EXHIBIT 10.1
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SECURITIES PURCHASE AGREEMENT
BY AND AMONG
NOVASTAR FINANCIAL, INC.,
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY,
JEFFERIES CAPITAL PARTNERS IV L.P.,
JEFFERIES EMPLOYEE PARTNERS IV LLC,
AND
JCP PARTNERS IV LLC
DATED AS OF JULY 16, 2007
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TABLE OF CONTENTS
ARTICLE I
DEFINITIONS........................................................................2
SECTION 1.1. Definitions.......................................2
ARTICLE II
ISSUANCE AND PURCHASE OF SERIES D-1 PREFERRED SHARES; RIGHTS OFFERING.............13
SECTION 2.1. Purchase of Series D-1 Preferred Shares..........13
SECTION 2.2. Closing..........................................13
SECTION 2.3. Deliveries.......................................13
SECTION 2.4. Restricted Shares and Options....................13
SECTION 2.5. Rights Offering..................................14
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF NFI.............................................15
SECTION 3.1. Organization, Standing and Corporate Power.......15
SECTION 3.2. Capital Structure; Issuance of Shares............15
SECTION 3.3. Subsidiaries and Investments.....................17
SECTION 3.4. Authority........................................18
SECTION 3.5. Noncontravention; Consents.......................18
SECTION 3.6. SEC Reports; Financial Statements................20
SECTION 3.7. No Undisclosed Liabilities.......................21
SECTION 3.8. Absence of Certain Changes or Events.............21
SECTION 3.9. Employee Benefit Plans...........................21
SECTION 3.10. Taxes............................................23
SECTION 3.11. Compliance with Applicable Laws..................25
SECTION 3.12. Absence of Litigation............................26
SECTION 3.13. Lender and Servicer Qualifications...............26
SECTION 3.14. Warehouse Loans and Mortgage Loans...............27
SECTION 3.15. Loan Servicing Portfolio.........................28
SECTION 3.16. Contracts........................................30
SECTION 3.17. Insurance........................................32
SECTION 3.18. Intellectual Property............................32
SECTION 3.19. Interests in CDO; Operation of the CDO...........33
SECTION 3.20. Brokers..........................................34
SECTION 3.21. Board Approval...................................34
SECTION 3.22. Takeover Statute.................................35
SECTION 3.23. Properties; Absence of Liens.....................36
SECTION 3.24. Affiliate Transactions...........................36
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SECTION 3.25. Opinions of Financial Advisor....................36
SECTION 3.26. Private Placement................................36
SECTION 3.27. Acknowledgment Regarding Investors' Purchase of
NFI Securities...................................37
SECTION 3.28. Environmental Matters............................37
SECTION 3.29. Manipulation of Price............................38
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF INVESTORS.......................................38
SECTION 4.1. Organization, Standing and Corporate Power.......38
SECTION 4.2. Authority........................................38
SECTION 4.3. Noncontravention; Consents.......................39
SECTION 4.4. Litigation.......................................39
SECTION 4.5. Brokers..........................................40
SECTION 4.6. Available Funds..................................40
SECTION 4.7. No Public Sale or Distribution...................40
SECTION 4.8. Accredited Investor Status.......................40
SECTION 4.9. Restricted Securities............................40
SECTION 4.10. Ownership of Common Shares.......................41
SECTION 4.11. Excepted Holder Limit............................41
SECTION 4.12. No Additional Representations....................41
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS.........................................41
SECTION 5.1. Conduct of Business of NFI.......................41
ARTICLE VI
OTHER AGREEMENTS..................................................................43
SECTION 6.1. Access to Information; Confidentiality...........43
SECTION 6.2. Consents, Approvals and Filings..................44
SECTION 6.3. Public Announcements.............................45
SECTION 6.4. Further Assurances...............................45
SECTION 6.5. Notification of Certain Matters..................45
SECTION 6.6. Anti-Takeover Laws...............................46
SECTION 6.7. Shareholder Litigation...........................46
SECTION 6.8. Issuance of REIT Dividends; Availability of
Common Shares for Conversion.....................46
SECTION 6.9. Restrictive Legend...............................47
SECTION 6.10. Listing Matters..................................48
SECTION 6.11. Reverse Stock Split..............................48
SECTION 6.12. Tax Matters......................................48
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SECTION 6.13. Filing of Series D-1 Articles Supplementary......49
SECTION 6.14. Charter Actions..................................49
SECTION 6.15. Shareholder Approval of Certain Provisions of
the Articles Supplementary.......................49
ARTICLE VII
CONDITIONS PRECEDENT..............................................................50
SECTION 7.1. Conditions to Each Party's Obligations...........50
SECTION 7.2. Conditions to Obligations of Investors...........50
SECTION 7.3. Conditions to Obligations of NFI.................53
ARTICLE VIII
TERMINATION PRIOR TO CLOSING......................................................54
SECTION 8.1. Termination of Agreement.........................54
SECTION 8.2. Procedure Upon Termination and Consequences......54
ARTICLE IX
INDEMNIFICATION...................................................................55
SECTION 9.1. Survival.........................................55
SECTION 9.2. Indemnification by NFI...........................55
SECTION 9.3. Indemnification by Investors.....................56
SECTION 9.4. Certain Limitations on Indemnification...........56
SECTION 9.5. Third Party Claim Procedures.....................57
SECTION 9.6. Independent Committee............................58
ARTICLE X
GENERAL PROVISIONS................................................................58
SECTION 10.1. Fees and Expenses................................58
SECTION 10.2. Notices..........................................58
SECTION 10.3. Interpretation...................................60
SECTION 10.4. Entire Agreement; No Third Party Beneficiaries;
No Other Representations.........................60
SECTION 10.5. Governing Law....................................60
SECTION 10.6. Assignment.......................................61
SECTION 10.7. Amendments.......................................61
SECTION 10.8. Enforcement......................................61
SECTION 10.9. Severability.....................................61
SECTION 10.10. Counterparts.....................................62
SECTION 10.11. Independent Nature of Investors' Obligations
and Rights.......................................62
SECTION 10.12. Waiver of Jury Trial.............................62
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EXHIBIT A FORM OF ARTICLES SUPPLEMENTARY FOR SERIES D-2
PREFERRED SHARES
EXHIBIT B KEY EMPLOYEES
ANNEX I RESTRICTIVE LEGENDS
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SECURITIES PURCHASE AGREEMENT, dated as of July 16, 2007 (this
"Agreement"), by and among NovaStar Financial, Inc., a Maryland corporation
("NFI"), Massachusetts Mutual Life Insurance Company, a mutual life insurance
company ("MassMutual"), Jefferies Capital Partners IV L.P., Jefferies Employee
Partners IV LLC and JCP Partners IV LLC (collectively, "Jefferies" and, together
with MassMutual, collectively, "Investors").
WHEREAS, NFI and Investors are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Section
4(2) of the United States Securities Act of 1933, as amended (the "Securities
Act"), and Rule 506 of Regulation D ("Regulation D") as promulgated by the
United States Securities and Exchange Commission (the "SEC") under the
Securities Act;
WHEREAS, the Board of Directors of NFI has approved the authorization and
issuance of 2,100,000 shares of 9.00% Series D-1 Mandatory Convertible Preferred
Stock of NFI, par value $0.01 per share and liquidation preference of $25 per
share plus any accrued but unpaid dividends (the "Series D-1 Preferred Shares"),
which Series D-1 Preferred Shares shall have such voting powers, preferences and
other special rights and the qualifications, limitations or restrictions as set
forth in the Articles Supplementary for the 9.00% Series D-1 Mandatory
Convertible Preferred Stock (the "Series D-1 Articles Supplementary"), and which
Series D-1 Preferred Shares shall be convertible into shares of common stock of
NFI, par value $0.01 per share (the "Common Shares");
WHEREAS, MassMutual wishes to purchase, and NFI wishes to sell, upon the
terms and conditions stated in this Agreement, 1,050,000 Series D-1 Preferred
Shares for an aggregate consideration of $24,412,500 (the "MassMutual
Consideration");
WHEREAS, Jefferies wishes to purchase, and NFI wishes to sell, upon the
terms and conditions stated in this Agreement, 1,050,000 Series D-1 Preferred
Shares for an aggregate consideration of $24,412,500 (the "Jefferies
Consideration");
WHEREAS, concurrently with the execution and delivery of this Agreement,
the parties hereto shall execute and deliver a Registration Rights and
Shareholders Agreement (the "Registration Rights and Shareholders Agreement"),
pursuant to which NFI will agree to provide certain (i) registration rights
under the Securities Act and the rules and regulations promulgated thereunder,
and applicable state securities Laws with respect to the Common Shares into
which Convertible Shares may be converted, and (ii) other rights powers,
preferences and privileges to the holders of the Convertible Shares;
WHEREAS, the Board of Directors of NFI has approved the distribution to
holders of its Common Shares and holders of the Series D-1 Preferred Shares to
be purchased by the Investors hereunder certain non-transferable rights to
subscribe for and purchase, in connection with the rights offering described
herein, certain shares of 9.00% Series D-2 Mandatory Convertible Preferred Stock
of NFI, par value $0.01 per share and liquidation preference of $25 per share
plus any accrued but unpaid dividends (the "Series D-2 Preferred Shares"), which
Series D-2 Preferred Shares shall have such voting powers, preferences and other
special rights and the qualifications, limitations or restrictions as set forth
in the Articles
Supplementary for the 9.00% Series D-2 Mandatory Convertible Preferred Stock,
which shall be in the form attached hereto as Exhibit A (the "Series D-2
Articles Supplementary" and, together with the Series D-1 Articles
Supplementary, the "Articles Supplementary"); and
WHEREAS, concurrently with the execution and delivery of this Agreement,
NFI and the Investors shall execute and deliver a Standby Purchase Agreement
(the "Standby Purchase Agreement"), providing, among other things, for the
Investors, on the terms and subject to the conditions set forth therein, (i) to
exercise the non-transferable subscription rights distributed to Investors in
connection with such rights offering and subscribe for and purchase the Series
D-2 Preferred Shares which are the subject of such subscription rights (but not
to participate in the over-subscription option granted to other subscribing
shareholders) and (ii) to purchase the Series D-2 Preferred Shares that are
subject to similar subscription rights distributed to holders of Common Shares,
to the extent such Series D-2 Preferred Shares are not otherwise subscribed for
and purchased by holders of Common Shares pursuant to the exercise of such
subscription rights.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. For purposes of this Agreement, the following
terms shall have the respective meanings set forth below:
"Affiliate" of any person means another person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, such first person. The Affiliates of each Investor shall be
deemed to include one or more funds under common management with such Investor
and their respective limited partners, members and Affiliates.
"Agency" means (a) any federal governmental authority or regulatory body
and any subdivisions, agencies, instrumentalities, authorities or tribunals
thereof, including HUD, the Federal Housing Administration, the Department of
Veterans Affairs, the Federal National Mortgage Association, the Government
National Mortgage Association and the Federal Home Loan Mortgage Corporation, or
(b) the applicable State Agency.
"Agreement" has the meaning set forth in the introductory paragraph.
"Applicable Requirements" means and includes, as of the time of reference,
with respect to the origination, brokering, servicing, insuring, purchase, sale
or filing of claims in connection with Residential Mortgage Loans all of the
following: (a) all contractual obligations of NFI and its Subsidiaries or any
Originator including any contained in a Mortgage Loan Document or in a Mortgage
Loan Sale Agreement; (b) requirements of applicable Laws binding upon NFI or any
of its Subsidiaries or any Originator, including, without limitation, all
applicable predatory and abusive lending laws, the federal Truth-in-Lending Act
(as amended) and other federal and state consumer protection, usury, equal
credit opportunity, disclosure and recording laws as then in
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effect and the Home Ownership and Equity Protection Act of 1994 as then in
effect, and (c) all other applicable requirements, handbooks, manuals, policies,
procedures and guidelines of NFI and its Subsidiaries and of each Governmental
Authority having jurisdiction, and any Sponsor or Insurer that insured or
purchased the Residential Mortgage Loans.
"Articles Supplementary" has the meaning set forth in the recitals.
"Bankruptcy Law" means Title 11 of the United States Code, as amended, and
any similar federal or state law for the relief of debtors.
"Business Day" means a day other than a day on which commercial banks in
New York, New York are authorized or required by law to close.
"CDO" means NovaStar ABS CDO I.
"Charter" means the Articles of Amendment and Restatement of NFI, as
amended and supplemented from time to time.
"Closing" has the meaning set forth in Section 2.2.
"Closing Date" has the meaning set forth in Section 2.2.
"Code" means the United States Internal Revenue Code of 1986, as amended.
"Collateral Manager" means NovaStar Asset Management Company.
"Common Shares" has the meaning set forth in the recitals.
"Confidentiality Agreement" means the confidentiality agreement entered
into prior to the date hereof by MassMutual or its Affiliates and Jefferies or
its Affiliates, respectively, with NFI in connection with the transactions
contemplated hereby. For the avoidance of doubt, the term "Confidentiality
Agreement" shall not include the confidentiality clause included in the summary
of terms dated May 26, 2007 entered into by NFI with MassMutual or its
Affiliates.
"Contracts" has the meaning set forth in Section 3.16(b).
"Convertible Shares" means the Series D-1 Preferred Shares and the Series
D-2 Preferred Shares into which the Series D-1 Preferred Shares convert or which
the Investors may purchase in the Rights Offering or otherwise pursuant to the
Standby Purchase Agreement.
"Custodian" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.
"Data Room" means the electronic data room created by NFI and to which
Investors have been given access in connection with the transactions
contemplated by this Agreement.
"Deferred Compensation Plan" means the NovaStar Mortgage, Inc. Deferred
Compensation Plan.
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"Employee" means each individual who immediately prior to the Closing is
employed by NFI or any Subsidiary of NFI.
"Employee Benefit Plan" means any "employee benefit plan" (as defined in
Section 3(3) of ERISA), whether or not subject to ERISA, and any other employee
benefit plan, program, policy, arrangement or contract, whether written or oral,
including without limitation, any pension, retirement, profit-sharing, thrift,
savings, bonus plan, incentive, stock option or other equity or equity-based
compensation, or deferred compensation arrangement, stock purchase, severance
pay, retention, change of control, unemployment benefits, sick leave, vacation
pay, salary continuation for disability, hospitalization, health or medical
insurance, life insurance, fringe benefit, flexible spending account or
scholarship program, maintained by NFI or any of its Subsidiaries, or to which
NFI or any of its Subsidiaries is obligated to contribute, on behalf of current
or former officers, directors, employees or consultants of NFI or any of its
Subsidiaries.
"Employment Agreement" has the meaning set forth in Section 3.9(a).
"Enforceability Exceptions" means, with reference to the enforcement of the
terms and provisions of this Agreement or any other Contract, that the
enforcement thereof is or may be subject to the effect of (i) applicable
bankruptcy, receivership, insolvency, reorganization, moratorium, fraudulent
conveyance, fraudulent transfer and other similar laws relating to or affecting
the enforcement of the rights and remedies of creditors or parties to executory
contracts generally; (ii) general principles of equity (regardless of whether
such enforceability is considered in a proceeding at law or in equity) and the
exercise of equitable powers by a court of competent jurisdiction; and (iii)
applicable law or public policy limiting the enforcement of provisions providing
for the indemnification of any person.
"Environmental Law" means any Law relating to the environment, natural
resources, or safety or health of human beings or other living organisms,
including the manufacture, distribution in commerce and use or release of
Hazardous Substances.
"ERISA" means the United States Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" means the United States Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Exchange Act Report" means each publicly available form, report, schedule,
statement and other document filed with or furnished to the SEC by NFI pursuant
to the Exchange Act prior to the date hereof (as such documents have since the
time of their filing been amended prior to the date hereof).
"Financial Services Authority" means any Governmental Entity that regulates
Mortgage Banking or Insurance businesses conducted in any state in the United
States of America or the District of Columbia.
"Financial Services Consent" has the meaning set forth in Section 3.5(b).
"GAAP" has the meaning set forth in Section 3.6(b).
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"GAAP December Balance Sheets" has the meaning set forth in Section 3.6(b).
"Governmental Entity" has the meaning set forth in Section 3.5(b).
"Hazardous Substances" means any pollutant, contaminant, hazardous
substance, hazardous waste, medical waste, special waste, toxic substance,
petroleum or petroleum-derived substance, waste or additive, radioactive
material, or other compound, element, material or substance in any form
whatsoever (including products) regulated, restricted or addressed by or under
any applicable Environmental Law.
"HSR Act" has the meaning set forth in Section 3.5(b).
"HUD" means the United States Department of Housing and Urban Development.
"Improvements" means all buildings, improvements and fixtures located on
any Real Property, regardless of whether such buildings, improvements or
fixtures are subject to reversion to the landlord or other third parties upon
the expiration or termination of any lease or other agreement with respect to
such Real Property.
"Incentive Plans" means the NovaStar Financial, Inc. 1996 Executive and
Non-Employee Director Stock Option Plan and the NovaStar Financial, Inc. 2004
Incentive Stock Plan.
"Indemnified Party" has the meaning set forth in Section 9.5.
"Indemnifying Party" has the meaning set forth in Section 9.5.
"Insurance" means property insurance, life insurance, credit insurance and
other types of insurance provided with respect to property or individuals
located in any state in the United States of America or the District of
Columbia.
"Insurer" means a person who insures or guarantees all or any portion of
the risk of loss on any Residential Mortgage Loan, including any provider of
default insurance, standard hazard insurance, flood insurance, earthquake
insurance or title insurance, with respect to any Residential Mortgage Loan or
related Mortgaged Property.
"Intellectual Property" means all intellectual property, including without
limitation, patents, patent applications, trademarks, service marks, processes,
formulae, technology, know-how and related improvements, trade names,
copyrights, any copyrightable works (including software, code applications,
databases, website content, documentation and related items), discoveries,
domain names, logos, trade dress and other indicators, methodologies, inventions
and other proprietary items and registrations of or applications for any of the
foregoing.
"Investment Company Act" means the Investment Company Act of 1940, as
amended, and the rules and regulations promulgated thereunder.
"Investor Disclosure Letters" has the meaning set forth in Article IV.
"Investor Indemnitees" has the meaning set forth in Section 9.2.
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"Investor Material Adverse Effect" means, with respect to a particular
Investor, any event, change, circumstance or effect that individually or in the
aggregate (with other events, changes, circumstances or effects) is or is
reasonably likely to be materially adverse to the ability of such Investor to
consummate the transactions contemplated by this Agreement, the Registration
Rights and Shareholders Agreement or the Standby Purchase Agreement.
"Investors" has the meaning set forth in the introductory paragraph.
"Jefferies" has the meaning set forth in the introductory paragraph.
"Jefferies Cap" has the meaning set forth in Section 9.4(c).
"Jefferies Consideration" has the meaning set forth in the recitals.
"Jefferies Disclosure Letter" has the meaning set forth in Article IV.
"Jefferies Indemnitees" has the meaning set forth in Section 9.2.
"Jefferies Standby Consideration" means the aggregate amount of
consideration paid by Jefferies (or any of its successors or permitted assigns)
to NFI in connection with the purchase of any Series D-2 Preferred Shares (or
any alternative security of NFI as contemplated by Section 21 of the Standby
Purchase Agreement) by Jefferies (or any of its successors or permitted assigns)
pursuant to the Standby Purchase Agreement.
"Key Employee" means each of those employees of NFI listed in Exhibit B
attached hereto.
"Key Employee Letter Agreements" means the letter agreements entered into
as of the date hereof by each of the Key Employees with the Investors and the
Company.
"Key Employment Agreements" means the existing Employment Agreements
between NFI and each of the Key Employees.
"Knowledge" means (i) with respect to NFI, the actual knowledge of those
persons listed in Section 1.1(a) of the NFI Disclosure Letter and (ii) with
respect to any Investor, the actual knowledge with respect to the applicable
subject matter of the officers of such Investor with functional responsibility
for the applicable subject matter.
"Law" means any constitution, statute, law, code, administrative
interpretation, regulation, rule, injunction, judgment, order, writ, decree,
ordinance, directive judgment, policy, guideline or ruling of any Governmental
Entity, including common law.
"Lease" has the meaning set forth in Section 3.23(b).
"Leased Real Property" has the meaning set forth in Section 3.23(a).
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"Liens" means any liens, pledges, charges, claims, security interests,
options, mortgages, assignments, hypothecations, preferences, priorities,
deposit arrangements, easements, options, proxies, voting trusts or other
encumbrances of any nature whatsoever (statutory or otherwise).
"Litigation" has the meaning set forth in Section 3.12.
"Losses" has the meaning set forth in Section 9.2.
"March 2007 GAAP Statements" has the meaning set forth in Section 3.6(b).
"MassMutual" has the meaning set forth in the introductory paragraph.
"MassMutual Cap" has the meaning set forth in Section 9.4(c).
"MassMutual Consideration" has the meaning set forth in the recitals.
"MassMutual Disclosure Letter" has the meaning set forth in Article IV.
"MassMutual Indemnitees" has the meaning set forth in Section 9.2.
"MassMutual Standby Consideration" means the aggregate amount of
consideration paid by MassMutual (or any of its successors or permitted assigns)
to NFI in connection with the purchase of any Series D-2 Preferred Shares (or
any alternative security of NFI as contemplated by Section 21 of the Standby
Purchase Agreement) by MassMutual (or any of its successors or permitted
assigns) pursuant to the Standby Purchase Agreement.
"Material Subsidiary" shall mean NovaStar Mortgage, Inc., Homeview Lending,
Inc., NovaStar Home Mortgage, Inc. and NFI Holding Corporation.
"MGCL" means the Maryland General Corporation Law.
"Mortgage" means a mortgage, deed of trust or other security instrument
that creates a Lien on Real Property.
"Mortgage Banking" means making, buying, selling or servicing loans or
extensions of credit secured by first and/or subordinate liens on real estate
(or personal property that serves as a dwelling) located in any state in the
United States of America or the District of Columbia.
"Mortgage Loan" means any Residential Mortgage Loan, other than a Warehouse
Loan, that was originated or purchased and subsequently sold by NFI or any of
its Subsidiaries, as applicable, and that has not been repaid or refinanced.
"Mortgage Loan Documents" means the documents relating to Residential
Mortgage Loans required by Applicable Requirements to originate and service the
Residential Mortgage Loans, whether on hard copy, microfiche or its equivalent
or in electronic format and, to the extent required by Applicable Requirements,
credit and closing packages and disclosures.
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"Mortgage Loan Sale Agreement" means an agreement (other than any Mortgage
Loan Securitization Document) pursuant to which NFI or any of its Subsidiaries
has sold or may sell mortgage loans to any third person.
"Mortgage Loan Securitization Document" means any pooling and servicing
agreement and any other related other document or agreement.
"Mortgage Loan Servicing Agreement" means an agreement or agreements
between NFI or any of its Subsidiaries on the one hand and any Sponsor on the
other hand (other than a Mortgage Loan Securitization Document) setting forth
the terms and conditions under which Residential Mortgage Loans are or are to be
serviced or subserviced by NFI or any of its Subsidiaries.
"Mortgage Loan Servicing Portfolio" means, in the aggregate, the Serviced
Mortgage Loans.
"Mortgage Note" means, with respect to a Residential Mortgage Loan, a
promissory note or notes, or other evidence of indebtedness, with respect to
such Residential Mortgage Loan secured by a Mortgage or Mortgages, together with
any assignment, reinstatement, extension, endorsement or modification thereof.
"Mortgaged Property" means the real property that secures a Mortgage Note
and that is subject to a Mortgage.
"Mortgagor" means the obligor(s) on a Mortgage Note or owners of a
Mortgaged Property.
"New York Court" has the meaning set forth in Section 10.8.
"NFI" has the meaning set forth in the introductory paragraph.
"NFI Disclosure Letter" has the meaning set forth in Article III.
"NFI Indemnitees" has the meaning set forth in Section 9.3.
"NFI Material Adverse Effect" means any event, change, circumstance or
effect that individually or in the aggregate (with other events, changes,
circumstances or effects) is or is reasonably likely to (A) be materially
adverse to the ability of NFI to perform its obligations hereunder or under the
other Transaction Documents, or (B) be materially adverse on the financial
condition, assets, liabilities, business or results of operations of NFI and its
Subsidiaries, taken as a whole, but shall exclude (only in the case of clause
(B) above) any such event, change, circumstance or effect resulting from,
relating to or arising out of (i) general economic or market conditions
(including changes in interest rates), so long as such conditions do not have a
disproportionate effect on NFI and its Subsidiaries, taken as a whole compared
to other companies in the industries in which NFI and its Subsidiaries conduct
their business; (ii) any occurrence or condition arising out of the negotiation
and execution of this Agreement or under the other Transaction Documents, the
consummation of the transactions contemplated hereby or thereby, or the public
announcement thereof (including any occurrence or condition
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arising out of the identity of or facts relating to Investors); (iii) acts of
war, armed hostilities, sabotage or terrorism, or any escalation or worsening of
any such acts of war, armed hostilities, sabotage or terrorism threatened or
underway as of the date of this Agreement; (iv) earthquakes, hurricanes, floods,
or other natural disasters; (v) any action taken by NFI at the express written
request of any of the Investors or with the express written consent of any of
the Investors and (vi) any decrease in the market value or trading volume of the
Common Shares of NFI on the NYSE or any failure by NFI or its Subsidiaries to
meet any projections, estimates or budgets for any period prior to, on or after
the date of this Agreement; provided, however, that this clause (vi) shall not
exclude any underlying event, change, circumstance or effect that itself
constitutes an NFI Material Adverse Effect that may have resulted in or
contributed to such decrease in the market value or trading volume of the Common
Shares of NFI on the NYSE or such failure by NFI or its Subsidiaries to meet any
projections, estimates or budgets for any period prior to, on or after the date
of this Agreement.
"NYSE" has the meaning set forth in Section 3.5(b).
"Options" means all stock options and other rights to purchase Common
Shares heretofore granted under any stock option or similar plan of NFI.
"Order" has the meaning set forth in Section 3.12.
"Originator" means, with respect to any Residential Mortgage Loan, each
entity or individual that (a) took the relevant Mortgagor's loan application,
(b) processed the relevant Mortgagor's loan application or (c) closed and/or
funded such Residential Mortgage Loan.
"Outside Date" has the meaning set forth in Section 8.1(c).
"Owned Intellectual Property" has the meaning set forth in Section 3.18(b).
"Permits" has the meaning set forth in Section 3.11(a).
"Permitted Liens" means (i) Liens for Taxes not yet delinquent, and Liens
for Taxes being contested in good faith and for which there are reserves, if
required, established on the financial statements of NFI in accordance with
GAAP, consistently applied, (ii) Liens being contested in good faith by current
administrative or judicial proceedings and for which a reserve has been
established on the most recent consolidated balance sheet included in the SEC
Filings filed prior to the date hereof, in accordance with GAAP, consistently
applied, (iii) mechanics' and materialmen's Liens for construction in progress,
and workmen's, repairmen's, warehousemen's and carriers' Liens arising in the
ordinary course of business of NFI or any of its Subsidiaries for sums not yet
due and payable, (iv) licenses of Intellectual Property of NFI or any of its
Subsidiaries, (v) Liens that arise solely by virtue of this Agreement or any
Transaction Document and (vi) other Liens on any asset that are not,
individually or in the aggregate, material in amount and do not, individually or
in the aggregate, detract from the value of such asset in any material respect
or impair the existing use of such asset in any material respect.
"person" means an individual, corporation, limited liability company,
partnership, joint venture, association, trust, unincorporated organization or
other entity.
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"Portfolio Agreements" means each administration agreement, advisory
agreement, collateral administration agreement, hedge agreement (if any),
indenture, collateral management agreement, offering document, escrow agreement,
fiscal agent agreement, charter documents of each issuer, insurance agreement
(if any) and all other agreements and documents related to the CDO. For the
avoidance of doubt, Portfolio Agreements does not include any agreement or
document relating to any investments owned by the CDO.
"Preferred Shares" means each class or series of shares of preferred stock
of NFI.
"Proxy Statement" means the letter to Shareholders, notice of meeting,
proxy statement and form of proxy, or the information statement, as the case may
be, required to be distributed to the Shareholders in connection with any annual
or special meeting of the Shareholders, including any schedules or exhibits
required to be filed with the SEC in connection therewith.
"Real Property" means any lot, parcel or tract of land in which any person
has a property interest and any Improvements located thereon.
"Registration Rights and Shareholders Agreement" has the meaning set forth
in the recitals.
"Regulation D" has the meaning set forth in the recitals.
"REIT Dividend Record Date" has the meaning set forth in Section 6.8(a).
"REIT Dividends" means the dividend by NFI of the Series E Preferred Shares
to be issued to satisfy NFI's Section 856 Trust distribution requirements.
"REO" means Real Property relating to any Residential Mortgage Loan upon
which NFI or any of its Subsidiaries has foreclosed and which is being held for
resale in the ordinary course of business.
"Residential Mortgage Loan" means a loan evidenced by a Mortgage Note
secured by a Mortgage, with respect to which the Mortgaged Property is a single
parcel of real property with a detached single-family residence thereon, or a
two- to four-family dwelling, a townhouse, or an individual condominium unit in
a condominium, a cooperative unit, or an individual unit in a planned unit
development.
"Residual Interests Cash Flow Schedule" has the meaning set forth in
Section 3.6(c).
"Restraint" has the meaning set forth in Section 7.1(d).
"Restricted Shares" means grants under the Incentive Plans of shares of
restricted stock, which have performance-based or time-based vesting conditions.
"Retained Interests" has the meaning set forth in Section 3.15(h).
"Reverse Stock Split" has the meaning set forth in Section 3.21.
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"Reverse Stock Split Effective Date" has the meaning set forth in Section
6.11.
"Rights" has the meaning set forth in Section 2.5(a).
"Rights Offering" has the meaning set forth in Section 2.5(a).
"Rights Offering Registration Statement" has the meaning set forth in
Section 2.5(c).
"Rights Record Date" has the meaning set forth in Section 2.5(b).
"SEC" has the meaning set forth in the recitals.
"SEC Filings" has the meaning set forth in Section 3.6(a).
"Section 3-601" has the meaning set forth in Section 3.22(b).
"Section 3-602" has the meaning set forth in Section 3.22(b).
"Section 3-702" has the meaning set forth in Section 3.22(c).
"Section 856 Trust" has the meaning set forth in Section 3.10(b).
"Securities Act" has the meaning set forth in the recitals.
"Securitization Trust" means a common law or statutory trust established as
a special purpose vehicle for the purpose of securitizing Residential Mortgage
Loans (or previously-issued securities themselves backed by Residential Mortgage
Loans).
"Series C Preferred Shares" means the shares of 8.90% Series C Cumulative
Redeemable Preferred Stock, of NFI.
"Series D-1 Articles Supplementary" has the meaning set forth in the
recitals.
"Series D-1 Preferred Shares" has the meaning set forth in the recitals.
"Series D-2 Articles Supplementary" has the meaning set forth in the
recitals.
"Series D-2 Preferred Shares" has the meaning set forth in the recitals.
"Series E Preferred Shares" means the 9% Series E Mandatory Convertible
Preferred Stock of NFI, par value $0.01 per share, and having such other terms
as are consistent with the provisions of Section 6.8(b) and Schedule 6.8(b).
"Serviced Mortgage Loan" means any (a) Warehouse Loan or (b) Residential
Mortgage Loan which is serviced by NFI or any of its Subsidiaries pursuant to
any Mortgage Loan Securitization Document or any Mortgage Loan Servicing
Agreement.
"Shareholders" means the holders of the Common Shares.
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"Share Units" means units provided under the Incentive Plans representing
the right to receive Common Shares.
"Sponsor" means any person, including a Securitization Trust, who owns or
holds Mortgage Loans, or servicing rights related thereto, sold by NFI or any of
its Subsidiaries.
"Standby Purchase Agreement" has the meaning set forth in the recitals.
"State Agency" means any state agency or other entity with authority to
regulate the activities of NFI or any of its Subsidiaries relating to the
origination or servicing of Residential Mortgage Loans or to determine the
investment or servicing requirements with regard to mortgage loan origination,
purchasing, servicing, master servicing or certificate administration performed
by NFI or any of its Subsidiaries.
"Subsequent Filings" means any reports, schedules, forms, statements or
other documents (including in each case, exhibits, amendments or supplements
thereto and any other information incorporated by reference therein) filed with
the SEC after the date of this Agreement, but prior to the Closing.
"Subsidiary" of any person means another person 50% or more of the total
combined voting power of all classes of capital stock or other voting interests
of which, or 50% or more of the equity securities of which, is owned directly or
indirectly by such first person.
"Tape" has the meaning set forth in Section 3.14(h).
"Tax Return" means any return, report, claim, certificate, form, statement,
disclosure, declaration, election, information return, estimate or other
document (including any related or supporting information attached and any
amended materials provided with respect to any of the foregoing) supplied to, or
filed with, a Governmental Entity with respect to Taxes.
"Taxes" has the meaning set forth in Section 3.10.
"Third Party Claim" has the meaning set forth in Section 9.5.
"Transaction Documents" means this Agreement, the Articles Supplementary,
the Registration Rights and Shareholders Agreement, the Standby Purchase
Agreement and the Key Employee Letter Agreements.
"Treasury Regulations" means the Treasury Regulations promulgated under the
Code.
"Warehouse Lender" means each lender to NFI or any of its Subsidiaries
which provides financing secured by Residential Mortgage Loans or mortgage
servicing rights relating thereto.
"Warehouse Loan" means a Residential Mortgage Loan that is financed by NFI
or any of its Subsidiaries, including Residential Mortgage Loans that are
financed by a Warehouse Lender.
"401(k) Plan" means the NovaStar Financial, Inc. 401(k) Plan.
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ARTICLE II
ISSUANCE AND PURCHASE OF SERIES D-1 PREFERRED SHARES; RIGHTS OFFERING
SECTION 2.1 Purchase of Series D-1 Preferred Shares. Subject to the
satisfaction (or waiver) of the conditions set forth in Article VII below, at
the Closing, (a) NFI shall issue and sell to MassMutual and MassMutual shall
purchase from NFI 1,050,000 Series D-1 Preferred Shares in exchange for the
MassMutual Consideration, free and clear of all Liens (other than restrictions
under applicable federal, foreign and state securities Laws), and (b) NFI shall
issue and sell to Jefferies and Jefferies shall purchase from NFI 1,050,000
Series D-1 Preferred Shares in exchange for the Jefferies Consideration, free
and clear of all Liens (other than restrictions under applicable federal,
foreign and state securities Laws).
SECTION 2.2 Closing. Subject to the provisions of Article VII, the closing
of the transactions contemplated hereby (the "Closing") shall take place at the
offices of Xxxxx Xxxxxxxxxx LLP, 1301 Avenue of the Xxxxxxxx, Xxx Xxxx, Xxx
Xxxx, 00000-0000, as soon as practicable but in no event later than 10:00 a.m.,
on the date that is three Business Days after the day on which the last of the
conditions set forth in Article VII shall have been satisfied or waived by the
parties, or at such other place, at such other time or on such other date as
Investors and NFI may mutually agree. The date on which the Closing actually
occurs is herein referred to as the "Closing Date".
SECTION 2.3 Deliveries. At the Closing, (a) MassMutual shall pay to NFI
cash in an amount equal to the MassMutual Consideration by wire transfer of
immediately available funds to an account designated by NFI pursuant to wire
instructions previously provided by NFI no later than at least two Business Days
prior to the anticipated Closing Date and shall deliver to NFI such other
certificates and counterparts to agreements required by it to be delivered
pursuant to Section 7.3 hereof, (b) Jefferies shall pay to NFI cash in an amount
equal to the Jefferies Consideration by wire transfer of immediately available
funds to an account designated by NFI pursuant to wire instructions previously
provided by NFI no later than at least two Business Days prior to the
anticipated Closing Date and shall deliver to NFI such other certificates and
counterparts to agreements required by it to be delivered pursuant to Section
7.3 hereof, and (c) NFI shall deliver to each Investor (i) a certificate or
certificates (in definitive form) duly executed on behalf of NFI registered in
the name of such Investor (or its designee) representing the number of Series
D-1 Preferred Shares purchased by such Investor from NFI pursuant to this
Agreement and (ii) such other certificates, opinions, counterparts to
agreements, documents or instruments required by it to be delivered to such
Investor pursuant to Section 7.2 hereof. Notwithstanding anything herein to the
contrary, payment of both the MassMutual Consideration and the Jefferies
Consideration shall be required for the Closing to occur.
SECTION 2.4 Restricted Shares and Options. Prior to the Closing, the
administrator of the Incentive Plans shall not exercise any discretion it may
have under the Incentive Plans to accelerate or waive any restrictions with
respect to any Restricted Shares, Options or other awards granted under the
Incentive Plans.
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SECTION 2.5 Rights Offering.
(a) The Board of Directors of NFI has approved the making by NFI of a
rights offering (the "Rights Offering") in connection with which (i) holders of
record of Common Shares and holders of record of Series D-1 Preferred Shares
(including Investors), in each case as of the close of business on the Rights
Record Date, shall be entitled to receive a distribution from NFI of
non-transferable rights (the "Rights") to subscribe for and purchase from NFI
certain Series D-2 Preferred Shares at a price of $25.00 per share and on such
other terms and subject to such conditions as set forth in the Series D-2
Articles Supplementary attached hereto, (ii) subscribers (other than Investors)
who exercise their Rights in full may over-subscribe for the shares offered in
the Rights Offering which have not been subscribed for and purchased, (iii) no
fractional subscription Rights or cash in lieu of fractional Rights will be
issued and fractional subscription Rights will be rounded to the nearest whole
number, (iv) the Rights Offering shall commence on or prior to the seventh
Business Day after the effective date of the Rights Offering Registration
Statement, and end on a Business Day that shall not be less than 20 Business
Days thereafter, subject to extension in the sole discretion of the Board of
Directors, provided, however, that other than as may be necessary to comply with
the requirements and regulations of the NYSE, the SEC or other applicable Law
such period shall not be more than 30 Business Days without the prior written
consent of the Investors, (v) any Series D-2 Preferred Shares remaining
unsubscribed for and purchased after conclusion of the Rights Offering will be
subject to purchase by the Investors in accordance with the terms and provisions
of the Standby Purchase Agreement and (vi) the aggregate amount raised by NFI
pursuant to the Rights Offering shall be $101,175,000.
(b) Following effectiveness of the Rights Offering Registration Statement,
NFI shall take, or cause to be taken, all necessary corporate action to declare
and establish a record date (the "Rights Record Date") for the determination of
the holders of Common Shares of record and holders of Series D-1 Preferred
Shares of record entitled to receive the distribution of Rights in the Rights
Offering. The Rights Record Date shall be a date not earlier than the day
following the Reverse Stock Split Effective Date. On or prior to the Rights
Record Date, NFI shall file the Series D-2 Articles Supplementary with the State
Department of Assessments and Taxation of Maryland.
(c) As promptly as practicable following the Closing, but in any event not
later than 45 days after the Closing, NFI shall file with the SEC a registration
statement on Form S-3 (or other applicable form) for the registration under the
Securities Act of the Rights and the underlying Series D-2 Preferred Shares and
the Common Shares issuable upon conversion of such Series D-2 Preferred Shares
(the "Rights Offering Registration Statement"). NFI will use its reasonable best
efforts to (i) cause the Rights Offering Registration Statement to become
effective under the Securities Act as promptly as possible, but in no event
prior to the filing with the SEC of NFI's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2007, and (ii) effectuate the Rights Offering in
a manner consistent with the Rights Offering Registration Statement and NFI's
agreements and obligations under the Standby Purchase Agreement.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF NFI
Except as otherwise disclosed in the Exchange Act Reports (other than risk
factor and similar cautionary disclosure contained in the Exchange Act Reports
under the headings "Risk Factors" or "Forward-Looking Statements" or under any
other similar heading) and in the corresponding section of the Disclosure Letter
delivered by NFI in connection with the execution and delivery of this
Agreement, regardless of whether such representation or warranty specifically
refers to the NFI Disclosure Letter (the "NFI Disclosure Letter"), NFI hereby
represents and warrants to Investors as follows:
SECTION 3.1 Organization, Standing and Corporate Power. Except as set forth
in Section 3.1 of the NFI Disclosure Letter, NFI and each of its Subsidiaries is
a corporation duly incorporated (or, if not a corporation, duly organized),
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated (or, if not a corporation, in which it is organized)
and has the requisite power and authority to own, lease and operate its
properties and assets and to carry on in all material respects its business as
now being conducted. Except as set forth in Section 3.1 of the NFI Disclosure
Letter, NFI and each of its Subsidiaries is duly qualified to do business and is
in good standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary, other
than in such jurisdictions where the failure to be so qualified (individually or
in the aggregate) would not have an NFI Material Adverse Effect. NFI has made
available to Investors in the Data Room complete and correct copies of the
Charter and Bylaws of NFI and the equivalent organizational documents of each of
its Material Subsidiaries, in each case, as amended and in full force and
effect.
SECTION 3.2 Capital Structure; Issuance of Shares.
(a) The authorized stock of NFI consists solely of 50,000,000 shares of
capital stock, of which 2,990,000 shares have been designated as Series C
Preferred Shares. As of June 30, 2007, 37,879,640 Common Shares and, as of the
date hereof, 2,990,000 Series C Preferred Shares are issued and outstanding, and
no shares of any other class of capital stock of NFI are outstanding. No Common
Shares have been reserved for issuance under the Incentive Plans, upon exercise
of Options, Restricted Shares or Share Units, under NFI's Direct Stock Purchase
and Dividend Reinvestment Plan or under any Sales Agreement with Cantor
& Xxxxxxxxxx & Co. Except as set forth above, no shares of capital stock of NFI
are issued, reserved for issuance or outstanding. All outstanding shares of
capital stock of NFI are duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive or similar rights.
(b) Section 3.2(b) of the NFI Disclosure Letter contains a true and
complete schedule as of July 1, 2007, setting forth (as applicable) (i) the
holder, number, exercise price, number of Common Shares for which it is
exercisable, grant date, vesting date and expiration date, in each case of each
outstanding Option, (ii) the holder, grant date, number and vesting schedule, in
the case of each outstanding Restricted Share and (iii) the holder and number,
in the case of each outstanding Share Unit. NFI has not issued any Options,
Restricted Shares or Share Units between July 1, 2007 and the date hereof. Each
of NFI's Options has been duly authorized
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and validly issued by NFI, in each case with such exercise prices and on such
dates that are in compliance in all material respects with applicable Laws and
in accordance with the terms of the Incentive Plans, and neither NFI nor any of
its Subsidiaries has any reason to believe that the authorization and issuance
of any of the Options was not in compliance with applicable Laws and in
accordance with the terms of the Incentive Plans.
(c) Except as set forth in Section 3.2(c) of the NFI Disclosure Letter,
there are no preemptive or similar rights on the part of any holder of any class
of securities of NFI. Other than the securities listed in Section 3.2(c) of the
NFI Disclosure Letter, NFI does not have outstanding any bonds, debentures,
notes or other obligations the holders of which have the right to vote (or which
are convertible into or exercisable for securities having the right to vote)
with the shareholders of NFI on any matter submitted to shareholders or a
separate class of holders of capital stock. Except as set forth above and except
for the securities listed in Section 3.2(b) or Section 3.2(c) of the NFI
Disclosure Letter, there are not any options, warrants, restricted stock,
restricted stock units, calls, rights, convertible or exchangeable securities,
"phantom" stock rights, stock appreciation rights, stock-based performance
units, commitments, contracts, arrangements or undertakings of any kind to which
NFI is a party or by which it is bound (i) obligating NFI to issue, deliver,
sell or transfer or repurchase, redeem or otherwise acquire, or cause to be
issued, delivered, sold or transferred or repurchased, redeemed or otherwise
acquired, any shares of the capital stock of NFI, any additional shares of
capital stock of, or other equity interests in, or any security convertible or
exercisable for or exchangeable into any capital stock of, or other equity
interest in, NFI, (ii) obligating NFI to issue, grant, extend or enter into any
such option, warrant, call, right, security, commitment, contract, arrangement
or undertaking, or (iii) obligating NFI pursuant to any right of first offer,
right of first negotiation, right of first refusal, co-sale or similar
provisions. Except as provided for under the 401(k) Plan or the Deferred
Compensation Plan, there are no outstanding contractual obligations of NFI to
sell, repurchase, redeem or otherwise acquire or to register any shares of
capital stock of, or other equity interests in, NFI. There are no proxies,
voting trusts or other agreements or understandings to which NFI is a party or
is bound with respect to the voting of the capital stock of, or other equity
interests in, NFI. No Common Shares or Preferred Shares are held by any wholly
owned Subsidiary of NFI.
(d) As of the Closing, there will be 2,100,000 Series D-1 Preferred Shares
authorized, 2,100,000 of which shall be issued and outstanding. As of the
Reverse Stock Split Effective Date, there will be 2,100,000 Series D-1 Preferred
Shares and 6,147,000 Series D-2 Preferred Shares authorized for issuance. The
issuance, sale and delivery of the Series D-1 Preferred Shares in accordance
with this Agreement, and the issuance and delivery of the Common Shares issuable
upon conversion of the Series D-1 Preferred Shares, will be on or prior to the
Closing, duly authorized by all necessary corporate action on the part of NFI,
and provided effect is given to the conversion and availability of at least
600,000 Series D-1 Preferred Shares pursuant to the Series D-1 Articles
Supplementary prior to the conversion of the remaining issued and outstanding
Series D-1 Preferred Shares all such Common Shares will be duly reserved for
issuance. As of the Reverse Stock Split Effective Date such percentage shall not
be less than 125% of the maximum number of Common Shares that would be issuable
upon conversion of both the Series D-1 Preferred Shares at such time and the
Series D-2 Preferred Shares contemplated by the Series D-2 Articles
Supplementary. The Series D-1 Preferred Shares when issued, sold and delivered
against payment therefor in accordance with the provisions of
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this Agreement, and the Common Shares issuable upon conversion of the Series D-1
Preferred Shares, when issued upon such conversion, will be duly and validly
issued, fully paid and nonassessable, free and clear of any Liens (other than
restrictions under applicable United States federal and state securities Laws)
with the holders being entitled to all rights accorded to a holder of Common
Shares under Maryland law and the organizational documents of NFI. No person has
any preemptive right or right of first refusal which would be triggered by
reason of the issuance of the Series D-1 Preferred Shares or the Common Shares
issuable upon conversion of the Series D-1 Preferred Shares.
(e) As of the Reverse Stock Split Effective Date, the amendment of the
Charter effecting the Reverse Stock Split shall be effective and the authorized
share capital of NFI shall consist of 50,000,000 shares of capital stock, of
which (i) 2,990,000 shares have been designated as Series C Preferred Shares,
(ii) 2,100,000 shares shall be designated as Series D-1 Preferred Shares and
(iii) 6,147,000 shares shall be designated as Series D-2 Preferred Shares. As of
the Reverse Stock Split Effective Date (and assuming for purposes of this
representation and warranty that, between the date hereof and the Reverse Stock
Split Effective Date, no conversions of the Series D-1 Preferred Shares shall
have occurred, no Options shall have been exercised and no Common Shares shall
have been issued under NFI's Direct Stock Purchase and Dividend Reinvestment
Plan, the Sales Agreement with Cantor Xxxxxxxxxx & Co. or in connection with
NFI's Section 856 Trust distribution requirement), (A) approximately 37,879,000
Common Shares, 2,990,000 Series C Preferred Shares and 2,100,000 Series D-1
Preferred Shares will be issued and outstanding, and no shares of any other
class of capital stock of NFI will be outstanding or reserved for issuance.
SECTION 3.3 Subsidiaries and Investments.
(a) Section 3.3 of the NFI Disclosure Letter lists each Subsidiary of NFI,
and in each case, its capitalization and its jurisdiction of organization. NFI
does not have any Subsidiaries (other than the Material Subsidiaries) that would
constitute a "significant subsidiary" (as defined in Rule 1-02 of Regulation
S-X). All the outstanding shares of capital stock of each Subsidiary of NFI have
been validly issued and are fully paid and nonassessable (and no such shares are
subject to preemptive or similar rights) and, except as set forth in Section 3.3
of the NFI Disclosure Letter, are wholly owned beneficially and as of record by
NFI, by one or more Subsidiaries of NFI or by NFI and one or more such
Subsidiaries, free and clear of all Liens. Except as disclosed in Section 3.3 of
the NFI Disclosure Letter, neither NFI nor any of its Subsidiaries is a member
of (nor is any part of their respective businesses conducted through) any
partnership or joint venture.
(b) Except as set forth in Section 3.3(b) of the NFI Disclosure Letter,
there are no preemptive or similar rights on the part of any holder of any class
of securities of any Material Subsidiary. Other than the securities listed in
Section 3.3(b) of the NFI Disclosure Letter, none of the Material Subsidiaries
have outstanding any bonds, debentures, notes or other obligations the holders
of which have the right to vote (or which are convertible into or exercisable
for securities having the right to vote) with the shareholders of any such
Material Subsidiary on any matter submitted to shareholders or a separate class
of holders of capital stock. Except as set forth above and except for the
securities listed in Section 3.3(a) or Section 3.3(b) of the NFI Disclosure
Letter, there are not any options, warrants, restricted stock, restricted stock
units,
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calls, rights, convertible or exchangeable securities, "phantom" stock
rights, stock appreciation rights, stock-based performance units, commitments,
contracts, arrangements or undertakings of any kind to which any Material
Subsidiary is a party or by which any Material Subsidiary is bound (i)
obligating any Material Subsidiary to issue, deliver, sell or transfer or
repurchase, redeem or otherwise acquire, or cause to be issued, delivered, sold
or transferred or repurchased, redeemed or otherwise acquired, any shares of the
capital stock of any Material Subsidiary, any additional shares of capital stock
of, or other equity interests in, or any security convertible or exercisable for
or exchangeable into any capital stock of, or other equity interest in, any
material Subsidiary, (ii) obligating any Material Subsidiary to issue, grant,
extend or enter into any such option, warrant, call, right, security,
commitment, contract, arrangement or undertaking, or (iii) obligating any
Material Subsidiary pursuant to any right of first offer, right of first
negotiation, right of first refusal, co-sale or similar provisions. There are no
outstanding contractual obligations of any Material Subsidiary to sell,
repurchase, redeem or otherwise acquire or to register any shares of capital
stock of, or other equity interests in, any Material Subsidiary. There are no
proxies, voting trusts or other agreements or understandings to which any
Material Subsidiary is a party or is bound with respect to the voting of the
capital stock of, or other equity interests in, any Material Subsidiary.
SECTION 3.4 Authority. NFI has the requisite corporate power and authority
to enter into this Agreement and the other Transaction Documents and to perform
its obligations hereunder and thereunder and to consummate the transactions
contemplated by this Agreement and the other Transaction Documents. The
execution, delivery and performance of this Agreement and the other Transaction
Documents by NFI and the consummation by NFI of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of NFI. This Agreement has been and at the Closing, the Registration
Rights and Shareholders Agreement, the Standby Purchase Agreement and the Series
D-1 Articles Supplementary will be, duly executed and delivered by NFI and,
assuming due authorization, execution and delivery of this Agreement, the
Registration Rights and Shareholders Agreement and the Standby Purchase
Agreement by Investors, constitute or will constitute, as the case may be, valid
and binding obligations of NFI, enforceable against NFI in accordance with their
respective terms, except that (i) such enforcement may be subject to applicable
bankruptcy, insolvency or other similar laws, now or hereafter in effect,
affecting creditors' rights generally and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought. NFI will have at the Closing all requisite
corporate power to effectuate the Reverse Stock Split and to issue and sell the
Series D-1 Preferred Shares to Investors, and provided effect is given to the
conversion and availability of at least 600,000 Series D-1 Preferred Shares
pursuant to the Series D-1 Articles Supplementary prior to the conversion of the
remaining issued and outstanding Series D-1 Preferred Shares, to issue the
Common Shares issuable upon conversion of the Series D-1 Preferred Shares. NFI
will have at the Reverse Stock Split Effective Date all requisite corporate
power to issue and sell the Series D-2 Preferred Shares and to issue Common
Shares issuable upon conversion of the Series D-2 Preferred Shares.
SECTION 3.5 Noncontravention; Consents.
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(a) Except as set forth in Section 3.5(a) of the NFI Disclosure Letter, the
execution and delivery of this Agreement and the other Transaction Documents by
NFI do not, and the consummation of the transactions contemplated by this
Agreement and the other Transaction Documents including, without limitation, (x)
the issuance of the Series D-1 Preferred Shares or the issuance of Common Shares
upon conversion of the Series D-1 Preferred Shares and (y) the issuance of the
Series D-2 Preferred Shares in connection with the Rights Offering or the
issuance of Common Shares upon conversion of the Series D-2 Preferred Shares
will not, (i) subject to the completion of the Reverse Stock Split and giving
effect to any securities being converted, conflict with any of the provisions of
the Charter or Bylaws of NFI or the comparable organizational documents of any
of its Material Subsidiaries, (ii) subject to the matters referred to in Section
3.5(b), conflict with, result in any violation or breach of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any material obligation or to the
loss of a material benefit under any loan, guarantee of indebtedness or credit
agreement, note, bond, mortgage, indenture, lease, agreement, contract,
instrument, permit, concession, franchise, right or license binding upon NFI or
any of its Material Subsidiaries, or result in the creation of any Lien on any
property or asset of NFI or any of its Material Subsidiaries or (iii) subject to
the matters referred to in Section 3.5(b), contravene or conflict with in any
material respect or constitute a material violation of any provision of any Law
binding upon or applicable to NFI or any of its Material Subsidiaries or any of
their respective properties or assets, which, in the case of clause (ii), would
have an NFI Material Adverse Effect.
(b) No consent, approval or authorization of, or declaration or filing
with, or notice to, any court, administrative agency or commission or other
governmental or regulatory authority or agency, political subdivision,
instrumentality or any securities exchange, in any jurisdiction (a "Governmental
Entity"), and, except as would not have an NFI Material Adverse Effect, no
consent, approval or authorization of any third party, is required by or with
respect to NFI, any of its Subsidiaries or any Investor in connection with the
execution, delivery and performance of this Agreement or the other Transaction
Documents or the consummation by NFI or Investors of the transactions
contemplated hereby or thereby, including, without limitation, (x) the issuance
of the Series D-1 Preferred Shares and the issuance of Common Shares upon
conversion of the Series D-1 Preferred Shares and (y) the issuance of the Series
D-2 Preferred Shares in connection with the Rights Offering or the issuance of
Common Shares upon conversion of the Series D-2 Preferred Shares, except for (i)
the filing of premerger notification and report forms under the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (ii) consents, approvals, authorizations, declarations, filings or
notices to any Financial Services Authority (each, a "Financial Services
Consent") by NFI, any of its Affiliates or any of the Investors as are set forth
in Section 3.5(b) of the NFI Disclosure Letter or are needed by Investors solely
as a result of facts or circumstances specific to any Investor, (iii) the filing
of any listing applications or supplemental listing applications with The New
York Stock Exchange ("NYSE"), (iv) the filing of the Articles Supplementary with
the State Department of Assessments and Taxation of Maryland, (v) the filing of
registration statements with the SEC as contemplated by the Transaction
Documents and (vi) such other consents, approvals, authorizations, declarations,
filings or notices as are set forth in Section 3.5(b) of the NFI Disclosure
Letter. The Financial Services Consents set forth in Section 3.5(b) of the NFI
Disclosure Letter are based upon the following assumptions: (1) upon Closing
each Investor will own, together with any Common Shares or Preferred Shares
owned by an Affiliate of such
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Investor or any entity over which such Investor has or exerts control, less than
10% of the outstanding voting stock of NFI, including any Common Shares or
Preferred Shares currently owned or acquired before Closing by such Investor;
and (2) each Investor will independently vote its Common Shares or Preferred
Shares and shall not, pursuant to any formal or informal agreement, oral or
written, agree to vote such Common Shares or Preferred Shares in concert.
SECTION 3.6 SEC Reports; Financial Statements.
(a) Since January 1, 2005, NFI has filed all forms, reports, schedules,
statements and other documents (including exhibits thereto) with the SEC
relating to periods commencing on or after such date required to be filed by it
pursuant to the United States federal securities laws and the SEC rules and
regulations promulgated thereunder (such forms, reports, schedules, statements
and other documents, in each case, as amended, supplemented or superseded,
together with any documents filed during such period by NFI with the SEC on a
voluntary basis on Form 8-K, in each case, together with any other information
incorporated therein, being hereinafter referred to as the "SEC Filings"), and,
as of their respective dates, each of the SEC Filings complied, and each of the
Subsequent Filings will comply, in all material respects with all applicable
requirements of the United States federal securities laws and the rules and
regulations promulgated thereunder, and do not contain, and in the case of any
Subsequent Filings, will not contain, in each case after taking into account all
prior SEC Filings of NFI at the time of such filing, any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Except as set forth in Section 3.6(a) of
the NFI Disclosure Letter, none of the Subsidiaries of NFI is, or at any time
since January 1, 2005 has been, required to file any form or report with the
SEC.
(b) NFI has made available to Investors true and complete copies of (i) the
audited consolidated balance sheets of NFI and its Subsidiaries as of December
31, 2006, 2005 and 2004 (collectively, the "GAAP December Balance Sheets") and,
in each case, the related consolidated (if applicable) statements of income,
shareholders' equity and cash flows for the years then ended, together with the
notes to such financial statements, and (ii) the unaudited consolidated balance
sheet of NFI and its Subsidiaries as of March 31, 2007 and the related
consolidated statements of income, shareholders' equity and cash flows for the
three months then ended, together with the notes to such financial statements
(collectively, the "March 2007 GAAP Statements"). Except as set forth in the
notes thereto and except as otherwise permitted by the requirements applicable
to the preparation of Quarterly Reports on Form 10-Q under the Exchange Act, the
GAAP December Balance Sheets and March 2007 GAAP Statements were prepared, and
any financial statements contained in any Subsequent Filing will be prepared, in
accordance with U.S. generally accepted accounting principles ("GAAP") applied
on a consistent basis during the periods presented, fairly present, or will
fairly present, as the case may be, the consolidated financial position of NFI
and its consolidated Subsidiaries, as of the dates thereof and the consolidated
(if applicable) results of their respective operations and cash flows for the
periods then ended in conformity with GAAP applied on a consistent basis during
the periods presented (subject, in the case of the March 2007 GAAP Statements,
to normal year-end adjustments) and comply as to form, or will comply as to
form, with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Since January 1, 2005, there has
been no material change in NFI's accounting methods or principles
-20-
that would be required to be disclosed in NFI's financial statements in
accordance with GAAP, except as described in the notes to such NFI financial
statements.
(c) Section 3.6(c) of the NFI Disclosure Letter sets forth a true and
complete schedule of NFI's expected cash flows from residual interests, which
schedule has been previously provided to Investors (the "Residual Interests Cash
Flow Schedule"). The Residual Interests Cash Flow Schedule was prepared in good
faith based on reasonable assumptions.
SECTION 3.7 No Undisclosed Liabilities. There are no liabilities or
obligations of NFI or any of its Subsidiaries of a kind required to be disclosed
on a balance sheet under GAAP or in the notes thereto other than (i) liabilities
and obligations reflected or disclosed in the March 2007 GAAP Statements, in
accordance with GAAP consistently applied, and (ii) liabilities or obligations
incurred in the ordinary course of business consistent with past practice since
March 31, 2007, other than, in the case of this clause (ii), those that would
not reasonably be expected to have, individually or in the aggregate, an NFI
Material Adverse Effect.
SECTION 3.8 Absence of Certain Changes or Events. Since December 31, 2006,
except as disclosed in the Exchange Act Reports and except as set forth in
Section 3.8 of the NFI Disclosure Letter, (a) NFI and its Subsidiaries have
carried on and operated their respective businesses in the ordinary course of
business consistent with past practices and (b) there has not occurred (i) any
event or change having an NFI Material Adverse Effect, (ii) any declaration,
setting aside or payment of any dividend or other actual, constructive or deemed
distribution (whether in cash, stock or property) with respect to any of NFI's
outstanding capital stock (other than (x) dividends on the Series C Preferred
Shares declared and paid in accordance with the terms thereof, (y) dividend
payments on the Common Shares necessary to satisfy NFI's Section 856 Trust
distribution requirement, as applicable, and (z) dividend equivalents paid with
respect to awards under the Incentive Plans) or (iii) any action taken by NFI or
any of its Subsidiaries through the date hereof that, if taken during the period
from the date hereof through the Closing Date, would constitute a breach of
Section 5.1.
SECTION 3.9 Employee Benefit Plans.
(a) Each material Employee Benefit Plan and each material employment,
consulting, termination and severance contract for active, retired or former
employees or directors of NFI and its Subsidiaries currently in effect or
pursuant to which NFI or any of its Subsidiaries has ongoing obligations (each
such contract and agreement, an "Employment Agreement") is listed in Section
3.9(a) of the NFI Disclosure Letter. With respect to each Employment Agreement,
NFI and, to the Knowledge of NFI, each of the other parties thereto have taken
such action as is necessary to waive any applicable "change of control"
provisions set forth in any such Employment Agreement with respect to the
transactions contemplated by this Agreement and the other Transaction Documents.
NFI has delivered or made available to Investors and their counsel true and
complete copies of all material documents in connection with each Employee
Benefit Plan and each Employment Agreement, including, where applicable, (i) all
Employee Benefit Plans and Employment Agreements as in effect on the date
hereof, together with all amendments thereto, including, in the case of any
Employee Benefit Plan or Employment Agreement not set forth in writing, a
written description thereof; (ii) all
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current summary plan descriptions, summaries of material modifications, and
material communications; (iii) all current trust agreements and all amendments
thereto; (iv) the most recent Internal Revenue Service determination letter, if
any, obtained with respect to each Employee Benefit Plan intended to be
qualified under Section 401(a) of the Code or exempt under Section 501(a) or
501(c)(9) of the Code; and (v) the annual report on Internal Revenue Service
Form 5500 for the last year for each Employee Benefit Plan required to file such
form.
(b) Each Employee Benefit Plan (including any related trust) is in
compliance in all material respects with all applicable Laws and has been
administered and operated in all material respects in accordance with its terms.
(c) Each Employee Benefit Plan which is intended to be qualified within the
meaning of Section 401(a) of the Code has received a favorable determination
letter from the Internal Revenue Service or is entitled to rely on a favorable
opinion letter issued by the Internal Revenue Service and, to the Knowledge of
NFI, no event has occurred and no condition exists since the date of such
determination or opinion letter or letters to adversely affect the qualified
status of any such Employee Benefit Plan or the exempt status of any such trust.
(d) Full payment has been made of all amounts which NFI and its
Subsidiaries were required under the terms of the Employee Benefit Plans to have
paid as contributions to such Employee Benefit Plans on or prior to the date
hereof (excluding any amounts not yet due) and all amounts not yet due but
required to be accrued on NFI's or any of its Subsidiaries' financial statements
have been properly accrued.
(e) Neither NFI nor any ERISA Affiliate sponsors or has sponsored in the
past six years, or has any liability with respect to, any benefit plan that is
subject to Title IV of ERISA or Section 412 of the Code or that is a multiple
employer welfare benefit arrangement (as defined in Section 3(40)(A) of ERISA).
For purposes of this Section 3.9(e), an entity is an "ERISA Affiliate" of NFI if
it would have ever been considered a single employer with NFI under 4001(b) of
ERISA or part of the same controlled group as NFI for purposes of Section
302(d)(3) of ERISA.
(f) Neither NFI nor any of its Subsidiaries or, to the Knowledge of NFI,
any other "disqualified person" or "party in interest" (as defined in Section
4975(e)(2) of the Code and Section 3(14) of ERISA, respectively), has engaged in
any transaction in connection with any Employee Benefit Plan that could
reasonably be expected to result in the imposition of a material penalty
pursuant to Section 502(i) or (l) of ERISA or a material tax pursuant to Section
4975 of the Code.
(g) Neither NFI nor any of its Subsidiaries has maintained any Employee
Benefit Plan which provides continuation of welfare benefits (including medical
and life insurance benefits) following a director's, officer's, employee's or
consultant's termination of service with NFI or any of its Subsidiaries (other
than as required pursuant to Part 6 of Title I of ERISA or similar state law).
Each Employee Benefit Plan subject to the requirements of Part 6 of Title I of
ERISA or similar state law has been operated in material compliance therewith.
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(h) Except as required to comply with applicable Law, neither NFI nor any
of its Subsidiaries has any commitment, or stated any intention, to create,
materially modify or terminate any Employee Benefit Plan. Neither NFI nor any of
its Subsidiaries has caused any condition or circumstance that could reasonably
be expected to result in a material increase in benefits under or expense of
maintaining any Employee Benefit Plan for the level of benefits or expense
incurred for the most recent fiscal year ended thereof.
(i) Except as set forth in Section 3.9(i) of the NFI Disclosure Letter, the
execution of this Agreement and the consummation of the transactions
contemplated hereby do not and will not constitute a triggering event under any
Employee Benefit Plan, Employment Agreement or otherwise that (either alone or
upon the occurrence of any additional or subsequent event) will or may result in
any payment (whether of severance pay or otherwise), acceleration, vesting or
increase in benefit to any current or former director, officer, employee or
consultant of NFI or any of its Subsidiaries. Except as set forth in Section
3.9(i) of the NFI Disclosure Letter, the consummation of the transactions
contemplated by this Agreement will not (either alone or upon the occurrence of
any additional or subsequent event) result in any payment that would constitute
an "excess parachute payment" for purposes of Sections 280G or 4999 of the Code.
(j) Neither NFI nor any of its Subsidiaries is a party to any collective
bargaining agreement or other labor agreement. NFI and its Subsidiaries have
been and are being operated in all material respects in compliance with all Laws
in any jurisdiction relating to employees and employment practices, including
employment standards, workplace safety and insurance and occupational health and
safety, workers' compensation, human rights, labor relations or pay equity.
There are no pending or outstanding material written claims or complaints,
assessments, actions, causes of action, claims, complaints, demands, orders,
prosecutions or suits nor, to the Knowledge of NFI, are there any threatened or
anticipated claims or complaints, against NFI, any of its Subsidiaries or any of
its directors, officers or agents in relation to any Laws in any jurisdiction
relating to Employee Benefit Plans or employees, including employment standards,
human rights, labor relations, occupational health and safety, workers'
compensation or pay equity, except in any case for routine claims for benefits
or employee grievances (none of which individually, or in the aggregate, are
material or would reasonably be expected to be material to NFI or any of its
Subsidiaries). There are no outstanding Orders, settlements or pending
settlements that impose any material restriction upon NFI or any of its
Subsidiaries in respect of their employees.
SECTION 3.10 Taxes.
(a) All material Tax Returns required to be filed on or before the Closing
Date (after taking into account all applicable extensions to file) with respect
to NFI and each of its Subsidiaries have been filed; (ii) all Taxes reported on
such returns and reports or otherwise due and payable by NFI or any of its
Subsidiaries have been or will be timely paid, withheld or adequately provided
for the extent required by and in accordance with GAAP except to the extent any
such Taxes are being contested in good-faith by current administrative or
judicial proceedings; (iii) all such Tax Returns were true, correct and complete
when filed; (iv) no material audit or other administrative proceeding or court
proceeding in any jurisdiction exists, has been initiated or has been threatened
in writing with regard to Taxes or Tax Returns of NFI or any of its Subsidiaries
that have not been finally resolved; (v) neither NFI nor any of its
-23-
Subsidiaries is a party to or bound by any Tax sharing or similar agreement
other than such an agreement exclusively between or among NFI and its
Subsidiaries; (vi) to the Knowledge of NFI, neither NFI nor any of its
Subsidiaries has entered into any transaction that has been identified as a
"listed transaction" as defined in Treasury Regulation Β§1.6011-4(b)(2) by the
Internal Revenue Service pursuant to published guidance; (vii) neither NFI nor
any of its Subsidiaries has granted any extension or waiver of the limitation
period in respect of any Taxes or any Tax Returns which waiver or extension is
currently still in effect in a material jurisdiction; and (viii) neither NFI nor
any of its Subsidiaries has been a member of a group filing a consolidated
federal income Tax return or a consolidated, combined or unitary state Tax
return (other than a group the common parent of which was NFI or a Subsidiary of
NFI) or has any liability for the Taxes of any person (other than an Affiliate
of NFI) under Treasury Regulation Β§1.1502-6 (or any similar provision of
state, local, or foreign Law) or as a transferee.
(b) NFI, (i) for all taxable years commencing with its taxable year ending
December 31, 1996 through December 31, 2006, has been subject to taxation as a
real estate investment trust (a "Section 856 Trust") within the meaning of
Sections 856 through 860 of the Code and has been organized and operated in
conformity with the requirements for qualification and taxation as a Section 856
Trust for such years, (ii) has operated since December 31, 2006 to the date
hereof in a manner that will permit it to qualify as a Section 856 Trust for the
taxable year that includes the date hereof, (iii) intends to issue the REIT
Dividends in sufficient value so as to meet NFI's 2006 Section 856 Trust
distribution requirement and avoid Section 857(b) Taxes for NFI's 2006 taxable
year; and (iv) intends to continue to operate in such a manner as to permit it
to continue to qualify as a Section 856 Trust for the 2007 taxable year. NFI has
not received any written notice that a challenge to its status as a Section 856
Trust is pending or threatened.
(c) Neither NFI nor any of its Subsidiaries has held or currently holds, or
is the successor to, any other entity that has filed, or intends to file, an
election to be taxed as a Section 856 Trust. NFI does not hold any asset the
disposition of which would be subject to rules similar to Section 1374 of the
Code. NFI does not hold any interest in any entity other than a corporation that
qualifies as a "qualified REIT subsidiary" within the meaning of Section 856(i)
of the Code or a "taxable REIT subsidiary" within the meaning of Section 856(l)
of the Code.
(d) NFI has not incurred any material liability for Taxes under sections
857(b), 860(c) or 4981 of the Code which have not been previously paid. To the
Knowledge of NFI, NFI has not engaged at any time in any "prohibited
transactions" within the meaning of Section 857(b)(6) of the Code that have
resulted in a material "prohibited transactions tax". To the Knowledge of NFI,
no event has occurred, and no condition or circumstance exists, which presents a
material risk that any Tax described in the preceding sentences will be imposed
on NFI.
(e) Other than the Retained Interests, (i) NFI neither owns nor is deemed
to own any interest (other than a debt instrument rated BBB- or greater) in a
taxable mortgage pool under Section 7701(i) of the Code, (ii) NFI has never
earned any "excess inclusion" income within the meaning of Section 860E or
Section 7701(i) of the Code and (iii) NFI does not hold any asset which could
generate any "excess inclusion income" within the meaning of Section
-24-
860E or Section 7701(i) of the Code. NFI and its Subsidiaries were required to
recognize excess inclusion income within the meaning of Section 860E and Section
7701(i) of the Code of no more than $15,000,000 for the 2006 taxable year.
(f) The CDO is a wholly owned indirect subsidiary of an entity that has
filed an election to be a "taxable REIT subsidiary" of NFI.
(g) The deferred tax asset balances for NFI and each Subsidiary of NFI as
of March 31, 2007 are not less than the amounts set forth on the March 2007 GAAP
Statements. The net deferred tax asset balances of NFI and its Subsidiaries as
presented on the March 2007 GAAP Statements are materially accurate.
(h) If NFI ceases to qualify as a Section 856 Trust under the Code, such
Section 856 Trust disqualification will not cause any event of default,
including without limitation, with respect to any Retained Interest.
(i) Neither NFI nor any entity owned or controlled by NFI or in which NFI
is treated as a partner for U.S. federal income tax purposes has any tenants (as
such term is used for purposes of Section 856(d) of the Code) that are
partnerships, corporations, trusts or other juridical entities, and neither NFI
nor any entity owned or controlled by NFI or in which NFI is treated as a
partner for U.S. federal income tax purposes derives any rents or other income
from tenants (as each such term is used for purposes of Section 856(d) of the
Code) that are partnerships, corporations, trusts or other juridical entities.
(j) No existing stockholder of NFI is an "Excepted Holder" (as such term is
defined in Section 11.1 of the Charter).
As used in this Agreement, "Taxes" shall include all income, property,
sales, excise, employment, payroll, withholding and other taxes, tariffs or
governmental charges of any nature whatsoever imposed by any Governmental Entity
(together with any interest or penalty, addition to Tax or additional amount
imposed with respect thereto).
SECTION 3.11 Compliance with Applicable Laws.
(a) NFI and each of its Subsidiaries are in possession of and has in full
force and effect all material approvals, authorizations, consents, franchises,
licenses, permits, easements, variances, exceptions, certificates and rights
required by any Governmental Entity (collectively, "Permits") necessary for it
to own, lease or operate its properties and assets and to carry on its business
as now conducted, and no non-renewal, suspension, cancellation or materially
adverse modification of any of the Permits is pending or, to the Knowledge of
NFI, threatened. There has occurred no violation of, default (with or without
the lapse of time or the giving of notice, or both) under, or event giving to
others any right of termination, amendment or cancellation of, with or without
notice or lapse of time or both, any such Permit, except as would not be
material to NFI and its Subsidiaries taken as a whole. NFI and its Subsidiaries
are, and since January 1, 2005, each of them has been, in compliance in all
material respects with all applicable Laws, other than any such noncompliance
which has not impaired or would not reasonably be expected to impair the conduct
or operation of the business of NFI or any of its Subsidiaries, or has not
resulted in, or would not reasonably be expected to result in, the payment
-25-
of fines or the incurrence of expenses or other costs to NFI or any of its
Subsidiaries in excess of $50,000 individually, or $200,000 in the aggregate.
(b) Neither NFI nor any of its Subsidiaries has received written notice (or
to the Knowledge of NFI, other notice) from any Governmental Entity of a
violation of applicable Law in connection with the origination of any Warehouse
Loan or Mortgage Loan or the servicing of any portion of the Mortgage Loan
Servicing Portfolio, other than any such violations which have not impaired or
would not reasonably be expected to impair the conduct or operation of the
business of NFI or any of its Subsidiaries, or have not resulted in, or would
not reasonably be expected to result in, the payment of fines or the incurrence
of expenses or other costs to NFI or any of its Subsidiaries in excess of
$50,000 individually, or $200,000 in the aggregate.
SECTION 3.12 Absence of Litigation. Except as set forth in Section 3.12 of
the NFI Disclosure Letter, there is no suit, action, litigation, claim,
investigation, inquiry, hearing, petition, grievance, complaint, controversy,
proceeding or arbitration (collectively, "Litigation") pending or, to the
Knowledge of NFI, threatened against NFI or any of its Subsidiaries or
Affiliates (and, to the Knowledge of NFI, there are no facts or circumstances
that are reasonably expected to result in any such Litigation) that (i) seeks to
restrain or enjoin the consummation of any of the transactions contemplated by
this Agreement or (ii) would have an NFI Material Adverse Effect, nor is there
any judgment, decree, injunction, ruling, notice, declaration, writ or
arbitration award or other award (or agreement entered into in any
administrative, judicial or arbitration proceeding with any Governmental Entity)
or order of any Governmental Entity or arbitrator (each, an "Order") outstanding
against NFI or any of its Subsidiaries that would have an NFI Material Adverse
Effect. Except for customary ongoing audits, examinations, investigations and
due diligence reviews, neither NFI nor any of its Subsidiaries has received
written notice (or to the Knowledge of NFI any other notice) that any audit or
investigation by a Governmental Entity, a Sponsor or an Insurer with respect to
any Warehouse Loan or Mortgage Loan or with respect to the servicing of any
portion of the Mortgage Loan Servicing Portfolio is pending and, to the
Knowledge of NFI, no such audit or investigation is threatened.
SECTION 3.13 Lender and Servicer Qualifications. NFI and each of its
Subsidiaries has been and is in compliance in all material respects with all
Applicable Requirements applicable to it, its assets and its conduct of
business, other than any such noncompliance which has not impaired or would not
reasonably be expected to impair the conduct or operation of the business of NFI
or any of its Subsidiaries, or has not resulted in, or would not reasonably be
expected to result in, the payment of fines or the incurrence of expenses or
other costs to NFI or any of its Subsidiaries in excess of $50,000 individually,
or $200,000 in the aggregate. NFI and each of its Subsidiaries has timely filed,
or will have timely filed by the Closing Date, all material reports that any
Sponsor, Governmental Entity or Insurer or any Applicable Requirements. To the
Knowledge of NFI, neither NFI nor any of its Subsidiaries has done or caused to
be done, or has failed to do or omitted to be done, any act, the effect of which
would operate to invalidate or materially impair (i) any private mortgage
insurance or commitment of any private mortgage Insurer to insure, (ii) any
title insurance policy, (iii) any hazard insurance policy, (iv) any flood
insurance policy, (v) any fidelity bond, direct surety bond, or errors and
omissions insurance policy required by private mortgage insurers, (vi) any
surety or guaranty agreement, or (vii) any Permits necessary for the operation
of the business
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except for such invalidations or impairments as would not reasonably be expected
to have an NFI Material Adverse Effect. No Agency, Sponsor or Insurer has
claimed that NFI or any of its Subsidiaries has violated or has not complied
with the applicable underwriting standards with respect to the Mortgage Loans
sold by NFI or any of its Subsidiaries to a Sponsor or Agency, or with respect
to any sale of mortgage servicing rights to a Sponsor; except as would not
reasonably be expected to have an NFI Material Adverse Effect.
SECTION 3.14 Warehouse Loans and Mortgage Loans.
(a) Except as would not reasonably be expected to have an NFI Material
Adverse Effect, each Warehouse Loan (i) is eligible for sale to, and insurance
by, or pooling to collateralize securities issued or guaranteed by, a Sponsor,
Agency or Insurer and (ii) is evidenced by a Mortgage Note with such terms as
are customary in the industry in which NFI and its Subsidiaries operate, is duly
secured by a Mortgage with such terms as are customary in the industry in which
NFI and its Subsidiaries operate and which grants the holder thereof either a
first lien on the subject property (including any Improvements thereon) with
respect to Warehouse Loans originated as first Mortgages, and with respect to
Warehouse Loans originated as second Mortgages, a second priority lien on the
subject property, and which constitutes a security interest that has been duly
perfected and maintained (or is in the process of perfection in due course) and
is in full force and effect and is insured by a title policy issued by a company
or covered by an attorney's opinion as to title, in either case acceptable to
the applicable Agency or sponsor to the extent required by the applicable Agency
or sponsor, and, is covered by a policy of private mortgage insurance, if
required by the terms of any contract or any applicable Law.
(b) With respect to each Mortgage Loan previously sold to a Sponsor, and
except as set forth in Section 3.14(a) of the NFI Disclosure Letter or as would
not reasonably be expected to have an NFI Material Adverse Effect as of the date
NFI or any of its Subsidiaries sold such Mortgage Loan, the Mortgage Loan was
eligible for sale to, and insurance by, or pooling to collateralize securities
issued or guaranteed by, the applicable Sponsor, Agency or Insurer.
(c) With respect to each Warehouse Loan, and except as would not reasonably
be expected to have an NFI Material Adverse Effect, to the Knowledge of NFI such
Warehouse Loan is the genuine, valid and legally binding obligation of the
Mortgagor thereunder, has been duly executed by a Mortgagor of legal capacity,
is enforceable in accordance with its respective terms, and is not subject to
any right of rescission, set off, counterclaim or defense, subject to (i) the
Enforceability Exceptions, (ii) applicable Laws requiring creditors to proceed
against the collateral before pursuing the borrower and (iii) applicable Laws on
deficiencies.
(d) With respect to each Mortgage Loan previously sold to a Sponsor, and
except as would not reasonably be expected to have an NFI Material Adverse
Effect, as of the date NFI sold such Mortgage Loan, the Mortgage Loan was a
genuine, valid and legally binding obligation of the Mortgagor thereunder, had
been duly executed by a Mortgagor of legal capacity, was enforceable in
accordance with its respective terms, and was not subject to any right of
rescission, set off, counterclaim or defense, subject to (i) the Enforceability
Exceptions, (ii) applicable Laws requiring creditors to proceed against the
collateral before pursuing the borrower and (iii) applicable Laws on
deficiencies.
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(e) All Warehouse Loans owned by NFI or any of its Subsidiaries are owned
free and clear of any Lien other than Liens in favor of the related Warehouse
Lender. Except as would not reasonably be expected to have an NFI Material
Adverse Effect, neither NFI nor any of its Subsidiaries has, with respect to any
such Warehouse Loan, released any security therefor, except upon receipt of
Sponsor or Agency approval, or accepted prepayment of any such Warehouse Loan
which has not been promptly applied to such Warehouse Loan in accordance with
the terms thereof.
(f) To the Knowledge of NFI, the Originators have operated in compliance
with Applicable Requirements in connection with the Mortgages acquired by NFI or
its Subsidiaries and such acquired Mortgages were originated by the Originators
in compliance with all Applicable Requirements, except as would not be expected
to have an NFI Material Adverse Effect.
(g) Neither NFI nor any of its Subsidiaries has any obligations (whether
current or contingent) under any Mortgage Loan Sale Agreement, except for
obligations expressly set forth in any such Mortgage Loan Sale Agreement and
which are of a customary and routine nature. Neither NFI nor any of its
Subsidiaries has received written notice (or to the Knowledge of NFI, any other
notice) that it is in breach of or default under any Mortgage Loan
Securitization Document, Mortgage Loan Servicing Agreement or Mortgage Loan Sale
Agreement, other than any such breach or default which has not impaired or would
not reasonably be expected to impair the conduct or operation of the business of
NFI or any of its Subsidiaries, or has not resulted in, or would not reasonably
be expected to result in, the incurrence of liabilities to NFI or any of its
Subsidiaries in excess of $50,000 individually, or $200,000 in the aggregate.
(h) The information contained in the Residential Mortgage Loan "tape" is
true and correct in all material respects (the "Tape"). The Tape includes and
designates all Warehouse Loans and all Serviced Mortgage Loans, except for de
minimis and inadvertent omissions. Except as set forth in the Tape (and other
than de minimis exceptions and inadvertent omissions), no Residential Mortgage
Loan reflected thereon is more than 90 days past due as of the applicable date.
(i) NFI and each applicable Subsidiary of NFI are eligible to issue
investment grade asset-backed securities using Form S-3 under the Securities
Act.
SECTION 3.15 Loan Servicing Portfolio.
(a) To the Knowledge of NFI, there does not exist an event of default or
event of termination, or any event that with notice could constitute an event of
default or event of termination under any Mortgage Loan Servicing Agreement or
Mortgage Loan Securitization Document with respect to NFI or any of its
Subsidiaries.
(b) NFI or one of its Subsidiaries possesses the entire right, title and
interest in and to the servicing of the Mortgage Loan Servicing Portfolio and
the sole right to service the Mortgage Loan Servicing Portfolio, subject to the
Mortgage Loan Servicing Agreements and the
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Mortgage Loan Securitization Documents, free and clear of all Liens, other than
Permitted Liens or Liens created under NFI's existing bank credit facilities.
(c) All amounts payable in respect of the Mortgage Loan Servicing Portfolio
which NFI or any of its Subsidiaries, as servicer of the Residential Mortgage
Loans in the Mortgage Loan Servicing Portfolio, is responsible for paying under
the Mortgage Loan Servicing Agreements and the Mortgage Loan Securitization
Documents, directly or on behalf of any holder of any Residential Mortgage Loan,
have, in all material respects, been paid when due and payable.
(d) Except in the ordinary course of business, neither NFI nor any of its
Subsidiaries is a party to any agreement pursuant to which NFI or any of its
Subsidiaries has provided a guarantee, funds for a reserve account, liquidity
facility, derivative transaction or similar credit enhancement relating to any
Serviced Mortgage Loan.
(e) No trigger event has occurred and is continuing as of the date hereof
which has caused an increase in a reserve requirement, increase in an
overcollateralization requirement (or prevented a decrease in any
overcollateralization requirement), early amortization of securities issued by
any Securitization Trust or termination of any reinvestment or revolving period
under any Mortgage Loan Servicing Agreement or Mortgage Loan Securitization
Document.
(f) To the Knowledge of NFI, the prospectuses, prospectus supplements and
registration statements for the offering of securities, and any amendments or
supplements thereto, distributed, delivered or filed in connection with the
sales of securities that have been issued prior to the date hereof by any
Securitization Trust, as of their respective dates, did not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The information provided by NFI and its Subsidiaries for
inclusion in the prospectuses, prospectus supplements and registration
statements for the offering of securities, and any amendments or supplements
thereto, distributed, delivered or filed in connection with the sales of
securities that have been issued in connection with any securitization by a
third party of Mortgage Loans purchased by such third party from NFI or any of
its Subsidiaries, as of their respective dates, did not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(g) No trust, arrangement, issuer or other entity will be required to
register as an investment company under the Investment Company Act, and no issue
of securities or securities transaction will be required to be registered under
the Securities Act as a result of the sale of the Series D-1 Preferred Shares
pursuant to this Agreement. The statutory or regulatory foundations for
exemptions from registration under the Investment Company Act, on which the
Securitization Trust rely include only Rule 3a-7, Section 3(c)(7), Section
3(c)(5)(C) and Section 3(c)(5)(A) of the Investment Company Act.
(h) The Exchange Act Reports or Section 3.15(h) of the NFI Disclosure
Schedule set forth the retained interests owned by NFI and its Subsidiaries (the
"Retained
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Interests"). The Retained Interests owned by NFI or any of its Subsidiaries are
owned free and clear of any Lien, subject to any Liens under NFI's existing bank
credit facilities, and may be freely sold, mortgaged, pledged, charged or
otherwise encumbered, subject to any restrictions on transfer arising under
applicable Law, including restrictions arising under U.S. federal and state
securities laws. NFI's and each of its Subsidiaries' investments in its
portfolios of Mortgage Loans entitles it to receive the cash flow generated by
the Mortgage Loans in excess of the required payments under contractual
obligations to the Sponsors of interest and principal payments due on any third
party financings of the Mortgage Loans and other expenses of the securitization,
including servicing fees, trustee fees and insurer premiums.
SECTION 3.16 Contracts.
(a) Except as listed in Section 3.16(a) of the NFI Disclosure Letter and
except for any agreements or contracts filed as exhibits to the Exchange Act
Reports, neither NFI nor any of its Subsidiaries is a party to or bound by:
(i) any agreement relating to indebtedness with third parties where the
amount as to which NFI or any of its Subsidiaries is, or may become, obligated
is in excess of $2,000,000;
(ii) any joint venture, partnership, limited liability company or other
similar agreement or arrangement;
(iii) any agreement relating to the acquisition or disposition of any
business or real property (whether by merger, purchase or sale of stock or
purchase or sale of assets) for an amount in excess of $2,000,000;
(iv) other than intercompany agreements between NFI and/or its
Subsidiaries, any agreement entered into with (A) any person directly or
indirectly owning, controlling or holding with power to vote, 5% or more of the
outstanding voting securities of NFI or any of its Material Subsidiaries, (B)
any person 5% or more of the outstanding voting securities of which are directly
or indirectly owned, controlled or held with power to vote by NFI or any of its
Subsidiaries or (C) any current director or officer of NFI or any of its
Subsidiaries or any "associates" or members of the "immediate family" (as such
terms are respectively defined in Rule 12b-2 and Rule 16a-1 of the Exchange Act)
of any such director or officer;
(v) any agreement that limits or restricts in any material respect either
the type of business in which NFI or its Subsidiaries may engage or the manner
or locations in which any of them may so engage in any business (including any
covenant not to compete or, except for confidentiality agreements entered into
by NFI or any of its Subsidiaries since January 1, 2005, not to solicit
employees) or which contains any standstill or similar provision that would
survive the Closing Date or could require the disposition of any assets or line
of business of NFI or its Subsidiaries;
(vi) any agreement containing a right of first refusal, first offer or
first negotiation in respect of assets, businesses or shares of capital stock of
NFI or any of its Subsidiaries;
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(vii) any agreement (other than Employee Benefit Plans) with any current or
former employee, director, officer or consultant of NFI or any of its
Subsidiaries under which NFI or its Subsidiaries may have ongoing or future
payment obligations for services rendered or to be rendered for amounts in
excess of $500,000;
(viii) other than with respect to any REO, any (A) real property or
personal property leases or (B) agreement providing for the sale or exchange of,
or option to sell or exchange, any Leased Real Property, or for the purchase or
exchange of, or option to purchase or exchange, any real estate, in each case
(x) that cannot be cancelled upon fewer than 60 days' notice without penalty,
premium or other liability or (y) providing for payments in excess of $1,000,000
in any fiscal year;
(ix) any agreement that cannot be canceled upon fewer than 60 days' notice
without penalty, premium or other liability or that provides for continuing
indemnification obligations of NFI or any of its Subsidiaries, in each case in
excess of $2,000,000 in any fiscal year;
(x) any agreement with any Governmental Entity other than in the ordinary
course of business;
(xi) any other agreement (A) the termination or breach of which or the
failure to obtain consent in respect of which is reasonably likely to be
material to NFI or any of its Subsidiaries, or (B) pursuant to which NFI or any
of its Subsidiaries is required to pay or is scheduled to receive (assuming full
performance pursuant to the terms thereof) $5,000,000 or more during any
12-month period following the date of this Agreement;
(xii) any agreement containing "change of control" provisions triggered by
the execution of this Agreement or the consummation of the transactions
contemplated hereby that, if consent was not obtained, would impair the conduct
or operation of the business of NFI or any of its Subsidiaries, or would give
rise to the incurrence of liabilities by NFI or any of its Subsidiaries (other
than de minimis liabilities); or
(xiii) any other agreement that NFI or any of its Subsidiaries has filed or
would be required to describe in any Exchange Act Report, or to file as an
exhibit thereto under Items 401 or 601(b)(10) of Regulation S-K under the
Exchange Act.
(b) The material agreements, commitments, arrangements and plans listed or
required to be listed in Section 3.16(a) of the NFI Disclosure Letter or the
agreements, commitments, arrangements and plans filed as exhibits to Exchange
Act Reports are referred to herein as the "Contracts". All of the Contracts that
are required to be filed as exhibits to the Exchange Act Reports have been so
filed as exhibits thereto other than with respect to a Securitization Trust.
(c) Each Contract is a valid and binding agreement of NFI or one or more of
its Subsidiaries, as the case may be, and is in full force and effect and is the
valid, legal and binding obligation of NFI or one or more of its Subsidiaries
(as applicable) enforceable in accordance with its terms, subject to the
Enforceability Exceptions. None of NFI, any of its Subsidiaries or, to the
Knowledge of NFI, any other party thereto is in default or breach in any
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material respect under the terms of, or has provided any written notice of any
intention to terminate, any such Contract and, to the Knowledge of NFI, no event
or circumstance has occurred, or will occur by reason of the execution of this
Agreement or the consummation of any of the transactions contemplated hereby,
that, with notice or lapse of time or both, would constitute any event of
default thereunder or would result in a termination thereof. True, correct and
complete copies of each Contract have been made available to Investors in the
Data Room or have been filed as exhibits to the Exchange Act Reports.
(d) Neither NFI nor any of its Subsidiaries has received any notice of or
expects to receive any notice of, nor has any event occurred or is any event
reasonably expected to occur that in either case could give rise to, and neither
NFI nor any of its Subsidiaries has any Knowledge of or reason to believe that
NFI or any of its Subsidiaries will be subject to, during the twelve-month
period following the Closing, any default or cross-default under, or any event
giving rise to a right of termination, cancellation or acceleration under any
line of credit, warehouse facility, securitization transaction or other similar
credit facility, agreement or arrangement to which NFI or any of its
Subsidiaries is a party.
(e) NFI and its Subsidiaries have the ability to draw upon all amounts
available under each of NFI's and its Subsidiaries' outstanding credit and/or
warehouse facilities or any other similar agreement or arrangement to which NFI
or any of its Subsidiaries is a party, in each case, without any renegotiation
of the terms thereof.
SECTION 3.17 Insurance. Section 3.17 of the NFI Disclosure Letter contains
a true, complete and correct list of all currently in effect liability, property
and casualty, employee liability, directors and officers liability, surety
bonds, key man life insurance and other similar insurance contracts of NFI and
its Subsidiaries that insure the business, properties, operations or affairs of
NFI or its Subsidiaries and the amount of coverage, insurance carrier, policy
number and deductible or self-insured retention under each such insurance
contract. All premiums due on all such insurance contracts of NFI and its
Subsidiaries have been paid, NFI and its Subsidiaries have complied in all
material respects with the terms and conditions of each such insurance contract,
no notice of termination or cancellation of any such insurance contract has been
received and all such insurance contracts are in full force and effect. To the
Knowledge of NFI, no event has occurred that, with notice or the lapse of time
or both, would constitute a breach or default under, or permit termination of,
any insurance policy of NFI, and there has been no threatened termination or
non-renewal of, or material premium increase with respect to, any insurance
policy of NFI. To the Knowledge of NFI, no insurance carrier has sought to deny
coverage to NFI or any of its Subsidiaries for any pending Litigation due to a
failure by NFI or any of its Subsidiaries to report such Litigation to the
applicable insurance carrier.
SECTION 3.18 Intellectual Property.
(a) Except as would not, individually or in the aggregate, reasonably be
expected to have an NFI Material Adverse Effect, either NFI or one of its
Subsidiaries owns, or is licensed or otherwise possesses legally enforceable
rights to use, subject to any existing licenses or other grants of rights to
third parties, all Intellectual Property used in the conduct of the business of
NFI and its Subsidiaries.
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(b) Except as set forth in Section 3.18(b) of the NFI Disclosure Letter, to
the Knowledge of NFI, the conduct of the business of NFI and its Subsidiaries
does not infringe upon or misappropriate the Intellectual Property of any third
party. To the Knowledge of NFI, there are no infringements or misappropriations
of material Intellectual Property owned by NFI or any of its Subsidiaries (the
"Owned Intellectual Property") by any third party.
(c) Except as set forth in Section 3.18(c) of the NFI Disclosure Letter,
there are no material claims pending, or to the Knowledge of NFI, threatened:
(i) alleging that the business of NFI or any of its Subsidiaries as currently
conducted infringes upon or constitutes an unauthorized use of the Intellectual
Property of any third party; (ii) alleging that the Owned Intellectual Property
is being infringed by any third party; or (iii) challenging the ownership,
validity or enforceability of the Owned Intellectual Property.
SECTION 3.19 Interests in CDO; Operation of the CDO.
(a) Section 3.19 of the NFI Disclosure Letter contains a true and complete
list of all debt, equity and other interests in the CDO owned by NFI or any of
its Subsidiaries and NFI or its Subsidiaries owns each such debt, equity and
other interest in the CDO required to be listed in Section 3.19 of the NFI
Disclosure Letter free and clear of all Liens, including any right of first
offer or first refusal, or purchase option and each such equity interest is
fully paid and non-assessable and each such debt or other interest has no
obligation or commitment on the part of NFI or any of its Subsidiaries to make
any further investments, payments or advances in respect thereof. Prior to the
date hereof, NFI has made available to Investors a complete set of Portfolio
Agreements relating to the CDO, including copies of all amendments,
modifications and waivers related thereto.
(b) Except as set forth in Section 3.19(b) of the NFI Disclosure Letter,
the CDO has been managed in a manner that is consistent with the ordinary course
of business and since March 31, 2007, there has not been any material change,
event or development or any discovery of any pre-existing facts, that has been
materially adverse to the assets, liabilities or financial condition of the CDO.
(c) Except as set forth in Section 3.19(c) of the NFI Disclosure Letter,
since March 31, 2007 no default, termination event, payout event,
overcollateralization triggers, early amortization event, other portfolio
measurement tests failure, the failure of which would limit reinvestment or
other activities by the Collateral Manager or would impact the application of
the funds of the CDO or a similar event (whether now cured or uncured) and no
event (whether now cured or uncured) that with the giving of notice or the
passage of time or both would constitute any such event, has occurred in
connection with the CDO, and, to the Knowledge of NFI, no allegation that any
such event has occurred has been made. Except as set forth in Section 3.19(c) of
the NFI Disclosure Letter, no event that permits the removal or termination of
the Collateral Manager, Collateral Manager default, termination of any
collateral management agreement or substantially similar event (whether now
cured or uncured) and no event (whether now cured or uncured) that with the
giving of notice or the passage of time or both would constitute any such event,
has occurred in connection with the CDO, and to the Knowledge of NFI no
allegation that any such event has occurred has been made. Each of the Portfolio
Agreements to which NFI, any of its Subsidiaries or any CDO issuer is a party
was duly authorized and is the legal, valid
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and binding obligation of each of the parties thereto enforceable in accordance
with its terms except that (i) such enforcement may be subject to applicable
bankruptcy, insolvency or other similar laws, now or hereafter in effect,
affecting creditors' rights generally and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought; none of the execution, delivery or
performance of this Agreement would permit the termination, amendment,
non-renewal or revocation of any such Portfolio Agreement. With respect to any
Portfolio Agreement, neither NFI nor any of its Subsidiaries has received any
notice from or given notice to any other party to that Portfolio Agreement
indicating that NFI, any of its Subsidiaries or such other party, as the case
may be, intends to terminate that Portfolio Agreement.
(d) Except as set forth in Section 3.19(d) of the NFI Disclosure Letter,
(i) no ratings assigned at original issuance to any class of securities issued
by the CDO have been reduced, qualified or withdrawn, and (ii) no such class is
on "watchlist" or similar rating agency status or under review by any rating
agency for possible downgrade.
(e) The offerings of securities of and other interests in the CDOs complied
in all material respects with all applicable Laws. The offering memoranda,
offering circulars, prospectuses and any other offering documents for the
offering of securities or other interests in the CDO, and any amendments or
supplements thereto, distributed, delivered or filed in connection with the CDO,
as of their dates, did not contain any untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(f) No payments with respect to securities issued by the CDO have been made
by any insurer of such securities and, to the Knowledge of NFI, no claim
therefor is outstanding.
SECTION 3.20 Brokers. No broker, investment banker, financial advisor or
other person, other than Deutsche Bank Securities Inc. or Xxxxxx, Xxxxxxxx &
Company, Incorporated, the fees and expenses of which will be paid by NFI, is
entitled to any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated by this Agreement or
the other Transaction Documents based upon arrangements made by or on behalf of
NFI or any Affiliate.
SECTION 3.21 Board Approval. The Board of Directors of NFI, at a meeting
duly called and held, has taken unanimous action to duly and validly approve and
take all corporate action required to be taken by the Board of Directors to (a)
authorize the issuance of the Series D-1 Preferred Shares and the Common Shares
into which such Series D-1 Preferred Shares may be converted to Investors, the
terms of the Series D-1 Preferred Shares and the consummation of the
transactions contemplated hereby, (b) authorize and make effective a 1 to 4
reverse stock split of the Common Shares in accordance with applicable Laws (the
"Reverse Stock Split"), (c) subject to the completion of the Reverse Stock
Split, authorize and approve the Rights Offering and the issuance of the Series
D-2 Preferred Shares and the Common Shares into which such Series D-2 Preferred
Shares may be converted as well as the terms of the Series D-2 Preferred Shares,
(d) increase the size of NFI's Board of Directors to eight directors, (e)
approve in principle the terms of the Key Employee compensation arrangements
attached to the Key
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Employee Letter Agreements and (f) exempt such Investor from the Aggregate Stock
Ownership Limit and the Common Stock Ownership Limit (as such terms are defined
in the Charter), as the case may be, pursuant to Section 11.2.7 of the Charter
in connection with the purchase and holding by Investors of the Series D-1
Preferred Shares pursuant to this Agreement, the purchase and holding of any
Series D-2 Preferred Shares by Investors in the Rights Offering, including
pursuant to the Standby Purchase Agreement, the holding of any Common Shares
into which any of the foregoing are convertible or converted, and as otherwise
contemplated by this Agreement and the other Transaction Documents.
SECTION 3.22 Takeover Statute.
(a) No state "fair price," "moratorium," "control share acquisition" or
other similar anti-takeover statute or regulation is applicable to the issuance
of the Series D-1 Preferred Shares to Investors or the other transactions
contemplated by this Agreement and the other Transaction Documents.
(b) In accordance with Section 3-602 of the MGCL ("Section 3-602"), NFI and
the Board of Directors of NFI have, prior to the execution hereof, approved (i)
the execution, delivery and issuance by NFI of the Series D-1 Preferred Shares,
the issuance of the Common Shares issuable upon conversion of the Series D-1
Preferred Shares and the other transactions contemplated by this Agreement and
the other Transaction Documents and (ii) any transaction that results in any
Investor or any "affiliate" (as defined in Section 3-601 of the MGCL ("Section
3-601")) or "associate" (as defined in Section 3-601) of an Investor becoming an
"interested stockholder" (as defined in Section 3-601) by virtue of such
Investor or its respective "affiliates" or "associates" owning any Common Shares
owned as of the date hereof or Convertible Shares acquired pursuant to this
Agreement or the other Transaction Documents. Accordingly, the ownership by each
Investor, its "affiliates" and "associates" of Common Shares owned as of the
date hereof or Convertible Shares acquired pursuant to this Agreement or the
other Transaction Documents will not result in the provisions of Section 3-602
being applicable to a "business combination" (as defined in Section 3-601)
between such persons (or their affiliates or associates) and NFI. A copy of the
resolutions taking such actions has been provided to Investors.
(c) In accordance with Section 3-702 of the MGCL ("Section 3-702"), NFI has
taken such actions under its Bylaws as were necessary to approve or exempt for
purposes of Subtitle 7 of Article 3 of the MGCL (i) the execution, delivery and
issuance by NFI of the Series D-1 Preferred Shares, the issuance of the Common
Shares issuable upon conversion of the Series D-1 Preferred Shares and the other
transactions contemplated by this Agreement and the other Transaction Documents
and (ii) any transaction contemplated by or pursuant to this Agreement or the
other Transaction Documents that results in any Investor or any "associate" (as
defined in Section 3-701 of the MGCL) of an Investor owning any "control shares"
(as defined in Section 3-701 of the MGCL) by virtue of such Investor owning any
Common Shares as of the date hereof or Convertible Shares acquired pursuant to
this Agreement or the other Transaction Documents. Accordingly, the ownership by
each Investor or its "associates" of Common Shares owned as of the date hereof
or Convertible Shares acquired pursuant to this Agreement or the other
Transaction Documents will not result in the provisions of Section 3-702 being
applicable to a "control share acquisition" (as defined in Section 3-701 of the
MGCL) between such persons
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and NFI. A copy of the Bylaws providing for such approval or exemption has been
provided to Investors.
(d) Subject to the Reverse Stock Split becoming effective prior to the
Rights Offering and giving effect to the Series D-1 Preferred Shares being
available to NFI as authorized but unissued shares of capital stock of NFI
following their conversion, the Boards of Directors of NFI and its Subsidiaries
have taken all necessary action to ensure that any regulation or provision of
the Charter and Bylaws of NFI (or other comparable instrument), or other
organizational or constitutive document or governing instrument of any of NFI's
Subsidiaries, is consistent with this Agreement and the other Transaction
Documents and the transactions contemplated by this Agreement and the other
Transaction Documents.
SECTION 3.23 Properties; Absence of Liens.
(a) Neither NFI nor any of its Subsidiaries owns any real property other
than REO. NFI or one of its Subsidiaries has a good and valid leasehold interest
in each parcel of real property leased by NFI or any of its Subsidiaries (the
"Leased Real Property"), free and clear of all Liens except for any Permitted
Liens. NFI or one of its Subsidiaries has the right to use and occupy the Leased
Real Property for the full term of the lease or sublease relating thereto,
except for any failure which would not be material to NFI and its Subsidiaries
taken as a whole.
(b) With respect to the Leased Real Property, (i) each of the agreements by
which NFI or any of its Subsidiaries has obtained a leasehold interest in such
Leased Real Property (each, a "Lease") is in full force and effect in accordance
with its respective terms and NFI or one of its Subsidiaries is the holder of
the lessee's or tenant's interest thereunder, (ii) to the Knowledge of NFI,
there exists no default under any Lease and no circumstance exists which, with
the giving of notice, the passage of time or both, could result in such a
default, and (iii) there are no leases, subleases, licenses concessions or any
other contracts granting to any person or entity other than NFI or any of its
Subsidiaries any right to the possession, use, occupancy or enjoyment of any
Leased Real Property or any portion thereof, except which would not be material
to NFI and its Subsidiaries taken as a whole.
SECTION 3.24 Affiliate Transactions. Between the date of NFI's proxy
statement for its 2007 annual meeting of Shareholders filed with the SEC and the
date of this Agreement, no event has occurred that would be required to be
reported by NFI pursuant to Item 404 of Regulation S-K under the Exchange Act.
SECTION 3.25 Opinions of Financial Advisor. NFI has received a written
opinion from Xxxxxx Xxxxxxxx & Company Incorporated, dated the date of this
Agreement, and to the effect that as of the date hereof, the MassMutual
Consideration and the Jefferies Consideration, taken in the aggregate, to be
received by NFI pursuant to this Agreement, is fair, from a financial point of
view, to NFI. True and complete signed copies of such opinions have been
delivered to Investors.
SECTION 3.26 Private Placement. Neither NFI nor any person acting on NFI's
behalf has sold or offered to sell or solicited any offer to buy the Series D-1
Preferred Shares by means of any form of general solicitation or advertising
within the meaning of Rule
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502 under the Securities Act. Neither NFI nor any person acting on behalf of NFI
has, directly or indirectly, at any time within the past six months, made any
offer or sale of any security or solicitation of any offer to buy any security
of NFI under circumstances that would (i) eliminate the availability of the
exemption from registration under Regulation D in connection with the offer and
sale by NFI of the Series D-1 Preferred Shares as contemplated hereby or (ii)
cause the offering of the Series D-1 Preferred Shares and the Common Shares into
which the Series D-1 Preferred Shares may be converted pursuant to this
Agreement to be integrated with prior offerings by NFI for purposes of any
applicable Law or Shareholder approval requirements, including, without
limitation, under the rules and regulations of the NYSE. None of NFI or its
Subsidiaries or any person acting on their behalf will take any action or steps
referred to in the preceding sentence that would require the registration of any
of the Series D-1 Preferred Shares and the Common Shares into which the Series
D-1 Preferred Shares may be converted (except as contemplated by the
Registration Rights Agreement) under the Securities Act or cause the offering to
be integrated with any other offerings for purposes of any applicable Law or
Shareholder approval requirements. Neither NFI nor any of its Subsidiaries is an
"investment company" as defined in the Investment Company Act, or is registered
or required to be registered thereunder. Neither NFI nor any of its Subsidiaries
is a securities broker or dealer, as defined in the Exchange Act. NFI is not a
United States real property holding corporation within the meaning of the
Foreign Investment in Real Property Tax Act of 1980. Assuming the accuracy of
the representations and warranties made by the Investors in this Agreement, no
consent, license, permit, waiver approval or authorization of, or designation,
declaration, registration or filing with, the SEC or any state securities
regulatory authority is required in connection with the offer, sale, issuance or
delivery by NFI of the Series D-1 Preferred Shares and the Common Shares into
which the Series D-1 Preferred Shares may be converted, other than the possible
filing of a Form D with the SEC. Assuming the accuracy of the representations
and warranties made by Investors in this Agreement, the offer and issuance by
NFI of the Series D-1 Preferred Shares is exempt from registration under the
Securities Act.
SECTION 3.27 Acknowledgment Regarding Investors' Purchase of NFI
Securities. NFI acknowledges and agrees that Investors are acting solely in the
capacity of arm's length purchasers with respect to this Agreement and the other
Transaction Documents and the transactions contemplated hereby and thereby. NFI
further acknowledges that Investors are not acting as financial advisors or
fiduciaries of NFI (or in any similar capacity) with respect to this Agreement
and the other Transaction Documents and the transactions contemplated hereby and
thereby and any advice given by Investors or any of their respective
representatives or agents in connection with this Agreement or the other
Transaction Documents and the transactions contemplated hereby and thereby is
merely incidental to Investors' purchase of the Series D-1 Preferred Shares.
SECTION 3.28 Environmental Matters. Except as would not, individually or in
the aggregate, reasonably be expected to have an NFI Material Adverse Effect:
(a) To the Knowledge of NFI, NFI and its Subsidiaries (i) are in material
compliance with all Environmental Laws, (ii) are not the subject of any pending
notice from any Governmental Authority alleging the violation of any applicable
Environmental Laws, (iii) are not currently subject to any Order arising under
any Environmental Law, and (iv) have not used
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any of their properties for the disposal of Hazardous Substances except as
permitted under applicable Environmental Laws.
(b) Notwithstanding any other provision of this Agreement, this Section
3.28 sets forth NFI's sole and exclusive representations and warranties with
respect to the Hazardous Substances, Environmental Laws or other environmental
matters.
SECTION 3.29 Manipulation of Price. NFI has not, and to its Knowledge no
person acting on its behalf has, in violation of applicable securities Laws, (i)
taken, directly or indirectly, any action designed to cause or to result in the
stabilization or manipulation of the price of any security of NFI, (ii) sold,
bid for, purchased, or paid any compensation for soliciting purchases of, any of
the Series D-1 Preferred Shares or Common Shares into which such Series D-1
Preferred Shares may be converted, or (iii) paid or agreed to pay to any person
any compensation for soliciting another to purchase any other securities of NFI.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF INVESTORS
Except as otherwise disclosed in the corresponding section of the
Disclosure Letter delivered by such Investor in connection with the execution
and delivery of this Agreement, regardless of whether such representation or
warranty specifically refers to the applicable Investor Disclosure Letter (the
"MassMutual Disclosure Letter" and the "Jefferies Disclosure Letter"
respectively and together, the "Investor Disclosure Letters"), each Investor,
individually, but not jointly, represents and warrants to NFI as follows:
SECTION 4.1 Organization, Standing and Corporate Power. Such Investor is a
corporation duly incorporated (or, if not a corporation, duly organized),
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated (or, if not a corporation, in which it is organized)
and has the requisite company power and authority to own, lease and operate its
properties and assets and to carry on in all material respects its business as
now being conducted. Such Investor is duly qualified to do business and is in
good standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary, other
than in such jurisdictions where the failure to be so qualified (individually or
in the aggregate) would not have an Investor Material Adverse Effect on such
Investor.
SECTION 4.2 Authority. Such Investor has the requisite company power and
authority to enter into this Agreement and the other Transaction Documents to
which it is a party and to perform its obligations hereunder and thereunder and
to consummate the transactions contemplated by this Agreement and the other
Transaction Documents to which it is a party. The execution, delivery and
performance of this Agreement and the other Transaction Documents to which it is
a party by such Investor and the consummation by such Investor of the
transactions contemplated by this Agreement and the other Transaction Documents
to which it is a party have been duly authorized by all necessary corporate or
similar organizational action on the part of such Investor. No action by the
members, shareholders or limited partners of such Investor is necessary to
authorize the execution and delivery by such Investor of this Agreement
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and the other Transaction Documents to which it is a party and the consummation
by such Investor of the transactions contemplated hereby and thereby. This
Agreement has been and at the Closing, the Registration Rights and Shareholders
Agreement and the Standby Purchase Agreement will be, duly executed and
delivered by such Investor and, assuming due authorization, execution and
delivery of this Agreement and the other Transaction Documents by NFI and the
other Investor, if a party thereto, constitute or will constitute, as the case
may be, valid and binding obligations of such Investor, enforceable against such
Investor in accordance with their respective terms subject to the Enforceability
Exceptions.
SECTION 4.3 Noncontravention; Consents. The execution and delivery of this
Agreement and the other Transaction Documents to which it is a party by such
Investor do not, and the consummation of the transactions contemplated by this
Agreement and the other Transaction Documents to which it is a party will not,
(i) conflict with any of the provisions of the governing documents of such
Investor or the governing documents of any of its material Subsidiaries, (ii)
subject to the matters referred to in the next sentence, conflict with, result
in any violation or breach of, or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any material obligation or to the loss of a material benefit
under any loan, guarantee of indebtedness or credit agreement, note, bond,
mortgage, indenture, lease, agreement, contract, instrument, permit, concession,
franchise, right or license binding upon such Investor or any of its material
Subsidiaries, or result in the creation of any Lien on any property or asset of
such Investor or any of its material Subsidiaries or (iii) subject to the
matters referred to in the next sentence, contravene or conflict with or
constitute a violation of any provision of any Law binding upon or applicable to
such Investor or any of its material Subsidiaries, which, in the case of clauses
(ii) and (iii) above, would have an Investor Material Adverse Effect on such
Investor. No consent, approval or authorization of, or declaration or filing
with, or notice to, any Governmental Entity, and no consent, approval or
authorization of any third party is required by or with respect to such Investor
or any of its material Subsidiaries in connection with the execution, delivery
and performance of this Agreement and the other Transaction Documents to which
it is a party by such Investor or the consummation by such Investor of any of
the transactions contemplated hereby and thereby, except for (a) the filing of
any required premerger notification and report forms under the HSR Act, (b) any
required Financial Services Consents, (c) the filing of any listing applications
or supplemental listing applications with the NYSE, (d) the filing of the
Articles Supplementary with the State Department of Assessments and Taxation of
Maryland, (e) the filing of any registration statements with the SEC as
contemplated by the Transaction Documents and (f) such other consents,
approvals, authorizations, declarations, filings or notices as are set forth in
Section 4.3 of the Investor Disclosure Letter of such Investor.
SECTION 4.4 Litigation. There is no Litigation pending or, to the Knowledge
of such Investor, threatened in writing against or affecting in any material
respect such Investor or any Subsidiary of such Investor that seeks to restrain
or enjoin the consummation of any of the transactions contemplated by this
Agreement. Neither such Investor nor, to the Knowledge of such Investor, any
officer, director or employee of such Investor or any of its Affiliates has been
permanently or temporarily enjoined or barred by any Order of any Governmental
Entity from engaging in or continuing any conduct or practice in connection with
the business conducted by NFI or any of its Subsidiaries that could reasonably
be expected to have an Investor Material Adverse Effect.
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SECTION 4.5 Brokers. No broker, investment banker, financial advisor or
other person, is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions contemplated
by this Agreement or the other Transaction Documents to which it is a party
based upon arrangements made by or on behalf of such Investor or any Affiliate
of such Investor.
SECTION 4.6 Available Funds. Such Investor has as of the date hereof and
will have on the Closing Date sufficient funds available to pay the MassMutual
Consideration (in the case of MassMutual) or the Jefferies Consideration (in the
case of Jefferies) on the terms and conditions contemplated by this Agreement,
to consummate the other transactions contemplated by this Agreement and to pay
all associated costs and expenses required to be paid by such Investor.
SECTION 4.7 No Public Sale or Distribution. Such Investor (a) is acquiring
the Series D-1 Preferred Shares and (b) upon conversion of the Series D-1
Preferred Shares will acquire the Common Shares issuable upon conversion of the
Series D-1 Preferred Shares, for its own account for investment purposes only
and not with a view towards, or for resale in connection with, the public sale
or distribution thereof; provided, however, that by making the representation
and warranty herein, such Investor does not agree to hold any of such Series D-1
Preferred Shares or Common Shares for any minimum or other specific term and
reserves the right to dispose of such Series D-1 Preferred Shares or Common
Shares, in accordance with the Series D-1 Articles Supplementary, at any time in
accordance with or pursuant to a registration statement or an exemption under
the Securities Act.
SECTION 4.8 Accredited Investor Status. Each Investor acknowledges its
understanding that the offering and sale of the Series D-1 Preferred Shares has
not been registered under the Securities Act, on the basis of the exemption in
Section 4(2) thereof relating to transactions not involving a Public Offering,
or any state securities laws. Such Investor understands that NFI's reliance on
the Section 4(2) exemption is based on the representations herein made by the
Investors. Such Investor is an "accredited investor" (as that term is defined in
Rule 501(a) of Regulation D).
SECTION 4.9 Restricted Securities.
(a) Each Investor acknowledges that it is familiar with the limitations
which are imposed by the Securities Act on any transfer of an interest in the
Series D-1 Preferred Shares. Such Investor understands and acknowledges that it
may have to hold such shares for an indefinite period of time unless the Series
D Preferred Shares are subsequently registered under the Securities Act or an
exemption therefrom is available.
(b) Each Investor has been given access to the Data Room and provided with
an opportunity to ask questions of NFI in connection with the evaluation of its
investment in the Series D-1 Preferred Shares. Such Investor and its
representatives have been solely responsible for Investor's investigation of NFI
and its management and business, for Investor's own analysis of the merits and
risks of its investment pursuant to this Agreement, and for its own analysis of
the fairness and desirability of the terms of the investment.
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(c) EACH INVESTOR ACKNOWLEDGES THAT (I) THESE SECURITIES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS AND (II) THESE SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID
ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN EXEMPTION FROM SUCH
REGISTRATION UNDER SAID ACT.
SECTION 4.10 Ownership of Common Shares. Except as set forth in Section
4.10 of the Investor Disclosure Letters, no Investor nor any of its Subsidiaries
or Affiliates beneficially owns, directly or indirectly, any Common Shares.
SECTION 4.11 Excepted Holder Limit. Each Investor on its own behalf and on
behalf of its successors and assigns represents that it neither Beneficially
Owns (as such term is defined in the Charter) nor Constructively Owns (as such
term is defined in the Charter) shares of capital stock of NFI that would result
in NFI (i) being "closely held" within the meaning of Section 856(h) of the Code
(without regard to whether the ownership interest is held during the last half
of a taxable year), or (ii) otherwise failing to qualify as a Section 856 Trust
(including, but not limited to, Beneficial Ownership or Constructive Ownership
that would result in NFI owning (actually or Constructively (as such term is
defined in the Charter)) an interest in a tenant that is described in Section
856(d)(2)(B) of the Code if the income derived by NFI from such tenant would
cause NFI to fail to satisfy any of the gross income requirements of Section
856(c) of the Code). Each Investor does not own, actually or Constructively, an
interest in a tenant of NFI (or a tenant in any entity owned or controlled by
NFI) that would cause NFI, actually or Constructively, to own actually or
Constructively more than a 9.9% interest (as set forth in Section 856(d)(2)(B)
of the Code) in such tenant. Each Investor hereby agrees that any violation or
attempted violation of such representation or the covenants in Section 6.12(c)
will result in such shares being automatically transferred to a trust in
accordance with Sections 11.2.1(b) and 11.3 of the Charter. NFI acknowledges
that in making the representations set forth in this Section 4.11 each Investor
has acted in reliance upon the representation of NFI set forth in Section
3.10(i) and the undertaking of NFI set forth in Section 6.12(c)(ii).
SECTION 4.12 No Additional Representations. Each Investor acknowledges that
except for the representations and warranties set forth in this Agreement or the
other Transaction Documents, neither NFI nor any other person has made any
representation or warranty, express or implied, with respect to NFI, any of its
Subsidiaries or the transactions contemplated by this Agreement and the other
Transaction Documents.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 5.1 Conduct of Business of NFI. During the period from the date of
this Agreement and continuing until the Closing Date, NFI agrees as to itself
and each of its Subsidiaries that (except (i) as permitted or required by
Section 5.1(b) or any other provision of this Agreement or the other Transaction
Documents, (ii) as set forth in Section 5.1 of the NFI Disclosure Letter or
(iii) with the prior written consent of each Investor) (a) NFI shall, and shall
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cause each of its Subsidiaries to, conduct its business in the ordinary course,
consistent with past practice, and shall use its commercially reasonable efforts
(1) to preserve substantially intact its business organization and goodwill and
relationships with Governmental Entities, rating agencies, financing
counterparties, customers, suppliers, creditors, lessors, employees and others
having business dealings with it, (2) to keep available the services of its
current officers and key employees, and (3) to maintain its current rights and
franchises, subject to the terms of this Agreement, and (b) NFI will not and
will cause each of its Subsidiaries not to:
(i) (A) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions (whether in cash, stock or
property) in respect of, any of NFI's outstanding capital stock (other than (x)
dividends on the Series C Preferred Shares declared and paid in accordance with
the terms thereof, (y) dividend payments on the Common Shares necessary to
satisfy NFI's Section 856 Trust distribution requirement, as applicable, and (z)
dividend equivalents paid with respect to awards under the Incentive Plans), (B)
split, combine or reclassify any of its outstanding capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its outstanding capital stock or (C) purchase, redeem
or otherwise acquire any shares of outstanding capital stock of NFI or any of
its Subsidiaries or any rights, warrants, commitments, subscriptions or options
to acquire any such shares (other than transactions solely among NFI and any of
its wholly owned Subsidiaries);
(ii) authorize for issuance, issue, sell, grant, pledge or otherwise
encumber any shares of NFI's capital stock, options, warrants, commitments,
subscriptions or any other securities or rights of any kind to acquire any
capital stock, or any other ownership interest, except to NFI or its wholly
owned Subsidiaries or reprice any options or warrants with respect to any shares
of its capital stock;
(iii) amend or otherwise change any provision of its Charter or Bylaws, or
similar organizational or governance documents;
(iv) merge or consolidate with or acquire any corporation, partnership,
joint venture, association or other business organization or division thereof,
or substantially all of the assets of any of the foregoing or any other property
other than (A) acquisitions of Residential Mortgage Loans in the ordinary course
of business or (B) acquisitions for a purchase price not in excess of $1,000,000
individually or $3,000,000 in the aggregate;
(v) make any material change in accounting methods, principles, policies,
procedures or practices used by NFI or any of its Subsidiaries or any of its
methods of reporting income, deductions or other material items for financial
accounting purposes, except insofar as may be required by applicable Law or by a
change in GAAP;
(vi) sell or dispose of any of its assets or properties, other than sales
or dispositions in the ordinary course of business consistent with past
practices, and in an amount not greater than $2,000,000, or sales or
dispositions required by any Contract in effect on the date of this Agreement;
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(vii) (A) grant any increase in the compensation or benefits of any
employees, directors, consultants, independent contractors or service providers,
except in the ordinary course of business consistent with past practice, (B) pay
any pension, severance or retirement benefits not required by any existing
Employee Benefit Plan or Employment Agreement to any such employees, directors,
consultants, independent contractors or service providers, (C) enter into,
amend, alter, adopt, implement or otherwise commit itself to any compensation or
benefit plan, program, policy, arrangement or agreement including any Employee
Benefit Plan or collective bargaining agreement with or for the benefit of any
employee, director, consultant, independent contractor or service provider or
(D) accelerate the vesting of, or the lapsing of restrictions with respect to,
any stock options or other stock-based compensation or otherwise accelerate any
rights or benefits, or make any determinations that would result in a material
increase in liabilities under any Employee Benefit Plan, except, in each case,
(x) for such actions as are required by an existing agreement, including any
Employee Benefit Plan, or (y) for purposes of updating or complying with Section
409A of the Code, the Pension Plan Protection Act or other requirements of Law;
(viii) adopt a plan of complete or partial liquidation, dissolution,
restructuring, recapitalization or other reorganization of NFI or any of its
Subsidiaries;
(ix) terminate the employment of the Employees listed in Section 5.1(b)(ix)
of the NFI Disclosure Letter or replace any such Employees or their successors,
whether due to termination of such Employee's employment by NFI or its
Subsidiaries or otherwise, unless such replacement is reasonably satisfactory to
Investors;
(x) enter into any transaction, agreement, arrangement or understanding
between (A) NFI or any of its Subsidiaries, on the one hand, and (B) any
Affiliate of the NFI (other than its Subsidiaries), on the other hand, of the
type that would be required to be disclosed under Item 404 of Regulation S-K
promulgated by the SEC;
(xi) take or omit to take any action that could reasonably be expected to
cause NFI to fail to qualify as a Section 856 Trust; or
(xii) agree to take any of the foregoing actions.
ARTICLE VI
OTHER AGREEMENTS
SECTION 6.1 Access to Information; Confidentiality. NFI and its
Subsidiaries shall afford to Investors and to the respective officers,
directors, employees, Affiliates, financing sources and authorized advisors,
representatives and other agents of Investors reasonable access during the
period prior to the Closing Date to all of its properties, facilities, books,
contracts, commitments, records, data, systems, personnel, consultants, auditors
and advisors and, during such period, NFI and its Subsidiaries shall furnish to
Investors and to their respective officers, directors, employees, Affiliates,
financing sources and authorized advisors, representatives and other agents such
information concerning its business, properties, financial condition, operations
and personnel as Investors may from time to time reasonably
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request. Notwithstanding the foregoing, NFI and its Subsidiaries shall not be
obligated to disclose (i) any information that in the reasonable judgment of
NFI, would result in the loss of attorney-client privilege or other legal
privilege with respect to such information or (ii) any information that would
result in a breach of an agreement to which NFI or any of its Subsidiaries is a
party. In addition, notwithstanding the foregoing, in fulfilling its obligations
under this Section 6.1, neither NFI nor any of its Subsidiaries shall be
required to violate any applicable Law. Investors agree that their access to
such investigation shall be conducted in such a manner as not to interfere
unreasonably with the operations of NFI and its Subsidiaries.
All requests for access or information pursuant to this Section 6.1 shall
be directed to such person or persons as NFI shall designate. Without limiting
the terms thereof, the Confidentiality Agreement shall govern the obligations of
the respective Investors party thereto and their respective officers, directors,
employees, Affiliates, financing sources and authorized advisors,
representatives and other agents with respect to all information of any type
furnished or made available to them pursuant to this Section 6.1.
SECTION 6.2 Consents, Approvals and Filings.
(a) The parties will each use their commercially reasonable efforts, and
will cooperate fully with each other (i) to comply as promptly as practicable
with all requirements of Governmental Entities applicable to the transactions
contemplated by this Agreement and the other Transaction Documents, (ii) to
obtain as promptly as practicable all necessary permits, Orders or other
consents, approvals or authorizations of Governmental Entities and consents or
waivers of all third parties necessary in connection with the consummation of
the transactions contemplated by this Agreement and the other Transaction
Documents, and (iii) otherwise to take, or cause to be taken, all actions
necessary, proper or advisable to comply promptly with all legal requirements
that may be imposed on such party and its Subsidiaries with respect to the
transactions contemplated by this Agreement and the other Transaction Documents,
including the issuance of the Convertible Shares to Investors and to consummate
the transactions contemplated by the Transaction Documents as promptly as
practicable. In connection therewith, the parties will make and cause their
respective Affiliates to make all legally required filings as promptly as
practicable in order to facilitate prompt consummation of the transactions
contemplated by this Agreement, and will provide and will cause their respective
Affiliates to provide such information and communications to Governmental
Entities as such Governmental Entities may request. Each of the parties shall
provide to the other parties copies of all applications or other communications
to Governmental Entities in connection with this Agreement in advance of the
filing or submission thereof. Without limiting the generality of the foregoing,
NFI shall use its commercially reasonable efforts to obtain, and each of the
Investors shall cooperate in all reasonable respects with NFI's efforts to
obtain, any Financial Services Consents required to be obtained by an Investor
or by NFI or its Affiliates in connection with the transactions contemplated by
this Agreement. All expenses associated with obtaining such Financial Service
Consents shall be borne by NFI; provided, however, that each of NFI and each
Investor shall bear its own expenses incurred in connection with its cooperation
with NFI's efforts to obtain such Financial Services Consents, including the
costs and fees payable to its own counsel in connection therewith.
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(b) Without limiting the generality of the foregoing, as promptly as
practicable, but in any event within 30 days after the date hereof, each party
shall use commercially reasonable efforts to file with all applicable
Governmental Entities any requests for approval of the transactions contemplated
by this Agreement required to be obtained by such party, and all such requests
shall include all required exhibits. A reasonable time prior to furnishing any
written materials to any Governmental Entity in connection with the transactions
contemplated by this Agreement, the party making such filing shall furnish the
other parties with a copy thereof, and such other parties shall have a
reasonable opportunity to provide comments thereon. Each party shall give to the
other parties prompt written notice if it receives any notice or other
communication from any Governmental Entity in connection with the transactions
contemplated by this Agreement, and, in the case of any such notice or
communication which is in writing, shall promptly furnish such other parties
with a copy thereof.
SECTION 6.3 Public Announcements. Investors and NFI, and their respective
Affiliates, will consult with each other before issuing, and provide each other
the opportunity to review and comment upon, any press release or other public
statement with respect to the transactions contemplated by this Agreement and
shall not issue any such press release or make any such public statement without
the advance approval of the other parties following such consultation (such
approval not to be unreasonably withheld or delayed), except as may be required
by applicable Law or by any Governmental Entity.
SECTION 6.4 Further Assurances. NFI agrees to execute and deliver, and
cause each of its Subsidiaries to execute and deliver, and each Investor agrees
to execute and deliver, such other documents, certificates, agreements and other
writings and to take such other actions as may be necessary or desirable in
order to consummate or implement expeditiously the transactions contemplated by
this Agreement or the other Transaction Documents.
SECTION 6.5 Notification of Certain Matters. NFI shall give prompt notice
to Investors to the extent that it acquires knowledge of (i) the occurrence or
non-occurrence of any event the occurrence or non-occurrence of which would be
reasonably likely to cause any representation or warranty of NFI contained in
this Agreement to be untrue or inaccurate as of the date hereof or as of the
Closing Date and (ii) any failure of NFI to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder. Each
Investor shall give prompt notice to NFI and the other Investor to the extent
that it acquires knowledge of (A) the occurrence or non-occurrence of any event
the occurrence or non-occurrence of which would be reasonably likely to cause
any representation or warranty of such Investor contained in this Agreement to
be untrue or inaccurate as of the date hereof or as of the Closing Date, (B) any
failure of such Investor to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder and (C) any event
that would trigger the obligation for NFI or such Investor to file with the SEC
or any other Governmental Entity a notification of change in beneficial
ownership of the Convertible Shares or the Common Shares, as the case may be.
Each of the Investors shall promptly file with the SEC or any other Governmental
Entity any applicable change in beneficial ownership notifications, in
connection with its ownership of the Convertible Shares or the Common Shares.
Notwithstanding the foregoing, the delivery of any notice pursuant to this
Section 6.5 shall not affect the representations, warranties or agreements of
the parties, the conditions to the performance by the parties hereunder, or
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
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SECTION 6.6 Anti-Takeover Laws. If any "fair price," "business combination"
or "control share acquisition" statute or other similar statute or regulation is
or shall become applicable to the transactions contemplated by the Transaction
Documents, Investors, NFI and their respective Boards of Directors shall use
commercially reasonable efforts to grant such approvals and take such actions as
are necessary so that the transactions contemplated by the Transaction Documents
may be consummated as promptly as practicable on the terms contemplated hereby
and shall otherwise act to minimize the effects of any such statute or
regulation on the transactions contemplated hereby.
SECTION 6.7 Shareholder Litigation. NFI shall give Investors the
opportunity to participate in the defense or settlement of any shareholder
Litigation against NFI and/or its directors relating to the transactions
contemplated by this Agreement.
SECTION 6.8 Issuance of REIT Dividends; Availability of Common Shares for
Conversion.
(a) On or prior to September 17, 2007, NFI shall declare the REIT
Dividends, which REIT Dividends shall have a record date not earlier than the
earlier of (i) the earlier of (x) the date that the Rights Offering shall have
ended and all shares offered in the Rights Offering shall have been subscribed
for and purchased in the Rights Offering and (y) the first Business Day
following the closing under the Standby Purchase Agreement or (ii) December 10,
2007 (the "REIT Dividend Record Date"). NFI shall pay the REIT Dividends
following the REIT Dividend Record Date but on or prior to December 31, 2007.
(b) The REIT Dividends at the time of declaration by NFI shall be in the
form of Series E Preferred Shares, which shall be convertible into Common Shares
(it being understood that NFI may pay cash in lieu of fractional shares in
connection with the payment of the REIT Dividends). The Series E Preferred
Shares issued in connection with the REIT Dividends, if any, will rank pari
passu with the Series D-1 Preferred Shares and Series D-2 Preferred Shares and
otherwise have the terms that are set forth on Schedule 6.8(b); provided,
however, that the Board of Directors of NFI shall be permitted to use its
reasonable discretion to establish the definitive terms for the dividend rate,
conversion price and number of shares to be issued in connection with the REIT
Dividends.
(c) Except as provided for under the Deferred Compensation Plan or the
401(k) Plan, NFI will not issue or agree to issue any Common Shares or options,
rights or warrants to purchase Common Shares or securities convertible into or
exchangeable for Common Shares or take any other action if, after giving effect
thereto, the number of Common Shares remaining unissued and duly reserved for
issuance upon conversion of the Series D-1 Preferred Shares, Series D-2
Preferred Shares and/or the number of Series E Preferred Shares and Common
Shares issued in connection with the REIT Dividends and the Common Shares
issuable upon conversion of the Series E Preferred Shares shall be insufficient
to permit conversion of all the then outstanding Series D-1 Preferred Shares,
Series D-2 Preferred Shares and/or Series E Preferred Shares after giving effect
to any adjustment in the number of Common Shares into which such Series D-1
Preferred Shares, Series D-2 Preferred Shares and/or Series E Preferred Shares
are convertible as a result of such action. NFI shall take all action necessary
to at all times have authorized, and reserved for the purpose of issuance, (i)
after the Reverse Stock Split
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Effective Date, no less than 125% of the maximum number of Common Shares
issuable upon conversion of the Series D-1 Preferred Shares and Series D-2
Preferred Shares as of any such time and (ii) prior to the issuance of the
Series E Preferred Shares, no less than 125% of the maximum number of Common
Shares issuable upon conversion of the Series E Preferred Shares as of any such
time.
SECTION 6.9 Restrictive Legend. Each certificate representing (a) the
Series D-1 Preferred Shares, (b) the Common Shares or Series D-2 Preferred
Shares issued upon conversion of the Series D-1 Preferred Shares, or (c) any
other securities issued in respect of the Series D-1 Preferred Shares or the
Common Shares or Series D-2 Preferred Shares issued upon conversion of the
Series D-1 Preferred Shares, upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event, shall (unless
otherwise permitted or unless the securities evidenced by such certificate shall
have been registered under the Securities Act or sold pursuant to Rule 144 or
Regulation A thereunder) be stamped or otherwise imprinted with a legend in the
following form (in addition to any legend required under applicable state
securities laws) and the legends set forth in Annex I attached hereto:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN EXEMPTION FROM SUCH
REGISTRATION UNDER SAID ACT.
Upon request of a holder of such a certificate, NFI shall remove the
foregoing legend from the certificate or issue to such holder a new certificate
therefor free of any transfer legend, if, with such request, NFI shall have
received an opinion of counsel reasonably acceptable to NFI to the effect that
any transfer by such holder of the securities evidenced by such certificate will
not require registration under the Securities Act.
Each certificate representing the Series D-1 Preferred Shares shall, as
described in the Series D-1 Articles Supplementary, be stamped or otherwise
imprinted with a legend substantially in the following form:
THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT
TO RESTRICTION PURSUANT TO SECTION 9 OF THE ARTICLES SUPPLEMENTARY FOR THE 9.00%
SERIES D1 MANDATORY CONVERTIBLE PREFERRED STOCK OF THE CORPORATION, AS AMENDED
AND IN EFFECT FROM TIME TO TIME, A COPY OF WHICH MAY BE OBTAINED FROM THE
CORPORATION UPON REQUEST.
Each certificate representing the Series D-2 Preferred Shares shall, as
described in the Series D-2 Articles Supplementary, be stamped or otherwise
imprinted with a legend substantially in the following form:
THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT
TO RESTRICTION PURSUANT TO SECTION 7 OF THE
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ARTICLES SUPPLEMENTARY FOR THE 9.00% SERIES D2 MANDATORY CONVERTIBLE PREFERRED
STOCK OF THE CORPORATION, AS AMENDED AND IN EFFECT FROM TIME TO TIME, A COPY OF
WHICH MAY BE OBTAINED FROM THE CORPORATION UPON REQUEST.
SECTION 6.10 Listing Matters. NFI agrees that prior to the Closing, NFI
shall have complied with the requirements of the NYSE for purposes of reserving
for listing on the NYSE the Common Shares issuable upon conversion of the Series
D-1 Preferred Shares and such shares shall have been approved for listing
subject to official notice of issuance. NFI further agrees that at or prior to
the closing of the Rights Offering, NFI shall comply with the requirements of
the NYSE for purposes of reserving for listing on the NYSE the Common Shares
issuable upon conversion of the Series D-2 Preferred Shares and such shares
shall be approved for listing subject to official notice of issuance.
SECTION 6.11 Reverse Stock Split. Immediately following the Closing, the
Board of Directors of NFI shall take all action necessary to effect the Reverse
Stock Split, which effective date shall be on or prior to a date 15 days
following the Closing Date (the "Reverse Stock Split Effective Date"). NFI shall
provide notice of the Reverse Stock Split to the Shareholders and take such
other actions in accordance with applicable Law and the rules and regulations of
the NYSE as are necessary to effectuate the Reverse Stock Split.
SECTION 6.12 Tax Matters.
(a) For each taxable year after the date hereof that NFI qualifies as a
Section 856 Trust under the Code NFI will distribute to its stockholders such
amounts as are necessary for NFI to avoid any liability for Taxes under section
857(b) of the Code.
(b) If NFI ceases to be a Section 856 Trust, NFI shall take, and shall
cause its Subsidiaries to take, all such steps as are reasonably necessary to
mitigate the effects of the net operating losses (for federal income Tax
purposes) of NFI and its Subsidiaries being subject to any limitations on their
utilization under the rules applicable to "separate return limitation years"
under the Code and applicable Treasury Regulations.
(c) (i) Each Investor, on its own behalf and on behalf of its successors
and assigns, undertakes that it will neither Beneficially Own (as such term is
defined in the Charter) nor Constructively Own (as such term is defined in the
Charter) shares of capital stock of NFI that would result in NFI (A) being
"closely held" within the meaning of Section 856(h) of the Code (without regard
to whether the ownership interest is held during the last half of a taxable
year), or (B) otherwise failing to qualify as a Section 856 Trust (including,
but not limited to, Beneficial Ownership or Constructive Ownership that would
result in NFI owning (actually or Constructively (as such term is defined in the
Charter)) an interest in a tenant that is described in Section 856(d)(2)(B) of
the Code if the income derived by NFI from such tenant would cause NFI to fail
to satisfy any of the gross income requirements of Section 856(c) of the Code).
Each Investor undertakes that it will not own, actually or Constructively, an
interest in a tenant of NFI (or a tenant in any partnership, corporation, trust
or other juridical entity owned or controlled by NFI) that would cause NFI,
actually or Constructively, to own, actually or Constructively, more than a 9.9%
interest (as set forth in Section 856(d)(2)(B) of the Code) in
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such tenant. NFI acknowledges that in giving the undertakings set forth in this
Section 6.12(c)(i) each Investor has acted in reliance upon the representation
of NFI set forth in Section 3.10(i) and the undertaking of NFI set forth in
Section 6.12(c)(ii).
(ii) NFI undertakes that it will not have, nor will it own or control any
entity that has, any tenants (as such term is used for purposes of Section
856(d) of the Code) that are partnerships, corporations, trusts or other
juridical entities.
(iii) The covenants contained in this Section 6.12(c) shall survive until
December 31, 2007 or, if later, the last day of the last taxable year for which
NFI maintains its election to be a Section 856 Trust.
SECTION 6.13 Filing of Series D-1 Articles Supplementary. Immediately prior
to the Closing, NFI shall file the Series D-1 Articles Supplementary with the
State Department of Assessments and Taxation of Maryland.
SECTION 6.14 Charter Actions. NFI shall take, or cause to be taken, all
corporate action required to be taken by NFI or the Board of Directors of NFI to
authorize and approve an amendment to the Charter to prohibit any issuance or
transfer of NFI's stock if such issuance or transfer would cause an "ownership
change" (within the meaning of such term for the purposes of Section 382(g) of
the Code), with respect to NFI or any of its Subsidiaries. In furtherance of the
foregoing, NFI shall make its commercially reasonable efforts to submit and
recommend such amendment to the Charter to the Shareholders for approval at the
next annual or special meeting of the Shareholders.
SECTION 6.15 Shareholder Approval of Certain Provisions of the Articles
Supplementary. NFI shall take, or cause to be taken, all corporate action
required to be taken by NFI or the Board of Directors of NFI to authorize and
approve the Series D-1 Articles Supplementary and the Series D-2 Articles
Supplementary. In furtherance of the foregoing, NFI shall make its commercially
reasonable efforts to submit a proposal to the Shareholders at the next annual
or special meeting of the Shareholders for approval of Section 6(e)(i) of the
Series D-1 Articles Supplementary and Section 6(e)(i) of the Series D-2 Articles
Supplementary, and neither NFI nor its Board of Directors shall recommend
against approval of such proposal by the Shareholders. NFI agrees that it shall
prepare and file with the SEC under the Exchange Act, a Proxy Statement in form
and substance reasonably acceptable to Investors and, after consultation with
Investors, to respond promptly to any comments made by the SEC with respect to
the Proxy Statement and any preliminary version thereof and cause the Proxy
Statement to be mailed to the Shareholders in accordance with the rules and
regulations of the SEC and the NYSE. NFI shall give Investors and their counsel
a reasonable opportunity to review and comment on the Proxy Statement (including
any amendments, exhibits and supplements thereto) prior to its being filed with
the SEC or disseminated to the Shareholders. In addition, NFI shall provide
Investors and their counsel with any comments NFI or its counsel may receive
from the SEC or its staff with respect to the Proxy Statement promptly after
receipt of such comments, shall consult with Investors and their counsel prior
to responding to such comments, and shall give Investors and their counsel
reasonable opportunity to review and comment on such responses prior to their
being filed with, or submitted to, the SEC. Each of NFI and each Investor shall
promptly correct any information provided by it for use in the Proxy Statement,
if and to the extent that it shall
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have become false or misleading in any material respect prior to the annual or
special meeting of the Shareholders, as applicable. NFI shall cause the Proxy
Statement, as so corrected, to be filed with the SEC and to be disseminated to
the holders of Common Shares, in each case, as and to the extent required by
applicable federal securities Laws. The review, comment and other rights granted
to Investors in this Section 6.15 shall only apply to such portions of the Proxy
Statement as are relevant to the approval of Section 6(e)(i) of the Series D-1
Articles Supplementary and Section 6(e)(i) of the Series D-2 Articles
Supplementary.
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.1 Conditions to Each Party's Obligations. The respective
obligations of each party to consummate the issuance and sale to, and purchase
by, Investors of the Series D-1 Preferred Shares, and the other actions to be
taken at the Closing are subject to the satisfaction or waiver on or prior to
the Closing Date of the following conditions:
(a) Governmental Approvals. All filings required to be made prior to the
Closing Date with, and all consents, approvals, permits and authorizations
required to be obtained prior thereto from, Governmental Entities in connection
with the consummation of the transactions contemplated by the Transaction
Documents by NFI and Investors, including the Financial Services Consents, shall
have been made or obtained and shall remain in full force and effect.
(b) Third Party Consents. All third party consents listed on Section 7.1(b)
of the NFI Disclosure Letter shall have been received.
(c) HSR Act. The waiting period (and any extension thereof) applicable to
the transactions contemplated by the Transaction Documents under the HSR Act
shall have been terminated or shall have otherwise expired, any investigation
opened by means of a second request for additional information or otherwise
shall have been terminated or closed and no action shall have been instituted by
the Department of Justice or the Federal Trade Commission challenging or seeking
to enjoin the consummation of the transactions contemplated by the Transaction
Documents, which action shall not have been withdrawn or terminated and all
approvals, if any, required to be obtained under any foreign antitrust,
competition or similar Laws, in each case in connection with the consummation of
the transactions contemplated by the Transaction Documents, shall have been
obtained.
(d) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other Order issued by any court of
competent jurisdiction and no statute, rule or regulation of any Governmental
Entity (each, a "Restraint") preventing the consummation of any of the
transactions contemplated by the Transaction Documents shall be in effect.
SECTION 7.2 Conditions to Obligations of Investors. The obligations of each
Investor to consummate the purchase of the Series D-1 Preferred Shares to be
purchased by it
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and the other actions to be taken at the Closing are further subject to the
satisfaction, or waiver by such Investor, on or prior to the
Closing Date of the following conditions:
(a) Representations and Warranties. The representations and warranties of
NFI set forth in this Agreement (i) that are not qualified as to materiality or
an NFI Material Adverse Effect shall be true and correct in all material
respects as of the date hereof and as of the Closing Date as though made on and
as of the Closing Date (other than those representations and warranties that
speak as of a specified date, which shall be true and correct in all material
respects as of such date), and (ii) that are qualified as to materiality or an
NFI Material Adverse Effect shall be true and correct in all respects as of the
date hereof and as of the Closing Date as though made on and as of the Closing
Date (other than those representations and warranties that speak as of a
specified date, which shall be true and correct in all respects as of such
date), provided, however, that the representations and warranties of NFI set
forth in (x) the first sentence of Section 3.1 and (y) Sections 3.2 and 3.4
shall be true and correct in all respects as of the date hereof and as of the
Closing Date as though made on and as of the Closing Date (other than those
representations and warranties that speak as of a specified date, which shall be
true and correct in all respects as of such date); and Investors shall have
received a certificate signed on behalf of NFI by the chief executive officer or
chief financial officer of NFI to the effect set forth in this paragraph.
(b) Performance of Obligations of NFI. NFI shall have performed or complied
in all material respects with all obligations, agreements and covenants required
to be performed or complied with by it under this Agreement on or prior to the
Closing Date, and Investors shall have received a certificate signed on behalf
of NFI by the chief executive officer or chief financial officer of NFI to such
effect.
(c) No Litigation or Regulatory Proceedings. (i) There shall be no pending
or threatened Litigation by any Governmental Entity, (A) seeking to restrain or
prohibit the issuance of the Series D-1 Preferred Shares or the consummation of
any of the transactions contemplated by this Agreement or the other Transaction
Documents, or challenging the acquisition by Investors of any Series D-1
Preferred Shares or Common Shares, or seeking to obtain from NFI or any Investor
any damages that are material in relation to NFI and its Subsidiaries taken as a
whole, (B) seeking to prohibit or limit the ownership or operation by NFI, any
Investor or any of their respective Subsidiaries of any material portion of the
business or assets of NFI, or to compel NFI, any Investor or any of their
respective Subsidiaries to dispose of or hold separate any material portion of
the business or assets of NFI or any of its Subsidiaries, as a result of the
transactions contemplated hereby, or (C) seeking to impose limitations on the
ability of any Investor to acquire or hold, or exercise full rights of ownership
of, any Series D-1 Preferred Shares or Common Shares, including the right to
vote the Series D-1 Preferred Shares purchased by it or the Common Shares
received by it upon conversion of such Series D-1 Preferred Shares on all
matters properly presented to the Shareholders.
(ii) Since the date of this Agreement, no material Litigation shall have
been filed against NFI or any of its Subsidiaries in connection with the conduct
and operation of their respective businesses, and no judgment shall have been
entered against NFI or any of its Subsidiaries, which judgment remains unstayed
and in effect for 60 days and which either (x) requires NFI or any of its
Subsidiaries to pay in excess of $10,000,000 in damages or (y) results
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in an injunction or other equitable relief that materially prevents NFI and its
Subsidiaries from conducting their respective businesses in a manner consistent
with past practice.
(iii) Since the date of this Agreement, no Litigation shall have been
commenced or Order instituted, in either case by any Governmental Entity,
seeking to suspend, revoke or modify any Permit that would result in NFI or any
of its Subsidiaries being prohibited from doing business in any jurisdiction in
which a material portion of the operations of NFI and its Subsidiaries, taken as
a whole, are conducted as of the date of this Agreement.
(iv) Since the date of this Agreement, none of NFI, any Subsidiary of NFI
or any Key Employee shall have become subject to any criminal indictment in
connection with the conduct or operation of the business of NFI and its
Subsidiaries.
(d) Restraints. No Restraint that would reasonably be expected to result,
directly or indirectly, in any of the effects referred to in clauses (A) through
(C) of Section 7.2(c)(i) shall be in effect.
(e) No Material Adverse Effect. Since the date of this Agreement, there
shall not have been an NFI Material Adverse Effect; and Investors shall have
received a certificate signed on behalf of NFI by the chief executive officer or
chief financial officer of NFI to the effect set forth in this paragraph.
(f) Transaction Documents. NFI shall have (i) executed and delivered to
such Investor counterparts of the Registration Rights and Shareholders
Agreement, the Articles Supplementary and the Standby Purchase Agreement and
(ii) filed the Series D-1 Articles Supplementary with the State Department of
Assessments and Taxation of Maryland.
(g) Legal Opinion. Such Investor shall received a legal opinion of counsel
to NFI.
(h) REIT Opinion. Such Investor shall have received an opinion of counsel,
in form and substance satisfactory to Investors, to the effect that NFI was
organized and has operated in conformity with the requirements for qualification
and taxation as a Section 856 Trust, effective for each of its taxable years
ended December 31, 1996, through and including December 31, 2006, and its
current organization and intended method of operation will enable it to continue
to meet the requirements for qualification and taxation as a Section 856 Trust
for taxable year 2007. In rendering such opinion, counsel may rely on customary
assumptions and qualifications, and also on representations from NFI as to
factual matters, including representations made by NFI's management regarding
its organization, assets, sources of gross income and other matters related to
the conduct of NFI's business operations, which representations shall be in form
and substance satisfactory to Investors. Such opinion shall provide that it may
be relied upon by NFI and its successors and assigns.
(i) No Bankruptcy. Neither NFI nor any of its Subsidiaries pursuant to or
within the meaning of any Bankruptcy Law shall have (i) commenced a voluntary
case or proceeding, (ii) consented to the entry of an order for relief against
it in an involuntary case, (iii) consented to the appointment of a Custodian of
it or for all or substantially all of its property or (iv) made a general
assignment for the benefit of its creditors. In addition, no court of competent
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jurisdiction shall have entered an order or decree under any Bankruptcy Law that
(i) is for relief against NFI or any of its Subsidiaries in an involuntary case,
(ii) appoints a Custodian of NFI or any of its Subsidiaries or for all or
substantially all of any of their respective assets or (iii) orders the
liquidation of NFI or any of its Subsidiaries, and the order or decree remains
unstayed and in effect for 60 days.
(j) Key Employment Agreements. (i) The Key Employees shall remain employed
by NFI (and shall not have given notice of their intent to terminate their
employment with NFI), (ii) the Key Employment Agreements will continue to be in
full force and effect, and (iii) no action will have been taken by any Key
Employee to terminate or rescind any such Key Employment Agreement.
(k) Increase in Board Size. NFI shall have taken such actions as are
necessary to increase the size of NFI's Board of Directors to eight directors.
(l) Secretary's Certificate. NFI shall have delivered to such Investor a
certificate executed by the Secretary or an Assistant Secretary of NFI and dated
as of the Closing Date, in form and substance reasonably acceptable to such
Investor, attaching copies of and certifying as to (i) the resolutions adopted
by NFI's Board of Directors authorizing the consummation of the transactions
contemplated by the Transaction Documents, (ii) no amendments to the Charter
since a specified date, (iii) the Bylaws of NFI in effect at the Closing and
(iv) incumbency and signatures of the officers of NFI executing this Agreement
and any of the other Transaction Documents.
(m) Charter and Good Standing Certificates. NFI shall have delivered to
such Investor (i) a copy of the Charter certified as of a recent date by the
State Department of Assessments and Taxation of Maryland and (ii) a certificate
of good standing, or the equivalent thereof, of NFI and each of the Material
Subsidiaries, issued as of a recent date by the applicable Governmental Entity
of the jurisdiction of its organization, and a certificate evidencing foreign
qualification as of a date within 10 days of the Closing Date of NFI and each
such Material Subsidiary issued by the applicable Governmental Entity of each
jurisdiction in which it conducts a material amount of business.
SECTION 7.3 Conditions to Obligations of NFI. The obligations of NFI to
consummate the sale and issuance of the Series D-1 Preferred Shares to Investors
and the other actions to be taken at the Closing are further subject to the
satisfaction, or waiver by NFI, on or prior to the Closing Date of the following
conditions:
(a) Representations and Warranties. The representations and warranties of
each Investor set forth in this Agreement (i) that are not qualified as to
materiality or an Investor Material Adverse Effect shall be true and correct in
all material respects as of the date hereof and as of the Closing Date as though
made on and as of the Closing Date (other than those representations and
warranties that speak as of a specified date, which shall be true and correct in
all material respects as of such date), and (ii) that are qualified as to
materiality or an Investor Material Adverse Effect shall be true and correct in
all respects as of the date hereof and as of the Closing Date as though made on
and as of the Closing Date (other than those representations and warranties that
speak as of a specified date, which shall be true and correct in all respects as
of
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such date; and NFI shall have received a certificate signed on behalf of each
Investor by an executive officer of such Investor to the effect set forth in
this paragraph.
(b) Performance of Obligations of Investors. Each Investor shall have
performed or complied in all material respects with all obligations, agreements
and covenants required to be performed or complied with by it under this
Agreement on or prior to the Closing Date, and NFI shall have received a
certificate signed on behalf of such Investor by an executive officer of such
Investor to such effect.
(c) Transaction Documents. Each of the Investors shall have executed and
delivered to NFI such Investor's counterpart of the Registration Rights and
Shareholders Agreement and the Standby Purchase Agreement.
ARTICLE VIII
TERMINATION PRIOR TO CLOSING
SECTION 8.1 Termination of Agreement. This Agreement may be terminated at
any time prior to the Closing:
(a) by mutual written consent of NFI and Investors;
(b) by NFI or either Investor, if there shall be any Order of any
Governmental Entity which prohibits or restrains any party from consummating the
transactions contemplated hereby, and such Order shall have become final and
nonappealable;
(c) by NFI or either Investor, if the Closing has not occurred on or prior
to September 15, 2007 (the "Outside Date"); provided, however, that the right to
terminate this Agreement under this Section 8.1(c) shall not be available to a
party if such party has failed to fulfill any obligation under this Agreement
and such failure has materially contributed to the failure of the Closing to
occur on or prior to such date.
(d) by either Investor (if such Investor is not in material breach of its
obligations under this Agreement), in the event of any breach by NFI of any of
NFI's agreements, representations or warranties contained herein that (i) would
reasonably be expected to result in the failure of a condition set forth in
Section 7.1, 7.2(a) or 7.2(b) to be satisfied, and (ii) cannot be or has not
been cured by the Outside Date; or
(e) by NFI (if NFI is not in material breach of its obligations under this
Agreement), in the event of any breach by either Investor of any of such
Investor's agreements, representations or warranties contained herein that (i)
would reasonably be expected to result in the failure of a condition set forth
in Section 7.1, 7.3(a) or 7.3(b) to be satisfied and (ii) cannot be or has not
been cured by the Outside Date.
SECTION 8.2 Procedure Upon Termination and Consequences. Either Investor or
NFI may terminate this Agreement when permitted pursuant to Section 8.1 by
delivering written notice of such termination to the other parties, and such
termination shall be effective upon delivery of such notice in accordance with
Section 10.2. If this Agreement is
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terminated as provided herein, (a) Investors (and their respective agents and
representatives) shall return to NFI all documents, and other material obtained
from NFI that constitutes confidential information under such Investor's
Confidentiality Agreement, whether obtained before or after the execution
hereof, and (b) such termination shall be the sole remedy of Investors and NFI
with respect to breaches of any agreement, representation or warranty contained
in this Agreement and none of the parties hereto nor any of their respective
trustees, directors, officers or Affiliates, as the case may be, shall have any
liability or further obligation to any other party to this Agreement except with
respect to this Section 8.2, Article X, the terms of the other Transaction
Documents and the Confidentiality Agreement, including with respect to
information that is subject to the Confidentiality Agreement pursuant to this
Agreement, each of which shall survive the termination of this Agreement.
Notwithstanding the foregoing, none of the parties hereto shall be relieved or
released from any liabilities or damages arising out of its breach of this
Agreement.
ARTICLE IX
INDEMNIFICATION
SECTION 9.1 Survival. The representations and warranties of the parties
contained in this Agreement or in any certificate or other writing delivered
pursuant hereto or in connection herewith shall survive the Closing for a period
of eighteen months following the Closing Date; provided that the representations
and warranties in (a) the first sentence of each of Sections 3.1 and 4.1 and (b)
Sections 3.2, 3.4, 3.20, 3.21, and 4.2 shall survive indefinitely, and the
representations and warranties in Sections 3.9 and 3.10 shall survive until the
expiration of the applicable statute of limitations. The covenants and
agreements of the parties contained in this Agreement or in any certificate or
other writing delivered pursuant hereto or in connection herewith shall survive
the Closing indefinitely or for any shorter period expressly specified therein.
Notwithstanding the preceding sentences, any breach of representation, warranty,
covenant or agreement in respect of which indemnity may be sought under this
Agreement shall survive the time at which it would otherwise terminate pursuant
to the preceding sentences, if notice of the inaccuracy or breach thereof giving
rise to such right of indemnity shall have been given to the party against whom
such indemnity may be sought prior to such time.
SECTION 9.2 Indemnification by NFI. From and after the Closing, NFI shall
defend, indemnify and hold harmless MassMutual and its Affiliates, members,
partners, directors, shareholders and their respective officers, directors,
employees, agents, advisers and representatives (collectively, the "MassMutual
Indemnitees") and Jefferies and its Affiliates, members, partners, directors,
shareholders and their respective officers, directors, employees, agents,
advisers and representatives (collectively, the "Jefferies Indemnitees" and,
together with the MassMutual Indemnitees, the "Investor Indemnitees") from and
against, and pay or reimburse the Investor Indemnitees for, any and all damage,
loss, liability, Taxes and expense (including reasonable expenses of
investigation, enforcement and collection and reasonable attorneys' and
accountants' fees and expenses in connection with any Litigation and any
incidental or indirect damages, losses, liabilities or expenses, and diminution
in value of the Convertible Shares), whether or not involving a third party
claim, but excluding consequential, special, exemplary or punitive damages other
than out-of-pocket damages or damages for the diminution in value of the
Convertible Shares (collectively, "Losses"), resulting from or arising
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out of (a) any inaccuracy in or breach of any representation or warranty, when
made or deemed made by NFI in or pursuant to this Agreement or any certificate
delivered at Closing by NFI pursuant to this Agreement, or (b) any failure of
NFI to perform any covenant or agreement under this Agreement.
SECTION 9.3 Indemnification by Investors. From and after the Closing, each
Investor, individually but not jointly, shall defend, indemnify and hold
harmless NFI and its officers, directors, employees, agents, advisers and
representatives (collectively, the "NFI Indemnitees") from and against, and pay
or reimburse the NFI Indemnitees for, any and all Losses resulting from or
arising out of (a) any inaccuracy in or breach of any representation or warranty
made or deemed made by such Investor in or pursuant to this Agreement or any
certificate delivered by or on behalf of such Investor at Closing pursuant to
this Agreement or (b) any failure of such Investor to perform any covenant or
agreement under this Agreement. NFI acknowledges, on behalf of the NFI
Indemnitees, that an NFI Indemnitee may assert a claim for indemnification
pursuant to this Section 9.3 solely against that Investor in breach of the
representation, warranty or covenant giving rise to such claim, and not against
the other Investor unless such other Investor is also in breach of a
representation, warranty or covenant giving rise to such claim.
SECTION 9.4 Certain Limitations on Indemnification.
(a) Any indemnification payment due to the Investor Indemnitees or the NFI
Indemnitees, as the case may be, pursuant to this Article IX shall be satisfied
by cash reimbursement thereof.
(b) For purposes of determining the amount of Losses to be indemnified
pursuant to this Article IX (but not for purposes of determining whether an
inaccuracy in or breach of any representation or warranty has occurred), any
inaccuracy in or breach of any representation or warranty (other than the
representation and warranty contained in Section 3.8) shall be determined
without regard to any materiality, "NFI Material Adverse Effect," "Investor
Material Adverse Effect" or similar qualification contained in or otherwise
applicable to such representation or warranty.
(c) Notwithstanding anything to the contrary contained in this Agreement,
except with respect to any Third Party Claims which shall not be subject to the
limitations set forth in this Section 9.2(c), NFI shall not be required to
indemnify (i) any MassMutual Indemnitee for Losses under Section 9.2(a)
(excluding Losses under Section 9.2(a) in respect of a Third Party Claim) to the
extent the aggregate amount of such Losses for which NFI has actually
indemnified the MassMutual Indemnitees under Section 9.2(a) with respect to
prior claims exceeds the MassMutual Consideration plus the MassMutual Standby
Consideration (the "MassMutual Cap") and (ii) any Jefferies Indemnitee for
Losses under Section 9.2(a) (excluding Losses under Section 9.2(a) in respect of
a Third Party Claim) to the extent the aggregate amount of such Losses for which
NFI has actually indemnified the Jefferies Indemnitees under Section 9.2(a) with
respect to prior claims exceeds the Jefferies Consideration plus the Jefferies
Standby Consideration (the "Jefferies Cap"). Notwithstanding anything to the
contrary contained in this Agreement, MassMutual shall not be required to
indemnify any NFI Indemnitees for Losses under Section 9.3(a) to the extent the
aggregate amount such Losses for which MassMutual has
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actually indemnified the NFI Indemnitees under Section 9.3(a) with respect to
prior claims exceeds the MassMutual Cap. Notwithstanding anything to the
contrary contained in this Agreement, Jefferies shall not be required to
indemnify any NFI Indemnitees for Losses under Section 9.3(a) to the extent the
aggregate amount such Losses for which Jefferies has actually indemnified the
NFI Indemnitees under Section 9.3(a) with respect to prior claims exceeds the
Jefferies Cap.
(d) The rights and remedies of any party in respect of any inaccuracy or
breach of any representation, warranty, covenant or agreement shall in no way be
limited by the fact that the act, omission, occurrence or other state of facts
or circumstances upon which any claim of any such inaccuracy or breach is based
may also be the subject matter of any other representation, warranty, covenant
or agreement as to which there is no inaccuracy or breach. The representations,
warranties and covenants of NFI and Investors' rights to indemnification with
respect thereto shall not be affected or deemed waived by reason of any
investigation made by or on behalf of Investors (including by any of their
respective advisors, consultants or representatives) or by reason of the fact
that Investors or any of such advisors, consultants or representatives knew or
should have known that any such representation or warranty is, was or might be
inaccurate.
(e) Except as provided in Section 10.8, the indemnity provided for in this
Article IX shall be the sole and exclusive remedy of Investor Indemnitees or NFI
Indemnitees, as the case may be, after the Closing for any inaccuracy of any
representation or warranty of NFI or Investors, respectively, herein or any
other breach of this Agreement, provided that nothing herein shall limit in any
way any such party's remedies in respect of fraud by the other party in
connection with the transactions contemplated hereby.
(f) No party to this Agreement (or any of its Affiliates) shall, in any
event, be liable or otherwise responsible to any other party (or any of its
Affiliates) for any special, exemplary, punitive or consequential damages of
such other party (or any of its Affiliates) arising out of or relating to this
Agreement or the performance or breach hereof, other than any out-of-pocket
damages or damages for the diminution in value of the Convertible Shares.
(g) Any indemnification payments made pursuant to this Agreement shall be
treated for Tax purposes as an adjustment to the MassMutual Consideration or the
Jefferies Consideration, as applicable. In calculating any Loss there shall be
deducted any insurance recovery actually received by the Indemnified Party in
respect thereof (and no right of subrogation shall accrue hereunder to any
insurer).
SECTION 9.5 Third Party Claim Procedures. In the case of any Litigation
asserted by a third party (a "Third Party Claim") against a party entitled to
indemnification under this Agreement (an "Indemnified Party"), notice shall be
given by the Indemnified Party to the party required to provide indemnification
(the "Indemnifying Party") promptly after such Indemnified Party has actual
knowledge of such Third Party Claim, and the Indemnifying Party, at its option
and at its own expense, shall have the right to conduct and control, through
counsel of its choosing (which counsel must be reasonably satisfactory to the
Indemnified Party), the defense, compromise or settlement of any Third Party
Claim against such Indemnified Party as to which indemnification will be sought
by any Indemnified Party from any Indemnifying Party
-57-
hereunder, and in any such case the Indemnified Party shall cooperate in
connection therewith and shall furnish such records, information and testimony
and attend such conferences, discovery proceedings, hearings, trials and appeals
as may be reasonably requested by the Indemnifying Party in connection
therewith; provided, that (a) the Indemnified Party may participate, through
counsel chosen by it and at its own expense, in the defense of any such Third
Party Claim as to which the Indemnifying Party has so elected to conduct and
control the defense thereof and (b) the Indemnifying Party shall not, without
the written consent of the Indemnified Party (which written consent shall not be
unreasonably withheld or delayed), pay, compromise or settle any such Third
Party Claim. Notwithstanding the foregoing, in the event any Third Party Claim
is solely for money damages, the Indemnifying Party shall have the right to pay,
settle or compromise any such Third Party Claim without such consent, provided,
that the Indemnifying Party acknowledges and agrees in writing that it has an
obligation to provide indemnification hereunder pursuant to such Third Party
Claim.
SECTION 9.6 Independent Committee. All actions of NFI with respect to a
claim for indemnification pursuant to this Article IX, whether by Investor
Indemnitees or NFI Indemnitees, including negotiation or settlement with
Investors or Investor Indemnitees, decisions regarding the making or defending
of indemnification claims and the hiring of legal counsel and other advisors
with respect thereto shall be taken by a committee of the Board of Directors of
NFI consisting solely of "independent directors" pursuant to the rules of the
NYSE who are not specifically designated by Investors pursuant to Sections
10(a)-(e) of the Registration Rights and Shareholders Agreement.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 Fees and Expenses. Upon the Closing, NFI shall pay the
reasonably documented out-of-pocket expenses of Investors incurred in connection
with the transactions contemplated by this Agreement. Upon the earlier of (x)
the closing of the transactions under the Standby Purchase Agreement and (y) the
termination of the Standby Purchase Agreement, NFI shall pay the reasonably
documented out-of-pocket expenses of Investors incurred after the Closing in
connection with the Rights Offering and/or the transactions contemplated by any
of the Transaction Agreements (whether or not the Rights Offering or any such
transactions are actually consummated).
SECTION 10.2 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, by facsimile (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
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(a) if to MassMutual, to
Massachusetts Mutual Life Insurance Company
0000 Xxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxxxxxx 00000
Fax: (000) 000-0000
Attention: Xxxxx X. Port
and
Babson Capital Management LLC
0000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxxxx, Xxxxxxxxxxxxx 00000
Fax: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxx, Esq.
with copies to:
Sidley Austin LLP
0 Xxxxx Xxxxxxxx
Xxxxxxx, Xxxxxxxx 00000
Fax: (000) 000-0000
Attention: Xxxxx X. Xxxxxx, Esq.
(b) if to Jefferies, to
Jefferies Capital Partners
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
Attention: Xxxxx X. Xxxxxxxx
with copies to:
Stroock & Stroock & Xxxxx LLP
000 Xxxxxx Xxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Fax: (000) 000-0000
Attention: Xxxxxx Xxxxxxx, Esq.
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(c) if to NFI, to
NovaStar Financial, Inc.
0000 Xxxx Xxxxxxx, Xxxxx 000
Xxxxxx Xxxx, Xxxxxxxx 00000
Attention: Xxxxxxx Xxxxx, Esq.
with a copy to:
Xxxxx Xxxxxxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
Attention: Xxxx Xxxxxxxxx, Esq.
SECTION 10.3 Interpretation. When a reference is made in this Agreement to
a Section, Exhibit, or Schedule, such reference shall be to a Section of, or an
Exhibit, or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". Whenever the singular is used herein, the same shall include the
plural, and whenever the plural is used herein, the same shall include the
singular, where appropriate.
SECTION 10.4 Entire Agreement; No Third Party Beneficiaries; No Other
Representations. This Agreement (including the NFI Disclosure Letter, the
MassMutual Disclosure Letter, the Jefferies Disclosure Letter and all Exhibits
hereto), together with the other Transaction Documents and the Confidentiality
Agreement, supersedes all prior agreements and understandings among the parties
with respect to such subject matter and supersedes any letters, memoranda or
other documents or communications, whether oral, written or electronic,
submitted or made by (i) Investors or their respective agents or representatives
to NFI or any of their respective agents or representatives, or (ii) NFI,
Deutsche Bank Securities Inc., or their respective agents or representatives to
Investors or any of their agents or representatives, in connection with the
bidding process which occurred prior to the execution of this Agreement or
otherwise in connection with the negotiation and execution of this Agreement.
Except for the provisions of Article IX (which shall be for the benefit of the
Investor Indemnitees and the NFI Indemnitees), this Agreement is not intended to
confer upon any person other than the parties hereto any rights or remedies
hereunder.
SECTION 10.5 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the Laws of the State of New York, without giving
effect to its principles or rules of conflict of laws except Sections 5-1401 and
5-1402 of the General Obligations Law of the State of New York.
-60-
SECTION 10.6 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by any of the parties without the prior written consent of the other
parties, and any such assignment that is not consented to shall be null and
void. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of, and be enforceable by, the parties and their respective
successors and assigns. Notwithstanding anything to the contrary in this Section
10.6, but subject to applicable legal requirements each Investor may assign,
without the prior written consent of any other parties hereto, (i) all or any
portion of its respective rights, benefits or obligations hereunder to an
Affiliate of such Investor or any investment fund under the control of any
Affiliate of such Investor and (ii) any rights under this Agreement to such
Investor's financing institutions and subsequent purchasers of such Investor or
substantially all of its assets, or (iii) any of its respective rights, benefits
or obligations hereunder to the other Investor or any Affiliate of any Investor,
provided, that in the case of clause (i), (ii) or (iii) above, no such
assignment shall relieve such Investor of obligations under this Agreement that
have not been performed timely by any such Affiliate assignee.
SECTION 10.7 Amendments. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms hereof may be waived, only by a
written instrument signed by each of the parties hereto or, in the case of a
waiver, by the party waiving compliance; provided, that after the Closing Date,
no amendments to this Agreement, or waivers hereunder, shall be made unless the
amendment or waiver has been approved (i) by NFI's independent directors, as
determined under the applicable provisions of the Exchange Act and the rules and
regulations of the NYSE, or (ii) upon a vote of the Shareholders as a class
(excluding any Common Shares held by Investors).
SECTION 10.8 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to, in addition to any
other remedies at law or otherwise, specific performance of this Agreement or an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States or any state court which in either case is located in the City and
County of New York (any such federal or state court, a "New York Court"), in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any New York Court in the event any dispute arises out
of this Agreement or any of the transactions contemplated by this Agreement and
(b) agrees that it will not attempt to deny or defeat such personal jurisdiction
or venue by motion or other request for leave from any such New York Court.
SECTION 10.9 Severability. (a) Whenever possible, each provision or portion
of any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable Law, but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable Law in any jurisdiction, such invalidity,
illegality or unenforceability will not affect any other provision or portion of
any provision in such jurisdiction, and this Agreement will be reformed,
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision or portion of any provision had never been contained
herein.
-61-
(b) No delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of any party of any right, power or privilege, nor any single or
partial exercise of any such right, power or privilege, preclude any further
exercise thereof or the exercise of any other such right, power or privilege.
SECTION 10.10 Counterparts. This Agreement may be executed in counterparts,
all of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties.
SECTION 10.11 Independent Nature of Investors' Obligations and Rights. The
obligations of each Investor under any Transaction Document are individual and
not joint with the obligations of any other Investor, and no Investor shall be
responsible in any way for the performance of the obligations of any other
Investor under any Transaction Document. Nothing contained herein or in any
other Transaction Document, and no action taken by any Investor pursuant hereto
or thereto, shall be deemed to constitute the Investors as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Investors are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each Investor confirms that it has independently
participated in the negotiation of the transaction contemplated hereby with the
advice of its own counsel and advisors. NFI acknowledges that each Investor has
independently participated in the negotiation of the transaction contemplated
hereby and did not act as a group. Each Investor shall be entitled to
independently protect and enforce its rights, including, without limitation, the
rights arising out of this Agreement or out of any other Transaction Documents,
and it shall not be necessary for any other Investor to be joined as an
additional party in any proceeding for such purpose.
SECTION 10.12 Waiver of Jury Trial. Each of the parties hereby expressly
waives any right to trial by jury in any dispute, whether sounding in contract,
tort or otherwise, between or among any of the parties arising out of or related
to the transactions contemplated by this Agreement, or any other instrument or
document executed or delivered in connection herewith. Any party may file an
original counterpart or a copy of this Agreement with any court as written
evidence of the consent of the parties to the waiver of their right to trial by
jury.
-62-
IN WITNESS WHEREOF, NFI, MassMutual and Jefferies have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
NOVASTAR FINANCIAL, INC.
By: /s/ Xxxxx X. Xxxxxxx
-----------------------------------------------
Name: Xxxxx X. Xxxxxxx
Title: Chairman and Chief Executive Officer
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
By: Babson Capital Management LLC,
its investment adviser
By: /s/ Xxxxx X. Port
-----------------------------------------------
Name: Xxxxx X. Port
Title: Managing Director
JEFFERIES CAPITAL PARTNERS IV X.X.
XXXXXXXXX EMPLOYEE PARTNERS IV LLC
JCP PARTNERS IV LLC
By: JEFFERIES CAPITAL PARTNERS IV LLC,
as Manager
By: /s/ Xxxxx X. Xxxxxxxx
------------------------------------------------
Name: Xxxxx X. Xxxxxxxx
Title: Managing Member
-63-
EXHIBIT A
NOVASTAR FINANCIAL, INC.
ARTICLES SUPPLEMENTARY
9.00% SERIES D2 MANDATORY CONVERTIBLE PREFERRED STOCK
(Par Value $0.01 Per Share)
Novastar Financial, Inc., a Maryland corporation (the "Corporation"),
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
FIRST: Under a power set forth in Article VI of the Charter of the
Corporation, as amended, the Board of Directors of the Corporation, by
resolution duly adopted classified and designated 6,147,000 shares of the
authorized but unissued shares of common stock, par value $0.01 per share, of
the Corporation as the "9.00% Series D2 Mandatory Convertible Preferred Stock";
and
SECOND: The preferences, conversion, and other rights, voting powers,
restrictions, limitations as to dividends and other distributions,
qualifications and terms and conditions of redemption of shares of the 9.00%
Series D2 Mandatory Convertible Preferred Stock are as follows:
Section 1. Designation and Number. A series of Preferred Stock, designated
as the "9.00% Series D2 Mandatory Convertible Preferred Stock" (the "Series D2
Preferred Stock") is hereby established. The number of shares of Series D2
Preferred Stock shall be 6,147,000 shares. The par value of the Series D2
Preferred Stock shall be $0.01 per share. Certain defined terms used in these
Articles Supplementary have the meaning assigned thereto in Section 8.
Section 2. Ranking. The Series D2 Preferred Stock shall rank, with respect
to payment of dividends and distribution of assets upon a Liquidation Event: (i)
senior to the common stock, par value $0.01 per share, of the Corporation (the
"Common Stock"), whether now outstanding or hereafter issued, and to each other
class or series of shares of the Capital Stock of the Corporation established by
the Board of Directors of the Corporation (the "Board of Directors") after the
date hereof, the terms of which do not expressly provide that such class or
series of Capital Stock ranks senior to or pari passu with the Series D2
Preferred Stock as to payment of dividends and distribution of assets upon a
Liquidation Event (collectively referred to as "Junior Shares"); (ii) pari passu
with the 8.90% Series C Cumulative Redeemable Preferred Stock of the Corporation
(the "Series C Preferred Stock"), the 9.00% Series D1 Convertible Preferred
Stock of the Corporation (the "Series D1 Preferred Stock"), the 9.00% Series E
Mandatory Convertible Preferred Stock of the Corporation (the "Series E
Preferred Stock") and each class or series of shares of the Corporation, the
terms of which expressly provide that such class or series ranks pari passu with
the Series D2 Preferred Stock as to payment of dividends and distribution of
assets upon a Liquidation Event (collectively referred to as "Parity Shares");
and (iii) junior to each other class or series of shares of the Corporation, the
terms of which expressly provide that such class or series ranks senior to the
Series D2 Preferred Stock as to payment of dividends and distribution of assets
upon a Liquidation Event (collectively referred
Ex. A-1
to as "Senior Shares"). The Corporation's ability to issue, authorize or
increase the authorized amount of Senior Shares shall be subject to the
provisions of Section 5.
Section 3. Dividends. (a) Payment of Dividends. Dividends on the Series D2
Preferred Stock shall be cumulative and shall accumulate daily, whether or not
such dividends have been declared and whether or not there are profits, surplus
or other funds of the Corporation legally available for the payment of
dividends, at the rate per annum of 9.00% on the Adjusted Stated Value of each
share of Series D2 Preferred Stock. Accumulated dividends on the Series D2
Preferred Stock shall be added to the Adjusted Stated Value of the Series D2
Preferred Stock (i) semi-annually on January ___ and July ___ of each year
(each, a "Dividend Payment Date") and (ii) upon conversion of the Series D2
Preferred Stock into Common Stock. The amount of dividends accumulating on the
Series D2 Preferred Stock will be computed on the basis of a 360-day year
consisting of twelve 30-day months. Notwithstanding the foregoing, if authorized
by the Board of Directors, the Corporation may elect to pay dividends that have
accumulated on the Series D2 Preferred Stock since the last Dividend Payment
Date in cash (rather than increasing the Adjusted Stated Value of the Series D-2
Preferred Stock), out of funds legally available for the payment of dividends.
Cash dividends shall be paid on the first Dividend Payment Date following their
authorization by the Board of Directors and declaration by the Corporation to
the Holders of record at the close of business on the 30th day preceding such
Dividend Payment Date; provided that, if any Dividend Payment Date falls on a
day that is not a Business Day, the related dividend will be paid on the next
day that is a Business Day, with the same force and effect as if the dividend
payment had been made on such Dividend Payment Date with interest at the
Dividend Rate with respect to the delayed payment. If the Board of Directors
authorizes a cash dividend, the Corporation shall make a public announcement
thereof not less than 20 days prior to the relevant Dividend Payment Date.
Further notwithstanding the foregoing, if, after giving effect to the addition
of all or any part of accumulated dividends to the Adjusted Stated Value of
Series D2 Preferred Stock, the Corporation would not have sufficient number of
unreserved authorized shares of Common Stock for issuance upon the conversion in
full of all outstanding shares of Series D2 Preferred Stock and all other
convertible, exercisable or exchangeable securities of the Corporation that are
then convertible into, exercisable for or exchangeable for shares of Common
Stock (other than any such securities for which shares of Common Stock have been
reserved by the Corporation for issuance upon conversion, exercise or exchange
thereof), then the amount of such dividend that would cause there to be such an
insufficient number of unreserved authorized shares of Common Stock shall, to
the extent that the Board of Directors and the Corporation may lawfully do so
under the terms of the MGCL, be authorized by the Board of Directors and
declared and paid by the Corporation in cash rather than such amount being added
to the Adjusted Stated Value of the Series D2 Preferred Stock.
(b) Payment of Cash Dividends on Parity Stock. No dividends or other
distributions (other than a dividend or distribution payable solely in shares of
Parity Stock or Junior Stock (in the case of Parity Stock) or Junior Stock (in
the case of Junior Stock) and cash in lieu of fractional shares) may be
declared, made or paid, or set apart for payment upon, any Parity Stock or
Junior Stock, nor may any Parity Stock or Junior Stock be redeemed, purchased or
otherwise acquired for any consideration (or any money paid to or made available
for a sinking fund for the redemption of any Parity Stock or Junior Stock) by or
on behalf of the Corporation (including by any Subsidiary of the Corporation),
directly or indirectly, including without limitation, any such dividend,
distribution, redemption, purchase or acquisition of
Ex. A-2
Capital Stock of any Subsidiary of the Corporation (except by conversion into or
exchange for shares of Parity Stock or Junior Stock (in the case of Parity
Stock) or Junior Stock (in the case of Junior Stock)) unless all cash dividends
on the Series D2 Preferred Stock that have been authorized by the Board of
Directors are paid in full, or a sum sufficient for the payment thereof in full
is set apart for such payment. For the avoidance of doubt, this Section 3(b)
does not limit the ability of the Corporation to add accumulated dividends to
the Adjusted Stated Value of the Series D2 Preferred Stock as provided in
Section 3(a).
(c) Participation Rights in Common Stock Dividends. In the event the
Corporation should at any time or from time to time after the date Articles
Supplementary for the Series D2 Preferred Stock are first filed with the State
Department of Assessments and Taxation of Maryland, fix a record date for the
making of any dividend, distribution or payment of any sort or kind to holders
of shares of Common Stock, including, without limitation, distributions of
evidences of indebtedness, assets (including cash), other property or shares of
Common Stock or other securities in the Corporation or rights, options or
warrants with respect thereto, the Corporation may not pay any such dividend,
distribution or payment unless the Corporation also pays to each Holder of
Series D2 Preferred Stock a distribution equal to the distribution such Holder
would have been entitled to receive if such Holder had exercised its right to
convert all of its Series D2 Preferred Stock for shares of Common Stock pursuant
to Section 6 immediately prior to the record date with respect to such dividend
or distribution. The payment made to Holders of Series D2 Preferred Stock under
the preceding sentence shall be made concurrently with the payment of the
dividend or distribution to the holders of shares of Common Stock. Any dividend
or distribution that is paid with respect to the shares of Series D2 Preferred
Stock pursuant to this Section 3(c) shall be in addition to, separate from, and
shall not reduce or otherwise affect, the dividends accruing on each share of
Series D2 Preferred Stock pursuant to Section 3(a).
(d) Certain Determinations for Preferential Rights Upon Dissolution. Solely
for purposes of determining whether a distribution (other than upon voluntary or
involuntary dissolution) by dividend, redemption or other acquisition of shares
of the Corporation or otherwise is permitted under Maryland law, amounts that
would be needed, if the Corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of the holders
of the Series D2 Preferred Stock will not be added to the Corporation's total
liabilities.
Section 4. Liquidation Preference.
(a) Liquidation Event. In the event of any voluntary or involuntary
liquidation (in bankruptcy or otherwise), dissolution or winding-up of the
Corporation (each, a "Liquidation Event"), each Holder of Series D2 Preferred
Stock, by reason of its ownership thereof, shall be entitled to receive out of
the assets of the Corporation available for distribution to shareholders of the
Corporation, prior and in preference to any payment or distribution of assets of
the Corporation to the holders of its shares of Common Stock or any other Junior
Shares, but after any distribution on any Senior Shares, an amount equal to the
greater of (i) the aggregate Liquidation Preference attributable to the Series
D2 Preferred Stock held by such Holder, or (ii) the amount that such Holder
would have been entitled to receive with respect to such Liquidation Event if it
had exercised its right to convert all of its Series D2 Preferred Stock into
shares of
Ex. A-3
Common Stock pursuant to Section 6 immediately prior to such Liquidation Event.
The "Liquidation Preference" of each share of Series D2 Preferred Stock shall be
the Adjusted Stated Value per share of Series D2 Preferred Stock plus all
accumulated dividends per share of Series D2 Preferred Stock that have not
already been added to the Adjusted Stated Value thereof or paid in cash pursuant
to Section 3(a).
(b) Manner of Distribution. In the event the assets of the Corporation
available for distribution or payment to Holders upon any Liquidation Event
shall be insufficient to pay in full all amounts to which such Holders are
entitled pursuant to Section 4(a), (i) no such distribution or payment shall be
made on account of any Junior Shares upon such Liquidation Event; and (ii) no
such distribution or payment shall be made on account of any Parity Shares upon
such Liquidation Event unless proportionate amounts are paid on account of the
Series D2 Preferred Stock, with all such distributions or payments on account of
the Series D2 Preferred Stock and any Parity Shares made pro rata on the basis
of the aggregate liquidation preference of the outstanding shares of each such
class or series of Capital Stock and (without double-counting) accumulated
dividends to which the holder of each such class or series is entitled to
receive upon such Liquidation Event. After the payment to the Holders of the
full preferential amounts provided for above, the Holders, in their capacities
as holders of Series D2 Preferred Stock (and no other capacity), shall have no
right or claim to any of the remaining assets of the Corporation.
Section 5. Voting Rights. (a) Except as provided in Section 5(c) or
required by applicable law, the Series D2 Preferred Stock shall be entitled to
notice of, attend and vote at all general and special meetings of the
Corporation as a single class with all other shareholders entitled to notice of,
attend and vote at such general or special meetings of the Corporation on the
same terms as a holder of Common Stock. At any such general or special meeting,
each Holder shall have the number of votes for each share of Series D2 Preferred
Stock held by such Holder equal to the whole number of shares of Common Stock
into which such share of Series D2 Preferred Stock may be converted pursuant to
Section 6 as of the record date for the vote (provided, that the number of
fractional shares resulting from the conversion of shares of Series D2 Preferred
Stock held by a Holder shall be aggregated for purposes of determining the
number of shares of Common Stock for which such Holder is entitled to vote).
(b) Except as provided in Section 5(c), so long as any shares of Series D2
Preferred Stock are outstanding, in addition to any other vote of shareholders
of the Corporation required under applicable law (including, without limitation,
the MGCL) or the Charter or Bylaws of the Corporation, the prior approval or
written consent, in accordance with the MGCL, the Charter and Bylaws of the
Corporation, of the Holders of a majority of the number of outstanding shares of
Series D2 Preferred Stock, voting separately as a class, will be required for
the Corporation to (i) create, issue, authorize or increase (including by way of
a recapitalization) the authorized amount of, or create, issue or authorize any
obligation or security convertible into, or exercisable or exchangeable for, or
evidencing a right to purchase, any Senior Shares, (ii) amend, alter, change or
repeal any provision of the Charter, if such amendment, alteration, change or
repeal materially and adversely affects the rights of the Series D2 Preferred
Stock, or (iii) reclassify any authorized shares of the Corporation into any
Senior Shares, or any obligation or security convertible into or, exercisable or
exchangeable for, or evidencing a right to purchase any Senior Shares.
Ex. A-4
(c) Notwithstanding Sections 5(a) and (b), except as required by applicable
law, the Series D2 Preferred Stock shall be non-voting and shall not be entitled
to the voting rights included in Sections 5(a) and (b) prior to the date on
which all of the Regulatory Approvals have been obtained or made (a "Voting
Activation Event"). The Corporation shall make a public announcement of a Voting
Activation Event within five days from the occurrence thereof; provided that the
failure of the Corporation to make such an announcement shall have no effect on
the voting rights of the Series D2 Preferred Stock and the Series D2 Preferred
Stock shall automatically become voting and entitled to the voting rights set
forth in Sections 5(a) and (b) on the date of the occurrence of a Voting
Activation Event.
Section 6. Conversion of Series D2 Preferred Stock into Common Stock. The
Series D2 Preferred Stock may be converted into Common Stock as follows (the
"Conversion Rights"):
(a) Holder's Right to Convert. Subject to Section 6(d), each share of
Series D2 Preferred Stock shall be convertible, at the option of the Holder
thereof, at any time and from time to time, into a number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the Adjusted
Stated Value of such share by the Conversion Price applicable to such share,
determined as hereafter provided, in effect on the date the certificate is
surrendered for conversion.
(b) Corporation's Right to Convert. If at any time on or after the
three-year anniversary of the Issue Date, (i) the Common Stock is Publicly
Traded as of the date the Corporation delivers a Forced Conversion Announcement
and (ii) the Closing Sale Price of the Common Stock exceeds 200% of the then
existing Conversion Price for 40 of the 50 consecutive Trading Days preceding
the date of delivery by the Corporation of the Forced Conversion Announcement,
then the Corporation may elect to cause all (but not less than all) of the
outstanding shares of Series D2 Preferred Stock to be converted into a number of
fully paid and nonassessable shares of Common Stock determined by dividing, with
respect to each share of Series D2 Preferred Stock, the Adjusted Stated Value of
such share by the Conversion Price applicable to such share, determined as
hereafter provided, in effect on the date the certificate is surrendered for
conversion. Any election to convert pursuant to this Section 6(b) shall be made
by public announcement thereof (a "Forced Conversion Announcement").
(c) Mandatory Conversion. On the ninth anniversary of the Issue Date, each
share of Series D2 Preferred Stock shall automatically be converted into a
number of fully paid and nonassessable shares of Common Stock as is determined
by dividing the Adjusted Stated Value for such share by the Conversion Price
applicable to such share, determined as hereafter provided, in effect on such
ninth anniversary date.
(d) Mechanics of Conversion. Before any holder of Series D2 Preferred Stock
in certificated form shall be entitled to convert the same into shares of Common
Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or of any transfer agent for the
Series D2 Preferred Stock, and shall give written notice to the Corporation at
its principal corporate office, of the election to convert the same and shall
state therein the name or names in which the certificate or certificates for
shares of Common Stock are to be issued. Before any holder of Series D2
Preferred Stock in book-entry form shall be entitled
Ex. A-5
to convert the same into shares of Common Stock, he shall comply with the
procedures of the depositary for the shares of Series D2 Preferred Stock held by
such Holder. The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Series D2 Preferred Stock, or to the
nominee or nominees of such holder, a certificate or certificates for the full
number of shares of Common Stock to which such holder shall be entitled as
aforesaid. In case any Series D2 Preferred Stock share certificate shall be
surrendered for partial conversion, the Corporation shall execute and deliver to
the Holder of the Series D2 Preferred Stock so surrendered, without charge to
such Holder, a new share certificate in an aggregate Adjusted Stated Value equal
to the unconverted portion of the surrendered certificate. Such conversion shall
be deemed to have been made immediately prior to the close of business on the
date on which the requirements set forth in this Section 6(d) have been
satisfied, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date. If the
conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act, the conversion may, at the option of
any holder tendering such Series D2 Preferred Stock for conversion, be
conditioned upon the closing with the underwriters of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive
Common Stock upon conversion of such Series D2 Preferred Stock shall not be
deemed to have converted such Series D2 Preferred Stock until immediately prior
to the closing of such sale of securities.
(e) Conversion Price Adjustments of Series D2 Preferred Stock for Certain
Dilutive Issuances, Splits and Combinations. The Conversion Price of the Series
D2 Preferred Stock shall be subject to adjustment from time to time as follows:
(i) (A) If at any time the Corporation should issue (or be deemed to
issue) any Additional Stock without consideration or for a consideration per
share less than the Conversion Price in effect immediately prior to the issuance
of such Additional Stock, the Conversion Price in effect immediately prior to
each such issuance shall be adjusted pursuant to this Section 6(e)(i), as
follows: the new Conversion Price shall be the result of (A) (i) the total
number of shares of Common Stock outstanding immediately prior to the issuance
of such Additional Stock (on a fully-diluted basis assuming exercise, conversion
or exchange of all outstanding exercisable, convertible or exchangeable
securities of the Corporation) ("Outstanding Common") multiplied by the
applicable Conversion Price in effect prior to the issuance of such Additional
Stock, plus (ii) the net aggregate amount of the consideration received by the
Corporation for such Additional Stock, divided by (B) the number of shares of
Outstanding Common plus the number of shares of such Additional Stock so issued.
(B) No adjustment of the Conversion Price for the Series D2 Preferred Stock
shall be made in an amount less than one cent per share, provided that any
adjustments which are not required to be made by reason of this sentence shall
be carried forward and shall be either taken into account in any subsequent
adjustment made prior to three (3) years from the date of the event giving rise
to the adjustment being carried forward, or shall be made at the end of three
(3) years from the date of the event giving rise to the adjustment being carried
forward. Except to the limited extent provided for in Sections 6(e)(i)(E)(3) and
6(e)(i)(E)(4), no adjustment of such Conversion Price pursuant to this Section
6(e)(i) shall have the effect of increasing the Conversion Price above the
Conversion Price in effect immediately prior to such adjustment.
Ex. A-6
(C) In the case of the issuance of Common Stock for cash, the consideration
shall be deemed to be the amount of cash paid or payable therefor before
deducting any reasonable discounts, commissions or other expenses allowed, paid
or incurred by the Corporation for any underwriting or otherwise in connection
with the issuance and sale thereof.
(D) In the case of the issuance of the Common Stock for a consideration in
whole or in part other than cash, the consideration other than cash shall be
deemed to be the fair value thereof as determined in good faith by the Board of
Directors irrespective of any accounting treatment.
(E) In the case of the issuance (whether before, on or after the applicable
Issue Date) of options to purchase or rights to subscribe for Common Stock,
securities by their terms convertible into or exchangeable for Common Stock or
options to purchase or rights to subscribe for such convertible or exchangeable
securities, the following provisions shall apply for all purposes of this
Section 6(e)(i) and Section 6(e)(ii):
1. The aggregate maximum number of shares of Common Stock deliverable
upon exercise (assuming the satisfaction of any conditions to
exercisability, including without limitation, the passage of time, but
without taking into account potential antidilution adjustments) of such
options to purchase or rights to subscribe for Common Stock shall be deemed
to have been issued at the time such options or rights were issued and for
a consideration equal to the consideration (determined in the manner
provided in Sections 6(e)(i)(C) and 6(e)(i)(D)), if any, received or
receivable by the Corporation upon the issuance of such options or rights
plus the minimum exercise price provided in such options or rights (without
taking into account potential antidilution adjustments) for the Common
Stock covered thereby. In case any such options to purchase or rights to
subscribe for Common Stock shall be issued in connection with the issue or
sale of other securities of the Corporation, together comprising one
integral transaction in which no specific consideration is allocated to
such options or rights by the parties thereto, such options and/or rights
shall be deemed to have been issued without consideration (except to the
extent consideration is payable to the Corporation upon the exercise of
such options or rights).
2. The aggregate maximum number of shares of Common Stock deliverable
upon conversion of or in exchange (assuming the satisfaction of any
conditions to convertibility or exchangeability, including, without
limitation, the passage of time, but without taking into account potential
antidilution adjustments) for any such convertible or exchangeable
securities or upon the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the
time such securities were issued or such options or rights were issued and
for a consideration equal to the consideration, if any, received or
receivable by the Corporation for any such securities and related options
or rights (excluding any cash received on account of accrued interest or
accrued dividends), plus the minimum additional consideration, if any, to
be received by the Corporation (without taking into account potential
antidilution
Ex. A-7
adjustments) upon the conversion or exchange of such securities or the
exercise of any related options or rights (the consideration in each case
to be determined in the manner provided in Sections 6(e)(i)(C) and
6(e)(i)(D)). In case any such convertible or exchangeable securities shall
be issued in connection with the issue or sale of other securities of the
Corporation, together comprising one integral transaction in which no
specific consideration is allocated to such convertible or exchangeable
securities by the parties thereto, such convertible and/or exchangeable
securities shall be deemed to have been issued without consideration
(except to the extent consideration is payable to the Corporation upon
conversion or exchange of such securities or upon the exercise of any
related options or rights).
3. In the event of any change in the number of shares of Common Stock
deliverable or in the consideration payable to the Corporation upon
exercise of such options or rights or upon conversion of or in exchange for
such convertible or exchangeable securities, including, but not limited to,
a change resulting from the antidilution provisions thereof, the Conversion
Price of the Series D2 Preferred Stock, to the extent in any way affected
by or computed using such options, rights or securities, shall be
recomputed to reflect such change, but no further adjustment shall be made
for the actual issuance of Common Stock or any payment of such
consideration upon the exercise of any such options or rights or the
conversion or exchange of such securities.
4. Upon the expiration of any such options or rights, the termination
of any such rights to convert or exchange or the expiration of any options
or rights related to such convertible or exchangeable securities, the
Conversion Price of the Series D2 Preferred Stock, to the extent in any way
affected by or computed using such options, rights or securities or options
or rights related to such securities, shall be recomputed to reflect the
issuance of only the number of shares of Common Stock (and convertible or
exchangeable securities which remain in effect) actually issued upon the
exercise of such options or rights, upon the conversion or exchange of such
securities or upon the exercise of the options or rights related to such
securities.
5. The number of shares of Common Stock deemed issued and the
consideration deemed paid therefor pursuant to Sections 6(e)(i)(E)(1) and
6(e)(i)(E)(2) shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either Section
6(e)(i)(E)(3) or 6(e)(i)(E)(4).
Anything in this Section 6(e)(i) to the contrary notwithstanding, no
adjustment to the Conversion Price shall be made pursuant to this Section
6(e)(i) unless the Shareholder Vote has been obtained. If the Shareholder Vote
is obtained, then the Conversion Price for a share of Series D1 Preferred Stock
will be automatically adjusted as of the date the Shareholder Vote is obtained
to take into account all issuances (or deemed issuances) of Additional Stock, if
any, that were made prior to the date the Shareholder Vote was obtained and
which would have a resulted in an adjustment to the Conversion Price of such
share of Series D1 Preferred Stock under this
Ex. A-8
Section 6(e)(i) if the Shareholder Vote had been obtained as of the date of such
issuance (or deemed issuance).
(ii) "Additional Stock" shall mean any shares of Common Stock issued
(or deemed to have been issued pursuant to Section 6(e)(i)(E)) by the
Corporation after the Issue Date) other than:
(A) Common Stock issued pursuant to a transaction described in Section
6(e)(iii) hereof;
(B) Shares of Common Stock issued or issuable to employees, consultants or
directors of the Corporation directly or pursuant to a stock option plan or
restricted stock plan approved by the Board of Directors;
(C) Shares of Common Stock issued or issuable upon conversion of the Series
D1 Preferred Stock, the Series D2 Preferred Stock; and
(D) Shares of Series E Preferred Stock or shares of Common Stock, issued in
satisfaction of the 2007 Section 858 Dividend and shares of Common Stock issued
upon conversion of such shares of Series E Preferred Stock.
(iii) In the event the Corporation should at any time or from time to
time after the date Articles Supplementary for the Series D2 Preferred Stock are
first filed with the State Department of Assessments and Taxation of Maryland,
fix a record date for the effectuation of a split or subdivision of the
outstanding shares of Common Stock or the determination of holders of Common
Stock entitled to receive a dividend or other distribution payable in additional
shares of Common Stock or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly, additional
shares of Common Stock (hereinafter referred to as "Common Stock Equivalents")
without payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional shares of
Common Stock Issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend distribution, split or subdivision if
no record date is fixed), the Conversion Price of the Series D2 Preferred Stock
shall be appropriately decreased so that the number of shares of Common Stock
issuable on conversion of each share of Series D2 Preferred Stock shall be
increased in proportion to such increase of the aggregate of shares of Common
Stock outstanding and those issuable with respect to such Common Stock
Equivalents with the number of shares issuable with respect to Common Stock
Equivalents determined from time to time in the manner provided for deemed
issuances in Section 6(e)(i)(E); provided that this Section 6(e)(iii) shall not
be applicable to any dividend or other distribution that is actually paid to the
Holders of Series D2 Preferred Stock pursuant to Section 3(b).
(iv) If the number of shares of Common Stock outstanding at any time
after the Issue Date is decreased by a combination of the outstanding shares of
Common Stock, then, following the date of such combination, the Conversion Price
for the Series D2 Preferred Stock shall be appropriately increased so that the
number of shares of Common Stock issuable
Ex. A-9
on conversion of each share of such series shall be decreased in proportion to
such decrease in outstanding shares.
(f) Recapitalizations. If at any time or from time to time there shall be a
recapitalization of the Common Stock (other than a subdivision, combination or
merger or sale of assets transaction provided for elsewhere in these Articles
Supplementary) provision shall be made so that the holders of the Series D2
Preferred Stock shall thereafter be entitled to receive upon conversion of such
Series D2 Preferred Stock the number of shares of stock or other securities or
property of the Corporation or otherwise, to which a holder of Common Stock
deliverable upon conversion would have been entitled on such recapitalization.
In any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 6 with respect to the rights of the holders of such
Series D2 Preferred Stock after the recapitalization to the end that the
provisions of this Section 6 (including adjustment of the Conversion Price then
in effect and the number of shares issuable upon conversion of such Series D2
Preferred Stock) shall be applicable after that event and be as nearly
equivalent as practicable.
(g) No Impairment. The Corporation will not, by amendment of its Charter or
through any reorganization, recapitalization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation, but will at all times in
good faith assist in the carrying out of all the provisions of this Section 6
and in the taking of all such action as may be necessary or appropriate in order
to protect the Conversion Rights of the holders of Series D2 Preferred Stock
against impairment. The Corporation shall, as a condition precedent to any such
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or other voluntary action, cause any
successor to the Corporation or acquiring person or entity, as the case may be,
to issue convertible preferred stock to each Holder of Series D2 Preferred Stock
with preferences, conversion and other rights, powers, restrictions,
limitations, qualifications and terms and conditions as nearly equivalent as may
be practicable to those contained in these Articles Supplementary, including the
right to convert such preferred stock into the kind and amount of shares and
other securities and property which the Holder would have owned or have been
entitled to receive after the happening of any such reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action had such Holder converted
its Series D2 Preferred Stock into Common Stock immediately prior to such
action. Without limitation of the foregoing, such preferred stock shall provide
for adjustments in respect of such shares of stock and other securities and
property, which shall be as nearly equivalent as may be practicable to the
adjustments provided for in Section 6(e). The provisions of this Section 6(g)
will similarly apply to successive reorganizations, recapitalizations, transfers
of assets, consolidations, mergers, dissolutions, issuances or sales of
securities or other voluntary actions.
(h) No Fractional Shares and Notice as to Adjustments.
(i) No fractional shares shall be issued upon the conversion of any
share or shares of the Series D2 Preferred Stock, and the number of shares of
Common Stock to be issued shall be rounded upward to the nearest whole share.
Whether or not fractional shares are issuable upon such conversion shall be
determined on the basis of the total number of shares
Ex. A-10
of Series D2 Preferred Stock the Holder is at the time converting into Common
Stock and the number of shares of Common Stock issuable upon such aggregate
conversion.
(ii) Upon the occurrence of each adjustment or readjustment of the
Conversion Price of Series D2 Preferred Stock pursuant to this Section 6, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and make a public announcement
thereof setting forth such adjustment or readjustment and showing in detail the
facts upon which such adjustment or readjustment is based.
(iii) All adjustments to the Conversion Price shall be calculated to
the nearest one one-thousandth (1/1000) of a cent.
(i) Notices of Record Date. In the event of any taking by the Corporation
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend) or other distribution, any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, the Corporation shall
make a public announcement at least twenty (20) days prior to the date specified
therein specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and character of
such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. From and after the date
that the Corporation consummates a four to one reverse stock split, the
Corporation shall at all times keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series D2 Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of such series of Series D2 Preferred Stock; and if at any
time the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of Series D2
Preferred Stock, in addition to such other remedies as shall be available to the
holder of Series D2 Preferred Stock, the Corporation will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purposes, including, without limitation, engaging in best
efforts to (i) obtain the requisite stockholder approval of any necessary
amendment to the Charter of the Corporation or (ii) consummate a reverse stock
split.
Section 7. Transfer Restrictions.
(a) Certain Definitions. As used in this Section 7:
"5-Percent Stockholder" means a "5-percent shareholder" of the Corporation
as defined in Treasury Regulation Section 1.382-2T(g).
"Completion" occurs, and a Transfer is "Completed," when all steps have
been taken to effect the Transfer of beneficial ownership.
"Entity" means an entity within the meaning of Treasury Regulation Section
1.382-3(a)(l).
Ex. A-11
"IRC" means the Internal Revenue Code of 1986, as amended from time to
time.
"Notice Date" means a testing date (as described in Treasury Regulation
Section 1.382-2(a)(4)) on which the aggregate Percentage Stock Increases are
equal to or greater than the Threshold Percentage less ten percentage points.
"Percentage Stock Increase" means on any testing date (as defined in
Treasury Regulation Section 1.382-2(a)(4)) the increase in the Percentage Stock
Ownership of Stock of the Corporation by a 5-Percent Stockholder over the lowest
Percentage Stock Ownership of Stock of the Corporation by such 5-Percent
Stockholder at any time during the testing period (as defined in Section 382(i)
of the Code). For this purpose, Treasury Regulation Section 1.382-2T(g)(5)(i)(A)
shall apply in determining the Percentage Stock Increase of any 5-Percent
Stockholder.
"Percentage Stock Ownership" means percentage stock ownership of Stock of
the Corporation determined in accordance with the Treasury Regulations under
Section 382 of the IRC.
"Prohibited Transfer" means a purported Substantial Stockholder Transfer,
but only to the extent that such Transfer is null and void ab initio under
Section 7(b) or Section 7(c).
"Restriction Notice" means a written notice provided by the Corporation to
a potential Transferee, prior to 5:00 p.m. (New York time) on the fifth Business
Day following the day of receipt by the Corporation of a Transfer Notice, which
written notice states that the Corporation believes that a Restriction Period
either has or has not commenced and, if it has, that the Termination Date either
has or has not occurred.
"Restriction Period" means a period:
(1) beginning on a testing date (as described in Treasury Regulation
Section 1.382-2(a)(4)) on which the aggregate Percentage Stock Increases of all
5-Percent Stockholders on such testing date (taking into account all pending
Transfers) equals or exceeds the Threshold Percentage; and
(2) ending on the earliest date on which the Board of Directors
determines that (a) an ownership change (within the meaning of section 382 of
the IRC) would not result in a substantial limitation on the ability of the
Corporation (or a direct or indirect subsidiary of the Corporation) to use
otherwise available Tax Benefits, or (b) no significant value attributable to
Tax Benefits would be preserved by continuing the Transfer restrictions herein
(the earliest of the dates described in this clause (2) being hereafter referred
to as the "Termination Date").
"Stock" means stock as that term is used in Section 382(k)(6)(A) of the
IRC.
"Substantial Stockholder" means an individual or Entity that acquires or,
if the Transfer Restrictions or the Notice Restrictions are then applicable,
that purports to acquire direct beneficial ownership of Series D2 Preferred
Stock in a Substantial Stockholder Transfer.
Ex. A-12
"Substantial Stockholder Transfer" means a Transfer that results in a
Percentage Stock Increase or, if the Transfer Restrictions or the Notice
Restrictions are then applicable, that would result in a Percentage Stock
Increase if it occurred and were not void ab initio.
"Tax Benefits" means net operating loss carryovers (as defined in Section
172(b)(2) of the IRC) and net unrealized built-in loss (as defined in Section
382(h)(1)(B) of the IRC).
"Threshold Percentage" means 40%.
"Transfer" means any direct or indirect sale, transfer,
exchange, issuance, grant, redemption, repurchase assignment, conveyance or
other disposition for consideration, whether voluntary or involuntary, and
whether by operation of law or otherwise, but not including an issuance, grant,
redemption or repurchase of Series D2 Preferred Stock.
"Transferee" means any individual or Entity to whom direct beneficial
ownership of Stock is Transferred and who is, or would become as a result of
such Transfer, a Substantial Stockholder.
"Transfer Notice" means a written notice provided by a Substantial
Stockholder to the Corporation, at least seven and not more than twelve Business
Days prior to Completion of a Substantial Stockholder Transfer, which notice
states (i) the name, address, facsimile number and e-mail address, and
Percentage Stock Ownership of the Substantial Stockholder prior to the
Substantial Stockholder Transfer, (ii) if known to the Substantial Stockholder,
the name and address of the transferor, (iii) the number of shares subject to
the Substantial Stockholder Transfer, and (iv) the proposed date of Completion
of the Substantial Stockholder Transfer. For purposes of this definition, if a
Substantial Stockholder does not exist with respect to a Substantial Stockholder
Transfer, then the Transfer Notice shall be provided by the individual or Entity
that purports to engage in the Transfer that will cause the Substantial
Stockholder Transfer.
"Treasury Regulation" means a Treasury Regulation promulgated under the
IRC.
(b) Transfer Restrictions. Unless specifically waived by the Board of
Directors, a Substantial Stockholder Transfer that is Completed during a
Restriction Period shall be null and void ab initio and shall not be effective
to Transfer Series D2 Preferred Stock, but only to the extent necessary to
prevent the Transfer from being a Substantial Stockholder Transfer (the
"Transfer Restrictions"). With respect to a transaction entered into through the
facilities of any national securities exchange or any national securities
quotation system, the sole remedy pursuant to this Section 7(b) shall be the
recovery of the Prohibited Transfer as described in Section 7(d). The term
"beneficial" used in this paragraph shall mean beneficial ownership for U.S.
federal income tax purposes.
(c) Notice and Permitted Transfers. No Transfer Notice is required for
Transfers that occur prior to issuance by the Corporation of a Notice Date Press
Release (defined below). A Substantial Stockholder Transfer that is Completed
shall be null and void ab initio unless a Transfer Notice is provided to the
Corporation (the "Notice Restriction"). If the Corporation receives a Transfer
Notice on a day that is not in a Restriction Period (taking into
Ex. A-13
account all prior Transfers (i) for which a previous Transfer Notice was
received by the Corporation, (ii) for which a Schedule 13D or Schedule 13G was
theretofore filed, or (iii) of which the Corporation was otherwise previously
aware) and the Transfer Notice references a Substantial Stockholder Transfer
that, upon Completion, would cause a Restriction Period to commence, such
Transfer shall be treated as a Prohibited Transfer to the extent necessary for a
Restriction Period not to commence. If the Corporation receives more than one
such Transfer Notice on the same day, the Transfers referenced in such Transfer
Notices shall be treated as Prohibited Transfers to the extent necessary for a
Restriction Period not to commence, and the amount of the Stock referenced in
each Transfer Notice that is treated as Prohibited Stock shall be in proportion
to the amounts of Stock referenced in each such Transfer Notice. The Corporation
shall provide a Restriction Notice to each Substantial Stockholder that files a
Transfer Notice. The determination of whether a Transfer referenced in a
Transfer Notice is a Prohibited Transfer is made on the date the Transfer Notice
is received by the Corporation. From and after receipt of a Transfer Notice
until Completion of the Transfer described in such Transfer Notice (and
thereafter to the extent such Transfer is Completed and is not a Prohibited
Transfer), the determination of whether a Restriction Period has commenced with
respect to any other Transfer (i) for which a Transfer Notice was not
theretofore received by the Corporation, (ii) for which a Schedule 13D or
Schedule 13G was not theretofore filed, or (iii) of which the Corporation was
not otherwise previously aware, shall be made by taking into account the
Percentage Stock Increase referenced in such Transfer Notice (or if Completion
has occurred, the Percentage Stock Increase that resulted from that part of the
Transfer referenced in such Transfer Notice that was not a Prohibited Transfer).
(d) Recovery of Prohibited Transfers. The Corporation may institute legal
proceedings to force rescission of a Prohibited Transfer. Notwithstanding the
preceding sentence, the sole remedy with respect to a Prohibited Transfer
entered into through the facilities of any national securities exchange or any
national securities quotation system shall be as provided below. Upon written
demand by the Corporation, the purported Transferee or member of a Prohibited
Party Group (as defined below) with respect to a Prohibited Transfer shall
deliver or cause to be delivered to an agent designated by the Board of
Directors (the "Securities Transfer Agent"), all certificates and other
evidences of ownership of the Stock that is the subject of the Prohibited
Transfer (the "Prohibited Stock"), together with any dividends or other
distributions that were received from the Corporation with respect to such
Prohibited Stock ("Prohibited Distributions"). The Securities Transfer Agent
promptly shall sell the Prohibited Securities to one or more buyers. Disposition
of Prohibited Stock by the Securities Transfer Agent shall be deemed to occur
simultaneously with the Prohibited Transfer to which the Prohibited Stock
relates. The Securities Transfer Agent shall not act or be treated as acting as
an agent for or on behalf of the purported Transferee or Prohibited Party Group
or for or on behalf of the Corporation and shall have no right to bind any of
them, in contract or otherwise, but shall act only to carry out the ministerial
functions assigned to it in these Transfer Restrictions. If a purported
Transferee or member of a Prohibited Party Group has resold Prohibited Stock
before receiving the Corporation's demand to surrender the Prohibited Stock to
the Securities Transfer Agent, the purported Transferee or member of a
Prohibited Party Group shall be deemed to have sold the Prohibited Stock on
behalf of the Securities Transfer Agent and shall be required to Transfer to the
Securities Transfer Agent any Prohibited Distributions and the proceeds of such
sale of Prohibited Stock. If a purported Transferee or member of a Prohibited
Party Group fails to surrender Prohibited Stock or proceeds of a sale of
Prohibited Stock to the Securities Transfer
Ex. A-14
Agent, together with any Prohibited Distributions, within three Business Days
from the date the Corporation makes a demand for surrender of such Prohibited
Stock, the Corporation may institute legal proceedings to compel such surrender.
If a Prohibited Transfer occurs, but does not result from a Transfer of direct
beneficial ownership of Stock, each individual or Entity whose ownership of
Stock is attributed to the 5-Percent Stockholder that had a Percentage Stock
Increase (collectively, the "Prohibited Party Group") shall be required to
deliver, and shall be deemed to have delivered to the Securities Transfer Agent,
prior to the Transfer, a sufficient number of shares of Stock (which Stock shall
be so delivered in the inverse order in which it was acquired by members of the
Prohibited Party Group) to cause the Transfer, following such delivery, not to
be a Prohibited Transfer.
(e) Treatment of Prohibited Transfers and Prohibited Stock. No employee or
agent of the Corporation shall record any Prohibited Transfer and the purported
Transferee shall not be recognized as a stockholder of Prohibited Stock for any
purpose whatsoever and shall not be entitled, with respect to such Prohibited
Stock, to any rights of a stockholder of the Corporation, including, without
limitation, the right to vote such Prohibited Stock or to receive dividend
distributions, whether liquidating or otherwise, in respect thereof. Once
Prohibited Stock has been acquired in a Transfer that is not a Prohibited
Transfer, the Prohibited Stock shall cease to be Prohibited Stock.
(f) Proceeds of Prohibited Transfers. The Securities Transfer Agent shall
apply any proceeds of a sale by it of Prohibited Stock (or, if the purported
Transferee resold the Prohibited Stock before the Securities Transfer Agent
could recover the Prohibited Stock from the Purported Transferee, the proceeds
from such resale of Prohibited Stock by the Purported Transferee), as follows:
(a) first, to reimburse itself for its costs and expenses in connection with its
duties as Securities Transfer Agent hereunder; (b) second, from such proceeds as
well as other funds available in the Prohibited Transfers Fund, to reimburse the
purported Transferee for the amounts paid by the purported Transferee for the
Prohibited Stock, and (c) third, to pay any remaining balance of such proceeds
into a fund (the "Prohibited Transfers Fund") that will hold all excess proceeds
from sales of Prohibited Stock. The Securities Transfer Agent shall be the
disbursing agent of the Prohibited Transfers Fund, and such fund shall be used
to reimburse purported Transferees for the amounts paid by the purported
Transferees for Prohibited Stock. At the end of a Restriction Period, any
remaining amounts in the Prohibited Transfers Fund shall be paid to the U.S.
Treasury Department.
(g) Amendment of Transfer Restrictions. An affirmative vote of two-thirds
of the holders of Series D2 Preferred Stock shall be required to amend this
Section 7 if such amendment would impose additional restrictions, burdens or
requirements on any Transfer of Series D2 Preferred Stock.
(h) Legend on Certificates. All certificates reflecting Series D2 Preferred
Stock, until the end of a Restriction Period, bear a conspicuous legend in
substantially the following form:
THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT
TO RESTRICTION PURSUANT TO SECTION 7 OF THE ARTICLES SUPPLEMENTARY FOR THE 9.00%
SERIES D2 MANDATORY
Ex. A-15
CONVERTIBLE PREFERRED STOCK OF THE CORPORATION, AS AMENDED AND IN EFFECT FROM
TIME TO TIME, A COPY OF WHICH MAY BE OBTAINED FROM THE CORPORATION UPON REQUEST.
(i) Press Releases. Within five (5) Business Days after the Corporation
determines that a Notice Date has occurred, the Corporation shall issue a press
release stating that fact and stating that the Transfer Notice requirements of
this Section 7 have therefore become operative (the "Notice Date Press
Release"). Within five (5) Business Days after the Corporation determines that a
Restriction Period has commenced, the Corporation shall issue a press release
stating such fact.
(j) Administration of Transfer Restrictions. The Board of Directors shall
have the power to determine, in its sole discretion, all matters related to this
Section 7, including matters necessary or desirable to administer, to waive or
to determine compliance with this Section 7.
Section 8. Definitions. (a) "2007 Section 858 Dividend" means the dividend
issued by the Corporation in calendar year 2007 in order to satisfy the
Corporation's obligation to distribute the Corporation's calendar year 2006 real
estate investment trust taxable income in order to maintain its status as a real
estate investment trust.
(b) "Additional Stock" has the meaning set forth in Section 6(e)(ii).
(c) "Adjusted Stated Value" means the Initial Stated Value per share of
Series D2 Preferred Stock, as adjusted from time to time for (i) the addition of
dividends to the Adjusted Stated Value of the Series D2 Preferred Stock pursuant
to Section 3(a) and (ii) any Extraordinary Stock Event.
(d) "Board of Directors" has the meaning set forth in Section 2.
(e) "Business Day" means any day other than a Saturday or Sunday or any
other day on which banks in the City of New York are authorized or required by
law or executive order to close.
(f) "Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents however designated of corporate stock,
capital stock or other equity participations, including partnership interests
(whether general or limited), membership interests or other equivalents (however
designated), of such Person and any rights, warrants, options or other
securities to acquire an equity interest in such Person.
(g) "Charter" means the Charter of the Corporation, as amended, restated or
supplemented from time to time.
(h) "Closing Sale Price" on any date means the closing sale price per share
(or, if no closing sale price is reported, the average of the bid and ask prices
or, if more than one in either case, the average of the average bid and the
average ask prices) on that date as reported in the composite transactions for
the principal U.S. national securities exchange on which the Common Stock is
traded or, if the Common Stock is not listed on a U.S. national securities
Ex. A-16
exchange, as reported by the NASDAQ Stock Market. If the Common Stock is not
listed for trading on a U.S. national securities exchange and not reported by
the NASDAQ Stock Market on the relevant date, the Closing Sale Price shall be
the last quoted bid price for the Common Stock in the over-the-counter market on
the relevant date as reported by the OTC Bulletin Board.
(i) "Common Stock" has the meaning set forth in Section 2.
(j) "Common Stock Equivalents" has the meaning set forth in Section
6(e)(iii).
(k) "Conversion Price" means $28 per share of Series D2 Preferred Stock,
subject to adjustment from time to time pursuant to Section 6(e).
(l) "Conversion Price Adjustment Provisions" means the provisions of
Section 6(e)(i) hereof and Section 6(e)(i) of the Articles Supplementary setting
forth the terms of the Series D1 Preferred Stock.
(m) "Conversion Rights" has the meaning set forth in Section 6.
(n) "Corporation" means Novastar Financial, Inc., a Maryland corporation.
(o) "Dividend Payment Date" has the meaning set forth in Section 3(a).
(p) "Extraordinary Stock Event" means any stock split or combination of
shares of Series D2 Preferred Stock.
(q) "Forced Conversion Announcement" has the meaning set forth in Section
6(b).
(r) "Holder" means the Person in whose name a share of Series D2 Preferred
Stock is registered.
(s) "Initial Stated Value" means $25.00 per share of Series D2 Preferred
Stock.
(t) "Issue Date" means the first date on which shares of Series D2
Preferred Stock are first issued.
(u) "Investors" means MassMutual Capital Partners LLC, Jefferies Capital
Partners IV LP, Jefferies Employee Partners IV LLC, and JCP Partners IV LLC.
(v) "Junior Shares" has the meaning set forth in Section 2.
(w) "Liquidation Event" has the meaning set forth in Section 4(a).
(x) "Liquidation Preference" has the meaning set forth in Section 4(a).
(y) "MGCL" means the Maryland General Corporation Law.
Ex. A-17
(z) "Outstanding Common" has the meaning set forth in Section 6(e).
(aa) "Parity Shares" has the meaning set forth in Section 2.
(bb) "Person" means any individual, corporation, limited liability company,
partnership, joint venture, trust, unincorporated organization or government or
any agency or political subdivision thereof.
(cc) "Publicly Traded" means, with respect to the Common Stock, that the
Common Stock is (i) listed on a U.S. national securities exchange, (ii) quoted
on NASDAQ or (iii) traded in the domestic over-the-counter market, which trades
are reported by the OTC Bulletin Board.
(dd) "Regulatory Approvals" means the approvals of and notices to
governmental authorities set forth on Exhibit A for the ownership of Capital
Stock of the Corporation in connection with (i) the issuance of the Series D1
Preferred Stock pursuant to the Securities Purchase Agreement, (ii) the issuance
of the Series D2 Preferred Stock pursuant to the Rights Offering and (iii) the
issuance of Series D2 Preferred Stock pursuant to the Standby Purchase
Agreement.
(ee) "Rights Offering" means a rights offering in connection with which
holders of record of Common Stock and holders of record of Series D2 Preferred
Stock will be entitled to receive a distribution from the Corporation of
non-transferable rights to subscribe for and purchase from the Corporation
shares of Series D1 Preferred Stock and certain holders of Series D2 Preferred
Stock will have the obligation to purchase shares of Series D1 Preferred Stock
that are not purchased pursuant to such rights, all as further described in (i)
Section 2.5 of the Securities Purchase Agreement and (ii) Section 2 and Exhibit
A of the Standby Purchase Agreement.
(ff) "Securities Act" means the Securities Act of 1933, as amended.
(gg) "Securities Purchase Agreement" means the Securities Purchase
Agreement dated as of July 16, 2007, by and among the Corporation and the
Investors, as amended, supplemented or otherwise modified from time to time.
(hh) "Series C Preferred Stock" has the meaning set forth in Section 2.
(ii) "Series D1 Preferred Stock" has the meaning set forth in Section 2.
(jj) "Series D2 Preferred Stock" has the meaning set forth in Section 1.
(kk) "Series E Preferred Stock" has the meaning set forth in Section 2.
(ll) "Senior Shares" has the meaning set forth in Section 2.
(mm) "Shareholder Vote" means the vote or written consent of the requisite
shareholders of the Corporation in accordance with the MGCL, the Charter and
Bylaws of the
Ex. A-18
Corporation and the rules and regulations of the New York Stock Exchange
approving both Conversion Price Adjustment Provisions.
(nn) "Standby Purchase Agreement" means the Standby Purchase Agreement
dated as of July 16, 2007, by and among the Corporation and the Investors, as
amended, supplemented or otherwise modified from time to time.
(oo) "Subsidiary" means, with respect to any Person as of any time of
determination, (i) any corporation, association or other business entity of
which more than 50% of the total voting power of shares of Capital Stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person (or a combination thereof) and (ii) any partnership
or limited liability company (A) a majority of the general partners or the
managing general partner (in the case of any partnership), or a majority of the
managers or the sole managing member or manager (in the case of a limited
liability company), of which is at such time such Person or a Subsidiary of such
Person or (B) the only general partners (in the case of any partnership), or the
only managing members or managers (in the case of a limited liability company),
of which are at such time such Person or of one or more Subsidiaries of such
Person (or any combination thereof).
(pp) "Trading Day" means a day during which (i) trading in Common Stock
generally occurs and (ii) a Closing Sale Price for the Common Stock is provided
on The New York Stock Exchange or, if the Common Stock is not listed on The New
York Stock Exchange, on the principal other U.S. national securities exchange on
which the Common Stock is then listed or, if the Common Stock is not listed on a
U.S. national securities exchange, on NASDAQ, or if the Common Stock is not
quoted on NASDAQ, on the OTC Bulletin Board.
(qq) "Voting Activation Event" has the meaning set forth in Section 5(c).
Section 9. Miscellaneous.
(a) The Corporation covenants that any shares of Common Stock issued upon
conversion of the Series D2 Preferred Stock or issued in respect of a share
dividend payment shall be validly issued, fully paid and non-assessable, and
issued in compliance with all federal and state laws.
(b) The Corporation shall pay any and all documentary stamp or similar
issue or transfer taxes payable in respect of the issue or delivery of Series D2
Preferred Stock or shares of Common Stock or other securities or property issued
or distributed in respect of shares of the Series D2 Preferred Stock pursuant
hereto.
(c) The shares of Series D2 Preferred Stock are perpetual and not
redeemable, other than as set forth in Articles Supplementary containing the
terms of the Series D2 Preferred Stock.
(d) Whenever possible, each provision hereof shall be interpreted in a
manner as to be effective and valid under applicable law, but if any provision
hereof is held to be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the
Ex. A-19
extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such change as
shall be necessary to render the provision in question effective and valid under
applicable law.
(e) The headings of the various sections and subdivisions hereof are for
convenience of reference only and shall not affect the interpretation of any of
the provisions hereof.
(f) If any of the voting powers, preferences and relative, participating,
optional and other special rights of the Series D2 Preferred Stock and
qualifications, limitations and restrictions thereof set forth herein is
invalid, unlawful or incapable of being enforced by reason of any rule of law or
public policy, all other voting powers, preferences and relative, participating,
optional and other special rights of Series D2 Preferred Stock and
qualifications, limitations and restrictions thereof set forth herein which can
be given effect without the invalid, unlawful or unenforceable voting powers,
preferences and relative, participating, optional and other special rights of
Series D2 Preferred Stock and qualifications, limitations and restrictions
thereof shall, nevertheless, remain in full force and effect, and no voting
powers, preferences and relative, participating, optional or other special
rights of Series D2 Preferred Stock and qualifications, limitations and
restrictions thereof herein set forth shall be deemed dependent upon any other
such voting powers, preferences and relative, participating, optional or other
special rights of Series D2 Preferred Stock and qualifications, limitations and
restrictions thereof unless so expressed herein.
(g) Shares of Series D2 Preferred Stock that have been issued and
reacquired by the Corporation in any manner, including Series D2 Preferred Stock
purchased or converted, shall be returned to the status of authorized but
unissued shares of Common Stock.
(h) If any certificate for Series D2 Preferred Stock shall be mutilated,
lost, stolen or destroyed, the Corporation shall issue, in exchange and in
substitution for and upon cancellation of the mutilated certificate for Series
D2 Preferred Stock, or in lieu of and substitution for the certificate for
Series D2 Preferred Stock lost, stolen or destroyed, a new certificate for
Series D2 Preferred Stock of like tenor and representing an equivalent amount of
Series D2 Preferred Stock, but only upon receipt of evidence of such loss, theft
or destruction of such certificate for Series D2 Preferred Stock and indemnity,
if requested, satisfactory to the Corporation.
(i) The shares of Series D2 Preferred Stock are subject to the provisions
of Article XI of the Charter.
(j) No Holder of shares of Series D2 Preferred Stock shall be entitled to
exercise the rights of an objecting stockholder under Title 3, Subtitle 2 of the
MGCL or any successor provision.
Ex. A-20
(k) Except for any amendment described in Section 5(b), the terms and
conditions set forth in these Articles Supplementary may be amended, modified or
waived upon the approval of holders of Capital Stock of the Corporation required
by the MGCL.
THIRD: The shares of Series D2 Preferred Stock have been classified and
designated by the Board of Directors under the authority contained in the
Charter.
FOURTH: These Articles Supplementary have been approved by the Board of
Directors in the manner and by the vote required by law.
FIFTH: The undersigned Chairman and Chief Executive Officer acknowledges
these Articles Supplementary to be the corporate act of the Corporation and, as
to all matters or facts required to be verified under oath, the undersigned
Chairman and Chief Executive Officer acknowledges that, to the best of his
knowledge, information and belief, these matters and facts are true in all
material respects and that this statement is made under the penalties for
perjury.
* * *
Ex. A-21
IN WITNESS WHEREOF, the Corporation has caused these Articles Supplementary
to be signed in its name and on its behalf by its Chairman and Chief Executive
Officer and attested by its Secretary on this 16th day of July, 2007.
ATTEST: NOVASTAR FINANCIAL, INC.
______________________________ By:_______________________________(SEAL)
Xxxxxxx X. Xxxxx Xxxxx X. Xxxxxxx
Secretary Chairman and Chief Executive Officer
Ex. A-22
EXHIBIT A
REGULATORY APPROVALS
NovaStar Mortgage, Inc.
Pre-Closing/Prior Approval Required
1. Approval of the Georgia Department of Banking and Finance for the ownership
of 10% or more of the voting Capital Stock of the Corporation under the Mortgage
Lender License. GA. CODE XXX. §§ 7-1-1008, 7-1-1000(18).
2. Approval of the Kentucky Office of Financial Institutions for the ownership
of 10% or more of the voting Capital Stock of the Corporation under the Mortgage
Loan Company License. KY. REV. STAT. XXX. Β§ 294.075.
3. Approval of the Michigan Office of Financial and Insurance Services for the
ownership of 12.6% or more of the voting Capital Stock of the Corporation under
the First Mortgage Broker, Lender and Servicer License. Mich. Comp. Xxxx Xxx.
Β§ 445.1659.
4. Approval of the Michigan Office of Financial and Insurance Services for the
ownership of 12.6% or more of the voting Capital Stock of the Corporation under
the Secondary Mortgage Broker, Lender and Servicer Registration. Mich. Comp.
Xxxx Xxx. Β§ 493.63.
5. Approval of the New York Banking Department for the ownership of 10% or more
of the voting Capital Stock of the Corporation under the Mortgage Banker
License. N.Y. BANKING LAW Β§ 594-b.
Pre-Closing Notification Required
1. Notification to the Federal National Mortgage Association for the ownership
of voting Capital Stock of the Corporation under the Federal National Mortgage
Association Seller/Servicer Approval. FNMA Seller Guide Part I, Β§ 201.05; FNMA
Servicer Guide Part I, Β§ 204.
2. Notification to the Federal Home Loan Mortgage Corporation for the ownership
of voting Capital Stock of the Corporation under the Federal Home Loan Mortgage
Corporation Seller/Servicer Approval. FHLMC Seller/Servicer Guide, Ch. 4-11.
3. Notification to the California Department of Corporations for the ownership
of 10% or more of the voting Capital Stock of the Corporation under the
Residential Mortgage Lender License. CAL. FIN. CODE §§ 50206, 50003.
4. Notification to the Connecticut Department of Banking for the ownership of
10% or more of the voting Capital Stock of the Corporation under the First
Mortgage Lender/Broker Licenses. CONN. GEN. STAT. XXX. §§ 36a-490(b).
Ex. A-23
5. Notification to the Connecticut Department of Banking for the ownership of
voting Capital Stock of the Corporation under the Secondary Mortgage
Lender/Broker License. CONN. GEN. STAT. XXX. Β§ 36a-515.
6. Notification to the Delaware Office of the State Bank Commissioner for the
ownership of voting Capital Stock of the Corporation under the Licensed Lender
License. DEL. CODE XXX. tit. 5, Β§ 2206.
7. Notification to the Illinois Department of Financial and Professional
Regulation, Division of Banking, at least 10 days prior to closing, for the
ownership of 10% or more of the voting Capital Stock of the Corporation under
the Residential Mortgage License. Ill. Admin. Code tit. 38, §§ 1050.110,
1050.480.
8. Notification to the Massachusetts Division of Banks, at least 15 days prior
to closing, for ownership of 10% or more of the voting Capital Stock of the
Corporation under the Mortgage Lender and Broker License. 209 MASS. CODE REGS.
Β§ 42.12(3).
9. Notification to the Massachusetts Division of Banks, at least 15 days prior
to closing, for ownership of 10% or more of the voting Capital Stock of the
Corporation under the Third Party Loan Servicer Registration. 209 MASS. CODE
REGS. Β§ 18.08(2).
10. Notification to the Nevada Division of Mortgage Lending for the ownership of
5% or more of the voting Capital Stock of the Corporation under the Mortgage
Banker License. Nev. Rev. Stat. Xxx. Β§ 645E.390.
11. Notification to the Nevada Division of Mortgage Lending for the ownership of
5% or more of the voting Capital Stock of the Corporation under the Mortgage
Broker License. Nev. Rev. Stat. Xxx. Β§ 645B.095.
12. Notification to the Washington State Department of Financial Institutions,
at least 10 days prior to closing, for the ownership of 10% or more of the
voting Capital Stock of the Corporation under the Consumer Loan License. Wash.
Admin. Code Β§ 208-620-490(1).
Ex. A-24
HomeView Lending, Inc.
Pre-Closing/Prior Approval Required
1. Approval of the Georgia Department of Banking and Finance for the ownership
of 10% or more of the voting Capital Stock of the Corporation under the Mortgage
Lender License. GA. CODE XXX. §§ 7-1-1008, 7-1-1000(18).
2. Approval of the Kentucky Office of Financial Institutions for the ownership
of 10% or more of the voting Capital Stock of the Corporation under the Mortgage
Loan Company License. KY. REV. STAT. XXX. Β§ 294.075.
3. Approval of the Oklahoma Department of Consumer Credit for the ownership of
voting Capital Stock of the Corporation under the Supervised Lender License.
OKLA. ADMIN. CODE Β§ 160:65-3-4.
Pre-Closing Notification Required
1. Notification to the Connecticut Department of Banking for the ownership of
10% or more of the voting Capital Stock of the Corporation under the First
Mortgage Lender/Broker Licenses. CONN. GEN. STAT. XXX. §§ 36a-490(b).
2. Notification to the Connecticut Department of Banking for the ownership of
voting Capital Stock of the Corporation under the Secondary Mortgage
Lender/Broker License. CONN. GEN. STAT. XXX. Β§ 36a-515.
3. Notification to the Delaware Office of the State Bank Commissioner for the
ownership of voting Capital Stock of the Corporation under the Licensed Lender
License. DEL. CODE XXX. tit. 5, Β§ 2206.
4. Notification to the Illinois Department of Financial and Professional
Regulation, Division of Banking, for the ownership of 10% or more of the voting
Capital Stock of the Corporation under the Residential Mortgage License. ILL.
ADMIN. CODE tit. 38, §§ 1050.130, 1050.480.
5. Notification to the Washington State Department of Financial Institutions, at
least 10 days prior to closing, for the ownership of 10% or more of the voting
Capital Stock of the Corporation under the Consumer Loan License. WASH. ADMIN.
CODE Β§ 208-620-490(1).
Ex. A-25
EXHIBIT B
KEY EMPLOYEES
Xxxxx Xxxxxxx
Xxxxx Xxxxxxxx
Xxxx Xxxxxxx
Ex. B-1
ANNEX I
RESTRICTIVE LEGENDS
THE CORPORATION WILL FURNISH TO ANY STOCKHOLDER, ON REQUEST AND WITHOUT
CHARGE, A FULL STATEMENT OF THE INFORMATION REQUIRED BY SECTION 2-211(B) OF THE
CORPORATIONS AND ASSOCIATIONS ARTICLE OF THE ANNOTATED CODE OF MARYLAND WITH
RESPECT TO THE DESIGNATIONS AND ANY PREFERENCES, CONVERSION AND OTHER RIGHTS,
VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO DIVIDENDS AND OTHER
DISTRIBUTIONS, QUALIFICATIONS, AND TERMS AND CONDITIONS OF REDEMPTION OF THE
STOCK OF EACH CLASS WHICH THE CORPORATION HAS AUTHORITY TO ISSUE AND, IF THE
CORPORATION IS AUTHORIZED TO ISSUE ANY PREFERRED OR SPECIAL CLASS IN SERIES, (I)
THE DIFFERENCES IN THE RELATIVE RIGHTS AND PREFERENCES BETWEEN THE SHARES OF
EACH SERIES TO THE EXTENT SET, AND (II) THE AUTHORITY OF THE BOARD OF DIRECTORS
TO SET SUCH RIGHTS AND PREFERENCES OF SUBSEQUENT SERIES. THE FOREGOING SUMMARY
DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO AND QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE CHARTER OF THE CORPORATION, A COPY OF WHICH WILL BE SENT
WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS. SUCH REQUEST MUST BE MADE TO
THE SECRETARY OF THE CORPORATION AT ITS PRINCIPAL OFFICE.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS
ON BENEFICIAL OWNERSHIP AND CONSTRUCTIVE OWNERSHIP AND TRANSFER FOR THE PURPOSE
OF THE CORPORATION'S MAINTENANCE OF ITS STATUS AS A REAL ESTATE INVESTMENT TRUST
UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). SUBJECT TO
CERTAIN FURTHER RESTRICTIONS AND EXCEPT AS EXPRESSLY PROVIDED IN THE
CORPORATION'S CHARTER, (I) NO PERSON MAY BENEFICIALLY OWN OR CONSTRUCTIVELY OWN
SHARES OF THE CORPORATION'S COMMON STOCK IN EXCESS OF 9.8 PERCENT (IN VALUE OR
NUMBER OF SHARES) OF THE OUTSTANDING SHARES OF COMMON STOCK OF THE CORPORATION
UNLESS SUCH PERSON IS AN EXCEPTED HOLDER (IN WHICH CASE THE EXCEPTED HOLDER
LIMIT SHALL BE APPLICABLE); (II) NO PERSON MAY BENEFICIALLY OWN OR
CONSTRUCTIVELY OWN SHARES OF CAPITAL STOCK OF THE CORPORATION IN EXCESS OF 9.8
PERCENT OF THE VALUE OF THE TOTAL OUTSTANDING SHARES OF CAPITAL STOCK OF THE
CORPORATION, UNLESS SUCH PERSON IS AN EXCEPTED HOLDER (IN WHICH CASE THE
EXCEPTED HOLDER LIMIT SHALL BE APPLICABLE); (III) NO PERSON MAY BENEFICIALLY OR
CONSTRUCTIVELY OWN CAPITAL STOCK THAT WOULD RESULT IN THE CORPORATION BEING
"CLOSELY HELD" UNDER SECTION 856(H) OF THE CODE OR OTHERWISE CAUSE THE
CORPORATION TO FAIL TO QUALIFY AS A
Annex Pg. 1
REIT; AND (IV) NO PERSON MAY TRANSFER SHARES OF CAPITAL STOCK IF SUCH TRANSFER
WOULD RESULT IN THE CAPITAL STOCK OF THE CORPORATION BEING OWNED BY FEWER THAN
100 PERSONS. ANY PERSON WHO BENEFICIALLY OWNS OR CONSTRUCTIVELY OWNS OR ATTEMPTS
TO BENEFICIALLY OWN OR CONSTRUCTIVELY OWN SHARES OF CAPITAL STOCK WHICH CAUSES
OR WILL CAUSE A PERSON TO BENEFICIALLY OWN OR CONSTRUCTIVELY OWN SHARES OF
CAPITAL STOCK IN EXCESS OR IN VIOLATION OF THE ABOVE LIMITATIONS MUST
IMMEDIATELY NOTIFY THE CORPORATION. ATTEMPTED TRANSFERS OF OWNERSHIP IN
VIOLATION OF THESE RESTRICTIONS SHALL BE NULL AND VOID AB INITIO. IN ADDITION,
IF ANY OF THE RESTRICTIONS ON TRANSFER OR OWNERSHIP ARE VIOLATED, THE SHARES OF
CAPITAL STOCK REPRESENTED HEREBY MAY BE AUTOMATICALLY TRANSFERRED TO A TRUSTEE
OF A TRUST FOR THE BENEFIT OF ONE OR MORE CHARITABLE BENEFICIARIES. IN ADDITION,
UPON THE OCCURRENCE OF CERTAIN EVENTS, ATTEMPTED TRANSFERS IN VIOLATION OF THE
RESTRICTIONS DESCRIBED ABOVE MAY BE VOID AB INITIO. ALL CAPITALIZED TERMS IN
THIS LEGEND HAVE THE MEANINGS DEFINED IN THE CHARTER OF THE CORPORATION, AS THE
SAME MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH, INCLUDING THE
RESTRICTIONS ON TRANSFER AND OWNERSHIP, WILL BE FURNISHED TO EACH HOLDER OF
CAPITAL STOCK OF THE CORPORATION ON REQUEST AND WITHOUT CHARGE.
THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE PROVISIONS OF A
CERTAIN REGISTRATION RIGHTS AND SHAREHOLDERS AGREEMENT, DATED AS OF JULY 16,
2007, INCLUDING CERTAIN RESTRICTIONS ON TRANSFER SET FORTH THEREIN. A COMPLETE
AND CORRECT COPY OF SUCH AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL
OFFICE OF THE CORPORATION AND WILL BE FURNISHED UPON WRITTEN REQUEST AND WITHOUT
CHARGE.