EXHIBIT 10.5
AMENDED AND RESTATED
SECURITIES PURCHASE AGREEMENT
(TRUST ORIGINATED SERIES A CAPITAL SECURITIES, SERIES B PREFERRED STOCK,
SERIES C PREFERRED STOCK, SERIES D PREFERRED STOCK,
SPECIAL COMMON STOCK AND WARRANTS)
BY AND AMONG
COMMERCE SECURITY BANCORP, INC.
AND ITS SUBSIDIARIES
COMMERCE SECURITY BANK, SDN BANCORP, INC.,
LIBERTY NATIONAL BANK AND SAN DIEGUITO NATIONAL BANK
AND
MADISON DEARBORN CAPITAL PARTNERS II, L.P.,
OLYMPUS GROWTH FUND II, L.P. AND
OLYMPUS EXECUTIVE FUND, L.P.
DATED JUNE 5, 1997
TABLE OF CONTENTS
Page No.
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Section 1. Purchase and Delivery of Senior Securities . . . . . . . . . 2
Section 2. The Funding. . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3. Delivery of Senior Securities. . . . . . . . . . . . . . . . 4
Section 4. Agreements and Consents of the Purchaser. . . . . . . . . . 5
Section 5. Representations and Warranties of the Company. . . . . . . . 5
Section 5.1 Representation and Warranty Regarding Target. 6
Section 5.2 Other Representations and Warranties.. . . . . 6
Section 6. Representations, Warranties and Covenants of the
Purchasers. . . . . . . . . . . . . . . . . . . . . . . . 31
Section 7. Funding Conditions.. . . . . . . . . . . . . . . . . . . . . 34
Section 7.1 Conditions to Purchasers' Obligations. . . . . 34
Section 7.2 Conditions to the Company's Obligations. . . . 38
Section 7.3 Mutual Conditions to Purchasers' and the
Company's Obligations. . . . . . . . . . . . 38
Section 8. Pre-Funding Covenants. . . . . . . . . . . . . . . . . . . . 39
Section 9. Covenants. . . . . . . . . . . . . . . . . . . . . . . . 42
Section 9.1 Information Rights with Respect to
Series B Preferred Stock.. . . . . . . . . . 42
Section 9.2 Information Rights with Respect to
Common Stock Acquired by Purchasers. . . . . 42
Section 9.3 Board of Directors of the Company. . . . . . . 43
Section 9.4 Certain Covenants Relating to Special
Common Stock . . . . . . . . . . . . . . . . 45
Section 9.5 [RESERVED].. . . . . . . . . . . . . . . . . . 45
Section 9.6 [RESERVED].. . . . . . . . . . . . . . . . . . 45
Section 9.7 [RESERVED] . . . . . . . . . . . . . . . . . . 46
Section 9.8 Further Action.. . . . . . . . . . . . . . . . 46
Section 9.9 Bank Holding Company . . . . . . . . . . . . . 46
Section 9.10 Changes to Bylaws. . . . . . . . . . . . . . . 46
Section 9.11 Exchange and Other Rights with Respect to
Series A Capital Securities. . . . . . . . . 46
(i)
Section 9.12 Cooperation in Series A Transfer . . . . . . . 54
Section 10. Survival of Representations, Warranties and Agreements.. . . 54
Section 11. [RESERVED] . . . . . . . . . . . . . . . . . . . . . . . 55
Section 12. Indemnity. . . . . . . . . . . . . . . . . . . . . . . . 55
Section 13. Termination; Termination Fee.. . . . . . . . . . . . . . . . 57
Section 14. Notices. . . . . . . . . . . . . . . . . . . . . . . . 58
Section 15. Binding Effect.. . . . . . . . . . . . . . . . . . . . . . . 59
Section 16. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . 60
Section 17. Entire Agreement.. . . . . . . . . . . . . . . . . . . . . . 60
Section 18. Assignment. . . . . . . . . . . . . . . . . . . . . . . . 60
Section 19. Successors. . . . . . . . . . . . . . . . . . . . . . . . 61
Section 20. Expenses. . . . . . . . . . . . . . . . . . . . . . . . 61
Section 21. Severability of Provisions.. . . . . . . . . . . . . . . . . 61
Section 22. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . 61
Section 23. Execution in Counterparts. . . . . . . . . . . . . . . . . . 61
Section 24. Press Releases and Public Announcements. . . . . . . . . . . 62
Section 25. No Third Party Beneficiaries.. . . . . . . . . . . . . . . . 62
Section 26. Construction. . . . . . . . . . . . . . . . . . . . . . . . 62
Section 27. Specific Performance.. . . . . . . . . . . . . . . . . . . . 62
Section 28. Submission to Jurisdiction.. . . . . . . . . . . . . . . . . 62
Section 29. Certain Definitions. . . . . . . . . . . . . . . . . . . . . 63
(ii)
SCHEDULES
SCHEDULE 5.2(f) -- Regulatory Approvals with Respect to the Acquisition
SCHEDULE 5.2(hhh) -- List of Holders of 1% of Common Stock
SCHEDULE 5.2(n) -- Certain Capital Stock Matters
SCHEDULE 12(b) -- Additional Indemnified Matters
DISCLOSURE SCHEDULES*
EXHIBITS
EXHIBIT A** -- Declaration of Trust of CSBI Capital Trust I
EXHIBIT B** -- Junior Subordinated Debenture
EXHIBIT C*** -- Amended and Restated Certificate of Incorporation
EXHIBIT D*** -- Form of Series B Warrant
EXHIBIT E*** -- Standby Securities Purchase Agreement
EXHIBIT F* -- Escrow Agreement
EXHIBIT G*** -- Registration Rights Agreement
EXHIBIT H*** -- Shareholder Agreement
EXHIBIT I** -- Capital Securities Guarantee Agreement
EXHIBIT J -- Confidentiality Statement
* Omitted
** To be filed by amendment
*** Operative version filed separately
(iii)
AMENDED AND RESTATED
SECURITIES PURCHASE AGREEMENT
(TRUST ORIGINATED SERIES A CAPITAL SECURITIES, SERIES B PREFERRED STOCK,
SERIES C PREFERRED STOCK, SERIES D PREFERRED STOCK,
SPECIAL COMMON STOCK AND WARRANTS)
THIS AMENDED AND RESTATED SECURITIES PURCHASE AGREEMENT (the "Agreement")
is made and entered into as of the 5th day of June, 1997, by and among Commerce
Security Bancorp, Inc., a Delaware corporation with its principal place of
business located in Huntington Beach, California (the "Company"), the Company's
subsidiaries (which consist of Commerce Security Bank, SDN Bancorp, Inc.,
Liberty National Bank, and San Dieguito National Bank) (collectively, the
"Subsidiaries"), and Madison Dearborn Capital Partners II, L.P., a Delaware
limited partnership ("MDP"), Olympus Growth Fund II, L.P., a Delaware limited
partnership ("Olympus I"), and Olympus Executive Fund, L.P., a Delaware limited
partnership ("Olympus II" and collectively with Olympus I, "Olympus"). (MDP and
Olympus are called collectively the "Purchasers" and the Company, the
Subsidiaries and the Purchasers are called collectively the "Parties".)
WHEREAS, the Company has obtained commitments from certain institutional
and accredited investors through a private placement of shares of its Class B
common stock, par value $.01 (the "Class B Common Stock"), and previously
entered into that certain Securities Purchase Agreement dated February 13, 1997
with MDP and Olympus (the "Original Agreement") with respect to the purchase and
sale of the Senior Securities (as defined herein and, together with the purchase
and sale of the Common Stock, the "Private Placement"), each in connection with
the proposed acquisition (the "Acquisition") by the Company of Eldorado Bancorp
(the "Target Company") pursuant to the Agreement and Plan of Merger (the
"Acquisition Agreement") dated December 24, 1996 by and between the Company and
the Target Company, which Acquisition is described in the Company's Private
Placement Memorandum pertaining to the Private Placement (as hereinafter more
specifically defined, the "Placement Memorandum");
WHEREAS, the Parties subsequently amended the Original Agreement by
entering into a First Amendment to Securities Purchase Agreement, dated as of
March 21, 1997 (the "First Amendment"), a Second Amendment to Securities
Purchase Agreement, dated as of April 11, 1997 (the "Second Amendment") and a
Third Amendment to Securities Purchase Agreement, dated as of even date herewith
(the "Third Amendment");
WHEREAS, the Parties desire to restate the Original Agreement in order to
incorporate herein each of the First Amendment, the Second Amendment and the
Third Amendment, and to further amend the rights and obligations of the Parties;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and other agreements set forth herein,
and intending to be legally bound hereby, the parties hereto agree as follows:
1. PURCHASE AND DELIVERY OF SENIOR SECURITIES.
(a) Subject to the terms and conditions herein set forth,
each Purchaser hereby irrevocably agrees and commits to purchase from
the Company or the Trust (as defined herein), as applicable, and the
Company hereby irrevocably agrees and commits to sell or to cause the
Trust to sell, as applicable, the following Senior Securities:
(i) 11,617 shares of trust originated Subordinated
Capital Income Securities, Series A, initial liquidation value
$1,000 per share (the "Series A Capital Securities"), evidencing
an undivided preferred beneficial interest in the assets of CSBI
Capital Trust I, a Delaware statutory business trust (the
"Trust"), having the rights and preferences set forth in the
Trust Agreement (the "Trust Agreement") attached hereto as
EXHIBIT A. The assets of the Trust shall consist solely of
junior subordinated debentures (the "Junior Subordinated
Debentures"), having the rights and preferences set forth in the
form of Junior Subordinated Debenture attached hereto as EXHIBIT
B, and including any excess payments or interest received on the
Junior Subordinated Debentures and not distributed. The
aggregate purchase price of the Series A Capital Securities shall
be Eleven Million Six Hundred Seventeen Thousand Dollars
($11,617,000).
(ii) 48,973 shares of Series B Preferred Stock, $.01
par value (the "Series B Preferred Stock"), having the rights and
preferences set forth in the Amended and Restated Certificate of
Incorporation attached hereto as EXHIBIT C (the "Amended and
Restated Charter") and a warrant (the "Series B Warrant", or
"Warrant"), in the form attached hereto as EXHIBIT D, entitling
the holder to acquire an aggregate of 1,680,143 Warrant Shares.
The aggregate purchase price of the Series B Preferred Stock and
the Series B Warrant shall be Four Million Eight Hundred
Ninety-Seven Thousand Three Hundred Dollars ($4,897,300), of
which Sixteen Thousand Eight Hundred Dollars ($16,800) shall be
allocated to the purchase of Series B Warrant.
(iii) 2,026,965 shares of Special Common Stock, par
value $.01 per share (the "Special Common Stock"), of which
1,815,540 shares shall consist of Voting Special Common Stock and
211,425 shares shall consist of Non-Voting Special Common Stock,
in each case having the rights and preferences set forth in the
Amended and Restated Charter, for an aggregate purchase price of
Nine Million Seven Hundred Forty-Nine Thousand Seven Hundred Two
Dollars ($9,749,702).
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The Series A Capital Securities, the Series B Preferred Stock, the
Special Common Stock and the Series B Warrant are sometimes
collectively referred to herein as the "Senior Securities." For
purposes of this Agreement, the term "Subscription Price" shall mean
Twenty-Six Million Two Hundred Sixty Three Thousand Seven Hundred Two
Dollars ($26,264,002), being equal to the sum of the respective
purchase prices for the Series A Capital Securities, the Series B
Preferred Stock, the Special Common Stock and the Warrant. The Senior
Securities to be purchased by Olympus, and the Subscription Price
therefor, shall be allocated ninety-nine percent (99.0%) to Olympus I,
and one percent (1.0%) to Olympus II.
(b) The Parties acknowledge that the Company has entered
into a Standby Securities Purchase Agreement with Dartmouth Capital
Group, L.P. (respectively, the "Standby Agreement" and "DCG"),
substantially in the form attached hereto as EXHIBIT E, for the
purchase of:
(i) 4,423 shares of Series A Capital Securities, for a
purchase price of Four Million Four Hundred Twenty-Three Thousand
One Hundred Dollars ($4,423,000),
(ii) 18,647 shares of Series B Preferred Stock, together
with a Series B Warrant entitling the holder to acquire an
aggregate of 639,714 Warrant Shares, for an aggregate purchase
price (for both such Series B Preferred Stock and such Series B
Warrant) of One Million Eight Hundred Sixty-Four Thousand Seven
Hundred Dollars ($1,864,700), and
(iii) 771,788 shares of Voting Special Common Stock, for a
purchase price of Three Million Seven Hundred Twelve Thousand Two
Hundred Dollars ($3,712,300),
The Parties agree that the Company shall draw upon the Standby
Agreement and shall require DCG to purchase the foregoing amount of
Senior Securities under the Standby Agreement, with the closing under
the Standby Agreement and the issuance of Senior Securities to DCG
thereunder to occur substantially simultaneously with the Funding.
2. THE FUNDING. As soon as practicable after receipt of a written
request by the Company, each Purchaser shall execute and deliver to the Company
the Escrow Agreement in the form attached as EXHIBIT F to this Agreement,
subject only to such changes as the escrow agent may request, which changes
shall not in the reasonable determination of the Purchasers adversely affect the
rights or obligations of Purchasers under the Escrow Agreement (and which in no
event shall limit the Purchasers' right to direct the funds in the escrow
account). Each Purchaser agrees to deliver payment for the Senior Securities at
the Funding, which shall not be held until at least
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fifteen (15) days following receipt of notice from the Company that the Company
believes all of the material conditions to the closing of the Acquisition have
been satisfied or, if permitted, duly waived by each Purchaser and that the
Acquisition is expected to occur within the next twenty-five (25) days. The
issuance of such notice in accordance with this Section shall in no way
prejudice the right of any Purchaser to assert that a closing condition under
either Section 7.1 or 7.3 has not been satisfied. The delivery of the Senior
Securities and the payment of the Subscription Price shall take place
concurrently at the executive offices of the Company at One Pacific Plaza, 7777
Center Avenue, Huntington Beach, California, prior to but substantially
simultaneously with the closing of the Acquisition (the "Acquisition Closing"),
such time and date to be not less than eighteen (18) nor more than twenty-five
(25) days after the foregoing notification and to be specified therein (such
time and date being referred to as the "Funding Time", the date of the Funding
being referred to as the "Funding Date" and the consummation of the Acquisition
and the Private Placement being referred to as the "Funding"). If the
Acquisition Closing does not occur at or before 3:00 p.m. (Pacific time) on the
date next following the Funding Date, the Purchasers (and the Purchasers alone)
may direct the escrow agent under the Escrow Agreement (the "Escrow Agent") to
return by wire transfer in accordance with instructions provided by the
Purchasers the Subscription Price and any interest earned thereon. The Company
may upon written notice given to the Purchasers via facsimile not less than five
(5) business days prior to the scheduled Funding Date, postpone the Funding Date
by up to ten (10) business days. If the Company has elected to postpone the
Funding Date and the Funding does not occur on such later date, the Company
shall consult in advance with the Purchasers prior to giving notice the
Purchasers notice of a subsequent Funding Date; PROVIDED, HOWEVER, that nothing
contained in the Section shall affect the right of any Party to terminate this
Agreement in accordance with the terms of this Agreement, including, without
limitation, pursuant to Section 4(b).
3. DELIVERY OF SENIOR SECURITIES. At the Funding, the Senior Securities
to be sold to each Purchaser hereunder, registered in the name of such Purchaser
or its nominee(s), as such Purchaser may specify in writing at least three (3)
days prior to the Funding Date, shall be delivered by or on behalf of the
Company or the Trust, as applicable, to each Purchaser, for such Purchaser's
account, against delivery by such Purchaser of the Subscription Price therefor
in immediately available funds in the form of one or more federal funds checks
or a wire transfer to the Escrow Agent, subject to the Acquisition Closing.
4. AGREEMENTS AND CONSENTS OF THE PURCHASER. The Purchasers, the Company
and Subsidiaries hereby agree as follows:
(a) The Purchasers, the Company and Subsidiaries agree that this
Agreement is irrevocable and that the rights and obligations of any party hereto
shall not be terminated or affected by operation of law, whether by death,
incompetence, disability or the occurrence of any other event affecting
Purchasers, the Company or Subsidiaries. In the event that the Funding Date
does not occur on or before August 15, 1997 or the Acquisition Agreement is
terminated, this Agreement shall terminate without liability to any party
hereto, except to the extent the Purchasers
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are entitled to receive such fees as are provided in Section 13 hereof or
except as otherwise provided in this Agreement.
(b) In the event FRB approval is not obtained for the issuance of the
Senior Securities, including without limitation any of the rights or obligations
in this Agreement and in the Ancillary Agreements set forth as exhibits hereto,
then the Company shall, in writing, notify the Purchasers promptly. Upon
receipt of such notice, the Purchasers and the Company shall promptly determine
the nature and extent of adjustment to the Senior Securities or the Ancillary
Agreements that will have to be made in order to obtain FRB approval for the
transactions contemplated herein, and shall negotiate in a commercially
reasonable fashion to amend as soon as practicable the terms of the Senior
Securities in a manner that (i) allows the Company to obtain FRB approval, (ii)
preserves the overall economic and contractual benefits of the Senior
Securities, and (iii) does not cause more than an insignificant increase in the
risk to the Purchasers of an investment in the Company. If, following the
commencement of negotiations contemplated by this Section 4(b), the Purchasers
reasonably determine that the Company and the Purchasers will be unable to agree
on amendments to the terms of the Senior Securities and the Ancillary
Agreements, then the Purchasers may, at their election upon twenty (20) business
days' notice to the Company, terminate this Agreement, which termination shall
be without liability to any Party hereto. The notice in the immediately
preceding sentence (the "Termination Notice") shall set forth with reasonable
specificity the changes to the terms of the Senior Securities and the Ancillary
Agreements that would make the Senior Securities acceptable to the Purchasers.
The Company shall respond in writing to the Termination Notice within ten (10)
business days after the receipt of Termination Notice, which response shall set
forth with reasonable specificity whether any of the changes to the terms of the
Senior Securities and the Ancillary Agreements set forth in the Termination
Notice are acceptable to the Company and what modification to the Purchasers'
proposal would be acceptable to the Company.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company and the
Subsidiaries hereby represent and warrant jointly and severally to the
Purchasers that, subject to the specific exceptions disclosed in the disclosure
schedule delivered by the Company to the Purchasers on the date hereof and
initialed by the Parties (the "Disclosure Schedule"), the statements contained
in this Section 5 are correct and complete as of the date of this Agreement, and
that, subject to the exceptions disclosed in an updated disclosure schedule
delivered by the Company to the Purchasers on or about the fifth Business Day
prior to the Funding Date and initialed by the Parties (the "Updated Disclosure
Schedule"), the statements contained in this Section 5 will be correct and
complete as of the Funding Date (as though made then and as though the Funding
Date were substituted for the date of this Agreement throughout this Section 5).
The Disclosure Schedule and the Updated Disclosure Schedule will be arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in
this Section 5. With respect to the representations and warranties to which
they pertain, the Disclosure Schedule is, and when delivered the Updated
Disclosure Schedule will be, complete and accurate, and does not and will
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not contain any untrue statement of fact or omit to state a fact necessary to
make the statement therein not misleading.
5.1 REPRESENTATION AND WARRANTY REGARDING TARGET. Except as disclosed in
the disclosure schedules delivered pursuant to the Acquisition Agreement, as
supplemented by the Disclosure Schedule, each representation and warranty made
by the Target in the Acquisition Agreement (other than those statements made
therein that are made as of a specified date) remains true, correct and complete
as of the date hereof as though made on this date.
5.2 OTHER REPRESENTATIONS AND WARRANTIES.
(a) As of the date hereof, the Company is, and at all times
thereafter through the time of Funding, the Company will have been, duly
organized and validly existing and in good standing as a corporation organized
under the laws of the State of Delaware, with corporate power and authority to
own, lease and operate its properties and to conduct its business as described
in the Placement Memorandum and to perform its obligations under this Agreement,
and is duly qualified as a foreign corporation to transact business and in good
standing in each jurisdiction where the failure to so qualify would have a
adverse effect on the conduct of the business, the condition (financial or
otherwise), or the earnings or business (collectively, the "Condition") of the
Company or (when formed) the Trust. All of the issued and outstanding capital
stock of the Company has been duly authorized and validly issued and is fully
paid and nonassessable.
(b) Each Subsidiary, Target Company and Target Subsidiary is, as of
the date hereof, and at all times thereafter through the time of the Funding
will have been, duly organized and validly existing in good standing under the
laws of the jurisdiction of its organization and duly qualified as a foreign
corporation to transact business and in good standing in each jurisdiction where
the failure to so qualify would have a adverse effect on the Condition of any of
the Company, the Subsidiaries, Target Company, Target Subsidiary or (when
formed) the Trust. All of the issued and outstanding capital stock of each
Subsidiary has been duly authorized and validly issued and is fully paid and
(except as provided by law) nonassessable and is owned by the Company, directly
or through Subsidiaries, free and clear of any mortgage, pledge, lien,
encumbrance or claim whatsoever; and all of the issued and outstanding capital
stock of Target Subsidiary has been duly authorized and validly issued and is
fully paid and (except as provided by law) nonassessable and is owned by Target
Company, free and clear of any mortgage, pledge, lien, encumbrance or claim
whatsoever. There are no outstanding or authorized options, warrants, purchase
rights, subscription rights, conversion rights, exchange rights, calls or other
contracts or commitments that could require the Company, its Subsidiaries,
Target Company or Target Subsidiary to sell, transfer, cause to be outstanding,
or otherwise dispose of any capital stock of the Company, its Subsidiaries,
Target or Target Subsidiary (other than those created by or pursuant to this
Agreement), which would dilute Purchasers' equity in the Company, its
Subsidiaries, Target Company or Target Subsidiary. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or similar
rights with respect to the Company,
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its Subsidiaries, Target Company or Target Subsidiary. There are no voting
trusts, proxies, or other agreements or understandings with respect to the
voting of the capital stock of the Company, its Subsidiaries, Target Company or
Target Subsidiary to which the any of such entities, or any holder of 5% or more
of the outstanding capital stock of such entity, is a party. The Company (or
one of its Subsidiaries) holds of record and owns beneficially all of the
outstanding shares of each of its Subsidiaries, free and clear of any
restrictions on transfer (other than restrictions under the Securities Act and
state securities laws), Taxes, Security Interests, options, warrants, purchase
rights, contracts, commitments, equities, claims, and demands. The Target
Company holds of record and owns beneficially all of the outstanding shares of
the Target Subsidiary, free and clear of any restrictions on transfer (other
than restrictions under the Securities Act and state securities laws), Taxes,
Security Interests, options, warrants, purchase rights, contracts, commitments,
equities, claims, and demands. At Funding, the Purchasers will hold of record
and own beneficially all of the outstanding preferred shares of the Trust, free
and clear of any restrictions on transfer (other than restrictions under the
Securities Act and state securities laws), Taxes, Security Interests, options,
warrants, purchase rights, contracts, commitments, equities, claims, and
demands, and the only other shares of the Trust outstanding at the Funding will
be Common Shares held, of record and beneficially, by the Company. None of the
Company, its Subsidiaries, Target Company or Target Subsidiary controls,
directly or indirectly, or has any direct or indirect equity participation in,
any corporation, partnership, trust, or other business association which is not
a Subsidiary of the Company or of the Target Company. Except for the
Subsidiaries and Target Subsidiary and other than as reflected in the Financial
Statements (as hereinafter defined) (including interests reflected on the
Financial Statements in the category of investment securities, all of which
interests are of less than 1% of the applicable entity's outstanding shares),
the Company does not and the Target Company does not, directly or indirectly,
own any shares of stock or any securities of any corporation or have any equity
interest in any firm, partnership, association or other entity.
(c) The Company, its Subsidiaries, Target Company and Target
Subsidiary possess all licenses, permits and other governmental authorizations
as are currently required for the conduct of their respective businesses, except
where the failure to possess such a license, permit or other authorization would
not reasonably be expected to have a adverse effect on the Condition of any of
the Company, its Subsidiaries, Target Company or Target Subsidiary, and all such
licenses, permits and other governmental authorizations are in full force and
effect. The Company, its Subsidiaries, Target Company and Target Subsidiary are
in compliance therewith except to the extent that noncompliance would not have a
adverse effect on the noncomplying entity; and neither the Company, its
Subsidiaries, Target Company nor Target Subsidiary has received notice of any
proceeding or action relating to the revocation or modification of any such
license, permit or other governmental authorization. There exists no Basis
which could be expected to result in the Company, its Subsidiaries, Target
Company or Target Subsidiary not possessing all licenses, permits and other
governmental authorizations necessary for the conduct of their respective
businesses.
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(d) Neither the Company, any of the Subsidiaries, Target Company nor
Target Subsidiary is in violation of its charter or other organizational
document or bylaws, and neither the Company, any of the Subsidiaries, Target
Company nor Target Subsidiary is in default in the performance or observance of
the obligations, agreements, covenants or conditions contained in any contract,
indenture, mortgage, loan agreement, note, lease or other instrument to which it
is a party or by which it or any of them or any of their properties may be
bound.
(e) The Company and its Subsidiaries have full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform their respective obligations hereunder. The execution,
delivery and performance of this Agreement by the Company and its Subsidiaries
and the consummation by the Company and its Subsidiaries of the transactions
contemplated hereby, including the filing of the Amended and Restated Charter
and the execution of the Trust Agreement, have been duly authorized by all
necessary corporate action of the Company and its Subsidiaries, and this
Agreement constitutes a valid and legally binding instrument of the Company and
each of its Subsidiaries, enforceable in accordance with its terms. No other
corporate or other proceedings on the part of the Company or its Subsidiaries
are necessary to consummate the transactions contemplated hereby.
(f) The execution, delivery and performance of this Agreement, the
consummation by the Company of the sale of the Senior Securities and the
compliance by the Company and its Subsidiaries with the terms hereof (A) will
not conflict with, or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, the Certificate of Incorporation,
assuming the filing prior to the Funding of the Amended and Restated Charter, or
the bylaws of the Company or of any of its Subsidiaries, (B) will not conflict
with, result in a breach of, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument, note, indenture, bond, mortgage, deed of trust or other arrangement
to which the Company, its Subsidiaries, Target Company or Target Subsidiary is a
party or by which any of them is bound or to which any of their assets are
subject, and (C) will not conflict with, or result in a breach or violation of
any applicable law, rule, regulation, judgment, order or decree of any
government, governmental instrumentality or court having jurisdiction over the
Company, its Subsidiaries, Target Company or Target Subsidiary or any of their
properties or assets. No consent, approval, authorization, order, registration
or qualification of or with any third party, government, governmental
instrumentality or court is required for the valid authorization, execution,
delivery and performance by the Company or its Subsidiaries of this Agreement,
the issuance of the Senior Securities, the payment of the Commitment Fee or the
consummation by the Company, its Subsidiaries, and the Trust of the other
transactions contemplated by this Agreement, except such federal and state
regulatory approvals as are described on SCHEDULE 5(f) attached hereto, such
consents, approvals, authorizations, registrations or qualification as may be
required under state securities or "blue sky" laws.
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(g) Upon the filing of the Amended and Restated Charter, the filing
of the Certificate of Trust of the Trust and the execution of the Declaration of
Trust, the Senior Securities will be duly authorized, and when issued and
delivered by the Company or the Trust, as applicable, against payment therefor,
the Senior Securities will be validly issued, fully paid and non-assessable, and
the forms of certificates or instruments evidencing each of the Senior
Securities and the Junior Subordinated Debentures will be in due and proper
form.
(h) Relying in part on the representations and warranties of the
Purchasers set forth in Section 6, the offering of the Senior Securities to the
Purchasers is exempt from registration under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to Section 4(2) thereof.
(i) The Company's December 18, 1996 Private Placement Memorandum and
the December 20, 1996 Supplement thereto (collectively, the "Placement
Memorandum") did not, as of the respective dates thereof, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading with respect to
information regarding the Company and its Subsidiaries. Excluding (i) the terms
and conditions of this Agreement and the Ancillary Agreements and (ii)
information which is set forth in the various sections of, respectively, the
Disclosure Schedules or the Updated Disclosure Schedules (as applicable),
nothing has come to the Company's attention that could cause any information
concerning the Company or its Subsidiaries contained in the Placement Memorandum
to be inaccurate in any material respect.
(j) The information concerning the Target Company that is contained
in the Placement Memorandum, as of the date of the Placement Memorandum, was
true and correct and the representations and warranties as set forth in the
Acquisition Agreement, as of the date of the Acquisition Agreement, were true
and correct. Excluding (i) the terms and conditions of this Agreement and the
Ancillary Agreements and (ii) information which is set forth in the various
sections of, respectively, the Disclosure Schedules or the Updated Disclosure
Schedules (as applicable), nothing has come to the Company's attention that
would cause any information concerning the Target Company contained in the
Placement Memorandum to be inaccurate in any material respect.
(k) The accountants who certified the Company's financial statements
and supporting schedules of SDN Bancorp, Inc., Liberty National Bank and
Commerce Security Bank included in the 1996 Information Statement (as defined in
the Placement Memorandum) are independent public accountants within the meaning
of the Securities Act and the regulations promulgated by the Securities and
Exchange Commission (the "SEC") thereunder (the "Securities Act Regulations").
-9-
(l) (i) The audited consolidated and consolidating financial
statements of the Company, the Subsidiaries and Target Company for fiscal years
1994 and 1995, (ii) the unaudited consolidated financial statements of the
Company and of Target Company for the three- and nine-month periods ended
September 30, 1996, and (iii) the internal, unaudited consolidated balance sheet
and profit and loss statement of the Company as at December 31, 1996 and for the
period then ended the "Unaudited 1996 Financials", and collectively with the
items in clauses (i) and (ii), the "Financial Statements"), have been provided
to the Purchasers. The Financial Statements (1) comply, except as may be
reflected in the notes to such Financial Statements, as to form with the
accounting requirements of the Securities Act, the Securities Act Regulations,
and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), (2)
present fairly the financial position of the respective entities as at the dates
indicated and the results of their operations for the periods specified, except
as may be described on the Disclosure Schedule, (3) contain accurate accruals
and prepayments for Taxes, (4) are correct and complete, (5) are consistent with
the books and records of the Company and its Subsidiaries (which books and
records are correct and complete, and have been and are being maintained in
accordance with applicable regulations), and (6) have been prepared in
conformity with generally accepted accounting principles applied on a consistent
basis, except (with regard to each of clauses (1) through (6)) (x) as stated
therein, (y) in the case of unaudited statements, by the absence of footnotes
and other presentation items, and the absence of normal year-end adjustments
and, (iii) in the case of the Unaudited 1996 Financials, such adjustments as may
be adopted pursuant to the pending audit of such statements, none of which
adjustments will represent (individually or in the aggregate) an adverse change
to the Unaudited 1996 Financials. In addition, the Company has delivered to the
Purchasers pro forma financial statements presenting the Company (with the
Subsidiaries) and the Target (together with the Target Subsidiary) as at
September 30, 1996 and for the three- and nine-month period then ended (the "Pro
Forma Financial Statements"). Such Pro Forma Financial Statements (i)
accurately reflect the combined financial condition of the Company and Target
Company as at the date thereof and for the periods then ended, and (ii) comply
with the requirements of Regulation S-X and reflect all adjustments necessary to
present fairly the pro forma financial position of the Company at the dates
indicated. Except as set forth in the Financial Statements, neither the
Company, its Subsidiaries, Target Company nor Target Subsidiaries has (i) Loss
Contingencies (as defined below) which are not required by GAAP to be accrued
and which could reasonably be expected, if adversely resolved, to have an
adverse effect on the Company, its Subsidiaries, Target Company and Target
Subsidiary; or (ii) any other liabilities or obligations (whether absolute,
accrued, direct or indirect, joint or several, contingent or otherwise, and
whether due or to become due), which are not required by GAAP to be accrued.
(m) From September 30, 1996 through and including the date hereof,
(1) no event or development has occurred with respect to the Company, any of its
Subsidiaries, the Target Company or the Target Subsidiary that, individually or
in the aggregate, has had or could reasonably be expected to have, a material
adverse effect on the Condition, operations, results of operations or future
prospects of the Company and its Subsidiaries or of the Target Company and the
Target Subsidiary, as applicable, with each consolidated group considered as one
enterprise,
-10-
whether or not arising in the ordinary course of business, (2) other than the
Acquisition Agreement (and other agreements related to the Acquisition) and the
agreements relating to the Private Placement, there have been no transactions or
agreements entered into by any of the Company, its Subsidiaries, Target Company
or Target Subsidiary other than those in the Ordinary Course of Business, (3)
except pursuant to agreements relating to the Acquisition or the Private
Placement and described in the Placement Memorandum, or in the case of Target
Company pursuant to the exercise of stock options, neither the Company nor any
of its Subsidiaries nor Target nor Target Subsidiary has issued or purported to
issue any securities or, other than in the Ordinary Course of Business, incurred
any liability or obligation, direct or contingent, for borrowed money, and (4)
neither the Company, any of its Subsidiaries, the Target Company nor the Target
Subsidiary has entered into or modified any outstanding agreement with, or plan
or undertaking submitted to, any regulatory or supervisory agency or body which
would modify the ability of the Company and its Subsidiaries or the Target
Company and the Target Subsidiaries to continue to conduct their respective
businesses as now currently conducted. Without limiting the generality of the
foregoing since September 30, 1996:
(1) none of the Company, its Subsidiaries, Target Company, and
Target Subsidiaries has sold, leased, transferred, or assigned any of its
assets, tangible or intangible, other than for a fair consideration in the
Ordinary Course of Business;
(2) none of the Company, its Subsidiaries, Target Company, and
Target Subsidiaries has entered into any written or oral agreement,
contract, lease, or license (or series of related agreements, contracts,
leases, and licenses) outside the Ordinary Course of Business;
(3) no party (including any of the Company, its Subsidiaries, Target
Company, and Target Subsidiaries) has accelerated, terminated, modified, or
canceled any agreement, contract, lease, or license (or series of related
agreements, contracts, leases, and licenses) outside the Ordinary Course of
Business, to which any of the Company, its Subsidiaries, Target Company,
and Target Subsidiaries is a party or by which any of them is bound;
(4) none of the Company, its Subsidiaries, Target Company, and
Target Subsidiaries has imposed any Security Interest outside the Ordinary
Course of Business upon any of its assets, tangible or intangible;
(5) none of the Company, its Subsidiaries, Target Company, and
Target Subsidiaries has made any capital expenditure (or series of related
capital expenditures) outside the Ordinary Course of Business;
(6) none of the Company, its Subsidiaries, Target Company, and
Target Subsidiaries has made any capital investment in, any loan to, or any
acquisition of the
-11-
securities or assets of, any other Person (or series of related capital
investments, loans, and acquisitions) outside the Ordinary Course of
Business;
(7) none of the Company, its Subsidiaries, Target Company, and
Target Subsidiaries has issued any note, bond, or other debt security or
created, incurred, assumed, or guaranteed any indebtedness for borrowed
money or capitalized lease obligation either involving more than $100,000
singly or $500,000 in the aggregate;
(8) none of the Company, its Subsidiaries, Target Company, and
Target Subsidiaries has delayed or postponed the payment of accounts
payable and other Liabilities outside the Ordinary Course of Business;
(9) none of the Company, its Subsidiaries, Target Company, and
Target Subsidiaries has canceled, compromised, waived, or released any
right or claim (or series of related rights and claims) outside the
Ordinary Course of Business;
(10) none of the Company, its Subsidiaries, Target Company, and
Target Subsidiaries has granted any license or sublicense of any rights
under or with respect to any Intellectual Property;
(11) there has been no change made or authorized in the charter or
bylaws of any of the Company, its Subsidiaries, Target Company, and Target
Subsidiaries;
(12) none of the Company, its Subsidiaries, Target Company, and
Target Subsidiaries has issued, sold, or otherwise disposed of any of its
capital stock, or granted any options, warrants, or other rights to
purchase or obtain (including upon conversion, exchange, or exercise) any
of its capital stock;
(13) none of the Company, its Subsidiaries, Target Company, and
Target Subsidiaries has declared, set aside, or paid any dividend or made
any distribution with respect to its capital stock (whether in cash or in
kind) or redeemed, purchased, or otherwise acquired any of its capital
stock other than dividends paid by the Subsidiaries to the Company or by
Target Subsidiary to Target Company;
(14) none of the Company, its Subsidiaries, Target Company, and
Target Subsidiaries has experienced any damage, destruction, or loss
(whether or not covered by insurance) to its property;
(15) none of the Company, its Subsidiaries, Target Company, and
Target Subsidiaries has made any loan to, or entered into any other
transaction with, any of its directors, officers, and employees outside the
Ordinary Course of Business;
-12-
(16) none of the Company, its Subsidiaries, Target Company, and
Target Subsidiaries has entered into any employment contract or collective
bargaining agreement, written or oral, or materially modified the terms of
any existing such contract or agreement;
(17) none of the Company, its Subsidiaries, Target Company, and
Target Subsidiaries has granted any increase in the base compensation of
any of its directors, officers, and employees outside the Ordinary Course
of Business;
(18) none of the Company, its Subsidiaries, Target Company, and
Target Subsidiaries has adopted, amended, modified, or terminated any
bonus, profit-sharing, incentive, severance, or other plan, contract, or
commitment for the benefit of any of its directors, officers, and employees
(or taken any such action with respect to any other Employee Benefit Plan);
(19) none of the Company, its Subsidiaries, Target Company, and
Target Subsidiaries has made any other change in employment terms for any
of its directors, officers, and employees outside the Ordinary Course of
Business;
(20) none of the Company, its Subsidiaries, Target Company, and
Target Subsidiaries has made or pledged to make any charitable or other
capital contribution outside the Ordinary Course of Business;
(21) neither the Company nor any of its Subsidiaries has made,
guaranteed, assumed or otherwise become liable for any borrowing outside
the Ordinary Course of Business, or has canceled any debt or claim owed it
other than with respect to loans and leases held and serviced by the
Company and its Subsidiaries in the Ordinary Course of Business;
(22) there has not been any other occurrence, event, incident,
action, failure to act, or transaction outside the Ordinary Course of
Business involving the Company, any of its Subsidiaries, Target Company or
Target Subsidiary that has had, or that could reasonably be expected to
have, a material adverse effect on the Company, its Subsidiaries, Target
Company and Target Subsidiary; and
(23) neither the Company, any of its Subsidiaries, Target Company
nor Target Subsidiary has committed to any of the foregoing.
(n) CAPITALIZATION. As of the date of this Agreement, the Company's
capital stock consists of 1,000,000 authorized shares of preferred stock, $.01
par value per share, none of which is issued and outstanding, and 12,000,000
authorized shares of common stock, $.01 par value per share, of which 9,697,430
shares are issued and outstanding. SCHEDULE 5.2(n) attached
-13-
to this Agreement sets forth (i) the number of shares reserved as of the date of
this Agreement for issuance under the Company's stock option plan; (ii) the
number of shares of Common Stock subject to stock options that the Company has
issued or has agreed to issue; (iii) the number of shares of restricted stock
that the Company will be obligated to issue any employee of the Company as a
consequence of the consummation of the Private Placement; (iv) the number of
shares of Class B Common Stock subject to warrants that the Company shall be
obligated to issue to The Shattan Group, LLC as a consequence of the
consummation of the Private Placement, and (v) a summary of the conversion
feature of the mandatorily convertible subordinated debentures of SDN Bancorp,
Inc. Except as set forth on SCHEDULE 5.2(n), neither the Company nor any of its
Subsidiaries has granted or executed any agreement or instrument entitling the
holder to acquire an equity interest in the Company or its Subsidiaries. The
entire authorized capital stock of the Subsidiaries are as follows:
SHARES AUTHORIZED SHARES ISSUED & SHARES IN TREASURY
OUTSTANDING
SDN 3,000 100 0
San Dieguito 725,000 632,500 0
Liberty 1,750,000 125,000 0
Commerce 100 10 0
(o) COMPLIANCE WITH LAW. The Company, its Subsidiaries, the Target
Company and the Target Subsidiaries have conducted, and are presently
conducting, their businesses so as to comply in all respects with all applicable
statutes and regulations as to which a failure to comply could reasonably be
expected to have an adverse effect on the Condition of any of the Company, its
Subsidiaries, the Target Company and the Target Subsidiaries. Neither the
Company nor any of its Subsidiaries and neither the Target Company nor the
Target Subsidiary is in violation of any written directive from any regulatory
or governmental body to make any change in the method of conducting its
business; there is no charge, investigation, action, suit or proceeding before
or by any court or governmental agency or body (domestic or foreign) pending,
threatened in writing or, to the Knowledge of the Company, contemplated against
the Company or any of its Subsidiaries or pending or threatened in writing
against the Target Company or any of the Target Subsidiaries; all pending or
threatened legal or governmental proceedings to which the Company or any of its
Subsidiaries is a party or of which any of their respective properties or assets
is the subject, including ordinary routine litigation incidental to their
business, considered in the aggregate, could not reasonably be expected to have
an adverse effect upon the Condition or prospects of the Company, its
Subsidiaries, the Target Company and the Target Subsidiary taken as a whole.
Neither the Company, its Subsidiaries, Target Company nor Target Subsidiaries is
a party to any agreement or understanding with any regulatory authority charged
with the supervision or regulation of financial institutions or engaged in the
insurance of deposits which
-14-
restricts the conduct of its business or in any manner relates to its capital
adequacy, credit or reserve policies, ability to pay dividends, net worth or
asset maintenance or management. Neither the Company, its Subsidiaries, Target
Company nor Target Subsidiaries requires any material Consent of any Person to
permit it to operate its business in the manner in which it presently is being
conducted (excepting only those Consents of governments and governmental
instrumentalities previously obtained and currently in effect), and each
possesses all permits and other authorizations from all Persons, including,
without limitation, all regulatory authorities, presently required or necessary
to permit it to operate its business in the manner in which it presently is
being conducted and proposed to be conducted in the immediate future.
(p) JUNIOR COMMON FINANCING. The Company has received binding
subscriptions providing for an investment of not less than $19 million in Common
Stock by certain existing shareholders of the Company and other parties (the
"Junior Common Financing"), and the Company has provided to the Purchasers true
and correct copies of the subscription agreements for the Junior Common
Financing.
(q) TRUST ITEMS. The exclusive purpose of the Trust is to issue and
sell (i) Series A Capital Securities with an aggregate par value (and aggregate
purchase price) of $28,000,000 to the Purchasers, and (ii) Common Securities
with an aggregate purchase price of $866,000 to the Company, and to use the
proceeds of the sales referenced in clauses (i) and (ii) to acquire $28,866,000
of the 11% Junior Subordinated Debentures that the Company issues. The Trust
shall not engage in any other activities without the consent of the holders of
two-thirds of the issued and outstanding shares of Series A Preferred Stock.
(r) BROKERS' FEES. None of the Company, its Subsidiaries, Target
Company and Target Subsidiaries has any Liability or obligation to pay any fees
or commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement or the Acquisition for which the Purchasers could
become liable or obligated.
(s) ABSENCE OF BANKRUPTCY PROCEEDINGS. There are no bankruptcy,
reorganization or arrangement proceedings pending against, being contemplated
by, threatened against the Company, its Subsidiaries, Target Company, or Target
Subsidiaries.
(t) TITLE TO ASSETS. The Company, its Subsidiaries, Target Company,
and Target Subsidiaries have good and marketable title to, or a valid leasehold
interest in, all properties and assets (excluding properties or assets
classified as "Other Real Estate Owned" or otherwise acquired in connection with
the collection of any loan or lease) used by them, located on their premises, or
shown on the Company's and its Subsidiaries' September 30, 1996 financial
statements or on Target Company's and Target Subsidiaries' September 30, 1996
financial statements, or acquired after the date thereof, free and clear of all
Security Interests other than those reflected in such financial statements (or,
in the case of properties or assets acquired after September 30, 1996, Security
Interests granted in the Ordinary Course of Business).
-15-
(u) UNDISCLOSED LIABILITIES. The Company, its Subsidiaries, Target
Company, and Target Subsidiaries do not have Liabilities (and there is no Basis
for any present or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand against any of them giving rise to
Liabilities), except for (i) Liabilities specifically (and not by implication)
set forth on the face of one or more of such entities' December 31, 1996 balance
sheets, (ii) Liabilities incurred since such date but solely to the extent that
such Liabilities are routine and are or have been incurred in connection with
the core business of each entity as of the date of this Agreement (i.e.,
accepting deposits, making and servicing loans and leases, and providing related
cash management services and other services for small businesses than are
ancillary to the cash management business), and do not include Liabilities for
any items that are not covered by the foregoing, including but not limited to
extraordinary or non-recurring events, and (iii) Liabilities specifically
disclosed or arising out of facts specifically disclosed (and, in either case,
not otherwise indemnified pursuant to Section 12) on the Disclosure Schedule
pursuant to other provisions of this Section 5.
(v) TAX MATTERS.
1. Each of the Company, its Subsidiaries, Target Company, and
Target Subsidiaries has filed all Tax Returns that it is required to file,
giving effect to any extensions obtained. All such Tax Returns are correct and
complete. All Taxes as to which payment has come due (giving effect to any
extensions obtained) on or before the date hereof by any of the Company, its
Subsidiaries, Target Company, and Target Subsidiaries (whether or not shown on
any Tax Return) have been paid. None of the Company, its Subsidiaries, Target
Company, and Target Subsidiaries currently is the beneficiary of any extension
of time within which to file any Tax Return.
2. The Company has no Knowledge that any authority will assess
any additional Taxes with respect to any of the Company, its Subsidiaries,
Target Company or Target Subsidiary for any period for which Tax Returns have
been filed. There is no dispute or claim with any governmental authority
concerning any Tax Liability of any of the Company, its Subsidiaries, Target
Company, and Target Subsidiaries.
3. None of the Company, its Subsidiaries, Target Company, and
Target Subsidiaries has waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax assessment or deficiency.
4. None of the Company, its Subsidiaries, Target Company, and
Target Subsidiaries has filed a consent under Code Sec. 341(f) concerning
collapsible corporations. None of the Company, its Subsidiaries, Target
Company, and Target Subsidiaries has made any payments, is obligated to make any
payments, or is a party to any agreement that could obligate it to make any
payments that will not be deductible under Code Sec. 280G. None of the Company,
its Subsidiaries, Target Company, and Target Subsidiaries has been a United
States real
-16-
property holding corporation within the meaning of Code Sec. 897(c)(2) during
the applicable period specified in Code Sec. 897(c)(1)(A)(ii). Each of the
Company, its Subsidiaries, Target Company, and Target Subsidiaries has disclosed
on its federal income Tax Returns all positions taken therein that could give
rise to a substantial understatement of federal income Tax within the meaning of
Code Sec. 6662. None of the Company, its Subsidiaries, Target Company, and
Target Subsidiaries is a party to any Tax allocation or sharing agreement. None
of the Company, its Subsidiaries, Target Company, and Target Subsidiaries (A)
has been a member of an Affiliated Group filing a consolidated federal income
Tax Return (other than a group the common parent of which was the Company or
another Subsidiary, or the Target Company, as applicable) or (B) has any
Liability for the Taxes of any Person (other than any of the Company, its
Subsidiaries, Target Company and Target Subsidiaries) under Treas. Reg. Section
1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
5. The unpaid Taxes of the Company, its Subsidiaries, Target
Company, and Target Subsidiaries (A) did not, as of September 30, 1996, exceed
the reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) set forth
on the face of the September 30, 1996 Balance Sheet and (B) do not exceed that
reserve as adjusted for the passage of time through the Funding Date in
accordance with the past custom and practice of the Company, its Subsidiaries,
Target Company, and Target Subsidiaries in filing their Tax Returns.
(w) REAL PROPERTY.
1. The Disclosure Schedule lists and describes briefly all real
property (other than Other Real Estate Owned ("OREO")) that any of the Company,
its Subsidiaries, Target Company, and Target Subsidiaries owns. With respect
to each such parcel of owned real property:
(1) the identified owner has good and marketable title to
the parcel of real property, free and clear of any Security Interests
other than those reflected on the Company's or the Target Company's
(as applicable) September 30, 1996 financial statements;
(2) there are no parties (other than the Company, its
Subsidiaries, Target Company, and Target Subsidiaries) in possession
of the parcel of real property;
2. Each real property that the Company, its Subsidiaries,
Target Company or Target Subsidiaries leases or subleases is listed and
described in the Disclosure Schedule. With respect to each lease and sublease
listed in the Disclosure Schedule:
-17-
(1) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
(2) the lease or sublease will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby;
(3) no party to the lease or sublease is in breach or
default, and no event has occurred which, with notice or lapse of
time, would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(x) INTELLECTUAL PROPERTY.
1. The Company, its Subsidiaries, Target Company and Target
Subsidiaries own or have the right to use pursuant to license, sublicense,
agreement, or permission all Intellectual Property used in the operation of the
businesses of the Company, its Subsidiaries, Target Company and Target
Subsidiaries as presently conducted and as presently proposed to be conducted.
Each item of Intellectual Property owned or used by any of the Company, its
Subsidiaries, Target Company and Target Subsidiaries immediately prior to the
Funding hereunder will be owned or available for use by the Company, its
Subsidiaries, Target Company or Target Subsidiaries on identical terms and
conditions immediately subsequent to the Funding hereunder.
2. None of the Company, its Subsidiaries, Target Company and
Target Subsidiaries have interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Intellectual Property rights of third
parties. No third party has interfered with, infringed upon, misappropriated,
or otherwise come into conflict with any Intellectual Property rights of any of
the Company, its Subsidiaries, Target Company and Target Subsidiaries.
3. The Disclosure Schedule identifies each item of Intellectual
Property owned by any third party that any of the Company, its Subsidiaries,
Target Company and Target Subsidiaries uses pursuant to license, sublicense,
agreement, or permission entered into outside the Ordinary Course of Business.
4. None of the Company, its Subsidiaries, Target Company and
Target Subsidiaries will interfere with, infringe upon, misappropriate, or
otherwise come into conflict with, any Intellectual Property rights of third
parties as a result of the continued operation of its businesses as presently
conducted and as presently proposed to be conducted.
(y) TANGIBLE ASSETS. The Company, its Subsidiaries, Target Company
and Target Subsidiaries own or lease all buildings and all material equipment
and other tangible assets necessary for the conduct of their businesses as
presently conducted and as presently proposed to be conducted through the
Funding Date.
-18-
(z) CONTRACTS AND LEASES. The Disclosure Schedule lists the
following contracts and other agreements to which the Company or any of its
Subsidiaries, or to the Company's Knowledge, Target or Target Subsidiary, is a
party:
1. any agreement concerning a partnership or joint venture;
2. any agreement concerning confidentiality or noncompetition, other
than (i) confidentiality agreements entered into in connection
with possible acquisitions and business combinations and (ii)
agreements with employees or former employees wherein such
employees have agreed not to compete with the applicable entity;
3. any agreement with any Affiliates of the Company or its
Subsidiaries, or of Target or Target Subsidiary, as applicable;
4. any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of its current or former directors,
officers, and employees;
5. any collective bargaining agreement;
6. any agreement under which any of them has advanced or loaned any
amount to any of its directors, officers, and employees outside
the Ordinary Course of Business;
7. any agreement under which the consequences of a default or
termination would have an adverse effect on the business,
financial condition, operations, results of operations, or future
prospects of the Company, its Subsidiaries, Target and Target
Subsidiary;
8. any instrument or agreement whereby the Company, any of its
Subsidiaries, Target or Target Subsidiary indemnifies any other
person against any loss or Liability, to the extent that (i) the
principal purpose of the agreement is such indemnification, (ii)
the agreement involves annual payments by either party of
$100,000 or more, or (iii) if the indemnification obligations are
triggered under such agreement, the Company, Subsidiary, Target
Company or Target Subsidiary may become liable for amounts in
excess of $100,000 that, but for such agreement, would not be a
liability of the Company, Subsidiary, Target Company or Target
Subsidiary;
9. any agreement under which the Company, any of its Subsidiaries,
Target or Target Subsidiary could have liabilities or obligations
in the future
-19-
relating to the acquisition or disposition of material assets, by
way of merger, consolidation, purchase, sale or otherwise, or
granting to any person a right at such person's option to
purchase or acquire any material asset or property, of the Target
or any interest therein (not including acquisitions or
dispositions of inventory in the ordinary course of business);
10. any other agreement (or group of related agreements), other than
loans and leases originated or held by the Company, one of its
Subsidiaries, Target or Target Subsidiary in the Ordinary Course
of Business, and other than employment agreements disclosed
elsewhere in the Disclosure Schedule, the performance of which
obligates either party to pay consideration in excess of $100,000
per year.
The Company has made available to the Purchasers, to the extent requested, a
correct and complete copy of each written agreement listed in the Disclosure
Schedule pursuant to this subsection to which the Company, one of its
Subsidiaries, Target Company or Target Subsidiary is a party, and a written
summary setting forth the terms and conditions of each oral agreement referred
to in the Disclosure Schedule pursuant to this subsection to which the Company,
one of its Subsidiaries, Target Company or Target Subsidiary is a party. With
respect to each agreement listed in the Disclosure Schedule pursuant to this
subsection: (A) the agreement is legal, valid, binding, enforceable, and in
full force and effect; (B) the agreement will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms following
the consummation of the transactions contemplated hereby; (C) neither the
Company, its Subsidiaries, Target Company nor Target Subsidiaries nor any other
party is in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the agreement; and (D) neither the Company,
its Subsidiaries, Target Company nor Target Subsidiaries nor any other party has
repudiated any provision of the agreement.
(aa) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts
receivable carried as such on the books and records of the Company, its
Subsidiaries, Target Company or Target Subsidiary are reflected properly on
those books and records, are subject to no setoffs or counterclaims that have
been asserted by the borrowers or debtors thereunder, and are current and
performing in accordance with their terms. The loan and asset classifications
utilized by each of the Company, its Subsidiaries, Target Company and Target
Subsidiary are in accordance with applicable Regulatory Accounting Principles
and prudent banking practice, and are consistently applied. As of December 31,
1996, the Company's consolidated allowance for loan and lease losses was
$5,156,000. Based on evaluations of collectibility and prior loss experience in
light of the information in the possession of management of the Company as of
December 31, 1996, the allowance for loan and lease losses of its Subsidiaries
and of Target Subsidiary is adequate to absorb losses inherent in their
respective loans and leases. Neither the Company nor any Subsidiary has any
outstanding loans, discounts or commitments to loan or discount which have
-20-
not been made for good and valuable consideration in the Ordinary Course of
Business. The Disclosure Schedule sets forth an accurate and complete list,
with respect to each Bank, of all extensions of credit to officers, directors,
principal shareholders and their related interests ("Insiders"), as these terms
are defined in Regulation O, 12 C.F.R. Section 215.
(bb) POWERS OF ATTORNEY. There are no outstanding powers of attorney
executed on behalf of any of the Company, its Subsidiaries, Target Company and
Target Subsidiaries pursuant to which the applicable entity has granted
authority to incur any Liability on behalf of the entity or to compromise any
right of the applicable entity.
(cc) INSURANCE. With respect to each insurance policy (including
policies providing property, casualty, liability, and workers' compensation
coverage and bond and surety arrangements) to which any of the Company, its
Subsidiaries, Target Company and Target Subsidiaries have been a party, a named
insured, or otherwise the beneficiary of coverage during the last three years:
(A) the policy, or a substitute policy providing coverage that is not
substantially less than that of the original policy, is legal, valid, binding,
enforceable, and in full force and effect; (B) the policy (or its substitute)
will continue to be legal, valid, binding, enforceable, and in full force and
effect on identical terms following the consummation of the transactions
contemplated hereby; (C) neither any of the Company, its Subsidiaries, Target
Company and Target Subsidiaries nor any other party to the policy is in breach
or default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default, or permit termination, modification,
or acceleration, under the policy unless a substitute policy has been obtained;
and (D) neither the Company, its Subsidiaries, Target Company nor Target
Subsidiaries, nor any other party to the policy has repudiated any provision
thereof. Each of the Company, its Subsidiaries, Target Company and Target
Subsidiaries have been covered during the past three years by insurance in scope
and amount customary and commercially reasonable for the businesses in which it
has engaged. The Disclosure Schedule describes any self-insurance arrangements
affecting any of the Company, its Subsidiaries, Target Company and Target
Subsidiaries.
(dd) LITIGATION. The Disclosure Schedule sets forth each instance in
which any of the Company, its Subsidiaries, Target Company and Target
Subsidiaries (i) is subject as a defendant (including as a defendant in
counterclaim or cross-claim) to any outstanding injunction, judgment, order,
decree, ruling, or charge or (ii) is or is threatened to be made a defendant
(including as a defendant in counterclaim or cross-claim) to any action, suit,
proceeding, hearing, or investigation of, in, or before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator. None of the actions, suits, proceedings,
hearings, and investigations set forth in the Disclosure Schedule would, if
adversely determined, result in an adverse change in the business, financial
condition, operations, results of operations, or future prospects of any of the
Company, its Subsidiaries, Target Company and Target Subsidiary after taking
into account any reserves or accruals previously taken or made in
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connection therewith, which reserves and accruals are reflected in the Financial
Statements for each entity. The Company has no Knowledge that any such action,
suit, proceeding, hearing, or investigation is likely to be brought or
threatened against any of the Company, its Subsidiaries, Target Company or
Target Subsidiaries.
(ee) EMPLOYEES. The Company has no Knowledge of any plan by any
executive officer, employee who constitutes an Insider (defined on p. 24), or
group of employees to terminate employment with any of the Company, its
Subsidiaries, Target Company and Target Subsidiaries. None of the Company, its
Subsidiaries, Target Company and Target Subsidiaries is a party to or bound by
any collective bargaining agreement, nor has any of them experienced any
strikes, grievances, claims of unfair labor practices, or other collective
bargaining disputes. None of the Company, its Subsidiaries, Target Company and
Target Subsidiaries has committed any unfair labor practice. No organizational
effort is presently being made or threatened by or on behalf of any labor union
with respect to employees of any of the Company, its Subsidiaries, Target
Company and Target Subsidiaries.
(ff) EMPLOYEE BENEFITS.
1. The Disclosure Schedule lists each Employee Benefit Plan
that any of the Company, its Subsidiaries, Target Company and Target
Subsidiaries maintains or to which any of the Company, its Subsidiaries, Target
Company and Target Subsidiaries contributes.
2. Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation with the
applicable requirements of ERISA, the Code, and other applicable laws.
3. All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan Descriptions)
have been filed or distributed appropriately with respect to each such Employee
Benefit Plan. The requirements of Part 6 of Subtitle B of Title I of ERISA and
of Code Sec. 4980B have been met with respect to each such Employee Benefit Plan
which is an Employee Welfare Benefit Plan.
4. All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid to each
such Employee Benefit Plan which is an Employee Pension Benefit Plan and all
contributions for any period ending on or before the Funding Date which are not
yet due have been paid to each such Employee Pension Benefit Plan or accrued in
accordance with the past custom and practice of the Company, its Subsidiaries,
Target Company and Target Subsidiaries. All premiums or other payments for all
periods ending on or before the Funding Date have been paid with respect to each
such Employee Benefit Plan which is an Employee Welfare Benefit Plan.
-22-
5. Each such Employee Benefit Plan which is an Employee Pension
Benefit Plan meets the requirements of a "qualified plan" under Code Sec. 401(a)
and has received, within the last two years, a favorable determination letter
from the Internal Revenue Service, and nothing has occurred since the date of
such determination that could adversely affect the qualification of such
Employee Benefit Plan.
6. No Employee Benefit Plan is an Employee Pension Benefit Plan
subject to Title IV of ERISA.
7. With respect to each Employee Benefit Plan that any of the
Company, its Subsidiaries, Target Company and Target Subsidiaries and the
Controlled Group of Corporations which includes the Company, its Subsidiaries,
Target Company and Target Subsidiaries maintains or has maintained at any time
or to which any of them contributes, has contributed at any time, or been
required to contribute at any time:
(1) No such Employee Benefit Plan which is an Employee Pension
Benefit Plan subject to Title IV of ERISA (other than any
Multiemployer Plan) has been completely or partially terminated or
been the subject of a Reportable Event as to which notices would be
required to be filed with the PBGC. No proceeding by the PBGC to
terminate any such Employee Pension Benefit Plan subject to Title IV
of ERISA (other than any Multiemployer Plan) has been instituted or
threatened.
(2) None of the Company, its Subsidiaries, Target Company and
Target Subsidiaries have incurred, and the Company has no Knowledge
giving it reason to expect that any of the Company, its Subsidiaries,
Target Company or Target Subsidiaries will incur, any Liability to the
PBGC (other than PBGC premium payments) or otherwise under Title IV of
ERISA (including any withdrawal Liability) or under the Code with
respect to any such Employee Benefit Plan which is an Employee Pension
Benefit Plan.
8. None of the Company, its Subsidiaries, Target Company and
Target Subsidiaries the other members of the Controlled Group of Corporations
that includes the Company, its Subsidiaries, Target Company and Target
Subsidiaries contributes to, has contributed to at any time, or at any time has
been required to contribute to any Multiemployer Plan or has any Liability
(including withdrawal Liability) under any Multiemployer Plan.
9. None of the Company, its Subsidiaries, Target Company and
Target Subsidiaries maintains or has maintained, or contributes to, has
contributed to or has been required to contribute to any Employee Welfare
Benefit Plan providing medical, health, or life insurance or other welfare-type
benefits for current or future retired or terminated employees, their spouses,
or their dependents (other than in accordance with Code Sec. 4980B).
-23-
10. With respect to each Employee Benefit Plan and each other
commitment to an employee of the Company, one of its Subsidiaries, Target
Company or Target Subsidiary providing for deferred compensation, the Company
has provided the Purchasers with true, complete and correct copies of (to the
extent applicable) (A) all documents pursuant to which the Employee Benefit Plan
or deferred compensation arrangement is maintained, funded and administered, (B)
the most recent annual report (Form 5500 series) filed with the IRS (with
applicable attachments), (C) the most recent financial statement, (D) the most
recent actuarial valuation of benefit obligations, (E) the most recent summary
plan description, and (F) the most recent determination letter received from the
IRS and the most recent application to the IRS for such determination letter.
(gg) GUARANTIES. None of the Company, its Subsidiaries, Target
Company and Target Subsidiary is a guarantor of, or otherwise is liable for, any
Liability or obligation (including indebtedness) of any Person other than
another of the Company, its Subsidiaries, Target Company or Target Subsidiary.
(hh) ENVIRONMENTAL AND SAFETY MATTERS.
1. The Company, its Subsidiaries, Target Company, and Target
Subsidiaries have complied and are in compliance with all Environmental and
Safety Requirements. Without limiting the foregoing, no property or facility
owned or operated by the Company, its Subsidiaries, Target Company, or Target
Subsidiary (in the case of leased properties, being construed to include only
such portion of such property as is actually occupied by the applicable entity),
contains any landfills, surface impoundments, or disposal areas, or any (i)
underground storage tanks (ii) asbestos-containing material, or (iii) materials
or equipment containing polychlorinated biphenyls, in any of cases (i) through
(iii) that is not in compliance with applicable Environmental and Safety
Requirements.
2. The Company, its Subsidiaries, Target Company, and Target
Subsidiary have not treated, stored, disposed of, arranged for or permitted the
disposal of, transported, handled, or released any substance, including without
limitation any hazardous substance, or owned or operated any property or
facility (and no such property or facility is contaminated by any such
substance), in each case in a manner that has given or could give rise to
liabilities for the Company, its Subsidiaries, Target Company, or Target
Subsidiary, as applicable, including any liability for response costs,
corrective action costs, personal injury, property damage, natural resources
damages or attorney fees, or any investigative, corrective or remedial
obligations, pursuant to the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA") or the Solid Waste Disposal
Act, as amended ("SWDA") or any other Environmental and Safety Requirements.
3. No facts, events or conditions relating to the past or
present facilities, properties or operations of the Company, its Subsidiaries,
Target Company or Target
-24-
Subsidiaries will prevent, hinder or limit continued compliance by the Business
with Environmental and Safety Requirements, give rise to any investigatory,
remedial or corrective obligations pursuant to Environmental and Safety
Requirements, or give rise to any other liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise) pursuant to Environmental and Safety
Requirements, including without limitation any relating to onsite or offsite
releases or threatened releases of hazardous materials, substances or wastes,
personal injury, property damage or natural resources damage.
4. The Company, its Subsidiaries, Target Company, and Target
Subsidiaries have not, either expressly or by operation of law, assumed or
undertaken any liability, including without limitation any obligation for
corrective or remedial action, of any other person relating to Environmental and
Safety Requirements.
(ii) CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY, ITS
SUBSIDIARIES, TARGET COMPANY AND TARGET SUBSIDIARIES. Excepting (i) as an
employee and (ii) loans consistent with the immediately following sentence, none
of the shareholders, officers or directors of the Company, its Subsidiaries,
Target Company or Target Subsidiaries (or the Affiliates of the shareholders)
has been involved in any business arrangement or relationship with any of the
Company, its Subsidiaries, Target Company and Target Subsidiaries within the
past 12 months and no such shareholder, officer or director owns an interest in
any material asset, tangible or intangible, which is used in the business of any
of the Company, its Subsidiaries, Target Company and Target Subsidiaries. No
shareholder, officer or director of the Company, its Subsidiaries, Target
Company or Target Subsidiaries have any loan, credit or other contractual
arrangement outstanding with the Company, its Subsidiaries, Target Company or
Target Subsidiaries which does not conform to applicable rules and regulations
of the OCC, the California Banking Department, the FRB, and the FDIC.
(jj) ORGANIZATION OF BANKS. San Dieguito National Bank and Liberty
National Bank are national banks, duly chartered and validly existing under the
laws the United States, and Commerce Security Bank and Eldorado Bank are
California banks, duly chartered and validly existing under the laws the State
of California. Each Bank's deposit accounts are insured by either the Bank
Insurance Fund or Savings Association Insurance Fund of the Federal Deposit
Insurance Corporation (the "FDIC"). Each Bank has paid all regular premiums and
special assessments and filed all reports required to be filed by the state and
federal regulatory agencies having jurisdiction over it. Each Bank has full
corporate power and authority to own, lease and operate its properties and
assets and to carry on its business as it is now being conducted. The Company
has previously made available to the Purchasers, to the extent requested,
complete and correct copies of the charter and bylaws of each Bank, as presently
in effect, and lists all of the directors and officers of each Bank. Each Bank
is duly qualified or licensed to do business as a foreign corporation in good
standing in every jurisdiction in which a failure to so qualify would have an
adverse effect on the conduct of its business. No Bank has paid any dividend
that (i) caused the regulatory net worth of the Bank to be less than the amount
then required by federal or state law, or (ii) exceeded
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any other limitation on the payment of dividends imposed by law, agreement or
published regulatory policy.
(kk) REGULATORY REPORTS.
1. The Company, its Subsidiaries, Target Company and Target
Subsidiaries have filed in a timely manner, and will continue to so file, all
reports, registrations, notices and statements, together with any amendments
required to be made with respect thereto, that were required to be filed with
(a) the State of California, (b) the FDIC, (c) the OCC, (d) the FRB, and (e) all
other regulatory entities with jurisdiction over the their activities. All such
reports, registrations and statements are collectively referred to as the
"Company Regulatory Reports." As of their respective dates, the Company
Regulatory Reports complied with all statutes, rules and regulations enforced or
promulgated by the applicable regulatory authorities with which they were filed.
No Company Regulatory Report contained any untrue statement of material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
2. The Company, its Subsidiaries, Target Company and Target
Subsidiaries has furnished to the Purchasers or made available for inspection,
to the extent requested, true and correct copies of (A) all examination reports
by the State of California, the FDIC, the OCC, and the FRB received during their
1991 through 1996 fiscal years and through the Funding Date, (B) any material
correspondence between the Company, its Subsidiaries, Target Company and Target
Subsidiaries and such agencies relating thereto during such periods, and (C) any
agreements or arrangements between the Company, its Subsidiaries, Target Company
and Target Subsidiaries and such agencies entered into as a result of matters
raised in examination or reports or correspondence (or summaries of all oral
agreements, arrangements or understandings with such agencies) at any time since
January 1, 1993.
(ll) RESERVED
(mm) SECURITIES PORTFOLIO. The Disclosure Schedule sets forth a true
and complete list of all bonds and other investment securities (collectively,
"Investment Securities") held by the Company, its Subsidiaries, Target Company
and Target Subsidiaries, setting forth thereon the cost, coupon rate, maturity
and book value of such Investment Securities. The Company, its Subsidiaries,
Target Company and Target Subsidiaries hold good and marketable title to all of
such Investment Securities, free and clear of any Security Interest. The
Investment Securities comply in all respects with the Regulations.
(nn) SPECIAL ASSETS. The Disclosure Schedule sets forth a true and
complete list of all Special Assets of each Bank as of January 31, 1997. The
Special Assets of each Bank, as of such date, did not exceed (7.0%) of the total
assets of such Bank.
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(oo) REGULATORY APPLICATIONS. The information with respect to the
Company, its Subsidiaries, Target Company and Target Subsidiaries contained in
the regulatory filings to be prepared in accordance with the Acquisition, as of
the date of filing (or as subsequently amended or supplemented), will not
contain any untrue statement of a material fact and will not omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading or necessary to correct any such statement which has become false or
misleading.
(pp) BROKERED DEPOSITS. The aggregate brokered deposits of the Banks
do not exceed $70,00,000.
(qq) MORTGAGE LICENSES AND QUALIFICATIONS. Commerce Security Bank
(i) is qualified (A) by FHA as a mortgagee and servicer for FHA Loans, (B) by
the VA as a lender and servicer for VA Loans, (C) by FNMA and FHLMC as a
seller/servicer of first mortgages to FNMA and FHLMC and (D) by GNMA as an
authorized issuer and servicer of GNMA-guaranteed mortgage-backed securities;
and (ii) has all other Licenses, and is in good standing under all applicable
Regulations as mortgage lenders and servicers. Neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will affect the validity of any License currently possessed by Commerce
Security Bank, and all such Licenses will remain in full force and effect after
the Funding Date.
(rr) MORTGAGE LOAN PORTFOLIO. The Mortgage Loans in the Company's,
its Subsidiaries', Target Company's or Target Subsidiary's Mortgage Servicing
Portfolio were originated and currently exist in compliance with all
requirements of the Regulations.
(ss) TITLE TO CERTAIN MORTGAGE LOANS; MORTGAGE SERVICING AGREEMENTS.
(i) All Mortgage Loans held for the Company's, its Subsidiaries', Target
Company's or Target Subsidiaries' account (whether or not for future sale or
delivery to an Investor) are owned by the Company, its Subsidiaries, Target
Company or Target Subsidiaries free and clear of any Security Interest other
than Security Interests in favor of the Company's, its Subsidiaries', Target
Company's or Target Subsidiaries's sources of credit pursuant to warehouse lines
or other comparable financing arrangements. Such Mortgage Loans have been duly
recorded or submitted for recordation in the appropriate filing office in the
name of the Company, its Subsidiaries, Target Company or Target Subsidiaries as
mortgagee or in the name of a trustee for the benefit of the Company, its
Subsidiaries, Target Company or Target Subsidiaries. The Company, its
Subsidiaries, Target Company and Target Subsidiaries have not, with respect to
any Mortgage Loan subject to a Mortgage Servicing Agreement, released any
security therefor, except upon receipt of reasonable consideration for such
release or of Investor approval, or accepted prepayment of any such Mortgage
Loan which has not been promptly applied to such Mortgage Loan.
-27-
(ii) All of the Mortgage Servicing Agreements and the rights
created thereunder are owned by the Company, its Subsidiaries, Target Company
or Target Subsidiaries free and clear of any Security Interests and, assuming
required notices have been given and required consents obtained, upon the
Funding, will continue to be so owned by the Company, its Subsidiaries, Target
Company and Target Subsidiaries except upon termination by an Investor pursuant
to contract right.
(tt) NO RECOURSE. The Company, its Subsidiaries, Target Company and
Target Subsidiaries are not a party to (i) any agreement or arrangement with (or
otherwise obligated to) any Person, including an Investor or Insurer, to
Repurchase from any such Person any Mortgage Loan, mortgaged property serviced
for others or Servicing Released Loans or Previously Disposed Loans or (ii) any
agreement, arrangement or understanding to reimburse, indemnify or hold harmless
any Person or otherwise assume any Liability with respect to any Adverse
Consequence suffered or incurred as a result of any default under or the
foreclosure or sale of any such Mortgage Loan, mortgaged property serviced for
others, Servicing Released Loans, or Previously Disposed Loans.
(uu) MORTGAGE SERVICING AGREEMENTS. All of the Mortgage Servicing
Agreements are valid and binding obligations of the Company, its Subsidiaries,
Target Company or Target Subsidiaries and the other parties thereto and are in
full force and effect and are enforceable in accordance with their terms, except
as enforcement thereof may be limited by bankruptcy, insolvency or other similar
laws affecting the enforcement of creditors' rights generally and by general
principles of equity (whether applied in a proceeding in equity or at law).
(vv) COMPLIANCE. The Company, its Subsidiaries, Target Company and
Target Subsidiaries, and as to bulk purchases of Servicing Rights, all prior
servicers and originators, have been and are in compliance with all federal
state and other applicable laws, rules and Regulations relating to the
origination and servicing of Mortgage Loans.
(ww) INVESTOR COMMITMENTS. Each Investor Commitment constitutes a
valid and binding obligation of the Company, its Subsidiaries, Target Company
and Target Subsidiaries, and all of the other parties thereto, enforceable in
accordance with its terms, subject to bankruptcy, insolvency or other similar
laws affecting the enforcement of creditors' rights generally and by general
principles of equity (whether applied in a proceeding in equity or at law).
Each Mortgage Loan which is subject to an Investor Commitment is a Conforming
Loan or is otherwise readily saleable in the secondary market.
(xx) CUSTODIAL ACCOUNTS. Such of the Company, its Subsidiaries,
Target Company and Target Subsidiaries as are engaged in the servicing of
Mortgage Loans have full power and authority to maintain Custodial Accounts.
Such Custodial Accounts comply with (i)
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all applicable Regulations and the payment of interest on escrows and (ii) any
terms of the Mortgage Loans (and Mortgage Servicing Agreements) relating
thereto.
(yy) ADVANCES. There are no pooling, participation, servicing or
other agreements to which the Company, its Subsidiaries, Target Company or
Target Subsidiaries are a party which obligate them to make servicing advances
with respect to defaulted or delinquent Mortgage Loans other than as provided in
GNMA, FNMA or FHLMC pooling and servicing agreements. The Advances are valid
and subsisting amounts owing to the Company, its Subsidiaries, Target Company
and Target Subsidiaries, subject to the terms of the applicable Mortgage
Servicing Agreement. The Advances are not subject to setoffs or claims arising
from acts or omissions of the Company, its Subsidiaries, Target Company or
Target Subsidiaries other than as provided in GNMA, FNMA or FHLMC pooling and
servicing agreements.
(zz) PHYSICAL DAMAGE. There exists no physical damage to any
Collateral, which physical damage is not insured against in compliance with the
Regulations and would cause any Mortgage Loan to become delinquent or adversely
affect the value or marketability of any Mortgage Loan, Servicing Rights or
Collateral.
(aaa) APPLICATION OF FUNDS. All monies received with respect to each
Mortgage Loan have been properly accounted for and applied.
(bbb) POOL CERTIFICATION. All Pools have been finally certified or
are in the process of being finally certified. All Pools that have not yet been
finally certified will be finally certified (either in their current composition
or with permissible substitutions of loans) within the time periods specified in
the Regulations. No event has occurred or failed to occur which would require
the Company, its Subsidiaries, Target Company or Target Subsidiaries to
Repurchase any Mortgage Loan from any Pool.
(ccc) ADJUSTABLE RATE LOANS. With respect to each Mortgage Loan
where the interest rate is not fixed for the term of the loan, the Company, its
Subsidiaries, Target Company or Target Subsidiaries have, and all prior
servicers have (i) properly and accurately entered into its system all data
required to service the Mortgage Loan in accordance with all Regulations, (ii)
properly and accurately adjusted the mortgage interest rate on each interest
adjustment date, (iii) properly and accurately adjusted the monthly payment on
each payment adjustment date, (iv) properly and accurately calculated the
amortization of principal and interest on each payment adjustment date, in each
case in compliance with all applicable laws, rules and Regulations and the
related Loan Documents, and (v) executed and delivered any and all necessary
notices required under, and in a form that complies with, all applicable laws,
rules and Regulations and the terms of the related Loan Documents regarding the
interest rate and payment adjustments.
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(ddd) REAL ESTATE OWNED.
1. Except for such Security Interests as have been
appropriately reserved for in the Financial Statements or are not material to
the Company's interest in such property and are in the process of being cleared,
title to the OREO of the Company is good and marketable, and there are no
adverse claims or Security Interests on the OREO not reflected in the carry
value of the same.
2. All title, hazard and other insurance claims and mortgage
guaranty claims with respect to the OREO have been timely filed, and the
Company, its Subsidiaries, Target Company and Target Subsidiaries have not
received any notice of denial of any such claim with respect to any property now
constituting OREO.
3. The Company, its Subsidiaries, Target Company and Target
Subsidiaries are in possession of all of the OREO or, if any of such OREO
remains occupied by the mortgagor, eviction or summary proceedings have been
commenced and the Company, its Subsidiaries, Target Company and Target
Subsidiaries are diligently pursuing such eviction or summary proceedings.
4. No legal proceeding or quasi-legal proceeding is pending or
threatened concerning any OREO or any servicing activity or omission to provide
a servicing activity with respect to any of the OREO.
(eee) NO REPURCHASE AGREEMENTS. Since January 1, 1996, the Company,
its Subsidiaries, Target Company and Target Subsidiaries have not purchased
securities subject to an agreement to resell other than in the Ordinary Course
of Business.
(fff) FORBEARANCE. No Mortgage Loans are subject to any oral
agreement with the borrower or guarantor of any Mortgage Loan to waive or
forgive in any material respect any portion of the accrued interest of the
Mortgage Loan.
(ggg) ACCURACY OF CERTIFICATES. No certificate furnished by or on
behalf of the Company or its Subsidiaries in connection with the transactions
contemplated hereby contains or will contain any untrue statement of fact or
omits or will omit to state a fact necessary to make the statements contained
herein or therein not misleading.
(hhh) SIGNIFICANT STOCKHOLDERS OF THE COMPANY. The Disclosure
Schedule sets forth those persons who, on a pro forma basis for the Funding, are
expected to hold, directly or indirectly, 1.0% or more of the outstanding Common
Stock as of the Funding Date. As of the Funding Date, the Updated Disclosure
Schedule will set forth those persons who, on a pro forma basis for the Funding,
hold, directly or indirectly, 1.0% or more of the outstanding Common Stock as of
the Funding Date.
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(iii) the Company does not expect that it will seek to redeem
shares of Common Stock in the foreseeable future, other than a redemption that
qualifies as a Permitted Redemption as defined in the Amended and Restated
Charter.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASERS. Each
Purchaser hereby represents, warrants and covenants to the Company, severally
and not jointly, as of the date of this Agreement and as of the Funding Date, as
follows:
(a) The Purchaser is a limited partnership duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization, with the power and authority to perform its obligations under this
Agreement.
(b) The execution, delivery and performance of this Agreement by the
Purchaser and the consummation by the Purchaser of the transactions contemplated
hereby have been duly authorized by all necessary actions of the Purchaser; and
this Agreement, when duly executed and delivered by the Purchaser and accepted
by the Company, will constitute a valid and legally binding instrument,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
(c) The Purchaser is not insolvent and has legally binding
commitments from parties, known to the Purchaser to have the financial ability
to perform under such commitments, that will provide the Purchaser with
sufficient cash funds on hand to purchase the Senior Securities on the terms and
conditions contained in this Agreement on or before the Funding Date. Upon the
Company's reasonable request from time to time the Purchaser will provide the
Company with evidence or substantiation that such Purchaser has the financial
means to satisfy its financial obligations under this Agreement, and any such
evidence or substantiation shall be true and accurate in all material respects.
(d) Except for the approvals being obtained by the Company in
connection with the Acquisition (which approvals will be based in part on the
terms of the Senior Securities and the Ancillary Agreements and information
about the Purchasers), no state, federal or foreign regulatory approvals,
permits, licenses or consents or other contractual or legal obligations are
required in order for the Purchaser to enter into this Agreement or purchase the
Senior Securities. The Purchaser shall use all commercially reasonable efforts
to cooperate with the Company and to provide such assistance, as the Company may
reasonably request, with the preparation and filing of all necessary
documentation, to effect all applications, notices, petitions and filings, and
to assist in obtaining, as promptly as practicable, all permits, consents,
approvals and authorizations of all third parties and regulatory authorities
which are necessary to consummate the Acquisition or the contemplated merger or
consolidation of the Banks (the "Bank Merger"). The Purchaser shall, upon a
reasonable request therefor, furnish the Company with all information concerning
itself as may be reasonably necessary or advisable in connection with any filing
or
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application made by or on behalf of the Company or the Target Company to any
regulatory authority in connection with the Acquisition or the Bank Merger.
(e) The execution and delivery of this Agreement, the consummation by
the Purchaser of the transactions herein contemplated and the compliance by the
Purchaser with the terms hereof do not and will not materially conflict with, or
result in a material breach or violation of any of the terms or provisions of,
or constitute a material default under, the constituent documents of the
Purchaser or any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Purchaser is a party or by which any of the
Purchaser's properties or assets are bound, or any applicable law, rule,
regulation, judgment, order or decree of any government,
governmental-instrumentality or court, domestic or foreign, having jurisdiction
over the Purchaser or any of the Purchaser's properties or assets.
(f) The Purchaser has not entered into any contracts, arrangements,
understandings or relationships (legal or otherwise) with any other person or
persons, other than its Affiliates or Associates (and other than as required by
its organizational documents or contractual commitments to its partners that are
applicable generally to investments made by the Purchaser), with respect to the
transactions contemplated by this Agreement or any securities of the Company,
including but not limited to transfer or voting of any of the securities,
finder's fees, joint ventures, loan or option arrangements, puts or calls,
guarantees of profits, division of profits or loss, or the giving or withholding
of proxies.
(g) The Purchaser has been advised and understands that the Senior
Securities have not been registered under the Securities Act in reliance upon
the exemption from such registration provided in Section 4(2) thereof and that
the Senior Securities have not been registered under the securities laws of any
state in reliance on exemptions therefrom and, therefore, the Senior Securities
may not be resold unless registered under applicable state securities laws or an
exemption from registration is available. The Company is and will be under no
obligation to register the Senior Securities under the Securities Act except to
the extent provided in the Registration Agreement (as defined herein), when
executed by the Company.
(h) The Purchaser acknowledges receipt of, and has had a reasonable
opportunity to review, the Private Placement Memorandum, but further
acknowledges that the information and representations contained in the Placement
Memorandum speak as of December 20, 1996 and the Placement Memorandum has not
been supplemented subsequent to such date. To the extent that information
contained in this Agreement (including the Disclosure Schedule or the other
Schedules hereto) is inconsistent with the Placement Memorandum, the information
contained this Agreement and such Schedules supersede that set forth the
Placement Memorandum. The Purchaser also acknowledges receipt of, and has had a
reasonable opportunity to review, the Company's Unaudited 1996 Financials.
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(i) The Purchaser has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of an
investment in the Senior Securities, is able to bear the economic risk of an
investment in the Senior Securities, including at the date hereof, the ability
to afford a complete loss of the investment, and is (i) a sophisticated
institutional or corporate investor as well as an "accredited investor" as
defined in Rule 501(a) under the Securities Act; or (ii) a sophisticated
individual investor as well as an "accredited investor" as defined in Rule
501(a) under the Securities Act. The Purchaser agrees to provide promptly such
additional information as may be reasonably required by the Company for
compliance with the securities laws of the state in which the Purchaser is
located.
(j) The Purchaser intends to purchase the Senior Securities for the
account of the Purchaser and not, in whole or in part, for the account of any
other person. The Purchaser represents and warrants to, and covenants and
agrees with, the Company that the Senior Securities to be acquired by it
hereunder are being acquired for its own account for investment and with no
intention of distributing or reselling such Senior 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.
(k) The Purchaser has been advised that, prior to any registration of
the Senior Securities pursuant to the provisions of the Registration Agreement,
any and all certificates or other instruments representing the Senior Securities
and any and all certificates issued in replacement thereof or in exchange
therefor shall bear the following legend or one substantially similar thereto:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE IN
RELIANCE ON EXEMPTIONS THEREFROM AND, THEREFORE, MAY NOT BE RESOLD
UNLESS REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS
OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
In addition, certificates or other instruments representing the Senior
Securities acquired by the Purchaser will bear additional legends as required by
the securities laws of those states.
(l) The Purchaser will not sell or otherwise transfer any of the
Senior Securities, except in compliance with the provisions of the applicable
securities laws and as stated in any legend. The Purchaser has been advised
that (i) there are significant restrictions on the transfer of the Senior
Securities, (ii) there is no active market for the Common Stock, (iii) no
trading market for the Common Stock or any class of the Senior Securities is
likely to be available in the foreseeable future, and (iv) as a result, an
investment in the Senior Securities may be extremely illiquid.
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(m) The Purchaser has taken no action which would entitle anyone to a
broker's or finder's fee or other compensation in connection with the
transactions contemplated hereby, other than the compensation payable by the
Company to The Shattan Group, LLC pursuant to the terms of its December 1996
engagement agreement with the Company.
7. FUNDING CONDITIONS. The respective obligations of the Purchasers and
the Company to consummate the purchase and sale of the Senior Securities and,
if applicable, the payment of the Commitment Fee (as defined herein) shall be
subject, in the discretion of the Company or the Purchasers, as the case may be,
to certain conditions set forth in this Section 7.
7.1 CONDITIONS TO PURCHASERS' OBLIGATIONS. The Purchasers'
respective obligations to purchase the Senior Securities are subject to the
following conditions:
(a) No representation or warranty made as of the date of this
Agreement with respect to the Company or its Subsidiaries (as specifically
modified by the Disclosure Schedule) shall have been inaccurate as of the date
hereof as a result of facts that, individually or in aggregation with all other
facts resulting in other such inaccuracies, represent a material adverse change
in the business, properties, assets, Liabilities, operations, earnings and
condition of the Company, its Subsidiaries, Target Company and the Target
Subsidiary considered on a consolidated basis, as the same were depicted by the
representations and warranties in light of the Disclosure Schedule as actually
delivered to the Purchasers as of the date hereof.
(b) Between the date hereof and the Funding Date, there shall have
occurred no event or development relating to the Company or its Subsidiaries
that would constitute or has resulted in a material adverse change, individually
or in aggregation with all other such events and developments, in the business,
properties, assets, Liabilities, operations, earnings and condition of the
Company, its Subsidiaries, Target Company and Target Subsidiary considered on a
consolidated basis.
(c) The closing conditions set forth in Sections 6.1 and 6.2 of the
Acquisition Agreement shall have been satisfied in the reasonable determination
of the Purchasers in accordance with such Sections' respective terms.
(d) The Company and its Subsidiaries shall have complied in all
material respects with all covenants and agreements and satisfied in all
material respects all conditions on its part to be performed or satisfied
hereunder at or prior to the Funding.
(e) The Amended and Restated Charter (in the form set forth as
EXHIBIT C) shall have been filed and become effective with the Secretary of
State of the State of Delaware. Other than the filing of the Amended and
Restated Charter, there shall not have been any change effected without the
Purchasers' prior written consent after the date of this Agreement in the
charter or other organizational document or bylaws of the Company adversely
affecting (in any
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manner) the rights of the holders of the Senior Securities; PROVIDED, HOWEVER,
that an increase in the Company's authorized capital stock shall not be deemed
to adversely affect the rights of the holders of the Senior Securities.
(f) If the Target Redemption Amount is $12,000,000, the Company shall
have issued on the Funding Date $18,200,000 of Class B Common Stock, of which
not more than $4,500,000 shall have been issued at a price per share of $4.40
and $13,700,000 of which shall be issued at a price of not less than $4.81 per
share. If the Target Redemption Amount is greater than or less than
$12,000,000, the Company shall have issued on the Funding Date such lesser or
greater number of shares of Class B Common Stock determined in accordance
Section 1 hereof, of which not more than $4,500,000 shall have been issued at a
price per share of $4.40 and the balance shall have been issued at a price per
share of not less than $4.81.
(g) The Trust (i) shall have been formed and, as of the Funding,
shall be duly organized, validly existing and in good standing as a business
trust organized under the laws of the State of Delaware, with power and
authority to conduct its business as contemplated by this Agreement; (ii) shall
have no assets other than the proceeds of the Common Security Certificates sold
to the Company, (iii) shall have no liabilities or obligations other than those
contemplated under the Declaration of Trust, (iv) shall not have conducted any
business other than ministerial preparations to purchase the Junior Subordinated
Debenture and to issue the Preferred Security Certificates and the Common
Security Certificates and (v) the documents reflecting the actions set forth in
subsections (i)-(iv) above shall have been executed, and the instruments
thereunder shall have been issued.
(h) At the Funding, the Purchasers shall have received a certificate,
dated as of the Funding Date, of the Chief Executive Officer and the Chief
Financial Officer of the Company in which such officers state that the closing
conditions specified in paragraphs (a) through (g) of this Section 7.1 have been
satisfied.
(i) At the Funding, the Company or the Trust (as applicable) shall
have executed and delivered to the Purchasers certificates evidencing the Series
A Capital Securities, the Series B Preferred Stock and the Special Common Stock,
respectively, in due and proper form.
(j) At the Funding, the Company shall have executed and delivered to
the Purchasers the Series B Warrants in the form attached hereto as EXHIBIT D.
(k) At the Funding, the Company shall have executed and delivered to
the Purchasers a registration rights agreement in the form attached hereto as
EXHIBIT G (the "Registration Agreement"). The Company and DCG shall have
amended that certain registration rights agreement dated September 30, 1995, as
amended, between the Company and DCG (the "DCG Registration Agreement") to
provide that the Purchasers shall be entitled to so-called
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piggyback registration rights with respect to any demand registration initiated
by DCG to the same extent that the Purchaser may include shares of Class B
Common Stock pursuant to Section 4 of the Registration Agreement in a
registration statement initiated by the Company.
(l) The Purchasers, the Company, DCG, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, and certain
other shareholders of Dartmouth Capital Group, Inc. shall have entered into a
shareholder agreement in the form attached hereto as EXHIBIT H.
(m) At the Funding, the Company shall have executed and delivered to
the Purchasers a guarantee agreement in the form attached hereto as EXHIBIT I
(the "Guarantee"), the purpose of which shall be to fully and unconditionally
guarantee all of the Trust's obligations under the Series A Capital Securities.
(n) Wilmington Trust Company shall have accepted its appointment as
Delaware Trustee (as defined in the Trust Agreement), or if Wilmington Trust
Company is unable or unwilling to serve as Delaware Trustee, the Purchasers
shall have selected another institutional trustee to whom the Company has no
reasonable objection, and such party shall have formally accepted its
appointment under the Trust.
(o) The Purchasers shall have reasonably determined, based upon,
among other things, the advice of counsel and discussions with representatives
of the Federal Reserve Bank of San Francisco and the FRB, that the purchase of
the Senior Securities and the other transactions specifically contemplated by
this Agreement and the Ancillary Agreements shall not cause a Purchaser to be
deemed (i) a bank holding company within the meaning of the Bank Holding Company
Act of 1956, as amended (the "BHC Act") or (ii) subject to any other federal or
state banking laws which would restrict or prohibit a Purchaser's business.
(p) On a pro forma basis as of the calendar month-end prior to the
Closing: (x) each of the Company and the Target Company will be "well
capitalized" within the meaning of the applicable regulations of the Board of
Governors of the Federal Reserve System (the "FRB") and (y) each of the Company
and the Consolidated Bank (as defined in the Placement Memorandum) will be "well
capitalized" within the meaning of the applicable FRB regulations on a pro forma
basis as of the calendar month-end prior to the Closing, giving effect to (i)
the Acquisition and (ii) the financing therefor, including the sale of the
Senior Securities, the Junior Common Financing (as defined in the Placement
Memorandum) and the Target Redemption Amount.
(q) No action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement to
be rescinded
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following consummation, or (C) materially and adversely affect the rights of the
Purchasers hereunder (and no such injunction, order, decree, ruling or charge
shall be in effect).
(r) At the Funding, the Purchasers shall have received the favorable
opinion, dated as of such date, of ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ & Fish, LLP, outside
counsel for the Company, in form and substance reasonably satisfactory to the
Purchasers, and such other customary closing documentation as the Purchasers may
reasonably request.
(s) The Company shall have provided the Purchasers with notice of the
intended date of Funding at least eighteen (18) days prior to such date.
(t) All actions to be taken by the Company in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to the
Purchasers.
(u) The Company shall have paid to each Purchaser, contemporaneously
with the Funding, a commitment fee (the "Commitment Fee") equal to 1.0% of the
aggregate Subscription Price paid by such Purchaser.
(v) The Company shall have certified as of a date not more than five
(5) days prior to the Funding Date that the Special Assets of the Banks, in the
aggregate, do not exceed by more than twenty percent (20.0%) the aggregate
amount of Special Assets of the Banks as of January 31, 1997.
(w) DCG shall purchase, contemporaneously with the Funding, the
Senior Securities described in Section 1(b) on the terms contained in the
Standby Agreement and for the consideration set forth in such Section 1(b).
7.2 CONDITIONS TO THE COMPANY'S OBLIGATIONS. The Company's
obligations to consummate the sale of the Senior Securities and deliver payment
of the Commitment Fee are subject to the following conditions:
(a) All representations and warranties and other statements of the
Purchasers are true and correct in all material respects as of the date of this
Agreement, and shall be true and correct in all material respects as if made as
of the Funding (assuming that the Company shall have performed in all material
respects all of its obligations hereunder theretofore to be performed).
(b) Each Purchaser shall have complied in all material respects with
all agreements and satisfied in all material respects all conditions on its part
to be performed or satisfied hereunder at or prior to the Funding.
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(c) At the Funding, the Company shall have received a certificate,
dated as of the Funding Date, of the officers of the General Partner of each
Purchaser in which such officers state that, to their Knowledge, the closing
conditions specified in paragraphs (a) and (b) of this Section 7.2 have been
satisfied.
7.3 MUTUAL CONDITIONS TO PURCHASERS' AND THE COMPANY'S OBLIGATIONS.
The respective obligations of the Purchasers and the Company to consummate the
purchase and sale of the Senior Securities and, if applicable, the payment of
the Commitment Fee shall be subject, in the discretion of the Company or the
Purchasers to the following conditions:
(a) No order suspending the Private Placement or Acquisition shall
have been issued, and no proceeding for that purpose shall have been instituted
or, to the knowledge of the Company or the Purchasers, threatened by any
regulatory or governmental body.
(b) All of the conditions to the closing of the Acquisition set forth
in the Acquisition Agreement shall have been satisfied or, if permitted, duly
waived with the consent of the holders of two-thirds (in terms of Subscription
Price) of the Senior Securities, and the Funding of the sale of the Senior
Securities shall occur prior to but substantially simultaneously with the
closing of the Acquisition pursuant to the Acquisition Agreement.
(c) No regulatory approval necessary to the consummation of the
transactions contemplated by this Agreement (including the Acquisition) shall
have been conditioned upon any matter that could reasonably be expected to
result in any significant adverse effect on (i) the business, operations,
condition, earnings or prospects of the Company, its Subsidiaries, Target
Company and Target Subsidiary considered on a consolidated basis, or (ii) on the
ability of the Company to pursue its business plan as the same has been
described to the Purchasers; PROVIDED, HOWEVER, that no condition relating to
the size of Target Redemption Amount will be considered for purposes of
determining if this closing condition has been satisfied.
(d) If the FRB or any other federal or state agency requires that an
adjustment be made to one or more of the terms of the Senior Securities, this
Agreement, or the Ancillary Agreements, the Company and the Purchasers shall
have negotiated and agreed to mutually acceptable changes to such terms which
allow the Company to obtain regulatory approval of the Acquisition and satisfies
the conditions set forth in clauses (ii) and (iii) of Section 4(b).
8. PRE-FUNDING COVENANTS. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Funding.
(a) GENERAL. The Parties will use their best efforts to take all
action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Section 7).
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(b) NOTICES AND CONSENTS. The Company and its Subsidiaries will give
any notices to third parties, will use their best efforts to obtain any third
party consents, and will give any notices and make any filings, that the
Purchasers may request in connection with the matters referred to in
Section 5.2(f) above. Each of the Parties will give any notices to, make any
filings with, and use its best efforts to obtain any authorizations, consents,
and approvals of governments and governmental agencies in connection with the
transactions contemplated by this Agreement and the Acquisition Agreement.
(c) OPERATION OF BUSINESS. The Company and its Subsidiaries will not
engage in any practice, take any action, or enter into any transaction outside
the Ordinary Course of Business. The Company will enforce, and will not waive
without the consent of the Purchasers, pre-closing covenants of the Target
Company (including the Target Subsidiary) contained in the Acquisition Agreement
other than those matters as to which the Company may not unreasonably withhold
its consent, as to which the Company shall consult in advance with the
Purchasers to the extent practicable. Notwithstanding the immediately preceding
sentence, the Company may grant routine consents to the Target Company
(including the Target Subsidiary) permitting Target Company to take actions and
enter into transactions not outside the Ordinary Course of Business for Target
Company, as contemplated by the Acquisition Agreement, without consultation with
or obtaining the consent of the Purchasers. Without limiting the generality of
the foregoing, the Company shall not, and to the extent provided in the
Acquisition Agreement shall cause the Target Company not to (i) declare, set
aside, or pay any dividend or make any distribution with respect to its capital
stock or redeem, purchase, or otherwise acquire any of its capital stock except,
in the case of Target, as provided in Section 5.9.1 of the Acquisition
Agreement, (ii) pay any bonus outside the Ordinary Course of Business except as
contemplated pursuant to any employment agreement to which The Company, a
Subsidiary, Target Company or Target Subsidiary is a party, or (iii) otherwise
engage in any practice, take any action or enter into any transaction of the
sort described in Section 5.2(m) hereof without the prior written consent of the
Purchasers.
(d) FULL ACCESS.
(1) The Company and its Subsidiaries will permit representatives
of the Purchasers to have full access to all of their premises,
properties, personnel, books, records (including Tax records),
contracts, documents, representatives, officers, employees and
counsel, and will use commercially reasonable efforts to afford
representatives of the Purchasers access to such matters respecting
the Target Company and Target Subsidiary.
(2) The Company and its Subsidiaries will permit Purchasers'
representative to attend all regular and special board of directors
meetings (whether held in person or by telephone conference) of the
Company and its Subsidiaries, excepting only meetings limited to
matters relating to the Parties performance under, and rights or
remedies under, this Agreement.
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(e) NOTICE OF DEVELOPMENTS. Each Party will give prompt written
notice to the others of any adverse development causing a material breach of any
of its representations and warranties. In addition, the Company will (i) give
prompt notice (a "Disclosure Supplement") of any developments regarding the
Company, the Target Company or the Acquisition that reasonably could be expected
to result in a failure of any of the conditions set forth in Section 7.1 or
Section 7.3, which Disclosure Supplement shall specify in reasonable detail the
relevant facts and the provision(s) of this Agreement implicated. No disclosure
by any Party pursuant to this Section, however, shall be deemed to cure any
then-existing misrepresentation, breach of warranty, or breach of covenant;
PROVIDED, HOWEVER, that (x) except as provided in the immediately following
sentence, unless the Purchasers notify the Company that the Purchasers elect to
terminate this Agreement pursuant to Section 7.1 or Section 7.3 on the basis of
the events or conditions disclosed in such Disclosure Supplement within twenty
(20) calendar days after the date of the Purchasers' receipt thereof (the
"Notification Date"), the Purchasers shall thereafter be deemed to have waived
any right of termination (but not indemnification) arising from the failure of a
condition contained in any of Section 7.1 or Section 7.3 attributable solely to
such events or conditions, but (y) for purposes of determining the satisfaction
of the conditions set forth in Section 7.1 or Section 7.3, no such waiver shall
exist (i) with respect to the cumulation of such events or conditions with other
events or conditions requiring disclosure under the same representation or
warranty and described in any subsequent Disclosure Supplement or otherwise
discovered by the Purchasers or (ii) if there is a further material adverse
development in the event or condition so disclosed. Notwithstanding the
foregoing clause (x) if, in the reasonable opinion of the Purchasers, the
information provided in such Disclosure Supplement is insufficient for the
Purchasers to evaluate fully whether the identified event or condition
constitutes or contributes to a failure of the conditions to closing set forth
in Section 7.1 or Section 7.3, then with respect to such event or condition, the
Notification Date may be extended, at the election of the Purchasers, until such
date (not beyond the Funding Date) as the Purchasers have received from the
Company sufficient information to make the evaluation contemplated by this
sentence. In order to so extend the Notification Date, the Purchasers must
provide the Company with written notice of such extension not later than the
initial Notification Date, which notice shall specify each event or condition as
to which the extension is being made and set forth in reasonable detail the
information that the Purchasers require in order to make the evaluation of each
such event or condition as contemplated by the immediately preceding sentence.
(f) DELIVERY OF CERTAIN INFORMATION. The Company, its Subsidiaries,
Target Company and Target Subsidiaries shall deliver, or cause to be delivered,
to the Purchasers all of the items described in Sections 9.1 and 9.2, within the
timeframes and subject to the other limitations and conditions described in
Sections 9.1 and 9.2.
(g) ACQUISITION AGREEMENT. The Company agrees not to amend the
Acquisition Agreement without the consent of the Purchasers, which consent shall
not be unreasonably withheld in the case of amendments that do not materially
alter the Company's obligations to consummate the Acquisition or the economic
benefits of the Acquisition to the Company. For the
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purpose of this Section 8(g), neither any waiver by the Company of an immaterial
covenant contained in the Acquisition Agreement nor any consent granted to
Target Company or Target Subsidiary as contemplated by the Acquisition Agreement
shall be deemed to constitute an amendment to the Acquisition Agreement.
(h) COOPERATION. Subject to the terms and conditions hereof, the
Company, its Subsidiaries and the Purchasers will not knowingly and
intentionally take (or refrain from taking) any action which such Party
reasonably should expect will render any representation or warranty or covenant
contained in this Agreement untrue or incorrect in any material respect (except
to the extent a representation or warranty or covenant is qualified by
materiality, in which case the Parties will so refrain from taking any action
that they reasonably should expect will render such representation or warranty
or covenant untrue or incorrect in any respect) as of Funding.
(i) TARGET REDEMPTION AMOUNT. The Company shall use its best efforts
to cause the Target Redemption Amount to equal or exceed $12.0 million but shall
not cause the Target Redemption Amount to exceed $15.0 million.
(j) CERTAIN FILINGS. Prior to the Funding Time, the Company will
cause the Amended and Restated Charter and the Certificate of Trust of the Trust
to become effective with the Secretary of State of the State of Delaware.
(k) REGULATORY FILINGS. The Company shall promptly furnish to
counsel for the Purchasers copies of all (x) applications or other materials
filed with or submitted to the any regulatory authorities in connection with the
Acquisition and (y) correspondence with the regulators relating to the
Acquisition.
9. COVENANTS. The Parties agree as follows:
9.1 INFORMATION RIGHTS WITH RESPECT TO SERIES B PREFERRED STOCK. So long
as any Person owns Series B Preferred Stock having an aggregate liquidation
preference that, when added to the aggregate liquidation preference of any
Series A Capital Securities owned by such Person, is equal to or greater than
$1.0 million, the Company shall furnish to that Person (unless that Person is a
financial institution that directly competes with the Company or its
Subsidiaries) (i) a management letter (a "Management Letter") quarterly
discussing the operations of the Company and the summary information for each
such period within 45 days after the end of each quarter, (ii) a Management
Letter and yearly financials audited by a "Big Six" accounting firm, within 90
days of year-end, (iii) copies of all publicly available filings made with the
Securities and Exchange Commission and other regulatory bodies (to the extent
permissible), and (iv) any other information that is delivered to the holders of
the Common Stock. If the Company is filing periodic reports with the SEC under
the Exchange Act, the Company may satisfy its obligations under clauses (i) and
(ii) of the immediately preceding sentence by providing such Person with a copy
of the relevant Form 10-Q or Form 10-K (together with its annual report if not
included
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therein in the case of the Form 10-K) within three (3) business days after the
Company files such report with the SEC. Such Person shall keep all information
obtained pursuant to this Section confidential in accordance with the terms of
EXHIBIT J attached hereto.
9.2 INFORMATION RIGHTS WITH RESPECT TO COMMON STOCK ACQUIRED BY
PURCHASERS. So long as a Purchaser owns Common Stock (whether Special Common
Stock or Special Common Stock equivalents) having an aggregate value of $1.0
million or more (valued at original cost), the Company shall furnish to such
Purchaser: (i) monthly financial and operating statements (with comparisons to
budgets and to corresponding periods of the preceding year) within 30 days after
the end of each month; (ii) within 90 days after the end of each fiscal year, an
unqualified certified audit report (except for contingent liabilities and any
other matter outside the control of management of the Company at that time)
consisting of long-form consolidated and consolidating financial statements
prepared by a nationally recognized certified public accounting firm; (iii)
prior to the fiscal year-end, a detailed operating budget (prepared on a monthly
basis) for the subsequent fiscal year; this budget should be prepared on a
long-form, consolidated and consolidating basis; the budgets should also include
detailed balance sheets, profit and loss statements and cash flow statements;
(iv) notice of any event which reasonably could be expected to have a material
effect on the Company's business prospects or financial condition; (v) within 10
days after submission, all call reports, quarterly reports, and any and all
other documents and material correspondence filed with or received from the
Office of the Comptroller of the Currency ("OCC"), the Board of Governors of the
Federal Reserve System, and all other applicable state and federal banking
regulators, subject, however, to banking regulations governing the release of
examination data. So long as the Company is obligated to provide information to
a Purchaser pursuant to the immediately preceding sentence, such Purchaser may
inspect the Company's properties, books and other records (and make copies
thereof and take extracts therefrom) and may interview the Company's directors,
officers, employees and independent accountants regarding the Company's affairs
in a manner and at such times as reasonably requested in accordance with the
applicable banking regulations. The Purchasers shall keep all information
obtained pursuant to this Section confidential in accordance with the terms of
EXHIBIT J attached hereto.
9.3 BOARD OF DIRECTORS OF THE COMPANY.
(a) At such time as, and for so long as, a Purchaser meets the
criteria set forth in Section 9.3(d), each Purchaser shall have the right to
designate one individual (a "Director Designee") to be nominated to serve on the
Company's Board of Directors, and (subject to the immediately following
sentence) the Company shall so nominate such Director Designee and shall use all
reasonable efforts to cause such Director Designee to be elected to the Board of
Directors; PROVIDED, HOWEVER, that no transfer or series of transfers of Common
Stock by a Purchaser shall entitle such Purchaser and/or its direct or indirect
transferees to designate more than one Director Designee, and PROVIDED FURTHER
that Olympus I and Olympus II shall be construed as a single Purchaser for
purposes of this Section 9.3. A condition to the qualification of a Purchaser's
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Director Designee to serve as a director of the Company pursuant to this Section
shall be the Director Designee's agreement to resign if the Purchaser who
designated such person owns less than the number of shares of Common Stock and
Common Stock equivalents required by this Section. Any vacancy in the Board of
Directors caused by the death, disability, resignation or removal of a director
who was a Director Designee shall be filled by another Director Designee
designated by such Purchaser, subject only to such Purchaser's continued
compliance with the criteria set forth in Section 9.3(d). For so long as a
Purchaser is entitled to designate a Director Designee hereunder, the
Corporation shall not form an Executive Committee, or any committee to which the
power of the Board of Directors is delegated between meetings of the Board of
Directors (to the extent permitted by law), unless either the Director Designee
of such Purchaser or the Director Designee of another Purchaser shall be a
member of such committee of the Board of Directors. For so long as (i) a
Purchaser is entitled to designate a Director Designee hereunder and (ii) such
Purchaser beneficially owns an amount of Senior Securities and/or Regular Common
Stock (inclusive of shares purchasable under Series B Warrants), such that the
sum of (x) the original purchase price (under this Agreement) of the Senior
Securities so held divided by $4.81 plus (y) the number of shares of Regular
Common Stock so held (inclusive of shares such Purchaser would receive upon
exercise of any Series B Warrant then held by it), is not less than 1,040,000,
the Company shall not, without the consent of a majority in interest of those
Purchasers entitled to designate a Director Designee (determined in accordance
with the foregoing sum), appoint either an Audit Committee or a Compensation
Committee of the Board of Directors unless either the Director Designee of such
Purchaser or the Director Designee of another Purchaser shall be a member of
such committee of the Board of Directors. The Company will use its best efforts
to maintain directors' and officers' liability insurance covering the Director
Designee of a Purchaser. The Company shall reimburse such Director Designee for
any reasonable out-of-pocket expenses incurred in connection with his or her
position on the Board of Directors.
(b) If Section 9.3(a) is not applicable because the Purchaser owns
less than the minimum number of shares of Common Stock or Common Stock
equivalents required under Section 9.3(d)(iv), the Purchaser shall have the
right to designate one advisory director or observer to the Company's Board of
Directors if the sum of the amounts set forth in clauses (i), (ii) and (iii) of
this sentence is not less than 1,040,000: (i) an amount equal to the product
obtained by multiplying 20.8 by the aggregate number of shares of Series A
Capital Securities and Series B Preferred Stock then owned by the Purchaser,
(ii) an amount equal to the aggregate number of shares of one or more classes of
Common Stock then owned by the Purchaser, and (iii) an amount equal to the
aggregate number of shares of Common Stock that would be received upon the
exercise of any Warrant then owned by the Purchaser. The advisory director or
observer shall have the right to attend all meetings of the Company's Board of
Directors and receive copies of all resolutions enacted by the Company's Board
of Directors or any Executive Committee thereof, and (unless the Director
Designee of a Purchaser already sits on such committee) one of the advisory
directors designated by the Purchasers shall have the right to attend all
meetings of any
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Executive Committee of the Board of Directors (or other committee to which the
power of the Board of Directors is delegated between meetings of the Board of
Directors).
(c) For so long as any Purchaser is entitled to designate a Director
Designee, (i) the Company shall not, without the consent of all Purchasers then
having such right, expand its Board of Directors to consist of more than twelve
(12) directors, and (ii) the Company shall use all reasonable efforts to have at
least two directors who neither were investors (or Affiliates of investors) in
DCG as of November 30, 1996 nor are affiliated at such time with any Purchaser
that is then entitled to designate a Director Designee.
(d) A Purchaser shall be eligible to designate a Director Designee in
accordance with Section 9.3(a) if, at such time as the Purchaser first seeks to
designate a director, the Purchaser provides the Company with reasonable
evidence satisfactory to the Company and its counsel (which evidence may include
discussions with the FRB, if the Purchaser or the Company reasonably deems such
discussions to be necessary to clarify then-existing statutes, regulations or
published policy guidelines) that such Purchaser:
(i) owns less than 10.0% of the Common Stock of the
Company then outstanding and entitled to vote in elections of
directors;
(ii) owns equity securities of the Company
constituting less than 15.0% of the Company's shareholders' equity as
of the most recent month end preceding such date, allocating to any
series of Preferred Securities held by such Purchaser the Liquidation
Value thereof (as defined in the Amended and Restated Charter or Trust
Agreement, as applicable) and allocating to the Common Stock held by
such Purchaser its pro rata share of the Company's equity available
for the holders of Common Stock;
(iii) does not then own or have a potential ability,
under the express terms of Common Stock or other Company securities
that the Purchaser then owns, to acquire Common Stock or other Company
securities that, currently or upon the occurrence of any subsequent
event, are or may become convertible into or exchangeable or
exercisable for Common Stock, which in the aggregate could represent
25.0% or more of the Common Stock outstanding on a pro forma basis;
and
(iv) (x) in the case of MDP or Olympus, owns NOT less
than 520,000 shares of one or more classes of Common Stock, and (y) in
the case of any permitted assignee of MDP or Olympus, owns NOT less
than 1,040,000 shares of one or more classes of Common Stock,
including for purposes of this Section 9.3(d) shares of Common Stock
that would be received upon the exercise of any Warrant then owned by
the Purchaser.
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9.4 CERTAIN COVENANTS RELATING TO SPECIAL COMMON STOCK. The approval of
the holders of Special Common Stock who hold a number of shares of Special
Common Stock equal to at least two-thirds of the fully diluted shares of Special
Common Stock (assuming exercise of any and all warrants and options convertible
into Special Common Stock) will be required to approve the creation or issuance
of capital stock of the Company ranking senior or pari-passu with the Special
Common Stock. Upon a Qualified Offering, this Section 9.4 shall terminate
immediately.
9.5 [RESERVED]
9.6 [RESERVED]
9.7 [RESERVED]
9.8 FURTHER ACTION. In case at any time after the Funding any further
action is necessary or desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party
reasonably may request.
9.9 BANK HOLDING COMPANY. Notwithstanding anything to the contrary
contained in this Agreement, the Company shall not take any action either prior
to or after the Funding that would cause either Purchaser to be deemed to become
a "bank holding company" within the meaning of the BHC Act, or otherwise be
deemed to be in "control" of the Company under any federal or state law
applicable to banks or bank holding companies. In addition, in the event that
the Company or any of its Affiliates takes any action that would cause a
Purchaser to become a bank holding company (or to be in control of any Bank
under federal or state law), the Company shall indemnify the Purchaser from any
Adverse Consequences with respect thereto.
9.10 CHANGES TO BYLAWS. After the Funding, the Company shall not effect
any change to the bylaws of the Company that adversely affects (in any manner)
the rights of the holders of any class of Senior Securities without the consent
of the holders of two-thirds (valued at original purchase price) of each type of
Senior Security so effected.
9.11 EXCHANGE AND OTHER RIGHTS WITH RESPECT TO SERIES A CAPITAL
SECURITIES.
(a) Subject to subsection (g) of this Section 9.11, the holders
of the Series A Capital Securities shall have the right, in their sole
discretion exercised collectively as provided herein, to exchange all (but not
less than all) Series A Capital Securities that are then outstanding and that
remain subject to this Section 9.11 ("Exchangeable Series A Securities") for
shares of Series E Preferred Stock (a "Series E Exchange") upon and at any time
after the second (2nd) Interest Payment Date under (and as defined in) the
Junior Subordinated Debenture, whether or not consecutive, on which the Company
does not pay the interest then due thereon fully in cash (whether or not the
Company properly records a Principal Adjustment on the Junior Subordinated
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Debenture in lieu of cash as of such Interest Payment Date). In the event of
any such Series E Exchange, the Series A Capital Securities so exchanged shall
be exchanged at the rate of one (1) share of Series E Preferred Stock for each
$1,000 of Liquidation Amount of the Series A Capital Securities being so
exchanged; PROVIDED, HOWEVER, that the Company's obligation to so exchange all
or any portion of such Series A Capital Securities is subject in all events to
the Company's ability to conduct such exchange in compliance with applicable law
(including, without limitation, any requirement that the Company obtain the
prior approval of the Federal Reserve or any other governmental authority having
jurisdiction over the Company). Any such Series E Exchange shall be effected
only upon the affirmative vote of a majority in Liquidation Amount of all
Exchangeable Series A Securities then outstanding, conducted in accordance with
the procedures set forth in Section 12.1 of the Trust, excepting that, for
purposes of applying such Section 12.1, the class of securities shall be
construed to consist solely of the Exchangeable Series A Securities. If such a
Series E Exchange is approved by such a vote, such Series E Exchange shall be
effected with respect to all Exchangeable Series A Securities at the time
provided in Section 9.11(h).
(b) Subject to subsection (g) of this Section 9.11, the holders
of the Series A Capital Securities shall have the right, in their sole
discretion exercised collectively as provided herein, to exchange all (but not
less than all) Exchangeable Series A Securities then outstanding for shares of
Series E Preferred Stock (also a "Series E Exchange") upon and at any time after
the earlier of (i) if the Company closes an underwritten public offering, for
cash, of the Common Stock, the later of (x) the date on which such offering is
closed and (y) the third anniversary of the Funding Date, and (ii) the fifth
anniversary of the Funding Date. In the event of any such Series E Exchange,
Series A Capital Securities so exchanged shall be exchanged at the rate of one
(1) share of Series E Preferred Stock for each $1,000 of Liquidation Amount of
the Series A Capital Securities being so exchanged; PROVIDED, HOWEVER, that the
Company's obligation to so exchange all or any portion of the Series A Capital
Securities is subject in all events to the Company's ability to conduct such
exchange in compliance with applicable law (including, without limitation, any
requirement that the Company obtain the prior approval of the Federal Reserve or
any other governmental authority having jurisdiction over the Company). Any
such Series E Exchange shall be effected only upon the affirmative vote of a
majority in Liquidation Amount of all Exchangeable Series A Securities then
outstanding, conducted in accordance with the procedures set forth in Section
12.1 of the Trust, excepting that, for purposes of applying such Section 12.1,
the class of securities shall be construed to consist solely of the Exchangeable
Series A Securities. If such a Series E Exchange is approved by such a vote,
such Series E Exchange shall be effected with respect to all Exchangeable Series
A Securities at the time provided in Section 9.11(h).
(c) Subject to subsection (g) of this Section 9.11, the holders
of the Series A Capital Securities shall have the right, in their sole
discretion exercised collectively as provided herein, to exchange all (but not
less than all) Exchangeable Series A Securities then outstanding for shares of
Class B Common Stock or Class C Common Stock (a "Common Stock Exchange") upon
and at any time after the earlier of (x) the third (3rd) Business Day following
the
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consummation of a Change in Control, or (y) the fifth anniversary of the Funding
Date, as follows:
(i) Any such Common Stock Exchange shall be at a price
(the "Common Stock Exchange Price") of $4.00 per share of Common Stock
(as may be adjusted pursuant to subsection (d) hereof), with each
Exchangeable Series A Security being valued at its then-applicable
Redemption Amount.
(ii) The Common Stock deliverable in any Common Stock
Exchange shall be either shares of Class B Common Stock or shares of
Class C Common Stock, or any combination thereof, at the sole election
of each holder of Exchangeable Series A Securities; PROVIDED, HOWEVER,
that a holder may not elect to receive Class B Common Stock in
exchange for its Series A Capital Securities if and to the extent that
the issuance of the same would result in the holder owning more than
9.9% of the Company's pro forma Voting Securities (as defined herein)
outstanding following such exchange; and PROVIDED, FURTHER, that at
any time that a holder of Exchangeable Series A Securities owns more
than 9.9% of the outstanding Voting Securities, any Common Stock
Exchange by such holder shall be solely for Class C Common Stock.
Notwithstanding the immediately preceding sentence, a Common Stock
Exchange may be for shares of Class B Common Stock that would result
in a holder owning more than 9.9% of the outstanding Voting Securities
if, prior to the effectiveness of the Common Stock Exchange, such
holder has delivered to the Secretary of the Company an opinion or
memorandum of counsel, in form and substance reasonably satisfactory
to the Company, or other reasonably satisfactory evidence that such
holder may beneficially own more than 9.9% of the outstanding Voting
Securities of the Company and will acquire such shares in accordance
with the Bank Holding Company Act of 1956. As used herein, "Voting
Securities" shall mean the pro forma number of shares of capital stock
of the Company entitled to vote in an election of the directors of the
Company as of the time of the Common Stock Exchange, giving effect to
the proposed Common Stock Exchange and all other exchanges of other
securities for or conversions of other securities into Common Stock
then proposed by the applicable holder of Exchangeable Series A
Securities, but not giving effect to the exercise of any other
outstanding common stock equivalents held by such holder, or the
exercise of common stock equivalents or other exchanges or conversions
of securities for or into Common Stock by any other person. The
Company shall implement procedures prior to the effectiveness of such
Common Stock Exchange to enable each holder of Exchangeable Series A
Securities to indicate the class of Common Stock that such holder
elects to receive upon such exchange.
(iii) A Common Stock Exchange shall be effected only upon
the affirmative vote of a majority in Liquidation Amount of all
Exchangeable Series
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A Securities then outstanding, conducted in accordance with the procedures
set forth in Section 12.1 of the Trust, excepting that, for purposes of
applying such Section 12.1, the class of securities shall be construed to
consist solely of the Exchangeable Series A Securities. If a Common Stock
Exchange is approved by such a vote, such Common Stock Exchange shall be
effected with respect to all Exchangeable Series A Securities at the time
provided in Section 9.11(h).
(d) The Common Stock Exchange Price as set forth in subsection (c) of
this Section 9.11 shall be adjusted upon the events, and in the manner, set
forth below:
(i) If the Company is recapitalized through the subdivision
or combination of its outstanding shares of Common Stock into a
larger or smaller number of shares, the Common Stock Exchange Price
shall be decreased or increased, as of the record date for such
recapitalization, in the inverse proportion to the increase or
decrease in the number of outstanding shares of Common Stock.
(ii) If the Company declares a dividend on the Regular Common
Stock, or makes a distribution to holders of Regular Common Stock,
and such dividend or distribution is payable or made in Regular
Common Stock or securities convertible into or exchangeable for
Regular Common Stock, or rights to purchase Regular Common Stock or
securities convertible into or exchangeable for Regular Common
Stock, the Common Stock Exchange Price shall be decreased, as of the
record date for determining which holders of Regular Common Stock
shall be entitled to receive such dividend or distribution, in
inverse proportion to the increase in the number of outstanding
shares (and shares of Regular Common Stock issuable upon conversion
of all such securities convertible into Regular Common Stock) of all
Common Stock as a result of such dividend or distribution.
(iii) If the Company declares a dividend on the Regular Common
Stock payable in cash, the Common Stock Exchange Price shall be
reduced by the per share dividend payment.
(iv) If the Company declares a dividend on Regular Common
Stock (other than a dividend covered by clause (ii) above, or a
dividend payable in cash covered by clause (iii) above) or
distributes to holders of its Regular Common Stock, other than as
part of its dissolution or liquidation or the winding up of its
affairs, any shares of its stock, any evidence of indebtedness or
any cash or other of its assets (other than Regular Common Stock or
securities convertible into or exchangeable for Regular Common
Stock) (an "Alternative Distribution"), the Common Stock Exchange
Price shall be reduced by an amount equal to the value of the
Alternative Distribution per share of Regular Common Stock as
determined in good faith by the Company's Board of Directors based
upon a written opinion
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from a nationally recognized investment banking firm selected by the
holders of a majority in interest of the Series A Capital Securities
then outstanding and subject to the rights granted in this Section
9.11, and taking into account, among other relevant factors, whether
the Purchaser, as holder of Series A Capital Securities, acquired
any Purchase Rights (as defined herein) with respect to such
dividend or distribution pursuant to the terms hereof. The
selection of such investment banking firm shall be consented to by
the Company, which consent shall not be unreasonably withheld, and
such investment banking firm's fees and expenses shall be paid by
the Company. The Company shall provide the Purchaser with written
notice concerning an Alternative Distribution at least ten (10)
business days prior to the record date therefor.
(v) In case the Company shall, at any time or from time to
time following the date hereof, issue or agree to issue by warrants,
convertible securities, stock options or otherwise, any of its
Common Stock or Other Securities (as defined herein), including
treasury shares, (other than any shares issued in contemplation of
the Securities Purchase Agreement), for a consideration per share
less than the Common Stock Exchange Price per share in effect
immediately prior to the time of such issue or sale, then forthwith
upon such issue or sale, or agreement to issue or sell, said Common
Stock Exchange Price shall be reduced to a price (calculated to the
nearest cent) determined by dividing (x) an amount equal to (A) the
product obtained by multiplying the number of shares of the Common
Stock outstanding (or then deemed to be outstanding as herein
provided) immediately prior to such issue by the Common Stock
Exchange Price in effect at such time plus (B) the consideration
received by the Company upon such issue by (y) the number of shares
of the Common Stock outstanding (or then deemed to be outstanding as
herein provided) immediately after such issue. For the purposes of
this clause (v), the number of shares of Common Stock deemed to be
outstanding at any given time shall exclude shares in the treasury
of the Company but shall include all shares issuable or to become
issuable under any agreements, warrants, convertible securities,
stock options, similar rights or otherwise (hereinafter in this
clause (v) referred to as "Options"). The Board of Directors of the
Company shall make a reasonable determination of the fair value of
the amount of consideration other than money received by the Company
upon the issue by it of any of its securities. Such Board shall, in
case any Common Stock or Options for the purchase thereof are issued
with other stock, securities or assets of the Company, determine
what part of the consideration received therefor is applicable to
the issue of the Common Stock or Options for the purchase thereof.
If, as provided herein, the Common Stock Exchange Price is adjusted
as a consequence of the Company's issuance of Options, no further
adjustment of the Common Stock Exchange Price shall be made upon the
subsequent issuance of Common Stock upon the exercise of such
Options. To the extent that Options expire without having been
exercised,
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the Common Stock Exchange Price computed upon their issuance, and
any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed to take into account only the shares of
Common Stock actually issued upon the exercise of such Options. In
any such recomputation, the consideration applicable to the shares
of Common Stock issued shall be the aggregate consideration which
was received by the Company upon the issuance of such Options,
whether or not exercised, plus the additional consideration actually
received by the Company upon the exercise thereof. No recomputation
shall have the effect of increasing the Common Stock Exchange Price
by an amount in excess of the adjustment thereof made in respect of
the issuance of the expired Options. No adjustment shall be made
pursuant to this clause (v) for the issuance by the Company of (x)
any securities issued pursuant to executive compensation
arrangements the terms of which are disclosed in Disclosure Schedule
5.2(m)(18) to the Securities Purchase Agreement, or (y) any
securities that may be issued upon the conversion of the mandatorily
convertible debentures of SDN Bancorp, Inc. disclosed on Disclosure
Schedule 5.2(b) to the Securities Purchase Agreement.
(vi) No adjustment in the Common Stock Exchange Price shall be
required unless such adjustment would require an increase or
decrease in the Common Stock Exchange Price of at least one percent;
provided, however, that any adjustments which by reason of this
clause (vi) are not required to be made immediately shall be carried
forward and taken into account at the time of exchange of the Series
A Capital Securities or any subsequent adjustment in the Common
Stock Exchange Price which, singly or in combination with any
adjustment carried forward, is required to be made under this
Section 9.11(d).
(vii) If the event as a result of which an adjustment is made
under clause (i), (ii), (iii), (iv) or (v) above does not occur,
then any adjustment in the Common Stock Exchange Price that was made
in accordance with such clause (i), (ii), (iii), (iv) or (v) shall
be rescinded effective immediately prior to the record date for such
event.
(e) Subject to subsection (g) of this Section 9.11, the holders
of the Series A Capital Securities shall have the additional rights set forth in
this Section 9.11(e). Capitalized terms used in this Section 9.11(e) and not
defined in this Agreement have the meaning assigned such terms in the Trust.
(i) Subject to the last sentence of this subsection, upon any
and each Interest Payment Date (as defined in the Debenture) on
which the Company elects not to pay the interest payment then due
fully in cash to the holder of the Debenture, the Company shall, in
addition to adding a Principal Adjustment to the principal sum of
the Debenture, issue to each holder of Series A Capital Securities,
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for no additional consideration, shares ("PIE Shares") of Class B
Common Stock or Class C Common Stock (such class to be determined in
accordance with subsection (ii) hereof) equal to, unless adjusted as
provided herein, Seven (7) shares of Common Stock for each $100.00
of the Principal Adjustment required to be added to the Liquidation
Amount of all of such holder's Series A Capital Securities as of
such Interest Payment Date. If the Market Value of the Class B
Common Stock as of the Interest Payment Date with respect to which
the PIE Shares are issued is greater than or less than $4.00 per
share, the number of PIE Shares so issued shall be adjusted by
dividing 7 by a fraction, the numerator of which is the Market Value
of the Class B Common Stock as of the relevant Interest Payment Date
and the denominator of which is $4.00. Notwithstanding anything to
the contrary contained herein, the Company shall not issue PIE
Shares pursuant to this Section 9.11(e) numbering, in the aggregate,
more than of (x) Four Hundred Sixty-Nine Thousand Two Hundred Fifty
(469,250) shares minus (y) the aggregate number of PIE Shares
theretofore issued in respect of Series E Preferred Stock, on or
with respect to any and all Interest Payment Dates on which PIE
Shares would otherwise be due, and if and after Company has issued
such number of PIE Shares the Company shall not thereafter issue PIE
Shares regardless of whether, on or with respect to any subsequent
Interest Payment Date, the Company fails to pay interest on the
Debenture in full in cash.
(ii) The PIE Shares issuable under this Section 9.11(e) shall
be either shares of Class B Common Stock or shares of Class C Common
Stock, or any combination thereof, at the sole election of the
Holder (or, for so long as the Holder is the Trust, at the sole
election of the respective holders of the Series A Capital
Securities then outstanding ("Series A Holders"); PROVIDED, HOWEVER,
that the Holder (or, if applicable, a Series A Holder) may not elect
to receive shares of Class B Common Stock if and to the extent that
the Holder or, if the Holder is the Trust, the applicable Series A
Holder, would not then be permitted to convert Class C Common Stock
into Class B Common Stock pursuant to the restrictions contained in
Article Fourth, Part B, Section 5(a) of the Amended and Restated
Charter.
(f) If at any time the Company grants, issues or sells any options,
convertible securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of Regular Common Stock (the
"Purchase Rights"), then each Purchaser shall be entitled, if and to the extent
it then is beneficial owner of Series A Capital Securities, to acquire, upon the
terms applicable to such Purchase Rights, the aggregate Purchase Rights which
such Purchaser could have acquired if such Purchaser had held the number of
shares of Regular Common Stock acquirable upon complete exchange of its Series A
Capital Securities immediately before the date on which a record is taken for
the grant, issuance or sale of such Purchase Rights, or, if no such
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record is taken, the date as of which the record holders of Regular Common Stock
are to be determined for the grant, issue or sale of such Purchase Rights;
provided that (a) if the Purchase Rights involve Common Stock that constitutes
Voting Securities, the Company shall make available to each Purchaser, at such
Purchaser's request, Purchase Rights for Class C Common Stock, except that, if
and to the extent that the Purchaser would not be permitted to exchange its
Series A Capital Securities for Class B Common Stock pursuant to this Section
9.11, the Company shall grant, issue or sell to the Purchaser only Purchase
Rights relating to Class C Common Stock; and (b) if the Purchase Rights involve
Voting Securities other than Common Stock, the Company shall use its best
efforts to make available to the Purchaser, at such Purchaser's request,
Purchase Rights involving non-voting securities (except where such securities
are entitled to voting rights pursuant to applicable laws) which are otherwise
identical to the Purchase Rights involving voting securities and which
non-voting securities are convertible or exchangeable into such voting
securities on the same terms as the Company's Class C Common Stock is
convertible into the Company's Class B Common Stock.
(g) Upon a Series A Transfer (as defined in Section 18) of any Series
A Capital Security, whether or not the Purchaser thereof thereafter reacquires
such Series A Capital Security, (i) such Series A Capital Security may not
thereafter be exchanged for Series E Preferred Stock in a Series E Exchange or
for Common Stock in a Common Stock Exchange, (ii) no holder of such Series A
Capital Security shall be entitled to vote thereafter with respect to any
proposed Series E Exchange or Common Stock Exchange, and (iii) the holder of
such Series A Capital Security shall not be entitled thereafter to receive
PIE Shares pursuant to Section 9.11(e). Upon the occurrence of a Series A Bulk
Transfer, (i) no outstanding Series A Capital Security may thereafter be
exchanged for Series E Preferred Stock in a Series E Exchange or for Common
Stock in a Common Stock Exchange and no vote in respect of a Series E Exchange
or Common Stock Exchange shall thereafter be taken, and (ii) no holder of any
outstanding Series A Capital Security shall be entitled to receive PIE Shares
pursuant to Section 9.11(e).
(h) Following receipt by the Company of a certificate of the Trustees
of the Trust that the holders of the Exchangeable Series A Securities have voted
to effect a Series E Exchange or Common Stock Exchange in accordance with any of
subsections (a), (b) or (c) of this Section 9.11 (and subject in all events to
the provisos contained in such subsections (a) and (b)), the Company shall
effect the Series E Exchange or Common Stock Exchange (as applicable) not later
than sixty (60) days after the Company's receipt of such certificate. The
Series A Capital Securities so exchanged shall be deemed outstanding through the
date on which such exchange is actually effected and Notional Dividends shall be
computed thereon to (but not including) such date.
(i) In furtherance of the Parties' rights and obligations under the
terms of the Debenture in connection with a Series A Bulk Transfer, each
Purchaser (including its transferees) agrees (x) that it shall give the Company
notice of any proposed transfer of Series A Capital Securities reasonably
adequate for the Company to determine whether such transfer (together with
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prior transfers) shall constitute a Series A Bulk Transfer and, if so required,
to effect the change in the Base Rate of the Debenture upon the effectiveness of
such Series A Bulk Transfer, (y) to interpose no objection to the Company's
restatement of the Debenture immediately prior to the effectiveness of such
Series A Bulk Transfer to remove provisions that will not thereafter be
operative, in accordance with the terms of the Debenture, and (z) to take all
other action reasonable necessary to enable the Company and the Trust to make
such changes as are required upon the effectiveness of a Series A Bulk Transfer,
including by advising the Company of the interest rate that will constitute the
Base Rate under the Debenture from and after the Series A Bulk Transfer.
9.12 COOPERATION IN SERIES A TRANSFER. The Company agrees to use all
commercially reasonable efforts to assist the Purchasers in effecting a Series A
Transfer, including by making available to the Purchasers, their financial and
legal advisors, their placement agent(s) and prospective transferees of the
Series A Capital Securities such information regarding the Company and members
of management of the Company as the Purchasers may reasonably request, subject
to the receipt of customary confidentiality agreements from such persons to the
extent reasonably requested by the Company. Notwithstanding the right of the
Company, as issuer of the Debenture, to require an opinion of counsel in
connection with a transfer of either a Debenture or a Series A Capital Security
as specified in the legend to each such instrument, the Company agrees that it
shall not require such an opinion from any of the initial Purchasers hereunder
in the case of any Series A Transfer to a "qualified institutional buyer", as
that term is defined in Rule 144A promulgated under the Securities Act.
10. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
(a) Notwithstanding any investigation made by any party to this
Agreement, all covenants, agreements, representations and warranties made by the
Company, its Subsidiaries and the Purchasers herein shall survive the execution
of this Agreement, the delivery to the Purchasers of certificates representing
the Senior Securities being purchased and the payment therefor, for the
following periods: (1) all covenants and agreements contained in this Agreement,
and those representations and warranties set forth in subsections 5(a), 5(b),
5(e), 5(f), 5(g), 5(h), 5(n), 5(r) and 5(jj), shall survive indefinitely; (2)
those representations and warranties set forth in subsections 5(v), 5(ff) and
5(hh) shall survive for a period equal to the duration of the statute of
limitations under California or Federal law with respect to the type of matter
addressed in such representation or warranty; and (3) the representations and
warranties set forth in all other subsections of Section 5 shall survive until
the date (the "Primary Expiration Date") that is six (6) months following the
delivery to the Purchasers of the Company's audited financial statements as at
December 31, 1997 and for the period then ended.
(b) The representations set forth in Subsections 6(c), 6(d),
6(e) and 6(f) shall survive until the Primary Expiration Date. All other
representations and warranties in Section 6 shall survive indefinitely.
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11. [RESERVED]
12. INDEMNITY.
(a) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE COMPANY. Each
Purchaser agrees, severally and not jointly, to indemnify and hold harmless the
Company from and in respect of any and all Adverse Consequences that the Company
may suffer through and after the date of the claim for indemnification arising
out of or due to a breach of any representation, warranty or agreement of such
Purchaser contained in this Agreement or in any other document provided by the
Purchasers to the Company in connection with the Purchasers' investment in the
Senior Securities.
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE PURCHASERS.
Subject to the limits set forth in this Section and solely with respect to
matters asserted (even though not resolved) within the period specified in
Section 10, the Company and all of its Subsidiaries (and/or successors thereto)
jointly and severally agree to indemnify, defend and hold each Purchaser
harmless from and in respect of any and all Adverse Consequences that such
Purchaser may suffer through and after the date of the claim for indemnification
arising out of or due to any of the below-listed items. The items for which the
Purchasers shall be entitled to indemnification are:
1. the inaccuracy of any representation contained herein or the
breach of any warranty contained herein in each case made as of the date of
this Agreement by the Company or any of its Subsidiaries, including any
inaccuracy in the Disclosure Statement or omission of a fact from the
Disclosure Schedule that would be necessary to make the Disclosure Schedule
not misleading;
2. the inaccuracy of any representation contained herein or the
breach of any warranty contained herein in each case made as of the Funding
Date by the Company or any of its Subsidiaries, including any inaccuracy in
the Disclosure Statement or omission of a fact from the Updated Disclosure
Schedule that would be necessary to make the Updated Disclosure Schedule
not misleading, if the facts underlying such inaccuracy or breach (had they
been disclosed) would been sufficient, individually or in the aggregate
with the facts underlying all other such breaches, inaccuracies or
omissions, to cause a failure of a closing condition set forth in any of
subsections 7.1(a), (b) or (c);
3. the breach of any covenant, undertaking or agreement of the
Company or its Subsidiaries contained in this Agreement, which breach has
not been cured within fifteen (15) days after the Company's receipt of
written notice thereof from the Purchaser (or, if such breach is not
reasonably capable of cure within fifteen days, within a reasonable time
under the circumstances (not to exceed forty-five (45) days, provided that
the Company is making diligent efforts to effect such cure);
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4. unpaid Taxes of any Person (other than any of the Company, its
Subsidiaries, Target Company and Target Subsidiaries) under Treas. Reg.
Section 1.1502-6 (or any similar provision of state, local, or foreign
law), as a transferee or successor, by contract, or otherwise; and
5. those matters set forth on SCHEDULE 12(b) hereto;
PROVIDED, HOWEVER, that the Company and the Subsidiaries shall have no
obligation to indemnify a Purchaser from, against or in respect of any Adverse
Consequences until such Purchaser has suffered Adverse Consequences by reason of
all breaches and other indemnified matters aggregating in excess of $750,000
(the "Threshold Amount"), but if and at all times after a Purchaser has suffered
Adverse Consequences aggregating in excess of the Threshold Amount, the Company
and the Subsidiaries shall indemnify the Purchaser for the full amount of such
Adverse Consequences, including those Adverse Consequences comprising the
Threshold Amount.
(c) A Party seeking indemnification pursuant to this Section 12
(the "Indemnified Party") shall give notice to the Party from whom such
indemnification is sought (the "Indemnifying Party") specifying in reasonable
detail the basis for and the indemnification sought and the amount of Adverse
Consequences suffered by the Indemnified Party. Not less than twenty (20)
business days after receipt of such demand from the Indemnified Party, the
Indemnifying Party shall notify the Indemnified Party in writing whether it
agrees that indemnification is required pursuant to this Section 12 and whether
it agrees with the Indemnified Party's calculation of its Adverse Consequences.
If following the receipt of such response the Parties continue to disagree, each
Party shall be free to seek any remedy available to it at law or in equity. If
the Parties contest a claim for indemnification in any adjudicatory proceeding,
all Expenses of the prevailing Party or Parties shall be borne by the other
Party or Parties.
(d) If and to the extent that a Purchaser is an owner of Common
Stock (or Common Stock equivalents) or other securities of the Company at the
time it becomes reasonably probable that the Company will be obligated to
indemnify the Purchaser pursuant to this Section 12, then in determining the
amount payable to a Purchaser on account of any Adverse Consequences to the
Purchaser for which indemnification is required to be provided hereunder, there
shall be a gross-up of the indemnification amount to reflect the extent to which
the Company's payment of the indemnification amount will result in a diminution
in the value of the one or more classes or series of securities (including
common stock equivalents and other securities) of the Company that such classes
and common stock equivalents of the Company that a Purchaser owns, giving due
regard to among other relevant factors the Purchaser's percentage ownership of
such Common Stock and all other securities (considered on a fully diluted basis
including all Common Stock equivalents then outstanding).
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(e) A Party's knowledge prior to Funding of any inaccuracy or
breach of any representation, warranty or covenant made or to be performed by
another Party shall not limit the first Party's rights to indemnification under
this Agreement if the Funding occurs.
(f) The items or matters set forth on each section of the
Disclosure Schedule, or excepted by the text of a given representation or
warranty, shall qualify or be excepted from only the representations and
warranties contained in the Section of this Agreement to which such Disclosure
Schedule section specifically applies or in which such exception is written, and
such disclosure or exception of said item or matter shall not constitute a
disclosure or exception for purposes of any other Section of this Agreement
unless specifically referenced in such other Section.
(g) Any indemnity payment shall be treated as an adjustment to
the purchase price hereunder.
13. TERMINATION; TERMINATION FEE.
(a) Either of the parties hereto may terminate this Agreement (i) if the
transactions contemplated hereby are not consummated by August 15, 1997 through
no fault of the terminating party (for purposes hereof, a termination of the
Acquisition Agreement pursuant to Section 7.2, Section 7.3, Section 7.4.2,
Section 7.4.3 or Section 7.4.5 thereof being deemed not to be the fault of the
Company or any of its Subsidiaries), (ii) any federal or state regulator shall
have made a final determination denying an application of either party to the
Acquisition Agreement, the granting of which is essential to the consummation of
the Acquisition or (iii) the Target Company terminates the Acquisition
Agreement. In addition, this Agreement shall terminate upon mutual consent of
the parties hereto. If the Acquisition Agreement is terminated and the Company
receives the Termination Fee (as defined in the Acquisition Agreement), the
Company shall pay to each Purchaser, within five (5) business days after the
receipt of the Termination Fee, the sum of Three Hundred Sixteen Thousand Five
Hundred Twenty Dollars ($316,520), being equal to 1.0% of the Subscription
Price. The Purchasers may terminate this Agreement by giving written notice to
the Company at any time prior to the Funding in the event the Company has
breached any representation, warranty, or covenant contained in this Agreement,
if such breach would prevent the Company from satisfying any of the conditions
set forth in Section 7.1 and if the breach has continued without cure for a
period of fifteen (15) days after the Company's receipt of written notice from
the Purchasers regarding such breach.
(b) EFFECT OF TERMINATION. If any Party terminates this Agreement
pursuant to Section 13(a), all rights and obligations of the Parties hereunder
shall terminate without any Liability of any Party to any other Party (except
for any Liability of any Party then in breach to the other Party for the breach
of representations, warranties, and covenants). Notwithstanding the foregoing,
the obligation of the Company to reimburse the expenses of each Purchaser as set
forth in Section 20 shall not terminate (and the Company shall pay the Expenses
of the Purchaser)
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except in the event this Agreement shall be terminated on account of a breach of
a representation, warranty or covenant by such Purchaser.
14. NOTICES. All notices provided for in this Agreement shall be in
writing, duly signed by the party giving such notice, and shall be delivered in
hand, by nationally-recognized courier service, telecopied (with copy by other
permitted means) or mailed by first class mail, as follows:
(a) if given to the Company (including its Subsidiaries):
Commerce Security Bancorp, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Chief Executive Officer
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
WITH A COPY TO:
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ & Fish, LLP
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esquire
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if given to MDP:
Madison Dearborn Capital Partners II, L.P.
Three First ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
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WITH A COPY TO:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
(c) if given to Olympus:
Olympus Growth Fund II, L.P.
Olympus Executive Fund, L.P.
Metro Center
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
WITH A COPY TO:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Notices so dispatched shall be deemed delivered (i) upon delivery, if delivered
in hand; (ii) upon receipt of electronic confirmation, if sent by telecopier;
(iii) the next Business Day following dispatch, if sent by overnight courier;
and (iv) the third Business Day following dispatch, if sent by first class mail.
Any Party may change its address for purposes of this Section by delivery of a
notice in accordance with this Section.
15. BINDING EFFECT. This Agreement shall be binding upon, and shall
inure solely to the benefit of, each of the Parties hereto, and each of their
respective heirs, executors, administrators, successors and permitted assigns,
and no other person shall acquire or have any right under or by virtue of this
Agreement.
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16. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with the laws of the State of Delaware without regard to the
conflict of law provisions thereof.
17. ENTIRE AGREEMENT. This Agreement represents the entire
understanding of the parties with respect to the matters addressed herein and
supersedes all prior written and oral understandings concerning the subject
matter herein.
18. ASSIGNMENT.
(a) Except as expressly provided in Section 18(b) or Section
18(c) hereof, all of the terms, covenants and undertakings contained in this
Agreement, and the securities purchased hereunder, will be binding upon and
inure to the benefit of a Purchaser's successors and assigns and may be assigned
at a Purchaser's discretion to any financial institution and/or any corporation,
trust or individual. In the event of any assignment, the transferred shares
will contain all applicable legends necessary to comply with federal and state
securities laws or regulations. The Purchaser shall, if requested by the
Company prior to a proposed transfer by the Purchaser, provide to the Company an
opinion of counsel reasonably satisfactory to the Company, to the effect that
(i) the securities may be transferred without such registration and (ii) the
transfer will not violate any applicable state or other jurisdiction's
securities or "blue sky" laws. An opinion delivered pursuant to this Section by
the law firm of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, in form and substance reasonably satisfactory
to the Company, will be acceptable to the Company.
(b) If the holder of the Special Common Stock is a Competitor
(as defined herein) of the Company (x) at any time prior to the third
anniversary of the Funding Date, the holder shall not be entitled to the benefit
of the covenants set forth in Section 9.4 hereof and (y) at all times, such
holder shall not be entitled to the benefit of the covenants set forth in
Section 9.2(i) and (iv) and Section 9.3. The Purchasers shall not be entitled
to transfer Series C Preferred Stock or Series D Preferred Stock to a
Competitor.
(c) Except as provided in the immediately following sentence,
the rights of the Purchasers under Section 9.11 are unique to the several
Purchasers (including their respective Affiliates) and are not assignable to any
other Person other than to an Affiliate of the transferring Purchaser.
Notwithstanding the foregoing, the rights of the Purchasers under Section 9.11
are assignable to any direct transferee of Series A Capital Securities from a
Purchaser other than in a Series A Transfer. A Series A Transfer means a
transfer of beneficial ownership of Series A Capital Securities prior to the
third anniversary of the Funding Date, provided that the transferee does not
acquire from one or more Purchasers beneficial ownership of any other Senior
Securities or Warrants in connection with such transfer.
19. SUCCESSORS. This Agreement shall inure to the benefit of and be
binding upon the Company, the Purchasers and their respective successors and
permitted assigns. Nothing
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expressed herein is intended or shall be construed to give any person other than
the persons referred to in the preceding sentence any legal or equitable right,
remedy or claim under or in respect of this Agreement.
20. EXPENSES. The Company will pay its own expenses and the reasonable
fees and expenses incurred by service providers to the Purchasers, including
counsel, accountants and consultants. The Company shall, promptly upon request
therefor, reimburse the Purchasers for such reasonable fees and expenses of
their service providers (including, without limitation, legal, accounting, and
consulting fees) incurred in connection with the transactions contemplated by
this Agreement and the enforcement of this provision. Legal expenses shall
include expenses incurred in connection with the preparation, negotiation and
closing of this Agreement and legal expenses in connection with any amendment or
waiver of rights pursuant to this Agreement (whether or not effected) or in
connection with the enforcement of any of its rights under this Agreement. In
addition, the Company shall reimburse a portion of the investment banking fees
and expenses (including such investment bankers' legal fees and expenses to the
extent paid by the Purchasers) incurred by the Purchasers in the event that the
Purchasers sell the Series A Capital Securities in a Series A Transfer (the
"Series A Transfer Expenses"), such portion to equal, in the aggregate for all
Purchasers, $350,000, but in no event more than one-half of the Series A
Transfer Expenses. Such reimbursement shall be made promptly following the
Purchasers' delivery to the Company of copies of the invoice(s) for the Series A
Transfer Expenses, together with evidence of their payment of the same.
21. SEVERABILITY OF PROVISIONS. Any covenant, provision, agreement or
term of this Agreement that is prohibited or is held to be void or unenforceable
in any jurisdiction shall as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions thereof.
22. MISCELLANEOUS. Neither this Agreement nor any term hereof may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the holders of at least two-thirds of the affected class of
Senior Securities. The headings in this Agreement are for the purposes of
references only and shall not limit or otherwise affect the meaning hereof.
23. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of the counterparts, each of which counterparts when so executed and
delivered shall be deemed to be an original, but all such respective
counterparts shall together constitute but one and the same instrument.
24. PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement without the prior written approval of the other Parties hereto,
which approval shall not be unreasonably withheld; PROVIDED, HOWEVER, that any
Party may make any public disclosure it believes in good
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faith is required by applicable law or any listing or trading agreement
concerning its publicly-traded securities (in which case the disclosing Party
will use its best efforts to advise the other Parties prior to making the
disclosure).
25. NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns. Any entity to which Purchasers may transfer
any Senior Securities shall have the Purchasers' rights under this Agreement,
except as otherwise provided in this Agreement.
26. CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local,
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
27. SPECIFIC PERFORMANCE. Each of the Parties acknowledges and agrees
that the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter (subject to the provisions set forth in Section 28
below), in addition to any other remedy to which they may be entitled, at law or
in equity.
28. SUBMISSION TO JURISDICTION. Each of the Parties submits to the
jurisdiction of any federal court (or, if federal jurisdiction is unavailable, a
state court) sitting in Los Angeles, California or Chicago, Illinois in any
action or proceeding arising out of or relating to this Agreement and agrees
that all claims in respect of the action or proceeding may be heard and
determined in any such court. Each Party also agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court.
Each of the Parties waives any defense of inconvenient forum to the maintenance
of any action or proceeding so brought and waives any bond, surety, or other
security that might be required of any other Party with respect thereto. Any
Party may make service on any other Party by sending or delivering a copy of the
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process to the Party to be served at the address and in the manner provided for
the giving of notices in Section 14 above. Nothing in this Section 28, however,
shall affect the right of any Party to serve legal process in any other manner
permitted by law or at equity. Each Party agrees that a final judgment in any
action or proceeding so brought shall be conclusive and may be enforced by suit
on the judgment or in any other manner provided by law or at equity.
29. CERTAIN DEFINITIONS.
"ADVANCES" means amounts that, as of the Funding Date, have been
advanced by the Company in connection with servicing the Mortgage Loans
(including, without limitation, principal, interest, taxes and insurance
premiums) and which are required or permitted to be paid by the Company as the
servicer of the Mortgage Loans pursuant to applicable Investor requirements and
the terms of the applicable Mortgage Servicing Agreements.
"ADVERSE CONSEQUENCES" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys' fees and
expenses, and including costs of environmental investigations and/or cleanups
ordered by federal, state, local, or foreign governments (or any agencies
thereof), PROVIDED, HOWEVER, that only if the Funding has not occurred, Adverse
Consequences shall not include any consequential damage incurred by the
Purchasers.
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
"AFFILIATED GROUP" means any affiliated group within the meaning of
Code Sec. 1504 or any similar group defined under a similar provision of state,
local, or foreign law.
"AGENCY" means FHA, VA, GNMA, FNMA, FHLMC or a State Agency, as
applicable.
"ANCILLARY AGREEMENTS" means the Trust Agreement, the Junior
Subordinated Debenture, the Charter, the Series B Warrant, the Terminal
Adjustment Warrant, the Escrow Agreement, the Registration Agreement, the
Shareholder Agreement and the Guarantee.
"ASSOCIATE" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the Securities Exchange Act.
"BANK" means San Dieguito National Bank, Liberty National Bank,
Commerce Security Bank and Eldorado Bank.
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"BASIS" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could reasonably be
expected to form the basis for any specified consequence.
"CHANGE IN CONTROL" shall be deemed to have occurred in the event
that the Company consummates a liquidation or reorganization (other than a
liquidation or reorganization conducted in connection with any insolvency or
bankruptcy proceeding of the Company), or a merger or consolidation of the
Company, or sale or other disposition of all or substantially all of the assets
of the Company (each, a "Business Combination") UNLESS immediately following the
consummation of such Business Combination all of the following conditions are
satisfied: (V) the holders of the Common Stock receive only common stock of the
entity (the "Resulting Entity") resulting from such Business Combination
(including, without limitation, an entity which as a result of such transaction
owns the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) (which common stock of the
Resulting Entity shall, in the case of the Special Common Stock, and except with
the prior approval of the holders of two-thirds of the Special Common Stock then
outstanding, have all of the powers, preferences and rights of the Special
Common Stock); (W) no person (or group acting in concert within the meaning of
Rule 13d-3 promulgated under the Securities Exchange Act (a "Group"))
beneficially owns (within the meaning of Rule 13d-3), directly or indirectly,
twenty percent (20.0%) or more of, respectively, the then outstanding shares of
common stock of the Resulting Entity or the combined voting power of the voting
securities entitled to vote generally in the election of directors ("Outstanding
Voting Securities") of the Resulting Entity, other than any person or group that
beneficially owned, directly or indirectly, twenty percent (20%) or more of the
Common Stock immediately before such Business Combination; (X) no person or
Group beneficially owns, directly or indirectly, forty percent (40%) or more of,
respectively, the then outstanding shares of the Resulting Entity or the
combined voting power of the then-Outstanding Voting Securities of the Resulting
Entity, excluding only a person (or Group comprised of persons) that
beneficially owned, directly or indirectly, one percent (1%) or more of the
Common Stock immediately following the initial issuance of the Company's Special
Common Stock; (Y) not more than one-half of the members of the board of
directors of the Resulting Entity are Affiliates or associates (within the
meaning of Rule 12b-2 of the Securities Exchange Act) of any party to the
Business Combination other than the Company, and not less than one-half of the
members of the board of directors of the Resulting Entity were members of the
Board of Directors of the Company at the time the Company's Board of Directors
authorized the Company to enter into the definitive agreement providing for such
Business Combination; and (Z) ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ has not ceased to be the Chief
Executive Officer of the Resulting Entity as a consequence of such Business
Combination. A Change in Control shall also be deemed to occur if any Person or
Group (other than a person (or Group comprised of persons) that beneficially
owned, directly or indirectly, one percent (1%) or more of the Common Stock
immediately following the Funding Date shall become a beneficial owner of a
majority of Outstanding Voting Securities of the Company.
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"CODE" means the Internal Revenue Code of 1986, as amended.
"COLLATERAL" means the property securing a Mortgage Loan.
"COMMON STOCK" means in such circumstances (i) where the context
indicates that such reference is prior to the Funding, the Regular Common Stock
of the Company, or (ii) where the context indicates that such reference is as of
or subsequent to the Funding, the Special Common Stock, the Class B Common Stock
and the Class C Common Stock, collectively.
"THE COMPANY" has the meaning set forth in the preface to this
Agreement.
"COMPETITOR" means (i) any depository institution holding company
which is not owned by a depository institution holding company or (ii) any
depository institution which is not owned by a depository institution holding
company, in either case the corporate headquarters of which is located in San
Diego County or Orange County, California, or in any county immediately
contiguous to either or both.
"CONFORMING LOAN" means a Mortgage Loan which is or is eligible to
be an FHA Loan or a VA Loan or which is a loan eligible to be sold to FNMA or
FHLMC.
"CONSENT" means any consent, approval, order, authorization, form,
registration, notification, declaration or filing.
"CUSTODIAL ACCOUNTS" means escrow accounts for serviced loans.
"CONTROLLED GROUP OF CORPORATIONS" has the meaning set forth in Code
Sec. 1563.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 5.
"EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or
material fringe benefit plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA
Sec. 3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA
Sec. 3(1).
"ENVIRONMENTAL AND SAFETY REQUIREMENTS" shall mean all federal,
state, local and foreign statutes, regulations, ordinances and similar
provisions having the force or effect of law,
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all judicial and administrative orders and determinations, all contractual
obligations and all common law concerning public health and safety, worker
health and safety, and pollution or protection of the environment, including
without limitation all those relating to the presence, use, production,
generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, threatened
release, control, or cleanup of any hazardous materials, substances or wastes,
chemical substances or mixtures, pesticides, pollutants, contaminants, toxic
chemicals, petroleum products or byproducts, asbestos, polychlorinated
biphenyls, noise or radiation.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"FAIR MARKET VALUE" means an amount per share of Class B Common
Stock equal to the average closing price for the thirty (30) trading days
immediately preceding the date of exercise as reported (i) on the principal
national securities exchange on which the Class B Common Stock is traded or (ii)
if the Class B Common Stock is not traded on a national exchange, on the Nasdaq
National Market System. If the Class B Common Stock is not listed on an
exchange or traded on the Nasdaq National Market System, then Fair Market Value
shall be an amount per share as the Company and holder of the Class B Common
Stock shall mutually agree.
"FHA" means Federal Housing Administration or any successor thereto.
"FHA LOANS" means Mortgage Loans which are insured by FHA.
"FHLMC" means Federal Home Loan Mortgage Corporation or any
successor thereto.
"FINANCIAL STATEMENT" has the meaning set forth in Section 5.(l).
"FNMA" means Federal National Mortgage Association or any successor
thereto.
"GAAP" means United States generally accepted accounting principles
as in effect from time to time applied on a consistent basis.
"GNMA" means Government National Mortgage Association or any
successor thereto.
"HUD" means United States Department of Housing and Urban
Development or any successor thereto.
"INDEBTEDNESS" means, whether recourse as to all or a portion of the
assets of the Company and whether or not contingent: (i) every obligation of
the Company for money
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borrowed; (ii) every obligation of the Company evidenced by bonds, debentures,
notes or other similar instruments, including obligations incurred in connection
with the acquisition of property, assets or businesses; (iii) every
reimbursement obligation of the Company with respect to letters of credit,
bankers' acceptances or similar facilities issued for the account of the
Company; (iv) every obligation of the Company issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business); (v) every
capital lease obligation of the Company; (vi) any indebtedness issued to any
trust, or a trustee of such trust, partnership or other entity affiliated with
the Company that is a financing entity of the Company (a "financing entity") in
connection with the issuance by such financing entity of securities that are
similar to the Series A Capital Securities of the Trust; (vii) every obligation
of the type referred to in clauses (i) through (vi) of another person and all
dividends of another person the payment of which, in either case, the Company
has guaranteed or is responsible or liable, directly or indirectly, as obligor
or otherwise; and (viii) all indebtedness of the Company for claims (as defined
in Section 101(4) of the United States Bankruptcy Code of 1978, as amended) in
respect of derivative products such as interest and foreign exchange rate
contracts, commodity contracts and similar arrangements.
"INDEMNIFIED PARTY" has the meaning set forth in Section 12(c).
"INDEMNIFYING PARTY" has the meaning set forth in Section 12(c).
"INSURANCE PROCEEDS" means insurance or guarantee proceeds paid or
payable with respect to a Mortgage Loan from an Insurer to the Company, the
Purchasers or any of their beneficiaries, successors or assigns, or to any
Investor.
"INSURER" means a Person who insures or guarantees all or any
portion of the risk of loss upon borrower default on any of the Mortgage Loans,
including, without limitation, the FHA, the VA and any private mortgage insurer,
and providers of life, hazard, flood, disability, title or other insurance with
respect to any of the Mortgage Loans or the Collateral.
"INVESTOR" means any Person (including any Agency) who (i) owns
Mortgage Loans or Previously Disposed Loans or servicing rights to Mortgage
Loans or Previously Disposed Loans, serviced or master serviced by the Company
pursuant to a Mortgage Servicing Agreement or (ii) is a party (other than the
Company) to an Investor Commitment.
"INVESTOR COMMITMENT" means the commitment of a Person to purchase a
Mortgage Loan owned by the Company.
"INTELLECTUAL PROPERTY" means (a) all inventions (whether patentable
or unpatentable and whether or not reduced to practice), all improvements
thereto, and all patents, patent applications, and patent disclosures, together
with all reissuances, continuations, continuations-in-part, revisions,
extensions, and reexaminations thereof, (b) all trademarks, service marks, trade
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dress, logos, trade names, and corporate names, together with all translations,
adaptations, derivations, and combinations thereof and including all goodwill
associated therewith, and all applications, registrations, and renewals in
connection therewith, (c) all copyrightable works, all copyrights, and all
applications, registrations, and renewals in connection therewith, (d) all mask
works and all applications, registrations, and renewals in connection therewith,
(e) all trade secrets and confidential business information (including ideas,
research and development, know-how, formulas, compositions, manufacturing and
production processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information, and
business and marketing plans and proposals), (f) all computer software
(including data and related documentation), (g) all other proprietary rights,
and (h) all copies and tangible embodiments thereof (in whatever form or
medium).
"KNOWLEDGE" means the actual knowledge of one or more of ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ or ▇▇▇▇ ▇▇▇▇▇▇, or
any person not named above who constitutes an "Executive Officer" of the Company
for purposes of Regulation O, 123 C.F.R. Section 215, following a commercially
reasonable level of inquiry, which shall include, without limitation, (i)
causing Target Company to reconfirm, as of January 31, 1997 (or later), the
representations and warranties made by it in the Acquisition Agreement
(including, as necessary, through updated disclosure schedules under the
Acquisition Agreement), (ii) reviewing the representations and warranties
hereunder that relate to Target Company or Target Subsidiary with the President
and Chief Financial Officer of Target Subsidiary, and (iii) reviewing the
litigation letters provided by Target Company's and Target Subsidiary's counsel
to Target Company's auditors in connection with the latters' audit of Target
Company's financial statements as at December 31, 1996.
"LIABILITY" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"LICENSES" means certifications, authorizations, licenses, permits
and other approvals necessary for the Company to conduct its current mortgage
banking business.
"LOAN DOCUMENTS" means all files, records and documents necessary to
originate and/or service the Mortgage Loans in accordance with Investor
requirements or Regulations.
"LOSS CONTINGENCY" shall mean an existing condition, situation, or
set of circumstances involving uncertainty as to possible loss to an enterprise
that will ultimately be resolved when one or more future events occur or fail to
occur.
"MARKET VALUE" means (a) if the Class B Common Stock is publicly
traded, an amount per share of Class B Common Stock equal to the average closing
price for the thirty (30) trading days immediately preceding the date of
valuation as reported (i) on the principal national
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securities exchange on which the Class B Common Stock is traded or (ii) if the
Class B Common Stock is not traded on a national exchange, on The Nasdaq
National Market System ("Nasdaq"); or (b) if the Class B Common Stock is not so
quoted on Nasdaq or listed on a national securities exchange, an amount mutually
agreed upon by the Company and the Holder of this Debenture, or, if the Company
and the Holder are unable to agree, by a nationally recognized investment
banking firm selected by the Holder and consented to by the Company, such
consent not to be unreasonably withheld.
"MORTGAGE LOAN" means any closed mortgage loan, whether or not such
mortgage is included in a securitized portfolio (and whether or not such loan is
in (i) bankruptcy, (ii) foreclosure, (iii) forbearance, (iv) related to
sub-servicing agreements, or (v) classified as a real estate owned loan), in the
Mortgage Servicing Portfolio, as evidenced by notes or other evidences of
indebtedness secured by mortgages or deeds of trust.
"MORTGAGE SERVICING AGREEMENTS" means all contracts or arrangements
between the Company and an Investor pursuant to which the Company services
Mortgage Loans for such Investor.
"MORTGAGE SERVICING PORTFOLIO" means the portfolio of Mortgage Loans
serviced by the Company pursuant to Mortgage Servicing Agreements, including all
Warehouse Loans.
"MULTIFAMILY LOAN" means a Mortgage Loan with Collateral in excess
of four dwelling units.
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Sec. 3(37).
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"PARTY" means any and all of the Purchasers, the Company, and its
Subsidiaries.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERMITTED ENCUMBRANCES" means:
(i) Encumbrances for taxes, assessments, charges or other
governmental levies not yet due or as to which the period of grace (not to
exceed 60 days), if any, related thereto has not expired;
(ii) carriers', warehousemen's, landlords', materialmen's,
repairmen's or other like encumbrances arising in the ordinary course of
business which are not overdue;
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(iii) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security legislation,
or to secure the performance of statutory obligations, appeal or similar
bonds, leases and trade contracts (exclusive of obligations for the payment
of borrowed money); and
(iv) Encumbrances in favor of existing warehouse lenders
pursuant to the terms of such warehouse loans.
"PERSON" means an individual, a partnership, a corporation, a firm,
an association, a joint stock the Company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof), or any other legally recognized
entity.
"PIPELINE LOANS" means those pending loans to be secured by a first
priority mortgage lien on a one-to-four family residence with respect to which,
as of the Funding Date, the Company has taken an application or has agreed in
writing with an originator to purchase, including those loans which are pending
with a correspondent originator as of the Funding Date and which meet the
Company's acquisition criteria for such loans, and which have not yet closed or
been purchased from the correspondent originator on the Funding Date.
"POOL" means an aggregate of one or more Mortgage Loans that have
been pledged or granted to secure mortgage-backed securities or participation
certificates.
"PREVIOUSLY DISPOSED LOAN" means any closed mortgage loan and/or the
Servicing Rights related thereto which is not a Warehouse Loan, a Pipeline Loan
or in the Mortgage Servicing Portfolio, but which formerly was a Warehouse Loan,
a Pipeline Loan or in the Mortgage Servicing Portfolio.
"PROHIBITED TRANSACTION" has the meaning set forth in ERISA Sec. 406
and Code Sec. 4975.
"QUALIFIED OFFERING" means the closing of a firm-commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
Class B Common Stock to the public at an aggregate offering price of not less
than (i) $25 million, if the offered shares consist solely of primary shares, or
(ii) $30 million, of which $20 million consist of primary shares, if the offered
shares include shares offered by Persons other than the Company, and in either
case an offering price per share of at least 200% of the Initial Purchase Price
(as defined herein) (as adjusted for any stock split, stock dividend or other
similar distribution on the Common Stock). For purposes of this subsection (b),
the "Initial Purchase Price" shall mean $4.81 per share.
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"REGULATIONS" means (i) Federal, state and local laws, rules and
regulations with respect to the origination, insuring, purchase, sale, servicing
or filing of claims in connection with a Mortgage Loan, Pipeline Loan or
Previously disposed Loan, (ii) the responsibilities and obligations set forth in
any agreement between the Company and an Investor or Insurer (including without
limitation Mortgage Servicing Agreements, Investor Commitments and selling and
servicing guides), and (iii) the laws, rules, Regulations, guidelines, handbooks
and other published requirements of an Investor, Agency, Insurer, public housing
program or Investor program, with respect to the origination, insuring,
purchase, sale, servicing or filing of claims in connection with a Mortgage
Loan, Pipeline Loan or Previously Disposed Loan.
"REPORTABLE EVENT" has the meaning set forth in ERISA Sec. 4043.
"REPURCHASE" means the purchase of a Mortgage Loan out of a Pool or
an Investor's portfolio by the Company at the direction of the Investor based
upon a breach by the Company of a representation, warranty or undertaking
contained in the related agreement with such Investor.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
"SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance,
charge, claim, easement, restriction, or other security interest, OTHER THAN
Permitted Encumbrances.
"SEPTEMBER 30, 1996 BALANCE SHEET" means the balance sheet contained
within the Most Recent Financial Statements.
"SERIES A BULK TRANSFER" means one or more transfers of beneficial
ownership of Series A Capital Securities to persons other than the initial
Purchasers hereunder or DCG (or their respective Affiliates) which transferees
do not also acquire beneficial ownership of any other Senior Securities or
Warrants in connection with such transfer, collectively resulting in a transfer
of more than one-half of the Series A Preferred Securities then outstanding to
transferees as described above on or before June 6, 2000; PROVIDED, HOWEVER,
that a Series A Bulk Transfer may occur no more than once during the term of the
Junior Subordinated Debentures, regardless of whether subsequent transfers of
Series A Capital Securities would otherwise (but for this proviso) also qualify
as a Series A Bulk Transfer.
"SERVICING RELEASED LOANS" means Mortgage Loans sold by the Company
with servicing released.
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"SERVICING RIGHTS" means the right to receive the servicing fees and
any other income the servicer is entitled to receive arising from or connected
to any Mortgage Loans and the related obligations to (i) administer and collect
payments for the reduction of principal and interest, (ii) pay taxes and
insurance premiums, (iii) remit all amounts in accordance with any Mortgage
Servicing Agreements, (iv) provide foreclosure services and full escrow
administration and (v) perform such other obligations as may, from time to time,
be imposed under any Mortgage Servicing Agreement.
"SINGLE FAMILY LOAN" means a Mortgage Loan secured by Collateral of
one to four dwelling units.
"SPECIAL ASSETS" shall mean: (1) any loans classified as
"substandard," "doubtful," or "loss" by the OCC, the California Banking
Department, the Bank's management, or pursuant to any periodic independent loan
review conducted by the applicable Bank; (2) any loans, not covered by clause
(1) above, of which principal or interest payments are past due by ninety (90)
days or more; (3) any loans, not covered by clauses (1) and (2) above, placed on
a non-accrual basis by a Bank's management; and (4) assets categorized as other
real estate owned.
"STATE AGENCY" means any state agency with authority to regulate the
business of the Company, determine the investment or servicing requirements with
regard to loans originated, purchased or serviced by the Company, or otherwise
participate in or promote mortgage lending.
"SUBSIDIARY" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"TARGET REDEMPTION AMOUNT" means the amount, if any, of cash that
the Target Company provides to the Exchange Agent (as defined in the Acquisition
Agreement) to fund a portion of the aggregate amount to be distributed to the
holders of the Target Company Common Stock in connection with the Acquisition.
"TAX" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Sec. 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"TAX RETURN" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
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"VA" means Department of Veteran's Affairs or any successors
thereto.
"VA LOANS" means Mortgage Loans guaranteed by VA.
"WAREHOUSE LOANS" means Mortgage Loans owned by the Company and held
for sale.
[remainder of page intentionally blank]
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IN WITNESS WHEREOF, and intending to be legally bound thereby, each of
Parties hereto has signed or caused to be signed its name under seal as of the
day and year first above written.
COMMERCE SECURITY BANCORP, INC.
By: /S/
---------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President and Chief Executive Officer
SDN BANCORP, INC.
By: /S/
---------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President and Chief Executive Officer
LIBERTY NATIONAL BANK
By: /S/
---------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chairman and Chief Executive Officer
COMMERCE SECURITY BANK
By: /S/
---------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President and Chief Executive Officer
SAN DIEGUITO NATIONAL BANK
By: /S/
---------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President and Chief Executive Officer
(SIGNATURE PAGE CON'T):
MADISON DEARBORN CAPITAL PARTNERS II, L.P.
By: Madison Dearborn Partners II, L.P., its General Partner
By: Madison Dearborn Partners, Inc., its General Partner
By: /S/
---------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇
Title: Vice President
OLYMPUS GROWTH FUND II, L.P.
By: OGP II, L.P., its general partner
By: ▇▇▇▇▇▇, L.L.C., its general partner
By: /S/
---------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Member
OLYMPUS EXECUTIVE FUND, L.P.
By: OEF, L.P., its general partner
By: ▇▇▇▇▇▇, L.L.C., its general partner
By: /S/
---------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Member
SCHEDULE 5.2(F)
TO
SECURITIES PURCHASE AGREEMENT
REQUIRED REGULATORY APPROVALS
FEDERAL. The Acquisition requires prior approval under Sections 3(a)(3)
and 3(a)(5) of the Bank Holding Company Act of 1956, as amended (the "Act"), and
Section 225.11 of Regulation Y (12 C.F.R. Section 225.11).
STATE. The indirect acquisition of Eldorado Bank requires the prior
approval of the Superintendent of Banks of the State of California (the
"Superintendent") under Section 700 ET SEQ. of the California Financial Code.
In addition, the Company must submit an application, nominally on behalf of
Eldorado Bank, to the Superintendent under Section 640 ET SEQ. of the California
Financial Code for approval for Eldorado Bank to pay a special dividend to
Eldorado of up to $14.0 million that will be used to fund some or all of the
Target Redemption Amount.
SCHEDULE 5.2(n)
TO
SECURITIES PURCHASE AGREEMENT
1. The Compensation Committee of the Board of Directors of Commerce
Security Bancorp, Inc. on February 4, 1997 approved a stock option plan (the
"Option Plan"), a summary of which is provided under DISCLOSURE SCHEDULE
5.2(m)(18) to the Securities Purchase Agreement. Under the Option Plan, the
number of shares of common stock (Class B Common Stock as of the filing of the
Charter) that is available under the Option Plan will increase pursuant to the
formula set forth in the Option Plan if the Company issues additional shares of
Common Stock or Common Stock equivalents after the effective date of the Option
Plan.
Specifically, the number of shares subject to the Option Plan ("Option
Shares") will be equal to 6.0% of the shares of Company Common Stock outstanding
on a fully diluted basis (i.e., after giving effect to the issuance of such
option shares and any other common stock equivalents) until such time as the
Company has Tier 1 capital of at least $125 million. Accordingly, if the
Company issues additional shares of common stock or common stock equivalents
(other than shares issued upon the exercise of the options), the number of
Option Shares available under the Option Plan will increase automatically in
proportion to the increase in the shares outstanding until the Company's Tier 1
capital is equal to the $125 million threshold.
Accordingly, for example, if the Target Redemption Amount is $12 million
and the Company has 9,697,430 shares of common stock outstanding immediately
prior to the consummation of the Private Placement, immediately after the
consummation of the Private Placement there will be 1,491,364 Option Shares
available for issuance pursuant to the Option Plan.
2. Pursuant to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇'▇ Employment Agreement with the Company,
the Company has agreed to issue to ▇▇. ▇▇▇▇▇▇ one or more options which in the
aggregate would entitle ▇▇. ▇▇▇▇▇▇ to purchase one-half of the Option Shares
subject to the Option Plan. Accordingly, for example, if there are 1,491,364
Option Shares immediately after the Funding, ▇▇. ▇▇▇▇▇▇ will be entitled to
acquire pursuant to the Option Plan 745,682 shares of Class B Common Stock, and
745,682 shares will be available for grant to other members of management based
upon the number of shares of Class B Common Stock then outstanding.
3. ▇▇. ▇▇▇▇▇▇'▇ Employment Agreement with the Company provides for the
issuance to him of Common Stock (the ownership of which is subject to
restrictions contained in such agreement) (the "Restricted Stock") upon the
issuance by the Company of additional Common Stock and Common Stock equivalents,
and provides for limited registration rights with respect to such stock.
▇▇. ▇▇▇▇▇▇ will not be entitled to receive any Restricted Stock as a consequence
of the sale of Common Stock or a Common Stock equivalent to Dartmouth Capital
Group, L.P. or director qualifying shares to any director of a subsidiary of the
Company or the award of employee stock options or the issuance of Common Stock
upon the exercise thereof.
Specifically, ▇▇. ▇▇▇▇▇▇'▇ Employment Agreement obligates the Company to
issue shares of Restricted Stock to ▇▇. ▇▇▇▇▇▇ whenever, during the term of the
Employment Agreement, the Company issues Common Stock or a Common Stock
equivalent, including shares of Common Stock issued in connection with the
Private Placement. The number of shares of Restricted Stock that will be issued
to ▇▇. ▇▇▇▇▇▇ will be equal to 3.0% of the sum of (x) the number of shares of
Common Stock then issued by the Company or, in the case of the issuance of a
common stock equivalent, the number of shares of Common Stock which such Common
Stock equivalent may be converted into or exchanged for, and (y) the number of
shares of Restricted Stock to be issued to ▇▇. ▇▇▇▇▇▇ at that time.
Accordingly, for example, if the Target Redemption Amount is $12 million and the
Company has 9,697,430 shares of Common Stock outstanding immediately prior to
the consummation of the Private Placement, as a consequence of the consummation
of the Private Placement ▇▇. ▇▇▇▇▇▇ shall be entitled to receive 380,700 shares
of Restricted Stock.
4. The Company engaged the investment banking services of The Shattan
Group LLC ("Shattan") to assist the Company in placing the Senior Securities.
If the Target Redemption Amount is $12 million, Shattan will receive a fee of
approximately $2,530,000 and a warrant to purchase approximately 530,000 shares
of Class B Common Stock at an exercise price of $4.81. In addition, if the
Funding occurs and thereafter the Company privately places its securities to any
investor referred to on the Investor Contact List (as defined in the Shattan
engagement agreement), Shattan has taken the position that the Company shall be
obligated to pay Shattan a cash transaction fee equal to equal 2% of that
portion of the Aggregate Consideration (as defined in the Shattan agreement)
paid for the securities purchased in that transaction by persons listed on the
Investor Contact List and a warrant to purchase a number of shares of Class B
Common Stock equal to 2% of the aggregate number of fully diluted and/or
converted shares of Common Stock as are purchased in that transaction by persons
listed on the Investor Contact List.
5. There are outstanding approximately $540,000 in principal amount of
Mandatory Convertible Debentures issued by SDN Bancorp, Inc. (a Subsidiary of
the Company), due May 1998, which are convertible into common stock of SDN. The
Company can redeem the Debentures at any time prior to the maturity date,
subject to certain notice provisions.
SCHEDULE 5.2 (hhh)
Persons Beneficially Owning, Directly or Indirectly,
1.0% or more of CSBI Common Stock
(PRO FORMA at Funding)
NAME
----
Dartmouth Capital Group, L.P.
DCG INVESTORS(1)
----------------
▇▇▇▇▇▇ ▇▇▇▇
Farm Bureau Life Ins. Co.
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ & sons, l.p.
▇▇▇▇▇▇ ▇▇▇▇▇▇
Northwood Ventures
▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇
MFA Masters Ltd. Partnership
OTHERS
------
▇▇▇▇▇ ▇▇▇▇▇▇▇
▇.▇. ▇▇▇▇▇
PURCHASERS
----------
MDP
Olympus
-------------------------------------------------------
(1)Ownership includes shares held indirectly through Dartmouth
Capital Group, L.P. and Dartmouth Capital Group, Inc.
SCHEDULE 12(b)
TO
SECURITIES PURCHASE AGREEMENT
DATED AS OF FEBRUARY 13, 1997
ADDITIONAL ITEMS SUBJECT TO INDEMNIFICATION
(i) MORTGAGE LOAN REPURCHASE REQUESTS.
Adverse Consequence incurred as to Mortgage Loans originated or serviced
by (or in the pipeline of) the Company, its Subsidiaries, Target Company
or Target Subsidiary as of prior to or as of the date hereof (a
"Pre-Existing Loan") in connection with repurchase claims or requests or
indemnification requests relating thereto, solely to the extent that such
repurchase claims or requests or indemnification requests exceed, over a
one-year period, 150% of historical claims (such historical claims being
determined as the per-year average for the collective mortgage banking
business of the Company, its Subsidiaries, Target Company and Target
Subsidiary, during the period January 1, 1995 through December 31, 1996).
If Purchasers or the Company (or one of their respective Subsidiaries or
Affiliates) receives a repurchase claim or request for indemnification
relating to a Pre-Existing Loan, then the amount of any Adverse
Consequences (and the resulting amount of the Company's indemnification
of the Purchaser (provided the aggregate of this and all other Adverse
Consequences have exceeded the Threshold Amount) arising therefrom, or
from a breach of the representations contained in Section 5.2 (qq)
through (eee), shall be determined at the time when the Company (or one
of its Subsidiaries or Affiliates) prepares a loss estimate following and
in connection with its receipt of such repurchase request or
indemnification request, which loss estimate shall be prepared promptly.
(ii) FDIC EXAMINATION OF LOAN TRANSFERS SUBJECT TO RECOURSE
Adverse Consequences arising from the effect on the Company's and its
Subsidiaries' capital, and from the resulting effect on the Company's and
its Subsidiaries' operations, activities, business and prospects, arising
from Commerce Security Bank's failure to properly reflect in its
financial statements and regulatory reports (x) certain off-balance sheet
liabilities, (y) certain delays in the recognition of premium income, in
each case arising from the sale of Pre-Existing Mortgage Loans with
recourse, and (z) any other action taken or required by the FDIC in
connection with the foregoing. This indemnification shall include
Adverse Consequences arising from, without limitation, any action that
may be required to increase the Company's or its Subsidiaries' regulatory
capital ratios on account of the foregoing off-balance sheet liabilities
or delays in income recognition and expenses incurred by the Company in
connection with a transfer of all or part of such off-balance sheet
liability to a third-party. Expressly excluded from this paragraph (ii)
are any Adverse Consequences resulting from payments in satisfaction of
the aforesaid off-balance sheet liabilities themselves; PROVIDED,
HOWEVER, that such actions or payments (A) shall not be excluded for
purposes of paragraph (i) above, and (B) the foregoing exclusion shall
not operate to exclude
any such action or payment from indemnification if the same results in a
breach of any other representation or warranty contained in this
Agreement.
(iii) TILA AND FAIR LENDING ISSUES RELATING TO TARGET SUBSIDIARY
Adverse Consequences arising from any violation by Target Subsidiary of
(x) the Truth-in-Lending Act or Regulation Z of the FRB, or (y) the Fair
Lending Act or regulations implementing the same, in each case with
respect to Mortgage Loans originated or serviced by (or in the pipeline
of) the Target Subsidiary as of prior to or as of the date hereof.
The indemnification provided pursuant to Section 12(b)(5) with respect to the
matters set forth on this Schedule 12(b) shall not be diminished or otherwise
affected in any manner by the disclosure of any such matter on the Disclosure
Schedule.
EXHIBIT J
CONFIDENTIALITY STATEMENT
Each Person or Purchaser (each a "Recipient") agrees for itself and each of
its respective directors, officers, employees, agents, representatives and
advisors (collectively, "Representatives"), that it shall (i) hold in confidence
all Confidential Information received by it subject to the terms of this
Agreement, (ii) disclose such Confidential Information only to those of its
Representatives having a need to know the same, and (iii) inform each
Representative to whom Confidential Information is disclosed that such
information is confidential and direct such Representative not to disclose the
same. Each Recipient shall remain responsible for any disclosure of
Confidential Information by any of its Representatives. Each Recipient further
agrees that if such party ceases to be an investor in the Company, upon the
request of the Company after a reasonable period of time following the delivery
of such Confidential Information, the Recipient and each of its Representatives
either shall return to the Company all Confidential Information received by it
and its Representatives (including all compilations, analyses or other documents
prepared by it that contain Confidential Information) or shall certify that the
same has been destroyed (except for such Confidential Information that Recipient
reasonably deems necessary to retain for internal record keeping purposes, or
for preparing reports and filings such as tax returns). As used herein,
Confidential Information shall not include (i) information that is or becomes
generally available to the public other than as a result of a breach of this
EXHIBIT J, (ii) information that the receiving party demonstrates was known to
it on a non-confidential basis prior to receiving such information from the
other party hereto, (iii) information that the receiving party develops
independently without relying on Confidential Information, and (iv) information
that becomes available to the receiving party on a non-confidential basis from
another source if the source was not known to or not reasonably believed by the
receiving party to be subject to any prohibition against disclosing such
information. The restrictions set forth in this EXHIBIT J shall not preclude a
Recipient or its Representatives from any disclosure of Confidential Information
required by law, court process, administrative order or other legal or regulator
process reasonably believed by the Recipient or its Representatives to compel
such disclosure; PROVIDED, HOWEVER, that the Recipient or its Representatives
agree to (x) promptly notify the Company of the existence, terms and
circumstances surrounding such a request, so the Company may seek an appropriate
protective order and/or waive the Recipient's or its Representative's compliance
with the provisions of this Agreement (and, if the Company seeks such an order,
to provide such cooperation as the Company shall reasonably request), and (y) if
disclosure of such information is required in the reasonable determination of
the Recipient based upon the advice of counsel, make commercially reasonable
efforts, the costs of which shall be borne in full by the Company in advance, to
obtain an order or other reliable assurance that confidential treatment will be
accorded to such of the Confidential Information which the Company designates.
