1
EXHIBIT 99.1
EXHIBIT B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated February 24, 1997, between Bancorp
Hawaii, Inc., a Hawaii corporation ("Buyer"), and CU Bancorp, a California
corporation ("Seller").
WITNESSETH:
WHEREAS, Buyer and Seller have entered into an Agreement and Plan of
Reorganization of even date herewith (the "Merger Agreement"), which agreement
has been executed by the parties hereto immediately prior to this Agreement;
and
WHEREAS, as a condition to Buyer's entering into the Merger Agreement
and in consideration therefor, Seller has agreed to grant Buyer the Option (as
hereinafter defined).
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein and in the Merger Agreement, the
parties hereto agree as follows:
2
2. (a) Seller hereby grants to Buyer an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms hereof, up
to 19.9% (or 2,260,421 fully paid and nonassessable shares) of Seller's Common
Stock, no par value ("Common Stock"), at a price of $13.00 per share, provided,
however, that in the event Seller issues or agrees to issue any shares of
Common Stock (other than as permitted under the Merger Agreement) at a price
less than $13.00 per share (as adjusted pursuant to subsection (b) of Section
5), such price shall be equal to such lesser price (such price, as adjusted if
applicable, the "Option Price"); provided further that in no event shall the
number of shares for which this Option is exercisable exceed 19.9% of the
Seller's issued and outstanding shares of Common Stock. The number of shares
of Common Stock that may be received upon the exercise of the Option and the
Option Price are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common
Stock are issued or otherwise become outstanding after the date hereof (or any
treasury shares held by Seller have been or are sold after the date hereof)
(other than pursuant to this Agreement), the number of shares of Common Stock
subject to the Option shall be increased so that, after such issuance, it
equals 19.9% of the number of shares of Common Stock then issued and
outstanding without giving effect to any shares subject to or issued pursuant
to the Option. Nothing contained in this Section 1(b) or elsewhere in this
Agreement shall be deemed to authorize Seller or Buyer to breach any provision
of the Merger Agreement.
3. (a) The Holder (as hereinafter defined) may exercise the
Option, in whole or part, and from time to time from and after the occurrence
of a Triggering Event (as hereinafter defined) and prior to the occurrence of
an Exercise Termination Event (as hereinafter defined). Each of the following
shall be an Exercise Termination Event: (i) the effective time of the Merger as
set forth in the Merger Agreement; (ii) termination of the Merger Agreement by
Seller pursuant to Section 13.l(g) or Section 13.1(i) of the Merger
Agreement; (iii) termination of the Merger Agreement in accordance with the
provisions thereof if such termination occurs prior to the occurrence of an
Triggering Event other than a termination pursuant to Section 13.1(c)(iii) or
Section 13.1(h); or (iv) the passage of 12 months after termination of the
Merger Agreement if such termination follows the occurrence of a Triggering
Event or is pursuant to Section 13.1(c)(iii) or Section 13.1(h) of the
Merger Agreement. The term "Holder" shall mean the holder or holders of the
Option.
(b) The term "Triggering Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) Seller or any of its subsidiaries (each a
"Seller Subsidiary"), without having received Buyer's prior written
consent, shall have entered into an agreement to engage in an
Acquisition Transaction (as hereinafter defined) with any person (the
term "person" for purposes of this Agreement
3
having the meaning assigned thereto in Sections 3(a)(9) and 13(d)(3)
of the Exchange Act, and the rules and regulations thereunder) other
than Buyer or any of its subsidiaries (each a "Buyer Subsidiary") or
the Board of Directors of Seller shall have recommended that the
stockholders of Seller approve or accept any Acquisition Transaction
or shall have failed to publicly oppose an Acquisition Transaction
with 10 business days of its receipt or the date its existence
becomes publicly disclosed, whichever is earlier. For purposes of
this Agreement, "Acquisition Transaction" shall mean (w) a merger or
consolidation, or any similar transaction, involving Seller or Seller
Subsidiary, (x) a purchase, lease or other acquisition representing
10% or more of the consolidated assets of Seller and its Subsidiaries,
(y) a purchase or other acquisition (including by way of merger,
consolidation, share exchange or otherwise) of securities representing
10% or more of the voting power of Seller or any Seller Subsidiary,
or (z) any substantially similar transaction;
(ii) Seller or any Seller Subsidiary, without
having received Buyer's prior written consent, shall have authorized,
recommended, proposed or publicly announced its intention to
authorize, recommend or propose, an agreement to engage in an
Acquisition Transaction with any person other than Buyer or a Buyer
Subsidiary, or the Board of Directors of Seller shall have withdrawn
or modified, or announced its intent to withdraw or modify, in any
manner adverse to Buyer, its recommendation that the stockholders of
Seller approve the transactions contemplated by the Merger Agreement;
(iii) Any person or group other than Buyer or any
Buyer Subsidiary shall have acquired beneficial ownership or the right
to acquire beneficial ownership of 10% or more of the outstanding
shares of Common Stock (the term "beneficial ownership" and "group"
for purposes of this Agreement have the meanings assigned thereto in
Section 13(d) of the Exchange Act, and the rules and regulations
thereunder);
(iv) Any person other than Buyer or any Buyer
Subsidiary shall have made a bona fide proposal to Seller or its
stockholders by public announcement or written communication that is
or becomes the subject of public disclosure to engage in an
Acquisition Transaction;
(v) After a proposal is made by a third party to
Seller or its stockholders to engage in an Acquisition Transaction,
Seller shall have breached any covenant or obligation contained in the
Merger Agreement and such breach (x) would entitle Buyer to terminate
the Merger Agreement and (y) shall not have been cured prior to the
Notice Date (as defined below); or
(vi) Any person other than Buyer or any Buyer
Subsidiary, other than in connection with a transaction to which Buyer
has given
4
its prior written consent, shall have filed an application or notice
with the Federal Reserve Board, or other federal or state bank
regulatory authority, which application or notice has been accepted
for processing, for approval to engage in an Acquisition Transaction.
(c) Seller shall notify Buyer promptly in writing
of the occurrence of any Triggering Event, it being understood that the giving
of such notice by Seller shall not be a condition to the right of the Holder to
exercise the Option.
(d) In the event the Holder is entitled to and
wishes to exercise the Option, it shall send to Seller a written notice (the
date of which being herein referred to as the "Notice Date") specifying (i) the
total number of shares it will purchase pursuant to such exercise and (ii) a
place and date not earlier than three business days nor later than 30 business
days from the Notice Date for the closing of such purchase (the "Closing
Date"); provided, that if the closing of the purchase and sale pursuant to the
Option (the "Closing") cannot be consummated by reason of any applicable
judgment, decree, order, law or regulation, the period of time that otherwise
would run pursuant to this sentence shall run instead from the date on which
such restriction on consummation has expired or been terminated; and provided
further, without limiting the foregoing, that if prior notification to or
approval of the Federal Reserve Board or any other regulatory agency is
required in connection with such purchase, the Holder shall promptly file the
required notice or application for approval and shall expeditiously process the
same and the period of time that otherwise would run pursuant to this sentence
shall run instead from the date on which any required notification periods have
expired or been terminated or such approvals have been obtained and any
requisite waiting period or periods shall have passed. Any exercise of the
Option shall be deemed to occur on the Notice Date relating thereto.
Notwithstanding this subsection (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) Buyer
receives official notice that an approval of the Federal Reserve Board or any
other regulatory authority required for the purchase of Option Shares (as
hereinafter defined) would not be issued or granted, (ii) a Closing Date shall
not have occurred within 12 months after the related Notice Date due to the
failure to obtain any such required approval or (iii) Holder (or Substitute
Holder) shall have the right pursuant to the last sentence of Section 7 (or
Section 9) to exercise the Option (or Substitute Option), Buyer or Holder (or
Substitute Holder) shall nevertheless be entitled to exercise its right as set
forth in Section 7 (or Section 9) and Buyer or Holder (or Substitute Holder)
shall be entitled to exercise the Option (or Substitute Option) in connection
with the resale of Seller Common Stock or other securities pursuant to a
registration statement as provided in Section 6.
(e) At the Closing referred to in subsection (d)
of this Section 2, the Holder shall pay to Seller the aggregate purchase price
for the shares of Common Stock
5
purchased pursuant to the exercise of the Option in immediately available funds
by wire transfer to a bank account designated by Seller, provided that failure
or refusal of Seller to designate such a bank account shall not preclude the
Holder from exercising the Option.
(f) At such Closing, simultaneously with the
delivery of immediately available funds as provided in subsection (e) of this
Section 2, Seller shall deliver to the Holder a certificate or certificates
representing the number of shares of Common Stock purchased by the Holder and,
if the Option should be exercised in part only, a new Option evidencing the
rights of the Holder thereof to purchase the balance of the shares purchasable
hereunder, and the Holder shall deliver to Seller a copy of this Agreement and
a letter agreeing that the Holder will not offer to sell or otherwise dispose
of such shares in violation of applicable law or the provisions of this
Agreement.
(g) Certificates for Common Stock delivered at a
closing hereunder may be endorsed with a restrictive legend that shall read
substantially as follows:
The transfer of the shares represented by this certificate is subject
to certain provisions of an agreement between the registered holder
hereof and Seller and to resale restrictions arising under the
Securities Act of 1933, as amended. A copy of such agreement is on
file at the principal office of Seller and will be provided to the
holder hereof without charge upon receipt by Seller of a written
request therefor.
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if the Holder shall have
delivered to Seller a copy of a letter from the staff of the SEC, or an opinion
of counsel, in form and substance reasonably satisfactory to Seller, to the
effect that such legend is not required for purposes of the Securities Act;
(ii) the reference to the provisions of this Agreement in the above legend
shall be removed by delivery of substitute certificate(s) without such
reference if the shares have been sold or transferred in compliance with the
provisions of this Agreement and under circumstances that do not require the
retention of such reference; and (iii) the legend shall be removed in its
entirety if the conditions in the preceding clauses (i) and (ii) are both
satisfied. In addition, such certificates shall bear any other legend as may
be required by law.
(h) Upon the giving by the Holder to Seller of
the written notice of exercise of the Option provided for under subsection (d)
of this Section 2 and the tender of the applicable purchase price in
immediately available funds, the Holder shall be deemed to be the holder of
record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of Seller shall then be closed or
that certificates representing such shares of Common Stock shall not then be
actually delivered to the Holder or the Seller shall have failed or refused to
designate the bank
6
account described in subsection (e) of this Section 2. Seller shall pay all
expenses, and any and all United States federal, state and local taxes and
other charges that may be payable in connection with the preparation, issuance
and delivery of stock certificates under this Section 2 in the name of the
Holder or its assignee, transferee or designee.
4. Seller agrees: (a) that it shall at all times maintain, free
from preemptive rights, sufficient authorized but unissued or treasury shares
of Common Stock (and other securities issuable pursuant to Section 5(a)) so
that the Option may be exercised without additional authorization of Common
Stock (or such other securities) after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock (or
such other securities); (b) that it will not, by charter amendment or through
reorganization, consolidation, merger, dissolution or sale of assets, or by any
other voluntary act, avoid or seek to avoid the observance or performance of
any of the covenants, stipulations or conditions to be observed or performed
hereunder by Seller; (c) promptly to take all action as may from time to time
be required (including (x) complying with all premerger notification, reporting
and waiting period requirements specified in 15 U.S.C. Section 18a and
regulations promulgated thereunder and (y) in the event, under the Bank Holding
Company Act of 1956, as amended ("BHCA"), or the Change in Bank Control Act of
1978, as amended, or any state banking law, prior approval of or notice to the
Federal Reserve Board or to any state regulatory authority is necessary before
the Option may be exercised, to cooperate fully with the Holder in preparing
such applications or notices and to provide such information to the Federal
Reserve Board or such state regulatory authority as they may require) in order
to permit the Holder to exercise the Option and the Seller duly and effectively
to issue shares of Common Stock pursuant hereto; and (iv) promptly to take all
action provided herein to protect the rights of the Holder against dilution.
5. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender of this Agreement at the principal office of Seller, for other
Agreements providing for Options of different denominations entitling the
holder thereof to purchase, on the same terms and subject to the same
conditions as are set forth herein, in the aggregate the same number of shares
of Common Stock purchasable hereunder. The terms "Agreement" and "Option" as
used herein include any Stock Option Agreements and related Options for which
this Agreement (and the Option granted hereby) may be exchanged. Upon receipt
by Seller of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Agreement, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Agreement, if mutilated, Seller will execute and deliver a
new Agreement of like tenor and date. Any such new Agreement executed and
delivered shall constitute an additional contractual obligation on the part of
Seller, whether or not the Agreement so lost, stolen, destroyed or mutilated
shall at any time be enforceable by anyone.
7
6. In addition to the adjustment in the number of shares of
Common Stock that are purchasable upon exercise of the Option pursuant to
Section 1 of this Agreement, the number of shares of Common Stock purchasable
upon the exercise of the Option shall be subject to adjustment from time to
time as provided in this Section 5.
(a) In the event of any change in Common Stock by reason
of stock dividends, split-ups, mergers, recapitalization, combinations,
subdivisions, conversions, exchanges of shares or the like, the type and number
of shares of Common Stock purchasable upon exercise hereof shall be
appropriately adjusted so that Buyer shall receive upon exercise of the Option
and payment of the aggregate Option Price hereunder the number and class of
shares or other securities or property that Buyer would have received in
respect of Common Stock if the Option had been exercised in full immediately
prior to such event, or the record date therefor, as applicable.
(b) Whenever the number of shares of Common Stock
purchasable upon exercise hereof is adjusted as provided in this Section 5, the
Option Price shall be adjusted by multiplying the Option Price by a fraction,
the numerator of which shall be equal to the number of shares of Common Stock
purchasable prior to the adjustment and the denominator of which shall be equal
to the number of shares of Common Stock purchasable after the adjustment.
7. (a) In the event the Option shall become exercisable in
accordance with Section 2 hereof, Seller shall, at the request of Buyer
(whether on its own behalf or on behalf of any subsequent holder of this Option
(or part thereof) or any of the shares of Common Stock issued pursuant hereto),
promptly prepare, file and keep current a shelf or other registration statement
under the Securities Act covering any shares issued and issuable pursuant to
this Option and shall use its best efforts to cause such registration statement
to become effective and remain current in order to permit the sale or other
disposition of any shares of Common Stock issued upon total or partial exercise
of this Option ("Option Shares") in accordance with any plan of disposition
requested by Buyer. Seller will use its best efforts to cause such
registration statement first to become effective and then to remain effective
for such period not in excess of 180 days from the day such registration
statement first becomes effective or such shorter time as may be reasonably
necessary to effect such sales or other dispositions. Buyer for a period of 24
months following such first demand for registration under this Section 6(a)
shall have the right to demand a second such registration if reasonably
necessary to effect such sales or dispositions.
(b) If at any time Seller proposes to register any of its
Common Stock under the Securities Act, it will give written notice to Buyer of
its intention to do so. Upon the written request of Buyer, given within 15
calendar days after receipt of Seller's notice, Seller will use its best
efforts to cause to be included in the shares to be covered by the registration
statement proposed to be filed by Seller the Option Shares proposed to be sold
by Buyer; provided, however, that Seller need not include such Option Shares in
8
such registration statement if Seller is advised by its investment banking firm
that the inclusion of such shares would materially interfere with the orderly
sale and distribution of the Seller shares being sold by Seller. Seller may in
its own discretion and without consent of Buyer, withdraw any such registration
statement and abandon the proposed offering in which Buyer shall have requested
to participate pursuant to this paragraph.
(c) Each such Holder shall provide all information
reasonably requested by Seller for inclusion in any registration statement to
be filed hereunder. If requested by any such Holder in connection with such
registration, Seller shall become a party to any underwriting agreement
relating to the sale of such shares, but only to the extent of obligating
itself in respect of representations, warranties, indemnities and other
agreements customarily included in such underwriting agreements for the Seller.
Upon receiving any request under this Section 6 from any Holder, Seller agrees
to send a copy thereof to any other person known to Seller to be entitled to
registration rights under this Section 6, in each case by promptly mailing the
same, postage prepaid, to the address of record of the persons entitled to
receive such copies.
8. (a) After the occurrence of a Triggering Event that occurs
prior to an Exercise Termination Event, (i) at the request of the Holder,
Seller (or any successor thereto) shall repurchase the Option from the Holder
at a price (the "Option Repurchase Price") equal to (x) the amount by which (A)
the market/offer price (as defined below) exceeds (B) the Option Price,
multiplied by the number of shares for which this Option may then be exercised
or (y) the Minimum Option Repurchase Price, whichever is greater, and (ii) at
the request of the owner of Option Shares from time to time (the "Owner"),
Seller shall repurchase such number of the Option Shares from the Owner as the
Owner shall designate at a price (the "Option Share Repurchase Price") equal to
(x) the market/offer price multiplied by the number of Option Shares so
designated or (y) the Minimum Option Share Repurchase Price, whichever is
greater.
(b) The term "market/offer price" shall mean the highest
of (i) the highest price per share of Common Stock at which shares have been
purchased in a tender offer or exchange offer, (ii) the price per share of
Common Stock which has been paid by any third party pursuant to an agreement
with Seller, (iii) the highest closing price for shares of Common Stock quoted
in the New York Stock Exchange (or if Common Stock is not quoted in the New
York Stock Exchange, the highest bid price per share as quoted on the National
Association of Securities Dealers Automated Quotation Systems, or, if the
shares of Common Stock are not quoted thereon, on the principal trading market
on which such shares are traded as reported by a recognized source) within the
six-month period immediately preceding the date the Holder gives notice of the
required repurchase of Options or Option Shares, as the case may be, or (iv) in
the event of a sale of assets representing 15% or more of the consolidated
assets of Seller and its Subsidiaries, the sum of the price paid in such sale
for such assets and the current market value of the remaining assets of Seller
as determined by a nationally recognized investment banking firm selected by
the Holder or the Owner, as the case may be, divided by the number of
9
shares of Common Stock of Seller outstanding at the time of such sale. In
determining the market/offer price, the value of consideration other than cash
shall be determined by a nationally recognized investment banking firm selected
by the Holder or Owner, as the case may be. The term "Minimum Option
Repurchase Price" shall mean $5,000,000 multiplied by a fraction the numerator
of which is the total Option Shares which may then be purchased upon exercise
of the Option and the denominator of which is the total Option Shares which
could be purchased upon exercise of the Option assuming the Option had not been
previously exercised. The term "Minimum Option Share Repurchase Price" shall
mean $5,000,000 multiplied by a fraction the numerator of which is the number
of Option Shares designated for repurchase and the denominator of which is the
total Option Shares which could be purchased upon exercise of the Option
assuming the Option had not been previously exercised.
(c) The Holder or the Owner, as the case may be, may
exercise its right to require Seller to repurchase the Option and any Option
Shares pursuant to this Section 7 by surrendering for such purpose to Seller,
at its principal office, prior to an Exercise Termination Event, a copy of this
Agreement or certificates for Option Shares, as applicable, accompanied by a
written notice or notices stating that the Holder or the Owner, as the case may
be, elects to require Seller to repurchase this Option and/or the Option Shares
in accordance with the provisions of this Section 7. As promptly as
practicable, and in any event within five business days after the surrender of
the Option and/or certificates representing Option Shares and the receipt of
such notice or notices relating thereto, Seller shall deliver or cause to be
delivered to the Holder the Option Repurchase Price and/or to the Owner the
Option Share Repurchase Price therefor or the portion thereof that Seller is
not then prohibited under applicable law and regulation from so delivering.
(d) To the extent that Seller is prohibited under
applicable law or regulation, or as a consequence of administrative policy,
from repurchasing the Option and/or the Option Shares in full, Seller shall
immediately so notify the Holder and/or the Owner and thereafter deliver or
cause to be delivered, from time to time, to the Holder and/or the Owner, as
appropriate, the portion of the Option Repurchase Price and the Option Share
Repurchase Price, respectively, that it is no longer prohibited from
delivering, within five business days after the date on which Seller is no
longer so prohibited, provided, however, that if Seller at any time after
delivery of a notice of repurchase pursuant to paragraph (c) of this Section 7
is prohibited under applicable law or regulation, or as a consequence of
administrative policy, from delivering to the Holder and/or the Owner, as
appropriate, the Option Repurchase Price and the Option Share Repurchase Price,
respectively, in full (and Seller hereby undertakes to use its best efforts to
obtain all required regulatory and legal approvals and to file any required
notices as promptly as practicable in order to accomplish such repurchase), the
Holder or Owner may revoke its notice of repurchase of the Option or the Option
Shares either in whole or to the extent of the prohibition, whereupon, in the
latter case, Seller shall promptly (i) deliver to the Holder and/or the Owner,
as appropriate, that portion of the Option
10
Repurchase Price or the Option Share Repurchase Price that Seller is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Holder, a new Stock Option Agreement evidencing the right of the Holder to
purchase that number of shares of Common Stock obtained by multiplying the
number of shares of 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 Option Repurchase Price less the
portion thereof theretofore delivered to the Holder and the denominator of
which is the Option Repurchase Price, or (B) to the Owner, a certificate for
the Option Shares it is then so prohibited from repurchasing. If an Exercise
Termination Event shall have occurred prior to the date of the notice by Seller
described in the first sentence of this subsection (d), or shall be scheduled
to occur at any time before the expiration of a period ending on the thirtieth
day after such date, the Holder shall nonetheless have the right to exercise
the Option until the expiration of such 30-day period.
9. (a) In the event that prior to an Exercise Termination Event,
Seller shall enter into an agreement (i) to consolidate with or merge into any
person, other than Buyer or one of its subsidiaries, and shall not be the
continuing or surviving corporation of such consolidation or merger, (ii) to
permit any person, other than Buyer or one of its subsidiaries, to merge into
Seller and Seller shall be the continuing or surviving corporation, but, in
connection with such merger, the then outstanding shares of Common Stock shall
be changed into or exchanged for stock or other securities of any other person
or cash or any other property or the then outstanding shares of Common Stock
shall after such merger represent less than 50% of the outstanding shares and
share equivalents of the merged company, or (iii) to sell or otherwise transfer
all or substantially all of its assets to any person, other than Buyer or one
of its subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set
forth herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of the Holder, issued by either (x) the Acquiring
Corporation (as hereinafter defined) or (y) any person that controls the
Acquiring Corporation.
(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the
continuing or surviving corporation of a consolidation or merger with
Seller (if other than Seller), (ii) Seller in a merger in which Seller
is the continuing or surviving person, and (iii) the transferee of all
or substantially all of Seller's assets.
(2) "Substitute Common Stock" shall mean the
common stock issued by the issuer of the Substitute Option upon
exercise of the Substitute Option.
(3) "Assigned Value" shall mean the market/offer
price, as defined in Section 7.
11
(4) "Average Price" shall mean the average
closing price of a share of the Substitute Common Stock for the one
year immediately preceding the consolidation, merger or sale in
question, but in no event higher than the closing price of the shares
of Substitute Common Stock on the day preceding (or the value
attributed to shares of Substitute Common Stock in) such
consolidation, merger or sale, provided that if Seller is the issuer
of the Substitute Option, the Average Price shall be computed with
respect to a share of common stock issued by the person merging into
Seller or by any company which controls or is controlled by such
person, as the Holder may elect.
(c) The Substitute Option shall have the same terms as
the Option, provided, that if the terms of the Substitute Option cannot, for
legal reasons, be the same as the Option, such terms shall be as similar as
possible and in no event less advantageous to the Holder. The issuer of the
Substitute Option shall also enter into an agreement with the then Holder or
Holders of the Substitute Option in substantially the same form as this
Agreement (after giving effect for such purpose to the provisions of Section
9), which agreement shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such
number of shares of Substitute Common Stock as is equal to the Assigned Value
multiplied by the number of shares of Common Stock for which the Option is then
exercisable, divided by the Average Price. The exercise price of the
Substitute Option per share of Substitute Common Stock shall then be equal to
the Option Price multiplied by a fraction, the numerator of which shall be the
number of shares of Common Stock for which the Option is then exercisable and
the denominator of which shall be the number of shares of Substitute Common
Stock for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing
paragraphs, shall the Substitute Option be exercisable for more than 19.9% of
the shares of Substitute Common Stock outstanding prior to exercise of the
Substitute Option. In the event that the Substitute Option would be
exercisable for more than 19.9% of the shares of Substitute Common Stock
outstanding prior to exercise but for this clause (e), the issuer of the
Substitute Option (the "Substitute Option Seller") shall make a cash payment to
Holder equal to the excess of (i) the value of the Substitute Option without
giving effect to the limitation in this clause (e) over (ii) the value of the
Substitute Option after giving effect to the limitation in this clause (e).
This difference in value shall be determined by a nationally recognized
investment banking firm selected by the Holder.
(f) Seller shall not enter into any transaction described
in subsection (a) of this Section 8 unless the Acquiring Corporation and any
person that controls the Acquiring Corporation assume in writing all the
obligations of Seller hereunder.
12
10. (a) At the request of the holder of the Substitute Option
(the "Substitute Option Holder"), the Substitute Option Seller shall repurchase
the Substitute Option from the Substitute Option Holder at a price (the
"Substitute Option Repurchase Price") equal to (x) the amount by which (i) the
Highest Closing Price (as hereinafter defined) exceeds (ii) the exercise price
of the Substitute Option, multiplied by the number of shares of Substitute
Common Stock for which the Substitute Option may then be exercised or (y) the
Minimum Substitute Option Repurchase Price, whichever is greater, and at the
request of the owner (the "Substitute Share Owner") of shares of Substitute
Common Stock (the "Substitute Shares"), the Substitute Option Seller shall
repurchase the Substitute Shares at a price (the "Substitute Share Repurchase
Price") equal to (x) the Highest Closing Price multiplied by the number of
Substitute Shares so designated or (y) the Minimum Substitute Share Repurchase
Price, whichever is greater.
(b) The term "Highest Closing Price" shall mean the
highest closing price for shares of Substitute Common Stock within the
six-month period immediately preceding the date the Substitute Option Holder
gives notice of the required repurchase of the Substitute Option or the
Substitute Share Owner gives notice of the required repurchase of the
Substitute Shares, as applicable. The term "Minimum Substitute Option
Repurchase Price" shall mean $5,000,000 multiplied by a fraction the numerator
of which is the number of shares of Substitute Common Stock which may then be
purchased upon exercise of the Substitute Option and the denominator of which
is the number of shares of Substitute Common Stock which could be purchased
upon exercise of the Substitute Option assuming the Substitute Option or the
Option had not been previously exercised. The term "Minimum Substitute Share
Repurchase Price" shall mean $5,000,000 multiplied by a fraction the numerator
of which is the number of shares of Substitute Common Stock designated for
repurchase and the denominator of which is the number of shares of Substitute
Common Stock which could be purchased upon exercise of the Substitute Option
assuming the Substitute Option or the Option had not been previously exercised.
(c) The Substitute Option Holder and the Substitute Share
Owner, as the case may be, may exercise its respective right to require the
Substitute Option Seller to repurchase the Substitute Option and the Substitute
Shares pursuant to this Section 9 by surrendering for such purpose to the
Substitute Option Seller, at its principal office, prior to an Exercise
Termination Event, the agreement for such Substitute Option (or, in the absence
of such an agreement, a copy of this Agreement) and certificates for Substitute
Shares accompanied by a written notice or notices stating that the Substitute
Option Holder or the Substitute Share Owner, as the case may be, elects to
require the Substitute Option Seller to repurchase the Substitute Option and/or
the Substitute Shares in accordance with the provision of this Section 9. As
promptly as practicable, and in any event within five business days after the
surrender of the Substitute Option and/or certificates representing Substitute
Shares and the receipt of such notice or notices relating thereto, the
Substitute Option Seller shall deliver or cause to be delivered to the
Substitute Option Holder the Substitute Option Repurchase Price and/or to the
Substitute Share Owner the Substitute Share Repurchase Price therefor or the
portion thereof which
13
the Substitute Option Seller is not then prohibited under applicable law and
regulation from so delivering.
(d) To the extent that the Substitute Option Seller is
prohibited under applicable law or regulation, or as a consequence of
administrative policy, from repurchasing the Substitute Option and/or the
Substitute Shares in part or in full, the Substitute Option Seller shall
immediately so notify the Substitute Option Holder and/or the Substitute Share
Owner and thereafter deliver or cause to be delivered, from time to time, to
the Substitute Option Holder and/or the Substitute Share Owner, as appropriate,
the portion of the Substitute Option Repurchase Price or the Substitute Share
Repurchase Price, respectively, which it is no longer prohibited from
delivering, within five business days after the date on which the Substitute
Option Seller is no longer so prohibited; provided, however, that if the
Substitute Option Seller is at any time after delivery of a notice of
repurchase pursuant to subsection (c) of this Section 9 prohibited under
applicable law or regulation, or as a consequence of administrative policy,
from delivering to the Substitute Option Holder and/or the Substitute Share
Owner, as appropriate, the Substitute Option Repurchase Price and the
Substitute Share Repurchase Price, respectively, in full (and the Substitute
Option Seller shall use its best efforts to receive all required regulatory and
legal approvals as promptly as practicable in order to accomplish such
repurchase), the Substitute Option Holder or Substitute Share Owner may revoke
its notice of repurchase of the Substitute Option or the Substitute Shares
either in whole or to the extent of the prohibition, whereupon, in the latter
case, the Substitute Option Seller shall promptly (i) deliver to the Substitute
Option Holder or Substitute Share Owner, as appropriate, that portion of the
Substitute Option Repurchase Price or the Substitute Share Repurchase Price
that the Substitute Option Seller is not prohibited from delivering; and (ii)
deliver, as appropriate, either (A) to the Substitute Option Holder, a new
Substitute Option evidencing the right of the Substitute Option Holder to
purchase that number of shares of the Substitute Common Stock obtained by
multiplying the number of shares of the Substitute Common Stock for which the
surrendered Substitute Option was exercisable at the time of delivery of the
notice of repurchase by a fraction, the numerator of which is the Substitute
Option Repurchase Price less the portion thereof theretofore delivered to the
Substitute Option Holder and the denominator of which is the Substitute Option
Repurchase Price, or (B) to the Substitute Share Owner, a certificate for the
Substitute Option Shares it is then so prohibited from repurchasing. If an
Exercise Termination Event shall have occurred prior to the date of the notice
by the Substitute Option Seller described in the first sentence of this
subsection (d), or shall be scheduled to occur at any time before the
expiration of a period ending on the thirtieth day after such date, the
Substitute Option Holder shall nevertheless have the right to exercise the
Substitute Option until the expiration of such 30 day period.
11. Any period for exercise of rights shall be extended: (a) to
the extent necessary to obtain all regulatory approvals for the exercise of
such rights, and for the
14
expiration of all statutory waiting periods; and (b) to the extent necessary to
avoid liability under Section 16(b) of the Exchange Act by reason of such
exercise.
12. Seller hereby represents and warrants to Buyer as follows:
(a) Seller has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of Seller and no other corporate
proceedings on the part of Seller are necessary to authorize this Agreement or
to consummate the transactions so contemplated. This Agreement has been duly
and validly executed and delivered by Seller. This Agreement is the valid and
legally binding obligation of Seller, enforceable against Seller in accordance
with its terms.
(b) Seller has taken all necessary corporate action to
authorize and reserve and to permit it to issue, and at all times from the date
hereof through the termination of this Agreement in accordance with its terms
will have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common Stock at
any time and from time to time issuable hereunder, and all such shares, upon
issuance pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrance and security interests and not subject to any preemptive rights.
(c) The execution and delivery of this Agreement does
not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any breach pursuant to any provisions of the
Articles of Incorporation or by-laws of Seller or any Subsidiary of Seller or,
subject to obtaining any approvals or consents contemplated hereby or by the
Merger Agreement, result in any breach of any loan or credit agreement, note,
mortgage, indenture, lease, plan or other agreement, obligation, instrument,
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Seller or any Subsidiary of Seller
or their respective properties or assets.
13. Buyer hereby represents to Seller as follows:
(a) Buyer has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the board of directors of Buyer and no other corporate
proceedings on the part of Buyer are necessary to authorize this Agreement or
to consummate the transactions so contemplated. This Agreement has been duly
and validly executed and delivered by Buyer. This Agreement is the valid and
15
legally binding obligation of Buyer, enforceable against Buyer in accordance
with its terms.
(b) Buyer is acquiring the Option and, if and when it
exercises the Option, will be acquiring the Share issuable upon the exercise
thereof for its own account and not with a view to distribution or resale in
any manner which would be in violation of the Securities Act.
14. Neither of the parties hereto may assign any of its rights or
obligations under this Option Agreement or the Option created hereunder to any
other person, without the express written consent of the other party, except
that in the event a Triggering Event shall have occurred prior to an Exercise
Termination Event, Buyer, subject to the express provisions hereof, may assign
in whole or in part its rights and obligations hereunder, provided, however,
that until the date 30 days following the date on which the Federal Reserve
Board approves an application by Buyer under the BHCA to acquire the shares of
Common Stock subject to the Option, Buyer may not assign its rights under the
Option except in (i) a widely dispersed public distribution, (ii) a private
placement in which no one party acquires the right to purchase in excess of 2%
of the voting shares of Seller, (iii) an assignment to a single party (e.g., a
broker or investment banker) for the purpose of conducting a widely dispersed
public distribution on Buyer's behalf, or (iv) any other manner approved by the
Federal Reserve Board.
15. Immediately following a Triggering Event, each of Buyer and
Seller will use its best efforts to make all filings with, and to obtain
consents of, all third parties and governmental authorities necessary to the
consummation of the transactions contemplated by this Agreement, including
without limitation making application to list the shares of Common Stock
issuable hereunder on the NASDAQ\NMS upon official notice of issuance and
applying to the Federal Reserve Board under the BHCA for approval to acquire
the shares issuable hereunder, but Buyer shall not be obligated to apply to
state banking authorities for approval to acquire the shares of Common Stock
issuable hereunder until such time, if ever, as it deems appropriate to do so.
16. The parties hereto acknowledge that damages would be an
inadequate remedy for a breach of this Agreement by either party hereto and
that the obligations of the parties hereto shall be enforceable by either party
hereto through injunctive or other equitable relief.
17. If any term, provision, covenant or restriction contained in
this Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this
Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated. If for any reason such court or regulatory
agency determines that the Holder or Substitute Option Holder is not permitted
to acquire, or Seller or Substitute Option Seller is not permitted to
repurchase pursuant to
16
Section 7 or Section 9, as the case may be, the full number of shares of Common
Stock provided in Section 1(a) hereof (as adjusted pursuant to Section 1(b)
or Section 5 hereof), it is the express intention of Seller to allow the Holder
to acquire or to require Seller to repurchase such lesser number of shares as
may be permissible, without any amendment or modification hereof.
18. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by cable, telegram, telecopy or telex, or by registered or certified
mail (postage prepaid, return receipt requested) at the respective addresses of
the parties set forth in the Merger Agreement.
19. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
20. This Agreement may be executed in two or more counterparts,
each of which shall be deemed to be an original, but all of which shall
constitute one and the same agreement.
21. Except as otherwise expressly provided herein or in the Merger
Agreement, each of the parties hereto shall bear and pay all costs and expenses
incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own financial
consultants, investment bankers, accountants and counsel.
22. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties
with respect to the transactions contemplated hereunder and supersedes all
prior arrangements or understandings with respect thereof, written or oral.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns. Nothing in this Agreement, expressed or implied, is intended to
confer upon any party, other than the parties hereto, and their respective
successors except as assigns, any rights, remedies, obligations or liabilities
under or by reason of this Agreement, except as expressly provided herein. Any
provision of this Agreement may be waived at any time by the party that is
entitled to the benefits of such provision. This Agreement may not be
modified, amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by the parties hereto.
23. In the event of any exercise of the Option by Buyer, Seller
and Buyer shall execute and deliver all other documents and instruments and
take all other action that may be reasonably necessary in order to consummate
the transactions provided for by such exercise.
17
24. Capitalized terms used in this Agreement and not defined
herein shall have the meanings assigned thereto in the Merger Agreement.
IN WITNESS WHEREOF, Seller and Buyer have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
BANCORP HAWAII, INC.
By: /s/ JOSEPH T. KIEFER
---------------------------------
Joseph T. Kiefer, General Counsel
CU BANCORP
By: /s/ STEPHEN G. CARPENTER
---------------------------------
Stephen G. Carpenter,
Chief Executive Officer