STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of November 13, 1996, between Eastern
Bancorp, Inc., a Delaware corporation (the "Issuer"), and Vermont Financial
Services Corporation, a Delaware corporation (the "Grantee").
WHEREAS, the Grantee, the Issuer and Issuer's wholly owned banking
subsidiary, Vermont Federal Bank, FSB, are entering into an Agreement and Plan
of Reorganization of even date herewith (the "Acquisition Agreement"), which
agreement is being executed by the parties thereto simultaneously with this
Agreement; and
WHEREAS, as a condition to the Grantee's entry into the Acquisition
Agreement and in consideration for such entry, the Issuer has agreed to grant
the Grantee the Option (as hereinafter defined);
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein and in the Acquisition Agreement, the
parties hereto agree as follows:
1. (a) The Issuer hereby grants to the Grantee an unconditional,
irrevocable and non-transferable option (the "Option") to purchase, subject to
the terms hereof, up to 732,425 fully paid and nonassessable shares (the "Option
Shares") of common stock, $0.01 par value per share, of the Issuer ("Common
Stock") at a price of $21.00 per share (the "Option Price"). The number of
shares of Common Stock that may be received upon the exercise of the Option and
the Option Price are subject to adjustment as herein set forth provided that in
no event shall the number of shares for which this Option is exercisable exceed
19.9% of the Issuer's issued and outstanding shares of Common Stock (without
giving effect to any shares of Common Stock issuable pursuant to the Option)
less the number of shares, if any, previously issued pursuant to exercise of the
Option.
(b) In the event that any additional shares of Common Stock
are issued or otherwise become outstanding after the date of this Agreement
(other than pursuant to exercise of the Option pursuant to this Agreement or as
contemplated by Section 5(a) of this Agreement), including, without limitation,
pursuant to stock option or other employee plans or as a result of the exercise
of conversion rights, the number of Option Shares shall be increased so that,
after such issuance, it equals 19.9% of the number of shares of Common Stock
then issued and outstanding without giving effect to any shares subject or
issued pursuant to the Option less the number of shares, if any, previously
issued pursuant to exercise of the Option. Nothing contained in this Section
1(b) or elsewhere in this Agreement shall be deemed to authorize the Issuer or
the Grantee to breach any provision of the Acquisition Agreement.
2. (a) Provided that the Grantee is not in material breach of the
Acquisition Agreement, the Grantee may exercise the Option, in whole or part,
if, but only if, both an Initial Triggering
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Event (as defined in paragraph (e) below) and a Subsequent Triggering Event (as
defined in paragraph (f) below) shall have occurred prior to the occurrence of
an Exercise Termination Event (as defined in paragraph (b) below), provided that
the Grantee shall have sent the written notice of such exercise (as provided in
paragraph (h) of this Section 2) within thirty (30) days following such
Subsequent Triggering Event and prior to the Exercise Termination Event.
(b) The term "Exercise Termination Event" shall mean the
earliest of (i) the Effective Time of the Acquisition Merger, (ii) any
termination of the Acquisition Agreement in accordance with the provisions
thereof if such termination occurs prior to the occurrence of an Initial
Triggering Event or if such termination is pursuant to Section 8.01(c) or
8.01(f) or by the Issuer pursuant to Section 8.01(d) thereof, and (iii) except
as provided in subparagraph 2(b)(ii) hereof, in the event of any termination of
the Acquisition Agreement in accordance with the provisions thereof after the
occurrence of an Initial Triggering Event, the passage of twelve (12) months
after such termination. Notwithstanding the termination of the Option, the
Grantee shall be entitled to purchase those Option Shares with respect to which
it has exercised the Option in whole or in part prior to the termination of the
Option.
(c) [This paragraph intentionally omitted]
(d) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) The Issuer or any subsidiary of the Issuer, without having
received the Grantee's prior written consent, shall have entered into
an agreement to engage in an Acquisition Transaction with any Person
(the term "person" for purposes of this Agreement having the meaning
assigned thereto in Sections 3(a)(9) and 13(d)(3) of the Exchange Act
and the rules and regulations thereunder), other than the Grantee or
any subsidiary of the Grantee, or, without the consent of the Grantee,
the Board of Directors of the Issuer shall have approved an Acquisition
Transaction or recommended that the shareholders of the Issuer approve
or accept any Acquisition Transaction other than as contemplated by the
Acquisition Agreement. For purposes of this Agreement, the term
"Acquisition Transaction" shall mean (A) a merger or consolidation, or
any similar transaction, with the Issuer or any subsidiary of the
Issuer that is a "significant subsidiary" as defined in Regulation S-X
promulgated by the Securities and Exchange Commission (a "Significant
Subsidiary"), or any subsidiary of the Issuer which, after such
transaction, would be a Significant Subsidiary of the Issuer, (B) a
purchase, lease or other acquisition of all or substantially all of the
assets of the Issuer or any Significant Subsidiary of the Issuer
(except as contemplated by the Acquisition Agreement), or (C) a
purchase or other acquisition (including by way of merger,
consolidation, share exchange or otherwise) of securities representing
fifteen percent (15%) or more of the voting power of the Issuer or any
Significant Subsidiary of the Issuer;
(ii) Any Person, other than the Grantee or any subsidiary of
the Grantee or the Issuer in a fiduciary capacity, shall have acquired
beneficial ownership (as hereinafter defined) or the right to acquire
beneficial ownership of fifteen percent (15%) or more of the
outstanding shares of Common Stock if such Person owned beneficially
less than fifteen percent (15%) of the outstanding shares of Common
Stock on the date of this Agreement, or any Person shall have acquired
beneficial ownership of an additional five percent (5%)
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of the outstanding shares of Common Stock if such Person owned
beneficially fifteen percent (15%) or more of the outstanding shares of
Common Stock on the date of this Agreement (the term "beneficial
ownership" for purposes of this Agreement having the meaning assigned
thereto in Section 13(d) of the Exchange Act, and in the rules and
regulations thereunder);
(iii) Any Person, other than the Grantee or any subsidiary of
the Grantee, shall have made a bona-fide proposal to the Issuer or its
shareholders to engage in an Acquisition Transaction by public
announcement or written communication that shall be or become the
subject of public disclosure;
(iv) After any Person other than the Grantee or any subsidiary
of the Grantee has made a proposal to the Issuer or its shareholders to
engage in an Acquisition Transaction, the Issuer shall have breached
any covenant or obligation contained in Sections 5.01, 5.03, 5.04 or
5.05 of the Acquisition Agreement and such breach (A) would entitle the
Grantee to terminate the Acquisition Agreement and (B) shall not have
been remedied prior to the Notice Date (as defined in paragraph (h)
below); or
(v) Any Person other than the Grantee or any subsidiary of the
Grantee, other than in connection with a transaction to which the
Grantee has given its prior written consent, shall have filed an
application or notice with the OTS or Federal Reserve Board or other
federal or state bank regulatory authority, which application or notice
has been accepted for processing, for approval to engage in an
Acquisition Transaction.
(e) The term "Subsequent Triggering Event" shall mean either
of the following events or transactions occurring after the date hereof:
(i) The acquisition by any Person of beneficial ownership of
24.9% or more of the then outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described
in subparagraph (i) of paragraph (d) of this Section 2, except that the
percentage referenced in clause (C) shall be 24.9% in lieu of fifteen percent
(15%).
(f) The Issuer shall notify the Grantee promptly in writing of
the occurrence of any Initial Triggering Event or Subsequent Triggering Event
(together, a "Triggering Event"), it being understood that the giving of such
notice by the Issuer shall not be a condition to the right of the Grantee to
exercise the Option.
(g) In the event the Grantee is entitled to and wishes to
exercise the Option, it shall send to the Issuer a written notice (the date of
which being herein referred to as the "Notice Date") specifying (i) the total
number of shares of Common Stock it will purchase pursuant to such exercise, and
(ii) a place and date not earlier than three (3) business days nor later than
forty-five (45) business days from the Notice Date for the closing of such
purchase (the "Closing"); provided that if prior notification to or approval of
the OTS or Federal Reserve Board or any other regulatory agency is required in
connection with such purchase, the Grantee shall promptly file the required
notice or application for approval and shall expeditiously process the same and
the period of time
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that otherwise would run pursuant to this sentence shall run instead from the
date on which any required notification periods have expired or been terminated
or such approvals have been obtained and any requisite waiting period or periods
shall have passed; provided, however, that in no event shall the Closing be more
than twelve (12) months after the Notice Date, and if the Closing shall not have
occurred within twelve (12) months after the Notice Date due to the failure of
the Grantee to obtain any such required approval, the exercise of the Option
effected on the Notice Date shall be deemed to have expired. The term "business
day" for purposes of this Agreement means any day, excluding Saturdays, Sundays
and any other day that is a legal holiday in the Commonwealth of Massachusetts
or a day on which banking institutions in the Commonwealth of Massachusetts are
authorized by law or executive order to close.
(h) At the Closing, the Grantee shall pay to the Issuer the
aggregate purchase price for the shares of Common Stock purchased pursuant to
the exercise of the Option in immediately available funds by a wire transfer to
a bank account designated by the Issuer, provided that failure or refusal of the
Issuer to designate such a bank account shall not preclude the Grantee from
exercising the Option.
(i) At such Closing, simultaneously with the delivery of
immediately available funds as provided in paragraph (i) above, the Issuer shall
deliver to the Grantee a certificate or certificates representing the number of
shares of Common Stock purchased by the Grantee and, if the Option should be
exercised in part only, a new Option evidencing the rights of the Grantee
thereof to purchase the balance of the shares purchasable hereunder and in
accordance with the provisions hereof, and the Grantee shall deliver to the
Issuer a copy of this Agreement and a letter agreeing that the Grantee will not
offer to sell or otherwise dispose of such shares in violation of applicable law
or the provisions of this Agreement.
(j) Certificates for the Common Stock delivered at a Closing
hereunder may (in the sole discretion of the Issuer) be endorsed with a
restrictive legend that shall read substantially as follows:
"THE TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND PURSUANT
TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF NOVEMBER 13, 1996, A COPY
OF WHICH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF WITHOUT CHARGE UPON
RECEIPT BY THE ISSUER OF A WRITTEN REQUEST THEREFOR."
It is understood and agreed that (i) the reference to the resale restrictions of
the Securities Act in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if the Grantee shall have
delivered to the Issuer a copy of a letter from the staff of the Securities and
Exchange Commission, or an opinion of counsel, in form and substance reasonably
satisfactory to the Issuer, to the effect that such legend is not required for
purposes of the Securities Act; (ii) the reference to the provisions of this
Agreement in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference; and (iii) the
legend shall be removed in its entirety if the conditions in
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the preceding clauses (i) and (ii) are both satisfied. In addition, such
certificates shall bear any other legend as may be required by law.
(k) Upon the giving by the Grantee to the Issuer of the
written notice of exercise of the Option provided for under paragraph (h) above,
the tender of the applicable purchase price in immediately available funds and
the tender of a copy of this Agreement to the Issuer, the Grantee shall be
deemed to be the holder of record of the shares of Common Stock issuable upon
such exercise, notwithstanding that the stock transfer books of the Issuer shall
then be closed or that certificates representing such shares of Common Stock
shall not then be actually delivered to the Grantee. The Issuer shall pay all
expenses, and any and all United States federal, state and local taxes and other
charges that may be payable in connection with the preparation, issue and
delivery of stock certificates under this Section 2 in the name of the Grantee
or its assignee, transferee or designee.
3. The Issuer agrees (a) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without requiring the Issuer's
stockholders to approve an increase in the number of authorized shares of Common
Stock after giving effect to all other options, warrants, convertible securities
and other rights to purchase Common Stock, (b) that it will not, by charter
amendment or through reorganization, consolidation, merger, dissolution or sale
of assets, or by any other voluntary act, avoid or seek to avoid the observance
or performance of any of the covenants, stipulations or conditions to be
observed or performed hereunder by the Issuer, and (c) promptly to take all
action as may from time to time be required (including without limitation (i)
complying with all applicable premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. ss. 18a and regulations promulgated
thereunder and (ii) cooperating fully with any Holders in preparing any
applications or notices required under the Home Owners Loan Act of 1933, as
amended, the Bank Holding Company Act of 1956, as amended, or the Change in Bank
Control Act of 1978, as amended, or any state banking law), in order to permit
the Grantee to exercise the Option and the Issuer duly and effectively to issue
shares of Common Stock pursuant hereto.
4. This Agreement and the Option granted hereby are exchangeable,
without expense, at the option of the Grantee, upon presentation and surrender
of this Agreement at the principal office of the Issuer, for other Agreements
providing for Options of different denominations entitling the Grantee thereof
to purchase, on the same terms and subject to the same conditions as are set
forth herein, in the aggregate the same number of shares of Common Stock
purchasable hereunder. The terms "Agreement" and "Option" as used herein include
any Stock Option Agreements and related Options for which this Agreement (and
the Option granted hereby) may be exchanged. Upon receipt by the Issuer of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Agreement, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification, and upon surrender and cancellation of
this Agreement, if mutilated, the Issuer will execute and deliver a new
Agreement of like tenor and date. Any such new Agreement executed and delivered
shall constitute for all purposes and under all circumstances an additional
contractual obligation on the part of the Issuer.
5. (a) In addition to the adjustment in the number of Option Shares
pursuant to Section 1 of this Agreement, the number of Option Shares shall be
subject to adjustment from time to time as provided in this Section 5.
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(i) In the event of any change in the shares of Common Stock
by reason of stock dividend, split-up, merger, recapitalization,
subdivision, conversion, combination, exchange of shares or similar
transaction, the type and number of Option Shares, and the Option Price
therefor, shall be adjusted appropriately in accordance with subsection
(b) of this Section 5, and proper provision shall be made in the
agreements governing such transaction, so that Grantee shall receive
upon exercise of the Option the number and class of shares of Common
Stock that Grantee would have held immediately after such event if the
Option had been exercised immediately prior to such event, or the
record date therefor, as applicable.
(ii) Issuer may (but in no event shall be required to) make
such increases in the number of Option Shares, in addition to those
required under subsection (a)(i), as shall be determined by its Board
of Directors to be advisable in order to avoid taxation so far as
practicable, of any dividend of stock or stock rights or any event
treated as such for Federal income tax purposes to the recipients.
(b) Whenever the number of Option Shares is adjusted as
provided in this Section 5, the Option Price shall be adjusted by multiplying
the Option Price by a fraction, the numerator of which is equal to the number of
Option Shares prior to the adjustment and the denominator of which is equal to
the number of Option Shares after the adjustment.
6. Upon the occurrence of a Subsequent Triggering Event that occurs
prior to an Exercise Termination Event, and provided that the Grantee is not
precluded, pursuant to subsection (a) of Section 2 hereof, from exercising the
Option, the Issuer shall, at the request of the Grantee delivered within thirty
(30) days following such Subsequent Triggering Event, promptly prepare, file and
keep current, with respect to the Option and the Option Shares, a "shelf "
registration statement under Rule 415 of the Securities Act or any successor
provision and the Issuer shall use all reasonable efforts to qualify such shares
under any applicable state securities laws. The Issuer will use all reasonable
efforts to cause such registration statement first to become effective and then
to remain effective for such period not in excess of 120 days from the day such
registration statement first becomes effective or such shorter time as may be
reasonably necessary to effect sales or other dispositions of Option Shares. The
Grantee shall have the right to demand two (2) such registrations, at least one
of which shall be on Form S-3. The foregoing notwithstanding, if, at the time of
any request by the Grantee for registration of the Option or Option Shares as
provided above, the Issuer is in registration with respect to any underwritten
public offering of share of Common Stock, and if in the good faith judgment of
the managing underwriter or managing underwriters, or, if none, the sole
underwriter or underwriters, of such offering, the inclusion of the Option or
Option Shares would interfere with the successful marketing of the shares of
Common Stock offered by the Issuer in such underwritten public offering, the
number of shares represented by the Option and/or the number of Option Shares
otherwise to be covered in the registration statement contemplated hereby may be
reduced (to zero, if necessary or advisable); provided, however, that if such
reduction occurs, then the Issuer shall file a registration statement for the
balance as promptly as practicable in the good faith judgment of such
underwriters and no reduction shall thereafter occur. The Grantee shall provide
all information reasonably requested by the Issuer for inclusion in any
registration statement to be filed hereunder. If requested by the Grantee in
connection with such registration, the Issuer shall become a party to any
underwriting agreement relating to the sale of such shares, but
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only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in such
underwriting agreements for the Issuer.
7. (a) Upon the occurrence of a Subsequent Triggering Event that occurs
prior to an Exercise Termination Event, and provided that the Grantee is not
precluded, pursuant to subsection (a) of Section 2 hereof, from exercising the
Option, (i) at the request of the Grantee, delivered within thirty (30) days
following such occurrence (or such later period as provided in Section 10), the
Issuer or any successor shall repurchase the Option from the Grantee at a price
(the "Option Repurchase Price") equal to the amount by which (A) the
market/offer price (as defined below) exceeds (B) the Option Price, multiplied
by the number of shares for which this Option may then be exercised, plus, to
the extent not previously reimbursed, the Grantee's reasonable out-of-pocket
expenses incurred in connection with the transactions contemplated by, and the
enforcement of the Grantee's rights under, the Acquisition Agreement, including
without limitation legal, accounting and investment banking fees (the "Grantee's
Out-of-Pocket Expenses"), and (ii) at the request of any owner of Option Shares
from time to time (the "Owner"), delivered within thirty (30) days following
such occurrence (or such later period as provided in Section 10), the Issuer
shall repurchase such number of the Option Shares from such Owner as the Owner
shall designate at a price per share ("Option Share Repurchase Price") equal to
the greater of (A) the market/offer price and (B) the average exercise price per
share paid by the Owner for the Option Shares so designated, plus, to the extent
not previously reimbursed, the Grantee's Out-of-Pocket Expenses. The term
"market/offer price" shall mean the highest of (w) the price per share of the
Common Stock at which a tender offer or exchange offer therefor has been made,
(x) the price per share of the Common Stock to be paid by any Person, other than
the Grantee or a subsidiary of the Grantee, pursuant to an agreement with the
Issuer of the kind described in Section 2(e)(i), (y) the highest closing price
for shares of Common Stock within the shorter of the period from the date of
this Agreement up to the date on which such required repurchase of Options or
Option Shares, as the case may be, occurs or the six (6) month period
immediately preceding the date of such required repurchase of Options or Option
Shares, as the case may be, or (z) in the event of a sale of all or
substantially all of the Issuer's assets, the sum of the price paid in such sale
for such assets and the current market value of the remaining assets of the
Issuer as determined in good faith by a nationally recognized investment banking
firm selected by the Grantee and reasonably acceptable to the Issuer, divided by
the number of shares of Common Stock of the Issuer outstanding at the time of
such sale. In determining the market/offer price, the value of consideration
other than cash shall be determined in good faith by a nationally recognized
investment banking firm selected by the Grantee and reasonably acceptable to the
Issuer.
(b) The Grantee may exercise its right to require the Issuer
to repurchase the Option and any Option Shares pursuant to this Section 7 by
surrendering for such purpose to the Issuer, at its principal office, a copy of
this Agreement or certificates for Option Shares, as applicable, accompanied by
a written notice or notices stating that the Grantee elects to require the
Issuer to repurchase this Option and/or Option Shares in accordance with the
provisions of this Section 7. As promptly as practicable, and in any event
within ten (10) business days after the surrender of the Option and/or
certificates representing Option Shares and the receipt of such notice or
notices relating thereto, the Issuer shall deliver or cause to be delivered to
the Grantee the Option Repurchase Price and/or the Option Share Repurchase Price
therefor or the portion thereof that the Issuer is not then prohibited under
applicable law and regulation from so delivering.
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(c) To the extent that the Issuer is prohibited under
applicable law or regulation, or as a consequence of administrative policy, or
as a result of a written agreement or other binding obligation with a
governmental or regulatory body or agency, from repurchasing the Option and/or
the Option Shares in full, the Issuer shall immediately so notify the Grantee
and thereafter deliver or cause to be delivered, from time to time, to the
Grantee the portion of the Option Repurchase Price and/or the Option Share
Repurchase Price that it is no longer prohibited from delivering, within ten
(10) business days after the date on which the Issuer is no longer so
prohibited; provided, however, that if the Issuer at any time after delivery of
a notice of repurchase pursuant to paragraph (b) of this Section 7 is prohibited
under applicable law or regulation, or as a consequence of administrative
policy, from delivering to the Grantee the Option Repurchase Price and/or the
Option Share Repurchase Price in part or in full (and the Issuer hereby
undertakes to use all reasonable efforts to receive all required regulatory and
legal approvals and to file any required notices as promptly as practicable in
order to accomplish such repurchase), the Grantee may revoke its notice of
repurchase of the Option or the Option Shares, as applicable, either in whole or
to the extent of the prohibition, whereupon the Issuer shall promptly (i)
deliver to the Grantee that portion of the Option Purchase Price or the Option
Share Repurchase Price that the Issuer is not prohibited from delivering with
respect to Options or Option Shares as to which the Grantee has not revoked its
repurchase demand; and (ii) deliver, as appropriate, either (A) a new Stock
Option Agreement evidencing the right of the Grantee to purchase that number of
shares of Common Stock obtained by multiplying the number of shares of Common
Stock for which the surrendered Stock Option Agreement was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Option Repurchase Price less the portion thereof theretofore
delivered to the Grantee and the denominator of which is the Option Repurchase
Price, or (B) a certificate for the Option Shares it is then so prohibited from
repurchasing.
8. (a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any person,
other than Grantee or any subsidiary of Grantee, and Issuer shall not be the
continuing or surviving corporation of such consolidation or merger, (ii) to
permit any person, other than Grantee or a subsidiary of Grantee, to merge into
Issuer and Issuer shall be the continuing or surviving corporation, but, in
connection with such merger, the then outstanding shares of Common Stock shall
be changed into or exchanged for stock or other securities of any other person
or cash or any other property, or the then outstanding shares of Common Stock
shall, after such merger, represent less than 50% of the outstanding shares and
share equivalents of the merged company, or (iii) to sell or otherwise transfer
all or substantially all of its assets to any person, other than Grantee or a
subsidiary of Grantee, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of the Grantee, of either (y) the Acquiring
Corporation (as hereinafter defined) or (z) any corporation or other business
entity that controls the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(i) The term "Acquiring Corporation" shall mean (A) the
continuing or surviving corporation of a consolidation or merger with
Issuer (if other than Issuer), (B) Issuer in a merger in which Issuer
is the continuing or surviving person, and (C) the transferee of all or
substantially all of Issuer's assets.
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(ii) The term "Substitute Common Stock" shall mean the common
stock issued by the issuer of the Substitute Option upon exercise of
the Substitute Option.
(iii) The term "Assigned Value" shall mean the "market/offer
price", as defined in Section 7.
(iv) The term "Average Price" shall mean the average closing
price of a share of the Substitute Common Stock for the one year
immediately preceding the consolidation, merger or sale in question,
but in no event higher than the closing price of the shares of the
Substitute Common Stock on the day preceding such consolidation, merger
or sale; provided that if Issuer is the issuer of the Substitute
Option, the Average Price shall be computed with respect to a share of
common stock issued by the person merging into Issuer or by any company
which controls such person, as the Grantee may elect.
(c) The Substitute Option shall have the same terms as the
Option, provided, that if the terms of the Substitute Option cannot, for legal
reasons, be the same as the Option, such terms shall, to the extent legally
permissible, be as similar as possible to, and in no event less advantageous to
the Grantee than, the terms of the Option. The issuer of the Substitute Option
shall also enter into an agreement with the Grantee in substantially the same
form as this Agreement, which shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number
of shares of the Substitute Common Stock as is equal to the Assigned Value
multiplied by the number of shares of Common Stock for which the Option is then
exercisable, divided by the Average Price. The exercise price of the Substitute
Option per share of the Substitute Common Stock shall then be equal to the
Option Price multiplied by a fraction in which the numerator is the number of
Option Shares and the denominator is the number of shares of the Substitute
Common Stock for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs,
shall the Substitute Option be exercisable for more than 19.9% of the aggregate
of the shares of the Substitute Common Stock outstanding prior to exercise of
the Substitute Option (without giving effect to any shares of Substitute Common
Stock issued pursuant to the Substitute Option) less the number of shares, if
any, previously issued pursuant to the Substitute Option. In the event that the
Substitute Option would be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise but for this clause (e),
the issuer of the Substitute Option (the "Substitute Option Issuer") shall make
a cash payment to the Grantee equal to the excess of (i) the value of the
Substitute Option without giving effect to the limitation in this clause (e)
over (ii) the value of the Substitute Option after giving effect to the
limitation in this clause (e). The difference in value shall be determined by a
nationally recognized investment banking firm selected by the Grantee.
(f) Issuer shall not enter into any transaction described in
subsection (a) of this Section 8 unless the Acquiring Corporation and any
corporation or other business entity that controls the Acquiring Corporation
shall have assumed in writing all the obligations of Issuer hereunder.
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9. (a) At the request of the Grantee, as the holder of the Substitute
Option (referred to herein as the "Substitute Option Holder"), the issuer of the
Substitute Option (the "Substitute Option Issuer") shall repurchase the
Substitute Option from the Substitute Option Holder at a price (the "Substitute
Option Repurchase Price") equal to the amount by which (i) the Highest Closing
Price (as hereinafter defined) exceeds (ii) the exercise price of the Substitute
Option, multiplied by the number of shares of the Substitute Common Stock for
which the Substitute Option may then be exercised, plus the Grantee's
Out-of-Pocket Expenses, and at the request of the Grantee as the owner (referred
to herein as the "Substitute Share Owner") of shares of the Substitute Common
Stock (the "Substitute Shares"), the Substitute Option Issuer shall repurchase
the Substitute Shares at a price per share (the "Substitute Share Repurchase
Price") equal to the greater of (y) the Highest Closing Price and (z) the
average exercise price per share paid by the Substitute Share Owner for the
Substitute Shares so designated, plus Grantee's Out-of-Pocket Expenses. The term
"Highest Closing Price" shall mean the highest closing price for shares of the
Substitute Common Stock within the six-month period immediately preceding the
date the Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
(b) The Grantee, as the Substitute Option Holder and/or the
Substitute Share Owner, as the case may be, may exercise its right to require
the Substitute Option Issuer to repurchase the Substitute Option and the
Substitute Shares pursuant to this Section 9 by surrendering for such purpose to
the Substitute Option Issuer, at its principal office, the agreement for such
Substitute Option (or, in the absence of such an agreement, a copy of this
Agreement) and certificates for Substitute Shares accompanied by a written
notice or notices stating that the Substitute Option Holder or Substitute Share
Owner, as applicable, elects to require the Substitute Option Issuer to
repurchase the Substitute Option and/or the Substitute Shares in accordance with
the provisions of this Section 9. As promptly as practicable, and in any event
within five business days after the surrender of the Substitute Option and/or
the certificates representing Substitute Shares and the receipt of such notice
or notices relating thereto, the Substitute Option Issuer shall deliver or cause
to be delivered to the Grantee, as the Substitute Option Holder, the Substitute
Option Repurchase Price, and/or as the Substitute Share Owner, the Substitute
Share Repurchase Price therefor, or the portion(s) thereof which the Substitute
Option Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that the Substitute Option Issuer is
prohibited under applicable law or regulation, or as a consequence of
administrative policy, or as a result of a written agreement or other binding
obligation with a governmental or regulatory body or agency, from repurchasing
the Substitute Option and/or the Substitute Shares in full, the Substitute
Option Issuer shall immediately so notify the Grantee, as the Substitute Option
Holder and/or the Substitute Share Owner, and thereafter deliver or cause to be
delivered, from time to time, to the Grantee, as the Substitute Option Holder
and/or Substitute Share Owner, as appropriate, that portion of the Substitute
Option Repurchase Price and/or the Substitute Share Repurchase Price which it is
no longer prohibited from delivering, within five business days after the date
on which the Substitute Option Issuer is no longer so prohibited; provided,
however, that if the Substitute Option Issuer is, at any time after delivery of
a notice of repurchase pursuant to subsection (b) of this Section 9 prohibited
under applicable law or regulation, or as a consequence of administrative
policy, or as a result of a written agreement or other binding obligation with a
governmental or regulatory body or agency, from delivering to the Grantee, as
the Substitute Option Holder and/or the Substitute Share Owner, as appropriate,
the
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Substitute Option Repurchase Price and/or the Substitute Share Repurchase Price,
in part or in full (and the Substitute Option Issuer shall use its best efforts
to receive all required regulatory and legal approvals as promptly as
practicable in order to accomplish such repurchase), the Grantee, as the
Substitute Option Holder or Substitute Share Owner, as applicable, may revoke
its notice of repurchase of the Substitute Option or the Substitute Shares
either in whole or to the extent of the prohibition, whereupon the Substitute
Option Issuer shall promptly (i) deliver to the Grantee, as the Substitute
Option Holder or Substitute Share Owner, as appropriate, that portion of the
Substitute Option Repurchase Price or the Substitute Share Repurchase Price that
the Substitute Option Issuer is not prohibited from delivering; and (ii)
deliver, as appropriate, either (A) a new Substitute Option evidencing the right
of the Substitute Option Holder to purchase that number of shares of the
Substitute Common Stock obtained by multiplying the number of shares of the
Substitute Common Stock for which the surrendered Substitute Option was
exercisable at the time of delivery of the notice of repurchase by a fraction,
the numerator of which is the Substitute Option Repurchase Price less the
portion thereof theretofore delivered to the Substitute Option Holder and the
denominator of which is the Substitute Option Repurchase Price, or (B) a
certificate for the Substitute Option Shares it is then so prohibited from
repurchasing.
10. The thirty (30) day period for exercise of certain rights under
Sections 2, 6, 7 and 12 hereof shall be extended in each such case: (i) in the
manner, and subject to the limitations, provided in Section 2(g) hereof, to the
extent necessary to obtain all regulatory approvals for the exercise of such
rights and for the expiration of all statutory waiting periods; and (ii) to the
extent necessary to avoid liability under Section 16(b) of the Exchange Act by
reason of such exercise, provided that notice of intent to exercise such rights
shall be given to the Issuer within the requisite thirty (30) day period and the
Grantee shall use all reasonable efforts to promptly obtain all requisite
approvals and cause the expiration of all requisite waiting periods.
11. The Issuer hereby represents and warrants to the Grantee as
follows:
(a) The Issuer 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
authorized by the Board of Directors of the Issuer and no other corporate
proceedings on the part of the Issuer are necessary to authorize this Agreement
or to consummate the transactions so contemplated. This Agreement has been duly
and validly executed and delivered by the Issuer. This Agreement is the valid
and legally binding obligation of the Issuer, enforceable against it in
accordance with its terms, except that enforcement thereof may be limited by the
receivership, conservatorship and supervisory powers of bank regulatory agencies
generally as well as bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting enforcement of creditors' rights generally and except
that enforcement thereof may be subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law) and the availability of equitable remedies.
(b) The Issuer has taken all necessary corporate action to
authorize and reserve and to permit it to issue, and at all times from the date
hereof through the termination of this Agreement in accordance with its terms
will have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common Stock at
any time and from time to time issuable hereunder, and all such shares, upon
issuance pursuant
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hereto, will be duly authorized, validly issued, fully paid, nonassessable, and
will be delivered free and clear of all claims, liens, encumbrances and security
interests and not subject to any preemptive rights.
12. Neither of the parties hereto may assign any of its rights or
obligations under this Option Agreement or the Option created hereunder to any
other Person, whether by operation of law or otherwise, without the express
written consent of the other party, except that in the event a Subsequent
Triggering Event shall have occurred prior to an Exercise Termination Event and
the Grantee is not precluded, pursuant to Section 2(a), from exercising the
Option, the Grantee may, subject to the right of first refusal set forth in
Section 13, assign, transfer or sell in whole or in part its rights in any
Option Shares held by the Grantee following any exercise, in whole or in part,
of the Option.
13. If at any time after the occurrence of a Subsequent Triggering
Event and, with respect to shares of Common Stock or other securities acquired
by the Grantee pursuant to an exercise of the Option, prior to the expiration of
twenty-four (24) months after the expiration of the Option pursuant to Section
2(b), the Grantee shall desire to sell, assign, transfer or otherwise dispose of
all or any of the shares of Common Stock or other securities acquired by the
Grantee pursuant to the Option, the Grantee shall give the Issuer written notice
of the proposed transaction (an "Offeror's Notice"), identifying the proposed
transferee, accompanied by a copy of a binding offer to purchase such shares or
other securities signed by such transferee and setting forth the terms of the
proposed transaction. An Offeror's Notice shall be deemed an offer by the
Grantee to the Issuer, which may be accepted within ten (10) business days of
the receipt of such Offeror's Notice, on the same terms and conditions and at
the same price at which the Grantee is proposing to transfer such shares or
other securities to such transferee. The purchase of such shares or other
securities by the Issuer shall be settled within ten (10) business days of the
date of the acceptance of the offer and the purchase price shall be paid to the
Grantee in immediately available funds, provided that, if prior notification to
or approval, consent or waiver of the OTS or Federal Reserve Board or any other
regulatory authority is required in connection with such purchase, the Issuer
shall promptly file the required notice or application for approval, consent or
waiver and shall expeditiously process the same (and the Grantee shall cooperate
with the Issuer in the filing of any such notice or application and the
obtaining of any such approval) and the period of time that otherwise would run
pursuant to this sentence shall run instead from the date on which, as the case
may be, (a) the required notification period has expired or been terminated or
(b) such approval has been obtained and, in either event, any requisite waiting
period shall have passed. In the event of the failure or refusal of the Issuer
to purchase the shares or other securities covered by an Offeror's Notice or if
the OTS or Federal Reserve Board or any other regulatory authority disapproves
the Issuer's proposed purchase of such shares or other securities, the Grantee
may, within sixty (60) days following the date of the Offeror's Notice (subject
to any necessary extension for regulatory notification, approval, or waiting
periods), sell all, but not less than all, of such shares or other securities
proposed to be transferred to the proposed transferee identified in the
Offeror's Notice at no less than the price specified and on terms no more
favorable to the proposed transferee than those set forth in the Offeror's
Notice. The requirements of this Section 13 shall not apply to any sale by means
of a public offering registered under the Securities Act in which steps are
taken to reasonably ensure that no purchaser will own securities representing
more than two percent (2%) of the outstanding shares of Common Stock of the
Issuer or any transfer to a direct or indirect wholly-owned subsidiary of the
Grantee which agrees in writing to be bound by the terms hereof.
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14. Notwithstanding anything to the contrary herein, in the event that
the Grantee or any Related Person thereof (as hereinafter defined) is a person
making an offer or proposal to engage in an Acquisition Transaction (other than
the transaction contemplated by the Acquisition Agreement), then the Option held
by it shall immediately terminate and be of no further force or effect and the
Option Shares held by it shall, at the Issuer's election, be immediately
repurchasable by Issuer at the Option Price. For purposes of this Agreement, a
Related Person of the Grantee means any Affiliate (as defined in Rule 12b-2 of
the rules and regulations under the Exchange Act) of the Grantee and any person
that is required to file a Schedule 13D with the Grantee with respect to shares
of Common Stock or options to acquire the Common Stock.
15. Each of the Grantee and the Issuer will use all reasonable efforts
to make all filings with, and to obtain consents of, all third parties and
governmental authorities necessary to the consummation of the transactions
contemplated by this Agreement, including without limitation applying to the OTS
or the Federal Reserve Board, as applicable, for approval to acquire the shares
issuable hereunder.
16. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Agreement by either party hereto and that the
obligations of the parties hereto shall be enforceable by either party hereto
through injunctive or other equitable relief.
17. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Grantee is not permitted to acquire, or the Issuer is not permitted to
repurchase pursuant to Section 7, the full number of shares of Common Stock
provided in Section l(a) hereof (as adjusted pursuant to Sections l(b) or 5
hereof), it is the express intention of the Issuer to allow the Grantee to
acquire or to require the Issuer to repurchase such lesser number of shares as
may be permissible, without any amendment or modification hereof.
18. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Acquisition Agreement.
19. This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof.
20. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
21. Except as otherwise expressly provided herein or in the Acquisition
Agreement, each of the parties hereto shall bear and pay all costs and expenses
incurred by it or on its behalf in
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connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
22. Except as otherwise expressly provided herein, this Agreement
contains the entire agreement between the parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereof, written or oral. The terms and conditions
of this Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and permitted assigns. Nothing in this
Agreement, express or implied, is intended to confer upon any party, other than
the parties hereto, and their respective successors and permitted assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided herein.
23. Capitalized terms used in this Agreement and not defined herein
shall have the meanings assigned thereto in the Acquisition Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Stock Option
Agreement to be executed as a sealed instrument on its behalf by its officers
thereunder duly authorized, all as of the day and year first above written.
EASTERN BANCORP, INC.
By:/s/Xxxx X. Xxxx
---------------------------------
Xxxx X. Xxxx
President and Chief Executive Officer
VERMONT FINANCIAL SERVICES CORPORATION
By:/s/Xxxx X. Xxxxxxxx, Xx.
---------------------------------
Xxxx X. Xxxxxxxx, Xx.
President and Chief Executive Officer
