EXHIBIT 2(a)
INVESTMENT AGREEMENT
Execution Copy
09/07/95
EXHIBIT B
INVESTMENT AGREEMENT
THIS AGREEMENT dated as of September 7, 1995, between
HARLEYSVILLE NATIONAL CORPORATION ("HNC") and FARMERS & MERCHANTS
BANK (HONESDALE, PA.) ("FMB"),
WITNESSETH:
WHEREAS, HNC and FMB have, simultaneously with executing this
Agreement, entered into an Agreement and Plan of Reorganization
dated as of the date hereof (the "Plan"); and
WHEREAS, as a condition to HNC's entry into the Plan and in
consideration of such entry, FMB has agreed to issue to HNC, on the
terms and conditions set forth herein, warrants entitling HNC to
purchase up to an aggregate of 140,900 shares (the "Shares") of
FMB's common stock, par value $2.00 per share ("FMB Common Stock");
NOW, THEREFORE, in consideration of the execution of the Plan
and the agreements herein contained, HNC and FMB, intending to be
legally bound hereby, agree as follows:
1. Concurrently with the execution of the Plan and this
Agreement, FMB shall issue to HNC a warrant or warrants in the form
of Attachment A hereto (the "Warrant", which term as used herein
shall include any warrants issued upon transfer or exchange of the
original Warrant or pursuant to Paragraph 4 of this Agreement) to
purchase up to 140,900 shares of FMB Common Stock. Each Warrant
shall be exercisable at a price per share of $17.00, subject to
adjustment as therein provided (the "Exercise Price"). So long as
the Warrant is outstanding and unexercised, FMB shall at all times
maintain and reserve, free from preemptive rights, such number of
authorized but unissued or treasury shares of FMB Common Stock as
may be necessary so that the Warrant may be exercised without
additional authorization of FMB Common Stock after giving effect to
all other options, warrants, convertible securities and other
rights to acquire shares of FMB Common Stock at the time
outstanding. FMB represents and warrants that it has duly
authorized the issuance of the Shares upon exercise of the Warrant
and covenants that the Shares issued upon exercise of the Warrant
shall be duly authorized, validly issued and fully paid and
nonassessable and subject to no preemptive rights. The Warrant and
the Shares are hereinafter collectively referred to, from time to
time, as the "Securities".
So long as the Warrant is owned by HNC, in no event shall HNC
exercise the Warrant for a number of shares of FMB Common Stock
which, when added to the number of shares of FMB Common Stock owned
or controlled by HNC (otherwise than in a fiduciary capacity) would
result in HNC owning or controlling (otherwise than in a fiduciary
capacity) more than 19.9 percent of the shares of FMB Common Stock
issued and outstanding immediately after giving effect to such
exercise.
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2. Subject to the terms and conditions hereof, HNC may
exercise or sell the Warrant, in whole or in part, upon: (i) a
willful breach of the Plan by FMB which would permit termination of
the Plan by HNC; (ii) the failure of FMB's shareholders to approve
the Plan at a meeting called for such purpose after the
announcement by any person (other than HNC) of an offer or proposal
to acquire 15 percent or more of FMB Common Stock, or to acquire,
merge or consolidate with FMB or to purchase or acquire all or
substantially all of FMB's assets; (iii) the acquisition by any
person (other than HNC) of beneficial ownership of 15 percent or
more of FMB Common Stock exclusive of shares of FMB Common Stock
sold directly or indirectly to such person by HNC; (iv) any person
(other than HNC) shall have commenced a tender or exchange offer,
or shall have filed an application with an appropriate bank
regulatory authority with respect to a publicly announced offer, to
purchase or acquire securities of FMB such that, upon consummation
of such offer, such person would own, control or have the right to
acquire 15 percent or more of FMB Common Stock (before giving
effect to any exercise of the Warrant); or (v) FMB shall have
entered into an agreement or other understanding with a person
(other than HNC) for such person to acquire, merge or consolidate
with FMB or to purchase or acquire all or substantially all of
FMB's assets. HNC's right to exercise the Warrant shall terminate
and be of no further effect, except as to notices of exercise given
prior thereto, upon termination of the Warrant as provided in
Paragraph 10 thereof. As used in this Paragraph 2, "person" and
"beneficial ownership" shall have the same meanings as in the
Warrant. Notwithstanding the foregoing, FMB shall not be obligated
to issue Shares upon exercise of the Warrant (i) in the absence of
any required governmental or regulatory approval or consent
necessary for FMB to issue the Shares or for HNC to exercise the
Warrant or prior to the expiration or termination of any waiting
period required by law or (ii) so long as any injunction or other
order, decree or ruling issued by any federal or state court of
competent jurisdiction is in effect which prohibits the sale or
delivery of the Shares. Any sale of the Warrant, in whole or in
part, or any of the Shares by HNC, other than a sale to a majority-
owned subsidiary of HNC, shall be subject to the right of first
refusal of FMB (or any assignee or assignees of FMB the identity of
whom or which prior to the date thereof has been given to HNC) at
a price equal to the written offer price which HNC receives from a
third party (other than a majority-owned subsidiary of HNC) and
intends to accept. The right of first refusal shall terminate 15
days after notice of HNC's intention to sell has been delivered to
FMB. If an offer is made for a consideration which in whole or in
part consists of other than cash, the value of the non-cash portion
of the consideration shall be determined by a recognized investment
banking firm selected jointly by HNC and FMB, and such
determination shall in no event be made later than the fifth day
after notice of HNC's intention to sell has been delivered to FMB.
In the event of the failure or refusal of FMB to purchase the
Warrant or all the Shares covered by HNC's notice to sell, HNC may,
within 30 days from the date of such notice, unless additional time
is needed to give notification to or to obtain approval from any
governmental or regulatory authority and, if so required, within
five days after the date on which the required notification period
has expired or been terminated or such approval has been obtained
and any requisite waiting period with respect thereto has passed,
sell all, but not less than all, of the portion of the Warrant or
such Shares covered by such notice to such proposed transferee at
no less than the price specified and on terms no more favorable to
the buyer than those set forth in the notice.
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3. Subject to applicable regulatory restrictions, from and
after the date on which any event described in the second paragraph
of this Paragraph 3 occurs, the Holder as defined in the Warrant
(which shall include a former Holder) who has exercised the Warrant
in whole or in part shall have the right to require FMB to redeem
some or all of the Shares at a redemption price per share (the
"Redemption Price") equal to the highest of (i) 110 percent of the
Exercise Price, (ii) the highest price paid or agreed to be paid
for any share of FMB Common Stock by an Acquiring Person (as
defined in the Warrant) during the twelve months immediately
preceding the date notice of the election to require redemption is
given by the Holder under the third paragraph of this Paragraph 3
(as appropriately adjusted to reflect any of the events described
in Paragraph 7(A) of the Warrant) and (iii) in the event of a sale
of all or substantially all of FMB's assets, (x) the sum of the
price paid in such sale for such assets and the current market
value of the remaining assets of FMB as determined by a recognized
investment banking firm selected by such Holder, divided by (y) the
number of shares of FMB Common Stock then outstanding. If the
price paid consists in whole or in part of the securities or assets
other than cash, the value of such securities or assets shall be
their then current market value as determined by a recognized
investment banking firm selected by the Holder. The Holder's right
to require FMB to redeem some or all of the Shares under this
Paragraph 3 shall expire on the close of business on the 180th day
following the occurrence of any event described in the second
paragraph of this Paragraph 3.
The redemption rights provided in this Paragraph 3 shall
become exercisable upon the occurrence of any of the following
events: (i) the acquisition by any person (other than HNC or any
subsidiary of HNC) of beneficial ownership of 50 percent or more of
the FMB Common Stock (before giving effect to any exercise of the
Warrant) exclusive of shares of FMB Common Stock sold directly or
indirectly to such person by HNC or (ii) a transaction of the type
specified in Paragraph 2(v) shall have been consummated. As used
in this Paragraph 3 "person" and "beneficial ownership" shall have
the same meanings as in the Warrant.
The Holder may exercise its right to require FMB to redeem
some or all of the Shares pursuant to this Paragraph 3 by
surrendering for such purpose to FMB, at its principal office
within the time period specified in the preceding paragraph, a
certificate or certificates representing the number of Shares to be
redeemed accompanied by a written notice stating that it elects to
require FMB to redeem all or a specified number of such Shares in
accordance with the provisions of this Paragraph 3. As promptly as
practicable, and in any event within ten business days after the
surrender of such certificates and the receipt of such notice
relating thereto, FMB shall deliver or cause to be delivered to the
Holder the applicable Redemption Price for the Shares which it is
not then prohibited under applicable law or regulation from
redeeming, and, if the Holder has given FMB notice that less than
the full number of Shares evidenced by the surrendered certificate
or certificates are to be redeemed, a new certificate or
certificates, of like tenor, for the number of Shares evidenced by
such surrendered certificate or certificates, less the number of
Shares redeemed. To the extent that FMB is prohibited under
applicable law or regulation, or by judicial or administrative
action, from redeeming all of the Shares as to which the Holder has
given notice to redeem hereunder, FMB shall immediately notify the
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Holder and thereafter deliver or cause to be delivered to the
Holder the applicable Redemption Price for such number of the
Shares as it is not prohibited from redeeming within ten business
days after the date on which FMB is no longer so prohibited;
provided, however, that at the option of HNC, at any time after
receipt of such notice from FMB, FMB shall deliver to the Holder a
certificate for such number of the Shares as it is then prohibited
from redeeming, or, at the Holder's option, all the Shares, and FMB
shall have no further obligation to redeem such Shares.
4. In the event that FMB issues any additional Shares of
FMB Common Stock pursuant to outstanding stock options after the
date of this Agreement, FMB shall issue additional warrants to HNC,
such that, after such issuance, the number of Shares of FMB Common
Stock subject to all warrants hereunder, together with any shares
of FMB Common Stock previously issued pursuant hereto, equals 19.9
percent of the shares of FMB Common Stock then issued and
outstanding. Such additional warrants shall be identical to the
Warrant.
5. FMB will not enter into any transaction described in
(a), (b) or (c) of Paragraph 6(A) of the Warrant unless the
Acquiring Bank (as defined in the Warrant) assumes in writing, in
form and substance satisfactory to the Holder, all the obligations
of FMB hereunder.
6. If HNC acquires Shares and, during the period ending on
the later of (i) one year after the date of such acquisition or
(ii) July 1, 1997 the merger contemplated by the Plan has not been
completed, then, during the thirty-day period commencing at the
expiration of such period, FMB shall have the right to repurchase
all (but not less than all) of such Shares of FMB Common Stock so
acquired by HNC and held by HNC at the time of such repurchase at
a price equal to the sum of (a)(i) the greater of the current
market price or the Exercise Price paid for such Shares, multiplied
by (ii) the number of such Shares so acquired, plus (b) HNC's
after-tax carrying cost. For the purposes of this calculation, the
"current market price" shall mean the average of the closing bid
and asked prices for FMB Common Stock for the most recent 5 trading
days immediately preceding the repurchase on which one or more
trades of FMB Common Stock occurred, as quoted by one or more
market makers then making a market in FMB Common Stock, and HNC's
pre-tax carrying cost shall be equal to interest on the Exercise
Price paid for such Shares so purchased from the date of purchase
at the prime rate of interest established by Mellon Bank, received
on such Shares so purchased.
7. To the extent that HNC acquires Shares, and until FMB's
rights (if any) to redeem such Shares pursuant to Paragraph 6 of
this Agreement have expired, HNC agrees to vote such Shares in
accordance with the recommendation of the Board of Directors of FMB
so long as at least a majority of such Board of Directors is the
same as on the date hereof, except as to voting in connection with
mergers, acquisitions, liquidations or sales or other dispositions
of assets involving FMB, in which instance no such restrictions
shall apply, provided, however, that the covenant contained in this
Paragraph 7 shall not apply to any holder other than HNC or one of
its subsidiaries.
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8. Without limiting the foregoing or any remedies
available to HNC, it is specifically acknowledged that HNC would
not have an adequate remedy at law for any breach of this Agreement
and will be entitled to specific performance of the obligations
under, and injunctive relief against actual or threatened
violations of the obligations of any person subject to this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed in counterparts by their duly authorized
officers and their corporate seals to be hereunto affixed, all as
of the day and year first above written.
[BANK SEAL]
ATTEST: FARMERS & MERCHANTS BANK
(HONESDALE, PA.)
By: /s/ Xxxxxxx X. XxXxxxxx By: /s/ Xxxxxxx X. Xxxxxxxxxxxxx
__________________________ ____________________________
Xxxxxxx X. XxXxxxxx Xxxxxxx X. Xxxxxxxxxxxxx
Corporate Secretary President
[CORPORATE SEAL]
ATTEST: HARLEYSVILLE NATIONAL
CORPORATION
By: /s/ Jo Xxx X. Xxxxx By: /s/ Xxxxxx X. Xxxxxx, Xx.
__________________________ ____________________________
Jo Xxx X. Xxxxx, Assistant Xxxxxx X. Xxxxxx, Xx.
Secretary of the Board President and CEO
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ATTACHMENT A
WARRANT
to Purchase up to 140,900 Shares of
Common Stock
of
Farmers & Merchants Bank (Honesdale, Pa.)
This is to certify that, for value received, HARLEYSVILLE
NATIONAL CORPORATION ("HNC") or any permitted transferee (HNC or
such transferee hereinafter the "Holder") is entitled to purchase,
subject to the provisions of this Warrant and of the Agreement (as
hereinafter defined), from FARMERS & MERCHANTS BANK (HONESDALE,
PA.) (the "FMB"), at any time on or after the date hereof, an
aggregate of up to 140,900 fully paid and nonassessable shares of
common stock, par value $2.00 per share ("FMB Common Stock") of FMB
at a price per share equal to $17.00, subject to adjustment as
herein provided (the "Exercise Price").
1. Exercise of Warrant. Subject to the provisions hereof
and the limitations set forth in Paragraph 2 of an Investment
Agreement dated as of September 7, 1995, by and between HNC and FMB
(the "Agreement") executed and delivered in connection with an
Agreement and Plan of Reorganization dated as of September 7, 1995,
between HNC and FMB (the "Plan"), this Warrant may be exercised at
any time or from time to time on or after the date hereof. This
Warrant shall be exercised by presentation and surrender hereof to
FMB at its principal office, accompanied by (i) a written notice of
exercise, (ii) payment to FMB, for the account of FMB, of the
Exercise Price for the number of shares of FMB Common Stock
specified in such notice and (iii) a certificate of the Holder
specifying the event or events which have occurred which entitle
the Holder to exercise the Warrant. The Exercise Price for the
number of shares of FMB Common Stock specified in the notice shall
be payable in immediately available funds. This Warrant may not be
exercised in part for less than 10,000 shares, except (i) for an
initial exercise resulting in ownership of approximately 5 percent
of the outstanding shares of FMB Common Stock after giving effect
to the exercise, (ii) as limited by applicable law, regulation or
regulatory order or (iii) when this Warrant becomes exercisable for
less than 10,000 shares, the remaining shares for which it is then
exercisable.
Upon such presentation and surrender, FMB shall issue promptly
(and within five business days if requested by the Holder) to the
Holder or its assignee, transferee or designee the shares of FMB
Common Stock to which the Holder is entitled hereunder.
If this Warrant should be exercised in part only, FMB shall,
upon surrender of this Warrant for cancellation, execute and
deliver a new Warrant evidencing the rights of the Holder thereof
to purchase the balance of the shares of FMB Common Stock
purchasable hereunder. Upon receipt by FMB of this Warrant, in
proper form for exercise, the Holder
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shall be deemed to be the holder of record of the shares of FMB
Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of FMB may then be closed or that certificates
representing such shares of FMB Common Stock shall not then be
actually delivered to the Holder. FMB 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 pursuant to this Paragraph
1 in the name of the Holder or its assignee, transferee or
designee.
2. Reservation of Shares; Preservation of Rights of Holder.
FMB shall at all times while this Warrant is outstanding and
unexercised maintain and reserve, free from preemptive rights, such
number of authorized but unissued or treasury shares of FMB Common
Stock as may be necessary so that this Warrant may be exercised
without additional authorization of FMB Common Stock after giving
effect to all other options, warrants, convertible securities and
other rights to acquire shares of FMB Common Stock at the time
outstanding. FMB further agrees (i) 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 or under the Agreement by FMB, (ii) that it will use its
best efforts to take all action (including (A) complying with all
premerger notification, reporting and waiting period requirements
specified in 15 U.S.C. Section 18a and the regulations promulgated
thereunder and (B) in the event that under the Bank Holding Company
Act of 1956 or the Change in Bank Control Act or any other law,
prior approval of the Board of Governors of the Federal Reserve
System (the "Board"), the Federal Deposit Insurance Corporation
("FDIC"), or any other regulatory agency is necessary before this
Warrant may be exercised, cooperating fully with the Holder in
preparing any and all such applications and providing such
information to the Board as such agency may require) in order to
permit the Holder to exercise this Warrant and FMB duly and
effectively to issue shares of FMB Common Stock hereunder, and
(iii) that it will promptly take all action necessary to protect
the rights of the Holder against dilution as provided herein.
3. Fractional Shares. FMB shall not be required to issue
fractional shares of FMB Common Stock upon exercise of this Warrant
but shall pay for such fraction of a share in cash or by certified
or official bank check at the Exercise Price.
4. Exchange, Transfer or Loss of Warrant. This Warrant is
exchangeable or, subject to Paragraph 2 of the Investment
Agreement, transferable, without expense, at the option of the
Holder, upon presentation and surrender hereof at the principal
office of FMB for other Warrants of different denominations
entitling the Holder to purchase in the aggregate the same number
of shares of FMB Common Stock purchasable hereunder. The term
"Warrant" as used herein includes any Warrants for which this
Warrant may be exchanged. Upon receipt by FMB of evidence
reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Warrant, if mutilated, FMB will
execute and deliver a new Warrant of like tenor and date.
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This Warrant may not be exercised or sold except in accordance
with the terms of the Agreement.
5. Redemption.
(A) Subject to applicable regulatory restrictions,
from and after the date on which any event described in the second
paragraph of Paragraph 3 of the Agreement occurs, the Holder shall
have the right to require FMB to redeem this Warrant at a
redemption price (the "Redemption Amount") equal to the highest of
(i) the number of shares of FMB Common Stock for which this Warrant
is then exercisable (the "Conversion Number") multiplied by the
Exercise Price multiplied by 110%, (ii) (x) the highest price paid
or agreed to be paid for any share of FMB Common Stock by the
Acquiring Person (as hereinafter defined) during the twelve months
immediately preceding the date notice of the election to require
redemption is given by the Holder under Paragraph 5(B)(such price
to be appropriately adjusted to reflect the effect of any of the
events described in Paragraph 7(A) hereof), less the Exercise
Price, multiplied by (y) the Conversion Number, and (iii) in the
event of the sale of all or substantially all of the assets of FMB,
the Conversion Number multiplied by (x)(I) the sum of (a) the price
paid for such assets, (b) the current market value of the remaining
assets of FMB, as determined by a recognized investment banking
firm selected by the Holder, and (c) the Exercise Price multiplied
by the Conversion Number, divided by (II) the sum of the number of
shares of FMB Common Stock then outstanding and the Conversion
Number, less (y) the Exercise Price. If, for the purpose of this
calculation or calculating the Assigned Value (as hereinafter
described), the price paid consists in whole or in part of
securities or assets other than cash, the value of such securities
or assets shall be their then current market value as determined by
a recognized investment banking firm selected by the Holder. The
Holder's right to require FMB to redeem this Warrant under this
Paragraph 5 shall expire at the close of business on the 180th day
following the occurrence of any event described in the second
paragraph of Paragraph 3 of the Agreement.
(B) The Holder of this Warrant may exercise its right
to require FMB to redeem this Warrant pursuant to this Paragraph 5
by surrendering for such purpose to FMB, at its principal office,
within the period specified above, this Warrant accompanied by a
written notice stating that the Holder elects to require FMB to
redeem this Warrant in accordance with the provisions of this
Paragraph 5. As promptly as practicable, and in any event within
ten business days after the surrender of this Warrant and the
receipt of such notice relating thereto, FMB shall deliver or cause
to be delivered to the Holder the Redemption Amount therefor or the
portion thereof which it is not then prohibited under applicable
law and regulation from delivering to the Holder.
To the extent that FMB is prohibited under applicable law
or regulation, or as a result of administrative or judicial action,
from redeeming this Warrant in full, FMB shall immediately notify
the Holder and thereafter deliver or cause
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to be delivered to the Holder the portion of the Redemption Amount
which it is no longer prohibited from delivering to the Holder
within ten business days after the date on which FMB is no longer
so prohibited; provided, however, that, at the option of the
Holder, at any time after receipt of such notice, FMB shall deliver
to the Holder a new Warrant evidencing the right to the Holder to
purchase that number of shares of FMB Common Stock obtained by
multiplying the Conversion Number in effect at such time by a
fraction, the numerator of which is the Redemption Amount less the
portion thereof (if any) theretofore delivered to the Holder and
the denominator of which is the Redemption Amount, and FMB shall
have no further obligation to redeem such new Warrant.
(C) As used in this Warrant, the following terms have
the meanings indicated:
(a) "Acquiring Person" shall mean any "Person"
(hereinafter defined) who or which shall be the "Beneficial Owner"
(as hereinafter defined) of 15% or more of FMB Common Stock;
(b) A "Person" shall mean any individual, firm,
corporation or other entity and include as well any syndicate or
group deemed to be a "person" by Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended;
(c) A Person shall be a "Beneficial Owner" of
all securities:
(i) which such Person or any of its
"Affiliates" (as hereinafter defined) or "Associates" (as
hereinafter defined) beneficially owns, directly or indirectly; and
(ii) which such Person or any of its
Affiliates or Associates has (1) the right to acquire (whether such
right is exercisable immediately or only after the passage of time
or otherwise) pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise, or (2) the right to vote
pursuant to any agreement, arrangement or understanding; and
(d) "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of the
General Rules and Regulations promulgated under the Securities
Exchange Act of 1934, as amended, as in effect on the date of the
Agreement.
6. Certain Transactions.
(A) In case FMB (a) shall consolidate with or merge
into any Person, other than the Holder or one of its Affiliates,
and shall not be the continuing or surviving corporation of such
consolidation or merger, (b) shall permit any Person, other than
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the Holder or one of its Affiliates, to merge into FMB and FMB
shall be the continuing or surviving corporation, but, in
connection with such merger, the then outstanding shares of FMB
Common Stock shall be changed into or exchanged for stock or other
securities of any other Person or cash or any other property or
shall represent less than 50% of the shares of FMB Common Stock
immediately after giving effect to the merger, or (c) shall sell or
otherwise transfer all or substantially all of its assets to any
Person, other than the Holder or one of its Affiliates, then, and
in each such case, the agreement governing such transaction shall
make proper provision so that this Warrant shall (at the option of
the Holder, in whole or in part), upon the consummation of any such
transaction and upon the terms and conditions set forth herein, be
converted into, or exchanged for, a warrant, at the option of the
Holder, of either (I) the Acquiring Bank (as hereinafter defined),
(II) any company which controls the Acquiring Bank, or (III) in the
case of a merger described in clause (A)(b), FMB, in which case
such warrant shall be a newly issued warrant (in any such case, the
"Substitute Warrant").
(B) The following terms have the meanings indicated:
(a) "Acquiring Bank" shall mean (I) the
continuing or surviving corporation of a consolidation or merger
with FMB (if other than the FMB), (II) the corporation merging into
FMB in a merger in which the FMB is the continuing or surviving
person and in connection with which the then outstanding shares of
FMB Common Stock are changed into or exchanged for stock of other
securities of any other Person or cash or any other property or
shall represent less than 50% of the shares of FMB Common Stock
immediately after giving effect to the merger, and (III) the
transferee of all or substantially all of FMB's assets, FMB or all
or substantially all of the FMB's assets;
(b) "Substitute Common Stock" shall mean the
common stock issued by the issuer of the Substitute Warrant;
(c) "Assigned Value" shall mean the Redemption
Price per share of FMB Common Stock (as defined in Paragraph 3 of
the Agreement) multiplied by the Conversion Number;
(d) "Average Price" shall mean the average
closing price (or if unavailable, the average of the daily averages
of the closing bid and asked prices) of a share of 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 (or average of the closing bid and asked
prices) of a share of Substitute Common Stock on the day preceding
such consolidation, merger or sale; provided that if FMB is the
issuer of the Substitute Warrant, the Average Price shall be
computed with respect to a share of the common stock issued by the
Person merging into FMB or by any company which controls such
Person, as the Holder may elect. If the
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Average Price cannot be computed as aforesaid because neither
closing prices nor closing bid and asked prices are available for
such one-year period, then the Average Price shall be the average
fair market value of a share of Substitute Common Stock for such
period (but in no event higher than the fair market value on the
day preceding such consolidation, merger or sale) as determined by
a recognized investment banking firm selected by HNC.
(C) The Substitute Warrant shall have the same terms
as this Warrant provided that if the terms of the Substitute
Warrant cannot, for legal reasons, be the same as this Warrant,
such terms shall be as similar as possible and in no event less
advantageous to the Holder. The issuer of the Substitute Warrant
shall also enter into an agreement with the then Holder of the
Substitute Warrant in substantially the same form as the Agreement,
which shall be applicable to the Substitute Warrant. For purposes
of the Substitute Warrant and such agreement, any event referred to
in Paragraph 2 or Paragraph 3 of the Agreement shall be deemed to
have occurred when it occurred with respect to FMB.
(D) The Substitute Warrant shall be immediately
exercisable for such number of shares of Substitute Common Stock as
is equal to the Assigned Value divided by the Average Price. The
exercise price of the Substitute Warrant per share of Substitute
Common Stock shall be equal to the Exercise Price multiplied by a
fraction in which the numerator is the Conversion Number and the
denominator is the number of shares of Substitute Common Stock for
which the Substitute Warrant is exercisable.
(E) In no event, pursuant to any of the foregoing
paragraphs, shall the Substitute Warrant be exercisable for more
than 19.9% of the aggregate of the outstanding shares of Substitute
Common Stock and the shares of Substitute Common Stock issuable
upon exercise of the Substitute Warrant.
7. Adjustment. The number of shares of FMB Common Stock
purchasable upon the exercise of this Warrant and the Exercise
Price shall be subject to adjustment from time to time as provided
in this Paragraph 7:
(A) (1) In case FMB shall pay or make a dividend or
other distribution on any class of capital stock of FMB in FMB
Common Stock, the number of shares of FMB Common Stock purchasable
upon exercise of this Warrant shall be increased by multiplying
such number of shares by a fraction of which the denominator shall
be the number of shares of FMB Common Stock outstanding at the
close of business on the day immediately preceding the date of such
distribution and the numerator shall be the sum of such number of
shares and the total number of shares constituting such dividend or
other distribution, such increase to become effective immediately
after the opening of business on the day following such
distribution, provided, however, that in no event shall the Warrant
be exercised for more than 19.9% of the shares of FMB Common Stock
issued and outstanding.
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(2) In case outstanding shares of FMB Common
Stock shall be subdivided into a greater number of shares of FMB
Common Stock, the number of shares of FMB Common Stock purchasable
upon exercise of this Warrant at the opening of business on the day
following the day upon which such subdivision becomes effective
shall be proportionately increased, and, conversely, in case
outstanding shares of FMB Common Stock shall each be combined into
a smaller number of shares of FMB Common Stock, the number of
shares of FMB Common Stock purchasable upon exercise of this
Warrant at the opening of business on the day following the day
upon which such combination becomes effective shall be
proportionately decreased, such increase or decrease, as the case
may be, to become effective immediately after the opening of
business on the day following the day upon which such subdivision
or combination becomes effective, provided, however, that in no
event shall the Warrant be exercised for more than 19.9% of the
shares of FMB Common Stock issued and outstanding.
(3) The reclassification (excluding any
transaction in which a Substitute Warrant would be issued) of FMB
Common Stock into securities (other than FMB Common Stock) and/or
cash and/or other consideration shall be deemed to involve a
subdivision or combination, as the case may be, of the number of
shares of FMB Common Stock outstanding immediately prior to such
reclassification into the number or amount of securities and/or
cash and/or other consideration outstanding immediately thereafter
and the effective date of such reclassification shall be deemed to
be "the day upon which such subdivision becomes effective," or "the
day upon which such combination becomes effective," as the case may
be, within the meaning of clause (2) above.
(4) FMB may make such increases in the number of
shares of FMB Common Stock purchasable upon exercise of this
Warrant, in addition to those required by this subparagraph (A), as
shall be determined by its Board of Directors to be advisable in
order to avoid taxation so far as practicable of any dividend of
stock or stock rights or any event treated as such for federal
income tax purposes to the recipients.
(B) Whenever the number of shares of FMB Common Stock
purchasable upon exercise of this Warrant is adjusted as herein
provided, the Exercise Price shall be adjusted by a fraction in
which the numerator is equal to the number of shares of FMB Common
Stock purchasable prior to the adjustment and the denominator is
equal to the number of shares of FMB Common Stock purchasable after
the adjustment.
(C) For the purpose of this Paragraph 7, the term
"FMB Common Stock" shall include any shares of FMB of any class or
series which has no preference or priority in the payment of
dividends or in the distribution of assets upon any
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voluntary or involuntary liquidation, dissolution or winding up of
FMB and which is not subject to redemption by FMB.
8. Notice.
(A) Whenever the number of shares for which this
Warrant is exercisable is adjusted as provided in Paragraph 7, FMB
shall promptly compute such adjustment and mail to the Holder a
certificate, signed by a principal financial officer of FMB,
setting forth the number of shares of FMB Common Stock for which
this Warrant is exercisable as a result of such adjustment, a brief
statement of the facts requiring such adjustment and the
computation thereof and when such adjustment will become effective.
(B) Upon the occurrence of any event which results in
this Warrant becoming redeemable, as provided in Xxxxxxxxx 0, XXX
shall promptly notify the Holder of such event; and promptly
compute the Redemption Amount and furnish to the Holder a
certificate, signed by a principal financial officer of FMB,
setting forth the Redemption Amount and the basis and computation
thereof.
(C) Upon the occurrence of an event which results in
this Warrant becoming convertible into, or exchangeable for, the
Substitute Warrant, as provided in Paragraph 6, the Acquiring Bank
and FMB shall promptly notify the Holder of such event; and, upon
receipt from the Holder of its choice as to the issuer of the
Substitute Warrant, the Acquiring Bank and FMB shall promptly
compute the number of shares of Substitute Common Stock for which
the Substitute Warrant is exercisable and furnish to the Holder a
certificate, signed by a principal financial officer of each of the
Acquiring Bank and FMB, setting forth the number of shares of
Substitute Common Stock for which the Substitute Warrant is
exercisable, a computation thereof and when such adjustment will
become effective.
9. Rights of Holder.
(A) Without limiting the foregoing or any remedies
available to the Holder, it is specifically acknowledged that the
Holder would not have an adequate remedy at law for any breach of
the provision of this Warrant and will be entitled to specific
performance of the obligations under, and injunctive relief against
actual or threatened violations of the obligations of any Person
subject to, this Warrant.
(B) Except as provided in the third paragraph of
Paragraph 1 hereof, the Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in FMB.
10. Termination. This Warrant and the rights conferred
hereby shall terminate (i) upon willful breach of the Agreement by
HNC, (ii) at the Effective Time of the Merger pursuant to the Plan,
(iii) upon a valid termination of the Plan prior to the occurrence
of an event described in Paragraph 2 of the Agreement or (iv) upon
the failure of the shareholders of FMB to approve the Merger by the
required vote at a meeting duly called
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and held in accordance with the requirements of Section 6.2(b) of
the Agreement and Plan of Reorganization prior to the occurrence of
an event described in Paragraph 2 of the Agreement and (v) to the
extent this Warrant has not previously been exercised, on the later
of (A) July 1, 1997 and (B) 12 months after the occurrence of an
event described in Paragraph 2 of the Agreement, provided that such
termination pursuant to this clause (v) shall not affect any
redemption under Paragraph 5 as to which exercise under Paragraph
5(B) has previously occurred.
11. Governing Law. This Warrant shall be governed by, and
interpreted in accordance with, the substantive laws of the
Commonwealth of Pennsylvania.
Dated: September 7, 1995
[BANK SEAL]
ATTEST: FARMERS & MERCHANTS BANK
(HONESDALE, PA.)
By: /s/ Xxxxxxx X. XxXxxxxx By: /s/ Xxxxxxx X. Xxxxxxxxxxxxx
__________________________ ____________________________
Xxxxxxx X. XxXxxxxx Xxxxxxx X. Xxxxxxxxxxxxx
Corporate Secretary President
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