Stock Option Agreement

EXHIBIT 10.9


THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO CERTAIN PROVISIONS
CONTAINED HEREIN AND TO RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED


STOCK OPTION AGREEMENT


Stock Option Agreement, dated as of March 23, 1998 (the "Agreement"), by and between Sandwich Bancorp, Inc. ("Issuer"), a Massachusetts corporation and bank holding company and the parent of the Sandwich Co-operative Bank, a Massachusetts co-operative bank ("Sandwich Bank"), and The 1855 Bancorp ("Grantee"), a Massachusetts mutual holding company and the parent of Compass Bank For Savings, a Massachusetts savings bank ("Compass Bank").


WITNESSETH:


WHEREAS, Issuer, Grantee, Compass Bank and Sandwich Bank have entered into an Amended and Restated Affiliation and Merger Agreement dated as of March 23, 1998 (the "Affiliation Agreement"), providing for, among other things, the merger of Issuer with Grantee or an Affiliate of Grantee (the "Merger"); and


WHEREAS, as a condition and inducement to Grantee's execution of the Affiliation Agreement, Grantee has required that Issuer agree, and Issuer has agreed, to grant to Grantee the Option (as hereinafter defined); and


NOW THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth herein and in the Affiliation Agreement, and intending to be legally bound hereby, Issuer and Grantee agree as follows:


1 DEFINED TERMS. Capitalized terms which are used but not defined herein shall have the meanings ascribed to such terms in the Affiliation Agreement.


2. GRANT OF OPTION. Subject to the terms and conditions set forth herein, Issuer hereby grants to Grantee an irrevocable option (the "Option") to purchase up to 387,107 shares (as adjusted as set forth herein, the "Option Shares," which shall include the Option Shares before and after any transfer of such Option Shares) of Common Stock, par value $1.00 per share ("Issuer Common Stock"), of Issuer at a purchase price per Option Share (the "Purchase Price") of $57.00, provided, however, that in no event shall the number of Option Shares for which the Option is exercisable exceed 19.9% of the issued and outstanding shares of Issuer Common Stock without giving effect to any shares subject to or issued pursuant to the Option. The number of shares of Issuer Common Stock that may be received upon the exercise of the Option and the Purchase Price are subject to adjustment as herein set forth.


3. EXERCISE OF OPTION.


(a) Grantee or Holder (as hereinafter defined) may exercise the Option, in whole or in part, at any time and from time to time following the occurrence of a Purchase Event (as hereinafter defined) and before an Exercise Termination Event (as hereinafter defined). Each of the following shall be an "Exercise Termination Event":


(i) The Effective Time (as defined in the Affiliation Agreement) of the
Merger,


(ii) The passage of 12 months after termination of the Affiliation
Agreement following the occurrence of a Purchase Event or a Preliminary
Purchase Event;


(iii) The date on which the Affiliation Agreement is terminated in
accordance with its terms, but only if such termination takes place prior
to the occurrence of a Purchase Event or a Preliminary Purchase Event; and


(iv) The passage of 12 months after the Affiliation Agreement is
terminated by Grantee pursuant to Section 11.1.2 or 11.1.3 of the
Affiliation Agreement.


Any purchase of shares upon exercise of the Option shall be subject to compliance with applicable laws, including without limitation the Bank Holding Company Act of 1956, as amended (the "BHC Act"), and the Bank Merger Act, as amended ("Bank Merger Act"). The term "Holder" shall mean the holder or holders of the Option from time to time (subject to the limitations contained in Section 12(h)). The Grantee is the initial Holder. The rights set forth in Section 8 hereof shall terminate when the right to exercise the Option terminates (other than as a result of a complete exercise of the Option) as set forth above.


(b) As used herein, a "Purchase Event" means any of the following events:


(i) Without Grantee's prior written consent, Issuer shall have
authorized, recommended or publicly proposed, or publicly announced an
intention to authorize, recommend or propose, or entered into an agreement
with any person (other than Grantee or any subsidiary of Grantee) to effect
(A) a merger, consolidation or similar transaction involving Issuer or any
of its subsidiaries, (B) the disposition, by sale, lease, exchange or
otherwise, of assets of Issuer or any Issuer Subsidiary representing in
either case 15% or more of the consolidated assets of Issuer and the Issuer
Subsidiaries, or (C) the issuance, sale or other disposition of (including
by way of merger, consolidation, share exchange or any similar transaction)
securities representing 15% or more of the voting power of Issuer or any of
the Issuer Subsidiaries (any of the foregoing an "Acquisition
Transaction"); or


(ii) any person (other than Grantee or any subsidiary of Grantee) shall
have acquired beneficial ownership (as such term is defined in Rule 13d-3
promulgated under the Exchange Act) of or the right to acquire beneficial
ownership of, or any "group" (as such term is defined in Section 13(d)(3)
of the Exchange Act) shall have been formed which beneficially owns or has
the right to acquire beneficial ownership of, 25% or more of the then
outstanding shares of Issuer Common Stock.


(c) As used herein, a "Preliminary Purchase Event" means any of the following events:


(i) any person (other than Grantee or any subsidiary of Grantee) shall
have commenced (as such term is defined in Rule 14d-2 under the Exchange
Act), or shall have filed a registration statement under the Securities Act
with respect to, a tender offer or exchange offer to purchase any shares of
Issuer Common Stock such that, upon consummation of such offer, such person
would own or control 10% or more of the then outstanding shares of Issuer
Common Stock (such an offer being referred to herein as a "Tender Offer"
and an "Exchange Offer," respectively); or


(ii) following the public announcement of an Acquisition Proposal (which
the parties hereto acknowledge has already taken place), the holders of
Issuer Common Stock shall not have approved the Affiliation Agreement at
the meeting of such stockholders held for the purpose of voting on the
Affiliation Agreement (the term "Acquisition Proposal" is defined to mean


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(x) a bona fide proposal by any person (other than Grantee or any
subsidiary of Grantee) shall have been made to Issuer or its stockholders
to engage in a Acquisition Transaction, (y) any person (other than Grantee
or any subsidiary of Grantee) shall have stated its intention to Issuer or
its stockholders to make a proposal to engage in a Acquisition Transaction
if the Affiliation Agreement terminates or (z) any person (other than
Grantee or any subsidiary of Grantee) shall have filed an application or
notice with any Governmental Entity to engage in a Acquisition
Transaction); or


(iii) following the occurrence of an Acquisition Proposal (which the
parties hereto acknowledge has already taken place):


(A) the meeting of Issuer stockholders held for the purpose of voting
on the Affiliation Agreement shall not have been held or shall have been
canceled prior to termination of the Affiliation Agreement,


(B) Issuer's Board of Directors shall have withdrawn or modified, or
publicly announced its intention to withdraw or modify, in a manner
adverse to Grantee the recommendation of Issuer's Board of Directors
with respect to the Affiliation Agreement and the Merger;


(C) Issuer shall have breached any representation, warranty,
covenant or obligation contained in the Affiliation Agreement and such
breach would entitle Grantee to terminate the Affiliation Agreement
under Section 11.1.2 or 11.1.3 of the Affiliation Agreement (without
regard to the cure period provided for therein unless such cure is
promptly effected without jeopardizing consummation of the Merger
pursuant to the terms of the Affiliation Agreement); or


(D) The Merger shall not have been consummated by reason of failure
of the pooling of interests condition, and such failure is the result of
the actions of a party not affiliated with either Grantee or Issuer; or


(iv) 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 (x) acquired beneficial ownership or the right
to acquire beneficial ownership of 10% or more of the outstanding shares of
Issuer Common Stock or (y) 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
acquire beneficial ownership of 10% or more of the outstanding shares of
Issuer Common Stock or otherwise to engage in an Acquisition Transaction.


As used in this Agreement, "person" shall have the meaning specified in Sections 3(a)(9) and 13(d)(3) of the Exchange Act.


(d) Issuer shall notify Grantee promptly in writing of the occurrence of any Preliminary Purchase Event or Purchase Event, it being understood that the giving of such notice by Issuer shall not be a condition to the right of Holder to exercise the Option.


(e) In the event Holder wishes to exercise the Option, it shall send to Issuer a written notice (the date of which being herein referred to as the
"Notice Date") specifying (i) the total number of Option Shares it intends to


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purchase pursuant to such exercise, and (ii) a place and date not earlier than three business days nor later than 15 business days from the Notice Date for the closing (the "Closing") of such purchase (the "Closing Date"). If prior notification to or approval of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), the Federal Deposit Insurance Corporation, the Massachusetts Division of Banks, or any other Governmental Entity is required in connection with such purchase, Issuer shall cooperate with Grantee in the filing of the required notice of application for approval and the obtaining of such approval and the Closing shall occur immediately following such regulatory approvals (and any mandatory waiting periods). Any exercise of the Option shall be deemed to occur on the Notice Date relating thereto.


4. PAYMENT AND DELIVERY OF CERTIFICATES.


(a) On each Closing Date, Holder shall (i) pay to Issuer, in immediately available funds by wire transfer to a bank account designated by Issuer, an amount equal to the Purchase Price multiplied by the number of Option Shares to be purchased on such Closing Date, and (ii) present and surrender this Agreement to Issuer at the address of Issuer specified in Section 12(f) hereof.


(b) At each Closing, simultaneously with the delivery of immediately available funds and surrender of this Agreement as provided in Section 4(a), (i) Issuer shall deliver to Holder (A) a certificate or certificates representing the Option Shares to be purchased at such Closing, which Option Shares shall be free and clear of all liens, claims, charges and encumbrances of any kind whatsoever and subject to no preemptive rights, and (B) if the Option is exercised in part only, an executed new agreement with the same terms as this Agreement evidencing the right to purchase the balance of the shares of Issuer Common Stock purchasable hereunder, and (ii) Holder shall deliver to Issuer a letter agreeing that Holder shall not offer to sell or otherwise dispose of such Option Shares in violation of applicable federal and state law or of the provisions of this Agreement.


(c) In addition to any other legend that is required by applicable law, certificates for the Option Shares delivered at each Closing shall be endorsed with a restrictive legend which shall read substantially as follows:


THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT
TO RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF MARCH
23, 1998. A COPY OF SUCH AGREEMENT 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 of 1933, as amended (the "1933 Act"), in the above legend shall be removed by delivery of substitute certificate(s) without such reference if 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 to 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.


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(d) Upon the giving by Holder to Issuer of the written notice of exercise of the Option provided for under Section 3(e), the tender of the applicable purchase price in immediately available funds and the tender of this Agreement to Issuer, Holder shall be deemed to be the holder of record of the shares of Issuer Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of Issuer shall then be closed or that certificates representing such shares of Issuer Common Stock shall not then be actually delivered to Holder.


(e) Issuer agrees (i) that it shall at all times maintain, free from preemptive rights, sufficient authorized but unissued or treasury shares of Issuer Common Stock so that the Option may be exercised without additional authorization of Issuer Common Stock so that the Option may be exercised without requiring Issuer's stockholders to approve an increase in the number of authorized shares of Issuer Common Stock after giving effect to all other options, warrants, convertible securities and other rights to purchase Issuer 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 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 (A) complying with all premerger notification, reporting and waiting period requirements and (B) in the event prior approval of or notice to any Governmental Entity is necessary before the Option may be exercised, cooperating fully with Holder in preparing such applications or notices and providing such information to such Governmental Entity as it may require) in order to permit Holder to exercise the Option and Issuer duly and effectively to issue shares of Issuer Common Stock pursuant hereto, and (iv) promptly to take all action provided herein to protect the rights of Holder against dilution.


5. REPRESENTATIONS AND WARRANTIES OF ISSUER. Issuer hereby represents and warrants to Grantee (and Holder, if different than Grantee) as follows:


(a) CORPORATE POWER AND AUTHORITY. Issuer has all requisite corporate power and authority to enter into this Agreement, and subject to any approvals referred to herein, 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 all necessary corporate action on the part of Issuer, and this Agreement has been duly executed and delivered by Issuer.


(b) NO VIOLATIONS. The execution and delivery of this Agreement, the consummation of the transactions contemplated hereby and compliance by Issuer with any of the provisions hereof will not (i) conflict with or result in a breach of any provision of its Articles of Organization or Bylaws or a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, debenture, mortgage, indenture, license, material agreement or other material instrument or obligation to which Issuer is a party, or by which it or any of its properties or assets may be bound, or (ii) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Issuer or any of its properties or assets.


(c) AUTHORIZED STOCK. Issuer has taken all necessary corporate and other action to authorize and reserve and to permit it to issue, and at all times from the date hereof until the obligation to deliver Issuer Common Stock upon the exercise of the Option terminates, will have


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reserved for issuance upon 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 purchasable upon exercise of the Option, and all such shares, upon issuance pursuant to the Option, will be duly and validly issued, fully paid and nonassessable, and will be delivered free and clear of all liens, claims, charges and encumbrances of any kind or nature whatsoever and not subject to any preemptive rights.


6. REPRESENTATIONS AND WARRANTIES OF GRANTEE. Grantee hereby represents and warrants to Issuer as follows:


(a) CORPORATE POWER AND AUTHORITY. Grantee has all requisite corporate power and authority to enter into this Agreement and, subject to any approvals or consents referred to herein, 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 all necessary corporate action on the part of Grantee, and this Agreement has been duly executed and delivered by Grantee.


(b) The Option is not being, and any shares of Issuer Common Stock or other secu ...