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) February 25, 1997
TELEBANC FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 33-76930 13-3759196
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(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification No.)
incorporation)
1111 North Highland Street, Arlington, Virginia 22201
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (703) 247-3700
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Not Applicable
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(Former name or former address, if changed since last report)
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Item 5. Other Events.
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Unit Purchase Agreement. TeleBanc Financial Corporation (the "Company")
entered into a Unit Purchase Agreement, dated as of February 19, 1997, with the
Purchasers identified therein (the "Unit Purchase Agreement"). Also as part of
the transaction pursuant to which the Company sold Units (as defined in the Unit
Purchase Agreement), the Company entered into an Amended and Restated
Acquisition Agreement, dated as of February 19, 1997, with Arbor Capital
Partners, Inc. ("Arbor"), MET Holdings Corporation and William M. Daugherty (the
"Acquisition Agreement"). The sale of Units to the Purchasers pursuant to the
Unit Purchase Agreement and the acquisition by the Company of the Arbor Assets
(as defined in the Acquisition Agreement) pursuant to the Acquisition Agreement
occurred on February 28, 1997. The Unit Purchase Agreement and the exhibits
thereto is attached as Exhibit 10.1 hereto, and incorporated by reference
herein. The Acquisition Agreement is attached as Exhibit 10.2 hereto, and
incorporated by reference herein.
Certificate of Designation. In connection with the issuance of Units
pursuant to the Unit Purchase Agreement, the Company filed a Certificate of
Designation with the Office of the Secretary of State of the State of Delaware
on February 25, 1997 (the "Certificate of Designation"). The Certificate of
Designation is attached as Exhibit 3 hereto, and incorporated by reference
herein.
Item 7. Financial Statements and Exhibits.
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(c) Exhibits
Exhibit No. Description
3 Certificate of Designation
10.1 Unit Purchase Agreement
10.2 Amended and Restated Acquisition Agreement
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SIGNATURE
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.
TELEBANC FINANCIAL CORPORATION
Date: March 13, 1997 By: /s/ Aileen Lopez Pugh
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Aileen Lopez Pugh
Executive Vice President-
Chief Financial Officer
and Treasurer
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INDEX TO EXHIBITS
Exhibit
Number Exhibit Description
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3 Certificate of Designation
10.1 Unit Purchase Agreement
10.2 Amended and Restated Acquisition Agreement
TELEBANC FINANCIAL CORPORATION
CERTIFICATE OF DESIGNATION
OF THE
SERIES A PREFERRED STOCK
AND
SERIES B PREFERRED STOCK
AND
SERIES C PREFERRED STOCK
The undersigned DOES HEREBY CERTIFY that the following resolution was
duly adopted on February 25, 1997, by the Board of Directors of TELEBANC
FINANCIAL CORPORATION, a Delaware corporation, acting pursuant to the authority
granted to the Board of Directors in accordance with the provisions of Section
151(g) of the General Corporation Law of the State of Delaware:
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors by the provisions of the Amended and Restated
Certificate of Incorporation of the Corporation, there is hereby created the
series of serial preferred stock as set forth in this Certificate of
Designation.
The following is a statement of the designations, preferences, voting
powers, qualifications, special or relative rights and privileges in respect of
the authorized capital stock of the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock of TeleBanc Financial
Corporation (the "Corporation").
1. Designation.
A total of 29,900 shares of the Corporation's Preferred Stock shall be
designated the "Series A Voting Convertible Preferred Stock" (the "Series A
Preferred Stock"), 29,900 shares of the Corporation's Preferred Stock shall be
designated the "Series B Nonvoting Convertible Preferred Stock" (the "Series B
Preferred Stock") and 7,000 shares of the Corporation's Preferred Stock shall be
designated the "Series C Nonvoting Convertible Preferred Stock (the "Series C
Preferred Stock"). The Series A Preferred Stock, the Series B Preferred Stock
and the Series C Preferred Stock shall be collectively referred to as the
"Preferred Stock."
2. Dividends.
(a) Computation of Cumulative Dividends. The holders of the
outstanding shares of Preferred Stock shall be entitled to receive, out of funds
legally available therefor, cumulative dividends on each share of Preferred
Stock which shall accrue on the Liquidation Preference of each share of
Preferred Stock plus all accrued but unpaid dividends thereon, at the annual
rates of (i) 4% per annum from the date of issuance through and including March
31, 2002 (except that if any shares of Preferred Stock are outstanding after
March 31, 2002, dividends accrued on such outstanding shares for the period from
January 1, 2002 through and including March 31, 2002 shall be recalculated at
the rate of 4.875% per annum), (ii) 4.875% per annum from March 31, 2002 through
and including June 30, 2002, (iii) 5.75% per annum from June 30, 2002 through
and including January 1, 2003, (iv) 6.625% per annum from January 1, 2003
through and including March 31, 2003 (except that if any shares of Preferred
Stock are outstanding after March 31, 2003, dividends accrued on such shares
during such period shall be recalculated at the rate of 7.0% per annum), (v)
7.0% per annum from March 31, 2003 through and including June 30, 2003, (vi)
8.25% per annum from June 30, 2003 through and including January 1, 2004, (vii)
9.5% per annum from January 1, 2004 through and including March 31, 2004 (except
that if any shares of
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Preferred Stock are outstanding after March 31, 2004, dividends accrued on such
shares during such period shall be recalculated at the rate of 9.75% per annum)
and (viii) 9.75% per annum, as such rate shall be increased by 1.5% per annum on
each June 30 and January 1 thereafter, from March 31, 2004 until all shares of
Preferred Stock are redeemed in accordance with Section 6 hereof, converted into
common stock, par value of $.01 of the Company (the "Voting Common Stock") or
into nonvoting common stock, par value of $.01 of the Company (the "Nonvoting
Common Stock", and together with the Voting Common Stock, the "Common Stock") in
accordance with Section 5 hereof or upon the liquidation, dissolution or winding
up of the Corporation pursuant to Section 3 hereof. Dividends shall be payable
semi-annually in arrears in cash on each March 31 and September 30, commencing
on March 31, 1997, or if such day is not a Business Day, on the next succeeding
Business Day. If an Event of Noncompliance shall occur and be continuing under
the Purchase Agreement (as hereinafter defined), dividends shall accrue on the
outstanding shares of Preferred Stock at an annual rate which is 2% higher than
the otherwise applicable rate during the period in which such Event of
Noncompliance is continuing.
All numbers relating to calculation of cumulative dividends
shall be subject to equitable adjustment in the event of any stock dividend,
stock split, combination, reorganization, recapitalization, reclassification or
other similar event involving a change in the capital structure of the
Corporation. Such dividends on the Preferred Stock shall be cumulative so that
if such dividends in respect of any previous or current annual dividend period,
at the annual rate specified above, shall not have been paid or declared and a
sum sufficient for the payment thereof set apart, the deficiency shall first be
fully paid before any dividend or other distribution shall be paid or declared
and set apart for the Common Stock.
(b) Distribution. Subsidiaries of the Corporation may declare
and make payment of cash and stock dividends, return capital and make
distributions of assets to the Corporation, and nothing herein contained shall
prevent the Corporation from (i) effecting a stock split or declaring or paying
any dividend consisting of shares of any class of capital stock paid to the
holders of shares of such class of capital stock; (ii) complying with any
specific provision of the terms of the Preferred Stock as set forth herein
(including, without limitation, redemption of the Preferred Stock in accordance
with its terms); or (iii) complying with any provision of that certain
$29,900,000 Unit Purchase Agreement, dated as of February 19, 1997, between the
Corporation and the purchasers named therein (the "Purchase Agreement") or the
Related Agreements (as defined in the Purchase Agreement).
(c) Participating Dividends. In the event that the Board of
Directors of the Corporation shall declare one or more dividends payable upon
the then outstanding shares of Common Stock (other than a stock dividend on the
Common Stock distributed solely in the form of additional shares of Common
Stock), each holder of shares of Preferred Stock shall be entitled to the amount
of dividends as would be declared payable on the largest number of whole shares
of Common Stock into which the shares of Preferred Stock held by such holder
could be converted pursuant to the provisions of Section 5 hereof, such number
determined as of the record date for the determination of holders of Common
Stock entitled to receive such dividend.
(d) Dividends to Holders of Nonvoting Common Stock. In the
event that the Corporation shall make or issue to (or shall fix a record date
for determination of) holders of capital stock of the Corporation (including any
holders of Nonvoting Common Stock), a dividend or other distribution payable in
Voting Common Stock or other securities of the Corporation which are voting
securities, the Corporation shall make available to each holder of Preferred
Stock, at such holder's request, dividends, consisting of nonvoting securities
(except as otherwise required by law) of the Corporation which are otherwise
identical to the voting securities.
3. Liquidation, Dissolution or Winding Up.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, or in the event of its
insolvency, before any distribution or payment is
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made to any holders of Common Stock or any other class or series of capital
stock of the Corporation designated to be junior to the Preferred Stock and
subject to the liquidation rights and preferences of any class or series of
preferred stock designated in the future to be senior to, or on a parity with,
the Preferred Stock with respect to liquidation preferences, the holders of each
share of Preferred Stock (the shares of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock being treated as a single class for
purposes of this Section 3) shall be entitled to be paid first out of the assets
of the Corporation available for distribution to holders of the Corporation's
capital stock of all classes whether such assets are capital, surplus or
earnings ("Available Assets"), an amount equal to the greater of:
(a) $541.69 per share of Preferred Stock (the "Liquidation
Preference"), plus all accrued but unpaid dividends thereon, whether or not
earned or declared up to and including the date full payment shall be tendered
to the holders of the Preferred Stock with respect to such liquidation,
dissolution or winding up; or
(b) an amount equal to such amount per share of Preferred
Stock as would have been payable had each share of Preferred Stock been
converted to Common Stock immediately prior to such event of liquidation,
dissolution or winding up.
The amounts set forth above and throughout this Section 3 shall be
subject to equitable adjustment whenever there shall occur a stock dividend,
stock split, combination, reorganization, recapitalization, reclassification or
other similar event involving a change in the capital structure of the
Corporation.
If, upon liquidation, dissolution or winding up of the Corporation, the
Available Assets shall be insufficient to pay the holders of Preferred Stock the
full amount to which they otherwise would be entitled to receive, the holders of
Preferred Stock shall share ratably in any distribution of Available Assets pro
rata in proportion to the respective liquidation preference amounts to which
they would otherwise be entitled to receive upon liquidation if all liquidation
preference dollar amounts owing to the holders of Preferred Stock were paid in
full.
After such payment shall have been made in full to the holders of the
Preferred Stock or funds necessary for such payment shall have been set aside by
the Corporation in trust for the account of holders of the Preferred Stock so as
to be available for such payment, the remaining assets available for
distribution shall be distributed ratably among the holders of the Common Stock.
If at any time or from time to time there shall be a capital
reorganization of the Common Stock, or a merger or consolidation of the
Corporation with or into another corporation unless the Corporation shall be the
surviving corporation, or a Change of Control (as defined in the Purchase
Agreement) (a "Reorganization"), such Reorganization shall, at the option of the
holders of at least a majority of the then outstanding shares of Preferred Stock
(voting as a separate class), be regarded as a liquidation, dissolution or
winding up of the affairs of the Corporation within the meaning of this Section
3; provided, however, that each holder of Preferred Stock shall have the right
to elect the benefits of the provisions of Section 5(g) hereof in lieu of
receiving payment in liquidation, dissolution or winding up of the corporation
pursuant to this Section 3.
Whenever the distribution provided for in this Section 3 shall be
payable in property other than cash, the value of such distribution shall be the
fair market value of such property as determined in good faith by the Board of
Directors of the Corporation. All distributions (including distributions other
than cash) made hereunder shall be made pro rata with respect to each holder of
Preferred Stock in accordance with the liquidation preference amounts described
in this Section 3 above. In the event of any dispute between the holders of the
Preferred Stock and the Corporation regarding the determination of the fair
market value of non-cash distributions, at the election of the holders of at
least a majority of the then outstanding shares of Preferred Stock (voting as a
separate class), the Corporation shall engage a consulting or investment banking
firm selected by the Board
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of Directors and approved by the holders of at least a majority of the then
outstanding shares of Preferred Stock (voting as a separate class) to prepare an
independent appraisal of the fair market value of such property to be
distributed. The expenses of any appraisal by such consulting or investment
banking firm shall be borne by the Corporation.
4. Voting Power.
(a) Series A Preferred Stock. Except as otherwise expressly
provided in this Section 4, or as otherwise required by law, each holder of
Series A Preferred Stock shall be entitled to vote on all matters and shall be
entitled to that number of votes equal to the largest number of whole shares of
Common Stock into which such holder's shares of Series A Preferred Stock could
be converted, pursuant to the provisions of Section 5 hereof, at the record date
for the determination of stockholders entitled to vote on such matter or, if no
such record date is established, at the date such vote is taken or any written
consent of stockholders is solicited. Except as otherwise expressly provided
herein or as otherwise required by law, the holders of shares of Series A
Preferred Stock and Common Stock shall vote together (or render written consents
in lieu of a vote) as a single class on all matters submitted to the
stockholders of the Corporation.
At any time prior to a Qualified Public Offering (as defined below),
the holders of Preferred Stock shall be entitled to designate not more than two
individuals (the "Preferred Stock Directors") by written notice to the Board of
Directors of the Corporation (the "Board") and, provided that each such
designated individual is eligible to serve as a director of the Corporation
under applicable laws and regulations, the Corporation shall nominate for
election, at each meeting of shareholders of the Corporation or otherwise at
which time directors are to be elected, a number of such designated individuals
(not in excess of the lesser of two or the number of directors to be elected at
such time) such that the number of Preferred Stock Directors serving on the
Board shall be two. So long as an affiliate of Conning & Company holds Preferred
Stock, Conning & Company shall have the right to designate one of the Preferred
Stock Directors and such Preferred Stock Director shall at all times be an
officer, employee or other designee of Conning & Company. So long as CIBC WG
Argosy Merchant Fund 2, L.L.C. ("CIBC") or an affiliate of CIBC holds Preferred
Stock, CIBC shall have the right to designate one of the Preferred Stock
Directors. If for any reason CIBC or Conning elects not to or is unable by
reason of a regulatory prohibition to designate one of the Preferred Stock
Directors, the holder of the largest percentage of Series A Preferred Stock
other than Conning & Company and CIBC, if eligible under the then current law,
shall designate such Preferred Stock Director. For purposes of this Section 4, a
"Qualified Public Offering" shall mean a public offering pursuant to all
applicable requirements under the Securities Act of 1933, as amended, in which
the aggregate price paid for shares of Common Stock sold by the Corporation in
such offering is equal to or greater than $25,000,000.
(b) Series B Preferred Stock. Except as otherwise provided
herein or as otherwise required by law, the holders of Series B Preferred Stock
shall not be entitled to vote on any matter voted on by the stockholders of the
Corporation. Notwithstanding the foregoing, holders of shares of the Series B
Preferred Stock shall be entitled to vote as a separate class on any amendment
to this Section 4 and on any amendment, repeal or modification of any provision
of the Corporation's Certificate of Incorporation that adversely affects the
powers, preferences or special rights of holders of the Series B Preferred
Stock, respectively.
(c) Series C Preferred Stock. Except as otherwise provided
herein or as otherwise required by law, the holders of Series C Preferred Stock
shall not be entitled to vote on any matter voted on by the stockholders of the
Corporation. Notwithstanding the foregoing, holders of shares of the Series C
Preferred Stock shall be entitled to vote as a separate class on any amendment
to this Section 4 and on any amendment, repeal or modification of any provision
of the Corporation's Certificate of Incorporation that adversely affects the
powers, preferences or special rights of holders of the Series C Preferred
Stock, respectively.
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5. Conversion Rights.
(a) General.
(i) Subject to the Certificate of Incorporation of
the Corporation, each share of Series A Preferred Stock held by any
person or entity may, at the option of such person or entity, be
converted at any time into one fully-paid and non-assessable share of
Series B Preferred Stock and each share of Series B Preferred Stock
held by any person or entity may, at the option of such person or
entity, be converted at any time into one fully-paid and non-assessable
share of Series A Preferred Stock. Upon the occurrence of a Conversion
Event in accordance with Section 5(n)(ii) and otherwise subject to and
in compliance with the provisions of this Section 5 each share of
Series C Preferred Stock held by any person or entity may, at the
option of such person or entity, be converted at anytime and from time
to time into one fully-paid and non-assessable share of Series A
Preferred Stock or Series B Preferred Stock.
(ii) Subject to and in compliance with the provisions
of this Section 5, each share of Series A Preferred Stock or Series B
Preferred Stock held by any person or entity may, at the option of such
person or entity, be converted at any time and from time to time into
fully-paid and non-assessable shares of Voting Common Stock. Subject to
and in compliance with the provisions of this Section 5, each share of
Series C Preferred Stock held by any person or entity may, at the
option of such person or entity, be converted at any time and from time
to time into fully-paid and non-assessable shares of Nonvoting Common
Stock and upon the occurrence of a Conversion Event in accordance with
Section 5(n)(ii), shares of Voting Common Stock. The number of shares
of Common Stock to which a holder of Preferred Stock shall be entitled
to receive upon conversion shall be the product obtained by multiplying
the Applicable Conversion Rate (determined as provided in Section 5(b))
by the number of shares of Preferred Stock being converted at any time.
(b) Applicable Conversion Rate. The conversion rate in effect
at any time for the Preferred Stock (the "Applicable Conversion Rate") shall be
the quotient obtained by dividing the sum of $541.69 plus all accrued and unpaid
dividends not otherwise paid to the holder of Preferred Stock in cash at such
holder's option pursuant to Section 5(m) by the Applicable Conversion Value,
calculated as provided in Section 5(c).
(c) Applicable Conversion Value. The Applicable Conversion
Value in effect from time to time, except as adjusted in accordance with Section
5(d) hereof, shall be $13.50 (the "Applicable Conversion Value").
(d) Adjustments to Applicable Conversion Value of Preferred
Stock.
(i)(A) Upon Dilutive Issuances of Common Stock or
Convertible Securities. If the Corporation shall, while there are any
shares of Preferred Stock outstanding, issue or sell shares of its
Common Stock or Common Stock Equivalents (as defined in the Purchase
Agreement) without consideration or at a price per share less than the
Applicable Conversion Value in effect immediately prior to such
issuance or sale (a "Diluting Issue"), then in each such case such
Applicable Conversion Value, except as hereinafter provided, shall be
lowered so as to be equal to an amount determined by multiplying such
Applicable Conversion Value by a fraction:
(1) the numerator of which shall be (a) the
number of shares of Common Stock outstanding immediately prior
to the issuance of such additional shares of Common Stock or
Common Stock Equivalents, plus (b) the number of shares of
Common Stock or Common Stock Equivalents which the net
aggregate consideration, if any, received by the Corporation
for the total number of such additional shares of Common Stock
or Common Stock Equivalents so issued in such
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Diluting Issue would purchase at the Applicable Conversion
Value in effect immediately prior to such issuance, and
(2) the denominator of which shall be (a)
the number of shares of Common Stock outstanding immediately
prior to the issuance of such additional shares of Common
Stock or Common Stock Equivalents, plus (b) the number of such
additional shares of Common Stock or Common Stock Equivalents
so issued in such Diluting Issue.
The provisions of the foregoing paragraph as
they may apply to the Preferred Stock may be waived in any instance
(without the necessity of convening any meeting of stockholders of the
Corporation) upon the written agreement of at least two thirds of the
then outstanding shares of Preferred Stock (voting as a separate
class).
(i)(B) Upon Dilutive Issuances of Warrants,
Options and Purchase Rights to Common Stock or Convertible Securities.
(1) For the purposes of this Section
5(d)(i), the issuance of any Common Stock Equivalent shall be
deemed an issuance of Common Stock with respect to adjustments
in the Applicable Conversion Value if the Net Consideration
Per Share (as hereinafter determined) which may be received by
the Corporation for such Common Stock shall be less than the
Applicable Conversion Value in effect at the time of such
issuance. Any obligation, agreement or undertaking to issue
Common Stock Equivalents at any time in the future shall be
deemed to be an issuance at the time such obligation,
agreement or undertaking is made or arises. No adjustment of
the Applicable Conversion Value shall be made under this
Section 5(d)(i) upon the issuance of any shares of Common
Stock which are issued pursuant to the exercise, conversion or
exchange of any Common Stock Equivalents if any adjustment
shall previously have been made upon the issuance of any such
Common Stock Equivalents as above provided.
(2) Adjustments for Cancellation or
Expiration of Common Stock Equivalents. Should the Net
Consideration Per Share of any such Common Stock Equivalents
be decreased from time to time, then, upon the effectiveness
of each such change, the Applicable Conversion Value will be
that which would have been obtained (x) had the adjustments
made upon the issuance of such Common Stock Equivalents been
made upon the basis of the actual Net Consideration Per Share
of such securities, and (y) had the adjustments made to the
Applicable Conversion Value since the date of issuance of such
Common Stock Equivalents been made to such Applicable
Conversion Value as adjusted pursuant to clause (x) above. Any
adjustment of the Applicable Conversion Value with respect to
this Section 5(d)(i) which relates to any Common Stock
Equivalent shall be disregarded if, as, and when such Common
Stock Equivalent expires or is cancelled without being
exercised, or is repurchased by the Corporation at a price per
share at or less than the original purchase price, so that the
Applicable Conversion Value effective immediately upon such
cancellation or expiration shall be equal to the Applicable
Conversion Value that would have been in effect had the
expired or cancelled Common Stock Equivalent not been issued.
(3) Net Consideration Per Share. For
purposes of this paragraph, the "Net Consideration Per Share"
which may be received by the Corporation shall be determined
as follows:
(a) The "Net Consideration Per
Share" shall mean the amount equal to the total amount of
consideration, if any, received by the Corporation for the
issuance of such Common Stock Equivalents, plus the minimum
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amount of consideration, if any, payable to the Corporation
upon exercise, or conversion or exchange thereof, divided by
the aggregate number of shares of Common Stock that would be
issued if all such Common Stock Equivalents were exercised,
exchanged or converted.
(b) The "Net Consideration Per
Share" which may be received by the Corporation shall be
determined in each instance as of the date of issuance of
Common Stock Equivalents without giving effect to any possible
future upward price adjustments or rate adjustments which may
be applicable with respect to such Common Stock Equivalents.
(i)(C) Stock Dividends for Holders of Capital Stock
Other Than Common Stock. In the event that the Corporation shall make
or issue, or shall fix a record date for the determination of (and
thereafter shall issue to) holders of any capital stock of the
Corporation (other than holders of Common Stock) entitled to receive a
dividend or other distribution payable in Common Stock or securities of
the Corporation convertible into or otherwise exchangeable for shares
of Common Stock of the Corporation, then such Common Stock or other
securities issued in payment of such dividend shall be deemed to have
been issued for no consideration, except for (1) dividends payable in
shares of Common Stock payable pro rata to holders of Preferred Stock
and to holders of any other class of stock (whether or not paid to
holders of any other class of stock), or (2) with respect to the
Preferred Stock, dividends payable in shares of the same series of
Preferred Stock; provided, however, that holders of any shares of
Preferred Stock shall be entitled to receive, in lieu of such Preferred
Stock, the shares of Common Stock for which the shares of Preferred
Stock are then convertible.
(i)(D) Consideration Other than Cash. For purposes of
this Section 5(d)(i), if a part or all of the consideration received by
the Corporation in connection with the issuance of shares of the Common
Stock or the issuance of any of the securities described in this
Section 5(d)(i) consists of property other than cash, such
consideration shall be deemed to have a fair market value as is
reasonably determined in good faith by the Board of Directors of the
Corporation. In the event of any dispute between the holders of the
Preferred Stock and the Corporation regarding the determination of fair
market value, upon the request of the holders of at least a majority of
the then outstanding shares of Preferred Stock (voting as a separate
class), the Corporation shall engage a consulting firm or investment
banking firm, selected by the Board of Directors and approved by the
holders of at least a majority of the outstanding shares of Preferred
Stock (voting as a separate class), to prepare an independent appraisal
of the fair market value of such property to be distributed. The
expenses of any appraisal by such consulting or investment banking firm
shall be borne by the Corporation.
(i)(E) Exceptions to Antidilution Adjustments; Basket
for Reserved Employee Shares. This Section 5(d)(i) shall not apply (a)
under any of the circumstances which would constitute an Extraordinary
Common Stock Event (as described below); (b) up to 757,230 shares of
Common Stock, or options exercisable therefor, issued to directors,
officers or employees of or consultants to the Company or any of its
subsidiaries pursuant to any qualified or non-qualified stock option
plan or agreement, employee stock ownership plan, stock purchase
agreement, stock plan, stock restriction agreement, or consulting
agreement or such other options, arrangements, agreements or plans
approved by the Board of Directors; (c) up to 120,000 shares of Common
Stock pursuant to the Additional Options (as defined in the Purchase
Agreement); (d) up to 162,461 shares of Common Stock to be issued in
connection with the Corporation's pending acquisition of Arbor Capital
Partners, Inc., (e) up to 24,201 shares of Common Stock issuable
pursuant to the Arbor Option, (f) up to 198,088 shares of Common Stock
issuable pursuant to the exercise of the Warrants (as defined in the
Purchase Agreement), (g) up to 205,563 shares of Common Stock issuable
pursuant to the exercise of the Contingent Warrants (as defined in the
Purchase
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Agreement); (h) up to 345,000 shares of Common Stock issuable pursuant
to the exercise of the Public Warrants (as defined in the Purchase
Agreement); and (i) shares of Common Stock issued in connection with
Acquisitions (as defined in the Purchase Agreement) approved by the
Board of Directors, at a price equal to no less than the fair market
value therefor (as determined in good faith by the Board of
Directors), provided that such shares are issued to such Person or its
holders in the Acquisition.
(ii) Upon Extraordinary Common Stock Event. Upon the
happening of an Extraordinary Common Stock Event (as hereinafter
defined), the Applicable Conversion Value (and all other conversion
values set forth in Section 5(d)(i) above) shall, simultaneously with
the happening of such Extraordinary Common Stock Event, be adjusted by
multiplying the Applicable Conversion Value by a fraction, the
numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such Extraordinary Common Stock Event
and the denominator of which shall be the number of shares of Common
Stock outstanding immediately after such Extraordinary Common Stock
Event, and the product so obtained shall thereafter be the Applicable
Conversion Value. The Applicable Conversion Value, as so adjusted,
shall be readjusted in the same manner upon the happening of any
successive Extraordinary Common Stock Event or Events.
An "Extraordinary Common Stock Event" shall
mean (i) the issue of additional shares of Common Stock as a dividend
or other distribution on outstanding shares of Common Stock, (ii) a
subdivision of outstanding shares of Common Stock into a greater number
of shares of Common Stock, or (iii) a combination or reverse stock
split of outstanding shares of Common Stock into a smaller number of
shares of the Common Stock.
(e) Automatic Conversion Upon Election of Corporation.
(i) Provided that (A) the price of the Corporation's Common
Stock as listed on NASDAQ or any other national securities exchange, for a
period of 30 consecutive trading days exceeds (1) at any time following February
27, 1999 but on or prior to February 27, 2000, 145% of the Applicable Conversion
Value, (2) at any time following February 27, 2000 but on or prior to February
27, 2001, 170% of the Applicable Conversion Value, or (3) at any time following
February 27, 2001 but on or prior to February 27, 2002, 190% of the Applicable
Conversion Value, and (B) the average daily trading volume of the Corporation's
Common Stock for the prior 30 consecutive trading days exceeds 10,000 shares,
the Corporation may, upon written notice to all of the holders of the
outstanding shares Preferred Stock, require that all of the outstanding shares
of Preferred Stock convert, subject to and in accordance with the other
provisions of this Section 5, into shares of Common Stock at the then Applicable
Conversion Rate. Upon delivery of such notice by the Corporation, all
outstanding shares of Preferred Stock shall be converted automatically into the
number of shares of Common Stock into which such shares of Preferred Stock are
then convertible pursuant to Section 5 hereof as of the date of the mailing of
such written notice, without any further action by the holders of such shares
and whether or not the certificates representing such shares are surrendered to
the Corporation or its transfer agent; provided, however, that the number of
shares of Preferred Stock converted pursuant to this Section 5(e)(i) shall not
require approval of the Office of Thrift Supervision or any other approval under
the Certificate of Incorporation of the Corporation.
(ii) Surrender of Certificates Upon Automatic Conversion. Upon
the occurrence of the conversion event specified in Section 5(e)(i) above, the
holders of the Preferred Stock shall, upon notice from the Corporation,
surrender the certificates representing such shares at the office of the
Corporation or of its transfer agent for the Common Stock. Thereupon, there
shall be issued and delivered to such holder a certificate or certificates for
the number of shares of Common Stock into which the shares of Preferred Stock so
surrendered were convertible on the date on which such conversion occurred. The
Corporation shall not be obligated to issue such certificates unless
certificates evidencing the shares of Preferred Stock being converted are either
delivered to the
8
<PAGE>
Corporation or any such transfer agent, or the holder notifies the Corporation
that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection therewith.
(f) Dividends. In the event the Corporation shall make or
issue, or shall fix a record date for the determination of holders of Common
Stock entitled to receive a dividend or other distribution (other than a
distribution in liquidation, a distribution as provided for in Sections 2(c) or
2(d) or other distribution otherwise provided for herein) with respect to the
Common Stock payable in (i) securities of the Corporation other than shares of
Common Stock, or (ii) other assets (excluding cash dividends or distributions),
then and in each such event provision shall be made so that the holders of the
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the number of securities or such
other assets of the Corporation which they would have received had their
Preferred Stock been converted into Common Stock on the date of such event and
had they thereafter, during the period from the date of such event to and
including the Conversion Date (as that term is hereafter defined in Section
5(i)), retained such securities or such other assets receivable by them during
such period, giving application to all other adjustments called for during such
period under this Section 5 with respect to the rights of the holders of the
Preferred Stock.
(g) Capital Reorganization or Reclassification. If the Common
Stock issuable upon the conversion of the Preferred Stock shall be changed into
the same or a different number of shares of any class or classes of capital
stock, whether by capital reorganization, recapitalization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for elsewhere in this Section 5, or the sale of all or substantially
all of the Corporation's capital stock or assets to any other person), then and
in each such event the holders of the Preferred Stock shall have the right
thereafter to convert such shares into the kind and amount of shares of capital
stock and other securities and property receivable upon such reorganization,
recapitalization, reclassification or other change by the holders of the number
of shares of Common Stock into which such shares of Preferred Stock might have
been converted immediately prior to such reorganization, recapitalization,
reclassification or change, all subject to further adjustment as provided
herein.
(h) Certificate as to Adjustments; Notice by Corporation. In
each case of an adjustment or readjustment of the Applicable Conversion Rate,
the Corporation at its expense will furnish each holder of Preferred Stock so
affected with a certificate prepared by the Treasurer or Chief Financial Officer
of the Corporation, showing such adjustment or readjustment, and stating in
detail the facts upon which such adjustment or readjustment is based. Within 90
days of the end of each fiscal year of the Corporation, the Corporation at its
expense will furnish each holder of Preferred Stock so affected with a
certificate, showing such adjustment or readjustment, and stating in detail the
facts upon which such adjustment or readjustment is based.
(i) Exercise of Conversion Privilege. To exercise its
conversion privilege, a holder of Preferred Stock shall surrender the
certificate or certificates representing the shares being converted to the
Corporation at its principal office, and shall give written notice to the
Corporation at that office that such holder elects to convert such shares. Such
notice shall also state the name or names (with address or addresses) in which
the certificate or certificates for shares of Common Stock or Preferred Stock,
as applicable, issuable upon such conversion shall be issued. The certificate or
certificates for shares of Preferred Stock surrendered for conversion shall be
accompanied by proper assignment thereof to the Corporation or in blank. The
date when such written notice is received by the Corporation, together with the
certificate or certificates representing the shares of Preferred Stock being
converted, shall be the "Conversion Date". As promptly as practicable after the
Conversion Date, the Corporation shall issue and shall deliver to the holder of
the shares of Preferred Stock being converted, or on its written order, such
certificate or certificates as it may request for the number of whole shares of
Common Stock or Preferred Stock, as applicable, issuable upon the conversion of
such shares of Preferred Stock in accordance with the provisions of this Section
5, and cash, as provided in Section 5(j), in respect of any fraction
9
<PAGE>
of a share of Common Stock issuable upon such conversion. Such conversion shall
be deemed to have been effected immediately prior to the close of business on
the Conversion Date, and at such time the rights of the holder as holder of the
converted shares of Preferred Stock shall cease and the person(s) in whose
name(s) any certificate(s) for shares of Common Stock or Preferred Stock, as
applicable, shall be issuable upon such conversion shall be deemed to have
become the holder or holders of record of the shares of Common Stock or
Preferred Stock, as applicable, represented thereby.
(j) Cash in Lieu of Fractional Shares. No fractional shares of
Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Preferred Stock. Instead of any fractional shares of
Common Stock which would otherwise be issuable upon conversion of Preferred
Stock, the Corporation shall pay to the holder of the shares of Preferred Stock
which were converted a cash adjustment in respect of such fractional shares in
an amount equal to the same fraction of the fair market value per share of the
Common Stock at the close of business on the Conversion Date. The determination
as to whether or not any fractional shares are issuable shall be based upon the
aggregate number of shares of Preferred Stock being converted at any one time by
any holder thereof, not upon each share of Preferred Stock being converted.
(k) Reservation of Common Stock. Subject to the shareholder
vote of the Corporation referred to in Section 6.18 of the Purchase Agreement,
the Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Voting Common Stock, Nonvoting Common Stock
and Preferred Stock, solely for the purpose of effecting the conversion of the
shares of the Preferred Stock, such number of its shares of Common Stock and
Preferred Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Preferred Stock (including any
shares of Preferred Stock represented by any warrants, options, subscription or
purchase rights for Preferred Stock), and if at any time the number of
authorized but unissued shares of Common Stock and Preferred Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the
Preferred Stock (including any shares of Preferred Stock represented by any
warrants, options, subscriptions or purchase rights for such Preferred Stock),
the Corporation shall take such action as may be necessary to increase its
authorized but unissued shares of Common Stock and Preferred Stock to such
number of shares as shall be sufficient for such purpose.
(l) Reissuance of Preferred Stock. Except for the shares of
Preferred Stock which will be reserved for reissuance upon the conversion of
Preferred Stock pursuant to this Section 5 and subject to the provisions of
Section 5(n)(iii), no share or shares of Preferred Stock acquired by the
Corporation by reason of redemption, purchase, conversion or otherwise shall be
reissued and all such shares shall be cancelled, retired and eliminated from the
shares which the Corporation shall be authorized to issue. Upon any of the
foregoing events, the Corporation shall from time to time take such appropriate
corporate action as may be necessary to reduce the authorized number of shares
of the Preferred Stock.
(m) Payment of Accrued and Unpaid Dividends Upon Conversion.
Immediately upon any conversion of shares of Preferred Stock into Common Stock
pursuant to this Section 5, at the option of the holder of such Preferred Stock,
the Corporation shall pay in cash to such holder all accrued and unpaid
dividends thereon, whether or not earned or declared, up to and including the
Conversion Date.
(n) Conversion Rights of Series C Preferred Stock into Series
A Preferred Stock, Series B Preferred Stock or Voting Common Stock. The holders
of the Series C Preferred Stock shall have the following rights with respect to
the conversion of such shares into shares of Voting Common Stock, Series A
Preferred Stock, Series B Preferred Stock:
(i) General. In connection with the disposition of such shares
upon the occurrence (or the expected occurrence as described in Section
5(n)(iii) below), of any Conversion Event (as defined herein), each holder of
Series C Preferred Stock shall be entitled to convert such
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Series C Preferred Stock into an equal number of shares of Series A Preferred
Stock or Series B Preferred Stock or the number of shares of Voting Common Stock
provided for in this Section 5.
(ii) Conversion Event. For purposes of this Section 5(n), a
"Conversion Event" shall mean, (A) any sale to the public in a widely dispersed
offering (including, without limitation, a public offering registered under the
Securities Act of 1933), (B) any disposition under Rule 144 or Rule 144A
promulgated by the Securities and Exchange Commission under the Securities Act
of 1933, or any similar rule then in force of no more than two percent (2%) of
the outstanding voting securities of the Corporation, (c) any transfer pursuant
to a right of first refusal set forth in the Transfer Restriction Agreement (as
defined in the Purchase Agreement) or (D) any transfer in a single transaction
to an independent third party who acquires at least a majority of the voting
stock of the Corporation without regard to the transfer of such securities. For
purposes of this Section 5(n), "person" shall include any natural person and any
corporation, partnership, joint venture, trust, unincorporated organization and
any other entity or organization.
(iii) Conversion Prior to Conversion Event. Each holder of
Series C Preferred Stock shall be entitled to convert shares of Series C
Preferred Stock in connection with any Conversion Event if such holder
reasonably believes that such Conversion Event shall be consummated, and a
written request for conversion from any holder of Series C Preferred Stock to
the Corporation stating such holder's reasonable belief that a Conversion Event
shall occur shall be conclusive and shall obligate the Corporation to effect
such conversion in a timely manner so as to enable each such holder to
participate in such Conversion Event. The Corporation shall not cancel the
shares of Series C Preferred Stock so converted before the tenth day following
such Conversion Event and shall reserve such shares until such tenth day for
reissuance in compliance with the next sentence. If any shares of Series C
Preferred Stock are converted into shares of Series A Preferred Stock, Series B
Preferred Stock or Voting Common Stock in connection with a Conversion Event and
such shares of Series A Preferred Stock, Series B Preferred Stock or Voting
Common Stock are not actually distributed, disposed of or sold pursuant to such
Conversion Event, such shares of Series A Preferred Stock, Series B Preferred
Stock or Voting Common Stock shall be promptly converted back into the same
number of shares of Series C Preferred Stock, and during such period prior to
such distribution, disposal or sale, the holder of such Series A Preferred
Stock, Series B Preferred Stock or Voting Common Stock shall not be entitled to
vote such shares notwithstanding provisions of this Certificate of Designation
or the Corporation's Certificate of Incorporation.
(iv) Exercise of Conversion Privilege. Each holder of Series C
Preferred Stock shall exercise its conversion privilege in the same manner
specified for conversion of Preferred Stock into Common Stock in this Section 5.
(v) Transfer. The Corporation shall not close its books
against the transfer of shares of Voting Common Stock in any manner which would
interfere with the timely conversion of any shares of Series C Preferred Stock.
The Corporation shall assist and cooperate with any holder of Series C Preferred
Stock required to make any governmental filings or obtain any governmental
approval prior to or in connection with any conversion of Series C Preferred
Stock hereunder (including, without limitation, making any filings required to
be made by the Corporation), provided, that the costs and expenses of the
Company in connection therewith (including attorneys' fees) shall be paid by
such holder.
6. Redemption.
(a) Put Option Redemption Upon a Change of Control or Event of
Noncompliance. (i) In the event of a Change of Control (as defined in the
Purchase Agreement) or the Corporation obtains knowledge of a proposed
transaction or series of transactions which would result in a Change of Control,
or (ii) at the request (a "Put Request") of the holders of a majority of the
then outstanding shares of Preferred Stock upon an Event of Noncompliance, other
than in respect of Section 11.02(d), under the Purchase Agreement, the
Corporation will, within three days of (x) the earlier of such Change of Control
or obtaining such knowledge of the proposed Change of
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<PAGE>
Control or (y) the date of the Put Request, give written notice of such event to
each holder of shares of Preferred Stock, which notice shall contain a written
irrevocable offer by the Corporation to redeem, by a date (the "Redemption
Date") specified in such notice (which date shall not be less than 30 days and
not more than 60 days after the date of such notice and which date shall not be
earlier than the date of the Change of Control), all of the shares of the
Preferred Stock held by such holder in full (and not in part). Such offered
redemption shall be made on the Redemption Date at a price equal to (i) in the
case of a redemption in connection with a Change of Control or an Event of
Noncompliance not relating to Section 6.05, 6.09, 6.18 or 11.02(d) of the
Purchase Agreement, 101% of the Liquidation Preference of the Preferred Stock,
plus all accrued but unpaid dividends thereon, or (ii) in the case of a
redemption in connection with an Event of Noncompliance relating to Sections
6.05, 6.09 or 6.18 of the Purchase Agreement, 120% of the Liquidation Preference
of the Preferred Stock, plus all accrued but unpaid dividends thereon, upon
acceptance by such holder mailed to Corporation at least seven days prior to the
Redemption Date.
(b) Call Option Redemption. At any time on or after February
27, 2002, the Corporation may, at its option, upon notice to each holder of
shares of Preferred Stock not less than 30 days and not more than 60 days prior
to the date fixed for such redemption, redeem all but not less than all of the
then outstanding shares of Preferred Stock, for a redemption price equal to the
greater of (i) the Fair Market Value of the Common Stock (as defined in the
Purchase Agreement) as of the date of redemption or (ii) 100% of the Liquidation
Preference of the Preferred Stock, plus all accrued but unpaid dividends
thereon.
7. Restrictions and Limitations.
The Corporation shall not take any corporate action or otherwise amend
its Certificate of Incorporation or By-laws without the approval by vote or
written consent of the holders of at least 100% of the then outstanding shares
of Preferred Stock (voting as a separate class), each share of Preferred Stock
to be entitled to one vote in each instance, if such corporate action or
amendment would change any of the rights, preferences, privileges of or
limitations provided for herein for the benefit of any shares of Preferred Stock
or materially adversely affect the rights of the holders of the Preferred Stock.
Without limiting the generality of the preceding sentence, the Corporation will
not amend its Certificate of Incorporation or take any other corporate action
without the approval of the holders of at least two thirds of the then
outstanding shares of Preferred Stock, voting separately as a single class, if
such amendment or corporate action would:
(a) cause or authorize the Corporation to redeem, purchase or
otherwise acquire for value (or pay into or set aside for a sinking fund for
such purpose), any share or shares of equity securities of the Corporation other
than as provided for in Section 6 hereof; or
(b) authorize, create or issue, or obligate the Corporation to
authorize, create or issue, additional shares of any security senior to or on a
parity with the Preferred Stock; or
(c) reduce the amount payable to the holders of Preferred
Stock upon the voluntary or involuntary liquidation, dissolution or winding up
of the Corporation; or
(d) adversely affect the liquidation preferences, dividend
rights, voting rights or redemption rights of the holders of Preferred Stock; or
(e) cancel or modify the conversion rights of the holders of
Preferred Stock provided for in Section 5 herein.
8. No Dilution or Impairment. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
capital stock or 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 of the Preferred Stock set forth herein, but
will at all times in good faith assist in the carrying out of all such terms and
in the
12
<PAGE>
taking of all such action as may be necessary or appropriate in order to protect
the rights of the holders of the Preferred Stock against dilution or other
impairment. Without limiting the generality of the foregoing, the Corporation
(a) will not increase the par value of any shares of stock receivable on the
conversion of the Preferred Stock above the amount payable therefor on such
conversion, and (b) will take all such action as may be necessary or appropriate
in order that the Corporation may validly and legally issue fully paid and
nonassessable shares of stock on the conversion of all Preferred Stock from time
to time outstanding.
9. Notices of Record Date. In the event of:
(a) any taking by the Corporation of a record of the holders
of any class of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of capital stock of any
class or any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation to any other Corporation, or
any other entity or person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding up of the Corporation,
then and in each such event the Corporation shall mail or cause to be mailed to
each holder of Preferred Stock a notice specifying (i) the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right and a description of such dividend, distribution or right, (ii) the date
on which any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected to
become effective, and (iii) the time, if any, that is to be fixed, as to when
the holders of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up. Such notice shall be mailed by first class mail, postage prepaid, at
least 20 days prior to the date specified in such notice on which such action is
to be taken.
IN WITNESS WHEREOF, TELEBANC FINANCIAL CORPORATION has caused
this Certificate of Designation to be made under the seal of the Corporation and
signed by Mitchell H. Caplan, its President, and attested to by Sang-Hee Yi, its
Assistant Secretary, this 25th day of February, 1997.
TELEBANC FINANCIAL CORPORATION
By: /s/ Mitchell H. Caplan
-----------------------------------
Mitchell H. Caplan
President
[SEAL]
Attest:
/s/ Sang-Hee Yi
- -----------------------
Sang-Hee Yi
Assistant Secretary
13
$29,900,000 UNIT PURCHASE AGREEMENT
dated as of February 19, 1997
between
TELEBANC FINANCIAL CORPORATION
and
THE PURCHASERS LISTED ON SCHEDULE 1.01
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
1. PURCHASE, SALE AND TERMS OF UNITS........................................................................1
1.01. Authorization of Notes, Preferred Shares and Warrants........................................1
1.02. Warrant Shares and Conversion Shares.........................................................2
1.03. Purchase Price and Closing...................................................................2
1.04. Use of Proceeds..............................................................................2
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................3
2.01. Organization, Standing and Power.............................................................3
2.02. Authority; Enforceability; No Conflict.......................................................3
2.03. Capitalization...............................................................................4
2.04. Subsidiaries.................................................................................5
2.05. Status of the Securities.....................................................................6
2.06. Financial Statements.........................................................................6
2.07. No Material Adverse Change...................................................................7
2.08. Liabilities and Reserves for Losses..........................................................7
2.09. Indebtedness.................................................................................8
2.10. Title to Assets..............................................................................8
2.11. Actions Pending..............................................................................8
2.12. Compliance with Law..........................................................................8
2.13. Taxes........................................................................................9
2.14. ERISA........................................................................................9
2.15. Certain Fees................................................................................10
2.16. Disclosure..................................................................................10
2.17. Proprietary Rights..........................................................................10
2.18. Environmental and Safety Matters............................................................11
2.19. Books and Records...........................................................................12
2.20. Material Agreements.........................................................................12
2.21. Transactions with Affiliates................................................................13
2.22. Securities Act of 1933......................................................................13
2.23. Governmental Approvals......................................................................13
2.24. Insurance...................................................................................13
2.25. Employees...................................................................................14
2.26. Absence of Certain Developments.............................................................14
2.27. Loans.......................................................................................15
2.28. Agreements with Regulatory Agencies.........................................................17
2.29. Securities Documents and Regulatory Reports.................................................17
2.30. United States Real Property Holding Corporation.............................................17
2.31. Arbor Acquisition Agreement.................................................................18
2.32. Junior Subordinated Note Documents..........................................................18
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2.33. Senior Indebtedness.........................................................................18
2.34. Intentional Statements or Omissions.........................................................18
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.........................................................19
3.01. Organization and Standing of the Purchaser..................................................19
3.02. Authority; Enforceability; No Conflict......................................................19
3.03. Acquisition for Investment..................................................................19
3.04. Financing...................................................................................20
3.05. Approvals...................................................................................20
3.06. Ownership of Common Stock...................................................................20
4. CONDITIONS TO PURCHASERS' OBLIGATIONS FOR CLOSING.......................................................20
4.01. Representations and Warranties..............................................................20
4.02. Secretary's Certificate.....................................................................20
4.03. Officer's Certificate.......................................................................21
4.04. Intentionally Omitted.......................................................................21
4.05. Securities Filings..........................................................................21
4.06. Rebuttal of Control.........................................................................21
4.07. Good Standing Certificates..................................................................21
4.08. No Proceedings or Litigation................................................................21
4.09. Notes.......................................................................................22
4.10. Certificate of Designation..................................................................22
4.11. Warrants; Contingent Warrants...............................................................22
4.12. Legal Opinion...............................................................................22
4.13. Transfer Restriction Agreements. ..........................................................22
4.14. Certain Documents...........................................................................22
4.15. Board of Directors..........................................................................22
4.16. Amendment of Bylaws.........................................................................22
4.17. Expenses....................................................................................22
4.18. Compliance with this Agreement and Related Agreements.......................................22
4.19. Proceedings Satisfactory....................................................................23
4.20. Material Adverse Effect.....................................................................23
4.21. Other Purchasers............................................................................23
5. CONDITIONS TO COMPANY'S OBLIGATIONS FOR CLOSING.........................................................23
5.01. Representations and Warranties..............................................................23
5.02. Rebuttal of Control.........................................................................23
5.03. Other Purchasers............................................................................23
5A. COVENANTS PRIOR TO CLOSING..............................................................................23
5A.01 Purchasers Reasonable Efforts...............................................................23
5.A.02 Company Reasonable Efforts..................................................................23
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5.A.03 Conduct of Business.........................................................................24
5.A.04 Access to Information.......................................................................24
5B. COVENANTS OF PURCHASER..................................................................................25
5.B.01 Company Not a Subsidiary of any Purchaser...................................................25
5.B.02 Shareholder Vote............................................................................25
6. AFFIRMATIVE COVENANTS OF THE COMPANY....................................................................25
6.01. Inspection Rights...........................................................................25
6.02. Budgets Approval............................................................................25
6.03. Financings..................................................................................25
6.04. Meetings of Directors.......................................................................26
6.05. By-Laws; Meetings and Indemnification.......................................................26
6.06. Maintenance of Existence....................................................................26
6.07. Properties, Business, Insurance.............................................................26
6.08. Expenses of Directors.......................................................................26
6.09. Size of Board and Committees................................................................26
6.10. Compliance with Laws........................................................................27
6.11. Keeping of Records and Books of Account.....................................................27
6.12. Rule 144....................................................................................27
6.13. Rule 144A Information.......................................................................28
6.14. Reporting Requirements......................................................................28
6.15. Reports to Directors........................................................................29
6.16. Minimum Net Worth...........................................................................30
6.17. Maintenance of Reserve......................................................................30
6.18. Amendment of Certificate of Incorporation...................................................30
6.19. Arbor Acquisition...........................................................................30
6.20. Original Issue Discount.....................................................................30
6.21. Financial Statements........................................................................30
7. NEGATIVE COVENANTS OF THE COMPANY.......................................................................31
7.01. Distributions...............................................................................31
7.02. Capital Stock...............................................................................31
7.03. Indebtedness................................................................................31
7.04. Investments.................................................................................31
7.05. Dealings with Affiliates....................................................................31
7.06. Compensation to Officers....................................................................32
7.07. Conduct of Business.........................................................................32
7.08. Amendments..................................................................................32
7.09. Anti-Takeover Provisions....................................................................32
7.10. Other Agreements............................................................................32
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8. REGISTRATION, TRANSFER AND SEPARATION OF SECURITIES.....................................................32
8.01. Securities Register; Ownership of Securities................................................32
8.02. Transfer and Exchange of Securities.........................................................32
8.03. Replacement of Securities...................................................................33
8.04. Separability................................................................................33
9. REDEMPTION OF NOTES.....................................................................................33
9.01. Mandatory Redemption........................................................................33
9.02. Optional Redemption.........................................................................33
9.03. Contingent Redemption Upon a Change of Control..............................................33
9.04. Allocation of Partial Redemptions...........................................................34
9.05. Maturity; Surrender; etc....................................................................34
10. SUBORDINATION OF SENIOR SUBORDINATED OBLIGATIONS........................................................34
10.01. Generally...................................................................................34
10.02. Default in Respect of Senior Debt...........................................................35
10.03. Insolvency, etc.............................................................................35
10.04. Turnover of Payments........................................................................36
10.05. Obligations Not Impaired....................................................................36
10.06. Payment of Senior Debt; Subrogation.........................................................37
10.07. Reliance by Holders of Senior Debt; Continuing Offer........................................37
11. EVENTS OF DEFAULT AND EVENTS OF NONCOMPLIANCE...........................................................37
11.01. Events of Default...........................................................................37
11.02. Events of Noncompliance.....................................................................39
12. REMEDIES ON EVENT OF DEFAULT, ETC.......................................................................39
12.01. Acceleration of Notes.......................................................................39
12.02. Redemption of Preferred Shares..............................................................40
12.03. Default Rate................................................................................40
12.04. Other Remedies..............................................................................40
13. REGISTRATION RIGHTS.....................................................................................40
13.01. Demand Registrations........................................................................41
13.02. Incidental Registration.....................................................................43
13.03. Registration Procedures.....................................................................44
13.04. Indemnification.............................................................................47
13.05. Contribution................................................................................50
14. RIGHT OF FIRST OFFER....................................................................................51
14.01. Right of First Offer........................................................................51
14.02. The Offer...................................................................................52
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14.03. Notice of Acceptance........................................................................52
14.04. Closing.....................................................................................52
14.05. Sales to Proposed Transferee................................................................53
14.06. Exception...................................................................................53
15. DEFINITIONS AND ACCOUNTING TERMS........................................................................53
15.01. Certain Defined Terms.......................................................................53
15.02. Accounting Terms............................................................................67
16. INDEMNIFICATION.........................................................................................67
16.01. General Indemnity...........................................................................67
16.02. Indemnification Procedure...................................................................67
17. TERMINATION.............................................................................................68
17.01. Right to Terminate..........................................................................68
17.02. Effect of Termination.......................................................................69
18. MISCELLANEOUS...........................................................................................69
18.01. No Waiver; Cumulative Remedies..............................................................69
18.02. Amendments, Waivers and Consents............................................................69
18.03. Addresses for Notices.......................................................................70
18.04. Costs, Expenses and Taxes...................................................................70
18.05. Pro Rata Payments...........................................................................71
18.06. Binding Effect; Assignment..................................................................71
18.07. Survival of Representations and Warranties..................................................71
18.08. Prior Agreements............................................................................71
18.09. Severability................................................................................71
18.10. Confidentiality.............................................................................72
18.11. Governing Law...............................................................................72
18.12. Headings....................................................................................72
18.13. Counterparts................................................................................72
18.14. Further Assurances..........................................................................72
18.15. Waiver......................................................................................72
18.16. Specific Enforcement........................................................................73
18.17. Company Waivers.............................................................................73
v
</TABLE>
<PAGE>
$29,900,000 UNIT PURCHASE AGREEMENT
Dated as of February 19, 1997
Each of the Purchasers
Listed on Schedule 1.01
Ladies and Gentlemen:
TELEBANC FINANCIAL CORPORATION, a Delaware corporation (the "Company"),
hereby agrees with each of you as follows:
1. PURCHASE, SALE AND TERMS OF UNITS
1.01. Authorization of Notes, Preferred Shares and Warrants. The
Company has authorized the issuance and sale of 29,900 Units (the "Units")
which, in the aggregate, shall consist of (a) $13,703,469.00 in aggregate
principal amount of its Senior Subordinated Notes due March 31, 2004 (the
"Notes"), to be substantially in the form of Exhibit A, (b) up to 29,900 shares
of its authorized but unissued shares of Preferred Stock, up to 22,900 shares of
which shall be either shares (the "Series A Preferred Shares") of Series A
Voting Convertible Preferred Stock, $.01 par value per share (the "Series A
Preferred Stock") or shares (the "Series B Preferred Shares") of Series B
Nonvoting Convertible Preferred Stock, $.01 par value per share (the "Series B
Preferred Stock") and up to 7,000 shares of which shall be shares (the "Series C
Preferred Shares") of Series C Nonvoting Convertible Preferred Stock, $.01 value
per share (the "Series C Preferred Stock"), each having the designation, rights
and preferences set forth in the Certificate of Designation attached hereto as
Exhibit B, (c) warrants (the "Warrants") to purchase 198,088 shares of Common
Stock, to be substantially in the form of Exhibit C and (d) warrants (the
"Contingent Warrants") to purchase up to 205,563 shares of Common Stock, to be
substantially in the form of Exhibit D. Each Unit shall consist of one share of
Preferred Stock of the series designated next to such Purchaser's name on
Schedule 1.01, one Note in the original principal amount of $458.31, one Warrant
for 6.625 shares of Common Stock and one Contingent Warrant for up to 6.875
shares of Common Stock. The Series A Preferred Shares, the Series B Preferred
Shares and the Series C Preferred Shares are sometimes collectively referred to
as the "Preferred Shares". The Series A Preferred Stock, the Series B Preferred
Stock and the Series C Preferred Stock is sometimes collectively referred to as
the "Preferred Stock." The Notes, the Preferred Shares, the Warrants and the
Contingent Warrants are sometimes collectively referred to herein as the
"Securities."
<PAGE>
1.02. Warrant Shares and Conversion Shares. Subject to the shareholder
vote referred to in Section 6.18, the Board of Directors has authorized and has
reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of stockholders, a sufficient number of
authorized but unissued shares of Common Stock, Nonvoting Common Stock and
Preferred Stock to satisfy the rights of exercise of the Warrants and the
Contingent Warrants and the rights of conversion of the Preferred Shares. Any
shares of Common Stock or Preferred Stock issuable upon the exercise of the
Warrants and the Contingent Warrants (and such shares when issued) are herein
referred to as the "Warrant Shares." Any shares of Common Stock, Nonvoting
Common Stock or Preferred Stock issuable upon the conversion of any shares of
Preferred Stock (and such shares when issued) are herein referred to as the
"Conversion Shares."
1.03. Purchase Price and Closing. In consideration of and in express
reliance upon the representations, warranties, covenants, terms and conditions
of this Agreement, the Company agrees to issue and sell the Units at a purchase
price of $1,000 per Unit to the persons (individually a "Purchaser" and
collectively the "Purchasers") and in the respective amounts set forth in
Schedule 1.01 and, the Purchasers, severally but not jointly, agree to purchase
that number of Units set forth opposite their respective names in Schedule 1.01.
Subject to the terms and conditions contained herein, the closing of the
purchase and sale of the Units to be acquired by the Purchasers from the Company
under this Agreement (the "Closing") shall take place at a time, date and place
to be specified by the parties, which shall be as soon as practicable upon 2
business days' notice from the Company to the Purchasers and in any event no
later than the second business day after satisfaction of the condition set forth
in Section 4.06 (the "Closing Date") unless another time, date or place is
agreed to in writing by the parties hereto. At the Closing, the Company will
deliver to each Purchaser (a) Notes in the aggregate principal amount to be
purchased by such Purchaser hereunder, registered in such Purchaser's name (or
that of its nominee), (b) certificates evidencing the number and series of
Preferred Shares to be purchased by such Purchaser hereunder, registered in such
Purchaser's name (or that of its nominee) and (c) Warrants and Contingent
Warrants in the amount to be purchased by such Purchaser hereunder, registered
in such Purchaser's name (or that of its nominee), against delivery of a
certified or bank cashier's check payable to the order of the Company, or a
transfer of funds to the account of the Company by wire transfer, representing
the net cash consideration set forth opposite such Purchaser's name on Schedule
1.01.
1.04. Use of Proceeds. The Company shall use the cash proceeds from the
sale of the Units for general corporate purposes.
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<PAGE>
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in a disclosure schedule which is being delivered
to the Purchasers concurrently herewith (the "Company Disclosure Schedule"), the
Company hereby represents and warrants to the Purchasers that the statements
contained in this Article 2 are true, correct and complete as of the date of
this Agreement.
2.01. Organization, Standing and Power.
(a) Except as set forth in Schedule 2.01 to the Company
Disclosure Schedule, each of the Company, the Subsidiaries, the Arbor Entities,
the TeleBank Entities, and the Investment Funds is a corporation, partnership or
limited liability company duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization. Except as set forth in
Schedule 2.01 of the Company Disclosure Agreement, each of the Company, the
Subsidiaries, the Arbor Entities, the Investment Funds and the TeleBank Entities
has all requisite power and authority to own, lease and operate its properties
and assets and to conduct its business as now being conducted and is duly
licensed or qualified to do business in good standing in those foreign
jurisdictions in which such licensing or qualification is required except where
the failure to be so licensed or qualified does not have a Material Adverse
Effect, and to the best Knowledge of the Company, the Subsidiaries, the Arbor
Entities, the Investment Funds and the TeleBank Entities, no suspension or
cancellation of any of the same that would have a Material Adverse Effect is
threatened or pending.
(b) The Company is a savings and loan holding company
registered with the OTS under HOLA. TeleBank is a federal savings bank chartered
by the OTS under the laws of the United States with its main office in the State
of Virginia. TeleBank is a member in good standing of the Federal Home Loan Bank
of Atlanta, owns the requisite amount of stock in the Federal Home Loan Bank of
Atlanta and has its deposit accounts insured by the Savings Association
Insurance Fund administered by the FDIC to the maximum extent permitted by the
FDIA. Arbor is registered as a broker-dealer and investment adviser with the
Commission and under applicable state Laws and is a member organization in good
standing of the NASD.
2.02. Authority; Enforceability; No Conflict. The Company has all
requisite corporate power and authority to enter into this Agreement and each
Related Agreement to which it is a party, to issue and sell the Units, subject
to the conditions specified herein and therein, and to carry out its obligations
hereunder and under each Related Agreement to which it is a party. The
execution, delivery and performance of this Agreement and each Related Agreement
to which it is a party by the Company and the issuance and sale of the Units by
the Company have been duly and validly authorized by all requisite corporate
proceedings on the part of the Company. This Agreement and each Related
Agreement to which it is a party when executed and delivered by the Company is a
valid and binding obligation of the Company,
3
<PAGE>
enforceable against the Company in accordance with its terms, except that (i)
such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium, rehabilitation, liquidation, conservatorship, receivership or other
similar laws now or hereafter in effect relating to creditors' rights generally
and (ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought. Except as set
forth on Schedule 2.02 to the Company Disclosure Schedule and except as
contemplated hereby, the execution and delivery of this Agreement and each
Related Agreement to which it is a party by the Company does not, and the
consummation by the Company of the transactions (including the Arbor
Acquisition) contemplated hereby and thereby will not result in or constitute:
(a) a default, breach or violation of or under the organizational documents of
the Company, any Subsidiary, any Arbor Entity, any TeleBank Entity, or any
Investment Fund, (b) a default, breach or violation of or under any mortgage,
deed of trust, indenture, note, bond, license, lease agreement or other
instrument or obligation to which the Company, any Subsidiary, any Arbor Entity,
any TeleBank Entity, or any Investment Fund is a party or by which any of their
respective properties or assets are bound, (c) a violation of any Law by which
the Company, any Subsidiary, any Arbor Entity, any TeleBank Entity, any
Investment Fund or any of their respective properties or assets is bound, (d) an
event which (with notice or lapse of time or both) would permit any Person to
terminate, accelerate the performance required by, or accelerate the maturity of
any indebtedness or obligation of the Company, any Subsidiary, any Arbor Entity,
any TeleBank Entity, or any Investment Fund under any agreement or commitment to
which the Company, any Subsidiary, any Arbor Entity, any TeleBank Entity, or any
Investment Fund is a party or by which the Company, any Subsidiary, any Arbor
Entity, any TeleBank Entity, or any Investment Fund is bound or by which any of
their respective properties or assets are bound, (e) the creation or imposition
of any lien, charge or encumbrance on any property of the Company, any
Subsidiary, any Arbor Entity, any TeleBank Entity, or any Investment Fund under
any agreement or commitment to which the Company, any Subsidiary, any Arbor
Entity, any TeleBank Entity, or any Investment Fund is a party or by which the
Company, any Subsidiary, any Arbor Entity, any TeleBank Entity, or any
Investment Fund is bound or by which any of their respective properties or
assets are bound, or (f) an event which would require any consent under any
agreement to which the Company, any Subsidiary, any Arbor Entity, any TeleBank
Entity, or any Investment Fund is a party or by which the Company, any
Subsidiary, any Arbor Entity, any TeleBank Entity, or any Investment Fund is
bound or by which any of their respective properties or assets are bound.
2.03. Capitalization. The authorized capital stock of the Company
consists of (a) 3,500,000 shares of Common Stock of which 2,049,500 shares are
outstanding, 437,230 shares are reserved for issuance pursuant to options under
the Company's 1994 Stock Option Plan or otherwise, 345,000 shares are reserved
for issuance pursuant to warrants outstanding as of the date hereof and (b)
500,000 shares of Preferred Stock, of which 29,900 shares have been designated
Series A
4
<PAGE>
Preferred Stock (18,850 of which are to be issued hereunder), 29,900 shares have
been designated Series B Preferred Stock (4,050 of which are to be issued
hereunder), and 7,000 have been designated Series C Preferred Stock (7,000 of
which are to be issued hereunder). In addition, subject to the shareholder vote
referred to in Section 6.18, 1,199,743 shares of Common Stock are reserved for
issuance upon conversion of the Series A Preferred Stock, the Series B Preferred
Stock and the Series C Preferred Stock, 198,088 shares of Common Stock are
reserved for issuance upon the exercise of the Warrants, 205,563 shares of
Common Stock are reserved for issuance upon the exercise of the Contingent
Warrants and 280,877 shares of Nonvoting Common Stock are reserved for issuance
upon the conversion of the Series C Preferred Stock. All of the outstanding
shares of Common Stock have been duly authorized and validly issued, and are
fully paid and non-assessable. Except as provided herein, in Schedule 2.03(a) to
the Company Disclosure Schedule or in any of the Related Agreements, there are
no outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon the Company for the purchase or
acquisition of any shares of capital stock of the Company or any other
securities convertible into, exchangeable for or evidencing the right to
subscribe for any shares of such capital stock. The offer and sale of all of the
securities listed on Schedule 2.03(b) to the Company Disclosure Schedule issued
prior to the Closing Date complied with or were exempt from all applicable
federal and state securities laws and no stockholder has a right of rescission
or damages with respect thereto. Except as set forth on Schedule 2.03(c) to the
Company Disclosure Schedule and except as set forth herein and as required in
the Certificate of Designation, the Company is not subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of its capital stock or any convertible securities, rights, options or
warrants. Except as set forth herein and as set forth on Schedule 2.03(d) to the
Company Disclosure Schedule, the Company is not a party to any agreement
granting registration rights to any person with respect to any of its equity or
debt securities. Except as set forth herein, in the Certificate of Designation
or in the Transfer Restriction Agreement, the Company is not a party to, and it
has no Knowledge of, any agreement restricting the voting or transfer of any
shares of the capital stock of the Company.
2.04. Subsidiaries. Schedule 2.04 to the Company Disclosure Schedule
sets forth each Subsidiary, each Arbor Entity, and each TeleBank Entity showing
the jurisdiction of its organization and showing the percentage of each Person's
ownership of the outstanding stock or other interests of such entity. All of the
outstanding shares of capital stock or other interests of each Subsidiary, each
Arbor Entity, and each TeleBank Entity have been duly authorized and validly
issued, and are fully paid and non-assessable. Except as set forth on Schedule
2.04 to the Company Disclosure Schedule, there are no outstanding preemptive,
conversion or other rights, options, warrants or agreements granted or issued by
or binding upon any Subsidiary, any TeleBank Entity or any Arbor Entity for the
purchase or acquisition of any shares of capital stock or other interests of any
Subsidiary, any TeleBank Entity or any Arbor Entity or any other securities
convertible into,
5
<PAGE>
exchangeable for or evidencing the right to subscribe for any shares of such
capital stock. Neither the Company, any Subsidiary, any Arbor Entity nor any
TeleBank Entity is subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of capital stock or other
interests of any Subsidiary any Arbor Entity or any TeleBank Entity or any
convertible securities, rights, options or warrants. Except as set forth herein,
neither the Company nor any Subsidiary, any Arbor Entity or any TeleBank Entity
is a party to, nor has any Knowledge of, any agreement restricting the voting or
transfer of any shares of the capital stock or other interests of any
Subsidiary.
2.05. Status of the Securities. The Securities to be issued pursuant to
this Agreement have been duly authorized by all necessary corporate action on
the part of the Company. When issued and paid for as provided in this Agreement,
the Securities will be validly issued and outstanding, fully paid and
nonassessable, and the issuance of the Securities is not and will not be subject
to preemptive or other similar contractual rights of any other stockholder of
the Company. Subject to the shareholder vote referred to in Section 6.18, the
Conversion Shares and Warrant Shares have been duly authorized by all necessary
corporate action on the part of the Company and have been duly reserved for
issuance. When the Conversion Shares and Warrant Shares are issued, such shares
will be validly issued and outstanding, fully paid and nonassessable, and the
issuance of such shares will not be subject to preemptive or other similar
contractual rights of any other stockholder of the Company.
2.06. Financial Statements.
(a) As set forth on Schedule 2.06(a) to the Company
Disclosure Schedule, the consolidated and consolidating balance sheets of the
Company and the Subsidiaries, as of December 31, 1993, 1994 and 1995, and the
related consolidated and consolidating income statements and statements of cash
flows and changes in stockholders' equity of the Company and Subsidiaries for
the Fiscal Years then ended, together with the opinion thereon of KPMG Peat
Marwick LLP (as to the 1993 and 1994 financial statements) and Arthur Andersen,
LLP (as to the 1995 financial statements), independent certified public
accountants, and the unaudited interim consolidated and consolidating balance
sheets of the Company and Subsidiaries as of September 30, 1996, and the related
consolidated and consolidating income statements and statements of cash flows
and changes in stockholders' equity of the Company and the Subsidiaries for the
nine month period then ended, are complete and correct and fairly present the
financial condition of the entities reflected therein at such dates and the
results of the operations of such entities for the periods covered by such
statements, all in accordance with GAAP consistently applied.
(b) As set forth on Schedule 2.06(b) to the Company
Disclosure Schedule, the balance sheet of Arbor as of December 31, 1995, and the
related income statement and statement of cash flows and changes in
stockholders' equity
6
<PAGE>
of Arbor for the Fiscal Year then ended, together with the opinion thereon of
Arthur Andersen, LLP, independent certified public accountants, and the
unaudited interim balance sheets of each of Arbor, AG Arbor, AGT and the
Investment Funds as of September 30, 1996, and the related income statements of
each of Arbor, AG Arbor, AGT and the Investment Funds for the nine month period
then ended, are to the Knowledge of the Company, complete and correct and fairly
present the financial condition of the entities reflected therein at such dates
and the results of the operations of such entities for the periods covered by
such statements, all in accordance with GAAP.
(c) The consolidated and consolidating balance sheets of the
Company and the Subsidiaries, as of December 31, 1996, and the related
consolidated and consolidating income statements and statements of cash flows
and changes in stockholders' equity of the Company and Subsidiaries for the
Fiscal Year then ended, together with the opinion thereon of Arthur Andersen,
LLP, independent certified public accountants, to be delivered by the Company
pursuant to Section 6.21 will be complete and correct and will fairly present
the financial condition of the entities reflected therein at such date and the
results of the operations of such entities for the period covered by such
statement, all in accordance with GAAP.
2.07. No Material Adverse Change. Except as set forth on Schedule 2.07
to the Company Disclosure Schedule, since September 30, 1996, (a) there has been
no material adverse change in the business, assets, operations, affairs,
prospects or financial condition of the Company, and to the Knowledge of the
Company, any Subsidiary, any Arbor Entity, or any TeleBank Entity; (b) to the
Knowledge of the Company, no fact or condition exists which the Company believes
will cause such material adverse change in the future; and (c) neither the
business, financial condition, operation, prospects or affairs of the Company,
any Subsidiary, and to the Knowledge of the Company, any TeleBank Entity or any
Arbor Entity nor any of their respective properties or assets have been
adversely affected in any material respect as the result of any legislative or
regulatory change, any revocation or change in any franchise, permit, license or
right to do business, or any other event or occurrence, whether or not insured
against.
2.08. Liabilities and Reserves for Losses. (a) Since September 30,
1996, neither the Company nor any Subsidiary, and to the Knowledge of the
Company, neither any TeleBank Entity nor any Arbor Entity has incurred, other
than in the ordinary course of business consistent with past practices, any
material liabilities, obligations, claims or losses (whether liquidated or
unliquidated, secured or unsecured, absolute, accrued, contingent or otherwise)
that would be required to be disclosed on a balance sheet of such entity
(including the notes thereto) in conformity with GAAP.
(b) All reserves or other allowances for possible losses
reflected in the Company's most recent financial statements referred to in
Section 2.06 complied
7
<PAGE>
with all laws, are adequate under GAAP and were established consistently with
past practices and experiences of the Company and TeleBank. Neither the Company
nor TeleBank has been notified by the OTS, the FDIC, or Arthur Andersen LLP, in
writing or otherwise, that such reserves are inadequate or that the practices
and policies of the Company or TeleBank in establishing such reserves and in
accounting for delinquent and classified assets generally fail to comply with
applicable accounting or regulatory requirements, or that the OTS, the FDIC, or
Arthur Andersen LLP believes such reserves to be inadequate or inconsistent with
the historical loss experience of the Company or TeleBank. Schedule 2.08 to the
Company Disclosure Schedule sets forth a complete list of all extensions of
credit and other real estate owned that as of December 31, 1996 are classified
by any bank examiner (regulatory or internal) as other loans specially
mentioned, special mention, substandard, doubtful, loss, classified or
criticized, credit risk assets, concerned loans or with words of similar import.
All other real estate owned held by the Company or TeleBank is being carried in
accordance with GAAP.
2.09. Indebtedness. Schedule 2.09 to the Company Disclosure Schedule
sets forth all outstanding secured and unsecured Indebtedness of the Company or,
any Subsidiary or for which the Company or, any Subsidiary has commitments as of
the date set forth therein. Neither the Company nor any Subsidiary is in default
with respect to any Indebtedness.
2.10. Title to Assets. Each of the Company and the Subsidiaries has
good, marketable and insurable title to all of its real and personal property
reflected in the financial statements referred to in Schedule 2.06 to the
Company Disclosure Schedule, free of any mortgages, pledges, charges, liens,
security interests or other encumbrances, except those indicated on Schedule
2.10 to the Company Disclosure Schedule. Each of the Company and the
Subsidiaries enjoys peaceful and undisturbed possession under all leases under
which it is operating, and all said leases are valid, binding and subsisting and
in full force and effect.
2.11. Actions Pending. There is no action, suit, claim, investigation
or proceeding pending or, to the Knowledge of the Company, threatened against
the Company or any Subsidiary which questions the validity of this Agreement or
any of the Related Agreements or any action taken or to be taken pursuant hereto
or thereto. Except as set forth on Schedule 2.11 to the Company Disclosure
Schedule, there is no action, suit, claim, investigation or proceeding pending
or, to the Knowledge of the Company, threatened, against or involving the
Company or, any Subsidiary or any of their respective properties, assets or
Licenses. There are no outstanding orders, judgments, injunctions, awards or
decrees of any Governmental Entity against the Company or any Subsidiary.
2.12. Compliance with Law. (a) Schedule 2.12 to the Company Disclosure
Schedule accurately and completely lists all Licenses granted, issued or entered
by any Governmental Entity and held by the Company, any Subsidiary or any Arbor
8
<PAGE>
Entity. The Company and each Subsidiary holds all Licenses filed with, granted
or issued by, or entered by any Governmental Entity, including, without
limitation, the OTS, the Commission or any state or local regulatory authorities
asserting jurisdiction over the Company's or such Subsidiary's business, that
are required for the conduct of their businesses as now being conducted, except
for those the absence of which could not reasonably be expected to have a
Material Adverse Effect. The Licenses are valid, in full force and effect, and
the terms of said Licenses are not subject to any restrictions or conditions
that materially limit the operations of the business of the Company or any of
the Subsidiaries as presently conducted, other than restrictions or conditions
generally applicable to licenses of that type; and to the Knowledge of the
Company and the Subsidiaries, no suspension or cancellation of any of the same
is threatened or pending.
(b) Neither the Company nor any Subsidiary is in violation
of its respective organizational documents or of any Laws (including, without
limitation, all banking, securities, municipal securities, safety, health,
zoning, anti-discrimination, antitrust, and wage and hour laws, ordinances,
orders, rules and regulations), or in default with respect to any order, writ,
injunction or decree of any court, or in default under any order, license,
regulation or demand of any Governmental Entity; and neither the Company nor any
Subsidiary has received any notice or communication from any Governmental Entity
asserting that the Company or such Subsidiary is in violation of any of the
foregoing; except for those of the foregoing items, the violation of which or
the default under could not reasonably be expected to have a Material Adverse
Effect.
2.13. Taxes. Each of the Company and the Subsidiaries has accurately
prepared and filed all federal, state and other tax returns required by law to
be filed by it, has paid or made provisions for the payment of all taxes shown
to be due and all additional assessments, and adequate provisions have been made
and are reflected in the financial statements of the Company and the
Subsidiaries for all current taxes and other charges to which the Company or any
Subsidiary is subject and which are not currently due and payable. Except as set
forth on Schedule 2.13 to the Company Disclosure Schedule, the Company knows of
no additional assessments, adjustments or contingent tax liability (whether
federal or state) pending or threatened against the Company or any Subsidiary
for any period, nor of any basis for any such assessment, adjustment or
contingency.
2.14. ERISA. Schedule 2.14 to the Company Disclosure Schedule lists
each "employee benefit plan", as defined in Section 3(3) of ERISA, and any other
bonus, severance or termination pay, stock option or stock purchase, incentive
pay or other plan, program or arrangement covering present or former employees
of the Company or any Subsidiary which is presently maintained or contributed to
by the Company or any Subsidiary under which the Company or any Subsidiary has
any material liabilities or obligations (the "Plans"). None of the Plans is
subject to the provisions of Title IV of ERISA, and none of the Plans is a
multiemployer Plan as defined in Section 3(37)
9
<PAGE>
of ERISA (a "Multiemployer Plan"). Neither the Company nor any Subsidiary has
incurred any material liability in respect of the Plans to the Pension Benefit
Guaranty Corporation or has incurred any material liability with respect to a
Multiemployer Plan. None of the Plans is subject to the minimum funding
standards set forth in Section 302 of ERISA or Section 412 of the Code. None of
the Company or any Subsidiary or any of their respective officers or employees
has engaged in a "prohibited transaction" as defined in Section 406 of ERISA or
Section 4975 of the Code with respect to any Plan which would subject any of
such parties to a material civil penalty under Section 502(i) of ERISA or a
material excise tax under Section 4975 of the Code. Each of the Plans has been
operated in all material respects in accordance with applicable law, including
ERISA and the Code. None of the Plans is an employee welfare plan, as defined in
Section 3(1) of ERISA, which provides health or life insurance benefits to
employees of the Company or any Subsidiary following their retirement except as
required by Code Section 4980B or ERISA Section 601. Each Plan that is intended
to be qualified under Section 401(a) of the Code has received an opinion or
determination letter from the IRS indicating that such Plan was so qualified as
at the time of its review, and the Company knows of no reason that would cause
such letter to be revoked.
2.15. Certain Fees. Except as set forth on Schedule 2.15 to the Company
Disclosure Schedule, no broker's, finder's or financial advisory fees or
commissions will be payable by the Company or any Subsidiary with respect to the
transactions contemplated by this Agreement and the Related Agreements.
2.16. Disclosure. Neither this Agreement, the Company Disclosure
Schedule nor any of the Related Agreements or any other document, certificate or
instrument furnished to the Purchasers by or on behalf of the Company or any
Subsidiary in connection with the transactions contemplated by this Agreement or
any of the Related Agreements, contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading.
2.17. Proprietary Rights. Schedule 2.17 to the Company Disclosure
Schedule contains a complete and accurate list of (a) all patented and
registered Proprietary Rights owned by the Company or any Subsidiary, (b) all
pending patent applications and applications for registrations of other
Proprietary Rights filed by the Company or any Subsidiary, (c) all unregistered
trade names and corporate names owned or used by the Company or any Subsidiary
and (d) all unregistered trademarks, service marks and copyrights and computer
software owned or used by the Company or any Subsidiary. Schedule 2.17 to the
Company Disclosure Schedule also contains a complete and accurate list of all
licenses and other rights granted by the Company or any Subsidiary to any third
party with respect to any Proprietary Rights and all licenses and other rights
granted by any third party to the Company or any Subsidiary with respect to any
Proprietary Rights, together with a short description of such licenses. Each of
the Company or the Subsidiaries owns or has the right to use
10
<PAGE>
pursuant to a valid and enforceable license all Proprietary Rights necessary for
the operation of its business. The loss or expiration of any Proprietary Right
owned or used by the Company or any Subsidiary could not reasonably be expected
to have a Material Adverse Effect, and no such loss or expiration is pending or,
to the Knowledge of the Company, threatened. Each of the Company and the
Subsidiaries has taken all necessary actions to maintain and protect the
Proprietary Rights which it owns or uses. The Company has no Knowledge that the
owners of any Proprietary Rights licensed to the Company or any Subsidiary, have
not taken all necessary actions to maintain and protect the Proprietary Rights
which are subject to such licenses. Except as set forth on Schedule 2.17 to the
Company Disclosure Schedule, (i) there are no material claims against the
Company or any Subsidiary asserting the invalidity, misuse, unenforceability or
ownership of any Proprietary Rights owned or used by the Company or any
Subsidiary, and to the Knowledge of the Company, no such claims are threatened
and there are no grounds for the same, (ii) neither the Company nor any
Subsidiary has received a notice of nor is aware of any facts which in the
Company's reasonable judgment indicate a reasonable likelihood of any conflict
with the asserted Proprietary Rights of others within the last five years and
(iii) the conduct of the Company's and each Subsidiary's business has not
infringed or misappropriated and does not infringe or misappropriate any
Proprietary Rights of other Persons, nor would any future conduct as presently
proposed infringe any Proprietary Rights of other Persons and, to the Knowledge
of the Company, the Proprietary Rights owned by the Company or any Subsidiary
are not currently being infringed or misappropriated by other Persons.
2.18. Environmental and Safety Matters.
(a) Except as set forth on Schedule 2.18 to the Company
Disclosure Schedule, to the Knowledge of the Company, each of the Company and
the Subsidiaries is in material compliance with the provisions of all federal,
state and local laws and regulations relating to pollution, protection of the
environment or occupational safety and health applicable to it or to real
property owned or leased by it or to the use, operation or occupancy thereof.
Except as set forth on Schedule 2.18 to the Company Disclosure Schedule, (i) no
real property now or previously owned or operated by the Company and any
Subsidiary is under investigation with respect to, or is or has been in
violation of, any Environmental Law, (ii) no proceedings have been commenced
against, nor notice received by the Company and any Subsidiary concerning any
alleged violation of any Environmental Law, (iii) no real property now or, to
the Knowledge of the Company, previously owned or operated by the Company or any
Subsidiary, has been the subject of any threatened, proposed or actual cleanup
or other protective, removal or remedial action relating to any Hazardous
Materials, whether pursuant to any Environmental Law or otherwise, (iv) there
are no Hazardous Materials in, on, under or about any real property owned or
operated by the Company or any Subsidiary, (v) no release, discharge, spillage,
seepage or filtration of any Hazardous Materials is occurring or, to the
Knowledge of the Company, has occurred in, on, under or about any real property
owned or
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operated by the Company or any Subsidiary and (vi) the real property owned or
operated by the Company or any Subsidiary is not being used and, to the
Knowledge of the Company, has not been used for any generation, manufacture,
refining, production, processing, treatment, storage, handling, transportation,
transfer, use or disposal of any Hazardous Materials.
(b) Except as set forth on Schedule 2.18 to the Company
Disclosure Schedule, to the Knowledge of the Company, there has not been any
material release of Hazardous Materials in, on, under or affecting any
properties owned, leased or operated by the Company or any Subsidiary or those
properties which serve as collateral for loans owned by the Company or any
Subsidiary.
(c) To the Knowledge of the Company, neither the Company nor
any Subsidiary has made or participated in any loan to any person who is subject
to any suit, claim, action, proceeding, investigation or notice, pending or
threatened, with respect to (i) any alleged material noncompliance as to any
property securing such loan with any Environmental Law, or (ii) the release or
the threatened release into the environment of any Hazardous Material at a site
owned, leased or operated by such person on any property securing such loan.
2.19. Books and Records. The records and documents of the Company and
the Subsidiaries accurately and completely reflect in all material respects
information relating to the business of the Company and the Subsidiaries, the
location and collection of their assets, and the nature of all transactions
giving rise to the obligations or accounts receivable of the Company or any
Subsidiary.
2.20. Material Agreements. (a) Except as disclosed on Schedule 2.20 to
the Company Disclosure Schedule, neither the Company or any Subsidiary is a
party to, is bound or affected by, receives, or is obligated to pay benefits
under, (i) any agreement, arrangement or commitment, including without
limitation, any agreement, indenture or other instrument relating to the
borrowing of money by the Company or any Subsidiary or the guarantee by the
Company or any Subsidiary of any obligation, (ii) any agreement, arrangement or
understanding to which the Company or any Subsidiary is a party or by which any
of the same is bound which limits the freedom of the Company or any Subsidiary
to compete in any line of business or with any person, or (iii) any other
agreement, arrangement or understanding required to be filed as an exhibit to
the Company's Annual Report on Form 10-K (or Form 10-KSB) under the Exchange
Act.
(b) Neither the Company nor any Subsidiary is in default or
in non-compliance under any contract, agreement, commitment, arrangement, lease,
insurance policy or other instrument to which it is a party or by which its
assets, business or operations may be bound or affected, whether entered into in
the ordinary course of business or otherwise and whether written or oral, and
there has not
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occurred any event that with the lapse of time or the giving of notice, or both,
would constitute such a default or non-compliance.
2.21. Transactions with Affiliates. Except as set forth on Schedule
2.21 to the Company Disclosure Schedule, there are no loans, leases, agreements,
contracts, royalty agreements, management contracts or arrangements or other
continuing transactions between (a) the Company or any Subsidiary, and (b) any
officer, employee, consultant or director of the Company or any Subsidiary or
any Arbor Entity or any Person owning any capital stock of any such entity or
any member of the immediate family of such officer, employee, consultant,
director or stockholder or any corporation or other entity controlled by such
officer, employee, consultant, director or stockholder, or a member of the
immediate family of such officer, employee, consultant, director or stockholder.
2.22. Securities Act of 1933. The Company has complied and will comply
with all applicable federal and state securities laws in connection with the
offer, issuance and sale of the Units hereunder. Neither the Company nor anyone
acting on its behalf has or will sell, offer to sell or solicit offers to buy
the Units or similar securities to, or solicit offers with respect thereto from,
or enter into any preliminary conversations or negotiations relating thereto
with, any Person, so as to bring the issuance and sale of the Units under the
registration provisions of the Securities Act and applicable state securities
laws.
2.23. Governmental Approvals. Except as set forth on Schedule 2.23 and
except for the filing of any notice prior or subsequent to the Closing that may
be required under applicable state and/or federal securities laws (which, if
required, shall be filed on a timely basis), solely as to the Company and any
Subsidiary, no authorization, consent, approval, license, exemption of or filing
or registration with any Governmental Entity, is or will be necessary for, or in
connection with, the execution and delivery by the Company of this Agreement,
for the offer, issue, sale, execution or delivery of the Units, or for the
performance by the Company of its obligations under this Agreement and each
Related Agreement to which it is a party.
2.24. Insurance. Each of the Company and the Subsidiaries carries
insurance as set forth on Schedule 2.24 to the Company Disclosure Schedule
covering its properties and business adequate and customary for the type and
scope of the properties, assets and business, and similar to companies of
comparable size and condition similarly situated in the same industry in which
the Company or such Subsidiary operates, but in any event in amounts sufficient
to prevent the Company or such Subsidiary from becoming a co-insurer or
self-insurer, with provision for reasonable deductibles. As of the date hereof,
neither the Company or any Subsidiary has received any notice of cancellation or
amendment of any such policy or bond or is in default under any such policy or
bond, no coverage thereunder is being disputed and all material claims
thereunder have been filed in a timely fashion.
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2.25. Employees. Neither the Company or any Subsidiary has any
collective bargaining arrangements or agreements covering any of its employees.
Except as set forth on Schedule 2.25 to the Company Disclosure Schedule, neither
the Company or any Subsidiary has any employment contract, compensation or
payment agreement, proprietary information agreement, noncompetition agreement,
nonsolicitation agreement, confidentiality agreement, or any other similar
contract or agreement or any restrictive covenant, relating to the right of any
officer, employee, or consultant to be employed or engaged by the Company or
such Subsidiary because of the nature of the business conducted or to be
conducted by the Company or such Subsidiary, or relating to the use of trade
secrets or proprietary information of others, and the continued employment or
engagement of the Company's or such Subsidiary's officers, employees or
consultants does not subject the Company, any Subsidiary or the Purchaser to any
liability with respect to any of the foregoing matters. Except as set forth on
Schedule 2.25 to the Company Disclosure Schedule, no officer, consultant or Key
Employee of the Company or any Subsidiary whose termination, either individually
or in the aggregate, could have an adverse effect on the Company or any
Subsidiary has terminated or to the best Knowledge of the Company, has any
present intention of terminating, his employment or engagement with the Company
or any Subsidiary.
2.26. Absence of Certain Developments. Except as provided on Schedule
2.26 to the Company Disclosure Schedule and except as contemplated hereby and in
the Related Agreements, since September 30, 1996, neither the Company nor any
Subsidiary has:
(a) issued any stock, bonds or other corporate securities
or any rights, options or warrants with respect thereto;
(b) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except liabilities incurred in the ordinary
course of business which are comparable in nature and amount to the current
liabilities incurred in the ordinary course of business during the comparable
portion of its prior fiscal year, as adjusted to reflect the nature and volume
of the Company's or such Subsidiary's business;
(c) discharged or satisfied any lien or encumbrance or paid
any obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
(d) declared or made any payment or distribution of cash or
other property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of its
capital stock;
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(e) mortgaged or pledged any of its assets, tangible or
intangible, or subjected them to any liens, charge or other encumbrance, except
liens for current property taxes not yet due and payable;
(f) sold, assigned or transferred any other tangible assets,
or canceled any debts or claims, except in the ordinary course of business;
(g) sold, assigned or transferred any patents, patent
rights, trademarks, trade names, copyrights, trade secrets or other intangible
assets or intellectual property rights, or disclosed any proprietary
confidential information to any person except to customers in the ordinary
course of business;
(h) suffered any substantial losses or waived any rights of
material value, whether or not in the ordinary course of business, or suffered
the loss of any material amount of prospective business;
(i) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(j) made capital expenditures or commitments therefor that
aggregate in excess of $25,000;
(k) entered into any other transaction other than in the
ordinary course of business, or entered into any other material transaction,
whether or not in the ordinary course of business;
(l) made charitable contributions or pledges in excess of
$25,000;
(m) suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;
(n) experienced any material disputes with labor or manage-
ment in connection with the terms and conditions of their employment; or
(o) effected any two or more events of the foregoing kind
which in the aggregate would be material to the Company or such Subsidiary.
2.27. Loans.
(a) All loans owned by the Company or any Subsidiary or in
which the Company or any Subsidiary has an interest, comply in all material
respects with all Laws, including but not limited to, applicable usury statutes,
underwriting and recordkeeping requirements, the Truth in Lending Act, the Equal
Credit Opportunity Act, the Real Estate Settlement Procedures Act, and other
applicable consumer protection statutes and the regulations thereunder.
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(b) Except as set forth on Schedule 2.27 to the Company
Disclosure Schedule, all loans owned by the Company or any Subsidiary in which
the Company or any Subsidiary has an interest, have been made or acquired by the
Company or such Subsidiary in accordance with the approved policies of the Board
of Directors and all of such loans are collectible, except to the extent
reserves have been made against such loans in the financial statements referred
to in Section 2.06 hereof. Each of the Company and the Subsidiaries hold
mortgages contained in its loan portfolio for its own benefit to the extent of
its interest shown therein; such mortgages evidence liens having the priority
indicated by their terms, subject, as of the date of recordation or filing of
applicable security instruments; secured by real property or are not material as
to the collectibility of such loans; and all loans owned by the Company and each
Subsidiary are with full recourse to the borrowers, and each of the Company and
the Subsidiaries has taken no action which would result in a waiver or negation
of any rights or remedies available against the borrower or guarantor, if any,
on any loan. All applicable remedies against all borrowers and guarantors are
enforceable except as may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting creditors' rights and except as may be limited by
the exercise of judicial discretion in applying principles of equity. All loans
purchased or originated by the Company or any Subsidiary and subsequently sold
by the Company or any Subsidiary have been sold without recourse to the Company
or any Subsidiary and without any material liability under any yield maintenance
or similar obligation. True, correct and complete copies of loan delinquency
reports as of December 31, 1996 prepared by the Company or each Subsidiary,
which reports include all loans delinquent or otherwise in default, are attached
to Schedule 2.27 to the Company Disclosure Schedule. True, correct and complete
copies of the currently effective investment policies and practices of the
Company and the Subsidiaries also are attached to Schedule 2.27 to the Company
Disclosure Schedule.
(c) Except as set forth in Schedule 2.27 to the Company
Disclosure Schedule, each outstanding loan participation sold by the Company or
any Subsidiary was sold with the risk of non-payment of all or any portion of
that underlying loan to be shared by each participant (including the Company or
proportionately to the share of such loan represented by such participation
without any recourse of such other lender or participant to the Company or any
Subsidiary for payment or repurchase of the amount of such loan represented by
the participation or liability under any yield maintenance or similar
obligation. Each of the Company or the Subsidiaries have properly fulfilled its
contractual responsibilities and duties in any loan in which it acts as the lead
lender or servicer and has complied in all material respects with its duties as
required under applicable regulatory requirements.
(d) Except as set forth in Schedule 2.27 to the Company
Disclosure Schedule, the Company and each Subsidiary have properly perfected or
caused to be properly perfected all security interests, liens, or other
interests in any collateral securing any loans made by it.
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2.28. Agreements with Regulatory Agencies. Neither the Company nor
TeleBank, or their respective officers or directors, is subject to any
cease-and-desist, written directive or other order issued by, or is a party to
any written agreement, consent agreement, memorandum of understanding or written
commitment with, or has adopted any board resolutions at the request of (each a
"Regulatory Agreement"), any Governmental Entity that restricts the conduct of
its business or that in any manner relates to its capital adequacy, its credit
policies, its management or its business, nor has the Company or TeleBank been
advised by any Governmental Entity that it is considering issuing or requesting
any Regulatory Agreement.
2.29. Securities Documents and Regulatory Reports.
(a) The Company has previously delivered to the Purchasers a
complete copy of the Company's Annual Report on Form 10-K for the Fiscal Year
ended December 31, 1995 and all subsequently filed reports under Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act, or other communication (other than
general advertising materials) filed pursuant to the Securities Act or the
Exchange Act or mailed by the Company to its stockholders as a class, and each
such report or other communication, as of its date, complied in all material
respects with all applicable Laws and did not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading; provided that
information as of a later date shall be deemed to modify information as of an
earlier date.
(b) Each of the Company and the Subsidiaries has duly filed
with the OTS and the FDIC in correct form the monthly, quarterly and annual
reports required to be filed under applicable Laws, and the Company has
delivered to the Purchasers accurate and complete copies of such reports.
Schedule 2.29(b) to the Company Disclosure Schedule lists all examinations of
the Company or the Subsidiaries conducted by the applicable regulatory
authorities since January 1, 1993 and the dates of any responses thereto
submitted by the Company or any Subsidiary. In connection with the most recent
examinations of the Company or any Subsidiary by the applicable regulatory
authorities, neither the Company nor any Subsidiary was required to correct or
change any action, procedure or proceeding which the Company or such Subsidiary
believes has not been now corrected or changed as required.
2.30. United States Real Property Holding Corporation. The Company is
not now and has never been a "United States Real Property Holding Corporation"
as defined in Section 897(c)(2) of the Code and Section 1.897-2(b) of the
Regulations promulgated by the IRS.
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2.31. Arbor Acquisition Agreement. Each of the Purchasers has received
a complete and correct copy of the Arbor Acquisition Agreement (including all
exhibits, schedules and disclosure letters referred to therein or delivered
pursuant thereto) and all amendments thereto, waivers relating thereto and other
side letters or agreements affecting the terms thereof. The Arbor Acquisition
Agreement has been duly executed and delivered, is in full force and effect and
is a legal, valid and binding obligation of each Person signatory thereto
enforceable against such Person in accordance with its terms. Each of the
representations and warranties of the Company and, to the Knowledge of the
Company each of the other persons signatory thereto as set forth in the Arbor
Acquisition Agreement is true and correct in all material respects as of the
Closing Date. Except as disclosed on Schedule 2.31 to the Company Disclosure
Schedule, the execution, delivery and performance of the Arbor Acquisition
Agreement by the Company, and, to the Knowledge of the Company, of each other
Person signatory thereto does not and will not violate any provision of, or
require any filing under any Law or any indenture, agreement, lease or
instrument to which such Person or any Investment Fund is a party or by which it
or its Properties may be bound or affected.
2.32. Junior Subordinated Note Documents. Each of the Purchasers has
received a complete and correct copy of the Junior Subordinated Indenture and
the Junior Subordinated Notes (including all exhibits, schedules and disclosure
letters referred to therein or delivered pursuant thereto) and all amendments
thereto, waivers relating thereto and other side letters or agreements affecting
the terms thereof. Each of the Junior Subordinated Indenture and the Junior
Subordinated Notes has been duly executed and delivered, is in full force and
effect and is a legal, valid and binding obligation of each Person signatory
thereto enforceable against such Person in accordance with its terms.
2.33. Senior Indebtedness. The obligations of the Company hereunder,
under the Notes and the other Related Agreements constitute "Senior
Indebtedness" under and as defined in the Junior Subordinated Indenture with
respect to the Junior Subordinated Notes.
2.34. Intentional Statements or Omissions. Neither the Company nor any
Subsidiary has made any intentionally untrue statement of fact in Article 2 to
this Agreement, the Company Disclosure Schedule or any other document,
certificate or instrument furnished to the Purchasers herewith or intentionally
omitted to state a fact necessary in order to make such statements not
misleading.
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3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each of the Purchasers severally but not jointly hereby represents and
warrants to the Company as follows:
3.01. Organization and Standing of the Purchaser. Each of the
Purchasers is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization.
3.02. Authority; Enforceability; No Conflict. Each of the Purchasers
has all requisite corporate or partnership power and authority to enter into
this Agreement and each Related Agreement to which it is a party and to carry
out its obligations hereunder and thereunder. The execution, delivery and
performance of this Agreement and each Related Agreement to which it is a party
by each of the Purchasers have been duly and validly authorized by all requisite
corporate or partnership proceedings on the part of each of the Purchasers. This
Agreement and each Related Agreement to which it is a party when executed and
delivered by each of the Purchasers is a valid and binding obligation of such
Purchaser, enforceable against it in accordance with its terms, except that (i)
such enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium, rehabilitation, liquidation, conservatorship, receivership or other
similar laws now or hereafter in effect relating to creditors' rights generally
and (ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought. The execution and
delivery of this Agreement and each Related Agreement to which it is a party by
each of the Purchasers does not, and consummation by such Purchaser of the
transactions contemplated hereby will not, result in or constitute (a) a
default, breach or violation of or under the organizational documents of such
Purchaser, (b) a default, breach or violation of or under any mortgage, deed of
trust, indenture, note, bond, license, lease agreement or other instrument or
obligation to which such Purchaser is a party or by which any of its properties
or assets are bound, except for any defaults, breaches or violations which would
not, individually or in the aggregate, have a material adverse effect on such
Purchaser or prevent or materially delay the consummation by such Purchaser of
the transactions contemplated hereby, or (c) a violation of any Law, except for
any violations which would not, individually or in the aggregate, have a
material adverse effect on such Purchaser or prevent or materially delay the
consummation by such Purchaser of the transactions contemplated hereby.
3.03. Acquisition for Investment. Each of the Purchasers is an
"accredited investor" as defined in Regulation D under the Securities Act, and
is acquiring the Units solely for its own account for the purpose of investment
and not with a view to or for sale in connection with any distribution thereof,
and it has no present intention or plan to effect any distribution of the Units
or the Securities. Each of the Purchasers acknowledges that it is able to bear
the financial risks associated with an
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investment in the Units and that it has been given full access to such records
of the Company and to the officers of the Company as it has deemed necessary and
appropriate to conducting its due diligence investigation. The Securities will
initially bear a legend to the following effect:
"This Security has not been registered under the Securities Act of
1933, as amended, or the laws of any state and may not be sold or
transferred except in compliance with that Act and such laws. In
addition, the transferability of this Security is subject to the
provisions of a $29,900,000 Unit Purchase Agreement among the issuer
and the purchasers of the issuer's securities thereunder, a copy of
which may be obtained from the issuer's principal executive office."
3.04. Financing. Each of the Purchasers has sufficient funds and will
have sufficient funds at all times through the Closing to consummate the
transactions contemplated hereby. None of the Purchasers is now insolvent or
will be rendered insolvent by reason of its investments in the Company nor will
it be left with unreasonably small capital for purposes of operating its
businesses.
3.05. Approvals. Except as set forth in Section 4.06, no regulatory
approval or consent is required for any of the Purchasers to consummate the
transactions contemplated in this Agreement or the Related Agreements.
3.06. Ownership of Common Stock. None of the Purchasers owns any shares
of Common Stock of the Company.
4. CONDITIONS TO PURCHASERS' OBLIGATIONS FOR CLOSING
The obligation of each Purchaser to purchase and pay for the Units to
be purchased by it at the Closing is subject to the following conditions:
4.01. Representations and Warranties. Each of the representations and
warranties set forth in Article 2 hereof shall be true, accurate and correct in
all material respects at the Closing Date with the same effect as though made at
and as of such time and no exception shall be set forth in Schedule 2.01 as of
the Closing Date. Notwithstanding the foregoing, the Company shall update the
representations, warranties and the Company Disclosure Schedule at and as of the
Closing Date.
4.02. Secretary's Certificate. The Purchasers shall have received a
certificate of the Secretary or an Assistant Secretary of the Company, dated the
Closing Date, (a) attesting to corporate action taken by the Company, including
resolutions of the Board of Directors authorizing (i) the filing of the
Certificate of Designation, (ii) the execution, delivery and performance by the
Company of this Agreement and each Related Agreement to which it is a party,
(iii) the issuance of the Units, (iv) the amendment to the Certificate of
Incorporation, (v) the amendment of the By-Laws,
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(vi) the execution, delivery and performance by the Company of the Arbor
Acquisition Agreement, and (vii) the execution, delivery and performance by the
Company of all other agreements or matters contemplated hereby or executed in
connection herewith, (b) certifying the names and true signatures of the
officers of the Company authorized to sign this Agreement, the Related
Agreements, and the other documents, instruments or certificates to be delivered
pursuant hereto and thereto, together with the true signatures of such officers,
and (c) verifying that the Certificate of Incorporation and the By-Laws (as
attached thereto) are true, correct and complete as of the Closing Date.
4.03. Officer's Certificate. The Purchasers shall have received a
certificate of the President and Treasurer of the Company, dated the Closing
Date, which shall certify that the representations and warranties contained in
Article 2 hereof are true and correct as of the Closing Date and that all
conditions required to be performed prior to or at the Closing have been
performed as of the Closing Date.
4.04. Intentionally Omitted.
4.05. Securities Filings. The Company shall have made all filings under
applicable state securities laws and, if required, with the Commission and the
NASD necessary to consummate the issuance of the Units in compliance with all
applicable state and federal securities laws and NASD guidelines.
4.06. Rebuttal of Control. The OTS shall have accepted any required
Purchaser's rebuttal of control pursuant to Section 574.4 of the Acquisition of
Control Regulations of the OTS without imposing any conditions that are not
reasonably acceptable to such Purchaser in its sole discretion.
4.07. Good Standing Certificates. The Purchasers shall have received a
certificate of the appropriate public official in the jurisdiction of
organization of the Company and each Subsidiary as to the due organization and
good standing of the Company and such Subsidiary, together with a certified copy
of the organizational documents of the Company and such Subsidiary and shall
have received certificates of appropriate public officials of each other
jurisdiction in which the Company or such Subsidiary is required to qualify to
do business as a foreign organization as to the due qualification and good
standing of the Company or such Subsidiary.
4.08. No Proceedings or Litigation. No action, suit or proceeding
before any arbitrator or any governmental authority shall have been commenced,
and no investigation by any governmental authority shall have been threatened,
against the Company or any Subsidiary, or any of the officers or directors of
the Company or any Subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement and each Related Agreement, or
seeking damages in connection with such transactions.
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4.09. Notes. The Company shall have executed and delivered the Notes,
substantially in the form of Exhibit A.
4.10. Certificate of Designation. The Certificate of Designation,
setting forth, without limitation, the designations, rights and preferences of
the Preferred Stock (the "Certificate of Designation") in the form of Exhibit B,
shall have been filed with the Secretary of State of the State of Delaware.
4.11. Warrants; Contingent Warrants. The Company shall have executed
and delivered the Warrants, substantially in the form of Exhibit C, and the
Contingent Warrants, substantially in the form of Exhibit D.
4.12. Legal Opinion. The Purchasers shall have received a legal opinion
from Hogan & Hartson L.L.P., special counsel to the Company, dated the Closing
Date, as to the matters set forth in the form of opinion attached hereto as
Exhibit E.
4.13. Transfer Restriction Agreements. Each of Mitchell A. Caplan and
David A. Smilow shall each individually enter into a Transfer Restriction
Agreement (as amended from time to time, each a "Transfer Restriction Agreement"
substantially in the form of Exhibit F.1 and Exhibit F.2 respectively), with
each of the Purchasers, MET Holdings Corporation and the Company.
4.14. Certain Documents. The Purchasers shall have received certified
complete and correct copies of the Junior Subordinated Indenture and the Arbor
Acquisition Agreement (including all exhibits and schedules referred to therein
or delivered pursuant thereto).
4.15. Board of Directors. The Board of Directors shall have taken all
required action such that the Board of Directors immediately following the
Closing shall consist of seven members, who initially shall be David A. Smilow,
Mitchell H. Caplan, David R. DeCamp, Arlen W. Gelbard, Mark Rollinson, Steven F.
Piaker and Dean Kehler. The Board of Directors shall have taken all actions
necessary to comply with the provisions of Section 6.09.
4.16. Amendment of Bylaws. The Bylaws shall have been amended to
comply with the provisions of Section 6.05.
4.17. Expenses. All fees and disbursements required to be paid pursuant
to Section 18.04 hereof shall have been paid in full.
4.18. Compliance with this Agreement and Related Agreements. The
Company shall have performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by this Agreement or any
Related Agreement to be performed, satisfied or complied with by the Company at
or prior to the Closing.
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4.19. Proceedings Satisfactory. All proceedings taken in connection
with the issuance and sale of the Units and all documents and papers relating
thereto shall be satisfactory in form and substance to the Purchasers. The
Purchasers shall have received copies of such documents and papers as it may
reasonably request in connection with this Agreement and the Related Agreements.
4.20. Material Adverse Effect. There shall have been no events, changes
or effects with respect to the Company and its Subsidiaries having a Material
Adverse Effect.
4.21. Other Purchasers. No Purchaser shall have failed to execute and
deliver this Agreement or to accept delivery of or make payment for the Units to
be purchased by it on the Closing Date.
5. CONDITIONS TO COMPANY'S OBLIGATIONS FOR CLOSING
The obligation of the Company to sell the Units to the Purchasers at
the Closing is subject to the following conditions:
5.01. Representations and Warranties. Each of the representations and
warranties set forth in Article 3 shall be true, accurate and correct at the
Closing Date with the same effect as though made at and as of such time.
5.02. Rebuttal of Control. The OTS shall have accepted any required
Purchaser's rebuttal of control pursuant to Section 574.4 of the Acquisition of
Control Regulations of the OTS without imposing any conditions that are not
reasonably acceptable to such Purchaser in its sole discretion.
5.03. Other Purchasers. No Purchaser shall have failed to execute and
deliver this Agreement or to accept delivery of or make payment for the Units to
be purchased by it on the Closing Date.
5A. COVENANTS PRIOR TO CLOSING
5A.01 Purchasers Reasonable Efforts. Upon the terms and subject to the
conditions herein provided, each of the Purchasers agrees to use all reasonable
best efforts to take, or cause to be taken, all actions, to do, or cause to be
done, all things necessary, proper or advisable for such Purchaser to consummate
and make effective, in the most expeditious manner practicable, the transactions
contemplated by this Agreement, including satisfying the closing conditions set
forth in Article 5 applicable to it.
5.A.02 Company Reasonable Efforts. Upon the terms and subject to the
conditions herein provided, the Company agrees to use all reasonable best
efforts to take, or cause to be taken, all actions, to do, or cause to be done,
and to assist and
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cooperate with each the other party hereto in doing or causing to be done, all
things necessary, proper or advisable to consummate and make effective, in the
most expeditious manner practicable, the transactions contemplated by this
Agreement (including satisfying the closing conditions set forth in Article 4).
5.A.03 Conduct of Business. Between the date hereof and the Closing
Date, the Company shall, and shall cause each Subsidiary and shall use all
reasonable best efforts to cause each TeleBank Entity to, conduct their
respective businesses only in the ordinary course of business and consistent
with past practice, preserve intact their respective business organizations and
goodwill and use their respective best efforts to keep available the services of
their respective officers and employees, and maintain satisfactory business
relationships. The Company shall not, and shall not permit any Subsidiary or
TeleBank Entity, to take any action that will cause any representation or
warranty in Section 2 hereof to be materially false at the Closing Date or will
cause an Event of Noncompliance or Event of Default to have occurred on or prior
to the Closing Date. Without limiting the generality of the foregoing, except as
provided for herein and in the ordinary course of business consistent with past
practice:
(a) The Company will not authorize or effect any change
in its charter or bylaws other than as provided for herein;
(b) the Company will not grant any options, warrants, or
other rights to purchase or obtain any of its capital stock or issue, sell, or
otherwise dispose of any of its capital stock, except options granted to
employees of the Company to the extent permitted under this Agreement;
(c) the Company will not declare, set aside, or pay any
dividend or distribution with respect to its capital stock, or redeem,
repurchase, or otherwise acquire any of its capital stock;
(d) the Company will not create, incur, assume, or
guarantee any Indebtedness (including any capitalized lease obligations);
(e) the Company will not make any capital investment
in, make any loan to, or acquire the securities or assets of any other Person;
(f) the Company will not make any change in employment
terms for any of its directors, officers, and employees; and
(g) the Company will not obligate itself to do any of
the foregoing.
5.A.04 Access to Information. The Company shall afford, and shall cause
each Subsidiary and its and their respective officers, directors, employees,
attorneys, accountants and other agents to afford, to each Purchaser, its
affiliates, and their
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respective accounting and legal representatives, as well as their respective
officers, directors and employees, full and complete access at all reasonable
times to the directors, officers and personnel of the Company and the
Subsidiaries and to business, financial, legal, tax, compensation, and other
data and information concerning the affairs of the Company and the Subsidiaries.
5B. COVENANTS OF PURCHASER
Each Purchaser covenants and agrees that on and after the Closing Date
that:
5.B.01 Company Not a Subsidiary of any Purchaser. In the event that the
Board of Governors of the Federal Reserve System ("FRB") or other federal agency
initiates a control proceeding with respect to a Purchaser's ownership interest
in the Company, or in any other context alleges that a Purchaser may control the
Company, such Purchaser commits to resolve such matters with the FRB or such
other agency without requiring the Company to alter its business operations.
5.B.02 Shareholder Vote. Each Purchaser agrees to vote in favor of the
amendment to the Certificate of Incorporation referred to in Section 6.18 and
set forth in form and substance in Exhibit G.
6. AFFIRMATIVE COVENANTS OF THE COMPANY
The Company covenants and agrees that on and after the Closing Date and
while any of the Securities are outstanding, it shall:
6.01. Inspection Rights. Permit during normal business hours, upon
reasonable request and reasonable notice, each Purchaser or any employees,
agents or representatives thereof, to examine and make copies of and extracts
from the non- confidential and non-proprietary records and books of account of,
and visit and inspect the properties, assets, operations and business of the
Company and any Subsidiary, and to discuss the affairs, finances and accounts of
the Company and any Subsidiary with any of its officers, consultants, directors,
Key Employees, attorneys or independent accountants provided, however, that such
inspection shall not materially interfere with the business or operations of the
Company or any Subsidiary.
6.02. Budgets Approval. At least 30 days prior to the commencement of
each Fiscal Year, prepare and submit to, and obtain in respect thereof the
approval of the majority of the members of the Board of Directors, a business
plan and monthly operating budget in detail for each Fiscal Year and subsequent
four Fiscal Years, monthly operating expenses and profit and loss projections,
cash flow projections and a capital expenditure budget for such Fiscal Year and
subsequent Fiscal Years.
6.03. Financings. Promptly, fully and in detail, inform all of the
members of the Board of Directors of any discussions, offers or contracts
relating to possible
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financings of any material nature for the Company or any Subsidiary, whether
initiated by the Company, any Subsidiary or any other Person.
6.04. Meetings of Directors. Hold meetings of the Board of Directors
not less than on a quarterly basis.
6.05. By-Laws; Meetings and Indemnification. Use its best reasonable
efforts to at all times cause its By-Laws to provide that (a) any two directors
shall have the right to call a meeting of the Board of Directors and (b) the
approval of the holders of 66 2/3% of the then outstanding shares of voting
capital stock of the Company shall be required to amend the number or selection
process of the Board of Directors. The Company shall at all times maintain
provisions in the Certificate of Incorporation or the By-Laws indemnifying all
officers and directors against liability to the maximum extent permitted under
the laws of the state of its incorporation.
6.06. Maintenance of Existence.
(a) Preserve and maintain, and cause each of its
Subsidiaries to preserve and maintain their respective corporate, partnership or
limited liability company existence, Licenses, Proprietary Rights, other rights
and franchises in full force and effect to the extent appropriate in accordance
with good business practice.
(b) Preserve and maintain TeleBank's status as an Insured
Depository Institution and do all things necessary to ensure that the deposit
accounts of TeleBank are insured by the FDIC up to the maximum amount permitted
by the FDIA.
6.07. Properties, Business, Insurance. Maintain, and cause each of the
Subsidiaries, to maintain as to its respective properties and business, with
financially sound and reputable insurers, insurance against such casualties and
contingencies and of such types and in such amounts as is customary for
companies of a similar size and financial condition similarly situated within
the same industry.
6.08. Expenses of Directors. Promptly reimburse in full the Preferred
Stock Directors and Observers for all of their reasonable out-of-pocket expenses
incurred in attending each meeting of the Board of Directors or any committee
thereof. All such expenses shall be reimbursed in accordance with the policies
concerning reimbursement of outside directors adopted from time to time by the
Board of Directors, the current policy is described in Schedule 6.08 to the
Company Disclosure Schedule.
6.09. Size of Board and Committees. Establish and maintain (a) the
number of directors on the Board of Directors at no more than nine members,
which members shall in any event include two Preferred Stock Directors, unless a
person elected to serve as such Preferred Stock Director declines to serve or is
unable to serve as a
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Preferred Stock Director due to death, disability, regulatory prohibition,
resignation or otherwise, in which case the Company shall immediately nominate a
replacement Preferred Stock Director in accordance with the Certificate of
Designation, (b) a Compensation Committee and an Audit Committee of the Board of
Directors, which members shall (subject to the limitations set forth in (a)
above) include only Preferred Stock Directors, and Independent Directors and (c)
one Preferred Stock Director on each committee of the Board of Directors, unless
such committee has four or more members, in which case the Company shall
(subject to the limitations set forth in (a) above) establish and maintain both
Preferred Stock Directors on such committee. The Compensation Committee shall
have, among its responsibilities, the review of and approval of stock option
grants and the establishment of executive compensation and bonuses. The Audit
Committee shall have, among its responsibilities, the engagement, appointment
and removal of the independent public accountants or auditors of the Company.
The Company shall give notice of each meeting of the Board of Directors to, and
shall permit one representative of each of the Progressive Investment Co., Inc.
and The Northwestern Mutual Life Insurance Company (the "Observers") to attend
and observe all meetings of the Board of Directors but such Observers shall not
be entitled to vote on any matter considered by the Board of Directors, or
otherwise participate in the consideration of any matter before the Board of
Directors. Notwithstanding the foregoing, the Board of Directors may convene in
an executive session, which the Observer may not attend, in order to consider
matters that the Board deems confidential. As a condition to being allowed to
attend and observe meetings, each Observer shall have executed and delivered to
the Company a confidentiality agreement, in form reasonably acceptable to the
Company, with respect to matters considered by the Board of Directors.
6.10. Compliance with Laws. Comply in all material respects with all
applicable Laws.
6.11. Keeping of Records and Books of Account. Keep records and books
of account that will enable the Company's annual audited financial statements to
be prepared in accordance with GAAP consistently applied, reflecting all
financial transactions of the Company and such Subsidiary, and in which, for
each Fiscal Year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.
6.12. Rule 144. File in a timely manner all reports required to be
filed by it pursuant to the Exchange Act and, if at any time the Company is not
required to file such reports, make available to the public, to the extent
required to permit the sale of Securities by any holder pursuant to Rule 144
under the Securities Act, current information about itself and its activities as
contemplated by Rule 144 under the Securities Act, as such Rule may be amended
from time to time. Notwithstanding the foregoing, the Company may deregister any
class of its equity securities under Section 12 of the Exchange Act or suspend
its duty to file reports with respect to any
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class of its securities pursuant to Section 15(d) of the Exchange Act if it is
then permitted to do so pursuant to the Exchange Act.
6.13. Rule 144A Information. At all times during which the Company is
neither subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, nor exempt from reporting pursuant to Rule 12g3-2(b) under the
Exchange Act, promptly as practicable (in any event not later than 20 days after
initial request) in written form, upon the written request of any Purchaser or a
prospective buyer of Securities from any Purchaser, furnish all information
required by Rule 144A(d)(4)(i) of the General Regulations promulgated by the
Commission under the Securities Act ("Rule 144A Information"). The Company
further covenants, upon written request, as promptly as practicable (in any
event not later than 20 days after initial request) to cooperate with and assist
the Purchasers or any member of the NASD system for Private Offerings Resales
and Trading through Automated Linkage ("PORTAL") in applying to designate and
thereafter maintain the eligibility of the Securities for trading through
PORTAL. The Company's obligations under this Section 6.13 shall at all times be
contingent upon the Purchasers' obtaining from a prospective Purchaser an
agreement to take all reasonable precautions to safeguard the Rule 144A
Information from disclosure to anyone other than a person who will assist such
Purchaser in evaluating the purchase of Securities.
6.14. Reporting Requirements. Furnish the following to the Purchasers:
(a) Quarterly Reports: as soon as available and in any event
within 45 days after the end of each Fiscal Quarter, consolidated and
consolidating balance sheets of the Company and the Subsidiaries and of the
Investment Funds as of the end of such Fiscal Quarter and consolidated and
consolidating statements of income and statements of cash flows and changes in
stockholders' equity of the Company and the Subsidiaries and of the Investment
Funds for such Fiscal Quarter and for the period commencing at the end of the
previous Fiscal Year and ending with the end of such Fiscal Quarter, setting
forth in each case in comparative form the corresponding figures for the
corresponding period of the preceding Fiscal Year, and including comparisons to
the budget or business plan and an analysis of the variances from the budget or
plan, prepared in accordance with GAAP, all such consolidated statements to be
duly certified by the chief financial officer of the Company or the Investment
Fund, as applicable;
(b) Annual Reports: as soon as available and in any event
within 90 days after the end of each Fiscal Year, a copy of the annual audit
report for such year for the Company and the Subsidiaries and for each
Investment Fund, including therein consolidated and consolidating balance sheets
of the Company and the Subsidiaries and of the Investment Funds as of the end of
such Fiscal Year and consolidated and consolidating statements of income and
statements of cash flows and changes in stockholders' equity of the Company and
the Subsidiaries and of the Investment Funds for such Fiscal Year, setting forth
in each case in comparative form the
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corresponding figures for the preceding Fiscal Year, all such consolidated
statements to be duly certified by the chief financial officer of the Company
or, the Investment Fund, as applicable and an independent public accountant of
recognized national standing approved by the Board of Directors;
(c) Reports and Other Information: within 10 days after
receipt, filing, publication, commencement or occurrence, copies of (i) notices
of all material actions, (ii) all financial statements, reports, notices and
proxy statements sent or made available generally by Company to its security
holders, (iii) all regular and periodic reports, if any, filed by Company or any
of its Subsidiaries with any securities exchange or with the Commission or any
other Governmental Entity, (iv) all press releases and other statements made
available generally by Company or any of the Subsidiaries to the public
concerning material developments in the business of the Company or any of the
Subsidiaries, and (vi) such other information as any Purchaser shall reasonably
request obtainable from the Company without undue administrative burden or
expense; and
(d) Officer's Certificate: as soon as possible and in any
event within 30 days after the end of each second Fiscal Quarter and Fiscal
Year, a certificate executed by a duly authorized officer of the Company
representing as to the compliance of the Company with the provisions of Article
6 and Article 7 which shall be given by such officer in his or her capacity as
an officer of the Company and shall be without recourse against such officer in
his or her individual capacity.
6.15. Reports to Directors. Furnish the following to members of the
Board of Directors:
(a) Accountant's Letters: within 10 days after receipt,
copies of all accountant's letters, reviews and reports to management;
(b) Budgets and Operating Plan: as soon as available and in
any event at least 30 days before the beginning of each Fiscal Year, a business
plan and monthly operating budgets for the forthcoming Fiscal Year;
(c) Notice of Adverse Changes: promptly after the occurrence
thereof and in any event within 10 days after each occurrence, notice of any
Event of Default or Event of Noncompliance hereunder or any other default under
any material agreement; any material litigation, proceedings, suits or
investigations affecting the Company or any Subsidiary; or any material adverse
change in the business, assets, operations or condition of the Company or any
Subsidiary;
(d) Commission Filings: within 10 days of occurrence,
copies of all filings made with the Commission;
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(e) Regulatory Reports, Examinations and Agreements: as soon
as available and in any event within 10 days of the filing or receipt thereof,
copies of (i) all quarterly and annual reports required to be filed with the
OTS, the FDIC or other Governmental Entity, (ii) the results of all examinations
conducted by the OTS, the FDIC or other Governmental Entity and any responses
thereto. and (iii) all Regulatory Agreements with the OTS, the FDIC or other
Governmental Entity; and
(f) Business Information: informational reports and other
data useful in the understanding and management of the Company's or any
Subsidiary's business supplied to the Chief Executive Officer of the Company or
such Subsidiary in the ordinary course of business.
6.16. Minimum Net Worth. Maintain at all times Consolidated Net Worth
of not less than $30,000,000.
6.17. Maintenance of Reserve. Maintain at all times, on an
unconsolidated basis, Liquid Assets in an amount equal to or greater than 100%
of the aggregate interest expense on the Notes and all other Indebtedness of the
Company for the 12 full calendar months immediately following each interest
payment date.
6.18. Amendment of Certificate of Incorporation. As soon as practicable
after the date hereof, but in no event later than August 1, 1997, adopt, have
approved by its shareholders and filed with the Secretary of State of the State
of Delaware an amendment to the Certificate of Incorporation to increase the
number of authorized shares of Common Stock to a number not less than 5,000,000,
to authorize the Nonvoting Common Stock and to amend the anti-takeover
provisions in form and substance set forth in Exhibit G.
6.19. Arbor Acquisition. Promptly following the Closing Date but in no
event later than the first business day following the Closing Date, consummate
the Arbor Acquisition in accordance with the terms and conditions of the Arbor
Acquisition Agreement.
6.20. Original Issue Discount. The Company agrees to cooperate with the
Purchasers to determine as soon as practicable after the Closing Date the amount
of any original issue discount or redemption premium attributable, as a result
of the delivery of the Warrants and the Contingent Warrants, to any Note or
Preferred Share for all United States federal, state and local income tax
purposes with respect to the transactions contemplated hereby and by the Related
Agreements.
6.21. Financial Statements. As soon as practicable after the date
hereof but in no event later than April 30, 1997, shall provide the Purchasers
complete and correct copies of the consolidated and consolidating audited
balance sheets of the Company and the Subsidiaries, as of December 31, 1996, and
the related consolidated and consolidating audited income statements and
statements of cash
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flows and changes in stockholders' equity of the Company and Subsidiaries for
the Fiscal Year then ended, together with the opinion thereon of Arthur
Andersen, independent certified public accountants.
7. NEGATIVE COVENANTS OF THE COMPANY
Except as contemplated hereby, the Company covenants and agrees that on
and after the Closing Date while any of the Securities are outstanding, without
the prior written consent of the Required Holders, it shall not:
7.01. Distributions. Make, or permit any of its Subsidiaries to make,
any Distribution, except that (a) the Company may make Distributions payable
solely in Common Stock, (b) the Company may comply with any specific provision
of the Series A Preferred Stock, the Series B Preferred Stock or the Series C
Preferred Stock as set forth in the Certificate of Designation, (c) any
Subsidiary may make Distributions to the Company or any Wholly-Owned Subsidiary
and (d) so long as no Event of Default shall have occurred and be continuing, or
would result from such payment, the Company may make payments of principal and
interest on the Junior Subordinated Notes on and not prior to the respective due
dates thereof.
7.02. Capital Stock. Authorize, issue or enter into any agreement
providing for the issuance (contingent or otherwise) of (a) any notes or debt
securities of the Company containing equity features (including any notes or
debt securities convertible into or exchangeable for equity securities, issued
in connection with the issuance of equity securities or containing profit
participation features) or (b) any equity security of the Company senior to or
on a parity with either the Series A Preferred Stock, the Series B Preferred
Stock or the Series C Preferred Stock with respect to the payment of dividends,
distributions upon liquidation or otherwise.
7.03. Indebtedness. Create, incur, assume or suffer to exist, or permit
any of its Subsidiaries to create, incur, assume or suffer to exist, any
Indebtedness, if, after giving effect to such creation, incurrence or
assumption, the Leverage Ratio would exceed .50 to 1.00.
7.04. Investments. Make or permit any Subsidiary to make, any
Investment, except Investments approved by, or made in connection with
investment guidelines established by 66 2/3% of the Board of Directors.
7.05. Dealings with Affiliates. Except for the transactions set forth
on Schedule 7.05 to the Company Disclosure Schedule, enter into, or permit any
Subsidiary to enter into, any material transaction, including, without
limitation, any loans or extensions of credit, release of guarantee, management
contract or royalty agreements, deferred or contingent compensation agreement,
consulting or other agreement with any Affiliate, except in the ordinary course
of and pursuant to the reasonable requirements of the Company's or such
Subsidiary's business and upon
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fair and reasonable terms no less favorable to the Company or such Subsidiary
than would be obtained in a comparable arm's-length transaction with a Person
not an Affiliate.
7.06. Compensation to Officers. Amend, modify or waive, or permit any
Subsidiary to amend, modify or waive, in any material respect any employment,
benefit or compensation arrangement with any Key Employee, or pay to any Key
Employee, compensation (including salary and bonus) in excess of that approved
by the Compensation Committee of the Board of Directors.
7.07. Conduct of Business. Engage, or permit any Subsidiary to engage,
in any business other than the business of banking and financial services and
any businesses or activities substantially similar or related thereto.
7.08. Amendments. (a) Amend or waive any provision of the Certificate
of Incorporation or By-Laws of the Company in any way that would adversely
affect the liquidation preferences, dividend rights or voting rights of the
holders of the Preferred Stock or otherwise change the terms of the Preferred
Stock or (b) amend or waive any provision of the Junior Subordinated Indenture,
any Junior Subordinate Note or the Arbor Acquisition Agreement.
7.09. Anti-Takeover Provisions. Except as required under Section 6.18,
and without the approval of 80% of the then outstanding shares of voting capital
stock of the Company, make any amendment or modification to any anti-takeover,
fair price or other similar provisions contained in the Certificate of
Incorporation, amend the Certificate of Incorporation to adopt, or enter into
any agreement containing, any additional anti-takeover, fair price or similar
provisions, or elect to be governed by any anti-takeover, fair price or similar
law of any jurisdiction to which the Company is not subject as of the date of
this Agreement.
7.10. Other Agreements. Enter into any agreement other than in the
ordinary course of business, in which the terms of such agreement would
materially restrict or impair the right to perform of the Company or any
Subsidiary under this Agreement or any Related Agreement.
8. REGISTRATION, TRANSFER AND SEPARATION OF SECURITIES
8.01. Securities Register; Ownership of Securities. The Company will
keep at its principal office a register in which the Company will provide for
the registration of Securities and the registration of transfers of Securities.
The Company may treat the Person in whose name any Security is registered on
such register as the owner of such Security.
8.02. Transfer and Exchange of Securities. Upon surrender of any
Security for registration of transfer or for exchange to the Company at its
principal office, the
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Company at is expense will execute and deliver in exchange therefor a new
Security or Securities as such surrendered in denominations, as requested by the
holder or transferee.
8.03. Replacement of Securities. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Security and, in the case of any such loss, theft or destruction, upon delivery
of an indemnity agreement for such Purchaser, or in the case of any such
mutilation, upon the surrender of such Security for cancellation to the Company
at its principal office, the Company at its expense will execute and deliver, in
lieu thereof, a new Security of the same class and of like tenor. Any Security
in lieu of which any such new Security has been executed and delivered by the
Company shall not be deemed to be an outstanding Security for any purpose
hereof.
8.04. Separability. Notwithstanding anything to the contrary contained
herein or in any Related Agreement, the Securities will not be separately
transferable until the earliest to occur of the following (the "Separation
Date"): (i) the third anniversary of the Closing Date; (ii) the date of the
consummation of a Qualified Public Offering; and (iii) the date of redemption of
the Notes.
9. REDEMPTION OF NOTES
9.01. Mandatory Redemption. On March 31, 2004, the Company shall redeem
all of the then outstanding Notes, such redemption to be made at 100% of the
principal amount of the then outstanding Notes without premium.
9.02. Optional Redemption. (a) At any time or from time to time after
the second anniversary of the Closing Date, the Company may, at its option, upon
notice to each holder of Notes not less than 30 days and not more than 60 days
prior to the date fixed for such redemption, redeem all or any part (in a
minimum principal amount of $2,500,000 and in integral multiples of $100,000) of
the Notes, each such redemption to be made at 100% of the principal amount of
the Notes so redeemed.
(b) Any redemption of Notes pursuant to this Section 9.02
shall be accompanied by an Officer's Certificate (a) stating the principal
amount of each Note to be redeemed, (b) stating the proposed date of redemption
and (c) stating the accrued interest on each such Note to the proposed date of
redemption to be paid in accordance with Section 9.05.
9.03. Contingent Redemption Upon a Change of Control. (a) In the event
of a Change of Control or the Company obtains knowledge of a proposed
transaction or series of transactions which would result in a Change of Control,
the Company, will, within 3 days of the earlier of such Change of Control or
obtaining such knowledge of the proposed Change of Control, give written notice
of such Change of Control to each holder of Notes, which notice shall contain a
written irrevocable
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offer by the Company to redeem, by a date (the "Redemption Date") specified in
such notice (such Redemption Date shall not be less than 30 days and not more
than 60 days after the date of such notice and such date shall not be earlier
than the date of the Change of Control), all of the Notes held by such holder in
full (and not in part). Such offered redemption shall be made on the Redemption
Date at 101% of the principal amount of the Notes so redeemed, upon acceptance
by such holder mailed to Company at least 7 days prior to the Redemption Date.
(b) Any offer by the Company to redeem the Notes, and any
subsequent redemption thereof pursuant to this Section 9.03 shall be accompanied
by an Officer's Certificate (a) stating the principal amount of each Note to be
redeemed, (b) stating the Redemption Date, (c) stating the accrued interest on
each such Note to the Redemption Date to be paid in accordance with Section
9.05, (d) stating the premium payable in connection with such proposed
redemption and (e) specifying the nature of the Change of Control, the
transactions or proposed transactions resulting in such Change of Control and
the date or proposed date of the occurrence of such Change of Control.
9.04. Allocation of Partial Redemptions. In the case of each partial
redemption (except a redemption pursuant to Section 9.03 of the Notes held by
some but not all holders of the Notes), the principal amount of the Notes to be
redeemed shall be allocated among all of the Notes at the time outstanding in
proportion, as nearly as practicable, to the respective unpaid principal amounts
thereof not theretofore called for redemption, with adjustments, to the extent
practicable, to compensate for any prior redemptions not made exactly in such
proportion.
9.05. Maturity; Surrender; etc. In the case of each redemption of the
Notes, the principal amount of each Note to be redeemed shall mature and become
due and payable on the date fixed for such redemption, together with interest on
such principal amount accrued to such date and the applicable premium, if any.
From and after such date, unless the Company shall fail to pay such principal
amount when so due and payable, together with the interest and premium, if any,
as aforesaid, interest on such principal amount shall cease to accrue. Any Note
redeemed in full shall be surrendered to the Company upon the Company's written
request and cancelled and shall not be reissued, and no Note shall be issued in
lieu of any repaid principal amount of any Note.
10. SUBORDINATION OF SENIOR SUBORDINATED OBLIGATIONS
10.01. Generally. All Senior Subordinated Obligations are subordinate
and junior in right of payment to all Senior Debt, but only to the extent
provided in this Article 10.
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10.02. Default in Respect of Senior Debt.
(a) If a Senior Debt Payment Default shall have occurred,
then, unless and until such Senior Debt Payment Default shall have been cured or
waived or shall have ceased to exist, no direct or indirect payment (in cash,
property or securities or by set-off or otherwise) shall be made or agreed to be
made on account of any Senior Subordinated Obligation, or as a sinking fund for
any Senior Subordinated Obligation, or in respect of any redemption, retirement,
purchase or other acquisition of any Senior Subordinated Obligation during any
period: (i) of 180 consecutive days after written notice of (y) such Senior Debt
Payment Default and (z) election to exercise the rights provided by this Section
10.02 shall have been given to the Purchasers by any holder of Senior Debt,
provided that only one such notice may be given pursuant to the terms of this
subdivision (a)(i) in any period of 210 consecutive days; or (ii) in which an
effective notice of acceleration of the maturity of such Senior Debt shall have
been transmitted to the Company in respect of such default and such notice
remains in effect.
(b) If a Senior Debt Other Default shall have occurred,
then, unless and until such Senior Debt Other Default shall have been cured or
waived or shall have ceased to exist, no direct or indirect payment (in cash,
property or securities or by set-off or otherwise) shall be made or agreed to be
made on account of any Senior Subordinated Obligation, or as a sinking fund for
any Senior Subordinated Obligation, or in respect of any redemption, retirement,
purchase or other acquisition of any Senior Subordinated Obligation, during any
period: (i) of 90 consecutive days after written notice of (y) such Senior Debt
Other Default and (z) election to exercise the rights provided by this Section
10.02 shall have been given to the Purchasers by any holder of Senior Debt,
provided that (A) no more than one (1) such notice shall be given pursuant to
the terms of this subdivision (b)(i) in any period of 120 consecutive days, (B)
no more than three (3) such notices shall be given pursuant to the terms of this
subdivision (b)(i) prior to the indefeasible payment in full of all Senior
Subordinated Obligations, and (c) no such notice may be given in respect of any
Senior Debt Other Default the existence of which any holder of Senior Debt had
knowledge at the time any other notice was delivered pursuant to this Section
10.02; or (ii) in which an effective notice of acceleration of the maturity of
such Senior Debt shall have been transmitted to the Company in respect of such
default and such notice remains in effect.
10.03. Insolvency, etc. In the event of: (a) any insolvency,
bankruptcy, receivership, liquidation, reorganization, readjustment,
recomposition, or other similar proceeding relating to the Company or its
property; (b) any proceeding for the liquidation, dissolution or other
winding-up of the Company, voluntary or involuntary, whether or not involving
insolvency or bankruptcy proceedings; (c) any assignment by the Company for the
benefit of its creditors; or (d) any other proceeding for marshaling of the
assets of the Company, then and in any such event: (i) all Senior Debt shall
first be paid in full in cash, securities or other property before any payment
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or distribution, whether in cash, securities or other property shall be made to
any holder of any Senior Subordinated Obligation on account of any Senior
Subordinated Obligation; and (ii) any payment or distribution, whether in cash,
securities or other property (other than securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment the payment
of which is subordinated, at least to the extent provided in this Article 10
with respect to Senior Subordinated Obligations, to the payment of all Senior
Debt at the time outstanding and to any securities issued in respect thereof
under any such plan of reorganization or readjustment, provided that such
distribution of securities is provided for by a court approved plan of
reorganization or readjustment) that would otherwise (but for this Article 10)
be payable or deliverable in respect of Senior Subordinated Obligations shall be
paid or delivered directly to the holders of Senior Debt in accordance with the
priorities existing among such holders until all Senior Debt shall have been
paid in full.
10.04. Turnover of Payments. In the event that: (a) any payment or
distribution shall be collected or received by any holders of Senior
Subordinated Obligations in contravention of any of the terms of this Article 10
and prior to the payment in full in of the Senior Debt at the time outstanding;
and (b) any holder of such Senior Debt shall have notified such holders of
Senior Subordinated Obligations, within 120 days of any such payment or
distribution, of the facts by reason of which such collection or receipt is in
contravention of this Article 10, then and in any event, such holders of Senior
Subordinated Obligations will deliver such payment or distribution, to the
extent necessary to pay all such Senior Debt in full to the holders of the
Senior Debt, and until so delivered, the same shall be held in trust by such
holders of Senior Subordinated Obligations as the property of the holders of
such Senior Debt. If after any amount is delivered to the holders of Senior Debt
pursuant to this Section 10.04, whether or not such amounts have been applied to
the payment of Senior Debt, and the outstanding Senior Debt shall thereafter be
paid in full other than pursuant to this Section 10.04, then the holders of
Senior Debt shall return promptly to such holders of Senior Subordinated
Obligations an amount equal to the amount delivered to the holders of Senior
Debt pursuant to this Section 10.04.
10.05. Obligations Not Impaired. No present or future holder of any
Senior Debt shall be prejudiced in the right to enforce the subordination of
Senior Subordinated Obligations by any act or failure to act on the part of the
Company. Nothing contained in this Article 10 shall impair, as between the
Company and any holder of Senior Subordinated Obligations, the obligation of the
Company to pay to such holder the principal thereof and premium, if any, and
interest thereon as and when the same shall become due and payable in accordance
with the terms thereof, or prevent any holder of any Senior Subordinated
Obligation from exercising all rights, powers and remedies otherwise permitted
by applicable law or under any agreement under which such Senior Subordinated
Obligation was incurred, all subject to the rights of the holders of Senior Debt
to receive cash, securities or other property otherwise payable or deliverable
to the holders of Senior Subordinated Obligations.
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10.06. Payment of Senior Debt; Subrogation. Upon the payment in full in
cash of all Senior Debt, the holders of Senior Subordinated Obligations shall be
subrogated to all rights of any holder of Senior Debt to receive any further
payments or distributions applicable to Senior Debt until all Senior
Subordinated Obligations shall have been paid in full, and such payments or
distributions received by the holders of Senior Subordinated Obligations by
reason of such subrogation, of cash, securities or other property that otherwise
would be paid or distributed to the holders of Senior Debt, shall, as between
the Company and its creditors other than the holders of Senior Debt, on the one
hand, and the holders of Senior Subordinated Obligations, on the other hand, be
deemed to be a payment by the Company on account of Senior Debt and not on
account of Senior Subordinated Obligations.
10.07. Reliance by Holders of Senior Debt; Continuing Offer. The
Company acknowledges and agrees, and each holder of Senior Subordinated
Obligations, by its execution of this Agreement, shall be deemed to acknowledge
and agree, that the foregoing subordination provisions of this Article 10 are,
and are intended to be, an inducement to and a consideration of each holder of
any Senior Debt, whether such Senior Debt was created or acquired before or
after the creation of the Senior Subordinated Obligations, to acquire and hold,
or to continue to hold, such Senior Debt, and each such holder of Senior Debt
shall be deemed conclusively to have relied on such subordination provisions of
this Article 10 in acquiring and holding, or in continuing to hold, such Senior
Debt. This Article 10 shall constitute a continuing offer to all Persons that,
in reliance upon the provisions of this Article 10, become holders of, or
continue to hold Senior Debt; and such provisions are made for the benefit of
the holders of Senior Debt; and such holders are made obligees hereunder and
they or each of them may enforce such provisions.
11. EVENTS OF DEFAULT AND EVENTS OF NONCOMPLIANCE
11.01. Events of Default. The following conditions or events shall
constitute events of default ("Events of Default"):
(a) the Company fails to make any principal, interest or
premium payment on any Note when the same becomes due and payable, whether at
maturity or at a date fixed for prepayment or redemption or by declaration or
otherwise; or
(b) (i) for as long as any Purchaser holds Securities, any
representation or warranty contained in Sections 2.01, 2.02, 2.03, 2.04, 2.05,
2.34 or 2.06 (but only if there is a Material Adverse Effect to the breach of
the representation contained in Section 2.06) or (ii) for a period of six months
following the Closing Date, any other representation or warranty made or deemed
made by the Company herein or in any Related Agreement or which is contained in
any certificate, document, opinion, financial or other statement furnished at
any time under or in connection herewith or any Related Agreement shall prove to
have been incorrect in any material respect on or as of the date made or deemed
made; or
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(c) the Company shall fail to perform or observe, in any
material respect, and such failure shall continue for 30 consecutive days: (i)
any term, covenant or agreement contained in Section 1.04, Article 6 (other than
Sections 6.02, 6.08, 6.09 and 6.20) or Article 7 hereof, in the Certificate of
Designation, in the Warrants or in the Contingent Warrants; or (ii) any term,
covenant or agreement on its part to be performed or observed (other than the
obligations specifically referred to elsewhere in this Section 11.01) herein or
in any Related Agreement; or
(d) the Company or any Subsidiary shall: (i) fail to pay any
Indebtedness (other than the Senior Subordinated Obligations) of the Company or
such Subsidiary in excess of $2,000,000, or any interest or premium thereon,
when due and upon the expiration of any applicable grace period (whether by
scheduled maturity, required prepayment, acceleration, demand or otherwise); or
(ii) fail to perform or observe any material term, covenant or condition on its
part to be performed or observed under any agreement or instrument relating to
any such Indebtedness, when required to be performed or observed, if the effect
of such failure to perform or observe is to accelerate, or to permit the
acceleration of, after the giving of notice or passage of time, or both, the
maturity of such Indebtedness; or any such Indebtedness shall be declared to be
due and payable, or required to be prepaid (other than by a regularly scheduled
required prepayment), prior to the stated maturity thereof; or
(e) the Company or any Subsidiary: (i) shall for 30 days
generally not, or be unable to, or shall admit in writing its inability to, pay
its debts as such debts become due; or (ii) shall make an assignment for the
benefit of creditors, petition or apply to any tribunal for the appointment of a
custodian, receiver or trustee for it or a substantial part of its assets; or
(iii) shall commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, whether now or hereafter in effect; or (iv) shall have had any
such petition or application filed or any such proceeding shall have been
commenced, against it, in which an adjudication or appointment is made or order
for relief is entered, or which petition, application or proceeding remains
undismissed for a period of 60 days or more; or (v) shall be the subject of any
proceeding under which all or substantially all of its assets may be subject to
seizure, forfeiture or divestiture; or (vi) by any act or omission shall
indicate its consent to, approval of or acquiescence in any such petition,
application or proceeding or order for relief or the appointment of a custodian,
receiver or trustee (including, without limitation, the FDIC or the OTS) for all
or any substantial part of its property or assets; or (vii) shall suffer any
such custodianship, receivership or trusteeship to continue undischarged for a
period of 45 days or more; or
(f) TeleBank shall fail to meet the criteria required for
classification as an "adequately capitalized" Insured Depository Institution
within the meaning of 12
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U.S.C. Section 1831o and 12 C.F.R. Part 565 or any successor provisions and such
failure is not cured within a period of 90 days from the date of such failure;
or
(g) one or more judgments, decrees or orders for the payment
of money in excess of $2,000,000 in the aggregate shall be rendered against the
Company or any Subsidiary and such judgments, decrees or orders shall continue
unsatisfied and in effect for a period of 30 consecutive days without being
vacated, discharged, satisfied or stayed or bonded pending appeal.
11.02. Events of Noncompliance. The following conditions or events
shall constitute events of noncompliance ("Events of Noncompliance"):
(a) the Company fails to make any liquidation payment or
redemption payment with respect to the Preferred Shares which it is obligated to
make under the Certificate of Designation, whether or not such payment is
legally permissible or funds are legally available therefor; or
(b) (i) for as long as any Purchaser holds Securities are
outstanding, any representation or warranty contained in Sections 2.01, 2.02,
2.03, 2.04, 2.05, 2.34 or 2.06 (but only if there is a Material Adverse Effect
to the breach of the representation contained in Section 2.06) or (ii) for a
period of six months following the Closing Date, any other representation or
warranty made or deemed made by the Company herein or in any Related Agreement
or which is contained in any certificate, document, opinion, financial or other
statement furnished at any time under or in connection herewith or any Related
Agreement shall prove to have been incorrect in any material respect on or as of
the date made or deemed made; or
(c) the Company shall fail to perform or observe in any
material respect, and such failure shall continue for 30 consecutive days, any
term, covenant or agreement contained in Section 1.04, Article 6 (except
Sections 6.02, 6.16 and 6.17) or Article 7 (except Section 7.03) hereof, in the
Certificate of Designation, in the Warrants or in the Contingent Warrants; or
(d) the Company fails to make any cumulative dividend
payment with respect to the Preferred Shares which it is obligated to make under
the Certificate of Designation, whether or not such payment is legally
permissible or funds are legally available therefor.
12. REMEDIES ON EVENT OF DEFAULT, ETC.
12.01. Acceleration of Notes. Upon the occurrence of an Event of
Default, the holders of the majority of the principal amount of the Notes may at
their option by notice to the Company declare all or any part of the Notes to be
subject to immediate redemption at a redemption price of the Notes equal to 101%
of the outstanding principal amount plus accrued and unpaid interest thereon,
and all other
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sums, if any, payable under this Agreement, or the Related Agreements, shall
become so due and payable without presentation, presentment, protest or further
demand or notice of any kind, all of which are hereby expressly waived, and such
holder or holders may proceed to enforce payment of such amount or part thereof
in such manner as it or they may elect.
12.02. Redemption of Preferred Shares. Upon the occurrence of an Event
of Noncompliance (not relating to Section 11.02(d)), the holders of the majority
of the outstanding Preferred Shares may at their option by notice to the Company
declare all or any part of the outstanding Preferred Shares to be subject to
immediate redemption and all other sums, if any, payable under this Agreement,
or the Related Agreements, shall become so due and payable without presentation,
presentment, protest or further demand or notice of any kind, all of which are
hereby expressly waived, and such holder or holders may proceed to enforce
payment of such amount or part thereof in such manner as it or they may elect.
Such redemption shall be made at a price equal to (i) in the case of a
redemption in connection with an Event of Noncompliance not relating to Section
6.05, 6.09, 6.18 or 11.02(d) of this Agreement, 101% of the Liquidation
Preference of the Preferred Stock, plus all accrued but unpaid dividends
thereon, or (ii) in the case of a redemption in connection with an Event of
Noncompliance relating to Sections 6.05, 6.09 or 6.18 of this Agreement, 120% of
the Liquidation Preference of the Preferred Stock, plus all accrued but unpaid
dividends thereon.
12.03. Default Rate. Upon the occurrence of (a) any Event of Default,
the rate of interest payable under the Notes or (b) any Event of Noncompliance,
the rate of dividends payable in respect of the Preferred Shares (as set forth
in the Certificate of Designation), respectively, shall be increased by 2% over
the rates which would otherwise be paid for so long as such respective Event of
Default or Event of Noncompliance continues.
12.04. Other Remedies. If an Event of Default or Event of Noncompliance
exists, the holders of the Securities may proceed to protect and enforce their
rights by suit in equity, action at law and/or other appropriate proceeding
either for specific performance of any covenant, provision or condition
contained in this Agreement or any Related Agreement, or in aid of the exercise
of any power granted in this Agreement or any Related Agreement. In addition to
the remedies set forth herein, the holders of the Securities shall have any
other rights to which they may be entitled under any other contract or agreement
or pursuant to applicable law.
13. REGISTRATION RIGHTS
The Purchasers shall have the right to register their Registrable
Securities in accordance with the following provisions:
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13.01. Demand Registrations.
(a) At any time subsequent to the earliest of (i) the third
anniversary of the Closing Date, (ii) the date of the consummation of a
Qualified Public Offering and (iii) the date of redemption of the Notes, upon
the written request of the holders of at least 51% of the Registrable Securities
(the "Initiating Holders") that the Company effect the Registration under the
Securities Act (such a written request being hereinafter referred to as a
"Demand Registration") of any of the Registrable Securities, the Company will
promptly give written notice to all other holders of Registrable Securities that
a Demand Registration has been received. For a period of 15 days following
delivery of such notice, the other holders of Registrable Securities may request
that the Company also register their Registrable Securities and after the
expiration of such 15 day period, the Company shall notify all holders of
Registrable Securities of the number of Registrable Securities to be registered.
Thereupon, the Company will use its reasonable best efforts to cause the prompt
Registration under the Securities Act, subject to the provisions of this Article
13, of all Registrable Securities which the holders thereof have requested the
Company to register, and in connection therewith, prepare and file on such
appropriate form as the Company, in its reasonable discretion, shall determine,
a Registration Statement under the Securities Act to effect such Registration.
With respect to any Registration Statement filed, or to be
filed, pursuant to this Section 13.01(a), if the Company shall furnish to the
holders of Registrable Securities a certified resolution of the Board of
Directors stating that in the Board of Directors' good faith judgment it would
(because of the existence of, or in anticipation of, any acquisition or
financing, merger, sale of assets, recapitalization or other similar corporate
activity, or the unavailability for reasons beyond the Company's control of any
required audited financial statements, or any other event or condition of
similar significance to the Company) be materially disadvantageous (a
"Disadvantageous Condition") to the Company or its stockholders for such a
Registration Statement to be maintained Effective, or to be filed and become
Effective, and setting forth the general reasons for such judgment, the Company
shall be entitled to cause such Registration Statement to be withdrawn and the
effectiveness of such Registration Statement terminated, or, in the event no
Registration Statement has yet been filed, shall be entitled not to file any
such Registration Statement, until such Disadvantageous Condition no longer
exists (notice of which the Company shall promptly deliver to all holders of
Registrable Securities). Upon receipt of any such notice of a Disadvantageous
Condition, such holders of Registrable Securities will forthwith discontinue use
of the disclosure document contained in such Registration Statement and, if so
directed by the Company, each such holder will deliver to the Company all
copies, other than permanent file copies then in such holder's possession, of
the disclosure document then covering such Registrable Securities current at the
time of receipt of such notice, and, in the event no Registration Statement has
yet been filed, all drafts of the disclosure document covering such Registrable
Securities. In the event that the Company shall give any
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notice of a Disadvantageous Condition, the Company shall, at such time as it in
good faith deems appropriate, file a new Registration Statement covering the
Registrable Securities that were covered by such withdrawn Registration
Statement, and such Registration Statement shall be maintained Effective for
such time as may be necessary so that the period of effectiveness of such new
Registration Statement, when aggregated with the period during which such
initial Registration Statement was Effective, shall be such time as may be
otherwise required by Section 13.01(c). Notwithstanding the foregoing, the
Company may only declare one Disadvantageous Condition per calendar year.
The holders of a majority of the Registrable Securities
requested to be registered may, at any time prior to the Effective Date of the
Registration Statement relating to such Registration, or during the existence of
a Disadvantageous Condition, revoke such request, without liability to any of
the other holders of Registrable Securities, by providing a written notice to
the Company revoking such request.
(b) Number of Registrations; Expenses. The Company shall not
be obligated to effect more than two Registrations of Registrable Securities
pursuant to requests from the holders of Registrable Securities under this
Section 13.01. The Company shall pay all Registration Expenses in connection
with the two Registrations which the holders of Registrable Securities are
entitled to request pursuant to this Section 13.01. However, each holder of
Registrable Securities shall pay all underwriting discounts and commissions and
transfer taxes, if any, relating to the sale or disposition of such holder's
Registrable Securities pursuant to this Section 13.01. Notwithstanding any other
provisions contained in this Section 13.01, the Company shall not be required to
register any Registrable Securities pursuant to an Effective Registration
Statement in connection with a request for such Registration made in accordance
with this Section 13.01 if the previous Registration Statement with respect to
any request made pursuant to this Section 13.01 became Effective less than 180
days prior to such request or the holders of Registrable Securities initiated a
Demand Registration in the same calendar year.
(c) Effective Registration Statement. A Registration
requested pursuant to this Section 13.01 shall not be deemed to have been
effected unless the Registration Statement relating thereto (i) has become
Effective under the Securities Act, and (ii) has remained Effective for a period
of at least 180 days (or such shorter period in which all Registrable Securities
included in such Registration have actually been sold thereunder); provided,
however, that if any Effective Registration Statement requested pursuant to this
Section 13.01 is discontinued in connection with a Disadvantageous Condition,
such Registration Statement shall not be included as one of the Registrations
which may be requested pursuant to this Section 13.01; provided further, that if
after any Registration Statement requested pursuant to this Section 13.01
becomes Effective (y) such Registration Statement is subject to any stop order,
injunction or other order or requirement of the Commission or other governmental
agency or court solely due to the actions or omissions to act of the Company or
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(z) the holders of Registrable Securities are unable to sell the Registrable
Securities included in the Registration Statement at a gross price of at least
80% of the lower end of the expected offering price range as stated in the
preliminary prospectus filed with the Commission for such Registration
Statement, such requested Registration shall not be included as one of the
Registrations which such holders of Registrable Securities are entitled to
request pursuant to Section 13.01(b).
(d) Selection of Underwriters. If any requested Registration
pursuant to this Section 13.01 is in the form of an underwritten offering, the
Board of Directors shall have the right to select the investment banker and
manager or co-managers that will administer the offering, subject to the
approval of the holders holding a majority of the Registrable Securities in
respect of which Registration has been requested.
(e) Priority in Requested Registrations. If a requested
Registration pursuant to this Section 13.01 involves an underwritten offering
and the managing underwriter shall advise the Company that, in its view, the
number of equity securities which the Company, the holders of Registrable
Securities and any other persons intend to include in such Registration exceeds
the largest number of securities which can be sold without having an adverse
effect on such offering, including the price at which such securities can be
sold, the Company will include in such Registration (i) first, Registrable
Securities proposed to be registered by holders thereof, pro rata based on the
number of Registrable Securities proposed to be registered by each such holder,
(ii) second, securities that the Company proposes to issue and sell for its own
account, and (iii) third, all other securities proposed to be registered by the
holders thereof, pro rata based on the number of securities proposed to be
registered by each such Person.
13.02. Incidental Registration.
(a) If, at any time subsequent to the Closing Date, the
Company proposes to register any of its equity securities under the Securities
Act (other than a registration (i) relating to shares of Common Stock issuable
upon exercise of employee stock options or in connection with any employee
benefit or similar plan of the Company, (ii) in connection with an acquisition
by the Company of another company, or (iii) pursuant to Section 13.01) in a
manner which would permit Registration of Registrable Securities for sale to the
public under the Securities Act, it shall each such time, subject to the
provisions of Section 13.02(b), give prompt written notice to all holders of
record of Registrable Securities of its intention to do so and of such holders'
rights under this Section 13.02, at least 30 days prior to the anticipated
filing date of the Registration Statement relating to such Registration. Such
notice shall offer all such holders the opportunity to include in such
Registration Statement such number of Registrable Securities as each such holder
may request. Upon the written request of any such holder made within 20 days
after the receipt of the Company's notice (which request shall specify the
number of Registrable Securities intended to be disposed of by such holder and
the intended method of
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disposition thereof), the Company will use its best efforts to effect the
Registration under the Securities Act of all Registrable Securities which the
Company has been so requested to register by the holders thereof; provided that
(y) if such Registration involves an underwritten offering, all holders of
Registrable Securities requesting to be included in the Company's Registration
must sell their Registrable Securities to the underwriters selected by the
Company on the same terms and conditions as apply to the Company and (z) if, at
any time after giving written notice of its intention to register any securities
pursuant to this Section 13.02(a) and prior to the Effective Date of the
Registration Statement filed in connection with such Registration, the Company
shall determine for any reason not to register such securities, the Company
shall give written notice to all holders of Registrable Securities and shall
thereupon be relieved of its obligation to register any Registrable Securities
in connection with such Registration (without prejudice, however, to rights of
the holders of Registrable Securities under Section 13.01). If a Registration
pursuant to this Section 13.02(a) involves an underwritten public offering, any
holder of Registrable Securities requesting to be included in such Registration
may elect, in writing prior to the Effective Date of the Registration Statement
filed in connection with such Registration, not to register such Registrable
Securities in connection with such Registration. No Registration effected under
this Section 13.02 shall relieve the Company of its obligations to effect
Registrations upon request under Section 13.01. The Company shall pay all
Registration Expenses in connection with each Registration of Registrable
Securities requested pursuant to this Section 13.02. However, each holder of
Registrable Securities shall pay all underwriting discounts and commissions,
transfer taxes, if any, relating to the sale or disposition of such holder's
Registrable Securities pursuant to a Registration Statement effected pursuant to
this Section 13.02.
(b) Priority in Incidental Registrations. If a Registration
pursuant to this Section 13.02 involves an underwritten offering and the
managing underwriter advises the Company that, in its good faith view, the
number of equity securities (including all Registrable Securities) which the
Company, the holders of Registrable Securities and any other persons intend to
include in such Registration exceeds the largest number of securities which can
be sold without having an adverse effect on such offering, including the price
at which such Registrable Securities can be sold, the Company will include in
such Registration (i) first, securities that the Company proposes to issue and
sell for its own account, (ii) second, Registrable Securities proposed to be
registered by the holders thereof, pro rata based on the number of Registrable
Securities proposed to be registered by each such Person and (iii) third, all
other securities proposed to be registered by the holders thereof, pro rata
based on the number of securities proposed to be registered by each such Person.
13.03. Registration Procedures. In connection with any offering of
Registrable Securities registered pursuant to this Article 13, the Company
shall:
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(a) Prepare and file with the Commission, within 90 days
after receipt of a request for Registration, a Registration Statement on any
form for which the Company then qualifies or which counsel for the Company shall
deem appropriate, and which form shall be available for the sale of the
Registrable Securities in accordance with the intended methods of distribution
thereof, and use its best efforts to cause such Registration Statement to become
and remain Effective as provided herein, provided that before filing with the
Commission a Registration Statement or disclosure document constituting part of
a Registration Statement or any amendments or supplements thereto, the Company
will (y) furnish to one counsel selected by the holders of a majority of the
Registrable Securities covered by such Registration Statement copies of all such
documents proposed to be filed for said counsel's review and comment and (z)
notify each holder of Registrable Securities covered by such Registration
Statement of any stop order issued or threatened by the Commission and take all
reasonable actions required to prevent the entry of such stop order or to remove
it if entered;
(b) Prepare and file with the Commission such amendments and
supplements to such Registration Statement and any disclosure document
constituting part of such Registration Statement used in connection therewith as
may be necessary to keep Effective such Registration Statement for a period of
not less than 180 days or such shorter period which will terminate when all
Registrable Securities covered by such Registration Statement have been sold
(but not before the expiration of the 90 day period, if applicable, referred to
in Section 4(3) of the Securities Act and Rule 174, or any successor thereto, if
applicable), and comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such Registration Statement
during such period, in accordance with the intended methods of disposition by
the sellers thereof set forth in such Registration Statement;
(c) Furnish to each holder and each underwriter, if any, of
Registrable Securities covered by such Registration Statement such number of
copies of such Registration Statement, each amendment and supplement thereto (in
each case including all exhibits thereto), and the disclosure document included
in such Registration Statement (including each preliminary disclosure document),
in conformity with the requirements of the Securities Act, and such other
documents as any holder of Registrable Securities may reasonably request in
order to facilitate the disposition of the Registrable Securities owned by such
holder;
(d) Use its reasonable best efforts to register or qualify
such Registrable Securities under such other state securities or "blue sky" laws
of such jurisdictions as any holder, and underwriter, if any, of Registrable
Securities covered by such Registration Statement reasonably requests and do any
and all other acts and things which may be reasonably necessary or advisable to
enable such holder and each underwriter, if any, to consummate the disposition
in such jurisdictions of the Registrable Securities owned by such holder;
provided that the Company will not be required to (x) qualify generally to do
business in any jurisdiction where it would not
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otherwise be required to qualify but for this Section 13.03(d), (y) subject
itself to taxation in any such jurisdiction or (z) consent to general service of
process in any such jurisdiction;
(e) Use its reasonable best efforts to cause the Registrable
Securities covered by such Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
by virtue of the business and operations of the Company to enable the holder or
holders thereof to consummate the disposition of such Registrable Securities;
(f) Immediately notify each holder of such Registrable
Securities, at any time when a disclosure document relating thereto is required
to be delivered under the Securities Act, of the happening of any event which
comes to the Company's attention if, as a result of such event, the disclosure
document included in such Registration Statement contains an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and the
Company will promptly prepare and furnish to such holder a supplement or
amendment to such disclosure document so that, as thereafter delivered to the
purchasers of such Registrable Securities, such disclosure document will not
contain an untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading;
(g) Use its reasonable best efforts to cause all such
Registrable Securities to be listed on a national securities exchange (including
NASDAQ) and on each securities exchange on which similar securities issued by
the Company may then be listed, and enter into such customary agreements
including a listing application and indemnification agreement in customary form,
and to provide a transfer agent and registrar for such Registrable Securities
covered by such Registration Statement no later than the Effective Date of such
Registration Statement;
(h) Enter into such customary agreements (including an
underwriting agreement in customary form) and take all such other actions as the
holders of a majority of the Registrable Securities being covered by such
Registration Statement or the underwriters retained by such holders, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities, including customary representations, warranties,
indemnities and agreements;
(i) Make available for inspection by any holder of
Registrable Securities covered by such Registration Statement, any underwriter
participating in any disposition pursuant to such Registration Statement, and
any attorney, accountant or other agent retained by any such holder or
underwriter (collectively, the "Inspectors"), all financial and other records,
pertinent corporate documents and properties of the Company (collectively,
"Records"), if any, as shall be reasonably necessary to enable them to exercise
their due diligence responsibility, and cause the
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Company's and its Affiliates' officers, directors and employees to supply all
information and respond to all inquiries reasonably requested by any such
Inspector in connection with such Registration Statement;
(j) Use its reasonable best efforts to obtain a "cold
comfort" letter from the Company's independent public accountants in customary
form and covering such matters of the type customarily covered by "cold comfort"
letters as the holders of a majority in interest of the Registrable Securities
being sold reasonably request; and
(k) Otherwise use its reasonable best efforts to comply with
all applicable rules and regulations of the Commission, and make available to
the holders of Registrable Securities, as soon as reasonably practicable, an
earnings statement covering a period of at least twelve months, beginning with
the first month after the Effective Date of the Registration Statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder.
It shall be a condition precedent to the obligation of the
Company to take any action with respect to securities of a holder of Registrable
Securities that such holder shall furnish to the Company such information
regarding the securities held by such holder and the intended method of
disposition thereof as the Company shall reasonably request and as shall be
required in connection with the action taken by the Company.
Each holder of Registrable Securities agrees that, upon
receipt of any notice from the Company of the happening of any event of the kind
described in Section 13.03(f), such holder will forthwith discontinue
disposition of Registrable Securities until such holder's receipt of the copies
of the supplemented or amended disclosure document contemplated by Section
13.03(f) hereof, and, if so directed by the Company, such holder will deliver to
the Company (at the Company's expense) all copies (including, without
limitation, any and all drafts), other than permanent file copies, then in such
holder's possession, of the disclosure document covering such Registrable
Securities current at the time of receipt of such notice. In the event the
Company shall give any such notice, the period mentioned in Section 13.03(b)
shall be extended by the greater of (x) three months or (y) the number of days
during the period from and including the date of the giving of such notice
pursuant to Section 13.03(f) hereof to and including the date when each holder
of Registrable Securities covered by such Registration Statement shall have
received the copies of the supplemented or amended disclosure document
contemplated by Section 13.03(f) hereof.
13.04. Indemnification.
(a) Indemnification by the Company. In the event of any
Registration of any securities of the Company under the Securities Act pursuant
to
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this Agreement, the Company will indemnify and hold harmless, to the full extent
permitted by law, each of the holders of any Registrable Securities covered by
such Registration Statement, their respective trustees, directors and officers,
agents, general partners, limited partners and managing directors, each other
person who participates as an underwriter in the offering or sale of such
securities and each other person, if any, who controls, is controlled by or is
under common control with any such holder or any such underwriter within the
meaning of the Securities Act (and directors, officers, controlling persons,
partners and managing directors of any of the foregoing), against any and all
losses, claims, damages or liabilities, joint or several, and expenses
(including any amounts paid in any settlement effected with the Company's
consent, which consent will not be unreasonably withheld) to which such holder,
any such director or officer or general or limited partner or managing director
or any such underwriter or controlling person may become subject under the
Securities Act, state securities or "blue sky" laws, common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) or expenses arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained,
on the Effective Date thereof, in any Registration Statement under which such
securities were registered under the Securities Act, any preliminary, final or
summary disclosure document contained therein, or any amendment or supplement
thereto, (ii) any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any violation or alleged violation by the Company of any
federal, state or common law rule or regulation applicable to the Company and
relating to action required of or inaction by the Company in connection with any
such Registration. The Company shall reimburse each such holder and each such
director, officer, general partner, limited partner, managing director or
underwriter and controlling person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending such
loss, claim, liability, action or proceeding, provided, that the Company shall
not be liable in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out of
or is based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in such Registration Statement or amendment or supplement
thereto or in any such preliminary, final or summary disclosure document in
reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such holder in its capacity as a
holder of Registrable Securities in the Company. The indemnity provided for
herein shall remain in full force and effect regardless of any investigation
made by or on behalf of such holder or any such director, officer, general
partner, limited partner, managing director, underwriter or controlling person
and shall survive the transfer of such securities by such holder.
(b) Indemnification by the Holders of Registrable Securities
and Underwriters. The Company may require, as a condition to including any
Registrable Securities in any Registration Statement filed in accordance with
the provisions hereof, that the Company shall have received an undertaking
reasonably satisfactory
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to it from the holders of such Registrable Securities or any underwriter, to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in paragraph (a) above) the Company and its directors, officers,
controlling persons and all other prospective sellers and their respective
directors, officers, general and limited partners, managing directors, and their
respective controlling persons with respect to any untrue statement or alleged
untrue statement in or omission or alleged omission from such Registration
Statement, any preliminary, final or summary disclosure document contained
therein, or any amendment or supplement, if such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to the Company or its
representatives through an instrument duly executed by or on behalf of such
holder specifically stating that it is for use in the preparation of such
Registration Statement, preliminary, final or summary disclosure document or
amendment or supplement, or a document incorporated by reference into any of the
foregoing. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of the Company or any of the holders of
Registrable Securities and shall survive the transfer of such securities by such
holder, provided, however, that no such holder shall be liable in the aggregate
for any amounts exceeding the product of the sale price per Registrable Security
and the number of Registrable Securities being sold pursuant to such
Registration Statement or disclosure document by such holder.
(c) Notices of Claims, etc. Promptly after receipt by an
indemnified party hereunder of written notice of the commencement of any action
or proceeding with respect to which a claim for indemnification may be made
pursuant to this Section 13.04, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party, promptly give
written notice to the indemnifying party of the commencement of such action,
provided that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under the
preceding subsections of this Section, except to the extent that the
indemnifying party is actually materially prejudiced by such failure to give
notice. In case any such action is brought against an indemnified party, unless
in such indemnified party's reasonable judgment a conflict of interest between
such indemnified and indemnifying parties may exist in respect of such claim,
the indemnifying party will be entitled to participate in and, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, to
the extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party for any legal or
other expenses subsequently incurred by the latter in connection with the
defense thereof, unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties arises in
respect of such claim after the assumption of the defense thereof, and the
indemnifying party will not be subject to any liability for any settlement made
without its consent (which consent shall not be unreasonably withheld). No
indemnifying
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party will consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
to such claim or litigation. An indemnifying party who is not entitled to, or
elects not to, assume the defense of a claim will not be obligated to pay the
fees and expenses of more than one counsel in any single jurisdiction for all
parties indemnified by such indemnifying party with respect to such claim,
unless in the reasonable judgment of any indemnified party a conflict of
interest may exist between such indemnified party and any other of such
indemnified parties with respect to such claim, in which event the indemnifying
party shall be obligated to pay the fees and expenses of such additional counsel
or counsels as may be reasonably necessary. Notwithstanding anything to the
contrary set forth herein, and without limiting any of the rights set forth
above, in any event any party will have the right to retain, at its own expense,
counsel with respect to the defense of a claim.
(d) Other Indemnification. Indemnification similar to that
specified in the preceding subsections of this Section 13.04 (with appropriate
modifications) shall be given by the Company and each holder of Registrable
Securities with respect to any required Registration or other qualification of
securities under any federal or state law or regulation or governmental
authority other than the Securities Act.
13.05. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
this Section is for any reason held to be unenforceable although applicable in
accordance with its terms, the Company, the holders of Registrable Securities
and the underwriters shall contribute to the aggregate losses, liabilities,
claims, damages and expenses of the nature contemplated by such indemnity
agreement incurred by the Company, the holders of Registrable Securities and the
underwriters, in such proportions that the underwriters are responsible for that
portion represented by the percentage that the underwriting discount appearing
in the disclosure document bears to the initial public offering price appearing
therein and the Company and the holders of Registrable Securities are
responsible for the balance; provided, however, that no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. As between the Company and the
holders of Registrable Securities, such parties shall contribute to the
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement in such proportion as shall be
appropriate to reflect (x) the relative benefits received by the Company, on the
one hand, and the holders of the Registrable Securities included in the offering
on the other hand, from the offering of the Registrable Securities and any other
securities included in such offering, and (y) the relative fault of the Company,
on the one hand, and the holders of the Registrable Securities included in the
offering, on the other, with respect to the misstatements or omissions which
resulted in such loss, liability, claim, damage or expense, or action in respect
thereof, as well as any other relevant equitable considerations. The relative
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benefits received by the Company, on the one hand, and the holders of the
Registrable Securities on the other, with respect to such offering shall be
deemed to be in the same proportion as the sum of the total purchase price paid
to the Company in respect of the Registrable Securities plus the total net
proceeds from the offering of any securities included in such offering (before
deducting expenses) received by the Company bears to the amount by which the
total net proceeds from the offering of Registrable Securities (before deducting
expenses) received by the holders of the Registrable Securities with respect to
such offering exceeds the purchase price paid to the Company in respect of the
Registrable Securities, and in each case the net proceeds received from such
offering shall be determined as set forth in the disclosure document. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the Company
or the holders of the Registrable Securities, the intent of the parties and
their relative knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The Company and the holders of the
Registrable Securities agree that it would not be just and equitable if
contribution pursuant to this Section were to be determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to herein. Notwithstanding anything to the
contrary contained herein, the Company and the holders of Registrable Securities
agree that any contribution required to be made by such holder pursuant to this
Section 13.05 shall not exceed the net proceeds from the offering of Registrable
Securities (before deducting expenses) received by such holder with respect to
such offering. For purposes of this Section, each Person, if any, who controls a
holder of Registrable Securities or an underwriter within the meaning of Section
15 of the Securities Act shall have the same rights to contribution as such
holder or underwriter, and each director of the Company, each officer of the
Company who signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act
shall have the same rights to contribution as the Company.
14. RIGHT OF FIRST OFFER
14.01. Right of First Offer. If at any time the Company desires to
issue, sell or exchange, agree or obligate itself to issue, sell or exchange, or
reserve or set aside for issuance, sale or exchange, (a) any shares of Common
Stock, (b) any other equity security of the Company, including, without
limitation, shares of preferred stock, (c) any convertible debt security of the
Company including without limitation, any debt security which by its terms is
convertible into or exchangeable for any equity security of the Company, (d) any
security of the Company that is a combination of debt and equity, or (e) any
option, warrant or other right to subscribe for, purchase or otherwise acquire
any such equity security or any such debt security of the Company, pursuant to a
bona fide offer from a third party or to the public in a public offering
pursuant to a Registration Statement under the Securities Act (the "Proposed
Buyer"), the Company shall first submit a written offer (the "Offer") to sell
such
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securities (the "Offered Securities") to the Purchasers on terms and conditions,
including price, not less favorable to the Purchasers than those on which the
Company proposes to sell such Offered Securities to the Proposed Buyer. Each
Purchaser shall have the absolute right to purchase that number of the Offered
Securities (its "Pro Rata Fraction") as shall be equal to the number of Offered
Securities multiplied by a fraction, the numerator of which shall be the number
of shares of Common Stock (including all shares of Common Stock issuable upon
the conversion or exercise of other securities or options of the Company) then
owned by such Purchaser, and the denominator of which shall be the aggregate
number of shares of Common Stock (including all shares of Common Stock issuable
upon the conversion or exercise of other securities or options of the Company)
then outstanding. The Purchasers shall have a right of oversubscription such
that if any Purchaser fails to accept the Offer as to its Pro Rata Fraction, the
remaining Purchasers shall, among them, have the right to purchase up to the
balance of the Offered Securities not so purchased. Such right of
oversubscription may be exercised by any Purchaser by accepting the Offer as to
more than its Pro Rata Fraction. If, as a result thereof, such oversubscriptions
exceed the total number of the Offered Securities available in respect of such
oversubscription privilege, the oversubscribing Purchasers shall be cut back
with respect to their oversubscriptions on a pro rata basis in accordance with
their respective Pro Rata Fractions, or as they may otherwise agree among
themselves.
14.02. The Offer. The Offer shall disclose the identity of the Proposed
Buyer, the number and class of Offered Securities proposed to be sold, the terms
and conditions, including price, of the proposed sale, and any other material
facts relating to the proposed sale. The Offer shall further state that the
Purchasers, as amongst themselves, may acquire, in accordance with the
provisions of this Article 14, all or any portion of the Offered Securities for
the price indicated in the Offer and upon the other terms and conditions,
including deferred or installment payment (if applicable), set forth therein.
14.03. Notice of Acceptance. If any Purchaser desires to purchase all
or any of the Offered Securities, such Purchaser shall deliver a written notice
of its election to purchase such shares to the Company and each other Purchaser,
which notice shall state the number of Offered Securities such Purchaser desires
to purchase and shall be delivered in person or mailed to the Company and each
other Purchaser within 30 days of the date of receipt by the Purchaser of the
Offer. Such notice shall, when taken in conjunction with the Offer, be deemed to
constitute a valid, legally binding and enforceable agreement for the sale to
and purchase by such Purchaser of that number of Offered Securities as
determined by its Pro Rata Fraction, subject to any right of oversubscription
described in Section 14.01, on the terms of the Offer.
14.04. Closing. The closing of the sale of Offered Securities to each
such Purchaser pursuant to this Article 14 shall be made at the offices of the
Company on
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such date as may be agreed by each such Purchaser and the Company, but no later
than the 60th day following the date the Offer is received by the Purchaser.
Such sale shall be effected by the Company's delivery to each such Purchaser of
a certificate(s) evidencing the Offered Securities to be purchased by such
Purchaser, duly endorsed for transfer, against payment to the Company of the
purchase price by such Purchaser. The exercise or nonexercise by any Purchaser
of its rights pursuant to this Article 14 shall be without prejudice to its
rights under this Article 14 to any future sale of securities.
14.05. Sales to Proposed Transferee. If the Purchasers do not purchase
all of the Offered Securities, the Offered Securities not so purchased may be
sold by the Company at any time within 120 days after the date the Offer was
made. Any such sale shall be to the Proposed Buyer, at not less than the price
and upon other terms and conditions, if any, not more favorable to the Proposed
Buyer than those specified in the Offer. Any Offered Securities not sold within
the permitted time period shall continue to be subject to the requirements of a
prior Offer pursuant to this Article 14.
14.06. Exception. The rights of the Purchasers under this Article 14
shall not apply to the following: (a) up to 757,230 shares of Common Stock, or
options exercisable therefor, issued to directors, officers or employees of or
consultants to the Company or any Subsidiary pursuant to any qualified or
non-qualified stock option plan or agreement, employee stock ownership plan,
stock purchase agreement, stock plan, stock restriction agreement, or consulting
agreement or such other options, arrangements, agreements or plans approved by
the Board of Directors, (b) up to 120,000 shares of Common Stock pursuant to the
Additional Options, (c) up to 162,461 shares of Common Stock to be issued as
consideration for the Arbor Acquisition, (d) up to 24,201 shares of Common Stock
pursuant to the Arbor Options, (e) 198,088 shares of Common Stock issuable
pursuant to the exercise of the Warrants, (f) up to 205,563 shares of Common
Stock issuable pursuant to the exercise of the Contingent Warrants, (g) up to
345,000 shares of Common Stock issuable pursuant to the exercise of the Public
Warrants, (h) shares of Common Stock issued in connection with Acquisitions
approved by the Board of Directors at a price equal to no less than the fair
market value therefor (as determined in good faith by the Board of Directors),
provided that such shares are issued to such Person or its holders in the
Acquisition.
15. DEFINITIONS AND ACCOUNTING TERMS
15.01. Certain Defined Terms. As used in this Agreement, the following
terms shall have the following meanings:
"Acquisition" shall mean any transaction pursuant to which the Company
or any Subsidiary (a) acquires equity securities (or warrants, options or other
rights to acquire such securities) of any Person, (b) causes or permits any
person to be merged into the Company or any Subsidiary, in any case pursuant to
a merger, purchase of
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assets or any reorganization providing for the delivery or issuance to the
holders of such Person's then outstanding securities, in exchange for such
securities, of cash or securities of the Company or any Subsidiary, or a
combination thereof, or (c) purchases all or substantially all of the business
or assets of any Person.
"Additional Options" shall mean option agreements between the Company
and each of David A. Smilow, Mitchell A. Caplan and William M. Daugherty each
for 40,000 shares of Common Stock with a vesting period over three years.
"Affiliate" shall mean any employee, consultant, officer or director of
the Company or any Subsidiary or holder of five percent (5%) or more of any
class of capital stock of the Company or any Subsidiary, or any member of their
respective immediate families or any corporation or other entity directly or
indirectly controlled by one or more of such employees, consultants, officers,
directors or 5% stockholders or members of their immediate families.
"AG Arbor" shall mean AG Arbor Management L.L.C., a Delaware limited
liability company.
"Agreement" shall mean this $29,900,000 Unit Purchase Agreement,
including all amendments, modifications or supplements thereto.
"AGT" shall mean AGT Mortgage Services, L.L.C., a Delaware limited
liability company.
"Arbor" shall mean Arbor Capital Partners, Inc., a New York
corporation.
"Arbor Acquisition" shall mean the acquisition by the Company of all of
the outstanding capital stock of Arbor pursuant to the terms of the Arbor
Acquisition Agreement.
"Arbor Acquisition Agreement" shall mean the Acquisition Agreement
dated as of February 20, 1997 among the Company, Arbor, MET Holdings Corporation
and William M. Daugherty.
"Arbor Entities" shall collectively mean Arbor and AG Arbor.
"Arbor Options" shall mean an option agreement between the Company and
William M. Daugherty pursuant to the Arbor Acquisition Agreement.
"Board of Directors" shall mean the board of directors of the Company
as constituted from time to time.
"By-Laws" shall mean the By-Laws of the Company, including all
amendments, modifications or supplements thereto.
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"Capital Lease" shall mean any lease which has been or should be
capitalized on the books of the lessee in accordance with GAAP.
"Certificate of Designation" shall have the meaning assigned to such
term in Section 4.10.
"Certificate of Incorporation" shall mean the Amended and Restated
Certificate of Incorporation of the Company, including all amendments,
modifications or supplements thereto.
"Change of Control" shall mean any acquisition after the Closing Date
by any Person or group of Persons acting together (within the meaning of Rule
13d-5 under the Exchange Act) of all or substantially all of the assets of the
Company or beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act) of stock possessing more than 25% of the total combined voting
power of all classes of voting stock of the Company with respect to the election
of directors (the "Voting Stock"); provided that no Change of Control shall be
deemed to have occurred so long as (i) either (a) any or all of David A. Smilow
or Mitchell A. Caplan shall beneficially own at least 33% of the Voting Stock;
or (b) if David A. Smilow and Mitchell A. Caplan, beneficially own more than 50%
of the total combined voting power of all classes of stock of MET Holdings
Corporation with respect to the election of directors (the "MET Voting Stock"),
then any or all of MET Holdings Corporation, David A. Smilow or Mitchell A.
Caplan shall beneficially own 33% of the Voting Stock or (ii) together, those
Persons specified in the relevant subsection of (i) above and one or more
Purchasers shall beneficially own at least 50% of the Voting Stock. For purposes
of the foregoing sentence (i) beneficial ownership of Voting Stock by any Person
shall be determined as if all of such Person's Common Stock Equivalents have
been fully exercised or converted, (ii) beneficial ownership of Voting Stock by
MET Holdings Corporation, David A. Smilow or Mitchell A. Caplan shall include
any and all shares of Common Stock attributed to any of such Persons under Part
574 of the Rules and Regulations of the OTS (12 CFR Part 574) and (iii)
beneficial ownership of Voting Stock or MET Voting Stock by any natural person
shall include all Voting Stock or MET Voting Stock, respectively, held by such
person's family. As used herein, the word "family" shall include any spouse,
lineal ancestor or descendant.
"Closing" shall have the meaning assigned to such term in Section 1.03.
"Closing Date" shall have the meaning assigned to such term in Section
1.03.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated pursuant thereto.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency then administering the Securities Act or Exchange Act.
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"Common Stock" shall mean (a) the Company's Common Stock, $.01 par
value, as authorized on the date of this Agreement, (b) any other capital stock
of any class or classes (however designated) of the Company, authorized on or
after the date hereof, the holders of which shall have the right, without
limitation as to amount, either to all or to a share of the balance of current
dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of which
shall ordinarily, in the absence of contingencies or in the absence of any
provision to the contrary in the Certificate of Incorporation or the By-Laws, be
entitled to vote for the election of a majority of directors of the Company
(even though the right so to vote has been suspended by the happening of such a
contingency or provision), and (c) any other securities into which or for which
any of the securities described in (a) or (b) may be converted or exchanged
pursuant to a plan of recapitalization, reorganization, merger, sale of assets
or otherwise.
"Common Stock Equivalents" shall mean all rights, options, warrants or
convertible or exchangeable securities entitling the holders thereof to
subscribe for or purchase or otherwise acquire shares of Common Stock.
"Company" shall have the meaning assigned to such term in the
introductory sentence hereof.
"Company Disclosure Schedule" shall have the meaning assigned to such
term in the introductory paragraph of Article 2.
"Consolidated Capitalization" shall mean, at any date of determination
thereof, the sum of (a) Junior Debt plus (b) Consolidated Net Worth.
"Consolidated Indebtedness" shall mean, at any date of determination
thereof, all Indebtedness of the Company and the Subsidiaries, as determined on
a consolidated basis in accordance with GAAP.
"Consolidated Net Worth" shall mean, at any date of determination
thereof, the amount of any capital stock, paid in capital and similar equity
accounts plus (or minus in the case of a deficit) the capital surplus and
retained earnings of the Company and the Subsidiaries at such date (but in any
event excluding unrealized gain (loss) on securities available-for-sale
recognized as a separate component of shareholders' equity in accordance with
Statement of Financial Accounting Standards No. 115), as determined on a
consolidated basis in accordance with GAAP.
"Contingent Warrant" shall have the meaning assigned to such term in
Section 1.01.
"Conversion Shares" shall have the meaning assigned to such term in
Section 1.02.
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"Demand Registration" shall have the meaning assigned to such term in
Section 13.01(a).
"Disadvantageous Condition" shall have the meaning assigned to such
term in Section 13.01(a).
"Distribution" shall mean, with respect to any Person, (a) the
declaration or payment of any dividends by such Person, or the purchase,
redemption, retirement or other acquisition for value of any of its capital
stock or other equity securities (including warrants, options and other rights
to acquire capital stock or other equity securities) (not including acquisition
of fractional shares of capital stock for cash) now or hereafter outstanding, or
the making of any distribution of assets to its stockholders as such whether in
cash, assets or in obligations of such Person, or the allocation or other
setting apart of any sum for the payment of any dividend or distribution on, or
for the purchase, redemption or retirement of any shares of its capital stock or
other equity securities, or the making of any other distribution by reduction of
capital or otherwise in respect of any shares of its capital stock or other
equity securities or (b) the making of payments of interest on, or payments or
prepayments of principal of, or payments (or setting apart of money for a
sinking or other analogous fund) for the purchase, redemption, retirement or
other acquisition of principal or interest, on the Junior Subordinated Notes.
"Effective" shall mean that all requirements under the Securities Act
with respect to a Registration Statement have been satisfied and that the
Commission has officially approved the public distribution or circulation of the
Registration Statement in connection with a public offering of Registrable
Securities.
"Effective Date" shall mean the date on which a Registration Statement
is declared to be effective.
"Environmental Laws" shall mean any and all Laws relating to the
environment or to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes into the environment including, without limitation, ambient
air, surface water, ground water, or land, or otherwise relating to the
manufacture, processing distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substances or wastes.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, and the rules and regulations promulgated pursuant thereto.
"Event of Default" shall have the meaning assigned to such term in
Section 11.01.
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"Event of Noncompliance" shall have the meaning assigned to such term
in Section 11.02.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated pursuant thereto.
"Fair Market Value" of the Common Stock shall mean the market value of
the Common Stock as shall be equal to the greater of (i) the average price over
the 30 consecutive trading days immediately prior to the date of determination
as of each day using: (A) the daily average of the closing sales prices of the
Common Stock's sales on all domestic securities exchanges on which it may at the
time be listed, or (B) if there have been no sales on any such exchange on any
day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day, or (c) if on any day such security is not so
listed, the average of the representative bid and asked prices listed on NASDAQ
as of 4:00 p.m., New York time, on such day, or (D) if on any day such security
is not quoted on NASDAQ, the average of the highest bid and lowest asked prices
on such day in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor organization, or (ii)
the value per share determined on a good faith and reasonable basis by an
Independent Appraiser jointly selected and mutually agreed upon by the Board of
Directors and the holders of at least a majority of the then outstanding shares
of Preferred Stock, to prepare an independent appraisal of the Fair Market Value
of the Common Stock.
"FDIA" shall mean the Federal Deposit Insurance Act, as amended, and
the rules and regulations promulgated pursuant thereto.
"FDIC" shall mean the Federal Deposit Insurance Corporation or any
other federal agency then administering the FDIA.
"Fiscal Quarter" shall mean any calendar quarter.
"Fiscal Year" shall mean any calendar year.
"FRB" shall have the meaning assigned to such term in Section 5.B.01.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time, applied on a basis
consistent with those used in the preparation of the financial statements
referred to in Section 2.06 (except for changes concurred in by the independent
public accountants to the Company and the Subsidiaries).
"Governmental Entity" shall mean any federal, state, county, municipal
or other local legislative, regulatory (including non-governmental
self-regulatory bodies such as the NASD) or judicial body or other entity with
jurisdiction over all or any portion
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of the Company or the Subsidiaries or any of their respective properties,
businesses and affairs.
"Hazardous Materials" shall mean any and all pollutants, contaminants,
toxic or hazardous wastes or any other substances, the removal of which is
required or the generation, manufacture, refining, production, processing,
treatment, storage, handling, transportation, transfer, use, disposal, release,
discharge, spillage, seepage, or filtration of which is restricted, prohibited
or penalized by any applicable Environmental Law.
"HOLA" shall mean the Home Owners Loan Act of 1933, as amended, and the
rules and regulations promulgated pursuant thereto.
"Indebtedness" shall mean (a) any liability for borrowed money or
evidenced by a note or similar obligation given in connection with the
acquisition of any property or other assets (other than deposits, advances from
the Federal Home Loan Bank of Atlanta, securities sold under agreements to
repurchase and trade accounts payable incurred in the ordinary course of
business), (b) all guaranties, endorsements and other contingent obligations, in
respect of Indebtedness of others, whether or not the same are or should be
reflected in the Company's or any Subsidiary's balance sheet (or the notes
thereto), except guaranties by endorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of business, and
(c) the present value of any lease payments due under Capital Leases.
"indemnified party" shall have the meaning given such term in Section
16.02.
"Independent Appraiser" shall mean an independent nationally recognized
investment banking firm.
"Independent Director" shall mean any director of the Company who at
the time of his election to, or during his tenure on, the Board of Directors is
not an employee or officer of the Company, any Subsidiary or any Affiliate.
"Initiating Holders" shall have the meaning given such term in Section
13.01(a).
"Inspectors" shall have the meaning given such term in Section
13.05(i).
"Insured Depository Institution" shall mean a financial institution
with deposits insured by, and under the supervision of, the Federal Deposit
Insurance Corporation, or any successor agency, as defined in 12 U.S.C. Section
1813(c)(2).
"Investment" shall mean any loan or advance to any Person or any
purchase or other acquisition of any capital stock, assets, obligations or other
securities of any Person, or any capital contribution to, investment in, or
other acquisition or any interest in, any Person.
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"Investment Funds" shall mean AG Spruce Fund, L.P., AGEA Partners, L.P.
and Spruce I Properties, L.L.C.
"IRS" shall mean the Internal Revenue Service.
"Junior Debt" shall mean the unpaid principal of, premium (if any) and
interest on all Indebtedness of the Company hereafter incurred that by the terms
of the instrument evidencing or securing the Indebtedness or by valid agreement,
it is expressly provided that such Indebtedness is junior in right of payment to
the Notes, and in any event including the Junior Subordinated Notes.
"Junior Subordinated Indenture" shall mean the Indenture dated as of
May 27, 1994 between the Company and Wilmington Trust Company, as Trustee, as in
effect on the Closing Date.
"Junior Subordinated Notes" shall mean the $17,250,000 11.50%
Subordinated Notes due 2004 issued by the Company pursuant to the Junior
Subordinated Indenture.
"Key Employee" shall mean and include any executive officer of the
Company or any Subsidiary with policy-making functions that may be so designated
by the Board of Directors, and in any event shall be deemed to include David A.
Smilow, Mitchell A. Caplan.
"Knowledge" means the actual knowledge of the senior executives of the
Company.
"Laws" shall mean any and all statutes, laws, ordinances, rules,
regulations, orders, permits, judgments, injunctions, decrees, case law and
other rules of law enacted, promulgated or issued by any Governmental Entity.
"Leverage Ratio" shall mean, at any date of determination thereof, the
ratio of (a) Consolidated Indebtedness to (b) Consolidated Capitalization.
"Licenses" shall mean licenses, permits, certificates, franchises,
ordinances, registrations, orders, approvals or other rights, filings,
applications and authorizations granted, issued or entered into by any
Governmental Entity.
"Liquid Assets" shall mean (a) cash; (b) obligations of, or guaranteed
as to timely receipt of principal and interest by, the United States or any
agency or instrumentality thereof when such obligations are backed by the full
faith and credit of the United States having a remaining term to maturity not in
excess of 90 days from the determination date; (c) repurchase agreements on
obligations specified in clause (b), provided that the party agreeing to
repurchase such obligations is a primary dealer in U.S. government securities;
(d) federal funds and deposit accounts,
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including, but not limited to certificates of deposit, time deposits and
banker's acceptances having a remaining term to maturity not in excess of 90
days from the determination date of any U.S. depository institution or trust
company incorporated under the laws of the United States or any state, provided
that the debt of such depository institution or trust company at the date of
acquisition thereof has been rated by Standard & Poor's Corporation in the
highest short-term rating category; (e) commercial paper having a remaining term
to maturity not in excess of 90 days from the determination date of any
corporation incorporated under the laws of the United States or any state
thereof that on the date of acquisition is rated investment grade by Standard &
Poor's Corporation or has an equivalent rating from another nationally
recognized rating agency; (f) adjustable-rate, mortgage-backed securities with
an interest rate adjustment period that does not exceed 12 months issued or
guaranteed by any U.S. government agency or government-sponsored agency,
including, without limitation, the Government National Mortgage Association, the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation or that are issued by a nongovernmental issuer, if such securities
at the time of purchase have been and continue to be rated either "AA" or higher
by Standard & Poor's Corporation or its equivalent if rated by Moody's Investors
Service, Inc.; and (g) adjustable rate preferred capital stock (with an interest
rate adjustment period that does not exceed 12 months) issued by any
corporation, which at the time of purchase has been and continues to be rated
either "AA" or higher by Standard & Poor's Corporation or its equivalent if
rated by Moody's Investors Service, Inc.
"Liquidation Preference" shall have the meaning assigned to such term
in the Certificate of Designation.
"Material Adverse Effect" shall mean any material adverse effect on (a)
the business, profits, properties or condition of the Company and the
Subsidiaries, taken as a whole, (b) the ability of the Company to perform its
obligations under the Agreement or any Related Agreement, and (c) the binding
nature, validity or enforceability of this Agreement or any Related Agreement,
which, in each case, arises from, or reasonably could be expected to arise from,
any action or omission of action on the part of the Company or any Subsidiary or
the occurrence of any event or the existence of any fact or condition in respect
of the Company or any Subsidiary or any of their respective properties.
"Multiemployer Plan" shall have the meaning assigned to such term in
Section 2.14.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ" shall mean the National Association of Securities Dealers
Automated Quotations System.
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"Nonvoting Common Stock" shall mean (a) the Company's Nonvoting Common
Stock, $.01 par value, to be as authorized upon the shareholder vote as set
forth in Section 6.18, (b) any other capital stock of any class or classes
(however designated) of the Company, authorized on or after the date hereof, the
holders of which shall have the right, without limitation as to amount, either
to all or to a share of the balance of current dividends and liquidating
dividends after the payment of dividends and distributions on any shares
entitled to preference and which the holders of which shall not be entitled to
vote for the election of directors of the Company, and (c) any other securities
into which or for which any of the securities described in (a) or (b) may be
converted or exchanged pursuant to a plan or recapitalization, reorganization,
merger, sale of assets or otherwise.
"Notes" shall have the meaning assigned to such term in Section 1.01.
"Observers" shall have the meaning assigned to such term in Section
6.09.
"Offer" shall have the meaning assigned to such term in Section 14.01.
"Offered Securities" shall have the meaning assigned to that term in
Section 14.01.
"OTS" shall mean the Office of Thrift Supervision of the U.S.
Department of Treasury or any successor federal agency having primary regulatory
jurisdiction over TeleBank.
"Person" shall mean an individual, corporation, partnership, joint
venture, trust, university, or unincorporated organization, or a government or
any agency or political subdivision thereof.
"Plans" shall have the meaning assigned to such term in Section 2.14.
"PORTAL" shall have the meaning assigned to such term in Section 6.13.
"Preferred Shares" shall have the meaning assigned to such term in
Section 1.01.
"Preferred Stock" shall have the meaning assigned to such term in
Section 1.01.
"Preferred Stock Directors" shall mean those directors of the Company
nominated by the holders of the Series A Preferred Stock in accordance with the
terms of the Certificate of Designation.
"Proposed Buyer" shall have the meaning assigned to such term in
Section 14.01.
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"Proprietary Rights" shall mean all of the following along with all
income, royalties, damages and payments thereon (including damages and payments
for past or future infringements or misappropriations thereof), the rights to
sue and recover for past infringements and misappropriations thereof and any and
all corresponding rights that, now or hereafter, may be secured throughout the
world: (i) patents, patent applications, patent disclosures and inventions
(whether or not patentable and whether or not reduced to practice) and any
reissues, continuations, continuations-in- part, revisions, extensions or
reexaminations thereof; (ii) trademarks, service marks, trade dress, trade names
and corporate names and registrations, renewals and applications for
registration thereof, together with the goodwill associated therewith, (iii)
copyrights and copyrightable works and registrations, renewals and applications
for registration thereof, (iv) mask works and registrations and applications for
registration thereof, (v) computer software (including all databases, data and
documentation), (vi) trade secrets and other confidential information (including
ideas, formulas, compositions, inventions, know-how, manufacturing and
production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial and marketing plans and customer and supplier
lists and information), (vii) other intellectual property rights, and (viii)
copies and tangible embodiments thereof (in whatever form or medium).
"Pro Rata Fraction" shall have the meaning assigned to such term in
Section 14.01.
"Public Warrants" shall mean warrants to purchase Common Stock of the
Company issued pursuant to the Warrant Agreement dated as of May 27, 1994.
"Purchasers" shall have the meaning assigned to such term in Section
1.03 and shall include all successors and assigns.
"Qualified Public Offering" shall mean a public offering pursuant to an
Effective Registration Statement under the Securities Act in which the aggregate
price paid for shares of Common Stock sold by the Company in such offering is
equal to or greater than $25,000,000.
"Records" shall have the meaning assigned to that term in Section
13.03(i).
"Redemption Date" shall have the meaning set forth in Section 9.03.
"Registrable Securities" shall mean (a) the Conversion Shares, (b) the
Warrant Shares and (c) the shares of capital stock of the Company acquired by
the Purchasers pursuant to Article 14 or any shares of capital stock of the
Company acquired after the date hereof by any such Purchaser, including shares
of Common Stock issuable on the conversion of other securities or the exercise
of options or warrants acquired
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by the Purchasers pursuant to Article 14 or otherwise; provided, however, that
such securities shall cease to be Registrable Securities if and when (x) a
Registration Statement with respect to the disposition of such securities shall
have become Effective under the Securities Act and such securities shall have
been disposed of pursuant to such Effective Registration Statement, (y) such
securities shall have been otherwise transferred, if new certificates or other
evidences of ownership for such securities not bearing a legend restricting
further transfer and not subject to any stop transfer order or other
restrictions on transfer shall have been delivered by the Company, and
subsequent disposition of such securities shall not require Registration or
qualification of such securities under the Securities Act or (z) such securities
shall have ceased to be outstanding.
"Registration" shall mean the satisfaction by the Company of all
applicable requirements under the Securities Act as evidenced by the official
approval of the Commission in connection with a public offering by the Company
of Registrable Securities.
"Registration Expenses" shall mean, except as specifically provided
otherwise in this Agreement, all expenses incident to the Company's performance
of or compliance with its obligations under Article 13 of this Agreement,
including, without limitation, all NASD compensation compliance costs, all
Commission and stock exchange or NASD registration and filing fees and expenses,
fees and expenses of compliance with applicable state securities or "blue sky"
laws (including, without limitation, reasonable fees and disbursements of
counsel for the underwriters in connection with "blue sky" qualifications of the
Registrable Securities), printing expenses, messenger and delivery expenses, the
fees and expenses incurred in connection with the listing of such securities to
be registered on each securities exchange or national market system on which
such securities are listed, fees and disbursements of counsel for the Company
and all independent certified public accountants (including the expenses of any
annual audit and "cold comfort" letters required by or incident to such
performance and compliance), the fees and disbursements of underwriters
customarily paid by issuers or sellers of securities (including the fees and
expenses of any "qualified independent underwriter" required by the NASD), the
reasonable fees of one counsel for the holders of Registrable Securities
retained in connection with each such registration, the reasonable fees and
expenses of any special experts retained by the Company in connection with such
registration, and fees and expenses of other persons retained by the Company
(but not including any underwriting discounts or commissions or transfer taxes,
if any, attributable to the sale of Registrable Securities by holders of such
Registrable Securities).
"Registration Statement" shall mean any disclosure document other than
Form S-8 that the Company is required to file pursuant to this Agreement under
Section 5 of the Securities Act in connection with a public offering of
Registrable Securities.
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"Regulatory Agreement" shall have the meaning assigned to such term in
Section 2.28.
"Related Agreements" shall mean the Notes, the Certificate of
Designation, the Warrants, the Contingent Warrants and the Transfer Restriction
Agreement including all amendments, modifications or supplements thereto.
"Required Holders" shall mean (a) with respect to Sections 12.02,
12.03(b), Article 13, Article 14 and the Certificate of Designation, (other than
Section 5 and Section 7 of the Certificate of Designation), the holders of a
majority of the then outstanding Preferred Shares, (b) with respect to Sections
7.02 and 7.08(a) and Section 5 and Section 7 of the Certificate of Designation,
the holders of 66 2/3% of the then outstanding Preferred Shares, (c) with
respect to Sections 6.02, 6.16, 6.17, 7.03, 12.01, 12.03(a), Article 10 and the
Notes, the holders of a majority of the then outstanding principal amount of the
Notes, (d) with respect to Article 9, the holders of 66 2/3% of the then
outstanding principal amount of the Notes, (e) with respect to the extension of
the maturity date of the Notes or the reduction of principal or interest
thereon, the holders of 100% of the then outstanding principal amount of the
Notes and (f) in all other cases, the holders of a majority of the then
outstanding Preferred Shares and the holders of a majority of the then
outstanding principal amount of the Notes.
"Rule 144A Information" shall have the meaning assigned to such term in
Section 6.13.
"Securities" shall have the meaning assigned to such term in Section
1.01.
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time or any other federal act, rule or regulation requiring registration
with any federal agency in connection with a public offering of securities.
"Senior Debt" shall mean the unpaid principal of, premium (if any) and
interest on all Indebtedness of the Company hereafter incurred that by the terms
of the instrument evidencing or securing the Indebtedness or by valid agreement
it is expressly provided that such Indebtedness is senior in right of payment to
the Notes but in any event excluding the Junior Subordinated Notes.
"Senior Debt Other Default" shall mean, any default in respect of
Senior Debt (other than a Senior Debt Payment Default) the occurrence of which
would, together with the lapse of time or the giving of notice or both, permit
the holders of such Senior Debt to cause such Senior Debt to become due prior to
its stated maturity or prior to its regularly scheduled date or dates of
payment.
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"Senior Debt Payment Default" shall mean any default in the payment of
any Senior Debt when the same becomes due and payable, whether at maturity or at
a date fixed for prepayment or by declaration or otherwise.
"Senior Subordinated Obligations" shall mean the unpaid principal of,
premium (if any) and interest on the Notes and all other obligations of the
Company and the Subsidiaries of any kind whatsoever under or in respect of this
Agreement and the Related Agreements, including, without limitation, on account
of the purchase, redemption, retirement or other acquisition of the Notes, the
Preferred Shares, the Warrants and the Contingent Warrants.
"Separation Date" shall have the meaning assigned to such term in
Section 8.04.
"Series A Preferred Shares" shall have the meaning assigned to such
term in Section 1.01.
"Series A Preferred Stock" shall have the meaning assigned to such term
in Section 1.01.
"Series B Preferred Shares" shall have the meaning assigned to such
term in Section 1.01.
"Series B Preferred Stock" shall have the meaning assigned to such term
in Section 1.01.
"Series C Preferred Shares" shall have the meaning assigned to such
term in Section 1.01.
"Series C Preferred Stock" shall have the meaning assigned to such term
in Section 1.01.
"Subsidiary" shall mean any corporation or other entity of which on the
relevant date at least a majority of the securities or other ownership interest
having ordinary voting power (absolutely or contingently) for the election of
directors or other persons performing similar functions are at the time owned
directly or indirectly by the Company and/or any of its other Subsidiaries.
"Wholly-Owned Subsidiary" shall mean any such corporation or entity of which all
of such securities or other ownership interests are so owned directly or
indirectly by the Company or any of its other Wholly-Owned Subsidiaries.
"TeleBank Entities" shall collectively mean AGT Mortgage Services,
L.L.C., AGT PRA, L.L.C. and Portfolio Recovery Associates, L.L.C.
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"Transfer Restriction Agreement" shall have the meaning assigned to
such term in Section 4.13.
"Units" shall have the meaning assigned to such term in Section 1.01.
"Warrant Shares" shall have the meaning assigned to such term in
Section 1.02.
"Warrants" shall have the meaning assigned to such term in Section
1.01.
15.02. Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP consistently applied, and all
financial data submitted pursuant to this Agreement, unless otherwise specified,
shall be prepared in accordance with GAAP.
16. INDEMNIFICATION
16.01. General Indemnity. The Company agrees to indemnify and save
harmless the Purchasers and their trustees, directors, officers, agents,
affiliates, successors and assigns from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys' fees, charges and disbursements) incurred by
the Purchasers as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein or in any of
the Related Agreements. The Purchasers agree to indemnify and save harmless the
Company and its directors, officers, affiliates, successors and assigns from and
against any and all losses, liabilities, deficiencies, costs, damages and
expenses (including, without limitation, reasonable attorneys' fees, charges and
disbursements) incurred by any of the Company as a result of any inaccuracy in
or breach of the representations, warranties or covenants made by the Purchasers
herein.
16.02. Indemnification Procedure. Any party entitled to indemnification
under this Article 16 (an "indemnified party") will give written notice to the
indemnifying party of any claim with respect to which it seeks indemnification
promptly after the discovery by such party of any matters giving rise to such
claim for indemnification; provided, however, that the failure of any party
entitled to indemnification hereunder to give notice as provided herein shall
not relieve the indemnifying party of its obligations under this Article 16
except to the extent that the indemnifying party is actually prejudiced by such
failure to give notice. In case any action, proceeding or claim is brought
against an indemnified party in respect of which indemnification is sought
hereunder, the indemnifying party shall be entitled to participate in and,
unless in the reasonable judgment of the indemnified party a conflict of
interest between it and the indemnifying party may exist in respect of such
action, proceeding or claim, to assume the defense thereof, with counsel
reasonably satisfactory to the indemnified party. In the event that the
indemnifying party advises an indemnified
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party that it will contest such a claim for indemnification hereunder, or fails,
within thirty (30) days of receipt of any indemnification notice to notify, in
writing, such person of its election to defend, settle or compromise, at its
sole cost and expense, any action, proceeding or claim (or discontinues its
defense at any time after it commences such defense), then the indemnified party
may, at its option, defend, settle or otherwise compromise or pay such action or
claim. In any event, unless and until the indemnifying party elects in writing
to assume and does so assume the defense of any such claim, proceeding or
action, the indemnified party's costs and expenses arising out of the defense,
settlement or compromise of any such action, claim or proceeding shall be losses
subject to indemnification hereunder. The indemnified party 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
which relates to such action or claim. The indemnifying party shall keep the
indemnified party fully apprised at all times as to the status of the defense or
any settlement negotiations with respect thereto. If the indemnifying party
elects to defend any such action or claim, then the indemnified party shall be
entitled to participate in such defense with counsel of its choice at its sole
cost and expense. The indemnifying party shall not 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. Anything in this Article 16 to the contrary
notwithstanding, the indemnifying party shall not, without the indemnified
party's prior written consent, settle or compromise any claim or consent to
entry of any judgment in respect thereof which imposes any future obligation on
the indemnified party or which does not include, as an unconditional term
thereof, the giving by the claimant or the plaintiff to the indemnified party, a
release from all liability in respect of such claim. The indemnification
required by this Article 16 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 expense, loss, damage or liability is incurred. The indemnity
agreements contained herein shall be in addition to (a) any cause of action or
similar right of the indemnified party against the indemnifying party or others,
and (b) any liabilities the indemnifying party may be subject to pursuant to the
law.
17. TERMINATION
17.01. Right to Terminate. Notwithstanding anything to the contrary set
forth in this Agreement, this Agreement may be terminated and the transactions
contemplated herein abandoned at any time prior to the Closing:
(a) at any time by mutual written consent of the Company
and any of the Purchasers; or
(b) by either the Company or any of the Purchasers if the
Closing shall not have occurred by March 3, 1997; provided, however, that the
right to
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terminate this Agreement under this Section 17.01(b) shall not be available to
any party whose failure to fulfill any obligation under this Agreement has been
the cause of, or resulted in, the failure of the Closing to occur on or before
such date; or
(c) by any of the Purchasers if the Company shall have
failed, refused, or been unable, at or prior to the Closing Date, to perform any
agreement on its part to be performed, or because any other condition of the
Purchasers' obligations hereunder required to be fulfilled by the Company
remains unfulfilled; or
(d) by either the Company or any of the Purchasers if a
court of competent jurisdiction shall have issued an order, decree or ruling
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement, and such order, decree, ruling or other action
shall have become final and nonappealable.
17.02. Effect of Termination. In the event of the termination of this
Agreement by either the Company or the Purchasers, as provided above, except for
Section 18.04 which shall survive termination of this Agreement, this Agreement
shall thereafter become void, and there shall be no liability on the part of
either party hereto (or any of its subsidiaries or affiliates) to the other
party hereto (or any of its subsidiaries or affiliates), or its trustees,
directors, officers, employees, policyholders or agents (or those of any of its
subsidiaries or affiliates), except that any such termination shall be without
prejudice to the rights of either party hereto (or any of its subsidiaries or
affiliates) arising out of the breach by the other party (or any of its
subsidiaries or affiliates) of any representation or warranty or any covenant or
agreement contained in this Agreement.
18. MISCELLANEOUS
18.01. No Waiver; Cumulative Remedies. No failure or delay on the part
of any party to this Agreement in exercising any right, power or remedy
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy hereunder.
The remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
18.02. Amendments, Waivers and Consents. Any provision in this
Agreement to the contrary notwithstanding, and except as hereinafter provided,
changes in, termination or amendments of or additions to this Agreement or any
Related Agreement may be made, and compliance with any covenant or provision set
forth herein may be omitted or waived, if the Company (a) shall obtain consent
thereto in writing from the Required Holders and (b) shall deliver copies of
such consent in writing to any holders of Securities who did not execute such
consent.
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18.03. Addresses for Notices. Any notice, demand, request, waiver or
other communication under this Agreement or any Related Agreement shall be in
writing and shall be deemed to have been duly given on the date of service if
personally served, on the date of transmission if sent by telecopier (with
confirming copy sent by a nationally recognized express overnight courier
service) or on the first business day after mailing if mailed to the party to
whom notice is given, by a nationally recognized courier service addressed as
follows:
To the Company: TeleBanc Financial Corporation
1111 North Highland Street
Arlington, Virginia 22201
Attention: President
With a copy to: Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Attention: Stuart G. Stein, Esq.
To any Purchaser: At its address specified on
Schedule 1.01 hereto
With a copy to: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
Goodwin Square
225 Asylum Street
Hartford, Connecticut 06103
Attention: Edward A. Reilly, Jr., Esq.
18.04. Costs, Expenses and Taxes. As a condition precedent to the
Closing, the Company agrees to pay at the Closing in connection with the
preparation, execution and delivery of this Agreement and the Related
Agreements, the issuance of the Units to be issued at the Closing and the due
diligence review of the Company conducted by the Purchasers, the reasonable fees
and out of pocket expenses incurred by the Purchasers, in an amount not to
exceed $125,000, including the fees and expenses of legal counsel, independent
public accountants, consultants and other outside experts retained by the
Purchasers, including without limitation, the attorneys' fees and expenses of
Messrs. LeBoeuf, Lamb, Greene & MacRae, L.L.P. and Sidley & Austin; provided,
however, if this Agreement terminates for any reason whatsoever, the Company
shall be obligated to pay such amount. In addition, the Company shall pay any
such fees and out of pocket expenses incurred by the Purchasers in connection
with any requested amendment or waiver to this Agreement or any Related
Agreement or the successful enforcement of this Agreement or any Related
Agreement by the Purchasers. In addition, the Company shall pay any and all
stamp, or other similar taxes payable or determined to be payable in connection
with the execution and delivery of this Agreement, the issuance of the Units and
the other instruments and documents to be delivered hereunder or thereunder, and
agrees
70
<PAGE>
to save the Purchasers harmless from and against any and all liabilities with
respect to or resulting from any delay in paying or omission to pay such taxes.
18.05. Pro Rata Payments. Except to the extent otherwise provided, (a)
all payments made in respect of the Notes shall be applied to the holders of the
Notes, pro rata in accordance with their respective outstanding principal
amounts, (b) all payments made in respect of the Preferred Shares shall be
applied to the holders of the Preferred Shares, pro rata, according to the
respective amounts of outstanding Preferred Shares held by the holders thereof,
and (c) all payments made in respect of the Warrants, the Contingent Warrants or
the Warrant Shares shall be made to the holders of Warrants, Contingent Warrants
or Warrant Shares, pro rata, according to the respective amounts of outstanding
Warrants, Contingent Warrants or Warrant Shares held by the holders thereof.
18.06. Binding Effect; Assignment. This Agreement and each Related
Agreement to which it is a party shall be binding upon and inure to the benefit
of each of the Company and the Purchasers and their respective heirs, successors
and assigns, except that the Company shall not have the right to delegate its
obligations hereunder or to assign its rights hereunder or any interest herein.
18.07. Survival of Representations and Warranties. All representations
and warranties made in this Agreement, each Related Agreement, the Securities,
or any other instrument or document delivered in connection herewith or
therewith, shall survive the execution and delivery hereof or thereof for a
period of six months following the Closing Date, except for Sections 2.01, 2.02,
2.03, 2.04, 2.05, 2.06 and 2.34 which shall survive as long as any Purchaser
owns any of the Securities.
18.08. Prior Agreements. This Agreement, each Related Agreement, the
terms of the Securities, and the other agreements executed and delivered
herewith constitute the entire agreement between the parties and supersede any
prior understandings or agreements concerning the subject matter hereof.
18.09. Severability. The provisions of this Agreement, each Related
Agreement and the terms of the Securities are severable and, in the event that
any court of competent jurisdiction shall determine that any one or more of the
provisions or part of a provision contained in this Agreement, any Related
Agreement or the terms of the Securities shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Agreement, any Related Agreement or the terms of the Securities; but this
Agreement, each Related Agreement and the terms of the Securities shall be
reformed and construed as if such invalid or illegal or unenforceable provision,
or part of a provision, had never been contained herein, and such provisions or
part reformed so that it would be valid, legal and enforceable to the maximum
extent possible.
71
<PAGE>
18.10. Confidentiality. Each of the Purchasers agree that it will keep
confidential and will not disclose or divulge any confidential, proprietary or
secret information which such Purchaser may obtain from the Company pursuant to
financial statements, reports and other materials submitted by the Company to
such Purchaser pursuant to this Agreement, or pursuant to visitation or
inspection rights granted hereunder, unless such information is known, or until
such information becomes known, to the public; provided, however, that such
Purchaser may disclose such information (a) on a confidential basis to its
attorneys, accountants, consultants and other professionals to the extent
necessary to obtain their services in connection with its investment in the
Company, (b) to any other Purchaser or prospective purchaser of any Securities
from such Purchaser as long as such prospective purchaser agrees in writing to
be bound by the provisions of this Section 18.10, (c) to any entity controlling,
controlled by or under common control with such Purchaser, or to any partner of
such Purchaser, or (d) as required by applicable law or as required by a
Governmental Entity.
18.11. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT GIVING
EFFECT TO ITS CONFLICT OF LAWS PROVISIONS.
18.12. Headings. Article, section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
18.13. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
18.14. Further Assurances. From and after the date of this Agreement,
upon the request of any Purchaser or the Company, each of the Company and the
Purchasers shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement, each Related
Agreement and the Securities.
18.15. Waiver. At any time prior to the Closing Date, any party hereto
may (a) extend the time for the performance of any of the obligations or other
acts of any other party hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto, and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid
72
<PAGE>
only if set forth in an instrument in writing signed by the party granting such
waiver but such waiver or failure to insist upon strict compliance with such
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or future failure.
18.16. Specific Enforcement. The Purchasers and the Company acknowledge
and agree that irreparable damage would occur in the event that any of the
provisions of this Agreement and each Related Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement, each
Related Agreement and to enforce specifically the terms and provisions hereof in
any court of the United States or any state thereof having jurisdiction, this
being in addition to any other remedy to which they may be entitled at law or
equity.
18.17. Company Waivers. The Company hereby waives to the extent not
prohibited by applicable law which cannot be waived (a) all presentments,
demands for performance, notice of nonperformance (except to the extent
specifically required by the provisions hereof), (b) any requirement of
diligence or promptness on the part of any holder of the Securities in the
enforcement of its rights under this Agreement or any Related Agreement, (c)
except to the extent required by other provisions of this Agreement, any and all
notices of every kind and description which may be required to be given by any
statute or rule of law, and (d) any defense of any kind (other than indefeasible
payment) which it may now or hereafter have with respect to its liability under
this Agreement.
73
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date and year first above written.
TELEBANC FINANCIAL CORPORATION
By: /s/ Mitchell H. Caplan
----------------------------------------
Name: Mitchell Caplan
Title: President
PURCHASERS:
CONNING INSURANCE CAPITAL LIMITED
PARTNERSHIP III
By: Conning Investment Partners Limited
Partnership III, its General Partner
By: Conning & Company, its General Partner
By: /s/ Steven F. Piaker
---------------------------------------
Name: Steven F. Piaker
Title: Senior Vice President
CONNING INSURANCE CAPITAL
INTERNATIONAL PARTNERS III, L.P.
By: Conning Investment Partners Limited
Partnership III, its General Partner
By: Conning & Company, its General Partner
By: /s/ Steven F. Piaker
---------------------------------------
Name: Steven F. Piaker
Title: Senior Vice President
[SIGNATURE PAGE TO UNIT PURCHASE AGREEMENT]
<PAGE>
GENERAL AMERICAN LIFE
INSURANCE COMPANY
By: /s/ Douglas R. Koester
--------------------------------------
Name: Douglas R. Koester
Title: Sr. Vice President
Conning Asset Management Co.
CIBC WG ARGOSY MERCHANT FUND 2, L.L.C.
By: /s/ Jay Bloom
---------------------------------------
Name:
Title:
PC INVESTMENT COMPANY, INC.
By: /s/ David W. Young
---------------------------------------
Name: David W. Young
Title: CHIEF INVESTMENT OFFICER
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
By: /s/ Gary A. Poliner
---------------------------------------
Name: GARY A. POLINER
Title: VICE PRESIDENT
[SIGNATURE PAGE TO UNIT PURCHASE AGREEMENT]
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1.01
SCHEDULE OF PURCHASERS
PREFERRED SHARES
AGGREGATE SERIES A SERIES B SERIES C
NAME AND ADDRESS PURCHASE PREFERRED PREFERRED PREFERRED
OF PURCHASER UNITS PRICE SHARES SHARES SHARES
===================================== ============== ================ ================ ================== =================
<S> <C> <C> <C> <C>
Conning Insurance Capital 6,133 $6,133,000 4,719 1,414
Limited Partnership III
c/o Conning & Company
CityPlace II
185 Asylum Street
Hartford, CT 06103
Attn: Steven F. Piaker
Conning Insurance Capital 867 $867,000 667 200
International Partners III, L.P.
c/o Conning & Company
CityPlace II
185 Asylum Street
Hartford, CT 06103
Atn: Steven F. Piaker
General American Life Insurance 2,000 $2,000,000 1,539 461
Company
700 Market Street
St. Louis, MO 63101
Attn: David Kaslow
PC Investment Company 8,900 $8,900,000 6,925 1,975
401 Theodore Fremd Avenue
Rye, NY 10580
Attn: David W. Young
CIBC WG Argosy Merchant 7,000 $7,000,000 7,000
Fund 2, L.L.C.
425 Lexington Avenue, 3rd Floor
New York, NY 10017
Attn: Dean Kehler
The Northwestern Mutual Life 5,000 $5,000,000 5,000
Insurance Company
720 East Wisconsin Avenue
Milwaukee, WI 53202
Attn: Linda A. Gorens
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1.01
SCHEDULE OF PURCHASERS
NAME AND ADDRESS CONTINGENT
OF PURCHASER NOTES WARRANTS WARRANTS
===================================== ================= ================ ================
<S> <C> <C> <C>
Conning Insurance Capital $2,810,815.23 40,631 42,164
Limited Partnership III
c/o Conning & Company
CityPlace II
185 Asylum Street
Hartford, CT 06103
Attn: Steven F. Piaker
Conning Insurance Capital $397,354.77 5,744 5,961
International Partners III, L.P.
c/o Conning & Company
CityPlace II
185 Asylum Street
Hartford, CT 06103
Atn: Steven F. Piaker
General American Life Insurance $916,620.00 13,250 13,750
Company
700 Market Street
St. Louis, MO 63101
Attn: David Kaslow
PC Investment Company $4,078,959.00 58,963 61,188
401 Theodore Fremd Avenue
Rye, NY 10580
Attn: David W. Young
CIBC WG Argosy Merchant $3,208,170.00 46,375 48,125
Fund 2, L.L.C.
425 Lexington Avenue, 3rd Floor
New York, NY 10017
Attn: Dean Kehler
The Northwestern Mutual Life $2,291,550.00 33,125 34,375
Insurance Company
720 East Wisconsin Avenue
Milwaukee, WI 53202
Attn: Linda A. Gorens
</TABLE>
<PAGE>
EXHIBIT A
[FORM OF NOTE]
This Note has not been registered under the Securities Act of 1933, as amended,
or the laws of any state and may not be sold or transferred except in compliance
with that Act and such laws. In addition, the transferability of this Note is
subject to the provisions of a $29,900,000 Unit Purchase Agreement among the
issuer and the purchasers of the issuer's securities thereunder, a copy of which
may be obtained from the issuer's principal executive office at 1111 N. Highland
St., Arlington VA 22201, Attn. President.
TELEBANC FINANCIAL CORPORATION
Senior Subordinated Note
due March 31, 2004
No. [_____]
[__________] February ____, 1997
TELEBANC FINANCIAL CORPORATION (the "Company"), a Delaware corporation,
for value received, hereby promises to pay to [___________________________] (the
"Purchaser," and together with each subsequent holder from time to time of this
Note being hereinafter called the "Holder"),or order, the principal amount of
[_______________________] ($[________]), together with all interest accrued
thereon from the date of issuance, on March 31, 2004 (the "Maturity Date").
Interest (computed on the basis of a 360-day year) shall accrue on the unpaid
balance of such principal amount at the rates of: (i) 9.5% per annum from the
date of issuance through and including March 31, 2002 (except that if this Note
has not been paid in full on or prior to March 31, 2002, interest accrued for
the period from January 1, 2002 through and including March 31, 2002 shall be
recalculated at the rate of 10.375% per annum), (ii) 10.375% per annum from
March 31, 2002 through and including June 30, 2002, (iii) 11.25% per annum from
June 30, 2002 through and including January 1, 2003, (iv) 12.125% per annum from
January 1, 2003 through and including March 31, 2003 (except that if this Note
has not been paid in full on or prior to March 31, 2003 interest accrued during
such period shall be recalculated at the rate of 12.5% per annum), (v) 12.5% per
annum from March 31, 2003 through and including June 30, 2003, (vi) 13.75% per
annum from June 30, 2003 through and including January 1, 2004, (vii) 15.0% per
annum from January 1, 2004 through and including March 31, 2004 (except that if
this Note has not been paid in full on or prior to March 31, 2004, interest
accrued during such period shall be recalculated at the rate of 15.25%), and
(viii) 15.25% from March 31, 2004 as such rate shall be increased by 1.5% on
each June 30 and January 1 thereafter until this Note is paid in full. Interest
shall be payable semi-annually in arrears on each
<PAGE>
March 31 and September 30, commencing on March 31, 1997, or if such day is not a
Business Day, on the next succeeding Business Day.
Payments of principal and interest on this Note shall be made in lawful
money of the United States of America to the address designated by the holder as
provided in the Purchase Agreement referred to below.
This Note is one of the Company's Senior Subordinated Notes due March
31, 2004, originally issued in the aggregate principal amount of $13,703,469
pursuant to that certain $29,900,000 Unit Purchase Agreement, dated as of
February 18, 1997, as from time to time amended, between the Company and the
Purchasers listed therein (the "Purchase Agreement"). The registered holder of
this Note is entitled to the benefits of such Purchase Agreement and may enforce
the agreements of the Company contained therein or in the Related Agreements and
exercise the remedies provided for thereby or otherwise available in respect
thereof. All terms used in this Note which are not otherwise defined shall have
the meanings assigned to such terms in the Purchase Agreement.
This Note is subordinate to certain rights of the holders of the
Company's Senior Debt in the manner set forth in the Purchase Agreement, a copy
of which may be obtained from the Company's principal executive office at 1111
N. Highland St., Arlington, VA 22201, Attn: President.
This Note is a registered Note and, as provided in such Purchase
Agreement, is transferable only upon surrender of this Note for registration of
transfer, duly endorsed, or accompanied by a written instrument of transfer duly
executed, by the registered holder or his attorney duly authorized in writing.
The Company may treat the person in whose name this Note is registered as the
owner hereof for the purpose of receiving payment and for all other purposes,
and the Company shall not be affected by any notice to the contrary.
As provided in the Purchase Agreement, this Note may be prepaid, in
whole or in part, in certain cases, at a premium.
In case an Event of Default, as defined in the Purchase Agreement,
shall occur and be continuing, interest shall accrue at a rate which is 2%
higher than the otherwise applicable rate, and this Note shall be subject to
redemption in the manner and at the price set forth in the Purchase Agreement.
Notwithstanding any provision to the contrary herein, in no event shall
the interest rate under this Note at any time exceed the maximum rate allowed
under applicable law.
<PAGE>
This Note is made and shall be governed by the laws of Delaware.
TELEBANC FINANCIAL CORPORATION
By:_____________________________________
Name:
Title:
<PAGE>
EXHIBIT B
TELEBANC FINANCIAL CORPORATION
CERTIFICATE OF DESIGNATION
OF THE
SERIES A PREFERRED STOCK
AND
SERIES B PREFERRED STOCK
AND
SERIES C PREFERRED STOCK
The following is a statement of the designations, preferences, voting
powers, qualifications, special or relative rights and privileges in respect of
the authorized capital stock of the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock of TeleBanc Financial
Corporation (the "Corporation").
1. Designation.
A total of 29,900 shares of the Corporation's Preferred Stock shall be
designated the "Series A Voting Convertible Preferred Stock" (the "Series A
Preferred Stock"), 29,900 shares of the Corporation's Preferred Stock shall be
designated the "Series B Nonvoting Convertible Preferred Stock" (the "Series B
Preferred Stock") and 7,000 shares of the Corporation's Preferred Stock shall be
designated the "Series C Nonvoting Convertible Preferred Stock (the "Series C
Preferred Stock"). The Series A Preferred Stock, the Series B Preferred Stock
and the Series C Preferred Stock shall be collectively referred to as the
"Preferred Stock."
2. Dividends.
(a) Computation of Cumulative Dividends. The holders of the
outstanding shares of Preferred Stock shall be entitled to receive, out of funds
legally available therefor, cumulative dividends on each share of Preferred
Stock which shall accrue on the Liquidation Preference of each share of
Preferred Stock plus all accrued but unpaid dividends thereon, at the annual
rates of (i) 4% per annum from the date of issuance through and including March
31, 2002 (except that if any shares of Preferred Stock are outstanding after
March 31, 2002, dividends accrued on such outstanding shares for the period from
January 1, 2002 through and including March 31, 2002 shall be recalculated at
the rate of 4.875% per annum), (ii) 4.875% per annum from March 31, 2002 through
and including June 30, 2002, (iii) 5.75% per annum from June 30, 2002 through
and including January 1, 2003, (iv) 6.625% per annum from January 1, 2003
through and including March 31, 2003 (except that if any shares of Preferred
Stock are outstanding after March 31, 2003, dividends accrued on such shares
during such period shall be recalculated at the rate of 7.0% per annum), (v)
7.0% per annum from March 31, 2003 through and including June 30, 2003, (vi)
8.25% per annum from June 30, 2003 through and including January 1, 2004, (vii)
9.5% per annum from January 1, 2004 through and including March 31, 2004 (except
that if any shares of Preferred Stock are outstanding after March 31, 2004,
dividends accrued on such shares during such period shall be recalculated at the
rate of 9.75% per annum) and (viii) 9.75% per annum, as such rate shall be
increased by 1.5% per annum on each June 30 and January 1 thereafter, from March
31, 2004 until all shares of Preferred Stock are redeemed in accordance with
Section 6 hereof, converted into common stock, par value of $.01 of the Company
(the "Voting Common Stock") or into nonvoting common stock, par value of $.01 of
the Company (the "Nonvoting Common Stock", and together with the Voting Common
Stock, the "Common Stock") in accordance with Section 5 hereof or upon the
liquidation, dissolution or winding up of the Corporation pursuant to Section 3
hereof. Dividends shall be payable semi-annually in arrears in cash on each
March 31 and September 30, commencing on March 31, 1997, or if
<PAGE>
such day is not a Business Day, on the next succeeding Business Day. If an Event
of Noncompliance shall occur and be continuing under the Purchase Agreement (as
hereinafter defined), dividends shall accrue on the outstanding shares of
Preferred Stock at an annual rate which is 2% higher than the otherwise
applicable rate during the period in which such Event of Noncompliance is
continuing.
All numbers relating to calculation of cumulative dividends
shall be subject to equitable adjustment in the event of any stock dividend,
stock split, combination, reorganization, recapitalization, reclassification or
other similar event involving a change in the capital structure of the
Corporation. Such dividends on the Preferred Stock shall be cumulative so that
if such dividends in respect of any previous or current annual dividend period,
at the annual rate specified above, shall not have been paid or declared and a
sum sufficient for the payment thereof set apart, the deficiency shall first be
fully paid before any dividend or other distribution shall be paid or declared
and set apart for the Common Stock.
(b) Distribution. Subsidiaries of the Corporation may declare
and make payment of cash and stock dividends, return capital and make
distributions of assets to the Corporation, and nothing herein contained shall
prevent the Corporation from (i) effecting a stock split or declaring or paying
any dividend consisting of shares of any class of capital stock paid to the
holders of shares of such class of capital stock; (ii) complying with any
specific provision of the terms of the Preferred Stock as set forth herein
(including, without limitation, redemption of the Preferred Stock in accordance
with its terms); or (iii) complying with any provision of that certain
$29,900,000 Unit Purchase Agreement, dated as of February 19, 1997, between the
Corporation and the purchasers named therein (the "Purchase Agreement") or the
Related Agreements (as defined in the Purchase Agreement).
(c) Participating Dividends. In the event that the Board of
Directors of the Corporation shall declare one or more dividends payable upon
the then outstanding shares of Common Stock (other than a stock dividend on the
Common Stock distributed solely in the form of additional shares of Common
Stock), each holder of shares of Preferred Stock shall be entitled to the amount
of dividends as would be declared payable on the largest number of whole shares
of Common Stock into which the shares of Preferred Stock held by such holder
could be converted pursuant to the provisions of Section 5 hereof, such number
determined as of the record date for the determination of holders of Common
Stock entitled to receive such dividend.
(d) Dividends to Holders of Nonvoting Common Stock. In the
event that the Corporation shall make or issue to (or shall fix a record date
for determination of) holders of capital stock of the Corporation (including any
holders of Nonvoting Common Stock), a dividend or other distribution payable in
Voting Common Stock or other securities of the Corporation which are voting
securities, the Corporation shall make available to each holder of Preferred
Stock, at such holder's request, dividends, consisting of nonvoting securities
(except as otherwise required by law) of the Corporation which are otherwise
identical to the voting securities.
3. Liquidation, Dissolution or Winding Up.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, or in the event of its
insolvency, before any distribution or payment is made to any holders of Common
Stock or any other class or series of capital stock of the Corporation
designated to be junior to the Preferred Stock and subject to the liquidation
rights and preferences of any class or series of preferred stock designated in
the future to be senior to, or on a parity with, the Preferred Stock with
respect to liquidation preferences, the holders of each share of Preferred Stock
(the shares of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock being treated as a single class for purposes of this Section 3)
shall be entitled to be paid first out of the assets of the Corporation
available for distribution to holders of the Corporation's capital stock of all
classes whether such assets are capital, surplus or earnings ("Available
Assets"), an amount equal to the greater of:
2
<PAGE>
(a) $541.69 per share of Preferred Stock (the "Liquidation
Preference"), plus all accrued but unpaid dividends thereon, whether or not
earned or declared up to and including the date full payment shall be tendered
to the holders of the Preferred Stock with respect to such liquidation,
dissolution or winding up; or
(b) an amount equal to such amount per share of Preferred
Stock as would have been payable had each share of Preferred Stock been
converted to Common Stock immediately prior to such event of liquidation,
dissolution or winding up.
The amounts set forth above and throughout this Section 3 shall be
subject to equitable adjustment whenever there shall occur a stock dividend,
stock split, combination, reorganization, recapitalization, reclassification or
other similar event involving a change in the capital structure of the
Corporation.
If, upon liquidation, dissolution or winding up of the Corporation, the
Available Assets shall be insufficient to pay the holders of Preferred Stock the
full amount to which they otherwise would be entitled to receive, the holders of
Preferred Stock shall share ratably in any distribution of Available Assets pro
rata in proportion to the respective liquidation preference amounts to which
they would otherwise be entitled to receive upon liquidation if all liquidation
preference dollar amounts owing to the holders of Preferred Stock were paid in
full.
After such payment shall have been made in full to the holders of the
Preferred Stock or funds necessary for such payment shall have been set aside by
the Corporation in trust for the account of holders of the Preferred Stock so as
to be available for such payment, the remaining assets available for
distribution shall be distributed ratably among the holders of the Common Stock.
If at any time or from time to time there shall be a capital
reorganization of the Common Stock, or a merger or consolidation of the
Corporation with or into another corporation unless the Corporation shall be the
surviving corporation, or a Change of Control (as defined in the Purchase
Agreement) (a "Reorganization"), such Reorganization shall, at the option of the
holders of at least a majority of the then outstanding shares of Preferred Stock
(voting as a separate class), be regarded as a liquidation, dissolution or
winding up of the affairs of the Corporation within the meaning of this Section
3; provided, however, that each holder of Preferred Stock shall have the right
to elect the benefits of the provisions of Section 5(g) hereof in lieu of
receiving payment in liquidation, dissolution or winding up of the corporation
pursuant to this Section 3.
Whenever the distribution provided for in this Section 3 shall be
payable in property other than cash, the value of such distribution shall be the
fair market value of such property as determined in good faith by the Board of
Directors of the Corporation. All distributions (including distributions other
than cash) made hereunder shall be made pro rata with respect to each holder of
Preferred Stock in accordance with the liquidation preference amounts described
in this Section 3 above. In the event of any dispute between the holders of the
Preferred Stock and the Corporation regarding the determination of the fair
market value of non-cash distributions, at the election of the holders of at
least a majority of the then outstanding shares of Preferred Stock (voting as a
separate class), the Corporation shall engage a consulting or investment banking
firm selected by the Board of Directors and approved by the holders of at least
a majority of the then outstanding shares of Preferred Stock (voting as a
separate class) to prepare an independent appraisal of the fair market value of
such property to be distributed. The expenses of any appraisal by such
consulting or investment banking firm shall be borne by the Corporation.
3
<PAGE>
4. Voting Power.
(a) Series A Preferred Stock. Except as otherwise expressly
provided in this Section 4, or as otherwise required by law, each holder of
Series A Preferred Stock shall be entitled to vote on all matters and shall be
entitled to that number of votes equal to the largest number of whole shares of
Common Stock into which such holder's shares of Series A Preferred Stock could
be converted, pursuant to the provisions of Section 5 hereof, at the record date
for the determination of stockholders entitled to vote on such matter or, if no
such record date is established, at the date such vote is taken or any written
consent of stockholders is solicited. Except as otherwise expressly provided
herein or as otherwise required by law, the holders of shares of Series A
Preferred Stock and Common Stock shall vote together (or render written consents
in lieu of a vote) as a single class on all matters submitted to the
stockholders of the Corporation.
At any time prior to a Qualified Public Offering (as defined below),
the holders of Preferred Stock shall be entitled to designate not more than two
individuals (the "Preferred Stock Directors") by written notice to the Board of
Directors of the Corporation (the "Board") and, provided that each such
designated individual is eligible to serve as a director of the Corporation
under applicable laws and regulations, the Corporation shall nominate for
election, at each meeting of shareholders of the Corporation or otherwise at
which time directors are to be elected, a number of such designated individuals
(not in excess of the lesser of two or the number of directors to be elected at
such time) such that the number of Preferred Stock Directors serving on the
Board shall be two. So long as an affiliate of Conning & Company holds Preferred
Stock, Conning & Company shall have the right to designate one of the Preferred
Stock Directors and such Preferred Stock Director shall at all times be an
officer, employee or other designee of Conning & Company. So long as CIBC WG
Argosy Merchant Fund 2, L.L.C. ("CIBC") or an affiliate of CIBC holds Preferred
Stock, CIBC shall have the right to designate one of the Preferred Stock
Directors. If for any reason CIBC or Conning elects not to or is unable by
reason of a regulatory prohibition to designate one of the Preferred Stock
Directors, the holder of the largest percentage of Series A Preferred Stock
other than Conning & Company and CIBC, if eligible under the then current law,
shall designate such Preferred Stock Director. For purposes of this Section 4, a
"Qualified Public Offering" shall mean a public offering pursuant to all
applicable requirements under the Securities Act of 1933, as amended, in which
the aggregate price paid for shares of Common Stock sold by the Corporation in
such offering is equal to or greater than $25,000,000.
(b) Series B Preferred Stock. Except as otherwise provided
herein or as otherwise required by law, the holders of Series B Preferred Stock
shall not be entitled to vote on any matter voted on by the stockholders of the
Corporation. Notwithstanding the foregoing, holders of shares of the Series B
Preferred Stock shall be entitled to vote as a separate class on any amendment
to this Section 4 and on any amendment, repeal or modification of any provision
of the Corporation's Certificate of Incorporation that adversely affects the
powers, preferences or special rights of holders of the Series B Preferred
Stock, respectively.
(c) Series C Preferred Stock. Except as otherwise provided
herein or as otherwise required by law, the holders of Series C Preferred Stock
shall not be entitled to vote on any matter voted on by the stockholders of the
Corporation. Notwithstanding the foregoing, holders of shares of the Series C
Preferred Stock shall be entitled to vote as a separate class on any amendment
to this Section 4 and on any amendment, repeal or modification of any provision
of the Corporation's Certificate of Incorporation that adversely affects the
powers, preferences or special rights of holders of the Series C Preferred
Stock, respectively.
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5. Conversion Rights.
(a) General.
(i) Subject to the Certificate of Incorporation of
the Corporation, each share of Series A Preferred Stock held by any
person or entity may, at the option of such person or entity, be
converted at any time into one fully-paid and non-assessable share of
Series B Preferred Stock and each share of Series B Preferred Stock
held by any person or entity may, at the option of such person or
entity, be converted at any time into one fully-paid and non-assessable
share of Series A Preferred Stock. Upon the occurrence of a Conversion
Event in accordance with Section 5(n)(ii) and otherwise subject to and
in compliance with the provisions of this Section 5 each share of
Series C Preferred Stock held by any person or entity may, at the
option of such person or entity, be converted at anytime and from time
to time into one fully-paid and non-assessable share of Series A
Preferred Stock or Series B Preferred Stock.
(ii) Subject to and in compliance with the provisions
of this Section 5, each share of Series A Preferred Stock or Series B
Preferred Stock held by any person or entity may, at the option of such
person or entity, be converted at any time and from time to time into
fully-paid and non-assessable shares of Voting Common Stock. Subject to
and in compliance with the provisions of this Section 5, each share of
Series C Preferred Stock held by any person or entity may, at the
option of such person or entity, be converted at any time and from time
to time into fully-paid and non-assessable shares of Nonvoting Common
Stock and upon the occurrence of a Conversion Event in accordance with
Section 5(n)(ii), shares of Voting Common Stock. The number of shares
of Common Stock to which a holder of Preferred Stock shall be entitled
to receive upon conversion shall be the product obtained by multiplying
the Applicable Conversion Rate (determined as provided in Section 5(b))
by the number of shares of Preferred Stock being converted at any time.
(b) Applicable Conversion Rate. The conversion rate in effect
at any time for the Preferred Stock (the "Applicable Conversion Rate") shall be
the quotient obtained by dividing the sum of $541.69 plus all accrued and unpaid
dividends not otherwise paid to the holder of Preferred Stock in cash at such
holder's option pursuant to Section 5(m) by the Applicable Conversion Value,
calculated as provided in Section 5(c).
(c) Applicable Conversion Value. The Applicable Conversion
Value in effect from time to time, except as adjusted in accordance with Section
5(d) hereof, shall be $13.50 (the "Applicable Conversion Value").
(d) Adjustments to Applicable Conversion Value of Preferred
Stock.
(i)(A) Upon Dilutive Issuances of Common Stock or
Convertible Securities. If the Corporation shall, while there are any
shares of Preferred Stock outstanding, issue or sell shares of its
Common Stock or Common Stock Equivalents (as defined in the Purchase
Agreement) without consideration or at a price per share less than the
Applicable Conversion Value in effect immediately prior to such
issuance or sale (a "Diluting Issue"), then in each such case such
Applicable Conversion Value, except as hereinafter provided, shall be
lowered so as to be equal to an amount determined by multiplying such
Applicable Conversion Value by a fraction:
(1) the numerator of which shall be (a) the
number of shares of Common Stock outstanding immediately prior
to the issuance of such additional shares of Common Stock or
Common Stock Equivalents, plus (b) the number of shares of
Common
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Stock or Common Stock Equivalents which the net aggregate
consideration, if any, received by the Corporation for the
total number of such additional shares of Common Stock or
Common Stock Equivalents so issued in such Diluting Issue
would purchase at the Applicable Conversion Value in effect
immediately prior to such issuance, and
(2) the denominator of which shall be (a)
the number of shares of Common Stock outstanding immediately
prior to the issuance of such additional shares of Common
Stock or Common Stock Equivalents, plus (b) the number of such
additional shares of Common Stock or Common Stock Equivalents
so issued in such Diluting Issue.
The provisions of the foregoing paragraph as
they may apply to the Preferred Stock may be waived in any instance
(without the necessity of convening any meeting of stockholders of the
Corporation) upon the written agreement of at least two thirds of the
then outstanding shares of Preferred Stock (voting as a separate
class).
(i)(B) Upon Dilutive Issuances of Warrants, Options
and Purchase Rights to Common Stock or Convertible Securities.
(1) For the purposes of this Section
5(d)(i), the issuance of any Common Stock Equivalent shall be
deemed an issuance of Common Stock with respect to adjustments
in the Applicable Conversion Value if the Net Consideration
Per Share (as hereinafter determined) which may be received by
the Corporation for such Common Stock shall be less than the
Applicable Conversion Value in effect at the time of such
issuance. Any obligation, agreement or undertaking to issue
Common Stock Equivalents at any time in the future shall be
deemed to be an issuance at the time such obligation,
agreement or undertaking is made or arises. No adjustment of
the Applicable Conversion Value shall be made under this
Section 5(d)(i) upon the issuance of any shares of Common
Stock which are issued pursuant to the exercise, conversion or
exchange of any Common Stock Equivalents if any adjustment
shall previously have been made upon the issuance of any such
Common Stock Equivalents as above provided.
(2) Adjustments for Cancellation or
Expiration of Common Stock Equivalents. Should the Net
Consideration Per Share of any such Common Stock Equivalents
be decreased from time to time, then, upon the effectiveness
of each such change, the Applicable Conversion Value will be
that which would have been obtained (x) had the adjustments
made upon the issuance of such Common Stock Equivalents been
made upon the basis of the actual Net Consideration Per Share
of such securities, and (y) had the adjustments made to the
Applicable Conversion Value since the date of issuance of such
Common Stock Equivalents been made to such Applicable
Conversion Value as adjusted pursuant to clause (x) above. Any
adjustment of the Applicable Conversion Value with respect to
this Section 5(d)(i) which relates to any Common Stock
Equivalent shall be disregarded if, as, and when such Common
Stock Equivalent expires or is cancelled without being
exercised, or is repurchased by the Corporation at a price per
share at or less than the original purchase price, so that the
Applicable Conversion Value effective immediately upon such
cancellation or expiration shall be equal to the Applicable
Conversion Value that would have been in effect had the
expired or cancelled Common Stock Equivalent not been issued.
(3) Net Consideration Per Share. For
purposes of this paragraph, the "Net Consideration Per Share"
which may be received by the Corporation shall be determined
as follows:
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(a) The "Net Consideration Per Share"
shall mean the amount equal to the total amount of
consideration, if any, received by the Corporation for the
issuance of such Common Stock Equivalents, plus the minimum
amount of consideration, if any, payable to the Corporation
upon exercise, or conversion or exchange thereof, divided by
the aggregate number of shares of Common Stock that would be
issued if all such Common Stock Equivalents were exercised,
exchanged or converted.
(b) The "Net Consideration Per Share"
which may be received by the Corporation shall be determined
in each instance as of the date of issuance of Common Stock
Equivalents without giving effect to any possible future
upward price adjustments or rate adjustments which may be
applicable with respect to such Common Stock Equivalents.
(i)(C) Stock Dividends for Holders of Capital Stock
Other Than Common Stock. In the event that the Corporation shall make
or issue, or shall fix a record date for the determination of (and
thereafter shall issue to) holders of any capital stock of the
Corporation (other than holders of Common Stock) entitled to receive a
dividend or other distribution payable in Common Stock or securities of
the Corporation convertible into or otherwise exchangeable for shares
of Common Stock of the Corporation, then such Common Stock or other
securities issued in payment of such dividend shall be deemed to have
been issued for no consideration, except for (1) dividends payable in
shares of Common Stock payable pro rata to holders of Preferred Stock
and to holders of any other class of stock (whether or not paid to
holders of any other class of stock), or (2) with respect to the
Preferred Stock, dividends payable in shares of the same series of
Preferred Stock; provided, however, that holders of any shares of
Preferred Stock shall be entitled to receive, in lieu of such Preferred
Stock, the shares of Common Stock for which the shares of Preferred
Stock are then convertible.
(i)(D) Consideration Other than Cash. For purposes of
this Section 5(d)(i), if a part or all of the consideration received by
the Corporation in connection with the issuance of shares of the Common
Stock or the issuance of any of the securities described in this
Section 5(d)(i) consists of property other than cash, such
consideration shall be deemed to have a fair market value as is
reasonably determined in good faith by the Board of Directors of the
Corporation. In the event of any dispute between the holders of the
Preferred Stock and the Corporation regarding the determination of fair
market value, upon the request of the holders of at least a majority of
the then outstanding shares of Preferred Stock (voting as a separate
class), the Corporation shall engage a consulting firm or investment
banking firm, selected by the Board of Directors and approved by the
holders of at least a majority of the outstanding shares of Preferred
Stock (voting as a separate class), to prepare an independent appraisal
of the fair market value of such property to be distributed. The
expenses of any appraisal by such consulting or investment banking firm
shall be borne by the Corporation.
(i)(E) Exceptions to Antidilution Adjustments; Basket
for Reserved Employee Shares. This Section 5(d)(i) shall not apply (a)
under any of the circumstances which would constitute an Extraordinary
Common Stock Event (as described below); (b) up to 757,230 shares of
Common Stock, or options exercisable therefor, issued to directors,
officers or employees of or consultants to the Company or any of its
subsidiaries pursuant to any qualified or non-qualified stock option
plan or agreement, employee stock ownership plan, stock purchase
agreement, stock plan, stock restriction agreement, or consulting
agreement or such other options, arrangements, agreements or plans
approved by the Board of Directors; (c) up to 120,000 shares of Common
Stock pursuant to the Additional Options (as defined in the Purchase
Agreement); (d) up to 162,461 shares of Common Stock to be issued in
connection with the Corporation's pending acquisition of Arbor Capital
Partners, Inc., (e) up to 24,201 shares of Common Stock issuable
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pursuant to the Arbor Option, (f) up to 198,088 shares of Common Stock
issuable pursuant to the exercise of the Warrants (as defined in the
Purchase Agreement), (g) up to 205,563 shares of Common Stock issuable
pursuant to the exercise of the Contingent Warrants (as defined in the
Purchase Agreement); (h) up to 345,000 shares of Common Stock issuable
pursuant to the exercise of the Public Warrants (as defined in the
Purchase Agreement); and (i) shares of Common Stock issued in
connection with Acquisitions (as defined in the Purchase Agreement)
approved by the Board of Directors, at a price equal to no less than
the fair market value therefor (as determined in good faith by the
Board of Directors), provided that such shares are issued to such
Person or its holders in the Acquisition.
(ii) Upon Extraordinary Common Stock Event. Upon the
happening of an Extraordinary Common Stock Event (as hereinafter
defined), the Applicable Conversion Value (and all other conversion
values set forth in Section 5(d)(i) above) shall, simultaneously with
the happening of such Extraordinary Common Stock Event, be adjusted by
multiplying the Applicable Conversion Value by a fraction, the
numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such Extraordinary Common Stock Event
and the denominator of which shall be the number of shares of Common
Stock outstanding immediately after such Extraordinary Common Stock
Event, and the product so obtained shall thereafter be the Applicable
Conversion Value. The Applicable Conversion Value, as so adjusted,
shall be readjusted in the same manner upon the happening of any
successive Extraordinary Common Stock Event or Events.
An "Extraordinary Common Stock Event" shall mean (i)
the issue of additional shares of Common Stock as a dividend or other
distribution on outstanding shares of Common Stock, (ii) a subdivision
of outstanding shares of Common Stock into a greater number of shares
of Common Stock, or (iii) a combination or reverse stock split of
outstanding shares of Common Stock into a smaller number of shares of
the Common Stock.
(e) Automatic Conversion Upon Election of Corporation.
(i) Provided that (A) the price of the Corporation's Common
Stock as listed on NASDAQ or any other national securities exchange, for a
period of 30 consecutive trading days exceeds (1) at any time following
[February _____], 1999 but on or prior to [February ____], 2000, 145% of the
Applicable Conversion Value, (2) at any time following [February ___, 2000 but
on or prior to [February ____], 2001, 170% of the Applicable Conversion Value,
or (3) at any time following [February ____], 2001 but on or prior to [February
_____], 2002, 190% of the Applicable Conversion Value, and (B) the average daily
trading volume of the Corporation's Common Stock for the prior 30 consecutive
trading days exceeds 10,000 shares, the Corporation may, upon written notice to
all of the holders of the outstanding shares Preferred Stock, require that all
of the outstanding shares of Preferred Stock convert, subject to and in
accordance with the other provisions of this Section 5, into shares of Common
Stock at the then Applicable Conversion Rate. Upon delivery of such notice by
the Corporation, all outstanding shares of Preferred Stock shall be converted
automatically into the number of shares of Common Stock into which such shares
of Preferred Stock are then convertible pursuant to Section 5 hereof as of the
date of the mailing of such written notice, without any further action by the
holders of such shares and whether or not the certificates representing such
shares are surrendered to the Corporation or its transfer agent; provided,
however, that the number of shares of Preferred Stock converted pursuant to this
Section 5(e)(i) shall not require approval of the Office of Thrift Supervision
or any other approval under the Certificate of Incorporation of the Corporation.
(ii) Surrender of Certificates Upon Automatic Conversion. Upon
the occurrence of the conversion event specified in Section 5(e)(i) above, the
holders of the Preferred Stock shall, upon notice from the Corporation,
surrender the certificates representing such shares at the office of the
Corporation
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or of its transfer agent for the Common Stock. Thereupon, there shall be issued
and delivered to such holder a certificate or certificates for the number of
shares of Common Stock into which the shares of Preferred Stock so surrendered
were convertible on the date on which such conversion occurred. The Corporation
shall not be obligated to issue such certificates unless certificates evidencing
the shares of Preferred Stock being converted are either delivered to the
Corporation or any such transfer agent, or the holder notifies the Corporation
that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection therewith.
(f) Dividends. In the event the Corporation shall make or
issue, or shall fix a record date for the determination of holders of Common
Stock entitled to receive a dividend or other distribution (other than a
distribution in liquidation, a distribution as provided for in Sections 2(c) or
2(d) or other distribution otherwise provided for herein) with respect to the
Common Stock payable in (i) securities of the Corporation other than shares of
Common Stock, or (ii) other assets (excluding cash dividends or distributions),
then and in each such event provision shall be made so that the holders of the
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the number of securities or such
other assets of the Corporation which they would have received had their
Preferred Stock been converted into Common Stock on the date of such event and
had they thereafter, during the period from the date of such event to and
including the Conversion Date (as that term is hereafter defined in Section
5(i)), retained such securities or such other assets receivable by them during
such period, giving application to all other adjustments called for during such
period under this Section 5 with respect to the rights of the holders of the
Preferred Stock.
(g) Capital Reorganization or Reclassification. If the Common
Stock issuable upon the conversion of the Preferred Stock shall be changed into
the same or a different number of shares of any class or classes of capital
stock, whether by capital reorganization, recapitalization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for elsewhere in this Section 5, or the sale of all or substantially
all of the Corporation's capital stock or assets to any other person), then and
in each such event the holders of the Preferred Stock shall have the right
thereafter to convert such shares into the kind and amount of shares of capital
stock and other securities and property receivable upon such reorganization,
recapitalization, reclassification or other change by the holders of the number
of shares of Common Stock into which such shares of Preferred Stock might have
been converted immediately prior to such reorganization, recapitalization,
reclassification or change, all subject to further adjustment as provided
herein.
(h) Certificate as to Adjustments; Notice by Corporation. In
each case of an adjustment or readjustment of the Applicable Conversion Rate,
the Corporation at its expense will furnish each holder of Preferred Stock so
affected with a certificate prepared by the Treasurer or Chief Financial Officer
of the Corporation, showing such adjustment or readjustment, and stating in
detail the facts upon which such adjustment or readjustment is based. Within 90
days of the end of each fiscal year of the Corporation, the Corporation at its
expense will furnish each holder of Preferred Stock so affected with a
certificate, showing such adjustment or readjustment, and stating in detail the
facts upon which such adjustment or readjustment is based.
(i) Exercise of Conversion Privilege. To exercise its
conversion privilege, a holder of Preferred Stock shall surrender the
certificate or certificates representing the shares being converted to the
Corporation at its principal office, and shall give written notice to the
Corporation at that office that such holder elects to convert such shares. Such
notice shall also state the name or names (with address or addresses) in which
the certificate or certificates for shares of Common Stock or Preferred Stock,
as applicable, issuable upon such conversion shall be issued. The certificate or
certificates for shares of Preferred Stock surrendered for conversion shall be
accompanied by proper assignment thereof to the Corporation or in blank. The
date when such written notice is received by the Corporation, together with
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the certificate or certificates representing the shares of Preferred Stock being
converted, shall be the "Conversion Date". As promptly as practicable after the
Conversion Date, the Corporation shall issue and shall deliver to the holder of
the shares of Preferred Stock being converted, or on its written order, such
certificate or certificates as it may request for the number of whole shares of
Common Stock or Preferred Stock, as applicable, issuable upon the conversion of
such shares of Preferred Stock in accordance with the provisions of this Section
5, and cash, as provided in Section 5(j), in respect of any fraction of a share
of Common Stock issuable upon such conversion. Such conversion shall be deemed
to have been effected immediately prior to the close of business on the
Conversion Date, and at such time the rights of the holder as holder of the
converted shares of Preferred Stock shall cease and the person(s) in whose
name(s) any certificate(s) for shares of Common Stock or Preferred Stock, as
applicable, shall be issuable upon such conversion shall be deemed to have
become the holder or holders of record of the shares of Common Stock or
Preferred Stock, as applicable, represented thereby.
(j) Cash in Lieu of Fractional Shares. No fractional shares of
Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Preferred Stock. Instead of any fractional shares of
Common Stock which would otherwise be issuable upon conversion of Preferred
Stock, the Corporation shall pay to the holder of the shares of Preferred Stock
which were converted a cash adjustment in respect of such fractional shares in
an amount equal to the same fraction of the fair market value per share of the
Common Stock at the close of business on the Conversion Date. The determination
as to whether or not any fractional shares are issuable shall be based upon the
aggregate number of shares of Preferred Stock being converted at any one time by
any holder thereof, not upon each share of Preferred Stock being converted.
(k) Reservation of Common Stock. Subject to the shareholder
vote of the Corporation referred to in Section 6.18 of the Purchase Agreement,
the Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Voting Common Stock, Nonvoting Common Stock
and Preferred Stock, solely for the purpose of effecting the conversion of the
shares of the Preferred Stock, such number of its shares of Common Stock and
Preferred Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Preferred Stock (including any
shares of Preferred Stock represented by any warrants, options, subscription or
purchase rights for Preferred Stock), and if at any time the number of
authorized but unissued shares of Common Stock and Preferred Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the
Preferred Stock (including any shares of Preferred Stock represented by any
warrants, options, subscriptions or purchase rights for such Preferred Stock),
the Corporation shall take such action as may be necessary to increase its
authorized but unissued shares of Common Stock and Preferred Stock to such
number of shares as shall be sufficient for such purpose.
(l) Reissuance of Preferred Stock. Except for the shares of
Preferred Stock which will be reserved for reissuance upon the conversion of
Preferred Stock pursuant to this Section 5 and subject to the provisions of
Section 5(n)(iii), no share or shares of Preferred Stock acquired by the
Corporation by reason of redemption, purchase, conversion or otherwise shall be
reissued and all such shares shall be cancelled, retired and eliminated from the
shares which the Corporation shall be authorized to issue. Upon any of the
foregoing events, the Corporation shall from time to time take such appropriate
corporate action as may be necessary to reduce the authorized number of shares
of the Preferred Stock.
(m) Payment of Accrued and Unpaid Dividends Upon Conversion.
Immediately upon any conversion of shares of Preferred Stock into Common Stock
pursuant to this Section 5, at the option of the holder of such Preferred Stock,
the Corporation shall pay in cash to such holder all accrued and unpaid
dividends thereon, whether or not earned or declared, up to and including the
Conversion Date.
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(n) Conversion Rights of Series C Preferred Stock into Series
A Preferred Stock, Series B Preferred Stock or Voting Common Stock. The holders
of the Series C Preferred Stock shall have the following rights with respect to
the conversion of such shares into shares of Voting Common Stock, Series A
Preferred Stock, Series B Preferred Stock:
(i) General. In connection with the disposition of
such shares upon the occurrence (or the expected occurrence as described in
Section 5(n)(iii) below), of any Conversion Event (as defined herein), each
holder of Series C Preferred Stock shall be entitled to convert such Series C
Preferred Stock into an equal number of shares of Series A Preferred Stock or
Series B Preferred Stock or the number of shares of Voting Common Stock provided
for in this Section 5.
(ii) Conversion Event. For purposes of this Section
5(n), a "Conversion Event" shall mean, (A) any sale to the public in a widely
dispersed offering (including, without limitation, a public offering registered
under the Securities Act of 1933), (B) any disposition under Rule 144 or Rule
144A promulgated by the Securities and Exchange Commission under the Securities
Act of 1933, or any similar rule then in force of no more than two percent (2%)
of the outstanding voting securities of the Corporation, (c) any transfer
pursuant to a right of first refusal set forth in the Transfer Restriction
Agreement (as defined in the Purchase Agreement) or (D) any transfer in a single
transaction to an independent third party who acquires at least a majority of
the voting stock of the Corporation without regard to the transfer of such
securities. For purposes of this Section 5(n), "person" shall include any
natural person and any corporation, partnership, joint venture, trust,
unincorporated organization and any other entity or organization.
(iii) Conversion Prior to Conversion Event. Each
holder of Series C Preferred Stock shall be entitled to convert shares of Series
C Preferred Stock in connection with any Conversion Event if such holder
reasonably believes that such Conversion Event shall be consummated, and a
written request for conversion from any holder of Series C Preferred Stock to
the Corporation stating such holder's reasonable belief that a Conversion Event
shall occur shall be conclusive and shall obligate the Corporation to effect
such conversion in a timely manner so as to enable each such holder to
participate in such Conversion Event. The Corporation shall not cancel the
shares of Series C Preferred Stock so converted before the tenth day following
such Conversion Event and shall reserve such shares until such tenth day for
reissuance in compliance with the next sentence. If any shares of Series C
Preferred Stock are converted into shares of Series A Preferred Stock, Series B
Preferred Stock or Voting Common Stock in connection with a Conversion Event and
such shares of Series A Preferred Stock, Series B Preferred Stock or Voting
Common Stock are not actually distributed, disposed of or sold pursuant to such
Conversion Event, such shares of Series A Preferred Stock, Series B Preferred
Stock or Voting Common Stock shall be promptly converted back into the same
number of shares of Series C Preferred Stock, and during such period prior to
such distribution, disposal or sale, the holder of such Series A Preferred
Stock, Series B Preferred Stock or Voting Common Stock shall not be entitled to
vote such shares notwithstanding provisions of this Certificate of Designation
or the Corporation's Certificate of Incorporation.
(iv) Exercise of Conversion Privilege. Each holder of
Series C Preferred Stock shall exercise its conversion privilege in the same
manner specified for conversion of Preferred Stock into Common Stock in this
Section 5.
(v) Transfer. The Corporation shall not close its
books against the transfer of shares of Voting Common Stock in any manner which
would interfere with the timely conversion of any shares of Series C Preferred
Stock. The Corporation shall assist and cooperate with any holder of Series C
Preferred Stock required to make any governmental filings or obtain any
governmental approval prior to or in connection with any conversion of Series C
Preferred Stock hereunder (including, without limitation, making any filings
required to be made by the Corporation), provided, that the costs and expenses
of the Company in connection therewith (including attorneys' fees) shall be paid
by such holder.
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6. Redemption.
(a) Put Option Redemption Upon a Change of Control or Event of
Noncompliance. (i) In the event of a Change of Control (as defined in the
Purchase Agreement) or the Corporation obtains knowledge of a proposed
transaction or series of transactions which would result in a Change of Control,
or (ii) at the request (a "Put Request") of the holders of a majority of the
then outstanding shares of Preferred Stock upon an Event of Noncompliance, other
than in respect of Section 11.02(d), under the Purchase Agreement, the
Corporation will, within three days of (x) the earlier of such Change of Control
or obtaining such knowledge of the proposed Change of Control or (y) the date of
the Put Request, give written notice of such event to each holder of shares of
Preferred Stock, which notice shall contain a written irrevocable offer by the
Corporation to redeem, by a date (the "Redemption Date") specified in such
notice (which date shall not be less than 30 days and not more than 60 days
after the date of such notice and which date shall not be earlier than the date
of the Change of Control), all of the shares of the Preferred Stock held by such
holder in full (and not in part). Such offered redemption shall be made on the
Redemption Date at a price equal to (i) in the case of a redemption in
connection with a Change of Control or an Event of Noncompliance not relating to
Section 6.05, 6.09, 6.18 or 11.02(d) of the Purchase Agreement, 101% of the
Liquidation Preference of the Preferred Stock, plus all accrued but unpaid
dividends thereon, or (ii) in the case of a redemption in connection with an
Event of Noncompliance relating to Sections 6.05, 6.09 or 6.18 of the Purchase
Agreement, 120% of the Liquidation Preference of the Preferred Stock, plus all
accrued but unpaid dividends thereon, upon acceptance by such holder mailed to
Corporation at least seven days prior to the Redemption Date.
(b) Call Option Redemption. At any time on or after [February
____], 2002, the Corporation may, at its option, upon notice to each holder of
shares of Preferred Stock not less than 30 days and not more than 60 days prior
to the date fixed for such redemption, redeem all but not less than all of the
then outstanding shares of Preferred Stock, for a redemption price equal to the
greater of (i) the Fair Market Value of the Common Stock (as defined in the
Purchase Agreement) as of the date of redemption or (ii) 100% of the Liquidation
Preference of the Preferred Stock, plus all accrued but unpaid dividends
thereon.
7. Restrictions and Limitations.
The Corporation shall not take any corporate action or otherwise amend
its Certificate of Incorporation or By-laws without the approval by vote or
written consent of the holders of at least 100% of the then outstanding shares
of Preferred Stock (voting as a separate class), each share of Preferred Stock
to be entitled to one vote in each instance, if such corporate action or
amendment would change any of the rights, preferences, privileges of or
limitations provided for herein for the benefit of any shares of Preferred Stock
or materially adversely affect the rights of the holders of the Preferred Stock.
Without limiting the generality of the preceding sentence, the Corporation will
not amend its Certificate of Incorporation or take any other corporate action
without the approval of the holders of at least two thirds of the then
outstanding shares of Preferred Stock, voting separately as a single class, if
such amendment or corporate action would:
(a) cause or authorize the Corporation to redeem, purchase or
otherwise acquire for value (or pay into or set aside for a sinking fund for
such purpose), any share or shares of equity securities of the Corporation other
than as provided for in Section 6 hereof; or
(b) authorize, create or issue, or obligate the Corporation to
authorize, create or issue, additional shares of any security senior to or on a
parity with the Preferred Stock; or
(c) reduce the amount payable to the holders of Preferred
Stock upon the voluntary or involuntary liquidation, dissolution or winding up
of the Corporation; or
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(d) adversely affect the liquidation preferences, dividend
rights, voting rights or redemption rights of the holders of Preferred Stock; or
(e) cancel or modify the conversion rights of the holders of
Preferred Stock provided for in Section 5 herein.
8. No Dilution or Impairment. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
capital stock or 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 of the Preferred Stock set forth herein, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the holders of the Preferred Stock against dilution or
other impairment. Without limiting the generality of the foregoing, the
Corporation (a) will not increase the par value of any shares of stock
receivable on the conversion of the Preferred Stock above the amount payable
therefor on such conversion, and (b) will take all such action as may be
necessary or appropriate in order that the Corporation may validly and legally
issue fully paid and nonassessable shares of stock on the conversion of all
Preferred Stock from time to time outstanding.
9. Notices of Record Date. In the event of:
(a) any taking by the Corporation of a record of the holders
of any class of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of capital stock of any
class or any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation to any other Corporation, or
any other entity or person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding up of the Corporation,
then and in each such event the Corporation shall mail or cause to be mailed to
each holder of Preferred Stock a notice specifying (i) the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right and a description of such dividend, distribution or right, (ii) the date
on which any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected to
become effective, and (iii) the time, if any, that is to be fixed, as to when
the holders of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up. Such notice shall be mailed by first class mail, postage prepaid, at
least 20 days prior to the date specified in such notice on which such action is
to be taken.
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EXHIBIT C
[FORM OF WARRANT]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN
COMPLIANCE WITH THAT ACT AND SUCH LAWS. IN ADDITION, THE TRANSFERABILITY OF THIS
SECURITY IS SUBJECT TO THE PROVISIONS OF A $29,900,000 UNIT PURCHASE AGREEMENT
AMONG THE ISSUER AND THE PURCHASERS OF THE ISSUER'S SECURITIES THEREUNDER, A
COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER'S PRINCIPAL EXECUTIVE OFFICE AT
1111 N. HIGHLAND ST., ARLINGTON, VA 22201, ATTN: PRESIDENT.
No. WR-1 [February ___], 1997
TELEBANC FINANCIAL CORPORATION
COMMON STOCK PURCHASE WARRANT
[ ] shares of Common Stock, $.01 par value per share, subject to
adjustments as set forth herein.
This Common Stock Purchase Warrant certifies that [ ] (the "Purchaser")
or registered assigns, is entitled at any time on or after the date hereof and
prior to 5:00 p.m. (New York, New York time) on the Expiration Date, to purchase
from TeleBanc Financial Corporation (the "Company"), up to an aggregate of [ ]
fully paid and nonassessable shares of Common Stock, $.01 par value, of the
Company (the "Common Stock"), at a purchase price of $9.50 per share of Common
Stock (the "Exercise Price"). The number of shares of Common Stock that may be
purchased upon exercise of this Warrant set forth above, and the Exercise Price
per share of Common Stock set forth above, are subject to adjustment as
hereinafter provided.
This Common Stock Purchase Warrant is issued pursuant to that certain
$29,900,000 Unit Purchase Agreement, dated as of February 19, 1997, among the
Company and certain Persons named therein (the "Purchase Agreement"), and it is
subject to all of the terms, provisions and conditions thereof, which Purchase
Agreement is hereby incorporated herein by reference and made a part hereof and
to which Purchase Agreement reference is hereby made for a full description of
the rights, obligations, duties and immunities of the Company and the holder of
this Warrant. Capitalized terms used but not defined herein have the meanings
assigned to them in the Purchase Agreement. Copies of the Purchase Agreement are
on file at the office of the Company as set forth herein.
<PAGE>
1. EXERCISE OF WARRANTS; EXERCISE PRICE
1.01. Exercise of Warrants. At any time on or after the Closing Date
and prior to the Expiration Date, the holder of this Warrant may exercise the
rights evidenced hereby in whole or in part, by surrender of this Warrant, with
an election to purchase (a form of which is attached hereto in Exhibit A)
attached thereto duly executed, to the Company at its office referred to in
Section 5.03 hereof, together with payment of the Exercise Price (payable as set
forth below) for each share of Common Stock as to which this Warrants is
exercised. In addition, the holder of this Warrant agrees to exercise this
Warrant upon the request of the Company upon the Company's redemption of all of
the outstanding Notes in accordance with the terms of the Purchase Agreement
upon a Change of Control; provided that the average price of the Common Stock as
listed on NASDAQ or any other national securities exchange on which the Common
Stock is then listed for the thirty consecutive trading days immediately
preceding such exercise exceeds the Exercise Price during such thirty days. The
Exercise Price shall be payable (a) in cash or by certified or official bank
check payable to the order of the Company or by wire transfer of immediately
available funds to the account of the Company, (b) by delivery of Warrants to
the Company for cancellation in accordance with the following formula: in
exchange for each share of Common Stock issuable upon exercise of each Warrant
any holder thereof so delivers for cancellation, such holder shall receive such
number of shares of Common Stock as is equal to the product of (i) the number of
shares of Common Stock issuable upon exercise of such Warrant at such time
multiplied by (ii) a fraction, the numerator of which is the Fair Market Value
per share of Common Stock at such time minus the Exercise Price per share of
Common Stock at such time, and the denominator of which is the Fair Market Value
per share of Common Stock at such time, or (c) by cancellation of amounts
outstanding (whether in respect of principal or interest) under the Notes in an
amount equal to the aggregate Exercise Price for the shares of Common Stock to
be purchased on such date and delivery of such Notes to the Company for
cancellation and reissuance in the appropriate lesser principal amounts.
1.02. Issuance of Common Stock. Upon timely receipt of this Warrant,
with the form of election to purchase duly executed, accompanied by payment of
the Exercise Price for each of the shares to be purchased in the manner provided
in Section 1.01 and an amount equal to any applicable transfer tax (if not
payable by the Company as provided in Section 2.03 hereof), the Company shall
thereupon promptly cause certificates for the number of shares of Common Stock
then being purchased to be delivered to or upon the order of the registered
holder of this Warrant.
1.03. Unexercised Warrants. In case the registered holder of this
Warrant shall purchase less than all the shares of Common Stock purchasable
thereunder, a new
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Warrant evidencing the right to purchase the remaining shares of Common Stock
thereunder shall be issued by the Company to the registered holder of this
Warrant or to its duly authorized assigns.
1.04. Common Stock Record Date. Each Person in whose name any
certificate for shares of Common Stock is issued upon the exercise of this
Warrant shall for all purposes be deemed to have become the holder of record of
the Common Stock represented thereby on, and such certificate shall be dated the
date upon which this Warrant was duly surrendered with an election to purchase
attached thereto duly executed and payment of the aggregate Exercise Price (and
any applicable transfer taxes, if payable by such Person) was made in accordance
with the terms hereof. Prior to exercise, the holder of this Warrant shall not
be entitled to any rights of a stockholder of the Company with respect to the
shares for which this Warrant shall be exercisable, including, without
limitation, the right to vote or to receive dividends or other distributions
(except as otherwise provided in the Purchase Agreement) and shall not be
entitled to receive any notice of any proceedings of the Company, except as
provided herein or in any other applicable agreement between the Company and
such holder.
2. RESERVATION OF COMMON STOCK; TRANSFER TAXES
2.01. Reservation of Common Stock. The Company shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the exercise of the Warrants, such
number of its shares of Common Stock as shall from time to time be the maximum
amount which may be required to effect the exercise of all outstanding Warrants,
and if at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the exercise of all then outstanding Warrants,
the Company shall take such 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.
2.02. Common Stock to be Duly Authorized and Issued, Fully Paid and
Nonassessable. Subject to a shareholders vote referred to in Section 5.18 of the
Purchase Agreement, the Company covenants and agrees that it will take all such
action as may be necessary to ensure that all shares of Common Stock delivered
upon the exercise of any Warrants, at the time of delivery of the certificates
for such shares, shall be duly and validly authorized and issued and fully paid
and nonassessable and the issuance of such shares will not be subject to
preemptive or other similar contractual rights of any other stockholder of the
Company.
2.03. Transfer Taxes. The Company covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and charges
that may be payable in respect of the initial issuance or delivery of (a) each
Warrant and
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(b) each share of Common Stock issued upon the exercise of any Warrant. The
Company shall not, however, be required to (y) pay any transfer tax that may be
payable in respect of the transfer or delivery of Warrants or the issuance or
delivery of certificates for shares of Common Stock in a name other than that of
the registered holder of any Warrant surrendered for exercise or (z) issue or
deliver any such certificates for shares of Common Stock upon the exercise of
any Warrant until any such tax shall have been paid (any such tax being payable
by the holder of such Warrant at the time of surrender).
3. ANTIDILUTION ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF
WARRANT SHARES; FRACTIONAL SHARES
3.01. Mechanical Adjustments. The number of shares of Common Stock
purchasable upon the exercise of this Warrant and the Exercise Price shall be
subject to adjustment as follows:
(a) Dividends, Subdivisions and Combinations. In the event
that the Company shall (i) pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock, (ii) subdivide its outstanding shares of
Common Stock into a greater number of shares or (iii) combine its outstanding
shares of Common Stock into a smaller number of shares, then each of the
Exercise Price and the Trigger Price in effect at the time of the record date
for such dividend or of the effective date of such subdivision or combination
shall be proportionately adjusted to those prices determined by multiplying each
of the Exercise Price and the Trigger Price in effect immediately prior to such
event by a fraction, (y) the numerator of which shall be the total number of
outstanding shares of Common Stock immediately prior to such event and (z) the
denominator of which shall be the total number of outstanding shares of Common
Stock immediately after such event. An adjustment made pursuant to this Section
3.01(a) shall become effective on the effective date of such event.
(b) Distribution of Property. In the event that the Company
shall distribute to all holders of shares of Common Stock (including, without
limitation, any such distribution made in connection with a consolidation or
merger in which the Company is the continuing corporation) shares of stock
(other than Common Stock), evidences of its indebtedness, other assets
(excluding (i) any distribution or dividend resulting in a distribution pursuant
to Section 3.04 and (ii) dividends referred to in Section 3.01(a)(I) hereof), or
rights, options, warrants or convertible or exchangeable securities (excluding
those referred to in Section 3.01(c) hereof) then in each case, the Exercise
Price to be in effect after the record date in respect of which such stock,
indebtedness, other assets, rights, options, warrants or securities were issued
shall be determined by multiplying the Exercise Price in effect immediately
prior to such record date by a fraction, (y) the numerator of which shall be the
Trigger Price in effect immediately prior to such record date minus the then
fair value (as determined
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in good faith and on a reasonable basis by the Board of Directors) of the
portion of the shares of stock or assets or evidences of indebtedness so
distributed or of such rights, options or warrants, or of such convertible or
exchangeable securities applicable to one share of Common Stock and (z) the
denominator of which shall be the Trigger Price in effect immediately prior to
such record date. Such adjustment shall be made whenever any such distribution
is made, and shall become effective on the date of such distribution.
(c) Issuances of Common Stock and Other Securities.
(i) In the event the Company shall issue or sell
shares of Common Stock, or rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase shares
of Common Stock for no consideration or at a "price per share" of Common Stock
lower than the Trigger Price then in effect on the date of such issuance or
sale, then in each case, the Exercise Price to be in effect immediately after
such issuance or sale shall be determined by multiplying the Exercise Price in
effect immediately prior to such issuance or sale by a fraction, (y) the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance or sale (calculated on a fully-diluted basis
assuming the conversion or exercise of all then presently exercisable options,
warrants, purchase rights or convertible securities) plus the number of
additional shares the Aggregate Consideration Receivable (as defined below)
would purchase at the Trigger Price in effect immediately prior to such issuance
or sale and (z) the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issuance or sale (calculated on a
fully-diluted basis assuming the conversion or exercise of all then presently
exercisable options, warrants, purchase rights or convertible securities) plus
the number of additional shares of Common Stock so issued or sold (or initially
issuable pursuant to such rights, options, or warrants or into which such
convertible or exchangeable securities are initially convertible or
exchangeable).
(ii) In the case of rights, options, warrants or
convertible or exchangeable securities, the "price per share" of Common Stock
referred to above shall be determined by dividing (A) the Aggregate
Consideration Receivable in respect of such rights, options, warrants or
convertible or exchangeable securities by (B) the total number of shares of
Common Stock covered by such rights, options, warrants or convertible or
exchangeable securities.
(iii) "Aggregate Consideration Receivable", in the
case of a sale of shares of Common Stock, means the aggregate amount paid to the
Company in connection therewith and, in the case of an issuance or sale of
rights, options, warrants, or convertible or exchangeable securities, means the
aggregate amount paid to the Company for such rights, options, warrants or
convertible or exchangeable
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securities, plus the aggregate consideration or premiums stated in such rights,
options, warrants or convertible or exchangeable securities to be payable for
the shares of Common Stock covered thereby.
(iv) In the event that the Company shall issue and
sell shares of Common Stock, or rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase shares
of Common Stock, for a consideration consisting, in whole or in part, of
property other than cash or its equivalent, then in determining the "price per
share" of Common Stock and the "Aggregate Consideration Receivable", the Board
of Directors shall determine, in good faith and on a reasonable basis, the fair
value of such property.
(d) Consolidation and Merger. In the event that there shall be
(i) any consolidation of the Company with, or merger of the Company with or
into, another corporation (other than a merger in which the Company is the
surviving corporation and that does not result in any reclassification or change
of shares of Common Stock outstanding immediately prior to such merger), (ii)
any sale or conveyance to another corporation of the property of the Company
substantially as an entirety, or (iii) any reclassification of the Common Stock
that results in the issuance of other securities of the Company, then, in
addition to and notwithstanding any other rights provided to the holder this
Warrant upon such occurrence, lawful provision shall be made as a part of the
terms of such transaction so that such holder shall thereafter have the right to
purchase the number and kind of shares of stock (and/or other securities, cash,
property or rights) receivable upon such consolidation, merger, sale, conveyance
or reclassification by a holder of such number of shares of Common Stock as such
holder would have had the right to acquire upon the exercise of this Warrant
immediately prior to such consolidation, merger, sale or conveyance at the
Exercise Price then in effect.
(e) De Minimis Changes in Exercise Price. No adjustment in the
Exercise Price shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) of the Exercise Price,
provided, however, that any adjustments that, at the time of the calculation
thereof, are less than one percent (1%) of the Exercise Price, at such time and
by reason of this Section 3.01(e) are not required to be made at such time shall
be carried forward and added to any subsequent adjustment or adjustments for
purposes of determining whether such subsequent adjustments, as so supplemented,
exceed the one percent (1%) amount set forth herein and, if any such subsequent
adjustment, as so supplemented or otherwise, should exceed such one percent (1%)
amount, all adjustments deferred prior thereto and not previously made shall
then be made. In any case, all such adjustments being carried forward pursuant
to this Section 3.01(e) shall be given effect upon the exercise of this Warrant
by the holder hereof for purposes of determining the Exercise Price thereof and
the number of shares of Common Stock
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then issuable upon such exercise. All calculations shall be made to the nearest
one- millionth of a Dollar ($.000001).
(f) Adjustment of Number of Shares Issuable Pursuant to this
Warrant. Upon each adjustment of the Exercise Price as a result of the
calculations made in this Section 3.01, this Warrant shall thereafter evidence
the right to purchase, at the adjusted Exercise Price, that number of shares of
Common Stock (calculated to the nearest one-thousandth) obtained by (i)
multiplying the number of shares of Common Stock covered by this Warrant
immediately prior to such adjustment by the Exercise Price in effect immediately
prior to such adjustment and (ii) dividing the product so obtained by the
Exercise Price in effect immediately after such adjustment. Subsequent to any
adjustment made to the Exercise Price hereunder, this Warrant shall evidence the
right to purchase, at the adjusted Exercise Price, the number of shares of
Common Stock determined to be purchasable from time to time hereunder upon
exercise of this Warrant, all subject to further adjustment as provided herein.
Irrespective of any adjustment or change in the Exercise Price or the number of
shares of Common Stock issuable upon the exercise of this Warrant, this Warrant
and any Warrants theretofore or thereafter issued in replacement hereof may
continue to express the Exercise Price per share of Common Stock and the number
of shares of Common Stock that were expressed upon the initial issuance of this
Warrant under the Purchase Agreement.
(g) Miscellaneous. Adjustments shall be made pursuant to this
Section 3.01 successively whenever any of the events referred to in Section
3.01(a) through Section 3.01(d), inclusive, hereof shall occur. If this Warrant
shall be exercised subsequent to the record date for any of the events referred
to in any such Section, but prior to the effective date thereof, appropriate
adjustments shall be made immediately after such effective date so that the
holder of this Warrant on such record date shall have received, in the
aggregate, the kind and number of shares of Common Stock or other securities or
assets that it would have owned or been entitled to receive on such effective
date had this Warrant been exercised prior to such record date. Shares of Common
Stock owned by or held for the account of the Company shall not, for purposes of
the adjustments set forth in this Section 3.01 be deemed outstanding.
(h) Expiration of Rights, Options, etc. Upon the expiration of
any rights, options, warrants or conversion or exchange privileges referred to
above in this Section 3.01, without the full exercise thereof, the Exercise
Price, and the number of shares of Common Stock purchasable upon the exercise of
this Warrant shall, upon such expiration, be readjusted and shall thereafter be
such as such Exercise Price and such number of shares of Common Stock would have
been had they been originally adjusted as if (i) the only shares of Common Stock
available to be purchased upon exercise of such rights, options, warrants or
conversion or
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exchange privileges were the shares of Common Stock, if any, actually issued or
sold upon the exercise of such rights, options, warrants or conversion or
exchange privileges and (ii) such shares of Common Stock, if any, were issued or
sold for the consideration actually received by the Company upon such exercise
plus the aggregate consideration, if any, actually received by the Company for
the issuance, sale or grant of all such rights, options, warrants or conversion
or exchange privileges whether or not exercised; provided, however, that no such
readjustment shall have the effect of increasing the Exercise Price by an amount
in excess of the amount of the reduction initially made in respect of the
issuance, sale, or grant of such rights, options, warrants or conversion of
exchange privileges.
(i) Other Securities. In the event that at any time, as a
result of an adjustment made pursuant to this Section 3.01, the holder of this
Warrant shall become entitled to purchase any securities of the Company other
than shares of Common Stock, the number or amount of such other securities so
purchasable and the purchase price of such securities shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions contained in Section 3.01(a) through Section
3.01(d), inclusive, and all other relevant provisions of this Section 3.01 that
are applicable to shares of Common Stock shall be applicable to such other
securities.
(j) Notice of Adjustment. Whenever the number of shares of
Common Stock issuable upon the exercise of this Warrant or the Exercise Price in
respect thereof is adjusted, as herein provided, the Company shall promptly give
to the holder of this Warrant, notice of such adjustment or adjustments and
shall promptly deliver to such holder a certificate of the Company's chief
financial officer setting forth (i) the number of shares of Common Stock
issuable upon the exercise of this Warrant and the Exercise Price of such shares
after such adjustment, (ii) a brief statement of the facts requiring such
adjustment, and (iii) the computation by which such adjustment was made. So long
as this Warrant is outstanding, within 90 days of the end of each fiscal year of
the Company, the Company shall deliver to the holder a certificate of a firm of
independent public accountants selected by the Board of Directors (who may be
the regular accountants employed by the Company) setting forth (A) the number of
shares of Common Stock issuable upon the exercise of this Warrant and the
Exercise Price of such shares as of the end of such fiscal year, (B) a brief
statement of the facts requiring each such adjustment required to be made in
such fiscal year and (c) the computation by which each such adjustment was made.
3.02. Elimination of Fractional Interests. The Company shall not be
required upon the exercise of this Warrant to issue stock certificates
representing fractions of shares of Common Stock, but shall instead pay in cash,
in lieu of any fractional shares of Common Stock to which such holder would
otherwise be entitled if such
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fractional shares were issuable, an amount equal to the Fair Market Value per
share of Common Stock as of the date of such exercise.
3.03. Right of Action. All rights of action in respect of the Warrants
are vested in the respective registered holders of the Warrants and any
registered holder of any Warrant, without the consent of the holder of any other
Warrant, may, in its own behalf and for its own benefit, enforce, and may
institute and maintain any suit, action or proceeding against the Company to
enforce, or otherwise act in respect of, its right to exercise the Warrants held
by it in the manner provided therein.
3.04. Distributions. In the event that the Company shall distribute to
all holders of shares of Common Stock (including, without limitation, any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing corporation) cash or cash equivalents, then in each
case the holders of the Warrants shall be entitled to receive from the Company
the same amount of cash or cash equivalents that would have been distributed to
such holders if such Warrants had been exercised immediately prior to the record
date for such distribution. Such distribution to the holders of the Warrants
shall be made whenever any such distribution is made to the holders of shares of
Common Stock.
3.05. Exceptions to Antidilution Adjustments. Notwithstanding the
foregoing, no adjustments shall be made under Section 3.01 in respect of (a) up
to 757,230 shares of Common Stock, or options exercisable therefor, issued to
directors, officers or employees of or consultants to the Company or any
Subsidiary pursuant to any qualified or non-qualified stock option plan or
agreement, employee stock ownership plan, stock purchase agreement, stock plan,
stock restriction agreement, or consulting agreement or such other options,
arrangements, agreements or plans approved by the Board of Directors, (b) up to
120,000 shares of Common Stock pursuant to the Additional Options, (c) up to
162,461 shares of Common Stock to be issued in connection with the Company's
pending acquisition of Arbor Capital Partners, Inc., (d) up to 24,201 shares of
Common Stock pursuant to the Arbor Options, (e) 198,088 shares of Common Stock
issuable pursuant to the exercise of the Warrants, (f) up to 205,563 shares of
Common Stock issuable pursuant to the exercise of the Contingent Warrants; (g)
up to 345,000 shares of Common Stock issuable pursuant to the exercise of the
Public Warrants; and (h) shares of Common Stock issued in connection with
Acquisitions approved by the Board of Directors, at a price no less than the
fair market value therefor (as determined in good faith by the Board of
Directors), provided that such shares are issued to such Person or its holders
in the Acquisition.
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4. DEFINITIONS AND ACCOUNTING TERMS
As used herein, the following terms shall have the following meanings:
"Company" shall have the meaning assigned to such term in the
introductory sentence hereof.
"Exercise Price" shall have the meaning assigned to such term
in the introductory sentence hereof.
"Expiration Date" shall mean [February ___], 2005.
"NASDAQ" shall mean the National Association of Securities
Dealers Automated Quotations System.
"Public Offering" shall mean a public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the offer and sale by the Company of shares of the Company's Common
Stock.
"Purchaser" shall have the meaning assigned to such term in
the introductory sentence hereof.
"Trigger Price" shall mean the greater of (a) the Fair Market
Value of the Common Stock or (b) $13.50.
"Warrants" shall mean this Warrant and all other Warrants
(other than the Contingent Warrants) issued by the Company pursuant to the
Purchase Agreement, together with all Warrants issued in exchange, transfer or
replacement thereof.
"Warrant Shares" shall mean any shares of Common Stock that
are issuable upon the exercise of any Warrant.
5. MISCELLANEOUS
5.01. No Waiver; Cumulative Remedies. No failure or delay on the part
of the holder of this Warrant in exercising any right, power or remedy hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy hereunder. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
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5.02. Amendments, Waivers and Consents. Any provision in this Warrant
to the contrary notwithstanding, and except as hereinafter provided, changes in,
termination or amendments of or additions to the Warrants may be made, and
compliance with any covenant or provision set forth herein may be omitted or
waived, if the Company (a) shall obtain consent thereto in writing from the
holders of at least a majority of the Warrant Shares, and (b) shall deliver
copies of such consent in writing to any holders who did not execute such
consent; provided that no consents shall be effective (i) to amend any of the
provisions of the Warrants pertaining to the Exercise Price or the number of
shares of Common Stock purchasable upon the exercise of any Warrant or (ii) to
reduce the percentage in interest of the Warrant Shares the consent of the
holders of which is required under this Section 5.02. Any waiver or consent may
be given subject to satisfaction of conditions stated therein and any waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
5.03. Addresses for Notices. Any notice, demand, request, waiver or
other communication hereunder shall be in writing and shall be deemed to have
been duly given on the date of service if personally served, on the date of
transmission if sent by telecopier (with confirming copy sent by a nationally
recognized express overnight courier service) or on the first business day after
mailing if mailed to the party to whom notice is given, by a nationally
recognized courier service and addressed as follows:
To the Company: TeleBanc Financial Corporation
1111 North Highland Street
Arlington, Virginia 22201
Attn: President
With a copy to: Hogan & Hartson, L.L.P
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Attention: Stuart G. Stein, Esq
To any holder: At its address set forth on the record books of the
Company
With a copy to: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
Goodwin Square
225 Asylum Street
Hartford, CT 06103
Attn: Edward A. Reilly, Jr., Esq.
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5.04. Binding Effect; Assignment. This Warrant shall be binding upon
and inure to the benefit of each of the Company and the holder hereof and their
respective heirs, successors and assigns, except that the Company shall not have
the right to delegate its obligations hereunder or to assign its rights
hereunder or any interest herein.
5.05. Severability. The provisions of this Warrant are severable and,
in the event that any court of competent jurisdiction shall determine that any
one or more of the provisions or part of a provision contained in this Warrant
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Warrant; but the terms of this
Warrant shall be reformed and construed as if such invalid or illegal or
unenforceable provision, or part of a provision, had never been contained
herein, and such provisions or part reformed so that it would be valid, legal
and enforceable to the maximum extent possible.
5.06. Governing Law. THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF DELAWARE, AND WITHOUT
GIVING EFFECT TO CHOICE OF LAW PROVISIONS.
5.07. Headings. Article, section and subsection headings in this
Warrant are included herein for convenience of reference only and shall not
constitute a part of this Warrant for any other purpose.
5.08. Specific Enforcement. The Company acknowledges and agrees that
irreparable damage would occur in the event that any of the provisions of this
Warrant were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the holder hereof shall be
entitled to an injunction or injunctions to prevent breaches of the provisions
of this Warrant and to enforce specifically the terms and provisions hereof in
any court of the United States or any state thereof having jurisdiction, this
being in addition to any other remedy to which it may be entitled at law or
equity.
5.09. Notices of Record Date. In the event of:
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of capital stock of any
class or any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
merger or consolidation of
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the Company, or any transfer of all or substantially all of the assets of the
Company to any other Company, or any other entity or person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding up of the Company,
then and in each such event the Company shall mail or cause to be mailed to the
holder of this Warrant a notice specifying (i) the date on which any such record
is to be taken for the purpose of such dividend, distribution or right and a
description of such dividend, distribution or right, (ii) the date on which any
such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected to
become effective, and (iii) the time, if any, that is to be fixed, as to when
the holders of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up. Such notice shall be sent by a nationally recognized overnight
courier, hand delivery or facsimile at least twenty (20) days prior to the date
specified in such notice on which such action is to be taken.
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WITNESS the signature of the proper officer of the Company as of the
date first above written.
TELEBANC FINANCIAL CORPORATION
By______________________________________
Name:
Title:
ATTEST:
[Assistant] Secretary
<PAGE>
Exhibit A
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if
such holder desires to transfer the Warrant)
FOR VALUE RECEIVED, _______________________________ hereby
sells, assigns and transfers unto
_______________________________________________________________________________
the accompanying Warrant, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint attorney, to transfer the
accompanying Warrant on the books of the Company of such Warrant, with full
power of substitution.
Dated: _____________________, ______________.
[HOLDER OF WARRANT]
By ________________________________________
NOTICE
The signature to the foregoing Assignment must correspond to
the name as written upon the face of the accompanying Warrant or any prior
assignment thereof in every particular, without alteration or enlargement or any
change whatsoever.
<PAGE>
[FORM OF ELECTION TO PURCHASE]
(To be executed by the registered holder if
such holder desires to exercise the Warrant)
To TELEBANC FINANCIAL CORPORATION
The undersigned hereby irrevocably elects to exercise the accompanying
Warrant to purchase shares of Common Stock issuable upon the exercise of such
Warrant and requests that certificates for such shares be issued in the name of:
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
(Please insert social security number or other identifying number)
If such number of shares of Common Stock shall not be all the shares of Common
Stock purchasable upon the exercise of the accompanying Warrant, a new Warrant
for the balance of such remaining shares of Common Stock shall be registered in
the name of and delivered to:
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
(Please insert social security number or other identifying number)
Dated: _____________________, ______________.
[HOLDER OF WARRANT]
By _______________________________________
<PAGE>
NOTICE
The signature to the foregoing Election to Purchase must
correspond to the name as written upon the face of the accompanying Warrant or
any prior assignment thereof in every particular, without alteration or
enlargement or any change whatsoever.
<PAGE>
EXHIBIT D
[FORM OF CONTINGENT WARRANT]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN
COMPLIANCE WITH THAT ACT AND SUCH LAWS. IN ADDITION, THE TRANSFERABILITY OF THIS
SECURITY IS SUBJECT TO THE PROVISIONS OF A $29,900,000 UNIT PURCHASE AGREEMENT
AMONG THE ISSUER AND THE PURCHASERS OF THE ISSUER'S SECURITIES THEREUNDER, A
COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER'S PRINCIPAL EXECUTIVE OFFICE AT
1111 N. HIGHLAND ST., ARLINGTON, VA 22201, ATTN: PRESIDENT.
No. CWR-1 [February ___], 1997
TELEBANC FINANCIAL CORPORATION
CONTINGENT COMMON STOCK PURCHASE WARRANT
[ ] shares of Common Stock, $.01 par value per share, subject to
adjustments as set forth herein.
This Contingent Common Stock Purchase Warrant certifies that [ ] (the
"Purchaser") or registered assigns, is entitled at any time on or after the date
on which an Exercise Event, (as described in Section 1.01(a) hereof) occurs and
prior to 5:00 p.m. (New York, New York time) on the Expiration Date, to purchase
from TeleBanc Financial Corporation, or any successor thereto (the "Company"),
up to an aggregate of [ ] fully paid and nonassessable shares of Common Stock,
$.01 par value, of the Company (the "Common Stock"), at a purchase price of $.01
per share of Common Stock (the "Exercise Price"). The number of shares of Common
Stock that may be purchased upon exercise of this Contingent Warrant set forth
above, and the Exercise Price per share of Common Stock set forth above, are
subject to adjustment as hereinafter provided.
This Contingent Warrant is issued pursuant to that certain $29,900,000
Unit Purchase Agreement, dated as of February 19, 1997, among the Company and
certain Persons named therein (the "Purchase Agreement"), and it is subject to
all of the terms, provisions and conditions thereof, which Purchase Agreement is
hereby incorporated herein by reference and made a part hereof and to which
Purchase Agreement reference is hereby made for a full description of the
rights, obligations, duties and immunities of the Company and the holder of this
Contingent Warrant. Capitalized terms used but not defined herein have the
meanings assigned to them in the Purchase Agreement. Copies of the Purchase
Agreement are on file at the office of the Company as set forth herein.
<PAGE>
1. EXERCISE OF CONTINGENT WARRANTS; EXERCISE PRICE
1.01. Exercise of Contingent Warrants.
(a) Exercise Events. The holder of this Contingent Warrant may
exercise the rights evidenced hereby in whole or in part, at any time prior to
the Expiration Date, upon or after the occurrence of any of the following events
(each, an "Exercise Event"):
(i) a Change of Control transaction (as defined in the
Purchase Agreement); or
(ii) [February ____], 2002.
(b) Manner of Exercise. Upon the occurrence of any Exercise
Event, the number of shares of Common Stock which are purchasable upon the
exercise of this Contingent Warrant shall be determined in accordance with
Section 4 hereof. Thereafter, the holder of this Contingent Warrant may exercise
the rights evidenced hereby in whole or in part, by surrender of this Contingent
Warrant, with an election to purchase (a form of which is attached hereto in
Exhibit A) attached thereto duly executed, to the Company at its office referred
to in Section 6.03 hereof, together with payment of the Exercise Price (payable
as set forth below) for each share of Common Stock as to which this Contingent
Warrant is exercised. The Exercise Price shall be payable (a) in cash or by
certified or official bank check payable to the order of the Company or by wire
transfer of immediately available funds to the account of the Company, (b) by
delivery of Contingent Warrants to the Company for cancellation in accordance
with the following formula: in exchange for each share of Common Stock issuable
upon exercise of each Contingent Warrant any holder thereof so delivers for
cancellation, such holder shall receive such number of shares of Common Stock as
is equal to the product of (i) the number of shares of Common Stock issuable
upon exercise of such Contingent Warrant at such time multiplied by (ii) a
fraction, the numerator of which is the Fair Market Value per share of Common
Stock at such time minus the Exercise Price per share of Common Stock at such
time, and the denominator of which is the Fair Market Value per share of Common
Stock at such time or (c) by cancellation of amounts outstanding (whether in
respect of principal or interest) under the Notes in an amount equal to the
aggregate Exercise Price for the shares of Common Stock to be purchased on such
date and delivery of such Notes to the Company for cancellation and reissuance
in the appropriate lesser principal amount.
1.02. Issuance of Common Stock. Upon timely receipt of this Contingent
Warrant, with the form of election to purchase duly executed, accompanied by
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<PAGE>
payment of the Exercise Price for each of the shares to be purchased in the
manner provided in Section 1.01 and an amount equal to any applicable transfer
tax (if not payable by the Company as provided in Section 2.03 hereof), the
Company shall thereupon promptly cause certificates for the number of shares of
Common Stock then being purchased to be delivered to or upon the order of the
registered holder of this Contingent Warrant.
1.03. Unexercised Contingent Warrants. In case the registered holder of
this Contingent Warrant shall purchase less than all the shares of Common Stock
purchasable thereunder, a new Contingent Warrant evidencing the right to
purchase the remaining shares of Common Stock thereunder shall be issued by the
Company to the registered holder of this Contingent Warrant or to its duly
authorized assigns.
1.04. Common Stock Record Date. Each Person in whose name any
certificate for shares of Common Stock is issued upon the exercise of this
Contingent Warrant shall for all purposes be deemed to have become the holder of
record of the Common Stock represented thereby on, and such certificate shall be
dated the date upon which this Contingent Warrant was duly surrendered with an
election to purchase attached thereto duly executed and payment of the aggregate
Exercise Price (and any applicable transfer taxes, if payable by such Person)
was made in accordance with the terms hereof. Prior to exercise, the holder of
this Contingent Warrant shall not be entitled to any rights of a stockholder of
the Company with respect to the shares for which this Contingent Warrant shall
be exercisable, including, without limitation, the right to vote or to receive
dividends or other distributions (except as otherwise provided in the Purchase
Agreement) and shall not be entitled to receive any notice of any proceedings of
the Company, except as provided herein or in any other applicable agreement
between the Company and such holder.
2. RESERVATION OF COMMON STOCK; TRANSFER TAXES
2.01. Reservation of Common Stock. Subject to the shareholder vote
referred to in Section 5.18 of the Purchase Agreement, the Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the exercise of the Contingent
Warrants, such number of its shares of Common Stock as shall from time to time
be the maximum amount which may be required to effect the exercise of all
outstanding Contingent Warrants, and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the exercise
of all then outstanding Contingent Warrants, the Company shall take such 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.
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<PAGE>
2.02. Common Stock to be Duly Authorized and Issued, Fully Paid and
Nonassessable. The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all shares of Common Stock delivered
upon the exercise of any Contingent Warrants, at the time of delivery of the
certificates for such shares, shall be duly and validly authorized and issued
and fully paid and nonassessable and the issuance of such shares will not be
subject to preemptive or other similar contractual rights of any other
stockholder of the Company.
2.03. Transfer Taxes. The Company covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and charges
that may be payable in respect of the initial issuance or delivery of (a) each
Contingent Warrant and (b) each share of Common Stock issued upon the exercise
of any Contingent Warrant. The Company shall not, however, be required to (y)
pay any transfer tax that may be payable in respect of the transfer or delivery
of Contingent Warrants or the issuance or delivery of certificates for shares of
Common Stock in a name other than that of the registered holder of any
Contingent Warrant surrendered for exercise or (z) issue or deliver any such
certificates for shares of Common Stock upon the exercise of any Contingent
Warrant until any such tax shall have been paid (any such tax being payable by
the holder of such Contingent Warrant at the time of surrender).
3. ANTIDILUTION ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF
WARRANT SHARES; FRACTIONAL SHARES
3.01. Mechanical Adjustments. The number of shares of Common Stock
purchasable upon the exercise of this Contingent Warrant and the Exercise Price
shall be subject to adjustment as follows:
(a) Dividends, Subdivisions and Combinations. In the event
that the Company shall (i) pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock, (ii) subdivide its outstanding shares of
Common Stock into a greater number of shares or (iii) combine its outstanding
shares of Common Stock into a smaller number of shares, then each of the
Exercise Price and the Trigger Price in effect at the time of the record date
for such dividend or of the effective date of such subdivision or combination
shall be proportionately adjusted to those prices determined by multiplying each
of the Exercise Price and the Trigger Price in effect immediately prior to such
event by a fraction, (y) the numerator of which shall be the total number of
outstanding shares of Common Stock immediately prior to such event and (z) the
denominator of which shall be the total number of outstanding shares of Common
Stock immediately after such event. An adjustment made pursuant to this Section
3.01(a) shall become effective on the effective date of such event.
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<PAGE>
(b) Distribution of Property. In the event that the Company
shall distribute to all holders of shares of Common Stock (including, without
limitation, any such distribution made in connection with a consolidation or
merger in which the Company is the continuing corporation) shares of stock
(other than Common Stock), evidences of its indebtedness, other assets
(excluding (i) any distribution or dividend resulting in a distribution pursuant
to Section 3.04 and (ii) dividends referred to in Section 3.01(a)(i) hereof), or
rights, options, warrants or convertible or exchangeable securities (excluding
those referred to in Section 3.01(c) hereof) then in each case, the Exercise
Price to be in effect after the record date in respect of which such stock,
indebtedness, other assets, rights, options, warrants or securities were issued
shall be determined by multiplying the Exercise Price in effect immediately
prior to such record date by a fraction, (y) the numerator of which shall be the
Trigger Price in effect immediately prior to such record date minus the then
fair value (as determined in good faith and on a reasonable basis by the Board
of Directors) of the portion of the shares of stock or assets or evidences of
indebtedness so distributed or of such rights, options or warrants, or of such
convertible or exchangeable securities applicable to one share of Common Stock
and (z) the denominator of which shall be the Trigger Price in effect
immediately prior to such record date. Such adjustment shall be made whenever
any such distribution is made, and shall become effective on the date of such
distribution.
(c) Issuances of Common Stock and Other Securities.
(i) In the event the Company shall issue or sell
shares of Common Stock, or rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase shares
of Common Stock for no consideration or at a "price per share" of Common Stock
lower than the Trigger Price then in effect on the date of such issuance or
sale, then in each case, the Exercise Price to be in effect immediately after
such issuance or sale shall be determined by multiplying the Exercise Price in
effect immediately prior to such issuance or sale by a fraction, (y) the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance or sale (calculated on a fully-diluted basis
assuming the conversion or exercise of all then presently exercisable options,
warrants, purchase rights or convertible securities) plus the number of
additional shares the Aggregate Consideration Receivable (as defined below)
would purchase at the Trigger Price in effect immediately prior to such issuance
or sale and (z) the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issuance or sale (calculated on a
fully-diluted basis assuming the conversion or exercise of all then presently
exercisable options,
5
<PAGE>
warrants, purchase rights or convertible securities) plus the number of
additional shares of Common Stock so issued or sold (or initially issuable
pursuant to such rights, options, or warrants or into which such convertible or
exchangeable securities are initially convertible or exchangeable).
(ii) In the case of rights, options, warrants or
convertible or exchangeable securities, the "price per share" of Common Stock
referred to above shall be determined by dividing (A) the Aggregate
Consideration Receivable in respect of such rights, options, warrants or
convertible or exchangeable securities by (B) the total number of shares of
Common Stock covered by such rights, options, warrants or convertible or
exchangeable securities.
(iii) "Aggregate Consideration Receivable", in the
case of a sale of shares of Common Stock, means the aggregate amount paid to the
Company in connection therewith and, in the case of an issuance or sale of
rights, options, warrants, or convertible or exchangeable securities, means the
aggregate amount paid to the Company for such rights, options, warrants or
convertible or exchangeable securities, plus the aggregate consideration or
premiums stated in such rights, options, warrants or convertible or exchangeable
securities to be payable for the shares of Common Stock covered thereby.
(iv) In the event that the Company shall issue and
sell shares of Common Stock, or rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase shares
of Common Stock, for a consideration consisting, in whole or in part, of
property other than cash or its equivalent, then in determining the "price per
share" of Common Stock and the "Aggregate Consideration Receivable", the Board
of Directors shall determine, in good faith and on a reasonable basis, the fair
value of such property.
(d) Consolidation and Merger. In the event that there shall be
(i) any consolidation of the Company with, or merger of the Company with or
into, another corporation (other than a merger in which the Company is the
surviving corporation and that does not result in any reclassification or change
of shares of Common Stock outstanding immediately prior to such merger), (ii)
any sale or conveyance to another corporation of the property of the Company
substantially as an entirety, or (iii) any reclassification of the Common Stock
that results in the issuance of other securities of the Company, then, in
addition to and notwithstanding any other rights provided to the holder this
Contingent Warrant upon such occurrence, lawful provision shall be made as a
part of the terms of such transaction so that such holder shall thereafter have
the right to purchase the number and kind of shares of stock (and/or other
securities, cash, property or rights) receivable upon such consolidation,
merger, sale, conveyance or reclassification by a holder of such number of
shares of Common Stock as such holder would have had the right to acquire upon
the exercise of this
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<PAGE>
Contingent Warrant immediately prior to such consolidation, merger, sale or
conveyance at the Exercise Price then in effect.
(e) De Minimis Changes in Exercise Price. No adjustment in the
Exercise Price shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) of the Exercise Price;
provided, however, that any adjustments that, at the time of the calculation
thereof, are less than one percent (1%) of the Exercise Price at such time and
by reason of this Section 3.01(e) are not required to be made at such time shall
be carried forward and added to any subsequent adjustment or adjustments for
purposes of determining whether such subsequent adjustments, as so supplemented,
exceed the one percent (1%) amount set forth herein and, if any such subsequent
adjustment, as so supplemented or otherwise, should exceed such one percent (1%)
amount, all adjustments deferred prior thereto and not previously made shall
then be made. In any case, all such adjustments being carried forward pursuant
to this Section 3.01(e) shall be given effect upon the exercise of this
Contingent Warrant by the holder hereof for purposes of determining the Exercise
Price thereof and the number of shares of Common Stock then issuable upon such
exercise. All calculations shall be made to the nearest one- millionth of a
Dollar ($.000001).
(f) Adjustment of Number of Shares Issuable Pursuant to this
Contingent Warrant. Upon each adjustment of the Exercise Price as a result of
the calculations made in this Section 3.01, this Contingent Warrant shall
thereafter evidence the right to purchase, at the adjusted Exercise Price, that
number of shares of Common Stock (calculated to the nearest one-thousandth)
obtained by (i) multiplying the number of shares of Common Stock covered by this
Contingent Warrant immediately prior to such adjustment by the Exercise Price in
effect immediately prior to such adjustment and (ii) dividing the product so
obtained by the Exercise Price in effect immediately after such adjustment.
Subsequent to any adjustment made to the Exercise Price hereunder, this
Contingent Warrant shall evidence the right to purchase, at the adjusted
Exercise Price, the number of shares of Common Stock determined to be
purchasable from time to time hereunder upon exercise of this Contingent
Warrant, all subject to further adjustment as provided herein. Irrespective of
any adjustment or change in the Exercise Price or the number of shares of Common
Stock issuable upon the exercise of this Contingent Warrant, this Contingent
Warrant and any Contingent Warrants theretofore or thereafter issued in
replacement hereof may continue to express the Exercise Price per share of
Common Stock and the number of shares of Common Stock that were expressed upon
the initial issuance of this Contingent Warrant under the Purchase Agreement.
(g) Miscellaneous. Adjustments shall be made pursuant
to this Section 3.01 successively whenever any of the events referred to in
Section 3.01(a) through Section 3.01(d), inclusive, hereof shall occur. If this
Contingent Warrant
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<PAGE>
shall be exercised subsequent to the record date for any of the events referred
to in any such Section, but prior to the effective date thereof, appropriate
adjustments shall be made immediately after such effective date so that the
holder of this Contingent Warrant on such record date shall have received, in
the aggregate, the kind and number of shares of Common Stock or other securities
or assets that it would have owned or been entitled to receive on such effective
date had this Contingent Warrant been exercised prior to such record date.
Shares of Common Stock owned by or held for the account of the Company shall
not, for purposes of the adjustments set forth in this Section 3.01 be deemed
outstanding.
(h) Expiration of Rights, Options, etc. Upon the expiration of
any rights, options, warrants or conversion or exchange privileges referred to
above in this Section 3.01, without the full exercise thereof, the Exercise
Price and the number of shares of Common Stock purchasable upon the exercise of
this Contingent Warrant shall, upon such expiration, be readjusted and shall
thereafter be such as such Exercise Price and such number of shares of Common
Stock would have been had they been originally adjusted as if (i) the only
shares of Common Stock available to be purchased upon exercise of such rights,
options, warrants or conversion or exchange privileges were the shares of Common
Stock, if any, actually issued or sold upon the exercise of such rights,
options, warrants or conversion or exchange privileges and (ii) such shares of
Common Stock, if any, were issued or sold for the consideration actually
received by the Company upon such exercise plus the aggregate consideration, if
any, actually received by the Company for the issuance, sale or grant of all
such rights, options, warrants or conversion or exchange privileges whether or
not exercised; provided, however, that no such readjustment shall have the
effect of increasing the Exercise Price by an amount in excess of the amount of
the reduction initially made in respect of the issuance, sale, or grant of such
rights, options, warrants or conversion of exchange privileges.
(i) Other Securities. In the event that at any time, as a
result of an adjustment made pursuant to this Section 3.01, the holder of this
Contingent Warrant shall become entitled to purchase any securities of the
Company other than shares of Common Stock, the number or amount of such other
securities so purchasable and the purchase price of such securities shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions contained in Section 3.01(a) through
Section 3.01(d), inclusive, and all other relevant provisions of this Section
3.01 that are applicable to shares of Common Stock shall be applicable to such
other securities.
(j) Notice of Adjustment. Whenever the number of shares of
Common Stock issuable upon the exercise of this Contingent Warrant or the
Exercise Price in respect thereof is adjusted, as herein provided, the Company
shall promptly give to the holder of this Contingent Warrant, notice of such
adjustment or
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<PAGE>
adjustments and shall promptly deliver to such holder a certificate of the
Company's chief financial officer setting forth (i) the number of shares of
Common Stock issuable upon the exercise of this Contingent Warrant and the
Exercise Price of such shares after such adjustment, (ii) a brief statement of
the facts requiring such adjustment, and (iii) the computation by which such
adjustment was made. So long as this Contingent Warrant is outstanding, within
90 days of the end of each fiscal year of the Company, the Company shall deliver
to the holder a certificate of a firm of independent public accountants selected
by the Board of Directors (who may be the regular accountants employed by the
Company) setting forth (A) the number of shares of Common Stock issuable upon
the exercise of this Contingent Warrant and the Exercise Price of such shares as
of the end of such fiscal year, (B) a brief statement of the facts requiring
each such adjustment required to be made in such fiscal year and (c) the
computation by which each such adjustment was made.
3.02. Elimination of Fractional Interests. The Company shall not be
required upon the exercise of this Contingent Warrant to issue stock
certificates representing fractions of shares of Common Stock, but shall instead
pay in cash, in lieu of any fractional shares of Common Stock to which such
holder would otherwise be entitled if such fractional shares were issuable, an
amount equal to the Fair Market Value per share of Common Stock as of the date
of such exercise.
3.03. Right of Action. All rights of action in respect of the
Contingent Warrants are vested in the respective registered holders of the
Contingent Warrants and any registered holder of any Contingent Warrant, without
the consent of the holder of any other Contingent Warrant, may, in its own
behalf and for its own benefit, enforce, and may institute and maintain any
suit, action or proceeding against the Company to enforce, or otherwise act in
respect of, its right to exercise the Contingent Warrants held by it in the
manner provided therein.
3.04. Distributions. In the event that the Company shall distribute to
all holders of shares of Common Stock (including, without limitation, any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing corporation) cash or cash equivalents, then in each
case the holders of the Contingent Warrants shall be entitled to receive from
the Company the same amount of cash or cash equivalents that would have been
distributed to such holders if such Contingent Warrants had been exercised
immediately prior to the record date for such distribution. Such distribution to
the holders of the Contingent Warrants shall be made whenever any such
distribution is made to the holders of shares of Common Stock.
3.05. Exceptions to Antidilution Adjustments. Notwithstanding the
foregoing, no adjustments shall be made under Section 3.01 in respect of (a) up
to 757,230 shares of Common Stock, or options exercisable therefor, issued to
directors, officers
9
<PAGE>
or employees of or consultants to the Company or any Subsidiary pursuant to any
qualified or non-qualified stock option plan or agreement, employee stock
ownership plan, stock purchase agreement, stock plan, stock restriction
agreement, or consulting agreement or such other options, arrangements,
agreements or plans approved by the Board of Directors, (b) up to 120,000 shares
of Common Stock pursuant to the Additional Options, (c) up to 162,461 shares of
Common Stock to be issued in connection with the Company's pending acquisition
of Arbor Capital Partners, Inc., (d) up to 24,201 shares of Common Stock
pursuant to the Arbor Option, (e) up to 198,088 shares of Common Stock issuable
pursuant to the exercise of the Warrants, (f) up to 205,563 shares of Common
Stock issuable pursuant to the exercise of the Contingent Warrants; (g) up to
345,000 shares of Common Stock issuable pursuant to the exercise of Public
Warrants; and (h) shares of Common Stock issued in connection with Acquisitions
approved by the Board of Directors, at a price no less than the fair market
value therefor (as determined in good faith by the Board of Directors), provided
that such shares are issued to such Person or its holders in the Acquisition.
4. ADJUSTMENT OF NUMBER OF WARRANT SHARES BASED ON RETURN ON
UNITS
4.01. Adjustment Formula. Upon the first occurrence of an Exercise
Event, the number of shares of Common Stock which are purchasable upon the
exercise of this Contingent Warrant shall be definitively adjusted so as to
equal that number of shares of Common Stock which results in an annual internal
rate of return ("Annual IRR") (calculated in the manner provided below) on each
Unit purchased by the initial holder under the Purchase Agreement which is equal
to at least 25%; provided that the number of shares of Common Stock which are
purchasable upon the exercise of this Contingent Warrant shall not exceed that
number obtained by multiplying 6.875 by the number of Units purchased by the
initial holder hereof under the Purchase Agreement (except as such number would
be increased in accordance with the adjustments made pursuant to Section 3.01
hereof).
For purposes of the initial calculation of the Annual IRR in order to
determine whether any shares of common stock are to be issued upon the exercise
of the Contingent Warrants, the value of the unexercised Contingent Warrants
shall be deemed to be zero.
4.02. Internal Rate of Return Calculation. For purposes of this Section
4, the internal rate of return ("IRR") shall be determined as of the date of the
first occurrence of an Exercise Event (the "Determination Date") and shall be
equal to the discount rate calculated on a daily basis at which the sum of the
present values as of the Closing Date of (a) all amounts paid or distributed
from the Closing through the Determination Date by the Company in respect of the
Units, whether in cash or in
10
<PAGE>
kind and whether in respect of interest, principal, premium, dividends,
redemption payments, liquidation preference amounts or otherwise, but excluding
stock, indebtedness, rights, options, warrants and other securities of the
Company, and the value of noncash distributions shall be such value as of the
date of distribution, (b) the market value (determined in the manner set forth
below) as of the Determination Date of stock, indebtedness, rights, options,
warrants and other securities of the Company or any successor issued or
distributed after the Closing on or with respect to the Units (including,
without limitation, shares of Common Stock issued through the Determination Date
as dividends on the Preferred Shares) but excluding any such stock or securities
issued pursuant to the exercise of Warrants and the conversion of Preferred
Shares before the Determination Date and (c) the market value of the Units as of
the Determination Date (determined in the manner set forth below), equals
$29,900,000. For purposes of calculating the IRR, all cash flows will be assumed
to have taken place as of the close of business on the day on which they were
made. The IRR will then be expressed as the Annual IRR by compounding the IRR by
the number of days in a year assuming a 365.25 day year. The mathematical
conversion of the IRR to the Annual IRR will be calculated by (a) raising the
sum of one (1) plus the IRR, to a power equal to the number of days in a year
(365.25) and (b) subtracting one (1) from such number as follows: Annual IRR =
((1 + IRR)365.25 - 1). The market value of the Units shall be equal to the
aggregate market values of the Notes, the Preferred Stock, the Warrants and the
Contingent Warrants as of the Determination Date. The market value of the Notes
and all other instruments of indebtedness distributed in respect of the Units
shall be equal to the outstanding principal amount as of the Determination Date
of the Notes or other instruments of indebtedness, respectively, that are
outstanding on such date, together with all accrued but unpaid interest thereon.
The market value of the Preferred Stock outstanding (or which has been converted
into Common Stock) as of the Determination Date shall be equal to the greater of
(a) the Liquidation Preference of the Preferred Stock determined as set forth in
the Certificate of Designation, or (b) the fair market value of the Common Stock
(as defined below) which may be obtained upon the conversion thereof; provided
that if the Preferred Stock has been automatically converted into Common Stock
at the option of the Company, the market value therefor shall be equal to the
fair market value of the Common Stock which may be obtained upon the conversion
thereof. The market value of the Warrants, the Contingent Warrants, and any
other rights, options, warrants or other securities issued by the Company in
respect of the Units (whether or not any Warrant or other security has
previously been exercised) shall be equal to the fair market value of the Common
Stock which may be obtained upon the conversion or exercise thereof, minus the
exercise price (if any) of the Warrants, the Contingent Warrants, or such other
rights, options, warrants or other securities, respectively. The fair market
value of the Common Stock used in determining the market value of the Warrants,
the Contingent Warrants, the market value of the Preferred Stock, and any other
rights, options, warrants or other securities issued by the Company in respect
11
<PAGE>
of the Units, as the case may be, shall be determined based upon either (a) the
average of the actual closing sales price per share of the Common Stock as
listed on NASDAQ or any other national securities exchange, on which the Common
Stock is listed for the thirty consecutive trading days immediately preceding
the Determination Date or (b) if the Common Stock is no longer listed on NASDAQ
or any other national securities exchange, the value per share determined on a
good faith and reasonable basis by an independent nationally recognized
investment bank firm (an "Independent Appraiser") jointly selected and mutually
agreed upon by the Board of Directors of the Company and the holders of at least
a majority of the then outstanding Contingent Warrants, to prepare an
independent appraisal of the fair market value of the Common Stock; provided
that the value determined by the Independent Appraiser may be challenged in an
arbitration proceeding at the instigation of the holders of a majority of the
then outstanding Contingent Warrants, the outcome of which proceeding shall be
binding on the holders of the Contingent Warrants and the Company, and the cost
of which proceeding shall be borne equally by the holders of the Contingent
Warrants and the Company.
5. DEFINITIONS AND ACCOUNTING TERMS
As used herein, the following terms shall have the following meanings:
"Company" shall have the meaning assigned to such term in the
introductory sentence hereof.
"Contingent Warrant" shall mean this Contingent Warrant and
all other Contingent Warrants issued by the Company pursuant to the Purchase
Agreement, together with all Contingent Warrants issued in exchange, transfer or
replacement thereof.
"Determination Date" shall have the meaning assigned to such
term in Section 4.02.
"Exercise Event" shall have the meaning assigned to such term
in Section 1.01.
"Exercise Price" shall have the meaning assigned to such term
in the introductory sentence hereof.
"Expiration Date" shall mean the later of (a) February [___],
2002, or (b) 30 days following the completion of all evaluations referred to in
Section 4.02.
"Internal Rate of Return" shall have the meaning assigned to
such term in Section 4.02.
12
<PAGE>
"NASDAQ" shall mean the National Association of Securities
Dealers Automated Quotations System.
"Public Offering" shall mean a public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the offer and sale by the Company of shares of the Company's Common
Stock.
"Purchaser" shall have the meaning assigned to such term in
the introductory sentence hereof.
"Trigger Price" shall mean the greater of (a) the Fair Market
Value of the Common Stock, or (b) $13.50.
"Warrants" shall have the meaning assigned to such term in the
Purchase Agreement and shall include Warrants issued in exchange, transfer or
replacement thereof.
"Warrant Shares" shall mean any shares of Common Stock that
are issuable upon the exercise of any Contingent Warrant.
6. MISCELLANEOUS
6.01. No Waiver; Cumulative Remedies. No failure or delay on the part
of the holder of this Contingent Warrant in exercising any right, power or
remedy hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy
hereunder. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
6.02. Amendments, Waivers and Consents. Any provision in this
Contingent Warrant to the contrary notwithstanding, and except as hereinafter
provided, changes in, termination or amendments of or additions to the
Contingent Warrants may be made, and compliance with any covenant or provision
set forth herein may be omitted or waived, if the Company (a) shall obtain
consent thereto in writing from the holders of at least a majority of the
Warrant Shares, and (b) shall deliver copies of such consent in writing to any
holders who did not execute such consent; provided that no consents shall be
effective (i) to amend any of the provisions of the Contingent Warrants
pertaining to the Exercise Price or the number of shares of Common Stock
purchasable upon the exercise of any Contingent Warrant or (ii) to reduce the
percentage in interest of the Warrant Shares the consent of the holders of which
is required under this Section 6.02. Any waiver or consent may be given subject
to satisfaction of conditions stated therein and any waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
13
<PAGE>
6.03. Addresses for Notices. Any notice, demand, request, waiver or
other communication hereunder shall be in writing and shall be deemed to have
been duly given on the date of service if personally served, on the date of
transmission if sent by telecopier (with confirming copy sent by a nationally
recognized express overnight courier service) or on the first business day after
mailing if mailed to the party to notice is given, by a nationally recognized
courier service and addressed as follows:
To the Company: TeleBanc Financial Corporation
1111 North Highland Street
Arlington, Virginia 22201
Attn: President
With a copy to: Hogan & Hartson, L.L.P
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Attention: Stuart G. Stein, Esq.
To any holder: At its address set forth on the record books of the
Company
With a copy to: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
Goodwin Square
225 Asylum Street
Hartford, CT 06103
Attn: Edward A. Reilly, Jr., Esq.
6.04. Binding Effect; Assignment. This Contingent Warrant shall be
binding upon and inure to the benefit of each of the Company and the holder
hereof and their respective heirs, successors and assigns, except that the
Company shall not have the right to delegate its obligations hereunder or to
assign its rights hereunder or any interest herein.
6.05. Severability. The provisions of this Contingent Warrant are
severable and, in the event that any court of competent jurisdiction shall
determine that any one or more of the provisions or part of a provision
contained in this Contingent Warrant shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this Contingent Warrant; but the terms of this Contingent Warrant shall be
reformed and construed as if such invalid or illegal or unenforceable provision,
or part of a provision, had never been contained herein, and such provisions or
part reformed so that it would be valid, legal and enforceable to the maximum
extent possible.
14
<PAGE>
6.06. Governing Law. THIS CONTINGENT WARRANT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF DELAWARE, AND
WITHOUT GIVING EFFECT TO CHOICE OF LAW PROVISIONS.
6.07. Headings. Article, section and subsection headings in this
Contingent Warrant are included herein for convenience of reference only and
shall not constitute a part of this Contingent Warrant for any other purpose.
6.08. Specific Enforcement. The Company acknowledges and agrees that
irreparable damage would occur in the event that any of the provisions of this
Contingent Warrant were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the holder hereof shall
be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Contingent Warrant and to enforce specifically the terms and
provisions hereof in any court of the United States or any state thereof having
jurisdiction, this being in addition to any other remedy to which it may be
entitled at law or equity.
6.09. Notices of Record Date. In the event of:
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of capital stock of any
class or any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
merger or consolidation of the Company, or any transfer of all or substantially
all of the assets of the Company to any other Company, or any other entity or
person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding up of the Company,
then and in each such event the Company shall mail or cause to be mailed to the
holder of this Contingent Warrant a notice specifying (i) the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right and a description of such dividend, distribution or right, (ii) the date
on which any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected to
become effective, and (iii) the time, if any, that is to be fixed, as to when
the holders of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such reorganization,
15
<PAGE>
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding up. Such notice shall be sent by overnight
courier, hand delivery or facsimile at least twenty (20) days prior to the date
specified in such notice on which such action is to be taken.
WITNESS the signature of the proper officer of the Company as of the
date first above written.
TELEBANC FINANCIAL CORPORATION
By _______________________________________
Name:
Title:
ATTEST:
[Assistant] Secretary
<PAGE>
Exhibit A
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if
such holder desires to transfer the Contingent Warrant)
FOR VALUE RECEIVED, ________________________ hereby sells,
assigns and transfers unto
________________________________________________________________________________
the accompanying Contingent Warrant, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint ____________________
_______________ attorney, to transfer the accompanying Contingent Warrant on the
books of the Company of such Contingent Warrant, with full power of
substitution.
Dated: ___________________, _____________.
[HOLDER OF CONTINGENT WARRANT]
By ______________________________________
NOTICE
The signature to the foregoing Assignment must correspond to
the name as written upon the face of the accompanying Contingent Warrant or any
prior assignment thereof in every particular, without alteration or enlargement
or any change whatsoever.
<PAGE>
[FORM OF ELECTION TO PURCHASE]
(To be executed by the registered holder if
such holder desires to exercise the Contingent Warrant)
TELEBANC FINANCIAL CORPORATION
The undersigned hereby irrevocably elects to exercise the accompanying
Contingent Warrant to purchase shares of Common Stock issuable upon the exercise
of such Contingent Warrant and requests that certificates for such shares be
issued in the name of:
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
(Please insert social security number or other identifying number)
If such number of shares of Common Stock shall not be all the shares of Common
Stock purchasable upon the exercise of the accompanying Contingent Warrant, a
new Contingent Warrant for the balance of such remaining shares of Common Stock
shall be registered in the name of and delivered to:
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
(Please insert social security number or other identifying number)
Dated: ____________________, ______________.
[HOLDER OF CONTINGENT WARRANT]
By ____________________________________
<PAGE>
NOTICE
The signature to the foregoing Election to Purchase must
correspond to the name as written upon the face of the accompanying Contingent
Warrant or any prior assignment thereof in every particular, without alteration
or enlargement or any change whatsoever.
<PAGE>
EXHIBIT E
_______________, 1997
[Purchasers]
RE: $29,900,000 UNIT PURCHASE AGREEMENT DATED AS OF FEBRUARY 19,
1997 AMONG TELEBANC FINANCIAL CORPORATION AND THE PURCHASERS
LISTED THEREIN
Ladies and Gentlemen:
This firm has acted as special counsel to TeleBanc Financial Corporation, a
Delaware corporation (the "Company"), in connection with the $29,900,000 Unit
Purchase Agreement dated as of February 19, 1997, among the Company and the
Purchasers of the Company's Securities listed therein (the "Agreement"). This
opinion letter is furnished to you pursuant to the requirements set forth in
Section 4.12 of the Agreement in connection with the Closing thereunder on the
date hereof. Capitalized terms used herein which are defined in the Agreement
shall have the meanings set forth in the Agreement, unless otherwise defined
herein.
For purposes of this opinion letter, we have examined copies of the
following documents:
1. An executed copy of the Agreement.
2. An executed copy of the Transfer Restriction Agreement.
3. An executed copy of the Acquisition Agreement by and among the
Company, MET Holdings Corporation, William M. Daugherty and Arbor
Capital Partners, Inc. dated as of February 19, 1997 (the "Arbor
Agreement").
4. The Amended and Restated Certificate of Incorporation of the Company
with all amendments thereto, as certified by the Secretary of State of
the State of Delaware on February __, 1997, and as certified by the
Secretary of the Company on the date hereof as being complete,
accurate and in effect.
5. The Bylaws of the Company, as certified by the Secretary of the
Company on the date hereof as being complete, accurate and in effect.
<PAGE>
[Purchasers]
February __, 1997
Page 2
6. A certificate of good standing of the Company issued by the Secretary
of State of the State of Delaware, dated February __, 1997.
7. A certificate of foreign qualification of the Company issued by the
State Corporation Commission of the Commonwealth of Virginia, dated
February __, 1997.
8. A certificate issued by the Office of Thrift Supervision (the "OTS")
as to the Company's status as a registered savings and loan holding
company, dated February __, 1997.
9. Certain resolutions of the Board of Directors of the Company, as
certified by the Secretary of the Company on the date hereof as being
complete, accurate and in effect, relating to prior stock issuances,
reservation of stock and the stock record books of the Company.
10. The federal stock charter of TeleBank, as certified by the OTS on
February __, 1997, and as certified by the Secretary of TeleBank on
the date hereof as being complete, accurate and in effect.
11. The Bylaws of TeleBank, as certified by the Secretary of TeleBank on
the date hereof as being complete, accurate and in effect.
12. A certificate of corporate existence of TeleBank issued by the OTS,
dated February __, 1997.
13. A letter, dated February __,1997, of the Senior Vice President of the
Federal Home Loan Bank of Atlanta as to the good standing and
membership in the Federal Home Loan Bank of Atlanta of TeleBank.
14. A certificate as to insurance of deposit accounts of TeleBank issued
by the Secretary of the Federal Deposit Insurance Corporation, dated
February __, 1997.
15. Certain resolutions of the Board of Directors of TeleBank, as
certified by the Secretary of TeleBank on the date hereof as being
complete, accurate and in effect, relating
<PAGE>
[Purchasers]
February __, 1997
Page 3
to prior stock issuances and the stock record books of TeleBank.
16. The Certificate of Incorporation of TeleBanc Servicing Corporation
("TeleBanc Servicing") with all amendments thereto, as certified by
the State Corporation Commission of the Commonwealth of Virginia on
February __,1997, and as certified by the Secretary of TeleBanc
Servicing on the date hereof as being complete, accurate and in
effect.
17. The Bylaws of TeleBanc Servicing, as certified by the Secretary of
TeleBanc Servicing on the date hereof as being complete, accurate and
in effect.
18. A certificate of good standing of TeleBanc Servicing issued by the
State Corporation Commission of the Commonwealth of Virginia, dated
February __, 1997.
19. Certain resolutions of the Board of Directors of the Company adopted
by unanimous consent on February __, 1997, as certified by the
Secretary of the Company on the date hereof as being complete,
accurate and in effect, relating to, among other things, authorization
of the Agreement and the Related Agreements and arrangements in
connection therewith.
20. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.
21. A certificate of certain officers of the Company, dated February __,
1997, as to certain facts relating to the Company, TeleBank and
TeleBanc Servicing.
22. A certificate of the Secretary of the Company, dated February __,
1997, as to the incumbency and signatures of certain officers of the
Company.
23. Hogan & Hartson L.L.P. litigation docket.
We have not, except as specifically identified above, made any independent
review or investigation of factual or other matters, including the organization,
existence, good standing, assets, business or affairs of the Company, TeleBank
or TeleBanc Servicing. In our examination of the Agreement, the Related
Agreements and the aforesaid certificates, records,
<PAGE>
[Purchasers]
February __, 1997
Page 4
documents and agreements, we have assumed the genuineness of all signatures, the
legal capacity of all natural persons, the accuracy and completeness of all
documents submitted to us, the authenticity of all original documents and the
conformity to authentic original documents of all documents submitted to us as
copies (including telecopies). We also have assumed the accuracy, completeness
and authenticity of the foregoing certifications (of public officials,
governmental agencies and departments, corporate officers and individuals) and
statements of fact, on which we are relying, and have made no independent
investigations thereof. In rendering the following opinions we have relied as to
factual matters, without independent investigation, upon the representations,
warranties and certifications made by the Company in or pursuant to the
Agreement, the Related Agreements and the Arbor Agreement and upon the officers'
certificate identified in Paragraph 21 above. This opinion letter is given, and
all statements herein are made, in the context of the foregoing.
As used in this opinion letter, the phrase "to our knowledge" means the
actual knowledge (that is, the conscious awareness of facts or other
information) of lawyers in the firm who have given substantive legal attention
to representation of the Company in connection with the Agreement.
For the purposes of this opinion letter, we have assumed that (i) each
other party to the Agreement and the Related Agreements (other than the Company)
has all requisite power and authority under all applicable laws, regulations and
governing documents to execute, deliver and perform its obligations under the
Agreement and the Related Agreements, (ii) each of such other parties has duly
authorized, executed and delivered the Agreement and the Related Agreements,
(iii) each of such other parties is validly existing and in good standing in all
necessary jurisdictions, (iv) the Agreement and the Related Agreements
constitute valid and binding obligations, enforceable against each of such other
parties in accordance with their respective terms and (v) there has been no
material mutual mistake of fact or misunderstanding or fraud, duress or undue
influence, in connection with the negotiation, execution or delivery of the
Agreement and/or the Related Agreements.
For the purposes of this opinion letter, we also have assumed that (i) each
other party to the Arbor Agreement (other than the Company) has all requisite
power and authority under all applicable laws, regulations and governing
documents to execute, deliver and perform its obligations under the Arbor
Agreement, (ii) each of such other parties has duly authorized, executed and
delivered the Arbor Agreement, (iii) each of such
<PAGE>
[Purchasers]
February __, 1997
Page 5
other parties is validly existing and in good standing in all necessary
jurisdictions, (iv) the Arbor Agreement constitutes a valid and binding
obligation, enforceable against each of such other parties in accordance with
its terms and (v) there has been no material mutual mistake of fact or
misunderstanding or fraud, duress or undue influence, in connection with the
negotiation, execution or delivery of the Arbor Agreement.
This opinion letter is based as to matters of law solely on applicable
provisions of (i) the General Corporation Law of the State of Delaware, as
amended (the "Delaware Corporation Law"), (ii) Delaware contract law (but not
including any statutes, ordinances, administrative decisions, rules or
regulations of any political subdivision of the State of Delaware), (iii) the
registration provisions of the Securities Act of 1933, as amended (the
"Securities Act"), and (iv) Sections 10 and 5 of the Home Owners' Loan Act of
1933, as amended (the "HOLA"), and we express no opinion as to any other laws,
statutes, ordinances, rules or regulations (such as state securities laws or
regulations, antitrust or unfair competition laws or regulations or tax laws or
regulations).
Based upon, subject to and limited by the foregoing, we are of the opinion
that:
(a) The Company was incorporated, and is validly existing and in good
standing as of the date of the certificate specified in Paragraph 6 above, under
the laws of the State of Delaware. The Company has the corporate power and
corporate authority under its Amended and Restated Certificate of Incorporation
and the Delaware Corporation Law to own, lease and operate its current
properties and to transact the business in which it is engaged as described in
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1995.
(b) The Company is authorized to transact business as a foreign corporation
in the Commonwealth of Virginia as of the date of the certificate specified in
Paragraph 7 above.
(c) The Company has the corporate power and corporate authority under its
Amended and Restated Certificate of Incorporation and the Delaware Corporation
Law to execute and deliver the Agreement and the Related Agreements and to
perform its obligations thereunder. The execution, delivery and performance as
of the date hereof by the Company of the Agreement and the Related Agreements
have been duly authorized by all necessary corporate action of the Company.
<PAGE>
[Purchasers]
February __, 1997
Page 6
(d) TeleBank is a wholly owned subsidiary of the Company. TeleBank was
organized and is validly existing as of the date of the certificate specified in
Paragraph 12 above, under the laws of the United States.
(e) TeleBanc Servicing was incorporated, and is validly existing and in
good standing as of the date of the certificate specified in Paragraph 18 above,
under the laws of the Commonwealth of Virginia.
(f) The Company is a savings and loan holding company registered with the
OTS under the HOLA as of the date of the certificate specified in Paragraph 8
above. TeleBank is a federal savings bank chartered by the OTS under the laws of
the United States as of the date of the certificate specified in Paragraph 10
above. TeleBank is a member in good standing of the Federal Home Loan Bank of
Atlanta as of the date of the letter specified in Paragraph 13 above, and has
its deposit accounts insured by the FDIC to the maximum extent permitted by the
FDIC as of the date of the certificate specified in Paragraph 14 above.
(g) The authorized capital stock of the Company consists of (i) 3,500,000
shares of Common Stock, of which 2,049,500 shares are issued and outstanding,
437,230 shares are reserved for issuance pursuant to options under the Company's
1994 Stock Option Plan and otherwise, and 345,000 shares are reserved for
issuance upon conversion of warrants, and (ii) 500,000 shares of Preferred
Stock, of which 29,900 shares have been designated Series A Preferred Stock,
(18,850 of which are to be issued to the Purchasers), 29,900 shares have been
designated Series B Preferred Stock (4,050 of which are to be issued to the
Purchasers), and 7,000 of which have been designated Series C Preferred Stock
(7,000 of which are to be issued to the Purchasers). To our knowledge, there are
no other shares of capital stock of the Company outstanding. To our knowledge,
the Company has not issued any other outstanding securities convertible into or
exchangeable for, or outstanding options, warrants or other rights to purchase
or to subscribe for, any shares of stock or other securities of the Company. To
our knowledge, except as contemplated by the Agreement, the Related Agreements
and as disclosed in the schedules thereto, (i) the Company has no outstanding
registration rights and (ii) the Company is not a party to any voting agreement
with respect to its capital stock. Subject to the vote of stockholders and the
filing of an amendment to the Company's Amended and Restated Certificate of
Incorporation referred to in Paragraph (h) below, 1,199,743 shares of Common
Stock will have been reserved for issuance upon conversion of the Series A
Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock,
198,088 shares of Common Stock will have been
<PAGE>
[Purchasers]
February __, 1997
Page 7
reserved for issuance upon the exercise of the Warrants and 205,563 shares of
Common Stock will have been reserved for issuance upon the exercise of the
Contingent Warrants.
(h) The Board of Directors of the Company has adopted resolutions to
increase the authorized number of shares of Common Stock from 3,500,000 shares
to 8,500,000 shares and, subject to (i) the approval of the stockholders of the
Company and (ii) duly filing with the Secretary of State of the State of
Delaware an amendment to the Amended and Restated Certificate of Incorporation
of the Company, the Company will have a sufficient number of authorized but
unissued shares of Common Stock to satisfy the rights of exercise of the
Warrants and Contingent Warrants and the rights of conversion of the Series A
Preferred Shares, the Series B Preferred Shares and the Series C Preferred
Shares.
(i) The Agreement and the Transfer Restriction Agreement have been duly
executed and delivered on behalf of the Company and constitute valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors' rights
(including, without limitation, the effect of statutory and other law regarding
fraudulent conveyances, fraudulent transfers and preferential transfers) and as
may be limited by the exercise of judicial discretion and the application of
principles of equity including, without limitation, requirements of good faith,
fair dealing, conscionability and materiality (regardless of whether the
Agreement and the Transfer Restriction Agreement are considered in a proceeding
in equity or at law).
(j) When issued in accordance with the provisions of the Agreement, the
Series A Preferred Shares, the Series B Preferred Shares and the Series C
Preferred Shares will be validly issued, fully paid and non-assessable under the
Delaware Corporation Law.
(k) The Notes, the Warrants and the Contingent Warrants have been duly
authorized by the Company and, when executed and delivered by the Company in
accordance with the Agreement, will constitute valid and binding obligations of
the Company, enforceable against the Company in accordance with their terms and
the terms of the Agreement, except as the enforceability thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors' rights (including, without limitation, the effect of statutory and
other law regarding fraudulent conveyances, fraudulent transfers and
preferential transfers) and
<PAGE>
[Purchasers]
February __, 1997
Page 8
as may be limited by the exercise of judicial discretion and the application of
principles of equity including, without limitation, requirements of good faith,
fair dealing, conscionability and materiality (regardless of whether the Notes,
the Warrants or the Contingent Warrants are considered in a proceeding in equity
or at law).
(l) The execution, delivery and performance as of the date hereof by the
Company of the Agreement, the Related Agreements and the Arbor Agreement do not
(i) require any approval of its shareholders that has not been obtained, (ii) as
to the Company, violate the Delaware Corporation Law, the Amended and Restated
Certificate of Incorporation or Bylaws of the Company or Sections 10 and 5 of
the HOLA, (iii) breach or constitute a default under any agreement or contract
filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995, or (iv) to our knowledge, result in the creation
of any lien upon any of the properties of the Company pursuant to any such
agreements or contracts.
(m) In connection with the issuance and delivery today of the Securities to
the Purchasers pursuant to the Agreement, it is not necessary to register the
Securities under the Securities Act. We express no opinion with respect to the
applicability of the registration requirements of the Securities Act or any
state securities laws or other federal securities laws or the availability of an
exemption therefrom with respect to any resale by the Purchasers of the
Securities, which resales we understand are not contemplated. In rendering this
opinion, we have relied upon the representations of the Purchasers concerning
intent in purchasing the Securities as set forth in the Agreement, and
representations of the Company set forth in the certificate identified in
Paragraph 21 above.
(n) Solely as to the Company and TeleBank, no approval or consent of, or
registration or filing with any Delaware governmental agency or the OTS is
required to be obtained or made by the Company or TeleBank in connection with
the execution, delivery and performance as of the date hereof by the Company of
the Agreement (other than the filings that have been made).
(o) The Arbor Agreement has been executed by the Company and constitutes a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as the enforceability thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors' rights (including, without limitation, the effect of statutory and
other law regarding fraudulent conveyances, fraudulent transfers and
preferential transfers) and
<PAGE>
[Purchasers]
February __, 1997
Page 9
as may be limited by the exercise of judicial discretion and the application of
principles of equity including, without limitation, requirements of good faith,
fair dealing, conscionability and materiality (regardless of whether the Arbor
Agreement is considered in a proceeding in equity or at law).
(p) The Notes constitute "Senior Indebtedness" (as defined in the Junior
Subordinated Indenture) to the Junior Subordinated Notes.
Based solely upon the officers' certificate identified in Paragraph 21
above and a review of this firm's litigation docket, we hereby confirm to you
that, to our knowledge, there are no actions, suits or proceedings pending or
threatened against the Company, or in which the Company is a party, before any
court or governmental department, commission, board, bureau, agency or
instrumentality that question the validity of the Agreement or any action taken
or to be taken pursuant thereto, or that seek to enjoin or otherwise prevent the
consummation of the transactions contemplated by the Agreement or to recover in
damages or obtain other relief as a result thereof.
The opinions expressed in Paragraphs (i), (k) and (o) above shall be
understood to mean only that if there is a default in performance of an
obligation, (i) if a failure to pay or other damage can be shown and (ii) if the
defaulting party can be brought into a court which will hear the case and apply
the governing law, then, subject to the availability of defenses, and to the
exceptions set forth in Paragraphs (i), (k) and (o) above, the court will
provide a money damage (or perhaps injunctive or specific performance) remedy.
We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion letter. This opinion letter has been
prepared solely for your use in connection with the Closing under the Agreement
on the date hereof, and should not be quoted in whole or in part or otherwise be
referred to, nor be filed with or furnished to any governmental agency or other
person or entity, without the prior written consent of this firm.
Very truly yours,
HOGAN & HARTSON L.L.P.
<PAGE>
EXHIBIT F.1
TRANSFER RESTRICTION AGREEMENT
TRANSFER RESTRICTION AGREEMENT (this "Agreement"), dated as of February
____, 1997, by and among TeleBanc Financial Corporation, a Delaware corporation
(the "Company"), Mitchell H. Caplan, (the "Principal") and MET Holdings
Corporation ("MET" and together with the Principal, the "Shareholders") and the
Purchasers signatory hereto (collectively, the "Purchasers").
WHEREAS, pursuant to that certain $29,900,000 Unit Purchase Agreement,
dated as of February 19, 1997, among the Company and the Purchasers (the
"Purchase Agreement"), the Purchasers purchased Units of securities of the
Company, consisting of Notes, Warrants, Preferred Shares and Contingent Warrants
(each as defined in the Purchase Agreement); and
WHEREAS, MET beneficially own an aggregate of 1,299,500 shares of
Common Stock, $.01 par value, of the Company (the "Common Stock"); and
WHEREAS, the Principal beneficially owns options exercisable for
105,365 shares of common stock, of which 63,210 are currently vested; and
WHEREAS, the Principal beneficially owns an aggregate of 987 shares of
the Class A Common Stock , $.10 par value, 1051 shares of the Class B Common
Stock, $.10 par value, and 1079 shares of the 6% Class B Serial Preferred Stock,
$.10 par value, of MET (the "MET Stock"); and
WHEREAS, it is a condition to the obligations of the Purchasers under
the Purchase Agreement that this Agreement be executed by the parties hereto,
and the parties hereto are willing to execute this Agreement and to be bound by
the provisions hereof.
NOW, THEREFORE, in consideration of the foregoing, the agreements set
forth below, and the parties' desire to provide for continuity of ownership of
the Company, the parties hereby agree with each other as follows:
1. Certain Defined Terms. As used in this Agreement, the following
terms shall have the following respective meanings:
(a) "TeleBanc Securities" shall mean (i) any shares of Common
Stock now owned or hereinafter acquired, (ii) any other equity security of the
Company, (iii) any convertible debt security of the Company including without
limitation, any debt security which by its terms is convertible into or
exchangeable for any equity security of the Company, (iv) any security of the
Company that is a combination of
<PAGE>
debt and equity, (v) any option, warrant or other right to subscribe for,
purchase or otherwise acquire any such equity security or any such debt security
of the Company, or (vi) any other security of the Company which may be issued
(or is issuable) in exchange for or in respect of the foregoing (whether by way
of stock split, stock dividend, combination, reclassification, reorganization,
or any other means); provided that in the case of the Purchasers, "TeleBanc
Securities" shall be deemed to include the Units and all component securities
(including but not limited to the Notes) issued pursuant to the Purchase
Agreement.
(a) "MET Securities" shall mean (i) any shares of MET Stock,
(ii) any other equity security of MET, (iii) any convertible debt security of
MET including without limitation, any debt security which by its terms is
convertible into or exchangeable for any equity security of MET, (iv) any
security of MET that is a combination of debt and equity, (v) any option,
warrant or other right to subscribe for, purchase or otherwise acquire any such
equity security or any such debt security of MET, or (vi) any other security of
MET which may be issued (or is issuable) in exchange for or in respect of the
foregoing (whether by way of stock split, stock dividend, combination,
reclassification, reorganization, or any other means).
(c) "Common Shares" shall mean and include all shares of
Common Stock now owned or hereafter acquired by the Principal or any Purchaser
and all shares of Common Stock which the Principal or any Purchaser has the
right to acquire from the Company upon the conversion, exercise or exchange of
any rights, options, warrants or convertible or exchangeable securities of the
Company by such Principal or Purchaser.
(d) "Securities" shall mean and include, collectively, the
TeleBanc Securities and the MET Securities.
2. Prohibited Transfers. Until the earliest of (i) the consummation of
a Qualified Public Offering, (ii) the date on which all Notes are no longer
outstanding or (iii) the date on which all Preferred Shares are no longer
outstanding (whether through redemption or conversion into Common Stock):
(a) The Principal shall not sell, assign, transfer, grant an
option to or for, pledge, hypothecate, mortgage, encumber or dispose of (a
"Transfer") all or any Securities owned by him directly, nor shall the Principal
permit the Transfer of any Securities owned by his family directly, to the
extent that the Securities conveyed in such Transfer, together with all
Securities conveyed in all previous Transfers by the Principal following the
Closing Date would exceed 10% of the Securities held by the Principal as of the
Closing Date. Notwithstanding the foregoing, the Principal may Transfer (i) any
and all Securities owned by him by way of gift to any member of his immediate
family or to any trust for the benefit of any such family member of such
Principal, provided that each such transferee shall agree in writing with the
Company and the Purchasers, as a condition precedent to such transfer, to be
bound by all of
2
<PAGE>
the provisions of this Agreement and any other agreement related to the
repurchase of such Securities by which the Principal is bound to the same extent
as if such transferee were the Principal, and (ii) any and all Securities owned
by him by will or the laws of descent and distribution, in which event each such
transferee shall be bound by all of the provisions of this Agreement and any
other agreement related to the repurchase of such Securities by which the
Principal is bound to the same extent as if such transferee were the Principal.
As used herein, the word "family" shall include any spouse or descendant. In
addition, the amount of Securities held by the Principal shall be deemed to
include the Securities held by such Principal's family; and
(b) MET shall not Transfer all or any TeleBanc Securities
owned by it to the extent that the TeleBanc Securities conveyed in such
transfer, together with all TeleBanc Securities conveyed in all previous
Transfers by MET following the Closing Date would exceed 10% of TeleBanc
Securities held by MET as of the Closing Date, provided however, that MET may
Transfer in excess of such 10% of TeleBanc Securities held by it (i) to the
extent that such TeleBanc Securities or the proceeds of the Transfer of such
TeleBanc Securities are used for the redemption, repurchase or other
reacquisition by MET of MET Stock from shareholders of MET other than the
Principal or David A. Smilow or (ii) pursuant to a liquidation of MET.
3. Agreement by Shareholders to Exchange Common Shares Upon a Change of
Control. In the event that there is a Change of Control while any Preferred
Shares are outstanding and the Company does not have enough authorized but
unissued shares of Common Stock to satisfy the rights of the holders of the
Preferred Shares to convert all such Preferred Shares into Common Stock, each of
the Shareholders jointly and severally agrees, for each Preferred Share which
the holder thereof is unable to convert, to exchange with such holder, that
number of shares of Common Stock which such holder would be otherwise able to
receive upon the conversion of such Preferred Share in accordance with its
terms. In addition, each Shareholder agrees (a) to convert any shares of Series
A Preferred Stock received upon such exchange into shares of Series B Preferred
Stock immediately and to convert such shares into shares of Common Stock as soon
as additional shares of Common Stock are authorized and (b) to return any
dividends received on any shares of Preferred Stock to the Company.
4. First Offer on Sales of TeleBanc Securities Owned by Purchasers.
(a) Sales to Third Parties. If at any time prior to [February
___], 1999, any Purchaser desires to transfer all or any part of his or its
TeleBanc Securities in a privately-negotiated transaction pursuant to a bona
fide offer from a third party (the "Proposed Buyer"), such Purchaser shall first
submit, in accordance with the notice provisions of Section 7 hereof, a written
offer (the "Offer") to sell such TeleBanc Securities (the "Offered Securities")
to the other Purchasers on terms and conditions, including price, not less
favorable to the Purchasers than those on which such Purchaser proposes to sell
such Offered Securities to the Proposed Buyer.
3
<PAGE>
The Offer shall disclose the identity of the Proposed Buyer,
the number and class of Offered Securities proposed to be sold, the total amount
of TeleBanc Securities owned by such Purchaser, the terms and conditions,
including price, of the proposed sale, and any other material facts relating to
the proposed sale. The Offer shall further state that the other Purchasers, as
amongst themselves, may acquire, in accordance with the provisions of this
Agreement, all or any portion of the Offered Securities for the price indicated
in the Offer and upon the other terms and conditions, including deferred or
installment payment (if applicable), set forth therein.
(b) Right of First Refusal. Each non-selling Purchaser shall
have the absolute right to purchase that number of the Offered Securities (its
"Pro Rata Fraction") as shall be equal to the number of Offered Securities
multiplied by a fraction, the numerator of which shall be the number of Common
Shares (including all shares of Common Stock issuable upon the conversion or
exercise of other securities or options of the Company) then owned by such
Purchaser and the denominator of which shall be the aggregate number of Common
Shares (including all shares of Common Stock issuable upon the conversion or
exercise of other securities or options of the Company) then owned by all
Purchasers. The Purchasers shall have a right of oversubscription such that if
any non-selling Purchaser fails to accept the Offer as to its Pro Rata Fraction,
the remaining Purchasers shall, among them, have the right to purchase up to the
balance of the Offered Securities not so purchased. Such right of
oversubscription may be exercised by any Purchaser by accepting the Offer as to
more than its Pro Rata Fraction. If, as a result thereof, such oversubscriptions
exceed the total number of the Offered Securities available in respect of such
oversubscription privilege, the oversubscribing Purchasers shall be cut back
with respect to their oversubscriptions on a pro rata basis in accordance with
their respective Pro Rata Fractions, or as they may otherwise agree among
themselves.
If any Purchaser desires to purchase all or any of the Offered
Securities, such Purchaser shall deliver a written notice of its election to
purchase such TeleBanc Securities to such selling Purchaser, the Company and
each other Purchaser, which notice shall state the number of Offered Securities
such Purchaser desires to purchase and shall be delivered in person or mailed to
the selling Purchaser, the Company and each other Purchaser within 30 days of
the date of receipt by such Purchaser of the Offer. Such notice shall, when
taken in conjunction with the Offer, be deemed to constitute a valid, legally
binding and enforceable agreement for the sale to and purchase by such Purchaser
of that number of Offered Securities as determined by its Pro Rata Fraction,
subject to any right of oversubscription described in this Section 4(b), on the
terms of the Offer. The closing of the sale of Offered Securities to each such
Purchaser pursuant to this Section 4(b) shall be made at the offices of the
Company on such date as may be agreed by each such selling Purchaser and the
purchasing Purchasers, but no later than the 60th day following the date the
Offer is received by the purchasing Purchasers. Such sale shall be effected by
such selling Purchaser's delivery to each such purchasing Purchaser of
4
<PAGE>
a certificate(s) evidencing the Offered Securities to be purchased by each such
Purchaser, duly endorsed for transfer, against payment to such selling Purchaser
of the purchase price by each such purchasing Purchaser. The exercise or
nonexercise by any Purchaser of its rights pursuant to this Section 4 shall be
without prejudice to its rights under this Section 4 to any future sale of
TeleBanc Securities.
(c) Sales to Proposed Transferee. If the other Purchasers do
not purchase all of the Offered Securities, the Offered Securities not so
purchased may be sold by the selling Purchaser at any time within 90 days after
the date the Offer was made, subject to the provisions of this Section 4. Any
such sale shall be to the Proposed Buyer, at not less than the price and upon
other terms and conditions, if any, not more favorable to the transferee than
those specified in the Offer. Any Offered Securities not sold within the
permitted time period shall continue to be subject to the requirements of a
prior offer pursuant to this Section 4. If Offered Securities are sold pursuant
to this Section 4 to any purchaser who is not a party to this Agreement, the
Offered Securities so sold shall no longer be subject to any of the
restrictions, or entitled to any of the benefits, imposed by this Agreement.
(d) Transfer to Affiliates. Notwithstanding the foregoing, (i)
any Purchaser may freely sell, transfer or otherwise dispose its TeleBanc
Securities, (A) if the Purchaser is organized as a partnership, to (i) any
general partner of the such partnership, (ii) any limited partner of such
partnership, or any subsidiary or affiliated funds or any (iii) any subsidiary
or affiliated funds or (B) if the Purchaser is organized as a corporation, to
any affiliate of such Purchaser.
5. Term. The rights and obligations of the Company, each Shareholder
and each Purchaser under this Agreement shall terminate on the date of a
Qualified Public Offering.
6. Specific Enforcement. Because the TeleBanc Securities can not be
readily purchased or sold in the open market, each Shareholder expressly agrees
that the Purchasers and the Company will be irreparably damaged if this
Agreement is not specifically enforced. Upon a breach or threatened breach of
the terms, covenants and/or conditions of this Agreement by any Shareholder, the
Purchasers and the Company shall, in addition to all other remedies, each be
entitled to a temporary or permanent injunction, without showing any actual
damage, and/or a decree for specific performance, in accordance with the
provisions hereof.
7. Notices. All notices to be given or otherwise made to any party to
this Agreement shall be deemed to be sufficient if contained in a written
instrument, delivered by hand in person, or by express overnight courier
service, or by electronic facsimile transmission (with a confirming copy sent by
U.S. mail, registered or certified, return receipt requested), or by registered
or certified mail, postage prepaid return receipt requested, addressed to such
party at the address set forth on Exhibit
5
<PAGE>
A hereto or at such other address as may hereafter be designated in writing by
the addressee to the addressor listing all parties.
All such notices provided in accordance with this Section 7 shall be
deemed to have been duly given on the date of service if personally served, on
the date of transmission if sent by telecopier (with confirming copy sent by a
nationally recognized express overnight courier service) or on the first
business day after mailing if mailed to the party to whom notice is given, by a
nationally recognized courier service.
8. Entire Agreement and Amendments. This Agreement constitutes the
entire agreement of the parties with respect to the subject matter hereof and
neither this Agreement nor any provision hereof may be waived, modified, amended
or terminated except by a written agreement signed by (a) Shareholders holding
at least a majority of the Common Shares held by Shareholders and (b) Purchasers
holding at least a majority of the TeleBanc Securities held by Purchasers.
9. Governing Law; Successors and Assigns. This Agreement shall be
governed by the laws of the State of Delaware and shall be binding upon the
heirs, personal representatives, executors, administrators, successors and
assigns of the parties.
10. Waivers. No waiver of any breach or default hereunder shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default of the same or similar nature.
11. Severability. If any provision of this Agreement shall be held to
be illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be reformed, construed and enforced as if
any such illegal, invalid or unenforceable provision were not contained herein.
12. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13. Defined Terms. The terms used herein and not defined herein shall
have the meanings assigned to such terms in the Purchase Agreement.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date and year first above written.
TELEBANC FINANCIAL CORPORATION
By: __________________________________________
Name:
Title:
PURCHASERS:
CONNING INSURANCE CAPITAL LIMITED
PARTNERSHIP III
By: Conning Investment Partners Limited
Partnership III, Its General Partner
By: Conning & Company, Its General Partner
By: _____________________________________
Name:
Title:
CONNING INSURANCE CAPITAL
INTERNATIONAL PARTNERS III, L.P.
By: Conning Investment Partners Limited
Partnership III, Its General Partner
By: Conning & Company, Its General Partner
By: ______________________________________
Name:
Title:
7
<PAGE>
GENERAL AMERICAN LIFE
INSURANCE COMPANY
By: ______________________________________
Name:
Title:
PC INVESTMENT COMPANY
By: ______________________________________
Name:
Title:
CIBC WG ARGOSY MERCHANT FUND 2, L.L.C.
By: ______________________________________
Name:
Title:
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
By: ______________________________________
Name:
Title:
8
<PAGE>
SHAREHOLDERS:
MET HOLDINGS CORPORATION
By:
Name:
Title:
________________________________________________
Mitchell H. Caplan
<PAGE>
EXHIBIT F.2
TRANSFER RESTRICTION AGREEMENT
TRANSFER RESTRICTION AGREEMENT (this "Agreement"), dated as of February
____, 1997, by and among TeleBanc Financial Corporation, a Delaware corporation
(the "Company"), David A. Smilow, (the "Principal") and MET Holdings Corporation
("MET" and together with the Principal, the "Shareholders") and the Purchasers
signatory hereto (collectively, the "Purchasers").
WHEREAS, pursuant to that certain $29,900,000 Unit Purchase Agreement,
dated as of February 19, 1997, among the Company and the Purchasers (the
"Purchase Agreement"), the Purchasers purchased Units of securities of the
Company, consisting of Notes, Warrants, Preferred Shares and Contingent Warrants
(each as defined in the Purchase Agreement); and
WHEREAS, MET beneficially own an aggregate of 1,299,500 shares of
Common Stock, $.01 par value, of the Company (the "Common Stock"); and
WHEREAS, the Principal beneficially owns options exercisable for
105,365 shares of Common Stock, of which 63,219 are currently vested; and
WHEREAS, the Principal beneficially owns an aggregate of 4,091 shares
of the Class A Common Stock , $.10 par value, 1,641 shares of the Class B Common
Stock, $.10 par value and 2,091 shares of the 6% Class B Serial Preferred Stock,
$.10 par value, of MET (the "MET Stock"); and
WHEREAS, it is a condition to the obligations of the Purchasers under
the Purchase Agreement that this Agreement be executed by the parties hereto,
and the parties hereto are willing to execute this Agreement and to be bound by
the provisions hereof.
NOW, THEREFORE, in consideration of the foregoing, the agreements set
forth below, and the parties' desire to provide for continuity of ownership of
the Company, the parties hereby agree with each other as follows:
1. Certain Defined Terms. As used in this Agreement, the following
terms shall have the following respective meanings:
(a) "TeleBanc Securities" shall mean (i) any shares of Common
Stock now owned or hereinafter acquired, (ii) any other equity security of the
Company, (iii) any convertible debt security of the Company including without
limitation, any debt security which by its terms is convertible into or
exchangeable for any equity security of the Company, (iv) any security of the
Company that is a combination of
<PAGE>
debt and equity, (v) any option, warrant or other right to subscribe for,
purchase or otherwise acquire any such equity security or any such debt security
of the Company, or (vi) any other security of the Company which may be issued
(or is issuable) in exchange for or in respect of the foregoing (whether by way
of stock split, stock dividend, combination, reclassification, reorganization,
or any other means); provided that in the case of the Purchasers, "TeleBanc
Securities" shall be deemed to include the Units and all component securities
(including but not limited to the Notes) issued pursuant to the Purchase
Agreement.
(b) "MET Securities" shall mean (i) any shares of MET Stock,
(ii) any other equity security of MET, (iii) any convertible debt security of
MET including without limitation, any debt security which by its terms is
convertible into or exchangeable for any equity security of MET, (iv) any
security of MET that is a combination of debt and equity, (v) any option,
warrant or other right to subscribe for, purchase or otherwise acquire any such
equity security or any such debt security of MET, or (vi) any other security of
MET which may be issued (or is issuable) in exchange for or in respect of the
foregoing (whether by way of stock split, stock dividend, combination,
reclassification, reorganization, or any other means).
(c) "Common Shares" shall mean and include all shares of
Common Stock now owned or hereafter acquired by the Principal or any Purchaser
and all shares of Common Stock which the Principal or any Purchaser has the
right to acquire from the Company upon the conversion, exercise or exchange of
any rights, options, warrants or convertible or exchangeable securities of the
Company by such Principal or Purchaser.
(d) "Securities" shall mean and include, collectively, the
TeleBanc Securities and the MET Securities.
2. Prohibited Transfers. Until the earliest of (i) the consummation of
a Qualified Public Offering, (ii) the date on which all Notes are no longer
outstanding or (iii) the date on which all Preferred Shares are no longer
outstanding (whether through redemption or conversion into Common Stock):
(a) The Principal shall not sell, assign, transfer, grant an
option to or for, pledge, hypothecate, mortgage, encumber or dispose of (a
"Transfer") all or any Securities owned by him directly, nor shall the Principal
permit the Transfer of any Securities owned by his family directly, to the
extent that the Securities conveyed in such Transfer, together with all
Securities conveyed in all previous Transfers by the Principal following the
Closing Date would exceed 10% of the Securities held by the Principal as of the
Closing Date. Notwithstanding the foregoing, the Principal may Transfer (i) any
and all Securities owned by him by way of gift to any member of his immediate
family or to any trust for the benefit of any such family member of such
Principal, provided that each such transferee shall agree in writing with the
Company and the Purchasers, as a condition precedent to such transfer, to be
bound by all of
2
<PAGE>
the provisions of this Agreement and any other agreement related to the
repurchase of such Securities by which the Principal is bound to the same extent
as if such transferee were the Principal, and (ii) any and all Securities owned
by him by will or the laws of descent and distribution, in which event each such
transferee shall be bound by all of the provisions of this Agreement and any
other agreement related to the repurchase of such Securities by which the
Principal is bound to the same extent as if such transferee were the Principal.
As used herein, the word "family" shall include any spouse or lineal descendant.
In addition, the amount of Securities held by the Principal shall be deemed to
include the Securities held by such Principal's family; and
(b) MET shall not Transfer all or any TeleBanc Securities owned by it
to the extent that the TeleBanc Securities conveyed in such transfer, together
with all TeleBanc Securities conveyed in all previous Transfers by MET following
the Closing Date would exceed 10% of TeleBanc Securities held by MET as of the
Closing Date, provided however, that MET may Transfer in excess or such 10% of
TeleBanc Securities held by it, (i) to the extent that such TeleBanc Securities
or the proceeds of the Transfer of such TeleBanc Securities are used for the
redemption, repurchase or other reacquistion of MET Stock from shareholders of
MET other than the Principal or Mitchell A. Caplan, or (ii) pursuant to a
liquidation of MET.
3. Agreement by Shareholders to Exchange Common Shares Upon a Change of
Control. In the event that there is a Change of Control while any Preferred
Shares are outstanding and the Company does not have enough authorized but
unissued shares of Common Stock to satisfy the rights of the holders of the
Preferred Shares to convert all such Preferred Shares into Common Stock, each of
the Shareholders jointly and severally agrees, for each Preferred Share which
the holder thereof is unable to convert, to exchange with such holder, that
number of shares of Common Stock which such holder would be otherwise able to
receive upon the conversion of such Preferred Share in accordance with its
terms. In addition, each Shareholder agrees (a) to convert any shares of Series
A Preferred Stock received upon such exchange into shares of Series B Preferred
Stock immediately and to convert such shares into shares of Common Stock as soon
as additional shares of Common Stock are authorized and (b) to return any
dividends received on any shares of Preferred Stock to the Company.
4. First Offer on Sales of TeleBanc Securities Owned by Purchasers.
(a) Sales to Third Parties. If at any time prior to [February
___], 1999, any Purchaser desires to transfer all or any part of his or its
TeleBanc Securities in a privately-negotiated transaction pursuant to a bona
fide offer from a third party (the "Proposed Buyer"), such Purchaser shall first
submit, in accordance with the notice provisions of Section 7 hereof, a written
offer (the "Offer") to sell such TeleBanc Securities (the "Offered Securities")
to the other Purchasers on terms and conditions,
3
<PAGE>
including price, not less favorable to the Purchasers than those on which such
Purchaser proposes to sell such Offered Securities to the Proposed Buyer.
The Offer shall disclose the identity of the Proposed Buyer,
the number and class of Offered Securities proposed to be sold, the total amount
of TeleBanc Securities owned by such Purchaser, the terms and conditions,
including price, of the proposed sale, and any other material facts relating to
the proposed sale. The Offer shall further state that the other Purchasers, as
amongst themselves, may acquire, in accordance with the provisions of this
Agreement, all or any portion of the Offered Securities for the price indicated
in the Offer and upon the other terms and conditions, including deferred or
installment payment (if applicable), set forth therein.
(b) Right of First Refusal. Each non-selling Purchaser shall
have the absolute right to purchase that number of the Offered Securities (its
"Pro Rata Fraction") as shall be equal to the number of Offered Securities
multiplied by a fraction, the numerator of which shall be the number of Common
Shares (including all shares of Common Stock issuable upon the conversion or
exercise of other securities or options of the Company) then owned by such
Purchaser and the denominator of which shall be the aggregate number of Common
Shares (including all shares of Common Stock issuable upon the conversion or
exercise of other securities or options of the Company) then owned by all
Purchasers. The Purchasers shall have a right of oversubscription such that if
any non-selling Purchaser fails to accept the Offer as to its Pro Rata Fraction,
the remaining Purchasers shall, among them, have the right to purchase up to the
balance of the Offered Securities not so purchased. Such right of
oversubscription may be exercised by any Purchaser by accepting the Offer as to
more than its Pro Rata Fraction. If, as a result thereof, such oversubscriptions
exceed the total number of the Offered Securities available in respect of such
oversubscription privilege, the oversubscribing Purchasers shall be cut back
with respect to their oversubscriptions on a pro rata basis in accordance with
their respective Pro Rata Fractions, or as they may otherwise agree among
themselves.
If any Purchaser desires to purchase all or any of the Offered
Securities, such Purchaser shall deliver a written notice of its election to
purchase such TeleBanc Securities to such selling Purchaser, the Company and
each other Purchaser, which notice shall state the number of Offered Securities
such Purchaser desires to purchase and shall be delivered in person or mailed to
the selling Purchaser, the Company and each other Purchaser within 30 days of
the date of receipt by such Purchaser of the Offer. Such notice shall, when
taken in conjunction with the Offer, be deemed to constitute a valid, legally
binding and enforceable agreement for the sale to and purchase by such Purchaser
of that number of Offered Securities as determined by its Pro Rata Fraction,
subject to any right of oversubscription described in this Section 4(b), on the
terms of the Offer. The closing of the sale of Offered Securities to each such
Purchaser pursuant to this Section 4(b) shall be made at the offices of the
Company on such date as may be agreed by each such selling Purchaser and the
4
<PAGE>
purchasing Purchasers, but no later than the 60th day following the date the
Offer is received by the purchasing Purchasers. Such sale shall be effected by
such selling Purchaser's delivery to each such purchasing Purchaser of a
certificate(s) evidencing the Offered Securities to be purchased by each such
Purchaser, duly endorsed for transfer, against payment to such selling Purchaser
of the purchase price by each such purchasing Purchaser. The exercise or
nonexercise by any Purchaser of its rights pursuant to this Section 4 shall be
without prejudice to its rights under this Section 4 to any future sale of
TeleBanc Securities.
(c) Sales to Proposed Transferee. If the other Purchasers do
not purchase all of the Offered Securities, the Offered Securities not so
purchased may be sold by the selling Purchaser at any time within 90 days after
the date the Offer was made, subject to the provisions of this Section 4. Any
such sale shall be to the Proposed Buyer, at not less than the price and upon
other terms and conditions, if any, not more favorable to the transferee than
those specified in the Offer. Any Offered Securities not sold within the
permitted time period shall continue to be subject to the requirements of a
prior offer pursuant to this Section 4. If Offered Securities are sold pursuant
to this Section 4 to any purchaser who is not a party to this Agreement, the
Offered Securities so sold shall no longer be subject to any of the
restrictions, or entitled to any of the benefits, imposed by this Agreement.
(d) Transfer to Affiliates. Notwithstanding the foregoing, (i)
any Purchaser may freely sell, transfer or otherwise dispose its TeleBanc
Securities, (A) if the Purchaser is organized as a partnership, to (i) any
general partner of the such partnership, (ii) any limited partner of such
partnership, or any subsidiary or affiliated funds or any (iii) any subsidiary
or affiliated funds or (B) if the Purchaser is organized as a corporation, to
any affiliate of such Purchaser.
5. Term. The rights and obligations of the Company, each Shareholder
and each Purchaser under this Agreement shall terminate on the date of a
Qualified Public Offering.
6. Specific Enforcement. Because the TeleBanc Securities can not be
readily purchased or sold in the open market, each Shareholder expressly agrees
that the Purchasers and the Company will be irreparably damaged if this
Agreement is not specifically enforced. Upon a breach or threatened breach of
the terms, covenants and/or conditions of this Agreement by any Shareholder, the
Purchasers and the Company shall, in addition to all other remedies, each be
entitled to a temporary or permanent injunction, without showing any actual
damage, and/or a decree for specific performance, in accordance with the
provisions hereof.
7. Notices. All notices to be given or otherwise made to any party to
this Agreement shall be deemed to be sufficient if contained in a written
instrument, delivered by hand in person, or by express overnight courier
service, or by electronic facsimile transmission (with a confirming copy sent by
U.S. mail, registered or
5
<PAGE>
certified, return receipt requested), or by registered or certified mail,
postage prepaid return receipt requested, addressed to such party at the address
set forth on Exhibit A hereto or at such other address as may hereafter be
designated in writing by the addressee to the addressor listing all parties.
All such notices provided in accordance with this Section 7 shall be
deemed to have been duly given on the date of service if personally served, on
the date of transmission if sent by telecopier (with confirming copy sent by a
nationally recognized express overnight courier service) or on the first
business day after mailing if mailed to the party to whom notice is given, by a
nationally recognized courier service.
8. Entire Agreement and Amendments. This Agreement constitutes the
entire agreement of the parties with respect to the subject matter hereof and
neither this Agreement nor any provision hereof may be waived, modified, amended
or terminated except by a written agreement signed by (a) Shareholders holding
at least a majority of the Common Shares held by Shareholders and (b) Purchasers
holding at least a majority of the TeleBanc Securities held by Purchasers.
9. Governing Law; Successors and Assigns. This Agreement shall be
governed by the laws of the State of Delaware and shall be binding upon the
heirs, personal representatives, executors, administrators, successors and
assigns of the parties.
10. Waivers. No waiver of any breach or default hereunder shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default of the same or similar nature.
11. Severability. If any provision of this Agreement shall be held to
be illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be reformed, construed and enforced as if
any such illegal, invalid or unenforceable provision were not contained herein.
12. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13. Defined Terms. The terms used herein and not defined herein shall
have the meanings assigned to such terms in the Purchase Agreement.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date and year first above written.
TELEBANC FINANCIAL CORPORATION
By: __________________________________________
Name:
Title:
PURCHASERS:
CONNING INSURANCE CAPITAL LIMITED
PARTNERSHIP III
By: Conning Investment Partners Limited
Partnership III, Its General Partner
By: Conning & Company, Its General Partner
By: _____________________________________
Name:
Title:
CONNING INSURANCE CAPITAL
INTERNATIONAL PARTNERS III, L.P.
By: Conning Investment Partners Limited
Partnership III, Its General Partner
By: Conning & Company, Its General Partner
By: ______________________________________
Name:
Title:
7
<PAGE>
GENERAL AMERICAN LIFE
INSURANCE COMPANY
By: ______________________________________
Name:
Title:
PC INVESTMENT COMPANY
By: ______________________________________
Name:
Title:
CIBC WG ARGOSY MERCHANT FUND 2, L.L.C.
By: ______________________________________
Name:
Title:
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
By: ______________________________________
Name:
Title:
8
<PAGE>
SHAREHOLDERS:
MET HOLDINGS CORPORATION
By:
Name:
Title:
_____________________________________________
David A. Smilow
9
<PAGE>
EXHIBIT G
"Resolved, that Section 4.1 of the Company's Amended and
Restated Certificate of Incorporation shall be amended by
deleting the text of Section 4.1 in its entirety and replacing
it with the following:
The total number of shares of all classes of stock that the
Corporation shall have the authority to issue is 9,000,000
shares, of which 500,000 shares shall be serial preferred
stock, having a par value of $0.01 per share ("Preferred
Stock"), and 8,500,000 shall be classified as shares of common
stock, having a par value of $0.01 per share ("Common Stock").
The Board of Directors is expressly authorized to issue,
without stockholder approval, any unissued shares of the
Corporation's authorized Common Stock as nonvoting Common
Stock ("Nonvoting Common Stock").
"Resolved, that the second sentence of Section 4.2(a) of the
Company's Amended and Restated Certificate of Incorporation
shall be amended by deleting the word "Each" at the beginning
of that sentence and inserting in its place the words "Except
as provided in Section 4.2(e) hereof, each"."
"Resolved, that the first sentence of Section 4.2(b) of the
Company's Amended and Restated Certificate of Incorporation
shall be amended by deleting the word "Each" at the beginning
of that sentence and inserting in its place the words "Except
as provided in Section 4.2(e) hereof, each"."
"Resolved, that Section 4.2 of the Company's Amended and
Restated Certificate of Incorporation shall be amended by
inserting a new Section 4.2(e) which shall provide as follows:
(e) Nonvoting Common Stock.
The holders of Nonvoting Common Stock shall be
entitled to notice of meetings of the Corporation's
stockholders. Notwithstanding any other provision of this
Amended and Restated Certificate of Incorporation or the
Corporation's Bylaws, the Nonvoting Common Stock shall have no
voting rights upon any matter or thing (including, without
limitation, the election of directors) unless provided by
applicable law. Subject to and in compliance with the
following
1
<PAGE>
provisions of this Section 4.2(e), each share of Nonvoting
Common Stock held by any person or entity may be converted
into one fully-paid and non-assessable share of voting Common
Stock.
(i) In connection with the disposition of
shares upon the occurrence (or the expected
occurrence as described in Section 4.2(e)(iii)
below), of any Conversion Event (as defined below),
each holder of Nonvoting Common Stock shall be
entitled to convert such Nonvoting Common Stock into
an equal number of shares of voting Common Stock.
(ii) For purposes of this Section 4.2(e), a
"Conversion Event" shall mean, (A) any sale to the
public in a widely dispersed offering (including,
without limitation, a public offering registered
under the Securities Act of 1933, as amended), (B)
any disposition under Rule 144 or Rule 144A
promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended, or any
similar rule then in force of no more than two
percent (2%) of the outstanding voting securities of
the Corporation, (C) any transfer pursuant to a right
of first refusal set forth in the Transfer
Restriction Agreement, dated as of February __, 1997,
by and among the Purchasers (as identified in the
$29,900,000 Unit Purchase Agreement, dated as of
February __, 1997, between the Purchasers and the
Corporation), David A. Smilow, Mitchell H. Caplan,
MET Holdings Corporation and the Corporation or (D)
any transfer in a single transaction to an
independent third party who acquires at least a
majority of the voting stock of the Corporation
without regard to the transfer of such securities.
For purposes of this Section 4.2(e) "person" shall
include any natural person and any corporation,
partnership, joint venture, trust, unincorporated
organization and any other entity or organization.
(iii) Each holder of Nonvoting Common Stock
shall be entitled to convert shares of Nonvoting
Common Stock in connection with any Conversion Event
if such holder reasonably believes that such
Conversion Event shall be consummated, and a written
request for conversion from any holder of Nonvoting
Common Stock to the Corporation stating such holder's
reasonable belief that a Conversion Event shall occur
shall be conclusive and shall obligate the
Corporation to effect such conversion in a timely
manner so as to enable each such holder to
participate in such Conversion Event. The Corporation
shall not cancel the shares of Nonvoting Common Stock
so converted
2
<PAGE>
before the tenth day following such Conversion Event
and shall reserve such shares until such tenth day
for reissuance in compliance with the next sentence.
If any shares of Nonvoting Common Stock are converted
into shares of voting Common Stock in connection with
a Conversion Event and such shares of voting Common
Stock are not actually distributed, disposed of or
sold pursuant to such Conversion Event, such shares
of voting Common Stock shall be promptly converted
back into the same number of shares of Nonvoting
Common Stock, and during such period prior to such
distribution, disposal or sale, the holder of such
voting Common Stock shall not be entitled to vote
such shares notwithstanding provisions of this
Amended and Restated Certificate of Incorporation.
(iv) To exercise its conversion privilege, a
holder of Nonvoting Common Stock shall surrender the
certificate or certificates representing the shares
being converted to the Corporation at its principal
office, and shall give written notice to the
Corporation at that office that such holder elects to
convert such shares. Such notice shall also state the
name or names (with address or addresses) in which
the certificate or certificates for shares of voting
Common Stock issuable upon such conversion shall be
issued. The certificate or certificates for shares of
Nonvoting Common Stock surrendered for conversion
shall be accompanied by proper assignment thereof to
the Corporation or in blank. The date when such
written notice is received by the Corporation,
together with the certificate or certificates
representing the shares of Nonvoting Common Stock
being converted, shall be the "Conversion Date". As
promptly as practicable after the Conversion Date,
the Corporation shall issue and shall deliver to the
holder of the shares of Nonvoting Common Stock being
converted, or on its written order, such certificate
or certificates as it may request for the number of
shares of voting Common Stock issuable upon the
conversion of such shares of Nonvoting Common Stock
in accordance with the provisions of this Section
4.2(e). Such conversion shall be deemed to have been
effected immediately prior to the closing of business
on the Conversion Date, and at such time the rights
of the holder as holder of the converted shares of
Nonvoting Common Stock shall cease and the person(s)
in whose name(s) any certificate(s) for shares of
voting Common Stock shall be issuable upon such
conversion shall be deemed to have become the holder
or holders of record of the shares of voting Common
Stock represented thereby."
3
<PAGE>
"Resolved, that the definition of "Control" in Section 8.3 of
the Company's Amended and Restated Certificate of
Incorporation shall be amended by deleting the word "10" and
inserting in its place the word "25"."
4
AMENDED AND RESTATED
ACQUISITION AGREEMENT
by and among
TELEBANC FINANCIAL CORPORATION,
ARBOR CAPITAL PARTNERS, INC.,
MET HOLDINGS CORPORATION,
AND
WILLIAM M. DAUGHERTY
dated as of February 19, 1997
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
SECTION 1. ACQUISITION OF THE ARBOR ASSETS...........................................................2
1.1 Acquisition of the Assets and Issuance of the Shares......................................2
1.2 Effective Time; Closing...................................................................2
SECTION 2. RESTRICTED SECURITIES.....................................................................4
2.1 No Registration Under the Securities Act..................................................4
2.2 Acquisition for Investment................................................................4
2.3 Evaluation of Merits and Risks of Investment..............................................4
2.4 Investment Representations................................................................4
SECTION 3. REPRESENTATIONS AND WARRANTIES OF TELEBANC................................................5
3.1 Organization of TeleBanc..................................................................5
3.2 Capitalization............................................................................5
3.3 Authorization.............................................................................5
3.4 Validity of Shares; Issuance..............................................................6
3.5 Absence of Violation......................................................................6
3.6 Binding Obligation........................................................................6
SECTION 4. REPRESENTATIONS AND WARRANTIES OF ARBOR, MET HOLDINGS AND DAUGHERTY.......................6
4.1 Organization of Arbor.....................................................................6
4.2 Capitalization............................................................................7
4.3 Non-Contravention.........................................................................7
4.4 Properties and Assets.....................................................................7
4.5 Certificate of Incorporation and Bylaws...................................................8
4.6 Financial Statements......................................................................8
4.7 Absence of Changes........................................................................9
4.8 Legal Proceedings.........................................................................9
4.9 Certain Contracts.........................................................................9
4.10 Insurance................................................................................10
4.11 Employee Benefit Plans...................................................................10
4.12 Compliance with Applicable Laws..........................................................12
4.13 Regulatory Filings and Reports...........................................................12
4.14 Tax Matters..............................................................................12
4.15 Broker's Fees............................................................................14
4.16 No Misrepresentations....................................................................14
SECTION 5. REPRESENTATIONS AND WARRANTIES OF MET HOLDINGS...........................................14
5.1 Organization of MET Holdings.............................................................14
5.2 Authorization............................................................................14
5.3 Absence of Violation.....................................................................15
i
<PAGE>
SECTION 6. REPRESENTATIONS AND WARRANTIES OF DAUGHERTY..............................................15
6.1 Authority and Capacity...................................................................15
6.2 Absence of Violation.....................................................................15
6.3 Binding Obligation.......................................................................15
SECTION 7. COVENANTS................................................................................16
7.1 Regulatory Applications..................................................................16
7.2 Further Action; Stockholder Approval.....................................................16
7.3 Third Party Consents.....................................................................16
SECTION 8. CONDITIONS TO CLOSING....................................................................16
8.1 Conditions to Obligations of All Parties.................................................16
8.2 Conditions to the Obligations of Arbor...................................................17
8.3 Conditions to Obligations of TeleBanc....................................................18
SECTION 9. CLOSING..................................................................................18
9.1 Deliveries by TeleBanc...................................................................18
9.2 Deliveries by Arbor......................................................................19
9.3 Deliveries by Daugherty..................................................................19
SECTION 10. TERMINATION..............................................................................20
10.1 Mutual Consent...........................................................................20
10.2 Other Termination........................................................................20
10.3 Effect of Termination....................................................................20
SECTION 11. REGISTRATION RIGHTS......................................................................21
11.1 Piggyback Registration Rights............................................................21
11.2 Demand Registration Rights...............................................................21
11.3 Registration Procedures..................................................................22
11.4 Registration Expenses....................................................................23
11.5 Indemnity and Contribution...............................................................24
SECTION 12. MISCELLANEOUS............................................................................26
12.1 Additional Actions and Documents.........................................................26
12.2 Expenses.................................................................................26
12.3 Notices..................................................................................26
12.4 Waiver...................................................................................27
12.5 Binding Effect...........................................................................27
12.6 Entire Agreement; Amendment..............................................................28
12.7 Severability.............................................................................28
12.8 Headings.................................................................................28
12.9 Governing Law............................................................................28
12.10 Signature in Counterparts...............................................................28
12.11 No Third Party Beneficiaries.............................................................28
12.12 Assignability............................................................................29
12.13 Parties Not Partners.....................................................................29
12.14 Survival.................................................................................29
ii
</TABLE>
<PAGE>
AMENDED AND RESTATED ACQUISITION AGREEMENT
This Amended and Restated Acquisition Agreement (this
"Agreement"), dated as of the 19th day of February, 1997, is entered into by and
among TeleBanc Financial Corporation, a Delaware corporation ("TeleBanc"), Arbor
Capital Partners, Inc. ("Arbor"), MET Holdings Corporation, a Delaware
corporation ("MET Holdings"), and William M. Daugherty ("Daugherty").
WHEREAS, TeleBanc desires to acquire substantially all of the
assets of Arbor;
WHEREAS, MET Holdings and Daugherty own all of the issued and
outstanding capital stock of Arbor (the "Arbor Stock");
WHEREAS, Daugherty is the President of Arbor and a member of
its Board of Directors, and in such capacities Daugherty has been granted the
right (the "Daugherty Arbor Option") to purchase for $64,407.69 an additional 27
shares of common stock of Arbor in the event of a change of control in Arbor or
MET Holdings;
WHEREAS, as part of the transaction contemplated hereby,
immediately prior to the Acquisition (as defined below) contemplated hereby,
TeleBanc intends to sell in a private placement approximately 29,900 units
consisting of debt, warrants and convertible preferred stock (the "Units Sale");
WHEREAS, the independent members of the Board of Directors of
TeleBanc (the "Independent Directors") deem it advisable for TeleBanc to enter
into this Agreement, pursuant to which, at the Effective Time (as defined
below), TeleBanc will purchase substantially all of the assets of Arbor;
WHEREAS, the parties intend that the Acquisition contemplated
hereby shall constitute a reorganization within the meaning of Section
368(a)(1)(C) of the Internal Revenue Code of 1988, as amended (the "Code"); and
WHEREAS, MET Holdings and Daugherty each desires that Arbor
sell substantially all of the assets of Arbor on the terms and under the
conditions specified herein;
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, the sufficiency of which is hereby acknowledged, the parties mutually
agree as follows:
<PAGE>
SECTION 1. ACQUISITION OF THE ARBOR ASSETS.
1.1 Acquisition of the Assets and Issuance of the Shares.
(a) At the Effective Time (as defined in Section 1.2 hereof),
on the basis of the representations, warranties and agreements contained herein,
and subject to the terms and conditions of this Agreement, (i) Arbor agrees to
sell and assign to TeleBanc (or any subsidiary of TeleBanc as may be designated
by TeleBanc) those assets and liabilities of Arbor set forth at Schedule A
hereto (such assets and liabilities, which constitute substantially all of the
assets and liabilities of Arbor, and as may change from the date hereof until
the Effective Time only in the ordinary course of Arbor's business, are
hereinafter referred to as the "Arbor Assets"); and (ii) TeleBanc agrees to
issue 162,461 shares of common stock, par value $.01 per share ("TeleBanc Common
Stock") and $500,000.00 in cash to Arbor (such TeleBanc Common Stock and cash
are together hereinafter referred to as the "Acquisition Consideration"). The
acquisition by TeleBanc hereby of the Arbor Assets is referred to as the
"Acquisition."
(b) Because of the Acquisition contemplated hereby, the
parties agree that the Daugherty Arbor Option would be of no value following the
Acquisition. Furthermore, inasmuch as Daugherty will become an employee of
TeleBanc (or a wholly owned subsidiary thereof) with primary responsibility,
among other things, to be the officer in charge of the former Arbor assets, upon
the Acquisition, TeleBanc also will issue to Daugherty an option for 24,201
shares of TeleBanc Common Stock (the "Daugherty TeleBanc Option"). The Daugherty
TeleBanc Option shall have an exercise price of $64,407.69 and shall be
exercisable for a period of 10 years from Effective Time.
(c) Notwithstanding the foregoing provision of Section
1.1(a)(ii), the parties hereto agree that the TeleBanc Common Stock and amount
of cash to be paid to Arbor can be adjusted by TeleBanc in order that at the
Effective Time, the TeleBanc Common Stock issued in the Acquisition does not
have "an aggregate Market Value of five percent or more of the total Market
Value of the outstanding shares" of TeleBanc (within the meaning of Section
11.1(c) of TeleBanc's Amended and Restated Certificate of Incorporation).
1.2 Effective Time; Closing.
The effective time (the "Effective Time") of the Acquisition
shall be as soon as possible following the Units Sale, but in no event later
than one business day following the Units Sale.
The closing (the "Closing") of the Acquisition shall occur at
the principal executive office of TeleBanc at 1111 North Highland Street,
Arlington,
2
<PAGE>
Virginia 22201, or at such other place as the parties shall
mutually agree, on the day on which the Acquisition takes place (the "Closing
Date").
3
<PAGE>
SECTION 2. RESTRICTED SECURITIES.
Each of Arbor, MET Holdings and Daugherty hereby represents,
warrants and covenants as follows:
2.1 No Registration Under the Securities Act.
Arbor and Daugherty understand that the TeleBanc Common Stock
to be received by them under this Agreement and under the Daugherty TeleBanc
Option, respectively, has not been registered under the Securities Act of 1933,
as amended (the "Securities Act") in reliance upon exemptions contained in the
Securities Act or interpretations thereof, and cannot be offered for sale, sold
or otherwise transferred unless such TeleBanc Common Stock being so acquired
subsequently is so registered or qualifies for exemption from registration under
the Securities Act.
2.2 Acquisition for Investment.
The TeleBanc Common Stock is being acquired under this
Agreement by Arbor and by Daugherty under the Daugherty TeleBanc Option,
respectively, in good faith solely for its and his own account, for investment
and not with a view toward resale or other distribution within the meaning of
the Securities Act. Such TeleBanc Common Stock will not be offered for sale,
sold or otherwise transferred by Arbor or Daugherty without either registration
or exemption from registration under the Securities Act.
2.3 Evaluation of Merits and Risks of Investment.
Arbor and Daugherty have such knowledge and experience in
financial and business matters that they are capable of evaluating the merits
and risks of an investment in such TeleBanc Common Stock being acquired
hereunder or under the Daugherty TeleBanc Option. Arbor and Daugherty understand
and are able to bear any economic risks associated with such investment
(including, without limitation, the necessity of holding such TeleBanc Common
Stock for an indefinite period of time, inasmuch as such TeleBanc Common Stock
has not been registered under the Securities Act).
2.4 Investment Representations.
Arbor and Daugherty have had an opportunity to evaluate, and
are capable of evaluating, TeleBanc's business, properties and financial
affairs. Arbor and Daugherty are capable of evaluating the merits and risks of
the transactions contemplated and have had the opportunity to do so, and have
the capacity to
4
<PAGE>
protect their own interests and have had the opportunity to do so. In entering
into this Agreement, and except for matters specifically set forth in this
Agreement, each of Arbor, MET Holdings and Daugherty is not relying on any
documents, information, representations, warranties or other statements provided
or made to it by or on behalf of TeleBanc.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF TELEBANC.
TeleBanc hereby represents and warrants to Arbor, MET Holdings
and Daugherty as follows:
3.1 Organization of TeleBanc.
TeleBanc is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware.
3.2 Capitalization.
As of the date of this Agreement and before giving effect to
the Units Sale, the entire authorized capital stock of TeleBanc consists of
4,000,000 shares, (a) 3,500,000 shares of TeleBanc Common Stock, of which
2,049,500 shares have been issued and are outstanding and (b) 500,000 shares of
preferred stock, par value $0.01 per share ("TeleBanc Preferred Stock"), of
which no shares have been issued and are outstanding. There also are issued and
outstanding 345,000 warrants to purchase one share each of TeleBanc Common
Stock. All the issued and outstanding shares of TeleBanc Common Stock and the
capital stock of each of TeleBanc's subsidiaries have been duly authorized and
validly issued.
3.3 Authorization.
TeleBanc has all requisite corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated by this Agreement in accordance with the terms hereof. The
execution, delivery and performance of this Agreement have been duly authorized
by the Independent Directors of TeleBanc and no other corporate proceedings on
the part of TeleBanc or any TeleBanc subsidiary are necessary to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by TeleBanc and constitutes a valid and legally binding obligation
of TeleBanc enforceable against TeleBanc in accordance with its terms.
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3.4 Validity of Shares; Issuance.
The TeleBanc Common Stock to be issued as part of the
Acquisition Consideration and pursuant to the Daugherty TeleBanc Option, when
issued in compliance with the provisions of this Agreement and said Option, as
applicable, will be validly issued, fully paid and non-assessable, and free of
any escrow or encumbrances, and will be issued in compliance with all applicable
federal laws.
3.5 Absence of Violation.
The execution, delivery and performance by TeleBanc of this
Agreement and all other documents contemplated hereby, the fulfillment of and
the compliance with the respective terms and provisions hereof and thereof, and
the consummation of the transactions contemplated hereby and thereby, do not and
will not (a) conflict with, or violate any provision of, any law having
applicability to TeleBanc; or (b) conflict with, or result in any breach of, or
constitute a default under, any agreement to which TeleBanc is a party.
3.6 Binding Obligation.
This Agreement constitutes a valid and binding obligation of
TeleBanc, enforceable in accordance with its terms. Each document to be executed
by TeleBanc pursuant hereto, when executed and delivered in accordance with the
provisions hereof, will be a valid and binding obligation of TeleBanc,
enforceable in accordance with its terms.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF ARBOR, MET HOLDINGS AND DAUGHERTY.
Arbor, MET Holdings and Daugherty hereby jointly and severally
represent and warrant to TeleBanc as follows:
4.1 Organization of Arbor.
Arbor is a corporation duly organized, validly existing and in
good standing under the laws of the State of New York. Arbor has full corporate
power and authority to own or lease its properties and assets and to carry on
its business as now being conducted. Arbor is duly licensed or qualified to do
business and is in good standing in each jurisdiction in which the nature of the
business conducted by it or the character or location of the employees or of the
properties or assets owned or leased by it makes such licensing or qualification
necessary.
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4.2 Capitalization.
The authorized capital stock of Arbor consists of 200 shares
of common stock, without par value, and 10,000 shares of 6% non-cumulative
preferred stock, par value $100.00 per share. The Arbor Stock owned by MET and
Daugherty constitute the only shares of capital stock of Arbor that are issued
and outstanding and no other shares of Arbor capital stock are subject to or
reserved for issuance under any circumstances except for the shares subject to
the Daugherty Arbor Option. All of the issued and outstanding shares of Arbor
Stock have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof. Except with respect to the Daugherty Arbor
Option, Arbor does not have and is not bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character calling for
the purchase or issuance of any shares of Arbor Stock or any other equity
security of Arbor or any securities representing the right to purchase or
otherwise receive any shares of Arbor Stock or any other equity security of
Arbor.
4.3 Non-Contravention.
The execution and delivery of this Agreement by MET Holdings
and Daugherty does not, and the performance of this Agreement in accordance with
the terms hereof, will not (a) violate any provision of the charter or articles
of incorporation or bylaws of Arbor, (b) conflict with or result in a breach of,
or default under, or result in the creation of any lien, claim, charge or other
encumbrance upon any of the assets or properties of Arbor pursuant to the
provisions of any agreement, mortgage, indenture or other document or instrument
to which Arbor is a party or by which Arbor or any of its properties or assets
is bound, (c) violate any existing laws applicable to Arbor or any of its
properties or assets, or Arbor's ability to obtain any regulatory consent,
approval, expiration of a waiting period or similar action or inaction by any
governmental authority that is required in connection with the consummation of
the transactions contemplated by this Agreement ("Regulatory Approvals"), or (d)
require any consent, notice, approval or other filing with any third party in
connection with any lease, agreement or other arrangement, the benefits of which
cannot be retained upon consummation of the transactions contemplated hereby
without such consent, notice, approval or filing, except as set forth at
Schedule B hereto (such consents, notices, approvals or other filings
collectively referred to as the "Required Consents").
4.4 Properties and Assets.
The Arbor Assets are all of the assets and known or contingent
liabilities of Arbor as of the date hereof. Arbor does not own any real property
nor is it a party to any contract for the purchase, sale, or development of real
estate.
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Arbor has provided to TeleBanc a true, correct and complete copy of each real
property lease, sublease, or similar agreement to which Arbor is a party. Except
for (a) items reflected in the audited financial statements of Arbor as of
December 31, 1995, (b) exceptions to title that do not interfere materially with
Arbor's use and enjoyment of leased real property (other than real property
acquired through foreclosure or a transaction in lieu of foreclosure), (c) liens
for current real estate taxes not yet delinquent, or being contested in good
faith, properly reserved against (and reflected on the financial statements
referred to in Section 4.6 below) and (d) properties and assets sold or
transferred in the ordinary course of business consistent with past practice
since December 31, 1995, Arbor has good title to all its properties and assets,
including the properties and assets reflected in the Schedule A of Arbor Assets,
whether real, personal, tangible or intangible, free and clear of all liens,
claims, charges and other encumbrances. Arbor, as lessee, has the right under
valid and subsisting leases to occupy, use and possess all property leased by
it, and there has not occurred under any such lease any breach, violation or
default except with respect to deductibles under insurance policies that comply
with the requirements of Section 4.10, and Arbor has not experienced any
uninsured damage or destruction with respect to such properties since December
31, 1995. Arbor enjoys peaceful and undisturbed possession under all leases for
the use of real or tangible personal property under which it is the lessee, and
all leases to which Arbor is a party are valid and enforceable in all material
respects in accordance with the terms thereof except as may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting creditors'
rights and except as may be limited by the exercise of judicial discretion in
applying principles of equity. Arbor is not in default with respect to any such
lease.
4.5 Certificate of Incorporation and Bylaws.
True and complete copies of the certificate of incorporation
and bylaws of Arbor, as in effect on the date hereof, have been delivered to
TeleBanc.
4.6 Financial Statements.
(a) Arbor has previously delivered or made available to
TeleBanc accurate and complete copies of the statements of financial condition
of Arbor as of December 31, 1993, 1994 and 1995, and the related statements of
income, shareholders' equity and cash flows for the years ended December 31,
1993, 1994 and 1995, in each case accompanied by the audit report of the
independent public accountants with respect to Arbor. The statements of
financial condition of Arbor referred to herein (including the related notes,
where applicable), fairly present the financial condition of Arbor as of the
respective dates set forth therein, and the related statements of income,
shareholders' equity and cash flows (including the related notes, where
applicable) fairly present the results of operations,
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shareholders' equity and cash flows of Arbor for the respective periods or as of
the respective dates set forth therein.
(b) Each of the financial statements referred to in Section
4.6(a) has been prepared in accordance with generally accepted accounting
principles consistently applied during the periods involved. The audits of Arbor
have been conducted in accordance with generally accepted auditing standards.
The books and records of Arbor are being maintained in material compliance with
applicable legal and accounting requirements.
(c) Except and to the extent (i) reflected, disclosed or
provided for in the financial statements as of December 31, 1995 referred to
above and (ii) of liabilities incurred since December 31, 1995 in the ordinary
course of business and consistent with past practice, Arbor does not have any
liabilities, whether absolute, accrued, contingent or otherwise.
4.7 Absence of Changes.
Since December 31, 1995, the business of Arbor has been
conducted only in the ordinary course consistent with past practice and there
has not been any material adverse change in the business, financial condition,
operating results or prospects of Arbor, nor has there been any material change
in any policy or practice followed by Arbor in the ordinary course of business.
4.8 Legal Proceedings.
There are no legal, administrative or other claims, actions,
suits or other proceedings pending, or to the knowledge of any of Arbor's
officers and directors, threatened, of which Arbor is a party before any court
or arbitration tribunal or before or by any governmental authority. Arbor is not
a party to any pending or, to the knowledge of any of Arbor's officers and
directors, threatened legal, administrative or other claim, action, suit,
investigation, arbitration or proceeding challenging the validity or propriety
of any of the transactions contemplated by this Agreement. Arbor is not subject
to any judgment, order, writ, injunction, decree or arbitration award.
4.9 Certain Contracts.
Except as contemplated by this Agreement, Arbor is not a party
to nor is it bound or affected by, nor does it receive benefits under (a) any
material agreement, arrangement or understanding not made in the ordinary course
of business; (b) any agreement, indenture or other instrument relating to the
borrowing of money by Arbor or the guarantee by Arbor of any obligation; (c) any
agreement, arrangement or understanding relating to the employment, election,
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retention in office or severance of any present or former director, officer or
employee of Arbor; (d) any agreement, arrangement or understanding pursuant to
which any payment (whether of severance pay or otherwise) became or may become
due to any director, officer or employee of Arbor upon execution of this
Agreement or upon or following consummation of the transactions contemplated by
this Agreement (either alone or in connection with the occurrence of any
additional acts or events); (e) any assistance agreement, supervisory agreement,
memorandum of understanding, consent order, cease and desist order or condition
of any regulatory order or decree with or by the Securities and Exchange
Commission (the "SEC"), the National Association of Securities Dealers, Inc. or
any other regulatory agency; or (f) any other agreement, arrangement or
understanding, which requires aggregate payments to or from Arbor of $25,000 or
more per year.
4.10 Insurance.
All insurance policies and bonds maintained by Arbor have,
from time to time, in respect of the nature of the risks insured against and
amount of coverage provided, been substantially similar in kind and amount to
that customarily carried by parties similarly situated who engage in businesses
substantially similar to that of Arbor), and are in full force and effect and
have been in full force and effect at all times during which Arbor had any
insurable interest in the subject of such insurance policies and bonds. As of
the date hereof, Arbor has not received any notice of cancellation or amendment
of any such policy or bond or is in default under any such policy or bond, no
coverage thereunder is being disputed and all material claims thereunder have
been filed in a timely fashion. The existing insurance carried by Arbor is and
will continue to be, in respect of the nature of the risks insured against and
the amount of coverage provided, substantially similar in kind and amount to
that customarily carried by parties similarly situated who engage in businesses
substantially similar to that of Arbor, and is sufficient for compliance by
Arbor with all material requirements of any laws, regulations and agreements to
which Arbor is subject or is a party. True and complete copies of all such
policies and bonds as in effect on the date hereof, have been delivered to
TeleBanc.
4.11 Employee Benefit Plans.
(a) True, correct and complete copies of each employee benefit
plan (as that term is defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), which plan is subject to any
provisions of ERISA and covers any one or more of the directors and employees of
Arbor, whether active or retired (an "Employee Plan")) of Arbor, including
amendments and trust agreements relating thereto, have been delivered to
TeleBanc, together with (i) a complete and correct copy of the five most recent
annual reports (Form 5500 including, if applicable, Schedule B thereto) prepared
in connection with any such
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Employee Plan, (ii) a true, correct and complete copy of the five most recent
actuarial valuation reports, if any, prepared in connection with any such
Employee Plan, and (iii) a true, correct and complete copy of the most recent
summary plan description (including any summaries of material modifications) of
each such Employee Plan. None of such Employee Plans is a "multiemployer plan,"
as defined in Section 3(37) of ERISA, and Arbor has not been obligated to make a
contribution to any such multiemployer plan within the past five years. Since
its inception, each Employee Plan which is intended to be qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "IRC") has
been operated and administered in all material respects in accordance with the
requirements for a qualified plan under Section 401(a) of the IRC and each trust
maintained in connection with each such Employee Plan has been operated and
administered in all material respects in accordance with the requirements for a
tax exempt trust under Section 501 of the IRC and applicable state laws. Arbor
has received from the Internal Revenue Service a determination letter with
respect to the qualification of each such Employee Plan and has delivered to
TeleBanc a true and complete copy of the most recent determination letter for
each such Employee Plan, as well as all correspondence relating to the
application therefor. The representations made as a part of the application for
each such determination letter were true and complete when made and continue to
be true and complete. Nothing has occurred since the date of the most recent
applicable determination letter that would adversely affect the qualified status
of any such Employee Plan.
(b) True and complete copies of any current or deferred
compensation, bonus, stock option, stock appreciation right, severance pay,
salary continuation, retirement or incentive plan or arrangement, or any group
or individual health, disability or life insurance plan, or welfare or similar
plan or arrangement for the benefit of any one or more of the directors,
officers and employees of Arbor, whether active or retired, other than Employee
Plans and plans and agreements providing for base salary and base wages
("Benefit Arrangements") that Arbor maintains have been delivered to TeleBanc.
(c) Each of the Employee Plans and Benefit Arrangements of
Arbor is in compliance with the requirements prescribed by any and all
applicable laws and regulations, including, but not limited to, ERISA and the
IRC. No Employee Plan is subject to Title IV of ERISA. Neither Arbor nor any
Employee Plan has engaged in a "prohibited transaction," as defined in Section
406 of ERISA and Section 4975 of the IRC, which could subject Arbor to material
liability under Section 409 or 502(i) of ERISA or Section 4975 of the IRC. No
Employee Plan is subject to Part III of Subtitle B of Title I of ERISA or
Section 412 of the IRC, or both. Arbor has not failed to make any contribution
or pay any amount due and owing as required by the terms of any Employee Plan or
Benefit Arrangement. Each funded Employee Plan is fully funded such that the
fair market value of the net assets of the Employee Plan equals or exceeds the
present value of all accrued
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benefits and other liabilities under such Employee Plan. No events have occurred
or are expected to occur with respect to any Employee Plan that would cause a
material change in the value of the assets or the amount or present value of
accrued benefits and other liabilities of such Employee Plan.
(d) No Employee Plan or Benefit Arrangement, individually or
collectively, provides for any payment by Arbor to any employee or independent
contractor, in connection with or as a result of the transactions contemplated
by this Agreement, that is not deductible under either Section 162(a)(1),
162(m), 280G or 404 of the IRC.
4.12 Compliance with Applicable Laws.
Arbor has complied with all laws applicable to it or to the
operation of its business and has not received any notice of any alleged claim
or threatened claim, violation of or liability or potential responsibility under
such laws that has not heretofore been cured and for which there is no remaining
liability.
4.13 Regulatory Filings and Reports.
Since December 31, 1991, Arbor has filed all documents
required to be filed by it under federal securities laws and laws applicable to
broker-dealers and investment advisors, and applicable regulations thereunder,
and all such documents, as finally amended, were complete and accurate, complied
in all material respects as to form and substance with all applicable
requirements of law and regulation and did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
4.14 Tax Matters.
(a) Arbor has timely filed on behalf of itself, with the
appropriate governmental authorities, all federal, state and local tax returns
and declarations of estimated tax with respect to income and all other
applicable taxes, and all other tax returns and reports, the filing of which is
required by applicable laws (including returns and reports with respect to taxes
withheld from or imposed in respect of employees' wages and with respect to
deposit accounts (the "Tax Returns"). All of the Tax Returns are accurate and
complete in all material respects.
(b) Arbor has collected and withheld all taxes which it is or
has been required to collect or withhold and has timely submitted all such
collected and withheld amounts to the appropriate authorities. Arbor is in
compliance with the
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back-up withholding and information reporting requirements under the IRC, and
the rules and regulations of the Internal Revenue Service thereunder.
(c) All federal, state and local taxes, due and payable by
Arbor pursuant to the Tax Returns, or pursuant to any assessment with respect to
taxes, penalties or interest in any of such jurisdictions, have been accrued or
paid.
(d) The reserves for taxes contained in the financial
statements (including the notes thereto) described in Section 4.6 of this
Agreement are adequate to cover the tax liabilities, including penalties and
interest, of Arbor for all periods up to and including December 31, 1995.
(e) Arbor has not received any notice of deficiency or
assessment or proposed deficiency or assessment by the Internal Revenue Service
or any other taxing authority in connection with the Tax Returns that has not
been brought to the attention of TeleBanc management. There is no action, suit,
proceeding, audit, examination, investigation, or claim pending, or to the
knowledge of any of Arbor's officers and directors, threatened, in respect of
any taxes for which Arbor is or may become liable if such action, suit,
proceeding, audit, examination, investigation, or claim were to be resolved, in
whole or in part, adversely to Arbor that has not been brought to the attention
of TeleBanc management. To the knowledge of any of Arbor' officers and
directors, no fact exists which constitutes grounds for the assessment of
material additional taxes with respect to Arbor that has not been brought to the
attention of TeleBanc management. Arbor has provided to TeleBanc a true, correct
and complete copy of any agreement for the allocation or sharing of taxes.
(f) Arbor has not waived any law fixing, or consented to the
extension of, any period of time for assessment of any tax.
(g) Arbor has not made an election under Section 341(f) of the
IRC.
(h) Arbor has provided to TeleBanc complete and correct copies
of the Tax Returns and all material correspondence and documents, if any,
relating directly or indirectly to taxes for each taxable year of Arbor as to
which the applicable statute of limitations has not run on the date hereof. For
this purpose, "correspondence and documents" include, without limitation,
amended tax returns, claims for refunds, notices from taxing authorities of
proposed changes or adjustments to taxes or tax returns, consents to assessment
or collection of taxes, acceptances of proposed adjustments, closing agreements,
rulings and determination letters and requests therefor, and all other written
communications to or from taxing authorities relating to any material tax
liability of Arbor.
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4.15 Broker's Fees.
No agent, finder, broker, investment banker, person or firm
acting on behalf or under authority of Arbor is or will be entitled to any fee
as compensation for services as broker or finder or any other commission or
similar fee directly or indirectly in connection with this Agreement or any of
the transactions contemplated hereby.
4.16 No Misrepresentations.
None of the representations and warranties of Arbor set forth
in this Agreement nor any matter disclosed in any of the schedules, lists,
certificates, exhibits or other documents delivered to TeleBanc hereunder or in
connection with the transactions contemplated hereby contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained herein or therein, in light of the circumstances in
which they were made, not misleading.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF MET HOLDINGS.
MET Holdings hereby represents and warrants to TeleBanc as
follows:
5.1 Organization of MET Holdings.
MET Holdings is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware.
5.2 Authorization.
MET Holdings has all requisite corporate power and authority
to execute and deliver this Agreement and, subject to the approval of the
requisite number of stockholders of MET Holdings entitled to vote on this
Agreement and to the receipt of any Regulatory Approvals, to consummate the
transactions contemplated by this Agreement in accordance with the terms hereof.
The execution, delivery and performance of this Agreement have been duly
authorized by the Board of Directors of MET Holdings, and, except for the
approval of the requisite number of stockholders of MET Holdings as to this
Agreement, no other corporate proceedings on the part of MET Holdings or any MET
Holdings subsidiary are necessary to consummate the transactions so
contemplated. This Agreement has been duly and validly executed and delivered by
MET Holdings and
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constitutes a valid and legally binding obligation of MET Holdings enforceable
against MET Holdings in accordance with its terms.
5.3 Absence of Violation.
The execution, delivery and performance by MET Holdings of
this Agreement and all other documents contemplated hereby, the fulfillment of
and the compliance with the respective terms and provisions hereof and thereof,
and the consummation of the transactions contemplated hereby and thereby, do not
and will not (a) conflict with, or violate any provision of, any law having
applicability to MET Holdings; or (b) conflict with, or result in any breach of,
or constitute a default under, any agreement to which MET Holdings is a party.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF DAUGHERTY
Daugherty hereby represents and warrants to TeleBanc as
follows:
6.1 Authority and Capacity.
Daugherty has full legal right, capacity, power and authority
to execute this Agreement and to consummate the transactions contemplated
hereby.
6.2 Absence of Violation.
The execution, delivery and performance by Daugherty of this
Agreement and all other documents contemplated hereby, the fulfillment of and
the compliance with the respective terms and provisions hereof and thereof, and
the consummation of the transactions contemplated hereby and thereby, do not and
will not (a) conflict with, or violate any provision of, any law having
applicability to Daugherty; or (b) conflict with, or result in any breach of, or
constitute a default under, any agreement to which Daugherty is a party.
6.3 Binding Obligation.
This Agreement constitutes a valid and binding obligation of
Daugherty, enforceable in accordance with its terms. Each document to be
executed by Daugherty pursuant hereto, when executed and delivered in accordance
with the provisions hereof, will be a valid and binding obligation of Daugherty,
enforceable in accordance with its terms.
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SECTION 7. COVENANTS.
7.1 Regulatory Applications.
TeleBanc, MET Holdings and Daugherty shall cause to be
prepared and filed, as soon as is reasonably practical, all required
applications and notices and any other filings with governmental authorities
which are necessary or contemplated for consummation of the Acquisition. Such
applications and filings shall be in such forms as may be prescribed by the
respective governmental authorities or self regulatory agencies and shall
contain such information as they may require.
7.2 Further Action; Stockholder Approval.
TeleBanc, Arbor, MET Holdings and Daugherty agree to take all
such action required to consummate the transactions contemplated hereby. By
signing this Agreement, MET Holdings and Daugherty agree and acknowledge that as
the sole shareholders of Arbor, they hereby approve this Agreement and the
Acquisition contemplated hereby. Unless this Agreement is terminated in
accordance with its terms, MET Holdings agrees to submit this Agreement for the
approval of its stockholders.
7.3 Third Party Consents.
TeleBanc, MET Holdings and Daugherty agree to cooperate and
use their best efforts to obtain all written consents or approvals of other
persons in connection with any lease, agreement or other arrangement, the
benefits of which cannot be retained upon consummation of the transactions
contemplated hereby without such consent or approval.
SECTION 8. CONDITIONS TO CLOSING.
8.1 Conditions to Obligations of All Parties.
The obligations of each party to consummate the Acquisition
contemplated by this Agreement are subject to the satisfaction, on or before the
Closing Date, of each of the following conditions precedent:
(a) Termination. This Agreement shall not have been terminated
in accordance with its terms.
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(b) Approvals and Offering. This Agreement shall have been
approved by the requisite vote of the stockholders of MET Holdings and the Unit
Sale shall have been consummated.
(c) No Governmental Action. No action or proceeding by or
before any governmental authority shall have been instituted or threatened (and
not subsequently dismissed, settled or otherwise terminated) which is reasonably
expected to restrain, prohibit or invalidate the transactions contemplated by
this Agreement or to affect adversely the financial condition and business
prospects of TeleBanc or Arbor.
(d) Regulatory Approvals. All Regulatory Approvals required to
consummate the transactions contemplated hereby shall have been obtained. No
Regulatory Approval shall contain any condition that would require any material
modification or nonperformance of the terms of this Agreement. All Regulatory
Approvals shall remain in full force and effect and all conditions and
requirements set forth in any Regulatory Approval that are required to be
satisfied on or before the Closing Date, including the expiration of any waiting
periods, shall have been satisfied or properly waived.
(e) Consents. Except for such consents, approvals, permits and
other authorizations that, if not obtained, would not, individually or in the
aggregate, have a material effect on the transactions contemplated hereby, the
parties shall have obtained (i) the Required Consents, and (ii) all permits or
other authorizations other than Regulatory Approvals required to consummate the
transactions contemplated hereby.
(f) Arbor Assets. The Arbor Assets shall be as set forth at
Schedule A hereto, except for such changes as may occur from the date hereof in
the ordinary course of business.
8.2 Conditions to the Obligations of Arbor.
The obligations of Arbor to consummate the transactions
contemplated by this Agreement are subject to the satisfaction, on or before the
Closing Date, of each of the following conditions precedent, any one or more of
which may be waived by Arbor, in its sole and absolute discretion:
(a) Representations and Warranties. The representations and
warranties of TeleBanc contained in this Agreement shall be true, correct and
complete in all material respects when made and shall be true and correct on the
Closing Date with the same force and effect as if made on the Closing Date.
(b) Compliance. TeleBanc shall have in all material respects
performed all obligations and agreements and complied with all covenants
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contained in this Agreement to be performed and complied with by TeleBanc on or
prior to the Closing Date.
8.3 Conditions to Obligations of TeleBanc.
The obligations of TeleBanc to consummate the transactions
contemplated by this Agreement are subject to the satisfaction, on or before the
Closing Date, of each of the following conditions precedent, any one or more of
which may be waived by TeleBanc, in its sole and absolute discretion:
(a) Representations and Warranties. The representations and
warranties of each of Arbor, MET Holdings and Daugherty contained in this
Agreement shall be true, correct and complete in all material respects when made
and shall be true and correct on the Closing Date with the same force and effect
as if made on the Closing Date.
(b) Compliance. Arbor shall have in all material respects
performed all obligations and agreements and complied with all covenants
contained in this Agreement to be performed and complied with by it on or prior
to the Closing Date.
(c) TeleBanc shall have received from Corporate Finance of
Washington, Inc., or such other financial advisor as TeleBanc may select, an
opinion in form reasonably satisfactory to TeleBanc dated the date of or
immediately before the date of this Agreement, as to the value of Arbor.
SECTION 9. CLOSING.
9.1 Deliveries by TeleBanc.
At the Closing, TeleBanc shall deliver to Daugherty or Arbor,
as applicable, the following:
(a) To Daugherty, an agreement as to the Daugherty TeleBanc
Option.
(b) To Arbor, (i) the certificate of TeleBanc Common Stock
representing the TeleBanc Common Stock portion of the Acquisition Consideration
registered in the name of Arbor; and (ii) the cash portion of the Acquisition
Consideration required hereby.
(c) To Arbor, a copy of the resolutions of the Directors of
TeleBanc certified by the Secretary of TeleBanc, as being true, correct and
complete and then in full force and effect, authorizing the execution, delivery
and performance of this
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Agreement by TeleBanc, the authorization, sale, issuance and delivery of the
TeleBanc Common Stock and the Daugherty TeleBanc Option issued hereunder, and
the performance of TeleBanc's obligations hereunder.
(d) To Arbor, a certificate of TeleBanc signed by an executive
officer of TeleBanc not affiliated with MET Holdings certifying that the
representations and warranties of TeleBanc made herein are true, complete and
correct as of the date of this Agreement and are true and correct as of the
Closing Date, and TeleBanc has performed and complied with all covenants and
agreements required to be performed or complied with by TeleBanc on or prior to
the Closing.
9.2 Deliveries by Arbor.
At the Closing, Arbor shall deliver to TeleBanc, or obtain
from MET Holdings to deliver to TeleBanc, the following:
(a) The Arbor Assets, together with the required consents and
such other assignments, bills of sale or other documentation as may be required
to effect the transfer of assets contemplated hereby.
(b) A copy of (i) the resolutions of the Board of Directors of
Arbor authorizing the execution, delivery and performance of this Agreement by
Arbor, and (ii) the resolutions of the requisite number of stockholders of Arbor
approving this Agreement and the transactions contemplated hereby, certified by
the Secretary of Arbor, as being true, correct and complete and then in full
force and effect.
(c) A certificate of MET Holdings signed by the President of
MET Holdings certifying that the representations and warranties of MET Holdings
made herein are true, complete and correct as of the date of this Agreement and
are true and correct as of the Closing Date, and MET Holdings has performed and
complied with all covenants and agreements required to be performed or complied
with by MET Holdings on or prior to the Closing.
9.3 Deliveries by Daugherty.
At the Closing, Daugherty shall deliver to TeleBanc the
following:
(a) A certificate of Daugherty certifying that the
representations and warranties of Daugherty made herein are true, complete and
correct as of the date of this Agreement and are true and correct as of the
Closing Date, and that Daugherty has performed and complied with all covenants
and agreements required to be performed or complied with by Daugherty on or
prior to the Closing.
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(b) Evidence of cancellation of all rights under the Daugherty
Arbor Option in form and substance reasonably satisfactory to TeleBanc.
SECTION 10. TERMINATION.
10.1 Mutual Consent.
The parties may terminate this Agreement at any time by mutual
written agreement.
10.2 Other Termination.
Either of TeleBanc, on the one hand, or Arbor, MET Holdings or
Daugherty, on the other, may terminate this Agreement by giving notice (a
"Termination Notice") to the other at the time designated in this Section or, in
the absence of such designation, at any time up to and including the Closing
Date, if any one or more of the following shall have occurred and be continuing:
(a) Termination By Any Party. Any party may terminate this
Agreement under any one or more of the following circumstances:
(i) at any time after March 31, 1997, if the
Closing shall not have occurred for any reason other than a default or
non-performance of its obligations hereunder by the party giving such notice;
(ii) if this Agreement is not approved by the
requisite vote of the stockholders of MET Holdings.
(iii) a court or other governmental authority of
competent jurisdiction shall have issued an order, writ, injunction or decree or
shall have taken any other action permanently restraining or otherwise
prohibiting the Acquisition and the related transactions and such order, writ,
injunction, decree or other action shall have become final and nonappealable.
(b) Termination by Arbor. Arbor may terminate this Agreement
on the Closing Date, if any condition precedent forth in Sections 8.1 or 8.2
shall not have been satisfied.
(c) Termination by TeleBanc. TeleBanc may terminate this
Agreement on the Closing Date, if any condition precedent set forth in Sections
8.1 or 8.3 shall not have been satisfied.
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10.3 Effect of Termination.
Termination of this Agreement pursuant to this Section shall
not relieve any party of any liability for a default or other breach, or
nonperformance under this Agreement. Notwithstanding the foregoing, no party
hereto shall be liable for consequential or punitive damages in connection with
such termination.
SECTION 11. REGISTRATION RIGHTS.
11.1 Piggyback Registration Rights.
(a) Except as provided at Section 11.1(b) below, if at any
time or times beginning one year after the Closing Date, TeleBanc proposes to
make a public offering of TeleBanc Common Stock which requires registration
under applicable rules and regulations of the SEC, other than an offering not
suitable for inclusion of shares of selling stockholders for offer to the
public, such as shares being offered in connection with an employment benefit
plan or in connection with a merger, TeleBanc shall give written notice of the
proposed registration to MET Holdings and Daugherty (each a "Holder") not less
than 14 business days prior to the proposed filing date of the registration form
with the SEC, and at the written request of a Holder delivered to TeleBanc
within 10 days after the receipt of such notice, TeleBanc shall include in such
registration and offering, and in any underwriting of such offering, all shares
of TeleBanc Common Stock acquired by the Holder pursuant to this Agreement
(collectively with respect to the Holders, the "Shares") that have been
designated for registration in the Holder's request. TeleBanc may withdraw any
proposed registration statement or offering of securities under this Section 11
at any time without any liability to a Holder hereunder.
(b) If a registration in which the Holders have the right to
participate pursuant to this Section 11 is an underwritten public offering and
the managing underwriter advises TeleBanc in writing that in its opinion the
number of securities requested to be included in such registration exceeds the
number that can be sold in such offering consistent with the pricing
expectations of TeleBanc, then TeleBanc first shall include in such offering the
TeleBanc Common Stock proposed to be sold by TeleBanc if consistent with the
aforementioned opinion of the managing underwriter, second shall include the
shares requested to be included in such registration by any holder of
registration rights in connection with the Unit Sale, and thereafter, Shares
requested to be included by the Holder(s) and shares requested to be included by
other selling stockholders who hold registration rights pursuant to pre-existing
written agreements with TeleBanc, if any, pro rata based upon the number of
shares of TeleBanc Common Stock requested by each such
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selling stockholder to be included in such registration, or in such other
amounts upon which TeleBanc, the Holder(s) and the other selling stockholders
may agree.
11.2 Demand Registration Rights.
(a) At any time after one year from the date of the
Acquisition, each Holder may request registration for sale under the Securities
Act of any Shares owned by such Holder (a "Demand Registration"), provided,
however, that (i) TeleBanc shall only be obligated to effect one Demand
Registration for each Holder, (ii) TeleBanc shall not be obligated to effect a
Demand Registration unless the Holder requests registration for the sale of
shares that represent at least 50% of the aggregate amount of the Shares then
owned by the Holder, and (iii) TeleBanc shall not be required to conduct an
underwritten offering. A Demand Registration shall specify the approximate
number of Shares requested to be registered and the anticipated per share price
range for such offering.
(b) A Demand Registration shall be deemed to occur when such
registration becomes effective under the Securities Act, except that if, after
it becomes effective, such Demand Registration is interfered with by any stop
order, injunction or other order or requirement of the SEC or any other
governmental authority, such registration shall not be deemed to have been
effected unless such stop order, injunction or other order shall have been
subsequently vacated or removed.
11.3 Registration Procedures.
(a) TeleBanc shall have no obligation to include Shares owned
by a Holder in a registration statement pursuant to Section 11.1 or Section 11.2
hereof unless and until the Holder has furnished TeleBanc with all information
and statements about or pertaining to the Holder in such reasonable detail and
on such timely basis as is reasonably deemed by TeleBanc to be necessary or
appropriate for the preparation of the registration statement.
(b) Whenever a Holder have requested that Shares be registered
pursuant to Section 11.1 or Section 11.2 hereof, TeleBanc shall, subject to its
rights under Section 11.1(a) to withdraw the registration statement and the
other provisions of Section 11.1 and Section 11.2:
(1) prepare and file with the SEC a registration
statement with respect to such shares and use its reasonable efforts to cause
such registration statement to become effective as soon as practicable after the
filing thereof (provided that before filing a registration statement or any
amendments or supplements thereto, TeleBanc shall furnish counsel for the Holder
with copies of all such documents proposed to be filed);
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(2) prepare and file with the SEC such
amendments and supplements to such registration statement as may be necessary to
keep such registration statement effective for a period of not less than (i)
three months, (i) until the Holder has completed the distribution described in
such registration statement, or (iii) until TeleBanc receives a Demand
Registration as defined in and pursuant to the Unit Purchase Agreement pursuant
to which the Units Sale is being consummated, whichever occurs first;
(3) furnish to the Holder the number of copies
of such registration statement, each amendment and supplement thereto, and such
other documents as the Holder may reasonably request;
(4) use reasonable efforts to register or
qualify such shares under the state blue sky or securities or banking laws
("Blue Sky Laws") of such jurisdictions as the Holder reasonably requests (and
to keep such registrations and qualifications effective for a period of three
months, or until the Holder has completed the distribution of such shares,
whichever occurs first), and to do any and all other acts and things that may be
reasonably necessary or advisable to enable the Holder to consummate the
disposition of such shares in such jurisdictions; provided, however, that
TeleBanc will not be required to do any of the following: (i) qualify generally
to do business in any jurisdiction where it would not be required but for this
Section 11.3(b), (ii) subject itself to taxation in any such jurisdiction, or
(iii) file any general consent to service of process in any such jurisdiction;
(5) promptly notify the Holder during the period
that TeleBanc is required to keep the registration statement effective, of the
occurrence of any event as a result of which the registration statement contains
an untrue statement of a material fact or omits any fact necessary to make the
statements therein in the light of the circumstances under which they were made,
not misleading, and prepare a supplement or amendment to the registration
statement so that, as thereafter delivered to the purchasers of such shares, the
registration statement will not contain an untrue statement of a material fact
or omit to state any fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading;
(6) provide a transfer agent and registrar (if
TeleBanc does not already have such an agent) for all such shares not later than
the effective date of such registration statement.
11.4 Registration Expenses.
(a) If, pursuant to Section 11.1 or Section 11.2 hereof,
Shares owned by a Holder are included in a registration statement, then the
Holder shall
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pay all transfer taxes, if any, relating to the sale of its Shares, all
registration and filing fees, fees and expenses of compliance, with Blue Sky
Laws, the fees and expenses of its own counsel, printing expenses, and its pro
rata portion of any underwriting discounts or commissions or the equivalent
thereof.
(b) Except for the fees and expenses specified in Section
11.4(a) hereof and except as provided below in this Section 11.4(b), TeleBanc
shall pay all expenses incident to the registration and to TeleBanc's
performance of or compliance with this Agreement, including, without limitation,
underwriting discounts, fees, and expenses (other than the Holder's pro rata
portions of any underwriting discounts or commissions or the equivalent
thereof), messenger and delivery expenses, and fees and expenses of counsel for
TeleBanc and all independent certified public accountants and other persons
retained by TeleBanc. With respect to any registration pursuant to Section 11.4
hereof, TeleBanc shall pay its internal expenses (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties) and, if applicable, the expenses and fees for listing the
securities to be registered on an exchange or on the Nasdaq Stock Market.
11.5 Indemnity and Contribution.
(a) In the event that any Shares owned by a Holder are sold by
means of a registration statement pursuant to Section 11.1 or Section 11.2
hereof, the Holder (for the purposes of this Section 11.5(a), the "Indemnifying
Person") agrees to indemnify and hold harmless TeleBanc, each of TeleBanc's
officers and directors, and each person, if any, who controls or may control
TeleBanc within the meaning of the Securities Act (for the purposes of this
Section 11.5(a), TeleBanc, its officers and directors, and any such other
persons being hereinafter referred to individually as an "Indemnified Person"
and collectively as "Indemnified Persons") from and against all demands, claims,
actions or causes of action, assessments, losses, damages, liabilities, costs,
and expenses, including, without limitation, interest, penalties, and reasonable
attorneys' fees and disbursements, asserted against, resulting to, imposed upon,
or incurred by such Indemnified Person, directly or indirectly (collectively,
hereinafter referred to in the singular as a "Claim" and in the plural as
"Claims"), based upon, arising out of, or resulting from any untrue statement of
a material fact contained in the registration statement or any omission to state
therein a material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading, to
the extent that such Claim is based upon, arises out of or results from
information furnished to TeleBanc by the Holder in a written document provided
by the Holder for use in connection with the registration statement.
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(b) TeleBanc (for the purposes of this Section 11.5(b), the
"Indemnifying Person") agrees to indemnify and hold harmless the Holder, Arbor's
officers and directors (if Shares owned by Arbor are being sold), each person,
if any, who controls or may control the Holder within the meaning of the
Securities Act and any underwriters participating in the distribution of the
Shares pursuant to a registration statement (for the purposes of this Section
11.5(b), the Holder, Arbor's officers and directors (if Shares owned by Arbor
are being sold), and any such other persons also being hereinafter referred to
individually as an "Indemnified Person" and collectively as "Indemnified
Persons") from and against all Claims based upon, arising out of, or resulting
from any untrue statement of a material fact contained in the registration
statement or any omission to state therein a material fact necessary in order to
make the statement made therein, in the light of the circumstances under which
they were made, not misleading, to the extent that such Claim is based upon,
arises out of or results from information furnished to the Holder by TeleBanc in
a written document provided by TeleBanc for use in connection with the
registration statement.
(c) The indemnification set forth herein shall be in addition
to any liability TeleBanc or the Holder may otherwise have in connection with
any registration of the Shares. Within a reasonable time after receiving
definitive notice of any Claim in respect of which an Indemnified Person may
seek indemnification under this Section 11.5, such Indemnified Person shall
submit written notice thereof to Indemnifying Person. The failure of the
Indemnified Person so to notify the Indemnifying Person of any such Claim shall
not relieve the Indemnifying Person from any liability it may have hereunder
except to the extent that (a) such liability was caused or increased by such
omission, or (b) the ability of the Indemnifying Person to reduce such liability
was materially adversely affected by such omission. In addition, the omission of
the Indemnified Person so to notify the Indemnifying Person of any such Claim
shall not relieve the Indemnifying Person from any liability it may have
otherwise than hereunder. The Indemnifying Person shall have the right to
undertake, by counsel or representatives of its own choosing, the defense,
compromise, or settlement (without admitting liability of the Indemnifying
Person) of any such Claim asserted, such defense, compromise, or settlement to
be undertaken at the expense and risk of the Indemnifying Person, and the
Indemnified Person shall have the right to engage separate counsel, at its own
expense, whom counsel for the Indemnifying Person shall keep informed and
consult with in a reasonable manner. In the event the Indemnifying Person shall
fail to undertake such defense by its own representatives, the Indemnifying
Person shall give prompt written notice of such election to the Indemnified
Person, and the Indemnified Person shall undertake the defense, compromise, or
settlement (without admitting liability of the Indemnified Person) thereof on
behalf of and for the account and risk of the Indemnifying Person by counsel or
other representatives designated by the Indemnified Person. In the event that
any Claim shall arise out of a transaction or cover any period or periods
wherein TeleBanc and the Holder
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shall each be liable hereunder for part of the liability or obligation arising
therefrom, then the parties shall, each choosing its own counsel and bearing its
own expenses, defend such Claim, and no settlement or compromise of such Claim
may be made without the joint consent or approval of TeleBanc and the Holder.
Notwithstanding the foregoing, no Indemnifying Person shall be obligated
hereunder with respect to amounts paid in settlement of any Claim if such
settlement is effected without the consent of such Indemnifying Person (which
consent shall not be unreasonably withheld).
SECTION 12. MISCELLANEOUS.
12. Additional Actions and Documents.
Each of the parties hereto agrees that it will, at any time,
prior to, at or after the Closing, take or cause to be taken such further
actions, and execute, deliver and file or cause to be executed, delivered and
filed such further documents and instruments as may be necessary or reasonably
requested in connection with the consummation of the Acquisition contemplated by
this Agreement or in order to fully effectuate the purposes, terms and
conditions of this Agreement, including the intent of the parties that the
Acquisition constitute a reorganization under Section 368(a)(1)(C) of the Code.
12.2 Expenses.
Each party hereto shall pay its own expenses incurred in
connection with this Agreement and in the preparation for and consummation of
the transactions contemplated hereby.
12.3 Notices.
All notices, demands, requests, or other communications which
may be or are required to be given or made by any party to any other party
pursuant to this Agreement shall be in writing and shall be hand delivered,
mailed by first-class registered or certified mail, return receipt requested,
postage prepaid, or delivered by overnight air courier, addressed as follows:
If to TeleBanc:
TeleBanc Financial Corporation
1111 North Highland Street
Arlington, Virginia 22201
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Attn.: Aileen Lopez Pugh
with a copy (which shall not constitute notice) to:
Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Attn.: Stuart G. Stein, Esq.
If to Arbor:
Arbor Capital Partners, Inc.
405 Park Avenue, Suite 1104
New York, New York 10022
Attn.: Emidio Morizio
If to MET Holdings:
MET Holdings Corporation
405 Park Avenue, Suite 1104
New York, New York 10022
Attn.: Emidio Morizio
If to Daugherty:
William M. Daugherty
561 Hudson Street, #31
New York, NY 10014
or such other address as the addressee may indicate by written notice to the
other parties. Each notice, demand, request, or communication which shall be
given or made in the manner described above shall be deemed sufficiently given
or made for all purposes at such time as it is delivered to the addressee (with
the return receipt, the delivery receipt, or the affidavit of messenger being
deemed conclusive but not exclusive evidence of such delivery) or at such time
as delivery is refused by the addressee upon presentation.
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12.4 Waiver.
No waiver by any party of any failure or refusal of any other
party to comply with its obligations under this Agreement shall be deemed a
waiver of any other or subsequent failure or refusal to so comply by such other
party. No waiver shall be valid unless in writing signed by the party to be
charged and only to the extent therein set forth.
12.5 Binding Effect.
This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns.
12.6 Entire Agreement; Amendment.
This Agreement, including the other instruments and documents
referred to herein or delivered pursuant hereto, contains the entire agreement
among the parties with respect to the subject matter hereof and supersedes all
prior oral or written agreements, commitments or understandings with respect to
such matters. No amendment, modification or discharge of this Agreement shall be
valid or binding unless set forth in writing and duly executed by the party
against whom enforcement of the amendment, modification or discharge is sought.
12.7 Severability.
If any part of any provision of this Agreement shall be
invalid or unenforceable under applicable law, such part shall be ineffective to
the extent of such invalidity or unenforceability only, without in any way
affecting the remaining parts of such provisions or the remaining provisions of
said Agreement.
12.8 Headings.
The headings of the sections and subsections contained in this
Agreement are inserted for convenience only and do not form a part or affect the
meaning, construction or scope thereof.
12.9 Governing Law.
This Agreement, the rights and obligations of the parties
hereto, and any claims or disputes relating thereto, shall be governed by and
construed under and in accordance with the laws of the State of Delaware,
excluding the choice of law rules thereof.
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12.10 Signature in Counterparts.
This Agreement may be executed in separate counterparts, none
of which need contain the signatures of all parties, each of which shall be
deemed to be an original, and all of which taken together constitute one and the
same instrument. It shall not be necessary in making proof of this Agreement to
produce or account for more than the number of counterparts containing the
respective signatures of, or on behalf of, all of the parties hereto.
12.11 No Third Party Beneficiaries.
Except as expressly provided herein, this Agreement is made
and entered into for the sole protection and benefit of the parties hereto, and
no other person or entity shall have any right of action hereon, right to claim
any right or benefit from the terms contained herein or be deemed a third party
beneficiary hereunder.
12.12 Assignability.
All terms and provisions of this Agreement shall be binding
upon and inure to the benefit of the parties hereto, and their respective
transferees, successors and assigns; provided, however, that neither this
Agreement nor any rights, privileges, duties and obligations of the parties
hereto may be assigned or delegated by any party hereto without the prior
written consent of all the parties to this Agreement and any such purported or
attempted assignment shall be null and void ab initio and of no force or effect.
12.13 Parties Not Partners.
Nothing contained in this Agreement shall constitute any party
as a partner with, agent for or principal of any one or more of the other
parties or their successors and assigns.
12.14 Survival.
Except as specifically provided otherwise herein, the
representations, warranties, covenants or agreements of Arbor, MET Holdings and
Daugherty contained in this Agreement or in any certificate or instrument
delivered pursuant to this Agreement shall survive the Closing for a period of
one year from the Closing Date; provided, however, that this one year period
shall be extended with respect to claims in respect of taxes or employee
benefits to 30 days after the expiration of the applicable statutory period for
such assessments. The representations, warranties, covenants or agreements of
TeleBanc contained in this
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Agreement or in any certificate or instrument delivered
pursuant to this Agreement shall not survive the Closing.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the date first above written.
TELEBANC FINANCIAL CORPORATION
By: /s/ Aileen Lopez Pugh
--------------------------
Name: Aileen Lopez Pugh
Title: EVP-CFO/Treasurer
Attest:
/s/ Sang-Hee Yi
- ------------------------
MET HOLDINGS CORPORATION
By: /s/ Mitchell H. Caplan
-------------------------
Name: Mitchell H. Caplan
Title: President
Attest:
/s/ Sang-Hee Yi
- -----------------------
ARBOR CAPITAL PARTNERS, INC.
By: /s/ Mitchell H. Caplan
-------------------------
Name: Mitchell H. Caplan
Title: Vice President & Managing Partner
Attest:
/s/ Sang-Hee Yi
- -----------------------
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WILLIAM M. DAUGHERTY
/s/ William M Daugherty
-------------------------------
Subscribed and sworn to before me this 24th day of February, 1997.
X
---------------------------------------------
Notary Public
My Commission Expires: 5/98
--------
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