<PAGE> 1
==========================================================================
=
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------
MARCH 18, 1998
Date of report (Date of earliest event reported)
------------------------
Commission File Number: 0-18108
------------------------
FINET HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE
(State or jurisdiction of
incorporation or organization)
3021 CITRUS CIRCLE, SUITE 150
WALNUT CREEK, CA 94598
(Address of principal executive office)
94-3115180
(IRS Employer Identification Number)
Telephone Number: (510) 988-6550
(Registrant's telephone number, including area code)
==========================================================================
==
<PAGE> 2
ITEM 5. OTHER
On March 18, 1998, the Registrant entered into an agreement with certain
buyers whereby, in reliance upon the exemption from securities
registration pursuant to Section 4(2) and/or Regulation D of the
Securities Act of 1933, as amended, the Registrant offered for sale 3%
Convertible Debentures of the Registrant, due on March 2001, in
denominations of $50,000 up to an aggregate principal amount of
$7,000,000, of which $4,000,000 were initially purchased. The schedule of
buyers is attached to the Securities Purchase Agreement, Exhibit 4.1.
The following exhibits are furnished.
<TABLE>
EXHIBIT INDEX
<CAPTION>
Exhibit Description
Page
- -------- --------------------------------------------------------------
- ----
<S> <C>
<C>
EX-4.1 Securities Purchase Agreement
3
EX-4.2 Registration Rights Agreement
32
EX-4.3 Debenture
49
EX-4.4 Warrant Agreement
60
EX-4.5 Warrants
74
EX-4.6 Escrow Agreement
85
EX-99 Placement Agent Agreement
102
</TABLE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
FINET HOLDINGS CORPORATION
<TABLE>
<S> <C>
Date: April 3, 1998 /s/ L. DANIEL RAWITCH
------------------------------------
L. DANIEL RAWITCH
(CEO AND PRINCIPAL EXECUTIVE OFFICER)
Date: April 3, 1998 /s/ GEORGE P. WINKEL
------------------------------------
GEORGE P. WINKEL
(PRINCIPAL FINANCIAL OFFICER)
</TABLE>
<PAGE> 3
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of March 18,
1998, by and among Finet Holdings Corporation, a Delaware corporation,
with headquarters located at 3021 Citrus Circle, Walnut Creek, California
94598 (the "Company"), and the investor listed on the Schedule of Buyers
attached hereto (individually, a "Buyer" or collectively "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration
pursuant to Section 4(2) and/or Regulation D of the Securities Act of
1933, as amended (the "1933 Act"),
B. The Company is offering for sale to the Buyer 3% Convertible
Debentures (the "Debentures") of the Company, due on March 18, 2001, and
offered in denominations of $50,000 up to an aggregate principal amount of
$7,000,000. The terms of the Debentures, including the terms on which the
Debentures may be converted into the common stock of the Company, $.01 par
value, are set forth in the Debenture, in substantially the form attached
as Exhibit "A" hereto.
C. The Buyer wishes to purchase, upon the terms and conditions
stated in this Agreement, an aggregate principal amount of up to
$4,000,000 of Debentures in the respective amounts set forth opposite each
Buyer's name on the Schedule of Buyers;
D. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration
Rights Agreement substantially in the form attached hereto as Exhibit "B"
(the "Registration Rights Agreement") pursuant to which the Company has
agreed to provide certain registration rights under the 1933 Act and the
rules and regulations promulgated thereunder, and applicable state
securities laws;
E. The Buyer shall receive purchase warrants to acquire shares of
Common Stock substantially in the form attached hereto as Exhibit "C" (the
"Warrants"); and
NOW THEREFORE, the Company and the Buyer hereby agree as follows:
1 . PURCHASE AND SALE OF DEBENTURES.
a. Purchase of Debentures. Subject to the satisfaction (or
waiver) of the conditions set forth in Sections 6 and 7 below, the
Company shall issue and sell to the Buyers and the Buyers shall
purchase from the Company an aggregate principal amount of
$4,000,000 Debentures, in the respective amounts set forth opposite
each Buyer's name on the Schedule of Buyers (the "Closing").
b. Closing Date. The date and time of the Closing (the
"Closing Date") shall be 10:00 a.m. Central Standard Time, within
five (5) business days following the date hereof, subject to
notification of satisfaction (or waiver) of the conditions to the
Closing set forth in Sections 6 and 7 below (or such later date as is
mutually agreed to by the Company and the Buyer). The Closing shall
occur on the Closing Date at the offices of Sims Moss Kline & Davis
LLP, 400 Northpark Town Center, Suite 310, 1000 Abernathy Road, N.E.,
Atlanta, Georgia 30328.
c. Form of Payment. On the Closing Date, (i) each Buyer shall
pay the Purchase Price to the Company for the Debentures to be
issued and sold to such Buyer at the Closing, by wire transfer of
immediately available funds in accordance with the Company's written
wire instructions, and (ii) the Company shall deliver to each Buyer,
certificates representing such Debentures which such Buyer is then
purchasing (as indicated opposite such Buyer's name on the Schedule
of Buyers), duly executed on behalf of the Company and registered in
the name of such Buyer or its designee (the "Certificates").
2. BUYER'S REPRESENTATIONS AND WARRANTEES.
Each Buyer represents and warrants with respect to only itself
that:
a. Investment Purpose. Such Buyer (i) is acquiring the
Debentures, (ii) upon conversion of the Debentures will acquire the
Conversion Shares then issuable, (iii) will acquire any Warrants,
and (iv) upon exercise of the Warrants will acquire the shares of
Common Stock issuable upon exercise thereof (the "Warrant Shares")
for its own account for investment only and not with a view towards,
or for resale in connection with, the public sale or distribution
thereof, except pursuant to sales registered or exempted under the
1933 Act; provided, however, that by making the representations
herein, such Buyer does not agree to hold any Debentures, Conversion
Shares, Warrants, or Warrant Shares for any minimum or other
specific term and reserves the right to dispose of Debentures,
Conversion Shares, Warrants, or Warrant Shares at any time in
accordance with or pursuant to a registration statement or an
exemption under the 1933 Act.
b. Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a)(3) of Regulation D
("Regulation D") as promulgated by the United States Securities and
Exchange Commission (the "SEC").
c. Reliance on Exemptions. Such Buyer understands that the Debentures,
Conversion Shares, Warrants, and Warrant Shares are being offered and sold
to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that
the Company is relying in part upon the truth and accuracy of, and such
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order
to determine the availability of such exemptions and the eligibility of
such Buyer to acquire such securities.
d. Information. Such Buyer and its advisors, if any, have
been furnished with all appropriate materials relating to the
business, finances and operations of the Company and materials
relating to the offer and sale of the Debentures, Conversion Shares,
the Warrants, and the Warrant Shares, which have been requested by
such Buyer. Such Buyer and its advisors, if any, have been afforded
the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by
such Buyer or its advisors, if any, or its representatives shall
modify, amend or affect such Buyer's right to rely on the Company's
representations and warranties contained in Section 3 below. Such
Buyer understands that its investment in the Debentures, the
Conversion Shares, the Warrants, and the Warrant Shares involves a
high degree of risk. Such Buyer has sought such accounting, legal
and tax advice as it has considered necessary to make an informed
investment decision with respect to its acquisition of the
Debentures, the Conversion Shares, the Warrants, and the Warrant
Shares.
e. No Governmental Review. Such Buyer understands that no
United States federal or state agency or any other government or
governmental agency has passed on or made any recommendation or
endorsement of the Debentures, the Conversion Shares, the Warrants,
and the Warrant Shares, or the fairness or suitability of the
investment in the Debentures and the Conversion Shares, nor have
such authorities passed upon or endorsed the merits of the offering
of the Debentures, the Conversion Shares, the Warrants, and the
Warrant Shares.
f. Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Debentures,
the Conversion Shares, the Warrants, and the Warrant Shares have not
been and are not being registered under the 1933 Act or any state
securities laws, and may not be offered for sale, sold, assigned or
transferred unless (a) subsequently registered thereunder, (b) such
Buyer shall have delivered to the Company an opinion of counsel, in
a generally acceptable form, to the effect that such securities to
be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (c)
such Buyer provides the Company with reasonable assurance that such
securities can be sold, assigned or transferred pursuant to Rule 144
promulgated under the 1933 Act (or a successor rule thereto); (ii)
any sale of such securities made in reliance on Rule 144 promulgated
under the 1933 Act (or a successor rule thereto) ("Rule 144") may be
made only in accordance with the terms of Rule 144 and further, if
Rule 144 is not applicable, any resale of such securities under
circumstances in which the seller (or the person through whom the
sale is made) may be deemed to be an underwriter (as that term is
defined in the 1933 Act) may require compliance with some other
exemption under the 1933 Act or the rules and regulations of the SEC
thereunder; and (iii) neither the Company nor any other person is
under any obligation to register such securities under the 1933 Act
or any state securities laws or to comply with the terms and
conditions of any exemption thereunder.
g. Legends. Such Buyer understands that the certificates or
other instruments representing the Debentures, the Warrants and,
until such time as the sale of the Conversion Shares have been
registered under the 1933 Act as contemplated by the Registration
Rights Agreement, the stock certificates representing the
Conversion Shares and the Warrant Shares shall bear a restrictive
legend in substantially the following form (and a stoptransfer order
may be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT
BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN
OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT
TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and the Company shall
issue a certificate without such legend to the holder of the
Debentures, the Conversion Shares, the Warrants, or the Warrant
Shares, upon which it is stamped, if, unless otherwise required by
state securities laws, (i) the sale of the Conversion Shares or
Warrant Shares are registered under the 1933 Act, (ii) in connection
with a sale transaction, such holder provides the Company with an
opinion of counsel, reasonably satisfactory to the Company, to the
effect that a public sale, assignment or transfer of the Debentures,
the Conversion Shares, the Warrants, and the Warrant Shares may be
made without registration under the 1933 Act, or (iii) such holder
provides the Company with reasonable assurances that the Debentures,
the Conversion Shares, the Warrants, or the Warrant Shares can be
sold pursuant to Rule 144 without any restriction as to the number
of securities acquired as of a particular date that can then be
immediately sold.
h. Authorization, Enforcement. This Agreement has been duly
and validly authorized, executed and delivered on behalf of such
Buyer and is a valid and binding agreement of such Buyer enforceable
in accordance with its terms, subject as enforceability to general
principles of equity and to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws
relating to, or affecting generally, the enforcement of applicable
creditors' rights and remedies.
i. Residency. Such Buyer is a resident of that state and country
specified in its address on the Schedule of Buyers.
3 . REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
a. Organization and Qualification. The Company and its
subsidiaries are corporations duly organized and validly existing in
good standing under the laws of the jurisdiction in which they are
incorporated, and have the requisite corporate power to own their
properties and to carry on their business as now being conducted.
Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted by it
makes such qualification necessary, except to the extent that the
failure to be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries taken as
a whole.
b. Authorization, Enforcement, Compliance with Other
Instruments. (i) The Company has the requisite corporate power and
authority to enter into and perform this Agreement, the Registration
Rights Agreement and any related agreements, and to issue the
Debentures, the Conversion Shares, the Warrants, and the Warrant
Shares, in accordance with the terms hereof and thereof, (ii) the
execution and delivery of this Agreement, the Registration Rights
Agreement, the Warrants and any related agreements by the Company
and the consummation by it of the transactions contemplated hereby
and thereby, including without limitation the issuance of the
Debentures and the reservation for issuance and the issuance of the
Conversion Shares issuable upon conversion or exercise thereof, have
been duly authorized by the Company's Board of Directors and no
further consent or authorization is required by the Company, its
Board of Directors or its stockholders, (iii) this Agreement, the
Registration Rights Agreement, the Warrants, and any related
agreements have been duly executed and delivered by the Company, and
(iv) this Agreement, the Registration Rights Agreement, the
Warrants, and any related agreements constitute the valid and
binding obligations of the Company enforceable against the Company
in accordance with their terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors'
rights and remedies.
c. Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of 60,000,000 shares of Common
Stock, par value $0.01 per share, and 100,000 shares of Preferred
Stock, par value $0.01 per share ("Preferred Stock"), of which as of
the date hereof 30,526,684 shares of Common Stock and no shares of
Preferred Stock were issued and outstanding. All of such
outstanding shares have been validly issued and are fully paid and
nonassessable. Except as disclosed in Schedule 3(c), no shares of
Common Stock or preferred stock are subject to preemptive rights or
any other similar rights or any liens or encumbrances suffered or
permitted by the Company. Except as disclosed in Schedule 3(c), as
of the effective date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock
of the Company or any of its subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or
any of its subsidiaries is or may become bound to issue additional
shares of capital stock of the Company or any of its subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities
or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, (ii) there are no outstanding
debt securities and (iii) there are no agreements or arrangements
under which the Company or any of its subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act
(except the Registration Rights Agreement). There are no securities
or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of the Debentures or the
Conversion Shares as described in this Agreement. The Company has
furnished to the Buyer true and correct copies of the Company's
Certificate of Incorporation, as amended and as in effect on the
date hereof (the "Certificate of Incorporation"), and the Company's
By-laws, as in effect on the date hereof (the "By-laws"), and the
terms of all securities convertible into or exercisable for Common
Stock and the material rights of the holders thereof in respect
thereto. Schedule 3(c) sets forth a schedule of all issuances of
Common Stock, convertible securities, options, warrants, and the
like for the past twelve (12) calendar months as well as those
holders eligible to sell securities pursuant to Rule 144 in the next
twelve (12) calendar months.
d. Issuance of Securities. The Debentures are duly authorized
and, upon issuance in accordance with the terms hereof, shall be (i)
validly issued, fully paid and nonassessable, are free from all
taxes, liens and charges with respect to the issue thereof and are
entitled to the rights and preferences set forth in the Debentures.
The Conversion Shares issuable upon conversion of the Debentures
have been duly authorized and reserved for issuance. Upon
conversion or exercise in accordance with the Debentures, the
Conversion Shares will be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with
respect to the issue thereof, with the holders being entitled to all
rights accorded to a holder of Common Stock.
e. No Conflicts. Except as disclosed in Schedule 3(e), the
execution, delivery and performance of this Agreement by the Company
and the consummation by the Company of the transactions contemplated
hereby will not (i) result in a violation of the Certificate of
Incorporation or By-laws or (ii) conflict with or constitute a
default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any
material agreement, indenture or instrument to which the Company or
any of its subsidiaries is a party, or result in a violation of any
law, rule, regulation, order, judgment or decree (including federal
and state securities laws and regulations and the rules and
regulations of the principal market or exchange on which the Common
Stock is traded or listed) applicable to the Company or any of its
subsidiaries or by which any property or asset of the Company or any
of its subsidiaries is bound or affected. Except as disclosed in
Schedule 3(e), neither the Company nor its subsidiaries is in
violation of any term of or in default under its Certificate of
Incorporation or Bylaws or their organizational charter or by-laws,
respectively, or any material contract, agreement, mortgage,
indebtedness, indenture, instrument, judgment, decree or order or
any statute, rule or regulation applicable to the Company or its
subsidiaries. The business of the Company and its subsidiaries is
not being conducted, and shall not be conducted in violation of any
law, ordinance, regulation of any governmental entity. Except as
specifically contemplated by this Agreement and as required under
the 1933 Act and any applicable state securities laws, to the best
of the Company's knowledge, the Company is not required to obtain
any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it
to execute, deliver or perform any of its obligations under or
contemplated by this Agreement, the Registration Rights Agreement,
and the Warrants in accordance with the terms hereof or thereof.
Except as disclosed in Schedule 3(e), all consents, authorizations,
orders, filings and registrations which the Company is required to
obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the date hereof. The Company and its
subsidiaries are unaware of any facts or circumstances which might
give rise to any of the foregoing.
f. SEC Documents: Financial Statements. Since January 1,
1996, the Company had filed all reports, schedules, forms,
statements and other documents required to be filed by it with the
SEC pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act") (all of the
foregoing filed prior to the date hereof and all exhibits included
therein and being hereinafter referred to as the "SEC Documents").
As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the 1934 Act and the
rules and regulations of the SEC promulgated thereunder applicable
to the SEC Documents, and none of the SEC Documents, at the time
they were filed with the SEC, contained any untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements
of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto.
Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may
exclude footnotes or may be condensed or summary statements) and
fairly present in all material respects the financial position of
the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the
Company to the Buyer which is not included in the SEC Documents,
including, without limitation information referred to in Section
2(d) of this Agreement, contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make
the statements therein, in the light of the circumstance under which
they are or were made, not misleading.
g. Absence of Certain Changes. Except as disclosed in
Schedule 3(g) and in the SEC documents, since December 15, 1997,
there has been no material adverse change and no material adverse
development in the business, properties, operations, financial
condition, results of operations or prospects of the Company or its
subsidiaries. The Company has not taken any steps, and does not
currently expect to take any steps, to seek protection pursuant to
any bankruptcy law nor does the Company or its subsidiaries have any
knowledge or reason to believe that its creditors intend to initiate
involuntary bankruptcy proceedings.
h. Absence of Litigation. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public
board, government agency, self-regulatory organization or body
pending or, to the knowledge of the Company or any of its
subsidiaries, threatened against or affecting the Company, the
Common Stock or any of the Company's subsidiaries, wherein an
unfavorable decision, ruling or finding would (i) have a material
adverse effect on the transactions contemplated hereby (ii)
adversely affect the validity or enforceability of, or the authority
or ability of the Company to perform its obligations under, this
Agreement or any of the documents contemplated herein or (iii),
except as expressly set forth in the SEC Documents or in Schedule
3(h), have a material adverse effect on the business, operations,
properties, financial condition or results of operation of the
Company and its subsidiaries taken as a whole.
i. No Undisclosed Events, Liabilities, Developments or
Circumstances. No known event, liability, development or
circumstance has occurred or exists, or is contemplated to occur,
with respect to the Company or its subsidiaries or their respective
business, properties, prospects, operations or financial condition,
which could be material but which has not been publicly announced or
disclosed in writing to the Buyer.
j. No General Solicitation. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the 1933 Act) in
connection with the offer or sale of the Debentures or the
Conversion Shares.
k. No Integrated Offering. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that
would require registration of the Debentures, the Conversion Shares,
the Warrants, or the Warrant Shares under the 1933 Act or cause this
offering of Debentures or the Conversion Shares to be integrated
with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions.
l. Employee Relations. Neither the Company nor any of its
subsidiaries is involved in any labor dispute nor, to the knowledge
of the Company or any of its subsidiaries, is any such dispute
threatened. None of the Company's or its subsidiaries' employees is
a member of a union and the Company and its subsidiaries believe
that their relations with their employees are good.
m. Intellectual Property Rights. To the best of the Company's
knowledge, the Company and its subsidiaries own or possess adequate
rights or licenses to use all trademarks, trade names, service
marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their
respective businesses as now conducted. Except as set forth on
Schedule 3(m), none of the Company's trademarks, trade names,
service marks, service mark registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals,
government authorizations, trade secrets or other intellectual
property rights have expired or terminated, or are expected to
expire or terminate in the near future. The Company and its
subsidiaries do not have any knowledge of any infringement by the
Company or its subsidiaries of trademark, trade name rights,
patents, patent rights, copyrights, inventions, licenses, service
names, service marks, service mark registrations, trade secret or
other similar rights of others, or of any such development of
similar or identical trade secrets or technical information by
others and, except as set forth on Schedule 3(m), there is no claim,
action or proceeding being made or brought against, or to the
Company's knowledge, being threatened against, the Company or its
subsidiaries regarding trademark, trade name, patents, patent
rights, invention, copyright, license, service names, service marks,
service mark registrations, trade secret or other infringement; and
the Company and its subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing. The
Company and its subsidiaries have taken reasonable security measures
to protect the secrecy, confidentiality and value of all of their
intellectual properties.
n. Environmental Laws. To the best of the Company's
knowledge, the Company and its subsidiaries are (i) in compliance
with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("Environmental Laws"), (ii) have
received all permits, licenses or other approvals required of them
under applicable Environmental Laws to conduct their respective
businesses and (iii) are in compliance with all terms and conditions
of any such permit, license or approval.
o. Title. The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to
all personal property owned by them which is material to the business of
the Company and its subsidiaries, in each case free and clear of all
liens, encumbrances and defects except such as are described in Schedule
3(o) or such as do not materially affect the value of such property and do
not interfere with the use made and proposed to be made of such property
by the Company and its subsidiaries.
p. Insurance. The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility against
such losses and risks and in such amounts as management of the
Company believes to be prudent and customary in the businesses in
which the Company and its subsidiaries are engaged. Neither the
Company nor any such subsidiary has been refused any insurance
coverage sought or applied for and neither the Company nor any such
subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not
materially and adversely affect the condition, financial or
otherwise, or the earnings, business or operations of the Company
and its subsidiaries, taken as a whole.
q. Regulatory Permits. The Company and its subsidiaries
possess all certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities
necessary to conduct their respective businesses, and neither the
Company nor any such subsidiary has received any notice of
proceedings relating to the revocation or modification of any such
certificate, authorization or permit.
r. Internal Accounting Controls. The Company and each of its
subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and
(iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
s. No Materially Adverse Contracts, Etc. Neither the Company
nor any of its subsidiaries is subject to any charter, corporate or
other legal restriction, or any judgment, decree, order, rule or
regulation which in the judgment of the Company's officers has or is
expected in the future to have a material adverse effect on the
business, properties, operations, financial condition, results of
operations or prospects of the Company or its subsidiaries. Except
as disclosed in the SEC Documents, neither the Company nor any of
its subsidiaries is a party to any contract or agreement which in
the judgment of the Company's officers has or is expected to have a
material adverse effect on the business, properties, operations,
financial condition, results of operations or prospects of the
Company or its subsidiaries.
t. Tax Status. Except as set forth on Schedule 3(t), the
Company and each of its subsidiaries has made or filed all federal
and state income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject (unless and only
to the extent that the Company and each of its subsidiaries has set
aside on its books provisions reasonably adequate for the payment of
all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount,
shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set
aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes
in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis
for any such claim.
u. Certain Transactions. Except as set forth on Schedule 3(u)
and in the SEC Documents and except for arm's length transactions
pursuant to which the Company makes payments in the ordinary course
of business upon terms no less favorable than the Company could
obtain from third parties and other than the grant of stock options
disclosed on Schedule 3(c), none of the officers, directors, or
employees of the Company is presently a party to any transaction
with the Company (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee
or, to the knowledge of the Company, any corporation, partnership,
trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director,
trustee or partner.
v. Dilutive Effect. The Company understands and acknowledges
that the number of Conversion Shares issuable upon conversion of the
Debentures will increase in certain circumstances. The Company
further acknowledges that its obligation to issue Conversion Shares
and Warrants upon conversion of the Debentures in accordance with
this Agreement and the Debentures and its obligation to issue the
Warrant Shares upon exercise of the Warrants is, in each case,
absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other
stockholders of the Company.
w. Fees and Rights of First Refusal. The Company is not
obligated to offer the securities offered hereunder on a right of
first refusal basis or otherwise to any third parties including, but
not limited to, current or former shareholders of the Company,
underwriters, brokers, agents, or other third parties.
4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts timely
to satisfy each of the conditions to be satisfied by it as provided
in Sections 6 and 7 of this Agreement.
b. Form D. The Company agrees to file a Form D with respect
to the Debentures, the Conversion Shares, the Warrants, and the
Warrant Shares as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company
shall, on or before the Closing Date, take such action as the
Company shall reasonably determine is necessary to qualify the
Debentures, the Conversion Shares, the Warrants, and the Warrant
Shares for, or obtain exemption for the Debentures, the Conversion
Shares, the Warrants, and the Warrant Shares for, sale to the Buyers
at the Closing pursuant to this Agreement under applicable
securities or "Blue Sky" laws of the states of the United States,
and shall provide evidence of any such action so taken to the Buyers
on or prior to the Closing Date.
c. Reporting Status. Until the earlier of (i) the date as of
which the Investors (as that term is defined in the Registration
Rights Agreement) may sell all of the Conversion Shares and the
Warrant Shares without restriction pursuant to Rule 144(k)
promulgated under the 1933 Act (or successor thereto), or (ii) the
date on which (A) the Investors shall have sold all the Conversion
Shares and the Warrant Shares and (B) none of the Debentures and the
Warrants is outstanding (the "Registration Period"), the Company
shall file all reports required to be filed with the SEC pursuant to
the 1934 Act, and the Company shall not terminate its status as an
issuer required to file reports under the 1934 Act even if the 1934
Act or the rules and regulations thereunder would otherwise permit
such termination.
d. Use of Proceeds. The Company will use the proceeds from
the sale of the Debentures for substantially the same purposes and
in substantially the same amounts as indicated in Schedule 4(d).
e. Financial Information. The Company agrees to send the
following to each Buyer who still holds Debentures or Conversion
Shares during the Registration Period: (i) within five (5) days
after the filing thereof with the SEC, a copy of its Annual Reports
on Form 10-K, its Quarterly Reports on Form 10-Q, any Current
Reports on Form 8-K and any registration statements or amendments
filed pursuant to the 1933 Act; (ii) within one (1) day after
release thereof, copies of all press releases issued by the Company
or any of its subsidiaries and (ii) copies of the same notices and
other information given to the stockholders of the Company
generally, contemporaneously with the giving thereof to the
stockholders.
f. Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the
purpose of issuance, no less than 200% of the number of shares of
Common Stock needed to provide for the issuance of the Conversion
Shares measured at the time of the Closing (based upon a conversion
price of $3 13/16).
g. Listings. The Company shall promptly secure the listing of
the Conversion Shares upon each national securities exchange or
automated quotation system, if any, upon which shares of Common
Stock are then listed (subject to official notice of issuance) and
shall maintain, so long as any other shares of Common Stock shall be
so listed, such listing of all Conversion Shares from time to time
issuable under the terms of this Agreement and the Registration
Rights Agreement. The Company shall use its best efforts to
maintain the Common Stock's authorization for quotation in the over-
the counter market. The Company shall promptly provide to each
Buyer copies of any notices it receives regarding the continued
eligibility of the Common Stock for trading in the over-the-counter
market.
h. Expenses. Each of the Company and the Buyer shall pay all
costs and expenses incurred by such party in connection with the
negotiation, investigation, preparation, execution and delivery of
this Agreement and the Registration Rights Agreement. The costs and
expenses of J.P. Carey Securities, Inc. and its counsel shall be
paid for by the Company at Closing.
i. [LEFT INTENTIONALLY BLANK]
j. Listing. The Company shall use its best efforts to cause
all the Registrable Securities (as defined in the Registration
Rights Agreement) covered by a Registration Statement to be listed
on the Nasdaq SmallCap Market on which securities of the same class
or series issued by the Company are then listed or quoted, if any,
if the listing or quotation of such Registrable Securities is then
permitted under the rules of such exchange. The Company shall (i)
at such time as the Common Stock meets the eligibility requirements
of the Nasdaq National Market System, use its reasonable efforts to
secure the inclusion of shares of the Common Stock for quotation on
the Nasdaq National Market System. If, despite the Company's
reasonable efforts to satisfy the preceding sentences, the Company
is unsuccessful in satisfying the preceding sentences, the Company
shall (i) maintain the inclusion of shares of the Common Stock for
quotation on the over-the-counter market and (ii) secure the
inclusion of such Registrable Securities for quotation on the
over-the-counter market. The Company shall promptly provide to each
holder of Debentures copies of any notices it receives regarding the
continued eligibility of the Common Stock for trading in the
over-the-counter market or, if applicable, any securities exchange
(including the Nasdaq National Market System or the Nasdaq SmallCap
Market) on which securities of the same class or series issued by
the Company are then listed or quoted, if any. The Company shall
pay all fees and expenses in connection with satisfying its
obligation under this Section 4(j).
k. Corporate Existence. So long as any Debentures remain out-
standing,the Company shall not directly or indirectly consummate any
merger, reorganization, restructuring, consolidation, sale of all or
substantially all of the Company's assets or any similar transaction or
related transactions (each such transaction, a "Sale of the Company")
except if the surviving or successor entity in such transaction (i)
expressly assumes, in writing, the Company's obligations hereunder and
under the Registration Rights Agreement, the Debentures and any other
agreements and instruments entered into or delivered by the Company in
connection herewith and (ii) is a publicly traded corporation whose
Common Stock is listed for trading on the New York Stock Exchange, Inc.
the American Stock Exchange or the NASDAQ National Market, NASDAQ
SmallCap Market, or electric bulletin board.
l. Transactions With Affiliates. So long as (i) any
Debentures are outstanding or (ii) any Buyer owns Conversion Shares
and Warrant Shares with a market value equal to or greater than
$200,000, the Company shall not, and shall cause each of its
subsidiaries not to, enter into, amend, modify or supplement, or
permit any subsidiary to enter into, amend, modify or supplement any
agreement, transaction, commitment, or arrangement with any of its
or any subsidiary's officers, directors, person who were officers or
directors at any time during the previous two years, stockholders
who beneficially own 5% or more of the Common Stock, or affiliates
or with any individual related by blood, marriage, or adoption to
any such individual or with any entity in which any such entity or
individual owns a 5% or more beneficial interest (each a"Related
Party"), except for (a) customary employment arrangements and
benefit programs on reasonable terms, (b) any agreement,
transaction, commitment, or arrangement on an arms-length basis on
terms no less favorable than terms which would have been obtainable
from a person other than such Related Party, (c) any agreement
transaction, commitment, or arrangement which is approved by a
majority of the disinterested directors of the Company, for purposes
hereof, any director who is also an officer of the Company or any
subsidiary of the Company shall not be a disinterested director with
respect to any such agreement, transaction, commitment, or
arrangement. "Affiliate" for purposes hereof means, with respect to
any person or entity, another person or entity that, directly or
indirectly, (i) has a 5% or more equity interest in that person or
entity, (ii) has 5% or more common ownership with that person or
entity, (iii) controls that person or entity, or (iv) shares common
control with that person or entity. "Control" or "controls" for
purposes hereof means that a person or entity has the power, direct
or indirect, to conduct or govern the policies of another person or
entity.
m. Shareholder Approval. The Company covenants to promptly
submit to its shareholders at a shareholder's meeting a proposal for
ratification of the issuance of the Debentures, the Conversion
Shares, the Warrants, and the Warrant Shares, if and as required by
the rules of the National Association of Securities Dealers, Inc.
("NASD") and any other applicable law, rules, and regulations
applicable to the transaction. The Company represents and warrants
that Affiliates of the Company, including the Company's officers and
directors, have individually agreed in their capacity as
shareholders to vote their shares of Common Stock in favor of such a
proposal at such meeting.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its transfer
agent to issue certificates, registered in the name of the Buyer or its
respective nominee(s), for the Conversion Shares and Warrant Shares in
such amounts as specified from time to time by the Buyer to the Company
upon conversion of the Debentures or exercise of the Warrants (the
"Irrevocable Transfer Agent Instructions"). Prior to registration of the
Conversion Shares under the 1933 Act, all such certificates shall bear the
restrictive legend specified in Section 2(g) of this Agreement. The
Company warrants that no instruction other than the Irrevocable Transfer
Agent Instructions referred to in this Section 5, and stop transfer
instructions to give effect to Section 2(f) hereof (in the case of the
Conversion Shares or Warrant Shares, prior to registration of such shares
under the 1933 Act) will be given by the Company to its transfer agent and
that the Debentures, the Conversion Shares, the Warrants, and the Warrant
Shares shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement, the
Registration Rights Agreement, or the Warrant. Nothing in this Section 5
shall affect in any way the Buyer's obligations and agreement to comply
with all applicable securities laws upon resale of the Debentures, the
Conversion Shares, the Warrants, or the Warrant Shares. If the Buyer
provides the Company with an opinion of counsel, reasonably satisfactory
in form, and substance to the Company, that registration of a resale by
the Buyer of any of the Debentures, the Conversion Shares, the Warrants,
or the Warrant Shares is not required under the 1933 Act, the Company
shall permit the transfer, and, in the case of the Conversion Shares or
the Warrant Shares, promptly instruct its transfer agent to issue one or
more certificates in such name and in such denominations as specified by
the Buyer. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Buyer by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach
of its obligations under this Section 5 will be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the
provisions of this Section 5, that the Buyer shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach and requiring immediate issuance and transfer, without the
necessity of showing economic loss and without any bond or other security
being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the
Debentures to the Buyer at the Closing is subject to the satisfaction, at
or before the Closing Date, of each of the following conditions, provided
that these conditions are for the Company's sole benefit and may be waived
by the Company at any time in its sole discretion:
a. The Buyer shall have executed this Agreement and the
Registration Rights Agreement and delivered the same to the Company.
b. The Buyer shall have delivered to the Company the Purchase
Price for the Debentures being purchased by the Buyer at the Closing
by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.
c. The representations and warranties of the Buyer shall be
true and correct in all material respects as of the date when made
and as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date),
and the Buyer shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied
with by the Buyer at or prior to the Closing Date.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The obligation of the Buyer hereunder to purchase the Debentures
at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions, provided that these conditions
are for the Buyer's sole benefit and may be waived by the Buyer at any
time in its sole discretion:
a. The Company shall have executed this Agreement, the
Registration Rights Agreement, and the Warrants, and delivered the
same to the Buyer.
b. The Common Stock shall be authorized for quotation on the
over-the-counter market, AMEX the NASDAQ SmallCap or National Market
or The New York Stock Exchange, Inc., trading in the Common Stock
shall not have been suspended for any reason and all of the
Conversion Shares issuable upon conversion of the Debentures shall
be approved for listing on the over-the-counter market, AMEX, the
NASDAQ SmallCap National Market, or The New York Stock Exchange,
Inc.
c. The representations and warranties of the Company shall be
true and correct in all material respects (except to the extent that
any of such representations and warranties is already qualified as
to materiality in Section 3 above, in which case, such
representations and warranties shall be true and correct without
further qualification) as of the date when made and as of the
Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date) and the Company
shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Date. The Buyer shall have
received a certificate, executed by the Chief Executive Officer of
the Company, dated as of the Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by the
Buyer including, without limitation an update as of the Closing Date
regarding the representation contained in Section 3(c) above.
d. The Buyer shall have received the opinion of the Company's
counsel dated as of the Closing Date, in form, scope and substance
reasonably satisfactory to the Buyer and in substantially the form
of Exhibit "D" attached hereto.
e. The Company shall have executed and delivered to the Buyer
the Certificates (in such denominations as the Buyer shall request)
for the Debentures being purchased by the Buyer at the Closing.
f. The Board of Directors of the Company shall have adopted
the resolutions in substantially the form of Exhibit "E" attached
hereto.
g. As of the Closing Date, the Company shall have reserved out
of its authorized and unissued Common Stock, solely for the purpose
of effecting the conversion of the Debentures and the exercise of
the Warrants, such number of shares of Common Stock no less than
200% of the number of shares of Common Stock for which are issuable
upon conversion of all of the Debentures which could be issued
(based upon a conversion effective as of the day before the Closing
Date) under this Agreement or the Debentures.
h. The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to the Buyer, shall have been delivered to
and acknowledged in writing by the Company's transfer agent.
8. INDEMNIFICATION.
In consideration of the Buyer's execution and delivery of this
Agreement and acquiring the Debentures, the Conversion Shares, the
Warrants, and the Warrant Shares hereunder and in addition to all of the
Company's other obligations under this Agreement, the Company shall
defend, protect, indemnify and hold harmless the Buyer and each other
holder of the Debentures, the Conversion Shares, the Warrants, and the
Warrant Shares and all of their officers, directors, employees and agents
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action,
suits, claims, losses, costs, penalties, fees, liabilities and damages,
and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys' fees and disbursements (the
"Indemnified Liabilities"), incurred by the Indemnitees or any of them as
a result of, or arising out of, or relating to (a) any misrepresentation
or breach of any representation or warranty made by the Company in this
Agreement, the Debentures, the Registration Rights Agreement, or the
Warrants or any other certificate, instrument or document contemplated
hereby or thereby, (b) any breach of any covenant, agreement or obligation
of the Company contained in this Agreement, the Debentures, the
Registration Rights Agreement, or the Warrants or any other certificate,
instrument or document contemplated hereby or thereby, or (c) any cause of
action, suit or claim brought or made against such Indemnitee by any third
party and arising out of or resulting from the execution, delivery,
performance or enforcement of this Agreement or any other instrument,
document or agreement executed pursuant hereto by any of the Indemnities,
any transaction financed or to be financed in whole or in part, directly
or indirectly, with the proceeds of the issuance of the Debentures or the
status of the Buyer or holder of the Debentures, the Conversion Shares,
the Warrants, and the Warrant Shares, as an investor in the Company. To
the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
9. GOVERNING LAW: MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Delaware
without regard to the principles of conflict of laws. Company
acknowledges that upon any breach of Buyer's conversion rights
hereunder, Buyer's resulting injury may not be adequately
compensated by a remedy at law. Accordingly, upon such breach,
Buyer, at its election and without limitation of its other remedies,
shall be entitled to pursue a claim for specific performance of this
Agreement, and Company hereby waives the right to assert any defense
thereto that Purchaser has an adequate remedy at law. The parties
expressly consent to the jurisdiction and venue of the Superior
Court of Contra Costa County, California, and the United States
District Court for the Northern District of California for the
adjudication of any civil action asserted pursuant to this
Paragraph.
b. Acknowledgment Regarding Buyer's Purchase of Debentures.
The parties acknowledge and agree that the Buyer is acting solely in
the capacity of an arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The parties
further acknowledge that the Buyer is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity)
with respect to this Agreement and the transactions contemplated
hereby and any advice given by the Buyer or any of their respective
representatives or agents in connection with this Agreement and the
transactions contemplated hereby is merely incidental to such
Buyer's purchase of the Debentures, the Conversion Shares, the
Warrants, or the Warrant Shares. The parties further acknowledge
Buyer that the Company's decision to enter into this Agreement has
been based solely on the independent evaluation by the Company and
its representatives.
c. Counterparts. This Agreement may be executed in two or
more identical counterparts, all of which shall be considered one
and the same agreement and shall become effective when counterparts
have been signed by each party and delivered to the other party. In
the event any signature page is delivered by facsimile transmission,
the party using such means of delivery shall cause four (4)
additional original executed signature pages to be physically
delivered to the other party within five (5) days of the execution
and delivery hereof
d. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
e. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of
the remainder of this Agreement in that jurisdiction or the validity
or enforceability of any provision of this Agreement in any other
jurisdiction.
f. Entire Agreement, Amendments. This Agreement supersedes
all other prior oral or written agreements between the Buyer, the
Company, their affiliates and persons acting on their behalf with
respect to the matters discussed herein, and this Agreement and the
instruments referenced herein contain the entire understanding of
the parties with respect to the matters covered herein and therein
and, except as specifically set forth herein or therein, neither the
Company nor any Buyer makes any representation, warranty, covenant
or undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in
writing signed by the party to be charged with enforcement.
g. Notices. Any notices consents, waivers or other
communications required or permitted to be given under the terms of
this Agreement must be in writing and will be deemed to have been
delivered (i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by facsimile, provided a copy is mailed by U.S.
certified mail, return receipt requested; (iii) three (3) days after
being sent by U.S. certified mail, return receipt requested, or (iv)
one (I) day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company:
Finet Holdings Corporation
3021 Citrus Circle
Walnut Creek, California 94598
Attn: President
Telephone: (510) 988-6550
Facsimile: (510) 934-2903
With a copy to:
Roger S. Mertz, Esq.
Severson & Werson
Suite 2600
One Embarcaderro Center
San Francisco, California 94111
Telephone: (415) 398-3344
Facsimile: (415) 956-0439
If to the Transfer Agent:
Continental Stock Transfer Trust Company
2 Broadway
New York, New York
Attn: Roger Bernhammer
Telephone: (212) 509-4000
Facsimile: (212) 509-5150
If to the Buyer, to its address and facsimile number on the Schedule
of Buyers, with copies to the Buyer's counsel as set forth on the
Schedule of Buyers. Each party shall provide five (5) days' prior
written notice to the other party of any change in address or
facsimile number.
h. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective
successors and assigns. The Company shall not assign this Agreement
or any rights or obligations hereunder without the prior written
consent of the Buyer. The Buyer may assign its rights hereunder
without the consent of the Company, provided, however, that any such
assignment shall not release the Buyer from its obligations
hereunder unless such obligations are assumed by such assignee and
the Company has consented to such assignment and assumption.
i. No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any
provision hereof be enforced by, any other person.
j. Survival. Unless this Agreement is terminated under
Section 9(l), the representations and warranties of the Company and
the Buyer contained in Sections 2 and 3, the agreements and
covenants set forth in Sections 4, 5 and 9, the indemnification
provisions set forth in Section 8, shall survive the Closing. The
Buyer shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.
k. Publicity. The Company and the Buyer shall have the right
to approve before issuance any press releases or any other public
statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the
prior approval of the Buyer, to make any press release or other
public disclosure with respect to such transactions as is required
by applicable law and regulations (although the Buyer shall be
consulted by the Company in connection with any such press release
or other public disclosure prior to its release and shall be
provided with a copy thereof).
l. Further Assurances. Each party shall do and perform, or
cause to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements,
certificates, instruments and documents, as the other party may
reasonably request in order to carry out the intent and accomplish
the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
m. Termination. In the event that the Closing shall not have
occurred with respect to the Buyer on or before five (5) business
days from the date hereof due to the Company's or the Buyer's
failure to satisfy the conditions set forth in Sections 6 and 7
above (and the nonbreaching party's failure to waive such
unsatisfied condition(s)), the nonbreaching party shall have the
option to terminate this Agreement with respect to such breaching
party at the close of business on such date without liability of any
party to any other party- provided, however, that if this Agreement
is terminated pursuant to this Section 9(l), the Company shall
remain obligated to reimburse the Buyer for the expenses described
in Section 4(h) above.
n. Finder. The Company acknowledges that it has engaged J.P.
Carey Securities, Inc. as placement agent in connection with the
sale of the Debentures, which placement agent may have formally or
informally engaged other agents on its behalf. The Company shall be
responsible for the payment of any placement agent or brokers' fees
(which includes cash and warrants to purchase Common Stock) relating
to or arising out of the transactions contemplated hereby.
o. No Strict Construction. The language used in this
Agreement will be deemed to be the language chosen by the parties to
express their mutual intent, and no rules of strict construction
will be applied against any party.
IN WITNESS WHEREOF, the Buyer and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first
written above.
"COMPANY"
FINET HOLDINGS CORPORATION
By: /s/ L. Daniel Rawitch
Name: L. Daniel Rawitch
Its: CEO
"BUYER"
Atlantis Capital Fund, Ltd
By: /s/ Mark Valentine
Name: Mark Valentine
Title: Agent
"BUYER"
Sovereign Partners, L.P.
By: /s/ Mark Valentine
Name: Mark Valentine
Title: Agent
"BUYER"
Dominion Capital Fund, Ltd.
By: /s/ Mark Valentine
Name: Mark Valentine
Title: Agent
SCHEDULE OF BUYERS
Address and Facsimile Face
Buyer's Name Number of Buyer Amount of Buyer's Legal
Debenture Counsel
s
Atlantis Capital Fund 365 Bay Street $500,000* Sam Krieger, Esq.
Limited Toronto Ontario MSH- Krieger & Prager
c/o Thomson Kernahan & 202 319 Fifth Avenue
Co., Ltd. CANADA New York, New York
Attn: Tom Matthews 10016
(416) 367-8055
Sovereign Partners, L.P. 365 Bay Street $3,000,00 Sam Krieger, Esq.
c/o Thomson Kernahan & Toronto Ontario MSH- 0* Krieger & Prager
Co., Ltd. 202 319 Fifth Avenue
CANADA New York, New York
Attn: Tom Matthews 10016
(416) 367-8055
Dominion Capital Fund, 365 Bay Street $500,000* Sam Krieger, Esq.
Ltd. Toronto Ontario MSH- Krieger & Prager
c/o Thomson Kernahan & 202 319 Fifth Avenue
Co., Ltd. CANADA New York, New York
Attn: Tom Matthews 10016
(416) 367-8055
* Issued in the name of Thomson Kernahan & Co., Ltd.
SCHEDULE 3(c)
Capitalization
3 (c)(i) Options, Warrants, Stock Rights, etc.
As of March 10, 1998:
Common Stock Outstanding 30,526,684
Warrants Outstanding 10,413,197
Options:
1989 Stock Option Plan - Granted 748,249
(Reserve: 748,249)
1998 Stock Option Plan - Granted 0
(Reserve:2,000,000)
1998 Non-Employee Directors Stock Option Plan - Granted 0
(Reserve:500,000)
1998 Stock Bonus Plan - Granted 0
(Reserve:875,000)
A letter agreement dated October 13, 1997 between Finet Holdings
Corporation and Claudia Caires provides for 2,000 shares of Common Stock
to be issued for consulting services. The letter agreement also provides
for an additional 1,000 shares to be issued as a bonus, should at any time
during the initial one year term of the letter agreement, Finet's stock
trade in excess of $10.00.
An Asset Purchase Agreement dated August 30, 1997 betweeen Finet Holdings
Corporation and The Real Estate Office Software Company provides for
200,000 shares of Finet Stock to be issued to The Real Estate Office
Software Company. As of this date, theses shares have been ordered but
not yet issued.
On May 29, 1997, the Company and NDS Software, Inc. ("NDS"), a generic
software development company and operator of a nationwide multiple listing
of homes for sale Internet site, entered into an agreement whereby the
Company purchased for $1,010,000, in the form of $202,000 in cash and
202,000 shares of its common stock valued at $4.00 per share. The common
stock was issued on June 5, 1997. The agreement terms require an
adjustment to the share consideration if the market price of the Company's
shares is not at or above $4.00 per share on the earlier of the Company's
registration of the common shares issued to NDS or June 3, 1998, to
maintain a value equal to $808,000 at the time, subject to a maximum
additional shares issuable of 1,414,000 shares. The assets acquired are
being amortized to expense as they are used to produce revenue.
SCHEDULE 3(e)
Conflicts
None.
SCHEDULE 3(g)
Absence of Certain Changes
None.
SCHEDULE 3(h)
Litigation
None.
SCHEDULE 3(m)
Intellectual Property
None
SCHEDULE 3(o)
Liens
As a non-depository, independent mortgage banker, Monument Mortgage, Inc.
funds the loans it originates using its mortgage warehouse borrowing
facility. The warehouse line of credit, the revolving line of credit and
the note payable have been with the same lender for eight years. The
collateral for these obligations is a combination of mortgages held for
sale, receivables from sales of mortgage loans, servicing assets, other
assets of the Company, and Finet's corporate guarantee, as detailed in
Notes to Financial Statements, Item 8. DEBT, in the Company's report on
Form 10-QSB for the quarter ended January 31, 1998.
SCHEDULE 3(t)
Tax Status
None.
SCHEDULE 3(u)
Certain Transactions
None.
SCHEDULE 4(d)
Use of Proceeds
Acquisitions:
$1,500,000
1,000,000
$2,500,000
Servicing:
$2,000,000
$2,000,000
iQualify/E-Commerce Investments:
$2,500,000
$2,500,000
Total $7,000,000
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of March
18, 1998, by and among Finet Holdings Corporation, a Delaware corporation,
with headquarters at 3021 Citrus Circle, Walnut Creek, California 94598
(the "Company"), and the undersigned buyer (the "Buyer" ).
WHEREAS:
A. In connection with the Securities Purchase Agreement by and
among the parties of even date herewith (the "Securities Purchase
Agreement"), the Company has agreed, upon the terms and subject to the
conditions of the Securities Purchase Agreement, (i) to issue and sell to
the Buyer's shares of the Company's 3% Convertible Debenture (the
"Debentures"), which will be convertible into shares of the Company's
common stock, $.01 par value per share (the "Common Stock") (as converted,
the "Conversion Shares") in accordance with the terms of the Debentures,
(ii) to issue warrants (the "Warrants") which will be exercisable to
purchase shares of Common Stock (the "Warrant Shares"); and
B. To induce the Buyers to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively,
the "1933 Act"), and applicable state securities laws:
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and
the Buyers hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
a. "Investor" means the Buyer and any transferee or assignee
thereof to whom the Buyer assigns its rights under this Agreement
and who agrees to become bound by the provisions of this Agreement in
accordance with Section 9.
b. "Person" means a corporation, a limited liability company,
an association, a partnership, an organization, a business, an
individual, a governmental or political subdivision thereof or a
governmental agency.
c. "Register," "registered," and "registration" refer to
a registration effected by preparing and filing one or more
Registration Statements in compliance with the 1933 Act and pursuant
to Rule 415 under the 1933 Act or any successor rule providing for
offering securities on a continuous basis ("Rule 415"), and the
declaration or ordering of effectiveness of such Registration
Statement(s) by the United States Securities and Exchange Commission
(the "SEC").
d. "Registrable Securities" means the Conversion Shares and
Warrant Shares issued or issuable upon conversion of the Debentures
and the exercise of the Warrants and any shares of capital stock
issued or issuable with respect to the Conversion Shares or the
Debentures as a result of any stock split, stock dividend,
recapitalization, exchange, or similar event.
e."Registration Statement" means a registration statement of the
Company filed under the 1933 Act.
Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set for the in the Securities Purchase
Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, on
or prior to sixty (60) (the "Registration Filing Deadline") days
after the date of issuance of any Debentures, file with the SEC a
Registration Statement or Registration Statements (as is necessary)
on Form S-3 (or, if such form is unavailable for such a registration,
on such other form as is available for such a registration, subject
to the consent of each Buyer and the provisions of Section 2(e),
which consent will not be unreasonably withheld), covering only the
resale of all of the Registrable Securities and no other securities
owned or held by any other person, except for the shares to be issued
pursuant to the Mical Mortgage acquisition which are estimated at
500,000 shares of Common Stock, which Registration Statement(s) shall
state that, in accordance with Rule 416 promulgated under the 1933
Act, such Registration Statement(s) also covers such indeterminate
number of additional shares of Common Stock as may become issuable
upon conversion of the Debentures (i) to prevent dilution resulting
from stock splits, stock dividends or similar transactions and (ii)
by reason of changes in the Conversion Price or Conversion Rate of
the Debentures in accordance with the terms thereof Such Registration
Statement shall initially register for resale at least 1,851,851
shares of Common Stock, subject to adjustment as provided in Section
3(b), and such registered shares of Common Stock shall be allocated
among the Investors pro rata based on the total number of Registrable
Securities issued or issuable as of each date that a Registration
Statement, as amended, relating to the resale of the Registrable
Securities is declared effective by the SEC. In the event that the
Registration Statement is not filed by the Company by the
Registration Filing Deadline, then the Applicable Discount to be used
in determining the Conversion Price (as defined in the Debenture)
shall be reduced by an additional 3% (i.e., from 78% to 75%) for each
thirty (30) day period (prorated for partial months) that the
Registration Statement is not filed with the SEC (the "Registration
Filing Penalty"). The Company shall use its best efforts to have the
Registration Statement declared effective by the SEC within one
hundred and twenty (120) days after the issuance of the Debentures
(the "Registration Deadline"). The Company shall permit the
registration statement to become effective within five (5) business
days after receipt of a "no review" notice from the SEC. In the
event that the Registration Statement is not declared effective by
the SEC by the Registration Deadline then the Applicable Discount to
be used in determining the Conversion Price (as defined in the
Debenture) shall be reduced by (i) an additional 3% (i.e., from 78%
to 75%) if the Registration Statement is not declared effective by
the SEC within thirty (30) days following the Registration Deadline
(in each case prorated for partial months), (ii) an additional 6%
(i.e., from 78% to 72%) if the Registration Statement is not declared
effective by the SEC within ninety (90) days of the Registration
Deadline and thereafter an additional 3% for each subsequent thirty
(30) day period for which the Registration Statement is not declared
effective (the "Registration Deadline Penalty"). The Registration
Filing Penalty and the Registration Deadline Penalty shall be
immediately payable by the Company on demand by the Investor in
either cash or Common Stock of the Company, at the sole election of
the Investor upon delivery to the Company of a Notice of Commission
(as defined in the Debenture) by the Investor.
b. Underwritten Offering. If any offering pursuant to a
Registration Statement pursuant to Section 2(a) involves an
underwritten offering, the Buyers shall have the right to select one
legal counsel and an investment banker or bankers and manager or
managers to administer their interest in the offering, which
investment banker or bankers or manager or managers shall be
reasonably satisfactory to the Company.
c. Piggy-Back Registrations. If at any time prior to the
expiration of the Registration Period (as hereinafter defined) the
Company proposes to file with the SEC a Registration Statement
relating to an offering for its own account or the account of others
under the 1933 Act of any of its securities (other than on Form S-4
or Form S-8 or their then equivalents relating to securities to be
issued solely in connection with any acquisition of any entity or
business or equity securities issuable in connection with stock
option or other employee benefit plans) the Company shall promptly
send to each Investor who is entitled to registration rights under
this Section 2(c) written notice of the Company's intention to file
a Registration Statement and of such Investor's rights under this
Section 2(c) and, if within twenty (20) days after receipt of such
notice, such Investor shall so request in writing, the Company shall
include in such Registration Statement all or any part of the
Registrable Securities such Investor requests to be registered,
subject to the priorities set forth in Section 2(d) below. No right
to registration of Registrable Securities under this Section 2(c)
shall be construed to limit any registration required under Section
2(a). The obligations of the Company under this Section 2(c) may be
waived by Investors holding a majority of the Registrable
Securities. If an offering in connection with which an Investor is
entitled to registration under this Section 2(c) is an underwritten
offering, then each Investor whose Registrable Securities are
included in such Registration Statement shall, unless otherwise
agreed by the Company, offer and sell such Registrable Securities in
an underwritten offering using the same underwriter or underwriters
and, subject to the provisions of this Agreement, on the same terms
and conditions as other shares of Common Stock included in such
underwritten offering.
d. Priority in Piggy-Back Registration Rights in
connection with Registrations or Company Account. If the
registration referred to in Section 2(c) is to be an underwritten
public offering for the account of the Company and the managing
underwriter(s) advise the Company in writing, that in their
reasonable good faith opinion, marketing or other factors dictate
that a limitation on the number of shares of Common Stock which may
be included in the Registration Statement is necessary to facilitate
and not adversely affect the proposed offering, then the Company
shall include in such registration: (1) first, all securities the
Company proposes to sell for its own account, (2) second, up to the
full number of securities proposed to be registered for the account
of the holders of securities entitled to inclusion of their
securities in the Registration Statement by reason of demand
registration rights, and (3) third, the securities requested to be
registered by the Investors and other holders of securities entitled
to participate in the registration, drawn from them pro rata based
on the number each has requested to be included in such
registration.
e. Eligibility for Form S-3. The Company represents,
warrants, and covenants that it has filed and shall file all reports
required to be filed by the Company with the SEC in a timely manner
so as to obtain and maintain potential eligibility for the use of
Form S-3. In the event that Form S-3 is not available for sale by
the Investors of the Registrable Securities, then (i) the Company,
with the consent of each Investor pursuant to Section 2(a), shall
register the sale of the Registrable Securities on another
appropriate form and (ii) the Company shall undertake to register
the Registrable Securities on Form S-3 as soon as such form is
available.
3 . RELATED OBLIGATIONS.
Whenever an Investor has requested that any Registrable Securities be
registered pursuant to Section 2(c) or at such time as the Company is
obligated to file a Registration Statement with the SEC pursuant to
Section 2(a), the Company will use its best efforts to effect the
registration of the Registrable Securities in accordance with the intended
method of disposition thereof and, pursuant thereto, the Company shall
have the following obligations:
a. The Company shall promptly prepare and file with the
SEC a Registration Statement with respect to the Registrable
Securities (on or prior to sixtieth (60th) day following the date of
issuance of any Debentures, for the registration of Registrable
Securities pursuant to Section 2(a)) and use its best efforts to
cause such Registration Statement(s) relating to Registrable
Securities to become effective as soon as possible after such filing
(by the one hundred and twentieth (120th) day following the issuance
of the relevant Debentures for the registration of Registrable
Securities pursuant to Section 2(a), and keep the Registration
Statement(s) effective pursuant to Rule 415 at all times until the
earlier of (i) the date as of which the Investors may sell all of
the Registrable Securities without restriction pursuant to Rule
144(k) promulgated under the 1933 Act (or successor thereto) or (ii)
the date on which (A) the Investors shall have sold all the
Registrable Securities and (B) none of the Debentures or Warrants is
outstanding (the "Registration Period"), which Registration
Statement(s) (including any amendments or supplements thereto and
prospectuses contained therein) shall 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 in which they were made, not
misleading.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to
the Registration Statement(s) and the prospectus(es) used in
connection with the Registration Statement(s), which prospectus(es)
are to be filed pursuant to Rule 424 promulgated under the 1933 Act,
as may be necessary to keep the Registration Statement(s) effective
at all times during the Registration Period, and, during such
period, comply with the provisions of the 1933 Act with respect to
the disposition of all Registrable Securities of the Company covered
by the Registration Statement(s) until such time as all of such
Registrable Securities shall have been disposed of in accordance
with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement(s). In the event
the number of shares available under a Registration Statement filed
pursuant to this Agreement is insufficient in the reasonable opinion
of a majority of the Buyers to cover all of the Registrable
Securities, the Company shall promptly amend the Registration
Statement, or file a new Registration Statement (on the short form
available therefor, if applicable), or both, so as to cover all of
the Registrable Securities, in each case, as soon as practicable,
but in any event within fifteen (15) days after the necessity
therefor arises (based on the market price of the Common Stock and
other relevant factors on which the Company reasonably elects to
rely). The Company shall use its best efforts to cause such
amendment and/or new Registration Statement to become effective as
soon as practicable following the filing thereof. For purposes of
the foregoing provision, the number of shares available under a
Registration Statement shall be deemed "insufficient to cover all of
the Registrable Securities" if at any time the number of Registrable
Securities issued or issuable upon conversion of the Debentures and
the exercise of the Warrants is greater than the quotient determined
by dividing (i) the number of shares of Common Stock available for
resale under such Registration Statement by (ii) 1.0; provided that
in the case of the initial registration of the Registrable
Securities pursuant to Section 2(a), the Company shall be required
to register at least 1,851,851 shares of Common Stock for resale.
For purposes of the calculation set forth in the foregoing sentence,
any restrictions on the convertibility of the Debentures shall be
disregarded and such calculation shall assume that the Debentures
are then convertible into shares of Common Stock at the then
prevailing Conversion Rate (as defined in the Debentures).
c. The Company shall furnish to each Investor whose
Registrable Securities are included in the Registration Statement(s)
and its legal counsel without charge (i) promptly after the same is
prepared and filed with the SEC at least one copy of the
Registration Statement and any amendment thereto, including
financial statements and schedules, all documents incorporated
therein by reference and all exhibits, the prospectus(es) included
in such Registration Statement(s) (including each preliminary
prospectus ) and, with regards to the Registration Statement, any
correspondence by or on behalf of the Company to the SEC or the
staff of the SEC and any correspondence from the SEC or the staff of
the SEC to the Company or its representatives, (ii) upon the
effectiveness of any Registration Statement, ten (10) copies of the
prospectus included in such Registration Statement and all
amendments and supplements thereto (or such other number of copies
as such Investor may reasonably request) and (iii) such other
documents, including any preliminary prospectus, as such Investor
may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Investor.
d. The Company shall use reasonable efforts to (i)
register and qualify the Registrable Securities covered by the
Registration Statement(s) under such other securities or "blue sky"
laws of such jurisdictions in the United States as any Investor
reasonably requests, (ii) prepare and file in those jurisdictions,
such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof during the
Registration Period, (iii) take such other actions as may be
necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and (iv) take
all other actions reasonably necessary or advisable to quality the
Registrable Securities for sale in such jurisdictions; provided,
however, that the Company shall not be required in connection
therewith or as a condition thereto to (a) qualify to do business in
any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), (b) subject itself to general taxation in
any such jurisdiction, or (c) file a general consent to service of
process in any such jurisdiction. The Company shall promptly notify
each Investor who holds Registrable Securities of the receipt by the
Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities
for sale under the securities or "blue sky" laws of any jurisdiction
in the United States or its receipt of actual notice of the
initiation or threatening of any proceeding for such purpose.
e. In the event Investors who hold a majority of the
Registrable Securities being offered in the offering select
underwriters for the offering, the Company shall enter into and
perform its obligations under an underwriting agreement, in usual
and customary form, including, without limitation, customary
indemnification and contribution obligations, with the underwriters
of such offering.
f. As promptly as practicable after becoming aware of
such event, the Company shall notify each Investor in writing of the
happening of any event, of which the Company has knowledge, as a
result of which the prospectus included in a Registration Statement,
as then in effect, includes an untrue statement of a material fact
or omission 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
promptly prepare a supplement or amendment to the Registration
Statement to correct such untrue statement or omission, and deliver
ten (10) copies of such supplement or amendment to each Investor (or
such other number of copies as such Investor may reasonably
request). The Company shall also promptly notify each Investor in
writing (i) when a prospectus or any prospectus supplement or post-
effective amendment has been filed, and when a Registration
Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to each
Investor by facsimile on the same day of such effectiveness and by
overnight mail) (ii) of any request by the SEC for amendments or
supplements to a Registration Statement or related prospectus or
related information, (iii) of the Company's reasonable determination
that a post-effective amendment to a Registration Statement would be
appropriate.
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of
any of the Registrable Securities for sale in any jurisdiction and,
if such an order or suspension is issued, to obtain the withdrawal
of such order or suspension at the earliest possible moment and to
notify each Investor who holds Registrable Securities being sold
(and, in the event of an underwritten offering, the managing
underwriters) of the issuance of such order and the resolution
thereof or its receipt of actual notice of the initiation or threat
of any proceeding for such purpose.
h. The Company shall permit each Investor a single firm
of counsel or such other counsel as thereafter designated as selling
stockholders' counsel by the Investors who hold a majority of the
Registrable Securities being sold, to review and comment upon the
Registration Statement(s) and all amendments and supplements thereto
at least seven (7) days prior to their filing with the SEC, and not
file any document in a form to which such counsel reasonably
objects. The Company shall not submit a request for acceleration of
the effectiveness of a Registration Statement(s) or any amendment or
supplement thereto without the prior approval of such counsel, which
consent shall not be unreasonably withheld.
i. At the request of the Investors who hold a majority of
the Registrable Securities being sold, the Company shall use their
best efforts to furnish, on the date that Registrable Securities are
delivered to an underwriter, if any, for sale in connection with the
Registration Statement (i) if required by an underwriter, a letter,
dated such date, from the Company's independent certified public
accountants in form and substance as is customarily given by
independent certified public accountants to underwriters in an
underwritten public offering, addressed to the underwriters, and
(ii) an opinion, dated as of such date, of counsel representing the
Company for purposes of such Registration Statement, in form, scope
and substance as is customarily given in an underwritten public
offering, addressed to the underwriters and the Investors.
j. The Company shall make available for inspection by (i)
any Investor, (ii) any underwriter participating in any disposition
pursuant to a Registration Statement, (iii) one firm of attorneys
and one firm of accountants or other agents retained by the
Investors, and (iv) one firm of attorneys retained by all such
underwriters (collectively, the "Inspectors") all pertinent
financial and other records, and pertinent corporate documents and
properties of the Company (collectively, the "Records"), as shall be
reasonably deemed necessary by each Inspector to enable each
Inspector to exercise its due diligence responsibility, and cause
the Company's officers, directors and employees to supply all
information which any Inspector may reasonably request for purposes
of such due diligence provided, however, that each Inspector shall
hold in strict confidence and shall not make any disclosure (except
to an Investor) or use of any Record or other information which the
Company determines in good faith to be confidential, and of which
determination the Inspectors are so notified, unless (a) the
disclosure of such Records is mutually determined to be necessary to
avoid or correct a misstatement or omission in any Registration
Statement or is otherwise required under the 1933 Act, (b) the
release of such Records is ordered pursuant to a final, non-
appealable subpoena or order from a court or government body of
competent jurisdiction, or (c) the information in such Records has
been made generally available to the public other than by disclosure
in violation of this or any other agreement. Each Investor agrees
that it shall, upon learning that disclosure of such Records is
sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the
Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a
protective order for, the Records deemed confidential.
k. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the
Company unless (i) disclosure of such information is necessary to
comply with federal or state securities laws, (ii) the disclosure of
such information is necessary to avoid or correct a misstatement or
omission in any Registration Statement, (iii) the release of such
information is ordered pursuant to a subpoena or other final, non-
appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally
available to the public other than by disclosure in violation of
this or any other agreement. The Company agrees that it shall, upon
learning that disclosure of such information concerning an Investor
is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt written notice to
such Investor and allow such Investor, at the Investor's expense, to
undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.
l. The Company shall use its best efforts either to (i)
cause all the Registrable Securities covered by a Registration
Statement to be listed on each national securities exchange on which
securities of the same class or series issued by the Company are
then listed, if any, if the listing of such Registrable Securities
is then permitted under the rules of such exchange, (ii) if at any
time during the Registration Period the Company is able to satisfy
the relevant listing criteria, secure designation and quotation of
all the Registrable Securities covered by the Registration Statement
on the Nasdaq National Market System, (iii) if, despite the
Company's best efforts to satisfy the preceding clause (i) or (ii),
the Company is unsuccessful in satisfying the preceding clause (i)
or (ii), if at any time during the Registration Period the Company
is able to satisfy the relevant listing criteria, to secure the
inclusion for quotation on the Nasdaq SmallCap Market for such
Registrable Securities or, (iv) if, despite the Company's best
efforts to satisfy the preceding clause (iii), the Company is
unsuccessful in satisfying the preceding clause (iii), to secure the
inclusion for quotation on the over-the-counter market for such
Registrable Securities, and, without limiting the generality of the
foregoing, in the case of clause (iii) or (iv), to arrange for at
least two market makers to register with the National Association of
Securities Dealers, Inc. ("NASD") as such with respect to such
Registrable Securities. The Company shall pay all fees and expenses
in connection with satisfying its obligation under this Section
3(l).
m. The Company shall cooperate with the Investors who
hold Registrable Securities being offered and, to the extent
applicable, any managing underwriter or underwriters, to facilitate
the timely preparation and delivery of certificates (not bearing any
restrictive legend) representing the Registrable Securities to be
offered pursuant to a Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may
be, as the managing underwriter or underwriters, if any, or, if
there is no managing underwriter or underwriters, the Investors may
reasonably request and registered in such names as the managing
underwriter or underwriters, if any, or the Investors may request.
Not later than the date on which any Registration Statement
registering the resale of Registrable Securities is declared
effective, the Company shall deliver to its transfer agent
instructions, accompanied by any reasonably required opinion of
counsel, that permit sales of unlegended securities in a timely
fashion that complies with then mandated securities settlement
procedures for regular way market transactions.
n. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors
of Registrable Securities pursuant to a Registration Statement.
o. The Company shall provide a transfer agent and
registrar of all such Registrable Securities not later than the
effective date of such Registration Statement.
p. If requested by the managing underwriters or an
Investor, the Company shall immediately incorporate in a prospectus
supplement or post-effective amendment such information as the
managing underwriters and the Investors agree should be included
therein relating to the sale and distribution of Registrable
Securities, including, without limitation, information with respect
to the number of Registrable Securities being sold to such
underwriters, the purchase price being paid therefor by such
underwriters and with respect to any other terms of the underwritten
(or best efforts underwritten) offering of the Registrable
Securities to be sold in such offering; make all required filings of
such prospectus supplement or post-effective amendment as soon as
notified of the matters to be incorporated in such prospectus
supplement or post-effective amendment; and supplement or make
amendments to any Registration Statement if requested by a
shareholder or any underwriter of such Registrable Securities.
q. The Company shall use its best efforts to cause the
Registrable Securities covered by the applicable Registration
Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to
consummate the disposition of such Registrable Securities.
r. The Company shall otherwise use its best efforts to
comply with all applicable rules and regulations of the SEC in
connection with any registration hereunder.
4. OBLIGATIONS OF THE INVESTORS.
a. At least fourteen (14) days prior to the first
anticipated filing date of the Registration Statement, the Company
shall notify each Investor in writing of the information the Company
requires from each such Investor if such Investor elects to have any
of such Investor's Registrable Securities included in the
Registration Statement. It shall be a condition precedent to the
obligations of the Company to complete the registration pursuant to
this Agreement with respect to the Registrable Securities of a
particular Investor that such Investor shall furnish to the Company
such information regarding itself, the Registrable Securities held
by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the
registration of such Registrable Securities and shall execute such
documents in connection with such registration as the Company may
reasonably request.
b. Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as
reasonably requested by the Company in connection with the
preparation and filing of the Registration Statement(s) hereunder,
unless such Investor has notified the Company in writing of such
Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement.
c. In the event Investors holding a majority of the
Registrable Securities being registered determine to engage the
services of an underwriter, each Investor agrees to enter into and
perform such Investor's obligations under an underwriting agreement,
in usual and customary form, including, without limitation,
customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions as
are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities, unless such Investor
notifies the Company in writing of such Investor's election to
exclude all of such Investor's Registrable Securities from the
Registration Statement(s).
d. Each Investor agrees that, upon receipt of any notice
from the Company of the happening of any event of the kind described
in Section 3(g) or the first sentence of 3(f), such Investor will
immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement(s) covering such Registrable
Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(g) or
the first sentence of 3(f) and, if so directed by the Company, such
Investor shall deliver to the Company (at the expense of the
Company) or destroy all copies in such Investor's possession, of the
prospectus covering such Registrable Securities current at the time
of receipt of such notice.
e. No Investor may participate in any underwritten
registration hereunder unless such Investor (i) agrees to sell such
Investor's Registrable Securities on the basis provided in any
underwriting arrangements approved by the Investors entitled
hereunder to approve such arrangements, (ii) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms
of such underwriting arrangements, and (iii) agrees to pay its pro
rata share of all underwriting discounts and commissions.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without
limitation, all registration, listing and qualifications fees, printers
and accounting fees, and fees and disbursements of counsel for the Company
and fees and disbursements of one counsel for the Investors, shall be
borne by the Company.
6. INDEMNIFICATION
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
a. To the fullest extent permitted by law, the Company
will, and hereby does, indemnify, hold harmless and defend each
Investor who holds such Registrable Securities, the directors,
officers, partners, employees, agents and each Person, if any, who
controls any Investor within the meaning of the 1933 Act or the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and
any underwriter (as defined in the 1933 Act) for the Investors, and
the directors and officers of, and each Person, if any, who
controls, any such underwriter within the meaning of the 1933 Act or
the 1934 Act (each, an "Indemnified Person"), against any losses,
claims, damages, liabilities, judgments, fines, penalties, charges,
costs, attorneys' fees, amounts paid in settlement or expenses,
joint or several, (collectively, "Claims") incurred in
investigating, preparing or defending any action, claim, suit,
inquiry, proceeding, investigation or appeal taken from the
foregoing by or before any court or governmental, administrative or
other regulatory agency, body or the SEC, whether pending or
threatened, whether or not an indemnified party is or may be a party
thereto ("Indemnified Damages"), to which any of them may become
subject insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are
based upon: (i) any untrue statement or alleged untrue statement of
a material fact in a Registration Statement or any post-effective
amendment thereto or in any filing made in connection with the
qualification of the offering under the securities or other "blue
sky" laws of any jurisdiction in which Registrable Securities are
offered ("Blue Sky Filing"), or the omission or alleged omission to
state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under
which the statements therein were made, not misleading, (ii) any
untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or contained in the
final prospectus (as amended or supplemented, if the Company files
any amendment thereof or supplement thereto with the SEC) or the
omission or alleged omission to state therein any material fact
necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not
misleading, or (iii) any violation or alleged violation by the
Company of the 1933 Act, the 1934 Act, any other law, including,
without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the
Registrable Securities pursuant to a Registration Statement (the
matters in the foregoing clauses (i) through (iii) being,
collectively, "Violations"). Subject to the restrictions set forth
in Section 6(d) with respect to the number of legal counsel, the
Company shall reimburse the Investors and each such underwriter or
controlling person, promptly as such expenses are incurred and are
due and payable, for any legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any
such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section
6(a): (i) shall not apply to a Claim arising out of or based upon a
Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by any Indemnified
Person or underwriter for such Indemnified Person expressly for use
in connection with the preparation of the Registration Statement or
any such amendment thereof or supplement thereto, if such prospectus
was timely made available by the Company pursuant to Section 3(c);
(ii) with respect to any preliminary prospectus, shall not inure to
the benefit of any such person from whom the person asserting any
such Claim purchased the Registrable Securities that are the subject
thereof (or to the benefit of any person controlling such person) if
the untrue statement or mission of material fact contained in the
preliminary prospectus was corrected in the prospectus, as then
amended or supplemented, if such prospectus was timely made
available by the Company pursuant to Section 3(c), and the
Indemnified Person was promptly advised in writing not to use the
incorrect prospectus prior to the use giving rise to a violation and
such Indemnified Person, notwithstanding such advice, used it; (iii)
shall not be available to the extent such Claim is based on a
failure of the Investor to deliver or to cause to be delivered the
prospectus made available by the Company (i) and (iv) shall not
apply to amounts paid in settlement of any Claim if such settlement
is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld. Such indemnity shall
remain in full force and effect regardless of any investigation made
by or on behalf of the Indemnified Person and shall survive the
transfer of the Registrable Securities by the Investors pursuant to
Section 9.
b. In connection with any Registration Statement in which
an Investor is participating, each such Investor agrees to severally
and not jointly indemnify, hold harmless and defend, to the same
extent and in the same manner as is set forth in Section 6(a), the
Company, each of its directors, each of its officers who signs the
Registration Statement, each Person, if any, who controls the
Company within the meaning of the 1933 Act or the 1934 Act
(collectively and together with an Indemnified Person, an
"Indemnified Party"), against any Claim or Indemnified Damages to
which any of them may become subject, under the 1933 Act, the 1934
Act or otherwise, insofar as such Claim or Indemnified Damages arise
out of or are based upon any Violation, in each case to the extent,
and only to the extent, that such Violation occurs in reliance upon
and in conformity with written information furnished to the Company
by such Investor expressly for use in connection with such
Registration Statement; and, subject to Section 6(d), such Investor
will reimburse any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such Claim;
provided, however, that the indemnity agreement contained in this
Section 6(b) and Section 7 shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the
prior written consent of such Investor, which consent shall not be
unreasonably withheld; provided, further, however, that the Investor
shall be liable under this Section 6(b) for only that amount of a
Claim or Indemnified Damages as does not exceed the net proceeds to
such Investor as a result of the sale of Registrable Securities
pursuant to such Registration Statement. Such indemnity shall
remain in full force and effect regardless of any investigation made
by or on behalf of such Indemnified Party and shall survive the
transfer of the Registrable Securities by the Investors pursuant to
Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b)
with respect to any preliminary prospectus shall not inure to the
benefit of any Indemnified Party if the untrue statement or omission
of material fact contained in the preliminary prospectus was
corrected on a timely basis in the prospectus, as then amended or
supplemented.
c. The Company shall be entitled to receive indemnities
from underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in any distribution,
to the same extent as provided above, with respect to information
such persons so furnished in writing expressly for inclusion in the
Registration Statement.
d. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement
of any action or proceeding (including any governmental action or
proceeding) involving a Claim such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying
party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to
the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified
Party, as the case may be; provided, however, that an Indemnified
Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party
would be inappropriate due to actual or potential differing
interests between such Indemnified Person or Indemnified Party and
any other party represented by such counsel in such proceeding. The
Company shall pay reasonable fees for only one separate legal
counsel for the Investors, and such legal counsel shall be selected
by the Investors holding a majority in interest of the Registrable
Securities included in the Registration Statement to which the Claim
relates. The Indemnified Party or Indemnified Person shall
cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the
indemnifying party and shall furnish to the indemnifying party all
information reasonably available to the Indemnified Party or
Indemnified Person which relates to such action or claim. The
indemnifying party shall keep the Indemnified Party or Indemnified
Person fully apprised at all times as to the status of the defense
or any settlement negotiations with respect thereto. No
indemnifying party shall be liable for any settlement of any action,
claim or proceeding effected without its written consent, provided,
however, that the indemnifying party shall not unreasonably
withhold, delay or condition its consent. No indemnifying party
shall, without the consent of the Indemnified Party or Indemnified
Person, consent to entry of any judgment or enter into any
settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party or Indemnified Person of a release from
all liability in respect to such claim or litigation. Following
indemnification as provided for hereunder, the indemnifying party
shall be subrogated to all rights of the Indemnified Party or
Indemnified Person with respect to all third parties, firms or
corporations relating to the matter for which indemnification has
been made. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of
any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this
Section 6, except to the extent that the indemnifying party is
prejudiced in its ability to defend such action.
e. The indemnification required by this Section 6 shall
be made by periodic payments of the amount thereof during the course
of the investigation or defense, as and when bills are received or
Indemnified Damages are incurred.
f. The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the
Indemnified Party or Indemnified Person against the indemnifying
party or others, and (ii) any liabilities the indemnifying party may
be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would
otherwise be liable under Section 6 to the fullest extent permitted by
law; provided, however, that: (i) no contribution shall be made under
circumstances where the maker would not have been liable for
indemnification under the fault standards set forth in Section 6; (ii) no
seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty
of fraudulent misrepresentation; and (iii) contribution by any seller of
Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable
Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of Rule
144 promulgated under the 1933 Act or any other similar rule or regulation
of the SEC that may at any time permit the investors to sell securities of
the Company to the public without registration ("Rule 144"), the Company
agrees to:
a. make and keep public information available, as those
terms are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and
other documents required of the Company under the 1933 Act and the
1934 Act so long as the Company remains subject to such requirements
(it being understood that nothing herein shall limit the Company's
obligations under Section 4(c) of the Securities Purchase Agreement)
and the filing of such reports and other documents is required for
the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written
statement by the Company that it has complied with the reporting
requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy
of the most recent annual or quarterly report of the Company and
such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested to permit the
investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights to have the Company register Registrable Securities
pursuant to this Agreement shall be automatically assignable by the
Investors to any transferee of all or any portion of Registrable
Securities if: (i) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished
to the Company within a reasonable time after such assignment; (ii) the
Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such
transferee or assignee, and (b) the securities with respect to which such
registration rights are being transferred or assigned; (iii) immediately
following such transfer or assignment the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act
and applicable state securities laws; (iv) at or before the time the
Company receives the written notice contemplated by clause (ii) of this
sentence the transferee or assignee agrees in writing with the Company to
be bound by all of the provisions contained herein; (v) such transfer
shall have been made in accordance with the applicable requirements of the
Securities Purchase Agreement; (vi) such transferee shall be an
"accredited investor" as that term is defined in Rule 501 of Regulation D
promulgated under the 1933 Act; and (vii) in the event the assignment
occurs subsequent to the date of effectiveness of the Registration
Statement required to be filed pursuant to Section 2(a), the transferee
agrees to pay all reasonable expenses of amending or supplementing such
Registration Statement to reflect such assignment.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and
either retroactively or prospectively), only with the written consent of
the Company and Investors who hold two-thirds of the Registrable
Securities. Any amendment or waiver effected in accordance with this
Section 10 shall be binding upon each Investor and the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of
Registrable Securities whenever such person or entity owns of record
such Registrable Securities. If the Company receives conflicting
instructions, notices or elections from two or more persons or
entities with respect to the same Registrable Securities, the
Company shall act upon the basis of instructions, notice or election
received from the registered owner of such Registrable Securities.
b. Any notices consents, waivers or other communications
required or permitted to be given under the terms of this Agreement
must be in writing and will be deemed to have been delivered (i)
upon receipt, when delivered personally; (ii) upon receipt, when
sent by facsimile, provided a copy is mailed by U.S. certified mail,
return receipt requested; (iii) three (3) days after being sent by
U.S. certified mail, return receipt requested, or (d) one (1) day
after deposit with a nationally recognized overnight delivery
service, in each case properly addressed to the party to receive the
same. The addresses and facsimile numbers for such communications
shall be:
If to the Company:Finet Holdings Corporation
3021 Citrus Circle
Walnut Creek, California 94598
Facsimile: (510) 934-2903
With a copy to:Roger S. Mertz, Esq.
Severson & Werson
Suite 2600
One Embarcaderro Center
San Francisco, California 94111
Facsimile: (415) 956-0439
If to a Buyer, to its address and facsimile number on the Schedule of
Buyers, with copies to such Buyer's counsel as set forth on the Schedule
of Buyers. Each party shall provide five (5) days' prior written notice
to the other party of any change in address or facsimile number.
c. Failure of any party to exercise any right or remedy
under this Agreement or otherwise, delay by a party in exercising
such right or remedy, shall not operate as a waiver thereof.
d. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Delaware without regard to
the principles of conflict of laws. If any provision of this
Agreement shall be invalid or unenforceable in any jurisdiction,
such invalidity or unenforceability shall not affect the validity or
enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of
this Agreement in any other jurisdiction.
e. This Agreement and the Securities Purchase Agreement
constitute the entire agreement among the parties hereto with
respect to the subject matter hereof and thereof. There are no
restrictions, promises, warranties or undertakings, other than those
set forth or referred to herein and therein. This Agreement and the
Securities Purchase Agreement supersede all prior agreements and
understandings among the parties hereto with respect to the subject
matter hereof and thereof.
f. Subject to the requirements of Section 9, this
Agreement shall inure to the benefit and of and be binding upon the
permitted successors and assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning
hereof.
h. This Agreement may be executed in two or more
identical counterparts, each of which shall be deemed an original
but all of which shall constitute one and the same agreement. This
Agreement, once executed by a party, may be delivered to the other
party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done
and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to
carry out the intent and accomplish the purposes of this Agreement
and the consummation of the transactions contemplated hereby.
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY:
FINET HOLDINGS CORPORATION
By: /s/ L. Daniel Rawitch
Name: L. Daniel Rawitch
Its: CEO
"BUYER"
ATLANTIS CAPITAL FUND, LTD
By: /s/ Mark Valentine
Name: Mark Valentine
Its: Agent
"BUYER"
SOVEREIGN PARTNERS, L.P.
By: /s/ Mark Valentine
Name: Mark Valentine
Its: Agent
"BUYER"
DOMINION CAPTIAL FUND, LTD.
By: /s/ Mark Valentine
Name: Mark Valentine
Its: Agent
SCHEDULE OF BUYERS
Address and Facsimile Face
Buyer's Name Number of Buyer Amount of Buyer's Legal
Debenture Counsel
s
Atlantis Capital Fund 365 Bay Street $500,000* Sam Krieger, Esq.
Limited Toronto Ontario MSH- Krieger & Prager
c/o Thomson Kernahan & 202 319 Fifth Avenue
Co., Ltd. CANADA New York, New York
Attn: Tom Matthews 10016
(416) 367-8055
Sovereign Partners, L.P. 365 Bay Street $3,000,00 Sam Krieger, Esq.
c/o Thomson Kernahan & Toronto Ontario MSH- 0* Krieger & Prager
Co., Ltd. 202 319 Fifth Avenue
CANADA New York, New York
Attn: Tom Matthews 10016
(416) 367-8055
Dominion Capital Fund, 365 Bay Street $500,000* Sam Krieger, Esq.
Ltd. Toronto Ontario MSH- Krieger & Prager
c/o Thomson Kernahan & 202 319 Fifth Avenue
Co., Ltd. CANADA New York, New York
Attn: Tom Matthews 10016
(416) 367-8055
* Issued in the name of Thomson Kernahan & Co., Ltd.
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR THE SECURITIES COMMISSION OF ANY STATE UNDER ANY
STATE SECURITIES LAW. THEY ARE BEING OFFERED PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER REGULATION D ("REGULATION") PROMULGATED UNDER THE
ACT. THE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
UNLESS THE SECURITIES ARE REGISTERED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS, OR SUCH OFFERS, SALES AND TRANSFERS ARE MADE PURSUANT TO
AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND
THOSE LAWS.
THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE
SECURITIES COMMISSION OR REGULATORY AUTHORITY. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
No. 1 $4,000,000 U.S.
FINET HOLDINGS CORPORATION
3% SUBORDINATED CONVERTIBLE DEBENTURE DUE MARCH 18, 2001
THIS DEBENTURE is one of a duly authorized issue of Debentures of Finet
Holdings Corporation, a corporation duly organized and existing under the
laws of the State of Delaware (the "Company"), designated as its 3%
Subordinated Convertible Debentures Due March 18, 2001, in an aggregate
principal amount not exceeding U.S. $7,000,000 (the "Debentures").
FOR VALUE RECEIVED, the Company promises to pay to Thomson Kernahan &
Co., Ltd., the registered holder hereof (the "Holder"), the principal sum
of Four Million Dollars ($4,000,000 U.S.), on or prior to March 18, 2001,
(the "Maturity Date"), and to pay interest on the principal sum
(continued on reverse)
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
FINET HOLDINGS CORPORATION
Dated: March 18, 1998 By: /s/ L. Daniel Rawitch
outstanding from time to time in arrears on the Maturity Date, at the rate
of 3% per annum. Accrual of interest on this Debenture shall commence on
the date that, in connection with the consummation of the initial purchase
of this Debenture from the Company, the escrow agent first had in its
possession funds representing full payment for this Debenture, and
interest shall continue to accrue until payment in full of the principal
sum has been made or duly provided for. The interest so payable will be
paid on the Maturity Date to the person in whose name this Debenture (or
one or more predecessor Debentures) is registered on the records of the
Company regarding registration and transfers of the Debentures (the
"Debenture Register") at the Company's option in either cash or Common
Stock. All accrued and unpaid interest shall bear interest at the same
rate of 3% per annum from the Maturity Date until the date of payment.
The principal of, and interest on, this Debenture are payable in such coin
or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts, at the address of
the Holder last appearing on the Debenture Register of the Company as
designated in writing by the Holder from time to time. The Debenture
Register shall represent the record of ownership and right to receive
principal and interest on this Debenture. Interest and principal shall be
payable only to the registered Holder as reflected in the Debenture
Register. The right to receive principal and interest under this
Debenture shall be transferable only through an appropriate entry in the
Debenture Register as provided herein. The forwarding of such payment
shall constitute a payment of interest hereunder and shall satisfy and
discharge the liability for principal and interest on this Debenture to
the extent of the sum represented by such payment.
This Debenture is subject to the following additional provisions:
1. Debentures. The Debentures are issuable in denominations of Fifty
Thousand Dollars ($50,000 U.S.). The Debentures are exchangeable for an
equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holders surrendering the same, but
shall not be issuable in denominations less than integral multiples of
Fifty Thousand Dollars ($50,000 U.S.). No service charge or other charges
of any kind will be made for such registration of transfer or exchange.
2. Withholdings. The Company shall be entitled to withhold from all
payments of principal of, and interest on, this Debenture any amounts
required to be withheld under the applicable provisions of the United
States income tax laws or other applicable laws at the time of such
payments. The Holder shall pay any other taxes, charges, or levies in
connection with the issuance or transfer thereof.
3. Transfer. This Debenture is issued subject to investment
representations of the original Holder hereof and may be transferred or
exchanged only in compliance with the Securities Act of 1933, as amended
(the "Act"), including Regulation D, if applicable, promulgated under the
Act. Any Holder of this Debenture, by acceptance hereof, agrees to the
representations, warranties and covenants herein. Prior to due
presentment to the Company for transfer of this Debenture, the Company and
any agent of the Company may treat the person in whose name this Debenture
is duly registered on the Company's Debenture Register as the owner hereof
for the purpose of receiving payment as herein provided and for all other
purposes, whether or not this Debenture be overdue, and neither the
Company nor any such agent shall be affected by notice to the contrary.
4. Conversion. The record Holder of this Debenture shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. The record Holder of this Debenture shall be
entitled, at the option of the Holder, subject to the Company's right of
redemption set forth in Section 5(a), to convert 100% of the aggregate
principal amount of Debentures held by such Holder, at any time beginning
on September 18, 1998 (the "Conversion Commencement Date"), at the office
of the Company or any transfer agent for the Debentures, into that number
of fully-paid and non-assessable shares of Common Stock of the Company
("Conversion Shares") calculated in accordance with the following formula:
Number of shares issued upon conversion = (Principal +
Interest)/Conversion Price, where
Principal = The principal amount of the Debenture(s) to be
converted,
Interest = Principal x (N/365) x .03, where N = the number
of days between (i) the date of issuance of this Debenture, and
(ii) the applicable date of conversion for the Debenture for
which conversion is being elected, and
Conversion Price = the lesser of' (x) 78% (the "Applicable
Discount") of the average Closing Bid Price for the Company's
Common Stock for the ten (10) trading days immediately
preceding the Date of Conversion, as defined below, or (y)
$5.00 per share. For purposes hereof, the term "Closing Bid
Price" shall mean the closing bid price of Company's Common
Stock as reported by NASDAQ (or, if not reported by NASDAQ, as
reported by such other exchange or market where traded).
(b) Mechanics of Conversion. No fractional shares of Common Stock
shall be issued upon conversion of this Debenture. In lieu of any
fractional share to which the Holder would otherwise be entitled, the
Company shall pay cash to such Holder in an amount equal to such fraction
multiplied by the Conversion Price then in effect. In the case of a
dispute as to the calculation of the Conversion Rate, the Company's
calculation shall be deemed conclusive absent manifest error. In order to
convert Debentures into full shares of Common Stock, the Holder shall
surrender the certificate or certificates therefor, duly endorsed, by
either overnight courier or 2-day courier, to the office of the Company or
of any transfer agent for the Debentures, and shall give written notice to
the Company (the "Notice of Conversion") at such office that he elects to
convert the same, the number and principal amount of Debentures so
converted and a calculation of the Conversion Rate (with an advance copy
of the certificate(s) and the notice by facsimile); provided, however,
that the Company shall not be obligated to issue certificates evidencing
the shares of Common Stock issuable upon such conversion unless either the
certificates evidencing such Debentures are delivered to the Company or
its transfer agent as provided above, or the Holder notifies the Company
or its transfer agent that such certificates have been lost, stolen or
destroyed and executes an agreement satisfactory to the Company to
indemnify the Company from any loss incurred by it in connection with such
certificates.
The Company shall use reasonable efforts to issue and deliver within
three (3) business days after delivery to the Company of such
certificates, or after such agreement and indemnification, to such Holder
of Debentures at the address of the Holder on the books of the Company, a
certificate or certificates for the number of shares of Common Stock to
which the Holder shall be entitled as aforesaid. The date on which notice
of conversion is given (the "Date of Conversion") shall be deemed to be
the date set forth in such notice of conversion, provided that the
original Debentures to be converted are received by the transfer agent or
the Company within five (5) business days thereafter and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date. If the original
Debentures to be converted are not received by the transfer agent or the
Company within five business days after the Date of Conversion, the notice
of conversion shall become null and void.
Following conversion of a Debenture, or a portion thereof, the
principal and interest owed on that Debenture or portion of the Debenture
so converted will be deemed paid in full and satisfied, and such Debenture
or portion thereof will no longer be outstanding.
(c) Reservation of Stock Issuable Upon Conversion. The Company
shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, no less than 200% of the number of
shares of Common Stock needed to provide for the issuance of the
Conversion Shares measured at the time of the Closing (based upon a
conversion price of $3 13/16). If at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding Debentures, the Company will take such
corporate action as may be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be
sufficient for such purpose.
(d) Nothing contained in this Debenture or paragraph 4(e) hereof,
shall be deemed to establish or require the payment of interest to the
Purchaser at a rate in excess of the maximum rate permitted by governing
law. In the event that the rate of interest required to be paid under the
Debenture exceeds the maximum rate permitted by governing law, the rate of
interest required to be paid thereunder shall be automatically reduced to
the maximum rate permitted under the governing law and any amounts
selected in excess of the permissible amount shall be deemed a payment of
principal. To the extent that such excess amount exceeds the aggregate
principal amount of this Debenture, such excess shall be returned with
reasonable promptness by the Holder to the Company.
(e) In the event the Company does not make delivery of the
certificates of Common Stock, as instructed by Holder, within five (5)
business days after the Date of Conversion, then in such event the Company
shall pay to the Holder an amount, in immediately available funds in
accordance with the following schedule, wherein "No. Business Days Late"
is defined as the number of business days beyond the 3 business days
delivery period.
Late Payment for Each
Principal Amount Being $10,000 of Debenture
No. Business Days Late Converted
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
11 $1,000 + $200 for each
Business Days Late Beyond 10 days
To the extent that the failure of the Company to issue the
certificates of Common Stock pursuant to this Section 4(e) is due to the
unavailability of authorized but unissued shares of Common Stock, the
provisions of this Section 4(e) shall not apply but instead the provisions
of Section 4(f) shall apply. The Company shall pay any payments incurred
under this Section 4(e) in immediately available funds within three (3)
business days from the date of issuance of the certificates of applicable
Common Stock. Nothing herein shall limit a Holder's right to pursue
actual damages for the Company's failure to issue and deliver Common Stock
to the Holder within six (6) business days after the Date of Conversion.
(f) If, at any time, a Holder submits a Notice of Conversion and the
Company does not have sufficient authorized but unissued shares of Common
Stock available to effect, in full, a conversion of the Debentures (a
"Conversion Default," the date of such default being referred to herein as
the "Conversion Default Date"), the Company shall issue to the Holder a
certificate representing all of the shares of Common Stock which are
available, and the Notice of Conversion as to any Debentures requested to
be converted but not converted (the "Unconverted Debentures") shall become
null and void. The Company shall provide notice of such Conversion
Default ("Notice of Conversion Default" to all existing Holders of
outstanding Debentures, by facsimile, within one (1) business day of such
default (with the original delivered by overnight or two day courier). No
Holder may submit a Notice of Conversion after receipt of Notice of
Conversion Default until the date additional shares of Common Stock are
authorized by the Company. The Company agrees to pay to all Holders of
outstanding Debentures payments for a Conversion Default ("Conversion
Default Payments") in the amount of (N/365 x (.24) x the initial issuance
price of the outstanding Debentures held by each Holder where N = the
number of days from the Conversion Default Date to the date (the
"Authorization Date") that the Company authorizes a sufficient number of
shares of Common Stock to affect conversion of all remaining Debentures.
The Company shall send notice ("Authorization Notice") to each Holder of
outstanding Debentures that additional shares of Common Stock have been
authorized, the Authorization Date and the amount of Holder's accrued
Conversion Default Payments. The accrued Conversion Default shall be paid
in immediately available funds, or shall be convertible into Common Stock
at the Conversion Rate, at the Purchaser's option, payable as follows:
(i) in the event Purchaser elects to take such payment in immediately
available funds, payments shall be made to such Purchaser of outstanding
Debentures by the fifth day of the following calendar month, or (ii) in
the event Purchaser elects to take such payment in stock, the Purchaser
may convert such payment amount into Common Stock at the Conversion Rate
at anytime after the 5th day of the calendar month following the month in
which the Authorization Notice was received, until the expiration of the
Mandatory Conversion Date (as defined herein).
Nothing herein shall limit the Purchaser's right to pursue
actual damages for the Company's failure to maintain a sufficient number
of authorized shares of common stock.
(g) Mandatory Payment or Conversion on Maturity Date. Each Holder
of a Debenture outstanding on March 18, 2001, shall have the right to
demand, by written notice to the Company which is received by the Company
no later than March 18, 2001, (the "Payment Notice"), that payment of all
principal and accrued interest on this Debenture be paid to such Holder in
cash or in immediately available funds on March 18, 2001. Each
outstanding Debenture for which a Payment Notice is not timely received by
the Company on or before March 18, 2001, automatically shall be converted
into Common Stock on March 18, 2001, at the Conversion Price for each
share of Common Stock calculated in accordance with the formula in Section
4(a) above, and March 18, 2001, shall be deemed the Date of Conversion
with respect to such conversion. The Company shall not be entitled to
require conversion of the Debentures.
(h) Adjustment to Fixed Conversion Price.
(i) If, prior to the conversion of all of the Debentures, the
number of outstanding shares of Common Stock is increased by a stock
split, stock dividend, or other similar event, the Fixed Conversion
Price shall be proportionately reduced, or if the number of
outstanding shares of Common Stock is decreased by a combination or
reclassification of shares, or other similar event, the Fixed
Conversion Price shall be proportionately increased.
(ii) If, prior to the conversion of all Debentures, there shall
be any merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event, as a result of which shares
of Common Stock of the Company shall be changed into the same or a
different number of shares of the same or another class or classes
of stock or securities of the Company or another entity, then the
Holders of Debentures shall thereafter have the right to purchase
and receive upon conversion of Debentures, upon the basis and upon
the terms and conditions specified herein and in lieu of the shares
of Common Stock immediately theretofore issuable upon conversion,
such shares of stock and/or securities as may be issued or payable
with respect to or in exchange for the number of shares of Common
Stock immediately theretofore purchasable and receivable upon the
conversion of Debentures held by such Holders had such merger,
consolidation, exchange of shares, recapitalization or
reorganization not taken place, and in any such case appropriate
provisions shall be made with respect to the rights and interests of
the Holders of the Debentures to the end that the provisions hereof
shall thereafter be applicable, as nearly as may be practicable in
relation to any shares of stock or securities thereafter deliverable
upon the exercise hereof. The Company shall not effect any
transaction described in this subsection 4(h) unless the resulting
successor or acquiring entity (if not the Company) assumes by
written instrument the obligation to deliver to the Holders of the
Debentures such shares of stock and/or securities as, in accordance
with the foregoing provisions, the Holders of the Debentures may be
entitled to purchase.
(iii) If any adjustment under this Section 4(h) would create
a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of Common Stock issuable upon
conversion shall be the next higher number of shares.
5. Company's Right to Redeem at its Election.
(a) At any time, commencing ninety (90) days after the date
hereof (the "Issuance Date") as long as the Company has not breached
any of the representations, warranties, and covenants contained
herein or in any related agreements, the Company shall have the
right, in it sole discretion, to redeem ("Redemption at Company's
Election"), from time to time, any or all of the Debentures:
provided (i) Company shall first provide thirty (30) days advance
written notice as provided in subparagraph 5(a)(ii) below (which can
be given any time on or after sixty (60) days after the Issuance
Date, and (ii) that the Company shall only be entitled to redeem
Debentures having an aggregate Stated Value (as defined below) of at
least Five Hundred Thousand Dollars ($500,000). If the Company
elects to redeem some, but not all, of the Debentures, the Company
shall redeem a pro-rata amount from each Holder of the Debentures.
(i) Redemption Price At Company's Election. The
"Redemption Price at Company's Election" shall be calculated as
115% (the "Redemption Percentage") of Stated Value, as that
term is defined below, of the Debentures. However, if the
Company submits a Notice of Redemption at Company's Election
(as defined below) following ninety (90) days from the Issuance
Date, the Redemption Percentage shall increase an additional
3.33% for each thirty (30) days thereafter. However, in no
event shall the Redemption Percentage exceed 125%. For
purposes hereof, "Stated Value" shall mean the original
principal amount of Debentures being redeemed, plus the accrued
and unpaid 3% per annum interest payment.
(ii) Mechanics of Redemption at Company's Election. The
Company shall effect each such redemption by giving at least
thirty (30) days prior written notice ("Notice of Redemption at
Company's Election") to (A) the Holders of the Debentures
selected for redemption at the address and facsimile number of
such Holder appearing in the Company's Debenture register and
(B) the Transfer Agent, which Notice of Redemption At Company's
Election shall be deemed to have been delivered three (3)
business days after the Company's mailing (by overnight or two
(2) day courier, with a copy by facsimile) of such Notice of
Redemption at Company's Election. Such Notice of Redemption At
Company's Election shall indicate (i) the number of Debentures
that have been selected for redemption, (ii) the date which
such redemption is to become effective (the "Date of Redemption
At Company's Election") and (iii) the applicable Redemption
Price At Company's Election, as defined in subsection (a)(i)
above. Notwithstanding the above, on or after the Conversion
Commencement Date, Holder may convert into Common Stock, prior
to the close of business on the Date of Redemption at Company's
Election, any Debentures which it is otherwise entitled to
convert, including Debentures that has been selected for
redemption at Company's election pursuant to this subsection
5(b).
(b) Company Must Have Immediately Available Funds or Credit
Facilities. The Company shall not be entitled to send any
Redemption Notice and begin the redemption procedure under Sections
5(a) unless it has:
(i) the full amount of the redemption price to cash,
available in a demand or other immediately available account in
a bank or similar financial institution; or
(ii) immediately available credit facilities, in the full
amount of the redemption price with a bank or similar financial
institution, or
(iii) an agreement with a standby underwriter willing to
purchase from the Company a sufficient number of shares of
stock to provide proceeds necessary to redeem any stock that is
not converted prior to redemptions; or
(iv) a combination of the items set forth in (i), (ii), and
(iii) above, aggregating the full amount of the redemption
price.
(c) Payment of Redemption Price. Each Holder submitting
Debentures being redeemed under this Section 5 shall send their
Debenture Certificates to be redeemed to the Company or its Transfer
Agent, and the Company shall pay the applicable redemption price to
that Holder within five (5) business days of the Date of Redemption
at Company's Election, the "Cash Redemption Due Date"). In the
event that the applicable redemption price is not paid by the Cash
Redemption Due Date, then the late payment penalty provisions of
Section 4(e) shall apply commencing on the sixth (6th) business day
of the Date of Redemption at Company's Election.
6. The following shall constitute an "Event of Default":
(a) The Company shall default in the timely payment of
Principal or Interest on this
Debenture; or
(b) Any of the representations, warranties, or covenants made by the
Company herein, in the Securities Purchase Agreement, Registration Rights
Agreement, the Warrants, Escrow Agreement, or any other related
agreements, or in any certificate or financial or other written statements
heretofore or hereafter furnished by the Company in connection with the
execution and delivery of this Debenture or the Security Purchase
Agreement shall be false or misleading in any material respect at the time
made; or
(c) The Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition, agreement, or
obligation of the Company under this Debenture, the Registration Rights
Agreement, the Warrants, the Escrow Agreement, or any other related
agreement and such failure shall continue uncured for a period of ten
(10) days after written notice from the Holder of such failure; or
(d) The Company shall (1) admit in writing its inability to pay its
debts generally as they mature; (2) make an assignment for the benefit of
creditors or commence proceedings for its dissolution; or (3) apply for or
consent to the appointment of a trustee, liquidator or receiver for its or
for a substantial part of its property or business; or
(e) A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business without its
consent and shall not be discharged within sixty (60) days after such
appointment; or
(f) Any governmental agency or any court of competent jurisdiction
at the instance of any governmental agency shall assume custody or control
of the whole or any substantial portion of the properties or assets of the
Company and shall not be dismissed within sixty (60) days thereafter; or
(g) Any money judgement, writ or warrant of attachment, or similar
process in excess of One Hundred Thousand ($100,000) Dollars in the
aggregate shall be entered or filed against the Company or any of its
properties or other assets and shall remain unpaid, unvacated, unbonded or
unstayed for a period of sixty (60) days or in any event later than five
(5) days prior to the date of any proposed sale thereunder; or
(h) Bankruptcy, reorganization, insolvency liquidation proceedings
or other proceedings for relief under any bankruptcy law or any law for
the relief of debtors shall be instituted by or against the Company and,
if instituted against the Company, the Company shall by any action or
answer approve of, consent to, or acquiesce in any such proceedings or
admit the material allegations of, or default in answering a petition
filed in any such proceeding; or
(i) The Company shall have its Common Stock suspended or delisted
from trading on the over-the-counter market. Then, or any time
thereafter, and in each and every such case, unless such Event of Default
shall have been waived in writing by the holder (which waiver shall not be
deemed to be a waiver of any subsequent default) at the option of the
Holder and in the Holder's sole discretion, the Holder may consider this
Debenture immediately due and payable without presentment, demand, protest
or notice of any kinds, all of which are hereby expressly waived, anything
herein or in any note or other instruments contained to the contrary
notwithstanding, and the Holder may immediately enforce any and all of the
Holder's rights and remedies provided herein or any other rights or
remedies afforded by law.
7. No Impairment. Except as expressly provided herein, no provision of
this Debenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of, and interest on,
this Debenture at the time, place, and rate, and in the coin or currency,
herein prescribed. This Debenture and all other Debentures now or
hereafter issued in similar terms are direct obligations of the Company.
8. Termination. After this Debenture shall have been surrendered for
conversion as herein provided or notice of conversion shall have been
given by the Company pursuant to Section 4(g) herein, this Debenture shall
no longer be deemed to be outstanding and all rights with respect to this
Debenture, including, without limitation, the right to receive interest
hereon and the principal hereof, shall forthwith terminate as of the Date
of Conversion, except only the right of the Holder hereof to receive
shares of Common Stock in exchange herefor.
9. Protective Provisions. So long as Debentures are outstanding, the
Company shall not without first obtaining the approval (by vote or written
consent, as provided by law) of the Holders of at least a majority of
principal amount of the then outstanding Debentures (i) alter or change
the rights, preferences or privileges of the Debentures so as to affect
adversely the Debentures or (ii) incur indebtedness which is senior to the
Debentures except for Senior Indebtedness. As used herein, Senior
Indebtedness shall mean financing obtained from a commercial bank,
insurance company, trust company, or other commercial finance entity which
is secured by substantially all of the Company's assets. Notwithstanding
the above, the Company may incur debt with respect to trade credit,
purchase money security interests, inventory and other debt incurred in
the ordinary course of business.
10. No Voting Rights. This Debenture shall not entitle the Holder hereof
to any of the rights of a stockholder of the Company, including without
limitation, the right to vote, to receive dividends and other
distributions, or to receive any notice of, or to attend, meetings of
stockholders or any other proceedings of the Company.
11. Lost or Destroyed Debenture. If this Debenture shall be mutilated,
lost, stolen or destroyed, the Company shall execute and deliver, in
exchange and substitution for and upon cancellation of a mutilated
Debenture, or in lieu of or in substitution for a lost, stolen or
destroyed Debenture, a new Debenture for the principal amount of this
Debenture so mutilated, lost, stolen or destroyed but only upon receipt of
evidence of such loss, theft or destruction of such Debenture, and of the
ownership thereof, and indemnity, if requested, all reasonably
satisfactory to the Company.
12. Sales in Compliance with Applicable Law. Any Holder of this
Debenture, by acceptance hereof, agrees that such Holder will not offer,
sell or otherwise dispose of this Debenture or the shares of Common Stock
issuable upon exercise thereof except under circumstances which will not
result in a violation of the Act, including Regulation D, if applicable,
promulgated under the Act, or any applicable state Blue Sky law or similar
laws relating to the sale of securities and the Holder agrees to provide
the Company with the documentation required by the Security Purchase
Agreement executed by the original Holder hereof to demonstrate that such
offer, sale or disposition complies with applicable securities laws.
13. Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of Delaware without regard to the
principles of conflict of laws. Company acknowledges that upon any breach
of Holder's conversion rights hereunder, Holder's resulting injury may not
be adequately compensated by a remedy at law. Accordingly, upon such
breach, Holder, at its election and without limitation of its other
remedies, shall be entitled to pursue a claim for specific performance of
this Agreement, and Company hereby waives the right to assert any defense
thereto that Holder has an adequate remedy at law. The parties expressly
consent to the jurisdiction and venue of the Superior Court of Contra
Costa County, California, and the United States District Court for the
Northern District of California for the adjudication of any civil action
asserted pursuant to this Paragraph.
14. Business Day Definition. For purposes hereof, the term "business
day" shall mean any day on which banks are generally open for business in
the State of New York, USA and excluding any Saturday and Sunday.
15. Notices. Any notice, demand or request required or permitted to be
given by either the Company or the Subscriber pursuant to the terms of
this Agreement shall be in writing and shall be deemed given when
delivered personally, or by facsimile (with a hard copy to follow by two
day courier), addressed to the Company at 3021 Citrus Circle, Walnut
Creek, California 94598, Telecopy No. (510) 934-2903 and with respect to
the Holder as disclosed in the Securities Purchase Agreement or such other
addresses as a party may request by notifying the other in writing.
16. Waiver. Any waiver by the Company or the Holder hereof of a breach
of any provision of this Debenture shall not operate as or be construed to
be a waiver of any other breach of such provision or of any breach of any
other provision of this Debenture. The failure of the Company or the
Holder hereof to insist upon strict adherence to any term of this
Debenture on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence
to that term or any other term of this Debenture. Any waiver must be in
writing.
17. Unenforceable Provisions. If any provision of this Debenture is
invalid, illegal or unenforceable, the balance of this Debenture shall
remain in effect, and if any provision is inapplicable to any person or
circumstance, it shall nevertheless remain applicable to all other persons
and circumstances.
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert the above Debenture
No(s).___________ into shares of Common Stock, $.01 par value (the "Common
Stock"), of Finet Holdings Corporation (the "Company") according to the
conditions hereof, as of the date written below. If shares are to be
issued in the name of a person other than undersigned, the undersigned
will pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates, opinions, and signature guarantee as
reasonably requested by the Company or its Transfer Agent. No fee will be
charged to the Holder for any conversion, except for transfer taxes, if
any.
The undersigned represents and warrants that all offers and sales by the
undersigned of the shares of Common Stock issuable to the undersigned upon
conversion of the Debenture shall be made only pursuant to (i)
registration of the Common Stock under the Act or (ii) advice of counsel
that such sale is exempt from registration required by Section 5 under the
Act.
Conversion calculations:
Signature:
Date of Conversion PrintName:
Address:___________________________________
__________________________________________
Applicable Conversion Price
__________________________________________
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of March 18, 1998, between Finet Holdings
Corporation, a Delaware corporation (the "Company"), and J.P. Carey
Securities, Inc., a Georgia corporation (hereinafter referred to as "J.P.
Carey").
W I T N E S S E T H:
WHEREAS, J.P. Carey has assisted the Company in connection with the
Company's offering (the "Offering") of up to $7,000,000 in principal
amount of 3% Convertible Debentures (the "Debentures") for an aggregate
purchase price $7,000,000; and
WHEREAS, the Warrants issued pursuant to this Agreement are being
issued by the Company to J.P. Carey and/or its designees, in consideration
for, and as part of the compensation to be paid in connection with, the
services of J.P. Carey in connection with the Offering;
NOW, THEREFORE, in consideration of the premises, the agreements
herein set forth and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree
as follows:
1. Grant.
J.P. Carey and/or its designees are hereby granted the right to
purchase, at any time from the date of issuance of the aforementioned
Debentures until 5:00 P.M., Pacific Standard Time, on March 18, 2003 (the
"Warrant Exercise Term"), 80,000 shares of the Company's Common Stock, par
value $0.01 per share (the "Shares") at an exercise price (subject to
adjustment as provided in Article 7 hereof) equal to $5.71 (the "Initial
Exercise Price").
2. Warrant Certificates.
The warrant certificates (the "Warrant Certificates) delivered
and to be delivered pursuant to this Agreement shall be in the form set
forth as Exhibit A, attached hereto and made a part hereof, with such
appropriate insertions, omissions, substitutions and other variations as
required or permitted by this Agreement.
3. Exercise of Warrants.
3.1 Cash Exercise. The Exercise Price may be paid in cash or
by check to the order of the Company, or any combination of cash or check,
subject to adjustment as provided in Article 7 hereof. Upon surrender of
the Warrant Certificate with the annexed Form of Election to Purchase duly
executed, together with payment of the Exercise Price (as hereinafter
defined) for the Shares purchased, at the Company's executive offices
(currently located at 3021 Citrus Circle, Walnut Creek, California 94598)
the registered holder of a Warrant Certificate ("Holder" or "Holders")
shall be entitled to receive a certificate or certificates for the Shares
so purchased. The purchase rights represented by each Warrant Certificate
are exercisable at the option of the Holder hereof, in whole or in part
(but not as to fractional shares of the Common Stock). In the case of the
purchase of less than all the Shares purchasable under any Warrant
Certificate, the Company shall cancel said Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate
of like tenor for the balance of the Shares purchasable thereunder.
3.2 Cashless Exercise. At any time during the Warrant Exercise
Term, the Holder may, at its option, exchange this Warrant, in whole or in
part (a "Warrant Exchange"), into the number of Shares determined in
accordance with this Section 3.2, by surrendering this Warrant at the
principal office of the company or at the office of its transfer agent,
accompanied by a notice stating such Holder's intent to effect such
exchange, the number of Shares to be exchanged and the date on which the
Holder requests that such Warrant Exchange occur (the "Notice of
Exchange"). The Warrant Exchange shall take place on the date specified
in the Notice of Exchange or, if later, the date the Notice of Exchange is
received by the Company (the "Exchange Date"). Certificates for the
Shares issuable upon such Warrant Exchange and, if applicable, a new
warrant of like tenor evidencing the balance of the Shares remaining
subject to this Warrant, shall be issued as of the Exchange Date and
delivered to the Holder within seven (7) business days following the
Exchange Date. In connection with any Warrant Exchange, this Warrant
shall represent the right to subscribe for and acquire the number of
Shares (rounded to the next highest integer) equal to (i) the number of
Shares specified by the Holder in its Notice of Exchange (the "Total
Number") less (ii) the number of Shares equal to the quotient obtained by
dividing (A) the product of the Total Number and the then existing
Exercise Price by (B) the current market value of a share of Common Stock.
4. Issuance of Certificates.
Upon the exercise of the Warrants, the issuance of certificates for
the Shares shall be made forthwith (and in any event within five business
days thereafter) without charge to the Holder thereof including, without
limitation, any tax which may be payable in respect of the issuance
thereof, and such certificates shall be issued in the name of, or in such
names as may be directed by, the Holder thereof; provided, however, that
the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any such
certificates in a name other than that of the Holder and the Company shall
not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the
Company the amount of such tax or shall have established to satisfaction
of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the Shares
shall be executed on behalf of the Company by the manual or facsimile
signature of the present or any future Chairman or Vice Chairman of the
Board of Directors, Chief Executive officer or President or Vice President
of the Company under its corporate seal reproduced thereon, attested to by
the manual or facsimile signature of the present or any future Secretary
or Assistant Secretary of the Company. Warrant Certificates shall be
dated the date of execution by the Company upon initial issuance,
division, exchange, substitution or transfer.
The Warrant Certificates and, upon exercise of the Warrants, in part
or in whole, certificates representing the Shares shall bear a legend
substantially similar to the following:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), and may not be offered or sold except (i) pursuant to an
effective registration statement under the Act, (ii) to the
extent applicable, pursuant to Rule 144 under the Act (or any
similar rule under such Act relating to the disposition of
securities), or (iii) upon the delivery by the holder to the
Company of an opinion of counsel, reasonably satisfactory to
counsel to the issuer, stating that an exemption from
registration under such Act is available.
5. Price.
5.1 Adjusted Exercise Price. The adjusted Exercise Price shall
be the price which shall result from time to time from any and all
adjustments of the Initial Exercise Price in accordance with the
provisions of Article 7 hereof.
5.2 Exercise Price. The term "Exercise Price" herein shall
mean the Initial Exercise Price or the adjusted Exercise Price, depending
upon the context.
6. Registration Rights.
6.1 Registration Under the Securities Act of 1993.
The Warrants and the Shares have not been registered for purposes of
public distribution under the Securities Act of 1933, as amended ("the
Act").
6.2 Registrable Securities. As used herein the term
"Registrable Security" means each of the Warrants, the Shares and any
shares of Common Stock issued upon any stock split or stock dividend in
respect of such Shares; provided, however, that with respect to any
particular Registrable Security, such security shall cease to be a
Registrable Security when, as of the date of determination, (i) it has
been effectively registered under the Securities Act and disposed of
pursuant thereto, (ii) registration under the Securities Act is no longer
required for the immediate public distribution of such security or (iii)
it has ceased to be outstanding. The term "Registrable Securities" means
any and/or all of the securities falling within the foregoing definition
of a "Registrable Security." In the event of any merger, reorganization,
consolidation, recapitalization or other change in corporate structure
affecting the Common Stock, such adjustment shall be made in the
definition of "Registrable Security" as is appropriate in order to prevent
any dilution or enlargement of the rights granted pursuant to this Article
6.
6.3 Piggyback Registration. If, at any time during the five
years following the date of this Agreement, the Company proposes to
prepare and file any registration statement or post-effective amendments
thereto covering equity or debt securities of the Company, or any such
securities of the Company held by its shareholders (in any such case,
other than in connection with a merger, acquisition or pursuant to Form S-
8 or successor form), (for purposes of this Article 6, collectively, a
"Registration Statement"), it will give written notice of its intention to
do so by registered mail ("Notice"), at ten (10) business days prior to
the filing of each such Registration Statement, to all holders of the
Registrable Securities. Upon the written request of such a holder (a
"Requesting Holder"), made within ten (10) business days after receipt of
the Notice, that the Company include any of the Requesting Holder's
Registrable Securities in the proposed Registration Statement, the Company
shall, as to each such Requesting Holder, use its best efforts to effect
the registration under the Securities Act of the Registrable Securities
which it has been so requested to register ("Piggyback Registration"), at
the Company's sole cost and expense and at no cost or expense to the
Requesting Holders; Notwithstanding the provisions of this Section 6.3,
the Company shall have the right at any time after it shall have given
written notice pursuant to this Section 6.3 (irrespective of whether any
written request for inclusion of such securities shall have already been
made) to elect not to file any such proposed Registration Statement, or to
withdraw the same after the filing but prior to the effective date
thereof.
6.4 Demand Registration.
(a) At any time, commencing 120 days from the date of this
Agreement and during the Warrant Exercise Term, any "Majority Holder" (as
such term is defined in Section 6.4(d) below) of the Registrable
Securities shall have the right (which right is in addition to the
piggyback registration rights provided for under Section 6.3 hereof),
exercisable by written notice to the Company (the "Demand Registration
Request"), to have the Company prepare and file with the Securities and
Exchange Commission (the "Commission"), on one occasion, at the sole
expense of the Company, a Registration Statement and such other documents,
including a prospectus, as may be necessary (in the opinion of both
counsel for the Company and counsel for such Majority Holder), in order to
comply with the provisions of the Act, so as to permit a public offering
and sale of the Registrable Securities by the holders thereof, for nine
(9) consecutive months.
(b) The Company covenants and agrees to give written
notice of any Demand Registration Request to all holders of the
Registrable Securities within ten (10) days from the date of the Company's
receipt of any such Demand Registration Request. After receiving notice
from the Company as provided in this Section 6.4(b), holders of
Registrable Securities may request the Company to include their
Registrable Securities in the Registration Statement to be filed pursuant
to Section 6.4(a) hereof by notifying the Company of their decision to
include such securities within twenty (20) days of their receipt of the
Company's notice.
(c) In addition to the registration rights provided for
under Section 6.3 and subsection (a) of this Section 6.4, at any time
during the Warrant Exercise Term, any Majority Holder (as defined below in
Section 6.4(d)) of Registrable Securities shall have the right,
exercisable by written request to the Company, to have the Company prepare
and file with the Commission, on one occasion in respect of all holders of
Registrable Securities, a Registration Statement so as to permit a public
offering and sale of such Registrable Securities for nine (9) consecutive
months, provided, however, that all costs incident thereto shall be at the
expense of the holders of the Registrable Securities included in such
Registration Statement. If a Majority Holder shall give notice to the
Company at any time of its or their desire to exercise the registration
right granted pursuant to this Section 6.4(c), then within ten (10) days
after the Company's receipt of such notice, the Company shall give notice
to the other holders of Registrable Securities, advising them that the
Company is proceeding with such registration and offering to include
therein the Registrable Securities of such holders, provided they furnish
the Company with such appropriate information in connection therewith as
the Company shall reasonably request in writing.
(d) The term "Majority Holder" as used in this Section 6.4
shall mean any holder or any combination of holders of Registrable
Securities, if included in such holders, Registrable Securities are that
aggregate number of Shares (including Shares already issued and Shares
issuable pursuant to the exercise of outstanding Warrants) as would
constitute a majority of the aggregate number of Shares (including Shares
already issued and Shares issuable pursuant to the exercise of outstanding
Warrants) included in all of the Registrable Securities.
6.5 Covenants of the Company With Respect to Registration. The
Company covenants and agrees as follows:
(a) In connection with any registration under Section 6.4
hereof, the Company shall file the Registration Statement as expeditiously
as possible, but in no event later than forty-five (45) business days
following receipt of any demand therefor, shall use its best efforts to
have any such Registration Statements declared effective at the earliest
possible time, and shall furnish each holder of Registrable Securities
such number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs, fees and expenses
(excluding fees of holders for their counsel, transfer taxes and
underwriting discounts or commissions) in connection with all Registration
Statements filed pursuant to Sections 6.3 and 6.4(a) hereof including,
without limitation, the Company's legal and accounting fees, printing
expenses, and blue sky fees and expenses. The holders of Registrable
Securities included in any Registration Statement filed pursuant to
Section 6.4(c) hereof will pay all costs, fees and expenses in connection
with such registration.
(c) The Company will take all necessary action which may
be required in qualifying or registering the Registrable Securities
included in a Registration Statement for offering and sale under the
securities or blue sky laws of such states as are requested by the holders
of such securities.
(d) The Company shall indemnify any holder of the
Registrable Securities to be sold pursuant to any Registration Statement
and any underwriter or person deemed to be an underwriter under the Act
and each person, if any, who controls such holder or underwriter or person
deemed to be an underwriter within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become
subject under the Act, the Exchange Act or otherwise, arising from such
Registration Statement to the same extent and with the same effect as the
provisions pursuant to which the Company has agreed to indemnify the
purchasers of the Company's Convertible Debentures contained in the
Registration Rights Agreement dated of even date herewith.
(e) Any holder of Registrable Securities to be sold
pursuant to a Registration Statement, and its successors and assigns,
shall severally, and not jointly, indemnify, the Company, its officers and
directors and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act,
against all loss, claim, damage or expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending
against any claim whatsoever) to which they may become subject under the
Act, the Exchange Act or otherwise, arising from information furnished in
writing by or on behalf of such holder, or its successors or assigns, for
specific inclusion in such Registration Statement to the same extent and
with the same effect as the provisions pursuant to which purchasers of the
Company's Convertible Debentures have agreed to indemnify the Company
contained in the Registration Rights Agreement dated of even date
herewith.
(f) Nothing contained in this Agreement shall be construed
as requiring any Holder to exercise his Warrants prior to the initial
filing of any Registration Statement or the effectiveness thereof.
(g) If the Company shall fail to comply with the provisions
of this Article 6, the Company shall, in addition to any other equitable or
other relief available to the holders of Registrable Securities, be liable
for any or all incidental, special and consequential damages sustained by
the holders of Registrable Securities, requesting registration of their
Registrable Securities.
(h) Except as otherwise provided to the contrary herein,
the Company shall not permit the inclusion of any securities other than the
Registrable Securities to be included in any Registration Statement filed
pursuant to Section 6.4 hereof, or permit any other registration statement
to be or remain effective during the effectiveness of a Registration
Statement filed pursuant to Section 6.4 hereof, without the prior written
consent of the Majority Holders, which consent shall not be unreasonably
withheld.
(i) The Company shall deliver promptly to each holder of
Registrable Securities participating in the offering requesting the corres-
pondence and memoranda described in this Section 6.5(i) and to the managing
underwriter, if any, copies of all correspondence between the Commission
and the Company, its counsel or auditors and all memoranda relating to
discussions with the Commission or its staff with respect to the
Registration Statement and permit each holder of Registrable Securities
and underwriters to do such investigation, upon reasonable advance notice,
with respect to information contained in or omitted from the Registration
Statement as it deems reasonably necessary to comply with applicable
securities laws or rules of the National Association of Securities
Dealers, Inc. Such investigation shall include access to books, records
and properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable extent
and at such reasonable times and as often as any such holder of
Registrable Securities or underwriter shall reasonably request.
(j) If the Company shall enter into an underwriting agreement
with the managing underwriter selected for such underwriting, such agreement
shall be satisfactory in form and substance to the Company, each holder of
Registrable Securities and such managing underwriter, and shall contain
such representations, warranties and covenants by the Company and such
other terms as are customarily contained in agreements of that type used
by the managing underwriter. The holders of Registrable Securities shall
be parties to any underwriting agreement relating to an underwritten sale
of their Registrable Securities and may, at their option, require that any
or all the representations, warranties and covenants of the Company to or
for the benefit of such underwriter shall also be made to and for the
benefit of such holders of Registrable Securities. Such holders of
Registrable Securities shall not be required to make any representations
or warranties to or agreements with the Company or the underwriter except
as they may relate to such holders of Registrable Securities and their
intended methods of distribution.
7. Adjustments of Exercise Price and Number of Shares.
7.1 Subdivision and Combination. In case the Company shall at
any time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
7.2 Adjustment in Number of Shares. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Article 7, the
number of Shares issuable upon the exercise of each Warrant shall be
adjusted to the nearest full Share by multiplying a number equal to the
Exercise Price in effect immediately prior to such adjustment by the
number of Shares issuable upon exercise of the Warrants immediately prior
to such adjustment and dividing the product so obtained by the adjusted
Exercise Price.
7.3 Reclassification, Consolidation, Merger, etc. In case of
any reclassification or change of the outstanding shares of Common Stock
(other than a change in par value to no par value, or from no par value to
par value, or as a result of a subdivision or combination), or in the case
of any consolidation of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger in which the
Company is the surviving corporation and which does not result in any
reclassification or change of the outstanding shares of Common Stock,
except a change as a result of a subdivision or combination of such shares
or a change in par value, as aforesaid), or in the case of a sale or
conveyance to another corporation of the property of the Company as an
entirety, the Holders shall thereafter have the right to purchase the kind
and number of shares of stock and other securities and property receivable
upon such reclassification, change, consolidation, merger, sale or
conveyance as if the Holders were the owners of the shares of Common Stock
underlying the Warrants immediately prior to any such events at a price
equal to the product of (x) the number of shares issuable upon exercise of
the Warrants and (y) the Exercise Price in effect immediately prior to the
record date for such reclassification, change, consolidation, merger, sale
or conveyance as if such Holders had exercised the Warrants.
7.4 No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made:
(a) Upon the issuance or sale of shares of Common Stock
upon the exercise of the Warrants; or
(b) Upon (i) the issuance of options pursuant to the
Company's employee stock option plan in effect on the date
hereof or the issuance or sale by the Company of any shares of
Common Stock pursuant to the exercise of any such options, or
(ii) the issuance or sale by the Company of any shares of Common
Stock pursuant to the exercise of any options or warrants
previously issued and outstanding on the date hereof; or
(c) Upon the issuance of shares of Common Stock pursuant
to contractual obligations existing on the date hereof; or
(d) If the amount of said adjustment shall be less than 2
cents ($.02) per Share, provided, however, that in such case any
adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment which, together
with any adjustment so carried forward, shall amount to at least
2 cents ($.02) per Share.
7.5 Dividends and Other Distributions with Respect to
Outstanding Securities. In the event that the Company shall at any time
prior to the exercise of all Warrants declare a dividend (other than a
dividend consisting solely of shares of Common Stock or a cash dividend or
distribution payable out of current or retained earnings) or otherwise
distribute to its shareholders any monies, assets, property, rights,
evidences of indebtedness, securities (other than shares of Common Stock),
whether issued by the Company or by another person or entity, or any other
thing of value, the Holder or Holders of the unexercised Warrants shall
thereafter be entitled, in addition to the shares of Common Stock or other
securities receivable upon the exercise thereof, to receive, upon the
exercise of such Warrants, the same monies, property, assets, rights,
evidences of indebtedness, securities or any other thing of value that
they would have been entitled to receive at the time of such dividend or
distribution. At the time of any such dividend or distribution, the
Company shall make appropriate reserves to ensure the timely performance
of the provisions of this Subsection 7.5.
7.6 Subscription Rights for Shares of Common Stock or Other
Securities. In the case the Company or an affiliate of the Company shall
at any time after the date hereof and prior to the exercise of all the
Warrants issue any rights to subscribe for shares of Common Stock or any
other securities of the Company or of such affiliate to all the
shareholders of the Company, the Holders of the unexercised Warrants shall
be entitled, in addition to the shares of Common Stock or other securities
receivable upon the exercise of the Warrants, to receive such rights at
the time such rights are distributed to the other shareholders of the
Company.
8. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense, upon the
surrender hereof by the registered Holder at the principal executive
office of the Company, for a new Warrant Certificate of like tenor and
date representing in the aggregate the right to purchase the same number
of Shares in such denominations as shall be designated by the Holder
thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate,
and, in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and
cancellation of the Warrants, if mutilated, the Company will make and
deliver a new Warrant Certificate of like tenor, in lieu thereof.
9. Elimination of Fractional Interests.
The Company shall not be required to issue certificates representing
fractions of shares of Common Stock and shall not be required to issue
scrip or pay cash in lieu of fractional interests, it being the intent of
the parties that all fractional interests shall be eliminated by rounding
any fraction up to the nearest whole number of shares of Common Stock.
10. Reservation and Listing of Securities.
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon
the exercise of the Warrants, such number of shares of Common Stock as
shall be issuable upon the exercise thereof. The Company covenants and
agrees that, upon exercise of the Warrants and payment of the Exercise
Price therefor, all shares of Common Stock issuable upon such exercise
shall be duly and validly issued, fully paid, nonassessable and not
subject to the preemptive rights of any shareholder. As long as the
Warrants shall be outstanding, the Company shall use its best efforts to
cause all shares of Common Stock issuable upon the exercise of the
Warrants to be listed on or quoted by NASDAQ.
11. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as conferring
upon the Holder or Holders the right to vote or to consent or to receive
notice as a shareholder in respect of any meetings of shareholders for the
election of directors or any other matter, or as having any rights
whatsoever as a shareholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the
following events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital
stock of the Company, or any option, right or warrant to subscribe
therefor; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale
of all or substantially all of its property, assets and business as
an entirety shall be proposed;
then, in any one or more of said events, the Company shall give written
notice of such event at least fifteen (15) days prior to the date fixed as
a record date or the date of closing the transfer books for the
determination of the shareholders entitled to such dividend, distribution,
convertible or exchangeable securities or subscription rights, options or
warrants, or entitled to vote on such proposed dissolution, liquidation,
winding up or sale. Such notice shall specify such record date or the
date of closing the transfer books, as the case may be. Failure to give
such notice or any defect therein shall not affect the validity of any
action taken in connection with the declaration or payment of any such
dividend or distribution, or the issuance of any convertible or
exchangeable securities or subscription rights, options or warrants, or
any proposed dissolution, liquidation, winding up or sale.
12. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt
requested:
(a) If to a registered Holder of the Warrants, to the address
of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3 of
this Agreement or to such other address as the Company may designate
by notice to the Holders.
13. Supplements and Amendments.
The Company and the Placement Agent may from time to time supplement
or amend this Agreement without the approval of any Holders of Warrant
Certificates in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Placement Agent may
deem necessary or desirable and which the Company and the Placement Agent
deem not to adversely affect the interests of the Holders of Warrant
Certificates.
14. Successors.
All the covenants and provisions of this Agreement by or for the
benefit of the Company and the Holders inure to the benefit of their
respective successors and assigns hereunder.
15. Termination.
This Agreement shall terminate at the close of business on March 18,
2003. Notwithstanding the foregoing, this Agreement will terminate on any
earlier date when all Warrants have been exercised and all the Shares
issuable upon exercise of the Warrants have been resold to the public;
provided, however, that the provisions of Article 6 shall survive such
termination until the close of business on March 30, 2002.
16. Governing Law.
This Agreement and each Warrant Certificate hereunder shall be
governed by and interpreted in accordance with the laws of the State of
Delaware without regard to the principles of conflict of laws. Any
dispute or controversy between the parties arising in connection with this
Agreement or the subject matter contemplated by this Agreement shall be
resolved by arbitration before a three-member panel of the American
Arbitration Association in accordance with the commercial arbitration
rules of said forum and the Federal Arbitration Act, 9 U.S.C. 1 et seq.,
with the resulting award being final and conclusive. Said arbitrators
shall be empowered to award all forms of relief and damages claimed,
including, but not limited to, attorney's fees, expenses of litigation and
arbitration, exemplary damages, and prejudgment interest. The parties
further agree that any arbitration action between them shall be heard in
Atlanta, Georgia, and expressly consent to the jurisdiction and venue of
the Superior Court of Fulton County, Georgia, and the United States
District Court for the Northern District of Georgia, Atlanta Division for
the adjudication of any civil action asserted pursuant to this Paragraph.
17. Benefits of This Agreement.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Placement Agent and any other
registered holder or holders of the Warrant Certificates, Warrants or the
Shares any legal or equitable right, remedy or claim under this Agreement;
and this Agreement shall be for the sole and exclusive benefit of the
Company and the Placement Agent and any other holder or holders of the
Warrant Certificates, Warrants or the Shares.
18. Counterparts.
This Agreement may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original,
and such counterparts shall together constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
FINET HOLDINGS CORPORATION
By: /s/ L.
Daniel Rawitch
Name: L.
Daniel Rawitch
Title: CEO
Attest: /s/ D. Allen Malmuth
Name: D. Allen Malmuth
Title: Vice President
J.P. CAREY SECURITIES, INC.
By: /s/ John
C. Canouse
Name: John
C. Canouse
Title: Sr. V.P.
Attest: /s/ Cristie Mills
Name: Cristie Mills
Title: Admin. Asst
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES
ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR
SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER SUCH ACT
(OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF
SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO THE COMPANY OF AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER,
STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE
IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., PACIFIC STANDARD TIME, MARCH 18, 2003
No. 98-1 80,000 Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that J.P. Carey Securities, Inc.
("J.P. Carey") or registered assigns, is the registered holder of 80,000
Warrants to purchase, at any time from March 18, 1997, until 5:00 P.M.
Pacific Standard Time on March 18, 2003 ("Expiration Date"), up to 80,000
shares ("Shares") of fully-paid and non-assessable common stock, par value
$0.01 per share ("Common Stock"), of Finet Holdings Corporation, a
Delaware corporation (the "Company"), at the Initial Exercise Price,
subject to adjustment in certain events (the "Exercise Price"), of $5.71
per Share upon surrender of this Warrant Certificate and payment of the
Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the warrant agreement dated as of March
18, 1998, between the Company and J.P. Carey (the "Warrant Agreement").
Payment of the Exercise Price may be made in cash, or by certified or
official bank check in New York Clearing House funds payable to the order
of the Company, or any combination of cash or check.
No Warrant may be exercised after 5:00 P.M., Pacific Standard Time,
on the Expiration Date, at which time all Warrants evidenced hereby,
unless exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a
part of this instrument and is hereby referred to in a description of the
rights, limitation of rights, obligations, duties and immunities
thereunder of the Company and the holders (the words "holders" or "holder"
meaning the registered holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events, the Exercise Price and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In
such event, the Company will, at the, request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and
the number and/or type of securities issuable upon the exercise of the
Warrants; provided, however, that the failure of the Company to issue such
new Warrant Certificates shall not in any way change, alter, or otherwise
impair, the rights of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferees) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any
tax, or other governmental charge imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the
purpose of any exercise hereof, and of any distribution to the holder(s)
hereof, and for all other purposes, and the Company shall not be affected
by any notice to the contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed under its corporate seal.
Dated: _______________, 1998 FINET HOLDINGS CORPORATION
By:__________________________________________
Name:________________________________________
Title:________________________________________
Attest:_____________________
Name:_____________________
Title:______________________
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ____________ Shares
and herewith tenders in payment for such Shares cash or a certified or
official bank check payable in New York Clearing House Funds to the order
of _____________________ in the amount of $_______________, all in
accordance with the terms hereof. The undersigned requests that a
certificate for such Shares be registered in the name of
________________________whose address
is__________________________________________________, and that such
Certificate be delivered to ___________________________________________,
whose address is
_______________________________________________________________.
Dated: Signature:_________________________________
(Signature must
conform in all respects to name of holder as
specified on the face of the Warrant
Certificate.)
____________________________________
____________________________________
(Insert Social Security or Other
Identifying Number of Holder)
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ___________________________________________
hereby sells, assigns and transfers unto
__________________________________________________________________________
____
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint
___________________________________, Attorney, to transfer the within
Warrant Certificate on the books of the within-named Company, with full
power of substitution.
Dated: Signature:_________________________________
(Signature must
conform in all respects to name of holder as
specified on the face of the Warrant
Certificate)
_____________________________________
_____________________________________
(Insert Social Security or Other
Identifying Number of Assignee)
</TEXT?
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN
OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO
THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE
STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
FINET HOLDINGS CORPORATION
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: 98-2 Number of Shares:
100,000
Date of Issuance: March 18, 1998
Finet Holdings Corporation, a Delaware corporation (the "Company"), hereby
certifies that, for value received, Thomson & Kernahan & Co., Ltd., the
registered holder hereof or its assigns, is entitled, subject to the terms
set forth below, to purchase from the Company upon surrender of this
Warrant, at any time or times on or after the date hereof, but not after
5:00 P.M. Pacific Standard Time on the Expiration Date (as defined herein)
fully paid nonassessable shares of Common Stock (as defined herein) of the
Company (the "Warrant Shares") at the purchase price per share provided in
Section 1(b) below (the "Warrant Exercise Price"); provided, however, that
in no event shall the holder be entitled to exercise this Warrant for a
number of Warrant Shares in excess of that number of Warrant Shares which
would cause the aggregate number of shares of Common Stock beneficially
owned by the holder and its affiliates to exceed 4.9% of the outstanding
shares of the Common Stock following such exercise. For purposes of the
foregoing proviso the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates shall include the
number of shares of Common Stock issuable upon exercise of this Warrant
with respect to which the determination of such proviso is being made, but
shall exclude shares of Common Stock which would be issuable upon (i)
exercise of the remaining, unexercised Debenture Warrants (as defined
below) beneficially owned by the holder and its affiliates, and (ii)
conversion of the remaining, outstanding Debentures (as defined)
beneficially owned by the holder and its affiliates. Except as set forth
in the preceding sentence, for purposes of this paragraph, beneficial
ownership shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended.
Section 1.
(a) Securities Purchase Agreement. This Warrant is one of the
warrants (the "Debenture Warrants") issued pursuant to that certain
Securities Purchase Agreement dated as of March 18, 1998, among the
Company and the Buyers referred to therein.
(b) Definitions. The following words and terms as used in this
Warrant shall have the following meanings:
"Debentures" means the Company's 3% Convertible Debentures
issued as of the date hereof.
"Common Stock" means (i) the Company's common stock, par
value $0.01 per share, and (ii) any capital stock into which such Common
Stock shall have been changed or any capital stock resulting from a
reclassification of such Common Stock.
"Expiration Date" means the date three (3) years from the
date of this Warrant or, if such date falls on a Saturday, Sunday or other
day on which banks are required or authorized to be closed in the City of
Los Angeles or the State of California (a "Holiday"), the next preceding
date that is not a Holiday.
"Person" means an individual, a limited liability company,
a partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
"Securities Act" means the Securities Act of 1933, as
amended.
"Warrant" shall mean this warrant and all warrants issued
in exchange, transfer or replacement of any thereof.
"Warrant Exercise Price" shall be equal to $5.71 per share,
subject to adjustment as hereinafter provided.
(c) Other Definitional Provisions.
(i) Except as otherwise specified herein, all references
herein (A) to the Company shall be deemed to include the Company's
successors and (B) to any applicable law defined or referred to herein,
shall be deemed references to such applicable law as the same may have
been or may be amended or supplemented from time to time.
(ii) When used in this Warrant, the words "herein,"
"hereof," and "hereunder," and words of similar import, shall refer to
this Warrant as a whole and not to any provision of this Warrant, and the
words "Section," "Schedule," and "Exhibit" shall refer to Sections of, and
Schedules and Exhibits to, this Warrant unless otherwise specified.
(iii) Whenever the context so requires, the neuter
gender includes the masculine or feminine, and the singular number
includes the plural, and vice versa.
Section 2. Exercise of Warrant.
(a) Subject to the terms and conditions hereof, this Warrant
may be exercised by the holder hereof then registered on the books of the
Company, in whole or in part, at any time during normal business hours on
any business day on or after the opening of business on the date hereof
and prior to 5:00 P.M. Pacific Time on the Expiration Date by (i) delivery
of a written notice, in the form of the subscription notice attached as
Exhibit A hereto, of such holder's election to exercise this Warrant,
which notice shall specify the number of Warrant Shares to be purchased,
(ii) payment to the Company of an amount equal to the Warrant Exercise
Price multiplied by the number of Warrant Shares as to which the Warrant
is being exercised (plus any applicable issue or transfer taxes) (the
"Aggregate Exercise Price") in cash or by check or wire transfer, and
(iii) the surrender of this Warrant, at the principal office of the
Company; provided, that if such Warrant Shares are to be issued in any
name other than that of the registered holder of this Warrant, such
issuance shall be deemed a transfer and the provisions of Section 7 shall
be applicable. In the event of any exercise of the rights represented by
this Warrant in compliance with this Section 2(a), a certificate or
certificates for the Warrant Shares so purchased, in such denominations as
may be requested by the holder hereof and registered in the name of, or as
directed by, the holder, shall be delivered at the Company's expense to,
or as directed by, such holder as soon as practicable after such rights
shall have been so exercised, and in any event no later than five (5)
business days after such exercise. In the case of a dispute as to the
determination of the Warrant Exercise Price of a security or the
arithmetic calculation of the Warrant Shares, the Company shall promptly
issue to the holder the number of shares of Common Stock that is not
disputed and shall submit the disputed determinations or arithmetic
calculations to the holder via facsimile within one (1) day of receipt of
the holder's subscription notice. If the holder and the Company are unable
to agree upon the determination of the Warrant Exercise Price or
arithmetic calculation of the Warrant Shares within one (1) business day
of such disputed determination or arithmetic calculation being submitted
to the holder, then the Company shall immediately submit via facsimile (i)
the disputed determination of the Warrant Exercise Price to an
independent, reputable investment banking firm or (ii) the disputed
arithmetic calculation of the Warrant Shares to its independent, outside
accountant. The Company shall cause the investment banking firm or the
accountant, as the case may be, to perform the determinations or
calculations and notify the Company and the holder of the results no later
than forty-eight (48) hours from the time it receives the disputed
determinations or calculations. Such investment bank's or accountant's
determination or calculation, as the case may be, shall be deemed
conclusive absent manifest error.
(b) Unless the rights represented by this Warrant shall have
expired or shall have been fully exercised, the Company shall, as soon as
practicable and in any event no later than five (5) business days after
any exercise and at its own expense, issue a new Warrant identical in all
respects to the Warrant exercised except (i) it shall represent rights to
purchase the number of Warrant Shares purchasable immediately prior to
such exercise under the Warrant exercised, less the number of Warrant
Shares with respect to which such Warrant is exercised, and (ii) the
holder thereof shall be deemed for all corporate purposes to have become
the holder of record of such Warrant Shares immediately prior to the close
of business on the date on which the Warrant is surrendered and payment of
the amount due in respect of such exercise and any applicable taxes is
made, irrespective of the date of delivery of certificates evidencing such
Warrant Shares, except that, if the date of such surrender and payment is
a date when the stock transfer books of the Company are properly closed,
such person shall be deemed to have become the holder of such Warrant
Shares at the opening of business on the next succeeding date on which the
stock transfer books are open.
(c) No fractional shares of Common Stock are to be issued upon
the exercise of this Warrant, but rather the number of shares of Common
Stock issued upon exercise of this Warrant shall be rounded up or down to
the nearest whole number.
(d) If the Company shall fail for any reason or for no reason
to issue to a holder within five (5) business days after the time required
under this Section 2, a certificate for the number of shares of Common
Stock to which the holder is entitled upon the holder's exercise of this
Warrant or a new Warrant for the number of shares of Common Stock to which
such holder is entitled pursuant to Section 2(b) hereof, the Company
shall, in addition to any other remedies under this Agreement or otherwise
available to such holder including any indemnification pursuant to Section
8 of Securities Purchase Agreement, pay as additional damages in cash to
such holder for each day such issuance is not timely effected after the
fifth (5th) business day following the time required under this Section 2,
an amount equal to 1% of the product of (x) the number of shares of Common
Stock not issued to the holder and the number of shares of Common Stock
represented by the new Warrant not issued to the holder, on a timely basis
and to which such holder is entitled hereunder and (y) the Closing Bid
Price (as defined in the Certificate of Designations) of the Common Stock
on the last possible date which the Company could have issued such new
Warrant or shares of Common Stock to such holder without violating this
Section 2.
Section 3. Covenants as to Common Stock. The Company hereby
covenants and agrees as follows:
(a) This Warrant is, and any Debenture Warrants issued in
substitution for or replacement of this Warrant will upon issuance be,
duly authorized and validly issued.
(b) All Warrant Shares which may be issued upon the exercise of
the rights represented by this Warrant will, upon issuance, be validly
issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue thereof.
(c) During the period within which the rights represented by
this Warrant may be exercised, the Company will at all times have
authorized and reserved at least the number of shares of Common Stock
needed to provide for the exercise of the rights then represented by this
Warrant and the par value of said shares will at all times be less than or
equal to the applicable Warrant Exercise Price.
(d) The Company shall promptly secure the listing of the shares
of Common Stock issuable upon exercise of this Warrant upon each national
securities exchange or automated quotation system, if any, upon which
shares of Common Stock are then listed (subject to official notice of
issuance upon exercise of this Warrant) and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all
shares of Common Stock from time to time issuable upon the exercise of
this Warrant; and the Company shall so list on each national securities
exchange or automated quotation system, as the case may be, and shall
maintain such listing of, any other shares of capital stock of the Company
issuable upon the exercise of this Warrant if and so long as any shares of
the same class shall be listed on such national securities exchange or
automated quotation system.
(e) The Company will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed by it
hereunder, but will at all times in good faith assist in the carrying out
of all the provisions of this Warrant and in the taking of all such action
as may reasonably be requested by the holder of this Warrant in order to
protect the exercise privilege of the holder of this Warrant against
dilution or other impairment, consistent with the tenor and purpose of
this Warrant. No impairment of the designations, preferences and rights of
the Debenture contained in the Certificate of Designations or any waiver
thereof which has an adverse effect on the rights granted hereunder shall
be given effect until the Company has taken appropriate action
(satisfactory to the holders of Debenture Warrants representing a majority
of the shares of Common Stock issuable upon the exercise of such Debenture
Warrants then outstanding) to avoid such adverse effect with respect to
this Warrant. Without limiting the generality of the foregoing, the
Company (i) will not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then
in effect, and (ii) will take all such actions as may be necessary or
appropriate in order that the Company may validly and legally issue fully
paid and nonassessable shares of Common Stock upon the exercise of this
Warrant.
(f) This Warrant will be binding upon any entity succeeding to
the Company by merger, consolidation or acquisition of all or
substantially all of the Company's assets.
Section 4. Taxes. The Company shall not be required to pay any
tax or taxes attributable to the initial issuance of the Warrant Shares or
any permitted transfer involved in the issue or delivery of any
certificates for Warrant Shares in a name other than that of the
registered holder hereof or upon any permitted transfer of this Warrant.
Section 5. Warrant Holder Not Deemed a Stockholder. Except as
otherwise specifically provided herein, no holder, as such, of this
Warrant shall be entitled to vote or receive dividends or be deemed the
holder of shares of the Company for any purpose, nor shall anything
contained in this Warrant be construed to confer upon the holder hereof,
as such, any of the rights of a stockholder of the Company or any right to
vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive
dividends or subscription rights, or otherwise, prior to the issuance to
the holder of this Warrant of the Warrant Shares which he or she is then
entitled to receive upon the due exercise of this Warrant. In addition,
nothing contained in this Warrant shall be construed as imposing any
liabilities on such holder to purchase any securities or as a stockholder
of the Company, whether such liabilities are asserted by the Company or by
creditors of the Company. Notwithstanding this Section 5, the Company will
provide the holder of this Warrant with copies of the same notices and
other information given to the stockholders of the Company generally,
contemporaneously with the giving thereof to the stockholders.
Section 6. Representations of Holder. The holder of this Warrant,
by the acceptance hereof, represents that it is acquiring this Warrant and
the Warrant Shares for its own account for investment and not with a view
to, or for sale in connection with, any distribution hereof or of any of
the shares of Common Stock or other securities issuable upon the exercise
thereof, and not with any present intention of distributing any of the
same. The holder of this Warrant further represents, by acceptance
hereof, that, as of this date, such holder is an "accredited investor" as
such term is defined in Rule 501(a)(1) of Regulation D promulgated by the
Securities and Exchange Commission under the Securities Act (an
"Accredited Investor"). Upon exercise of this Warrant, the holder shall,
if requested by the Company, confirm in writing, in a form satisfactory to
the Company, that the Warrant Shares so purchased are being acquired
solely for the holder's own account and not as a nominee for any other
party, for investment, and not with a view toward distribution or resale
and that such holder is an Accredited Investor. If such holder cannot make
such representations because they would be factually incorrect, it shall
be a condition to such holder's exercise of the Warrant that the Company
receive such other representations as the Company considers reasonably
necessary to assure the Company that the issuance of its securities upon
exercise of the Warrant shall not violate any United States or state
securities laws.
Section 7. Ownership and Transfer.
(a) The Company shall maintain at its principal executive
offices (or such other office or agency of the Company as it may designate
by notice to the holder hereof), a register for this Warrant, in which the
Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each
transferee. The Company may treat the person in whose name any Warrant is
registered on the register as the owner and holder thereof for all
purposes, notwithstanding any notice to the contrary, but in all events
recognizing any transfers made in accordance with the terms of this
Warrant.
(b) This Warrant and the rights granted to the holder hereof
are transferable, in whole or in part, upon surrender of this Warrant,
together with a properly executed warrant power in the form of Exhibit B
attached hereto; provided, however, that any transfer or assignment shall
be subject to the conditions set forth in Section 7(c) below.
(c) The holder of this Warrant understands that this Warrant
has not been and is not expected to be, registered under the Securities
Act or any state securities laws, and may not be offered for sale, sold,
assigned or transferred unless (a) subsequently registered thereunder, or
(b) such holder shall have delivered to the Company an opinion of counsel,
reasonably satisfactory in form, scope and substance to the Company, to
the effect that the securities to be sold, assigned or transferred may be
sold, assigned or transferred pursuant to an exemption from such
registration; (i) any sale of such securities made in reliance on Rule 144
promulgated under the Securities Act may be made only in accordance with
the terms of said Rule and further, if said Rule is not applicable, any
resale of such securities under circumstances in which the seller (or the
person through whom the sale is made) may be deemed to be an underwriter
(as that term is defined in the Securities Act) may require compliance
with some other exemption under the Securities Act or the rules and
regulations of the Securities and Exchange Commission thereunder; and (ii)
neither the Company nor any other person is under any obligation to
register the Debenture Warrants under the Securities Act or any state
securities laws or to comply with the terms and conditions of any
exemption thereunder.
(d) The Company is obligated to register the Warrant Shares for
resale under the Securities Act pursuant to the Registration Rights
Agreement dated March 1998 by and between the Company and the Buyers
listed on the signature page thereto (the "Registration Rights Agreement")
and the initial holder of this Warrant (and certain assignees thereof) is
entitled to the registration rights in respect of the Warrant Shares as
set forth in the Registration Rights Agreement.
Section 8. Adjustment of Warrant Exercise Price. In order to
prevent dilution of the rights granted under this Warrant, the Warrant
Exercise Price shall be adjusted from time to time as follows:
(a) Adjustment of Warrant Exercise Price upon Subdivision or
Combination of Common Stock. If the Company at any time after the date of
issuance of this Warrant, subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding
shares of Common Stock into a greater number of shares, the Warrant
Exercise Price in effect immediately prior to such subdivision will be
proportionately reduced and the number of shares of Common Stock
obtainable upon exercise of this Warrant will be proportionately
increased. If the Company at any time after the date of issuance of this
Warrant combines (by combination, reverse stock split or otherwise) one or
more classes of its outstanding shares of Common Stock into a smaller
number of shares, the Warrant Exercise Price in effect immediately prior
to such combination will be proportionately increased and the number of
shares of Common Stock obtainable upon exercise of this Warrant will be
proportionately decreased.
(b) Reorganization, Reclassification, Consolidation, Merger or
Sale. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's
assets to another Person (as defined below) or other similar transaction
which is effected in such a way that holders of Common Stock are entitled
to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is
referred to herein as "Organic Change." Prior to the consummation of any
Organic Change, the Company will make appropriate provision (in form and
substance satisfactory to the holders of the Debenture Warrants
representing a majority of the shares of Common Stock issuable upon
exercise of such Debenture Warrants then outstanding) to insure that each
of the holders of the Debenture Warrants will thereafter have the right to
acquire and receive in lieu of or in addition to (as the case may be) the
shares of Common Stock immediately theretofore acquirable and receivable
upon the exercise of such holder's Debenture Warrants, such shares of
stock, securities or assets as may be issued or payable with respect to or
in exchange for the number of shares of Common Stock immediately
theretofore acquirable and receivable upon the exercise of such holder's
Debenture Warrants had such Organic Change not taken place. In any such
case, the Company will make appropriate provision (in form and substance
satisfactory to the holders of the Debenture Warrants representing a
majority of the shares of Common Stock issuable upon exercise of such
Debenture Warrants then outstanding) with respect to such holders' rights
and interests to insure that the provisions of this Section 8 and Section
9 below will thereafter be applicable to the Debenture Warrants. The
Company will not effect any such consolidation, merger or sale, unless
prior to the consummation thereof, the successor entity (if other than the
Company) resulting from consolidation or merger or the entity purchasing
such assets assumes, by written instrument (in form and substance
satisfactory to the holders of Debenture Warrants representing a majority
of shares of Common Stock issuable upon exercise of the Debenture Warrants
then outstanding), the obligation to deliver to each holder of Debenture
Warrants such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holder may be entitled to acquire.
(c) Notices.
(i) Immediately upon any adjustment of the Warrant
Exercise Price, the Company will give written notice thereof to the holder
of this Warrant, setting forth in reasonable detail and certifying the
calculation of such adjustment.
(ii) The Company will give written notice to the holder of
this Warrant at least twenty (20) days prior to the date on which the
Company closes its books or takes a record (A) with respect to any
dividend or distribution upon the Common Stock, (B) with respect to any
pro rata subscription offer to holders of Common Stock or (c) for
determining rights to vote with respect to any Organic Change, dissolution
or liquidation, except that in no event shall such notice be provided to
such holder prior to such information being made known to the public.
(iii) The Company will also give written notice to the
holder of this Warrant at least twenty (20) days prior to the date on
which any Organic Change, dissolution or liquidation will take place.
Section 9. Purchase Rights. If at any time the Company grants,
issues or sells any options, Convertible Securities or rights to purchase
stock, warrants, securities or other property pro rata to the record
holders of any class of Common Stock (the "Purchase Rights"), then the
holder of this Warrant will be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which
such holder could have acquired if such holder had held the number of
shares of Common Stock acquirable upon complete exercise of this Warrant
immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights, or, if no such record is taken,
the date as of which the record holders of Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights.
Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this
Warrant is lost, stolen, mutilated or destroyed, the Company shall, on
receipt of an indemnification undertaking, issue a new Warrant of like
denomination and tenor as the Warrant so lost, stolen, mutilated or
destroyed.
Section 11. Notice. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Warrant must be in writing and will be deemed to have been delivered (i)
upon receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile, provided a copy is mailed by U.S. certified mail, return
receipt requested; (iii) three (3) days after being sent by U.S. certified
mail, return receipt requested; or (iv) one (1) day after deposit with a
nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile
numbers for such communications shall be:
If to the Company:
Finet Holdings Corporation
3021 Citrus Circle
Walnut Creek, California 94598
Attention: President
Telephone: (510) 934-2900
Facsimile: (510) 934-2903
With a copy to:
Roger S. Mertz, Esq.
Severson & Werson
Suite 2600
One Embarcaderro Center
San Francisco, California 94111
Telephone: (415) 398-3344
Facsimile: (415) 956-0439
If to a holder of this Warrant, to it at the address
set forth below such holder's signature on the
signature page hereof.
Each party shall provide five (5) days' prior written notice to the other
party of any change in address or facsimile number.
Section 12. Miscellaneous. This Warrant and any term hereof may be
changed, waived, discharged, or terminated only by an instrument in
writing signed by the party or holder hereof against which enforcement of
such change, waiver, discharge or termination is sought. The headings in
this Warrant are for convenience of reference only and shall not limit or
otherwise affect the meaning hereof. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of Delaware
without regard to the principles of conflict of laws. The holder shall be
entitled to pursue a claim for specific performance of this Agreement, and
Company hereby waives the right to assert any defense thereto that the
holder hereof has an adequate remedy at law. The parties expressly
consent to the jurisdiction and venue of the Superior Court of Contra
Costa County, California, and the United States District Court for the
Northern District of California for the adjudication of any civil action
asserted pursuant to this paragraph.
Section 13. Date. The date of this Warrant is March 18, 1998.
This Warrant, in all events, shall be wholly void and of no effect after
the close of business on the Expiration Date, except that notwithstanding
any other provisions hereof, the provisions of Section 7 shall continue in
full force and effect after such date as to any Warrant Shares or other
securities issued upon the exercise of this Warrant.
* * * *
FINET HOLDINGS CORPORATION
By: /s/ L. Daniel Rawitch
Name: L. Daniel Rawitch
CEO
ACCEPTED:
DOMINION CAPITAL FUND, LTD
By: /s/ Mark Valentine
Name: Mark Valentine
Title: Agent
Address: c/o Thomson Kernahan & Co., Ltd.
365 Bay Street, 10th Floor
Toronto Ontario MSH-202
CANADA
SOVEREIGN PARTNERS, LTD
By: /s/ Mark Valentine
Name: Mark Valentine
Title: Agent
Address: c/o Thomson Kernahan & Co., Ltd.
365 Bay Street, 10th Floor
Toronto Ontario MSH-202
CANADA
ATLANTIS CAPITAL FUND, LTD
By: /s/ Mark Valentine
Name: Mark Valentine
Title: Agent
Address: c/o Thomson Kernahan & Co., Ltd.
365 Bay Street, 10th Floor
Toronto Ontario MSH-202
CANADA
EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
FINET HOLDINGS CORPORATION
The undersigned hereby exercises the right to purchase the number of
Warrant Shares covered by this Warrant specified below according to the
conditions thereof and herewith makes payment therefor in the amount of
$____________________, the Aggregate Exercise Price of such Warrant Shares
in full, and requests that such Warrant Shares be issued in the name of:
[HOLDER]
Dated: ________________
By:
__________________________________________
Name:
________________________________________
Title:
_________________________________________
Address:
______________________________________
______________________________________
______________________________________
Number of Warrant Shares
Being Purchased: _____________________
EXHIBIT B TO WARRANT
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
______________________________, Federal Identification No.
__________________, a warrant to purchase ______________ shares of the
capital stock of FINET HOLDINGS CORPORATION, a Delaware corporation,
represented by warrant certificate No. ________, standing in the name of
the undersigned on the books of said corporation. The undersigned does
hereby irrevocably constitute and appoint
______________________________________________, attorney to transfer the
warrants of said corporation, with full power of substitution in the
premises.
Dated: ___________________ _________________________________________
By: ______________________________________
Its: ______________________________________
ESCROW AGREEMENT
THIS ESCROW AGREEMENT, dated as of the 18th day of March 1998
("Escrow Agreement") is by and among FINET HOLDINGS CORPORATION, a
Delaware corporation ("Issuer"), the subscribers listed on Exhibit A
attached hereto (each a "Subscriber" and collectively the "Subscribers");
and WACHOVIA BANK , N.A., as Escrow Agent hereunder ("Escrow Agent" or
"Wachovia").
BACKGROUND
A. Issuer has engaged J.P. Carey Securities, Inc., a Georgia
corporation ("Placement Agent") to assist it in locating qualified
investors to purchase up to $7,000,000 principal amount of 3% Convertible
Debentures (the "Debentures") convertible into shares of common stock of
the Issuer in one or more closings, pursuant to the form of the Securities
Purchase Agreement attached hereto as Exhibit B (collectively the
"Subscription Agreements" and individually a "Subscription Agreement").
B. In accordance with the Subscription Agreements, Subscribers for
the Debentures will be required to submit full payment for their
respective investments at the time they execute the Subscription
Agreements.
C. All payments shall be received by Escrow Agent in connection
with subscriptions for Debentures, and Escrow Agent shall agree to accept,
hold, and disburse such funds deposited with it and the earnings thereon
in accordance with the terms of this Escrow Agreement.
D. In order to establish the escrow of funds and to effect the
consummation of the transaction contemplated by the Subscription
Agreements, the parties hereto have entered into this Escrow Agreement.
STATEMENT OF AGREEMENT
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, for
themselves, their successors and assigns, hereby agree as follows:
1. Definitions. The following terms shall have the following
meanings when used herein:
"Cash Investment" shall mean the principal amount of Debentures
to be purchased by any Subscriber as set forth in the Subscription
Agreements.
"Cash Investment Instrument" shall mean a wire transfer of
immediately available funds deposited in the "Finet Holdings Corporation,
Private Placement-Escrow Account," in full payment for the Debentures to
be purchased by any Subscriber.
"Escrow Funds" shall mean the funds deposited with the Escrow
Agent pursuant to this Agreement.
"Entire Offering" shall mean, under the Subscription
Agreements, the sale of $7,000,000 in principal amount of Debentures
in one Closing unless the Company agrees to close the offering with
more or less than such amount of Debentures.
"Offering Notice" shall mean a written notification, signed
by Placement Agent, which shall specify that subscriptions for at
least $4,000,000 in aggregate amount the "Minimum Securities" or
thereafter any additional subscriptions up to an aggregate principal
amount of $7,000,000, have been received; that, to the best of
Placement Agent's knowledge after due inquiry and review of its
records, Cash Investment Instruments in full payment for that number
of Debentures equal to the such subscription amounts have been
received, deposited with and collected by Escrow Agent; and that such
subscriptions have not been withdrawn, rejected or otherwise
terminated.
"Subscription Accounting" shall mean an accounting of all
subscriptions for Debentures received from Placement Agent and
accepted by Escrow Agent as of the date of such accounting, which
shall be accepted by the Company, indicating for each subscription
the Subscriber's name and address, the number and total purchase
price of subscribed Debentures and Warrants, the date of receipt by
Escrow Agent of the Cash Investment Instrument, and notations of any
nonpayment of the Cash Investment Instrument submitted with such
subscription, any withdrawal of such subscription by the Subscriber,
any rejection of such subscription by the Company or Escrow Agent, or
other termination, for whatever reason, of such subscription and any
disbursements to be made at Closing.
2. Appointment of and Acceptance by Escrow Agent. Issuer and
Subscribers hereby appoint Escrow Agent to serve as escrow agent
hereunder, and Escrow Agent hereby accepts such appointment in
accordance with the terms of this Escrow Agreement.
3. Deposits into Escrow.
a. All Cash Investment Instruments for the purchase of
Debentures shall be deposited into the following escrow account:
Bank: Wachovia Bank , N.A.
Account Name: Finet Holdings Corporation, Private
Placement
Account No.: 12274112
ABA Routing No.: 061000010
ATTN: David E. Burnstein
Re: Finet Holdings Corporation, Private
Placement
Notify: (770) 763-5003
Each such deposit shall be accompanied by the following documents:
(1) a report containing such Subscriber's name, taxpayer
identification number, address and other information
required for withholding purposes such as either U.S.
Treasury Department Form W-9 or other applicable form,
e.g., W-8; and
(2) a Subscription Accounting.
ALL FUNDS SO DEPOSITED SHALL REMAIN THE PROPERTY OF THE
SUBSCRIBERS ACCORDING TO THEIR RESPECTIVE INTERESTS AND SHALL NOT BE
SUBJECT TO ANY LIEN OR CHARGE BY ESCROW AGENT OR BY JUDGMENT OR CREDITORS'
CLAIMS AGAINST ISSUER UNTIL RELEASED TO ISSUER IN ACCORDANCE WITH SECTION
4(a) HEREOF.
b. Escrow Agent and Issuer understand and agree that
Subscribers will transmit available funds by wire transfer only and upon
receipt by Escrow Agent hereunder said funds are subject to collection
requirements of presentment and final payment, and that the funds
represented thereby cannot be drawn upon or disbursed until such time as
final payment has been made and is no longer subject to dishonor. Upon
receipt, Escrow Agent shall process each Cash Investment Instrument for
collection, and the proceeds thereof shall be held as part of the Escrow
Funds until disbursed in accordance with Section 4 hereof. If, upon
presentment for payment, any Cash Investment Instrument is dishonored,
Escrow Agent's sole obligation shall be to notify Issuer of such dishonor
and to return such Cash Investment Instrument to Subscriber.
Notwithstanding the foregoing, if for any reason any Cash Investment
Instrument is uncollectible after payment of the funds represented thereby
has been made by Escrow Agent in accordance with this Agreement, Issuer
shall immediately reimburse Escrow Agent upon receipt from Escrow Agent of
written notice thereof.
Upon receipt of any Cash Investment Instrument that represents
payment less than or greater than the Cash Investment, Escrow Agent's sole
obligation shall be to notify Issuer and Subscribers of such fact and to
return such Cash Investment Instrument to Subscriber.
c. All Cash Investment Instruments shall be immediately
available funds sent by wire transfer to the "Finet Holdings Corporation,
Private Placement - Escrow Account," and Escrow Agent shall not be
obligated to accept, or present for payment, any Cash Investment
Instrument that is not payable in that manner.
4. Disbursements of Escrow Funds.
a. Completion of Offering. Subject to the provisions of
Section 10 hereof, Escrow Agent shall pay to Issuer the Escrow Funds, less
a one time fee of $500.00 for fees and expenses owed Escrow Agent, less
the agreed amount of Placement Agent's fee (as stated in the Placement
Agent Agreement and accepted by Issuer), which is 7% of the Cash
Investment, a non-accountable expense allowance equal to 1/2 of 1% of the
Cash Investment, plus warrants to purchase the Common Stock of the issuer
and the fees and expenses of Placements Agent's legal counsel, by wire
transfer, promptly after receipt of the following documents:
(1) An Offering Notice;
(2) Subscription Accounting;
(3) Securities Purchase Agreement signed by all parties;
(4) Debenture Certificates for each Subscriber;
(5) Warrant Certificates for each Subscriber; and
(6) Such other certificates, notices or other documents as
Escrow Agent, in its discretion, shall reasonably require.
Notwithstanding the foregoing, Escrow Agent shall not be
obligated to disburse the Escrow Funds to Issuer if Escrow Agent has
grounds to believe that (a) Cash Investment Instruments in full payment
for that number of Debentures equal to or greater than the minimum amount
for such particular closing have not been received, deposited with and
collected by the Escrow Agent, subject to the right of Issuer and the
Subscribers to consummate the sale of some, but not all, of the Debentures
at such closing or (b) any of the certifications and opinions set forth in
the documents delivered to Escrow Agent are materially incorrect or
incomplete. Prior to disbursing any Escrow Funds or debenture
certificates, Escrow Agent shall be entitled, in its reasonable
discretion, to require any additional written certificates or
authorizations that it deems necessary or desirable.
b. Rejection of any Subscription or Termination of the
Offering. No later than fifteen (15) business days after receipt by
Escrow Agent of written notice (i) from Issuer or Placement Agent that
Issuer intends to reject a Subscriber's subscription, or (ii) from Issuer
or Placement Agent that there will be no closing of the sale of Debentures
to Subscribers, Escrow Agent shall pay to the applicable Subscribers, by
certified or bank check and by first class mail, the amount of the Cash
Investment paid by each Subscriber, without interest or deduction.
c. Expiration of Offering Period. Notwithstanding anything to
the contrary contained herein, if Escrow Agent shall not have received an
Offering Notice on or before April 30, 1998, in the case of the first
closing, and as mutually agreed on with respect to future closings, Escrow
Agent shall, within fifteen (15) business days after such date and without
any further instruction or direction from Placement Agent or Issuer,
return to each Subscriber, by certified or bank check and by first class
mail, the Cash Investment made by such Subscriber, without interest or
deduction.
5. Suspension of Performance or Disbursement Into Court. If, at
any time, there shall exist any dispute between Placement Agent, Issuer,
Escrow Agent, any Subscriber or any other person with respect to the
holding or disposition of any portion of the Escrow Funds or any other
obligations of Escrow Agent hereunder, or if at any time Escrow Agent is
unable to determine, to Escrow Agent's sole satisfaction, the proper
disposition of any portion of the Escrow Funds or Escrow Agent's proper
actions with respect to its obligations hereunder, then Escrow Agent may,
in its sole discretion, take either or both of the following actions:
a. suspend the performance of any of its obligations under
this Escrow Agreement until such dispute or uncertainty
shall be resolved to the sole satisfaction of Escrow Agent
or until a successor Escrow Agent shall have been appointed
(as the case may be); and/or
b. petition (by means of an interpleader action or any other
appropriate method) any court of competent jurisdiction in
Atlanta, Georgia, for instructions with respect to such
dispute or uncertainty, and pay into such court all funds
held by it for holding and disposition in accordance with
the instructions of such court.
Escrow Agent shall have no liability to Placement Agent, Issuer, any
Subscriber or any other person with respect to any such suspension of
performance or disbursement into court, specifically including any
liability or claimed liability that may arise, or be alleged to have
arisen, out of or as a result of any delay in the disbursement of funds
held in the Escrow Funds or any delay in or with respect to any other
action required or requested of Escrow Agent.
6. Investment of Funds. Escrow Agent shall not invest or reinvest
the Escrow Funds. The parties to this Escrow Agreement acknowledge that
no interest shall accrue or be paid with respect to the Escrow Funds.
7. Removal of Escrow Agent. Escrow Agent may be removed, with or
without cause, by Issuer and Subscriber, acting jointly, in writing, at
any time by the giving of ten (10) days' prior written notice to Escrow
Agent. Such removal shall take effect upon the appointment of a successor
Escrow Agent as provided hereinbelow. Upon any such notice of removal,
Issuer shall appoint a successor Escrow Agent hereunder, which shall be a
commercial bank, trust company or other financial institution with a
combined capital and surplus in excess of $100,000,000. Upon the
acceptance in writing of any appointment as Escrow Agent hereunder by a
successor Escrow Agent, such successor Escrow Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Escrow Agent, and the retiring Escrow Agent shall
be discharged from its duties and obligations under this Escrow Agreement.
After any retiring Escrow Agent's removal, the provisions of this Escrow
Agreement shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Escrow Agent under this Escrow Agreement.
8. Liability of Escrow Agent.
a. Escrow Agent's sole responsibility shall be for the
safekeeping and disbursement of the Escrow Funds and Debenture
Certificates in accordance with the terms of this Escrow Agreement.
Escrow Agent shall have no implied duties or obligations and shall not be
charged with knowledge or notice of any fact or circumstance not
specifically set forth herein.
b. The Escrow Agent shall not be liable for any error of
judgment, or for any act done or step taken or omitted by it in good
faith, or for any mistake of fact or law, or for anything which it may do
or refrain from doing in connection herewith, except for its own gross
negligence or willful misconduct.
c. The Escrow Agent shall be entitled to rely and act upon any
notice, request, waiver, consent, receipt, or other paper or document
furnished to it (including, but not limited to, the Transaction Documents
(as defined below), not only as to its due execution and the validity and
effectiveness of its provisions, but also as to the truth and accuracy of
any information contained therein. The Escrow Agent is also relieved from
the necessity of satisfying itself as to the authority of any person
executing this Agreement or any other agreement contemplated by the
Closing, including, but not limited to the Subscription Agreements, the
Debentures, the Warrants, the Offering Notice (collectively the
"Transaction Documents") or as to the authenticity of any signature to
this Agreement or the Transaction Documents.
d. In no event shall Escrow Agent be liable for incidental,
indirect, special, consequential or punitive damages. Escrow Agent shall
not be obligated to take any legal action or commence any proceeding in
connection with the Escrow Funds or any account in which Escrow Funds are
deposited or this Escrow Agreement, or to appear in, prosecute or defend
any such legal action or proceeding. Without limiting the generality of
the foregoing, Escrow Agent shall not be responsible for or required to
enforce any of the terms or conditions of any subscription agreement with
any Subscriber or any other agreement between Issuer, Placement Agent
and/or any Subscriber. Escrow Agent shall not be responsible or liable in
any manner for the performance by Issuer or any Subscriber of their
respective obligations under any subscription agreement nor shall Escrow
Agent be responsible or liable in any manner for the failure of Issuer,
Placement Agent or any third party (including any Subscriber) to honor any
of the provisions of this Escrow Agreement. Escrow Agent may consult
legal counsel selected by it in the event of any dispute or question as to
the construction of any of the provisions hereof or of any other agreement
or of its duties hereunder, and shall incur no liability and shall be
fully indemnified from any liability whatsoever in acting in accordance
with the opinion or instruction of such counsel. Issuer shall promptly
pay, upon demand, the reasonable fees and expenses of any such counsel.
e. The Escrow Agent is authorized, in its sole discretion, to
comply with orders issued or process entered by any court with respect to
the Escrow Funds, without determination by the Escrow Agent of such
court's jurisdiction in the matter. If any portion of the Escrow Funds is
at any time attached, garnished or levied upon under any court order, or
in case the payment, assignment, transfer, conveyance or delivery of any
such property shall be stayed or enjoined by any court order, or in case
any order, judgment or decree shall be made or entered by any court
affecting such property or any part thereof, then and in any such event,
the Escrow Agent is authorized, in its sole discretion, to rely upon and
comply with any such order, writ, judgment or decree without the need for
appeal or other action; and if the Escrow Agent complies with any such
order, writ, judgment or decree, it shall not be liable to any of the
parties hereto or to any other person or entity by reason of such
compliance even though such order, writ, judgment or decree may be
subsequently reversed, modified, annulled, set aside or vacated.
9. Indemnification of Escrow Agent. From and at all times after
the date of this Escrow Agreement, Issuer and each Subscriber (each an
"Indemnifying Party") shall, severally and not jointly, to the fullest
extent permitted by law, indemnify and hold harmless the Escrow Agent and
each director, officer, employee, attorney, agent and affiliate of Escrow
Agent (collectively, the "Indemnified Parties") against any and all
actions, claims (whether or not valid), losses, damages, liabilities,
costs and expenses of any kind or nature whatsoever (including without
limitation reasonable attorneys' fees, costs and expenses) incurred by or
asserted against any of the Indemnified Parties from and after the date
hereof, whether direct, indirect or consequential, as a result of or
arising from or in any way relating to any claim, demand, suit, action or
proceeding (including any inquiry or investigation) by any person other
than the Placement Agent, including without limitation Issuer, whether
threatened or initiated, asserting a claim for any legal or equitable
remedy against any person under any statute or regulation, including, but
not limited to, any federal or state securities laws, or under any common
law or equitable cause or otherwise, arising from or in connection with
the negotiation, preparation, execution, performance or failure of
performance of this Escrow Agreement or any transactions contemplated
herein, whether or not any such Indemnified Party is a party to any such
action, proceeding, suit or the target of any such inquiry or
investigation; provided, however, that no Indemnified Party shall have the
right to be indemnified hereunder for any liability finally determined by
a court of competent jurisdiction, subject to no further appeal, to have
resulted solely from the gross negligence or willful misconduct of such
Indemnified Party. If any such action or claim shall be brought or
asserted against any Indemnified Party, such Indemnified Party shall
promptly notify the Indemnifying Party in writing, and the Indemnifying
Party shall assume the defense thereof, including the employment of
counsel and the payment of all expenses. Such Indemnified Party shall, in
its sole discretion, have the right to employ separate counsel (who may be
selected by such Indemnified Party in its sole discretion) in any such
action and to participate in the defense thereof, and the fees and
expenses of such counsel shall be paid by such Indemnified Party, except
that the Indemnifying Party shall be required to pay such fees and
expenses if (a) the Indemnifying Party agrees to pay such fees and
expenses, (b) the Indemnifying Party shall fail to assume the defense of
such action or proceeding or shall fail, in the reasonable discretion of
such Indemnified Party, to employ counsel satisfactory to the Indemnified
Party in any such action or proceeding, (c) the Indemnifying Party is the
plaintiff in any such action or proceeding, or (d) the named parties to
any such action or proceeding (including any impleaded parties) include
both Indemnified Party and the Indemnifying Party, and Indemnified Party
shall have been advised by counsel that there may be one or more legal
defenses available to it which are different from or additional to those
available to Indemnifying Party. Indemnifying Party shall be liable to
pay fees and expenses of counsel pursuant to the preceding sentence. All
such fees and expenses payable by the Indemnifying Party pursuant to the
foregoing sentence shall be paid from time to time as incurred, both in
advance of and after the final disposition of such action or claim. The
obligations of each Indemnifying Party under this Section 9 shall survive
any termination of this Escrow Agreement and the removal of Escrow Agent.
10. Compensation to Escrow Agent. Issuer shall compensate Escrow
Agent for its services hereunder by making the payments set forth on
Exhibit C attached hereto. The obligations of Issuer under this Section
10 shall survive any termination of this Escrow Agreement and the
resignation or removal of Escrow Agent.
11. Representations and Warranties.
a. Issuer makes the following representations and warranties to
Escrow Agent:
(1) Issuer is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware,
and has full power and authority to execute and deliver this Escrow
Agreement and to perform its obligations hereunder.
(2) This Escrow Agreement has been duly approved by all
necessary corporate action of Issuer, including any necessary shareholder
approval, has been executed by duly authorized officers of Issuer, and
constitutes a valid and binding agreement of Issuer, enforceable in
accordance with its terms; provided, however that enforceability is
subject to: (i) applicable bankruptcy, reorganization, insolvency,
moratorium, fraudulent conveyance, and similar federal and state laws
affecting the rights and remedies of creditors generally, and (ii) general
principles of equity limiting the availability of equitable remedies
(including but not limited to the rove written.
"THE COMPANY"
FINET HOLDINGS CORPORATION
By: /s/ L. Daniel Rawitch
L. Daniel Rawitch
Title: CEO
J.P. CAREY SECURITIES, INC.
By /s/ John C. Canouse
John C Canouse
Sr. V.P.
Attest: /s/ Cristie Mills
Name: Cristie Mills
Title: Admin. Asst
