EXHIBIT 20.1.1
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MASTER RECAPITALIZATION AGREEMENT
by and among
IMPERIAL CREDIT INDUSTRIES, INC.
and
EACH OF THE INVESTORS REFERRED TO HEREIN
Dated as of March 29, 2001
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MASTER RECAPITALIZATION AGREEMENT
This Master Recapitalization Agreement, dated as of March 29, 2001 (the
"Recapitalization Agreement" or this "Agreement"), is entered into by and among
Imperial Credit Industries, Inc., a California corporation (the "Company"), and
the respective Senior Secured Debt Purchasers and Signatory Debtholders
initially named on the signature pages hereof, together with each of the
Convertible Subordinated Debt Purchasers who subsequently become parties hereto
as hereinafter provided (each of which is acting severally and not jointly and
as to itself only) on the basis of the following facts:
A. The Company is the holding company of Southern Pacific Bank, a
California industrial bank (the "Bank") that is subject to regulation and
supervision by the California Department of Financial Institutions (the "DFI")
pursuant to the California Banking Law (California Financial Code Sections 99 et
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seq.) and the deposit accounts of which are insured by the Federal Deposit
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Insurance Corporation (the "FDIC").
B. Pursuant to separate orders issued by the FDIC and the DFI in response
to substantial losses suffered by the Bank, the capital of the Bank is required
to be substantially increased, with a major portion of such increase to be
completed by March 31, 2001 and additional increases in capital to be completed
in stages through June 30, 2001 pursuant to a Final Order of the DFI dated
December 27, 2000 (the "DFI Order") and through December 31, 2001 pursuant to a
Cease and Desist Order by the FDIC dated December 15, 2000 (the "FDIC Order").
Pursuant to the foregoing regulatory orders, the Bank is required, among other
things, to formulate, adopt and submit for regulatory approval a plan for
complying with the increased capital requirements specified therein.
C. The Company intends that the recapitalization transactions provided
for in this Agreement shall provide the basis for enabling the Company to supply
to the Bank a significant portion of the amounts and types of additional
regulatory capital required to comply with the orders of the FDIC and the DFI.
Such recapitalization transactions consist of (i) an initial infusion of $16.2
million of cash into the Company pursuant to the purchase of the Senior Secured
Debt provided for in this Agreement and the contribution by the Company of the
net proceeds from such purchase as "Tier I Capital" to the Bank to enable the
Bank to reduce the amount of assets it must sell to achieve its required
regulatory capital ratios, (ii) the restructuring of the outstanding public debt
of the Company pursuant to the Debt Exchange provided for in this Agreement to
provide greater certainty that the Company will be able to comply with its debt
service requirements, and (iii) the raising of additional capital for infusion
into the Bank through the private placement of Convertible Subordinated Debt in
the Convertible Subordinated Debt Placement provided for in this Agreement.
THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt of which is
hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. As used in this Agreement, and unless the context
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requires a different meaning, the following terms have the meanings indicated:
"Accredited Investor" means a Person who meets the requirements specified
for such status in Rule 501(a) of the Securities Act.
"Affiliate" means, with respect to any Person, any Person that, directly or
indirectly, controls, is controlled by or is under common control with such
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control with")
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
"Agreed De Minimis Amount" has the meaning set forth in Section 6.13(c).
"Agreement" or "Recapitalization Agreement" means this Master
Recapitalization Agreement and all exhibits and schedules hereto, as the same
may be amended, supplemented or modified from time to time.
"Average Trading Price" has the meaning set forth in Section 2.4(c)(v).
"Average Trading Value" has the meaning set forth in Section 2.4(c)(vi).
"Bank" means Southern Pacific Bank, a California industrial bank, together
with its successors.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the city of Los Angeles, California are authorized by
law to close.
"Capital Securities" of any Person means Capital Stock of the Person and
Stock Equivalents of the Person.
"Capital Stock" of any Person means any and all shares or other equity
interest of such Person.
"Closing" means, as applicable, the Senior Secured Debt Closing, the Debt
Exchange Closing and/or the Convertible Subordinated Debt Placement Closing.
"Closing Date" means, as applicable, the Senior Secured Debt Closing Date,
the Debt Exchange Closing Date and/or the Convertible Subordinated Debt
Placement Closing Date.
"Code" means the Internal Revenue Code of 1986, as amended (or any
successor statute in effect from time to time), and the rules and regulations
promulgated thereunder.
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"Collateral Agent" means Wilmington Trust Company, not individually but
solely in its capacity as agent for the benefit of the Senior Secured Debt
Purchasers pursuant to the Security Agreement and, from and after the issuance
of Exchange Notes, the Exchange Notes Trustee for the benefit of the holders of
the Exchange Notes.
"Common Stock" means the Common Stock, no par value per share, of the
Company.
"Company" means Imperial Credit Industries, Inc., a California corporation,
together with its successors.
"Company Financial Statements" has the meaning set forth in Section 3.1(j).
"Confidential Memorandum" means the Private Placement Memorandum, dated
March 8, 2001, as amended by the Supplement to the Private Placement Memorandum
dated March 27, 2001, with respect to the recapitalization transactions provided
for herein, as amended or supplemented at any time.
"Convertible Subordinated Debt" means the Convertible Subordinated Notes
that are to be purchased by Convertible Subordinated Debt Purchasers pursuant to
Section 2.3, which shall be substantially in the form attached as Exhibit D
hereto, as amended, supplemented or otherwise modified from time to time with
the consent of the Senior Secured Debt Purchasers.
"Convertible Subordinated Debt Placement Closing" has the meaning set forth
in Section 2.3(c).
"Convertible Subordinated Debt Placement Closing Date" has the meaning set
forth in Section 2.3(c).
"Convertible Subordinated Debt Placement" means the private placement of
Convertible Subordinated Debt provided for in Section 2.3.
"Convertible Subordinated Debt Purchasers" means the Investors who will
become parties to this Agreement after the initial effective date hereof, will
be identified as such in Exhibit A hereto and will agree to purchase Convertible
Subordinated Debt in the Convertible Subordinated Debt Placement, all as
provided in Section 2.3.
"Debt Exchange" has the meaning set forth in Section 2.2(a).
"Debt Exchange Closing" has the meaning set forth in Section 2.2(e).
"Debt Exchange Closing Date" has the meaning set forth in Section 2.2(e).
"Debt Exchange Warrants" means the warrants to purchase shares of Common
Stock that are to be issued in the Debt Exchange, which warrants shall have an
exercise price of $2.15 per share and a term of seven years and shall be issued
pursuant to a Warrant Agreement, which shall be substantially in the form
attached as Exhibit C-2 hereto, as amended, supplemented or
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otherwise modified from time to time with the consent of the Senior Secured Debt
Purchasers if such amendment, supplement or modification occurs before the
Senior Secured Debt Exchange.
"DFI" means the California Department of Financial Institutions and any
successor thereto.
"Exchange Act" means the Securities Exchange Act of 1934, as amended and in
effect from time to time (or any successor statute in effect from time to time),
and the rules and regulations of the SEC promulgated thereunder.
"Exchange Note Registration Rights Agreement" means the registration rights
agreement of that name to be entered into by and among the Company and the
Senior Secured Debt Purchasers, which shall be substantially in the form
attached as Exhibit E-2 hereto, as amended, supplemented or otherwise modified
from time to time with the consent of the Senior Secured Debt Purchasers.
"Exchange Notes" means the 12% Senior Secured Notes due 2005 to be issued
by the Company in exchange for Old Notes in the Debt Exchange pursuant to
Section 2.2 or in exchange for the Senior Secured Debt pursuant to Section 2.4,
which Exchange Notes shall be secured by the assets of the Company, and shall be
in the form specified in and issued pursuant to the Exchange Note Indenture.
"Exchange Notes Indenture" means the indenture relating to the Exchange
Notes, which shall be substantially in the form attached as Exhibit C-1 hereto,
as amended, supplemented or otherwise modified from time to time, it being
understood that if such indenture is amended, supplemented or otherwise modified
prior to the Senior Secured Debt Exchange without the consent of the Senior
Secured Debt Purchasers, the Senior Secured Debt Purchasers shall have no
obligation to exchange the Senior Secured Debt pursuant to Section 2.4(a) of
this Agreement.
"Exchange Notes Trustee" means The Chase Manhattan Bank and Trust Company,
National Association, not individually but solely as trustee under the Exchange
Notes Indenture.
"Exchanging Debt Holders" means those holders of Old Notes who tender their
Old Notes for Exchange Notes in the Debt Exchange provided for in Section 2.2
and who do not withdraw such tender.
"FDIA" means the Federal Deposit Insurance Act, as amended (or any
successor statute in effect from time to time).
"FDIC" means the Federal Deposit Insurance Corporation and any successor
thereto.
"HSR" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as
amended (or any successor statute in effect from time to time), and the rules
and regulations of the Federal Trade Commission promulgated thereunder.
"Indemnitee" has the meaning set forth in Section 6.14.
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"Investor" means each Person who is a Senior Secured Debt Purchaser, a
Signatory Debtholder or a Convertible Subordinated Debt Purchaser listed on the
signature pages of this Agreement, and any permitted successor or assign of such
Person as provided herein, including any Person who becomes a party hereto in
any of the preceding categories by executing and delivering a signature page
hereto after the initial date of this Agreement.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
encumbrance, charge or security interest of any kind in respect of such asset.
"Material Adverse Effect" means a material adverse effect on the financial
condition, assets or results of operations of (i) the Bank or (ii) the Company
and its Subsidiaries taken as a whole and shall not include changes in the
prices of outstanding equity or debt securities.
"NASD" means the National Association of Securities Dealers, Inc.
"Net Proceeds" means the gross proceeds realized by the holder of
Unexchanged Notes from the sale thereof or from the sale of a proportionate
number of shares of Common Stock and Debt Exchange Warrants required to be sold
pursuant to Section 2.4(c), less all fees and expenses relating to such sale
(including any underwriting discounts, registration costs and expenses of sale).
"Old Junior Notes" means the 9.75% Senior Notes due 2004 issued by the
Company and currently outstanding.
"Old Notes" means, collectively, the Old Senior Notes, the Old Junior Notes
and the ROPES.
"Old Senior Notes" means the 9.875% Senior Notes due 2007 issued by the
Company and currently outstanding.
"Person" means an individual, a corporation, a partnership, an association,
a trust or any other entity or organization, including a government or a
political subdivision or an agency or instrumentality thereof.
"Preferred Stock" means the preferred stock, no par value per share, of the
Company.
"Previously Disclosed" means disclosed in a letter dated the date hereof
and delivered by the Company to the attention of the Investors, or from an
Investor to the Company, as applicable, specifically referring to the
appropriate section of this Agreement and describing in reasonable detail the
matters contained therein.
"Registration Rights Agreement" means the Registration Rights Agreement to
be entered into by and among the Company and the Investors who acquire Common
Stock, Debt Exchange Warrants, Exchange Notes (not including the Exchange Notes
into which the Senior Secured Debt may be exchanged or that are issued pursuant
to Section 2.4(c)) or Convertible
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Subordinated Debt pursuant to this Agreement, which shall be substantially in
the form attached as Exhibit E-1 hereto, as amended, supplemented or otherwise
modified from time to time.
"Related Agreements" means the Senior Secured Notes, the Security
Agreement, the Exchange Notes Indenture, the Exchange Notes, the Debt Exchange
Warrants, the Convertible Subordinated Debt, the Exchange Note Registration
Rights Agreement and the Registration Rights Agreement.
"ROPES" means the Remarketed Redeemable Par Securities, Series B, issued by
Imperial Credit Capital Trust I, a Delaware statutory business trust formed by
the Company.
"SEC" means the Securities and Exchange Commission and any successor
thereto.
"Securities" means, collectively, the Senior Secured Debt, the Exchange
Notes, the Common Stock, the Debt Exchange Warrants (including the Common Stock
issuable upon an exercise thereof) and the Convertible Subordinated Debt
(including the Common Stock issuable upon conversion thereof) to be issued
pursuant to this Agreement.
"Securities Act" means the Securities Act of 1933, as amended (or any
successor statute thereto as in effect from time to time), and the rules and
regulations of the SEC promulgated thereunder.
"Security Agreement" means the Collateral Agency and Security Agreement by
and among the Company and the Collateral Agent on behalf of the holders of the
Senior Secured Debt and, from and after the Debt Exchange Closing Date, the
Exchange Notes Trustee, as trustee for holders of the Exchange Notes, which
shall be substantially in the form attached as Exhibit B-2 hereto, as the same
may be amended, supplemented or otherwise modified from time to time with the
consent of the Senior Secured Debt Purchasers if such amendment, supplement or
modification occurs before the Senior Secured Debt Exchange.
"Senior Secured Debt" means the Senior Secured Notes that are to be
purchased by the Senior Secured Debt Purchasers pursuant to Section 2.1, which
shall be substantially in the form attached as Exhibit B-1 hereto, as amended,
supplemented or otherwise modified from time to time with the consent of the
Senior Secured Debt Purchasers.
"Senior Secured Debt Closing" has the meaning set forth in Section 2.1(b).
"Senior Secured Debt Closing Date" has the meaning set forth in Section
2.1(b).
"Senior Secured Debt Exchange" has the meaning set forth in Section 2.4(a).
"Senior Secured Debt Purchasers" means those Investors identified as such
in Exhibit A hereto who will purchase the Senior Secured Debt pursuant to
Section 2.1.
"Shareholder Rights Plan" means the Preferred Share Purchase Rights Plan,
dated October 2, 1998, between the Company and U.S. Stock Transfer Corporation
as Rights Agent.
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"Signatory Debtholders" means the Investors identified as such in Exhibit A
hereto who have agreed in this Agreement to exchange the Old Notes held by them
for Exchange Notes pursuant to the Debt Exchange provided for in Section 2.2,
and does not include any other Person who may tender Old Notes in the Debt
Exchange provided for herein.
"State" means each of the states of the United States, the District of
Columbia and the Commonwealth of Puerto Rico.
"Stock Equivalents" means, with respect to any Person, options, warrants,
calls, convertible instruments, contracts or other rights entered into or issued
by such Person which confer upon the holder thereof the right (whether or not
contingent) to acquire any Capital Stock, voting securities or securities
convertible into or exchangeable for Capital Stock or voting securities of such
Person.
"Stock Option Plans" means the stock option plans and arrangements adopted
by the Company that have been Previously Disclosed.
"Subsidiary" of any Person means any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are owned
directly or indirectly by such Person.
"Tax Returns" means all foreign, federal, State and local returns relating
to Taxes.
"Taxes" means all taxes, charges, fees, levies or other governmental
assessments, including, without limitation, all net income, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, license,
withholding, payroll, employment, excise, estimated, severance, stamp,
occupation, property or other taxes, customs, dues, fees, assessments or charges
of any kind whatsoever, together with any interest and any penalties, additions
to tax or additional amounts imposed by any taxing authority (domestic or
foreign).
"Unanimous Consent Action" means a consent, waiver, amendment, supplement,
modification or termination that affects, involves or relates to (a) a change in
any provision relating to the interest rate, the principal amount, the maturity
date, the priority or exchange of the Senior Secured Debt, (b) the currency in
which any amount payable under the Senior Secured Debt is payable, (c) the terms
of Section 6.3 or (d) the right to institute suit for the enforcement of any
payment on or with respect to the Senior Secured Debt.
ARTICLE II
RECAPITALIZATION TRANSACTIONS
Section 2.1 Purchase and Sale of Senior Secured Debt.
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(a) Purchase and Sale. Subject to the terms and conditions herein set
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forth, the Company agrees that it will issue and sell to each Senior Secured
Debt Purchaser, and each Senior Secured Debt Purchaser agrees, severally and not
jointly, that it will purchase from the
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Company, the principal amount of Senior Secured Debt set forth below such
Investor's name on Exhibit A hereto at prices equal to the respective principal
amounts of such Senior Secured Debt, which prices shall aggregate $16,200,000.
(b) Closing. The purchase and sale of the Senior Secured Debt shall take
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place at a closing (the "Senior Secured Debt Closing") to be held at the offices
of ▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇, Los Angeles, California. The parties hereto agree to
cooperate and use their reasonable best efforts to enable the Senior Secured
Debt Closing to be completed by March 31, 2001, or on a date as soon as possible
thereafter when all of the conditions to the parties' obligations hereunder
specified in Article IV of this Agreement (other than the delivery of
certificates, opinions and other instruments and documents to be delivered at
such Closing) have been satisfied or waived, or at such other location and on
such other Business Day as the Company and the Senior Secured Debt Purchasers
shall mutually agree. The date on which the Senior Secured Debt Closing occurs
is referred to herein as the "Senior Secured Debt Closing Date."
Section 2.2 Debt Exchange.
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(a) The Company shall conduct an exchange offer in which it shall offer
Exchange Notes, Common Stock and Debt Exchange Warrants on the terms hereinafter
provided in exchange for the respective series of indebtedness comprising the
Old Notes (the "Debt Exchange"). The Signatory Debt Holders agree to tender all
Old Notes held by them in the Debt Exchange and to accept Exchange Notes, Common
Stock and Debt Exchange Warrants in exchange therefor on the terms herein
provided.
(b) (i) In the Debt Exchange, the Company shall offer to exchange the
Exchange Notes for Old Notes having aggregate principal amounts equal to the
following indicated percentages of the aggregate principal amount of the
respective series of Old Notes:
(A) 50.0% for the Old Junior Notes;
(B) 65.0% for the Old Senior Notes; and
(C) 80.0% for the ROPES.
(ii) In addition to the above-provided principal amounts of Exchange
Notes, up to a maximum (if all of the Old Notes are exchanged in the Debt
Exchange) of two million shares of Common Stock and Debt Exchange Warrants
relating to up to a maximum of seven million shares of Common Stock shall
be issued to exchanging holders of Old Notes on the following basis: each
exchanging holder of Old Notes shall receive 13.684163 shares of Common
Stock and Debt Exchange Warrants relating to 47.894572 shares of Common
Stock for each $1,000 aggregate principal amount of Exchange Notes received
by such exchanging holder of Old Notes in the Debt Exchange.
(c) The Debt Exchange shall be conducted in accordance with applicable federal
and state securities laws. The parties hereto intend that the Debt Exchange
shall qualify for the exemption from registration under the Securities Act
provided by Section 3(a)(9) of the
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Securities Act. In the event the Company determines after consultation with its
legal counsel, that the Debt Exchange may not so qualify, the parties hereto
shall cooperate and use their respective best efforts to arrange that the Debt
Exchange may be accomplished pursuant to another appropriate exemption from the
registration requirements of the Securities Act or, if the Company determines
after consultation with its legal counsel that such compliance is not reasonably
feasible, to take all appropriate action to register the Debt Exchange, and the
Exchange Notes, Common Stock and Debt Exchange Warrants to be issued in
connection therewith, pursuant to the Securities Act and to comply with any
corresponding requirements of applicable state securities laws as soon as
reasonably possible.
(d) In the Debt Exchange, exchanging holders of the Old Notes will be
required, as a condition to acceptance of their tender of the Old Notes, to
consent to the amendment of the indentures governing the Old Notes to delete the
existing covenants and to make the other amendments thereto that are described
in Exhibit H to this Agreement.
(e) The parties hereto agree to cooperate and use their reasonable best
efforts to enable the Debt Exchange to be completed (the "Debt Exchange
Closing") by June 15, 2001 or as soon thereafter as reasonably possible. The
date on which the Debt Exchange Closing occurs is referred to herein as the
"Debt Exchange Closing Date."
(f) The Company shall cancel and retire all Old Notes that have been
acquired by it prior to or in the Debt Exchange.
(g) Upon completion of the Debt Exchange, but in no event later than July
1, 2001, the Company shall issue an aggregate of 5.04 million shares of Common
Stock to the Signatory Debtholders. If no additional Exchange Notes are required
to be issued by the Company to any holders of Unexchanged Notes as provided in
Section 2.4(c), the Company shall issue an aggregate of 2 million additional
shares of Common Stock to the Signatory Debtholders on the earlier of (i) the
date all Exchange Notes issued to holders of Senior Secured Debt in exchange for
such notes are exchanged for Convertible Subordinated Debt pursuant to Section
2.4(b) or (ii) April 15, 2002. If additional Exchange Notes are required to be
so issued pursuant to Section 2.4(c), the aggregate amount of additional Common
Stock, if any, to be issued by the Company to the Signatory Debtholders shall be
equal to (A) 2 million, reduced by (B) 800 shares of Common Stock for each
$1,000 in principal amount of additional Exchange Notes required to be so
issued, subject to a maximum such reduction of 2 million shares. In the event
the issuance of the full number of shares of Common Stock provided for in this
Section 2.2(g) would be prohibited pursuant to NASD Rule 4350 on the date for
such issuance, then the Company shall issue as many of such shares of Common
Stock as shall be permitted pursuant to such Rule and shall issue in lieu of the
shares not issuable pursuant to such Rule nonconvertible promissory notes,
having a maturity of one year from their date of issue, in an aggregate
principal amount equal to the product of (A) the number of shares not so
issuable and (B) $3.00, but subject to a maximum aggregate principal amount of
such notes of $1.872 million. The terms and provisions of such notes shall be
the same as those of the Convertible Subordinated Debt, except that such notes
(x) shall not be convertible into Common Stock, (y) shall have a maturity of one
year from their original issue date and (z) shall provide that the principal and
all accrued interest thereon
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may be paid by the issuance to the holders thereof of freely tradeable
registered shares of Common Stock.
Section 2.3 Convertible Subordinated Debt Placement.
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(a) The Company shall use its best efforts to issue and sell $10,000,000
aggregate principal amount of Convertible Subordinated Debt in the Convertible
Subordinated Debt Placement provided for in this Section 2.3 at a price equal to
100% of the principal amount thereof. The Persons who agree to purchase the
Convertible Subordinated Debt shall be required to become parties to this
Agreement by executing and delivering to the Company an appropriate signature
page to this Agreement indicating such Person's agreement to become bound by
this Agreement in the capacity of a Convertible Subordinated Debt Purchaser;
provided, that no Person may become a party to this Agreement without the
approval and acceptance of such Person in such capacity by the Company. Exhibit
A to this Agreement shall be promptly amended as necessary from time to time to
list all Persons who join this Agreement as Convertible Subordinated Debt
Purchasers pursuant to this Section 2.3(a), together with the aggregate
principal amounts of Convertible Subordinated Debt to be purchased by each.
(b) The Convertible Subordinated Debt to be issued and sold in the
Convertible Subordinated Debt Placement shall be offered and sold solely to
Accredited Investors in conformance with such procedures and circumstances as
shall be necessary to qualify each of such offers and sales, and the Convertible
Subordinated Debt Placement in general, as a private placement pursuant to
Section 4(2) of the Securities Act and comparable provisions of applicable state
securities laws; provided, however, that if the Company, after consultation with
its legal counsel, determines that the Convertible Subordinated Debt Placement
cannot reasonably be completed in the form of a private placement the Company
shall have the right to register the sale of the Convertible Subordinated Debt
contemplated to be issued in the Convertible Subordinated Debt Placement under
the Securities Act and to comply with any applicable registration or
qualification requirements relating thereto under applicable state securities
laws.
(c) The parties hereto agree to cooperate and to use their reasonable best
efforts to enable the Convertible Subordinated Debt Placement to be completed
(the "Convertible Subordinated Debt Placement Closing") by June 15, 2001, or as
soon thereafter as possible. The date on which the Convertible Subordinated Debt
Placement Closing occurs is referred to herein as the "Convertible Subordinated
Debt Placement Closing Date."
Section 2.4 Exchange of Senior Secured Debt; Further Exchange or
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Market-Based Adjustment.
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(a) Subject to satisfaction of the conditions set forth in Section 4.4, the
Company shall exchange the Senior Secured Debt for, and each holder of the
Senior Secured Debt shall tender the Senior Secured Debt held by such holder in
exchange for, Exchange Notes, shares of Common Stock and Debt Exchange Warrants
on the basis of the following exchange ratio: for each $1,000 principal amount
of Senior Secured Debt, the Company shall issue to the holder thereof (i)
$1,123.45679 principal amount of Exchange Notes and (ii) for every $1,000
principal amount of Exchange Notes so issued, (a) 13.684163 shares of Common
Stock and (b) Debt
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Exchange Warrants to purchase 47.894572 shares of Common Stock (collectively,
the "Senior Secured Debt Exchange"). The Senior Secured Debt Exchange shall be
deemed to have occurred automatically upon the later to occur of (x) ten
Business Days after the Company gives notice to the Senior Secured Debt
Purchasers of the occurrence of the Debt Exchange Closing and (y) ten Business
Days after the Company sends notice to the Senior Secured Debt Purchasers of the
satisfaction of all of the conditions set forth in Section 4.4, in either case
whether or not the holders of the Senior Secured Debt have surrendered the
certificates representing the Senior Secured Debt held by them for such
exchange; provided, however, that the Company shall have the right to require
that such certificates be so surrendered.
(b) (i) At any time during the period (the "Election Period") commencing
upon the issuance of the Exchange Notes to the Senior Secured Debt
Purchasers pursuant to Section 2.4(a) and ending on March 31, 2002, each
holder of Exchange Notes issued in exchange for the Senior Secured Debt
shall have the right, upon written notice to the Company (an "Election
Notice") given as herein provided prior to the expiration of the Election
Period, to exchange such Exchange Notes for Convertible Subordinated Debt
in aggregate principal amounts equal to the aggregate principal amounts of
the Exchange Notes as to which such exchange is made; provided, however,
that such holder shall concurrently surrender to the Company for
cancellation the number of shares of Common Stock and Debt Exchange
Warrants received in the Senior Secured Debt Exchange for such Exchange
Notes.
(ii) If any holder of Exchange Notes shall make the election provided
for in Section 2.4(b)(i), such electing holder shall provide to the
Company, together with its Election Notice, the original certificates
representing the proportionate number of shares of Common Stock and Debt
Exchange Warrants required to be included as part of such exchange. If any
of such certificates are mutilated, lost, stolen or destroyed, each such
holder shall notify the Company of such fact and shall provide to the
Company an affidavit evidencing such mutilation, loss, theft or destruction
of such certificate, and of the ownership of it, and an indemnity or bond
in such amount as the Company shall reasonably require, with such affidavit
and indemnity or bond to be provided to such holder by the Company within
ten Business Days of receipt of such Election Notice. Within ten Business
Days following receipt of each Election Notice and the surrender of such
Common Stock and Debt Exchange Warrant certificates (or after receipt of
any affidavit and indemnity or bond required to be provided), the Company
shall issue or cause to be issued the appropriate principal amount of
Convertible Subordinated Debt to the holder providing such Election Notice.
(c) If any Exchange Notes issued pursuant to the exchange provided for in
Section 2.4(a) are not exchanged for Convertible Subordinated Debt pursuant to
Section 2.4(b), the holders of any such unexchanged Exchange Notes (such
unexchanged Exchange Notes being hereinafter referred to as the "Unexchanged
Notes") shall be entitled to receive additional amounts of Exchange Notes on the
basis, and subject to the limitations, set forth below:
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(i) If any Unexchanged Notes are sold during the Election Period or
within 60 days thereafter by any of such holders (a) in a transaction not
involving an underwriter or broker (a "Private Sale") or (b) in any
transaction involving an underwriter or broker (a "Public Sale") that is
not covered under subsection 2.4(c)(ii), such additional amounts of
Exchange Notes shall only be issuable if the Average Trading Price of the
Exchange Notes (during the 30-day period ending on the last day of the
month preceding the month in which such sale occurred) is less than 89%.
In any such event, each of such selling holders shall be entitled to
receive from the Company, and the Company hereby agrees to issue for sale
by such selling holders, additional Exchange Notes in such aggregate
principal amount as will yield to such holders Net Proceeds equal to the
difference, expressed as a dollar amount (such amount being herein referred
to as the "Private Sale Limit"), between (x) 89% of the aggregate principal
amount of the Unexchanged Notes sold by such selling holder during the
Election Period or within 60 days thereafter and (y) the sum of (a) the
Average Trading Value of the Unexchanged Notes sold by such selling holder
and (b) the Net Proceeds, if any, resulting from the Required Concurrent
Actions.
(ii) If any Unexchanged Notes are, during the Election Period or within
60 days thereafter, (a) sold pursuant to the procedures contemplated by
Section 2.4(c)(vii) (a "Company Designated Public Sale"), (b) if not sold
by the Company Designated Underwriter during the 30-day period provided by
Section 2.4(c)(vii), sold thereafter by the holder thereof in a Public
Sale, or (c) sold in a Public Sale in which the Net Proceeds are less than
70% of the principal amount of the Unexchanged Notes so sold, then, on
account of all such sales pursuant to the preceding clauses (a), (b), or
(c), such additional amounts of Exchange Notes shall only be issuable if
the Net Proceeds realized in such sale are less than 89% of the principal
amount of the Unexchanged Notes so sold. In any such event, each of such
selling holders shall be then entitled to receive from the Company, and the
Company hereby agrees to issue for sale by such selling holders, additional
Exchange Notes in such aggregate principal amount as will yield to such
holders Net Proceeds equal to the difference, expressed as a dollar amount
(such amount being herein referred to as the "Public Sale Amount"), between
(x) 89% of the aggregate principal amount of such Unexchanged Notes sold by
such holder during the Election Period or within 60 days thereafter and (y)
the sum of the Net Proceeds from the sale of such Unexchanged Notes and the
Net Proceeds, if any, resulting from the Required Concurrent Actions.
(iii) In connection with any holder of Unexchanged Notes receiving
additional principal amounts of Exchange Notes pursuant to either
subsections 2.4(c)(i) or 2.4(c)(ii), such holder shall use commercially
reasonable efforts to sell, concurrently with such sale of Unexchanged
Notes, the number of the shares of Common Stock and the Debt Exchange
Warrants received in the Senior Secured Debt Exchange with respect to the
principal amount of Unexchanged Notes being sold, but if either or both of
such Common Stock and Debt Exchange Warrants is not sold, such holder shall
be required to surrender to the Company promptly following such sale of
Unexchanged Notes original certificate or certificates (or other required
documents) evidencing the number of shares of Common Stock and/or Debt
Exchange Warrants received in the Senior Secured Debt Exchange
12
with respect to the Unexchanged Notes being sold. The required sales and
surrenders required by the preceding sentence are hereinafter referred to
as the "Required Concurrent Actions". The Net Proceeds resulting from any
Required Concurrent Actions in which shares of Common Stock and/or Debt
Exchange Warrants are surrendered to the Company shall be deemed to be zero
in respect of the securities that are surrendered.
(iv) Notwithstanding anything herein to the contrary, the maximum
principal amount of additional Exchange Notes issuable by the Company to
all holders of Unexchanged Notes in the aggregate under Section 2.4(c)
shall be $5 million and the maximum principal amount of additional Exchange
Notes that is so issuable to each such holder shall be pro-rated in
accordance with the respective aggregate principal amounts of the Exchange
Notes sold by such holder over the aggregate principal amount of the
Unexchanged Notes issued to all Senior Secured Debt Purchasers pursuant to
Section 2.4(a).
(v) The term "Average Trading Price" shall mean the arithmetic mean of
the last sale prices of the Exchange Notes, expressed as percentages of the
principal amounts thereof, reported for each of the trading days in the 30-
day period referred to in Section 2.4(c)(i) or 2.4(c)(ix), as applicable,
or for any trading day for which no reported sale price is available, then
the last sale price as of the first preceding day for which a reported sale
price is available, as reported by Nasdaq's Fixed Income Pricing Service
or, if not so reported, then as reported by Interactive Data Corp. and, if
not reported by either of them, then the quotient, expressed as a
percentage, of the Net Proceeds received for the Unexchanged Notes that
were sold, divided by the aggregate principal amount of the Unexchanged
Notes that were sold.
(vi) The term "Average Trading Value" shall mean the amount equal to
(A) the principal amount of an Exchange Note referred to in Section 2.4(c),
multiplied by (B) the Average Trading Price.
(vii) Any holder of Unexchanged Notes may request that the Company
designate an underwriter or broker to effect a Public Sale. Promptly upon
the making of such request and, in any event within three Business Days of
such request, the Company shall designate a broker or underwriter to effect
such Public Sale (the "Company Designated Underwriter"). The Company
Designated Underwriter shall endeavor to sell the Unexchanged Notes
designated for sale by such holder promptly and at the best price available
therefor (but, in any event, within 30 calendar days after the designation
of such Company Designated Underwriter) in a transaction or series of
transactions occurring over not more than such 30-day period. If the
Company shall have failed to designate the Company Designated Underwriter
or if the Company Designated Underwriter shall have failed to sell the
Unexchanged Notes within the time periods provided herein, the Private Sale
Limit shall not be applicable and the holder of the Unexchanged Notes shall
be entitled to additional Exchange Notes equal to the Public Sale Amount
notwithstanding the manner of disposition of the Unexchanged Securities.
13
(viii) All sales of Unexchanged Notes by a holder shall be aggregated
for purposes of calculating additional Exchange Notes to be issued to such
holder pursuant to this Section 2.4(c).
(ix) Notwithstanding anything in Sections 2.4(c)(i) or 2.4(c)(ii) to
the contrary, if the Average Trading Price of the Exchange Notes during the
30- day period ending on March 31, 2002 is less than 70%, then, each holder
of Unexchanged Notes on March 31, 2002 shall be entitled to receive from
the Company, and the Company hereby agrees to issue to such holders, such
additional amounts of Exchange Notes as each such holder would be entitled
to receive pursuant to Section 2.4(c)(i), including the effects of Sections
2.4(c)(iv) and 2.4(c)(viii), if such holder had sold all of its then held
Unexchanged Notes in a Private Sale on April 1, 2002 but without such
holder being obligated to sell any such Unexchanged Notes.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations and Warranties of the Company. Except as
---------------------------------------------
Previously Disclosed, the Company represents and warrants to each of the
Investors as follows:
(a) Capital Structure. The authorized capital stock of the Company
-----------------
consists of 80,000,000 shares of Common Stock and 8,000,000 shares of Preferred
Stock. As of the date hereof, there are (i) 32,096,361 shares of Common Stock
issued and outstanding, and (ii) no shares of Preferred Stock issued and
outstanding or held as treasury shares. Immediately prior to each of the Senior
Secured Debt Closing, the Debt Exchange Closing and the Convertible Subordinated
Debt Placement Closing, the Company's outstanding Capital Stock will be as set
forth in the preceding sentence, except for any increases in outstanding Common
Stock as a result of the transactions provided for herein or of the exercise of
options or warrants referred to in the penultimate sentence of this Section
3.1(a). All outstanding shares of Common Stock have been duly authorized and
validly issued and are fully paid and nonassessable and none of the outstanding
shares of Common Stock has been issued in violation of the preemptive rights of
any Person. Except for (i) options to purchase 4,892,442 shares of Common Stock
pursuant to the Stock Option Plans in place as of the date hereof, (ii) warrants
relating to 3,000,000 shares of Common Stock to be issued in settlement of
certain litigation as Previously Disclosed, (iii) as contemplated by this
Agreement, and (iv) warrants to purchase Preferred Stock (and, in certain
events, Common Stock) pursuant to the Shareholder Rights Plan, there are no
Stock Equivalents authorized, issued or outstanding with respect to the Capital
Stock of the Company as of the date hereof. As of the date hereof, the aggregate
issued and outstanding principal amounts of the ROPES, the Old Senior Notes and
the Old Junior Notes are $41.05 million, $165.9 million and $10.9 million,
respectively. Except as provided herein, there are no subscriptions, stock
equivalents, partnership interests or similar ownership interests, (including
preemptive rights), commitments or agreements of any character to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound obligating the Company or any of its Subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, or
14
repurchase, redeem or otherwise acquire, reprice, or cause the repurchase,
redemption or acquisition or repricing, of any shares of capital stock, stock
equivalents, partnership interests or similar ownership interests of the Company
or any of its Subsidiaries or obligating the Company or any of its Subsidiaries
to grant, extend, accelerate the vesting of or reprice, or enter into any such
subscription, commitment or agreement, as a result of the execution and delivery
of this Agreement or the transactions contemplated hereby.
(b) Organization, Standing and Authority of the Company and Its
-----------------------------------------------------------
Subsidiaries. The Company and each of its Subsidiaries is a corporation duly
------------
organized and validly existing under the laws of the jurisdiction of its
incorporation as set forth in Schedule 3.14(b) with full corporate power and
authority to own or lease all of its properties and assets and to carry on its
business as now conducted and is duly licensed or qualified to do business and
is in good standing in each jurisdiction in which its ownership or leasing of
property or the conduct of its business requires such licensing or
qualification, except where the failure to be so licensed, qualified or in good
standing would not have a Material Adverse Effect. True and complete copies of
the articles of incorporation and bylaws, or similar governing documents, of the
Company and the Bank as in effect as of the date hereof have been Previously
Disclosed.
(c) Ownership of Subsidiaries. The Bank is a wholly-owned subsidiary of
-------------------------
the Company. A schedule setting forth all of the Subsidiaries of the Company and
the Bank has been Previously Disclosed. The outstanding shares of Capital Stock
of the Bank, each other Subsidiary of the Company, and each Subsidiary of the
Bank have been duly authorized and validly issued, are fully paid and
nonassessable, and, except as Previously Disclosed, are directly owned by the
Company free and clear of all Liens. Except as Previously Disclosed, no Stock
Equivalents are authorized, issued or outstanding with respect to the Capital
Stock of the Bank and there are no agreements, understandings or commitments
relating to the right of the Company to vote or to dispose of such Capital
Stock.
(d) Organization, Standing and Authority of the Bank. The Bank is an
------------------------------------------------
industrial bank duly organized and validly existing under the laws of the State
of California. The deposit accounts of the Bank are insured by the FDIC to the
maximum extent permitted by the FDIA, and the Bank has paid all premiums and
assessments required by the FDIA and the regulations thereunder.
(e) Authority. The Company has full corporate power and authority to
---------
perform its obligations under this Agreement and each of the Related Agreements
to which it is or will become a party, and the execution, delivery and
performance by the Company of this Agreement and of each Related Agreement to
which it is or will become a party have been duly authorized by all necessary
corporate action on the part of the Company.
(f) Due Execution. This Agreement, and each of the Related Agreements to
-------------
which the Company is or will become a party, when duly authorized, executed and
delivered by the Company, will constitute a valid and binding obligation of the
Company, enforceable against the Company, in accordance with its terms, except
that (i) rights to indemnity and contribution under any of the Related
Agreements may be limited by applicable law, (ii) the enforceability of each
15
of this Agreement and the Related Agreements may be limited by bankruptcy,
insolvency, moratorium and similar laws affecting creditors' rights generally
and (iii) rights of acceleration and the availability of equitable remedies
pursuant to or in connection with this Agreement and each of the Related
Agreements may be limited by equitable principles of general applicability.
(g) No Conflict; Government Authorization. The execution, delivery and
-------------------------------------
performance of this Agreement and each of the Related Agreements to which the
Company, is or will become a party will not conflict with or constitute a breach
of, or a default under (i) the articles of incorporation or bylaws, or any
similar governing documents, of the Company, or any of its Subsidiaries, (ii)
upon the delivery of the consents and supplemental indentures set forth and
provided for in Section 3.3, any material obligation, agreement, indenture,
bond, debenture, note, instrument or any other evidence of indebtedness to which
the Company or any of its Subsidiaries is a party or its assets are subject, or
(iii) subject to the approvals and compliance referred to in the next sentence,
any law, ordinance, order, license, rule or other regulation or demand of any
court or governmental agency, arbitration panel or authority applicable to the
Company or any of its Subsidiaries. Except for (i) the approval of the issuance
of the Debt Exchange Warrants by the shareholders of the Company pursuant to
Rule 4350 of the NASD (unless exempted therefrom upon application to the NASD),
(ii) compliance with applicable federal and state securities laws in connection
with this Agreement and the performance by the Company of its obligations under
the Registration Rights Agreement and the Exchange Note Registration Rights
Agreement and (iii) any required compliance by the Company with applicable
federal and state securities laws and/or HSR in connection with (x) the issuance
of shares of Common Stock upon exercise of the Debt Exchange Warrants in
accordance with their terms or (y) the issuance of Common Stock pursuant to
Section 2.2 of this Agreement or upon conversion of the Convertible Subordinated
Debt, no consent, approval, order or other authorization of any governmental,
administrative or regulatory body or agency is legally required by or on behalf
of the Company in connection with the execution, delivery or performance of this
Agreement and each of the Related Agreements to which the Company is or will
become a party. The representations and warranties contained in this Section
3.1(g), insofar as they relate to federal and state securities law requirements,
are made in reliance on the representations and warranties of the Investors
contained in Section 3.2 of this Agreement and any similar representations and
warranties that may be given by any other Persons who purchase Securities
pursuant to the transactions provided for in this Agreement.
(h) Status of Securities. Subject to satisfaction of the condition set
--------------------
forth in Section 5.1 hereof, the shares of Common Stock issuable pursuant to (i)
the Debt Exchange provided for in Section 2.2, (ii) the conversion of the
Convertible Subordinated Debt to be issued pursuant to Sections 2.3 and 2.4
hereof or (iii) the exercise of the Debt Exchange Warrants, have been authorized
by all necessary corporate action on the part of the Company. When the Senior
Secured Debt and the Exchange Notes are delivered to the Senior Secured Debt
Purchasers and the Exchanging Debt Holders, respectively, at the Senior Secured
Debt Closing, the Debt Exchange Closing and pursuant to Section 2.4(a), as
applicable, against payment therefor, through wire transfer of funds or tender
of Old Notes or Senior Secured Debt, as the case may be, as provided herein, the
Senior Secured Debt and the Exchange Notes will be duly authorized, validly
issued and will constitute valid and binding obligations of the Company. Subject
to the
16
approvals and compliance referred to in the second sentence of Section 3.1(g)
hereof, the shares of Common Stock issued by the Company pursuant to the
transactions provided for in this Agreement, including shares of Common Stock
issued upon exercise of Debt Exchange Warrants and conversion of the Convertible
Subordinated Debt issued in connection with such transactions, will be duly
authorized, validly issued, fully paid and non-assessable at the time of
issuance. The representations and warranties contained in this Section 3.1(h),
insofar as they relate to federal and state securities laws requirements, are
made in reliance on the representations and warranties of the Investors
contained in Section 3.2 of this Agreement and any similar representations and
warranties that may be given by any other Persons who purchase Securities
pursuant to the transactions provided for in this Agreement.
(i) Securities Reports. The Company has filed all reports and other
------------------
documents required to be filed by it under the Exchange Act and the Securities
Act on a timely basis or has received a valid extension of such time of filing,
and all such reports and other documents complied in all material respects with
the requirements of the Exchange Act and the Securities Act, as applicable, and
did not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, at the time and in light of the circumstances under which
they were made, not misleading.
(j) Financial Statements.
--------------------
(i) The Company has previously delivered to each Investor (x)
consolidated balance sheets of the Company as of December 31, 1998, 1999
and 2000 and consolidated statements of operations, changes in
shareholders' equity and cash flows of the Company for each of the years
ended December 31, 1997, 1998, 1999 and 2000, accompanied, in the case of
such 1998 and 1999 financial statements, by the related audit report of
KPMG LLP, the Company having Previously Disclosed that the audit report for
its 2000 financial statements has not yet been issued by KPMG LLP. The
foregoing financial statements (collectively the "Company Financial
Statements"), fairly present the consolidated financial condition of the
Company as of the respective dates set forth therein, and the consolidated
results of operations, changes in shareholders' equity and cash flows of
the Company for the respective periods or as of the respective dates set
forth therein.
(ii) Each of the Company Financial Statements has been prepared in
accordance with generally accepted accounting principles consistently
applied during the periods involved, except as stated therein, and except
that unaudited Company Financial Statements do not contain all of the
footnote and line item disclosures that would be required for financial
statements prepared in accordance with generally accepted accounting
principles. The books and records of the Company are being maintained in
material compliance with applicable legal and accounting requirements, and
such books and records accurately reflect in all material respects all
dealings and transactions in respect of the business, assets, liabilities
and affairs of the Company.
17
(iii) Except to the extent (x) reflected, disclosed or provided for in
the consolidated statement of financial condition of the Company as of
December 31, 2000, (y) of liabilities incurred since such date in the
ordinary course of business, none of which has had a Material Adverse
Effect, and (z) Previously Disclosed, the Company does not have any
liabilities, whether absolute, accrued, contingent or otherwise, which
would have a Material Adverse Effect.
(k) Material Adverse Change. Except as Previously Disclosed, since
-----------------------
December 31, 2000, no events or developments involving the Company or the Bank
have occurred which, individually or in the aggregate, (i) have had, or would
reasonably be likely to have, a Material Adverse Effect, or (ii) materially
impair the ability of the Company to perform its obligations under this
Agreement, any Related Agreement to which it is or will become a party or any of
the Securities.
(l) Tax Matters. The Company and each of its Subsidiaries have timely
-----------
filed all Tax Returns required by applicable law to be filed by them (including,
without limitation, estimated tax returns, income tax returns, information
returns and withholding and employment tax returns) and have paid, or where
payment is not required to have been made, have set up an adequate reserve or
accrual for the payment of, all Taxes required to be paid in respect of the
periods covered by such Tax Returns, except in all cases where the failure to do
so does not or will not have a Material Adverse Effect. Except as Previously
Disclosed, as of the date hereof, there is no audit examination, assessed
deficiency, deficiency litigation or refund litigation with respect to any Taxes
of the Company or any of its Subsidiaries. All Taxes due with respect to
completed and settled examinations or concluded litigation relating to the
Company or any of its Subsidiaries have been paid in full or adequate provision
has been made for any such Taxes on the Company's consolidated statement of
financial condition in accordance with generally accepted accounting principles.
Neither the Company nor any of its Subsidiaries has executed an extension or
waiver of any statute of limitations on the assessment or collection of any
material tax due that is currently in effect.
(m) Litigation. Except as Previously Disclosed, there are no actions,
----------
suits, investigations or legal proceedings pending against, or to the knowledge
of the Company threatened against, or affecting the Company or any of its
Subsidiaries or their respective properties before any court or governmental
body or agency which would reasonably be expected to have a Material Adverse
Effect or which in any manner challenge the legality, validity or enforceability
of this Agreement, any of the Related Agreements or any of the Securities, or
which would reasonably be expected to materially impair the ability or
obligation of the Company to perform fully on a timely basis its obligations
under this Agreement, any Related Agreement to which it is or will become a
party or any of the Securities.
(n) Compliance with Laws. Each of the Company and each of its Subsidiaries
--------------------
has all permits, licenses, certificates of authority, orders and approvals of,
and has made all filings, applications and registrations with, federal, state,
local and foreign governmental or regulatory bodies that are necessary in order
to permit it to carry on its business as it is presently being conducted and the
absence of which could have a Material Adverse Effect; all such permits,
18
licenses, certificates of authority, orders and approvals are in full force and
effect and, to the best knowledge of the Company, no suspension or cancellation
of any of the same is threatened.
(o) No Default or Violation. Neither the Company nor any of its
-----------------------
Subsidiaries currently is in violation of its articles of incorporation, bylaws,
or similar governing documents, or any applicable federal or state law or any
order, rule or regulation of any federal or state governmental agency or body,
or in default with respect to any order, writ, injunction or decree of any
court, or in default under any order, license, regulation or demand of any
federal or state governmental agency, any of which violations or defaults could,
individually or in the aggregate, reasonably be deemed to (i) have a Material
Adverse Effect or (ii) materially adversely impair the ability of the Company to
perform on a timely basis any obligation which it has under this Agreement, any
Related Agreement to which it is or will become a party or any of the
Securities, and neither the Company nor any of its Subsidiaries has received any
notice or communication from any federal, state or local governmental authority
asserting that the Company or any Subsidiary is in violation of any of the
foregoing which could reasonably be deemed to have any effect set forth in
clauses (i) or (ii) above. Except as Previously Disclosed, neither the Company
nor any of its Subsidiaries is subject to any regulatory or supervisory cease
and desist order, agreement, written directive, memorandum of understanding or
written commitment, and none of them has received any written communication
requesting that they enter into any of the foregoing.
(p) Certain Fees. Except as Previously Disclosed, no fees or commissions
------------
will be payable by the Company or any of its Subsidiaries to brokers, finders,
investment bankers or banks pursuant to any agreement entered into by the
Company or any of its Subsidiaries with respect to any of the other transactions
contemplated hereby if such payment would cause the exemption from the
registration requirements of the Securities Act set forth in Section 3(a)(9)
thereof not to be available for the Debt Exchange provided herein.
(q) Usury Laws. None of the Senior Secured Debt, the Exchange Notes nor
----------
the Convertible Subordinated Debt will be subject to a defense that the interest
rate is in violation of the usury laws of the State of California, as currently
in effect. The Company hereby waives, to the fullest extent permitted by
applicable law, its right to assert the violation of any such usury law and the
usury law of any other applicable jurisdiction as a defense to the fulfillment
of any of its obligations under the Senior Secured Debt or the Exchange Notes
and covenants and agrees to take all reasonable actions as may be necessary in
the future to make such waiver effective.
(r) No Securities Act or State Law Registration. Neither the Company nor,
-------------------------------------------
assuming the accuracy of such representations of the Investors as may be
requested by the Company in connection with the transactions contemplated
hereby, any Person acting on its behalf, has taken or will take any action which
might subject the offering, issuance or sale of the Securities to the
registration requirements of the Securities Act or comparable provisions of any
applicable state securities laws.
(s) Shareholder Rights Plan. The Company has taken appropriate action
-----------------------
(which action has been Previously Disclosed) to amend its Shareholder Rights
Plan so as to provide that
19
neither the execution and delivery of this Agreement nor the completion of the
transactions provided for herein shall cause any of the warrants issued pursuant
to the Shareholder Rights Plan to become exercisable or to require that
certificates separately representing such warrants be distributed to any
stockholders of the Company.
(t) Nasdaq Listing and Compliance. The Common Stock is listed on the
-----------------------------
Nasdaq National Market, and the listing agreement between the NASD and the
Company with respect thereto is in full force and effect. Except as Previously
Disclosed, the Company is in compliance with, and has filed all reports and
other documents required to be filed by it under, applicable NASD rules and
regulations, and all such reports and other documents are in compliance in all
material respects with the requirements of the applicable NASD rules and
regulations.
(u) No Acceleration of Employment or Other Contractual Rights. Except as
---------------------------------------------------------
Previously Disclosed, neither the execution of this Agreement nor the completion
of the transactions contemplated hereby will result in the activation of any
change of control or severance provisions of any employment contract, stock
option, bonus or other compensation plan or arrangement or result in the
acceleration of any contractual rights of any third parties.
Section 3.2 Representations and Warranties of the Investors. Each
-----------------------------------------------
Investor, severally and not jointly, represents and warrants to, and covenants
and agrees with, the Company that:
(a) Investment Intent. The Securities to be acquired by it pursuant to
-----------------
this Agreement are being acquired for its own account for investment and with no
intention of distributing or reselling such Securities or any part thereof or
interest therein in any transaction which would be in violation of the
securities laws of the United States of America or any state, without prejudice,
however, to an Investor's right, subject to the provisions of this Agreement and
the Registration Rights Agreement, at all times to sell or otherwise dispose of
all or any part of such Securities under an effective registration statement
under the Securities Act and other applicable state securities laws or under an
exemption from such registration. Each Investor, severally and not jointly,
further represents and warrants to the Company that except as contemplated under
this Agreement such Investor has no present agreement, understanding, plan or
intent to transfer any Senior Secured Debt, Debt Exchange Warrants or Common
Stock acquired by it pursuant to this Agreement (including Common Stock acquired
upon exercise of Debt Exchange Warrants) to any transferee.
(b) Transfer Restrictions. If an Investor should decide to dispose of any
---------------------
of the Securities, such Investor understands and agrees that it may do so only
pursuant to an effective registration statement under the Securities Act or in
accordance with the following: (i) to the Company, (ii) to any Person reasonably
believed by such Investor to be a "qualified institutional buyer" (as defined in
Rule 144A under the Securities Act) in compliance with Rule 144A under the
Securities Act, (iii) pursuant to and in compliance with restrictions set forth
in Rule 144 under the Securities Act, (iv) to any Person who is reasonably
believed by such Investor to be an Accredited Investor and that, prior to such
transfer, furnishes to the Investor and the Company a signed letter confirming
its status as an Accredited Investor and agreeing to the restrictions on
20
transfer of the Securities set forth in this Agreement, (v) to any Affiliate of
such Investor pursuant to an applicable exemption under the Securities Act, or
(vi) in compliance with the requirements for transfer of securities acquired in
a transaction to which the exemption set forth in Section 3(a)(9) of the
Securities Act is applicable. In connection with any transfer of any Securities
other than (i) any transfer pursuant to an effective registration statement or
(ii) any transfer by a qualified institutional buyer (as defined in Rule 144A
under the Securities Act) pursuant to clause (i) or (ii) above, the Company may
require that the transferor of any such Securities provide to the Company an
opinion of counsel experienced in the area of United States securities laws
selected by the transferor, which counsel shall be and the form and substance of
which opinion shall be, reasonably satisfactory to the Company, to the effect
that such transfer does not require registration of such Securities under the
Securities Act or any state securities laws. In connection with any transfer
pursuant to clause (ii) above, the Company may request reasonable certification
as to the status of the transferor's transferee as a qualified institutional
buyer. Each Investor agrees to the imprinting, so long as appropriate, (i) on
certificates representing the Senior Secured Debt, the legend set forth on the
form of Senior Secured Note attached as Exhibit B-1 hereto, (ii) on the Debt
Exchange Warrants, the legend set forth on the form of Debt Exchange Warrant
attached as Exhibit C-2 hereto and (iii) on certificates representing the Common
Stock issuable (x) upon the exercise of Debt Exchange Warrants or (y) as
provided for in Section 2.3, a legend substantially similar to the foregoing
legends. The legends set forth above may be removed if and when the applicable
Securities are disposed of pursuant to an effective registration statement under
the Securities Act or if in the opinion of counsel to the Company experienced in
the area of United States securities laws such legend is no longer required
under applicable requirements of the Securities Act. Each of the Securities
shall also bear any other legends required by applicable federal or state
securities laws, which legends may be removed when, in the opinion of counsel to
the Company experienced in the applicable securities laws, the same are no
longer required under the applicable requirements of such securities laws. The
Company agrees that it will provide each Investor, upon request, with a
substitute document evidencing the Securities not bearing such legend at such
time as such legend is no longer applicable.
(c) Stop Transfer Instructions. Each Investor agrees that the Company
--------------------------
shall be entitled to make a notation on its records and give instructions to any
transfer agent of the Securities in order to implement the restrictions on
transfer set forth in Section 3.2(b) of this Agreement.
(d) Accredited Investor. (i) At the time such Investor was offered any
-------------------
Securities, it was, (ii) at the date hereof, such Investor is, and (iii) at the
date such Investor acquires any of the Securities, it will be, an Accredited
Investor, and has such knowledge, sophistication and experience in business and
financial matters so as to be capable of evaluating the merits and risks of the
prospective investment in the Securities, and has so evaluated the merits and
risks of such investment, is able to bear the economic risk of such investment
and is able to afford a complete loss of such investment. Each Investor shall
provide to the Company and its representatives upon request such evidence and
confirmation of the foregoing as the Company may reasonably request.
21
(e) Due Execution. This Agreement has been, and each Related Agreement to
-------------
which such Investor is or will become a party will be, duly executed and
delivered by it or on its behalf and constitutes, or will constitute, as
applicable, a valid and binding obligation of such Investor, enforceable against
the Investor in accordance with its terms, except that (i) rights to indemnity
and contribution under any Related Agreement may be limited by applicable law,
(ii) enforceability may be limited by bankruptcy, insolvency, moratorium and
similar laws affecting creditors' rights generally and (iii) rights of
acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability.
(f) No Conflict. The execution, delivery and performance of this Agreement
-----------
and each of the Related Agreements to which such Investor is or will become a
party do not and will not, as applicable, conflict with or constitute a breach
or a default under (i) its articles of incorporation, charter or bylaws, or
other similar organizational document, as applicable, (ii) any material
obligation, agreement, indenture, bond, debenture, note, instrument or any other
evidence of indebtedness to which it is a party or its assets are subject or
(iii) subject to Section 3.2(i) hereof, any law, rule or other regulation,
license, or order or demand of any court or governmental agency, arbitration
panel or authority applicable to such Investor.
(g) Access to Information. Each Investor acknowledges receipt of the
---------------------
Confidential Memorandum and further acknowledges that prior to the date hereof
it has been afforded (i) the opportunity to ask such questions as it has deemed
necessary of, and to receive answers from, representatives of the Company
concerning the terms and conditions of the offering of the Securities and the
merits and risks of investing in the Securities to be acquired by such Investor
pursuant to this Agreement and (ii) access to such information about the Company
and the Company's financial condition, results of operations, business,
properties, management and prospects as such Investor has requested to enable it
to evaluate its investment in such Securities.
(h) Reliance. Each Investor understands and acknowledges that (i) the
--------
Securities (other than the Exchange Notes, Debt Exchange Warrants and Common
Stock to be issued in the Debt Exchange,) are being offered and sold without
registration under the Securities Act in a private placement that is exempt from
the registration provisions of the Securities Act and (ii) such exemption
depends in part on, and that the Company and its legal counsel and other
advisors will rely upon, the accuracy and truthfulness of the foregoing
representations and warranties of such Investor, and each Investor hereby
consents to such reliance.
(i) Governmental Authorization. Except for (i) compliance with applicable
--------------------------
federal and state securities laws in connection with the performance by an
Investor of such Investor's obligations under the Registration Rights Agreement
or the Exchange Note Registration Rights Agreement, as applicable, and (ii) any
required compliance by an Investor with applicable federal and state securities
laws, HSR and/or federal or state banking laws and regulations in connection
with (x) the issuance of shares of Common Stock upon exercise of the Debt
Exchange Warrants in accordance with their terms or (y) issuances of Common
Stock pursuant to Sections 2.2, 2.3 or 2.4, no consent, approval, order or other
authorization of any governmental, administrative or regulatory body or agency
is legally required by or on behalf of such Investor in connection with
22
the execution, delivery and performance of this Agreement and each Related
Agreement to which such Investor will become a party.
(j) Additional Representations Relating to Tax Matters. Each of the Senior
--------------------------------------------------
Secured Debt Purchasers, severally and not jointly, makes the representations
and warranties set forth in the attached Schedule 3.2(j)-A and each of the
Signatory Debtholders, severally and not jointly, makes the representations and
warranties set forth in the attached Schedule 3.2(j)-B. Such representations
are furnished by the respective Investors in connection with the rendering of
opinions to the Company by ▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇ and/or other advisors concerning
the tax consequences to the Company of the Recapitalization Transactions (the
"Opinions"). Each Investor, severally and not jointly, represents that, after
due investigation by such Investor with respect to the representations made by
such Investor, the representations made by such Investor are true to the
knowledge of such Investor on the date hereof, and, if requested by the Company
prior to the later to occur of the Debt Exchange Closing Date or the Convertible
Subordinated Debt Placement Closing Date such Investor will advise the Company
if any such matter becomes known to such Investor to be untrue. Each Investor
understands that ▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇ and/or other advisors of the Company will
rely on the accuracy of the representations made by such Investor in rendering
the Opinions and that the Opinions will be expressly conditioned on the accuracy
of the representations made by such Investor as of the date of the Opinions.
Section 3.3 Additional Representations, Warranties and Covenants of the
-----------------------------------------------------------
Signatory Debtholders. Each Signatory Debtholder, severally and not jointly,
----------------------
represents and warrants to, and covenants and agrees with, the Company that:
(a) Such Signatory Debtholder is the sole owner of the respective aggregate
principal amounts of the Old Notes set forth opposite the name of such Signatory
Debtholder in Exhibit A hereto, which principal amounts constitute, in the
aggregate, a majority in principal amount of each series of Old Notes, of record
and beneficially, free (except as Previously Disclosed) of any claim, lien or
encumbrance, and with full right, authority and power to transfer the same in
the Debt Exchange as herein contemplated and to vote and give the consents with
respect to such Old Notes set forth and contemplated herein.
(b) Such Signatory Debtholder hereby consents with respect to all Old Notes
held by it, to the issuance of the Senior Secured Debt as herein contemplated
and further authorizes and approves the execution and delivery of appropriate
supplemental indentures and other appropriate instruments and documents to
evidence and confirm amendments of the terms of the Old Notes to effect the
foregoing, with such consent and amendments to be effective as of the Senior
Secured Debt Closing Date.
(c) Such Signatory Debtholder hereby consents, with respect to all Old
Notes held by it, to the amendments of the terms of the indentures for the Old
Notes to remove covenants and amend other provisions thereof, all as set forth
in Exhibit H hereto, and further authorizes and approves the execution and
delivery of appropriate supplemental indentures and other appropriate
instruments and documents to evidence and confirm the foregoing with such
amendments to become effective as of the Debt Exchange Closing Date.
23
ARTICLE IV
CONDITIONS PRECEDENT TO THE CLOSINGS
Section 4.1 Conditions to the Obligations of the Parties. The respective
--------------------------------------------
obligations of each of the parties hereto to fulfill their obligations under
Article II hereof shall be subject to the satisfaction or waiver prior to,
unless otherwise indicated, the Senior Secured Debt Closing, the Debt Exchange
Closing and the Convertible Subordinated Debt Placement Closing, as applicable,
of the following conditions:
(a) All requirements prescribed by law which are necessary to the
consummation of the transactions contemplated by this Agreement at such closing
shall have been satisfied.
(b) No party hereto shall be subject to any order, decree or injunction of
a court or agency of competent jurisdiction which enjoins or prohibits the
consummation of any of the transactions contemplated by this Agreement.
(c) No statute, rule or regulation shall have been enacted, entered,
promulgated, interpreted, applied or enforced by any governmental authority
which prohibits, restricts or makes illegal consummation of any of the
transactions contemplated by this Agreement.
(d) Each of the parties hereto shall have received (i) a counterpart to
this Agreement, duly executed and delivered by the other parties hereto, with
such required deliveries to be deemed satisfied by delivery of such executed
counterparts to (a) as to the Senior Secured Debt Purchasers, the legal counsel
for holders contracted to purchase a majority in aggregate principal amount of
the Senior Secured Debt (the "SSD Counsel") and (b) as to the Signatory
Debtholders, the legal counsel for holders of a majority in aggregate principal
amount of the Old Notes held by the Signatory Debtholders (the "SD Counsel"),
(ii) in connection with the Senior Secured Debt Closing, a counterpart of the
Security Agreement, duly executed and delivered by the other parties thereto,
and of the Exchange Note Registration Rights Agreement, duly executed and
delivered by the Company, with such required deliveries to be deemed satisfied
by delivery of executed counterparts of each such agreement to the SSD Counsel
and the SD Counsel and (iii) prior to the Debt Exchange Closing, a counterpart
of the Exchange Notes Indenture, duly executed and delivered by the parties
thereto, and of the Registration Rights Agreement, duly executed and delivered
by the Company, with such required deliveries to be deemed satisfied by delivery
of executed counterparts of each such agreement to the SSD Counsel and the SD
Counsel.
(e) Except with respect to the Senior Secured Debt Closing, either (i) the
Company's issuance of the Common Stock, the Debt Exchange Warrants and the
Convertible Subordinated Debt as contemplated by this Agreement shall have been
approved by the requisite vote of the holders of the Common Stock pursuant to
Rule 4350(i) of the NASD or (ii) the Company shall have obtained Nasdaq approval
of its reliance upon an exception to such requirement to obtain shareholder
approval and mailed to all shareholders of the Company the notice referred to in
NASD Rule 4350(i)(2).
24
Section 4.2 Conditions to the Obligations of the Investors. The
----------------------------------------------
obligations of each of the Investors (except with respect to clause (h), which
shall not apply to the Senior Secured Debt Purchasers) to fulfill its
obligations under Article II hereof shall be subject to the satisfaction or
waiver prior to, unless otherwise indicated, the Senior Secured Debt Closing,
the Debt Exchange Closing or the Convertible Debt Closing, as applicable, of the
following conditions:
(a) Each of the representations and warranties of the Company contained in
this Agreement shall be true and correct in all material respects as of the date
of this Agreement and as of the applicable Closing Date as if made on such
Closing Date (or on the date when made in the case of any representation or
warranty which specifically relates to an earlier date).
(b) The Company shall have performed, in all material respects, each of its
covenants and agreements contained in this Agreement to be performed prior to
the applicable Closing; and each of the Investors shall have received a
certificate signed by the Chief Executive Officer and the Chief Financial
Officer of the Company, dated the applicable Closing Date, to the foregoing
effect.
(c) Each Investor shall have received, in form and substance reasonably
satisfactory to it, an opinion, addressed to the Investors and dated as of the
applicable Closing Date, of ▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇, counsel for the Company, with
respect to the matters set forth in Exhibit F hereto.
(d) No party to this Agreement (other than the relevant Investor) shall be
in material breach of this Agreement unless such breach shall have been waived
in writing by each of the other parties to this Agreement.
(e) Each Investor shall have received such other certificates, opinions,
documents and instruments relating to the transactions contemplated hereby as
may have been reasonably required by it and are customary for transactions of
this type, and all corporate and other proceedings, and all documents,
instruments and other legal matters in connection with the transactions
contemplated by this Agreement, shall be reasonably satisfactory in form and
substance to it.
(f) With respect to each Closing (other than the Senior Secured Debt
Closing), the Company shall have executed and delivered the Registration Rights
Agreement to the Investors involved in such Closing who have not previously
become signatory parties thereto for their execution and delivery as of such
Closing.
(g) (i) The indentures governing the Old Senior Notes and the ROPES shall
have been amended to permit the issuance of the Senior Secured Debt and the
granting of the Liens securing the Senior Secured Debt contemplated by the terms
thereof, and a supplemental indenture to the indenture pertaining to the Old
Senior Notes and a supplemental indenture to the indenture pertaining to the
ROPES evidencing such amendments, as applicable, shall have been duly executed
by the Company, the trustee for the Old Senior Notes or the trustee for the
ROPES, as applicable, and any other necessary signatories, and (ii) no other
consents, including
25
without limitation, consents with respect to the Old Junior Notes, shall be
required to permit the transactions contemplated under this Agreement; provided,
however, that if this condition has been satisfied for purposes of the Senior
Secured Debt Closing, this condition shall be deemed to have been satisfied for
purposes of the Debt Exchange Closing and the Convertible Subordinated Debt
Placement Closing.
(h) The Senior Secured Debt Closing shall have occurred and there shall be
no pending or, to the knowledge of the Company, threatened action or proceeding
(judicial or otherwise) to rescind, alter or modify such transaction.
Section 4.3 Additional Conditions to the Obligations of the Senior Secured
--------------------------------------------------------------
Debt Purchasers. The obligations of each of the Senior Secured Debt Purchasers
---------------
under this Agreement, including the obligations set forth in Section 2.1 hereof,
shall be subject to the satisfaction or waiver prior to the Senior Secured Debt
Closing of the following additional conditions:
(a) Each of the other Senior Secured Debt Purchasers shall concurrently
comply with their obligation to purchase Senior Secured Debt hereunder so that
all $16,200,000 in Senior Secured Debt shall be purchased and the Company shall
receive $16,200,000 in payment therefor.
(b) The Security Agreement shall have been executed and delivered by each
of the contemplated parties thereto.
(c) The Company shall have executed and delivered the Exchange Note
Registration Rights Agreement to the Senior Secured Debt Purchasers.
(d) The Company shall have taken or caused to be taken all such actions,
executed and delivered or caused to be executed and delivered all such
agreements, documents and instruments, and made or caused to be made all such
filings and recordings as may be necessary or, in the opinion of the Collateral
Agent, desirable in order to create in favor of the Collateral Agent for the
benefit of the Senior Secured Debt Purchasers a valid and (upon such filings and
recordings) perfected first priority security interest in the assets of the
Company referred to in and covered by the Security Agreement, including the
following:
(i) Delivery to the Collateral Agent of (A) certificates (which
certificates shall be accompanied by irrevocable undated stock powers, duly
endorsed in blank and otherwise satisfactory in form and substance to the
Collateral Agent) representing all capital stock of the Bank pledged
pursuant to the Security Agreement and (B) all promissory notes or other
instruments (duly endorsed, where appropriate, in a manner satisfactory to
the Agent) evidencing any collateral;
(ii) Delivery to the Collateral Agent of (A) the results of a recent
search, by a Person satisfactory to the Collateral Agent, of all effective
UCC financing statements and fixture filings and all judgment and tax lien
filings which may have been made with respect to any personal or mixed
property of the Company, together with copies of all
26
such filings disclosed by such search, and (B) any such UCC termination
statements duly executed by all such applicable Persons for filing in all
such applicable jurisdictions as may be necessary to terminate any
effective UCC financing statements or fixture filings disclosed in such
search that relate in any way to the Collateral.
Section 4.4 Conditions to the Senior Secured Debt Exchange. The
----------------------------------------------
obligations of the Senior Secured Debt Purchasers to exchange their Senior
Secured Debt for Exchange Notes pursuant to Section 2.4 hereof shall be subject
to the satisfaction or waiver prior to the Senior Secured Debt Exchange of the
following conditions:
(a) The Debt Exchange shall have occurred.
(b) The Senior Secured Debt Purchasers shall have received evidence that
the Exchange Notes to be registered pursuant to the Exchange Note Registration
Rights Agreement are duly registered pursuant to the Securities Act of 1933 and
the SEC shall have declared the registration statement pertaining thereto to be
effective.
(c) The Convertible Subordinated Debt Placement shall have been consummated
and the net proceeds from such placement shall have been contributed by the
Company to the Bank as "Tier I Capital".
(d) As of the date that the last to occur of the conditions set forth in
subsections 4.4(a), (b) and (c) has occurred, either (i) the Bank shall be in
compliance with the FDIC Order and the DFI Order and shall have satisfied all of
the requirements required pursuant to such orders to be satisfied on or before
such date, or (ii) if not so in compliance, neither the FDIC nor DFI shall have
taken or threatened to take any action adverse to the Bank or the Company as a
result of such noncompliance and the Company shall have provided to the holders
of the Senior Secured Debt evidence reasonably satisfactory to holders of a
majority in principal amount of the Senior Secured Debt that the FDIC and DFI
are aware of such noncompliance and the Company has not received any notice from
the FDIC or DFI of the intent of either of them to take any such adverse action
as a result of such noncompliance.
(e) Holders of a majority of the then outstanding aggregate principal
amount of the Senior Secured Debt shall have received evidence reasonably
satisfactory to them that the Security Agreement creates in favor of the
Collateral Agent for the benefit of the holders of the Exchange Notes a valid
and perfected first priority security interest in the Collateral (as defined in
the Security Agreement).
Section 4.5 Conditions to the Obligations of the Company. The obligations
--------------------------------------------
of the Company to fulfill its obligations under this Agreement, including
without limitation the obligations set forth in Section 2.1 hereof, shall be
subject to the satisfaction or waiver prior to the Closing of the following
conditions:
(a) Each of the representations and warranties of the Investors contained
in this Agreement shall be true and correct in all material respects as of the
date of this Agreement and as of the applicable Closing Date as if made on such
Closing Date, and the Company shall have
27
received a certificate signed by each Investor who is an individual and by a
duly authorized officer of each other Investor to the foregoing effect.
(b) Each Investor shall have tendered to the Company the consideration
required by this Agreement for each of the Securities to be issued by the
Company and acquired by the Investor pursuant to this Agreement at the
applicable Closing, as set forth on Exhibit A hereto, such consideration with
respect to the Senior Secured Debt and the Convertible Subordinated Debt to be
payable (i) by wire transfer of immediately available funds to an account with a
bank designated by the Company, by notice to each of the Investors to be
provided no later than two Business Days prior to the applicable Closing Date,
or (ii) by a federal (same day) funds check payable to the order of the Company,
and, with respect to the Exchange Notes, to be provided through confirmed
deposit of the appropriate amount of Old Notes with the depository designated
for the Debt Exchange by the Company.
(c) No party to this Agreement (other than the Company) shall be in
material breach of this Agreement unless such breach shall have been waived in
writing by each of the other parties to this Agreement.
(d) The Company shall have received prior to or concurrently with the
Senior Secured Debt Closing Date the favorable opinion of Houlihan, Lokey,
▇▇▇▇▇▇ & ▇▇▇▇▇ or another nationally recognized investment banking or financial
advisory firm selected by the Company as to the fairness of the transactions
provided for in this Agreement, in combination, to the existing stockholders of
the Company from a financial point of view.
(e) The Company shall have received, in form and substance reasonably
satisfactory to it, an opinion addressed to the Company and dated as of the
applicable Closing Date, from the counsel to the Signatory Bondholders and the
counsel to each other Investor that is purchasing at least $3.0 million in
aggregate principal amount of Convertible Subordinated Debt, who shall be
subject to the reasonable approval of the Company, with respect to the matters
set forth in Exhibit G hereto with respect to such Closing.
(f) The Company shall have received such other certificates, opinions,
documents and instruments relating to the transactions contemplated hereby as
may have been reasonably required by the Company and are customary for
transactions of this type, and all corporate and other proceedings, and all
documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement, shall be reasonably satisfactory in
form and substance to the Company.
ARTICLE V
COVENANTS
Section 5.1 Shareholder Meeting; Exemption. The Company shall (i) take
------------------------------
all action necessary (including without limitation the preparation, filing and
dissemination of requisite proxy materials) to have its shareholders consider
the issuance of the Common Stock, the Debt Exchange Warrants and the Convertible
Subordinated Debt to be issued pursuant to this
28
Agreement at a special meeting of shareholders which is called for the purpose
as promptly as practicable after the date hereof, (ii) recommend that its
shareholders approve the issuance of the Common Stock, the Debt Exchange
Warrants and the Convertible Subordinated Debt to be issued pursuant to this
Agreement and use its best efforts to obtain such approval as promptly as
practicable, and (iii) cooperate and consult with the Investors with respect to
each of the foregoing matters, provided that the Company may cease taking any of
the actions set forth in the foregoing clauses if it obtains the NASD Exemption
referred to below. The Company agrees, if necessary to complete the transactions
provided for in this Agreement in a timely manner that will enable the Company
to infuse capital into the Bank within the period required by the FDIC and the
DFI, to use its best efforts to obtain the approval of Nasdaq to its reliance
upon an exception to the requirement under NASD Rule 4350(i) to obtain
shareholder approval of the issuance of the Common Stock, the Debt Exchange
Warrants and the Convertible Subordinated Debt to be issued pursuant to this
Agreement and, in the event it obtains such approval, to mail to all
shareholders of the Company the notice referred to in NASD Rule 4350(i)(2)
(collectively, the "NASD Exemption").
Section 5.2 Applications. If any approval, consent or non-objection need
------------
be obtained by the Company, the Bank or any Investor from, or a notice or other
filing need be filed by the Company, the Bank or any Investor with, the DFI, the
FDIC or any other governmental authority (including, without limitation, the
Federal Trade Commission and the Assistant Attorney General in charge of the
Antitrust Division of the U.S. Department of Justice pursuant to the HSR) in
connection with (i) the execution, delivery and performance of this Agreement or
any Related Agreement by the Company or any Investor or (ii) the Company's
issuance of Common Stock pursuant to this Agreement or upon exercise of any of
the Debt Exchange Warrants, such party shall take all actions necessary to
obtain any such approval, consent or non-objection or file such notice or other
filing as promptly as practicable, and the other parties hereto agree to
cooperate with such party in obtaining or filing the same. Any party that is
required to file any notice, application or other document pursuant to the
preceding sentence shall provide copies thereof (excluding any confidential
information) for review, to each Investor in the case of the Company, and to the
Company in the case of an Investor, not less than five Business Days prior to
the making of such filing and shall keep such other party or parties hereto, as
applicable, apprised of the status of such filing and the consideration thereof
by the relevant governmental authority.
Section 5.3 Investigation and Confidentiality.
---------------------------------
(a) Until the last Closing that occurs pursuant to this Agreement, the
Company shall permit each Investor and its representatives reasonable access to
the Company's properties and personnel, including those of the Bank, and shall
disclose and make available to each Investor all books, papers and records
relating to the assets, stock ownership, properties, operations, obligations and
liabilities of the Company and its Subsidiaries, including, but not limited to,
all books of account (including the general ledger), tax records, minute books
of meetings of boards of directors (and any committees thereof) and
shareholders, organizational documents, bylaws, material contracts and
agreements, filings with any regulatory authority, accountants' work papers,
litigation files, loan files, plans affecting employees, and any other business
activities or prospects in which an Investor may have a reasonable interest;
provided, that such access shall be
29
reasonably related to the transactions contemplated hereby and not unduly
interfere with normal operations; and provided, further, that in the event that
any of the foregoing are in the control of any third party, the Company shall
use its best efforts to cause such third party to provide access to such
materials to each Investor who shall request the same. In the event that the
Company is prohibited by law from providing any of the access referred to in the
preceding sentence to an Investor or that provision of such access would
jeopardize any attorney-client or other privilege, the Company shall use its
best efforts to obtain promptly waivers of such law so as to permit such access
or to convey the substance of any requested information without violation or
waiver of any such privilege. The Company shall make the directors, officers,
employees and agents and authorized representatives (including counsel and
independent public accountants) of the Company and its Subsidiaries available to
confer with Investors and their representatives, provided that such access shall
be reasonably related to the transactions contemplated hereby and not unduly
interfere with normal operations.
(b) All information furnished to an Investor by the Company previously in
connection with the transactions contemplated by this Agreement or pursuant
hereto shall be treated as the sole property of the Company and each Investor
covenants, severally and not jointly and as to itself only, that it shall use
its best efforts to keep confidential all such information and shall not
directly or indirectly use such information for any competitive or other
commercial purposes. The obligation to keep such information confidential shall
continue for five years from the date hereof but shall not apply to (i) any
information which (x) an Investor can establish by convincing evidence was
already in its possession prior to the disclosure thereof by the Company; (y)
was then generally known to the public; or (z) became known to the public
through no fault of an Investor; or (ii) disclosures pursuant to a legal
requirement or in accordance with an order of a court of competent jurisdiction,
provided that the Investor shall use its best efforts to give the Company at
least ten Business Days prior notice thereof and shall limit such disclosure to
the minimum amount required by such legal requirement or court order.
Section 5.4 Press Releases. The Company and each Investor hereof shall
--------------
agree with each other as to the form and substance of any press release related
to this Agreement or the transactions contemplated hereby, and shall consult
with each other as to the form and substance of other public disclosures which
may relate to the transactions contemplated by this Agreement, provided,
however, that nothing contained herein shall prohibit any party, following
reasonable advance notification to such other parties, from making any
disclosure which it determines in good faith to be required by law or
regulation. For purposes of the foregoing, the Company may treat a law firm
designated from time to time by Investors as the authorized representative of
each of such Investors.
Section 5.5 Use of Proceeds. The Company shall use the net cash proceeds
---------------
from the sale of the Senior Secured Debt and the Convertible Subordinated Debt
pursuant to this Agreement to increase the regulatory capital of the Bank,
including without limitation, through the purchase of perpetual non-cumulative
preferred stock of the Bank.
30
Section 5.6 Current Information.
-------------------
(a) The Company shall provide to each Investor (i) promptly following the
filing thereof, copies of each report filed by the Company under the Exchange
Act and each regular periodic report filed by the Bank with the FDIC and the
DFI, and (ii) concurrently with the mailing thereof, copies of each
communication sent by the Company to its shareholders generally.
(b) Subsequent to the last Closing to occur under this Agreement, the
Company shall furnish to each Investor who holds Common Stock or Debt Exchange
Warrants, promptly upon their becoming available, each registration statement
and prospectus filed by the Company with the SEC under the Securities Act.
Section 5.7 Listing of Additional Shares of Common Stock. The Company
--------------------------------------------
shall take all action which is necessary to ensure that Common Stock to be
issued pursuant to this Agreement, including Common Stock issuable upon exercise
of the Debt Exchange Warrants to be issued hereunder and upon conversion of the
Convertible Subordinated Debt, will be eligible upon issuance for quotation on
the Nasdaq Stock Market's National Market System or any exchange or market on
which the Common Stock is then traded.
Section 5.8 Rule 144 and Rule 144A Reporting.
--------------------------------
With a view to making available to holders of Securities the benefits of
certain rules and regulations of the SEC which may permit the sale of the
Securities to the public without registration, the Company agrees at all times
to:
(a) make and keep public information available, as those terms are
understood and defined in Rules 144 and 144A under the Securities Act (or any
successor Rule thereto); and
(b) use its best efforts to file with the SEC in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act.
Section 5.9 Stock Options. The Company shall adopt a new stock option
-------------
plan pursuant to which 5 million shares of Common Stock, or such greater number
of shares of Common Stock as shall be determined by the board of directors of
the Company, shall be reserved for issuance pursuant to options or other awards
granted pursuant to such plan. Of the total number of shares of Common Stock
reserved for issuance pursuant to such plan, the board of directors of the
Company shall grant to Persons who are members of the management of the Company
as of the date of this Agreement options relating to 1.5 million shares of
Common Stock, having an exercise price equal to the Conversion Price of Common
Stock set forth in the Convertible Subordinated Debt and having such vesting
schedule and term to expiration (which shall not exceed 10 years) as shall be
determined by the Compensation Committee of the board of directors of the
Company as constituted as of the date of this Agreement, which Committee shall
also determine the allocation of such options among such Persons. The foregoing
determinations by such Committee so constituted shall be binding upon the
Company and its Board of Directors notwithstanding that adoption and
implementation of the new stock option
31
plan referred to in this Section 5.9 may occur at a later date as of which the
composition of the Compensation Committee of the board of directors of the
Company has changed. In the event the Company is unable for any reason to adopt
or implement a new stock option plan as contemplated in this Section 5.9, the
Company shall promptly make such alternative arrangements, including, without
limitation, adoption and implementation of one or more phantom stock or other
compensation plans, as it shall reasonably determine to be appropriate to
provide comparable incentive compensation opportunities to the Persons referred
to in this Section 5.9. The provisions of this Section 5.9 are intended to
confer upon the Persons designated by the existing Compensation Committee of the
Company's Board of Directors the right to receive the compensation opportunities
hereinabove described and to be enforceable by each of such Persons.
Section 5.10 Board of Directors; Supermajority Voting Requirements.
-----------------------------------------------------
(a) From and after the completion of the last to occur of the
recapitalization transactions provided for in this Agreement, the board of
directors of the Company shall be comprised of seven persons. The board of
directors of the Company shall nominate four persons for election as directors
of the Company at the next annual meeting of shareholders following the date
hereof who have been proposed by the Signatory Debtholders and who are approved
by the board of directors of the Company in the exercise of its fiduciary
duties, which approval shall not be unreasonably withheld or delayed; provided,
that the four persons so nominated shall not take office as directors prior to
the completion of the last to occur of the recapitalization transactions
provided for herein. Three persons serving as directors of the Company as of the
date hereof have indicated that they each intend to resign as directors prior to
the Company's next annual meeting of shareholders. The board of directors of the
Company shall elect the persons listed on Schedule 5.10 hereto as replacement
directors at the times indicated on such Schedule. Notwithstanding the foregoing
provisions of this Section 5.10, no person shall have the right, or be
permitted, to become a director of the Company unless and until any and all
applicable regulatory requirements have been complied with.
(b) During the first year following consummation of the Subordinated
Convertible Debt Placement, the approval of five or more directors (or directors
constituting at least 70% of the directors eligible to vote on such proposal if
one or more directors is not able to vote because of a conflict of interest or
other basis for recusal) shall be required to approve: (i) the filing of a
voluntary bankruptcy petition pursuant to Title 11 of the United States Code;
(ii) a liquidation of the Company pursuant to state or other applicable law;
(iii) a merger or acquisition transaction following which shareholders of the
Company immediately prior to such transaction own less than 50% of the equity of
the surviving corporation or other entity following such transaction; or (iv) a
sale of all or substantially all of the assets of the Company; provided,
however, that the foregoing shall not be applicable if, in light of the then
existing financial position of the Company, a majority of the board of directors
determines that such transaction is in the best interests of the Company's
shareholders.
Section 5.11 Exchange of Securities. The Company will, at its expense,
----------------------
promptly upon surrender of (i) any Senior Secured Debt or Convertible
Subordinated Debt instrument,
32
(ii) any certificate evidencing Common Stock and (iii) any Debt Exchange
Warrant, at the office of the Company referred to in, or designated pursuant to,
Section 6.4, execute and deliver to the Investor (i) such number of new Senior
Secured Debt or Convertible Subordinated Debt instruments in such principal
amounts as shall be specified by the Investor (subject to the respective minimum
denomination requirements thereof) in an aggregate principal amount equal to the
Senior Secured Debt or Convertible Subordinated Debt instruments surrendered,
(ii) a new certificate or certificates in denominations specified by the
Investor for an aggregate number of shares of Common Stock equal to the number
of shares of such stock represented by the certificate or certificates
surrendered and (iii) a new Debt Exchange Warrant or Warrants covering a number
of shares of Common Stock specified by the Investor for an aggregate number of
shares of Common Stock equal to the number of shares of Common Stock covered by
the Debt Exchange Warrant or Warrants surrendered.
Section 5.12 Acquisition of Common Stock; Other Tax Matters. During the
----------------------------------------------
period commencing on the date of this Agreement and ending on the third
anniversary of such Closing:
(a) Except for the acquisitions made pursuant to the terms of this
Agreement, such as acquisition of Common Stock and Debt Exchange Warrants
pursuant to Sections 2.2 or 2.4, the exchange of Exchange Notes for Convertible
Subordinated Debt pursuant to Section 2.4(b) or the conversion of Convertible
Subordinated Debt for Common Stock, each Investor agrees to give the Company
advance written notice of any proposed purchase or other acquisition of Capital
Stock or Stock Equivalents of the Company. Such notice shall be accompanied by
information related to such proposed transaction which is reasonably sufficient
to enable the Company to determine, in its reasonable judgment, whether such
acquisition (i) would result either in such Investor (or his "Group" within the
meaning of Treas. Regs. (S) 1.382-3(a)(1)(i)) becoming a "5% shareholder" of the
Company as such term is defined in Section 382(k)(7) of the Code, or increasing
such Investor's interest (or that of his "Group") as such a "5% shareholder" and
(ii) could reasonably be expected to result either (x) in an "ownership change"
under Section 382 of the Code and the regulations promulgated thereunder, or (y)
the acquisition of "control" by any such person or Group within the meaning of
Treas. Regs. (S) 1.382-4(d)(4) (taking into account both the proposed transfer
and any other transactions of which the Company is aware).
(b) Within three Business Days of its receipt of the above-referenced
notice from the Investor (the "Review Period"), the Company shall provide the
Investor with written notice that either (i) states that the Company has made
determinations of the type described in Section 5.12(a) hereof, (ii) contains a
reasonable written request of the Company for further information concerning
such proposed transaction (in which case the Review Period shall be extended
until the third Business Day after receipt of such further information and the
Company will provide a further written notice to such Investor with the content
required herein by the end of the Review Period as so extended), or (iii) states
that the proposed purchase or acquisition (or a purchase or acquisition of a
specified lesser amount of Capital Stock or Stock Equivalents) will not have the
result described in subparagraphs (i) or (ii) of Section 5.12(a) hereof. If, by
the expiration of the Review Period, the Company has given notice to the
Investor that the Company has made determinations of the type described in
Section 5.12(a) hereof, the Investor shall refrain from effecting any purchase
or acquisition as the Company may reasonably request in order to avoid
33
such an "ownership change" or acquisition of "control." If (x) the Company has
given notice that the proposed purchase or acquisition will not have the result
described in subparagraphs (i) or (ii) of Section 5.12(a) hereof or (y) the
Company has not given any notice (other than a request for information) during
the Review Period, then the Investor shall not be restricted in making such
proposed purchase or acquisition during the 60 calendar days following the
expiration of the Review Period; provided, however, that during such 60-day
period the Company may give notice to such Investor that further purchases or
acquisitions by the Investor would have the result described in subparagraphs
(i) or (ii) of Section 5.12(a) hereof, and, upon receipt of such notice, the
Investor shall refrain from making any further purchases or acquisitions.
(c) The parties hereto shall cooperate with each other and use their
respective commercially reasonable efforts to achieve the result that the
transactions provided for in this Agreement shall not cause the limitations on
utilization of net operating losses or other tax attributes of the Company or
any of its subsidiaries to be subject to the limitations set forth in Section
382 of the Code.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Survival of Provisions. The representations, warranties and
----------------------
covenants of the Company and the Investors made herein and each of the
provisions of Articles V and VI shall remain operative and in full force and
effect regardless of (i) any investigation made by or on behalf of any Investor
or the Company, as the case may be, (ii) acceptance of any of the Securities and
payment by the Investors therefor and retirement thereof, (iii) the transfer of
any Securities or interest therein by any Investor, provided that no transferee
may claim the benefit of any such representation or warranty, or (iv) any
termination of this Agreement.
Section 6.2 Termination. This Agreement may be terminated (by the party
-----------
electing so to terminate it) by giving written notice of termination to all
other parties at any time prior to the Senior Secured Debt Closing:
(a) By the Company if the Senior Secured Debt Closing has not occurred by
March 31, 2001, or
(b) By any Investor if the Senior Secured Debt Closing has not occurred by
March 31, 2001; or
(c) By the Company prior to the Senior Secured Debt Closing in the event
that it receives a Superior Proposal and the board of directors of the Company
determines, on the advice of its outside legal counsel, that such termination is
required in the exercise of the fiduciary duties of the directors of the
Company. As used herein, the term "Superior Proposal" means a proposal for a
business combination of the Company with another entity, whether by merger, sale
of substantially all assets or another type of transaction, a sale or merger of
the Bank, a recapitalization of the Company or the Bank, or the sale of equity
securities, either alone or in combination with debt securities, by the Company
or the Bank that, in any of the foregoing
34
cases, will be on terms that, in the good faith determination of the board of
the directors of the Company, are more favorable to the Company and its existing
shareholders than those embodied in the recapitalization transactions provided
for herein.
Section 6.3 Waiver; Other Termination Events; Amendments. No failure or
--------------------------------------------
delay on the part of the Company or any Investor in exercising any right, power
or remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
The remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to the Company or any Investor at law or in
equity. No waiver of or consent to any departure by the Company or any Investor
from any provision of this Agreement shall be effective unless signed in writing
by the party entitled to the benefit thereof. Except as otherwise provided,
herein, no amendment, modification or termination of any provision this
Agreement shall be effective unless signed in writing by or on behalf of the
Company and each Investor affected thereby. Any amendment, supplement or
modification of or to any provision of this Agreement, any waiver of any
provision of this Agreement, and any consent to any departure from the terms of
any provision of this Agreement, shall be effective only in the specific
instance and for the specific purpose for which made or given. Except where
notice is specifically required by this Agreement, no notice to or demand on any
party hereto in any case shall entitle another party hereto to any other or
further notice or demand in similar or other circumstances. Notwithstanding the
foregoing, any consent, waiver, amendment, supplement, modification or
termination hereof, other than a Unanimous Consent Action, required from the
Senior Secured Debt Purchasers, or any subsequent holders of Senior Secured Debt
shall be deemed given or approved, and shall be binding on all Senior Secured
Debt Purchasers and on all such subsequent holders if such consent, waiver,
amendment, supplement, modification or termination has been consented to, waived
by or approved by Senior Secured Debt Purchasers that own or have hereby
contracted to purchase, a majority in aggregate principal amount of the Senior
Secured Debt.
Section 6.4 Communications. All notices, demands and other communications
--------------
provided for or permitted hereunder shall be made in writing by hand-delivery,
registered first-class mail, telex, telecopier, or air courier guaranteeing
overnight delivery:
(i) if to any Investor, initially at the address set forth below its
name on Exhibit A hereto, and thereafter at such other address, notice of
which is given in accordance with this Section 6.4; and
(ii) if to the Company, initially at ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: H. ▇▇▇▇▇ ▇▇▇▇▇▇▇; and
thereafter at such other address notice of which is given in accordance
with this Section 6.4.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being sent by certified mail, return receipt requested, if mailed;
when answered back, if telexed; when receipt is
35
acknowledged, if telecopied; and on the next Business Day if timely delivered to
an air courier guaranteeing overnight delivery.
Section 6.5 Costs, Expenses and Taxes. Whether or not the transactions
-------------------------
contemplated hereby are consummated, the Company agrees to pay all reasonable
costs and expenses incurred by it in connection with the negotiation,
preparation, reproduction, execution, delivery and performance of this Agreement
and the Related Agreements and any amendment or supplement or modification
hereof or thereof (except to the extent otherwise provided in the Registration
Rights Agreement or the Exchange Note Registration Rights Agreement), including
without limitation, attorneys fees and expenses and all reasonable costs and
expenses incurred by it in connection with the Company's administration of this
Agreement and any Related Agreement. The Company also agrees to pay up to
$375,000 of the reasonable costs and expenses of the Senior Secured Debt
Purchasers incurred in connection with the transactions provided for herein,
including legal fees and expenses. The Company further agrees to pay up to
$750,000 of the expenses of the Signatory Debtholders incurred in connection
with the transactions provided for herein, including fees and expenses payable
to the firms listed in Schedule 6.5 hereto, in connection with the negotiation,
preparation, reproduction, execution and delivery of this Agreement and the
Related Agreements, plus such additional sums as shall be approved by the
Company, the Company agreeing to approve any such expense incurred in good faith
and in pursuit of the consummation of the transactions contemplated hereby.
Such amounts as are incurred by the Signatory Debtholders on or before the date
of consummation of the Senior Secured Debt offering shall be paid from the
proceeds of such offering.
Section 6.6 Execution in Counterparts. This Agreement may be executed in
-------------------------
any number of counterparts and by different parties hereto on separate
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original and all of which counterparts, taken together, shall
constitute but one and the same Agreement.
Section 6.7 Binding Effect: Assignment. The rights and obligations of an
--------------------------
Investor under this Agreement may not be assigned to any other Person except
with the prior written consent of the Company, except that, notwithstanding the
foregoing, such assignment may be made as collateral to a bank or other
financial institution as security for a bona fide loan for money borrowed. The
obligations of the Company under this Agreement may not be assigned by the
Company without the consent of each Investor. Except as expressly provided in
this Agreement, this Agreement shall not be construed so as to confer any right
or benefit upon any Person other than the parties to this Agreement, and their
respective successors and permitted assigns. This Agreement shall be binding
upon the Company and each Investor, and their respective successors and
permitted assigns.
Section 6.8 Governing Law. This Agreement shall be deemed to be a
-------------
contract made under the laws of the State of California, and for all purposes
shall be construed in accordance with the laws of said state, without regard to
the principles of conflict of laws thereof.
Section 6.9 Severability of Provisions. Any provision of this Agreement
--------------------------
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the
36
extent of such prohibition or unenforceability only without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
Section 6.10 Headings; Gender. The Article and Section headings, and Table
----------------
of Contents used or contained in this Agreement are for convenience of reference
only and shall not affect the construction of this Agreement. Use of a
particular gender herein shall be considered to represent the masculine,
feminine or neuter gender whenever appropriate.
Section 6.11 Interpretation. When a reference is made in this Agreement to
--------------
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement they shall be deemed to be
followed by the words "without limitation." Whenever the context so requires,
the use of the singular shall be deemed to include the plural and vice versa.
Section 6.12 Integration. This Agreement and the Related Agreements
-----------
constitute the entire agreement among the parties with respect to the subject
matter thereof and there are no promises or undertakings with respect thereto
not expressly set forth or referred to herein or therein.
Section 6.13 Tax Indemnities.
---------------
(a) It is the intention of the Company that the transactions contemplated
by this Agreement will not give rise to an ownership change under Section 382 of
the Code (an "Ownership Change") resulting in limitations on the ability of the
Company to use net operating loss carryforwards, built-in losses or other tax
attributes that would otherwise have been immediately available to the Company,
as of December 31, 2000, for use in subsequent years (the "Tax Attributes"). The
Company has not relied upon any Investor for any advice concerning tax
consequences, including the absence of an Ownership Change, no Investor is
making any representation or warranty as to the Company's tax consequences,
including the absence of an Ownership Change, the Investors are not guaranteeing
the absence of an Ownership Change or any other tax result for the Company, and
nothing contained in this Agreement shall be deemed to be such a representation,
warranty or guarantee. Nevertheless, the Company has requested that each
Investor make the representations and warranties set forth in Schedule 3.2(j)(A)
or (B), as the case may be, and to provide the covenants set forth in Section
5.12 of this Agreement (collectively, the "Tax Provisions"). As specified in
Section 3.2(j), the Tax Provisions are made or committed to, as the case may be,
severally and not jointly by each Investor, only to such Investor's knowledge,
and the Investors are making such representations and covenants subject to the
various qualifications set forth in those provisions of this Agreement.
(b) The sole liability of any Investor for damages suffered by the Company
from a breach by such Investor of the Tax Provisions shall be to make payments
(the "Makeup Payments") as set forth in this Section 6.13. The obligations of an
Investor under this Section 6.13 are independent of any obligation of the
Company under this Agreement and the Related Agreements, and the Company shall
have no right to offset claims under this Section 6.13 against
37
its obligations under this Agreement or any Related Agreement including,
specifically, payment of principal, interest and other amounts, when due,
pursuant to the terms of the Senior Secured Debt, the Exchange Notes and the
Convertible Subordinated Debt, which obligations are absolute and unconditional.
(c) Upon the occurrence of any event which in the opinion of the Company
may cause a Breaching Holder (as hereinafter defined) to be liable for a Makeup
Payment for any year, the Company shall give notice describing the nature of
such event to such Breaching Holder (a "Potential Claim Notice"). A Potential
Claim Notice shall include the Company's calculation of each Breaching Holder's
potential Makeup Payment and shall show, in reasonable detail, the factual basis
for such determination and calculation. No Investor shall have any liability for
a Makeup Payment unless a Potential Claim Notice has been given to such Investor
on or before March 15, 2004 identifying such Investor as a Breaching Holder.
(d) In the event that the Company receives notice from any tax authority (a
"Tax Notice") questioning, contesting or limiting the availability to the
Company of any Tax Attribute that could result in the imposition of liability
for a Makeup Payment on any Breaching Holder, the Company shall promptly (and in
any event within 30 days following receipt of such notice) send notice (a "Claim
Notice") to each Breaching Holder of such Tax Notice. The Claim Notice shall
include a copy of the Tax Notice, the identity of all Breaching Holders, a
statement of the Company's intention to claim a Makeup Payment from each
Breaching Holder and an explanation in reasonable detail of the breach for which
Makeup Payment is being claimed.
(e) Following receipt of the Potential Claim Notice or Claim Notice, each
Breaching Holder identified in such Potential Claim Notice or Claim Notice shall
be entitled to consult with the Company concerning any administrative or
judicial proceeding, hearing or conference that involves the Alleged Breach or
the Ownership Change. The Breaching Holder shall also be entitled to inspect the
books, records or other documents of the Company to the extent that such
inspection is necessary in connection with any proceeding referred to in this
Section 6.13.
(f) A "Potential Indemnity Event" with respect to an Investor shall be
deemed to have occurred if (and only if) (i) an Ownership Change shall be
alleged by the Company to have occurred as a result of a breach by such Investor
of any of the Tax Provisions and the use by the Company of the Tax Attributes
shall have been restricted, and (ii) as a result of such breach and Ownership
Change, the Company's cumulative tax liabilities for periods following such
Ownership Change shall have been increased by an amount in excess of $2,000,000
(the "Agreed De Minimis Amount").
38
(g) Liability of a Breaching Holder for a Makeup Payment in connection with
any Potential Indemnity Event shall arise if and only if (i) there has been a
final determination (by virtue of an unappealed court order, unappealed
arbitration award or written acknowledgement, as the case may be) that such
Investor (a "Breaching Holder") has breached one or more of the Tax Provisions
made by such Investor, and (ii) such Potential Indemnity Event resulted solely
from a breach of one or more Tax Provisions by either (x) such Breaching Holder
acting alone, or (y) collectively by such Breaching Holder, if he is a Senior
Secured Debtholder, together with one or more other Breaching Holders, each of
whom is a Senior Secured Debtholder, or (z) collectively by such Breaching
Holder, if he is a Signatory Debtholder, together with one or more other
Breaching Holders each of whom is a Signatory Debtholder.
(h) A Breaching Holder's liability to the Company for any Makeup Payment
shall be subject to material compliance by the Company with the other relevant
provisions of this Section 6.13 and shall, in the aggregate for all Breaching
Holders, be equal to the actual damages suffered by the Company in excess of the
Agreed De Minimis Amount as a result of a breach of one or more Tax Provisions,
provided that no Investor shall be required, individually, to pay Makeup
Payments in an amount in the aggregate in excess of 20% of such Investor's
original investment in the Securities and the liability of each Investor under
this Section 6.13 is limited to such amount.
(i) In the event that a Potential Indemnity Event has occurred for which a
Breaching Holder is liable pursuant to this Section 6.13, the Company shall give
notice (a "Breach Notice") to the Breaching Holder of the amount of the Makeup
Payment for which the Breaching Holder is so liable. Such Breach Notice shall
include the Company's calculation of the Breaching Holder's potential Makeup
Payment showing, in reasonable detail, the factual basis for such determination
and calculation. The Breaching Holder shall have 30 days following receipt by
the Breaching Holder of such notice within which to review the matters set forth
in such notice. If the Breaching Holder objects to any matters set forth in such
notice within such 30-day period, the Company and the Breaching Holder shall
attempt to resolve the objection. If the objection is not resolved within 30
days following receipt by the Company of the Breaching Holder's objection, the
factual determination and calculation of the Makeup Payment shall be submitted
to binding arbitration under the commercial arbitration rules of the American
Arbitration Association.
Except as expressly set forth in this Section 6.13, the Investors shall
have no obligation or liability for or with respect to the Tax Provisions and
the Company hereby waives any claim against any Investor, on any theory of
liability, for direct, actual, special, indirect, consequential or punitive
damages arising out of, in connection with, or as a result of, this Agreement,
the Related Agreements, or any agreement or instrument contemplated hereby or
thereby and the transactions contemplated hereunder and thereunder.
Section 6.14 Indemnification of Investors. Except as expressly set forth
----------------------------
in Section 6.13, the Company agrees to indemnify the Investors and their
respective shareholders, directors, officers, employees, agents, advisers and
affiliates (each such Person being called an "Indemnitee") against, and hold
each Indemnitee harmless from, any and all losses, claims,
39
damages, liabilities and related expenses, including the fees, charges and
disbursements of any counsel for any counsel for any Indemnitee, incurred by or
asserted against any Indemnitee arising out of, in connection with, or as a
result of (i) the execution or delivery of this Agreement, the Related
Agreements or any agreement or instrument contemplated hereby, the performance
by the parties hereto and thereto of their respective obligations hereunder or
thereunder or the consummation of the transactions contemplated hereby or
thereby, (ii) the use of the proceeds from the issuance of the Senior Secured
Debt, or (iii) any factual or prospective claim, litigation, investigation or
proceeding relating to any of the foregoing, whether based on contract, tort or
any other theory and regardless of whether any Indemnitee is a party thereto.
The Company agrees that, without the prior written consent of the Indemnitee,
the Company will not settle, compromise or consent to the entry of any judgment
in any pending or threatened proceeding in respect of which indemnification is
reasonably likely to be sought under these indemnification provisions (whether
or not any Indemnitee is an actual or potential party to such proceeding),
unless such settlement, compromise or consent includes an unconditional written
release of such Indemnitee from all liability arising out of such proceeding and
does not include any statement as to an admission of fault, culpability or
failure to act by or on behalf of any Indemnitee and does not involve any
payment of money or other value by any Indemnitee or performance of any
obligation by an Indemnitee or any injunctive relief or factual findings of
stipulations binding on any Indemnitee.
Section 6.15 Appointment and Authorization of Collateral Agent. By
-------------------------------------------------
execution of this Agreement and acceptance of the Senior Secured Debt, each
Senior Secured Debt Purchaser hereby irrevocably designates and appoints
Wilmington Trust Company as the Collateral Agent for the benefit of such Senior
Secured Debt Purchaser under the Security Agreement and each Senior Secured Debt
Purchaser hereby irrevocably authorizes the Collateral Agent (i) to take action
on its behalf and exercise such powers and use such discretion as are expressly
permitted thereunder and all instruments relating thereto and (ii) to exercise
such powers and perform such duties as are, in each case, expressly delegated to
the Collateral Agent by the terms thereof, together with such other powers and
discretion as are reasonably incidental thereto. Notwithstanding any provision
to the contrary elsewhere in this Agreement or in the Security Agreement, the
Collateral Agent shall not have any duties or responsibilities except those
expressly set forth in the Security Agreement or any fiduciary relationship with
any Senior Secured Debt Purchaser and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into the
Security Agreement or otherwise exist against the Collateral Agent. Without
limiting the generality of the foregoing, each Senior Secured Debt Purchaser
hereby agrees to the provisions of the Security Agreement and authorizes the
Collateral Agent to execute the Security Agreement as Collateral Agent on behalf
of such Senior Secured Debt Purchaser.
[signature pages follow]
40
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
IMPERIAL CREDIT INDUSTRIES, INC.
By: /s/ H. ▇▇▇▇▇ ▇▇▇▇▇▇▇
--------------------
Name: H. ▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Chief Executive Officer
Signatory Debtholders:
IMPERIAL HOLDINGS GROUP, LLC,
a Nevada limited liability company
By: IMPERIAL HOLDINGS GROUP, LLC,
a Florida limited liability company,
its Manager
By:_________________________________
Title: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Manager
41
[___________________________________]
By: *
--------------------------------
Name:____________________
Title:___________________
[___________________________________]
By: ________________________________
Name:____________________
Title:___________________
_________________________
By [________________], Attorney-in-fact.
42
Schedule 3.2(j)-A. Additional Representations of the Senior Secured Debt
Purchasers
In connection with each of the representations set forth below, it is
understood that no breach of such representation shall have been deemed to occur
as the result of the exercise by a purchaser of Senior Secured Debt of any
rights or options expressly set forth in (or contemplated by) the Master
Recapitalization Agreement to which this is attached (such as, for instance, the
conversion of Convertible Subordinated Debt into Common Stock, or the exchange
of Exchange Notes into Convertible Subordinated Debt).
1. Each purchaser of Senior Secured Debt severally represents (i) he
evaluated his purchase of Senior Secured Debt on an independent review and
analysis of the Company performed by him or on his behalf by his financial
advisor or by another purchaser of Senior Secured Debt (or such purchaser's
financial advisor) and (ii) although his purchase is conditional upon the
commitments to sell and exchange securities of the Company as provided in the
Master Recapitalization Agreement, he has not conditioned his purchase on the
acquisition of Common Stock or Debt Exchange Warrants by any particular person
or on the identity of any particular Signatory Debtholder.
2. Each purchaser of Senior Secured Debt agrees that he will not serve as
a member of the board of directors of the Company prior to consummation of an
acquisition by the Company (if any such acquisition were to occur) of Affinity
Bank or Affinity Bank Holdings, Inc., nor is he a party to any voting trust or
voting agreement proxy arrangement by virtue or which he participates in the
selection of directors of the Company.
3. Each purchaser of Senior Secured Debt represents that he does not
presently own either Common Stock, or any security convertible into Common
Stock, other than as set forth in Schedule 3.2(1)-A attached hereto.
-----------------
-1-
Schedule 3.2(j)-B. Additional Representations of
▇▇▇▇▇ (SDH) Group Representations
(the Signatory Debtholders)
For purposes of the following representations and warranties, two or more
persons are "related" if they bear a relationship specified in Internal Revenue
Code of 1986, as amended ("Code") sections 267(b) or 707(b), and are treated as
"acting in concert" in the acquisition of the Convertible Subordinated Debt,
Senior Secured Debt or Common Stock (as the case may be), if they have a formal
or informal understanding among themselves to make a coordinated acquisition of
those securities. A principal element in determining if such understanding
exists is whether an investment decision with respect to any such securities of
any such person is based upon the investment decision of some other such person
concerning any such securities.
For these purposes, (i) the "SDH Group" shall consist of and include all
persons who are Signatory Debtholders, any persons to whom any Signatory
Debtholder is related, and any person with whom a Signatory Debtholder is acting
in concert, and (ii) the "Public CSD Group" will consist of and include each
holder who purchases Convertible Subordinated Debt for cash in the Convertible
Subordinated Debt Placement, and any person to whom such holder is related or
with whom he is acting in concert.
1. (a) No purchaser of Senior Secured Debt (collectively, together with
any person related to or acting in concert with such purchaser, the "SSD Group,"
and all such persons being members of the SSD Group), and no other member of the
SSD Group is a member of, is related to, or is acting in concert with any person
who is a member of the SDH Group or, to the best knowledge and belief of the SDH
Group and its members, the Public CSD Group. To the best knowledge and belief
of the SDH Group and its members, each purchaser of Senior Secured Debt has
based his purchase thereof on an independent review and analysis of the
Company's performance and prospects by (or on behalf of) himself or another
purchaser of Senior Secured Debt, without regard to the analysis and opinions of
the SDH Group and its members.
(b) In particular, no person that is a member of the SDH Group (or is
acting on behalf of the SDH Group) has
(i) solicited or otherwise arranged for purchases of Senior Secured
Debt by any member of the SSD Group (except by introducing such a member to
the investment banker for the placement of the Senior Secured Debt);
(ii) negotiated the terms or conditions of the purchases of Senior
Secured Debt on behalf of the SSD Group;
(iii) made any promise or commitment to the effect that such or any
other member of the SDH Group, or any present or future director of the
Company, favors or will favor the acquisition of Affinity Bank by the
Company;
(iv) entered into any agreement or understanding pursuant to which
such person would deliver any cash, securities, or other consideration to
the SSD Group or any
1
member thereof (other than that set forth specifically in the Master
Recapitalization Agreement); or
(v) entered into any agreement or understanding with any member of the
SSD Group regarding any matters relating to the Company, the Company's
management or operations, or the Company's acquisition, disposition, or
holding of any securities.
2. To the best knowledge of each Signatory Debtholder, no member of the
SSD Group has conditioned his purchase of the Senior Secured Debt from the
Company (i) on the acquisition of Common Stock or Debt Exchange Warrants by the
SDH Group; (ii) on any changes in its management of the Company (including
officers or directors), except to the extent provided in Section 5.10 of the
Master Recapitalization Agreement; or (iii) on completion of the Convertible
Subordinated Debt Placement.
3. No member of the SDH Group has conditioned (i) its participation in
the Debt Exchange, or (ii) its acquisition of Common Stock, on the purchase of
any Senior Secured Debt by the SSD Group.
4. No member of the SDH Group is a participant in any plan, right or
arrangement with any member of the SSD Group that would permit participation by
any member of the SSD Group directly or indirectly in the selection of directors
of the Company (except and to the extent that conversion of any Convertible
Subordinated Debt acquired in the Senior Secured Debt Exchange would result in
the ordinary rights of a shareholder to participate in the selection of
directors).
5. No member of the SDH Group will lend its cooperation to the election
of any member of the SSD Group as a director of the Company prior to
consummation of an acquisition by the Company (if any such acquisition were to
occur) of Affinity Bank or Affinity Bank Holdings, LLC.
6. Other than (i) approximately 650,000 shares of common stock currently
held by the SDH Group, (ii) its purchases of Old Junior Notes, Old Senior Notes
or ROPES or (iii) as contemplated by the terms of the Master Recapitalization
Agreement, neither the SDH Group nor any of its members owns (or intends to
acquire) either (A) additional stock of the Company or (B) instruments
exercisable or convertible into such stock (including any Convertible
Subordinated Debt issued in the Convertible Subordinated Debt Placement).
7. Immediately after the Convertible Subordinated Debt Placement and
Senior Secured Debt Exchange, none of the Convertible Subordinated Debt issued
in the Convertible Subordinated Debt Placement will be held by any holder who
(i) is related to, or acting in concert with, any member of the SDH Group, or,
(ii) (to the best knowledge and belief of each Signatory Debtholder) is related
to, or acting in concert with, any member of the SSD Group.
8. No person who is either a member of the SDH Group or is acting on
behalf of the SDH Group, and (to the best knowledge and belief of each Signatory
Debtholder) no person who is a member of the SSD Group or is acting on behalf of
the SSD Group, (i) has solicited or will
2
solicit or otherwise arrange for purchases of Convertible Subordinated Debt by
any member of the Public CSD Group, or (ii) has discussed or will discuss with
any member of the Public CSD Group the advisability of making such purchases.
9. No member of the SDH Group has conditioned his participation in the
Debt Exchange or acquisition of his share of the 7.04 million shares of Common
Stock on the purchase of Convertible Subordinated Debt by any member of the
Public CSD Group.
10. To the best knowledge and belief of each Signatory Debtholder, no
member of the Public CSD Group has conditioned its purchase of Convertible
Subordinated Debt on the acquisition of Common Stock by the SDH Group, and the
purchase of Convertible Subordinated Debt by each such member was based on its
own independent review and analysis of the Company.
11. To the best knowledge and belief of each Signatory Debtholder, no
member of the CSD Public Group has any plan, right or arrangement that would
permit participation directly or indirectly in the selection of directors of the
Company (except and to the extent that conversion of Convertible Subordinated
Debt would result in the ordinary rights of a shareholder to participate in the
selection of directors).
12. To the best knowledge and belief of each Signatory Debtholder, neither
the SDH Group, the SSD Group, any of their members, or any other person has
structured an ownership interest in stock in the Company (including rights to
acquire such stock) in such manner as to avoid treating such person as a 5-
percent shareholder, as described in Treas. Reg. (S) 1.382-2T(k)(4).
3
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS........................................................................................ 2
Section 1.1 Definitions........................................................................ 2
ARTICLE II RECAPITALIZATION TRANSACTIONS..................................................................... 7
Section 2.1 Purchase and Sale of Senior Secured Debt........................................... 7
Section 2.2 Debt Exchange...................................................................... 8
Section 2.3 Convertible Subordinated Debt Placement............................................ 10
Section 2.4 Exchange of Senior Secured Debt; Further Exchange or Market-Based Adjustment....... 10
ARTICLE III REPRESENTATIONS AND WARRANTIES................................................................... 14
Section 3.1 Representations and Warranties of the Company...................................... 14
Section 3.2 Representations and Warranties of the Investors.................................... 20
Section 3.3 Additional Representations, Warranties and Covenants of the Signatory
Debtholders...................................................................... 23
ARTICLE IV CONDITIONS PRECEDENT TO THE CLOSINGS.............................................................. 24
Section 4.1 Conditions to the Obligations of the Parties....................................... 24
Section 4.2 Conditions to the Obligations of the Investors..................................... 25
Section 4.3 Additional Conditions to the Obligations of the Senior Secured Debt Purchasers..... 26
Section 4.4 Conditions to the Senior Secured Debt Exchange..................................... 27
Section 4.5 Conditions to the Obligations of the Company....................................... 27
ARTICLE V COVENANTS.......................................................................................... 28
Section 5.1 Shareholder Meeting; Exemption..................................................... 28
Section 5.2 Applications....................................................................... 29
Section 5.3 Investigation and Confidentiality.................................................. 29
Section 5.4 Press Releases..................................................................... 30
Section 5.5 Use of Proceeds.................................................................... 30
Section 5.6 Current Information................................................................ 31
Section 5.7 Listing of Additional Shares of Common Stock....................................... 31
Section 5.8 Rule 144 and Rule 144A Reporting................................................... 31
Section 5.9 Stock Options...................................................................... 31
Section 5.10 Board of Directors; Supermajority Voting Requirements.............................. 32
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TABLE OF CONTENTS
(continued)
Page
Section 5.11 Exchange of Securities............................................................. 32
Section 5.12 Acquisition of Common Stock; Other Tax Matters..................................... 33
ARTICLE VI MISCELLANEOUS..................................................................................... 34
Section 6.1 Survival of Provisions............................................................. 34
Section 6.2 Termination........................................................................ 34
Section 6.3 Waiver; Other Termination Events; Amendments....................................... 35
Section 6.4 Communications..................................................................... 35
Section 6.5 Costs, Expenses and Taxes.......................................................... 36
Section 6.6 Execution in Counterparts.......................................................... 36
Section 6.7 Binding Effect: Assignment......................................................... 36
Section 6.8 Governing Law...................................................................... 36
Section 6.9 Severability of Provisions......................................................... 36
Section 6.10 Headings; Gender................................................................... 37
Section 6.11 Interpretation..................................................................... 37
Section 6.12 Integration........................................................................ 37
Section 6.13 Tax Indemnities.................................................................... 37
Section 6.14 Indemnification of Investors....................................................... 39
Section 6.15 Appointment and Authorization of Collateral Agent.................................. 40
Exhibit A List of Senior Secured Debt Purchasers and Signatory
Debtholders
Exhibit B-1 Form of Senior Secured Note
Exhibit B-2 Form of Collateral Agency and Security Agreement
Exhibit C-1 Form of Exchange Note Indenture
Exhibit C-2 Form of Debt Exchange Warrant Agreement
Exhibit D Form of Convertible Subordinated Note
Exhibit E-1 Form of Registration Rights Agreement
Exhibit E-2 Form of Exchange Note Registration Rights Agreement
Exhibit F Matters to be Covered by Opinion of Counsel to the Company
Exhibit G Matters to be Covered by Opinions of Counsel to the Respective
Investors
Exhibit H Indenture Amendments
ii