THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO CERTAIN
PROVISIONS CONTAINED HEREIN
OPTION AGREEMENT
This OPTION AGREEMENT, dated as of May 30, 2000 (this "Option
Agreement"), is entered into between NUTMEG FEDERAL SAVINGS AND
LOAN ASSOCIATION, a federal savings association ("Issuer"), and
NEWMIL BANCORP, INC., a Delaware corporation ("Grantee".
WITNESSETH:
WHEREAS, Grantee, New Milford Savings Bank, a wholly owned
subsidiary of Grantee, and Issuer have entered into an Agreement
and Plan of Merger, dated as of the date hereof (the "Agreement"),
which was executed by the parties thereto prior to the execution of
this Option Agreement; and
WHEREAS, as a condition and inducement to Grantee's entering
into the Agreement and in consideration therefor, Issuer has agreed
to grant Grantee the Option (as defined below).
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements set forth herein and in the
Agreement, the parties hereto agree as follows:
SECTION 1. Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms
hereof, up to 457,280 fully paid and nonassessable shares of common
stock, par value $.003 per share of Issuer ("Issuer Common Stock")
(which number of shares is equal to 19.99% of the number of
outstanding shares of Issuer Common and Class B Preferred Stock
("Issuer Preferred Stock") on the date hereof, treating each share
of Issuer Preferred Stock as the equivalent of 1.75 shares of
Issuer Common Stock, at a price per share equal to $7.00 (the
"Initial Price"); provided, however, that in the event Issuer
issues or agrees to issue any additional shares of Issuer Common
Stock (other than shares issued upon the exercise of options
outstanding as of the date of the Agreement in accordance with
their terms pursuant to the Issuer's five employee and director
stock option plans), or grants one or more options to purchase
additional shares of Issuer Common Stock at a price less than the
Initial Price, as adjusted pursuant to Section 5(b) hereof, such
price shall be equal to such lesser price (such price, as adjusted,
is hereinafter referred to as the "Option Price"). The number of
shares of Issuer 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. (a) Grantee may exercise the Option, in whole or
part, at any time and from time to time following the occurrence of
a Purchase Event (as defined below); provided, however, that the
Option shall terminate and be of no further force and effect upon
the earliest to occur of the following events (which are
collectively referred to as an "Exercise Termination Event"):
(i) The time immediately prior to the Effective Time;
(ii) 12 months after the first occurrence of a Purchase Event;
(iii) 18 months after the termination of the Agreement
following the occurrence of a Preliminary Purchase Event (as defined
below), unless clause (vi) or (vii) of this Section 2(a) is applicable;
(iv) upon the termination of the Agreement, prior to the
occurrence of a Purchase Event or Preliminary Purchase Event, by
Issuer pursuant to Sections 8.1 (e) or (f) of the Agreement, by both
parties pursuant to Section 8.1(a) of the Agreement, or by either
party pursuant to Section 8.1(b) or (c) of the Agreement;
(v) 12 months after the termination of the Agreement, by
either party pursuant to Section 8.1(d) of the Agreement based on the
required vote of Issuer's shareholders not being received;
(vi) 2 months after the termination of the Agreement, by
Grantee pursuant to Section 8.1(e) or (f) thereof as a result of a
breach by Issuer, unless such breach was willful or intentional; or
(vii) 24 months after the termination of the Agreement, by
Grantee pursuant to Section 8.1(e) or (f) thereof as a result of a
willful or intentional breach by Issuer.
(b) The term "Preliminary Purchase Event" shall mean any
of the following events or transactions occurring on or after the
date hereof and prior to an Exercise Termination Event:
(i) Issuer without having received Grantee=s prior written
consent, shall have entered into any letter of intent or definitive
agreement to engage in an Acquisition Transaction (as defined below)
with any Person (as defined below) 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 with any Person (as the
term "person" is defined in Sections 3(a)(9) and 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
rules and regulations thereunder) other than Grantee or any Grantee
Subsidiary. For purposes of this Option Agreement "Acquisition
Transaction" shall mean (x) a merger, consolidation or other business
combination involving Issuer, (y) a purchase, lease or other acquisition
of all or substantially all of the assets and/or liabilities of Issuer,
(z) a purchase or other acquisition (including by way of merger,
consolidation, share exchange or otherwise) of Beneficial Ownership (as
the term "beneficial ownership" is defined in Regulation 13d-3(a) of
the Exchange Act) of securities representing 10% or more of the voting
power of Issuer;
(ii) Any Person (other than Grantee, any Grantee Subsidiary
or any current affiliate of Issuer) shall have acquired Beneficial
Ownership of 10% or more of the outstanding shares of Issuer Common Stock
(other than any Person described as having such beneficial ownership
in Issuer's March 31, 2000 proxy statement to shareholders);
(iii) (a) Any Person (other than Grantee or any Grantee
Subsidiary) shall have made a bona fide proposal to Issuer or, by a
public announcement or written communication that is or becomes the
subject of public disclosure, to Issuer's shareholders to engage in an
Acquisition Transaction (including, without limitation, any situation
in which any Person other than Grantee or any Grantee Subsidiary shall
have commenced (as such term is defined in Rule 14d-2 under the
Exchange Act), or shall have filled a registration statement under the
Securities Act of 1933, as amended (the "Securities Act") or the
securities rules and regulations of any federal bank regulatory
authority, with respect to a tender offer or exchange offer to
purchase any shares of Issuer Common Stock such that, upon consummation
of such offer, such person would have Beneficial Ownership of 10% or
more of the then outstanding shares of Issuer Common Stock (such an
offer being referred to herein as a "Tender Offer" or an "Exchange
Offer", respectively)), and (b) the shareholders of Issuer do not
approve the Merger, as defined in the Agreement, at the Special Meeting
of the Issuer's shareholders referenced in the Agreement;
(iv) There shall exist a willful or intentional breach under
the Agreement by Issuer and such breach would entitle Grantee to
terminate the Agreement;
(v) The Special Meeting of Issuer's shareholders held for
the purpose of voting on the Agreement shall not have been held
pursuant to the Agreement or shall have been canceled prior to
termination of the Agreement, or for any reason whatsoever Issuer's
Board of Directors shall have failed to recommend, or shall have
withdrawn or modified in a manner adverse to Grantee the recommendation
of Issuer's Board of Directors, that Issuer's shareholders approve the
Agreement, or if Issuer or Issuer's Board of Directors fails to
oppose any proposal by any Person (other than Grantee or any Grantee
Subsidiary) respecting an Acquisition Transaction (unless advised by
counsel to Issuer that Issuer's or Issuer's Board of Directors' failure
to so oppose is necessary in order to satisfy the fiduciary duty owed
by Issuer's Board of Directors to Issuer's shareholders); or
(vi) Any Person (other than Grantee or any Grantee Subsidiary)
shall have filed an application or notice with the Board of Governors of
the Federal Reserve System (the "FRB"), the Federal Deposit Insurance
Corporation (the "FDIC"), the Connecticut Banking Commissioner (the
"Commissioner"), the Office of Thrift Supervision ("OTS") or other
regulatory or administrative agency or commission (each, a
"Governmental Authority") for approval to engage in an Acquisition
Transaction.
(c) The term "Purchase Event" shall mean any of the following
events or transactions occurring on or after the date hereof and prior
to an Exercise Termination Event:
(i) The acquisition by any Person (other than Grantee or
any Grantee Subsidiary) of Beneficial Ownership (other than on behalf
of the Issuer) of 25% or more of the then outstanding Issuer Common; or
(ii) The occurrence of a Preliminary Purchase Event described
in Section 2(b)(i) except that the percentage referred to in clause (z)
thereof shall be 25%.
(d) Issuer shall notify Grantee promptly in writing of the
occurrence of any Preliminary Purchase Event or Purchase Event
known to Issuer; provided, however, that the giving of such notice
by Issuer shall not be a condition to the right of Grantee to
exercise the Option.
(e) 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," the date of which being hereinafter referred
to as the "Notice Date") specifying (i) the total number of shares
of Issuer Common Stock it will purchase pursuant to such exercise
and (ii) the time (which shall be on a business day that is not
less than three nor more than 10 business days from the Notice
Date) on which the closing of such purchase shall take place (the
"Closing Date"); such closing to take place at the principal office
of the Issuer; provided, however, that, if prior notification to or
approval of the FDIC, the FRB, the OTS, the Commissioner or any
other Governmental Authority is required in connection with such
purchase (each, a "Notification" or an "Approval," as the case may
be), (a) Grantee shall promptly file the required notice or
application for approval ("Notice/Application"); (b) Grantee shall
expeditiously process the Notice/Application; and (c) for the
purpose of determining the Closing Date pursuant to clause (ii) 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. On or
prior to the Closing Date, Grantee shall have the right to revoke
its exercise of the Option by written notice to the Issuer given
not less than three business days prior to the Closing Date.
(f) At the closing referred to in Section 2(e) hereof,
Grantee shall pay to Issuer the aggregate purchase price for the
number of shares of Issuer Common Stock specified in the Option
Notice in immediately available funds by wire transfer to a bank
account designated by Issuer; provided, however, that failure or
refusal of Issuer to designate such a bank account shall not
preclude Grantee from exercising the Option.
(g) At such closing, simultaneously with the delivery of
immediately available funds as provided in Section 2(f) hereof,
Issuer shall deliver to Grantee a certificate or certificates
representing the number of shares of Issuer 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 Issuer Common Stock
purchasable hereunder.
(h) 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, unless prohibited
by applicable law, Grantee shall be deemed to be the holder of
record on the Closing Date of the number of shares of Issuer Common
Stock specified in the Option Notice, notwithstanding that the
stock transfer books of Issuer shall then be closed or that
certificates representing such shares of Issuer Common Stock shall
not then actually be delivered to Grantee. Issuer shall pay all
expenses and other charges that may be payable in connection with
the preparation, issuance and delivery of stock certificates under
this Section 2 in the name of Grantee.
SECTION 3. Issuer agrees: (i) that it shall at all times
until the termination of this Option Agreement have reserved for
issuance upon the exercise of the Option that number of authorized
and reserved shares of Issuer Common Stock equal to the maximum
number of shares of Issuer Common Stock at any time and from time
to time issuable hereunder, all of which shares will, 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; (ii) that it will not, by amendment of its
certificate 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; (iii) promptly to
take all reasonable action as may from time to time be requested by
the Grantee, at Grantee's expense (including (x) complying with all
premerger notification, reporting and waiting period requirements
specified in 15 U.S.C. Section 18a and regulations promulgated
thereunder and (y) in the event prior approval of or notice to the
FDIC, the FRB, the OTS, the Commissioner or any other Governmental
Authority, under the Change in Bank Control Act of 1978, as amended,
the Bank Holding Company Act, as amended, Section 36a-181 or Section
36a-184, as applicable, of the Connecticut Bank Holding Company
Act, Section 1464 of the Home Owners' Loan Act, or any other
applicable federal or state banking law, is necessary before the
Option may be exercised, cooperating with Grantee in preparing such
applications or notices and providing such information to each such
Governmental Authority as it may require in order to permit Grantee
to exercise the Option and Issuer duly and effectively to issue
shares of Issuer Common Stock pursuant hereto; and (iv) to take all
action provided herein to protect the rights of Grantee against
dilution.
SECTION 4. This Option Agreement (and the Option granted
hereby) are exchangeable, without expense, at the option of
Grantee, upon presentation and surrender of this Option Agreement
at the principal office of Issuer, for other Option 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 Issuer Common Stock purchasable hereunder. The
terms "Option Agreement" and "Option" as used herein include any
agreements and related options for which this Option 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 Option Agreement, and (in
the case of loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this Option
Agreement, if mutilated, Issuer will execute and deliver a new
Option Agreement of like tenor and date.
SECTION 5. The number of shares of Issuer 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 type or number of
shares of Issuer Common Stock by reason of stock dividends,
split-ups, mergers, recapitalizations, combinations, subdivisions,
conversions, exchanges of shares or other issuances of additional
shares (other than pursuant to the exercise of the Option), or
redemptions, repurchases, retirements or other reductions of
outstanding shares, the type and number of shares of Issuer Common
Stock purchasable upon exercise hereof shall be appropriately
adjusted and proper provision shall be made so that, in the event
that any shares of Issuer Common or Preferred Stock are to be
issued or otherwise become outstanding or cease to be outstanding
as a result of any such change (other than pursuant to an exercise
of the Option), the number of shares of Issuer Common Stock that
remain subject to the Option shall be increased or decreased (as
applicable) so that, after such issuance and together with the
shares of Issuer Common Stock previously issued pursuant to the
exercise of the Option (as adjusted on account of any of the
foregoing changes in the Issuer Common Stock), such number of
shares of Issuer Common Stock shall equal 19.9% of the number of
shares of Issuer Common and Preferred Stock then issued and
outstanding, treating each share of Issuer Preferred Stock as the
equivalent of 1.75 shares of Issuer Common Stock.
(b) Whenever the number of shares of Issuer 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 Issuer Common Stock purchasable prior to
the adjustment and the denominator of which shall be equal to the
number of shares of Issuer Common Stock purchasable after the
adjustment.
SECTION 6. (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 of any
of the shares of Issuer Common Stock issued pursuant hereto),
promptly prepare and keep current an offering circular which meets
the standards of a shelf registration statement filed with the
Securities and Exchange Commission under the Securities Act
covering any shares issued and issuable pursuant to the Option and
shall use its best efforts to cause such offering circular to be
updated and to remain current and effective for a period not in
excess of 12 months, in order to permit the sale or other
disposition of any shares of Issuer Common Stock issued upon total
or partial exercise of the Option ("Option Shares") in accordance
with any plan of disposition requested by Grantee. Grantee shall
provide all information reasonably requested by Issuer for
inclusion in any offering circular or, if applicable, registration
statement to be filed hereunder. In connection with any such
offering circular, Issuer and Grantee shall provide each other with
representations, warranties, indemnities and other agreements
customarily given in connection with such registration. If
requested by Grantee, 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 secondary offering underwriting
agreements. The requirement of this Section 6(a) for Issuer to
prepare an offering circular may be satisfied by appropriate
compliance with the analogous public offering requirements of the
OTS.
(b) In the event that Grantee requests Issuer to prepare
an offering circular or, if applicable, 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 Issuer Common Stock or
other securities pursuant to such offering circular or, if
applicable, registration statement shall occur substantially
simultaneously with the exercise of the Option.
(c) Concurrently with the preparation and filing of a
registration statement under Section 6(a) hereof, Issuer shall also
make all filings required to comply with state securities laws in
such number of states as Grantee may reasonably request.
SECTION 7. (a) Upon the occurrence of a Repurchase Event
(as defined herein) that occurs prior to an Exercise Termination
Event, (i) at the request delivered to Issuer within 90 days after
Grantee receives actual notice of such occurrence (the date of such
request being the "Option Repurchase Request Date") of Grantee,
Issuer shall repurchase, subject to compliance with applicable law
and out of funds legally available therefor, 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
delivered to Issuer within 90 days after Grantee receives actual
notice of such occurrence (the date of such request being the
"Option Share Repurchase Request Date") of the owner of Option
Shares from time to time (the "Owner"), 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 Issuer Common Stock at which a tender
offer or exchange offer therefor has been made after the date
hereof and on or prior to the Option Repurchase Request Date or the
Option Share Repurchase Request Date, as the case may be, (ii) the
price per share of Issuer 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 average of the 20
highest last sale prices for shares of Issuer Common Stock as
reported within the 90-day period ending on the Option Repurchase
Request Date or the Option Share Repurchase Request Date, as the
case may be, and (iv) 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 an investment banking
firm selected by Grantee or the Owner, as the case may be, and
reasonably acceptable to Issuer, divided by the number of shares of
Issuer Common Stock outstanding at the time of such sale. In
determining the market/offer price, the value of consideration
other than cash shall be the value determined by an investment
banking firm selected by Grantee or the Owner, as the case may be,
and reasonably acceptable to Issuer. The investment banking firm's
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
Option 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 promptly as practicable, and
in any event within 30 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, if any, that Issuer is not then prohibited under
applicable law and regulation from so delivering.
(c) Issuer hereby undertakes to use its reasonable best
efforts to obtain all required regulatory, shareholder 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 from repurchasing any
Option and/or any Option Shares in full, Issuer shall promptly 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) hereof is prohibited as referred to above,
from delivering to Grantee and/or the Owner, as appropriate, the
Option Repurchase Price or the Option Share Repurchase Price,
respectively, in full, Grantee or the Owner, as appropriate, 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 Option
Agreement evidencing the right of Grantee to purchase that number
of shares of Issuer Common Stock equal to the number of shares of
Issuer Common Stock purchasable immediately prior to the delivery
of the notice of repurchase less the number of shares of Issuer
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.
(d) Issuer shall not enter into any agreement with any
Person (other than Grantee or a Grantee Subsidiary) for a
Repurchase Event unless the other Person assumes all the
obligations of Issuer pursuant to this Section 7 in the event that
Grantee or the Owner elects, in its sole discretion, to require
such other Person to perform such obligations.
(e) For purposes of this Section 7, a Repurchase Event
shall be deemed to have occurred (i) upon the consummation of any
merger, consolidation or similar transaction involving Issuer or
any purchase, lease or other acquisition of all or substantially
all of the assets of Issuer or (ii) upon the acquisition by any
person of beneficial ownership of 25% or more of the then
outstanding shares of Issuer Common, provided, that no such event
shall constitute a Repurchase Event unless a Purchase Event shall
have occurred prior to an Exercise Termination Event.
SECTION 8. (a) 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 Issuer 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 Issuer 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 Issuer
Common Stock shall after such merger represent less than 50% of the
outstanding shares and share equivalents of the merged company, or
(iii) to sell or otherwise transfer all or substantially all of its
assets to any Person (other than Grantee or a Grantee Subsidiary)
then, and in each such case, such 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) The Substitute Option shall be exercisable for such
number of shares of 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 Issuer
Common Stock for which the Option was theretofore exercisable,
divided by the Average Price (as hereinafter defined). The
exercise price of the Substitute Option per share of the Substitute
Common Stock (the "Substitute Purchase Price") shall then be equal
to the Option Price multiplied by a fraction in which the numerator
is the number of shares of Issuer Common Stock for which the Option
was theretofore exercisable and the denominator is the number of
shares for which the Substitute Option is exercisable.
(c) The Substitute Option shall otherwise 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 Grantee, provided, further that the terms of the
Substitute Option shall include (by way of example and not
limitation) provisions for the repurchase of the Substitute Option
and Substitute Common Stock by the Substitute Option Issuer on the
same terms and conditions as provided in Section 7 hereof.
(d) 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 corporation, and (iii) the transferee of all
or any substantial part of Issuer's assets.
(ii) "Substitute Common Stock" shall mean the common stock
issued by the Substitute Option Issuer upon exercise of the Substitute
Option.
(iii) "Average Price shall mean the average closing price
of a share of Substitute Common Stock as reported, if applicable, on
a national securities exchange or NASDAQ for the one-year period
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 Issuer Common Stock issued by Issuer, the
corporation merging into Issuer or by any company which controls or
is controlled by such merging corporation, as Grantee may elect.
(e) In no event, pursuant to any of the foregoing
paragraphs, shall the Substitute Option be exercisable for more
than 19.99% of the shares of Substitute Common Stock outstanding
immediately prior to the issuance of the Substitute Option. In
the event that the Substitute Option would be exercisable for more
than such number of shares of Substitute Common Stock 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
selected by Grantee and the Substitute Option Issuer. In addition,
the provisions of Section 5(a) hereof shall not apply to the
issuance of any Substitute Option and for purposes of applying
Section 5(a) hereof thereafter to any Substitute Option, the
percentage referred to in Section 5(a) hereof shall thereafter
equal the percentage that the percentage of the shares of
Substitute Common Stock subject to the Substitute Option bears to
the number of shares of Substitute Common Stock outstanding.
SECTION 9. Notwithstanding Sections 2, 6 and 7 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, that in no event shall any closing date
occur more than 12 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 OTS, the FDIC,
the Commissioner or any other Governmental Authority despite the
best efforts of Issuer or the Substitute Option Issuer, as the case
may be, to obtain such approvals, the exercise of the rights 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 OTS, the FDIC, the Commissioner or any other Governmental
Authority required for the purchase and sale of the Option Shares
will not be issued or granted or (b) a closing date has not
occurred within 12 months after the related notice date due to the
failure to obtain any such required approval, Grantee shall be
entitled to exercise the Option in connection with the concurrent
resale of the Option Shares pursuant to a registration statement as
provided in Section 6 hereof. Nothing contained in this Option
Agreement shall restrict Grantee from specifying alternative means
of exercising rights pursuant to Sections 2, 6 or 7 hereof in the
event that the exercising of any such rights shall not have
occurred due to the failure to obtain any required approval
referred to in this Section 9.
SECTION 10. Issuer hereby represents and warrants to Grantee
as follows:
(a) Issuer has the requisite corporate power and
authority to execute and deliver this Option Agreement and to
consummate the transactions contemplated hereby. The execution and
delivery of this Option Agreement and the consummation of the
transactions contemplated hereby have been duly approved by the
Board of Directors of Issuer and no other corporate proceedings on
the part of Issuer are necessary to authorize this Option Agreement
or to consummate the transactions so contemplated. This Option
Agreement has been duly executed and delivered by, and constitutes
a valid and binding obligation of, Issuer, enforceable against
Issuer in accordance with its terms, subject to any required
Governmental Approval, and except as enforceability thereof may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws affecting the enforcement of
creditors rights generally and except that the availability of the
equitable remedy of specific performance or injunctive relief is
subject to the discretion of the court before which any proceeding
may be brought; and
(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 Option
Agreement in accordance with its terms will have reserved for
issuance upon the exercise of the Option, that number of shares of
Issuer Common Stock equal to the maximum number of shares of Issuer
Common Stock at any time and from time to time issuable hereunder,
and all such shares, upon issuance pursuant hereto, will be duly
authorized, validly issued, fully paid, nonassessable, and will be
delivered free and clear of all claims, liens, encumbrances and
security interests and not subject to any preemptive rights.
SECTION 11. Neither of the parties hereto may assign any of
its rights or delegate any of its obligations under this Option
Agreement or the Option created hereunder to any other Person
without the express written consent of the other party, except that
Grantee may assign this Option Agreement to a wholly owned
subsidiary of Grantee and Grantee may assign its rights hereunder
in whole or in part within 90 days after the occurrence of a
Preliminary Purchase Event that shall have occurred prior to an
Exercise Termination Date; provided, however, that until the date
15 days after the OTS approves an application by Grantee to acquire
the shares of Issuer 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 shares having in excess of
2% of the voting power 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 OTS. The term "Grantee" as used in this Option
Agreement shall also be deemed to refer to Grantee's permitted
assigns.
SECTION 12. Each of Grantee and Issuer will use its
reasonable 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 Option
Agreement, including, without limitation, applying to the FDIC, the
FRB, the OTS, the Commissioner and any other Governmental Authority
for approval to acquire the shares issuable hereunder.
SECTION 13. The parties hereto acknowledge that damages
would be an inadequate remedy for a breach of this Option 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. 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 Option
Agreement.
SECTION 14. If any term, provision, covenant or restriction
contained in this Option 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 Option 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 Grantee is not permitted to
acquire, or Issuer is not permitted to repurchase pursuant to
Section 7 hereof, the full number of shares of Issuer Common Stock
provided in Section 1 hereof (as adjusted pursuant hereto), it is
the express intention of Issuer to allow Grantee to acquire or to
require Issuer to repurchase such lesser number of shares as may be
permissible without any amendment or modification hereof.
SECTION 15. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given
when delivered in the manner and at the respective addresses of the
parties set forth in the Agreement.
SECTION 16. This Option Agreement, the rights and
obligations of the parties hereto, and any claims or disputes
relating thereto shall be governed by and construed in accordance
with the laws of the State of Delaware (but not including the
choice of law rules thereof).
SECTION 17. This Option Agreement may be executed in
counterparts, each of which shall be considered one and the same
agreement and each of which shall be deemed to be an original, and
shall become effective when counterparts have been signed by each
of the parties and delivered to the other party, it being
understood that all parties need not sign the same counterpart.
SECTION 18. 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.
SECTION 19. Except as otherwise expressly provided herein or
in the Agreement, this Option 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 Option Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective
successors and permitted assigns. Nothing in this Option
Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective
successors and permitted assigns, any rights, remedies, obligations
or liabilities under or by reason of this Option Agreement, except
as expressly provided herein.
SECTION 20. Capitalized terms used in this Option Agreement
and not defined herein but defined in the Agreement shall have the
meanings assigned thereto in the Agreement.
SECTION 21. Nothing contained in this Option Agreement shall
be deemed to authorize or require Issuer or Grantee to breach any
provision of the Agreement or any provision of law applicable to
the Grantee or Issuer.
SECTION 22. In the event that any election or determination
is to be made by Grantee or the Owner hereunder and at the time of
such election or determination there is more than one Grantee or
Owner, such election shall be made by a majority in interest of
such Grantees or Owners.
SECTION 23. 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. 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
Issuer Common Stock covered hereby.
IN WITNESS WHEREOF, each of the parties has caused this Option
Agreement to be executed and delivered on its behalf by their
respective officers thereunto duly authorized, all as of the date
first above written.
NUTMEG FEDERAL SAVINGS & LOAN
ASSOCIATION
By: /s/
Paul N. Jaber
Its: Chairman of the Board
NEWMIL BANCORP, INC.
By: /s/
Francis J. Wiatr
Its: Chairman, President and Chief
Executive Officer
