Exhibit 99.2
EXHIBIT A
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STOCK OPTION AGREEMENT
This Stock Option Agreement (this "Agreement") is made as of the 2nd day
of November, 2000, between Financial Institutions, Inc., a New York
corporation ("Grantee"), and Bath National Corporation, a New York corporation
("Issuer").
RECITALS
Grantee, FI Subsidiary I, Inc. and Issuer are entering into an Agreement
and Plan of Merger, dated as of the date hereof (the "Plan"), which is being
executed by the parties hereto simultaneously with the execution of this
Agreement.
As a condition and inducement to Grantee's entering into the Plan and in
consideration therefor, Issuer has agreed to grant Grantee the Option (as
defined below).
In consideration of the foregoing and the mutual covenants and
agreements set forth herein and in the Plan, the parties hereto agree as
follows:
Section 1. Grant of Option.
(a) Issuer hereby grants to Grantee an unconditional, irrevocable
option (the "Option") to purchase, subject to the terms hereof, One hundred
ninety six thousand (196,000) fully paid and nonassessable shares (the "Option
Shares") of Common Stock, par value $5.00 per share (the "Common Stock"), of
Issuer at a price per share equal to $37 per share (the "Initial Price");
provided, however, that in the event Issuer issues or agrees to issue (other
than pursuant to options and warrants to issue Common Stock or shares of
convertible stock convertible into shares of Common Stock in effect or
outstanding as of the date hereof) any shares of Common Stock at a price less
than the Initial Price (as adjusted pursuant to Section 3(b) hereof), such
price shall be equal to such lesser price (such price, as adjusted as
hereinafter provided, the "Option Price"). 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.
Section 2. Exercise of Option.
(a) Timing of Exercise, Termination. Grantee may exercise the Option,
in whole or part, at any time and from time to time subsequent to the
occurrence of a Purchase Event (as defined below); provided that the Option
shall terminate and be of no further force and effect upon the earliest to
occur of (i) the time immediately prior to the Effective Time, (ii) 12 months
after the first occurrence of a Purchase Event, (iii) termination of the Plan
in accordance with the terms thereof prior to the occurrence of a Purchase
Event (other than a termination of the Plan by Grantee pursuant to
Section 9.1(c) thereof due to a willful breach by Issuer of any
representation, warranty or agreement contained therein or by Grantee and
Issuer pursuant to Section 9.1(a) thereof if Grantee shall at that time have
been entitled to terminate the Plan pursuant to Section 9.1(c) thereof due to
a willful breach by Issuer of any representation, warranty or
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agreement contained therein) or (iv) 18 months after the termination of the
Plan by Grantee pursuant to Section 9.1(c) thereof due to a willful breach by
Issuer of any representation, warranty or agreement contained therein or by
Grantee and Issuer pursuant to Section 9.1(a) thereof if Grantee shall at that
time have been entitled to terminate the Plan pursuant to Section 9.1(c)
thereof due to a willful breach by Issuer of any representation, warranty or
agreement contained therein. The events described in clauses (i) - (iv) in
the preceding sentence are hereinafter collectively referred to as an
"Exercise Termination Event." Notwithstanding anything to the contrary
contained herein, the Option may not be exercised at any time when Grantee is
in material breach of any of its representations, warranties or agreements
contained in the Plan such that Issuer would be entitled to terminate the Plan
pursuant to Section 9.1(b) thereof.
(b) Purchase Event. The term "Purchase Event" shall mean the
acquisition by any Person (other than Grantee or any Grantee Subsidiary or any
Issuer Subsidiary acting in a fiduciary capacity in the ordinary course of
business (provided that the foregoing exception shall not apply to any Person
for whom or which such Issuer Subsidiary is acting in such fiduciary
capacity)) of Beneficial Ownership of shares of Common Stock, such that, upon
the consummation of such acquisition, such Person has Beneficial Ownership, in
the aggregate, of 20% or more of the then outstanding shares of Common Stock
(c) Notice by Issuer. Issuer shall notify Grantee promptly in writing
of the occurrence of any Purchase Event; provided, however, that the giving of
such notice by Issuer shall not be a condition to the right of Grantee to
exercise the Option.
(d) Notice of Exercise. In the event that Grantee is entitled to and
wishes to exercise the Option, it shall send to Issuer a written notice (the
"Option Notice" and the date of which being hereinafter referred to as the
"Notice Date") specifying (i) the total number of shares of Common Stock it
will purchase pursuant to such exercise, (ii) the aggregate purchase price as
provided herein, and (iii) a period of time (that shall not be less than three
business days nor more than twenty (20) business days) running from the Notice
Date (the "Closing Date") and a place at which the closing of such purchase
shall take place; provided, that, if prior notification to or approval of the
Federal Reserve Board or any other Regulatory Authority is required in
connection with such purchase (each, a "Notification" or an "Approval," as the
case may be), (a) Grantee shall promptly file, or cause to be filed, the
required notice or application for approval ("Notice/Application"),
(b) Grantee shall expeditiously process, or cause to be expeditiously
processed, the Notice/Application, and (c) for the purpose of determining the
Closing Date pursuant to clause (iii) of this sentence, the period of time
that otherwise would run from the Notice Date shall instead run from the later
of (x) in connection with any Notification, the date on which any required
notification periods have expired or been terminated, and (y) in connection
with any Approval, the date on which such approval has been obtained and any
requisite waiting period or periods shall have expired. For purposes of
Section 2(a) hereof, any exercise of the Option shall be deemed to occur on
the Notice Date relating thereto.
(e) Payments. At the closing referred to in Section 2(e) hereof,
Grantee shall pay to Issuer the aggregate Option Price for the shares of
Common Stock specified in the Option Notice in immediately available funds by
wire transfer to a bank account designated by Issuer; provided,
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however, that failure or refusal of Issuer to designate such a bank account
shall not preclude Grantee from exercising the Option.
(f) At the initial closing referred to in Section 2(e) hereof, Issuer
shall pay Grantee an amount in cash equal to three million dollars
($3,000,000) less the difference between (A) the market/offer price (as
defined in Section 7(a)) of the Common Stock and (B) $37.00; multiplied by
196,000.
(g) Delivery of Common Stock. At such closing, subject to any
requisite Notification and/or Approval having been made or given and being in
full force and effect, and only following payment as set forth in Section 2(e)
hereof, Issuer shall deliver to Grantee a certificate or certificates
representing the number of shares of Common Stock specified in the Option
Notice and, if the Option should be exercised in part only, a new Option
evidencing the rights of Grantee thereof to purchase the balance of the shares
of Common Stock purchasable hereunder. Grantee shall deliver to Issuer a
letter at such closing that Grantee will not offer to sell or otherwise
dispose of any Option Shares in violation of applicable law or the terms of
this Agreement.
(h) Common Stock Certificates. Certificates for Common Stock
delivered at a closing hereunder shall be endorsed with a restrictive legend
substantially as follows:
The transfer of the shares represented by this
certificate is subject to resale restrictions arising
under the Securities Act of 1933, as amended, and the
certain provisions of an agreement between Financial
Institutions Inc. and Bath National Corporation
("Issuer") dated as of the 2nd day of November, 2000.
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.
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 Grantee shall
have delivered to Issuer a copy of a letter from the staff of the Securities
and Exchange Commission, 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 Securities Act; (ii) the reference to the
provisions of this Agreement in the above legend shall be removed by delivery
of substitute certificate(s) without such reference if the shares have been
sold or transferred in compliance with the provisions of this Agreement and
under circumstances that do not require the retention of such reference; and
(iii) the legend shall be removed in its entirety if the conditions in the
preceding clauses (i) and (ii) are both satisfied. In addition, such
certificates shall bear any other legend as may be required by law.
(i) Holder of Record. Upon the giving by Grantee to Issuer of an
Option Notice and the tender of the applicable purchase price in immediately
available funds on the Closing Date, subject to any requisite Notification
and/or Approval having been made or given and being in full force and effect,
Grantee shall be deemed to be the holder of record of the number of shares of
Common Stock specified in the Option Notice, notwithstanding that the stock
transfer books
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of Issuer shall then be closed or that certificates representing such shares
of Common Stock shall not then actually be delivered to Grantee. 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 Grantee.
Section 3. Issuer's Covenants.
(a) Available Shares. Issuer agrees that it shall at all times until
the termination of this Agreement have reserved for issuance upon the exercise
of the Option that number of authorized and reserved shares of Common Stock
equal to the maximum number of shares of Common Stock at any time and from
time to time issuable hereunder, all of which shares shall, upon issuance
pursuant hereto, be duly authorized, validly issued, fully paid,
nonassessable, and delivered free and clear of all claims, liens, encumbrances
and security interests and not subject to any preemptive rights.
(b) Compliance. Issuer agrees that it shall not, by amendment of its
articles of incorporation 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 Issuer.
(c) Certain Actions, Applications and Arrangements. Issuer shall
promptly take all action as may from time to time be required (including (i)
complying with all premerger notification, reporting and waiting period
requirements specified in 15 U.S.C. Section 18a and regulations promulgated
thereunder, and (ii) in the event, under the Bank Holding Company Act of 1956,
as amended (the "B.H.C. Act"), or the Change in Bank Control Act of 1978, as
amended, or any state banking law, prior approval of or notice to the Federa1
Reserve Board or to any other Regulatory Authority is necessary before the
option may be exercised, cooperating with Grantee in preparing such
applications or notices and providing such information to each such Regulatory
Authority as it may require) in order to permit Grantee to exercise the Option
and Issuer duly and effectively to issue shares of Common Stock pursuant
hereto, and to protect the rights of Grantee against dilution.
Section 4. Exchange of Option. This Agreement and the Option granted
hereby are exchangeable, without expense, at the option of Grantee, upon
presentation and surrender of this Agreement at the principal office of
Issuer, for other agreements providing for Options of different denominations
entitling the holder thereof to purchase, 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 in this Section 4 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 shall
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.
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Section 5. Adjustments. The number of shares of Common Stock
purchasable upon the exercise of the Option shall be subject to adjustment
from time to time as follows:
(a) In the event of any change in the 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 purchasable 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 to 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 represents the same proportion of the number of shares of Common
Stock then issued and outstanding as such proportion before the applicable
event described in this Section 5(a).
(b) Whenever the number of Option Shares 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 Option Shares purchasable prior to the
adjustment and the denominator of which shall be equal to the number of Option
Shares purchasable after the adjustment.
Section 6. Registration Rights.
(a) Upon the occurrence of a Purchase Event that occurs prior to an
Exercise Termination Event, Issuer shall, at the request of Grantee (whether
on its own behalf or on behalf of any subsequent holder of the Option (or part
thereof) or any holder of the shares of Common Stock issued pursuant hereto),
promptly prepare, file and keep current a registration statement under the
Securities Act covering any shares issued and issuable pursuant to the 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 the
Option in accordance with any plan of disposition requested by Grantee. Issuer
shall 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.
Grantee shall have the right to demand two such registrations at Issuer's
expense. Grantee shall provide all information reasonably requested by Issuer
for inclusion in any registration statement to be filed hereunder. In
connection with any such registration, Issuer and Grantee shall provide each
other with representations, warranties, indemnities and other agreements
customarily given in connection with such registrations. If requested by
Grantee in connection with such registration, Issuer and Grantee shall become
a party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating themselves in respect of representations,
warranties, indemnities and other agreements customarily included in such
underwriting agreements.
(b) In the event that Grantee requests Issuer to file a registration
statement following the failure to obtain any approval required to exercise
the Option as described in Section 9 hereof, the closing of the sale or other
disposition of the Common Stock or other securities
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pursuant to such registration statement shall occur substantially
simultaneously with the exercise of the Option.
(c) Except where applicable state law prohibits such payments, Issuer
shall pay all expenses (including without limitation registration fees,
qualification fees, blue sky fees and expenses (including the fees and
expenses of counsel), legal expenses, including the reasonable fees and
expenses of one counsel to the holders whose Option Shares are being
registered, printing expenses and the costs of special audits or "cold
comfort" letters, expenses of underwriters, excluding discounts and
commissions but including liability insurance if Issuer so desires or the
underwriters so require, and the reasonable fees and expenses of any necessary
special experts) in connection with each registration pursuant to this Section
6 (including the related offerings and sales by holders of option Shares) and
all other qualifications, notification or exemptions pursuant to this Section
6.
(d) In connection with any registration under this Section 6, Issuer
hereby indemnifies Grantee, and each officer, director and controlling person
of Grantee, and each underwriter thereof, including each person, if any, who
controls such holder or underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, losses, claims, damages and liabilities
caused by any untrue, or alleged untrue, statement contained in any
registration statement or prospectus or notification or offering circular
(including any amendments or supplements thereto) or any preliminary
prospectus, or caused by any omission, or alleged omission, to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such expenses, losses,
claims, damages or liabilities of such indemnified party are caused by any
untrue statement or alleged untrue statement that was included by Issuer in
any such registration statement or prospectus or notification or offering
circular (including any amendments or supplements thereto) in reliance upon
and in conformity with, information furnished in writing to Issuer by such
indemnified party expressly for use therein, and Issuer and each officer,
director and controlling person of Issuer shall be indemnified by such
Grantee, or by such underwriter, as the case may be, for all such expenses,
losses, claims, damages and liabilities caused by any untrue, or alleged
untrue, statement, that was included by Issuer in any such registration
statement or prospectus or notification or offering circular (including any
amendments or supplements thereto) in reliance upon, and in conformity with,,
information furnished in writing to Issuer by such holder or such underwriter,
as the case may be, expressly for such use.
Promptly upon receipt by a party indemnified under this Section 6(d) of
notice of the commencement of any action against such indemnified party in
respect of which indemnity or reimbursement may be sought against any
indemnifying party under this Section 6(d), such indemnified party shall
notify the indemnifying party in writing of the commencement of such action,
but the failure so to notify the indemnifying party shall not relieve it of
any liability which it may otherwise have to any indemnified party under this
Section 6(d). In case notice of commencement of any such action shall be
given to the indemnifying party as above provided, the indemnifying party
shall be entitled to participate in and, to the extent it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense of
such action at its own expense, with counsel chosen by it and reasonably
satisfactory to such indemnified party. The indemnified party shall have the
right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel (other than
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reasonable costs of investigation) shall be paid by the indemnified party
unless (i) the indemnifying party either agrees to pay the same, (ii) the
indemnifying party fails to assume the defense of such action with counsel
reasonably satisfactory to the indemnified party, or (iii) the indemnified
party has been advised by counsel that one or more legal defenses may be
available to the indemnifying party that may be contrary to the interests of
the indemnified party. No indemnifying party shall be liable for the fees and
expenses of more than one separate counsel for all indemnified parties or for
any settlement entered into without its consent, which consent may not be
unreasonably withheld.
If the indemnification provided for in this Section 6(d) is unavailable
to a party otherwise entitled to be indemnified in respect of any expenses,
losses, claims, damages or liabilities referred to herein, then the
indemnifying party, in lieu of indemnifying such party otherwise entitled to
be indemnified, shall contribute to the amount paid or payable by such party
to be indemnified as a result of such expenses, losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative fault
of Issuer, Grantee and the underwriters in connection with the statements or
omissions which resulted in such expenses, losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
amount paid or payable by a party as a result of the expenses, losses, claims,
damages and liabilities referred to above shall be deemed to include any legal
or other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim; provided, however, that in no
case shall Grantee be responsible, in the aggregate, for any amount in excess
of the net offering proceeds attributable to its Option Shares included in the
offering. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Any obligation by any Grantee to indemnify shall be
several and not joint with other holders of Option Shares.
Section 7. Option Repurchase.
(a) Upon the occurrence of a Purchase Event that occurs prior to an
Exercise Termination Event, (i) at the request (the date of such request being
the "Request Date") of Grantee, delivered within 30 days of the Purchase Event
(or such later period as may be provided pursuant to Section 9 hereof), Issuer
shall repurchase the Option from Grantee at a price (the "Option Repurchase
Price") equal to the amount by which (A) the market/offer price (as defined
below) exceeds (B) the Option Price:, multiplied by the number of shares for
which the Option may then be exercised, and (ii) at the request (the date of
such request being the "Request Date") of the owner of Option Shares from time
to time (the "Owner"), delivered within 30 days of a Purchase Event, 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 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 offer or exchange offer therefor has
been made after the date hereof and on or prior to the Request Date, (ii) the
price per share of Common Stock paid or to be paid by any third party pursuant
to an agreement with Issuer (whether by way of a merger, consolidation or
otherwise), (iii)-the highest closing price for shares of Common Stock within
the 90-day period ending on the Request Date as reported on The Nasdaq Stock
Market's National Market (as reported in The Wall Street Journal or, if not
reported therein, in another mutually agreed upon authoritative source), or
(iv)
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in the event of a sale of all or substantially all of Issuer's assets,
the sum of the price paid in such sale for such assets and the current market
value of the remaining assets of Issuer as determined by a nationally-
recognized independent investment banking firm mutually selected by Grantee or
the Owner, as the case may be, on the one hand, and Issuer, on the other hand,
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
independent investment banking firm mutually selected by Grantee or Owner, as
the case may be, on the one hand, and Issuer, on the other hand, whose
determination shall be conclusive and binding on all parties.
(b) Grantee or the Owner, as the case may be, may exercise its right
to require Issuer to repurchase the Option and/or 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 Grantee or
the Owner, as the case may be, elects to require Issuer to repurchase the
Option and/or the Option Shares in accordance with the provisions of this
Section 7. As immediately 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 Grantee the Option
Repurchase Price or to the Owner the Option Share Repurchase Price or the
portion thereof that Issuer is not then prohibited from so delivering under
applicable law and regulation or as a consequence of administrative policy.
(c) Issuer 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 any repurchase contemplated by
this Section 7. Nonetheless, 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 Grantee and/or the Owner and thereafter deliver or cause
to be delivered, from time to time, to Grantee 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 Section 7(b) is prohibited
under applicable law or regulation, or as a consequence of administrative
policy, from delivering to Grantee and/or the Owner, as appropriate, the
Option Repurchase Price and the Option Share Repurchase Price, respectively,
in full, Grantee or Owner may revoke its notice of repurchase of the Option or
the Option Shares either in whole or in part whereupon, in the case of a
revocation in part, Issuer shall promptly (i) deliver to Grantee 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 after
taking into account any such revocation, and (ii) deliver, as appropriate,
either (A) to Grantee, a new Agreement evidencing the right of Grantee to
purchase that number of shares of Common Stock equal to the number of shares
of Common Stock purchasable immediately prior to the delivery of the notice of
repurchase less the number of shares of Common Stock covered by the portion of
the Option repurchased, or (B) to the Owner, a certificate for the number of
Option Shares covered by the revocation.
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(d) Issuer shall not enter into any agreement with any party (other
than Grantee or a Grantee Subsidiary) for an Acquisition Transaction unless
the other party thereto assumes all the obligations of Issuer pursuant to this
Section 7 in the event that Grantee or Owner elects, in its sole discretion,
to require such other party to perform such obligations.
Section 8. Substitute Option.
(a) Grant of Substitute Option. In the event that prior to an
Exercise Termination Event, Issuer shall enter into an agreement (i) to
consolidate or merge with 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 Issuer Subsidiary's assets 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 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 Grantee, of either (x) the
Acquiring Corporation (as defined below), or (y) any Person that controls the
Acquiring Corporation (the Acquiring Corporation and any such controlling
Person being hereinafter referred to as the "Substitute Option Issuer").
(b) Exercise of Substitute Option. The Substitute Option shall be
exercisable for such number of shares of the Substitute Common Stock (as is
hereinafter defined) as is equal to the market/offer price (as defined in
Section 7 hereof), multiplied by the number of shares of the Common Stock for
which the Option was theretofore exercisable immediately prior to the event
described in Section 8(a), divided by the Average Price (as is hereinafter
defined). The exercise price of the Substitute Option per share of the
Substitute Common Stock (the "Substitute Purchase Price") shall then be equal
to the product of the Option Price multiplied by a fraction in which the
numerator is the number of shares of Common Stock for which the Option was
theretofore exercisable immediately prior to the event described in Section
8(a) and the denominator is the number of shares for which the Substitute
Option is exercisable.
(c) Terms of Substitute Option. The Substitute Option shall otherwise
have the same terms as the Option, provided, however, 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
Grantee.
(d) Substitute Option Definitions. 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
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Person, and (iii) the transferee of all or any substantial part
of Issuer's assets (or the assets of any significant Issuer
Subsidiary);
(ii) "Substitute Common Stock" shall mean the common stock issued
by the Substitute Option Issuer upon exercise of the
Substitute Option; and
(iii)"Average Price" shall mean the average bid and asked 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 average of the bid
and asked price of the shares of the Substitute Common Stock
on the day preceding such consolidation, merger or sale,
provided, however, that if such closing price is not
ascertainable due to an absence of a public market for the
Substitute Common Stock, "Average Price" shall mean the
higher of (i) the price per share of Substitute Common Stock
paid or to be paid by any third party pursuant to an
agreement with the issuer of the Substitute Common Stock and
(ii) the book value per share, calculated in accordance with
generally accepted accounting principles, of the Substitute
Common Stock immediately prior to exercise of the Substitute
Option; provided, further, 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 merging Person, as Grantee may elect.
(e) Cap on Substitute Option. In no event, pursuant to any of the
foregoing paragraphs, shall the Substitute Option be exercisable for more than
that proportion of the outstanding Substitute Common Stock equal to the
proportion of the outstanding Common Stock of Issuer which Grantee had the
right to acquire immediately prior to the issuance of the Substitute Option.
In the event that the Substitute Option would be exercisable for more than a
proportion of the outstanding Substitute Common Stock referred to in the
immediately preceding paragraph but for this clause (e), the Substitute Option
Issuer shall make a cash payment to Grantee 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 mutually
selected by Grantee, on the one hand, and Issuer, on the other hand.
Section 9. Extension of Exercise Right. Notwithstanding Section 2,
Section 6, Section 7 and Section 11 hereof, if Grantee has given the notice
referred to in one or more of such Sections, the exercise of the rights
specified in any such Section shall be extended (a) if the exercise of such
rights requires obtaining regulatory approvals (including any required waiting
periods) to the extent necessary to obtain all regulatory approvals for the
exercise of such rights, and (b) to the extent necessary to avoid liability
under Section 16(b) of the Exchange Act by reason of such exercise; provided,
however, that in no event shall any closing date occur more than 6 months
after the related Notice Date, and, if the closing date shall not have
occurred within such period due to the failure to obtain any required approval
by the Federal Reserve Board or any other Regulatory Authority despite the
best efforts of Issuer or the Substitute
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Option Issuer, as the case may be, to obtain such approvals, the exercise of
the Option shall be deemed to have been rescinded as of the related Notice
Date. In the event (a) Grantee receives official notice that an approval of
the Federal Reserve Board or any other Regulatory Authority required for the
purchase and sale of the Option Shares shall not be issued or granted, or (b)
a closing date has not occurred within 6 months after the related Notice Date
due to the failure to obtain any such required approval, Grantee shall be
entitled to exercise the Option in connection with the resale of the Option
Shares pursuant to a registration statement as provided in Section 6.
Section 10. Issuer's Representations and Warranties. Issuer hereby
represents and warrants to Grantee as follows:
(a) Corporate Authority. Issuer 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 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 executed and delivered by Issuer.
(b) Availability of Shares. 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 shall 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, shall be duly authorized,
validly issued, fully paid, non-assessable, and shall be delivered free and
clear of all claims, liens, encumbrances and security interests and not
subject to any preemptive rights.
(c) No Violations. The execution, delivery and performance of this
Agreement does not or shall not, and the consummation by Issuer of any of the
transactions contemplated hereby shall not, constitute or result in (A) a
breach or violation of, or a default under, its articles of incorporation or
by-laws, or the comparable governing instruments of any of the Issuer
Subsidiaries, or (B) a breach or violation of, or a default under, any
agreement, lease, contract, note, mortgage, indenture, arrangement or other
obligation of it or any of the Issuer Subsidiaries (with or without the giving
of notice, the lapse of time or both) or under any law, rule, ordinance or
regulation or judgment, decree, order, award or governmental or non-
governmental permit or license to which it or any of the Issuer Subsidiaries
is subject, that would, in any case give any other person the ability to
prevent or enjoin Issuer's performance under this Agreement in any material
respect.
Section 11. Assignment. Neither of the parties hereto may assign any
of its rights or delegate any of its obligations under this Agreement or the
Option created hereunder to any other Person without the express written
consent of the other party; provided, however, that until the date at which
the Federal Reserve Board has approved an application by Grantee under the
B.H.C. Act to acquire the shares of Common Stock subject to the Option, other
than to a wholly owned subsidiary of Grantee, 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
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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. The term "Grantee," as used in
this Agreement, shall also be deemed to refer to Grantee's permitted assigns.
Any attempted assignment prohibited by this Section 11 is void and without
effect.
Section 12. Filings and Consents. Each of Grantee and Issuer shall use
its reasonable efforts to make all filings with, and to obtain consents of,
all third parties and Regulatory Authorities necessary to the consummation of
the transactions contemplated by this Agreement, including, without
limitation, making application if necessary, for listing of the shares of
Common Stock issuable hereunder on any exchange or quotation system and
applying to the Federal Reserve Board under the B.H.C. Act and to state
banking authorities for approval to acquire the shares issuable hereunder.
Section 13. Remedies. 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 shall hereto be enforceable by
either party hereto through injunctive or other equitable relief. Both
parties further agree to waive any requirement for the securing or posting of
any bond in connection with the obtaining of any such equitable relief and
that this provision is without prejudice to any other rights that the parties
hereto may have for any failure to perform this Agreement.
Section 14. Severability. 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.
Section 15. Notices. 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 Plan.
Section 16. Counterparts. 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 and shall be effective at
the time of execution.
Section 17. Expenses. 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.
Section 18. Limitation of Value.
(a) Notwithstanding any other provision of this Agreement, in no event
shall the Grantee's Total Benefit (as hereinafter defined) exceed $3.0 million
and, if it otherwise would exceed such amount, the Grantee, at its sole
election, shall either (i) reduce the number of shares of Common Stock subject
to this Option, (ii) deliver to Issuer for cancellation Option Shares
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previously purchased by Grantee, (iii) pay cash to Issuer, or (iv) any
combination thereof, so that Grantee's actually realized Total Benefit shall
not exceed $3.0 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 Benefit (as defined below) of more than
three million dollars ($3,000,000); 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 Benefit" shall mean the aggregate
amount (before taxes) of the following: (i) the amount received by Grantee
pursuant to Issuers' 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) 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
cash payments made by Issuer pursuant to Section 2(e)(2), (v) any amounts
received by Grantee on the transfer of the Option (or any portion thereof) to
any unaffiliated party, and (vi) any amount equivalent to the foregoing with
respect to the Substitute Option.
(d) As used herein, the term "Notional Total Benefit" with respect to
any number of shares as to which Grantee may propose to exercise this Option
shall be the Total Benefit 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
average of the bid and asked prices for the Common Stock on the preceding
trading day (less customary brokerage commissions) and Grantee also received
the cash payment called for by Section 2(f).
(e) If Grantee transfers the Option, either in whole or in part, the
Total Benefit shall apply to Grantee and to all subsequent holders of the
Option in the aggregate such that the Total Benefit realized by such persons
may not exceed three million dollars ($3,000,000) in the aggregate. All
references to Grantee in this Section 18 shall include any and all subsequent
holders of the Option.
(f) The provisions of this Section 18 shall survive the occurrence of
an Exercise Termination Event.
Section 19. Entire Agreement. Except as otherwise expressly provided
herein or in the Plan and the Confidentiality 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.
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Section 20. Definitions. Capitalized terms used in- this Agreement and
not defined herein but defined in the Plan shall have the meanings assigned
thereto in the Plan.
Section 21. Effect on Plan. Nothing contained in this Agreement shall
be deemed to authorize Issuer or Grantee to breach any provision of the Plan.
Section 22. Selections. In the event that any selection or
determination is to be made by Grantee hereunder and at the time of such
selection or determination there is more than one Grantee, such selection
shall be made by a majority in interest of such Grantees.
Section 23. Further Assurances. In the event of any exercise of the
option by Grantee, Issuer and such Grantee 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.
Section 24. Voting. Except to the extent Grantee exercises the Option,
Grantee shall have no rights to vote or receive dividends or have any other
rights as a shareholder with respect to shares of Common Stock covered hereby.
Section 25. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York.
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IN WITNESS WHEREOF, each of the parties has caused this Stock Option
Agreement to be executed on its behalf by their officers thereunto duly
authorized, all as of the date first above written.
BATH NATIONAL CORPORATION
By:/s/ Douglas McCabe
------------------------------------
Douglas McCabe
President
FINANCIAL INSTITUTIONS, INC.
By:/s/ Peter G. Humphrey
-------------------------------------
Peter G. Humphrey
President and Chief Executive Officer
