STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated August 27, 1999 (the "Agreement"), between
SJNB Financial Corp., a California corporation ("Buyer"), and Saratoga Bancorp,
a California corporation ("Seller").
W I T N E S S E T H:
WHEREAS, Buyer, Seller and Saratoga National Bank (Seller's subsidiary)
have entered into an Agreement and Plan of Merger of even date herewith (the
"Merger Agreement"), which agreement has been executed by the parties hereto
immediately prior to this Agreement; and
WHEREAS, as a condition to Buyer's entering into the Merger Agreement and
in consideration therefor, Seller has agreed to grant Buyer the Option (as
hereinafter defined):
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. (a) Seller hereby grants to Buyer an unconditional, irrevocable option
(the "Option") to purchase, subject to the terms hereof, up to 378,561 fully
paid and nonassessable shares of Seller's Common Stock, no par value ("Common
Stock"), at a price of $19.21 per share; provided, however, that in the event
Seller issues or agrees to issue any shares of Common Stock (other than pursuant
to warrants and options outstanding at the date hereof or as permitted under the
Merger Agreement) at a price less than $19.21 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 Seller's 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 hereof (other than pursuant to this
Agreement), the number of shares of Common Stock subject to the Option shall be
increased so that, after such issuance, it equals 19.9% of the number of shares
of Common Stock then issued and outstanding without giving effect to any shares
subject to or issued pursuant to the Option. Nothing contained in this
Section 1(b) or elsewhere in this Agreement shall be deemed to authorize Seller
or Buyer to breach any provision of the Merger Agreement.
2. (a) Provided that Buyer shall not be in material breach of this
Agreement or of its covenants and agreements contained in the Merger Agreement
such that Seller shall be entitled to terminate the Merger Agreement pursuant to
Section 7.1(e)(i) thereof, and no preliminary or permanent injunction or other
order against exercise of the Option or delivery of the shares covered by the
Option issued by a court of competent jurisdiction is currently in effect, the
Holder (as hereinafter defined) may exercise the Option, in whole or in part,
and from time to time, if, but only if, both an Initial Triggering Event (as
hereinafter defined) and a Subsequent Triggering Event (as hereinafter defined)
shall have occurred prior to the occurrence of an Exercise Termination Event (as
hereinafter defined), provided that the Holder shall have sent written notice of
such exercise (as provided in subsection (e) of this Section 2) within 30 days
following such Subsequent Triggering Event. 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 Buyer pursuant to Section 7.1(d) of the
Merger Agreement (unless the breach by Seller giving rise to such right of
termination is non-volitional); (iii) the passage of 12 months after termination
of the Merger Agreement if such termination follows the occurrence of an Initial
Triggering Event except a termination by Buyer pursuant to Section 7.1(d)
thereof (unless the breach by Seller giving rise to such right of termination is
non-volitional) (provided that if an Initial Triggering Event continues or
occurs beyond such termination and prior to the passage of such 12-month period,
the Exercise Termination Event shall be 12 months from the expiration of the
Last Triggering Event but in no event more than 18 months after such
termination); or (iv) the third anniversary of the date hereof. The "Last
Triggering Event" shall mean the last Initial Triggering Event to occur. The
term "Holder" shall mean the holder or holders of the Option.
(b) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) Seller or any of its Subsidiaries (each a "Seller Subsidiary") or
any Seller Affiliate (as hereinafter defined), without having received
Buyer'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 (the "Exchange Act"), and the rules and regulations
thereunder) other than Buyer or any of its Subsidiaries (each a "Buyer
Subsidiary") or the Board of Directors of Seller shall have recommended
that the shareholders of Seller approve or accept any Acquisition
Transaction other than as contemplated by the Merger Agreement. For
purposes of this Agreement, "Acquisition Transaction" shall mean (x) a
merger or consolidation, or any similar transaction, involving Seller or
any Significant Subsidiary (as defined in Rule 1-02 of Regulation S-X
promulgated by the Securities and Exchange Commission ("SEC") of Seller,
(y) a purchase, lease or other acquisition representing 15% or more of the
consolidated assets of Seller and its Subsidiaries, 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 Seller or any Significant Subsidiary of Seller; provided that the
term "Acquisition Event" shall not include any transaction involving only
Seller and/or any Seller Subsidiary.
(ii) Seller or any Seller Subsidiary or Seller Affiliate, without
having received Buyer's prior written consent, shall have authorized,
recommended, proposed or publicly announced its intention to authorize,
recommend or propose, to engage in an Acquisition Transaction with any
person other than Buyer or a Buyer Subsidiary, or the Board of Directors of
Seller shall have publicly withdrawn or modified, or publicly announced its
intent to withdraw or modify, in any manner adverse to Buyer, its
recommendation that the shareholders of Seller approve the transactions
contemplated by the Merger Agreement;
(iii) Any person other than Buyer, any Buyer Subsidiary or any Seller
Subsidiary acting in a fiduciary capacity shall have acquired beneficial
ownership or the right to acquire Beneficial Ownership (within the meaning
of section 13(d) of the Exchange Act and the rules and regulations
thereunder) of 10% or more of the outstanding shares of Common Stock;
(iv) Any person other than Buyer or any Buyer Subsidiary shall have
made a bona fide proposal to Seller or its shareholders by public
announcement or written communication that is or becomes the subject of
public disclosure to engage in an Acquisition Transaction;
(v) After a proposal is made by a third party to Seller or its
shareholders to engage in an Acquisition Transaction, Seller shall have
breached any covenant or obligation contained in the Merger Agreement and
such breach (x) would entitle Buyer to terminate the Merger Agreement and
(y) shall not have been cured prior to the Notice Date (as defined below);
or
(vi) Any person other than Buyer or any Buyer Subsidiary, other than
in connection with a transaction to which Buyer has given its prior written
consent, shall have filed an application or notice with the Federal Reserve
Board, or other federal or state bank regulatory authority, which
application or notice has been accepted for processing, for approval to
engage in an Acquisition Transaction.
For purposes of this Agreement, the term "Seller Affiliate" shall mean
any Person who or which, together with all "affiliates" and "associates"
(as such terms are defined in Rule 12b-2 of the rules and regulations under
the Exchange Act) of such Person, shall be the "beneficial owner" (as
defined in section 13(d) of the Exchange Act and the rules and regulations
thereunder) ("Beneficial Owner") of 5% or more of the shares of Common
Stock then outstanding, but shall not include Seller, any Seller
Subsidiary, any employee benefit plan of the Seller or any Seller
Subsidiary, or any entity holding shares of Common Stock for or pursuant to
the terms of any such plan.
(c) The term "Subsequent Triggering Event" shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person (other than Buyer or any Buyer
Subsidiary) of beneficial ownership of 20% 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) shall be 20%.
(d) Seller shall notify Buyer 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 Seller shall not
be a condition to the right of the Holder to exercise the Option.
(e) In the event the Holder is entitled to and wishes to exercise the
Option, it shall send to Seller 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 (subject to Seller's
reasonable approval) and date not earlier than three business days nor later
than 30 business days from the Notice Date for the closing of such purchase (the
"Closing Date"); provided, that if the closing of the purchase and sale pursuant
to the Option (the "Closing") cannot be consummated by reason of any applicable
judgment, decree, order, law or regulation, the period of time that otherwise
would run pursuant to this sentence shall run instead from the date on which
such restriction on consummation has expired or been terminated; and provided
further, without limiting the foregoing, that if prior notification to or
approval of the Federal Reserve Board or any other regulatory agency is required
in connection with such purchase, the Holder shall promptly file the required
notice or application for approval and shall expeditiously process the same and
the period of time that otherwise would run pursuant to this sentence shall run
instead from the date on which any required notification periods have expired or
been terminated or such approvals have been obtained and any requisite waiting
period or periods shall have passed. Any exercise of the Option shall be deemed
to occur on the Notice Date relating thereto. Notwithstanding this
subsection (e), in no event shall any Closing Date be more than 18 months after
the related Notice Date, and if the Closing Date shall not have occurred within
18 months after the related Notice Date due to the failure to obtain any such
required approval, the exercise of the Option effected on the Notice Date shall
be deemed to have expired. In the event (i) Buyer receives official notice that
an approval of the Federal Reserve Board or any other regulatory authority
required for the purchase of Option Shares (as hereinafter defined) would not be
issued or granted, (ii) a Closing Date shall not have occurred within 18 months
after the related Notice Date due to the failure to obtain any such required
approval or (iii) Holder (or Substitute Option Holder (as hereinafter defined))
shall have the right pursuant to the last sentence of Section 7 (or Section 9)
to exercise the Option (or Substitute Option (as hereinafter defined)), Buyer
shall nevertheless be entitled to exercise its right as set forth in Section 7
and Buyer or Holder (or Substitute Option Holder) shall be entitled to exercise
the Option (or Substitute Option) in connection with the resale of Seller Common
Stock or other securities pursuant to a registration statement as provided in
Section 6.
(f) At the Closing referred to in subsection (e) of this Section 2, the
Holder shall present and surrender this Agreement and pay to Seller 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 Seller, provided that failure or refusal of Seller to
designate such a bank account shall not preclude the Holder from exercising the
Option.
(g) At such Closing, simultaneously with the delivery of immediately
available funds and surrender of this Agreement as provided in subsection (f) of
this Section 2, Seller shall deliver to the Holder a certificate or certificates
representing the number of shares of Common Stock purchased by the Holder and,
if the Option should be exercised in part only, a new Option evidencing the
rights of the Holder thereof to purchase the balance of the shares purchasable
hereunder, and the Holder shall deliver to Seller a letter reasonably
satisfactory to Seller by which Holder makes the representations and covenants
customary in the issuance of privately placed securities, including, without
limitation, agreements that the Holder will not offer to sell or otherwise
dispose of such shares in violation of applicable law or the provisions of this
Agreement.
(h) Certificates for Common Stock delivered at a Closing hereunder may be
endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is subject to
certain provisions of an agreement between the registered holder hereof and
Seller 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
Seller and will be provided to the holder hereof without charge upon
receipt by Seller of a written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of 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 Seller a copy of a letter from the staff of the SEC, or an opinion
of counsel, in form and substance reasonably satisfactory to Seller, 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; 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 Seller 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 and
surrender of this Agreement to Seller, 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 Seller shall then be closed or
that certificates representing such shares of Common Stock shall not then be
actually delivered to the Holder or the Seller shall have failed or refused to
designate the bank account described in subsection (f) of this Section 2. Seller
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,
issuance and delivery of stock certificates under this Section 2 in the name of
the Holder or its assignee, transferee or designee.
3. Seller agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued shares of Common Stock
(and other securities issuable pursuant to Section 5(a)) so that the Option may
be exercised without additional authorization of Common Stock (or such other
securities) after giving effect to all other options, warrants, convertible
securities and other rights to purchase Common Stock (or such other securities);
(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
Seller; (iii) promptly to take all action as may from time to time be required
(including (x) complying with all premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. section 18a and regulations
promulgated thereunder and (y) in the event, under the Bank Holding Company Act
of 1956, as amended ("BHCA"), or the Change in Bank Control Act of 1978, as
amended, or any state banking law, prior approval of or notice to the Federal
Reserve Board or to any state regulatory authority is necessary before the
Option may be exercised, cooperating fully with the Holder in preparing such
applications or notices and providing such information to the Federal Reserve
Board or such state regulatory authority as they may require) in order to permit
the Holder to exercise the Option and the Seller 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 Seller, 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 Stock Option
Agreements and related Options for which this Agreement (and the Option granted
hereby) may be exchanged. Upon receipt by Seller 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, Seller 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 Seller, 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, distributions on or in respect of the Common Stock that would be
prohibited under the terms of the Merger Agreement, or the like, the type
and number of shares of Common Stock purchasable upon exercise hereof shall
be appropriately adjusted so that Buyer shall receive upon exercise of the
Option and payment of the aggregate Option Price hereunder the number and
class of shares or other securities or property that Buyer would have
received in respect of Common Stock if the Option had been exercised in
full immediately prior to such event, or the record date therefor, as
applicable.
(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 (or as otherwise provided in the last sentence
of Section 2(e)), Seller shall, at the request of Buyer, which request shall be
delivered within 30 days after such Subsequent Triggering Event (or such trigger
date as is provided in the last sentence of Section 2(e)) (whether on its own
behalf or on behalf of any subsequent holder of this Option (or part thereof) or
any of the shares of Common Stock issued pursuant hereto), promptly prepare,
file and keep current a shelf registration statement under the Securities Act
covering this Option and any shares issued and issuable pursuant to this Option
and shall use its best efforts to cause such registration statement to become
effective and remain current in order to permit the sale or other disposition of
this Option and any shares of Common Stock issued upon total or partial exercise
of this Option ("Option Shares") in accordance with any plan of disposition
requested by Buyer. Seller will use its best efforts to cause such registration
statement first to become effective and then to remain effective for such period
not in excess of 180 days from the date such registration statement first
becomes effective or such shorter time as may be reasonably necessary to effect
such sales or other dispositions. Buyer, for a period of 18 months following
such first request, shall have the right to demand a second such registration if
reasonably necessary to effect such sales or dispositions. The foregoing
notwithstanding, if, at the time of any request by Buyer for registration of the
Option or the Option Shares as provided above, Seller is in registration with
respect to an underwritten public offering of shares of Common Stock, and if, in
the good faith judgment of the managing underwriter or managing underwriters,
or, if none, the sole underwriter or underwriters, of such offering, the
inclusion of the Holder's Option or Option Shares would interfere with the
successful marketing of the shares of Common Stock offered by Seller, the number
of Option Shares otherwise to be covered in the registration statement
contemplated hereby may be reduced; and provided, however, that after any such
required reduction the number of Option Shares to be included in such offering
for the account of the Holder shall constitute at least 25% of the total number
of shares to be sold by the Holder and Seller in the aggregate; and provided
further, however, that if such reduction occurs, then the Seller shall file a
registration statement for the balance as promptly as practical and no reduction
shall thereafter occur (and such registration shall not be charged against the
Holder). Each such Holder shall provide all information reasonably requested by
Seller for inclusion in any registration statement to be filed hereunder. If
requested by any such Holder in connection with such registration, Seller shall
become a party to any underwriting agreement relating to the sale of such
shares, but only to the extent of obligating itself in respect of
representations, warranties, indemnities and other agreements customarily
included in such underwriting agreements for the Seller. Upon receiving any
request under this Section 6 from any Holder, Seller agrees to send a copy
thereof to any other person known to Seller 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.
7. (a) Upon the occurrence of a Subsequent Triggering Event that occurs
prior to an Exercise Termination Event, (i) at the request of the Holder,
delivered within 30 days after such occurrence (or such later period as provided
in Section 10 or the last sentence of Section 2(e)), Seller (or any successor
thereto) shall repurchase the Option from the Holder at a price (the "Option
Repurchase Price") equal to the amount by which (A) the market/offer price (as
defined below) exceeds (B) the Option Price, multiplied by the number of shares
for which this Option may then be exercised and (ii) at the request of the owner
of Option Shares from time to time (the "Owner"), delivered within 30 days after
such occurrence (or such later period as provided in Section 10), Seller 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 highest price per
share of Common Stock at which a tender offer or exchange offer therefor has
been made, (ii) the price per share of Common Stock to be paid by any third
party pursuant to an agreement with Seller, (iii) the highest closing price for
shares of Common Stock quoted in the New York Stock Exchange (or if Common Stock
is not quoted in the New York Stock Exchange, the highest bid price per share as
quoted on the National Association of Securities Dealers Automated Quotation
Systems, or, if the shares of Common Stock are not quoted thereon, on the
principal trading market on which such shares are traded as reported by a
recognized source) within the six-month period immediately preceding the date
the Holder gives notice of the required repurchase of Option Shares, as the case
may be, or (iv) in the event of a sale of assets representing 15% or more of the
consolidated assets of Seller and its Subsidiaries, the sum of the price paid in
such sale for such assets and the current market value of the remaining assets
of Seller as determined by a nationally recognized investment banking firm
selected by the Holder or the Owner, as the case may be, divided by the number
of shares of Common Stock of Seller 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.
(b) The Holder or the Owner, as the case may be, may exercise its right to
require Seller to repurchase the Option and any Option Shares pursuant to this
Section 7 by surrendering for such purpose to Seller, at its principal office,
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 Seller 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, Seller 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 Seller is not
then prohibited under applicable law and regulation from so delivering.
(c) To the extent that Seller 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, Seller 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 Seller is no longer so prohibited; provided, however, that if
Seller 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 Seller hereby
undertakes to use its 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 or the Option Shares either in whole or to the extent
of the prohibition, whereupon, in the latter case, Seller shall promptly
(i) deliver to the Holder and/or the Owner, as appropriate, that portion of the
Option Repurchase Price or the Option Share Repurchase Price that Seller is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Holder, a new Stock Option Agreement evidencing the right of the Holder to
purchase that number of shares of Common Stock for which the surrendered Stock
Option Agreement was exercisable immediately prior to the time of delivery of
the notice of repurchase less the number of shares of Common Stock covered by
the portion of the Option Shares repurchased, 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 Seller
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.
8. (a) In the event that prior to an Exercise Termination Event, Seller
shall enter into an agreement (i) to consolidate with or merge into any person,
other than Buyer or one of its Subsidiaries, and shall not be the continuing or
surviving corporation of such consolidation or merger, (ii) to permit any
person, other than Buyer or one of its Subsidiaries, to merge into Seller and
Seller shall be the continuing or surviving corporation, but, in connection with
such merger, the then outstanding shares of Common Stock shall be changed into
or exchanged for stock or other securities of any other person or cash or any
other property or the then outstanding shares of Common Stock shall after such
merger represent less than 50% of the outstanding shares and share equivalents
of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Buyer or one of its
Subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of the Holder, of either (x) the Acquiring Corporation
(as hereinafter defined) or (y) any person that controls the Acquiring
Corporation.
(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the continuing or surviving
corporation of a consolidation or merger with Seller (if other than
Seller), (ii) Seller in a merger in which Seller is the continuing or
surviving person, and (iii) the transferee of all or substantially all of
Seller's assets.
(2) "Substitute Common Stock" shall mean the common stock issued by
the issuer of the Substitute Option upon exercise of the Substitute Option.
(3) "Assigned Value" shall mean the market/offer price, as defined in
Section 7.
(4) "Average Price" shall mean the average closing price of a share of
the Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of Substitute Common Stock on the date
preceding such consolidation, merger or sale; provided that if Seller 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
Seller 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 is then exercisable,
divided by the Average Price. The exercise price of the Substitute Option per
share of Substitute Common Stock shall then be equal to the Option Price
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock for which the Option is then exercisable and the denominator of
which shall be the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the shares of Substitute
Common Stock outstanding prior to the exercise of the Substitute Option. In the
event that the Substitute Option would be exercisable for more than 19.9% 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 Seller")
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) Seller 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 Seller
hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the Substitute Option Seller 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 Seller 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 right to require the Substitute Option
Seller to repurchase the Substitute Option and the Substitute Shares pursuant to
this Section 9 by surrendering for such purpose to the Substitute Option Seller,
at its principal office, the agreement for such Substitute Option (or, in the
absence of such an agreement, a copy of this Agreement) and certificates for
Substitute Shares accompanied by a written notice or notices stating that the
Substitute Option Holder or the Substitute Share Owner, as the case may be,
elects to require the Substitute Option Seller to repurchase the Substitute
Option and/or the Substitute Shares in accordance with the provision 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 Seller 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 Seller is not then
prohibited under applicable law and regulation, or as a consequence of
administrative policy, from so delivering.
(c) To the extent that the Substitute Option Seller 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 Seller 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 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 Seller is no longer so prohibited; provided,
however, that if the Substitute Option Seller 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 Seller shall use its best efforts to receive all required regulatory and
legal approvals as promptly as practicable in order to accomplish such
repurchase), the Substitute Option Holder or Substitute Share Owner may revoke
its notice of repurchase of the Substitute Option or the Substitute Shares
either in whole or to the extent of the prohibition, whereupon, in the latter
case, the Substitute Option Seller 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 Seller is not prohibited from delivering; and
(ii) deliver, as appropriate, either (A) to the Substitute Option Holder, a new
Substitute Option evidencing the right of the Substitute Option Holder to
purchase that number of shares of the Substitute Common Stock obtained by
multiplying the number of shares of the Substitute Common Stock for which the
surrendered Substitute Option was exercisable at the time of delivery of the
notice of repurchase by a fraction, the numerator of which is the Substitute
Option Repurchase Price less the portion thereof theretofore delivered to the
Substitute Option Holder and the denominator of which is the Substitute Option
Repurchase Price, or (B) to the Substitute Share Owner, a certificate for the
Substitute Option Shares it is then so prohibited from repurchasing. If an
Exercise Termination Event shall have occurred prior to the date of the notice
by the Substitute Option Seller 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 period for exercise of certain rights under Sections 2, 6,
7, 9 and 13 shall be extended: (i) to the extent necessary to obtain all
regulatory approvals for the exercise of such rights, and for the expiration of
all statutory waiting periods; and (ii) to the extent necessary to avoid
liability under section 16(b) of the Exchange Act by reason of such exercise.
11. Seller hereby represents and warrants to Buyer as follows:
(a) Seller has full corporate power and authority to execute and deliver
this Agreement and, subject to any approvals or consents referred to herein, to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by the Board of Directors of Seller and no
other corporate proceedings on the part of Seller are necessary to authorize
this Agreement or to consummate the transactions so contemplated. This Agreement
has been duly and validly executed and delivered by Seller. This Agreement is
the valid and legally binding obligation of Seller, enforceable against Seller
in accordance with its terms.
(b) Seller has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof through
the termination of this Agreement in accordance with its terms will have
reserved for issuance upon the exercise of the Option, that number of shares of
Common Stock equal to the maximum number of shares of Common Stock at any time
and from time to time issuable hereunder, and all such shares, upon issuance
pursuant hereto and payment of the aggregate Option Price therefor, 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.
(c) Except as disclosed pursuant to the Merger Agreement, the execution and
delivery of this Agreement does not, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of, or
default under, or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a material benefit under, or the
creation of a lien, pledge, security interest, charge or other encumbrance on
assets (any such conflict, violation, default, right of termination,
cancellation or acceleration, loss or creation, a "Violation") pursuant to any
provisions of the Articles of Incorporation or by-laws of Seller or any Seller
Subsidiary or, subject to obtaining any approvals or consents contemplated
hereby, result in any Violation of any loan or credit agreement, note, mortgage,
indenture, lease, Plan or other agreement, obligation, instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Seller or any Seller Subsidiary or
their respective properties or assets which Violation would have a Material
Adverse Effect on Seller.
12. Buyer hereby represents and warrants to Seller as follows:
(a) Buyer has full corporate power and authority to execute and deliver
this Agreement and, subject to any approvals or consents referred to herein, to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by the Board of Directors of Buyer and no other
corporate proceedings on the part of Buyer are necessary to authorize this
Agreement or to consummate the transactions so contemplated. This Agreement has
been duly and validly executed and delivered by Buyer. This Agreement is the
valid and legally binding obligation of Buyer, enforceable against Buyer in
accordance with its terms.
(b) The Option is not being, and any shares of Common Stock or other
securities acquired by Buyer upon exercise of the Option will not be, acquired
with a view to the public distribution thereof and will not be transferred or
otherwise disposed of except in a transaction registered or exempt from
registration under the Securities Act.
13. Neither of the parties hereto may assign any of its rights or
obligations under this Option Agreement or the Option created hereunder to any
other person, without the express written consent of the other party, except
that in the event a Subsequent Triggering Event shall have occurred prior to an
Exercise Termination Event, Buyer, subject to the express provisions hereof, may
assign in whole or in part its rights and obligations hereunder within 30 days
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 approves an application by Buyer under the
BHCA to acquire the shares of Common Stock subject to the Option, Buyer 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 Seller, (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 Buyer's behalf, or (iv) any
other manner approved by the Federal Reserve Board. Any such assignment shall be
made in compliance with and subject to applicable Federal and state laws, rules
and regulations.
14. Immediately following an Initial Triggering Event, each of Buyer and
Seller will use its best efforts to make all filings with, and to obtain
consents of, all third parties and governmental authorities necessary to the
consummation of the transactions contemplated by this Agreement, including
without limitation, making application to list the shares of Common Stock
issuable hereunder on the Nasdaq upon official notice of issuance and applying
to the Federal Reserve Board under the BHCA for approval to acquire the shares
issuable hereunder, but Buyer shall not be obligated to apply to state banking
authorities for approval to acquire the shares of Common Stock issuable
hereunder until such time, if ever, as it deems appropriate to do so.
15. Notwithstanding anything to the contrary herein, in the event that the
Holder or Owner or any Related Person thereof is a person making, without the
prior written consent of Seller, an offer or proposal to engage in an
Acquisition Transaction (other than the transaction contemplated by the Merger
Agreement), then (i) in the case of a Holder or any Related Person thereof, the
Option held by it shall immediately terminate and be of no further force or
effect, and (ii) in the case of an Owner or any Related Person thereof, the
Option Shares held by it shall be immediately repurchasable by Seller at the
Option Price. A Related Person of a Holder or Owner means any "affiliate" (as
defined in Rule 12b-2 of the rules and regulations under the Exchange Act) of
the Holder or Owner and any person that is the beneficial owner of 20% or more
of the voting power of the Holder or Owner, as the case may be.
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.
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 or Substitute Option Holder is not permitted to acquire, or
Seller or Substitute Option Seller is not permitted to repurchase, pursuant to
Section 7 or Section 9, as the case may be, 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 Seller to allow the Holder to
acquire or to require Seller 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
cable, telegram, telecopy or telex, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Merger Agreement.
19. This Agreement shall be governed by and construed in accordance with
the laws of the State of California, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof.
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 or in the Merger
Agreement, 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.
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 and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided herein. Any provision of this
Agreement may be waived at any time by the party that is entitled to the
benefits of such provision. This Agreement may not be modified, amended, altered
or supplemented except upon the execution and delivery of a written agreement
executed by the parties hereto.
23. In the event of any exercise of the Option by Buyer, Seller and Buyer
shall execute and deliver all other documents and instruments and take all other
action that may be reasonably necessary in order to consummate the transactions
provided for by such exercise.
24. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreement.
IN WITNESS WHEREOF, Seller and Buyer have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
SARATOGA BANCORP
By: /s/ Richard L. Mount
----------------------------------
Name: Richard L. Mount
Attest: /s/ V. Ronald Mancuso Title: President and Chief Executive
------------------------- Officer
Name: V. Ronald Mancuso
Title: Secretary
SJNB FINANCIAL CORP.
By: /s/ James R. Kenny
---------------------------------
Name: James R. Kenny
Attest: /s/ Jennifer Dowling Title: President and Chief Executive
------------------------- Officer
Name: Jennifer Dowling
Title: Assistant Corporate Secretary