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
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
A. 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.
B. 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:
1. Defined Terms. Capitalized terms which are used but not defined herein
shall have the meanings ascribed to such terms in the Merger Agreement.
2. 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 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.
3. Exercise of Option.
(a) 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 (1)
February 15, 2000 and (2) 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.
(b) As used herein, a "Purchase Event" means any of the following events:
(i) 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
(ii) 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
(iii) 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
(iv) 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
(v) 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
(vi) 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.
(c) 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.
(d) 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 (i) the total number of Option Shares it intends to
purchase pursuant to such exercise and (ii) a place and date not earlier than
three business days nor later than 60 business days from the Notice Date for the
closing (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.
(e) 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 (i)
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 (ii)
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.
4. Payment and Delivery of Certificates.
(a) On each Closing Date, Holder shall (i) 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 (ii) present and surrender this Agreement to the Issuer
at the address of the Issuer specified in Section 14(f).
(b) At each Closing, simultaneously with the delivery of immediately
available funds and surrender of this Agreement as provided in Section 4(a), (i)
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 (ii) 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.
(c) 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 (i) 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, (ii)
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
(iii) such legend shall be removed in its entirety if the conditions in the
preceding clauses (i) and (ii) are both satisfied.
(d) 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, 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.
(e) Issuer agrees (i) 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, (ii) 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, (iii) 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 (iv) 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.
5. Representations and Warranties of Issuer. Issuer hereby represents and
warrants to Grantee (and Holder, if different than Grantee) as follows:
(a) 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 (i) 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 (ii) 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.
(b) 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.
(c) 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 give any other person the
ability to prevent or enjoin Issuer's performance under this Agreement in any
material respect.
(d) 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.
6. Representations and Warranties of Grantee. Grantee hereby represents and
warrants to Issuer as follows:
(a) 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.
(b) 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.
7. Adjustment upon Changes in Issuer Capitalization, Etc.
(a) 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, 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.
(b) 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) (i) 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, (ii) 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 (iii) 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, 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").
(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 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.
(d) 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.
(e) The following terms have the meanings indicated:
(i) "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).
(ii) "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 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.
(iii) "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.
(iv) "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.
(f) 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 (i) the
value of the Substitute Option without giving effect to the limitation in the
first sentence of this Section 7(f) over (ii) 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.
(g) 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).
8. Repurchase at the Option of Holder.
(a) At the request of Holder at any time (i) commencing upon the first
occurrence of a Repurchase Event (as defined in Section 8(d)) and ending 18
months immediately thereafter and (ii) 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:
(i) 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;
(ii) 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
(iii) 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 Holder then has beneficial ownership, multiplied by
the number of such shares.
(b) 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, (i)
any required notification period has expired or been terminated or (ii) 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 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.
(c) For purposes of this Agreement, the "Applicable Price" means the
highest of (i) 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), (ii) 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 (iii) 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.
(d) As used herein, a "Repurchase Event" shall occur if (i) 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, (ii) any of the
transactions described in Section 7(b)(i), 7(b)(ii) or 7(b)(iii) has been
consummated or (iii) Issuer has entered into an 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.
9. Repurchase of Substitute Option.
(a) At the request of Holder at any time (i) commencing upon the first
occurrence of a Substitute Repurchase Event (as defined in Section 9(d)) and
ending 18 months immediately thereafter and (ii) 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:
(i) 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;
(ii) 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
(iii) 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.
(b) 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 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, (i)
any required notification period has expired or been terminated or (ii) 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 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.
(c) For purposes of this Agreement, the "Substitute Applicable Price"
means the highest of (i) 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),
(ii) 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
(iii) 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.
(d) As used herein, a "Substitute Repurchase Event" shall occur if (i) 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, (ii) any of
the transactions described in Section 7(b)(i), 7(b)(ii) or 7(b)(iii) has been
consummated or (iii) Substitute Option Issuer has entered into an 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. 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.
(e) 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.
10. 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:
(a) 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.
(b) 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 (i) the cash included in the purchase price plus (ii) 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 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.
(c) 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.
(d) 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.
11. Registration Rights.
(a) 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.
(b) 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 (i) 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 (ii) 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.
(c) 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:
(i) prior to the earliest of (a) termination of the Merger Agreement
pursuant to Article VII thereof, (b) failure to obtain the Company
Stockholder Approval, and (c) a Purchase Event;
(ii) on more than two occasions during any calendar year;
(iii) 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;
(iv) 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
(v) 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.
(d) 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 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.
(e) 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 investigation) shall be paid by the indemnified party unless
(i) the indemnifying party either agrees to pay the same, (ii) the indemnifying
party fails to assume the defense of such action with counsel satisfactory to
the indemnified party, or (iii) 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).
(f) 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 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.
(g) 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.
12. 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.
13. 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.
14. Limitation of Grantee Profit. (a) 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 (i) reduce the
number of shares subject to the Option (and any Substitute Option), (ii) 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), (iii) pay
cash to Issuer, or the Substitute Issuer, as the case may be, or (iv) 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.
(b) For purposes of this Agreement, "Total Profit" shall mean: (i) 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 (ii) 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.
(c) 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 (i) the date of receipt of such payment, (ii) 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, (iii) the date of receipt of net cash from the
disposition of the Option or Substitute Option, as the case may be, and (iv) 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).
(d) 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.
15. Miscellaneous.
(a) 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.
(b) 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.
(c) 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 (i)
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 (ii) 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.
(d) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware.
(e) 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.
(f) 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).
(g) 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.
(h) 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.
(i) 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.
(j) 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.
(k) 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 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.
(l) 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.
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