EXHIBIT 10.2
EXECUTION COPY
STOCK OPTION AGREEMENT dated as of February
4, 1997 (the "Agreement"), by and between XXXXXX
XXXXXXX GROUP INC., a Delaware corporation
("Issuer"), and XXXX XXXXXX, DISCOVER & CO., a
Delaware corporation ("Grantee").
RECITALS
A. Issuer and Grantee have entered into an Agreement and
Plan of Merger, dated as of the date hereof (the "Merger Agreement";
defined terms used but not defined herein have the meanings set forth
in the Merger Agreement), providing for, among other things, the
merger of Issuer with and into Grantee with Grantee as the surviving
corporation in the Merger;
B. As a condition and inducement to Grantee's willingness to
enter into the Merger Agreement and the DWD Stock Option Agreement,
Grantee has requested that Issuer agree, and Issuer has agreed, to
grant Grantee the Option (as defined below); and
C. As a condition and inducement to Issuer's willingness to
enter into the Merger Agreement and this Agreement, Issuer has
requested that Grantee agree, and Grantee has agreed, to grant Issuer
an option to purchase shares of Grantee's common stock on
substantially the same terms as the Option;
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set
forth herein, Issuer and Grantee agree as follows:
1. Grant of Option. Subject to the terms and conditions set
forth herein, Issuer hereby grants to Grantee an irrevocable option
(the "Option") to purchase up to 31,506,582 (as adjusted as set forth
herein) shares (the "Option Shares") of Common Stock, par value $1.00
per share ("Issuer Common Stock"), of Issuer at a purchase price of
$62.906 (as adjusted as set forth herein) per Option Share (the
"Purchase Price").
2. Exercise of Option. (a) Grantee may exercise the Option,
with respect to any or all of the Option Shares at any one time,
subject to the provisions of Section 2(c),
after the occurrence of any event as a result of which the Grantee is
entitled to receive the Termination Fee pursuant to Section 5.09(b) of
the Merger Agreement (a "Purchase Event"); provided, however, that (i)
except as provided in the last sentence of this Section 2(a), the
Option will terminate and be of no further force and effect upon the
earliest to occur of (A) the Effective Time, (B) 18 months after the
first occurrence of a Purchase Event, and (C) termination of the
Merger Agreement in accordance with its terms prior to the occurrence
of a Purchase Event, unless, in the case of clause (C), the Grantee
has the right to receive a Termination Fee following such termination
upon the occurrence of certain events, in which case the Option will
not terminate until the later of (x) six months following the time
such Termination Fee becomes payable and (y) the expiration of the
period in which the Grantee has such right to receive a Termination
Fee, and (ii) any purchase of Option Shares upon exercise of the
Option will be subject to compliance with the HSR Act and the
obtaining or making of any consents, approvals, orders, notifications
or authorizations, the failure of which to have obtained or made would
have the effect of making the issuance of Option Shares illegal (the
"Regulatory Approvals"). Notwithstanding the termination of the
Option, Grantee will be entitled to purchase the Option Shares if it
has exercised the Option in accordance with the terms hereof prior to
the termination of the Option and the termination of the Option will
not affect any rights hereunder which by their terms do not terminate
or expire prior to or as of such termination.
(b) In the event that Grantee wishes to exercise the Option,
it will send to Issuer a written notice (an "Exercise Notice"; the
date of which being herein referred to as the "Notice Date") to that
effect which Exercise Notice also specifies the number of Option
Shares, if any, Grantee wishes to purchase pursuant to this Section
2(b), the number of Option Shares, if any, with respect to which
Grantee wishes to exercise its Cash-Out Right (as defined herein)
pursuant to Section 6(c), the denominations of the certificate or
certificates evidencing the Option Shares which Grantee wishes to
purchase pursuant to this Section 2(b) and a date not earlier than
three business days nor later than 20 business days from the Notice
Date for the closing of such purchase (an "Option Closing Date"). Any
Option Closing will be at an agreed location and time in New York, New
York on the applicable Option Closing Date or at
such later date as may be necessary so as to comply with clause (ii)
of Section 2(a).
(c) Notwithstanding anything to the contrary contained
herein, any exercise of the Option and purchase of Option Shares shall
be subject to compliance with applicable laws and regulations, which
may prohibit the purchase of all the Option Shares specified in the
Exercise Notice without first obtaining or making certain Regulatory
Approvals. In such event, if the Option is otherwise exercisable and
Grantee wishes to exercise the Option, the Option may be exercised in
accordance with Section 2(b) and Grantee shall acquire the maximum
number of Option Shares specified in the Exercise Notice that Grantee
is then permitted to acquire under the applicable laws and
regulations, and if Grantee thereafter obtains the Regulatory
Approvals to acquire the remaining balance of the Option Shares
specified in the Exercise Notice, then Grantee shall be entitled to
acquire such remaining balance. Issuer agrees to use its best efforts
to assist Grantee in seeking the Regulatory Approvals.
In the event (i) Grantee receives official notice that a
Regulatory Approval required for the purchase of any Option Shares
will not be issued or granted or (ii) such Regulatory Approval has not
been issued or granted within six months of the date of the Exercise
Notice, Grantee shall have the right to exercise its Cash-Out Right
pursuant to Section 6(c) with respect to the Option Shares for which
such Regulatory Approval will not be issued or granted or has not been
issued or granted.
3. Payment and Delivery of Certificates. (a) At any Option
Closing, Grantee will pay to Issuer in immediately available funds by
wire transfer to a bank account designated in writing by Issuer an
amount equal to the Purchase Price multiplied by the number of Option
Shares to be purchased at such Option Closing.
(b) At any Option Closing, simultaneously with the delivery
of immediately available funds as provided in Section 3(a), Issuer
will deliver to Grantee a certificate or certificates representing the
Option Shares to be purchased at such Option Closing, which Option
Shares will be free and clear of all liens, claims, charges and
encumbrances of any kind whatsoever. If at the time of issuance of
Option Shares pursuant to an exercise of the Option hereunder, Issuer
shall not have issued any
securities similar to rights under a shareholder rights plan, then
each Option Share issued pursuant to such exercise will also represent
such a corresponding right with terms substantially the same as and at
least as favorable to Grantee as are provided under any [7UP]
shareholders rights agreement or similar agreement then in effect.
(c) Certificates for the Option Shares delivered at an
Option Closing will have typed or printed thereon a restrictive legend
which will read substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION
FROM SUCH REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE ALSO
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN
THE STOCK OPTION AGREEMENT, DATED AS OF FEBRUARY 4, 1997, A COPY
OF WHICH MAY BE OBTAINED FROM THE SECRETARY OF XXXXXX XXXXXXX
GROUP INC. AT ITS PRINCIPAL EXECUTIVE OFFICES."
It is understood and agreed that (i) the reference to restrictions
arising under the Securities Act in the above legend will be removed
by delivery of substitute certificate(s) without such reference if
such Option Shares have been registered pursuant to the Securities
Act, such Option Shares have been sold in reliance on and in
accordance with Rule 144 under the Securities Act or Grantee has
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 and its counsel, to the effect that such legend is not required
for purposes of the Securities Act and (ii) the reference to
restrictions pursuant to this Agreement in the above legend will be
removed by delivery of substitute certificate(s) without such
reference if the Option Shares evidenced by certificate(s) containing
such reference have been sold or transferred in compliance with the
provisions of this Agreement under circumstances that do not require
the retention of such reference.
4. Representations and Warranties of Issuer. Issuer hereby
represents and warrants to Grantee as follows:
(a) Authorized Stock. Issuer has taken all necessary
corporate and other action to authorize and reserve and, subject
to the expiration or termination
of any required waiting period under the HSR Act, to permit it to
issue, and, at all times from the date hereof until the
obligation to deliver Option Shares upon the exercise of the
Option terminates, shall have reserved for issuance, upon
exercise of the Option, shares of Issuer Common Stock necessary
for Grantee to exercise the Option, and Issuer will take all
necessary corporate action to authorize and reserve for issuance
all additional shares of Issuer Common Stock or other securities
which may be issued pursuant to Section 6 upon exercise of the
Option. The shares of Issuer Common Stock to be issued upon due
exercise of the Option, including all additional shares of Issuer
Common Stock or other securities which may be issuable upon
exercise of the Option or any other securities which may be
issued pursuant to Section 6, upon issuance pursuant hereto, will
be duly and validly issued, fully paid and nonassessable, and
will be delivered free and clear of all liens, claims, charges
and encumbrances of any kind or nature whatsoever, including
without limitation any preemptive rights of any stockholder of
Issuer.
5. Representations and Warranties of Grantee. Grantee hereby
represents and warrants to Issuer that:
(a) Purchase Not for Distribution. Any Option Shares or
other securities acquired by Grantee upon exercise of the Option
will not be transferred or otherwise disposed of except in a
transaction registered, or exempt from registration, under the
Securities Act.
6. Adjustment upon Changes in Capitalization, Etc. (a) In
the event of any change in Issuer Common Stock by reason of a stock
dividend, split-up, merger, recapitalization, combination, exchange of
shares, or similar transaction, the type and number of shares or
securities subject to the Option, and the Purchase Price thereof, will
be adjusted appropriately, and proper provision will be made in the
agreements governing such transaction, so that Grantee will receive
upon exercise of the Option the number and class of shares or other
securities or property that Grantee would have received in respect of
Issuer Common Stock if the Option had been exercised immediately prior
to such event or the record date therefor, as applicable. Subject to
Section 1, and without limiting the parties' relative rights and
obligations under
the Merger Agreement, if any additional shares of Issuer Common Stock
are issued after the date of this Agreement (other than pursuant to an
event described in the first sentence of this Section 6(a)), the
number of shares of Issuer Common Stock subject to the Option will be
adjusted so that, after such issuance, it equals 19.9% of the number
of shares of Issuer Common Stock then issued and outstanding, without
giving effect to any shares subject to or issued pursuant to the
Option.
(b) Without limiting the parties' relative rights and
obligations under the Merger Agreement, in the event that Issuer
enters into an agreement (i) to consolidate with or merge into any
person, other than Grantee or one of its subsidiaries, and Issuer will
not be the continuing or surviving corporation in such consolidation
or merger, (ii) to permit any person, other than Grantee or one of its
subsidiaries, to merge into Issuer and Issuer will be the continuing
or surviving corporation, but in connection with such merger, the
shares of Issuer Common Stock outstanding immediately prior to the
consummation of such merger will be changed into or exchanged for
stock or other securities of Issuer or any other person or cash or any
other property, or the shares of Issuer Common Stock outstanding
immediately prior to the consummation of such merger will, after such
merger, represent less than 50% of the outstanding voting securities
of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or
one of its subsidiaries, then, and in each such case, the agreement
governing such transaction will make proper provision so that the
Option will, upon the consummation of any such transaction and upon
the terms and conditions set forth herein, be converted into, or
exchanged for, an option with identical terms appropriately adjusted
to acquire the number and class of shares or other securities or
property that Grantee would have received in respect of Issuer Common
Stock if the Option had been exercised immediately prior to such
consolidation, merger, sale, or transfer, or the record date therefor,
as applicable and make any other necessary adjustments.
(c) If, at any time during the period commencing on a
Purchase Event and ending on the termination of the Option in
accordance with Section 2, Grantee sends to Issuer an Exercise Notice
indicating Grantee's election to exercise its right (the "Cash-Out
Right") pursuant to this Section 6(c), then Issuer shall pay to
Grantee, on the
Option Closing Date, in exchange for the cancellation of the Option
with respect to such number of Option Shares as Grantee specifies in
the Exercise Notice, an amount in cash equal to such number of Option
Shares multiplied by the difference between (i) the average closing
price, for the 10 NYSE trading days commencing on the 12th NYSE
trading day immediately preceding the Notice Date, per share of Issuer
Common Stock as reported on the NYSE Composite Transaction Tape (or,
if not listed on the NYSE, as reported on any other national
securities exchange or national securities quotation system on which
the Issuer Common Stock is listed or quoted, as reported in The Wall
Street Journal (Northeast edition), or, if not reported thereby, any
other authoritative source) (the "Closing Price") and (ii) the
Purchase Price; provided, however, that for purposes of this Section
6(c) only, the Closing Price used to calculate the amount in cash
payable per Option Share pursuant to this Section 6(c) shall in no
event exceed the "Fair Market Value" of such Option Share (as defined
and determined in accordance with Section 12.2.G of Grantee's
Certificate of Incorporation). Notwithstanding the termination of the
Option, Grantee will be entitled to exercise its rights under this
Section 6(c) if it has exercised such rights in accordance with the
terms hereof prior to the termination of the Option.
7. Registration Rights. Issuer will, if requested by Grantee
at any time and from time to time within three years of the exercise
of the Option, as expeditiously as possible prepare and file up to
three registration statements under the Securities Act if such
registration is necessary in order to permit the sale or other
disposition of any or all shares of securities that have been acquired
by or are issuable to Grantee upon exercise of the Option in
accordance with the intended method of sale or other disposition
stated by Grantee, including a "shelf" registration statement under
Rule 415 under the Securities Act or any successor provision, and
Issuer will use its best efforts to qualify such shares or other
securities under any applicable state securities laws. Grantee agrees
to use reasonable efforts to cause, and to cause any underwriters of
any sale or other disposition to cause, any sale or other disposition
pursuant to such registration statement to be effected on a widely
distributed basis so that upon consummation thereof no purchaser or
transferee will own beneficially more than 4.9% of the
then-outstanding voting power of Issuer. Issuer will use reasonable
efforts to cause each such registration
statement to become effective, to obtain all consents or waivers of
other parties which are required therefor, and to keep such
registration statement effective for such period not in excess of 180
calendar days from the day such registration statement first becomes
effective as may be reasonably necessary to effect such sale or other
disposition. The obligations of Issuer hereunder to file a
registration statement and to maintain its effectiveness may be
suspended for up to 60 calendar days in the aggregate if the Board of
Directors of Issuer shall have determined that the filing of such
registration statement or the maintenance of its effectiveness would
require premature disclosure of material nonpublic information that
would materially and adversely affect Issuer or otherwise interfere
with or adversely affect any pending or proposed offering of
securities of Issuer or any other material transaction involving
Issuer. Any registration statement prepared and filed under this
Section 7, and any sale covered thereby, will be at Issuer's expense
except for underwriting discounts or commissions, brokers' fees and
the fees and disbursements of Grantee's counsel related thereto.
Grantee will provide all information reasonably requested by Issuer
for inclusion in any registration statement to be filed hereunder. If,
during the time periods referred to in the first sentence of this
Section 7, Issuer effects a registration under the Securities Act of
Issuer Common Stock for its own account or for any other stockholders
of Issuer (other than on Form S-4 or Form S-8, or any successor form),
it will allow Grantee the right to participate in such registration,
and such participation will not affect the obligation of Issuer to
effect demand registration statements for Grantee under this Section
7; provided that, if the managing underwriters of such offering advise
Issuer in writing that in their opinion the number of shares of Issuer
Common Stock requested to be included in such registration exceeds the
number which can be sold in such offering, Issuer will include the
shares requested to be included therein by Grantee pro rata with the
shares intended to be included therein by Issuer. In connection with
any registration pursuant to this Section 7, Issuer and Grantee will
provide each other and any underwriter of the offering with customary
representations, warranties, covenants, indemnification, and
contribution in connection with such registration.
8. Transfers. The Option Shares may not be sold, assigned,
transferred, or otherwise disposed of except (i) in an underwritten
public offering as provided in
Section 7 or (ii) to any purchaser or transferee who would not, to the
knowledge of the Grantee after reasonable inquiry, immediately
following such sale, assignment, transfer or disposal beneficially own
more than 4.9% of the then-outstanding voting power of the Issuer;
provided, however, that Grantee shall be permitted to sell any Option
Shares if such sale is made pursuant to a tender or exchange offer
that has been approved or recommended by a majority of the members of
the Board of Directors of Issuer (which majority shall include a
majority of directors who were directors as of the date hereof).
9. Listing. If Issuer Common Stock or any other securities
to be acquired upon exercise of the Option are then listed on the NYSE
(or any other national securities exchange or national securities
quotation system), Issuer, upon the request of Grantee, will promptly
file an application to list the shares of Issuer Common Stock or other
securities to be acquired upon exercise of the Option on the NYSE (and
any such other national securities exchange or national securities
quotation system) and will use reasonable efforts to obtain approval
of such listing as promptly as practicable.
10. Loss or Mutilation. 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 will 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.
11. Miscellaneous. (a) Expenses. Except as otherwise
provided in the Merger Agreement, each of the parties hereto will 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.
(b) Amendment. This Agreement may not be amended, except by
an instrument in writing signed on behalf of each of the parties.
(c) Extension; Waiver. Any agreement on the part of a party
to waive any provision of this Agreement, or to extend the time for
performance, will be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to
this Agreement to assert any of its rights under this Agreement or
otherwise will not constitute a waiver of such rights.
(d) Entire Agreement; No Third-Party Beneficiaries. This
Agreement, the Merger Agreement (including the documents and
instruments attached thereto as exhibits or schedules or delivered in
connection therewith) and the Confidentiality Agreement (i) constitute
the entire agreement, and supersede all prior agreements and
understandings, both written and oral, between the parties with
respect to the subject matter of this Agreement, and (ii) except as
provided in Section 8.06 of the Merger Agreement, are not intended to
confer upon any person other than the parties any rights or remedies.
(e) Governing Law. This Agreement will be governed by, and
construed in accordance with, the laws of the State of Delaware,
regardless of the laws that might otherwise govern under applicable
principles of conflict of laws thereof.
(f) Notices. All notices, requests, claims, demands, and
other communications under this Agreement must be in writing and will
be deemed given if delivered personally, telecopied (which is
confirmed), or sent by overnight courier (providing proof of delivery)
to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
If to Issuer to:
Xxxxxx Xxxxxxx Group Inc.
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxx X. Xxxxx
Fax: (000) 000-0000
with copies to:
Shearman & Sterling
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Xxxx
Fax: (000) 000-0000; and
Xxxxx Xxxx & Xxxxxxxx
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx X. Xxxxxxxx
Fax: (000) 000-0000
If to Grantee to:
Xxxx Xxxxxx, Discover & Co.
Two Xxxxx Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxxxx X. Xxxxxxx
Fax: (000) 000-0000
with a copy to:
Cravath, Swaine & Xxxxx
Worldwide Plaza
000 Xxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxxxxxx
Xxxxxx Xxxxxxx
Fax: (000) 000-0000
(g) Assignment. Neither this Agreement, the Option nor any
of the rights, interests, or obligations under this Agreement may be
assigned or delegated, in whole or in part, by operation of law or
otherwise, by Issuer or Grantee without the prior written consent of
the other. Any assignment or delegation in violation of the preceding
sentence will be void. Subject to the first and second sentences of
this Section 11(g), this Agreement will be binding upon, inure to the
benefit of, and be enforceable by, the parties and their respective
successors and assigns.
(h) Further Assurances. In the event of any exercise of the
Option by Grantee, Issuer and Grantee will execute and deliver all
other documents and instruments and take all other actions that may be
reasonably necessary in order to consummate the transactions provided
for by such exercise.
(i) Enforcement. The parties agree that irreparable damage
would occur and that the parties would not have any adequate remedy at
law in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties will be entitled
to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions of this Agreement
in any Federal court located in the State of Delaware or in Delaware
state court, the foregoing being in addition to any other remedy to
which they are entitled at law or in equity. In addition, each of the
parties hereto (i) consents to submit itself to the personal
jurisdiction of any Federal court located in the State of Delaware or
any Delaware state court in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement,
(ii) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court,
and (iii) agrees that it will not bring any action relating to this
Agreement or any of the transactions contemplated by this Agreement in
any court other than a Federal court sitting in the State of Delaware
or a Delaware state court.
IN WITNESS WHEREOF, Issuer and Grantee have caused this
Agreement to be signed by their respective officers thereunto duly
authorized as of the day and year first written above.
XXXXXX XXXXXXX GROUP INC.,
by
/s/ Xxxxxxx X. Xxxxxx
--------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Chairman
XXXX XXXXXX, DISCOVER & CO.,
by
/s/ Xxxxxx X. Xxxxxxx
--------------------------
Name: Xxxxxx X. Xxxxxxx
Title: Chairman and Chief
Executive Officer
