Exhibit 99.2
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STOCK OPTION AGREEMENT, dated August 1, 2001 (this "AGREEMENT"),
between Royal Bank of Canada, a Canadian chartered bank ("GRANTEE"), and Xxxxxx
Xxxxxxx Sutro, a Delaware corporation ("ISSUER"). Capitalized terms used but not
defined herein shall have the meanings given to such terms in the Merger
Agreement (as defined below).
RECITALS
WHEREAS, Grantee and Issuer have, concurrently with the execution
and delivery of this Agreement, entered into an Agreement and Plan of Merger,
dated the date hereof (the "MERGER AGREEMENT"), pursuant to which an indirect
wholly owned subsidiary of Grantee is to merge with and into Issuer (the
"MERGER"); 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 agree as follows:
1. Grant of Option. (a) Issuer hereby grants to Grantee an
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unconditional, irrevocable option (the "OPTION") to purchase, subject to the
terms hereof, up to an aggregate of 4,986,584 fully paid and nonassessable
shares of the common stock, par value $0.01 per share, of Issuer ("COMMON
STOCK") at a price per share equal to the closing price for the Common Stock on
the New York Stock Exchange on the first full trading day after the date of
public announcement of the Merger; PROVIDED, HOWEVER, that in no event shall the
number of shares for which this Option is exercisable exceed 19.9% of the issued
and outstanding shares of Common Stock. 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 set forth in this Agreement.
(b) In the event that any additional shares of Common Stock are
issued or otherwise become outstanding, or shares of Common Stock are redeemed,
repurchased, retired or otherwise cease to be outstanding, in each case after
the date of this Agreement (other than pursuant to this Agreement and other than
pursuant to an event described in Section 5 hereof), the number of shares of
Common Stock subject to the Option shall be increased or decreased, as
applicable, so that, after such issuance, redemption, repurchase, retirement or
other action, such number, together with any shares of Common Stock previously
issued pursuant hereto, equals 19.9% of the number of shares of Common Stock
then issued and outstanding. Nothing contained in this Section l(b) or elsewhere
in this Agreement shall be deemed to authorize Issuer to issue shares in breach
of any provision of the Merger Agreement.
2. Exercise. (a) The Holder (as hereinafter defined) may exercise
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the Option, in whole or part, if, but only if, 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 Section 2(e)) within 90
days following such Subsequent Triggering Event (or such later period as
provided in Section 10). The term "EXERCISE TERMINATION EVENT" shall mean: (i)
the Effective Time of the Merger; (ii) termination of the Merger Agreement in
accordance with its terms, other than a Listed Termination, if such termination
occurs prior to the occurrence of an Initial
Triggering Event; or (iii) the passage of eighteen (18) months (or such longer
period as provided in Section 10) after termination of the Merger Agreement if
such termination follows the occurrence of an Initial Triggering Event or is a
Listed Termination. The term "HOLDER" shall mean the holder or holders of the
Option. The term "LISTED TERMINATION" shall mean a termination by Grantee
pursuant to Section 8.01(b) (unless the breach by Issuer giving rise to such
right of termination is non-volitional), 8.01(f) or 8.01(g) of the Merger
Agreement. Notwithstanding anything to the contrary contained herein, 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 Merger Agreement such that
Issuer shall be entitled to terminate the Merger Agreement pursuant to Section
8.01(b) thereof.
(b) The term "INITIAL TRIGGERING EVENT" shall mean any of the
following events or transactions occurring on or after the date hereof:
(i) Issuer or any of its Significant Subsidiaries (the "ISSUER
Subsidiaries"), 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 (as
defined in the Merger Agreement) other than Grantee or any of its
Subsidiaries (each a "GRANTEE SUBSIDIARY"), or the Board of Directors
of Issuer (the "ISSUER BOARD") shall have recommended that the
stockholders of Issuer approve or accept any Acquisition Transaction
with any person other than Grantee or a Grantee Subsidiary. The term
"ACQUISITION TRANSACTION" shall mean (x) a merger or consolidation, or
any similar transaction, involving Issuer or any Issuer Subsidiary,
PROVIDED, HOWEVER, that in no event shall any merger, consolidation or
similar transaction involving only the Issuer and one or more of its
Subsidiaries or involving only any two or more of such Subsidiaries
(but in the case of such a transaction undertaken prior to the
termination of the Merger Agreement in accordance with its terms, only
if such transaction is not in violation of the terms of the Merger
Agreement) be deemed to be an Acquisition Transaction, (y) a purchase,
lease or other acquisition of all or any substantial part of the assets
or business operations of Issuer or any Issuer Subsidiary or (z) 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 any Issuer Subsidiary;
(ii) Any person 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
Exchange Act); PROVIDED that the beneficial ownership of 10% or more of
such shares by (x) the Grantee or any Grantee Subsidiary or (y) any party
to the Voting Agreement will not result in an Initial Triggering Event so
long as (in the case of (y)) such person does not acquire shares of Common
Stock after the date hereof with the intent of effecting or facilitating,
a transaction of a sort that could reasonably be expected to lead to a
subsequent Triggering Event.
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(iii) The stockholders of Issuer shall have voted and failed to
adopt the Merger Agreement at the Company Stockholders Meeting, or the
Company Stockholders Meeting shall not have been held or shall have been
canceled prior to termination of the Merger Agreement 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 that any person (other than Grantee or any of its Subsidiaries)
shall have made, or disclosed an intention to make, a bona fide
Acquisition Proposal;
(iv) The Issuer Board shall have withdrawn, modified or
qualified (or publicly announced its intention to withdraw, modify or
qualify) in any manner adverse in any respect to Grantee its
recommendation that the stockholders of Issuer approve the transactions
contemplated by the Merger Agreement in anticipation of engaging in an
Acquisition Transaction, or Issuer shall have authorized, recommended or
proposed (or publicly announced its intention to authorize, recommend or
propose) an agreement to engage in an Acquisition Transaction with any
person other than Grantee or a Grantee Subsidiary;
(v) Any person other than Grantee or any Grantee Subsidiary
shall have filed with the 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 offer);
(vi) Issuer shall have willfully breached any covenant or
obligation contained in the Merger Agreement after an overture is made by
a third party to Issuer or its stockholders to engage in an Acquisition
Transaction and (a) following such breach Grantee would be entitled to
terminate the Merger Agreement (whether immediately or after the giving of
notice or passage of time or both) and (b) such breach shall not have been
cured prior to the Notice Date (as defined in Section 2(e)); or
(vii) Any person other than Grantee or any Grantee Subsidiary,
without Grantee's prior written consent, shall have filed an application
or notice with any regulatory or antitrust authority regarding an
Acquisition Transaction.
(c) The term "SUBSEQUENT TRIGGERING EVENT" shall mean any of the
following events or transactions occurring after the date hereof:
(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) The occurrence of the Initial Triggering Event described
in clause (i) of Section 2(b), except that the percentage referred to in
clause (z) of the second sentence thereof shall be 25%.
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(d) Issuer shall notify Grantee promptly in writing of the
occurrence of any Initial Triggering Event or Subsequent Triggering Event
(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 (or any portion thereof), 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 of Common Stock 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 United States or foreign regulatory or antitrust agency is
required in connection with such purchase, the Holder shall promptly file the
required notice or application for approval, shall promptly 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 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 Section 2(e), the 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 the failure or refusal of the Issuer to designate such a bank account or
accept surrender of this Agreement shall not preclude the Holder from exercising
the Option.
(g) At such closing, simultaneously with the delivery of immediately
available funds as provided in Section 2(f), 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.
(h) Certificates for Common Stock delivered at a closing hereunder
may be endorsed with a restrictive legend that shall read substantially as
follows:
"The transfer of the securities represented by this certificate is
subject to certain provisions of an agreement between the registered
holder hereof and Issuer and to resale restrictions arising under the
Securities Act of 1933, as amended. A copy of such agreement is on file at
the principal office of the issuer of these securities and will be
provided to the holder hereof without charge upon receipt by such issuer
of a written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities 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
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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 opinion of counsel to the Holder, in form and substance
reasonably satisfactory to the Issuer; 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 Section 2(e) 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. Covenants of Issuer. Issuer agrees: (i) that it shall at all
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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 hereunder 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 specified in 15 U.S.C. Section 18a and
regulations promulgated thereunder and (y) in the event prior approval of or
notice to any state or other United States federal or foreign 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 such state or other United States federal or foreign regulatory
authority as they may require) in order to permit the Holder to exercise the
Option and Issuer duly and effectively to issue shares of Common Stock pursuant
hereto; and (iv) promptly to take all action provided herein to protect the
rights of the Holder against dilution.
4. Exchange. This Agreement (and the Option granted hereby) are
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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 in this
Agreement include any Agreements and related Options for which this Agreement
(and the
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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. Certain Adjustments. In addition to the adjustment in the
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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 Common Stock by reason of a stock dividend, stock split,
split-up, recapitalization, stock combination, exchange of shares or similar
transaction, the type and number of shares or securities subject to the Option,
and the Option Price therefor, shall be adjusted appropriately, and proper
provision shall be made in the agreements governing such transaction so that
Grantee shall receive, upon exercise of the Option, the number and class of
shares or other securities or property that Grantee would have received in
respect of Common Stock if the Option had been exercised immediately prior to
such event, or the record date therefor, as applicable. If any additional shares
of Common Stock are issued after the date of this Agreement (other than pursuant
to an event described in the first sentence of this Section 5), the number of
shares of Common Stock subject to the Option shall be adjusted so that, after
such issuance, it, together with any shares of Common Stock previously issued
pursuant hereto, equals 19.9% of the number of shares of Common Stock then
issued and outstanding.
6. Registration Rights. Upon the occurrence of a Subsequent
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Triggering Event that occurs prior to an Exercise Termination Event, Issuer
shall, at the request of Grantee delivered within twelve (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 any of the shares of Common Stock issued pursuant hereto),
promptly prepare, file and keep current a registration statement under the
Securities Act covering any shares issued and issuable pursuant to this Option
and shall use its reasonable 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 reasonable 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. The Issuer shall bear the costs of such
registrations (including, but not limited to, 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). 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 by Issuer of shares
of Common Stock, and if in the good faith judgment of the managing
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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 hereby may be reduced; 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 33-1/3% of the
total number of shares to be sold by the Holder and Issuer in the aggregate; and
PROVIDED, FURTHER, that if such reduction occurs, then Issuer shall file a
registration statement for the balance as promptly as practicable thereafter 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
twelve (12) month period referred to in the first sentence of this section shall
be increased to twenty-four (24) months. 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 such underwriting agreements for
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 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. (a) At any time after the occurrence of a Repurchase
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Event (as defined below) (i) at the request of the Holder, delivered prior to an
Exercise Termination Event (or such later period as provided in Section 10),
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 prior to an Exercise Termination Event (or such later period as
provided in Section 10), Issuer (or any successor thereto) 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 or exchange offer therefor has been made, (ii) the price per
share of Common Stock to be paid by any third party pursuant to any 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 any substantial part of Issuer's assets or business operations, the
sum of the net price paid in such sale for such assets or business operations
and the current market value of the remaining assets or business operations 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
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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. The Owner shall also represent and warrant that it has sole record
and beneficial ownership of such Option Shares and that such Option Shares are
then free and clear of all liens. As promptly as practicable, and in any event
within five (5) business days after the surrender of the Option and/or
certificates representing Option Shares and the receipt of such notice or
notices relating thereto, 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 that Issuer is not then
prohibited under applicable law and regulation from so delivering.
(c) For purposes of this Section 7, a "REPURCHASE EVENT" shall be
deemed to have occurred upon the occurrence of any of the following events or
transactions after the date hereof prior to the occurrence of an Exercise
Termination Event:
(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(b)(i) hereof, except that the percentage referred to in
clause (z) shall be 25%.
8. Substitute Option. (a) In the event that prior to an Exercise
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Termination Event, Issuer shall enter into an agreement (i) to consolidate with
or merge into any person, other than Grantee or a Grantee Subsidiary, or engage
in a plan of exchange with any person, other than Grantee or a Grantee
Subsidiary and Issuer shall not be the continuing or surviving corporation of
such consolidation or merger or the acquirer in such plan of exchange, (ii) to
permit any person, other than Grantee or a Grantee Subsidiary, to merge into
Issuer or be acquired by Issuer in a plan of exchange and Issuer shall be the
continuing or surviving or acquiring 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) to sell
or otherwise transfer all or a substantial part of its or any Issuer
Subsidiary's assets or business operations to any person, other than Grantee or
a Grantee Subsidiary, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option
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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, to purchase equity
securities of either (x) the Acquiring Company (as hereinafter defined) or (y)
any person that controls the Acquiring Company.
(b) The following terms have the meanings indicated:
(i) "ACQUIRING COMPANY" shall mean (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) the 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 business
operations (or the assets or business operations of any Issuer
Subsidiary).
(ii) "SUBSTITUTE COMMON STOCK" shall mean the common stock or
other equity securities issued by the issuer of the Substitute Option upon
exercise of the Substitute Option.
(iii) "ASSIGNED VALUE" shall mean the market/offer price, as
defined in Section 7.
(iv) "AVERAGE PRICE" shall mean either (i) if the Substitute
Common Stock is traded on a national securities exchange or interdealer
quotation system, the average closing price of a share of the Substitute
Common Stock for six months 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; or (ii) if the Substitute Common Stock is
not so traded, the average price per share of the Substitute Common Stock
for the six months immediately preceding the consolidation, merger or sale
in question, as determined by a nationally recognized investment banking
firm selected by the Holder; PROVIDED, HOWEVER, 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, HOWEVER, 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 (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
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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 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.
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.
(f) Issuer shall not enter into any transaction described in
Section 8(a) unless the Acquiring Company and any person that controls the
Acquiring Company assume in writing all the obligations of Issuer hereunder.
9. Repurchase of Substitute Option. (a) At the request of the holder
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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
either (i) if the Substitute Common Stock is traded on a national securities
exchange or interdealer quotation system, 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, or (ii) if the Substitute
Common Stock is not so traded, the average price per share of the Substitute
Common Stock within such period, as determined by a nationally recognized
investment banking firm selected by the Holder.
(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
Shares pursuant to this Section 9 by surrendering for such purpose to the
Substitute Option Issuer, at its principal office, the agreement for such
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Substitute Option (or, in the absence of such an agreement, a copy of this
Agreement) and/or 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 (5) 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 the portion thereof which the Substitute Option
Issuer is not then prohibited under applicable law and regulation from so
delivering.
10. Extension of Periods Under Certain Circumstances. The periods
------------------------------------------------
for exercise of certain rights under Sections 2, 6, 7, 9 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; (ii) to the extent necessary to avoid
liability under Section 16(b) of the Exchange Act by reason of such exercise;
and (iii) when there exists an injunction, order or judgment that prohibits or
delays exercise of such right.
11. Representations and Warranties. (a) Issuer hereby represents
------------------------------
and warrants to Grantee as follows:
(i) Issuer has the requisite 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 Issuer Board prior to the date hereof 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.
(ii) 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 thereto, will be
duly authorized, validly issued, fully paid and nonassessable and will be
delivered free and clear of all claims, liens, encumbrance and security
interests and not subject to any preemptive rights.
(b) Grantee hereby represents and warrants to Issuer as follows:
Grantee has the requisite corporate power and authority to execute and deliver
this Agreement and to perform its obligations hereunder. The execution and
delivery of this Agreement by the Grantee and the
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performance of its obligations hereunder by the Grantee have been duly and
validly authorized by the Board of Directors of Grantee and no other corporate
proceedings on the part of the Grantee are necessary to authorize this Agreement
or for Grantee to perform its obligations hereunder. This Agreement has been
duly and validly executed and delivered by Grantee.
(c) This Option is not being, and any Option Shares 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 or except in a transaction registered or exempt from
registration under the Securities Act.
12. Assignment. Neither of the parties hereto may assign any of its
----------
rights or obligations under this Agreement or the Option created hereunder to
any other person, without the express written consent of the other party, except
that in the event an Initial 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.
13. Filings, Etc. Each of Grantee and Issuer will use its
------------
reasonable 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.
14. Surrender of Option. (a) Grantee may, at any time following a
-------------------
Repurchase Event and 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. The "SURRENDER PRICE"
shall be equal to U.S. $18.75 million (i) plus, if applicable, Grantee's
purchase price with respect to any Option Shares, (ii) minus, if applicable, the
excess of (A) the net price, if any, received by Grantee or a Grantee Subsidiary
pursuant to the sale of Option Shares (or any other securities into which such
Option Shares were converted or exchanged) to any unaffiliated party, over (B)
Grantee's purchase price of such Option Shares and (iii) minus, if applicable,
the amount paid by Issuer to Grantee pursuant to Section 8.03(a) of the Merger
Agreement.
(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.
15. Specific Performance. 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. In
connection therewith, both parties waive the posting of any bond or similar
requirement.
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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 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 l(a) hereof (as adjusted pursuant to Section
l(b) or Section 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. Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be deemed to have been duly given when delivered
in person, by fax, telecopy, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in Section 9.06 of the Merger Agreement.
18. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware.
19. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
20. Expenses. 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. Entire Agreement; Third-Party Rights. 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 assignees. Nothing in this
Agreement, expressed or implied, is intended to confer upon any party, other
than the parties hereto, and their respective successors except as assignees,
any rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided herein.
22. Maximum Profit. (a) Notwithstanding any other provision herein,
--------------
in no event shall Grantee's Total Profit (as defined in Section 22(c)) exceed
$25 million (the "MAXIMUM PROFIT"), and, if the Total Profit would otherwise
exceed such amount, Grantee, at its sole election, shall either (i) reduce the
number of shares subject to the Option (and any Substitute Option), (ii) deliver
to Issuer, or Substitute Option Issuer, as the case may be, for cancellation
shares of Common Stock or Substitute Common Stock, as the case may be,
previously purchased by Grantee valued at fair market value at the time of
delivery, (iii) pay cash
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to Issuer, or Substitute Option Issuer, as the case may be, (iv) increase or
otherwise adjust the Option Price or Substitute Option Price (or any portion
thereof), (v) reduce the amount of the Option Repurchase Price or Substitute
Option Repurchase Price or (vi) undertake any combination of the foregoing, so
that Grantee's actually realized Total Profit shall not exceed the Maximum
Profit after taking into account the foregoing actions.
(b) Notwithstanding any other provisions of this Agreement, the
Option (and any Substitute Option) may not be exercised for a number of shares
as would, as of the date of exercise, result in a Notional Total Profit (as
defined in Section 22(d)) of more than the Maximum Profit and, if exercise of
the Option (and any Substitute Option) would otherwise result in the Notional
Total Profit exceeding such amount, Grantee, in its discretion, may take any of
the actions specified in Section 22(a) so that the Notional Total Profit shall
not exceed the Maximum Profit; PROVIDED, HOWEVER, that nothing in this sentence
shall restrict any subsequent exercise of the Option (and any Substitute Option)
which at such time complies with this sentence.
(c) The term "TOTAL PROFIT" shall mean the aggregate amount (before
taxes) of the following: (i) the excess of (A) the net cash amount or fair
market value of any property received by Grantee pursuant to the sale of Option
Shares (or any other securities into which such Option Shares are converted or
exchanged) to any unaffiliated party, after payment of applicable brokerage or
sales commissions and discounts, if any, over (B) Grantee's aggregate purchase
price for such Option Shares (or other securities), plus (ii) all amounts
received by Grantee, a Holder or an Owner (including a Substitute Option Holder
or Substitute Share Owner) upon the repurchase of the Option and/or any Option
Shares by Issuer pursuant to Section 7 or upon the surrender of the Option
and/or any Option Shares pursuant to Section 14 (net in the case of Option
Shares or Substitute Option Shares of the Owner's or Substitute Share Owner's
aggregate purchase price therefor), plus (iii) all equivalent amounts with
respect to the Substitute Option and any other amounts paid pursuant to Sections
8(e) and 9, if any, minus (iv) all amounts of cash previously paid to Issuer
pursuant to Section 22(a)(iii) and the value of all Option Shares (or other
securities) previously delivered to Issuer for cancellation pursuant to Section
22(a)(ii), which value shall be as set forth in Section 22(a)(ii), (v) minus the
amount paid by Issuer to Grantee pursuant to Section 8.03(a) of the Merger
Agreement.
(d) For purposes of this Agreement, the term "NOTIONAL TOTAL PROFIT"
with respect to any number of shares as to which Grantee may propose to exercise
the Option shall be the Total Profit, determined as of the date of such proposed
exercise assuming (i) that the Option was exercised on such date for such number
of shares, (ii) that such shares, together with all other Option Shares held by
Grantee and its affiliates as of such date, were sold for cash at the closing
market price for the Common Stock as of the close of business on the preceding
trading day (less customary brokerage commissions) and (iii) the effect of any
adjustments made by or to be made by Grantee pursuant to Section 22(a). For
purposes of this Section 22, the term Grantee will include all Holders and
transactions by any affiliate transferee of Grantee in respect of the Option or
Option Shares transferred to it shall be treated as if made by Grantee.
* * *
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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 written above.
ROYAL BANK OF CANADA
By /s/ Xxxxx X. Xxxxxx
--------------------------------
Name: Xxxxx X. Xxxxxx
Title: Vice-Chairman and
Chief Financial Officer
By /s/ Xxxxxx Xxxxxx
--------------------------------
Name: Xxxxxx Xxxxxx
Title: President and Chief
Executive Officer, Xxxx
Xxxxxxxx Corporation
XXXXXX XXXXXXX SUTRO
By /s/ Xxxx X. Xxxxxxxxx
--------------------------------
Name: Xxxx X. Xxxxxxxxx
Title: Chairman and Chief
Executive Officer
