EXHIBIT 99.2
STOCK OPTION AGREEMENT
between
XL CAPITAL LTD
and
NAC RE CORP.
February 15, 1999
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THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO CERTAIN RESTRICTIONS CONTAINED
HEREIN AND TO RESALE RESTRICTIONS UNDER THE SECURITIES ACT OF 1933, AS
AMENDED
STOCK OPTION AGREEMENT
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STOCK OPTION AGREEMENT, dated as of February 15, 1999 (the
"Agreement"), by and between NAC Re Corp., a Delaware corporation ("Issuer"),
and XL Capital Ltd, a limited liability company organized and incorporated
under the laws of the Cayman Islands ("Grantee").
RECITALS
1. The Merger Agreement. Grantee, Issuer and Dasher
Acquisition Corp., a Delaware corporation ("Sub") are concurrently herewith
entering into an Agreement and Plan of Merger, dated as of the date hereof
(the "Merger Agreement"), among Issuer, Grantee and Sub, providing for, among
other things, the merger of Sub with and into Issuer, with Issuer being the
surviving corporation.
2. Condition to Merger Agreement. As a condition and
inducement to Grantee's and Sub's execution of the Merger Agreement, Grantee
and Sub have required that Issuer agree, and Issuer has agreed, to grant
Grantee the Option (as hereinafter defined).
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth
herein and in the Merger Agreement, and intending to be legally bound hereby,
Issuer and Grantee agree as follows:
a. Defined Terms. Capitalized terms which are used but not
defined herein shall have the meanings ascribed to such terms in the Merger
Agreement.
b. 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 1,860,215 shares (as adjusted as set forth
herein, the "Option Shares") of common stock, par value $0.10 per share, of
Issuer ("Issuer Common Stock"), at a purchase price per Option Share (as
adjusted as set forth herein, the "Purchase Price") equal to $45.3125;
provided that in no event shall the number of Option Shares for which this
Option is exercisable exceed 10.1% of the issued and outstanding shares of
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Issuer Common Stock. Each Option Share issued upon exercise of the Option
shall be accompanied by the applicable number of Company Rights as provided
in the Company Rights Agreement.
c. Exercise of Option.
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i. Holder may exercise the Option, in whole or in part, at
any time and from time to time following the occurrence of a Purchase Event
(as hereinafter defined); provided that the Option shall terminate and be of
no further force or effect upon the earliest to occur of (a) the Effective
Time, (b) termination of the Merger Agreement in accordance with the terms
thereof prior to the occurrence of a Purchase Event (as hereinafter defined)
or (c) the later of a) February 15, 2000 and b) 6 months after a termination
of the Merger Agreement following the occurrence of a Purchase Event; and
provided, further that any purchase of shares upon exercise of the Option
shall be subject to compliance with applicable law. Notwithstanding the
termination of the Option, Grantee or Holder, as the case may be, shall be
entitled to purchase those Option Shares with respect to which it has
exercised the Option in accordance with the terms of this Agreement prior to
the termination of the Option. The term "Holder" shall mean the holder or
holders of the Option from time to time, which initially is Grantee. The
termination of the Option shall not affect any rights hereunder which by
their terms extend beyond the date of such termination.
ii. As used herein, a "Purchase Event" means any of the
following events:
(1) without Grantee's prior written consent, Issuer
shall have authorized, recommended, publicly proposed or publicly
disclosed an intention to authorize, recommend or propose, or entered
into one or more agreements with any person (other than Grantee or
any subsidiary of Grantee) to effect, or effected, in a single
transaction or a series of related transactions, any Transaction
Proposal; or
(2) any person (other than Grantee or any subsidiary of
Grantee) shall have acquired beneficial ownership (as such term is
defined in Rule 13d-3 promulgated under the Exchange Act) of or the
right to acquire beneficial ownership of, or any "group" (as such
term is defined in Section 13(d)(3) of the Exchange Act), other than
a group of which Grantee or any subsidiary of Grantee is a member,
shall have been formed which beneficially owns or has the right to
acquire beneficial ownership of 10% or more of the voting power of
Issuer or any of its Subsidiaries; or
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(3) any person (other than Grantee or any subsidiary of
Grantee) shall have commenced (as such term is defined in Rule 14d-2
under the Exchange Act), or shall have filed a registration statement
under the Securities Act with respect to, a tender offer or exchange
offer to purchase any shares of Issuer Common Stock such that, upon
consummation of such offer, such person would own or control 10% or
more of the then outstanding shares of Issuer Common Stock (such an
offer being referred to herein as a "Tender Offer" or an "Exchange
Offer," respectively); or
(4) the Company Stockholder Approval shall not have
been received at a duly held meeting of stockholders or at any
adjournment thereof, or the Stockholders Meeting shall not have been
held or shall have been canceled prior to the termination of the
Merger Agreement, in each case after it shall have been publicly
disclosed that any person (other than Grantee or any subsidiary of
Grantee) shall have (a) made, or disclosed an intention to make, a
Transaction Proposal, or (b) filed an application or notice, whether
in draft or final form, with a Governmental Entity for approval or
consent to make or consummate a Transaction Proposal; or
(5) the Issuer or its Board of Directors shall have
(a) withdrawn, modified or amended in any respect adverse to Grantee
the recommendation of Issuer's Board of Directors with respect to the
Merger Agreement, (b) failed as promptly as practicable after the
Form S-4 is declared effective to mail the Proxy Statement/
Prospectus to its stockholders, unless such failure was caused by the
actions or inactions of Grantee or its representatives, or failed to
include in such Proxy Statement/Prospectus the Company Board
Recommendation or (c) resolved to take any of the foregoing actions;
or
(6) the Merger Agreement shall have been terminated in
accordance with its terms under any circumstances in which the
Termination Fee is or, upon the occurrence of the events specified
therein, would become payable as provided in Section 7.3(b) or
7.3(c) of the Merger Agreement.
As used in this Agreement, "person" shall have the meaning specified in
Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
iii. Issuer shall notify Grantee promptly in writing of the
occurrence of any Purchase Event, it being understood that the giving of such
notice by Issuer shall not be a condition to the right of Holder to exercise
the Option.
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iv. In the event Holder wishes to exercise the Option, it
shall send to Issuer a written notice (the date of which being herein
referred to as the "Notice Date") specifying (1) the total number of Option
Shares it intends to purchase pursuant to such exercise and (2) a place and
date not earlier than three business days nor later than 60 business days
from the Notice Date for the closing (the "Closing") of such purchase (the
"Closing Date"); provided that if the Closing cannot be consummated by reason
of any applicable Law or the need to obtain any necessary approvals or
consents of applicable Governmental Entities, 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
or application to, approval of or authorization by any Governmental Entity is
required in connection with such purchase, Issuer shall use all reasonable
efforts to cooperate with the Holder in the prompt filing of the required
notice or application for approval or authorization, and the Closing shall
occur immediately following the date on which such approvals have been
obtained or any required notification or waiting periods have expired. Any
exercise of the Option shall be deemed to occur on the Notice Date relating
thereto.
v. Notwithstanding Section 3(d), in no event shall any
Closing Date be more than 12 months after the related Notice Date, and if the
Closing Date shall not have occurred within 12 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 (1) Holder receives official notice that an approval
of any Governmental Entity required for the purchase of Option Shares will
not be issued or granted or (2) a Closing Date shall not have occurred within
12 months after the related Notice Date due to the failure to obtain any such
required approval, Grantee shall be entitled to exercise the Option (whether
or not the Option would have otherwise terminated) in connection with the
resale of Issuer Common Stock or other securities pursuant to a registration
statement as provided in Section 11. The provisions of this Section 3 and
Section 4 shall apply with appropriate adjustments to any such exercise.
d. Payment and Delivery of Certificates.
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i. On each Closing Date, Holder shall (1) pay to
Issuer, in immediately available funds by wire transfer to a bank account
designated by Issuer (provided that the failure or refusal of Issuer to
designate a bank account shall not preclude the Holder from exercising the
Option), an amount equal to the Purchase Price multiplied by the number of
Option Shares to be purchased on such Closing Date, and (2) present and
surrender this Agreement to the Issuer at the address of the Issuer specified
in Section 14(f).
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ii. At each Closing, simultaneously with the delivery
of immediately available funds and surrender of this Agreement as provided in
Section 4(a), (1) Issuer shall deliver to Holder (a) a certificate or
certificates representing the Option Shares to be purchased at such Closing,
which Option Shares shall be free and clear of all Liens and subject to no
preemptive rights, and (b) if the Option is exercised in part only, an
executed new agreement with the same terms as this Agreement evidencing the
right to purchase the balance of the shares of Issuer Common Stock
purchasable hereunder, and (2) Holder shall deliver to Issuer a letter
agreeing that Holder shall not offer to sell or otherwise dispose of such
Option Shares in violation of applicable federal and state law or of the
provisions of this Agreement.
iii. In addition to any other legend that is required by
applicable law, certificates for the Option Shares delivered at each Closing
shall be endorsed with a restrictive legend which shall read substantially as
follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT
TO RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF
FEBRUARY 15, 1999. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE
HOLDER HEREOF WITHOUT CHARGE UPON RECEIPT BY THE SECRETARY OF THE
ISSUER OF A WRITTEN REQUEST THEREFOR.
It is understood and agreed that (1) the portion of the above legend relating
to the Securities Act shall be removed by delivery of substitute
certificate(s) without such legend 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 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
and its counsel, to the effect that such legend is not required for purposes
of the Securities Act, (2) the reference to restrictions pursuant to this
Agreement in the above legend shall 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 and (3) such legend shall be
removed in its entirety if the conditions in the preceding clauses (i) and
(ii) are both satisfied.
iv. Upon the giving by Holder to Issuer of the written
notice of exercise of the Option provided for under Section 3(d), the tender
of the applicable Purchase Price in immediately available funds and the
tender of this Agreement to Issuer, Holder shall be deemed to be the holder
of record of the shares of Issuer Common Stock issuable upon such exercise,
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notwithstanding that the stock transfer books of Issuer shall then be closed
or that certificates representing such shares of Issuer Common Stock shall
not then be actually delivered to Holder. Issuer shall pay all expenses, and
any and all federal, foreign, 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 4(d) in the name of Holder or its
assignee, transferee, or designee.
v. Issuer agrees (1) that it shall at all times
maintain, free from Liens and preemptive or similar rights, sufficient
authorized but unissued or treasury shares of Issuer Common Stock ("Available
Authorized Shares") so that the Option may be exercised without additional
authorization of Issuer Common Stock after giving effect to all other
options, warrants, convertible securities and other rights to purchase Issuer
Common Stock then outstanding, (2) that it will not, by charter amendment or
through reorganization, recapitalization, consolidation, merger, dissolution,
liquidation, spin-off, sale of assets or similar transaction, or by any other
voluntary act, avoid or seek to avoid the observance or performance of any of
the covenants, agreements, stipulations or conditions to be observed or
performed hereunder by Issuer, (3) promptly to take all action as may from
time to time be required (including (a) complying with all premerger
notification, reporting and waiting period requirements and (b) in the event
prior approval or authorization of or notice or application to any
Governmental Entity is necessary before the Option may be exercised,
cooperating fully with Holder in preparing such applications or notices and
providing such information to such Governmental Entity as it may require) in
order to permit Holder to exercise the Option and Issuer duly and effectively
to issue shares of the Issuer Common Stock pursuant hereto, and (4) promptly
to take all action provided herein to protect the rights of Holder against
dilution. Notwithstanding the foregoing, it is understood that as of the
date of this Agreement, Issuer does not have Available Authorized Shares
sufficient to permit the exercise of the Option in full. Issuer covenants
and agrees to use its best efforts to cause its Board of Directors to
designate, in accordance with its certificate of incorporation and the DGCL,
a series of preferred stock of Issuer having terms such that each 1/100 of a
share of such preferred stock (a "Preferred Share") shall have voting,
dividend and liquidation rights equivalent to one share of Issuer Common
Stock. In the event of an exercise of the Option for a number of shares of
Issuer Common Stock in excess of the number of Available Authorized Shares
(such excess, the "Excess Shares"), Grantee shall be entitled to purchase a
number of such Preferred Shares equal to the number of Excess Shares at a
price per 1/100th of a Preferred Share equal to the Purchase Price. Any such
Preferred Shares so issued pursuant to the terms hereof shall be "Option
Shares" and shares of "Issuer Common Stock" for all purposes under this
Agreement and all references herein to "Option Shares" and "Issuer Common
Stock" shall include the Preferred Shares.
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e. Representations and Warranties of Issuer. Issuer hereby
represents and warrants to Grantee (and Holder, if different than Grantee) as
follows:
i. Corporate Authority. Issuer has the requisite
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, subject to receiving any necessary approvals or
authorizations from Governmental Entities, the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Issuer, 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 and (assuming due authorization, execution
and delivery by Grantee) constitutes a valid and binding obligation of
Issuer, enforceable against Issuer in accordance with its terms, except that
(1) such enforcement may be subject to applicable bankruptcy, insolvency,
fraudulent conveyance, moratorium or other similar laws, now or hereinafter
in effect, affecting creditors' rights generally, and (2) the remedy of
specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
ii. Shares Reserved for Issuance; Capital Stock.
Issuer has taken all necessary corporate action to authorize and reserve and
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 Issuer Common Stock (including Preferred Shares) equal to the maximum
number of shares of Issuer Common Stock and other shares and securities which
are at any time and from time to time purchasable upon exercise of the
Option, and all such shares and other securities (including Preferred
Shares), upon issuance pursuant to the Option, will be duly authorized,
validly issued, fully paid and nonassessable, and will be delivered free and
clear of all Liens (other than those created by this Agreement) and not
subject to any preemptive or other similar rights.
iii. No Violations. The execution, delivery and
performance of this Agreement does not and will not, and the consummation by
Issuer of any of the transactions contemplated hereby will not, constitute or
result in (a) a breach or violation of, or a default under, its certificate
of incorporation or by-laws, or the comparable governing instruments of any
of its subsidiaries, or (b) a breach or violation of, or a default under, any
Company Agreement (with or without the giving of notice, the lapse of time or
both) or under any Law or governmental or non-governmental permit or license
to which it or any of its subsidiaries is subject, that would in any case
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give any other person the ability to prevent or enjoin Issuer's performance
under this Agreement in any material respect.
iv. Board Action. The Board of Directors of Issuer has
approved this Agreement and the consummation of the transactions contemplated
hereby as required under Section 203 of the DGCL and any other applicable
state takeover laws so that any such state takeover laws do not and will not
apply to this Agreement or any of the transactions contemplated hereby
(including the purchase of shares of Issuer Common Stock pursuant to this
Agreement).
(e) Rights Amendment. The Company Rights Agreement has
been amended to provide that neither Grantee nor any Holder will become an
"Acquiring Person" and that no "Stock Acquisition Date" or "Distribution
Date" (as such terms are defined in the Company Rights Agreement) will occur
as a result of the approval, execution or delivery of this Agreement or the
Merger Agreement or the consummation of the transactions contemplated hereby
and thereby, including the acquisition of shares of Issuer Common Stock by
Grantee or Holder pursuant to this Agreement.
f. Representations and Warranties of Grantee. Grantee
hereby represents and warrants to Issuer as follows:
i. Corporate Authority. Grantee has full corporate
power and authority to enter into this Agreement and, subject to obtaining
the approvals referred to in this Agreement, to consummate the transactions
contemplated by this Agreement; the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Grantee; and this
Agreement has been duly executed and delivered by Grantee and (assuming due
authorization, execution and delivery by Issuer) constitutes a valid and
binding obligation of the Grantee, enforceable against the Grantee in
accordance with its terms.
ii. Purchase Not for Distribution. Any Option Shares
or other securities acquired by Grantee or Holder upon exercise of the Option
will not be taken 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.
g. Adjustment upon Changes in Issuer Capitalization, Etc.
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i. In the event of any change from time to time in
Issuer Common Stock and any other shares or securities subject to the Option
by reason of a stock dividend, subdivision, spinoff, stock split, split-up,
merger, consolidation, recapitalization, combination, exchange of shares,
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distribution on or in respect of the Issuer Common Stock that would be
prohibited under the terms of the Merger Agreement, or similar transaction,
the type and number of shares or securities subject to the Option, and the
Purchase Price therefor, shall be adjusted appropriately, and proper
provision shall be made in the agreements governing such transaction, so that
Holder shall receive, upon exercise of the Option, the economic benefits
provided hereunder, including the number and class of shares or other
securities or property that Holder 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. If any additional shares
of Issuer Common Stock are issued or otherwise become outstanding after the
date of this Agreement (other than pursuant to an event described in the
first sentence of this Section 7(a) or upon exercise of the Option) the
number of shares of Issuer Common Stock subject to the Option shall be
adjusted so that, after such issuance, it, together with any shares of Issuer
Common Stock previously issued pursuant hereto, equals 10.1% 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. In the
event that Issuer issues or agrees to issue any shares of Issuer Common Stock
(other than as permitted by the Merger Agreement) at a price per share less
than the Purchase Price (as theretofore adjusted pursuant to this Section 7)
the Purchase Price shall be reduced to equal such lesser price. No provision
of this Section 7 shall be deemed to affect or change, or constitute
authorization for any violation of, any of the covenants, agreements,
representations or warranties in the Merger Agreement.
ii. Without limiting the parties' relative rights,
remedies, liabilities and obligations under the Merger Agreement or this
Agreement, in the event that Issuer shall enter into an agreement (other than
the Merger Agreement) (1) to consolidate with or merge into any person, other
than Grantee or one of its Subsidiaries, and shall not be the continuing or
surviving corporation of such consolidation or merger, (2) to permit any
person, other than Grantee or one of its Subsidiaries, to merge into Issuer
and Issuer shall be the continuing or surviving corporation, but, in
connection with such merger, the then outstanding shares of Issuer Common
Stock shall be changed into or exchanged for another class or series of stock
or other securities of Issuer or any other person or cash or any other
property or the outstanding shares of Issuer Common Stock immediately prior
to such merger shall, after such merger, represent less than 75% of the
outstanding shares and share equivalents having general voting power of the
merged company, or (3) to sell or otherwise transfer all or substantially all
of its assets or the assets of its subsidiaries taken as a whole, in one
transaction or a series of related transactions, to any person, other than
Grantee or one of its Subsidiaries, then, and in each such case, the
agreement governing such transaction shall make proper provisions 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,
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an option (the "Substitute Option"), at the election of Holder, of either
(x) the Acquiring Corporation (as hereinafter defined), (y) any person that
controls the Acquiring Corporation, or (z) in the case of a merger described
in clause (ii), Issuer (such person being referred to as "Substitute Option
Issuer").
iii. 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 Holder, and provided, further
that the Substitute Option shall be exercisable immediately upon issuance
without the occurrence of a further Purchase Event. Substitute Option Issuer
shall also enter into an agreement with Holder in substantially the same form
as this Agreement, which shall be applicable to the Substitute Option.
iv. The Substitute Option shall be exercisable for such
number of shares of Substitute Common Stock (as hereinafter defined) as is
equal to the Assigned Value (as hereinafter defined) multiplied by the number
of shares of Issuer Common Stock for which the Option was theretofore
exercisable, divided by the Average Price (as hereinafter defined). The
exercise price of the Substitute Option per share of Substitute Common Stock
(the "Substitute Option Price") shall then be equal to the Purchase Price
multiplied by a fraction in which the numerator is the number of shares of
Issuer Common Stock for which the Option was theretofore exercisable and the
denominator is the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
v. The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (x) the
continuing or surviving corporation of a consolidation or merger with
Issuer (if other than Issuer), (y) Issuer in a merger in which Issuer
is the continuing or surviving person, or (z) the transferee of all
or substantially all of Issuer's assets (or the assets of its
subsidiaries taken as a whole).
(2) "Assigned Value" shall mean the highest of
(w) the price per share of Issuer Common Stock at which a Tender
Offer or an Exchange Offer therefor has been made, (x) the price per
share of Issuer Common Stock to be paid by any third party pursuant
to an agreement with Issuer, (y) the highest closing price for shares
of Issuer Common Stock within the six-month period immediately
preceding the date on which the merger, consolidation, asset sale or
other transaction in question is consummated, and (z) in the event of
a sale of all or substantially all of Issuer's assets (or of the
assets of its subsidiaries as a whole) an amount equal to (I) the sum
of the price paid in such sale for such assets and the current market
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value of the remaining assets of Issuer, as determined by a
nationally recognized investment banking firm selected by Holder,
divided by (II) the number of shares of Issuer Common Stock
outstanding at such time. In calculating the Assigned Value, in the
event that a Tender Offer or an Exchange Offer is made for Issuer
Common Stock or an agreement is entered into for a merger or
consolidation involving consideration other than cash, the value of
the securities or other property issuable or deliverable in exchange
for Issuer Common Stock shall be determined by a nationally
recognized investment banking firm selected by Holder.
(3) "Average Price" shall mean the average
closing price of a share of Substitute Common Stock on the NYSE (or
if such Substitute Common Stock is not listed on the NYSE, the
average closing price on the National Association of Securities
Dealers Automated Quotation System or, if the shares of Substitute
Common Stock are not quoted thereon, the highest bid price per share
as quoted on the principal trading market on which such shares are
traded as reported by a recognized source) for the one year
immediately preceding the date of consummation of 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 Issuer, by the
person merging into Issuer or by any company which controls such
person, as Holder may elect.
(4) "Substitute Common Stock" shall mean the
shares of capital stock (or similar equity interest) with the
greatest voting power in respect of the election of directors (or
persons similarly responsible for the direction of the business and
affairs) of the Substitute Option Issuer.
vi. In no event, pursuant to any of the foregoing
paragraphs, shall the Substitute Option be exercisable for more than 10.1% of
the aggregate of the shares of Substitute Common Stock outstanding prior to
exercise of the Substitute Option. In the event that the Substitute Option
would be exercisable for more than 10.1% of the aggregate of the shares of
Substitute Common Stock but for the limitation in the first sentence of this
Section 7(f), Substitute Option Issuer shall make a cash payment to Holder
equal to the excess of (1) the value of the Substitute Option without giving
effect to the limitation in the first sentence of this Section 7(f) over
(2) the value of the Substitute Option after giving effect to the limitation
in the first sentence of this Section 7(f). This difference in value shall
be determined by a nationally-recognized investment banking firm selected by
Holder.
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vii. Issuer shall not enter into any transaction
described in Section 7(b) unless the Acquiring Corporation and any person
that controls the Acquiring Corporation assume in writing all the obligations
of Issuer hereunder and take all other actions that may be necessary so that
the provisions of this Section 7 are given full force and effect (including,
without limitation, any action that may be necessary so that the holders of
the other shares of common stock issued by Substitute Option Issuer are not
entitled to exercise any rights by reason of the issuance or exercise of the
Substitute Option and the shares of Substitute Common Stock are otherwise in
no way distinguishable from or have lesser economic value (other than any
diminution in value resulting from the fact that the Substitute Common Stock
are restricted securities, as defined in Rule 144 under the Securities Act or
any successor provision) than other shares of common stock issued by
Substitute Option Issuer).
h. Repurchase at the Option of Holder.
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i. At the request of Holder at any time (1) commencing
upon the first occurrence of a Repurchase Event (as defined in Section 8(d))
and ending 18 months immediately thereafter and (2) for 30 business days
following the occurrence of either of the events set forth in clauses (i) and
(ii) of Section 3(e) (but solely as to shares of Issuer Common Stock with
respect to which the required approval was not received, Issuer (or any
successor) shall repurchase from Holder (x) the Option and (y) all shares of
Issuer Common Stock purchased by Holder pursuant hereto with respect to which
Holder then has beneficial ownership. The date on which Holder exercises its
rights under this Section 8 is referred to as the "Request Date". Such
repurchase shall be at an aggregate price (the "Section 8 Repurchase
Consideration") equal to the sum of:
(1) the aggregate Purchase Price paid by Holder
for any shares of Issuer Common Stock acquired pursuant to the Option
with respect to which Holder then has beneficial ownership;
(2) the excess, if any, of (x) the Applicable
Price (as defined below) for each share of Issuer Common Stock over
(y) the Purchase Price (subject to adjustment pursuant to Section 7),
multiplied by the number of shares of Issuer Common Stock with
respect to which the Option has not been exercised; and
(3) the excess, if any, of the Applicable Price
over the Purchase Price (subject to adjustment pursuant to Section 7)
paid (or, in the case of Option Shares with respect to which the
option has been exercised but the Closing Date has not occurred,
payable) by Holder for each share of Issuer Common Stock with respect
to which the Option has been exercised and with respect to which
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Holder then has beneficial ownership, multiplied by the number of
such shares.
ii. If Holder exercises its rights under this
Section 8, Issuer shall, within 5 business days after the Request Date, pay
the Section 8 Repurchase Consideration to Holder in immediately available
funds, and contemporaneously with such payment, Holder shall surrender to
Issuer the Option and the certificates evidencing the shares of Issuer Common
Stock purchased thereunder with respect to which Holder then has beneficial
ownership, and Holder shall warrant that it has sole record and beneficial
ownership of such shares and the Option and that the same are then free and
clear of all Liens. Notwithstanding the foregoing, to the extent that prior
notification to or approval of any Governmental Entity is required in
connection with the payment of all or any portion of the Section 8 Repurchase
Consideration, Holder shall have the ongoing option to revoke its request for
repurchase pursuant to Section 8, in whole or in part, or to require that
Issuer deliver from time to time that portion of the Section 8 Repurchase
Consideration that it is not then so prohibited from paying and promptly file
the required notice or application for approval and expeditiously process the
same (and each party shall cooperate with the other in the filing of any such
notice or application and the obtaining of any such approval) and the period
of time that would otherwise run pursuant to the preceding sentence for the
payment of the portion of the Section 8 Repurchase Consideration shall run
instead from the date on which, as the case may be, (1) any required
notification period has expired or been terminated or (2) such approval has
been obtained and, in either event, any requisite waiting period shall have
passed. If any Governmental Entity disapproves of any part of Issuer's
proposed repurchase pursuant to this Section 8, Issuer shall promptly give
notice of such fact to Holder. If any Governmental Entity prohibits the
repurchase (and Issuer hereby undertakes to use all reasonable efforts to
obtain all required approvals from Governmental Entities to accomplish such
repurchase) in part but not in whole, then Holder shall have the right (i) to
revoke the repurchase request or (ii) to the extent permitted by such
Governmental Entity, determine whether the repurchase should apply to the
Option and/or Option Shares and to what extent to each, and Holder shall
thereupon have the right to exercise the Option as to the number of Option
Shares for which the Option was exercisable at the Request Date less the sum
of the number of shares covered by the Option in respect of which payment has
been made pursuant to Section 8(a)(ii) and the number of shares covered by
the portion of the Option (if any) that has been repurchased; whereupon, in
the case of clause (ii), Issuer shall promptly (x) deliver to the Holder that
portion of the Section 8 Repurchase Consideration Price that Issuer is not
prohibited from delivering and (y) deliver to the Holder, as appropriate,
either (a) a new Agreement evidencing the right of the Holder to purchase
that number of shares of Issuer 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
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fraction, the numerator of which is the Section 8 Repurchase Consideration
less the portion thereof theretofore delivered to the Holder and the
denominator of which is the Section 8 Repurchase Consideration, or (b) a
certificate for the Option Shares it is then so prohibited from repurchasing;
provided, that if the Option shall have terminated prior to the date of such
notice or shall be scheduled to terminate at any time before the expiration
of a period ending on the thirtieth business day after such date, Holder
shall nonetheless have the right so to exercise the Option or exercise its
rights under Section 9 until the expiration of such period of 30 business
days. Holder shall notify Issuer of its determination under the preceding
sentence within 10 business days of receipt of notice of disapproval of the
repurchase.
iii. For purposes of this Agreement, the "Applicable
Price" means the highest of (1) the highest price per share of Issuer Common
Stock paid for any such share by the person or groups described in
Section 8(d)(i), (2) the price per share of Issuer Common Stock received by
holders of Issuer Common Stock in connection with any merger or other
business combination transaction described in Section 7(b)(i), 7(b)(ii) or
7(b)(iii), and (3) the highest closing sales price per share of Issuer Common
Stock quoted on the NYSE (or if Issuer Common Stock is not listed on the
NYSE, the highest closing price per share as quoted on the Nasdaq National
Market System or, if the shares of Issuer Common Stock are not quoted
thereon, the highest bid price per share as quoted on the principal trading
market in which such shares are traded as reported by a recognized source)
during the 40 business days preceding the Request Date; provided, however,
that in the event of a sale of less than all of Issuer's assets, the
Applicable Price shall be the sum of the price paid in such sale for such
assets and the current market value of the remaining assets of Issuer as
determined by a nationally recognized investment banking firm selected by
Holder, divided by the number of shares of the Issuer Common Stock
outstanding at the time of such sale. If the consideration to be offered,
paid or received pursuant to either of the foregoing clauses (i) or (ii)
shall be other than cash, the value of such consideration shall be determined
in good faith by an independent nationally recognized investment banking firm
selected by Holder, which determination shall be conclusive for all purposes
of this Agreement.
iv. As used herein, a "Repurchase Event" shall occur if
(1) any person (other than Grantee or any subsidiary of Grantee) shall have
acquired beneficial ownership of (as such term is defined in Rule 13d-3
promulgated under the Exchange Act), or the right to acquire beneficial
ownership of, or any "group" (as such term is defined under the Exchange Act)
shall have been formed which beneficially owns or has the right to acquire
beneficial ownership of, 35% or more of the then outstanding shares of Issuer
Common Stock, (2) any of the transactions described in Section 7(b)(i),
7(b)(ii) or 7(b)(iii) has been consummated or (3) Issuer has entered into an
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agreement pursuant to which any of the transactions described in
Section 7(b)(i), 7(b)(ii) or 7(b)(iii) could or will be consummated.
i. Repurchase of Substitute Option.
-------------------------------
i. At the request of Holder at any time (1) commencing
upon the first occurrence of a Substitute Repurchase Event (as defined in
Section 9(d)) and ending 18 months immediately thereafter and (2) for
30 business days following the occurrence of either of the events set forth
in clauses (i) and (ii) of Section 3(e) (but solely as to shares of
Substitute Common Stock with respect to which the required approval was not
received), Substitute Option Issuer (or any successor) shall repurchase from
Holder (x) the Option and (y) all shares of Substitute Common Stock purchased
by Holder pursuant hereto with respect to which Holder then has beneficial
ownership. The date on which Holder exercises its rights under this
Section 9 is referred to as the "Section 9 Request Date". Such repurchase
shall be at an aggregate price (the "Section 9 Repurchase Consideration")
equal to the sum of:
(1) the aggregate Purchase Price paid by Holder
for any shares of Substitute Common Stock acquired pursuant to the
Substitute Option with respect to which Holder then has beneficial
ownership;
(2) the excess, if any, of (x) the Substitute
Applicable Price (as defined below) for each share of Substitute
Common Stock over (y) the Purchase Price (subject to adjustment
pursuant to Section 7), multiplied by the number of shares of
Substitute Common Stock with respect to which the Substitute Option
has not been exercised; and
(3) the excess, if any, of the Substitute
Applicable Price over the Purchase Price (subject to adjustment
pursuant to Section 7) paid (or, in the case of Option Shares (for
purposes of this Agreement, Option Shares shall include shares of
Substitute Common Stock and related securities subject to the
Substitute Option) with respect to which the Substitute Option has
been exercised but the Closing Date has not occurred, payable) by
Holder for each share of Substitute Common Stock with respect to
which the Substitute Option has been exercised and with respect to
which Holder then has beneficial ownership, multiplied by the number
of such shares.
ii. If Holder exercises its rights under this
Section 9, Substitute Option Issuer shall, within 5 business days after the
Section 9 Request Date, pay the Section 9 Repurchase Consideration to Holder
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in immediately available funds, and contemporaneously with such payment,
Holder shall surrender to Substitute Option Issuer the Substitute Option and
the certificates evidencing the shares of Substitute Common Stock purchased
thereunder with respect to which Holder then has beneficial ownership, and
Holder shall warrant that it has sole record and beneficial ownership of such
shares and the Substitute Option and that the same are then free and clear of
all Liens. Notwithstanding the foregoing, to the extent that prior
notification to or approval of any Governmental Entity is required in
connection with the payment of all or any portion of the Section 9 Repurchase
Consideration, Holder shall have the ongoing option to revoke its request for
repurchase pursuant to Section 9, in whole or in part, or to require that
Substitute Option Issuer deliver from time to time that portion of the
Section 9 Repurchase Consideration that it is not then so prohibited from
paying and promptly file the required notice or application for approval and
expeditiously process the same (and each party shall cooperate with the other
in the filing of any such notice or application and the obtaining of any such
approval) and the period of time that would otherwise run pursuant to the
preceding sentence for the payment of the portion of the Section 9 Repurchase
Consideration shall run instead from the date on which, as the case may be,
(1) any required notification period has expired or been terminated or
(2) such approval has been obtained and, in either event, any requisite
waiting period shall have passed. If any Governmental Entity disapproves of
any part of Substitute Option Issuer's proposed repurchase pursuant to this
Section 9, Substitute Option Issuer shall promptly give notice of such fact
to Holder (such notice a "Notice of Disapproval"). If any Governmental
Entity prohibits the repurchase (and Substitute Option Issuer hereby
undertakes to use all reasonable efforts to obtain all required approvals
from Governmental Entities to accomplish such repurchase) in part but not in
whole, then Holder shall have the right (i) to revoke the repurchase request
or (ii) to the extent permitted by such Governmental Entity, determine
whether the repurchase should apply to the Substitute Option and/or Option
Shares and to what extent to each, and Holder shall thereupon have the right
to exercise the Substitute Option as to the number of Option Shares for which
the Substitute Option was exercisable at the Section 9 Request Date less the
sum of the number of shares covered by the Substitute Option in respect of
which payment has been made pursuant to Section 9(a)(ii) and the number of
shares covered by the portion of the Substitute Option (if any) that has been
repurchased; whereupon, in the case of clause (ii), Substitute Option Issuer
shall promptly (x) deliver to the Holder that portion of the Section 9
Repurchase Consideration Price that Substitute Option Issuer is not
prohibited from delivering and (y) deliver to the Holder, as appropriate,
either (a) a new Stock Option Agreement evidencing the right of the Holder to
purchase that number of shares of Substitute Common Stock obtained by
multiplying the number of shares of Substitute Common Stock for which the
surrendered Stock Option Agreement was exercisable at the time of delivery of
the notice of repurchase by a fraction, the numerator of which is the
Section 9 Repurchase Consideration less the portion thereof theretofore
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delivered to the Holder and the denominator of which is the Section 9
Repurchase Consideration or (b) a certificate for the Option Shares it is
then so prohibited from repurchasing; provided, further, that if the
Substitute Option shall have terminated prior to the date of such notice or
shall be scheduled to terminate at any time before the expiration of a period
ending on the thirtieth business day after such date, Grantee shall
nonetheless have the right so to exercise the Substitute Option or exercise
its rights under Section 9 until the expiration of such period of 30 business
days. Holder shall notify Substitute Option Issuer of its determination
under the preceding sentence within ten business days of receipt of Notice of
Disapproval of the repurchase.
iii. For purposes of this Agreement, the "Substitute
Applicable Price" means the highest of (1) the highest price per share of
Substitute Common Stock paid for any such share by the person or groups
described in Section 9(d)(i), (2) the price per share of Substitute Common
Stock received by holders of Substitute Common Stock in connection with any
merger or other business combination transaction described in
Section 7(b)(i), 7(b)(ii) or 7(b)(iii), or (3) the highest closing sales
price per share of Substitute Common Stock quoted on the NYSE (or if the
Substitute Common Stock is not listed on the NYSE, the highest closing price
per share as quoted the Nasdaq NMS or, if the shares of Substitute Common
Stock are not quoted thereon, the highest bid price on the principal trading
market in which such shares are traded by a recognized source) during the
40 business days preceding the Section 9 Request Date; provided, however,
that in the event of a sale of less than all of Substitute Option Issuer's
assets, the Substitute Applicable Price shall be the sum of the price paid in
such sale for such assets and the current market value of the remaining
assets of Substitute Option Issuer as determined by a nationally recognized
investment banking firm selected by Holder, divided by the number of shares
of the Substitute Common Stock outstanding at the time of such sale. If the
consideration to be offered, paid or received pursuant to either of the
foregoing clauses (i) or (ii) shall be other than in cash, the value of such
consideration shall be determined in good faith by an independent nationally
recognized investment banking firm selected by Holder, which determination
shall be conclusive for all purposes of this Agreement.
iv. As used herein, a "Substitute Repurchase Event"
shall occur if (1) any person (other than Grantee or any subsidiary of
Grantee) shall have acquired beneficial ownership of (as such term is defined
in Rule 13d-3 promulgated under the Exchange Act), or the right to acquire
beneficial ownership of, or any "group" (as such term is defined under the
Exchange Act) shall have been formed which beneficially owns or has the right
to acquire beneficial ownership of, 35% or more of the then outstanding
shares of Substitute Common Stock, (2) any of the transactions described in
Section 7(b)(i), 7(b)(ii) or 7(b)(iii) has been consummated or (3) Substitute
Option Issuer has entered into an agreement pursuant to which any of the
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transactions described in Section 7(b)(i), 7(b)(ii) or 7(b)(iii) could or
will be consummated. If the consideration paid or to be paid to holders of
Substitute Common Stock in the transactions referred to in either of the
foregoing clauses (i) or (ii) shall be other than cash, the value of such
consideration shall be determined in good faith by an independent nationally
recognized investment banking firm selected by Holder, which determination
shall be conclusive for all purposes of this Agreement.
v. All references to "Issuer", "Issuer Common Stock"
and "Section 8" contained herein shall also be deemed to be references to
"Substitute Option Issuer," "Substitute Common Stock" and "Section 9"
respectively.
j. Right of First Refusal. If, within one year after the
Closing Date (but not thereafter), Grantee proposes to sell all or any part
of the Option Shares in a transaction not required to be registered under the
Securities Act (other than in a transfer by operation of law upon
consummation of a merger or consolidation, in a tender or exchange offer or
in a sale under Rule 144 or a successor provision under the Securities Act),
it shall give Issuer the opportunity, in the following manner, to purchase
such Option Shares:
i. Grantee shall give notice to Issuer in writing of
its intent to sell Option Shares (a "Disposition Notice"), specifying the
number of Option Shares to be sold, the price and the material terms of any
agreement relating thereto. The Disposition Notice may be given at any time.
ii. Issuer shall have the right, exercisable by written
notice given to Grantee within 5 business days after receipt of a Disposition
Notice, to purchase all, but not less than all, of the Option Shares
specified in the Disposition Notice at the price set forth in the Disposition
Notice. If the purchase price specified in the Disposition Notice includes
any property other than cash, the purchase price to be paid by Issuer shall
be an amount of cash equal to the sum of (1) the cash included in the
purchase price plus (2) the fair market value of such other property at the
date of the Disposition Notice. If such other property consists of
securities with an existing public trading market, the average of the last
sale prices for such securities on the five trading days ending five days
prior to the date of the Disposition Notice shall be used as the fair market
value of such property. If such other property consists of something other
than cash or securities with an existing public trading market and at the
time of the closing referred to in paragraph (c) below, agreement on the
value of such other property has not been reached, the average of the closing
prices for the Issuer's common stock on the five trading days ending
five days prior to the date of the Disposition Notice shall be used as the
per share purchase price; provided, however, that promptly after the closing,
Grantee and Issuer or its designee, as the case may be, shall settle any
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additional amounts to be paid or returned as a result of the determination of
fair market value of such other property made by a nationally recognized
investment banking firm selected by Issuer and approved by Grantee within
30 days of the closing. Such determination shall be final and binding on all
parties hereto.
iii. If Issuer exercises its right of first refusal
hereunder, the closing of the purchase of the Option Shares with respect to
which such right has been exercised shall take place within five business
days after the notice of such exercise; provided, however, that at any time
prior to the closing of the purchase of Option Shares hereunder, Grantee may
determine not to sell the Option Shares and revoke the Disposition Notice
and, by so doing, cancel Issuer's right of first refusal with respect
thereto. Issuer shall pay for the Option Shares in immediately available
funds.
iv. If Issuer does not exercise its right of first
refusal hereunder within the time specified for such exercise, Grantee shall
be free for 90 days following the expiration of such time for exercise to
sell or enter into an agreement to sell the Option Shares specified in the
Disposition Notice, at the price specified in the Disposition Notice or any
price in excess thereof and otherwise on substantially the same terms set
forth in the Disposition Notice; provided, that if such sale is not
consummated within such 90-day period (unless the approval or consent of a
Governmental Entity is required to consummate such sale, in which case the
90-day period shall not be deemed to have expired until after such approval
or consent shall have been granted), then the provisions of this Section 10
will again apply to the sale of such Option Shares.
k. Registration Rights.
-------------------
i. Demand Registration Rights. Issuer shall, subject
to the conditions of Section 11(c) below, if requested by any Holder,
including Grantee and any permitted transferee ("Selling Stockholder"), as
expeditiously as possible prepare, file and keep current a registration
statement under the Securities Act if such registration is necessary in order
to permit the sale or other disposition of any or all shares of Issuer Common
Stock or other securities that have been acquired by or are issuable to the
Selling Stockholder upon exercise of the Option in accordance with the
intended method of sale or other disposition stated by the Selling
Stockholder in such request, including, without limitation, a "shelf"
registration statement under Rule 415 under the Securities Act or any
successor provision, and Issuer shall use its best efforts to qualify such
shares or other securities for sale under any applicable state securities
laws.
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ii. Piggyback Registration Rights. If Issuer at any
time after the exercise of the Option proposes to register any shares of
Issuer Common Stock under the Securities Act in connection with an
underwritten public offering of such Issuer Common Stock, Issuer will
promptly give written notice to the Selling Stockholders of its intention to
do so and, upon the written request of any Selling Stockholder given within
30 days after receipt of any such notice (which request shall specify the
number of shares of Issuer Common Stock intended to be included in such
underwritten public offering by the Selling Stockholder), Issuer will cause
all such shares for which a Selling Stockholder requests participation in
such registration, to be so registered and included in such underwritten
public offering; provided, however, that Issuer may elect to not cause such
shares to be so registered (1) if in the reasonable good faith opinion of the
underwriters for such offering, the inclusion of all such shares by the
Selling Stockholder would materially interfere with the marketing of such
offering (in which case Issuer shall register as many shares as possible
without materially interfering with the marketing of the offering), or (2) in
the case of a registration solely to implement an employee benefit plan or a
registration filed on Form S-4 of the Securities Act or any successor Form.
If some but not all the shares of Issuer Common Stock with respect to which
Issuer shall have received requests for registration pursuant to this
Section 11(b) shall be excluded from such registration, Issuer shall make
appropriate allocation of shares to be registered among the Selling
Stockholders desiring to register their shares pro rata in the proportion
that the number of shares requested to be registered by each such Selling
Stockholder bears to the total number of shares requested to be registered by
all such Selling Stockholders then desiring to have Issuer Common Stock
registered for sale.
iii. Conditions to Required Registration. Issuer shall
use all reasonable efforts to cause each registration statement referred to
in Section 11(a) above to become effective and to obtain all consents or
waivers of other parties which are required therefor and to keep such
registration statement effective; provided, however, that Issuer may delay
any registration of Option Shares required pursuant to Section 11(a) above
for a period not exceeding 90 days provided Issuer shall in good faith
determine that any such registration would adversely affect an offering or
contemplated offering of other securities by Issuer, and Issuer shall not be
required to register Option Shares under the Securities Act pursuant to
Section 11(a) above:
(1) prior to the earliest of 1) termination of
the Merger Agreement pursuant to Article VII thereof, 2) failure to
obtain the Company Stockholder Approval, and 3) a Purchase Event;
(2) on more than two occasions during any
calendar year;
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(3) within 90 days after the effective date of
a registration referred to in Section 11(b) above pursuant to which
the Selling Stockholder or Selling Stockholders concerned were
afforded the opportunity to register such shares under the Securities
Act and such shares were registered as requested;
(4) unless a request therefor is made to Issuer
by Selling Stockholders that hold at least 25% or more of the
aggregate number of Option Shares (including shares of Issuer Common
Stock and other securities issuable upon exercise of the Option) then
outstanding; and
(5) after such date as all the Option Shares
may be resold in one transaction pursuant to Rule 144 of the
Securities Act (or any successor or similar rule or act).
In addition to the foregoing, Issuer shall not be required
to maintain the effectiveness of any registration statement after the
expiration of one year from the effective date of such registration
statement. Issuer shall use all reasonable efforts to make any filings, and
take all steps, under all applicable state securities laws to the extent
necessary to permit the sale or other disposition of the Option Shares so
registered in accordance with the intended method of distribution for such
shares; provided, however, that Issuer shall not be required to consent to
general jurisdiction or qualify to do business in any state where it is not
otherwise required to so consent to such jurisdiction or to so qualify to do
business. 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 secondary offering underwriting
agreements. Upon receiving any request under this Section 11 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 11, in each
case by promptly mailing the same, postage prepaid, to the address of record
of the persons entitled to receive such copies.
iv. Expenses. Except where applicable state law
prohibits such payments, Issuer will pay all expenses (including, without
limitation, registration fees, qualification fees, blue sky fees and expenses
(including the fees and expenses of counsel), legal fees and expenses,
including the reasonable fees and expenses of one counsel to the holders
whose Option Shares are being registered, printing expenses and the costs of
special audits or "cold comfort" letters, expenses of underwriters, excluding
discounts and commissions but including liability insurance if Issuer so
desires or the underwriters so require, and the reasonable fees and expenses
of any necessary special experts) in connection with each registration
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pursuant to Section 11(a) or 11(b) above (including the related offerings and
sales by holders of Option Shares) and all other qualifications,
notifications or exemptions pursuant to Section 11(a) or 11(b) above.
v. Indemnification. In connection with any
registration under Section 11(a) or 11(b) above Issuer hereby indemnifies the
Selling Stockholders, and each underwriter thereof, including each person, if
any, who controls such holder or underwriter within the meaning of Section 15
of the Securities Act, against all expenses, losses, claims, damages and
liabilities caused by any untrue, or alleged untrue, statement of a material
fact contained in any registration statement or prospectus or notification or
offering circular (including any amendments or supplements thereto) or any
preliminary prospectus, or caused by any omission, or alleged omission, to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except insofar as such expenses,
losses, claims, damages or liabilities of such indemnified party are caused
by any untrue statement or alleged untrue statement that was included by
Issuer in any such registration statement or prospectus or notification or
offering circular (including any amendments or supplements thereto) in
reliance upon and in conformity with, information furnished in writing to
Issuer by such indemnified party expressly for use therein, and Issuer and
each officer, director and controlling person of Issuer shall be indemnified
by each such Selling Stockholder, or by such underwriter, as the case may be,
for all such expenses, losses, claims, damages and liabilities caused by any
untrue, or alleged untrue, statement, that was included by Issuer in any such
registration statement or prospectus or notification or offering circular
(including any amendments or supplements thereto) in reliance upon, and in
conformity with, information furnished in writing to Issuer by such Selling
Stockholder or such underwriter, as the case may be, expressly for such use.
Promptly upon receipt by a party indemnified under this
Section 11(e) of notice of the commencement of any action against such
indemnified party in respect of which indemnity or reimbursement may be
sought against any indemnifying party under this Section 11(e), such
indemnified party shall notify the indemnifying party in writing of the
commencement of such action, but the failure so to notify the indemnifying
party shall not relieve it of any liability which it may otherwise have to
any indemnified party under this Section 11(e) unless the failure so to
notify the indemnified party results in substantial prejudice thereto. In
case notice of commencement of any such action shall be given to the
indemnifying party as above provided, the indemnifying party shall be
entitled to participate in and, to the extent it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense of such
action at its own expense, with counsel chosen by it and satisfactory to such
indemnified party. The indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof,
but the fees and expenses of such counsel (other than reasonable costs of
-22-
investigation) shall be paid by the indemnified party unless (1) the
indemnifying party either agrees to pay the same, (2) the indemnifying party
fails to assume the defense of such action with counsel satisfactory to the
indemnified party, or (3) the indemnified party has been advised by counsel
that one or more legal defenses may be available to the indemnifying party
that may be contrary to the interest of the indemnified party, in which case
the indemnifying party shall be entitled to assume the defense of such action
notwithstanding its obligation to bear fees and expenses of such counsel. No
indemnifying party shall be liable for any settlement entered into without
its consent, which consent may not be unreasonably withheld.
If the indemnification provided for in this Section 11(e) is
unavailable to a party otherwise entitled to be indemnified in respect of any
expenses, losses, claims, damages or liabilities referred to herein, then the
indemnifying party, in lieu of indemnifying such party otherwise entitled to
be indemnified, shall contribute to the amount paid or payable by such party
to be indemnified as a result of such expenses, losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative
benefits received by Issuer, the Selling Stockholders and the underwriters
from the offering of the securities and also the relative fault of Issuer,
the Selling Stockholders and the underwriters in connection with the
statements or omissions which resulted in such expenses, losses, claims,
damages or liabilities, as well as any other relevant equitable
considerations. The amount paid or payable by a party as a result of the
expenses, losses, claims, damages and liabilities referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred by
such party in connection with investigating or defending any action or claim;
provided, however, that in no case shall any Selling Stockholder be
responsible, in the aggregate, for any amount in excess of the net offering
proceeds attributable to its Option Shares included in the offering. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. Any
obligation by any holder to indemnify shall be several and not joint with
other holders.
In connection with any registration pursuant to
Section 11(a) or 11(b) above, Issuer and each Selling Stockholder (other than
Grantee) shall enter into an agreement containing the indemnification
provisions of this Section 11(e).
vi. Miscellaneous Reporting. Issuer shall comply with
all reporting requirements and will do all such other things as may be
necessary to permit the expeditious sale at any time of any Option Shares by
the Selling Stockholders thereof in accordance with and to the extent
permitted by any rule or regulation promulgated by the SEC from time to time,
including, without limitation, Rule 144. Issuer shall at its expense provide
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the Selling Stockholders with any information necessary in connection with
the completion and filing of any reports or forms required to be filed by
them under the Securities Act or the Exchange Act, or required pursuant to
any state securities laws or the rules of the NASD or any stock exchange.
vii. Issue Taxes. Issuer will pay all stamp taxes in
connection with the issuance and the sale of the Option Shares and in
connection with the exercise of the Option, and will save the Selling
Stockholders harmless, without limitation as to time, against any and all
liabilities with respect to all such taxes.
l. Quotation: Listing. If Issuer Common Stock or any other
securities to be acquired in connection with the exercise of the Option are
then authorized for quotation or trading or listing on the NYSE, the Nasdaq
NMS or any other securities exchange or securities quotation system, Issuer,
upon the request of Holder, will promptly file an application, if required,
to authorize for quotation or trading or listing the shares of Issuer Common
Stock or any other securities (including Preferred Shares) to be acquired
upon exercise of the Option on the NYSE, the Nasdaq NMS or such other
securities exchange or securities quotation system and will use all
reasonable efforts to obtain approval, if required, of such quotation or
listing as soon as practicable.
m. Division of Option. This Agreement (and the Option
granted hereby) are exchangeable, without expense, at the option of 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 in the aggregate the same number of
shares of Issuer Common Stock purchasable hereunder. The terms "Agreement"
and "Option" as used herein include any other Stock Option Agreement 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.
n. Limitation of Grantee Profit. i. Notwithstanding any
other provision herein, in no event shall Grantee's Total Profit (as defined
below) exceed $38,000,000, exclusive of any reimbursement of expenses
pursuant to Section 7.3 of the Merger Agreement (the "Maximum Profit"), and,
if it otherwise would exceed such amount, Grantee, at its sole discretion,
shall either (1) reduce the number of shares subject to the Option (and any
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Substitute Option), (2) deliver to Issuer, or the Substitute Issuer, as the
case may be, for cancellation shares of Issuer Common Stock or Substitute
Common Stock, as the case may be (or other securities into which such Option
Shares are converted or exchanged), (3) pay cash to Issuer, or the Substitute
Issuer, as the case may be, or (4) any combination of the foregoing, so that
Grantee's actually realized Total Profit shall not exceed the Maximum Profit
after taking into account the foregoing actions.
ii. For purposes of this Agreement, "Total Profit" shall
mean: (1) the aggregate amount of (a) the excess of (x) the net cash amounts
received by Grantee pursuant to a sale of Option Shares (or securities into
which such shares are converted or exchanged) to any unaffiliated third party
within 12 months after the exercise of the Option, over (y) the Grantee's
aggregate purchase price for such Option Shares (or other securities), plus
(b) all amounts received by Grantee on the transfer of the Option (including
pursuant to Section 8), plus (c) all equivalent amounts with respect to the
Substitute Option (including pursuant to Section 9), plus (d) all amounts
received by Grantee pursuant to Section 7.3 of the Merger Agreement (other
than reimbursement in respect of Expenses), minus (2) all amounts of cash
previously paid to Issuer pursuant to this Section 14 plus the value of the
Option Shares (or other securities) previously delivered to Issuer for
cancellation pursuant to this Section 14.
iii. Notwithstanding any other provision of this Agreement,
nothing in this Agreement shall affect the ability of Grantee to receive, nor
relieve Issuer's obligation to pay, any payment provided for in Section 7.3
of the Merger Agreement; provided that if and to the extent the Total Profit
received by Grantee would exceed the Maximum Profit following receipt of such
payment, Grantee shall be obligated to comply with the terms of Section 14(a)
within 30 days of the latest of (1) the date of receipt of such payment,
(2) the date of receipt of the net cash by Grantee pursuant to the sale of
Option Shares (or securities into which such Option Shares are converted or
exchanged) to any unaffiliated party within 12 months after the exercise of
this Option with respect to such Option Shares, (3) the date of receipt of
net cash from the disposition of the Option or Substitute Option, as the case
may be, and (4) the date of receipt of equivalent amounts pursuant to the
sale of the Substitute Option or shares of Substitute Common Stock (or other
securities into which such Substitute Common Stock is converted or
exchanged).
iv. For purposes of paragraph (a) of this Section and
clause (b)(ii) of this Section, the value of any Option Shares delivered to
Issuer shall be the Assigned Value of such Option Shares and the value of any
Substitute Common Stock delivered to Substitute Issuer shall be the
Substitute Applicable Price of such Substitute Common Stock.
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o. Miscellaneous.
-------------
i. Expenses. Except as otherwise 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, without limitation, fees and
expenses of its own financial consultants, investment bankers, accountants
and counsel.
ii. Waiver and Amendment. 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. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of such rights. No single or partial exercise of any
right, remedy, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, remedy, power or
privilege. Any waiver shall be effective only in the specific instance and
for the specific purpose for which given and shall not constitute a waiver to
any subsequent or other exercise of any right, remedy, power or privilege
hereunder.
iii. Entire Agreement: No Third-Party Beneficiaries;
Severability. This Agreement, together with the Merger Agreement and the
other documents and instruments referred to herein and therein, between
Grantee and Issuer (1) constitutes the entire agreement and supersedes all
prior agreements and understandings, both written and oral, between the
parties with respect to the subject matter hereof and (2) is not intended to
confer upon any person other than the parties hereto or their respective
successors and assigns (other than any transferees of the Option Shares or
any permitted transferee of this Agreement pursuant to Section 15(h)) any
rights, remedies, obligations or liabilities hereunder. If any term,
provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction or Governmental Entity to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of 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 Governmental Entity determines that the Option does not permit
Holder to acquire, or does not require Issuer to repurchase, the full number
of shares of Issuer Common Stock as provided in Section 2 (as may be adjusted
herein), it is the express intention of Issuer to allow Holder to acquire or
to require Issuer to repurchase such lesser number of shares as may be
permissible without any amendment or modification hereof.
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iv. Governing Law. This Agreement shall be governed
and construed in accordance with the laws of the State of Delaware.
v. Descriptive Headings. The descriptive headings
contained herein are for convenience of reference only and shall not affect
in any way the meaning or interpretation of this Agreement.
vi. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered
personally, telecopied (with confirmation) or mailed by registered or
certified mail (return receipt requested) to the parties at the addresses set
forth in the Merger Agreement (or at such other address for a party as shall
be specified by like notice).
vii. Counterparts. This Agreement and any amendments
hereto may be executed in two counterparts, each of which shall be considered
one and the same agreement and shall become effective when both counterparts
have been signed, it being understood that both parties need not sign the
same counterpart.
viii. Assignment. Neither this Agreement nor any of
the rights, interests or obligations hereunder or under the Option shall be
assigned by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other party, except that
Holder may assign this Agreement to a wholly-owned subsidiary of Holder and
Holder may assign its rights hereunder in whole or in part after the
occurrence of a Purchase Event. Subject to the preceding sentence, this
Agreement shall be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns.
ix. Further Assurances. In the event of any exercise
of the Option by the Holder, Issuer and the Holder 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.
x. Specific Performance. The parties hereto agree
that this Agreement may be enforced by either party through specific
performance, injunctive relief and other equitable relief. Both parties
further agree to waive any requirement for the securing or posting of any
bond in connection with the obtaining of any such equitable relief and that
this provision is without prejudice to any other rights that the parties
hereto may have for any failure to perform this Agreement.
xi. Rights Plan. Until the Option has been exercised
or terminated in full and Grantee or Holder no longer holds any Option
Shares, Issuer shall not amend, modify or waive any provision of the Company
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Rights Agreement or take any other action which would cause Grantee or Holder
to be an "Acquiring Person", or which would cause a "Stock Acquisition Date"
or "Distribution Date", or any event specified in Section 11 or 13 of the
Company Rights Agreement or any similar event with respect to the Company
Rights to occur, by reason of the existence or exercise (in whole or in part)
of the Option, the beneficial ownership by Grantee or Holder or any of their
respective "Affiliates" or "Associates" of any of the Option Shares, or the
consummation of the other transactions contemplated hereby (all terms in
quotes are used as defined in the Company Rights Agreement). This covenant
shall also apply to any Substitute Option or shares of Substitute Common
Stock issued in respect thereof, and to any securities into which any Option
Shares or Substitute Common Stock are converted or exchanged.
xii. Consent to Jurisdiction and Service of Process.
Any suit, action or proceeding seeking to enforce any provision of, or based
on any matter arising out of or in connection with, this Agreement or the
transactions contemplated by this Agreement may be brought against any of the
parties in any federal court located in the State of Delaware or any Delaware
state court, and each of the parties hereto consents to the non-exclusive
jurisdiction of such courts (and of the appropriate appellate courts
therefrom) in any such suit, action or proceeding and waives any objection to
venue laid therein. Process in any such suit, action or proceeding may be
served on any party anywhere in the world and, without limiting the
generality of the foregoing, each party hereto agrees that service of process
upon such party at the address referred to in Section 8.4 of the Merger
Agreement, together with written notice of such service to such party shall
be deemed effective service of process upon such party.
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IN WITNESS WHEREOF, Issuer and Grantee have caused this
Stock Option Agreement to be signed by their respective officers thereunto
duly authorized, all as of the day and year first written above.
NAC RE CORP.
By: /s/ Nicholas M. Brown, Jr.
---------------------------------------
Name: Nicholas M. Brown, Jr.
Title: President and Chief Executive
Officer
XL CAPITAL LTD
By: /s/ Brian M. O'Hara
---------------------------------------
Name: Brian M. O'Hara
Title: President and Chief Executive
Officer
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