<PAGE>
CUSIP No. 64352 D 10 1 SCHEDULE 13D
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. )*
NEW CENTURY FINANCIAL CORPORATION
(Name of Issuer)
Common Stock, $.01 Par Value
(Title of Class of Securities)
64352 D 10 1
(CUSIP Number)
Lee R. Mitau, Esq.
Executive Vice President, General Counsel and Secretary
U.S. Bancorp
U.S. Bank Place
601 Second Avenue South, Minneapolis, Minnesota, 55402-4302
(612) 973-0363
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications)
November 24, 1998
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of Rules 13d-1(e), 13d-1(f) or 13d-1(g) check the following
box. / /
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
(Continued on following page(s))
<PAGE>
CUSIP No. 64352 D 10 1 SCHEDULE 13D Page 2
- -------------------------------------------------------------------------------
1 NAMES OF REPORTING PERSONS: U.S.Bancorp
IRS IDENTIFICATION NOS. OF ABOVE PERSONS: 41-0255900
- -------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [ ]
- -------------------------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------------------------
4 SOURCE OF FUNDS: WC
- -------------------------------------------------------------------------------
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT ITEMS 2(d) or 2(e): [ ]
- -------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION: Delaware
- -------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER: 2,724,800
SHARES
BENEFICIALLY -----------------------------------------------------------
OWNED BY 8 SHARED VOTING POWER: 0
EACH
REPORTING -----------------------------------------------------------
PERSON 9 SOLE DISPOSITIVE POWER: 2,724,800
WITH
-----------------------------------------------------------
10 SHARED DISPOSITIVE POWER: 0
- -------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY
EACH REPORTING PERSON: 2,724,800
- -------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES [ ]
- -------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 15.85%
- -------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON: HC
- -------------------------------------------------------------------------------
<PAGE>
CUSIP No. 64352 D 10 1 SCHEDULE 13D Page 3
ITEM 1. SECURITY AND ISSUER.
The title and class of shares to which this statement relates is the Common
Stock, par value $0.01 per share (the "Common Stock"), of New Century
Financial Corporation, a Delaware corporation (the "Issuer"). The Issuer's
principal executive office is 18400 Von Karman, Suite 1000, Irvine,
California, 92612.
ITEM 2. IDENTITY AND BACKGROUND..
(a) Name of Person Filing:
U.S. Bancorp
(b) Address of Principal Business Office:
U.S. Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
(c) Principal Business:
U.S. Bancorp is a regional bank holding company with its headquarters
in Minneapolis, Minnesota, and its operations concentrated in 17
Midwestern, Rocky Mountain and Western States.
The name, business address, present principal occupation or employment and
citizenship of each director and executive officer of U.S. Bancorp are set
forth in Annex A hereto and are incorporated herein by reference.
(d) Criminal Proceedings:
During the last five years, neither U.S. Bancorp nor any executive
officer or director of U.S. Bancorp has been convicted in a criminal
proceeding (excluding traffic violations and similar misdemeanors).
(e) Civil Proceedings:
During the last five years, neither U.S. Bancorp nor any executive
officer or director of U.S. Bancorp has been a party to a civil
proceeding of a judicial or administrative body of competent
jurisdiction resulting in a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject
to, federal or state securities laws, or finding any violation with
respect to such laws.
<PAGE>
CUSIP No. 64352 D 10 1 SCHEDULE 13D Page 4
(f) Place of Organization:
Delaware
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
The source of funds for U.S. Bancorp's $20,000,000 investment in the Issuer
as described herein was working capital funds of U.S. Bancorp.
ITEM 4. PURPOSE OF TRANSACTION.
U.S. Bancorp entered into a Preferred Stock Purchase Agreement with the
Issuer dated as of October 18, 1998 (the "Purchase Agreement") to purchase
20,000 shares of Series 1998A Convertible Preferred Stock (the "Convertible
Preferred Stock") at a purchase price of $1,000 per share. A copy of the
Purchase Agreement has been filed as Exhibit 99.1 to this Schedule 13D. The
closing of the acquisition of the Convertible Preferred Stock occurred on
November 24, 1998 (the "Closing Date"). The designation of the rights and
preferences of the Convertible Preferred Stock are set forth in the
Certificate of Designations for Series 1998A Convertible Preferred Stock
(the "Designation Certificate") which has been filed as Exhibit 99.2 to
this Schedule 13D. The following is a summary of the rights and
preferences of the Convertible Preferred Stock:
Rank: The Convertible Preferred Stock ranks prior to all of the
Issuer's Common Stock, both as to payment of dividends and
as to distribution of assets upon the liquidation and
winding up of the Issuer.
Dividends: Holders of Convertible Preferred Stock are entitled to
receive from the Issuer cumulative dividends of $75.00 per
share per annum, when such dividends may be legally declared
by the Issuer's Board of Directors.
Redemption: On or after November 24, 2002, the Issuer may, at its
option, redeem any or all of the Convertible Preferred Stock
at a price of $1,000 per share, plus accumulated and unpaid
dividends. The Issuer may also redeem the Convertible
Preferred Stock in certain limited circumstances involving
the consummation of an acquisition transaction involving the
Issuer.
Conversion: Each share of the Convertible Preferred Stock is immediately
convertible, at the option of the holder, into 136.24
shares of the Issuer's Common Stock. The conversion rate is
subject to adjustment as provided in Section 8 of the
Designation Certificate.
Voting Rights: The holders of the Convertible Preferred Stock will be
entitled to the same voting rights as, and will vote
together as one class with, holders of the Issuer's Common
Stock. Each holder of Convertible Preferred Stock will
<PAGE>
CUSIP No. 64352 D 10 1 SCHEDULE 13D Page 5
have such voting rights as are attributable to the number of
whole shares of Common Stock into which such shares of
Convertible Preferred Stock are convertible. In addition,
absent the consent or affirmative vote of the holders of at
least a majority of the outstanding shares of the
Convertible Preferred Stock, voting separately or as a
class, the Issuer may not (a) authorize, issue or create any
shares of any other class or series of capital stock ranking
senior to the Convertible Preferred Stock as to dividends or
liquidation or (b) amend, alter or repeal the Issuer's
Certificate of Incorporation, whether by merger or
consolidation or otherwise, so as to adversely affect the
rights or preferences of the Convertible Preferred Stock.
As of the Closing Date, the Issuer expanded its Board of Directors (the
"Board") from nine to ten members and, pursuant to Section 8.3 of the
Purchase Agreement, U.S. Bancorp designated, and the Issuer appointed,
Francis J. Partel, Jr. to the Board. The Issuer has further agreed to take
all reasonable action necessary to further expand its Board and to appoint,
nominate and support one or more additional individuals designated by U.S.
Bancorp for election to the Board such that U.S. Bancorp's representation
on the Issuer's Board may approximately reflect U.S. Bancorp's ownership
stake in the Issuer from time to time, until such date as the earliest to
occur of (a) December 31, 2002, (b) the date on which U.S. Bancorp owns
less than 5% of the Issuer's outstanding shares of Common Stock (assuming
conversion of the Convertible Preferred Stock) or (c) certain defaults by
U.S. Bancorp (such date the "Termination Date").
Pursuant to Section 8.4 of the Purchase Agreement, until the earlier to
occur of the Termination Date, November 24, 2000 or the receipt by the
Issuer of gross proceeds totaling $30 million from certain offerings by the
Issuer, U.S. Bancorp has, subject to certain exceptions, a right of first
refusal to purchase certain issuances of new securities by the Issuer. In
addition, pursuant to this Section, until the Termination Date, U.S.
Bancorp has, subject to certain exceptions, a right to purchase a
proportionate share of any new securities to be issued and sold by the
Issuer. In addition, these rights terminate upon the closing of certain
acquisitions of U.S. Bancorp or if U.S. Bancorp sells more than 20% of its
shares of Common Stock during any 90-day period, provided that such sales
are not made for regulatory reasons (an "Additional Termination Date").
Pursuant to Section 8.5 of the Purchase Agreement, until the Termination
Date or an Additional Termination Date, the Issuer has agreed not to
solicit, authorize, initiate or encourage submission of, any proposal,
offer, tender offer or exchange offer from any person or entity relating to
any liquidation, dissolution, recapitalization, merger, consolidation or
acquisition or purchase of all or a material portion of the assets of, or
any material equity interest in, the Issuer or its subsidiary, New Century
Mortgage Corporation, or other similar transaction or business combination
involving the Issuer or such subsidiary, or, unless the Issuer shall have
determined, based on the advice of counsel to the Issuer, that the Board
has a fiduciary duty to do so, (a) participate in any negotiations in
connection
<PAGE>
CUSIP No. 64352 D 10 1 SCHEDULE 13D Page 6
with or in furtherance of any of the foregoing or (b) permit any person
other than U.S. Bancorp and its representatives to have any access to
the facilities of, or (c) furnish to any person other than U.S. Bancorp
and its representatives any information with respect to, the Issuer or such
subsidiary in connection with or in furtherance of any of the foregoing.
U.S. Bancorp has acquired the Convertible Preferred Stock for investment
purposes. In addition, U.S. Bancorp's investment was made in connection
with certain strategic agreements between U.S. Bank National Association
("U.S. Bank"), the principal banking subsidiary of U.S. Bancorp, and New
Century Mortgage Corporation ("New Century Mortgage"), the principal
operating subsidiary of the Issuer. Under these agreements, New Century
Mortgage and U.S. Bank have agreed to cross sell and solicit real estate
loans and other financial services through each other's branch system. In
addition, U.S. Bank may bid on certain whole loan sales transactions of New
Century Mortgage, with the price and volume subject to agreement by the
parties. The investment, together with these agreements, allows U.S.
Bancorp to expand its business activities in the area of sub-prime
mortgages and to draw upon the Issuer's capacities in providing sales,
underwriting and processing services for such loans.
Although U.S. Bancorp has no present intent to do so, U.S. Bancorp may,
subject to certain standstill agreements described in Item 6 of this
Schedule 13D, make purchases of the Issuer's securities either in the open
market or in privately negotiated transactions, including transactions with
the Issuer, depending on an evaluation of the Issuer's business prospects
and financial condition, the market for the securities, other available
investment opportunities, stock market conditions and other future
developments. Depending on these factors, U.S. Bancorp may decide to sell
all or part of its holdings of the Convertible Preferred Stock in one or
more public or private transactions.
Except as set forth in this Item 4 or Item 6 which is incorporated herein
by reference, U.S. Bancorp has no plans or proposals which relate to or
would result in any of the matters set forth in clauses (a) through (j) of
Item 4 of Schedule 13D.
The preceding summary of certain provisions of the Purchase Agreement, the
Designations Certificate, the Registration Rights Agreement and the
Shareholder Agreements, copies of which are filed as exhibits hereto, is
not intended to be complete and is qualified in its entirety by reference
to the full text of such agreements.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) As of November 24, 1998, based on U.S. Bancorp's ownership of
Convertible Preferred Stock, U.S. Bancorp is deemed to be the
beneficial owner of 2,724,800 shares (the "Conversion Shares") of
the Issuer's Common Stock. These Conversion Shares represent
approximately 15.85% of the Issuer's outstanding Common Stock (as
such outstanding shares were reported by the Issuer as of September
30, 1998). U.S. Bancorp may also be deemed to beneficially own
<PAGE>
CUSIP No. 64352 D 10 1 SCHEDULE 13D Page 7
shares of Common Stock held in client accounts with respect to which
U.S. Bancorp Piper Jaffray Inc., an indirect wholly owned subsidiary
of U.S. Bancorp ("Piper"), or employees of Piper have voting or
investment discretion, or both ("Managed Accounts"). U.S. Bancorp
and Piper disclaim beneficial ownership of the shares of Common
Stock held in Managed Accounts. U.S. Bancorp and Piper may also be
deemed to beneficially own from time to time shares of Common Stock
acquired in ordinary course trading and market-making activities by
Piper. As of the close of business on November 23, 1998, Piper did
not own any shares of the Issuer's Common Stock in its inventory.
(b) U.S. Bancorp has sole voting and dispositive power as to the shares
of Convertible Preferred Stock and the Conversion Shares.
(c) Except for the transactions to which this Schedule 13D relates,
neither U.S. Bancorp nor, to the best knowledge of U.S. Bancorp, any
of U.S. Bancorp's executive officers or directors has effected any
transaction in the shares of the Issuer's Common Stock during the
past sixty (60) days.
(d) Not applicable.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF THE ISSUER.
Reference is made to the information disclosed under Item 4 of this
Schedule 13D, and such information is incorporated herein by reference in
response to this Item. In addition to such information, the following
contracts, arrangements, understandings or relationships are reported
hereunder.
Section 8.1 of the Purchase Agreement provides that, until the Termination
Date, the Issuer will make available to U.S. Bancorp such information and
data of the Issuer, and will provide access to the executive officers and
independent accountants of the Issuer, as U.S. Bancorp may reasonably
request for the purpose of monitoring U.S. Bancorp's investment in the
Issuer.
Section 8.6 of the Purchase Agreement provides that, until the Termination
Date, the Issuer will use reasonable efforts to cooperate with and assist
U.S. Bancorp in connection with sales of shares of the Issuers's capital
stock whether through private placements, market transactions pursuant to
Rule 144 or registered offerings pursuant to the Registration Rights
Agreement.
<PAGE>
CUSIP No. 64352 D 10 1 SCHEDULE 13D Page 8
Section 8.7 of the Purchase Agreement provides that, until the Termination
Date or an Additional Termination Date, and subject to standstill
provisions described below and certain other restrictions, the Issuer will,
if requested to do so by the Purchaser, cooperate with and use its best
efforts to assist the Purchaser in identifying existing shareholders of the
Issuer who may be interested in selling shares of Common Stock, and, once
any such potential seller is identified, will cooperate with U.S. Bancorp,
in such manner as U.S. Bancorp may reasonably request, so as to enable such
purchases to be made in accordance with applicable laws rules and
regulations or other applicable requirements.
Section 8.9 of the Purchase Agreement provides that, until the Termination
Date or an Additional Termination Date, and subject to certain exceptions
and without the prior written consent of U.S. Bancorp, the Issuer shall not
(a) increase the number of shares available for issuance under certain
employee stock plans, (b) adopt certain other stock-related plans,
(c) grant additional restricted stock awards other than pursuant to certain
existing plans or (d) take any action to reprice or regrant any securities
issued pursuant to any employee stock plan of the Issuer.
Section 10 of the Purchase Agreement provides that, without the consent of
the Board, U.S. Bancorp will not take certain actions involving a change of
control of the Issuer.
Pursuant to the Shareholder Agreements, a form of which has been filed as
Exhibit 99.3 to this Schedule 13D, each of Robert K. Cole, Brad A. Morrice,
Edward F. Gotschall and Steve Holder (each a "Shareholder") has agreed with
U.S. Bancorp that: (a) such Shareholder will first offer to U.S. Bancorp
any shares of Common Stock to by sold by such Shareholder, subject to
certain terms and conditions; (b) subsequent to certain triggering events
(which triggering events relate to certain third-party actions involving
the Issuer), such Shareholder will vote such Shareholder's shares of Common
Stock in favor of an acquisition transaction involving U.S. Bancorp and
against certain other transactions, subject to certain conditions; and (c)
such Shareholder will not enter into any agreement or understanding with
any person that would be inconsistent with or violate such Shareholder's
agreement with U.S. Bancorp described in clause (b) of this paragraph.
Each such Shareholder has also agreed, subsequent to such triggering
events, to execute and deliver an irrevocable proxy appointing U.S. Bancorp
as such Shareholder's proxy to vote such Shareholder's shares in the manner
provided in clause (b) of this paragraph.
Pursuant to the Registration Rights Agreement filed as Exhibit 99.4 to this
Schedule 13D, U.S. Bancorp has certain demand and piggyback rights to
require that the Issuer effect a registration under the Securities Act of
1933, as amended, of the shares of Common Stock issuable upon conversion of
the Convertible Preferred Stock.
<PAGE>
CUSIP No. 64352 D 10 1 SCHEDULE 13D Page 9
ITEM 7. MATERIALS TO BE FILED AS EXHIBITS.
99.1 Preferred Stock Purchase Agreement
99.2 Certificate of Designations for Series 1998A Convertible Preferred
Stock
99.3 Shareholder Agreement
99.4 Registration Rights Agreement
<PAGE>
CUSIP No. 64352 D 10 1 SCHEDULE 13D Page 10
SIGNATURES
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Dated: December 4, 1998
U.S. BANCORP
By /s/ Susan E. Lester
---------------------------------
Susan E. Lester
Executive Vice President and Chief
Financial Officer
<PAGE>
CUSIP No. 64352 D 10 1 SCHEDULE 13D
ANNEX A
IDENTITY AND BACKGROUND
The following table sets forth the names, addresses and principal
occupations of the executive officers and directors of U.S. Bancorp. Except as
set forth below, the principal business address of each such director and
executive officer is the address of U.S. Bancorp, U.S. Bank Place, 601 Second
Avenue South, Minneapolis, Minnesota, 55402-4302. Each of such directors and
executive officers is a citizen of the United States.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS ADDRESS OCCUPATION
<S> <C>
Gerry B. Cameron Director; Chairman of the Board
John F. Grundhofer Director; President and Chief Executive Officer
Gary T. Duim Vice Chairman
Philip G. Heasley Vice Chairman
Robert D. Sznewajs Vice Chairman
Richard A. Zona Vice Chairman
J. Robert Hoffmann Executive Vice President and Chief Credit Officer
Susan E. Lester Executive Vice President and Chief Financial Officer
Lee R. Mitau Executive Vice President, General Counsel and Secretary
John M. Murphy, Jr. Executive Vice President, Chairman and Chief Investment Officer, U.S. Bank Trust
National Association
Daniel C. Rohr Executive Vice President, Commercial Banking and Business Banking
Robert H. Sayre Executive Vice President, Human Resources
John R. Danielson Senior Vice President, Investor and Corporate Relations
Terrance R. Dolan Senior Vice President and Controller
David P. Grandstrand Senior Vice President and Treasurer
<PAGE>
Linda L. Ahlers Director; President, Department Store
Dayton Hudson Corporation Division, Dayton Hudson Corporation
777 Nicollet Mall
Minneapolis, Minnesota
Harry L. Bettis Director
Carolyn Silva Chambers Director; Chairman and Chief Executive
Chambers Communications Corp. Officer, Chambers Communications Corp.
2295 Coburg Road, Suite 200
Eugene, Oregon
Arthur D. Collins, Jr. Director; President and Chief Operating
Medtronic, Inc. Officer, Medtronic, Inc.
7000 Central Avenue, N.E.
Minneapolis, Minnesota
Peter H. Coors Director; Vice Chairman and Chief Executive
Coors Brewing Company Officer, Coors Brewing Company
12th & Ford Streets, BC300
Golden, Colorado
Robert L. Dryden Director
Joshua Green III Director; Chairman and Chief Executive
Joshua Green Corporation Officer, Joshua Green Corporation
1425 4th Avenue, Suite 420
Seattle, Washington 98101
Roger L. Hale Director; Chairman and Chief Executive
TENNANT Company Officer, TENNANT Company
701 North Lilac Drive
Minneapolis, Minnesota
Delbert W. Johnson Director; Chairman and Chief Executive,
Pioneer Metal Finishing Officer, Pioneer Metal Finishing
1717 W. River Road North
Minneapolis, Minnesota
Richard L. Knowlton Director; Chairman, The Hormel Foundation
The Hormel Foundation
301 North Main Street
Austin, Minnesota
-2-
<PAGE>
Jerry W. Levin Director; Chief Executive Officer, Sunbeam
Sunbeam Corporation Corporation
625 Madison Avenue
New York, New York
Edward J. Phillips Director; Chairman and Chief Executive
Phillips Beverage Company Officer, Phillips Beverage Company
25 Main Street S.E.
Minneapolis, Minnesota
Paul A. Redmond Director; Chairman and Chief Executive
The Washington Water Power Company Officer (Retired), The Washington Water Power
P.O. Box 3727 Company
Spokane, Washington
Richard G. Reiten Director; President and Chief Executive
Northwest Natural Officer, Northwest Natural
220 N.W. 2nd Avenue
Portland, Oregon
S. Walter Richey Director; Former Chairman and Chief
Meritex, Inc. Executive Officer, Meritex, Inc.
1710 International Centre
900 Second Avenue South
Minneapolis, Minnesota
Richard L. Schall Director
80 South 8th Street
4900 IDS Center
Minneapolis, Minnesota
Walter Scott, Jr. Director; Chairman, President and Chief
Peter Kiewit Sons, Inc. Executive Officer, Peter Kiewit Sons, Inc.
1000 Kiewit Plaza
Omaha, Nebraska
</TABLE>
-3-
<PAGE>
EXHIBIT 99.1
- -------------------------------------------------------------------------------
PREFERRED STOCK PURCHASE AGREEMENT
BETWEEN
NEW CENTURY FINANCIAL CORPORATION
AND
U.S. BANCORP
DATED AS OF
OCTOBER 18, 1998
- -------------------------------------------------------------------------------
<PAGE>
PREFERRED STOCK PURCHASE AGREEMENT
This PREFERRED STOCK PURCHASE AGREEMENT dated as of October 18, 1998, is
made between New Century Financial Corporation, a Delaware corporation (the
"Company"), and U.S. Bancorp, a Delaware corporation (the "Purchaser").
RECITALS
WHEREAS, the Company wishes to sell, and the Purchaser wishes to purchase,
20,000 shares (the "Shares") of the Series 1998A Convertible Preferred Stock
(the "Preferred Stock") of the Company upon the terms and conditions set forth
herein; and
WHEREAS, concurrent with the closing of the sale of the Shares the
Purchaser and certain shareholders of the Company intend to enter into a
Shareholder Agreement (the "Shareholder Agreement") substantially in the form
attached hereto as Exhibit A; and
WHEREAS, concurrent with the closing of the sale of the Shares the
Purchaser and the Company intend to enter into an agreement regarding the
acquisition of loans by the Purchaser from the Company (the "Flow Agreement")
reflecting substantially the terms listed on Exhibit B to this Agreement; and
WHEREAS, concurrent with the closing of the sale of the Shares the
Purchaser and the Company intend to enter into an agreement regarding the
origination of loans (the "Service Provider Agreement") reflecting substantially
the terms listed on Exhibit C to this Agreement; and
WHEREAS, the Company and the Purchaser wish to set forth in this Agreement
certain other terms and conditions for the sale and purchase of the Shares.
AGREEMENT
NOW, THEREFORE, the Purchaser and the Company hereby agree as follows:
1. AUTHORIZATION OF THE SHARES. The Company has authorized the issuance
and sale of the Shares to the Purchaser. The Preferred Stock will have the
relative rights and preferences set forth in the Certificate of Designations
attached as Exhibit D to this Agreement.
2. SALE OF SHARES. Subject to the terms and conditions of this
Agreement, at the Closing the Company agrees to sell to the Purchaser, and the
Purchaser agrees to purchase from the Company, 20,000 Shares at a purchase price
of $1,000 per Share.
<PAGE>
3. CLOSING DATE; DELIVERY.
3.1 CLOSING DATE. The closing (the "Closing") of the purchase and
sale of Shares pursuant to this Agreement will take place at 9:00 a.m. at the
offices of Dorsey & Whitney LLP, 220 South Sixth Street, Minneapolis, Minnesota
55402, on a day to be mutually agreed upon by the parties which date shall be no
later than the third Business Day after all of the conditions set forth in
Article 7 shall have been satisfied (or waived in accordance with Section 12.7),
or at such other time and place as the Company and the Purchaser may agree (the
date of the Closing is hereinafter referred to as the "Closing Date").
3.2 DELIVERY. At the Closing, the Company will deliver to the
Purchaser a certificate registered in the Purchaser's name representing the
Shares purchased by the Purchaser at the Closing, and the Purchaser will pay the
purchase price for the Shares being purchased by wire transfer.
4. DEFINITIONS. Unless the context otherwise requires, the terms defined
in this Section 4 shall have the meanings herein specified for all purposes of
this Agreement. Certain other capitalized terms used herein are defined
elsewhere in this Agreement.
"Additional Employee Issuance" is defined in Section 8.4(c).
"Affiliate" means any person that directly or indirectly controls or
is controlled by, or is under common control with, another specified person.
"Agreement" means this Preferred Stock Purchase Agreement.
"Applicable Percentage" is defined in Section 8.4(d).
"BHCA" is defined in Section 5.2.
"Basket Amount" is defined in Section 12.12.
"Business Day" means any day other than a Saturday or a Sunday or a
day on which commercial banking institutions in the City of New York are
authorized by law to be closed.
"Closing" is defined in Section 3.1.
"Closing Date" is defined in Section 3.1.
"Commission" means the Securities and Exchange Commission.
"Committee" is defined in Section 8.3(c).
"Common Stock" means the shares of common stock, par value $.01 per
share, of the Company.
-2-
<PAGE>
"Company Breach" shall mean a material breach by the Company of its
agreements in Section 8.
"Company Plans" means the following stock-related plans of the
Company, as may be amended from time to time in accordance with Section 8.9:
(a) the 1995 Stock Option Plan, as amended, (b) the Employee Stock Purchase
Plan, (c) the Founding Managers' Incentive Compensation Plan and (d) any other
stock-related plan adopted by the Company after the date of this Agreement.
"Conversion Shares" shall mean the shares of Common Stock issuable
upon the conversion of the Shares.
"Convertible Securities" means options, warrants or similar rights and
indebtedness, shares of stock or other securities that are at any time directly
or indirectly convertible into or exercisable or exchangeable for shares of the
Company's capital stock.
"DGCL" is defined in Section 5.14.
"Disclosure Schedules" is defined in Section 5.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Federal Reserve" means the Board of Governors of the Federal Reserve
System or any agency having regulatory responsibility with respect to the
Purchaser under the BHCA.
"Flow Agreement" is defined in the Recitals to this Agreement.
"Form 10-K Report" is defined in Section 5.4(a).
"Form 10-Q Report" is defined in Section 5.4(a).
"HSR Act" is defined in Section 5.2.
"Latest Balance Sheet" is defined in Section 5.4(b).
"Liabilities" is defined in Section 5.6.
"Losses" is defined in Section 12.12.
"Material Adverse Effect" means a material adverse effect on (a) the
business, assets, liabilities, results of operations or financial condition of
the Company and the Subsidiaries, taken as a whole, or (b) on the ability of the
Company to perform its obligations under or with respect to, or to consummate
the transactions contemplated by, this Agreement, the Flow Agreement or the
Service Provider Agreement.
-3-
<PAGE>
"New Securities" is defined in Section 8.4(c).
"OCC" means the Office of the Comptroller of the Currency or any
agency having regulatory responsibility with respect to any national bank
subsidiary of the Purchaser under the National Bank Act.
"Person" means any natural person, corporation, limited liability
company, association, partnership (general or limited), joint venture,
proprietorship, governmental body, trust, estate, association, custodian,
nominee or any other individual or entity, whether acting in an individual,
fiduciary, representative or other capacity.
"Preferred Stock" is defined in the Recitals to this Agreement.
"Preemptive Rights Issuance" is defined in Section 8.4(b).
"Purchaser Default" shall mean a material breach by Purchaser of its
agreements in Section 10, which breach (a) has occurred at a time when no
Company Default has occurred and is continuing and (b) has not been cured within
30 days of Purchaser's knowledge of such breach.
"Service Provider Agreement" is defined in the Recitals to this
Agreement.
"Related Statements" is defined in Section 5.4(b).
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
"Shareholder Agreement" is defined in the Recitals to this Agreement.
"Shares" is defined in the Recitals to this Agreement.
"Subscription Notice" is defined in Section 8.4(f).
"Subsidiary" is defined in Section 5.1.
"Subsidiaries" means the entities identified as subsidiaries on
Schedule 5.5.
"Takeover Laws" is defined in Section 5.14.
"Year 2000 Compliant" is defined in Section 5.13.
"Year 2000 Problem" is defined in Section 5.13.
5. REPRESENTATIONS AND WARRANTIES BY THE COMPANY. Except as disclosed in
the Disclosure Schedules attached hereto as Exhibit E (the "Disclosure
Schedules"), the Company hereby represents and warrants to the Purchaser that:
-4-
<PAGE>
5.1. ORGANIZATION AND QUALIFICATION. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and has the requisite corporate power to carry on its
business as now conducted. New Century Mortgage Corporation (the "Subsidiary")
is a corporation duly organized, validly existing and in good standing under the
laws of California and has the requisite corporate power to carry on its
business as now conducted. The copies of the charter and the bylaws of each of
the Company and the Subsidiary which have been provided to Purchaser prior to
the date of this Agreement are correct and complete and reflect all amendments
made thereto through the date hereof. Each of the Company and the Subsidiary is
licensed or qualified to do business in every jurisdiction in which the nature
of its respective business or its ownership of property requires it to be
licensed or qualified, except where the failure to be so licensed or qualified
would not reasonably be expected to have a Material Adverse Effect.
5.2. AUTHORITY RELATIVE TO THIS AGREEMENT; NON-CONTRAVENTION. The
Company has the requisite corporate power and authority to enter into this
Agreement, to carry out its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly authorized by the Board of Directors of the
Company and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement and such transactions. This Agreement has
been duly executed and delivered by the Company and constitutes a valid and
binding obligation of the Company, enforceable in accordance with its terms,
except as the enforceability hereof may be limited by bankruptcy, insolvency,
moratorium, reorganization or similar laws affecting the enforcement of
creditors' rights generally and to judicial limitations on the enforcement of
the remedy of specific performance and other equitable remedies and except as
the indemnification provisions of the registration rights described in Exhibit F
may be limited by principles of public policy. Except as set forth on Schedule
5.2, neither the Company nor any of the Subsidiaries is subject to, or obligated
under, any provision of (a) its charter or bylaws, (b) any agreement,
arrangement or understanding, (c) any license, franchise or permit or
(d) subject to obtaining the approvals referred to in the next sentence, any
law, regulation, order, judgment or decree, which would be breached or violated,
or in respect of which a right of termination or acceleration or any encumbrance
on any of its assets would be created, by the execution, delivery or performance
of this Agreement or the consummation of the transactions contemplated hereby,
other than any such breaches, violations, terminations, accelerations or
encumbrances which would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. Other than any approvals or filings
required under the Bank Holding Company Act of 1956, as amended from time to
time, including any regulations or orders of the Federal Reserve thereunder (the
"BHCA"), or the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and assuming the accuracy of the representations of Purchaser
contained in Section 6, no authorization, consent or approval of, or filing
with, any public body, court or authority is necessary on the part of the
Company or the Subsidiary for the consummation by the Company of the
transactions contemplated by this Agreement.
-5-
<PAGE>
5.3. CAPITALIZATION. The authorized, issued and outstanding capital
stock of the Company as of the date hereof is set forth on Schedule 5.3. All of
the issued and outstanding shares of capital stock of the Subsidiary are owned
by the Company, free and clear of any lien, pledge, security interest,
encumbrance or charge of any kind. The issued and outstanding shares of capital
stock of the Company are duly authorized, validly issued, fully paid and
nonassessable and have not been issued in violation of any preemptive rights.
Except as set forth on Schedule 5.3, there are no options, warrants, conversion
privileges or other rights, agreements, plans, arrangements or commitments
obligating the Company or the Subsidiary to issue, sell, purchase or redeem any
shares of their capital stock or securities or obligations of any kind
convertible into or exchangeable for any shares of their capital stock or of any
of their subsidiaries or affiliates, nor are there any stock appreciation,
phantom or similar rights outstanding based upon the book value or any other
attribute of any of the capital stock of the Company, or the earnings or other
attributes of the Company. The Company has heretofore delivered to Purchaser
true and correct copies of all such agreements, arrangements (including all
stock option and other stock-based plans) or commitments identified on Schedule
5.3.
5.4. EXCHANGE ACT REPORTS; FINANCIAL STATEMENTS.
(a) Prior to the execution of this Agreement, the Company has
delivered or made available to the Purchaser complete and accurate copies of
(a) the Company's Annual Report on Form 10-K for the year ended December 31,
1997, as amended (the "Form 10-K Report"), as filed under the Exchange Act with
the Commission, (b) all proxy statements and annual reports to shareholders of
the Company used in connection with meetings of its shareholders held since
June 25, 1997, and (iii) the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998 (the "Form 10-Q Report"), as filed under the
Exchange Act with the Commission. As of their respective dates, such documents
(x) did not contain any 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 and (y) complied as to form in all material respects with the
applicable laws and rules and regulations of the Commission. Since June 25,
1997, the Company has filed in a timely manner all reports that it was required
to file with the Commission pursuant to the Exchange Act.
(b) The Company has furnished Purchaser with a copy of the
consolidated balance sheet of the Company as of August 31, 1998 (the "Latest
Balance Sheet") and the related statements of operations for the eight-month
period then ended (the "Related Statements"). The Latest Balance Sheet and the
Related Statements have been prepared on a basis consistent with the financial
statements included in the Form 10-K, except for the absence of notes and normal
year end adjustments consistent with past practice. The Latest Balance Sheet and
the Related Statements fairly present the consolidated financial position of the
Company and as of the date thereof and the consolidated results of operations
and, as applicable, changes in shareholders' equity and cash flows for the
period then ended.
5.5. SUBSIDIARY. Except as disclosed on Schedule 5.5, neither the
Company nor the Subsidiary owns any stock, partnership interest, joint venture
interest or any other security issued by any other corporation, organization or
entity. Other than the Subsidiary and PWF
-6-
<PAGE>
Corporation, the assets and operations of the entities listed on Schedule
5.5, individually and in the aggregate, are not material to the Company and
the Subsidiary, taken as a whole.
5.6. ABSENCE OF UNDISCLOSED LIABILITIES. All of the obligations or
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise,
whether due or to become due, and regardless of when asserted, including taxes)
("Liabilities") required to be reflected on the "Latest Balance Sheet" in
accordance with generally accepted accounting principles have been so reflected.
To the best knowledge of the Company and the Subsidiary, neither the Company nor
any of the Subsidiaries has any Liabilities except (a) as reflected on the
Latest Balance Sheet, (b) Liabilities which have arisen after the date of the
Latest Balance Sheet in the ordinary course of business, none of which is an
uninsured liability which could reasonably be expected to have a Material
Adverse Effect, (c) Liabilities which have arisen outside of the ordinary course
of business, none of which is an uninsured liability which could reasonably be
expected to have a Material Adverse Effect or (d) as otherwise disclosed on
Schedule 5.6.
5.7. NO MATERIAL ADVERSE CHANGES. Since the date of the Latest
Balance Sheet, there has been no adverse change in, and no event, occurrence or
development in, the business of the Company or any of the Subsidiaries that,
taken together with other events, occurrences and developments with respect to
such business, has had, or would reasonably be expected to have, a Material
Adverse Effect; PROVIDED THAT, for the purposes of this Section 5.7 only,
general industry trends in the subprime mortgage lending market, including those
set forth on Schedule 5.7, shall not be deemed to be such a change, event,
occurrence or development.
5.8. TAX MATTERS. Neither the Company nor any of the Subsidiaries is
delinquent in the payment of any material foreign, federal, state or local tax
or in the payment of any material assessment or governmental charge. The
Company and each of the Subsidiaries has filed all required foreign, federal,
state or local tax returns or appropriate extension requests on a timely basis,
except for such returns or requests which the failure to file would not
reasonably be expected to have a Material Adverse Effect. Neither the Company
nor any of the Subsidiaries has requested any extension of time within which to
file any tax return that has not since been filed. Neither the Company nor any
of the Subsidiaries has received notice of any tax deficiency proposed or
assessed against it or has executed any waiver of any statute of limitations on
the assessment or collection of any tax.
5.9. LITIGATION. There are no actions, suits, proceedings, orders or
investigations pending or, to the best knowledge of the Company and the
Subsidiary, threatened against the Company or any of the Subsidiaries, at law or
in equity, or before or by any federal, state or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
which, individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect. Set forth on Schedule 5.9 are all of such pending
actions, suits, proceedings, orders or investigations as of the date of this
Agreement.
5.10. COMPLIANCE WITH LAWS; PERMITS. The Company and each of the
Subsidiaries has complied in all respects with all applicable laws and
regulations of foreign, federal, state and local governments and all agencies
thereof which affect the business or any owned or leased properties of the
Company or any of the Subsidiaries and to which the Company
-7-
<PAGE>
or any of the Subsidiaries is subject, except where the failure to do so
would not have a Material Adverse Effect. No claims have been filed by such
governments or agencies against the Company or any of the Subsidiaries
alleging failures to comply with any such law or regulation which claims (a)
individually or in the aggregate, if successful, could reasonably be expected
to have a Material Adverse Effect, and (b) have not been resolved to the
satisfaction of such governments or agencies. The Company and each of the
Subsidiaries holds all of the permits, licenses, certificates and other
authorizations of foreign, federal, state and local governmental agencies
required for the conduct of the business, except where the failure to do so
would not reasonably be expected to have a Material Adverse Effect.
5.11. SHARES. The Shares to be sold to the Purchaser at the
Closing, when issued and paid for pursuant to the terms of this Agreement, will
be duly and validly authorized, issued and outstanding, fully paid,
nonassessable and free and clear of all pledges, liens, encumbrances and
restrictions.
5.12. NO BROKERS OR FINDERS. No Person has or will have, as a
result of any act or omission of the Company, any right, interest or valid claim
against the Company or the Purchaser for any commission, fee or other
compensation as a finder or broker, or in any similar capacity, in connection
with the transactions contemplated by this Agreement.
5.13. YEAR 2000 COMPLIANCE. The Company has (a) initiated a
review and assessment of all areas of its business and operations and of each of
its Subsidiaries (including those affected by their respective suppliers,
vendors and customers) that could be adversely affected by the risk that
computer applications used by it or any of the Subsidiaries (or their respective
suppliers, vendors and customers) may be unable to recognize and perform
properly date-sensitive functions involving certain dates prior to and any date
after December 31, 1999 (the "Year 2000 Problem"), (b) developed a plan and
timetable for addressing the Year 2000 Problem on a timely basis, and (c) to
date, implemented that plan in accordance with that timetable. Based on the
foregoing, the Company believes that all computer applications used by it or any
of the Subsidiaries (or their respective suppliers, vendors and customers) are
reasonably expected on a timely basis to be Year 2000 Compliant (as defined
below), except to the extent that a failure to do so could not reasonably be
expected to have a Material Adverse Effect. The costs of all assessment,
remediation, testing and integration related to the Company's plan for becoming
Year 2000 Compliant is not reasonably expected to have a Material Adverse
Effect. As used in this Agreement, the term "Year 2000 Compliant" shall mean
the ability of such computer application to (w) consistently and accurately
handle date information before, during and after January 1, 2000, including but
not limited to accepting date input, providing date output, and performing
calculations on dates or portions of dates; (x) function accurately
substantially in accordance with its specifications and without material
interruption before, during and after January 1, 2000, without any change of
operations associated with the advent of the new century; (y) respond to any
two-digit date input in a way that resolves any ambiguity as to century in a
disclosed, defined and predetermined manner; and (z) store and provide output of
date information in ways that are unambiguous as to century.
-8-
<PAGE>
5.14. TAKEOVER LAWS. The Company has taken all action required to
be taken by it, if any, in order to exempt the purchase and sale of the Shares
and the granting to Purchaser of Board representation rights, the right of first
refusal and the preemptive right pursuant to Sections 8.3 and 8.4 of this
Agreement from, and such transactions are exempt from, the requirements of any
"moratorium", "control share", "fair price" or other antitakeover laws and
regulations of the States of Delaware and California (collectively, "Takeover
Laws"), including, without limitation, Section 203 of the Delaware General
Corporation Law ("DGCL").
6. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby
represents and warrants to the Company that:
6.1 INVESTMENT REPRESENTATIONS. The Shares being acquired by the
Purchaser are being purchased for the Purchaser's own account and not with the
view to, or for resale in connection with, any distribution or public offering
thereof within the meaning of the Securities Act. The Purchaser understands
that neither the Shares nor the Conversion Shares have been registered under the
Securities Act by reason of their contemplated issuance in transactions exempt
from the registration and prospectus delivery requirements of the Securities Act
pursuant to Section 4(2) thereof, and that the reliance of the Company upon this
exemption from such registration is predicated in part upon the representations
and warranties of the Purchaser contained herein. The Purchaser is an
"accredited investor" as that term is defined in Regulation D promulgated under
the Securities Act and has such knowledge and experience in financial and
business matters that the Purchaser is capable of evaluating the merits and
risks of the investment to be made hereunder by the Purchaser.
6.2. ORGANIZATION AND QUALIFICATION. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and has the requisite corporate power to carry on its
business as now conducted. The Purchaser is registered as a bank holding company
under the BHCA. The Purchaser is licensed or qualified to do business in every
jurisdiction in which the nature of its business or its ownership of property
requires it to be licensed or qualified, except where the failure to be so
licensed or qualified would not reasonably be expected to have a material
adverse effect on (a) the business, assets, liabilities, results of operations
or financial condition of the Purchaser or (b) on the ability of the Purchaser
to perform its obligations under or with respect to, or to consummate the
transactions contemplated by, this Agreement, the Flow Agreement or the Service
Provider Agreement.
6.3. AUTHORITY RELATIVE TO THIS AGREEMENT; NON-CONTRAVENTION. The
Purchaser has the requisite corporate power and authority to enter into this
Agreement, to carry out its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement by the Purchaser and the consummation by the Purchaser of the
transactions contemplated hereby have been duly authorized by all requisite
corporate action on behalf of the Purchaser and no other corporate
proceedings on the part of the Purchaser are necessary to authorize this
Agreement and such transactions. This Agreement has been duly executed and
delivered by the Purchaser and constitutes a valid and binding obligation of
the Purchaser, enforceable in accordance with its terms, except as the
enforceability hereof may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the enforcement of creditors' rights
generally and to judicial limitations on the enforcement of the
-9-
<PAGE>
remedy of specific performance and other equitable remedies and except as
the indemnification provisions of the registration rights described in Exhibit F
may be limited by principles of public policy. The Purchaser is neither subject
to, nor obligated under, any provision of (a) its charter or bylaws, (b) any
agreement, arrangement or understanding, (c) any license, franchise or permit or
(d) subject to obtaining the approvals referred to in the next sentence, any
law, regulation, order, judgment or decree, which would be breached or violated,
or in respect of which a right of termination or acceleration or any encumbrance
on any of its assets would be created, by the execution, delivery or performance
of this Agreement or the consummation of the transactions contemplated hereby,
other than any such breaches, violations, terminations, accelerations or
encumbrances which would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on (y) the business, assets,
liabilities, results of operations or financial condition of the Purchaser and
its subsidiaries, taken as a whole, or (z) on the ability of the Purchaser to
perform its obligations under or with respect to, or to consummate the
transactions contemplated by, this Agreement, the Flow Agreement or the Service
Provider Agreement.. Other than any approvals or filings required under the
BHCA or the HSR Act, and assuming the accuracy of the representations of the
Company contained in Section 5, no authorization, consent or approval of, or
filing with, any public body, court or authority is necessary on the part of the
Purchaser for the consummation by the Purchaser of the transactions contemplated
by this Agreement.
6.4 NO BROKERS OR FINDERS. No Person has or will have, as a result
of any act or omission of the Purchaser, any right, interest or valid claim
against the Company or the Purchaser for any commission, fee or other
compensation as a finder or broker, or in any similar capacity, in connection
with the transactions contemplated by this Agreement.
6.5 RESTRICTION ON TRANSFER OF SHARES.
(a) The Purchaser acknowledges and agrees that the Shares and the
Conversion Shares are only transferable pursuant to (i) a public offering
registered under the Securities Act, (ii) Rule 144 promulgated by the Commission
under the Securities Act (or any similar rule then in effect) if such rule is
available and (iii), subject to the conditions specified elsewhere in this
Section 6.5, any other legally available means of transfer.
(b) LEGEND. Each certificate representing Shares shall be endorsed
with the following legend:
"The shares represented by this certificate may not be transferred
without (i) an opinion of counsel satisfactory to this corporation
that such transfer may lawfully be made without registration under the
Securities Act of 1933, as amended, and all applicable state
securities laws or (ii) such registration."
Upon the conversion of any Shares, unless the Company receives an opinion of
counsel satisfactory to the Company to the effect that a subsequent transfer of
the Conversion Shares may be made without registration or further restriction or
transfer, or unless such Conversion Shares are being disposed of pursuant to a
registration statement filed under the Securities Act, the same legend shall be
endorsed on each certificate evidencing such Conversion Shares.
-10-
<PAGE>
(c) REMOVAL OF LEGEND. Any legend endorsed on a certificate
evidencing Shares or Conversion Shares pursuant to Section 6.5(b) hereof shall
be removed, and the Company shall issue a certificate without such legend to the
holder of such Shares or Conversion Shares, if such Shares or Conversion Shares
are being disposed of pursuant to a registration statement filed under the
Securities Act or pursuant to Rule 144 or any similar rule then in effect or if
such holder provides the Company with an opinion of counsel satisfactory to the
Company to the effect that a transfer of such Shares or Conversion Shares may be
made without registration. In addition, if the holder of such Shares or
Conversion Shares delivers to the Company an opinion of such counsel to the
effect that no subsequent transfer of such Shares or Conversion Shares will
require registration under the Securities Act, the Company will promptly deliver
new certificates evidencing such Shares or Conversion Shares that do not bear
the legend set forth in Section 6.5(b).
7. CONDITIONS TO CLOSING.
7.1 CONDITIONS TO PURCHASER'S OBLIGATION. The Purchaser's obligation
to purchase and pay for the Shares is subject to the fulfillment prior to or on
the Closing Date of the following conditions, any of which may be waived in
whole or in part by the Purchaser:
(a) REPRESENTATIONS AND COMPLIANCE. The representations and
warranties of the Company in this Agreement shall have been true and correct as
of the date hereof, and such representations and warranties shall be true and
correct as of the Closing Date as if made at and as of the Closing Date; and the
Company shall have performed in all material respects each obligation and
agreement and complied in all material respects with each covenant to be
performed and complied with by it hereunder at or prior to the Closing Date.
(b) OFFICERS' CERTIFICATE OF THE COMPANY. The Company shall have
furnished to the Purchaser a certificate of the Chief Executive Officer and the
Chief Financial Officer of the Company, dated as of the Closing Date, in which
such officers shall certify on behalf of the Company that (ii) the conditions
set forth in Section 7.1(a) have been fulfilled, and (ii) except as disclosed in
such certificate, Schedule 5.9 is true and correct as of the Closing Date.
(c) SECRETARY'S CERTIFICATE. The Company shall have furnished to
the Purchaser (i) copies of the text of the resolutions by which the corporate
action on the part of the Company necessary to approve this Agreement, the Flow
Agreement and the Service Provider Agreement and the transactions contemplated
hereby and thereby were taken, and (ii) a certificate dated as of the Closing
Date executed on behalf of the Company by its corporate secretary or one of its
assistant corporate secretaries certifying to the Purchaser that such copies are
true, correct and complete copies of such resolutions and that such resolutions
were duly adopted and have not been amended or rescinded.
(d) MATERIAL ADVERSE CHANGE. Since the date of this Agreement, there
shall have been no adverse change in, and no event, occurrence or development
in, the business of the Company or the Subsidiary that, taken together with
other events, occurrences and developments with respect to such business, would
have or would reasonably be expected to have a Material Adverse Effect.
-11-
<PAGE>
(e) PROCEEDINGS. All corporate proceedings and actions taken by
the Company in connection with the transactions contemplated by this
Agreement (including the authorization of the Shares through the filing of
the Certificate of Designations in the State of Delaware) and all
certificates, agreements, instruments and other documents referenced herein
or incident to any such transaction shall be reasonably satisfactory in form
and substance to the Purchaser.
(f) SERVICE PROVIDER AGREEMENT. The Company shall have executed and
delivered to the Purchaser the Service Provider Agreement reflecting
substantially the terms listed on Exhibit C to this Agreement.
(g) FLOW AGREEMENT. The Company shall have executed and delivered to
the Purchaser the Flow Agreement reflecting substantially the terms listed on
Exhibit B to this Agreement.
(h) REGISTRATION RIGHTS AGREEMENT. The Company shall have executed
and delivered to the Purchaser the Registration Rights Agreement substantially
in the form attached hereto as Exhibit F.
(i) EMPLOYMENT AGREEMENTS. The Company and each of Robert K. Cole,
Brad A. Morrice, Edward F. Gotschall and Steve Holder shall have executed and
delivered to the Purchaser employment/noncompete agreements with terms ending on
December 31, 2002 and otherwise on the same terms as each of their existing
employment/noncompete agreements or on such other terms as may be approved by
the Purchaser prior to or at the Closing. The parties acknowledge and agree that
any amendments to such agreements after the Closing Date shall be subject to the
approval of the Compensation Committee of the Company; provided that the
nonsolicit and noncompete provisions of such agreement shall not be amended
without the consent of the Purchaser.
(j) SHAREHOLDER AGREEMENT. Each of Robert K. Cole, Brad A. Morrice,
Edward F. Gotschall and Steve Holder shall have executed and delivered to the
Purchaser the Shareholder Agreement substantially in the form attached hereto as
Exhibit A.
(k) ABSENCE OF UNDISCLOSED LIABILITIES As of the Closing Date,
neither the Company nor any of the Subsidiaries has any Liabilities except
(a) as reflected on the Latest Balance Sheet, (b) Liabilities which have arisen
after the date of the Latest Balance Sheet in the ordinary course of business,
none of which is an uninsured liability which could reasonably be expected to
have a Material Adverse Effect, (c) Liabilities which have arisen outside of the
ordinary course of business, none of which is an uninsured liability which could
reasonably be expected to have a Material Adverse Effect or (d) as otherwise
disclosed on Schedule 5.6.
7.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligation of the
Company to issue and sell the Shares to the Purchaser is subject to the
fulfillment prior to or on the Closing Date of the following conditions, any of
which may be waived in whole or in part by the Company:
-12-
<PAGE>
(a) REPRESENTATIONS AND COMPLIANCE. The representations and
warranties of the Purchaser in this Agreement shall have been true and correct
as of the date hereof, and such representations and warranties shall be true and
correct as of the Closing Date as if made at and as of the Closing Date; and the
Purchaser shall have performed in all material respects each obligation and
agreement and complied in all material respects with each covenant to be
performed and complied with by it hereunder at or prior to the Closing Date.
(b) OFFICERS' CERTIFICATE OF THE PURCHASER. The Purchaser shall have
furnished to the Company a certificate of a senior executive officer of the
Purchaser, dated as of the Closing Date, in which such officer shall certify, on
behalf of the Purchaser, that the conditions set forth in Section 7.2(a) have
been fulfilled.
(c) MATERIAL ADVERSE CHANGE. Since the date of this Agreement, there
shall have been no adverse change in, and no event, occurrence or development
in, the business of the Purchaser that, taken together with other events,
occurrences and developments with respect to such business, would have or would
reasonably be expected to have a material adverse effect on the ability of the
Purchaser to perform its obligations under or with respect to, or to consummate
the transactions contemplated by, this Agreement, the Flow Agreement or the
Service Provider Agreement.
(d) PROCEEDINGS. All corporate proceedings and actions taken by the
Purchaser in connection with the transactions contemplated by this Agreement and
all certificates, agreements, instruments and other documents referenced herein
or incident to any such transaction shall be reasonably satisfactory in form and
substance to the Company.
(e) SERVICE PROVIDER AGREEMENT. The Purchaser shall have executed
and delivered to the Company the Service Provider Agreement reflecting
substantially the terms listed on Exhibit C to this Agreement.
(f) FLOW AGREEMENT. The Purchaser shall have executed and delivered
to the Company the Flow Agreement reflecting substantially the terms listed on
Exhibit B to this Agreement.
(g) REGISTRATION RIGHTS AGREEMENT. The Purchaser shall have executed
and delivered to the Company the Registration Rights Agreement substantially in
the form attached hereto as Exhibit F.
(h) CONSENT AND AMENDMENT. The Company shall have received the
required consent and amendment to its credit facility set forth on Schedule 5.2.
7.3 MUTUAL CONDITIONS. The obligation of either of the parties
hereto to consummate the transactions contemplated hereby is subject to the
fulfillment prior to or on the Closing Date of the following conditions, any of
which may be waived in whole or in part only by the party against whom
enforcement of this Agreement is sought:
-13-
<PAGE>
(a) REGULATORY APPROVAL. All necessary regulatory or governmental
filings, authorizations or approvals required to consummate the transactions
contemplated by this Agreement, the Flow Agreement or the Service Provider
Agreement shall have been duly made or obtained and shall remain in full force
and effect and all statutory waiting periods in respect thereof shall have
expired. None of such approvals shall contain any conditions or restrictions
that will materially restrict or limit the business or activities of the
Purchaser, the Company or the Subsidiary or have a material adverse effect on,
or would be reasonably likely to have a material adverse effect on, the
business, operations or financial condition of the Purchaser and its
subsidiaries, taken as a whole, on the one hand, or the Company and the
Subsidiary, taken as a whole, on the other hand.
(b) NO INJUNCTION. No injunction or other order entered by a state
or federal court of competent jurisdiction shall have been issued and remain in
effect which would impair the consummation of the transactions contemplated
hereby and by the Flow and Service Provider Agreements.
(c) NO PROHIBITIVE CHANGE OF LAW. There shall have been no law,
statute, rule or regulation, domestic or foreign, enacted or promulgated which
would materially impair the consummation of the transactions contemplated hereby
and by the Flow and Service Provider Agreements.
(d) GOVERNMENTAL ACTION. There shall not be any action taken, or any
statute, rule, regulation, judgment, order or injunction proposed, enacted,
entered, enforced, promulgated, issued or deemed applicable to the transactions
contemplated hereby and by the Flow and Service Provider Agreements by any
federal, state or other court, government or governmental authority or agency,
which would reasonably be expected to result, directly or indirectly, in
restraining or prohibiting the consummation of the transactions contemplated
hereby and thereby or obtaining material damages from the Company or any of the
Subsidiaries, or the Purchaser or any of Purchaser's subsidiaries, in connection
with the transactions contemplated hereby or thereby.
8. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Purchaser that:
8.1 FURNISHING OF INFORMATION AND ACCESS. The Company will:
(a) furnish the Purchaser with copies of all registration statements,
proxy materials, reports, financial statements and other documents filed by the
Company with the Commission or with any securities exchange or automated
quotation system, or sent by the Company to its shareholders; and
(b) make available to the Purchaser with reasonable promptness at
the sole expense of the Purchaser such information and data with respect to
the Company and the Subsidiary, and such access to the executive officers and
independent accountants of the Company and the Subsidiary, as the Purchaser
may from time to time reasonably request for the purpose of monitoring the
Purchaser's investment in the Company. Purchaser acknowledges that the
information and data of the Company to which Purchaser may have access from
time to time
-14-
<PAGE>
may constitute material non-public information. Purchaser hereby agrees that
it will refrain from trading in the Company's securities when it has or is
aware of such material non-public information. Purchaser agrees that any
information obtained by the Purchaser pursuant to this Section 8.1(b) which
is, or would reasonably be perceived to be, proprietary to the Company or
otherwise confidential, will not be disclosed to any third parties without
the prior written consent of the Company, will not be used for any purpose
other than monitoring the Purchaser's investment in the Company, and will not
be used, directly or indirectly, against the Company for any competitive
purpose.
8.2 USE OF PROCEEDS. The proceeds from the sale of the Shares
shall be used for working capital and general corporate purposes (other than
dividends and extraordinary disbursements).
8.3 BOARD REPRESENTATION.
(a) On or prior to, and effective as of, the Closing Date, and within
30 days after June 30, September 30 and December 31 each year, the Company's
Board of Directors shall take all action necessary (i) to expand the Company's
Board of Directors, if necessary, and (ii) to appoint one or more individuals
selected by the Purchaser to serve on the Company's Board of Directors as the
Purchaser's representatives such that the proportion of the Board that is made
up of representatives of the Purchaser as of the Closing Date, or as of the
prior June 30, September 30 or December 31, as the case may be, shall equal the
proportion of the Company's outstanding shares of Common Stock represented by
the shares of Common Stock owned by the Purchaser as of that date (assuming for
this purpose the conversion of the Shares and any other Convertible Securities);
PROVIDED THAT, if such proportion would cause one-half or less of a director (in
addition to one or more whole directors) to be appointed to the Board as a
representative of the Purchaser then such proportion shall be rounded down to
the nearest whole number, and if such proportion would cause more than one-half
of a director (in addition to one or more whole directors) to be appointed to
the Board then such proportion shall be rounded up to the nearest whole number;
PROVIDED FURTHER THAT, notwithstanding the foregoing, so long as this Section
8.3 is in effect, the Purchaser shall be entitled to at least one representative
on the Company's Board of Directors. If more than one individual is to be
appointed to the Board of Directors pursuant to this Section 8.3(a), such
individuals shall be distributed as evenly as possible among the three classes
of Directors with the first such individual being appointed to Class I, the
second to Class II and the third to Class III.
(b) Commencing with its 1999 annual meeting of shareholders and in
connection with each annual meeting of shareholders thereafter, the Company
shall take all reasonable action necessary to nominate and support (in the
same manner as it supports the other nominees to its Board at that meeting)
one or more individuals for election to the Board of Directors as
representatives of the Purchaser such that the proportion of the Board that
is made up of representatives of the Purchaser serving on the Company's Board
of Directors after such annual meeting of shareholders (assuming the election
of the persons so nominated) shall, subject to the two provisos in Section
8.3(a), equal the proportion of the Company's outstanding shares of Common
Stock owned by the Purchaser as of the end of the Company's last fiscal year
(assuming for this purpose the conversion of the Shares and any other
Convertible Securities). In
-15-
<PAGE>
the event that the shareholders of the Company shall fail to elect enough
persons to serve as representatives of the Purchaser on the Company's Board of
Directors to satisfy the proportional requirements of this Section 8.3, the
Board of Directors of the Company shall take any actions necessary to appoint to
the Board a different set of individuals selected by the Purchaser to serve as
its representatives on the Board such that the proportional requirements are
satisfied. Purchaser agrees that it will not select any person to serve as its
representative on the Company's Board of Directors pursuant to this Section 8.3
if (i) such person is not reasonably experienced in business, financial or
mortgage banking matters, (ii) such person has been convicted of, or has pled
nolo contendere to, a felony, (iii) the election of such person would violate
any law, or (iv) any event required to be disclosed pursuant to Item 401(f) of
Regulation S-K under the Exchange Act has occurred with respect to such person.
Purchaser shall use its reasonable efforts to afford the directors of the
Company a reasonable opportunity to meet any individual that Purchaser is
considering selecting as one of its representative on the Company's Board of
Directors.
(c) For so long as the Purchaser has at least one representative on
the Company's Board of Directors, (i) the representative will be entitled to
receive notice of and attend all meetings of the Board of Directors of the
Company, to receive any materials distributed to the directors in their capacity
as such and otherwise to be treated the same as the other directors of the
Company, (ii) the Company will give the Purchaser written notice of each
regularly scheduled meeting of any duly constituted committee of the Board of
Directors (a "Committee") as far in advance as such notice is required to be
delivered to the directors (but at least one Business Day prior to the date of
each special meeting of any Committee); (iii) the Purchaser will be entitled to
receive all written materials and other information (including, without
limitation, copies of meeting minutes and press releases) given to directors in
connection with such Committee meetings at the same time such materials and
other information are given to the directors; (iv) if the Company proposes to
take any action by written consent in lieu of a meeting of any Committee of its
Board of Directors, the Company will give prompt written notice thereof to the
Purchaser prior to the effective date of such consent describing in reasonable
detail the nature and substance of such consent; (v) the Company shall maintain
a provision in its bylaws providing for the indemnification of its directors to
the full extent permitted by the Delaware General Corporation Law; (vi) the
Board of Directors of the Company shall consist of no fewer than 8 members; and
(vii) if the Board of Directors is to be expanded, then additional
representatives of the Purchaser shall be appointed to the Board as necessary to
maintain the then required proportion of representatives of the Purchaser on the
Board; PROVIDED, HOWEVER, THAT, notwithstanding clauses (ii), (iii) and (iv)
above, the Purchaser shall not be entitled to the rights thereunder if and to
the extent that such Committee relates to the Company's relationship with the
Purchaser or any transaction in which the Purchaser has an interest other than
as a shareholder of the Company.
(d) The Purchaser may, at its sole discretion at any time and from
time to time, elect to waive its right to some or all of the representatives on
the Company's Board to which it is entitled under this Section 8.3, and the
exercise of any such waiver shall not cause the Purchaser's right to such
representatives to terminate.
-16-
<PAGE>
(e) The Purchaser hereby agrees that, in the event that the
proportion of the Company's outstanding shares of Common Stock owned by the
Purchaser as of any June 30, September 30 or December 31 as described above
would indicate that the Purchaser should have fewer representatives on the Board
than it has at that time, then the Purchaser will cause one or more of its
representatives to resign so that the Purchaser has the number of Board
representatives to which it is entitled under this Section 8.3.
8.4 RIGHT OF FIRST REFUSAL; PREEMPTIVE RIGHT.
(a) If, after the date hereof, the Company should decide to issue any
New Securities (as defined in subparagraph (c) below) for cash, the Company
shall, in accordance with this Section 8.4, first offer to issue all of such New
Securities to the Purchaser upon substantially the same terms and conditions as
the Company is proposing to issue such New Securities to others. Purchaser's
right to purchase New Securities pursuant to this Section 8.4(a) shall not be
exercisable in connection with any issuance as to which the Purchaser elects to
exercise its right under Section 8.4(b).
(b) If, after the date hereof, the Company should decide to issue any
New Securities, the Company shall, in accordance with this Section 8.4, also
concurrently offer to issue to the Purchaser, upon substantially the same terms
and conditions as the Company is proposing to issue such New Securities to
others, a sufficient number of such New Securities so that the Purchaser's
Applicable Percentage (as defined in subparagraph (d) below) will, if such New
Securities are purchased by the Purchaser and such others, remain unchanged
following the proposed issuance of New Securities (any such issuance is referred
to herein as a "Preemptive Rights Issuance"). Purchaser's right to purchase New
Securities pursuant to this Section 8.4(b) shall not be exercisable in
connection with any issuance as to which the Purchaser elects to exercise its
right under Section 8.4(a).
(c) For purposes of this Agreement, "New Securities" means any
additional shares of capital stock of the Company, whether or not currently
authorized, and any Convertible Securities; provided that "New Securities"
shall not include: (a) shares of Common Stock issued upon conversion of the
Shares or to the Purchaser, (b) shares of the Company's capital stock or
other securities issued in connection with the acquisition of any other
corporation or business entity, in whole or in part, directly or indirectly,
by the Company, (c) shares of the Company's capital stock issued in
connection with any stock split, stock divided or recapitalization of the
Company, (d) shares of the Company's capital stock issued upon exercise,
conversion or exchange of Convertible Securities described on Schedule 5.3
hereto or pursuant to any other arrangement or agreement as of the date
hereof described on Schedule 5.3 hereto, including without limitation shares
of the Company's capital stock authorized or available for issuance under any
Company Plan as described on Schedule 5.3, (e) shares of the Company's
capital stock issued upon exercise, conversion or exchange of Convertible
Securities if the issuance of such Convertible Securities permitted Purchaser
to purchase New Securities in accordance with this Section 8.4, (f) up to
1,000,000 shares of the Company's capital stock or Convertible Securities
issued pursuant to any Additional Employee Issuance (as defined herein), and
(g) shares of the Company's capital stock issued upon exercise, conversion or
exchange of any Convertible Securities which did not constitute "New
Securities" upon their issuance by virtue of subsection
-17-
<PAGE>
(f) above. For purposes of this Agreement the terms "Additional Employee
Issuance" means any of the following: (i) any stock-related plan for the
benefit of the Company's or its subsidiaries' employees, officers, directors
or consultants adopted by the Company after the date of this Agreement; (ii)
a repricing or a regrant of any Convertible Securities issued pursuant to any
Company Plan; or (iii) an increase in the number of shares authorized and
available for issuance pursuant to any Company Plan.
(d) For purposes of this Agreement, the Purchaser's "Applicable
Percentage" shall be equal to the number of outstanding shares of Common Stock
held by the Purchaser (assuming for this purpose the conversion of the Shares
and any other Convertible Securities held by the Purchaser, and including only
shares of Common Stock received pursuant to any such conversion and any other
shares acquired by the Purchaser from the Company) divided by the total number
of outstanding shares of Common Stock (assuming for this purpose the conversion
of the Shares and any other Convertible Securities).
(e) In the event that the Company is required to make an offer of
New Securities to the Purchaser pursuant to subparagraph (a) or (b) above, it
shall give the Purchaser written notice of such offer, describing the type of
New Securities, the estimated price and the terms upon which the Company
proposes (or is obligated) to issue the same, including for an offer of New
Securities pursuant to subparagraph (b) above, the number of New Securities
offered to the Purchaser for the Purchaser to maintain the Purchaser's
Applicable Percentage (the "Subscription Notice"). The Purchaser shall have
ten Business Days from the date of receipt of any Subscription Notice to
subscribe to purchase such New Securities (and, in the case of subparagraph
(a) above, all, but not less than all of such New Securities) for the price
and upon the terms specified in the Subscription Notice by giving written
notice to the Company, which subscription by Purchaser shall be binding and
irrevocable subject only to the making of any necessary regulatory or
governmental filings, the receipt of any necessary regulatory or governmental
authorizations and approvals, and the expiration of all statutory waiting
periods in respect thereof. The closing of the sale of the New Securities to
the Purchaser pursuant to subparagraph (a) above shall take place within the
later of (i) ten Business Days after the delivery of such notice to the
Company, or (ii) three Business Days after all necessary shareholder,
regulatory or governmental filings, authorizations or approvals required to
consummate such purchase shall have been duly made or obtained and all
statutory waiting periods in respect thereof shall have expired, PROVIDED
THAT if such closing has not occurred within 90 days after the date of
delivery of such notice to the Company, the Purchaser's right to purchase
such issue of New Securities pursuant to subparagraph (a) above shall
terminate. The closing of the sale of the New Securities to the Purchaser
pursuant to subparagraph (b) above shall take place within the later of (i)
ten Business Days after the occurrence of the Preemptive Rights Issuance, or
(ii) three Business Days after all necessary shareholder, regulatory or
governmental filings, authorizations or approvals required to consummate such
purchase shall have been duly made or obtained and all statutory waiting
periods in respect thereof shall have expired; PROVIDED THAT the Purchaser
shall have no right to purchase New Securities under subparagraph (b) above
unless and until the applicable Preemptive Rights Issuance has occurred;
PROVIDED FURTHER THAT if such closing has not occurred within 90 days after
the occurrence of the Preemptive Rights Issuance to the Company, the
Purchaser's right to purchase such issue of New Securities pursuant to
subparagraph (b) above shall terminate. The Purchaser and the Company
mutually agree that they will each use all
-18-
<PAGE>
reasonable efforts to make, and to assist with the making of, any such filing
and to obtain, and to assist with obtaining, any such authorization or
approval as promptly as practicable.
(f) In the event and to the extent that the Purchaser fails to
subscribe for any New Securities offered to it pursuant to subparagraph (a) or
(b) above within ten Business Days after the date of receipt of the Subscription
Notice, the Company shall have 120 days thereafter to sell the New Securities at
a price which is not less than 95% of the price specified in the Subscription
Notice and upon terms otherwise no more favorable to the purchasers thereof than
the terms specified in the Subscription Notice. In the event the Company has
not sold the New Securities within such 120 day period, the Company shall not
thereafter issue any New Securities without first offering such New Securities
to the Purchaser as required by this Section 8.4.
(g) The provisions of Section 8.4(a) shall terminate and no longer be
of any effect as of the earlier of (i) 24 months after the Closing Date, or (ii)
the receipt by the Company of gross proceeds totaling $30 million from the sale
of shares of capital stock of the Company or Convertible Securities, other than
pursuant to a Company Plan, after the Closing Date.
(h) In the event that the proposed issuance which gives rise to an
offer pursuant to subparagraph (a) or (b) above is a registered public offering
by the Company, then the parties agree that (i) the Subscription Notice shall be
given upon commencement of preparations for the offering; (ii) for purposes of
an offer pursuant to subparagraph (a) above, the purchase price shall be equal
to the average closing sale price of the Common Stock for the ten trading days
immediately preceding delivery of the Subscription Notice; (iii) for purposes of
an offer pursuant to subparagraph (b) above, the purchase price shall be equal
to the price at which the shares are sold in the public offering, and (iv) if
the Purchaser fails to subscribe for any New Securities offered to it pursuant
to subparagraph (a) or (b) above, then, for the purposes of subparagraph (f)
above, the Company shall have 150 days thereafter to sell the New Securities in
a registered public offering at any price.
8.5 NO NEGOTIATIONS, ETC. The Company will not, and will cause
the Subsidiary and the Company's and the Subsidiary's respective officers,
directors, employees, agents or affiliates, not to, directly or indirectly,
solicit, authorize, initiate or encourage submission of, any proposal, offer,
tender offer or exchange offer from any person or entity (including any of
its or their officers or employees) relating to any liquidation, dissolution,
recapitalization, merger, consolidation or acquisition or purchase of all or
a material portion of the assets of, or any material equity interest in, the
Company or the Subsidiary or other similar transaction or business
combination involving the Company or the Subsidiary, or, unless the Company
shall have determined, based on the advice of counsel to the Company, that
the Board of Directors of the Company has a fiduciary duty to do so, (a)
participate in any negotiations in connection with or in furtherance of any
of the foregoing or (b) permit any person other than the Purchaser and its
representatives to have any access to the facilities of, or (c) furnish to
any person other than the Purchaser and its representatives any information
with respect to, the Company or the Subsidiary in connection with or in
furtherance of any of the foregoing. The Company shall promptly notify the
Purchaser if any such proposal or offer, or any inquiry from or contact with
any person with respect thereto, is made, and shall promptly provide the
Purchaser with such information regarding such proposal, offer, inquiry or
contact as the
-19-
<PAGE>
Purchaser may request. Notwithstanding the foregoing, this Section 8.5 shall
not be deemed to prohibit the Company or its officers, directors, employees,
agents and affiliates from initiating, encouraging, negotiating and entering
into any acquisition or purchase of a business or assets using shares of the
Company's Common Stock as consideration for the acquisition or purchase so
long as the number of shares of Common Stock to be issued in the transaction
(assuming the exercise or conversion of any Share Acquisition Rights or
Convertible Securities to be issued in the transaction) does not exceed 20%
of the shares of Common Stock then outstanding.
8.6 UNDERTAKING TO COOPERATE IN SALES OF SHARES. In the event that
the Purchaser determines to reduce its ownership interest in the Company, the
Company will use reasonable efforts to cooperate with and assist the Purchaser
(at Purchaser's expense) in connection with sales of shares of the Company's
capital stock whether through private placements, market transactions pursuant
to Rule 144 or registered offerings pursuant to the Registration Rights
Agreement. For so long as the Purchaser continues to hold any Shares (or shares
of Common Stock acquired upon conversion thereof which do not qualify for sale
pursuant to Rule 144(k)), the Company shall use reasonable efforts to file all
annual, quarterly and other reports required to be filed by the Company under
Section 13 or 15(d) of the Exchange Act and the rules and regulations
thereunder, as amended from time to time. The Company shall cooperate with the
Purchaser (at Purchaser's expense), in such manner as the Purchaser may
reasonably request, so as to enable any such sales to be made in accordance with
applicable laws, rules and regulations, the requirements of the Company's
transfer agent and the reasonable requirements of any broker through which such
sales are proposed to be executed.
8.7 UNDERTAKING TO COOPERATE IN PURCHASES OF SHARES. Subject to
Section 10 hereof and to any confidentiality and other contractual or legal
restrictions applicable to the Company, the Company will, if requested to do so
by the Purchaser, cooperate with and use its best efforts to assist the
Purchaser in identifying existing shareholders of the Company who may be
interested in selling shares of Common Stock, and, once any such potential
seller is identified, will cooperate with the Purchaser (at Purchaser's
Expense), in such manner as the Purchaser may reasonably request, so as to
enable such purchases to be made in accordance with applicable laws rules and
regulations, the requirements of the Company's transfer agent and the reasonable
requirements of any broker through which such purchases are proposed to be
executed.
8.8 REGULATORY COMPLIANCE.
(a) As long as the Shares or the Conversion Shares are owned and
controlled by the Purchaser or by a nonbank subsidiary of the Purchaser, the
Company shall (i) conduct its current activities in conformity with the Federal
Reserve's regulations and orders under the BHCA governing such activities, (ii)
not engage in any new activities (A) that are impermissible for any bank holding
company under the BHCA and (B) until the Purchaser has provided prior notice to
the Federal Reserve, if required, under the BHCA of the Purchaser's intent to
engage in such activities and, if required, obtained the prior approval of the
Federal Reserve under the BHCA to engage in such activities through the Company,
and (iii) be subject to supervision and examination by the Federal Reserve;
PROVIDED, HOWEVER, THAT the Company need not comply with this Section 8.8(a) in
the event (i) that the Shares or the Conversion Shares represent less than 5% of
any "class of voting shares" (as such term is defined in the Federal Reserve's
regulations
-20-
<PAGE>
and orders) of the Company or (ii) that the Purchaser ceases to be regulated
as a bank holding company under the BHCA.
(b) Following the assignment and transfer of the Shares or the
Conversion Shares to a national bank subsidiary of the Purchaser and, following
such assignment and transfer, for as long as the Shares or the Conversion Shares
are owned and controlled by a national bank subsidiary of the Purchaser, the
Company shall (i) conduct its current activities in conformity with the OCC's
regulations and orders under the National Bank Act governing such activities,
(ii) not engage in any new activities (A) that are impermissible for any
national bank under the National Bank and (B) until the Purchaser has provided
prior notice to the OCC, if required, under the National Bank Act of the
Purchaser's intent to engage in such activities and, if required, obtained the
prior approval of the OCC under the National Bank Act to engage in such
activities through the Company, and (iii) be subject to supervision and
examination by the OCC; provided, however, that the Purchaser shall not assign
or transfer the Shares or the Conversion Shares to a national bank subsidiary of
the Purchaser, unless and until the Purchaser determines, in its reasonable
discretion, that the Company would be deemed to be an "affiliate" of Purchaser
for purposes of Section 23A of the Federal Reserve Act as a result of
Purchaser's ownership of the Shares or the Conversion Shares or any shares of
Common Stock of the Company which Purchaser may acquire in its discretion in
accordance with the terms of this Agreement or as a result of Purchaser's
representation on the Company's Board of Directors or as otherwise as required
by Section 23A of the Federal Reserve Act.
8.9 RESTRICTION ON COMPANY PLANS. Without the prior written consent
of Purchaser, the Company shall not (i) increase the number of shares available
for issuance under, any of the Company Plans, (ii) adopt any other stock-related
plans not listed on Schedule 5.3 hereto, (iii) grant additional restricted stock
awards other than pursuant to the Founding Managers' Incentive Compensation Plan
or (iv) take any action to reprice or regrant any Convertible Securities issued
pursuant to any Company Plan; PROVIDED THAT, notwithstanding the foregoing, the
Company may take such actions in connection with an Additional Employee
Issuance, so long as the aggregate number of shares of capital stock which are
issued or issuable pursuant to any Additional Employee Issuance shall not exceed
1,000,000 shares of Common Stock (including no more than 250,000 shares of
Common Stock pursuant to restricted stock awards not made under the Founding
Managers' Incentive Compensation Plan).
8.10 TERMINATION OF CERTAIN COVENANTS. Subject to any earlier
termination provided for therein, the covenants of the Company in Section 8
(other than Section 8.8) and the proviso in the last sentence of Section 7.1(i)
will terminate and no longer be of any force or effect on the earliest to occur
of (a) December 31, 2002, (b) the date on which the Purchaser owns less than 5%
of the Company's outstanding shares of Common Stock (assuming for this purpose
the conversion of the Shares and any other Convertible Securities) or (c) a
Purchaser Default. The covenants of the Company in Sections 8.4, 8.5, 8.7 and
8.9 will also terminate (a) upon the closing of an acquisition of the Purchaser
if the Purchaser is acquired in a transaction pursuant to which the acquiror
obtains the right to dictate a substantial majority of the Board of Directors of
Purchaser; or (b) if the Purchaser sells more than 20% of its shares of Common
Stock of the Company during any 90-day period, PROVIDED THAT sales of shares of
Common Stock for this
-21-
<PAGE>
purpose shall not include any shares sold by the Purchaser because it was
necessary or desirable to do so for regulatory reasons.
9. MUTUAL COVENANTS
9.1 REGULATORY APPROVALS. The Purchaser and the Company will use
all reasonable efforts and will cooperate with each other in the preparation
and filing, as soon as practicable, of all notices, applications or other
documents required to obtain the regulatory approvals and consents necessary
to satisfy the condition set forth in Section 7.3(a), and will provide copies
of the non-confidential portions of such applications, filings and related
correspondence to the other party. Prior to filing each application,
registration statement or other document with the applicable regulatory
authority, each party will provide the other party with an opportunity to
review and comment on the non-confidential portions of each such application,
registration statement or other document. Each party will use all reasonable
efforts and will cooperate with the other party in taking any other actions
necessary to obtain such regulatory or other approvals and consents,
including participating in any required hearings or proceedings. Subject to
the terms and conditions herein provided, each party will use all reasonable
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable to consummate and make
effective as promptly as practicable the transactions contemplated by this
Agreement and the Flow and Service Provider Agreements. Notwithstanding any
provision to the contrary contained herein, no later than five days after the
execution of this Agreement (a) the Purchaser and the Company shall file with
the Federal Trade Commission and the Department of Justice the appropriate
documents pursuant to the rules and regulations promulgated under Title II
of the HSR Act reporting the sale of the Shares to the Purchaser, and (b) the
Purchaser shall file with the Federal Reserve the applicable notices,
applications and other documents required to obtain the approval and consent
of the Federal Reserve to the sale of the Shares to the Purchaser.
9.2 BROKERS AND FINDERS FEES. Each of the parties hereto will
indemnify and hold the other party harmless against any and all liability to any
Person with respect to any commission, fee or other compensation as a finder or
broker, or in any similar capacity, that may be payable or is determined to be
payable in connection with the transactions contemplated by this Agreement by
reason of any act or omission of the indemnifying party.
9.3 NOTIFICATION OF CERTAIN MATTERS. Each party shall give prompt
notice to the other parties of (a) the occurrence or failure to occur of any
event or the discovery of any information, which occurrence, failure or
discovery would be likely to cause any representation or warranty on its part
contained in this Agreement to be untrue or inaccurate when made, at the Closing
Date or at any time prior to the Closing Date, and (b) any failure of such party
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder.
9.4 TAKEOVER LAWS. No party shall take any action that would cause
the purchase and sale of the Shares or the granting to Purchaser of Board
representation rights, the right of first refusal and the preemptive right
pursuant to Sections 8.3 and 8.4 of this Agreement to be subject to requirements
imposed by any Takeover Law and each party shall take all
-22-
<PAGE>
necessary steps within its control to exempt (or ensure the continued
exemption of) the transactions listed above, or if necessary challenge the
validity or applicability of, any applicable Takeover Law, as now or
hereafter in effect, including, without limitation, Section 203 of the DGCL,
or any other Takeover Laws that purport to apply to this Agreement, or the
transactions contemplated hereby.
9.5 NEGOTIATION. Each party agrees that it will use its best efforts
and negotiate in good faith to resolve any issues that arise during the drafting
and negotiation of the Flow Agreement and the Service Provider Agreement.
10. PURCHASER'S STANDSTILL AGREEMENT. Unless such action shall have been
consented to in writing by the Board of Directors of the Company, Purchaser
agrees that neither it nor any of its affiliates will, either directly or
indirectly, (a) acquire over 50% of the Company's outstanding capital stock;
(b) effect or propose (whether publicly or otherwise) to effect, participate in
or cause (i) any tender or exchange offer or merger or other business
combination involving the Company, (ii) any recapitalization, restructuring,
liquidation, dissolution or other extraordinary transaction with respect to the
Company or (iii) any "solicitation" of "proxies" (as such terms are used in
proxy rules of the Commission) or consents to vote any voting securities of the
Company, (c) form, join or in any way participate in a "group" (as defined under
the Exchange Act), or (d) take any action which might force the Company to make
a public announcement regarding any of the types of matters set forth in (a),
(b) or (c) above. The covenant of the Purchaser in this Section 10 will
terminate and no longer be of any force or effect on the earlier of December 31,
2002 and the date on which the Purchaser and its Affiliates in the aggregate own
less than 5% of the Company's outstanding shares of Common Stock (assuming for
this purpose the conversion of the Shares and any other Convertible Securities).
11. TERMINATION.
11.1 METHODS OF TERMINATION. Prior to Closing, this Agreement may
be terminated as follows:
(a) by the mutual consent of the parties hereto;
(b) by either the Purchaser or the Company if there has been a
misrepresentation, breach of warranty or breach of covenant on the part of the
other party under this Agreement;
(c) by either the Purchaser or the Company, if any of the conditions
to such party's obligation to consummate the transactions contemplated in this
Agreement shall have become impossible to satisfy;
(d) by either the Purchaser or the Company if the Closing shall not
have been consummated by December 31, 1998; PROVIDED that, neither the Company
nor the Purchaser will be entitled to terminate this Agreement pursuant to this
Section 12.1(d) if such party's willful breach of this Agreement has prevented
the consummation of the transactions contemplated hereby; or
-23-
<PAGE>
(e) by the Purchaser if, between the date hereof and the Closing
Date, there shall have been any occurrence that has resulted or could reasonably
be expected to result in a Material Adverse Effect.
11.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in Section 11.1, this Agreement shall become void (other
than Section 12.15 which shall remain in full force and effect) and there shall
be no liability on the part of any party hereto, or their respective
stockholders, officers, or directors.
12. MISCELLANEOUS.
12.1 PRESS RELEASES AND ANNOUNCEMENTS. No party hereto shall issue
any press release (or make any other public announcement) related to this
Agreement or the transactions contemplated hereby without prior written approval
of the other party hereto, except as may be necessary, in the opinion of counsel
to the party seeking to make disclosure, to comply with any applicable laws,
including securities laws. If any such press release is so required, the party
making such disclosure shall, to the extent practicable, consult with the other
party prior to making such disclosure, and the parties shall use all reasonable
efforts, acting in good faith, to agree upon a text for such disclosure which is
satisfactory to all of the parties.
12.2 ENTIRE AGREEMENT. This Agreement (including the exhibits,
schedules and other documents referred to herein), the Flow Agreement, the
Service Provider Agreement and the Registration Rights Agreement contain the
entire understanding between the parties hereto with respect to the subject
matter hereof and thereof and supersede any prior understandings, agreements or
representations, written or oral, relating to the subject matter hereof and
thereof.
12.3 COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which will be an original and all of which taken together
shall constitute one and the same agreement, and any party hereto may execute
this Agreement by signing any such counterpart.
12.4 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law but if any provision of this Agreement is held to be
invalid, illegal or unenforceable under any applicable law or rule, the
validity, legality and enforceability of the other provisions of this Agreement
will not be affected or impaired thereby.
12.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs, personal
representatives and, to the extent permitted by Section 12.6, successors and
assigns.
12.6 ASSIGNMENT. This Agreement and the rights and obligations of the
parties hereunder shall not be assignable, in whole or in part, by either party
without the prior written consent of the other party.
-24-
<PAGE>
12.7 MODIFICATION, AMENDMENT, WAIVER OR TERMINATION. No provision of
this Agreement may be modified, amended, waived or terminated except by an
instrument in writing signed by the parties to this Agreement. No course of
dealing between the parties will modify, amend, waive or terminate any provision
of this Agreement or any rights or obligations of any party under or by reason
of this Agreement.
12.8 NOTICES. All notices, consents, requests, instructions,
approvals or other communications provided for herein shall be in writing and
delivered by personal delivery, overnight courier, mail or electronic facsimile
addressed to the receiving party at the address set forth herein. All such
communications shall be effective when received.
<TABLE>
<CAPTION>
NOTICES TO THE PURCHASER: WITH A COPY TO:
- ------------------------- ---------------
<S> <C>
U.S. Bancorp Dorsey & Whitney LLP
601 Second Avenue South 220 South Sixth Street
Minneapolis, Minnesota 55402 Minneapolis, Minnesota 55402
Attention: Lee R. Mitau, Esq. Attention: Elizabeth C. Hinck, Esq.
Telecopy: (612) 973-4333 Telecopy: (612) 340-8738
NOTICES TO THE COMPANY: WITH A COPY TO:
- ----------------------- ---------------
New Century Financial Corporation O'Melveny & Myers LLP
18400 Von Karman, Suite 1000 610 Newport Center Drive, 17th Floor
Irvine, California 92612 Newport Beach, California 92660
Attention: Brad A. Morrice Attention: Karen K. Dreyfus, Esq.
Telecopy: 949-440-7033 Telecopy: 949-823-6994
</TABLE>
Any party may change the address set forth above by notice to each other party
given as provided herein.
12.9 HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
12.10 GOVERNING LAW. All matters relating to the interpretation,
construction, validity and enforcement of this Agreement shall be governed by
the internal laws of the state of Delaware, without giving effect to any
choice of law provisions thereof.
12.11 THIRD-PARTY BENEFIT. Nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights, remedies,
obligations or liabilities of any nature whatsoever.
12.12 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Notwithstanding
any investigation made by either of the parties hereto and notwithstanding
the Closing or any actions taken after the execution hereof, the
representations and warranties made in this Agreement shall survive for 18
months after the Closing Date, except for the representation and warranty in
Section 5.11 which shall survive the Closing indefinitely. Purchaser shall
not assert a claim
-25-
<PAGE>
against the Company for a breach or breaches of the representations and
warranties made in this Agreement unless and until Purchaser has a claim or
claims for damages, liabilities, losses or expenses arising from or relating
to such breach or breaches ("Losses") in excess of $300,000 in the aggregate
(the "Basket Amount"); provided that once Purchaser has a claim or claims for
aggregate Losses in excess of the Basket Amount it shall be entitled to
assert a claim against the Company for the entire amount of Purchaser's
aggregate Losses.
12.13 JURISDICTION AND VENUE. This Agreement may be enforced in
any federal court or state court sitting in California, and each party
consents to the jurisdiction and venue of any such court and waives any
argument that venue in such forum is not convenient. If any party commences
any action under any tort or contract theory arising directly or indirectly
from the relationship created by this Agreement in another jurisdiction or
venue, the other party to this Agreement shall have the option of
transferring the case to the above-described venue or jurisdiction or, if
such transfer cannot be accomplished, to have such case dismissed without
prejudice.
12.14 REMEDIES. The parties agree that money damages may not be
an adequate remedy for any breach of the provisions of this Agreement and
that any party may, in its discretion, apply to any court of law or equity of
competent jurisdiction for specific performance and injunctive relief in
order to enforce or prevent any violations this Agreement, and any party
against whom such proceeding is brought hereby waives the claim or defense
that such party has an adequate remedy at law and agrees not to raise the
defense that the other party has an adequate remedy at law.
12.15 EXPENSES. Except as otherwise expressly provided for
herein, each party will pay its own expenses (including attorneys' and
accountants' fees) incurred in connection with the negotiation of this
Agreement, the performance of its respective obligations hereunder and the
consummation of the transactions contemplated by this Agreement (whether
consummated or not).
-26-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized representatives as of
the day and year first above written.
NEW CENTURY FINANCIAL CORPORATION
By: /s/ Robert K. Cole
--------------------------------
Its: Chairman and CEO
----------------------------
U.S. BANCORP
By: /s/ Susan E. Lester
--------------------------------
Its: Executive Vice President
and CFO
----------------------------
-27-
<PAGE>
EXHIBIT 99.2
NEW CENTURY FINANCIAL CORPORATION
-----------------
CERTIFICATE OF DESIGNATIONS
FOR
SERIES 1998A CONVERTIBLE PREFERRED STOCK
(PURSUANT TO DELAWARE GENERAL CORPORATION LAW, SECTION 151(g))
-----------------
The undersigned, being respectively the Chairman and Chief Executive
Officer and the Secretary of New Century Financial Corporation (the
"CORPORATION"), a corporation organized and existing under the Delaware General
Corporation Law, in accordance with the provisions of the Delaware General
Corporation Law, Section 151(g), do hereby certify that:
Pursuant to the authority vested in the Board of Directors of the
Corporation by the Certificate of Incorporation of the Corporation, the Board of
Directors on November 19, 1998, in accordance with the Delaware General
Corporation Law, Section 151, duly adopted the following resolution establishing
a series of 20,000 shares of the Corporation's Preferred Stock, to be designated
as its Series 1998A Convertible Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation (the "BOARD OF DIRECTORS") by the Certificate of
Incorporation of the Corporation, the Board of Directors hereby establishes a
series of Series 1998A Convertible Preferred Stock, of the Corporation and
hereby states the number of shares, and fixes the powers, designations,
preferences and relative, participating, optional and other rights, and the
qualifications, limitations and restrictions thereof, of such series of shares
as follows:
SERIES 1998A CONVERTIBLE PREFERRED STOCK
Section 1. DESIGNATION; NUMBER OF SHARES. The shares of such
series shall be designated as "Series 1998A Convertible Preferred Stock"
(the "CONVERTIBLE PREFERRED STOCK"), and the number of shares constituting the
Convertible Preferred Stock shall be 20,000. Such number of shares may be
decreased by resolution of the Board of Directors adopted and filed pursuant to
the Delaware General Corporation Law, Section 151(g), or any successor
provision; provided, that no such decrease shall reduce the number of authorized
shares of Convertible Preferred Stock to a number less than the number of shares
then outstanding plus the number of shares reserved for issuance upon the
exercise of outstanding options, warrants, convertible or exchangeable
securities or other rights to acquire shares of Convertible Preferred Stock.
Section 2. STATED CAPITAL. The amount to be represented in the stated
capital of the Corporation for each share of Convertible Preferred Stock shall
be $0.01.
<PAGE>
Section 3. RANK. The Convertible Preferred Stock shall rank prior
to all of the Corporation's Common Stock, par value $.01 per share (the
"COMMON STOCK"), now outstanding or hereafter issued, both as to payment of
dividends and as to distributions of assets upon the liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary.
Section 4. DIVIDENDS AND DISTRIBUTIONS. The holders of shares of
Convertible Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for such
purpose, dividends at the rate of $75.00 per annum per share. Such dividends
shall be fully cumulative, shall accumulate without interest from the date of
original issuance of the Convertible Preferred Stock and shall be payable
quarterly in arrears in cash on each January 31, April 30, July 31 and
October 31, commencing January 31, 1999 (provided, that if any such date is a
Saturday, Sunday or legal holiday in the place where such dividend is to be
paid, then such dividend shall be payable without interest on the next day
that is not a Saturday, Sunday or legal holiday) to holders of record as they
appear on the stock books of the Corporation on such record dates as shall be
fixed by the Board of Directors. Such record dates shall be not more than 60
nor less than 10 days preceding the respective dividend payment dates. The
amount of dividends payable per share of Convertible Preferred Stock for each
full quarterly dividend period shall be computed by dividing the annual
dividend amount by four. The amount of dividends payable for the initial
dividend period and for any other period shorter than a full quarterly
dividend period shall be computed on the basis of a 360-day year of twelve
30-day months. No dividends or other distributions, other than dividends
payable solely in shares of Common Stock or other capital stock of the
Corporation ranking junior as to payment of dividends to the Convertible
Preferred Stock (such Common Stock and other capital stock being referred to
herein collectively as "JUNIOR DIVIDEND STOCK"), shall be paid or set apart
for payment on, and no purchase, redemption or other acquisition shall be
made by the Corporation of, any shares of Junior Dividend Stock unless and
until all accumulated and unpaid dividends on the Convertible Preferred
Stock, including the full dividend for the then-current quarterly dividend
period, shall have been paid or declared and set apart for payment.
If at any time any dividend on any capital stock of the Corporation ranking
senior as to payment of dividends to the Convertible Preferred Stock (such
capital stock being referred to herein as "SENIOR DIVIDEND STOCK") shall be
in default, in whole or in part, no dividend shall be paid or declared and
set apart for payment on the Convertible Preferred Stock unless and until all
accumulated and unpaid dividends with respect to the Senior Dividend Stock,
including the full dividend for the then-current dividend period, shall have
been paid or declared and set apart for payment, without interest. No full
dividends shall be paid or declared and set apart for payment on any capital
stock of the Corporation ranking, as to payment of dividends, on a parity
with the Convertible Preferred Stock (such capital stock being referred to
herein as "PARITY DIVIDEND STOCK") for any period unless full cumulative
dividends have been, or contemporaneously are, paid or declared and set apart
for payment on the Convertible Preferred Stock for all dividend periods
terminating on or prior to the date of payment of such full cumulative
dividends. No full dividends shall be paid or declared and set apart for
payment on the Convertible Preferred Stock
-2-
<PAGE>
for any period unless full cumulative dividends have been, or
contemporaneously are, paid or declared and set apart for payment on any
Parity Dividend Stock for all dividend periods terminating on or prior to the
date of payment of such full cumulative dividends. When dividends are not
paid in full upon the Convertible Preferred Stock and any Parity Dividend
Stock, all dividends paid or declared and set apart for payment upon shares
of Convertible Preferred Stock and Parity Dividend Stock shall be paid or
declared and set apart for payment pro rata, so that the amount of dividends
paid or declared and set apart for payment per share on the Convertible
Preferred Stock and the Parity Dividend Stock shall in all cases bear to each
other the same ratio that accumulated and unpaid dividends per share on the
shares of Convertible Preferred Stock and Parity Preferred Stock bear to each
other.
Any reference to "distribution" contained in this Section 4 shall not be deemed
to include any distribution made in connection with a liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary.
Section 5. LIQUIDATION PREFERENCE. In the event of a liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, the holders of Convertible Preferred Stock shall be entitled to
receive out of the assets of the Corporation, whether such assets constitute
stated capital or surplus of any nature, an amount equal to the dividends
accumulated and unpaid thereon to the date of final distribution to such
holders, whether or not declared, without interest, plus a sum equal to
$1,000 per share, and no more, before any payment shall be made or any assets
distributed to the holders of Common Stock or any other capital stock of the
Corporation ranking junior as to liquidation rights to the Convertible
Preferred Stock (such Common Stock and other capital stock being referred to
herein collectively as "JUNIOR LIQUIDATION STOCK"); provided, that such
rights shall accrue to the holders of Convertible Preferred Stock only in the
event that the Corporation's payments with respect to the liquidation
preferences of the holders of capital stock of the Corporation ranking senior
as to liquidation rights to the Convertible Preferred Stock (such capital
stock being referred to herein as "SENIOR LIQUIDATION STOCK") are fully met.
If upon liquidation, dissolution or winding up of the Corporation, the assets
of the Corporation available for distribution after the liquidation
preferences of any Senior Liquidation Stock are insufficient to pay the
holders of the Convertible Preferred Stock and any other capital stock of the
Corporation which ranks on a parity as to liquidation rights with the
Convertible Preferred Stock, the entire assets of the Corporation then
available for distribution shall be distributed ratably among the holders of
the Convertible Preferred Stock and any other capital stock of the
Corporation which ranks on a parity as to liquidation rights with the
Convertible Preferred Stock in proportion to the respective preferential
amounts to which each is entitled (but only to the extent of such
preferential amounts). After payment in full of the liquidation preference
of the shares of the Convertible Preferred Stock, the holders of such shares
shall not be entitled to any further participation in any distribution of
assets by the Corporation. Neither a consolidation or merger of the
Corporation with another corporation nor a sale or transfer of all or part of
the Corporation's assets for cash, securities or other property will be
deemed a liquidation, dissolution or winding up of the Corporation for
purposes of this Section 5.
-3-
<PAGE>
Section 6. REDEMPTION AT OPTION OF THE CORPORATION.
(a) Subject to Section 6(b), the Corporation may not redeem the
Convertible Preferred Stock prior to November 24, 2002. The Corporation, at
its option, may, on or after November 24, 2002, redeem at any time all, or
from time to time any portion, of the Convertible Preferred Stock on any date
set by the Board of Directors, at $1,000 per share, plus an amount per share
in cash equal to all dividends on the Convertible Preferred Stock accumulated
and unpaid on such share, whether or not declared, to the date fixed for
redemption (such sum being hereinafter referred to as the "REDEMPTION PRICE").
(b) The Corporation may, at its option, redeem the Convertible Preferred
Stock concurrently with an Acquisition Event (as defined herein) if each of the
following conditions are met: (i) the Corporation has complied with the
covenants contained in Sections 8.4 and 8.5 of the Preferred Stock Purchase
Agreement (as defined in Section 8) in all material respects; (ii) the Purchaser
(as defined in the Preferred Stock Purchase Agreement) has been notified in
writing of all material terms of the Acquisition Proposal (as defined herein)
that relates to such Acquisition Event; and (iii) either (A) such Purchaser,
within 15 days of the first date on which it had been so notified of such
Acquisition Proposal, failed to make an offer that is similar to, and on terms
no less favorable to the Company and its shareholders than, the Acquisition
Proposal; or (B) prior to the date of a definitive agreement with respect to an
Acquisition Transaction with Purchaser or an affiliate of Purchaser, (x) the
terms of the Acquisition Proposal are improved or a new proposal regarding an
Acquisition Transaction that is financially superior to such original proposal
(a "Superior Proposal") is received by the Company and the Purchaser fails to
match such improved terms or such Superior Proposal within five business days of
Purchaser's receipt of written notice of all material terms thereof or (y) the
Purchaser withdraws its offer. Any redemption pursuant to this Section 6(b)
shall be at the Redemption Price, and the redemption date for any such
redemption shall not be earlier than, but may be concurrent with, the effective
time of the Acquisition Event. For purposes of this Section 6(b), the following
terms shall have the following meanings: "ACQUISITION PROPOSAL" shall mean a
proposal relating to any of the following actions: (A) any extraordinary
corporate transaction, such as a merger, consolidation or other business
combination involving the Company; or (B) a sale, lease or transfer of a
material amount of assets of the Company, or a reorganization, recapitalization,
dissolution or liquidation of the Company; "ACQUISITION TRANSACTION" shall mean
any of the actions described in (A) or (B) of the definition of "Acquisition
Proposal"; and "ACQUISITION EVENT" shall mean the consummation of an Acquisition
Transaction.
(c) The following provisions will apply to any redemption pursuant to
Section 6(a) or 6(b):
(i) In case of the redemption of less than all of the then outstanding
Convertible Preferred Stock, the Corporation shall designate by lot, or in such
other manner as the Board of Directors may determine, the shares to be redeemed,
or shall effect such redemption pro rata. Notwithstanding the foregoing, the
Corporation shall not redeem less than all of the Convertible
-4-
<PAGE>
Preferred Stock at any time outstanding until all dividends accumulated and
in arrears upon all Convertible Preferred Stock then outstanding shall have
been paid for all past dividend periods.
(ii) Not more than 60 nor less than 30 days prior to the redemption
date, notice by first class mail, postage prepaid, shall be given to the
holders of record of the Convertible Preferred Stock to be redeemed,
addressed to such shareholders at their last addresses as shown on the stock
books of the Corporation. Each such notice of redemption shall specify the
date fixed for redemption; the redemption price; the place or places of
payment; the then-effective Conversion Rate and Conversion Price (as defined
in Section 7); that the right of holders of Convertible Preferred Stock
called for redemption to exercise their conversion right pursuant to Section
7 shall expire as to such shares at the close of business on the date fixed
for redemption (provided that there is no default in payment of the
Redemption Price); that payment of the Redemption Price will be made upon
presentation and surrender of certificates representing the shares of
Convertible Preferred Stock; that accumulated but unpaid dividends to the
date fixed for redemption will be paid on the date fixed for redemption; that
accumulated but unpaid dividends will not be paid in the case of a conversion
of Convertible Preferred Stock; and that on and after the redemption date,
dividends will cease to accumulate on such shares.
(iii) On or after the date fixed for redemption as stated in such
notice, each holder of the shares called for redemption (other than shares
which have been duly surrendered for conversion at or before the close of
business on the date fixed for redemption) shall surrender the certificate or
certificates evidencing such shares to the Corporation at the place
designated in such notice and shall thereupon be entitled to receive payment
of the Redemption Price. If fewer than all the shares represented by any
such surrendered certificate or certificates are redeemed, a new certificate
shall be issued representing the unredeemed shares. If, on the date fixed
for redemption, funds necessary for the redemption shall be available
therefor and shall have been irrevocably deposited or set aside, then,
notwithstanding that the certificates evidencing any shares so called for
redemption shall not have been surrendered, the dividends with respect to the
shares so called shall cease to accumulate on and after the date fixed for
redemption, such shares shall no longer be deemed outstanding, the holders
thereof shall cease to be shareholders, and all rights whatsoever with
respect to such shares (except the right of the holders thereof to receive
the Redemption Price without interest upon surrender of their certificates)
shall terminate.
Section 7. CONVERSION AT OPTION OF HOLDERS. Holders of Convertible
Preferred Stock may, at their option upon surrender of the certificates
therefor, convert any or all of their shares of Convertible Preferred Stock into
fully paid and nonassessable shares of Common Stock (and such other securities
and property as they may be entitled to, as hereinafter provided) at any time
after issuance thereof; provided, that such conversion right shall expire at the
close of business on the date, if any, fixed for the redemption of Convertible
Preferred Stock in any notice of redemption given pursuant to Section 6 hereof
if there is no default in payment of the Redemption Price. Each share of
Convertible Preferred Stock shall be convertible at the office of any transfer
agent for the Convertible Preferred Stock, and at such other office or offices,
if any, as the Board of Directors may designate, into that number of fully paid
and nonassessable shares
-5-
<PAGE>
of Common Stock (calculated as to each conversion to the nearest 1/100th of a
share) as shall be equal to the Conversion Rate, determined as hereinafter
provided, in effect at the time of conversion. Shares of Convertible
Preferred Stock may initially be converted into full shares of Common Stock
at the rate of 136.24 shares of Common Stock for each share of Convertible
Preferred Stock, subject to adjustment from time to time as provided in
Section 8 (such conversion rate, as so adjusted from time to time, being
referred to herein as the "CONVERSION RATE"). The "CONVERSION PRICE" shall
be equal to $1,000 divided by the Conversion Rate. Upon conversion, no
adjustment or payment shall be made in respect of accumulated and unpaid
dividends on the Convertible Preferred Stock surrendered for conversion.
The right of holders of Convertible Preferred Stock to convert their shares
shall be exercised by surrendering for such purpose to the Corporation or its
agent, as provided above, certificates representing shares to be converted, duly
endorsed in blank or accompanied by proper instruments of transfer. The
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of Common Stock or other
securities or property upon conversion of Convertible Preferred Stock in a name
other than that of the holder of the shares of Convertible Preferred Stock being
converted, nor shall the Corporation shall be required to issue or deliver any
such shares or other securities or property unless and until the person or
persons requesting the issuance thereof shall have paid to the Corporation the
amount of any such tax or shall have established to the satisfaction of the
Corporation that such tax has been paid.
A number of shares of the authorized but unissued Common Stock sufficient
to provide for the conversion of the Convertible Preferred Stock outstanding
upon the basis hereinbefore provided shall at all times be reserved by the
Corporation, free from preemptive rights, for such conversion, subject to the
provisions of the next paragraph. If the Corporation shall issue any securities
or make any change in its capital structure which would change the number of
shares of Common Stock into which each share of the Convertible Preferred Stock
shall be convertible as herein provided, the Corporation shall at the same time
also make proper provision so that thereafter there shall be a sufficient number
of shares of Common Stock authorized and reserved, free from preemptive rights,
for conversion of the outstanding Convertible Preferred Stock on the new basis.
The Corporation shall comply with all securities laws regulating the offer and
delivery of shares of Common Stock upon conversion of the Convertible Preferred
Stock and shall use its best efforts to list such shares on each national
securities exchange on which the Common Stock is listed or to have such shares
admitted for quotation on the Nasdaq National Market if the Common Stock is
admitted for quotation thereon.
Upon the surrender of certificates representing shares of Convertible
Preferred Stock to be converted, duly endorsed or accompanied by proper
instruments of transfer as provided above, the person converting such shares
shall be deemed to be the holder of record of the Common Stock issuable upon
such conversion, and all rights with respect to the shares surrendered shall
forthwith terminate except the right to receive the Common Stock or other
securities, cash or other assets as herein provided.
-6-
<PAGE>
No fractional shares of Common Stock shall be issued upon conversion of
Convertible Preferred Stock but, in lieu of any fraction of a share of Common
Stock which would otherwise be issuable in respect of the aggregate number of
such shares surrendered for conversion at one time by the same holder, the
Corporation shall pay in cash an amount equal to the product of (a) the Closing
Price of a share of Common Stock (as defined in the next sentence) on the last
trading day before the conversion date and (b) such fraction of a share. The
"CLOSING PRICE" for such day shall be the last reported sale price regular way
or, in case no sale takes place on such day, the average of the closing bid and
asked prices regular way on such day, in either case as reported on the New York
Stock Exchange Composite Tape, or, if the Common Stock is not listed or admitted
to trading on such Exchange, on the principal national securities exchange on
which the Common Stock is listed or admitted to trading, or, if the Common Stock
is not listed or admitted to trading on any national securities exchange, on the
Nasdaq National Market System, or, if the Common Stock is not admitted for
quotation on the Nasdaq National Market System, the average of the high bid and
low asked prices on such day as recorded by the National Association of
Securities Dealers, Inc. through Nasdaq, or, if the National Association of
Securities Dealers, Inc. through Nasdaq shall not have reported any bid and
asked prices for the Common Stock on such day, the average of the bid and asked
prices for such day as furnished by any New York Stock Exchange member firm
selected from time to time by the Corporation for such purpose, or, if no such
bid and asked prices can be obtained from any such firm, the fair market value
of one share of the Common Stock on such day as determined in good faith by the
Board of Directors of the Corporation.
Section 8. ADJUSTMENTS TO CONVERSION RATE. Notwithstanding anything
in this Section 8 to the contrary, no change in the Conversion Rate shall be
made until the cumulative effect of the adjustments called for by this
Section 8 since the date of the last change in the Conversion Rate would
change the Conversion Rate by more than 1%. However, once the cumulative
effect would result in such a change, then the Conversion Rate shall be
changed to reflect all adjustments called for by this Section 8 and not
previously made. Subject to the foregoing, the Conversion Rate shall be
adjusted from time to time as follows:
(a) In case of any consolidation or merger of the Corporation with
any other corporation (other than a wholly owned subsidiary of the
Corporation), or in case of any sale or transfer of all or substantially
all of the assets of the Corporation, or in case of any share exchange
pursuant to which all of the outstanding shares of Common Stock are
converted into other securities or property, the Corporation shall, prior
to or at the time of such transaction, make appropriate provision or cause
appropriate provision to be made so that holders of each share of
Convertible Preferred Stock then outstanding shall have the right
thereafter to convert such share of Convertible Preferred Stock into the
kind and amount of shares of stock and other securities and property
receivable upon such consolidation, merger, sale, transfer or share
exchange by a holder of the number of shares of Common Stock into which
such share of Convertible Preferred Stock could have been converted
immediately prior to the effective date of such consolidation, merger,
sale, transfer or share exchange. If in connection with any such
consolidation,
-7-
<PAGE>
merger, sale, transfer or share exchange, each holder of shares of
Common Stock is entitled to elect to receive either securities, cash
or other assets upon completion of such transaction, the Corporation
shall provide or cause to be provided to each holder of Convertible
Preferred Stock the right to elect the securities, cash or other assets
into which the Convertible Preferred Stock held by such holder shall be
convertible after completion of any such transaction on the same terms and
subject to the same conditions applicable to holders of the Common Stock
(including, without limitation, notice of the right to elect, limitations
on the period in which such election shall be made and the effect of
failing to exercise the election).
(b) In case the Corporation shall (i) pay a dividend or make a
distribution on its Common Stock in shares of its capital stock,
(ii) subdivide its outstanding Common Stock into a greater number of
shares, (iii) combine the shares of its outstanding Common Stock into a
smaller number of shares, or (iv) issue by reclassification of its Common
Stock any shares of its capital stock, then in each such case the
Conversion Rate in effect immediately prior thereto shall be
proportionately adjusted so that the holder of any Convertible Preferred
Stock thereafter surrendered for conversion shall be entitled to receive,
to the extent permitted by applicable law, the number and kind of shares of
capital stock of the Corporation which such holder would have owned or have
been entitled to receive after the happening of such event had such
Convertible Preferred Stock been converted immediately prior to the record
date for such event (or if no record date is established in connection with
such event, the effective date for such action). An adjustment pursuant to
this subparagraph (b) shall become effective immediately after the record
date in the case of a stock dividend or distribution and shall become
effective immediately after the effective date in the case of a
subdivision, combination or reclassification.
(c)(i) In case the Corporation shall issue Additional Shares of Common
Stock (as defined herein) (including, without limitation, Additional Shares
of Common Stock deemed to be issued pursuant to Section 8(c)(iii)) without
consideration or for a consideration per share less than the Current Market
Price (as defined herein) calculated as provided herein as of the date of
and immediately prior to such issue, then in each such case the Conversion
Rate in effect on such issue date shall be adjusted in accordance with the
formula:
O + N
C1 = C x -------
O + N x P
-----
M
-8-
<PAGE>
<TABLE>
<C> <S>
where
C1 = the adjusted Conversion Rate.
C = the current Conversion Rate.
O = the number of shares of Common Stock outstanding immediately
prior to such issue.
N = the number of additional shares of Common Stock offered.
P = the offering price per share of the additional shares.
M = the Current Market Price per share of Common Stock immediately
prior to such issue.
</TABLE>
For the purpose of such calculation, the number of shares of Common Stock
outstanding immediately prior to such issue shall be calculated on a fully
diluted basis, as if all shares of Convertible Preferred Stock and all
Convertible Securities had been fully converted into shares of Common Stock
immediately prior to such issuance and any outstanding warrants, options or
other rights for the purchase of shares of stock or convertible securities
had been fully exercised immediately prior to such issuance (and the
resulting securities fully converted into shares of Common Stock, if so
convertible) as of such date.
(ii) For purposes of this Section 8(c), the following definitions
shall apply: (A) "OPTIONS" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities; (B) "CONVERTIBLE SECURITIES" shall mean any
evidences of indebtedness, shares or other securities convertible into or
exchangeable for Common Stock; (C) "ADDITIONAL SHARES OF COMMON STOCK"
shall mean all shares of Common Stock issued (or, pursuant to Section
8(c)(iii), deemed to be issued) by the Corporation after the [issue date of
the Convertible Preferred Stock], other than shares of Common Stock issued
or issuable: (1) upon conversion of shares of the Convertible Preferred
Stock; (2) pursuant to a stock grant, option plan or purchase plan, other
employee stock incentive program or agreement approved by the Board of
Directors which was disclosed in Schedule 5.3 of the Preferred Stock
Purchase Agreement (the "OPTION POOL"); or (3) pursuant to the terms of any
stock grant, option, warrant, employment agreement or other written
obligation, agreement or commitment to which the Corporation was a party as
of November 24, 1998 and which was disclosed in Schedule 5.3 of the
Preferred Stock Purchase Agreement; (D) "CURRENT MARKET PRICE" shall mean
the average of the daily Closing Prices of the Common Stock (as defined in
Section 7) on the 30 consecutive business days commencing 45 business days
before such issue date, as applicable; and (E) "PREFERRED STOCK PURCHASE
AGREEMENT" shall mean the Preferred Stock Purchase Agreement dated October
18, 1998 between the Corporation and U.S. Bancorp.
(iii) In the event the Corporation at any time or from time to
time after November 24, 1998 shall issue any Options (other than the
issuance of Options pursuant to the Option Pool) or Convertible Securities
or shall fix a record date for the determination of holders of any class of
securities entitled to receive any such Options or
-9-
<PAGE>
Convertible Securities, then the maximum number of shares (as set forth
in the instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment of such number) of Common
Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be Additional Shares
of Common Stock issued as of the time of such issue or, in case such a
record date shall have been fixed, as of the close of business on such
record date, provided that Additional Shares of Common Stock shall not
be deemed to have been issued unless the consideration per share of such
Additional Shares of Common Stock would be less than the Current Market
Price calculated as provided herein as of the date of and immediately
prior to such issue, or such record date, as the case may be, and
provided further that in any such case in which Additional Shares of
Common Stock are deemed to be issued no further adjustment in the
Conversion Price shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities.
(iv) Upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities which shall not
have been exercised, the Conversion Price and Conversion Rate computed upon
the original issue thereof (or upon the occurrence of a record date with
respect thereto), and any subsequent adjustments based thereon, shall, upon
such expiration, be recomputed as if:
(A) in the case of Convertible Securities or Options for Common
Stock the only Additional Shares of Common Stock issued were the shares of
Common Stock, if any, actually issued upon the exercise of such Options or
the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by
the Corporation for the issue of all such Options, whether or not
exercised, plus the consideration actually received by the corporation upon
such exercise, or for the issue of all such Convertible Securities which
were actually converted or exchanged, plus the additional consideration, if
any, actually received by the Corporation upon such conversion or exchange;
and
(B) in the case of Options for Convertible Securities only the
Convertible Securities, if any, actually issued upon the exercise thereof
were issued at the time of issue of such Options, and the consideration
received by the Corporation for the Additional Shares of Common Stock
deemed to have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or not
exercised, plus the consideration deemed to have been received by the
Corporation upon the issue of the Convertible Securities or Convertible
Preferred Stock with respect to which such Options were actually exercised.
(e) All calculations hereunder shall be made to the nearest cent or
to the nearest 1/100 of a share, as the case may be.
-10-
<PAGE>
(f) In the event that at any time, as a result of an adjustment made
pursuant to subparagraph (a) or (b) above, the holder of any Convertible
Preferred Stock thereafter surrendered for conversion shall become entitled
to receive securities, cash or assets other than Common Stock, the number
or amount of such securities or property so receivable upon conversion
shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in subparagraphs (a) through (e) above.
Except as otherwise provided above in this Section 8, no adjustment in the
Conversion Rate shall be made in respect of any conversion for share
distributions or dividends theretofore declared and paid or payable on the
Common Stock.
Whenever the Conversion Rate is adjusted as herein provided, the
Corporation shall send to each transfer agent for the Convertible Preferred
Stock and the Common Stock, and to the principal securities exchange, if any, on
which the Convertible Preferred Stock and the Common Stock is traded, or the
Nasdaq National Market if the Convertible Preferred Stock or Common Stock is
admitted for quotation thereon, a statement signed by the Chairman of the Board,
the President or any Vice President of the Corporation and by its Treasurer or
its Secretary stating the adjusted Conversion Rate determined as provided in
this Section 8; and any adjustment so evidenced, given in good faith, shall be
binding upon all shareholders and upon the Corporation. Whenever the Conversion
Rate is adjusted, the Corporation shall give notice by mail at the time of, and
together with, the next dividend payment to the holders of record of Convertible
Preferred Stock, setting forth the adjustment and the new Conversion Rate and
Conversion Price. Notwithstanding the foregoing notice provisions, failure by
the Corporation to give such notice or a defect in such notice shall not affect
the binding nature of such corporate action of the Corporation.
Whenever the Corporation shall propose to take any of the actions specified
in subparagraphs (a), (b) or (c) of the first paragraph of this Section 8 which
would result in any adjustment in the Conversion Rate, the Corporation shall
cause a notice to be mailed at least 20 days prior to the date on which the
books of the Corporation will close or on which a record will be taken for such
action to the holders of record of the outstanding Convertible Preferred Stock
on the date of such notice. Such notice shall specify the action proposed to be
taken by the Corporation and the date as of which holders of record of the
Common Stock shall participate in any such actions or be entitled to exchange
their Common Stock for securities or other property, as the case may be.
Failure by the Corporation to give such notice or any defect in such notice
shall not affect the validity of the transaction.
Anything herein to the contrary notwithstanding, no adjustment will be made
to the Conversion Price or Conversion Rate by reason of (i) the issuance of
Common Stock, Options or Convertible Securities to employees, directors,
officers or consultants of the Corporation or any subsidiary of the Corporation
pursuant to the Option Pool or the issuance of Common Stock upon the conversion,
exercise or exchange thereof, (ii) the issuance of Common Stock upon the
-11-
<PAGE>
conversion, exercise or exchange of Options or Convertible Securities issued and
outstanding on November 24, 1998, (iii) the issuance of Common Stock upon the
conversion of the Convertible Preferred Stock, (iv) rights to purchase Common
Stock pursuant to a Corporation plan for reinvestment of dividends or interest,
(v) the issuance of Common Stock upon the exercise, conversion or exchange of
Options or Convertible Securities of the Corporation where the Conversion Price
had previously been adjusted pursuant to this Section 8 upon the initial
issuance of such Options or Convertible Securities. In addition, no adjustment
in the Conversion Price need be made for a change in the par value of the Common
Stock.
Section 9. CONVERTIBLE PREFERRED STOCK NOT REDEEMABLE AT OPTION OF
HOLDERS OR EXCHANGEABLE; NO SINKING FUND. The Convertible Preferred Stock shall
not be redeemable upon the request of holders thereof or exchangeable for other
capital stock or indebtedness of the Corporation or other property. The shares
of Convertible Preferred Stock shall not be subject to the operation of a
purchase, retirement or sinking fund.
Section 10. VOTING RIGHTS. Except as herein provided or as otherwise
required by law, holders of Convertible Preferred Stock shall be entitled to the
same voting rights as, and shall vote together as one class with, holders of
Common Stock, with each holder of shares of Convertible Preferred Stock having
such voting rights as are attributable to the number of whole shares of Common
Stock into which such shares of Convertible Preferred Stock are convertible in
accordance with Sections 7 and 8 hereof as of the date of such vote.
In addition to any matters requiring a separate vote of the Convertible
Preferred Stock as a single class under applicable law, the approval of the
holders of a majority of the issued and outstanding shares of Convertible
Preferred Stock, voting as a class, shall be required as set forth in Section 11
hereof with respect to the priority and rights of the Convertible Preferred
Stock hereunder and under the Corporation's Certificate of Incorporation, as
amended.
At each meeting of shareholders at which the holders of shares of
Convertible Preferred Stock shall have the right, voting separately as a single
class, to take any action, the presence in person or by proxy of the holders of
record of at least 50% of the shares of Convertible Preferred Stock outstanding
and entitled to vote on the matter shall be necessary and sufficient to
constitute a quorum. At each such meeting, each holder of shares of Convertible
Preferred Stock shall be entitled to vote for each share of Convertible
Preferred Stock then held. In the absence of a quorum of the holders of shares
of Convertible Preferred Stock, a majority of the holders of such shares present
in person or by proxy shall have the power to adjourn the meeting as to the
actions to be taken by the holders of shares of Convertible Preferred Stock from
time to time and place to place without notice other than announcement at the
meeting until a quorum shall be present.
Section 11. CERTAIN ACTIONS NOT TO BE TAKEN WITHOUT VOTE OF HOLDERS OF
CONVERTIBLE PREFERRED STOCK. Without the consent or affirmative vote of the
holders of at least a majority of the outstanding shares of Convertible
Preferred Stock, voting separately as a class, the Corporation shall not
authorize, create or issue any shares of any other class or series of capital
-12-
<PAGE>
stock ranking senior to the Convertible Preferred Stock as to dividends or upon
liquidation. The affirmative vote or consent of the holders of at least a
majority of the outstanding shares of the Convertible Preferred Stock, voting
separately as a class, shall be required for any amendment, alteration or
repeal, whether by merger or consolidation or otherwise, of the Corporation's
Certificate of Incorporation (including any certificate of designations
establishing any class or series of Preferred Stock of the Corporation) if the
amendment, alteration or repeal adversely affects the rights or preferences of
the Convertible Preferred Stock; provided, however, that any increase in the
authorized Preferred Stock of the Corporation or the creation and issuance of
any other capital stock of the Corporation ranking on a parity with or junior to
the Convertible Preferred Stock shall not be deemed to materially affect such
powers, preferences or special rights.
Section 12. OUTSTANDING SHARES. For purposes of this Certificate of
Designations, all shares of Convertible Preferred Stock shall be deemed
outstanding except for (a) shares of Convertible Preferred Stock held of record
or beneficially by the Corporation or any subsidiary of the Corporation; (b)
from the date of surrender of certificates representing Convertible Preferred
Stock for conversion pursuant to Section 7, all shares of Convertible Preferred
Stock which have been converted into Common Stock or other securities or
property pursuant to Section 7; and (c) from the date fixed for redemption
pursuant to Section 6, all shares of Convertible Preferred Stock which have been
called for redemption, provided that funds necessary for such redemption are
available therefor and have been irrevocably deposited or set aside for such
purpose.
Section 13. STATUS OF CONVERTIBLE PREFERRED STOCK UPON RETIREMENT.
Shares of Convertible Preferred Stock which are acquired or redeemed by the
Corporation or converted pursuant to Section 7 shall be retired pursuant to the
Delaware General Corporation Law, Section 243, or any successor provision, and
thereupon shall return to the status of authorized and unissued shares of
Preferred Stock of the Corporation without designation as to series. Upon the
acquisition or redemption by the Corporation or conversion pursuant to Section 7
of all outstanding shares of Convertible Preferred Stock, all provisions of this
Certificate of Designations shall cease to be of further effect. Upon the
occurrence of such event, the Board of Directors of the Corporation shall have
the power, pursuant to the Delaware General Corporation Law, Section 151(g), or
any successor provision and without shareholder action, to cause this
Certificate of Designations to be eliminated from the Corporation's Certificate
of Incorporation.
-13-
<PAGE>
IN WITNESS WHEREOF, New Century Financial Corporation has caused this
certificate to be signed by Robert K. Cole, its Chairman and Chief Executive
Officer, and attested by Brad A. Morrice, its Secretary, this 24th day of
November, 1998.
NEW CENTURY FINANCIAL
CORPORATION
By /s/ Robert K. Cole
------------------------------------
Robert K. Cole
Chairman and Chief Executive Officer
Attest:
By /s/ Brad A. Morrice
-----------------------------------
Brad A. Morrice
Secretary
-14-
<PAGE>
EXHIBIT 99.3
SHAREHOLDER AGREEMENT
SHAREHOLDER AGREEMENT, dated as of November 24, 1998, between U.S.
Bancorp, a Delaware corporation ("Purchaser"), and [shareholder]
("Shareholder").
WHEREAS, Purchaser and New Century Financial Corporation, a Delaware
corporation (the "Company"), are entering into a Preferred Stock Purchase
Agreement, dated the date hereof (the "Purchase Agreement"), which provides for
the purchase of shares of the Company's Series 1998A Convertible Preferred Stock
by the Purchaser;
WHEREAS, Shareholder is the beneficial owner of certain shares of the
outstanding common stock, par value $.01 per share, of the Company (the "Common
Stock") as described herein; and
WHEREAS, as a condition to the willingness of Purchaser and the
Company to enter into the Purchase Agreement, Shareholder has agreed to certain
restrictions on his ability to sell the shares of Common Stock owned by him as
of the date hereof and any shares acquired by Shareholder after the date hereof
(including any shares acquired pursuant to the exercise of any rights to
purchase or otherwise acquire shares) (the "Shares") as provided in this
Agreement.
NOW THEREFORE, the parties hereby agree as follows:
1. RIGHT OF FIRST REFUSAL.
(a) If, after the date hereof, Shareholder should decide to sell,
transfer or otherwise dispose of any or all of the Shares (other than any
Permitted Transfers as defined in Section 3), Shareholder shall first offer to
sell such Shares to the Purchaser upon substantially the same terms and
conditions as Shareholder is proposing to sell such Shares to others.
(b) In the event that Shareholder is required to make an offer of
Shares to the Purchaser pursuant to this Agreement, Shareholder shall give the
Purchaser written notice of such offer, indicating the estimated price and the
general terms upon which Shareholder proposes to sell the Shares (the "Sale
Notice"). The Purchaser shall have ten business days from the date of receipt
of any Sale Notice to subscribe for the purchase of such Shares for the price
and upon the general terms specified in the Sale Notice by giving written notice
to Shareholder. The closing of the sale of the Shares to the Purchaser shall
take place within the later of (i) ten business days after the delivery of such
notice to Shareholder, or (ii) three business days after all necessary
regulatory or governmental filings, authorizations or approvals, if any,
required to consummate such purchase shall have been duly made or obtained and
all statutory waiting periods in respect thereof shall have expired; PROVIDED
THAT, if such closing has not occurred
<PAGE>
within 90 days after the date of delivery of Purchaser's notice to the
Shareholder, the Shareholder shall have the right to sell such Shares without
regard to the limitations of paragraph (c) below. The Purchaser agrees that
it will use all reasonable efforts to make any such filing and obtain any
such authorization or approval as promptly as practicable. In the event that
making such filing or obtaining such authorization or approval takes more
than 60 days after the delivery of such notice to Shareholder, the Purchaser
will use reasonable efforts to arrange for a six-month line of credit for the
Shareholder.
(c) In the event that the Purchaser fails to subscribe for the
purchase of all of the Shares offered to it pursuant to this Agreement within
ten business days after the date of receipt of a Sale Notice, Shareholder
shall have 120 days thereafter to sell the Shares at a price which is not
less than 95% of the price specified in the Sale Notice and upon terms
otherwise no more favorable to the purchasers thereof than the terms
specified in the Sale Notice. In the event Shareholder has not sold the
Shares within such 120 day period, Shareholder shall not thereafter sell any
Shares without first offering such Shares to the Purchaser as required by
this Agreement.
2. NO PRECLUSIVE AGREEMENTS. The Shareholder shall not enter
into any agreement or understanding with any Person (as defined in Section
5), including any voting, lock-up or option agreement, the effect of which
would be inconsistent with or violate the provisions and agreements contained
in Section 5 or would preclude the Purchaser from exercising its rights
pursuant to Section 5.
3. PERMITTED TRANSFERS. "Permitted Transfers" mean (a) any transfer
of Shares by gift or otherwise not for value if, at or before the transfer,
the transferee executes an instrument (i) acknowledging that the Shares being
acquired are subject to the provisions of this Agreement, and (ii) agreeing to
be bound by the terms and conditions of this Agreement with respect to the
Shares, (b) any sale of Shares by a pledgee or by Shareholder after a default in
an obligation secured by a bona fide pledge of the Shares by Shareholder as
security for a loan (including a margin loan), (c) any transfer by Shareholder
to Shareholder's spouse in conjunction with any consent decree or other
settlement order relating to Shareholder's pending divorce proceeding and (d)
sales of Shares in accordance with Rule 144 promulgated under the Securities Act
of 1933, or any successor rule ("Rule 144 Sales"), not to exceed in the
aggregate during any 365-day period 0.50% of the shares of Common Stock
outstanding at the beginning of the calendar year of such sale, provided that no
Trigger Date (as defined in Section 5) has occurred within the nine-month period
prior to any such Rule 144 Sale and provided further that prior to each such
Rule 144 Sale (x) Shareholder shall have given Purchaser notice (the "144 Sale
Notice") in accordance with the special notice provisions of Section 14 hereof
of his intention to sell Shares in accordance with this Section 3(d) (which 144
Sale Notice shall include the number of Shares (the "144 Shares") that
Shareholder intends to sell and Shareholder's offer to sell such 144 Shares to
Purchaser at the price determined pursuant to this Section 3(d)) and (y) prior
to the expiration of the Acceptance Window (as defined in the next sentence),
Purchaser has not communicated (by phone or by facsimile) its agreement to
purchase the 144 Shares from Shareholder. For purposes of this Section 3(d),
the Acceptance Window shall end at 3:30 p.m.
-2-
<PAGE>
Central Time on the day of receipt by Purchaser of the 144 Sale Notice unless
such 144 Sale Notice was received after 2:00 p.m. Central Time on a business
day or was received on a non-business day, in which case the Acceptance
Window would end at 8:30 a.m. Central Time on the next business day following
receipt by Purchaser of the 144 Sale Notice. If Purchaser timely agrees to
purchase the 144 Shares, the purchase shall close by wire transfer of same
day funds within three business days of such agreement to purchase, and the
purchase price per share shall be the most recent sale price on the Nasdaq
market prior to time at which Purchaser communicated its acceptance to
Shareholder.
4. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER. Shareholder
represents and warrants to Purchaser that:
(a) this Agreement has been duly executed and delivered by
Shareholder and constitutes a valid and legally binding obligation of
Shareholder enforceable in accordance with its terms;
(b) Shareholder is not subject to or obligated under any provision of
(i) any contract, (ii) any license, franchise or permit or (iii) any law,
regulation, order, judgment or decree which would be breached or violated by his
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby;
(c) no authorization, consent or approval of, or any filing with, any
public body or authority is necessary for consummation by him of the
transactions contemplated by this Agreement;
(d) as of the date of this Agreement, the Shares consist of
_________ shares of Common Stock (including _______ shares of Common Stock which
represent shares that would be acquired by Shareholder if all of the rights to
purchase or otherwise acquire shares of Common Stock held by Shareholder on the
date hereof were exercised); and
(e) except as set forth on Schedule 1 hereto on the date hereof
Shareholder has, and he will have at the time of any purchase by Purchaser of
the Shares, good and marketable title to the Shares free and clear of all
claims, liens, charges, encumbrances and security interests.
5. VOTING AGREEMENT. The Shareholder hereby agrees that, if a
Trigger Date (as defined herein) occurs on or before December 31, 2002, in
connection with the Acquisition Transaction relating to the Trigger Date, he
shall vote (or cause to be voted) at any meeting of the holders of the Common
Stock, however called, or in connection with any written consent of the
holders of the Common Stock, the Shares held of record by him or with respect
to which he has or shares the power to vote, whether now owned or hereafter
acquired, (i) in favor of approval of a Purchaser Transaction (as defined
herein) and any actions required in furtherance thereof and hereof; and (ii)
except as otherwise agreed to in writing in advance by Purchaser, against (A)
any action or agreement that is intended, or could reasonably be expected, to
impede, interfere with,
-3-
<PAGE>
delay, postpone, or materially adversely affect a Purchaser Transaction; (B)
any Competing Transaction; (C) any change in a majority of the persons who
constitute the board of directors of the Company; or (D) any change in the
capitalization of the Company or any amendment of the Company's Certificate
of Incorporation or Bylaws. Such Shareholder shall not enter into any
agreement or understanding with any Person (as defined herein) the effect of
which would be inconsistent with or violate the provisions and agreements
contained in this Section 5. Notwithstanding the foregoing, the Shareholder
shall have the right to vote at any meeting of the Board of Directors of the
Company (or by written consent of the directors) in his capacity as a
director of the Company in his sole discretion and to comply with his
fiduciary duties as a director of the Company under applicable law.
For purposes of this Agreement, the following terms shall have the
following respective meanings:
"ACQUISITION TRANSACTION" shall mean any of the following actions: (A) any
extraordinary corporate transaction, such as a merger, consolidation or other
business combination involving the Company; or (B) a sale, lease or transfer of
a material amount of assets of the Company, or a reorganization,
recapitalization, dissolution or liquidation of the Company.
"COMPETING TRANSACTION" shall mean an Acquisition Transaction involving any
Person other than Purchaser or an affiliate of Purchaser.
"PERSON" shall mean an individual, corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity.
"PURCHASER TRANSACTION" shall mean an Acquisition Transaction by Purchaser
or an affiliate of Purchaser.
"TRIGGER DATE" shall mean the date the Company receives a BONA FIDE
proposal regarding an Acquisition Transaction (a "Proposal"), unless, within
15 days of the date Purchaser is notified in writing of all material terms of
such Proposal, the Purchaser has failed to make an offer that is similar to,
and on terms no less favorable to the Company and its shareholders than, such
Proposal. Notwithstanding the foregoing, a Trigger Event shall not be deemed
to have occurred if: (i) prior to the date of a definitive agreement with
respect to a Purchaser Transaction, the terms of the Proposal are improved or
a new proposal regarding an Acquisition Transaction that is financially
superior to such original proposal (a "Superior Proposal") is received by the
Company and the Purchaser fails to match such improved terms or such
Superior Proposal within five business days of Purchaser's receipt of written
notice of all material terms thereof; or (ii) the Purchaser withdraws its
offer.
6. IRREVOCABLE PROXY. The Shareholder agrees that he will,
promptly following any Trigger Date, execute and deliver, or cause to be
executed and delivered, an irrevocable proxy, in form and substance
reasonably satisfactory to Purchaser, appointing
-4-
<PAGE>
Purchaser or any designee of Purchaser as such Shareholder's agent, attorney
and proxy, to vote (or cause to be voted) the Shares held of record by him or
with respect to which he has the power to vote, whether now owned or
hereafter acquired, in the manner provided in Section 5, and to execute and
deliver, or cause to be executed and delivered such additional or further
transfers, assignments, endorsements, consents and other instruments as the
Purchaser may reasonably request for the purpose of effectively carrying out
the transactions contemplated by Section 5 and to vest the power to vote the
Shares as contemplated by Section 5.
7. TERM. This Agreement shall terminate on the earlier of December
31, 2002 or the date on which all of Purchaser's rights under Section 8.4 of the
Purchase Agreement have terminated; provided that if a Trigger Date has occurred
prior to December 31, 2002, the Shareholder's agreement in Section 5 shall
survive with respect to such Trigger Date.
8. CAPACITY. The parties hereby agree that Shareholder is executing
this Agreement solely in his individual capacity. Nothing contained in this
Agreement shall limit or otherwise affect Shareholder's conduct or exercise of
his fiduciary duties as a director of the Company.
9. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which will be an original and all of which taken together
shall constitute one and the same agreement, and any party hereto may execute
this Agreement by signing any such counterpart.
10. SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law but if any provision of this Agreement is held to be
invalid, illegal or unenforceable under any applicable law or rule, the
validity, legality and enforceability of the other provisions of this Agreement
will not be affected or impaired thereby.
11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs, personal
representatives and, to the extent permitted by paragraph 12, successors and
assigns.
12. ASSIGNMENT. This Agreement and the rights and obligations of the
parties hereunder shall not be assignable, in whole or in part, by either party
without the prior written consent of the other party.
13. MODIFICATION, AMENDMENT, WAIVER OR TERMINATION. No provision of
this Agreement may be modified, amended, waived or terminated except by an
instrument in writing signed by the parties to this Agreement. No course of
dealing between the parties will modify, amend, waive or terminate any provision
of this Agreement or any rights or obligations of any party under or by reason
of this Agreement.
-5-
<PAGE>
14. NOTICES. Except for notices to be given in connection with a
Rule 144 Sale in accordance with Section 3(d) herein, all notices, consents,
requests, instructions, approvals or other communications provided for herein
shall be in writing and delivered by personal delivery, overnight courier, mail,
or electronic facsimile addressed to the receiving party at the address set
forth herein. All such communications shall be effective when received.
<TABLE>
<CAPTION>
NOTICES TO THE PURCHASER: WITH A COPY TO:
- ------------------------- ---------------
<S> <C>
U.S. Bancorp Dorsey & Whitney LLP
601 Second Avenue South 220 South Sixth Street
Minneapolis, Minnesota 55402 Minneapolis, Minnesota 55402
Attention: Lee R. Mitau, Esq. Attention: Elizabeth C. Hinck, Esq.
Telecopy: (612) 973-4333 Telecopy: (612) 340-8738
NOTICES TO SHAREHOLDER: WITH A COPY TO:
- ----------------------- ---------------
[shareholder] O'Melveny & Myers LLP
c/o New Century Financial Corporation 610 Newport Center Drive, 17th Floor
18400 Von Karman, Suite 1000 Newport Beach, California 92660
Irvine, California 92612 Attention: Karen K. Dreyfus, Esq.
Telecopy: 949-440-7033 Telecopy: 949-823-6994
</TABLE>
Any party may change the address set forth above by notice to each other
party given as provided herein.
Any Rule 144 Sale Notice required to be given to Purchaser must be given by
a live telephone communication (I.E., not by voice-mail) directly to one of the
following persons or to such other persons as may be designated in writing from
time to time by Purchaser:
Ken Nelson, Telephone (612) 205-2190
Brett Boushele, Telephone (612) 205-2208
15. GOVERNING LAW. All matters relating to the interpretation,
construction, validity and enforcement of this Agreement shall be governed by
the internal laws of the state of Delaware, without giving effect to any choice
of law provisions thereof.
16. THIRD-PARTY BENEFIT. Nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights, remedies,
obligations or liabilities of any nature whatsoever.
-6-
<PAGE>
17. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Notwithstanding
any investigation made by either of the parties hereto and notwithstanding
the Closing or any actions taken after the execution hereof, the
representations and warranties made in this Agreement shall survive for the
term of this Agreement.
18. REMEDIES. The parties agree that money damages may not be an
adequate remedy for any breach of the provisions of this Agreement and that
any party may, in its discretion, apply to any court of law or equity of
competent jurisdiction for specific performance and injunctive relief in
order to enforce or prevent any violations this Agreement, and any party
against whom such proceeding is brought hereby waives the claim or defense
that such party has an adequate remedy at law and agrees not to raise the
defense that the other party has an adequate remedy at law.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
U.S. BANCORP
By
----------------------------------
Its
------------------------------
SHAREHOLDER
------------------------------------
-8-
<PAGE>
EXHIBIT 99.4
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as of
November 24, 1998, by and between New Century Financial Corporation, a Delaware
corporation (the "Company"), and U.S. Bancorp, a Delaware corporation (the
"Purchaser").
WHEREAS, the Purchaser has agreed to purchase shares of the Company's 1998A
Convertible Preferred Stock (the "Preferred Stock").
WHEREAS, in connection with such purchase, the Company and the Purchaser
desire to enter into certain arrangements with respect to the registration for
public sale under the Securities Act of 1933, as amended (the "Securities Act"),
of the shares of the Company's Common Stock, $.01 par value per share, issuable
upon conversion of the Preferred Stock.
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Purchaser
hereby agree as follows:
1. DEFINITIONS.
1.1 "Affiliate" shall mean any person that directly or indirectly
controls or is controlled by, or is under common control with, another specified
person.
1.2 "COMMISSION" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
1.3 "COMPANY" shall mean New Century Financial Corporation, a
Delaware corporation.
1.4 "COMMON SHARES" shall mean the shares of common stock, par value
$.01 per share, authorized by the Company's Certificate of Incorporation and any
additional shares of common stock which may be authorized in the future by the
Company, and any stock into which such Common Shares may hereafter be changed,
and shall also include capital stock of any other class of the Company which is
not preferred as to dividends or assets over any other class of stock of the
Company and which is not subject to redemption.
1.5 "FOUNDING MANAGERS" shall mean Robert K. Cole, Brad A. Morrice,
Steven G. Holder and Edward F. Gotschall.
<PAGE>
1.6 "OTHER SHAREHOLDERS" shall mean Paul B. Akers and Kirk Redding,
and their successors in interest, under that certain Merger Agreement, dated as
of December 17, 1997, among the Company, NC Acquisition Corp., PFW Corporation
and the shareholders named therein.
1.7 "PREFERRED STOCK" shall mean the outstanding shares of the Series
1998A Convertible Preferred Stock, par value $.01 per share, of the Company,
and any securities (other than Common Shares) into which such shares may
hereafter be changed.
1.8 "PUBLIC OFFERING" shall mean any offering of Common Shares to the
public, either on behalf of the Company or any of its security holders, pursuant
to an effective registration statement under the Securities Act.
1.9 "PURCHASER" shall mean U.S. Bancorp, a Delaware corporation.
1.10 "REGISTRABLE SECURITIES" shall mean (a) the Common Shares at any
time issued or subject to issuance upon the conversion of the Preferred Stock
and (b) any additional securities issued with respect to the above-described
securities upon any stock split, stock dividend, recapitalization, or similar
event. Registrable Securities shall cease to be Registrable Securities when (w)
a registration statement with respect to the sale of such securities shall have
been declared effective under the Securities Act and such securities shall have
been disposed of in accordance with such registration statement, (x) such
securities shall be eligible to be distributed pursuant to Rule 144(k) under the
Securities Act, (y) such securities shall have ceased to be outstanding, or (z)
such securities are transferred in a transaction in which the rights hereunder
are not assigned as permitted by
Section 9.
1.11 "REGISTRATION EXPENSES" shall mean the expenses described in
Section 5.
1.12 "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
1.13 "STOCK PURCHASE AGREEMENT" shall mean the Preferred Stock
Purchase Agreement dated October 18, 1998 between the Company and the Purchaser.
2. DEMAND REGISTRATION.
2.1 Subject to Sections 2.3, 2.4, 2.5 and 2.6, if at any time the
Company shall receive a written request therefor from the record holder or
holders of an aggregate of at least 51% of the Registrable Securities, the
Company shall prepare and file a registration statement under the Securities
Act covering such number of Registrable Securities as are the subject of such
request and shall use its best efforts to cause such registration statement
to become effective. Upon the receipt of a registration request meeting the
requirements of this Section 2.1, the Company shall promptly give written
notice to all other record holders of Registrable
-2-
<PAGE>
Securities that such registration is to be effected. The Company shall
include in such registration statement such additional Registrable Securities
as such other record holders request in writing within fifteen (15) days
after the date of the Company's written notice to them. If (a) the holders
of a majority of the Registrable Securities for which registration has been
requested pursuant to this Section 2.1 determine for any reason not to
proceed with the registration at any time before the related registration
statement has been declared effective by the Commission, (b) such
registration statement, if theretofore filed with the Commission, is
withdrawn and (c) the holders of the Registrable Securities subject to such
registration statement agree to bear their own Registration Expenses incurred
in connection therewith and to reimburse the Company for the Registration
Expenses incurred by it in such connection or if such registration statement,
if theretofore filed with the Commission, is withdrawn at the initiative of
the Company, then the holders of the Registrable Securities shall not be
deemed to have exercised their demand registration right pursuant to this
Section 2.1.
2.2 At the request of the holders of a majority of the Registrable
Securities to be registered, the method of disposition of all Registrable
Securities included in such registration shall be an underwritten Public
Offering. The managing underwriter of any such Public Offering shall be
selected by the majority of the Registrable Securities, provided that such
managing underwriter is reasonably acceptable to the Company.
2.3 The Company shall be obligated to prepare, file and cause to be
effective not more than two registration statements pursuant to Section 2.1.
2.4 Notwithstanding the foregoing, the Company may delay initiating
the preparation and filing of any registration statement requested pursuant to
Section 2.1 for a period not to exceed one hundred eighty (180) days if, in the
good faith judgment of the Company's Board of Directors, filing the registration
statement would reasonably be expected to have a Material Adverse Effect (as
defined in the Stock Purchase Agreement), which Material Adverse Effect could
reasonably be expected to be avoided by delaying such filing for such period.
2.5 Notwithstanding anything to the contrary contained herein, at any
time within thirty (30) days after receiving a demand for registration pursuant
to Section 2.1, the Company may elect to effect an underwritten primary
registration in lieu of the requested registration. If the Company so elects,
the Company shall give prompt written notice to all holders of Registrable
Securities of its intention to effect such a registration and shall afford such
holders the rights contained in Article 3 with respect to "piggyback"
registrations. In such event, the demand for registration pursuant to Section
2.1 shall be deemed to have been withdrawn.
2.6 The Company shall not obligated to effect a demand
registration (a) within 180 days after the effective date of a previous demand
registration or a previous registration in which the holders of Registrable
Securities were given piggy-back registration rights pursuant to this Agreement
and in which there was no reduction in the number of Registrable Securities
requested to be included or (b) prior to the first anniversary of this
Agreement, provided that this
-3-
<PAGE>
Section 2.6(b) shall not be applicable if the Purchaser notifies the Company
in writing that Purchaser, in its reasonable judgment, has determined that it
is required to divest all or a portion of the Registrable Securities in order
to satisfy or comply with regulatory requirements applicable to Purchaser.
3. PIGGYBACK REGISTRATION.
3.1 Each time the Company shall determine to proceed with the actual
preparation and filing of a registration statement under the Securities Act in
connection with the proposed offer and sale for money of any of its securities
by it or any of its security holders (other than a registration statement on
Form S-8, Form S-4 or other limited purpose form), the Company will give written
notice of its determination to all record holders of Registrable Securities.
Upon the written request of a record holder of any Registrable Securities given
within 15 days after the date of the receipt of any such notice from the
Company, the Company will, except as herein provided, use its best efforts to
cause all Registrable Securities the registration of which is requested to be
included in such registration statement, all to the extent requisite to permit
the sale or other disposition by the prospective seller or sellers of the
Registrable Securities to be so registered; PROVIDED, HOWEVER, that nothing
herein shall prevent the Company from, at any time, abandoning or delaying in
its sole and absolute discretion any registration.
3.2 If any registration pursuant to Section 3.1 is underwritten in
whole or in part, the Company may require that the Registrable Securities
included in the registration be included in the underwriting on the same terms
and conditions as the securities otherwise being sold through the underwriters.
If, in the good faith judgment of the managing underwriter of the Public
Offering, marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may exclude some or all of the
Registrable Securities from such registration and underwriting. Any reduction
in the number of securities of the Company included in such registration and
underwriting shall be borne (i) first by the Founding Managers and the Other
Shareholders pro rata based on the number of shares, if any, for which
registration was requested by the Founding Managers and the Other Shareholders,
(ii) second by the Holders of Registrable Securities pro rata based on the
number of shares, if any, for which registration was requested by such Holders,
and (iii) then equally by the other holders of securities of the Company
requested to be included in such registration and underwriting, as a group, pro
rata based on the number of shares for which registration was requested by such
holders. The Registrable Securities which are thus excluded from the
underwritten Public Offering shall be withheld from the market by the holders
thereof for a period which the managing underwriter reasonably determines is
necessary in order to effect the Public Offering.
4. REGISTRATION PROCEDURES. If and whenever the Company is required by
the provisions of Article 2 or Article 3 to effect a registration of Registrable
Securities under the Securities Act, the Company will use its best efforts to
effect the registration and sale of such Registrable Securities in accordance
with the intended methods of disposition specified by the
-4-
<PAGE>
holders participating therein. Without limiting the foregoing, the Company
in each such case will, as expeditiously as possible:
4.1 In the case of a demand registration pursuant to Section 2.1,
prepare and file with the Commission the requisite registration statement to
effect such registration (including such audited financial statements as may be
required by the Securities Act or the rules and regulations thereunder) and use
its best efforts to cause such registration statement to become effective;
PROVIDED, HOWEVER, that as far in advance as practical before filing such
registration statement or any amendment thereto, the Company will furnish
counsel for the requesting holders of Registrable Securities with copies of
reasonably complete drafts of all such documents proposed to be filed (including
exhibits), and any such holder shall have the opportunity to object to any
information pertaining solely to such holder that is contained therein and the
Company will make the corrections reasonably requested by such holder with
respect to such information prior to filing such registration statement or
amendment.
4.2 Prepare and file with the Commission such amendments and
supplements to such registration statement and any prospectus used in connection
therewith as may be necessary to maintain the effectiveness of such registration
statement and to comply with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities included in such registration
statement, in accordance with the intended methods of disposition thereof, until
the earlier of (a) such time as all of the Registrable Securities included in
such registration statement have been disposed of in accordance with the
intended methods of disposition by the holder or holders thereof as set forth in
such registration statement or (b) 180 days (or, if the filing was on a Form S-3
registration statement, 365 days) after such registration statement becomes
effective; provided, that, in the event the holder of Registrable Securities is
required to discontinue such holder's disposition of Registrable Securities
pursuant to Section 4.11 hereof, such 180-days (or 365 days, if applicable)
shall be extended for such additional period as is equal to the period during
which such holders was required to discontinue such disposition.
4.3 Promptly notify each requesting holder and the underwriter or
underwriters, if any, of:
(a) when such registration statement or any prospectus used in
connection therewith, or any amendment or supplement thereto, has been filed
and, with respect to such registration statement or any post-effective
amendment thereto, when the same has become effective;
(b) any written request by the Commission for amendments or
supplements to such registration statement or prospectus;
-5-
<PAGE>
(c) any notification received by the Company from the Commission
regarding the Commission's initiation of any proceeding with respect to, or of
the issuance by the Commission of, any stop order suspending the effectiveness
of such registration statement; and
(d) the receipt by the Company of any notification with respect to
the suspension of the qualification of any Registrable Securities for sale under
the applicable securities or blue sky laws of any jurisdiction.
4.4 Furnish to each holder of Registrable Securities included in such
registration statement such number of conformed copies of such registration
statement and of each amendment and supplement thereto, and such number of
copies of the prospectus contained in such registration statement (including
each preliminary prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 promulgated under the Securities Act relating to such
seller's Registrable Securities, and such other documents, as such holder may
reasonably request to facilitate the disposition of its Registrable Securities.
4.5 Use its best efforts to register or qualify all Registrable
Securities included in such registration statement under the securities or "blue
sky" laws of such states as each holder of Registrable Securities shall
reasonably request within twenty (20) days following the original filing of such
registration statement and to keep such registration or qualification in effect
for so long as such registration statement remains in effect, and take any other
action which may be reasonably necessary or advisable to enable such holder to
consummate the disposition in such states of the Registrable Securities owned by
such holder, except that the Company shall not for any such purpose be required
(a) to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this Section 4.5
be obligated to be so qualified, (b) to consent to general service of process in
any such jurisdiction or (c) to subject itself to taxation in any such
jurisdiction by reason of such registration or qualification.
4.6 Use its best efforts to cause all Registrable Securities included
in such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable each holder
thereof to consummate the disposition of such Registrable Securities.
4.7 Notify each holder whose Registrable Securities are included in
such registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
as a result of which any prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and at the request of any such holder promptly prepare and
furnish to such holder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the Purchaser of such Registrable Securities, such prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact
-6-
<PAGE>
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
4.8 Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission.
4.9 Use its best efforts to cause all Registrable Securities included
in such registration statement to be listed, upon official notice of issuance,
on any securities exchange or quotation system on which any of the securities of
the same class as the Registrable Securities are then listed.
4.10 The Company may require each holder whose Registrable Securities
are being registered to, and each such holder, as a condition to including
Registrable Securities in such registration statement, shall, furnish the
Company and the underwriters with such information and affidavits regarding such
holder and the distribution of such Registrable Securities as the Company and
the underwriters may from time to time reasonably request in writing in
connection with such registration statement. At any time during the
effectiveness of any registration statement covering Registrable Securities
offered by a holder, if such holder becomes aware of any change materially
affecting the accuracy of the information contained in such registration
statement or the prospectus (as then amended or supplemented) relating to such
holder, it will immediately notify the Company of such change.
4.11 Upon receipt of any notice from the Company of the happening of
any event of the kind described in Section 4.7, each holder will forthwith
discontinue such holder's disposition of Registrable Securities pursuant to the
registration statement relating to such Registrable Securities until such holder
receives the copies of the supplemented or amended prospectus contemplated by
Section 4.7 and, if so directed by the Company, shall deliver to the Company all
copies, other than permanent file copies, then in such holder's possession of
the prospectus relating to such Registrable Securities.
4.12 As used in this Agreement, the term "best efforts" shall not
mean efforts which require the performing party to do any act that is
unreasonable under the circumstances or to expend any funds other than
reasonable out-of-pocket expenses incurred in satisfying its obligations
hereunder, including but not limited to the fees, expenses and disbursements
of its accountants, counsel and other professionals.
5. EXPENSES. With respect to any registration requested pursuant to
Article 2 (except as otherwise provided in such Article with respect to a
registration voluntarily terminated at the request of the requesting holders
of Registrable Securities) the Company shall bear all of the expenses
("Registration Expenses") incident to the Company's performance of or
compliance with its obligations under this Agreement in connection with such
registration including, without limitation, all registration, filing,
securities exchange listing and NASD fees, all registration, filing,
qualification and other fees and expenses or complying with state securities
or "blue sky"
-7-
<PAGE>
laws, all word processing, duplicating and printing expenses, messenger and
delivery expenses, the fees and disbursements of counsel for the Company and
of its independent public accountants, including the expenses of any special
audits or "cold comfort" letters required by or incident to such performance
and compliance, premiums and other costs of any policies of insurance against
liabilities arising out of the Public Offering of the Registrable Securities
being registered obtained by the Company (it being understood that the
Company shall have no obligation to obtain such insurance) and any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities; but excluding underwriting discounts and commissions and transfer
taxes, if any, in respect of Registrable Securities and any fees and
disbursements of counsel and accountants to the holders of the Registrable
Securities, which discounts, commissions, transfer taxes, fees and
disbursements shall in any registration be payable by the holders of the
Registrable Securities being registered, PRO RATA in proportion to the number
of Registrable Securities being sold by them.
6. INDEMNIFICATION.
6.1 The Company will, to the full extent permitted by law, indemnify
and hold harmless each holder of Registrable Securities which are included in a
registration statement pursuant to the provisions of this Agreement, and its
directors, officers and partners and each other person, if any, who controls
such holder within the meaning of the Securities Act, from and against any and
all losses, claims, damages, expenses or liabilities, joint or several
(collectively, "Losses") to which such holder or any such director, officer,
partner or controlling person may become subject under the Securities Act or
otherwise, insofar as such Losses (or actions or proceedings, whether commenced
or threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in a
registration statement prepared and filed hereunder, any preliminary, final or
summary prospectus contained therein or any amendment or supplement thereto or
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein (in the case of a
prospectus, in the light of the circumstances under which they were made) not
misleading, and the Company will reimburse the holder and each such director,
officer, partner and controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending
against any such Losses (or action or proceeding in respect thereof); PROVIDED,
HOWEVER, that the Company will not be liable in any such case to the extent that
any such Losses arise out of or are based upon (a) an untrue statement or
alleged untrue statement or omission or alleged omission made in conformity with
written information furnished by such holder specifically for use in the
preparation of the registration statement or (b) such holder's failure to send
or give a copy of the final prospectus to the persons asserting an untrue
statement or alleged untrue statement or omission or alleged omission at or
prior to the written confirmation of the sale of Registrable Securities to such
person if such statement or omission was corrected in such final prospectus.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such holder or any such director, officer,
partner or controlling person of such holder and shall survive the transfer of
such securities by such holder. The Company shall also indemnify each other
person who participates
-8-
<PAGE>
(including as an underwriter) in the offering or sale of Registrable
Securities, their officers and directors, and partners, and each other
person, if any, who controls any such participating person within the meaning
of the Securities Act to the same extent provided above with respect to
holders of Registrable Securities.
6.2 Each holder of Registrable Securities which are included in a
registration pursuant to the provisions of this Agreement will, to the full
extent permitted by law, indemnify and hold harmless the Company, its officers,
directors and each other person, if any, who controls the Company within the
meaning of the Securities Act from and against any and all Losses to which the
Company or any such officer, director or controlling person may become subject
under the Securities Act or otherwise, insofar as such Losses (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon any untrue or alleged untrue statement of any material fact
contained in a registration statement prepared and filed hereunder, any
preliminary, final or summary prospectus contained therein or any amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein (in the case of a prospectus, in the
light of the circumstances under which they were made) not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was so made in reliance
upon and in strict conformity with written information furnished by such holder
specifically for use in the preparation of such registration statement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Company or any such director, officer or controlling
person of the Company. The holder of Registrable Securities included in a
registration statement shall also indemnify each other person who participates
(including as an underwriter) in the offering or sale of Registrable Securities,
their officers and directors, and partners, and each other person, if any, who
controls any such participating person within the meaning of the Securities Act
to the same extent as provided above with respect to the Company. In no event
shall the liability of any holder under this Section 6.2 exceed the gross
proceeds received by such holder from the sale of their Registrable Securities.
6.3 Promptly after receipt by a party indemnified pursuant to the
provisions of Section 6.1 or Section 6.2 of notice of the commencement of any
action involving the subject matter of the foregoing indemnity provisions, such
indemnified party will, if a claim thereof is to be made against the
indemnifying party pursuant to the provisions of Section 6.1 or Section 6.2,
promptly notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve the indemnifying
party from any liability which it may have to any indemnified party except to
the extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action is brought against any indemnified party,
the indemnifying party shall have the right to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party; PROVIDED, HOWEVER, that if the defendants in any action include both the
indemnified party and the indemnifying party and the indemnified party
reasonably concludes that there is a conflict of interest that would prevent
-9-
<PAGE>
counsel for the indemnifying party from also representing the indemnified party,
the indemnified party shall have the right to select one separate counsel to
participate in the defense of such action on behalf of the indemnified party or
parties. After notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party pursuant to the provisions of Section 6.1 or
Section 6.2 for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof unless (a) the
indemnified party shall have employed counsel in accordance with the proviso of
the preceding sentence, (b) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after the notice of the commencement
of the action or (c) the indemnifying party has authorized the employment of
counsel for the indemnified party at the expense of the indemnifying party. If
the indemnifying party is not entitled to, or elects not to, assume the defense
of a claim, it will not be obligated to pay the fees and expenses of more than
one counsel for the indemnified parties with respect to such claim, unless in
the reasonable judgment of any indemnified party a conflict of interest may
exist between such indemnified party and any other indemnified parties with
respect to such claim, in which event the indemnifying party shall be obligated
to pay the fees and expenses of additional counsel or counsels for the
indemnified parties, but only to the extent necessary to cure such conflict of
interest. No indemnifying party shall consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect to such claim or litigation without the consent of the
indemnified party. No indemnifying party shall be subject to any liability for
any settlement made without its consent. An indemnified party may at any time
elect to participate in the defense of any claim or proceeding at its own
expense.
7. UNDERWRITTEN OFFERINGS. If a distribution of Registrable Securities
pursuant to a registration statement is to be underwritten, the holders whose
Registrable Securities are to be distributed by such underwriters shall be
parties to such underwriting agreement. No requesting holder may participate in
such underwritten offering unless such holder agrees to sell its Registrable
Securities on the basis provided in such underwriting agreement and completes
and executes all questionnaires, powers of attorney, indemnities and other
documents reasonably required under the terms of such underwriting agreement.
If any requesting holder disapproves of the terms of an underwriting, such
holder may elect to withdraw therefrom and from such registration by notice to
the Company and the managing underwriter, and each of the remaining requesting
holders shall be entitled to increase the number of Registrable Securities being
registered to the extent of the Registrable Securities so withdrawn in the
proportion which the number of Registrable Securities being registered by such
remaining requesting holder bears to the total number of Registrable Securities
being registered by all such remaining requesting holders.
-10-
<PAGE>
8. STAND-OFF AGREEMENT. Each holder of Registrable Securities agrees, so
long as such holder holds at least 5% of the Company's outstanding voting equity
securities, in connection with a Public Offering, upon request of the Company or
the underwriters managing such Public Offering, not to sell, make any short sale
of, loan, grant any option for the purchase of, or otherwise dispose of any
Common Shares of the Company without the prior written consent of the Company or
such underwriters, as the case may be, for such period of time (not exceeding
180 days) from the effective date of the registration statement relating to such
Public Offering as may be requested by the underwriters; PROVIDED, HOWEVER, that
all other persons with registration rights (whether or not pursuant to this
Agreement) and all of the executive officers and directors of the Company who
own stock of the Company must also agree to not less onerous restrictions.
9. ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to
register the Registrable Securities pursuant to this Agreement may not be
assigned by the Purchaser except (a) to an Affiliate of the Purchaser without
limitation or (b) to a transferee or assignee of Registrable Securities
representing or convertible into 5% or more of the Company's outstanding Common
Shares. In the case of either (a) or (b) the Purchaser shall, within a
reasonable time after such transfer or assignment, furnish to the Company
written notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being assigned.
Any transferee asserting registration rights hereunder shall be bound by the
applicable provisions of this Agreement.
10. AMENDMENT. The Company shall not amend this Agreement without the
written consent of the holders of more than 50% of the Registrable Securities.
11. TERMINATION. This Agreement, and all of the Company's obligations
hereunder (other than its obligations pursuant to Article 6, which obligations
shall survive such termination), shall terminate upon the earlier to occur of
(i) the date on which there are no Registrable Securities outstanding and (ii)
November 24, 2003.
12. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law but if any provision of this Agreement is held to be invalid,
illegal or unenforceable under any applicable law or rule, the validity,
legality and enforceability of the other provision of this Agreement will not be
affected or impaired thereby.
13. NOTICES. All notices, consents, requests, instructions, approvals or
other communications provided for herein shall be in writing and delivered by
personal delivery, overnight courier, mail or electronic facsimile addressed to
the receiving party at the address set forth herein. All such communications
shall be effective when received.
-11-
<PAGE>
(a) If to any holder of any Registrable Securities addressed to
such holder at its address as shown on the books of the Company, or at
such other address as such holder may specify by written notice to the
Company, or
(b) if to the Company, at New Century Financial Corporation,
18400 Von Karman, Suite 1000, Irvine, California 92612, Attention:
Brad A. Morrice, Fax: 949-440-7033; or at such other address as the
Company may specify by written notice to the holders of Registrable
Securities hereunder.
14. COUNTERPARTS. This Agreement may be executed concurrently 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. Facsmile signatures
shall constitute original signatures for all purposes of this Agreement.
15. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties.
16. GOVERNING LAW. This Agreement shall be governed by, interpreted
under, and construed and enforced in accordance with the internal laws, and not
the laws pertaining to the conflicts or choice of laws, of the State of
Delaware.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized representatives as of
the day and year first above written.
NEW CENTURY FINANCIAL
CORPORATION
By /s/ Robert K. Cole
--------------------------------
Its Chairman and CEO
-----------------------------
U.S. BANCORP
By /s/ Susan E. Lester
--------------------------------
Its Executive Vice President
and CFO
-----------------------------
-12-
