Homeland who currently have
change of control agreements (which, if honored, would provide payments from
1.5 to 2.5 times Annualized Includable Compensation for those subject to said
agreements) has entered into an employment or change of control agreement with
Magna, although several are considering proposals. In addition, Erl A.
Schmiesing, currently the Chairman, President and Chief Executive Officer of
Homeland, and Douglas K. Shull, currently a Homeland director, will be proposed
for election to the Board of Directors of Magna, and, if elected, will each
receive an annual retainer of $8,000 plus $1,000 for each meeting attended,
which is the same amount currently paid by Magna to its existing directors. It
is intended that Mr. Schmiesing will serve on the Board of Directors of Magna
for three years following the Closing Date.
Indemnification. In the Merger Agreement, Magna agreed that the Merger will
not affect or diminish any of Homeland's duties and obligations of
indemnification existing as of the Effective Time in favor of employees,
agents, directors or officers of Homeland or its subsidiaries arising by virtue
of their respective articles of incorporation or bylaws in the form in effect
on August 30, 1996, or arising by operation of law or by virtue of any
contract, resolution or other agreement or document existing on August 30,
1996, and Magna agreed to use its reasonable best efforts to assume such duties
and obligations of indemnification in order that such duties and obligations
will continue in full force and effect for so long as they would (but for the
Merger) otherwise survive.
Other Interests. Certain executive officers, including certain directors,
of Homeland currently hold Homeland employee stock options which will be
converted at the Effective Time into rights with respect to Magna Common Stock.
See "--Employee Benefits."
CONDITIONS OF THE MERGER
The respective obligations of Magna and Homeland to consummate the Merger
are subject to the fulfillment or waiver at or prior to the Effective Time of
the following conditions:
(i) The Merger Agreement shall have received the requisite approval of
shareholders of Homeland.
(ii) All requisite approvals of the Merger Agreement and the
transactions contemplated thereby shall have been received from the Federal
Reserve Board, the State Bank Regulator and the Office of Thrift
Supervision (the "OTS"), if required, and any other necessary
governmental or regulatory authority or agency (collectively, the
"Regulatory Authorities"); provided, however, that such approvals may not
contain or impose any conditions or requirements that would have a material
adverse effect on the business or financial condition of either party.
(iii) The Registration Statement shall have been declared effective and
shall not be subject to a stop order or any threatened stop order.
(iv) Neither Magna nor Homeland shall be subject to any order, decree
or injunction of a court or agency of competent jurisdiction which enjoins
or prohibits the consummation of the Merger.
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<PAGE> 35
(v) Each of Magna and Homeland shall have received, from counsel
reasonably satisfactory to it, an opinion reasonably satisfactory in form
and substance to it to the effect that on the basis of facts,
representations and assumptions set forth in such opinion which are
consistent with the facts existing at the Effective Time, the Merger will
constitute a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code and that accordingly:
a. no gain or loss will be recognized by Homeland or Magna as a
result of the Merger;
b. no gain or loss will be recognized by the shareholders of
Homeland who exchange their shares of Homeland Common Stock solely for
Magna Common Stock pursuant to the Merger (except with respect to cash
received in lieu of fractional shares);
c. the tax basis of the Magna Common Stock received by shareholders
who exchange all of their Homeland Common Stock solely for Magna Common
Stock in the Merger will be the same as the tax basis of the Homeland
Common Stock surrendered in exchange therefor (reduced by any amount
allocable to a fractional share interest for which cash is received);
d. gain will be recognized by the shareholders of Homeland who
exchange their shares of Homeland Common Stock for Magna Common Stock
and cash to the extent of the lesser of (i) the amount of cash received,
or (ii) the fair market value of the Magna Common Stock and cash
received less the shareholder's basis in the Homeland Common Stock
surrendered; and
e. the tax basis of the Magna Common Stock received by shareholders
who exchange their shares of Homeland Common Stock for Magna Common
Stock and cash will be the same as the tax basis of the Homeland Common
Stock surrendered in exchange therefor, reduced by the amount of cash
received by the shareholder, and increased by the amount of gain
recognized by the shareholder on such exchange.
Homeland's obligation to effect the Merger is subject to the fulfillment or
waiver at or prior to the Effective Time of the following additional
conditions:
(i) The representations and warranties of Magna set forth in Article
III of the Merger Agreement shall be true and correct in all material
respects as of August 30, 1996 and as of the Effective Time (as though made
on and as of the Effective Time except (a) to the extent such
representations and warranties are by their express provisions made as of a
specified date or period and (b) for the effect of transactions
contemplated by the Merger Agreement).
(ii) Magna shall have performed in all material respects all
obligations required to be performed by it under the Merger Agreement prior
to the Effective Time.
(iii) Homeland shall have received a certificate of the chairman or
chief financial officer of Magna as to the satisfaction of the conditions
set forth in clauses (i) and (ii).
Magna's obligation to effect the Merger is subject to the fulfillment or
waiver at or prior to the Effective Time of the following additional
conditions:
(i) The representations and warranties of Homeland set forth in Article
II of the Merger Agreement shall be true and correct in all material
respects as of August 30, 1996 and as of the Effective Time (as though made
on and as of the Effective Time except (a) to the extent such
representations and warranties are by their express provisions made as of a
specified date or period and (b) for the effect of transactions
contemplated by the Merger Agreement).
(ii) Homeland shall have performed in all material respects all
obligations required to be performed by it under the Merger Agreement prior
to the Effective Time.
(iii) Magna shall have received a certificate of the chairman and a
certificate of the president and chief executive officer of Homeland as to
the satisfaction of the conditions set forth in clauses (i) and (ii).
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after any requisite shareholder approval: (i) by mutual
consent of the Board of Directors of Magna and the Board of Directors
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<PAGE> 36
of Homeland; (ii) by the Board of Directors of Magna or the Board of Directors
of Homeland (a) at any time after June 30, 1997 if the Merger shall not
theretofore have been consummated (provided that, the terminating party is not
then in material breach of the Merger Agreement), (b) if any Regulatory
Authority has denied approval of the Merger and such denial has become final and
nonappealable, (c) if shareholders of Homeland shall not have approved the
Merger Agreement at the Special Meeting or (d) if the approval of any Regulatory
Authority contains or imposes any condition or requirement that would have a
material adverse effect on the financial condition, results of operation or the
business of either party; (iii) by the Board of Directors of Magna in the event
of a material breach by Homeland of the Merger Agreement, which breach is not
cured within 30 days after provision of written notice thereof to Homeland by
Magna; (iv) by the Board of Directors of Homeland (a) in the event of a material
breach by Magna of the Merger Agreement, which breach is not cured within 30
days after provision of written notice thereof to Magna by Homeland, (b) within
five days of the last day of the Valuation Period if (x) the Valuation Price
shall be less than $20 and the Valuation Price shall have declined by 15% or
more during such Valuation Period compared to a defined index of comparable bank
stocks. Thus, even should the Valuation Price decline below $20, Homeland may
not have the right to terminate the Merger Agreement.
In the event that the Valuation Price shall have declined below $20 and
by 15 percent more than the defined index, the Board of Directors of Homeland
will review all of the circumstances believed to have caused such decline and
determine at that time whether to proceed with the transaction or terminate
the Merger Agreement. Consistent with the exercise of the Board's fiduciary
duties, should the Board determine, based on its analysis of the causes of such
decline in the Valuation Price, that it is in the best interests of Homeland
shareholders to proceed with the Merger, the Board does have the ability under
the Agreement and applicable law to complete the transaction without further
shareholder approval; however, the Board may also determine, if necessary or
appropriate in the exercise of such duties, to resubmit the proposal to Homeland
shareholders.
No assurance can be given that the Merger will be consummated, that Magna
and Homeland will not mutually agree to terminate the Merger Agreement or that
Magna or Homeland will not elect to terminate the Merger Agreement if the
Merger has not been consummated on or before June 30, 1997.
REGULATORY APPROVAL
The obligations of the parties to effect the Merger are subject to prior
approval of the Federal Reserve Board, the State Bank Regulator and the OTS, if
required, and any other necessary Regulatory Authority.
The Merger is subject to the prior approval of the Federal Reserve Board
under the BHCA. Under the BHCA, the Federal Reserve Board is required, in
approving transactions such as the Merger, to take into consideration the
financial and managerial resources and future prospects of the existing and
proposed institutions and the convenience and needs of the communities to be
served. In considering financial resources and future prospects, the Federal
Reserve Board will, among other things, evaluate the adequacy of the capital
levels of Magna and its bank subsidiaries following the Merger.
The BHCA prohibits the Federal Reserve Board from approving the Merger if
the Merger would result in a monopoly or be in furtherance of any combination
or conspiracy to monopolize or to attempt to monopolize the business of banking
in any part of the United States, or if their effect in any section of the
country may be substantially to lessen competition or to tend to create a
monopoly, or if it would in any other manner result in a restraint of trade,
unless the Federal Reserve Board finds that the anticompetitive effects of the
Merger are clearly outweighed in the public interest by the probable effect of
transactions in meeting the convenience and needs of the communities to be
served. In addition, under the Community Reinvestment Act of 1977, as amended,
the Federal Reserve Board must take into account the record of performance of
the existing institutions in meeting the credit needs of the entire community,
including low- and moderate-income neighborhoods, served by such institutions.
Under the BHCA, the Merger may not be consummated until the 30th day
following the date of Federal Reserve Board approval (or, if the United States
Department of Justice ("DOJ") has not submitted adverse comments with respect
to competitive factors, the 15th day), during which time the DOJ may challenge
the Merger on antitrust grounds. The commencement of an antitrust action would
stay the effectiveness of the Federal Reserve Board's approval unless a court
specifically orders otherwise.
The BHCA provides for the publication of notice and public comment on the
applications and authorizes the Federal Reserve Board to permit interested
parties to intervene in the proceedings. If an interested party is permitted
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<PAGE> 37
to intervene, such intervention could delay the regulatory approvals required
for consummation of the Merger. Application for such Federal Reserve Board
approval has been or will be filed.
Magna and Homeland are not aware of any governmental approvals or actions
that may be required for consummation of the Merger other than as described
above. Should any other approval or action be required, it is presently
contemplated that such approval or action would be sought. There can be no
assurance that any necessary regulatory approval or action will be received or
taken, as to the timing of such approval or action, that no action will be
brought challenging such approval or action, or if such a challenge is brought,
the result thereof, or that any such approval or action will not be conditioned
in a manner that would cause the parties to abandon the Merger.
See "--Closing and Effective Time," "--Conditions of the Merger,"
"--Waiver and Amendment," "--Termination of the Merger Agreement" and
"SUPERVISION AND REGULATION."
BUSINESS PENDING THE MERGER
From August 30, 1996 to the Effective Time, each of Magna and Homeland
agreed, and agreed to cause each of their respective subsidiaries, to conduct
its business according to the ordinary and usual course consistent with past
practices, and to use its best efforts to maintain and preserve its business
organization, employees and advantageous business relationships and retain the
services of its officers and key employees.
Furthermore, from August 30, 1996 to the Effective Time, the Merger
Agreement provides that, except as provided in the Merger Agreement, Homeland
has agreed not to, and to cause each of its subsidiaries not to, without the
prior written consent of Magna:
(i) declare, set aside or pay any dividends or other distributions,
directly or indirectly, in respect of its capital stock (other than
dividends from a wholly owned subsidiary of Homeland to Homeland or another
wholly owned subsidiary of Homeland), except that Homeland may declare and
pay regular quarterly cash dividends of not more than $0.23 per share on
the Homeland Common Stock; provided that, Homeland may not declare or pay
any dividends on Homeland Common Stock for any period in which its
shareholders will be entitled to receive any regular quarterly dividend on
the shares of Magna Common Stock to be issued in the Merger;
(ii) enter into or amend any employment, severance or similar agreement
or arrangement with any director or officer or employee, or materially
modify any of Homeland's employee benefit plans specified in the Merger
Agreement or grant any salary or wage increase or materially increase any
employee benefit (including incentive or bonus payments), except normal
individual increases in compensation to employees consistent with past
practice, or as required by law or contract;
(iii) authorize, propose or announce an intention to authorize,
propose, or enter into an agreement in principle with respect to, any
merger, consolidation or business combination (other than the Merger), any
acquisition of a material amount of assets or securities, any disposition
of a material amount of assets or securities or any release or
relinquishment of any material contract rights;
(iv) propose or adopt any amendments to its articles of incorporation,
association or other charter document or bylaws;
(v) issue, sell, grant, confer or award any of its Equity Securities
(as defined in the Merger Agreement) (except shares of Homeland Common
Stock issued upon exercise of Homeland employee stock options outstanding
on August 30, 1996) or effect any stock split or adjust, combine,
reclassify or otherwise change its capitalization as it existed on August
30, 1996;
(vi) purchase, redeem, retire, repurchase, or exchange, or otherwise
acquire or dispose of, directly or indirectly, any of its Equity
Securities, whether pursuant to the terms of such Equity Securities or
otherwise;
(vii) (A) without first consulting with Magna, enter into, renew or
increase any loan or credit commitment (including standby letters of
credit) to, or invest or agree to invest in any person or entity or modify
any of the material provisions or renew or otherwise extend the maturity
date of any existing loan or credit commitment (collectively, "lend to")
in an amount in excess of $1,500,000, or in an amount which, when
aggregated with any and all loans or credit commitments to such person or
entity, would be in excess of $1,500,000; or (B) lend to any person or
entity any of the loans or other extensions of credit to which, or
investments in which, are on a "watch
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list" or similar internal report of Homeland or any Homeland subsidiary
(except those denoted "pass" thereon), in an amount in excess of $500,000;
provided, however, that the Merger Agreement does not prohibit Homeland or
any Homeland subsidiary from honoring any contractual obligation in
existence on August 30, 1996;
(viii) directly or indirectly (including through its officers,
directors, employees or other representatives) initiate, solicit or
encourage any discussions, inquiries or proposals with any third party
relating to the disposition of any significant portion of the business or
assets of Homeland or any Homeland subsidiary or the acquisition of Equity
Securities of Homeland or any Homeland subsidiary or the merger of Homeland
or any Homeland subsidiary with any person (other than Magna) or any
similar transaction (each such transaction being referred to as an
"Acquisition Transaction"), or provide any such person with information
or assistance or negotiate with any such person with respect to an
Acquisition Transaction, and Homeland shall promptly notify Magna orally of
all the relevant details relating to all inquiries, indications of interest
and proposals which it may receive with respect to any Acquisition
Transaction;
(ix) take any action that would (a) materially impede or delay the
consummation of the transactions contemplated by the Merger Agreement or
the ability of Magna or Homeland to obtain any approval of any Regulatory
Authority required for the transactions contemplated by the Merger
Agreement or to perform its covenants and agreements under the Merger
Agreement or (b) prevent the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code;
(x) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise as an accommodation become responsible or liable for
the obligations of any other individual, corporation or other entity;
(xi) without prior consultation with Magna, restructure or materially
change its investment securities portfolio, through purchases, sales or
otherwise, or the manner in which the portfolio is classified or reported
or execute any individual investment transaction (a) in United States
Treasury securities in excess of $5,000,000 and (b) in any other investment
securities in excess of $1,000,000; or
(xii) agree in writing or otherwise to take any of the foregoing
actions or engage in any activity, enter into any transaction or take or
omit to take any other act which would make any of the representations and
warranties of Homeland in the Merger Agreement untrue or incorrect in any
material respect if made anew after engaging in such activity, entering
into such transaction, or taking or omitting such other act.
Pursuant to the Merger Agreement, from August 30, 1996 to the Effective
Time, except as provided in the Merger Agreement, Magna has agreed not to, and
to cause its subsidiaries not to, without the prior written consent of
Homeland:
(i) take any action that would (a) materially impede or delay the
consummation of the transactions contemplated by the Merger Agreement or
the ability of Magna or Homeland to obtain any approval of any Regulatory
Authority required for the transactions contemplated by the Merger
Agreement or to perform its covenants and agreements under the Merger
Agreement or (b) prevent the transactions contemplated by the Merger
Agreement from qualifying as a reorganization within the meaning of Section
368 of the Internal Revenue Code; or
(ii) agree in writing or otherwise to take any of the foregoing actions
or engage in any activity, enter into any transaction or take or omit to
take any other act which would make any of the representations and
warranties in the Merger Agreement untrue or incorrect in any material
respect if made anew after engaging in such activity, entering into such
transaction, or taking or omitting such other act.
WAIVER AND AMENDMENT
Any term, condition or provision of the Merger Agreement may be waived in
writing at any time by the party which is, or whose shareholders are, entitled
to the benefits thereof. The Merger Agreement may be amended by or on behalf of
the Boards of Directors of Magna and Homeland at any time before or after
approval of the Merger Agreement by the shareholders of Homeland, by an
instrument in writing signed on behalf of each party; provided that after any
such approval by the shareholders of Homeland no such modification may alter or
change the amount or kind of consideration to be received by holders of
Homeland Common Stock in the Merger.
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ACCOUNTING TREATMENT
The Merger will be accounted for under the purchase method of accounting.
Accordingly, data regarding the financial condition and results of operations
of Homeland will be included in Magna's consolidated financial statements on
and after the Closing Date. See "SUMMARY INFORMATION--Comparative Unaudited
Per Share Data" and "--Selected Financial Data," "--Conditions of the
Merger," and "PRO FORMA FINANCIAL INFORMATION."
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Merger Sub, a wholly owned subsidiary of Magna, will be the surviving
corporation resulting from the Merger. Merger Sub will be governed by the laws
of the State of Iowa and will operate in accordance with the articles of
incorporation and bylaws of Merger Sub as in effect immediately prior to the
Merger, until otherwise amended or repealed after the Effective Time.
EMPLOYEE BENEFITS
Employee Stock Options. At the Effective Time, all rights with respect to
Homeland Common Stock pursuant to Homeland employee stock options that are
outstanding at the Effective Time, whether or not then exercisable, will be
converted into and become rights with respect to Magna Common Stock, and Magna
will assume each Homeland employee stock option in accordance with the terms of
the stock option plan under which it was issued and the stock option agreement
by which it is evidenced. From and after the Effective Time, (i) each Homeland
employee stock option assumed by Magna will be exercisable solely for shares of
Magna Common Stock, (ii) the number of shares of Magna Common Stock subject to
each Homeland employee stock option will be equal to the number of shares of
Homeland Common Stock subject to such Homeland employee stock option
immediately prior to the Effective Time multiplied by the Exchange Ratio and
(iii) the per share exercise price under each Homeland employee stock option
will be adjusted by dividing the per share exercise price under such Homeland
employee stock option by the Exchange Ratio and rounding down to the nearest
cent; provided, however, that the terms of each Homeland employee stock option
will, in accordance with its terms, be subject to further adjustment as
appropriate to reflect any stock split, stock dividend, recapitalization or
other similar transaction subsequent to the Effective Time. It is intended that
the foregoing assumption will be undertaken in a manner that will not
constitute a "modification" as defined in the Internal Revenue Code, as to
any Homeland employee stock option that is an "incentive stock option."
Certain executive officers, including certain executive officers who are
directors, of Homeland currently hold Homeland employee stock options which
will be converted into rights with respect to Magna Common Stock as described
above.
Indemnification. In the Merger Agreement, Magna agreed that the Merger will
not affect or diminish any of Homeland's duties and obligations of
indemnification existing as of the Effective Time in favor of employees,
agents, directors or officers of Homeland or its subsidiaries arising by virtue
of their respective articles of incorporation or bylaws in the form in effect
on August 30, 1996, or arising by operation of law or by virtue of any
contract, resolution or other agreement or document existing on August 30,
1996, and Magna agreed to use its reasonable best efforts to assume such duties
and obligations of indemnification in order that such duties and obligations
will continue in full force and effect for so long as they would (but for the
Merger) otherwise survive.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion summarizes the material federal income tax
consequences of the Merger. The discussion does not address all aspects of
federal taxation that may be relevant to particular Homeland shareholders, and
it may not be applicable to shareholders who are not citizens or residents of
the United States, or who acquired their Homeland Common Stock pursuant to the
exercise of employee stock options or otherwise as compensation. The discussion
does not address the effect of any applicable state, local or foreign tax laws
or any federal tax laws other than those pertaining to the income tax. EACH
HOMELAND SHAREHOLDER SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE PARTICULAR
TAX CONSEQUENCES TO IT OF THE MERGER.
This discussion is based on the Internal Revenue Code, regulations and
rulings now in effect or proposed thereunder, current administrative rulings
and practice, and judicial precedent, all of which are subject to change. Any
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such change, which may or may not be retroactive, could alter the tax
consequences to Homeland shareholders discussed herein. This discussion is also
based on certain assumptions regarding the factual circumstances that will
exist at the Effective Time, including certain representations to be made by
Homeland and Magna. This discussion assumes that Homeland shareholders hold
their Homeland Common Stock as a capital asset within the meaning of Section
1221 of the Internal Revenue Code.
Magna has received an opinion from Wachtell, Lipton, Rosen & Katz, special
counsel to Magna, and Homeland has received an opinion from Nyemaster, Goode,
McLaughlin, Voigts, West, Hansell & O'Brien, P.C., counsel to Homeland, that,
assuming the Merger occurs in accordance with the Merger Agreement, and
conditioned on the accuracy of certain representations made by Magna and
Homeland, the material federal income tax consequences expected to result from
the Merger, under currently applicable law, are as follows:
(i) The Merger will constitute a "reorganization" for federal income
tax purposes under Section 368(a)(2)(D) of the Internal Revenue Code.
(ii) No gain or loss will be recognized by Homeland or Magna as a
result of the Merger under Section 361(a) of the Internal Revenue Code.
(iii) Homeland shareholders will recognize no gain or loss as a result
of the exchange of their Homeland Common Stock solely for shares of Magna
Common Stock pursuant to the Merger under Section 354(a)(1) of the Internal
Revenue Code, except with respect to cash received in lieu of fractional
shares, if any, as discussed below.
(iv) A holder of shares of Homeland Common Stock who receives cash in
the Merger in lieu of a fractional shares interest of Magna Common Stock
will be treated as if the fractional shares were received in the exchange
and then redeemed by Magna. A holder of shares of Homeland Common Stock
will be treated as if the shareholder sold his or her fractional share of
Magna Common Stock for the amount of cash received and will therefore
recognize gain (or loss) to the extent that the amount of cash received
exceeds (or is less than) the tax basis of the fractional share. Such gain
or loss will be capital gain or loss if the shares of Homeland Common Stock
were held as capital assets and will be long-term capital gain or loss if
the holding period of the shares of Homeland Common Stock so exchanged was
more than one year.
(v) A Homeland shareholder who exchanges shares of Homeland Common
Stock for a Magna Common Stock and cash will recognize gain to the extent
of the lesser of (1) the amount of cash received or (2) the fair market
value of the Magna Common Stock and cash received less the stockholder's
basis in the Homeland Common Stock surrendered under Section 356(a) of the
Internal Revenue Code; provided that the cash payment does not have the
effect of a dividend. Any such gain will be recognized for federal income
tax purposes and will be treated as capital gain provided the shares of
Homeland Common Stock were held as capital assets.
(vi) Under Section 358(a)(1) of the Internal Revenue Code, the
aggregate adjusted tax basis of the Magna Common Stock received by a
shareholder of Homeland in the Merger, including for the purpose of (iv)
above, the tax basis of any fractional share interest, will be equal to the
aggregate adjusted tax basis of the respective shares of Homeland Common
Stock surrendered, reduced by the amount of cash received by the
stockholder, and increased by the amount of gain recognized by the
stockholder on such exchange.
(vii) Under Section 1223(1) of the Internal Revenue Code, the holding
period of the shares of Magna Common Stock received by a shareholder of
Homeland in the Merger, including for purposes of (iv) above the holding
period of any fractional share interest, will include the holding period of
the respective shares of Homeland Common Stock exchanged therefor, provided
the shares of Homeland Common Stock were held as capital assets.
(viii) A Homeland shareholder who receives only cash in the Merger,
including as a result of the exercise of dissenters' rights, will realize
gain or loss for federal income tax purposes (determined separately as to
each block of Homeland Common Stock exchanged) in an amount equal to the
difference between (x) the amount of cash received by such shareholder, and
(y) such shareholder's tax basis for the shares of Homeland Common Stock
surrendered in exchange therefor, provided that the cash payment does not
have the effect of the distribution of a dividend. Any such gain or loss
will be recognized for federal income tax purposes and will be treated as
capital gain or loss, provided the shares of Homeland Common Stock were held
as capital assets.
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(ix) However, if the cash payment received by the shareholder in (v) or
(viii) above does have the effect of the distribution of a dividend, the
amount of taxable income recognized generally will equal the amount of cash
received; such income generally will be taxable as a dividend; and no loss
(or other recovery of such shareholder's tax basis for the shares of
Homeland Common stock surrendered in the exchange) generally will be
recognized by such shareholder. The determination of whether a cash payment
has the effect of the distribution of a dividend will be made pursuant to
the provisions and limitation of Section 302 of the Internal Revenue Code,
taking into account the constructive stock ownership rules of Section 318
of the Internal Revenue Code.
IMPACT OF SECTION 302 OF THE CODE. A Homeland shareholder who has solely
Cash Election Shares or Mixed Election Shares, and who does not actually or
constructively own any other shares of Homeland Common Stock or Magna Common
Stock, will receive capital gain treatment with respect to any cash received.
Homeland shareholders with Stock Election Shares and whose election is modified
by the Exchange Agent so that some cash is received, or Homeland shareholders
who actually or constructively own other shares of Homeland Common Stock or
Magna Common Stock, or Homeland shareholders who make different elections with
respect to different portions of their stock, will receive capital gains or
dividend treatment based upon the tests defined below under Section 302 of the
Code.
The determination of whether a cash payment has the effect of the
distribution of a dividend generally will be made in accordance with the
provisions of Section 302 of the Code. A cash payment to a Homeland shareholder
will be considered not to have the effect of the distribution of a dividend
under Section 302 of the Code and such shareholder will recognize capital gain
only if the cash payment (i) results in a "complete redemption" of such
shareholder's actual and constructive stock interest, (ii) results in a
"substantially disproportionate" reduction in such shareholder's actual and
constructive stock interest or (iii) is "not essentially equivalent to a
dividend."
A payment consisting solely of cash will result in a "complete redemption"
of a shareholder's stock interest and such shareholder will recognize capital
gain or loss if such shareholder does not actually or constructively own any
stock after the receipt of the cash payment. A reduction in a shareholder's
stock interest will be "substantially disproportionate" and such shareholder
will recognize capital gain if (i) the percentage of outstanding shares actually
and constructively owned by such shareholder after the receipt of the cash
payment is less than four-fifths (80%) of the percentage of outstanding shares
actually and constructively owned by such shareholder immediately prior to the
receipt of the cash payment. A cash payment will qualify as "not essentially
equivalent to a dividend" and a shareholder will recognize capital gain if it
results in a meaningful reduction in the percentage of outstanding shares
actually and constructively owned by such shareholder. No specific tests apply
to determine whether a reduction in a shareholder's ownership interest is
meaningful; rather, such determination will be made based on all the facts and
circumstances applicable to such Homeland shareholder. No general guidelines
dictating the appropriate interpretation of facts and circumstances have been
announced by the courts or issued by the Internal Revenue Service (the
"Service"). However, the Service has indicated in Revenue Ruling 76-385 that
a minority shareholder (i.e., a holder who exercises no control over corporate
affairs and whose proportionate stock interest is minimal in relation to the
number of shares outstanding) generally is treated as having had a "meaningful
reduction" in interest if a cash payment reduces such holder's actual and
constructive stock ownership to any extent.
With regard to Homeland shareholders who receive Magna Common Stock and
cash in the Merger, the determination of whether a cash payment has the effect
of a distribution of a dividend will be made as if the Homeland Common Stock
exchanged for cash in the Merger had instead been exchanged in the Merger for
shares of Magna Common Stock followed immediately by a redemption of such
shares by Magna for the cash payment (a "Deemed Magna Redemption"). Under
this analysis, the determination of whether a cash payment qualifies as a
`substantially disproportionate reduction of interest' or is `not essentially
equivalent to a dividend' will be made by comparing (i) the shareholder's
actual and constructive stock interest in Magna before the Deemed Magna
Redemption (determined as if such shareholder had received solely Magna Common
Stock in the Merger) with (ii) such shareholder's actual and constructive stock
interest in Magna after the Deemed Magna Redemption.
With regard to Homeland shareholders who receive only cash (i) in exchange
for shares of Homeland Common Stock pursuant to the Merger or (ii) as a result
of the exercise of dissenter's rights, one view expressed by some practitioners
is that the determination of whether a cash payment has the effect of a
distribution of a dividend should be made in accordance with the Deemed Magna
Redemption analysis discussed above; i.e., as if the Homeland Common Stock
exchanged for cash in the Merger had instead been exchanged in the Merger for
shares of Magna
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Common Stock followed immediately by a redemption of such shares by Magna for
the cash payment. However, under the traditional analysis, which apparently
continues to be used by the Service, Section 302 of the Code will apply as
though the cash payment were made by Homeland in a hypothetical redemption of
Homeland Common Stock immediately prior to, and in a transaction separate from,
the Merger (a "Deemed Homeland Redemption"). Accordingly, under the
traditional analysis, the determination of whether a cash payment results in a
`complete redemption of interest', qualifies as a `substantially
disproportionate reduction of interest' or is `not essentially equivalent to a
dividend' will be made by comparing (i) the shareholder's actual and
constructive stock interest in Homeland before the Deemed Homeland Redemption,
with (ii) such shareholder's actual and constructive stock interest in Homeland
after the Deemed Homeland Redemption (but before the Merger). The law is
unclear regarding whether the approach of the Service is correct. Since the
traditional analysis is more likely to result in a dividend treatment than the
Deemed Magna Redemption analysis, each Homeland shareholder who receives solely
cash in exchange for all of the Homeland Common Stock he or she actually owns
should discuss with his or her tax advisor which analysis is applicable.
The determination of ownership for purposes of the three foregoing tests
will be made by taking into account both shares owned actually by such
shareholder and shares owned constructively by such shareholder pursuant to
Section 318 of the Code. Under Section 318 of the Code, a shareholder will be
deemed to own stock that is actually or constructively owned by certain members
of his or her family (spouse, children, grandchildren and parents) and other
related parties including, for example, certain entities in which such
shareholder has a direct or indirect interest (including partnerships, estates,
trusts and corporations), as well as shares of stock that such shareholder (or
a related person) has the right to acquire upon exercise of an option or
conversion right. Section 302(c)(2) of the Code provides certain exceptions to
the family attribution rules for the purpose of determining whether a complete
redemption of a shareholder's interest has occurred for purposes of Section 302
of the Code. These exceptions apply only to Homeland shareholders who receive,
in the Merger, solely cash in return for the Homeland Common Stock they actually
own.
Because the determination of whether a payment will be treated as having
the effect of the distribution of a dividend will generally depend upon the
facts and circumstances of each Homeland shareholder, Homeland shareholders are
strongly advised to consult their own tax advisors regarding the tax treatment
of cash received in the Merger.
Each Homeland shareholder's ability to elect the type of consideration he
or she receives pursuant to the Merger affords each such shareholder the
opportunity to select that type of consideration which will best serve his or
her personal tax and financial planning needs. However, each Homeland
shareholder should be aware that his or her ability to satisfy (or,
alternatively, fail to satisfy) any of the foregoing tests and thereby avoid
(or, alternatively, obtain) dividend treatment may be affected by (i) the type
of consideration received by related parties in respect of shares that such
shareholder is deemed to own pursuant to Section 318 of the Code, and by (ii)
any redesignation of the shareholder's election by the Exchange Agent, without
regard to whether such shareholder has Cash Election Shares, Stock Election
Shares, Mixed Election Shares or No Election Shares.
An opinion of counsel, unlike a private letter ruling from the Internal
Revenue Service (the "Service"), has no binding effect on the Service. The
Service could take a position contrary to counsel's opinion and, if the matter
is litigated, a court may reach a decision contrary to the opinion. The Service
is not expected to issue a ruling on the tax effects of the Merger, and no such
ruling has been requested.
THE FOREGOING DISCUSSION DOES NOT TAKE INTO ACCOUNT THE PARTICULAR FACTS
AND CIRCUMSTANCES OF EACH SHAREHOLDER'S TAX STATUS AND ATTRIBUTES. AS A RESULT,
THE FEDERAL INCOME TAX CONSEQUENCES ADDRESSED IN THE FOREGOING DISCUSSION MAY
NOT APPLY TO EACH SHAREHOLDER. IN VIEW OF THE INDIVIDUAL NATURE OF INCOME TAX
CONSEQUENCES, EACH SHAREHOLDER IS URGED TO CONSULT ITS OWN TAX ADVISOR TO
DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH SHAREHOLDER,
INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX
LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL AND OTHER TAX LAWS.
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DISSENTERS' RIGHTS OF SHAREHOLDERS OF HOMELAND
Each shareholder of Homeland has the right to demand to be paid the fair
value of its shares of Homeland Common Stock in cash upon consummation of the
Merger if the shareholder follows the dissenters' rights procedures set forth
in Division XIII of the Iowa Act. "Fair value" is defined in the Iowa Act as
the value of the subject shares immediately prior to the consummation of the
Merger, excluding any appreciation or depreciation in anticipation of the
Merger unless such an exclusion would be inequitable.
Under the Iowa Act, a shareholder of Homeland may dissent from the Merger
and obtain the fair value of the shares owned by such shareholder with such
fair value to be paid in cash if the Merger is consummated. Any shareholder of
Homeland who wishes to assert its dissenters' rights must do each of the
following: (i) deliver to Homeland before the vote on the Merger Agreement is
taken a written notice of such shareholder's intent to demand payment of the
fair value of his or her shares if the Merger is effectuated, and (ii) not vote
such shares in favor of the approval of the Merger Agreement at the Special
Meeting. A VOTE AGAINST THE APPROVAL OF THE MERGER AGREEMENT WILL NOT, BY
ITSELF, BE REGARDED AS A WRITTEN NOTICE OF A SHAREHOLDER'S INTENT TO ASSERT
DISSENTERS' RIGHTS.
If the Merger Agreement is approved at the Special Meeting, Homeland shall
deliver a written notice to each person who asserted dissenters' rights and who
did not vote in favor of the approval of the Merger Agreement as described
above. The notice must be sent by Homeland no later than 10 days after the
Special Meeting and must contain the following information: (i) a statement as
to where a demand for payment must be sent by the dissenting shareholder and
where and when the certificates evidencing shares of Homeland Common Stock
owned by such shareholders must be deposited, (ii) a statement to holders of
uncertificated shares stating to what extent transfer of the shares will be
restricted after the payment is received, (iii) a form with which dissenting
shareholders may make their demands for payment, which form will include the
date of the first public announcement of the proposed Merger and a requirement
that each dissenting shareholder certify as to whether or not it had acquired
beneficial ownership of the shares subject to the dissenters' rights demand
prior to the date of the first public announcement of the proposed Merger, (iv)
a statement as to the date by which Homeland must receive the demand for
payment from the dissenting shareholder, such date to be not fewer than 30 nor
more than 60 days after the date of Homeland's notice to dissenting
shareholders, and (v) a copy of Division XIII of the Iowa Act.
A dissenting shareholder must demand payment for its shares, certify as to
whether the acquisition dates of such shares were prior to or after the public
announcement of the proposed Merger and deposit the Certificates evidencing
such shares prior to the date set in and in accordance with the notice sent by
Homeland to the dissenting shareholders. A shareholder who does not demand
payment or deposit Certificates by the date or in the manner set forth in the
notice to dissenting shareholders sent by Homeland will be deemed to have
waived its dissenters' rights and will not be entitled to payment of the fair
value of his or her shares under Division XIII of the Iowa Act.
Homeland (or Merger Sub, as the surviving corporation in the Merger) must
make a cash payment to each dissenting shareholder who files a demand for
payment as described above equal to Homeland's (or Merger Sub's) estimate of
the fair value of the shares of Homeland Common Stock owned by such
shareholders, plus accrued interest on such payment from the Closing Date. Such
payment must be made upon the later of: (i) the time the Merger is consummated
or (ii) the receipt of the demand for payment from the dissenting shareholder.
If the Merger is not consummated within 60 days of the date set by Homeland for
receipt of the dissenting shareholders' demands for payment and deposits of
Certificates, Homeland must return the deposited Certificates and release the
transfer restrictions on uncertificated shares and send a new notice to
dissenting shareholders when the Merger is actually consummated and repeat the
payment demand procedure. The payment must be accompanied by the following: (i)
Homeland's balance sheet as of the end of its most recently completed fiscal
year, an income statement and a statement of changes in shareholders' equity as
of the most recently completed fiscal year and interim financial statements of
Homeland as of and for the most recent date or period available, (ii) a
statement of Homeland's (or Merger Sub's) estimate of the fair value of the
Homeland shares, (iii) an explanation as to how the interest payment was
calculated, (iv) a statement of the dissenting shareholder's right to demand a
greater payment than Homeland's estimate as described below, and (v) a copy of
Division XIII of the Iowa Act.
Homeland may elect to withhold payment from those dissenting shareholders
who do not certify in their demand for payment that they owned the shares
subject to the dissenters' rights demand prior to the public announcement of
the proposed Merger. To the extent that Homeland elects to withhold payment
from such dissenting shareholders, Homeland shall estimate the fair value of
the shares owned by such holders and accrued interest thereon and offer to pay
the same to each such dissenting shareholder who agrees to accept it in full
satisfaction of its demand. The offer to
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such shareholders must be accompanied by: (i) a statement of Homeland's
estimate of fair value, (ii) an explanation as to how the interest payment was
calculated and (iii) a statement of the dissenting shareholder's right to
demand a greater payment than Homeland's estimate as described below.
After receipt of Homeland's (or Merger Sub's) estimate of fair value in
either of the above cases, the dissenting shareholder may deliver notice to
Homeland (or Merger Sub) of its own estimate of fair value for the shares and
the amount of interest due and demand payment of the difference in amount, if
any, previously paid by Homeland (or Merger Sub) to such shareholder and the
amount of the shareholder's estimate. In order to make such a demand: (i) the
dissenting shareholder must believe that the amount paid or offered by Homeland
(or Merger Sub) is less than the fair value of the shares or the interest is
incorrectly calculated, or (ii) Homeland (or Merger Sub) has not made payment
for the shares within 60 days after the date set by Homeland (or Merger Sub) as
the last day that Homeland (or Merger Sub) set for accepting demands for
payment, or (iii) the Merger has not been consummated within the 60-day period
after the last date that Homeland (or Merger Sub) set for accepting demands for
payment and Homeland has not returned the Certificates deposited by the
dissenting shareholder or released the transfer restrictions imposed on
uncertificated shares. A dissenting shareholder will waive its right to seek a
greater payment than Homeland's estimate of fair value and accrued interest
unless such shareholder notifies Homeland (or Merger Sub) in writing of the
same within 30 days of the receipt of Homeland's (or Merger Sub's) payment or
offer of payment for the shares.
If, within 60 days of receiving the dissenting shareholder's notice of a
demand for increased payment, the demand remains unsettled, Homeland (or Merger
Sub) must commence proceedings in the district court of the county where its
principal office is located, petitioning the court to determine the fair value
and accrued interest of such shares. If Homeland (or Merger Sub) fails to start
such proceedings within the 60-day period, Homeland (or Merger Sub) must pay
each dissenting shareholder whose demand remains unsettled the amount that such
shareholder has demanded. All dissenting shareholders with claims remaining
unsettled will be made parties to the proceedings and the court may appoint one
or more appraisers to receive evidence and recommend the fair value of the
shares. The court will find either (i) that the fair value and accrued interest
already paid by Homeland (or Merger Sub) equals or exceeds the amount
determined by the court, in which case the shareholder will be entitled to no
additional payment from Homeland (or Merger Sub), or (ii) Homeland (or Merger
Sub) must pay an additional amount equal to the difference between the court's
determination of fair value and accrued interest and the amount already paid by
Homeland (or Merger Sub) to the shareholder.
The court shall also determine all costs of the proceedings, including the
reasonable compensation and expenses of the appraisers and shall assess such
costs against Homeland (or Merger Sub) unless the court finds that such an
assessment would be inequitable because the dissenting shareholders had acted
arbitrarily, vexatiously or not in good faith, in which case the court may
assess costs against all or some of the dissenters. Fees and expenses of legal
counsel and experts will generally be borne by each of the parties except that
the experts' and attorneys' fees and expenses of the dissenting shareholders
will be assessed against Homeland (or Merger Sub) to the extent that the court
finds Homeland did not substantially comply with the procedures set forth in
Division XIII of the Iowa Act or to either party in favor of the other party to
the extent that the court finds that the assessed party acted arbitrarily,
vexatiously or not in good faith. To the extent that counsel for one dissenting
shareholder is found by the court to have provided a substantial benefit to
other dissenting shareholders, the court may order that the fees of such
counsel be paid out of the amounts awarded to the dissenting shareholders who
have been benefited.
THE PRECEDING DISCUSSION IS A SUMMARY OF THE PROVISIONS REGARDING
DISSENTERS' RIGHTS UNDER THE IOWA ACT AND IS QUALIFIED IN ITS ENTIRETY BY THE
TEXT OF DIVISION XIII OF THE IOWA ACT WHICH IS ATTACHED AS ANNEX B TO THIS
-------
PROXY STATEMENT/PROSPECTUS. HOMELAND SHAREHOLDERS WHO ARE INTERESTED IN
ASSERTING DISSENTERS' RIGHTS PURSUANT TO THE IOWA ACT IN CONNECTION WITH THE
MERGER MAY WISH TO CONSULT WITH THEIR COUNSEL FOR ADVICE AS TO THE PROCEDURES
REQUIRED TO BE FOLLOWED.
PRO FORMA FINANCIAL INFORMATION
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth for the periods indicated selected
historical per share data of Magna and Homeland and the corresponding pro forma
and pro forma equivalent per share amounts giving effect to the proposed
Merger. The data presented is based upon the consolidated financial statements
and related notes of Magna
38
<PAGE> 45
and Homeland included in documents incorporated herein by reference, and the
pro forma combined consolidated balance sheet and income statements, including
the notes thereto, appearing elsewhere herein. This information should be read
in conjunction with such historical and pro forma financial statements and
related notes thereto. The assumptions used in the preparation of this table
appear in the notes to the pro forma financial information appearing elsewhere
in the Proxy Statement/Prospectus. See "--Pro Forma Combined Consolidated
Financial Statements (Unaudited)." This data is not necessarily indicative of
the results of the future operations of the combined organization or the actual
results that would have occurred if the Merger had been consummated prior to
the periods indicated.
<TABLE>
<CAPTION>
MAGNA/HOMELAND MAGNA/HOMELAND
MAGNA HOMELAND PRO FORMA PRO FORMA
HISTORICAL HISTORICAL COMBINED<F1> EQUIVALENT<F2>
---------- ---------- -------------- --------------
<S> <C> <C> <C> <C>
Book Value Per Common Share:
September 30, 1996.............................. $16.39 $22.98 $17.40 $26.97
December 31, 1995............................... 15.93 22.18 17.00 26.35
Cash Dividends Declared Per Common Share:
Nine months ended September 30, 1996............ .66 .68 .66 1.02
Year ended December 31, 1995.................... .80 .87 .80 1.24
Fully Diluted Net Income Per Share:
Nine months ended September 30, 1996............ 1.59 1.74 1.48 2.29
Year ended December 31, 1995.................... 1.80 2.37 1.70 2.64
Market Price Per Common Share:
August 30, 1996<F3>............................. 24.88 34.00
December 11, 1996<F3>........................... 29.25 41.25
<FN>
- ---------
<F1> Includes the effect of pro forma adjustments for the Merger. See "PRO
FORMA FINANCIAL INFORMATION."
<F2> Based upon the pro forma combined per share amounts multiplied by an
assumed Exchange Ratio of 1.55, which Exchange Ratio is subject to
adjustment. See "PRO FORMA FINANCIAL INFORMATION."
<F3> The market values of Magna Common Stock and Homeland Common Stock were
determined as of the last trading day preceding the public announcement of
the Merger and as of the most recent practicable date prior to the mailing
of this Proxy Statement/Prospectus based on the last sales price as
reported on the Nasdaq or the NYSE, as applicable.
</TABLE>
PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following unaudited pro forma combined consolidated balance sheet gives
effect to the Merger as if it had been consummated on September 30, 1996. The
following unaudited pro forma combined consolidated income statements for the
nine months ended September 30, 1996 and for the year ended December 31, 1995
set forth the results of operations of Magna combined with the results of
operations of Homeland as if the Merger had occurred on January 1, 1995. The
unaudited Pro Forma Combined Consolidated Financial Statements include pro
forma adjustments which are based on certain assumptions. The actual purchase
accounting adjustments will be made on the basis of evaluations as of the date
of consummation of the Merger and, therefore, will differ from those reflected
in these statements.
The unaudited pro forma combined consolidated financial statements should
be read in conjunction with the accompanying Notes to Pro Forma Combined
Consolidated Financial Statements and with the historical financial statements
of Magna and Homeland. The historical interim financial information for the
nine months ended September 30, 1996, used as a basis for the pro forma
combined consolidated financial statements, include all necessary adjustments,
which, in management's opinion, are necessary to present the data fairly. These
unaudited pro forma combined consolidated financial statements may not be
indicative of the results of operations that actually would have occurred if
the Merger had been consummated on the date assumed above or the results of
operations that may be achieved in the future.
The unaudited pro forma combined consolidated financial statements reflect
a repurchase of approximately 600,000 shares of Magna Common Stock. While Magna
has previously announced its intention to effect such a repurchase, Magna has
not firmly committed to do so and there is no certainty as to whether any such
repurchase will occur or as to the price per share at which a repurchase would
occur if one were effected.
39
<PAGE> 46
<TABLE>
MAGNA GROUP, INC.
PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
REFLECTING THE ACQUISITION OF HOMELAND BANKSHARES CORPORATION
SEPTEMBER 30, 1996
(UNAUDITED; IN THOUSANDS)
<CAPTION>
PRO FORMA MAGNA/
ADJUSTMENTS<F1> HOMELAND
MAGNA HOMELAND ---------------------- PRO FORMA
HISTORICAL HISTORICAL DEBIT CREDIT COMBINED
---------- ---------- ----- ------ ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks.......................... $ 157,076 $ 55,547 $ 212,623
Due from banks--interest bearing................. 1,043 -- 1,043
Federal funds sold............................... 82,500 17,400 99,900
Held-to-maturity securities...................... 141,848 -- 141,848
Available-for-sale securities.................... 1,454,618 190,759 109,667<F2> 1,535,710
Loans............................................ 3,368,705 895,165 4,263,870
Unearned income.............................. (1,044) -- (1,044)
Reserve for loan losses...................... (45,093) (9,278) (54,371)
---------- ---------- ----------
Net Loans................................ 3,322,568 885,887 4,208,455
Premises and equipment........................... 81,718 24,506 3,980<F3> 812<F4> 109,392
Other assets..................................... 143,110 32,844 101,838<F5> 12,439<F6>
386<F7> 4,663<F8> 261,076
---------- ---------- ----------
TOTAL ASSETS......................... $5,384,481 $1,206,943 $6,570,047
========== ========== ==========
LIABILITIES
Deposits:
Noninterest bearing.......................... $ 532,436 $ 121,109 $ 653,545
Interest bearing............................. 3,632,424 816,877 4,449,301
---------- ---------- ----------
Total Deposits........................... 4,164,860 937,986 5,102,846
Federal funds purchased.......................... 20,195 26,575 46,770
Repurchase agreements............................ 501,287 -- 501,287
Other short-term borrowings...................... 98,628 53,744 152,372
Long-term debt................................... 79,117 46,962 126,079
Other liabilities................................ 60,492 10,604 4,270<F9> 75,366
---------- ---------- ----------
TOTAL LIABILITIES.................... 4,924,579 1,075,871 6,004,720
STOCKHOLDERS' EQUITY
Preferred stock.................................. 40 -- 40
Common stock..................................... 57,595 71,292 71,292<F10> 10,078<F11> 67,673
Surplus.......................................... 226,943 -- 109,597<F12> 336,540
Retained earnings................................ 205,019 59,863 59,863<F13> 205,019
Treasury stock................................... (17,605) -- 14,250<F14> (31,855)
Net unrealized loss on securities................ (12,090) (83) 83<F15> (12,090)
---------- ---------- ----------
TOTAL STOCKHOLDERS'
EQUITY..................................... 459,902 131,072 565,327
---------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY... $5,384,481 $1,206,943 $6,570,047
========== ========== ==========
See Notes to Pro Forma Combined Consolidated Balance Sheet.
40
<PAGE> 47
MAGNA GROUP, INC.
NOTES TO PRO FORMA COMBINED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED; DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<FN>
- -----
<F1> The purchase price and allocation of purchase price are as follows:
<S> <C> <C>
Consideration to be paid to Homeland shareholders:
Cash......................................................................... $ 91,967
Magna Common Stock (5,038,934 shares @ $23.75)............................... 119,675
Acquisition fees paid to advisors................................................ 3,450
--------
Total purchase price..................................................... $215,092
========
The $23.75 share value reflects the average closing price of Magna Common Stock
during the 30 consecutive trading days prior to the signing of the definitive
agreement to acquire Homeland.
The purchase price has been allocated as follows:
Historical net book value of Homeland............................................ $131,072
Adjustments to fair value of Homeland assets and liabilities:
Premises and equipment (see notes 3 and 4)................................... 3,168
Other liabilities (see note 9)............................................... (4,270)
Deferred income taxes (see note 7)........................................... 386 (716)
------
Adjustment to goodwill and other intangibles (see notes 5, 6 and 8).............. 84,736
--------
Total purchase price..................................................... $215,092
========
<F2> Reflects the sale of securities to provide cash for payment to Homeland
shareholders, payment of cash for legal and professional fees connected
with the Homeland acquisition and payment of cash to repurchase
approximately 600,000 shares of Magna Common Stock.
<F3> Write-up of certain Homeland fixed assets to fair value.
<F4> Write-off of certain Homeland fixed assets not compatible with Magna
systems.
<F5> Reflects goodwill resulting from the acquisition of Homeland by Magna.
This goodwill will be amortized over a period of 15 years.
<F6> Write-off of unamortized goodwill previously recorded on the books of
subsidiary banks of Homeland.
<F7> Reflects net deferred taxes related to: write-up of fixed assets to fair
value; write-off of fixed assets not compatible with Magna systems;
accrual for vacation pay liability; accrual for possible payments
required in connection with change of control agreements held by certain
Homeland executives; and accrual for present value of future benefits
connected with Homeland's Supplemental Retirement Income Plan.
<F8> Write-off of unamortized deposit base intangibles previously recorded
on the books of subsidiary banks of Homeland.
<F9> Establish vacation pay accrual for employees of Homeland in conformity
with Magna policy; establish accrual for possible payments required in
connection with change of control agreements held by certain Homeland
executives; and establish accrual for the present value of future
benefits connected with Homeland's Supplemental Retirement Income Plan.
<F10> Elimination of 5,703,378 shares of Homeland Common Stock.
<F11> Issuance of 5,038,934 shares of Magna Common Stock.
<F12> Adjustment to Magna capital to reflect acquisition of Homeland.
<F13> Elimination of Homeland retained earnings.
<F14> Reflects the repurchase of 600,000 shares of Magna Common Stock
issued in connection with the acquisition of Homeland.
<F15> Elimination of Homeland net unrealized loss on available-for-sale
securities.
</TABLE>
41
<PAGE> 48
<TABLE>
MAGNA GROUP, INC.
PRO FORMA COMBINED CONSOLIDATED STATEMENT OF INCOME
TWELVE MONTHS ENDED DECEMBER 31, 1995
(UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
MAGNA/
HOMELAND
MAGNA HOMELAND PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans......................................... $266,146 $74,098 $340,244
Securities:
Taxable.......................................................... 71,853 14,520 (6,854)<F1> 79,519
Tax-exempt....................................................... 7,266 2,015 9,281
-------- ------- --------- --------
79,119 16,535 (6,854) 88,800
Other interest income.............................................. 1,903 1,847 3,750
-------- ------- --------- --------
TOTAL INTEREST INCOME...................................... 347,168 92,480 (6,854) 432,794
Interest Expense:
Deposits........................................................... 138,025 36,239 174,264
Federal funds purchased............................................ 3,463 3,586 7,049
Repurchase agreements.............................................. 16,147 -- 16,147
Other short-term borrowings........................................ 623 3,474 4,097
Long-term debt..................................................... 6,059 1,505 7,564
-------- ------- --------
TOTAL INTEREST EXPENSE..................................... 164,317 44,804 209,121
-------- ------- --------- --------
NET INTEREST INCOME.................................... 182,851 47,676 (6,854) 223,673
Provision for Loan Losses.............................................. 9,992 941 10,933
-------- ------- --------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES.... 172,859 46,735 (6,854) 212,740
Noninterest Income:
Service charges on deposits........................................ 22,487 3,094 25,581
Trust.............................................................. 8,638 2,450 11,088
Securities gains, net.............................................. 356 31 387
Other.............................................................. 16,382 6,090 22,472
-------- ------- ---------
47,863 11,665 59,528
Noninterest Expense:
Employee compensation and other benefits........................... 72,993 18,998 91,991
Net occupancy...................................................... 17,677 2,712 133 <F2> 20,522
Equipment.......................................................... 8,967 2,367 11,334
FDIC insurance premiums............................................ 4,342 1,381 5,723
Other.............................................................. 42,238 10,892 4,640 <F3> 57,770
-------- ------- --------- --------
146,217 36,350 4,773 187,340
-------- ------- --------- --------
INCOME BEFORE INCOME TAXES................................. 74,505 22,050 (11,627) 84,928
Income Tax Expense..................................................... 23,283 8,429 (2,446)<F4> 29,266
-------- ------- --------- --------
NET INCOME............................................. $ 51,222 $13,621 ($9,181) $ 55,662
======== ======= ========= ========
Primary net income per share........................................... $ 1.84 $ 2.37 $ 1.72
======== ======= ========
Fully diluted net income per share..................................... $ 1.80 $ 2.37 $ 1.70
======== ======= ========
See Notes to Pro Forma Combined Consolidated Statements of Income.
42
<PAGE> 49
MAGNA GROUP, INC.
PRO FORMA COMBINED CONSOLIDATED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
MAGNA/
HOMELAND
MAGNA HOMELAND PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans......................................... $212,503 $57,956 $ 270,459
Securities:
Taxable.......................................................... 69,226 7,954 ($5,141)<F1> 72,039
Tax-exempt....................................................... 5,229 1,287 6,516
-------- ------- --------- ----------
74,455 9,241 (5,141) 78,555
Other interest income.............................................. 1,316 1,526 2,842
-------- ------- --------- ----------
TOTAL INTEREST INCOME...................................... 288,274 68,723 (5,141) 351,856
Interest Expense:
Deposits........................................................... 116,785 26,115 142,900
Federal funds purchased............................................ 2,518 2,373 4,891
Repurchase agreements.............................................. 15,589 -- 15,589
Other short-term borrowings........................................ 3,028 771 3,799
Long-term debt..................................................... 5,221 2,071 7,292
-------- ------- ----------
TOTAL INTEREST EXPENSE..................................... 143,141 31,330 174,471
-------- ------- --------- ----------
NET INTEREST INCOME.................................... 145,133 37,393 (5,141) 177,385
Provision for Loan Losses.............................................. 7,781 1,705 9,486
-------- ------- --------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES.... 137,352 35,688 (5,141) 167,899
Noninterest Income:
Service charges on deposits........................................ 17,458 2,594 20,052
Trust.............................................................. 7,102 1,859 8,961
Securities gains, net.............................................. 779 17 796
Other.............................................................. 11,977 4,739 16,716
-------- ------- ----------
37,316 9,209 46,525
Noninterest Expense:
Employee compensation and other benefits........................... 51,937 14,837 66,774
Net occupancy...................................................... 13,536 2,317 99 <F2> 15,952
Equipment.......................................................... 6,627 1,874 8,501
FDIC insurance premiums............................................ 525 2,128 2,653
Other.............................................................. 31,544 7,465 3,473 <F3> 42,482
-------- ------- --------- ----------
104,169 28,621 3,572 136,362
-------- ------- --------- ----------
INCOME BEFORE INCOME TAXES................................. 70,499 16,276 (8,713) 78,062
Income Tax Expense..................................................... 24,271 6,301 (1,834)<F4> 28,738
-------- ------- --------- ----------
NET INCOME............................................. $ 46,228 $ 9,975 ($6,879) $ 49,324
======== ======= ========= ==========
Primary net income per share........................................... $ 1.63 $ 1.74 $ 1.50
======== ======= ==========
Fully diluted net income per share..................................... $ 1.59 $ 1.74 $ 1.48
======== ======= ==========
See Notes to Pro Forma Combined Consolidated Statements of Income.
43
<PAGE> 50
MAGNA GROUP, INC.
NOTES TO PRO FORMA COMBINED CONSOLIDATED STATEMENTS OF INCOME
TWELVE MONTHS ENDED DECEMBER 31, 1995 AND NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED; DOLLARS IN THOUSANDS)
<FN>
- ----------
<F1> Reflects foregone interest income on discretionary sale of securities used
to provide cash for payment to Homeland shareholders, payment of cash for
legal and professional fees connected with the Homeland acquisition and
payment of cash to repurchase approximately 600,000 shares of Magna Common
Stock.
<F2> Reflects amortization expense of purchase accounting adjustment associated
with the write-up of certain Homeland fixed assets to fair value (based on
a life of 30 years).
<F3> Reflects amortization expense of incremental intangibles as follows:
<CAPTION>
TWELVE MONTHS NINE MONTHS
ENDED ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
Goodwill amortization expense resulting from the acquisition of Homeland (based on a
life of 15 years)................................................................... $6,789 $5,092
Less: Historical amortization expense on Homeland's goodwill and deposit base
intangibles written off in connection with the allocation of the purchase price..... 2,149 1,619
------ ------
$4,640 $3,473
====== ======
<F4> Income tax expense on pro forma adjustments, excluding incremental
goodwill amortization expense, is reflected using a tax rate of 35%.
</TABLE>
44
<PAGE> 51
INFORMATION REGARDING MAGNA STOCK
GENERAL
Magna has authorized 40,000,000 shares of Magna Common Stock, 1,000,000
shares of preferred stock, no par value ("Magna No Par Value Preferred"),
49,500 shares of 7.5% Cumulative Class B Voting Preferred Stock, par value
$20.00 per share ("Magna Voting Preferred"), and 1,000,000 shares of Class C
Non-Voting Preferred Stock, par value $0.10 per share ("Magna Non-Voting
Preferred"). At August 30, 1996, Magna had 28,019,668 shares of Magna Common
Stock, no shares of Magna No Par Value Preferred, 2,039 shares of Magna Voting
Preferred, and no shares of Magna Non-Voting Preferred issued and outstanding.
Under Delaware law, Magna's Board of Directors may generally approve the
issuance of authorized shares of preferred stock and Magna Common Stock without
stockholder approval.
Magna's Board of Directors is also authorized to fix the number of shares
and determine the designation of any series of preferred stock and to determine
or alter the rights, preferences, privileges and restrictions granted to or
imposed upon any series of preferred stock. Magna's Board of Directors has
designated and reserved 400,000 shares of Magna Series A Junior Participating
Preferred Stock, no par value ("Magna Junior Preferred"), pursuant to Magna's
Preferred Share Purchase Rights Plan, dated November 11, 1988, between Magna
and Magna Trust Company, as rights agent (the "Magna Rights Plan").
The existence of a substantial number of unissued and unreserved shares of
Magna Common Stock and undesignated shares of preferred stock may enable the
Magna Board of Directors to issue shares to such persons and in such manner as
may be deemed to have an antitakeover effect.
PREFERRED STOCK
Magna No Par Value Preferred. Except for the designation and reservation of
the Magna Junior Preferred described below, the Board of Directors has not
acted to designate any shares of No Par Value Preferred.
Magna Voting Preferred. Magna Voting Preferred Stock has a cumulative
dividend rate of 7.5% per annum of the par value thereof, as and when declared
by Magna's Board of Directors. Cash dividends are required to be declared and
paid or set aside for payment on Magna Voting Preferred before any dividends
are declared or paid on Magna Common Stock. Dividend rights with respect to the
Magna Voting Preferred rank pari passu with any other shares of equally ranking
preferred stock then outstanding.
In the event of any liquidation, dissolution or winding up of Magna, before
any distribution may be made to the holders of Magna Common Stock, the holders
of Magna Voting Preferred are entitled to be paid $20.00 per share, together
with all accrued and unpaid dividends thereon, and the holders of Magna Common
Stock thereafter are entitled, to the exclusion of holders of Magna Voting
Preferred, to divide ratably the assets of Magna then remaining. Upon
liquidation, Magna Voting Preferred ranks pari passu with any other shares of
equally ranking preferred stock then outstanding.
The holders of Magna Voting Preferred are entitled to one vote for each
share and vote together with the holders of Magna Common Stock as a single
class, except as otherwise required by law.
Magna Non-Voting Preferred. Except for the designation and issuance of
19,680 shares in connection with the acquisition of another bank holding
company, which shares were subsequently redeemed, Magna's Board of Directors
has not acted to designate or issue any shares of Non-Voting Preferred.
DESCRIPTION OF MAGNA COMMON STOCK AND ATTACHED PREFERRED SHARE PURCHASE RIGHTS
Dividends. Holders of Magna Common Stock are entitled to share ratably in
dividends when, as and if declared by the Magna Board of Directors from funds
legally available therefor, after full cumulative dividends have been paid or
declared, and funds sufficient for the payment thereof set apart, on all series
of preferred stock ranking superior as to dividends to the Magna Common Stock.
The Board of Directors of Magna intends to maintain its present policy of
paying quarterly cash dividends on the Magna Common Stock, when justified by
the financial condition of Magna and its subsidiaries. The declaration and
amount of future dividends will depend on circumstances existing at the time,
including Magna's earnings, financial
45
<PAGE> 52
condition and capital requirements, as well as on regulatory limitations, note
and indenture provisions and such other factors as the Board of Directors of
Magna may deem relevant. The payment of dividends to Magna by subsidiary banks
is subject to extensive regulation by various state and federal regulatory
agencies. See "SUPERVISION AND REGULATION."
Voting Rights. Each holder of Magna Common Stock has one vote for each
share held on matters presented for consideration by the stockholders and vote
together with holders of Magna Voting Preferred as a single class, unless
otherwise required by law. The holders of Magna Common Stock do not have
cumulative voting rights in the election of directors.
Preemptive Rights. The holders of Magna Common Stock have no preemptive
right to acquire any additional unissued shares or treasury shares of Magna.
Liquidation Rights. In the event of liquidation, dissolution or winding-up
of Magna, whether voluntary or involuntary, the holders of Magna Common Stock
will be entitled to share ratably in any of its assets or funds that are
available for distribution to its stockholders after the satisfaction of its
liabilities (or after adequate provision is made therefor) and after
preferences on any outstanding preferred stock.
Assessment and Redemption. Shares of Magna Common Stock issuable in the
Merger will be, when issued, fully paid and nonassessable. Such shares do not
have any redemption or sinking fund provisions.
Preferred Share Purchase Rights Plan. One Right is attached to each share
of Magna Common Stock, including each share of Magna Common Stock to be issued
in the Merger. The Rights trade automatically with shares of Magna Common
Stock, and become exercisable and will trade separately from the Magna Common
Stock on the 10th day after public announcement, or notice to Magna, that a
person or group has acquired, or has the right to acquire, beneficial ownership
of 20% or more of the outstanding shares of Magna Common Stock, or upon
commencement or announcement, or notice to Magna, of intent to make a tender
offer for 20% or more of the outstanding shares of Magna Common Stock, in
either case without prior written consent of Magna. When exercisable, each
Right will entitle the holder to purchase 1/100th of a share of Magna Junior
Preferred at a price of $50 per 1/100th of a share. In the event Magna is
acquired in a merger or other business combination transaction in which Magna
is not the surviving corporation or in which Magna Common Stock is exchanged or
50% or more of Magna's assets or earning power is sold, holders of Rights
(other than the acquiring person or group) may purchase Magna Common Stock
having a market value of twice the then current exercise price of each Right.
If Magna is acquired by any person or group after the Rights become
exercisable, each Right will entitle its holder to purchase stock of the
acquiring company having a market value of twice the current exercise price of
each Right. The Rights are designed to protect the interests of Magna and its
stockholders against coercive takeover tactics. The purpose of the Rights is to
encourage potential acquirors to negotiate with Magna's Board of Directors
prior to attempting a takeover and to give the Magna Board of Directors
leverage in negotiating on behalf of all stockholders the terms of any proposed
takeover. The Rights may deter certain takeover proposals. The Rights, which
can be redeemed by Magna's Board of Directors in certain circumstances, expire
by their terms on November 22, 1998.
Classification of Board of Directors. The Board of Directors of Magna is
divided into three classes, and the directors are elected by classes to
three-year terms, so that one of the three classes of the directors of Magna
will be elected at each annual meeting of the stockholders. While this
provision promotes stability and continuity of the Board of Directors,
classification of the Board of Directors may also have the effect of decreasing
the number of directors that could otherwise be elected at each annual meeting
of stockholders by a person who obtains a controlling interest in the Magna
Common Stock and thereby could impede a change in control of Magna.
Supermajority Provisions. Magna's Certificate of Incorporation and Bylaws
also contain provisions which require the affirmative vote of holders of at
least 80% of the voting power of all of the outstanding shares of Magna
entitled to vote in the election of directors to remove a director or directors
without cause, to approve certain "business combinations," and for the
amendment, alteration, change or repeal of any of the above provisions. Such
provisions may be deemed to have an antitakeover effect.
Transfer Agent. Magna Trust Company, Belleville, Illinois, is the transfer
agent for Magna Common Stock.
46
<PAGE> 53
RESERVATION OF SHARES
As of September 30, 1996, approximately 5,351,686 shares of Magna Common
Stock were reserved for issuance in connection with conversion of Magna's
Convertible Subordinated Capital Notes, Convertible Subordinated Debentures and
Magna's stock-based compensation plans.
RESTRICTIONS ON RESALE OF MAGNA CAPITAL STOCK BY AFFILIATES; AFFILIATE
AGREEMENTS
Rule 145(d) under the Securities Act provides that persons deemed to be
affiliates of a company such as Magna solely by virtue of having been
affiliates of a company such as Homeland prior to a transaction such as the
Merger may resell their stock pursuant to certain of the requirements of Rule
144 under the Securities Act if such stock is sold within the first two years
after the receipt thereof. After two years if such person is not an affiliate
of Magna and if Magna is current with respect to its required public filings, a
former affiliate of Homeland may freely resell the stock received in the Merger
without limitation. After three years from the issuance of the stock, if such
person is not an affiliate of Magna at the time of sale and for at least three
months prior to such sale, such person may freely resell such stock, without
limitation, regardless of the status of Magna's required public filings.
An "affiliate" of Homeland, as defined by the rules promulgated pursuant
to the Securities Act, is a person who directly, or indirectly through one or
more intermediaries, controls, is controlled by, or is under common control
with Homeland. The foregoing restrictions are expected to apply to the
directors, executive officers and the holders of 10% or more of the Homeland
Common Stock (and to certain relatives or the spouse of any such person and any
trusts, estates, corporations, or other entities in which any such person has a
10% or greater beneficial or equity interest). Homeland has agreed that it will
use its best efforts to obtain from each of those individuals identified by it
as an affiliate appropriate agreements that each such individual will not make
any further sales of shares of Magna Common Stock received upon consummation of
the Merger, except in compliance with the restrictions described above. The
shares of Magna Common Stock to be received by affiliates of Homeland in the
Merger will be legended as to the restrictions imposed upon resale of such
stock.
COMPARISON OF THE RIGHTS OF SHAREHOLDERS OF MAGNA AND HOMELAND
Magna is incorporated under the laws of the State of Delaware. Homeland is
organized under the laws of the State of Iowa. The rights of Magna's
stockholders are governed by Magna's Certificate of Incorporation and Bylaws
and by the Delaware General Corporation Law (the "DGCL"). The rights of
Homeland's shareholders are governed by Homeland's Articles of Incorporation
and Bylaws and by the Iowa Act. The rights of Homeland shareholders who receive
shares of Magna Common Stock in the Merger will thereafter be governed by
Magna's Certificate of Incorporation and Bylaws and by the DGCL. The material
rights of such shareholders, and, where applicable, material differences
between the rights of Magna stockholders and Homeland shareholders, are
summarized below.
Preferred Share Purchase Rights Plan. As described above under
"--Description of Magna Common Stock and Attached Preferred Share Purchase
Rights," Magna Common Stock has attached Rights, which may deter certain
takeover proposals. Homeland does not have a rights plan.
Supermajority Provisions. Magna's Certificate of Incorporation and Bylaws
require a vote of 80% of the outstanding shares to remove directors without
cause, to approve certain business combinations and to amend these provisions
of Magna's Certificate of Incorporation and Bylaws. Homeland's Articles of
Incorporation and Bylaws likewise contain supermajority provisions regarding
removal of directors, approval of "Covered Transactions" (as defined in
Homeland's Articles of Incorporation) and to amend certain provisions of
Homeland's Articles of Incorporation. Such supermajority provisions may have
the effect of discouraging takeover attempts that do not have the approval of
the Board of Directors.
Voting for Directors. Magna's Bylaws do not provide for cumulative voting
in the election of directors. Homeland's Articles of Incorporation and Bylaws
likewise do not provide for cumulative voting in the election of directors.
Classified Board. As described under "--Description of Magna Common Stock
and Attached Preferred Share Purchase Rights--Classification of Board of
Directors," the Board of Directors of Magna is divided into three classes of
directors, with each class being elected to a staggered three-year term.
Homeland's Board of Directors is likewise divided into three classes of
directors, with each class being elected to a staggered three-year term.
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Dissenters' Rights. Under the Iowa Act, a shareholder of any corporation
which is party to a merger or consolidation, or which sells all or
substantially all of its assets, has the right to dissent from such corporate
action and to demand payment of the fair value of his/her shares. In addition,
Homeland's Articles of Incorporation specify certain measures of fair value for
certain business combinations. The DGCL, provides, however, that, with certain
limited exceptions, no such dissenters' rights are available to holders of
shares that are listed on a national securities exchange or are held of record
by more than 2,000 stockholders. Holders of Magna Common Stock would therefore
have no general right to dissent from any merger, consolidation or disposition
of assets since there are in excess of 2,000 holders of record of Magna Common
Stock.
Antitakeover Statutes. DGCL Section 203 is a business combination
moratorium statute which generally prohibits a domestic corporation from
engaging in mergers or other business combinations with certain "interested
persons" for a statutory time period. The moratorium can be avoided if the
business combination is approved by the board of directors prior to the date on
which the interested person acquires the requisite percentage of stock. The DGCL
imposes a three-year moratorium on such transactions, thereby potentially
increasing the period during which a hostile bid may be frustrated. In addition,
the DGCL does not apply if the interested person obtains at least 85% of the
corporation's voting stock upon consummation of the transaction which resulted
in the stockholder becoming an interested person. Thus, a person acquiring at
least 85% of the corporation's voting stock could circumvent the defensive
provisions of the Delaware law.
Iowa does not have any provisions similar to DGCL Section 203. The Iowa
Act, however, allows a director, in determining what is in the best interest of
a corporation when considering a tender offer proposal, to consider the
following community interest factors in addition to considering the effects of
any action on stockholders: the effects of the action on the communities in
which the corporation operates, and the long-term as well as short-term
interests of the corporation and its stockholders, including the possibility
that these interests may be served by the continued independence of the
corporation.
If on the basis of these community interest factors the corporation's board
of directors determines that the proposal or action is not in the best
interests of the corporation, the board of directors may reject the proposal or
offer. If the board of directors rejects such proposal or action, the board of
directors is not obligated to facilitate, or to remove any barriers to, or
refrain from impeding, the proposal or offer. Consideration of any or all of
the community interest factors is not a violation of the business judgment rule
or of any duty of the director to the stockholders, or a group of stockholders,
even if the director reasonably determines that a community interest factor
outweighs the financial or other benefits to the corporation or a stockholder
or group of stockholders.
Dividend Sources. Under the DGCL, dividends may be paid out of either: (i)
surplus or (ii) if there is no surplus, out of its net profits for the fiscal
year in which the dividend is declared and/or the preceding fiscal year, except
when the capital is diminished to an amount less than the aggregate amount of
the capital represented by issued and outstanding stock having a preference on
the distribution of assets.
Under the Iowa Act, dividends may be paid by a corporation unless such
corporation is insolvent or if its total assets would be less than the sum of
its total liabilities plus the amount that would be needed if the corporation
were to be dissolved at the time of the distribution to satisfy the
preferential rights upon dissolution of stockholders whose preferential rights
are superior to those receiving the distribution.
Special Meetings of Stockholders. Under the DGCL, special meetings of the
stockholders may be called by the board of directors or such other person as
may be authorized by the certificate of incorporation or bylaws. Magna's
Certificate of Incorporation provides the special meetings may be called only
by the Chairman of the Board or by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of directors which Magna
would have if there were no vacancies.
The Iowa Act provides that special meetings of stockholders may be called
by the president, the board of directors, the holders of not less than 10% of
all shares entitled to vote at the meeting, or such other officers or persons
as may be provided in the articles of incorporation or bylaws. Homeland's
Bylaws provide that special meetings may be called by the Chairman of the Board
or by the Board of Directors, and must be called by the Board of Directors upon
the written demand of the holders of at least 10% of all the votes entitled to
be cast on any issue proposed to be considered at the meeting.
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Action by Written Consent. Under the DGCL, unless otherwise provided in the
certificate of incorporation, any action which may be taken or is required to
be taken at any annual or special meeting of stockholders, may be taken without
a meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, is signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Magna's Certificate of Incorporation,
however, prohibits action by written consent.
The Iowa Act provides that actions by stockholders may be taken without a
meeting only if a consent in writing is signed by holders of outstanding shares
having not less than 90% of the votes entitled to be cast at a meeting at which
all shares entitled to vote on the action were present and voted.
SUPERVISION AND REGULATION
GENERAL
As a bank holding company, Magna is subject to regulation under the BHCA
and its examination and reporting requirements. Under the BHCA, a bank holding
company may not directly or indirectly acquire the ownership or control of more
than 5% of the voting shares or substantially all of the assets of any company,
including a bank or savings and loan association, without the prior approval of
(or, in the case of certain non-bank companies, without prior notice to) the
Federal Reserve Board. In addition, bank holding companies are generally
prohibited under the BHCA from engaging in nonbanking activities, subject to
certain exceptions.
Magna and its subsidiaries are subject to supervision and examination by
applicable federal and state banking and other agencies. The earnings of
Magna's subsidiaries, and therefore the earnings of Magna, are affected by
general economic conditions, management policies and the legislative and
governmental actions of various Regulatory Authorities, including the Federal
Reserve Board, the OTS, the Federal Deposit Insurance Corporation (the
"FDIC"), the Comptroller of the Currency (the "Comptroller") and the state
banking regulatory agencies. In addition, there are numerous governmental
requirements and regulations that affect the activities of Magna and its
subsidiaries.
CERTAIN TRANSACTIONS WITH AFFILIATES
There are various legal restrictions on the extent to which a bank holding
company such as Magna and its nonbank subsidiaries can engage in certain
transactions, including borrowing or otherwise obtaining credit from its bank
affiliates. In general, these restrictions require that any such extensions of
credit must be on non-preferential terms and secured by designated amounts of
specified collateral and be limited, as to any one of the holding company or
such nonbank subsidiaries, to 10% of the lending bank's capital stock and
surplus, and as to the holding company and all such nonbank subsidiaries in the
aggregate, to 20% of such bank's capital stock and surplus.
PAYMENT OF DIVIDENDS
Magna is a legal entity separate and distinct from its banking and other
subsidiaries. The principal source of Magna's revenues is dividends from its
national banking subsidiary. The approval of the Comptroller is generally
required for any dividend by a national bank if the total of all dividends
declared by the board of directors of such bank in any calendar year would
exceed the total of (i) its net profits (as defined and interpreted by
regulation) for such year, and (ii) its net profits for the preceding two years
less any required transfer to surplus or a fund for the retirement of preferred
stock. In addition, a national bank may pay dividends only to the extent that
its retained net profits (including any portion transferred to surplus) exceed
bad debts (as defined and interpreted by regulation).
Under the terms of the Merger Agreement, Magna has agreed to pay an amount
in cash of up to $92 million to acquire shares of Homeland Common Stock.
Magna's banking subsidiary has requested and has received approval from the
Comptroller to pay to Magna a special dividend sufficient for Magna to meet
this obligation. Magna's banking subsidiary has also requested and has received
approval from the Comptroller to pay subsequent, future dividends of up to 50%
of its then-current period earnings without additional regulatory approval,
while maintaining its status as a "well capitalized" financial institution
(as currently defined) in accordance with its current internal policy.
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In addition, if, in the opinion of the applicable federal bank regulatory
agency, a depository institution under its jurisdiction is engaged in or is
about to engage in an unsafe and unsound practice (which, depending on the
financial condition of the institution, could include the payment of
dividends), such agency may require, after notice and hearing, that the
institution in question cease and desist from such practice. The Comptroller
has indicated that paying dividends that would deplete a depository
institution's capital base to an inadequate level would be an unsafe and
unsound practice. Moreover, an insured depository institution may not pay any
dividends if such payment would cause it to become undercapitalized or once it
is undercapitalized. See "--Capital Adequacy." Also, the federal bank
regulatory agencies have issued policy statements which provide that depository
institutions and their holding companies should generally pay dividends only
out of current operating earnings.
CAPITAL ADEQUACY
The Federal Reserve Board has issued standards for measuring capital
adequacy for bank holding companies. These standards are designed to provide
risk-responsive capital guidelines and to incorporate a consistent framework
for use by financial institutions operating in major international financial
markets. The federal banking regulators have issued standards for banks and
thrifts that are similar but not identical to the standards for bank holding
companies.
In general, the risk-related standards require banks and bank holding
companies to maintain capital based on "risk-adjusted" assets so that
categories of assets with potentially higher credit risk will require more
capital backing than categories with lower credit risk. In addition, banks and
bank holding companies are required to maintain capital to support off-balance
sheet activities such as loan commitments.
Under the risk-based capital standard, the minimum consolidated ratio of
total capital to risk-adjusted assets (including certain off-balance sheet
items, such as standby letters of credits) required by the Federal Reserve
Board for bank holding companies is currently 8%. At least one-half of the
total capital must be comprised of common equity, retained earnings, qualifying
noncumulative perpetual preferred stock, a limited amount of qualifying
cumulative perpetual preferred stock and minority interest in the equity
accounts of consolidated subsidiaries, plus certain items such as goodwill and
certain other intangible assets ("Tier I Capital"). The remainder may consist
of qualifying hybrid capital instruments, perpetual debt, mandatory convertible
debt securities, a limited amount of subordinated debt, preferred stock that
does not qualify as Tier I Capital and a limited amount of loan and lease loss
reserves. As of September 30, 1996, Magna's Tier I Capital and total capital to
risk adjusted assets ratios were 13.22% and 14.49%, respectively. At September
30, 1996, on a pro forma combined basis after giving effect to the Merger on a
purchase accounting basis, Magna's estimated consolidated Tier I Capital and
total capital to risk-adjusted assets ratios would be 10.39% and 11.61%,
respectively.
In addition to the risk-based standard, the Federal Reserve Board has
established minimum leverage ratio guidelines for bank holding companies. These
guidelines provide for a minimum ratio of Tier I capital to adjusted average
total assets less goodwill and certain other intangibles (the "Leverage
Ratio") of 3% for bank holding companies that meet certain specified criteria,
including having the highest regulatory rating. Other bank holding companies
generally are required to maintain a Leverage Ratio of at least 4% to 5%.
Neither Magna nor its banking subsidiary has been advised by its primary
banking regulator of any specific Leverage Ratio applicable to it.
The guidelines also provide that bank holding companies experiencing
internal growth or making acquisitions are expected to maintain strong capital
positions substantially above the minimum supervisory levels without
significant reliance on intangible assets. Furthermore, the Federal Reserve
Board has indicated that it will consider a "tangible Tier I capital leverage
ratio" (deducting all intangibles) and other indicia of capital strength in
evaluating proposals for expansion or new activities.
As of September 30, 1996, Magna's Leverage Ratio was 8.24%. At September
30, 1996, on a pro forma combined basis after giving effect to the Merger on a
purchase accounting basis, Magna's estimated consolidated Leverage Ratio would
be 6.91%.
SUPPORT OF SUBSIDIARY BANKS
Under Federal Reserve Board policy, Magna is expected to act as a source of
financial strength to its subsidiary bank and to commit resources to support
its banking subsidiary in circumstances where it might not choose to do so
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absent such a policy. In addition, any capital loans by Magna to any of its
subsidiaries would also be subordinate in right of payment to deposits and
certain other indebtedness of such subsidiary. This support may be required at
times when Magna may not find itself able to provide it.
LIABILITY OF COMMONLY CONTROLLED INSTITUTIONS
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") contains a "cross-guarantee" provision which could result in
insured depository institutions owned by Magna being assessed for losses
incurred by the FDIC in connection with assistance provided to, or the failure
of, any other insured depository institution owned by Magna.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), federal banking regulators are required to take prompt corrective
action in respect of depository institutions that do not meet their minimum
capital requirements. The relevant capital measures are the total capital
ratio, Tier I Capital ratio and the Leverage Ratio. Under the regulations, a
national bank will be (i) "well-capitalized" if it has a total capital ratio
of 10% or greater, a Tier I Capital ratio of 6% or greater and a Leverage Ratio
of 5% or greater and is not subject to any order or written directive by any
such regulatory authority to meet and maintain a specific capital level for any
capital measure; (ii) "adequately capitalized" if it has a total capital
ratio of 8% or greater, a Tier I Capital ratio of 4% or greater and a Leverage
Ratio of 4% or greater (3% in certain circumstances) and is not
"well-capitalized;" (iii) "undercapitalized" if it has a total capital
ratio of less than 8%, Tier I Capital ratio of less than 4% or a Leverage Ratio
of less than 4% (3% in certain circumstances); (iv) "significantly
undercapitalized" if it has a total capital ratio of less than 6%; a Tier I
Capital ratio of less than 3% or a Leverage Ratio of less than 3%; and (v)
"critically undercapitalized" if its tangible equity is equal to or less than
2% of average quarterly tangible assets. In addition, a bank's primary federal
bank regulatory agency is authorized to downgrade the bank's capital category
to the next lower category upon a determination that the bank is in an unsafe
or unsound condition or is engaged in an unsafe or unsound practice. As of
December 31, 1995, Magna Bank had capital levels that qualify it as
"well-capitalized" under such regulations.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution was or would be as a result
thereof "undercapitalized." An "undercapitalized" depository institution is
also subject to limitations on, among other things, asset growth, acquisitions,
branching, new business lines, acceptance of brokered deposits, and borrowings
from the federal reserve system and are required to submit a capital
restoration plan. The federal bank regulatory agencies may not accept a capital
restoration plan without determining, among other things, that the plan is
based upon realistic assumptions and is likely to succeed in restoring the
depository institution's capital. In addition, for a capital restoration plan
to be acceptable, the depository institution's parent holding company must
guaranty that the institution will comply with such capital restoration plan.
The aggregate liability of the parent holding company is limited to the lesser
of (i) an amount equal to 5% of the depository institution's total assets at
the time it became "undercapitalized," or (ii) the amount which is necessary
(or would have been necessary) to bring the institution into compliance with
all capital standards applicable with respect to such institution as of the
time it fails to comply with the plan. If a depository institution fails to
submit an acceptable plan, it is treated as if it is "significantly
undercapitalized." A "significantly undercapitalized" depository institution
may be subject to a number of requirements and restrictions, including orders
to sell sufficient voting stock to become "adequately capitalized,"
requirements to reduce total assets, and cessation of receipt of deposits from
correspondent banks. A "critically undercapitalized" institution is subject
to the appointment of a receiver or a conservator.
FDIC INSURANCE
Magna Bank's deposits are insured up to $100,000 per insured depositor (as
defined by law and regulation) primarily through the bank insurance fund
("BIF"), although certain deposits acquired by Magna since 1989 were and
continue to be insured through the Savings Association Insurance Fund
("SAIF"). Both the BIF and SAIF are administered and managed by the FDIC.
In July, 1993, the FDIC adopted a new risk-based assessment system for
insured depository institutions that takes into account the risk attributable
to different categories and concentrations of assets and liabilities. Under
this system, an institution is assigned to one of three capital categories,
namely (i) well-capitalized, (ii) adequately
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capitalized, (iii) undercapitalized. An institution is further assigned by the
FDIC to one of three supervisory subgroups based on a supervisory evaluation
provided to the FDIC by the institutions primary federal regulator and
information which the FDIC determines to be relevant to the institution's
financial condition and the risk posed to the deposit insurance fund. An
institution's insurance assessment rate is then determined based on the capital
category and supervisory category to which it is assigned. These rates were
established for both funds to achieve a designated ratio of reserve to insured
deposits of 1.25% within a specified period of time.
Once the designated ratio for the BIF was reached, which occurred in May,
1995, the FDIC was authorized to reduce the minimum assessment rate below the
then minimum $.23 per $100 of insured deposits and to set future assessment
rates at such levels that would maintain the fund's reserve ratio at the
designated level. In August 1995, the FDIC adopted final regulations reducing
the assessment rates for BIF member banks. Under the revised schedule, an
assessment rate schedule that ranged from $.04 to $.31 per $100 of insured
deposits was established for BIF member banks. In November 1995, the FDIC
approved a further reduction in the assessment schedule for BIF deposits.
Effective January 1, 1996, the assessment schedule now ranges from a minimum of
$2,000 per year to $.27 per $100 of deposits subject to BIF assessments, based
on each institution's risk classification.
Included in the Omnibus Appropriations Bill signed into law by President
Clinton on September 30, 1996 (the "1996 Legislation") were certain
banking-related riders affecting both the bank and thrift industry, principally
relating to the recapitalization of the SAIF. Under the 1996 Legislation, every
depository institution having SAIF-insured deposits is subject to a one-time
assessment of 65.7 cents on every $100 of thrift deposits held on March 31,
1995, payable on or before November 29, 1996, which assessment must be reported
as a third-quarter expense. The special assessments under this provision on
Magna and Homeland are $411,000 and $1.7 million, respectively. It is
anticipated that the aggregate amount collected pursuant to this one-time
assessment will sufficiently recapitalize SAIF such that thrift deposit
insurance premiums, which currently are 23 cents to 31 cents per $100 of
assessable deposits, may be brought in line with those of banks by the year
2000. The 1996 Legislation reduced ongoing SAIF deposit insurance assessment
rates from 23 cents to 6.4 cents per $100 of insured deposits and increased
ongoing BIF deposit insurance assessment rates from zero to 1.3 cents per $100
of insured deposits beginning January 1, 1997. The 1996 Legislation also
provides that, commencing on January 1, 1997, banks will share with thrifts all
subsequent payments of interest due on bonds issued by the quasi-governmental
Financing Corp. in the late 1980's to finance the thrift bailout. From January
1, 1997 through December 31, 1999, banks insured by the BIF will pay roughly
$322 million annually toward interest on these bonds, while SAIF-insured
institutions will pay a proportionately larger share, approximately $458 million
annually. Beginning in 2000 through 2017, both banks and thrifts will pay 2.43
cents per $100 of insured deposits.
As of September 30, 1996, approximately 2.0% of Magna's banking
subsidiaries deposits were insured by the SAIF. On a pro forma combined basis,
approximately 6.3% of Magna's banking subsidiaries deposits would be insured by
the SAIF.
The FDIC is authorized to prohibit any BIF-insured or SAIF-insured
institution from engaging in any activity that the FDIC determines by
regulation or order to pose a serious threat to the respective insurance fund.
Also, the FDIC may initiate enforcement actions against any bank or savings
institution, after first giving the institution's primary regulatory authority
an opportunity to take such action. The FDIC may terminate the deposit
insurance of any depository institution if it determines, after a hearing, that
the institution has engaged or is engaging in unsafe or unsound practices, is
in an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, order or any condition imposed in writing by the
FDIC. It may also suspend deposit insurance temporarily during the hearing
process for the permanent termination of insurance, if the institution has no
tangible capital. If deposit insurance is terminated, the deposits at the
institution at the time of termination, less subsequent withdrawals, shall
continue to be insured for a period from six months to two years, as determined
by the FDIC.
INTERSTATE BANKING AND OTHER RECENT LEGISLATION
In September 1994, legislation was enacted that is expected to have a
significant effect in restructuring the banking industry in the United States.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
facilitates the interstate expansion and consolidation of banking organizations
(i) by permitting bank holding companies that are adequately capitalized and
managed, one year after enactment of the legislation, to acquire banks located
in states outside their home states regardless of whether such acquisitions are
authorized under the law of the
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host state, (ii) by permitting the interstate merger of banks after June 1,
1997, subject to the right of individual states to "opt in" or to "opt out"
of this authority before that date, (iii) by permitting banks to establish new
branches on an interstate basis provided that, such action is specifically
authorized by the law of the host state, (iv) by permitting foreign banks to
establish, with approval of the regulators in the United States, branches
outside their home states to the same extent that national or state banks
located in the home state would be authorized to do so, and (v) by permitting,
beginning September 29, 1995, banks to receive deposits, renew time deposits,
close loans, service loans and receive payments on loans and other obligations
as agent for any bank or thrift affiliate, whether the affiliate is located in
the same state or a different state. One effect of this legislation will be to
permit Magna to acquire banks located in any state and to permit bank holding
companies located in any state to acquire banks and bank holding companies in
Missouri. Overall, this legislation is likely to have the effects of increasing
competition and promoting geographic diversification in the banking industry.
The 1996 Legislation contemplates the merger of the SAIF and BIF by 1999,
provided the consolidation/merger of federal bank and thrift charters under
applicable law and regulation has been achieved by that time. Until such a
consolidation/merger has been achieved, however, depository institutions will
continue to be prohibited from shifting deposits from SAIF insurance coverage
to BIF insurance coverage in an attempt to avoid the higher SAIF assessments.
The FDIC is required to issue regulations to guard against the shifting of
deposits from SAIF to BIF. A report to Congress regarding the merger of the
SAIF and the BIF is required from the Treasury Department by March 31, 1997.
In addition, the 1996 Legislation contains a variety of regulatory relief
measures affecting banks and thrifts, including provisions modifying some of
the more onerous requirements imposed under federal banking laws passed in the
late 1980s and early 1990s. Among the measures are provisions reducing certain
regulatory burdens imposed upon bank holding companies. For example, the 1996
Legislation eliminates the requirement that a bank holding company seeking to
acquire control of a thrift directly or indirectly (as in the case of the
proposed Merger) must file an application with the OTS and for approval to
become a unitary savings and loan holding company as a result of such
acquisition. The 1996 Legislation also provides that a bank holding company
owning or controlling a thrift will no longer be subject to the supervision and
regulation of the OTS. The OTS will continue to regulate and supervise all
thrifts acquired in such transactions.
In addition to the foregoing, there have been proposed a number of
legislative and regulatory proposals designed to strengthen the federal deposit
insurance system and to improve the overall financial stability of the United
States banking system, and to provide for other changes in the bank regulatory
structure, including proposals to reduce regulatory burdens on banking
organizations and to expand the nature of products and services banks and bank
holding companies may offer. It is not possible to predict whether or in what
form these proposals may be adopted in the future, and, if adopted, what their
effect will be on Magna.
LEGAL MATTERS
The validity of the Magna Common Stock to be issued in the Merger will be
passed upon by Wachtell, Lipton, Rosen & Katz, New York, New York.
EXPERTS
The consolidated financial statements of Magna incorporated by reference in
Magna's Annual Report (Form 10-K) for the year ended December 31, 1995, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon incorporated by reference therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements incorporated in this Proxy
Statement/Prospectus by reference from Homeland's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995 have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is
incorporated herein by this reference, and have been so incorporated in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
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OTHER MATTERS
The Board of Directors of Homeland, at the date hereof, is not aware of any
business to be presented at the Special Meeting other than that referred to in
the Notice of Special Meeting and discussed herein. If any other matter should
properly come before the Special Meeting, the persons named as proxies will
have discretionary authority to vote the shares represented by proxies in
accordance with their discretion and judgment as to the best interests of
Homeland.
STOCKHOLDER PROPOSALS
If the Merger is consummated, shareholders of Homeland who receive Magna
Common Stock in the Merger will become stockholders of Magna at the Effective
Time. Under applicable regulations of the Commission, all proposals of
stockholders to be considered for inclusion in Magna's proxy statement for, and
to be considered at, the 1998 Annual Meeting of Magna's Stockholders must be
received in writing at the offices of Magna, c/o Secretary, One Magna Place,
1401 South Brentwood Boulevard, St. Louis, Missouri 63144-1401 by not later
than November 28, 1997. Magna's By-laws also prescribe certain time limitations
and procedures regarding prior written notice to Magna by stockholders, which
limitations and procedures must be complied with for proposals of stockholders
to be included in Magna's proxy statement for, and to be considered at, such
annual meeting. Any stockholder who wishes to make such a proposal should
request a copy of the applicable provisions of Magna's By-laws from the
Secretary of Magna.
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ANNEX A
[Letterhead of The Chicago Corporation]
December 12, 1996
Board of Directors
Homeland Bankshares Corporation
229 E. Park Avenue
Waterloo, Iowa 50704-5300
Members of the Board:
You have requested our opinion as to the fairness of the Merger
Consideration (the "Merger Consideration"), from a financial point of view,
to the shareholders of Homeland Bankshares Corporation ("Homeland") with
respect to the proposed merger of Homeland and Magna Group, Inc. ("Magna").
Homeland has entered into an Agreement and Plan of Reorganization (the
"Agreement") dated August 30, 1996 between Homeland and Magna. As set forth in
the Agreement, shareholders of Homeland will receive 5,038,934 shares of Magna
Common Stock and $91,966,970 in cash as merger consideration. Subject to the
election and allocation procedures set forth in the Agreement, Homeland
shareholders may elect to receive cash, Magna Common Stock or a combination of
Cash and Magna Common Stock.
During the course of our engagement, we have, among other things:
1) reviewed the Agreement, the Proxy Statement/Prospectus and related
documents, the audited financial statements for Homeland and Magna for
the three fiscal years ended December 31, 1995 and the interim financial
statements through September 30, 1996;
2) reviewed and analyzed other material bearing upon the financial and
operating condition of Magna and Homeland and material prepared in
connection with the proposed transaction;
3) reviewed the operating characteristics of certain other financial
institutions deemed relevant to the contemplated transaction;
4) reviewed the nature and terms of recent sale and merger transactions
involving banks and bank holding companies and other financial
institutions that we consider relevant;
5) reviewed historical and current market data for Magna and Homeland
common stock;
6) conducted meetings with members of the senior management of Magna and
Homeland for the purpose of reviewing the future prospects of Magna and
Homeland;
7) evaluated the pro forma ownership of Magna common stock by Homeland
stockholders, relative to the pro forma contribution of Homeland's
assets, liabilities, equity and earnings to the pro forma company.
The Chicago Corporation, as part of its investment banking business, is
regularly engaged in the valuation of banks and bank holding companies and
thrifts and thrift holding companies in connection with mergers and
acquisitions as well as initial and secondary offerings of securities as well
as valuations for other purposes. The Chicago Corporation is a member of all
principal U.S. securities exchanges and in the conduct of our broker-dealer
activities may from time to time purchase securities from, and sell securities
to, Homeland and Magna and as a market maker buy or sell the equity securities
of Homeland and Magna for our own account and the accounts of customers. In
rendering this fairness opinion, we have been retained by the Board of
Directors of Homeland and our opinion is directed to the Board of Directors and
does not constitute a recommendation to any shareholder of Homeland. The
Chicago Corporation will receive a fee from Homeland for our services.
In rendering this opinion, we have relied upon, without independent
verification, the accuracy and completeness of the financial and other
information and representations provided to us by Magna and Homeland. We have
relied upon the management of Homeland and Magna as to the reasonableness and
achieveability of the financial forecasts and projections (and the assumptions
and basis therefor) provided to us, and have assumed that such forecasts and
projections are the best available estimates of management.
Based on the foregoing and our experience as investment bankers, we are of
the opinion that, as of the date hereof, the Merger Consideration to be
received by the shareholders of Homeland as described in the Agreement, is fair
from a financial point of view.
Sincerely,
THE CHICAGO CORPORATION
208 South LaSalle Street
Chicago, Illinois 60604 A-1
312.855.7600
INVESTMENT BANKING | INVESTMENT ADVICE | MEMBER OF ALL PRINCIPAL EXCHANGES
<PAGE> 62
ANNEX B
DISSENTERS' RIGHTS PROVISIONS UNDER THE
IOWA BUSINESS CORPORATION ACT
Set forth below is the text of the statutory dissenters' rights provisions
under Division XIII of the Iowa Business Corporation Act.
DIVISION XIII
DISSENTERS' RIGHTS
PART A
490.1301 DEFINITIONS FOR DIVISION XIII.--In this division:
1. "Beneficial shareholder" means the person who is a beneficial owner of
shares held by a nominee as the record shareholder.
2. "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
3. "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 490.1302 and who exercises that right when and
in the manner required by sections 490.1320 through 490.1328.
4. "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
5. "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
6. "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
7. "Shareholder" means the record shareholder or the beneficial
shareholder.
490.1302 SHAREHOLDERS' RIGHT TO DISSENT.--1. A shareholder is entitled to
dissent from, and obtain payment of the fair value of the shareholder's shares
in the event of, any of the following corporate actions:
a. Consummation of a plan of merger to which the corporation is a party
if either of the following apply:
(1) Shareholder approval is required for the merger by section
490.1103 or the articles of incorporation and the shareholder is
entitled to vote on the merger.
(2) The corporation is a subsidiary that is merged with its parent
under section 490.1104.
b. Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan.
c. Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular course
of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one year after the date of sale.
d. An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it does
any or all of the following:
(1) Alters or abolishes a preferential right of the shares.
(2) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares.
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(3) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities.
(4) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar voting
rights.
(5) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be acquired
for cash under section 490.604.
(6) Extends, for the first time after being governed by this
chapter, the period of duration of a corporation organized under chapter
491 or 496A and existing for a period of years on the day preceding the
date the corporation is first governed by this chapter.
e. Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
2. A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter is not entitled to challenge the
corporate action creating the shareholder's entitlement unless the action is
unlawful or fraudulent with respect to the shareholder or the corporation.
490.1303 DISSENT BY NOMINEES AND BENEFICIAL OWNERS.--1. A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in that shareholder's name only if the shareholder dissents with
respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose behalf
the shareholder asserts dissenters' rights. The rights of a partial dissenter
under this subsection are determined as if the shares as to which the
shareholder dissents and the shareholder's other shares were registered in the
names of different shareholders.
2. A beneficial shareholder may assert dissenters' rights as to shares held
on the shareholder's behalf only if the shareholder does both of the following:
a. Submits to the corporation the record shareholder's written consent
to the dissent not later than the time the beneficial shareholder asserts
dissenters' rights.
b. Does so with respect to all shares of which the shareholder is the
beneficial shareholder or over which that beneficial shareholder has power
to direct the vote.
PART B
490.1320 NOTICE OF DISSENTERS' RIGHTS.--1. If proposed corporate action
creating dissenters' rights under section 490.1302 is submitted to a vote at a
shareholders' meeting, the meeting notice must state that shareholders are or
may be entitled to assert dissenters' rights under this part and be accompanied
by a copy of this part.
2. If corporate action creating dissenters' rights under section 490.1302
is taken without a vote of shareholders, the corporation shall notify in
writing all shareholders entitled to assert dissenters' rights that the action
was taken and send them the dissenters' notice described in section 490.1322.
490.1321 NOTICE OF INTENT TO DEMAND PAYMENT.--1. If proposed corporate
action creating dissenters' rights under section 490.1302 is submitted to a
vote at a shareholders' meeting, a shareholder who wishes to assert dissenters'
rights must do all of the following:
a. Deliver to the corporation before the vote is taken written notice
of the shareholder's intent to demand payment for the shareholder's shares
if the proposed action is effectuated.
b. Not vote the dissenting shareholder's shares in favor of the
proposed action.
2. A shareholder who does not satisfy the requirements of subsection 1, is
not entitled to payment for the shareholder's shares under this part.
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490.1322 DISSENTERS' NOTICE--1. If proposed corporate action creating
dissenters' rights under section 490.1302 is authorized at a shareholders'
meeting, the corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of section 490.1321.
2. The dissenters' notice must be sent no later than ten days after the
proposed corporate action is authorized at a shareholders' meeting, or, if the
corporate action is taken without a vote of the shareholders, no later than ten
days after the corporate action is taken, and must do all of the following:
a. State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited.
b. Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received.
c. Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not the person acquired beneficial
ownership of the shares before that date.
d. Set a date by which the corporation must receive the payment demand,
which date shall not be fewer than thirty nor more than sixty days after
the date the dissenters' notice is delivered.
e. Be accompanied by a copy of this division.
490.1323 DUTY TO DEMAND PAYMENT.--1. A shareholder sent a dissenter's
notice described in section 490.1322 must demand payment, certify whether the
shareholder acquired beneficial ownership of the shares before the date
required to be set forth in the dissenter's notice pursuant to section
490.1322, subsection 2, paragraph "c", and deposit the shareholder's
certificates in accordance with the terms of the notice.
2. The shareholder who demands payment and deposits the shareholder's
shares under subsection 1 retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
3. A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
division.
490.1324 SHARE RESTRICTIONS.--1. The corporation may restrict the transfer
of uncertificated shares from the date the demand for their payment is received
until the proposed corporate action is taken or the restrictions released under
section 490.1326.
2. The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are
canceled or modified by the taking of the proposed corporate action.
490.1325 PAYMENT.--1. Except as provided in section 490.1327, at the time
the proposed corporate action is taken, or upon receipt of a payment demand,
whichever occurs later, the corporation shall pay each dissenter who complied
with section 490.1323 the amount the corporation estimates to be the fair value
of the dissenter's shares, plus accrued interest.
2. The payment must be accompanied by all of the following:
a. The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any.
b. A statement of the corporation's estimate of the fair value of the
shares.
c. An explanation of how the interest was calculated.
d. A statement of the dissenter's right to demand payment under section
490.1328.
e. A copy of this division.
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490.1326 FAILURE TO TAKE ACTION.--1. If the corporation does not take the
proposed action within sixty days after the date set for demanding payment and
depositing share certificates, the corporation shall return the deposited
certificates and release the transfer restrictions imposed on uncertificated
shares.
2. If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 490.1322 as if the corporate action was taken
without a vote of the shareholders and repeat the payment demand procedure.
490.1327 AFTER-ACQUIRED SHARES.--1. A corporation may elect to withhold
payment required by section 490.1325 from a dissenter unless the dissenter was
the beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to shareholders
of the terms of the proposed corporate action.
2. To the extent the corporation elects to withhold payment under
subsection 1, after taking the proposed corporate action, it shall estimate the
fair value of the shares, plus accrued interest, and shall pay this amount to
each dissenter who agrees to accept it in full satisfaction of the dissenter's
demand. The corporation shall send with its offer a statement of its estimate
of the fair value of the shares, an explanation of how the interest was
calculated, and a statement of the dissenter's right to demand payment under
section 490.1328.
490.1328 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.--1. A
dissenter may notify the corporation in writing of the dissenter's own estimate
of the fair value of the dissenter's shares and amount of interest due, and
demand payment of the dissenter's estimate, less any payment under section
490.1325, or reject the corporation's offer under section 490.1327 and demand
payment of the fair value of the dissenter's shares and interest due, if any of
the following apply:
a. The dissenter believes that the amount paid under section 490.1325
or offered under section 490.1327 is less than the fair value of the
dissenter's shares or that the interest due is incorrectly calculated.
b. The corporation fails to make payment under section 490.1325 within
sixty days after the date set for demanding payment.
c. The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set for
demanding payment.
2. A dissenter waives the dissenter's right to demand payment under this
section unless the dissenter notifies the corporation of the dissenter's demand
in writing under subsection 1 within thirty days after the corporation made or
offered payment for the dissenter's shares.
PART C
490.1330 COURT ACTION.--1. If a demand for payment under section 490.1328
remains unsettled, the corporation shall commence a proceeding within sixty
days after receiving the payment demand and petition the court to determine the
fair value of the shares and accrued interest. If the corporation does not
commence the proceeding within the sixty-day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
2. The corporation shall commence the proceeding in the district court of
the county where a corporation's principal office or, if none in this state,
its registered office is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic
corporation merged with or whose shares were acquired by the foreign
corporation was located.
3. The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced under
subsection 2 is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend decision on
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the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to it. The dissenters are entitled
to the same discovery rights as parties in other civil proceedings.
5. Each dissenter made a party to the proceeding is entitled to judgment
for either of the following:
a. The amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the
corporation.
b. The fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold payment
under section 490.1327.
490.1331 COURT COSTS AND COUNSEL FEES.--1. The court in an appraisal
proceeding commenced under section 490.1330 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously, or not in good faith in
demanding payment under section 490.1328.
2. The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable, for either of
the following:
a. Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of sections 490.1320 through 490.1328.
b. Against either the corporation or a dissenter, in favor of any other
party, if the court finds that the party against whom the fees and expenses
are assessed acted arbitrarily, vexatiously, or not it good faith with
respect to the rights provided by this chapter.
3. If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
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ANNEX C
AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN
MAGNA GROUP, INC.
AS BUYER,
AND
HOMELAND BANKSHARES CORPORATION,
AS SELLER
DATED AUGUST 30, 1996
<PAGE> 68
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
entered into on August 30, 1996 by and between MAGNA GROUP, INC., a Delaware
corporation ("Buyer"), and HOMELAND BANKSHARES CORPORATION, an Iowa
corporation ("Seller").
W I T N E S S E T H:
WHEREAS, Buyer is a registered bank holding company under the Bank Holding
Company Act of 1956, as amended (the "Holding Company Act"); and
WHEREAS, Seller is a registered bank holding company under the Holding
Company Act; and
WHEREAS, the Board of Directors of Seller and the Board of Directors of
Buyer have approved the merger (the "Merger") of Seller with and into a
wholly owned subsidiary of Buyer organized or to be organized under the laws of
Iowa ("Merger Sub") pursuant to the terms and subject to the conditions of
this Agreement; and
WHEREAS, as a condition to, and immediately following the execution of this
Agreement, Buyer and Seller will enter into a stock option agreement (the
"Stock Option Agreement") in the form attached hereto as Exhibit A; and
WHEREAS, the parties desire to provide for certain undertakings,
conditions, representations, warranties and covenants in connection with the
transactions contemplated by this Agreement.
NOW THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties agree as follows:
ARTICLE I
THE MERGER
1.01. The Merger. (a) Subject to the terms and conditions of this
Agreement, Seller shall be merged with and into Merger Sub in accordance with
the Iowa Business Corporation Act (the "Iowa Act") and the separate corporate
existence of Seller shall cease. Merger Sub shall be the surviving corporation
of the Merger (sometimes referred to herein as the "Surviving Corporation")
and shall continue to be governed by the laws of the State of Iowa.
1.02. Closing. The closing (the "Closing") of the Merger shall take place
at 10:00 a.m., local time, on the date that the Effective Time (as defined in
Section 1.03) occurs, or at such other time, and at such place, as Buyer and
Seller shall agree (the "Closing Date").
1.03. Effective Time. The Articles of Merger filed with the Secretary of
State of the State of Iowa shall specify the Closing Date as the effective date
of the Merger (the "Effective Date", and the effective time of the Merger,
the "Effective Time"). The parties hereto shall take all actions necessary to
satisfy the requirements for effectuating the Merger in accordance with the
Iowa Act, including by adopting Articles of Merger in the form required under
the Iowa Act. The Articles of Merger shall include the Plan of Merger set forth
as Exhibit B. Subject to the terms and conditions of this Agreement, the
Effective Date shall occur on such date as Buyer shall notify Seller in writing
(such notice to be at least five business days in advance of the Effective
Date) but (i) not earlier than the satisfaction of all conditions set forth in
Section 6.01 (the "Approval Date") and (ii) subject to clause (i), not later
than the first business day of the first full calendar month commencing at
least five business days after the Approval Date. The Approval Date shall in no
event be earlier than January 1, 1997.
1.04. Additional Actions. If, at any time after the Effective Time, Buyer
or the Surviving Corporation shall consider or be advised that any further
deeds, assignments or assurances or any other acts are necessary or desirable
to (a) vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of Seller or Merger Sub or (b) otherwise carry out the
purposes of this Agreement, Seller and Merger Sub and each of their respective
officers and directors shall be deemed to have granted to the Surviving
Corporation an irrevocable power of attorney to execute and deliver all such
deeds, assignments or assurances and to do all acts necessary or desirable to
vest, perfect or confirm title and possession to such rights, properties or
assets in the Surviving Corporation and otherwise to carry out the purposes of
this Agreement, and the officers and directors of the Surviving Corporation are
authorized in the name of Seller and Merger Sub or otherwise to take any and
all such action.
<PAGE> 69
1.05. Articles of Incorporation and Bylaws. The Articles of Incorporation
and Bylaws of Merger Sub in effect immediately prior to the Effective Time
shall be the Articles of Incorporation and Bylaws of the Surviving Corporation
following the Merger until otherwise amended or repealed.
1.06. Boards of Directors and Officers. At the Effective Time, the
directors and officers of Merger Sub immediately prior to the Effective Time
shall be directors and officers, respectively, of the Surviving Corporation
following the Merger; such directors and officers shall hold office in
accordance with the Surviving Corporation's Bylaws and applicable law.
1.07. Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of Buyer, Seller or the holder of any
of the following securities:
(i) Each share of the common stock, par value $.01 per share, of Merger Sub
that is issued and outstanding immediately prior to the Effective Time shall
remain outstanding and shall be unchanged after the Merger and shall thereafter
constitute all of the issued and outstanding capital stock of the Surviving
Corporation; and
(ii) Each share of the common stock, par value $12.50 per share ("Seller
Common Stock"), of Seller issued and outstanding immediately prior to the
Effective Time, other than any Dissenting Shares (as defined in Section 1.13),
shall cease to be outstanding and shall be converted into and become the right
to receive, at the election of the holder thereof as provided in Section 1.08,
either:
(A) 1.55 (as adjusted pursuant to Section 1.09, the "Exchange Ratio")
shares of common stock ("Buyer Common Stock"), par value $2.00 per share,
of Buyer and associated Preferred Share Purchase Rights ("Buyer Rights")
issued pursuant to the rights agreement (the "Buyer Rights Agreement"),
dated as of November 11, 1988, by and between Buyer and Magna Trust
Company, as rights agent (as adjusted pursuant to Section 1.09, the "Per
Share Stock Consideration"), or
(B) $37.50 in cash (as adjusted pursuant to Section 1.09, the "Per
Share Cash Consideration");
provided that the aggregate number of shares of Buyer Common Stock that shall
be issued in the Merger shall not exceed 5,038,934 (the "Stock Amount").
1.08. Election Procedures. Election forms and other appropriate and
customary transmittal materials (which shall specify that delivery shall be
effected, and risk of loss and title to the certificates theretofore
representing Seller Common Stock ("Certificates") shall pass, only upon
proper delivery of such Certificates to an exchange agent designated by Buyer
(the "Exchange Agent")) in such form as Buyer and Seller shall mutually agree
("Election Forms") shall be mailed 30 days prior to the anticipated Effective
Time or on such other earlier date as Seller and Buyer shall mutually agree
("Mailing Date") to each holder of record of Seller Common Stock as of five
business days prior to the Mailing Date ("Election Form Record Date").
Each Election Form shall permit the holder (or the beneficial owner through
appropriate and customary documentation and instructions) either (i) to elect
to receive only Buyer Common Stock with respect to such holder's Seller Common
Stock ("Stock Election Shares"); (ii) to elect to receive only cash with
respect to such holder's Seller Common Stock ("Cash Election Shares"); (iii)
to elect to receive Buyer Common Stock with respect to 57% of such holder's
Seller Common Stock and cash with respect to 43% of such holder's Seller Common
Stock rounded, in each case, to the nearest whole share ("Mixed Election
Shares"); or (iv) to indicate that such holder makes no election ("No
Election Shares"). Dissenting Shares (as defined below) shall be treated as
Cash Election Shares for purposes of this Section but shall not be converted
into the Per Share Cash Consideration or the Per Share Stock Consideration
except as provided in Section 1.13. Subject to the provisions of this Section,
the Mixed Election Shares shall be divided by the Exchange Agent into such
portion (to be approximately 57% in aggregate) with respect to which the holder
has elected to receive Buyer Common Stock (the "Mixed Stock Shares") and such
portion (to be approximately 43% in aggregate) with respect to which the holder
has elected to receive cash (the "Mixed Cash Shares") for the purposes of
allocating the total consideration as specified below, it being the intention
that, to the fullest extent possible, subject to all applicable constraints,
all Mixed Election Shares shall receive the consideration with respect to which
a Mixed election has been made without regard to the pro rata selection process
set forth below.
Any Seller Common Stock with respect to which the holder (or the beneficial
owner, as the case may be) shall not have submitted to the Exchange Agent an
effective, properly completed Election Form on or before 5:00 p.m. on
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the 25th day following the Mailing Date (or such other time and date as Buyer
and Seller may mutually agree) (the "Election Deadline") shall also be deemed
to be "No Election Shares."
Buyer shall make available up to two separate Election Forms, or such
additional Election Forms as the Buyer in its sole discretion may permit, to
all persons who become holders (or beneficial owners) of Seller Common Stock
between the Election Form Record Date and close of business on the business day
prior to the Election Deadline, and Seller shall provide to the Exchange Agent
all information reasonably necessary for it to perform as specified herein.
Any such election shall have been properly made only if the Exchange Agent
shall have actually received a properly completed Election Form by the Election
Deadline. An Election Form shall be deemed properly completed only if
accompanied by one or more Certificates (or customary affidavits and
indemnification regarding the loss or destruction of such Certificates or the
guaranteed delivery of such Certificates) representing all shares of Seller
Common Stock covered by such Election Form, together with duly executed
transmittal materials included in the Election Form. Any Election Form may be
revoked or changed by the person submitting such Election Form at or prior to
the Election Deadline. In the event an Election Form is revoked prior to the
Election Deadline, the shares of Seller Common Stock represented by such
Election Form shall become No Election Shares and Buyer shall cause the
Certificates to be promptly returned without charge to the person submitting
the Election Form upon written request to that effect from the person who
submitted the Election Form. Subject to the terms of this Agreement and of the
Election Form, the Exchange Agent shall have reasonable discretion to determine
whether any election, revocation or change has been properly or timely made and
to disregard immaterial defects in the Election Forms, and any good faith
decisions of the Exchange Agent regarding such matters shall be binding and
conclusive. Neither Buyer nor the Exchange Agent shall be under any obligation
to notify any person of any defect in an Election Form.
Within five business days after the Election Deadline, unless the Effective
Time has not yet occurred, in which case as soon thereafter as practicable,
Buyer shall cause the Exchange Agent to effect the allocation among the holders
of Seller Common Stock of rights to receive Buyer Common Stock or cash in the
Merger in accordance with the Election Forms as follows:
(i) Stock Elections Plus the Mixed Stock Shares Less Than Stock Amount.
If the number of shares of Buyer Common Stock that would be issued upon
conversion in the Merger of the Stock Election Shares and the Mixed Stock
Shares is less than the Stock Amount, then:
(A) all Mixed Stock Shares and Stock Election Shares shall be
converted into the right to receive the Per Share Stock Consideration,
(B) the Exchange Agent shall then select first from among the No
Election Shares and then (if necessary) from among the Cash Election
Shares, by a pro rata selection process (as described below), a
sufficient number of shares ("Stock Designated Shares") such that the
number of shares of Buyer Common Stock that will be issued in the Merger
equals as closely as practicable the Stock Amount, and all Stock
Designated Shares shall be converted into the right to receive the Per
Share Stock Consideration, and
(C) the Cash Election Shares and the No Election Shares which are
not Stock Designated Shares and all Mixed Cash Shares shall be converted
into the right to receive the Per Share Cash Consideration.
(ii) Stock Elections and the Mixed Stock Shares More Than Stock Amount.
If the number of shares of Buyer Common Stock that would be issued upon the
conversion into Buyer Common Stock of the Stock Election Shares is greater
than the Stock Amount, then:
(A) all Mixed Cash Shares, Cash Election Shares and No Election
Shares shall be converted into the right to receive the Per Share Cash
Consideration,
(B) the Exchange Agent shall then select from among the Stock
Election Shares, by a pro rata selection process (as described below) a
sufficient number of shares ("Cash Designated Shares") such that the
number of shares of Buyer Common Stock that will be issued in the Merger
equals as closely as practicable the Stock Amount, and all Cash
Designated Shares shall be converted into the right to receive the Per
Share Cash Consideration, and
(C) the Stock Election Shares which are not Cash Designated Shares
and all Mixed Stock Shares shall be converted into the right to receive
the Per Share Stock Consideration.
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(iii) Stock Elections and Mixed Stock Shares Equal to Stock Amount. If
the number of shares of Buyer Common Stock that would be issued upon
conversion into Buyer Common Stock of the Stock Election Shares and Mixed
Stock Shares is equal or nearly equal (as determined by the Exchange Agent)
to the Stock Amount, then subparagraphs (i) and (ii) above and
subparagraphs (iv) and (v) below shall not apply and all Stock Election
Shares and Mixed Stock Shares shall be converted into the right to receive
the Per Share Stock Consideration and all Cash Election Shares, Mixed Cash
Shares and No Election Shares shall be converted into the right to receive
the Per Share Cash Consideration; or
(iv) Stock Elections, Mixed Stock Shares and No Elections Equal to
Stock Amount. If the number of shares of Buyer Common Stock that would be
issued upon the conversion into Buyer Common Stock of the Stock Election
Shares, Mixed Stock Shares and No Election Shares would equal or nearly
equal (as determined by the Exchange Agent) the Stock Amount, then
subparagraphs (i), (ii) and (iii) above and subparagraph (v) below shall
not apply and all Cash Election Shares and Mixed Cash Shares shall be
converted into the right to receive the Per Share Cash Consideration and
all Stock Election Shares, Mixed Stock Shares and No Election Shares shall
be converted into the right to receive the Per Share Stock Consideration.
(v) Mixed Stock Shares More Than Stock Amount. If the number of shares
of Buyer Common Stock that would be issued upon the conversion in the
Merger into Buyer Common Stock of the Mixed Stock Shares is greater than
the Stock Amount, then;
(A) all Mixed Cash Shares, Cash Election Shares, No Election Shares
and Stock Election Shares shall be converted into the right to receive
the Per Share Cash Consideration,
(B) the Exchange Agent shall select from among the Mixed Stock
Shares by a pro rata selection process (as described below) a sufficient
number of shares ("Mixed Designated Shares") such that the number of
shares of Buyer Common Stock that will be issued in the Merger equals as
closely as practicable the Stock Amount, and all Mixed Designated Shares
shall be converted into the right to receive the Per Share Cash
Consideration, and
(C) the Mixed Stock Shares that are not Mixed Designated Shares
shall be converted into the right to receive the Per Share Stock
Consideration.
The pro rata selection process to be used by the Exchange Agent shall
consist of such equitable pro ration processes as shall be mutually determined
by Buyer and Seller.
1.09. Adjustments to the Merger Consideration. (a) The Per Share Stock
Consideration and the Per Share Cash Consideration shall each be adjusted as of
the end of the ten (10) consecutive trading-day period (the "Valuation
Period") during which the shares of Buyer Common Stock are traded on the
Nasdaq Stock Market National Market System ("NASDAQ") ending on the tenth
calendar day immediately prior to the anticipated Effective Time. The Per Share
Stock Consideration shall be adjusted by adjusting the Exchange Ratio such that
the product of the Exchange Ratio (rounded to the nearest 1/1000th of a share)
and the Valuation Period Market Value shall equal the Average Per Share
Consideration. The Per Share Cash Consideration shall be adjusted to equal the
Average Per Share Consideration.
(b) For purposes of this Agreement the following definitions shall apply:
"Valuation Period Market Value" shall mean the average of the
closing-sale prices for the Buyer Common Stock as reported on NASDAQ (as
reported in The Wall Street Journal, Midwest edition, or, in the absence
thereof, by another authoritative source) during the Valuation Period.
"Average Per Share Consideration" shall mean the Aggregate Consideration
divided by the Valuation Period Share Number (rounder to the nearest cent).
"Aggregate Consideration" shall mean the sum of (x) the product of 1.55
times the Valuation Period Market Value times 0.57 times the Valuation Period
Share Number and (y) $37.50 times 0.43 times the Valuation Period Share Number.
"Valuation Period Share Number" shall mean the total number of shares of
Seller Common Stock outstanding (other than treasury shares) on the last day of
the Valuation Period.
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1.10. Adjustments for Dilution and Other Matters. If prior to the Effective
Time, (i) Seller shall declare a stock dividend or distribution upon or
subdivide, split up, reclassify or combine the Seller Common Stock, or declare
a dividend or make a distribution on the Seller Common Stock in any security
convertible into Seller Common Stock, or (ii) Buyer shall declare a stock
dividend or distribution upon or subdivide, split up, reclassify or combine the
Buyer Common Stock or declare a dividend or make a distribution on the Buyer
Common Stock in any security convertible into Buyer Common Stock, appropriate
adjustment or adjustments will be made to the Per Share Cash Consideration, the
Per Share Stock Consideration and the Stock Amount.
1.11. Illustrative Cases. Appendix A hereto illustrates, among other
things, the value to be received per share of Seller Common Stock, whether in
cash or in Buyer Common Stock, at varying Valuation Period Market Values, as
well as the resulting exchange ratios.
1.12. Exchange Procedures. (a) Subject to Section 1.10, each previous
holder of a Certificate that has surrendered such Certificate together with
duly executed transmittal materials included in the Election Form to the Buyer
or, at the election of Buyer, the Exchange Agent, pursuant to Section 1.08
will, upon acceptance thereof by Buyer or the Exchange Agent, be entitled to a
certificate or certificates representing the number of full shares of Buyer
Common Stock or cash into which the Certificate so surrendered shall have been
converted pursuant to this Agreement and any distribution theretofore declared
and not yet paid with respect to such shares of Buyer Common Stock, without
interest.
(b) Buyer or, at the election of Buyer, the Exchange Agent shall accept
Certificates upon compliance with such reasonable terms and conditions as Buyer
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 Buyer
or the Exchange Agent may reasonably require.
(c) Each outstanding Certificate shall until duly surrendered to Buyer or
the Exchange Agent be deemed to evidence ownership of the consideration into
which the stock previously represented by such Certificate shall have been
converted pursuant to this Agreement.
(d) After the Effective Time, holders of Certificates shall cease to have
rights with respect to the stock previously represented by such Certificates,
and their sole rights shall be to exchange such Certificates for the
consideration provided for in this Agreement. After the Effective Time, there
shall be no further transfer on the records of Seller of Certificates, and if
such Certificates are presented to Seller for transfer, they shall be cancelled
against delivery of the consideration provided therefor in this Agreement.
Buyer shall not be obligated to deliver the consideration to which any former
holder of Seller Common Stock is entitled as a result of the Merger until such
holder surrenders the Certificates as provided herein. No dividends declared
will be remitted to any person entitled to receive Buyer Common Stock under
this Agreement until such person surrenders the Certificate representing the
right to receive such Buyer Common Stock, at which time such dividends 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 Seller for purposes of Rule 145 of the
Securities Act of 1933, as amended (together with the rules and regulations
thereunder, the "Securities Act"), shall not be exchanged for certificates
representing Buyer Common Stock until Buyer has received a written agreement
from such person in the form attached as Exhibit C. Neither the Exchange Agent
nor any party to this Agreement nor any affiliate thereof shall be liable to
any holder of stock represented by any Certificate for any consideration paid
to a public official pursuant to applicable abandoned property, escheat or
similar laws. Buyer and the Exchange Agent shall be entitled to rely upon the
stock transfer books of Seller 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, Buyer and the
Exchange Agent shall be entitled to deposit any consideration represented
thereby in escrow with an independent third party and thereafter be relieved
with respect to any claims thereto.
1.13. Dissenting Shares. (a) "Dissenting Shares" means any shares held by
any holder who becomes entitled to payment of the fair value of such shares
under the Iowa Act. Any holders of Dissenting Shares shall be entitled to
payment for such shares only to the extent permitted by and in accordance with
the provisions of the Iowa Act; provided, however, that if, in accordance with
the Iowa Act, any holder of Dissenting Shares shall forfeit such right to
payment of the fair value of such shares, such shares shall thereupon be deemed
to have been converted into and to
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have become exchangeable for, as of the Effective Time, the right to receive
the consideration provided in this Article I.
(b) Seller shall give Buyer (i) prompt notice of any written objections to
the Merger and any written demands for the payment of the fair value of any
shares, withdrawals of such demands, and any other instruments served pursuant
to the Iowa Act received by Seller and (ii) the opportunity to direct all
negotiations and proceedings with respect to such demands under the Iowa Act.
Seller shall not voluntarily make any payment with respect to any demands for
payment of fair value and shall not, except with the prior written consent of
Buyer, settle or offer to settle any such demands.
1.14. No Fractional Shares. Notwithstanding any other provision of this
Agreement, neither certificates nor scrip for fractional shares of Buyer Common
Stock shall be issued in the Merger. Each holder who otherwise would have been
entitled to a fraction of a share of Buyer Common Stock shall receive in lieu
thereof cash (without interest) in an amount determined by multiplying the
fractional share interest to which such holder would otherwise be entitled by
the Closing Price per share of Buyer Common Stock on the last business day
preceding the Effective Time. With respect to a share of stock, "Closing
Price" shall mean: the closing-sale price as reported on NASDAQ (as reported
in The Wall Street Journal, Midwest edition, or in the absence thereof, by an
other authoritative source). No such holder shall be entitled to dividends,
voting rights or any other rights in respect of any fractional share.
ARTICLE II
REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER
Seller represents and warrants to and covenants with Buyer as follows:
2.01. Organization and Authority. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Iowa, is
duly qualified to do business and is in good standing in all jurisdictions
where its ownership or leasing of property or the conduct of its business
requires it to be so qualified and has corporate power and authority to own its
properties and assets and to carry on its business as it is now being
conducted; except where the failure to so qualify would not have a material
adverse effect on the financial condition, results of operation or the business
(collectively, "Condition") of Seller or Seller Subsidiaries (as defined in
Section 2.02), taken as a whole. Seller is registered as a bank holding company
with the Board of Governors of the Federal Reserve System (the "Board") under
the Holding Company Act. True and complete copies of the Articles of
Incorporation and the Bylaws of Seller and, to the extent requested in writing
by Buyer, of the Articles of Incorporation and Bylaws of the Seller
Subsidiaries (as defined below), each as in effect on the date of this
Agreement, have been provided to Buyer.
2.02. Subsidiaries. Schedule 2.02 sets forth, among other things, a
complete and correct list of all of Seller's Subsidiaries (each, a "Seller
Subsidiary" and collectively, the "Seller Subsidiaries"), all outstanding
Equity Securities of each of which, except as set forth on Schedule 2.02, are
owned directly or indirectly by Seller. "Equity Securities" of an issuer
means capital stock or other equity securities of such issuer, options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, shares of any
capital stock or other Equity Securities of such issuer, or contracts,
commitments, understandings or arrangements by which such issuer is or may
become bound to issue additional shares of its capital stock or other Equity
Securities of such issuer, or options, warrants, scrip or rights to purchase,
acquire, subscribe to, calls on or commitments for, or stock appreciation or
similar rights in respect of, any shares of its capital stock or other Equity
Securities. Except as set forth on Schedule 2.02, all of the outstanding shares
of capital stock of the Seller Subsidiaries are validly issued, fully paid and
nonassessable, and those shares owned by Seller are owned free and clear of any
lien, claim, charge, option, encumbrance, agreement, mortgage, pledge, security
interest or restriction (a "Lien") with respect thereto. Each of the Seller
Subsidiaries is a corporation or association duly incorporated or organized,
validly existing, and in good standing under the laws of its jurisdiction of
incorporation or organization, and has corporate power and authority to own or
lease its properties and assets and to carry on its business as it is now being
conducted. Each of the Seller Subsidiaries is duly qualified to do business in
each jurisdiction where its ownership or leasing of property or the conduct of
its business requires it so to be qualified, except where the failure to so
qualify would not have a material adverse effect on the Condition of Seller and
its Subsidiaries, taken as a whole. Except as set forth on Schedule 2.02,
Seller does not own beneficially, directly or indirectly, five percent or more
of any shares of any class of Equity Securities or similar interests of any
corporation, bank, business trust, association or similar organization. All of
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Seller's bank Subsidiaries (the "Banks") are either state banking
associations chartered under the laws of the State of Iowa, federally chartered
savings and loan associations supervised by the Office of Thrift Supervision
("OTS") or national banking associations chartered by the Office of the
Comptroller of the Currency ("OCC"). The deposits of each of the Banks are
insured by the Bank Insurance Fund ("BIF") or by the Savings Association
Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation (the
"FDIC"), including to the extent such deposits were transferred to a Bank by
the Resolution Trust Corporation. The Banks identified as such on Schedule 2.02
are members in good standing of the Federal Reserve System. Except as set forth
on Schedule 2.02, neither Seller nor any Seller Subsidiary holds any interest
in a partnership or joint venture of any kind.
2.03. Capitalization. The authorized capital stock of Seller consists of
25,000,000 shares of Seller Common Stock, of which, as of August 23, 1996,
5,703,378 shares were issued and outstanding. As of August 23, 1996, Seller had
reserved 16,371 shares of Seller Common Stock for issuance under Seller's stock
option plans, a list of which is set forth on Schedule 2.03 (the "Seller Stock
Plans"), pursuant to which options ("Seller Stock Options") covering 15,000
shares of Seller Common Stock were outstanding as of August 23, 1996. Since
August 23, 1996, no Equity Securities of Seller have been issued other than
shares of Seller Common Stock which may have been issued upon the exercise of
Seller Employee Stock Options. Except as set forth above, there are no other
Equity Securities of Seller outstanding. All of the issued and outstanding
shares of Seller Common Stock are validly issued, fully paid, and
nonassessable, and have not been issued in violation of any preemptive right of
any stockholder of Seller.
2.04. Authorization. (a) Seller has the corporate power and authority to
enter into this Agreement and, subject to the approval of this Agreement by the
stockholders of Seller, to carry out its obligations hereunder. The only
stockholder vote required for Seller to approve this Agreement is the
affirmative vote of the holders of at least a majority of the votes entitled to
be cast on the Agreement by the holders of shares of Seller Common Stock. The
execution, delivery and performance of this Agreement by Seller and the
consummation by Seller of the transactions contemplated hereby have been duly
authorized by the Board of Directors of Seller and are not a "Covered
Transaction" as such term is defined in Seller's Articles of Incorporation.
Subject to approval by the stockholders of Seller, this Agreement is a valid
and binding obligation of Seller enforceable against Seller in accordance with
its terms.
(b) Neither the execution nor delivery nor performance by Seller of this
Agreement, nor the consummation by Seller of the transactions contemplated
hereby, nor compliance by Seller with any of the provisions hereof, will (i)
violate, conflict with, or result in a breach of any provisions of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration of, or result in the creation of, any Lien upon any of the
material properties or assets of Seller or any Seller Subsidiary under any of
the terms, conditions or provisions of (x) its articles or certificate of
incorporation or bylaws or (y) any material note, bond, mortgage, indenture,
deed of trust, license, lease, agreement or other instrument or obligation to
which Seller or any Seller Subsidiary is a party or by which it may be bound,
or to which Seller or any Seller Subsidiary or any of the material properties
or assets of Seller or any Seller Subsidiary may be subject, or (ii) subject to
compliance with the statutes and regulations referred to in paragraph (c) of
this Section 2.04, to the best knowledge of Seller, violate any judgment,
ruling, order, writ, injunction, decree, statute, rule or regulation applicable
to Seller or any Seller Subsidiary or any of their respective material
properties or assets.
(c) Other than in connection or in compliance with the provisions of the
Iowa Act, the Securities Act, the Securities Exchange Act of 1934 and the rules
and regulations thereunder (the "Exchange Act"), the securities or blue sky
laws of the various states or filings, consents, reviews, authorizations,
approvals or exemptions required under the Holding Company Act, and the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), or any
required approvals of or filings with the Superintendent of the Banking
Division of the Commerce Department of the State of Iowa (the "State Bank
Regulator"), the OTS or the OCC, no notice to, filing with, exemption or
review by, or authorization, consent or approval of, any public body or
authority is necessary for the consummation by Seller of the transactions
contemplated by this Agreement.
2.05. Seller Financial Statements. The consolidated and parent company-only
balance sheets of Seller and its Subsidiaries as of December 31, 1995, 1994 and
1993 and related consolidated statements of income, cash flows and changes in
stockholders' equity for each of the three years in the three-year period ended
December 31, 1995, together with the notes thereto, audited by Deloitte &
Touche LLP and included in an annual report on Form 10-K as
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filed with the SEC, and the unaudited consolidated balance sheets of Seller and
its Subsidiaries as of March 31 and June 30, 1996 and the related unaudited
consolidated statements of income and cash flows for the periods then ended
included in quarterly reports on Form 10-Q (each a "Seller Form 10-Q") as
filed with the Securities and Exchange Commission (collectively, the "Seller
Financial Statements"), have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis ("GAAP"),
present fairly the consolidated financial position of Seller and its
Subsidiaries at the dates and the consolidated results of operations, cash
flows and changes in stockholders' equity of Seller and its Subsidiaries for
the periods stated therein and are derived from the books and records of Seller
and its Subsidiaries, which are complete and accurate in all material respects
and have been maintained in all material respects in accordance with applicable
laws and regulations. Neither Seller nor any of its Subsidiaries has any
material contingent liabilities that are not described in the financial
statements described above.
2.06. Seller Reports. Since January 1, 1993, each of Seller and the Seller
Subsidiaries has filed all material reports, registrations and statements,
together with any required material amendments thereto, that it was required to
file with (i) the Securities and Exchange Commission, including, but not
limited to, Forms 10-K, Forms 10-Q, Forms 8-K and proxy statements, (ii) the
Board, (iii) the FDIC, (iv) the State Bank Regulator, and (v) any other
federal, state, municipal, local or foreign government, securities, banking,
savings and loan, insurance and other governmental or regulatory authority and
the agencies and staffs thereof (the entities in the foregoing clauses (i)
through (v) being referred to herein collectively as the "Regulatory
Authorities" and individually as a "Regulatory Authority"). All such reports
and statements filed with any such Regulatory Authority are collectively
referred to herein as the "Seller Reports." As of its respective date, each
Seller Report complied in all material respects with all the rules and
regulations promulgated by the applicable Regulatory Authority and did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
2.07. Properties and Leases. Except as may be reflected in the Seller
Financial Statements, except for any Lien for current taxes not yet delinquent
and except with respect to assets classified as real estate owned, Seller and
its Subsidiaries have good title free and clear of any material Lien to all the
real and personal property reflected in Seller's consolidated balance sheet as
of June 30, 1996 included in the most recent Seller Form 10-Q and, in each
case, all real and personal property acquired since such date, except such real
and personal property as has been disposed of in the ordinary course of
business. All leases material to Seller or any Seller Subsidiary pursuant to
which Seller or any Seller Subsidiary, as lessee, leases real or personal
property, are valid and effective in accordance with their respective terms,
and there is not, under any of such leases, any material existing default by
Seller or any Seller Subsidiary or any event which, with notice or lapse of
time or both, would constitute such a material default. Substantially all of
Seller's and Seller Subsidiaries' buildings, structures and equipment in
regular use have been well maintained and are in good and serviceable
condition, normal wear and tear excepted.
2.08. Taxes. Seller and each Seller Subsidiary have timely filed or will
timely (including extensions) file all material tax returns required to be
filed at or prior to the Closing Date ("Seller Returns"). Each of Seller and
its Subsidiaries has paid, or set up adequate reserves on the Seller Financial
Statements for the payment of, all taxes required to be paid in respect of the
periods covered by the Seller Financial Statements and has set up adequate
reserves on the most recent financial statements Seller has filed under the
Exchange Act for the payment of all taxes anticipated to be payable in respect
of all periods up to and including the latest period covered by such financial
statements. To the best of Seller's knowledge, neither Seller nor any Seller
Subsidiary will have any liability material to the Condition of Seller and the
Seller Subsidiaries, taken as a whole, for any such taxes in excess of the
amounts so paid or reserves so established and no material deficiencies for any
tax, assessment or governmental charge have been proposed, asserted or assessed
(tentatively or definitely) against any of Seller or any Seller Subsidiary
which would not be covered by existing reserves. Neither Seller nor any Seller
Subsidiary is delinquent in the payment of any material tax, assessment or
governmental charge, nor, except as previously disclosed, has it requested any
extension of time within which to file any tax returns in respect of any fiscal
year which have not since been filed and no requests for waivers of the time to
assess any tax are pending. The federal and state income tax returns of Seller
and the Seller Subsidiaries have been audited and settled by the Internal
Revenue Service (the "IRS") or appropriate state tax authorities for all
periods ended through December 31, 1987. There is no material deficiency or
refund litigation or matter in controversy with respect to Seller Returns.
Neither Seller nor any Seller Subsidiary has extended or waived any statute of
limitations on the assessment of any tax due that is currently in effect.
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2.09. Material Adverse Change. Since June 30, 1996, there has been no
material adverse change in the Condition of Seller and its Subsidiaries, taken
as a whole.
2.10. Commitments and Contracts. (a) Except as set forth on Schedule 2.10A,
neither Seller nor any Seller Subsidiary is a party or subject to any of the
following (whether written or oral, express or implied):
(i) any material agreement, arrangement or commitment (A) not made in
the ordinary course of business or (B) pursuant to which Seller or any of
its Subsidiaries is or may become obligated to invest in or contribute
capital to any Seller Subsidiary;
(ii) any agreement, indenture or other instrument not disclosed in the
Seller Financial Statements relating to the borrowing of money by Seller or
any Seller Subsidiary or the guarantee by Seller or any Seller Subsidiary
of any such obligation (other than trade payables or instruments related to
transactions entered into in the ordinary course of business by any Seller
Subsidiary, such as deposits and Fed Funds borrowings);
(iii) any contract, agreement or understanding with any labor union or
collective bargaining organization;
(iv) any contract containing covenants which limit the ability of
Seller or any Seller Subsidiary to compete in any line of business or with
any person or which involve any restriction of the geographical area in
which, or method by which, Seller or any Seller Subsidiary may carry on its
business;
(v) any other contract or agreement which is a "material contract"
within the meaning of Item 601(b)(10) of Regulation S-K promulgated by the
Securities and Exchange Commission; or
(vi) any lease with annual rental payments aggregating $250,000 or
more.
(b) Neither Seller nor any Seller Subsidiary is in violation of its charter
documents or bylaws or in default under any material agreement, commitment,
arrangement, lease, insurance policy, or other instrument, whether entered into
in the ordinary course of business or otherwise and whether written or oral,
and there has not occurred any event that, with the lapse of time or giving of
notice or both, would constitute such a default, except, in all cases, where
such default would not have a material adverse effect on the Condition of
Seller and its Subsidiaries, taken as a whole.
2.11. Litigation and Other Proceedings. Except as set forth on Schedule
2.11, neither Seller nor any Seller Subsidiary is a party to any pending or, to
the best knowledge of Seller, threatened claim, action, suit, investigation or
proceeding, or is subject to any order, judgment or decree, except for matters
which, in the aggregate, will not have, or reasonably could not be expected to
have, a material adverse effect on the Condition of Seller and its
Subsidiaries, taken as a whole, or which purports or seeks to enjoin or
restrain the transactions contemplated by this Agreement. Without limiting the
generality of the foregoing, there are no actions, suits, or proceedings
pending or, to the best knowledge of Seller, threatened against Seller or any
Seller Subsidiary or any of their respective officers or directors by any
stockholder of Seller or any Seller Subsidiary (or any former stockholder of
Seller or any Seller Subsidiary) or involving claims under the Securities Act,
the Exchange Act, the Community Reinvestment Act of 1977, as amended ("CRA"),
or the fair lending laws.
2.12. Insurance. Set forth on Schedule 2.12 is a list of all insurance
policies maintained by or for the benefit of Seller or its Subsidiaries or
their directors, officers, employees or agents.
2.13. Compliance with Laws. (a) Seller and each of its Subsidiaries have
all permits, licenses, authorizations, orders and approvals of, and have made
all filings, applications and registrations with, all Regulatory Authorities
that are required in order to permit them to own or lease their properties and
assets and to carry on their business as presently conducted and that are
material to the business of Seller and its Subsidiaries; all such permits,
licenses, certificates of authority, orders and approvals are in full force and
effect and, to the best knowledge of Seller, no suspension or cancellation of
any of them is threatened; and all such filings, applications and registrations
are current.
(b) Except for failures to comply or defaults which individually or in the
aggregate would not have a material adverse effect on the Condition of Seller
and its Subsidiaries, taken as a whole, (i) each of Seller and its Subsidiaries
has complied with all laws, regulations and orders (including without
limitation zoning ordinances, building codes, the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and securities, tax,
environmental, civil rights, and occupational health and safety laws and
regulations and including without limitation in the case of any Seller
Subsidiary that is a bank or savings association, banking organization, banking
corporation or trust company, all statutes, rules, regulations and policy
statements pertaining to the conduct of a banking, deposit-taking, lending or
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related business, or to the exercise of trust powers) and governing instruments
applicable to them and to the conduct of their business, and (ii) neither
Seller nor any Seller Subsidiary is in default under, and no event has occurred
which, with the lapse of time or notice or both, could result in the default
under, the terms of any judgment, order, writ, decree, permit, or license of
any Regulatory Authority or court, whether federal, state, municipal, or local
and whether at law or in equity. Except for liabilities which individually or
in the aggregate would not have a material adverse effect on the Condition of
Seller and its Subsidiaries, taken as a whole, and neither Seller nor any
Seller Subsidiary is subject to or reasonably likely to incur a liability as a
result of its ownership, operation, or use of any Property (as defined below)
of Seller (whether directly or, to the best knowledge of Seller, as a
consequence of such Property being part of the investment portfolio of Seller
or any Seller Subsidiary) (A) that is contaminated by or contains any hazardous
waste, toxic substance, or related materials, including without limitation
asbestos, PCBs, pesticides, herbicides, and any other substance or waste that
is hazardous to human health or the environment (collectively, a "Toxic
Substance"), or (B) on which any Toxic Substance has been stored, disposed of,
placed, or used in the construction thereof. "Property" of a person shall
include all property (real or personal, tangible or intangible) owned or
controlled by such person, including without limitation property under
foreclosure, property held by such person or any Subsidiary of such person in
its capacity as a trustee and property in which any venture capital or similar
unit of such person or any Subsidiary of such person has an interest. No claim,
action, suit, or proceeding is pending against Seller or any Seller Subsidiary
relating to Property of Seller before any court or other Regulatory Authority
or arbitration tribunal relating to hazardous substances, pollution, or the
environment, and there is no outstanding judgment, order, writ, injunction,
decree, or award against or affecting Seller or any Seller Subsidiary with
respect to the same. Except for statutory or regulatory restrictions of general
application, no Regulatory Authority has placed any restriction on the business
of Seller or any Seller Subsidiary which reasonably could be expected to have a
material adverse effect on the Condition of Seller and its Subsidiaries, taken
as a whole.
(c) From and after January 1, 1993, neither Seller nor any Seller
Subsidiary has received any notification or communication which has not been
resolved from any Regulatory Authority (i) asserting that any Seller or any
Subsidiary of Seller is not in compliance in any material respect with any of
the statutes, regulations or ordinances that such Regulatory Authority
enforces, or (ii) threatening to revoke any license, franchise, permit or
governmental authorization that is material to the Condition of Seller and its
Subsidiaries, taken as a whole, including without limitation such company's
status as an insured depositary institution under the Federal Deposit Insurance
Act, or (iii) requiring or threatening to require Seller or any of its
Subsidiaries, or indicating that Seller or any of its Subsidiaries may be
required, to enter into a cease and desist order, agreement or memorandum of
understanding or any other agreement restricting or limiting or purporting to
direct, restrict or limit in any manner the operations of Seller or any of its
Subsidiaries, including without limitation any restriction on the payment of
dividends. No such cease and desist order, agreement or memorandum of
understanding or other agreement is currently in effect.
(d) Neither Seller nor any Seller Subsidiary is required by Section 32 of
the Federal Deposit Insurance Act to give prior notice to any federal banking
agency of the proposed addition of an individual to its board of directors or
the employment of an individual as a senior executive officer.
2.14. Labor. No work stoppage involving Seller or any Seller Subsidiary, is
pending or, to the best knowledge of Seller, threatened. Neither Seller nor any
Seller Subsidiary is involved in, or, to the best knowledge of Seller,
threatened with or affected by, any labor dispute, arbitration, lawsuit or
administrative proceeding which reasonably could be expected to have a material
adverse effect on the Condition of Seller and its Subsidiaries, taken as a
whole. Employees of neither Seller nor any Seller Subsidiary are represented by
any labor union or any collective bargaining organization.
2.15. Material Interests of Certain Persons. (a) Except as set forth in
Seller's Proxy Statement for its 1996 Annual Meeting of Stockholders, to the
best knowledge of Seller, no executive officer or director of Seller or any
Subsidiary of Seller, or any "associate" (as such term is defined in Rule
l4a-1 under the Exchange Act) of any such executive officer or director, has
any material interest in any material contract or property (real or personal,
tangible or intangible), used in or pertaining to the business of, Seller or
any Subsidiary of Seller, which in the case of Seller is required to be
disclosed by Item 404 of Regulation S-K promulgated by the Securities and
Exchange Commission or in the case of any such Subsidiary would be required to
be so disclosed if such Subsidiary had a class of securities registered under
Section 12 of the Exchange Act.
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(b) Except as set forth in Seller's Proxy Statement for its 1996 Annual
Meeting of Stockholders or on Schedule 2.15B, as of June 30, 1996, there are no
loans from Seller or any Seller Subsidiary to any present officer, director,
employee or any associate or related interest of any such person which was or
would be required under any rule or regulation to be approved by or reported to
Seller's or Seller Subsidiary's Board of Directors ("Insider Loans"), and no
Insider Loans in excess of $500,000 have been made since June 30, 1996. All
outstanding Insider Loans from Seller or any Seller Subsidiary were approved by
or reported to the appropriate board of directors in accordance with applicable
laws and regulations.
2.16. Employee Benefit Plans. (a) Except as set forth in Schedule 2.16A,
neither Seller nor any Seller Subsidiary is a party to any existing employment,
management, consulting, deferred compensation, change-in-control or other
similar contract. "Seller Employee Plans" means all pension, retirement,
supplemental retirement, savings, profit sharing, stock option, stock purchase,
stock ownership, stock appreciation right, deferred compensation, consulting,
bonus, medical, disability, workers' compensation, vacation, group insurance,
severance and other material employee benefit, incentive and welfare policies,
contracts, plans and arrangements, and all trust agreements related thereto,
maintained (currently or at any time in the last six years) by or contributed
to by Seller or any Seller Subsidiary in respect of any of the present or
former directors, officers, or other employees of and/or consultants to Seller
or any Seller Subsidiary. Schedule 2.16A lists all Seller Employee Plans
currently in effect. Seller has furnished Buyer with the following documents
with respect to each Seller Employee Plan: (i) a true and complete copy of all
written documents comprising such Seller Employee Plan (including amendments
and individual agreements relating thereto) or, if there is no such written
document, an accurate and complete description of the Seller Employee Plan;
(ii) the most recent Form 5500 or Form 5500-C (including all schedules
thereto), if applicable; (iii) the most recent financial statements and
actuarial reports, if any; (iv) the summary plan description currently in
effect and all material modifications thereof, if any; and (v) the most recent
IRS determination letter, if any. Without limiting the generality of the
foregoing, Seller has furnished Buyer with true and complete copies of each
form of stock option grant or stock option agreement that is outstanding under
any stock option plan of Seller or any Seller Subsidiary. Seller has no
unfunded liability under any Seller Employee Plans maintained currently or at
any time during the last six years.
(b) Except as set forth in Schedule 2.16A, all Seller Employee Plans have
been maintained and operated materially in accordance with their terms and with
the material requirements of all applicable statutes, orders, rules and final
regulations, including without limitation ERISA and the Internal Revenue Code
of 1986, as amended (the "Code"). All contributions required to be made to
Seller Employee Plans have been made.
(c) With respect to each of the Seller Employee Plans which is a pension
plan (as defined in Section 3(2) of ERISA) (the "Pension Plans"): (i) each
Pension Plan which is intended to be "qualified" within the meaning of
Section 401(a) of the Code has been determined to be so qualified by the IRS
and, to the knowledge of Seller, such determination letter may still be relied
upon, and each related trust is exempt from taxation under Section 501(a) of
the Code; (ii) the present value of all benefits vested and all benefits
accrued under each Pension Plan which is subject to Title IV of ERISA, valued
using the assumptions in the most recent actuarial report, did not, in each
case, as of the last applicable annual valuation date (as indicated on Schedule
2.16A), exceed the value of the assets of the Pension Plan allocable to such
vested or accrued benefits; (iii) to the best knowledge of Seller, there has
been no "prohibited transaction," as such term is defined in Section 4975 of
the Code or Section 406 of ERISA, which could subject any Pension Plan or
associated trust, or the Seller or any Seller Subsidiary, to any material tax
or penalty; (iv) except as set forth on Schedule 2.16C, no Pension Plan subject
to Title IV of ERISA or any trust created thereunder has been terminated, nor
have there been any "reportable events" with respect to any Pension Plan, as
that term is defined in Section 4043 of ERISA on or after January 1, 1985; and
(v) no Pension Plan or any trust created thereunder has incurred any
"accumulated funding deficiency", as such term is defined in Section 302 of
ERISA (whether or not waived). No Pension Plan is a "multiemployer plan" as
that term is defined in Section 3(37) of ERISA. With respect to each Pension
Plan that is described in Section 4063(a) of ERISA (a "Multiple Employer
Pension Plan"): (i) neither Seller nor any Seller Subsidiary would have any
liability or obligation to post a bond under Section 4063 of ERISA if Seller
and all Seller Subsidiaries were to withdraw from such Multiple Employer
Pension Plan; and (ii) neither Seller nor any Seller Subsidiary would have any
liability under Section 4064 of ERISA if such Multiple Employer Pension Plan
were to terminate.
(d) Except as set forth on Schedule 2.16D, neither Seller nor any Seller
Subsidiary has any liability for any post-retirement health, medical or similar
benefit of any kind whatsoever, except as required by statute or regulation.
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(e) Neither Seller nor any Seller Subsidiary has any material liability
under ERISA or the Code as a result of its being a member of a group described
in Sections 414(b), (c), (m) or (o) of the Code.
(f) Except as set forth on Schedule 2.16F, neither the execution nor
delivery of this Agreement, nor the consummation of any of the transactions
contemplated hereby, will (i) result in any material payment (including without
limitation severance, unemployment compensation or golden parachute payment)
becoming due to any director or employee of Seller or any Seller Subsidiary
from any of such entities, (ii) materially increase any benefit otherwise
payable under any of the Seller Employee Plans or (iii) result in the
acceleration of the time of payment of any such benefit. No holder of an option
to acquire stock of Seller has or will have at any time through the Effective
Time the right to receive any cash or other payment (other than the issuance of
stock of Seller) in exchange for or with respect to all or any portion of such
option. Seller shall use its reasonable best efforts to insure that no amounts
paid or payable by Seller, Seller Subsidiaries or Buyer to or with respect to
any employee or former employee of Seller or any Seller Subsidiary will fail to
be deductible for federal income tax purposes by reason of Section 280G of the
Code. No Seller Employee Stock Option has an associated "Additional Option
Right" or similar "re-load" feature.
2.17. Conduct of Seller to Date. From and after January 1, 1996 through the
date of this Agreement, except as set forth on Schedule 2.17 or in Seller
Financial Statements: (i) Seller and the Seller Subsidiaries have conducted
their respective businesses in the ordinary and usual course consistent with
past practices; (ii) Seller has not issued, sold, granted, conferred or awarded
any of its Equity Securities (except shares of Seller Common Stock upon
exercise of Seller Employee Stock Options), or any corporate debt securities
which would be classified under GAAP as long-term debt on the balance sheets of
Seller; (iii) Seller has not effected any stock split or adjusted, combined,
reclassified or otherwise changed its capitalization; (iv) Seller has not
declared, set aside or paid any dividend (other than its regular quarterly
common dividends) or other distribution in respect of its capital stock, or
purchased, redeemed, retired, repurchased, or exchanged, or otherwise acquired
or disposed of, directly or indirectly, any of its Equity Securities, whether
pursuant to the terms of such Equity Securities or otherwise; (v) neither
Seller nor any Seller Subsidiary has incurred any material obligation or
liability (absolute or contingent), except normal trade or business obligations
or liabilities incurred in the ordinary course of business, or subjected to
Lien any of its assets or properties other than in the ordinary course of
business consistent with past practice; (vi) neither Seller nor any Seller
Subsidiary has discharged or satisfied any material Lien or paid any material
obligation or liability (absolute or contingent), other than in the ordinary
course of business; (vii) neither Seller nor any Seller Subsidiary has sold,
assigned, transferred, leased, exchanged, or otherwise disposed of any of its
properties or assets other than for a fair consideration in the ordinary course
of business; (viii) except as required by contract or law, neither Seller nor
any Seller Subsidiary has (A) increased the rate of compensation of, or paid
any bonus to, any of its directors, officers, or other employees, except merit
or promotion increases in accordance with existing policy or guidelines, (B)
entered into any new, or amended or supplemented any existing, employment,
management, consulting, deferred compensation, severance, or other similar
contract, (C) entered into, terminated, or substantially modified any of the
Seller Employee Plans or (D) agreed to do any of the foregoing; (ix) neither
Seller nor any Seller Subsidiary has suffered any material damage, destruction,
or loss, whether as the result of fire, explosion, earthquake, accident,
casualty, labor trouble, requisition, or taking of property by any Regulatory
Authority, flood, windstorm, embargo, riot, act of God or the enemy, or other
casualty or event, and whether or not covered by insurance; (x) neither Seller
nor any Seller Subsidiary has cancelled or compromised any debt, except for
debts charged off or compromised in accordance with the past practice of Seller
and its Subsidiaries, and (xi) neither Seller nor any Seller Subsidiary has
entered into any material transaction, contract or commitment outside the
ordinary course of its business.
2.18. Proxy Statement, etc. None of the information regarding Seller or any
Seller Subsidiary supplied or to be supplied by Seller for inclusion or
included in (i) the registration statement on Form S-4 to be filed with the
Securities and Exchange Commission by Buyer for the purpose of registering the
shares of Buyer Common Stock to be exchanged for shares of Seller Common Stock
pursuant to the provisions of this Agreement (the "Registration Statement"),
(ii) the proxy or information statement (the "Proxy Statement") to be mailed
to Seller's stockholders in connection with the transactions contemplated by
this Agreement or (iii) any other documents to be filed with any Regulatory
Authority in connection with the transactions contemplated hereby will, at the
respective times such documents are filed with any Regulatory Authority and, in
the case of the Registration Statement, when it becomes effective and, with
respect to the Proxy Statement, when mailed, be false or misleading with
respect to any material fact, or omit to state any material fact necessary in
order to make the statements therein not misleading or, in the case of the
Proxy Statement or any amendment thereof or supplement thereto, at the time of
the meeting of Seller's
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stockholders referred to in Section 5.03 (the "Meeting") (or, if no Meeting
is held, at the time the Proxy Statement is first furnished to Seller's
stockholders), be false or misleading with respect to any material fact, or
omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of any proxy for the
Meeting. All documents which Seller or any Seller Subsidiary is responsible for
filing with any Regulatory Authority in connection with the Merger will comply
as to form in all material respects with the provisions of applicable law.
2.19. Registration Obligations. Except as set forth on Schedule 2.19,
neither Seller nor any Seller Subsidiary is under any obligation, contingent or
otherwise, to register any of its securities under the Securities Act.
2.20. State Takeover Statutes. Seller has taken all actions necessary to
ensure that the transactions contemplated by this Agreement are not subject to
any applicable state takeover laws under the laws of the State of Iowa.
2.21. Accounting, Tax and Regulatory Matters. Neither Seller nor any Seller
Subsidiary has taken or agreed to take any action or has any knowledge of any
fact or circumstance that would (i) prevent the transactions contemplated
hereby from qualifying as a reorganization within the meaning of Section 368 of
the Code or (ii) materially impede or delay receipt of any approval referred to
in Section 6.01(b) or the consummation of the transactions contemplated by this
Agreement.
2.22. Other Activities. (a) Except as set forth on Schedule 2.22A, neither
Seller nor any of its Subsidiaries engages in any insurance activities other
than acting as a principal, agent or broker for insurance that is directly
related to an extension of credit by Seller or any of its Subsidiaries and
limited to assuring the repayment of the balance due on the extension of credit
in the event of the death, disability or involuntary unemployment of the
debtor.
(b) To the knowledge of Seller's management: each Subsidiary or affiliate
that is a bank that performs personal trust, corporate trust and other
fiduciary activities ("Trust Activities") has done so with requisite
authority under applicable law of Regulatory Authorities and in material
accordance with the agreements and instruments governing such Trust Activities,
sound fiduciary principles and applicable law and regulation (specifically
including but not limited to Section 9 of Title 12 of the Code of Federal
Regulations); there is no investigation or inquiry by any governmental entity
pending or threatened against Seller or any of its Subsidiaries or affiliates
thereof relating to the compliance by Seller or any of its Subsidiaries with
sound fiduciary principles and applicable law and regulations; and each
employee of any such bank had the authority to act in the capacity in which
such employee acted with respect to Trust Activities in each case in which such
employee was held out as a representative of such bank; and such bank has
established policies and procedures for the purpose of complying with
applicable laws of governmental entities relating to Trust Activities, has
followed such policies and procedures in all material respects and has
performed appropriate internal audit reviews of Trust Activities, which audits
have disclosed no material violations of applicable laws of governmental
entities or such policies and procedures.
2.23. Interest Rate Risk Management Instruments. (a) Set forth on Schedule
2.23A is a list of all interest rate swaps, caps, floors, and option agreements
and other interest rate risk management arrangements to which Seller or any of
its Subsidiaries is a party or by which any of their properties or assets may
be bound.
(b) All interest rate swaps, caps, floors and option agreements and other
interest rate risk management arrangements to which Seller or any of its
Subsidiaries 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 in accordance
with prudent banking practice and applicable rules, regulations and policies of
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. Seller and each of its Subsidiaries has duly performed
in all material respects all of its obligations thereunder to the extent that
such obligations to perform have accrued, and there are no material breaches,
violations or defaults or allegations or assertions of such by any party
thereunder.
2.24. Accuracy of Information. The statements of Seller contained in this
Agreement, the Schedules and any other written document executed and delivered
by or on behalf of Seller pursuant to the terms of this Agreement are true and
correct in all material respects, and such statements and documents do not omit
any material fact necessary to make the statements contained therein not
misleading.
2.25. Brokers and Finders. Except for The Chicago Corporation, neither
Seller nor any Seller Subsidiary nor any of their respective officers,
directors or employees has employed any broker or finder or incurred any
liability for any
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financial advisory fees, brokerage fees, commissions or finder's fees, and no
broker or finder has acted directly or indirectly for Seller or any Seller
Subsidiary in connection with this Agreement or the transactions contemplated
hereby.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER
Buyer represents and warrants to and covenants with Seller as follows:
3.01. Organization and Authority. Buyer and each of its Subsidiaries is a
corporation, bank, trust company or other entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of
organization, is duly qualified to do business and is in good standing in all
jurisdictions where its ownership or leasing of property or the conduct of its
business requires it to be so qualified and has corporate power and authority
to own its properties and assets and to carry on its business as it is now
being conducted, except, in the case of the Buyer Subsidiaries, where the
failure to be so qualified would not have a material adverse effect on the
Condition of Buyer and its Subsidiaries, taken as a whole. Buyer is registered
as a bank holding company with the Board under the Holding Company Act. True
and complete copies of the Articles of Incorporation and Bylaws of Buyer and of
Magna Bank, N.A., each in effect on the date of this Agreement, have been
provided to Seller. Buyer's bank Subsidiaries (the "Buyer Banks") are
national banking associations chartered by the OCC. The deposits of each of the
Buyer Banks are insured by the BIF or, to the extent transferred to a Buyer
Bank by the Resolution Trust Corporation, by the SAIF of the FDIC. The Buyer
Banks identified as such on Schedule 3.01 are members in good standing of the
Federal Reserve System.
3.02. Capitalization of Buyer. The authorized capital stock of Buyer
consists of (i) 40,000,000 shares of Buyer Common Stock, of which, as of August
23, 1996, 28,019,668 shares were issued and outstanding, (ii) 1,000,000 shares
of preferred stock, no par value ("Buyer Preferred Stock"), of which no
shares are issued or outstanding, (iii) 49,500 of 7.5% Cumulative Class B
Voting Preferred Stock, par value $20.00 per share, of which 2,039 shares were
issued and outstanding, and (iv) 1,000,000 shares of Class C Non-Voting
Preferred Stock, par value $0.10 per share, of which no shares were
outstanding. Buyer has designated 400,000 shares of Buyer Preferred Stock and
has reserved such shares under the Buyer Rights Agreement. As of August 23,
1996, Buyer had reserved 5,384,673 shares of Buyer Common Stock for issuance
under the Convertible Subordinated Capital Notes and Convertible Subordinated
Debentures, Buyer's various stock option and incentive plans, a list of which
is set forth on Schedule 3.02 ("Buyer Stock Options"), Buyer's dividend
reinvestment plan and Buyer's employee stock purchase plan. From August 23,
1996 through the date of this Agreement, no shares of Buyer Common Stock or
other Equity Securities of Buyer have been issued, excluding any such shares
which may have been issued pursuant to stock-based employee benefit or
incentive plans and programs, or pursuant to the foregoing agreements. Buyer
continually evaluates possible acquisitions and may, prior to the Effective
Time, enter into one or more agreements providing for, and may consummate, the
acquisition by it of another bank, association, bank holding company, savings
and loan holding company or other company (or the assets thereof) for
consideration that may include equity securities. In addition, prior to the
Effective Time, Buyer may, depending on market conditions and other factors,
otherwise determine to issue equity, equity-linked or other securities for
financing purposes. Notwithstanding the foregoing, Buyer will not take any
action that would (i) prevent the transactions contemplated hereby from
qualifying as a reorganization within the meaning of Section 368 of the Code,
or (ii) materially impede or delay receipt of any approval referred to in
Section 6.01(b) or the consummation of the transactions contemplated by this
Agreement. All of the issued and outstanding shares of capital stock of Buyer
and its Subsidiaries are validly issued, fully paid, and nonassessable, and
have not been issued in violation of any preemptive right of any stockholder of
Buyer or its Subsidiaries. At the Effective Time, the Buyer Common Stock to be
issued in the Merger will be duly authorized, validly issued, fully paid and
nonassessable, and will not be issued in violation of any preemptive right of
any stockholder of Buyer.
3.03. Authorization. (a) Buyer has the corporate power and authority to
enter into this Agreement and to carry out its obligations hereunder. No
stockholder vote is required for Buyer to approve this Agreement. The
execution, delivery and performance of this Agreement by Buyer and the
consummation by Buyer of the transactions contemplated hereby have been duly
authorized by all requisite corporate action of Buyer. This Agreement is a
valid and binding obligation of Buyer enforceable against Buyer in accordance
with its terms.
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(b) Neither the execution, delivery and performance by Buyer of this
Agreement, nor the consummation by Buyer of the transactions contemplated
hereby, nor compliance by Buyer with any of the provisions hereof, will (i)
violate, conflict with or result in a breach of any provisions of, or
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
of, or result in the creation of, any Lien upon any of the material properties
or assets of Buyer or any Buyer Subsidiary under any of the terms, conditions
or provisions of (x) its articles or certificate of incorporation or bylaws, or
(y) any material note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which Buyer or any Buyer
Subsidiary or any of the material properties or assets of Buyer or any Buyer
Subsidiary is a party or by which it may be bound, or to which Buyer or any
Buyer Subsidiary may be subject, or (ii) subject to compliance with the
statutes and regulations referred to in paragraph (c) of this Section 3.03, to
the best knowledge of Buyer, violate any judgment, ruling, order, writ,
injunction, decree, statute, rule or regulation applicable to Buyer or any of
its Subsidiaries or any of their respective material properties or assets.
(c) Other than in connection with or in compliance with the provisions of
the Delaware General Corporation Law (the "DGCL"), the Iowa Act, the
Securities Act, the Exchange Act, the securities or blue sky laws of the
various states or filings, consents, reviews, authorizations, approvals or
exemptions required under the Holding Company Act and the HSR Act, or any
required approvals of any other Regulatory Authority, no notice to, filing
with, exemption or review by, or authorization, consent or approval of, any
public body or authority is necessary for the consummation by Buyer of the
transactions contemplated by this Agreement.
(d) Consummation of the transactions contemplated by this Agreement will be
a valid, binding and enforceable obligation of Merger Sub. At the Effective
Time, the capital stock of Merger Sub to be issued will be duly authorized,
validly issued, fully paid and non-assessable.
3.03. Buyer Financial Statements. The consolidated and parent company only
balance sheets of Buyer and its Subsidiaries as of December 31, 1995, 1994 and
1993 and related consolidated statements of income, cash flows and changes in
stockholders' equity for each of the three years in the three-year period ended
December 31, 1995, together with the notes thereto, audited by Ernst & Young
LLP ("Buyer Auditors") as filed with the Securities and Exchange Commission,
and the unaudited consolidated balance sheets of Buyer and its Subsidiaries as
of March 31 and June 30, 1996 and the related unaudited consolidated statements
of income and cash flows for the periods then ended included in quarterly
reports on Form 10-Q as filed with the Securities and Exchange Commission
(collectively, the "Buyer Financial Statements"), have been prepared in
accordance with GAAP, present fairly the consolidated financial position of
Buyer and its Subsidiaries at the dates and the consolidated results of
operations, changes in stockholders' equity and cash flows of Buyer and its
Subsidiaries for the periods stated therein and are derived from the books and
records of Buyer and its Subsidiaries, which are complete and accurate in all
material respects and have been maintained in all material respects in
accordance with applicable laws and regulations. Neither Buyer nor any of its
Subsidiaries has any material contingent liabilities that are not described in
the financial statements described above.
3.05. Buyer Reports. Since January 1, 1993, each of Buyer and the Buyer
Subsidiaries has filed all material reports, registrations and statements,
together with any required material amendments thereto, that it was required to
file with any Regulatory Authority. All such reports and statements filed with
any such Regulatory Authority are collectively referred to herein as the
"Buyer Reports." As of its respective date, each Buyer Report complied in all
material respects with all the rules and regulations promulgated by the
applicable Regulatory Authority and did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
3.06. Properties and Leases. Except as may be reflected in the Buyer
Financial Statements, except for any Lien for current taxes not yet delinquent
and except with respect to assets classified as real estate owned, Buyer and
its Subsidiaries have good title free and clear of any material Lien to all the
real and personal property reflected in Buyer's consolidated balance sheet as
of June 30, 1996 included in the most recent Buyer Form 10-Q and, in each case,
all real and personal property acquired since such date, except such real and
personal property as has been disposed of in the ordinary course of business.
All leases material to Buyer or any Buyer Subsidiary pursuant to which Buyer or
any Buyer Subsidiary, as lessee, leases real or personal property, are valid
and effective in accordance with their
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respective terms, and there is not, under any of such leases, any material
existing default by Buyer or any Buyer Subsidiary or any event which, with
notice or lapse of time or both, would constitute such a material default.
Substantially all of Buyer's and Buyer Subsidiaries' buildings, structures and
equipment in regular use have been well maintained and are in good and
serviceable condition, normal wear and tear excepted.
3.07. Material Adverse Change. Since June 30, 1996, there has been no
material adverse change in the Condition of Buyer and its Subsidiaries, taken
as a whole.
3.08. Compliance with Laws. (a)(i) Each of Buyer and its Subsidiaries has
complied with all laws, regulations, and orders (including without limitation
zoning ordinances, building codes, ERISA, and securities, tax, environmental,
civil rights, and occupational health and safety laws and regulations and
including without limitation in the case of any Buyer Subsidiary that is a
bank, banking organization, thrift, banking corporation or trust company, all
statutes, rules, regulations and policy statements, pertaining to the conduct
of a banking, deposit-taking or lending or related business or to the exercise
of trust powers) and governing instruments applicable to them and to the
conduct of their business, except where such failure to comply would not have a
material adverse effect on the Condition of Buyer and its Subsidiaries, taken
as a whole, and (ii) neither Buyer nor any Buyer Subsidiary is in default
under, and no event has occurred which, with the lapse of time or notice or
both, could result in the default under, the terms of any judgment, order,
writ, decree, permit, or license of any Regulatory Authority or court, whether
federal, state, municipal, or local and whether at law or in equity, except
where such default would not have a material adverse effect on the Condition of
Buyer and its Subsidiaries, taken as a whole. Neither Buyer nor any Buyer
Subsidiary is subject to or reasonably likely to incur a liability as a result
of its ownership, operation, or use of any Property of Buyer (whether directly
or, to the best knowledge of Buyer, as a consequence of such Property being
part of the investment portfolio of Buyer or any Buyer Subsidiary) (A) that is
contaminated by or contains any Toxic Substance, or (B) on which any Toxic
Substance has been stored, disposed of, placed, or used in the construction
thereof; and which, in each case, reasonably could be expected to have a
material adverse effect on the Condition of Buyer and its Subsidiaries, taken
as a whole. Except for statutory or regulatory restrictions of general
application, no Regulatory Authority has placed any restriction on the business
of Buyer or any Buyer Subsidiary which reasonably could be expected to have a
material adverse effect on the Condition of Buyer and its Subsidiaries, taken
as a whole. Except as disclosed on Schedule 3.08A, no claim, action, suit, or
proceeding is pending against Buyer or any Buyer Subsidiary relating to
Property of Buyer before any court or other Regulatory Authority or arbitration
tribunal relating to hazardous substances, pollution, or the environment, and
there is no outstanding judgment, order, writ, injunction, decree, or award
against or affecting Buyer or any Buyer Subsidiary with respect to the same.
(b) Buyer and each of its Subsidiaries have all permits, licenses,
authorizations, orders and approvals of, and have made all filings,
applications and registrations with, all Regulatory Authorities that are
required in order to permit them to own or lease their properties and assets
and to carry on their business as presently conducted and that are material to
the business of Buyer and its Subsidiaries; all such permits, licenses,
certificates of authority, orders and approvals are in full force and effect
and, to the best knowledge of Buyer, no suspension or cancellation of any of
them is threatened; and all such filings, applications and registrations are
current.
(c) From and after January 1, 1993, neither Buyer nor any Buyer Subsidiary
has received any notification or communication which has not been resolved from
any Regulatory Authority (i) asserting that any Buyer or any Subsidiary of
Buyer, is not in substantial compliance with any of the statutes, regulations
or ordinances that such Regulatory Authority enforces, except with respect to
matters which (A) are set forth on Schedule 3.08C or in any writing previously
furnished to Buyer or (B) reasonably could not be expected to have a material
adverse effect on the Condition of Buyer and its Subsidiaries, taken as a
whole, (ii) threatening to revoke any license, franchise, permit or
governmental authorization that is material to the Condition of Buyer and its
Subsidiaries, taken as a whole, including without limitation such company's
status as an insured depositary institution under the Federal Deposit Insurance
Act, or (iii) requiring or threatening to require Buyer or any of its
Subsidiaries, or indicating that Buyer or any of its Subsidiaries may be
required, to enter into a cease and desist order, agreement or memorandum of
understanding or any other agreement restricting or limiting or purporting to
direct, restrict or limit in any manner the operations of Buyer or any of its
Subsidiaries, including without limitation any restriction on the payment of
dividends. No such cease and desist order, agreement or memorandum of
understanding or other agreement is currently in effect.
3.09. Registration Statement, etc. None of the information regarding Buyer
or any of its Subsidiaries supplied or to be supplied by Buyer for inclusion or
included in (i) the Registration Statement, (ii) the Proxy Statement, or (iii)
any
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other documents to be filed with any Regulatory Authority in connection with
the transactions contemplated hereby will, at the respective times such
documents are filed with any Regulatory Authority and, in the case of the
Registration Statement, when it becomes effective and, with respect to the
Proxy Statement, when mailed (or furnished to stockholders of Seller), be false
or misleading with respect to any material fact, or omit to state any material
fact necessary in order to make the statements therein not misleading or, in
the case of the Proxy Statement or any amendment thereof or supplement thereto,
at the time of the Meeting, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to correct any statement in
any earlier communication with respect to the solicitation of any proxy for the
Meeting. All documents which Buyer or any of its Subsidiaries are responsible
for filing with any Regulatory Authority in connection with the Merger will
comply as to form in all material respects with the provisions of applicable
law.
3.10. Labor. No work stoppage involving Buyer or any Buyer Subsidiary, is
pending or, to the best knowledge of Buyer, threatened. Neither Buyer nor any
Buyer Subsidiary is involved in, or, to the best knowledge of Buyer, threatened
with or affected by, any labor dispute, arbitration, lawsuit or administrative
proceeding which reasonably could be expected to have a material adverse affect
on the Condition of Buyer and its Subsidiaries, taken as a whole. Except as
disclosed on Schedule 3.10, employees of neither Buyer nor any Buyer Subsidiary
are represented by any labor union or any collective bargaining organization.
3.11. Material Interests of Certain Persons. (a) Except as set forth in
Buyer's Proxy Statement for its 1996 Annual Meeting of Stockholders, to the
best knowledge of Buyer, no executive officer or director of Buyer or any
Subsidiary of Buyer, or any "associate" (as such term is defined in Rule
l4a-1 under the Exchange Act) of any such officer or director, has any material
interest in any material contract or property (real or personal, tangible or
intangible), used in or pertaining to the business of, Buyer or any Subsidiary
of Buyer, which in the case of Buyer is required to be disclosed by Item 404 of
Regulation S-K promulgated by the Securities and Exchange Commission or in the
case of any such Subsidiary would be required to be so disclosed if such
Subsidiary had a class of securities registered under Section 12 of the
Exchange Act.
(b) As of June 30, 1996, there are no loans from Buyer or any Buyer
Subsidiary to any present officer, director, employee or any associate or
related interest of any such person which have been made other than in
accordance with applicable laws and regulations.
3.12. Employee Benefit Plans. (a) Except as set forth in Schedule 3.12A,
neither Buyer nor any Buyer Subsidiary is a party to any existing employment,
management, consulting, deferred compensation, change-in-control or other
similar contract. "Buyer Employee Plans" means all pension, retirement,
supplemental retirement, savings, profit sharing, stock option, stock purchase,
stock ownership, stock appreciation right, deferred compensation, consulting,
bonus, medical, disability, workers' compensation, vacation, group insurance,
severance and other material employee benefit, incentive and welfare policies,
contracts, plans and arrangements, and all trust agreements related thereto,
maintained (currently or at any time in the last five years) by or contributed
to by Buyer or any Buyer Subsidiary in respect of any of the present or former
directors, officers, or other employees of and/or consultants to Buyer or any
Buyer Subsidiary. Schedule 3.12A lists all Buyer Employee Plans currently in
effect. Buyer has furnished Seller with the following documents with respect to
each Buyer Employee Plan: (i) a true and complete copy of all written documents
comprising such Buyer Employee Plan (including amendments and individual
agreements relating thereto) or, if there is no such written document, an
accurate and complete description of the Buyer Employee Plan; (ii) the most
recent Form 5500 or Form 5500-C (including all schedules thereto), if
applicable; (iii) the most recent financial statements and actuarial reports,
if any; (iv) the summary plan description currently in effect and all material
modifications thereof, if any; and (v) the most recent IRS determination
letter, if any. Without limiting the generality of the foregoing, Buyer has
furnished Seller with true and complete copies of each form of stock option
grant or stock option agreement that is outstanding under any stock option plan
of Buyer or any Buyer Subsidiary.
(b) Except as set forth in Schedule 3.12B, all Buyer Employee Plans have
been maintained and operated materially in accordance with their terms and with
the material requirements of all applicable statutes, orders, rules and final
regulations, including without limitation ERISA and the Code. All contributions
required to be made to Buyer Employee Plans have been made.
(c) With respect to each of the Buyer Employee Plans which is a pension
plan (as defined in Section 3(2) of ERISA) (the "Buyer Pension Plans"): (i)
each Buyer Pension Plan which is intended to be "qualified" within the
meaning of Section 401(a) of the Code has been determined to be so qualified by
the IRS and, to the knowledge of
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Buyer, such determination letter may still be relied upon, and each related
trust is exempt from taxation under Section 501(a) of the Code; (ii) the
present value of all benefits vested and all benefits accrued under each Buyer
Pension Plan which is subject to Title IV of ERISA, valued using the
assumptions in the most recent actuarial report, did not, in each case, as of
the last applicable annual valuation date (as indicated on Schedule 3.12A),
exceed the value of the assets of the Buyer Pension Plan allocable to such
vested or accrued benefits; (iii) to the best knowledge of Buyer, there has
been no "prohibited transaction," as such term is defined in Section 4975 of
the Code or Section 406 of ERISA, which could subject any Buyer Pension Plan or
associated trust, or the Buyer or any Buyer Subsidiary, to any material tax or
penalty; (iv) except as set forth on Schedule 3.12C, no Buyer Pension Plan
subject to Title IV of ERISA or any trust created thereunder has been
terminated, nor have there been any "reportable events" with respect to any
Buyer Pension Plan, as that term is defined in Section 4043 of ERISA on or
after January 1, 1985; and (v) no Buyer Pension Plan or any trust created
thereunder has incurred any "accumulated funding deficiency", as such term is
defined in Section 302 of ERISA (whether or not waived). No Buyer Pension Plan
is a "multiemployer plan" as that term is defined in Section 3(37) of ERISA.
With respect to each Multiple Employer Pension Plan: (i) neither Buyer nor any
Buyer Subsidiary would have any liability or obligation to post a bond under
Section 4063 of ERISA if Buyer and all Buyer Subsidiaries were to withdraw from
such Multiple Employer Pension Plan; and (ii) neither Buyer nor any Buyer
Subsidiary would have any liability under Section 4064 of ERISA if such
Multiple Employer Pension Plan were to terminate.
(d) Except as set forth on Schedule 3.12D, neither Buyer nor any Buyer
Subsidiary has any material liability for any post-retirement health, medical
or similar benefit of any kind whatsoever, except as required by statute or
regulation.
(e) Neither Buyer nor any Buyer Subsidiary has any material liability under
ERISA or the Code as a result of its being a member of a group described in
Sections 414(b), (c), (m) or (o) of the Code.
(f) Except as set forth on Schedule 3.12F, neither the execution nor
delivery of this Agreement, nor the consummation of any of the transactions
contemplated hereby, will (i) result in any material payment (including without
limitation severance, unemployment compensation or golden parachute payment)
becoming due to any director or employee of Buyer or any Buyer Subsidiary from
any of such entities, (ii) materially increase any benefit otherwise payable
under any of the Buyer Employee Plans or (iii) result in the acceleration of
the time of payment of any such benefit. No holder of an option to acquire
stock of Buyer has or will have at any time through the Effective Time the
right to receive any cash or other payment (other than the issuance of stock of
Buyer) in exchange for or with respect to all or any portion of such option.
Buyer shall use its reasonable best efforts to insure that no amounts paid or
payable by Buyer or any of its Subsidiaries to or with respect to any employee
or former employee of Buyer or any Buyer Subsidiary will fail to be deductible
for federal income tax purposes by reason of Section 280G of the Code. No Buyer
Employee Stock Option has an associated "Additional Option Right" or similar
"re-load" feature.
3.13. Commitments and Contracts. Neither Buyer nor any Buyer Subsidiary is
in violation of its charter documents or bylaws or in default under any
material agreement, commitment, arrangement, lease, insurance policy, or other
instrument, whether entered into in the ordinary course of business or
otherwise and whether written or oral, and there has not occurred any event
that, with the lapse of time or giving of notice or both, would constitute such
a default, except, in all cases, where such default would not have a material
adverse effect on the Condition of Buyer and its Subsidiaries, taken as a
whole.
3.14. Litigation and Other Proceedings. Neither Buyer nor any Buyer
Subsidiary is a party to any pending or, to the best knowledge of Buyer,
threatened claim, action, suit, investigation or proceeding, or is subject to
any order, judgment or decree, except for matters which, in the aggregate, will
not have, or reasonably could not be expected to have, a material adverse
effect on the Condition of Buyer and its Subsidiaries, taken as a whole, or
which purports or seeks to enjoin or restrain the transactions contemplated by
this Agreement. Without limiting the generality of the foregoing, there are no
actions, suits, or proceedings pending or, to the best knowledge of Buyer,
threatened against Buyer or any Buyer Subsidiary or any of their respective
officers or directors by any stockholder of Buyer or any Buyer Subsidiary (or
any former stockholder of Buyer or any Buyer Subsidiary) or involving claims
under the Securities Act, the Exchange Act, the CRA or the fair lending laws.
3.15. Taxes. Buyer and each Buyer Subsidiary have timely filed or will
timely (including extensions) file all material tax returns required to be
filed at or prior to the Closing Date ("Buyer Returns"). Each of Buyer and
its Subsidiaries has paid, or set up adequate reserves on the Buyer Financial
Statements for the payment of, all taxes
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required to be paid in respect of the periods covered by the Buyer Financial
Statements and has set up adequate reserves on the most recent financial
statements Buyer has filed under the Exchange Act for the payment of all taxes
anticipated to be payable in respect of all periods up to and including the
latest period covered by such financial statements. Neither Buyer nor any Buyer
Subsidiary will have any liability material to the Condition of Buyer and the
Buyer Subsidiaries, taken as a whole, for any such taxes in excess of the
amounts so paid or reserves so established and no material deficiencies for any
tax, assessment or governmental charge have been proposed, asserted or assessed
(tentatively or definitely) against any of Buyer or any Buyer Subsidiary which
would not be covered by existing reserves. Neither Buyer nor any Buyer
Subsidiary is delinquent in the payment of any material tax, assessment or
governmental charge, nor, except as previously disclosed, has it requested any
extension of time within which to file any tax returns in respect of any fiscal
year which have not since been filed and no requests for waivers of the time to
assess any tax are pending. The federal and state income tax returns of Buyer
and the Buyer Subsidiaries have been audited and settled by the IRS or
appropriate state tax authorities for all periods ended through December 31,
1992. There is no deficiency or material refund litigation or matter in
controversy with respect to Buyer Returns. Neither Buyer nor any Buyer
Subsidiary has extended or waived any statute of limitations on the assessment
of any tax due that is currently in effect.
3.16. Accounting, Tax and Regulatory Matters. Neither Buyer nor any Buyer
Subsidiary has taken or agreed to take any action or has any knowledge of any
fact or circumstance that would (i) prevent the transactions contemplated
hereby from qualifying as a reorganization within the meaning of Section 368 of
the Code or (ii) materially impede or delay receipt of any approval referred to
in Section 6.01(b) or the consummation of the transactions contemplated by this
Agreement.
3.17. Accuracy of Information. The statements of Buyer contained in this
Agreement, the Schedules and in any other written document executed and
delivered by or on behalf of Buyer pursuant to the terms of this Agreement are
true and correct in all material respects, and such statements and documents do
not omit any material fact necessary to make the statements contained herein or
therein not misleading.
3.18. Brokers and Finders. Except for Donaldson, Lufkin & Jenrette
Securities Corporation, neither Buyer nor any of its Subsidiaries 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 broker or finder has acted directly
or indirectly for Buyer or any of its Subsidiaries in connection with this
Agreement or the transactions contemplated hereby.
ARTICLE IV
CONDUCT OF BUSINESSES PRIOR TO THE EFFECTIVE TIME
4.01. Conduct of Businesses Prior to the Effective Time. During the period
from the date of this Agreement to the Effective Time, each of Buyer and Seller
shall, and shall cause each of their respective Subsidiaries to, conduct its
business according to the ordinary and usual course consistent with past
practices and shall, and shall cause each such Subsidiary to, use its
reasonable best efforts to maintain and preserve its business organization,
employees and advantageous business relationships and retain the services of
its officers and key employees. Seller acknowledges that Buyer has filed with
the OCC a request for approval to establish and operate certain subsidiaries
for, among other things, tax and administrative purposes, and Seller agrees
that the establishment and operation of such subsidiaries shall not be
violative of the provisions of this Section.
4.02. Forbearances. Except as otherwise contemplated by this Agreement and
without limiting the provisions of Section 4.01, during the period from the
date of this Agreement to the Effective Time, Seller shall not, and shall not
permit any of its Subsidiaries to, without the prior written consent of Buyer:
(a) subject to the provisions of Section 5.15, declare, set aside or
pay any dividends or other distributions, directly or indirectly, in
respect of its capital stock (other than its regular quarterly dividend not
to exceed $0.23 per share and dividends from a wholly owned Subsidiary of
Seller to Seller or another wholly owned Subsidiary of Seller) and provided
further, that Seller shall not declare or pay any dividends on Seller
Common Stock for any period in which its stockholders will be entitled to
receive any regular quarterly dividend on the shares of Buyer Common Stock
to be issued in the Merger; or
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(b) enter into or amend any employment, severance or similar agreement
or arrangement with any director or officer or employee, or materially
modify any of the Seller Employee Plans or grant any salary or wage
increase or materially increase any employee benefit (including incentive
or bonus payments), except normal individual increases in compensation to
employees consistent with past practice, or as required by law or contract;
or
(c) authorize, propose or announce an intention to authorize, or
propose, or enter into an agreement in principle with respect to, any
merger, consolidation or business combination (other than the Merger), any
acquisition of a material amount of assets or securities, any disposition
of a material amount of assets or securities or any release or
relinquishment of any material contract rights; or
(d) propose or adopt any amendments to its articles of incorporation,
association or other charter document or bylaws; or
(e) issue, sell, grant, confer or award any of its Equity Securities
(except shares of Seller Common Stock issued upon exercise of Seller
Employee Stock Options outstanding on the date of this Agreement) or effect
any stock split or adjust, combine, reclassify or otherwise change its
capitalization as it existed on the date of this Agreement; or
(f) purchase, redeem, retire, repurchase, or exchange, or otherwise
acquire or dispose of, directly or indirectly, any of its Equity
Securities, whether pursuant to the terms of such Equity Securities or
otherwise; or
(g) (i) without first consulting with Buyer, enter into, renew or
increase any loan or credit commitment (including standby letters of
credit) to, or invest or agree to invest in any person or entity or modify
any of the material provisions or renew or otherwise extend the maturity
date of any existing loan or credit commitment (collectively, "Lend to")
in an amount in excess of $1,500,000 or in an amount which, or when
aggregated with any and all loans or credit commitments to such person or
entity, would be in excess of $1,500,000; (ii) Lend to any person other
than in accordance with lending policies as in effect on the date hereof;
or (iii) without first consulting with Buyer, Lend to any person or entity
any of the loans or other extensions of credit to which or investments in
which are on a "watch list" or similar internal report of Seller or any
Seller Subsidiary (except those denoted "pass" thereon), in an amount in
excess of $500,000; provided, however, that nothing in this paragraph shall
prohibit Seller or any Seller Subsidiary from honoring any contractual
obligation in existence on the date of this Agreement; or
(h) directly or indirectly (including through its officers, directors,
employees or other representatives) initiate, solicit or encourage any
discussions, inquiries or proposals with any third party relating to the
disposition of any significant portion of the business or assets of Seller
or any Seller Subsidiary or the acquisition of Equity Securities of Seller
or any Seller Subsidiary or the merger of Seller or any Seller Subsidiary
with any person (other than Buyer) or any similar transaction (each such
transaction being referred to herein as an "Acquisition Transaction"), or
provide any such person with information or assistance or negotiate with
any such person with respect to an Acquisition Transaction, and Seller
shall promptly notify Buyer orally of all the relevant details relating to
all inquiries, indications of interest and proposals which it may receive
with respect to any Acquisition Transaction; or
(i) take any action that would (A) materially impede or delay the
consummation of the transactions contemplated by this Agreement or the
ability of Buyer or Seller 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 transactions contemplated hereby from qualifying as a reorganization
within the meaning of Section 368 of the Code; or
(j) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money, assume, guarantee,
endorse or otherwise as an accommodation become responsible or liable for
the obligations of any other individual, corporation or other entity; or
(k) without prior consultation with Buyer, restructure or materially
change its investment securities portfolio, through purchases, sales or
otherwise, or the manner in which the portfolio is classified or reported,
or execute any individual investment transaction (i) in United States
Treasury securities in excess of $5,000,000 and (ii) in any other
investment securities in excess of $1,000,000; or
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(l) agree in writing or otherwise to take any of the foregoing actions
or engage in any activity, enter into any transaction or take or omit to
take any other act which would make any of the representations and
warranties in Article II of this Agreement untrue or incorrect in any
material respect if made anew after engaging in such activity, entering
into such transaction, or taking or omitting such other act.
4.03. Forbearances. Except as set forth on Schedule 4.03 or as otherwise
contemplated by this Agreement and without limiting the provisions of Section
4.01, during the period from the date of this Agreement to the Effective Time,
Buyer shall not, and shall not permit any of its Subsidiaries to, without the
prior written consent of Seller:
(a) take any action that would (A) materially impede or delay the
consummation of the transactions contemplated by this Agreement or the
ability of Buyer or Seller 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 transactions contemplated hereby from qualifying as a reorganization
within the meaning of Section 368 of the Code; or
(b) agree in writing or otherwise to take any of the foregoing actions
or engage in any activity, enter into any transaction or take or omit to
take any other act which would make any of the representations and
warranties in Article III of this Agreement untrue or incorrect in any
material respect if made anew after engaging in such activity, entering
into such transaction, or taking or omitting such other act.
ARTICLE V
ADDITIONAL AGREEMENTS
5.01. Access and Information. (a) Buyer and its Subsidiaries, on the one
hand, and Seller and its Subsidiaries, on the other hand, shall each afford to
each other, and to the other's accountants, counsel and other representatives,
full access during normal business hours, during the period prior to the
Effective Time, to all their respective properties, books, contracts,
commitments and records and, during such period, each shall furnish promptly to
the other (i) a copy of each report, schedule and other document filed or
received by it during such period pursuant to the requirements of federal and
state securities laws and (ii) all other information concerning its business,
properties and personnel as such other party may reasonably request. Each party
hereto shall, and shall cause its advisors and representatives to, (A) hold
confidential all information obtained in connection with any transaction
contemplated hereby with respect to the other party which is not otherwise
public knowledge, (B) return all documents (including copies thereof) obtained
hereunder from the other party to such other party and (C) use its reasonable
best efforts to cause all information obtained pursuant to this Agreement or in
connection with the negotiation of this Agreement to be treated as confidential
and not use, or knowingly permit others to use, any such information unless
such information becomes generally available to the public.
(b) Promptly following the date of this Agreement, each party shall
commence a review of the operations, business affairs, prospects and financial
condition of the other party (the "Due Diligence Review"). Such Due Diligence
Review shall conclude by not later than 15 business days after the date of this
Agreement (the "Due Diligence Period"). Each party shall promptly advise the
other of any situation, event, circumstance or other matter which first came to
the attention of such party after the date hereof which could result in the
termination of this Agreement pursuant to Section 7.01 hereof, or, if
applicable, of the absence of any situation, event, circumstance or other
matter. Notwithstanding anything herein or implied to the contrary, the Due
Diligence Review shall not limit, restrict or preclude, or be construed to
limit, restrict or preclude, either party, at any time or from time to time
thereafter, from conducting such further reviews or from exercising any rights
available to it hereunder as a result of the existence or occurrence prior to
the Due Diligence Period of any event or condition which was not detected in
the Due Diligence Review and which would constitute a breach of any
representation, warranty or agreement under this Agreement.
5.02. Registration Statement; Regulatory Matters. (a) Buyer shall prepare
and, subject to the review and consent of Seller with respect to matters
relating to Seller, file with the Securities and Exchange Commission as soon as
is reasonably practicable the Registration Statement (or the equivalent in the
form of preliminary proxy material) with respect to the consideration to be
issued by Buyer in the Merger. Buyer shall prepare and file an application with
the Federal Reserve Board, OTS and Iowa Division of Banking as soon as
reasonably practicable. Buyer shall use all reasonable efforts to cause the
Registration Statement to become effective. Buyer shall also take any action
required
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to be taken under any applicable state blue sky or securities laws in
connection with the issuance of any shares, and Seller and its Subsidiaries
shall furnish Buyer all information concerning Seller and its Subsidiaries and
the stockholders thereof as Buyer may reasonably request in connection with any
such action.
(b) Seller and Buyer shall cooperate and use their respective reasonable
best efforts to prepare all documentation, to effect all filings and to obtain
all permits, consents, approvals and authorizations of all third parties and
Regulatory Authorities necessary to consummate the transactions contemplated by
this Agreement and, as and if directed by Buyer, to consummate such other
mergers, consolidations or asset transfers or other transactions by and among
Buyer's Subsidiaries and Seller's Subsidiaries concurrently with or following
the Effective Time.
5.03. Stockholder Approval. Seller shall call a meeting of its stockholders
to be held as soon as practicable for the purpose of voting upon the Merger or
take other action for stockholders to authorize the Merger. In connection
therewith, Buyer shall prepare the Proxy Statement and, with the approval of
each of Buyer and Seller, the Proxy Statement shall be filed with the
Securities and Exchange Commission and mailed to the stockholders of Seller.
The Board of Directors of Seller shall (subject to compliance with its
fiduciary duties as advised by counsel) recommend to its shareholders the
approval of this Agreement and the Merger contemplated hereby and use its
reasonable efforts to obtain such approval.
5.04. Current Information. During the period from the date of this
Agreement to the Effective Time, each party shall promptly furnish the other
party with copies of all monthly and other interim financial information or
reports as the same become available and shall cause one or more of its
designated representatives to confer on a regular and frequent basis with
representatives of the other party. Each party shall promptly notify the other
party of any material change in its business or operations and of any
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), or the institution or the threat
of material litigation involving such party, and shall keep the other party
fully informed of such events.
5.05. Agreements of Affiliates. As soon as practicable after the date of
this Agreement, Seller shall deliver to Buyer a letter identifying all persons
whom Seller believes to be, at the time this Agreement is submitted to a vote
of the stockholders of Seller, "affiliates" of Seller for purposes of Rule
145 under the Securities Act. Seller shall use its reasonable best efforts to
cause each person who is so identified as an "affiliate" to deliver to Buyer
as soon as practicable thereafter, and in any event no later than the
publication of notice in the Federal Register of Buyer's application with the
Federal Reserve Board referred to in Section 5.02, a written agreement in Form
of Exhibit C 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 Seller held by such person or any shares of Buyer Common Stock to be
received by such person in the Merger except in compliance with the applicable
provisions of the Securities Act.
5.06. Expenses. Each party hereto shall bear its own expenses incident to
preparing, entering into and carrying out this Agreement and to consummating
the Merger.
5.07. Miscellaneous Agreements and Consents. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use its
respective reasonable best 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 as expeditiously as possible,
including without limitation using its respective reasonable best efforts to
lift or rescind any injunction or restraining order or other order adversely
affecting the ability of the parties to consummate the transactions
contemplated hereby. Each party shall, and shall cause each of its respective
Subsidiaries to, use its reasonable best efforts to obtain consents of all
third parties and Regulatory Authorities necessary or, in the opinion of Buyer,
desirable for the consummation of the transactions contemplated by this
Agreement.
5.08. Employee Stock Options. At the Effective Time, all rights with
respect to Seller Common Stock pursuant to Seller Employee Stock Options that
are outstanding at the Effective Time, whether or not then exercisable, shall
be converted into and become rights with respect to Buyer Common Stock, and
Buyer shall assume each Seller Employee Stock Option in accordance with the
terms of the stock option plan under which it was issued and the stock option
agreement by which it is evidenced. From and after the Effective Time, (i) each
Seller Employee Stock Option assumed by Buyer shall be exercised solely for
shares of Buyer Common Stock, (ii) the number of shares of Buyer Common Stock
subject to each Seller Employee Stock Option shall be equal to the number of
shares of Seller Common Stock subject to such Seller Employee Stock Option
immediately prior to the Effective Time multiplied by
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<PAGE> 90
the Exchange Ratio and (iii) the per share exercise price under each Seller
Employee Stock Option shall be adjusted by dividing the per share exercise
price under such Seller Employee Stock Option by the Exchange Ratio and
rounding down to the nearest cent; provided, however, that the terms of each
Seller Employee Stock Option shall, in accordance with its terms, be subject to
further adjustment as appropriate to reflect any stock split, stock dividend,
recapitalization or other similar transaction subsequent to the Effective Time.
It is intended that the foregoing assumption shall be undertaken in a manner
that will not constitute a "modification" as defined in the Code, as to any
Seller Employee Stock Option that is an "incentive stock option."
5.09. Press Releases. Except as may be required by law, Seller and Buyer
shall consult and agree with each other as to the form, timing and substance of
any proposed press release relating to this Agreement or any of the
transactions contemplated hereby.
5.10. State Takeover Statutes. Seller will take all steps necessary to
exempt the transactions contemplated by this Agreement and any agreement
contemplated hereby from, and if necessary challenge the validity of, any
applicable state takeover law.
5.11. D&O Indemnification. Buyer agrees that the Merger shall not affect or
diminish any of Seller's duties and obligations of indemnification existing as
of the Effective Time in favor of employees, agents, directors or officers of
Seller or its Subsidiaries arising by virtue of their respective Articles of
Incorporation or Bylaws in the form in effect at the date of this Agreement or
arising by operation of law or arising by virtue of any contract, resolution or
other agreement or document existing at the date of this Agreement, and Buyer
agrees to use its reasonable best efforts to assume such duties and obligations
of indemnification, in order that such duties and obligations shall continue in
full force and effect for so long as they would (but for the Merger) otherwise
survive and continue in full force and effect.
5.12. Insurance. As soon as practicable following the date hereof, Seller
shall, and Seller shall cause its Subsidiaries to, use its reasonable best
efforts to maintain its existing insurance coverage.
5.13. Certain Directors. Buyer agrees to cause Messrs. Erl A. Schmiesing
and Douglas K. Shull to be elected or appointed as directors of Buyer at, or
promptly after the Effective Time. Buyer shall take all corporate action
necessary to ensure that Mr. Schmiesing serves on the Board of Directors of
Buyer for a period of three years following the Closing Date.
5.14. Employment Agreements. All employment and change of control
agreements with Seller employees in effect prior to the date of this Agreement
and previously disclosed to Buyer will be honored by Buyer in accordance with
their terms; provided, however, that certain named executives will surrender
their existing employment and change of control agreements in exchange for (i)
Buyer change of control or employment agreements, and (ii) awards of restricted
stock with a value of one times Annualized Includible Compensation (as defined
in the applicable agreement) vesting ratably over five years, with accelerated
vesting if terminated without Cause or as result of a Change of Control (each
as defined in the applicable agreement) of Buyer.
5.15. Dividends. After the date of this Agreement, each of Buyer and Seller
shall coordinate with the other the declaration of any dividends in respect of
Buyer Common Stock and Seller Common Stock and the record dates and payment
dates relating thereto, it being the intention of the parties hereto that
holders of Buyer Common Stock or Seller Common Stock shall not receive two
dividends, or fail to receive one dividend, for any single calendar quarter
with respect to their shares of Buyer Common Stock and/or Seller Common Stock
and any shares of Buyer Common Stock any such holder receives in exchange
therefor in the Merger.
ARTICLE VI
CONDITIONS
6.01. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment or waiver at or prior to the Effective Time of the following
conditions:
(a) This Agreement shall have received the requisite approval of
stockholders of Seller.
(b) All requisite approvals of this Agreement and the transactions
contemplated hereby shall have been received from the Federal Reserve
Board, the State Bank Regulator, the OTS and any other Regulatory
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<PAGE> 91
Authority; provided, however, that such approvals shall not contain or
impose any conditions or requirements that would have a material adverse
effect on the business or financial condition of either party.
(c) The Registration Statement shall have been declared effective and
shall not be subject to a stop order or any threatened stop order.
(d) Neither Seller nor Buyer shall be subject to any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits the consummation of the Merger.
(e) Each of Buyer and Seller shall have received, from counsel
reasonably satisfactory to it, an opinion reasonably satisfactory in form
and substance to it to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion which are
consistent with the state of facts existing at the Effective Time, the
Merger will constitute a reorganization within the meaning of Section 368
of the Code and that accordingly:
(i) no gain or loss will be recognized by Seller or Buyer as a
result of the Merger;
(ii) no gain or loss will be recognized by the stockholders of
Seller who exchange their shares of Seller Common Stock solely for Buyer
Common Stock pursuant to the Merger (except with respect to cash
received in lieu of fractional shares);
(iii) the tax basis of the Buyer Common Stock received by
stockholders who exchange all of their Seller Common Stock solely for
Buyer Common Stock in the Merger will be the same as the tax basis of
the Seller Common Stock surrendered in exchange therefor (reduced by any
amount allocable to a fractional share interest for which cash is
received).
(iv) gain will be recognized by the stockholders of Seller who
exchange their shares of Seller Common Stock for Buyer Common Stock and
cash to the extent of the lesser of (i) the amount of cash received, or
(ii) the fair market value of the Buyer Common Stock and cash received
less the stockholder's basis in the Seller Common Stock surrendered; and
(v) the tax basis of the Buyer Common Stock received by stockholders
who exchange their shares of Seller Common Stock for Buyer Common Stock
and cash will be the same as the tax basis of the Seller Common Stock
surrendered in exchange therefor, reduced by the amount of cash received
by the stockholder, and increased by the amount of gain recognized by
the stockholder on such exchange.
In rendering such opinion, counsel may require and rely upon representations
contained in certificates of officers of Seller, Buyer and others.
6.02. Conditions to Obligations of Seller to Effect the Merger. The
obligations of Seller to effect the Merger shall be subject to the fulfillment
or waiver at or prior to the Effective Time of the following additional
conditions:
(a) Representations and Warranties. The representations and warranties
of Buyer set forth in Article III of this Agreement shall be true and
correct in all material respects as of the date of this Agreement and as of
the Effective Time (as though made on and as of the Effective Time except
(i) to the extent such representations and warranties are by their express
provisions made as of a specified date or period and (ii) for the effect of
transactions contemplated by this Agreement) and Seller shall have received
a certificate of the chairman or chief financial officer of Buyer to that
effect.
(b) Performance of Obligations. Buyer shall have performed in all
material respects all obligations required to be performed by it under this
Agreement prior to the Effective Time, and Seller shall have received a
certificate of the chairman or chief financial officer of Buyer to that
effect.
6.03. Conditions to Obligations of Buyer to Effect the Merger. The
obligations of Buyer to effect the Merger shall be subject to the fulfillment
or waiver at or prior to the Effective Time of the following additional
conditions:
(a) Representations and Warranties. The representations and warranties
of Seller set forth in Article II of this Agreement shall be true and
correct in all material respects as of the date of this Agreement and as of
the Effective Time (as though made on and as of the Effective Time except
(i) to the extent such representations and warranties are by their express
provisions made as of a specific date or period and (ii) for the effect of
transactions contemplated by this Agreement) and Buyer shall have received
a certificate of the chairman of Seller and a certificate of the president
and chief executive officer of Seller to that effect.
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<PAGE> 92
(b) Performance of Obligations. Seller shall have performed in all
material respects all obligations required to be performed by it under this
Agreement prior to the Effective Time, and Buyer shall have received a
certificate of the chairman of Seller and a certificate of the president
and chief executive officer of Seller to that effect.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.01. Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after any requisite stockholder approval:
(a) by mutual consent of the Board of Directors of Buyer and the Board
of Directors of Seller;
(b) by the Board of Directors of Buyer or the Board of Directors of
Seller at any time after the date that is ten months after the date of this
Agreement if the Merger shall not theretofore have been consummated
(provided that the terminating party is not then in material breach of any
representation, warranty, covenant or other agreement contained herein);
(c) by the Board of Directors of Buyer or the Board of Directors of
Seller if (i) any Regulatory Authority has denied approval of the Merger
and such denial has become final and nonappealable, (ii) stockholders of
Seller shall not have approved this Agreement at the Meeting, or (iii) the
approval of any Regulatory Authority required pursuant to Section 6.01(b)
of this Agreement contains or imposes any conditions or requirements that
would have a material adverse effect on the Condition of either party;
(d) by the Board of Directors of Buyer in the event of a material
breach by Seller of any representation, warranty, covenant or other
agreement contained in this Agreement, which breach is not cured within 30
days after provision of written notice thereof to Seller by Buyer;
(e) by the Board of Directors of Buyer or Seller in the event that (i)
its Due Diligence Review of the other party discloses matters the impact of
which affects the other party in a manner which its Board of Directors in
the good faith exercise of its reasonable judgment believes either (A) to
be inconsistent in any material and adverse respect with any of the
representations or warranties of the other party, or (B) (x) to be of such
significance as to materially and adversely affect the Condition of the
other party, taken as a whole, or (y) to deviate materially and adversely
from the financial statements for the year ended December 31, 1995 of the
other party, (ii) Buyer or Seller, as the case may be, notifies the other
party of such matters within 5 business days of the expiration of the Due
Diligence Period, and (iii) such matters (A) are not capable of being cured
or (B) have not been cured within 30 days after provision of written notice
thereof by Buyer or Seller, as the case may be, to the other party;
(f) by the Board of Directors of Seller in the event of a material
breach by Buyer of any representation, warranty, covenant or other
agreement contained in this Agreement, which breach is not cured within 30
days after written notice thereof is given to Buyer by Seller; or
(g) by the Board of Directors of Seller within five days of the last
day of the Valuation Period, if both of the following conditions are
satisfied:
(i) the Valuation Period Market Value shall be less than $20; and
(ii) (A) the number obtained by dividing the Valuation Period Market
Value by the Starting Price (such number being referred to herein as the
"Buyer Ratio") shall be less than (B) the number obtained by dividing
the Average Index Price by the Index Price on the Starting Date and
subtracting .15 from the quotient in this clause (ii)(B) (such number
being referred to herein as the "Index Ratio");
provided, however, that if the Seller elects to exercise its termination right
pursuant to this Section 7.01(g), it shall give prompt written notice to Buyer;
provided further that such notice of election to terminate may be withdrawn at
any time within the aforementioned five-day period.
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<PAGE> 93
For purposes of this Section 7.01(g), the following terms shall have the
meanings indicated:
"Average Index Price" means the average of the Index Prices for the ten
consecutive full NASDAQ trading days ending at the close of trading on the last
day of the Valuation Period.
"Index Group" means the group of each of the 35 bank holding companies
listed below, the common stock of all of which shall be publicly traded and as
to which there shall not have been, since the Starting Date and before the last
day of the Valuation Period, any public announcement of a proposal either (i)
for such company to be acquired or (ii) for such company to acquire another
company or companies in transactions with a value exceeding 25% of the
acquiror's market capitalization. In the event that the common stock of any
such company ceases to be publicly traded or such an announcement is made, such
company will be removed from the Index Group, and the weights redistributed
proportionately for purposes of determining the Index Price. The 35 bank
holding companies and the weights attributed to them are as follows:
<TABLE>
<CAPTION>
INDEX
BANK HOLDING COMPANY WEIGHTS
-------------------- -------
<S> <C>
AmSouth Bancorporation................................................................ 1.46844%
Banc One Corporation.................................................................. 11.11981%
Bancorp Hawaii, Inc................................................................... 1.02260%
BanPonce Corporation.................................................................. 1.16201%
Boatmen's Bancshares, Inc............................................................. 4.56467%
City National Corporation............................................................. 0.52395%
Comerica Incorporated................................................................. 3.76169%
Crestar Financial Corporation......................................................... 1.68270%
Cullen/Frost Bankers, Inc............................................................. 0.43216%
Deposit Guaranty Corp................................................................. 0.60120%
Fifth Third Bancorp................................................................... 3.79404%
First Bank System, Inc................................................................ 5.82621%
First Chicago NBD Corporation......................................................... 9.32798%
First Empire State Corporation........................................................ 1.14701%
First of America Bank Corporation..................................................... 1.93063%
First Security Corporation............................................................ 1.39727%
First Tennessee National Corporation.................................................. 1.48690%
Firstar Corporation................................................................... 2.21165%
Huntington Bancshares Incorporated.................................................... 2.16071%
KeyCorp............................................................................... 6.24310%
Mark Twain Bancshares, Inc............................................................ 0.40219%
Marshall & Ilsley Corporation......................................................... 1.69542%
Mercantile Bancorporation, Inc........................................................ 1.98926%
National City Corporation............................................................. 5.74976%
Northern Trust Corporation............................................................ 2.40936%
Norwest Corporation................................................................... 9.39383%
Old Kent Financial Corporation........................................................ 1.20974%
Regions Financial Corporation......................................................... 1.87689%
Signet Banking Corporation............................................................ 0.96991%
SouthTrust Corporation................................................................ 1.89527%
Star Banc Corporation................................................................. 1.53120%
State Street Boston Corporation....................................................... 2.93498%
UnionBanCal Corporation............................................................... 1.75614%
United Carolina Bancshares Corporation................................................ 0.37232%
U.S. Bancorp.......................................................................... 3.94900%
---------
100.00000%
</TABLE>
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<PAGE> 94
"Index Price" on a given date means the weighted average (weighted in
accordance with the factors listed above) of the closing prices on such date of
the companies composing the Index Group.
"Starting Date" means the last full day on which NASDAQ was open for
trading prior to the execution of this Agreement.
"Starting Price" shall mean the closing-sale price per share of Buyer
Common Stock on the Starting Date, as reported by NASDAQ (as reported in The
Wall Street Journal, Midwest edition, or, if not reported therein, in another
mutually agreed upon authoritative source).
If any company belonging to the Index Group or Buyer declares or
effects a stock dividend, reclassification, recapitalization, split-up,
combination, exchange of shares or similar transaction between the Starting
Date and the last day of the Valuation Period, the prices for the common
stock of such company or Buyer shall be appropriately adjusted for the
purposes of applying this Section 7.01(g).
7.02. Effect of Termination. In the event of termination of this Agreement
as provided in Section 7.01 hereof this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Buyer or Seller or
their respective officers or directors except as set forth in the second
sentence of Section 5.01(a) and in Section 5.06; provided that termination of
this Agreement pursuant to Section 7.01(d) or 7.01(f) shall not relieve the
breaching party from liability for any willful breach of any covenants,
undertakings, representations or warranties giving rise to such termination.
7.03. Amendment. This Agreement may be amended by the parties hereto, by
action taken by or on behalf of their respective Boards of Directors, at any
time before or after approval of this Agreement by the stockholders of Seller;
provided, however, that after any such approval by the stockholders of Seller
no such modification shall alter or change the amount or kind of consideration
to be received by holders of Seller Common Stock as provided in this Agreement.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of Buyer and Seller.
7.04. Severability. Any term, provision, covenant or restriction contained
in this 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
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 Agreement that is so found to be so broad as to
be unenforceable shall be interpreted to be as broad as is enforceable.
7.05. Waiver. Any term, condition or provision of this Agreement may be
waived in writing at any time by the party which is, or whose stockholders are,
entitled to the benefits thereof.
ARTICLE VIII
GENERAL PROVISIONS
8.01. Non-Survival of Representations, Warranties and Agreements. No
investigation by the parties hereto made heretofore or hereafter shall affect
the representations and warranties of the parties which are contained herein
and each such representation and warranty shall survive such investigation.
Except as set forth below in this Section 8.01, all representations, warranties
and agreements in this Agreement of Buyer and Seller or in any instrument
delivered by Buyer or Seller pursuant to or in connection with this Agreement
shall expire at the Effective Time or upon termination of this Agreement in
accordance with its terms or, in the case of any other such instrument, in
accordance with the terms of such instrument. In the event of consummation of
the Merger, the agreements contained herein which by their terms are to be
performed following the Effective Time shall survive the Effective Time until
performed in accordance with their terms. In the event of termination of this
Agreement in accordance with its terms, the agreements contained in or referred
to in the second sentence of Section 5.01(a), Section 5.06 and Section 7.02
shall survive such termination.
8.02. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to be duly received (i) on the date given if
delivered personally or (ii) upon confirmation of receipt, if by facsimile
transmission or (iii) on the date received if mailed by registered or certified
mail (return receipt requested), or (iv) on the business
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<PAGE> 95
date after being delivered to a reputable overnight delivery service, if by
such service, to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(i) if to Buyer:
Magna Group, Inc.
One Magna Place
1401 South Brentwood Boulevard
St. Louis, Missouri 63144-1401
Attention: G. Thomas Andes
Copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Craig M. Wasserman, Esq.
Telecopy: (212) 403-2000
(ii) if to Seller:
Homeland Bankshares Corporation
229 East Park Avenue
P.O. Box 5300
Waterloo, Iowa 50704-5300
Attention: Erl A. Schmiesing
Copy to:
Nyemaster, Goode, McLaughlin, Voigts,
West, Hansell & O'Brien, P.C.
1900 Hub Tower
699 Walnut Street
Des Moines, Iowa 50309
Attention: Gregory P. Page, Esq.
Telecopy: (515) 283-3108
8.03. Miscellaneous. This Agreement (including the Schedules and other
written documents referred to herein or provided hereunder) (i) constitutes the
entire agreement and supersedes all other prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof, including any confidentiality agreement between the
parties hereto, (ii) is not intended to confer upon any person not a party
hereto any rights or remedies hereunder, (iii) shall not be assigned by
operation of law or otherwise and (iv) shall be governed in all respects by the
laws of the State of Missouri, except as otherwise specifically provided herein
or required by the Iowa Act. Nothing in this 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. This Agreement may be executed in counterparts which together shall
constitute a single agreement.
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<PAGE> 96
IN WITNESS WHEREOF, Buyer and Seller have caused this Agreement to be
signed and, by such signature, acknowledged by their respective officers
thereunto duly authorized, and such signatures to be attested to by their
respective officers thereunto duly authorized, all as of the date first written
above.
Attest: MAGNA GROUP, INC.
/s/ CAROLYN B. RYSEFF By: /s/ G. THOMAS ANDES
- ----------------------------------- ------------------------------------
Name: CAROLYN B. RYSEFF Name: G. THOMAS ANDES
Title: Secretary Title: Chairman and Chief
Executive Officer
Attest: HOMELAND BANKSHARES CORPORATION
/s/ MARCIA C. BORWIG By: /s/ ERL. A. SCHMIESING
- ----------------------------------- ------------------------------------
Name: MARCIA C. BORWIG Name: ERL A. SCHMIESING
Title: Secretary to the Board Title: Chairman, President and
Chief Executive Officer
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<PAGE> 97
EXHIBIT A
See Annex E
<PAGE> 98
EXHIBIT B
ARTICLES OF MERGER
OF
HBC ACQUISITION SUB, INC.
TO THE SECRETARY OF STATE
OF THE STATE OF IOWA:
Pursuant to section 1105 of the Iowa Business Corporation Act, the
undersigned corporation adopts the following Articles of Merger.
I. The Plan of Merger (the "Plan") is attached hereto as Exhibit "A" and
by this reference incorporated herein as if set forth in full.
II. A. HBC Acquisition Sub, Inc., an Iowa corporation.
Shareholder approval of the merger was not required for shareholders of
this corporation.
B. Homeland Bankshares Corporation, an Iowa corporation.
The designation, number of outstanding shares, and number of votes
entitled to be cast by each voting group entitled to vote separately on
the Plan as to this corporation is as follows:
<TABLE>
<CAPTION>
Designation Shares Votes Entitled
of Group Outstanding to be Cast
<S> <C> <C>
Common
---------- ----------
</TABLE>
The total number of undisputed votes cast for the Plan by the sole voting
group of this corporation was -------------. The number of votes cast
for the Plan by the sole voting group of this corporation was sufficient
for approval by that voting group.
III. The effective time and date of this document is ----------------
--.m., ----------------, 1997.
Dated: ----------------, 1997.
HBC Acquisition Sub, Inc.,
an Iowa Corporation
By:_______________________
Name:_____________________
Title:____________________
<PAGE> 99
PLAN OF MERGER
1. The names of the corporations proposing to merge are HBC Acquisition
Sub, Inc., an Iowa corporation (the "Company"), and Homeland Bankshares
Corporation, an Iowa corporation ("Homeland"). In accordance with the
applicable provisions of the Iowa Business Corporation Act (the "Act"),
Homeland shall be merged with and into the Company (the "Merger") as of the
Effective Time (as that term is defined in paragraph 2 below), with the Company
continuing as the surviving corporation. As of the Effective Time of the
Merger, the separate existence of Homeland shall cease.
2. This Plan of Merger ("Plan") shall be submitted to a vote of the
shareholders of Homeland. Approval of the Plan by the shareholders of the
Company is not required under the Act. If this Plan is approved by the
shareholders of Homeland in the manner required by the Act, the Company shall
file Articles of Merger with the Iowa Secretary of State (the "Articles of
Merger"), pursuant to and in accordance with the Act and with that certain
Agreement and Plan of Reorganization dated August 30, 1996 (the "Agreement")
(of which this Plan is a part) and entered into by and between Magna Group,
Inc., a Delaware corporation ("Buyer"), and Homeland. The Merger shall take
effect as of the time and date set forth in the Articles of Merger (the
"Effective Time"), which time and date shall not be earlier than the
satisfaction of all conditions set forth in Section 6.01 of the Agreement (the
"Approval Date") and which shall be not later than the first business day of
the first full calendar month commencing at least five (5) business days after
the Approval Date. The Approval Date shall in no event be earlier than January
1, 1997.
3. As of the Effective Time:
(a) Homeland will merge with and into the Company, with the Company
continuing as the surviving corporation and the separate existence of Homeland
shall cease.
(b) The title to all real estate and other property owned by Homeland shall
be vested in the Company without reservation or impairment.
(c) The Company shall have all liabilities of Homeland.
(d) The directors and officers of the Company immediately prior to the
Effective Time shall be the directors and officers of the Company following the
Merger, with such directors and officers to continue to hold office in
accordance with the Company's Bylaws and applicable law.
(e) The Articles of Incorporation and Bylaws of the Company in effect
immediately prior to the Effective Time shall continue as the Articles of
Incorporation and Bylaws of the Company, subject to future amendment.
(f) The Merger shall otherwise have all of the effects of a merger as
provided in Section 490.1106 of the Act.
4. (a) Each share of the common stock, par value $.01 per share, of the
Company that is issued and outstanding immediately prior to the Effective Time
shall continue to be and represent one share of common stock of the Company,
and shall remain outstanding and shall be unchanged after the Merger and shall
thereafter constitute all of the issued and outstanding capital stock of the
Company.
(b) Each share of the common stock, par value $12.50 per share, of Homeland
issued and outstanding immediately prior to the Effective Time ("Homeland
Common Stock"), other than any Dissenting Shares (as defined in paragraph 5
below), shall at the Effective Time be, by virtue of the Merger and without any
further action on the part of any holder thereof, converted into and become the
right to receive, at the election of the holder thereof, either:
(i) 1.55 (as adjusted as described in subparagraph (d) immediately
below, the "Exchange Ratio") shares of the common stock of Buyer, par
value $2.00 per share ("Buyer Common Stock"), and associated Preferred
Share Purchase Rights issued pursuant to the rights agreement dated as of
November 11, 1988, by and between Buyer and Magna Trust Company, as rights
agent (as adjusted as described in subparagraph (d) immediately below, the
"Per Share Stock Consideration");
(ii) $37.50 in cash (as adjusted as described in subparagraph (d)
immediately below, the "Per Share Cash Consideration"); or
<PAGE> 100
(iii) A combination of 57 percent Per Share Stock Consideration and 43
percent Per Share Cash Consideration (as adjusted as described in
subparagraph (d) immediately below) (the "Mixed Election"), provided that
the aggregate number of shares of Buyer Common Stock that shall be issued
in the Merger shall not exceed 5,038,934 shares (the "Stock Amount").
(c) The holders of Homeland Common Stock shall make an election as to
whether they desire to receive the Per Share Stock Consideration, the Per Share
Cash Consideration, or the Mixed Election, pursuant to the procedures set forth
in the Agreement, which procedures shall be set forth in the notices forwarded
to the shareholders of Homeland in connection with the Merger.
(d) The Per Share Stock Consideration and the Per Share Cash Consideration
shall each be adjusted as of the end of the ten (10) consecutive day period
(the "Valuation Period") during which the shares of Buyer Common Stock are
traded on the Nasdaq Stock Market National Market System ("NASDAQ") ending on
the tenth calendar day immediately prior to the anticipated Effective Time. The
Per Share Stock Consideration shall be adjusted by adjusting the Exchange Ratio
such that the product of the Exchange Ratio (rounded to the nearest 1/100th of
a share) and the Valuation Period Market Value shall equal the Average Per
Share Consideration. The Per Share Cash Consideration shall be adjusted to
equal the Average Per Share Consideration.
For purposes of this subparagraph (d) the following definitions shall
apply;
"Valuation Period Market Value" shall mean the average of the
closing-sale prices for the Buyer Common Stock as reported on NASDAQ (as
reported in The Wall Street Journal or, the absence thereof, by another
authoritative source) during the Valuation Period.
"Average Per Share Consideration" shall mean the Aggregate Consideration
divided by the Valuation Period Share Number (rounded to the nearest cent).
"Aggregate Consideration" shall mean the sum of (x) the product of 1.55
times the Valuation Period Market Value times 0.57 times the Valuation Period
Share Number and (y) $37.50 times 0.43 times the Valuation Period Share Number.
"Valuation Period Share Number" shall mean the total number of shares of
Homeland Common Stock outstanding (other than treasury shares) on the last day
of the Valuation Period.
(e) If prior to the Effective Time (i) Homeland shall declare a stock
dividend or distribution upon or subdivide, split up, reclassify, or combine
the Homeland Common Stock, or declare a dividend or make a distribution on the
Homeland Common Stock in any security convertible into Homeland Common Stock,
or (ii) Buyer shall declare a stock dividend or distribution upon or subdivide,
split up, reclassify, or combine the Buyer Common Stock, or declare a dividend
or make a distribution on the Buyer Common Stock in any security convertible
into Buyer Common Stock, an appropriate adjustment or adjustments will be made
to the Per Share Cash Consideration, the Per Share Stock Consideration, and the
Stock Amount.
5. "Dissenting Shares" means any shares held by any holder of Homeland
Common Stock who becomes entitled to payment of the fair value of such shares
under the Act. Any holders of Dissenting Shares shall be entitled to payment
for such shares only to the extent permitted by and in accordance with the
provisions of the Act; provided, however, that if, in accordance with the Act,
any holder of Dissenting Shares shall forfeit such right to payment of the fair
value of such shares, such shares shall thereupon be deemed to have been
converted into and to have become exchangeable for, as of the Effective Time,
the right to receive the Per Share Cash Consideration pursuant to the Merger.
The Company, as the surviving corporation, hereby agrees that it will promptly
pay to the dissenting shareholders of Homeland, if any, the amount, if any, to
which they shall become entitled under the provisions of the Act with respect
to the rights of dissenting shareholders.
6. The other terms and conditions of the Merger are as set forth in the
Agreement.
2
<PAGE> 101
EXHIBIT C
FORM OF AFFILIATE LETTER
Magna Group, Inc.
One Magna Place
1401 South Brentwood Boulevard
St. Louis, MO 63144-1401
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be deemed to
be an "affiliate" of Homeland Bankshares Corporation, an Iowa corporation
(the "Company"), as the term "affiliate" is defined for purposes of
paragraphs (c) and (d) of Rule 145 of the rules and regulations (the "Rules
and Regulations") of the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act").
Pursuant to the terms of the Agreement and Plan of Reorganization dated as of
August 30, 1996 (the "Agreement"), between Magna Group, Inc., a Delaware
corporation ("Magna"), and the Company, the Company will be merged with and
into Merger Sub (the "Merger").
As a result of the Merger, I may receive (A) shares of (i) Common Stock,
par value $2.00 per share, of Magna ("Magna Common Stock"). I would receive
such Magna Common Stock in exchange for, respectively, shares (or options for
shares) owned by me of common stock, par value $12.50 per share, of the Company
(the "Company Common Stock").
I represent, warrant and covenant to Magna that in the event I receive any
Magna Common Stock as a result of the Merger:
A. I shall not make any sale, transfer or other disposition of the
Magna Common Stock in violation of the Act or the Rules and Regulations.
B. I have carefully read this letter and the Agreement and discussed
the requirements of such documents and other applicable limitations upon my
ability to sell, transfer or otherwise dispose of Magna Common Stock to the
extent I felt necessary, with my counsel or counsel for the Company.
C. I have been advised that the issuance of Magna Common Stock to me
pursuant to the Merger has been registered with the Commission under the
Act on a Registration Statement Form S-4. However, I have also been advised
that, because at the time the Merger is submitted for a vote of the
stockholders of the Company, (a) I may be deemed to be an affiliate of the
Company and (b) the distribution by me of the Magna Common Stock has not
been registered under the Act, I may not sell, transfer or otherwise
dispose of Magna Common Stock issued to me in the Merger unless (i) such
sale, transfer or other disposition is made in conformity with the volume
and other limitations of Rule 145 promulgated by the Commission under the
Act, (ii) such sale, transfer or other disposition has been registered
under the Act or (iii) in the opinion of counsel reasonably acceptable to
Magna, such sale, transfer or other disposition is otherwise exempt from
registration under the Act.
D. I understand that Magna is under no obligation to register the sale,
transfer or other disposition of the Magna Common Stock by me or on my
behalf under the Act or to take any other action necessary in order to make
compliance with an exemption from such registration available solely as a
result of the Merger.
E. I also understand that there will be placed on the certificates for
the Magna Common Stock issued to me, or any substitutions therefor, a
legend stating in substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE
TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED , 1996
BETWEEN THE REGISTERED HOLDER HEREOF AND MAGNA GROUP, INC., A COPY OF
WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF MAGNA GROUP,
INC."
<PAGE> 102
F. I also understand that unless a sale or transfer is made in
conformity with the provisions of Rule 145, or pursuant to a registration
statement, Magna reserves the right to put the following legend on the
certificates issued to my transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED
UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED
BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933
AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN
ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OF 1933."
It is understood and agreed that the legends set forth in paragraphs E and
F above shall be removed by delivery of substitute certificates without such
legend if the undersigned shall have delivered to Magna a copy of a letter from
the staff of the Commission, or an opinion of counsel reasonably satisfactory
to Magna in form and substance reasonably satisfactory to Magna, to the effect
that such legend is not required for purposes of the Act.
Execution of this letter should not be considered an admission on my part
that I am an "affiliate" of the Company as described in the first paragraph
of this letter, or as a waiver of any rights I may have to object to any claim
that I am such an affiliate on or after the date of this letter.
Very truly yours,
Name:
Accepted this day of
, 1996, by
MAGNA GROUP, INC.
By
Name:
Title:
2
<PAGE> 103
APPENDIX A
<TABLE>
<CAPTION>
VALUE NUMBER OF SHARES PERCENT OF SHARES
OF OF SELLER COMMON OF SELLER COMMON
AVERAGE PER PER PER STOCK TO RECEIVE: STOCK TO RECEIVE:
VALUATION VALUATION PER SHARE SHARE SHARE ------------------ -----------------
PERIOD AGGREGATE CONSIDERATION PERIOD SHARE STOCK STOCK CASH STOCK CASH STOCK CASH
MARKET -------------------------------- SHARE CONSID- CONSID- CONSID- CONSID- CONSID- CONSID- CONSID- CONSID-
VALUE STOCK CASH TOTAL NUMBER ERATION ERATION ERATION ERATION ERATION ERATION ERATION ERATION
- --------- ----- ---- ----- --------- ------- ------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$25.000 $125,973,362 $91,966,970 $217,940,332 5,703,378 $38.21 1.529 $38.21 $38.21 3,296,653 2,406,725 57.8% 42.2%
24.750 124,713,628 91,966,970 216,680,598 5,703,378 37.99 1.535 37.99 37.99 3,282,661 2,420,717 57.6 42.4
24.500 123,453,894 91,966,970 215,420,865 5,703,378 37.77 1.542 37.77 37.77 3,268,505 2,434,873 57.3 42.7
24.250 122,194,161 91,966,970 214,161,131 5,703,378 37.55 1.548 37.55 37.55 3,254,183 2,449,195 57.1 42.9
24.194 121,909,705 91,966,970 213,876,675 5,703,378 37.50 1.550 37.50 37.50 3,250,925 2,452,453 57.0 43.0
24.000 120,934,427 91,966,970 212,901,397 5,703,378 37.33 1.555 37.33 37.33 3,239,691 2,463,687 56.8 43.2
23.750 119,674,693 91,966,970 211,641,664 5,703,378 37.11 1.562 37.11 37.11 3,225,027 2,478,351 56.5 43.5
23.500 118,414,960 91,966,970 210,381,930 5,703,378 36.89 1.570 36.89 36.89 3,210,187 2,493,191 56.3 43.7
23.250 117,155,226 91,966,970 209,122,197 5,703,378 36.67 1.577 36.67 36.67 3,195,168 2,508,210 56.0 44.0
23.000 115,895,493 91,966,970 207,862,463 5,703,378 36.45 1.585 36.45 36.45 3,179,967 2,523,411 55.8 44.2
22.750 114,635,759 91,966,970 206,602,729 5,703,378 36.22 1.592 36.22 36.22 3,164,581 2,538,797 55.5 44.5
22.500 113,376,025 91,966,970 205,342,996 5,703,378 36.00 1.600 36.00 36.00 3,149,006 2,554,372 55.2 44.8
22.250 112,116,292 91,966,970 204,083,262 5,703,378 35.78 1.608 35.78 35.78 3,133,239 2,570,139 54.9 45.1
22.000 110,856,558 91,966,970 202,823,528 5,703,378 35.56 1.616 35.56 35.56 3,117,276 2,586,102 54.7 45.3
21.750 109,596,825 91,966,970 201,563,795 5,703,378 35.34 1.625 35.34 35.34 3,101,113 2,602,265 54.4 45.6
21.500 108,337,091 91,966,970 200,304,061 5,703,378 35.12 1.634 35.12 35.12 3,084,747 2,618,631 54.1 45.9
21.250 107,077,357 91,966,970 199,044,328 5,703,378 34.90 1.642 34.90 34.90 3,068,174 2,635,204 53.8 46.2
21.000 105,817,624 91,966,970 197,784,594 5,703,378 34.68 1.651 34.68 34.68 3,051,390 2,651,988 53.5 46.5
20.750 104,557,890 91,966,970 196,524,860 5,703,378 34.46 1.661 34.46 34.46 3,034,391 2,668,987 53.2 46.8
20.500 103,298,156 91,966,970 195,265,127 5,703,378 34.24 1.670 34.24 34.24 3,017,172 2,686,206 52.9 47.1
20.250 102,038,423 91,966,970 194,005,393 5,703,378 34.02 1.680 34.02 34.02 2,999,729 2,703,649 52.6 47.4
20.000 100,778,689 91,966,970 192,745,660 5,703,378 33.80 1.690 33.80 33.80 2,982,059 2,721,319 52.3 47.7
</TABLE>
<PAGE> 104
ANNEX D
AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION (this
"Amendment"), is entered into as of November 19, 1996, by and between Magna
Group, Inc., a Delaware corporation ("Buyer") and Homeland Bankshares
Corporation, an Iowa corporation ("Seller"), and is made with reference to
that certain Agreement and Plan of Reorganization, dated August 30, 1996
(the "Merger Agreement"), between Buyer and Seller (collectively, the
"Parties"). Capitalized terms used herein shall have the meanings assigned
in the Merger Agreement unless otherwise defined herein.
WHEREAS, beginning approximately November 20, 1996, Buyer Common Stock
will no longer be quoted on the Nasdaq but instead will be listed on the
New York Stock Exchange ("NYSE");
WHEREAS, as a result of the change in listing of Buyer Common Stock
from Nasdaq to the NYSE, the Parties desire to amend the Merger Agreement
as set forth herein.
NOW, THEREFORE in consideration of the premises and of the agreements
herein contained and for other good and valuable consideration, the Parties
agree as follows:
1. References to Nasdaq. (a) Section 1.09(a) of the Merger Agreement
--------------------
is hereby amended by deleting the first sentence thereof in its entirety
and substituting in place thereof the following:
"The Per Share Stock Consideration and the Per Share Cash Consideration
shall each be adjusted as of the end of the ten (10) consecutive trading-
day period (the "Valuation Period") during which the shares of Buyer
Common Stock are traded on the NYSE Composite Transactions reporting
system ending on the tenth calendar day immediately prior to the
anticipated Effective Time."
(b) The definition of "Valuation Period Market Value" contained in Section
1.09(b) is hereby amended by deleting such definition in its entirety and
substituting in place thereof the following:
"Valuation Period Market Value" shall mean the average of the closing-sale
prices for the Buyer Common Stock as reported on the NYSE Composite
Transactions reporting system (as reported in The Wall Street Journal,
-----------------------
Midwest edition, or, in the absence thereof, by another authoritative
source) during the Valuation Period."
(c) The definition of "Average Index Price" contained in Section 7.01(g) is
hereby amended by deleting such definition in its entirety and substituting
in place thereof the following:
""Average Index Price" means the average of the Index Prices for the
ten consecutive full Nasdaq Stock Market National Market System ("Nasdaq")
trading days ending at the close of trading on the last day of the
Valuation Period."
2. Effect. Except as specifically provided for herein the Merger Agreement
------
shall otherwise remain in full force and effect.
3. Counterparts. This Amendment may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment
to be duly executed and delivered by their respective officers thereunto
duly authorized as of the date first written above.
MAGNA GROUP, INC. HOMELAND BANKSHARES CORPORATION
By: /s/ G. Thomas Andes By: /s/ Erl A. Schmiesing
----------------------------- -----------------------------------
Name: G. Thomas Andes Name: Erl A. Schmiesing
Title: Chairman of the Board and Title: Chairman of the Board and
Chief Executive Officer Chief Executive Officer
<PAGE> 105
ANNEX E
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT ("Option Agreement") dated August 30, 1996,
between MAGNA GROUP, INC. ("Buyer"), a Delaware corporation registered as a
bank holding company under the Bank Holding Company Act of 1956, as amended
(the "Holding Company Act"), and HOMELAND BANKSHARES CORPORATION
("Seller"), an Iowa corporation registered as a bank holding company under
the Holding Company Act.
W I T N E S S E T H:
WHEREAS, the Board of Directors of Buyer and the Board of Directors of
Seller have approved an Agreement and Plan of Reorganization dated as of even
date herewith (the "Merger Agreement") providing for the merger of Seller
with and into a wholly owned subsidiary of Buyer;
WHEREAS, as a condition to Buyer's entering into the Merger Agreement,
Buyer has required that Seller agree, and Seller has agreed, to grant to Buyer
the option set forth herein to purchase authorized but unissued shares of
Seller 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.
2. Grant of Option.
Subject to the terms and conditions set forth herein, Seller hereby grants
to Buyer an option (the "Option") to purchase up to 1,134,972 authorized and
unissued shares of Seller Common Stock at a price of $34.00 per share (the
"Purchase Price") payable in cash as provided in Section 4 hereof.
3. Exercise of Option.
(a) Buyer 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 the Effective Time of the Merger and the termination of
the Merger Agreement in accordance with its terms, provided that if such
termination follows an Extension Event (as defined below), the Option shall not
terminate until the date that is 18 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 Holding Company Act.
(b) As used herein, a "Purchase Event" shall mean any of the following
events:
(i) Seller or any of its Subsidiaries, without having received prior
written consent from Buyer, shall have entered into, authorized,
recommended, proposed or publicly announced its intention to enter into,
authorize, recommend, or propose, an agreement, arrangement or
understanding with any individual, corporation, partnership, association,
bank, joint-stock corporation, business trust or unincorporated
organization ("Person") (other than Buyer or any of its Subsidiaries) to
(A) effect a merger or consolidation or similar transaction involving
Seller or any of its Subsidiaries, (B) purchase, lease or otherwise acquire
15% or more of the assets of Seller and its Subsidiaries, taken as a whole
or (C) purchase or otherwise acquire (including by way of merger,
consolidation, share exchange or similar transaction) Beneficial Ownership
of securities representing 10% or more of the voting power of Seller or any
of its Subsidiaries;
(ii) any Person (other than Buyer or any Subsidiary of Buyer, or Seller
or any Subsidiary of Seller in a fiduciary capacity) shall have acquired
Beneficial Ownership or the right to acquire Beneficial Ownership of 10% or
more of the voting power of Seller; or
E-1
<PAGE> 106
(iii) Seller's Board of Directors shall have withdrawn or modified in a
manner adverse to Buyer the recommendation of Seller's Board of Directors
with respect to the Merger Agreement, in each case after an Extension
Event; or
(iv) the holders of Seller Common Stock shall not have approved the
Merger Agreement at the Meeting, or such Meeting shall not have been held
or shall have been cancelled 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;
(ii) any Person (other than Buyer or any of its Subsidiaries) 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 Seller Common Stock such that, upon consummation of such
offer, such Person would have Beneficial Ownership (as defined below) or
the right to acquire Beneficial Ownership of 10% or more of the voting
power of Seller; or,
(iii) any Person (other than Buyer or any Subsidiary of Buyer, or
Seller or any Subsidiary of Seller in a fiduciary capacity) 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.
(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 Buyer wishes to exercise the Option, it shall deliver to
Seller a written notice (the date of which being herein referred to as the
"Notice Date") specifying (i) the total number of shares 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. Payment and Delivery of Certificates.
(a) At the closing referred to in Section 3 hereof, Buyer shall pay to
Seller the aggregate purchase price for the shares of Seller Common Stock
purchased pursuant to the exercise of the Option in immediately available funds
by wire transfer to a bank account designated by Seller.
(b) At such closing, simultaneously with the delivery of cash as provided
in Section 4(a), Seller shall deliver to Buyer a certificate or certificates
representing the number of shares of Seller Common Stock purchased by Buyer,
registered in the name of Buyer or a nominee designated in writing by Buyer in
accordance with the provisions hereof, and Buyer shall deliver to Seller a
letter agreeing that Buyer 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 Seller Common Stock pursuant to any
exercise of the Option, Seller shall have issued any share purchase rights or
similar securities to holders of Seller Common Stock, then each such share of
Seller Common Stock shall also represent rights with terms substantially the
same as and at least as favorable to Buyer as those issued to other holders of
Seller Common Stock.
(d) Certificates for Seller 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
Homeland Bankshares Corporation, a copy of which is on file at the
principal office of Homeland Bankshares Corporation, 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 Homeland Bankshares
Corporation 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 Buyer shall have delivered
to Seller an opinion of counsel, in form and substance reasonably satisfactory
to Seller and its counsel, to the effect that such legend is not required for
purposes of the Securities Act and any applicable state securities laws.
E-2
<PAGE> 107
5. Authorization, etc.
(a) Seller hereby represents and warrants to Buyer that:
(i) Seller 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
the Board of Directors of Seller, 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 Seller,
enforceable against Seller in accordance with its terms and has been
approved in accordance with the provisions of the Articles of Incorporation
of Seller; and
(iv) Seller 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, 1,134,972 shares of Seller 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.
(b) Buyer hereby represents and warrants to Seller that:
(i) Buyer 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 Buyer, 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 Buyer,
enforceable against Buyer in accordance with its terms; and
(iv) any Seller Common Stock or other securities acquired by Buyer 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 and any applicable state
securities laws.
6. Adjustment upon Changes in Capitalization.
In the event of any change in Seller Common Stock by reason of stock
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
Seller 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 Seller 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 Seller Common Stock then issued and
outstanding (without considering any shares subject to or issued pursuant to
the Option).
7. Repurchase.
(a) Subject to Section 11(i), at the request of Buyer at any time
commencing upon the occurrence of a Purchase Event and ending 13 months
immediately thereafter (the "Repurchase Period"), Seller (or any successor
entity thereof) shall repurchase the Option from Buyer together with all (but
not less than all, subject to Section 10) shares of Seller Common Stock
purchased by Buyer pursuant thereto with respect to which Buyer 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 Buyer for any shares of Seller Common
Stock acquired pursuant to the Option;
(ii) The difference between (A) the "Market/Tender Offer Price" for
shares of Seller 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 Seller Common Stock or (y) the highest closing mean of the
"bid" and the "ask" price per share of Seller Common Stock reported by
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 Buyer gives notice of the required
repurchase under this Section 7) and (B) the exercise price as determined
pursuant to
E-3
<PAGE> 108
Section 2 hereof (subject to adjustment as provided in Section 6),
multiplied by the number of shares of Seller 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;
(iii) The difference between the Market/Tender Offer Price and the
exercise price paid by Buyer for any shares of Seller Common Stock
purchased pursuant to the exercise of the Option, multiplied by the number
of shares so purchased, but only if the Market/Tender Offer Price is
greater than such exercise price; and
(iv) Buyer'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.
(b) In the event Buyer exercises its rights under this Section 7, Seller
shall, within 10 business days thereafter, pay the required amount to Buyer by
wire transfer of immediately available funds to an account designated by Buyer
and Buyer shall surrender to Seller the Option and the certificates evidencing
the shares of Seller Common Stock purchased thereunder with respect to which
Buyer then has Beneficial Ownership, and Buyer shall warrant that it has sole
record and Beneficial Ownership of such shares 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 Buyer and reasonably acceptable
to Seller.
8. Repurchase at Option of Seller and First Refusal.
(a) Except to the extent that Buyer shall have previously exercised its
rights under Section 7, at the request of Seller during the six-month period
commencing 13 months following the first occurrence of a Purchase Event, Seller
may repurchase from Buyer, and Buyer shall sell to Seller, the Option together
with all (but not less than all, subject to Section 10) of the Seller Common
Stock acquired by Buyer pursuant hereto and with respect to which Buyer 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 Buyer as its prime or
base lending or reference rate during such period, less any dividends received
on the shares so repurchased, plus (C) Buyer'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 (net of the exercise price as determined pursuant to
Section 2 hereof (subject to adjustment as provided in Section 6) in respect of
any shares remaining subject to the Option at the time of such purchase). 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, Buyer shall
desire to sell, assign, transfer or otherwise dispose of any of the shares of
Seller Common Stock acquired by it pursuant to the Option, it shall give Seller
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 Buyer to
Seller, which may be accepted within 10 business days of the receipt of such
Offeror's Notice, on the same terms and conditions and at the same price at
which Buyer is proposing to transfer such shares to a third party. The purchase
of such shares by Seller shall be closed within 10 business days of the date of
the acceptance of the offer and the purchase price shall be paid to Buyer by
wire transfer of immediately available funds to an account designated by Buyer.
In the event of the failure or refusal of Seller to purchase all the shares
covered by the Offeror's Notice or if the Board or any other Regulatory
Authority disapproves Seller's proposed purchase of such shares, Buyer may,
within 60 days from the date of the Offeror's Notice, sell all, but not less
than all, of 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% of the voting power of Seller or (ii) any
disposition of Seller Common Stock by a Person to whom Buyer has sold shares of
Seller Common Stock issued upon exercise of the Option.
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9. Registration Rights.
At any time after a Purchase Event, Seller shall, if requested by any
holder or beneficial owner of shares of Seller 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"), in the next publicly
filed registration statement of Seller on a form for general use under the
Securities Act, include the shares of Seller Common Stock issued to such Holder
upon exercise of the Option in order to permit the sale or other disposition of
such shares 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 Seller Common Stock then outstanding). Each such
Holder shall provide all information reasonably requested by Seller for
inclusion in any registration statement to be filed hereunder. Seller shall use
its reasonable 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 Seller's expense except
for underwriting commissions and the fees and disbursements of such Holders'
counsel attributable to the registration of such Seller Common Stock. In no
event shall Seller 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 Seller of Seller Common Stock or if a special audit of Seller
would otherwise be required in connection therewith. If requested by any such
Holder in connection with such registration, Seller shall become a party to any
underwriting agreement relating to the sale of such shares, but only to the
extent of obligating itself in respect of representations, warranties,
indemnities and other agreements customarily included in such underwriting
agreements for parties similarly situated. Upon receiving any request for
registration under this Section 9 from any Holder, Seller agrees to send a copy
thereof to any other Person known to Seller 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 Buyer or any other Person to acquire, or Seller to repurchase or
purchase, the full number of shares of Seller 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 Buyer or such other Person to acquire,
or Seller to repurchase or purchase, such lesser number of shares as may be
permissible, without any amendment or modification hereof.
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
supersede 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
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<PAGE> 110
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 8.02 of the Merger Agreement (which is incorporated
herein by reference).
(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
Buyer or Seller 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 Missouri 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 Buyer to a third party
under Section 8, (B) a repurchase by Seller under Section 7 or a repurchase or
purchase by Seller under Section 8, prior notification to or approval of the
Board 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 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 Buyer, and in the case
of clause (B) of this subsection (i), such filing shall be made by Seller,
provided that each of Buyer and Seller shall use its reasonable 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, including without limitation applying to the Board under
the Holding Company Act for approval to acquire the shares issuable hereunder.
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 Merger Agreement Authorized. Nothing contained in this
Option Agreement shall be deemed to authorize Seller to issue any shares of
Seller 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 in
writing 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.
IN WITNESS WHEREOF, each of the parties hereto has executed this Option
Agreement as of the date first written above.
MAGNA GROUP, INC.
By: /s/ G. Thomas Andes
---------------------------------
Name: G. THOMAS ANDES
Title: Chairman and Chief
Executive Officer
HOMELAND BANKSHARES
CORPORATION
By: /s/ Erl A. Schmiesing
---------------------------------
Name: ERL A. SCHMIESING
Title: Chairman, President and
Chief Executive Officer
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