EXHIBIT 2
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STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of December 1, 1998, between
Republic Bancorp Inc., a Michigan corporation ("Grantee"), and D&N Financial
Corporation, a Delaware corporation ("Issuer").
W I T N E S S E T H:
WHEREAS, Grantee, and Issuer have entered into an Agreement and
Plan of Merger on even date herewith (the "Merger Agreement"); and
WHEREAS, as an inducement to the willingness of Grantee to enter
into the Merger Agreement, 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.
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 1,823,837 fully paid and nonassessable shares of the
common stock, par value $.01 per share, of Issuer ("Common Stock") at a price
per share of $21.625; provided, however, that in the event Issuer issues or
agrees to issue any shares of Common Stock (other than shares of Common Stock
issued pursuant to stock options granted pursuant to any employee benefit
plan prior to the date hereof) at a price less than such price per share (as
adjusted pursuant to subsection (b) of Section 5), such price shall be equal
to such lesser price (such price, as adjusted if applicable, the "Option
Price"); provided, further, 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 without giving effect to any shares subject to
or issued pursuant to the Option.
(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) hereof), 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 l(b) or elsewhere in this
Agreement shall be deemed to authorize Issuer to issue shares in breach of
any provision of the Merger Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the
Option, in whole or part, and from time to time, if, but only if, both an
Initial Triggering Event (as hereinafter defined) and a Subsequent Triggering
Event (as hereinafter defined) shall have occurred prior to the occurrence of
an Exercise Termination Event (as hereinafter defined), provided that the
Holder shall have sent the written notice of such exercise (as provided in
subsection (e) of this Section 2) within six months following such 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;
(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 4.4(e)
of the Merger Agreement (but only if the breach giving rise to the
termination was willful) (a "Listed Termination"); (iii) the passage of 15
months (or such longer period as provided in Section 10) after termination of
the Merger Agreement if such termination follows the occurrence of an Initial
Triggering Event or is a Listed Termination or (iv) the date on which the
shareholders of the Grantee shall have voted and failed to approve the Merger
(unless (A) Issuer shall then be in material breach of its covenants or
agreements contained in the Merger Agreement or (B) on or prior to such date,
the stockholders of Issuer shall have also voted and failed to approve and
adopt the Merger Agreement). 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 the Merger Agreement such that Issuer shall be entitled
to terminate the Merger Agreement pursuant to Section 4.4(e) thereof as a
result of a material breach and (ii) this Agreement shall automatically
terminate upon the proper termination of the Merger Agreement (x) by Issuer
pursuant to Section 4.4(e) thereof as a result of the material breach by
Grantee, or (y) by Issuer or Grantee pursuant to Section 4.4(b)(ii).
(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 Significant Subsidiary (as defined in
Rule 1-02 of Regulation S-X promulgated by the Securities and
Exchange Commission (the "SEC")) (an "Issuer Subsidiary"), without
having received Grantee's prior written consent, shall have
entered into an agreement to engage in an Acquisition Transaction
(as hereinafter defined) with any person (the term "person" for
purposes of this Agreement having the meaning assigned thereto in
Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder) other than Grantee or any of 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 the Merger. For purposes of this Agreement,
(a) "Acquisition Transaction" shall mean (w) a merger or
consolidation, or any similar transaction, involving Issuer or any
Issuer Subsidiary (other than mergers, consolidations or similar
transactions involving solely Issuer and/or one or more
wholly-owned (except for directors' qualifying shares and a de
minimis number of other shares) Subsidiaries of the Issuer,
provided, any such transaction is not entered into in violation of
the terms of the Merger Agreement), (x) a purchase, lease or other
acquisition of all or any substantial part of the assets or
deposits of Issuer or any Issuer Subsidiary, or (y) a purchase or
other
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acquisition (including by way of merger, consolidation, share
exchange or otherwise) of securities representing 10% or more of
the voting power of Issuer or any Issuer Subsidiary; and (b)
"Subsidiary" shall have the meaning set forth in Rule 12b-2 under
the Exchange Act;
(ii) Any person other than the 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 Exchange Act, and the rules and regulations
thereunder);
(iii) The shareholders of Issuer shall have voted and
failed to adopt the Merger Agreement 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, 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 publicly disclosed an intention to make, a
proposal to engage in an Acquisition Transaction;
(iv) (x) The Issuer Board shall have withdrawn or
modified (or publicly announced its intention to withdraw or
modify) in any manner adverse in any respect to Grantee its
recommendation that the shareholders of Issuer approve the
transactions contemplated by the Merger Agreement, (y) 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, or (z)
Issuer shall have provided information to or engaged in
negotiations with a third party relating to a possible Acquisition
Transaction.
(v) Any person other than Grantee or any Grantee
Subsidiary shall have made a 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
or tender offer materials with respect to a potential exchange or
tender offer that would constitute an Acquisition Transaction (or
filed a preliminary proxy statement with the SEC with respect to a
potential vote by its shareholders to approve the issuance of
shares to be offered in such an exchange offer);
(vii) Issuer shall have willfully 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
(whether immediately or after the giving of notice or passage of
time or both); or
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(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 Office of Thrift Supervision (the
"OTS") or other federal or state thrift or 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, that if prior notification to or approval of the
OTS 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 and (ii) present and surrender this Agreement to Issuer at its
principal executive offices, provided that the failure or refusal of the
Issuer to designate such a bank account or accept surrender of this Agreement
shall not preclude the Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of
immediately available funds as provided in 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
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should be exercised in part only, a new Option evidencing the rights of the
Holder thereof to purchase the balance of the shares purchasable hereunder.
(h) Certificates for Common Stock delivered at a closing hereunder
may be endorsed with a restrictive legend that shall read substantially as
follows:
"The transfer of the shares represented by this
certificate is subject to certain provisions of an agreement
between the registered holder hereof and Issuer and to resale
restrictions arising under the Securities Act of 1933, as amended.
A copy of such agreement is on file at the principal office of
Issuer and will be provided to the holder hereof without charge
upon receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "Securities Act")
in the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the Holder shall have delivered to Issuer a copy of
a letter from the staff of the SEC, or an opinion of counsel, in form and
substance reasonably satisfactory to Issuer, to the effect that such legend
is not required for purposes of the Securities Act; (ii) the reference to the
provisions 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, subject to the receipt of any necessary
regulatory approvals, to be the holder of record of the shares of Common
Stock issuable upon such exercise, notwithstanding that the stock transfer
books of Issuer shall then be closed or that certificates representing such
shares of Common Stock shall not then be actually delivered to the Holder.
Issuer shall pay all expenses, and any and all United States federal, state
and local taxes and other charges that may be payable in connection with the
preparation, issue and delivery of stock certificates under this Section 2 in
the name of the Holder or its assignee, transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free
from preemptive rights, sufficient authorized but unissued or treasury shares
of Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock;
(ii) that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other
voluntary act, avoid or seek to avoid the observance or performance of any of
the covenants, stipulations or conditions to be observed or performed
hereunder by Issuer; (iii) promptly to take all action as may from time to
time be required (including (x) complying with all 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 Savings and Loan Holding
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Company Act or any state or other federal thrift or banking law, prior
approval of or notice to the OTS 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 OTS 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) are
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender of this Agreement at the principal office of Issuer, for other
Agreements providing for Options of different denominations entitling the
holder thereof to purchase, on the same terms and subject to the same
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 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.
(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.
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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 Securities Act covering
any shares issued and issuable pursuant to this Option and shall use its
reasonable best efforts to cause such registration statement to become
effective and remain current in order to permit the sale or other disposition
of any shares of Common Stock issued upon total or partial exercise of this
Option ("Option Shares") in accordance with any plan of disposition requested
by Grantee. Issuer will use its reasonable best efforts to cause such
registration statement promptly to become effective and then to remain
effective for such period not in excess of 180 days from the day such
registration statement first becomes effective or such shorter time as may be
reasonably necessary to effect such sales or other dispositions. Grantee
shall have the right to demand two such registrations. The Issuer shall bear
the costs of such registrations (including, but not limited to, Issuer's
attorneys' fees, printing costs and filing fees, except for underwriting
discounts or commissions, brokers' fees and the fees and disbursements of
Grantee's counsel related thereto). The foregoing notwithstanding, if, at the
time of any request by Grantee for registration of Option Shares as provided
above, Issuer is in registration with respect to an underwritten public
offering by Issuer of shares of Common Stock, and if in the good faith
judgment of the managing underwriter or managing underwriters, or, if none,
the sole underwriter or underwriters, of such offering the offer and sale of
the Option Shares would interfere with the successful marketing of the shares
of Common Stock offered by Issuer, the number of Option Shares otherwise to
be covered in the registration statement contemplated hereby may be reduced;
provided, however, that after any such required reduction the number of
Option Shares to be included in such offering for the account of all Holders
shall constitute at least 25% of the total number of shares to be sold by the
Holders and Issuer in the aggregate; and provided further, however, that if
such reduction occurs, then Issuer shall file a registration statement for
the balance as promptly as practicable thereafter as to which no reduction
pursuant to this Section 6 shall be permitted or occur and the Holder shall
thereafter be entitled to one additional registration and the 12-month period
referred to in the first sentence of this section shall be increased to 24
months. Each such Holder shall provide all information reasonably requested
by Issuer for inclusion in any registration statement to be filed hereunder.
If requested by any such Holder in connection with such registration, Issuer
shall become a party to any underwriting agreement relating to the sale of
such shares, but only to the extent of obligating itself in respect of
representations, warranties, indemnities and other agreements customarily
included in such underwriting agreements for Issuer. Upon receiving any
request under this Section 6 from any Holder, Issuer agrees to send a copy
thereof to any other person known to Issuer to be entitled to registration
rights under this Section 6, in each case by promptly mailing the same,
postage prepaid, to the address of record of the persons entitled to receive
such copies. Notwithstanding anything to the contrary contained herein, in no
event shall the number of registrations that Issuer is obligated to effect be
increased by reason of the fact that there shall be more than one Holder as a
result of any assignment or division of this Agreement.
7. (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
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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 closing price for shares of Common Stock within the
six-month period immediately preceding the date the Holder gives notice of
the required repurchase of this Option or the Owner gives notice of the
required repurchase of Option Shares, as the case may be, or (iv) in the
event of a sale of all or any substantial part of Issuer's assets or
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 Option and/or the Option Shares in accordance with the
provisions of this Section 7. As promptly as practicable, and in any event
within five 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
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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
(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 acquirer in such plan of exchange, (ii) to
permit any person, other than Grantee or a Grantee Subsidiary, to merge into
Issuer or be acquired by Issuer in a plan of exchange and Issuer shall be the
continuing or surviving or acquiring corporation, but, in connection with
such merger or plan of exchange, the then outstanding shares of Common Stock
shall be changed into or exchanged for stock or other securities of any other
person or cash or any other property or the then outstanding shares of Common
Stock shall after such merger or plan of exchange represent less than 50% of
the outstanding shares and share equivalents of the merged or acquiring
company, or (iii) to sell or otherwise transfer all or a substantial part of
its or the Issuer 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,
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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) the Issuer in a
merger or plan of exchange in which Issuer is the continuing or
surviving or acquiring person, and (iv) the transferee of all or a
substantial part of Issuer's assets or deposits (or the assets or
deposits of the Issuer Subsidiary).
(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
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
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exercise of the Substitute Option. In the event that the Substitute Option
would be exercisable for more than 19.9% of the shares of Substitute Common
Stock outstanding prior to exercise but for this clause (e), the issuer of
the Substitute Option (the "Substitute Option Issuer") shall make a cash
payment to Holder equal to the excess of (i) the value of the Substitute
Option without giving effect to the limitation in this clause (e) over (ii)
the value of the Substitute Option after giving effect to the limitation in
this clause (e). This difference in value shall be determined by a nationally
recognized investment banking firm selected by the Holder.
(f) Issuer shall not enter into any transaction described in
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 issuer of the Substitute Option (the
"Substitute Option Issuer") shall repurchase the Substitute Option from the
Substitute Option Holder at a price (the "Substitute Option Repurchase
Price") equal to the amount by which (i) the Highest Closing Price (as
hereinafter defined) exceeds (ii) the exercise price of the Substitute
Option, multiplied by the number of shares of Substitute Common Stock for
which the Substitute Option may then be exercised, and at the request of the
owner (the "Substitute Share Owner") of shares of Substitute Common Stock
(the "Substitute Shares"), the Substitute Option Issuer shall repurchase the
Substitute Shares at a price (the "Substitute Share Repurchase Price") equal
to the Highest Closing Price multiplied by the number of Substitute Shares so
designated. The term "Highest Closing Price" shall mean 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 five 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
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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 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 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 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 15 shall be
extended: (i) to the extent necessary to obtain all regulatory approvals for
the exercise of such rights (for so long as the Holder, Owner, Substitute
Option Holder or Substitute Share Owner, as the case may be, is using
commercially reasonable efforts to obtain such regulatory approvals), and for
the expiration of all statutory waiting periods; and (ii) to the extent
necessary to avoid liability under Section 16(b) of the Exchange Act by
reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and
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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, nonassessable, and will be delivered free and clear of all
claims, liens, encumbrance and security interests and 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;
provided, however, that until the date 15 days following the date on which
the OTS 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 OTS.
13. Each of Grantee and Issuer will use its reasonable best
efforts to make all filings with, and to obtain consents of, all third
parties and governmental authorities necessary to the consummation of the
transactions contemplated by this Agreement, 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) Notwithstanding any other provision of this Agreement, in
no event shall the Grantee's Total Profit (as hereinafter defined) exceed
$13,813,390 and, if it otherwise would exceed such amount, the Grantee, at
its sole election, shall either (a) reduce the number of shares of Common
Stock subject to this Option, (b) deliver to Issuer for cancellation Option
Shares previously purchased by Grantee, (c) pay cash to Issuer, or (d) any
combination thereof, so that Grantee's actually realized Total Profit shall
not exceed $13,813,390 after taking into account the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, this
Option may not be exercised for a number of shares as would, as of the date
of exercise, result in a Notional Total Profit (as defined below) of more
than $13,813,390; provided that nothing in this sentence shall restrict any
exercise of the Option permitted hereby on any subsequent date.
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(c) As used herein, the term "Total Profit" shall mean the
aggregate amount (before taxes) of the following: (i) the amount received by
Grantee pursuant to Issuer's repurchase of the Option (or any portion
thereof) pursuant to Section 7, (ii) (x) the amount received by Grantee
pursuant to Issuer's repurchase of Option Shares pursuant to Section 7, less
(y) Grantee's purchase price for such Option Shares, (iii) (x) the net cash
amounts received by Grantee pursuant to the sale of Option Shares (or any
other securities into which such Option Shares are converted or exchanged) to
any unaffiliated party, less (y) the Grantee's purchase price of such Option
Shares, (iv) any amounts received by Grantee on the transfer of the Option
(or any portion thereof) to any unaffiliated party, and (v) any amount
equivalent to the foregoing with respect to the Substitute Option.
(d) As used herein, the term "Notional Total Profit" with respect
to any number of shares as to which Grantee may propose to exercise this
Option shall be the Total Profit determined as of the date of such proposed
exercise assuming that this Option were exercised on such date for such
number of shares and assuming that such shares, together with all other
Option Shares held by Grantee and its affiliates as of such date, were sold
for cash at the closing market price for the Common Stock as of the close of
business on the preceding trading day (less customary brokerage commissions).
15. (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 15 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 $13,813,390 (i) plus, if
applicable, Grantee's purchase price with respect to any Option Shares and
(ii) minus, if applicable, the excess of (A) the net cash amounts, if any,
received by Grantee pursuant to the arms' length sale of Option Shares (or
any other securities into which such Option Shares were converted or
exchanged) to any unaffiliated party, over (B) Grantee's purchase price of
such Option Shares.
(b) Grantee may exercise its right to relinquish the Option and
any Option Shares pursuant to this Section 15 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 15 and (ii) the Surrender
Price. The Surrender Price shall be payable in immediately available funds on
or before the second business day following receipt of such notice by Issuer.
(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 15 is prohibited under applicable law or regulation, or as a
consequence of administrative policy, from
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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 Event shall be extended to a
date six months from the date on which the Exercise Termination Event would
have occurred if not for the provisions of this Section 15(c) (during which
period Grantee may exercise any of its rights hereunder, including any and
all rights pursuant to this Section 15).
16. The parties hereto acknowledge that damages would be an
inadequate remedy for a breach of this Agreement by either party hereto and
that the obligations of the parties hereto shall be enforceable by either
party hereto through injunctive or other equitable relief. In connection
therewith both parties waive the posting of any bond or similar requirement.
17. If any term, provision, covenant or restriction contained in
this Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this
Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated. If for any reason such court or regulatory
agency determines that the Holder is not permitted to acquire, or Issuer is
not permitted to repurchase pursuant to Section 7, the full number of shares
of Common Stock provided in Section l(a) hereof (as adjusted pursuant to
Section l(b) or Section 5 hereof), it is the express intention of Issuer to
allow the Holder to acquire or to require Issuer to repurchase such lesser
number of shares as may be permissible, without any amendment or modification
hereof.
18. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when
delivered in person, by fax, telecopy, or by registered or certified mail
(postage prepaid, return receipt requested) at the respective addresses of
the parties set forth in the Merger Agreement.
19. This Agreement shall be governed by and construed in
accordance with the laws of the State of Michigan, without regard to the
conflict of law principles thereof (except to the extent that mandatory
provisions of Federal law are applicable).
20. 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.
21. 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.
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22. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties
with respect to the transactions contemplated hereunder and supersedes all
prior arrangements or understandings with respect thereof, written or oral.
The terms and conditions of this Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective successors and
permitted assigns. Nothing in this Agreement, expressed or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors except as assignees, any rights, remedies, obligations
or liabilities under or by reason of this Agreement, except as expressly
provided herein.
23. Capitalized terms used in this Agreement and not defined
herein shall have the meanings assigned thereto in the Merger Agreement.
-16-
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.
REPUBLIC BANCORP INC.
By /s/ Xxxxx X. Xxxxxxxx
________________________________
Name: Xxxxx X. Xxxxxxxx
Title: Chairman of the Board and
Chief Executive Officer
D&N FINANCIAL CORPORATION
By /s/ Xxxxxx X. Xxxxxxxx
________________________________
Name: Xxxxxx X. Xxxxxxxx
Title: President and Chief
Executive Officer
BHLIB:305168.4\100064-00078
