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Associated Banc-corp Stock Option Agreement

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ASSOCIATED BANC-CORP
STOCK OPTION AGREEMENT


STOCK OPTION AGREEMENT, dated as of May 14, 1997, by and between Associated Bank-Corp, a Wisconsin corporation (the "Issuer"), and First Financial Corporation, a Wisconsin corporation ("Grantee").


WHEREAS, concurrently with the execution and delivery of this Agreement, Issuer, Badger Merger Corp., a Wisconsin corporation and a wholly owned subsidiary of Issuer ("Merger Sub"), and Grantee are entering into an Agreement and Plan of Merger, dated as of the date hereof (the "Merger Agreement"), which provides for, among other things, upon the terms and subject to the conditions thereof, the merger of Merger Sub with and into Grantee (the "Merger");


WHEREAS, as a condition to Grantee's willingness to enter into the Merger Agreement, Grantee has requested that the Issuer agree, and in order to induce Grantee to enter into the Merger Agreement, Issuer has so agreed, to grant to Grantee an option with respect to certain shares of Issuer's common stock on the terms and subject to the conditions set forth herein; and


WHEREAS, as a condition to Issuer's willingness to enter into the Merger Agreement, the Issuer has requested that Grantee agree, and in order to induce the Issuer to enter into the Merger Agreement, Grantee has so agreed, to grant to Issuer an option with respect to certain shares of Grantee's common stock on substantially the same terms as set forth herein;


NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants, representations, warranties and agreements contained herein and in the Merger Agreement; and intending to be legally bound hereby, the parties agree as follows:


1. Grant of Option. Issuer hereby grants Grantee an irrevocable option (the "Stock Option") to purchase up to (a) 4,465,361 shares (the "Option Shares") of common stock, $0.01 par value per share, of Issuer (the "Issuer Common Stock") or (b) if, immediately prior to exercise, such number of shares of Issuer Common Stock is less than 19.9% of the issued and outstanding shares of Issuer Common Stock at the time of exercise of the Stock Option, such greater number of shares of Issuer Common Stock as equals 19.9% of the issued and outstanding shares of Issuer Common Stock at such time of exercise of the Stock Option, in the manner set forth below, at a price of $32.50 per share (the "Exercise Price"), payable in cash in accordance with Section 4 hereof. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in the Merger Agreement.


2. Exercise of Option. (a) Subject to the provisions of Sections 2(c) and (d), the Stock Option may be exercised by Grantee, in whole or in part, at any time or from time to time following the occurrence of a Purchase Event (as defined below), provided that, except as provided in the last sentence of this Section 2(a), the Stock Option shall terminate and be of no further force and effect upon the earliest to occur of (i) the Effective Time, (ii) 12 months after the first occurrence of 2
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a Purchase Event and (iii) termination of the Merger Agreement in accordance with its terms prior to the occurrence of a Purchase Event (provided that the Stock Option shall not terminate for a period of 12 months following any occurrence specified in Sections 2(b)(iv)(A) or 2(b)(v)(A); and provided further that any purchase of shares upon exercise of the Stock Option shall be subject to compliance with applicable law, including the Bank Holding Company Act of 1956, as amended (the "BHC Act"). Notwithstanding the termination of the Stock Option, Grantee shall be entitled to purchase the Option Shares with respect to which it has exercised the Stock Option in accordance with the terms hereof prior to the termination of the Stock Option. The termination of the Stock Option shall not affect any rights hereunder which by their terms extend beyond the date of such termination.


(b) As used herein, a "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 or a "group" (as such term is defined under the
Exchange Act) of which such person is a member, would acquire beneficial
ownership (as such term is defined in Rule 13d-3 of the Exchange Act), or
the right to acquire beneficial ownership, of 15% or more of the then
outstanding Issuer Common Stock (any such offer, a "Tender Offer"), and
the Board of Directors shall not have recommended against such tender
offer or exchange offer within 10 business days of such commencement or
filing or at any time thereafter shall recommend acceptance thereof;


(ii) Issuer or any subsidiary of Issuer shall have authorized,
recommended, 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 (A) effect a merger,
consolidation or other business combination involving Issuer or any of its
subsidiaries (other than internal mergers, reorganizing actions or
consolidations involving only existing subsidiaries of Issuer), (B) sell,
lease or otherwise dispose of assets of Issuer or its subsidiaries
aggregating 15% or more of the consolidated assets, net revenues or net
income of Issuer and its subsidiaries or (C) issue, sell or otherwise
dispose 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 its subsidiaries (any of the foregoing, an
"Acquisition Transaction");


(iii) any person (other than Grantee or any subsidiary of Grantee)
shall have acquired beneficial ownership (as such term is defined in Rule
13d-3 under the Exchange Act) or the right to acquire beneficial ownership
of, or any "group" (as such term is defined under the Exchange Act) shall
have been formed which beneficially owns or has the right to acquire
beneficial ownership of, shares of Issuer Common Stock (other than trust
account shares) aggregating 15% or more of the then outstanding Issuer
Common Stock;


(iv) (A) the holders of Issuer Common Stock shall not have approved
the increase in the number of authorized shares of Issuer Common Stock or
the issuance of Issuer Common Stock in connection with the Merger at the
meeting of such shareholders held for the purpose of voting on the
increase in the number of authorized shares of Issuer Common 3
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Stock and the issuance of Issuer Common Stock in connection with the
Merger, (B) such meeting shall not have been held or shall have been
cancelled prior to termination of the Merger Agreement or (C) Issuer's
Board of Directors shall have withdrawn or modified in a manner adverse to
Grantee or to Grantee's ability to consummate the transactions
contemplated by the Merger Agreement the recommendation of Issuer's Board
of Directors with respect to the Merger Agreement, in each case after any
person (other than Grantee or any subsidiary of Grantee) shall have (X)
publicly announced, or taken actions which have resulted in public
disclosure of, a proposal, or publicly disclosed an intention to make a
proposal, to engage in an Acquisition Transaction and shall not have
withdrawn such proposal at least 10 business days prior to the
stockholders' meeting to consider the increase in the number of authorized
shares of Issuer Common Stock or the issuance of Issuer Common Stock in
connection with the Merger (provided that any public disclosures to the
effect that such person intends to or may make another proposal shall
result in the original proposal not being deemed to have been withdrawn)
or (Y) filed an application (or given a notice), whether in draft or final
form, to the Federal Reserve Board, the OCC, the FDIC or any other
governmental or regulatory authority for approval to engage in an
Acquisition Transaction; provided that the Stock Option shall not be
exercisable upon the occurrence specified in Section 2(b)(iv)(A) above
unless and until any of the events specified in Section 2 (b)(ii) or (iii)
above shall have occurred; or


(v) (A) there shall exist a willful or intentional breach under the
Merger Agreement by Issuer and such breach would entitle Grantee to
terminate the Merger Agreement; and (B) within 12 months from the date of
such breach, any of the events specified in Section 2(b)(ii) or (iii)
above shall have occurred.


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


(c) In the event Grantee wishes to exercise the Stock Option, it shall send to Issuer a written notice (an "Exercise Notice" and the date of which being herein referred to as a "Notice Date") specifying (i) the total number of Option Shares that it intends to purchase pursuant to such exercise and (ii) a place and date not earlier than three business days nor later than 20 business days from the Notice Date for the closing of such purchase (a "Closing Date"); provided that if any closing of the purchase and sale pursuant to the Stock Option (a "Closing") cannot be consummated by reason of any applicable order, injunction, decree, judgment, law or regulation, the period of time that otherwise would run pursuant to this sentence shall run instead from the date on which such restriction on consummation has expired or been terminated; and provided further, without limiting the foregoing, that if prior notification to or approval of the Federal Reserve Board, the OCC, the FDIC or any other governmental or regulatory authority is required in connection with such purchase, Grantee shall promptly file the required notice or application for approval and shall expeditiously process the same (and Issuer shall cooperate with Grantee in the filing of any such notice or application and the obtaining of any such approval), and the period of time that otherwise would run pursuant to this sentence shall run instead from the date on which, as the case may be, (A) any required notification period has expired or been terminated or (B) such approval has been obtained, and in either event, any requisite waiting period has passed. 4
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(d) Notwithstanding Section 2(c), in no event shall any Closing Date occur later than 18 months after the related Notice Date, and if such Closing shall not have occurred within 18 months after such Notice Date due to the failure to obtain any required approval of the Federal Reserve Board, the OCC, the FDIC or any other governmental or regulatory authority, the exercise of the Stock Option or Substitute Option effected on such date shall be deemed to have expired. In the event (i) Grantee receives official notice that any such approval required for the purchase of Option Shares will not be issued or granted or (ii) a Closing Date shall not have occurred within 18 months after the related Notice Date due to the failure to obtain any such approval, Grantee shall be entitled to exercise its rights to exercise the Stock Option in connection with the resale of Issuer Common Stock or other securities pursuant to a registration statement as provided in Section 8. The provisions of this Section 2 and Section 4 shall apply with appropriate adjustments to any such exercise.


3. Conditions to Closing. The obligation of Issuer to issue Option Shares to Grantee hereunder is subject to the conditions that (a) all consents, approvals, orders or authorizations of, or registrations, declarations or filings with, the Federal Reserve Board, the OCC, the FDIC or any other governmental or regulatory authority, if any, required in connection with the issuance of Option Shares hereunder shall have been obtained or made, as the case may be, and (b) no order, injunction or decree issued by any court or agency of competent jurisdiction or other legal restraint preventing such issuance shall be in effect.


4. Closing. At any Closing, (a) Issuer will deliver to Grantee a certificate or certificates in definitive form, such certificate or certificates to be registered in the name of Grantee, or such other affiliate of Grantee as Grantee shall designate in the Exercise Notice and shall bear the legend set forth in Section 11, representing the number of Option Shares designated by Grantee in its Exercise Notice, which Option Shares shall be free and clear of all Liens, and (b) Grantee will deliver to Issuer the aggregate Exercise Price for the Option Shares so designated and being purchased at such Closing by wire transfer of immediately available funds to a bank account designated by Issuer.


5. Representations and Warranties of Issuer. Issuer represents and warrants to Grantee that (a) Issuer is a corporation
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