Exhibit 99-b
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT, dated as of June 12, 2001 (the "Option
Agreement"), between VIRGINIA FINANCIAL CORPORATION, a Virginia corporation
("VFNL"), and VIRGINIA COMMONWEALTH FINANCIAL CORPORATION, a Virginia
corporation ("VCFC").
WITNESSETH
WHEREAS, the Boards of Directors of VFNL and VCFC have unanimously approved
the strategic business affiliation of their companies through the merger of VCFC
and VFNL (the "Merger") and the continued operation of the combined company
under the name "Virginia Financial Group, Inc." pursuant to the terms and
conditions of an Agreement and Plan of Reorganization, dated June 12, 2001, and
a related Plan of Merger (together referred to herein as the "Merger
Agreement"), which agreement was executed and delivered immediately before the
execution and delivery of this Option Agreement; and
WHEREAS, as a condition to and as consideration for VCFC's entry into the
Merger Agreement and to induce such entry, VFNL has agreed to grant to VCFC the
option set forth herein to acquire authorized but unissued shares of VFNL Common
Stock.
NOW, THEREFORE, in consideration of the premises herein contained, the
parties agree as follows:
ARTICLE 1
Option to Purchase Shares
1.1 Grant of Option.
Subject to the terms and conditions set forth herein, VFNL hereby grants to
VCFC an irrevocable option (the "Option") to acquire up to 791,950 shares of
VFNL Common Stock at a price of $26.00 per share (the "Exercise Price") in
exchange for the consideration provided in Section 1.3 hereof; provided,
however, that in the event VFNL issues or agrees to issue any shares of VFNL
Common Stock (other than as permitted under this Agreement and the Merger
Agreement) at a price less than $26.00 per share (as adjusted pursuant to
Section 3.1 hereof), the Exercise Price shall be equal to such lesser price.
Notwithstanding anything else in this Option Agreement to the contrary, the
number of shares of VFNL Common Stock subject to the Option shall be reduced if
and to the extent necessary so that the number of shares for which this Option
is exercisable
shall not exceed 19.9% of the issued and outstanding shares of VFNL Common
Stock, before giving effect to the exercise of the Option. The number of shares
of VFNL Common Stock that may be received upon the exercise of the Option is
subject to adjustment as set forth herein.
1.2 Exercise of Option.
(a) Subject to compliance with applicable law and regulation, VCFC may
exercise the Option, in whole or part, at any time or from time to time if a
Purchase Event (as defined below) shall have occurred and be continuing.
(b) VFNL shall notify VCFC promptly in writing of the occurrence of any
transaction, offer or event giving rise to a Purchase Event. If more than one of
the transactions, offers or events giving rise to a Purchase Event is undertaken
or effected by the same person (the term "person" for purposes of this Agreement
having the meaning assigned thereto in Sections 3(a)(9) and 13(d)(3) of the
Exchange Act or occurs at the same time, then all such transactions, offers and
events shall give rise only to one Purchase Event, which Purchase Event shall be
deemed continuing for all purposes hereof until all such transactions are
terminated or abandoned by such person and all such events have ceased or ended.
(c) In the event that VCFC wishes to exercise the Option, it shall send
VFNL a written notice (the date of which being herein referred to as the "Notice
Date") specifying (i) the total number of shares it will acquire 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
transaction (the "Closing Date"); provided that if prior notification to or
approval of any federal or state regulatory agency is required in connection
with such acquisition, VCFC 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 period has expired or been
terminated or such approval has been obtained and any requisite waiting period
shall have passed.
(d) The Option shall expire and terminate, to the extent not previously
exercised, upon the earlier of: (i) the Effective Date of the Merger; (ii) upon
termination of the Merger Agreement in accordance with the provisions thereof,
other than a termination based upon, following or in connection with either (A)
a material breach by VFNL of a Specified Covenant (as defined below) or (B) the
failure of VFNL to obtain shareholder approval of the Merger Agreement by the
vote required under applicable law, in the case that either (A) or (B) follow
the occurrence of a Purchase Event; or (iii) 12 months after termination of the
Merger Agreement based upon a material breach by VFNL of a Specified Covenant or
the failure of VFNL to obtain shareholder approval of the Merger Agreement by
the vote required under applicable law, in either case following the occurrence
of a Purchase Event.
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(e) As used herein, a "Purchase Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) VFNL or any of its Subsidiaries, without having received VCFC's
prior written consent, shall have entered into an agreement with any person
to (A) acquire, merge or consolidate, or enter into any similar
transaction, with VFNL or any Subsidiary thereof, (B) purchase, lease or
otherwise acquire all or substantially all of the business, assets or
deposits of VFNL or any Subsidiary thereof, or (C) purchase or otherwise
acquire directly from VFNL or any Subsidiary thereof securities
representing 10% or more of the voting power of VFNL or such Subsidiary;
(ii) any person shall have acquired beneficial ownership or the
right to acquire beneficial ownership of 20% or more of the outstanding
shares of VFNL Common Stock after the date hereof (the term "beneficial
ownership" for purposes of this Option Agreement having the meaning
assigned thereto in Section 13(d) of the Exchange Act and the regulations
promulgated thereunder); or
(iii) any person shall have made a bona fide proposal to VFNL by
public announcement or written communication that is or becomes the subject
of public disclosure to acquire VFNL by merger, share exchange,
consolidation, purchase of all or substantially all of its assets or any
other similar transaction, and following such bona fide proposal the Board
of Directors of VFNL shall have recommended that the shareholders of VFNL
approve or accept such proposal and not the Merger Agreement.
(f) As used herein, "Specified Covenant" means any covenant or agreement
contained in the Merger Agreement.
1.3 Payment and Delivery of Certificates.
(a) At the Closing Date, VCFC shall tender certified funds in an amount
equal to the aggregate purchase price based on the Exercise Price for the number
of shares with respect to which VCFC is exercising the Option.
(b) At such closing, VFNL shall deliver to VCFC a certificate or
certificates representing the number of shares of VFNL Common Stock exchanged
for the Exercise Price and VCFC shall deliver to VFNL a letter agreeing that
VCFC will not offer to sell or otherwise dispose of such shares in violation of
applicable law or the provisions of this Option Agreement.
(c) Certificates for VFNL Common Stock delivered at a closing hereunder
may be endorsed with a restrictive legend which shall read substantially as
follows:
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"The transfer of the shares represented by this Certificate is subject
to certain provisions of an agreement between the registered holder
hereof and Virginia Financial Corporation and to resale restrictions
arising under the Securities Act of 1933, as amended, a copy of which
agreement is on file at the principal office of Virginia Financial
Corporation. A copy of such agreement will be provided to the holder
thereof without charge upon receipt by Virginia Financial Corporation
of a written request."
It is understood and agreed that the above legend shall be removed by delivery
of substitute certificate(s) without such legend if VCFC shall have delivered to
VFNL a copy of a letter from the staff of the Securities and Exchange Commission
(the "SEC"), or an opinion of counsel, in form and substance satisfactory to
VFNL, to the effect that such legend is not required for purposes of the
Securities Act.
ARTICLE 2
Representations and Warranties
2.1 Representations and Warranties of VFNL.
VFNL hereby represents and warrants to VCFC as follows:
(a) VFNL shall at all times maintain sufficient authorized but unissued
shares of VFNL Common Stock so that the Option may be exercised without
authorization of additional shares of VFNL Common Stock.
(b) The shares to be issued upon due exercise, in whole or in part, of the
Option, when paid for as provided herein, will be duly authorized, validly
issued, fully paid and nonassessable.
2.2 Representations and Warranties of VCFC.
VCFC hereby represents and warrants to VFNL that any shares acquired by
VCFC 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.
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ARTICLE 3
Adjustments Upon Changes In Capitalization
3.1. Adjustment Upon Changes in Capitalization.
In the event of any change in VFNL Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations, exchanges of
shares or the like, the type and number of shares subject to the Option, and the
purchase price per share, as the case may be, shall be adjusted appropriately.
In the event that any additional shares of VFNL Common Stock are issued or
otherwise become outstanding after the date of this Option Agreement (other than
pursuant to this Option Agreement or pursuant to the exercise of warrants or
options to acquire shares of VFNL Common Stock outstanding as of the date of the
Merger Agreement or that may be issued after the date of the Merger Agreement
without constituting a breach thereof), the number of shares of VFNL Common
Stock subject to the Option shall be adjusted so that, after such issuance, it
equals 19.9% of the number of shares of VFNL Common Stock then issued and
outstanding without giving effect to any shares subject or issued pursuant to
the Option or any shares issued pursuant to the exercise of options to acquire
shares of VFNL Common Stock outstanding as of the date of the Merger Agreement
or that may be issued after the date of the Merger Agreement without
constituting a breach thereof. Nothing contained in this Section 6 shall be
deemed to authorize VFNL to breach any provision of the Merger Agreement.
ARTICLE 4
Registration Rights
4.1 Registration Rights.
VFNL shall, if requested by VCFC, as expeditiously as possible file a
registration statement on a form of general use under the Securities Act if
necessary in order to permit the sale or other disposition of the shares of VFNL
Common Stock that are acquired upon exercise of the Option in accordance with
the intended method of sale or other disposition requested by VCFC. VCFC, at its
own expense, shall provide all information reasonably requested by VFNL for
inclusion in any registration statement to be filed hereunder. VFNL 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 date
on which such registration statement first becomes effective as may be
reasonably necessary to effect such sales or other dispositions. The first
registration effected under this Section 4.1 shall be at VFNL's expense except
for underwriting commissions and the fees and disbursements of VCFC's counsel
attributable to the registration of such VFNL Common Stock. A second
registration statement may be requested hereunder at VCFC's expense. In no event
shall VFNL be required to effect more than two registrations hereunder. The
filing of any registration statement hereunder may be delayed for such period of
time as may reasonably be required to facilitate any public distribution by VFNL
of VFNL Common Stock. If requested by VCFC, in connection with any such
registration, VFNL will become a party to any underwriting agreement relating to
the sale
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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. Upon receiving any request from VCFC
or an assignee of VCFC under this Section 4.1, VFNL agrees to send a copy
thereof to VCFC and to any assignee of VCFC known to VFNL, in each case by
promptly mailing the same, postage prepaid, to the address of record of the
persons entitled to receive such copies.
ARTICLE 5
Miscellaneous
5.1 Severability.
If any term, provision, covenant or restriction contained in this Option
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 Option
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 Option Agreement will not permit the holder to
acquire the full number of shares of VFNL Common Stock provided in Section 1.1
hereof (as adjusted pursuant to Section 3.1 hereof), it is the express intention
of VFNL to allow the holder to acquire, or to require VFNL to repurchase, to the
extent permitted under applicable law and without having to borrow funds or
otherwise raise capital to the extent that VFNL would thereafter not be
considered a "well-capitalized" institution under federal banking laws, such
number of shares as may be necessary to comply with such court or regulatory
agency's determination of the permissible number of shares, without any
amendment or modification hereof.
5.2 Expenses.
Except as otherwise 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.
5.3 Entire Agreement.
Except as otherwise expressly provided herein, this Option Agreement
contains the entire agreement between the parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral. The terms and conditions
of this Option Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns. Nothing in this
Option Agreement, expressed or implied, is intended to confer upon any party,
other than the parties hereto and their respective successors and assigns, any
rights, remedies, obligations or liabilities under or by reason of this Option
Agreement, except as expressly provided herein.
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5.4 Assignment.
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 VCFC may
assign in whole or in part the Option and other benefits and obligations
hereunder without limitation to any of its wholly-owned subsidiaries, and VCFC
may assign in whole or in part the Option and other benefits and obligations
hereunder without limitation in the event a Purchase Event shall have occurred
and VCFC shall have delivered to VFNL a copy of a letter from the staff of the
SEC, or an opinion of counsel, in form and substance reasonably satisfactory to
VFNL, to the effect that such assignment will not violate the requirements of
the Securities Act; provided that prior to any such assignment, VCFC shall give
written notice of the proposed assignment to VFNL, and within 48 hours of such
notice of a bona fide proposed assignment, VFNL may purchase the Option within
30 days of such notice at a price and on other terms at least as favorable to
VCFC as that set forth in the notice of assignment.
5.5 Notices.
All notices or other communications that are required or permitted
hereunder shall be in writing and sufficient if delivered in the manner and to
the address provided for in or pursuant to Section 8.5 of the Merger Agreement.
5.6 Counterparts.
This Option Agreement may be executed in any number of counterparts, and
each such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
5.7 Specific Performance.
The parties agree that damages would be an inadequate remedy for a breach
of the provisions of this Option Agreement by either party hereto and that this
Option Agreement may be enforced by either party hereto through injunctive or
other equitable relief.
5.8 Governing Law.
This Option Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Virginia, without regard to the conflicts of
laws principles thereof.
5.9 Definitions.
Capitalized terms used but not defined herein and defined in the Merger
Agreement shall have the same meanings as in the Merger Agreement.
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IN WITNESS WHEREOF, each of the parties hereto has executed this Option
Agreement as of the day and year first written above.
VIRGINIA FINANCIAL CORPORATION
By: /s/ Xxxxx X. Xxxxx, Xx.
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Xxxxx X. Xxxxx, Xx.
Chairman of the Board and President
VIRGINIA COMMONWEALTH FINANCIAL CORPORATION
By: /s/ O. R. Xxxxxx, Jr.
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O. R. Xxxxxx, Jr.
President and Chief Executive Officer
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