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▇▇▇▇▇▇▇-▇▇▇▇▇▇ INC.
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LOAN AND WARRANT AGREEMENT
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June 3, 1998
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LOAN AND WARRANT AGREEMENT
This agreement is entered into this 3rd day of June, 1998, by and
between ▇▇▇▇▇▇▇-▇▇▇▇▇▇, Inc., a Delaware corporation (the "Company"), and FBR
Asset Investment Corporation, a Virginia corporation (the "Investor"), and the
parties hereto agree to the following:
1. Capitalization and Warrant.
The Company proposes to issue and sell (i) a promissory note bearing
interest at 12% per annum and in the aggregate principal amount of up to
$10,000,000 (the "Promissory Note"), and (ii) a warrant (the "Warrant") to
purchase shares of common stock of the Company, par value $0.01 per share (the
"Common Stock").
2. Promissory Note, Warrant and Stock Purchase Right.
Subject to the terms and conditions of this agreement (the "Agreement")
and in reliance upon the representations and warranties contained herein, the
Company agrees to issue and sell to the Investor and the Investor agrees to
purchase on the date hereof the Promissory Note and for the Warrant.
2.1. Promissory Note. The Promissory Note shall bear interest at the
rate of 12% per annum payable monthly on the last day of each month beginning in
July 1998 on the daily outstanding principal of the Promissory Note. Interest
shall be calculated on the basis of actual days and a year of 365 days. The
Investor will advance same-day funds to the Company in an aggregate amount up to
$10,000,000 from time to time on the fourth business day following receipt by
the Investor of a written request for an advance. Advances will be made in
increments of $100,000. All outstanding principal and interest accrued and
unpaid shall be due and payable at the close of business on the first to occur
of (i) consummation after the date hereof of an underwritten public offering of
shares of Common Stock ("a Public Offering") and (ii) December 3, 1998. The
Promissory Note may be prepaid in whole at any time by the Company without
penalty and shall be in the form attached hereto as Exhibit A. If any date set
for payment is not a business day, payment shall be made on and interest shall
accrue until the next business day.
2.2. The Warrant. If the Promissory Note is issued as contemplated
hereby and the Investor has made all required advances under the Promissory
Note, on the business day following the earlier of (i) date the Promissory Note
is due or (ii) the consummation of a Public Offering of the Company's Common
Stock, the Company will, subject to applicable laws and regulations, execute and
deliver to the Investor a warrant to purchase shares of Common Stock in the form
attached hereto as Exhibit B. The number of shares of Common Stock covered by
the Warrant shall be the following percentages of the Common Stock outstanding
on a fully diluted basis on the date the Warrant is issued (without giving
effect to the issuance of the Warrant):
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If the Warrant Issue Date Occurs Percentage of Shares Outstanding
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On or before September 3, 1998 0.50%
After September 3, 1998 and before 1.00%
December 4, 1998
After December 4, 1998 2.00%
The per share purchase price to be paid on the exercise of the Warrants shall be
determined as follows: (a) if the Company consummates a Public Offering on or
before December 3, 1998, the per share purchase price shall be the offering
price per share of Common Stock in the Public Offering; and (b) if a Public
Offering does not occur before December 4, 1998, the per share purchase price
shall be the average of the closing prices for a share of Common Stock on NASDAQ
for the twenty business days preceding December 4, 1998.
The Warrants issued shall expire on the fifth anniversary of the date
the Warrants are issued.
2.3. Stock Purchase Right. Subject to all applicable laws and
regulations, if the Company consummates a Public Offering on or before December
3, 1998, the Investor shall have the option to purchase at the time of the
closing of the Public Offering registered shares of Common Stock at a per share
price equal to the per share public offering price, less the underwriting
discount. The number of shares of Common Stock as to which the Investor may
exercise this option is up to the number of Shares that could be acquired for
$10,000,000.
3. Closing.
3.1. Closing Date. The sale and purchase of the Promissory Note to be
issued and sold pursuant to this agreement (the "Closing") shall take place on
the date hereof or such other date as the parties shall mutually agree (the
"Closing Date").
3.2. Transactions at Closings. At the Closing, the Company will deliver
to the Investor the Promissory Note in the form attached hereto as Exhibit A,
duly registered in such name as the Investor shall have specified in writing to
the Company before the Closing Date, against the payment of the initial advance,
by wire transfer to the Company in accordance with instructions provided by the
Company.
If the Closing shall not have occurred prior to June 15, 1998, because
any of the conditions specified in Section 5 shall not have been fulfilled to
the Investor's reasonable satisfaction or for any other reason, the Investor
shall, at its election, be relieved of all obligations under this Agreement.
4. Representations and Warranties of the Company. The Company
represents and warrants that:
4.1. Organization, Standing, Capitalization, etc. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all
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requisite corporate power and authority to own and operate the properties and to
carry on the business described in the Company's Report on Form 10-K for the
year ended December 31, 1997 ("Form 10-K), and to enter into this Agreement.
Attached hereto as Schedule 4.1A is a complete and correct copy of the Articles
of Incorporation of the Company, and all amendments thereto, substantially as
the Articles of Incorporation, as amended, will be in effect at the Closing
Date, and attached hereto as Schedule 4.1B is a complete and correct copy of the
Bylaws of the Company as they will be in effect at the Closing Date. The Company
has authorized capital stock as set forth on Schedule 4.1C. All of the
outstanding shares of capital stock of the Company (as listed in Schedule 4.1C)
have been duly authorized and validly issued and are fully paid and
nonassessable.
4.2. Qualification. The Company and each of its subsidiaries is duly
qualified and in good standing as a foreign corporation authorized to transact
business in each jurisdiction where the conduct of its business or the ownership
of its properties requires such qualification, or, if not so qualified, the
failure so to qualify will not have a material adverse effect on the its
financial condition or results of operations of the Company and its subsidiaries
taken as a whole (a "Material Adverse Effect") and will not impair the right of
the Company or the applicable subsidiary to enforce any material agreement to
which it is a party.
4.3. Financial Statements; Use of Proceeds. The Company has furnished
to the Investor the following financial statements:
(a) balance sheets of the Company and its consolidated
subsidiaries as of December 31, 1997 and 1996, and statements of income
and statements of income and cash flows of the Company and its
consolidated subsidiaries for the years ended December 31, 1997 and
1996, with all appropriate footnotes, audited by the Company's
certified public accountants; and
(b) balance sheets of the Company and its consolidated
subsidiaries as of March 31, 1998 and 1997, and statements of income
and statements of income and cash flows of the Company and its
consolidated subsidiaries for the three-month periods ended March 31,
1998 and 1998, with all appropriate footnotes, certified by the
President and the chief financial officer of the Company.
Such balance sheets of the Company fairly present the condition of the Company
and its consolidated subsidiaries as at the respective dates indicated, and in
each case reflect all liabilities, contingent or other, as at the respective
dates indicated. All such financial statements have been prepared in accordance
with generally accepted accounting principles consistently applied.
Attached hereto as Schedule 4.3 is a detailed statement of the
purposes, including dollar amounts, to which the Company proposes to apply the
proceeds of the sale of the Promissory Note to be issued and sold at the
Closing.
Neither the Company nor any subsidiary of the Company has any
indebtedness for borrowed money except (i) indebtedness in an aggregate amount
not in excess of $500,000 as to which there is no recourse to the Company, (ii)
non-recourse indebtedness incurred in connection with the acquisition of assets
in the ordinary course of business, (iii) indebtedness in the amount of
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$11.9 million under the loan agreement dated as of March 12,1996, as amended,
between the Company and East-West Bank, a California banking corporation and
(iv) a credit line loan to a subsidiary and guaranteed by the Company in the
outstanding amount of $7,400,000 from Hawthorne Savings Bank.
4.4. Changes, etc. Except as listed in Schedule 4.4, since December 31,
1997, there has been no material adverse change in the business or financial
condition of the Company and its consolidated subsidiaries.
4.5. Authorization; No Conflicts. All corporate action on the part of
the Company, its directors and stockholders necessary for the authorization,
execution, delivery and performance by the Company of this Agreement and the
consummation of the transactions contemplated herein and therein, and for the
authorization, offer, issuance, sale and delivery of the Promissory Note has
been taken. This Agreement is the valid and binding obligation of the Company,
enforceable in accordance with its terms, subject to applicable bankruptcy and
other laws affecting the rights of creditors generally, and rules of law
governing specific performance, injunctive relief or other equitable remedies.
The execution, delivery and performance by the Company of this Agreement and
compliance herewith, and the offer, issuance, sale and delivery of the
Promissory Note will not result in any violation of and will not conflict with,
or result in a breach of any of the terms of, or constitute a default under, any
provision of federal or state law to which the Company or any of its
subsidiaries is subject, the Company's Articles of Incorporation, the Company's
Bylaws or any mortgage, indenture, agreement, instrument, judgment, decree,
order, rule or regulation or other restriction to which the Company or any of
its subsidiaries is a party or by which it is bound or result in the creation of
any mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company or any of its subsidiaries pursuant to any such term.
4.6. Authorization and Legality of the Promissory Note and the Warrant.
The issuance and sale of the Promissory Note and the Warrant and the Common
Stock to be issued upon exercise of the Warrant to the Investor pursuant to this
Agreement have been duly authorized by the Board of Directors of the Company. No
stockholder of the Company has any preemptive rights or rights of first refusal
by reason of the issuance of the Warrant or the issuance of Common Stock upon
exercise of the Warrant which rights have not been duly waived. No further
approval or authorization of the Board of Directors or the shareholders of the
Company will be required for the issuance and sale of the Promissory Note, the
Warrant or the Common Stock to be issued upon exercise of the Warrant as
contemplated herein. The Common Stock to be issued upon the exercise of the
Warrant will be, at the time of issuance in accordance with the terms of the
Warrant, validly issued and outstanding and fully paid and nonassessable. The
shares issuable upon exercise of the Warrant have been reserved for issuance by
all necessary corporate action on behalf of the Company.
4.7. The Offering. Neither the Company nor anyone acting on its behalf
has directly or indirectly offered the Promissory Note or the Warrant to be sold
to the Investor, any part thereof, or any similar security of the Company, for
sale to, or solicited any offer to buy the same from, anyone other than the
Investor and other investors to whom such offers can be made without requiring
the registration of the Promissory Note or the Warrant under the Securities Act
of 1933, as amended (the "Act") or state securities laws.
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4.8. Options, Warrants, etc. No option, warrant or other right for the
purchase of any shares of capital stock of the Company or any of its
subsidiaries is presently outstanding and no authorization therefor is presently
in effect, except as described in the Form 10-K or in Schedule 4.8.
4.9. Governmental Approval. Except as described in Schedule 4.9, no
consent, approval or authorization of or qualification, designation, declaration
or filing with any governmental authority on the part of the Company or any of
its subsidiaries is required in connection with the execution, delivery and
performance by the Company of this Agreement or the offer, issue, sale and
delivery of the Promissory Note or the Warrant pursuant hereto or the
consummation of any other transactions contemplated hereby.
4.10. Patents, Trademarks, etc. The Company or a subsidiary of the
Company owns or possesses the patents, copyrights, trade secrets, licenses,
trademarks, service marks, trade names, logos, applications and registrations
therefor necessary for the conduct of the business of the Company and its
subsidiaries.
4.11. Title to Properties; Liens. Except as described in Schedule 4.11,
the Company or a subsidiary of the Company has good and marketable title to all
of its properties and assets, including all properties and assets reflected in
the Balance Sheet, subject only to liens securing indebtedness reflected on the
Balance Sheet and other liens that do not adversely affect the value of the
properties and assets. Neither the Company nor any subsidiary is in violation of
any law, regulation or ordinance (including laws, regulations or ordinances
relating to building, zoning, environmental, city planning, land use or similar
matters) relating to its property or assets which violation would have a
Material Adverse Effect. All personal property and assets material to the
business, operations or financial condition of the Company and its subsidiaries,
and all buildings, structures and fixtures used by any of them in the conduct of
their business, are in good operating condition and repair.
4.12. Litigation, etc. Except as described in Schedule 4.12, there is
no action, proceeding or investigation pending or, to the knowledge of the
Company, threatened (or any basis therefor known to the Company), that questions
the validity of this Agreement, the Promissory Note, the Warrant or the Common
Stock to be issued upon exercise of the Warrant or any action taken or to be
taken pursuant hereto or contemplated hereby, or that might result, either in
any case or in the aggregate, in any material adverse change in the business,
prospects, operations, affairs or condition of the Company and its subsidiaries
taken as a whole, or in any material liability on the part of the Company and
its subsidiaries taken as a whole. The foregoing includes, without limiting its
generality, actions pending or threatened (or any basis therefor known to the
Company) involving the previous employment of any employees or prospective
employees or their use in connection with the business of the Company and its
subsidiaries of any information or techniques allegedly proprietary to their
former employer(s).
4.13. Compliance with other Instruments, etc. The Company nor any
subsidiary is, and at the Closing will be, in violation of any provision of its
articles of incorporation or bylaws, or of any loan agreement or other material
agreement to which it is a party. Neither the Company nor any subsidiary is, and
at the Closing will be, in violation of any instrument, judgment, decree,
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order, statute, rule or governmental regulation applicable to it, including
without limitation, federal or state securities laws, zoning laws and
ordinances, federal labor laws and regulations, the federal Occupational Safety
and Health Act and regulations thereunder, the federal Employees Retirement
Income Security Act, and federal, state and local environmental protection laws
and regulations, the violation of which might have a Material Adverse Effect.
4.14. Tax Returns and Payments. All of the tax returns and reports of
the Company and its subsidiaries required by law to be filed have been
accurately prepared and timely filed and all taxes shown as due thereon have
been paid or adequately reserved on the Company's books and reflected on the
Balance Sheet. The federal income tax returns of the Company have been audited
by the Internal Revenue Service for the period through December 31, 1993, and
there are in effect no waivers by the Company (or on behalf of any consolidated
group that includes the Company) of the applicable statutes of limitations for
federal taxes for any period. No deficiency assessment or proposed adjustment of
the federal, state or municipal income taxes of the Company or any of its
subsidiaries is pending and the Company has no knowledge of any proposed
liability for any tax to be imposed upon its properties or assets for which
there is not an adequate reserve reflected in the Balance Sheet.
4.15. Disclosure. None of (a) the Form 10-K, (b) the Company's Report
on Form 10-Q for the quarter ended March 31, 1998, (c) this Agreement and any
Schedule hereto or (d) any certificate or other document referenced herein or
therein and furnished to the Investor by the Company contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained therein or herein, in light of the
circumstances under which they were made, not misleading. There is no material
fact known to the Company relating to the business, affairs, operations,
condition or prospects of the Company that materially adversely affects the same
and that has not been disclosed to the Investor in writing by the Company.
4.16. Brokers, Intermediaries and Finder's Fees. The Company (i)
represents that no finder, broker, agent, financial adviser or other
intermediary has acted on behalf of the Company in connection with the offering
of the Promissory Note and the Warrant to be issued and sold pursuant to this
Agreement or the negotiation or consummation of this Agreement or any of the
transactions contemplated hereby, and (ii) hereby agrees to indemnify and to
hold the Investor harmless of and from any liability for commission or
compensation in the nature of a finder's fee to any broker or other person or
firm and the costs and expenses of defending against such liability or asserted
liability, for which the Company, or any of its employees or representatives,
are responsible.
4.17. Insurance. The Company and its subsidiaries have commercial
general liability insurance, products liability insurance and workers'
compensation insurance in such amounts as are commercially reasonable for
businesses of a similar type and size as the Company or the applicable
subsidiary. The Company and each subsidiary have fire and casualty insurance
policies with extended coverage sufficient in amount (subject to reasonable
deductibles) to allow it to replace any of its properties that might be damaged
or destroyed.
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5. Conditions of Purchaser's Obligations.
The Investor's obligation to purchase and pay for the Promissory Note
to be delivered to the Investor at Closing is subject to the fulfillment to the
Investor's reasonable satisfaction, before or at the Closing, of all of the
following conditions:
5.1. Representations and Warranties Correct. The representations and
warranties of the Company made or contained herein shall be correct in all
material respects at and as of the relevant Closing Date as if made on and as of
the Closing Date, except as affected by the transactions contemplated hereby.
5.2. Performance. The Company shall have performed and complied with
all agreements and conditions contained herein required to be performed or
complied with by it before or at the Closing.
5.3. Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated by this Agreement and all
documents and instruments incident to such transactions shall be satisfactory in
substance and form to the Investor and the Investor's counsel, and the Investor
or the Investor's counsel shall have received all such counterpart originals or
certified or other copies of such documents as the Investor or they may
reasonably request.
5.4. Compliance Certificate. The Investor shall have received an
Officer's Certificate, dated as of the Closing Date, certifying that the
conditions specified in Sections 5.1 and 5.2, applicable to the Closing, have
been fulfilled.
5.5. Opinion of Company Counsel. The Investor shall have received from
White & Case, counsel for the Company, a favorable opinion, dated as of the
Closing Date and satisfactory in scope and form to the Investor and the
Investor's counsel, in substantially the form attached hereto as Exhibit C. Such
opinion shall also cover such other matters incident to the transactions
contemplated hereby as the Investor or its counsel may reasonably request.
6. Accounting; Financial Statements and Other Information.
6.1. Accounting. The Company will maintain a system of accounting
established and administered in accordance with generally accepted accounting
principles consistently followed, and will set aside on its books all such
proper reserves as shall be required by generally accepted accounting
principles.
6.2. Financial Statements. For so long as the Investor holds the
Promissory Note, the Company will deliver to the Investor.
(a) within 45 days after the end of each of the first two
quarterly fiscal periods in each fiscal year of the Company, (i) a
consolidated balance sheet of the Company and its consolidated
subsidiaries as at the end of such period and consolidated statements
of income and of income and cash flows of the Company and its
consolidated subsidiaries for each period and, in the case of the
second and third quarterly periods, for the period from
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the beginning of the then current fiscal year to the end of such
quarterly period, setting forth in each case in comparative form the
figures for the corresponding period of the previous fiscal year, all
in reasonable detail and certified, subject to changes resulting from
normal year-end audit adjustments, by the President and chief financial
officer of the Company and (ii) a certificate of the President or chief
financial officer stating that the Company is in compliance with the
covenants set forth in Section 7 herein;
(b) promptly upon the filing thereof, all reports and
statements, if any, filed by the Company with the Securities and
Exchange Commission (or any governmental authority succeeding to any of
its functions) (the "Commission") or with any securities exchange; and
(c) with reasonable promptness, such other information and
data with respect to the Company and its consolidated subsidiaries as
from time to time may be reasonably requested.
7. Other Covenants. The Company further covenants and agrees that, so
long as the Promissory Note is outstanding:
(a) The Company shall and shall cause each of its subsidiaries
(as applicable) to:
(1) promptly make all payments or accruals of
interest on the Promissory Note when due, and comply with the
other provisions hereof and the provisions of the Promissory
Note and the Warrant;
(2) comply with all applicable federal, state and
local laws, ordinances and regulations unless such failure to
comply will not have a Material Adverse Effect;
(3) conduct its business in the usual and ordinary
course except as set forth in Schedule 7(a)(3);
(4) maintain its corporate existence and right to
carry on its business and duly procure all necessary renewals
and extensions thereof and use, its best efforts to maintain,
preserve and renew all such rights, powers, privileges and
franchises; provided, however, that nothing herein contained
shall be construed to prevent the Company or its subsidiaries
from ceasing or omitting to exercise any rights, powers,
privileges or franchises that in the judgment of their
respective Boards of Directors can no longer be exercised in
its best interests;
(5) keep and maintain all buildings, plants and other
property in such good condition, repair, and working order and
supplied with all such necessary equipment as in the judgment
of its Board of Directors may be necessary, so that the
business carried on in connection therewith may be properly
and advantageously conducted at all times; provided, however,
that nothing in this paragraph (5) shall prevent the Company
or its subsidiaries from selling,
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abandoning or otherwise disposing of any building, plant or
property whenever in the opinion of their respective Boards of
Directors the retention thereof is inadvisable or not
necessary to its business;
(6) pay and discharge promptly, or cause to be paid
and discharged promptly, all taxes, assessments and
governmental charges or levies imposed upon it or upon its
income or upon any part thereof, as well as all claims of any
kind (including claims for labor, materials and supplies)
that, if unpaid, might by law become a lien or charge upon its
property; provided, however, that neither the Company nor any
subsidiary shall be required to pay any such tax, assessment,
charge, levy or claim if the amount, applicability or validity
thereof shall be contested in good faith by appropriate
proceedings and if it shall have set aside on its books
reserves (segregated to the extent required by sound
accounting practice) deemed by it adequate with respect
thereto;
(7) pay, or cause to be paid, the principal of and
interest on all indebtedness for borrowed monies heretofore or
hereafter incurred or assumed by the Company when and as the
same shall become due and payable unless such indebtedness be
renewed or extended;
(8) faithfully observe, perform and discharge all
covenants, conditions and obligations that are imposed on it
by any and all indentures and other agreements securing or
evidencing such indebtedness or pursuant to which such
indebtedness was incurred, and not permit the occurrence of
any act or omission that is or may be declared to be a default
thereunder; provided, however, that the Company shall not be
required to make any payment or to take any other action by
reason of the provisions of this paragraph (8) if it is
contesting in good faith its obligation to make such payment
or to take such action and shall have set aside on its books
adequate reserves (to the extent, and segregated if and to the
extent, required by sound accounting practice) with respect
thereto;
(9) provide or cause to be provided for itself
commercial general liability insurance, products liability
insurance and workers' compensation insurance in such amounts
as are commercially reasonable for businesses of similar type
and size as the Company and fire and casualty insurance
policies with extended coverage sufficient in amount (subject
to reasonable deductibles) to allow it to replace any of its
properties that might be damaged or destroyed; and
(10) notify the Investor in writing promptly upon the
occurrence of any Event of Default as hereafter defined or any
event that would become an Event of Default upon notice or the
lapse of time, or both.
(11) permit the Investor or any authorized
representatives of such Investor, at such Investor's expense,
to visit and inspect any of the properties of the Company
including its books of account (and to make copies thereof and
to take extracts therefrom) and to discuss its affairs,
finances and accounts with its
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officers, all at such reasonable times and as often as may be
reasonably requested. The rights set forth herein shall be
exercised solely in furtherance of the proper interests of the
Investor as an investor in the Company, and such Investor
exercising its rights of inspection hereunder shall maintain,
and shall procure that its agents and representatives
maintain, the confidentiality of all financial and other
confidential information of the Company acquired by them in
exercising such rights.
(b) For so long as the Promissory Note is outstanding, without
the Investor's prior written consent;
(1) the Company shall not declare, pay or set aside
for payment any dividend or other distribution with respect to
the Common Stock or any other class of securities, or purchase
or otherwise acquire any Common Stock or any other class of
securities, or contract for such purchase or acquisition; and
(2) neither the Company nor any subsidiary of the
Company shall incur or assume any indebtedness for borrowed
money except as set forth in Schedule 7(b).
8. Events of Default; Remedies.
(a) If any one or more of the following events shall occur for any
reason whatsoever (whether such occurrence shall be voluntary or involuntary or
be effected by operation of law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any administrative or other
governmental body), it shall be deemed an Event of Default (an "Event of
Default") hereunder:
(1) default by the Company in the due and punctual payment of
the principal, interest or both on the Promissory Note when and as the
same of each such obligation shall become due and payable, whether at
maturity or at a date fixed for prepayment or by acceleration or
otherwise;
(2) default by the Company in the performance or observance of
any covenant, agreement or other provision of this Agreement that is
not cured within a period of 30 days after written notice of such
default is given to the Company;
(3) default by the Company in the due and punctual payment of
the principal, interest or both on any indebtedness for borrowed money
incurred by the Company, when and as the same shall become due and
payable;
(4) if any representation or warranty, or any other statement
of fact herein or in any writing, certificate, report or statement
(including financial statement) at any time furnished to the Investor
pursuant to or in connection with this Agreement, or otherwise, shall
be false or misleading in any material respect when made and shall have
been relied on by the Investor to its detriment;
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(5) the Company or one of its subsidiaries becoming insolvent
or unable to meet its obligations as they mature, making a general
assignment for the benefit of creditors, or consenting to the
appointment of a trustee or a receiver, or admitting in writing its
inability to pay its debts as they mature;
(6) the appointment of a trustee or receiver for the Company
or for a substantial part of the properties of the Company or one of
its subsidiaries;
(7) the institution of bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings by or against the
Company or one of its subsidiaries and, if instituted against it, the
same being consented to by the Company or a subsidiary or remaining
undismissed for a period of 30 days;
(8) the rendering of any final judgment against the Company or
one of its subsidiaries for the payment of money in an amount in excess
of $100,000 that is not adequately insured against and the same
remaining undischarged or unstayed for a period of 30 days;
(9) any substantial part of the property of the Company or one
of its subsidiaries being sequestered or attached and not being
returned to the possession of the Company or released from such
attachment within 30 days; and
(10) upon the effective date of a merger, reorganization or
sale of substantially all of the assets of the Company in which the
shareholders of the Company immediately prior to such transaction own
less than 50 percent of the voting securities of the surviving or
controlling entity immediately after such transaction.
If any such Event of Default shall occur and be continuing, the
Investor may, at the Investor's option, declare the Promissory Note to be due
and payable, whereupon the maturity of the then unpaid balance of the Promissory
Note shall be accelerated and the principal and all interest accrued thereon
shall forthwith become due and payable without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived, anything contained
herein, in the Promissory Note to the contrary notwithstanding, and the Investor
may exercise and shall have any and all remedies accorded the Investor by law.
(b) In case any one or more Events of Default shall occur and be
continuing, the Investor may proceed to protect and enforce its rights or
remedies either by suit in equity or by action at law, or both, whether for the
specific performance of any covenant, agreement or other provisions contained
herein, in the Promissory Note or in any document or instrument delivered
pursuant to this Agreement, including but not limited to the Company's Articles
of Incorporation or proceed to enforce the payment of the Promissory Note or any
other legal, equitable or statutory right or remedy.
(c) No right or remedy herein conferred upon the Investor is intended
to be exclusive of any other right or remedy contained herein, therein or in any
instrument or document delivered in connection with or pursuant to this
Agreement, and every such right or remedy contained
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herein and therein or now or hereafter existing at law or in equity or by
statute or otherwise may be exercised separately or in any combination.
(d) No course of dealing between the Company and the Investor or any
failure or delay on the Investor's part in exercising any rights or remedies
hereunder shall operate as a waiver of any of the Investor's rights or remedies
and no single or partial exercise of any rights or remedies hereunder shall
operate as a waiver or preclude the exercise of any other rights or remedies
hereunder.
9. Representations and Warranties by the Investor; Purchase for
Investment; Transfers; Legends on Certificates.
9.1. Representations and Warranties by the Investor:
(a) All actions on the part of the Investor for the authorization,
execution, delivery and performance of by the Investor of this Agreement has
been taken.
(b) The Investor has had an opportunity to discuss the Company's
business, management and financial affairs with the Company's management and an
opportunity to review the Company's facilities.
(c) The Investor understands that such discussions, as well as the
written information issued by the Company, were intended to describe the aspects
of the Company's business and prospects which it believes to be material but not
necessarily a thorough or exhaustive description.
(d) The Investor is a sophisticated investor with such knowledge and
experience in financial and business matters so as to be capable of evaluating
the merits and risks of prospective investment in the Securities (the Warrant
and the Common Stock for which the Warrant is exercisable are collectively
referred hereafter as the "Securities"). The Investor, in view of the matters
set forth in this Section 9, bears the economic risk of the investment
represented by the Investor's purchase of the Promissory Note and the Securities
for an indefinite period.
(e) The Investor (i) represents that no finder, broker, agent,
financial adviser or other intermediary has acted on behalf of the Investor in
connection with the offering of the Promissory Note and the Securities to be
issued and sold pursuant to this Agreement or the negotiation or consummation of
this Agreement or any of the transactions contemplated hereby, and (ii) hereby
agrees to indemnify and to hold the Company harmless of and from any liability
for commission or compensation in the nature of a finder's fee to any broker or
other person or firm and the costs and expenses of defending against such
liability or asserted liability, for which the Investor or any of its employees
or representatives, are responsible.
9.2. Purchase for Investment. The Investor represents that the Investor
is an "accredited investor" within the meaning of Regulation D under the 1933
Act, is acquiring the Promissory Note and will acquire the Warrant and any
Common Stock issuable upon exercise of the Warrant for the Investor's own
account for investment and not with the view to the distribution thereof, except
in accordance with applicable federal and state securities laws. This
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representation and covenant shall be deemed to have been given with respect to
the Warrant and the Common Stock at the time the Warrant is issued and delivered
and exercised.
9.3. Transfers; Legends on Certificates. The Investor further
recognizes that the Promissory Note and the Securities will not be registered
under the 1933 Act or the securities laws of any state, the transfer of the same
will be restricted under such laws, the same cannot be sold except pursuant to
an effective registration statement under such laws or an available exemption
from such registration, and the Promissory Note and the certificates
representing the Securities shall be endorsed with the following legend (in
addition to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER
APPLICABLE STATE SECURITIES LAWS AND HAVE BEEN TAKEN FOR INVESTMENT
PURPOSES ONLY AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH ANY
DISTRIBUTION THEREOF. THE SECURITIES MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION AND QUALIFICATION
WITHOUT, EXCEPT UNDER CERTAIN SPECIFIC LIMITED CIRCUMSTANCES, AN
OPINION OF COUNSEL FOR THE HOLDER CONCURRED IN BY COUNSEL FOR THE
COMPANY THAT SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED.
The Company need not record a transfer of Securities, unless the
conditions specified in the foregoing legends are satisfied. The Company may
also instruct its transfer agents not to record the transfer of any of the
Securities unless the conditions specified in the foregoing legends are
satisfied.
9.4. Notice of Proposed Transfers. The holder of each certificate
representing Securities by acceptance thereof agrees to comply in all respects
with the provisions of this paragraph 9.4. Prior to any proposed sale,
assignment, transfer or pledge of any Securities (other than (i) a transfer not
involving a change in beneficial ownership, (ii) a transfer in compliance with
Rule 144 under the 1933 Act ("Rule 144"), so long as the Company is furnished
with satisfactory evidence of compliance with Rule 144, (iii) a transfer to a
qualified institutional buyer in a transaction that meets the requirements of
Rule 144A under the 1933 Act, (iv) transfers by any holder who is an individual
to a trust for the benefit of such holder or his family, and (v) transfers by
gift, will or intestate succession to the spouse, lineal descendants or
ancestors of any holder or spouse of a holder), unless there is in effect a
registration statement under the 1933 Act covering the proposed transfer, the
holder thereof shall give written notice to the Company of such holder's
intention to effect such transfer, sale, assignment or pledge. Each such notice
shall describe the manner and circumstances of the proposed transfer, sale,
assignment or pledge in sufficient detail, and shall be accompanied, at such
holder's expense at the reasonable discretion of the Company an unqualified
written opinion of legal counsel who shall be, and whose legal opinion shall be,
reasonably satisfactory to the Company addressed to the Company, to the effect
that the proposed transfer of the Securities may be effected without
registration under the 1933 Act. Each certificate evidencing the Securities
transferred as above provided shall bear the appropriate
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restrictive legend set forth in paragraph 9.3 above, except that such
certificate shall not bear such restrictive legend if in the opinion of counsel
for such holder and the Company such legend is not required in order to
establish compliance with any provision of the 1933 Act.
9.5. Removal of Legends and Transfer Restrictions. The legend relating
to the 1933 Act endorsed on a stock certificate or other instrument pursuant to
paragraph 9.3 of this Agreement and the stop transfer instructions with respect
to the Securities represented by such certificate or instrument shall be removed
and the Company shall issue a certificate or instrument without such legend to
the holder of such Securities if such Securities are registered under the Act
and a prospectus meeting the requirements of Section 10 of the 1933 Act is
available or if such holder provides to the Company an opinion of counsel for
such holder of the Securities reasonably satisfactory to the Company, or a
no-action letter or interpretive opinion of the staff of the Commission to the
effect that a public sale, transfer or assignment of such Securities may be made
without registration and without compliance with any restriction such as Rule
144.
10. Expenses. The Company will pay: (a) all the costs and expenses of
the reproduction of this Agreement and of all agreements referenced herein; (b)
all original issue taxes (including any interest and penalties in respect
thereof) the issuance of the Promissory Note and the Warrant (the Company
agreeing to indemnify the Investor in respect thereof), provided that the
Company shall not be obligated to pay any such tax which may be payable in
respect of the issuance of any of the foregoing or a certificate representing
any thereof to or in the name of any person other than the Investor; (c) all
costs and expenses of furnishing all opinions by counsel referenced in Section 5
and all certificates on behalf of the Company and of the Company's performance
of and compliance with all agreements and conditions contained herein on its
part to be performed or complied with; (d) the cost of complying with the
securities or blue sky laws of any jurisdiction with respect to the offering or
sale by the Company of the Promissory Note and the Warrant; (e) the cost of
delivering to such address in the United States as the Investor specifies the
certificates for the Promissory Note and the Warrant purchased by the Investor;
and (f) the reasonable, itemized fees, expenses and disbursements of the
Investor's special counsel, Hunton & ▇▇▇▇▇▇▇▇, in connection with the subject
matter of this Agreement and the transactions contemplated hereby.
11. Registration Rights. With respect to the shares of Common Stock
issuable upon exercise of the Warrant, the Company has granted the Investor the
registration rights (the "Registration Rights") set forth in the Registration
Rights Agreement dated June 3, 1998, among the Company and the Investor and the
parties thereto, and such shares are deemed to be "Registrable Securities" as
that term is defined therein.
12. Survival of Representations and Warranties, etc. All agreements,
representations and warranties contained herein or made in writing by the
Investor or on behalf of the Company in connection with the transactions
contemplated hereby shall survive the execution and delivery of this Agreement,
any investigation at any time made by the Investor or on the Investor's behalf,
the sale and purchase of the Promissory Note and the Warrant and payment
therefor. All statements contained in any certificate or other instrument
executed and delivered by the Company or its duly authorized officers pursuant
hereto in connection with the transactions contemplated hereby shall be deemed
representations by the Company hereunder.
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13. Notices. All notices, requests, consents and other communications
hereunder (except as stated in the last sentence of this Section 14) shall be in
writing and shall be delivered by facsimile, reliable courier, or first-class
registered or certified mail, postage prepaid, (a) if to the Investor, at the
Investor's address as set forth below, marked for attention as there indicated,
or at such other address as may have been furnished to the Company by the
Investor in writing, or (b) if to any other holder of the Promissory Note,
Warrant or Common Stock, at such address as may have been furnished to the
Company in writing by such holder, or, until any such other holder furnishes to
the Company an address, then to, and at the address of, the last holder of the
Promissory Note, Warrant or Common Stock who has so furnished an address to the
Company or (c) if to the Company, at the address set forth below, or at such
other address as may have been furnished to the Investor in writing by the
Company:
To the Company:
▇▇▇▇▇▇▇-▇▇▇▇▇▇, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, #▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Copy to:
▇▇▇▇▇▇▇ ▇▇▇▇▇, Esq.
White & Case
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
To the Investor:
FBR Asset Investment Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Copy to:
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Hunton & ▇▇▇▇▇▇▇▇
Riverfront Plaza, East Tower
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
For purposes of computing the time periods set forth in Section 6, the date of
delivery in accordance with this Section shall be deemed to be the earlier of
the date received or five days after deposit in the mail. The financial
statements and other reports required by Section 6 may be mailed by first-class
regular mail deposited on or before the end of the applicable period.
14. Amendments and Waivers. Except as otherwise provided herein,
neither this Agreement nor any term hereof may be changed, waived, discharged or
terminated orally or in writing, except that any term of this Agreement may be
amended and the observance of any such term may be waived (either generally or
in a particular instance and either retroactively or prospectively) with (but
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only with) the written consent of the Company and the holders of at least 51% of
the outstanding principal amount of the Promissory Note.
15. Miscellaneous.
15.1. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of New York.
15.2. Successors and assignees. All of the terms of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective successors and assignees of the parties hereto, whether so expressed
or not, and, in particular, shall inure to the benefit of and be enforceable by
any holder or holders at the time of the Promissory Note or the Warrant.
15.3. Entire Agreement. Except as stated in Section 12, this Agreement
(with the Exhibits and Schedules annexed hereto) embodies the entire agreement
and understanding between the Investor and the Company and supersedes all prior
agreements and understandings relating to the subject matter hereof.
15.4. Headings of the Agreement. The headings in this Agreement are for
convenience of reference only, and shall not limit or otherwise affect the
meaning hereof.
15.5. Counterparts of the Agreement. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
15.6. Severability of the Agreement. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
15.7. California Corporate Securities Law. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
15.8. Commitment Fee. At the time of the first advance by Investor
pursuant to this Agreement, the Company shall pay Investor $50,000.
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
executed and delivered as of the day and year first written above.
THE COMPANY: ▇▇▇▇▇▇▇-▇▇▇▇▇▇, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-----------------------------------
Title: Managing Director
-----------------------------------
THE INVESTOR: FBR ASSET INVESTMENT CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------
Title: Chief Operating Officer
-----------------------------------
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