February 6, 1997
To the Purchaser Listed On Schedule A
Attached Hereto (the "Purchaser")
Ladies and Gentlemen:
This letter confirms the agreement (the "Agreement") with respect to the
intention of National Mercantile Bancorp (the "Company") to raise additional
capital through a rights offering, with oversubscription privileges, of up to
$5.5 million in aggregate Subscription Price (as hereinafter defined) of shares
of the Company's 6.5% Series A Noncumulative Convertible Perpetual Preferred
Stock (the "Preferred Shares") to its shareholders of record as of a date to be
determined ("Rights Offering") with the participation of standby purchasers to
purchase a number of Preferred Shares, subject to applicable limitations herein
expressed, equal to the amount of unsubscribed shares in the Rights Offering.
Additional Preferred Shares of up to $2.5 million in aggregate Subscription
Price of Preferred Shares (the "Additional Shares") are to be offered to
accommodate the minimum purchase requirements of the Purchaser and the
additional standby purchasers listed on Schedule B (collectively the "Tier I
Standby Purchasers"). Up to an additional $1.0 million in aggregate Subscription
Price of Preferred Shares (the "Over-Allotment Shares") are to be offered to
accommodate oversubscription rights ("Oversubscription Rights") of shareholders
entitled to participate in the Rights Offering and subscriptions from other
standby purchasers (the "Tier II Standby Purchasers") identified by the Company.
The Rights Offering and the offering of Additional Shares and Over-Allotment
Shares is herein referred to as the "Offering."
A registration statement on Form S-2 with respect to the Offering of
Preferred Shares, including a preliminary form of prospectus, will be prepared
by the Company in conformity with the requirements of the Securities Act of
1933, as amended (the "Securities Act"), and the rules and regulations (which
together with the rules and regulations under the Exchange Act referred to below
are collectively referred to herein as the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") thereunder and will be
filed with the Commission; and one or more amendments to such registration
statement also will be so prepared and will be so filed. Such registration
statement, when filed with the Commission, as amended at the time it is declared
effective by the Commission, and, in the event of any amendment thereto after
the effective date and prior to the closing of the Rights Offering, such
Registration Statement, as so amended, including all exhibits and all documents
incorporated by reference therein, is hereinafter called the "Registration
Statement." The prospectus included in the Registration Statement is hereinafter
called the "Prospectus."
The Preferred Shares will be issued pursuant to and be entitled to the
benefits of the provisions of an amendment and restatement of the Articles of
Incorporation of the Company substantially as set forth in Exhibit 1 hereto (the
"Restatement"). The Preferred Shares shall be convertible into shares of the
Company's Common Stock (as hereinafter defined) (such shares of Common Stock
into which the Preferred Shares are convertible and all shares of Common Stock
of the Company issued in exchange or substitution therefor being hereinafter
sometimes referred to as the "Conversion Stock"), initially at the rate of one
share of Conversion Stock for each Preferred Share, all as more fully set forth
in the Restatement. The Preferred Shares shall be subject in all respects to all
of the other provisions of the Restatement.
Pursuant to the Restatement, the Company also intends to effect a 9.09 for
1 reverse stock split (the "Recapitalization") immediately prior to the Rights
Offering Closing (as hereinafter defined) and to adopt certain restrictions on
ownership and transfer of capital stock of the Company relative to the IRC 382
Limitation (as defined below). A proxy statement has been prepared in conformity
with the Securities Exchange Act of 1934, as amended (the "Exchange Act") and
the Rules and Regulations and shall be filed by the Company with the Commission
relating to approval of the Restatement by the shareholders of the Company at a
meeting thereafter to be called (the "Annual Meeting"). Such proxy statement,
when filed with the Commission, as amended at the time all applicable waiting
periods relating to approval have expired with the Commission, at the time of
mailing the proxy statement and at all times subsequent to such mailing up to
and including the time of the Annual Meeting, is hereinafter called the "Proxy
Statement."
All share and per share data set forth herein shall be deemed
proportionately adjusted upon effectiveness of the Recapitalization.
1. Purchase and Sale of Available Shares
1.1 Purchase by Purchaser and Tier I Standby Purchasers. Subject to
the terms and conditions and in reliance upon the representations and warranties
herein set forth, the Company agrees to issue and sell to Purchaser and the
Purchaser severally agrees to purchase from the Company, ratably with all Tier I
Standby Purchasers in accordance with the percentage allocation set forth on
Schedule A and Schedule B, at the Subscription Price (a) that aggregate number
of Preferred Shares which remain available for issuance in accordance with the
Rights Offering after the issuance of all Preferred Shares validly subscribed
for through the exercise of basic subscription rights in the Rights Offering
(the "Basic Subscription Rights"), and (b) the Additional Shares (such Preferred
Shares being hereinafter referred to collectively as the "Available Shares").
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1.2 Minimum Purchase by Purchaser and Tier I Standby Purchaser.
Subject to the terms, conditions and limitations herein set forth, the Company
agrees to issue and sell to the Purchaser, and the Purchaser severally agrees to
purchase from the Company, ratably with all Tier I Standby Purchasers in
accordance with the percentage allocation set forth on Schedule A and Schedule
B, at the Subscription Price and otherwise in accordance with this Agreement, an
amount not less than the Additional Shares.
1.3 Subscription Price. The Subscription Price shall be $1.10 per
Preferred Share, or such lesser price at which the Preferred Shares shall be
offered in the Rights Offering.
1.4 Priority of Tier I Standby Purchasers. Subscriptions for
Preferred Shares in connection with the Offering shall be accepted by the
Company in the following order of priority: first, Basic Subscription Rights;
second, Tier I Standby Purchaser subscription rights as set forth in Sections
1.1 and 1.2 hereof; third, Oversubscription Rights; and fourth, subscription
rights of Tier II Standby Purchasers. In no event shall the aggregate
Subscription Price of the Preferred Shares offered and sold in the Offering
exceed $9.0 million. All Preferred Shares subscribed for in the Rights Offering
or pursuant hereto shall be issued all on the same date established by the
Company (the "Issuance Date").
1.5 Other Terms of Purchase by Standby Purchasers. The Company
contemplates entering into one or more standby purchase agreements with the
other Tier I Standby Purchasers and the Tier II Standby Purchasers (collectively
the "Standby Purchasers"). In no event shall any such agreement be on terms less
favorable to the Company than the terms hereof except as it may relate to the
number of Preferred Shares to be acquired, or on substantive economic terms
inconsistent with the terms of this Agreement. No binding agreement with a Tier
II Standby Purchaser shall be executed prior to the date that the Registration
Statement shall be declared effective by the Commission. In connection with the
purchase of shares of Preferred Stock by a Tier II Standby Purchaser, the
Company will receive from each Tier II Standby Purchaser a representation that
the Tier II Standby Purchaser's investment decision is not made based upon the
investment decision of any other purchaser. The aggregate maximum number of
Preferred Shares offered and sold to Tier II Standby Purchasers shall not exceed
$2.5 million in aggregate Subscription Price of Preferred Shares. The aggregate
minimum number of Preferred Shares that the Company can guarantee will be sold
pursuant to Oversubscription Rights and to Tier II Standby Purchasers (the
"Oversubscription and Tier II Standby Minimum") shall not exceed $1.0 million in
aggregate Subscription Price of Preferred Shares. The Over-Allotment Shares
shall be issued solely for the purpose of satisfying the Oversubscription and
Tier II Standby Minimum. Other than the sale of Preferred Shares to the
Purchaser or the sale of Preferred Shares to existing stockholders pursuant to
Basic Subscription Rights, the Company will not enter into any agreements or
arrangements which would allow any stockholder or groups of stockholders to
become a 5% stockholder as defined in the IRC 382 Limitation. If requested by
Purchaser, the Company shall furnish to the Purchaser a copy of each agreement
with any other Standby
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Purchaser promptly upon execution by the parties thereto. Purchaser further
acknowledges that its obligations hereunder are not contingent upon the
consummation of the sale of the Over-Allotment Shares.
1.6. Limitation on Issuance of Available Shares. The Purchaser
acknowledges and agrees that the Available Shares to be allocated to the
Purchaser shall be reduced to the lesser of (a) an amount which, in the judgment
of the Company and the Purchaser after consultation with their respective tax
advisors, would not likely result in an "ownership change" of the Company under
Section 382 of the Internal Revenue Code of 1986, as amended (the "Code") and
related regulations (the "IRC 382 Limitation"); provided, however, that for
purposes of this Agreement, the amount of "ownership change" with reference to
the IRC 382 Limitation shall not exceed 45%, or (b) $5.0 million in aggregate
Subscription Price of Preferred Shares.
2. The Closing
As soon as practicable following its determination of the number of
Available Shares, the Company shall notify the Purchaser of the number of
Available Shares to be purchased by the Purchaser. The delivery of and payment
for the Available Shares shall take place at the offices of Xxxxxx, Xxxxxx &
Xxxxxxxx, LLP at 11:00 a.m., Pacific time, immediately after the closing of the
sale of the Preferred Shares pursuant to the Rights Offering (the "Rights
Offering Closing"), such time and date to be not more than five (5) business
days after the foregoing notification and to be specified therein (such time and
date being referred to as the "Closing Time," the date of the Closing Time being
referred to as the "Closing Date" and the consummation of the transaction being
referred to as the "Closing").
3. Delivery of Available Shares
At the Closing, the Available Shares to be purchased by the Purchaser
hereunder, registered in the name of the Purchaser or its nominee(s), as the
Purchaser may specify in writing at least three (3) days prior to the Closing
Date, shall be delivered by or on behalf of the Company to the Purchaser, for
the Purchaser's account, against delivery by the Purchaser of the aggregate
Subscription Price therefor in immediately available funds by wire transfer to
an account designated by the Company.
4. Representations and Warranties of the Company
In this Agreement, any reference to any event, change, condition or
effect being "material" with respect to any entity or group of entities means
any material event, change, condition or effect related to the financial
condition, properties, assets (including intangible assets), liabilities,
business, prospects, operations or results of operations of the Company and its
subsidiaries, taken as a whole. In this Agreement, any reference to a "Material
Adverse Effect" with respect to any entity or group of entities means any event,
change or effect that is
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materially adverse to the financial condition, properties, assets, liabilities,
business, prospects, operations or results or operations of the Company and its
subsidiaries, taken as a whole. For purposes of this Agreement, the term
"prospects" shall mean realization of the Company's 1997 Business Plan dated
December 20, 1996.
Except as disclosed in a document of even date herewith and delivered
by the Company to the Purchaser, and referring to the representations and
warranties in this Agreement (the "Disclosure Schedule"), or (other than where
so indicated below) in the Registration Statement in the form delivered to
Purchaser prior to execution of this Agreement, the Company represents and
warrants to the Purchaser as follows:
4.1 Organization/Qualification. Each of the Company and its
subsidiaries has been duly organized and is validly existing as a corporation in
good standing under the laws of its jurisdiction of incorporation. Each of the
Company and its subsidiaries has full corporate power and authority to own its
properties and conduct its business as currently being carried on, and is duly
qualified to do business as a foreign corporation in good standing in each
jurisdiction in which it owns or leases real property or in which the conduct of
its business makes such qualification necessary and in which the failure to so
qualify would have a Material Adverse Effect.
4.2 Capital Stock. The authorized capital stock of the Company
consists of ten million (10,000,000) common shares, of which 3,078,146 shares
are issued and outstanding, and one million (1,000,000) shares of preferred
stock, none of which shares are issued and outstanding. All of the issued and
outstanding shares of capital stock of the Company are duly authorized by all
necessary or proper corporate action, validly issued, fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities, and the holders
thereof are not subject to personal liability by reason of being such holders;
upon approval of the Restatement, as contemplated by the Proxy Statement, the
Preferred Shares which may be sold by the Company will have been duly authorized
by all necessary or proper corporate action and, when issued, delivered and paid
for as contemplated by the Registration Statement and this Agreement, will have
been validly issued and will be fully paid and nonassessable, and the holders
thereof will not be subject to personal liability by reason of being such
holders; a number of shares of Common Stock equal to the number of Preferred
Shares have been duly authorized by all necessary or proper corporate action and
reserved in the corporate records of the Company, and upon conversion of the
Preferred Shares, the Conversion Shares, when issued and delivered, will have
been validly issued and will be fully paid and nonassessable; there are no
preemptive rights or other rights to subscribe for or to purchase, or any
restriction upon the voting or transfer of, the Preferred Shares or any shares
of Common Stock pursuant to the Company's charter, by-laws or any agreement or
other instrument to which the Company is a party or by which the Company is
bound. Except as contemplated in this Agreement, neither the filing of the
Registration Statement nor the offering or sale of the Preferred Shares as
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contemplated by this Agreement gives rise to any rights for or relating to the
registration of any shares of Common Stock or other securities of the Company or
rights relating to antidilution which could result in any change in the number
of shares of capital stock to be issued by the Company. All of the issued and
outstanding shares of capital stock of each of the Company's subsidiaries have
been duly and validly authorized and issued and are fully paid and
nonassessable, and, except for any directors' qualifying shares, the Company
owns of record and beneficially, free and clear of any security interests,
claims, liens, proxies, equities or other encumbrances, all of the issued and
outstanding shares of such stock. There are no outstanding subscriptions,
options, warrants, calls, contracts, demands, commitments, convertible
securities or other agreements or arrangements of any character or nature
whatever, except as contemplated by this Agreement, under which the Company is
or may be obligated to issue capital stock or other securities of any kind
representing an ownership interest or contingent ownership interest in the
Company.
4.3 Authorization. Each of this Agreement and the Registration
Rights Agreement (as defined below) has been duly authorized by all necessary or
proper corporate action, executed and delivered by the Company, and constitutes
a valid, legal and binding obligation of the Company, enforceable in accordance
with its terms, except as rights to indemnity hereunder may be limited by
federal or state securities laws and except as such enforceability may be
limited by bankruptcy, insolvency, reorganization or similar laws affecting the
rights of creditors generally and subject to general principles of equity. The
execution, delivery and performance of this Agreement and the Registration
Rights Agreement and the consummation of the transactions herein and therein
contemplated will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any statute, any agreement or
instrument to which the Company is a party or by which it is bound or to which
any of its property is subject, or upon approval of the Restatement as
contemplated by the Proxy Statement, the Company's charter or by-laws, or any
order, rule, regulation or decree of any court or governmental agency or body
having jurisdiction over the Company or any of its properties; no consent,
approval, authorization or order of, or filing with, any court or governmental
agency or body is required for the execution, delivery and performance of this
Agreement or for the consummation of the transactions contemplated hereby by the
Company, including the issuance or sale of the Preferred Shares by the Company,
except such as may be required under the Securities Act or state securities or
blue sky laws in connection with the Offering, and with respect to any such
approvals to be applied for, the Company has no reason to believe such approvals
will not be granted or obtained; and the Company has full power and authority to
enter into this Agreement and, upon approval of the Restatement as contemplated
by the Proxy Statement, to authorize, issue and sell the Preferred Shares as
contemplated by this Agreement. The offer and sale of the Preferred Shares to
the Purchaser and each other Tier I Standby Purchaser is exempt from the
registration, qualification and prospectus delivery requirements of applicable
federal and state law, provided that the representations and warranties of the
Purchaser hereunder and each other Tier I Standby Purchaser relating to such
laws are true and correct. Upon approval by the Stockholders as contemplated by
the Proxy Statement, the Restatement will have been
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duly authorized by all necessary or proper corporate action, and, upon filing
with the Secretary of State of the State of California, no other or additional
corporate or legal action shall be necessary to perfect the rights and
privileges of the holders of Preferred Shares under the Restatement. The holders
of capital stock of the Company are entitled to the rights, preferences and
provisions of the Restatement.
4.4 Registration Statement and Proxy Statement. The Registration
Statement, Prospectus and the Proxy Statement conform in all material respects
to the requirements of the Securities Act, the Exchange Act and the Rules and
Regulations; the Registration Statement and the Proxy Statement do not include
an 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 not misleading;
and the Prospectus does not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they are or were
made, not misleading, except that the foregoing does not apply to statements in
or omissions from any such document in reliance upon, and in conformity with,
written information furnished to the Company by the Purchaser, specifically for
use in the preparation thereof.
4.5 Licenses. The Company and each of its subsidiaries holds, and is
operating in compliance in all respects with, all franchises, grants,
authorizations, licenses, permits, easements, consents, certificates and orders
of any governmental or self-regulatory body required for the conduct of its
business and all such franchises, grants, authorizations, licenses, permits,
easements, consents, certifications and orders are valid and in full force and
effect; and the Company and each of its subsidiaries has been and is in
compliance in all respects with all applicable federal, state, local and foreign
laws, regulations, orders and decrees, except where the failure to so comply
would not have a Material Adverse Effect. The Company is registered as a
corporation under Section 1841 of Title 12, United States Code, as amended.
Mercantile National Bank (the "Bank") is an insured bank under the provisions of
Chapter 16 of Title 12, United States Code. No act or default on the part of the
Company or the Bank exists that could reasonably be expected to limit or impair
any of the Company's or Bank's powers, rights and privileges or, in the case of
the Bank, to affect its status as an insured bank.
4.6 Property. The Company and its subsidiaries have good and
marketable title to all property owned by them, in each case free and clear of
all liens, claims, security interests or other encumbrances; the property held
under lease by the Company and its subsidiaries is held by them under valid,
subsisting and enforceable leases with only such exceptions with respect to any
particular lease as do not interfere in any material respect with the conduct of
the business of the Company or its subsidiaries; the Company and each of its
subsidiaries owns or possesses all patents, patent applications, trademarks,
service marks, tradenames, trademark registrations, service mark registrations,
copyrights, licenses, inventions, trade secrets and rights necessary for the
conduct of the business of the Company
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and its subsidiaries as currently carried on, no name which the Company or any
of its subsidiaries uses and no other aspect of the business of the Company or
any of its subsidiaries will involve or give rise to any infringement of, or
license or similar fees for, any patents, patent applications, trademarks,
service marks, tradenames, trademark registrations, service mark registrations,
copyrights, licenses, inventions, trade secrets or other similar rights of
others material to the business or prospects of the Company and neither the
Company nor any of its subsidiaries has received any notice alleging any such
infringement or fee.
4.7 Subsidiaries. Other than the subsidiaries of the Company listed
in Exhibit 21 to the Company's 1995 10-K, neither the Company nor any subsidiary
owns any capital stock or other equity or ownership or proprietary interest in
any corporation, partnership, association, trust or other entity.
4.8 SEC Documents; Financial Statements. In addition to the
Registration Statement, the Prospectus and the Proxy Statement, the Company has
furnished to Purchaser a true and complete copy of each statement, report,
registration statement (with the prospectus in the form filed pursuant to Rule
424(b) of the Securities Act), definitive proxy statement and other filings
filed with the Commission by the Company since January 1, 1994, and, prior to
the Closing Date, the Company will have furnished Purchaser with true and
complete copies (including exhibits) of any additional documents filed with the
Commission by the Company, or by an affiliate on Schedule 13D or 13G, prior to
the Closing Date (collectively, the "SEC Documents"). All documents required to
be filed as exhibits to the SEC Documents have been so filed, and all material
contracts so filed as exhibits are in full force and effect, except those which
have expired or have been terminated in accordance with their terms, and neither
the Company nor any of its subsidiaries is in material default thereunder. True
and correct copies of all such contracts have been furnished to Purchaser. As of
their respective filing dates, the SEC Documents complied in all material
respects with the requirements of the Exchange Act and the Securities Act, and
none of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances in which they
were made, not misleading, except to the extent corrected by a subsequently
filed SEC Document. To the knowledge of the Company, other than 9830 Investments
No. 1, Ltd., there are no other persons or groups which beneficially own five
percent or more of any class of the Company's capital stock nor any material
inaccuracies in any Schedule 13D or 13G delivered to the Company and filed with
the SEC. The financial statements of the Company, including the notes thereto,
included in the SEC Documents (the "Company Financial Statements") were complete
and correct in all material respects as of their respective dates, complied as
to form in all material respects with applicable accounting requirements and
with the published rules and regulations of the Commission with respect thereto
as of their respective dates, and have been prepared in accordance with
generally accepted accounting principles applied on a basis consistent
throughout the periods indicated and consistent with each other (except as may
be indicated in the notes thereto or, in the case of unaudited statements
included in Quarterly Reports on Form 10-Qs, as permitted by Form
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10-Q). The Company Financial Statements fairly present the consolidated
financial condition and operating results of the Company and its subsidiaries at
the dates and during the periods indicated therein (subject, in the case of
unaudited statements, to normal, recurring year-end adjustments). There has been
no change in the Company accounting policies except as described in the notes to
the Company Financial Statements.
The Company has heretofore delivered to Purchaser copies of its
monthly reporting package to the Board of Directors of the Company for December
1995 and March, June, September and December of 1996 (collectively the "Board
Package Financial Information"). The Board Package Financial Information has
been prepared in accordance with the books and records of the Company and its
subsidiaries, is true and correct in all material respects and has been prepared
on a basis consistent with the Company Financial Statements and on a basis
consistent throughout the periods presented.
4.9 Absence of Certain Changes. Except for the transactions
contemplated by this Agreement, since September 30, 1996, neither the Company
nor any of its subsidiaries has: (a) incurred any debts, obligations or
liabilities, absolute, accrued or contingent and whether due or to become due,
except current liabilities incurred in the ordinary course of business; (b) paid
any obligation or liability other than, or discharged or satisfied any liens or
encumbrances other than those securing, current liabilities, in each case in the
ordinary course of business; (c) declared or made any payment or distribution to
its stockholders as such, or purchased or redeemed any of it shares of capital
stock or other securities, or obligated itself to do so; (d) mortgaged, pledged
or subjected to lien, charge, security interest or other encumbrance any of its
assets, tangible or intangible, except in the ordinary course of business; (e)
sold, transferred or leased any of its assets except in the ordinary course of
business; (f) cancelled or compromised any debt or claim, or waived or released
any right of material value; (g) suffered any physical damage, destruction or
loss (whether or not covered by insurance) which would have a Material Adverse
Effect; (h) entered into any transaction other than in the ordinary course of
business; (i) encountered any labor difficulties or labor union organizing
activities; (j) issued or sold any shares of capital stock or other securities
or granted any options, warrants or other purchase rights with respect thereto
other than as contemplated by this Agreement; (k) made any acquisition or
disposition of any material assets or become involved in any other material
transaction, other than in the ordinary course of business; (1) increased the
compensation payable, or to become payable, to any of its directors or
employees, or made any bonus payment or similar arrangement with any directors
or employees or increased the scope or nature of any fringe benefits provided
for its employees or directors other than regularly scheduled increases or as
contemplated by any written employment agreement; or (m) agreed to do any of the
foregoing other than pursuant hereto. There has not occurred since September 30,
1996, any change, event or condition (whether or not covered by insurance) that
has resulted in or might reasonably be expected to result in, a Material Adverse
Effect.
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4.10 Absence of Undisclosed Liabilities. The Company has no
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth in or adequately provided for in the
balance sheet (the "Company Balance Sheet") included in the Company's Quarterly
Report on Form 10-Q for the period ended September 30, 1996; (ii) those incurred
in the ordinary course of business and not required to be set forth in the
Company Balance Sheet under generally accepted accounting principles; (iii)
those incurred in the ordinary course of business since September 30, 1996,
consistent with past practice and not individually in excess of $100,000; and
(iv) those incurred pursuant to this Agreement.
4.11 Taxes. The Company and each of its subsidiaries, and any
consolidated, combined or unitary group for Tax purposes of which the Company or
any of its subsidiaries is or has been a member have timely filed all Tax
Returns required to be filed by them and have paid all Taxes shown thereon to be
due. The Company Financial Statements (i) fully accrue under generally accepted
accounting principles all liabilities for Taxes with respect to all periods
through September 30, 1996 and, to the knowledge of the Company, the Company and
each of its subsidiaries have not and will not incur any material Tax liability
in excess of the amount reflected on the Company Financial Statements with
respect to such periods and (ii) properly accrue in accordance with generally
accepted accounting principles all liabilities for Taxes payable after September
30, 1996 with respect to all transactions and events occurring on or prior to
such date. No material Tax liability since September 30, 1996 has been incurred
by the Company or its subsidiaries other than in the ordinary course of business
and adequate provision has been made in the Company Financial Statements for all
Taxes since that date in accordance with generally accepted accounting
principles on at least a quarterly basis. The Company and each of its
subsidiaries have withheld and paid or will timely pay to the applicable Tax
Authority all amounts required to be withheld. No notice of deficiency or
similar documents of any Tax Authority has been received by either the Company
or any of its subsidiaries, and there are no liabilities for Taxes with respect
to the issues that have been raised (and are currently pending) by any Tax
Authority that could, if determined adversely to the Company and its
subsidiaries, materially and adversely affect the liability of the Company and
its subsidiaries for Taxes. There is (i) no material claim for Taxes that is a
lien against the property of the Company or any of its subsidiaries other than
liens for Taxes not yet due and payable, (ii) no notification received by the
Company of any audit of any Tax Return of the Company or any of its subsidiaries
being conducted pending or threatened by a Tax Authority, (iii) no extension or
waiver of the statute of limitations on the assessment of any Taxes granted by
the Company or any of its subsidiaries that may result in the payment of any
material amount that would not be deductible by reason of Sections 280G or 404
of the Code. The Company will not be required to include any material adjustment
in Taxable income for any Tax period (or portion thereof) pursuant to Section
481 or 263A of the Code or any comparable provision under state or foreign Tax
laws as a result of transactions, events or accounting methods employed prior to
the Closing Date. Neither the Company nor any of its subsidiaries is a party to
any tax sharing or tax allocation agreement nor does the Company or any of its
subsidiaries owe any amount under any such agreement.
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For purposes of this Agreement, the following terms have the following meanings:
"Tax" (and, with correlative meaning, "Taxes" and "Taxable") means (i) any net
income, alternative or add-on minimum tax, gross income, gross receipts, sales,
use, ad valorem, transfer, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other government fee or
other like assessment or charge of any kind whatsoever, together with any
interest or any penalty, addition to tax or additional amount imposed by any
Governmental Entity (a "Tax Authority") responsible for the imposition of any
such tax (domestic or foreign), (ii) any liability for the payment of any
amounts of the type described in (i) as a result of being a member of an
affiliated, consolidated, combined or unitary group for any Taxable period and
(iii) any liability for the payment of any amounts of the type described in
parts (i) or (ii) of this sentence as a result of any express or implied
obligation to indemnify any other person. as used herein, "Tax Return" shall
mean any return, statement, report or form including, without limitation,
estimated Tax returns and reports, withholding Tax returns and reports and
information reports and returns required to be filed with respect to Taxes. The
Company and each of its subsidiaries are in full compliance with all terms and
conditions of any Tax exemptions or other Tax sharing agreement or order of a
foreign government applicable to them and the execution and performance of this
Agreement shall not have any adverse effect on the continued validity and
effectiveness of any such Tax exemptions or other Tax sharing agreement. As of
September 30, 1996 the Company had net operating loss carryforwards of no less
than $19.7 million and $10.6 million for federal and California state tax
purposes, respectively (the "Net Operating Loss Carryforwards") and there has
not occurred any event that would restrict or prevent the Company from using the
Net Operating Loss Carryforwards to reduce future tax liabilities. Based in part
in reliance upon the certificate to be delivered by Purchaser in accordance with
Section 9.2 hereof and in the form of Exhibit 6, the completion of the Rights
Offering and the purchase of the Preferred Shares by the Standby Purchasers will
not result in an "ownership change" within the meaning of the IRC 382 Limitation
or otherwise restrict the Company's ability to use the Net Operating Loss
Carryforwards to reduce future tax liabilities.
4.12 Internal Accounting. The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
4.13 Xxxxxx's or Agent's Fee. The Company has not incurred any
liability for any finder's, broker's, agent's or financial advisor's fee or
commission in connection with the execution and delivery of this Agreement, the
Offering or the consummation of the transactions contemplated hereby or thereby.
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4.14 Litigation and Claims. Except as set forth in the Disclosure
Schedule, neither the Company nor any subsidiaries is subject to any continuing
order of, or written agreement or memorandum of understanding, directive,
supervisory letter, or other formal or informal enforcement action or commitment
that restricts or adversely affects it operations or financial condition, with
any federal or state depository institution or insurance authority or other
governmental entity, or any judgment, order, writ, injunction, decree or award
of any governmental entity or arbitrator, including, without limitation,
cease-and-desist or other orders of any depository institution regulatory
authority, and, to the knowledge of the Company, there exists no reasonable
basis therefor. Except as set forth in the Disclosure Schedule, there is no
action, suit, litigation, proceeding or arbitration ("Proceeding") against or
affecting the Company or any subsidiary of the Company or, to the knowledge of
the Company, any directors, officers, employees or agents of the Company or any
subsidiary of the Company (in their respective capacities as directors,
officers, employees or agents) pending or, to the knowledge of the Company,
threatened or, to the knowledge of the Company, any reasonable basis therefor
and there are no uncured material violations, or violations with respect to
which material refunds or restitutions may be required, cited in any compliance
report to the Company or any subsidiary of the Company as a result of the
examination by any depository institution regulatory authority.
4.15 Insurance. The Company is presently insured, and during each of
the past three calendar years has been insured, for reasonable amounts with
insurance companies listed on the Disclosure Schedule. Neither the Company nor
any of its subsidiaries has any liability for material unpaid premiums or
premium adjustments not properly reflected on the Company's Financial Statements
and no notice of cancellation or termination has been received by the Company or
any of its subsidiaries with respect to any material insurance policy currently
in effect. Within the last three years, neither the Company nor any of is
subsidiaries has been refused any insurance with respect to any assets or
operations, nor has any coverage been limited in any material respect as to any
assets or operations, by any insurance carrier to which it has applied for any
such insurance or with which it has carried insurance during the last three
years.
4.16 Interests of Affiliates. No officer, director or stockholder of
the Company or any affiliate (as such term is defined in Rule 405 under the
Securities Act) of any such person has any direct or indirect interest (a) in
any entity which does business with the Company, or (b) in any property, asset
or right which is used by the Company in the conduct of its business, or (c) in
any contractual relationship with the Company other than as an employee. For the
purpose of this Section 4.16, there shall be disregarded any interest which
arises solely from the ownership of less than a 1% equity interest in a
corporation whose stock is regularly traded on any national securities exchange
or in the over-the-counter market.
4.17 Listing on Nasdaq. The Company has applied to have the
Preferred Shares approved for quotation on the Nasdaq National Market. The
Common Stock is
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approved for quotation on the Nasdaq National Market. The Company and such
Common Stock are in compliance with the maintenance criteria of the NASD
applicable to continued eligibility for quotation on such market, and the
Company has not received any notification concerning, and has no reason to
believe it is subject to, termination of quotation privileges on such market.
4.18 Employee Benefit Plans.
(a) With respect to the Company, any subsidiary of the Company and
any trade or business (whether or not incorporated) which is treated as a
single employer with the Company (an "ERISA Affiliate") within the meaning
of Section 414(b), (c), (m) or (o) of the Code, there are no (i) material
employee benefit plans (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), (ii) stock
option, stock purchase, phantom stock, stock appreciation right,
supplemental retirement, severance, sabbatical, medical, dental, vision
care, disability, employee relocation, cafeteria benefit (Code Section 125)
or dependent care (Code Section 129), life insurance or accident insurance
plans, programs or arrangement, (iii) bonus, pension, profit sharing,
savings, deferred compensation or incentive plans, programs or
arrangements, (iv) fringe or employee benefit plans, programs or
arrangements that apply to senior management of the Company and that do not
generally apply to all employees, and (v) current or former employment or
executive compensation or severance agreements, written or otherwise, as to
which unsatisfied obligations of the Company of greater than $60,000 remain
for the benefit of, or relating to, any present or former employee,
consultant or director of the Company (together, the "Company Employee
Plans").
(b) Any Company Employee Plan intended to be qualified under Section
401(a) of the Code has either obtained from the Internal Revenue Service a
favorable determination letter as to its qualified status under the Code,
including all amendments to the Code effected by the Tax Reform Act of 1986
and subsequent legislation, or has applied to the Internal Revenue Service
for such a determination letter prior to the expiration of the requisite
period under applicable Treasury Regulations or Internal Revenue Service
pronouncements in which to apply for such determination letter and to make
any amendments necessary to obtain a favorable determination, or has been
established under a standardized prototype plan for which an Internal
Revenue Service opinion letter has been obtained by the plan sponsor and is
valid as to the adopting employer, the Company has also furnished Purchaser
with the most recent Internal Revenue Service determination or opinion
letter issued with respect to each such Company Employee Plan, and nothing
has occurred since the issuance of each such letter which could reasonably
be expected to
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cause the loss of the tax-qualified status of any Company Employee Plan
subject to Code Section 401(a).
(c) (i) None of the Company Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person; (ii) there
has been no "prohibited transaction," as such term is defined in Section
406 of ERISA and Section 4975 of the Code, with respect to any Company
Employee Plan, which could reasonably be expected to have, in the
aggregate, a Material Adverse Effect; (iii) each Company Employee Plan has
been administered in accordance with its terms and in compliance with the
requirements prescribed by any and all statutes, rules and regulations
(including ERISA and the Code), except as would not have, in the aggregate,
a Material Adverse Effect, and the Company and each subsidiary or ERISA
Affiliate have performed all material obligations required to be performed
by them under, are not in any material respect in default under or
violation of, and have no knowledge of any material default or violation by
any other party to, any of the Company Employee Plans; (iv) neither the
Company nor any subsidiary or ERISA Affiliate is subject to any liability
or penalty under Sections 4976 through 4980 of the Code or Title I of ERISA
with respect to any of the Company Employee Plans; (v) all material
contributions required to be made by the Company or any subsidiary or ERISA
Affiliate to any Company Employee Plan have been made on or before their
due dates and a reasonable amount has been accrued for contributions to
each Company Employee Plan for the current plan years; (vi) with respect to
each Company Employee Plan, no "reportable event" within the meaning of
Section 4043 of ERISA (excluding any such event for which the thirty (30)
day notice requirement has been waived under the regulations to Section
4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 of
ERISA has occurred; and (vii) no Company Employee Plan is covered by, and
neither the Company nor any subsidiary or ERISA Affiliate has incurred or
expects to incur any liability under Title IV of ERISA or Section 412 of
the Code. With respect to each Company Employee Plan subject to ERISA as
either an employee pension plan within the meaning of Section 3(2) of ERISA
or any employee welfare benefit plan within the meaning of Section 3(1) of
ERISA, the Company has prepared in good faith and timely filed all
requisite governmental reports (which were true and correct as of the date
filed) and has properly and timely filed and distributed or posted all
notices and reports to employees required to be filed, distributed or
posted with respect to each such Company Employee Plan. No suit,
administrative proceeding, action or other litigation has been brought, or
to the best knowledge of the Company is threatened, against or with respect
to any such Company Employee Plan, including any audit or inquiry by the
IRS or United States Department of Labor. Neither the Company nor any
subsidiary or other ERISA Affiliate is a party to, or has made any
contribution
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to or otherwise incurred any obligation under, any "multiemployer plan" as
defined in Section 3(37) of ERISA.
(d) With respect to each Company Employee Plan, the Company and each
of its United States subsidiaries have complied with (i) the applicable
health care continuation and notice provisions of the Consolidated Omnibus
Budget Reconciliation Act of 1985 ("COBRA") and the proposed regulations
thereunder and (ii) the applicable requirements of the Family Leave Act of
1993 and the regulations thereunder, except to the extent that such failure
to comply would not, in the aggregate, have a Material Adverse Effect.
(e) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or other
service provider of the Company, any subsidiary or any other ERISA
Affiliate to severance benefits or any other payment (including, without
limitation, unemployment compensation, golden parachute or bonus), or (ii)
accelerate the time of payment or vesting of any such benefits, or increase
the amount of compensation due any such employee or service provider.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written by the Company, and subsidiary or
other ERISA Affiliate relating to, or change in participation or coverage
under, any Company Employee Plan which would materially increase the
expense of maintaining such Plan above the level of expense incurred with
respect to that Plan for the most recent fiscal year included in the
Company's financial statements.
4.19 Environmental Matters. Neither the Company nor any subsidiary
nor any of the property owned, leased, possessed or controlled by them in the
operation of their respective businesses (including in connection with their
lending or fiduciary operations) ("Property") is in violation of any applicable
zoning ordinance or other law, regulation or requirement relating to the
operation of any properties used, including, without limitation, applicable
environmental protection laws, rules and regulations (collectively,
"Environmental Law"), other than violations that, in the aggregate with any
other conditions described in this Section 4.19, would not result in costs that
would have a Material Adverse Effect; and neither the Company nor any subsidiary
has received any notice of any such violation, or the existence of any
condemnation proceeding with respect to any Property. No Toxic Substances (as
defined below) have been deposited or disposed of in, on or under any Property
during the period in which the Company or any of its subsidiaries has owned,
occupied, managed, controlled or operated such properties, except to the extent
the same, in the aggregate with any other conditions described in this Section
4.19, would not result in costs that would have a Material Adverse Effect. To
the Company's knowledge (a) no prior owners, occupants or operators of all or
any part of the Property ever used such properties as a dump or gasoline
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service station, (b) no prior owners, occupants or operators of all or part of
the Property ever deposited or disposed of or allowed to be deposited or
disposed of in, on or under such properties any Toxic Substances or (c) no past,
present or known future event, condition, circumstances, plans, errors or
omissions have existed or occurred, are existing or occurring or are reasonably
expected to exist or occur on or with respect to any Property, or any other
property as to which the Company or any subsidiary has held or currently holds
ownership or indicia of ownership, except as to the matters in clauses (b) and
(c) to the extent the same, in the aggregate with any other conditions described
in this Section 4.19, would not result in costs that would have a Material
Adverse Effect. To the Company's knowledge, there are no conditions or
circumstances in connection with the Property that could reasonably be
anticipated to (i) cause any Property to be subject to any restrictions or
ownership, occupancy, use or transferability under any applicable Environmental
Laws or (ii) materially reduce the value of any Property. To the Company's
knowledge and its subsidiaries, neither the Company nor any subsidiary has been
identified as a potentially responsible party by any governmental entity in a
matter arising under any Environmental Laws. For purposes of this Agreement, (1)
"Toxic Substances" shall mean petroleum or petroleum-based substance or waste,
solid waste, PCBs, pesticides, herbicides, lead, radioactive materials, urea
formaldehyde foam insulation, or substances defined as "hazardous substances" or
"toxic substances" in any Environmental Laws; (2) materials will be considered
to be deposited or disposed of in, or under any real property if such materials
have been stored, treated, recycled, used or accidentally or intentionally
spilled, released, dumped, emitted or otherwise placed, deposited or disposed
of, or used in any construction, in, on or under such property; and (3) costs of
violations or conditions shall take into account, without limitation,
liabilities, damages, penalties, injunctive relief or removal, remediation or
other costs under any applicable Environmental Law.
4.20 Use of Proceeds. The Company will apply the net proceeds from
the sale of the Preferred Shares to be sold by it hereunder for the purposes set
forth in the Prospectus.
4.21 Loan Portfolio. All loans and loan commitments in excess of
$50,000 (the "Loans") extended by the Bank have been made in accordance with
customary lending standards of the Bank in the ordinary course of business. The
Loans are evidenced by appropriate and sufficient documentation consistent with
standards in the industry and constitute, to the Company's knowledge, valid and
binding obligations of the borrowers enforceable in accordance with their terms,
except as limited by applicable bankruptcy, insolvency, moratorium or other
similar laws affecting the enforcement of creditors' rights and remedies
generally from time to time in effect and by applicable law which may affect the
availability of equitable remedies. The Bank's interest in the notes receivable
associated with all such Loans is, and at the Closing Date will be, free and
clear of any security interest, lien, encumbrance or other charge and the Bank
has complied, and at the Closing Date will have complied, in all material
respects with all laws and regulations relating to such Loans. The Loans, taken
as a whole, are not subject to any material offsets, or to the knowledge of the
-16-
Company, claims of material offset, or claims of other material liability on the
part of the Company or any of its subsidiaries.
4.22 Fiduciary Accounts. Each of the Company and its subsidiaries
has properly administered all accounts for which it acts as a fiduciary,
including but not limited to accounts for which it serves as a trustee, agent,
custodian, personal representative, guardian or investment advisor, in
accordance with the terms of the governing documents and applicable state and
federal law and regulation and common law. Neither the Company, any of the
subsidiaries, nor any director, officer or employee of the Company or any of its
subsidiaries has committed any breach of trust with respect to any such
fiduciary account, and the accountings for each such fiduciary account are true
and correct statements and accurately reflect the assets of such fiduciary
account.
4.23 Employees. To the Company's knowledge, no employee of the
Company or subsidiary whose annual compensation is in excess of $75,000 has any
plans to terminate his or her employment with the Company or any subsidiary.
Each of the Company and its subsidiaries has complied in all material respects
with all laws relating to the employment of labor, including provisions relating
to wages, hours, equal opportunity, collective bargaining and payment of Social
Security and other taxes, and neither the Company nor any subsidiary has
encountered any material labor difficulties.
4.24 Representations Complete. None of the representations or
warranties made by the Company herein (as qualified by the Disclosure Schedule)
or in any exhibit hereto, or any written statement furnished to Purchaser by the
Company pursuant hereto or in connection with the transactions contemplated
hereby, when all such documents are read together in their entirety, contains or
will contain at the Closing Date any untrue statement of a material fact, or
omits or will omit at the Closing Date to state any material fact necessary in
order to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
5. Representations and Warranties of Purchaser
The Purchaser represents and warrants to the Company as follows:
5.1 Organization. The Purchaser is a corporation duly incorporated,
validly existing and in good standing under the laws of its jurisdiction of
incorporation with corporate power and authority to perform its obligation under
this Agreement.
5.2 Investment Intent. The Purchaser is acquiring the Preferred
Shares pursuant to this Agreement for its own account for investment only and
not with a view to any distribution thereof within the meaning of the Securities
Act.
-17-
5.3 Authorization of Agreement. This Agreement has been duly
authorized by all necessary or proper corporate action, executed and delivered
by the Purchaser, and constitutes a valid, legal and binding obligation of the
Purchaser, enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting the rights of creditors generally and subject to general
principles of equity. The execution and delivery of this Agreement, the
consummation by the Purchaser of the transactions herein contemplated and the
compliance by the Purchaser with the terms hereof do not and will not conflict
with, or result in a breach or violation of any of the terms or provisions of,
or constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Purchaser is a party or
by which any of the Purchaser's properties or assets are bound, or, subject to
receipt of approvals of applicable bank regulatory authorities, any applicable
law, rule, regulation, judgment, order or decree of any government, governmental
instrumentality or court, domestic or foreign, having jurisdiction over the
Purchaser or any of the Purchaser's properties or assets; and no consent,
approval, authorization, order, registration or qualification of or with any
such government, governmental instrumentality or court, domestic or foreign, is
required for the valid authorization, execution, delivery and performance by the
Purchaser of this Agreement or the consummation by the Purchaser of the
transactions contemplated by this Agreement.
5.4 Qualification of Purchaser. The state in which the Purchaser's
principal office is located is set forth on Schedule A. The Purchaser qualifies
as an accredited investor within the meaning of Rule 501 under the Securities
Act. The Purchaser has such knowledge and experience in financial and business
matters that the Purchaser is capable of evaluating the merits and risks of the
investment to be made hereunder by the Purchaser. The Purchaser has received and
reviewed this Agreement and all other documents and materials the Company has
provided to it in connection with the purchase of the Available Shares. The
Purchaser has had access to and an opportunity to review all documents and other
materials requested of the Company and has been given an opportunity to ask such
questions of the Company concerning the terms and conditions of the sale of the
Available Shares and the business, operations, financial condition, prospects,
assets and liabilities of the Company and other relevant matters as it has
deemed necessary or desirable and has been given all such information as it has
requested, to evaluate the merits and risks of the investment contemplated
herein. The Purchaser understands that the Available Shares being purchased
hereunder have not been registered under the Securities Act or registered or
qualified under any state securities laws on the grounds that such Available
Shares are being issued in a transaction exempt from the registration
requirements of the Securities Act and the registration or qualification
requirements of applicable state securities laws, and that such Available Shares
must be held indefinitely unless such Available Shares are subsequently
registered under the Securities Act and qualified or registered under applicable
state securities laws or an exemption from registration and qualification is
available, and that the Company is under no obligation to register or qualify
the Available Shares except as contemplated by the Registration Rights
Agreement. The Purchaser has not seen or received and is not acquiring
-18-
the Available Xxxxxx purchased hereunder pursuant to any advertisement with
respect to the sale of the Available Shares.
5.5 Certain Relationships. Except for the concurrent purchase with
other Tier I Standby Purchasers contemplated hereby, the Purchaser has not
entered into any contracts, arrangements, understandings or relationships (legal
or otherwise) with any other person or persons with respect to the transactions
contemplated by this Agreement or any securities of the Company, including, but
not limited to, transfer or voting of any of the securities, finder's fees,
joint ventures, loan or option arrangements, puts or calls, guarantees of
profits, division of profits or loss, or the giving or withholding of proxies;
and the Purchaser does not own any securities of the Company which are pledged
or otherwise subject to a contingency the occurrence of which would give another
person voting power or investment power of such securities.
6. Covenants
6.1 Conduct of the Company's Business Pending the Closing Date. The
Company covenants and agrees that, from the date hereof to the Closing Date,
except for entering into this Agreement and consummating the transactions
expressly contemplated hereby or to the extent that the Purchaser shall
otherwise consent in writing:
(a) The Company will maintain its corporate existence in good
standing and will operate its business substantially as presently planned
or operated and only in the ordinary, usual and customary manner, and,
consistent with such operation, it will use its reasonable efforts to
preserve intact its present business organization and its relationships
with persons having business relationships with it.
(b) No amendment will be made to the Articles of Incorporation of
the Company except the Restatement.
(c) There will be no changes in the number of shares, par value or
class of authorized or issued capital stock of the Company, other than
shares of Common Stock pursuant to the exercise of currently outstanding
options and warrants except for the Offering. In addition, the Company has
not granted and shall not grant or issue any option, warrant, convertible
security, or other right to acquire any shares of capital stock of the
Company other than options under existing stock option plans, warrants
under the Warrant Agreement dated December 31, 1995 by and between the
Company and California State Teachers' Retirement System, warrants under
the Warrant Agreement dated December 31, 1995 between the Company and U.S.
Stock Transfer Corporation, and options or rights under the Xxxxxxxxxx
Employment Agreement referred to in Section 8.7 hereof.
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(d) There will not be any declaration or payment of any dividend or
other distribution in respect to the capital stock of the Company.
(e) The Company will not enter into any material transaction outside
of the ordinary course of business.
6.2 Registration Statement; Proxy Statement. As promptly as
practicable after the execution of this Agreement, the Company will file with
the Commission and other applicable federal and state regulators the
Registration Statement and the Proxy Statement. The Company shall use reasonable
efforts to cause, at the earliest practicable date, the Registration Statement
to become effective under the Securities Act and applicable state securities law
and the Proxy Statement to be approved under the Exchange Act and applicable
state securities laws. Copies of the Registration Statement, Prospectus and
Proxy Statement (including any amendment or supplement thereto), as filed with
any federal or state regulator, will be delivered to Purchaser promptly
following such filing. Purchaser shall have the right to review and comment on
the form of Registration Statement and Proxy Statement prior to any such filing
for a period of not less than 48 hours after receipt of such document.
6.3 No Solicitation. Until the earlier of the consummation of the
Rights Offering or the termination of this Agreement, with respect to any
Investment Proposal (as hereinafter defined):
(a) The Company will not (and will use its reasonable best efforts
to assure that its officers, directors, employees, agents and affiliates do
not on its behalf) take any action to solicit, initiate, encourage or
support any inquiry, proposal or offer from, furnish any information to, or
participate in any negotiations with, any corporation, partnership, person
or other entity or group regarding any acquisition of the Company or any
subsidiary thereof, any merger, amalgamation, or consolidation with or
involving the Company or any subsidiary thereof, or any take-over bid, or
(other than the Standby Purchasers in connection with the Offering and in
accordance with the other terms of this Agreement) any sale of stock or
other equity securities (including, without limitation, by way of a tender
offer) or any material portion of the assets of the Company or any
subsidiary thereof (any of the foregoing inquiries or proposals being
referred to herein as an "Investment Proposal").
(b) The Company shall immediately notify the Purchaser after receipt
of any Investment Proposal, or any request for information relating to the
Company in connection with an Investment Proposal, or any request for
access to the properties, books or records of the Company by any person or
entity that informs the Company that it is considering making, or has made,
an Investment Proposal. Such notice to the Purchaser shall be made orally
and in
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writing and shall indicate in reasonable detail the terms and conditions of
any such proposal, inquiry or contact.
6.4 Books and Records; Access and Information. From the date of this
Agreement until the Closing Date, the Company will give to the Purchaser, its
officers and representatives reasonable access to the premises, books and
records of the Company and its subsidiaries, and provide the Purchaser with such
financial and operating data and other information with respect to its business
and properties as it shall from time to time reasonably request, including,
without limitation, all interim financial data within five (5) days of it
becoming available; provided, however, that any such investigation shall be
conducted in such manner as not to interfere unreasonably with the operation of
the business of the Company.
6.5 Rights Offering; Annual Meeting. The Company will conduct, and
use its reasonable best effort to close, the Rights Offering substantially in
the manner described in the Prospectus. The Company shall call an Annual Meeting
of its stockholders, deliver notice of such meeting to Company stockholders in
accordance with applicable law and shall use its reasonable best efforts to hold
the Annual Meeting as soon as practicable. The Company, through its Board of
Directors, will unanimously recommend to its stockholders approval of the
Restatement and issuance of the Available Shares to the Purchaser.
6.6 Notification by Company of Certain Matters. Subsequent to the
date of this Agreement and on or prior to the Closing Date, the Company shall
promptly notify the Purchaser of:
(a) the receipt of any notice of, or other communication relating to,
a default or event which, with notice or lapse of time or both, would
become a default, under any material agreement to which it is a party or to
which it or any of its respective material properties or assets may be
subject or bound;
(b) the receipt of any notice or other communication from any third
party whose consent or approval is or may be required in connection with
the transactions contemplated by this Agreement, denying such consent or
approval;
(c) the receipt of any notice or other communication from any
governmental regulatory agency or authority in connection with the
transactions contemplated hereby; or
(d) any condition or fact which would not permit it to satisfy a
condition to the Purchaser's obligation to effect the transactions
contemplated in this Agreement or results or would result in any inaccuracy
in a representation or warranty of the Company.
-21-
6.7 NASDAQ. The Company shall use all reasonable efforts to (i)
cause the Preferred Shares and the Conversion Shares issuable pursuant to the
terms of the Preferred Shares to be eligible for quotation on the Nasdaq Stock
Market--National Market, (ii) maintain the continued authorization for trading
of the Common Stock of the Company on the Nasdaq Stock Market--National Market,
or (iii) in the event the Company is unable, after undertaking all such
reasonable efforts, to maintain such authorization, be listed or otherwise
authorized for trading on the Nasdaq Stock Market--Small Cap or a national
securities exchange and to comply with all applicable maintenance criteria of
such exchange or Nasdaq applicable to continued eligibility for trading on such
market.
6.8 Right of First Refusal. If the Company should decide to issue
and sell additional shares of any capital stock of the Company or any warrants,
securities convertible into capital stock of the Company or other rights to
subscribe for or to purchase any capital stock of the Company, other than (a)
shares of Common Stock sold to the public pursuant to a registration statement
filed under the Securities Act, if such offering is underwritten on a firm
commitment basis, (b) shares of Common Stock awarded or issued upon the exercise
of options granted pursuant to employee and consultant benefit plans adopted by
the Company, and the grant of such options themselves, (c) shares of Common
Stock issued upon conversion of the Preferred Shares, (d) shares of Common Stock
or Preferred Shares issued pursuant to the exercise of warrants of the Company
outstanding at the date of this Agreement; and (e) shares of Common Stock issued
pursuant to the Xxxxxxxxxx Employment Agreement (all such capital stock,
warrants, securities convertible into capital stock and other rights, other than
securities referred to in (a), (b), (c), (d) and (e) above, being hereinafter
sometimes collectively referred to as "Additional Securities"), the Company
shall first offer to sell to the Purchaser, upon the same terms and conditions
as the Company is proposing to issue and sell such Additional Securities to
others, such Purchaser's pro rata share (as defined below) of such Additional
Securities. Notwithstanding the foregoing, no Additional Securities may be sold
to the Purchaser to the extent a change of ownership within the meaning of the
IRC 382 Limitation would occur. Such offer shall be made by written notice given
to the Purchaser and specifying therein the amount of the Additional Securities
being offered, the purchase price and other terms of such offer. The Purchaser
shall have a period of 30 days from and after the date of receipt by it of such
notice within which to accept such offer. If the Purchaser elects to accept such
offer in whole or in part, the Purchaser shall so accept by written notice to
the Company given within such 30-day period. If the Purchaser fails to accept
such offer in whole or in part within such 30-day period, any of such Additional
Securities not purchased by the Purchaser pursuant to such offer may be offered
for sale to others by the Company for a period of 180 days from the last day of
such 30-day period, but only on the same terms and conditions as set forth in
the initial offer to the Purchaser, free and clear of the restrictions imposed
by this Section.
For purposes of the previous paragraph, the Purchaser's "pro rata
share" is the number of shares of Additional Securities (rounded to the nearest
whole share) as is equal to the product of (a)(i) the number of shares of Common
Stock issued, or issuable upon the
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exercise or conversion of rights, options or Convertible Securities without the
payment of any additional cash consideration or with the payment of a nominal
cash consideration, as the case may be (collectively, "Fully Paid Securities"),
to the Purchaser immediately prior to the issuance of the Additional Securities
being offered divided by (ii) the total number of Fully Paid Securities issued
or issuable by the Company immediately prior to the issuance of the Additional
Securities, multiplied by (b) the entire offering of Additional Securities.
6.9 Nomination of Directors; Board Observation. So long as Purchaser
is a holder of Preferred Shares, the Company shall, at the request of the
Purchaser and subject to any applicable federal or state banking law or
regulation, cause to be nominated for election as directors of the Company, and
use its reasonable best efforts to cause to be elected, that number of persons
designated by the Purchaser which the Purchaser or any affiliate thereof is
entitled to elect based on cumulative voting thereby in the election of
directors.
So long as Purchaser has not so designated one or more directors or a
designee of the Purchaser is not otherwise a director of the Company, the
Company shall notify the Purchaser of all regular meetings and special meetings
of the Board of Directors of the Company at least two business days in advance
of such meeting and afford any representative designated by the Purchaser the
right and opportunity to attend any such meeting. Such representative shall be
entitled to receive all written materials and such other information given to
directors of the Company in connection with any such meeting at the time such
materials or information are given to such directors; provided that such
representative shall have executed the Company's Confidentiality Agreement in
the form attached hereto as Exhibit 2.
The Company shall maintain as part of its Articles of Incorporation or
By-Laws a provision for the indemnification and limitation on liability of its
directors to the full extent permitted by law and use its reasonable best
efforts to maintain director and officer liability insurance in amounts and on
terms no less favorable than included in the Company's existing policy.
6.10 Press Releases and Public Announcements. No party hereto shall
issue any press release or make any public announcement relating to the proposed
purchase of Preferred Shares by the Purchaser contemplated by this Agreement
prior to the Closing without the prior approval of the other party; provided,
however, that any party may make any public disclosures it believes in good
faith (based on advice of outside counsel) is required by applicable law or any
listing or trading agreement concerning its publicly traded securities (in which
case the disclosing party will use its reasonable best efforts to advise the
other party prior to making the disclosure and to seek their counsel concerning
the timing and content of such disclosure). For purposes of this Agreement, in
the event that a party shall provide 24 hours notice to the other of a proposed
press release or public announcement and such party receiving such notice shall
not respond in writing objecting to such release or announcement, such proposed
press release or public announcement shall be deemed a permitted release or
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announcement pursuant hereto provided such release or announcement was reviewed
and approved by outside counsel to the party issuing the press release or
announcement.
6.11 Cooperation. Each party will use all reasonable efforts and
will cooperate with the other in the preparation and filing, as soon as
practicable, of all applications and documents required to obtain regulatory
approvals and consents. Each party will use all reasonable efforts and shall
cooperate with the other in taking any other actions necessary to obtain such
regulatory or other approvals and consents. Subject to the terms and conditions
herein provided, each party will use all reasonable efforts to take, or cause to
be taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable to cause the conditions set forth in Sections 7, 8 and 9
hereof to be satisfied and to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement.
6.12 Notification by Purchaser of Certain Matters. Subsequent to the
date of this Agreement and on or prior to the Closing Date, the Purchaser shall
promptly notify the Company of:
(a) the receipt of any notice or other communication from any third
party whose consent or approval is or may be required in connection with
the transactions contemplated by this Agreement, denying such consent or
approval;
(b) the receipt of any notice or other communication from any
governmental regulatory agency or authority in connection with the
transactions contemplated hereby; or
(c) any condition or fact which would not permit it to satisfy a
condition to the Company's obligation to effect the transactions
contemplated in this Agreement or results or would result in any inaccuracy
in a representation or warranty of the Purchaser.
6.13 Regulatory Application. Within thirty (30) days of the date
hereof, the Purchaser shall file all necessary applications with any federal or
state agency required by the purchase of the Preferred Shares by the Purchaser
contemplated hereunder.
6.14 Net Operating Loss. Prior to the third anniversary of the
Closing Date, the Company will not (i) amend, or propose an amendment to, the
Restatement to amend the restrictions on transfer with respect to the shares of
the Company's capital stock, or waive the operation of such restrictions, or
(ii) approve any acquisition, sale, issuance, assignment or transfer of its
capital stock or options or warrants to purchase shares of its capital stock,
unless, in any such event, the Board of Directors determines, after discussion
and due deliberation, with the assistance, as necessary or appropriate, of
legal, financial, tax,
-24-
accounting and other advisors, at a duly called meeting, that such event would
be in the best interests of the shareholders of the Company.
6.15 Director Liability. The Purchaser agrees not to assert any
Claim against a Director of the Company. For purposes of this Section 6.15,
"Claim" shall mean any action, suit, arbitration or proceeding (a "Proceeding")
for money damages, expenses, penalties or similar payments from such person
individually ("Liabilities") arising out of or relating to the execution,
delivery and performance of this Agreement by the Company, except to the extent
Purchaser reasonably determines (i) a Director subject to any such Proceeding or
Liabilities would not be entitled indemnification from the Company under
applicable law, or (ii) such Proceeding or Liabilities are insured risks under
policies of insurance issued by third parties; and "Director" shall mean any
director of the Company who is not also an executive officer of the Bank.
7. Conditions to Obligations of Each Party
The respective obligations of the Company and the Purchaser as set
forth in this Agreement are subject to the following conditions:
7.1 Stockholder Approval. The Restatement shall have been duly
approved and adopted by the holders of the Company's Common Stock at the Annual
Meeting.
7.2 No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the investment by the Purchaser shall be in effect; nor
shall there be any action taken, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the investment by the
Purchaser, which makes the investment by the Purchaser illegal; and no temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint
provision limiting or restricting the Purchaser's conduct or operation of the
business of the Company and its subsidiaries, following the investment by the
Purchaser shall be in effect, nor shall any proceeding brought by an
administrative agency or commission or other governmental entity, domestic or
foreign, seeking the foregoing be pending. In the event an injunction or other
order shall have been issued, each party agrees to use its reasonable diligent
efforts to have such injunction or other order lifted.
7.3 Registration Statement Effective. The Registration Statement
will have been declared effective by the Commission, no stop order suspending
the effectiveness of the Registration Statement or any amendment or supplement
thereto shall have been issued and no proceedings for such purpose shall be
pending before or threatened by the Commission and any requests for additional
information by the Commission (to be included in the
-25-
Registration Statement, in the Prospectus or otherwise) shall have been complied
with in all material respects.
7.4 Regulatory Approvals. The purchase of Available Shares shall
have been approved by applicable federal and state banking authorities without
any condition not reasonably satisfactory to Purchaser, all conditions required
to be satisfied prior to the Closing Date imposed by the terms of such approvals
shall have been satisfied and all waiting periods relating to such approvals
shall have expired. All other governmental consents, approvals and filings
required for the consummation of the Offering and the transactions contemplated
hereby and effectiveness of the Restatement have been obtained or made and are
in full force and effect.
7.5 Tax Opinion. Deloitte & Touche, independent accountants to the
Company, shall have delivered to the Company and Purchaser its opinion, in form
and substance satisfactory to each, to the effect that following the Offering
and the transactions contemplated by this Agreement and similar agreements with
Standby Purchasers, and considering all other stock transactions during the
relevant testing period and ending on the Issuance Date, there has not been a
change in ownership within the meaning of the IRC 382 Limitation.
7.6 Minimum Subscriptions. The Company shall have received and
accepted in the Offering valid subscriptions for Preferred Shares from
stockholders and Standby Purchasers aggregating not less than $5.5 million which
shall not trigger the IRC 382 Limitation.
8. Additional Conditions of Purchaser's Obligations
The obligations of the Purchaser to purchase the Preferred Shares as
set forth in this Agreement are subject to the following additional conditions:
8.1 Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall be true and correct
as of the Closing Date and the Company shall have performed in all material
respects all covenants and agreements herein required to be performed on its
part at or prior to the Closing Date.
8.2 Certificate of the Company. The Company shall have been provided
with a certificate dated the Closing Date executed on behalf of the Company by
its President and its Chief Financial Officer to the effect that, as of the
Closing Date, the condition provided for in subsection 8.1 above has been
satisfied.
8.3 Registration Rights Agreement. The Company and the Purchaser
will have entered into a Registration Rights Agreement (the "Registration Rights
Agreement") in the form attached hereto as Exhibit 3.
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8.4 Comfort Letter. The Purchaser shall have received a letter of
Deloitte & Touche dated the Closing Date and addressed to Purchaser, in form
reasonably satisfactory to Purchaser and customary in scope and substance for
letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement, regarding the
financial data and information included in the Registration Statement.
8.5 Opinion of Counsel to Company. The Purchaser shall have received
an opinion of Xxxxxx, Xxxxxx & Xxxxxxxx, special counsel for the Company, dated
the Closing Date and addressed to Purchaser, substantially in the form of
Exhibit 4.
8.6 Litigation. The Company shall have settled the pending
litigation involving the Xxxx Sinister film and resolved the threatened
-------------
litigation captioned TV Interactive Corporation, Apollo Telecom Network v.
-----------------------------------------------------
Xxxxxx Xxxxxx and Mercantile National Bank, in form satisfactory to the
------------------------------------------
Purchaser and its counsel.
8.7 Xxxxxxxxxx Employment Agreement. The Company and Xxxxx
Xxxxxxxxxx shall have amended that certain Employment Agreement dated June 21,
1996 between them to include the modifications set forth in Exhibit 5, such
amendment to be in form satisfactory to Purchaser and its counsel.
8.8 Additional Documents. The Company shall have furnished to
Purchaser and your counsel such additional documents, certificates and evidence
as Purchaser or they may have reasonably requested. All such certificates,
letters and other documents will be in compliance with the provisions hereof
only if they are satisfactory in form and substance to Purchaser and counsel for
the Purchaser. The Company will furnish Purchaser with such conformed copies of
such certificates, letters and other documents as Purchaser shall reasonably
request.
8.9 Director Nominees. The Company shall have taken all necessary
steps to assure election as directors, immediately following the Closing, of the
director nominees designated to the Company for election in accordance with
Section 6.9 hereof.
9. Additional Conditions of Company's Obligations
The obligations of the Company to sell and issue the Preferred Shares
as set forth in this Agreement are subject to the following additional
conditions:
9.1 Representations and Warranties. The representations and
warranties of the Purchaser contained in this Agreement shall be true and
correct in all material respects as of the Closing Date and the Purchaser shall
have performed in all material respects all covenants and agreements herein
required to be performed on its part at or prior to the Closing Date.
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9.2 Certificates of Purchaser. The Company shall have been provided
with a certificate dated the Closing Date executed on behalf of the Purchaser by
its President and its Chief Financial Officer to the effect that, as of the
Closing Date, the condition provided for in subsection 9.1 above has been
satisfied. The Purchaser shall have delivered to Deloitte & Touche a certificate
in the form attached hereto as Exhibit 6.
9.3 Opinion of Counsel to Purchaser. The Company shall have received
an opinion of Xxx X. Xxx, Vice President of The Xxxxxx Company, dated the
Closing Date and addressed to the Company, substantially in the form of Exhibit
7.
9.4 Legend.
(a) Each certificate or other document evidencing the Preferred
Shares purchased hereunder by the Purchaser shall be endorsed with the
legends set forth below:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED OR
QUALIFIED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS,
AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR
HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION OR
QUALIFICATION THEREOF UNDER THE SECURITIES ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR COMPLIANCE WITH AN
AVAILABLE EXEMPTION FROM REGISTRATION OR QUALIFICATION. THE
COMPANY MAY REFUSE TO AUTHORIZE ANY TRANSFER OF THE SHARES
IN RELIANCE ON AN EXEMPTION FROM REGISTRATION OR
QUALIFICATION UNTIL IT HAS RECEIVED AN OPINION OF COUNSEL,
REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION OR QUALIFICATION IS NOT REQUIRED.
(b) Any legend endorsed on a certificate or instrument evidencing a
security pursuant to paragraph (a) above shall be removed, and the Company
shall issue a certificate or instrument without such legend to the holder
of such security, (i) in accordance with paragraph (a) above, (b) if such
security is being disposed of pursuant to registration under the Securities
Act and any applicable state acts or pursuant to Rule 144 or any similar
rule then in effect, or (iii) if such holder provides the Company with an
opinion of counsel satisfactory to the Company to the effect that a sale,
transfer, assignment, offer, pledge or distribution for value of such
security may be
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made without registration and that such legend is not required to satisfy
the applicable exemption from registration.
9.5 Additional Documents. The Purchaser shall have furnished to the
Company and its counsel such additional documents, certificates and evidence as
the Company or its counsel may have reasonably requested. All such certificates,
letters and other documents will be in compliance with the provisions hereof
only if they are satisfactory in form and substance to the Company and its
counsel. The Purchaser will furnish the Company with such conformed copies of
such certificates, letters and documents as the Company shall reasonably
request.
10. Termination
10.1 Termination Events. This Agreement may be terminated in writing
at any time prior to the Closing Date by the Company or Purchaser, only in the
following circumstances:
(a) by mutual consent of the Company and Purchaser;
(b) by either the Company or Purchaser if (i) any governmental
entity of competent jurisdiction shall have issued a final nonappealable
order enjoining or otherwise prohibiting the consummation of the
transactions contemplated by this Agreement; (ii) the shareholders of the
Company have not approved the Restatement; (iii) the transactions
contemplated hereunder have not been consummated on or before May 31, 1997,
unless the failure of consummation shall be due to the failure of the party
seeking to terminate to perform or observe in all material respects the
covenants and agreements hereunder to be performed or observed by such
party; or (iv) there shall have been an inaccuracy in any of the
representations or warranties on the part of the other party or material
breach of any covenant or agreement set forth in this Agreement on the part
of the other party, which breach shall not have been cured within twenty
(20) business days following receipt by the breaching party of written
notice of such breach from the other party;
(c) by the Purchaser if there shall have occurred relative to the
Company or any subsidiary any event, change, or effect that would have a
Material Adverse Effect.
10.2 Effect of Termination. The Company and the Purchaser hereby
agree that any termination of this Agreement pursuant to this Section 10 (other
than termination by one party in the event of an inaccuracy in a representation
or warranty or breach of a covenant or agreement in this Agreement by the other
party ) shall be without liability of the Company
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or the Purchaser, except as contemplated by Section 12. The obligations under
Section 11 shall also survive any termination of this Agreement.
11. Indemnification and Contribution
11.1 Indemnification by Company. The Company agrees to indemnify and
hold harmless the Purchaser (which term shall include for purposes of this
Section 11, each director, officer, agent or employee of Purchaser or person who
controls the Purchaser within the meaning of the Act) against any losses,
claims, damages or liabilities, joint or several (including in settlement of any
litigation if such settlement is effected with the written consent of the
Company), insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based directly or indirectly, in whole or
in part, upon (i) any material inaccuracy in the representations and warranties
of the Company contained herein and not qualified as to materiality, or any
inaccuracy in the representations and warranties of the Company contained herein
and qualified as to materiality, (ii) an untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus, the Proxy Statement, or any amendment or
supplement thereto or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (iii) any other act
or omission of the Company, its officers or directors, or any alleged act or
omission; and will reimburse the Purchaser for any legal or other expenses
reasonably incurred by it in connection with investigating, prosecuting or
defending against such loss, claim, damage, liability or action; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or action arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement, any Preliminary Prospectus, the
Prospectus, the Proxy Statement, or any such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by the Purchaser specifically for use in the preparation thereof.
11.2 Advancement of Expenses. In addition to their other obligations
under this Section 11, the Company agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any act, statement or omission, or any alleged act,
statement or omission, described in subsection 11.1 it will reimburse the
Purchaser on a monthly basis for all reasonable legal fees or other expenses
incurred in connection with investigating, prosecuting or defending any such
claim, action, investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the Company's obligation to reimburse the Purchaser for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Purchaser shall
promptly return any reimbursement payment to the Company, together with
interest, compounded daily, determined on the basis of the prime rate (or other
commercial lending rate for borrowers of
-30-
the highest credit standing) announced from time to time by the Bank (the "Prime
Rate"). Any such interim reimbursement payments which are not made to the
Purchaser within 30 days of a request for reimbursement shall bear interest at
the Prime Rate from the date of such request. This indemnity agreement shall be
in addition to any liabilities which the Company may otherwise have.
11.3 Procedure for Indemnification Involving Third Party Claims.
Promptly after receipt by the Purchaser of notice of the commencement of any
action by a third party, the Purchaser shall, if a claim in respect thereof is
to be made against the Company under subsection 11.1, notify the Company in
writing of the commencement thereof; but the omission so to notify the Company
shall not relieve the Company from any liability that it may have to the
Purchaser. In case any such action shall be brought against the Purchaser, and
it shall notify the Company of the commencement thereof, the Company shall be
entitled to participate in, and, to the extent that it shall wish, to assume the
defense thereof, with counsel satisfactory to the Purchaser, and after notice
from the Company to the Purchaser of the Company's election so to assume the
defense thereof, the Company shall not be liable to the Purchaser under such
subsection for any legal or other expenses subsequently incurred by the
Purchaser in connection with the defense thereof other than reasonable costs of
investigation; provided, however, that if, in the sole judgment of the
Purchaser, it is advisable for the Purchaser to be represented by separate
counsel, the Purchaser shall have the right to employ counsel to represent the
Purchaser for liability arising from any claim in respect of which indemnity may
be sought by the Purchaser, in which event the reasonable fees and expenses of
such separate counsel shall be borne by the Company and reimbursed to the
Purchaser as incurred (in accordance with the provisions of subsections 11.1 and
11.2 above). The Company shall not be obligated under any settlement agreement
relating to any action under this Section 11 to which it has not agreed in
writing.
11.4 Contribution. If for any reason indemnification is unavailable
to Purchaser or insufficient to hold it harmless, then the Company shall
contribute to the amount paid or payable by Purchaser as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and Purchaser on the
other hand, the relative fault of the Company and of Purchaser and any other
relevant equitable considerations; provided that in no event will the aggregate
contribution of Purchaser exceed the then fair market value of the Preferred
Shares acquired by the Purchaser, less the amount of any damages the Purchaser
has otherwise been required to pay.
11.5 Indemnification and Contribution Not Exclusive. The obligations
of the Company under this Section 11 shall be in addition to any liability which
the Company may otherwise have.
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12. Payment of Fees and Expenses of Purchaser
Irrespective of whether a Closing hereunder is effected, the Company
will pay the reasonable out-of-pocket expenses incurred by the Purchaser in
connection with the transactions herein contemplated, including without
limitation the reasonable fees and out-of-pocket expenses of Faegre & Xxxxxx LLP
for their services as special counsel to the Purchaser and Xxxxxx Xxxxxxxx & Co.
for their services as tax accountants to the Purchaser in connection with the
transactions herein contemplated; provided, however, that except as set forth in
the following paragraph or unless this Agreement shall have been terminated by
Purchaser pursuant to Section 10(b)(iv) hereof, the Company's obligation to
reimburse such expenses shall not exceed $150,000. The Company will also pay (a)
all fees and expenses incurred by the Purchaser with respect to any amendments
or waivers requested after the execution of this Agreement by the Company
(whether or not the same become effective) under or in respect of this Agreement
or the agreements contemplated hereby, and (b) all fees and expenses incurred by
the Purchaser with respect to the enforcement of the rights granted under this
Agreement or the agreements contemplated hereby.
In the event that (i) there shall occur any termination of this
Agreement for any reason pursuant to Section 10 hereof, other than by the
Company and Purchaser in accordance with subsection 10.1(a) or by the Company in
accordance with subsection 10.1(b)(iv), and (ii) either (a) at the time of such
termination there exists a bona fide Investment Proposal from a person other
than Purchaser, or (b) at any time prior to such termination the Company or any
affiliate, officer, director, representative or agent of the Company has had any
discussions, conversations, negotiations or other communications regarding any
Investment Proposal with any person other than the Purchaser and before such
termination or within twelve months thereafter, the Company or any affiliate
thereof enters into any agreement with such person, or such person acquires or
has the right to acquire beneficial ownership of 25% or more of the voting
capital stock of the Company or the Bank, or (c) the Board of Directors of the
Company shall have withdrawn, modified or amended in any respect its approval or
recommendation of the Restatement, shall not have included such recommendation
in the Proxy Statement or shall have resolved to do any of the foregoing, then
the Company shall, upon termination of the Agreement in the case of clauses (a)
and (c) above, or upon execution of such agreement or acquisition of such shares
or rights thereto, in the case of clause (b) above, promptly pay to the
Purchaser in immediately available funds $250,000. The payment of any such
amount shall not in any way limit any remedies of the Purchaser against the
Company under this Agreement for any breach by the Company of any of its
representations, warranties or covenants contained in this Agreement, and the
Purchaser reserves its rights to pursue its remedies, at law or in equity,
against the Company or any third party.
13. Miscellaneous
13.1 Rights of Third Parties. Except as contemplated by Section 11,
this Agreement is made solely for the benefit of the Purchaser and the Company,
and their
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respective successors and assigns, and no other person, partnership, association
or corporation shall acquire or have any right under or by virtue of this
Agreement.
13.2 Assignment. All the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective successors and assigns of the parties hereto.
13.3 Entire Agreement; Invalidity. This Agreement constitutes the
entire agreement and understanding between the Purchaser and the Company, and
supersedes all prior agreements and understandings relating to the subject
matter hereof. In case any one or more of the provisions contained in this
Agreement, or the application thereof in any circumstance, is held invalid,
illegal or unenforceable in any respect under the laws of any jurisdiction, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any way
affected or impaired thereby or under the laws of any other jurisdiction.
13.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
and all such counterparts together constitute but one and the same instrument.
13.5 Amendments. This Agreement may not be amended, modified or
changed, in whole or in part, except by an instrument in writing signed by the
Company and the Purchaser.
13.6 Notices. Except as otherwise provided in this Agreement, and
unless otherwise notified by the respective addressee, all notices and
communications hereunder shall be in writing and mailed first class or overnight
delivery or hand delivered or by facsimile or telephone if subsequently
confirmed in writing, to:
If to the Company: National Mercantile Bancorp
0000 Xxxxxxx Xxxx Xxxx
Xxx Xxxxxxx, XX 00000-2103
Attention: Executive Vice President
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Purchaser: To the address set forth in Schedule
A or at such other address as
Purchaser may specify by written
notice.
13.7 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, without regard
to the conflict of laws rules thereof.
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13.8 Representations and Agreements to Survive Delivery. All
representations and warranties (as qualified by the Disclosure Schedule), and
agreements of the Company and the Purchaser contained herein or in certificates
delivered pursuant hereto shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Purchaser or the
Company and shall survive delivery of, and payment for, the Available Shares to
and by the Purchaser for a period of two (2) years after the delivery of and
payment for such shares; provided, however, that the representations and
warranties of the Company made in Sections 4.4, 4.11 and 4.19 shall survive for
the period of any applicable statute of limitations; provided further that in
the event that the Company discloses in the certificate, dated the Closing Date
and required to be furnished by the Company to Purchaser pursuant to Section
8.2, inaccuracies as of the Closing Date in its representations and warranties
contained herein, as qualified by the Disclosure Schedule, and made at the time
of the execution of this Agreement, and Purchaser elects to waive the Company's
failure to satisfy the condition set forth in Section 8.1 and to proceed with
the purchase of the Available Shares under this Agreement, then the
representations and warranties that survive the delivery of, and payment for,
the Available Shares to and by the Purchaser shall be those representations and
warranties, as qualified by the Disclosure Schedule, made at the time of the
execution of this Agreement, to the extent any inaccuracies so disclosed in such
certificate existed at the time of execution and delivery of this Agreement or
to the extent such certificate discloses no inaccuracy and, in all other cases,
shall be those representations and warranties, as qualified by the Disclosure
Schedule and as further qualified by such certificate.
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IN WITNESS WHEREOF, and intending to be legally bound hereby, each of the
Purchaser and the Company has signed or caused to be signed its name as of the
day and year first above written.
NATIONAL MERCANTILE BANCORP
By /s/ Xxxxx X. Xxxxxxxxxx
------------------------
Name Xxxxx X. Xxxxxxxxxx
-------------------
Title EVP & XXX
------------------
Xxxxxx and Accepted as of the
6th day of February, 1997:
XXXXXX COMPANY
By /s/ Xxxxxx Xxxxxxx Xxxxxx
-------------------------
Name Xxxxxx Xxxxxxx Xxxxxx
-----------------------
Title CFO
----------------------
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