EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
MAGNA GROUP, INC.
AND
CHARTER FINANCIAL, INC.
DATED AS OF NOVEMBER 19, 1997
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
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
(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
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
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 (omitted)
EXHIBIT "C" Legal Opinion of Silver, ▇▇▇▇▇▇▇▇ & ▇▇▇▇, L.L.P. (omitted)
EXHIBIT "D" Legal Opinion of Gallop, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, ▇.▇. (omitted)
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.
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
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").
2
(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.
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.
3
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
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.
4
(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
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
5
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
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
6
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.
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
7
(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.
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, ▇▇▇▇▇▇▇ ▇▇▇▇ & Company, a division of ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇, Inc. ("▇▇▇▇▇▇▇ ▇▇▇▇"), in accordance with the terms of a letter agreement
between Charter and ▇▇▇▇▇▇▇ ▇▇▇▇, 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).
8
(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
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
9
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
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
10
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,
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
11
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
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
12
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.
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
13
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
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,
14
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
(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.
15
(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.
3.26. Opinion of Financial Advisor . Charter has received a written
opinion of ▇▇▇▇▇▇▇ ▇▇▇▇, 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
16
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
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
17
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.
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
18
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
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
19
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.
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
20
(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.
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;
21
(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.
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
22
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;
(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 ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
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.
23
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:
(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
24
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.
(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 ▇▇▇▇▇▇▇ ▇▇▇▇, 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
25
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 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.
26
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
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
27
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.
(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
28
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
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
▇▇▇▇ ▇. ▇▇▇▇▇▇ 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.
29
(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
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).
30
(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, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, ▇.▇., 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, ▇▇▇▇▇▇▇▇ & 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
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
31
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;
(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;
32
(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
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.
33
"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 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
34
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.
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
35
(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
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇. ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: G. ▇▇▇▇▇▇ ▇▇▇▇▇
Chairman, President and Chief Executive Officer
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Gallop, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, ▇.▇.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇. ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
and
(b) if to Charter, to:
Charter Financial, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Chairman, President and Chief Executive Officer
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Silver, ▇▇▇▇▇▇▇▇ & ▇▇▇▇, L.L.P.
▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇, P.C.
▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, P.C.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
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
36
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.
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.
37
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. ▇▇▇▇▇▇ ▇▇▇▇▇
------------------------------------------------------
Name: G. ▇▇▇▇▇▇ ▇▇▇▇▇
Title: Chairman, President and Chief Executive Officer
Attest:
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Secretary
CHARTER FINANCIAL, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chairman, President and Chief Executive Officer
Attest:
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Secretary
EXHIBIT A
PLAN OF MERGER
1. The names of the corporations proposing to merge are a Delaware
corporation (the "Company"), and Charter Financial, Inc., a Delaware Corporation
("Charter"). In accordance with the applicable provisions of the General
Corporation Law of the State of Delaware (the "DGCL"), Charter shall be merged
with and into the Company (the "Merger") as of the Effective Time (as that term
is defined in paragraph 2 below), with the Company continuing as the surviving
corporation. As of the Effective Time of the Merger, the separate existence of
Charter shall cease,
2. This Plan of Merger ("Plan") shall be submitted to a vote of the
stockholders of Charter and to a vote of the sole stockholder of the Company. If
this Plan is approved by the stockholders of Charter and the Company in the
manner required by the DGCL, the Company shall file a Certificate of Merger with
the Delaware Secretary of State (the "Certificate of Merger"), pursuant to and
in accordance with the DGCL and with that certain Agreement and Plan of Merger
dated November 19, 1997 (the "Agreement")(of which this Plan is a part.) and
entered into by and between Magna Group), Inc., a Delaware corporation
("Magna"), and Charter,
3. The Merger shall take effect and be consummated at ___ p.m., local
Delaware time on _______, 1998 (the "Effective Time")
4. As of the Effective Time:
(a) Charter will merge with and into the Company, with the Company
continuing as the surviving corporation and the separate existence of Charter
shall cease.
(b) The title to all real estate and other property owned by Charter shall
be vested in the Company without reservation or impairment.
(c) The Company shall have all liabilities of Charter, and all rights of
creditors and all liens upon any property of Charier shall be preserved
unimpaired, and all debts, liabilities and obligation oi Charter shall
thereafter attach to the Company and may be enforced against it to the same
extent as if said debt, liabilities and obligations had been incurred or
contracted by the Company.
(d) The directors and officers of the Company immediately prior to the
Effective Time shall be the directors and officers of the Company following the
Merger, with such directors and officers to continue to hold office in
accordance with the Company's Bylaws and applicable law.
(e) The Certificate of Incorporation and Bylaws of the Company in effect
immediately prior to the Effective Time shall continue as the Certificate of
incorporation and Bylaws of the Company, subject to future amendment.
(f) The Merger shall otherwise have all of the effects of a merger as
provided in Section 259 of the DGCL.
5. (a) Each share of the common stock, par value $0.01 per share, of the
Company that is issued and outstanding immediately prior to the Effective Time
shall continue to be and represent one share of common stock of the Company, and
shall remain outstanding and shall be unchanged after the Merger and shall
thereafter constitute all of the issued and outstanding capital stock of the
Company.
(b) Each share of the Common stock, (par value $0. 10 per share, of Charter
issued and outstanding immediately prior to) the Effective Time ("Charter Common
Stock") shall at the Effective Time be, by virtue of the Merger and without any
further action on the part of any holder thereof, converted into and become the
right to receive 0.5751 of a share (the "Exchange Ratio") of the common stock of
Magna, par value $2.00 per share ("Magna Common Stock"), and associated
Preferred Share Purchase Rights issued pursuant to the rights agreement dated as
of November 11, 1988, by and between Magna and Magna Trust Company, as rights
agent.
(c) If prior to the Effective Time (i) Charter shall declare a stock
dividend or distribution upon or subdivide, split up, reclassify, or combine the
Charter Common Stock, or declare a dividend or make a distribution on the
Charter Common Stock in any security convertible into Charter Common Stock, or
(ii) Magna shall declare a stock dividend or distribution or make a distribution
on the Magna Common Stock in any security convertible into Magna Common Stock,
an appropriate adjustment or adjustments will be made to the Exchange Ratio.
6. If, at any time after the Effective Time, the surviving corporation
determines or is advised that any further deeds, assignments or assurances in
law or other acts are necessary or desirable to: (a) vest, perfect or confirm,
of record or otherwise, in the surviving corporation its right, title or
interest in, to or under any of the rights, properties or assets of the Company
or Charter, or (b) otherwise carry out the provisions of this Plan, the Company
and Charter (and their respective officers and directors) shall be deemed to
have granted to the surviving corporation an irrevocable power of attorney to
execute and deliver all such deeds, assignments or assurances in law and to take
all acts necessary, proper or desirable to vest, perfect or confirm title to and
possession of such rights, properties or assets in the surviving corporation and
otherwise to carry out the provisions of this Plan, and the officers and
directors of the surviving corporation are authorized in the name of the Company
and/or Charter or otherwise to take any and all such action,
7. This Plan, once approved by the stockholders of Charter and the Company
may be terminated by the withdrawal by the directors of Charter or the Company
of their approval of the Merger (evidenced by the vote of such directors at a
meeting duty held).
8. The other terms and conditions of the Merger are as set forth in the
Agreement.