EXHIBIT 99.3
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO
CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated September 7, 1999, between
Patapsco Valley Bancshares, Inc., a Maryland corporation ("Issuer"), and
F&M Bancorp, a Maryland corporation ("Grantee").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into an Agreement and
Plan of Merger of even date herewith (the "Merger Agreement"), which
agreement has been executed by the parties hereto immediately prior to this
Stock Option Agreement (the "Agreement"); and
WHEREAS, as a condition to Grantee's entering into the Merger
Agreement and in consideration therefor, Issuer has agreed to grant 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 Merger
Agreement, the parties hereto agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms hereof,
up to 272,225 fully paid and nonassessable shares of Issuer's Common Stock,
par value $0.01 per share ("Common Stock"), of Issuer at a price of $27.50
per share as adjusted, if applicable (the "Option Price"); provided,
however, that in no event shall the number of shares of Common Stock 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
subject to or issued pursuant to the Option. 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.
(b) In the event that any additional shares of Common Stock are
either (i) issued or otherwise become outstanding after the date of this
Agreement (other than pursuant to this Agreement) or (ii) redeemed,
repurchased, retired or otherwise cease to be outstanding after the date of
this Agreement, the number of shares of Common Stock subject to the Option
shall be increased or decreased, as appropriate, so that such number equals
19.9% of the number of shares of Common Stock then issued and outstanding
without giving effect to any shares subject to or issued pursuant to the
Option. Nothing contained in this Section 1(b) or elsewhere in this
Agreement shall be deemed to authorize Issuer or Grantee to breach any
provision of the Merger Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the
Option, in whole or part, and from time to time, if, but only if, both an
Initial Triggering Event (as hereinafter defined) and a Subsequent
Triggering Event (as hereinafter defined) shall have occurred prior to the
occurrence of an Exercise Termination Event (as hereinafter defined),
provided, that the Holder shall have sent the written notice of such
exercise (as provided in subsection (e) of this Section 2) within six
months following such Subsequent Triggering Event, provided further,
however, that if the Option cannot be exercised on any day because of any
injunction, order or similar restraint issued by a court of competent
jurisdiction, the period during which the Option may be exercised shall be
extended so that the Option shall expire no earlier than on the 10th
business day after such injunction, order or restraint shall have been
dissolved or when such injunction, order or restraint shall have become
permanent and no longer subject to appeal, as the case may be. Each of the
following shall be an "Exercise Termination Event": (i) the Effective Time
(as defined in the Merger Agreement) of the Merger; (ii) termination of the
Merger Agreement in accordance with the provisions thereof if such
termination occurs prior to the occurrence of an Initial Triggering Event
(other than a termination resulting from a willful breach by Issuer of any
provision of the Merger Agreement); or (iii) the passage of 18 months after
termination of the Merger Agreement if such termination follows the
occurrence of an Initial Triggering Event or is a termination by Grantee
resulting from a willful breach by Issuer of any provision of the Merger
Agreement. The term "Holder" shall mean the holder or holders of the
Option.
(b) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each an "Issuer
Subsidiary"), without having received Grantee's prior written
consent, shall have entered into an agreement to engage in an
Acquisition Transaction (as hereinafter defined) 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 Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the rules and
regulations promulgated thereunder) other than Grantee or any of its
Subsidiaries (each a "Grantee Subsidiary") or the Board of Directors
of Issuer shall have recommended or publicly announced its intention
to recommend that the stockholders of Issuer approve or accept any
Acquisition Transaction with any person other than Grantee or any
Grantee Subsidiary. For purposes of this Agreement, (A) "Acquisition
Transaction" shall mean with respect to any person except Grantee or
any Grantee Subsidiary (w) a merger or consolidation, or any similar
transaction, involving Issuer or any Significant Subsidiary (as
defined in Rule 1-02 of Regulation S-X promulgated by the Securities
and Exchange Commission (the "SEC")) of Issuer, (x) a purchase, lease
or other acquisition or assumption of all or a substantial portion of
the assets or deposits of Issuer or any Significant Subsidiary of
Issuer, (y) a purchase or other acquisition (including by way of
merger, consolidation, share exchange or otherwise) of securities
representing 10% or more of the voting power of Issuer, or (z) any
substantially similar transaction; provided, however, that in no
event shall any merger, consolidation, purchase or similar
transaction involving only the Issuer and one or more of its
wholly-owned Subsidiaries or involving only any two or more of such
wholly-owned Subsidiaries, be deemed to be an Acquisition
Transaction, provided that any such transaction is not entered into
in violation of the terms of the Merger Agreement and (B)
"Subsidiary" shall have the meaning set forth in the Merger
Agreement;
(ii) Issuer or any Issuer Subsidiary, without having
received Grantee's prior written consent, shall have authorized,
recommended or proposed (or publicly announced its intention to
authorize, recommend or propose) to engage in an Acquisition
Transaction with any person other than Grantee or any Grantee
Subsidiary or the Board of Directors of Issuer shall have publicly
withdrawn or modified, or publicly announced its intent to withdraw
or modify, in any manner adverse to Grantee, its recommendation that
the stockholders of Issuer approve the transactions contemplated by
the Merger Agreement;
(iii) Any person other than Grantee, any Grantee Subsidiary
or any Issuer Subsidiary acting in a fiduciary capacity in the
ordinary course of its business shall have acquired beneficial
ownership or the right to acquire beneficial ownership of 10% or more
of the outstanding shares of Common Stock (the term "beneficial
ownership" for purposes of this Agreement having the meaning assigned
thereto in Section 13(d) of the 1934 Act, and the rules and
regulations thereunder) or any person other than Grantee or any
Grantee Subsidiary shall have commenced (as such term is defined
under the rules and regulations of the SEC), or shall have filed or
publicly disseminated a registration statement or similar disclosure
statement with respect to, a tender offer or exchange offer to
purchase any shares of Common Stock such that, upon consummation of
such offer, such person would own or control 10% or more of the then
outstanding shares of Common Stock;
(iv) Any person other than Grantee or any Grantee
Subsidiary shall have made (or announced an intention to make) a
proposal to Issuer or its stockholders by public announcement or
written communication that is or becomes the subject of public
disclosure to engage in an Acquisition Transaction;
(v) After a proposal or overture is made by a third party
to Issuer or its stockholders to engage in an Acquisition
Transaction, Issuer shall have breached any covenant or obligation
contained in the Merger Agreement and such breach (x) would entitle
Grantee to terminate the Merger Agreement and (y) shall not have been
cured prior to the Notice Date (as defined below); or
(vi) Any person other than Grantee or any Grantee
Subsidiary, other than in connection with a transaction to which
Grantee has given its prior written consent, shall have filed an
application or notice with the 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.
(c) 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 20% or more of the then outstanding shares of Common Stock; or
(ii) The occurrence of the Initial Triggering Event
described in paragraph (i) of subsection (b) of this Section 2,
except that the percentage referred to in clause (y) shall be 20%.
(d) Issuer shall notify Grantee promptly in writing of the
occurrence of any Initial Triggering Event or Subsequent Triggering Event
of which it has notice (together, a "Triggering Event"), it being
understood that the giving of such notice by Issuer shall not be a
condition to the right of the Holder to exercise the Option.
(e) In the event the Holder is entitled to and wishes to
exercise the Option, it shall send to Issuer a written notice (the date of
which being herein referred to as the "Notice Date") specifying (i) the
total number of shares it will purchase pursuant to such exercise and (ii)
a place and date not earlier than three business days nor later than 60
business days from the Notice Date for the closing of such purchase (the
"Closing Date"); provided that if prior notification to or approval of the
Federal Reserve Board or any other regulatory agency is required in
connection with such purchase, the Holder shall promptly file the required
notice or application for approval and shall expeditiously process the same
and the period of time 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. Any exercise of
the Option shall be deemed to occur on the Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of this
Section 2, the Holder shall pay to Issuer the aggregate purchase price for
the shares of Common Stock purchased pursuant to the exercise of the Option
in United States dollars, in immediately available funds by wire transfer
to a bank account designated by Issuer, provided that failure or refusal of
Issuer to designate such a bank account shall not preclude the Holder from
exercising the Option.
(g) At such closing, simultaneously with the delivery of
immediately available funds as provided in subsection (f) of this Section
2, Issuer shall deliver to the Holder a certificate or certificates
representing the number of shares of Common Stock purchased by the Holder
and, if the Option should be exercised in part only, a new Option and stock
option agreement evidencing the rights of the Holder thereof to purchase
the balance of the shares purchasable hereunder, and the Holder shall
deliver to Issuer this Agreement and a letter agreeing that the Holder will
not offer to sell or otherwise dispose of such shares in violation of
applicable law or the provisions of this Agreement.
(h) Certificates for Common Stock delivered at a closing
hereunder shall be endorsed with a restrictive legend that shall read
substantially as follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the
registered holder hereof and Issuer and to resale restrictions
arising under the Securities Act of 1933, as amended. A copy of
such agreement is on file at the principal office of Issuer and
will be provided to the holder hereof without charge upon
receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "1933 Act"), in
the above legend shall be removed by delivery of substitute certificate(s)
without such reference if (a) the Holder shall have delivered to Issuer a
copy of a letter from the staff of the SEC, or an opinion of counsel, in
form and substance reasonably satisfactory to Issuer, to the effect that
such legend is not required for purposes of the 1933 Act or (b) the shares
of Common Stock represented by such certificate shall have been registered
under the 1933 Act; (ii) the reference to the provisions to 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 the
preceding clauses (i) and (ii) are both satisfied. In addition, such
certificates shall bear any other legend as may be required by law.
(i) Upon the giving by the Holder to Issuer of the written
notice of exercise of the Option provided for under subsection (e) of this
Section 2 and the tender of the applicable purchase price in immediately
available funds, the Holder 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 Issuer shall then be closed or that
certificates representing such shares of Common Stock shall not then be
actually delivered to the Holder. 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 Holder or its
assignee, transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free
from preemptive rights, sufficient authorized but unissued shares of Common
Stock so that the Option may be exercised without additional authorization
of Common Stock after giving effect to all other options, warrants,
convertible securities and other rights to purchase Common Stock; (ii) 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 Issuer;
(iii) promptly to take all action as may from time to time be required
(including (x) complying with all premerger notification, reporting and
waiting period requirements specified in 15 U.S.C. ss. 18a and regulations
promulgated thereunder and (y) in the event, under the Bank Holding Company
Act of 1956, as amended (the "BHCA"), or the Change in Bank Control Act of
1978, as amended, or any state banking law, prior approval of or notice to
the Federal Reserve Board or to any state regulatory authority is necessary
before the Option may be exercised, cooperating fully with the Holder in
preparing such applications or notices and providing such information to
the Federal Reserve Board or such state regulatory authority as they may
require) in order to permit the Holder to exercise the Option and Issuer
duly and effectively to issue shares of Common Stock pursuant hereto; and
(iv) promptly to take all action provided herein to protect the rights of
the Holder against dilution.
4. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of the Holder, upon
presentation and surrender of this Agreement at the principal office of
Issuer, for other Agreements providing for Options of different
denominations entitling the holder 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 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, Issuer will execute and
deliver a new Agreement of like tenor and date. Any such new Agreement
executed and delivered shall constitute an additional contractual
obligation on the part of Issuer, whether or not the Agreement so lost,
stolen, destroyed or mutilated shall at any time be enforceable by anyone.
5. In addition to the adjustment in the number of shares of
Common Stock that are purchasable upon exercise of the Option pursuant to
Section 1 of this Agreement, the number of shares of Common Stock
purchasable upon the exercise of the Option and the Option Price shall be
subject to adjustment from time to time as provided in this Section 5. In
the event of any change in, or distributions in respect of, the Common
Stock by reason of stock dividends, split-ups, mergers, recapitalizations,
combinations, subdivisions, conversions, exchanges of shares, distributions
on or in respect of the Common Stock that would be prohibited under the
terms of the Merger Agreement, or the like, the type and number of shares
of Common Stock purchasable upon exercise hereof and the Option Price shall
be appropriately adjusted in such manner as shall fully preserve the
economic benefits provided hereunder and proper provision shall be made in
any agreement governing any such transaction to provide for such proper
adjustment and the full satisfaction of the Issuer's obligations hereunder.
6. Upon the occurrence of a Subsequent Triggering Event that
occurs prior to an Exercise Termination Event, Issuer shall, at the request
of Grantee delivered within six months of such Subsequent Triggering Event
(whether on its own behalf or on behalf of any subsequent holder of this
Option (or part thereof) or any of the shares of Common Stock issued
pursuant hereto), promptly prepare, file and keep current a registration
statement under the 1933 Act covering any shares issued and issuable
pursuant to this Option and shall use its best efforts to cause such
registration statement to become effective and remain current in order to
permit the sale or other disposition of any shares of Common Stock issued
upon total or partial exercise of this Option ("Option Shares") in
accordance with any plan of disposition requested by Grantee. Issuer will
use its best efforts to cause such registration statement first to become
effective as soon as practicable after Grantee's request and then to remain
effective for such period not in excess of 180 days from the day such
registration statement first becomes effective or such shorter time as may
be reasonably necessary to effect such sales or other dispositions. Grantee
shall have the right to demand two such registrations. The foregoing
notwithstanding, if, at the time of any request by Grantee for registration
of Option Shares as provided above, Issuer is in registration with respect
to an underwritten public offering of shares 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 Shares would interfere with the successful
marketing of the shares of Common Stock offered by Issuer, the number of
Option Shares otherwise to be covered in the registration statement
contemplated hereby may be reduced; and provided, however, that after any
such required reduction the number of Option Shares to be included in such
offering for the account of the Holder shall constitute at least 25% of the
total number of shares to be sold by the Holder and Issuer in the
aggregate; and provided further, however, that if such reduction occurs,
then the Issuer shall file a registration statement for the balance as
promptly as practicable and no reduction shall thereafter occur. Each such
Holder shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If requested
by any such Holder in connection with such registration, Issuer shall
become a party to any underwriting agreement relating to the sale of such
shares, but only to the extent of obligating itself in respect of
representations, warranties, indemnities and other agreements customarily
included in secondary offering underwriting agreements for issuers. Upon
receiving any request under this Section 6 from any Holder, Issuer agrees
to send a copy thereof to any other person known to Issuer to be entitled
to registration rights under this Section 6, in each case by promptly
mailing the same, postage prepaid, to the address of record of the persons
entitled to receive such copies. Notwithstanding anything to the contrary
contained herein, in no event shall Issuer be obligated to effect more than
two registrations pursuant to this Section 6 by reason of the fact that
there shall be more than one Grantee as a result of any assignment or
division of this Agreement.
7. (a) Immediately prior to the occurrence of a Repurchase
Event (as defined below), (i) following a request of the Holder, delivered
prior to an Exercise Termination Event, Issuer (or any successor thereto)
shall repurchase the Option from the Holder at a price (the "Option
Repurchase Price") equal to (x) 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 (y)
Grantee's reasonable out-of-pocket expenses incurred in connection with
this Agreement and the Merger Agreement and the transactions contemplated
hereby and thereby (to the extent not previously reimbursed) and (ii) at
the request of the owner of Option Shares from time to time (the "Owner"),
delivered within 90 days of such occurrence (or such later period as
provided in Section 10), Issuer shall repurchase such number of the Option
Shares from the Owner as the Owner shall designate at a price (the "Option
Share Repurchase Price") equal to (x) the Market/Offer Price multiplied by
the number of Option Shares so designated plus (y) Grantee's reasonable
out-of-pocket expenses incurred in connection with this Agreement and the
Merger Agreement and the transactions contemplated hereby and thereby (to
the extent not previously reimbursed). The term "Market/Offer Price" shall
mean the highest of (i) the price per share of Common Stock at which a
tender offer or exchange offer therefor has been made, (ii) the price per
share of Common Stock to be paid by any third party pursuant to an
agreement with Issuer, (iii) the highest closing price for shares of Common
Stock within the six-month period immediately preceding the date the Holder
gives notice of the required repurchase of this Option or the Owner gives
notice of the required repurchase of Option Shares, as the case may be, or
(iv) in the event of a sale of all or a substantial portion of 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 Issuer as determined by a
nationally recognized investment banking firm selected by the Holder or the
Owner, as the case may be, and reasonably acceptable to Issuer, divided by
the number of shares of Common Stock of Issuer outstanding at the time of
such sale. In determining the Market/Offer Price, the value of
consideration other than cash shall be determined by a nationally
recognized investment banking firm selected by the Holder or Owner, as the
case may be, and reasonably acceptable to Issuer.
(b) The Holder and the Owner, as the case may be, may exercise
its right to require Issuer to repurchase the Option and any Option Shares
pursuant to this Section 7 by surrendering for such purpose to 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 Holder or the Owner, as the case may be, elects to require Issuer
to repurchase this Option and/or the Option Shares in accordance with the
provisions of this Section 7. Within the later to occur of (x) five
business days after the surrender of the Option and/or certificates
representing Option Shares and the receipt of such notice or notices
relating thereto and (y) the time that is immediately prior to the
occurrence of a Repurchase Event, Issuer shall deliver or cause to be
delivered to the Holder the Option Repurchase Price and/or to the Owner the
Option Share Repurchase Price therefor or the portion thereof if any that
Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that Issuer is prohibited under applicable
law or regulation from repurchasing the Option and/or the Option Shares in
full, Issuer shall immediately so notify the Holder and/or the Owner and
thereafter deliver or cause to be delivered, from time to time, to the
Holder and/or the Owner, as appropriate, the portion of the Option
Repurchase Price and the Option Share Repurchase Price, respectively, that
it is no longer prohibited from delivering, within five business days after
the date on which Issuer is no longer so prohibited; provided, however,
that if 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 from delivering to the Holder and/or the Owner, as
appropriate, the Option Repurchase Price and the Option Share Repurchase
Price, respectively, in full (and Issuer hereby undertakes to use its best
efforts to obtain all required regulatory and legal approvals and to file
any required notices as promptly as practicable in order to accomplish such
repurchase), the Holder or Owner may revoke its notice of repurchase of the
Option or the Option Shares either in whole or to the extent of the
prohibition, whereupon, in the latter case, Issuer shall promptly (i)
deliver to the Holder and/or the Owner, as appropriate, that portion of the
Option Repurchase Price or the Option Share Repurchase Price that Issuer is
not prohibited from delivering; and (ii) deliver, as appropriate, either
(A) to the Holder, a new stock option agreement evidencing the right of the
Holder 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
Holder and the denominator of which is the Option Repurchase Price, or (B)
to the Owner, a certificate for the Option Shares it is then so prohibited
from repurchasing.
(d) For purposes of this Section 7, a Repurchase Event shall be
deemed to have occurred (i) upon the consummation of any merger,
consolidation or similar transaction involving Issuer or any purchase,
lease or other acquisition of all or a substantial portion of the assets of
Issuer, other than any such transaction which would not constitute an
Acquisition Transaction pursuant to the proviso to Section 2(b)(i) hereof
or (ii) upon the acquisition by any person of beneficial ownership of 50%
or more of the then outstanding shares of Common Stock, provided that no
such event shall constitute a Repurchase Event unless a Subsequent
Triggering Event shall have occurred prior to an Exercise Termination
Event. The parties hereto agree that Issuer's obligations to repurchase the
Option or Option Shares under this Section 7 shall not terminate upon the
occurrence of an Exercise Termination Event unless no Subsequent Triggering
Event shall have occurred prior to the occurrence of an Exercise
Termination Event.
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 a Grantee Subsidiary, and
shall not be the continuing or surviving corporation of such consolidation
or merger, (ii) to permit any person, other than Grantee or a Grantee
Subsidiary, 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 voting shares and voting 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 Grantee Subsidiary, 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 Holder, of either (x) the
Acquiring Corporation (as hereinafter defined) or (y) any person that
controls the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the continuing
or surviving corporation of a consolidation or merger with Issuer (if
other than Issuer), (ii) Issuer in a merger in which Issuer is the
continuing or surviving person, and (iii) the transferee of all or
substantially all of Issuer's assets.
(2) "Substitute Common Stock" shall mean the common stock
issued by the issuer of the Substitute Option upon exercise of the
Substitute Option.
(3) "Assigned Value" shall mean the Market/ Offer Price,
as defined in Section 7.
(4) "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
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 or is controlled by such person, as
the Holder 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 be as similar as
possible and in no event less advantageous to the Holder. The issuer of the
Substitute Option shall also enter into an agreement with the then Holder
or Holders of the Substitute Option 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 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 Substitute Common Stock shall then be equal
to the Option Price multiplied by a fraction, the numerator of which shall
be the number of shares of Common Stock for which the Option is then
exercisable and the denominator of which shall be the number of shares of
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
shares of Substitute Common Stock outstanding prior to exercise of the
Substitute Option without giving effect to the exercise of 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 Holder 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).
This difference in value shall be determined by a nationally recognized
investment banking firm selected by the Holder or the Owner, as the case
may be, and reasonably acceptable to the Acquiring Corporation.
(f) Issuer shall not enter into any transaction described in
subsection (a) of this Section 8 unless the Acquiring Corporation and any
person that controls the Acquiring Corporation assume in writing all the
obligations of Issuer hereunder.
9. (a) At the request of the holder of the Substitute Option
(the "Substitute Option Holder"), the Substitute Option Issuer shall
repurchase the Substitute Option from the Substitute Option Holder at a
price (the "Substitute Option Repurchase Price") equal to (x) 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 Substitute Common Stock for which the Substitute Option may then
be exercised plus (y) Grantee's reasonable out-of-pocket expenses incurred
in connection with this Agreement and the Merger Agreement and the
transactions contemplated hereby and thereby (to the extent not previously
reimbursed), and at the request of the owner (the "Substitute Share Owner")
of shares of Substitute Common Stock (the "Substitute Shares"), the
Substitute Option Issuer shall repurchase the Substitute Shares at a price
(the "Substitute Share Repurchase Price") equal to (x) the Highest Closing
Price multiplied by the number of Substitute Shares so designated plus (y)
Grantee's reasonable out-of-pocket expenses incurred in connection with
this Agreement and the Merger Agreement and the transactions contemplated
hereby and thereby (to the extent not previously reimbursed). The term
"Highest Closing Price" shall mean the highest closing price for shares of
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 Substitute Option Holder and the Substitute Share
Owner, as the case may be, may exercise its respective 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 the Substitute Share Owner, as the case may be, 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
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 Substitute Option Holder the Substitute Option
Repurchase Price and/or to the Substitute Share Owner the Substitute Share
Repurchase Price therefor or, in either case, the portion 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 from repurchasing the
Substitute Option and/or the Substitute Shares in part or in full, the
Substitute Option Issuer following a request for repurchase pursuant to
this Section 9 shall immediately so notify the Substitute Option Holder
and/ or the Substitute Share Owner and thereafter deliver or cause to be
delivered, from time to time, to the Substitute Option Holder and/or the
Substitute Share Owner, as appropriate, the portion of the Substitute Share
Repurchase Price, respectively, 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 from delivering to the
Substitute Option Holder and/or the Substitute Share Owner, as appropriate,
the Substitute Option Repurchase Price and the Substitute Share Repurchase
Price, respectively, in full (and the Substitute Option Issuer shall use
its best efforts to obtain all required regulatory and legal approvals as
promptly as practicable in order to accomplish such repurchase), the
Substitute Option Holder or Substitute Share Owner 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, in the latter case,
the Substitute Option Issuer shall promptly (i) deliver to 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) to the Substitute Option
Holder, 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) to the
Substitute Share Owner, a certificate for the Substitute Common Shares it
is then so prohibited from repurchasing.
10. The 90-day or six-month period for exercise of certain
rights under Sections 2, 6, 7 and 13 shall be extended: (i) 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 1934
Act by reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as
follows:
(a) 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 Issuer and no other corporate
proceedings on the part of 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 Issuer.
(b) 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 hereto, will be duly authorized,
validly issued, fully paid, nonassessable, and will be delivered free and
clear of all claims, liens, encumbrance and security interests and not
subject to any preemptive rights.
12. Grantee hereby represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to
enter into this Agreement and, subject to any approvals or consents
referred to herein, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Grantee. This Agreement has been duly
executed and delivered by Grantee.
(b) The Option is not being, and any shares of Common Stock or
other securities acquired by Grantee upon exercise of the Option will not
be, acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the Securities Act.
13. Neither of the parties hereto may assign any of its rights
or obligations under this Agreement or the Option created hereunder to any
other person, 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, Grantee, subject to the express
provisions hereof, may assign in whole or in part its rights and
obligations hereunder within six months following such Subsequent
Triggering Event (or such later period as provided in Section 10);
provided, however, that until the date 15 days following the date on which
the Federal Reserve Board approves an application by Grantee to acquire the
shares of Common Stock subject to the Option, Grantee may not assign its
rights under the Option except in (i) a widely dispersed public
distribution, (ii) a private placement in which no one party acquires the
right to purchase in excess of 2% of the voting shares of Issuer, (iii) an
assignment to a single party (e.g., a broker or investment banker) for the
purpose of conducting a widely dispersed public distribution on Grantee's
behalf, or (iv) any other manner approved by the Federal Reserve Board.
14. Each of Grantee and Issuer will use its best 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 making
application to authorize for quotation the shares of Common Stock issuable
hereunder on The Nasdaq Stock Market's National Market or such other market
or exchange on which the shares of Issuer may be quoted or listed upon
official notice of issuance and applying to the Federal Reserve Board under
the BHCA for approval to acquire the shares issuable hereunder, but Grantee
shall not be obligated to apply to state banking authorities for approval
to acquire the shares of Common Stock issuable hereunder until such time,
if ever, as it deems appropriate to do so.
15. 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.
16. 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 Holder is not permitted to acquire,
or Issuer is not permitted to repurchase pursuant to Section 7, the full
number of shares of Common Stock provided in Section 1(a) hereof (as
adjusted pursuant to Section 1(b) or 5 hereof), it is the express intention
of Issuer to allow the Holder to acquire or to require Issuer to repurchase
such lesser number of shares as may be permissible, without any amendment
or modification hereof.
17. 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 Merger Agreement.
18. This Agreement shall be governed by and construed in
accordance with the laws of the State of Maryland, regardless of the laws
that might otherwise govern under applicable principles of conflicts of
laws thereof.
19. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which shall
constitute one and the same agreement.
20. Except as otherwise expressly provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or
on its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
21. Except as otherwise expressly provided herein or in the
Merger Agreement, 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, expressed 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.
22. Capitalized terms used in this Agreement and not defined
herein shall have the meanings assigned thereto in the Merger Agreement.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the date first above written.
GRANTEE:
F&M BANCORP
By:____________________________________________
Name: Xxxx X. Xxxxxx
Title: President & Chief Executive Officer
ISSUER:
PATAPSCO VALLEY BANCSHARES, INC.
By:____________________________________________
Name: Xxxx X. Xxxxxxxxx
Title: President & Chief Executive Officer
