STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated November 5, 1995, between FIRST
INTERSTATE BANCORP, a Delaware corporation ("Grantee"), and FIRST BANK SYSTEM,
INC., a Delaware corporation ("Issuer").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into an Agreement and
Plan of Merger immediately prior to the execution and delivery hereof (the
"Merger Agreement"); and
WHEREAS, as a condition and inducement to Grantee's pursuit of the
transactions contemplated by the Merger Agreement and in consideration
therefor and in consideration of the grant of the Reciprocal Option (as
hereinafter defined), Issuer has agreed to grant Grantee the Option (as
hereinafter defined):
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein and in the Merger Agreement, the
parties hereto agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms hereof, up
to 25,829,983 fully paid and nonassessable shares of the common stock, $1.25
par value, of Issuer ("Common Stock") at a price per share equal to the last
reported sale price per share of Common Stock as reported on the consolidated
tape for New York Stock Exchange issues on November 3, 1995; provided,
however, that in the event Issuer issues or agrees to issue any shares of
Common Stock at a price less than such last reported sale price per share (as
adjusted pursuant to subsection (b) of Section 5) other than as permitted by
the Merger Agreement, 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
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 of this Agreement (other
than pursuant to this Agreement and other than pursuant to an event described
in Section 5(a) hereof), the number of shares of Common Stock subject to the
Option shall be increased so that, after such issuance, such number together
with any shares of Common Stock previously issued pursuant hereto, equals
19.9% of the number of shares of Common Stock then issued and outstanding
without giving effect to any shares subject or issued pursuant to the Option.
Nothing contained in this Section 1(b) or elsewhere in this Agreement shall be
deemed to authorize Issuer or Grantee to breach any provision of the Merger
Agreement.
(c) Notwithstanding anything else to the contrary contained in the
Agreement, in no event shall (i) the number of shares of Common Stock for
which this Option is then exercisable, plus (ii) the number of Option Shares
(as hereinafter defined) theretofore purchased hereunder, plus (iii) the
number of other shares of Common Stock of which the Grantee is the Beneficial
Owner (as such term is defined in the Rights Agreement dated as of December
21, 1988 (as amended to date, the "Rights Agreement"), between the Issuer and
the Rights Agent (as such term is defined in the Rights Agreement)) exceed
19.9% of the issued and outstanding shares of Common Stock (computed in
accordance with the procedures set forth in the Rights Agreement) until after
such time as the Rights Agreement is amended to provide that neither the
execution of this Agreement or the Merger Agreement nor the exercise of the
Option shall result in the Grantee becoming an Acquiring Person (as such term
is defined in the Rights Agreement). Issuer's Board has duly authorized such
an amendment and Issuer agrees promptly to take all steps necessary to enter
into such an amendment with the Rights Agent.
2. (a) The Holder (as hereinafter defined)
may exercise the Option, in whole or part, if, but only
if, both an Initial Triggering Event (as hereinafter
defined) and a Subsequent Triggering Event (as hereinaf-
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ter defined) shall have occurred prior to the occurrence of an Exercise
Termination Event (as hereinafter defined), provided that the Holder shall
have sent the written notice of such exercise (as provided in subsection (e)
of this Section 2) within 6 months following such Subsequent Triggering Event
(or such later period as provided in Section 10). Each of the following shall
be an Exercise Termination Event: (i) the Effective Time of the Merger; (ii)
termination of the Merger Agreement in accordance with the provisions thereof
if such termination occurs prior to the occurrence of an Initial Triggering
Event; (iii) the passage of 18 months (or such longer period as provided in
Section 10) after termination of the Merger Agreement if such termination is
concurrent with or follows the occurrence of an Initial Triggering Event; (iv)
the date on which the shareholders of the Grantee shall have voted and failed
to adopt and approve the Merger Agreement and the Merger (unless (A) Issuer
shall then be in material breach of its covenants or agreements contained in
the Merger Agreement or (B) on or prior to such date, the shareholders of the
Issuer shall have also voted and failed to approve the Parent Vote Matters (as
defined in the Merger Agreement); or (v) the date on which the Reciprocal
Option shall have become exercisable in accordance with its terms. The term
"Holder" shall mean the holder or holders of the Option. Notwithstanding
anything to the contrary contained herein, (i) the Option may not be exercised
at any time when Grantee shall be in breach of any of its covenants or
agreements contained in the Merger Agreement such that Issuer shall be
entitled (without regard to any grace period provided therein) to terminate
the Merger Agreement pursuant to Section 8.1(d) thereof and (ii) this
Agreement shall automatically terminate upon the termination of the Merger
Agreement by Issuer pursuant to Section 8.1(d) thereof as a result of the
breach by Grantee of its covenants or agreements contained in the Merger
Agreement.
(b) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring on or after the date hereof:
(i) Issuer or any of its Subsidiaries (as
hereinafter defined) (each an "Issuer Subsidiary"),
without having received Grantee's prior
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written consent, shall have entered into an agreement to engage in an
Acquisition Transaction (as hereinafter defined) with any person (the term
"person" for purposes of this Agreement having the meaning assigned thereto in
Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934 (the
"1934 Act"), and the rules and regulations thereunder) other than Grantee or
any of its Subsidiaries (each a "Grantee Subsidiary") or the Board of
Directors of Issuer shall have recommended that the shareholders of Issuer
approve or accept any Acquisition Transaction other than as contemplated by
the Merger Agreement or this Agreement. For purposes of this Agreement, (a)
"Acquisition Transaction" shall mean (x) a merger or consolidation, or any
similar transaction, involving Issuer or any Significant Subsidiary (as
defined in Rule 1-02 of Regulation S-X promulgated by the Securities and
Exchange Commission (the "SEC")) of Issuer (other than mergers, consolidations
or similar transactions involving solely Issuer and/or one or more
wholly-owned Issuer Subsidiaries and other than a merger or consolidation as
to which the common shareholders of the Issuer immediately prior thereto in
the aggregate own at least 70% of the common stock of the publicly held
surviving or successor corporation immediately following consummation
thereof), (y) a purchase, lease or other acquisition of all or substantially
all of the assets or deposits of Issuer or any Significant Subsidiary of
Issuer, or (z) a purchase or other acquisition (including by way of merger,
consolidation, share exchange or otherwise) of securities representing 10% or
more of the voting power of Issuer or any Significant Subsidiary of Issuer,
and (b) "Subsidiary" shall have the meaning set forth in Rule 12b-2 under the
1934 Act;
(ii) Any person other than Grantee or any Grantee 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" for purposes of this Agreement
having the meaning assigned thereto in Section 13(d) of the 1934 Act,
and the rules and regulations thereunder);
(iii) The shareholders of the Issuer shall have voted and
failed to approve the Parent Vote Matters at a meeting which has been
held for that purpose or any adjournment or postponement
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thereof, or such meeting shall not have been held in violation of the
Merger Agreement or shall have been cancelled prior to termination of
the Merger Agreement if, prior to (x) such meeting or (y) if such
meeting shall not have been held or shall have been cancelled, such
termination, it shall have been publicly announced that any person
(other than Parent or any of its Subsidiaries) shall have made, or
disclosed an intention to make, a proposal to engage in an Acquisition
Transaction;
(iv) Issuer's Board of Directors shall have withdrawn or
modified (or publicly announced its intention to withdraw or modify) its
recommendation that the shareholders of Issuer approve the Parent Vote
Matters, or Issuer or any Issuer Subsidiary, without having received
Grantee'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 Grantee or a Grantee Subsidiary;
(v) Any person other than Grantee or any Grantee Subsidiary
shall have made a proposal to Issuer or its shareholders to engage in an
Acquisition Transaction and such proposal shall have been publicly
announced;
(vi) Any such person shall have filed with the SEC a
registration statement with respect to a potential exchange offer that
would constitute an Acquisition Transaction (or filed a preliminary
proxy statement with the SEC with respect to a potential vote by its
shareholders to approve the issuance of shares to be offered in such an
exchange offer);
(vii) Issuer shall have willfully breached any covenant or
obligation contained in the Merger Agreement in anticipation of engaging
in an Acquisition Transaction, and following such breach Grantee would
be entitled to terminate the Merger Agreement (whether immediately or
after the giving of notice or passage of time or both); or
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(viii) Any person other than Grantee or any Grantee
Subsidiary, other than in connection with a transaction to which Grantee
has given its prior written consent, shall have filed an application or
notice with the Federal Reserve Board or other federal or state bank
regulatory authority, which application or notice has been accepted for
processing, for approval to engage in an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person (other than Grantee or any
Grantee Subsidiary) of beneficial ownership of 20% or more of the then
outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event
described in clause (i) of subsection (b) of this Section 2, except that
the percentage referred to in clause (z) shall be 20%.
(d) The term "Reciprocal Option" shall mean the option granted
pursuant to the option agreement dated the date hereof between the Grantee, as
issuer of such option, and the Issuer, as grantee of such option.
(e) Issuer shall notify Grantee promptly in writing of the
occurrence of any Initial Triggering Event or Subsequent Triggering Event
(together, a "Triggering Event"), it being understood that the giving of such
notice by Issuer shall not be a condition to the right of the Holder to
exercise the Option.
(f) In the event the Holder is entitled to and 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
shares it will 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 of such purchase (the "Closing Date"); provided
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
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shall promptly file the required notice or application for approval, shall
promptly notify the Issuer of such filing, 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.
(g) At the closing referred to in subsection (f) of this Section
2, the Holder shall (i) pay to Issuer the aggregate purchase price for the
shares of Common Stock purchased pursuant to the exercise of the Option in
immediately available funds by wire transfer to a bank account designated by
Issuer, provided that failure or refusal of Issuer to designate such a bank
account shall not preclude the Holder from exercising the Option and (ii)
present and surrender this Agreement to the Issuer at its principal executive
offices.
(h) At such closing, simultaneously with the delivery of
immediately available funds as provided in subsection (g) of this Section 2,
Issuer 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.
(i) 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 Issuer 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 Issuer and will be provided to the holder
hereof without charge upon receipt by Issuer of a written request
therefor."
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It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933 (the "1933 Act") in the above legend shall be
removed by delivery of substitute certificate(s) without such reference if the
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, to the effect that such legend is not required for purposes of the
1933 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.
(j) Upon the giving by the Holder to Issuer of the written notice
of exercise of the Option provided for under subsection (f) 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 Issuer shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered
to the Holder. Issuer 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, issue and delivery of stock certificates
under this Section 2 in the name of the Holder or its assignee, transferee or
designee.
3. Issuer agrees: (i) that it shall at all times maintain, free
from preemptive rights, sufficient authorized but unissued or treasury shares
of Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock;
(ii) that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other
voluntary act, avoid or seek to avoid the
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observance or performance of any of the covenants, 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 (x) complying with all
premerger notification, reporting and waiting period requirements specified in
15 U.S.C. (S)18a and regulations promulgated thereunder and (y) in the event,
under the Bank Holding Company Act of 1956, as amended, or any state or other
federal banking law, prior approval of or notice to the Federal Reserve Board
or to any state or other federal regulatory authority is necessary before the
Option may be exercised, cooperating fully with the Holder in preparing such
applications or notices and providing such information to the Federal Reserve
Board or such state or other federal regulatory authority as they may require)
in order to permit the Holder to exercise the Option and Issuer duly and
effectively to issue shares of Common Stock pursuant hereto; and (iv) promptly
to take all action provided herein to protect the rights of the Holder against
dilution.
4. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender of this Agreement at the principal office of the Issuer, 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 Agreements 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.
5. In addition to the adjustment in the
number of shares of Common Stock that are purchasable
9
upon exercise of the Option pursuant to Section 1 of this Agreement, the
number of shares of Common Stock purchas- able 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, recapitalizations, combinations,
subdivisions, conversions, exchanges of shares or the like, the type and
number of shares of Common Stock purchas- able upon exercise hereof
shall be appropriately adjusted and proper provision shall be made so
that, in the event that any additional shares of Common Stock are to be
issued or otherwise become outstanding as a result of any such change
(other than pursuant to an exercise of the Option), the number of shares
of Common Stock that remain subject to the Option shall be increased so
that, after such issuance and together with shares of Common Stock
previously issued pursuant to the exercise of the Option (as adjusted on
account of any of the foregoing changes in the Common Stock), it equals
19.9% of the number of shares of Common Stock then issued and
outstanding.
(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 pur- chasable prior to the adjustment and the
denominator of which shall be equal to the number of shares of Common
Stock purchasable after the adjustment.
6. Upon the occurrence of a Subsequent Triggering Event that
occurs prior to an Exercise Termination Event, Issuer shall, at the request of
Grantee delivered within 12 months (or such later period as provided in
Section 10) of such Subsequent Triggering Event (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 registration statement under the 1933 Act covering any shares
issued and issuable pursuant to this Option and shall use its reasonable best
efforts
10
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 Grantee. Issuer will use
its reasonable 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. Grantee shall have the right to demand two such registrations.
The Issuer shall bear the costs of such registrations (including, but not
limited to, Issuer's attorneys' fees, printing costs and filing fees, except
for underwriting discounts or commissions, brokers' fees and the fees and
disbursements of Grantee's counsel related thereto). The foregoing
notwithstanding, if, at the time of any request by Grantee for registration of
Option Shares as provided above, Issuer is in registration with respect to an
underwritten public offering of shares of Common Stock, and if in the good
faith judgment of the managing underwriter or managing underwriters, or, if
none, the sole underwriter or underwriters, of such offering the inclusion of
the Option Shares would interfere with the successful marketing of the shares
of Common Stock offered by Issuer, the number of Option Shares otherwise to be
covered in the registration statement contemplated hereby may be reduced;
provided, however, that after any such required reduction the number of Option
Shares to be included in such offering for the account of the Holder shall
constitute at least 25% of the total number of shares to be sold by the Holder
and Issuer in the aggregate; and provided further, however, that if such
reduction occurs, then the Issuer shall file a registration statement for the
balance as promptly as practicable thereafter as to which no reduction
pursuant to this Section 6 shall be permitted or occur and the Holder shall
thereafter be entitled to one additional registration. Each such Holder shall
provide all information reasonably requested by Issuer for inclusion in any
registration statement to be filed hereunder. 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 agree-
11
ments customarily included in such underwriting agreements for Issuer. Upon
receiving any request under this Section 6 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 6, in each case by promptly mailing the
same, postage prepaid, to the address of record of the persons entitled to
receive such copies. Notwithstanding anything to the contrary contained
herein, in no event shall Issuer be obligated to effect more than two
registrations pursuant to this Section 8 by reason of the fact that there
shall be more than one Holder as a result of any assignment or division of
this Agreement.
7. (a) At any time after the occurrence of a Repurchase Event (as
defined below) (i) at the request of the Holder, delivered prior to an
Exercise Termination Event (or such later period as provided in Section 10),
Issuer 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 and (ii) at the request of
the owner of Option Shares from time to time (the "Owner"), delivered prior to
an Exercise Termination Event (or such later period as provided in Section
10), Issuer 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. The term "market/offer price" shall mean the highest of (i) the
price per share of Common Stock at which a tender or exchange offer therefor
has been made, (ii) the price per share of Common Stock to be paid by any
third party pursuant to an agreement with Issuer, (iii) the highest closing
price for shares of Common Stock within the six-month period immediately
preceding the date the Holder gives notice of the required repurchase of this
Option or the Owner gives notice of the required repurchase of Option Shares,
as the case may be, or (iv) in the event of a sale of all or substantially all
of Issuer's assets or deposits, the sum of the net price paid in such sale for
such assets or deposits and the current market value of the remaining net
assets of Issuer as determined by a nationally recognized investment banking
firm selected by the Holder or the Owner, as the case may be, and reason-
12
ably acceptable to Issuer, divided by the number of shares of Common Stock of
Issuer 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, and reasonably acceptable to Issuer.
(b) The Holder and the Owner, as the case may be, may exercise its
right to require Issuer to repurchase the Option and any Option Shares
pursuant to this Section 7 by surrendering for such purpose to Issuer, at its
principal office, 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 Issuer 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, Issuer 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 Issuer is not then
prohibited under applicable law and regulation from so delivering.
(c) To the extent that Issuer 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, Issuer 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 Issuer is no longer so prohibited;
provided, however, that if Issuer at any time after delivery of a notice of
repurchase pursuant to paragraph (b) of this Section 7 is prohibited under
applicable law or regulation, or as a consequence of administrative policy,
from delivering to the Holder and/or the Owner, as appropriate, the Option
Repurchase Price and the Option Share Repurchase Price, respectively, in full
(and Issuer hereby undertakes to use its reasonable best
13
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 whether in whole or to the extent of the
prohibition, whereupon, in the latter case, Issuer shall promptly (i) deliver
to the Holder and/or the Owner, as appropriate, that portion of the Option
Purchase Price or the Option Share Repurchase Price that Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to
the Holder, a new 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 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 Issuer described in the first
sentence of this subsection (c), or shall be scheduled to occur at any time
before the expiration of a period ending on the thirtieth day after such date,
the Holder shall nonetheless have the right to exercise the Option until the
expiration of such 30-day period.
(d) For purposes of this Section 7, a Repurchase Event shall be
deemed to have occurred upon the occurrence of any of the following events or
transactions after the date hereof:
(i) the acquisition by any person (other than Grantee or any
Grantee Subsidiary) of beneficial ownership of 50% or more of the then
outstanding Common Stock; or
(ii) the consummation of any Acquisition Transaction
described in Section 2(b)(i) hereof, except that the percentage referred
to in clause (z) shall be 50%.
8. (a) In the event that prior to an Exer-
cise Termination Event, Issuer shall enter into an agree-
14
ment (i) to consolidate with or merge into any person, other than Grantee or a
Grantee Subsidiary, and shall not be the continuing or surviving corporation
of such consolidation or merger, (ii) to permit any person, other than Grantee
or a Grantee Subsidiary, to merge into Issuer and Issuer 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 or any Significant Subsidiary's assets or deposits to any person, other
than Grantee or a Grantee Subsidiary, then, and in each such case, the
agreement governing such transaction shall make proper provision so that the
Option shall, upon the consummation of any such transaction and upon the terms
and conditions set forth herein, be converted into, or exchanged for, an
option (the "Substitute Option"), at the election of the Holder, of either (x)
the Acquiring Corporation (as hereinafter defined) or (y) any person that
controls the Acquiring Corporation.
(b) The following terms have the meanings
indicated:
(i) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer (if other
than Issuer), (ii) Issuer in a merger in which Issuer is the continuing
or surviving person, and (iii) the transferee of all or substantially
all of Issuer's assets or deposits (or the assets or deposits of a
Significant Subsidiary of Issuer).
(ii) "Substitute Common Stock" shall mean the common stock
issued by the issuer of the Substitute Option upon exercise of the
Substitute Option.
(iii) "Assigned Value" shall mean the market/offer price, as
defined in Section 7.
(iv) "Average Price" shall mean the
average closing price of a share of the Substitute
15
Common Stock for 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 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 the person merging into Issuer 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 exercis- able 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 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
limi-
16
tation 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) Issuer 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 Issuer hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the issuer of the Substitute Option (the
"Substitute Option Issuer") 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 plus (y) Grantee's Out-of-Pocket Expenses (to the
extent not previously reimbursed), and at the request of the owner (the
"Substitute Share Owner") of shares of Substitute Common Stock (the
"Substitute Shares"), the Substitute Option Issuer 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 plus (y) Grantee's Out-of-Pocket Expenses (to the extent not
previously reimbursed). The term "Highest Closing Price" shall mean the
highest closing price for shares of Substitute Common Stock within the
six-month period immediately preceding the date the Substitute Option Holder
gives notice of the required repurchase of the Substitute Option or the
Substitute Share Owner gives notice of the required repurchase of the
Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner,
as the case may be, may exercise its respective right to require the
Substitute Option Issuer to repurchase the Substitute Option and the
Substitute Shares pursuant to this Section 9 by surrendering for such purpose
to the Substitute Option Issuer, at its principal office, the agreement for
such Substitute
17
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 Issuer to repurchase
the Substitute Option and/or the Substitute Shares in accordance with the
provisions 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 Issuer shall deliver or cause
to be delivered to the Substitute Option Holder the Substitute Option
Repurchase Price and/or to the Substitute Share Owner the Substitute Share
Repurchase Price therefor or the portion thereof which the Substitute Option
Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that the Substitute Option Issuer 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 Issuer 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 Share Repurchase Price, respectively, which it is no longer
prohibited from delivering, within five business days after the date on which
the Substitute Option Issuer is no longer so prohibited; provided, however,
that if the Substitute Option Issuer is at any time after delivery of a notice
of repurchase pursuant to subsection (b) of this Section 9 prohibited under
applicable law or regulation, or as a consequence of administrative policy,
from delivering to the Substitute Option Holder and/or the Substitute Share
Owner, as appropriate, the Substitute Option Repurchase Price and the
Substitute Share Repurchase Price, respectively, in full (and the Substitute
Option Issuer 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
18
extent of prohibition, whereupon, in the latter case, the Substitute Option
Issuer 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 Issuer 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 Issuer described in the first sentence of this
subsection (c), or shall be scheduled to occur at any time before the
expiration of a period ending on the thirtieth day after such date, the
Substitute Option Holder shall nevertheless have the right to exercise the
Substitute Option until the expiration of such 30-day period.
10. The 30-day, 6-month, 12-month or 18-month periods for exercise
of certain rights under Sections 2, 6, 7, 9 and 12 shall be extended: (i) to
the extent necessary to obtain all regulatory approvals for the exercise of
such rights (for so long as the Holder is using commercially reasonable
efforts to obtain such regulatory approvals), and for the expiration of all
statutory waiting periods; and (ii) to the extent necessary to avoid liability
under Section 16(b) of the 1934 Act by reason of such exercise.
11. Issuer hereby represents and warrants to
Grantee as follows:
(a) Issuer has full corporate power and au-
thority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consum-
19
mation 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.
(b) Issuer 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 thereto, will be duly authorized, validly issued, fully
paid, nonassess- able, and will be delivered free and clear of all claims,
liens, encumbrance and security interests and not subject to any preemptive
rights.
12. Neither of the parties hereto may assign any of its rights or
obligations under this Agreement or the Option created hereunder to any other
person, without the express written consent of the other party, except that in
the event a Subsequent Triggering Event shall have occurred prior to an
Exercise Termination Event, Grantee, subject to the express provisions hereof,
may assign in whole or in part its rights and obligations hereunder within 12
months following such Subsequent Triggering Event (or such later period as
provided in Section 10); provided, however, that until the date 30 days
following the date on which the Federal Reserve Board has approved
applications by Grantee to acquire the shares of Common Stock subject to the
Option, Grantee 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
Issuer, (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 Grantee's behalf, or (iv) any other manner approved by the Federal Reserve
Board.
20
13. Each of Grantee and Issuer 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 applying to the
Federal Reserve Board under the Bank Holding Company Act for approval to
acquire the shares issuable hereunder, but Grantee 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.
14. (a) Notwithstanding any other provision of this Agreement, in
no event shall the Grantee's Total Profit (as hereinafter defined) exceed $100
million and, if it otherwise would exceed such amount, the Grantee, at its
sole election, shall either (a) reduce the number of shares of Common Stock
subject to this Option, (b) deliver to the Issuer for cancellation Option
Shares previously purchased by Grantee, (c) pay cash to the Issuer, or (d) any
combination thereof, so that Grantee's actually realized Total Profit shall
not exceed $100 million after taking into account the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, this
Option may not be exercised for a number of shares as would, as of the date of
exercise, result in a Notional Total Profit (as defined below) of more than
$100 million; provided, that nothing in this sentence shall restrict any
exercise of the Option permitted hereby on any subsequent date.
(c) As used herein, the term "Total Profit" shall mean the
aggregate amount (before taxes) of the following: (i) the amount received by
Grantee pursuant to Issuer's repurchase of the Option (or any portion thereof)
pursuant to Section 7, (ii) (x) the amount received by Grantee pursuant to
Issuer's repurchase of Option Shares pursuant to Section 7, less (y) the
Grantee's purchase price for such Option Shares, (iii) (x) the net cash
amounts received by Grantee pursuant to the sale of Option Shares (or any
other securities into which such Option Shares are converted or exchanged) to
any unaffiliated party, less (y) the Grantee's purchase price of such Option
Shares, (iv) any amounts received by Grantee on the transfer of the Option (or
any portion
21
thereof) to any unaffiliated party, and (v) any equivalent amount with respect
to the Substitute Option.
(d) As used herein, the term "Notional Total Profit" with respect
to any number of shares as to which Grantee may propose to exercise this
Option shall be the Total Profit determined as of the date of such proposed
exercise assuming that this Option were exercised on such date for such number
of shares and assuming that such shares, together with all other Option Shares
held by Grantee and its affiliates as of such date, were sold for cash at the
closing market price for the Common Stock as of the close of business on the
preceding trading day (less customary brokerage commissions).
(e) The Grantee agrees, promptly following any exercise of all or
any portion of the Option, and subject to its rights under Section 7 hereof,
to use commercially reasonable efforts promptly to maximize the value of
Option Shares purchased taking into account market conditions, the number of
Option Shares, the potential negative impact of substantial sales on the
market price for Issuer Common Stock, and the availability of an effective
registration statement to permit public sale of Option Shares.
15. 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.
16. 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 is not permitted to acquire, or Issuer is
not permitted to repurchase pursuant to Section 7, the full number of shares
of Common Stock provided in Section 1(a) hereof (as adjusted pursuant to
Section 1(b) or 5 hereof), it is the express intention of Issuer to allow the
Holder to
22
acquire or to require Issuer to repurchase such lesser number of shares as may
be permissible, without any amendment or modification hereof.
17. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when
delivered in person, by fax, telecopy, or by registered or certified mail
(postage prepaid, return receipt requested) at the respective addresses of the
parties set forth in the Merger Agreement.
18. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws
thereof.
19. 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.
20. Except as otherwise expressly provided herein, 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.
21. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contain 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 assignees. 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 assignees, any rights, remedies, obligations
or liabilities under or by reason of this Agreement, except as expressly
provided herein.
23
22. Capitalized terms used in this Agreement and not defined
herein shall have the meanings assigned thereto in the Merger Agreement.
24
IN WITNESS WHEREOF, each of the parties has caused this Agreement
to be executed on its behalf by its officers thereunto duly authorized, all of
the date first above written.
FIRST INTERSTATE BANCORP
By /s/ Xxxxxxx X. X. Xxxxx
--------------------------------
Its Chairman and Chief
Executive Officer
FIRST BANK SYSTEM, INC.
By /s/ Xxxx X. Xxxxxxxxxx
--------------------------------
Its Chairman, President
and Chief Executive
Officer
25
