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 4, 1998, between Monocacy
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 358,002 fully paid and nonassessable shares of Issuer's Common Stock,
par value $5.00 per share ("Common Stock"), of Issuer at a price of $33.00
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
(i) issued or otherwise become outstanding after the date of this Agreement
(other than pursuant to this Agreement or as permitted under the terms of
the Merger Agreement or, as the result of the exercise or conversion of
options or other rights to acquire Common Stock that are outstanding as of
the date hereof) or (ii) redeemed, repurchased, retired or otherwise cease
to be outstanding after the date of the 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 a
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
pursuant to Section 9.1(f) of the Merger Agreement resulting from a willful
breach by Issuer of a 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 Issuer or its Board of
Directors shall have authorized or proposed or publicly announced its
intention to authorize or propose an Acquisition Transaction, or shall
have recommended or publicly announced its intention to recommend that
the stockholders of Issuer approve or accept any Acquisition
Transaction. For purposes of this Agreement, "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 Subsidiaries or
involving only any two or more of such 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;
(ii) Issuer or its Board of Directors 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 a bona fide 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 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 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
evidencing the rights of the Holder thereof to purchase the balance of the
shares purchasable hereunder, and the Holder shall deliver to Issuer a copy
of 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. 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. The shares represented by this certificate
have not been registered under the Securities Act of
1933, as amended, under the Maryland Securities Act, or
under the securities acts of any other state or
jurisdiction. No sale, offer to sell or other transfer
of these securities may be made unless pursuant to an
effective registration statement, or unless in the
opinion of counsel to the Holder reasonably satisfactory
to the Issuer, the proposed disposition may be made
pursuant to a valid exemption from the registration
provisions of those acts."
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 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; (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. section 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 specifically required by this Agreement 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 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 the 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 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 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 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 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 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 provisos 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
one of its Subsidiaries, 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 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, 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 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 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) Grantee is an "accredited investor" within the
meaning of Rule 501(a) of Regulation D under the Securities Act. Upon
exercise of this Option, Grantee shall be deemed to have represented and
warranted at such time that Grantee has received from the Issuer all
information that it requested and considers necessary or appropriate for
deciding whether to purchase the Common Stock and that it has had an
opportunity to ask questions and receive answers from the Issuer regarding
the terms and conditions of the purchase of the Common Stock. Grantee
understands that this Option and the Option Shares will be "restricted
securities" under the Securities Act inasmuch as they are being acquired
from the Issuer in a transaction not involving a public offering, and that,
under the Securities Act and applicable regulations thereunder, such
securities may be resold without registration under the Securities Act only
in certain limited circumstances. 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 Option 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 two 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.
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.
F&M BANCORP
By: /s/ Xxxx X. Xxxxxx
____________________________
Name: Xxxx X. Xxxxxx
Title: President and Chief Executive
Officer
MONOCACY BANCSHARES, INC.
By: /s/ Xxxx X. Xxxxx
_____________________________
Name: Xxxx X. Xxxxx
Title: Chairman of the Board of
Directors
