STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "AGREEMENT") is made as of
July 29, 1999, by and between OLD KENT FINANCIAL CORPORATION, a Michigan
corporation ("GRANTEE"), and MERCHANTS BANCORP, INC., a Delaware corporation
("ISSUER").
As a condition to, and contemporaneous with, the execution of
this Agreement, the parties are entering into an Agreement and Plan of Merger
dated July 29, 1999 (the "PLAN OF MERGER"). In consideration therefor, and as an
inducement to Grantee to pursue the transactions contemplated by the Plan of
Merger, Issuer has agreed to grant Grantee the Option (as defined below). The
board of directors of Issuer has approved the grant of the Option and the Plan
of Merger. Capitalized terms used but not defined in this Agreement shall have
the meanings given to those terms in the Plan of Merger.
In consideration of the foregoing, and the mutual covenants
and agreements set forth in this Agreement and in the Plan of Merger, the
parties agree:
1. GRANT OF OPTION.
(a) Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "OPTION") to purchase, subject to the terms of this
Agreement, up to 577,941 fully paid and nonassessable shares of Issuer Common
Stock, par value $1.00 ("COMMON STOCK"), at a price per share equal to $27.75;
PROVIDED that in the event Issuer issues or agrees to issue any shares of Common
Stock at a price per share less than $27.75 (as adjusted pursuant to Section
5(b)) (other than as permitted under the Plan of Merger), such price shall be
equal to such lesser price (as adjusted, if applicable, the "OPTION PRICE");
FURTHER PROVIDED, that in no event shall the number of shares for which this
Option is exercisable, together with the number of shares owned by Grantee other
than shares held by Grantee in a fiduciary capacity for a customer as to which
it has no beneficial interest ("FIDUCIARY SHARES"), exceed 19.99% of the
Issuer's issued and outstanding shares of Common Stock.
(b) The number of shares of Common Stock subject to the
Option shall be increased or decreased, as appropriate, in the event that any
additional shares of Common Stock are issued or otherwise become outstanding
(other than pursuant to this Agreement or pursuant to an event described in
Section 5(a) of this Agreement) or existing shares are redeemed, retired or
otherwise become no longer outstanding after the date of this Agreement so that,
after any such issuance, redemption or retirement, together with the number of
shares previously issued pursuant to this Agreement or otherwise owned by
Grantee other than Fiduciary Shares, the number of shares of Common Stock
subject to the Option equals 10.65% 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. Nothing contained in this Section 1(b) or elsewhere in
this Agreement shall be considered to authorize Issuer to issue shares in breach
of any provision of the Plan of Merger.
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2. EXERCISE OF OPTION.
(a) The holder or holders of the Option (the "HOLDER")
may exercise the Option, in whole or part, if and when at any time both an
Initial Triggering Event (as defined below) and a Subsequent Triggering Event
(as defined below) shall have occurred prior to the occurrence of an Exercise
Termination Event (as defined below), PROVIDED that the Holder shall have sent
notice of such exercise (as required by Section 2(f)) within six months
following such Subsequent Triggering Event (or such later date as provided in
Section 10).
(b) Each of the following shall be an "EXERCISE
TERMINATION EVENT:" (i) consummation of the Merger at the Effective Time of the
Merger; (ii) termination of the Plan of Merger in accordance with the provisions
thereof if such termination occurs before the occurrence of an Initial
Triggering Event; and (iii) the passage of 18 months (or such longer period as
provided in Section 10) after termination of the Plan of Merger if such
termination follows the occurrence of an Initial Triggering Event.
Notwithstanding anything to the contrary in this Agreement: (i) the Option may
not be exercised at any time when Grantee shall be in material breach of any of
its covenants or agreements contained in the Plan of Merger such that Issuer
shall be entitled to terminate the Plan of Merger as a result of such material
breach; and (ii) this Agreement shall automatically terminate upon the proper
termination of the Plan of Merger (x) by Issuer as a result of the material
breach by Grantee of its covenants or agreements contained in the Plan of
Merger, or (y) by Issuer or Grantee if the approval by any federal or state
governmental authority or regulatory or administrative agency or commission
(each a "GOVERNMENTAL ENTITY") necessary to consummate the Merger and the other
transactions contemplated by the Plan of Merger shall have been denied by final
nonappealable action of such agency or authority.
(c) The term "INITIAL TRIGGERING EVENT" shall mean any of
the following events or transactions occurring on or after the date of this
Agreement:
(i) Issuer or any of its subsidiaries (an
"ISSUER SUBSIDIARY"), without having received Grantee's prior written
consent, shall have entered into an agreement to engage in an
Acquisition Transaction (as defined below) with any person (for
purposes of this Agreement, the term "person" has the meaning given
that term in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange
Act of 1934, as amended (the "EXCHANGE ACT"), and the rules and
regulations thereunder) other than Grantee or any of its subsidiaries
(a "GRANTEE SUBSIDIARY");
(ii) the board of directors of Issuer shall have
recommended that the stockholders of Issuer approve or accept any
Acquisition Transaction other than the Merger;
(iii) any person other than Grantee or any Grantee
Subsidiary shall have acquired beneficial ownership or the right to
acquire beneficial ownership of 15% or more of the outstanding shares
of Common Stock (for purposes of this Agreement, the
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term "beneficial ownership" has the meaning given that term in
Section 13(d) of the Exchange Act and the rules and regulations
thereunder);
(iv) the stockholders of Issuer shall have voted
and failed to approve the Plan of Merger and the Merger at a meeting
that was held for that purpose or any adjournment or postponement
thereof, or such meeting shall not have been held in violation of the
Plan of Merger or shall have been canceled prior to termination of the
Plan of Merger if, prior to such meeting (or if such meeting shall not
have been held or shall have been canceled, prior to such termination),
it shall have been publicly announced or the stockholders of Issuer
shall have been advised that any person (other than Grantee or any
Grantee Subsidiary) shall have made, or shall have an intention to
make, a proposal to engage in an Acquisition Transaction;
(v) the board of directors of Issuer shall not
have recommended, or shall have withdrawn or modified (or publicly
announced its intention to withdraw or modify) in any manner adverse in
any respect to Grantee, its recommendation that the stockholders of
Issuer approve the transactions contemplated by the Plan of Merger at
any meeting that was held for that purpose, in anticipation of engaging
in an Acquisition Transaction (other than with Grantee or any Grantee
Subsidiary) or following a proposal to Issuer to engage in an
Acquisition Transaction, or Issuer or any Issuer Subsidiary shall have
authorized, recommended or proposed (or publicly announced or advised
its stockholders of its intention to authorize, recommend or propose)
an agreement to engage in an Acquisition Transaction with any person
other than Grantee or any Grantee Subsidiary;
(vi) any person other than Grantee or any Grantee
Subsidiary shall have filed with the Securities and Exchange Commission
("SEC") a registration statement or tender offer materials with respect
to a potential exchange or tender offer that would constitute an
Acquisition Transaction (or filed a preliminary proxy statement with
the SEC with respect to a potential vote by its stockholders to approve
the issuance of shares to be offered in such an exchange or tender
offer);
(vii) Issuer shall have willfully breached any
covenant or obligation contained in the Plan of Merger in anticipation
of engaging in an Acquisition Transaction (other than with Grantee or
any Grantee Subsidiary), and following such breach Grantee would be
entitled to terminate the Plan of Merger (whether immediately or after
the giving of notice or passage of time, or both);
(xiii) any person other than Grantee or any Grantee
Subsidiary shall have filed an application or notice with the
applicable Governmental Entity under the Bank Holding Company Act of
1956, the Federal Deposit Insurance Act, or applicable state banking
laws and regulations, which application or notice has been accepted for
processing, for approval to engage in an Acquisition Transaction; or
(xiv) a Fiduciary Event shall have occurred under
the Plan of Merger.
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For purposes of this Agreement, "ACQUISITION TRANSACTION" means: (a) a merger or
consolidation, or any similar transaction, involving Issuer or any Issuer
Subsidiary (other than mergers, consolidations or similar transactions (i)
involving solely Issuer and/or one or more wholly-owned (except for directors'
qualifying shares) Issuer Subsidiary, PROVIDED, any such transaction is not
entered into in violation of the terms of the Plan of Merger or (ii) in which
the stockholders of Issuer immediately prior to the completion of such
transaction own at least 50% of the Common Stock of Issuer (or the resulting or
surviving entity in such transaction) immediately after completion of such
transaction, PROVIDED, any such transaction is not entered into in violation of
the terms of the Plan of Merger); (b) a purchase, lease or other acquisition of
all or a substantial part of the assets or deposits of Issuer or Issuer
Subsidiary; (c) a purchase or other acquisition (including by way of merger,
consolidation, share exchange or otherwise) of securities representing 15% or
more of the voting power of Issuer or any Issuer Subsidiary; or (d) any
substantially similar transaction. For purposes of this Agreement, "subsidiary"
has the meaning given that term in Rule 12b-2 under the Exchange Act. In this
Agreement, the phrase "in anticipation of engaging in an Acquisition
Transaction" shall include, without limitation, any action taken by Issuer's
officers or board of directors after any written or oral, authorized or
unauthorized, proposal or expression of interest has been communicated to any
member of Issuer's management or board of directors concerning an Acquisition
Transaction that in any way would involve Issuer and such proposal or expression
of interest has not been withdrawn or rejected at the time of the action.
(d) The term "SUBSEQUENT TRIGGERING EVENT" shall mean
either of the following events or transactions occurring after the date of this
Agreement:
(i) the acquisition by any person (other than
Grantee or any Grantee Subsidiary) of beneficial ownership of 25% or
more of the then outstanding Common Stock; or
(ii) occurrence of the Initial Triggering Event
described in clause (i) of Section 2(c), except that the percentage
referred to for purposes of defining "Acquisition Transaction" in
clause (c) of that definition shall be 25%.
(e) Issuer shall notify Grantee promptly in writing of
the occurrence of any Initial Triggering Event or Subsequent Triggering Event
(collectively, "TRIGGERING EVENTS"), it being understood that the giving of such
notice by Issuer shall not be a condition to the right of Holder to exercise the
Option.
(f) If Holder is entitled and wishes to exercise the
Option (or any portion thereof), it shall send to Issuer a written notice (the
date of such notice is 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 any Governmental Entity
is required in connection with such purchase, Holder shall promptly file the
required notice or application for approval, shall notify Issuer of such filing,
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
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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 considered to occur on the Notice
Date relating thereto.
(g) At the closing referred to in Section 2(f), Holder
shall (i) pay to Issuer the aggregate purchase price for the shares of Common
Stock purchased pursuant to the exercise of the Option in immediately available
funds by wire transfer to a bank account designated by Issuer and (ii) present
and surrender this Agreement to Issuer at its principal executive offices;
PROVIDED, that failure or refusal of Issuer to designate such a bank account or
accept surrender of this Agreement shall not preclude Holder from exercising the
Option.
(h) At the closing, simultaneously with the delivery of
immediately available funds as provided in Section 2(g), Issuer shall deliver to
Holder a certificate or certificates representing the number of shares of Common
Stock purchased by Holder and, if the Option should be exercised in part only, a
new Option evidencing the rights of Holder to purchase the balance of the shares
subject to this Option.
(i) Certificates for Common Stock delivered at a closing
under this Agreement may 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, dated as of July 29, 1999,
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 "SECURITIES ACT"), in the above
legend shall be removed by delivery of substitute certificate(s) without such
reference if 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 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 in the
reasonable opinion of counsel to Holder; 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.
(j) Upon the giving by Holder to Issuer of the written
notice of exercise of the Option provided for under Section 2(f) and the tender
of the applicable purchase price in immediately available funds, Holder shall be
considered, subject to the receipt of any necessary regulatory approvals, 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
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Holder. Issuer shall pay all expenses, and any and all federal, state and
local taxes and other charges that may be payable in connection with the
preparation, issuance and delivery of stock certificates under this Section 2
in the name of Holder or its assignee, transferee or designee.
3. COVENANTS OF ISSUER. Issuer agrees: (i) 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
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 under this
Agreement by Issuer; (iii) promptly to take all action as may from time to time
be required (including (x) complying with all applicable premerger notification,
reporting and waiting period requirements and (y) if, under the applicable
federal or state regulatory requirements or any state or federal banking law,
prior approval of or notice to any Governmental Entity is necessary before the
Option may be exercised, cooperating fully with Holder in preparing such
applications or notices and providing such information to each such Governmental
Entity as they may require to permit Holder to exercise the Option and Issuer
duly and effectively to issue shares of Common Stock pursuant to this Agreement;
and (iv) promptly to take all action provided in this Agreement to protect the
rights of Holder against dilution.
4. EXCHANGE OF OPTION. This Agreement (and the Option granted by
this Agreement) are exchangeable, without expense, at the option of Holder, upon
presentation and surrender of this Agreement at the principal office of Issuer,
for other Agreements providing for Options of different denominations entitling
Holder to purchase, on the same terms and subject to the same conditions as are
set forth in this Agreement, in the aggregate the same number of shares of
Common Stock subject to this Option. The terms "Agreement" and "Option" as used
in this Agreement include any stock option agreements and related options for
which this Agreement (and the Option granted by this Agreement) 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. ADJUSTMENTS. In addition to the adjustment in the number of
shares of Common Stock that are subject to the Option pursuant to Section 1 of
this Agreement, the number of shares of Common Stock subject to the Option and
the Option Price shall be subject to adjustment from time to time as provided in
this Section 5.
(a) In the event of any change in, or distributions in
respect of, Common Stock by reason of stock dividends, stock splits, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges of shares
or the like, the type and number of shares of Common Stock subject to the Option
shall be appropriately adjusted and proper provision shall
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be made so that, if any additional shares of Common Stock are to be issued or
otherwise become outstanding as a result of any such change (other than
pursuant to an exercise of the Option), the number of shares of Common Stock
that remain subject to the Option shall be increased so that, after such
issuance and together with shares of Common Stock previously issued pursuant
to the exercise of the Option (as adjusted on account of any of the foregoing
changes in the Common Stock), such number equals 10.65% of the number of
shares of Common Stock then issued and outstanding.
(b) Whenever the number of shares of Common Stock subject
to the Option 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 shall be equal to the number of shares of Common Stock subject to the
Option prior to the adjustment and the denominator of which shall be equal to
the number of shares of Common Stock subject to the Option after the adjustment.
6. REGISTRATION RIGHTS. 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 12 months (or such later
period as provided in Section 10) of such Subsequent Triggering Event (whether
on its own behalf or on behalf of any subsequent holder of this Option (or part
thereof) or owner of any of the shares of Common Stock issued pursuant hereto),
promptly prepare, file and keep current a shelf registration statement under the
Securities Act covering any shares issued and/or issuable pursuant to this
Option and shall use its best efforts to cause such registration statement to
become effective and remain current 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
promptly to become effective 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. Issuer shall bear the costs of both of such registrations
(including, without limitation, Issuer's attorneys' fees, printing costs and
filing fees, except for underwriting discounts or commissions, brokers' fees and
the fees and disbursements of Grantee's counsel related thereto).
Notwithstanding the above, if, at the time of any request by Grantee for
registration of Option Shares as provided above, Issuer is in the process of
registration with respect to an underwritten public offering by Issuer 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 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 by this Section 6 may be reduced; PROVIDED, that, after any such
required reduction, the number of Option Shares included in such offering for
the account of Holder shall constitute at least 25% of the total number of
shares to be sold by Holder and Issuer in the aggregate; PROVIDED FURTHER, that
if such reduction occurs, then Issuer shall file a registration statement for
the balance of the Option Shares subject to the registration demand as promptly
as practical as to which no reduction pursuant to this Section 6 shall be
permitted or occur and the Holder shall thereafter be entitled to one additional
registration and the 12 month period referred to in the first sentence of this
Section shall be increased to 24 months. Each such Holder shall provide all
information reasonably
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requested by Issuer for inclusion in any registration statement to be filed
to register Option Shares. 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 such underwriting agreements for an
issuer. 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 in this Agreement, in no event shall the number of registrations
that Issuer is obligated to effect be increased by reason of the fact that
there shall be more than one Holder as a result of any assignment or division
of this Agreement.
7. REPURCHASE OF OPTION.
(a) At any time after the occurrence of a Repurchase
Event (defined below): (i) at the request of Holder, delivered prior to an
Exercise Termination Event (or such later period as provided in Section 10),
Issuer (or any successor to Issuer) shall repurchase the Option from Holder at a
price (the "OPTION REPURCHASE PRICE") equal to the amount by which (x) the
market/offer price (as defined below) exceeds (y) the Option Price, multiplied
by the number of shares for which this Option may then be exercised; and (ii) at
the request of the owner of Option Shares from time to time (the "OWNER"),
delivered prior to an Exercise Termination Event (or such later period as
provided in Section 10), Issuer (or any successor to Issuer) shall repurchase
such number of the Option Shares from Owner as Owner shall designate at a price
(the "OPTION SHARE REPURCHASE PRICE") equal to the market/offer price multiplied
by the number of Option Shares so designated. The term "MARKET/OFFER PRICE"
shall mean the highest of: (i) the price per share of Common Stock at which a
tender 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 sale price for shares of Common Stock within the six-month
period immediately preceding the date Holder gives notice of the required
repurchase of this Option or 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 any
substantial part of Issuer's assets or deposits, the sum of the net price paid
in such sale for such assets or deposits and the current market value of the
remaining assets of Issuer as determined by a nationally recognized investment
banking firm selected by Holder or 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 Holder or Owner, as the case may
be, and reasonably acceptable to Issuer.
(b) Holder or 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 Holder or
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. As
promptly as practicable, and in any event within five business days after the
surrender of the Option and/or certificates representing
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Option Shares and the receipt of such notice or notices relating thereto,
Issuer shall deliver or cause to be delivered to Holder the Option Repurchase
Price and/or to Owner the Option Share Repurchase Price therefor or the
portion thereof 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, or as a consequence of administrative policy, from
repurchasing the Option and/or the Option Shares in full, Issuer shall
immediately so notify Holder and/or Owner and thereafter deliver or cause to be
delivered, from time to time, to Holder and/or 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, that if Issuer at any time after delivery of a notice of repurchase
pursuant to Section 7(b) is prohibited under applicable law or regulation, or as
a consequence of administrative policy, from delivering to Holder and/or 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), 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 Holder
and/or 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 Holder, a new Agreement evidencing
the right of Holder to purchase that number of shares of Common Stock obtained
by multiplying the number of shares of Common Stock for which the surrendered
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 of the Option Repurchase Price previously delivered to Holder and the
denominator of which is the Option Repurchase Price, and/or (B) to Owner, a
certificate for the Option Shares it is then so prohibited from repurchasing. If
an Exercise Termination Event shall have occurred prior to the date of the
notice by Issuer described in the first sentence of this Section 7(c), or shall
be scheduled to occur at any time before the expiration of a period ending on
the thirtieth day after such date, Holder shall nonetheless have the right to
exercise the Option until the expiration of such 30-day period.
(d) For purposes of this Section 7, a "REPURCHASE EVENT"
shall be considered to have occurred upon the occurrence of any of the following
events or transactions after the date of this Agreement:
(i) the acquisition by any person (other than
Grantee or any Grantee Subsidiary) of beneficial ownership of 50% or
more of the then outstanding Common Stock; or
(ii) the consummation of any Acquisition
Transaction described in Section 2(c)(i), except that the percentage
referred to for purposes of defining "Acquisition Transaction" in
clause (c) shall be 50%.
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8. SUBSTITUTE OPTION.
(a) In the event that prior to an Exercise Termination
Event, Issuer shall enter into an agreement to (i) consolidate with or merge
into any person, other than Grantee or any Grantee Subsidiary, or engage in a
plan of exchange with any person, other than Grantee or any Grantee Subsidiary
and Issuer shall not be the continuing or surviving corporation of such
consolidation or merger or the acquiror in such plan of exchange, (ii) permit
any person, other than Grantee or any Grantee Subsidiary, to merge into Issuer
or be acquired by Issuer in a plan of exchange and Issuer shall be the
continuing or surviving corporation, but, in connection with such merger or plan
of exchange, 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 or plan of exchange represent less than 50% of the outstanding shares and
share equivalents of the merged or acquiring company, or (iii) sell or otherwise
transfer all or a substantial part of its or any Issuer Subsidiary's assets or
deposits to any person, other than Grantee or any 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 in this Agreement, be
converted into, or exchanged for, an option (the "SUBSTITUTE OPTION"), at the
election of Holder, to acquire capital stock of either (x) the Acquiring
Corporation (as defined below) or (y) any person that controls the Acquiring
Corporation.
(b) The following terms have the following meanings:
(i) "ACQUIRING CORPORATION" means: (i) the
continuing or surviving person of a consolidation or merger
with Issuer (if other than Issuer); (ii) the acquiring person
in a plan of exchange in which Issuer is acquired; (iii)
Issuer in a merger or plan of exchange in which Issuer is the
continuing or surviving or acquiring person; and (iv) the
transferee of all or a substantial part of Issuer's assets or
deposits (or the assets or deposits of any Issuer Subsidiary).
(ii) "SUBSTITUTE COMMON STOCK" means the voting
common stock to be issued by the issuer of the Substitute
Option upon exercise of the Substitute Option.
(iii) "ASSIGNED VALUE" means the market/offer
price, as defined in Section 7.
(iv) "AVERAGE PRICE" means 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
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merging into Issuer or by any company which controls or is
controlled by such person, as 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 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 (after giving effect for such purpose to the provisions of Section 9),
which agreement 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 was
exercisable immediately prior to the event described in the first sentence of
Section 8(a), 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 was exercisable immediately prior to
the event described in the first sentence of Section 8(a) 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 subsections
above, shall the Substitute Option be exercisable for a number of shares that,
together with the number of shares owned by Grantee other than Fiduciary Shares,
is more than 19.99% of the shares of Substitute Common Stock outstanding prior
to exercise of the Substitute Option. In the event that the Substitute Option
would be exercisable for more than 19.99% of the shares of Substitute Common
Stock outstanding prior to exercise but for this Section 8(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 Section 8(e) over (ii) the value of the
Substitute Option after giving effect to the limitation in this Section 8(e).
This difference in value shall be determined by a nationally recognized
investment banking firm selected by Holder and reasonably acceptable to
Substitute Option Issuer.
(f) Issuer shall not enter into any transaction described
in Section 8(a) unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer under
this Agreement.
9. REPURCHASE OF SUBSTITUTE OPTION.
(a) At the request of a holder of the Substitute Option
(a "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 the amount by which (i) the
Highest Closing Price (as defined below) 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. In addition, at the
request of the owner (the "SUBSTITUTE SHARE OWNER") of shares of Substitute
Common Stock, the Substitute Option
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Issuer shall repurchase the Substitute Common Stock at a price (the
"SUBSTITUTE SHARE REPURCHASE PRICE") equal to the Highest Closing Price
multiplied by the number of Substitute Shares so designated. 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 Common Stock, as applicable.
(b) The Substitute Option Holder and the Substitute Share
Owner, as the case may be, may exercise their respective rights to require the
Substitute Option Issuer to repurchase the Substitute Option and the Substitute
Common Stock 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 Common Stock 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 Common Stock 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 Common Stock 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 the portion thereof that 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, from repurchasing the Substitute Option and/or the
Substitute Common Stock in part or in full, the Substitute Option Issuer 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 Option Repurchase Price and 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, that if the Substitute
Option Issuer is at any time after delivery of a notice of repurchase pursuant
to Section 9(b) prohibited under applicable law or regulation, or as a
consequence of administrative policy, 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 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
Common Stock 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 (x) to the Substitute Option
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Holder, a new Substitute Option evidencing the right of the Substitute Option
Holder to purchase that number of shares of Substitute Common Stock obtained
by multiplying the number of shares of 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 of the Substitute Option Repurchase
Price previously delivered to the Substitute Option Holder and the
denominator of which is the Substitute Option Repurchase Price, and/or (y) to
the Substitute Share Owner, a certificate for the Substitute Common Stock it
is then so prohibited from repurchasing. If an Exercise Termination Event
shall have occurred prior to the date of the notice by the Substitute Option
Issuer described in the first sentence of Section 9(c), or shall be scheduled
to occur at any time before the expiration of a period ending on the
thirtieth day after such date, the Substitute Option Holder shall
nevertheless have the right to exercise the Substitute Option until the
expiration of such 30-day period
10. EXTENSION OF EXERCISE PROVISIONS. The 30-day, six-month,
12-month, 18-month or 24-month time periods for the exercise of certain rights
under Sections 2, 6, 7, 9, 12 and 14 shall be extended: (i) to the extent
necessary to obtain all regulatory approvals for the exercise of such rights
(for so long as the Holder, Owner, Substitute Option Holder or Substitute Share
Owner, as the case may be, is using commercially reasonable efforts to obtain
such regulatory approvals), 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.
11. REPRESENTATIONS AND WARRANTIES OF ISSUER. 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 by this Agreement. The execution and delivery of this Agreement and
the consummation of the transactions contemplated by this Agreement have been
duly and validly authorized by the board of directors of Issuer prior to the
date of this Agreement 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. This Agreement is the valid and legally binding obligation of Issuer.
(b) Issuer has taken all necessary corporate action to
authorize, reserve and permit it to issue, and at all times from the date of
this Agreement 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 under this Agreement, and all
such shares, upon issuance pursuant to this Agreement, 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. ASSIGNMENT. Neither party to this Agreement may assign any of
its rights or obligations under this Agreement or the Option created under this
Agreement to any other person without the express written consent of the other
party, except that if a Subsequent Triggering
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Event shall have occurred prior to an Exercise Termination Event, Grantee,
subject to the express provisions of this Agreement, may assign in whole or
in part its rights and obligations under this Agreement; PROVIDED, that until
the date 15 days following the date on which the last of all applicable
Governmental Entities has approved 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 (such as 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 all applicable Governmental
Entities.
13. COOPERATION. Grantee and Issuer each will use its best efforts
to make all filings with, and to obtain consents of, all third parties and
Governmental Entities necessary to the consummation of the transactions
contemplated by this Agreement, but Grantee shall not be obligated to apply to
state banking authorities for approval to acquire the shares of Common Stock
issuable under this Agreement until such time, if ever, as it considers
appropriate to do so.
14. MINIMUM REPURCHASE PROCEEDS.
(a) Grantee may, at any time following a Repurchase Event
which occurs prior to the occurrence of an Exercise Termination Event (or such
later period as provided in Section 10), relinquish the Option (together with
any Option Shares issued to and then owned by Grantee) to Issuer in exchange for
a cash fee equal to the Surrender Price; PROVIDED, that Grantee may not exercise
its rights pursuant to this Section 14 if Issuer has repurchased the Option (or
any portion thereof) or any Option Shares pursuant to Section 7. The "SURRENDER
PRICE" shall be equal to $8,500,000 (i) plus, if applicable, Grantee's purchase
price with respect to any Option Shares and (ii) minus, if applicable, the
excess of (A) the net cash amounts, if any, received by Grantee pursuant to the
arms' length sale of Option Shares (or any other securities into which such
Option Shares were converted or exchanged) to any unaffiliated party, over (B)
the Option Price.
(b) Grantee may exercise its right to relinquish the
Option and any Option Shares pursuant to this Section 14 by surrendering to
Issuer, at its principal office, a copy of this Agreement together with
certificates for Option Shares, if any, accompanied by a written notice stating
(i) that Grantee elects to relinquish the Option and Option Shares, if any, in
accordance with the provisions of this Section 14 and (ii) the Surrender Price.
The Surrender Price shall be payable in immediately available funds on or before
the second business day following receipt of such notice by Issuer.
(c) To the extent that Issuer is prohibited under
applicable law or regulation, or as a consequence of administrative policy, from
paying the Surrender Price to Grantee in full, Issuer shall immediately so
notify Grantee and thereafter deliver or cause to be delivered, from time to
time, to Grantee, the portion of the Surrender Price that it is no longer
prohibited from paying, within five business days after the date on which Issuer
is no longer so prohibited; PROVIDED, that if Issuer at any time after delivery
of a notice of surrender pursuant to Section 14(b) is prohibited under
applicable law or regulation, or as a consequence of administrative
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policy, from paying to Grantee the Surrender Price in full: (i) Issuer shall
(A) 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 make such payments, (B) within five days of the submission or
receipt of any documents relating to any such regulatory and legal approvals,
provide Grantee with copies of the same, and (c) keep Grantee advised of both
the status of any such request for regulatory and legal approvals, as well as
any discussions with any relevant regulatory or other third party reasonably
related to the same; and (ii) Grantee may revoke such notice of surrender by
delivery of a notice of revocation to Issuer and, upon delivery of such
notice of revocation, the date of the Exercise Termination Event shall be
extended to a date six months from the date on which the Exercise Termination
Event would have occurred if not for the provisions of this Section 14(c)
(during which period Grantee may exercise any of its rights under this
Agreement, including any and all rights pursuant to this Section 14).
15. REMEDIES. The parties acknowledge that damages would be an
inadequate remedy for a breach of this Agreement by either party and that the
obligations of the parties shall be enforceable by either party through
injunctive or other equitable relief. In connection therewith, the parties waive
the posting of any bond or similar requirement.
16. SEVERABILITY. 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, 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 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) (as adjusted pursuant to Sections 1(b) or 5), it is the
express intention of Issuer to allow Holder to acquire or to require Issuer to
repurchase such lesser number of shares as may be permissible, without any
amendment or modification of this Agreement.
17. NOTICES. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be considered
to have been duly given if delivered or sent and received by a fax transmission
(if receipt by the intended recipient is confirmed by telephone and if hard copy
is delivered by overnight delivery service the next day), by hand delivery, or
by a nationwide overnight delivery service (all fees prepaid) to the respective
addresses of the parties set forth in the Plan of Merger.
18. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Michigan, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws.
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be considered to be an original, but all of
which shall constitute one and the same agreement.
20. FEES AND EXPENSES. Except as otherwise expressly provided in
this Agreement, each party shall bear and pay all costs and expenses incurred by
it or on its behalf in connection
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with the transactions contemplated under this Agreement, including fees and
expenses of its own financial consultants, investment bankers, accountants
and counsel.
21. ENTIRE AGREEMENT. Except as otherwise expressly provided in
this Agreement or in the Plan of Merger, this Agreement contains the entire
agreement between the parties with respect to the transactions contemplated
under this Agreement and supersedes all prior arrangements or understandings
with respect thereto, written or oral. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the parties to this
Agreement 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 to this Agreement, and their respective successors and permitted
assignees, any rights, remedies, obligations or liabilities under or by reason
of this Agreement, except as expressly provided in this Agreement.
IN WITNESS WHEREOF, the parties have caused this Stock Option
Agreement to be executed by their officers, thereunto duly authorized, as of the
date first written above.
OLD KENT FINANCIAL CORPORATION
By: /s/ XXXX X. XXXXXXX
------------------------------------------------
Xxxx X. Xxxxxxx, Executive Vice President and
Chief Financial Officer
[BALANCE OF THIS PAGE INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, the parties have caused this Stock Option
Agreement to be executed by their officers, thereunto duly authorized, as of the
date first written above.
MERCHANTS BANCORP, INC.
By: /s/ XXXXXX X. XXXXX
------------------------------------------------
Xxxxxx X. Xxxxx, Chairman, President and
Chief Executive Officer
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