STOCK OPTION AGREEMENT
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 January 23, 1996, between 1ST WASHINGTON
BANCORP, INC., a Delaware corporation ("Issuer"), and FIRST MARYLAND 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 dated as of January 23, 1996 (the "Merger 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 1,966,692
fully paid and nonassessable shares of Issuer's Common Stock, par value $.01 per
share (the "Common Stock"), at a price of $$7.00 per share of Common Stock (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 percent of the
Issuer's issued and outstanding shares of Common Stock, without giving effect to
any shares subject 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 issued
or otherwise become outstanding after the date of this Agreement (other than
pursuant to this Agreement), the number of shares of Common Stock subject to the
Option shall be increased so that, after such issuance, it equals 19.9 percent
of the number of shares of Common Stock then issued and outstanding, without
giving effect to any shares subject or issued pursuant to the Option. Nothing
contained in this Section 1(b) or elsewhere in this Agreement shall be deemed to
authorize Issuer to breach any provision of the Merger Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option, in
whole or in 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 sixty (60) days following such Subsequent Triggering Event.
The term "Exercise Termination Event" shall mean and shall be deemed to have
occurred upon each and any of the following: (i) the Effective Time 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 except a termination by Grantee pursuant to Section
7.1(d) of the Merger Agreement (unless the breach by Issuer giving rise to such
right of termination is non-volitional); (iii) the passage of 12 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 7.1(d) of the Merger Agreement (unless the breach by Issuer giving rise
to such right of termination is nonvolitional) (provided that if an Initial
Triggering Event continues or occurs beyond such termination and prior to the
passage of such 12-month period, the Exercise Termination Event shall be 12
months from the occurrence of the Last Triggering Event (as hereinafter defined)
but in no event more than 18 months after such termination) or (iv) the second
anniversary of the date hereof. The "Last Triggering Event" shall mean the last
Initial Triggering Event to occur during the 12-month period described in clause
2(a)(iii). 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 "Exchange Act"), and the
rules and regulations thereunder) other than Grantee or any of the Subsidiaries
of Grantee (each a "Grantee Subsidiary") or the Board of Directors of Issuer
shall have recommended that the stockholders of Issuer approve or accept any
such Acquisition Transaction. For purposes of this Agreement, the term
"Acquisition Transaction" shall mean (w) a merger or consolidation, or any
similar transaction, involving Issuer or any Significant
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Subsidiary (the term "Significant Subsidiary" for purposes of this Agreement
having the meaning assigned thereto 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 of all or a substantial portion of the
assets 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 percent or more of the voting power of
Issuer or any Significant Subsidiary of Issuer, or (z) any substantially similar
transaction;
(ii) Issuer or any Issuer Subsidiary, without having received
Grantee's prior written consent, shall have authorized, recommended, proposed,
or publicly announced its intention to authorize, recommend, or propose, to
engage in an Acquisition Transaction with any person other than Grantee or a
Grantee Subsidiary, or the Board of Directors of Issuer shall have publicly
withdrawn or modified, or publicly announced its interest 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 15 percent 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, and the rules and
regulations thereunder);
(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 an overture 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
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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 25 percent or more of the then outstanding Common
Stock; or
(ii) The occurrence of the Initial Triggering Event described
in clause (i) of subsection (b) of this Section 2, except that the percentage
referred to in clause (y) shall be 25 percent.
(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, 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 (3) business days nor later than sixty (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 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.
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(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 may
be endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the
registered holder hereof and Issuer and to resale restrictions
arising under the Securities Act of 1933, as amended. A copy
of such agreement is on file at the principal office of Issuer
and will be provided to the holder hereof without charge upon
receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "Securities Act"), in the above
legend shall be removed by delivery of substitute certificate(s) without such
reference if 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 Securities 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 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
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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 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 premerger notification, reporting, and waiting
period requirements specified in 15 U.S.C. Section 18 and regulations
promulgated thereunder and (y) in the event, under the Bank Holding Company Act
of 1956, as amended (the "BHCA"), the Home Owners Loan Act, as amended, or the
Change in Bank Control Act of 1978, as amended, or any state banking law, prior
approval of or notice to any federal bank regulatory authority or 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 such federal or 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 provided for in Section 5 hereof 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 condition 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
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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 sixty (60) days 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 shelf registration statement under the
Securities Act covering this Option and 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 this Option and any shares of Common Stock
issued upon total or partial exercise of this Option (the "Option Shares") in
accordance with any plan of disposition requested by Grantee. Issuer will use
its reasonable best efforts to cause such registration statement first to become
effective and then to remain effective for such period not in excess of
one-hundred-eighty (180) days from the date 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 the Option or Option
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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 Holder's
Option or 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 percent 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 practical 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 such
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 ninety (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"
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shall mean the highest of the following amounts with respect to 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, (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, 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,
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. Notwithstanding the foregoing, if the same
person who has participated in a Triggering Event has entered, or after such
Triggering Event has occurred enters, into any agreement or understanding with
Grantee relating to Grantee's rights under this Option or with respect to the
Option Shares or directly or indirectly relating to Issuer, Grantee shall,
notwithstanding the terms of such agreement or understanding, at any time upon
the occurrence of a Subsequent Triggering Event of the type set forth in Section
3(d)(i) without Issuer's approval, recommendation or consent, promptly request
that Issuer repurchase the Option and any Option Shares held by Grantee as
provided in this Section 8 and Issuer shall do so.
(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 latter to occur of (x) 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 and (y) the time that is
immediately prior to the occurrence of a Repurchase Event, Issuer shall deliver
or cause to be delivered to 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.
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(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 (5) 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
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, the term "Repurchase Event" shall
mean and shall be deemed to have occurred upon each and any of the following:
(i) 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, or (ii) the acquisition by any
person of beneficial ownership of 50 percent 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.
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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 one of the Subsidiaries of Grantee, and shall not be the
continuing or surviving corporation of such consolidation or merger, (ii) to
permit any person, other than Grantee or one of the Grantee Subsidiaries, 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 percent 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 the Grantee 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 Option Issuer" shall mean the issuer
of the Substitute Option.
(3) "Substitute Common Stock" shall mean the common stock
issued by the Substitute Option Issuer upon exercise of the Substitute Option.
(4) "Assigned Value" shall mean the market/offer
price, as defined in Section 7.
(5) "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 date preceding
such consolidation, merger or sale; provided that if Issuer is the Substitute
Option Issuer, the Average Price shall be computed with respect to a share of
common stock issued by the person merging into
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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 Substitute Option Issuer 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 percent of the shares of
Substitute Common Stock outstanding prior to the exercise of the Substitute
Option. In the event that the Substitute Option would be exercisable for more
than 19.9 percent of the shares of Substitute Common Stock outstanding prior to
exercise but for this clause (e), 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
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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 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 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 (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.
(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 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 (5) business days after the date
on
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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 receive 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 Option Shares it is then so prohibited
from repurchasing.
10. The 60-day 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 Exchange 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
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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,
encumbrances, 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) 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 sixty
(60) days following such Subsequent Triggering Event (or such later period as
provided in Section 10); provided, however, that until the date fifteen (15)
days following the date on which the Federal Reserve Board approves an
application by Grantee under the BHCA 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 two (2) percent of the
voting shares of Issuer, (iii) an assignment to a
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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 list the
shares of Common Stock issuable hereunder on the NASDAQ National Market 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 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 Delaware, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof.
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19. 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. 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 except as
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.
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IN WITNESS WHEREOF, Grantee and Issuer have caused this Agreement to be
executed by their respective officers thereunto duly authorized, all as of the
date first above written.
1ST WASHINGTON BANCORP, INC., Issuer
By: XXXXXXX X. XXXX
Xxxxxxx X. Xxxx, Chief Executive
Officer
FIRST MARYLAND BANCORP, Grantee
By: XXXXXXXX X. XXXXX
Xxxxxxxx X. Xxxxx, Chairman of
the Board
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