Exhibit 99.3
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WARRANT AGREEMENT
THIS WARRANT AGREEMENT is made as of December 27, 2000 by and between
XXXXXX FINANCIAL CORPORATION, a Pennsylvania corporation ("FFC") and DROVERS
BANCSHARES CORPORATION, a Pennsylvania corporation ("DBC").
WITNESSETH:
WHEREAS, FFC and DBC are entering into an Agreement and Plan of Merger on
the date hereof (the "Merger Agreement") (capitalized terms used herein which
are not otherwise defined herein shall have the meanings ascribed to them in the
Merger Agreement);
WHEREAS, it is a condition to execution of the Merger Agreement, that DBC
issue to FFC, on the terms and conditions set forth herein, a warrant entitling
FFC to purchase up to an aggregate of 1,250,000 shares of DBC's common stock, no
par value per share (the "Common Stock");and
WHEREAS, DBC wishes to issue to FFC the warrant described below in
connection with the Merger Agreement.
NOW, THEREFORE, in consideration of the execution of the Merger Agreement
and the premises herein contained, and intending to be legally bound, FFC and
DBC agree as follows:
1. Issuance of Warrant. Concurrently with the execution of this Agreement,
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DBC shall issue to FFC a warrant in the form attached as Schedule 1 hereto (the
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"Warrant", which term as used herein shall include any warrant or warrants
issued upon transfer or exchange of the original Warrant) to purchase up to
1,250,000 shares of Common Stock (equal to approximately 19.9% of the
outstanding Common Stock taking into consideration shares of Common Stock
issuable upon exercise of the Warrant but excluding any other unissued shares of
such corporation which may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion or option rights, or otherwise),
subject to adjustment as provided in this Agreement and in the Warrant. The
Warrant shall be exercisable at a purchase price of $19.75 per share, i.e., the
last sale price of the Common Stock on December 26, 2000, as reported by NASDAQ,
subject to adjustment as provided in the Warrant (the "Exercise Price"). So long
as the Warrant is outstanding and unexercised, DBC shall at all times maintain
and reserve, free from preemptive rights, such number of authorized but unissued
shares of the Common Stock as may be necessary so that the Warrant may be
exercised, without any additional authorization of the Common Stock, after
giving effect to all other options, warrants, convertible securities and other
rights to acquire shares of the Common Stock. DBC represents and warrants that
it has duly authorized the execution and delivery of the Warrant and this
Agreement and the issuance of the Common Stock upon exercise of the Warrant. DBC
covenants that the shares of the Common Stock issuable upon exercise of the
Warrant shall be, when so issued, duly authorized, validly issued, fully paid
and nonassessable and subject to no preemptive rights. The Warrant and the
shares of the Common Stock to be issued upon exercise of the Warrant are
hereinafter collectively referred to, from time to time, as the "Securities." So
long as the Warrant is owned by FFC, the Warrant will in no event be exercised
for more than that
number of shares of the Common Stock equal to 1,250,000 (subject to adjustment
as provided in the Warrant) less the number of shares of Common Stock at the
time owned by FFC.
2. Assignment, Transfer, or Exercise of Warrant. FFC will not sell, assign,
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transfer or exercise the Warrant, in whole or in part, without the prior written
consent of DBC except upon or after the occurrence of any of the following prior
to termination of the Warrant under Section 9 therein: (i) a breach by DBC of
any covenant set forth in the Merger Agreement and which would permit a
termination of the Merger Agreement by FFC pursuant to Section 8.1(b)(i) which
occurs following a bona fide proposal from any financially capable person (other
than FFC) to engage in an Acquisition Transaction; (ii) the failure of DBC's
shareholders to approve the Merger Agreement at a meeting called for such
purpose if at the time of such meeting there has been an announcement by any
financially capable Person (other than FFC) of a bona fide offer or proposal to
effect an Acquisition Transaction and such offer or proposal has not been
publicly withdrawn prior to mailing of the notice of the DBC shareholder
meeting; (iii) the acquisition by any Person of Beneficial Ownership of 25% or
more of the Common Stock (before giving effect to any exercise of the Warrant);
(iv)(A) any Person (other than FFC) shall have commenced a tender or exchange
offer, or shall have filed an application with an appropriate bank regulatory
authority with respect to an Acquisition Transaction and, (B) within six (6)
months from such offer or filing, such person consummates an Acquisition
Transaction; (v) DBC shall have entered into an agreement, letter of intent, or
other understanding with any Person (other than FFC) providing for such Person
to engage in an Acquisition Transaction; and/or (vi) termination of the Merger
Agreement by FFC under Section 8.1(b)(iii) or termination of the Merger
Agreement by DBC under Section 8.1(c)(iii). As used in this Paragraph 2, the
terms "Beneficial Ownership" and "Person" shall have the respective meanings set
forth in Paragraph 7(f). For purposes of this Agreement, "Acquisition
Transaction" shall mean (x) a merger or consolidation of statutory share
exchange or any similar transaction involving DBC or a DBC Subsidiary, (y) a
purchase, lease or other acquisition of all or substantially all of the assets
of DBC or a DBC Subsidiary or (z) a purchase or other acquisition of beneficial
ownership of securities representing 25% or more of the voting power of DBC or a
DBC Subsidiary.
3. Registration Rights. If, at any time within one year after the Warrant
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may be exercised or sold, DBC shall receive a written request therefor from FFC,
DBC shall prepare and file a registration statement (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
covering the Warrant and/or the Common Stock issued or issuable upon exercise of
the Warrant (the "Securities"), and shall use its best efforts to cause the
Registration Statement to become effective and remain current for such period
not in excess of 180 days from the day such registration statement first becomes
effective as may be reasonably necessary to affect such sale or other
disposition. Without the prior written consent of FFC, neither DBC nor any other
holder of securities of DBC may include such securities in the Registration
Statement. The foregoing notwithstanding, if, at the time of any request by FFC
for registration of Common Stock as provided above, DBC is in registration with
respect to an underwritten public offering by DBC 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 offer and sale of the Common Stock covered by this Warrant
Agreement would interfere with the successful marketing of the shares of Common
Stock offered by DBC, the number
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of shares of Common Stock otherwise to be covered in the registration statement
contemplated hereby may be reduced; provided, however, that after any such
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required reduction the number of shares of Common Stock to be included in such
offering for the account of FFC shall constitute at least 25% of the total
number of shares to be sold by FFC and DBC in the aggregate; and provided
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further, however, that if such reduction occurs, then DBC shall file a
registration statement for the balance as promptly as practicable thereafter as
to which no reduction pursuant to this Section 3 shall be permitted or occur and
FFC shall thereafter be entitled to one additional registration and the one (1)
year period referred to in the first sentence of this section shall be increased
to two (2) years. FFC shall provide all information reasonably requested by DBC
for inclusion in any registration statement to be filed hereunder. If requested
by FFC in connection with such registration, DBC 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 to representations, warranties,
indemnities and other agreements customarily included in such underwriting
agreements for DBC.
4. Duties of DBC upon Registration. If and whenever DBC is required by the
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provisions of Paragraph 3 of this Agreement to effect the registration of any of
the Securities under the Securities Act, DBC shall:
(a) prepare and file with the Securities and Exchange Commission (the
"SEC") such amendments to the Registration Statement and supplements to the
prospectus contained therein as may be necessary to keep the Registration
Statement effective and current;
(b) furnish to FFC and to the underwriters of the Securities being
registered such reasonable number of copies of the Registration Statement, the
preliminary prospectus and final prospectus contained therein, and such other
documents as FFC or such underwriters may reasonably request in order to
facilitate the public offering of the Securities;
(c) use its best efforts to register or qualify the Securities covered
by the Registration Statement under the state securities or blue sky laws of
such jurisdictions as FFC or such underwriters may reasonably request;
(d) notify FFC, promptly after DBC shall receive notice thereof, of the
time when the Registration Statement has become effective or any supplement or
amendment to any prospectus forming a part of the Registration Statement has
been filed;
(e) notify FFC promptly of any request by the SEC for the amending or
supplementing of the Registration Statement or the prospectus contained therein,
or for additional information;
(f) prepare and file with the SEC, promptly upon the request of FFC, any
amendments or supplements to the Registration Statement or the prospectus
contained therein which, in the opinion of counsel for FFC, are required under
the Securities Act or the rules and regulations promulgated by the SEC
thereunder in connection with the public offering of the Securities;
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(g) prepare and promptly file with the SEC such amendments of or
supplements to the Registration Statement or the prospectus contained therein as
may be necessary to correct any statements or omissions if, at the time when a
prospectus relating to such Securities is required to be delivered under the
Securities Act, any event shall have occurred as the result of which such
prospectus as then in effect would include an untrue statement of a material
fact or would omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(h) advise FFC, promptly after DBC shall receive notice or obtain
knowledge of the issuance of any stop order by the SEC suspending the
effectiveness of the Registration Statement, or the initiation or threatening of
any proceeding for that purpose, and promptly use its best efforts to prevent
the issuance of any stop order or to obtain its withdrawal if such stop order
should be issued; and
(i) at the request of FFC, furnish on the date or dates provided for in
the underwriting agreement: (i) an opinion or opinions of counsel for DBC for
the purposes of such registration, addressed to the underwriters and to FFC,
covering such matters as such underwriters and FFC may reasonably request and as
are customarily covered by issuer's counsel at that time; and (ii) a letter or
letters from the independent accountants for DBC, addressed to the underwriters
and to FFC, covering such matters as such underwriters or FFC may reasonably
request, in which letters such accountants shall state (without limiting the
generality of the foregoing) that they are independent accountants within the
meaning of the Securities Act and that, in the opinion of such accountants, the
financial statements and other financial data of DBC included in the
Registration Statement or any amendment or supplement thereto comply in all
material respects with the applicable accounting requirements of the Securities
Act.
5. Expenses of Registration. With respect to the registration requested
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pursuant to Paragraph 3 of this Agreement, (a) DBC shall bear all registration,
filing and NASD fees, printing and engraving expenses, fees and disbursements of
its counsel and accountants and all legal fees and disbursements and other
expenses of DBC to comply with state securities or blue sky laws of any
jurisdictions in which the Securities to be offered are to be registered or
qualified; and (b) FFC shall bear all fees and disbursements of its counsel and
accountants, underwriting discounts and commissions, transfer taxes for FFC and
any other expenses incurred by FFC.
6. Indemnification. In connection with any Registration Statement or any
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amendment or supplement thereto:
(a) DBC shall indemnify and hold harmless FFC, any underwriter (as
defined in the Securities Act) for FFC, and each person, if any, who controls
FFC or such underwriter (within the meaning of the Securities Act) from and
against any and all loss, damage, liability, cost or expense to which FFC or any
such underwriter or controlling person may become subject under the Securities
Act or otherwise, insofar as such loss, damage, liability, cost or expense
arises out of or is caused by any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, any prospectus or
preliminary prospectus contained therein or any amendment or supplement thereto,
or arises out of or is based upon the omission or alleged
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omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided, however, that DBC will not
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be liable in any such case to the extent that any such loss, damage, liability,
cost or expense arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished by FFC, such underwriter or such controlling person in
writing specifically for use in the preparation thereof.
(b) FFC shall indemnify and hold harmless DBC, any underwriter (as
defined in the Securities Act), and each person, if any, who controls DBC or
such underwriter (within the meaning of the Securities Act) from and against any
and all loss, damage, liability, cost or expense to which DBC or any such
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such loss, damage, liability, cost or expense arises out
of or is caused by any untrue or alleged untrue statement of any material fact
contained in the Registration Statement, any prospectus or preliminary
prospectus contained therein or any amendment or supplement thereto, or arises
out of or is based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was so
made in reliance upon and in conformity with written information furnished by
FFC specifically for use in the preparation thereof.
(c) Promptly after receipt by any party which is entitled to be
indemnified, pursuant to the provisions of subparagraph (a) or (b) of this
Paragraph 6, of any claim in writing or of notice of the commencement of any
action involving the subject matter of the foregoing indemnity provisions, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party pursuant to the provisions of subparagraph (a) or (b) of this
Paragraph 6, promptly notify the indemnifying party of the receipt of such claim
or notice of the commencement of such action, but the omission to so notify the
indemnifying party will not relieve it from any liability which it may otherwise
have to any indemnified party hereunder. In case any such action is brought
against any indemnified party and it notifies the indemnifying party of the
commencement thereof, the indemnifying party shall have the right to participate
in and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party; provided, however, that if the
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defendants in any action include both the indemnified party or parties and the
indemnifying party and there is a conflict of interest which would prevent
counsel for the indemnifying party from also representing any indemnified party,
such indemnified party shall have the right to select separate counsel to
participate in the defense of such indemnified party. After notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party, pursuant to the provisions of subparagraph (a) or (b) of this Paragraph
6, for any legal or other expenses subsequently incurred by such indemnified
party in connection with the defense thereof, other than reasonable costs of
investigation, unless (i) such indemnified party shall have employed separate
counsel in accordance with the provisions of the preceding sentence, (ii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after the notice of
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the commencement of the action, or (iii) the indemnifying party has authorized
the employment of counsel for the indemnified party at the expense of the
indemnifying party.
(d) If recovery is not available under the foregoing indemnification
provisions, for any reason other than as specified therein, any party entitled
to indemnification by the terms thereof shall be entitled to obtain contribution
with respect to its liabilities and expenses, except to the extent that
contribution is not permitted under Section 11(f) of the Securities Act. In
determining the amount of contribution to which the respective parties are
entitled there shall be considered the parties' relative knowledge and access to
information concerning the matter with respect to which the claim was asserted,
the opportunity to correct and/or prevent any statement or omission, and any
other equitable considerations appropriate under the circumstances. FFC and DBC
agree that it would not be equitable if the amount of such contribution were
determined by pro rata or per capita allocation even if the underwriters and FFC
as a group were considered a single entity for such purpose.
7. Redemption and Repurchase Rights.
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(a) From and after the date on which any event described in Paragraph 2
of this Agreement occurs, the Holder as defined in the Warrant (which shall
include a former Holder), who has exercised the Warrant in whole or in part
shall have the right to require DBC to purchase some or all of the shares of
Common Stock for which the Warrant was exercised at a redemption price per share
(the "Redemption Price") equal to the highest of: (i) 110% of the Exercise
Price, (ii) the highest price paid or agreed to be paid for any share of Common
Stock by an Acquiring Person (as defined below) during the one year period
immediately preceding the date of redemption, and (iii) in the event of a sale
of all or substantially all of DBC's assets or all or substantially all of a
subsidiary of DBC's assets: (x) the sum of the price paid in such sale for such
assets and the current market value of the remaining assets of DBC as determined
by a recognized investment banking firm selected by such Holder, divided by (y)
the number of shares of Common Stock then outstanding. If the price paid
consists in whole or in part of securities or assets other than cash, the value
of such securities or assets shall be their then current market value as
determined by a recognized investment banking firm selected by the Holder and
reasonably acceptable to DBC.
(b) From and after the date on which any event described in Paragraph 2
of this Agreement occurs, the Holder as defined in the Warrant (which shall
include a former Holder), shall have the right to require DBC to repurchase all
or any portion of the Warrant at a price (the "Warrant Repurchase Price") equal
to the product obtained by multiplying: (i) the number of shares of Common Stock
represented by the portion of the Warrant that the Holder is requiring DBC to
repurchase, times (ii) the excess of the Redemption Price over the Exercise
Price.
(c) The Holder's right, pursuant to this Paragraph 7, to require DBC to
repurchase a portion or all of the Warrant, and/or to require DBC to purchase
some or all of the shares of Common Stock for which the Warrant was exercised,
shall expire on the close of business on the 180th day following the occurrence
of any event described in Paragraph 2.
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(d) The Holder may exercise its right, pursuant to this Paragraph 7, to
require DBC to repurchase all or a portion of the Warrant, and/or to require DBC
to purchase some or all of the shares of Common Stock for which the Warrant was
exercised, by surrendering for such purpose to DBC, at its principal office
within the time period specified in the preceding subparagraph, the Warrant
and/or a certificate or certificates representing the number of shares to be
purchased accompanied by a written notice stating that it elects to require DBC
to repurchase the Warrant or a portion thereof and/or to purchase all or a
specified number of such shares in accordance with the provisions of this
Paragraph 7. As promptly as practicable, and in any event within five business
days after the surrender of the Warrant and/or such certificates and the receipt
of such notice relating thereto, DBC shall deliver or cause to be delivered to
the Holder: (i) the applicable Redemption Price (in immediately available funds)
for the shares of Common Stock which it is not then prohibited under applicable
law or regulation from purchasing, and/or (ii) the applicable Warrant Repurchase
Price, and/or (iii) if the Holder has given DBC notice that less than the whole
Warrant is to be repurchased and/or less than the full number of shares of
Common Stock evidenced by the surrendered certificate or certificates are to be
purchased, a new certificate or certificates, of like tenor, for the number of
shares of Common Stock evidenced by such surrendered certificate or certificates
less the number shares of Common Stock purchased and/or a new Warrant reflecting
the fact that only a portion of the Warrant was repurchased.
(e) To the extent that DBC is prohibited under applicable law or
regulation, or as a result of administrative or judicial action, from
repurchasing the Warrant and/or purchasing the Common Stock as to which the
Holder has given notice of repurchase and/or redemption, DBC shall immediately
so notify the Holder and thereafter deliver or cause to be delivered, from time
to time to the Holder, the portion of the Warrant Repurchase Price and/or the
Redemption Price which it is no longer prohibited from delivering, within five
business days after the date on which DBC is no longer so prohibited; provided,
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however, that to the extent that DBC is at the time and after the expiration of
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25 months, so prohibited from delivering the Warrant Repurchase Price and/or the
Redemption Price, in full (and DBC hereby undertakes to use its best efforts to
obtain all required regulatory and legal approvals as promptly as practicable),
DBC shall deliver to the Holder a new Warrant (expiring one year after delivery)
evidencing the right of the Holder to purchase that number of shares of Common
Stock representing the portion of the Warrant which DBC is then so prohibited
from repurchasing, and/or DBC shall deliver to the Holder a certificate for the
shares of Common Stock which DBC is then so prohibited from purchase, and DBC
shall have no further obligation to repurchase such new Warrant or purchase such
Common Stock; and provided further, that upon receipt of such notice and until
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five days thereafter the Holder may revoke its notice of repurchase of the
Warrant and/or redemption of Common Stock by written notice to DBC at its
principal office stating that the Holder elects to revoke its election to
exercise its right to require DBC to repurchase the Warrant and/or purchase the
Common Stock, whereupon DBC will promptly redeliver to the Holder the Warrant
and/or the certificates representing shares of Common Stock surrendered to DBC
for purposes of such repurchase and/or redemption, and DBC shall have no further
obligation to repurchase such Warrant and/or purchase such Common Stock.
(f) As used in this Agreement the following terms have the meanings
indicated:
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(1) "Acquiring Person" shall mean any "Person" (hereinafter defined)
who or which is the "Beneficial Owner" (hereinafter defined) of 25% or more of
the Common Stock;
(2) A "Person" shall mean any individual, firm, corporation or other
entity and shall also include any syndicate or group deemed to be a "Person" by
operation of Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended;
(3) A Person shall be a "Beneficial Owner", and shall have "Beneficial
Ownership," of all securities:
(i) which such Person or any of its Affiliates (as hereinafter
defined) beneficially owns, directly or indirectly; and
(ii) which such Person or any of its Affiliates or Associates has
(1) the right to acquire (whether such right is exercisable immediately or only
after the passage of time or otherwise) pursuant to any agreement, arrangement
or understanding or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (2) the right to vote pursuant to any
proxy, power of attorney, voting trust, agreement, arrangement or understanding;
and
(4) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the regulations promulgated by the SEC
under the Securities and Exchange Act of 1934, as amended.
8. Remedies. Without limiting the foregoing or any remedies available to
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FFC, it is specifically acknowledged that FFC would not have an adequate remedy
at law for any breach of this Warrant Agreement and shall be entitled to
specific performance of DBC's obligations under, and injunctive relief against
any actual or threatened violation of the obligations of any Person subject to,
this Agreement.
9. Miscellaneous.
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(a) The representations, warranties, and covenants of DBC set forth in
the Merger Agreement are hereby incorporated by reference in and made a part of
this Agreement, as if set forth in full herein.
(b) This Agreement, the Warrant and the Merger Agreement set forth the
entire understanding and agreement of the parties hereto and supersede any and
all prior agreements, arrangements and understandings, whether written or oral,
relating to the subject matter hereof and thereof. No amendment, supplement,
modification, waiver, or termination of this Agreement shall be valid and
binding unless executed in writing by both parties.
(c) This Agreement shall be deemed to have been made in, and shall be
governed by and interpreted in accordance with the substantive laws of, the
Commonwealth of Pennsylvania.
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized officers as of the day and year first above
written.
XXXXXX FINANCIAL CORPORATION
By:
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Xxxxx X. Xxxxxx, Xx., President and Chief
Executive Officer
Attest:
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Xxxxxxx X. Xxxxxxx, Secretary
DROVERS BANCSHARES CORPORATION
By:
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A. Xxxxxxx Xxxx, Chairman, President and
Chief Executive Officer
Attest:
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Xxxx X. Xxxxxxx, Secretary
