STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of May 19, 1999, between U.S. BANCORP, a
Delaware corporation ("Grantee"), and WESTERN BANCORP, a California corporation
("Issuer").
WITNESSETH:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger (the "Merger Agreement") immediately prior to the execution and delivery
hereof;
WHEREAS, as a condition and inducement to Grantee's execution of the Merger
Agreement and pursuit of the transactions contemplated thereby and in
consideration therefor, Issuer has agreed to grant Grantee the Option (as
hereinafter defined); and
WHEREAS, the Board of Directors of Issuer has approved the grant of the
Option and the Merger Agreement on or prior to the date hereof:
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 an
aggregate of 4,201,049 fully paid and nonassessable shares of the common stock,
no par value, of Issuer ("Common Stock") at a price per share equal to the last
reported sale price per share of Common Stock as reported on the Nasdaq National
Market System on May 17, 1999; provided, however, that in the event Issuer
issues or agrees to issue any shares of Common Stock at a price less than such
last reported sale price per share (as adjusted pursuant to subsection (b) of
Section 5) other than as permitted by the Merger Agreement, such price shall be
equal to such lesser price (such price, as adjusted if applicable, the "Option
Price"); provided, further, 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 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 and other than pursuant to an event described in
Section 5(a)), the number of shares of Common Stock subject to the Option shall
be increased so that, after such issuance, 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 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
or Grantee to breach any provision of the Merger Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option,
in whole or part, if, but only if, both an Initial Triggering Event (as
hereinafter defined) and a Subsequent Triggering Event (as hereinafter
defined) shall have occurred prior to the occurrence of an Exercise
Termination Event (as hereinafter defined), provided that the Holder shall
have sent the written notice of such exercise (as provided in subsection (e)
of this Section 2) within six months following the occurrence of the
Subsequent Triggering Event (or such later period as provided in Section 10).
Each of the following shall be an Exercise Termination Event: (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 8.01(b) of the Merger Agreement (unless the breach by
Issuer giving rise to such right of termination is non-volitional); or (iii)
the passage of 18 months (or such longer period as provided in Section 10)
after termination of the Merger Agreement if such termination is concurrent
with or follows the occurrence of an Initial Triggering Event or is a
termination by Grantee pursuant to Section 8.01(b) of the Merger Agreement
(unless the breach by Issuer giving rise to such right of termination is
non-volitional). The term "Holder" shall mean the holder or holders of the
Option. Notwithstanding anything to the contrary contained herein, (i) 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 and (ii) this Agreement shall
automatically terminate upon the termination of the Merger Agreement by
Issuer pursuant to Section 8.01(b) thereof as a result of the breach by
Grantee of its covenants or agreements contained in the Merger Agreement.
(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 Subsidiaries (as hereinafter defined)
(each an "Issuer Subsidiary"), without having received Grantee's prior
written consent, shall have entered into an agreement to engage in an
Acquisition Transaction (as hereinafter defined) with any person (the term
"person" for purposes of this Agreement having the meaning assigned thereto
in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and the rules and regulations thereunder) 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 shareholders of Issuer approve or accept any
Acquisition Transaction other than as contemplated by the Merger Agreement
or this Agreement. For purposes of this Agreement, (a) "Acquisition
Transaction" shall mean (x) a merger or consolidation, or any similar
transaction, involving Issuer or any Significant Subsidiary (as defined in
Rule 1-02 of Regulation S-X promulgated by the Securities and Exchange
Commission (the "SEC")) of Issuer (other than mergers, consolidations or
similar transactions involving solely Issuer and/or one or more wholly
owned Issuer Subsidiaries, provided, that any such transaction is not
entered into in violation of the terms of the Merger Agreement), (y) a
purchase, lease or other acquisition of all or substantially all of the
assets or deposits of Issuer or any Significant
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Subsidiary of Issuer, 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 Significant Subsidiary of Issuer and (b) "Subsidiary" shall have
the meaning set forth in Rule 12b-2 under the 1934 Act;
(ii) Any person other than Grantee or any Grantee Subsidiary
shall have acquired beneficial ownership or the right to acquire beneficial
ownership of 10% or more of the outstanding shares of Common Stock (the
term "beneficial ownership" for purposes of this Agreement having the
meaning assigned thereto in Section 13(d) of the 1934 Act, and the rules
and regulations thereunder);
(iii) The shareholders of Issuer shall have voted and failed to
approve the Merger Agreement and the Merger at a meeting which has been
held for that purpose or any adjournment or postponement thereof, or such
meeting shall not have been held in violation of the Merger Agreement or
shall have been cancelled prior to termination of the Merger Agreement if,
in each such case, prior to such meeting (or if such meeting shall not have
been held or shall have been cancelled, 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 proposal to engage in an Acquisition Transaction;
(iv) The Issuer Board shall have withdrawn or modified (or
publicly announced its intention to withdraw or modify) in any manner
adverse to Grantee its recommendation that the shareholders of Issuer
approve the transactions contemplated by the Merger Agreement, or 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) 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 made a non-frivolous proposal to Issuer or its shareholders to
engage in an Acquisition Transaction and such proposal shall have been
publicly announced;
(vi) Any person other than Grantee or any Grantee Subsidiary
shall have filed with the SEC a registration statement with respect to a
potential exchange offer that would constitute an Acquisition Transaction
(or filed a preliminary proxy statement with the SEC with respect to a
potential vote by its shareholders to approve the issuance of shares to be
offered in such an exchange offer);
(vii) Issuer shall have breached any covenant or obligation
contained in the Merger Agreement in anticipation of engaging in an
Acquisition Transaction, and following such breach Grantee would be
entitled to terminate the Merger Agreement
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(whether immediately or after the giving of notice or passage of time
or both); or
(viii) 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
Board of Governors of the Federal Reserve System (the "Federal Reserve
Board") or other federal or state bank regulatory or antitrust authority,
which application or notice has been accepted for processing, for approval
to engage in an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean 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 subsection (b) of this Section 2, except that the
percentage referred to in clause (z) of the second sentence thereof shall
be 25%.
(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 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, however, that if prior notification to or approval of the Federal
Reserve Board or any other 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 subsection (e) of this Section 2,
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,
provided that failure or refusal of Issuer to designate such a bank
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account shall not preclude the Holder from exercising the Option and (ii)
present and surrender this Agreement to Issuer at its principal executive
offices.
(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 Stock Option Agreement 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 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 "1933 Act"), in the above legend
shall be removed by delivery of substitute certificate(s) without such reference
if the Holder shall have delivered to Issuer a copy of a letter from the staff
of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to Issuer, to the effect that such legend is not required for
purposes of the 1933 Act; (ii) the reference to the provisions 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;
and (iii) the legend shall be removed in its entirety if the conditions in the
preceding clauses (i) and (ii) are both satisfied. In addition, such
certificates shall bear any other legend as may be required by law.
(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (e) of this Section 2 and
the tender of the applicable purchase price in immediately available funds, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
Issuer shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to the Holder. Issuer shall
pay all expenses, and any and all United States federal, state and local taxes
and other charges that may be payable in connection with the preparation, issue
and delivery of stock certificates under this Section 2 in the name of the
Holder or As assignee, transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights,
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sufficient authorized but unissued shares of Common Stock so that the Option
may be exercised without additional authorization of Common Stock after
giving effect to all other options, warrants, convertible securities and
other rights to purchase Common Stock; (ii) that it will not, by charter
amendment or through reorganization, consolidation, merger, dissolution or
sale of assets, or by any other voluntary act, avoid or seek to avoid the
observance or performance of any of the covenants, stipulations or conditions
to be observed or performed hereunder by Issuer; (iii) promptly to take all
action as may from time to time be required (including (x) complying with all
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, under the Bank Holding Company Act of 1956, as amended (the
"BHCA"), or any state or other federal banking law, prior approval of or
notice to the Federal Reserve Board or to any state or other federal
regulatory authority is necessary before the Option may be exercised,
cooperating fully with the Holder in preparing such applications or notices
and providing such information to the Federal Reserve Board or such state or
other federal 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. This Agreement (and the Option granted hereby) is exchangeable,
without expense, at the option of the Holder, upon presentation and surrender
of this Agreement at the principal office of Issuer, for other Agreements
providing for Options of different denominations entitling the holder thereof
to purchase, on the same terms and subject to the same conditions as are set
forth herein, in the aggregate the same number of shares of Common Stock
purchasable hereunder. The terms "Agreement" and "Option" as used herein
include any Agreements and related Options for which this Agreement (and the
Option granted hereby) may be exchanged. Upon receipt by Issuer of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation
of this Agreement, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification, and upon surrender and cancellation
of this Agreement, if mutilated, Issuer will execute and deliver a new
Agreement of like tenor and date. Any such new Agreement executed and
delivered shall constitute an additional contractual obligation on the part
of Issuer, whether or not the Agreement so lost, stolen, destroyed or
mutilated shall at any time be enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common
Stock that are purchasable upon exercise of the Option pursuant to Section 1
of this Agreement, the number of shares of Common Stock purchasable upon the
exercise of the Option and the Option Price shall be subject to adjustment
from time to time as provided in this Section 5.
(a) 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 or the like, the type and number of shares of Common Stock purchasable
upon exercise hereof shall be appropriately adjusted and proper provision
shall be made so that, in the event that any additional shares of Common
Stock are to
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be issued or otherwise become outstanding as a result of any such change
(other than pursuant to an exercise of the Option), the number of shares of
Common Stock that remain subject to the Option shall be increased so that,
after such issuance and together with shares of Common Stock previously
issued pursuant to the exercise of the Option (as adjusted on account of any
of the foregoing changes in the Common Stock), it equals 19.9% 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.
(b) Whenever the number of shares of Common Stock purchasable upon
exercise hereof is adjusted as provided in this Section 5, the Option Price
shall be adjusted by multiplying the Option Price by a fraction, the numerator
of which shall be equal to the number of shares of Common Stock purchasable
prior to the adjustment and the denominator of which shall be equal to the
number of shares of Common Stock purchasable after the adjustment.
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 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 1933 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 effective 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.
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 underwriter or managing underwriters, or, if
none, the sole underwriter or underwriters, of such offering the sale of the
Option Shares would interfere with the successful marketing of the shares of
Common Stock offered by Issuer, Grantee agrees to delay the sale of such Option
Shares for such period as may be reasonably requested by such managing or sole
underwriter(s); provided, however, that if such a delay occurs, then Issuer
shall maintain the effectiveness of the registration statement or file a new
registration statement as promptly as practicable thereafter covering such
Option Shares as to which no further delay pursuant to this Section 6 shall be
permitted or occur and the Holder shall thereafter be entitled to one additional
registration and the 12 month period referred to in the first sentence of this
section shall be increased to 24 months. Each such Holder shall provide all
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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 more than two registrations pursuant to
this Section 8 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. (a) At any time after the occurrence of a Repurchase 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 an agreement
with Issuer, (iii) the highest last sale 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 substantially all of Issuer's assets or deposits, the sum of the net
price paid in such sale for such assets or deposits and the current market value
of the remaining net assets of Issuer as determined by a nationally recognized
investment banking firm selected by the Holder or the Owner, as the case may be,
and reasonably acceptable to Issuer, divided by the number of shares of Common
Stock of Issuer outstanding at the time of such sale. In determining the
market/offer price, the value of consideration other than cash shall be
determined by a nationally recognized investment banking firm selected by the
Holder or Owner, as the case may be, and reasonably acceptable to Issuer.
(b) The Holder and the Owner, as the case may be, may exercise its
right to require Issuer to repurchase the Option and any Option Shares pursuant
to this Section 7 by surrendering for such purpose to Issuer, at its principal
office, a copy of this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that the Holder
or the Owner, as the case may be, elects to require Issuer to repurchase this
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Option and/or the Option Shares in accordance with the provisions of this
Section 7. As promptly as practicable, and in any event within ten 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) To the extent that Issuer is prohibited under applicable law
or regulation, or as a consequence of administrative policy, from
repurchasing the Option and/or the Option Shares in full, Issuer shall
immediately so notify the Holder and/or the Owner and thereafter deliver or
cause to be delivered, from time to time, to the Holder and/or the Owner, as
appropriate, the portion of the Option Repurchase Price and the Option Share
Repurchase Price, respectively, that it is no longer prohibited from
delivering, within five business days after the date on which Issuer is no
longer so prohibited; provided, however, that if Issuer at any time after
delivery of a notice of repurchase pursuant to paragraph (b) of this Section
7 is prohibited under applicable law or regulation, or as a consequence of
administrative policy, 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
reasonable best efforts to obtain all required regulatory and legal approvals
and to file any required notices as promptly as practicable in order to
accomplish such repurchase), the Holder or Owner may revoke its notice of
repurchase of the Option and/or the Option Shares whether 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 and/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 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
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, and/or (B) to the Owner, a certificate
for the Option Shares it is then so prohibited from repurchasing. If an
Exercise Termination Event shall have occurred prior to the date of the
notice by Issuer described in the first sentence of this subsection (c), or
shall be scheduled to occur at any time before the expiration of a period
ending on the thirtieth day after such date, the Holder shall nonetheless
have the right to exercise the Option until the expiration of such 30-day
period.
(d) 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:
(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
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(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 50%.
8. (a) In the event that prior to an Exercise Termination Event,
Issuer shall enter into an agreement (i) to consolidate with or merge into
any person, other than Grantee or a Grantee Subsidiary, 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 acquiror 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
substantially all of its or any Significant Subsidiary's assets or deposits
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 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:
(i) "Acquiring Corporation" 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) 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 substantially all of Issuer's assets or deposits (or the assets or
deposits of a Significant Subsidiary of Issuer).
(ii) "Substitute Common Stock" shall mean the common stock
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 the average closing price of a
share of the Substitute Common Stock for one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of Substitute Common Stock on the day preceding
such consolidation, merger or sale; provided that if Issuer is the issuer
of the Substitute Option, the Average Price shall be
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computed with respect to a share of common stock issued by the person
merging into Issuer or by any company which controls or is controlled by
such person, as the Holder may elect.
(c) The Substitute Option shall have the same terms as the Option,
provided that if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible and in no
event less advantageous to the Holder. The issuer of the Substitute Option
shall also enter into an agreement with the then Holder or Holders of the
Substitute Option in substantially the same form as this Agreement (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 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 and
reasonably acceptable to the Substitute Option Holder.
(f) Issuer shall not enter into any transaction described in
subsection (a) of this Section 8 unless the Acquiring Corporation and any person
that controls the Acquiring Corporation assume in writing all the obligations of
Issuer hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the Substitute Option Issuer shall repurchase
the Substitute Option from the Substitute Option Holder at a price (the
"Substitute Option Repurchase Price") equal to the amount by which (i) the
Highest Closing Price (as hereinafter defined) exceeds (ii) the exercise
price of the Substitute Option, multiplied by the number of shares of
Substitute Common Stock for which the Substitute Option may then be
exercised, and at the request of the owner (the "
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Substitute Share Owner") of shares of Substitute Common Stock (the
"Substitute Shares"), the Substitute Option Issuer shall repurchase such
number of the Substitute Shares as the Substitute Share Owner shall designate
at a price (the "Substitute Share Repurchase Price") equal to (x) the Highest
Closing Price multiplied by the number of Substitute Shares so designated
plus (y) Grantee's Out-of-Pocket Expense. 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/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 ten
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, or as a consequence of administrative
policy, 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 Option Repurchase Price and/or the Substitute Share Repurchase Price,
respectively, which it is no longer prohibited from delivering, within five (5)
business days after the date on which the Substitute Option Issuer is no longer
so prohibited; provided, however, that if the Substitute Option Issuer is at any
time after delivery of a notice of repurchase pursuant to subsection (b) of this
Section 9 prohibited under applicable law or regulation, or as a consequence of
administrative policy, 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 reasonable best efforts to receive all
required regulatory and legal approvals as promptly as practicable in order to
accomplish such repurchase), the Substitute Option Holder and/or Substitute
Share Owner may revoke its notice of repurchase of the Substitute Option or the
Substitute Shares
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either in whole or to the extent of 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, and/or (B) to the Substitute
Share Owner, a certificate for the Substitute Option Shares it is then so
prohibited from repurchasing. If an Exercise Termination Event shall have
occurred prior to the date of the notice by the Substitute Option Issuer
described in the first sentence of this subsection (c) or shall be scheduled
to occur at any time before the expiration of a period ending on the
thirtieth day after such date, the Substitute Option Holder it shall
nevertheless have the right to exercise the Substitute Option until the
expiration of such 30-day period.
10. The 30-day, 6-month, 12-month, 18-month or 24-month periods for
exercise of certain rights under Sections 2, 6, 7, 9, 12 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 reasonable best
efforts to obtain such regulatory approvals), and for the expiration of all
statutory waiting periods; and (ii) to the extent necessary to avoid liability
under Section 16(b) of the 1934 Act by reason of such exercise.
11. Issuer 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
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.
(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 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
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not subject to any preemptive rights.
12. 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 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 12 months following such Subsequent Triggering Event (or such later
period as provided in Section 10); provided, however, that until the date 15
days following the date on which the Federal Reserve Board has approved an
application by Grantee to acquire the shares of Common Stock subject to the
Option, Grantee may not assign its rights under the Option except in (i) a
widely dispersed public distribution, (ii) a private placement in which no
one party acquires the right to purchase in excess of 2% of the voting shares
of Issuer, (iii) an assignment to a single party (E.G., a broker or
investment banker) for the purpose of conducting a widely dispersed public
distribution on Grantee's behalf or (iv) any other manner approved by the
Federal Reserve Board.
13. 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, 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.
14. (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; provided, however, that Grantee may
not exercise its rights pursuant to this Section 14 if Issuer has repurchased
the Option (or any portion thereof) or any Option Shares pursuant to Section
7. The "Surrender Price" shall be equal to $35,000,000 (i) plus, if
applicable, Grantee's purchase price with respect to any Option Shares then
held by it and (ii) minus, if applicable, the excess of (A) the net cash
amounts, if any, received by Grantee pursuant to any sale of Option Shares
(or any other securities into which such Option Shares were converted or
exchanged) to any party, over (B) Grantee's purchase price of such Option
Shares.
(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 fifth business
day following receipt of such notice by Issuer.
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(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from paying the
Surrender Price to Grantee in full, Issuer shall immediately so notify Grantee
and thereafter deliver or cause to be delivered, from time to time, to Grantee,
the portion of the Surrender Price that it is no longer prohibited from paying,
within five business days after the date on which Issuer is no longer so
prohibited; provided, however, that if Issuer at any time after delivery of a
notice of surrender pursuant to paragraph (b) of this Section 14 is prohibited
under applicable law or regulation, or as a consequence of administrative
policy, from paying to Grantee the Surrender Price in full, (i) Issuer shall (A)
use its reasonable best efforts to obtain all required regulatory and legal
approvals and to file any required notices as promptly as practicable in order
to make such payments, (B) within five days of the submission or receipt of any
documents relating to any such regulatory and legal approvals, provide Grantee
with copies of the same, and (c) keep Grantee advised of both the status of any
such request for regulatory and legal approvals, as well as any discussions with
any relevant regulatory or other third party reasonably related to the same and
(ii) Grantee may revoke such notice of surrender by delivery of a notice of
revocation to Issuer and, upon delivery of such notice of revocation, the
Exercise Termination Date shall be extended to a date six months from the date
on which the Exercise Termination Date would have occurred if not for the
provisions of this Section 14(c) (during which period Grantee may exercise any
of its rights hereunder, including any and all rights pursuant to this Section
14).
(d) Grantee shall have rights substantially identical to those set
forth in paragraphs (a), (b) and (c) of this Section 14 with respect to the
Substitute Option and the Substitute Option Issuer during any period in which
the Substitute Option Issuer would be required to repurchase the Substitute
Option pursuant to Section 9.
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 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. 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
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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, without regard to the conflict of law
principles thereof.
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 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. 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, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
U.S. BANCORP
By /s/ Xxxxx X. Xxxxxx
-----------------------------------
Name: Xxxxx X. Xxxxxx
Title: Executive Vice President and
Chief Financial Officer
WESTERN BANCORP
By /s/ Xxxxxxx X. Xxxxxx
-----------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: President and Chief Executive
Officer
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