SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 2, 1996
WESTERN FIDELITY FUNDING, INC.
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(Exact name of registrant as specified in its charter)
Colorado 0-27156 84-1148454
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(State or other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation) Identification No.)
4704 Harlan Street, Suite 260, Denver, Colorado 80212
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (303) 477-8404
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Item 5. OTHER EVENTS.
On August 2, 1996, Western Fidelity Funding, Inc. ("Company") obtained the
net proceeds of a $10,000,000 unsecured subordinated loan from a financial
institution. The approximately $9,600,000 net proceeds from the loan will be
used by the Company to purchase automobile retail installment contracts and
vehicle inventories and as working capital.
Under the terms of the loan, interest only is paid quarterly during the
first two years at a rate of 12% per annum and, thereafter, the principal and
interest are payable quarterly until July 31, 2001, when the balance is due. The
Company also issued five year warrants to purchase 263,750 shares of common
stock at $3.93 per share to the placement agent in connection with the loan.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements.
Not applicable.
(b) Pro forma financial information.
Not applicable.
(c) Exhibits.
Exhibit 10.1 Facilities Agreement and Subscription dated July
31, 1996.
Exhibit 10.2 12% Subordinated Note Due July 31, 2001.
Exhibit 10.3 Selling Agent's Class A Common Stock Purchase
Warrant dated July 31, 1996.
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SIGNATURES
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 hereunto duly authorized.
Date: August 2, 1996
WESTERN FIDELITY FUNDING, INC.
By /s/ Gene E. Osborn
----------------------------
Gene E. Osborn, President
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EXHIBIT INDEX
Exhibit Description Page No.
10.1 Facilities Agreement and Subscription dated
July 31, 1996.
10.2 12% Subordinated Note Due July 31, 2001.
10.3 Selling Agent's Class A Common Stock Purchase
Warrant dated July 31, 1996.
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WESTERN FIDELITY FUNDING, INC.
FACILITIES AGREEMENT AND SUBSCRIPTION
THIS FACILITIES AGREEMENT AND SUBSCRIPTION ("Agreement") sets forth certain
agreements of the undersigned ("Subscriber"), Western Fidelity Funding, Inc., a
Colorado corporation ("Company"), and Western International Securities, Inc., a
Colorado corporation ("Selling Agent"), with respect to the issuance by the
Company to the Subscriber of a promissory note, dated July 31, 1996, in the
principal amount of $10,000,000.00 (the "Note").
1. Subscription. The Subscriber hereby subscribes and agrees to purchase,
and the Company hereby agrees to sell to Subscriber, a $10,000,000.00 12%
Subordinated Promissory Note ("Note") of the Company. The Note shall be
substantially in the form of the promissory note attached hereto as Exhibit A
and incorporated herein by reference.
2. Transmission of Funds, Escrow. Upon receipt by Selling Agent of this
Agreement, properly completed and executed, and upon payment of $10,000,000.00
into the Escrow Account (as defined below), the Selling Agent is to give a copy
of this Agreement to the Company for execution by the Company. Thereafter, (a)
the Company and the Selling Agent shall jointly instruct the Escrow Account bank
to disburse the funds in the Escrow Account in the amounts of $600,000.00 to the
Selling Agent pursuant to Section 5 below, and $9,400,000.00 to the Company; and
(b) the Company shall deliver its signed Note to the Selling Agent for immediate
delivery by the Selling Agent to the Subscriber. "Escrow Account" shall mean
that escrow account established at FirstBank, Republic Plaza, Denver, Colorado,
entitled "Western International Securities - Western Fidelity Funding Escrow
Account."
3. Use of Proceeds. The Subscriber acknowledges and agrees that the
proceeds delivered to the Company in consideration of the issuance of the Note
to Subscriber shall be used by the Company as follows:
a. Up to $2 millon for expenses associated with securitization of
pools of Automotive Loan Contract Receivables ("Contracts") and general
working capital; and
b. Up to $8 million for the acquisition of non-prime Contracts and to
hold inventories of vehicles associated with such contracts and other
vehicle inventory ("Vehicles").
4. Subordination. All payments of principal and interest on the Note will
be subordinated to prior payment when due (whether at stated or accelerated
maturity) of the principal of and premium (if any) and interest on all "Superior
<PAGE>
Indebtedness" of the Company. The term "Superior Indebtedness" includes all
indebtedness of the Company, whether outstanding on the date of original
issuance of the Note or thereafter created, and all renewals, extensions,
modifications, or refunding of any such indebtedness. The Subscriber
acknowledges that no payment may be made by the Company on the Note until the
Superior Indebtedness is paid in full when due in the normal and ordinary course
of Company's business. In addition, no payment may be made on the Note during
the continuance of an event of default with respect to any Superior Indebtedness
entitling the holders thereof to accelerate its maturity, or if any such payment
would cause such event of default to occur; provided, however, if such default
relates to an event other than the failure to pay interest or other amounts on
any Superior Indebtedness, the Company shall continue to make payments on the
Note. The payment of principal and interest on the Note will be senior to the
payment of any indebtedness which is incurred by the Company and specifically
subordinated to the payments due on the Note.
5. Selling Agent's Commission. In consideration of Selling Agent's services
related to this transaction, the Company agrees to pay the Selling Agent a
commission of 4.5 percent of the face amount of the Notes ($450,000)
("Commission"). In addition to the Commission, the Company will reimburse the
Selling Agent on a nonaccountable basis for the expenses which the Selling Agent
incurred in connection with this transaction, 1.75 percent of the face amount of
the Note ($175,000), of which Selling Agent acknowledges receipt of $25,000
previously paid by the Company. Selling Agent and the Company shall instruct the
Escrow Account bank to deduct the Commission and the portion of the
nonaccountable expenses not previously paid by the Company from the proceeds
paid by the Subscriber into the Escrow Account and pay such amounts to the
Selling Agent, and deliver the remainder of the proceeds in the Escrow Account
to the Company at the Closing (as defined in Section 7 below).
6. Selling Agent Warrants. As additional compensation for the Selling
Agent's services related to this transaction, at the Closing the Company shall
issue to the Selling Agent warrants ("Warrants") to purchase 263,750 shares of
the Company's $0.0001 par value common stock ("Common Stock") at a purchase
price equal to the average of the bid and ask price for the Common Stock for the
five trading days prior the Closing. The Warrants shall be exercisable for a
period of five years after the date of Closing, and shall not be anti-dilutive.
Selling Agent acknowledges that the Warrants and underlying shares of Common
Stock will be restricted securities under the Act and state securities laws, and
the Company shall have the right to place appropriate legends thereof on the
certificates for such Warrants and Common Stock. Notwithstanding the foregoing,
the Warrant certificate shall provide that the Company will use its best efforts
to register the underlying Common Stock under the Securities Act of 1933 ("Act")
with the Securities and Exchange Commission, and register or qualify the said
Common Stock with the Colorado Securities Commission, by December 31, 1996 to
permit their sale to the public. The Warrant certificate shall further provide
that all expenses associated with the registration or qualification of said
underlying Common Stock shall be borne by the Company and that the Company will
use its best efforts to keep the registration statement current for so long as
more than 10 percent of the Warrants are unexercised.
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7. Closing. The date of closing ("Closing") for the purchase of the Note by
the Subscriber shall occur on July 31, 1996. Notwithstanding the foregoing, the
parties hereto may mutually agree to extent the Closing to a later date, but in
no event later than August 31, 1996.
8. Representations, Warranties and Covenants of the Subscriber. Subscriber
hereby represents, warrants and covenants as follows:
a. In making the decision to invest in the Note, the Subscriber is
relying on, and will rely on, as the case may be, investigation of the
Company made by the Subscriber and the Subscriber's representatives. The
Subscriber acknowledges that the Subscriber has made as thorough and
complete an investigation of the Company and its business affairs and
management as the Subscriber considers prudent in the circumstances with
respect to investment in the Note, and that the Company has made available
all information that the undersigned needs in order to make an informed and
intelligent decision to acquire the Note. The Subscriber considers itself
to be an experienced and sophisticated investor not in need of the
protection afforded investors by the Act or applicable state securities
laws. The offer to sell the Note was communicated to the Subscriber in such
a manner that the subscriber was able to ask questions of and receive
answers from the management of the Company concerning the terms and
conditions of the proposed transaction and that at no time was the
Subscriber presented with or solicited by or through any offering circular,
prospectus, leaflet, public promotional meeting, television advertisement,
or any other form of general or public advertising or solicitation.
b. The Subscriber agrees with the Company that the stated interest
rate on the Note of 12% is the appropriate rate for discounting all
payments due on the Note and, accordingly, that the issue price of the Note
is equal to its stated principal amount (the effect of this agreement is
that the Notes will be deemed, for purpose of Section 1273 of the Internal
Revenue Code, to be issued without original issue discount).
c. The person executing this Agreement has requisite power and
authority to do so.
d. The address of the Subscriber set forth at the end of this
Agreement is the true and correct residence address or domicile address of
the Subscriber and the Subscriber has no present intention of becoming a
resident or domiciliary of any other state or jurisdiction.
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e. The Subscriber understands that the Note being purchased has not
been registered under the Act or any state securities laws, the Subscriber
cannot sell such Note unless registered under the Act and any applicable
state securities laws or unless exemptions from such registration
requirements are available; the Note is transferable only on the Note
register maintained by the Company; the Company will not transfer the Note
without first receiving evidence satisfactory to it that any proposed
transfer will comply with the provisions of the Act and any applicable
state securities laws; and the Subscriber agrees not to transfer the Note
without compliance with the provisions of the Act and any applicable state
securities laws.
f. The Subscriber is purchasing the Note for the Subscriber's own
account, for investment, and not for the interest of any other person and
not for the purpose of immediate resale.
g. The Subscriber has such knowledge and experience in financial and
business matters that the Subscriber is capable of evaluating the merits
and risks of an investment in the Note. The Subscriber understands that the
acquisition of the Note is a speculative investment and involves
substantial risk.
h. The undersigned hereby represents and warrants to the Company that
the undersigned is (i) an "accredited investor" (as defined in the Act)
because it is an "insurance company" (as defined in Section 2(13) of the
Act), and (ii) a "qualified institutional buyer" (as defined in Rule 144A
of the Act) because it is an "insurance company" (as defined in Section
2(13) of the Act) acting for its own account or the account of other
"qualified institutional buyers" that in the aggregate own and invest on a
discretionary basis at least $100 million in securities of issuers that are
not affiliated with the undersigned. At the Closing, Subscriber shall
provide to the Company such evidence as is requested by the Company to
establish that the Subscriber is a qualified institutional buyer under Rule
144A of the Act.
i. The Subscriber understands that there is no established market for
the Note and that such public markets will not develop.
9. Representations, Warranties and Covenants of the Company. The Company
hereby represents, warrants and covenants to the undersigned as follows:
a. The Company is duly incorporated, validly existing and in good
standing under the laws of the State of Colorado.
b. The Company has duly authorized the issuance and sale of the Note
in accordance with the terms of this Agreement by all requisite corporate
action.
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c. The Company shall not permit the placement of any lien on any
Contract or Vehicle acquired by the Company with the $8 million of the
purchase price of the Note, as set forth in Section 3(b) above.
10. Indemnification. The Subscriber and the Company (each as the
"Indemnitor" as applicable) each hereby agrees to indemnify and hold harmless
the other parties hereto, and each person who controls the other parties hereto,
against any and all loss, liability, claim, damage, and expense whatsoever
(including, but not limited to, any and all expenses whatsoever reasonably
incurred in investigating, preparing or defending against any litigation
commenced or threatened or any claim whatsoever) arising out of or based upon
any false representation or warranty or breach or failure by the Indemnitor to
comply with any covenant or agreement made by the Indemnitor herein or in any
other document furnished by the Indemnitor to the other in connection with this
transaction.
11. Form W-9 Certification. Under penalties of perjury, the Subscriber
hereby certifies that:
a. The Taxpayer Identification Number set forth below is its correct
number, and
b. It is not subject to backup withholding because (i) it is exempt
from backup withholding, or (ii) it has not been notified by the Internal
Revenue Service ("IRS") that it is subject to backup withholding as a
result of a failure to report all interest or dividends, or (iii) the IRS
has notified it that it is not longer subject to backup withholding.
12. Miscellaneous.
a. Acceptance of this Agreement by the Company is strictly subject to,
and shall be deemed invalid unless, the Company has obtained the waiver of
R A F Financial Corporation of its right of first refusal to underwrite
unsecured debt placement for the Company.
b. It is acknowledged by all of the parties hereto that the Selling
Agent is the agent of the Subscriber, not the Company, notwithstanding the
payment arrangement set forth in Section 4 above.
c. This Agreement shall be governed by and construed in accordance
with the laws of the State of Colorado.
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d. This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof, and may be amended only
by a writing executed by all parties hereto.
e. This Agreement and the representations and warranties contained
herein shall be binding upon, and inure to the benefit of, the successors
and permitted assigns of the undersigned.
Date: July 31, 1996.
SUBSCRIBER:
LAMAR LIFE INSURANCE COMPANY,
a Mississippi corporation
By: /s/ Jane L. Klingensmith
-----------------------------
Title: Jane L. Klingensmith
Second Vice President and
Cash Manager
SELLING AGENT:
WESTERN INTERNATIONAL SECURITIES,
INC., a Colorado corporation
By: /s/ Curtis A. Roberts
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Curtis A. Roberts, President
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The Note is to be registered in
the following names at the
following address:
Lamar Life Insurance Company, Inc.
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(Type or print name of Subscriber
in exact form to be used on the
records of the Company)
7887 E. Belleview Avenue
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(Street Address)
Englewood, CO 80111
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(City) (State) (Zip Code)
64-0188260
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(Tax Identification Number or
Social Security Number of
Subscriber)
ACCEPTED this 31st day of July. 1996.
WESTERN FIDELITY FUNDING,
INC., a Colorado corporation
By: /s/ Gene E. Osborn
-------------------------------
Gene E. Osborn, President
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THIS NOTE MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT IN
COMPLIANCE WITH FEDERAL AND STATE SECURITIES LAWS AND THE RESTRICTIONS AND
LIMITATIONS DESCRIBED IN THIS NOTE.
THE COMPANY IS ENTITLED TO TREAT THE REGISTERED HOLDER OF THIS NOTE AS THE LEGAL
OWNER OF THIS NOTE FOR ALL PURPOSES. OWNERSHIP OF THIS NOTE MAY ONLY BE
TRANSFERRED ON THE NOTE REGISTER MAINTAINED BY THE COMPANY.
THIS NOTE CONTAINS PARTIAL PRINCIPAL PAYMENT PROVISIONS. IN THE EVENT OF SUCH
PAYMENTS, THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE LESS THAN THE
PRINCIPAL AMOUNT SHOWN ON THE FACE OF THIS NOTE.
WESTERN FIDELITY FUNDING, INC.
12% SUBORDINATED NOTE DUE JULY 31, 2001
$10,000,000.00 July 31, 1996
WESTERN FIDELITY FUNDING, INC., a Colorado corporation, for value received,
hereby promises to pay to the order of LAMAR LIFE INSURANCE COMPANY, a
Mississippi corporation, or its registered assigns ("Holder"), the principal sum
of TEN MILLION DOLLARS (U.S. $10,000,000.00) with interest on the unpaid portion
of said principal amount from the date hereof at the rate of TWELVE PERCENT
(12%) per annum, payable as follows:
1. EIGHT (8) equal quarterly installments of interest only in the
amount of THREE HUNDRED THOUSAND DOLLARS ($300,000.00) each
commencing October 31, 1996, and successive payments due on
the last day of each third month thereafter, with the final
interest only payment due on July 31, 1998, then
2. TWELVE (12) equal quarterly installments of principal and
interest in the amount of ONE MILLION FOUR THOUSAND SIX
HUNDRED TWENTY AND 85/100 DOLLARS ($1,004,620.85) each
commencing October 31, 1998, and successive payments due on
the last day of each third month thereafter, with the final
payment of all principal and interest, if not sooner paid, due
and payable on July 31, 2001.
<PAGE>
All payments shall be payable to Holder at 7887 East Belleview Avenue,
Englewood, Colorado 80111-6093, or at such other place as Holder hereof may
designate from time to time in writing. Both the principal hereof and interest
hereon are payable in such coin or currency of the United States of America as
at the time of payment shall be legal tender for the payment of public and
private debt. All payments shall be first applied to the payment of interest due
hereunder, then to the payment of any other sums payable hereunder and finally
to the principal amount then remaining unpaid.
The Company may, at its option, prepay all or part of the principal of this
Note, at any time, without notice, penalty or premium.
All payments of principal and interest on this Note are subordinated to
prior payment when due (whether at stated or accelerated maturity) of the
principal of and premium (if any) and interest on all "Superior Indebtedness" of
the Company. The term "Superior Indebtedness" includes all indebtedness of the
Company, whether outstanding on the date of original issuance of this Note or
thereafter created, and all renewals, extensions, modifications, or refunding of
any such indebtedness. No payment may be made by the Company on this Note until
the Superior Indebtedness is paid in full when due in the normal and ordinary
course of the Company's Business. In addition, no payment may be made on this
Note during the continuance of an event of default with respect to any Superior
Indebtedness entitling the holders thereof to accelerate its maturity, or if any
such payment would cause such event of default to occur; provided, however, if
such default relates to an event other than the failure to pay interest or other
amounts on any Superior Indebtedness, the Company shall continue to make
payments on this Note. The payment of principal and interest on this Note is
senior to the payment of any indebtedness which is incurred by the Company and
specifically subordinated to the payments due on this Note.
The Company hereby promises that, so long as the Company is in default with
respect to the payment of principal, premium (if any) or interest on this Note,
the Company will not (i) declare, pay, make, or set aside any sum for the
payment or other distribution declared or made upon the outstanding $0.0001 par
value common stock ("Common Stock") of the Company, and (ii) the Company will
not purchase or set aside funds for the purchase of any Common Stock of the
Company through a sinking fund or otherwise.
The Holder acknowledges that up to $8,000,000 of the face amount of this
Note may be used by the Company for the acquisition of non-prime Automotive Loan
Contract Receivables ("Contracts") and to hold inventories of vehicles
associated with such contracts and other vehicle inventory ("Vehicles"). The
Company hereby promises that it shall not permit the placement of any lien on
any Contract or Vehicle acquired by the Company with such $8,000,000 of the Note
amount.
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This Note is transferrable only on the Note register of the Company
maintained by the Company. The Company shall be entitled to treat the registered
Holder of this Note as the owner of this Note for all purposes under this Note.
The Company shall be entitled to treat the address of the registered Holder as
it appears on the Note register to be the current address of such registered
Holder until such time as the Company is notified in writing by such registered
Holder of a change in such address. All notices from the Company to the
registered Holder shall be mailed by the Company to the address of the
registered Holder of this Note as such address shall appear on the Note
register.
By acceptance of this Note, the registered Holder agrees with the Company
that this Note may not be sold, transferred, or otherwise disposed of by the
registered Holder except in compliance with all applicable federal and state
securities laws, which compliance must be established by the Holder to the
satisfaction of the Company.
The Company shall be in default under this Note (i) if any interest or
principal payment is not made hereon within 30 days after the date such payment
is due hereunder, (ii) if the Company fails to comply with any of its
obligations hereunder provided that such failure continues for a period of 30
days after receipt by the Company of notice thereof from the Holder, (iii) if
the Company, pursuant to or within the meaning of any bankruptcy law, commences
a voluntary case or proceeding, consents to the entry of an order for relief
against it in an involuntary case or proceeding, or makes a general assignment
for the benefit of its creditors, (iv) if a court of competent jurisdiction
enters an order or decree under any bankruptcy law that is for relief against
the Company in an involuntary case or proceeding, or orders the liquidation of
the Company, or (v) if the Company is dissolved under the laws of the state of
the Company's incorporation. If an event of default specified herein occurs, the
Holder of this Note may declare all unpaid principal and accrued interest to the
date of acceleration on the Note, to be due and payable and upon any such
declaration, the same shall become and be immediately due and payable. Upon
payment of such principal amount and interest, all of the Company's obligations
under the Note shall terminate. If any event of default occurs and is
continuing, the Holder of this Note may pursue any available remedy by
proceeding at law or in equity to collect the payment of principal of and
interest on this Note or to enforce the performance of any provision of this
Note. A delay or omission by the Holder of this Note in exercising any right or
remedy occurring upon an event of default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the event of default. No remedy is
exclusive of any other remedy. All available remedies are cumulative. If the
Company and the Holder are parties to any action to enforce any of the terms of
this Note, the Company and the Holder agree that the prevailing party in any
such action shall be entitled to recover from the other party the prevailing
party's costs, including reasonable attorney's fees, incurred in prosecuting or
defending such action.
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The obligations of the Company to the Holder represented by this Note are
not secured by any of the assets of the Company or otherwise secured or
guaranteed and as such constitute an unsecured general obligation of the
Company. If any provision of this Note is to any extent invalid or unenforceable
under the law, the remainder of this Note shall not be affected thereby, but
instead shall be enforceable to the maximum extent permitted by law. This Note
may only be amended in a writing executed by the Company and the Holder.
This Note shall be interpreted and enforced in accordance with the laws of
the State of Colorado. In the event of default, Maker and Holder consent to the
enforcement of this Note in the District Court for the City and County of
Denver, Colorado, and both parties waive any rights to contest venue or
jurisdiction of that court.
WESTERN FIDELITY FUNDING, INC.,
a Colorado corporation
By: /s/ Gene E. Osborn
------------------------------
Gene E. Osborn, President
4
SAAW-1
Void After 3:30 P.M., Mountain Time, on July 31, 2001
SELLING AGENT'S CLASS A COMMON STOCK PURCHASE WARRANT
WESTERN FIDELITY FUNDING, INC.
This is to Certify That, FOR VALUE RECEIVED, WESTERN INTERNATIONAL
SECURITIES, INC. ("Holder") is entitled to purchase, subject to the provisions
of this Warrant, from WESTERN FIDELITY FUNDING, INC. ("Company"), a Colorado
corporation, at any time until 3:30 P.M., Mountain Time, on July 31, 2001
("Expiration Date"), 263,750 Common Shares of the Company at a purchase price
per share of $3.93 during the period this Warrant is exercisable. The price to
be paid for a Common Share may be adjusted from time to time as hereinafter set
forth. The purchase price of a Common Share in effect at any time and as
adjusted from time to time is hereinafter sometimes referred to as the "Exercise
Price." This Warrant is or may be one of a series of warrants identical in form
issued by the Company to purchase an aggregate of 263,750 Common Shares, and the
term "Warrants" as used herein means all such Warrants (including this Warrant).
The Common Shares underlying the Warrants are hereinafter sometimes referred to
as "Warrant Shares" and include all Common Shares that have been issued upon the
exercise of the Warrants and all unissued Common Shares underlying the Warrants.
(a) Exercise of Warrant. This Warrant may be exercised in whole or in part
at any time or from time to time until the Expiration Date or if the Expiration
Date is a day on which banking institutions are authorized by law to close, then
on the next succeeding day which shall not be such a day, by presentation and
surrender hereof to the Company at its principal executive office or at the
office of its stock transfer agent, if any, with the Purchase Form annexed
hereto duly executed and accompanied by payment of the Exercise Price for the
number of shares specified in such Form, together with all federal and state
taxes applicable upon such exercise. The Company agrees not to merge, reorganize
or take any action that would terminate this Warrant unless provisions are made
as part of such merger, reorganization or other action which would provide the
holders of this Warrant with an equivalent of this Warrant as specified in
Section (i) hereof; provided, however, that if reasonably required by the other
party or parties to such merger, reorganization or other action, the Company may
accelerate the Expiration Date to a date prior to such merger, reorganization or
other action, provided further, however, that the Company shall give the Holder
written notice of such acceleration at least 30 days prior to such accelerated
Expiration Date. The Company agrees to provide notice to the Holder that any
tender offer is being made for the Company's Common Shares no later than three
business days after the day the Company becomes aware that any tender offer is
being made for outstanding Common Shares of the Company. If this Warrant should
be exercised in part only, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the right of the
Holder to purchase the balance of the Common Shares purchasable hereunder. Upon
receipt by the Company of this Warrant at the principal office of the Company or
at the office of the Company's stock transfer agent, if any, in proper form for
exercise and accompanied by the Exercise Price, the Holder shall be deemed to be
the holder of record of the Common Shares issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such Common Shares shall not then be
actually delivered to the Holder.
<PAGE>
(b) Reservation of Shares. The Company hereby agrees that at all times
there shall be reserved for issuance and/or delivery upon exercise of this
Warrant such number of Common Shares as shall be required for issuance or
delivery upon exercise of this Warrant and the Warrants.
(c) Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a Common Share called for upon any exercise hereof,
the Company shall, upon receipt by the Company or the Company's stock transfer
agent of the Exercise Price on such fractional share, pay to the Holder an
amount in cash equal to such fraction multiplied by the current market value of
such fractional share, determined as follows:
(1) If the Common Shares are listed on a national securities exchange,
are admitted to unlisted trading privileges on such an exchange, or are
listed for trading on a trading system of the National Association of
Securities Dealers, Inc. ("NASD") such as the NASDAQ ("NASDAQ") Small Cap
Market or NASDAQ/NMS ("NMS"), then the current value shall be the last
reported sale price of the Common Shares on such an exchange or system on
the last business day prior to the date of exercise of this Warrant or if
no such sale is made on such day, the average of the closing bid prices for
the Common Shares for such day on such exchange or such system shall be
used; or
(2) If the Common Shares are not so listed on such exchange or system
or admitted to unlisted trading privileges, the current value shall be the
average of the last reported bid prices reported by the National Quotation
Bureau, Inc. on the last business day prior to the date of the exercise of
this Warrant; or
(3) If the Common Shares are not so listed or admitted to unlisted
trading privileges and if bid and asked prices are not so reported, the
current value shall be an amount, not less than book value, determined in
such reasonable manner as may be prescribed by the board of directors of
the Company.
(d) Exchange, Assignment or Loss of Warrant. This Warrant is exchangeable,
without expense, at the option of the Holder, upon presentation and surrender
hereof to the Company or at the office of its stock transfer agent, if any, for
other Warrants of different denominations entitling the Holder thereof to
purchase (under the same terms and conditions as provided by this Warrant) in
the aggregate the same number of Common Shares purchasable hereunder.
Notwithstanding any other provision of this Warrant to the contrary, this
Warrant may not be sold, transferred, assigned, or hypothecated except in
compliance with federal and state securities laws. Any transfer or assignment of
the Warrant shall be made by surrender of this Warrant to the Company or at the
office of its stock transfer agent, if any, with the Assignment Form annexed
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hereto duly executed and with funds sufficient to pay any transfer tax;
whereupon the Company shall, without charge, execute and deliver a new Warrant
in the name of the assignee named in such instrument of assignment and this
Warrant shall promptly be cancelled. This Warrant may be divided or combined
with other Warrants which carry the same rights upon presentation hereof at the
office of the Company or at the office of its stock transfer agent, if any,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued and signed by the Holder hereof. The term
"Warrant" as used herein includes any warrants issued in substitution for or
replacement of this Warrant, or into which this Warrant may be divided or
exchanged. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor and date. Subject to such right
of indemnification, any such new Warrant executed and delivered shall constitute
an additional contractual obligation on the part of the Company, whether or not
this Warrant so lost, stolen, destroyed, or mutilated shall be at any time
enforceable by anyone.
(e) Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) Adjustment Provisions.
(1) Adjustments of the Exercise Price.
(A) If the Company subdivides its outstanding Common Shares into
a greater number of Common Shares, the Exercise Price in effect
immediately prior to such subdivision shall be proportionately
reduced. Conversely, if the Company combines its outstanding Common
Shares into a lesser number of Common Shares, the Exercise Price in
effect immediately prior to such combination shall be proportionally
increased. In case of a subdivision or combination, the adjustment of
the Exercise Price shall be made as of the effective date of the
applicable event. A distribution on Common Shares, including a
distribution of Convertible Securities, to shareholders of the Company
on a pro rata basis shall be considered a subdivision of Common Shares
for the purposes of this subsection (1)(A) of this Section, except
that the adjustment will be made as of the record date for such
distribution and any such distribution of Convertible Securities shall
be deemed to be a distribution of the Common Shares underlying such
Convertible Securities.
(B) If the Company shall at any time distribute or cause to be
distributed to its shareholders, on a pro rata basis, securities of
any entity other than the Company, then the Exercise Price in effect
immediately prior to such distribution shall automatically be reduced
by an amount determined as follows: (X) the value of the securities
distributed to shareholders shall be determined as of the last
business day prior to such distribution using the criteria set forth
in subsections (1), (2), or (3) of Section (c) of this Warrant; (Y)
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the pro rata share of all holders of Warrants as a group of such value
shall be determined assuming that all holders of Warrants had
exercised their Warrants on the day prior to such distribution; and
(Z) the Exercise Price shall be reduced by an amount determined by
dividing such pro rata share of such value by the number of Warrant
Shares which have not been issued as of the day prior to such
distribution.
(2) No Adjustment for Small Amounts. Anything in this Section (f) to
the contrary notwithstanding, the Company shall not be required to give
effect to any adjustment in the Exercise Price unless and until the net
effect of one or more adjustments, determined as above provided, shall have
required a change of the Exercise Price by at least one cent, but when the
cumulative net effect of more than one adjustment so determined shall be to
change the actual Exercise Price by at least one cent, such change in the
Exercise Price shall thereupon be given effect.
(3) Definitions.
(A) Whenever reference is made in this Section (f) to the
distribution of Common Shares, the term "Common Shares" shall mean the
Common Shares of the Company authorized as of the date hereof and any
other class of stock ranking on a parity with such Common Shares.
However, subject to the provisions of Section (i) hereof, Common
Shares issuable upon exercise hereof shall include only Common Shares
of the class designated as Common Shares of the Company as of the date
hereof.
(B) Whenever reference is made in this Section (f) to the
distribution of Convertible Securities, the term "Convertible
Securities" shall mean options or warrants or rights for the purchase
of Common Shares of the Company or for the purchase of any stock or
other securities convertible into or exchangeable for Common Shares of
the Company.
(g) Officer's Certificate. Whenever the Exercise Price shall be adjusted as
required by the provisions of Section (f) hereof, the Company shall forthwith
file in the custody of its Secretary or an Assistant Secretary at its principal
office, and with its stock transfer and warrant agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided
and setting forth in reasonable detail the facts requiring such adjustment. Each
such officer's certificate shall be made available at all reasonable times for
inspection by the Holder.
(h) Notices to Holders. So long as this Warrant shall be outstanding and
unexercised (i) if the Company shall pay any dividend or make any distribution
upon the Common Shares or (ii) if the Company shall offer to the holders of
Common Shares for subscription or purchase by them any shares of stock of any
class or any other rights or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
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of the Company shall be effected, then, in any such case, the Company shall
cause to be delivered to the Holder, at least 10 days prior to the date
specified in (x) or (y) below, as the case may be, a notice containing a brief
description of the proposed action and stating the date on which (x) a record is
to be taken for the purpose of such dividend, distribution or rights, or (y)
such reclassification, reorganization, consolidation, merger, conveyance, lease,
dissolution, liquidation or winding up is to take place and the date, if any is
to be fixed, as of which the holders of Common Shares of record shall be
entitled to exchange their Common Shares for securities or other property
deliverable upon such reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up.
(i) Reclassification, Reorganization or Merger. In case of any
reclassification, capital reorganization or other change of outstanding Common
Shares of the Company (other than a change in par value, or from par value to no
par value, or from no par value to par value, or as a result of an issuance of
Common Shares by way of dividend or other distribution or of a subdivision or
combination), or in case of any consolidation or merger of the Company with or
into another corporation (other than a merger with a subsidiary in which merger
the Company is the continuing corporation and which does not result in any
reclassification, capital reorganization or other change of outstanding Common
Shares of the class issuable upon exercise of this Warrant) or in case of any
sale or conveyance to another corporation of the property of the Company as an
entirety or substantially as an entirety, the Company shall cause effective
provision to be made so that the Holder shall have the right thereafter, by
exercising this Warrant, to purchase the kind and amount of shares of stock and
other securities and property which the Holder would have received upon such
reclassification, capital reorganization or other change, consolidation, merger,
sale or conveyance had this Warrant been exercised prior to the consummation of
such transaction. Any such provision shall include provision for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Warrant. The foregoing provisions of this Section (i) shall
similarly apply to successive reclassifications, capital reorganizations and
changes of Common Shares and to successive consolidations, mergers, sales or
conveyances.
(j) Required Registration. The Company agrees to use its best efforts to
register the Warrant Shares under the Securities Act of 1933, as amended ("1933
Act") by December 31, 1996, for public resale by the holders thereof, and to
that end the Company will:
(i) Prepare and file with the Securities and Exchange Commission
("Commission") a registration statement with respect to the Warrant
Shares, and use its best efforts to cause such registration statement
to become effective;
(ii) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective until 10% or less of the Warrants are unexercised;
(iii) Furnish to each seller of Warrant Shares such number of
copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement
(including each preliminary prospectus) and such other documents as
such seller may reasonably request from time to time in order to
facilitate the disposition of the Warrant Shares owned by such seller;
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(iv) Use its reasonable best efforts to register or qualify the
Warrant Shares under the securities or blue sky laws of Colorado, and
do any and all other acts and things that may be reasonably necessary
or advisable to maintain such registration or qualification in effect
during the period described in subsection (j)(ii) above, and to enable
the sellers of Warrant Shares to effect public resales thereof;
(v) Promptly notify each holder of any Warrant Shares when the
registration statement and any amendment thereto has been filed, and
when the registration statement or any posteffective amendment has
become effective; of the issuance by the Commission of any stop orders
suspending the effectiveness of the registration statement; or of the
receipt by the Company of any notification with respect to the
suspension of the registration or qualification of the Warrant Shares
for sale in any jurisdiction;
(vi) Make reasonable efforts to obtain the withdrawal of any
order suspending the effectiveness of the registration statement or
any posteffective amendment thereto under the 1933 Act or under the
securities or blue sky laws of any jurisdiction at the earliest
practicable date;
(vii) Notify each seller of Warrant Shares at any time when a
prospectus relating thereto is required to be delivered under the 1933
Act of the occurrence of any material changes in the information
contained in the prospectus included in such registration statement
and promptly prepare a supplement or amendment to such prospectus so
that such prospectus will not contain an untrue statement of a
material fact or omit to state any fact necessary to make the
statements therein not misleading;
(viii) Cause all Warrant Shares to be listed on each securities
exchange or trading medium on which similar securities issued by the
Company are then listed or traded; and
(ix) Make available for inspection upon reasonable request by any
seller of Warrant Shares, any underwriter participating in any
disposition pursuant to such registration statement, and any attorney,
accountant, or other agent retained by any such seller or underwriter,
all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers,
directors, and employees to supply all information and reasonably
requested by any such seller, underwriter, attorney, accountant, or
agent in connection with such registration statement.
(k) Registration Expenses. All expenses incident to the Company's
performance of or compliance with its agreements contained in Section (j)
hereof, including without limitation, all registration and filing fees, fees and
expenses of compliance with securities or blue sky laws, printing expenses,
messenger and delivery expenses, and fees and disbursements of legal counsel for
the Company, and all independent certified public accountants, and other persons
retained by the Company, will be borne by the Company and the Company will pay
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its internal expenses (including, without limitation, all salaries and expenses
of its officers and employees performing legal or accounting duties), the
expense of any annual audit, and the expenses and fees for listing the
securities to be registered on each securities exchange on which similar
securities issued by the Company are then listed; provided, however, that the
sellers of Warrant Shares covered by any such registration statement shall pay
all underwriter's commissions and discounts and underwriter's expense
reimbursements attributable to the Warrant Shares to be sold by them and such
sellers shall pay the fees and expenses of legal counsel selected by the holders
of the Warrant Shares to represent such holders in connection with such
registrations.
(l) Indemnification and Contribution. The sellers of the Warrant Shares
covered by any such registration statement; the Company and its officers and
directors; and each underwriter and its officers and directors shall, prior to
or on the effective date of such registration statement, enter into
indemnification and contribution agreements which contain terms and conditions
that are standard in the securities industry, including, without limitation, an
agreement by the Company to indemnify such holders against liability under the
1933 Act.
(m) Exclusion. Notwithstanding any other provision herein, the Company
shall not be required to register any Warrant Shares under the 1933 Act for
public resale by the holders thereof, if such Warrant Shares can be sold by the
holder thereof pursuant to Rule 144(k) under the 1933 Act.
(n) Transfer to Comply with the Securities Act of 1933. The Company may
cause the following legend, or one similar thereto, to be set forth on the
Warrants and on each certificate representing Warrant Shares or any other
security issued or issuable upon exercise of this Warrant not theretofore
distributed to the public or sold to underwriters for distribution to the public
unless legal counsel for the Company is of the opinion as to any such
certificate that such legend, or one similar thereto, is unnecessary:
"The securities represented by this certificate may not
be offered for sale, sold or otherwise transferred
except pursuant to an effective registration statement
made under the Securities Act of 1933 (the "Act") and
under any applicable state securities law, or pursuant
to an exemption from registration under the Act and
under any applicable state securities law, the
availability of which is to be established to the
satisfaction of the Company."
(o) Applicable Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the state of Colorado.
Dated: July 31, 1996.
WESTERN FIDELITY FUNDING, INC.
By: /s/ Gene E. Osborn
--------------------------------
Gene E. Osborn, President
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PURCHASE FORM
Dated: , 19
-------------------------- --
The undersigned hereby irrevocably elects to exercise the Warrant to the
extent of purchasing ____________ shares of Common Shares and hereby makes
payment of $_______________ in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF SHARES
Dated: , 19
-------------------------- --
Name:
------------------------------------------------------------------------
(Please typewrite or print in block letters)
Address:
--------------------------------------------------------------------
Signature:
-------------------------------------------------------------------
ASSIGNMENT FORM
FOR VALUE RECEIVED,
------------------------------------------------------
hereby sells, assigns and transfers unto
--------------------------------------
Name:
------------------------------------------------------------------------
(Please typewrite or print in block letters)
Address:
----------------------------------------------------------------------
the right to purchase Common Shares represented by this Warrant to the
extent of Common Shares as to which such right is exercisable and
does hereby irrevocably constitute and appoint
---------------------------------
- -------------------------------------------------------------------------------,
attorney, to transfer the same on the books of the Company with full power of
substitution in the premises.
Signature:
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