1. business and industrial
2. company
3. merger and acquisition

Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
[X]
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2014
[ ]
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For transition period from__________ to___________
Commission file number
000-27464
BROADWAY FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
95-4547287
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
5055 Wilshire Boulevard, Suite 500
Los Angeles, California
90036
(Address of principal executive offices)
(Zip Code)
(323) 634-1700
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). Yes [ X ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated, or a smaller reporting
company. See the definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large Accelerated Filer [ ] Accelerated Filer [ ] Non-Accelerated Filer [ ] Smaller Reporting Company [ X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [ X]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
As of November 5, 2014, 21,405,188 shares of the Registrant’s voting common stock and 7,671,520 shares of the Registrant’s nonvoting common stock were outstanding.
Table of Contents
TABLE OF CONTENTS
Page
PART I.
FINANCIAL INFORMATION
Item 1.
PART II.
Financial Statements
Consolidated Statements of Financial Condition as of September 30, 2014 (unaudited) and
December 31, 2013
1
Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited) for the
three and nine months ended September 30, 2014 and 2013
2
Consolidated Statements of Cash Flows (unaudited) for the three and nine months ended
September 30, 2014 and 2013
3
Notes to Unaudited Consolidated Financial Statements
4
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
23
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
34
Item 4.
Controls and Procedures
34
OTHER INFORMATION
Item 1.
Legal Proceedings
35
Item 1A. Risk Factors
35
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
35
Item 3.
Defaults Upon Senior Securities
35
Item 4.
Mine Safety Disclosures
35
Item 5.
Other Information
35
Item 6.
Exhibits
35
Signatures
36
Table of Contents
BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(In thousands, except share and per share amounts)
September 30,
2014
(Unaudited)
December 31,
2013
$
6,341
14,855
21,196
17,862
281,530
1,173
3,737
2,758
2,500
2,805
1,165
3,267
337,993
$
217,092
79,500
2,812
6,000
834
1,305
3,008
310,551
$
Assets
Cash and due from banks
Federal funds
Cash and cash equivalents
Securities available-for-sale, at fair value
Loans receivable held for investment, net of allowance of $9,067 and $10,146
Accrued interest receivable
Federal Home Loan Bank (FHLB) stock
Office properties and equipment, net
Real estate owned (REO)
Bank owned life insurance
Investment in affordable housing limited partnership
Other assets
Total assets
$
$
8,241
49,955
58,196
9,397
247,847
1,107
3,737
2,725
2,084
2,756
1,309
3,323
332,481
Liabilities and stockholders’ equity
Liabilities:
Deposits
FHLB advances
Senior debt
Junior subordinated debentures
Accrued interest payable
Advance payments by borrowers for taxes and insurance
Other liabilities
Total liabilities
$
Stockholders’ Equity:
Preferred Stock, $.01 par value, authorized 1,000,000 shares
Common stock, $.01 par value, voting, authorized 50,000,000 shares at September 30, 2014 and
December 31, 2013; issued 19,652,950 shares at September 30, 2014 and 19,630,473 shares at
December 31, 2013; outstanding 19,548,959 shares at September 30, 2014 and 19,526,482 shares at
December 31, 2013
Common stock, $.01 par value, non-voting, authorized 25,000,000 shares at September 30, 2014 and
5,000,000 shares at December 31, 2013; issued and outstanding 698,200 shares at September 30, 2014
and December 31, 2013
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income
Treasury stock-at cost, 103,991 shares at September 30, 2014 and December 31, 2013
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes to unaudited consolidated financial statements.
1
$
214,405
79,500
2,923
6,000
718
776
2,569
306,891
-
-
196
196
7
35,740
(7,255)
83
(1,329)
27,442
337,993
$
7
35,704
(9,068)
80
(1,329)
25,590
332,481
Table of Contents
BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2014
2013
2014
2013
(In thousands, except per share)
Interest income:
Interest and fees on loans receivable
Interest on mortgage-backed and other securities
Other interest income
Total interest income
$
Interest expense:
Interest on deposits
Interest on borrowings
Total interest expense
Net interest income before provision for (recapture of) loan losses
Provision for (recapture of) loan losses
Net interest income after provision for (recapture of) loan losses
Non-interest income:
Service charges
Loan servicing fees, net
Net gains on sales of loans
Net gains (losses) on sales of REO
Gain on restructuring of debt
Other
Total non-interest income
3,681
103
91
3,875
$
$
Other comprehensive income (loss), net of tax:
Change in unrealized gains on securities available for sale
Income tax effect
Other comprehensive income (loss), net of tax
10,996
271
279
11,546
$
11,420
240
237
11,897
522
651
1,173
1,309
1,608
2,917
1,728
2,075
3,803
2,916
(950)
3,866
2,638
414
2,224
8,629
(2,532)
11,161
8,094
414
7,680
132
8
(8)
1,221
14
1,367
1,829
321
203
135
54
177
96
451
3,266
Income (loss) before income taxes
Income tax expense
Net income (loss)
$
421
538
959
103
(9)
52
19
165
Non-interest expense:
Compensation and benefits
Occupancy expense, net
Information services
Professional services
Provision for (recapture of) losses on loans held for sale
Provision for losses on REO
FDIC insurance
Office services and supplies
Other
Total non-interest expense
3,637
71
103
3,811
765
765
$
333
(34)
2
261
562
1,479
269
213
225
(315)
321
181
91
543
3,007
5,024
901
640
798
394
527
292
1,331
9,907
584
584
1,816
3
1,813
$
403
18
97
(10)
1,221
113
1,842
4,428
932
636
558
153
544
573
312
1,640
9,776
$
(254)
6
(260)
$
(70)
(70)
$
(76)
(76)
$
3
3
$
(222)
(222)
Comprehensive income (loss)
$
695
$
508
$
1,816
$
(482)
Net income (loss)
Dividends and discount accretion on preferred stock
Income (loss) available to common stockholders
$
$
$
1,813
1,813
$
$
584
(127)
457
$
$
765
765
$
(260)
(779)
(1,039)
Earnings (loss) per common share-basic
Earnings (loss) per common share-diluted
Dividends declared per share-common stock
$
$
$
0.04
0.04
0.00
$
$
$
0.05
0.05
0.00
$
$
$
0.09
0.09
0.00
$
$
$
(0.23)
(0.23)
0.00
See accompanying notes to unaudited consolidated financial statements.
2
Table of Contents
BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
2014
2013
(In thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for (recapture of) loan losses
Provision for losses on loans held for sale
Provision for losses on REO
Depreciation
Net amortization of deferred loan origination costs
Net amortization of premiums on mortgage-backed securities
Amortization of investment in affordable housing limited partnership
Stock-based compensation expense
Earnings on bank owned life insurance
Net (gains) losses on sales of REO
Net gains on sales of loans
Gain on restructuring of debt
Amortization of deferred gain on restructuring of debt
Stock-based compensation — non-employee
Net change in accrued interest receivable
Net change in other assets
Net change in accrued interest payable
Net change in other liabilities
Net cash provided by operating activities
$
Cash flows from investing activities:
Net change in loans receivable held for investment
Proceeds from sales of loans receivable held for sale
Principal repayments on loans receivable held for sale
Available-for-sale securities:
Purchases
Maturities, prepayments and calls
Proceeds from sales of REO
Redemption of FHLB stock
Purchase of FHLB stock
Additions to office properties and equipment
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Net change in deposits
Repayments on FHLB advances
Proceeds from FHLB advances
Net proceeds from issuance of common stock
Net change in advance payments by borrowers for taxes and insurance
Net cash provided by (used in) financing activities
1,813
$
(260)
(2,532)
394
180
171
41
144
11
(49)
(2)
(111)
25
(66)
56
116
439
630
414
153
544
161
149
28
164
33
(51)
10
(97)
(1,221)
134
955
489
(9)
1,596
(34,635)
-
(2,041)
15,502
1,520
(10,463)
1,960
2,505
(213)
(40,846)
2,980
3,583
164
(376)
(232)
21,100
2,687
(8,000)
8,000)
529
3,216
(38,502)
(28,000)
36,000
3,347
323
(26,832)
$
(4,136)
64,360
60,224
Net change in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
$
(37,000)
58,196
21,196
Supplemental disclosures of cash flow information:
Cash paid for interest
Cash paid for income taxes
$
$
2,801
3
$
$
3,314
4
Supplemental disclosures of non-cash investing and financing activities:
Transfers of loans receivable held for investment to REO
Transfers of loans receivable held for sale to REO
Transfers of loans receivable from held for investment to held for sale
Transfers of loans receivable from held for sale to held for investment
Exchange of other borrowings for common stock
Exchange of dividends payable for common stock
Transfer of accrued interest to senior debt
Issuance of common stock for services
$
$
$
$
$
$
$
$
3,313
25
$
$
$
$
$
$
$
$
1,832
753
7,259
7,394
2,575
2,646
535
-
See accompanying notes to unaudited consolidated financial statements.
3
Table of Contents
BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
NOTE (1) – Basis of Financial Statement Presentation
The accompanying unaudited consolidated financial statements include Broadway Financial Corporation (the “Company”) and its
wholly owned subsidiary, Broadway Federal Bank, f.s.b. (the “Bank”). Also included in the unaudited consolidated financial
statements is Broadway Service Corporation, a wholly owned subsidiary of the Bank. All significant intercompany balances and
transactions have been eliminated in consolidation.
The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in
the United States of America for interim financial information and with the instructions for quarterly reports on Form 10-Q. These
unaudited consolidated financial statements do not include all disclosures associated with the Company’s consolidated annual
financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2013 and, accordingly, should be
read in conjunction with such audited consolidated financial statements. In the opinion of management, all adjustments (all of which
are normal and recurring in nature) considered necessary for a fair presentation have been included. Operating results for the three
and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ending
December 31, 2014.
Some items in the consolidated financial statements for the prior period were reclassified to conform to the current presentation.
Reclassifications had no effect on prior period consolidated net income or loss or stockholders’ equity.
Recent Accounting Pronouncements
In July 2013, the FASB amended ASU 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss
Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”. These amendments provide that an unrecognized tax
benefit, or a portion thereof, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating
loss carryforward, a similar tax loss, or a tax credit carryforward, except that to the extent that a net operating loss carryforward, a
similar tax loss, or a tax credit carryforward is not available at the reporting date to settle any additional income taxes that would result
from disallowance of a tax position, or the tax law does not require the entity to use, and the entity does not intend to use, the deferred
tax asset for such purpose, then the unrecognized tax benefit should be presented as a liability. These amendments are effective for
interim and annual reporting periods beginning after December 15, 2013. Adopting this standard did not have a material effect on the
Company’s operating results or financial condition.
In January 2014, the FASB issued ASU 2014-01, “Investments— Equity Method and Joint Ventures (Topic 323): Accounting for
Investments in Qualified Affordable Housing Projects.” ASU 2014-01 permits a reporting entity to make an accounting policy
election to account for its investments in affordable housing projects using the proportional amortization method if certain conditions
are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the amount
of tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component
of income tax expense or benefit. ASU 2014-01 becomes effective for interim and annual periods beginning on or after December 15,
2014, with early adoption permitted. The provisions of ASU 2014-01 must be applied retrospectively to all periods presented. The
Company is assessing the impact of the new guidance on its consolidated financial statements.
In January 2014, the FASB issued ASU 2014-04, “Receivables— Troubled Debt Restructurings by Creditors.” ASU 2014-04
requires entities to reclassify consumer mortgage loans collateralized by residential real estate to REO when either (1) the creditor
obtains legal title to the residential real estate property or (2) the borrower conveys all interest in the property to the creditor to satisfy
the loan by completing a deed in lieu of foreclosure or similar agreement. A reporting entity is required to make interim and annual
disclosure of both the amount of foreclosed residential real estate property held by the creditor and the recorded investment in
consumer mortgage loans collateralized by residential real estate property that are in process of foreclosure. ASU 2014-04 becomes
effective for interim and annual periods beginning on or after December 15, 2014. Adoption of ASU 2014-04 is not expected to have
a material impact on the Company’s consolidated financial statements.
4
Table of Contents
BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (continued)
NOTE (2) – Earnings (Loss) Per Share of Common Stock
Basic earnings (loss) per share of common stock is computed by dividing income (loss) available to common stockholders by the
weighted average number of shares of common stock outstanding for the period. Diluted earnings (loss) per share of common stock is
computed by dividing income (loss) available to common stockholders by the weighted average number of shares of common stock
outstanding for the period, increased for the dilutive effect of common stock equivalents, except for the Company’s formerly
outstanding Series F Non-cumulative Voting Preferred Stock and Series G Non-Voting Preferred Stock, which are both included as
participating securities in the table below. The participating securities are entitled to share in common stock dividends on an asconverted basis. There were no participating securities in 2014.
The following table shows how the Company computed basic and diluted earnings (loss) per share of common stock for the three
and nine months ended September 30, 2014 and 2013:
For the three months ended
For the nine months ended
September 30,
September 30,
2014
2013
2014
2013
(Dollars in thousands, except per share)
Basic
Net income (loss)
Less: Preferred stock dividends and accretion
Less: Net (income) loss attributable to participating securities
Income (loss) available to common stockholders
$
$
Diluted
Net income (loss)
Less: Preferred stock dividends and accretion
Less: Net (income) loss attributable to participating securities
Income (loss) available to common stockholders
$
584
(127)
(283)
174
$
$
3,755,695
1,813
1,813
$
$
20,238,679
(260)
(779)
465
(574)
2,536,913
$
0.04
$
0.05
$
0.09
$
(0.23)
$
765
765
$
584
(127)
(283)
174
$
1,813
1,813
$
(260)
(779)
465
(574)
$
Weighted average common shares outstanding
Add: dilutive effects of assumed exercises of stock options
Weighted average common shares - fully dilutive
Earnings (loss) per common share - diluted
$
20,247,159
Weighted average common shares outstanding
Earnings (loss) per common share - basic
765
765
$
20,247,159
20,247,159
$
0.04
$
3,755,695
3,755,695
$
0.05
$
20,238,679
20,238,679
$
0.09
2,536,913
2,536,913
$
(0.23)
Stock options for 93,750 shares of common stock for the three and nine months ended September 30, 2014 and 148,750 shares of
common stock for the three and nine months ended September 30, 2013 were not considered in computing diluted earnings (loss) per
common share because they were anti-dilutive.
5
Table of Contents
BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (continued)
NOTE (3) – Securities
The following table summarizes the amortized cost and fair value of the available-for-sale investment securities portfolios at
September 30, 2014 and December 31, 2013 and the corresponding amounts of unrealized gains and losses which are recognized in
accumulated other comprehensive income (loss):
Amortized Cost
September 30, 2014:
Residential mortgage-backed
U.S. Government and federal agency
Total available-for-sale securities
December 31, 2013:
Residential mortgage-backed
$
Total available-for-sale securities
$
15,450
1,929
17,379
$
$
8,917
8,917
Gross
Gross
Unrealized
Unrealized
Losses
Gains
(In thousands)
$
469
$
14
$
483
$
$
$
480
480
$
$
-
Fair Value
$
$
15,919
1,943
17,862
$
$
9,397
9,397
The amortized cost and fair value of the investment securities portfolios are shown by contractual maturity at September 30, 2014.
Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without
call or prepayment penalties. Securities not due at a single maturity date, primarily residential mortgage-backed securities, are shown
separately.
Available-for-Sale
Amortized Cost
Fair Value
(In thousands)
$
$
1,929
1,943
15,450
15,919
$
17,379
$ 17,862
Maturity
Within one year
One to five years
Five to ten years
Beyond ten years
Residential mortgage-backed
Total
At September 30, 2014 and December 31, 2013, securities pledged to secure public deposits and FHLB advances had a carrying
amount of $1.2 million and $9.4 million, respectively. At September 30, 2014 and December 31, 2013, there were no holdings of
securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.
During the first quarter of 2014, $8.6 million of residential mortgage-backed securities and $1.9 million of U.S. Government and
federal agency securities were purchased and were classified as available-for-sale. There were no sales of securities during the three
and nine months ended September 30, 2014 and 2013.
6
Table of Contents
BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (continued)
NOTE (4) – Loans Receivable Held for Investment
Loans at September 30, 2014 and December 31, 2013 were as follows:
September 30, 2014
December 31, 2013
(In thousands)
Real estate:
Single family (one-to-four units)
Multi-family (five or more units)
Commercial real estate
Church
Construction
Commercial – other
Consumer
Total gross loans receivable
Unamortized net deferred loan costs and premium
Allowance for loan losses
Loans receivable, net
$
$
41,659
167,653
21,589
56,992
394
532
6
288,825
1,772
(9,067)
281,530
$
$
46,459
113,218
26,697
67,934
424
2,067
38
256,837
1,156
(10,146)
247,847
The following tables present the activity in the allowance for loan losses by portfolio segment for the three and nine months ended
September 30, 2014 and 2013:
Single
family
Beginning balance
Provision for (recapture of)
loan losses
Recoveries
Loans charged off
Ending balance
$
$
1,849
$ 2,304
(465)
327
(96)
(724)
-
(40)
1,344
$ 2,631
985
682
(1)
4,069
7
Single
family
Beginning balance
Provision for (recapture of)
loan losses
Recoveries
Loans charged off
Ending balance
$
$
Multifamily
Three Months Ended September 30, 2014
Real Estate
Commercial
Commercial
- other
real estate
Church Construction
(In thousands)
Multifamily
$
1,081
$
$
$
4,112
$
$
7
$
$
19
1,473
$ 9,376
10
(2)
(950)
29
2
682
(41)
$ 9,067
905
(479)
(1,408)
-
(1,091)
(4)
(2,532)
2
(133)
1,344
$ 2,631
(9)
985
851
(323)
4,069
7
1,083
(18)
29
2
1,936
(483)
9,067
$
7
$
$
55
$
$
6
Total
(455)
7
$
Consumer
$ 1,726
$
4,949
$
1,930
$
$
$
Total
4
Nine Months Ended September 30, 2014
Real Estate
Commercial
Commercial
- other
real estate
Church Construction
(In thousands)
$
Consumer
$
$
10,146
Table of Contents
BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (continued)
Single
family
Beginning balance
Provision for loan losses
Recoveries
Loans charged off
$
Ending balance
$
Multifamily
2,445
$ 1,169
(315)
351
(51)
2,079
(3)
$ 1,517
Single
family
Beginning balance
Provision for loan losses
Recoveries
Loans charged off
$
Ending balance
$
Three Months Ended September 30, 2013
Real Estate
Commercial
Commercial
- other
real estate
Church
Construction
(In thousands)
Multifamily
$
1,674
$
$
5,060
$
8
10
$10,579
523
(1)
(213)
(3)
414
16
(190)
1,572 $
5
(490)
5,098
7
59
59
7
80
(734)
$10,339
$
213
Nine Months Ended September 30, 2013
Real Estate
Commercial
Commercial
- other
real estate
Church
Construction
(In thousands)
$
8
Consumer
167
$ 2,122
2,685
$ 4,818
56
(96)
929
(1)
(322)
(2)
414
259
(90)
2,079
(661)
$ 1,517
117
(1,134)
1,572
18
(667)
$ 5,098
7
214
59
7
608
(2,552)
$ 10,339
$
$
9
Total
(150)
$
$
$
2,060
$
$
$
Total
72
$
$
Consumer
$
$ 11,869
The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment
and based on impairment method as of September 30, 2014 and December 31, 2013:
September 30, 2014
Single
family
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment $
137
1,207
Collectively evaluated for impairment
$
1,344
Total ending allowance balance
Loans:
Loans individually evaluated for
impairment
$
1,436
Loans collectively evaluated for
40,223
impairment
$ 41,659
Total ending loans balance
Multifamily
$
Real Estate
Commercial
real estate
$
$
124
2,507
2,631
$
185
800
985
$
3,141
$
164,512
$ 167,653
$
8
Church
Construction
(In thousands)
$
1060
3,009
4,069
$
4,692
16,897
21,589
Commercial
- other
$
$
7
7
$ 15,595
$
41,397
$ 56,992
$
$
Consumer
Total
$
$
22
7
29
$
- $
2
2 $
1,528
7,539
9,067
-
$
110
$
- $ 24,974
394
394
$
422
532
$
6
263,851
6 $ 288,825
Table of Contents
BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (continued)
December 31, 2013
Single
family
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for
impairment
$
382
1,548
Collectively evaluated for impairment
$ 1,930
Total ending allowance balance
Loans:
Loans individually evaluated for
impairment
$ 3,053
Loans collectively evaluated for
43,406
impairment
$ 46,459
Total ending loans balance
Real Estate
Commercial
real estate
Multifamily
$
$
$
143
1,583
1,726
$
$
Church
Construction
(In thousands)
$
1,444
3,505
4,949
$
$
206
1,267
1,473
4,163
$
4,894
109,055
113,218
$
21,803
26,697
Commercial
Consumer
- other
$
$
7
7
$ 21,243
$
46,691
$ 67,934
$
$
$
$
12
43
55
-
$
424
424
$
Total
$
$
6
6
2,187
7,959
$ 10,146
150
$
-
$ 33,503
1,917
2,067
$
38
38
223,334
$ 256,837
The following table presents information related to loans individually evaluated for impairment by type of loans as of September 30,
2014 and December 31, 2013:
September 30, 2014
Unpaid
Principal
Balance
With no related allowance
recorded:
Single family
Multi-family
Commercial real estate
Church
Commercial - other
With an allowance recorded:
Single family
Multi-family
Commercial real estate
Church
Commercial -other
Total
$
1,453
1,768
4,841
7,894
-
682
1,551
3,482
10,196
110
$ 31,977
Recorded
Investment
$
December 31, 2013
Allowance
Unpaid
for Loan
Principal
Losses
Balance
Allocated
(In thousands)
754
1,623
1,210
5,635
-
$
682
1,518
3,482
9,960
110
$ 24,974
Recorded
Investment
Allowance
for Loan
Losses
Allocated
-
$ 2,114
2,690
4,867
11,806
3,850
$ 1,441
2,598
1,391
8,446
-
$
-
137
124
185
1,060
22
$ 1,528
1,612
1,578
3,503
12,862
150
$ 45,032
1,612
1,565
3,503
12,797
150
$ 33,503
382
143
206
1,444
12
$ 2,187
The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality. For
purposes of this disclosure, the unpaid principal balance is not reduced for net charge-offs.
9
Table of Contents
BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (continued)
The following tables present the monthly average of loans individually evaluated for impairment by type of loans and the related
interest income for the three and nine months ended September 30, 2014 and 2013.
Single family
Multi-family
Commercial real estate
Church
Commercial- other
Total
Nine Months Ended
Three Months Ended
September 30, 2014
September 30, 2014
Cash Basis
Cash Basis
Average
Average
Interest
Interest
Recorded
Recorded
Income
Income
Investment
Investment
Recognized
Recognized
(In thousands)
$
2,038
$
25
$
2,601
$
60
3,250
20
3,554
66
4,716
106
4,792
295
16,419
158
17,882
491
117
3
130
8
$ 26,540
$
312
$ 28,959
$
920
Single family
Multi-family
Commercial real estate
Church
Construction
Commercial - other
Total
Three Months Ended
Nine Months Ended
September 30, 2013
September 30, 2013
Cash Basis
Cash Basis
Average
Average
Interest
Interest
Recorded
Recorded
Income
Income
Investment
Investment
Recognized
Recognized
(In thousands)
$
3,699
$
30
$
3,822
$
91
3,347
15
3,215
55
6,986
182
7,778
405
22,472
131
23,027
407
81
5
165
2
156
8
$ 36,669
$
360
$ 38,079
$
971
Cash-basis interest income recognized represents cash received for interest payments on accruing impaired loans. Interest payments
collected on non-accrual loans are characterized as payments of principal rather than payments of the outstanding accrued interest on
the loans until the remaining principal on the non-accrual loans is considered to be fully collectible. Foregone interest income that
would have been recognized had loans performed in accordance with their original terms amounted to $337 thousand and $668
thousand for the three months ended September 30, 2014 and 2013, respectively, and $1.2 million and $1.5 million for the nine
months ended September 30, 2014 and 2013, respectively, and were not included in the consolidated results of operations.
The following tables present the aging of the recorded investment in past due loans as of September 30, 2014 and December 31,
2013 by type of loans:
Single family
Multi-family
Commercial real estate
Church
Construction
Commercial - other
Consumer
Total
30-59
Days
Past Due
60-89
Days
Past Due
$
$
$
885
885
$
10
-
September 30, 2014
Greater than
90 Days
Past Due
(In thousands)
$
898
$
898
Total
Past Due
$
$
885
898
1,783
Current
$
40,774
167,653
21,589
56,094
394
532
6
$ 287,042
Table of Contents
BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (continued)
Single family
Multi-family
Commercial real estate
Church
Construction
Commercial - other
Consumer
Total
30-59
Days
Past Due
60-89
Days
Past Due
$
$
$
802
346
2,557
82
3,787
$
323
323
December 31, 2013
Greater than
90 Days
Past Due
(In thousands)
$
585
545
1,016
4,877
$
7,023
Total
Past Due
$
$
1,387
545
1,362
7,757
82
11,133
Current
$
45,072
112,673
25,335
60,177
424
1,985
38
$ 245,704
The following table presents the recorded investment in non-accrual loans by type of loans as of September 30, 2014 and
December 31, 2013:
September 30, 2014
December 31, 2013
(In thousands)
$
769
$
1,441
1,991
2,985
1,207
1,391
5,786
11,735
110
150
$
9,863
$
17,702
Single family
Multi-family
Commercial real estate
Church
Commercial - other
Total non-accrual loans
There were no loans 90 days or more delinquent that were accruing interest as of September 30, 2014 or December 31, 2013.
Troubled Debt Restructurings
At September 30, 2014, loans classified as troubled debt restructurings (“TDRs”) totaled $22.0 million, of which $6.9 million were
included in non-accrual loans and $15.1 million were on accrual status. At December 31, 2013, loans classified as TDRs totaled $27.3
million, of which $11.5 million were included in non-accrual loans and $15.8 million were on accrual status. The Company has
allocated $1.4 million and $1.9 million of specific reserves for accruing TDRs as of September 30, 2014 and December 31, 2013,
respectively. TDRs on accrual status are comprised of loans that were accruing at the time of restructuring or loans that have
complied with the terms of their restructured agreements for a satisfactory period of time, and for which the Bank anticipates full
repayment of both principal and interest. TDRs that are on non-accrual status can be returned to accrual status after a period of
sustained performance, generally determined to be six months of timely payments as modified. A well-documented credit analysis
that supports a return to accrual status based on the borrower’s financial condition and prospects for repayment under the revised
terms is also required. As of September 30, 2014 and December 31, 2013, the Company had no commitment to lend additional
amounts to customers with outstanding loans that are classified as TDRs.
No loans were modified during the three months ended September 30, 2014 and 2013 and the nine months ended September 30,
2014. The terms of certain loans were modified as TDRs during the nine months ended September 30, 2013. The modification of the
terms of such loans included payments of delinquent property taxes, which the borrower would be required to repay over a period
greater than six months.
11
Table of Contents
BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (continued)
The following table presents loans by type modified as troubled debt restructurings during the nine months ended September 30,
2013:
Single family
Commercial real estate
Total
Nine Months Ended September 30, 2013
PrePostModification
Modification
Outstanding
Outstanding
Number
Recorded
Recorded
of Loans
Investment
Investment
(Dollars in thousands)
5
$
739
$
789
1
1,456
1,497
6
$ 2,195
$ 2,286
The troubled debt restructurings described above increased the allowance for loan losses by $57 thousand and resulted in chargeoffs of $23 thousand during the nine months ended September 30, 2013.
At September 30, 2014 and 2013, none of the loans modified as troubled debt restructurings within the previous 12 months
experienced a payment default. A loan is considered to be in payment default once it is 90 days contractually past due under the
modified terms.
Credit Quality Indicators
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their
debt such as: current financial information, historical payment experience, credit documentation, public information, and current
economic trends, among other factors. For single family residential, consumer and other smaller balance homogenous loans, a credit
grade is established at inception, and generally only adjusted based on performance. Information about payment status is disclosed
elsewhere herein. The Company analyzes all other loans individually by classifying the loans as to credit risk. This analysis is
performed at least on a quarterly basis. The Company uses the following definitions for risk ratings:
•
Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close
attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan
or of the institution’s credit position at some future date.
•
Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of
the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that
jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some
loss if the deficiencies are not corrected.
•
Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added
characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions,
and values, highly questionable and improbable.
•
Loss. Loans classified as loss are considered uncollectible and of such little value that to continue to carry the loan as an
active asset is no longer warranted.
12
Table of Contents
BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (continued)
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass
rated loans. Pass rated loans are generally well protected by the current net worth and paying capacity of the obligor or by the value of
the underlying collateral. Pass rated assets are not more than 59 days past due and are generally performing in accordance with the
loan terms. Based on the most recent analysis performed, the risk category of loans by type of loans as of September 30, 2014 and
December 31, 2013 is as follows:
September 30, 2014
Special Mention Substandard
Doubtful
(In thousands)
$
3,453
$
759
$
612
4,849
524
5,351
7,875
12,167
110
$
12,464
$
23,236
$
-
Pass
Single family
Multi-family
Commercial real estate
Church
Construction
Commercial - other
Consumer
Total
$
$
37,447
162,192
15,714
36,950
394
422
6
253,125
December 31, 2013
Special Mention Substandard
Doubtful
(In thousands)
$
3,537
$
1,441
$
2,305
5,536
529
8,014
17,657
15,910
1,427
150
$
25,455
$
31,051
$
-
Pass
Single family
Multi-family
Commercial real estate
Church
Construction
Commercial - other
Consumer
Total
$
$
41,481
105,377
18,154
34,367
424
490
38
200,331
Loss
$
-
$
Loss
$
$
-
NOTE (5) — Junior Subordinated Debentures and Senior Debt
On March 17, 2004, the Company issued $6.0 million of Floating Rate Junior Subordinated Debentures (the “Debentures”) in a
private placement to a trust that was capitalized to purchase subordinated debt and preferred stock of multiple community banks.
Interest on the Debentures is payable quarterly at a rate per annum equal to the 3-month LIBOR plus 2.54%. The interest rate is
determined as of each March 17, June 17, September 17, and December 17, and was 2.77% at September 30, 2014. The Company
stopped paying interest on the Debentures in September 2010 and was not able to pay the principal or accrued interest on the
Debentures at their March 17, 2014 maturity date. The accrued interest on the Debentures was $797 thousand as of September 30,
2014. Under the Cease and Desist Order applicable to the Company, the Company is not permitted to make payments on its debt
without prior notice to and receipt of written notice of non-objection from the Board of Governors of the Federal Reserve System
(“FRB”). In addition, under the terms of the Debentures, the Company is not allowed to make payments on the Debentures if the
Company is in default on any of its senior indebtedness, which term includes the senior debt described below. In January 2014, the
Company submitted a proposal to the trustee for the trust that holds the Debentures to extend the maturity of the Debentures to
March 17, 2024 in return for paying all accrued interest on the Debentures and $900 thousand, or 15%, of the principal amount of the
Debentures at face value, subject to satisfaction of certain conditions. The Company subsequently satisfied the conditions to
implementation of this proposal, including, among others, obtaining the requisite Debenture holder approval of the final terms of the
transaction, obtaining written confirmation of non-objection to the proposal and related transactions from the FRB, securing approval
by the Company’s senior lender, and raising at least $6.0 million of additional common equity capital. The Company completed the
modification of the Debentures and related transactions on October 16, 2014, on which date the Company concurrently consummated
private placements of 8,829,549 shares of common stock, including 6,973,320 shares of non-voting common stock, for gross proceeds
of $9.7 million, made the required payments of principal and accrued interest on Debentures, executed a Supplemental Indenture for
the Debentures, that extended the maturity of the Debentures to March 17, 2024, and modified the payment terms of the remaining
$5.1 million principal amount thereof and repaid the outstanding defaulted senior bank debt of $2.4 million, together with all accrued
interest thereon. The modified terms of the Debentures require quarterly payments of interest only for the next five years at the
original rate of 3-Month LIBOR plus 2.54%. Starting in June 2019, the Company will be required to make quarterly payments of
equal amounts of principal, plus interest, until the Debentures are fully amortized on March 17, 2024. The Debentures may be called
for redemption at any time by the Company.
13
Table of Contents
BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (continued)
NOTE (6) — Fair Value
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There
are three levels of inputs that may be used to measure fair values:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of
the measurement date.
Level 2: Significant observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices
in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants
would use in pricing an asset or liability.
The Company used the following methods and significant assumptions to estimate fair value:
The fair values of securities available-for-sale are determined by obtaining quoted prices on nationally recognized securities
exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique to value debt securities without relying exclusively
on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities
(Level 2 inputs).
The fair value of impaired loans that are collateral dependent is generally based upon the fair value of the collateral which is
obtained from recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches
including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent
appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant
and typically result in a Level 3 classification of the inputs for determining fair value. Impaired loans are evaluated on a quarterly
basis for additional impairment and adjusted accordingly.
Assets acquired through or by transfer in lieu of loan foreclosure are initially recorded at fair value less costs to sell when acquired,
establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell.
Fair value is commonly based on recent real estate appraisals which are updated every nine months. These appraisals may utilize a
single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are
routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and
income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for
determining fair value. Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted
accordingly.
14
Table of Contents
BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (continued)
Appraisals for collateral-dependent impaired loans and real estate owned are performed by certified general appraisers (for
commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been
reviewed and verified by the Company. Once received, an independent third-party licensed appraiser reviews the appraisals for
accuracy and reasonableness, reviewing the assumptions and approaches utilized in the appraisal as well as the overall resulting fair
value in comparison with independent data sources such as recent market data or industry-wide statistics.
Assets Measured on a Recurring Basis
Assets measured at fair value on a recurring basis are summarized below:
Assets:
Securities available-for-sale - residential mortgage-backed
Securities available-for-sale - U.S. Government and federal
agency
Assets:
Securities available-for-sale - residential mortgage-backed
Fair Value Measurements at September 30, 2014
Quoted Prices
in Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
Assets
Inputs
Inputs
(Level 1)
(Level 2)
(Level 3)
(In thousands)
$
-
$
-
15,919
$
1,943
-
$
-
-
$
9,397
$
-
15,919
1,943
Fair Value Measurements at December 31, 2013
Quoted Prices
in Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
Assets
Inputs
Inputs
(Level 1)
(Level 2)
(Level 3)
(In thousands)
$
Total
$
Total
9,397
There were no transfers between Level 1, Level 2, or Level 3 during the three and nine months ended September 30, 2014 and 2013.
15
Table of Contents
BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (continued)
Assets Measured on a Non-Recurring Basis
The following table provides information regarding the carrying values of our assets measured at fair value on a non-recurring basis
at the dates indicated. The fair value measurement for all of these assets falls within Level 3 of the fair value hierarchy.
September 30, 2014
December 31, 2013
(In thousands)
Assets:
Impaired loans carried at fair value of collateral:
Single family
Multi-family
Commercial real estate
Church
Real estate owned:
Commercial real estate
Church
$
577
331
1,210
4,121
2,500
$
1,245
900
1,391
9,024
151
1,933
The following table provides information regarding (gains) losses recognized on assets measured at fair value on a non-recurring
basis for the three and nine months ended September 30, 2014 and 2013.
Three Months Ended
September 30,
2014
2013
Non-performing loans receivable held-for-sale
Impaired loans carried at fair value of collateral
Real estate owned
Total
$
$
90
54
144
16
$
$
Nine Months Ended
September 30,
2014
2013
(In thousands)
$
$
471
671
388
1,071
321
394
544
992
$
782
$
2,086
Table of Contents
BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (continued)
The following tables present quantitative information about level 3 fair value measurements for financial instruments measured at
fair value on a non-recurring basis at September 30, 2014 and December 31, 2013:
September 30, 2014
Valuation
Unobservable
Technique(s)
Input(s)
(Dollars in thousands)
Fair Value
Impaired loans – single family
Impaired loans – multi-family
Impaired loans – commercial real estate
Impaired loans – church
Real estate owned – church
$
Range
(Weighted
Average)
577
Sales comparison
approach
Adjustment for
differences between the
comparable sales
-9% to -1%
(-4%)
331
Sales comparison
approach
Adjustment for
differences between the
comparable sales
-18%
Income approach
Capitalization rate
7%
Sales comparison
approach
Adjustment for
differences between the
comparable sales
0% to 1%
(0%)
Income approach
Capitalization rate
Sales comparison
approach
Adjustment for
differences between the
comparable sales
-12% to 18%
(6%)
Income approach
Capitalization rate
7%
Sales comparison
approach
Adjustment for
differences between the
comparable sales
-2% to 2%
(0%)
1,210
4,121
2,500
17
5% to 7.25%
(6.63%)
Table of Contents
BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (continued)
December 31, 2013
Valuation
Unobservable
Technique(s)
Input(s)
(Dollars in thousands)
Fair Value
Range
(Weighted
Average)
Impaired loans – single family
$ 1,245
Sales comparison
approach
Adjustment for
differences between the
comparable sales
-6% to 6%
(-1%)
Impaired loans – multi-family
900
Sales comparison
approach
Adjustment for
differences between the
comparable sales
-15% to 1%
(-9%)
Income approach
Capitalization rate
8% to 9%
(8.59%)
Sales comparison
approach
Adjustment for
differences between the
comparable sales
-1% to 0%
(-1%)
Income approach
Capitalization rate
4.5% to 8%
(7.06%)
Sales comparison
approach
Adjustment for
differences between the
comparable sales
-21% to 9%
(-1%)
Income approach
Capitalization rate
6.75%
Sales comparison
approach
Adjustment for
differences between the
comparable sales
3%
(3%)
Income approach
Capitalization rate
10%
Sales comparison
approach
Adjustment for
differences between the
comparable sales
-7% to 7%
(0%)
Impaired loans – commercial real estate
Impaired loans – church
Real estate owned – commercial real estate
Real estate owned – church
1,391
9,024
151
1,933
18
Table of Contents
BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (continued)
Fair Values of Financial Instruments
The carrying amounts and estimated fair values of financial instruments, at September 30, 2014 and December 31, 2013 were as
follows:
Fair Value Measurements at September 30, 2014
Carrying
Value
Financial Assets:
Cash and cash equivalents
Securities available-for-sale
Loans receivable held for investment
Federal Home Loan Bank stock
Accrued interest receivable
Financial Liabilities:
Deposits
Federal Home Loan Bank advances
Junior subordinated debentures
Senior debt
Accrued interest payable
Advance payments by borrowers for taxes
and insurance
Level 1
Level 2
(In thousands)
$
21,196
17,862
281,530
3,737
1,173
$
21,196
-
$
(217,092)
(79,500)
(6,000)
(2,812)
(834)
$
-
$ (207,784)
(81,907)
(37)
-
(1,305)
(1,305)
$
17,862
54
Level 3
$
$
Total
281,830
1,119
(2,335)
(2,812)
(797)
$
21,196
17,862
281,830
N/A
1,173
$ (207,784)
(81,907)
(2,335)
(2,812)
(834)
-
(1,305)
Fair Value Measurements at December 31, 2013
Carrying
Value
Financial Assets:
Cash and cash equivalents
Securities available-for-sale
Loans receivable held for investment
Federal Home Loan Bank stock
Accrued interest receivable
Financial Liabilities:
Deposits
Federal Home Loan Bank advances
Junior subordinated debentures
Senior debt
Accrued interest payable
Advance payments by borrowers for taxes
and insurance
$
58,196
9,397
247,847
3,737
1,107
$ (214,405)
(79,500)
(6,000)
(2,923)
(718)
Level 1
Level 2
(In thousands)
$
58,196
-
$
-
$ (209,656)
(82,840)
(63)
-
(776)
(776)
$
9,397
27
Level 3
$
$
Total
248,167
1,080
(2,167)
(1,429)
(608)
-
The methods and assumptions, not previously presented, used to estimate fair values are described as follows:
(a) Cash and Cash Equivalents
The carrying amounts of cash and cash equivalents approximate fair values and are classified as Level 1.
19
$
58,196
9,397
248,167
N/A
1,107
$ (209,656)
(82,840)
(2,167)
(1,429)
(671)
(776)
Table of Contents
BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (continued)
(b) Loans receivable held for investment
Fair values of loans are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit
risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using
discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit
quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The
methods utilized to estimate the fair value of loans do not necessarily represent an exit price.
(c) FHLB Stock
It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.
(d) Deposits and Advance Payments by Borrowers for Taxes and Insurance
The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of
money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount)
resulting in Level 2 classification. Fair values for fixed rate certificates of deposit are estimated using discounted cash flow
calculations that apply interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on
time deposits resulting in a Level 2 classification.
(e) Federal Home Loan Bank Advances
The fair values of the Federal Home Loan Bank advances are estimated using discounted cash flow analyses based on the current
borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.
(g) Junior Subordinated Debentures and Senior Debt
The fair values of the Company’s Debentures and senior debt are estimated using discounted cash flow analyses based on the
current borrowing rates for similar types of borrowing arrangements resulting in a Level 3 classification.
(h) Accrued Interest Receivable
The carrying amounts of accrued interest receivable approximate their fair value and are classified the same as the related asset.
(i) Accrued Interest Payable
The carrying amounts of accrued interest on deposits and Federal Home Loan Bank advances approximate their fair value. The
carrying amounts of accrued interest on Debentures and senior debt are estimated by applying a discount similar to the related debt.
The fair values of accrued interest are classified the same as the related liability.
NOTE (7) — Stock-based Compensation
In 2008, we adopted the 2008 Long-Term Incentive Plan (“2008 LTIP”), which was approved by the stockholders. The 2008 LTIP
permits the grant of non-qualified and incentive stock options, stock appreciation rights, full value awards and cash incentive awards
to the Company’s non-employee directors and certain officers and employees for up to 2,000,000 shares of common stock. Option
awards are generally granted with an exercise price equal to the market price of the Company’s common stock at the date of grant; the
option awards have vesting periods ranging from immediate vesting to 5 years and have 10-year contractual terms.
20
Table of Contents
BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (continued)
No options were granted during the three and nine months ended September 30, 2014 and 2013. The Company recorded $0 and $11
thousand of stock-based compensation expense during the three and nine months ended September 30, 2014 and $11 thousand and
$33 thousand of stock-based compensation expense during the three and nine months ended September 30, 2013.
NOTE (8) — Regulatory Matters
Effective September 9, 2010, the Company and the Bank agreed to the issuance of cease and desist orders (the “Orders”) by the
Office of Thrift Supervision, which was the regulatory predecessor of the Office of the Comptroller of the Currency (“OCC”). The
Order applicable to the Company prohibits the Company from paying dividends to its stockholders without the prior written approval
of the FRB, which is now the federal regulator for savings and loan holding companies. In addition, the Company is not permitted to
incur, issue, renew, repurchase, make payments on or increase any debt or redeem any capital stock without prior notice to and receipt
of written notice of non-objection from the FRB.
Effective October 30, 2013, the Bank entered into a Consent Order with the OCC, which superseded the Order applicable to the
Bank. The Bank’s capital requirements are administered by the OCC and involve quantitative measures of assets, liabilities, and
certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject
to qualitative judgments by the OCC. Failure to meet capital requirements can result in regulatory action.
As part of the Consent Order, the Bank is required to maintain a Tier 1 (Core) Capital to Adjusted Total Assets ratio of at least 9%
and a Total Risk-Based Capital to Risk-Weighted Assets ratio of at least 13%, both of which ratios are greater than the respective 4%
and 8% levels for such ratios that are generally required under OCC regulations.
The Bank met the minimum capital requirements under the Consent Order at September 30, 2014 and December 31, 2013. Actual
and required capital amounts and ratios at September 30, 2014 and December 31, 2013, together with the higher capital requirements
that the Bank is required to meet under the Consent Order applicable to it, are presented below.
Actual
Amount
Ratio
Capital
Requirements
under Consent
Order
Amount
Ratio
Required for
Capital Adequacy
Purposes
Amount
Ratio
(Dollars in thousands)
September 30, 2014:
Tangible Capital to adjusted total assets
Tier 1(Core) Capital to adjusted total assets
Total Capital to risk weighted assets
$ 36,606
$ 36,606
$ 39,614
10.84%
10.84%
16.89%
$ 5,066
$ 13,510
$ 18,764
1.50%
4.00%
8.00%
$
$
N/A
30,398
30,492
N/A
9.00%
13.00%
December 31, 2013:
Tangible Capital to adjusted total assets
Tier 1(Core) Capital to adjusted total assets
Total Capital to risk weighted assets
$ 34,035
$ 34,035
$ 36,845
10.24%
10.24%
16.95%
$ 4,986
$ 13,295
$ 17,394
1.50%
4.00%
8.00%
$
$
N/A
29,914
28,286
N/A
9.00%
13.00%
21
Table of Contents
BROADWAY FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements (continued)
NOTE (9) – Income Taxes
The Company and its subsidiaries are subject to U.S. federal and state income taxes. Income tax expense is the total of the current
year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some
portion, or all, of the deferred tax asset will not be realized. In assessing the realization of deferred tax assets, management evaluates
both positive and negative evidence, including the existence of cumulative losses in the current year and the prior two years, the
amount of taxes paid in available carry-back years, the forecasts of future income and tax planning strategies. This analysis is updated
quarterly. Based on this analysis, the Company determined that a valuation allowance of $10.3 million was required as of
September 30, 2014, resulting in $0 net deferred tax assets. The Company had recorded a valuation allowance of $9.7 million and $0
net deferred tax assets as of December 31, 2013.
22
Table of Contents
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a
reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of
operations, liquidity and certain other factors that may affect our future results. Our MD&A should be read in conjunction with the
Consolidated Financial Statements and related Notes included in Part I “Item 1, Financial Statements,” of this Quarterly Report on
Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2013.
Overview
In order to generate net interest income, we continued to rebuild our loan portfolio by originating $67.2 million in multi-family
loans during the nine months ended September 30, 2014. Since the end of the year, we have further reduced our non-performing
assets, primarily through payoffs and sales of REOs. Also, we achieved aggregate recoveries of approximately $1.9 million, primarily
from the payoffs of two non-accrual loans which had been fully written off in late 2011, resulting in a recovery of $1.1 million.
During the first quarter of 2014, we obtained conditional approval from the trust that holds our Debentures of our proposal to extend
the maturity of the Debentures to March 17, 2024, in exchange for payment of a portion of the principal of the Debentures and
payment of all accrued interest on the Debentures through the effective date of the extension. We subsequently satisfied the
conditions to implementation of this proposal, including, among others, obtaining the requisite Debenture holder approval, obtaining
written confirmation of non-objection to the proposal and related transactions from the FRB, securing approval by our senior lender,
and raising at least $6.0 million of additional common equity capital. We completed the modification of the Debentures and related
transactions on October 16, 2014, on which date we concurrently consummated private placements of 8,829,549 shares of common
stock, including 6,973,320 shares of non-voting common stock, for gross proceeds of $9.7 million, made the required payments of
principal and accrued interest on Debentures, executed a Supplemental Indenture for the Debentures that extended the maturity of the
remaining $5.1 million principal amount of the Debentures to March 17, 2024 and modified the payment terms thereof, and repaid the
outstanding defaulted senior bank debt of $2.4 million, together with all accrued interest thereon, in full. The modified terms of the
Debentures require quarterly payments of interest only for the next five years at the original rate of 3 Month LIBOR plus 2.54%.
Starting in June 2019, we will be required to make quarterly payments of equal amounts of principal, plus interest, until the
Debentures are fully amortized on March 17, 2024. The Debentures may be called for redemption at any time by the Company.
Total assets increased by $5.5 million during the nine months ended September 30, 2014, primarily reflecting a $33.7 million
increase in our net loan portfolio, an $8.5 million increase in our securities portfolio and a $37.0 million decrease in cash and cash
equivalents as we invested our excess liquidity into mortgage-backed securities and multi-family loans in order to improve the yield
on interest-earning assets and grow total interest income
During the nine months ended September 30, 2014, total deposits increased by $2.7 million while FHLB borrowings and senior debt
remained the same during 2014.
We recorded net income of $765 thousand and $1.8 million for the three and nine months ended September 30, 2014, compared to
net income of $584 thousand and net loss of $260 thousand for the three and nine months ended September 30, 2013, respectively.
Results during the first nine months of 2014 included a recapture of loan losses of $2.5 million and a grant of $200 thousand received
from the U.S. Department of the Treasury’s Community Development Financial Institutions (CDFI) Fund.
23
Table of Contents
Results of Operations
Net Income (Loss)
For the three and nine months ended September 30, 2014, we recorded net income of $765 thousand, or $0.04 per diluted common
share, and $1.8 million, or $0.09 per diluted common share, respectively. For the same periods a year ago, we recorded net income of
$584 thousand, or $0.05 per diluted common share, and net loss of $260 thousand, or $0.23 per diluted common share, respectively.
The increases in net income were primarily due to a recapture of loan losses of $950 thousand and $2.5 million during the three and
nine months ended September 30, 2014, compared to a provision for loan losses of $414 thousand during the three and nine months
ended September 30, 2013. In addition, during the first nine months of 2014, we earned more net interest income before recapture of
loan losses and we received a CDFI grant of $200 thousand. Partially offsetting these increases was the inclusion of a gain of $1.2
million on the restructuring of the Company’s senior debt in the third quarter of 2013. We also incurred higher non-interest expense
during the first nine months of 2014.
Net Interest Income
For the third quarter of 2014, net interest income before recapture of loan losses totaled $2.9 million, up $278 thousand, or 11%,
from $2.6 million of net interest income before provision for loan losses for the third quarter of 2013. The increase of $278 thousand
in net interest income primarily resulted from an increase of $27.9 million in the average balance of loans receivable and an increase
of 28 basis points in net interest margin.
Interest income increased $64 thousand, or 2%, to $3.9 million for the third quarter of 2014 from $3.8 million for the third quarter
of 2013. The increase in interest income was primarily due to an increase of $27.9 million in the average balance of loans receivable,
which increased interest income by $384 thousand and an increase of $7.7 million in the average balance in securities, which
increased interest income by $46 thousand. We continue to rebuild our loan portfolio by originating $67.2 million in multi-family
loans during the first nine months of 2014, with $26.6 million in such loans during the third quarter. To supplement loan originations,
we purchased $8.6 million of mortgaged-backed securities and $1.9 million of U.S. government and federal agency securities in
March 2014.
The above increases in interest income were partially offset by a decrease of 52 basis points in the average yield on loans, which
decreased interest income by $340 thousand, a decrease of 48 basis points in the average yield on securities, which decreased interest
income by $14 thousand, and a decrease of $28.6 million in the average balance in federal funds, which decreased interest income by
$17 thousand. The average yield on loans decreased from 5.80% for the third quarter of 2013 to 5.28% for the third quarter of 2014.
The lower average loan yield on loans for the third quarter of 2014 was primarily due to payoffs of loans which carried a higher
average yield than the average yield on loans, and lower yields on loan originations as a result of the low interest rate environment.
Total interest expense decreased $214 thousand, or 18%, from $1.2 million for the third quarter of 2013 to $959 thousand for the
third quarter of 2014. Deposit interest expense decreased $101 thousand primarily due to a 16 basis point decrease in the cost of
deposits and a $5.8 million decline in the average balance of deposits. The decreases in the average balance and average cost of
deposits reflect the maturities of certificates of deposit bearing higher rates. Interest expense on FHLB advances decreased $10
thousand due to a decrease of 5 basis points in the average cost of FHLB advances resulting from $8.0 million in the first quarter of
2014. No interest expense was recognized on the senior debt during the third quarter of 2014, compared to $81 thousand of interest
expense during the third quarter of 2013. As a result of the modification of the senior debt in August 2013, which was accounted for
as a troubled debt restructuring, the carrying amount of the senior debt exceeded total expected cash payments due under the modified
agreement, including interest, resulting in a gain on debt restructuring. A portion of this gain was deferred and was being recognized
as we made payments on the modified senior debt. As a result, no interest expense has been recorded with respect to this modified
senior debt since the completion of the debt restructuring in August 2013. The entire balance of the senior debt was repaid after the
end of the quarter. Accordingly, the remaining deferred gain on debt restructuring of $365 thousand will be taken into income in the
fourth quarter.
24
Table of Contents
The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods
indicated. All average balances are daily average balances. The yields set forth below include the effect of deferred loan fees, and
discounts and premiums that are amortized or accreted to interest income or expense. We do not accrue interest on loans on nonaccrual status; however, the balance of these loans is included in the total average balance of loans receivable, which has the effect of
reducing average loan yields.
For the three months ended September 30,
2014
(Dollars in Thousands)
Assets
Interest-earning assets:
Interest-earning deposits
Federal funds and other short-term investments
Securities (2)
Loans receivable (3)
FHLB stock
Total interest-earning assets
Non-interest-earning assets
Total assets
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Money market deposits
Passbook deposits
NOW and other demand deposits
Certificate accounts
Total deposits
FHLB advances
Junior subordinated debentures (4)
Senior debt (5)
Total interest-bearing liabilities
Non-interest-bearing liabilities
Stockholders’ Equity
Total liabilities and stockholders’ equity
Average
Balance
$
$
$
$
Interest
2,988
24,633
17,924
278,649
3,737
327,931
7,361
335,292
$
15,523
36,339
30,870
132,658
215,390
79,500
6,000
2,831
303,721
4,634
26,937
335,292
$
Net interest rate spread (6)
$
4
15
103
3,681
72
3,875
2013
Average
Yield/
Cost (1)
0.54%
0.24%
2.30%
5.28%
7.71%
4.73%
Average
Balance
$
$
14
30
7
370
421
490
48
959
$
0.36%
0.33%
0.09%
1.12%
0.78%
2.46%
3.20%
1.26%
$
$
$
2,916
Net interest rate margin (7)
3.46%
Interest
3,921
53,259
10,218
250,787
3,741
321,926
15,764
337,690
$
16,460
37,453
32,858
134,403
221,174
79,587
6,000
3,713
310,474
6,064
21,152
337,690
$
Average
Yield/
Cost (1)
7
32
71
3,637
64
3,811
0.71%
0.24%
2.78%
5.80%
6.84%
4.74%
$
16
31
8
467
522
500
70
81
1,173
0.39%
0.33%
0.10%
1.39%
0.94%
2.51%
4.67%
8.73%
1.51%
$
2,638
$
3.56%
3.22%
3.28%
_____
(1) Average yields and costs have been annualized.
(2) Securities available-for-sale are included at average amortized cost.
(3) Amount is net of deferred loan costs, unamortized premium, and loans in process, and includes loans held for sale.
(4) Includes compounding on past due interest.
(5) Includes default rate margin that was in effect to August 22, 2013. No interest expense was recognized on the senior debt post restructuring because the floating
interest rate on the remaining modified loan did not exceed the floor rate of 6% during 2014.
(6) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(7) Net interest rate margin represents net interest income as a percentage of average interest-earning assets.
25
Table of Contents
For the nine months ended September 30,
2014
(Dollars in Thousands)
Assets
Interest-earning assets:
Interest-earning deposits
Federal funds and other short-term investments
Securities (2)
Loans receivable (3)
FHLB stock
Total interest-earning assets
Non-interest-earning assets
Total assets
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Money market deposits
Passbook deposits
NOW and other demand deposits
Certificate accounts
Total deposits
FHLB advances
Junior subordinated debentures (4)
Senior debt (5)
Total interest-bearing liabilities
Non-interest-bearing liabilities
Stockholders’ Equity
Total liabilities and stockholders’ equity
Average
Balance
$
$
$
$
Interest
2,999
33,761
14,962
268,512
3,737
323,971
8,275
332,246
$
15,629
36,725
30,834
129,342
212,530
79,500
6,000
2,867
300,897
4,936
26,413
332,246
$
Net interest rate spread (6)
$
10
60
271
10,996
209
11,546
2013
Average
Yield/
Cost (1)
0.44%
0.24%
2.42%
5.46%
7.46%
4.75%
Average
Balance
$
$
$
45
89
21
1,154
1,309
1,466
142
2,917
0.38%
0.32%
0.09%
1.19%
0.82%
2.46%
3.16%
1.29%
$
8,629
3.46%
$
$
Net interest rate margin (7)
Interest
5,472
58,729
11,154
259,217
3,789
338,361
16,246
354,607
$
16,838
37,363
34,213
149,814
238,228
79,529
6,000
4,485
328,242
7,470
18,895
354,607
$
Average
Yield/
Cost (1)
18
93
240
11,420
126
11,897
0.44%
0.21%
2.87%
5.87%
4.43%
4.69%
$
49
91
20
1,568
1,728
1,564
156
355
3,803
0.39%
0.32%
0.08%
1.40%
0.97%
2.62%
3.47%
10.55%
1.54%
$
8,094
3.14%
$
3.55%
3.19%
_____
(1) Average yields and costs have been annualized.
(2) Securities available-for-sale are included at average amortized cost.
(3) Amount is net of deferred loan costs, unamortized premium, and loans in process, and includes loans held for sale.
(4) Includes compounding on past due interest.
(5) Includes default rate margin that was in effect to August 22, 2013. No interest expense was recognized on the senior debt post restructuring because the floating
interest rate on the remaining modified loan did not exceed the floor rate of 6% during 2014.
(6) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(7) Net interest rate margin represents net interest income as a percentage of average interest-earning assets.
26
Table of Contents
Provision for (Recapture of) Loan Losses
For the third quarter of 2014, we booked a recapture of $950 thousand of previously recorded provisions for loan losses, compared
to a provision for loan losses of $414 thousand for the same period a year ago. The recapture of loan losses during the third quarter of
2014 primarily reflected a recovery for loan losses of $671 thousand as a result of a settlement of a loan which had been previously
written down in exchange for property received in foreclosure, the fair value of which exceeded the cost basis of the related loan. In
addition, the recapture of loan losses reflected a decline in net charge-offs and overall historical loss factors and improvements in our
asset quality.
For the nine months ended September 30, 2014, we recorded a recapture of $2.5 million compared to a provision for loan losses of
$414 thousand for the same period a year ago. The recapture of loan losses during the first nine months of 2014 primarily resulted
from $1.9 million of recoveries on previously charged-off loans.
Non-interest Income
Non-interest income for the third quarter of 2014 decreased $1.2 million from $1.4 million for the third quarter of 2013 to $165
thousand for the third quarter of 2014. The decrease in non-interest income during the third quarter of 2014 was primarily due to the
inclusion of a gain of $1.2 million on the restructuring of the Company’s senior debt in the third quarter of 2013. In addition, service
charges decreased $29 thousand and loan servicing fees decreased $17 thousand during the third quarter of 2014. These decreases
were partially offset by a gain of $52 thousand on the sale of REO during the third quarter of 2014, compared to a loss of $8 thousand
on the sale of REO during the same period a year ago.
For the nine months ended September 30, 2014, non-interest income totaled $562 thousand compared to $1.8 million for the same
period a year ago. The $1.3 million decrease in non-interest income during the first nine months of 2014 primarily reflected the
inclusion of a gain of $1.2 million on the restructuring of the Company’s senior debt in the third quarter of 2013, a reduction of $97
thousand in net gains on sales of loans, a decrease of $70 thousand in service charges, and a reduction of $52 thousand in loan
servicing fees which were partially offset by an increase of $148 thousand in other income, primarily reflecting a grant of $200
thousand received from the CDFI Fund in early 2014 and a $35 thousand reduction in miscellaneous loan fees.
Non-interest Expense
Non-interest expense for the third quarter of 2014 increased $259 thousand from $3.0 million for the third quarter of 2013 to $3.3
million for the third quarter of 2014. The increase in non-interest expense was primarily due to an increase of $350 thousand in
compensation and benefits expense and an increase of $52 thousand in occupancy expense, primarily rent expense. Compensation and
benefits expense increased during the third quarter of 2014 primarily due to a bonus accrual and an increase in full-time equivalent
employees from 68 in September 2013 to 73 in September 2014. In addition, we recorded a $315 thousand recapture of losses on
loans held for sale in the third quarter 2013, resulting in reduction of non-interest expense for that quarter.
The above increases in non-interest expense were partially offset by a decrease of $267 thousand in provision for losses on REOs, a
decrease of $92 thousand in other expense, primarily insurance expense, and a decrease of $90 thousand in professional services
expense, primarily legal expense.
For the nine months ended September 30, 2014, non-interest expense totaled $9.9 million compared to $9.8 million for the same
period a year ago. The $131 thousand increase in non-interest expense during the first nine months of 2014 primarily reflected an
increase of $596 thousand in compensation and benefits expense and an increase of $240 thousand in professional services expense.
These increases in non-interest expense were partially offset by a decrease of $309 thousand in other expenses, primarily insurance,
REO and appraisal expenses, a decrease of $153 thousand in provision for losses on loans held for sale, a decrease of $150 thousand
in provision for losses on REOs and a decrease of $46 thousand in FDIC insurance expense.
27
Table of Contents
Income Taxes
The Company’s income tax expense was $0 and $3 thousand for the three and nine months ended September 30, 2014 compared to
$0 thousand and $6 thousand for the three and nine months ended September 30, 2013, respectively. The tax expense for 2014 and
2013 primarily reflected the minimum taxes paid to the state of California, and the use of tax carryforwards to offset current taxable
income in the periods presented.
Financial Condition
Total Assets
Total assets were $338.0 million at September 30, 2014, which represented an increase of $5.5 million, or 2%, from December 31,
2013. During the first nine months of 2014, net loans held for investment increased by $33.7 million, securities increased by $8.5
million and cash and cash equivalents decreased by $37.0 million as we invested excess federal funds in securities and loans in order
to grow total interest income and improve the yield on interest-earning assets.
Securities Available for Sale
In March 2014, we purchased $8.6 million of mortgaged-backed securities and $1.9 million of U.S. government and federal agency
securities with an average yield of 2.23%.
Loans Receivable Held for Investment
Our gross loan portfolio increased by $32.0 million to $288.8 million at September 30, 2014 from $256.8 million at December 31,
2013. The increase in our loan portfolio since the end of 2013 consisted of an increase of $54.4 million in our multi-family residential
real estate loan portfolio which was partially offset by a decrease of $4.8 million in our single family residential real estate loan
portfolio, a decrease of $5.1 million in our commercial real estate loan portfolio, a decrease of $11.0 million in our church loan
portfolio and a decrease of $1.5 million in our commercial loan portfolio.
Loan originations, including loan purchases, for the nine months ended September 30, 2014 totaled $67.2 million, compared to
$35.3 million for the nine months ended September 30, 2013. Loan repayments for the nine months ended September 30, 2014 totaled
$32.1 million, compared to $33.4 million for the nine months ended September 30, 2013. Loan charge-offs during the first nine
months of 2014 totaled $483 thousand, compared to charge-offs of $2.6 million during the first nine months of 2013. Loans
transferred to REO during the first nine months of 2014 totaled $3.3 million, compared to $1.8 million during the first nine months of
2013.
Allowance for Loan Losses
We record a provision for loan losses as a charge to earnings when necessary in order to maintain the allowance for loan losses
(“ALLL”) at a level sufficient, in management’s judgment, to absorb probable incurred losses in the loan portfolio. At least quarterly
we conduct an assessment of the overall quality of the loan portfolio and general economic trends in the local market. The
determination of the appropriate level for the allowance is based on that review, considering such factors as historical loss experience
for each type of loan, the size and composition of our loan portfolio, the levels and composition of our loan delinquencies, nonperforming loans and net loan charge-offs, the value of underlying collateral on problem loans, regulatory policies, general economic
conditions, and other factors related to the collectability of loans in the portfolio.
Our ALLL decreased by $1.0 million from $10.1 million, or 3.95% of our loans receivable held for investment, at December 31,
2013, to $9.1 million, or 3.14% of our loans receivable held for investment, at September 30, 2014, primarily reflecting $2.5 million
of recapture of loan losses and $483 thousand of loan charge-offs which were partially offset by $1.9 million of recoveries on
previously charged-off loans. We continue to maintain our allowance at a level which we believe is appropriate given the significant
reduction in non-performing loans, the continued improvement in our asset quality metrics, as well as the high quality of our loan
originations.
28
Table of Contents
Recoveries during the first nine months of 2014 totaled $1.9 million compared to $608 thousand during the first nine months of
2013. Recoveries during the first nine months of 2014 were primarily due to payoffs of two non-accrual loans secured by church
properties and two commercial loans which had been fully written off in late 2011 and due to a settlement of a loan which had been
previously written down in exchange for property received in foreclosure, the fair value of which exceeded the cost basis of the related
loan.
Loan charge-offs during the first nine months of 2014 were $483 thousand, or 0.24% of average loans, compared to $2.6 million, or
1.31% of average loans, during the first nine months of 2013. Charge-offs during the first nine months of 2014 were related to losses
on impaired loans and consisted of a charge-off of $323 thousand on a church loan, a charge-off of $133 thousand on a single family
residential real estate loan, a charge-off of $18 thousand on a commercial loan and a charge-off of $9 thousand on a commercial real
estate loan.
Our asset quality continues to show signs of improvement as our loan delinquencies and non-performing loans are at their lowest
levels since December 2009. As of September 30, 2014, we had total delinquencies of $1.8 million, compared to total delinquencies
of $11.1 million at December 31, 2013. Loan delinquencies decreased by $9.3 million during the first nine months of 2014 as $5.4
million of delinquent loans were brought current, $3.4 million were paid off and $2.6 million were foreclosed and transferred to REO,
which were partially offset by $2.2 million of loans that became delinquent in 2014. Of the $1.8 million delinquent loans at
September 30, 2014, $898 thousand were greater than 90 days delinquent.
Non-performing loans (“NPLs”) consist of delinquent loans that are 90 days or more past due and other loans, including troubled
debt restructurings that do not qualify for accrual status. At September 30, 2014, NPLs totaled $9.9 million, compared to $17.7
million at December 31, 2013. The $7.8 million decrease in NPLs was primarily due to repayments of $4.7 million, including
payoffs of $3.7 million, the transfer of $2.6 million of NPLs to REO and the return of loans totaling $1.5 million to accrual status.
These decreases were partially offset by $991 thousand of loans that were placed on non-accrual status during the first nine months of
2014.
The ratio of the ALLL to NPLs increased to 91.93% at September 30, 2014 from 57.32% at December 31, 2013, primarily due to
the $7.8 million decrease in NPLs. When reviewing the adequacy of the ALLL as a percentage of NPLs, we consider the impact of
charge-offs. Also, we update our estimates of collateral values on NPLs by obtaining new appraisals at least every nine months. If the
estimated fair value of the loan collateral less estimated selling costs is less than the recorded investment in the loan, a charge-off for
the difference is recorded to reduce the loan to its estimated fair value, less estimated selling costs. Therefore, certain losses inherent
in our total NPLs are recognized periodically through charge-offs. The impact of updating these estimates of collateral value and
recognizing any required charge-offs is to increase charge-offs and reduce the ALLL required on these loans. As of September 30,
2014, we had written down 69% of our NPLs to estimated fair value less estimated selling costs. The remaining 31% of our NPLs at
September 30, 2014 had specific reserves or were reported at cost because the fair value of collateral less estimated selling costs
exceeded the recorded investment in the loan. Also, in connection with our review of the adequacy of our ALLL, we track the amount
and percentage of our NPLs that are paying currently, but nonetheless must be classified as NPL for reasons unrelated to payments,
such as lack of current financial information and an insufficient period of satisfactory performance. As of September 30, 2014, $9.0
million, or 91%, of our total NPLs of $9.9 million were current in their payments.
Impaired loans at September 30, 2014 were $25.0 million, compared to $33.5 million at December 31, 2013. Specific reserves for
impaired loans were $1.5 million, or 6.12% of the aggregate impaired loan amount at September 30, 2014, compared to $2.2 million,
or 6.53%, at December 31, 2013. Excluding specific reserves for impaired loans, our coverage ratio (general allowance as a
percentage of total non-impaired loans) was 2.86% at September 30, 2014, compared to 3.56% at December 31, 2013. The decrease
in our coverage ratio reflected a decline in our historical loss factors and the continued improvements in our asset quality.
Management believes that the ALLL is adequate to cover probable incurred losses in the loan portfolio as of September 30, 2014,
but there can be no assurance that actual losses will not exceed the estimated amounts. In addition, the OCC and the FDIC
periodically review the ALLL as an integral part of their examination process. These agencies may require an increase in the ALLL
based on their judgments of the information available to them at the time of their examinations.
29
Table of Contents
Real Estate Owned
During the nine months ended September 30, 2014, REO increased by $416 thousand from $2.1 million at December 31, 2013 to
$2.5 million at September 30, 2014. During the first nine months of 2014, four loans totaling $3.3 million, which consisted of a multifamily residential property and three church buildings, were foreclosed and transferred to REO. Six REO properties were sold during
the first nine months of 2014 for net proceeds of $2.5 million and a net gain of $2 thousand. At September 30, 2014, the Bank’s REO
consisted of three commercial real estate properties, all of which are church buildings.
Deposits
Deposits totaled $217.1 million at September 30, 2014, up $2.7 million from December 31, 2013. During the first nine months of
2014, certificates of deposit increased by $2.7 million and represented 61% of total deposits at September 30, 2014 and December 31,
2013. Core deposits (NOW, demand, money market and passbook accounts) decreased by $61 thousand during the first nine months
of 2014 and represented 39% of total deposits at September 30, 2014 and December 31, 2013.
Borrowings
At September 30, 2014, borrowings consisted of advances from the FHLB of $79.5 million, Debentures of $6.0 million and our
modified senior debt of $2.4 million, excluding the unamortized deferred gain on debt restructuring of $387 thousand.
At September 30, 2014, advances from the FHLB remained unchanged from $79.5 million, or 24% of total assets, at year-end
2013. The weighted average cost of advances decreased 5 basis points from 2.49% at December 31, 2013 to 2.44% at September 30,
2014 primarily because we refinanced $8.0 million of advances in February 2014.
Our $6.0 million aggregate principal amount of Debentures matured on March 17, 2014. As of September 30, 2014, the accrued
interest on the Debentures was $797 thousand. We are not permitted to make payments on any debt without prior notice to and receipt
of written notice of non-objection from the FRB. In addition, under the terms of the Debentures, we are not allowed to make
payments on the Debentures if the Company is in default on any of its senior indebtedness, which term includes the senior debt
described below. On February 28, 2014, we were notified by the trustee for the trust which holds the Debentures that the requisite
percentage of the holders of the trust’s senior securities had indicated their approval of our proposal to extend the maturity until
March 17, 2024, in return for a partial redemption of $900 thousand aggregate principal amount of the Debentures at face value and
payment of all interest accrued on the Debentures to the date of such redemption, subject to certain conditions. We subsequently
satisfied the conditions to implementation of this proposal, including, among others, obtaining written confirmation of non-objection
to the proposal and related transactions from the FRB, securing approval by our senior lender, and raising at least $6.0 million of
additional common equity capital. We completed the modification of the Debentures and related transactions on October 16, 2014, on
which date we concurrently consummated private placements of 8,829,549 shares of common stock, including 6,973,320 shares of
non-voting common stock, for gross proceeds of $9.7 million, made the required payments of principal and accrued interest on the
Debentures, executed a Supplemental Indenture for the Debentures that extended the maturity of the remaining $5.1 million principal
amount of the Debentures to March 17, 2024 and modified the payment terms thereof, and repaid the outstanding defaulted senior
bank debt of $2.4 million, together with all accrued interest thereon. The modified terms of the Debentures require quarterly
payments of interest only for the next five years at the original rate of 3 Month LIBOR plus 2.54%. Starting in June 2019, we will be
required to make quarterly payments of equal amounts of principal, plus interest, until the Debentures are fully amortized on
March 17, 2024. The Debentures may be called for redemption at any time by the Company.
Senior debt of $2.8 million at September 30, 2014 consisted of $2.4 million of principal, unchanged from December 31, 2013 and
$387 thousand of unamortized deferred gain on restructuring, which decreased by $111 thousand during the first nine months of 2014
primarily reflecting interest payments made in February, May and August 2014. We repaid the full amount of the outstanding senior
debt and related accrued interest after the end of the quarter with a portion of the proceeds from the private placement described
above.
30
Table of Contents
Information regarding the Debentures and senior debt is included in Note 5 “Junior Subordinated Debentures and Senior Debt” of
the Notes to Consolidated Financial Statements.
Stockholders’ Equity
Stockholders’ equity was $27.4 million, or 8.12% of the Company’s total assets, at September 30, 2014, compared to $25.6 million,
or 7.70% of the Company’s total assets, at December 31, 2013.
Liquidity
The objective of liquidity management is to ensure that we have the continuing ability to fund operations and meet other obligations
on a timely and cost-effective basis. The Bank’s primary sources of funds include deposits, advances from the FHLB and payments of
principal and interest on loans and investment securities. The Bank’s primary uses of funds include withdrawal of and interest
payments on deposits, originations of loans, purchases of investment securities, and payment of operating expenses.
Currently, we believe that the Bank has sufficient liquidity to support growth over the foreseeable future. We do not expect,
however, that the Bank will be able to pay dividends to the Company for at least the next several quarters or such longer period as may
be required to achieve recurring profitable operations. Through the first nine months of 2014, the Company had limited liquidity to
pay operating expenses and needed to raise additional capital to continue paying its operating expenses, including allocations of
shared expenses from the Bank, on a timely basis. As a result, during the first three quarters of 2014 our immediate priority for
enhancing the Company’s liquidity was to raise additional equity capital. As discussed above, we raised $9.7 million of gross
proceeds from the sale of our common stock in October. A portion of the proceeds will be used to pay future operating expenses of
the Company and fund working capital. The balance of the proceeds from the private placement were used to retire the full amount of
the outstanding balance of the Company’s senior debt, pay $900 thousand principal amount and all of the accrued interest on the
Debentures, which was approximately $805 thousand as of the closing date, and invest $2.5 million in the Bank’s common equity as a
capital contribution.
The Company recorded consolidated net cash inflows from operating activities of $630 thousand and $1.6 million during the first
nine months of 2014 and 2013, respectively. Net cash inflows from operating activities during the first nine months of 2014 were
primarily attributable to interest payments received on loans and securities.
The Company recorded consolidated net cash outflows from investing activities of $40.8 million during the first nine months of
2014, compared to consolidated net cash inflows from investing activities of $21.1 million during the first nine months of 2013. Net
cash outflows from investing activities during the first nine months of 2014 were attributable primarily to purchases of securities and
originations of loans.
The Company recorded consolidated net cash inflows from financing activities of $3.2 million during the first nine months of 2014,
compared to consolidated net cash outflows of $26.8 million during the first nine months of 2013. Net cash inflows from financing
activities during the first nine months of 2014 were attributable primarily to a net increase in deposits. As discussed above, the
Company raised $9.7 million of gross proceeds from the sale of voting and non-voting common stock in October 2014.
When the Bank has more funds than required for reserve requirements or short-term liquidity needs, the Bank sells federal funds to
the Federal Reserve Bank or other financial institutions and maintains a portion of its liquid assets in interest-bearing cash deposits
with other banks and in securities available-for-sale that are not pledged. The Bank’s liquid assets at September 30, 2014 consisted of
$21.2 million in cash and cash equivalents and $16.7 million in securities available-for-sale that were not pledged, compared to liquid
assets of $58.2 million in cash and cash equivalents at December 31, 2013.
Additionally, the Bank is currently approved by the FHLB to borrow up to $100.0 million to the extent the Bank provides qualifying
collateral and holds sufficient FHLB stock. That approved limit and collateral requirement would have permitted the Bank, as of
September 30, 2014, to borrow an additional $20.5 million.
31
Table of Contents
Capital Resources
Our principal subsidiary, Broadway Federal, must comply with capital standards established by the OCC in the conduct of its
business. Failure to comply with such capital requirements may result in significant limitations on its business or other sanctions. We
are not currently subject to separate holding company capital requirements, but by July 2015 the Dodd-Frank Act will, among other
things, impose specific capital requirements on us as a savings and loan holding company as well. These requirements must be no less
than those to which federally insured depository institutions are currently subject. The current regulatory capital requirements are
described in Note 8 of the Notes to Consolidated Financial Statements and in Regulatory Capital below.
Regulatory Capital
The capital regulations applicable to the Bank, which are administered by the OCC, include three separate minimum capital
requirements. First, the tangible capital requirement mandates that the Bank’s stockholder’s equity, less intangible assets, be at least
1.50% of adjusted total assets as defined in the capital regulations. Second, the core capital requirement mandates that core capital
(tangible capital plus certain qualifying intangible assets) be at least 4.00% of adjusted total assets as defined in the capital
regulations. Third, the risk-based capital requirement mandates that core capital plus supplemental capital (as defined by the OCC) be
at least 8.00% of risk-weighted assets as prescribed in the capital regulations. The capital regulations assign specific risk weightings
to all assets and off-balance sheet items for this purpose.
The Bank is subject to higher capital requirements under the Consent Order entered into by the Bank with the OCC on October 30,
2013. The Consent Order raised the Bank’s minimum capital requirements to 9% for Tier 1 (Core) Capital and 13% for Total Capital
to risk weighted assets. The Bank was in compliance with all capital requirements in effect at September 30, 2014 and December 31,
2013.
Actual and required capital amounts and ratios at September 30, 2014 and December 31, 2013, together with the higher capital
requirements that the Bank is required to meet under the Consent Order applicable to it, are presented below.
Capital
Requirements
under Consent
Order
Amount
Ratio
Actual
Amount
Ratio
Required for
Capital Adequacy
Purposes
Amount
Ratio
(Dollars in thousands)
September 30, 2014:
Tangible Capital to adjusted total assets
Tier 1 (Core) Capital to adjusted total assets
Total Capital to risk weighted assets
$ 36,606
$ 36,606
$ 39,614
10.84%
10.84%
16.89%
$ 5,066
$ 13,510
$ 18,764
1.50%
4.00%
8.00%
N/A
$ 30,398
$ 30,492
N/A
9.00%
13.00%
December 31, 2013:
Tangible Capital to adjusted total assets
Tier 1 (Core) Capital to adjusted total assets
Total Capital to risk weighted assets
$ 34,035
$ 34,035
$ 36,845
10.24%
10.24%
16.95%
$ 4,986
$ 13,295
$ 17,394
1.50%
4.00%
8.00%
N/A
$ 29,914
$ 28,286
N/A
9.00%
13.00%
On October 30, 2014, the Company made a capital contribution of $2.5 million to the Bank which is not reflected in the table above.
32
Table of Contents
In July 2013, the OCC and the other federal bank regulatory agencies issued a final rule to revise their capital requirements and their
method for calculating risk-weighted assets. Among other things, the final rule establishes a new common equity Tier 1 minimum
capital requirement (4.5% of risk-weighted assets), increases the minimum Tier 1 capital to risk-weighted assets requirement (from
4% to 6% of risk-weighted assets) and assigns a higher risk weight (150%) to exposures that are more than 90 days past due and to
certain commercial real estate facilities that finance the acquisition, development or construction of real property. The final rule also
limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not
hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the
amount necessary to meet its minimum risk-based capital requirements. The final rule becomes effective for us on January 1, 2015.
The capital conservation buffer requirement will be phased in beginning January 1, 2016 and ending January 1, 2019, when the full
capital conservation buffer requirement will be effective. We have estimated our capital ratios as of September 30, 2014 using the
new standards and the pro forma ratios already exceed the requirements of the fully implemented capital rules.
33
Table of Contents
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures was performed
under the supervision of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) as of September 30,
2014. Based on that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures
were effective as of September 30, 2014. There were no significant changes during the quarter ended September 30, 2014 in the
Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
34
Table of Contents
PART II. OTHER INFORMATION
Item 1.
LEGAL PROCEEDINGS
None
Item 1A.
RISK FACTORS
Not Applicable
Item 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
Item 3.
DEFAULTS UPON SENIOR SECURITIES
None
Item 4.
MINE SAFETY DISCLOSURES
Not Applicable
Item 5.
OTHER INFORMATION
None
Item 6.
EXHIBITS
Exhibit
Number*
3.1
10.1
10.2.1
10.2.2
10.3.1
10.3.2
10.4
31.1
31.2
32.1
32.2
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
Certificate of Incorporation of Registrant and amendments thereto
Form of Subscription Agreement entered into between the Registrant and various investors, dated
October 16, 2014
Subscription Agreement entered into between the Registrant and Gapstow Financial Growth Capital
Fund I LP, dated October 16, 2014
Investor Rights Letter Agreement entered into between the Registrant and Gapstow Financial Growth
Capital Fund I LP, dated October 16, 2014
Subscription Agreement entered into between the Registrant and National Community Investment Fund,
dated October 16, 2014
Investor Rights Letter Agreement entered into between the Registrant and National Community Investment
Fund, dated October 16, 2014
Registration Rights Agreement entered into among the Registrant, Gapstow Financial Growth Capital
Fund I LP, and National Community Investment Fund, dated October 16, 2014
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase Document
XBRL Taxonomy Extension Definitions Linkbase Document
XBRL Taxonomy Extension Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
Pursuant to Regulation S-K, Item 601(b)(4)(iii), instruments that define the rights of holders of the Company’s long-term
debt securities, where the long-term debt securities authorized under each such instrument do not exceed 10% of the
Registrant’s total assets, have been omitted and will be furnished to the Commission upon request.
* Exhibits followed by a parenthetical reference are incorporated by reference herein from the document filed by the
Registrant with the SEC described therein. Except as otherwise indicated, the SEC File No. for each incorporated
document is 000-27464.
35
Table of Contents
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date:
November 13, 2014
By:
/s/ Wayne-Kent A. Bradshaw
Wayne-Kent A. Bradshaw
Chief Executive Officer
Date:
November 13, 2014
By:
/s/ Brenda J. Battey
Brenda J. Battey
Chief Financial Officer
36
Exhibit 3.1
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 09/25/1995
950218394 - 2545755
CERTIFICATE OF INCORPORATION
OF
BROADWAY FINANCIAL CORPORATION
FIRST: The name of this corporation is Broadway Financial Corporation.
SECOND: The address of this corporation’s registered office in the State of Delaware is The Prentice-Hall
Corporation System, Inc., 32 Loockerman Square, Suite L-100, City of Dover, State of Delaware 19904. The name of its registered
agent at such address is The Prentice-Hall Corporation System, Inc.
THIRD: The purpose of this corporation is to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of all classes of stock which this corporation shall have authority to issue is
four million (4,000,000), of which three million (3,000,000) shall be common stock, par value $0.01 per share, and one million
(1,000,000) shall be serial preferred stock, par value $0.01 per share.
The shares of preferred stock may be issued from time to time in one or more series. The board of directors of this
corporation shall have authority to fix by resolution or resolutions the designations and the powers, preferences and relative,
participating, optional or other special rights and qualifications, limitations or restrictions thereof, including without limitation the
voting rights, the dividend rate, conversion rights, redemption price and liquidation preference, of any series of shares of preferred
stock, to fix the number of shares constituting any such series and to increase or decrease the number of shares of any such series (but
not below the number of shares thereof then outstanding). In case the number of shares of any such series shall be so decreased, the
shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution or resolutions originally
fixing the number of shares of such series.
FIFTH: The name and mailing address of the incorporator of this corporation is:
Paul C. Hudson
Chief Executive Officer and President
Broadway Federal Savings and Loan Association
4835 W. Venice Boulevard
Los Angeles, California 90019
SIXTH: The business and affairs of this corporation shall be under the direction of a board of directors. The exact
number of directors shall be fixed from time to time by the board of directors pursuant to a resolution adopted by the affirmative vote
of a majority of the full board of directors.
A.
Election of Directors. The directors of this corporation shall be divided into three classes: the first class, the
second class and the third class. Each director shall serve for a term ending on the third annual meeting following the annual meeting
at which such director was elected; provided, however, that the directors first elected to the first class shall serve for a term ending
upon the election of directors at the annual meeting next following the end of the calendar year 1995, the directors first elected to the
second class shall serve for a term ending upon the election of directors at the second annual meeting next following the end of
calendar year 1995, and the directors first elected to the third class shall serve for a term ending upon the election of directors at the
third annual meeting next following the end of the calendar year 1995.
At each annual election commencing at the first annual meeting of stockholders, the successors to the class of
directors whose term expires at that time shall be elected by the stockholders to hold office for a term of three years to succeed those
directors whose term expires, so that the term of one class of directors shall expire each year.
In the event of any change in the authorized number of directors, each director then continuing to serve as such shall
continue as a director of the class of which he or she is a member until the expiration of his or her current term, or his or her prior
resignation, disqualification, disability or removal. There shall be no cumulative voting in the election of directors. Election of
directors need not be made by written ballot.
B.
Newly Created Directorships and Vacancies. Any vacancies on the board of directors resulting from death,
resignation, retirement, disqualification, removal from office or other cause may be filled only by the affirmative vote of a majority of
directors then in office, although less than a quorum, or by the sole remaining director, or, in the event of the failure of the directors or
the sole remaining director so to act, by the stockholders at the next annual meeting which occurs after the expiration of a 90-day
period commencing on the day the vacancy is created. Directors so chosen shall hold office for a term expiring at the annual meeting
of stockholders at which the term of the class to which they have been elected expires. A director elected to fill a vacancy by reason of
an increase in the number of directorships may be elected by a majority vote of the directors then in office, although less than a
quorum of the board of directors, to serve until the next election of the class for which such director shall have been chosen. If the
number of directors is changed, any increase or decrease may be allocated to any such class the board of directors selects in its
discretion. No decrease in the number of directors constituting the board of directors shall shorten the term of any incumbent director.
2
C.
Removal. A director may be removed only for cause as determined by the affirmative vote of the holders of
at least a majority of the shares then entitled to vote in an election of directors, which vote may only be taken at an annual meeting or a
special meeting of stockholders called expressly for that purpose. Cause for removal shall be deemed to exist only if the director
whose removal is proposed has been convicted of a felony by a court of competent jurisdiction or has been adjudged by a court of
competent jurisdiction to be liable for gross negligence or misconduct in the performance of such director’s duty to the corporation
and such adjudication is no longer subject to direct appeal.
SEVENTH: A. Higher Vote for Certain Business Combinations. In addition to any affirmative vote of holders of a
class or series of capital stock of this corporation required by law or the provisions of this Certificate of Incorporation and except as
otherwise expressly provided in Paragraph B of this Article SEVENTH, a Business Combination (as hereinafter defined) with or upon
a proposal by an Interested Stockholder (as hereinafter defined) shall require the affirmative vote of the holders of at least two-thirds
of the Voting Stock (as hereinafter defined) of this corporation voting together as a single class. Such affirmative vote shall be
required notwithstanding the fact that no vote, or a lesser percentage vote, may be required or may be specified, by law or regulation.
B.
When Higher Vote is Not Required. The provisions of Paragraph A of this Article SEVENTH shall not be
applicable to any particular Business Combination if all of the conditions specified in any one of the following Subparagraphs (i), (ii)
or (iii) are met:
(i)
Approval by Disinterested Directors. The proposed Business Combination has been approved by a
vote of a majority of all the Disinterested Directors (as hereinafter defined); or
(ii)
Combination with Subsidiary. The proposed Business Combination is solely between this
corporation and a subsidiary of this corporation, and such Business Combination does not have the direct or indirect effect set
forth in Subparagraph C(ii)(e) of this Article SEVENTH; or
(iii)
Price and Procedural Conditions. The proposed Business Combination will be consummated
within three years after the date (the “Determination Date”) that the Interested Stockholder became an Interested Stockholder
and all of the following conditions have been met:
(a)
The aggregate amount of cash and fair market value (as of the date of the consummation
of the Business Combination) of consideration other than cash, to be received per share of common stock in such
Business Combination by the holders thereof shall be at least equal to the higher of the following: (x) the highest per
share price, including any brokerage commissions, transfer taxes and soliciting
3
dealers’ fees (with appropriate adjustments for recapitalizations, reclassifications, stock splits, reverse stock splits
and stock dividends) paid by the Interested Stockholder for any shares of common stock acquired by it, including
those shares acquired by the Interested Stockholder before the Determination Date, or (y) the fair market value of
the common stock of the corporation (as determined by the Disinterested Directors) on the date the Business
Combination is first proposed (the “Announcement Date”).
(b)
The aggregate amount of cash and fair market value (as of the date of the consummation
of the Business Combination) of consideration other than cash, to be received per share of any class or series of
preferred stock in such Business Combination by the holders thereof shall be at least equal to the highest of the
following: (x) the highest per share price, including any brokerage commissions, transfer taxes and soliciting
dealers’ fees (with appropriate adjustments for recapitalizations, reclassifications, stock splits, reverse stock splits
and stock dividends) paid by the Interested Stockholder for any shares of such class or series of preferred stock
acquired by it, including those shares acquired by the Interested Stockholder before the Determination Date; (y) the
fair market value of such class or series of preferred stock of the corporation (as determined by the Disinterested
Directors) on the Announcement Date; and (z) the highest preferential amount per share of such class or series of
preferred stock to which the holders thereof would be entitled in the event of voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the corporation (regardless of whether the Business Combination to be
consummated constitutes such an event).
(c)
The consideration to be received by holders of a particular class or series of outstanding
common or preferred stock shall be in cash or in the same form as the Interested Stockholder has previously paid for
shares of such class or series of stock. If the Interested Stockholder has paid for shares of any class or series of stock
with varying forms of consideration, the form of consideration given for such class or series of stock in the Business
Combination shall be cash or the form used by the Interested Stockholder to acquire the largest number of shares of
such class or series of stock previously acquired by it.
(d)
No Extraordinary Event (as hereinafter defined) occurs after the Interested Stockholder
has become an interested Stockholder and prior to the consummation of the Business Combination.
(e)
A proxy or information statement describing the proposed Business Combination and
complying with the requirements of
4
the Securities Exchange Act of 1934, as amended (the “Act”), and the rules and regulations thereunder (or any
subsequent provisions replacing such Act, rules and regulations) is mailed to public stockholders of the corporation
at least 30 days prior to the consummation of such Business Combination, whether or not such proxy or information
statement is required pursuant to such Act or subsequent provisions (although such proxy or information statement
need only be filed with the Securities and Exchange Commission if a filing is required by such Act or subsequent
provisions), and shall contain at the front thereof in a prominent place the recommendation, if any, of the
Disinterested Directors as to the advisability or inadvisability of the Business Combination and the recommendation,
opinion or evaluation of any investment banking firm selected by a majority of the Disinterested Directors as to the
fairness of the Business Combination from the point of view of the stockholders of the corporation other than the
Interested Stockholder.
C.
Certain Definitions. For purposes of this Article SEVENTH:
(i)
A “person” shall mean any individual, corporation, partnership, bank, association, joint stock
company, trust, unincorporated organization or similar company, or a group of “persons” acting or agreeing to act together in
the manner set forth in Rule 13d-5 under the Act as in effect on June 1, 1995.
(ii)
“Business Combination” shall mean any of the following transactions, if entered into by this
corporation or a subsidiary of this corporation with, or upon a proposal by, an Interested Stockholder:
(a)
the merger or consolidation of this corporation or any subsidiary of this corporation; or
(b)
the sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one or a
series of transactions) of any assets of this corporation or any subsidiary of this corporation having an aggregate fair
market value of $10 million or more; or
(c)
the issuance or transfer by this corporation or any subsidiary of this corporation (in one
or a series of transactions) of securities of this corporation or subsidiary of this corporation having an aggregate fair
market value of $10 million or more; or
(d)
this corporation; or
the adoption of a plan or proposal for the liquidation or dissolution of any subsidiary of
(e)
the reclassification of securities (including a reverse stock split), recapitalization,
consolidation or any other transaction
5
(whether or not involving an Interested Stockholder) which has the direct or indirect effect of increasing the voting
power, whether or not then exercisable, of an Interested Stockholder in any class or series of capital stock of this
corporation or subsidiary of this corporation; or
(f)
any agreement, contract or other arrangement providing directly or indirectly for any of
the foregoing.
(iii)
“Interested Stockholder” shall mean any person (other than this corporation, a subsidiary of this
corporation, an employee stock ownership or other employee benefit plan of this corporation or subsidiary of this corporation
or any trustee or fiduciary with respect to any such plan acting in such capacity) that is the direct or indirect beneficial owner
(as defined in Rule 13d-3 and Rule 13d-5 under the Act as in effect on June 1, 1995) of more than 10% of the outstanding
voting stock of the corporation, and any Affiliate or Associate of any such person.
(iv)
“Disinterested Director” shall mean any member of the board of directors of this corporation who
is not affiliated with an Interested Stockholder and who was a member of the board of directors of this corporation
immediately prior to the time that any Interested Stockholder became an Interested Stockholder, and any, successor to a
Disinterested Director who is not affiliated with an Interested Stockholder and is recommended to succeed a Disinterested
Director by a majority of the Disinterested Directors who are then members of the board of directors of this corporation.
(v)
“Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b2 under the Act as in effect on June 1, 1995.
(vi)
“Extraordinary Event” shall mean, as to any Business Combination and Interested Stockholder,
any of the following events that is not approved by a majority of all Disinterested Directors:
(a)
any failure to declare and pay at the regular date therefor any full quarterly dividend
(whether or not cumulative) on outstanding preferred stock; or
(b)
any reduction in the annual rate of dividends paid on the common stock (except as
necessary to reflect any subdivision of the common stock); or
(c)
any failure to increase the annual rate of dividends paid on the common stock as
necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any
6
similar transaction that has the effect of reducing the number of outstanding shares of the common stock; or
(d)
the receipt by the Interested Stockholder, after the Determination Date, of a direct or
indirect benefit (except proportionately as a stockholder) from any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax advantages provided by this corporation or any subsidiary of this
corporation, whether in anticipation of, or in connection with, the Business Combination or otherwise.
(vii)
“Voting Stock” shall mean all outstanding shares of the common or preferred stock of this
corporation entitled to vote generally in the election of directors, and each reference to a proportion of Voting Stock shall
refer to shares having such proportion of the number of shares entitled to be cast, excluding all shares beneficially owned or
controlled by the Interested Stockholder
(viii)
In the event of any Business Combination in which this corporation survives, the phrase
“consideration other than cash” as used in Subparagraphs B(iii)(a) and B(iii)(b) of this Article SEVENTH shall include the
shares of common stock and the shares of any other class or series of preferred stock retained by the holders of such shares.
D.
Determinations. A majority of all Disinterested Directors shall have the power to make all determinations
with respect to this Article SEVENTH, including, without limitation, the transactions that are Business Combinations, the persons
who are Interested Stockholders, the time at which an Interested Stockholder became an Interested Stockholder and the fair market
value of any assets, securities (including any stock or other securities issued by this corporation) or other property; and any such
determinations of such Disinterested Directors shall be conclusive and binding.
E.
No Effect on Fiduciary Obligations of Interested Stockholders. Nothing contained in this Article
SEVENTH shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law.
F.
Amendment, Repeal. In addition to the vote required by Article NINTH of this Certificate of Incorporation,
the affirmative vote of the holders of at least two-thirds of the Voting Stock of this corporation, voting together as a single class, shall
be required to amend, repeal or adopt any provisions inconsistent with this Article SEVENTH.
EIGHTH: Special meetings of the stockholders may only be called by a majority of the directors then in office.
7
NINTH: This corporation reserves the right to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation in the manner now or hereafter prescribed by statute. Notwithstanding the foregoing, the affirmative vote
of the holders of at least two-thirds (or such greater proportion as may otherwise be required pursuant to any specific provision of this
Certificate of Incorporation) of the total votes eligible to be cast at a legal meeting of stockholders shall be required to amend, repeal
or adopt any provisions inconsistent with Articles SIXTH, SEVENTH, EIGHTH, this Article NINTH and Articles TENTH,
ELEVENTH, TWELFTH, THIRTEENTH, and FIFTEENTH of this Certificate of Incorporation.
TENTH: Bylaws may be adopted, amended or repealed by the affirmative vote of the holders of at least two-thirds
of the total votes eligible to be cast at a legal meeting of stockholders or by a resolution adopted by a majority of the directors then in
office.
ELEVENTH: All action required to be taken or which may be taken at any annual or special meeting of the
stockholders of this corporation may only be taken by written consent without a meeting if a consent in writing, setting forth the action
so taken, shall be signed by all of the stockholders of this corporation entitled to vote thereon.
TWELFTH: A director of this corporation shall not be personally liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as director, except: (i) for any breach of the director’s duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director
derives any improper personal benefit.
Any repeal or modification of the foregoing paragraph by the stockholders of the corporation shall not adversely
affect any right or protection of a director of the corporation existing at the time of such repeal or modification.
THIRTEENTH: Notwithstanding anything contained in this Certificate of Incorporation or this corporation’s
bylaws to the contrary, until five years from the completion of the Conversion of Broadway Federal Savings and Loan Association
(“Broadway Federal”) to a stock savings bank and the concurrent acquisition of the capital stock of Broadway Federal by this
corporation, the following provisions shall apply:
A.
Beneficial Ownership Limitation. No person shall directly or indirectly offer to acquire or acquire the
beneficial ownership of more than 10% of any class of Voting Stock (as defined below), nor shall the Pro Forma Equity (as defined
below) represented by the equity securities (as defined below) of this corporation beneficially owned by any person exceed 10%.
8
In the event Equity Securities are acquired in violation of this Article THIRTEENTH, all Equity Securities
beneficially owned by any person in excess of either of the 10% limitations set forth in the previous paragraph shall be considered
“excess securities” and any such Voting Stock in excess of either of such limitations shall not be counted as shares entitled to vote and
shall not be voted by any person or counted as voting shares in connection with any matters submitted to the stockholders for a vote.
B.
Certain Definitions. For purposes of this Article THIRTEENTH, the following definitions apply:
(i)
A “person” shall mean any individual, corporation, partnership, bank, association, joint stock
company, trust, unincorporated organization or similar company, or a group of “persons” acting or agreeing to act together in
the manner set forth in Rule 13d-5 under the Act as in effect on June 1, 1995.
(ii)
The term “offer” includes every offer to buy or otherwise acquire, solicitation of any offer to sell,
tender offer for, or request or invitation for tenders of, a security or interest in a security, for value.
(iii)
The term “acquire” includes every type of acquisition, whether effected by purchase, exchange,
operation of law or otherwise.
(iv)
The term “acting in concert” means (a) knowing participation in a joint activity or conscious
parallel action towards a common goal whether or not pursuant to an express agreement or (b) a combination or pooling of
voting or other interests in the securities of an issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangements, whether written or otherwise.
(v)
“Equity Security” means any stock or similar security; or any security, convertible, with or
without consideration, into such a security, or carrying any warrant or right to subscribe to or purchase such security; or any
such warrant or right.
(vi)
“Voting Stock” means common or preferred stock or similar interests if the shares or interests, by
statute, certificate of incorporation or in any manner, entitle the holder:
(a)
to vote for or to select directors;
(b)
to vote for or to direct the conduct of the operations or other significant policies of an
issuer; provided, that notwithstanding the foregoing, preferred stock or similar interests are not “Voting Stock” if:
9
(1)
voting rights associated with the stock or interests are limited solely to the type
customarily provided by statute or otherwise with regard to matters that would significantly and
adversely affect the rights or preferences of the stock or other interest, such as the issuance of
additional amounts or classes of senior securities, the modification of the terms of the stock,
security or interest, the dissolution of the issuer, or the payment of dividends by the issuer when
preferred dividends are in arrears;
(2)
the stock or interest represent an essentially passive investment or financing
device and do not otherwise provide the holder with control over the issuer; and
(3)
the stock or interests do not entitle the holder, by statute, certificate of
incorporation, or otherwise, to select or to vote for the selection of directors of the issuer
generally.
(vii)
“Pro Forma Equity” means a sum which shall be calculated as follows:
(1)
the sum of
(A)
the total number of shares of Voting Stock beneficially owned by any
person, and
(B)
the total number of shares of Voting Stock into which all Equity
Securities, other than Voting Stock, beneficially owned by such person may be converted,
(2)
shall be divided by the sum of
(A)
the total number of shares of Voting Stock outstanding, and
(B)
the total number of shares of Voting Stock into which the Equity
Securities, other than Voting Stock, beneficially owned by such person may be converted.
FOURTEENTH: A. Actions, Suits or Proceedings Other Than by or in the Right of the Corporation. The
corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of
the corporation) by reason of the fact that he or
10
she is or was or has agreed to become a director or officer of the corporation, or is or was serving or has agreed to serve at the request
of the corporation as a director or officer of the corporation, or is or was serving or has agreed to serve at the request of the
corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or by reason of any
action alleged to have been taken or omitted in such capacity, against costs, charges, expenses (including attorneys’ fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him or her or on his or her behalf in connection with such
action, suit or proceeding and any appeal therefrom, if he or she acted in good faith and in a manner he or she reasonably believed to
be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in
good faith and in a manner which he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful.
B.
Actions or Suits by or in the Right of the Corporation. The corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he or she is or was or has agreed to become a director or
officer of the corporation or is or was serving or has agreed to serve at the request of the corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise, or by reason of any action, alleged to have been taken or omitted in
such capacity, against costs, charges and expenses (including attorneys’ fees) actually and reasonably incurred by him or her or on his
or her behalf in connection with the defense or settlement of such action or suit and any appeal therefrom, if he or she acted in good
faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to
the corporation unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of such liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such costs, charges and expenses which the Court of Chancery or such
other court shall deem proper.
C.
Indemnification for Costs. Charges and Expenses of Successful Party. Notwithstanding the other
provisions of this Article FOURTEENTH, to the extent that a director or officer has been successful, on the merits or otherwise,
including, without limitation, to the extent permitted by applicable law, the dismissal of an action without prejudice, in defense on any
action, suit or proceeding referred to in Paragraphs A and B of this Article FOURTEENTH, or in defense of any claim,
11
issue or matter therein, he or she shall be indemnified against all costs, charges and expenses (including attorneys’ fees) actually and
reasonably incurred by him or her or on his or her behalf in connection therewith.
D.
Determination of Right to Indemnification. Any indemnification under Paragraphs A and B of this Article
FOURTEENTH (unless ordered by a court) shall be paid by the corporation, if a determination is made that indemnification of the
director or officer is proper in the circumstances because he or she has met the applicable standard of conduct set forth in Paragraphs
A and B of this Article FOURTEENTH. Such determination shall be made (i) by the board of directors by a majority vote of the
directors who were not parties to such action, suit or proceeding, or (ii) if such majority of disinterested directors so directs, by
independent legal counsel in a written opinion, or (iii) by the stockholders.
E.
Advance of Costs, Charges and Expenses. Costs, charges and expenses (including attorneys’ fees)
incurred by a person referred to in Paragraphs A and B of this Article FOURTEENTH in defending a civil or criminal action, suit or
proceeding shall be paid by the corporation in advance of the final disposition of such action or proceeding; provided, however, that
the payment of such costs, charges and expenses incurred by a director or officer in his or her capacity as a director or officer (and not
in any other capacity in which service was or is rendered by such person while a director or officer) in advance of the final disposition
of such action, suit or proceeding shall be made only upon receipt of an undertaking by or on behalf of such director or officer to repay
all amounts so advanced in the event that it shall ultimately be determined that such director or officer is not entitled to be indemnified
by the corporation as authorized in this Article FOURTEENTH. Such costs, charges and expenses incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the majority of the directors deems appropriate. The majority of the
directors may, in the manner set forth above, and upon approval of such director or officer of the corporation, authorize the
corporation’s counsel to represent such person, in any action, suit or proceeding, whether or not the corporation is a party to such
action, suit or proceeding.
F.
Procedure for Indemnification. Any indemnification under Paragraphs A, B and C, or advance of costs,
charges and expenses under Paragraph E of this Article FOURTEENTH, shall be made promptly, and in any event within 60 days,
upon the written request of the director or officer. The right to indemnification or advances as granted by this Article FOURTEENTH
shall be enforceable by the director or officer in any court of competent jurisdiction, if the corporation denies such request, in whole or
in part, or if no disposition thereof is made within 60 days. Such person’s costs and expenses incurred in connection with successfully
establishing his or her right to indemnification, in whole or in part, in any such action shall also be indemnified by the corporation. It
shall be a defense to any such action (other than an action brought to enforce a claim for the advance of costs, charges and expenses
under Paragraph E of this Article FOURTEENTH where the required undertaking, if any, has been received by the corporation) that
the claimant has not met the standard of
12
conduct set forth in Paragraphs A and B of this Article FOURTEENTH, but the burden of proving such defense shall be on the
corporation. Neither the failure of the corporation (including its board of directors, its independent legal counsel and its stockholders)
to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the
circumstances because he or she has met the applicable standard of conduct set forth in Paragraphs A and B of this Article
FOURTEENTH, nor the fact that there has been an actual determination by the corporation (including its board of directors, its
independent legal counsel and its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable standard of conduct.
G.
Settlement. The corporation shall not be obligated to reimburse the costs of any settlement to which it
has not agreed. If in any action, suit or proceeding, including any appeal, within the scope of Paragraphs A and B of this Article
FOURTEENTH, the person to be indemnified shall have unreasonably failed to enter into a settlement thereof offered or assented to
by the opposing party or parties in such action, suit or proceeding, then, notwithstanding any other provision hereof, the
indemnification obligation of the corporation to such person in connection with such action, suit or proceeding shall not exceed the
total of the amount at which settlement could have been made and the expenses incurred by such person prior to the time such
settlement could reasonably have been effected.
H.
Subsequent Amendment. No amendment, termination or repeal of this Article FOURTEENTH or of
relevant provisions of the Delaware General Corporation Law or any other applicable law shall affect or diminish in any way the
rights of any director or officer of the corporation to indemnification under the provisions hereof with respect to any action, suit or
proceeding arising out of, or relating to, any actions, transactions or facts occurring prior to the final adoption of such amendment,
termination or repeal.
I.
Other Rights; Continuation of Right to Indemnification. The indemnification provided by this Article
FOURTEENTH shall not be deemed exclusive of any other rights to which a director, officer, employee or agent seeking
indemnification may be entitled under any law (common or statutory), agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in any other capacity while holding office or while employed
by or acting as agent for the corporation, and shall continue as to a person who has ceased to be a director, officer, employee or agent,
and shall inure to the benefit of the estate, heirs, executors and administrators of such person. Nothing contained in this Article
FOURTEENTH shall be deemed to prohibit, and the corporation is specifically authorized to enter into, agreements with officers and
directors providing indemnification rights and procedures different from those set forth herein. All rights to indemnification under this
Article FOURTEENTH shall be deemed to be a contract between the corporation and each director or officer of the corporation who
serves or served in such capacity at any time while this Article FOURTEENTH is in effect. The
13
corporation shall not consent to any acquisition, merger, consolidation or other similar transaction unless the successor corporation
assumes by operation of law or by agreement the obligations set forth in this Article FOURTEENTH.
J.
Savings Clause. If this Article FOURTEENTH or any portion hereof shall be invalidated on any ground
by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director or officer of the corporation as
to any costs, charges, expenses (including attorney’s fees), judgments, fines and amounts paid in settlement with respect to any action,
suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the corporation, to
the full extent permitted by any applicable portion of this Article FOURTEENTH that shall not have been invalidated and to the full
extent permitted by applicable law.
K.
Subsequent Legislation. If the Delaware General Corporation Law is amended after the date hereof to
further expand the indemnification permitted to directors and officers of the corporation, then the corporation shall indemnify such
person to the fullest extent permitted by the Delaware General Corporation Law, as so amended.
FIFTEENTH: Stockholder nominations of persons for election as directors of this corporation and stockholder
proposals with respect to business to be conducted at an annual meeting of stockholders must, in order to be voted upon, be made in
writing and delivered to the secretary of this corporation on or before 30 days (or such other period as may be established in the
bylaws) in advance of the date (month and day) of the previous year’s annual meeting.
14
THE UNDERSIGNED, being the sole incorporator hereinbefore named, for the purpose of forming a corporation
pursuant to the General Corporation Law of the State of Delaware, does hereby make, file and record this Certificate of Incorporation,
hereby declaring and certifying that this is my act and deed and that the facts stated herein are true and, accordingly, have hereunto set
my hand this 25th day of September, 1995.
BROADWAY FEDERAL SAVINGS AND LOAN ASSOCIATION
By: /s/ Paul C. Hudson
Paul C. Hudson, Chief Executive Officer and President
15
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 11/28/1995
950274760 - 2545755
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
BROADWAY FINANCIAL CORPORATION
Broadway Financial Corporation, a corporation organized and existing under the General Corporation Law of the State of
Delaware (the “Corporation”), does hereby certify:
FIRST: The Corporation has not received payment for any of its stock.
SECOND:
The amendment to the Corporation’s Certificate of Incorporation set forth in the following resolution was
approved by a majority of the Corporation’s Board of Directors and was duly adopted in accordance with the provisions of Section
241 of the General Corporation Law of the State of Delaware:
“NOW THEREFORE, BE IT RESOLVED, that Subsection (C) of Article Sixth of the Corporation’s Certificate of
Incorporation is hereby deleted;
RESOLVED FURTHER, that Subsection (C)(vii) of Article Seventh of the Corporation’s Certificate of Incorporation is hereby
amended in its entirety to read as follows:
“(vii) “Voting Stock” shall mean all outstanding shares of the common or preferred stock of this corporation entitled to
vote generally in the election of directors, end each reference to a proportion of Voting Stock shall refer to shares having such
proportion of the number of shares entitled to be cast.”;
RESOLVED FURTHER, that Article Eighth of the Corporation’s Certificate of Incorporation is hereby amended in its entirety
to read as follows:
“EIGHTH: RESERVED.””
IN WITNESS WHEREOF, Broadway Financial Corporation has caused this Certificate of Amendment to be signed and
attested by its duly authorized officers, this 2nd day of November, 1995.
BROADWAY FINANCIAL CORPORATION
By: /s/ Paul C. Hudson
Paul C. Hudson, Chief Executive Officer and President
ATTEST:
/s/ Bob Adkins
Bob Adkins, Chief Financial Officer
2
State of Delaware
Secretary of State
Division of Corporations
Delivered 02:05 PM 08/25/2011
FILED 01:58 PM 08/25/2011
SRV 110953393 - 2545755 FILE
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
BROADWAY FINANCIAL CORPORATION
Broadway Financial Corporation, a corporation organized and existing under and by virtue of the laws of the State of
Delaware (the “Corporation”), hereby certifies that:
1.
Article FOURTH of the Certificate of Incorporation of the Corporation is hereby amended and restated in its entirety
to read as follows:
FOURTH: The total number of shares of all classes of stock which this corporation shall have authority to issue is
nine million (9,000,000), of which eight million (8,000,000) shall be common stock, par value $0.01 per share, and one
million (1,000,000) shall be serial preferred stock, par value $0.01 per share.
The shares of preferred stock may be issued from time to time in one or more series. The board of directors of this
corporation shall have authority to fix by resolution or resolutions the designations and the powers, preferences and relative,
participating, optional or other special rights and qualifications, limitations or restrictions thereof, including without
limitation the voting rights, the dividend rate, conversion rights, redemption price and liquidation preference, of any series of
shares of preferred stock, to fix the number of shares constituting any such series and to increase or decrease the number of
shares of any such series (but not below the number of shares thereof then outstanding). In case the number of shares of any
such series shall be so decreased the shares constituting such decrease shall resume the status which they had prior to the
adoption of the resolution or resolutions originally fixing the number of shares of such series.
2.
The foregoing amendment has been duly adopted in accordance with the provisions of Section 242 of the Delaware
General Corporation Law.
In Witness Whereof, Broadway Financial Corporation has caused this Certificate of Amendment to Certificate of
Incorporation to be signed by its duly authorized officer on this 17th day of August 2011.
BROADWAY FINANCIAL CORPORATION
By: /s/ Daniele Johnson
Daniele Johnson
Secretary
Delaware
PAGE 1
The First State
I, JEFFREY W. BULLOCK, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE
ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT OF “BROADWAY FINANCIAL
CORPORATION”, FILED IN THIS OFFICE ON THE TWENTY-SEVENTH DAY OF NOVEMBER, A.D. 2013, AT 3:12
O’CLOCK P.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF
DEEDS.
2545755 8100
131359400
You may verify this certificate online
at corp.delaware.gov/authver.shtml
State of Delaware
Secretary of State
Division of Corporations
Delivered 03:16 PM 11/27/2013
FILED 03:12 PM 11/27/2013
SRV 131359400 - 2545755 FILE
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
BROADWAY FINANCIAL CORPORATION
Broadway Financial Corporation, a corporation organized and existing under and by virtue of the laws of the State of
Delaware (the “Corporation”), hereby certifies that:
1.
Article FOURTH of the Certificate of Incorporation of the Corporation is hereby amended and restated in its
entirety to read as follows:
FOURTH: A. The total number of shares of all classes of stock which this corporation shall have authority to issue
is fifty-six million (56,000,000), of which: fifty million (50,000,000) shall be common stock, par value $0.01 per share,
having full voting rights; five million (5,000,000) shall be non-voting common stock, par value $0.01 per share; and one
million (1,000,000) shall be serial preferred stock, par value $0.01 per share.
B.1.
The shares of non-voting common stock shall be a separate class of stock that shall have all of the
rights and other attributes of the class of shares of common stock having full voting rights that the corporation has authority
to issue, including without limitation the right to share ratably with the shares of such class of common stock, based on the
respective numbers of outstanding shares of each such class, any dividends and any distributions on liquidation declared and
paid on common stock, except as set forth in the remainder of this Article FOURTH, Paragraph B.
2.
The shares of non-voting common stock constitute non-voting shares of the corporation and the
holders of the shares of non-voting common stock are not entitled to vote on any matter other than as required by law.
3.
Each share of non-voting common stock shall convert, automatically and without any action by
any person, into one fully paid and nonassessable share of common stock having full voting rights upon any transfer of such
share to any person other than the Initial Holder or any Affiliate of such Initial Holder pursuant to clause (iii), (iv) or (v) of
the following sentence. The shares of non-voting common stock are not convertible into common stock having full voting
rights by the Initial Holder or any Affiliate of such Initial Holder and may only be transferred by the Initial Holder or such
Affiliate (i) to an Affiliate of such Initial Holder, (ii) to the corporation, (iii) in a widespread public distribution, (iv) in a
transfer in which no transferee (or group of associated transferees) would receive 2% or more of any class of voting securities
of the corporation, or (v) to a transferee that would control more than 50% of the voting securities of the corporation without
any transfer from the Initial
Holder or any Affiliate of such Initial Holder. Notwithstanding the foregoing, the corporation may restrict such conversion to
the extent it would be inconsistent with, or in violation of, the requirements of any Regulator with respect to the restrictions on
the transfer of the non-voting common stock that are required in order to preserve the “non-voting” classification of the nonvoting common stock for regulatory purposes. Any such restriction shall be imposed and deemed effective immediately upon
the transmittal by the corporation of written notice to such holder specifying in reasonable detail the reason for such
restriction; and in the event such notice is transmitted after the event giving rise to such automatic conversion, the restriction
shall be deemed to have been imposed and effective retroactively to the time of such event, and such conversion shall be
deemed not to have occurred, so long as such notice is transmitted within one hundred eighty (180) days after the event giving
rise to such conversion. Such notice may be dispatched by first class mail, by electronic transmission, or by any other means
reasonably designed and in good faith intended to provide prompt delivery to an executive officer (or equivalent) of, or legal
counsel to, such holder.
4.
As used herein, the term “Initial Holder” shall mean any holder of the non-voting common stock
who acquired such stock through conversion of one or more shares of Series G Non-Voting Preferred Stock issued by the
corporation in accordance with the conversion provisions of the Certificate of Designations for the Series G Non-Voting
Preferred Stock of the corporation, as in effect from time to time, or if cancelled, as in effect immediately prior to such
cancellation (the “Series G Certificate of Designations”), or on original issue by the corporation in an exchange for common
stock having full voting rights that has been approved by the board of directors of the corporation. As used herein, the terms
“Affiliate” and “Regulator” shall have the respective meanings given such terms in the Series G Certificate of Designations.
C.
The shares of preferred stock may be issued from time to time in one or more series. The board of
directors of this corporation shall have authority to fix by resolution or resolutions the designations and the powers,
preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof,
including without limitation the voting rights, the dividend rate, conversion rights, redemption price and liquidation
preference, of any series of shares of preferred stock, to fix the number of shares constituting any such series and to increase
or decrease the number of shares of any such series (but not below the number of shares thereof then outstanding). In case the
number of shares of any such series shall be so decreased the shares constituting such decrease shall resume the status which
they had prior to the adoption of the resolution or resolutions originally fixing the number of shares of such series.
2.
The foregoing amendment has been duly adopted in accordance with the provisions of Section 242 of the Delaware
General Corporation Law.
-2-
In Witness Whereof, Broadway Financial Corporation has caused this Certificate of Amendment to Certificate of
Incorporation to be signed by its duly authorized officer on this 27th day of November, 2013.
BROADWAY FINANCIAL CORPORATION
By:
Wayne-Kent A. Bradshaw
President and Chief Executive Officer
-3-
Delaware
PAGE 1
The First State
I, JEFFREY W. BULLOCK, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE
ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT OF “BROADWAY FINANCIAL
CORPORATION”, FILED IN THIS OFFICE ON THE THIRTEENTH DAY OF OCTOBER, A.D. 2014, AT 3:58 O’CLOCK P.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF
DEEDS.
2545755 8100
141286768
You may verify this certificate online
at corp.delaware.gov/authver.shtml
State of Delaware
Secretary of State
Division of Corporations
Delivered 04:04 PM 10/13/2014
FILED 03:58 PM 10/13/2014
SRV 141286768 - 2545755 FILE
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
BROADWAY FINANCIAL CORPORATION
Broadway Financial Corporation, a corporation organized and existing under and by virtue of the laws of the State of
Delaware (the “Corporation”), hereby certifies that:
1.
Article FOURTH of the Certificate of Incorporation of the Corporation is hereby amended and restated in its
entirety to read as follows;
FOURTH: A. The total number of shares of all classes of stock which this corporation shall have authority to issue
is seventy-six million (76,000,000), of which fifty million (50,000,000) shall be common stock, par value $0.01 per share,
twenty-five million (25,000,000) shall be non-voting common stock, par value $0.01 per share, and one million (1,000,000)
shall be serial preferred stock, par value $0.01 per share.
B.1.
The shares of non-voting common stock shall have all of the rights and other attributes of the other
common stock the corporation has authority to issue, except as set forth in the remainder of this Article FOURTH, Paragraph
B.
2.
The non-voting common stock constitutes non-voting shares of the corporation and the holders of the nonvoting common stock are not entitled to vote on any matter other than as required by law.
3.
Each share of non-voting common stock shall convert, automatically and without any action by any person,
into one fully paid and nonassessable share of common stock having normal voting rights upon any transfer of such share to
any person other than the Initial Holder or any Affiliate of such Initial Holder pursuant to clause (iii), (iv) or (v) of the
following sentence. The shares of non-voting common stock are not convertible into common stock having full voting rights
by the Initial Holder or any Affiliate of such Initial Holder and may only be transferred by the Initial Holder or such Affiliate
(i) to an Affiliate of such Initial Holder, (ii) to the corporation, (iii) in a widespread public distribution, (iv) in a transfer in
which no transferee (or group of associated transferees) would receive 2% or more of any class of voting securities of the
corporation, or (v) to a transferee that would control more than 50% of the voting securities of the corporation without any
transfer from the Initial Holder or any Affiliate of such Initial Holder. Notwithstanding the foregoing, the corporation may
restrict such conversion to the extent it would be inconsistent with, or in violation of, the requirements of any Regulator with
respect to the restrictions on the transfer of the non-voting common stock that are required in order to preserve the “nonvoting” classification of the non-voting common stock for regulatory purposes. Any such restriction shall be imposed and
deemed effective immediately upon the transmittal by the corporation of written notice to such holder specifying in
reasonable detail the reason for such restriction; and in the event such notice is transmitted after the event giving rise to such
automatic conversion, the restriction shall be deemed to have been imposed and effective retroactively to the time of such
event, and such conversion shall be deemed not to have occurred, so long as such notice is transmitted within one hundred
eighty (180) days after the event giving rise to such conversion. Such notice may be dispatched by first class mail, by
electronic transmission, or by any other means reasonably designed and in good faith intended to provide prompt delivery to
an executive officer (or equivalent) of, or legal counsel to, such holder.
4.
As used herein, (i) the term “Initial Holder” shall mean any holder of the non-voting common stock who
acquired such stock on original issue by the corporation, including, without limitation, in an exchange for common stock of
the corporation having full voting rights that has been approved by the board of directors of the corporation; (ii) the term
“Affiliate” shall mean any person or entity that directly or indirectly controls, is controlled by, or is under common control
with the person or entity to which the defined term refers; provided, that, for purposes of this definition, the term “control”
means the ability, directly or indirectly, to direct or influence the direction of the management and policies of the person in
question, whether such ability arises by virtue of ownership interest, contract right or otherwise and, without limiting the
generality of the foregoing, a person is an Affiliate of another person if the first person (A) is an executive officer (as such
term is defined in Rule 405 of the Securities Act of 1933, as amended) of the second person; (B) is a director of the second
person where such second person is a corporation; (C) is a manager (or an executive officer, director, general partner or
manager of an entity that is a manager) of the second person where such second person is a limited liability company; (D) is a
general partner (or an executive officer, director, general partner or manager of an entity that is a general partner) of the
second person where such second person is a partnership; or (E) directly or indirectly has or shares the power to vote, or
direct the voting of, or to dispose of, or direct the disposition of, securities representing more than ten percent (10%) of the
combined voting power of the securities of the second person; and (iii) the term “Regulator” shall mean any of (A) the Board
of Governors of the Federal Reserve System (whether acting directly or by or through the Federal Reserve Bank of San
Francisco in such bank’s regulatory capacity), (B) the Federal Deposit Insurance Corporation, (C) the Office of the
Comptroller of the Currency, (D) any successor agency to any of the foregoing, or (E) any other federal regulatory authority,
whether in existence as the date hereof or hereafter established, having jurisdiction over this corporation or its banking
subsidiary as to matters of compliance with the Federal Deposit Insurance Corporation Act, the Bank Holding Company Act,
the Federal Reserve Act, the Home Owners’ Loan Act, any successor statute or amendment to any of the foregoing, or any
regulation adopted pursuant thereto..
C.
The shares of preferred stock may be issued from time to time in one or more series. The board of directors
of this corporation shall have authority to fix by resolution or resolutions the designations and the powers, preferences and
relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof, including without
limitation the voting rights, the dividend rate, conversion
-2-
rights, redemption price and liquidation preference, of any series of shares of preferred stock, to fix the number of shares
constituting any such series and to increase or decrease the number of shares of any such series (but not below the number of
shares thereof then outstanding). In case the number of shares of any such series shall be so decreased the shares constituting
such decrease shall resume the status which they had prior to the adoption of the resolution or resolutions originally fixing the
number of shares of such series.
2.
The foregoing amendment has been duly adopted in accordance with the provisions of Section 242 of the Delaware
General Corporation Law.
-3-
In Witness Whereof, Broadway Financial Corporation has caused this Certificate of Amendment to Certificate of Incorporation
to be signed by its duly authorized officer on this 10th day of October, 2014.
BROADWAY FINANCIAL CORPORATION
By:
Wayne-Kent A. Bradshaw
President and Chief Executive Officer
-4-
Exhibit 10.1
SUBSCRIPTION AGREEMENT
October 16, 2014
Broadway Financial Corporation
5055 Wilshire Boulevard, Suite 500
Los Angeles, California 90036
Ladies and Gentlemen:
The undersigned (the “Investor”) hereby confirms its agreement with you as follows:
1.
This Subscription Agreement (this “Agreement”) is entered into between Broadway Financial Corporation, a
Delaware corporation (the “Company”), and the Investor whose name appears on the signature page hereto and is made as of the date
of the Company’s acceptance hereof (the “Acceptance Date”).
2.
The Company is proposing to issue and sell shares of the Company’s common stock, par value $0.01 per share (the
“Common Stock”, to certain investors in a private offering at a purchase price of U.S.$1.10 per share (the “Per Share Purchase
Price”). The Common Stock is being offered only to persons who are accredited investors within the meaning of Rule 501 of
Regulation D promulgated under the Securities Act of 1933, as amended (the “Securities Act”), and certain other persons pursuant to
a private placement exemption from the securities registration requirements of the Securities Act.
3.
The Company and the Investor agree that, upon the terms and subject to the conditions set forth herein, the Investor
will purchase from the Company and the Company will issue and sell to the Investor, the number of shares of Common Stock equal to
the dollar amount subscribed as indicated on the signature page hereto divided by the Per Share Purchase Price, pursuant to the Terms
and Conditions for the Purchase of Common Stock attached hereto as Annex A and incorporated herein by reference as if fully set
forth herein. The Common Stock purchased by the Investor will be delivered in certificated form, registered in the Investor’s name
and address as set forth below, and will be released by Computershare Inc., the Company’s transfer agent (the “Transfer Agent”), to
the Investor at the Closing (as defined in the Terms and Conditions for the Purchase of Common Stock) or, if uncertificated, the
Transfer Agent for the Common Stock will register the shares of Common Stock purchased in the name of the Investor and deliver
evidence of such registration to the Investor.
4.
In agreeing to purchase Common Stock pursuant hereto, the Investor is making the representations and warranties
set forth in the attached Terms and Conditions for the Purchase of Common Stock (the “Terms and Conditions”), including
representations and warranties that the Investor is an “accredited investor” (as that term is defined by Rule 501 under the Securities
Act) and that the Investor has not taken actions regarding a coordinated acquisition of Common Stock as set forth in Section 2.3(f) or
Section 2.3(j).
Please confirm that the foregoing correctly sets forth the agreement between us by signing in the space provided below for
that purpose.
Subscription amount in shares and U.S. dollars:
Dollars:
Shares:
Name of Investor:
By:
Print Name:
Title:
Mailing Address:
with a copy to:
Type of Entity:
Jurisdiction of Organization:
Tax ID No.:
Contact Name:
Telephone:
Email Address:
Name under which Common Stock is to be issued (if different
from above): same as above
Address to which share certificates or statement of ownership are
to be sent (if different from mailing address above):
2
Agreed and Accepted as of the date first set forth above:
BROADWAY FINANCIAL CORPORATION
By:
Name: Wayne-Kent A. Bradshaw
Title: President and Chief Executive Officer
3
INSTRUCTION SHEET FOR INVESTOR
(to be read in conjunction with the entire Agreement)
Complete the following items in the Agreement:
1.
Provide the information regarding the Investor requested on the signature page to the Agreement. The Agreement
must be executed by an individual authorized to bind the Investor.
2.
If the Investor is purchasing Common Stock for more than one investor account, it may either (i) complete a
separate Agreement for each such account, in which case a separate wire transfer (or other acceptable form of payment) must be made
by or on behalf of such account for the Common Stock it will purchase and a separate issuance of Common Stock will be made by the
Transfer Agent to each account, or (ii) complete a single Agreement for all such accounts, in which case only one wire transfer (or
other acceptable form of payment) need be made for the Common Stock to be purchased for all such accounts (but all such Common
Stock will be issued to a single account specified by the Investor) and the information called for on the signature page hereof must be
completed for each account.
3.
Return the signed Agreement to:
Broadway Financial Corporation
5055 Wilshire Boulevard, Suite 500
Los Angeles, California 90036
Attn:
Wayne-Kent A. Bradshaw, President and Chief Executive Officer
Fax:
(323) 634-1732
Email: [email protected]
4.
Please note that all payments must be made in U.S. dollars by wire transfer of immediately available funds to the
following account, which has been established to hold funds received from investors, which funds shall be released to the Company
only upon the Closing of the transactions referred to and described herein:
Bank Name:
Bank Account Name:
Bank ABA #:
Bank Account #:
Broadway Federal Bank, f.s.b.
Broadway Federal Bank for the benefit of Broadway Financial Corporation
322070145
80-000931-9
An executed Agreement or a facsimile transmission thereof must be received by such time on such date as you are advised.
The Company reserves all rights to reject any subscription before it is accepted by the Company.
4
ANNEX A
TERMS AND CONDITIONS FOR THE PURCHASE OF COMMON STOCK
5
TABLE OF CONTENTS
Page
ARTICLE 1 PURCHASE; CLOSING
1
1.1
Issuance, Sale and Purchase
1
1.2
Closing; Deliverables for the Closing; Conditions to the Closing
1
ARTICLE 2 REPRESENTATIONS AND WARRANTIES
4
2.1
Certain Terms
4
2.2
Representations and Warranties of the Company
5
2.3
Representations and Warranties of the Investor
18
ARTICLE 3 COVENANTS
21
3.1
Conduct of Business Prior to Closing
21
3.2
Confidentiality
21
3.3
Commercially Reasonable Efforts
21
3.4
Legend
22
3.5
Certain Other Transactions
22
3.6
Exchange Listing
23
3.7
Stockholders Meeting
23
3.8
Registration Rights
24
ARTICLE 4 TERMINATION
31
4.1
Termination
31
4.2
Effects of Termination
32
ARTICLE 5 INDEMNITY
32
5.1
Indemnification by the Company
32
5.2
Indemnification by the Investor
33
5.3
Notification of Claims
34
5.4
Indemnification Payment
35
5.5
Exclusive Remedies
36
ARTICLE 6 MISCELLANEOUS
36
6.1
Survival
36
6.2
Other Definitions
36
6.3
Amendment and Waivers
39
6.4
Counterparts and Facsimile
39
i
6.5
Governing Law
39
6.6
Jurisdiction
39
6.7
WAIVER OF JURY TRIAL
40
6.8
Notices
40
6.9
Entire Agreement
41
6.10
Successors and Assigns
41
6.11
Captions
41
6.12
Severability
41
6.13
Third Party Beneficiaries
41
6.14
Public Announcements
42
6.15
Specific Performance
42
6.16
No Recourse
42
Exhibit A - Summary of Modification Terms
Appendix I - Selling Stockholder Questionnaire
ii
INDEX OF DEFINED TERMS
Defined Term
Section
Acceptance Date
Action
Affiliate
Agency
Agreement
Agreements
Bank
Benefit Plans
Board of Directors
Business Day
Capital Stock
Capitalization Date
Change in Control
CJA Letter Agreement
Closing
Closing Date
Code
Common Stock
Company
Company Employees
Company Financial Statements
Company Indemnified Parties
Company Insurance Policies
Company Preferred Stock
Company Reports
Company Specified Representations
Company Stock Plans
Company Subsidiaries
Company Subsidiary
Confidentiality Agreement
control, controlling, controlled by and under common control with
Debentures
Deductible
Disclosure Schedule
EESA
Effective Date
Effectiveness Deadline
employee benefit plan
iii
Subscription Agreement
2.2(f)
6.2(a)
6.2(b)
Subscription Agreement
Recital B
2.2(a)
2.2(u)(i)
6.2(c)
6.2(d)
6.2(e)
2.2(c)(ii)
6.2(f)
2.3(j)
1.2(a)
1.2(a)
6.2(g)
Subscription Agreement
Subscription Agreement
2.2(u)(i)
2.2(g)
5.2(a)
2.2(s)
2.2(c)(i)
2.2(h)
6.2(h)
2.2(c)(iii)
2.2(b)
2.2(b)
3.2
6.2(a)
Recital C
5.1(b)
6.2(i)
2.2(u)(iii)
3.8(j)(i)
3.8(j)(ii)
2.2(u)(i)
Defined Term
Section
ERISA
Exchange Act
FDI Act
FDIC
Federal Reserve
Filing Deadline
finally determined
GAAP
Governmental Consent
Governmental Entity
Holder
Indemnified Party
Indemnifying Party
Indemnitee
Indenture
Insider
Insurer
Investment
Investment Manager
Investor
Investor Indemnified Parties
Investor Specified Representations
Investors
Knowledge
Law
Liens
Loan Investor
Losses
Material Adverse Effect
Material Contract
Modification
NASDAQ
Non-Voting Common Stock
OFAC
Other Investors
Other Private Placements
Per Share Purchase Price
Person
Placement Agent
Potential Investor
Previously Disclosed
Purchase Price
Register, registered and registration
Registrable Securities
Registration Expenses
Registration Termination Date
2.2(u)(i)
2.2(h)
2.2(b)
2.2(b)
2.2(a)
3.8(a)(i)
5.4
6.2(j)
6.2(k)
6.2(l)
3.8(j)(iii)
5.3(a)
5.3(a)
3.8(g)(i)
Recital C
2.2(bb)
6.2(m)
Recital A
2.3(f)
Subscription Agreement
5.1(a)
6.2(n)
Recital B
6.2(o)
2.2(p)
2.2(d)(ii)
6.2(p)
6.2(q)
2.1(a)
2.2(r)
Recital C
2.2(d)
2.2(c)(i)
2.2(m)
Recital B
Recital B
Subscription Agreement
6.2(r)
2.2(x)
2.3(j)
2.1(b)
1.1
3.8(j)(iv)
3.8(j)(v)
3.8(j)(vi)
3.8(a)(i)
iv
Defined Term
Section
Regulatory Agreement
Regulatory Order or Regulatory Orders
Rule 158, Rule 159A, Rule 405 and Rule 415
SDN List
SEC
Securities Act
Selling Expenses
Shelf Registration Statement
SLHC Act
Subsidiary
Suspension Period
Tax or Taxes
Tax Return
Third Party Claim
Transfer Agent
Trustee
Voting Debt
Voting Securities
2.2(q)
2.2(p)
3.8(j)(vii)
2.2(m)
2.1(b)
Subscription Agreement
3.8(j)(viii)
3.8(a)(ii)
2.2(a)
6.2(s)
3.8(d)
6.2(t)
6.2(u)
5.3(a)
Subscription Agreement
Recital C
2.2(c)(iv)
6.2(v)
v
RECITALS
A.
The Investment. The Company intends to issue and sell to the Investor, and the Investor intends to purchase from
the Company, on the terms and conditions described herein, the number of shares of Common Stock set forth on such Investor’s
signature page hereto for the aggregate purchase price set forth on such signature page (the “Investment”).
B.
Other Private Placements. The Company also intends to enter into agreements similar to this Agreement with
certain other investors (the “Other Investors”) and expects to complete sales of Common Stock to them, with the closing of such
sales to occur simultaneously with the Closing (the “Other Private Placements”). The Investor and the Other Investors are
hereinafter sometimes collectively referred to as the “Investors”, and this Agreement and the subscription agreements executed by the
Other Investors are hereinafter sometimes collectively referred to as the “Agreements.”
C.
Debenture Modification. The Company has outstanding $6,000,000 aggregate principal amount of Floating Rate
Junior Subordinated Debentures due March 17, 2014 (the “Debentures”) that were issued pursuant to that certain Indenture, dated as
of March 17, 2004 (the “Indenture”), entered into between the Company and U.S. Bank National Association, a national banking
association organized under the laws of the United States of America, as debenture trustee (the “Trustee”). Concurrently with, and as
a condition concurrent to, the sale of Common Stock by the Company pursuant to this Agreement and each of the Other Agreements,
the Company will make certain payments of principal of and accrued interest on the Debentures and certain fees and expenses, and
will enter into a supplemental indenture with the Trustee to extend the maturity and modify certain of the other terms of the
Debentures. The making of such payments and entering into such supplemental indenture are collectively referred to herein as the
“Modification.” The principal terms of the Modification are set forth in the summary attached as Exhibit A to this Agreement.
ARTICLE 1
PURCHASE; CLOSING
1.1
Issuance, Sale and Purchase. On the terms and subject to the conditions set forth herein, the Company agrees to
issue and sell to the Investor, and the Investor agrees to purchase from the Company, free and clear of any Liens, a number of shares
of Common Stock equal to the dollar amount subscribed as indicated on the signature page hereto divided by the Per Share Purchase
Price payable by the Investor to the Company. The aggregate purchase price payable pursuant to this Section 1.1 is referred to herein
as the “Purchase Price”.
1.2
Closing; Deliverables for the Closing; Conditions to the Closing.
(a)
Closing. Unless this Agreement has been terminated pursuant to Article 4, and subject to the satisfaction
or, to the extent permitted by Law and this Agreement, the written waiver of the conditions set forth in Section 1.2(c), the closing of
the transactions contemplated by this Agreement (the “Closing”) shall take place at the offices of Arnold & Porter LLP, located at 777
South Figueroa Street, 44th Floor, Los Angeles, California 90017, or
1
remotely via the electronic or other exchange of documents and signature pages, on a date to be specified by the Company on no less
than two Business Days’ notice to the Investor (which date shall be the same date as the date of closing of the Other Private
Placements and the Modification), or at such other place or such other date as agreed to in writing by the parties hereto (the “Closing
Date”).
(b)
Closing Deliverables. Subject to the satisfaction or waiver on the Closing Date of the conditions to the
Closing set forth in Section 1.2(c), at the Closing the parties shall make the following deliveries:
(i)
the Company shall deliver to the Investor one or more certificates evidencing the Common Stock
to be purchased pursuant to Section 1.1 registered in the name of the Investor (or if the shares of the Common Stock
being purchased are to be uncertificated, the Company shall cause the Transfer Agent to register such shares in the
name of the Investor and deliver evidence of such registration to the Investor); and
(ii)
the Investor shall deliver the Purchase Price, by wire transfer of immediately available funds to
the account set forth in the Instruction Sheet for Investor provided with this Agreement.
(c)
Closing Conditions.
(i)
The obligations of the Investor, on the one hand, and the Company, on the other hand, to
consummate the purchase and sale of Common Stock provided for in this Agreement are each subject to the
satisfaction or, to the extent permitted by Law and this Agreement, the written waiver by the Company or the
Investor, as applicable, of the following conditions at the Closing:
(A)
No provision of any Law and no judgment, injunction, order or decree shall prohibit the
Closing or shall prohibit or restrict the Investor from owning or voting any Common Stock to be purchased
pursuant to this Agreement; and
(B)
All Governmental Consents required to have been obtained at or prior to the Closing
Date in connection with the execution, delivery or performance of this Agreement and the consummation
of the transactions contemplated hereby (including the Modification) shall have been obtained and shall be
in full force and effect.
(C)
The sale of Common Stock by the Company pursuant to the Agreements shall have been
approved by the stockholders of the Company to the extent required by Section 5635(d), and any other
applicable provisions, of the Nasdaq Listing Rules.
(D)
The Modification shall have been approved by the holders of the outstanding Debentures,
and by the holder or holders of the Company’s Senior Indebtedness (as defined in the Indenture) required
by
2
the Indenture; the form of supplemental indenture to be entered into in connection with the Modification
shall have been approved by the Company and the Trustee; and such supplemental indenture shall be
executed and delivered by the Company and the Trustee concurrently with the Closing under this
Agreement.
(ii)
The obligation of the Investor to consummate the purchase of Common Stock provided for in this
Agreement is also subject to the satisfaction or written waiver by the Investor of the following conditions at the
Closing:
(A)
The representations and warranties of the Company set forth in this Agreement shall be
true and correct in all respects on and as of the date of this Agreement and on and as of the Closing Date as
though made on and as of the Closing Date, except to the extent that the failure to be true and correct
(without regard to any materiality or Material Adverse Effect qualifications contained therein), would not
reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect and except that
representations and warranties made as of a specified date shall be true and correct as of such date;
(B)
The Company shall have performed and complied with, in all material respects, all
agreements, covenants and conditions required by this Agreement to be performed by it on or prior to the
Closing Date;
(C)
The Investor shall have received a certificate, dated as of the Closing Date, signed on
behalf of the Company by a senior executive officer certifying to the effect that the conditions set forth in
Section 1.2(c)(ii)(A) and Section 1.2(c)(ii)(B) have been satisfied on and as of the Closing Date;
(D)
Since the date of this Agreement, a Material Adverse Effect shall not have occurred and
no change or other event shall have occurred that would reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect;
(E)
The Common Stock to be purchased pursuant to this Agreement shall have been
authorized for listing on the NASDAQ Capital Market or such other market on which the Common Stock is
then listed or quoted, subject to official notice of issuance; and
(F)
The Company shall have received (or shall receive concurrently with the Closing) gross
proceeds from the Other Private Placements in an aggregate amount, together with the Purchase Price, of
not less than $6 million.
(iii)
The obligation of the Company to consummate the sale of Common Stock provided for in this
Agreement is also subject to the satisfaction or written waiver by the Company of the following conditions at the
Closing:
3
(A)
The representations and warranties of the Investor set forth in this Agreement shall be
true and correct in all respects on and as of the date of this Agreement and on and as of the Closing Date as
though made on and as of the Closing Date except where the failure to be true and correct (without regard
to any materiality qualifications contained therein) would not materially adversely affect the ability of the
Investor to perform its obligations hereunder (and except that (1) representations and warranties made as of
a specified date shall be true and correct as of such date and (2) the representations and warranties of the
Investor set forth in Sections 2.3(d) and 2.3(h) shall be true and correct in all respects);
(B)
The Investor shall have performed and complied with, in all material respects, all
agreements, covenants and conditions required by this Agreement to be performed by it on or prior to the
Closing Date; and
(C)
The Company shall have received a certificate, dated as of the Closing Date, signed on
behalf of the Investor by a duly authorized person certifying to the effect that the conditions set forth in
Section 1.2(c)(iii)(A) and Section 1.2(c)(iii)(B) have been satisfied on and as of the Closing Date.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1
Certain Terms.
(a)
As used in this Agreement, the term “Material Adverse Effect” means any circumstance, event, change,
development or effect that, individually or in the aggregate, would reasonably be expected to (i) result in a material adverse effect on
the assets, liabilities, business, financial condition or results of operations of the Company and the Company Subsidiaries, taken as a
whole, or (ii) materially impair or delay the ability of the Company or any of the Company Subsidiaries to perform its or their
obligations under this Agreement to consummate the Closing or any of the transactions contemplated hereby; provided, however, that
in determining whether a Material Adverse Effect has occurred under clause (i), there shall be excluded any circumstance, event,
change, development or effect to the extent resulting from (A) actions or omissions of the Company or any Company Subsidiary
expressly required or contemplated by the terms of this Agreement, (B) changes after the date hereof in general economic conditions
in the United States, including financial market volatility or downturns, or in the markets in which the Company and the Company
Subsidiaries operate, (C) changes after the date hereof affecting the banking industry generally, (D) any changes after the date hereof
in applicable Laws or accounting rules or principles, including changes in GAAP, (E) changes in the market price or trading volume
of the Common Stock or the Company’s other outstanding securities (but not the underlying causes of such changes) or (F) any failure
by the Company or any of the Company Subsidiaries to meet any internal projections or forecasts with regard to the assets, liabilities,
business, financial condition or results of operations of the Company and the Company Subsidiaries, taken as a whole (but not the
underlying causes of such failure), in each
4
case to the extent that such circumstance, event, change, development or effect referred to in clauses (B), (C) and (D) do not have a
disproportionate effect on the Company and the Company Subsidiaries compared to other participants in the industries or markets in
which the Company and the Company Subsidiaries operate.
(b)
As used in this Agreement, the term “Previously Disclosed” (i) with regard to any party, means
information set forth in its Disclosure Schedule under Section references corresponding with the provision of this Agreement to which
such information relates (including, in the case of the Company, information identified in the Company’s Disclosure Schedule by
reference to specific portions of the “virtual data room” website established by the Company for use by the Investor in its “due
diligence” examination of the Company; provided, however, that if such information is disclosed in such a way as to make its
relevance or applicability to another provision of this Agreement reasonably apparent on its face, such information shall be deemed to
be responsive to such other provision of this Agreement and (ii) with regard to the Company, includes information publicly disclosed
by the Company in (A) the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, as filed by it with
the Securities and Exchange Commission (the “SEC”), (B) the Company’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2014, as filed by it with the SEC, (C) the Company’s definitive Proxy Statement on Schedule 14A, as filed by it with the
SEC on August 15, 2014, or (D) any Current Report on Form 8-K filed or furnished by it with the SEC since January 1, 2014, in each
case available prior to the date of this Agreement (excluding any risk factor disclosures contained in such documents under the
heading “Risk Factors” and any disclosure of risks included in any “forward-looking statements” disclaimer or other statements that
are similarly non-specific and are predictive or forward-looking in nature). Notwithstanding anything in this Agreement to the
contrary, the mere inclusion of an item in a Disclosure Schedule shall not be deemed an admission that such item represents a material
exception or material fact, event or circumstance or that such item has had or would reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect.
2.2
Representations and Warranties of the Company. Except as Previously Disclosed, the Company hereby
represents and warrants to the Investor, as of the date of this Agreement and as of the Closing Date (except for the representations and
warranties that are as of a specific date, which are made as of that date) that:
(a)
Organization and Authority. Each of the Company and the Company Subsidiaries is a corporation or
other entity duly organized and validly existing under the laws of the jurisdiction of its incorporation or organization, is duly qualified
to do business and is in good standing in all jurisdictions where its ownership or leasing of property or the conduct of its business
requires it to be so qualified except where any failure to be so qualified would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect, and has the corporate or other organizational power and authority to own its properties and
assets and to carry on its business as it is now being conducted. The Company has Previously Disclosed correct and complete copies
of the certificate of incorporation and bylaws (or similar governing documents) as amended through the date of this Agreement for the
Company and Broadway Federal Bank, f.s.b. (the “Bank”). The Company is duly registered with the Board of Governors of the
Federal Reserve System (the “Federal Reserve”) as a savings and loan holding company
5
under the Savings and Loan Holding Company Act, as amended, 12 U.S.C. 1467a (the “SLHC Act”).
(b)
Company Subsidiaries. The Company has Previously Disclosed a true, complete and correct list of all of
its subsidiaries as of the date of this Agreement (each, a “Company Subsidiary” and, collectively, the “Company Subsidiaries”).
Except for the Company Subsidiaries, the Company does not own beneficially, directly or indirectly, more than 5% of any class of
equity securities or similar interests of any corporation, business trust, association or similar organization, and is not, directly or
indirectly, a partner in any partnership or party to any joint venture. The Company owns, directly or indirectly, all of its interests in
each Company Subsidiary free and clear of any and all Liens, except for the Lien of BBCN Bank on all assets of the Company,
including the stock of the Bank owned by the Company. The deposit accounts of the Bank are insured by the Federal Deposit
Insurance Corporation (“FDIC”) to the fullest extent permitted by the Federal Deposit Insurance Act, as amended (the “FDI Act”),
and the rules and regulations of the FDIC thereunder, and all premiums and assessments required to be paid in connection therewith
have been paid when due (after giving effect to any applicable extensions). The Company beneficially owns all of the outstanding
capital securities of, and has sole control of, the Bank.
(c)
Capitalization.
(i)
As of the date hereof, the authorized Capital Stock of the Company consists of 50,000,000 shares
of Common Stock, par value $0.01 per share, 25,000,000 shares of non-voting common stock, par value $0.01 per
share (the “Non-Voting Common Stock”), and 1,000,000 shares of preferred stock, par value $0.01 per share (the
“Company Preferred Stock”).
(ii)
As of the close of business on September 30, 2014 (the “Capitalization Date”), the Company had
outstanding: 19,548,959 shares of Common Stock, 698,200 shares of Non-Voting Common Stock and no shares of
Company Preferred Stock.
(iii)
As of the close of business on the Capitalization Date, other than in respect of awards outstanding
under or issuable pursuant to the Company’s 1996 Long-Term Incentive Plan, 1996 Stock Option Plan and 2008
Long-Term Incentive Plan (the “Company Stock Plans”) in respect of which an aggregate of 2,000,000 shares of
Common Stock have been reserved for issuance, no shares of Common Stock or Company Preferred Stock were
reserved for issuance. Since the Capitalization Date and through the date of this Agreement, except in connection
with this Agreement and the transactions contemplated hereby, including the Investment and the Other Private
Placements, the Company has not (A) issued or authorized the issuance of any shares of Common Stock or
Company Preferred Stock, or any securities convertible into or exchangeable or exercisable for shares of Common
Stock or Company Preferred Stock, (B) reserved for issuance any shares of Common Stock or Company Preferred
Stock or (C) repurchased or redeemed, or authorized the repurchase or redemption of, any shares of Common Stock
or Company Preferred Stock.
6
(iv)
All of the issued and outstanding shares of Common Stock and Company Preferred Stock have
been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, except as set
forth in the CJA Letter Agreement (as defined below). None of the outstanding shares of Capital Stock or other
securities of the Company or any of the Company Subsidiaries was issued, sold or offered by the Company or any
Company Subsidiary in violation of the Securities Act or the securities or blue sky laws of any state or jurisdiction.
No bonds, debentures, notes or other indebtedness having the right to vote on any matters on which the shareholders
of the Company may vote (“Voting Debt”) are issued and outstanding.
(v)
As of the date of this Agreement, except for the outstanding awards under the Company Stock
Plans listed on Section 2.2(c) of the Disclosure Schedule, and the Agreements, the Company does not have and is
not bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character
calling for the purchase or issuance of, or securities or rights convertible into or exchangeable or exercisable for, any
shares of Common Stock or Company Preferred Stock or any other equity securities of the Company or Voting Debt
or any securities representing the right to purchase or otherwise receive any shares of Capital Stock of the Company.
(d)
Authorization; No Conflicts; Shareholder Approval.
(i)
The Company has the corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. Subject to receipt of the approval by the Company’s stockholders required by the
NASDAQ Stock Market (“NASDAQ”) pursuant to Rule 5635 (c) and (d) and any other applicable provisions of the
Nasdaq Listing Rules to issue Common Stock in connection with the Investment and the Other Private Placements
and the approval by the Company’s stockholders of an amendment to Article FOURTH of the Company’s
Certificate of Incorporation to increase the number of shares of Non-Voting Common Stock the Company is
authorized to issue to a number that will permit the issuance and sale of all of such stock contemplated by the
Agreements, the execution, delivery and performance of this Agreement by the Company and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the
Company and no further approval or authorization is required on the part of the Company or its shareholders. The
Board of Directors has unanimously approved the transactions contemplated by this Agreement, including the
Investment, the Other Private Placements and the Modification. This Agreement has been duly and validly executed
and delivered by the Company and, assuming due authorization, execution and delivery by the Investor, is the valid
and binding obligation of the Company enforceable against the Company in accordance with its terms, except as
enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer
and similar laws of general applicability relating to or affecting creditors’ rights or by general equity principles
(whether applied in equity or at law).
7
(ii)
Neither the execution and delivery by the Company of this Agreement nor the consummation of
the transactions contemplated hereby, nor compliance by the Company with any of the provisions hereof, will
(A) violate, conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in the termination of, or result in the loss
of any benefit or creation of any right on the part of any third party under, or accelerate the performance required by,
or result in a right of termination or acceleration of, or result in the creation of any liens, charges, adverse rights or
claims, pledges, covenants, title defects, security interests or other encumbrances of any kind (“Liens”) upon any of
the properties or assets of the Company or any Company Subsidiary, under any of the terms, conditions or
provisions of (1) the certificate of incorporation or bylaws (or similar governing documents) of the Company and
each Company Subsidiary or (2) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which the Company or any of the Company Subsidiaries is a party or by which it
may be bound, or to which the Company or any of the Company Subsidiaries, or any of the properties or assets of
the Company or any of the Company Subsidiaries may be subject, or (B) violate any Law applicable to the
Company or any of the Company Subsidiaries or any of their respective properties or assets except in the case of
clauses (A)(2) and (B) for such violations, conflicts and breaches as would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
(e)
Governmental Consents. Except as set forth on Section 2.2(e) of the Disclosure Schedule, no
Governmental Consents are necessary for the execution and delivery of this Agreement or for the sale by the Company of Common
Stock to the Investor pursuant to this Agreement.
(f)
Litigation and Other Proceedings. Except as would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect, there is no pending or, to the Knowledge of the Company, threatened claim, action, suit,
arbitration, complaint, charge or investigation or proceeding (each an “Action”) against the Company or any Company Subsidiary or
any of its assets, rights or properties, nor is the Company or any Company Subsidiary a party or named as subject to the provisions of
any order, writ, injunction, settlement, judgment or decree of any court, arbitrator or government agency, or instrumentality. There
has not been, and to the Knowledge of the Company, there is not pending or contemplated, any investigation by the SEC involving the
Company or any current or former director or officer of the Company in his or her capacity as such.
(g)
Financial Statements. The audited consolidated balance sheets of the Company and the Company
Subsidiaries and the related consolidated statements of operations, changes in stockholders’ equity and cash flows, together with the
notes thereto, included in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2013 (the
“Company Financial Statements”) (i) have been prepared from, and are in accordance with, the books and records of the Company
and the Company Subsidiaries, (ii) complied, as of their respective date of such filing, in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC with respect
8
thereto, (iii) have been prepared in accordance with GAAP applied on a consistent basis and (iv) present fairly in all material respects
the consolidated financial position of the Company and the Company Subsidiaries at the dates and the consolidated results of
operations, changes in shareholders’ equity and cash flows of the Company and the Company Subsidiaries for the periods stated
therein.
(h)
Reports. Since December 31, 2010, the Company and each Company Subsidiary have filed all material
reports, registrations, documents, filings, statements and submissions, together with any required amendments thereto, that they were
required to file with any Governmental Entity (the foregoing, collectively, being referred to herein as the “Company Reports”) and
have paid all material fees and assessments due and payable in connection therewith. As of their respective filing dates, or as
subsequently amended prior to the date hereof, the Company Reports complied in all material respects with all statutes and applicable
rules and regulations of the applicable Governmental Entities. As of the date of this Agreement, there are no outstanding comments
from the SEC or any other Governmental Entity with respect to any Company Report that were the subject of written correspondence
that have not been resolved. The Company Reports, including the documents incorporated by reference in each of them, each
contained all the information required to be included in it and, when it was filed and, as of the date of each such Company Report filed
with the SEC, or if amended prior to the date of this Agreement, as of the date of such amendment, did not contain an untrue statement
of a material fact or omit to state a material fact necessary in order to make the statements made in it, in light of the circumstances
under which they were made, not misleading and complied as to form in all material respects with the applicable requirements of the
Securities Act and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). No executive officer of the Company has
failed in any respect to make the certifications required of him or her under Section 302 or 906 of the Sarbanes-Oxley Act of 2002.
(i)
Internal Accounting and Disclosure Controls. The records, systems, controls, data and information of
the Company and the Company Subsidiaries are recorded, stored, maintained and operated under means (including any electronic,
mechanical or photographic process, whether computerized or not) that are under the exclusive ownership and direct control of the
Company or the Company Subsidiaries or accountants (including all means of access thereto and therefrom) or reputable banking
industry service providers, except for any non-exclusive ownership and non-direct control that would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the system of internal accounting controls described below in this
Section 2.2(i). The Company (i) has implemented and maintains disclosure controls and procedures (as defined in Rule 13a-15(e) of
the Exchange Act) intended to ensure that material information relating to the Company, including its consolidated Subsidiaries, is
made known to the chief executive officer or executive chairman and the chief financial officer of the Company by others within those
entities, and (ii) has disclosed, based on its most recent evaluation prior to the date of this Agreement, to the Company’s outside
auditors and the audit committee of the Board of Directors (A) any significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that are reasonably likely to
adversely affect the Company’s ability to record, process, summarize and report financial information, and (B) any fraud, whether or
not material, that involves management or other employees who have a significant role in the Company’s internal controls over
financial reporting. As of the date of this
9
Agreement, the Company has no Knowledge of any reason that its outside auditors and its chief executive officer or executive
chairman and chief financial officer shall not be able to give the certifications and attestations required pursuant to the rules and
regulations adopted pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, without qualification, when next due. Since
December 31, 2010, neither the Company nor any Company Subsidiary nor, to the Knowledge of the Company, any director, officer,
employee, auditor, accountant or representative of the Company or any Company Subsidiary has received or otherwise had or
obtained knowledge of any material complaint, allegation, assertion or claim, whether written or oral, regarding the accounting or
auditing practices, procedures, methodologies or methods of the Company or any Company Subsidiary or their respective internal
accounting controls, including any material complaint, allegation, assertion or claim that the Company or any Company Subsidiary
has engaged in questionable accounting or auditing practices.
(j)
Risk Management Instruments. All material derivative instruments, including swaps, caps, floors and
option agreements entered into for the Company’s or any of the Company Subsidiaries’ own account were entered into (i) only in the
ordinary course of business, (ii) in accordance with prudent practices and in all material respects with all applicable Laws and
(iii) with counterparties believed to be financially responsible at the time; and each of them constitutes the valid and legally binding
obligation of the Company or any Company Subsidiary, as applicable, enforceable in accordance with its terms. Neither the Company
nor, to the Knowledge of the Company, any other party thereto is in breach of any of its material obligations under any such
agreement or arrangement.
(k)
No Undisclosed Liabilities. There are no liabilities of the Company or any of the Company Subsidiaries
of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise, except for (i) liabilities
adequately reflected or reserved against in accordance with GAAP in the Company’s audited balance sheet as of December 31, 2013
and (ii) liabilities that have arisen in the ordinary and usual course of business and consistent with past practice since December 31,
2013 and that have not or would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
(l)
Mortgage Lending. The Company and each of the Company Subsidiaries have complied in all material
respects with, and all documentation in connection with the origination, processing, underwriting and credit approval of any mortgage
loan originated, purchased or serviced by the Company or any Company Subsidiary has satisfied, in all material respects (i) all Laws
with respect to the origination, insuring, purchase, sale, servicing, or filing of claims in connection with mortgage loans, including all
Laws relating to real estate settlement procedures, consumer credit protection, truth in lending laws, usury limitations, fair housing,
transfers of servicing, collection practices, equal credit opportunity and adjustable rate mortgages, (ii) the responsibilities and
obligations relating to mortgage loans set forth in any agreement between the Company and any Agency, Loan Investor or Insurer,
(iii) the applicable rules, regulations, guidelines, handbooks and other requirements of any Agency, Loan Investor or Insurer and
(iv) the terms and provisions of any mortgage or other collateral documents and other loan documents with respect to each mortgage
loan.
(m)
Bank Secrecy Act; Anti-Money Laundering; OFAC; and Customer Information. The Company is not
aware of, has not been advised of, and, to the Knowledge of
10
the Company, has no reason to believe that any facts or circumstances exist that would cause it or any Company Subsidiary to be
deemed to be not operating in compliance, in all material respects, with the Bank Secrecy Act of 1970, as amended, the Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (also known as the
USA PATRIOT Act), any order or regulation issued by the U.S. Department of the Treasury’s Office of Foreign Assets Control
(“OFAC”), or any other applicable anti-money laundering or anti-terrorist-financing statute, rule or regulation. The Company is not
aware of any facts or circumstances that would cause it to believe that any nonpublic customer information has been disclosed to or
accessed by an unauthorized third party in a manner that would cause it to undertake any material remedial action. The Company and
each of the Company Subsidiaries have adopted and implemented an anti-money laundering program that contains adequate and
appropriate customer identification verification procedures that comply with the USA PATRIOT Act and such anti-money laundering
program meets the requirements in all material respects of Section 352 of the USA PATRIOT Act and the regulations thereunder, and
they have complied in all respects with any requirements to file reports and other necessary documents as required by the USA
PATRIOT Act and the regulations thereunder. The Company will not directly or indirectly use the proceeds of the sale of the
Common Stock pursuant to transactions contemplated by this Agreement, or lend, contribute or otherwise make available such
proceeds to any Company Subsidiary, joint venture partner or other Person, towards any sales or operations in any country appearing
on the OFAC Specially Designated Nationals List (“SDN List”) or for the purpose of financing the activities of any Person currently
appearing on the SDN List.
(n)
Certain Payments. Neither the Company nor any of the Company Subsidiaries, nor any directors,
officers, nor to the Knowledge of the Company, employees or any of their Affiliates or any other Person who to the Knowledge of the
Company is associated with or acting on behalf of the Company or any of the Company Subsidiaries has directly or indirectly (i) made
any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment in material violation of any Law to any
Person, private or public, regardless of form, whether in money, property, or services (A) to obtain favorable treatment in securing
business for the Company or any of the Company Subsidiaries, (B) to pay for favorable treatment for business secured by the
Company or any of the Company Subsidiaries, or (C) to obtain special concessions or for special concessions already obtained, for or
in respect of the Company or any of the Company Subsidiaries or (ii) established or maintained any fund or asset with respect to the
Company or any of the Company Subsidiaries that was required by Law or GAAP to have been recorded and was not recorded in the
books and records of the Company or any of the Company Subsidiaries.
(o)
Absence of Certain Changes. Since December 31, 2013 and except as Previously Disclosed or as
required or contemplated by the terms of this Agreement, (i) the Company and the Company Subsidiaries have conducted their
respective businesses in all material respects in the ordinary and usual course of business consistent with past practices, (ii) none of the
Company or any Company Subsidiary has issued any securities (other than Common Stock and other equity-based awards issued prior
to the date of this Agreement pursuant to the Company Stock Plans and reflected in the numbers set forth in Section 2.2(c)), (iii) the
Company has not made or declared any distribution in cash or in kind to its shareholders or issued or repurchased any shares of its
Capital Stock, (iv) through (and including) the date of
11
this Agreement, no fact, event, change, condition, development, circumstance or effect has occurred that has had or would reasonably
be expected to have, individually or in the aggregate, a Material Adverse Effect and (v) no material default (or event which, with
notice or lapse of time, or both, would constitute a material default) exists on the part of the Company or any Company Subsidiary in
the due performance and observance of any term, covenant or condition of any agreement to which the Company or any Company
Subsidiary is a party and which would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
(p)
Compliance with Laws. The Company and each Company Subsidiary have all material permits, licenses,
franchises, authorizations, orders and approvals of, and have made all filings, applications and registrations with, Governmental
Entities that are required in order to permit them to own or lease their properties and assets and to carry on their business as presently
conducted and that are material to the business of the Company and each Company Subsidiary. The Company and each Company
Subsidiary have complied in all material respects and (i) are not in default or violation in any respect of, (ii) are not under
investigation with respect to, and (iii) have not been threatened to be charged with or given notice of any material violation of, any
applicable material domestic (federal, state or local) or foreign law, statute, ordinance, license, rule, regulation, policy or guideline,
order, demand, writ, injunction, decree or judgment of any Governmental Entity (each, a “Law”), other than such noncompliance,
defaults or violations as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. Except
for statutory or regulatory restrictions of general application, restrictions applicable to recipients of funds under the Troubled Asset
Relief Program of the Treasury, the Order to Cease and Desist issued by the Office of Thrift Supervision to the Company with the
Company’s consent, effective September 9, 2010, and the Consent Order issued by the Office of the Comptroller of the Currency to
the Bank with the Bank’s consent, effective October 30, 2013 (each, individually a “Regulatory Order” and, together, the
“Regulatory Orders”), no Governmental Entity has placed any material restriction on the business or properties of the Company or
any of the Company Subsidiaries. As of the date hereof, the Bank has a Community Reinvestment Act rating of “outstanding.”
(q)
Agreements with Regulatory Agencies. Except for the Regulatory Orders, (i) the Company and the
Company Subsidiaries (A) are not subject to any cease-and-desist or other similar order or enforcement action issued by, (B) are not a
party to any written agreement, consent agreement or memorandum of understanding with, (C) are not a party to any commitment
letter or similar undertaking to, and (D) are not subject to any capital directive by, and (ii) since December 31, 2013, neither the
Company nor any of the Company Subsidiaries has adopted any board resolutions at the request of any Governmental Entity that
currently restricts in any material respect the conduct of its business or that in any material manner relates to its capital adequacy, its
liquidity and funding policies and practices, its ability to pay dividends, its credit, risk management or compliance policies, its internal
controls, its management or its operations or business (each item in this sentence, including the Regulatory Orders, being referred to
herein as a “Regulatory Agreement”), nor has the Company nor any of the Company Subsidiaries been advised since December 31,
2013 by any Governmental Entity that it is considering issuing, initiating, ordering, or requesting any such Regulatory Agreement.
Except as set forth on Section 2.2(q) of the Disclosure Schedule, the Company and the Company Subsidiaries are in compliance in all
material respects with each Regulatory Agreement to which they are party or subject, and the Company and the Company Subsidiaries
have not received any
12
notice from any Governmental Entity indicating that either the Company or any of the Company Subsidiaries is not in compliance in
all material respects with any such Regulatory Agreement.
(r)
Contracts. The Company has Previously Disclosed or provided (by hard copy, electronic data room or
otherwise) to the Investor or its representatives true, correct and complete copies of each of the following to which the Company or
any Company Subsidiary is a party, each of which is set forth on Section 2.2(r) of the Disclosure Schedule (each, a “Material
Contract”):
(i)
any contract or agreement relating to indebtedness of the Company or any Company Subsidiary
for borrowed money, letters of credit, capital lease obligations, obligations secured by a Lien or interest rate or
currency hedging agreements (including guarantees in respect of any of the foregoing, but in any event excluding
trade payables, securities transactions and brokerage agreements arising in the ordinary course of business,
intercompany indebtedness and immaterial leases for telephones, copy machines, facsimile machines and other
office equipment) in excess of $200,000, except for those issued in the ordinary course of business;
(ii)
any contract or agreement that is a “material contract” within the meaning of Item 601(b)(10) of
Regulation S-K;
(iii)
any contract or agreement limiting, in any material respect, the ability of the Company or any of
the Company Subsidiaries to engage in any line of business or to compete, whether by restricting territories,
customers or otherwise, or in any other material respect, with any Person;
(iv)
any contract or agreement that concerns the sale or acquisition of any material portion of the
Company’s business;
(v)
any alliance, cooperation, joint venture, shareholders, partnership or similar agreement involving a
sharing of profits or losses relating to the Company or any Company Subsidiary;
(vi)
any contract or agreement involving annual payments in excess of $200,000 that cannot be
cancelled by the Company or a Company Subsidiary without penalty on not more than 90 days’ notice;
(vii)
any material hedge, collar, option, forward purchasing, swap, derivative or similar agreement,
understanding or undertaking;
(viii)
any contract or agreement with respect to the employment or service of any current or former
directors, officers, employees or consultants of the Company or any of the Company Subsidiaries other than, with
respect to non-executive employees and consultants, in the ordinary course of business; and
(ix)
any contract or agreement containing any (x) non-competition or exclusive dealing obligations or
other obligation which purports to limit or restrict
13
in any respect the ability of the Company or any Company Subsidiary to solicit customers or the manner in which,
or the localities in which, all or any portion of the business of the Company or the Company Subsidiaries is or can
be conducted, or (y) right of first refusal or right of first offer or similar right or that limits or purports to limit the
ability of the Company or any of the Company Subsidiaries to own, operate, sell, transfer, pledge or otherwise
dispose of any material assets or business.
Each Material Contract (A) is legal, valid and binding on the Company and the Company Subsidiaries which are a party to such
contract, (B) is in full force and effect and enforceable in accordance with its terms and (C) will continue to be legal, valid, binding,
enforceable, and in full force and effect in all material respects following the consummation of the transactions contemplated by this
Agreement. Neither the Company nor any of the Company Subsidiaries, nor to the Knowledge of the Company, any other party
thereto is in material violation or default under any Material Contract. No benefits under any Material Contract will be increased, and
no vesting of any benefits under any Material Contract will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement, nor will the value of any of the benefits under any Material Contract be calculated on the basis of any of the
transactions contemplated by this Agreement. The Company and the Company Subsidiaries, and to the Knowledge of the Company,
each of the other parties thereto, have performed in all material respects all material obligations required to be performed by them
under each Material Contract, and to the Knowledge of the Company, no event has occurred that with notice or lapse of time would
constitute a material breach or default or permit termination, modification, or acceleration, under the Material Contracts.
(s)
Insurance. The Company and each of the Company Subsidiaries are presently insured, and have been
insured for at least the past two years, for reasonable amounts with financially sound and reputable insurance companies against such
risks as companies engaged in a similar business would, in accordance with good business practice, customarily be insured. All of the
policies, bonds and other arrangements providing for the foregoing (the “Company Insurance Policies”) are in full force and effect,
the premiums due and payable thereon have been or will be timely paid through the Closing Date, and there is no material breach or
default (and no condition exists or event has occurred that, with the giving of notice or lapse of time or both, would constitute such a
material breach or default) by the Company or any of the Company Subsidiaries under any of the Company Insurance Policies or, to
the Knowledge of the Company, by any other party to the Company Insurance Policies. Neither the Company nor any of the
Company Subsidiaries has received any written notice of cancellation or non-renewal of any Company Insurance Policy nor, to the
Knowledge of the Company, is the termination of any such policies threatened in writing by the insurer, and there is no material claim
for coverage by the Company, or any of the Company Subsidiaries, pending under any of such Company Insurance Policies as to
which coverage has been denied or disputed by the underwriters of such Company Insurance Policies or in respect of which such
underwriters have reserved their rights.
(t)
Title. The Company and the Company Subsidiaries have good and marketable title in fee simple to all real
property owned by them and good and valid title to all material personal property owned by them, in each case free and clear of all
Liens, except for
14
Liens which do not materially affect the value of such property or do not interfere with the use made and proposed to be made of such
property by the Company or any Company Subsidiary. Any real property and facilities held under lease by the Company or the
Company Subsidiaries are valid, subsisting and enforceable leases with such exceptions that are not material and do not interfere with
the use made and proposed to be made of such property and facilities by the Company or the Company Subsidiaries.
(u)
Employee Benefits.
(i)
Section 2.2(u) of the Disclosure Schedule sets forth a correct and complete list of each “employee
benefit plan” (within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended (“ERISA”), including, without limitation, multiemployer plans within the meaning of Section 3(37) of
ERISA), and all stock purchase, stock option, severance, employment, change-in-control, fringe benefit, bonus,
incentive, deferred compensation and all other employee benefit plans, agreements, programs, policies or other
arrangements, whether or not subject to ERISA (including any funding mechanism therefor now in effect or required
in the future as a result of the transactions contemplated by this Agreement or otherwise), whether formal or
informal, oral or written, under which (A) any current or former employee or director of the Company or any of the
Company Subsidiaries (the “Company Employees”) has any present or future right to benefits and which are
contributed to, sponsored by or maintained by the Company or any of the Company Subsidiaries or (B) the
Company or any Company Subsidiary has had or has any present or future liability. All such plans, agreements,
programs, policies and arrangements shall be collectively referred to as the “Benefit Plans.”
(ii)
(A) Each Benefit Plan has been established and administered in all material respects in
accordance with its terms, and in compliance with the applicable provisions of ERISA, the Code and other Laws;
(B) no “reportable event” (as such term is defined in Section 4043 of ERISA) that could reasonably be expected to
result in material liability has occurred with respect to any Benefit Plan, and (C) no non-exempt “prohibited
transaction” (as such term is defined in Section 406 of ERISA and Section 4975 of the Code) has been engaged in
by the Company or any Company Subsidiary with respect to any Benefit Plan that has or is expected to result in any
material liability or “accumulated funding deficiency” (as such term is defined in Section 302 of ERISA and
Section 412 of the Code (whether or not waived)).
(iii)
The Company and the Company Subsidiaries will be in compliance, as of the Closing Date, with
Sections 111 and 302 of the Emergency Economic Stabilization Act of 2008, as amended by the U.S. American
Recovery and Reinvestment Act of 2009, including all guidance issued thereunder by a Governmental Entity
(collectively “EESA”).
(v)
Taxes. All material Tax Returns required to be filed by, or on behalf of, Company or the Company
Subsidiaries have been timely filed, or will be timely filed, in
15
accordance with all Laws, and all such Tax Returns are, or shall be at the time of filing, complete and correct in all material respects.
The Company and the Company Subsidiaries have timely paid all material Taxes due and payable (whether or not shown on such Tax
Returns), or, where payment is not yet due, have made adequate provisions in accordance with GAAP. There are no Liens with
respect to Taxes upon any of the assets or properties of either the Company or the Company Subsidiaries other than with respect to
Taxes not yet due and payable.
(w)
Labor.
(i)
Employees of the Company and the Company Subsidiaries are not represented by any labor union
nor are any collective bargaining agreements otherwise in effect with respect to such employees. No labor
organization or group of employees of the Company or any Company Subsidiary has made a pending demand for
recognition or certification, and there are no representation or certification proceedings or petitions presently
pending or threatened to be brought or filed with the National Labor Relations Board or any other labor relations
tribunal or authority, nor have there been in the last three years. There are no strikes, work stoppages, slowdowns,
labor picketing lockouts, material arbitrations or material grievances, or other material labor disputes pending or, to
the Knowledge of the Company, threatened against or involving the Company or any Company Subsidiary, nor have
there been any in the past year.
(ii)
Except as would not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect, the Company and the Company Subsidiaries are in compliance with all federal and state Laws and
requirements respecting employment and employment practices, terms and conditions of employment, collective
bargaining, disability, immigration, health and safety, wages, hours and benefits, non-discrimination in employment,
workers’ compensation and the collection and payment of withholding and/or payroll taxes and similar taxes.
(iii)
Except as would not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect, there is no charge or complaint pending or threatened before any Governmental Entity alleging
unlawful discrimination in employment practices, unfair labor practices or other unlawful employment practices by
the Company or any Company Subsidiary.
(x)
Brokers and Finders. Except for BlackTorch Securities, LLC (the “Placement Agent”) and the fees
payable thereto or to its assigns (which fees are to be paid by the Company), neither the Company nor any of its officers, directors,
employees or agents has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees,
commissions or finder’s fees, and no broker or finder has acted directly or indirectly for the Company in connection with this
Agreement or the transactions contemplated hereby.
(y)
Loan Portfolio. As of the date of this Agreement, the characteristics of the loan portfolio of the Company
have not materially and adversely changed from the characteristics of the loan portfolio as of December 31, 2013.
16
(z)
Offering of Securities. Neither the Company nor any Person acting on its behalf has taken any action
(including any offering of any securities of the Company under circumstances which would require the integration of such offering
with the offering of any of the Common Stock to be issued pursuant to this Agreement under the Securities Act and the rules and
regulations of the SEC promulgated thereunder) which would subject the offering, issuance or sale of any of the Common Stock to be
issued pursuant to this Agreement to be subject to the registration requirements of the Securities Act. Neither the Company nor any
Person acting on its behalf has engaged or will engage in any form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with any offer or sale of the Common Stock pursuant to the transactions
contemplated by this Agreement. Assuming the accuracy of the Investor’s representations and warranties set forth in this Agreement,
no registration under the Securities Act is required for the offer and sale of the Common Stock by the Company to the Investor.
(aa)
Investment Company Status. The Company is not, and upon consummation of the transactions
contemplated by this Agreement will not be, an “investment company,” a company controlled by an “investment company” or an
“affiliated Person” of, or “promoter” or “principal underwriter” of, an “investment company,” as such terms are defined in the
Investment Company Act of 1940, as amended.
(bb)
Affiliate Transactions. No officer, director, five percent (5%) shareholder or other Affiliate of the
Company (or any Company Subsidiary), or any individual who, to the Knowledge of the Company, is related by marriage or adoption
to or shares the same home as any such Person, or any entity which, to the Knowledge of the Company, is controlled by any such
Person (collectively, an “Insider”), is a party to any contract or transaction with the Company (or any Company Subsidiary) which
pertains to the business of the Company (or any Company Subsidiary) or has any interest in any property, real or personal or mixed,
tangible or intangible, used in or pertaining to the business of the Company (or any Company Subsidiary). The foregoing
representation and warranty does not include deposits at the Company (or any Company Subsidiary) or loans of $250,000 or less made
in the ordinary course of business in compliance with Regulation O and other applicable Law.
(cc)
Anti-takeover Provisions Not Applicable. The Board of Directors has taken all necessary action to
ensure that the transactions contemplated by this Agreement and the consummation of the transactions contemplated hereby will be
exempt from any anti-takeover or similar provisions of the Company’s certificate of incorporation and bylaws, and any provisions of
any applicable “moratorium”, “control share”, “fair price”, “interested shareholder” or other anti-takeover Laws and regulations of any
jurisdiction.
(dd)
Issuance of the Common Stock. Upon receipt of the stockholder approvals referred to in Section 2.2(d)
(i), the issuance of the Common Stock in connection with the transactions contemplated by this Agreement has been duly authorized
and such Common Stock, when issued and paid for in accordance with the terms of this Agreement, will be duly and validly issued,
fully paid and nonassessable and free and clear of all Liens, other than restrictions on transfer imposed by applicable securities Laws,
and shall not be subject to preemptive or similar rights except as set forth in Section 2.2(c)(iv).
17
2.3
Representations and Warranties of the Investor. Except as Previously Disclosed, the Investor hereby represents
and warrants to the Company, as of the date hereof and as of the Closing Date (except for the representations and warranties that are
as of a specific date which are made as of that date) that:
(a)
Organization and Authority. The Investor is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization, is duly qualified to do business and is in good standing in all jurisdictions where its
ownership or leasing of property or the conduct of its business requires it to be so qualified and where failure to be so qualified would
be reasonably expected to materially and adversely impair or delay its ability to perform its obligations under this Agreement or to
consummate the transactions contemplated hereby.
(b)
Authorization; No Conflicts.
(i)
The Investor has the necessary power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized by its board of directors, general
partner or managing members, investment committee, investment adviser or other authorized person, as the case
may be, and no further approval or authorization by any of its shareholders, partners or other equity owners, as the
case may be, is required. This Agreement has been duly and validly executed and delivered by the Investor and,
assuming due authorization, execution and delivery by the Company is the valid and binding obligation of the
Investor enforceable against the Investor in accordance with its terms (except as enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general
applicability relating to or affecting creditors’ rights or by general equity principles).
(ii)
Neither the execution, delivery and performance by the Investor of this Agreement nor the
consummation of the transactions contemplated hereby, nor compliance by the Investor with any of the provisions
hereof, will (A) violate, conflict with, or result in a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation
of any Liens upon any of the properties or assets of the Investor under any of the terms, conditions or provisions of
(1) its certificate of incorporation or bylaws, its certificate of limited partnership or partnership agreement or its
similar governing documents or (2) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which the Investor is a party or by which the Investor may be bound, or to which
the Investor or any of the properties or assets of the Investor may be subject, or (B) violate any Law applicable to the
Investor or any of its properties or assets except in the case of clauses (A)(2) and (B) for such violations, conflicts
and breaches as would not reasonably be expected to materially adversely affect the Investor’s ability to
18
perform its obligations under this Agreement or consummate the transactions contemplated hereby on a timely basis.
(c)
Governmental Consents. Except as set forth in the Disclosure Schedule, no Governmental Consents are
necessary for the execution and delivery of this Agreement or for the purchase by the Investor of the Common Stock pursuant to this
Agreement.
(d)
Purchase for Investment; Accredited Investor Status. The Investor acknowledges that the Common
Stock to be purchased by the Investor pursuant to this Agreement has not been registered under the Securities Act or under any state
securities laws and may not be resold or transferred by the Investor without such registration or appropriate reliance on any available
exemption from such requirements. The Investor (i) is acquiring the Common Stock pursuant to an exemption from the registration
requirements of the Securities Act and other applicable securities laws solely for investment with no present intention to distribute any
of the Common Stock to any Person, (ii) will not sell or otherwise dispose of any of the Common Stock, except in compliance with the
registration requirements or exemption provisions of the Securities Act and any other applicable securities laws, (iii) has such
knowledge and experience in financial and business matters and in investments of this type that it is capable of evaluating the merits
and risks of its investment in the Common Stock and of making an informed investment decision and (iv) is an “accredited
investor” (as that term is defined by Rule 501 of the Securities Act).
(e)
Brokers and Finders. Neither the Investor, nor its respective Affiliates nor any of their respective officers
or directors, has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions
or finder’s fees, and no broker or finder has acted directly or indirectly for the Investor in connection with this Agreement or the
transactions contemplated hereby. The Investor acknowledges that it is purchasing the Common Stock directly from the Company
and not from the Placement Agent.
(f)
Investment Decision. The Investor, or the duly appointed investment manager to the Investor (the
“Investment Manager”), if applicable, has independently evaluated the merits of its decision to purchase the Common Stock
pursuant to this Agreement, and the Investor confirms that neither it, nor its Investment Manager, if applicable, has relied on the
advice of any other person’s business and/or legal counsel in making such decision. The Investor understands that nothing in this
Agreement or any other materials presented by or on behalf of the Company to the Investor in connection with the purchase of the
Common Stock constitutes legal, tax or investment advice. The Investor has consulted such accounting, legal, tax and investment
advisors as it has deemed necessary or appropriate in connection with its purchase of the Common Stock. The Investor understands
that the Placement Agent has acted solely as the agent of the Company in this placement of the Common Stock and the Investor has
not relied on the business or legal advice of the Placement Agent or any of its agents, counsel or Affiliates in making its investment
decision hereunder, and confirms that none of such persons has made any representations or warranties to the Investor in connection
with the transactions contemplated by this Agreement. Except as Previously Disclosed and except for this Agreement, there are no
agreements or understandings with respect to the transactions contemplated by this Agreement between the Investor or any of its
Affiliates, on the one hand, and (i) any of the Other
19
Investors or any of their respective Affiliates, in each case, the identity of which is known to the Investor, (ii) the Company or (iii) the
Company Subsidiaries, on the other hand.
(g)
Financial Capability. At the Closing, the Investor shall have available all funds necessary to consummate
the purchase of Common Stock on the terms and conditions contemplated by this Agreement.
(h)
Access to Information. The Investor acknowledges that it has been afforded (i) the opportunity to ask
such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and
conditions of the offering of the Common Stock and the merits and risks of investing in the Common Stock; (ii) access to information
about the Company and the Company Subsidiaries and their respective financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its investment; (iii) the opportunity to obtain such additional information
that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment
decision with respect to the Investment; and (iv) the opportunity to ask questions of management.
(i)
No Reliance. The Investor has not relied on any representation or warranty in connection with the
Investment other than those contained in this Agreement.
(j)
No Coordinated Acquisition. Except as Previously Disclosed, the Investor (i) reached its decision to
invest in the Common Stock independently from any other Person known by the Investor to be a potential investor in the Company,
other than any Affiliates of the Investor that are also investing in the Other Private Placements, (any such person, a “Potential
Investor”), (ii) is not affiliated with any other Potential Investor, (iii) is not advised or managed by an advisor or manager that advises
or manages any other Potential Investor, other than any Affiliates of the Investor that are also investing in the Other Private
Placements, (iv) has not entered into any agreement or understanding, whether written or not reduced to writing, with any other
Potential Investor to act in concert for the purpose of exercising a controlling influence over the Company or any Company
Subsidiaries, including, but not limited to, any agreements or understandings regarding the voting or transfer of shares of the
Company, (v) has not shared due diligence materials prepared by such Investor or any of its advisors or representatives with respect to
the Company or any Company Subsidiaries with any other Potential Investor, (vi) has not been induced, nor has induced any other
Potential Investor, to enter into the transactions contemplated by this Agreement by any other Potential Investor, (vii) was not notified
of or provided the opportunity to enter into the transactions contemplated by this Agreement pursuant to the terms of any agreement or
informal understanding with, or otherwise acting in concert with, any other Potential Investor and was not required by the terms of any
agreement or informal understanding to so notify any other Potential Investor, (viii) is not a party to any formal or informal
understanding with any other Potential Investor to make a coordinated acquisition of stock of the Company, and the investment
decision of the Investor is not based on the investment decision of any other Potential Investor, (ix) is not a party to any formal or
informal agreement or understanding concerning the appointment of any individual to the Board of Directors (other than as set forth in
that certain Letter Agreement dated as of August 22, 2013 by and between the Company and CJA Private Equity Financial
Restructuring Master Fund I L.P. (as amended, restated or otherwise modified from time to time, the “CJA Letter
20
Agreement”)), (x) will not, by reason of the Investment, file, be required to file, or be required to be included in a Schedule 13D or
Schedule 13G pursuant to the United States federal securities laws, (xi) has not engaged as part of a group consisting of substantially
the same entities as the Potential Investors, in substantially the same combination of interests, in any additional banking or nonbanking
activities or business ventures in the United States and (xii) will not pay any other Potential Investor any fee in connection with the
transactions contemplated hereby. Except as Previously Disclosed, the Investor does not presently hold any capital stock of the
Company.
ARTICLE 3
COVENANTS
3.1
Conduct of Business Prior to Closing. Except as otherwise expressly required or contemplated by this Agreement
or applicable Law or in the performance of any Material Contract that was Previously Disclosed, or with the prior written consent of
the Investor, between the date of this Agreement and the Closing, the Company shall, and the Company shall cause each Company
Subsidiary to:
(a)
use commercially reasonable efforts to conduct its business only in the ordinary course of business; and
(b)
use commercially reasonable efforts to (i) preserve the present business operations, organization (including
officers and employees) and goodwill of the Company and any Company Subsidiary and (ii) preserve business relationships with
customers, suppliers, consultants and others having business dealings with the Company; provided, however, that nothing in this
clause (b) shall place any limit on the ability of the Board of Directors to act, or require any actions that the Board of Directors may, in
good faith, determine to be inconsistent with their duties or the Company’s obligations under applicable Law or imposed by any
Governmental Entity.
3.2
Confidentiality. The Investor acknowledges that the information being provided to it in connection with the
transactions contemplated hereby is subject to the terms of the Confidentiality Agreement heretofore entered into between the Investor
and the Company (the “Confidentiality Agreement”), the terms of which are incorporated herein by reference, as if the Investor were
a party thereto.
3.3
Commercially Reasonable Efforts. Upon the terms and subject to the conditions herein provided, except as
otherwise provided in this Agreement, each of the parties hereto agrees to use its commercially reasonable efforts to take or cause to
be taken all action, to do or cause to be done and to assist and cooperate with the other parties hereto in doing all things necessary,
proper or advisable under applicable Laws to consummate and make effective the transactions contemplated hereby, including but not
limited to: (a) the satisfaction of the conditions precedent to the obligations of the parties hereto; (b) the obtaining of applicable
Governmental Consents, and consents, waivers and approvals of any other third parties; (c) defending of any claim, action, suit,
investigation or proceeding, whether judicial or administrative, challenging this Agreement or the performance of the obligations
hereunder; and
21
(d) the execution and delivery of such instruments, and the taking of such other actions as the other parties hereto may reasonably
request in order to carry out the intent of this Agreement. Notwithstanding the foregoing, under no circumstances will the Investor be
required to disclose to the Company, the Company Subsidiaries or any third party any information the disclosure of which is
prohibited by Law, nor shall it be required to agree to any restrictions, conditions or commitments imposed or otherwise required by
any Government Entity that are determined by the Investor in its sole discretion to be unduly burdensome, other than customary
passivity commitments, in order to consummate and make effective the transactions contemplated hereby.
3.4
Legend.
(a)
The Investor agrees that all certificates or other instruments representing the Common Stock subject to this
Agreement shall bear a legend substantially to the following effect, until such time as they are not required under Section 3.4(b):
“THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR SECURITIES LAWS OF ANY STATE AND MAY NOT BE
TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION STATEMENT
RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS
OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS.”
(b)
Upon request of the Investor, the Company shall promptly cause such legend to be removed from any
certificate for any Common Stock to be so transferred if (i) such Common Stock is being transferred pursuant to a registration
statement in effect with respect to such transfer or (ii) such Common Stock is being transferred pursuant to an exemption from
registration under the Securities Act and applicable state laws subject to receipt by the Company of an opinion of counsel for the
Investor reasonably satisfactory to the Company to the effect that such legend is no longer required under the Securities Act and
applicable state laws. The Investor acknowledges that the Common Stock has not been registered under the Securities Act or under
any state securities laws and agrees that it shall not sell or otherwise dispose of any of the Common Stock, except in compliance with
the registration requirements or exemption provisions of the Securities Act and any other applicable securities laws.
3.5
Certain Other Transactions.
(a)
Prior to the Closing, notwithstanding anything in this Agreement to the contrary, the Company shall not
directly or indirectly effect or cause to be effected any transaction with a third party that would reasonably be expected to result in a
Change in Control unless such third party shall have provided prior assurance in writing to the Investor (in a form that is reasonably
satisfactory to the Investor) that the terms of this Agreement shall be fully performed (i) by the Company or (ii) by such third party if
it is the successor of the Company or if the Company is its direct or indirect Subsidiary. For the avoidance of doubt, it is understood
and agreed that, in the event that a Change in Control occurs on or prior to the Closing, the Investor shall maintain the right under this
Agreement to acquire, pursuant to the terms and
22
conditions of this Agreement, the Common Stock that is to be purchased by the Investor pursuant to this Agreement (or such other
securities or property (including cash) into which the Common Stock that is to be purchased by Investor pursuant to this Agreement
may have become exchangeable as a result of such Change in Control), as if the Closing had occurred immediately prior to such
Change in Control.
(b)
In the event that, at or prior to the Closing, (i) the number of shares of Common Stock, or securities
convertible or exchangeable into or exercisable for shares of Common Stock, issued and outstanding is changed as a result of any
reclassification, stock split (including reverse split), stock dividend or distribution (including any dividend or distribution of securities
convertible or exchangeable into or exercisable for shares of Common Stock), merger, tender or exchange offer or other similar
transaction, or (ii) the Company fixes a record date that is at or prior to the Closing Date for the payment of any non-stock dividend or
distribution on the Common Stock, then the number of shares of Common Stock to be issued to the Investor at the Closing under this
Agreement, together with the applicable implied per share price, shall be equitably adjusted and/or the shares of Common Stock to be
issued to the Investor at the applicable Closing under this Agreement shall be equitably replaced with shares of other stock or
securities or property (including cash), in each case, to provide the Investor with substantially the same economic benefit from this
Agreement as the Investor had prior to the applicable transaction. Notwithstanding anything in this Agreement to the contrary, in no
event shall the Purchase Price or any component thereof, or the aggregate percentage of shares to be purchased by the Investor, be
changed by the foregoing.
(c)
Notwithstanding anything in the foregoing to the contrary, the provisions of this Section 3.5 shall not be
implicated by (i) the transactions contemplated by this Agreement or the Other Private Placements, or (ii) any issuances of options,
restricted stock units or other equity-based awards granted to newly-appointed directors, employees or consultants of the Company at
or around the same time as the transactions contemplated by this Agreement to such Persons, including upon exercise of any such
options.
3.6
Exchange Listing. The Company shall use its reasonable best efforts to cause the Common Stock to be issued
pursuant to this Agreement to be approved for listing on NASDAQ or such other market on which the Common Stock is then listed or
quoted, subject to official notice of issuance, as promptly as possible and in any event prior to the Closing.
3.7
Stockholders Meeting. Prior to the Closing Date, the Company shall give notice of and hold a meeting of its
stockholders in accordance with applicable law and the corporate governance rules of NASDAQ for the purpose of obtaining
stockholder approval of the sale of Common Stock by the Company pursuant to the Agreements to the extent required by
Sections 5635 (c) and (d), and any other applicable provisions, of the NASDAQ Listing Rules and stockholder approval of the
amendment to article FOURTH of the Company’s Certificate of Incorporation referred to in Section 2.2 (d)(i). To the extent
permitted by the NASDAQ corporate governance rules, the Investor agrees to vote all shares of Common Stock that it owns or has the
power to direct the voting of for this purpose in favor of such amendment and such issuances.
23
3.8
Registration Rights.
(a)
Registration.
(i)
Subject to the terms and conditions of this Agreement, the Company covenants and agrees that
upon the expiration of ninety (90) days after the Closing Date (the “Filing Deadline”), the Company shall have
prepared and filed with the SEC one or more Shelf Registration Statements covering the resale of all of the
Registrable Securities (or, if permitted by the rules of the SEC, otherwise designated an existing Shelf Registration
Statement filed with the SEC to cover such Registrable Securities), and, to the extent the Shelf Registration
Statement has not theretofore been declared effective or is not automatically effective upon such filing, the
Company shall use reasonable best efforts to cause such Shelf Registration Statement to be declared or become
effective as soon as practicable (and in any event no later than the Effectiveness Deadline) and to keep such Shelf
Registration Statement continuously effective and in compliance with the Securities Act and usable for resale of
such Registrable Securities until the date that is 12 months after the initial effective date thereof (the “Registration
Termination Date”).
(ii)
Any registration pursuant to this Section 3.8(a) shall be effected by means of a shelf registration
under the Securities Act (a “Shelf Registration Statement”) in accordance with the methods and distribution set
forth in the Shelf Registration Statement and Rule 415.
(b)
Expenses of Registration. All Registration Expenses incurred in connection with any registration,
qualification or compliance hereunder shall be borne by the Company. All Selling Expenses incurred in connection with any
registrations hereunder shall be borne by the Holders selling in such registration pro rata on the basis of the aggregate number of
securities or shares being sold.
(c)
Obligations of the Company. The Company shall use its reasonable best efforts, for so long as there are
Registrable Securities outstanding, to take such actions as are under its control to not become an ineligible issuer (as defined in
Rule 405 under the Securities Act). In addition, whenever required to effect the registration of any Registrable Securities or facilitate
the distribution of Registrable Securities pursuant to an effective Shelf Registration Statement, the Company shall, as expeditiously as
reasonably practicable:
(i)
Prepare and file with the SEC a prospectus supplement with respect to a proposed offering of
Registrable Securities pursuant to an effective registration statement and, subject to this Section 3.8(c), keep such
registration statement effective or such prospectus supplement current.
(ii)
Prepare and file with the SEC such amendments and supplements to the applicable registration
statement and the prospectus or prospectus supplement used in connection with such registration statement as may
be
24
necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered
by such registration statement.
(iii)
Furnish to the Holders such number of correct and complete copies of the applicable registration
statement and each such amendment and supplement thereto (including in each case all exhibits) and of a
prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such
other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned
or to be distributed by them.
(iv)
Use its reasonable best efforts to register and qualify the securities covered by such registration
statement under such other securities or blue sky Laws of such jurisdictions as shall be reasonably requested by the
Holders, to keep such registration or qualification in effect for so long as such registration statement remains in
effect, and to take any other action which may be reasonably necessary to enable such seller to consummate the
disposition in such jurisdictions of the securities owned by such Holder; provided, that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(v)
Notify each Holder of Registrable Securities at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event as a result of which the applicable
prospectus, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then
existing (which notice shall not contain any material non-public information).
(vi)
information):
Give written notice to the Holders (which notice shall not contain any material, non-public
(A)
when any registration statement filed pursuant to Section 3.8(a) or any amendment
thereto has been filed with the SEC (except for any amendment effected by the filing of a document with
the SEC pursuant to the Exchange Act) and when such registration statement or any post-effective
amendment thereto has become effective;
(B)
of any request by the SEC for amendments or supplements to any registration statement
or the prospectus included therein or for additional information;
(C)
of the issuance by the SEC of any stop order suspending the effectiveness of any
registration statement or the initiation of any proceedings for that purpose;
(D)
of the receipt by the Company or its legal counsel of any notification with respect to the
suspension of the qualification of the
25
Common Stock for sale in any jurisdiction or the initiation or threatening of any proceeding for such
purpose; and
(E)
of the happening of any event that requires the Company to make changes in any
effective registration statement or the prospectus related to the registration statement in order to make the
statements therein not misleading (which notice shall be accompanied by an instruction to suspend the use
of the prospectus until the requisite changes have been made).
(vii)
Use its reasonable best efforts to prevent the issuance or obtain the withdrawal of any order
suspending the effectiveness of any registration statement referred to in Section 3.8(c)(vi)(C) at the earliest
practicable time.
(viii)
Upon the occurrence of any event contemplated by Section 3.8(c)(v) or 3.8(c)(vi)(E) and subject
to the Company’s rights under Section 3.8(d), promptly prepare a post-effective amendment to such registration
statement or a supplement to the related prospectus or file any other required document so that, as thereafter
delivered to the Holders, the prospectus shall not contain an 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.
(ix)
Cause all such Registrable Securities to be listed on each securities exchange on which the same
class of securities issued by the Company are then listed or, if the same class of securities is not then listed on any
securities exchange, use its reasonable best efforts to cause all such Registrable Securities of such class to be listed
on the NASDAQ Capital Market.
(x)
If requested by Holders of a majority of the Registrable Securities being registered and/or sold in
connection therewith, promptly include in a prospectus supplement or amendment such information as the Holders
of a majority of the Registrable Securities being registered and/or sold in connection therewith may reasonably
request in order to permit the intended method of distribution of such securities and make all required filings of such
prospectus supplement or such amendment as soon as practicable after the Company has received such request.
(xi)
Timely provide to its security holders earnings statements satisfying the provisions of Section 9
(a) of the Securities Act and Rule 158 thereunder.
(d)
Suspension of Sales. Upon receipt of written notice from the Company that a registration statement,
prospectus or prospectus supplement contains or may contain an untrue statement of a material fact or omits or may omit to state a
material fact required to be stated therein or necessary to make the statements therein not misleading or that circumstances exist that
make use of such registration statement, prospectus or prospectus supplement
26
inadvisable, each Holder of Registrable Securities shall forthwith discontinue disposition of Registrable Securities pursuant to such
registration statement until such Holder has received copies of a supplemented or amended prospectus or prospectus supplement, or
until such Holder is advised in writing by the Company that the use of the prospectus and, if applicable, prospectus supplement may
be resumed, and, if so directed by the Company, such Holder shall deliver to the Company (at the Company’s expense) all copies,
other than permanent file copies then in such Holder’s possession, of the prospectus and, if applicable, prospectus supplement
covering such Registrable Securities current at the time of receipt of such notice (each such suspension, a “Suspension Period”). No
single Suspension Period shall exceed forty-five (45) consecutive days and the aggregate of all Suspension Periods shall not exceed
one hundred twenty (120) days during any twelve (12) month period.
(e)
Termination of Registration Rights. A Holder’s registration rights as to any securities held by such
Holder (and its Affiliates, partners, members and former members) shall not be available unless such securities are Registrable
Securities.
(f)
Furnishing Information.
(i)
Neither the Investor nor any Holder shall use any free writing prospectus (as defined in Rule 405)
in connection with the sale of Registrable Securities without the prior written consent of the Company.
(ii)
It shall be a condition precedent to the obligations of the Company to take any action pursuant to
Section 3.8(c) as to a selling Holder that such selling Holder shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them and the intended method of disposition of such
securities as shall be required to effect the registered offering of their Registrable Securities.
(g)
Indemnification.
(i)
The Company agrees to indemnify each Holder and, if a Holder is a person other than an
individual, such Holder’s officers, directors, employees, agents, representatives and Affiliates, and each Person, if
any, that controls a Holder within the meaning of the Securities Act (each, an “Indemnitee”), against any and all
Losses, joint or several, arising out of or based upon any untrue statement or alleged untrue statement of material
fact contained in any registration statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto or any documents incorporated therein by reference or contained
in any free writing prospectus (as such term is defined in Rule 405) prepared by the Company or authorized by it in
writing for use by such Holder (or any amendment or supplement thereto), or any omission to state therein 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; provided, that the Company shall not be liable to such Indemnitee in
any such case to the extent that any such Loss is based solely upon (i) an untrue statement or omission made in such
registration statement, including any such
27
preliminary prospectus or final prospectus contained therein or any such amendments or supplements thereto or
contained in any free writing prospectus (as such term is defined in Rule 405) prepared by the Company or
authorized by it in writing for use by such Holder (or any amendment or supplement thereto), in reliance upon and in
conformity with information regarding such Indemnitee or its plan of distribution or ownership interests which was
furnished in writing to the Company by such Indemnitee expressly for use in connection with such registration
statement, including any such preliminary prospectus or final prospectus contained therein or any such amendments
or supplements thereto, or (ii) offers or sales effected by or on behalf such Indemnitee “by means of” (as defined in
Rule 159A) a “free writing prospectus” (as defined in Rule 405) that was not authorized in writing by the Company.
Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of an
Indemnitee and shall survive the transfer of the Registrable Securities by the Holders.
(ii)
If any proceeding shall be brought or asserted against any Indemnitee, such Indemnitee shall
promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof,
including the employment of counsel reasonably satisfactory to the Indemnitee and the payment of all reasonable
fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnitee to give
such notice shall not relieve the Company of its obligations or liabilities pursuant to this Agreement, except to the
extent that the Company is materially and adversely prejudiced in its ability to defend such action. An Indemnitee
shall have the right to employ separate counsel in any such proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such Indemnitee or Indemnitees unless: (1) the
Company has agreed in writing to pay such fees and expenses; (2) the Company shall have failed promptly to
assume the defense of such proceeding and to employ counsel reasonably satisfactory to such Indemnitee in any
such proceeding; or (3) the named parties to any such proceeding (including any impleaded parties) include both
such Indemnitee and the Company, and such Indemnitee shall have been advised by counsel that a conflict of
interest exists if the same counsel were to represent such Indemnitee and the Company; provided, that the Company
shall not be liable for the fees and expenses of more than one separate firm of attorneys at any time for all
Indemnitees and all similarly situated Persons who are “Indemnitees” as defined in the other Agreements. The
Company shall not be liable for any settlement of any such proceeding effected without its written consent, which
consent shall not be unreasonably withheld or delayed. The Company shall not, without the prior written consent of
the Indemnitee, effect any settlement of any pending proceeding in respect of which any Indemnitee is a party,
unless such settlement includes an unconditional release of such Indemnitee from all liability on claims that are the
subject matter of such proceeding. Subject to the terms of this Agreement, all fees and expenses of the Indemnitee
(including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to
defend such proceeding in a manner not inconsistent with this Section
28
3.8(g)(ii)) shall be paid to the Indemnitee, as incurred, within thirty (30) days of written notice thereof to the
Company; provided, that the Indemnitee shall promptly reimburse the Company for that portion of such fees and
expenses applicable to such actions for which such Indemnitee is finally judicially determined to not be entitled to
indemnification hereunder).
(iii)
If the indemnification provided for in Section 3.8(g)(i) is unavailable to an Indemnitee with
respect to any Losses, then the Company, in lieu of indemnifying such Indemnitee, shall contribute to the amount
paid or payable by such Indemnitee as a result of such Losses in such proportion as is appropriate to reflect the
relative fault of the Indemnitee, on the one hand, and the Company, on the other hand, in connection with the
statements or omissions which resulted in such Losses as well as any other relevant equitable considerations. The
relative fault of the Company, on the one hand, and of the Indemnitee, on the other hand, shall be determined by
reference to, among other factors, whether the untrue statement of a material fact or omission to state a material fact
relates to information supplied by the Company or by the Indemnitee and the parties’ relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or omission; the Company and each
Holder agree that it would not be just and equitable if contribution pursuant to this Section 3.8(g)(iii) were
determined by pro rata allocation or by any other method of allocation that does not take account of the equitable
considerations referred to in Section 3.8(g)(i). No Indemnitee guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from the Company if the Company
was not guilty of such fraudulent misrepresentation.
(iv)
The indemnity and contribution agreements contained in this Section 3.8(g) are in addition to any
liability that the Company may have to the Indemnitees and are not in diminution or limitation of the
indemnification provisions under Article 5 of this Agreement.
(h)
Assignment of Registration Rights. The rights of the Investor to registration of Registrable Securities
pursuant to Section 3.8(a) may be assigned by the Investor to a transferee or assignee of Registrable Securities to which (i) there is
transferred to such transferee no less than $1 million in Registrable Securities or all of the Registrable Securities held by the Investor
and (ii) such transfer is permitted under the terms hereof; provided, however, that the transferor shall, within ten (10) days after such
transfer, furnish to the Company written notice of the name and address of such transferee or assignee and the number and type of
Registrable Securities that are being assigned.
(i)
Rule 144 Reporting. With a view to making available to the Investor and Holders the benefits of certain
rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the
Company agrees to use its reasonable best efforts to:
29
(i)
make and keep adequate current public information with respect to the Company available, as
those terms are understood and defined in Rule 144(c)(1) or any similar or analogous rule promulgated under the
Securities Act, at all times after the effective date of this Agreement;
(ii)
so long as the Investor or a Holder owns any Registrable Securities, furnish to the Investor or such
Holder forthwith upon request: (A) a written statement by the Company as to its compliance with the reporting
requirements of Rule 144 under the Securities Act, and of the Exchange Act; (B) a copy of the most recent annual or
quarterly report of the Company; and (C) such other reports and documents as the Investor or Holder may
reasonably request in availing itself of any rule or regulation of the SEC allowing it to sell any such securities
without registration; and
(iii)
to take such further action as any Holder may reasonably request, all to the extent required from
time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act.
(j)
As used in this Section 3.8, the following terms shall have the following respective meanings:
(i)
“Effective Date” means the date that the Shelf Registration Statement filed pursuant to
Section 3.8(a)(i) is first declared effective by the SEC.
(ii)
“Effectiveness Deadline” means, with respect to the Shelf Registration Statement required to be
filed pursuant to Section 3.8(a)(i), the earlier of (i) the 90th calendar day following the Filing Deadline and (ii) the
5th Business Day after the date the Company is notified (orally or in writing, whichever is earlier) by the SEC that
such Shelf Registration Statement will not be “reviewed” or will not be subject to further review; provided, that if
the Effectiveness Deadline falls on a Saturday, Sunday or other day that the SEC is closed for business, the
Effectiveness Deadline shall be extended to the next Business Day on which the SEC is open for business.
(iii)
“Holder” means the Investor and any other holder of Registrable Securities to whom the
registration rights conferred by this Agreement have been transferred in compliance with Section 3.8(h) hereof.
(iv)
“Register,” “registered” and “registration” shall refer to a registration effected by preparing and
(A) filing a registration statement in compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of effectiveness of such registration statement or (B) filing a prospectus
and/or prospectus supplement in respect of an appropriate effective registration statement.
(v)
“Registrable Securities” means (A) all Common Stock purchased by the Investor pursuant to this
Agreement and (B) any equity securities issued or issuable directly or indirectly with respect to the securities
referred to in clause
30
(A) by way of conversion, exercise or exchange thereof or stock dividend or stock split or in connection with a
combination of shares, recapitalization, reclassification, merger, amalgamation, arrangement, consolidation or other
reorganization, provided that, once issued, such securities shall not be Registrable Securities after (1) they are sold
pursuant to an effective registration statement under the Securities Act, (2) they may be sold pursuant to Rule 144
without limitation thereunder on volume or manner of sale and without the requirement for the Company to be in
compliance with the current public information required under Rule 144(e)(1) (or Rule 144(i)(2), if applicable),
(3) they have ceased to be outstanding or (4) they have been sold in a private transaction in which the transferor’s
rights under this Agreement are not permitted by this Agreement to be assigned to the transferee of the securities.
No Registrable Securities may be registered under more than one registration statement at one time.
(vi)
“Registration Expenses” means all expenses incurred by the Company in effecting any
registration pursuant to this Agreement (whether or not any registration or prospectus becomes effective or final) or
otherwise complying with its obligations under this Section 3.8, including, without limitation, all registration, filing
and listing fees, printing expenses, fees and disbursements of counsel for the Company and blue sky fees and
expenses, but shall not include Selling Expenses and the compensation of regular employees of the Company, which
shall be paid in any event by the Company.
(vii)
“Rule 158,” “Rule 159A,” “Rule 405” and “Rule 415” mean, in each case, such rule promulgated
under the Securities Act (or any successor provision), as the same shall be amended from time to time.
(viii)
“Selling Expenses” means all discounts, selling commissions and stock transfer taxes applicable
to the sale of Registrable Securities and fees and disbursements of counsel for any Holder.
(k)
On or prior to the Acceptance Date, the Investor shall furnish to the Company a fully completed Selling
Shareholder Questionnaire in the form attached as Appendix I hereto for use in the preparation of the Registration Statement and all of
the information contained therein will be true and correct as of the Closing Date.
ARTICLE 4
TERMINATION
4.1
Termination. This Agreement may be terminated prior to the Closing:
(a)
by mutual written agreement of the Company and the Investor;
(b)
by any party, upon written notice to the other party, in the event that the Closing does not occur on or
before December 31, 2014; provided, however, that the right to terminate this Agreement pursuant to this Section 4.1(b) shall not be
available to any party
31
whose failure to fulfill any obligation under this Agreement shall have been the cause of, or shall have resulted in, the failure of the
Closing to occur on or prior to such date;
(c)
by the Investor, upon written notice to the Company, if (i) there has been a breach of any representation,
warranty, covenant or agreement made by the Company in this Agreement, or any such representation and warranty shall have
become untrue after the date of this Agreement, such that Section 1.2(c)(ii)(A) would not be satisfied and (ii) such breach or condition
is not curable or, if curable, is not cured prior to the date that would otherwise be the Closing Date in absence of such breach or
condition; provided that this Section 4.1(c) shall only apply if the Investor is not in material breach of any of the terms of this
Agreement;
(d)
by the Company, upon written notice to the Investor, if (i) there has been a breach of any representation,
warranty, covenant or agreement made by the Investor in this Agreement, or any such representation and warranty shall have become
untrue after the date of this Agreement, such that Section 1.2(c)(iii)(A) would not be satisfied and (ii) such breach or condition is not
curable or, if curable, is not cured prior to the date that would otherwise be the Closing Date in absence of such breach or condition;
provided that this Section 4.1(d) shall only apply if the Company is not in material breach of any of the terms of this Agreement; or
(e)
by any party, upon written notice to the other parties, in the event that any Governmental Entity shall have
issued any order, decree or injunction or taken any other action restraining, enjoining or prohibiting any of the transactions
contemplated by this Agreement, and such order, decree, injunction or other action shall have become final and nonappealable.
4.2
Effects of Termination. In the event of any termination of this Agreement as provided in Section 4.1, this
Agreement (other than Section 3.2, this Article 4 and Article 6 of this Agreement, which shall remain in full force and effect) shall
forthwith become wholly void and of no further force and effect; provided that nothing herein shall relieve any party from liability for
fraud or willful breach of this Agreement.
ARTICLE 5
INDEMNITY
5.1
Indemnification by the Company.
(a)
After the Closing, and subject to Sections 5.1(b), 5.3 and 5.4, the Company shall indemnify, defend and
hold harmless to the fullest extent permitted by Law the Investor and its Affiliates, and their successors and assigns, officers, directors,
partners, members and employees, as applicable, (the “Investor Indemnified Parties”) against, and reimburse any of the Investor
Indemnified Parties for, all Losses that any of the Investor Indemnified Parties may at any time suffer or incur, or become subject to,
as a result of or in connection with (1) the inaccuracy or breach of any representation or warranty made by the Company in this
Agreement or any certificate delivered pursuant hereto or (2) any breach or failure by the Company to perform any of its covenants or
agreements contained in this Agreement. Notwithstanding anything herein to the contrary, the obligations of the Company under this
Section 5.1(a) shall
32
not be applicable to or inure to the benefit of any transferee of the Common Stock sold pursuant to this Agreement who is not an
Affiliate of the Investor.
(b)
Notwithstanding anything to the contrary contained herein, the Company shall not be required to
indemnify, defend or hold harmless any of the Investor Indemnified Parties against, or reimburse any of the Investor Indemnified
Parties for, any Losses pursuant to Section 5.1(a)(1) (other than Losses arising out of the inaccuracy or breach of any Company
Specified Representations) until the aggregate amount of the Investor Indemnified Parties’ Losses for which the Investor Indemnified
Parties are finally determined to be otherwise entitled to indemnification under Section 5.1(a) exceeds $100,000 (the “Deductible”),
after which the Company shall be obligated for all of the Investor Indemnified Parties’ Losses for which the Investor Indemnified
Parties are finally determined to be otherwise entitled to indemnification under Section 5.1(a)(1) that are in excess of the Deductible.
Notwithstanding anything to the contrary contained herein, the Company shall not be required to indemnify, defend or hold harmless
the Investor Indemnified Parties against, or reimburse the Investor Indemnified Parties for, any Losses pursuant to Section 5.1(a)(1) in
a cumulative aggregate amount exceeding the aggregate purchase price paid by the Investor to the Company pursuant to Section 1.1
(other than Losses arising out of the inaccuracy or breach of any Company Specified Representations).
(c)
For purposes of Section 5.1(a), in determining whether there has been a breach of a representation or
warranty, the parties hereto shall ignore any “materiality,” “Material Adverse Effect” or similar qualifications.
5.2
Indemnification by the Investor.
(a)
After the Closing, and subject to Sections 5.2(b), 5.3 and 5.4, the Investor shall indemnify, defend and hold
harmless to the fullest extent permitted by Law the Company, the Placement Agent and their respective Affiliates and their respective
successors and assigns, officers, directors, partners, members and employees (collectively, the “Company Indemnified Parties”)
against, and reimburse any of the Company Indemnified Parties for, all Losses that the Company Indemnified Parties may at any time
suffer or incur, or become subject to, as a result of or in connection with (1) the inaccuracy or breach of any representation or warranty
made by the Investor in this Agreement or any certificate delivered pursuant hereto or (2) any breach or failure by such Investor to
perform any of its covenants or agreements contained in this Agreement.
(b)
Notwithstanding anything to the contrary contained herein, the Investor shall not be required to indemnify,
defend or hold harmless any of the Company Indemnified Parties against, or reimburse any of the Company Indemnified Parties for
any Losses pursuant to Section 5.2(a)(1) (other than Losses arising out of the inaccuracy or breach of any Investor Specified
Representations) until the aggregate amount of the Company Indemnified Parties’ Losses for which the Company Indemnified Parties
are finally determined to be otherwise entitled to indemnification under Section 5.2(a) exceeds the Deductible, after which the Investor
shall be obligated for all of the Company Indemnified Parties’ Losses for which the Company Indemnified Parties are finally
determined to be otherwise entitled to indemnification under Section 5.2(a)(1) that are in excess of such Deductible. Notwithstanding
anything to the contrary contained herein, the Investor shall not be required to indemnify, defend or hold harmless the
33
Company Indemnified Parties against, or reimburse the Company Indemnified Parties for, any Losses pursuant to Section 5.2(a)(1) in
a cumulative aggregate amount exceeding the aggregate purchase paid by the Investor to the Company pursuant to Section 1.1 hereof
(other than Losses arising out of the inaccuracy or breach of any of the Investor Specified Representations).
(c)
For purposes of Section 5.2(a), in determining whether there has been a breach of a representation or
warranty, the parties hereto shall ignore any “materiality” or similar qualifications.
5.3
Notification of Claims.
(a)
Any Person that may be entitled to be indemnified under this Article 5 (the “Indemnified Party”) shall
promptly notify the party or parties liable for such indemnification (the “Indemnifying Party”) in writing of any claim in respect of
which indemnity may be sought hereunder, including any pending or threatened claim or demand by a third party that the Indemnified
Party has determined has given or could reasonably give rise to a right of indemnification under this Agreement (including a pending
or threatened claim or demand asserted by a third party against the Indemnified Party) (each, a “Third Party Claim”), describing in
reasonable detail the facts and circumstances with respect to the subject matter of such claim or demand; provided, however, that the
failure to provide such notice shall not release the Indemnifying Party from any of its obligations under this Agreement except to the
extent that the Indemnifying Party is materially prejudiced by such failure. The parties agree that notices for claims in respect of a
breach of a representation, warranty, covenant or agreement must be delivered prior to the expiration of any applicable survival period
specified in Section 6.1 for such representation, warranty, covenant or agreement; provided, that if, prior to such applicable date, a
party hereto shall have notified the other parties hereto in accordance with the requirements of this Section 5.3(a) of a claim for
indemnification under this Agreement (whether or not formal legal action shall have been commenced based upon such claim), such
claim shall continue to be subject to indemnification in accordance with this Agreement notwithstanding the passing of such
applicable date.
(b)
Upon receipt of a notice of a claim for indemnity from an Indemnified Party pursuant to Section 5.3(a) in
respect of a Third Party Claim, the Indemnifying Party may, by notice to the Indemnified Party delivered within twenty (20) Business
Days of the receipt of notice of such Third Party Claim, assume the defense and control of any Third Party Claim, with its own
counsel reasonably acceptable to the Indemnified Party and at its own expense. The Indemnified Party shall have the right to employ
counsel on its own behalf for, and otherwise participate in the defense of, any such Third Party Claim, but the fees and expenses of its
counsel will be at its own expense unless (A) the employment of counsel by the Indemnified Party at the Indemnifying Party’s
expense has been authorized in writing by the Indemnifying Party, as applicable, (B) the Indemnified Party reasonably believes there
may be a conflict of interest between the Indemnified Party and the Indemnifying Party in the conduct of the defense of such Third
Party Claim, (C) the Indemnified Party reasonably believes there are legal defenses available to it that are different from, additional to
or inconsistent with those available to the Indemnifying Party, or (D) the Indemnifying Party has not in fact employed counsel to
assume the defense of such Third Party Claim within a reasonable time after receipt of notice of the commencement of such Third
Party Claim, in each of which cases the fees and expenses of such
34
Indemnified Party’s counsel shall be at the expense of the Indemnifying Party; provided, however, that in the event any Investor
Indemnified Party is similarly situated with any other “Investor Indemnified Party” under any of the other Agreements with respect to
any Third Party Claim, and does not have any conflict of interest with such Person in the conduct of the defense of such Third Party
Claim or have legal defenses available to it that are different from, additional to or inconsistent with those available to such Person,
such Investor Indemnified Party shall be required to employ the same counsel as such Person and the Company shall be responsible
for the fees and expenses of only one such counsel for such Investor Indemnified Party and such other Person or Persons (assuming
any of clauses (A) through (D) is satisfied). The Indemnified Party may take any actions reasonably necessary to defend such Third
Party Claim prior to the time that it receives a notice from the Indemnifying Party as contemplated by the immediately preceding
sentence. The Indemnified Party shall, and shall cause each of their Affiliates and representatives to, use reasonable best efforts to
cooperate with the Indemnifying Party in the defense of any Third Party Claim. The Indemnifying Party shall not, without the prior
written consent of the Indemnified Party (which shall not be unreasonably withheld), consent to a settlement, compromise or discharge
of, or the entry of any judgment arising from, any Third Party Claim, unless such settlement, compromise, discharge or entry of any
judgment does not involve any statement, finding or admission of any fault, culpability, failure to act, violation of Law or admission
of any wrongdoing by or on behalf of the Indemnified Party, and the Indemnifying Party shall (i) pay or cause to be paid all amounts
arising out of such settlement or judgment concurrently with the effectiveness of such settlement or judgment (unless otherwise
provided in such judgment), (ii) not encumber any of the assets of any Indemnified Party or agree to any restriction or condition that
would apply to or materially adversely affect any Indemnified Party or the conduct of any Indemnified Party’s business and
(iii) obtain, as a condition of any settlement, compromise, discharge, entry of judgment (if applicable), or other resolution, a complete
and unconditional release of each Indemnified Party in form and substance reasonably satisfactory to such Indemnified Party from any
and all liabilities in respect of such Third Party Claim. An Indemnified Party shall not settle, compromise or consent to the entry of
any judgment with respect to any claim or demand for which it is seeking indemnification from the Indemnifying Party or admit to
any liability with respect to such claim or demand without the prior written consent of the Indemnifying Party (which consent shall not
be unreasonably withheld or delayed); provided that such consent shall not be required if the Indemnifying Party has not fulfilled any
material obligations under this Section 5.3(b).
(c)
In the event any Indemnifying Party receives a notice of a claim for indemnity from an Indemnified Party
pursuant to Section 5.3(a) that does not involve a Third Party Claim, the Indemnifying Party shall notify the Indemnified Party within
twenty (20) Business Days following its receipt of such notice whether the Indemnifying Party disputes its liability to the Indemnified
Party under this Agreement. The Indemnified Party shall reasonably cooperate with and assist the Indemnifying Party in determining
the validity of any such claim for indemnity by the Indemnified Party.
5.4
Indemnification Payment. In the event a claim or any Action for indemnification hereunder has been finally
determined, the amount of such final determination shall be paid by the Indemnifying Party to the Indemnified Party on demand in
immediately available funds; provided, however, that any reasonable and documented out-of-pocket expenses incurred by the
Indemnified Party as a result of such claim or Action shall be reimbursed
35
promptly by the Indemnifying Party upon receipt of an invoice describing such costs incurred by the Indemnified Party. A claim or an
Action, and the liability for and amount of damages therefor, shall be deemed to be “finally determined” for purposes of this
Agreement when the parties hereto have so determined by mutual agreement or, if disputed, when a final non-appealable judicial order
has been entered into with respect to such claim or Action.
5.5
Exclusive Remedies. Each party hereto acknowledges and agrees that following the Closing, the indemnification
provisions hereunder shall be the sole and exclusive remedies of the parties hereto for any breach of the representations, warranties or
covenants contained in the this Agreement. No investigation of the Company by the Investor, or of the Investor by the Company,
whether prior to or after the date of this Agreement, shall limit any Indemnified Party’s exercise of any right hereunder or be deemed
to be a waiver of any such right. The parties agree that any indemnification payment made pursuant to this Agreement shall be treated
as an adjustment to the Purchase Price for Tax purposes, unless otherwise required by Law.
ARTICLE 6
MISCELLANEOUS
6.1
Survival. The representations and warranties of the parties hereto contained in this Agreement shall survive in full
force and effect until the date that is fifteen (15) months after the Closing Date (or until final resolution of any claim or action arising
from the breach of any such representation and warranty, if notice of such breach was provided prior to the end of such period), at
which time they shall terminate and no claims shall be made for indemnification under Section 5.1 or Section 5.2, as applicable, for
breaches of representations or warranties thereafter, except the Company Specified Representations (other than the representations and
warranties made in Section 2.2(x), which shall survive until the expiration of the applicable statute of limitations) and the Investor
Specified Representations shall survive the Closing indefinitely. The covenants and agreements set forth in this Agreement shall
survive until the earliest of the duration of any applicable statute of limitations or until performed or no longer operative in accordance
with their respective terms.
6.2
Other Definitions. Wherever required by the context of this Agreement, the singular shall include the plural and
vice versa, and the masculine gender shall include the feminine and neuter genders and vice versa, and references to any agreement,
document or instrument shall be deemed to refer to such agreement, document or instrument as amended, supplemented or modified
from time to time. In addition, the following terms shall have the meanings assigned to them below:
(a)
the term “Affiliate” means, with respect to any Person, any Person directly or indirectly controlling,
controlled by or under common control with, such other Person provided that no security holder of the Company shall be deemed to
be an Affiliate of any other security holder or of the Company or any of the Company Subsidiaries solely by reason of any investment
in the Company and, for purposes of this definition, “control” (including, with correlative meanings, the terms “controlling”,
“controlled by” and “under common control with”) when used with respect to any Person, means the possession, directly or
indirectly, of the
36
power to cause the direction of management or policies of such Person, whether through the ownership of voting securities by contract
or otherwise;
(b)
the term “Agency” means the Federal Housing Administration, the Federal Home Loan Mortgage
Corporation, the Farmers Home Administration (now known as Rural Housing and Community Development Services), the Federal
National Mortgage Association, the United States Department of Veterans’ Affairs, the Rural Housing Service of the U.S. Department
of Agriculture or any other federal or state agency with authority to (i) determine any investment, origination, lending or servicing
requirements with regard to mortgage loans originated, purchased or serviced by the Company or (ii) originate, purchase, or service
mortgage loans, or otherwise promote mortgage lending, including state and local housing finance authorities;
(c)
the term “Board of Directors” means the Board of Directors of the Company;
(d)
the term “Business Day” means any day except Saturday, Sunday and any day which shall be a legal
holiday or a day on which banking institutions in the State of New York or in the State of California generally are authorized or
required by Law or other governmental actions to close;
(e)
the term “Capital Stock” means the capital stock or other applicable type of equity interest in a Person;
(f)
the term “Change in Control” means, with respect to the Company, that any Person, other than the
Investors and their Affiliates, becomes a beneficial owner (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange
Act) directly or indirectly, of twenty percent (20%) of the aggregate voting power of the Voting Securities.
(g)
the term “Code” means the Internal Revenue Code of 1986, as amended;
(h)
the term “Company Specified Representations” means the representations and warranties made in
Section 2.2(a), Section 2.2(c), Section 2.2(d)(i) and Section 2.2(z);
(i)
the term “Disclosure Schedule” shall mean a schedule delivered, on or prior to the date of this Agreement,
by (i) the Investor to the Company and (ii) the Company to the Investor setting forth, among other things, items the disclosure of
which is necessary or appropriate either in response to an express disclosure requirement contained in a provision hereof or as an
exception to one or more representations or warranties contained in Section 2.2 with respect to the Company, or in Section 2.3 with
respect to the Investor, or to one or more covenants contained in Article 3;
(j)
from time to time;
the term “GAAP” means United States generally accepted accounting principles and practices as in effect
37
(k)
the term “Governmental Consent” means any notice to, registration, declaration or filing with, exemption
or review by, or authorization, order, consent or approval of, any Governmental Entity, or the expiration or termination of any statutory
waiting periods;
(l)
the term “Governmental Entity” means any court, administrative agency or commission or other
governmental authority or instrumentality, whether federal, state, local or foreign, and any applicable industry self-regulatory
organization or securities exchange;
(m)
the term “Insurer” means a Person who insures or guarantees for the benefit of the mortgagee all or any
portion of the risk of loss upon borrower default on any of the mortgage loans originated, purchased or serviced by the Bank, including
the Federal Housing Administration, the United States Department of Veterans’ Affairs, the Rural Housing Service of the U.S.
Department of Agriculture and any private mortgage insurer, and providers of hazard, title or other insurance with respect to such
mortgage loans or the related collateral;
(n)
the term “Investor Specified Representations” means the representations and warranties made in
Section 2.3(b)(i), Section 2.3(d) and Section 2.3(e);
(o)
the term “Knowledge” of the Company and words of similar import mean the knowledge of any directors or
executive officers of the Company listed on the Disclosure Schedule hereto;
(p)
the term “Loan Investor” means any Person (including an Agency) having a beneficial interest in any
mortgage loan originated, purchased or serviced by the Bank or a security backed by or representing an interest in any such mortgage
loan;
(q)
the term “Losses” means any and all losses, damages, reasonable costs, reasonable expenses (including
reasonable attorneys’ fees and disbursements), liabilities, settlement payments, awards, judgments, fines, obligations, claims, and
deficiencies of any kind, excluding special, consequential, exemplary and punitive damages;
(r)
the term “Person” means any individual, firm, corporation, partnership, trust, incorporated or
unincorporated association, joint venture, joint stock company, limited liability company, Governmental Entity or other entity of any
kind, and shall include any successor (by merger or otherwise) of such entity;
(s)
the term “Subsidiary” means, with respect to any Person, any corporation, partnership, joint venture, limited
liability company or other entity (x) of which such Person or a Subsidiary of such Person is a general partner or (y) of which a majority
of the voting securities or other voting interests, or a majority of the securities or other interests of which having by their terms ordinary
voting power to elect a majority of the board of directors or persons performing similar functions with respect to such entity, is directly
or indirectly owned by such Person and/or one or more Subsidiaries thereof;
(t)
the term “Tax” or “Taxes” means all United States federal, state, local or foreign income, profits, estimated,
gross receipts, windfall profits, severance, property, intangible property, occupation, production, sales, use, license, excise, emergency
excise, franchise, capital gains, capital stock, employment, withholding, transfer, stamp, payroll, goods
38
and services, value added, alternative or add-on minimum tax, or any other tax, custom, duty or governmental fee, or other like
assessment or charge of any kind whatsoever, together with any interest, penalties, fines, related liabilities or additions to tax that may
become payable in respect thereof imposed by any Governmental Entity, whether or not disputed;
(u)
the term “Tax Return” means any return, declaration, report or similar statement required to be filed with
respect to any Taxes (including any attached schedules), including, without limitation, any information return, claim or refund,
amended return and declaration of estimated Tax;
(v)
the term “Voting Securities” means at any time shares of any class of Capital Stock of the Company that are
then entitled to vote generally in the election of directors;
(w)
(x)
“without limitation”;
the word “or” is not exclusive;
the words “including,” “includes,” “included” and “include” are deemed to be followed by the words
(y)
the terms “herein,” “hereof” and “hereunder” and other words of similar import refer to this Agreement as
a whole and not to any particular section, paragraph or subdivision; and
(z)
all article, section, paragraph or clause references not attributed to a particular document shall be references
to such parts of this Agreement, and all exhibit and schedule references not attributed to a particular document shall be references to
such exhibits and schedules to this Agreement.
6.3
Amendment and Waivers. The conditions to each party’s obligation to consummate the Closing are for the sole
benefit of such party and may be waived by such party in whole or in part to the extent permitted by Law. No amendment or waiver of
any provision of this Agreement will be effective against any party hereto unless it is in a writing signed by a duly authorized officer of
such party.
6.4
Counterparts and Facsimile. For the convenience of the parties hereto, this Agreement may be executed in any
number of separate counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts will
together constitute the same agreement. Executed signature pages to this Agreement may be delivered by facsimile or other electronic
transmission and such transmitted copies shall be deemed as sufficient as if manually signed signature pages had been delivered.
6.5
Governing Law. This Agreement will be governed by and construed in accordance with the Laws of the State of
New York applicable to contracts made and to be performed entirely within such State.
6.6
Jurisdiction. The parties hereby agree that any suit, action or proceeding seeking to enforce any provision of, or
based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby shall be brought in the
United States District Court for the Southern District of New York sitting in the Borough of Manhattan, New York,
39
New York, so long as such court shall have subject matter jurisdiction over such suit, action or proceeding or, if it does not have subject
matter jurisdiction, in any New York State court sitting in the Borough of Manhattan, New York, New York, and each of the parties
hereby irrevocably consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action
or proceeding and irrevocably waives, to the fullest extent permitted by Law, any objection that it may now or hereafter have to the
laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought
in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any
party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party
agrees that service of process on such party as provided in Section 6.8 shall be deemed effective service of process on such party. The
parties hereby irrevocably and unconditionally consent to submit to the exclusive jurisdiction of the state and federal courts referred to
above for any actions, suits or proceedings arising out of or relating to this Agreement and the transactions contemplated hereby
6.7
WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY
AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
6.8
Notices. Any notice, request, instruction or other document to be given hereunder by any party to the other will be in
writing and will be deemed to have been duly given (a) on the date of delivery if delivered personally or by telecopy or facsimile, upon
confirmation of receipt, (b) on the first Business Day following the date of dispatch if delivered by a recognized next-day courier
service, or (c) on the third Business Day following the date of mailing if delivered by registered or certified mail, return receipt
requested, postage prepaid. All notices hereunder shall be delivered as set forth below, or pursuant to such other instructions as may be
designated in writing by the party to receive such notice.
(a)
If to the Investor, at the address set forth on the signature page to this Agreement:
(b)
If to the Company:
Broadway Financial Corporation
5055 Wilshire Boulevard, Suite 500
Los Angeles, California 90036
Attn:
Wayne-Kent A. Bradshaw, President and Chief Executive Officer
Fax:
(323) 556-3216
40
with a copy (which copy shall not constitute notice) to:
Arnold & Porter LLP
777 South Figueroa Street,
44th Floor
Los Angeles, California 90017
Attn:
James R. Walther, Esq.
Fax:
(213) 243-4199
6.9
Entire Agreement. This Agreement (including the Annexes and Schedules hereto) and the Confidentiality
Agreement constitute the entire agreement, and supersede all other prior agreements, understandings, representations and warranties,
inducements or conditions, both written and oral, among the parties, with respect to the subject matter hereof and thereof.
6.10
Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their
respective successors and assigns, including any purchasers of the Common Stock to be issued pursuant to this Agreement. The
Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Investor. The
Investor may assign some or all of its rights hereunder or thereunder without the consent of the Company to any Affiliate of the
Investor, and such assignee shall be deemed to be an Investor hereunder with respect to such assigned rights and shall be bound by the
terms and conditions of this Agreement that apply to the Investor.
6.11
Captions. The article, section, paragraph and clause captions herein are for convenience of reference only, do not
constitute part of this Agreement and will not be deemed to limit or otherwise affect any of the provisions hereof.
6.12
Severability. If any provision of this Agreement or the application thereof to any Person or circumstance is
determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application
of such provision to Persons or circumstances other than those as to which it has been held invalid or unenforceable, will remain in full
force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination, the parties
shall negotiate in good faith in an effort to agree upon a suitable and equitable substitute provision to effect the original intent of the
parties.
6.13
Third Party Beneficiaries. Nothing contained in this Agreement, expressed or implied, is intended to confer upon
any Person (including any of the Other Investors) other than the parties hereto, any benefit right or remedies, except that the provisions
of Sections 5.1 and 5.2 shall inure to the benefit of the Persons referred to in such Sections. Notwithstanding the foregoing, the
Company and the Investor agree that the Placement Agent, as placement agent for the Common Stock sold pursuant to this Agreement,
shall be a third party beneficiary of the representations, warranties and agreements made or given by the parties hereunder.
41
6.14
Public Announcements. The Investor will not make (and will use its reasonable best efforts to ensure that its
Affiliates and representatives do not make) any news release or public disclosure with respect to this Agreement and any of the
transactions contemplated hereby, without first consulting with the Company and, in each case, also receiving the Company’s consent
(which shall not be unreasonably withheld or delayed).
6.15
Specific Performance. The parties hereto 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. It is accordingly agreed that the parties shall
be entitled to seek specific performance of the terms hereof, this being in addition to any other remedies to which they are entitled at
law or equity.
6.16
No Recourse. This Agreement may only be enforced against the named parties hereto. All claims or causes of action
that may be based upon, arise out of or relate to this Agreement, or the negotiation, execution or performance of this Agreement may be
made only against the entities that are expressly identified as parties hereto or that are subject to the terms hereof, and no past, present
or future director, officer, employee, incorporator, member, manager, partner, shareholder, Affiliate, agent, attorney or representative of
any party hereto (including any person negotiating or executing this Agreement on behalf of a party hereto) shall have any liability or
obligation with respect to this Agreement or with respect to any claim or cause of action, whether in tort, contract or otherwise, that
may arise out of or relate to this Agreement, or the negotiation, execution or performance of this Agreement and the transactions
contemplated hereby.
42
EXHIBIT A
Summary of Modification Terms
1.
The Company will redeem $900,000 aggregate principal amount of the Debentures pro rata from all holders of Debentures.
2.
The Company will pay all interest accrued on the Debentures through the Closing Date.
3.
The maturity date of the Debentures will be extended to March 17, 2024.
4.
The payment terms of the Debentures will be amended to require the principal amount thereof to be repaid in equal quarterly
payments of principal, together with accrued interest, over the period commencing June 17, 2019 and ending March 17,
2024, with the obligation to make each such payment to be subject to receipt by the Company of required approval or nondisapproval from applicable bank regulatory authorities.
5.
The Company will pay certain fees and expenses of the Trustee.
6.
Completion of the Modification will require the:
(i)
approval of the holder or holders of Senior Indebtedness of the Company;
(ii)
written approval or confirmation of non-disapproval by applicable bank regulatory authorities;
(iii)
proceeds; and
(iv)
closing of a private placement of Common Stock by the Company for at least $6 million of gross
approval by the Company’s stockholders, including the U.S. Treasury Department.
43
Appendix I
SELLING STOCKHOLDER QUESTIONNAIRE
The undersigned beneficial owner of Common Stock (the “Common Stock”) of Broadway Financial Corporation (the
“Company”) understands that the Company has filed or intends to file with the Securities and Exchange Commission (the
“Commission”) a Registration Statement for the registration and resale of Common Stock that qualifies as Registrable Securities, in
accordance with the terms of a Subscription Agreement (the “Subscription Agreement”) between the Company and the Investor
(s) named therein. All capitalized terms used and not otherwise defined herein shall have the meanings ascribed thereto in the
Subscription Agreement.
The undersigned hereby provides the following information to the Company and represents and warrants that such information
is accurate:
QUESTIONNAIRE
1.
2.
Name.
(a)
Full Legal Name of Selling Securityholder
(b)
Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities
Listed in Item 3 below are held:
(c)
Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone
or with others has power to vote or dispose of the securities covered by the questionnaire):
Address for Notices to Selling Securityholder:
Telephone:
Fax:
Contact Person:
44
3.
Beneficial Ownership of Registrable Securities:
Number of Shares of Registrable Securities beneficially owned(1) and purchased pursuant to the Subscription
Agreement:
4.
Broker-Dealer Status:
(a)
Are you a broker-dealer?
Yes † No †
Note: If yes, the Commission’s staff has indicated that you should be identified as an underwriter in the
Registration Statement.
(b)
Are you an affiliate of a broker-dealer?
Yes † No †
(c)
If you are an affiliate of a broker-dealer, do you certify that you bought the Registrable Securities in the
ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you
had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable
Securities?
Yes † No †
Note: If no, the Commission’s staff has indicated that you should be identified as an underwriter in the
Registration Statement.
5.
Beneficial Ownership of Securities of the Company Other than the Registrable Securities Owned by the Selling
Securityholder.
(1) Securities “beneficially owned” would include securities held by you for your own benefit, whether in bearer form or registered in
your own name or otherwise (regardless of whether or how they are registered), such as, for example, securities held for you by
custodians, brokers, relatives, executors, administrators or trustees, and securities held for your account by pledgees, securities owned
by a partnership in which you are a member, and securities owned by any corporation which is or should be regarded as a personal
holding corporation of yours. You are also considered to be the beneficial owner of a security if you, directly or indirectly, through any
contract, arrangement, understanding, relationship or otherwise have or share: (1) voting power, which includes the power to vote, or to
direct the voting of, such security or (2) investment power, which includes the power to dispose, or to direct the disposition, of such
security. You are also the beneficial owner of a security if you, directly or indirectly, create or use a trust, proxy, power of attorney,
pooling arrangement or any other contract, arrangement or device with the purpose or effect of divesting yourself of beneficial
ownership of a security or preventing the vesting of such beneficial ownership. Finally, you are deemed to be the beneficial owner of a
security if you have the right to acquire beneficial ownership of such security at any time within sixty days, including but not limited to
any right to acquire (a) through the exercise of any option, warrant or right, (b) through the conversion of a security, (c) pursuant to the
power to revoke a trust, discretionary account or similar arrangement or (d) pursuant to the automatic termination of a trust,
discretionary account or similar arrangement.
45
Except as set forth below in this Item 5, the undersigned is not the beneficial or registered owner of any securities of
the Company other than the Registrable Securities listed above in Item 3.
Type and Amount of Other Securities beneficially owned by the Selling Securityholder:
6.
Relationships with the Company:
Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity
holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had
any other material relationship with the Company (or its predecessors or affiliates) during the past three years.
State any exceptions here:
7.
Name of Selling
Shareholder
Please fill in the table below as you would like it to appear in the Registration Statement. Include footnotes where
appropriate.
Number of Shares of
Common Stock
Beneficially Owned Prior
to Offering
Maximum Number of
Shares of Common Stock
to be Sold Pursuant to this
Prospectus
Number of Shares of
Common Stock
Beneficially Owned After
Offering
The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein
that may occur subsequent to the date hereof and prior to the Effective Date for the Registration Statement.
By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1
through 7 and the inclusion of such information in the Registration Statement and the related prospectus. The undersigned understands
that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration
Statement and the related prospectus.
IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed
and delivered either in person or by its duly authorized agent.
46
Dated:
Beneficial Owner:
By:
Name:
Title:
PLEASE (1) FAX OR EMAIL A COPY OF THE COMPLETED AND EXECUTED
NOTICE AND QUESTIONNAIRE, AND (2) RETURN THE ORIGINAL BY
OVERNIGHT MAIL, TO:
Broadway Financial Corporation
5055 Wilshire Boulevard
Suite 500
Los Angeles, CA 90036
Attn: Chief Financial Officer
Facsimile: (213) 634-1723
47
Exhibit 10.2.1
SUBSCRIPTION AGREEMENT
October 16, 2014
Broadway Financial Corporation
5055 Wilshire Boulevard, Suite 500
Los Angeles, California 90036
Ladies and Gentlemen:
The undersigned (the “Investor”) hereby confirms its agreement with you as follows:
1.
This Subscription Agreement (this “Agreement”) is entered into between Broadway Financial Corporation, a
Delaware corporation (the “Company”), and the Investor whose name appears on the signature page hereto and is made as of the date
of the Company’s acceptance hereof (the “Acceptance Date”).
2.
The Company is proposing to issue and sell shares of the Company’s common stock, par value $0.01 per share (the
“Common Stock”, to certain investors in a private offering at a purchase price of U.S.$1.10 per share (the “Per Share Purchase
Price”). The Common Stock is being offered only to persons who are accredited investors within the meaning of Rule 501 of
Regulation D promulgated under the Securities Act of 1933, as amended (the “Securities Act”), and certain other persons pursuant to
a private placement exemption from the securities registration requirements of the Securities Act.
3.
The Company and the Investor agree that, upon the terms and subject to the conditions set forth herein, the Investor
will purchase from the Company and the Company will issue and sell to the Investor, the number of shares of Common Stock equal to
the dollar amount subscribed as indicated on the signature page hereto divided by the Per Share Purchase Price, pursuant to the Terms
and Conditions for the Purchase of Common Stock attached hereto as Annex A and incorporated herein by reference as if fully set
forth herein. The Common Stock purchased by the Investor will be delivered in certificated form, registered in the Investor’s name
and address as set forth below, and will be released by Computershare Inc., the Company’s transfer agent (the “Transfer Agent”), to
the Investor at the Closing (as defined in the Terms and Conditions for the Purchase of Common Stock) or, if uncertificated, the
Transfer Agent for the Common Stock will register the shares of Common Stock purchased in the name of the Investor and deliver
evidence of such registration to the Investor.
4.
In agreeing to purchase Common Stock pursuant hereto, the Investor is making the representations and warranties
set forth in the attached Terms and Conditions for the Purchase of Common Stock (the “Terms and Conditions”), including
representations and warranties that the Investor is an “accredited investor” (as that term is defined by Rule 501 under the Securities
Act) and that the Investor has not taken actions regarding a coordinated acquisition of Common Stock as set forth in Section 2.3(f) or
Section 2.3(j).
Please confirm that the foregoing correctly sets forth the agreement between us by signing in the space provided below for
that purpose.
Subscription amount in shares and U.S. dollars:
Dollars: 7,000,000
Shares: 6,363,636
Name of Investor:
GAPSTOW FINANCIAL GROWTH CAPITAL
FUND I LP
By: Gapstow Financial Growth Capital GP I LLC, its General
Partner
By: /s/ Christopher J. Acito
Print Name: Christopher J. Acito
Title: Managing Member
Mailing Address:
Gapstow Financial Growth Capital Fund I LP
c/o Hedgserv, Ltd.
Attn: Mr. Donal Murphy
75 St Stephens Green - 2nd Floor
Dublin 2 Ireland
with a copy to:
Gapstow Financial Growth Capital Fund I LP
c/o Gapstow Capital Partners LP
Attn: Virginia Kocher
654 Madison Avenue, Suite 601
New York, NY 10065
Type of Entity: Limited Partnership
Jurisdiction of Organization: Delaware
Tax ID No.: 46-3992947
Contact Name: Virginia Kocher
Telephone: 646-735-3447
Email Address: [email protected]
2
Name under which Common Stock is to be issued (if different
from above): same as above
Address to which share certificates or statement of ownership
are to be sent (if different from mailing address above):
U.S. Bank Securities Services
1555 N. River Center Drive – Suite 302
Milwaukee, WI 53212
Attn: Dan Harding — Physical Processing Manager
Ref: Acct # Gapstow Financial Growth Capital Fund I LP
Agreed and Accepted as of the date first set forth above:
BROADWAY FINANCIAL CORPORATION
By:
/s/ Wayne-Kent A. Bradshaw
Name: Wayne-Kent A. Bradshaw
Title: President and Chief Executive Officer
3
INSTRUCTION SHEET FOR INVESTOR
(to be read in conjunction with the entire Agreement)
Complete the following items in the Agreement:
1.
Provide the information regarding the Investor requested on the signature page to the Agreement. The Agreement
must be executed by an individual authorized to bind the Investor.
2.
If the Investor is purchasing Common Stock for more than one investor account, it may either (i) complete a
separate Agreement for each such account, in which case a separate wire transfer (or other acceptable form of payment) must be made
by or on behalf of such account for the Common Stock it will purchase and a separate issuance of Common Stock will be made by the
Transfer Agent to each account, or (ii) complete a single Agreement for all such accounts, in which case only one wire transfer (or
other acceptable form of payment) need be made for the Common Stock to be purchased for all such accounts (but all such Common
Stock will be issued to a single account specified by the Investor) and the information called for on the signature page hereof must be
completed for each account.
3.
Return the signed Agreement to:
Broadway Financial Corporation
5055 Wilshire Boulevard, Suite 500
Los Angeles, California 90036
Attn:
Wayne-Kent A. Bradshaw, President and Chief Executive Officer
Fax:
(323) 634-1732
Email: [email protected]
4.
Please note that all payments must be made in U.S. dollars by wire transfer of immediately available funds to the
following account, which has been established to hold funds received from investors, which funds shall be released to the Company
only upon the Closing of the transactions referred to and described herein:
Bank Name:
Bank Account Name:
Bank ABA #:
Bank Account #:
Broadway Federal Bank, f.s.b.
Broadway Federal Bank for the benefit of Broadway Financial Corporation
322070145
80-000931-9
An executed Agreement or a facsimile transmission thereof must be received by such time on such date as you are advised.
The Company reserves all rights to reject any subscription before it is accepted by the Company.
4
ANNEX A
TERMS AND CONDITIONS FOR THE PURCHASE OF COMMON STOCK
5
TABLE OF CONTENTS
Page
ARTICLE 1 PURCHASE; CLOSING
1
1.1
Issuance, Sale and Purchase
1
1.2
Closing; Deliverables for the Closing; Conditions to the Closing
1
ARTICLE 2 REPRESENTATIONS AND WARRANTIES
4
2.1
Certain Terms
4
2.2
Representations and Warranties of the Company
5
2.3
Representations and Warranties of the Investor
18
ARTICLE 3 COVENANTS
21
3.1
Conduct of Business Prior to Closing
21
3.2
Confidentiality
22
3.3
Commercially Reasonable Efforts
22
3.4
Legend
22
3.5
Certain Other Transactions
23
3.6
Exchange Listing
24
3.7
Stockholders Meeting
24
3.8
Registration Rights
24
ARTICLE 4 TERMINATION
32
4.1
Termination
32
4.2
Effects of Termination
33
ARTICLE 5 INDEMNITY
33
5.1
Indemnification by the Company
33
5.2
Indemnification by the Investor
34
5.3
Notification of Claims
34
5.4
Indemnification Payment
36
5.5
Exclusive Remedies
36
ARTICLE 6 MISCELLANEOUS
37
6.1
Survival
37
6.2
Other Definitions
37
6.3
Amendment and Waivers
40
6.4
Counterparts and Facsimile
40
i
6.5
Governing Law
40
6.6
Jurisdiction
40
6.7
WAIVER OF JURY TRIAL
41
6.8
Notices
41
6.9
Entire Agreement
41
6.10
Successors and Assigns
41
6.11
Captions
42
6.12
Severability
42
6.13
Third Party Beneficiaries
42
6.14
Public Announcements
42
6.15
Specific Performance
42
6.16
No Recourse
42
Exhibit A - Summary of Modification Terms
Exhibit B - Gapstow Side Letter
Appendix I - Selling Stockholder Questionnaire
ii
INDEX OF DEFINED TERMS
Defined Term
Section
Acceptance Date
Action
Affiliate
Agency
Agreement
Agreements
Bank
Benefit Plans
Board of Directors
Business Day
Capital Stock
Capitalization Date
Change in Control
CJA Letter Agreement
Closing
Closing Date
Code
Common Stock
Company
Company Employees
Company Financial Statements
Company Indemnified Parties
Company Insurance Policies
Company Preferred Stock
Company Reports
Company Specified Representations
Company Stock Plans
Company Subsidiaries
Company Subsidiary
Confidentiality Agreement
control, controlling, controlled by and under common control with
Debentures
Deductible
Disclosure Schedule
EESA
Effective Date
Effectiveness Deadline
employee benefit plan
iii
Subscription Agreement
2.2(f)
6.2(a)
6.2(b)
Subscription Agreement
Recital B
2.2(a)
2.2(u)(i)
6.2(c)
6.2(d)
6.2(e)
2.2(c)(ii)
6.2(f)
2.2(iv)
1.2(a)
1.2(a)
6.2(g)
Subscription Agreement
Subscription Agreement
2.2(u)(i)
2.2(g)
5.2(a)
2.2(s)
2.2(c)(i)
2.2(h)
6.2(h)
2.2(c)(iii)
2.2(b)
2.2(b)
3.2
6.2(a)
Recital C
5.1(b)
6.2(i)
2.2(u)(iii)
3.8(j)(i)
3.8(j)(ii)
2.2(u)(i)
Defined Term
Section
ERISA
Exchange Act
FDI Act
FDIC
Federal Reserve
Filing Deadline
finally determined
GAAP
Gapstow
Gapstow Letter Agreement
Gapstow Side Letter
Governmental Consent
Governmental Entity
Holder
Indemnified Party
Indemnifying Party
Indemnitee
Indenture
Insider
Insurer
Investment
Investment Manager
Investor
Investor Indemnified Parties
Investor Specified Representations
Investors
Knowledge
Law
Liens
Loan Investor
Losses
Material Adverse Effect
Material Contract
Modification
NASDAQ
NCIF Letter Agreement
Non-Voting Common Stock
OFAC
Other Investors
Other Private Placements
Per Share Purchase Price
Person
Placement Agent
Potential Investor
Previously Disclosed
Purchase Price
2.2(u)(i)
2.2(h)
2.2(b)
2.2(b)
2.2(a)
3.8(a)(i)
5.4
6.2(j)
1.2(c)(ii)(H)
2.2(c)(iv)
1.2(c)(ii)(G)
6.2(k)
6.2(l)
3.8(j)(iii)
5.3(a)
5.3(a)
3.8(g)(i)
Recital C
2.2(bb)
6.2(m)
Recital A
2.3(f)
Subscription Agreement
5.1(a)
6.2(n)
Recital B
6.2(o)
2.2(p)
2.2(d)(ii)
6.2(p)
6.2(q)
2.1(a)
2.2(r)
Recital C
2.2(d)(i)
2.2(c)(iv)
2.2(c)(i)
2.2(m)
Recital B
Recital B
Subscription Agreement
6.2(r)
2.2(x)
2.3(j)
2.1(b)
1.1
iv
Defined Term
Section
Register, registered and registration
Registrable Securities
Registration Expenses
Registration Termination Date
Regulatory Agreement
Regulatory Order or Regulatory Orders
Rule 158, Rule 159A, Rule 405 and Rule 415
SDN List
SEC
Securities Act
Selling Expenses
Shelf Registration Statement
Side Letters
SLHC Act
Subsidiary
Suspension Period
Tax or Taxes
Tax Return
Third Party Claim
Transfer Agent
Trustee
Voting Debt
Voting Securities
3.8(j)(iv)
3.8(j)(v)
3.8(j)(vi)
3.8(a)(i)
2.2(q)
2.2(p)
3.8(j)(vii)
2.2(m)
2.1(b)
Subscription Agreement
3.8(j)(viii)
3.8(a)(ii)
2.2(c)(iv)
2.2(a)
6.2(s)
3.8(d)
6.2(t)
6.2(u)
5.3(a)
Subscription Agreement
Recital C
2.2(c)(iv)
6.2(v)
v
RECITALS
A.
The Investment. The Company intends to issue and sell to the Investor, and the Investor intends to purchase from
the Company, on the terms and conditions described herein, the number of shares of Common Stock set forth on such Investor’s
signature page hereto for the aggregate purchase price set forth on such signature page (the “Investment”).
B.
Other Private Placements. The Company also intends to enter into agreements similar to this Agreement with
certain other investors (the “Other Investors”) and expects to complete sales of Common Stock to them, with the closing of such
sales to occur simultaneously with the Closing (the “Other Private Placements”). The Investor and the Other Investors are
hereinafter sometimes collectively referred to as the “Investors”, and this Agreement and the subscription agreements executed by the
Other Investors are hereinafter sometimes collectively referred to as the “Agreements.”
C.
Debenture Modification. The Company has outstanding $6,000,000 aggregate principal amount of Floating Rate
Junior Subordinated Debentures due March 17, 2014 (the “Debentures”) that were issued pursuant to that certain Indenture, dated as
of March 17, 2004 (the “Indenture”), entered into between the Company and U.S. Bank National Association, a national banking
association organized under the laws of the United States of America, as debenture trustee (the “Trustee”). Concurrently with, and as
a condition concurrent to, the sale of Common Stock by the Company pursuant to this Agreement and each of the Other Agreements,
the Company will make certain payments of principal of and accrued interest on the Debentures and certain fees and expenses, and
will enter into a supplemental indenture with the Trustee to extend the maturity and modify certain of the other terms of the
Debentures. The making of such payments and entering into such supplemental indenture are collectively referred to herein as the
“Modification.” The principal terms of the Modification are set forth in the summary attached as Exhibit A to this Agreement.
ARTICLE 1
PURCHASE; CLOSING
1.1
Issuance, Sale and Purchase. On the terms and subject to the conditions set forth herein, the Company agrees to
issue and sell to the Investor, and the Investor agrees to purchase from the Company, free and clear of any Liens, a number of shares
of Common Stock equal to the dollar amount subscribed as indicated on the signature page hereto divided by the Per Share Purchase
Price payable by the Investor to the Company. The aggregate purchase price payable pursuant to this Section 1.1 is referred to herein
as the “Purchase Price”.
1.2
Closing; Deliverables for the Closing; Conditions to the Closing.
(a)
Closing. Unless this Agreement has been terminated pursuant to Article 4, and subject to the satisfaction
or, to the extent permitted by Law and this Agreement, the written waiver of the conditions set forth in Section 1.2(c), the closing of
the transactions contemplated by this Agreement (the “Closing”) shall take place at the offices of Arnold & Porter LLP, located at 777
South Figueroa Street, 44th Floor, Los Angeles, California 90017, or
1
remotely via the electronic or other exchange of documents and signature pages, on a date to be specified by the Company on no less
than two Business Days’ notice to the Investor (which date shall be the same date as the date of closing of the Other Private
Placements and the Modification), or at such other place or such other date as agreed to in writing by the parties hereto (the “Closing
Date”).
(b)
Closing Deliverables. Subject to the satisfaction or waiver on the Closing Date of the conditions to the
Closing set forth in Section 1.2(c), at the Closing the parties shall make the following deliveries:
(i)
the Company shall deliver to the Investor one or more certificates evidencing the Common Stock
to be purchased pursuant to Section 1.1 registered in the name of the Investor (or if the shares of the Common Stock
being purchased are to be uncertificated, the Company shall cause the Transfer Agent to register such shares in the
name of the Investor and deliver evidence of such registration to the Investor); and
(ii)
the Investor shall deliver the Purchase Price, by wire transfer of immediately available funds to
the account set forth in the Instruction Sheet for Investor provided with this Agreement.
(c)
Closing Conditions.
(i)
The obligations of the Investor, on the one hand, and the Company, on the other hand, to
consummate the purchase and sale of Common Stock provided for in this Agreement are each subject to the
satisfaction or, to the extent permitted by Law and this Agreement, the written waiver by the Company or the
Investor, as applicable, of the following conditions at the Closing:
(A)
No provision of any Law and no judgment, injunction, order or decree shall prohibit the
Closing or shall prohibit or restrict the Investor from owning or voting any Common Stock to be purchased
pursuant to this Agreement; and
(B)
All Governmental Consents required to have been obtained at or prior to the Closing
Date in connection with the execution, delivery or performance of this Agreement and the consummation
of the transactions contemplated hereby (including the Modification) shall have been obtained and shall be
in full force and effect.
(C)
The sale of Common Stock by the Company pursuant to the Agreements shall have been
approved by the stockholders of the Company to the extent required by Section 5635(d), and any other
applicable provisions, of the Nasdaq Listing Rules.
(D)
The Modification shall have been approved by the holders of the outstanding Debentures,
and by the holder or holders of the Company’s Senior Indebtedness (as defined in the Indenture) required
by
2
the Indenture; the form of supplemental indenture to be entered into in connection with the Modification
shall have been approved by the Company and the Trustee; and such supplemental indenture shall be
executed and delivered by the Company and the Trustee concurrently with the Closing under this
Agreement.
(ii)
The obligation of the Investor to consummate the purchase of Common Stock provided for in this
Agreement is also subject to the satisfaction or written waiver by the Investor of the following conditions at the
Closing:
(A)
The representations and warranties of the Company set forth in this Agreement shall be
true and correct in all respects on and as of the date of this Agreement and on and as of the Closing Date as
though made on and as of the Closing Date, except to the extent that the failure to be true and correct
(without regard to any materiality or Material Adverse Effect qualifications contained therein), would not
reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect and except that
representations and warranties made as of a specified date shall be true and correct as of such date;
(B)
The Company shall have performed and complied with, in all material respects, all
agreements, covenants and conditions required by this Agreement to be performed by it on or prior to the
Closing Date;
(C)
The Investor shall have received a certificate, dated as of the Closing Date, signed on
behalf of the Company by a senior executive officer certifying to the effect that the conditions set forth in
Section 1.2(c)(ii)(A) and Section 1.2(c)(ii)(B) have been satisfied on and as of the Closing Date;
(D)
Since the date of this Agreement, a Material Adverse Effect shall not have occurred and
no change or other event shall have occurred that would reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect;
(E)
The Common Stock to be purchased pursuant to this Agreement shall have been
authorized for listing on the NASDAQ Capital Market or such other market on which the Common Stock is
then listed or quoted, subject to official notice of issuance;
(F)
The Company shall have received (or shall receive concurrently with the Closing) gross
proceeds from the Other Private Placements in an aggregate amount, together with the Purchase Price, of
not less than $6 million;
(G)
The Company and the Investor shall have entered into the Letter Agreement,
substantially in the form attached hereto as Exhibit B (the “Gapstow Side Letter”); and
3
(H)
The Investment shall not have caused the Investor, together with other funds controlled
or managed by Gapstow Capital Partners (“Gapstow”) or any other affiliate (as defined under the SLHC
Act and any implementing regulations issued thereunder) of the Investor, to hold in the aggregate: (1) in
excess of 24.95% of the total outstanding capital stock of the Company; or (2) in excess of 24.95% of any
class of voting securities (as defined under the SLHC Act and any implementing regulations issued
thereunder) of the Company.
(iii)
The obligation of the Company to consummate the sale of Common Stock provided for in this
Agreement is also subject to the satisfaction or written waiver by the Company of the following conditions at the
Closing:
(A)
The representations and warranties of the Investor set forth in this Agreement shall be
true and correct in all respects on and as of the date of this Agreement and on and as of the Closing Date as
though made on and as of the Closing Date except where the failure to be true and correct (without regard
to any materiality qualifications contained therein) would not materially adversely affect the ability of the
Investor to perform its obligations hereunder (and except that (1) representations and warranties made as of
a specified date shall be true and correct as of such date and (2) the representations and warranties of the
Investor set forth in Sections 2.3(d) and 2.3(h) shall be true and correct in all respects);
(B)
The Investor shall have performed and complied with, in all material respects, all
agreements, covenants and conditions required by this Agreement to be performed by it on or prior to the
Closing Date; and
(C)
The Company shall have received a certificate, dated as of the Closing Date, signed on
behalf of the Investor by a duly authorized person certifying to the effect that the conditions set forth in
Section 1.2(c)(iii)(A) and Section 1.2(c)(iii)(B) have been satisfied on and as of the Closing Date.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1
Certain Terms.
(a)
As used in this Agreement, the term “Material Adverse Effect” means any circumstance, event, change,
development or effect that, individually or in the aggregate, would reasonably be expected to (i) result in a material adverse effect on
the assets, liabilities, business, financial condition or results of operations of the Company and the Company Subsidiaries, taken as a
whole, or (ii) materially impair or delay the ability of the Company or any of the Company Subsidiaries to perform its or their
obligations under this Agreement to consummate the Closing or any of the transactions contemplated hereby; provided, however, that
4
in determining whether a Material Adverse Effect has occurred under clause (i), there shall be excluded any circumstance, event,
change, development or effect to the extent resulting from (A) actions or omissions of the Company or any Company Subsidiary
expressly required or contemplated by the terms of this Agreement, (B) changes after the date hereof in general economic conditions
in the United States, including financial market volatility or downturns, or in the markets in which the Company and the Company
Subsidiaries operate, (C) changes after the date hereof affecting the banking industry generally, (D) any changes after the date hereof
in applicable Laws or accounting rules or principles, including changes in GAAP, (E) changes in the market price or trading volume
of the Common Stock or the Company’s other outstanding securities (but not the underlying causes of such changes) or (F) any failure
by the Company or any of the Company Subsidiaries to meet any internal projections or forecasts with regard to the assets, liabilities,
business, financial condition or results of operations of the Company and the Company Subsidiaries, taken as a whole (but not the
underlying causes of such failure), in each case to the extent that such circumstance, event, change, development or effect referred to
in clauses (B), (C) and (D) do not have a disproportionate effect on the Company and the Company Subsidiaries compared to other
participants in the industries or markets in which the Company and the Company Subsidiaries operate.
(b)
As used in this Agreement, the term “Previously Disclosed” (i) with regard to any party, means
information set forth in its Disclosure Schedule under Section references corresponding with the provision of this Agreement to which
such information relates (including, in the case of the Company, information identified in the Company’s Disclosure Schedule by
reference to specific portions of the “virtual data room” website established by the Company for use by the Investor in its “due
diligence” examination of the Company; provided, however, that if such information is disclosed in such a way as to make its
relevance or applicability to another provision of this Agreement reasonably apparent on its face, such information shall be deemed to
be responsive to such other provision of this Agreement and (ii) with regard to the Company, includes information publicly disclosed
by the Company in (A) the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, as filed by it with
the Securities and Exchange Commission (the “SEC”), (B) the Company’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2014, as filed by it with the SEC, (C) the Company’s definitive Proxy Statement on Schedule 14A, as filed by it with the
SEC on August 15, 2014, or (D) any Current Report on Form 8-K filed or furnished by it with the SEC since January 1, 2014, in each
case available prior to the date of this Agreement (excluding any risk factor disclosures contained in such documents under the
heading “Risk Factors” and any disclosure of risks included in any “forward-looking statements” disclaimer or other statements that
are similarly non-specific and are predictive or forward-looking in nature). Notwithstanding anything in this Agreement to the
contrary, the mere inclusion of an item in a Disclosure Schedule shall not be deemed an admission that such item represents a material
exception or material fact, event or circumstance or that such item has had or would reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect.
2.2
Representations and Warranties of the Company. Except as Previously Disclosed, the Company hereby
represents and warrants to the Investor, as of the date of this Agreement and as of the Closing Date (except for the representations and
warranties that are as of a specific date, which are made as of that date) that:
5
(a)
Organization and Authority. Each of the Company and the Company Subsidiaries is a corporation or
other entity duly organized and validly existing under the laws of the jurisdiction of its incorporation or organization, is duly qualified
to do business and is in good standing in all jurisdictions where its ownership or leasing of property or the conduct of its business
requires it to be so qualified except where any failure to be so qualified would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect, and has the corporate or other organizational power and authority to own its properties and
assets and to carry on its business as it is now being conducted. The Company has Previously Disclosed correct and complete copies
of the certificate of incorporation and bylaws (or similar governing documents) as amended through the date of this Agreement for the
Company and Broadway Federal Bank, f.s.b. (the “Bank”). The Company is duly registered with the Board of Governors of the
Federal Reserve System (the “Federal Reserve”) as a savings and loan holding company under the Savings and Loan Holding
Company Act, as amended, 12 U.S.C. 1467a (the “SLHC Act”).
(b)
Company Subsidiaries. The Company has Previously Disclosed a true, complete and correct list of all of
its subsidiaries as of the date of this Agreement (each, a “Company Subsidiary” and, collectively, the “Company Subsidiaries”).
Except for the Company Subsidiaries, the Company does not own beneficially, directly or indirectly, more than 5% of any class of
equity securities or similar interests of any corporation, business trust, association or similar organization, and is not, directly or
indirectly, a partner in any partnership or party to any joint venture. The Company owns, directly or indirectly, all of its interests in
each Company Subsidiary free and clear of any and all Liens, except for the Lien of BBCN Bank on all assets of the Company,
including the stock of the Bank owned by the Company. The deposit accounts of the Bank are insured by the Federal Deposit
Insurance Corporation (“FDIC”) to the fullest extent permitted by the Federal Deposit Insurance Act, as amended (the “FDI Act”),
and the rules and regulations of the FDIC thereunder, and all premiums and assessments required to be paid in connection therewith
have been paid when due (after giving effect to any applicable extensions). The Company beneficially owns all of the outstanding
capital securities of, and has sole control of, the Bank.
(c)
Capitalization.
(i)
As of the date hereof, the authorized Capital Stock of the Company consists of 50,000,000 shares
of Common Stock, par value $0.01 per share, 25,000,000 shares of non-voting common stock, par value $0.01 per
share (the “Non-Voting Common Stock”), and 1,000,000 shares of preferred stock, par value $0.01 per share (the
“Company Preferred Stock”).
(ii)
As of the close of business on September 30, 2014 (the “Capitalization Date”), the Company had
outstanding: 19,548,959 shares of Common Stock, 698,200 shares of Non-Voting Common Stock and no shares of
Company Preferred Stock.
(iii)
As of the close of business on the Capitalization Date, other than in respect of awards outstanding
under or issuable pursuant to the Company’s 1996 Long-Term Incentive Plan, 1996 Stock Option Plan and 2008
Long-Term
6
Incentive Plan (the “Company Stock Plans”) in respect of which an aggregate of 2,000,000 shares of Common
Stock have been reserved for issuance, no shares of Common Stock or Company Preferred Stock were reserved for
issuance. Since the Capitalization Date and through the date of this Agreement, except in connection with this
Agreement and the transactions contemplated hereby, including the Investment and the Other Private Placements,
the Company has not (A) issued or authorized the issuance of any shares of Common Stock or Company Preferred
Stock, or any securities convertible into or exchangeable or exercisable for shares of Common Stock or Company
Preferred Stock, (B) reserved for issuance any shares of Common Stock or Company Preferred Stock or
(C) repurchased or redeemed, or authorized the repurchase or redemption of, any shares of Common Stock or
Company Preferred Stock.
(iv)
All of the issued and outstanding shares of Common Stock and Company Preferred Stock have
been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, exceptfor
certain preemptive rights set forth in (A) those certain letter agreements, each dated as of August 22, 2013, between
the Company and, respectively, (1) BBCN Bancorp, Inc., (2) CJA Private Equity Financial Restructuring Master
Fund I L.P. (as amended, restated or otherwise modified from time to time, the “CJA Letter Agreement”), and
(iii) National Community Investment Fund (as amended, restated or otherwise modified from time to time, the
“NCIF Letter Agreement”), or (B) the Gapstow Side Letter or a separate side letter between the Company and
National Community Investment Fund (the “Side Letters”). None of the outstanding shares of Capital Stock or
other securities of the Company or any of the Company Subsidiaries was issued, sold or offered by the Company or
any Company Subsidiary in violation of the Securities Act or the securities or blue sky laws of any state or
jurisdiction. No bonds, debentures, notes or other indebtedness having the right to vote on any matters on which the
shareholders of the Company may vote (“Voting Debt”) are issued and outstanding.
(v)
As of the date of this Agreement, except for the outstanding awards under the Company Stock
Plans listed on Section 2.2(c) of the Disclosure Schedule, and the Agreements, the Company does not have and is
not bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character
calling for the purchase or issuance of, or securities or rights convertible into or exchangeable or exercisable for, any
shares of Common Stock or Company Preferred Stock or any other equity securities of the Company or Voting Debt
or any securities representing the right to purchase or otherwise receive any shares of Capital Stock of the Company.
(d)
Authorization; No Conflicts; Shareholder Approval.
(i)
The Company has the corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. Subject to receipt of the approval by the Company’s stockholders required by the
NASDAQ Stock Market (“NASDAQ”) pursuant to Rule 5635(c) and(d) and any other
7
applicable provisions of the Nasdaq Listing Rules to issue Common Stock in connection with the Investment and the
Other Private Placements and the approval by the Company’s stockholders of an amendment to Article FOURTH of
the Company’s Certificate of Incorporation to increase the number of shares of Non-Voting Common Stock the
Company is authorized to issue to a number that will permit the issuance and sale of all of such stock contemplated
by the Agreements, the execution, delivery and performance of this Agreement by the Company and the
consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action
on the part of the Company and no further approval or authorization is required on the part of the Company or its
shareholders. The Board of Directors has unanimously approved the transactions contemplated by this Agreement,
including the Investment, the Other Private Placements and the Modification. This Agreement has been duly and
validly executed and delivered by the Company and, assuming due authorization, execution and delivery by the
Investor, is the valid and binding obligation of the Company enforceable against the Company in accordance with its
terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar laws of general applicability relating to or affecting creditors’ rights or by general
equity principles (whether applied in equity or at law).
(ii)
Neither the execution and delivery by the Company of this Agreement nor the consummation of
the transactions contemplated hereby, nor compliance by the Company with any of the provisions hereof, will
(A) violate, conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in the termination of, or result in the loss
of any benefit or creation of any right on the part of any third party under, or accelerate the performance required by,
or result in a right of termination or acceleration of, or result in the creation of any liens, charges, adverse rights or
claims, pledges, covenants, title defects, security interests or other encumbrances of any kind (“Liens”) upon any of
the properties or assets of the Company or any Company Subsidiary, under any of the terms, conditions or
provisions of (1) the certificate of incorporation or bylaws (or similar governing documents) of the Company and
each Company Subsidiary or (2) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which the Company or any of the Company Subsidiaries is a party or by which it
may be bound, or to which the Company or any of the Company Subsidiaries, or any of the properties or assets of
the Company or any of the Company Subsidiaries may be subject, or (B) violate any Law applicable to the
Company or any of the Company Subsidiaries or any of their respective properties or assets except in the case of
clauses (A)(2) and (B) for such violations, conflicts and breaches as would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
(e)
Governmental Consents. Except as set forth on Section 2.2(e) of the Disclosure Schedule, no
Governmental Consents are necessary for the execution and delivery of
8
this Agreement or for the sale by the Company of Common Stock to the Investor pursuant to this Agreement.
(f)
Litigation and Other Proceedings. Except as would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect, there is no pending or, to the Knowledge of the Company, threatened claim, action, suit,
arbitration, complaint, charge or investigation or proceeding (each an “Action”) against the Company or any Company Subsidiary or
any of its assets, rights or properties, nor is the Company or any Company Subsidiary a party or named as subject to the provisions of
any order, writ, injunction, settlement, judgment or decree of any court, arbitrator or government agency, or instrumentality. There
has not been, and to the Knowledge of the Company, there is not pending or contemplated, any investigation by the SEC involving the
Company or any current or former director or officer of the Company in his or her capacity as such.
(g)
Financial Statements. The audited consolidated balance sheets of the Company and the Company
Subsidiaries and the related consolidated statements of operations, changes in stockholders’ equity and cash flows, together with the
notes thereto, included in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2013 (the
“Company Financial Statements”) (i) have been prepared from, and are in accordance with, the books and records of the Company
and the Company Subsidiaries, (ii) complied, as of their respective date of such filing, in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC with respect thereto, (iii) have been prepared in
accordance with GAAP applied on a consistent basis and (iv) present fairly in all material respects the consolidated financial position
of the Company and the Company Subsidiaries at the dates and the consolidated results of operations, changes in shareholders’ equity
and cash flows of the Company and the Company Subsidiaries for the periods stated therein.
(h)
Reports. Since December 31, 2010, the Company and each Company Subsidiary have filed all material
reports, registrations, documents, filings, statements and submissions, together with any required amendments thereto, that they were
required to file with any Governmental Entity (the foregoing, collectively, being referred to herein as the “Company Reports”) and
have paid all material fees and assessments due and payable in connection therewith. As of their respective filing dates, or as
subsequently amended prior to the date hereof, the Company Reports complied in all material respects with all statutes and applicable
rules and regulations of the applicable Governmental Entities. As of the date of this Agreement, there are no outstanding comments
from the SEC or any other Governmental Entity with respect to any Company Report that were the subject of written correspondence
that have not been resolved. The Company Reports, including the documents incorporated by reference in each of them, each
contained all the information required to be included in it and, when it was filed and, as of the date of each such Company Report filed
with the SEC, or if amended prior to the date of this Agreement, as of the date of such amendment, did not contain an untrue statement
of a material fact or omit to state a material fact necessary in order to make the statements made in it, in light of the circumstances
under which they were made, not misleading and complied as to form in all material respects with the applicable requirements of the
Securities Act and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). No executive officer of
9
the Company has failed in any respect to make the certifications required of him or her under Section 302 or 906 of the SarbanesOxley Act of 2002.
(i)
Internal Accounting and Disclosure Controls. The records, systems, controls, data and information of
the Company and the Company Subsidiaries are recorded, stored, maintained and operated under means (including any electronic,
mechanical or photographic process, whether computerized or not) that are under the exclusive ownership and direct control of the
Company or the Company Subsidiaries or accountants (including all means of access thereto and therefrom) or reputable banking
industry service providers, except for any non-exclusive ownership and non-direct control that would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the system of internal accounting controls described below in this
Section 2.2(i). The Company (i) has implemented and maintains disclosure controls and procedures (as defined in Rule 13a-15(e) of
the Exchange Act) intended to ensure that material information relating to the Company, including its consolidated Subsidiaries, is
made known to the chief executive officer or executive chairman and the chief financial officer of the Company by others within those
entities, and (ii) has disclosed, based on its most recent evaluation prior to the date of this Agreement, to the Company’s outside
auditors and the audit committee of the Board of Directors (A) any significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that are reasonably likely to
adversely affect the Company’s ability to record, process, summarize and report financial information, and (B) any fraud, whether or
not material, that involves management or other employees who have a significant role in the Company’s internal controls over
financial reporting. As of the date of this Agreement, the Company has no Knowledge of any reason that its outside auditors and its
chief executive officer or executive chairman and chief financial officer shall not be able to give the certifications and attestations
required pursuant to the rules and regulations adopted pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, without
qualification, when next due. Since December 31, 2010, neither the Company nor any Company Subsidiary nor, to the Knowledge of
the Company, any director, officer, employee, auditor, accountant or representative of the Company or any Company Subsidiary has
received or otherwise had or obtained knowledge of any material complaint, allegation, assertion or claim, whether written or oral,
regarding the accounting or auditing practices, procedures, methodologies or methods of the Company or any Company Subsidiary or
their respective internal accounting controls, including any material complaint, allegation, assertion or claim that the Company or any
Company Subsidiary has engaged in questionable accounting or auditing practices.
(j)
Risk Management Instruments. All material derivative instruments, including swaps, caps, floors and
option agreements entered into for the Company’s or any of the Company Subsidiaries’ own account were entered into (i) only in the
ordinary course of business, (ii) in accordance with prudent practices and in all material respects with all applicable Laws and
(iii) with counterparties believed to be financially responsible at the time; and each of them constitutes the valid and legally binding
obligation of the Company or any Company Subsidiary, as applicable, enforceable in accordance with its terms. Neither the Company
nor, to the Knowledge of the Company, any other party thereto is in breach of any of its material obligations under any such
agreement or arrangement.
10
(k)
No Undisclosed Liabilities. There are no liabilities of the Company or any of the Company Subsidiaries
of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise, except for (i) liabilities
adequately reflected or reserved against in accordance with GAAP in the Company’s audited balance sheet as of December 31, 2013
and (ii) liabilities that have arisen in the ordinary and usual course of business and consistent with past practice since December 31,
2013 and that have not or would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
(l)
Mortgage Lending. The Company and each of the Company Subsidiaries have complied in all material
respects with, and all documentation in connection with the origination, processing, underwriting and credit approval of any mortgage
loan originated, purchased or serviced by the Company or any Company Subsidiary has satisfied, in all material respects (i) all Laws
with respect to the origination, insuring, purchase, sale, servicing, or filing of claims in connection with mortgage loans, including all
Laws relating to real estate settlement procedures, consumer credit protection, truth in lending laws, usury limitations, fair housing,
transfers of servicing, collection practices, equal credit opportunity and adjustable rate mortgages, (ii) the responsibilities and
obligations relating to mortgage loans set forth in any agreement between the Company and any Agency, Loan Investor or Insurer,
(iii) the applicable rules, regulations, guidelines, handbooks and other requirements of any Agency, Loan Investor or Insurer and
(iv) the terms and provisions of any mortgage or other collateral documents and other loan documents with respect to each mortgage
loan.
(m)
Bank Secrecy Act; Anti-Money Laundering; OFAC; and Customer Information. The Company is not
aware of, has not been advised of, and, to the Knowledge of the Company, has no reason to believe that any facts or circumstances
exist that would cause it or any Company Subsidiary to be deemed to be not operating in compliance, in all material respects, with the
Bank Secrecy Act of 1970, as amended, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept
and Obstruct Terrorism Act of 2001 (also known as the USA PATRIOT Act), any order or regulation issued by the U.S. Department
of the Treasury’s Office of Foreign Assets Control (“OFAC”), or any other applicable anti-money laundering or anti-terroristfinancing statute, rule or regulation. The Company is not aware of any facts or circumstances that would cause it to believe that any
nonpublic customer information has been disclosed to or accessed by an unauthorized third party in a manner that would cause it to
undertake any material remedial action. The Company and each of the Company Subsidiaries have adopted and implemented an antimoney laundering program that contains adequate and appropriate customer identification verification procedures that comply with
the USA PATRIOT Act and such anti-money laundering program meets the requirements in all material respects of Section 352 of the
USA PATRIOT Act and the regulations thereunder, and they have complied in all respects with any requirements to file reports and
other necessary documents as required by the USA PATRIOT Act and the regulations thereunder. The Company will not directly or
indirectly use the proceeds of the sale of the Common Stock pursuant to transactions contemplated by this Agreement, or lend,
contribute or otherwise make available such proceeds to any Company Subsidiary, joint venture partner or other Person, towards any
sales or operations in any country appearing on the OFAC Specially Designated Nationals List (“SDN List”) or for the purpose of
financing the activities of any Person currently appearing on the SDN List.
11
(n)
Certain Payments. Neither the Company nor any of the Company Subsidiaries, nor any directors,
officers, nor to the Knowledge of the Company, employees or any of their Affiliates or any other Person who to the Knowledge of the
Company is associated with or acting on behalf of the Company or any of the Company Subsidiaries has directly or indirectly (i) made
any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment in material violation of any Law to any
Person, private or public, regardless of form, whether in money, property, or services (A) to obtain favorable treatment in securing
business for the Company or any of the Company Subsidiaries, (B) to pay for favorable treatment for business secured by the
Company or any of the Company Subsidiaries, or (C) to obtain special concessions or for special concessions already obtained, for or
in respect of the Company or any of the Company Subsidiaries or (ii) established or maintained any fund or asset with respect to the
Company or any of the Company Subsidiaries that was required by Law or GAAP to have been recorded and was not recorded in the
books and records of the Company or any of the Company Subsidiaries.
(o)
Absence of Certain Changes. Since December 31, 2013 and except as Previously Disclosed or as
required or contemplated by the terms of this Agreement, (i) the Company and the Company Subsidiaries have conducted their
respective businesses in all material respects in the ordinary and usual course of business consistent with past practices, (ii) none of the
Company or any Company Subsidiary has issued any securities (other than Common Stock and other equity-based awards issued prior
to the date of this Agreement pursuant to the Company Stock Plans and reflected in the numbers set forth in Section 2.2(c)), (iii) the
Company has not made or declared any distribution in cash or in kind to its shareholders or issued or repurchased any shares of its
Capital Stock, (iv) through (and including) the date of this Agreement, no fact, event, change, condition, development, circumstance
or effect has occurred that has had or would reasonably be expected to have, individually or in the aggregate, a Material Adverse
Effect and (v) no material default (or event which, with notice or lapse of time, or both, would constitute a material default) exists on
the part of the Company or any Company Subsidiary in the due performance and observance of any term, covenant or condition of any
agreement to which the Company or any Company Subsidiary is a party and which would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
(p)
Compliance with Laws. The Company and each Company Subsidiary have all material permits, licenses,
franchises, authorizations, orders and approvals of, and have made all filings, applications and registrations with, Governmental
Entities that are required in order to permit them to own or lease their properties and assets and to carry on their business as presently
conducted and that are material to the business of the Company and each Company Subsidiary. The Company and each Company
Subsidiary have complied in all material respects and (i) are not in default or violation in any respect of, (ii) are not under
investigation with respect to, and (iii) have not been threatened to be charged with or given notice of any material violation of, any
applicable material domestic (federal, state or local) or foreign law, statute, ordinance, license, rule, regulation, policy or guideline,
order, demand, writ, injunction, decree or judgment of any Governmental Entity (each, a “Law”), other than such noncompliance,
defaults or violations as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. Except
for statutory or regulatory restrictions of general application, restrictions applicable to recipients of funds under the Troubled Asset
Relief Program of the Treasury, the Order to Cease and Desist issued by the Office of Thrift
12
Supervision to the Company with the Company’s consent, effective September 9, 2010, and the Consent Order issued by the Office of
the Comptroller of the Currency to the Bank with the Bank’s consent, effective October 30, 2013 (each, individually a “Regulatory
Order” and, together, the “Regulatory Orders”), no Governmental Entity has placed any material restriction on the business or
properties of the Company or any of the Company Subsidiaries. As of the date hereof, the Bank has a Community Reinvestment Act
rating of “outstanding.”
(q)
Agreements with Regulatory Agencies. Except for the Regulatory Orders, (i) the Company and the
Company Subsidiaries (A) are not subject to any cease-and-desist or other similar order or enforcement action issued by, (B) are not a
party to any written agreement, consent agreement or memorandum of understanding with, (C) are not a party to any commitment
letter or similar undertaking to, and (D) are not subject to any capital directive by, and (ii) since December 31, 2013, neither the
Company nor any of the Company Subsidiaries has adopted any board resolutions at the request of any Governmental Entity that
currently restricts in any material respect the conduct of its business or that in any material manner relates to its capital adequacy, its
liquidity and funding policies and practices, its ability to pay dividends, its credit, risk management or compliance policies, its internal
controls, its management or its operations or business (each item in this sentence, including the Regulatory Orders, being referred to
herein as a “Regulatory Agreement”), nor has the Company nor any of the Company Subsidiaries been advised since December 31,
2013 by any Governmental Entity that it is considering issuing, initiating, ordering, or requesting any such Regulatory Agreement.
Except as set forth on Section 2.2(q) of the Disclosure Schedule, the Company and the Company Subsidiaries are in compliance in all
material respects with each Regulatory Agreement to which they are party or subject, and the Company and the Company Subsidiaries
have not received any notice from any Governmental Entity indicating that either the Company or any of the Company Subsidiaries is
not in compliance in all material respects with any such Regulatory Agreement.
(r)
Contracts. The Company has Previously Disclosed or provided (by hard copy, electronic data room or
otherwise) to the Investor or its representatives true, correct and complete copies of each of the following to which the Company or
any Company Subsidiary is a party, each of which is set forth on Section 2.2(r) of the Disclosure Schedule (each, a “Material
Contract”):
(i)
any contract or agreement relating to indebtedness of the Company or any Company Subsidiary
for borrowed money, letters of credit, capital lease obligations, obligations secured by a Lien or interest rate or
currency hedging agreements (including guarantees in respect of any of the foregoing, but in any event excluding
trade payables, securities transactions and brokerage agreements arising in the ordinary course of business,
intercompany indebtedness and immaterial leases for telephones, copy machines, facsimile machines and other
office equipment) in excess of $200,000, except for those issued in the ordinary course of business;
(ii)
any contract or agreement that is a “material contract” within the meaning of Item 601(b)(10) of
Regulation S-K;
13
(iii)
any contract or agreement limiting, in any material respect, the ability of the Company or any of
the Company Subsidiaries to engage in any line of business or to compete, whether by restricting territories,
customers or otherwise, or in any other material respect, with any Person;
(iv)
any contract or agreement that concerns the sale or acquisition of any material portion of the
Company’s business;
(v)
any alliance, cooperation, joint venture, shareholders, partnership or similar agreement involving a
sharing of profits or losses relating to the Company or any Company Subsidiary;
(vi)
any contract or agreement involving annual payments in excess of $200,000 that cannot be
cancelled by the Company or a Company Subsidiary without penalty on not more than 90 days’ notice;
(vii)
any material hedge, collar, option, forward purchasing, swap, derivative or similar agreement,
understanding or undertaking;
(viii)
any contract or agreement with respect to the employment or service of any current or former
directors, officers, employees or consultants of the Company or any of the Company Subsidiaries other than, with
respect to non-executive employees and consultants, in the ordinary course of business; and
(ix)
any contract or agreement containing any (x) non-competition or exclusive dealing obligations or
other obligation which purports to limit or restrict in any respect the ability of the Company or any Company
Subsidiary to solicit customers or the manner in which, or the localities in which, all or any portion of the business
of the Company or the Company Subsidiaries is or can be conducted, or (y) right of first refusal or right of first offer
or similar right or that limits or purports to limit the ability of the Company or any of the Company Subsidiaries to
own, operate, sell, transfer, pledge or otherwise dispose of any material assets or business.
Each Material Contract (A) is legal, valid and binding on the Company and the Company Subsidiaries which are a party to such
contract, (B) is in full force and effect and enforceable in accordance with its terms and (C) will continue to be legal, valid, binding,
enforceable, and in full force and effect in all material respects following the consummation of the transactions contemplated by this
Agreement. Neither the Company nor any of the Company Subsidiaries, nor to the Knowledge of the Company, any other party
thereto is in material violation or default under any Material Contract. No benefits under any Material Contract will be increased, and
no vesting of any benefits under any Material Contract will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement, nor will the value of any of the benefits under any Material Contract be calculated on the basis of any of the
transactions contemplated by this Agreement. The Company and the Company Subsidiaries, and to the Knowledge of the Company,
each of the other parties thereto, have performed in all material respects all material obligations required to be performed by them
under each Material Contract, and to the
14
Knowledge of the Company, no event has occurred that with notice or lapse of time would constitute a material breach or default or
permit termination, modification, or acceleration, under the Material Contracts.
(s)
Insurance. The Company and each of the Company Subsidiaries are presently insured, and have been
insured for at least the past two years, for reasonable amounts with financially sound and reputable insurance companies against such
risks as companies engaged in a similar business would, in accordance with good business practice, customarily be insured. All of the
policies, bonds and other arrangements providing for the foregoing (the “Company Insurance Policies”) are in full force and effect,
the premiums due and payable thereon have been or will be timely paid through the Closing Date, and there is no material breach or
default (and no condition exists or event has occurred that, with the giving of notice or lapse of time or both, would constitute such a
material breach or default) by the Company or any of the Company Subsidiaries under any of the Company Insurance Policies or, to
the Knowledge of the Company, by any other party to the Company Insurance Policies. Neither the Company nor any of the
Company Subsidiaries has received any written notice of cancellation or non-renewal of any Company Insurance Policy nor, to the
Knowledge of the Company, is the termination of any such policies threatened in writing by the insurer, and there is no material claim
for coverage by the Company, or any of the Company Subsidiaries, pending under any of such Company Insurance Policies as to
which coverage has been denied or disputed by the underwriters of such Company Insurance Policies or in respect of which such
underwriters have reserved their rights.
(t)
Title. The Company and the Company Subsidiaries have good and marketable title in fee simple to all real
property owned by them and good and valid title to all material personal property owned by them, in each case free and clear of all
Liens, except for Liens which do not materially affect the value of such property or do not interfere with the use made and proposed to
be made of such property by the Company or any Company Subsidiary. Any real property and facilities held under lease by the
Company or the Company Subsidiaries are valid, subsisting and enforceable leases with such exceptions that are not material and do
not interfere with the use made and proposed to be made of such property and facilities by the Company or the Company Subsidiaries.
(u)
Employee Benefits.
(i)
Section 2.2(u) of the Disclosure Schedule sets forth a correct and complete list of each “employee
benefit plan” (within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended (“ERISA”), including, without limitation, multiemployer plans within the meaning of Section 3(37) of
ERISA), and all stock purchase, stock option, severance, employment, change-in-control, fringe benefit, bonus,
incentive, deferred compensation and all other employee benefit plans, agreements, programs, policies or other
arrangements, whether or not subject to ERISA (including any funding mechanism therefor now in effect or required
in the future as a result of the transactions contemplated by this Agreement or otherwise), whether formal or
informal, oral or written, under which (A) any current or former employee or director of the Company or any of the
Company Subsidiaries
15
(the “Company Employees”) has any present or future right to benefits and which are contributed to, sponsored by
or maintained by the Company or any of the Company Subsidiaries or (B) the Company or any Company Subsidiary
has had or has any present or future liability. All such plans, agreements, programs, policies and arrangements shall
be collectively referred to as the “Benefit Plans.”
(ii)
(A) Each Benefit Plan has been established and administered in all material respects in
accordance with its terms, and in compliance with the applicable provisions of ERISA, the Code and other Laws;
(B) no “reportable event” (as such term is defined in Section 4043 of ERISA) that could reasonably be expected to
result in material liability has occurred with respect to any Benefit Plan, and (C) no non-exempt “prohibited
transaction” (as such term is defined in Section 406 of ERISA and Section 4975 of the Code) has been engaged in
by the Company or any Company Subsidiary with respect to any Benefit Plan that has or is expected to result in any
material liability or “accumulated funding deficiency” (as such term is defined in Section 302 of ERISA and
Section 412 of the Code (whether or not waived)).
(iii)
The Company and the Company Subsidiaries will be in compliance, as of the Closing Date, with
Sections 111 and 302 of the Emergency Economic Stabilization Act of 2008, as amended by the U.S. American
Recovery and Reinvestment Act of 2009, including all guidance issued thereunder by a Governmental Entity
(collectively “EESA”).
(v)
Taxes. All material Tax Returns required to be filed by, or on behalf of, Company or the Company
Subsidiaries have been timely filed, or will be timely filed, in accordance with all Laws, and all such Tax Returns are, or shall be at
the time of filing, complete and correct in all material respects. The Company and the Company Subsidiaries have timely paid all
material Taxes due and payable (whether or not shown on such Tax Returns), or, where payment is not yet due, have made adequate
provisions in accordance with GAAP. There are no Liens with respect to Taxes upon any of the assets or properties of either the
Company or the Company Subsidiaries other than with respect to Taxes not yet due and payable.
(w)
Labor.
(i)
Employees of the Company and the Company Subsidiaries are not represented by any labor union
nor are any collective bargaining agreements otherwise in effect with respect to such employees. No labor
organization or group of employees of the Company or any Company Subsidiary has made a pending demand for
recognition or certification, and there are no representation or certification proceedings or petitions presently
pending or threatened to be brought or filed with the National Labor Relations Board or any other labor relations
tribunal or authority, nor have there been in the last three years. There are no strikes, work stoppages, slowdowns,
labor picketing lockouts, material arbitrations or material grievances, or other material labor disputes pending or, to
the Knowledge of the Company, threatened against or involving the Company or any Company Subsidiary, nor have
there been any in the past year.
16
(ii)
Except as would not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect, the Company and the Company Subsidiaries are in compliance with all federal and state Laws and
requirements respecting employment and employment practices, terms and conditions of employment, collective
bargaining, disability, immigration, health and safety, wages, hours and benefits, non-discrimination in employment,
workers’ compensation and the collection and payment of withholding and/or payroll taxes and similar taxes.
(iii)
Except as would not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect, there is no charge or complaint pending or threatened before any Governmental Entity alleging
unlawful discrimination in employment practices, unfair labor practices or other unlawful employment practices by
the Company or any Company Subsidiary.
(x)
Brokers and Finders. Except for BlackTorch Securities, LLC (the “Placement Agent”) and the fees
payable thereto or to its assigns (which fees are to be paid by the Company), neither the Company nor any of its officers, directors,
employees or agents has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees,
commissions or finder’s fees, and no broker or finder has acted directly or indirectly for the Company in connection with this
Agreement or the transactions contemplated hereby.
(y)
Loan Portfolio. As of the date of this Agreement, the characteristics of the loan portfolio of the Company
have not materially and adversely changed from the characteristics of the loan portfolio as of December 31, 2013.
(z)
Offering of Securities. Neither the Company nor any Person acting on its behalf has taken any action
(including any offering of any securities of the Company under circumstances which would require the integration of such offering
with the offering of any of the Common Stock to be issued pursuant to this Agreement under the Securities Act and the rules and
regulations of the SEC promulgated thereunder) which would subject the offering, issuance or sale of any of the Common Stock to be
issued pursuant to this Agreement to be subject to the registration requirements of the Securities Act. Neither the Company nor any
Person acting on its behalf has engaged or will engage in any form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with any offer or sale of the Common Stock pursuant to the transactions
contemplated by this Agreement. Assuming the accuracy of the Investor’s representations and warranties set forth in this Agreement,
no registration under the Securities Act is required for the offer and sale of the Common Stock by the Company to the Investor.
(aa)
Investment Company Status. The Company is not, and upon consummation of the transactions
contemplated by this Agreement will not be, an “investment company,” a company controlled by an “investment company” or an
“affiliated Person” of, or “promoter” or “principal underwriter” of, an “investment company,” as such terms are defined in the
Investment Company Act of 1940, as amended.
17
(bb)
Affiliate Transactions. No officer, director, five percent (5%) shareholder or other Affiliate of the
Company (or any Company Subsidiary), or any individual who, to the Knowledge of the Company, is related by marriage or adoption
to or shares the same home as any such Person, or any entity which, to the Knowledge of the Company, is controlled by any such
Person (collectively, an “Insider”), is a party to any contract or transaction with the Company (or any Company Subsidiary) which
pertains to the business of the Company (or any Company Subsidiary) or has any interest in any property, real or personal or mixed,
tangible or intangible, used in or pertaining to the business of the Company (or any Company Subsidiary). The foregoing
representation and warranty does not include deposits at the Company (or any Company Subsidiary) or loans of $250,000 or less made
in the ordinary course of business in compliance with Regulation O and other applicable Law.
(cc)
Anti-takeover Provisions Not Applicable. The Board of Directors has taken all necessary action to
ensure that the transactions contemplated by this Agreement and the consummation of the transactions contemplated hereby will be
exempt from any anti-takeover or similar provisions of the Company’s certificate of incorporation and bylaws, and any provisions of
any applicable “moratorium”, “control share”, “fair price”, “interested shareholder” or other anti-takeover Laws and regulations of any
jurisdiction.
(dd)
Issuance of the Common Stock. Upon receipt of the stockholder approvals referred to in Section 2.2(d)
(i), the issuance of the Common Stock in connection with the transactions contemplated by this Agreement has been duly authorized
and such Common Stock, when issued and paid for in accordance with the terms of this Agreement, will be duly and validly issued,
fully paid and nonassessable and free and clear of all Liens, other than restrictions on transfer imposed by applicable securities Laws,
and shall not be subject to preemptive or similar rights except as set forth in Section 2.2(c)(iv).
2.3
Representations and Warranties of the Investor. Except as Previously Disclosed, the Investor hereby represents
and warrants to the Company, as of the date hereof and as of the Closing Date (except for the representations and warranties that are
as of a specific date which are made as of that date) that:
(a)
Organization and Authority. The Investor is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization, is duly qualified to do business and is in good standing in all jurisdictions where its
ownership or leasing of property or the conduct of its business requires it to be so qualified and where failure to be so qualified would
be reasonably expected to materially and adversely impair or delay its ability to perform its obligations under this Agreement or to
consummate the transactions contemplated hereby.
(b)
Authorization; No Conflicts.
(i)
The Investor has the necessary power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized by its board of directors, general
partner or managing members, investment committee,
18
investment adviser or other authorized person, as the case may be, and no further approval or authorization by any of
its shareholders, partners or other equity owners, as the case may be, is required. This Agreement has been duly and
validly executed and delivered by the Investor and, assuming due authorization, execution and delivery by the
Company is the valid and binding obligation of the Investor enforceable against the Investor in accordance with its
terms (except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar laws of general applicability relating to or affecting creditors’ rights or by general
equity principles).
(ii)
Neither the execution, delivery and performance by the Investor of this Agreement nor the
consummation of the transactions contemplated hereby, nor compliance by the Investor with any of the provisions
hereof, will (A) violate, conflict with, or result in a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation
of any Liens upon any of the properties or assets of the Investor under any of the terms, conditions or provisions of
(1) its certificate of incorporation or bylaws, its certificate of limited partnership or partnership agreement or its
similar governing documents or (2) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which the Investor is a party or by which the Investor may be bound, or to which
the Investor or any of the properties or assets of the Investor may be subject, or (B) violate any Law applicable to the
Investor or any of its properties or assets except in the case of clauses (A)(2) and (B) for such violations, conflicts
and breaches as would not reasonably be expected to materially adversely affect the Investor’s ability to perform its
obligations under this Agreement or consummate the transactions contemplated hereby on a timely basis.
(c)
Governmental Consents. Except as set forth in the Disclosure Schedule, no Governmental Consents are
necessary for the execution and delivery of this Agreement or for the purchase by the Investor of the Common Stock pursuant to this
Agreement.
(d)
Purchase for Investment; Accredited Investor Status. The Investor acknowledges that the Common
Stock to be purchased by the Investor pursuant to this Agreement has not been registered under the Securities Act or under any state
securities laws and may not be resold or transferred by the Investor without such registration or appropriate reliance on any available
exemption from such requirements. The Investor (i) is acquiring the Common Stock pursuant to an exemption from the registration
requirements of the Securities Act and other applicable securities laws solely for investment with no present intention to distribute any
of the Common Stock to any Person, (ii) will not sell or otherwise dispose of any of the Common Stock, except in compliance with the
registration requirements or exemption provisions of the Securities Act and any other applicable securities laws, (iii) has such
knowledge and experience in financial and business matters and in investments of this type that it is capable of evaluating the merits
and risks of its investment in the Common Stock and of making an informed
19
investment decision and (iv) is an “accredited investor” (as that term is defined by Rule 501 of the Securities Act).
(e)
Brokers and Finders. Neither the Investor, nor its respective Affiliates nor any of their respective officers
or directors, has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions
or finder’s fees, and no broker or finder has acted directly or indirectly for the Investor in connection with this Agreement or the
transactions contemplated hereby. The Investor acknowledges that it is purchasing the Common Stock directly from the Company
and not from the Placement Agent.
(f)
Investment Decision. The Investor, or the duly appointed investment manager to the Investor (the
“Investment Manager”), if applicable, has independently evaluated the merits of its decision to purchase the Common Stock
pursuant to this Agreement, and the Investor confirms that neither it, nor its Investment Manager, if applicable, has relied on the
advice of any other person’s business and/or legal counsel in making such decision. The Investor understands that nothing in this
Agreement or any other materials presented by or on behalf of the Company to the Investor in connection with the purchase of the
Common Stock constitutes legal, tax or investment advice. The Investor has consulted such accounting, legal, tax and investment
advisors as it has deemed necessary or appropriate in connection with its purchase of the Common Stock. The Investor understands
that the Placement Agent has acted solely as the agent of the Company in this placement of the Common Stock and the Investor has
not relied on the business or legal advice of the Placement Agent or any of its agents, counsel or Affiliates in making its investment
decision hereunder, and confirms that none of such persons has made any representations or warranties to the Investor in connection
with the transactions contemplated by this Agreement. Except as Previously Disclosed and except for this Agreement and the Side
Letter, there are no agreements or understandings with respect to the transactions contemplated by this Agreement between the
Investor or any of its Affiliates, on the one hand, and (i) any of the Other Investors or any of their respective Affiliates, in each case,
the identity of which is known to the Investor, (ii) the Company or (iii) the Company Subsidiaries, on the other hand.
(g)
Financial Capability. At the Closing, the Investor shall have available all funds necessary to consummate
the purchase of Common Stock on the terms and conditions contemplated by this Agreement.
(h)
Access to Information. The Investor acknowledges that it has been afforded (i) the opportunity to ask
such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and
conditions of the offering of the Common Stock and the merits and risks of investing in the Common Stock; (ii) access to information
about the Company and the Company Subsidiaries and their respective financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its investment; (iii) the opportunity to obtain such additional information
that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment
decision with respect to the Investment; and (iv) the opportunity to ask questions of management.
20
(i)
No Reliance. The Investor has not relied on any representation or warranty in connection with the
Investment other than those contained in this Agreement.
(j)
No Coordinated Acquisition. Except as Previously Disclosed, the Investor (i) reached its decision to
invest in the Common Stock independently from any other Person known by the Investor to be a potential investor in the Company,
other than any Affiliates of the Investor that are also investing in the Other Private Placements, (any such person, a “Potential
Investor”), (ii) is not affiliated with any other Potential Investor, (iii) is not advised or managed by an advisor or manager that advises
or manages any other Potential Investor, other than any Affiliates of the Investor that are also investing in the Other Private
Placements, (iv) has not entered into any agreement or understanding, whether written or not reduced to writing, with any other
Potential Investor to act in concert for the purpose of exercising a controlling influence over the Company or any Company
Subsidiaries, including, but not limited to, any agreements or understandings regarding the voting or transfer of shares of the
Company, (v) has not shared due diligence materials prepared by such Investor or any of its advisors or representatives with respect to
the Company or any Company Subsidiaries with any other Potential Investor, (vi) has not been induced, nor has induced any other
Potential Investor, to enter into the transactions contemplated by this Agreement by any other Potential Investor, (vii) was not notified
of or provided the opportunity to enter into the transactions contemplated by this Agreement pursuant to the terms of any agreement or
informal understanding with, or otherwise acting in concert with, any other Potential Investor and was not required by the terms of any
agreement or informal understanding to so notify any other Potential Investor, (viii) is not a party to any formal or informal
understanding with any other Potential Investor to make a coordinated acquisition of stock of the Company, and the investment
decision of the Investor is not based on the investment decision of any other Potential Investor, (ix) is not a party to any formal or
informal agreement or understanding concerning the appointment of any individual to the Board of Directors (other than as set forth in
the Side Letters, the CJA Letter Agreement and the NCIF Letter Agreement), (x) will not, by reason of the Investment, file, be
required to file, or be required to be included in a Schedule 13D or Schedule 13G pursuant to the United States federal securities laws,
(xi) has not engaged as part of a group consisting of substantially the same entities as the Potential Investors, in substantially the same
combination of interests, in any additional banking or nonbanking activities or business ventures in the United States and (xii) will not
pay any other Potential Investor any fee in connection with the transactions contemplated hereby. Except as Previously Disclosed, the
Investor does not presently hold any capital stock of the Company.
ARTICLE 3
COVENANTS
3.1
Conduct of Business Prior to Closing. Except as otherwise expressly required or contemplated by this Agreement
or applicable Law or in the performance of any Material Contract that was Previously Disclosed, or with the prior written consent of
the Investor, between the date of this Agreement and the Closing, the Company shall, and the Company shall cause each Company
Subsidiary to:
21
(a)
use commercially reasonable efforts to conduct its business only in the ordinary course of business; and
(b)
use commercially reasonable efforts to (i) preserve the present business operations, organization (including
officers and employees) and goodwill of the Company and any Company Subsidiary and (ii) preserve business relationships with
customers, suppliers, consultants and others having business dealings with the Company; provided, however, that nothing in this
clause (b) shall place any limit on the ability of the Board of Directors to act, or require any actions that the Board of Directors may, in
good faith, determine to be inconsistent with their duties or the Company’s obligations under applicable Law or imposed by any
Governmental Entity.
3.2
Confidentiality. The Investor acknowledges that the information being provided to it in connection with the
transactions contemplated hereby is subject to the terms of the Confidentiality Agreement heretofore entered into between Gapstow
and the Company (the “Confidentiality Agreement”), the terms of which are incorporated herein by reference, as if the Investor were
a party thereto.
3.3
Commercially Reasonable Efforts. Upon the terms and subject to the conditions herein provided, except as
otherwise provided in this Agreement, each of the parties hereto agrees to use its commercially reasonable efforts to take or cause to
be taken all action, to do or cause to be done and to assist and cooperate with the other parties hereto in doing all things necessary,
proper or advisable under applicable Laws to consummate and make effective the transactions contemplated hereby, including but not
limited to: (a) the satisfaction of the conditions precedent to the obligations of the parties hereto; (b) the obtaining of applicable
Governmental Consents, and consents, waivers and approvals of any other third parties; (c) defending of any claim, action, suit,
investigation or proceeding, whether judicial or administrative, challenging this Agreement or the performance of the obligations
hereunder; and (d) the execution and delivery of such instruments, and the taking of such other actions as the other parties hereto may
reasonably request in order to carry out the intent of this Agreement. Notwithstanding the foregoing, under no circumstances will the
Investor be required to disclose to the Company, the Company Subsidiaries or any third party any information the disclosure of which
is prohibited by Law, nor shall it be required to agree to any restrictions, conditions or commitments imposed or otherwise required by
any Government Entity that are determined by the Investor in its sole discretion to be unduly burdensome, other than customary
passivity commitments, in order to consummate and make effective the transactions contemplated hereby.
3.4
Legend.
(a)
The Investor agrees that all certificates or other instruments representing the Common Stock subject to this
Agreement shall bear a legend substantially to the following effect, until such time as they are not required under Section 3.4(b):
“THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR SECURITIES LAWS OF ANY STATE AND MAY NOT BE
TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF
22
EXCEPT WHILE A REGISTRATION STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH
ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT OR SUCH LAWS.”
(b)
Upon request of the Investor, the Company shall promptly cause such legend to be removed from any
certificate for any Common Stock to be so transferred if (i) such Common Stock is being transferred pursuant to a registration
statement in effect with respect to such transfer or (ii) such Common Stock is being transferred pursuant to an exemption from
registration under the Securities Act and applicable state laws subject to receipt by the Company of an opinion of counsel for the
Investor reasonably satisfactory to the Company to the effect that such legend is no longer required under the Securities Act and
applicable state laws. The Investor acknowledges that the Common Stock has not been registered under the Securities Act or under
any state securities laws and agrees that it shall not sell or otherwise dispose of any of the Common Stock, except in compliance with
the registration requirements or exemption provisions of the Securities Act and any other applicable securities laws.
3.5
Certain Other Transactions.
(a)
Prior to the Closing, notwithstanding anything in this Agreement to the contrary, the Company shall not
directly or indirectly effect or cause to be effected any transaction with a third party that would reasonably be expected to result in a
Change in Control unless such third party shall have provided prior assurance in writing to the Investor (in a form that is reasonably
satisfactory to the Investor) that the terms of this Agreement shall be fully performed (i) by the Company or (ii) by such third party if
it is the successor of the Company or if the Company is its direct or indirect Subsidiary. For the avoidance of doubt, it is understood
and agreed that, in the event that a Change in Control occurs on or prior to the Closing, the Investor shall maintain the right under this
Agreement to acquire, pursuant to the terms and conditions of this Agreement, the Common Stock that is to be purchased by the
Investor pursuant to this Agreement (or such other securities or property (including cash) into which the Common Stock that is to be
purchased by Investor pursuant to this Agreement may have become exchangeable as a result of such Change in Control), as if the
Closing had occurred immediately prior to such Change in Control.
(b)
In the event that, at or prior to the Closing, (i) the number of shares of Common Stock, or securities
convertible or exchangeable into or exercisable for shares of Common Stock, issued and outstanding is changed as a result of any
reclassification, stock split (including reverse split), stock dividend or distribution (including any dividend or distribution of securities
convertible or exchangeable into or exercisable for shares of Common Stock), merger, tender or exchange offer or other similar
transaction, or (ii) the Company fixes a record date that is at or prior to the Closing Date for the payment of any non-stock dividend or
distribution on the Common Stock, then the number of shares of Common Stock to be issued to the Investor at the Closing under this
Agreement, together with the applicable implied per share price, shall be equitably adjusted and/or the shares of Common Stock to be
issued to the Investor at the applicable Closing under this Agreement shall be equitably replaced with shares of other stock or
securities or property (including cash), in each case, to provide the Investor with substantially the same economic benefit from this
Agreement as the Investor had prior to the applicable
23
transaction. Notwithstanding anything in this Agreement to the contrary, in no event shall the Purchase Price or any component
thereof, or the aggregate percentage of shares to be purchased by the Investor, be changed by the foregoing.
(c)
Notwithstanding anything in the foregoing to the contrary, the provisions of this Section 3.5 shall not be
implicated by (i) the transactions contemplated by this Agreement or the Other Private Placements, or (ii) any issuances of options,
restricted stock units or other equity-based awards granted to newly-appointed directors, employees or consultants of the Company at
or around the same time as the transactions contemplated by this Agreement to such Persons, including upon exercise of any such
options.
3.6
Exchange Listing. The Company shall use its reasonable best efforts to cause the Common Stock to be issued
pursuant to this Agreement to be approved for listing on NASDAQ or such other market on which the Common Stock is then listed or
quoted, subject to official notice of issuance, as promptly as possible and in any event prior to the Closing.
3.7
Stockholders Meeting. Prior to the Closing Date, the Company shall give notice of and hold a meeting of its
stockholders in accordance with applicable law and the corporate governance rules of NASDAQ for the purpose of obtaining
stockholder approval of the sale of Common Stock by the Company pursuant to the Agreements to the extent required by
Sections 5635(c) and (d), and any other applicable provisions, of the NASDAQ Listing Rules and stockholder approval of the
amendment to Article FOURTH of the Company’s Certificate of Incorporation referred to in Section 2.2(d)(i). To the extent
permitted by the NASDAQ corporate governance rules, the Investor agrees to vote all shares of Common Stock that it owns or has the
power to direct the voting of for this purpose in favor of such amendment and such issuances.
3.8
Registration Rights.
(a)
Registration.
(i)
Subject to the terms and conditions of this Agreement, the Company covenants and agrees that
upon the expiration of ninety (90) days after the Closing Date (the “Filing Deadline”), the Company shall have
prepared and filed with the SEC one or more Shelf Registration Statements covering the resale of all of the
Registrable Securities (or, if permitted by the rules of the SEC, otherwise designated an existing Shelf Registration
Statement filed with the SEC to cover such Registrable Securities), and, to the extent the Shelf Registration
Statement has not theretofore been declared effective or is not automatically effective upon such filing, the
Company shall use reasonable best efforts to cause such Shelf Registration Statement to be declared or become
effective as soon as practicable (and in any event no later than the Effectiveness Deadline) and to keep such Shelf
Registration Statement continuously effective and in compliance with the Securities Act and usable for resale of
such Registrable Securities until the date that is 12 months after the initial effective date thereof (the “Registration
Termination Date”).
24
(ii)
Any registration pursuant to this Section 3.8(a) shall be effected by means of a shelf registration
under the Securities Act (a “Shelf Registration Statement”) in accordance with the methods and distribution set
forth in the Shelf Registration Statement and Rule 415.
(b)
Expenses of Registration. All Registration Expenses incurred in connection with any registration,
qualification or compliance hereunder shall be borne by the Company. All Selling Expenses incurred in connection with any
registrations hereunder shall be borne by the Holders selling in such registration pro rata on the basis of the aggregate number of
securities or shares being sold.
(c)
Obligations of the Company. The Company shall use its reasonable best efforts, for so long as there are
Registrable Securities outstanding, to take such actions as are under its control to not become an ineligible issuer (as defined in
Rule 405 under the Securities Act). In addition, whenever required to effect the registration of any Registrable Securities or facilitate
the distribution of Registrable Securities pursuant to an effective Shelf Registration Statement, the Company shall, as expeditiously as
reasonably practicable:
(i)
Prepare and file with the SEC a prospectus supplement with respect to a proposed offering of
Registrable Securities pursuant to an effective registration statement and, subject to this Section 3.8(c), keep such
registration statement effective or such prospectus supplement current.
(ii)
Prepare and file with the SEC such amendments and supplements to the applicable registration
statement and the prospectus or prospectus supplement used in connection with such registration statement as may
be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities
covered by such registration statement.
(iii)
Furnish to the Holders such number of correct and complete copies of the applicable registration
statement and each such amendment and supplement thereto (including in each case all exhibits) and of a
prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such
other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned
or to be distributed by them.
(iv)
Use its reasonable best efforts to register and qualify the securities covered by such registration
statement under such other securities or blue sky Laws of such jurisdictions as shall be reasonably requested by the
Holders, to keep such registration or qualification in effect for so long as such registration statement remains in
effect, and to take any other action which may be reasonably necessary to enable such seller to consummate the
disposition in such jurisdictions of the securities owned by such Holder; provided, that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
25
(v)
Notify each Holder of Registrable Securities at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event as a result of which the applicable
prospectus, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then
existing (which notice shall not contain any material non-public information).
(vi)
information):
Give written notice to the Holders (which notice shall not contain any material, non-public
(A)
when any registration statement filed pursuant to Section 3.8(a) or any amendment
thereto has been filed with the SEC (except for any amendment effected by the filing of a document with
the SEC pursuant to the Exchange Act) and when such registration statement or any post-effective
amendment thereto has become effective;
(B)
of any request by the SEC for amendments or supplements to any registration statement
or the prospectus included therein or for additional information;
(C)
of the issuance by the SEC of any stop order suspending the effectiveness of any
registration statement or the initiation of any proceedings for that purpose;
(D)
of the receipt by the Company or its legal counsel of any notification with respect to the
suspension of the qualification of the Common Stock for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and
(E)
of the happening of any event that requires the Company to make changes in any
effective registration statement or the prospectus related to the registration statement in order to make the
statements therein not misleading (which notice shall be accompanied by an instruction to suspend the use
of the prospectus until the requisite changes have been made).
(vii)
Use its reasonable best efforts to prevent the issuance or obtain the withdrawal of any order
suspending the effectiveness of any registration statement referred to in Section 3.8(c)(vi)(C) at the earliest
practicable time.
(viii)
Upon the occurrence of any event contemplated by Section 3.8(c)(v) or 3.8(c)(vi)(E) and subject
to the Company’s rights under Section 3.8(d), promptly prepare a post-effective amendment to such registration
statement or a supplement to the related prospectus or file any other required document so that, as thereafter
delivered to the Holders, the prospectus shall not contain an untrue statement of a material fact or omit to state any
material fact
26
necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
(ix)
Cause all such Registrable Securities to be listed on each securities exchange on which the same
class of securities issued by the Company are then listed or, if the same class of securities is not then listed on any
securities exchange, use its reasonable best efforts to cause all such Registrable Securities of such class to be listed
on the NASDAQ Capital Market.
(x)
If requested by Holders of a majority of the Registrable Securities being registered and/or sold in
connection therewith, promptly include in a prospectus supplement or amendment such information as the Holders
of a majority of the Registrable Securities being registered and/or sold in connection therewith may reasonably
request in order to permit the intended method of distribution of such securities and make all required filings of such
prospectus supplement or such amendment as soon as practicable after the Company has received such request.
(xi)
Timely provide to its security holders earnings statements satisfying the provisions of Section 9
(a) of the Securities Act and Rule 158 thereunder.
(d)
Suspension of Sales. Upon receipt of written notice from the Company that a registration statement,
prospectus or prospectus supplement contains or may contain an untrue statement of a material fact or omits or may omit to state a
material fact required to be stated therein or necessary to make the statements therein not misleading or that circumstances exist that
make use of such registration statement, prospectus or prospectus supplement inadvisable, each Holder of Registrable Securities shall
forthwith discontinue disposition of Registrable Securities pursuant to such registration statement until such Holder has received
copies of a supplemented or amended prospectus or prospectus supplement, or until such Holder is advised in writing by the Company
that the use of the prospectus and, if applicable, prospectus supplement may be resumed, and, if so directed by the Company, such
Holder shall deliver to the Company (at the Company’s expense) all copies, other than permanent file copies then in such Holder’s
possession, of the prospectus and, if applicable, prospectus supplement covering such Registrable Securities current at the time of
receipt of such notice (each such suspension, a “Suspension Period”). No single Suspension Period shall exceed forty-five (45)
consecutive days and the aggregate of all Suspension Periods shall not exceed one hundred twenty (120) days during any twelve (12)
month period.
(e)
Termination of Registration Rights. A Holder’s registration rights as to any securities held by such
Holder (and its Affiliates, partners, members and former members) shall not be available unless such securities are Registrable
Securities.
27
(f)
Furnishing Information.
(i)
Neither the Investor nor any Holder shall use any free writing prospectus (as defined in Rule 405)
in connection with the sale of Registrable Securities without the prior written consent of the Company.
(ii)
It shall be a condition precedent to the obligations of the Company to take any action pursuant to
Section 3.8(c) as to a selling Holder that such selling Holder shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them and the intended method of disposition of such
securities as shall be required to effect the registered offering of their Registrable Securities.
(g)
Indemnification.
(i)
The Company agrees to indemnify each Holder and, if a Holder is a person other than an
individual, such Holder’s officers, directors, employees, agents, representatives and Affiliates, and each Person, if
any, that controls a Holder within the meaning of the Securities Act (each, an “Indemnitee”), against any and all
Losses, joint or several, arising out of or based upon any untrue statement or alleged untrue statement of material
fact contained in any registration statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto or any documents incorporated therein by reference or contained
in any free writing prospectus (as such term is defined in Rule 405) prepared by the Company or authorized by it in
writing for use by such Holder (or any amendment or supplement thereto), or any omission to state therein 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; provided, that the Company shall not be liable to such Indemnitee in
any such case to the extent that any such Loss is based solely upon (i) an untrue statement or omission made in such
registration statement, including any such preliminary prospectus or final prospectus contained therein or any such
amendments or supplements thereto or contained in any free writing prospectus (as such term is defined in
Rule 405) prepared by the Company or authorized by it in writing for use by such Holder (or any amendment or
supplement thereto), in reliance upon and in conformity with information regarding such Indemnitee or its plan of
distribution or ownership interests which was furnished in writing to the Company by such Indemnitee expressly for
use in connection with such registration statement, including any such preliminary prospectus or final prospectus
contained therein or any such amendments or supplements thereto, or (ii) offers or sales effected by or on behalf
such Indemnitee “by means of” (as defined in Rule 159A) a “free writing prospectus” (as defined in Rule 405) that
was not authorized in writing by the Company. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of an Indemnitee and shall survive the transfer of the Registrable Securities
by the Holders.
28
(ii)
If any proceeding shall be brought or asserted against any Indemnitee, such Indemnitee shall
promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof,
including the employment of counsel reasonably satisfactory to the Indemnitee and the payment of all reasonable
fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnitee to give
such notice shall not relieve the Company of its obligations or liabilities pursuant to this Agreement, except to the
extent that the Company is materially and adversely prejudiced in its ability to defend such action. An Indemnitee
shall have the right to employ separate counsel in any such proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such Indemnitee or Indemnitees unless: (1) the
Company has agreed in writing to pay such fees and expenses; (2) the Company shall have failed promptly to
assume the defense of such proceeding and to employ counsel reasonably satisfactory to such Indemnitee in any
such proceeding; or (3) the named parties to any such proceeding (including any impleaded parties) include both
such Indemnitee and the Company, and such Indemnitee shall have been advised by counsel that a conflict of
interest exists if the same counsel were to represent such Indemnitee and the Company; provided, that the Company
shall not be liable for the fees and expenses of more than one separate firm of attorneys at any time for all
Indemnitees and all similarly situated Persons who are “Indemnitees” as defined in the other Agreements. The
Company shall not be liable for any settlement of any such proceeding effected without its written consent, which
consent shall not be unreasonably withheld or delayed. The Company shall not, without the prior written consent of
the Indemnitee, effect any settlement of any pending proceeding in respect of which any Indemnitee is a party,
unless such settlement includes an unconditional release of such Indemnitee from all liability on claims that are the
subject matter of such proceeding. Subject to the terms of this Agreement, all fees and expenses of the Indemnitee
(including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to
defend such proceeding in a manner not inconsistent with this Section 3.8(g)(ii)) shall be paid to the Indemnitee, as
incurred, within thirty (30) days of written notice thereof to the Company; provided, that the Indemnitee shall
promptly reimburse the Company for that portion of such fees and expenses applicable to such actions for which
such Indemnitee is finally judicially determined to not be entitled to indemnification hereunder).
(iii)
If the indemnification provided for in Section 3.8(g)(i) is unavailable to an Indemnitee with
respect to any Losses, then the Company, in lieu of indemnifying such Indemnitee, shall contribute to the amount
paid or payable by such Indemnitee as a result of such Losses in such proportion as is appropriate to reflect the
relative fault of the Indemnitee, on the one hand, and the Company, on the other hand, in connection with the
statements or omissions which resulted in such Losses as well as any other relevant equitable considerations. The
relative fault of the Company, on the one hand, and of the Indemnitee, on the other hand, shall be determined by
reference to, among other factors, whether the untrue statement of a material fact or omission to state a
29
material fact relates to information supplied by the Company or by the Indemnitee and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent such statement or omission; the Company
and each Holder agree that it would not be just and equitable if contribution pursuant to this Section 3.8(g)(iii) were
determined by pro rata allocation or by any other method of allocation that does not take account of the equitable
considerations referred to in Section 3.8(g)(i). No Indemnitee guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from the Company if the Company
was not guilty of such fraudulent misrepresentation.
(iv)
The indemnity and contribution agreements contained in this Section 3.8(g) are in addition to any
liability that the Company may have to the Indemnitees and are not in diminution or limitation of the
indemnification provisions under Article 5 of this Agreement.
(h)
Assignment of Registration Rights. The rights of the Investor to registration of Registrable Securities
pursuant to Section 3.8(a) may be assigned by the Investor to a transferee or assignee of Registrable Securities to which (i) there is
transferred to such transferee no less than $1 million in Registrable Securities or all of the Registrable Securities held by the Investor
and (ii) such transfer is permitted under the terms hereof; provided, however, that the transferor shall, within ten (10) days after such
transfer, furnish to the Company written notice of the name and address of such transferee or assignee and the number and type of
Registrable Securities that are being assigned.
(i)
Rule 144 Reporting. With a view to making available to the Investor and Holders the benefits of certain
rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the
Company agrees to use its reasonable best efforts to:
(i)
make and keep adequate current public information with respect to the Company available, as
those terms are understood and defined in Rule 144(c)(1) or any similar or analogous rule promulgated under the
Securities Act, at all times after the effective date of this Agreement;
(ii)
so long as the Investor or a Holder owns any Registrable Securities, furnish to the Investor or such
Holder forthwith upon request: (A) a written statement by the Company as to its compliance with the reporting
requirements of Rule 144 under the Securities Act, and of the Exchange Act; (B) a copy of the most recent annual or
quarterly report of the Company; and (C) such other reports and documents as the Investor or Holder may
reasonably request in availing itself of any rule or regulation of the SEC allowing it to sell any such securities
without registration; and
(iii)
to take such further action as any Holder may reasonably request, all to the extent required from
time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act.
30
(j)
As used in this Section 3.8, the following terms shall have the following respective meanings:
(i)
“Effective Date” means the date that the Shelf Registration Statement filed pursuant to
Section 3.8(a)(i) is first declared effective by the SEC.
(ii)
“Effectiveness Deadline” means, with respect to the Shelf Registration Statement required to be
filed pursuant to Section 3.8(a)(i), the earlier of (i) the 90th calendar day following the Filing Deadline and (ii) the
5th Business Day after the date the Company is notified (orally or in writing, whichever is earlier) by the SEC that
such Shelf Registration Statement will not be “reviewed” or will not be subject to further review; provided, that if
the Effectiveness Deadline falls on a Saturday, Sunday or other day that the SEC is closed for business, the
Effectiveness Deadline shall be extended to the next Business Day on which the SEC is open for business.
(iii)
“Holder” means the Investor and any other holder of Registrable Securities to whom the
registration rights conferred by this Agreement have been transferred in compliance with Section 3.8(h) hereof.
(iv)
“Register,” “registered” and “registration” shall refer to a registration effected by preparing and
(A) filing a registration statement in compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of effectiveness of such registration statement or (B) filing a prospectus
and/or prospectus supplement in respect of an appropriate effective registration statement.
(v)
“Registrable Securities” means (A) all Common Stock purchased by the Investor pursuant to this
Agreement and (B) any equity securities issued or issuable directly or indirectly with respect to the securities
referred to in clause (A) by way of conversion, exercise or exchange thereof or stock dividend or stock split or in
connection with a combination of shares, recapitalization, reclassification, merger, amalgamation, arrangement,
consolidation or other reorganization, provided that, once issued, such securities shall not be Registrable Securities
after (1) they are sold pursuant to an effective registration statement under the Securities Act, (2) they may be sold
pursuant to Rule 144 without limitation thereunder on volume or manner of sale and without the requirement for the
Company to be in compliance with the current public information required under Rule 144(e)(1) (or Rule 144(i)(2),
if applicable), (3) they have ceased to be outstanding or (4) they have been sold in a private transaction in which the
transferor’s rights under this Agreement are not permitted by this Agreement to be assigned to the transferee of the
securities. No Registrable Securities may be registered under more than one registration statement at one time.
(vi)
“Registration Expenses” means all expenses incurred by the Company in effecting any
registration pursuant to this Agreement (whether or not any registration or prospectus becomes effective or final) or
otherwise complying
31
with its obligations under this Section 3.8, including, without limitation, all registration, filing and listing fees,
printing expenses, fees and disbursements of counsel for the Company and blue sky fees and expenses, but shall not
include Selling Expenses and the compensation of regular employees of the Company, which shall be paid in any
event by the Company.
(vii)
“Rule 158,” “Rule 159A,” “Rule 405” and “Rule 415” mean, in each case, such rule promulgated
under the Securities Act (or any successor provision), as the same shall be amended from time to time.
(viii)
“Selling Expenses” means all discounts, selling commissions and stock transfer taxes applicable
to the sale of Registrable Securities and fees and disbursements of counsel for any Holder.
(k)
On or prior to the Acceptance Date, the Investor shall furnish to the Company a fully completed Selling
Shareholder Questionnaire in the form attached as Appendix I hereto for use in the preparation of the Registration Statement and all of
the information contained therein will be true and correct as of the Closing Date.
ARTICLE 4
TERMINATION
4.1
Termination. This Agreement may be terminated prior to the Closing:
(a)
by mutual written agreement of the Company and the Investor;
(b)
by any party, upon written notice to the other party, in the event that the Closing does not occur on or
before December 31, 2014; provided, however, that the right to terminate this Agreement pursuant to this Section 4.1(b) shall not be
available to any party whose failure to fulfill any obligation under this Agreement shall have been the cause of, or shall have resulted
in, the failure of the Closing to occur on or prior to such date;
(c)
by the Investor, upon written notice to the Company, if (i) there has been a breach of any representation,
warranty, covenant or agreement made by the Company in this Agreement, or any such representation and warranty shall have
become untrue after the date of this Agreement, such that Section 1.2(c)(ii)(A) would not be satisfied and (ii) such breach or condition
is not curable or, if curable, is not cured prior to the date that would otherwise be the Closing Date in absence of such breach or
condition; provided that this Section 4.1(c) shall only apply if the Investor is not in material breach of any of the terms of this
Agreement;
(d)
by the Company, upon written notice to the Investor, if (i) there has been a breach of any representation,
warranty, covenant or agreement made by the Investor in this Agreement, or any such representation and warranty shall have become
untrue after the date of this Agreement, such that Section 1.2(c)(iii)(A) would not be satisfied and (ii) such breach or condition is not
curable or, if curable, is not cured prior to the date that would otherwise be the Closing Date in absence of such breach or condition;
provided that this Section 4.1(d) shall only apply if the Company is not in material breach of any of the terms of this Agreement; or
32
(e)
by any party, upon written notice to the other parties, in the event that any Governmental Entity shall have
issued any order, decree or injunction or taken any other action restraining, enjoining or prohibiting any of the transactions
contemplated by this Agreement, and such order, decree, injunction or other action shall have become final and nonappealable.
4.2
Effects of Termination. In the event of any termination of this Agreement as provided in Section 4.1, this
Agreement (other than Section 3.2, this Article 4 and Article 6 of this Agreement, which shall remain in full force and effect) shall
forthwith become wholly void and of no further force and effect; provided that nothing herein shall relieve any party from liability for
fraud or willful breach of this Agreement.
ARTICLE 5
INDEMNITY
5.1
Indemnification by the Company.
(a)
After the Closing, and subject to Sections 5.1(b), 5.3 and 5.4, the Company shall indemnify, defend and
hold harmless to the fullest extent permitted by Law the Investor and its Affiliates, and their successors and assigns, officers, directors,
partners, members and employees, as applicable, (the “Investor Indemnified Parties”) against, and reimburse any of the Investor
Indemnified Parties for, all Losses that any of the Investor Indemnified Parties may at any time suffer or incur, or become subject to,
as a result of or in connection with (1) the inaccuracy or breach of any representation or warranty made by the Company in this
Agreement or any certificate delivered pursuant hereto or (2) any breach or failure by the Company to perform any of its covenants or
agreements contained in this Agreement. Notwithstanding anything herein to the contrary, the obligations of the Company under this
Section 5.1(a) shall not be applicable to or inure to the benefit of any transferee of the Common Stock sold pursuant to this Agreement
who is not an Affiliate of the Investor.
(b)
Notwithstanding anything to the contrary contained herein, the Company shall not be required to
indemnify, defend or hold harmless any of the Investor Indemnified Parties against, or reimburse any of the Investor Indemnified
Parties for, any Losses pursuant to Section 5.1(a)(1) (other than Losses arising out of the inaccuracy or breach of any Company
Specified Representations) until the aggregate amount of the Investor Indemnified Parties’ Losses for which the Investor Indemnified
Parties are finally determined to be otherwise entitled to indemnification under Section 5.1(a) exceeds $100,000 (the “Deductible”),
after which the Company shall be obligated for all of the Investor Indemnified Parties’ Losses for which the Investor Indemnified
Parties are finally determined to be otherwise entitled to indemnification under Section 5.1(a)(1) that are in excess of the Deductible.
Notwithstanding anything to the contrary contained herein, the Company shall not be required to indemnify, defend or hold harmless
the Investor Indemnified Parties against, or reimburse the Investor Indemnified Parties for, any Losses pursuant to Section 5.1(a)(1) in
a cumulative aggregate amount exceeding the aggregate purchase price paid by the Investor to the Company pursuant to Section 1.1
(other than Losses arising out of the inaccuracy or breach of any Company Specified Representations).
33
(c)
For purposes of Section 5.1(a), in determining whether there has been a breach of a representation or
warranty, the parties hereto shall ignore any “materiality,” “Material Adverse Effect” or similar qualifications.
5.2
Indemnification by the Investor.
(a)
After the Closing, and subject to Sections 5.2(b), 5.3 and 5.4, the Investor shall indemnify, defend and hold
harmless to the fullest extent permitted by Law the Company, the Placement Agent and their respective Affiliates and their respective
successors and assigns, officers, directors, partners, members and employees (collectively, the “Company Indemnified Parties”)
against, and reimburse any of the Company Indemnified Parties for, all Losses that the Company Indemnified Parties may at any time
suffer or incur, or become subject to, as a result of or in connection with (1) the inaccuracy or breach of any representation or warranty
made by the Investor in this Agreement or any certificate delivered pursuant hereto or (2) any breach or failure by such Investor to
perform any of its covenants or agreements contained in this Agreement.
(b)
Notwithstanding anything to the contrary contained herein, the Investor shall not be required to indemnify,
defend or hold harmless any of the Company Indemnified Parties against, or reimburse any of the Company Indemnified Parties for
any Losses pursuant to Section 5.2(a)(1) (other than Losses arising out of the inaccuracy or breach of any Investor Specified
Representations) until the aggregate amount of the Company Indemnified Parties’ Losses for which the Company Indemnified Parties
are finally determined to be otherwise entitled to indemnification under Section 5.2(a) exceeds the Deductible, after which the Investor
shall be obligated for all of the Company Indemnified Parties’ Losses for which the Company Indemnified Parties are finally
determined to be otherwise entitled to indemnification under Section 5.2(a)(1) that are in excess of such Deductible. Notwithstanding
anything to the contrary contained herein, the Investor shall not be required to indemnify, defend or hold harmless the Company
Indemnified Parties against, or reimburse the Company Indemnified Parties for, any Losses pursuant to Section 5.2(a)(1) in a
cumulative aggregate amount exceeding the aggregate purchase paid by the Investor to the Company pursuant to Section 1.1 hereof
(other than Losses arising out of the inaccuracy or breach of any of the Investor Specified Representations).
(c)
For purposes of Section 5.2(a), in determining whether there has been a breach of a representation or
warranty, the parties hereto shall ignore any “materiality” or similar qualifications.
5.3
Notification of Claims.
(a)
Any Person that may be entitled to be indemnified under this Article 5 (the “Indemnified Party”) shall
promptly notify the party or parties liable for such indemnification (the “Indemnifying Party”) in writing of any claim in respect of
which indemnity may be sought hereunder, including any pending or threatened claim or demand by a third party that the Indemnified
Party has determined has given or could reasonably give rise to a right of indemnification under this Agreement (including a pending
or threatened claim or demand asserted by a third party against the Indemnified Party) (each, a “Third Party Claim”), describing in
reasonable detail the facts and circumstances with respect to the subject matter of
34
such claim or demand; provided, however, that the failure to provide such notice shall not release the Indemnifying Party from any of
its obligations under this Agreement except to the extent that the Indemnifying Party is materially prejudiced by such failure. The
parties agree that notices for claims in respect of a breach of a representation, warranty, covenant or agreement must be delivered prior
to the expiration of any applicable survival period specified in Section 6.1 for such representation, warranty, covenant or agreement;
provided, that if, prior to such applicable date, a party hereto shall have notified the other parties hereto in accordance with the
requirements of this Section 5.3(a) of a claim for indemnification under this Agreement (whether or not formal legal action shall have
been commenced based upon such claim), such claim shall continue to be subject to indemnification in accordance with this
Agreement notwithstanding the passing of such applicable date.
(b)
Upon receipt of a notice of a claim for indemnity from an Indemnified Party pursuant to Section 5.3(a) in
respect of a Third Party Claim, the Indemnifying Party may, by notice to the Indemnified Party delivered within twenty (20) Business
Days of the receipt of notice of such Third Party Claim, assume the defense and control of any Third Party Claim, with its own
counsel reasonably acceptable to the Indemnified Party and at its own expense. The Indemnified Party shall have the right to employ
counsel on its own behalf for, and otherwise participate in the defense of, any such Third Party Claim, but the fees and expenses of its
counsel will be at its own expense unless (A) the employment of counsel by the Indemnified Party at the Indemnifying Party’s
expense has been authorized in writing by the Indemnifying Party, as applicable, (B) the Indemnified Party reasonably believes there
may be a conflict of interest between the Indemnified Party and the Indemnifying Party in the conduct of the defense of such Third
Party Claim, (C) the Indemnified Party reasonably believes there are legal defenses available to it that are different from, additional to
or inconsistent with those available to the Indemnifying Party, or (D) the Indemnifying Party has not in fact employed counsel to
assume the defense of such Third Party Claim within a reasonable time after receipt of notice of the commencement of such Third
Party Claim, in each of which cases the fees and expenses of such Indemnified Party’s counsel shall be at the expense of the
Indemnifying Party; provided, however, that in the event any Investor Indemnified Party is similarly situated with any other “Investor
Indemnified Party” under any of the other Agreements with respect to any Third Party Claim, and does not have any conflict of
interest with such Person in the conduct of the defense of such Third Party Claim or have legal defenses available to it that are
different from, additional to or inconsistent with those available to such Person, such Investor Indemnified Party shall be required to
employ the same counsel as such Person and the Company shall be responsible for the fees and expenses of only one such counsel for
such Investor Indemnified Party and such other Person or Persons (assuming any of clauses (A) through (D) is satisfied). The
Indemnified Party may take any actions reasonably necessary to defend such Third Party Claim prior to the time that it receives a
notice from the Indemnifying Party as contemplated by the immediately preceding sentence. The Indemnified Party shall, and shall
cause each of their Affiliates and representatives to, use reasonable best efforts to cooperate with the Indemnifying Party in the
defense of any Third Party Claim. The Indemnifying Party shall not, without the prior written consent of the Indemnified Party
(which shall not be unreasonably withheld), consent to a settlement, compromise or discharge of, or the entry of any judgment arising
from, any Third Party Claim, unless such settlement, compromise, discharge or entry of any judgment does not involve any statement,
finding or admission of any fault, culpability, failure to act, violation of Law or admission of any wrongdoing by or on behalf of the
Indemnified Party, and the
35
Indemnifying Party shall (i) pay or cause to be paid all amounts arising out of such settlement or judgment concurrently with the
effectiveness of such settlement or judgment (unless otherwise provided in such judgment), (ii) not encumber any of the assets of any
Indemnified Party or agree to any restriction or condition that would apply to or materially adversely affect any Indemnified Party or
the conduct of any Indemnified Party’s business and (iii) obtain, as a condition of any settlement, compromise, discharge, entry of
judgment (if applicable), or other resolution, a complete and unconditional release of each Indemnified Party in form and substance
reasonably satisfactory to such Indemnified Party from any and all liabilities in respect of such Third Party Claim. An Indemnified
Party shall not settle, compromise or consent to the entry of any judgment with respect to any claim or demand for which it is seeking
indemnification from the Indemnifying Party or admit to any liability with respect to such claim or demand without the prior written
consent of the Indemnifying Party (which consent shall not be unreasonably withheld or delayed); provided that such consent shall not
be required if the Indemnifying Party has not fulfilled any material obligations under this Section 5.3(b).
(c)
In the event any Indemnifying Party receives a notice of a claim for indemnity from an Indemnified Party
pursuant to Section 5.3(a) that does not involve a Third Party Claim, the Indemnifying Party shall notify the Indemnified Party within
twenty (20) Business Days following its receipt of such notice whether the Indemnifying Party disputes its liability to the Indemnified
Party under this Agreement. The Indemnified Party shall reasonably cooperate with and assist the Indemnifying Party in determining
the validity of any such claim for indemnity by the Indemnified Party.
5.4
Indemnification Payment. In the event a claim or any Action for indemnification hereunder has been finally
determined, the amount of such final determination shall be paid by the Indemnifying Party to the Indemnified Party on demand in
immediately available funds; provided, however, that any reasonable and documented out-of-pocket expenses incurred by the
Indemnified Party as a result of such claim or Action shall be reimbursed promptly by the Indemnifying Party upon receipt of an
invoice describing such costs incurred by the Indemnified Party. A claim or an Action, and the liability for and amount of damages
therefor, shall be deemed to be “finally determined” for purposes of this Agreement when the parties hereto have so determined by
mutual agreement or, if disputed, when a final non-appealable judicial order has been entered into with respect to such claim or
Action.
5.5
Exclusive Remedies. Each party hereto acknowledges and agrees that following the Closing, the indemnification
provisions hereunder shall be the sole and exclusive remedies of the parties hereto for any breach of the representations, warranties or
covenants contained in the this Agreement. No investigation of the Company by the Investor, or of the Investor by the Company,
whether prior to or after the date of this Agreement, shall limit any Indemnified Party’s exercise of any right hereunder or be deemed
to be a waiver of any such right. The parties agree that any indemnification payment made pursuant to this Agreement shall be treated
as an adjustment to the Purchase Price for Tax purposes, unless otherwise required by Law.
36
ARTICLE 6
MISCELLANEOUS
6.1
Survival. The representations and warranties of the parties hereto contained in this Agreement shall survive in full
force and effect until the date that is fifteen (15) months after the Closing Date (or until final resolution of any claim or action arising
from the breach of any such representation and warranty, if notice of such breach was provided prior to the end of such period), at
which time they shall terminate and no claims shall be made for indemnification under Section 5.1 or Section 5.2, as applicable, for
breaches of representations or warranties thereafter, except the Company Specified Representations (other than the representations and
warranties made in Section 2.2(x), which shall survive until the expiration of the applicable statute of limitations) and the Investor
Specified Representations shall survive the Closing indefinitely. The covenants and agreements set forth in this Agreement shall
survive until the earliest of the duration of any applicable statute of limitations or until performed or no longer operative in accordance
with their respective terms.
6.2
Other Definitions. Wherever required by the context of this Agreement, the singular shall include the plural and
vice versa, and the masculine gender shall include the feminine and neuter genders and vice versa, and references to any agreement,
document or instrument shall be deemed to refer to such agreement, document or instrument as amended, supplemented or modified
from time to time. In addition, the following terms shall have the meanings assigned to them below:
(a)
the term “Affiliate” means, with respect to any Person, any Person directly or indirectly controlling,
controlled by or under common control with, such other Person provided that no security holder of the Company shall be deemed to
be an Affiliate of any other security holder or of the Company or any of the Company Subsidiaries solely by reason of any investment
in the Company and, for purposes of this definition, “control” (including, with correlative meanings, the terms “controlling”,
“controlled by” and “under common control with”) when used with respect to any Person, means the possession, directly or
indirectly, of the power to cause the direction of management or policies of such Person, whether through the ownership of voting
securities by contract or otherwise;
(b)
the term “Agency” means the Federal Housing Administration, the Federal Home Loan Mortgage
Corporation, the Farmers Home Administration (now known as Rural Housing and Community Development Services), the Federal
National Mortgage Association, the United States Department of Veterans’ Affairs, the Rural Housing Service of the U.S. Department
of Agriculture or any other federal or state agency with authority to (i) determine any investment, origination, lending or servicing
requirements with regard to mortgage loans originated, purchased or serviced by the Company or (ii) originate, purchase, or service
mortgage loans, or otherwise promote mortgage lending, including state and local housing finance authorities;
(c)
the term “Board of Directors” means the Board of Directors of the Company;
37
(d)
the term “Business Day” means any day except Saturday, Sunday and any day which shall be a legal
holiday or a day on which banking institutions in the State of New York or in the State of California generally are authorized or
required by Law or other governmental actions to close;
(e)
the term “Capital Stock” means the capital stock or other applicable type of equity interest in a Person;
(f)
the term “Change in Control” means, with respect to the Company, that any Person, other than the
Investors and their Affiliates, becomes a beneficial owner (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange
Act) directly or indirectly, of twenty percent (20%) of the aggregate voting power of the Voting Securities.
(g)
the term “Code” means the Internal Revenue Code of 1986, as amended;
(h)
the term “Company Specified Representations” means the representations and warranties made in
Section 2.2(a), Section 2.2(c), Section 2.2(d)(i) and Section 2.2(z);
(i)
the term “Disclosure Schedule” shall mean a schedule delivered, on or prior to the date of this Agreement,
by (i) the Investor to the Company and (ii) the Company to the Investor setting forth, among other things, items the disclosure of
which is necessary or appropriate either in response to an express disclosure requirement contained in a provision hereof or as an
exception to one or more representations or warranties contained in Section 2.2 with respect to the Company, or in Section 2.3 with
respect to the Investor, or to one or more covenants contained in Article 3;
(j)
from time to time;
the term “GAAP” means United States generally accepted accounting principles and practices as in effect
(k)
the term “Governmental Consent” means any notice to, registration, declaration or filing with, exemption
or review by, or authorization, order, consent or approval of, any Governmental Entity, or the expiration or termination of any
statutory waiting periods;
(l)
the term “Governmental Entity” means any court, administrative agency or commission or other
governmental authority or instrumentality, whether federal, state, local or foreign, and any applicable industry self-regulatory
organization or securities exchange;
(m)
the term “Insurer” means a Person who insures or guarantees for the benefit of the mortgagee all or any
portion of the risk of loss upon borrower default on any of the mortgage loans originated, purchased or serviced by the Bank,
including the Federal Housing Administration, the United States Department of Veterans’ Affairs, the Rural Housing Service of the
U.S. Department of Agriculture and any private mortgage insurer, and providers of hazard, title or other insurance with respect to such
mortgage loans or the related collateral;
(n)
the term “Investor Specified Representations” means the representations and warranties made in
Section 2.3(b)(i), Section 2.3(d) and Section 2.3(e);
38
(o)
the term “Knowledge” of the Company and words of similar import mean the knowledge of any directors
or executive officers of the Company listed on the Disclosure Schedule hereto;
(p)
the term “Loan Investor” means any Person (including an Agency) having a beneficial interest in any
mortgage loan originated, purchased or serviced by the Bank or a security backed by or representing an interest in any such mortgage
loan;
(q)
the term “Losses” means any and all losses, damages, reasonable costs, reasonable expenses (including
reasonable attorneys’ fees and disbursements), liabilities, settlement payments, awards, judgments, fines, obligations, claims, and
deficiencies of any kind, excluding special, consequential, exemplary and punitive damages;
(r)
the term “Person” means any individual, firm, corporation, partnership, trust, incorporated or
unincorporated association, joint venture, joint stock company, limited liability company, Governmental Entity or other entity of any
kind, and shall include any successor (by merger or otherwise) of such entity;
(s)
the term “Subsidiary” means, with respect to any Person, any corporation, partnership, joint venture,
limited liability company or other entity (x) of which such Person or a Subsidiary of such Person is a general partner or (y) of which a
majority of the voting securities or other voting interests, or a majority of the securities or other interests of which having by their
terms ordinary voting power to elect a majority of the board of directors or persons performing similar functions with respect to such
entity, is directly or indirectly owned by such Person and/or one or more Subsidiaries thereof;
(t)
the term “Tax” or “Taxes” means all United States federal, state, local or foreign income, profits,
estimated, gross receipts, windfall profits, severance, property, intangible property, occupation, production, sales, use, license, excise,
emergency excise, franchise, capital gains, capital stock, employment, withholding, transfer, stamp, payroll, goods and services, value
added, alternative or add-on minimum tax, or any other tax, custom, duty or governmental fee, or other like assessment or charge of
any kind whatsoever, together with any interest, penalties, fines, related liabilities or additions to tax that may become payable in
respect thereof imposed by any Governmental Entity, whether or not disputed;
(u)
the term “Tax Return” means any return, declaration, report or similar statement required to be filed with
respect to any Taxes (including any attached schedules), including, without limitation, any information return, claim or refund,
amended return and declaration of estimated Tax;
(v)
the term “Voting Securities” means at any time shares of any class of Capital Stock of the Company that
are then entitled to vote generally in the election of directors;
(w)
(x)
“without limitation”;
the word “or” is not exclusive;
the words “including,” “includes,” “included” and “include” are deemed to be followed by the words
39
(y)
the terms “herein,” “hereof” and “hereunder” and other words of similar import refer to this Agreement
as a whole and not to any particular section, paragraph or subdivision; and
(z)
all article, section, paragraph or clause references not attributed to a particular document shall be references
to such parts of this Agreement, and all exhibit and schedule references not attributed to a particular document shall be references to
such exhibits and schedules to this Agreement.
6.3
Amendment and Waivers. The conditions to each party’s obligation to consummate the Closing are for the sole
benefit of such party and may be waived by such party in whole or in part to the extent permitted by Law. No amendment or waiver
of any provision of this Agreement will be effective against any party hereto unless it is in a writing signed by a duly authorized
officer of such party.
6.4
Counterparts and Facsimile. For the convenience of the parties hereto, this Agreement may be executed in any
number of separate counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts will
together constitute the same agreement. Executed signature pages to this Agreement may be delivered by facsimile or other electronic
transmission and such transmitted copies shall be deemed as sufficient as if manually signed signature pages had been delivered.
6.5
Governing Law. This Agreement will be governed by and construed in accordance with the Laws of the State of
New York applicable to contracts made and to be performed entirely within such State.
6.6
Jurisdiction. The parties hereby agree that any suit, action or proceeding seeking to enforce any provision of, or
based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby shall be brought in
the United States District Court for the Southern District of New York sitting in the Borough of Manhattan, New York, New York, so
long as such court shall have subject matter jurisdiction over such suit, action or proceeding or, if it does not have subject matter
jurisdiction, in any New York State court sitting in the Borough of Manhattan, New York, New York, and each of the parties hereby
irrevocably consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or
proceeding and irrevocably waives, to the fullest extent permitted by Law, any objection that it may now or hereafter have to the
laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is
brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on
any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each
party agrees that service of process on such party as provided in Section 6.8 shall be deemed effective service of process on such
party. The parties hereby irrevocably and unconditionally consent to submit to the exclusive jurisdiction of the state and federal courts
referred to above for any actions, suits or proceedings arising out of or relating to this Agreement and the transactions contemplated
hereby
40
6.7
WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY
AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
6.8
Notices. Any notice, request, instruction or other document to be given hereunder by any party to the other will be
in writing and will be deemed to have been duly given (a) on the date of delivery if delivered personally or by telecopy or facsimile,
upon confirmation of receipt, (b) on the first Business Day following the date of dispatch if delivered by a recognized next-day courier
service, or (c) on the third Business Day following the date of mailing if delivered by registered or certified mail, return receipt
requested, postage prepaid. All notices hereunder shall be delivered as set forth below, or pursuant to such other instructions as may
be designated in writing by the party to receive such notice.
(a)
If to the Investor, at the address set forth on the signature page to this Agreement:
(b)
If to the Company:
Broadway Financial Corporation
5055 Wilshire Boulevard, Suite 500
Los Angeles, California 90036
Attn:
Wayne-Kent A. Bradshaw, President and Chief Executive Officer
Fax:
(323) 556-3216
with a copy (which copy shall not constitute notice) to:
Arnold & Porter LLP
777 South Figueroa Street,
44th Floor
Los Angeles, California 90017
Attn:
James R. Walther, Esq.
Fax:
(213) 243-4199
6.9
Entire Agreement. This Agreement (including the Annexes, the Gapstow Side Letter and Schedules hereto) and
the Confidentiality Agreement constitute the entire agreement, and supersede all other prior agreements, understandings,
representations and warranties, inducements or conditions, both written and oral, among the parties, with respect to the subject matter
hereof and thereof.
6.10
Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their
respective successors and assigns, including any purchasers of the Common Stock to be issued pursuant to this Agreement. The
Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Investor. The
Investor may assign some or all of its rights hereunder or thereunder without the consent of the Company to any Affiliate of the
Investor, and such assignee shall be deemed to be
41
an Investor hereunder with respect to such assigned rights and shall be bound by the terms and conditions of this Agreement that apply
to the Investor.
6.11
Captions. The article, section, paragraph and clause captions herein are for convenience of reference only, do not
constitute part of this Agreement and will not be deemed to limit or otherwise affect any of the provisions hereof.
6.12
Severability. If any provision of this Agreement or the application thereof to any Person or circumstance is
determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the
application of such provision to Persons or circumstances other than those as to which it has been held invalid or unenforceable, will
remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such
determination, the parties shall negotiate in good faith in an effort to agree upon a suitable and equitable substitute provision to effect
the original intent of the parties.
6.13
Third Party Beneficiaries. Nothing contained in this Agreement, expressed or implied, is intended to confer upon
any Person (including any of the Other Investors) other than the parties hereto, any benefit right or remedies, except that the
provisions of Sections 5.1 and 5.2 shall inure to the benefit of the Persons referred to in such Sections. Notwithstanding the foregoing,
the Company and the Investor agree that the Placement Agent, as placement agent for the Common Stock sold pursuant to this
Agreement, shall be a third party beneficiary of the representations, warranties and agreements made or given by the parties
hereunder.
6.14
Public Announcements. The Investor will not make (and will use its reasonable best efforts to ensure that its
Affiliates and representatives do not make) any news release or public disclosure with respect to this Agreement and any of the
transactions contemplated hereby, without first consulting with the Company and, in each case, also receiving the Company’s consent
(which shall not be unreasonably withheld or delayed).
6.15
Specific Performance. The parties hereto 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. It is accordingly agreed that the parties shall
be entitled to seek specific performance of the terms hereof, this being in addition to any other remedies to which they are entitled at
law or equity.
6.16
No Recourse. This Agreement may only be enforced against the named parties hereto. All claims or causes of
action that may be based upon, arise out of or relate to this Agreement, or the negotiation, execution or performance of this Agreement
may be made only against the entities that are expressly identified as parties hereto or that are subject to the terms hereof, and no past,
present or future director, officer, employee, incorporator, member, manager, partner, shareholder, Affiliate, agent, attorney or
representative of any party hereto (including any person negotiating or executing this Agreement on behalf of a party hereto) shall
have any liability or obligation with respect to this Agreement or with respect to any claim or cause of action, whether in tort, contract
or otherwise, that may arise out of or relate to this
42
Agreement, or the negotiation, execution or performance of this Agreement and the transactions contemplated hereby.
43
EXHIBIT A
Summary of Modification Terms
1.
The Company will redeem $900,000 aggregate principal amount of the Debentures pro rata from all holders of Debentures.
2.
The Company will pay all interest accrued on the Debentures through the Closing Date.
3.
The maturity date of the Debentures will be extended to March 17, 2024.
4.
The payment terms of the Debentures will be amended to require the principal amount thereof to be repaid in equal
quarterly payments of principal, together with accrued interest, over the period commencing June 17, 2019 and ending
March 17, 2024, with the obligation to make each such payment to be subject to receipt by the Company of required
approval or non-disapproval from applicable bank regulatory authorities.
5.
The Company will pay certain fees and expenses of the Trustee.
6.
Completion of the Modification will require the:
(i)
approval of the holder or holders of Senior Indebtedness of the Company;
(ii)
written approval or confirmation of non-disapproval by applicable bank regulatory authorities;
(iii)
proceeds; and
(iv)
closing of a private placement of Common Stock by the Company for at least $6 million of gross
approval by the Company’s stockholders, including the U.S. Treasury Department.
44
EXHIBIT B
Gapstow Side Letter
SEE ATTACHED
45
Appendix I
SELLING STOCKHOLDER QUESTIONNAIRE
The undersigned beneficial owner of Common Stock (the “Common Stock”) of Broadway Financial Corporation (the
“Company”) understands that the Company has filed or intends to file with the Securities and Exchange Commission (the
“Commission”) a Registration Statement for the registration and resale of Common Stock that qualifies as Registrable Securities, in
accordance with the terms of a Subscription Agreement (the “Subscription Agreement”) between the Company and the Investor
(s) named therein. All capitalized terms used and not otherwise defined herein shall have the meanings ascribed thereto in the
Subscription Agreement.
The undersigned hereby provides the following information to the Company and represents and warrants that such information
is accurate:
QUESTIONNAIRE
1.
2.
Name.
(a)
Full Legal Name of Selling Securityholder
(b)
Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities
Listed in Item 3 below are held:
(c)
Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone
or with others has power to vote or dispose of the securities covered by the questionnaire):
Address for Notices to Selling Securityholder:
Telephone:
Fax:
Contact Person:
46
3.
Beneficial Ownership of Registrable Securities:
Number of Shares of Registrable Securities beneficially owned(1) and purchased pursuant to the Subscription
Agreement:
4.
Broker-Dealer Status:
(a)
Are you a broker-dealer?
Yes † No †
Note: If yes, the Commission’s staff has indicated that you should be identified as an underwriter in the
Registration Statement.
(b)
Are you an affiliate of a broker-dealer?
Yes † No †
(c)
If you are an affiliate of a broker-dealer, do you certify that you bought the Registrable Securities in the
ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you
had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable
Securities?
Yes † No †
Note: If no, the Commission’s staff has indicated that you should be identified as an underwriter in the
Registration Statement.
(1) Securities “beneficially owned” would include securities held by you for your own benefit, whether in bearer form or registered in
your own name or otherwise (regardless of whether or how they are registered), such as, for example, securities held for you by
custodians, brokers, relatives, executors, administrators or trustees, and securities held for your account by pledgees, securities owned
by a partnership in which you are a member, and securities owned by any corporation which is or should be regarded as a personal
holding corporation of yours. You are also considered to be the beneficial owner of a security if you, directly or indirectly, through any
contract, arrangement, understanding, relationship or otherwise have or share: (1) voting power, which includes the power to vote, or to
direct the voting of, such security or (2) investment power, which includes the power to dispose, or to direct the disposition, of such
security. You are also the beneficial owner of a security if you, directly or indirectly, create or use a trust, proxy, power of attorney,
pooling arrangement or any other contract, arrangement or device with the purpose or effect of divesting yourself of beneficial
ownership of a security or preventing the vesting of such beneficial ownership. Finally, you are deemed to be the beneficial owner of a
security if you have the right to acquire beneficial ownership of such security at any time within sixty days, including but not limited to
any right to acquire (a) through the exercise of any option, warrant or right, (b) through the conversion of a security, (c) pursuant to the
power to revoke a trust, discretionary account or similar arrangement or (d) pursuant to the automatic termination of a trust,
discretionary account or similar arrangement.
47
5.
Beneficial Ownership of Securities of the Company Other than the Registrable Securities Owned by the Selling
Securityholder.
Except as set forth below in this Item 5, the undersigned is not the beneficial or registered owner of any securities of
the Company other than the Registrable Securities listed above in Item 3.
Type and Amount of Other Securities beneficially owned by the Selling Securityholder:
6.
Relationships with the Company:
Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity
holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had
any other material relationship with the Company (or its predecessors or affiliates) during the past three years.
State any exceptions here:
7.
Name of Selling
Shareholder
Please fill in the table below as you would like it to appear in the Registration Statement. Include footnotes where
appropriate.
Maximum Number of
Shares of Common Stock
to be Sold Pursuant to this
Prospectus
Number of Shares of
Common Stock
Beneficially Owned Prior
to Offering
Number of Shares of
Common Stock
Beneficially Owned After
Offering
The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein
that may occur subsequent to the date hereof and prior to the Effective Date for the Registration Statement.
By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1
through 7 and the inclusion of such information in the Registration Statement and the related prospectus. The undersigned understands
that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration
Statement and the related prospectus.
48
IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed
and delivered either in person or by its duly authorized agent.
Dated:
Beneficial Owner:
By:
Name:
Title:
PLEASE (1) FAX OR EMAIL A COPY OF THE COMPLETED AND EXECUTED
NOTICE AND QUESTIONNAIRE, AND (2) RETURN THE ORIGINAL BY
OVERNIGHT MAIL, TO:
Broadway Financial Corporation
5055 Wilshire Boulevard
Suite 500
Los Angeles, CA 90036
Attn: Chief Financial Officer
Facsimile: (213) 634-1723
49
Exhibit 10.2.2
BROADWAY FINANCIAL CORPORATION
5055 Wilshire Boulevard, Suite 500
Los Angeles, CA 90036
October 16, 2014
Gapstow Financial Growth Capital Fund I LP
c/o Gapstow Capital Partners
654 Madison Avenue, Suite 601
New York, NY 10065
Re:
Investor Rights
Ladies and Gentlemen:
This letter will confirm our agreement that pursuant to and effective as of your purchase of capital stock of Broadway
Financial Corporation, a Delaware corporation (the “Company”), the parent company of Broadway Federal Bank, f.s.b. (the “Bank”),
Gapstow Financial Growth Capital Fund I LP, a Delaware limited partnership (the “Investor”), shall be entitled to the following
contractual rights, in addition to any other rights specifically provided to the Investor pursuant to that certain Subscription Agreement,
dated as of the date hereof, by and between the Company and the Investor, including any amendments or supplements thereto, and
such other agreements, instruments and certificates delivered in connection therewith (collectively, the “Subscription Documents”):
1.
Right to Designate Board Member. As long as the Investor (together with its affiliates) (as such term is defined
under the Bank Holding Company Act, as amended, 12 U.S.C. 1841 (the “BHCA Act”)) (“Affiliates”) beneficially owns at least
4.0% of the total capital stock of the Company, and subject to any required approvals or non-objections of the Board of Governors of
the Federal Reserve System (whether acting directly or through the Federal Reserve Bank of San Francisco in such reserve bank’s
regulatory capacity), the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and/or any other
regulatory body having jurisdiction over the Company or the Bank (collectively, the “Regulators”), the Company shall use its
reasonable best efforts to cause one person nominated by the Investor to be elected to serve on the Board of Directors of the Company,
and any direct or indirect subsidiary thereof, including the Bank (collectively, the “Board”), which efforts shall include, without
limitation, soliciting proxies for the Investor’s nominee in the same manner as it does for the Company’s other nominees. For the
avoidance of doubt, the rights granted pursuant to this paragraph 1 and paragraph 2 below reaffirm, and are not in addition to, the
rights granted to the Investor’s Affiliate CJA Private Equity Financial Restructuring Master Fund I L.P. (“CJA”) pursuant to that
certain letter agreement dated as of August 22, 2013 by and between the Company and CJA, such that the Investor and CJA shall
together have the right to designate only one Board representative (as a member of the Board pursuant to this paragraph 1 or as an
observer pursuant to paragraph 2 below). Any director nominated by the Investor and CJA pursuant to this paragraph 1 shall be
entitled to indemnification rights in his or her capacity as a
member of the Board pursuant to an indemnification agreement in such form as shall be agreed to between the Company and the
Investor. The Board representative of the Investor and CJA shall receive compensation from the Company equal in form and value to
compensation paid to other Board members generally (such compensation to be paid as directed by the Investor). In the event the
Investor and CJA designate as their Board representative an individual who is not an employee of the Investor or CJA, the Company
shall, in negotiation with the Investor, provide such individual with reasonable stock incentive compensation as the Company would
customarily offer to other independent, outside directors, if any. To facilitate the in-person attendance of the Board representative of
the Investor and CJA (as a member of the Board pursuant to this paragraph 1 or as an observer pursuant to paragraph 2 below), the
Company shall reimburse the Investor or CJA (or its representative, as applicable) for all reasonable travel expenses of such
representative promptly upon receiving documentation thereof reasonably acceptable to the Company, up to an amount equal to
$25,000 per calendar year.
2.
Board Observer Rights. If the Investor and CJA are not represented on the Board (including during such time as
regulatory approval of the person nominated by the Investor and CJA as their Board representative is pending), as long as the Investor
(together with its Affiliates) beneficially owns at least 4.0% of the total capital stock of the Company, the Company shall allow a
representative of the Investor and CJA to attend all meetings of the Board in a non-voting observer capacity and, in this respect, shall
give such representative copies of all notices, minutes, consents and other materials that it provides to its directors at the same time
and in the same manner as provided to such directors; provided, however, that (i) such representative shall agree to hold in confidence
and trust all information so provided; (ii) the representative may be excluded from access to any material or meeting or portion thereof
if the Board determines in good faith, upon advice of counsel, that access to such material or attendance at such meeting would
adversely affect the attorney-client privilege between the Company or the Bank and its counsel or would conflict with applicable
banking laws or regulations or if such material or meeting relates to relations or negotiations with the Investor or CJA or require the
consent or non-objection of any Regulator; and (iii) such observer shall be excluded from all “executive sessions” of the board of
directors if any other persons who are not members of the board of directors, other than counsel to the Company, are also excluded.
For the avoidance of doubt, such representative shall not have access to any “confidential supervisory information” (as such term or
relevant similar term is defined under the regulations of any Regulator).
3.
Terms of Agreements with Other Investors. The Company represents and warrants that it has not entered into, and
does not currently intend to enter into, any agreement with any other investor that provides rights to such investor related to its
investment in capital stock of the Company, other than with CJA and any such agreement as to which it has provided a copy to the
Investor. If the Company enters into any such agreement with a party that agrees to purchase capital stock issued by the Company
after the date hereof, then the Company shall promptly provide a copy of any such agreement to the Investor. As to any such
agreement entered into with any other investor agreeing to purchase capital stock issued by the Company, any terms of such
agreement that are more favorable to such investor than the terms of the Subscription Documents shall be added and incorporated into
this letter agreement, unless the
2
Investor provides written notice to the Company that it elects to waive its rights to any such additional or modified terms.
4.
Capital Structure.
(a)
Exchange Rights. The Investor shall have the right, but not the obligation, from time to time, in its sole
discretion, to exchange any voting common stock held by the Investor for shares of the non-voting common stock currently authorized
by the certificate of incorporation of the Company (“Non-Voting Common Stock”) in order to reduce its ownership of voting
common stock of the Company to as low as 4.9% of the voting common stock of the Company on a fully-diluted basis. Any such
exchange shall be effected by way of an Exchange Agreement in form and substance substantially as set forth on Exhibit A hereto.
Any Non-Voting Common Stock of the Company held by the Investor shall, upon its transfer to any person other than the Investor, or
one of its Affiliates, immediately and without any further action on the part of any person, automatically convert into voting common
stock of the Company, as provided for in the provisions of the Company’s certificate of incorporation relating to the Non-Voting
Common Stock, subject to compliance with the applicable requirements of the Regulators. Any shares of Non-Voting Common Stock
received by the Investor or any Affiliate of the Investor pursuant to this paragraph shall not be convertible by the Investor into shares
of voting common stock or any other voting security of the Company, and any such shares shall be subject to the restrictions set forth
in the provisions of the Company’s certificate of incorporation relating to the Non-Voting Common Stock, including restrictions on
transfer contained therein that are intended to cause such shares to qualify as non-voting shares under the applicable requirements and
policies of the Regulators.
(b)
Preemptive Rights. If, following the consummation of the transactions contemplated by the Subscription
Documents, and while the Investor (together with its Affiliates) beneficially owns at least 4.0% of the total capital stock of the
Company, the Company authorizes the issuance or sale of any securities comparable or identical to the securities issued in this
offering pursuant to the Subscription Documents, the Investor shall be entitled, in its sole discretion, to purchase shares of common
stock at the price such securities are authorized for issuance or sale such that the Investor would maintain its percentage ownership
interest in the Company’s capital stock on a fully-diluted basis, subject to compliance with the applicable requirements of the
Regulators. With respect to such rights above (the “Preemptive Rights”), the Company shall give written notice of such proposed
issuance or sale (including the terms and conditions thereof) to the Investor at least thirty (30) days prior to the anticipated issuance or
sale date and the Investor shall have twenty (20) days from the receipt thereof to provide the Company with notice of the exercise of
its Preemptive Rights with respect to such issuance or sale. The Preemptive Rights described herein shall not apply to the issuance of
securities of the Company (i) to CJA, (ii) to employees or directors of, or consultants or advisors to, the Company or the Bank
pursuant to a plan, agreement or arrangement approved by the Board, (iii) in connection with the acquisition of another company by
the Company by way of merger or other reorganization or the acquisition of all or substantially all of the assets or capital stock of such
company, provided that such issuances are approved by the Board, or (iv) in a transaction approved by the Board that results in a
“Change of Control.” For purposes of this
3
letter agreement a “Change of Control” means the acquisition by any person (including, without limitation, a group of related persons
within the meaning of Rule 13d-2 of the Securities Exchange Act of 1934, as amended) of (A) more than fifty percent (50%) of the
outstanding capital stock of the Company, (B) all or substantially all of the assets of the Company (including without limitation the
sale of more than two-thirds (2/3) of the capital stock held by the Company in the Bank), or (C) a merger of the Company with or into
any person, or of any person with or into the Company, immediately after which the stockholders of the Company (as measured
immediately prior to completion of the transaction) own less than a majority of the combined capital stock or membership interests of
the surviving entity. Notwithstanding the rights described herein, in all cases, the aggregate ownership percentage of the Investor and
its Affiliates (including CJA) of the issued and outstanding voting securities of the Company shall not exceed 24.95%. In addition, the
total equity ownership in the Company of the Investor and its Affiliates (including CJA) shall not exceed 24.95% of the Company’s
total issued and outstanding capital stock.
(c)
Avoidance of Control. Notwithstanding anything to the contrary in this letter agreement, neither the
Company nor any Company Subsidiary (as defined in the Subscription Documents) shall take any action (including any redemption,
repurchase, or recapitalization of common stock, or securities or rights, options or warrants to purchase common stock, or securities of
any type whatsoever that are, or may become, convertible into or exchangeable into or exercisable for common stock in each case,
where the Investor is not given the right to participate in such redemption, repurchase or recapitalization to the extent of the Investor’s
pro rata proportion) that would: (i) cause the Investor’s equity of the Company (together with equity owned by the Investor’s
Affiliates) to exceed 24.95% of the Company’s total equity; or (ii) cause the Investor’s or any other person’s ownership of any class of
voting securities of the Company (together with the ownership by the Investor’s Affiliates of voting securities of the Company) to
exceed 24.95%, in each case without the prior written consent of the Investor, or to increase to an amount that would constitute
“control” under the BHC Act or any rules or regulations promulgated thereunder (or any successor provisions) or otherwise cause the
Investor to “control” the Company under and for purposes of the BHC Act or any rules or regulations promulgated thereunder (or any
successor provisions). Notwithstanding anything to the contrary in this letter agreement, the Investor (together with its Affiliates)
shall not have the ability to purchase more than 24.95% of the Company’s total equity or exercise any voting rights of any class of
securities in excess of 24.95% of the total outstanding voting securities of the Company. In the event either the Company or the
Investor breaches its obligations under this paragraph 4(b) or believes that it is reasonably likely to breach such an obligation, it shall
promptly notify the other party hereto and shall cooperate in good faith with such party to modify ownership or make other
arrangements or take any other action, in each case, as is necessary to cure or avoid such breach.
5.
Expense Reimbursement. The Company shall pay (a) 100% of the fees and expenses incurred by the Investor in
connection with its evaluation of the Company and negotiation of the Subscription Documents (including, without limitation, legal
and travel expenses), up to a total of $100,000 of such fees and expenses, and (b) 50% of the excess, if any, of the aggregate amount
of all such fees and expenses that exceeds $100,000 but does not exceed $150,000, in either case regardless of whether the
transactions contemplated by the Subscription
4
Documents are consummated promptly upon receiving documentation thereof reasonably acceptable to the Company. The Company
shall not be obligated to reimburse any portion of the aggregate amount of such fees and expenses that exceeds $150,000. For the
avoidance of doubt, the maximum amount that the Company may be required to pay pursuant to this paragraph 5 is $125,000.
6.
Registration Rights. The Company shall provide a “shelf registration” for use by the Investor in the offer and sale of
shares acquired by the Investor pursuant to the Subscription Documents, the registration statement for which shall be filed with the
SEC by not later than the Filing Deadline (as defined in Section 1(a) of the Registration Rights Agreement referred to below). In
addition, the Investor shall be entitled to exercise “piggyback” registration rights to participate in the registration of shares pursuant to
all registration statements proposed to be filed by the Company (except for the registration of securities (a) to be offered pursuant to an
employee benefit plan on Form S-8 or pursuant to a registration made on Form S-4 or any successor forms then in effect or (b) in a
transaction relating solely to the sale of debt or convertible debt instruments). The rights and obligations of the Investor and the
Company in respect of such registration rights shall be set forth in a Registration Rights Agreement in form and substance
substantially as set forth on Exhibit B hereto.
7.
Regulatory Approval. The Company and the Investor shall cooperate to obtain the appropriate approvals from the
Regulators in accordance with this letter agreement and the Subscription Documents. If necessary, the Investor shall agree to certain
passivity commitments imposed by the Regulators, provided, that the terms and conditions of such commitments are customary and
are not deemed by the Investor (in its sole discretion) to be unreasonable and provided, further, that the Investor shall not be required
to agree to any restrictions, conditions or commitments imposed or otherwise required by any Regulator that are determined by the
Investor (in its sole discretion) to be unduly burdensome.
8.
Miscellaneous. The validity, construction and interpretation of this letter agreement and the rights and duties of the
parties hereunder shall be governed by and construed in accordance with laws of the State of New York without regard to its conflicts
of laws provisions. This letter agreement (together with the Subscription Documents) constitutes the entire agreement among the
parties hereto, and supersedes any and all prior representations, agreements and understandings, whether written or oral, with respect
to the subject matter hereof. This letter agreement shall not be modified, amended or waived, in whole or in part, except by written
agreement of both parties. The provisions hereof shall be binding upon, and shall inure to the benefit of, the parties hereto and their
successors and assigns. Each of the parties hereto shall, at the request of the other party, execute, deliver and acknowledge without
any consideration, such additional documents, instruments or certificates or do or cause to be done such other things as are reasonably
necessary or desirable to make effective the agreements and transactions contemplated by this letter agreement. This letter agreement
may be executed and delivered (including by facsimile or other electronic transmission) in multiple counterparts, each of which shall
constitute an original and all of which together shall be deemed to be one and the same instrument.
[Signature page follows.]
5
Very truly yours,
BROADWAY FINANCIAL CORPORATION
By: /s/ Wayne-Kent A. Bradshaw
Name: Wayne-Kent A. Bradshaw
Title: President and Chief Executive Officer
******************************************************
ACKNOWLEDGED AND AGREED:
GAPSTOW FINANCIAL GROWTH
CAPITAL FUND I LP
By:
Gapstow Financial Growth Capital GP I LLC,
its General Partner
By: /s/ Christopher J. Acito
Name: Christopher J. Acito
Title: Managing Member
[Signature Page to Investor Rights Letter Agreement]
6
Exhibit A
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (this “Agreement”) is made as of [
], 20[_] by and between
Broadway Financial Corporation (the “Company”), a Delaware corporation and parent company of Broadway Federal Bank, f.s.b.,
and [
] (“Investor”).
WITNESSETH
WHEREAS, Investor owns, or has a contractual right to purchase, shares of the Company’s common stock, par
value $0.01 per share (the “Common Stock”);
WHEREAS, pursuant to the terms of that certain letter agreement (the “Investor Rights Agreement”) dated
October 16, 2014 between the Company and Investor, Investor and its successors and assigns (collectively hereinafter referred to as
“Investor”) have the right to exchange any voting common stock held by them for Non-Voting Stock (as defined in the Investor
Rights Agreement), in order to effect a reduction of its or their ownership of voting securities to 4.9% of the voting securities of the
Company, as determined on a fully-diluted basis; and
WHEREAS, Investor wishes to exercise its right pursuant to the Letter Agreement to exchange [
]
shares of the Company’s Common Stock (the “Exchanged Shares”) for an equal number of shares of Non-Voting Stock (the
“Replacement Shares”).
NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements set forth herein,
the parties hereby agree as follows:
ARTICLE 1
EXCHANGE TRANSACTION
1.1
Exchange. Subject to the terms and conditions of this Agreement, at the Closing (as defined below), Investor shall
deliver to the Company the Exchanged Shares, and, in exchange therefor, the Company shall issue and deliver to Investor the
Replacement Shares delivered in book entry form, registered in Investor’s name and address.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Investor as follows:
2.1
Organization; Qualification. The Company is a corporation duly incorporated and validly existing under the laws
of the State of Delaware. The Company has all requisite corporate power to execute and deliver this Agreement, to issue and exchange
the Replacement Shares for the Exchanged Shares and otherwise to carry out the provisions of this Agreement.
A-1
2.2
Authorization; Valid and Binding Obligation. All corporate action on the part of the Company, its officers,
directors and stockholders necessary for the authorization of this Agreement, the performance of all obligations of the Company
hereunder and the authorization and exchange of the Replacement Shares for the Exchanged Shares pursuant hereto has been taken.
The Replacement Shares, when issued, sold and delivered against receipt of the Exchanged Shares in accordance with the provisions
of this Agreement, shall be duly and validly issued, fully paid and non-assessable. This Agreement has been duly executed and
delivered by the Company and constitutes the valid and binding obligation of the Company enforceable against the Company in
accordance with its terms.
2.3
Capitalization. The Company has disclosed to Investor in writing the capitalization of the Company that will be in
effect immediately after the Closing.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor represents and warrants to the Company as follows:
3.1
Authorization; Valid and Binding Obligation. Investor has full power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. [Investor acquired such power and authority by appropriate permitted assignment
from [
]](1) This Agreement constitutes the valid and binding obligation of Investor, enforceable against it in
accordance with its terms, assuming the due authorization, execution and delivery hereof by the Company.
3.2
Title to Shares. Investor has valid title to the Exchanged Shares, free and clear of all liens, restrictions, proxies,
voting trusts, voting agreements, encumbrances and claims of any kind. At the Closing, the Company shall acquire valid title to and
beneficial and record ownership of the Exchanged Shares being transferred by Investor pursuant to this Agreement.
ARTICLE 4
CLOSING
4.1
Closing. The Closing of the transactions contemplated by this Agreement (“Closing”) shall take place
simultaneously with the execution of this Agreement either by mail, virtually through the Internet, or at the offices of Arnold & Porter
LLP, 777 South Figueroa Street, 44th Floor, Los Angeles, California, or at such other time and place as may be mutually agreed upon
by the parties hereto.
4.2
Deliveries at the Closing.
(a)
By Investor. At the Closing, Investor shall deliver or cause to be delivered to the Company or, if
applicable, the transfer agent for the Replacement Shares, the Exchanged Shares owned by Investor free and clear of all liens,
encumbrances, pledges and claims of any kind, accompanied by instruments of transfer sufficient to transfer such stock to the
Company.
(1) Include if applicable, stating name of original Investor and subsequent assignees.
2
(b)
By the Company. At the Closing, the Company shall deliver the Replacement Shares to Investor.
ARTICLE 5
MISCELLANEOUS
5.1
Survival of Representations, Warranties and Covenants. The representations, warranties, agreements and
covenants made by each party in this Agreement shall survive execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby notwithstanding any investigation, audit or review made at any time by any party to this Agreement
and notwithstanding the delivery of any documents, exhibits, schedules or certificates pursuant to this Agreement.
5.2
Further Assurances. Each party will at any time and from time to time execute, acknowledge, deliver and perform
all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be necessary to carry out
the provisions and intent of this Agreement.
5.3
Notices. All notices and other communications given or made pursuant to this Agreement shall be in writing and
shall be deemed effectively given upon the earliest of: (i) personal delivery to the party to be notified; (ii) five (5) days after having
been sent by registered or certified mail, return receipt requested, postage prepaid; or (iii) one (1) business day after deposit with a
nationally recognized overnight courier, freight prepaid, specifying next business day delivery, with written verification of receipt. All
communications shall be sent to each party as follows:
If to the Company:
Broadway Financial Corporation
5055 Wilshire Boulevard, Suite 500
Los Angeles, CA 90036
Attention: Wayne-Kent A. Bradshaw, President and CEO
with a copy to:
Arnold & Porter LLP
777 South Figueroa Street, 44th Floor
Los Angeles, CA 90017
Attention: James R. Walther, Esq.
If to Investor:
3
with a copy to:
5.4
Entire Agreement. This Agreement contains the entire understanding of the parties in respect of its subject matter
and supersedes all prior agreements and understandings between or among the parties with respect to such subject matter.
5.5
Expenses. The parties shall pay their own fees and expenses, including their own counsel fees, incurred in
connection with this Agreement or any transaction contemplated by this Agreement.
5.6
Amendment; Waiver. This Agreement may not be modified, amended, supplemented, cancelled or discharged,
except by written instrument executed by each of the parties. The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by any party in exercising any right, power or privilege under this Agreement or
the documents referred to in this Agreement will operate as a waiver of such right, power or privilege, and no single or partial exercise
of any such right, power or privilege will preclude any other or further exercise of such right, power or privilege or the exercise of any
other right, power or privilege.
5.7
Binding Effect; Assignment. Except as otherwise provided herein, the rights and obligations of this Agreement
shall bind and inure to the benefit of the parties and their respective successors and legal assigns. The rights and obligations of this
Agreement may not be assigned by any of the parties without the prior written consent of the other parties. Any assignment in
violation of this Section 5.7 shall be void and of no force or effect.
5.8
Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same instrument. Facsimile or PDF signatures shall be deemed originals
for all purposes.
5.9
Headings. The headings contained in this Agreement are for convenience of reference only and are not to be given
any legal effect and shall not affect the meaning or interpretation of this Agreement.
5.10
Governing Law. This Agreement shall be governed by, and construed in accordance with the laws of the State of
Delaware, all rights and remedies being governed by said laws, regardless of the laws that might otherwise govern under applicable
principles of conflicts of laws.
[Signature page follows]
4
IN WITNESS WHEREOF, each of the parties, intending to be legally bound, have executed this Agreement or have
caused this Agreement to be executed by their duly authorized representatives as of the date first above written.
BROADWAY FINANCIAL CORPORATION
By:
Name:
Title:
[INVESTOR]
By:
Name:
Title:
5
Exhibit B
Form of Registration Rights Agreement
[Filed as separate exhibit]
B-1
Exhibit 10.3.1
SUBSCRIPTION AGREEMENT
October 16, 2014
Broadway Financial Corporation
5055 Wilshire Boulevard, Suite 500
Los Angeles, California 90036
Ladies and Gentlemen:
The undersigned (the “Investor”) hereby confirms its agreement with you as follows:
1.
This Subscription Agreement (this “Agreement”) is entered into between Broadway Financial Corporation, a
Delaware corporation (the “Company”), and the Investor whose name appears on the signature page hereto and is made as of the date
of the Company’s acceptance hereof (the “Acceptance Date”).
2.
The Company is proposing to issue and sell shares of the Company’s common stock, par value $0.01 per share (the
“Common Stock”, to certain investors in a private offering at a purchase price of U.S.$1.10 per share (the “Per Share Purchase
Price”). The Common Stock is being offered only to persons who are accredited investors within the meaning of Rule 501 of
Regulation D promulgated under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to a private placement
exemption from the securities registration requirements of the Securities Act.
3.
The Company and the Investor agree that, upon the terms and subject to the conditions set forth herein, the Investor
will purchase from the Company and the Company will issue and sell to the Investor, the number of shares of Common Stock equal to
the dollar amount subscribed as indicated on the signature page hereto divided by the Per Share Purchase Price, pursuant to the Terms
and Conditions for the Purchase of Common Stock attached hereto as Annex A and incorporated herein by reference as if fully set
forth herein. The Common Stock purchased by the Investor will be delivered in certificated form, registered in the Investor’s name
and address as set forth below, and will be released by Computershare Inc., the Company’s transfer agent (the “Transfer Agent”), to
the Investor at the Closing (as defined in the Terms and Conditions for the Purchase of Common Stock) or, if uncertificated, the
Transfer Agent for the Common Stock will register the shares of Common Stock purchased in the name of the Investor and deliver
evidence of such registration to the Investor.
4.
In agreeing to purchase Common Stock pursuant hereto, the Investor is making the representations and warranties
set forth in the attached Terms and Conditions for the Purchase of Common Stock (the “Terms and Conditions”), including
representations and warranties that the Investor is an “accredited investor” (as that term is defined by Rule 501 under the Securities
Act) and that the Investor has not taken actions regarding a coordinated acquisition of Common Stock as set forth in Section 2.3(f) or
Section 2.3(j).
Please confirm that the foregoing correctly sets forth the agreement between us by signing in the space provided below for
that purpose.
Subscription amount in shares and U.S. dollars:
Dollars: $990,000
Voting Common Shares: 96,000
Non-Voting Common Shares: 804,000
Name of Investor:
NATIONAL COMMUNITY INVESTMENT FUND
By: /s/ Saurabh Narain
Print Name: Saurabh Narain
Title: Chief Executive
Mailing Address:
National Community Investment Fund
135 South LaSalle
Chicago, IL 60603
Attn: Saurabh Narain
with a copy (which shall not constitute notice) to:
Dentons US LLP
233 South Wacker Drive, Suite 7800
Chicago, IL 60606-5404
Attn: Scott A. Lindquist, Esq
Type of Entity:
Jurisdiction of Organization:
Tax ID No.:
Contact Name:
Telephone:
Email Address:
Name under which Common Stock is to be issued (if different
from above): Same as above
Address to which share certificates or statement of ownership are
to be sent (if different from mailing address above):
2
Agreed and Accepted as of the date first set forth above:
BROADWAY FINANCIAL CORPORATION
By: /s/ Wayne-Kent A. Bradshaw
Name: Wayne-Kent A. Bradshaw
Title: President and Chief Executive Officer
3
INSTRUCTION SHEET FOR INVESTOR
(to be read in conjunction with the entire Agreement)
Complete the following items in the Agreement:
1.
Provide the information regarding the Investor requested on the signature page to the Agreement. The Agreement
must be executed by an individual authorized to bind the Investor.
2.
If the Investor is purchasing Common Stock for more than one investor account, it may either (i) complete a separate
Agreement for each such account, in which case a separate wire transfer (or other acceptable form of payment) must be made by or on
behalf of such account for the Common Stock it will purchase and a separate issuance of Common Stock will be made by the Transfer
Agent to each account, or (ii) complete a single Agreement for all such accounts, in which case only one wire transfer (or other
acceptable form of payment) need be made for the Common Stock to be purchased for all such accounts (but all such Common Stock
will be issued to a single account specified by the Investor) and the information called for on the signature page hereof must be
completed for each account.
3.
Return the signed Agreement to:
Broadway Financial Corporation
5055 Wilshire Boulevard, Suite 500
Los Angeles, California 90036
Attn: Wayne-Kent A. Bradshaw, President and Chief
Executive Officer
Fax: (323) 634-1732
Email: [email protected]
4.
Please note that all payments must be made in U.S. dollars by wire transfer of immediately available funds to the
following account, which has been established to hold funds received from investors, which funds shall be released to the Company
only upon the Closing of the transactions referred to and described herein:
Bank Name:
Bank Account Name:
Bank ABA #:
Bank Account #:
Broadway Federal Bank, f.s.b.
Broadway Federal Bank for the benefit of Broadway Financial Corporation
322070145
80-000931-9
An executed Agreement or a facsimile transmission thereof must be received by such time on such date as you are advised.
The Company reserves all rights to reject any subscription before it is accepted by the Company.
4
ANNEX A
TERMS AND CONDITIONS FOR THE PURCHASE OF COMMON STOCK
5
TABLE OF CONTENTS
Page
ARTICLE 1 PURCHASE; CLOSING
1
1.1
Issuance, Sale and Purchase
1
1.2
Closing; Deliverables for the Closing; Conditions to the Closing
1
ARTICLE 2 REPRESENTATIONS AND WARRANTIES
4
2.1
Certain Terms
4
2.2
Representations and Warranties of the Company
5
2.3
Representations and Warranties of the Investor
18
ARTICLE 3 COVENANTS
21
3.1
Conduct of Business Prior to Closing
21
3.2
Confidentiality
22
3.3
Commercially Reasonable Efforts
22
3.4
Legend
22
3.5
Certain Other Transactions
23
3.6
Exchange Listing
24
3.7
Stockholders Meeting
24
3.8
Registration Rights
24
ARTICLE 4 TERMINATION
32
4.1
Termination
32
4.2
Effects of Termination
33
ARTICLE 5 INDEMNITY
33
5.1
Indemnification by the Company
33
5.2
Indemnification by the Investor
34
5.3
Notification of Claims
34
5.4
Indemnification Payment
36
5.5
Exclusive Remedies
36
ARTICLE 6 MISCELLANEOUS
37
6.1
Survival
37
6.2
Other Definitions
37
6.3
Amendment and Waivers
40
6.4
Counterparts and Facsimile
40
6.5
Governing Law
40
i
6.6
Jurisdiction
40
6.7
WAIVER OF JURY TRIAL
41
6.8
Notices
41
6.9
Entire Agreement
41
6.10
Successors and Assigns
41
6.11
Captions
42
6.12
Severability
42
6.13
Third Party Beneficiaries
42
6.14
Public Announcements
42
6.15
Specific Performance
42
6.16
No Recourse
42
Exhibit A - Summary of Modification Terms
Exhibit B - NCIF Side Letter
Appendix I - Selling Stockholder Questionnaire
ii
INDEX OF DEFINED TERMS
Defined Term
Section
Acceptance Date
Action
Affiliate
Agency
Agreement
Agreements
Bank
Benefit Plans
Board of Directors
Business Day
Capital Stock
Capitalization Date
Change in Control
CJA Letter Agreement
Closing
Closing Date
Code
Common Stock
Company
Company Employees
Company Financial Statements
Company Indemnified Parties
Company Insurance Policies
Company Preferred Stock
Company Reports
Company Specified Representations
Company Stock Plans
Company Subsidiaries
Company Subsidiary
Confidentiality Agreement
control, controlling, controlled by and under common control with
Debentures
Deductible
Disclosure Schedule
EESA
Effective Date
Effectiveness Deadline
employee benefit plan
iii
Subscription Agreement
2.2(f)
6.2(a)
6.2(b)
Subscription Agreement
Recital B
2.2(a)
2.2(u)(i)
6.2(c)
6.2(d)
6.2(e)
2.2(c)(ii)
6.2(f)
2.2(c)(iv)
1.2(a)
1.2(a)
6.2(g)
Subscription Agreement
Subscription Agreement
2.2(u)(i)
2.2(g)
5.2(a)
2.2(s)
2.2(c)(i)
2.2(h)
6.2(h)
2.2(c)(iii)
2.2(b)
2.2(b)
3.2
6.2(a)
Recital C
5.1(b)
6.2(i)
2.2(u)(iii)
3.8(j)(i)
3.8(j)(ii)
2.2(u)(i)
ERISA
Exchange Act
FDI Act
FDIC
Federal Reserve
Filing Deadline
finally determined
GAAP
Governmental Consent
Governmental Entity
Holder
Indemnified Party
Indemnifying Party
Indemnitee
Indenture
Insider
Insurer
Investment
Investment Manager
Investor
Investor Indemnified Parties
Investor Specified Representations
Investors
Knowledge
Law
Liens
Loan Investor
Losses
Material Adverse Effect
Material Contract
Modification
NASDAQ
NCIF Letter Agreement
NCIF Side Letter
Non-Voting Common Stock
OFAC
Other Investors
Other Private Placements
Per Share Purchase Price
Person
Placement Agent
Potential Investor
Previously Disclosed
Purchase Price
Register, registered and registration
2.2(u)(i)
2.2(h)
2.2(b)
2.2(b)
2.2(a)
3.8(a)(i)
5.4
6.2(j)
6.2(k)
6.2(l)
3.8(j)(iii)
5.3(a)
5.3(a)
3.8(g)(i)
Recital C
2.2(bb)
6.2(m)
Recital A
2.3(f)
Subscription Agreement
5.1(a)
6.2(n)
Recital B
6.2(o)
2.2(p)
2.2(d)(ii)
6.2(p)
6.2(q)
2.1(a)
2.2(r)
Recital C
2.2(d)(i)
2.2(c)(iv)
1.2(c)(ii)(G)
2.2(c)(i)
2.2(m)
Recital B
Recital B
Subscription Agreement
6.2(r)
2.2(x)
2.3(j)
2.1(b)
1.1
3.8(j)(iv)
iv
Registrable Securities
Registration Expenses
Registration Termination Date
Regulatory Agreement
Regulatory Order or Regulatory Orders
Regulatory Orders
Rule 158
Rule 159A
Rule 405
Rule 415
SDN List
SEC
Securities Act
Selling Expenses
Shelf Registration Statement
Side Letters
SLHC Act
Subsidiary
Suspension Period
Tax or Taxes
Tax Return
Terms and Conditions
Third Party Claim
Transfer Agent
Trustee
under common control with
Voting Debt
Voting Securities
3.8(j)(v)
3.8(j)(vi)
3.8(a)(i)
2.2(q)
2.2(p)
2.2(p)
3.8(j)(vii)
3.8(j)(vii)
3.8(j)(vii)
3.8(j)(vii)
2.2(m)
2.1(b)
Subscription Agreement
3.8(j)(viii)
3.8(a)(ii)
2.2(c)(iv)
2.2(a)
6.2(s)
3.8(d)
6.2(t)
6.2(u)
Subscription Agreement
5.3(a)
Subscription Agreement
Recital C
6.2(a)
2.2(c)(iv)
6.2(v)
v
RECITALS
A.
The Investment. The Company intends to issue and sell to the Investor, and the Investor intends to purchase from
the Company, on the terms and conditions described herein, the number of shares of Common Stock set forth on such Investor’s
signature page hereto for the aggregate purchase price set forth on such signature page (the “Investment”).
B.
Other Private Placements. The Company also intends to enter into agreements similar to this Agreement with
certain other investors (the “Other Investors”) and expects to complete sales of Common Stock to them, with the closing of such
sales to occur simultaneously with the Closing (the “Other Private Placements”). The Investor and the Other Investors are
hereinafter sometimes collectively referred to as the “Investors”, and this Agreement and the subscription agreements executed by the
Other Investors are hereinafter sometimes collectively referred to as the “Agreements.”
C.
Debenture Modification. The Company has outstanding $6,000,000 aggregate principal amount of Floating Rate
Junior Subordinated Debentures due March 17, 2014 (the “Debentures”) that were issued pursuant to that certain Indenture, dated as
of March 17, 2004 (the “Indenture”), entered into between the Company and U.S. Bank National Association, a national banking
association organized under the laws of the United States of America, as debenture trustee (the “Trustee”). Concurrently with, and as
a condition concurrent to, the sale of Common Stock by the Company pursuant to this Agreement and each of the Other Agreements,
the Company will make certain payments of principal of and accrued interest on the Debentures and certain fees and expenses, and
will enter into a supplemental indenture with the Trustee to extend the maturity and modify certain of the other terms of the
Debentures. The making of such payments and entering into such supplemental indenture are collectively referred to herein as the
“Modification.” The principal terms of the Modification are set forth in the summary attached as Exhibit A to this Agreement.
ARTICLE 1
PURCHASE; CLOSING
1.1
Issuance, Sale and Purchase. On the terms and subject to the conditions set forth herein, the Company agrees to
issue and sell to the Investor, and the Investor agrees to purchase from the Company, free and clear of any Liens, a number of shares
of Common Stock equal to the dollar amount subscribed as indicated on the signature page hereto divided by the Per Share Purchase
Price payable by the Investor to the Company. The aggregate purchase price payable pursuant to this Section 1.1 is referred to herein
as the “Purchase Price”.
1.2
Closing; Deliverables for the Closing; Conditions to the Closing.
(a)
Closing. Unless this Agreement has been terminated pursuant to Article 4, and subject to the satisfaction
or, to the extent permitted by Law and this Agreement, the written waiver of the conditions set forth in Section 1.2(c), the closing of
the transactions contemplated by this Agreement (the “Closing”) shall take place at the offices of Arnold & Porter LLP, located at 777
South Figueroa Street, 44th Floor, Los Angeles, California 90017, or
1
remotely via the electronic or other exchange of documents and signature pages, on a date to be specified by the Company on no less
than two Business Days’ notice to the Investor (which date shall be the same date as the date of closing of the Other Private
Placements and the Modification), or at such other place or such other date as agreed to in writing by the parties hereto (the “Closing
Date”).
(b)
Closing Deliverables. Subject to the satisfaction or waiver on the Closing Date of the conditions to the
Closing set forth in Section 1.2(c), at the Closing the parties shall make the following deliveries:
(i)
the Company shall deliver to the Investor one or more certificates evidencing the Common Stock
to be purchased pursuant to Section 1.1 registered in the name of the Investor (or if the shares of the Common Stock
being purchased are to be uncertificated, the Company shall cause the Transfer Agent to register such shares in the
name of the Investor and deliver evidence of such registration to the Investor); and
(ii)
the Investor shall deliver the Purchase Price, by wire transfer of immediately available funds to the
account set forth in the Instruction Sheet for Investor provided with this Agreement.
(c)
Closing Conditions.
(i)
The obligations of the Investor, on the one hand, and the Company, on the other hand, to
consummate the purchase and sale of Common Stock provided for in this Agreement are each subject to the
satisfaction or, to the extent permitted by Law and this Agreement, the written waiver by the Company or the
Investor, as applicable, of the following conditions at the Closing:
(A)
No provision of any Law and no judgment, injunction, order or decree shall prohibit the
Closing or shall prohibit or restrict the Investor from owning or voting any Common Stock to be purchased
pursuant to this Agreement; and
(B)
All Governmental Consents required to have been obtained at or prior to the Closing Date
in connection with the execution, delivery or performance of this Agreement and the consummation of the
transactions contemplated hereby (including the Modification) shall have been obtained and shall be in full
force and effect.
(C)
The sale of Common Stock by the Company pursuant to the Agreements shall have been
approved by the stockholders of the Company to the extent required by Section 5635(d), and any other
applicable provisions, of the Nasdaq Listing Rules.
(D)
The Modification shall have been approved by the holders of the outstanding Debentures,
and by the holder or holders of the Company’s Senior Indebtedness (as defined in the Indenture) required
by
2
the Indenture; the form of supplemental indenture to be entered into in connection with the Modification
shall have been approved by the Company and the Trustee; and such supplemental indenture shall be
executed and delivered by the Company and the Trustee concurrently with the Closing under this
Agreement.
(ii)
The obligation of the Investor to consummate the purchase of Common Stock provided for in this
Agreement is also subject to the satisfaction or written waiver by the Investor of the following conditions at the
Closing:
(A)
The representations and warranties of the Company set forth in this Agreement shall be
true and correct in all respects on and as of the date of this Agreement and on and as of the Closing Date as
though made on and as of the Closing Date, except to the extent that the failure to be true and correct
(without regard to any materiality or Material Adverse Effect qualifications contained therein), would not
reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect and except that
representations and warranties made as of a specified date shall be true and correct as of such date;
(B)
The Company shall have performed and complied with, in all material respects, all
agreements, covenants and conditions required by this Agreement to be performed by it on or prior to the
Closing Date;
(C)
The Investor shall have received a certificate, dated as of the Closing Date, signed on
behalf of the Company by a senior executive officer certifying to the effect that the conditions set forth in
Section 1.2(c)(ii)(A) and Section 1.2(c)(ii)(B) have been satisfied on and as of the Closing Date;
(D)
Since the date of this Agreement, a Material Adverse Effect shall not have occurred and
no change or other event shall have occurred that would reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect;
(E)
The Common Stock to be purchased pursuant to this Agreement shall have been
authorized for listing on the NASDAQ Capital Market or such other market on which the Common Stock is
then listed or quoted, subject to official notice of issuance;
(F)
The Company shall have received (or shall receive concurrently with the Closing) gross
proceeds from the Other Private Placements in an aggregate amount, together with the Purchase Price, of
not less than $6 million;
(G)
The Company and the Investor shall have entered into the Letter Agreement, substantially
in the form attached hereto as Exhibit B (the “NCIF Side Letter”); and
3
(H)
The Investment shall not have caused the Investor, together with other funds controlled or
managed by the Investor or any affiliate (as defined under the SLHC Act and any implementing regulations
issued thereunder) of the Investor, to hold in the aggregate: (1) in excess of 24.95% of the total outstanding
capital stock of the Company; or (2) in excess of 24.95% of any class of voting securities (as defined under
the SLHC Act and any implementing regulations issued thereunder) of the Company.
(iii)
The obligation of the Company to consummate the sale of Common Stock provided for in this
Agreement is also subject to the satisfaction or written waiver by the Company of the following conditions at the
Closing:
(A)
The representations and warranties of the Investor set forth in this Agreement shall be
true and correct in all respects on and as of the date of this Agreement and on and as of the Closing Date as
though made on and as of the Closing Date except where the failure to be true and correct (without regard
to any materiality qualifications contained therein) would not materially adversely affect the ability of the
Investor to perform its obligations hereunder (and except that (1) representations and warranties made as of
a specified date shall be true and correct as of such date and (2) the representations and warranties of the
Investor set forth in Sections 2.3(d) and 2.3(h) shall be true and correct in all respects);
(B)
The Investor shall have performed and complied with, in all material respects, all
agreements, covenants and conditions required by this Agreement to be performed by it on or prior to the
Closing Date; and
(C)
The Company shall have received a certificate, dated as of the Closing Date, signed on
behalf of the Investor by a duly authorized person certifying to the effect that the conditions set forth in
Section 1.2(c)(iii)(A) and Section 1.2(c)(iii)(B) have been satisfied on and as of the Closing Date.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1
Certain Terms.
(a)
As used in this Agreement, the term “Material Adverse Effect” means any circumstance, event, change,
development or effect that, individually or in the aggregate, would reasonably be expected to (i) result in a material adverse effect on
the assets, liabilities, business, financial condition or results of operations of the Company and the Company Subsidiaries, taken as a
whole, or (ii) materially impair or delay the ability of the Company or any of the Company Subsidiaries to perform its or their
obligations under this Agreement to consummate the Closing or any of the transactions contemplated hereby; provided, however, that
4
in determining whether a Material Adverse Effect has occurred under clause (i), there shall be excluded any circumstance, event,
change, development or effect to the extent resulting from (A) actions or omissions of the Company or any Company Subsidiary
expressly required or contemplated by the terms of this Agreement, (B) changes after the date hereof in general economic conditions
in the United States, including financial market volatility or downturns, or in the markets in which the Company and the Company
Subsidiaries operate, (C) changes after the date hereof affecting the banking industry generally, (D) any changes after the date hereof
in applicable Laws or accounting rules or principles, including changes in GAAP, (E) changes in the market price or trading volume
of the Common Stock or the Company’s other outstanding securities (but not the underlying causes of such changes) or (F) any failure
by the Company or any of the Company Subsidiaries to meet any internal projections or forecasts with regard to the assets, liabilities,
business, financial condition or results of operations of the Company and the Company Subsidiaries, taken as a whole (but not the
underlying causes of such failure), in each case to the extent that such circumstance, event, change, development or effect referred to
in clauses (B), (C) and (D) do not have a disproportionate effect on the Company and the Company Subsidiaries compared to other
participants in the industries or markets in which the Company and the Company Subsidiaries operate.
(b)
As used in this Agreement, the term “Previously Disclosed” (i) with regard to any party, means
information set forth in its Disclosure Schedule under Section references corresponding with the provision of this Agreement to which
such information relates (including, in the case of the Company, information identified in the Company’s Disclosure Schedule by
reference to specific portions of the “virtual data room” website established by the Company for use by the Investor in its “due
diligence” examination of the Company; provided, however, that if such information is disclosed in such a way as to make its
relevance or applicability to another provision of this Agreement reasonably apparent on its face, such information shall be deemed to
be responsive to such other provision of this Agreement and (ii) with regard to the Company, includes information publicly disclosed
by the Company in (A) the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, as filed by it with
the Securities and Exchange Commission (the “SEC”), (B) the Company’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2014, as filed by it with the SEC, (C) the Company’s definitive Proxy Statement on Schedule 14A, as filed by it with the
SEC on August 15, 2014, or (D) any Current Report on Form 8-K filed or furnished by it with the SEC since January 1, 2014, in each
case available prior to the date of this Agreement (excluding any risk factor disclosures contained in such documents under the
heading “Risk Factors” and any disclosure of risks included in any “forward-looking statements” disclaimer or other statements that
are similarly non-specific and are predictive or forward-looking in nature). Notwithstanding anything in this Agreement to the
contrary, the mere inclusion of an item in a Disclosure Schedule shall not be deemed an admission that such item represents a material
exception or material fact, event or circumstance or that such item has had or would reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect.
2.2
Representations and Warranties of the Company. Except as Previously Disclosed, the Company hereby
represents and warrants to the Investor, as of the date of this Agreement and as of the Closing Date (except for the representations and
warranties that are as of a specific date, which are made as of that date) that:
5
(a)
Organization and Authority. Each of the Company and the Company Subsidiaries is a corporation or
other entity duly organized and validly existing under the laws of the jurisdiction of its incorporation or organization, is duly qualified
to do business and is in good standing in all jurisdictions where its ownership or leasing of property or the conduct of its business
requires it to be so qualified except where any failure to be so qualified would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect, and has the corporate or other organizational power and authority to own its properties and
assets and to carry on its business as it is now being conducted. The Company has Previously Disclosed correct and complete copies
of the certificate of incorporation and bylaws (or similar governing documents) as amended through the date of this Agreement for the
Company and Broadway Federal Bank, f.s.b. (the “Bank”). The Company is duly registered with the Board of Governors of the
Federal Reserve System (the “Federal Reserve”) as a savings and loan holding company under the Savings and Loan Holding
Company Act, as amended, 12 U.S.C. 1467a (the “SLHC Act”).
(b)
Company Subsidiaries. The Company has Previously Disclosed a true, complete and correct list of all of
its subsidiaries as of the date of this Agreement (each, a “Company Subsidiary” and, collectively, the “Company Subsidiaries”).
Except for the Company Subsidiaries, the Company does not own beneficially, directly or indirectly, more than 5% of any class of
equity securities or similar interests of any corporation, business trust, association or similar organization, and is not, directly or
indirectly, a partner in any partnership or party to any joint venture. The Company owns, directly or indirectly, all of its interests in
each Company Subsidiary free and clear of any and all Liens, except for the Lien of BBCN Bank on all assets of the Company,
including the stock of the Bank owned by the Company. The deposit accounts of the Bank are insured by the Federal Deposit
Insurance Corporation (“FDIC”) to the fullest extent permitted by the Federal Deposit Insurance Act, as amended (the “FDI Act”),
and the rules and regulations of the FDIC thereunder, and all premiums and assessments required to be paid in connection therewith
have been paid when due (after giving effect to any applicable extensions). The Company beneficially owns all of the outstanding
capital securities of, and has sole control of, the Bank.
(c)
Capitalization.
(i)
As of the date hereof, the authorized Capital Stock of the Company consists of 50,000,000 shares
of Common Stock, par value $0.01 per share, 25,000,000 shares of non-voting common stock, par value $0.01 per
share (the “Non-Voting Common Stock”), and 1,000,000 shares of preferred stock, par value $0.01 per share (the
“Company Preferred Stock”).
(ii)
As of the close of business on September 30, 2014 (the “Capitalization Date”), the Company had
outstanding: 19,548,959 shares of Common Stock, 698,200 shares of Non-Voting Common Stock and no shares of
Company Preferred Stock.
(iii)
As of the close of business on the Capitalization Date, other than in respect of awards outstanding
under or issuable pursuant to the Company’s 1996 Long-Term Incentive Plan, 1996 Stock Option Plan and 2008
Long-Term
6
Incentive Plan (the “Company Stock Plans”) in respect of which an aggregate of 2,000,000 shares of Common
Stock have been reserved for issuance, no shares of Common Stock or Company Preferred Stock were reserved for
issuance. Since the Capitalization Date and through the date of this Agreement, except in connection with this
Agreement and the transactions contemplated hereby, including the Investment and the Other Private Placements,
the Company has not (A) issued or authorized the issuance of any shares of Common Stock or Company Preferred
Stock, or any securities convertible into or exchangeable or exercisable for shares of Common Stock or Company
Preferred Stock, (B) reserved for issuance any shares of Common Stock or Company Preferred Stock or
(C) repurchased or redeemed, or authorized the repurchase or redemption of, any shares of Common Stock or
Company Preferred Stock.
(iv)
All of the issued and outstanding shares of Common Stock and Company Preferred Stock have
been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, except for
certain preemptive rights set forth in (A) those certain letter agreements, each dated as of August 22, 2013, between
the Company and, respectively, (1) BBCN Bancorp, Inc., (2) CJA Private Equity Financial Restructuring Master
Fund I L.P. (as amended, restated or otherwise modified from time to time, the “CJA Letter Agreement”), and
(3) National Community Investment Fund (as amended, restated or otherwise modified from time to time, the
“NCIF Letter Agreement” or (B) the NCIF Side Letter or a separate side letter between the Company and
Gapstow Financial Growth Capital Fund I L.P. (collectively, the “Side Letters”). None of the outstanding shares of
Capital Stock or other securities of the Company or any of the Company Subsidiaries was issued, sold or offered by
the Company or any Company Subsidiary in violation of the Securities Act or the securities or blue sky laws of any
state or jurisdiction. No bonds, debentures, notes or other indebtedness having the right to vote on any matters on
which the shareholders of the Company may vote (“Voting Debt”) are issued and outstanding.
(v)
As of the date of this Agreement, except for the outstanding awards under the Company Stock
Plans listed on Section 2.2(c) of the Disclosure Schedule, and the Agreements, the Company does not have and is
not bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character
calling for the purchase or issuance of, or securities or rights convertible into or exchangeable or exercisable for, any
shares of Common Stock or Company Preferred Stock or any other equity securities of the Company or Voting Debt
or any securities representing the right to purchase or otherwise receive any shares of Capital Stock of the Company.
(d)
Authorization; No Conflicts; Shareholder Approval.
(i)
The Company has the corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. Subject to receipt of the approval by the Company’s stockholders required by the
NASDAQ
7
Stock Market (“NASDAQ”) pursuant to Rule 5635(c) and (d) and any other applicable provisions of the Nasdaq
Listing Rules to issue Common Stock in connection with the Investment and the Other Private Placements and the
approval by the Company’s stockholders of an amendment to Article FOURTH of the Company’s Certificate of
Incorporation to increase the number of shares of Non-Voting Common Stock the Company is authorized to issue to
a number that will permit the issuance and sale of all of such stock contemplated by the Agreements, the execution,
delivery and performance of this Agreement by the Company and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company and no
further approval or authorization is required on the part of the Company or its shareholders. The Board of Directors
has unanimously approved the transactions contemplated by this Agreement, including the Investment, the Other
Private Placements and the Modification. This Agreement has been duly and validly executed and delivered by the
Company and, assuming due authorization, execution and delivery by the Investor, is the valid and binding
obligation of the Company enforceable against the Company in accordance with its terms, except as enforcement
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar
laws of general applicability relating to or affecting creditors’ rights or by general equity principles (whether applied
in equity or at law).
(ii)
Neither the execution and delivery by the Company of this Agreement nor the consummation of
the transactions contemplated hereby, nor compliance by the Company with any of the provisions hereof, will
(A) violate, conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in the termination of, or result in the loss
of any benefit or creation of any right on the part of any third party under, or accelerate the performance required by,
or result in a right of termination or acceleration of, or result in the creation of any liens, charges, adverse rights or
claims, pledges, covenants, title defects, security interests or other encumbrances of any kind (“Liens”) upon any of
the properties or assets of the Company or any Company Subsidiary, under any of the terms, conditions or
provisions of (1) the certificate of incorporation or bylaws (or similar governing documents) of the Company and
each Company Subsidiary or (2) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which the Company or any of the Company Subsidiaries is a party or by which it
may be bound, or to which the Company or any of the Company Subsidiaries, or any of the properties or assets of
the Company or any of the Company Subsidiaries may be subject, or (B) violate any Law applicable to the
Company or any of the Company Subsidiaries or any of their respective properties or assets except in the case of
clauses (A)(2) and (B) for such violations, conflicts and breaches as would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
(e)
Governmental Consents. Except as set forth on Section 2.2(e) of the Disclosure Schedule, no
Governmental Consents are necessary for the execution and delivery of
8
this Agreement or for the sale by the Company of Common Stock to the Investor pursuant to this Agreement.
(f)
Litigation and Other Proceedings. Except as would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect, there is no pending or, to the Knowledge of the Company, threatened claim, action, suit,
arbitration, complaint, charge or investigation or proceeding (each an “Action”) against the Company or any Company Subsidiary or
any of its assets, rights or properties, nor is the Company or any Company Subsidiary a party or named as subject to the provisions of
any order, writ, injunction, settlement, judgment or decree of any court, arbitrator or government agency, or instrumentality. There
has not been, and to the Knowledge of the Company, there is not pending or contemplated, any investigation by the SEC involving the
Company or any current or former director or officer of the Company in his or her capacity as such.
(g)
Financial Statements. The audited consolidated balance sheets of the Company and the Company
Subsidiaries and the related consolidated statements of operations, changes in stockholders’ equity and cash flows, together with the
notes thereto, included in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2013 (the
“Company Financial Statements”) (i) have been prepared from, and are in accordance with, the books and records of the Company
and the Company Subsidiaries, (ii) complied, as of their respective date of such filing, in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC with respect thereto, (iii) have been prepared in
accordance with GAAP applied on a consistent basis and (iv) present fairly in all material respects the consolidated financial position
of the Company and the Company Subsidiaries at the dates and the consolidated results of operations, changes in shareholders’ equity
and cash flows of the Company and the Company Subsidiaries for the periods stated therein.
(h)
Reports. Since December 31, 2010, the Company and each Company Subsidiary have filed all material
reports, registrations, documents, filings, statements and submissions, together with any required amendments thereto, that they were
required to file with any Governmental Entity (the foregoing, collectively, being referred to herein as the “Company Reports”) and
have paid all material fees and assessments due and payable in connection therewith. As of their respective filing dates, or as
subsequently amended prior to the date hereof, the Company Reports complied in all material respects with all statutes and applicable
rules and regulations of the applicable Governmental Entities. As of the date of this Agreement, there are no outstanding comments
from the SEC or any other Governmental Entity with respect to any Company Report that were the subject of written correspondence
that have not been resolved. The Company Reports, including the documents incorporated by reference in each of them, each
contained all the information required to be included in it and, when it was filed and, as of the date of each such Company Report filed
with the SEC, or if amended prior to the date of this Agreement, as of the date of such amendment, did not contain an untrue statement
of a material fact or omit to state a material fact necessary in order to make the statements made in it, in light of the circumstances
under which they were made, not misleading and complied as to form in all material respects with the applicable requirements of the
Securities Act and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). No executive officer of
9
the Company has failed in any respect to make the certifications required of him or her under Section 302 or 906 of the SarbanesOxley Act of 2002.
(i)
Internal Accounting and Disclosure Controls. The records, systems, controls, data and information of
the Company and the Company Subsidiaries are recorded, stored, maintained and operated under means (including any electronic,
mechanical or photographic process, whether computerized or not) that are under the exclusive ownership and direct control of the
Company or the Company Subsidiaries or accountants (including all means of access thereto and therefrom) or reputable banking
industry service providers, except for any non-exclusive ownership and non-direct control that would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the system of internal accounting controls described below in this
Section 2.2(i). The Company (i) has implemented and maintains disclosure controls and procedures (as defined in Rule 13a-15(e) of
the Exchange Act) intended to ensure that material information relating to the Company, including its consolidated Subsidiaries, is
made known to the chief executive officer or executive chairman and the chief financial officer of the Company by others within those
entities, and (ii) has disclosed, based on its most recent evaluation prior to the date of this Agreement, to the Company’s outside
auditors and the audit committee of the Board of Directors (A) any significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that are reasonably likely to
adversely affect the Company’s ability to record, process, summarize and report financial information, and (B) any fraud, whether or
not material, that involves management or other employees who have a significant role in the Company’s internal controls over
financial reporting. As of the date of this Agreement, the Company has no Knowledge of any reason that its outside auditors and its
chief executive officer or executive chairman and chief financial officer shall not be able to give the certifications and attestations
required pursuant to the rules and regulations adopted pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, without
qualification, when next due. Since December 31, 2010, neither the Company nor any Company Subsidiary nor, to the Knowledge of
the Company, any director, officer, employee, auditor, accountant or representative of the Company or any Company Subsidiary has
received or otherwise had or obtained knowledge of any material complaint, allegation, assertion or claim, whether written or oral,
regarding the accounting or auditing practices, procedures, methodologies or methods of the Company or any Company Subsidiary or
their respective internal accounting controls, including any material complaint, allegation, assertion or claim that the Company or any
Company Subsidiary has engaged in questionable accounting or auditing practices.
(j)
Risk Management Instruments. All material derivative instruments, including swaps, caps, floors and
option agreements entered into for the Company’s or any of the Company Subsidiaries’ own account were entered into (i) only in the
ordinary course of business, (ii) in accordance with prudent practices and in all material respects with all applicable Laws and
(iii) with counterparties believed to be financially responsible at the time; and each of them constitutes the valid and legally binding
obligation of the Company or any Company Subsidiary, as applicable, enforceable in accordance with its terms. Neither the Company
nor, to the Knowledge of the Company, any other party thereto is in breach of any of its material obligations under any such
agreement or arrangement.
10
(k)
No Undisclosed Liabilities. There are no liabilities of the Company or any of the Company Subsidiaries of
any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise, except for (i) liabilities
adequately reflected or reserved against in accordance with GAAP in the Company’s audited balance sheet as of December 31, 2013
and (ii) liabilities that have arisen in the ordinary and usual course of business and consistent with past practice since December 31,
2013 and that have not or would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
(l)
Mortgage Lending. The Company and each of the Company Subsidiaries have complied in all material
respects with, and all documentation in connection with the origination, processing, underwriting and credit approval of any mortgage
loan originated, purchased or serviced by the Company or any Company Subsidiary has satisfied, in all material respects (i) all Laws
with respect to the origination, insuring, purchase, sale, servicing, or filing of claims in connection with mortgage loans, including all
Laws relating to real estate settlement procedures, consumer credit protection, truth in lending laws, usury limitations, fair housing,
transfers of servicing, collection practices, equal credit opportunity and adjustable rate mortgages, (ii) the responsibilities and
obligations relating to mortgage loans set forth in any agreement between the Company and any Agency, Loan Investor or Insurer,
(iii) the applicable rules, regulations, guidelines, handbooks and other requirements of any Agency, Loan Investor or Insurer and
(iv) the terms and provisions of any mortgage or other collateral documents and other loan documents with respect to each mortgage
loan.
(m)
Bank Secrecy Act; Anti-Money Laundering; OFAC; and Customer Information. The Company is not
aware of, has not been advised of, and, to the Knowledge of the Company, has no reason to believe that any facts or circumstances
exist that would cause it or any Company Subsidiary to be deemed to be not operating in compliance, in all material respects, with the
Bank Secrecy Act of 1970, as amended, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept
and Obstruct Terrorism Act of 2001 (also known as the USA PATRIOT Act), any order or regulation issued by the U.S. Department
of the Treasury’s Office of Foreign Assets Control (“OFAC”), or any other applicable anti-money laundering or anti-terroristfinancing statute, rule or regulation. The Company is not aware of any facts or circumstances that would cause it to believe that any
nonpublic customer information has been disclosed to or accessed by an unauthorized third party in a manner that would cause it to
undertake any material remedial action. The Company and each of the Company Subsidiaries have adopted and implemented an antimoney laundering program that contains adequate and appropriate customer identification verification procedures that comply with
the USA PATRIOT Act and such anti-money laundering program meets the requirements in all material respects of Section 352 of the
USA PATRIOT Act and the regulations thereunder, and they have complied in all respects with any requirements to file reports and
other necessary documents as required by the USA PATRIOT Act and the regulations thereunder. The Company will not directly or
indirectly use the proceeds of the sale of the Common Stock pursuant to transactions contemplated by this Agreement, or lend,
contribute or otherwise make available such proceeds to any Company Subsidiary, joint venture partner or other Person, towards any
sales or operations in any country appearing on the OFAC Specially Designated Nationals List (“SDN List”) or for the purpose of
financing the activities of any Person currently appearing on the SDN List.
11
(n)
Certain Payments. Neither the Company nor any of the Company Subsidiaries, nor any directors, officers,
nor to the Knowledge of the Company, employees or any of their Affiliates or any other Person who to the Knowledge of the
Company is associated with or acting on behalf of the Company or any of the Company Subsidiaries has directly or indirectly (i) made
any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment in material violation of any Law to any
Person, private or public, regardless of form, whether in money, property, or services (A) to obtain favorable treatment in securing
business for the Company or any of the Company Subsidiaries, (B) to pay for favorable treatment for business secured by the
Company or any of the Company Subsidiaries, or (C) to obtain special concessions or for special concessions already obtained, for or
in respect of the Company or any of the Company Subsidiaries or (ii) established or maintained any fund or asset with respect to the
Company or any of the Company Subsidiaries that was required by Law or GAAP to have been recorded and was not recorded in the
books and records of the Company or any of the Company Subsidiaries.
(o)
Absence of Certain Changes. Since December 31, 2013 and except as Previously Disclosed or as required
or contemplated by the terms of this Agreement, (i) the Company and the Company Subsidiaries have conducted their respective
businesses in all material respects in the ordinary and usual course of business consistent with past practices, (ii) none of the Company
or any Company Subsidiary has issued any securities (other than Common Stock and other equity-based awards issued prior to the
date of this Agreement pursuant to the Company Stock Plans and reflected in the numbers set forth in Section 2.2(c)), (iii) the
Company has not made or declared any distribution in cash or in kind to its shareholders or issued or repurchased any shares of its
Capital Stock, (iv) through (and including) the date of this Agreement, no fact, event, change, condition, development, circumstance
or effect has occurred that has had or would reasonably be expected to have, individually or in the aggregate, a Material Adverse
Effect and (v) no material default (or event which, with notice or lapse of time, or both, would constitute a material default) exists on
the part of the Company or any Company Subsidiary in the due performance and observance of any term, covenant or condition of any
agreement to which the Company or any Company Subsidiary is a party and which would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
(p)
Compliance with Laws. The Company and each Company Subsidiary have all material permits, licenses,
franchises, authorizations, orders and approvals of, and have made all filings, applications and registrations with, Governmental
Entities that are required in order to permit them to own or lease their properties and assets and to carry on their business as presently
conducted and that are material to the business of the Company and each Company Subsidiary. The Company and each Company
Subsidiary have complied in all material respects and (i) are not in default or violation in any respect of, (ii) are not under
investigation with respect to, and (iii) have not been threatened to be charged with or given notice of any material violation of, any
applicable material domestic (federal, state or local) or foreign law, statute, ordinance, license, rule, regulation, policy or guideline,
order, demand, writ, injunction, decree or judgment of any Governmental Entity (each, a “Law”), other than such noncompliance,
defaults or violations as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. Except
for statutory or regulatory restrictions of general application, restrictions applicable to recipients of funds under the Troubled Asset
Relief Program of the Treasury, the Order to Cease and Desist issued by the Office of Thrift
12
Supervision to the Company with the Company’s consent, effective September 9, 2010, and the Consent Order issued by the Office of
the Comptroller of the Currency to the Bank with the Bank’s consent, effective October 30, 2013 (each, individually a “Regulatory
Order” and, together, the “Regulatory Orders”), no Governmental Entity has placed any material restriction on the business or
properties of the Company or any of the Company Subsidiaries. As of the date hereof, the Bank has a Community Reinvestment Act
rating of “outstanding.”
(q)
Agreements with Regulatory Agencies. Except for the Regulatory Orders, (i) the Company and the
Company Subsidiaries (A) are not subject to any cease-and-desist or other similar order or enforcement action issued by, (B) are not a
party to any written agreement, consent agreement or memorandum of understanding with, (C) are not a party to any commitment
letter or similar undertaking to, and (D) are not subject to any capital directive by, and (ii) since December 31, 2013, neither the
Company nor any of the Company Subsidiaries has adopted any board resolutions at the request of any Governmental Entity that
currently restricts in any material respect the conduct of its business or that in any material manner relates to its capital adequacy, its
liquidity and funding policies and practices, its ability to pay dividends, its credit, risk management or compliance policies, its internal
controls, its management or its operations or business (each item in this sentence, including the Regulatory Orders, being referred to
herein as a “Regulatory Agreement”), nor has the Company nor any of the Company Subsidiaries been advised since December 31,
2013 by any Governmental Entity that it is considering issuing, initiating, ordering, or requesting any such Regulatory Agreement.
Except as set forth on Section 2.2(q) of the Disclosure Schedule, the Company and the Company Subsidiaries are in compliance in all
material respects with each Regulatory Agreement to which they are party or subject, and the Company and the Company Subsidiaries
have not received any notice from any Governmental Entity indicating that either the Company or any of the Company Subsidiaries is
not in compliance in all material respects with any such Regulatory Agreement.
(r)
Contracts. The Company has Previously Disclosed or provided (by hard copy, electronic data room or
otherwise) to the Investor or its representatives true, correct and complete copies of each of the following to which the Company or
any Company Subsidiary is a party, each of which is set forth on Section 2.2(r) of the Disclosure Schedule (each, a “Material
Contract”):
(i)
any contract or agreement relating to indebtedness of the Company or any Company Subsidiary
for borrowed money, letters of credit, capital lease obligations, obligations secured by a Lien or interest rate or
currency hedging agreements (including guarantees in respect of any of the foregoing, but in any event excluding
trade payables, securities transactions and brokerage agreements arising in the ordinary course of business,
intercompany indebtedness and immaterial leases for telephones, copy machines, facsimile machines and other
office equipment) in excess of $200,000, except for those issued in the ordinary course of business;
(ii)
any contract or agreement that is a “material contract” within the meaning of Item 601(b)(10) of
Regulation S-K;
13
(iii)
any contract or agreement limiting, in any material respect, the ability of the Company or any of
the Company Subsidiaries to engage in any line of business or to compete, whether by restricting territories,
customers or otherwise, or in any other material respect, with any Person;
(iv)
any contract or agreement that concerns the sale or acquisition of any material portion of the
Company’s business;
(v)
any alliance, cooperation, joint venture, shareholders, partnership or similar agreement involving a
sharing of profits or losses relating to the Company or any Company Subsidiary;
(vi)
any contract or agreement involving annual payments in excess of $200,000 that cannot be
cancelled by the Company or a Company Subsidiary without penalty on not more than 90 days’ notice;
(vii)
any material hedge, collar, option, forward purchasing, swap, derivative or similar agreement,
understanding or undertaking;
(viii)
any contract or agreement with respect to the employment or service of any current or former
directors, officers, employees or consultants of the Company or any of the Company Subsidiaries other than, with
respect to non-executive employees and consultants, in the ordinary course of business; and
(ix)
any contract or agreement containing any (x) non-competition or exclusive dealing obligations or
other obligation which purports to limit or restrict in any respect the ability of the Company or any Company
Subsidiary to solicit customers or the manner in which, or the localities in which, all or any portion of the business
of the Company or the Company Subsidiaries is or can be conducted, or (y) right of first refusal or right of first offer
or similar right or that limits or purports to limit the ability of the Company or any of the Company Subsidiaries to
own, operate, sell, transfer, pledge or otherwise dispose of any material assets or business.
Each Material Contract (A) is legal, valid and binding on the Company and the Company Subsidiaries which are a party to such
contract, (B) is in full force and effect and enforceable in accordance with its terms and (C) will continue to be legal, valid, binding,
enforceable, and in full force and effect in all material respects following the consummation of the transactions contemplated by this
Agreement. Neither the Company nor any of the Company Subsidiaries, nor to the Knowledge of the Company, any other party
thereto is in material violation or default under any Material Contract. No benefits under any Material Contract will be increased, and
no vesting of any benefits under any Material Contract will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement, nor will the value of any of the benefits under any Material Contract be calculated on the basis of any of the
transactions contemplated by this Agreement. The Company and the Company Subsidiaries, and to the Knowledge of the Company,
each of the other parties thereto, have performed in all material respects all material obligations required to be performed by them
under each Material Contract, and to the
14
Knowledge of the Company, no event has occurred that with notice or lapse of time would constitute a material breach or default or
permit termination, modification, or acceleration, under the Material Contracts.
(s)
Insurance. The Company and each of the Company Subsidiaries are presently insured, and have been
insured for at least the past two years, for reasonable amounts with financially sound and reputable insurance companies against such
risks as companies engaged in a similar business would, in accordance with good business practice, customarily be insured. All of the
policies, bonds and other arrangements providing for the foregoing (the “Company Insurance Policies”) are in full force and effect,
the premiums due and payable thereon have been or will be timely paid through the Closing Date, and there is no material breach or
default (and no condition exists or event has occurred that, with the giving of notice or lapse of time or both, would constitute such a
material breach or default) by the Company or any of the Company Subsidiaries under any of the Company Insurance Policies or, to
the Knowledge of the Company, by any other party to the Company Insurance Policies. Neither the Company nor any of the
Company Subsidiaries has received any written notice of cancellation or non-renewal of any Company Insurance Policy nor, to the
Knowledge of the Company, is the termination of any such policies threatened in writing by the insurer, and there is no material claim
for coverage by the Company, or any of the Company Subsidiaries, pending under any of such Company Insurance Policies as to
which coverage has been denied or disputed by the underwriters of such Company Insurance Policies or in respect of which such
underwriters have reserved their rights.
(t)
Title. The Company and the Company Subsidiaries have good and marketable title in fee simple to all real
property owned by them and good and valid title to all material personal property owned by them, in each case free and clear of all
Liens, except for Liens which do not materially affect the value of such property or do not interfere with the use made and proposed to
be made of such property by the Company or any Company Subsidiary. Any real property and facilities held under lease by the
Company or the Company Subsidiaries are valid, subsisting and enforceable leases with such exceptions that are not material and do
not interfere with the use made and proposed to be made of such property and facilities by the Company or the Company Subsidiaries.
(u)
Employee Benefits.
(i)
Section 2.2(u) of the Disclosure Schedule sets forth a correct and complete list of each “employee
benefit plan” (within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended (“ERISA”), including, without limitation, multiemployer plans within the meaning of Section 3(37) of
ERISA), and all stock purchase, stock option, severance, employment, change-in-control, fringe benefit, bonus,
incentive, deferred compensation and all other employee benefit plans, agreements, programs, policies or other
arrangements, whether or not subject to ERISA (including any funding mechanism therefor now in effect or required
in the future as a result of the transactions contemplated by this Agreement or otherwise), whether formal or
informal, oral or written, under which (A) any current or former employee or director of the Company or any of the
Company Subsidiaries
15
(the “Company Employees”) has any present or future right to benefits and which are contributed to, sponsored by
or maintained by the Company or any of the Company Subsidiaries or (B) the Company or any Company Subsidiary
has had or has any present or future liability. All such plans, agreements, programs, policies and arrangements shall
be collectively referred to as the “Benefit Plans.”
(ii)
(A) Each Benefit Plan has been established and administered in all material respects in accordance
with its terms, and in compliance with the applicable provisions of ERISA, the Code and other Laws; (B) no
“reportable event” (as such term is defined in Section 4043 of ERISA) that could reasonably be expected to result in
material liability has occurred with respect to any Benefit Plan, and (C) no non-exempt “prohibited transaction” (as
such term is defined in Section 406 of ERISA and Section 4975 of the Code) has been engaged in by the Company
or any Company Subsidiary with respect to any Benefit Plan that has or is expected to result in any material liability
or “accumulated funding deficiency” (as such term is defined in Section 302 of ERISA and Section 412 of the Code
(whether or not waived)).
(iii)
The Company and the Company Subsidiaries will be in compliance, as of the Closing Date, with
Sections 111 and 302 of the Emergency Economic Stabilization Act of 2008, as amended by the U.S. American
Recovery and Reinvestment Act of 2009, including all guidance issued thereunder by a Governmental Entity
(collectively “EESA”).
(v)
Taxes. All material Tax Returns required to be filed by, or on behalf of, Company or the Company
Subsidiaries have been timely filed, or will be timely filed, in accordance with all Laws, and all such Tax Returns are, or shall be at
the time of filing, complete and correct in all material respects. The Company and the Company Subsidiaries have timely paid all
material Taxes due and payable (whether or not shown on such Tax Returns), or, where payment is not yet due, have made adequate
provisions in accordance with GAAP. There are no Liens with respect to Taxes upon any of the assets or properties of either the
Company or the Company Subsidiaries other than with respect to Taxes not yet due and payable.
(w)
Labor.
(i)
Employees of the Company and the Company Subsidiaries are not represented by any labor union
nor are any collective bargaining agreements otherwise in effect with respect to such employees. No labor
organization or group of employees of the Company or any Company Subsidiary has made a pending demand for
recognition or certification, and there are no representation or certification proceedings or petitions presently
pending or threatened to be brought or filed with the National Labor Relations Board or any other labor relations
tribunal or authority, nor have there been in the last three years. There are no strikes, work stoppages, slowdowns,
labor picketing lockouts, material arbitrations or material grievances, or other material labor disputes pending or, to
the Knowledge of the Company, threatened against or involving the Company or any Company Subsidiary, nor have
there been any in the past year.
16
(ii)
Except as would not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect, the Company and the Company Subsidiaries are in compliance with all federal and state Laws and
requirements respecting employment and employment practices, terms and conditions of employment, collective
bargaining, disability, immigration, health and safety, wages, hours and benefits, non-discrimination in employment,
workers’ compensation and the collection and payment of withholding and/or payroll taxes and similar taxes.
(iii)
Except as would not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect, there is no charge or complaint pending or threatened before any Governmental Entity alleging
unlawful discrimination in employment practices, unfair labor practices or other unlawful employment practices by
the Company or any Company Subsidiary.
(x)
Brokers and Finders. Except for BlackTorch Securities, LLC (the “Placement Agent”) and the fees
payable thereto or to its assigns (which fees are to be paid by the Company), neither the Company nor any of its officers, directors,
employees or agents has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees,
commissions or finder’s fees, and no broker or finder has acted directly or indirectly for the Company in connection with this
Agreement or the transactions contemplated hereby.
(y)
Loan Portfolio. As of the date of this Agreement, the characteristics of the loan portfolio of the Company
have not materially and adversely changed from the characteristics of the loan portfolio as of December 31, 2013.
(z)
Offering of Securities. Neither the Company nor any Person acting on its behalf has taken any action
(including any offering of any securities of the Company under circumstances which would require the integration of such offering
with the offering of any of the Common Stock to be issued pursuant to this Agreement under the Securities Act and the rules and
regulations of the SEC promulgated thereunder) which would subject the offering, issuance or sale of any of the Common Stock to be
issued pursuant to this Agreement to be subject to the registration requirements of the Securities Act. Neither the Company nor any
Person acting on its behalf has engaged or will engage in any form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with any offer or sale of the Common Stock pursuant to the transactions
contemplated by this Agreement. Assuming the accuracy of the Investor’s representations and warranties set forth in this Agreement,
no registration under the Securities Act is required for the offer and sale of the Common Stock by the Company to the Investor.
(aa)
Investment Company Status. The Company is not, and upon consummation of the transactions
contemplated by this Agreement will not be, an “investment company,” a company controlled by an “investment company” or an
“affiliated Person” of, or “promoter” or “principal underwriter” of, an “investment company,” as such terms are defined in the
Investment Company Act of 1940, as amended.
17
(bb)
Affiliate Transactions. No officer, director, five percent (5%) shareholder or other Affiliate of the
Company (or any Company Subsidiary), or any individual who, to the Knowledge of the Company, is related by marriage or adoption
to or shares the same home as any such Person, or any entity which, to the Knowledge of the Company, is controlled by any such
Person (collectively, an “Insider”), is a party to any contract or transaction with the Company (or any Company Subsidiary) which
pertains to the business of the Company (or any Company Subsidiary) or has any interest in any property, real or personal or mixed,
tangible or intangible, used in or pertaining to the business of the Company (or any Company Subsidiary). The foregoing
representation and warranty does not include deposits at the Company (or any Company Subsidiary) or loans of $250,000 or less made
in the ordinary course of business in compliance with Regulation O and other applicable Law.
(cc)
Anti-takeover Provisions Not Applicable. The Board of Directors has taken all necessary action to ensure
that the transactions contemplated by this Agreement and the consummation of the transactions contemplated hereby will be exempt
from any anti-takeover or similar provisions of the Company’s certificate of incorporation and bylaws, and any provisions of any
applicable “moratorium”, “control share”, “fair price”, “interested shareholder” or other anti-takeover Laws and regulations of any
jurisdiction.
(dd)
Issuance of the Common Stock. Upon receipt of the stockholder approvals referred to in Section 2.2(d)
(i), the issuance of the Common Stock in connection with the transactions contemplated by this Agreement has been duly authorized
and such Common Stock, when issued and paid for in accordance with the terms of this Agreement, will be duly and validly issued,
fully paid and nonassessable and free and clear of all Liens, other than restrictions on transfer imposed by applicable securities Laws,
and shall not be subject to preemptive or similar rights except as set forth in Section 2.2(c)(iv).
2.3
Representations and Warranties of the Investor. Except as Previously Disclosed, the Investor hereby represents
and warrants to the Company, as of the date hereof and as of the Closing Date (except for the representations and warranties that are
as of a specific date which are made as of that date) that:
(a)
Organization and Authority. The Investor is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization, is duly qualified to do business and is in good standing in all jurisdictions where its
ownership or leasing of property or the conduct of its business requires it to be so qualified and where failure to be so qualified would
be reasonably expected to materially and adversely impair or delay its ability to perform its obligations under this Agreement or to
consummate the transactions contemplated hereby.
(b)
Authorization; No Conflicts.
(i)
The Investor has the necessary power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized by its board of directors, general
partner or managing members, investment committee,
18
investment adviser or other authorized person, as the case may be, and no further approval or authorization by any of
its shareholders, partners or other equity owners, as the case may be, is required. This Agreement has been duly and
validly executed and delivered by the Investor and, assuming due authorization, execution and delivery by the
Company is the valid and binding obligation of the Investor enforceable against the Investor in accordance with its
terms (except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar laws of general applicability relating to or affecting creditors’ rights or by general
equity principles).
(ii)
Neither the execution, delivery and performance by the Investor of this Agreement nor the
consummation of the transactions contemplated hereby, nor compliance by the Investor with any of the provisions
hereof, will (A) violate, conflict with, or result in a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or acceleration of, or result in the creation
of any Liens upon any of the properties or assets of the Investor under any of the terms, conditions or provisions of
(1) its certificate of incorporation or bylaws, its certificate of limited partnership or partnership agreement or its
similar governing documents or (2) any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which the Investor is a party or by which the Investor may be bound, or to which
the Investor or any of the properties or assets of the Investor may be subject, or (B) violate any Law applicable to the
Investor or any of its properties or assets except in the case of clauses (A)(2) and (B) for such violations, conflicts
and breaches as would not reasonably be expected to materially adversely affect the Investor’s ability to perform its
obligations under this Agreement or consummate the transactions contemplated hereby on a timely basis.
(c)
Governmental Consents. Except as set forth in the Disclosure Schedule, no Governmental Consents are
necessary for the execution and delivery of this Agreement or for the purchase by the Investor of the Common Stock pursuant to this
Agreement.
(d)
Purchase for Investment; Accredited Investor Status. The Investor acknowledges that the Common
Stock to be purchased by the Investor pursuant to this Agreement has not been registered under the Securities Act or under any state
securities laws and may not be resold or transferred by the Investor without such registration or appropriate reliance on any available
exemption from such requirements. The Investor (i) is acquiring the Common Stock pursuant to an exemption from the registration
requirements of the Securities Act and other applicable securities laws solely for investment with no present intention to distribute any
of the Common Stock to any Person, (ii) will not sell or otherwise dispose of any of the Common Stock, except in compliance with the
registration requirements or exemption provisions of the Securities Act and any other applicable securities laws, (iii) has such
knowledge and experience in financial and business matters and in investments of this type that it is capable of evaluating the merits
and risks of its investment in the Common Stock and of making an informed
19
investment decision and (iv) is an “accredited investor” (as that term is defined by Rule 501 of the Securities Act).
(e)
Brokers and Finders. Neither the Investor, nor its respective Affiliates nor any of their respective officers
or directors, has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions
or finder’s fees, and no broker or finder has acted directly or indirectly for the Investor in connection with this Agreement or the
transactions contemplated hereby. The Investor acknowledges that it is purchasing the Common Stock directly from the Company
and not from the Placement Agent.
(f)
Investment Decision. The Investor, or the duly appointed investment manager to the Investor (the
“Investment Manager”), if applicable, has independently evaluated the merits of its decision to purchase the Common Stock
pursuant to this Agreement, and the Investor confirms that neither it, nor its Investment Manager, if applicable, has relied on the
advice of any other person’s business and/or legal counsel in making such decision. The Investor understands that nothing in this
Agreement or any other materials presented by or on behalf of the Company to the Investor in connection with the purchase of the
Common Stock constitutes legal, tax or investment advice. The Investor has consulted such accounting, legal, tax and investment
advisors as it has deemed necessary or appropriate in connection with its purchase of the Common Stock. The Investor understands
that the Placement Agent has acted solely as the agent of the Company in this placement of the Common Stock and the Investor has
not relied on the business or legal advice of the Placement Agent or any of its agents, counsel or Affiliates in making its investment
decision hereunder, and confirms that none of such persons has made any representations or warranties to the Investor in connection
with the transactions contemplated by this Agreement. Except as Previously Disclosed and except for this Agreement and the Side
Letter, there are no agreements or understandings with respect to the transactions contemplated by this Agreement between the
Investor or any of its Affiliates, on the one hand, and (i) any of the Other Investors or any of their respective Affiliates, in each case,
the identity of which is known to the Investor, (ii) the Company or (iii) the Company Subsidiaries, on the other hand.
(g)
Financial Capability. At the Closing, the Investor shall have available all funds necessary to consummate
the purchase of Common Stock on the terms and conditions contemplated by this Agreement.
(h)
Access to Information. The Investor acknowledges that it has been afforded (i) the opportunity to ask
such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and
conditions of the offering of the Common Stock and the merits and risks of investing in the Common Stock; (ii) access to information
about the Company and the Company Subsidiaries and their respective financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its investment; (iii) the opportunity to obtain such additional information
that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment
decision with respect to the Investment; and (iv) the opportunity to ask questions of management.
20
(i)
No Reliance. The Investor has not relied on any representation or warranty in connection with the
Investment other than those contained in this Agreement.
(j)
No Coordinated Acquisition. Except as Previously Disclosed, the Investor (i) reached its decision to
invest in the Common Stock independently from any other Person known by the Investor to be a potential investor in the Company,
other than any Affiliates of the Investor that are also investing in the Other Private Placements, (any such person, a “Potential
Investor”), (ii) is not affiliated with any other Potential Investor, (iii) is not advised or managed by an advisor or manager that advises
or manages any other Potential Investor, other than any Affiliates of the Investor that are also investing in the Other Private
Placements, (iv) has not entered into any agreement or understanding, whether written or not reduced to writing, with any other
Potential Investor to act in concert for the purpose of exercising a controlling influence over the Company or any Company
Subsidiaries, including, but not limited to, any agreements or understandings regarding the voting or transfer of shares of the
Company, (v) has not shared due diligence materials prepared by such Investor or any of its advisors or representatives with respect to
the Company or any Company Subsidiaries with any other Potential Investor, (vi) has not been induced, nor has induced any other
Potential Investor, to enter into the transactions contemplated by this Agreement by any other Potential Investor, (vii) was not notified
of or provided the opportunity to enter into the transactions contemplated by this Agreement pursuant to the terms of any agreement or
informal understanding with, or otherwise acting in concert with, any other Potential Investor and was not required by the terms of any
agreement or informal understanding to so notify any other Potential Investor, (viii) is not a party to any formal or informal
understanding with any other Potential Investor to make a coordinated acquisition of stock of the Company, and the investment
decision of the Investor is not based on the investment decision of any other Potential Investor, (ix) is not a party to any formal or
informal agreement or understanding concerning the appointment of any individual to the Board of Directors (other than as set forth in
the Side Letters, the CJA Letter Agreement and the NCIF Letter Agreement, (x) will not, by reason of the Investment, file, be required
to file, or be required to be included in a Schedule 13D or Schedule 13G pursuant to the United States federal securities laws, (xi) has
not engaged as part of a group consisting of substantially the same entities as the Potential Investors, in substantially the same
combination of interests, in any additional banking or nonbanking activities or business ventures in the United States and (xii) will not
pay any other Potential Investor any fee in connection with the transactions contemplated hereby. Except as Previously Disclosed, the
Investor does not presently hold any capital stock of the Company.
ARTICLE 3
COVENANTS
3.1
Conduct of Business Prior to Closing. Except as otherwise expressly required or contemplated by this Agreement
or applicable Law or in the performance of any Material Contract that was Previously Disclosed, or with the prior written consent of
the Investor, between the date of this Agreement and the Closing, the Company shall, and the Company shall cause each Company
Subsidiary to:
21
(a)
use commercially reasonable efforts to conduct its business only in the ordinary course of business; and
(b)
use commercially reasonable efforts to (i) preserve the present business operations, organization (including
officers and employees) and goodwill of the Company and any Company Subsidiary and (ii) preserve business relationships with
customers, suppliers, consultants and others having business dealings with the Company; provided, however, that nothing in this
clause (b) shall place any limit on the ability of the Board of Directors to act, or require any actions that the Board of Directors may, in
good faith, determine to be inconsistent with their duties or the Company’s obligations under applicable Law or imposed by any
Governmental Entity.
3.2
Confidentiality. The Investor acknowledges that the information being provided to it in connection with the
transactions contemplated hereby is subject to the terms of the Confidentiality Agreement heretofore entered into between the Investor
and the Company (the “Confidentiality Agreement”), the terms of which are incorporated herein by reference, as if the Investor were
a party thereto.
3.3
Commercially Reasonable Efforts. Upon the terms and subject to the conditions herein provided, except as
otherwise provided in this Agreement, each of the parties hereto agrees to use its commercially reasonable efforts to take or cause to
be taken all action, to do or cause to be done and to assist and cooperate with the other parties hereto in doing all things necessary,
proper or advisable under applicable Laws to consummate and make effective the transactions contemplated hereby, including but not
limited to: (a) the satisfaction of the conditions precedent to the obligations of the parties hereto; (b) the obtaining of applicable
Governmental Consents, and consents, waivers and approvals of any other third parties; (c) defending of any claim, action, suit,
investigation or proceeding, whether judicial or administrative, challenging this Agreement or the performance of the obligations
hereunder; and (d) the execution and delivery of such instruments, and the taking of such other actions as the other parties hereto may
reasonably request in order to carry out the intent of this Agreement. Notwithstanding the foregoing, under no circumstances will the
Investor be required to disclose to the Company, the Company Subsidiaries or any third party any information the disclosure of which
is prohibited by Law, nor shall it be required to agree to any restrictions, conditions or commitments imposed or otherwise required by
any Government Entity that are determined by the Investor in its sole discretion to be unduly burdensome, other than customary
passivity commitments, in order to consummate and make effective the transactions contemplated hereby.
3.4
Legend.
(a)
The Investor agrees that all certificates or other instruments representing the Common Stock subject to this
Agreement shall bear a legend substantially to the following effect, until such time as they are not required under Section 3.4(b):
“THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR SECURITIES LAWS OF ANY STATE AND MAY NOT BE
TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF
22
EXCEPT WHILE A REGISTRATION STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH
ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT OR SUCH LAWS.”
(b)
Upon request of the Investor, the Company shall promptly cause such legend to be removed from any
certificate for any Common Stock to be so transferred if (i) such Common Stock is being transferred pursuant to a registration
statement in effect with respect to such transfer or (ii) such Common Stock is being transferred pursuant to an exemption from
registration under the Securities Act and applicable state laws subject to receipt by the Company of an opinion of counsel for the
Investor reasonably satisfactory to the Company to the effect that such legend is no longer required under the Securities Act and
applicable state laws. The Investor acknowledges that the Common Stock has not been registered under the Securities Act or under
any state securities laws and agrees that it shall not sell or otherwise dispose of any of the Common Stock, except in compliance with
the registration requirements or exemption provisions of the Securities Act and any other applicable securities laws.
3.5
Certain Other Transactions.
(a)
Prior to the Closing, notwithstanding anything in this Agreement to the contrary, the Company shall not
directly or indirectly effect or cause to be effected any transaction with a third party that would reasonably be expected to result in a
Change in Control unless such third party shall have provided prior assurance in writing to the Investor (in a form that is reasonably
satisfactory to the Investor) that the terms of this Agreement shall be fully performed (i) by the Company or (ii) by such third party if
it is the successor of the Company or if the Company is its direct or indirect Subsidiary. For the avoidance of doubt, it is understood
and agreed that, in the event that a Change in Control occurs on or prior to the Closing, the Investor shall maintain the right under this
Agreement to acquire, pursuant to the terms and conditions of this Agreement, the Common Stock that is to be purchased by the
Investor pursuant to this Agreement (or such other securities or property (including cash) into which the Common Stock that is to be
purchased by Investor pursuant to this Agreement may have become exchangeable as a result of such Change in Control), as if the
Closing had occurred immediately prior to such Change in Control.
(b)
In the event that, at or prior to the Closing, (i) the number of shares of Common Stock, or securities
convertible or exchangeable into or exercisable for shares of Common Stock, issued and outstanding is changed as a result of any
reclassification, stock split (including reverse split), stock dividend or distribution (including any dividend or distribution of securities
convertible or exchangeable into or exercisable for shares of Common Stock), merger, tender or exchange offer or other similar
transaction, or (ii) the Company fixes a record date that is at or prior to the Closing Date for the payment of any non-stock dividend or
distribution on the Common Stock, then the number of shares of Common Stock to be issued to the Investor at the Closing under this
Agreement, together with the applicable implied per share price, shall be equitably adjusted and/or the shares of Common Stock to be
issued to the Investor at the applicable Closing under this Agreement shall be equitably replaced with shares of other stock or
securities or property (including cash), in each case, to provide the Investor with substantially the same economic benefit from this
Agreement as the Investor had prior to the applicable
23
transaction. Notwithstanding anything in this Agreement to the contrary, in no event shall the Purchase Price or any component
thereof, or the aggregate percentage of shares to be purchased by the Investor, be changed by the foregoing.
(c)
Notwithstanding anything in the foregoing to the contrary, the provisions of this Section 3.5 shall not be
implicated by (i) the transactions contemplated by this Agreement or the Other Private Placements, or (ii) any issuances of options,
restricted stock units or other equity-based awards granted to newly-appointed directors, employees or consultants of the Company at
or around the same time as the transactions contemplated by this Agreement to such Persons, including upon exercise of any such
options.
3.6
Exchange Listing. The Company shall use its reasonable best efforts to cause the Common Stock to be issued
pursuant to this Agreement to be approved for listing on NASDAQ or such other market on which the Common Stock is then listed or
quoted, subject to official notice of issuance, as promptly as possible and in any event prior to the Closing.
3.7
Stockholders Meeting. Prior to the Closing Date, the Company shall give notice of and hold a meeting of its
stockholders in accordance with applicable law and the corporate governance rules of NASDAQ for the purpose of obtaining
stockholder approval of the sale of Common Stock by the Company pursuant to the Agreements to the extent required by
Section 5635(c) and (d), and any other applicable provisions, of the NASDAQ Listing Rules and stockholder approval of the
amendment to Article FOURTH of the Company’s Certificate of Incorporation referred to in Section 2.2(d)(i). To the extent
permitted by the NASDAQ corporate governance rules, the Investor agrees to vote all shares of Common Stock that it owns or has the
power to direct the voting of for this purpose in favor of such amendment and such issuances.
3.8
Registration Rights.
(a)
Registration.
(i)
Subject to the terms and conditions of this Agreement, the Company covenants and agrees that
upon the expiration of ninety (90) days after the Closing Date (the “Filing Deadline”), the Company shall have
prepared and filed with the SEC one or more Shelf Registration Statements covering the resale of all of the
Registrable Securities (or, if permitted by the rules of the SEC, otherwise designated an existing Shelf Registration
Statement filed with the SEC to cover such Registrable Securities), and, to the extent the Shelf Registration
Statement has not theretofore been declared effective or is not automatically effective upon such filing, the
Company shall use reasonable best efforts to cause such Shelf Registration Statement to be declared or become
effective as soon as practicable (and in any event no later than the Effectiveness Deadline) and to keep such Shelf
Registration Statement continuously effective and in compliance with the Securities Act and usable for resale of
such Registrable Securities until the date that is 12 months after the initial effective date thereof (the “Registration
Termination Date”).
24
(ii)
Any registration pursuant to this Section 3.8(a) shall be effected by means of a shelf registration
under the Securities Act (a “Shelf Registration Statement”) in accordance with the methods and distribution set
forth in the Shelf Registration Statement and Rule 415.
(b)
Expenses of Registration. All Registration Expenses incurred in connection with any registration,
qualification or compliance hereunder shall be borne by the Company. All Selling Expenses incurred in connection with any
registrations hereunder shall be borne by the Holders selling in such registration pro rata on the basis of the aggregate number of
securities or shares being sold.
(c)
Obligations of the Company. The Company shall use its reasonable best efforts, for so long as there are
Registrable Securities outstanding, to take such actions as are under its control to not become an ineligible issuer (as defined in
Rule 405 under the Securities Act). In addition, whenever required to effect the registration of any Registrable Securities or facilitate
the distribution of Registrable Securities pursuant to an effective Shelf Registration Statement, the Company shall, as expeditiously as
reasonably practicable:
(i)
Prepare and file with the SEC a prospectus supplement with respect to a proposed offering of
Registrable Securities pursuant to an effective registration statement and, subject to this Section 3.8(c), keep such
registration statement effective or such prospectus supplement current.
(ii)
Prepare and file with the SEC such amendments and supplements to the applicable registration
statement and the prospectus or prospectus supplement used in connection with such registration statement as may
be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities
covered by such registration statement.
(iii)
Furnish to the Holders such number of correct and complete copies of the applicable registration
statement and each such amendment and supplement thereto (including in each case all exhibits) and of a
prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such
other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned
or to be distributed by them.
(iv)
Use its reasonable best efforts to register and qualify the securities covered by such registration
statement under such other securities or blue sky Laws of such jurisdictions as shall be reasonably requested by the
Holders, to keep such registration or qualification in effect for so long as such registration statement remains in
effect, and to take any other action which may be reasonably necessary to enable such seller to consummate the
disposition in such jurisdictions of the securities owned by such Holder; provided, that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
25
(v)
Notify each Holder of Registrable Securities at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event as a result of which the applicable
prospectus, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then
existing (which notice shall not contain any material non-public information).
(vi)
information):
Give written notice to the Holders (which notice shall not contain any material, non-public
(A)
when any registration statement filed pursuant to Section 3.8(a) or any amendment
thereto has been filed with the SEC (except for any amendment effected by the filing of a document with
the SEC pursuant to the Exchange Act) and when such registration statement or any post-effective
amendment thereto has become effective;
(B)
of any request by the SEC for amendments or supplements to any registration statement
or the prospectus included therein or for additional information;
(C)
of the issuance by the SEC of any stop order suspending the effectiveness of any
registration statement or the initiation of any proceedings for that purpose;
(D)
of the receipt by the Company or its legal counsel of any notification with respect to the
suspension of the qualification of the Common Stock for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and
(E)
of the happening of any event that requires the Company to make changes in any
effective registration statement or the prospectus related to the registration statement in order to make the
statements therein not misleading (which notice shall be accompanied by an instruction to suspend the use
of the prospectus until the requisite changes have been made).
(vii)
Use its reasonable best efforts to prevent the issuance or obtain the withdrawal of any order
suspending the effectiveness of any registration statement referred to in Section 3.8(c)(vi)(C) at the earliest
practicable time.
(viii)
Upon the occurrence of any event contemplated by Section 3.8(c)(v) or 3.8(c)(vi)(E) and subject
to the Company’s rights under Section 3.8(d), promptly prepare a post-effective amendment to such registration
statement or a supplement to the related prospectus or file any other required document so that, as thereafter
delivered to the Holders, the prospectus shall not contain an untrue statement of a material fact or omit to state any
material fact
26
necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
(ix)
Cause all such Registrable Securities to be listed on each securities exchange on which the same
class of securities issued by the Company are then listed or, if the same class of securities is not then listed on any
securities exchange, use its reasonable best efforts to cause all such Registrable Securities of such class to be listed
on the NASDAQ Capital Market.
(x)
If requested by Holders of a majority of the Registrable Securities being registered and/or sold in
connection therewith, promptly include in a prospectus supplement or amendment such information as the Holders
of a majority of the Registrable Securities being registered and/or sold in connection therewith may reasonably
request in order to permit the intended method of distribution of such securities and make all required filings of such
prospectus supplement or such amendment as soon as practicable after the Company has received such request.
(xi)
Timely provide to its security holders earnings statements satisfying the provisions of Section 9
(a) of the Securities Act and Rule 158 thereunder.
(d)
Suspension of Sales. Upon receipt of written notice from the Company that a registration statement,
prospectus or prospectus supplement contains or may contain an untrue statement of a material fact or omits or may omit to state a
material fact required to be stated therein or necessary to make the statements therein not misleading or that circumstances exist that
make use of such registration statement, prospectus or prospectus supplement inadvisable, each Holder of Registrable Securities shall
forthwith discontinue disposition of Registrable Securities pursuant to such registration statement until such Holder has received
copies of a supplemented or amended prospectus or prospectus supplement, or until such Holder is advised in writing by the Company
that the use of the prospectus and, if applicable, prospectus supplement may be resumed, and, if so directed by the Company, such
Holder shall deliver to the Company (at the Company’s expense) all copies, other than permanent file copies then in such Holder’s
possession, of the prospectus and, if applicable, prospectus supplement covering such Registrable Securities current at the time of
receipt of such notice (each such suspension, a “Suspension Period”). No single Suspension Period shall exceed forty-five (45)
consecutive days and the aggregate of all Suspension Periods shall not exceed one hundred twenty (120) days during any twelve (12)
month period.
(e)
Termination of Registration Rights. A Holder’s registration rights as to any securities held by such
Holder (and its Affiliates, partners, members and former members) shall not be available unless such securities are Registrable
Securities.
27
(f)
Furnishing Information.
(i)
Neither the Investor nor any Holder shall use any free writing prospectus (as defined in Rule 405)
in connection with the sale of Registrable Securities without the prior written consent of the Company.
(ii)
It shall be a condition precedent to the obligations of the Company to take any action pursuant to
Section 3.8(c) as to a selling Holder that such selling Holder shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them and the intended method of disposition of such
securities as shall be required to effect the registered offering of their Registrable Securities.
(g)
Indemnification.
(i)
The Company agrees to indemnify each Holder and, if a Holder is a person other than an
individual, such Holder’s officers, directors, employees, agents, representatives and Affiliates, and each Person, if
any, that controls a Holder within the meaning of the Securities Act (each, an “Indemnitee”), against any and all
Losses, joint or several, arising out of or based upon any untrue statement or alleged untrue statement of material
fact contained in any registration statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto or any documents incorporated therein by reference or contained
in any free writing prospectus (as such term is defined in Rule 405) prepared by the Company or authorized by it in
writing for use by such Holder (or any amendment or supplement thereto), or any omission to state therein 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; provided, that the Company shall not be liable to such Indemnitee in
any such case to the extent that any such Loss is based solely upon (i) an untrue statement or omission made in such
registration statement, including any such preliminary prospectus or final prospectus contained therein or any such
amendments or supplements thereto or contained in any free writing prospectus (as such term is defined in
Rule 405) prepared by the Company or authorized by it in writing for use by such Holder (or any amendment or
supplement thereto), in reliance upon and in conformity with information regarding such Indemnitee or its plan of
distribution or ownership interests which was furnished in writing to the Company by such Indemnitee expressly for
use in connection with such registration statement, including any such preliminary prospectus or final prospectus
contained therein or any such amendments or supplements thereto, or (ii) offers or sales effected by or on behalf
such Indemnitee “by means of” (as defined in Rule 159A) a “free writing prospectus” (as defined in Rule 405) that
was not authorized in writing by the Company. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of an Indemnitee and shall survive the transfer of the Registrable Securities
by the Holders.
28
(ii)
If any proceeding shall be brought or asserted against any Indemnitee, such Indemnitee shall
promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof,
including the employment of counsel reasonably satisfactory to the Indemnitee and the payment of all reasonable
fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnitee to give
such notice shall not relieve the Company of its obligations or liabilities pursuant to this Agreement, except to the
extent that the Company is materially and adversely prejudiced in its ability to defend such action. An Indemnitee
shall have the right to employ separate counsel in any such proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such Indemnitee or Indemnitees unless: (1) the
Company has agreed in writing to pay such fees and expenses; (2) the Company shall have failed promptly to
assume the defense of such proceeding and to employ counsel reasonably satisfactory to such Indemnitee in any
such proceeding; or (3) the named parties to any such proceeding (including any impleaded parties) include both
such Indemnitee and the Company, and such Indemnitee shall have been advised by counsel that a conflict of
interest exists if the same counsel were to represent such Indemnitee and the Company; provided, that the Company
shall not be liable for the fees and expenses of more than one separate firm of attorneys at any time for all
Indemnitees and all similarly situated Persons who are “Indemnitees” as defined in the other Agreements. The
Company shall not be liable for any settlement of any such proceeding effected without its written consent, which
consent shall not be unreasonably withheld or delayed. The Company shall not, without the prior written consent of
the Indemnitee, effect any settlement of any pending proceeding in respect of which any Indemnitee is a party,
unless such settlement includes an unconditional release of such Indemnitee from all liability on claims that are the
subject matter of such proceeding. Subject to the terms of this Agreement, all fees and expenses of the Indemnitee
(including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to
defend such proceeding in a manner not inconsistent with this Section 3.8(g)(ii)) shall be paid to the Indemnitee, as
incurred, within thirty (30) days of written notice thereof to the Company; provided, that the Indemnitee shall
promptly reimburse the Company for that portion of such fees and expenses applicable to such actions for which
such Indemnitee is finally judicially determined to not be entitled to indemnification hereunder).
(iii)
If the indemnification provided for in Section 3.8(g)(i) is unavailable to an Indemnitee with
respect to any Losses, then the Company, in lieu of indemnifying such Indemnitee, shall contribute to the amount
paid or payable by such Indemnitee as a result of such Losses in such proportion as is appropriate to reflect the
relative fault of the Indemnitee, on the one hand, and the Company, on the other hand, in connection with the
statements or omissions which resulted in such Losses as well as any other relevant equitable considerations. The
relative fault of the Company, on the one hand, and of the Indemnitee, on the other hand, shall be determined by
reference to, among other factors, whether the untrue statement of a material fact or omission to state a
29
material fact relates to information supplied by the Company or by the Indemnitee and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent such statement or omission; the Company
and each Holder agree that it would not be just and equitable if contribution pursuant to this Section 3.8(g)(iii) were
determined by pro rata allocation or by any other method of allocation that does not take account of the equitable
considerations referred to in Section 3.8(g)(i). No Indemnitee guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from the Company if the Company
was not guilty of such fraudulent misrepresentation.
(iv)
The indemnity and contribution agreements contained in this Section 3.8(g) are in addition to any
liability that the Company may have to the Indemnitees and are not in diminution or limitation of the
indemnification provisions under Article 5 of this Agreement.
(h)
Assignment of Registration Rights. The rights of the Investor to registration of Registrable Securities
pursuant to Section 3.8(a) may be assigned by the Investor to a transferee or assignee of Registrable Securities to which (i) there is
transferred to such transferee no less than $1 million in Registrable Securities or all of the Registrable Securities held by the Investor
and (ii) such transfer is permitted under the terms hereof; provided, however, that the transferor shall, within ten (10) days after such
transfer, furnish to the Company written notice of the name and address of such transferee or assignee and the number and type of
Registrable Securities that are being assigned.
(i)
Rule 144 Reporting. With a view to making available to the Investor and Holders the benefits of certain
rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the
Company agrees to use its reasonable best efforts to:
(i)
make and keep adequate current public information with respect to the Company available, as
those terms are understood and defined in Rule 144(c)(1) or any similar or analogous rule promulgated under the
Securities Act, at all times after the effective date of this Agreement;
(ii)
so long as the Investor or a Holder owns any Registrable Securities, furnish to the Investor or such
Holder forthwith upon request: (A) a written statement by the Company as to its compliance with the reporting
requirements of Rule 144 under the Securities Act, and of the Exchange Act; (B) a copy of the most recent annual or
quarterly report of the Company; and (C) such other reports and documents as the Investor or Holder may
reasonably request in availing itself of any rule or regulation of the SEC allowing it to sell any such securities
without registration; and
(iii)
to take such further action as any Holder may reasonably request, all to the extent required from
time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act.
30
(j)
As used in this Section 3.8, the following terms shall have the following respective meanings:
(i)
“Effective Date” means the date that the Shelf Registration Statement filed pursuant to Section 3.8
(a)(i) is first declared effective by the SEC.
(ii)
“Effectiveness Deadline” means, with respect to the Shelf Registration Statement required to be
filed pursuant to Section 3.8(a)(i), the earlier of (i) the 90th calendar day following the Filing Deadline and (ii) the
5th Business Day after the date the Company is notified (orally or in writing, whichever is earlier) by the SEC that
such Shelf Registration Statement will not be “reviewed” or will not be subject to further review; provided, that if
the Effectiveness Deadline falls on a Saturday, Sunday or other day that the SEC is closed for business, the
Effectiveness Deadline shall be extended to the next Business Day on which the SEC is open for business.
(iii)
“Holder” means the Investor and any other holder of Registrable Securities to whom the
registration rights conferred by this Agreement have been transferred in compliance with Section 3.8(h) hereof.
(iv)
“Register,” “registered” and “registration” shall refer to a registration effected by preparing and
(A) filing a registration statement in compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of effectiveness of such registration statement or (B) filing a prospectus
and/or prospectus supplement in respect of an appropriate effective registration statement.
(v)
“Registrable Securities” means (A) all Common Stock purchased by the Investor pursuant to this
Agreement and (B) any equity securities issued or issuable directly or indirectly with respect to the securities
referred to in clause (A) by way of conversion, exercise or exchange thereof or stock dividend or stock split or in
connection with a combination of shares, recapitalization, reclassification, merger, amalgamation, arrangement,
consolidation or other reorganization, provided that, once issued, such securities shall not be Registrable Securities
after (1) they are sold pursuant to an effective registration statement under the Securities Act, (2) they may be sold
pursuant to Rule 144 without limitation thereunder on volume or manner of sale and without the requirement for the
Company to be in compliance with the current public information required under Rule 144(e)(1) (or Rule 144(i)(2),
if applicable), (3) they have ceased to be outstanding or (4) they have been sold in a private transaction in which the
transferor’s rights under this Agreement are not permitted by this Agreement to be assigned to the transferee of the
securities. No Registrable Securities may be registered under more than one registration statement at one time.
(vi)
“Registration Expenses” means all expenses incurred by the Company in effecting any
registration pursuant to this Agreement (whether or not any registration or prospectus becomes effective or final) or
otherwise complying
31
with its obligations under this Section 3.8, including, without limitation, all registration, filing and listing fees,
printing expenses, fees and disbursements of counsel for the Company and blue sky fees and expenses, but shall not
include Selling Expenses and the compensation of regular employees of the Company, which shall be paid in any
event by the Company.
(vii)
“Rule 158,” “Rule 159A,” “Rule 405” and “Rule 415” mean, in each case, such rule promulgated
under the Securities Act (or any successor provision), as the same shall be amended from time to time.
(viii)
“Selling Expenses” means all discounts, selling commissions and stock transfer taxes applicable
to the sale of Registrable Securities and fees and disbursements of counsel for any Holder.
(k)
On or prior to the Acceptance Date, the Investor shall furnish to the Company a fully completed Selling
Shareholder Questionnaire in the form attached as Appendix I hereto for use in the preparation of the Registration Statement and all of
the information contained therein will be true and correct as of the Closing Date.
ARTICLE 4
TERMINATION
4.1
Termination. This Agreement may be terminated prior to the Closing:
(a)
by mutual written agreement of the Company and the Investor;
(b)
by any party, upon written notice to the other party, in the event that the Closing does not occur on or
before December 30, 2014; provided, however, that the right to terminate this Agreement pursuant to this Section 4.1(b) shall not be
available to any party whose failure to fulfill any obligation under this Agreement shall have been the cause of, or shall have resulted
in, the failure of the Closing to occur on or prior to such date;
(c)
by the Investor, upon written notice to the Company, if (i) there has been a breach of any representation,
warranty, covenant or agreement made by the Company in this Agreement, or any such representation and warranty shall have
become untrue after the date of this Agreement, such that Section 1.2(c)(ii)(A) would not be satisfied and (ii) such breach or condition
is not curable or, if curable, is not cured prior to the date that would otherwise be the Closing Date in absence of such breach or
condition; provided that this Section 4.1(c) shall only apply if the Investor is not in material breach of any of the terms of this
Agreement;
(d)
by the Company, upon written notice to the Investor, if (i) there has been a breach of any representation,
warranty, covenant or agreement made by the Investor in this Agreement, or any such representation and warranty shall have become
untrue after the date of this Agreement, such that Section 1.2(c)(iii)(A) would not be satisfied and (ii) such breach or condition is not
curable or, if curable, is not cured prior to the date that would otherwise be the Closing Date in absence of such breach or condition;
provided that this Section 4.1(d) shall only apply if the Company is not in material breach of any of the terms of this Agreement; or
32
(e)
by any party, upon written notice to the other parties, in the event that any Governmental Entity shall have
issued any order, decree or injunction or taken any other action restraining, enjoining or prohibiting any of the transactions
contemplated by this Agreement, and such order, decree, injunction or other action shall have become final and nonappealable.
4.2
Effects of Termination. In the event of any termination of this Agreement as provided in Section 4.1, this
Agreement (other than Section 3.2, this Article 4 and Article 6 of this Agreement, which shall remain in full force and effect) shall
forthwith become wholly void and of no further force and effect; provided that nothing herein shall relieve any party from liability for
fraud or willful breach of this Agreement.
ARTICLE 5
INDEMNITY
5.1
Indemnification by the Company.
(a)
After the Closing, and subject to Sections 5.1(b), 5.3 and 5.4, the Company shall indemnify, defend and
hold harmless to the fullest extent permitted by Law the Investor and its Affiliates, and their successors and assigns, officers, directors,
partners, members and employees, as applicable, (the “Investor Indemnified Parties”) against, and reimburse any of the Investor
Indemnified Parties for, all Losses that any of the Investor Indemnified Parties may at any time suffer or incur, or become subject to,
as a result of or in connection with (1) the inaccuracy or breach of any representation or warranty made by the Company in this
Agreement or any certificate delivered pursuant hereto or (2) any breach or failure by the Company to perform any of its covenants or
agreements contained in this Agreement. Notwithstanding anything herein to the contrary, the obligations of the Company under this
Section 5.1(a) shall not be applicable to or inure to the benefit of any transferee of the Common Stock sold pursuant to this Agreement
who is not an Affiliate of the Investor.
(b)
Notwithstanding anything to the contrary contained herein, the Company shall not be required to
indemnify, defend or hold harmless any of the Investor Indemnified Parties against, or reimburse any of the Investor Indemnified
Parties for, any Losses pursuant to Section 5.1(a)(1) (other than Losses arising out of the inaccuracy or breach of any Company
Specified Representations) until the aggregate amount of the Investor Indemnified Parties’ Losses for which the Investor Indemnified
Parties are finally determined to be otherwise entitled to indemnification under Section 5.1(a) exceeds $100,000 (the “Deductible”),
after which the Company shall be obligated for all of the Investor Indemnified Parties’ Losses for which the Investor Indemnified
Parties are finally determined to be otherwise entitled to indemnification under Section 5.1(a)(1) that are in excess of the Deductible.
Notwithstanding anything to the contrary contained herein, the Company shall not be required to indemnify, defend or hold harmless
the Investor Indemnified Parties against, or reimburse the Investor Indemnified Parties for, any Losses pursuant to Section 5.1(a)(1) in
a cumulative aggregate amount exceeding the aggregate purchase price paid by the Investor to the Company pursuant to Section 1.1
(other than Losses arising out of the inaccuracy or breach of any Company Specified Representations).
33
(c)
For purposes of Section 5.1(a), in determining whether there has been a breach of a representation or
warranty, the parties hereto shall ignore any “materiality,” “Material Adverse Effect” or similar qualifications.
5.2
Indemnification by the Investor.
(a)
After the Closing, and subject to Sections 5.2(b), 5.3 and 5.4, the Investor shall indemnify, defend and hold
harmless to the fullest extent permitted by Law the Company, the Placement Agent and their respective Affiliates and their respective
successors and assigns, officers, directors, partners, members and employees (collectively, the “Company Indemnified Parties”)
against, and reimburse any of the Company Indemnified Parties for, all Losses that the Company Indemnified Parties may at any time
suffer or incur, or become subject to, as a result of or in connection with (1) the inaccuracy or breach of any representation or warranty
made by the Investor in this Agreement or any certificate delivered pursuant hereto or (2) any breach or failure by such Investor to
perform any of its covenants or agreements contained in this Agreement.
(b)
Notwithstanding anything to the contrary contained herein, the Investor shall not be required to indemnify,
defend or hold harmless any of the Company Indemnified Parties against, or reimburse any of the Company Indemnified Parties for
any Losses pursuant to Section 5.2(a)(1) (other than Losses arising out of the inaccuracy or breach of any Investor Specified
Representations) until the aggregate amount of the Company Indemnified Parties’ Losses for which the Company Indemnified Parties
are finally determined to be otherwise entitled to indemnification under Section 5.2(a) exceeds the Deductible, after which the Investor
shall be obligated for all of the Company Indemnified Parties’ Losses for which the Company Indemnified Parties are finally
determined to be otherwise entitled to indemnification under Section 5.2(a)(1) that are in excess of such Deductible. Notwithstanding
anything to the contrary contained herein, the Investor shall not be required to indemnify, defend or hold harmless the Company
Indemnified Parties against, or reimburse the Company Indemnified Parties for, any Losses pursuant to Section 5.2(a)(1) in a
cumulative aggregate amount exceeding the aggregate purchase paid by the Investor to the Company pursuant to Section 1.1 hereof
(other than Losses arising out of the inaccuracy or breach of any of the Investor Specified Representations).
(c)
For purposes of Section 5.2(a), in determining whether there has been a breach of a representation or
warranty, the parties hereto shall ignore any “materiality” or similar qualifications.
5.3
Notification of Claims.
(a)
Any Person that may be entitled to be indemnified under this Article 5 (the “Indemnified Party”) shall
promptly notify the party or parties liable for such indemnification (the “Indemnifying Party”) in writing of any claim in respect of
which indemnity may be sought hereunder, including any pending or threatened claim or demand by a third party that the Indemnified
Party has determined has given or could reasonably give rise to a right of indemnification under this Agreement (including a pending
or threatened claim or demand asserted by a third party against the Indemnified Party) (each, a “Third Party Claim”), describing in
reasonable detail the facts and circumstances with respect to the subject matter of
34
such claim or demand; provided, however, that the failure to provide such notice shall not release the Indemnifying Party from any of
its obligations under this Agreement except to the extent that the Indemnifying Party is materially prejudiced by such failure. The
parties agree that notices for claims in respect of a breach of a representation, warranty, covenant or agreement must be delivered prior
to the expiration of any applicable survival period specified in Section 6.1 for such representation, warranty, covenant or agreement;
provided, that if, prior to such applicable date, a party hereto shall have notified the other parties hereto in accordance with the
requirements of this Section 5.3(a) of a claim for indemnification under this Agreement (whether or not formal legal action shall have
been commenced based upon such claim), such claim shall continue to be subject to indemnification in accordance with this
Agreement notwithstanding the passing of such applicable date.
(b)
Upon receipt of a notice of a claim for indemnity from an Indemnified Party pursuant to Section 5.3(a) in
respect of a Third Party Claim, the Indemnifying Party may, by notice to the Indemnified Party delivered within twenty (20) Business
Days of the receipt of notice of such Third Party Claim, assume the defense and control of any Third Party Claim, with its own
counsel reasonably acceptable to the Indemnified Party and at its own expense. The Indemnified Party shall have the right to employ
counsel on its own behalf for, and otherwise participate in the defense of, any such Third Party Claim, but the fees and expenses of its
counsel will be at its own expense unless (A) the employment of counsel by the Indemnified Party at the Indemnifying Party’s
expense has been authorized in writing by the Indemnifying Party, as applicable, (B) the Indemnified Party reasonably believes there
may be a conflict of interest between the Indemnified Party and the Indemnifying Party in the conduct of the defense of such Third
Party Claim, (C) the Indemnified Party reasonably believes there are legal defenses available to it that are different from, additional to
or inconsistent with those available to the Indemnifying Party, or (D) the Indemnifying Party has not in fact employed counsel to
assume the defense of such Third Party Claim within a reasonable time after receipt of notice of the commencement of such Third
Party Claim, in each of which cases the fees and expenses of such Indemnified Party’s counsel shall be at the expense of the
Indemnifying Party; provided, however, that in the event any Investor Indemnified Party is similarly situated with any other “Investor
Indemnified Party” under any of the other Agreements with respect to any Third Party Claim, and does not have any conflict of
interest with such Person in the conduct of the defense of such Third Party Claim or have legal defenses available to it that are
different from, additional to or inconsistent with those available to such Person, such Investor Indemnified Party shall be required to
employ the same counsel as such Person and the Company shall be responsible for the fees and expenses of only one such counsel for
such Investor Indemnified Party and such other Person or Persons (assuming any of clauses (A) through (D) is satisfied). The
Indemnified Party may take any actions reasonably necessary to defend such Third Party Claim prior to the time that it receives a
notice from the Indemnifying Party as contemplated by the immediately preceding sentence. The Indemnified Party shall, and shall
cause each of their Affiliates and representatives to, use reasonable best efforts to cooperate with the Indemnifying Party in the
defense of any Third Party Claim. The Indemnifying Party shall not, without the prior written consent of the Indemnified Party
(which shall not be unreasonably withheld), consent to a settlement, compromise or discharge of, or the entry of any judgment arising
from, any Third Party Claim, unless such settlement, compromise, discharge or entry of any judgment does not involve any statement,
finding or admission of any fault, culpability, failure to act, violation of Law or admission of any wrongdoing by or on behalf of the
Indemnified Party, and the
35
Indemnifying Party shall (i) pay or cause to be paid all amounts arising out of such settlement or judgment concurrently with the
effectiveness of such settlement or judgment (unless otherwise provided in such judgment), (ii) not encumber any of the assets of any
Indemnified Party or agree to any restriction or condition that would apply to or materially adversely affect any Indemnified Party or
the conduct of any Indemnified Party’s business and (iii) obtain, as a condition of any settlement, compromise, discharge, entry of
judgment (if applicable), or other resolution, a complete and unconditional release of each Indemnified Party in form and substance
reasonably satisfactory to such Indemnified Party from any and all liabilities in respect of such Third Party Claim. An Indemnified
Party shall not settle, compromise or consent to the entry of any judgment with respect to any claim or demand for which it is seeking
indemnification from the Indemnifying Party or admit to any liability with respect to such claim or demand without the prior written
consent of the Indemnifying Party (which consent shall not be unreasonably withheld or delayed); provided that such consent shall not
be required if the Indemnifying Party has not fulfilled any material obligations under this Section 5.3(b).
(c)
In the event any Indemnifying Party receives a notice of a claim for indemnity from an Indemnified Party
pursuant to Section 5.3(a) that does not involve a Third Party Claim, the Indemnifying Party shall notify the Indemnified Party within
twenty (20) Business Days following its receipt of such notice whether the Indemnifying Party disputes its liability to the Indemnified
Party under this Agreement. The Indemnified Party shall reasonably cooperate with and assist the Indemnifying Party in determining
the validity of any such claim for indemnity by the Indemnified Party.
5.4
Indemnification Payment. In the event a claim or any Action for indemnification hereunder has been finally
determined, the amount of such final determination shall be paid by the Indemnifying Party to the Indemnified Party on demand in
immediately available funds; provided, however, that any reasonable and documented out-of-pocket expenses incurred by the
Indemnified Party as a result of such claim or Action shall be reimbursed promptly by the Indemnifying Party upon receipt of an
invoice describing such costs incurred by the Indemnified Party. A claim or an Action, and the liability for and amount of damages
therefor, shall be deemed to be “finally determined” for purposes of this Agreement when the parties hereto have so determined by
mutual agreement or, if disputed, when a final non-appealable judicial order has been entered into with respect to such claim or
Action.
5.5
Exclusive Remedies. Each party hereto acknowledges and agrees that following the Closing, the indemnification
provisions hereunder shall be the sole and exclusive remedies of the parties hereto for any breach of the representations, warranties or
covenants contained in the this Agreement. No investigation of the Company by the Investor, or of the Investor by the Company,
whether prior to or after the date of this Agreement, shall limit any Indemnified Party’s exercise of any right hereunder or be deemed
to be a waiver of any such right. The parties agree that any indemnification payment made pursuant to this Agreement shall be treated
as an adjustment to the Purchase Price for Tax purposes, unless otherwise required by Law.
36
ARTICLE 6
MISCELLANEOUS
6.1
Survival. The representations and warranties of the parties hereto contained in this Agreement shall survive in full
force and effect until the date that is fifteen (15) months after the Closing Date (or until final resolution of any claim or action arising
from the breach of any such representation and warranty, if notice of such breach was provided prior to the end of such period), at
which time they shall terminate and no claims shall be made for indemnification under Section 5.1 or Section 5.2, as applicable, for
breaches of representations or warranties thereafter, except the Company Specified Representations (other than the representations and
warranties made in Section 2.2(x), which shall survive until the expiration of the applicable statute of limitations) and the Investor
Specified Representations shall survive the Closing indefinitely. The covenants and agreements set forth in this Agreement shall
survive until the earliest of the duration of any applicable statute of limitations or until performed or no longer operative in accordance
with their respective terms.
6.2
Other Definitions. Wherever required by the context of this Agreement, the singular shall include the plural and
vice versa, and the masculine gender shall include the feminine and neuter genders and vice versa, and references to any agreement,
document or instrument shall be deemed to refer to such agreement, document or instrument as amended, supplemented or modified
from time to time. In addition, the following terms shall have the meanings assigned to them below:
(a)
the term “Affiliate” means, with respect to any Person, any Person directly or indirectly controlling,
controlled by or under common control with, such other Person provided that no security holder of the Company shall be deemed to
be an Affiliate of any other security holder or of the Company or any of the Company Subsidiaries solely by reason of any investment
in the Company and, for purposes of this definition, “control” (including, with correlative meanings, the terms “controlling”,
“controlled by” and “under common control with”) when used with respect to any Person, means the possession, directly or
indirectly, of the power to cause the direction of management or policies of such Person, whether through the ownership of voting
securities by contract or otherwise;
(b)
the term “Agency” means the Federal Housing Administration, the Federal Home Loan Mortgage
Corporation, the Farmers Home Administration (now known as Rural Housing and Community Development Services), the Federal
National Mortgage Association, the United States Department of Veterans’ Affairs, the Rural Housing Service of the U.S. Department
of Agriculture or any other federal or state agency with authority to (i) determine any investment, origination, lending or servicing
requirements with regard to mortgage loans originated, purchased or serviced by the Company or (ii) originate, purchase, or service
mortgage loans, or otherwise promote mortgage lending, including state and local housing finance authorities;
(c)
the term “Board of Directors” means the Board of Directors of the Company;
37
(d)
the term “Business Day” means any day except Saturday, Sunday and any day which shall be a legal
holiday or a day on which banking institutions in the State of New York or in the State of California generally are authorized or
required by Law or other governmental actions to close;
(e)
the term “Capital Stock” means the capital stock or other applicable type of equity interest in a Person;
(f)
the term “Change in Control” means, with respect to the Company, that any Person, other than the
Investors and their Affiliates, becomes a beneficial owner (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange
Act) directly or indirectly, of twenty percent (20%) of the aggregate voting power of the Voting Securities.
(g)
the term “Code” means the Internal Revenue Code of 1986, as amended;
(h)
the term “Company Specified Representations” means the representations and warranties made in
Section 2.2(a), Section 2.2(c), Section 2.2(d)(i) and Section 2.2(z);
(i)
the term “Disclosure Schedule” shall mean a schedule delivered, on or prior to the date of this Agreement,
by (i) the Investor to the Company and (ii) the Company to the Investor setting forth, among other things, items the disclosure of
which is necessary or appropriate either in response to an express disclosure requirement contained in a provision hereof or as an
exception to one or more representations or warranties contained in Section 2.2 with respect to the Company, or in Section 2.3 with
respect to the Investor, or to one or more covenants contained in Article 3;
(j)
from time to time;
the term “GAAP” means United States generally accepted accounting principles and practices as in effect
(k)
the term “Governmental Consent” means any notice to, registration, declaration or filing with, exemption
or review by, or authorization, order, consent or approval of, any Governmental Entity, or the expiration or termination of any
statutory waiting periods;
(l)
the term “Governmental Entity” means any court, administrative agency or commission or other
governmental authority or instrumentality, whether federal, state, local or foreign, and any applicable industry self-regulatory
organization or securities exchange;
(m)
the term “Insurer” means a Person who insures or guarantees for the benefit of the mortgagee all or any
portion of the risk of loss upon borrower default on any of the mortgage loans originated, purchased or serviced by the Bank,
including the Federal Housing Administration, the United States Department of Veterans’ Affairs, the Rural Housing Service of the
U.S. Department of Agriculture and any private mortgage insurer, and providers of hazard, title or other insurance with respect to such
mortgage loans or the related collateral;
(n)
the term “Investor Specified Representations” means the representations and warranties made in
Section 2.3(b)(i), Section 2.3(d) and Section 2.3(e);
38
(o)
the term “Knowledge” of the Company and words of similar import mean the knowledge of any directors
or executive officers of the Company listed on the Disclosure Schedule hereto;
(p)
the term “Loan Investor” means any Person (including an Agency) having a beneficial interest in any
mortgage loan originated, purchased or serviced by the Bank or a security backed by or representing an interest in any such mortgage
loan;
(q)
the term “Losses” means any and all losses, damages, reasonable costs, reasonable expenses (including
reasonable attorneys’ fees and disbursements), liabilities, settlement payments, awards, judgments, fines, obligations, claims, and
deficiencies of any kind, excluding special, consequential, exemplary and punitive damages;
(r)
the term “Person” means any individual, firm, corporation, partnership, trust, incorporated or
unincorporated association, joint venture, joint stock company, limited liability company, Governmental Entity or other entity of any
kind, and shall include any successor (by merger or otherwise) of such entity;
(s)
the term “Subsidiary” means, with respect to any Person, any corporation, partnership, joint venture,
limited liability company or other entity (x) of which such Person or a Subsidiary of such Person is a general partner or (y) of which a
majority of the voting securities or other voting interests, or a majority of the securities or other interests of which having by their
terms ordinary voting power to elect a majority of the board of directors or persons performing similar functions with respect to such
entity, is directly or indirectly owned by such Person and/or one or more Subsidiaries thereof;
(t)
the term “Tax” or “Taxes” means all United States federal, state, local or foreign income, profits,
estimated, gross receipts, windfall profits, severance, property, intangible property, occupation, production, sales, use, license, excise,
emergency excise, franchise, capital gains, capital stock, employment, withholding, transfer, stamp, payroll, goods and services, value
added, alternative or add-on minimum tax, or any other tax, custom, duty or governmental fee, or other like assessment or charge of
any kind whatsoever, together with any interest, penalties, fines, related liabilities or additions to tax that may become payable in
respect thereof imposed by any Governmental Entity, whether or not disputed;
(u)
the term “Tax Return” means any return, declaration, report or similar statement required to be filed with
respect to any Taxes (including any attached schedules), including, without limitation, any information return, claim or refund,
amended return and declaration of estimated Tax;
(v)
the term “Voting Securities” means at any time shares of any class of Capital Stock of the Company that
are then entitled to vote generally in the election of directors;
(w)
(x)
“without limitation”;
the word “or” is not exclusive;
the words “including,” “includes,” “included” and “include” are deemed to be followed by the words
39
(y)
the terms “herein,” “hereof” and “hereunder” and other words of similar import refer to this Agreement
as a whole and not to any particular section, paragraph or subdivision; and
(z)
all article, section, paragraph or clause references not attributed to a particular document shall be references
to such parts of this Agreement, and all exhibit and schedule references not attributed to a particular document shall be references to
such exhibits and schedules to this Agreement.
6.3
Amendment and Waivers. The conditions to each party’s obligation to consummate the Closing are for the sole
benefit of such party and may be waived by such party in whole or in part to the extent permitted by Law. No amendment or waiver
of any provision of this Agreement will be effective against any party hereto unless it is in a writing signed by a duly authorized
officer of such party.
6.4
Counterparts and Facsimile. For the convenience of the parties hereto, this Agreement may be executed in any
number of separate counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts will
together constitute the same agreement. Executed signature pages to this Agreement may be delivered by facsimile or other electronic
transmission and such transmitted copies shall be deemed as sufficient as if manually signed signature pages had been delivered.
6.5
Governing Law. This Agreement will be governed by and construed in accordance with the Laws of the State of
New York applicable to contracts made and to be performed entirely within such State.
6.6
Jurisdiction. The parties hereby agree that any suit, action or proceeding seeking to enforce any provision of, or
based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby shall be brought in
the United States District Court for the Southern District of New York sitting in the Borough of Manhattan, New York, New York, so
long as such court shall have subject matter jurisdiction over such suit, action or proceeding or, if it does not have subject matter
jurisdiction, in any New York State court sitting in the Borough of Manhattan, New York, New York, and each of the parties hereby
irrevocably consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or
proceeding and irrevocably waives, to the fullest extent permitted by Law, any objection that it may now or hereafter have to the
laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is
brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on
any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each
party agrees that service of process on such party as provided in Section 6.8 shall be deemed effective service of process on such
party. The parties hereby irrevocably and unconditionally consent to submit to the exclusive jurisdiction of the state and federal courts
referred to above for any actions, suits or proceedings arising out of or relating to this Agreement and the transactions contemplated
hereby
40
6.7
WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY
AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
6.8
Notices. Any notice, request, instruction or other document to be given hereunder by any party to the other will be
in writing and will be deemed to have been duly given (a) on the date of delivery if delivered personally or by telecopy or facsimile,
upon confirmation of receipt, (b) on the first Business Day following the date of dispatch if delivered by a recognized next-day courier
service, or (c) on the third Business Day following the date of mailing if delivered by registered or certified mail, return receipt
requested, postage prepaid. All notices hereunder shall be delivered as set forth below, or pursuant to such other instructions as may
be designated in writing by the party to receive such notice.
(a)
If to the Investor, at the address set forth on the signature page to this Agreement:
(b)
If to the Company:
Broadway Financial Corporation
5055 Wilshire Boulevard, Suite 500
Los Angeles, California 90036
Attn: Wayne-Kent A. Bradshaw, President and Chief
Executive Officer
Fax: (323) 556-3216
with a copy (which copy shall not constitute notice) to:
Arnold & Porter LLP
777 South Figueroa Street,
44th Floor
Los Angeles, California 90017
Attn: James R. Walther, Esq.
Fax: (213) 243-4199
6.9
Entire Agreement. This Agreement (including the Annexes, the NCIF Side Letter and Schedules hereto) and the
Confidentiality Agreement constitute the entire agreement, and supersede all other prior agreements, understandings, representations
and warranties, inducements or conditions, both written and oral, among the parties, with respect to the subject matter hereof and
thereof.
6.10
Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their
respective successors and assigns, including any purchasers of the Common Stock to be issued pursuant to this Agreement. The
Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Investor. The
Investor may assign some or all of its rights hereunder or thereunder without the consent of the Company to any Affiliate of the
Investor, and such assignee shall be deemed to be
41
an Investor hereunder with respect to such assigned rights and shall be bound by the terms and conditions of this Agreement that apply
to the Investor.
6.11
Captions. The article, section, paragraph and clause captions herein are for convenience of reference only, do not
constitute part of this Agreement and will not be deemed to limit or otherwise affect any of the provisions hereof.
6.12
Severability. If any provision of this Agreement or the application thereof to any Person or circumstance is
determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the
application of such provision to Persons or circumstances other than those as to which it has been held invalid or unenforceable, will
remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such
determination, the parties shall negotiate in good faith in an effort to agree upon a suitable and equitable substitute provision to effect
the original intent of the parties.
6.13
Third Party Beneficiaries. Nothing contained in this Agreement, expressed or implied, is intended to confer upon
any Person (including any of the Other Investors) other than the parties hereto, any benefit right or remedies, except that the
provisions of Sections 5.1 and 5.2 shall inure to the benefit of the Persons referred to in such Sections. Notwithstanding the foregoing,
the Company and the Investor agree that the Placement Agent, as placement agent for the Common Stock sold pursuant to this
Agreement, shall be a third party beneficiary of the representations, warranties and agreements made or given by the parties
hereunder.
6.14
Public Announcements. The Investor will not make (and will use its reasonable best efforts to ensure that its
Affiliates and representatives do not make) any news release or public disclosure with respect to this Agreement and any of the
transactions contemplated hereby, without first consulting with the Company and, in each case, also receiving the Company’s consent
(which shall not be unreasonably withheld or delayed).
6.15
Specific Performance. The parties hereto 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. It is accordingly agreed that the parties shall
be entitled to seek specific performance of the terms hereof, this being in addition to any other remedies to which they are entitled at
law or equity.
6.16
No Recourse. This Agreement may only be enforced against the named parties hereto. All claims or causes of
action that may be based upon, arise out of or relate to this Agreement, or the negotiation, execution or performance of this Agreement
may be made only against the entities that are expressly identified as parties hereto or that are subject to the terms hereof, and no past,
present or future director, officer, employee, incorporator, member, manager, partner, shareholder, Affiliate, agent, attorney or
representative of any party hereto (including any person negotiating or executing this Agreement on behalf of a party hereto) shall
have any liability or obligation with respect to this Agreement or with respect to any claim or cause of action, whether in tort, contract
or otherwise, that may arise out of or relate to this
42
Agreement, or the negotiation, execution or performance of this Agreement and the transactions contemplated hereby.
43
EXHIBIT A
Summary of Modification Terms
1.
The Company will redeem $900,000 aggregate principal amount of the Debentures pro rata from all holders of Debentures.
2.
The Company will pay all interest accrued on the Debentures through the Closing Date.
3.
The maturity date of the Debentures will be extended to March 17, 2024.
4.
The payment terms of the Debentures will be amended to require the principal amount thereof to be repaid in equal
quarterly payments of principal, together with accrued interest, over the period commencing June 17, 2019 and ending
March 17, 2024, with the obligation to make each such payment to be subject to receipt by the Company of required
approval or non-disapproval from applicable bank regulatory authorities.
5.
The Company will pay certain fees and expenses of the Trustee.
6.
Completion of the Modification will require the:
(i)
approval of the holder or holders of Senior Indebtedness of the Company;
(ii)
written approval or confirmation of non-disapproval by applicable bank regulatory authorities;
(iii)
proceeds; and
(iv)
closing of a private placement of Common Stock by the Company for at least $6 million of gross
approval by the Company’s stockholders, including the U.S. Treasury Department.
44
EXHIBIT B
NCIF Side Letter
SEE ATTACHED
Appendix I
SELLING STOCKHOLDER QUESTIONNAIRE
The undersigned beneficial owner of Common Stock (the “Common Stock”) of Broadway Financial Corporation (the
“Company”) understands that the Company has filed or intends to file with the Securities and Exchange Commission (the
“Commission”) a Registration Statement for the registration and resale of Common Stock that qualifies as Registrable Securities, in
accordance with the terms of a Subscription Agreement (the “Subscription Agreement”) between the Company and the Investor
(s) named therein. All capitalized terms used and not otherwise defined herein shall have the meanings ascribed thereto in the
Subscription Agreement.
The undersigned hereby provides the following information to the Company and represents and warrants that such information
is accurate:
QUESTIONNAIRE
1.
2.
Name.
(a)
Full Legal Name of Selling Securityholder
(b)
Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities
Listed in Item 3 below are held:
(c)
Full Legal Name of Natural Control Person (which means a natural person who directly or indirectly alone
or with others has power to vote or dispose of the securities covered by the questionnaire):
Address for Notices to Selling Securityholder:
Telephone:
Fax:
Contact Person:
1
3.
Beneficial Ownership of Registrable Securities:
Number of Shares of Registrable Securities beneficially owned(1) and purchased pursuant to the Subscription
Agreement:
4.
Broker-Dealer Status:
(a)
Are you a broker-dealer?
Yes † No †
Note: If yes, the Commission’s staff has indicated that you should be identified as an underwriter in the
Registration Statement.
(b)
Are you an affiliate of a broker-dealer?
Yes † No †
(c)
If you are an affiliate of a broker-dealer, do you certify that you bought the Registrable Securities in the
ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you
had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable
Securities?
Yes † No †
Note: If no, the Commission’s staff has indicated that you should be identified as an underwriter in the
Registration Statement.
5.
Beneficial Ownership of Securities of the Company Other than the Registrable Securities Owned by the Selling
Securityholder.
(1) Securities “beneficially owned” would include securities held by you for your own benefit, whether in bearer form or registered in
your own name or otherwise (regardless of whether or how they are registered), such as, for example, securities held for you by
custodians, brokers, relatives, executors, administrators or trustees, and securities held for your account by pledgees, securities owned
by a partnership in which you are a member, and securities owned by any corporation which is or should be regarded as a personal
holding corporation of yours. You are also considered to be the beneficial owner of a security if you, directly or indirectly, through any
contract, arrangement, understanding, relationship or otherwise have or share: (1) voting power, which includes the power to vote, or to
direct the voting of, such security or (2) investment power, which includes the power to dispose, or to direct the disposition, of such
security. You are also the beneficial owner of a security if you, directly or indirectly, create or use a trust, proxy, power of attorney,
pooling arrangement or any other contract, arrangement or device with the purpose or effect of divesting yourself of beneficial
ownership of a security or preventing the vesting of such beneficial ownership. Finally, you are deemed to be the beneficial owner of a
security if you have the right to acquire beneficial ownership of such security at any time within sixty days, including but not limited to
any right to acquire (a) through the exercise of any option, warrant or right, (b) through the conversion of a security, (c) pursuant to the
power to revoke a trust, discretionary account or similar arrangement or (d) pursuant to the automatic termination of a trust,
discretionary account or similar arrangement.
2
Except as set forth below in this Item 5, the undersigned is not the beneficial or registered owner of any securities of
the Company other than the Registrable Securities listed above in Item 3.
Type and Amount of Other Securities beneficially owned by the Selling Securityholder:
6.
Relationships with the Company:
Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity
holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had
any other material relationship with the Company (or its predecessors or affiliates) during the past three years.
State any exceptions here:
7.
Name of Selling
Shareholder
Please fill in the table below as you would like it to appear in the Registration Statement. Include footnotes where
appropriate.
Number of Shares of
Common Stock
Beneficially Owned Prior
to Offering
Maximum Number of
Shares of Common Stock
to be Sold Pursuant to this
Prospectus
Number of Shares of
Common Stock
Beneficially Owned After
Offering
The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein
that may occur subsequent to the date hereof and prior to the Effective Date for the Registration Statement.
By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1
through 7 and the inclusion of such information in the Registration Statement and the related prospectus. The undersigned understands
that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration
Statement and the related prospectus.
IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed
and delivered either in person or by its duly authorized agent.
3
Dated:
Beneficial Owner:
By:
Name:
Title:
PLEASE (1) FAX OR EMAIL A COPY OF THE COMPLETED AND EXECUTED
NOTICE AND QUESTIONNAIRE, AND (2) RETURN THE ORIGINAL BY
OVERNIGHT MAIL, TO:
Broadway Financial Corporation
5055 Wilshire Boulevard
Suite 500
Los Angeles, CA 90036
Attn: Chief Financial Officer
Facsimile: (213) 634-1723
4
Exhibit 10.3.2
BROADWAY FINANCIAL CORPORATION
5055 Wilshire Boulevard, Suite 500
Los Angeles, CA 90036
October 16, 2014
National Community Investment Fund
135 South LaSalle, Suite 2040
Chicago, IL 60603
Re:
Investor Rights
Ladies and Gentlemen:
This letter will confirm our agreement that pursuant to and effective as of your acquisition of capital stock of Broadway
Financial Corporation, a Delaware corporation (the “Company”), the parent company of Broadway Federal Bank, F.S.B. (the
“Bank”) pursuant to the following named agreements, National Community Investment Fund, a trust (the “Investor” or “NCIF”),
shall be entitled to the following contractual rights, in addition to any other rights specifically provided to the Investor pursuant to that
certain Subscription Agreement, dated as of the date hereof, by and between the Company and the Investor, including any
amendments or supplements thereto, and such other agreements, instruments and certificates delivered in connection therewith
(collectively, the “Subscription Documents”):
1.
Reaffirmation of Rights to Designate Board Member or Board Observer. The Company and the Investor have
heretofore entered into that certain letter agreement, dated as of August 22, 2013 (the “Investor Rights Agreement”) providing
certain rights to the Investor in connection with Investor’s exchange of preferred stock and senior debt of the Company pursuant to the
Transaction Documents referred to in the Investor Rights Agreement. Such rights included rights to propose a nominee for election as
a director of the Company (the “Director Right”) or to designate a board observer to attend meetings of the Company’s board of
directors (the “Board Observer Right”), each as more particularly set forth in paragraph 1 and paragraph 2, respectively, of the
Investor Rights Agreement. The Company hereby confirms that (i) the Investor will continue to have the Director Right and the
Board Observer Right upon consummation of the Investor’s purchase of common stock of the Company pursuant to the Subscription
Documents, and (ii) the shares of common stock so purchased will be eligible, to the extent such shares continue to be beneficially
owned by the Investor (or its Affiliates, as that term is defined in the Investor Rights Agreement), to be included for purposes of
determining whether the Investor (together with its Affiliates) beneficially owns at least 4% of the total capital stock of the Company
as required by paragraph 1 and paragraph 2 of the Investor Rights Agreement to retain the Director Right and the Board Observer
Right.
2.
Capital Structure.
(a)
Exchange Rights. The Investor shall have the right, but not the obligation, from time to time, including in
connection with original issue of common stock to the Investor,
in its sole discretion, to exchange any voting common stock held by the Investor for shares of the non-voting common stock currently
authorized by the certificate of incorporation of the Company (“Non-Voting Common Stock”) in order to reduce its ownership of
voting common stock of the Company to as low as 4.9% of the voting common stock of the Company on a fully-diluted basis. Any
such exchange shall be effected by way of an Exchange Agreement in form and substance substantially as set forth on Exhibit A
hereto. Any Non-Voting Common Stock of the Company held by the Investor shall, upon its transfer to any person other than the
Investor, or one of its Affiliates, immediately and without any further action on the part of any person, automatically convert into
voting common stock of the Company, as provided for in the provisions of the Company’s certificate of incorporation relating to the
Non-Voting Common Stock, subject to compliance with the applicable requirements of the Regulators (as that term is defined in the
Investor Rights Agreement). Any shares of Non-Voting Common Stock received by the Investor or any Affiliate of the Investor
pursuant to this paragraph shall not be convertible by the Investor into shares of voting common stock or any other voting security of
the Company, and any such shares shall be subject to the restrictions set forth in the provisions of the Company’s certificate of
incorporation relating to the Non-Voting Common Stock, including restrictions on transfer contained therein that are intended to cause
such shares to qualify as non-voting shares under the applicable requirements and policies of the Regulators.
(b)
Preemptive Rights. If, following the consummation of the transactions contemplated by the Subscription
Documents, the Company authorizes the issuance or sale of any securities comparable or identical to the securities issued in this
offering pursuant to the Subscription Documents, but only during such period as the Investor (together with its Affiliates) beneficially
owns at least 4% of the total capital stock of the Company, the Investor shall be entitled, in its sole discretion, to (i) purchase shares of
common stock, Non-Voting Common Stock or any combination thereof, such that the Investor would maintain its percentage
ownership interest in the Company’s capital stock on a fully-diluted basis; or (ii) exchange any Non-Voting Common Stock held by
the Investor for voting common stock, such that the Investor would maintain its percentage ownership interest in the Company’s
voting common stock on a fully-diluted basis subject, in each case, to compliance with the applicable requirements of the Regulators.
With respect to each of (i) and (ii) above (the “Preemptive Rights”), the Company shall give written notice of such proposed issuance
or sale (including the terms and conditions thereof) to the Investor at least thirty (30) days prior to the anticipated issuance or sale date
and the Investor shall have twenty (20) days from the receipt thereof to provide the Company with notice of the exercise of its
Preemptive Rights with respect to such issuance or sale. The Preemptive Rights described herein shall not apply to the issuance of
securities of the Company (A) to employees or directors of, or consultants or advisors to, the Company or the Bank pursuant to a plan,
agreement or arrangement approved by the Board, (B) in connection with the acquisition of another company by the Company by way
of merger or other reorganization or the acquisition of all or substantially all of the assets or capital stock of such company, provided
that such issuances are approved by the Board, or (C) in a transaction approved by the Board that results in a “Change of Control.”
For purposes of this letter agreement the term “Change of Control” means the acquisition by any person (including a group of related
persons within the meaning of Rule 13d-2 of the Securities Exchange Act of 1934, as amended) of (x) more than fifty percent (50%)
of the outstanding capital stock of the Company; (y) all or substantially all of the assets of the Company (including without limitation
the sale of more than two-thirds (2/3) of the capital stock held by the Company in the Bank); or (z) a merger of the Company with or
into
2
any person, or of any person with or into the Company, immediately after which the shareholders of the Company (as measured
immediately prior to completion of the transaction) own less than a majority of the combined capital stock or membership interests of
the surviving entity. In the case of a Change of Control, the Investor’s Non-Voting Common Stock shall be exchanged or purchased
in the same manner as the voting common stock of the Company; provided, however, that in all cases, the aggregate ownership
percentage of the Investor and its Affiliates in the issued and outstanding voting securities of the Company shall not exceed 9.9%. For
the avoidance of doubt, the Investor may purchase additional shares of Non-Voting Common Stock if the purchase of additional
shares of voting common stock would increase its ownership of voting common stock to more than 4.9% of the Company’s
outstanding voting common stock. For the purpose of any such calculations of the percentage of voting securities owned by the
Investor and its Affiliates, the Investor shall include (i) any voting securities previously sold or transferred by the Investor and its
Affiliates, and (ii) any voting securities that were converted to Non-Voting Common Stock pursuant to paragraph 3(a) above as if such
non-voting preferred stock were still voting securities. In addition, the total equity ownership of the Company by the Investor and its
Affiliates shall not exceed 9.9% of the Company’s issued and outstanding stock.
(c)
For the avoidance of doubt, the rights granted to Investor in this paragraph 2 reaffirm, and are not in
addition to, the rights granted to the Investor by paragraph 3 of the Investor Rights Agreement.
3.
Registration Rights. The Company shall provide a “shelf registration” for use by the Investor in the offer and sale of
shares acquired by the Investor pursuant to the Subscription Documents, the registration statement for which shall be filed with the
SEC by not later than the Filing Deadline (as defined in the Registration Rights Agreement referred to below). In addition, the
Investor shall be entitled to exercise “piggyback” registration rights to participate in the registration of shares pursuant to all
registration statements proposed to be filed by the Company (except for the registration of securities (a) to be offered pursuant to an
employee benefit plan on Form S-8 or pursuant to a registration made on Form S-4 or any successor forms then in effect or (b) in a
transaction relating solely to the sale of debt or convertible debt instruments). The rights and obligations of the Investor and the
Company in respect of the registration rights provided hereby shall be set forth in a Registration Rights Agreement in form and
substance substantially as set forth on Exhibit B hereto.
4.
Regulatory Approval. The Company and the Investor shall cooperate to obtain the appropriate approvals from the
Regulators in accordance with this letter agreement and the Subscription Documents. If necessary, the Investor shall agree to certain
passivity commitments imposed by the Regulators, provided, that the terms and conditions of such commitments are customary and
are not deemed by the Investor (in its sole discretion) to be unreasonable and provided, further, that the Investor shall not be required
to agree to any restrictions, conditions or commitments imposed or otherwise required by any Regulator that are determined by the
Investor (in its sole discretion) to be unduly burdensome.
5.
Community Development Matters.
Throughout the period that NCIF beneficially owns at least 4% of the total capital stock of the Company:
3
(a)
The Bank will remain a Community Development Banking Institution (a “CDBI”). A CDBI is defined for
this purpose as a financial institution that meets the following five conditions:
(i)
It has a primary mission of promoting community development;
(ii)
It serves either an investment area which meets objective criteria of economic distress and which
has significant unmet needs for loans or equity investments, or a targeted population of low-income persons or of individuals who
otherwise lack adequate access to loans or equity investments;
(iii)
through subsidiaries or affiliates;
It provides development services in conjunction with equity investments or loans, directly or
(iv)
It maintains, through representation on its governing board or otherwise, accountability to its
residents of its investment areas or targeted populations; and,
(v)
It is not an agency or instrumentality of the United States or of any State or political subdivision of
a State.
(b)
Impact Reporting. The Company or the Bank will submit development impact data, including, but not
limited to, loans originated, purchased or sold by type and census tracts and other financial products and services focused on low and
moderate income communities. Impact reporting formats may be as provided by NCIF from time to time, with reporting to be done
within 120 days after each fiscal year end.
(c)
Quarterly Reporting. The Company or the Bank will provide all information reasonably required by NCIF
to meet its quarterly reporting requirements under the American Recovery and Reinvestment Act of 2009, including but not limited to,
reporting on the following:
(i)
Nature of projects financed or to be financed; and
(ii)
Permanent and part time jobs created and retained at Broadway and by the borrowers funded by
the Bank.
(d)
The NCIF Network. Throughout NCIF’s ownership of Common Stock, the Bank will be an active member
of The NCIF Network, participating in the Annual Conference, and various other initiatives designed to strengthen the CDBI Banking
community. The Bank commits to paying $2,500 per year to NCIF for this participation.
(e)
Ongoing Engagement. Throughout NCIF’s ownership of Common Stock contemplated herein, the
Company will make itself available to NCIF for quarterly update discussions on both financial and social performance. Upon request,
this discussion may include any and all members of senior management of the Company, as well as the Chairman of the Board and/or
Lead Independent Board Director of the Company.
4
(f)
Termination of Obligations. In the event that NCIF ceases to own at least 4% of the total capital stock of
the Company, the obligations of the Company pursuant to this Section 5 and the obligations of the Company pursuant to Section 9 of
the Investor Rights Agreement shall thereupon terminate and shall not thereafter be reinstated without the agreement of the Company.
6.
Miscellaneous. The validity, construction and interpretation of this letter agreement and the rights and duties of the
parties hereunder shall be governed by and construed in accordance with laws of the State of New York without regard to its conflicts
of laws provisions. This letter agreement (together with the Subscription Documents) constitutes the entire agreement among the
parties hereto, and supersedes any and all prior representations, agreements and understandings, whether written or oral, with respect
to the subject matter hereof. This letter agreement shall not be modified, amended or waived, in whole or in part, except by written
agreement of both parties. The provisions hereof shall be binding upon, and shall inure to the benefit of, the parties hereto and their
successors and assigns. Each of the parties hereto shall, at the request of the other party, execute, deliver and acknowledge without
any consideration, such additional documents, instruments or certificates or do or cause to be done such other things as are reasonably
necessary or desirable to make effective the agreements and transactions contemplated by this letter agreement. This letter agreement
may be executed and delivered (including by facsimile or electronic transmission) in multiple counterparts, each of which shall
constitute an original and all of which together shall be deemed to be one and the same instrument.
[Signature Page Follows]
5
Very truly yours,
BROADWAY FINANCIAL CORPORATION
By: /s/ Wayne-Kent A. Bradshaw
Name: Wayne-Kent A. Bradshaw
Title: President and Chief Executive Officer
ACKNOWLEDGED AND AGREED:
NATIONAL COMMUNITY INVESTMENT FUND
By: /s/ Saurabh Narain
Name: Saurabh Narain
Title: Chief Executive
[Signature Page to Investor Rights Letter Agreement]
6
Exhibit A
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (this “Agreement”) is made as of [
], 20[_] by and between
Broadway Financial Corporation (the “Company”), a Delaware corporation and parent company of Broadway Federal Bank, f.s.b.,
and [
] (“Investor”).
WITNESSETH
WHEREAS, Investor owns, or has a contractual right to purchase, shares of the Company’s common stock, par
value $0.01 per share (the “Common Stock”);
WHEREAS, pursuant to the terms of that certain letter agreement (the “Investor Rights Agreement”) dated
October 16, 2014 between the Company and Investor, Investor and its successors and assigns (collectively hereinafter referred to as
“Investor”) have the right to exchange any voting common stock held by them for Non-Voting Stock (as defined in the Investor
Rights Agreement), in order to effect a reduction of its or their ownership of voting securities to 4.9% of the voting securities of the
Company, as determined on a fully-diluted basis; and
WHEREAS, Investor wishes to exercise its right pursuant to the Letter Agreement to exchange [
]
shares of the Company’s Common Stock (the “Exchanged Shares”) for an equal number of shares of Non-Voting Stock (the
“Replacement Shares”).
NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements set forth herein,
the parties hereby agree as follows:
ARTICLE 1
EXCHANGE TRANSACTION
1.1
Exchange. Subject to the terms and conditions of this Agreement, at the Closing (as defined below), Investor shall
deliver to the Company the Exchanged Shares, and, in exchange therefor, the Company shall issue and deliver to Investor the
Replacement Shares delivered in book entry form, registered in Investor’s name and address.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Investor as follows:
2.1
Organization; Qualification. The Company is a corporation duly incorporated and validly existing under the laws
of the State of Delaware. The Company has all requisite corporate power to execute and deliver this Agreement, to issue and exchange
the Replacement Shares for the Exchanged Shares and otherwise to carry out the provisions of this Agreement.
A-1
2.2
Authorization; Valid and Binding Obligation. All corporate action on the part of the Company, its officers,
directors and stockholders necessary for the authorization of this Agreement, the performance of all obligations of the Company
hereunder and the authorization and exchange of the Replacement Shares for the Exchanged Shares pursuant hereto has been taken.
The Replacement Shares, when issued, sold and delivered against receipt of the Exchanged Shares in accordance with the provisions
of this Agreement, shall be duly and validly issued, fully paid and non-assessable. This Agreement has been duly executed and
delivered by the Company and constitutes the valid and binding obligation of the Company enforceable against the Company in
accordance with its terms.
2.3
Capitalization. The Company has disclosed to Investor in writing the capitalization of the Company that will be in
effect immediately after the Closing.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor represents and warrants to the Company as follows:
3.1
Authorization; Valid and Binding Obligation. Investor has full power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. [Investor acquired such power and authority by appropriate permitted assignment
from [
]](1) This Agreement constitutes the valid and binding obligation of Investor, enforceable against it in
accordance with its terms, assuming the due authorization, execution and delivery hereof by the Company.
3.2
Title to Shares. Investor has valid title to the Exchanged Shares, free and clear of all liens, restrictions, proxies,
voting trusts, voting agreements, encumbrances and claims of any kind. At the Closing, the Company shall acquire valid title to and
beneficial and record ownership of the Exchanged Shares being transferred by Investor pursuant to this Agreement.
ARTICLE 4
CLOSING
4.1
Closing. The Closing of the transactions contemplated by this Agreement (“Closing”) shall take place
simultaneously with the execution of this Agreement either by mail, virtually through the Internet, or at the offices of Arnold & Porter
LLP, 777 South Figueroa Street, 44th Floor, Los Angeles, California, or at such other time and place as may be mutually agreed upon
by the parties hereto.
4.2
Deliveries at the Closing.
(a)
By Investor. At the Closing, Investor shall deliver or cause to be delivered to the Company or, if applicable,
the transfer agent for the Replacement Shares, the Exchanged Shares owned by Investor free and clear of all liens, encumbrances,
pledges and claims of any kind, accompanied by instruments of transfer sufficient to transfer such stock to the Company.
(1) Include if applicable, stating name of original Investor and subsequent assignees.
2
(b)
By the Company. At the Closing, the Company shall deliver the Replacement Shares to Investor.
ARTICLE 5
MISCELLANEOUS
5.1
Survival of Representations, Warranties and Covenants. The representations, warranties, agreements and
covenants made by each party in this Agreement shall survive execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby notwithstanding any investigation, audit or review made at any time by any party to this Agreement
and notwithstanding the delivery of any documents, exhibits, schedules or certificates pursuant to this Agreement.
5.2
Further Assurances. Each party will at any time and from time to time execute, acknowledge, deliver and perform
all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be necessary to carry out
the provisions and intent of this Agreement.
5.3
Notices. All notices and other communications given or made pursuant to this Agreement shall be in writing and
shall be deemed effectively given upon the earliest of: (i) personal delivery to the party to be notified; (ii) five (5) days after having
been sent by registered or certified mail, return receipt requested, postage prepaid; or (iii) one (1) business day after deposit with a
nationally recognized overnight courier, freight prepaid, specifying next business day delivery, with written verification of receipt. All
communications shall be sent to each party as follows:
If to the Company:
Broadway Financial Corporation
5055 Wilshire Boulevard, Suite 500
Los Angeles, CA 90036
Attention: Wayne-Kent A. Bradshaw, President and CEO
with a copy to:
Arnold & Porter LLP
777 South Figueroa Street, 44th Floor
Los Angeles, CA 90017
Attention: James R. Walther, Esq.
If to Investor:
with a copy to:
3
5.4
Entire Agreement. This Agreement contains the entire understanding of the parties in respect of its subject matter
and supersedes all prior agreements and understandings between or among the parties with respect to such subject matter.
5.5
Expenses. The parties shall pay their own fees and expenses, including their own counsel fees, incurred in
connection with this Agreement or any transaction contemplated by this Agreement.
5.6
Amendment; Waiver. This Agreement may not be modified, amended, supplemented, cancelled or discharged,
except by written instrument executed by each of the parties. The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by any party in exercising any right, power or privilege under this Agreement or
the documents referred to in this Agreement will operate as a waiver of such right, power or privilege, and no single or partial exercise
of any such right, power or privilege will preclude any other or further exercise of such right, power or privilege or the exercise of any
other right, power or privilege.
5.7
Binding Effect; Assignment. Except as otherwise provided herein, the rights and obligations of this Agreement
shall bind and inure to the benefit of the parties and their respective successors and legal assigns. The rights and obligations of this
Agreement may not be assigned by any of the parties without the prior written consent of the other parties. Any assignment in
violation of this Section 5.7 shall be void and of no force or effect.
5.8
Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same instrument. Facsimile or PDF signatures shall be deemed originals
for all purposes.
5.9
Headings. The headings contained in this Agreement are for convenience of reference only and are not to be given
any legal effect and shall not affect the meaning or interpretation of this Agreement.
5.10
Governing Law. This Agreement shall be governed by, and construed in accordance with the laws of the State of
Delaware, all rights and remedies being governed by said laws, regardless of the laws that might otherwise govern under applicable
principles of conflicts of laws.
[Signature page follows]
4
IN WITNESS WHEREOF, each of the parties, intending to be legally bound, have executed this Agreement or have
caused this Agreement to be executed by their duly authorized representatives as of the date first above written.
BROADWAY FINANCIAL CORPORATION
By:
Name:
Title:
[INVESTOR]
By:
Name:
5
Exhibit B
Form of Registration Rights Agreement
[Filed as separate exhibit]
B-1
Exhibit 10.4
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is made as of October 16, 2014, between Broadway
Financial Corporation, a Delaware corporation and parent company of Broadway Federal Bank, f.s.b (the “Company”), on the one
hand, and Gapstow Financial Growth Capital Fund I LP, a Delaware limited partnership, and National Community Investment Fund, a
trust (each an “Investor” and, collectively, the “Investors”), on the other hand. For good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Investor hereby agree as follows:
1.
REGISTRATION RIGHTS
(a)
Shelf Registration.
(i)
Subject to the terms and conditions of this Agreement, the Company covenants and agrees that
upon the expiration of ninety (90) days after the date on which the transactions contemplated by the Subscription Agreements, each
dated as of October 16, 2014 between the Company and the Investors (the “Subscription Agreements”) are consummated (the
“Filing Deadline”), the Company shall have prepared and filed with the Securities and Exchange Commission (the “SEC”) one or
more Shelf Registration Statements covering the resale of all of the Registrable Securities (or, if permitted by the rules of the SEC,
otherwise designated an existing Shelf Registration Statement filed with the SEC to cover such Registrable Securities), and, to the
extent the Shelf Registration Statement has not theretofore been declared effective or is not automatically effective upon such filing,
the Company shall use reasonable best efforts to cause such Shelf Registration Statement to be declared or become effective as soon
as practicable (and in any event no later than the Effectiveness Deadline) and to keep such Shelf Registration Statement continuously
effective and in compliance with the Securities Act and usable for resale of such Registrable Securities until the date that is 12 months
after the initial effective date thereof (the “Registration Termination Date”).
(ii)
Any registration pursuant to this Section 1(a) shall be effected by means of a shelf registration
under the Securities Act (a “Shelf Registration Statement”) in accordance with the methods and distribution set forth in the Shelf
Registration Statement and Rule 415.
(b)
Piggyback Registration.
(i)
As long as an Investor holds Registrable Securities (as defined below), if at any time or from time
to time, the Company shall determine to register any of its securities under the Securities Act of 1933, as amended (the “Securities
Act”) (except for the registration of securities (x) to be offered pursuant to an employee benefit plan on Form S-8 or pursuant to a
registration made on Form S-4 or any successor forms then in effect or (y) in a transaction relating solely to the sale of debt or
convertible debt instruments), at any time, and the registration form to be used may be used for the registration of the Registrable
Securities (a “Piggyback Registration”), the Company shall:
(A)
give to the Investor thirty (30) days written notice prior to filing the registration statement (the
“Piggyback Registration Notice”); and
(B)
include in such registrations, and in any underwriting involved therein, all the Registrable
Securities specified in a written request made by the Investor within fifteen (15) days after receipt of such written notice from the
Company, except as set forth in subsection (ii) below.
(ii)
If the registration is for a registered public offering involving an underwriting, the Company shall
so advise the Investor as a part of the Piggyback Registration Notice. In such event, the right of the Investor to registration shall be
conditioned upon the Investor’s participation in such underwriting and the inclusion of the Investor’s Registrable Securities in the
underwriting to the extent provided herein. If the Investor proposes to distribute its securities through such underwriting, it shall
(together with the Company and any other holders distributing their securities through such underwriting) enter into an underwriting
agreement in the form agreed to by the Company with the underwriter(s) selected for such underwriting by the Company. The
Investor and its legal counsel shall have the right to review and comment on such underwriting agreement but shall not have any
approval rights with respect thereto. Notwithstanding any other provision of this Agreement, if the managing underwriter determines
that marketing factors require a limitation of the number of shares to be underwritten, the managing underwriter may limit the number
of Registrable Securities to be included in the registration and underwriting. The Company shall so advise the Investor and the other
holders distributing their securities through such underwriting pursuant to a Piggyback Registration, and the number of shares of
Registrable Securities and other securities that may be included in the registration and underwriting, after first including all securities
proposed to be offered and sold by the United States Department of the Treasury or its permitted transferees and by the Company,
shall be allocated among the Investor and other holders otherwise entitled to registration rights in proportion, as nearly as practicable,
to the respective amounts of Registrable Securities sought to be registered by the Investor and other securities held by other holders at
the time of filing the registration statement. If the Investor disapproves of the terms of any such underwriting, the Investor may elect
to withdraw therefrom by written notice to the Company and the managing underwriter.
2.
EXPENSES OF REGISTRATION
All expenses incurred in connection with the registrations pursuant to Section 1 hereof, including all registration, filing and
qualification fees, printing expenses, fees and disbursements of counsel for the Company and expenses of any special audits of the
Company’s financial statements incidental to or required by such registration, shall be borne by the Company, except that the
Company shall not be required to pay underwriters’ fees, discounts or commissions relating to Registrable Securities or fees of
separate legal counsel for Investors.
3.
REGISTRATION PROCEDURES
(a)
Company Obligations.
In the case of each registration effected by the Company pursuant to this Agreement, the Company will keep the Investors
who have rights with respect thereto pursuant to this Agreement advised in writing as to the initiation of each registration and as to the
completion thereof. In addition, at its expense the Company will:
2
(i)
In the case of Piggyback Registrations, keep such registration pursuant to this Agreement
continuously effective for a period of ninety (90) days, or such reasonable period necessary to permit the Investors to complete the
distribution described in the registration statement relating thereto, whichever first occurs;
(ii)
Prepare and file with the SEC a prospectus supplement with respect to a proposed offering of
Registrable Securities pursuant to an effective registration statement and, subject to this Section 3(a), keep such registration statement
effective and such prospectus supplement current.
(iii)
Prepare and file with the SEC such amendments and supplements to the applicable registration
statement and the prospectus or prospectus supplement used in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement.
(iv)
Furnish to the Holders such number of correct and complete copies of the applicable registration
statement and each such amendment and supplement thereto (including in each case all exhibits) and of a prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned or to be distributed by them.
(v)
Use its reasonable best efforts to register and qualify the securities covered by such registration
statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Holders, to keep
such registration or qualification in effect for so long as such registration statement remains in effect, and to take any other action
which may be reasonably necessary to enable such seller to consummate the disposition in such jurisdictions of the securities owned
by such Holder; provided, that the Company shall not be required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such states or jurisdictions.
(vi)
Notify each Holder of Registrable Securities at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event as a result of which the applicable prospectus, as then
in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then existing (which notice shall not contain any material
non-public information).
(vii)
Give written notice to the Holders (which notice shall not contain any material, non-public
information):
(A)
when any registration statement filed pursuant to Section 1A or any amendment thereto has been
filed with the SEC (except for any amendment effected by the filing of a document with the SEC pursuant to the Exchange Act) and
when such registration statement or any post-effective amendment thereto has become effective;
(B)
of any request by the SEC for amendments or supplements to any registration statement or the
prospectus included therein or for additional information;
3
(C)
of the issuance by the SEC of any stop order suspending the effectiveness of any registration
statement or the initiation of any proceedings for that purpose;
(D)
of the receipt by the Company or its legal counsel of any notification with respect to the
suspension of the qualification of the Common Stock for sale in any jurisdiction or the initiation or threatening of any proceeding for
such purpose; and
(E)
of the happening of any event that requires the Company to make changes in any effective
registration statement or the prospectus related to the registration statement in order to make the statements therein not misleading
(which notice shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made).
(viii)
Use its commercially reasonable best efforts to prevent the issuance or obtain the withdrawal of
any order suspending the effectiveness of any registration statement referred to in Section 3(a)(vii)(C) at the earliest practicable time.
(ix)
Upon the occurrence of any event contemplated by Section 3(a)(vii)(C) or 3(a)(vii)(E) and subject
to the Company’s rights under Section 3(b), promptly prepare a post-effective amendment to such registration statement or a
supplement to the related prospectus or file any other required document so that, as thereafter delivered to the Holders, the prospectus
shall not contain an 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.
(x)
Cause all such Registrable Securities to be listed on each securities exchange on which the same
class of securities issued by the Company are then listed.
(xi)
If requested by Holders of a majority of the Registrable Securities being registered and/or sold in
connection therewith, promptly include in a prospectus supplement or amendment such information as the Holders of a majority of the
Registrable Securities being registered and/or sold in connection therewith may reasonably request in order to permit the intended
method of distribution of such securities and make all required filings of such prospectus supplement or such amendment as soon as
practicable after the Company has received such request.
(xii)
Timely provide to its security holders earnings statements satisfying the provisions of Section 9
(a) of the Securities Act and Rule 158 thereunder.
(b)
Suspension of Sales. Upon receipt of written notice from the Company that a registration statement,
prospectus or prospectus supplement contains or may contain an untrue statement of a material fact or omits or may omit to state a
material fact required to be stated therein or necessary to make the statements therein not misleading or that circumstances exist that
make use of such registration statement, prospectus or prospectus supplement inadvisable, each Holder of Registrable Securities shall
forthwith discontinue disposition of Registrable Securities pursuant to such registration statement until such Holder has received
copies of a supplemented or amended prospectus or prospectus supplement, or until such Holder is advised in writing by the Company
that the use of the prospectus and, if applicable, prospectus supplement may be resumed, and, if so directed by the Company, such
Holder shall deliver to the
4
Company (at the Company’s expense) all copies, other than permanent file copies then in such Holder’s possession, of the prospectus
and, if applicable, prospectus supplement covering such Registrable Securities current at the time of receipt of such notice (each such
suspension, a “Suspension Period”). No single Suspension Period shall exceed forty-five (45) consecutive days and the aggregate of
all Suspension Periods shall not exceed one hundred twenty (120) days during any twelve (12) month period.
(c)
Termination of Registration Rights. A Holder’s registration rights as to any securities held by such Holder
(and its Affiliates, partners, members and former members) shall not be available unless such securities are Registrable Securities.
(d)
Furnishing Information.
(i)
Neither the Investor nor any Holder shall use any free writing prospectus (as defined in Rule 405)
in connection with the sale of Registrable Securities without the prior written consent of the Company.
(ii)
It shall be a condition precedent to the obligations of the Company to take any action pursuant to
Section 1 as to a selling Holder that such selling Holder shall furnish to the Company such information regarding themselves, the
Registrable Securities held by them and the intended method of disposition of such securities as shall be required to effect the
registered offering of their Registrable Securities.
4.
INDEMNIFICATION
(a)
In the event of a registration of any of the Registrable Securities under the Securities Act pursuant to this
Agreement, the Company will (i) indemnify and hold harmless each Investor whose shares are so registered and each other person, if
any, who controls such Investor or Investors within the meaning of the Securities Act, against any losses, claims, damages or
liabilities, costs and expenses (including reasonable fees, expenses and disbursements of attorneys and other professionals involved)
joint or several (collectively, “Losses”), to which such Investor or Investors, such underwriter or controlling person may become
subject under the Securities Act or otherwise, insofar as such Losses (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Registrable
Securities were registered under the Securities Act, any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof or in any free writing prospectus (as such term is defined in Rule 405) or arise out of or are based
upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Company of any rule or regulation promulgated under the Securities Act or any state
securities law applicable to the Company and relating to action or inaction required of the Company in connection with any such
registration, and (ii) will reimburse such Investor or Investors, each of its or their officers, directors and partners, and each person
controlling such Investor or Investors, each such underwriter and each person who controls any such underwriter, for any reasonable
legal and any other expenses incurred in connection with investigating, defending or settling any such claim, loss, damage, liability or
action. Notwithstanding the foregoing, the Company will not be liable in any such case to the extent that any such Loss arises out of
or is based on any untrue statement or
5
omission based upon written information furnished to the Company in an instrument duly executed by the Investor specifically for use
therein.
(b)
Each Investor will, if Registrable Securities held by or issuable to such Investor are included in the
securities for which a registration is being effected, (i) indemnify and hold harmless the Company, each of its directors and officers,
each underwriter, if any, of the Company’s securities covered by such registration statement, each person who controls the Company
and each underwriter within the meaning of the Securities Act, against all Losses, (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus,
offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and (ii) will reimburse the Company, such directors, officers, partners,
persons or underwriters for any reasonable legal or any other expenses incurred in connection with investigating, defending or settling
any such Loss, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission
(or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company in an instrument duly executed by the Investor specifically for use
therein. Notwithstanding the foregoing, the total amount for which the Investor, its officers, directors and partners, and any person
controlling the Investor, shall be liable under this Section 4(b) shall not in any event exceed the aggregate proceeds received by the
Investor from the sale of its Registrable Securities in such registration.
(c)
If the indemnification provided for in this Section 4 is unavailable to an Indemnified Party with respect to
any Losses, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Losses in such proportion as is appropriate to reflect the relative fault of the
Indemnified Party, on the one hand, and the Indemnifying Party, on the other hand, in connection with the statements or omissions
which resulted in such Losses as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party, on
the one hand, and of the Indemnified Party, on the other hand, shall be determined by reference to, among other factors, whether the
untrue statement of a material fact or omission to state a material fact relates to information supplied by the Indemnifying Party or by
the Indemnified Party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such
misstatement or omission; the Company and each Holder agree that it would not be just and equitable if contribution pursuant to this
Section 4 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable
considerations referred to in this Section 4(c). No Indemnified Party guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from the Company or any other Indemnifying Party if the
Company or such other Indemnifying Party was not guilty of such fraudulent misrepresentation.
(d)
Each party entitled to indemnification under this Section 4 (the “Indemnified Party”) shall give notice to
the party required to provide indemnification (the “Indemnifying Party”) promptly after such Indemnified Party has actual
knowledge of any claims as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom; provided, however, that counsel for the Indemnifying Party, who shall conduct the
defense of such claim or litigation,
6
shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld), and the Indemnified Party may
participate in such defense at such party’s expense. Notwithstanding the foregoing, the failure of any Indemnified Party to give notice
as provided herein shall not relieve the Indemnifying Party of its obligations hereunder, unless such failure resulted in actual detriment
to the Indemnifying Party. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect of such claim or
litigation.
(e)
Notwithstanding the foregoing, to the extent that the provisions on indemnification contained in the
underwriting agreements entered into among one or more Investors, the Company and the underwriters in connection with the
underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall be
controlling as to the Registrable Securities included in the public offering.
(f)
The indemnification provided by this Section 4 shall be a continuing right to indemnification and shall
survive the registration and sale of any securities by any person entitled to indemnification hereunder and the expiration or termination
of this Agreement.
5.
REPORTS UNDER THE EXCHANGE ACT
With a view to making available to the Investors the benefits of Rule 144 promulgated under the Securities Act and any other
rule or regulation of the SEC that may at any time permit Investor to sell securities of the Company to the public without registration,
the Company agrees to use its commercially reasonable efforts to:
(a)
make and keep public information available, within the meaning of Rule 144, including by filing all reports
required under the Exchange Act in a timely manner, at all times after the effective date of the Shelf Registration Statement;
(b)
furnish to the Investors forthwith upon request a written statement by the Company that it has complied
with the reporting requirements of Rule 144 (at any time after the effective date of the Shelf Registration Statement), and of the
Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and
documents filed by the Company with the SEC as may be reasonably requested to enable any such holder to take advantage of any
rule or regulation of the SEC permitting the selling of any such securities without registration.
6.
LIMITATIONS IN CONNECTION WITH FUTURE GRANTS OF REGISTRATION RIGHTS
From and after the date of this Agreement, the Company shall not, without the prior written consent of the Investors who then
hold Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company which
would allow such holder or prospective holder to include such securities in any registration filed under Section 1 hereof, unless under
the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent
that the inclusion of his securities will
7
not reduce the amount of the Registrable Securities of the Investor to be included in such registration.
7.
TRANSFER OF REGISTRATION RIGHTS
The registration rights of the Investors (and of any permitted transferee of an Investor) under this Agreement with respect to
any Registrable Securities may be assigned in whole or in part as provided in Section 8(b) below.
8.
CERTAIN DEFINITIONS
(a)
As used in this Agreement, the following terms shall have the following respective meanings:
(i)
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
(ii)
“Effectiveness Deadline” means, with respect to the Shelf Registration Statement required to be
filed pursuant to Section 1(a), the earlier of (i) the 90th calendar day following the Filing Deadline and (ii) the 5th Business Day after
the date the Company is notified (orally or in writing, whichever is earlier) by the SEC that such Shelf Registration Statement will not
be “reviewed” or will not be subject to further review; provided, that if the Effectiveness Deadline falls on a Saturday, Sunday or other
day that the SEC is closed for business, the Effectiveness Deadline shall be extended to the next Business Day on which the SEC is
open for business.
(iii)
“Holder” means any Investor and any other holder of Registrable Securities to whom the
registration rights conferred by this Agreement have been transferred in compliance with Section 7.
(iv)
“Register,” “registered” and “registration” shall refer to a registration effected by preparing and
(A) filing a registration statement in compliance with the Securities Act and applicable rules and regulations thereunder, and the
declaration or ordering of effectiveness of such registration statement or (B) filing a prospectus and/or prospectus supplement in
respect of an appropriate effective registration statement.
(v)
“Registrable Securities” means any and all shares of (i) common stock and non-voting common
stock, each having a par value $0.01 per share, of the Company (collectively, “Common Stock”) and (ii) capital stock issued in
respect of the Common Stock as a result of a stock split, stock dividend, recapitalization or combination; provided, that the Company
may, in its discretion, require as a condition to offers and sales of any of the foregoing pursuant to any registration that such securities
be offered and sold as, and converted into or exchanged for Common Stock on the closing of, any such sale. Notwithstanding the
foregoing, Registrable Securities shall not include any securities that would otherwise be Registrable Securities if the same are
(A) sold by a person in a transaction in which the person’s rights under this Agreement are not properly assigned; or (B)(1) sold to or
through a broker or dealer or underwriter in a public distribution or a public securities transaction, or (2) sold in a transaction exempt
from the registration and prospectus delivery requirements of the Securities Act, under
8
Section 4(1) thereof so that all transfer restrictions, and restrictive legends with respect thereto, if any, are removed upon the
consummation of such sale.
(vi)
“Rule 158,” “Rule 159A,” “Rule 405” and “Rule 415” mean, in each case, such rule promulgated
under the Securities Act (or any successor provision), as the same shall be amended from time to time.
9.
MISCELLANEOUS
(a)
Except as otherwise expressly provided herein, neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated, except by a written instrument signed by the Company and the Investors.
(b)
This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, legal representatives, successors and permitted assigns. This Agreement, and the rights and
obligations of the Investor hereunder, may be assigned by the Investor to any person or entity to which Registrable Securities are
transferred by the Investor, and such transferee shall be deemed to have acquired all of the rights and obligations of the Investor for
purposes of this Agreement; provided, that the transferee provides written notice of such assignment to the Company and provided
that any such transfer shall be made strictly in accordance with all applicable laws; and provided, further, that such rights may not be
held or exercised by more than one transferee of a single original Investor named herein at any one time. The Company may not
assign its rights under this Agreement except to its successors-in-interest as a result of a merger, reorganization or a sale of all or
substantially all of the assets of the Company.
(c)
This Agreement may be executed in any number of counterparts, and each such counterpart hereof shall be
deemed to be an original instrument, but all such counterparts together shall constitute but one agreement (notwithstanding that all of
the parties are not signatories to the original or the same counterpart, or that signature pages from different counterparts are
combined), and it shall not be necessary when making proof of this Agreement or any counterpart thereof to account for any other
counterpart, and the signature of any party to any counterpart shall be deemed to be a signature to and may be appended to any other
counterpart. For purposes of this Agreement, a document (or signature page thereto) signed and transmitted by facsimile machine or
other electronic means is to be treated as an original document. The signature of any party on any such document, for purposes
hereof, is to be considered as an original signature, and the document transmitted is to be considered to have the same binding effect
as an original signature on an original document. At the request of any party, any facsimile or other electronic signature is to be reexecuted in original form by the parties which executed the facsimile or other electronic signature. No party may raise the use of a
facsimile machine or other electronic means, or the fact that any signature was transmitted through the use of a facsimile machine or
other electronic means, as a defense to the enforcement of this Agreement.
(d)
All notices and other communications given or made pursuant to this Agreement shall be in writing and
shall be deemed effectively given upon the earlier of actual receipt or: (i) personal delivery to the party to be notified; (ii) five
(5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (iii) one (1)
9
business day after deposit with a nationally recognized overnight courier, freight prepaid, specifying next business day delivery, with
written verification of receipt. All communications to an Investor shall be sent to the address of the Investor set forth on the Investor’s
signature page to this Agreement and all communications sent to the Company shall be sent as follows:
If to the Company:
Broadway Financial Corporation
5055 Wilshire Boulevard, Suite 500
Los Angeles, CA 90036
Attention: Wayne-Kent A. Bradshaw, President and CEO
with a copy to:
Arnold & Porter LLP
777 South Figueroa Street, 44th Floor
Los Angeles, CA 90017
Facsimile No: 213-243-4199
Attention: James R. Walther, Esq.
(e)
Wherever the term “including” is used herein, it shall be deemed to mean “including, without limitation.”
(f)
In case any one or more of the provisions contained in this Agreement, or any of the documents or
agreements contemplated hereby, should be determined to be invalid, illegal or unenforceable in any respect, the validity, legality, and
enforceability of the remaining provisions contained herein, or therein, shall not be in any way affected or impaired thereby.
(g)
If, and as often as, there is any change in the Common Stock by way of a stock split, stock dividend,
combination or reclassification, or through a merger, consolidation, reorganization or recapitalization, or by any other means,
appropriate adjustment shall be made in the provisions hereof so that the rights and privileges granted hereby shall continue with
respect to the Common Stock as so changed.
(h)
This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware,
without regard to conflicts of law principles that would result in the application of any law other than the law of the State of
Delaware. The parties agree to submit to the jurisdiction of the courts of the State of Delaware in any proceeding involving this
Agreement.
(i)
THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR UNDER ANY
AGREEMENT, INSTRUMENT OR OTHER DOCUMENT CONTEMPLATED HEREBY OR RELATED HERETO AND IN ANY
ACTION DIRECTLY OR INDIRECTLY RELATED TO OR CONNECTED WITH THE OBLIGATIONS OF THIS
AGREEMENT. THE COMPANY ACKNOWLEDGES THAT THIS WAIVER MAY DEPRIVE IT OF AN IMPORTANT RIGHT
AND THAT SUCH WAIVER HAS BEEN KNOWINGLY AND VOLUNTARILY MADE BY THE COMPANY AFTER
CONSULTATION WITH ITS LEGAL COUNSEL.
10
(j)
The headings or captions of the various Sections and other divisions of this Agreement are intended for
convenient reference only and neither form a part hereof nor are to be relied upon to interpret or modify any of the provisions of this
Agreement.
(k)
The parties hereto 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. It is accordingly agreed that the parties hereto shall be
entitled, without the necessity of posting a bond, to specific performance of the terms hereof, this being in addition to any other
remedies to which a party is entitled at law or equity.
[Signature pages follow.]
11
IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date set forth above.
BROADWAY FINANCIAL CORPORATION
By: /s/Wayne-Kent A. Bradshaw
Name: Wayne-Kent A. Bradshaw
Title: President and Chief Executive Officer
GAPSTOW FINANCIAL GROWTH CAPITAL FUND I LP
By: Gapstow Financial Growth Capital GP I LLC,
its General Partner
By: /s/ Christopher J. Acito
Name: Christopher J. Acito
Title: Managing Member
Address for Notices:
Gapstow Financial Growth Capital Fund I LP
c/o Hedgserv, Ltd.
Attn: Mr. Donal Murphy
75 St Stephens Green - 2nd Floor
Dublin 2 Ireland
with copies to:
Gapstow Financial Growth Capital Fund I LP
c/o Gapstow Capital Partners LP
Attn: Virginia Kocher
654 Madison Avenue, Suite 601
New York, NY 10065
with copies to:
Wiggin and Dana LLP
2 Stamford Plaza
281 Tresser Boulevard
Stamford, CT 06901
Facsimile No: 203-363-7676
Attn: Mark Kaduboski, Esq.
[Signature Page to Registration Rights Agreement]
12
NATIONAL COMMUNITY INVESTMENT FUND
By: /s/ Saurabh Narain
Name: Saurabh Narain
Title: Chief Executive
Address for Notices:
National Community Investment Fund
135 South LaSalle, Suite 2040
Chicago, IL 60603
Attn: Saurabh Narain
with a copy (which shall not constitute notice) to:
Dentons US LLP
233 South Wacker Drive, Suite 7800
Chicago, IL 60606-5404
Attn: Scott A. Lindquist, Esq.
[Signature Page to Registration Rights Agreement]
13
Exhibit 31.1
SECTION 302 CERTIFICATION
I, Wayne-Kent A. Bradshaw, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Broadway Financial Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date:
November 13, 2014
By: /s/ Wayne-Kent A. Bradshaw
Wayne-Kent A. Bradshaw
Chief Executive Officer
Exhibit 31.2
SECTION 302 CERTIFICATION
I, Brenda J. Battey, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Broadway Financial Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date:
November 13, 2014
By: /s/ Brenda J. Battey
Brenda J. Battey
Chief Financial Officer
Exhibit 32.1
SECTION 906 CERTIFICATION
The following statement is provided by the undersigned to accompany the foregoing Report on Form 10-Q pursuant to Title 18,
Chapter 63, Section 1350 of the United States Code, as amended by Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be
deemed filed pursuant to any provision of the Securities Exchange Act of 1934 or any other securities law.
The undersigned certifies that the foregoing Report on Form 10-Q fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934 and that the information contained in the report fairly presents, in all material respects, the financial
condition and results of operations of Broadway Financial Corporation at the dates and for the periods indicated.
Date: November 13, 2014
By: /s/ Wayne-Kent A. Bradshaw
Wayne-Kent A. Bradshaw
Chief Executive Officer
Exhibit 32.2
SECTION 906 CERTIFICATION
The following statement is provided by the undersigned to accompany the foregoing Report on Form 10-Q pursuant to Title 18,
Chapter 63, Section 1350 of the United States Code, as amended by Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be
deemed filed pursuant to any provision of the Securities Exchange Act of 1934 or any other securities law.
The undersigned certifies that the foregoing Report on Form 10-Q fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934 and that the information contained in the report fairly presents, in all material respects, the financial
condition and results of operations of Broadway Financial Corporation at the dates and for the periods indicated.
Date: November 13, 2014
By: /s/ Brenda J. Battey
Brenda J. Battey
Chief Financial Officer
byfc-20140930.xml
byfc-20140930.xsd
byfc-20140930_cal.xml
byfc-20140930_def.xml
byfc-20140930_lab.xml
byfc-20140930_pre.xml