As filed with the Securities and Exchange Commission on January 20, 1998
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
Under the
SECURITIES ACT OF 1933
MAGNA GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 6712 37-0996453
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification
Number)
One Magna Place
1401 South Brentwood Boulevard
St. Louis, Missouri 63144-1401
(314) 963-2500
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
G. Thomas Andes
Chairman and Chief Executive Officer
Magna Group, Inc.
One Magna Place
1401 South Brentwood Boulevard
St. Louis, Missouri 63144-1401
(314) 963-2500
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
With copies to:
Robert H. Wexler, Esq. Christopher R. Kelly, P.C.
Gallop, Johnson & Neuman, L.C. Silver, Freedman & Taff, L.L.P.
Interco Corporate Tower 1100 New York Avenue, N.W.
101 South Hanley Suite 700
St. Louis, Missouri 63105 Washington, D.C. 20005
(314) 862-1200 (202) 414-6100
Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after the effective date of this Registration
Statement and the satisfaction or waiver of all other conditions to the Merger
described in the Proxy Statement/Prospectus.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
<PAGE>
<TABLE>
CALCULATION OF REGISTRATION FEE
=============================================================================================================================
<CAPTION>
Amount Proposed Maximum Proposed Maximum Amount of
Title of Each Class of to be Offering Price Aggregate Offering Registration Fee
Securities to be Registered Registered Per Share(2) Price(2)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $2.00 par value (1)........ 2,649,259 shares $37.89 $100,381,470 $29,612.10
=============================================================================================================================
<FN>
(1) Includes one attached Preferred Share Purchase Right per share.
(2) Pursuant to Rule 457(f)(1) and 457(c) promulgated under the Securities Act
of 1933, as amended, and estimated solely for purposes of calculating the
registration fee, the proposed maximum aggregate offering price is
$100,381,470.00, which equals (x) the average of the high and low prices of
the common stock, par value $.10 per share ("Charter Common Stock"), of
Charter Financial, Inc. ("Charter"), of $22.88, as reported on The Nasdaq
Stock Market, National Market System on January 12, 1998, multiplied by (y)
the total number of shares of Charter Common Stock (including shares
issuable pursuant to the exercise of outstanding options to purchase
Charter Common Stock) to be canceled in the merger (the "Merger") of
Charter with and into Charter Acquisition Sub, Inc., a wholly owned
subsidiary of Magna Group, Inc. ("Magna"). The proposed maximum offering
price per share is equal to the proposed maximum aggregate offering price
determined in the manner described in the preceding sentence divided by the
maximum number of shares of Magna common stock, par value $2.00 per share,
that could be issued in the Merger.
</FN>
</TABLE>
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
(A redherring appears on the left hand side of this page, rotated 90
degrees. Text follows.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
<PAGE>
[Charter Financial Letterhead]
[__________], 1998
Dear Stockholders:
On behalf of your Board of Directors and management, I cordially invite
you to attend a Special Meeting of Stockholders of Charter Financial, Inc.
("Charter") to be held at [____].m., local time, on [______________________],
1998, at the main office of Charter, located at 114 West Broadway, Sparta,
Illinois (the "Special Meeting").
At this important meeting, you will be asked to consider and vote on a
proposal to approve and adopt an Agreement and Plan of Merger, dated as of
November 19, 1997, as amended December 4, 1997, including the Plan of Merger
attached as Exhibit A thereto (collectively, the "Merger Agreement"), providing
for the merger (the "Merger") of Charter with and into a wholly owned subsidiary
of Magna Group, Inc. ("Magna") pursuant to which each share of Charter common
stock (other than Treasury Shares, as defined in the accompanying Proxy
Statement/Prospectus) will be converted into 0.5751 of a share of Magna common
stock (subject to possible adjustment as set forth in the Merger Agreement).
We have enclosed the following items relating to the Special Meeting
and the Merger:
1. Proxy Statement/Prospectus;
2. Proxy card; and
3. Pre-addressed return envelope for the proxy card.
The Proxy Statement/Prospectus and related proxy materials set forth
(or incorporate by reference) financial data and other important information
relating to Charter and Magna and describe the terms and conditions of the
proposed Merger. The Board of Directors requests that you carefully review these
materials before completing the enclosed proxy card or attending the Special
Meeting.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE TERMS OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO AND IN THE BEST
INTERESTS OF CHARTER AND ITS STOCKHOLDERS. ACCORDINGLY, THE CHARTER BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT CHARTER STOCKHOLDERS VOTE FOR THE APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT.
Charles Webb & Company, a division of Keefe, Bruyette & Woods, Inc., an
investment banking firm, has issued its written opinion to your Board of
Directors regarding the fairness, from a financial point of view, of the
consideration to be received by Charter stockholders pursuant to the Merger
Agreement. A copy of the opinion is attached as Annex B to the Proxy
Statement/Prospectus.
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT BY THE STOCKHOLDERS OF
CHARTER IS A CONDITION TO THE CONSUMMATION OF THE MERGER. Accordingly, it is
important that your shares be represented at the Special Meeting, whether or not
you plan to attend the Special Meeting in person. Please complete, sign and date
the enclosed proxy card and return it in the enclosed pre-addressed envelope
which requires no postage if mailed within the United States. If you should
later decide to attend the Special Meeting and vote in person, or if you wish to
revoke your proxy for any reason prior to the vote at the Special Meeting, you
may do so and your proxy will have no further effect. You may revoke your proxy
by delivering to Linda M. Johnson, Corporate Secretary, 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 and management of Charter appreciate your
continued support. If you need assistance in completing your proxy card or if
you have any questions about the Proxy Statement/Prospectus, please feel free to
contact me at (618) 443-2166.
Sincerely,
John A. Becker
Chairman of the Board,
President and Chief Executive Officer
<PAGE>
CHARTER FINANCIAL, INC.
114 West Broadway
Sparta, Illinois 62286
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on [_________________], 1998
To the Stockholders of
Charter Financial, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of
Charter Financial, Inc., a Delaware corporation ("Charter"), will be held at the
main office of Charter, located at 114 West Broadway, Sparta, Illinois, on
[_________________], 1998, at [____].m. local time (the "Special Meeting"), for
the following purposes:
(1) To consider and vote on a proposal to approve and adopt the
Agreement and Plan of Merger dated as of November 19, 1997, as
amended December 4, 1997, and the separate short-form Plan of
Merger in the form included as Exhibit A thereto
(collectively, the "Merger Agreement"), by and between Magna
Group, Inc., a Delaware corporation ("Magna") and Charter,
pursuant to which, among other things, (a) Charter will be
merged (the "Merger") with and into Charter Acquisition Sub,
Inc., a wholly owned subsidiary of Magna ("Merger Sub")
recently organized under the laws of the State of Delaware,
and (b) upon consummation of the Merger, each outstanding
share of the common stock of Charter, par value $.10 per share
("Charter Common Stock"), other than shares held directly or
indirectly by the parties to the Merger Agreement and their
subsidiaries (in each case, other than in a fiduciary capacity
or as a result of debts previously contracted), will be
converted into 0.5751 (subject to possible adjustment as set
forth in the Merger Agreement) of a share of Magna common
stock, par value $2.00 per share and attached Preferred Share
Purchase Right; provided, however, that cash will be paid in
lieu of the issuance of fractional shares; and
(2) To transact such other business as may properly come before
the Special Meeting or any adjournments or postponements
thereof, including, without limitation, a motion to adjourn
the Special Meeting to another time and/or place for the
purpose of soliciting additional proxies in order to approve
and adopt the Merger Agreement and the Merger.
The Board of Directors of Charter has fixed the close of business on
[___________], 1998 as the record date for the determination of stockholders
entitled to notice of and to vote at the Special Meeting and any adjournments or
postponements thereof. Only stockholders of record at the close of business on
such date are entitled to notice of and to vote at the Special Meeting. A list
of Charter stockholders entitled to vote at the Special Meeting will be
available for examination, during ordinary business hours, at the principal
executive offices of Charter, located at 114 West Broadway, Sparta, Illinois
62286, for a period commencing two business days after the mailing of this
Proxy/Statement Prospectus until the time of the Special Meeting. Approval and
adoption of the Merger Agreement by the Charter stockholders requires the
affirmative vote of the holders of a majority of the outstanding shares of
Charter Common Stock entitled to vote at the Special Meeting.
Information regarding the Merger and related matters is contained in
the accompanying Proxy Statement/Prospectus and the annexes thereto, which are
incorporated by reference herein and form a part of this Notice.
<PAGE>
Your vote is important regardless of the number of shares you own.
Whether or not you plan to attend the Special Meeting, please sign, date and
return the enclosed Proxy Card without delay in the enclosed postage-paid return
envelope. You may revoke your Proxy at any time prior to its exercise by
following the procedures set forth in the accompanying Proxy
Statement/Prospectus.
THE BOARD OF DIRECTORS HAS DETERMINED THAT THE TERMS OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE IN THE BEST
INTERESTS OF CHARTER AND ITS STOCKHOLDERS. ACCORDINGLY, THE CHARTER BOARD
UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT.
By Order of the Board of Directors,
Linda M. Johnson,
Secretary
Sparta, Illinois
[__________________], 1998
PLEASE DO NOT SEND ANY STOCK CERTIFICATES AT THIS TIME
<PAGE>
SUBJECT TO COMPLETION DATED JANUARY 20, 1998.
CHARTER FINANCIAL, INC.
PROXY STATEMENT
MAGNA GROUP, INC.
PROSPECTUS
2,649,259 Shares of Common Stock
This Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") is
being furnished to stockholders of Charter Financial, Inc., a Delaware
corporation ("Charter"), in connection with the solicitation of proxies by the
Board of Directors of Charter (the "Charter Board") for use at a special meeting
of the Charter stockholders (including any adjournments or postponements
thereof) to be held on [_______________], 1998 (the "Special Meeting"). At the
Special Meeting, stockholders will consider and vote upon a proposal to approve
and adopt an Agreement and Plan of Merger, dated as of November 19, 1997, as
amended December 4, 1997, including the separate short-form Plan of Merger in
the form included as Exhibit A thereto (collectively the "Merger Agreement"), by
and between Magna Group, Inc., a Delaware corporation ("Magna") and Charter, and
the consummation of the transactions contemplated thereby. Pursuant to the
Merger Agreement, Charter will be merged (the "Merger") with and into Charter
Acquisition Sub, Inc. ("Merger Sub") a recently formed, wholly owned subsidiary
of Magna. The Merger Agreement is attached as Annex A hereto and is incorporated
herein by this reference.
This Proxy Statement/Prospectus also constitutes a prospectus of Magna
with respect to up to 2,649,259 shares of the common stock, par value $2.00
("Common Stock"), and the attached Preferred Share Purchase Rights (the
"Rights"), of Magna (the Common Stock and Rights are collectively referred to
herein as the "Magna Common Stock") issuable in the Merger to holders of the
common stock, par value $.10, of Charter ("Charter Common Stock"). Upon
consummation of the Merger, each outstanding share of Charter Common Stock,
other than shares held directly or indirectly by the parties to the Merger
Agreement and their subsidiaries, in each case, except for shares held by any
such entity in a fiduciary capacity or as a result of debts previously
contracted (collectively, "Treasury Shares"), will be converted into and
exchangeable for 0.5751 of a share of Magna Common Stock (subject to possible
adjustment as set forth in the Merger Agreement) and the Treasury Shares will be
canceled. See "THE MERGER -- Exchange Ratio" and "-- Waiver, Amendment and
Termination of the Merger Agreement."
Under the terms of the Merger Agreement, cash will be paid in lieu of
the issuance of any fractional shares of Magna Common Stock. The Merger is
intended to qualify as a reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), in order to achieve certain
federal income tax-deferral benefits for Charter stockholders with respect to
shares of Magna Common Stock received in the Merger. See "THE MERGER -- Certain
Federal Income Tax Consequences."
Magna Common Stock is traded on the New York Stock Exchange ("NYSE")
under the symbol "MGR." On [______________], 1998, the closing sales price for
Magna Common Stock on the NYSE as reported by The Wall Street Journal, Midwest
edition, was $[__________]. Because the market price of Magna Common Stock is
subject to fluctuation, the value of the shares of Magna Common Stock that
Charter stockholders would receive in the Merger may increase or decrease prior
to and after the Merger. See "SUMMARY -- Market Prices and Dividend
Information."
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE SHARES OF MAGNA COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY, ARE NOT GUARANTEED BY ANY BANK OR BANK HOLDING COMPANY, AND THE ENTIRE
AMOUNT INVESTED THEREIN IS SUBJECT TO RISK OF LOSS. CHARTER STOCKHOLDERS ARE
STRONGLY URGED TO READ THIS PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY.
This Proxy Statement/Prospectus, the letter to Charter Stockholders,
the Notice of Special Meeting and the form of proxy are first being mailed to
the stockholders of Charter on or about [____________], 1998.
The date of this Proxy Statement/Prospectus is [ ], 1998.
<PAGE>
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION........................................................ 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................. 1
SUMMARY .................................................................... 4
Parties to the Merger............................................... 4
The Special Meeting and Vote Required............................... 5
Exchange Ratio...................................................... 6
Effects of the Merger............................................... 6
Effective Time...................................................... 6
Recommendation of the Charter Board of Directors; Reasons
for the Merger................................................... 6
Reasons for the Merger - Magna...................................... 6
Opinion of Charter's Financial Advisor.............................. 6
Interests of Certain Persons in the Merger.......................... 6
Conditions; Regulatory Approvals.................................... 7
Waiver, Amendment and Termination of the Merger Agreement........... 7
Stock Exchange Listing.............................................. 8
Accounting Treatment................................................ 8
Certain Federal Income Tax Consequences............................. 8
No Appraisal Rights................................................. 8
Management and Operations Following the Merger...................... 8
Comparison of Stockholder Rights.................................... 8
Market Prices and Dividend Information.............................. 9
Comparative Unaudited Per Share Data................................ 10
Selected Historical Financial Information........................... 11
THE SPECIAL MEETING AND VOTE REQUIRED........................................ 16
General ........................................................... 16
Record Date; Voting; Solicitation and Revocation of Proxies..........16
THE MERGER................................................................... 17
Exchange Ratio...................................................... 18
Effects of the Merger............................................... 18
Charter Stock Options............................................... 18
Charter Restricted Stock............................................ 19
Effective Time...................................................... 19
Background of the Merger............................................ 19
Recommendation of the Charter Board of Directors; Reasons
for the Merger.................................................... 21
Reasons for the Merger - Magna...................................... 22
Opinion of Charter's Financial Advisor.............................. 22
Interests of Certain Persons in the Merger.......................... 25
Employee Matters.................................................... 26
Conversion of Securities; Procedures for Exchange
of Certificates; Fractional Shares................................ 26
Conditions to the Merger............................................ 27
Regulatory Approvals Required for the Merger........................ 29
Conduct of Business Pending the Merger.............................. 30
Waiver, Amendment and Termination of the Merger Agreement........... 32
Stock Exchange Listing.............................................. 33
i
<PAGE>
Accounting Treatment................................................ 34
Certain Federal Income Tax Consequences............................. 34
No Appraisal Rights................................................. 35
Management and Operations Following the Merger...................... 35
REGULATORY CONSIDERATIONS APPLICABLE TO MAGNA................................ 36
General ........................................................... 36
Payment of Dividends................................................ 36
Transactions with Affiliates........................................ 37
Holding Company Liability........................................... 37
Cross Guaranties of Commonly Controlled Banks....................... 37
Capital Adequacy.................................................... 37
FDIC Insurance Assessments.......................................... 39
Control Acquisitions................................................ 39
Interstate Acquisitions............................................. 40
Future Legislation.................................................. 40
INFORMATION REGARDING MAGNA CAPITAL STOCK.................................... 40
General ........................................................... 40
Magna Common Stock and Attached Preferred Share Purchase Rights..... 40
Preferred Stock..................................................... 42
Reservation of Shares............................................... 42
Resales of Magna Common Stock Received in the Merger................ 42
COMPARISON OF STOCKHOLDER RIGHTS............................................. 43
Special Meeting of Stockholders..................................... 43
Stockholder Action by Written Consent............................... 43
Supermajority Provisions............................................ 44
Personal Liability of Directors..................................... 44
Indemnification of Officers and Directors........................... 44
Rights Plan......................................................... 44
Classification of Board of Directors................................ 44
Voting for Directors................................................ 44
LEGAL MATTERS................................................................ 44
EXPERTS .................................................................... 45
STOCKHOLDER PROPOSALS........................................................ 45
ANNEX - A AGREEMENT AND PLAN OF MERGER...................................A-1
ANNEX - B OPINION OF CHARTER'S FINANCIAL ADVISOR.........................B-1
ii
<PAGE>
AVAILABLE INFORMATION
Each of Magna and Charter is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by Magna or Charter with the Commission
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 at 7 World Trade Center,
New York, New York 10048 and Citicorp Center, 500 West Madison, Suite 1400,
Chicago, Illinois 60661. Copies of such material also can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates or from the web site maintained by
the Commission at "http://www.sec.gov." In addition, material filed by Magna can
be inspected at the offices of the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005 and material filed by Charter can be inspected
at the offices of The Nasdaq Stock Market, 1735 K Street, N.W., Washington, D.C.
20006.
Magna has filed with the Commission a Registration Statement on Form
S-4 (together with any amendments thereof, the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the shares of Magna Common Stock to be issued pursuant to the Merger Agreement.
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 and the exhibits thereto. 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
inspected and copied as set forth above. Statements contained in this Proxy
Statement/Prospectus or in any document incorporated by reference in this Proxy
Statement/Prospectus as to the contents of any contract or other document
referred to herein or therein 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.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Magna (File No.
1-12405) are incorporated by reference in this Proxy Statement/Prospectus:
1. Magna's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 (the "1996 Magna Form 10-K").
2. Magna's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1997, June 30, 1997 and September 30, 1997.
3. Magna's Current Report on Form 8-K, dated March 4, 1997.
4. Magna's Current Report on Form 8-K/A, dated May 1, 1997.
5. The description of the Rights set forth in Item 1 of
Magna's Registration Statement on Form 8-A, dated November 11, 1988,
filed by Magna pursuant to Section 12 of the Exchange Act, including
any amendment or report filed for purposes of updating any such
description.
6. The portions of Magna's Proxy Statement for the Annual
Meeting of Stockholders held on May 7, 1997 that have been incorporated
by reference in the 1996 Magna Form 10-K.
The following document filed with the Commission by Charter (File No.
0-27304) is incorporated by reference in this Proxy Statement/Prospectus:
1. Charter's Annual Report on Form 10-K for the fiscal year
ended September 30, 1997 (the "1997 Charter Form 10-K").
1
<PAGE>
2. Charter's Current Report on Form 8-K, dated November 25,
1997.
3. The portions of Charter's Proxy Statement for the Annual
Meeting of Stockholders held on January 15, 1998 that have been
incorporated by reference in the 1997 Charter Form 10-K.
All documents and reports filed by Magna or Charter pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Proxy Statement/Prospectus through the date of the Special Meeting shall be
deemed to be incorporated by reference in this Proxy Statement/Prospectus and to
be a part hereof from the dates of filing of such documents or reports. The
information relating to Magna and Charter 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 in a document or report incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement/Prospectus to the extent that a statement
contained herein, or in any other subsequently filed document or report which
also is 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 of this Proxy
Statement/Prospectus.
Any representations 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.
This Proxy Statement/Prospectus incorporates by reference certain
documents previously filed by Magna and Charter with the Commission, which
documents are not presented herein or delivered herewith. Such documents (other
than certain exhibits thereto) are available, without charge, to any person,
including any beneficial owner, to whom this Proxy Statement/Prospectus is
delivered, on written or oral request of such person directed, in the case of
documents relating to Magna, to Magna Group, Inc., One Magna Place, 1401 South
Brentwood Boulevard, St. Louis, Missouri 63144, Attention: Gary D. Hemmer,
Executive Vice President, telephone number (314) 963-2500, and in the case of
documents relating to Charter, to Charter Financial, Inc., 114 West Broadway,
Sparta, Illinois 62286, Attention: Linda M. Johnson, Secretary, telephone number
(618) 443-2166. In order to ensure timely delivery of the documents, requests
should be received by [______________], 1998 [a date that is five business days
prior to the date of the Special Meeting]. In addition, the governing corporate
documents of Charter and Magna (e.g., Certificates of Incorporation, Bylaws)
also may be obtained without charge from the respective companies. For
information on how to obtain such corporate documents, see "COMPARISON OF
STOCKHOLDER RIGHTS."
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS OR
INCORPORATED BY REFERENCE HEREIN IN CONNECTION WITH THE SOLICITATION OF PROXIES
OR THE OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY MAGNA OR CHARTER. 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 TO OR FROM ANY PERSON TO WHOM IT IS
NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF
SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF MAGNA OR CHARTER SINCE THE DATE
OF THIS PROXY STATEMENT/PROSPECTUS OR THAT THE INFORMATION HEREIN OR THE
DOCUMENTS OR REPORTS INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO SUCH DATE. ALL INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS RELATING TO MAGNA AND ITS SUBSIDIARIES HAS BEEN SUPPLIED BY
MAGNA AND ALL INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS RELATING
TO CHARTER HAS BEEN SUPPLIED BY CHARTER. CHARTER STOCKHOLDERS WHO ARE NOT
"AFFILIATES" OF MAGNA WITHIN THE MEANING OF RULE 405 UNDER THE SECURITIES ACT,
WILL BE ABLE TO SELL THE SHARES OF MAGNA COMMON STOCK RECEIVED BY THEM IN THE
MERGER WITHOUT THE USE OF A RESALE PROSPECTUS, ALTHOUGH ANY SUCH STOCKHOLDERS
WHO WERE AFFILIATES OF CHARTER ON THE DATE OF THE SPECIAL MEETING WILL BE
2
<PAGE>
REQUIRED TO COMPLY WITH THE TERMS OF RULE 145(d) UNDER THE SECURITIES ACT IN
CONNECTION WITH ANY RESALE BY THEM OF SUCH SHARES. SEE "INFORMATION REGARDING
MAGNA CAPITAL STOCK -- RESALES OF MAGNA COMMON STOCK RECEIVED IN THE MERGER."
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 "THE MERGER --
BACKGROUND OF THE MERGER," "-- RECOMMENDATION OF THE CHARTER BOARD OF DIRECTORS;
REASONS FOR THE MERGER" AND "-- OPINION OF CHARTER'S FINANCIAL ADVISOR." 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 CHARTER ARE GREATER THAN EXPECTED; (5) CHANGES IN THE
INTEREST RATE ENVIRONMENT AFFECT MARGINS OTHER THAN AS EXPECTED; (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.
3
<PAGE>
SUMMARY
The following is a summary of certain terms of the Merger Agreement and
related information discussed elsewhere in this Proxy Statement/Prospectus. As
this summary is necessarily incomplete, reference is made to, and this summary
is qualified in its entirety by, the more detailed information contained or
incorporated by reference in this Proxy Statement/Prospectus and the Annexes
hereto. As used herein, the terms "Magna" and "Charter" refer to such
corporations, respectively, and, where the context requires, such corporations
and their respective subsidiaries on a consolidated basis. Stockholders of
Charter are urged to read this Proxy Statement/Prospectus and the Annexes hereto
in their entirety. All information concerning Magna included in this Proxy
Statement/Prospectus has been furnished by Magna and all information concerning
Charter included in this Proxy Statement/Prospectus has been furnished by
Charter. Neither Magna nor Charter warrants the accuracy or completeness of
information relating to the other.
Parties to the Merger
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 (the "BHCA"). Magna currently owns, indirectly, all of the
capital stock of Magna Bank, National Association ("Magna Bank"), a national
banking association which operates over 140 community banking locations serving
Missouri, Illinois and Iowa. Magna also owns certain non-banking subsidiaries,
including brokerage and insurance subsidiaries. Based on current deposit share,
Magna is the third largest banking institution in the St. Louis metropolitan
area and ranks as the 71st largest bank holding company in the United States.
Magna primarily serves consumers and small- to mid-sized businesses in
its markets as a "super community bank" (a banking institution 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, 1997, Magna
reported, on a consolidated basis, total assets of $7.0 billion, total deposits
of $5.4 billion, total loans of $4.5 billion and stockholders' equity of $626
million.
The growth of Magna since its organization in 1974 has been the result
of both internal growth and an active acquisition program. From time to time,
Magna investigates and holds discussions and negotiations in connection with
possible business combination transactions with other depository institutions.
As of the date of this Proxy Statement/Prospectus, Magna has not entered into
any agreements or understandings with respect to any significant business
combination transactions other than with respect to the Merger.
Magna's principal executive offices are located at One Magna Place,
1401 South Brentwood Boulevard, St. Louis, Missouri 63144 and its telephone
number is (314) 963-2500.
For additional information about Magna, reference is made to the 1996
Magna Form 10-K and the other documents incorporated herein by reference. See
also, "AVAILABLE INFORMATION," "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE," "THE MERGER" and "REGULATORY CONSIDERATIONS APPLICABLE TO MAGNA."
Merger Sub. Merger Sub, a Delaware corporation, was organized on
November 24, 1997 as a wholly owned subsidiary of Magna specifically for the
purpose of effecting the Merger, and has not engaged in any significant business
activity since its inception. Upon consummation of the Merger, Merger Sub will
be registered as a savings and loan holding company with the Office of Thrift
Supervision (the "OTS"). 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 South Brentwood Boulevard, St. Louis, Missouri 63144 and its
telephone number is (314) 963-2500.
Charter. Charter, a Delaware corporation, was organized in June 1995
and is registered as a savings and loan holding company with the OTS. Charter
currently owns all of the capital stock of Charter Bank, S.B. ("Charter Bank"),
an Illinois-chartered savings bank, headquartered in Sparta, Illinois. Charter
Bank, organized in 1894 as a mutual building and loan association, converted to
4
<PAGE>
a mutual holding company structure in 1993 and reorganized into a stock holding
company structure, with Charter as its holding company, in 1995. Charter Bank
conducts its business from its main office and seven other full-service branches
located in Carbondale (2), Murphysboro, Steeleville, DuQuoin, Anna and Marion,
Illinois. Charter Bank owns all of the capital stock of Sparta First Service
Corporation, an Illinois corporation engaged primarily in the business of
offering investment products (consisting primarily of equity securities, fixed
and variable annuities and mutual funds) through a third-party vendor. As of
September 30, 1997, Charter reported, on a consolidated basis, total assets of
$387.0 million, total deposits of $276.0 million, total loans of $287.6 million
and stockholders' equity of $58.4 million.
Charter's principal executive offices are located at 114 West Broadway,
Sparta, Illinois 62286 and its telephone number is (618) 443-2166.
For additional information, reference is made to the 1997 Charter Form
10-K and the other documents incorporated herein by reference. See also,
"AVAILABLE INFORMATION," "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and
"THE MERGER."
The Special Meeting and Vote Required
The Special Meeting of Charter's stockholders will be held on
[______________], 1998, at the main office of Charter, located at 114 Broadway,
Sparta, Illinois, at [_______] [__].m., local time, at which time the holders of
Charter Common Stock will consider and vote upon: (i) the proposal to approve
and adopt the Merger Agreement, which is attached as Annex A to this Proxy
Statement/Prospectus, and (ii) such other business as may properly come before
the Special Meeting, and any adjournments or postponements thereof.
Only holders of record of Charter Common Stock at the close of business
on [___________], 1998 (the "Record Date") will be entitled to notice of, and to
vote at the Special Meeting. At such date, there were [__________] shares of
Charter Common Stock outstanding held by approximately [___] holders of record.
The approval and adoption of the Merger Agreement by stockholders of Charter
will require the affirmative vote of the holders of a majority of the
outstanding shares of Charter Common Stock entitled to vote at the Special
Meeting.
As of the Record Date, the Charter Bank, S.B. Employee Stock Ownership
Plan (the "ESOP") held of record shares of Charter Common Stock (or
approximately % of the shares entitled to vote at the Special Meeting), of which
shares (the "Allocated ESOP Shares") were allocated to the employees of Charter
who had attained the age of 21 and completed one year of service with Charter or
its subsidiaries (the "ESOP Participants") and the remaining shares were held in
a suspense account for future allocation among the then ESOP Participants (the
"Unallocated ESOP Shares"). Each ESOP Participant who has Allocated ESOP Shares
is entitled to vote such shares at the Special Meeting, and the trustee of the
ESOP is entitled to vote the Unallocated ESOP Shares at the Special Meeting in a
manner deemed by such trustee to be in the best interest of the ESOP
Participants.
As of the Record Date, the directors and executive officers of Charter
and their affiliates beneficially owned an aggregate of [_________] shares of
Charter Common Stock (or approximately [____]% of the shares entitled to vote at
the Special Meeting). The directors and executive officers of Charter have
indicated a present intention to vote such shares in favor of the Merger
Agreement. See "THE SPECIAL MEETING AND VOTE REQUIRED." In connection with the
execution of the Merger Agreement, certain stockholders of Charter, each of whom
is a member of the Charter Board, solely in their individual capacities as
owners or holders of the power to vote shares of Charter Common Stock, executed
a Voting/Support Agreement pursuant to which each such stockholder has agreed,
among other things, to vote such shares of Charter Common Stock in favor of the
approval and adoption of the Merger Agreement. Such holders have the power to
vote an aggregate of [673,855] shares (excluding shares issuable upon the
exercise of options held by such persons), or [17%] of the shares entitled to
vote at the Special Meeting. See "THE SPECIAL MEETING AND VOTE REQUIRED --
Record Date; Voting; Solicitation and Revocation of Proxies."
Any stockholder of Charter giving a proxy may revoke it at any time
prior to the vote at the Special Meeting. Stockholders of Charter wishing to
revoke a proxy prior to the vote may do so by (i) delivering to the Secretary of
Charter a written notice of revocation bearing a later date than the proxy, (ii)
delivering to the Secretary of Charter a duly executed proxy bearing a later
date, or (iii) attending the Special Meeting and voting in person. Attendance at
the Special Meeting will not in itself constitute the revocation of a proxy.
5
<PAGE>
Exchange Ratio
At the Effective Time (as defined below), each issued and outstanding
share of Charter Common Stock, other than Treasury Shares, will be converted
into and become exchangeable for 0.5751 of a share (the "Exchange Ratio") of
Magna Common Stock (subject to possible adjustment as set forth in the Merger
Agreement). See "THE MERGER -- Exchange Ratio" and " -- Waiver, Amendment and
Termination of the Merger Agreement."
Effects of the Merger
Pursuant to the Merger Agreement, at the Effective Time (as defined
below), (i) Charter will merge with and into Merger Sub, with Merger Sub
continuing as the surviving corporation and a wholly owned subsidiary of Magna
(Merger Sub after the Merger being sometimes referred to herein as the
"Resulting Corporation"), (ii) Charter stockholders will become stockholders of
Magna, and (iii) Charter's corporate existence will terminate. See "THE MERGER
- -- Effects of the Merger."
Effective Time
The Merger will become effective at such time on the Closing Date as
specified on the certificate of merger filed with the Secretary of State of the
State of Delaware (the "Effective Time"). The Closing Date shall occur on such
date as Magna shall notify Charter in writing but (i) not earlier than the
satisfaction of all conditions set forth in Section 7.1 of the Merger Agreement
(the "Approval Date") and (ii) not later than 60 days after the Approval Date.
See "THE MERGER -- Effective Time."
Recommendation of the Charter Board of Directors; Reasons for the Merger
The Charter Board has approved the Merger Agreement and determined that
the Merger is fair to, and in the best interest of, the Charter stockholders.
Accordingly, the Charter Board unanimously recommends that holders of Charter
Common Stock vote FOR the approval and adoption of the Merger Agreement. For a
more complete discussion of the factors considered by the Charter Board in
approving the Merger Agreement, see "THE MERGER -- Recommendation of the Charter
Board of Directors; Reasons for the Merger."
Reasons for the Merger - Magna
The Board of Directors of Magna (the "Magna Board") has approved the
Merger Agreement as being in the best interests of Magna and its stockholders.
The Magna Board believes that the Merger will permit Magna to expand its
presence in the southern Illinois market through the acquisition of an
established banking organization. See "THE MERGER -- Reasons for the Merger -
Magna."
Opinion of Charter's Financial Advisor
Charles Webb and Company, a division of Keefe Bruyette & Woods, Inc.
("Webb"), Charter's financial advisor, has delivered its written opinion, dated
November 19, 1997, and updated as of the date of this Proxy
Statement/Prospectus, to the Charter Board stating that, as of such dates and
based on the matters set forth in such opinion, the consideration to be paid by
Magna pursuant to the Merger Agreement is fair, from a financial point of view,
to the holders of Charter Common Stock. The full text of the written opinion of
Webb, which sets forth the assumptions made, the procedures followed, the
matters considered and the limits on the review undertaken by Webb, is attached
as Annex B to this Proxy Statement/Prospectus and holders of Charter Common
Stock are urged to read carefully the opinion in its entirety. See "THE MERGER -
Opinion of Charter's Financial Advisor."
Interests of Certain Persons in the Merger
Certain members of Charter's management and its Board of Directors have
interests in the Merger in addition to their interests as stockholders of
Charter generally. These include, among other things, provisions in the Merger
Agreement as well as a certain letter agreement between Magna, Charter and
certain Charter officers dated November 19, 1997 (the "Letter Agreement"),
relating to (i) indemnification of Charter officers and directors, (ii) the
continuation of certain employment arrangements applicable to certain management
persons, (iii) monetary payments to be received by certain Charter officers
6
<PAGE>
(including John A. Becker, Charter's Chairman, President and Chief Executive
Officer) at the Effective Time pursuant to their current employment agreements
with Charter or Charter Bank, as amended by the Letter Agreement, and (iv) the
agreement of Magna to continue certain benefits for certain officers of Charter.
Also, four executive officers hold, in the aggregate, employee stock options
covering 63,000 shares of Charter Common Stock that will become exercisable in
connection with the Merger and 55,200 restricted shares of Charter Common Stock
that will become unrestricted in connection with the Merger. The Charter Board
was aware of such interests and considered them, among other matters, in
authorizing the Merger and unanimously recommending to the Charter stockholders
their approval and adoption thereof. See "THE MERGER -- Interests of Certain
Persons in the Merger."
Conditions; Regulatory Approvals
Consummation of the Merger is subject to various conditions, including,
among others, approval of the Merger by the stockholders of Charter, the Board
of Governors of the Federal Reserve System or the Federal Reserve Bank of St.
Louis, acting under delegated authority (in either case, the "Federal Reserve
Board"), the Illinois Commissioner of the Office of Banks and Real Estate
("Illinois Commissioner") and the OTS, receipt of opinions of counsel regarding
certain federal income tax consequences of the Merger and certain other matters,
and the satisfaction of certain customary closing conditions. See "THE MERGER --
Conditions to the Merger" and "-- Regulatory Approvals Required for the Merger."
Waiver, Amendment and Termination of the Merger Agreement
Prior to the Effective Time, and subject to compliance with applicable
law, any provision of the Merger Agreement may be (i) waived by the party that
benefits from such provision, or (ii) subject to applicable law, amended or
modified at any time by an agreement in writing between the parties approved by
their respective Boards of Directors and executed in the same manner as the
Agreement, provided that, after the approval of the Merger by the stockholders
of Charter, the Merger Agreement may not be amended, without further approval of
such stockholders, to reduce the amount or change the form of the consideration
to be received by Charter stockholders. Additionally, Magna may at any time
change the method of effecting the Merger if and to the extent that Magna deems
such change desirable provided that no such change may alter or change the
amount of consideration to be issued to the holders of Charter Common Stock,
adversely affect the tax treatment of stockholders of Charter or materially
delay consummation of the Merger.
The Merger Agreement may be terminated (i) by the mutual consent of the
parties, (ii) by either party, if such terminating party is not then in material
breach of any representation, warranty, covenant or other agreement in the
Merger Agreement, in the event that the other party materially breaches any of
its representations and warranties, which breach would have a Material Adverse
Effect on the terminating party, or fails to perform any of its covenants, in
each case after the failure to cure within 30 days, (iii) by either party in the
event that the Merger is not consummated by September 30, 1998, unless the
failure to consummate the Merger by such date is due to the failure of the party
seeking to terminate the Merger Agreement to perform or observe the covenants
and agreements of such party thereunder, (iv) by either party, if any
Governmental Entity (as defined in the Merger Agreement) prohibits the
consummation of any transaction contemplated by the Merger Agreement; or (v) the
required approval of the Charter stockholders is not obtained at the Charter
Special Meeting or any adjournments or postponements thereof.
The Merger Agreement may also be terminated by the Charter Board if (i)
the "Average Closing Price" (as defined in the Merger Agreement) during a
specified 20 day valuation period is less than $32.05, and (ii) the percentage
decline in the market value per share of Magna Common Stock, based upon a
comparison of a $40.0625 starting price and the Average Closing Price, is more
than the percentage decline in a defined index of comparable bank stocks, plus
15 basis points; however, such termination will not be effective if Magna elects
to increase the Exchange Ratio to the extent required so that the Charter
stockholders would receive the minimum number of shares of Magna Common Stock
necessary to have the implied value (based on the Average Closing Price)
sufficient to prevent Charter from having the right to terminate under this
provision. See "THE MERGER -- Waiver, Amendment and Termination of the Merger
Agreement."
If the Merger Agreement is terminated under certain specified
circumstances and conditions, a termination fee of $5 million is payable by
Charter to Magna. See "THE MERGER -- Waiver, Amendment and Termination of the
Merger Agreement."
7
<PAGE>
Stock Exchange Listing
Magna Common Stock is listed under the symbol "MGR" on the NYSE. Magna
has agreed to use reasonable efforts to cause the shares of Magna Common Stock
issuable in the Merger to be approved for listing on the NYSE, subject to
official notice of issuance, as of the Effective Time. See "THE MERGER -- Stock
Exchange Listing." The approval for listing of such shares on the NYSE, subject
to official notice of issuance, is one of the conditions to consummation of the
Merger. See "THE MERGER -- Conditions to the Merger."
Accounting Treatment
The Merger will be accounted for by the purchase method of accounting
under generally accepted accounting principles. See "THE MERGER -- Accounting
Treatment."
Certain Federal Income Tax Consequences
It is a condition to the obligation of Magna to consummate the Merger
that Magna shall have received an opinion of Gallop, Johnson & Neuman, L.C.,
counsel to Magna, dated as of the Closing Date, in form and substance reasonably
satisfactory to Magna, to the effect that the Merger will be treated as a
reorganization within the meaning of Section 368(a) of the Code, and that,
accordingly, for federal income tax purposes no gain or loss will be recognized
by Magna, Charter or Merger Sub as a result of the Merger. It is a condition to
the obligation of Charter to consummate the Merger that Charter shall have
received an opinion of Silver, Freedman & Taff, L.L.P., special counsel to
Charter, dated as of the Closing Date, in form and substance reasonably
satisfactory to Charter, to the effect that the Merger will be treated as a
reorganization within the meaning of Section 368(a) of the Code and that,
accordingly, for federal income tax purposes (i) no gain or loss will be
recognized by Charter as a result of the Merger, (ii) no gain or loss will be
recognized by the stockholders of Charter who exchange all of their Charter
Common Stock solely for Magna Common Stock pursuant to the Merger (except with
respect to cash received in lieu of fractional share interests in Magna Common
Stock); and (iii) the aggregate tax basis of Magna Common Stock received by
stockholders of Charter who exchange all of their Charter Common Stock solely
for Magna Common Stock pursuant to the Merger will be the same as the aggregate
tax basis of Charter Common Stock surrendered in exchange therefor.
CHARTER STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS CONCERNING
THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY
AND EFFECT OF VARIOUS STATE, LOCAL AND FOREIGN TAX LAWS. See "THE MERGER --
Certain Federal Income Tax Consequences" and "-- Conditions to the Merger."
No Appraisal Rights
Pursuant to Section 262 of the Delaware General Corporation Law
("DGCL"), the stockholders of Charter are not entitled to appraisal rights in
connection with, or as a result of, the Merger. See "THE MERGER -- No Appraisal
Rights."
Management and Operations Following the Merger
It is anticipated that no current director of Charter will serve as a
director of Magna, although certain directors of Charter will become advisory
directors of Resulting Corporation or another subsidiary of Magna. It is also
anticipated that as of the Effective Time, Mr. Becker will retire, thereby
ceasing all active participation in the affairs of Charter, Charter Bank and
their respective successors. See "THE MERGER -- Management and Operations
Following the Merger."
Comparison of Stockholder Rights
At the Effective Time, Charter stockholders automatically will become
stockholders of Magna and as such, their rights will be governed by the DGCL and
by Magna's Certificate of Incorporation and Bylaws. The rights of Magna
stockholders differ from the rights of Charter stockholders with respect to
certain important matters, including, among others, the fact that Magna
maintains a stockholder rights plan under which certain rights automatically
attach to outstanding shares of Magna Common Stock. For a summary of these
differences, see "COMPARISON OF STOCKHOLDER RIGHTS."
8
<PAGE>
Market Prices and Dividend Information
Magna Common Stock is listed on the NYSE under the symbol "MGR." Prior
to November 20, 1996, Magna Common Stock was quoted on the Nasdaq Stock Market,
National Market System (the "Nasdaq Stock Market") under the symbol MAGI.
Charter Common Stock is quoted on the Nasdaq Stock Market under the symbol
"CBSB."
The following table sets forth, for the calendar periods indicated, the
high and low sales prices per share for Magna Common Stock as reported on the
Nasdaq Stock Market through November 19, 1996 and thereafter by the NYSE, the
high and low sales prices per share of Charter Common Stock as reported on the
Nasdaq Stock Market, and the quarterly per share cash dividends declared on
Magna Common Stock and Charter Common Stock for the periods indicated. On
December 28, 1995, Charter completed its conversion from an Illinois-chartered
mutual holding company to a stock corporation existing under the laws of the
State of Delaware, and the Charter Common Stock began trading on the Nasdaq
Stock Market on December 29, 1995.
<TABLE>
<CAPTION>
Magna Charter
Common Stock Common Stock
High Low Dividends High Low Dividends
---- --- --------- ---- --- ---------
<S> <C> <C> <C> <C> <C> <C>
1996
Quarter ended March 31 $24.00 $21.88 $.22 $12.25 $10.81 $.06
Quarter ended June 30 24.50 21.75 .22 12.00 11.25 .06
Quarter ended September 30 28.13 22.00 .22 13.00 10.88 .06
Quarter ended December 31 31.25 26.00 .22 13.00 12.50 .06
1997
Quarter ended March 31 35.38 28.50 .25 17.25 12.25 .08
Quarter ended June 30 34.75 28.63 .25 18.00 16.75 .08
Quarter ended September 30 41.00 33.19 .25 21.50 17.25 .08
Quarter ended December 31 46.75 37.13 .25 25.50 20.38 .08
1998
Quarter ended March 31
(through [_______], 1998)
</TABLE>
The following table sets forth the closing sales price per share of Magna Common
Stock and Charter Common Stock and the equivalent per share price for Charter
Common Stock giving effect to the Merger on (i) November 19, 1997, the last
business day preceding public announcement of the proposed Merger, and (ii)
[__________], 1998, the last practicable trading day prior to the printing of
this Proxy Statement/Prospectus:
<TABLE>
<CAPTION>
Equivalent
Magna Charter Price Per
Common Stock Common Stock Charter Share(1)
------------ ------------ ----------------
<S> <C> <C> <C>
November 19, 1997..................................... $39.81 $20.88 $22.89
[__________], 1998....................................
<FN>
(1) The equivalent price per share of Charter Common Stock at each
specified date was determined by multiplying the last reported closing sales
price of Magna Common Stock on each such date by the Exchange Ratio of .5751.
See "THE MERGER -- Exchange Ratio."
</FN>
</TABLE>
9
<PAGE>
Charter stockholders are advised to obtain current market quotations
for Charter Common Stock and Magna Common Stock. It is expected that the market
price of Magna Common Stock will fluctuate between the date of this Proxy
Statement/Prospectus and the date on which the Merger is consummated and
thereafter. Because the number of shares of Magna Common Stock to be received by
Charter stockholders in the Merger was fixed as of the date of the Merger
Agreement (subject to possible adjustment as set forth in the Merger Agreement),
the value of the shares of Magna Common Stock that holders of Charter Common
Stock would receive in the Merger may increase or decrease prior to the
Effective Time in conjunction with any increases or decreases in the market
price of Magna Common Stock during that period. No assurance can be given
concerning the market price of Magna Common Stock before or after the Effective
Time. See "THE MERGER -- Exchange Ratio" and "-- Waiver, Amendment and
Termination of the Merger Agreement."
Comparative Unaudited Per Share Data
The following table sets forth for the periods indicated selected
comparative per share data for each of Magna and Charter on an historical basis
and the corresponding unaudited pro forma and pro forma equivalent per share
data, reflecting the consummation of the proposed Merger and the completed
acquisition of Homeland Bankshares Corporation ("Homeland") by Magna on March 1,
1997 (the "Homeland Acquisition"), which was accounted for by the purchase
method of accounting. The unaudited pro forma comparative per share data assume
the Merger and the Homeland Acquisition had been consummated at the beginning of
the periods presented. The data presented are based upon and derived from, and
should be read in conjunction with, the historical financial statements and
related notes thereto of Magna, Charter and Homeland, which are incorporated
herein by reference or included elsewhere in this Proxy Statement/Prospectus.
See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
The unaudited pro forma comparative per share data do not reflect any
direct costs, potential savings or revenue enhancements that are expected to
result from the consolidation of operations of Magna and Charter and therefore
do not purport to be indicative of the results of future operations. Results of
Magna for the nine months ended September 30, 1997 are not necessarily
indicative of results expected for the entire year, nor are the pro forma
amounts necessarily indicative of results of operations or combined financial
position that would have resulted had the Merger and the Homeland Acquisition
been consummated at the beginning of the periods indicated. All adjustments,
consisting only of normal recurring adjustments, necessary for a fair statement
of results of interim periods have been included.
10
<PAGE>
<TABLE>
Comparative Per Share Data
(Unaudited)
<CAPTION>
Magna/
Homeland Magna/Charter Magna/Charter
Magna Homeland Pro Forma Charter Pro Forma Pro Forma
Historical Historical Combined(1) Historical Combined(1) Equivalent(2)
---------- ---------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Book Value Per Common Share:
Nine Months Ended September 30, 1997...... $18.97 N/A $18.97 $14.08 $18.97 $10.91
Year Ended December 31, 1996.............. 17.15 $23.50 18.05 13.60 18.05 10.38
Cash Dividends Declared Per Common Share:
Nine Months Ended September 30, 1997...... 0.75 N/A 0.75 0.24 0.75 0.43
Year Ended December 31, 1996.............. 0.88 0.91 0.88 0.24 0.88 0.51
Fully Diluted Net Income Per Share:
Nine Months Ended September 30, 1997...... 1.54 N/A 1.46 1.00 1.42 0.82
Year Ended December 31, 1996.............. 2.18 2.41 2.05 0.74 1.94 1.12
<FN>
N/A - Not Applicable
(1) Includes the effect of pro forma adjustments related to the Homeland
Acquisition and the Merger.
(2) Based upon the pro forma combined per share amounts multiplied by an
assumed Exchange Ratio of .5751.
</FN>
</TABLE>
Selected Historical Financial Information
The following tables set forth for the periods indicated certain
selected historical consolidated financial information for Magna and Charter.
The tables have been derived from, and should be read in conjunction with, the
historical financial statements of Magna and Charter, including the related
notes thereto incorporated by reference or included elsewhere in this Proxy
Statement/ Prospectus. Certain Charter financial information has been
reclassified to conform with Magna. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE." The financial information presented for Magna and Charter reflect,
in the opinions of the managements of Magna and Charter, all adjustments
necessary for a fair presentation of such information. Results for the interim
periods are not necessarily indicative of the results which may be expected for
the entire year or any other interim period.
11
<PAGE>
<TABLE>
MAGNA GROUP, INC.
SELECTED HISTORICAL FINANCIAL DATA
(in thousands, except ratios and per share amounts)
<CAPTION>
Nine Months Ended
September 30
(Unaudited)
Year Ended December 31
EARNINGS 1997 1996 1996 1995 1994 1993 1992
------------ ------------ ------------ ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income.......................... $359,866 $288,274 $387,835 $347,168 $289,561 $244,288 $274,312
Interest expense......................... 183,355 143,141 193,748 164,317 116,742 99,025 127,539
--------- --------- --------- --------- --------- -------- ---------
Net interest income...................... 176,511 145,133 194,087 182,851 172,819 145,263 146,773
Provision for loan losses................ 22,906 7,781 10,280 9,992 4,900 9,589 20,544
-------- ------- -------- ------- ------- ------- --------
Net interest income after provision
for loan losses...................... 153,605 137,352 183,807 172,859 167,919 135,674 126,229
Noninterest income....................... 50,399 37,316 50,358 47,863 47,503 45,840 38,184
Noninterest expense...................... 128,314 104,169 138,386 146,217 150,213 131,321 129,767
-------- -------- -------- -------- -------- -------- --------
Income before income taxes,
extraordinary item and cumulative
effect of a change in accounting
principle............................ 75,690 70,499 95,779 74,505 65,209 50,193 34,646
Income tax expense....................... 25,190 24,271 32,640 23,283 20,179 12,706 5,539
-------- -------- -------- -------- -------- -------- --------
Income before extraordinary item
and cumulative effect of a change
in accounting principle.............. 50,500 46,228 63,139 51,222 45,030 37,487 29,107
Extraordinary item less applicable tax
and cumulative effect of a change
in accounting principle.............. --- --- --- --- --- --- 1,085
----------- ----------- ----------- ---------- ----------- ---------- ---------
Net income............................... $50,500 $46,228 $63,139 $51,222 $45,030 $37,487 $30,192
======== ======== ======== ======== ======== ======== ========
PER COMMON SHARE
Primary net income before
extraordinary item and cumulative
effect adjustment.................... $1.56 $1.63 $2.22 $1.84 $1.69 $1.53 $1.36
Extraordinary item and cumulative
effect adjustment.................... --- --- --- --- --- --- 0.05
--------- ---------- --------- --------- --------- --------- ---------
Net income............................... 1.56 1.63 2.22 1.84 1.69 1.53 1.41
-------- -------- -------- -------- -------- -------- ---------
Fully diluted net income before
extraordinary item and cumulative
effect adjustment.................... 1.54 1.59 2.18 1.80 1.66 1.50 1.33
Extraordinary item and cumulative
effect adjustment.................... --- --- --- --- --- --- 0.05
--------- ---------- ---------- ---------- ---------- --------- --------
Net income............................... 1.54 1.59 2.18 1.80 1.66 1.50 1.38
-------- -------- -------- -------- -------- -------- ---------
Dividends declared....................... 0.75 0.66 0.88 0.80 0.76 0.72 0.68
Book value............................... 18.97 16.39 17.15 15.93 13.49 14.02 13.39
BALANCE SHEET DATA
Total assets............................. $7,044,480 $5,384,481 $5,458,709 $4,947,499 $4,638,502 $4,128,462 $3,728,525
Securities............................... 1,944,445 1,596,466 1,655,907 1,364,864 1,217,174 1,213,673 1,088,410
Total loans.............................. 4,542,381 3,367,661 3,415,309 3,202,766 2,968,201 2,564,466 2,272,180
Reserve for loan losses.................. 56,207 45,093 45,382 42,623 43,991 40,065 38,194
Total deposits........................... 5,365,771 4,164,860 4,197,776 3,888,266 3,672,755 3,494,825 3,224,661
Long-term debts.......................... 57,047 79,117 77,577 93,071 104,453 32,062 35,195
Stockholders' equity..................... 626,075 459,902 483,961 446,044 371,312 360,649 322,295
Average common shares outstanding:
Primary.............................. 32,312 28,409 28,395 27,892 26,657 24,495 21,304
Fully diluted........................ 33,076 29,999 29,974 28,831 27,626 25,540 22,386
Common shares outstanding................ 33,009 28,053 28,210 27,998 27,512 25,729 24,074
12
<PAGE>
SELECTED RATIOS (1)
Return on average assets................. 1.03% 1.18% 1.20% 1.09% 1.05% 1.02% 0.81%
Return on average equity................. 11.67 13.54 13.75 12.57 12.41 11.25 10.88
Net interest margin (2).................. 3.98 4.04 4.01 4.30 4.49 4.45 4.47
Efficiency ratio......................... 55.66 56.17 55.63 62.11 66.69 67.98 68.23
Net loan charge-offs to average loans.... 0.80 0.25 0.25 0.37 0.14 0.59 1.59
Loan reserve to total loans.............. 1.24 1.34 1.33 1.33 1.48 1.56 1.68
Loan reserve to nonperforming loans...... 127.51 171.12 166.19 138.30 119.21 78.49 57.87
Nonperforming loan ratio................. 0.97 0.78 0.80 0.96 1.24 1.99 2.90
Nonperforming assets to total loans
and foreclosed property.............. 1.01 0.91 0.88 1.12 1.48 2.37 3.35
Tier 1 capital to average assets......... 7.34 8.24 8.45 8.73 8.57 8.67 8.06
Tier 1 capital to risk-adjusted assets... 10.97 13.22 12.97 13.06 12.79 12.81 12.30
Total capital to risk-adjusted assets.... 12.12 14.49 14.18 14.29 14.07 14.10 13.59
Dividend payout ratio.................... 48.08 40.49 39.64 43.48 44.97 47.06 48.23
<FN>
(1) Ratios for the nine months ended September 30, 1997 and 1996 are annualized.
(2) Based on interest income on a fully tax-equivalent basis assuming an income
tax rate of 35%.
</FN>
</TABLE>
13
<PAGE>
<TABLE>
CHARTER FINANCIAL, INC.
SELECTED HISTORICAL FINANCIAL DATA
(in thousands, except ratios and per share amounts)
<CAPTION>
Year Ended September 30
EARNINGS 1997 1996 1995 1994 1993
------------- ------------ -------------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Interest income.............................. $29,636 $24,819 $20,009 $18,233 $18,391
Interest expense............................. 15,724 12,426 10,309 8,387 8,730
--------- --------- --------- -------- ---------
Net interest income.......................... 13,912 12,393 9,700 9,846 9,661
Provision for loan losses.................... 321 170 360 140 1,004
--------- ---------- ---------- -------- ---------
Net interest income after provision
for loan losses........................... 13,591 12,223 9,340 9,706 8,657
Noninterest income........................... 4,006 1,841 1,410 1,444 1,169
Noninterest expense.......................... 8,502 8,851 5,892 5,785 4,580
-------- -------- -------- -------- --------
Income before income taxes and
cumulative effect of a change
in accounting principle................... 9,095 5,213 4,858 5,365 5,246
Income tax expense........................... 3,657 2,155 1,874 2,054 2,173
-------- -------- -------- -------- --------
Income before cumulative effect of a change
in accounting principle................... 5,438 3,058 2,984 3,311 3,073
Cumulative effect of a change
in accounting principle................... --- --- --- 786 ---
----------- ----------- ----------- --------- -----------
Net income................................... $5,438 $3,058 $2,984 $4,097 $3,073
======== ======== ======== ======== ========
PER COMMON SHARE (1)
Income before cumulative
effect of change in accounting
principle................................. $1.27 $0.67 $0.69 $0.78 ---
Cumulative effect of change in
accounting principle...................... --- --- --- 0.19 ---
--------- --------- --------- -------- ---------
Net income................................... 1.27 0.67 0.69 0.97 ---
-------- -------- -------- -------- ---------
Dividends declared........................... 0.30 0.25 0.29 0.96 ---
Book value................................... 14.08 13.26 16.41 14.55 ---
BALANCE SHEET DATA
Total assets................................. $387,032 $388,431 $293,135 $261,297 $259,042
Securities................................... 76,420 87,156 69,454 66,016 78,480
Total loans.................................. 289,908 277,906 208,306 180,187 159,549
Reserve for loan losses...................... 2,258 2,419 2,232 2,129 2,207
Total deposits............................... 275,980 248,723 197,103 189,947 198,183
Long-term debt............................... 272 7,972 7,864 8,152 11,010
Stockholders' equity......................... 58,417 56,394 35,622 31,581 22,016
Average common shares outstanding (1)........ 4,293 4,550 4,315 4,218 ---
Common shares outstanding (1)................ 4,150 4,253 4,524 4,522 ---
14
<PAGE>
SELECTED RATIOS
Return on average assets..................... 1.40% 0.93% 1.09% 1.27%(2) 1.26%
Return on average equity..................... 9.57 5.57 8.92 15.29 15.10
Net interest margin.......................... 3.78 3.95 3.68 3.85 4.12
Efficiency ratio............................. 48.49 62.02 52.97 51.80 42.33
Net loan charge-offs to average loans........ 0.24 0.11 0.14 0.13 0.08
Loan reserve to total loans.................. 0.78 0.87 1.07 1.18 1.38
Loan reserve to nonperforming loans.......... 150.79 111.89 336.65 528.29 100.09
Nonperforming loan ratio..................... 0.52 0.78 0.32 0.23 1.40
Nonperforming assets to total loans
and foreclosed property................... 0.75 0.93 0.39 0.34 1.53
Tier 1 capital to average assets............. 12.10 13.57 12.97 13.57 9.48
Tier 1 capital to risk-adjusted assets....... 21.30 24.19 19.74 20.49 14.59
Total capital to risk-adjusted assets........ 22.16 25.06 21.00 21.74 15.84
Dividend payout ratio........................ 23.62 37.31 42.03 98.97 ---
<FN>
(1) Certain per share information and shares outstanding for 1995 and 1994
have been adjusted for the reorganization of Charter Bank from the
mutual holding company structure to a stock holding company structure
on December 28, 1995, at the conversion ratio of 2.0839 shares of
Charter Common Stock for each share of Charter Bank Common Stock.
(2) Does not include cumulative effect of change in accounting principle of
$786,053. Return on average assets was 1.57% including such amount at
September 30, 1994.
</FN>
</TABLE>
15
<PAGE>
THE SPECIAL MEETING AND VOTE REQUIRED
General
This Proxy Statement/Prospectus is being furnished to stockholders of
Charter in connection with the solicitation of proxies by the Charter Board for
use at the Special Meeting to be held on [____________], 1998, at the main
office of Charter located at 114 West Broadway, Sparta, Illinois, at local time.
At the Special Meeting, the holders of Charter Common Stock will be asked to:
(i) approve and adopt the Merger Agreement, and the consummation of the
transactions contemplated thereby, which are more fully described herein; and
(ii) act upon such other matters as may properly be brought before the Special
Meeting and at any adjournments or postponements thereof. A copy of the Merger
Agreement is attached as Annex A hereto and incorporated by reference herein.
THE BOARD OF DIRECTORS OF CHARTER HAS APPROVED THE MERGER AGREEMENT AND
HAS DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, CHARTER
AND ITS STOCKHOLDERS. THE BOARD THEREFORE UNANIMOUSLY RECOMMENDS THAT CHARTER'S
STOCKHOLDERS VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. SEE
"THE MERGER -- BACKGROUND OF THE MERGER" AND "-- RECOMMENDATION OF THE CHARTER
BOARD OF DIRECTORS; REASONS FOR THE MERGER."
Record Date; Voting; Solicitation and Revocation of Proxies
The Charter Board has fixed [_________], 1998 as the Record Date for
the determination of those stockholders entitled to notice of and to vote at the
Special Meeting. Holders of record of Charter Common Stock at the close of
business on the Record Date, which represents the only outstanding class of the
capital stock of Charter, will be entitled to notice of the Special Meeting and
to vote with respect to the proposal to approve and adopt the Merger Agreement
(the "Merger Proposal"). As of the Record Date, there were [_______________]
shares of Charter Common Stock outstanding and entitled to vote which were held
by approximately [__________] holders of record. Each holder of record of shares
of Charter Common Stock on the Record Date is entitled to cast one vote per
share on the Merger Proposal and on any other matter properly submitted for the
vote of Charter stockholders at the Special Meeting. The presence, either in
person or by properly executed proxy, of the holders of a majority of the
outstanding shares of Charter Common Stock entitled to vote at the Special
Meeting is necessary to constitute a quorum at the Special Meeting. 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. 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 be treated as shares that are present at the Special Meeting
for purposes of determining the presence of a quorum, but will not be considered
as voted for purposes of determining the approval of stockholders of the Merger
Proposal. Since the approval of the Merger Proposal requires the affirmative
vote of the holders of a majority of the outstanding shares of Charter Common
Stock entitled to vote at the Special Meeting (see "THE MERGER -- Conditions to
the Merger"), abstentions and broker non-votes will have the same effect as a
vote against the approval of the Merger Proposal.
As of the Record Date, the ESOP held of record [ ] shares of Charter
Common Stock (or approximately [ ]% of the shares entitled to vote at the
Special Meeting), consisting [ ] of Allocated ESOP Shares and [ ] Unallocated
ESOP Shares. Each ESOP participant who has Allocated ESOP Shares allocated to
his or her account is entitled to vote such shares at the Special Meeting, and
the trustee of the ESOP is entitled to vote the Unallocated ESOP Shares at the
Special Meeting in a manner deemed by such trustee to be in the best interest of
the ESOP participants. Upon consummation of the Merger, the Unallocated ESOP
Shares, net of the number thereof required to be sold to repay the then
outstanding indebtedness of the ESOP, will vest for the benefit of all of the
Charter employees who are then participating in the ESOP.
As of the Record Date, directors and executive officers of Charter and
their affiliates beneficially owned an aggregate of [______] shares of Charter
Common Stock (or approximately [_____]% of the shares entitled to vote at the
Special Meeting). Each such person has informed Charter that he or she intends
to vote or direct the vote of all such shares of Charter Common Stock "FOR" the
Merger Proposal, and certain of these persons have executed a Voting/Support
Agreement pursuant to which such person has agreed, among other things, to vote
such shares in favor of the Merger Proposal.
16
<PAGE>
All shares of Charter Common Stock which are entitled to be voted and
are represented at the Special Meeting by properly executed proxies received
prior to or at the meeting, and not revoked, will be voted at such meeting, and
any adjournments or postponements thereof, in accordance with the instructions
indicated on such proxies. If no instructions are indicated, (i) such proxies
will be voted "FOR" the Merger Proposal, and (ii) if the holder of the shares
represented by such proxies possesses voting rights with respect to any other
matter properly brought before the Special Meeting (including, among other
things, a motion to adjourn or postpone the Special Meeting to another time
and/or place, for the purpose of soliciting additional proxies or otherwise),
such proxies will be voted in the discretion of the proxy holders as to such
other matters; provided, however, that no proxy which is voted "AGAINST" the
Merger Proposal will be voted in favor of any such adjournment or postponement.
If any other matters are properly presented at the Special Meeting for
consideration, the persons named in the form of proxy enclosed herewith and
acting thereunder will have discretionary authority to vote on such matters in
accordance with their best judgment; provided, however, that such discretionary
authority will only be exercised to the extent permissible under applicable law.
Charter does not have any knowledge of any matters to be presented at the
Special Meeting other than the matters set forth above under "-- General."
The presence of a stockholder at the Special Meeting will not
automatically revoke such stockholder's proxy. However, any proxy given by a
Charter stockholder pursuant to this solicitation may be revoked by the person
giving it at any time before it is exercised by (i) delivering to the Secretary
of Charter a written notice of revocation bearing a later date than the proxy,
(ii) delivering to the Secretary of Charter a duly executed proxy bearing a
later date, or (iii) attending the Special Meeting and voting in person. Any
written notice of revocation or subsequently executed proxy should be sent so as
to be delivered to Charter Financial, Inc., 114 West Broadway, Sparta, Illinois
62286, Attention: Linda M. Johnson, Corporate Secretary, or hand delivered to
Charter's Corporate Secretary, at or before the taking of the vote at the
Special Meeting.
CHARTER STOCKHOLDERS SHOULD NOT FORWARD ANY CHARTER COMMON STOCK
CERTIFICATES WITH THEIR PROXY CARDS. IF THE MERGER IS CONSUMMATED, STOCK
CERTIFICATES SHOULD BE DELIVERED IN ACCORDANCE WITH INSTRUCTIONS SET FORTH IN A
LETTER OF TRANSMITTAL WHICH WILL BE SENT TO CHARTER STOCKHOLDERS BY THE EXCHANGE
AGENT PROMPTLY AFTER THE EFFECTIVE TIME.
THE REQUIRED VOTE OF THE CHARTER STOCKHOLDERS WITH RESPECT TO THE
MERGER PROPOSAL IS BASED UPON THE TOTAL NUMBER OF OUTSTANDING SHARES OF CHARTER
COMMON STOCK AND NOT UPON THE NUMBER OF SHARES WHICH ARE ACTUALLY VOTED.
ACCORDINGLY, THE FAILURE TO SUBMIT A PROXY CARD OR TO VOTE IN PERSON AT THE
SPECIAL MEETING OR THE ABSTENTION FROM VOTING BY A STOCKHOLDER WILL HAVE THE
SAME EFFECT AS A VOTE "AGAINST" THE MERGER PROPOSAL.
Charter will bear all expenses of this solicitation of proxies from the
holders of Charter Common Stock, except that the cost of preparing and mailing
this Proxy Statement/Prospectus will be borne proportionately by Charter and
Magna. In addition to solicitation by use of the mails, proxies may be solicited
by directors, officers and employees of Charter in person or by telephone,
telegram or other means of communication. Such directors, officers and employees
will not be additionally compensated, but may be reimbursed for reasonable
out-of-pocket expenses in connection with such solicitation. Charter has
retained Regan & Associates, Inc., a proxy soliciting firm, to assist in such
solicitation. The fees to be paid to such firm are not expected to exceed $4,000
plus reasonable out-of-pocket costs and expenses up to $2,000. In addition,
Charter will make arrangements with brokerage firms and other custodians,
nominees and fiduciaries to send proxy materials to their principals and will
reimburse such parties for their expenses in doing so.
THE MERGER
The following information concerning the Merger, insofar as it relates
to matters contained in the Merger Agreement, describes the material aspects of
the Merger but does not purport to be a complete description and is qualified in
its entirety by reference to the Merger Agreement which is incorporated herein
by reference and attached hereto as Annex A. Charter's stockholders are urged to
read carefully the Merger Agreement.
17
<PAGE>
Exchange Ratio
At the Effective Time, each issued and outstanding share of Charter
Common Stock, except for Treasury Shares (which will be canceled) will be
converted into and become exchangeable for 0.5751 of a share of Magna Common
Stock (see "INFORMATION REGARDING MAGNA CAPITAL STOCK -- Magna Common Stock and
Attached Preferred Share Purchase Rights"), subject to possible adjustment as
set forth in the Merger Agreement (see "-- Waiver, Amendment and Termination of
the Merger Agreement").
The determination of the Exchange Ratio was arrived at through
arm's-length negotiations between Charter and Magna. If, following the execution
of the Merger Agreement (which took place on November 19, 1997), Magna should
effect a reclassification, recapitalization, split-up, combination, exchange of
shares or readjustment of or to Magna Common Stock or declare a stock dividend
thereon, an appropriate adjustment to the Exchange Ratio will be made.
It is expected that the market price of Magna Common Stock will
fluctuate between the date of this Proxy Statement/Prospectus and the date on
which the Merger is consummated and thereafter. Because the number of shares of
Magna Common Stock to be received by Charter stockholders in the Merger is fixed
and because the market price of Magna Common Stock is subject to fluctuation,
the value of the shares of Magna Common Stock that holders of Charter Common
Stock would receive in the Merger may increase or decrease between the date
hereof and the Effective Time. No assurance can be given concerning the market
price of Magna Common Stock before or after the Effective Time.
No fractional shares of Magna Common Stock will be issued in connection
with the Merger. In lieu of the issuance of fractional shares, Magna will make a
cash payment to each Charter stockholder who otherwise would be entitled to
receive a fractional share based on the closing price of Magna Common Stock on
the last business day preceding the Effective Time.
Effects of the Merger
Pursuant to the terms of the Merger Agreement, subject to the
satisfaction (or waiver, where permissible) of certain conditions, including,
among other things, the receipt of all necessary regulatory approvals, the
expiration of all waiting periods in respect thereof and the approval and
adoption of the Merger Agreement by the requisite vote of the holders of Charter
Common Stock, Charter will be merged with and into Merger Sub. Merger Sub will
be the surviving corporation in the Merger, and will continue its corporate
existence as a Delaware corporation, wholly owned by Magna. Upon consummation of
the Merger, the separate corporate existence of Charter will terminate and the
stockholders of Charter will become stockholders of Magna.
Each outstanding share of Magna Common Stock at the Effective Time will
remain outstanding and unchanged as a result of the Merger.
Charter Stock Options
At the Effective Time, each outstanding option to purchase shares of
Charter Common Stock (each, a "Charter Option"), whether vested or unvested,
shall be converted into an option to acquire Magna Common Stock, on the same
terms and conditions as were applicable under such Charter Option, and Magna
will assume each Charter 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. The number of shares of Magna Common Stock subject to each Charter
Option will be equal to the product obtained by multiplying the number of shares
of Charter Common Stock subject to the Charter Option by the Exchange Ratio,
rounded to the nearest whole number (a "Replacement Option"). Each Replacement
Option will be exercisable at a price, rounded to the nearest whole cent, equal
to the quotient obtained by dividing the aggregate exercise price of the Charter
Option held by the individual by the number of full shares of Magna Common Stock
subject to such Replacement Option. It is intended that the conversion of
Charter Options into Replacement Options will be undertaken in a manner that
will not constitute a "modification" as defined in the Code as to any Charter
Option which is an "incentive stock option."
A holder of a Charter Option may request in writing at any time, not
later than ten business days prior to the Effective Time, that all or a portion
of his or her Charter Option, whether vested or unvested, be canceled (rather
18
<PAGE>
than converted as described in the preceding paragraph) in consideration for an
amount of cash equal to the product obtained by multiplying (i) the amount by
which the per share purchase price of the Charter Option in question is less
than $22.50, by (ii) the number of shares of Charter Common Stock underlying the
portion of such Charter Option with respect to which the election has been made,
subject to any required withholding of taxes. Magna has sole and absolute
discretion to accept or reject such request at any time on or before two
business days prior to the Effective Time, upon written notification of such
decision to each optionee who elects to request the cash consideration.
Charter Restricted Stock
At the Effective Time, each share of Charter Common Stock issued and
outstanding immediately prior thereto that is restricted under the terms of the
Charter Bank, S.B. 1997 Recognition and Retention Plan (the "RRP") or otherwise
shall be converted into the right to receive, and become exchangeable for, a
fraction of a share of Magna Common Stock equal to the Exchange Ratio, having
the same restrictions, terms and conditions as were applicable to each such
share immediately prior to the Effective Time.
Effective Time
The Effective Time of the Merger will occur at such time on the Closing
Date as designated on the certificate of merger filed with the Secretary of
State of the State of Delaware. The Closing Date shall occur on such date as
Magna shall notify Charter in writing but (i) not earlier than the satisfaction
of all conditions set forth in Section 7.1 of the Merger Agreement and (ii) not
later than 60 days after the Approval Date. See "-- Conditions to the Merger." A
period of time may elapse between the Special Meeting and the Effective Time
while the parties seek to obtain any required regulatory approvals of the Merger
not received on or before the date of the Special Meeting. Currently, management
of both Magna and Charter believe that all such required regulatory approvals
not heretofore received will be received, although no assurances can be given on
this matter. The managements of Magna and Charter do not currently anticipate
that any conditions to consummation of the Merger other than receipt of required
regulatory approvals would cause substantial delay between stockholder approval
of the Merger at the Special Meeting and the Effective Time. However, there can
be no assurance that the Merger will not be challenged by a Governmental Entity
(as hereinafter defined) or, if such a challenge is made, as to the result
thereof. See "-- Regulatory Approvals Required for the Merger." The Merger
Agreement may be terminated by either party if, among other reasons, the Merger
has not been consummated on or before September 30, 1998. See "-- Waiver,
Amendment and Termination of the Merger Agreement."
Background of the Merger
Charter Bank was a mutual savings bank until October 15, 1993, when it
reorganized into a mutual holding company structure, with Charter Bancorp,
M.H.C. owning a majority of Charter Bank's outstanding common stock. Charter was
formed in connection with Charter Bank's December 28, 1995 reorganization (the
"Reorganization") from the mutual holding company structure to a stock holding
company structure. Pursuant to the Reorganization, Charter became a publicly
held company and the holding company for Charter Bank.
Following the Reorganization, and consistent with Charter's business
plan, management of Charter and Charter Bank continued to focus on improving
Charter Bank's core business of obtaining deposits from the public and
originating one- to four-family mortgage loans. In addition, Charter Bank
continued its efforts to control operating expenses and improve overall
profitability.
Throughout the period following the Reorganization, Charter reviewed,
from time to time, its strategic alternatives in light of its size, the
increasing consolidation of the financial services industry and other relevant
considerations. In April, 1997, the Charter Board determined to seek assistance
with respect to evaluating strategic alternatives by, among other things,
retaining a financial advisor.
On May 8, 1997, Charter retained Webb to serve as its financial advisor
on financial and strategic matters relating to the enhancement of stockholder
value, including the possible sale of Charter. Together with Webb, the Charter
Board analyzed information with respect to the financial condition, results of
operations, cash flow, businesses and prospects of Charter in connection with
the determination whether to sell Charter or continue on a stand-alone basis.
19
<PAGE>
Based on Webb's conclusion that the range of values for a share of Charter
Common Stock on a sale of control basis generally exceeded the present value of
shares of Charter Common Stock on a stand-alone basis under business strategies
that could be reasonably implemented by Charter, and certain other factors (see
also "-- Recommendation of the Charter Board of Directors; Reasons for the
Merger"), the Charter Board determined to explore the sale of Charter.
Based on discussions with Webb, the Charter Board identified a number
of thrift and bank holding companies that might have a strategic and/or
financial interest in the potential acquisition of Charter and in July 1997,
Webb contacted six such companies (not including Magna). Of the parties
contacted, five indicated a willingness to execute confidentiality agreements
and receive certain public and non-public financial and operating data regarding
Charter (the "Charter Material"). After an opportunity to review the Charter
Material, all five of the companies submitted indications of interest outlining
the general terms and conditions, including a preliminary proposed price or
range of proposed prices, for an acquisition of Charter. On July 22, 1997,
Charter issued a press release disclosing that it had retained Webb to render
investment banking advice to the Charter Board with respect to the enhancement
of shareholder value. After the release, Magna, which had not been contacted by
Webb, contacted Charter and requested a copy of the Charter Material. Magna
agreed to execute a confidentiality agreement and was provided the Charter
Material by Webb. After an opportunity to review the Charter Material, Magna
also submitted a financial indication of interest. After a thorough review by
the Charter Board of all such indications of interest, in September 1997 the
Board decided to invite Magna and one other party to conduct on-site due
diligence reviews of Charter.
After completing the due diligence process, Magna and the other party
indicated their revised proposed prices and forms of consideration and continued
discussions with regard to a variety of operational issues. In consultation with
Webb and following discussions with Magna and the other party, the Charter Board
concluded that the Magna proposal would provide greater value to the
stockholders of Charter than would the transaction proposed by the other party.
The Charter Board evaluated numerous factors when deciding between
Magna and the other party, including: (i) the greater liquidity and wider
distribution of Magna's Common Stock; (ii) the indicated value of Magna's
indication of interest; (iii) the fact that the other party's indication of
interest included cash consideration, which would not be tax-deferred to Charter
stockholders; (iv) the close proximity of the Magna processing center to Sparta,
potentially resulting in greater employment of Charter's home office staff in
Sparta; (v) the fact that Magna has historically paid higher dividends than the
other party; and (vi) the greater strength of the Magna franchise. The Charter
Board authorized Charter management to further pursue a transaction with Magna.
During October 1997, management and the Charter Board reviewed with
Charter's special counsel the legal ramifications of a business combination
generally. The Board also evaluated with Webb whether the interests of the
stockholders of Charter would be best served by remaining independent or by
pursuing a business combination with Magna on the basis of the discussions to
date. Specifically, the Charter Board considered whether the proposed business
combination would result in a return of value to Charter stockholders that could
not be achieved through Charter's operations as an independent entity. The
Charter Board determined that the proposed business combination with Magna would
likely provide a greater rate of return to Charter stockholders than could be
achieved through Charter's continued independent operations.
A draft definitive agreement was submitted by Magna in November 1997
and Charter and Magna and their respective financial and legal advisors engaged
in negotiations concerning the terms of a transaction (including negotiations
relating to definitive transaction agreements) and each institution performed
due diligence on the other.
On November 19, 1997, the Charter Board held a special meeting to
consider the due diligence findings of Charter's management and advisors and the
negotiated terms of the definitive transaction agreements. Following
presentations by management, Webb and Charter's legal advisor, including
summaries of financial and valuation analyses, the terms of the proposed
acquisition, regulatory matters and the due diligence findings of Charter's
management, and after extensive discussion among the members of the Charter
Board, the Charter Board voted unanimously to authorize the execution of the
Merger Agreement for the reasons described below.
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<PAGE>
Recommendation of the Charter Board of Directors; Reasons for the Merger
The Charter Board believes that the terms of the Merger Agreement,
which are the product of arm's length negotiations between representatives of
Magna and Charter, are fair and in the best interests of Charter and its
stockholders. In the course of reaching its determination, the Charter Board
consulted with counsel with respect to its legal duties, the terms of the Merger
Agreement and the issues related thereto; with its financial advisor with
respect to the financial aspects and fairness of the transaction; and with
senior management regarding, among other things, operational matters.
In reaching its determination to approve the Merger Agreement, the
Board of Directors of Charter considered all factors it deemed material,
including:
(i) The Charter Board analyzed information with respect to the
financial condition, results of operations, cash flow, businesses and prospects
of Charter. In this regard, the Charter Board analyzed the option of selling
Charter or continuing on a stand-alone basis. The range of values for a share of
Charter Common Stock on a sale of control basis were determined to generally
exceed the present value of shares of Charter Common Stock on a stand-alone
basis under business strategies that could be reasonably implemented by Charter.
(ii) The Charter Board considered the written opinion of Webb that
the consideration to be received by holders of Charter Common Stock pursuant to
the Merger Agreement was fair to Charter stockholders from a financial point of
view.
(iii) The Charter Board considered the current operating environment,
including, but not limited to, the continued consolidation and increasing
competition in the banking and financial services industries, the prospect for
further changes in these industries and federal regulatory agency consolidation
and the importance of being able to capitalize on developing opportunities in
these industries.
(iv) The Charter Board considered the other terms of the Merger
Agreement and exhibits, including the tax-deferred nature of the consideration
to be received by the holders of Charter Common Stock pursuant to the Merger
Agreement.
(v) The Charter Board considered the detailed financial analysis,
pro forma and other information with respect to Charter and Magna prepared by
Webb, as well as the Charter Board's own knowledge of Charter, Magna and their
respective businesses. In this regard, the latest publicly-available financial
and other information for Charter and Magna were analyzed, including a
comparison to publicly-available financial and other information for other
similar savings institutions.
(vi) The Charter Board considered the value of Charter Common Stock
continuing as a stand-alone entity compared to the effect of Charter combining
with Magna in light of the factors summarized above and the current economic and
financial environment, including, but not limited to, other possible strategic
alternatives, the results of the contacts and discussions between Charter and
its financial advisor and various third parties and the belief of the Charter
Board and management that the Merger offered the best transaction available to
Charter and its stockholders.
The foregoing discussion of the information and factors considered by
the Charter Board is not intended to be exhaustive, but constitutes the material
factors considered by the Charter Board. In reaching its determination to
approve and recommend the Merger Agreement, the Charter Board did not assign any
relative or specific weights to the foregoing factors, and individual directors
may have weighed factors differently. After deliberating with respect to the
Merger and the other transactions contemplated by the Merger Agreement,
considering, among other things, the matters discussed above and the opinion of
Webb referred to above, the Charter Board unanimously approved and adopted the
Merger Agreement and the transactions contemplated thereby as being in the best
interests of Charter and its stockholders.
FOR THE REASONS SET FORTH ABOVE, THE BOARD OF DIRECTORS OF CHARTER HAS
UNANIMOUSLY APPROVED AND ADOPTED THE MERGER AGREEMENT AS ADVISABLE AND IN THE
BEST INTERESTS OF CHARTER AND ITS STOCKHOLDERS AND RECOMMENDS THAT THE
STOCKHOLDERS OF CHARTER VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT.
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<PAGE>
Reasons for the Merger - Magna
At a meeting on November 19, 1997, the Magna Board unanimously approved
the Merger Agreement and the transactions provided for therein as being in the
best interests of Magna and its stockholders. In reaching its decision, the
Magna Board was advised by legal counsel regarding the legal aspects of the
transaction, and reviewed with management the key financial components and
fairness of the proposed transaction. Without assigning any relative or specific
weights, the Board and management considered a number of factors, both from a
short-term and a longer term perspective, including the following: (i) Magna's
business, operations, financial condition, earnings and prospects, including,
but not limited to, the potential opportunity for growth in the southern
Illinois area; (ii) Magna's assessment of the value of Charter's franchise, and
the compatibility of the businesses of the two banking organizations; (iii) the
results of Magna's in-depth due diligence review of Charter, including its
business, operations, earnings and financial condition on an historical and
prospective basis, and the enhanced opportunities for growth after Magna's
acquisition of Charter; (iv) a variety of factors affecting and relating to the
overall strategic focus of Magna including, without limitation, the projected
synergies which Magna anticipates will result from the Merger; (v) the current
and prospective economic, competitive and regulatory environment facing
financial institutions generally, and the need to seek new markets, further
penetrate existing markets and to explore new modes of delivering products and
services; (vi) the terms of the Merger Agreement and the other documents
executed in connection with the Merger; and (vii) the expectation that the
Merger would be treated as a reorganization for federal income tax purposes.
The Magna Board believes that the Merger will permit Magna the
opportunity to increase its presence in southern Illinois through the
acquisition of an established banking organization having significant operations
in the targeted area and will enhance its ability to compete in the increasingly
competitive banking and financial services industry.
Opinion of Charter's Financial Advisor
In May 1997, Webb was retained by Charter to evaluate Charter's
strategic alternatives as part of a shareholder enhancement program and to
evaluate any specific proposals that might be received regarding an acquisition
of Charter. Webb, as part of its investment banking business, is continuously
engaged in the evaluation of businesses and securities in connection with
mergers and acquisitions, negotiated underwritings, and distributions of listed
and unlisted securities. Webb is familiar with the market for common stocks of
publicly traded banks, savings institutions and bank and savings institution
holding companies. The Charter Board selected Webb on the basis on the firm's
reputation and its experience and expertise in transactions similar to the
Merger. Except as described herein, Webb is not affiliated with Charter, Magna
or their respective affiliates.
Pursuant to its engagement, Webb was asked to render an opinion as to
the fairness, from a financial point of view, of the consideration to be
received by the holders of Charter Common Stock. Webb delivered a fairness
opinion dated as of November 19, 1997 to the Charter Board that the
consideration is fair to the stockholders of Charter from a financial point of
view. No limitations were imposed by Charter upon Webb with respect to the
investigations made or procedures followed by Webb in rendering its opinion.
Webb has consented to the inclusion herein of the summary of its opinion to the
Charter Board and to the entire opinion being attached hereto as Annex B.
The full text of the opinion of Webb, updated as of the date of the
Proxy Statement/Prospectus, which sets forth certain assumptions made, matters
considered and limitations on the reviews undertaken is attached as Annex B to
the Proxy Statement/Prospectus and should be read in its entirety. The summary
of the opinion of Webb set forth in this Proxy Statement/Prospectus is qualified
in its entirety by reference to the opinion. Such opinion does not constitute a
recommendation by Webb to any Charter stockholder as to how such stockholder
should vote with respect to the Merger.
[In rendering its opinion, Webb (i) reviewed the financial and business
data supplied to it by Charter, including Charter's Annual Report for the year
ended September 30, 1996 and the Proxy Statement relating to the 1997 annual
stockholders meeting; (ii) unaudited quarterly results for the quarters ended
December 31, 1996, March 31, 1997, June 30, 1997 and September 30, 1997; (iii)
discussed with senior management and the Boards of Directors of Charter and
Charter Bank the current position and prospective outlook for Charter; (iv)
considered historical quotations for the Charter Common Stock; (v) reviewed the
financial and stock market data of other financial institutions, particularly in
the Midwest region of the United States, and the financial and structural terms
22
<PAGE>
of several other recent transactions involving mergers and acquisitions of
financial institutions or proposed changes of control of comparably situated
companies; and (vi) reviewed certain other information which it deemed relevant.
In addition, Webb considered certain financial data and other information
provided by Magna as well as its discussions with the senior management of
Magna.]
In rendering its opinion, Webb assumed and relied upon the accuracy and
completeness of the information provided to it by Charter and Magna and obtained
by it from public sources. In its review, with the consent of the Charter Board,
Webb did not undertake any independent appraisal or evaluation of the assets and
liabilities of Charter or Magna, or of potential or contingent liabilities of
Charter or Magna. With respect to the financial information, including forecasts
and asset valuations received from Charter, Webb assumed (with Charter's
consent) that such information had been reasonably prepared reflecting the best
currently available estimates and judgment of Charter's management. Webb also
assumed that no restrictions or conditions would be imposed by regulatory
authorities that would have a material adverse effect on the contemplated
benefits of the Merger to Charter or the ability to consummate the Merger.
Webb's review of comparable transactions included the compilation of
pending or recently completed acquisitions of savings institutions. The results
of the analysis are summarized below along five industry-accepted ratios. The
information in the following table summarizes the material information analyzed
by Webb with respect to the Merger. The summary does not purport to be a
complete description of the analysis performed by Webb in rendering its opinion.
Selecting portions of Webb's analysis or isolating certain aspects of the
comparable transactions without considering all analyses and factors could
create an incomplete or potentially misleading view of the evaluation process.
Webb's review of comparable transactions included the compilation of
pending or recently completed acquisitions of savings institutions sorted into
five groups. The groups were identified with characteristics similar to Charter
and compiled as follows: (i) all acquisitions of savings institutions since
December 31, 1996; (ii) acquisitions of savings institutions with a total
transaction value between $ 50 million and $150 million; (iii) acquisitions of
savings institutions where the target had tangible equity to assets between 10%
and 16%; (iv) acquisitions where the target had assets between $200 million and
$600 million; and (v) acquisitions of savings institutions where the target is
located in the Midwest region of the United States. The results of the analysis
are summarized below.
23
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Deal Price to
-------------------------------------------------------------------
Tangible LTM Core Dep
Book EPS1 Assets Deposits Premium
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
M&A Group 1 & 6 - All deals
pending and deals completed since 12/31/96
1) Pending (n = 47)
Average 196.4% 28.2x 18.5% 24.9% 13.7%
Median 185.8% 21.7x 19.3% 23.9% 12.3%
6) Completed (n = 85)
Average 183.9% 24.9x 17.9% 24.3% 11.2%
Median 169.9% 23.6x 16.7% 22.9% 9.7%
M&A Group 2 & 7 - Deal value between $50
million and $150 million
2) Pending (n = 10)
Average 208.6% 23.2x 18.3% 24.5% 15.0%
Median 207.6% 20.4x 18.7% 24.5% 15.6%
7) Completed (n = 24)
Average 184.7% 25.3x 17.2% 23.6% 11.5%
Median 177.3% 23.6x 16.3% 21.8% 11.5%
M&A Group 3 & 8 - Target tangible equity to
assets is between 10% and 16%
3) Pending (n = 9)
Average 166.8% 29.8x 21.0% 27.9% 13.2%
Median 165.6% 20.8x 20.8% 24.5% 12.0%
8) Completed (n = 16)
Average 152.3% 28.5x 19.1% 26.1% 10.3%
Median 152.0% 26.6x 18.8% 25.5% 10.0%
M&A Group 4 & 9 - Target thrift Asset
size between $200 million and $600 million
4) Pending (n = 8)
Average 210.8% 21.2x 18.0% 24.1% 15.5%
Median 205.6% 21.1x 19.3% 22.9% 14.7%
9) Completed (n = 21)
Average 193.9% 27.1X 18.0% 24.2% 12.5%
Median 190.8% 24.2x 16.6% 23.9% 12.8%
M&A Group 5 & 10 - Target located in the
Midwest Region
5) Pending (n = 16)
Average 177.3% 30.7x 20.1% 27.2% 13.8%
Median 178.7% 24.8x 20.7% 28.9% 11.9%
10) Completed (n = 25)
Average 152.0% 26.0x 19.1% 26.4% 9.3%
Median 146.5% 26.6x 16.8% 24.0% 9.2%
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
1 Last twelve month earnings per share.
</FN>
</TABLE>
24
<PAGE>
In its analysis of comparable transactions, Webb evaluated each pricing
ratio against the proposed pricing analysis of Magna's acquisition of Charter.
Slightly more weight was given to the price to tangible book value ratio, the
price to last 12 month earnings per share and the core deposit premium ratio.
Based on the closing sales price per share for Magna Common Stock on
[_____________], 1998 of $[_____], the acquisition of Charter would have an
implied sale price of $[_____] and implied pricing ratios as follows: [_____]%
price to tangible book value per share, [_____] price earnings ratio and
[_____]% core deposit premium.
In preparing its analysis, Webb made numerous assumptions with respect
to industry performance, business and economic conditions and other matters,
many of which are beyond the control of Webb and Charter. The analyses performed
by Webb are not necessarily indicative of actual values or future results, which
may be significantly more or less favorable than suggested by such analyses and
do not purport to be appraisals or reflect the prices at which a business may be
sold.
Charter engaged Webb to, among other things, assist Charter in
determining appropriate and desirable values that could be realized in a merger,
prepare a summary of recent merger and acquisition trends in the financial
services industry, advise Charter as to the structure and form of any proposed
merger, and render an opinion as to the fairness of the consideration to be paid
in any proposed merger. Charter agreed to pay Webb a fee of $50,000 for delivery
of a fairness opinion, which fee was paid in December 1997. Further, Charter
agreed to pay Webb a success fee of 0.8% of the transaction value less the fee
paid for the fairness opinion. Such success fee shall be paid upon consummation
of the Merger. Based on the closing sales price per share for Magna Common Stock
on [_________], 1998 of $[_______], the transaction value would be approximately
$[_________] . Charter agreed to reimburse Webb for its reasonable out-of-pocket
expenses, not to exceed $10,000. Charter has further agreed to indemnify Webb
and its affiliates, and their respective directors, officers and employees and
each such other person controlling Webb or any of its affiliates from and
against certain claims and liabilities.
Interests of Certain Persons in the Merger
In considering the recommendation of the Charter Board with respect to
the Merger Agreement, Charter stockholders should be aware that certain members
of Charter's management and Board of Directors have interests in the Merger that
are in addition to their interests as stockholders of Charter generally. The
Charter Board was aware of these interests and considered them, among other
matters, in approving the Merger Agreement and the transactions contemplated
thereby.
Charter Bank has entered into employment agreements with Messrs. John
A. Becker and Michael R. Howell and Ms. Linda M. Johnson (each, an "Executive")
dated October 15, 1993, April 17, 1997 and April 17, 1997, respectively, each as
amended by the Letter Agreement (collectively, the "Agreements"). The Agreements
provide for an initial term of three years, with an automatic one year extension
on each anniversary date unless Charter Bank notifies the Executive that
employment shall cease 24 months from the anniversary date. Pursuant to the
Agreements, if employment is terminated (other than for death, termination for
cause or disability) following a "Change of Control" during the term of the
Agreements, the Executive would be entitled to (i) 2.99 times base salary
(including bonuses, other cash compensation and contributions made to benefit
plans on behalf of the Executive) and (ii) continued life, medical, dental and
disability coverage for 36 months. Under the Agreements, as amended by the
Letter Agreement, Charter Bank is obligated to make payments to an Executive if
the employment of such Executive is terminated for any reason within specified
time periods. Mr. Becker has indicated his intention to terminate his employment
upon consummation of the Merger, and accordingly, Charter or Charter Bank will
pay to Mr. Becker a lump sum of $587,253 upon consummation of the Merger. Magna
has agreed to honor and assume the financial obligations under the Howell and
Johnson Agreements, accordingly, if employment is terminated with Magna or any
Magna affiliate for any reason (including death, disability, early or normal
retirement and voluntary termination) at any time prior to April 17, 2000, Magna
or a Magna affiliate will pay (i) in the case of Howell, cash in the amount of
$311,979, and (ii) in the case of Johnson, cash in the amount of $302,876. Magna
has also agreed to continue, at the sole cost of Magna, life, medical, dental
and disability insurance benefits in the case of Mr. Becker, for 36 months
following the Effective Time, and in the cases of Mr. Howell and Ms. Johnson,
for 36 months following his or her respective termination of service from Magna
or any Magna affiliate. In addition, upon the consummation of the Merger, Mr.
Becker will be entitled to a lump sum cash payment of approximately $341,281
(assuming a fair market value per share of Charter Common Stock of $27.00)
pursuant to Charter's supplemental executive retirement plan.
25
<PAGE>
Pursuant to the terms of the Charter Financial, Inc. 1997 Stock Option
Plan (the "1997 Stock Option Plan"), all outstanding options granted by Charter
to purchase shares of Charter Common Stock and issued pursuant to the 1997 Stock
Option Plan, whether or not previously vested and exercisable, will become
immediately vested and exercisable in full upon consummation of the Merger. As
of November 18, 1997, 135,200 shares of Charter Common Stock subject to options
not then vested or exercisable were held by Charter directors and executive
officers. In addition, pursuant to the terms of the RRP, all shares of Charter
Common Stock subject to vesting restrictions held by persons who do not continue
service with Magna or a Magna affiliate (through an advisory directorship or
otherwise) will become fully vested upon the consummation of the Merger. As of
November 18, 1997, 28,000 shares of Charter Common Stock subject to vesting
restrictions were held by Charter directors and executive officers who are not
anticipated to continue service with Magna or a Magna affiliate upon the
consummation of the Merger.
The Merger Agreement provides that the Merger will not affect or
diminish any of Charter's duties and obligations of indemnification existing at
the Effective Time in favor of the directors, officers, employees and agents of
Charter or its subsidiaries arising from their respective certificates of
incorporation or bylaws in effect at the date of the Merger Agreement, arising
by operation of law or arising by virtue of any contract, resolution or
agreement existing at the date of the Merger Agreement. Magna has also agreed
(unless prohibited by law) to assume such duties and obligations of
indemnification in order that such duties and obligations shall continue in full
force and effect to the extent and for so long as they would (but for the
Merger) otherwise have survived and continued in full force and effect.
Other than as set forth above, no director or executive officer of
Charter has any direct or indirect material interest in the Merger, except
insofar as the ownership of any Charter Common Stock or Charter Option by such
director or executive officer might be deemed such an interest.
Employee Matters
As soon as practicable after the Effective Time, employees of Charter
and its subsidiaries who, following the Merger, remain employees of Charter or
any other Magna subsidiary, will become entitled to participate in the benefit
plans maintained by Magna for its employees and the employees of its
subsidiaries on substantially the same terms and conditions as apply to
comparable employees of Magna and its subsidiaries. Such Charter employees will
be granted credit for service with Charter or any of its subsidiaries prior to
the Effective Time for purposes of eligibility, participation and vesting
(provided, that any such credit shall not result in a duplication of benefits).
The Merger Agreement further provides that all employees of Charter and its
subsidiaries who become employees of Magna or its subsidiaries will not be
subject to any pre-existing condition limitations and will be given credit for
amounts paid under a corresponding benefit plan for purposes of applying
deductibles, co-payments and out-of-pocket maximums. Magna intends to continue
each of the existing Charter employee benefit plans to which there exists a
corresponding Magna employee benefit plan until the date on which the inclusion
of such Charter employees in Magna's corresponding plan occurs. In addition, it
is anticipated that the Charter defined benefit pension plan will be merged into
Magna's currently existing defined benefit plan.
Prior to the Effective Time, Charter will be permitted to amend the
ESOP to allow Charter to make monthly contributions to the ESOP through the day
immediately preceding the Closing Date and to allow an ESOP participant to
receive a contribution regardless of whether the participant is employed on the
last day of the current plan year. Immediately prior to the Effective Time,
certain indebtedness of the ESOP (approximately $1,236,024 at September 30,
1997) will be repaid from the proceeds of the sale by the ESOP of that number of
Unallocated ESOP Shares sufficient to satisfy such indebtedness. As of the
Effective Time or as soon thereafter as practicable, and contingent upon the
favorable determination of the Internal Revenue Service (the "IRS" or the
"Service"), the ESOP will be terminated and all of the remaining Unallocated
ESOP Shares will be allocated to the participants as then constituted.
Conversion of Securities; Procedures for Exchange of Certificates; Fractional
Shares
As promptly as practicable after the Effective Time, and in no event
more than five business days thereafter, a bank or trust company selected by
Magna acting in the capacity of exchange agent (the "Exchange Agent"), will mail
to each former holder of record of Charter Common Stock a form of letter of
transmittal, together with instructions for the exchange of such holder's
certificates previously representing shares of Charter Common Stock ("Charter
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<PAGE>
Stock Certificates") for certificates representing shares of Magna Common Stock
("Magna Stock Certificates") and cash in lieu of fractional shares.
HOLDERS OF CHARTER COMMON STOCK SHOULD NOT SEND IN THEIR CHARTER STOCK
CERTIFICATES UNTIL THEY RECEIVE THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS
FROM THE EXCHANGE AGENT, AND SHOULD NOT RETURN THEIR CHARTER STOCK CERTIFICATES
WITH THE ENCLOSED PROXY.
Upon surrender to the Exchange Agent of one or more Charter Stock
Certificates, together with a properly completed letter of transmittal, and, in
the case of a Charter Affiliate (as defined below), a letter in the form set
forth as Exhibit B to the Merger Agreement (if not previously submitted), there
will be issued and mailed to the stockholder surrendering such items one or more
Magna Stock Certificates representing the number of shares of Magna Common Stock
to which such holder is entitled, a check, where applicable, for the amount
representing any fractional share determined in the manner described below,
without interest, and any distribution declared as of or after the Effective
Time and not yet paid with respect to such shares of Magna Common Stock. The
Charter Stock Certificates so surrendered will be canceled. A Charter Affiliate
is any person identified by Charter as its affiliate for purposes of Rule 145
under the Securities Act. See "INFORMATION REGARDING MAGNA CAPITAL STOCK --
Resales of Magna Common Stock Received in the Merger."
No dividend or other distribution declared as of or after the Effective
Time with respect to Magna Common Stock will be paid to the holder of any
unsurrendered Charter Stock Certificate until the holder surrenders such
certificate, at which time the holder will be entitled to receive all previously
withheld dividends and distributions, without interest.
After the Effective Time, there will be no transfers on the stock
transfer books of Charter of shares of Charter Common Stock issued and
outstanding immediately prior to the Effective Time. If Charter Stock
Certificates are presented for transfer after the Effective Time, they will be
canceled and exchanged for Magna Stock Certificates and cash in lieu of
fractional shares.
None of the Exchange Agent, Magna or Charter, or any other person, will
be liable to any former holder of Charter Common Stock for any amount properly
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
In the event any Charter Stock Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such certificate to be lost, stolen or destroyed and, if required by
Magna, the posting by such person of a bond in such amount as Magna may direct
as indemnity against any claim that may be made against it with respect to such
certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Charter Stock Certificate consideration issuable pursuant to the
Merger Agreement in respect of the shares of Charter Common Stock formerly
represented thereby.
No fractional shares of Magna Common Stock will be issued in the
Merger. Instead, the Merger Agreement provides that each holder of shares of
Charter Common Stock exchanged pursuant to the Merger who would otherwise have
been entitled to receive a fraction of a share of Magna Common Stock will
receive, in lieu thereof, cash in an amount equal to such fractional part of a
share of Magna Common Stock multiplied by the per share closing price of Magna
Common Stock on the last business day preceding the Closing Date, as reported in
The Wall Street Journal, Midwest edition. No such holder will be entitled to
dividends, voting rights or any other rights as a stockholder in respect of any
fractional share which such holder would otherwise have been entitled to
receive.
Conditions to the Merger
The respective obligations of Magna and Charter to effect the Merger
are subject to the satisfaction of the following conditions at or prior to the
Effective Time: (i) approval and adoption of the Merger Agreement by the
stockholders of Charter; (ii) the shares of Magna Common Stock issuable to
holders of Charter Common Stock pursuant to the Merger having been authorized
for listing on the NYSE, subject to official notice of issuance; (iii) approval
of the Merger Agreement and the transactions contemplated thereby (including the
Merger) by the appropriate governmental authorities (all such governmental
authorities being referred to as the "Governmental Entities"), and the
expiration of any statutory waiting periods in respect thereof (collectively,
the "Requisite Regulatory Approvals"); provided, however, that Magna is not
27
<PAGE>
obligated to effect the Merger if, in the reasonable opinion of Magna, any
Requisite Regulatory Approval contains or imposes any condition that would have
a Material Adverse Effect (as defined below) on Magna or Charter, other than
related to antitrust considerations; (iv) the Registration Statement of which
this Proxy Statement/Prospectus forms a part having become effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement having been issued or threatened by the Commission; (v)
receipt of all necessary state securities laws and "blue sky" permits and other
authorizations required in connection with the issuance of Magna Common Stock in
the Merger; (vi) no order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition (an "Injunction")
being in effect which prohibits the consummation of the Merger or any of the
other transactions contemplated by the Merger Agreement; and (vii) no statute,
rule, regulation, order, injunction or decree having been enacted, entered,
promulgated or enforced by any court, administrative agency or commission or
other governmental authority or instrumentality or self-regulatory organization,
as defined in Section 3(a)(26) of the Exchange Act (each a "Governmental
Entity"), which prohibits, restricts or makes illegal consummation of the
Merger.
The obligations of Magna to effect the Merger are further subject to
the satisfaction, or waiver by Magna, of the following conditions: (i) (x)
certain representations and warranties of Charter contained in the Merger
Agreement shall be true and correct in all material respects as of the date of
the Merger Agreement and (except to the extent that such representations and
warranties relate to an earlier date) as of the Closing Date as though made on
and as of the Closing Date; (y) the representations and warranties of Charter
contained in the Merger Agreement (including, without limitation, the
representation that, except as otherwise disclosed by Charter, since September
30, 1996, no event has occurred which has caused, or is reasonably likely to
cause, individually or in the aggregate, a Material Adverse Effect (as defined
below) on Charter) shall be true and correct in all material respects as of the
date of the Merger Agreement and (except to the extent such representations and
warranties speak as of an earlier date) as of the Closing Date as though made on
and as of the Closing Date; provided, however, that for purposes of determining
the satisfaction of the condition described in this clause (i) (y), such
representations and warranties shall be deemed to be true and correct unless the
failure or failures of such representations and warranties to be so true and
correct, individually or in the aggregate, represent a Material Adverse Effect
on Charter; (ii) Charter shall have performed in all material respects all
obligations required to be performed by it under the Merger Agreement at or
prior to the Effective Time; (iii) the consent, approval or waiver of each
person (other than the Governmental Entities) whose consent or approval shall be
required in order to permit the succession by the Resulting Corporation pursuant
to the Merger to any obligation, right or interest of Charter under any loan or
credit agreement, note, mortgage, indenture, lease, license or other agreement
or instrument to which Charter is a party or is otherwise bound shall have been
obtained, except where the failure to obtain such consents or approvals would
not have a Material Adverse Effect on Magna; (iv) no proceeding initiated by a
Governmental Entity seeking an Injunction shall be pending; (v) Magna shall have
received an opinion of its counsel, in form and substance reasonably
satisfactory to Magna, dated as of the Closing Date, 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 be treated as a reorganization within the meaning of Section 368(a)
of the Code (see "-- Certain Federal Income Tax Consequences" below); (vi) Magna
shall have received a legal opinion, dated as of the Closing Date, of Charter's
counsel in substantially the form set forth in Exhibit C to the Merger
Agreement.
The Merger Agreement defines a "Material Adverse Effect," when applied
to a party to the Merger Agreement, as any effect that (i) is material and
adverse to the business, results of operations or financial condition of such
party and its subsidiaries taken as whole, or (ii) materially impairs the
ability of such party and its subsidiaries to consummate the transactions
contemplated by the Merger Agreement; provided, however, that Material Adverse
Effect shall not be deemed to include the impact of (a) changes in laws and
regulations or interpretations thereof that are generally applicable to the
banking or savings industries, (b) changes in generally accepted accounting
principles that are generally applicable to the banking or savings industries,
(c) expenses incurred in connection with the transactions contemplated by the
Merger Agreement, (d) changes attributable to or resulting from changes in
general economic conditions, including changes in the prevailing level of
interest rates or (e) any modifications or changes to valuation policies and
practices in connection with the Merger or restructuring charges taken in
connection with the Merger, in each case in accordance with generally accepted
accounting principles.
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The obligations of Charter to effect the Merger are further subject to
the satisfaction or waiver by Charter of the following conditions: (i) (x)
certain representations and warranties of Magna contained in the Merger
Agreement shall be true and correct in all material respects as of the date of
the Merger Agreement and (except to the extent that such representations and
warranties relate to an earlier date) as of the Closing Date as though made on
and as of the Closing Date; (y) the representations and warranties of Magna
contained in the Merger Agreement (including, without limitation, the
representation that, except as otherwise disclosed by Magna, since December 31,
1996, no event has occurred which has caused, or is reasonably likely to cause,
individually or in the aggregate, a Material Adverse Effect on Magna) shall be
true and correct in all material respects as of the date of the Merger Agreement
and (except to the extent such representations and warranties speak as of an
earlier date) as though made on and as of the Closing Date; provided, however,
that for purposes of determining the satisfaction of the condition described in
this clause (i) (y), such representations and warranties shall be deemed to be
true and correct unless the failure or failures of such representations and
warranties to be so true and correct, individually or in the aggregate,
represent a Material Adverse Effect on Magna; (ii) Magna shall have performed in
all material respects all obligations required to be performed by it under the
Merger Agreement at or prior to the Effective Time; (iii) no proceeding
initiated by any Governmental Entity seeking an Injunction shall be pending;
(iv) Charter shall have received from its counsel an opinion, dated as of the
Closing Date, to the effect that for federal income tax purposes the Merger will
be treated as a reorganization within the meaning of Section 368(a) of the Code
and that, accordingly, for federal income tax purposes (A) no gain or loss will
be recognized by Charter as a result of the Merger; (B) no gain or loss will be
recognized by stockholders of Charter who exchange all of their Charter Common
Stock solely for Magna Common Stock pursuant to the Merger (except with respect
to cash received in lieu of a fractional share interest in Magna Common Stock);
and (C) the aggregate tax basis of the Magna Common Stock received by
stockholders who exchange all of their Charter Common Stock solely for Magna
Common Stock pursuant to the Merger will be the same as the aggregate tax basis
of Charter Common Stock surrendered in exchange therefor (see "-- Certain
Federal Income Tax Consequences" below); and (v) Charter shall have received a
legal opinion, dated as of the Closing Date, of Magna's counsel in substantially
the form set forth in Exhibit D to the Merger Agreement.
There can be no assurance as to when, or whether, the Requisite
Regulatory Approvals necessary to consummate the Merger will be obtained or
whether all of the other conditions precedent to the Merger will be satisfied or
waived by the party permitted to do so. See "-- Regulatory Approvals Required
for the Merger" below. If the Merger is not effected on or before September 30,
1998, the Merger Agreement may be terminated by a vote of a majority of the
Board of Directors of either Magna or Charter unless the failure to effect the
Merger by such date is due to the failure of the party seeking to terminate the
Merger Agreement to perform or observe its covenants and agreements.
Regulatory Approvals Required for the Merger
Consummation of the Merger and the transactions provided for in the
Merger Agreement is subject to receipt of approval of the Federal Reserve Board
under Section 4(c)(8) of the BHCA.
The Federal Reserve Board, in reviewing applications under the BHCA,
must consider, among other factors, the financial and managerial resources and
future prospects of the institutions involved, and the convenience and needs of
the communities to be served. In addition, the Federal Reserve Board may not
approve any transaction that will result in a monopoly or be in furtherance of
any combination or conspiracy to monopolize or to attempt to monopolize the
business of banking in any part of the United States, or if its effect in any
section of the United States may be substantially to lessen competition or to
tend to create a monopoly, or if it would in any other manner be a restraint of
trade, unless the Federal Reserve Board finds that the anticompetitive effects
of the transaction are clearly outweighed by the public interests and the
probable effect of the transaction on meeting the convenience and needs of the
communities to be served. Any transaction approved by the Federal Reserve Board
may not be consummated until 30 days after such approval, during which time the
U.S. Department of Justice may challenge such transaction on antitrust grounds
and seek the divestiture of certain assets and liabilities of the combined
organization. The commencement of an antitrust action would stay the
effectiveness of the Federal Reserve Board's approval unless a court
specifically orders otherwise. With the approval of the Federal Reserve Board
and the U.S. Department of Justice, the waiting period may be reduced to not
less than 15 days.
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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 to
intervene, such intervention could delay the regulatory approvals required for
consummation of the Merger.
Under the Community Reinvestment Act of 1977, as amended, the Federal
Reserve Board also must take into account the record of performance of each of
Magna Bank and Charter in meeting the credit needs of the assessment area,
including low and moderate income neighborhoods, of each institution. As part of
the review process, the Federal Reserve Board frequently receives comments and
protests from community groups and others.
Applications are also required to be filed with the Illinois
Commissioner and with the OTS. The Merger cannot proceed in the absence of the
Requisite Regulatory Approvals. See "-- Conditions to the Merger" and "--
Waiver, Amendment and Termination of the Merger Agreement." There can be no
assurance that any Requisite Regulatory Approvals will be obtained, and if
obtained, there can be no assurance as to the date of any such approval. There
can likewise be no assurance that the U.S. Department of Justice will not
challenge the Merger or, if such a challenge is made, as to the result thereof.
Conduct of Business Pending the Merger
Under the terms of the Merger Agreement, Charter is obligated until the
Effective Time, except as otherwise contemplated or permitted by the Merger
Agreement or with the prior consent of Magna, to carry on its business in the
ordinary course consistent with past practice. Charter has agreed to use its
reasonable best efforts to (x) preserve its business organization intact, (y)
keep available to itself the present services of the employees of Charter and
Charter Bank and (z) preserve the goodwill of the customers of Charter and each
Charter subsidiary and others with whom business relationships exist.
The Merger Agreement also contains certain restrictions on the conduct
of Charter and its subsidiaries' business pending consummation of the Merger. In
particular, the Merger Agreement provides that, except as provided in the Merger
Agreement or with the prior written consent of Magna, Charter shall not and,
where applicable, shall not permit a Charter subsidiary to, among other things,
(i) declare or pay any dividends on, or make other distributions in respect of,
any of its capital stock, other than (a) normal quarterly dividends in an amount
not greater than the most recent quarterly dividend paid in respect of each
share of Charter Common Stock, provided, however, that Charter shall not declare
or pay any dividends on Charter Common Stock for any period in which its
stockholders will be entitled to receive any regular quarterly dividends on
shares of Magna Common Stock to be issued in the Merger, and (b) dividends from
wholly owned subsidiaries to Charter; (ii) (a) split, combine or reclassify any
shares of its capital stock or (b) repurchase, redeem or otherwise acquire
(except for the acquisition of shares held by Charter in a fiduciary capacity or
in respect of a debt previously contracted) any shares of the capital stock of
Charter or securities convertible into or exercisable therefor, (iii) issue,
deliver or sell, or authorize or propose the issuance, delivery or sale of, any
shares of its capital stock or securities convertible into or exchangeable
therefor, other than the issuance of Charter Common Stock pursuant to the
exercise of outstanding Charter Options if and as permitted pursuant to the
terms of the agreements providing therefor, (iv) amend its Certificate of
Incorporation, Bylaws or other similar governing documents, (v) make any capital
expenditures other than in the ordinary course of business or as necessary to
maintain existing assets in good repair, and in any event are in an amount of no
more than $50,000 individually and $200,000 in the aggregate, except in the case
of emergency repairs or replacements, (vi) enter into any new line of business,
(vii) subject to certain exceptions relating to non-performing assets, acquire
or agree to acquire any business or entity or otherwise acquire any assets which
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would be material to Charter, (viii) take any action that is intended or may
reasonably be expected to result in any of its representations and warranties
set forth in the Merger Agreement being or becoming untrue in any material
respect, or in any of the conditions to the Merger not being satisfied, or in a
violation of any provision of the Merger Agreement, except as may be required by
applicable law, (ix) change its methods of accounting in effect at September 30,
1996, subject to certain exceptions, (x) (a) adopt, amend, renew or terminate
(except as otherwise contemplated by the Merger Agreement or as may be required
by law) any employee benefit plan or agreement, arrangement, plan or policy
between Charter or any of its affiliates and any of their respective current or
former directors, officers and employees, or (b) except for normal increases in
the ordinary course of business consistent with past practice or except as
required by applicable law, increase in any manner the compensation or fringe
benefits of any director, officer or employee or pay any benefit not required by
any plan or agreement as in effect as of the date of the Merger Agreement
(including, without limitation, the granting of stock options, stock
appreciation rights, restricted stock, restricted stock units or performance
units or shares); (xi) take or cause to be taken any action that would cause the
Merger to fail to qualify as a reorganization under Section 368(a) of the Code,
(xii) other than in the ordinary course of business consistent with past
practice, dispose or agree to dispose of its material assets, properties or
other rights or agreements, (xiii) other than in the ordinary course of business
consistent with past practice, incur any indebtedness for borrowed money, or
assume, guarantee, endorse or otherwise become responsible for the obligations
of any other entity, (xiv) file any application to relocate or terminate the
operations of any of Charter Bank's banking offices, (xv) subject to certain
exceptions relating to non-performing assets, invest or commit to invest in real
estate or any real estate development project, (xvi) take any action which would
cause the termination or cancellation by the FDIC of insurance in respect of
Charter Bank's deposits, (xvii) (a) without first consulting with Magna, enter
into, renew or increase any loan or other extension of credit or commit to make
any such loan or other extension of credit, to any person or entity, or modify
any of the material provisions or renew or otherwise extend the maturity date of
any existing loan or other extension of credit or commitment therefor, in an
amount in excess of $250,000 or an amount which, when aggregated with any and
all existing loans, other extensions of credit or credit commitments to such
person or entity, would be in excess of $250,000; (b) lend to any person or
entity other than in accordance with the lending policies of Charter Bank as in
effect on the date of the Merger Agreement; or (c) without first consulting with
Magna, lend to any person or entity if any of the loans or other extensions of
credit by Charter Bank to such person or entity are on Charter Bank's "watch
list" or similar internal report in an amount in excess of $250,000; provided,
however, that nothing in the Merger Agreement shall prohibit Charter or any of
its subsidiaries from honoring any contractual obligation in existence on the
date of the Merger Agreement, (xviii) make or commit to any loan or extension of
credit to any director or officer of Charter or any of its subsidiaries without
giving Magna five days' notice in advance of such entity's approval of such loan
or extension of credit or commitment relating thereto, (xix) except as otherwise
contemplated by the Merger Agreement, create, renew, amend or terminate (or give
notice to do the same) any material contract, agreement or lease for goods,
services or office space to which Charter or any of its subsidiaries is a party
or by which they or their property is bound, or (xx) agree to do any of the
foregoing.
Charter also has agreed in the Merger Agreement that it will not
authorize or permit any of its officers, directors, employees or agents to (i)
directly or indirectly solicit, initiate or encourage any inquiries relating to
the making of any proposal which constitutes a Takeover Proposal (as defined in
the Merger Agreement), (ii) recommend or endorse any Takeover Proposal, (iii)
participate in any negotiations relating to any such inquiry or proposal, or
(iv) provide third parties with any non-public information relating to any such
proposal (except in each case to the extent legally required for the discharge
of the fiduciary duties of the Charter Board). Charter will notify Magna
immediately if any such inquiries or Takeover Proposals are received by, any
such information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, Charter, and will promptly inform
Magna in writing of the relevant details with respect to the foregoing. As used
in the Merger Agreement, Takeover Proposal means any tender or exchange offer,
proposal for a merger, consolidation or other business combination involving
Charter or Charter Bank or any proposal or offer to acquire in any manner a
substantial equity interest in, or a substantial portion of the assets of,
Charter or any of its subsidiaries other than the transactions contemplated or
permitted by the Merger Agreement.
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Pursuant to the Merger Agreement, Magna has agreed to use its
reasonable best efforts to (x) preserve its business organization and that of
Magna Bank, (y) keep available to itself the present services of the employees
of Magna and Magna Bank and (z) preserve the goodwill of the customers of Magna
and Magna Bank and others with whom such business relationships exist.
In addition, Magna has agreed, pursuant to the Merger Agreement, that
until the Effective Time, except as otherwise contemplated by the Merger
Agreement or with the prior written consent of Charter, Magna will not (i)
declare, pay or make any extraordinary or special dividends or distributions in
respect of Magna Common Stock, (ii) subject to certain exceptions, change its
method of accounting in effect at December 31, 1996, (iii) take any action that
is intended or may reasonably be expected to result in any of its
representations and warranties set forth in the Merger Agreement being or
becoming untrue in any material respect, or in any of the conditions to the
Merger not being satisfied, or in a violation of any provision of the Merger
Agreement, except as may be required by applicable law, (iv) take or cause to be
taken any action that would cause the Merger to fail to qualify as a
reorganization under Section 368(a) of the Code, (v) amend its Certificate of
Incorporation or Bylaws or other governing instruments in a manner which would
adversely affect in any manner the terms of the Magna Common Stock or the
ability of Magna to consummate the transactions contemplated by the Merger
Agreement, or (vi) agree to do any of the foregoing.
Waiver, Amendment and Termination of the Merger Agreement
Prior to the Effective Time, and subject to compliance with applicable
law, any provision of the Merger Agreement may be waived by the party benefitted
by the provision or, subject to applicable law, amended or modified at any time
by an agreement in writing approved by the Boards of Directors of Magna and
Charter and executed in the same manner as the Merger Agreement, provided that,
after the approval of the Merger by the stockholders of Charter, the Merger
Agreement may not be amended, without further approval of such stockholders, to
reduce the amount or change the form of the consideration to be received by
Charter stockholders. In addition, Magna may at any time change the method of
effecting the Merger if and to the extent that Magna deems such change
desirable, provided that, no such change may alter or change the amount of
consideration to be issued to the holders of Charter Common Stock, adversely
affect the tax treatment of stockholders of Charter or materially delay
consummation of the Merger.
The Merger Agreement may be terminated at any time prior to the
Effective Time, either before or after approval of the matters presented in
connection with the Merger by the stockholders of Charter, as follows: (i) by
the mutual consent of Magna and Charter if the Boards of Directors of each so
determines; (ii) by either Magna or Charter upon written notice to the other
party if any Governmental Entity of competent jurisdiction shall have issued a
final nonappealable order enjoining, denying approval of, or otherwise
prohibiting the consummation of any of the transactions contemplated by the
Merger Agreement; (iii) by either Magna or Charter in the event that the Merger
has not been consummated by September 30, 1998, unless the failure to consummate
the Merger is due to the failure of the party seeking to terminate the Merger
Agreement to perform or observe its covenants or agreements; (iv) by either
Magna or Charter if the approval of the stockholders of Charter required for
consummation of the Merger shall not have been obtained by reason of the failure
to obtain the required vote at a duly held meeting of such stockholders; (v) by
either Magna or Charter, if such terminating party is not then in material
breach of any representation, warranty, covenant or other agreement in the
Merger Agreement, in the event of a material breach by the other party of any of
its representations or warranties contained in the Merger Agreement which is not
cured within 30 days after written notice of such breach is given to the
breaching party or which breach, by its nature, cannot be cured prior to the
Effective Time, which breach would have a Material Adverse Effect on the
terminating party; (vi) by either Magna or Charter, if such terminating party is
not then in material breach of any representation, warranty, covenant or other
agreement in the Merger Agreement, in the event of a material breach of any of
the covenants or agreements contained in the Merger Agreement by the other which
is not cured within 30 days after written notice of such breach is given to the
breaching party; (vii) by Magna if (a) the Charter Board shall have (I)
withdrawn or adversely modified its approval or recommendation of the Merger
Agreement to the stockholders of Charter, or (II) failed to reconfirm its
recommendation of the Merger Agreement or the Merger after five business days
following a written request by Magna to do so, or (b) Charter shall have taken
any of the actions concerning a Takeover Proposal set forth above (each of the
foregoing, a "Triggering Action"); or (viii) by Charter if (a) the average
closing price of Magna Common Stock on the NYSE, as reported by The Wall Street
Journal, Midwest edition, for the 20 consecutive full trading days ending at the
close of trading on the later to occur of the Special Meeting or the date of
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receipt of the last Requisite Regulatory Approval (the "Average Closing Price")
is less than $32.05 (80% of the Magna Closing Price on November 26, 1997, which
was $40.0625), and (b) the percentage decline in the market value per share of
Magna Common Stock, based upon a comparison of a $40.0625 starting price and the
Average Closing Price, is more than the percentage decline in a defined index of
comparable bank stocks, plus .15, provided, however, if Charter terminates the
Merger Agreement pursuant to this provision, it shall promptly notify Magna in
writing whereupon Magna may elect, within the five day period commencing with
its receipt of Charter's notice to terminate, to increase the Exchange Ratio to
the extent required so that the Charter stockholders would receive the minimum
number of shares of Magna Common Stock necessary to have the implied value
(based on the Average Closing Price) sufficient to prevent Charter from having
the right to terminate under this provision. Upon such an election by Magna, the
Merger Agreement will remain in full force and effect, as modified by the
substitution of the new Exchange Ratio.
In the event of the termination of the Merger Agreement by either Magna
or Charter, neither Magna nor Charter will have any further obligations under
the Merger Agreement except (i) for certain provisions of the Merger Agreement
relating to confidentiality and expenses and (ii) that no party will be relieved
or released from any liabilities or damages arising out of its willful breach of
any provisions of the Merger Agreement. However, if the Merger Agreement is
terminated by Magna for a reason described in subparagraph (vii) of the
preceding paragraph or by Charter for any of the reasons described in the
preceding paragraph at a time when Magna would have had the right to terminate
the Merger Agreement for a reason described in subparagraph (vii) of the
preceding paragraph, Charter will promptly, but in no event later than two
business days after the date of such termination, pay to Magna $5 million in
cash (the "Termination Fee"), as reimbursement of Magna's direct and indirect
expenses and costs, including, legal, accounting and administration costs, as
well as the opportunity cost to Magna of business transactions foregone as a
result of its efforts to effect the Merger. However, if the Merger Agreement is
terminated by either party as a result of the failure of the stockholders of
Charter to adopt the Merger Agreement, then Charter will pay the Termination Fee
to Magna if (A) a Takeover Proposal occurred prior to the Special Meeting, and
(B) Charter entered into an agreement to consummate a transaction constituting
the subject of a Takeover Proposal or consummated such transaction, within 12
months following the Special Meeting. The Termination Fee, if paid, shall offset
any damages otherwise awarded to Magna under the Merger Agreement.
No assurance can be given that the Merger will be consummated, that
Magna and Charter will not mutually agree to terminate the Merger Agreement or
that Magna or Charter will not elect to terminate the Merger Agreement if the
Merger has not been consummated on or before September 30, 1998.
Stock Exchange Listing
Magna Common Stock is listed on the NYSE. Magna has agreed to use
reasonable efforts to cause the shares of Magna Common Stock to be issued in the
Merger to be approved for listing on the NYSE, subject to official notice of
issuance, prior to or at the Effective Time. The obligations of the parties to
consummate the Merger are subject to, among other things, approval for listing
by the NYSE of such shares subject to official notice of issuance as of the
Effective Time. See "-- Conditions to the Merger" above.
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Accounting Treatment
Upon consummation of the Merger, the transaction will be accounted for
by the purchase method of accounting under generally accepted accounting
principles, and all of the assets and liabilities of Charter will be recorded in
Magna's consolidated financial statements at their estimated fair value. The
amount, if any, by which the purchase price paid by Magna to Charter
stockholders in the Merger exceeds the fair value of the net assets acquired by
Magna through the Merger will be recorded as goodwill. Magna's consolidated
financial statements will include the consolidated operations of the Resulting
Corporation (including Charter Bank) from and after the Effective Time.
Certain Federal Income Tax Consequences
The Merger. The following is a discussion of certain federal income tax
consequences of the Merger to Magna, Charter and holders of Charter Common
Stock. The discussion is based upon the Code, Treasury regulations, rulings of
the IRS, and judicial and administrative decisions in effect as of the date
hereof, all of which are subject to change at any time, possibly with
retroactive effect. This discussion assumes that shares of Charter Common Stock
are held by the holders thereof as a "capital asset" within the meaning of
Section 1221 of the Code (i.e., property generally held for investment). In
addition, this discussion does not address all of the tax consequences that may
be relevant to a holder of Charter Common Stock in light of the holder's
particular circumstances or to stockholders subject to special rules, such as
foreign persons, financial institutions, tax-exempt organizations or insurance
companies. The opinions of counsel referred to in this section will be based on
facts existing at the Effective Time, and in rendering such opinions, such
counsel will require and rely upon representations contained in the Merger
Agreement and in certificates and representations of Magna, Charter and certain
stockholders of Charter regarding the satisfaction of certain requirements to a
reorganization within the meaning of Section 368(a) of the Code (including the
absence of any plan or intention by certain holders of Charter Common Stock to
sell, exchange or otherwise dispose of shares of Magna Common Stock to be
received by such person upon consummation of the Merger). Unlike a ruling from
the IRS, an opinion of counsel is not binding on the IRS and there can be no
assurance that the IRS will not take a position contrary to one or more of the
positions reflected in such opinions or that such positions will be upheld by
the courts if challenged by the IRS.
It is a condition to the obligation of Magna to consummate the Merger
that Magna shall have received an opinion of Gallop, Johnson & Neuman, L.C.,
counsel to Magna, dated as of the Closing Date, in form and substance reasonably
satisfactory to Magna, to the effect that the Merger will be treated as a
reorganization within the meaning of Section 368(a) of the Code and that,
accordingly, for federal income tax purposes, no gain or loss will be recognized
by Magna, Charter or Merger Sub as a result of the Merger. It is a condition to
the obligation of Charter to consummate the Merger that Charter shall have
received an opinion of Silver, Freedman & Taff, L.L.P., special counsel to
Charter, dated as of the Closing Date, in form and substance reasonably
satisfactory to Charter, to the effect that the Merger will be treated as a
reorganization within the meaning of Section 368(a) of the Code and that,
accordingly, for federal income tax purposes:
(i) no gain or loss will be recognized by Charter as a result
of the Merger;
(ii) no gain or loss will be recognized by the stockholders of
Charter who exchange all of their Charter Common Stock solely for Magna
Common Stock pursuant to the Merger (except with respect to cash
received in lieu of a fractional share interest in Magna Common Stock);
and
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(iii) the aggregate tax basis of the Magna Common Stock
received by a stockholder of Charter who exchanges all of his or her
Charter Common Stock solely for Magna Common Stock pursuant to the
Merger will be the same as the aggregate tax basis of Charter Common
Stock surrendered in exchange therefor.
Based upon the current ruling position of the Service, cash received by
a holder of Charter Common Stock in lieu of a fractional share interest in Magna
Common Stock will be treated as received in exchange for such fractional share
interest, and gain or loss will be recognized for federal income tax purposes
measured by the difference between the amount of cash received and the portion
of the basis of the share of Charter Common Stock allocable to such fractional
share interest. Such gain or loss should be capital gain or loss taxable at the
maximum rate of 20% (10% for those in a federal tax bracket of 15% or less) with
respect to Charter Common Stock held for more than 18 months and 28% with
respect to Charter Common Stock held for more than one year but not more than 18
months.
THE FOREGOING IS A GENERAL DISCUSSION OF THE MATERIAL FEDERAL INCOME
TAX CONSEQUENCES OF THE MERGER AND IS INCLUDED FOR GENERAL INFORMATION ONLY. THE
FOREGOING DISCUSSION DOES NOT TAKE INTO ACCOUNT THE PARTICULAR FACTS AND
CIRCUMSTANCES OF EACH STOCKHOLDER'S TAX STATUS AND ATTRIBUTES. AS A RESULT, THE
FEDERAL INCOME TAX CONSEQUENCES ADDRESSED IN THE FOREGOING DISCUSSION MAY NOT
APPLY TO EACH STOCKHOLDER. IN VIEW OF THE INDIVIDUAL NATURE OF INCOME TAX
CONSEQUENCES, EACH STOCKHOLDER IS URGED TO CONSULT ITS OWN TAX ADVISOR TO
DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH STOCKHOLDER,
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.
No Appraisal Rights
Section 262(b) of the DGCL provides that the stockholders of a
constituent corporation in a merger generally are not entitled to appraisal
rights if the shares of stock they own, as of the record date fixed to determine
stockholders entitled to notice of and to vote at the meeting to act upon the
agreement providing for such merger, are either listed on a national securities
exchange or designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc. (a
"Nasdaq National Market Security"), or held of record by more than 2,000
stockholders. However, stockholders that would otherwise not have appraisal
rights pursuant to the provisions described in the previous sentence are
entitled to appraisal rights if such stockholders are required by the terms of
the merger agreement to accept for their stock anything except (i) shares of the
corporation surviving the merger, (ii) shares of stock which are either listed
on a national securities exchange or designated as a Nasdaq National Market
Security or held of record by more than 2,000 stockholders, or (iii) cash in
lieu of fractional shares of stock described in (i) and (ii) above or any
combination thereof. Accordingly, Charter stockholders will not be entitled to
appraisal rights in connection with the Merger because, as of the Record Date,
the shares of Charter Common Stock were designated as a Nasdaq National Market
Security, and because the shares of Magna Common Stock to be issued in the
Merger will be listed on the NYSE at the Effective Time, subject to official
notice of issuance. In addition, there are more than 2,000 holders of record of
Magna Common Stock.
Management and Operations Following the Merger
It is anticipated that no current director of Charter will serve as a
director of Magna, though certain directors of Charter will become advisory
directors of Resulting Corporation or another subsidiary of Magna. It is also
anticipated that as of the Effective Time, Mr. Becker will retire, thereby
ceasing all active participation in the affairs of Charter, Charter Bank and
their respective successors.
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REGULATORY CONSIDERATIONS APPLICABLE TO MAGNA
General
Magna is a bank holding company subject to supervision and regulation
by the Federal Reserve Board under the BHCA. As a bank holding company, Magna's
activities and those of its banking and nonbanking subsidiaries are limited to
the business of banking and activities closely related or incidental to banking,
and Magna may not directly or indirectly acquire the ownership or control of
more than five percent of any class of voting shares or substantially all of the
assets of any company, including a bank or savings and loan association, without
the prior approval of the Federal Reserve Board. Because Magna will become the
owner of 100% of the outstanding voting shares of Charter upon consummation of
the Merger, Magna must obtain the prior approval of the Federal Reserve Board
before consummating the Merger.
Magna and its subsidiaries are subject to supervision and examination
by applicable federal 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 Federal Deposit Insurance Corporation (the "FDIC") and the Office of the
Comptroller of the Currency (the "OCC"). In addition, there are numerous
governmental requirements and regulations that affect the activities of Magna
and its subsidiaries. Supervision and regulation of bank holding companies and
their subsidiaries are intended primarily for the protection of depositors, the
deposit insurance funds of the FDIC and the banking system as a whole, not for
the protection of bank holding company stockholders or creditors.
The following description summarizes some of the legal and bank
regulatory restrictions applicable to Magna and its subsidiaries, including
Magna Bank. To the extent statutory or regulatory provisions or proposals are
described, the description is qualified in its entirety by reference to the
particular statutory or regulatory provisions or proposals.
Payment of Dividends
Magna is a legal entity separate and distinct from its banking and
other subsidiaries. The principal source of funds to Magna on a parent company
only basis consists of dividends and management fees from Magna Bank. Various
laws and regulations limit the amount of dividends and management fees that
Magna Bank can pay to Magna without regulatory approval.
The approval of the OCC is required for any dividend by a national bank
(such as Magna Bank) if the total of all dividends declared by the national bank
in any calendar year would exceed the total of its net profits, as defined by
the OCC, for such year combined with its retained net profits for the preceding
two years, less any required transfers to surplus or a fund for the retirement
of any preferred stock. In addition, a national bank may not pay a dividend in
an amount greater than its net profits then on hand, after deducting losses and
bad debts. All debts due to a national bank on which interest is due and unpaid
for a period of six months, unless the same are well secured and in the process
of collection, are considered bad debts. During the fourth quarter of 1996 and
1997, Magna Bank requested and received approval from the OCC to pay dividends
in 1997 and 1998, respectively, of up to 50% of its then-current period
earnings, while maintaining its status as a "well capitalized" financial
institution.
The payment of dividends and management fees by Magna Bank also may be
affected by other factors, such as the maintenance of adequate capital for Magna
Bank.
In addition to the foregoing, applicable regulatory authorities are
authorized to prohibit the payment of dividends when such payment would
constitute an unsafe and unsound banking practice. The Federal Reserve Board has
indicated that it generally would be an unsafe and unsound banking practice to
pay dividends except out of current operating earnings. As indicated below,
federal regulatory authorities have adopted standards for the maintenance of
capital (see "-- Capital Adequacy"). Adherence to such standards may further
limit the ability to pay dividends. The Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") prohibits the payment of dividends or
management fees by "undercapitalized" financial institutions and even by "well
capitalized" institutions where the payment of dividends and management fees
would render them "undercapitalized."
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Transactions with Affiliates
Any FDIC-insured bank is subject to restrictions under federal law on
certain transactions between the bank and its nonbanking subsidiaries, including
loans, other extensions of credit, investments or asset purchases. These
restrictions currently apply to transactions between Magna Bank and its non-bank
affiliates, including Magna. Such transactions by a bank with any one affiliate
are limited in amount to ten percent of the bank's capital stock and surplus
and, with all affiliates together, to an aggregate of twenty percent of such
bank's capital stock and surplus. Furthermore, such loans and extensions of
credit, as well as certain other transactions, are required to be secured in
specified amounts. These and certain other transactions, including any payment
of money, must be on terms and conditions that are offered (or in good faith
would be offered) to nonaffiliated companies.
Holding Company Liability
Under Federal Reserve Board policy, a bank holding company is expected
to act as a source of financial strength to each of its banking subsidiaries and
commit resources to their support. Such support may be required at times when,
absent this Federal Reserve Board policy, a holding company may not be inclined
to provide it. A bank holding company in certain circumstances may be required
to guarantee the capital plan of an undercapitalized banking subsidiary.
In the event of a bank holding company's bankruptcy under Chapter 11 of
the U.S. Bankruptcy Code, the trustee will be deemed to have assumed and is
required to cure immediately any deficit under any commitment by the debtor
holding company to any of the federal banking agencies to maintain the capital
of an insured depository institution, and any claim for breach of such
obligation will generally have priority over most other unsecured claims.
Cross Guaranties of Commonly Controlled Banks
Under the so-called "cross guaranty" provision of the Financial
Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") if the FDIC
incurs a loss in connection with the default of an insured bank or thrift
institution or in connection with providing assistance to a bank or thrift
institution in danger of default, any other commonly-controlled insured
depository institution may be required to reimburse the FDIC for the loss.
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. Federal bank 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
then categories with lower credit risks. 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 credit) required by the Federal Reserve Board
for bank holding companies is currently 8%. At least one-half of the total
capital must consist of so-called Tier 1 capital, comprised of common equity,
retained earnings, qualifying non-cumulative 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. The remainder may consist
of so-called "Tier 2" capital, defined as qualifying hybrid capital instruments,
perpetual debt, mandatory convertible debt securities, a limited amount of
subordinated debt, preferred stock that does not qualify as Tier 1 Capital and a
limited amount of loan and lease loss reserves.
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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 1 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, including
expansion-oriented holding companies, generally are required to maintain a
Leverage Ratio of at least 4% to 5%.
The Federal Reserve Board has indicated that it will consider a
"tangible Tier 1 capital leverage ratio" (deducting all intangibles) and other
indicia of capital strength in evaluating proposals for expansion or new
activities. In addition, the regulations of the Federal Reserve Board provide
that concentration of credit risk and certain risks arising from nontraditional
activities as well as an institution's ability to manage these risks, are
important factors to be taken into account by regulatory agencies in assessing
an organization's overall capital adequacy.
The federal banking agencies have adopted amendments to their
risk-based capital regulations to provide for the consideration of interest rate
risk in the agencies' determination of a banking institution's capital adequacy.
The amendments require such institutions to effectively measure and monitor
their interest rate risk and to maintain capital adequate for that risk.
Pursuant to FDICIA, as enacted in 1991, the federal banking agencies
were required to implement a capital classification system for insured
institutions under which banks would be ranked in one of five capital categories
ranging from "well capitalized" to "critically undercapitalized," depending on
their capital strength and 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 1 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 1
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 1 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 1
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 1 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 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.
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
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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.
As of September 30, 1997, both Magna and Magna Bank exceeded the
required capital ratios for classification as "well capitalized." These required
ratios are provided in the chart below, as well as the actual risk-based and
leverage capital ratios of Magna and Magna Bank on September 30, 1997. Also
included in the chart are the pro forma risk based capital ratios and the
leverage capital ratio of Magna, assuming consummation of the Merger on
September 30, 1997.
<TABLE>
Leverage and Risk-based Capital Ratios
<CAPTION>
Risk-Based Ratios
Leverage Tier 1 Total
As of September 30, 1997 Ratio Capital Capital
- ------------------------ ----- ------- -------
<S> <C> <C> <C>
Magna....................................... 7.34% 10.97% 12.12%
Magna Bank.................................. 6.98 10.47 11.63
Magna Pro Forma (1)......................... 6.28 9.16 10.25
Minimum required ratio...................... 4.0 4.0 8.0
"Well capitalized" minimum ratio............ 5.0 6.0 10.0
<FN>
(1) Assuming consummation of the Merger (including the effects of the Homeland
Acquisition) on September 30, 1997.
</FN>
</TABLE>
FDIC Insurance Assessments
The deposits of Magna Bank are insured up to $100,000 per insured
depositor (as determined by law and regulation) primarily through the Bank
Insurance Fund (the "BIF"). In addition, certain deposits of Magna Bank that are
related to the bank's acquisitions since 1989 are insured by the Savings
Association Insurance Fund (the "SAIF"). Both the BIF and SAIF are administered
and managed by the FDIC.
In 1996, Congress enacted legislation that, among other things, was
intended to eliminate the deposit insurance premium disparity between BIF- and
SAIF-insured deposits by utilizing BIF assessments to help fund debt service on
certain Financing Corporation (FICO) bonds, resulting in higher insurance
premiums for certain BIF-insured deposits and lower insurance premiums for
SAIF-insured deposits. Institutions with SAIF-insured deposits such as Magna
Bank were subject to a one-time special assessment on their SAIF-assessable
deposits. In connection with this assessment, Magna recognized a one-time charge
for the quarter ended September 30, 1996 of approximately $411,000.
Control Acquisitions
The Change in Bank Control Act prohibits a person or group of persons
from acquiring "control" of a bank holding company such as Magna unless the
Federal Reserve Board has been notified and has not objected to the transaction.
Under a rebuttable presumption established by the Federal Reserve Board, the
acquisition of 10% or more of a class of voting stock of a bank holding company
with a class of securities registered under Section 12 of the Exchange Act
would, under the circumstances set forth in the presumption, constitute
acquisition of control of such holding company.
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Interstate Acquisitions
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Riegle Neal Act") facilitates the interstate expansion and consolidation
of banking organizations (i) by permitting bank holding companies that are
adequately capitalized and managed to acquire banks located in states outside
their home states regardless of whether such acquisitions are authorized under
the law of the host state, (ii) by permitting national and state banks located
in different states to merge across state lines, with the approval of the
appropriate federal banking agency, unless the home state of either bank had
passed legislation prior to June 1, 1997 (the effective date of the Riegle-Neal
Act) that prohibited interstate mergers (and only Texas and Montana did so),
(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
federal banking regulators, branches outside their home states to the same
extent that national or state banks located in the home state would be so
authorized, and (v) by permitting 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 the Riegle-Neal Act has been 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 located in Missouri, Illinois
and Iowa. Overall, this legislation is likely to continue to have the effects of
increasing competition and promoting consolidation in the banking industry.
Future Legislation
Legislative proposals, including proposals to overhaul the bank
regulatory system, expand the powers of banking institutions and bank holding
companies and limit the investments that a depository institution may make with
insured funds, are from time to time introduced in Congress. Such legislation
may change banking statutes and the operating environment of Magna and its
subsidiaries in substantial and unpredictable ways. Magna cannot determine the
ultimate effect that potential legislation, if enacted, or implementing
regulations, would have upon the financial condition or results of operations of
Magna or its subsidiaries.
INFORMATION REGARDING MAGNA CAPITAL STOCK
General
Magna has authorized 80,000,000 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 NonVoting Preferred"). At
September 30, 1997, there were 33,008,506 shares of Magna Common Stock, no
shares of Magna No Par Value Preferred, 1,996 shares of Magna Voting Preferred,
and no shares of Magna Non-Voting Preferred issued and outstanding. Under
Delaware law, the Magna Board may generally approve the issuance of authorized
shares of preferred stock and Magna Common Stock without stockholder approval.
The Magna Board is also authorized to fix the number of shares and
determine the designation of any series of preferred stock of Magna and to
determine or alter the rights, preferences, privileges and restrictions granted
to or imposed upon any series thereof. The Magna Board 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 Bank
(successor to Magna Trust Company), as rights agent (the "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 to issue shares to such persons and in such manner as may be deemed
to have an antitakeover effect.
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 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.
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The Magna Board intends to maintain its present policy of paying
quarterly cash dividends on the Magna Common Stock, unless and to the extent
that such dividends would not be justified by the then 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 Magna
Board may deem relevant. The payment of dividends to Magna by subsidiary banks
is subject to extensive regulation by various federal regulatory agencies. See
"REGULATORY CONSIDERATIONS APPLICABLE TO MAGNA -- Payment of Dividends."
Voting Rights. Each holder of Magna Common Stock has one vote for each
share held on matters presented for consideration by the stockholders and votes
together with holders of Magna Voting Preferred as a single class, unless
otherwise required by law. The holders of Magna Common Stock and Magna Voting
Preferred 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 the Magna Board prior to attempting a takeover and to give the
Magna Board 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 the Magna Board in certain circumstances,
expire by their terms on November 22, 1998.
Transfer Agent. Magna Bank is the transfer agent for Magna Common
Stock.
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Preferred Stock
Magna No Par Value Preferred. Except for the designation and
reservation of the Magna Junior Preferred described above, the Magna Board 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.
Reservation of Shares
As of September 30, 1997, approximately 5,355,579 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.
Resales of Magna Common Stock Received in the Merger
The shares of Magna Common Stock to be issued in the Merger will be
registered under the Securities Act and will be freely transferable under the
Securities Act, except for shares issued to (i) any Charter stockholder who may
be deemed to be an "affiliate" of Charter for purposes of Rule 145 under the
Securities Act, or (ii) affiliates of Magna. Charter affiliates may not sell
their shares of Magna Common Stock acquired in connection with the Merger except
pursuant to an effective registration statement under the Securities Act
covering such shares or in compliance with Rule 145 or another applicable
exemption from the registration requirements of the Securities Act. This Proxy
Statement/Prospectus does not cover any resales of Magna Common Stock received
in the Merger by persons who may deemed to be affiliates of Charter. Under the
rules promulgated pursuant to the Securities Act, an individual or entity that
directly or indirectly controls, is controlled by or is under common control
with Charter is an "affiliate" of Charter. It is expected that each of the
executive officers, directors and principal stockholders of Charter (other than
the ESOP) will be deemed an affiliate of Charter.
Pursuant to the terms of the Merger Agreement, Charter has agreed to
use its best efforts to cause each of its affiliates (for purposes of Rule 145
of the Securities Act) to deliver to Magna a written agreement intended to
ensure compliance with the Securities Act.
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COMPARISON OF STOCKHOLDER RIGHTS
Magna and Charter are both incorporated under the laws of the State of
Delaware and thus are governed by the DGCL. If the Merger is consummated, the
holders of Charter Common Stock, whose rights as stockholders are currently
governed by Charter's Certificate of Incorporation (the "Charter Certificate")
and the Bylaws of Charter (the "Charter Bylaws") will, upon the exchange of
their Charter Common Stock pursuant to the Merger Agreement, become holders of
shares of Magna Common Stock and their rights as such will be governed by
Magna's Certificate of Incorporation (the "Magna Certificate"), Magna's Bylaws
(the "Magna Bylaws") and will continue to be governed by the DGCL. The material
differences between the rights of holders of Charter Common Stock and the rights
of holders of Magna Common Stock, resulting from the differences in their
governing documents are summarized below.
The following summary does not purport to be a complete statement of
the rights of holders of Magna Common Stock under applicable Delaware
corporation law, the Magna Certificate and the Magna Bylaws or a comprehensive
comparison with the rights of the holders of Charter Common Stock under the
Charter Certificate and the Charter Bylaws, or a complete description of the
specific provisions referred to herein. This summary contains a list of the
material differences but is not meant to be relied upon as an exhaustive list or
a detailed description of the provisions discussed and is qualified in its
entirety by reference to the DGCL and the governing corporate instruments of
Magna (including the Magna Rights Agreement) and the governing corporate
instruments of Charter, to which the holders of Charter Common Stock are
referred. Copies of such governing corporate instruments of Magna and Charter
are available, without charge, to any person, including any beneficial owner to
whom this Proxy Statement/Prospectus is delivered on written or oral request in
the case of documents relating to Magna, to Magna Group, Inc., One Magna Place,
1401 South Brentwood Boulevard, St. Louis, Missouri 63144, Attention: Gary D.
Hemmer, Executive Vice President, telephone number (314) 963-2500, and in the
case of documents relating to Charter, to Charter Financial, Inc., 114 West
Broadway, Sparta, Illinois 62286, Attention: Linda M. Johnson, Secretary,
telephone number (618) 443-2166. In order to insure timely delivery of the
documents, requests should be received [_______________], 1998.
Special Meeting of Stockholders
Under the DGCL, special stockholder meetings of a corporation may be
called by its board of directors and by any person or persons authorized to do
so by its certificate of incorporation or bylaws. The Magna Bylaws provide that
special meetings may be called only by the Chairman of the Board or by the Magna
Board pursuant to a resolution adopted by a majority of the total number of
directors which Magna would have if there were no vacancies. The Charter Bylaws
and Certificate provide that a special meeting of stockholders may be called
only by the Charter Board pursuant to a resolution adopted by a majority of the
total number of directors which Charter would have if there were no vacancies on
the board.
Stockholder Action by Written Consent
Under the DGCL, unless otherwise provided in the certificate of
incorporation, any action which may be taken at an annual or special meeting of
stockholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, is signed by the holders
of outstanding shares, 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. Both the Magna and
Charter Certificates, however, prohibit such stockholder action by written
consent.
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Supermajority Provisions
The Magna Certificate and Bylaws require a vote of 80% of the
outstanding shares to remove directors for cause, to approve certain business
combinations and to amend these provisions of the Magna Certificate and Bylaws.
The Charter Certificate and Bylaws likewise contain supermajority provisions
regarding the removal of directors for cause, the approval of certain business
combinations, the amendment of certain provisions of the Charter Certificate and
the amendment of any provisions of the Charter Bylaws. Such supermajority
provisions may have the effect of discouraging takeover attempts that do not
have the approval of the board of directors.
Personal Liability of Directors
As permitted by the DGCL, both the Magna Certificate and the Charter
Certificate provide that a director shall not be personally liable to the
company or its stockholders for monetary damages for breach of fiduciary duty as
a director, except for (i) any breach of such director's duty of loyalty to the
corporation or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or knowing violation of law, (iii) willful
or negligent violation of the laws governing the payment of dividends or the
purchase or redemption of stock or (iv) any transaction from which such director
derives an improper personal benefit.
Indemnification of Officers and Directors
The DGCL provides that directors and officers as well as other
employees and agents of a Delaware corporation may be indemnified against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement in connection with specified actions, suits or proceedings, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation in a derivative action), if they acted in good
faith and in a manner they reasonably believed to be in, or not opposed to, the
best interests of the corporation, and, with respect to any criminal action,
suit or proceeding, if they had no reasonable cause to believe their conduct was
unlawful. Both the Magna and Charter Certificates provide that each company
shall indemnify, to the fullest extent permitted by law, any director or officer
who may be indemnified pursuant to the DGCL.
Rights Plan
On November 11, 1988, the Magna Board declared a dividend distribution
of one Right for each outstanding share of Magna Common Stock to stockholders of
record at the close of business on November 22, 1988, pursuant to the Rights
Plan. For a description of the Rights, see "INFORMATION REGARDING MAGNA CAPITAL
STOCK -- Magna Common Stock and Attached Preferred Share Purchase Rights."
Charter has not adopted a stockholder rights plan.
Classification of Board of Directors
Both the Magna and the Charter Board are divided into three classes,
and the directors of each are elected by classes to three-year terms, so that
one of the three classes of the directors will be elected at each annual meeting
of the stockholders. While this provision promotes stability and continuity of
each 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 common stock of either corporation and thereby could impede a
change in control of either corporation.
Voting for Directors
The Magna Bylaws do not provide for cumulative voting in the election
of directors. The Charter Certificate and Charter Bylaws likewise do not provide
for cumulative voting in the election of directors.
LEGAL MATTERS
The validity of the shares of Magna Common Stock to be issued in the
Merger and certain other legal matters, including certain tax consequences of
the Merger, will be passed upon for Magna by Gallop, Johnson & Neuman, L.C.
Certain tax consequences of the Merger will be passed upon for Charter by
Silver, Freedman & Taff, L.L.P. (a partnership including professional
corporations).
44
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EXPERTS
The consolidated financial statements of Magna Group, Inc. at December
31, 1996 and 1995, and for each of the three years in the period ended December
31, 1996, incorporated by reference in the Proxy Statement of Charter Financial,
Inc., which is referred to and made a part of this Prospectus and Registration
Statement, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report appearing in Magna Group, Inc.'s Annual Report (Form 10-K)
for the year ended December 31, 1996, and is incorporated by reference herein in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of Charter and subsidiaries as of
September 30, 1997 and 1996 and for each of the years in the three year period
ended September 30, 1997, included in Charter's 1997 Form 10-K incorporated by
reference into this Proxy Statement/Prospectus, have been incorporated by
reference herein and in the Registration Statement of which this Proxy
Statement/Prospectus is a part in reliance upon the report of KPMG Peat Marwick
LLP, independent auditors, included in Charter's 1997 Form 10-K and incorporated
by reference herein, and upon the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements of Homeland Bankshares
Corporation and its subsidiaries as of December 31, 1996 and 1995 and for each
of the years in the three year period ended December 31, 1996, incorporated in
this Proxy Statement/Prospectus by reference from Magna's Current Report on Form
8-K/A dated May 1, 1997, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
STOCKHOLDER PROPOSALS
If the Merger is consummated, stockholders of Charter 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 have
been received in writing at the offices of Magna, c/o Secretary, One Magna
Place, 1401 South Brentwood Blvd., St. Louis, Missouri 63144 by not later than
November 30, 1997. The Magna Bylaws also prescribe certain time limitations on
procedures regarding prior written notice to Magna by stockholders, which
limitations and procedures must be complied with for proposals from 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 the Magna Bylaws from the
secretary of Magna.
45
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ANNEX A
AGREEMENT AND PLAN OF MERGER
by and between
MAGNA GROUP, INC.
and
CHARTER FINANCIAL, INC.
Dated as of November 19, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER......................................... 1
1.1. The Merger................................................. 1
1.2. Effective Time............................................. 1
1.3. Effects of the Merger...................................... 1
1.4. Conversion of Charter Common Stock......................... 2
1.5. Adjustment to Stock-Based Plans............................ 2
1.6. No Fractional Shares....................................... 3
1.7. Merger Sub Common Stock.................................... 3
1.8. Certificate of Incorporation of Surviving
Corporation.............................................. 3
1.9. By-Laws of Surviving Corporation........................... 4
1.10. Directors and Officers of Surviving Corporation............ 4
1.11. Tax Consequences........................................... 4
ARTICLE II EXCHANGE OF SHARES................................. 4
2.1. Magna to Make Shares Available............................. 4
2.2. Exchange of Shares......................................... 4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF CHARTER.......... 5
3.1. Corporate Organization..................................... 5
3.2. Capitalization............................................. 6
3.3. Authority; No Violation.................................... 7
3.4. Consents and Approvals..................................... 7
3.5. Regulatory Reports; Examinations........................... 8
3.6. Financial Statements....................................... 8
3.7. Broker's Fees.............................................. 8
3.8. Absence of Certain Changes or Events....................... 8
3.9. Legal Proceedings.......................................... 9
3.10. Taxes...................................................... 9
3.11. Employee Benefits.......................................... 10
3.12. Insurance.................................................. 12
3.13. Charter Information........................................ 12
3.14. Compliance with Applicable Law............................. 12
3.15. Certain Contracts.......................................... 12
3.16. Agreements with Regulatory Agencies........................ 13
3.17. Investment Securities...................................... 13
3.18. Property................................................... 13
3.19. Equity and Real Estate Investments......................... 14
3.20. Environmental Matters...................................... 14
3.21. Derivative Transactions.................................... 15
3.22. Loan Portfolio............................................. 15
3.23. Other Activities........................................... 15
3.24. Takeover Laws.............................................. 16
3.25. Reorganization............................................. 16
3.26. Opinion of Financial Advisor............................... 16
3.27. Certain Board Action....................................... 16
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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF MAGNA............ 16
4.1. Corporate Organization..................................... 16
4.2. Capitalization............................................. 17
4.3. Authority; No Violation.................................... 17
4.4. Consents and Approvals..................................... 18
4.5. Regulatory Reports; Examinations........................... 18
4.6. Financial Statements....................................... 19
4.7. Absence of Certain Changes or Events....................... 19
4.8. Legal Proceedings.......................................... 19
4.9. Magna Information.......................................... 19
4.10. Compliance with Applicable Law............................. 20
4.11. Ownership of Charter Common Stock.......................... 20
4.12. Agreements with Regulatory Agencies........................ 20
4.13. Environmental Matters...................................... 20
4.14. Reorganization............................................. 21
4.15. Magna Defined Benefit Plan................................. 21
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS.......... 21
5.1. Covenants of Charter....................................... 21
5.2. Covenants of Magna......................................... 24
ARTICLE VI ADDITIONAL AGREEMENTS.............................. 24
6.1. Regulatory Matters......................................... 24
6.2. Access to Information...................................... 25
6.3. Stockholder Meeting........................................ 26
6.4. Legal Conditions to Merger................................. 26
6.5. Stock Exchange Listing..................................... 26
6.6. Indemnification............................................ 27
6.7. Subsequent Financial Statements............................ 27
6.8. Additional Agreements...................................... 27
6.9. Advice of Changes, Failure of Conditions................... 27
6.10. Current Information........................................ 27
6.11. Merger Sub................................................. 27
6.12. Affiliate Letters.......................................... 27
6.13. Employee Benefit Plans..................................... 28
6.14. Employee Stock Ownership Plan.............................. 28
6.15. Pension Plan............................................... 29
6.16. SERP....................................................... 29
6.17. Subsidiary Bank Merger..................................... 29
6.18. Dividend Coordination...................................... 29
ARTICLE VII CONDITIONS PRECEDENT............................... 29
7.1. Conditions to Each Party's Obligation To Effect the Merger. 29
(a) Stockholder Approval................................. 29
(b) NYSE Listing......................................... 29
(c) Regulatory Approvals................................. 30
(d) S-4.................................................. 30
(e) No Injunctions or Restraints; Illegality............. 30
7.2. Conditions to Obligations of Magna......................... 30
(a) Representations and Warranties....................... 30
(b) Performance of Obligations of Charter................ 30
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(c) Consents Under Agreements............................. 30
(d) No Pending Governmental Actions....................... 31
(e) Federal Tax Opinion................................... 31
(f) Legal Opinion......................................... 31
7.3. Conditions to Obligations of Charter........................ 31
(a) Representations and Warranties........................ 31
(b) Performance of Obligations of Magna................... 31
(c) No Pending Governmental Actions....................... 31
(d) Federal Tax Opinion................................... 31
(e) Legal Opinion......................................... 32
ARTICLE VIII TERMINATION AND AMENDMENT.......................... 32
8.1. Termination................................................ 32
8.2 Effect of Termination; Expenses............................ 34
8.3. Amendment.................................................. 35
8.4. Extension; Waiver.......................................... 35
ARTICLE IX GENERAL PROVISIONS................................. 35
9.1. Closing.................................................... 35
9.2. Alternative Structure...................................... 35
9.3. Nonsurvival of Representations, Warranties and
Agreements............................................... 35
9.4. Expenses................................................... 35
9.5. Notices.................................................... 35
9.6. Interpretation; Effect..................................... 36
9.7. Counterparts............................................... 37
9.8. Entire Agreement........................................... 37
9.9. Governing Law.............................................. 37
9.10. Enforcement of Agreement................................... 37
9.11. Severability............................................... 37
9.12. Publicity.................................................. 37
9.13. Assignment; No Third Party Beneficiaries................... 37
iii
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SCHEDULES AND EXHIBITS
Charter Disclosure Schedule
Section 3.1 Corporate Organization
Section 3.2 Capitalization
Section 3.3 Authority; No Violation
Section 3.4 Consents/Approvals
Section 3.5 Regulatory Reports; Examinations
Section 3.6 Financial Statements
Section 3.7 Brokers Fees
Section 3.8(a) Charter Entity liability
Section 3.8(b) Increase of wages; salaries, benefits
Section 3.9 Legal Proceedings against Charter
Section 3.10(a) Late tax returns; tax liens
Section 3.11 Employee Benefit Plans; assignments and agreements.
Employee Pension Benefit Plans.
Plans subject to Title 10 w/ERISA
Section 3.12 Insurance Policies
Section 3.14 Compliance of laws, Rules & Regulations
Section 3.15(a) Contracts with Directors, officers, employees or consultants:
- resulting in severance pay upon sale;
- material contract;
- payment of over the $100,000;
- materially restrict conduct of any lease of business;
- benefits increased or accelerated by transaction
Section 3.15(b) Non-Binding Charter contracts
Section 3.16 Regulatory Agreements
Section 3.17 Book and market value as of September 30, 1997 of Investment
Securities, mortgage-backed securities;
- Investment Securities Report
Section 3.18 Liens on Real and Personal property.
Book value of all real property
Section 3.19 Equity investments, investment on real estate
Section 3.20 Environmental matters
Section 3.21 Derivative Investments
Section 3.22 Loan Agreements; Note or Borrowing Agreements
- over 90 days delinquent;
- with any Directors; officers; or material shareholders
- Substandard loans;
- "Real Estate Owned"
Section 3.23 Insurance Activities
Section 5.1 Covenants with Charter a-t
Magna Disclosure Schedule
Section 4.2(a) List of Magna Stock Option Plans
Section 4.2(b) List of Magna Subsidiaries
Section 4.3(c) Violations of Corporate Organic and Other Documents, Laws, etc.
Section 4.4 Other Required Approvals or Filings
Section 4.5 Governmental Proceedings
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Section 4.7 Certain Changes or Events
Section 4.8 Legal Proceedings
Section 4.10 Non-Compliance with Laws
Section 4.11 Ownership of Charter Shares
Section 4.12 Magna Regulatory Agreements
Section 4.13 Environmental Compliance
Section 5.2 Negative Covenants of Magna
Section 8.1 (h) Index Group
EXHIBITS
EXHIBIT "A" Plan of Merger
EXHIBIT "B" Affiliate Letter
EXHIBIT "C" Legal Opinion of Silver, Freedman & Taff, L.L.P.
EXHIBIT "D" Legal Opinion of Gallop, Johnson & Neuman, L.C.
v
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of November 19, 1997, by and
between Magna Group, Inc., a Delaware corporation ("Magna") and Charter
Financial, Inc., a Delaware corporation ("Charter").
WHEREAS, the Boards of Directors of Magna and Charter have determined
that it is in the best interests of their respective companies and their
stockholders to consummate the business combination transaction provided for
herein, in which Charter will merge with and into a wholly-owned subsidiary of
Magna to be organized under the laws of the State of Delaware ("Merger Sub"),
subject to the terms, provisions and conditions set forth herein (the "Merger");
and
WHEREAS, Magna is a registered bank holding company under the Bank
Holding Company Act of 1956, as amended (the "Holding Company Act"); and
WHEREAS, Charter is registered as a savings and loan holding company
with the Office of Thrift Supervision, and is the record and beneficial holder
of all of the capital stock of Charter Bank, S.B., an Illinois-chartered savings
bank headquartered in Sparta, Illinois ("Charter Bank"); and
WHEREAS, the parties intend that the Merger qualify as a tax-free
reorganization under Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal
Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the parties desire to make certain representations,
warranties, undertakings and agreements in connection with the Merger and also
to prescribe certain conditions to the Merger;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, the parties agree as follows:
ARTICLE I
THE MERGER
1.1. The Merger. Subject to the terms and conditions of this Agreement,
in accordance with the General Corporation Law of the State of Delaware (the
"DGCL"), at the Effective Time (as defined in Section 1.2 hereof), Charter shall
merge with and into Merger Sub. Merger Sub shall be the surviving corporation in
the Merger (sometimes referred to herein as the "Surviving Corporation"), which
shall continue its corporate existence under the laws of the State of Delaware.
Upon consummation of the Merger, the separate corporate existence of Charter
shall terminate.
1.2. Effective Time. The Certificate of Merger filed with the Secretary
of State of the State of Delaware shall specify the date upon which the Merger
shall be consummated (the "Effective Date") and the time on the Effective Date
at which the Merger shall be consummated (the "Effective Time"). The parties
hereto shall take all actions necessary to satisfy the requirements for
effecting the Merger in accordance with the DGCL, including the adopting of a
Certificate of Merger in the form required under the DGCL. The Certificate of
Merger shall include the Plan of Merger set forth in Exhibit A hereto. Subject
to the terms and conditions of this Agreement, the Effective Date shall occur on
such date as Magna shall notify Charter 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 7.1 (the "Approval
Date") and (ii) not later than sixty (60) days after the Approval Date.
1.3. Effects of the Merger. At and after the Effective Time, the Merger
shall have the effects set forth in Section 259 of the DGCL.
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1.4. Conversion of Charter Common Stock. (a) At the Effective Time,
subject to Section 1.6 and the last sentence of this Section 1.4(a), each share
of the $.10 par value common stock of Charter ("Charter Common Stock") issued
and outstanding immediately prior to the Effective Time (other than shares of
Charter Common Stock held (1) in the treasury of Charter or (2) directly or
indirectly by Charter or Magna or any Subsidiary (as defined below) thereof
(except for Trust Account Shares and DPC Shares, as such terms are defined in
Section 1.4(b) hereof) shall, by virtue of this Agreement and without any action
on the part of the holder thereof, be converted into and become exchangeable for
0.5751 of a share (the "Exchange Ratio") of the $2.00 par value common stock of
Magna ("Magna Common Stock") and associated Preferred Share Purchase Rights
("Stock Rights") issued pursuant to the Rights Agreement dated as of November
11, 1988 between Magna and Magna Trust Company (the "Magna Rights Agreement"),
as subject to possible adjustment as set forth in Section 8.1(h) hereof. All
shares of Charter Common Stock that are converted at the Effective Time into
Magna Common Stock pursuant to this Article I shall no longer be outstanding and
shall automatically be cancelled and shall cease to exist, and each certificate
(each, a "Certificate") previously representing any such shares of Charter
Common Stock shall thereafter represent only the right to receive the
consideration into which such shares have been converted pursuant to this
Section 1.4(a) and Section 1.6 hereof. Certificates previously representing
shares of Charter Common Stock shall be exchanged for certificates representing
whole shares of Magna Common Stock and cash in lieu of fractional shares issued
in consideration therefor upon the surrender of such Certificates in accordance
with Section 2.2 hereof, without any interest thereon. If, between the date
hereof and the Effective Time, the shares of Magna Common Stock shall be changed
into a different number or class of shares by reason of any reclassification,
recapitalization, split-up, combination, exchange of shares or readjustment, or
a stock dividend thereon shall be declared with a record date within said
period, the Exchange Ratio determined under this Section 1.4(a) shall be
adjusted accordingly.
(b) At the Effective Time, all shares of Charter Common Stock that are
owned by Charter as treasury stock or that are owned directly or indirectly by
Charter, Magna or any Subsidiary of either Charter or Magna, other than shares
of Charter Common Stock (i) held directly or indirectly in trust accounts,
managed accounts and the like or otherwise held in a fiduciary capacity that are
beneficially owned by third parties (any such shares, and any shares of Magna
Common Stock which are similarly held, whether held directly or indirectly by
Charter, Magna or any Subsidiary of either Charter or Magna, being referred to
herein as "Trust Account Shares") and (ii) held by Charter, Magna or any
Subsidiary thereof in respect of a debt previously contracted (any such shares
of Charter Common Stock, and any shares of Magna Common Stock which are
similarly held, whether held directly or indirectly by Charter or Magna or any
Subsidiary of either Charter or Magna, being referred to herein as "DPC Shares")
shall be cancelled and shall cease to exist and no stock of Magna or other
consideration shall be delivered in exchange therefor.
1.5. Adjustment to Stock-Based Plans
(a) At the Effective Time, each outstanding option to purchase shares
of Charter Common Stock (each, a "Charter Option"), whether vested or unvested,
shall be converted into an option to acquire, on the same terms and conditions
as were applicable under such Charter Option, the number of shares of Magna
Common Stock equal to (a) the number of shares of Charter Common Stock subject
to the Charter Option, multiplied by (b) the Exchange Ratio (such product
rounded to the nearest whole number) (a "Replacement Option"), at an exercise
price per share (rounded to the nearest whole cent) equal to (y) the aggregate
exercise price for the shares of Charter Common Stock which were purchasable
pursuant to such Charter Option divided by (z) the number of full shares of
Magna Common Stock subject to such Replacement Option in accordance with the
foregoing. Notwithstanding the foregoing, each Charter Stock Option which is
intended to be an "incentive stock option" (as defined in Section 422 of the
Code) shall be adjusted in accordance with the requirements of Section 424 of
the Code. At the Effective Time, Magna shall assume each Charter Option granted
A-2
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to employees and/or directors of a Charter Entity under the Charter Bank, S.B.
1993 Incentive Stock Option Plan, Charter Financial, Inc. 1997 Stock Option Plan
and the Charter Bank, S.B. 1993 Stock Option Plan for Outside Directors
(collectively, the "Charter Stock Plans").
(b) At all times after the Effective Time, Magna shall reserve for
issuance such number of shares of Magna Common Stock as necessary so as to
permit the exercise of options granted under the Charter Stock Plans in the
manner contemplated by this Agreement and the instruments pursuant to which such
options were granted. Magna shall make all filings required under federal and
state securities laws as soon as practicable after the Effective Time so as to
permit the exercise of such options and the sale of the shares received by the
optionee upon such exercise at and after the Effective Time and Magna shall
continue to make such filings thereafter as may be necessary to permit the
continued exercise of options and sale of such shares.
(c) Notwithstanding the foregoing, each holder of a Charter Option may
request in writing, at least ten business days prior to the Effective Time, that
all or a portion of his or her Charter Option, whether vested or unvested, be
cancelled in consideration for an amount of cash to be paid as of the Effective
Time equal to the product of (i) the amount by which $22.50 exceeds the per
share purchase price provided for in the Charter Option in question, and (ii)
the number of shares of Charter Common Stock underlying the portion of such
Charter Option with respect to which the election has been made, subject to any
required withholding of taxes. With respect to each such request, Magna may, at
its sole and absolute discretion, elect whether it will accept such request and,
on or before two business days prior to the Effective Time, notify, in writing,
each optionee who makes such request as to whether or not such optionee's
request will be accepted by Magna.
(d) Each share of Charter Common Stock issued and outstanding
immediately prior to the Effective Time that is restricted under the Charter
Bank, S.B. 1997 Recognition and Retention Plan (the "RRP") or otherwise
("Restricted Charter Shares") shall be converted into the right to receive, and
become exchangeable for, a fraction of a share of Magna Common Stock equal to
the Exchange Ratio, having the same restrictions, terms and conditions as were
applicable to each such Restricted Charter Share immediately prior to the
Effective Time; provided, the Board of Directors of Charter may amend the RRP to
provide that service as an advisory board director of Charter, any of its
"Affiliates" (as defined in the RRP) or any successor in interest (or any of
such successor's Affiliates) shall constitute "Continuous Service" (as defined
in the RRP) in the same manner as service as a member of the Board of Directors,
and if such amendment is so made prior to the Effective Time, it shall be
ratified by Magna at the Effective Time.
1.6. No Fractional Shares. Notwithstanding any other provision of this
Agreement, neither certificates nor scrip for fractional shares of Magna Common
Stock shall be issued in the Merger. Each holder who otherwise would have been
entitled to a fraction of a share of Magna Common Stock shall receive in lieu
thereof cash (without interest) in amount determined by multiplying the
fractional share interest to which such holder would otherwise be entitled by
the per share closing price of Magna Common Stock on the last business day
preceding the Effective Time, as reported in the Wall Street Journal, Midwest
edition, or in the absence thereof, by another authoritative source. No such
holder shall be entitled to dividends, voting rights or any other rights in
respect of any fractional share.
1.7. Merger Sub Common Stock. Each share of the no par value common
stock of Merger Sub issued and outstanding immediately prior to the Effective
Time, which shall be the only shares of capital stock of Merger Sub outstanding
prior to the Effective Time and all of which shall be owned by Magna, shall
remain issued, outstanding and unchanged after the Merger and shall at the
Effective Time constitute all of the issued and outstanding shares of the
capital stock of Surviving Corporation in the Merger.
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1.8. Certificate of Incorporation of Surviving Corporation. The
Certificate of Incorporation of Merger Sub immediately prior to the Effective
Time shall continue as the Certificate of Incorporation of Surviving Corporation
until otherwise amended or repealed from and after the Effective Time.
1.9. By-Laws of Surviving Corporation. The By-Laws of Merger Sub
immediately prior to the Effective Time shall continue as the By-Laws of
Surviving Corporation until otherwise amended or repealed from and after the
Effective Time.
1.10. Directors and Officers of Surviving Corporation. At the Effective
Time, the Board of Directors and the officers of Merger Sub immediately prior
thereto shall continue as the Board of Directors and the officers, respectively,
of Surviving Corporation, to hold office in accordance with the Bylaws of
Surviving Corporation and applicable laws.
1.11. Tax Consequences. It is intended that the Merger constitute a
reorganization within the meaning of Section 368(a) of the Code, and that this
Agreement shall constitute a "plan of reorganization" for purposes of Section
368 of the Code.
ARTICLE II
EXCHANGE OF SHARES
2.1. Magna to Make Shares Available. At or prior to the Effective Time,
Magna shall deposit, or shall cause to be deposited, with a bank or trust
company (the "Exchange Agent") selected by Magna (which may be a Subsidiary of
Magna), for the benefit of the holders of Certificates, for exchange in
accordance with this Article II, certificates representing the shares of Magna
Common Stock and cash (such cash and certificates for shares of Magna Common
Stock, together with any dividends or distributions with respect thereto, being
hereinafter referred to as the "Exchange Fund") to be issued pursuant to Section
1.4 and paid pursuant to Section 2.2(a) in exchange for outstanding shares of
Charter Common Stock.
2.2. Exchange of Shares. (a) As promptly as practicable after the
Effective Time, and in no event more than five business days thereafter, the
Exchange Agent shall mail to each holder of record of a Certificate or
Certificates a form letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent) and instructions
for use in effecting the surrender of the Certificates in exchange for the
consideration into which the shares of Charter Common Stock previously
represented by such Certificate or Certificates shall have been converted
pursuant to this Agreement. Upon surrender of a Certificate for exchange and
cancellation to the Exchange Agent, together with such letter of transmittal,
duly executed, and, in the case of an "affiliate" identified by Charter pursuant
to Section 6.12 hereof, an executed Affiliate Letter (as hereinafter defined),
the holder of such Certificate shall be entitled to receive in exchange therefor
a certificate representing that number of whole shares of Magna Common Stock to
which such holder of Charter Common Stock shall have become entitled pursuant to
the provisions of Article I hereof, a check representing the amount of cash in
lieu of fractional share, if any, that such holder has the right to receive in
respect of the Certificate surrendered pursuant to the provisions of this
Article II, and any distribution declared for which the applicable record date
is on or after the Effective Date and not yet paid with respect to such shares
of Magna Common Stock and the Certificate so surrendered shall forthwith be
cancelled. No interest will be paid or accrued on any cash payable as
consideration for Charter Common Stock or on unpaid dividends and distributions,
if any, payable to holders of Certificates.
(b) No dividends or other distributions declared as of or after the
Effective Time with respect to Magna Common Stock and payable to the holders of
record thereof shall be paid to the holder of any unsurrendered Certificate
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previously representing Charter Common Stock until the holder thereof shall have
surrendered such Certificate in accordance with this Article II. After the
surrender of any such Certificate in accordance with this Article II, the record
holder thereof shall be entitled to receive any such dividends or other
distributions, without any interest thereon, which theretofore had become
payable with respect to shares of Magna Common Stock represented by such
Certificate.
(c) If any certificate representing shares of Magna Common Stock is to
be issued in a name other than that in which the Certificate representing shares
of Charter Common Stock surrendered in exchange therefor is registered, it shall
be a condition of the issuance thereof that the Certificate so surrendered shall
be properly endorsed (or accompanied by an appropriate instrument of transfer)
and otherwise in proper form for transfer, and that the person requesting such
exchange shall pay to the Exchange Agent in advance any transfer or other taxes
required by reason of the issuance of a certificate representing shares of Magna
Common Stock in any name other than that of the registered holder of the
Certificate surrendered, or required for any other reason, or shall establish to
the satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
(d) After the Effective Time, there shall be no transfers on the stock
transfer books of Charter of the shares of Charter Common Stock which were
issued and outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates representing such shares are presented for transfer
to the Exchange Agent, they shall be cancelled and exchanged for the
consideration issuable with respect thereto as provided in this Article II.
(e) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of Charter for six months after the Effective Time shall be paid to
Magna. Any stockholders of Charter who have not theretofore complied with this
Article II shall thereafter look only to Magna for payment of the consideration
due them under this Agreement, including, if appropriate, unpaid dividends and
distributions on any Magna Common Stock deliverable to them under this
Agreement, in each case, without any interest thereon. Notwithstanding the
foregoing, none of Magna, Surviving Corporation, Charter, the Exchange Agent or
any other person shall be liable to any former holder of shares of Charter
Common Stock for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(f) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by Magna, the
posting by such person of a bond in such amount as Magna may direct as indemnity
against any claim that may be made against it with respect to such Certificate,
the Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate consideration issuable pursuant to this Agreement in respect of the
shares of Charter Common Stock formerly represented thereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CHARTER
Charter hereby represents and warrants to Magna as follows:
3.1. Corporate Organization. (a) Charter is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Charter has the corporate power and authority to own or lease all of
its properties and assets and to carry on its business as it is now being
conducted, and is duly licensed or qualified to do business in each jurisdiction
in which the nature of the business conducted by it or the character or location
of the properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed or qualified
would not have a Material Adverse Effect (as defined below) on Charter. The
Certificate of Incorporation and Bylaws of Charter, copies of which have
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previously been delivered to Magna, are true, complete and correct copies of
such documents as in effect as of the date of this Agreement. As used in this
Agreement, the term "Material Adverse Effect" means, with respect to Magna or
Charter, as the case may be, any effect that (i) is material and adverse to the
business, results of operations or financial condition of Magna and its
Subsidiaries (as defined below), taken as whole, or Charter and its
Subsidiaries, taken as a whole, respectively, or (ii) materially impairs the
ability of Magna and it Subsidiaries, including Merger Sub, or Charter and its
Subsidiaries, respectively, to consummate the transactions contemplated hereby;
provided, however, that Material Adverse Effect shall not be deemed to include
the impact of (a) changes in laws and regulations or interpretations thereof
that are generally applicable to the banking or savings industries, (b) changes
in generally accepted accounting principles or regulatory accounting
requirements that are generally applicable to the banking or savings industries,
(c) expenses incurred in connection with the transactions contemplated hereby,
(d) changes attributable to or resulting from changes in general economic
conditions, including changes in the prevailing level of interest rates, and (e)
any modifications or changes to valuation policies and practices in connection
with the Merger or restructuring charges taken in connection with the Merger, in
each case in accordance with generally accepted accounting principles. As used
in this Agreement, the word "Subsidiary" when used with respect to any party
means any corporation, partnership or other organization, whether incorporated
or unincorporated, which is consolidated with such party for financial reporting
purposes.
(b) Charter has no Subsidiaries other than Charter Bank and Sparta
First Service Corporation ("Sparta First"). Charter Bank is a savings bank duly
organized, validly existing and in good standing under the laws of the State of
Illinois. The deposit accounts of Charter Bank are insured by the Federal
Deposit Insurance Corporation ("FDIC") through the Savings Association Insurance
Fund ("SAIF") and the Bank Insurance Fund ("BIF") to the fullest extent
permitted by law, and all premiums and assessments required to be paid in
connection therewith have been paid when due by Charter Bank. Sparta First is a
corporation duly organized and validly existing and in good standing under the
laws of the State of Illinois. Each of Charter Bank and Sparta First
(collectively, the "Charter Subsidiaries") has the corporate power and authority
to own or lease all of its properties and assets and to carry on its business as
it is now being conducted, and is duly licensed and qualified to do business in
each jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualifications necessary, except where a failure to be so
licensed or qualified would not have a Material Adverse Effect. The Articles of
Association and Bylaws of each of the Charter Subsidiaries, copies of which have
previously been delivered to Magna, are true, complete and correct copies of
such documents as in effect as of the date of this Agreement. All of the
outstanding capital stock of Charter Bank is owned by Charter, and all of the
outstanding capital stock of Sparta First is owned by Charter Bank.
(c) The minute books of Charter and the Charter Subsidiaries each
contain true, complete and accurate records in all material respects of all
meetings and other corporate actions held or taken since September 30, 1992
(since June 1995 in the case of Charter) of the stockholders and Board of
Directors of Charter and each Charter Subsidiary (including committees of the
Board of Directors), respectively.
3.2. Capitalization. The authorized capital stock of Charter consists
of 8,000,000 shares of Charter Common Stock and 1,000,000 shares of $0.10 par
value preferred stock ("Charter Preferred Stock"). As of the date of this
Agreement, there are (i) 4,150,123 shares of Charter Common Stock issued and
outstanding and no shares of Charter Preferred Stock issued and outstanding,
(ii) 215,700 shares of Charter Common Stock held in Charter's treasury and no
shares of Charter Preferred Stock held in Charter's treasury, (iii) no shares of
Charter Common Stock or Charter Preferred Stock reserved for issuance except for
456,482 shares issuable upon the exercise of the Charter Options granted under
the Charter Stock Plans, and (iv) as otherwise indicated in Section 3.2 of the
Disclosure Schedule which is being delivered by Charter to Magna concurrently
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herewith (the "Charter Disclosure Schedule"). All of the issued and outstanding
shares of Charter Common Stock have been duly authorized and validly issued and
are fully paid, nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof. Except as referred to above or
reflected in Section 3.2 of the Charter Disclosure Schedule, neither Charter nor
any Charter Subsidiary is bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character calling for the
purchase or issuance of any shares of Charter Common Stock, Charter Preferred
Stock or any other equity security of Charter or of any Charter Subsidiary or
any securities representing the right to purchase or otherwise receive any
shares of Charter Common Stock, Charter Preferred Stock or any other equity
security of Charter or any Charter Subsidiary. Section 3.2 of the Charter
Disclosure Schedule sets forth the names of the holders of all Charter Options,
issued and outstanding as the date hereof, together with, for each such Charter
Option, the date of grant thereof, the number of shares subject thereto, the
expiration date thereof and the current exercise of purchase price thereunder.
3.3. Authority; No Violation. (a) Charter has full corporate power and
authority to execute and deliver this Agreement and, subject to the approval of
this Agreement by the stockholders of Charter to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly approved by the Board of Directors of Charter. The Board of Directors of
Charter has directed that this Agreement and the transactions contemplated
hereby be submitted to Charter's stockholders for approval at a meeting of such
stockholders and, except for the adoption of this Agreement by the requisite
vote of Charter's stockholders, no other corporate proceedings on the part of
Charter are necessary to approve this Agreement and to consummate the
transactions contemplated hereby. The only approval by stockholders of Charter
required under applicable law, the Certificate of Incorporation or Bylaws of
Charter or otherwise, in order to effect the Merger and other transactions
provided for herein is the affirmative vote of the holders of a majority of the
outstanding shares of Charter Common Stock. This Agreement has been duly and
validly executed and delivered by Charter and (assuming due authorization,
execution and delivery by Magna) constitutes a valid and binding obligation of
Charter, enforceable against Charter in accordance with its terms, except as
enforcement may be limited by general principles of equity whether applied in a
court of law or a court of equity and by bankruptcy, insolvency and similar laws
affecting creditors' rights and remedies generally.
(b) Except as set forth in Section 3.3(b) of the Charter Disclosure
Schedule, and assuming that the consents and approvals referred to in Section
3.4 hereof are duly obtained, neither the execution and delivery of this
Agreement by Charter, nor the consummation by Charter of the transactions
contemplated hereby, nor compliance by Charter with any of the terms or
provisions hereof, will (i) violate any provision of the Certificate of
Incorporation or By-Laws of Charter, or (ii) (x) violate any statute, code,
ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to Charter or any Charter Subsidiary or any of their respective
properties or assets, or (y) violate, conflict with, result in a breach of any
provision of or the loss of any benefit under, constitute a default (or an event
which, with notice or lapse of time, or both, would constitute a default) under,
result in the termination of or a right of termination or cancellation under,
accelerate the performance required by, or result in the creation of any lien,
pledge, security interest, charge or other encumbrance upon any of the
respective properties or assets of Charter or any Charter Subsidiary
(collectively, the "Charter Entities" and each, a "Charter Entity") under, any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
deed of trust, license, lease, agreement or other instrument or obligation to
which either Charter Entity is a party, or by which either Charter Entity or any
of their respective properties or assets may be bound or affected, except, in
the case of clause (y) above, for such violations, conflicts, breaches or
defaults which, either individually or in the aggregate, would not have or be
reasonably likely to have a Material Adverse Effect on Charter.
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3.4. Consents and Approvals. (a) Other than in connection or in
compliance with the provisions of the DGCL, the Securities Act of 1933, as
amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and the rules and regulations thereunder, the securities or
blue sky laws of the various states or filings, consents, reviews,
authorizations, approvals or exemptions required under the Holding Company Act,
a review of this Agreement and transactions contemplated by the U.S. Department
of Justice ("DOJ") under federal antitrust laws, any required approvals or
filings pursuant to any state statutes or regulations applicable to Charter,
Magna or their respective Subsidiaries with respect to the transactions
contemplated hereby, filings with the Office of Thrift Supervision, if
applicable, or such filings, authorizations or approvals as may be set forth in
Section 3.4(a) of the Charter Disclosure Schedule, no consents or approvals of
or filings or registrations with any court, administrative agency or commission
or other governmental authority or instrumentality or self-regulatory
organization, as defined in Section 3(a)(26) of the Exchange Act (each a
"Governmental Entity"), or with any third party are necessary on behalf of
Charter in connection with (1) the execution and delivery by Charter of this
Agreement and (2) the consummation by Charter of the Merger and the other
transactions contemplated hereby.
(b) As of the date hereof, Charter is not aware of any reasons relating
to the Charter Entities why all consents and approvals shall not be procured
from all Governmental Entities having jurisdiction over the transactions
contemplated by this Agreement as shall be necessary for consummation of the
transactions contemplated by this Agreement.
3.5. Regulatory Reports; Examinations. Each Charter Entity has timely
filed all material reports, registrations and statements, together with any
amendments required to be made with respect thereto, that it was required to
file since September 30, 1993, with any Governmental Entity and has paid all
fees and assessments due and payable in connection therewith. Except for normal
examinations conducted by a Governmental Entity in the regular course of the
businesses of the Charter Entities and except as set forth in Section 3.5 of the
Charter Disclosure Schedule, no Governmental Entity has initiated any proceeding
or, to the best knowledge of Charter, investigation into the business or
operations of either Charter Entity since September 30, 1993 the outcome of
which would likely result in a Material Adverse Effect on Charter. There is no
unresolved material violation, criticism, or exception by any Governmental
Entity with respect to any report or statement relating to any examinations of
any Charter Entity.
3.6. Financial Statements. Charter has previously delivered to Magna
copies of (a) the consolidated and parent company only balance sheets of Charter
and its Subsidiary as of September 30 for the fiscal years 1996, 1995 and 1994
and the related consolidated statements of income, changes in stockholders'
equity and cash flows for each of such annual periods, together with the notes
thereto, audited by KPMG Peat Marwick LLP and included in an annual report on
Form 10-K or Form F-2, as filed with the SEC, and (b) the unaudited consolidated
balance sheet of Charter and its Subsidiaries as of December 31, 1996 and March
31 and June 30, 1997 and the related unaudited consolidated statements of income
and cash flows for the periods then ended included in the Quarterly Reports on
Form 10-Q as filed with the SEC (collectively, and together with the Financial
Statements of Charter referred to in Section 6.7 hereof, the "Charter
Statements"). The Charter Statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis ("GAAP"),
present fairly the consolidated financial position of Charter and its
Subsidiaries at the date and the consolidated results of operations, cash flows
and changes in stockholders' equity of Charter and its Charter Subsidiaries for
the periods stated therein and are derived from the books and records of Charter
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. No Charter Entity has any material contingent liabilities
that are not reflected in the most recent audited Charter Statements or notes
thereto.
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3.7. Broker's Fees. Neither Charter nor any of its officers or
directors has employed any broker or finder or incurred any liability for any
broker's fees, commissions or finder's fees in connection with any of the
transactions contemplated by this Agreement, except that Charter has engaged,
and will pay a fee to, Charles Webb & Company, a division of Keefe, Bruyette &
Woods, Inc. ("Charles Webb"), in accordance with the terms of a letter agreement
between Charter and Charles Webb, a true, complete and correct copy of which has
been previously delivered by Charter to Magna.
3.8. Absence of Certain Changes or Events. (a) Except as may be set
forth in Section 3.8(a) of the Charter Disclosure Schedule, (i) since September
30, 1996, no Charter Entity has incurred any material liability, except in the
ordinary course of its business consistent with its past practices (excluding
the incurrence of expenses in connection with this Agreement and the
transactions contemplated hereby), (ii) since September 30, 1996, no event has
occurred which has caused, or is reasonably likely to cause, individually or in
the aggregate, a Material Adverse Effect on Charter, and (iii) for the period
from December 31, 1996 to the date of this Agreement, each Charter Entity has
carried on its business in the ordinary course consistent with its past
practices (excluding, in the case of Charter, the execution of this Agreement
and related matters).
(b) Except as set forth in Section 3.8(b) of the Charter Disclosure
Schedule, since December 31, 1996, no Charter Entity has (i) increased the
wages, salaries, compensation, pension, or other fringe benefits or perquisites
payable to any officer or director from the amount thereof in effect as of
December 31, 1996 (which amounts have been previously disclosed to Magna),
granted any severance or termination pay, entered into any contract to make or
grant any severance or termination pay, or paid any bonus other than year-end
bonuses for fiscal 1996 as listed in Section 3.8(b) of the Charter Disclosure
Schedule, (ii) suffered any strike, work stoppage, slow-down or other labor
disturbance, (iii) been a party to a collective bargaining agreement, contract
or other agreement or understanding with a labor union or organization, or (iv)
had any union organizing activities.
3.9. Legal Proceedings. (a) Except as set forth in Section 3.9 of the
Charter Disclosure Schedule, no Charter Entity is a party to any, and there are
no pending or, to the best of Charter's knowledge, threatened, legal,
administrative, arbitral or other proceedings, claims, actions or governmental
or regulatory investigations of any nature against any Charter Entity (i) as to
which there is a reasonable probability of an adverse determination and which,
if adversely determined, would, individually or in the aggregate, have or be
reasonably expected to have a Material Adverse Effect on Charter or (ii)
challenging the validity or propriety of the transactions contemplated by this
Agreement.
(b) There is no injunction, order, judgment, decree or regulatory
restriction imposed upon either Charter Entity or its assets which has had, or
could reasonably be expected to have, a Material Adverse Effect on Charter.
3.10. Taxes. (a) Except as set forth in Section 3.10(a) of the Charter
Disclosure Schedule, each Charter Entity has (i) duly and timely filed
(including applicable extensions granted without penalty) all Tax Returns (as
hereinafter defined) required to be filed at or prior to the Effective Time, and
such Tax Returns are true, correct and complete in all material respects and, to
the extent required, Charter has disclosed on its federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement of
federal income Taxes (as hereinafter defined) within the meaning of Section 6662
of the Code, and (ii) paid in full or made adequate provision in the financial
statements of Charter (in accordance with GAAP) for all known Taxes. No
deficiencies for any Taxes have been proposed, asserted, assessed or, to the
best knowledge of management of Charter, threatened against or with respect to a
Charter Entity. Except as set forth in Section 3.10(a) of the Charter Disclosure
Schedule, (i) there are no liens for Taxes upon the assets of any Charter Entity
except for statutory liens for current Taxes not yet due, (ii) no Charter Entity
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has 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 request for
waivers of the time to assess any Taxes are pending or outstanding, (iii) with
respect to each taxable period of a Charter Entity, the federal and state income
Tax Returns of the Charter Entities have been examined by the Internal Revenue
Service (the "IRS") or appropriate other tax authorities or the time for
assessing and collecting income Tax with respect to such taxable period has
closed and such taxable period is not subject to review, (iv) Charter has not
filed or been included in a combined, consolidated or unitary income Tax Return
nor is it subject to any actual or contingent liability for the Taxes of any
person under Regulation ss.1.1502-6 under the Code (or any similar provision of
state law), (v) Charter is not a party to any agreement providing for the
allocation or sharing of Taxes (other than the allocation of federal income
taxes as provided by Regulation ss.1.1552-1(a)(1) under the Code), (vi) except
for any bad debt recapture arising from the merger of Charter Bank into a bank
subsidiary of Magna or the conversion of Charter Bank by Magna to a commercial
bank, Charter is not required to include in income any adjustment pursuant to
Section 481(a) of the Code (or any similar or corresponding provision or
requirement of state or foreign income Tax law), by reason of the voluntary
change in accounting method (nor has any taxing authority proposed in writing
any such adjustment or change of accounting method), (vii) Charter has not filed
a consent pursuant to Section 341(f) of the Code, (viii) Charter has not made
any payment nor will it be obligated to make any payment (by contract or
otherwise) which will not be deductible by reason of Section 280G of the Code as
a result of the consummation of the Merger, and (ix) none of the assets of the
Charter Entities directly or indirectly secures any debt the interest on which
is tax-exempt under Section 103(a) of the Code.
(b) For purposes of this Agreement, (i) "Taxes" shall mean all taxes,
charges, fees, levies, penalties or other assessments imposed by any United
States federal, state, local or foreign taxing authority, as applicable,
including, but not limited to income, excise, property, sales, use, transfer,
franchise, gross receipts, payroll, withholding, estimated, social security,
unemployment insurance, stamp, workers' compensation or other taxes, including
any interest, penalties or additions attributable thereto, and (ii) "Tax Return"
shall mean any return, report, information return or other document (including
any related or supporting information) with respect to Taxes.
3.11. Employee Benefits. (a) Section 3.11 of the Charter Disclosure
Schedule lists all employee benefit plans, arrangements and agreements to which
any Charter Entity is a party or by which it is bound, legally or otherwise
(collectively, the "Plans" and each individually a "Plan"), including, without
limitation, (i) any profit-sharing, deferred compensation, bonus, stock option,
stock purchase, pension, retainer, consulting, retirement, severance, welfare or
incentive plan, agreement or arrangement (ii) any plan, agreement or arrangement
providing for "fringe benefits" or perquisites to employees, officers, directors
or agents, including but not limited to benefits relating to company
automobiles, clubs, vacation, child care, parenting, sabbatical, sick leave,
medical, dental, hospitalization, life insurance and other types of insurance,
and (iii) any other "employee benefit plan" (within the meaning of Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
Charter has delivered to Magna true and complete copies of each Plan (including
a summary description of any such Plan not otherwise in writing) and all related
documents, including but not limited to (i) all summary plan descriptions (if
applicable) relating to the Plan, (ii) the actuarial report for the Plan (if
applicable) for each of the last two years, (iii) the most recent determination
letter from the Internal Revenue Service (if applicable) for the Plan, and (iv)
in the case of any and all such severance Plans, a listing setting forth the
total dollar amount payable to each current employee of either Charter Entity
under such Plans currently in effect based on the various assumptions set forth
in such list. Except as set forth in Section 3.11 of the Charter Disclosure
Schedule, there are no negotiations, demands or proposals that are pending or
have been made that concern matters now covered, or that would be covered, by
the Plans. Except as set forth in Section 3.11 of the Charter Disclosure
Schedule, the Charter Entities are in full compliance with the applicable
provisions of ERISA (as amended through the date of this Agreement), the
regulations and published authorities thereunder, and all other laws, rules and
regulations applicable with respect to all Plans that are subject to ERISA. The
Charter Entities have performed all of their material obligations under all the
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Plans, including, but not limited to, the full payment when due of all amounts
required to be made as contributions thereto or otherwise, except where such
nonperformance would not have a Material Adverse Effect on Charter. To the best
knowledge of Charter, there are no actions, suits or claims (other than routine
claims for benefits) pending or threatened against such Plans or their assets,
or arising out of such Plans, and, to the best knowledge of Charter, no facts
exist which could give rise to any such actions, suits or claims that might have
a material adverse effect on such Plans. With respect to each such Plan which is
an "employee benefit plan" (within the meaning of Section 3(3) of ERISA) or a
"plan" (within the meaning of Section 4975(e)(1) of the Code), there has
occurred no transaction prohibited by Section 406 of ERISA and no "prohibited
transaction" (within the meaning of Section 4975(c) of the Code).
(b) Section 3.11 of the Charter Disclosure Schedule separately
identifies all "employee pension benefit plans" (within the meaning of Section
3(2) of ERISA) which are also stock bonus, pension or profit-sharing plans
within the meaning of Section 401(a) of the Code (each a "Qualified Plan"). Each
such Qualified Plan has been duly authorized by the Board of Directors of
Charter or Charter Bank, as appropriate, and is qualified in form and operation
under Section 401(a) of the Code and each trust under each such Qualified Plan
is exempt from tax under Section 501(a) of the Code. No event has occurred that
will or could give rise to disqualification or loss of tax-exempt status of any
such Qualified Plan or related trust under such Sections. No event has occurred
that will or could subject any such Qualified Plan to tax under Section 511 of
the Code. In addition to those documents deliverable under Section 3.11(a),
Charter has delivered to Magna for each such Qualified Plan copies of the
following documents: (i) the Form 5500 filed in each of the most recent three
plan years, including, if required under applicable law, all schedules thereto
and financial statements with attached opinions of independent accountants, (ii)
the consolidated statement of assets and liabilities of such Qualified Plan as
of its most recent valuation date, and (iii) the statement of changes in fund
balance and in financial position or the statement of changes in net assets
available for benefits under such Qualified Plan for the most recently ended
plan year. The financial statements so delivered fairly present the financial
condition and the results of operations of each such Qualified Plan as of such
dates. Except as disclosed on Schedule 3.11, with respect to each Qualified Plan
subject to Section 412 of the Code maintained for employees of Charter or any of
its ERISA Affiliates (as defined below), there has occurred no failure to meet
the minimum funding standard of Section 412 of the Code (whether or not waived
in accordance with Section 412(d) of the Code) or failure to make by its due
date a required installment under Section 412(m) of the Code. "ERISA Affiliate",
as applied to any person, means (i) any corporation which is a member of a
controlled group of corporations within the meaning of Section 414(b) of the
Code of which that person is a member, (ii) any trade or business (whether or
not incorporated) which is a member of a group of trades or business under
common control within the meaning of Section 414(c) of the Code of which that
person is a member, and (iii) any member of an affiliated service group within
the meaning of Section 414(m) and (o) of the Code of which that person, any
corporation described in clause (i) above or any trade or business described in
clause (ii) above is a member.
(c) Section 3.11 of the Charter Disclosure Schedule also separately
identifies each Plan that is also subject to Title IV of ERISA. With respect to
each such Plan which is an "employee pension benefit plan" (within the meaning
of Section 3(2) of ERISA) in which Charter or any ERISA Affiliate participates
or has participated, except as disclosed in Section 3.11 of the Charter
Disclosure Schedule or in any actuarial report for such Plan delivered to Magna,
(i) neither Charter nor any ERISA Affiliate has withdrawn from such Plan during
a plan year in which it was a "substantial employer" (as defined in Section
4001(a)(2) of ERISA) where such withdrawal could result in liability of such
substantial employer pursuant to Section 4062(e) or 4063 of ERISA, (ii) as of
the date hereof, neither Charter nor any ERISA Affiliate has filed a notice of
intent to terminate any such Plan or adopted any amendment to treat any such
Plan as terminated, (iii) the PBGC has not instituted proceedings to terminate
any such Plan, (iv) no other event or condition has occurred which might
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any such Plan, (v) no accumulated
funding deficiency, whether or not waived, exists with respect to any such Plan,
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and no condition has occurred or exists which by the passage of time would be
expected to result in an accumulated funding deficiency as of the last day of
the current plan year of any such Plan, (vi) all required premium payments to
the PBGC have been paid when due, (vii) no reportable event, as described in
Section 4043 of ERISA, has occurred with respect to any such Plan, (viii) no
excise taxes are payable under the Code and (ix) no amendment with respect to
which security is required under Section 307 of ERISA has been made or is
reasonably expected to be made, except for any of the foregoing which is
disclosed in Section 3.11 of the Charter Disclosure Schedule, or which
individually or in the aggregate, has not had, and is not reasonably likely to
have, a Material Adverse Effect on such Plan or the Charter. Except as listed in
Section 3.11 of the Charter Disclosure Schedule, all costs of any such Plan have
been provided for on the basis of consistent methods in accordance with sound
actuarial assumptions and practices. Section 3.11 of the Charter Disclosure
Schedule identifies for each such Plan, as of its last valuation date, the
amount by which its assets exceeded (or were less than) its "benefit
liabilities" (within the meaning of Section 4001 of ERISA). Except as disclosed
in Section 3.11 of the Charter Disclosure Schedule or as contemplated by this
Agreement, since the last valuation date for each such Plan, there has been no
amendment or change to such Plan that would increase the amount of benefits
thereunder and, to the best knowledge of Charter, there has been no event or
occurrence that would cause the excess of assets over benefit liabilities as
listed in Section 3.11 of the Charter Disclosure Schedule to be reduced or the
amount by which benefit liabilities exceed assets as listed in Section 3.11 of
the Charter Disclosure Schedule to be increased. In addition to the documents
provided pursuant to other provisions of this Section 3.11, Charter has
delivered to Magna for each such Plan copies of the following documents: (i) the
Form PBGC-1 filed in each of the most recent three plan years, and (ii) the
actuarial reports as of the two most recent valuation dates. Each such actuarial
report fairly presents the financial condition and the results of operations of
such Plan as of such date, in accordance with GAAP.
(d) Except as disclosed in Section 3.11 of the Charter Disclosure
Schedule, no Plan listed in Section 3.11 of the Charter Disclosure Schedule is a
"multiemployer plan" (within the meaning of Section 3(37) of ERISA). No Charter
Entity has ever contributed to or had an obligation to contribute to any
multiemployer plan. No ERISA Affiliate has withdrawn from any such multiemployer
plan in a complete or partial withdrawal under Subtitle E of Title IV of ERISA
with respect to which there is any outstanding liability as of the date hereof,
or received notice from any such multiemployer plan that it is in reorganization
or insolvency pursuant to Sections 4241 or 4245 of ERISA or that it intends to
terminate or has terminated under Section 4041A or 4042 or ERISA.
(e) All Plans that are group health plans of Charter and any ERISA
Affiliate have been operated in material compliance with the group health plan
continuation coverage requirements of Part 6 Subtitle B of Title I of ERISA and
4980B of the Code to the extent such requirements are applicable. Except to the
extent required under Section 4980B of the Code or as otherwise disclosed in
Section 3.11 of the Charter Disclosure Schedule, no Charter Entity provides
health or welfare benefits (through the purchase of insurance or otherwise) for
any retired or former employees.
(f) There has been no act or omission by Charter or any ERISA Affiliate
that has given rise to or may give rise to fines, penalties, taxes, or related
changes under Section 502(c), (i) or (1) Section 4071 of ERISA or Chapter 43 of
the Code.
3.12. Insurance. Set forth in Section 3.12 of the Charter Disclosure
Schedule is a list of all insurance policies maintained by or for the benefit of
any of the Charter Entities or their respective directors, officers, employees
or agents.
3.13. Charter Information. The information relating to any of the
Charter Entities (whether individually or collectively) to be contained in
(whether directly or incorporated by reference) the Prospectus/Proxy Statement
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and the Registration Statement under the Securities Act on Form S-4 (the "S- 4")
to be prepared and filed by Magna with the Securities and Exchange Commission
(the "SEC") registering the shares of Magna Common Stock issuable in connection
with the Merger, or in any other document filed with any other Governmental
Entity in connection herewith, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances in which they are made, not misleading.
3.14. Compliance with Applicable Law. The Charter Entities collectively
hold, and have at all times since September 30, 1996 held, all material
licenses, franchises, permits and authorizations necessary for the lawful
conduct of their respective businesses under and pursuant to each, and, except
as disclosed in Section 3.14 of the Charter Disclosure Schedule, have complied
with and is not in default in any respect under any, applicable law, statute,
order, rule, regulation, policy and/or guideline of any Governmental Entity
relating to the Charter Entity in question, except where the failure to hold
such license, franchise, permit or authorization or such noncompliance or
default would not, individually or in the aggregate, have or be reasonably
likely to have a Material Adverse Effect on Charter, and Charter does not know
of, and has received no notice of, any material violations of any of the above.
No Charter Entity is required by Section 32 of the Federal Deposit Insurance Act
or other applicable laws to give prior notice to any federal Governmental Entity
of any proposed addition of an individual to its board of directors or the
employment of an individual as an officer.
3.15. Certain Contracts. (a) Except as set forth in Section 3.15(a) of
the Charter Disclosure Schedule, no Charter Entity is a party to or bound by any
contract, arrangement, plan, commitment or understanding (whether written or
oral) (i) with respect to the employment of any directors, officers, employees
or consultants, (ii) which, upon the consummation of the transactions
contemplated by this Agreement, will (either alone or upon the occurrence of any
additional acts or events) result in any payment (whether of severance pay or
otherwise) becoming due from Magna, Charter, either Charter Entity or Surviving
Corporation to any officer or employee thereof, (iii) which is a material
contract (as defined in Item 601(b)(10) of Regulation S-K of the SEC) to be
performed after the date of this Agreement that has not been filed or
incorporated by reference in Charter Reports, (iv) which is an agreement, not
otherwise described by clause (iii) hereof, involving the payment by a Charter
Entity of more than $100,000 per annum, (v) which materially restricts the
conduct of any line of business by the Charter Entity, or (vi) under which any
of the benefits will be increased, or the vesting of the benefits will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement, or the value of any of the benefits of which will be calculated on
the basis of any of the transactions contemplated by this Agreement. Each
contract, arrangement, plan, commitment or understanding of the type described
in this Section 3.15(a), whether or not set forth in Section 3.15(a) of the
Charter Disclosure Schedule, is referred to herein as a "Charter Contract."
Charter has previously delivered to Magna true, complete and correct copies of
each Charter Contract and any amendments or modifications thereof.
(b) Except as set forth in Section 3.15(b) of the Charter Disclosure
Schedule, (i) each Charter Contract is valid and binding and in full force and
effect, (ii) the appropriate Charter Entity has in all material respects
performed all obligations required to be performed by it to date under each
Charter Contract, except where such noncompliance, individually or in the
aggregate, would not have or be reasonably likely to have a Material Adverse
Effect on Charter, (iii) no event or condition exists which constitutes or,
after notice or lapse of time or both, would constitute, a material default on
the part of a Charter Entity under any such Charter Contract, except where such
default, individually or in the aggregate, would not have or be reasonably
likely to have a Material Adverse Effect on Charter and (iv) no other party to
such Charter Contract is, to the best knowledge of Charter, in default in any
respect thereunder, except where such default, individually or in the aggregate,
would not have or be reasonably likely to have a Material Adverse Effect on
Charter.
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3.16. Agreements with Regulatory Agencies. Except as set forth in
Section 3.16 of the Charter Disclosure Schedule, no Charter Entity is (i)
subject to any cease-and-desist or other order issued by, and is not a party to
any written agreement, consent agreement or memorandum of understanding with, or
is a party to any commitment letter or similar undertaking to, or is subject to
any order or directive by, or a recipient of any extraordinary supervisory
letter from, or has adopted any board resolutions at the request of (each of the
foregoing, whether or not set forth on Section 3.16 of the Charter Disclosure
Schedule, a "Regulatory Agreement"), any Governmental Entity that restricts the
conduct of its business or that in any manner relates to its capital adequacy,
its credit policies, its management or its business, nor has any Charter Entity
been advised by any Governmental Entity that it is considering issuing or
requesting any Regulatory Agreement.
3.17. Investment Securities. Section 3.17 of the Charter Disclosure
Schedule sets forth the book and market value as of September 30, 1997 of the
investment securities, mortgage-backed securities and securities held for sale
of Charter Bank. Section 3.17 of the Charter Disclosure Schedule sets forth an
investment securities report as of September 30, 1997 which includes security
descriptions, CUSIP numbers, original and current face values, book values,
coupon rates and current market values. Section 3.17 of the Charter Disclosure
Schedule sets forth all securities pledged by Charter Bank for any purpose as of
September 30, 1997, if any.
3.18. Property. The Charter Entities collectively have good and
marketable title free and clear of all liens, encumbrances, mortgages, pledges,
charges, defaults or equitable interests to all of the real property and
personal property, whether tangible or intangible, which, individually or in the
aggregate, are material, and which are reflected on the balance sheet of Charter
as of September 30, 1996 or acquired after such date, except (i) liens for taxes
not yet due and payable, (ii) liens listed and described in Section 3.18 of the
Charter Disclosure Schedule, (iii) pledges to secure deposits and other liens
incurred in the ordinary course of banking business, (iv) such imperfections of
title, easements and encumbrances, if any, as are not material in character,
amount or extent, (v) for dispositions thereof and encumbrances thereon for
adequate consideration in the ordinary course of business or (vi) with respect
to assets classified as real estate owned. All leases pursuant to which Charter,
as lessee, leases real or personal property which, individually or in the
aggregate, are material, are valid and enforceable in accordance with their
respective terms and neither the Charter Entity being a party thereto nor, to
the best knowledge of Charter, any other party thereto, is in default in any
material respect thereunder. Section 3.18 of the Charter Disclosure Schedule
identifies the book value on the books of Charter as of September 30, 1997, of
all interests of the Charter Entities in such real property.
3.19. Equity and Real Estate Investments. Except as set forth in
Section 3.19 of the Charter Disclosure Schedule, the Charter Entities have no
(i) equity investments, or (ii) investments in real estate, other than assets
classified as "real estate owned" and set forth in Section 3.23 of the Charter
Disclosure Schedule, or real estate development projects.
3.20. Environmental Matters. Except as set forth in Section 3.20 of the
Charter Disclosure Schedule:
(a) Neither the conduct nor operation of the Charter Entities nor any
condition of any property presently or previously owned, leased or operated by
any Charter Entity (each, a "Property") violates or violated Environmental Laws
(as defined below), and no condition has existed or event has occurred with
respect to the Charter Entities or any such property that, with notice or the
passage of time, or both, is reasonably likely to result in liability under
Environmental Laws, except for any violations or conditions which, individually
or in the aggregate, have not had and are not reasonably likely to have a
Material Adverse Effect on Charter and, in that regard, Charter will, upon the
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request of Magna, promptly provide Magna with copies of all documentation
relative to the compliance with Environmental Laws with respect to any specific
Property;
(b) No litigation, claim or other proceeding under any Environmental
Law is pending before any court or governmental agency (and, to the best of
Charter's knowledge, no such litigation, claim or other proceeding has been
threatened) alleging noncompliance with or violation of any Environmental Laws
by either Charter Entity, and neither the Charter Entities nor any of their
respective properties is a party to or is subject to any order, decree,
agreement, memorandum of understanding or similar arrangement with any federal
or state governmental agency or authority charged with monitoring or enforcing
any Environmental Laws, and no Charter Entity has been advised by any such
regulatory authority charged with monitoring or enforcing any Environmental Laws
that such authority is contemplating issuing or requesting (or is considering
the appropriateness of issuing or requesting) any such order, decree, agreement
or memorandum of understanding (all of the above, collectively "Environmental
Legal Matters"), except for any Environmental Legal Matter which, individually
or in the aggregate, has not had, and is not reasonably likely to have, a
Material Adverse Effect on Charter;
(c) No Charter Entity has received any notice from any person or entity
that (i) such Charter Entity is or was in violation of, or (ii) the operation or
condition of any property at any time owned, leased, operated, held as
collateral or held as a fiduciary by a Charter Entity is or was in violation of
or is or has been alleged to give rise to liability on the part of such Charter
Entity under, any Environmental Law, including but not limited to responsibility
(or potential responsibility) for the cleanup or other remediation of any
pollutants, contaminants, or hazardous or toxic wastes, substances or materials
(collectively, "Hazardous Materials") at, on, beneath, or originating from any
such property, except for any of the above which, individually or in the
aggregate, has not had, and is not reasonably likely to have, a Material Adverse
Effect on Charter; and
(d) For purposes of this Section 3.20, "Environmental Laws" means all
applicable local, state and federal environmental, health and safety laws and
regulations, including, without limitation, the Resource Conservation and
Recovery Act, the Comprehensive Environmental Response, Compensation, and
Liability Act, the Clean Water Act, the Federal Clean Air Act, and the
Occupational Safety and Health Act, each as amended, and all regulations
promulgated thereunder, and all state law counterparts thereof.
3.21. Derivative Transactions. (a) Except as set forth in Section 3.21
of the Charter Disclosure Schedule, no Charter Entity has engaged in
transactions in or involving, and does not own or hold and has no exposure to,
any forwards, futures, options on futures, swaps or other derivative instruments
(the foregoing being collectively called the "Derivative Securities") except for
any such transactions entered into by the Charter Entity as agent on the order
and for the account of others, or as principal for purposes of hedging interest
rate risk on U.S. dollar denominated securities and other financial instruments.
(b) All Derivative Securities to which a Charter Entity is a party or
by which any of their respective properties or assets may be bound were entered
into in the ordinary course of business in accordance with prudent banking
practice and applicable rules, regulations and policies of Regulatory
Authorities and with counterparts believed to be financially responsible at the
time and are legal, valid and binding obligations and are in full force and
effect. Each Charter Entity 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.
3.22. Loan Portfolio. (a) Except as set forth in Section 3.22 of the
Charter Disclosure Schedule, Charter Bank is not a party, to any written or oral
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(i) loan agreement, note or borrowing arrangement (including, without
limitation, leases, credit enhancements, commitments, guarantees and
interest-bearing assets) (collectively, "Loans"), under the terms of which the
obligor is, as of the date of this Agreement, over 90 days delinquent in payment
of principal or interest or in default of any other material provision, or (ii)
Loan with any director, executive officer or, to the best of Charter's
knowledge, greater than five percent stockholder of Charter, or to the best
knowledge of Charter, any person, corporation or enterprise controlling,
controlled by or under common control with any of the foregoing. Section 3.22 of
the Charter Disclosure Schedule sets forth (i) all of the Loans of Charter Bank
that as of the date of this Agreement are classified by any bank examiner
(whether regulatory or internal) as "Other Loans Specially Mentioned", "Special
Mention", "Substandard", "Doubtful", "Loss", "Classified", "Criticized", "Credit
Risk Assets", "Concerned Loans", "Watch List" or words of similar import,
together with the principal amount of and accrued and unpaid interest on each
such Loan and the identity of the borrower thereunder, (ii) by category of Loan
(i.e., commercial, consumer, etc.), all of the Loans of Charter Bank that as of
the date of this Agreement are classified as such, together with the aggregate
principal amount of and accrued and unpaid interest on such Loans by category
and (iii) each asset of Charter Bank that as of the date of this Agreement is
classified as "Real Estate Owned" and the book value thereof.
(b) Each Loan (i) is evidenced by notes, agreements or other evidences
of indebtedness which are true, genuine and what they purport to be, (ii) to the
extent secured, has been secured by valid liens and security interests which
have been perfected and (iii) is the legal, valid and binding obligation of the
obligor named therein, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent conveyance and other laws of general
applicability relating to or affecting creditors' rights and to general equity
principles, in each case other than Loans as to which the failure to satisfy the
foregoing standards would not have a Material Adverse Effect on Charter.
3.23. Other Activities. (a) Except as set forth on Section 3.23 of the
Charter Disclosure Schedule, no Charter Entity other than Sparta First engages
in any insurance activities other than acting as a principal, agent or broker
for insurance that is directly related to the extension of credit by Charter
Bank and limited to assuring the repayment of the balance due on the extension
of credit by Charter Bank in the event of the death, disability or involuntary
unemployment of the debtor.
(b) To the knowledge of management of Charter, (i) any personal trust,
corporate trust or other fiduciary activities performed by Charter Bank ("Trust
Activities") has been performed with requisite authority under applicable law of
Governmental Agencies and in all material respects in accordance with the
agreements and instruments governing such Trust Activities, sound fiduciary
principles and all applicable laws and regulations; (ii) there is no
investigation or inquiry by any Governmental Entity pending or threatened
against any Charter Entity relating to the compliance by it with sound fiduciary
principles and applicable law and regulations; (iii) each employee of Charter
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 Charter Bank; and (iv) Charter 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.
3.24. Takeover Laws. No transaction contemplated by this Agreement is
subject to the requirements imposed by any applicable antitakeover law or
regulation, including "business combination", "moratorium", "control share", or
other similar law or regulation, federal or state, including without limitation,
Section 203 of the DGCL.
3.25. Reorganization. As of the date hereof, Charter has no reason to
believe that the Merger will fail to qualify as a reorganization under Section
368(a) of the Code.
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3.26. Opinion of Financial Advisor. Charter has received a written
opinion of Charles Webb, its financial advisor, to the effect that as of the
date of the meeting of Charter's Board of Directors approving the Merger, the
Exchange Ratio is fair to the stockholders of Charter from a financial point of
view.
3.27. Certain Board Action. Prior to the execution of this Agreement,
the Board of Directors of Charter, at a meeting duly called and held, has by the
required vote (i) determined that this Agreement and the transactions
contemplated hereby, including the Merger and the transactions contemplated
thereby, taken together, are fair to and in the best interest of the
stockholders of Charter, and (ii) resolved to recommend that the holders of the
shares of Charter Common Stock adopt this Agreement and the transactions
contemplated herein, including the Merger.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MAGNA
Magna hereby represents and warrants to Charter as follows:
4.1. Corporate Organization. (a) Magna is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Magna has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being conducted,
and is duly licensed or qualified to do business in each jurisdiction in which
the nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed or qualified
would not have a Material Adverse Effect on Magna. Magna is duly registered as a
bank holding company under the BHC Act. The Certificate of Incorporation and
By-laws of Magna, copies of which have previously been delivered to Charter, are
true, complete and correct copies of such documents as in effect as of the date
of this Agreement. Magna Bank, National Association ("Magna Bank") is a national
banking association duly organized, validly existing and in good standing under
the laws of the United States of America. The deposit accounts of Magna Bank are
insured by the FDIC through the SAIF and the BIF to the fullest extent permitted
by law, and all premiums and assessments required to be paid in connection
therewith have been paid when due by Magna Bank.
(b) Upon its formation, Merger Sub will be a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
4.2. Capitalization. (a) As of the date of this Agreement, the
authorized capital stock of Magna consists of (i) 80,000,000 shares of Magna
Common Stock, of which, as of September 30, 1997, 33,638,506 shares were issued
and outstanding, (ii) 1,000,000 shares of Preferred Stock, no par value ("Magna
Preferred Stock"), of which no shares are issued and outstanding, (iii) 49,500
shares of 7.5% Cumulative Class B Voting Preferred Stock, par value $20.00 per
share, of which 1,996 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. Magna has designated 400,000 shares of Magna
Preferred Stock and has reserved such shares under the Magna Rights Agreement.
As of September 30, 1997, Magna had reserved an aggregate of 4,116,566 shares of
Magna Common Stock for issuance under Magna's various stock option plans, a list
of which is set forth on Section 4.2(a) of a disclosure schedule which is being
delivered by Magna to Charter concurrently herewith (the "Magna Disclosure
Schedule"), Magna's Dividend Reinvestment Plan, Magna's Employee Stock Purchase
Plan, Magna's Directors Deferred Compensation Plan, Magna's Directors Preferred
Plan, Magna's 7% Convertible Subordinated Capital Notes due 1999 and Magna's 8
3/4% Convertible Subordinated Debentures due 1998 and any other stock- based
plans of Magna. From September 30, 1997 through the date of this Agreement, no
shares of Magna Common Stock or other equity securities of Magna have been
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issued, excluding any such shares which may have been issued pursuant to
stock-based employee benefit incentive plans and programs, or pursuant to the
foregoing agreements. All of the issued and outstanding shares of the capital
stock of Magna and its Subsidiaries have been duly authorized and validly issued
and are fully paid and nonassessable, and have not been issued in violation of
any pre-emptive rights of any stockholder of Magna or its Subsidiaries with no
personal liability attaching to the ownership thereof. At the Effective Time,
the Magna 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 pre-emptive right of any stockholder of Magna.
(b) Section 4.2(b) of the Magna Disclosure Schedule sets forth a true
and correct list of all Subsidiaries of Magna as of the date of this Agreement.
Magna Bank is the principal subsidiary and the only banking subsidiary of Magna.
4.3. Authority; No Violation. (a) Magna has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly approved by the Board of Directors of Magna. No other corporate
proceedings on the part of Magna are necessary to approve this Agreement and to
consummate the transactions contemplated hereby other than the approval by Magna
of the Merger, in its capacity as the sole Stockholder of Merger Sub. This
Agreement has been duly and validly executed and delivered by Magna and
(assuming due authorization, execution and delivery by Charter) constitutes a
valid and binding obligation of Magna, enforceable against Magna in accordance
with its terms, except as enforcement may be limited by general principles of
equity whether applied in a court of law or a court of equity and by bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies generally.
(b) Upon its formation, Merger Sub will have full corporate power and
authority to consummate the Merger and the other transactions contemplated
hereby. The execution and delivery of the Plan of Merger and the consummation of
the transactions contemplated thereby will be duly and validly approved by the
Board of Directors of Merger Sub and by Magna as the sole stockholder of Merger
Sub, and, upon such approval, no other corporate proceedings on the part of
Merger Sub will be necessary to consummate the Merger and the other transactions
contemplated hereby.
(c) Except as set forth in Section 4.3(c) of the Magna Disclosure
Schedule, and assuming that the consents and approvals referred to in Section
4.4 are duly obtained, neither the execution and delivery of this Agreement by
Magna or by Merger Sub, nor the consummation by Magna or Merger Sub, as the case
may be, of the transactions contemplated hereby, nor compliance by Magna or
Merger Sub, as the case may be, with any of the terms or provisions hereof, will
(i) violate any provision of the Certificate of Incorporation, By-Laws or Magna
Rights Agreement of Magna, or the charter, or bylaws or similar governing
documents of any of its Subsidiaries (including Merger Sub), or (ii) (x) violate
any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or
injunction applicable to Magna or any of its Subsidiaries or any of their
respective properties or assets, or (y) violate, conflict with, result in a
breach of any provision of or the loss of any benefit under, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any lien, pledge, security interest, charge or other
encumbrance upon any of the respective properties or assets of Magna or any of
its Subsidiaries under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Magna or any of its Subsidiaries is a party,
or by which they or any of their respective properties or assets may be bound or
affected, except, in the case of clause (y) above, for such violations,
conflicts, breaches or defaults which either individually or in the aggregate
would not have or be reasonably likely to have a Material Adverse Effect on
Magna.
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4.4. Consents and Approvals. (a) Except for (i) the filing of an
application with the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") under the Holding Company Act for approval of the
acquisition by Magna directly or indirectly of 100 percent of the stock of
Charter (the "Federal Reserve Application"), to such acquisition, (ii) the
filing with the SEC of the S-4, and effectiveness of the S-4, (iii) review of
this Agreement and the transactions contemplated hereby by the DOJ under federal
antitrust laws, (iv) the filing of an application with the New York Stock
Exchange ("NYSE") to list the Magna Common Stock to be issued in the Merger on
the NYSE and the approval of such application, (v) such filings and approvals as
are required to be made or obtained under the securities or "Blue Sky" laws of
various states in connection with the issuance of the shares of Magna Common
Stock pursuant to this Agreement, (vi) any required approvals or filings
pursuant to any state statutes or regulations applicable to Charter, Magna or
their respective Subsidiaries with respect to the transactions contemplated
hereby, filings with the Office of Thrift Supervision, if applicable, and (vii)
such filings, authorizations or approvals as may be set forth in Section 4.4 of
the Magna Disclosure Schedule, no consents or approvals of or filings or
registrations with any Governmental Entity or with any third party are necessary
on behalf of Magna or Merger Sub in connection with (1) the execution and
delivery by Magna and Merger Sub of this Agreement, and (2) the consummation by
Magna and Merger Sub of the Merger and the other transactions contemplated
hereby.
(b) As of the date hereof, Magna is not aware of any reasons relating
to Magna or Magna Bank why all consents and approvals shall not be procured from
all Governmental Entities having jurisdiction over the transactions contemplated
by this Agreement as shall be necessary for consummation of the transactions
contemplated by this Agreement.
4.5. Regulatory Reports; Examinations. Each of Magna and Magna Bank has
timely filed all material reports, registrations and statements, together with
any amendments required to be made with respect thereto, that it was required to
file since December 31, 1994, with any Governmental Entity and has paid all fees
and assessments due and payable in connection therewith. Except for normal
examinations conducted by a Governmental Entity in the regular course of the
businesses of the Magna and Magna Bank and except as set forth in Section 4.5 of
the Magna Disclosure Schedule, no Governmental Entity has initiated any
proceeding or, to the best knowledge of Magna, investigation into the business
or operations of either Magna or Magna Bank since December 31, 1994 the outcome
of which would likely result in a Material Adverse Effect on Magna. There is no
unresolved material violation, criticism, or exception by any Governmental
Entity with respect to any report or statement relating to any examinations of
Magna or Magna Bank.
4.6. Financial Statements. Magna has previously delivered to Charter
copies of (a) the consolidated balance sheets of Magna and its Subsidiaries as
of December 31 for the fiscal years 1996 and 1995 and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each of
such annual periods together with the notes thereto, as reported in Magna's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996 filed
with the SEC, in each case accompanied by the audit report of Ernst & Young LLP,
independent public accountants with respect to Magna, and (b) the unaudited
consolidated balance sheet of Magna and its Subsidiaries as of September 30,
1997 and the related unaudited consolidated statements of income, changes in
stockholders' equity and cash flows for the three- and nine-month periods then
ended as reported in Magna's Quarterly Report on Form 10-Q for the period ended
September 30, 1997 filed with the SEC under the Exchange Act. The December 31,
1996 consolidated balance sheet of Magna (including the related notes, where
applicable) presents fairly the consolidated financial position of Magna and its
Subsidiaries as of the date thereof, and the other financial statements referred
to in this Section 4.5 (including the related notes, where applicable) fairly
present and the financial statements of Magna referred to in Section 6.7 hereof
will fairly present (subject, in the case of the unaudited statements, to
recurring audit adjustments normal in nature and amount), the results of the
consolidated operations and changes in stockholders' equity and consolidated
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financial position of Magna and its Subsidiaries for the respective fiscal
periods or as of the respective dates therein set forth; each of such statements
(including the related notes, where applicable) comply, and the financial
statements of Magna referred to in Section 6.7 hereof will comply, in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto; and each of such
statements (including the related notes, where applicable) has been, and the
financial statements of Magna referred to in Section 6.7 hereof will be,
prepared in accordance with GAAP consistently applied during the periods
involved, except as indicated in the notes thereto or, in the case of unaudited
statements, as permitted by Form 10-Q. The books and records of Magna and its
Subsidiaries have been, and are being, maintained in all material respects in
accordance with GAAP and any other applicable legal and accounting requirements
and reflect only actual transactions.
4.7. Absence of Certain Changes or Events. Except as may be set forth
in Section 4.7 of the Magna Disclosure Schedule, or as otherwise may be
disclosed in Magna's public documents filed with the SEC under the Exchange Act
prior to the date of this Agreement, since December, 31, 1996, (i) neither Magna
nor any of its Subsidiaries has incurred any material liability, except in the
ordinary course of business consistent with their past practices and (ii) no
event has occurred which has caused, or is reasonably likely to cause,
individually or in the aggregate, a Material Adverse Effect on Magna.
4.8. Legal Proceedings. (a) Except as set forth in Section 4.8 of the
Magna Disclosure Schedule, neither Magna nor Magna Bank is a party to any, and
there are no pending or, to the best of Magna's knowledge, threatened, legal,
administrative, arbitral or other proceedings, claims, actions or governmental
or regulatory investigations of any nature against Magna or Magna Bank (i) as to
which there is a reasonable probability of an adverse determination and which,
if adversely determined, would, individually or in the aggregate, have or be
reasonably expected to have a Material Adverse Effect on Magna or (ii)
challenging the validity or propriety of the transactions contemplated by this
Agreement.
(b) There is no injunction, order, judgment, decree or regulatory
restriction imposed upon either Magna or Magna Bank or their respective assets
which has had, or could reasonably be expected to have, a Material Adverse
Effect on Magna.
4.9. Magna Information. The information relating to Magna and its
Subsidiaries (whether individually or collectively) to be contained in (whether
directly or incorporated by reference) the Prospectus/Proxy Statement and the
S-4, or in any other document filed with any other Governmental Entity in
connection herewith, will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in light
of the circumstances in which they are made, not misleading.
4.10. Compliance with Applicable Law. Magna and Magna Bank collectively
hold, and have at all times since December 31, 1996 held, all material licenses,
franchises, permits and authorizations necessary for the lawful conduct of their
respective businesses under and pursuant to each, and, except as disclosed in
Section 4.10 of the Magna Disclosure Schedule, have complied with and are not in
default in any respect under any, applicable law, statute, order, rule,
regulation, policy and/or guideline of any Governmental Entity relating to Magna
or Magna Bank, except where the failure to hold such license, franchise, permit
or authorization or such noncompliance or default would not, individually or in
the aggregate, have or be reasonably likely to have a Material Adverse Effect on
Magna, and Magna does not know of, and has received no notice of, any material
violations of any of the above. Neither Magna nor Magna Bank is required by
Section 32 of the Federal Deposit Insurance Act or other applicable laws to give
prior notice to any federal Governmental Entity of any proposed addition of an
individual to its board of directors or the employment of an individual as an
officer.
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4.11. Ownership of Charter Common Stock. Except as set forth in Section
4.11 of the Magna Disclosure Schedule, or as contemplated in Section 6.12
hereof, neither Magna nor any of its affiliates or associates (as such terms are
defined under the Exchange Act), (i) beneficially owns, directly or indirectly,
or (ii) is a party to any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of an aggregate of 10,000 or
more of the outstanding shares of capital stock of Charter (other than Trust
Account Shares and DPC Shares).
4.12. Agreements with Regulatory Agencies. Except as set forth in
Section 4.12 of the Magna Disclosure Schedule, neither Magna nor Magna Bank is
subject to any cease-and-desist or other order issued by, or is a party to any
written agreement, consent agreement or memorandum of understanding with, or is
a party to any commitment letter or similar undertaking to, or is subject to any
order or directive by, or is a recipient of any extraordinary supervisory letter
from, or has adopted any board resolutions at the request of (each, whether or
not set forth in Section 4.12 of the Magna Disclosure Schedule, a "Magna
Regulatory Agreement"), any Governmental Entity that restricts the conduct of
its business or that in any manner relates to its capital adequacy, its credit
policies, its management or its business, nor has Magna or Magna Bank been
advised by any Governmental Entity that it is considering issuing or requesting
any Magna Regulatory Agreement.
4.13. Environmental Matters. Except as set forth in Section 4.13 of the
Magna Disclosure Schedule:
(a) Neither the conduct nor operation of Magna or Magna Bank nor any
condition of any property presently or previously owned, leased or operated by
Magna or Magna Bank (each, a "Property") violates or violated Environmental
Laws, and no condition has existed or event has occurred with respect to Magna
or Magna Bank or any such property that, with notice or the passage of time, or
both, is reasonably likely to result in liability under Environmental Laws,
except for any violations or conditions which, individually or in the aggregate,
have not had and are not reasonably likely to have a Material Adverse Effect on
Magna and, in that regard, Magna will, upon the request of Charter, promptly
provide Charter with copies of all documentation relative to the compliance with
Environmental Laws with respect to any specific Property;
(b) No litigation, claim or other proceeding under any Environmental
Law is pending before any court or governmental agency (and, to the best of
Magna's knowledge, no such litigation, claim or other proceeding has been
threatened) alleging noncompliance with or violation of any Environmental Laws
by Magna or Magna Bank, and neither Magna, Magna Bank, nor any of their
respective properties is a party to any Environmental Legal Matter, except for
any Environmental Legal Matter which, individually or in the aggregate, has not
had, and is not reasonably likely to have, a Material Adverse Effect on Magna;
and
(c) Neither Magna nor Magna Bank has received any notice from any
person or entity that (i) Magna or Magna Bank is or was in violation of, or (ii)
the operation or condition of any property at any time owned, leased, operated,
held as collateral or held as a fiduciary by Magna or Magna Bank is or was in
violation of or is or has been alleged to give rise to liability on the part of
Magna or Magna Bank under, any Environmental Law, including but not limited to
responsibility (or potential responsibility) for the cleanup or other
remediation of any Hazardous Materials at, on, beneath, or originating from any
such property, except for any of the above which, individually or in the
aggregate, has not had, and is not reasonably likely to have, a Material Adverse
Effect on Magna.
4.14. Reorganization. As of the date hereof, Magna has no reason to
believe that the Merger will fail to qualify as a reorganization under Section
368(a) of the Code.
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4.15. Magna Defined Benefit Plan. All benefits currently accrued under
the Magna Defined Benefit Pension Plan are fully funded.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1. Covenants of Charter. During the period from the date of this
Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement or with the prior written consent of
Magna, Charter shall carry on its business, and shall cause each Charter
Subsidiary to carry on its business, in the ordinary course consistent with past
practice. Charter will use its reasonable best efforts to (x) preserve its
business organization and that of each Charter Subsidiary intact, (y) keep
available to itself the present services of the employees of Charter and Charter
Bank and (z) preserve for itself the goodwill of the customers of Charter and
each Charter Subsidiary and others with whom such business relationships exist.
Without limiting the generality of the foregoing, and except as set forth on
Section 5.1 of the Charter Disclosure Schedule or as otherwise contemplated by
this Agreement or consented to in writing by Magna, Charter shall not, and,
where applicable, shall not permit a Charter Subsidiary to:
(a) declare or pay any dividends on, or make other
distributions in respect of, any shares of Charter capital stock, other
than (i) normal quarterly dividends in an amount not in excess of the
most recent quarterly dividend paid in respect of each share of Charter
Common Stock; provided, however, that Charter shall not declare or pay
any dividends on Charter Common Stock for any period in which its
stockholders will be entitled to receive any quarterly dividends on
shares of Magna Common Stock to be issued in the Merger, and (ii)
dividends from wholly owned Subsidiaries to Charter;
(b) (i) split, combine or reclassify any shares of its capital
stock or (ii) repurchase, redeem or otherwise acquire (except for (A)
the acquisition of Trust Account Shares and DPC Shares, as such terms
are defined in Section 1.4(b) hereof, or (B) as provided in Section
6.14 hereof) any shares of the capital stock of Charter, or any
securities convertible into or exercisable for any shares of the
capital stock of Charter;
(c) issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock or any
securities convertible into or exercisable for, or any rights, warrants
or options to acquire, any such shares, or enter into any agreement
with respect to any of the foregoing, other than the issuance of
Charter Common Stock pursuant to the exercise of Charter Options
outstanding as of the date hereof, if and as permitted pursuant to the
terms of such Charter Options as of the date hereof;
(d) amend its Certificate of Incorporation, By-laws or other
similar governing documents;
(e) authorize or permit any of its officers, directors,
employees or agents to (i) directly or indirectly solicit, initiate or
encourage any inquiries relating to the making of any proposal which
constitutes a "Takeover Proposal" (as defined below), or (ii) recommend
or endorse any Takeover Proposal, (iii) participate in any negotiations
relating to any such inquiry or proposal, or (iv) provide third parties
with any nonpublic information relating to any such proposal, in each
case subject to the fiduciary duties of Charter's Board of Directors as
advised in writing by outside counsel to Charter reasonably acceptable
to Magna. Charter will immediately cease and cause to be terminated any
existing activities, discussions or negotiations previously conducted
with any parties other than Magna with respect to any of the foregoing.
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Charter will take all actions necessary or advisable to inform the
appropriate individuals or entities referred to in the first clause of
this Section 5.1(e) of the obligations undertaken in this Section
5.1(e). Charter will notify Magna immediately if any such inquiries or
Takeover Proposals are received by, any such information is requested
from, or any such negotiations or discussions are sought to be
initiated or continued with, Charter, and Charter will promptly inform
Magna in writing of all of the relevant details with respect to the
foregoing. As used in this Agreement, "Takeover Proposal" shall mean
any tender or exchange offer, proposal for a merger, consolidation or
other business combination involving Charter or Charter Bank or any
proposal or offer to acquire in any manner a substantial equity
interest in, or a substantial portion of the assets of, Charter or a
Charter Subsidiary other than the transactions contemplated or
permitted by this Agreement;
(f) make any capital expenditures other than expenditures
which (i) are made in the ordinary course of business or are necessary
to maintain existing assets in good repair and (ii) in any event are in
an amount of no more than $50,000 individually and $200,000 in the
aggregate, except in the case of emergency repairs or replacements;
(g) enter into any new line of business;
(h) acquire or agree to acquire, by merging or consolidating
with, or by purchasing a substantial equity interest in or a
substantial portion of the assets of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof or otherwise acquire any assets, which
would be material, individually or in the aggregate, to Charter, other
than, in the case of Charter Bank, in connection with foreclosures,
settlements in lieu of foreclosure or troubled loan or debt
restructurings in the ordinary course of business consistent with
prudent banking practices;
(i) take any action that is intended or may reasonably be
expected to result in any of its representations and warranties set
forth in this Agreement being or becoming untrue in any material
respect, or in any of the conditions to the Merger set forth in Article
VII not being satisfied, or in a violation of any provision of this
Agreement except, in every case, as may be required by applicable law;
(j) change its methods of accounting in effect at September
30, 1996, except as required by changes in GAAP or regulatory
accounting principles as concurred in by Charter's independent
auditors;
(k) (i) except as otherwise contemplated by this Agreement or
as required by applicable law or to maintain qualification pursuant to
the Code, adopt, amend, renew or terminate any Plan or any agreement,
arrangement, plan or policy between any Charter Entity and one or more
of its current or former directors, officers or employees or (ii)
except for normal increases in the ordinary course of business
consistent with past practice or except as required by applicable law,
increase in any manner the compensation or fringe benefits of any
director, officer or employee or pay any benefit not required by any
Plan as in effect as of the date hereof (including without limitation,
the granting of stock options, stock appreciation rights, restricted
stock, restricted stock units or performance units or shares);
(l) take or cause to be taken any action which would
disqualify the Merger as a tax free reorganization under Section 368(a)
of the Code;
(m) other than activities in the ordinary course of business
consistent with prior practice, sell, lease, encumber, assign or
otherwise dispose of, or agree to sell, lease, encumber, assign or
otherwise dispose of, any of its material assets, properties or other
rights or agreements;
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(n) other than in the ordinary course of business consistent
with past practice, incur any indebtedness for borrowed money, or
assume, guarantee, endorse or otherwise as an accommodation become
responsible for the obligations of any other individual, corporation or
other entity;
(o) file any application to relocate or terminate the
operations of any banking office of Charter Bank;
(p) make any equity investment or commitment to make such an
investment in real estate or in any real estate development project,
other than in connection with foreclosures, settlements in lieu of
foreclosure or troubled loan or debt restructurings in the ordinary
course of business consistent with prudent banking practices;
(q) take any action which would cause the termination or
cancellation by the FDIC of insurance in respect of Charter Bank's
deposits;
(r) (i) without first consulting with Robert J. Mathias,
Executive Vice President of Magna, enter into, renew or increase any
loan or other extension of credit (including guaranties and standby
letters of credit), or commit to make any such loan or other extension
of credit, to any person or entity, or modify any of the material
provisions or renew or otherwise extend the maturity date of any
existing loan or other extension of credit or commitment therefor
(collectively, "Lend to") in an amount in excess of $250,000 or in an
amount which, when aggregated with any and all existing loans, other
extensions of credit or credit commitments to such person or entity,
would be in excess of $250,000; (ii) Lend to any person or entity other
than in accordance with the lending policies of Charter Bank as in
effect on the date hereof; or (iii) without first consulting with
Magna, Lend to any person or entity if any of the loans or other
extensions of credit by Charter Bank to such person or entity are on
Charter Bank's "watch list" or similar internal report of Charter Bank
in an amount in excess of $250,000; provided, however, that nothing in
this Section 5.1(s) shall prohibit any Charter Entity from honoring any
contractual obligation in existence on the date of this Agreement;
(s) Lend to (as defined in Section 5.1(s)) any director or
officer of a Charter Entity without giving Magna five days' notice in
advance of such entity's approval of such loan or other extension of
credit or commitment relating thereto; or
(t) subject to the permitted activities under paragraphs (f),
(h), (k), (m), (n), (p), (r), and (s) above, which are specifically
excepted herefrom, create, renew, amend or terminate or give notice of
a proposed renewal, amendment or termination of, any material contract,
agreement or lease for goods, services or office space to which any
Charter Entity is a party or by which any Charter Entity or their
respective properties are bound;
(u) agree to do any of the foregoing.
5.2. Covenants of Magna. Magna will use its reasonable best efforts to
(x) preserve its business organization and that of Magna Bank, (y) keep
available to itself the present services of the employees of Magna and Magna
Bank and (z) preserve for itself the goodwill of the customers of Magna and
Magna Bank and others with whom such business relationships exist. Except as set
forth in Section 5.2 of the Magna Disclosure Schedule or as otherwise
contemplated by this Agreement or consented to in writing by Charter between the
date hereof and the Effective Time, Magna shall not:
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(a) declare or pay any extraordinary or special dividends on,
or make any extraordinary or special distributions in respect of, Magna
Common Stock;
(b) change its method of accounting in effect at December 31,
1996, except as required or permitted by changes in GAAP or regulatory
accounting principles as concurred in by Magna's independent auditors;
(c) take any action that is intended or may reasonably be
expected to result in any of its representations and warranties set
forth in this Agreement being or becoming untrue in any material
respect, or in any of the conditions to the Merger set forth in Article
VII not being satisfied, or in a violation of any provision of this
Agreement except, in every case, as may be required by applicable law;
(d) take or cause to be taken any action which would
disqualify the Merger as a tax free reorganization under Section 368 of
the Code;
(e) amend its Certificate of Incorporation or By-laws or other
governing instruments in a manner which would adversely affect in any
manner the terms of the Magna Common Stock or the ability of Magna to
consummate the Merger; or
(f) agree to do any of the foregoing.
Charter acknowledges its understanding that Magna 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 Magna or
Magna Bank of another bank holding company, bank, savings and loan holding
company, savings and loan association or other company (or the assets thereof)
for consideration that may include shares of Magna Common Stock or other
securities of Magna. Additionally, prior to the Effective Time, Magna may,
depending on market conditions and other factors, determine to issue equity,
equity-linked or other securities for financing purposes, and it is anticipated
that Magna will repurchase up to 2,800,000 shares of Magna Common Stock from
time to time following the execution of this Agreement in open market purchases
at prevailing market prices, subject to any restrictions on such open market
purchases under applicable law. Notwithstanding anything to the contrary
contained in this Section 5.2 or elsewhere herein, any such actions on the part
of Magna shall not be deemed violative of or affect in any manner any of Magna's
representations, warranties, covenants or agreements contained herein.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1. Regulatory Matters. (a) Magna shall prepare, and subject to the
review of Charter with respect to matters involving the Charter Entities, file
with the SEC as soon as reasonably practicable the S-4 (or the equivalent in the
form of preliminary proxy material) with respect to the shares of Magna Common
Stock to be issued in the Merger. The parties shall cooperate with respect to
the preparation and filing of the S-4. Each of Charter and Magna shall use all
reasonable efforts to have the S-4 declared effective by the SEC under the
Securities Act as promptly as practicable after the filing thereof, and Charter
and Magna shall thereafter cooperate in mailing the Prospectus/Proxy Statement
to the stockholders of Charter. Magna shall use all reasonable efforts to obtain
all necessary state securities law or "Blue Sky" permits and approvals required
to carry out the transactions contemplated by this Agreement, and Charter shall
furnish all information concerning Charter and the holders of Charter Common
Stock as may be reasonably requested in connection with any such action.
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(b) The parties hereto shall cooperate with each other and use all
reasonable efforts to promptly prepare and file all necessary documentation, to
effect all applications, notices, petitions and filings, and to obtain as
promptly as practicable all permits, consents, approvals and authorizations of
all third parties and Governmental Entities which are necessary or advisable to
consummate the transactions contemplated by this Agreement (including without
limitation the Merger) (it being understood that any amendments to the S-4 or a
resolicitation of proxies as a consequence of a subsequent proposed merger,
stock purchase or similar acquisition by Magna or any of its Subsidiaries shall
not violate this covenant). Charter and Magna shall have the right to review in
advance, and to the extent practicable each will consult with the other on, in
each case subject to applicable laws relating to the exchange of information,
all the information relating to Charter or Magna, including its Subsidiaries,
which appear in any filing made with, or written materials submitted to, any
third party or any Governmental Entity in connection with the transactions
contemplated by this Agreement. In exercising the foregoing right, each of the
parties hereto shall act reasonably and as promptly as practicable. Each party
will keep the other apprised of the status of matters relating to completion of
the transactions contemplated herein.
(c) Each of Magna and Charter shall, upon request, furnish the other
with all information concerning Magna and Charter, respectively, its directors,
officers and equity holders and such other matters as may be reasonably
necessary or advisable in connection with the Prospectus/Proxy Statement, the
S-4 or any other statement, filing, notice or application made by or on behalf
of Charter or Magna or any affiliate thereof to any Governmental Entity in
connection with the Merger and the other transactions contemplated by this
Agreement.
6.2. Access to Information. (a) Upon reasonable notice and subject to
applicable laws relating to the exchange of information, Charter shall afford to
the officers, employees, accountants, counsel and other representatives of
Magna, access, during normal business hours during the period prior to the
Effective Time, to all its properties, books, contracts, commitments, records,
officers, employees, accountants, counsel and other representatives and, during
such period, Charter shall make available to Magna (i) a copy of each report,
schedule, registration statement and other document filed or received by it
during such period pursuant to the requirements of Federal securities laws or
Federal or state banking laws (other than reports or documents which Charter is
not permitted to disclose under applicable law) and (ii) all other information
concerning its business, properties and personnel as Magna may reasonably
request. Charter shall not be required to provide access to or to disclose
information where such access or disclosure would violate or prejudice the
rights of Charter's customers, jeopardize any attorney-client privilege or
contravene any law, rule, regulation, order, judgment, decree, fiduciary duty or
binding agreement entered into prior to the date of this Agreement. The parties
hereto will make appropriate substitute disclosure arrangements under
circumstances in which the restrictions of the preceding sentence apply. Magna
will hold all such information in confidence to the extent required by, and in
accordance with, the provisions of a certain letter agreement, dated June 3,
1997, between Magna and Charles Webb, acting as agent for Charter (the
"Confidentiality Agreement").
(b) Upon reasonable notice and subject to applicable laws relating to
the exchange of information, Magna shall, and shall cause its Subsidiaries to,
afford to the officers, employees, accountants, counsel and other
representatives of Charter, access, during normal business hours during the
period prior to the Effective Time, to such information regarding Magna and its
Subsidiaries as shall be reasonably necessary for Charter to fulfill its
obligations pursuant to this Agreement to prepare the portions of the
Prospectus/Proxy Statement for which it bears principal responsibility or as may
be reasonably necessary for Charter to confirm that the representations and
warranties of Magna contained herein are true and correct and that the covenants
of Magna contained herein have been performed in all material respects. Neither
Magna nor any of its Subsidiaries shall be required to provide access to or to
disclose information where such access or disclosure would violate or prejudice
the rights of Magna's customers, jeopardize any attorney-client privilege or
contravene any law, rule, regulation, order, judgment, decree, fiduciary duty or
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binding agreement entered into prior to the date of this Agreement. The parties
hereto will make appropriate substitute disclosure arrangements under
circumstances in which the restrictions of the preceding sentence apply. Except
as specifically required otherwise by applicable law or to the extent such
information shall have become publicly available (other than through the direct
or indirect actions of Charter or its employees, representatives or agents),
Charter will hold all such information in strictest confidence and be otherwise
bound by the terms of the Confidentiality Agreement as though all references
therein to Magna (whether by use of the word "you" or otherwise) were to
Charter.
(c) Promptly following the date of this Agreement, Magna shall commence
a review of those matters disclosed by Charter in Section 3.20 of the Charter
Disclosure Schedule to evaluate and determine the scope and magnitude of
compliance with Environmental Laws and the costs and expenses associated
therewith (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"). Magna shall promptly advise Charter of the results of its
Due Diligence Review, and whether Magna has determined, in its reasonable
judgment, any such matter so evaluated would likely be sufficient in scope
and/or magnitude to result in a Material Adverse Effect on Charter (an "Adverse
Determination"). If such Due Diligence Review results in an Adverse
Determination, Magna may, upon written notice thereof to Charter given within
the Due Diligence Period, terminate this Agreement pursuant to Section 8.1(e)
hereof.
(d) No investigation by either Magna or Charter or their respective
representatives shall affect the representations, warranties, covenants or
agreements of the other set forth herein.
6.3. Stockholder Meeting. Charter shall take all steps necessary to
duly call, give notice of, convene and hold a special meeting of its
stockholders to be held as soon as is reasonably practicable after the date on
which the S-4 is declared effective by the SEC for the purpose of voting upon
the adoption of this Agreement (the "Stockholders' Meeting"). The Board of
Directors of Charter hereby does and (subject to the fiduciary duties of
Charter's Board of Directors, as advised by outside counsel to Charter) will
recommend that stockholders of Charter vote to adopt this Agreement and (subject
to such duties) will use best efforts to obtain any vote of such stockholders
that is necessary to authorize the Merger and the other transactions
contemplated by this Agreement. Charter shall coordinate and cooperate with
Magna with respect to the scheduling of the Stockholders' Meeting.
6.4. Legal Conditions to Merger. Subject to the terms and conditions of
this Agreement, each of Charter and Magna shall use all reasonable efforts (a)
to take, or cause to be taken, all actions necessary, proper or advisable to
comply promptly with all legal requirements which may be imposed on Charter or
on Magna, respectively, in regard to the Merger and to consummate the
transactions contemplated by this Agreement and (b) to obtain (and to cooperate
with the other party to obtain) any consent, authorization, order or approval
of, or any exemption by, any Governmental Entity and any other third party which
is required to be obtained by Charter or Magna or any of their respective
Subsidiaries in connection with the Merger and the other transactions
contemplated by this Agreement, and to comply with the terms and conditions of
such consent, authorization, order or approval.
6.5. Stock Exchange Listing. Magna shall use all reasonable efforts to
cause the shares of Magna Common Stock to be issued in the Merger to be approved
for listing on the NYSE, subject to official notice of issuance, as of the
Effective Time.
6.6. Indemnification. Magna agrees that the Merger shall not affect or
diminish any of Charter's duties and obligations of indemnification existing as
of the Effective Time in favor of employees, agents, directors or officers of
Charter or its Subsidiaries arising by virtue of their respective certificates
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
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or other agreement or document existing at the date of this Agreement. Unless
otherwise prohibited by law (and in such case, only to the extent and for so
long as so prohibited) Magna agrees 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.
6.7. Subsequent Financial Statements. Each of Magna and Charter,
simultaneously with its filing thereof with the SEC between the date hereof and
the Effective Time, any Quarterly or Annual Report on Form 10-Q or 10-K, will
deliver copies thereof to the other party.
6.8. Additional Agreements. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement or to vest Surviving Corporation with full title to all
properties, assets, rights, approvals, immunities and franchises of Charter, the
proper officers and directors of Charter shall take all such necessary action as
may be reasonably requested by Magna.
6.9. Advice of Changes, Failure of Conditions. Each of Magna and
Charter shall promptly advise the other party of any change or event which it
believes has caused or constitutes, or is reasonably likely to cause or
constitute, a material breach of any of its representations, warranties or
covenants contained herein or is reasonably likely to cause any condition in
Article VII to the other party's obligation to consummate the Merger not to be
satisfied. From time to time prior to the Effective Time (and on the day prior
to the Closing), each party will promptly supplement or amend the Disclosure
Schedules delivered by it in connection with the execution of this Agreement to
reflect any matter that, if existing, occurring or known at the date of this
Agreement, would have been required to be set forth or described in such
Disclosure Schedules or that is necessary to correct any information in such
Disclosure Schedules which has been rendered inaccurate thereby. No supplement
or amendment to such Disclosure Schedules shall have any effect for the purpose
of determining satisfaction of the conditions set forth in Sections 7.2(a) or
7.3(a) hereof, as the case may be, or the compliance by Charter or Magna, as the
case may be, with the respective covenants and agreements of such parties
contained herein.
6.10. Current Information. During the period from the date of this
Agreement to the Effective Time, Charter will cause one or more of its
designated representatives to confer on a regular and frequent basis (not less
often than monthly) with representatives of Magna and to report the general
status of the ongoing operations of Charter and Charter Bank. Charter will
promptly notify Magna of its receipt of any governmental complaints or the
initiation of any governmental investigations or hearings (or communications
indicating that the same may be contemplated) or institution or threat of
significant litigation involving it or Charter Bank, and thereafter will keep
Magna fully informed of such events.
6.11. Merger Sub. Magna shall cause Merger Sub to be duly organized and
to execute and deliver this Agreement and any related agreement and take all
necessary action to complete the transactions contemplated hereby and thereby,
subject to the terms and conditions hereof.
6.12. Affiliate Letters. (a) As soon as practicable after the date
hereof, Charter shall deliver a letter to Magna identifying each person who is
as of the date hereof, or who may reasonably be expected to be as of the
anticipated date of the special meeting of the Charter stockholders called to
consider and vote upon the Merger, an "affiliate" of Charter for purposes of
Rule 145 under the Securities Act (each a "Charter Affiliate"), which
identification shall be updated by Charter not more than five days prior to the
mailing of the Prospectus/Proxy Statement for the special meeting. Charter shall
use its best efforts to cause each Charter Affiliate thus identified, other than
the Charter Bank, S.B. Employee Stock Ownership Plan ("ESOP"), to execute and
deliver to Magna, on or prior to the date of the mailing of the Prospectus/Proxy
Statement, a letter agreement (each an "Affiliate Letter") containing certain
written undertakings in the form of the agreement attached hereto as Exhibit B.
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(b) Promptly upon receipt of the written request of Magna, Charter
shall deliver a letter to those of its directors and/or executive officers
beneficially owning more than 45,000 shares of Charter Common Stock in form and
substance reasonably satisfactory to Charter (each, a "Support Agreement"),
pursuant to which such beneficial owner will agree, among other things, to vote
at the Stockholders' Meeting all shares beneficially owned by such stockholder,
or over which the stockholder has voting power, directly or indirectly, at the
record date, in favor of approving the Merger and that such stockholder will not
vote such shares in favor of any competing takeover proposal.
6.13. Employee Benefit Plans. (a) As soon as practical following the
Effective Time, the employees of each Charter Entity (the "Charter Employees")
shall be entitled to participate in each of Magna's employee benefit plans
(excluding any agreement between Magna and an employee of Magna or any of its
Subsidiaries) in which similarly situated employees of Magna Bank or any Magna
Subsidiary participate, to the same extent as comparable employees of Magna Bank
or any Magna Subsidiary (it being understood that inclusion of Charter Employees
in Magna's employee benefit plans may occur at different times with respect to
different plans). Except as otherwise contemplated herein, Magna intends to
continue, and to cause Surviving Corporation to continue, each of the existing
employee benefit plans of the Charter Entities with respect to which there
exists a corresponding Magna employee benefit plan until the date on which the
inclusion of Charter Employees in Magna's corresponding plan occurs.
(b) With respect to each employee and welfare plan of Magna and its
Subsidiaries, for purposes of determining eligibility to participate and
vesting, service with a Charter Entity shall be treated as service with Magna;
provided, however, that such service shall not be recognized to the extent that
such recognition would result in a duplication of benefits. Such service shall
also apply for purpose of satisfying any waiting periods and evidence of
insurability requirements. No pre-existing condition limitations will apply to
the Charter Employees who were participants in the Charter plan comparable to
the plan in question at the Effective Time. Charter Employees shall be given
credit for amounts paid under a corresponding benefit plan during the same
period for purposes of applying deductibles, co-payments and out-of-pocket
maximums as though such amounts had been paid in accordance with the terms and
conditions of the corresponding Magna plan.
6.14. Employee Stock Ownership Plan. Prior to the Effective Time,
Charter and/or Charter Bank shall be permitted to amend the ESOP to permit the
Charter Entities to make monthly contributions to the ESOP through the day next
preceding the Effective Date and to delete the requirement that a participant
must be employed on the last day of the plan year in order to receive a
contribution and to make such other amendments as are appropriate to maximize
the benefits to be realized under the ESOP by participants, provided any such
amendments shall be undertaken in a manner that complies with applicable law and
does not adversely affect the qualified status of the ESOP. Except as otherwise
provided herein, the ESOP shall be terminated at the Effective Time with all
participant accounts becoming fully vested and nonforfeitable. Immediately prior
to the Effective Time, Charter shall purchase such number of shares of Charter
Common Stock held by the ESOP having a fair market value equal to the then
outstanding balance of the ESOP loan, including any accrued but unpaid interest
thereon. Also immediately prior to the Effective Time, Charter shall cause the
ESOP to fully retire the then outstanding balance of the ESOP loan, including
any accrued but unpaid interest thereon. At the Effective Time or as soon
thereafter as practicable, and contingent upon the issuance by the IRS of a
favorable determination letter, private letter ruling, or other authority
reasonably acceptable to Magna, it is intended that each of the following shall
occur, (a) all remaining unallocated amounts held by the ESOP shall be allocated
to the accounts of participants in the ESOP (whether or not such participants
are then actively employed) and beneficiaries as investment earnings of the ESOP
(except to the extent that any such allocations would be subject to the
limitations of Code Section 415 for such year) as of the Effective Time in
accordance with applicable law, and (b) the ESOP shall make a distribution of
benefits in a manner consistent with applicable law. As soon as practicable
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after the date of the Agreement, Charter shall file an application for
determination relating to the termination of the ESOP containing a full
description of each of the proposals described above with respect to the ESOP,
including the methodology to be utilized for allocating unallocated amounts as
earnings (the "ESOP Treatment"). If Charter receives a determination letter or
private letter ruling from the IRS that restricts any portion of the remaining
unallocated amounts to Code Section 415 limitations (i.e., limitations on
earnings allocations) or if the IRS in any way limits or caveats the ESOP
Treatment or refuses to issue a determination letter for termination, Magna and
Charter shall cooperate to implement a resolution that will maximize the
allocation of unallocated amounts to participants with account balances as of
the Effective Time in a manner that complies with applicable law and does not
adversely affect the qualified status of the plan. At the time distribution of
benefits is made under the ESOP on or after the Effective Date, at the election
of the participant, the amount thereof that constitutes an "eligible rollover
distribution" (as defined in Section 402(f)(2)(A) of the Code) may be rolled
over by such participant to any qualified Magna benefit plan or to any eligible
individual retirement account.
6.15. Pension Plan. It is contemplated by the parties that as of a date
subsequent to the Merger (such date to be determined by Magna in its sole
discretion) Charter's defined benefit pension plan will be merged into Magna's
currently existing defined benefit plan.
6.16. SERP. As of the Effective Time, Charter or Charter Bank will pay
John A. Becker pursuant to the Supplemental Executive Retirement Plan for
Charter Bank, S.B. (the "SERP") his supplemental benefit in a lump sum amount as
provided in Section 8.8 of the SERP.
6.17. Subsidiary Bank Merger. Upon the request of Magna, Charter shall
cause Charter Bank to enter into an agreement with Magna Bank and take all other
actions necessary and appropriate in causing the merger of Charter Bank into
Magna Bank (the "Subsidiary Bank Merger") to be effected. The Subsidiary Bank
Merger Agreement shall provide, in addition to customary terms for such a bank
merger (i) for the consummation of the Subsidiary Bank Merger on a date on or
after the Effective Date, as may be selected by Magna Bank, and (ii) that the
obligations of Charter Bank hereunder are conditioned on the prior or
simultaneous consummation of the Merger pursuant to this Agreement. The Merger
shall not be conditioned upon the consummation of the Subsidiary Bank Merger.
6.18. Dividend Coordination. After February 1, 1998, the Board of
Directors of Charter shall cause its regular quarterly dividend record dates and
payment dates for Charter Common Stock to be the same as Magna's regularly
quarterly dividend record dates and payment dates for Magna Common Stock. This
provision is intended to avoid duplication of dividends to Charter shareholders.
ARTICLE VII
CONDITIONS PRECEDENT
7.1. Conditions to Each Party's Obligation To Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction or waiver at or prior to the Effective Time of the following
conditions:
(a) Stockholder Approval. This Agreement and the Merger provided for
herein shall have received all required approvals by the stockholders of
Charter.
(b) NYSE Listing. The shares of Magna Common Stock which shall be
issued to the stockholders of Charter upon consummation of the Merger and the
exercise of New Options shall have been authorized for listing on the NYSE,
subject to official notice of issuance.
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(c) Regulatory Approvals. All regulatory approvals required to
consummate the transactions contemplated hereby (including the Merger) shall
have been obtained and shall remain in full force and effect and all statutory
waiting periods in respect thereof shall have expired (all such approvals and
the expiration of all such waiting periods being referred to herein as the
"Requisite Regulatory Approvals"); provided, however, that Magna shall not be
obligated to effect the Merger if, in the reasonable opinion of Magna, any
Requisite Regulatory Approval contains or imposes any condition or requirement
that would have a Material Adverse Effect on either party hereto; and provided,
further, that any condition or requirement in a Requisite Regulatory Approval
that involves anti-trust compliance shall be complied with and shall be deemed
to be a condition or requirement that would not have a Material Adverse Effect
on a party hereto.
(d) S-4. The S-4 shall have become effective under the Securities Act,
and Magna shall have received all state securities laws or "Blue Sky" permits
and other authorizations or there shall be exemptions from registration
requirements necessary to issue the Magna Common Stock in connection with the
Merger, and neither the S-4 nor any such permit, authorization or exemption
shall be subject to a stop order or threatened stop order by the SEC or any
state securities authority.
(e) No Injunctions or Restraints; Illegality. No order, injunction or
decree issued by any court or agency of competent jurisdiction or other legal
restraint or prohibition (an "Injunction") preventing the consummation of the
Merger or any of the other transactions contemplated by this Agreement shall be
in effect. No statute, rule, regulation, order, injunction or decree shall have
been enacted, entered, promulgated or enforced by any Governmental Entity which
prohibits, restricts or makes illegal consummation of the Merger.
7.2. Conditions to Obligations of Magna. The obligation of Magna to
effect the Merger is also subject to the satisfaction or waiver by Magna at or
prior to the Effective Time of the following conditions:
(a) Representations and Warranties. (i) The representations and
warranties of Charter set forth in Sections 3.2 and 3.3(a) of this Agreement
shall be true and correct in all material respects as of the date of this
Agreement and (except to the extent such representations and warranties speak as
of an earlier date) as of the Closing as though made on and as of the Closing;
and (ii) the representations and warranties of Charter otherwise set forth in
this Agreement shall be true and correct in all material respects as of the date
of this Agreement and (except to the extent such representations and warranties
speak as of an earlier date) as of the Closing as though made on and as of the
Closing; provided, however, that for purposes of determining the satisfaction of
the condition contained in this clause (ii), such representations and warranties
shall be deemed to be true and correct unless the failure or failures of such
representations and warranties to be so true and correct, individually or in the
aggregate, represent a Material Adverse Effect on Charter. Magna shall have
received a certificate signed on behalf of Charter by the Chief Executive
Officer and the Chief Financial Officer of Charter to the foregoing effect.
(b) Performance of Obligations of Charter. Charter shall have performed
in all material respects all obligations required to be performed by it under
this Agreement at or prior to the Effective Time, and Magna shall have received
a certificate signed on behalf of Charter by the Chief Executive Officer and the
Chief Financial Officer of Charter to such effect.
(c) Consents Under Agreements. The consent, approval or waiver of each
person (other than the Governmental Entities referred to in Section 7.1(c))
whose consent or approval shall be required in order to permit the succession by
Surviving Corporation pursuant to the Merger to any obligation, right or
interest of Charter under any loan or credit agreement, note, mortgage,
indenture, lease, license or other agreement or instrument to which Charter is a
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party or is otherwise bound shall have been obtained, except those consents or
approvals for which failure to obtain would not, individually or in the
aggregate, have a Material Adverse Effect on Magna (after giving effect to the
transactions contemplated hereby).
(d) No Pending Governmental Actions. No proceeding initiated by any
Governmental Entity seeking an Injunction shall be pending.
(e) Federal Tax Opinion. Magna shall have received an opinion of
Gallop, Johnson & Neuman, L.C., counsel to Magna ("Magna's Counsel"), in form
and substance reasonably satisfactory to Magna, dated as of the Effective Date,
substantially 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 be treated as a
reorganization within the meaning of Section 368(a) of the Code and that,
accordingly, for federal income tax purposes no gain or loss will be recognized
by Magna, Charter or Merger Sub as a result of the Merger. In rendering such
opinion, Magna's Counsel may require and rely upon representations and covenants
contained in certificates of officers of Magna, Charter and others.
(f) Legal Opinion. Magna shall have received a legal opinion, dated as
of the Effective Date, of Silver, Freedman & Taff, L.L.P. ("Charter's Counsel"),
substantially in the form attached hereto as Exhibit C. In rendering such
opinion, Charter's Counsel may rely upon representations and covenants contained
in certificates of officers of Magna, Charter and others.
7.3. Conditions to Obligations of Charter. The obligation of Charter to
effect the Merger is also subject to the satisfaction or waiver by Charter at or
prior to the Effective Time of the following conditions:
(a) Representations and Warranties. (i) The representations and
warranties of Magna set forth in Sections 4.2 and 4.3(a) of this Agreement shall
be true and correct in all material respects as of the date of this Agreement
and (except to the extent such representations and warranties speak as of an
earlier date) as of the Closing as though made on and as of the Closing; and
(ii) the representations and warranties of Magna otherwise set forth in this
Agreement shall be true and correct in all material respects as of the date of
this Agreement and (except to the extent such representations and warranties
speak as of an earlier date) as of the Closing as though made on and as of the
Closing; provided, however, that for purposes of determining the satisfaction of
the condition contained in this clause (ii), such representations and warranties
shall be deemed to be true and correct unless the failure or failures of such
representations and warranties to be so true and correct, individually or in the
aggregate, represent a Material Adverse Effect on Magna (after giving effect to
the transactions contemplated hereby). Charter shall have received a certificate
signed on behalf of Magna by the Chief Executive Officer and the Chief Financial
Officer of Magna to the foregoing effect.
(b) Performance of Obligations of Magna. Magna shall have performed in
all material respects all obligations required to be performed by it under this
Agreement at or prior to the Effective Time, and Charter shall have received a
certificate signed on behalf of Magna by the Chief Executive Officer and the
Chief Financial Officer of Magna to such effect.
(c) No Pending Governmental Actions. No proceeding initiated by any
Governmental Entity seeking an Injunction shall be pending.
(d) Federal Tax Opinion. Charter shall have received an opinion of
Charter's Counsel, in form and substance reasonably satisfactory to Charter,
dated as of the Effective Date, substantially 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
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will be treated as a reorganization within the meaning of Section 368(a) of the
Code and that, accordingly, for federal income tax purposes (i) no gain or loss
will be recognized by Charter as a result of the Merger, (ii) no gain or loss
will be recognized by the stockholders of Charter who exchange all of their
Charter Common Stock solely for Magna Common Stock pursuant to the Merger
(except with respect to cash received in lieu of a fractional share interest in
Magna Common Stock); and (iii) the aggregate tax basis of the Magna Common Stock
received by stockholders who exchange all of their Charter Common Stock solely
for Magna Common Stock pursuant to the Merger will be the same as the aggregate
tax basis of Charter Common Stock surrendered in exchange therefor.
(e) Legal Opinion. Charter shall have received a legal opinion, dated
as of the Effective Date, of Magna's Counsel, in substantially the form attached
hereto as Exhibit D. In rendering such opinion, Magna's Counsel may require and
rely upon representations and covenants contained in certificates of officers of
Magna, Charter and others.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1. Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval by the stockholders of
Charter of the matters presented in connection with the Merger:
(a) by mutual consent of Magna and Charter in a written instrument, if
the Board of Directors of each so determines by a vote of a majority of the
members of its entire Board;
(b) by either Magna or Charter upon written notice to the other party
if any Governmental Entity of competent jurisdiction shall have issued a final
nonappealable order enjoining, denying approval of, or otherwise prohibiting the
consummation of any of the transactions contemplated by this Agreement;
(c) by either Magna or Charter at any time after September 30, 1998 if
the Merger shall not theretofore have been consummated, unless the failure of
the Closing to occur by such date shall be due to the failure of the party
seeking to terminate this Agreement to perform or observe the covenants and
agreements of such party set forth herein;
(d) by either Magna or Charter if the approval of the stockholders of
Charter required for the consummation of the Merger shall not have been obtained
by reason of the failure to obtain the required vote at a duly held meeting of
such stockholders or at any adjournment or postponement thereof;
(e) by either Magna or Charter (provided that the terminating party is
not then in material breach of any representation, warranty, covenant or other
agreement contained herein) if there shall have been a material breach of any of
the representations or warranties set forth in this Agreement on the part of the
other party, which breach is not cured within 30 days following written notice
to the party committing such breach, or which breach, by its nature, cannot be
cured prior to the Closing; provided, however, that neither party shall have the
right to terminate this Agreement pursuant to this Section 8.1(e) unless the
breach of any representation or warranty, together with all other such breaches,
would entitle the party receiving such representation or warranty not to
consummate the transactions contemplated hereby under Section 7.2(a) (in the
case of a breach of a representation or warranty by Charter) or Section 7.3(a)
(in the case of a breach of a representation or warranty by Magna); provided,
further, that Magna may terminate this Agreement at any time during the Due
Diligence Period if it determines, in its reasonable judgment, that any matter
referred to in Section 3.20 of the Charter Disclosure Schedule would likely
result in the occurrence of a Material Adverse Effect on Charter;
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(f) by either Magna or Charter (provided that the terminating party is
not then in material breach of any representation, warranty, covenant or other
agreement contained herein) if there shall have been a material breach of any of
the covenants or agreements set forth in this Agreement on the part of the other
party, which breach shall not have been cured within 30 days following receipt
by the breaching party of written notice of such breach from the other party
hereto;
(g) by Magna, if (i) the Board of Directors of Charter shall have (x)
withdrawn or adversely modified its approval or recommendation of this Agreement
or the Merger, or (y) failed to reconfirm its recommendation of this Agreement
or the Merger after five business days following a written request by Magna to
do so, or (ii) Charter shall have taken any of the actions described in clauses
(i), (ii) and (iii) of Section 5.1(e) hereof; or
(h) By the Board of Directors of Charter, if it determines by a vote of
a majority of the members of its entire Board, at any time during the ten-day
period commencing two days after the Determination Date, if both of the
following conditions are satisfied:
(1) the Average Closing Price shall be less than the product
of (i) 0.80 and (ii) the Starting Price; and
(2) (i) the quotient obtained by dividing the Average Closing
Price by the Starting Price (such number being referred to herein as the "Magna
Ratio") shall be less than (ii) the quotient obtained by dividing the Index
Price on the Determination Date by the Index Price on the Starting Date and
subtracting 0.15 from the quotient in this clause (2)(ii) (such number being
referred to herein as the "Index Ratio");
subject, however, to the following: If Charter determines to terminate the
Agreement pursuant to this Section 8.1(h), it shall give prompt written notice
thereof to Magna. During the five-day period commencing with its receipt of such
notice, Magna shall have the option to elect to increase the Exchange Ratio to
equal the lesser of (i) the quotient obtained by dividing (1) the product of
0.80, the Starting Price and the Exchange Ratio (as then in effect) by (2) the
Average Closing Price, and (ii) the quotient obtained by dividing (1) the
product of the Index Ratio and the Exchange Ratio (as then in effect) by (2) the
Magna Ratio. If Magna makes an election contemplated by the preceding sentence,
within such five-day period, it shall give prompt written notice to Charter of
such election and the revised Exchange Ratio, whereupon no termination shall
have occurred pursuant to this Section 8.1(h) and this Agreement shall remain in
effect in accordance with its terms (except as the Exchange Ratio shall have
been so modified), and any references in this Agreement to "Exchange Ratio"
shall thereafter be deemed to refer to the Exchange Ratio as adjusted pursuant
to this Section 8.1(h).
For purposes of this Section 8.1(h), the following terms shall have the
meanings indicated:
"Average Closing Price" shall mean the average of the closing
sales prices of Magna Common Stock on the NYSE (as reported by The Wall Street
Journal, Midwest edition (or, if not reported thereby, by another authoritative
source)) for the 20 consecutive full trading days ending at the close of trading
on the Determination Date.
"Determination Date" shall mean the later of the date (i) of
the Stockholders' Meeting or (ii) on which the last Requisite Regulatory
Approval shall be received.
"Index Group" shall mean the bank holding companies listed on
Section 8.1(h) of the Magna Disclosure Schedule, the common stocks of all of
which shall be publicly traded and as to which there shall not have been, since
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the Starting Date and before the Determination Date, any public announcement of
a proposal for such company to be acquired or for such company to acquire
another company or companies in transaction with a value exceeding 25% of the
acquiror's market capitalization. In the event that any such company or
companies are removed from the Index Group, the weights (which shall be
determined based upon the number of outstanding shares of common stock) shall be
redistributed proportionately for purposes of determining the Index Price.
"Index Price" on a given date shall mean the weighted average
(weighted in accordance with the factors listed above) of the closing prices of
the companies composing the Index Group.
"Starting Date" shall mean the fourth full trading day after
the announcement by press release of the Merger.
"Starting Price" shall mean the closing price per share of
Magna Common Stock on the NYSE (as reported by The Wall Street Journal, Midwest
edition (or, if not reported thereby, by another authoritative source)) on the
Starting Date.
If any company belonging to the Index Group or Magna declares or
effects a stock dividend, reclassification, recapitalization, split-up,
combination, exchange of shares, or similar transaction between the date of this
Agreement and the Determination Date, the prices for the common stock of such
company or Magna shall be appropriately adjusted for the purposes of applying
this Section 8.1(h).
8.2 Effect of Termination; Expenses. (a) Magna and Charter hereby agree
that, subject to Section 8.2(b) hereof, the sole remedy available to a party
terminating this Agreement pursuant to Section 8.1 hereof, shall be limited to
such party's right not to effect the Merger and the other transactions provided
for in or contemplated by this Agreement, it being understood and agreed that
subject to the provisos to this sentence and the last sentence of this Section
8.2(a), the non-terminating party shall not be deemed in breach of this
Agreement; provided, however, that notwithstanding the foregoing (i) the last
sentence of each of Sections 6.2(a) and 6.2(b), this Section 8.2 and Section 9.4
shall survive any termination of this Agreement and (ii) no party shall be
relieved or released, as a result of such termination, from any liabilities or
damages arising out of its willful breach of any provision of this Agreement;
provided, further, that the right hereunder to damages shall be in lieu of the
rights to an injunction or injunctions or to enforce specifically the terms and
provisions hereof pursuant to Section 9.10 hereof. Moreover, any damages awarded
to Magna pursuant to this Section 8.2 (a) shall be offset by any value received
or realized by Magna pursuant to subparagraph (b) of this Section 8.2.
(b) (i) Notwithstanding subparagraph (a) above, if this Agreement is
terminated by Magna pursuant to Section 8.1(g), or by Charter pursuant to
Section 8.1, if, at the time of such termination by Charter, Magna would have
had the right to terminate this Agreement pursuant to Section 8.1(g), then, in
either case, Charter shall promptly, but in no event later than two business
days after the date of such termination, pay to Magna, as reimbursement of
Magna's direct and indirect expenses and costs, including legal, accounting and
administration costs, as well as the opportunity cost to Magna of business
transactions foregone as a result of its efforts to effect the Merger, a fee
equal to $5 million (the "Termination Fee"). If this Agreement is terminated
pursuant to Section 8.1(d) hereof by either party, then the Termination Fee
shall be payable to Magna if (A) a Takeover Proposal shall have occurred prior
to the meeting of Charter's stockholders referred to therein, and (B) within 12
months following such stockholders' meeting, (I) Charter shall have entered into
an agreement with a third party providing for the consummation of a transaction
which would constitute the subject of a Takeover Proposal, or (II) such a
transaction with a third party shall have occurred.
(ii) Notwithstanding the foregoing, to the extent that Charter
shall be prohibited by applicable law or regulation, or by administrative
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actions or policy of any Governmental Entity, from satisfying in full its
requirement to make the Termination Fee, it shall immediately so notify Magna
and shall thereafter deliver or cause to be delivered, from time to time, to
Magna, that portion of the payments required to be paid by it hereunder that it
shall no longer be prohibited from paying, within five business days after the
date on which Charter shall no longer be so prohibited; provided, however, that
if Charter at any time shall be prohibited by applicable law or regulation, or
by administrative actions or policy of any Governmental Entity, from making all
or any portion of the Termination Fee required hereunder, it shall (A) use its
reasonable best efforts to obtain all required regulatory and legal approvals
and to file any required notices as promptly as practicable in order to make
such payments, (B) within five days of the submission or receipt of any
documents relating to such regulatory or legal approvals, provide Magna with
copies of the same, and (C) keep Magna advised of both the status of any such
request for regulatory and legal approvals, as well as any discussions with any
relevant Governmental Entity or third party reasonably related to same. Nothing
contained in this subparagraph (b) shall be deemed to authorize Charter to
breach any provision of this Agreement.
8.3. Amendment. Subject to compliance with applicable law, this
Agreement may be amended by the parties hereto, by action taken or authorized by
their respective Boards of Directors, at any time before or after approval by
the stockholders of Charter of the Merger and the transactions provided for
herein; provided, however, that after any approval of this Agreement by
Charter's stockholders, there may not be, without further approval of such
stockholders, any amendment of this Agreement which reduces the amount or
changes the form of the consideration to be delivered to Charter stockholders
hereunder other than as contemplated by this Agreement. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
8.4. Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party, but such
extension or waiver or failure to insist on strict compliance with an
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
ARTICLE IX
GENERAL PROVISIONS
9.1. Closing. Subject to the terms and conditions of this Agreement,
including Section 1.2 hereof, the consummation of the Merger (the "Closing")
will occur on the Effective Date at the offices of Magna, unless another place
is agreed to in writing by the parties hereto.
9.2. Alternative Structure. Notwithstanding anything to the contrary
contained in this Agreement, prior to the Effective Time, Magna shall be
entitled to revise the structure of the Merger such that Charter shall in some
other manner become a wholly-owned subsidiary of Magna at the Effective Time;
provided, however, that any such revised structure must (i) qualify as a
tax-free reorganization within the meaning of Section 368(a) of the Code, (ii)
not subject any stockholders of Charter to adverse tax consequences or change
the amount of consideration to be received by such stockholders, and (iii) not
materially delay the Closing. Magna may exercise this right of revision by
giving written notice thereof in the manner provided in Section 9.5 of this
Agreement. This Agreement and any related agreement and any other related
documents shall be appropriately amended in order to reflect any such revised
structure.
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9.3. Nonsurvival of Representations, Warranties and Agreements. None of
the representations, warranties, covenants and agreements in this Agreement or
in any instrument delivered pursuant to this Agreement shall survive the
Effective Time, except for those covenants and agreements contained herein which
by their terms apply in whole or in part after the Effective Time.
9.4. Expenses. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expense, provided, however, that nothing contained herein shall
limit either party's rights to recover any liabilities or damages arising out of
the other party's willful breach of any provision of this Agreement, as provided
in Section 8.2(a) hereof.
9.5. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, telecopied (with
confirmation), mailed by registered or certified mail (return receipt requested)
or delivered by an express courier (with confirmation) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Magna, to:
Magna Group, Inc.
One Magna Place
1401 South Brentwood Boulevard
St. Louis, Missouri 63144-1401
Attention: G. Thomas Andes
Chairman, President and Chief Executive Officer
Telecopy: (314) 963-2496
with a copy to:
Gallop, Johnson & Neuman, L.C.
101 South Hanley Road
St. Louis, Missouri 63105
Attention: Robert H. Wexler, Esq.
Telecopy: (314) 862-1219
and
(b) if to Charter, to:
Charter Financial, Inc.
114 West Broadway
Sparta, Illinois 62286-1683
Attention: John A. Becker
Chairman, President and Chief Executive Officer
Telecopy: (618) 443-4458
with a copy to:
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue, N.W.
Washington, D.C. 20005
Attention: Barry P. Taff, P.C.
A-37
<PAGE>
Christopher R. Kelly, P.C.
Telecopy: (202) 682-0354
9.6. Interpretation; Effect. When a reference is made in this Agreement
to Sections, Exhibits or Schedules, such reference shall be to a Section of or
an Exhibit or Schedule to this Agreement unless otherwise indicated. The table
of contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. The phrases "the date of this Agreement", "the date hereof" and terms
of similar import, unless the context otherwise requires, shall be deemed to
refer to November 19, 1997. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation". No provision of this Agreement shall be
construed to require Charter, Magna or any of their respective Subsidiaries,
affiliates or directors to take any action which would violate applicable law
(whether statutory or common law), rule or regulation.
9.7. Counterparts. This Agreement may be executed in counterparts, all
of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart.
9.8. Entire Agreement. This Agreement (including the documents and the
instruments referred to herein) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof, other than the
Confidentiality Agreement, and any agreement or instrument referred to or
contemplated herein or therein.
9.9. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without regard to any
applicable conflicts of law, except to the extent specifically provided herein
or other required by law.
9.10. Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that the provisions contained in the
last sentence of each of Sections 6.2(a) and 6.2(b) of this Agreement were not
performed in accordance with its specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of the last sentence of Sections 6.2(a) and
6.2(b) this Agreement and to enforce specifically the terms and provisions
thereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
9.11. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
9.12. Publicity. Except as otherwise required by law or the rules of
the NYSE or the Nasdaq Stock Market, so long as this Agreement is in effect,
neither Magna nor Charter shall issue or cause the publication of any press
release or other public announcement with respect to, or otherwise make any
public statement concerning, the transactions contemplated by this Agreement
without the consent of the other party, which consent shall not be unreasonably
withheld.
A-38
<PAGE>
9.13. Assignment; No Third Party Beneficiaries. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns. Except as otherwise
expressly provided herein, this Agreement (including the documents and
instruments referred to herein) is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder.
A-39
<PAGE>
IN WITNESS WHEREOF, Magna and Charter have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
MAGNA GROUP, INC.
By: /s/ G. Thomas Andes
Name: G. Thomas Andes
Title: Chairman, President and
Chief Executive Officer
Attest:
/s/ Carolyn B. Ryseff
Name: Carolyn B. Ryseff
Title: Secretary
CHARTER FINANCIAL, INC.
By: /s/ John A. Becker
Name: John A. Becker
Title: Chairman, President and
Chief Executive Officer
Attest:
/s/ Linda M. Johnson
Name: Linda M. Johnson
Title: Secretary
A-40
<PAGE>
ANNEX B
DRAFT
Charles Webb & Company
a Division of
Keefe, Bruyette & Woods, Inc.
[DATE]
Board of Directors
Charter Financial, Inc.
114 West Broadway
Sparta, IL 62286-1683
Dear Board Members:
You have requested our opinion as an independent investment banking firm
regarding the fairness, from a financial point of view, to the stockholders of
Charter Financial, Inc. ("Charter Bank" or the "Company"), of the consideration
to be received by such stockholders in the merger (the "Merger") between the
Company and Magna Group, Inc., a Delaware corporation ("Magna"). We have not
been requested to opine as to, and our opinion does not in any manner address,
the Company's underlying business decision to proceed with or effect the Merger.
Pursuant to the Agreement and Plan of Merger, ("Agreement") dated November 19,
1997, by and among the Company and Magna, (the "Agreement"), at the effective
time of the Merger, Magna will acquire all of the Company's issued and
outstanding shares of common stock. The holders of Company common stock will
receive, in exchange for each share of Company common stock, shares of common
stock of Magna based on an Exchange Ratio as defined in the Agreement, section
1.4, which equates to a $22.50 per share price, for each share of Company common
stock. The Agreement provides additional details regarding the consideration
provisions for the Merger including the treatment of options as detailed in
Section 1.5. The complete terms of the proposed transaction are described in the
Agreement, and this summary is qualified in its entirety by reference thereto.
Charles Webb & Company, a Division of Keefe, Bruyette & Woods, Inc., as part of
its investment banking business, is regularly engaged in the evaluation of
business and securities in connection with mergers and acquisitions, negotiated
underwritings, and distributions of listed and unlisted securities. We are
familiar with the market for common stocks of publicly traded banks, savings
institutions and bank and savings institution holding companies.
In connection with this opinion, we reviewed certain financial and other
business data supplied to us by the Company and certain other information we
deemed relevant. We discussed with senior management and the board of directors
of the Company the position and prospective outlook for the Company. We
considered historical data as well as the prices of recorded transactions in the
Company's common stock since its mutual holding company offering in October,
1993 and its second step offering in December, 1995. We reviewed financial and
stock market data of other savings institutions, particularly in the midwestern
region of the United States, and the financial and structural terms of several
other recent transactions involving mergers and acquisitions of banks and
savings institutions or proposed changes of control of comparably situated
companies.
B-1
<PAGE>
For Magna, we reviewed the audited financial statements for the fiscal years
ended December 31, 1996, 1995 and 1994, quarterly and annual filings required by
the Securities Exchange Commission, proxy statements, and certain other
information deemed relevant.
For purposes of this opinion we have relied, without independent verification,
on the accuracy and completeness of the material furnished to us by the Company
and Magna and the material otherwise made available to us, including information
from published sources, and we have not made any independent effort to verify
such data. With respect to the financial information, including forecasts and
asset valuations we received from the Company, we assumed (with your consent)
that they had been reasonably prepared reflecting the best currently available
estimates and judgment of the Company's management. In addition, we have not
made or obtained any independent appraisals or evaluations of the assets or
liabilities, and potential and/or contingent liabilities of the Company or
Magna. We have further relied on the assurances of management of the Company and
Magna that they are not aware of any facts that would make such information
inaccurate or misleading. We express no opinion on matters of a legal,
regulatory, tax or accounting nature, or the ability of the Merger as set forth
in the Agreement to be consummated.
In rendering our opinion, we have assumed that in the course of obtaining the
necessary approvals for the Merger, no restrictions or conditions will be
imposed that would have a material adverse effect on the contemplated benefits
of the Merger to the Company or the ability to consummate the Merger. Our
opinion is based on the market, economic and other relevant considerations as
they exist and can be evaluated on the date hereof.
Consistent with the engagement letter with you, we have acted as financial
advisor to the Company in connection with the Merger and will receive a fee for
such services, a majority of which is contingent upon the consummation of the
Merger. Charles Webb & Company has performed previous investment banking
services for Charter and the Company and in such capacity received fees
commensurate with the service rendered. In addition, the Company has agreed to
indemnify us for certain liabilities arising out of our engagement by the
Company in connection with the Merger.
Based upon and subject to the foregoing, as outlined in the foregoing paragraphs
and based on such other matters as we considered relevant, it is our opinion
that as of the date hereof, the consideration to be received by the stockholders
of the Company in the Merger is fair, from a financial point of view, to the
stockholders of the Company.
This opinion may not, however, be summarized, excerpted from or otherwise
publicly referred to without our prior written consent, although this opinion
may be included in its entirety in the proxy statement of the Company used to
solicit stockholder approval of the Merger. It is understood that this letter is
directed to the Board of Directors of the Company in its consideration of the
Agreement, and is not intended to be and does not constitute a recommendation to
any stockholder as to how such stockholder should vote with respect to the
Merger.
Very truly yours,
/s/ Charles Webb & Company
A Division of Keefe, Bruyette & Woods, Inc.
<PAGE>
PART II -- Information Not Required in Prospectus
Item 20. Indemnification of Directors and Officers.
Section 145 of the DGCL provides generally and in pertinent part that a
Delaware corporation may indemnify its directors and officers against expenses,
judgments, finances and settlements actually and reasonably incurred by them in
connection with any civil suit or action, except actions by or in the right of
the corporation, or any administrative or investigative proceeding if, in
connection with the matters in issue, they acted in good faith and in a manner
they reasonably believed to be in, or not opposed to, the best interest of the
corporation, and in connection with any criminal suit or proceeding, if in
connection with the matters in issue, they had no reasonable cause to believe
their conduct was unlawful. Section 145 of the DGCL further permits a Delaware
corporation to grant its directors and officers additional rights of
indemnification through bylaw provisions and otherwise and to purchase indemnity
insurance on behalf of its directors and officers.
Article 12 of Magna's Certificate of Incorporation provides for the
elimination of personal liability of directors of Magna to Magna and its
stockholders for monetary damages arising from certain breaches of directors'
duty of care. In addition, Article 12 provides for the indemnification of
persons who are or were directors, officers, employees and agents of Magna or
who are or were serving at the request of Magna in a similar capacity with
another enterprise or entity to the fullest extent authorized by the DGCL.
Article 12 also authorizes Magna to purchase insurance for itself and
indemnifiable persons against any expense, liability or loss whether or not
Magna would have the power to indemnify such expense, liability or loss under
the DGCL.
Magna maintains a liability insurance policy which indemnifies
directors, officers, employees and agents of Magna. As part of the acquisition
of Charter, Magna agreed to assume Charter's duties and obligations to indemnify
its directors, officers, employees and agents to the extent and for so long as
they would (but for the Merger) otherwise survive and continue in full force and
effect.
Item 21. Exhibits and Financial Statement, Schedules.
(a) Exhibits. See Exhibit Index.
(b) Financial Statement Schedules. Not Applicable.
(c) Report, Opinion or Appraisal. Not Applicable.
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of
this registration statement (or the most
recent post-effective amendment hereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in this registration
statement;
(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in this registration
statement or any material change to such
information in this registration statement;
II-1
<PAGE>
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
registration statement relating to the securities
offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of
the offering.
(b) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this
registration statement, by any person or party who is deemed
to be an underwriter within the meaning of Rule 145(c) of the
Securities Act of 1933, the issuer undertakes that such
reoffering prospectus will contain the information called for
by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of
the applicable form.
(c) The undersigned registrant hereby undertakes that every
prospectus (i) that is filed pursuant to the paragraph (b)
immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act of 1933
and is used in connection with an offering of securities
subject to Rule 415 of the Securities Act of 1933, will be
filed as a part of an amendment to the registration statement
and will not be used until such amendment is effective, and
that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or
controlling person of the registrants in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
(e) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference
into the prospectus pursuant to Item 4, 10(b), 11, or 13 of
this form, within one business day of receipt of such request,
and to send the incorporated documents by first class mail or
other equally prompt means. This includes information
contained in documents filed subsequent to the effective date
of the registration statement through the date of responding
to the request.
II-2
<PAGE>
(f) The undersigned registrant hereby undertakes that, foR
purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section
15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in this registration statement shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(g) The undersigned registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning
a transaction, and the company being acquired involved
therein, that was not the subject of and included in the
registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Brentwood,
State of Missouri, on January 20, 1998.
MAGNA GROUP, INC.
/s/ G. Thomas Andes
--------------------------------
By: G. Thomas Andes
Its: Chairman of the Board and Chief
Executive Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of Magna Group, Inc., hereby
severally and individually constitute and appoint G. Thomas Andes, Robert S.
Kahler and Gary D. Hemmer, and each of them, the true and lawful attorneys and
agents of each of us to execute in the name, place and stead of each of us
(individually and in any capacity stated below) any and all amendments to this
Registration Statement on Form S-4 and all instruments necessary or advisable in
connection therewith and to file the same with the Securities and Exchange
Commission, each of said attorneys and agents to have the power to act with or
without the others and to have full power and authority to do and perform in the
name and on behalf of each of the undersigned every act whatsoever necessary or
advisable to be done in the premises as fully and to all intents and purposes as
any of the undersigned might or could do in person, and we hereby ratify and
confirm our signatures as they may be signed by our said attorneys and agents or
each of them to any and all such amendments and instruments.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on
January 20, 1998 in the capacities indicated.
Signature Title
--------- -----
/s/ G. Thomas Andes Chairman of the Board, Chief
- -------------------------------------------- Executive Officer and Director
G. Thomas Andes
Principal Executive Officer
/s/ Robert S. Kahler Executive Vice President and
- -------------------------------------------- Chief Financial Officer
Robert S. Kahler Principal Financial Officer
Principal Accounting Officer
/s/ James A. Auffenberg, Jr. Director
- --------------------------------------------
James A. Auffenberg, Jr.
/s/ Wayne T. Ewing Director
- --------------------------------------------
Wayne T. Ewing
/s/ Donald P. Gallop Director
- --------------------------------------------
Donald P. Gallop
II-4
<PAGE>
/s/ Randall E. Ganim Director
- --------------------------------------------
Randall E. Ganim
/s/ C.E. Heiligenstein Director
- --------------------------------------------
C.E. Heiligenstein
/s/ John G. Helmkamp, Jr. Director
- --------------------------------------------
John G. Helmkamp, Jr.
/s/ Carl G. Hogan, Sr. Director
- --------------------------------------------
Carl G. Hogan, Sr.
/s/ Franklin A. Jacobs Director
- --------------------------------------------
Franklin A. Jacobs
/s/ S. Lee Kling Director
- --------------------------------------------
S. Lee Kling
/s/ Ralph F. Korte Director
- --------------------------------------------
Ralph F. Korte
/s/ Roger J. Lowery Director
- --------------------------------------------
Roger J. Lowery
/s/ William A. Peck Director
- --------------------------------------------
William A. Peck
/s/ Erl A. Schmiesing Director
- --------------------------------------------
Erl A. Schmiesing
/s/ Douglas K. Shull Director
- --------------------------------------------
Douglas K. Shull
/s/ Frank R. Trulaske Director
- --------------------------------------------
Frank R. Trulaske
/s/ George T. Wilkins, Jr. Director
- --------------------------------------------
George T. Wilkins, Jr.
II-5
<PAGE>
EXHIBIT INDEX
Exhibit Page
Number Description
2.1 Agreement and Plan of Merger, dated as of November 19, 1997,
as amended December 4, 1997, by and between Magna Group, Inc.
and Charter Financial, Inc. is included as Annex A to the
Proxy Statement/Prospectus which is part of this Registration
Statement.
3.1 Restated Certificate of Incorporation of the Registrant,
(filed as Exhibit 3.1 to Magna's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997 (File No. 1-12405) and
incorporated herein by reference).
3.2 Bylaws of the Registrant, as amended, (filed as Exhibit 3.2 to
Magna's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997 (File No. 1-12405) and incorporated herein by
reference).
4.1 Form of Indenture, including form of Note, between Magna and
Mark Twain Bank, as trustee, dated August 1, 1987 for the 7%
Convertible Subordinated Capital Notes Due 1999 (filed as
Exhibit 1 to Magna's Registration Statement on Form 8-A dated
June 15, 1988 (File No. 1-12405) and incorporated herein by
reference).
4.2 Indenture dated as of November 1, 1986 between Landmark
Bancshares Corporation (hereinafter "Landmark") and Centerre
Trust Company of St. Louis, regarding the issuance of
$17,250,000 principal amount of Landmark's 8 3/4% Convertible
Subordinated Debentures due November 1, 1998 (filed as Exhibit
4(c) to Landmark's Annual Report on Form 10-K for the year
ended December 31, 1986 (File No. 1-12405) and incorporated
herein by reference).
4.3 First Supplemental Indenture dated December 20, 1991 among
Magna, Magna Acquisition Corporation and Boatmen's National
Bank of St. Louis as successor to Centerre Trust Company of
St. Louis, Trustee, assuming the obligations of Landmark under
the Indenture dated November 1, 1986 (filed as Exhibit 4.2 to
Magna's Current Report on Form 8-K dated December 20, 1991
(File No. 1-12405) and incorporated herein by reference).
4.4 Rights Agreement, including form of Right Certificate, dated
as of November 11, 1988 between Magna and Magna Trust Company,
Trustee (filed as Exhibits 1 and 2 to Magna's Registration
Statement on Form 8-A dated November 11, 1988 (File No.
1-12405) and incorporated herein by reference).
5.1 Opinion of Gallop, Johnson & Neuman, L.C. as to the legality
of the securities being issued.
8.1 Opinion of Gallop, Johnson & Neuman, L.C. as to certain tax
matters in the Merger.
8.2 Opinion of Silver, Freedman & Taff, L.L.P. as to certain tax
matters in the Merger.
10.1 Letter Agreement, dated November 19, 1997, by and among Magna
Group Inc., Charter Financial, Inc., John A. Becker, Michael
R. Howell, Linda M. Johnson and Karen P. Jacobus.
23.1 Consent of Ernst & Young LLP, St. Louis, Missouri.
23.2 Consent of KPMG Peat Marwick LLP, St. Louis, Missouri.
23.3 Consent of Deloitte & Touche LLP, Des Moines, Iowa.
23.4 Consent of Keefe, Bruyette & Woods, Inc. (included in Exhibit
99.1).
23.5 Consent of Gallop, Johnson & Neuman, L.C. (included in Exhibit
5.1 hereto).
23.6 Consent of Gallop, Johnson & Neuman, L.C. (included in Exhibit
8.1 hereto).
23.7 Consent of Silver, Freedman & Taff, L.L.P.(included in Exhibit
8.2 hereto).
24.1 Power of Attorney (included on signature page).
99.1 Opinion of Keefe, Bruyette & Woods, Inc. (included as Annex B
to the Proxy Statement/Prospectus which is part of this
Registration Statement).
II-6
GALLOP, JOHNSON & NEUMAN, L.C.
101 S. Hanley
St. Louis, Missouri 63105
January 20, 1998
Magna Group, Inc.
One Magna Place
1401 South Brentwood Boulevard
St. Louis, Missouri 63144
Re: Magna Group, Inc.
Registration Statement on Form S-4
Gentlemen:
We have acted as special counsel to Magna Group, Inc., a Delaware
corporation ("Magna"), in connection with the proposed issuance and sale by
Magna of an aggregate of up to 2,649,259 shares of common stock, par value $2.00
per share (the "Common Stock"), of Magna, together with an equal number of
rights to purchase units of Magna Junior Preferred Stock associated therewith
(the "Rights") (such shares of Common stock and associated Rights being
collectively referred to herein as the "Shares"), pursuant to an Agreement and
Plan of Merger, dated as of November 19, 1997, as amended (the "Merger
Agreement"), by and between Magna and Charter Financial, Inc., a Delaware
corporation ("Charter").
This opinion is delivered in accordance with the requirements of Item
601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended (the
"Act").
In connection with this opinion, we have examined orignals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement of Magna on Form S-4 filed with the Securities and Exchange Commission
(the "Commission") on the date hereof (the "Registration Statement"), (ii) the
form of certificates to be used to represent the Shares, (iii) the Restated
Certificate of Incorporation and By-Laws of Magna, as amended to date, (iv)
resolutions adopted by the Board of Directors of Magna relating to the Merger
Agreement and the issuance of the Shares pursuant thereto, (v) the Preferred
Share Purchase Rights Plan, dated as of November 11, 1988 (the "Rights
Agreement"), between Magna and Magna Bank (successor to Magna Trust Company), as
Rights Agent and (vi) such other documents as we have deemed necessary or
appropriate as a basis for the opinions set forth below.
<PAGE>
Magna Group, Inc.
January 20, 1998
Page Two
In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, the conformity
to original documents of all documents submitted to us as certified, conformed
or photostatic copies, and the authenticity of originals of such copies. As to
any facts material to this opinion that we did not independently establish or
verify, we have relied upon statements or representations of officers and other
representatives of Magna and others.
In rendering this opinion, we have assumed that, if Magna issues in
excess of 2,649,259 shares of Common Stock (and associated Rights) pursuant to
the Merger Agreement, the Board of Directors of Magna, including any appropriate
committee appointed thereby, and appropriate officers of Magna will have taken
all necessary corporate action to approve the issuance of such additional shares
of Common Stock and associated Rights and related matters.
The opinions expressed by us herein are limited to the statutory
Delaware General Corporation Law (Title 8), and we express no opinion as to any
other laws.
Based upon and subject to the foregoing, and assuming the due execution
and delivery of certificates representing the Shares in the form examined by us,
we are of the opinion that the Shares, each consisting of one share of Common
Stock and one Right, to be issued by Magna pursuant to the Merger Agreement,
when issued in accordance with the terms of the Merger Agreement (and, with
respect to the Rights, the Rights Agreement), will be duly authorized, validly
issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement. We also consent to the reference to
our firm under the caption "LEGAL MATTERS" in the Registration Statement. In
giving such consent we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Act.
Very truly yours,
/s/ GALLOP, JOHNSON & NEUMAN, L.C.
GALLOP, JOHNSON & NEUMAN, L.C.
101 S. Hanley
St. Louis, Missouri 63105
January 20, 1998
Magna Group, Inc.
One Magna Place
1401 South Brentwood Boulevard
St. Louis, Missouri 63144
Gentlemen:
You have requested our opinion regarding the discussion of the material
U.S. federal income tax consequences under the captions "SUMMARY--Certain
Federal Income Tax Consequences" and "THE MERGER--Certain Federal Income Tax
Consequences" in the Proxy Statement/Prospectus (the "Proxy
Statement/Prospectus") which will be included in the Registration Statement on
Form S-4 (the "Registration Statement") filed on the date hereof with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"). The Proxy Statement/Prospectus
relates to the proposed merger of Charter Financial, Inc. ("Charter") with and
into Charter Acquisition Sub, Inc., a wholly owned subsidiary of Magna Group,
Inc. ("Magna") so that Charter will become and continue as a wholly-owned
subsidiary of Magna. This opinion is delivered in accordance with the
requirements of Item 601(b)(8) of Regulation S-K under the Securities Act.
We have reviewed the Proxy Statement/Prospectus and such other
materials as we have deemed necessary or appropriate as a basis for the opinion
expressed herein, and have considered the applicable provisions of the Internal
Revenue Code of 1986, as amended, Treasury regulations, pertinent judicial
authorities, rulings of the Internal Revenue Service, and such other authorities
as we have considered relevant to such opinion.
Based upon the foregoing, and subject to the qualifications and the
accuracy of the assumptions made therein, it is our opinion that the statements
made under the captions "SUMMARY--Certain Federal Income Tax Consequences" and
"THE MERGER--Certain Federal Income Tax Consequences" in the Proxy
Statement/Prospectus, to the extent that they constitute matters of law or legal
conclusions, are correct in all material respects.
In accordance with the requirements of Item 601(b)(23) of Regulation
S-K under the Securities Act, we hereby consent to the use of our name in the
Proxy Statement/Prospectus and to the filing of this opinion as Exhibit 8.1 to
the Registration Statement. In giving this consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act or the rules and regulations of the Commission thereunder.
Very truly yours,
/s/ GALLOP, JOHNSON & NEUMAN, L.C.
Exhibit 8.2
(Letterhead of Silver, Freedman & Taff, L.L.P.)
January 20, 1998
Board of Directors
Charter Financial, Inc.
114 West Broadway
Sparta, Illinois 62286-1683
Re: Federal Income Tax Consequences Arising From the
Merger Contemplated By That Certain Agreement
And Plan of Merger By And Between Charter
Financial, Inc. and Magna Group, Inc. dated
November 19, 1997 (the "Agreement)
Ladies and Gentlemen:
In connection with the Form S-4 Registration Statement/Prospectus Proxy
Statement filed by Magna with the SEC pursuant to the Agreement, set forth
hereinbelow is this firm's opinion relating to certain federal income tax
consequences applicable to the Merger contemplated by the Agreement. Capitalized
terms used herein which are not expressly defined herein shall have the meaning
assigned to them in the Agreement.
FACTS
Magna is a stock corporation organized and existing under the laws of
the State of Delaware. Merger Sub is a stock corporation organized and existing
under the laws of the State of Delaware, is a first-tier wholly owned subsidiary
of Magna and was formed for the sole purpose of facilitating the Merger. Magna's
principal business consists of lending and deposit taking activities through one
or more banking subsidiaries.
Charter is a stock corporation organized and existing under the laws of
the State of Delaware. Charter's principal business consists of lending and
deposit taking activities through Charter Bank, S.B., an Illinois chartered
savings bank.
Pursuant to the Agreement, it is proposed that the Merger will be
implemented through the merger of Charter with and into Merger Sub. In the
Merger all of the outstanding Charter Common Stock will be exchanged solely for
Magna Common Stock or cash in lieu of fractional share interests.
ASSUMPTIONS
A. The Merger will be implemented strictly in accordance with the terms
of the Agreement and will constitute a statutory merger.
B. All conditions precedent contained in the Agreement shall be
performed or waived prior to the Effective Time.
C. The representations of Charter and Magna made in their respective
tax representation letters to us, in the form of Exhibits A and B hereto, shall
be true and correct as of the Effective Time.
D. All of the stockholders of Charter are citizens of the United States
of America.
<PAGE>
Boards of Directors
January 20, 1998
Page 2
- ------------------------------------------------------------------------------
OPINIONS
Subject to the foregoing and to the conditions and limitations
expressed elsewhere herein, we are of the opinion that for federal income tax
purposes:
1. the Merger will constitute a tax-free reorganization within the
meaning of Section 368(a)(1)(A) of the Code by virtue of Section 368(a)(2)(D) of
the Code and Magna, Merger Sub and Charter will each be a party to the
reorganization;
2. except as provided in paragraph 4 below, no gain or loss will be
recognized by any stockholder of Charter upon the exchange of Charter Common
Stock solely for Magna Common Stock in the Merger, and the basis of the Magna
Common Stock received by each stockholder of Charter who exchanges Charter
Common Stock solely for Magna Common Stock in the Merger will be the same as the
basis of the Charter Common Stock surrendered and exchanged therefor (subject to
any adjustments required as the result of receipt of cash in lieu of a
fractional share of Magna Common Stock);
3. the holding period of the Magna Common Stock received by a
stockholder of Charter in the Merger will include the holding period of the
Charter Common Stock surrendered and exchanged therefor, provided that such
shares of Charter Common Stock were held as a capital asset by such stockholder
at the Effective Time; and
4. the cash received by a Charter stockholder in lieu of a fractional
share interest of Magna Common Stock as part of the Merger will be treated as
having been received as a distribution in full payment in exchange for the
fractional share interest of Magna Common Stock which such stockholder would
otherwise be entitled to receive and will qualify as a capital gain or loss
(assuming the Charter Common Stock was a capital asset in such stockholder's
hands at the Effective Time).
The foregoing opinion reflects our legal judgment based upon the facts
and assumptions presented herein. This opinion has no official status or binding
effect of any kind. Accordingly, we cannot assure you that the Internal Revenue
Service or any court of competent jurisdiction will agree with this opinion.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to all references made to this letter in such
Registration Statement.
Very truly yours,
/s/ Silver, Freedman & Taff, L.L.P.
SILVER, FREEDMAN & TAFF, L.L.P.
<PAGE>
Exhibit A
REPRESENTATION LETTER
The undersigned, John A. Becker, Chairman of the Board, President, and
Chief Executive Officer of Charter Financial, Inc. ("Charter") HEREBY CERTIFIES
that (a) I am familiar with the terms and conditions of the Agreement and Plan
of Merger by and between Charter and Magna Group, Inc. ("Magna") dated November
19, 1997 (the "Agreement") including the schedules and exhibits thereto and (b)
I am aware that this Representation Letter will be relied on by Silver, Freedman
and Taff, L.L.P. in rendering its tax opinion to the Board of Directors of
Charter pursuant to the Agreement and also in connection with filings with the
SEC and regulatory authorities relating to the transactions contemplated by the
Agreement. All capitalized terms not otherwise defined herein shall have the
meaning assigned to them in the Agreement.
The undersigned HEREBY FURTHER CERTIFIES, ON BEHALF OF CHARTER, that:
(1) As of the date hereof, the facts which relate to the transactions
contemplated by the Agreement, insofar as such facts pertain to Charter and its
subsidiaries, are true, correct and complete and, insofar as such facts pertain
to Magna and its subsidiaries, the management of Charter has no reason to
believe that such facts are untrue, incorrect and incomplete.
(2) The Merger will be carried out strictly in accordance with the
Agreement.
(3) The aggregate fair market value of the consideration to be received
in the Merger by each holder of Charter Common Stock will be approximately equal
to the aggregate fair market value of the Charter Common Stock surrendered in
exchange therefor, as determined by arm's length negotiations between Charter
and Magna. No holder of Charter Common Stock will receive in exchange for such
stock, directly or indirectly, any consideration other than Magna Common Stock
and cash paid in lieu of a fractional share of Magna Common Stock.
(4) There is no plan, intention or other arrangement (including any
option or pledge) on the part of the holders of 5% or more of the Charter Common
Stock and, to the best knowledge of management of Charter, there is no plan,
intention or other arrangement (including any option or pledge) on the part of
the other holders of Charter Common Stock to sell, exchange or otherwise dispose
of a number of shares of Magna Common Stock received by such holders in the
Merger that would reduce such holders' ownership of Magna Common Stock to a
<PAGE>
number of shares having a value, as of the Effective Time, of less than 50
percent of the value of all of the formerly outstanding Charter Common Stock as
of the same date. For purposes of this representation, shares of Charter Common
Stock exchanged for cash or other property, or exchanged for cash in lieu of
fractional shares of Magna Common Stock, will be treated as outstanding at the
Effective Time. Moreover, all shares of Charter Common Stock and shares of Magna
Common Stock held by Charter stockholders and otherwise sold, redeemed, or
disposed of before or after the Effective Time will be taken into account in
making this representation.
(5) The liabilities of Charter were incurred in the ordinary course of
business.
(6) No assets of Charter have been or will be sold, transferred or
otherwise disposed of prior to the Effective Time which would prevent Merger Sub
upon consummation of the Merger from continuing the historic business of Charter
or from using a significant portion of Charter's historic business assets in a
business following the Merger. To the best knowledge of management of Charter,
neither Magna nor Merger Sub has any plan or intention to sell, exchange,
distribute, transfer or otherwise dispose of, except in the ordinary course of
business and except for transfers permitted by Section 368(a)(2)(C) of the Code,
any of Charter's assets to be acquired by Merger Sub in the Merger.
(7) Charter and the stockholders of Charter will each pay their own
expenses incurred in connection with the Merger.
(8) Charter has not paid and will not pay (and has not reimbursed and
will not reimburse), directly or indirectly, any expenses incurred by any holder
of Charter Common Stock in connection with the Merger or any related
transactions. Charter has not agreed to assume and will not directly or
indirectly assume any expense or other liability, whether fixed or contingent,
of any holder of Charter Common Stock.
(9) Charter is not an "investment company" within the meaning of
Section 368(a)(2)(F) of the Code or a real estate investment trust within the
meaning of Section 856 of the Code.
(10) Charter is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
(11) The payment in the Merger of cash in lieu of fractional shares of
Magna Common Stock is solely for the purpose of avoiding the expense and
inconvenience to Magna of issuing fractional shares of Magna Common Stock and
does not represent separately bargained for consideration.
(12) At the Effective Time, the total fair market value of the Charter
assets will exceed the total liabilities of Charter.
2
<PAGE>
(13) No compensation received by any stockholder of Charter who is an
employee of Charter or its subsidiaries is or will be separate consideration
for, or allocable to, any of his shares of Charter Common Stock. None of the
shares of Magna Common Stock received by any stockholder of Charter who is an
employee of Charter or any of its subsidiaries is or will be separate
consideration for, or allocable to, any employment, consulting or other similar
arrangement. The compensation paid to each stockholder of Charter who is an
employee of Charter or any of its subsidiaries is and will be for services
actually rendered and is an amount commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
(14) No indebtedness between Charter or any of its subsidiaries, on the
one hand, and Magna or any of its subsidiaries, on the other hand, exists or
will exist prior to the Effective Time that (a) was issued or acquired at a
discount or (b) will be settled, as a result of the Merger, at a discount. No
"installment obligation" (as the quoted term is defined for purposes of Section
453 B of the Code) between Charter or its subsidiaries, on the one hand, and
Magna or its subsidiaries, on the other hand, exists or will exist prior to the
Effective Time that will be extinguished as a result of any of the transactions
contemplated by the Agreement.
(15) Charter has not redeemed any Charter Common Stock, made any
distribution with respect to Charter Common Stock or disposed of any of its
assets in anticipation of or as part of the Merger.
(16) Except for outstanding options referred to in the Agreement, there
exists no options, warrants, convertible securities or other rights to acquire
Charter stock.
(17) No shares of Charter Common Stock are held by any affiliate of
Charter except as disclosed in Charter's most recent annual report on Form 10-K.
(18) During the five-year period ending at the Effective Time, neither
Magna nor any affiliate of Magna has owned or owns, beneficially or of record,
any stock or securities of Charter or any predecessor thereof or any instruments
giving any of them the right to acquire any such stock or securities except as
disclosed in the Prospectus Proxy Statement.
(19) To the best knowledge of management of Charter, neither Magna nor
any affiliate of Magna intends to acquire or redeem by purchase or otherwise
acquire any of the shares of Magna Common Stock to be issued pursuant to the
Merger, (except pursuant to the ordinary operation of a stock repurchase program
3
<PAGE>
that may be implemented by Magna to acquire its shares in the open market) or to
make any distributions with respect to such stock, other than regular, periodic
dividends.
(20) In the Merger, Charter will transfer to Merger Sub assets
representing at least 90 percent of the fair market value of Charter's net
assets and at least 70 percent of the fair market value of Charter's gross
assets held immediately prior to the Merger. For purposes of this
representation, assets used (i) to pay reorganization expenses, (ii) for
redemptions and distributions (excluding normal, regular dividends paid by
Charter) and (iii) to pay other amounts, if any, incurred in connection with the
Merger will be included as assets immediately prior to the consummation of the
Merger.
(21) To the best knowledge of management of Charter, Magna has no plan
or intention to liquidate Merger Sub, to merge Merger Sub into another
corporation, or to sell or otherwise dispose of any of the capital stock of
Merger Sub.
The undersigned agrees to promptly and timely notify Silver, Freedman
and Taff, L.L.P. if he has any reason to believe that any of the above
representations are untrue, incorrect or incomplete.
This Representation Letter is hereby executed on the 20th day of
January, 1998.
/s/ John A. Becker
By: John A. Becker
Chairman of the Board, President
and Chief Executive Officer
4
<PAGE>
Exhibit B
REPRESENTATION LETTER
The undersigned, ___________________, ___________________ of Magna
Group, Inc. ("Magna") HEREBY CERTIFIES that (a) I am familiar with the terms and
conditions of the Agreement and Plan of Merger by and between Magna and Charter
Financial, Inc. ("Charter") dated November 19, 1997 (the "Agreement") including
the schedules and exhibits thereto and (b) I am aware that this Representation
Letter will be relied on by Silver, Freedman and Taff, L.L.P. in rendering its
tax opinion to the Board of Directors of Charter pursuant to the Agreement and
also in connection with filings with the SEC and regulatory authorities relating
to the transactions contemplated by the Agreement. All capitalized terms not
otherwise defined herein shall have the meaning assigned to them in the
Agreement.
The undersigned HEREBY FURTHER CERTIFIES, ON BEHALF OF MAGNA, that:
(1) As of the date hereof, the facts which relate to the transactions
contemplated by the Agreement, insofar as such facts pertain to Magna and its
subsidiaries, are true, correct and complete and, insofar as such facts pertain
to Charter and its subsidiaries, the management of Magna has no reason to
believe that such facts are untrue, incorrect and incomplete.
(2) The Merger will be carried out strictly in accordance with the
Agreement.
(3) The aggregate fair market value of the consideration to be received
in the Merger by each holder of Charter Common Stock will be approximately equal
to the aggregate fair market value of the Charter Common Stock surrendered in
exchange therefor, as determined by arm's length negotiations between Magna and
Charter. No holder of Charter Common Stock will receive in exchange for such
stock, directly or indirectly, any consideration other than Magna Common Stock
and cash paid in lieu of a fractional share of Magna Common Stock.
(4) The management of Magna is not aware of any plan, intention or
other arrangement (including any option or pledge) on the part of the holders of
5% or more of the Charter Common Stock or on the part of the other holders of
Charter Common Stock to sell, exchange or otherwise dispose of a number of
<PAGE>
shares of Magna Common Stock received by such holders in the Merger that would
reduce such holders' ownership of Magna Common Stock to a number of shares
having a value, as of the Effective Time, of less than 50 percent of the value
of all of the formerly outstanding Charter Common Stock as of the same date. For
purposes of this representation, shares of Charter Common Stock exchanged for
cash or other property, or cash in lieu of fractional shares of Magna Common
Stock, will be treated as outstanding as of the Effective Time. Moreover, all
shares of Charter Common Stock and shares of Magna Common Stock held by Charter
stockholders and otherwise sold, redeemed, or disposed of before or after the
Effective Time will be taken into account in making this representation.
(5) The assumption by Merger Sub of the liabilities of Charter, and the
acquisition by Merger Sub of the assets of Charter which are subject to
liabilities, pursuant to the Merger is for a bona fide business purpose, and the
principal purpose for such assumption of liabilities and acquisition of assets
subject to liabilities is not the avoidance of federal income tax on the
transfer of such assets.
(6) Neither Magna nor Merger Sub has any plan or intention to sell,
exchange, distribute, transfer or otherwise dispose of, except in the ordinary
course of business and except for transfers permitted by Section 368(a)(2)(C) of
the Code, any of Charter's assets to be acquired in the Merger. It is the
intention of the management of Merger Sub to continue the historic business of
Charter or to use a significant portion of Charter's historic business assets in
a business following the Merger.
(7) Magna, Charter and the stockholders of Charter will each pay their
own expenses incurred in connection with the Merger.
(8) Prior to the Merger, Magna will be in control of Merger Sub within
the meaning of Section 368(c) of the Code.
(9) In the Merger, shares of Charter stock representing control of
Charter, as defined in Section 368(c) of the Code, will be exchanged solely for
voting common stock of Magna. For purposes of this representation, Charter stock
exchanged for cash or other property originating with Magna will be treated as
outstanding Charter stock at the Effective Time.
(10) Neither Magna nor any of its subsidiaries has paid or will pay (or
has reimbursed or will reimburse), directly or indirectly, any expenses incurred
by any holder of Charter Common Stock in connection with the transactions
contemplated by the Agreement; and none of them has agreed to assume or will
directly or indirectly assume any expense or other liability, whether fixed or
contingent, of any holder of Charter Common Stock.
2
<PAGE>
(11) Neither Magna nor Merger Sub is an "investment company" within the
meaning of Section 368(a)(2)(F) of the Code or a real estate investment trust
within the meaning of Section 856 of the Code.
(12) Neither Magna nor Merger Sub is under the jurisdiction of a court
in a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the
Code.
(13) The payment of cash to Charter stockholders in lieu of fractional
shares of Magna Common Stock will not be separately bargained for consideration,
but will be undertaken solely for the purpose of avoiding the expense and
inconvenience of issuing and transferring fractional shares. The total cash
consideration that will be paid to Charter stockholders in lieu of fractional
shares of Magna Common Stock will represent less than one percent (1%) of the
total consideration issued in the transaction.
(14) None of the compensation received by any stockholder who is an
employee of Charter or any of its subsidiaries represents separate consideration
for, or is allocable to, any of his or her Charter Common Stock. None of the
Magna Common Stock that will be received by any stockholder who is an employee
of Charter or any of its subsidiaries in the Merger represents separately
bargained for consideration which is allocable to any employment agreement or
arrangement.
(15) No indebtedness between Magna or any of its subsidiaries, on the
one hand, and Charter or any of its subsidiaries, on the other hand, exists or
will exist prior to the consummation of the transactions contemplated by the
Agreement that (a) was issued or acquired at a discount or (b) will be settled,
as a result of any of such transactions, at a discount. No "installment
obligation" (as the quoted term is defined for purposes of Section 453 B of the
Code) between Magna or any of its subsidiaries, on the one hand, and Charter or
any of its subsidiaries, on the other hand, exists or will exist prior to the
consummation of the transactions contemplated by the Agreement that will be
extinguished as a result thereof.
(16) During the five-year period ending at the Effective Time, neither
Magna nor any affiliate of Magna has owned or owns, beneficially or of record,
any stock or securities of Charter or any predecessor thereof or any instruments
giving any of them the right to acquire any such stock or securities except as
disclosed in the Prospectus Proxy Statement.
(17) Magna has no plan or intention to redeem or otherwise reacquire
any of its stock to be issued in the Merger, except for purchases of stock in
3
<PAGE>
the open market in the normal course of business executed through an independent
broker in which Magna is not aware of the identity of any seller or in private
placement transactions in which the sellers are not former Charter stockholders.
(18) In the Merger, Merger Sub will acquire at least 90 percent of the
fair market value of the net assets and at least 70 percent of the fair market
value of the gross assets held by Charter immediately prior to the Effective
Time. For purposes hereof, assets used (I) to pay reorganization expenses, (ii)
for redemptions and distributions (excluding regular, normal dividends paid by
Charter) and (iii) to pay other amounts, if any, incurred in connection with the
Merger will be included as assets immediately prior to the consummation of such
transaction. For purposes of this representation, the undersigned is relying on
the accuracy of representation #20 contained in the Charter Representation
Letter of even date herewith.
(19) Magna has no plan or intention to liquidate Merger Sub, to merge
Merger Sub into another corporation, or to sell or otherwise dispose of any
stock of Merger Sub
(20) No stock of Merger Sub will be issued pursuant to the Merger.
The undersigned agrees to promptly and timely notify Silver, Freedman
and Taff, L.L.P. if he has any reason to believe that any of the above
representations are untrue, incorrect or incomplete.
This Representation Letter is hereby executed on the day ____ of
January, 1998.
By:
Title:
4
[Magna Group, Inc. Letterhead]
November 19, 1997
Charter Financial, Inc.
114 West Broadway
Sparta, Illinois 62286
Ladies and Gentlemen:
We have, today, entered into an Agreement and Plan of Merger (the
"Agreement") by and between Magna Group, Inc. ("Magna") and Charter Financial,
Inc. ("Charter"). Notwithstanding Section 9.8 of the Agreement, this
Supplemental Letter shall constitute the additional agreements and
understandings of Magna and Charter and, to the extent expressly set forth
herein, shall be in supplement thereof. All terms used herein without definition
have the same meanings as ascribed to such terms in the Agreement.
Accordingly, in consideration of the parties having entered into the
Agreement and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, it is further agreed that:
1. The employment of John A. Becker ("Becker") under that certain
Employment Agreement dated as of October 15, 1993 by and between Charter Bank,
S.B. ("Charter Bank") and Becker shall terminate as of the Effective Time. As of
the Effective Time, Charter or Charter Bank will pay to Becker cash in the
amount of $587,253, which shall be in full satisfaction of all obligations owed
to Becker by Charter Bank under said employment agreement.
2. Magna shall honor and assume the financial obligations under (i) the
Employment Agreement dated as of April 17, 1997, as amended, by and between
Charter Bank and Michael R. Howell ("Howell"), (ii) the Employment Agreement
dated as of April 17, 1997, as amended, by and between Charter Bank and Linda M.
Johnson ("Johnson"), and (iii) the Employee Severance Compensation Plan, as to
which Charter hereby represents that Karen P. Jacobus ("Jacobus") is and will be
the sole participant. Becker, Howell, Johnson and Jacobus shall be referred to
collectively as the "Subject Employees." Upon the termination of employment with
Magna or any Magna affiliate for any reason (including death, disability, early
or normal retirement and voluntary termination) at any time during the initial
three-year term thereof, Magna or a Magna affiliate shall pay (a) in the case of
Howell, cash in the amount of $311,979 to Howell; (b) in the case of Johnson,
<PAGE>
cash in the amount of $302,876 to Johnson; and (c) in the case of Jacobus, cash
in an amount equal to two times her cash compensation for the 12 months ending
on the last day of the month next preceding her termination date to Jacobus.
3. For the period of time set forth below with respect to each Subject
Employee, Magna shall continue, at the sole cost of Magna, certain benefits for
each Subject Employee as such Subject Employee shall elect on or prior to ten
business days prior to the Effective Time (if no such election is made, Magna
shall provide the benefits consistent with subparagraph (i) below). Each Subject
Employee may elect benefits from one of the following two choices:
(i) life medical, dental and disability insurance and benefits provided
to employees of Magna of comparable positions immediately prior to the
Effective Time, or
(ii) life, medical, dental, and disability insurance and benefits
provided through insurance and benefit plans sponsored by the Illinois
League of Financial Institutions (the "Illinois League") and
substantially identical to coverage maintained by the Charter Entities
for such Subject Employee immediately prior to the Effective Time.
The time period for which Magna shall continue such elected coverage for each
Subject Employee is as follows:
Subject Employee Time Period
Becker 36 months following the Effective Time
Howell 36 months following his termination of
service from Magna or any Magna affiliate
Johnson 36 months following her termination of
service from Magna or any Magna affiliate
Jacobus 6 months following her termination of
service from Magna or any Magna affiliate
4. At the Effective Time with respect to Becker and the applicable
termination date with respect to Howell, Johnson or Jacobus, each of Becker,
Howell, Johnson and Jacobus shall, if requested by Magna, enter into appropriate
releases with respect to their termination of rights under their respective
employment arrangements, subject to Magna's obligations to provide continuing
life, medical, dental and disability insurance and benefits (or to pay for such
coverage provided by the Illinois League) as described herein. Notwithstanding
the foregoing, upon the death of any Subject Employee, Magna's obligation to
continue such insurance and benefits with respect to such Subject Employee shall
terminate.
5. James H. Clutts, R. Eugene Watson, Dennis F. Doelitzch, Carl S.
Schlageter, William A. Norton, Klondis T. Pirtle, John A. Becker, Michael R.
Howell and Linda M. Johnson shall at the Effective Time be entitled to become
members of an Advisory Board of Merger Sub or another Magna affiliate (as
<PAGE>
determined by Magna) for a term of four years following the Effective Time. Each
such member shall receive compensation of $200 per year for service on such
Advisory Board. In the event that Howell or Johnson become employed by a
financial institution other than Magna Bank or another Magna Subsidiary, Howell
or Johnson, as the case may be, shall as of the date of such employment, no
longer be entitled to continue as a member of such Advisory Board. Magna shall
not take any action to amend the RRP which would have the effect of excluding
future service as an advisory director from the definition of "Continuous
Service" under such plan.
IN WITNESS WHEREOF, the parties intending to be legally bound have
caused this Supplemental Letter to be executed.
MAGNA GROUP, INC.
By: /s/ G. Thomas Andes
G. Thomas Andes
Chairman and Chief Executive Officer
CHARTER FINANCIAL, INC.
By: /s/ John A. Becker
John A. Becker
President and Chief Executive Officer
Agreed to and confirmed this 19th day of November, 1997.
/s/ John A. Becker /s/ Michael R. Howell
- ---------------------------------- ------------------------------------
John A. Becker Michael R. Howell
/s/ Linda M. Johnson /s/ Karen P. Jacobus
- ---------------------------------- ------------------------------------
Linda M. Johnson Karen P. Jacobus
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Magna Group, Inc.
for the registration of 2,649,259 shares of its common stock and to the
incorporation by reference therein of our report dated January 15, 1997, with
respect to the consolidated financial statements of Magna Group, Inc.
incorporated by reference in its Annual Report (Form 10-K) for the year ended
December 31, 1996, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
St. Louis, Missouri
January 20, 1998
Exhibit 23.2
Independent Auditors' Consent
The Board of Directors
Charter Financial, Inc.:
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the Proxy
Statement/Prospectus.
/s/ KPMG Peat Marwick LLP
St. Louis, Missouri
January 16, 1998
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Magna Group, Inc. ("Magna") on Form S-4 of our report dated January 21, 1997, on
our audits of the consolidated balance sheets of Homeland Bankshares Corporation
and its subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, cash flows, and changes in stockholders'
equity for each of the three years in the period ended December 31, 1996, which
report is included in Magna's Current Report on Form 8-K/A, dated May 1, 1997,
which is incorporated by reference into Magna's Form S-4, and to the reference
to us under the headings "Experts" in the Prospectus, which is part of the
Registration Statement.
/s/ Deloitte & Touche LLP
Des Moines Iowa
January 16, 1998
