-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IRWrvyGytinsKA+np5fLWG/CXBmBBZj1lz1WgOd66Xwx/CEFL207BZu4uOfgbYmY 5tdLj46y9Lwv4738rNgwcQ== 0000898430-01-502199.txt : 20010831 0000898430-01-502199.hdr.sgml : 20010831 ACCESSION NUMBER: 0000898430-01-502199 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20010830 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMPERIAL CREDIT INDUSTRIES INC CENTRAL INDEX KEY: 0000883811 STANDARD INDUSTRIAL CLASSIFICATION: MORTGAGE BANKERS & LOAN CORRESPONDENTS [6162] IRS NUMBER: 954054791 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-58728 FILM NUMBER: 1727456 BUSINESS ADDRESS: STREET 1: 23550 HAWTHORNE BLVD STREET 2: STE 110 CITY: TORRANCE STATE: CA ZIP: 90505 BUSINESS PHONE: 3103731704 MAIL ADDRESS: STREET 1: 23550 HAWTHORNE BLVD STREET 2: BUILDING ONE SUITE 110 CITY: TORRANCE STATE: CA ZIP: 90505 S-3/A 1 ds3a.txt AMENDMENT NO. 1 TO FORM S-3 As filed with the Securities and Exchange Commission on August 30, 2001 Registration No. 333-58728 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 ---------------- Amendment No. 1 To FORM S-3 REGISTRATION STATEMENT Under The Securities Act of 1933 ---------------- IMPERIAL CREDIT INDUSTRIES, INC. (Exact name of registrant as specified in its charter) ---------------- California 95-4054791 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 23550 Hawthorne Boulevard, Building 1, Suite 110 Torrance, California 90505 (310) 373-1704 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Michael R. McGuire President and Chief Executive Officer Imperial Credit Industries, Inc. 23550 Hawthorne Boulevard, Building 1, Suite 110 Torrance, California 90505 (310) 373-1704 (Name and address, including zip code, and telephone number, including area code, of agent for service) ---------------- Copies to: James R. Walther Richard D. Greta Mayer, Brown & Platt 350 South Grand Avenue 25th Floor Los Angeles, California 90071 213-229-9500 Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this Registration Statement. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [_] The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effectiveness date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission acting pursuant to said Section 8(a) may determine. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PROSPECTUS 3,000,000 SHARES IMPERIAL CREDIT INDUSTRIES, INC. COMMON STOCK ---------------- This prospectus relates to an aggregate of 3,000,000 shares of common stock, no par value per share, of Imperial Credit Industries, Inc. These shares have been reserved for issuance upon exercise of warrants that we will issue as part of the settlement of the securities class action litigation entitled In re Southern Pacific Funding Corporation Securities Litigation, Lead Case No. CV98-1239-MA, in the U.S. District Court for the District of Oregon. The warrants will entitle the holders thereof to purchase up to 3,000,000 shares of our common stock at an exercise price of $3.00 per share, subject to certain anti-dilution adjustments. If these warrants are exercised in full, we will receive aggregate gross proceeds of $9,000,000 before deducting our estimated expenses of $157,250. See "Use of Proceeds." We will pay all expenses with respect to this offering. Investing in our common stock involves significant risks. You should consider the possibility of losing your entire investment before deciding whether to make such an investment. See "Risk Factors" on page 7. Our principal subsidiary, Southern Pacific Bank, is currently operating under orders issued by its federal and state banking regulators that impose significant restrictions and requirements on its operations, including that the bank significantly increase its regulatory capital levels. Our common stock is quoted on the Nasdaq National Market under the symbol "ICII," but is subject to possible delisting if it continues to be traded at a closing bid price of less than $1.00 per share. On August 28, 2001, the closing sales price of our common stock was $0.70 per share. ---------------- Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. ---------------- The date of this Prospectus is , 2001. CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING INFORMATION This prospectus contains "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended. These statements can be identified by the use of forward- looking terminology such as "may," "will," "intend," "should," "expect," "anticipate," "estimate" or "continue" or the negatives thereof or other comparable terminology. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of various factors, including, without limitation, the factors described in this prospectus under the caption "Risk Factors", actions that may be taken by the Federal Deposit Insurance Corporation or the California Department of Financial Institutions with respect to Southern Pacific Bank and all of the factors incorporated by reference in the registration statement of which this prospectus forms a part. ---------------- No one (including any dealer, salesman or broker) is authorized to provide oral or written information about this offering that is not included in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares of our common stock offered hereby, and only under circumstances and in jurisdictions in which it is lawful to do so. The information contained in this prospectus is current only as of its date. ---------------- TABLE OF CONTENTS
Page ---- PROSPECTUS SUMMARY......................................................... 3 RISK FACTORS............................................................... 7 USE OF PROCEEDS............................................................ 20 RECENT DEVELOPMENTS........................................................ 20 PLAN OF DISTRIBUTION....................................................... 25 LEGAL MATTERS.............................................................. 26 EXPERTS.................................................................... 26 WHERE YOU CAN FIND MORE INFORMATION........................................ 26
2 PROSPECTUS SUMMARY This summary highlights information regarding us and the offering of shares of our common stock described herein. This summary does not contain all of the information you should consider before investing in our common stock. You should read the entire prospectus carefully, especially the risks discussed under "Risk Factors", and the documents incorporated into this prospectus by reference before you decide whether to invest in our common stock. IMPERIAL CREDIT INDUSTRIES, INC. We are a diversified commercial lending and financial services holding company with consolidated assets of $1.9 billion as of June 30, 2001. Our business activities are primarily conducted through our wholly owned commercial banking subsidiary, Southern Pacific Bank (the "Bank"). Our core businesses originate commercial loans, real estate loans and commercial leases funded primarily by the FDIC-insured deposits of the Bank. Our principal executive offices are located in Torrance, California at 23550 Hawthorne Boulevard, Building 1, Suite 110, Torrance, California 90505 and our telephone number is (310) 373-1704. We offer loan and lease products and provide asset management services in the sectors described below. Business Finance Lending. Our business finance lending is primarily conducted through the Bank, with additional servicing activities being conducted through Imperial Business Credit, Inc., which is another of our wholly-owned subsidiaries. Southern Pacific Bank. The Bank is an industrial bank organized under California law that had approximately $1.5 billion in deposits at June 30, 2001. Its business finance lending is offered through the following Bank divisions and subsidiaries: Coast Business Credit ("CBC") is the asset based lending division of the Bank. It primarily makes revolving lines of credit and term commercial loans available to small-to-medium-sized businesses that are primarily in the transportation, telecommunications, technology, equipment leasing, durable goods, electronics and electronic equipment manufacturing industries. CBC also purchases undivided interests (referred to as "participations") in senior secured debt of other companies offered by commercial banks in the secondary market. CBC's commitments (including standby and commercial letters of credit) and outstanding loan balances were $1,077.7 million and $665.4 million at June 30, 2001 as compared with $1,395.3 million and $752.9 million at December 31, 2000. Imperial Warehouse Finance, Inc. ("IWF") is a wholly owned subsidiary of the Bank which provides short-term repurchase facilities to residential mortgage bankers. IWF's repurchase facilities provide the mortgage bankers with the ability to do same day closings and sales of residential mortgage loans in the secondary market. Under a participation agreement between the Bank and IWF, the Bank funds 100% of IWF's repurchase facilities. IWF's repurchase facility commitments (including standby and commercial letters of credit) and outstanding balances were $249.2 million and $129.0 million at June 30, 2001 as compared with $154.9 million and $50.6 million at December 31, 2000. The Loan Participation and Investment Group ("LPIG") is a division of the Bank which purchases participations in senior secured debt of other companies offered by commercial banks in the secondary market. The principal types of loans in which LPIG purchases participations are senior- secured bank loans, in the form of revolving lines of credit and long-term loans or letters of credit. As a part of its business, LPIG invests in loan participations through both on and off balance sheet arrangements. The on balance sheet investments are funded by the FDIC-insured deposits of the Bank, while LPIG's off balance sheet 3 financing is primarily conducted through various trust and total return swap instruments. LPIG's commitments (including standby and commercial letters of credit) and outstanding balances were $217.7 million and $80.1 million at June 30, 2001 as compared with $289.1 million and $123.5 million at December 31, 2000. Also at June 30, 2001, LPIG had invested in a total return swap with an underlying pool of loans having an aggregate outstanding principal amount of $40.9 million. Southern Pacific BanCapital ("SPBC") is a division of the Bank which originates middle market equipment leases that are funded by the Bank. Imperial Business Credit, Inc., ("IBC") our wholly-owned subsidiary, services these leases. SPBC originates and purchases operating and capital equipment leases for medium-sized business in various industries throughout the United States. SPBC had $36.1 million in leases at June 30, 2001 as compared to $10.0 million in leases at December 31, 2000. The Lewis Horwitz Organization ("LHO") is a division of the Bank which is engaged in providing financing for independent motion picture and television production. Typically, LHO lends to independent film and television producers on a senior secured basis, basing its credit decisions on the creditworthiness and reputation of distributors and sales agents who have contracted to distribute the films. LHO's commitments (including standby and commercial letters of credit) and outstanding balances were $157.0 million and $115.8 million at June 30, 2001 as compared with $101.4 million and $83.4 million at December 31, 2000. Imperial Business Credit, Inc. IBC is a lease portfolio servicing entity which services its existing portfolio of equipment leases and a new portfolio of middle market equipment leases originated by SPBC. Historically, the focus of IBC's lease activities had been small ticket equipment lease financing to small and medium-sized businesses. During the first quarter of 2000, we determined that IBC could not achieve the returns necessary to continue in business as an originator of new leases. Accordingly, in April, 2000, IBC ceased originating new leases and its origination offices were sold or closed. The total leases serviced by IBC at June 30, 2001 were $146.3 million as compared with $170.8 million at December 31, 2000. Multifamily And Commercial Mortgage Lending. Our multifamily and commercial mortgage lending operations are conducted through the Income Property Lending Division ("IPL") of the Bank. The focus of IPL's lending activities is the small loan market for 5+ unit multifamily apartments and commercial buildings. IPL generally seeks to make 70% of its loans secured by apartment buildings and 30% of its loans secured by commercial properties. Most of IPL's loans have been secured by properties in California. IPL funded $117.5 million of loans through June 30, 2001 and had outstanding loan balances of $360.2 million at June 30, 2001 as compared with fundings of $235.9 million for the year ended December 31, 2000 and outstanding loan balances of $364.2 million at December 31, 2000. Asset Management Activities. Our advisory and asset management services are conducted through Imperial Credit Asset Management, Inc. ("ICAM"). Through October 22, 1999, we also conducted asset management services through Imperial Credit Commercial Asset Management Corp. ICAM manages Pacifica Partners I L.P., and Cambria Investment Partnership I, L.P. ("Cambria"). Pacifica Partners I is a $500 million collateralized loan obligation fund (the "CLO Fund") which was launched in August 1998. Pacifica Partners I's assets consist of approximately $400 million in nationally syndicated bank loans and approximately $100 million in high yield bonds. We had net cash of $51.3 million invested in the subordinated and equity interests of Pacifica Partners I through June 30, 2001. We also had, at June 30, 2001, $4.3 million invested in Cambria, which is a hedge fund that invests in syndicated bank loans. 4 Regulatory Orders The Bank is currently operating under a Cease and Desist Order issued by the Federal Deposit Insurance Corporation (the "FDIC") dated December 15, 2000 and a Final Order of the California Department of Financial Institutions (the "DFI") dated December 27, 2000 (collectively, the "Regulatory Orders"). The Regulatory Orders contain several requirements, including requirements that the Bank's regulatory capital and capital ratios be increased by specified amounts within specified time periods, prohibitions on payments of Bank dividends without regulatory approval, reductions in the Bank's classified assets, restrictions on the Bank's lending policy procedures, and restrictions on the Bank's other operational activities. The Bank has not achieved compliance with the increases in the Bank's regulatory capital and capital ratios that were required to have been met at March 31, 2001 and June 30, 2001. See "Recent Developments--The Regulatory Orders" for a more detailed description of the requirements specified in the Regulatory Orders and the actions that have been taken to comply with those requirements. Recent Operating Results We reported a net loss for the quarter ended June 30, 2001 of $39.8 million, including an operating loss from discontinued operations of $961,000 and an extraordinary loss on the early extinguishment of debt of $2.2 million. Our net loss for the six months ended June 30, 2001 was $39.5 million, including an operating loss from discontinued operations of $1.2 million and an extraordinary loss on the early extinguishment of debt of $1.5 million. Our operating results for the quarter and six months ended June 30, 2001 were negatively impacted by high levels of provisions for loan and lease losses, which totaled $26.7 million and $31.3 million for such periods, respectively. See "Recent Developments--Recent Operating Performance" and "--Continued High Provisions for Loan and Lease Losses." Mark-to-market and impairment charges of $3.5 million and $4.1 million for the quarter and six months ended June 30, 2001, respectively, also negatively impacted our result of operations. These mark-to-market charges primarily related to our investments in interest only securities, which experienced increased prepayments and defaults. As a result of the level of our provision for loan and lease losses in the second quarter of 2001 and our resulting continued operating losses, we recorded income tax expense of $10.0 million during the quarter and the six months ended June 30, 2001. This expense was recorded during that quarter to establish an additional deferred tax asset valuation allowance to fully reserve our outstanding balance of deferred tax assets, after allowable offsets of certain deferred tax liabilities. SUMMARY OF THE OFFERING Securities Offered: 3,000,000 shares of our common stock (the "Shares") issuable upon exercise of warrants (the "Settlement Warrants") that we will issue as part of the settlement of securities class action litigation filed against us in the U.S. District Court for the District of Oregon. No fractional shares of common stock will be issued upon exercise of the Settlement Warrants. Use of Proceeds: If the Settlement Warrants are exercised in full, we will receive aggregate gross proceeds of $9,000,000, before expenses. Any net proceeds to us from the sale of the Shares upon exercise of the Settlement Warrants will be used by us for working capital and other general corporate purposes. 5 SUMMARY OF THE TERMS OF THE SETTLEMENT WARRANTS Expiration Date: The Settlement Warrants will expire at 5:00 p.m., Los Angeles, California time, on January 31, 2008. Exercise Price: $3.00 per share, subject to certain anti-dilution adjustments. None of the recapitalization transactions that we have completed, or that we may complete, pursuant to our Recapitalization Agreement will require any adjustment in the exercise price under the anti-dilution provisions of the Settlement Warrants. For a detailed description of the recapitalization transactions, see "Recent Developments--Recapitalization Transactions." An appropriate adjustment will be made in the exercise price and the number of Settlement Warrants if we effect a reverse stock split of our common stock that our shareholders have authorized our Board of Directors, in its discretion, to effect. Exercise of Settlement The Settlement Warrants are exercisable Warrants: immediately upon the issuance thereof. Each Settlement Warrant will entitle its holder to purchase one share of our common stock. Redemption of Settlement Upon the occurrence of specified conditions set Warrants: forth in the Warrant Agreement, dated October 10, 2000 (the "Warrant Agreement"), each holder of Settlement Warrants will have the right to elect either to (i) conditionally exercise the Settlement Warrants or (ii) receive the Warrant Redemption Price (as defined below) for each share of our common stock covered by the Settlement Warrants held by that holder. None of the recapitalization transactions that we have completed, or that we may complete, pursuant to our Recapitalization Agreement, will result in any of foregoing rights becoming available to any holder of the Settlement Warrants. Warrant Redemption Price: $1.00 per share, subject to certain anti-dilution adjustments. Listing of Warrants: The Settlement Warrants are not listed, and we do not intend to list the Settlement Warrants, on any national securities exchange or The Nasdaq National Market. We have agreed, however, to use our best efforts to locate a brokerage firm that is willing to serve as a market maker with respect to the Settlement Warrants and which would provide bid and ask quotations for these warrants as an over-the-counter security not included in the regular Nasdaq OTC listings or the Bulletin Board. RISK FACTORS Before you invest in our common stock, you should consider carefully the risks that such an investment involves, including those described in this prospectus under the caption "Risk Factors" as well as the other information disclosed in this prospectus and the other documents incorporated by reference in this prospectus. 6 RISK FACTORS An investment in our common stock involves a high degree of risk. Prospective investors should carefully consider, in addition to the matters set forth elsewhere in this prospectus and the information incorporated by reference herein, the following factors relating to our common stock, our financial condition and business and that of the Bank, our principal subsidiary. The matters described in any of the following risks could materially and adversely affect our and the Bank's business, financial condition and results of operations. While the risks described below are all the material risks of which we are currently aware, we may have other risks and uncertainties of which we are not yet aware or which we currently believe are immaterial that may also impair our or the Bank's financial condition, business operations or prospects. Regulatory Considerations Regulatory Orders Have Been Issued Requiring Improvements In The Bank's Regulatory Capital And Imposing Other Significant Requirements The Bank, which is our principal subsidiary, is a California licensed industrial bank. It is subject to the regulatory capital requirements of the DFI and the regulations of the FDIC governing capital adequacy for institutions whose deposits are insured by the FDIC. The regulatory capital requirements of the DFI and the FDIC are discussed in greater detail in "Item 1. Business--Regulations" in our Annual Report on Form 10-K/A for the year ended December 31, 2000 (our "2000 Form 10-K/A"). As a result of a joint examination of the Bank by the FDIC and the DFI as of June 26, 2000 (the "2000 Examination"), the Bank consented to the issuance of the Regulatory Orders. The Regulatory Orders contain several requirements, including mandatory increases in the Bank's regulatory capital and capital ratios by specified amounts within specified time periods, prohibitions on payments of Bank dividends without regulatory approval, reductions in the Bank's classified assets, restrictions on the Bank's lending policies and procedures, and restrictions on other operational activities of the Bank. See "Recent Developments--The Regulatory Orders" for a more detailed discussion of the Regulatory Orders. The Bank Has Not Met The Specified Capital Levels Within The Time Frames Required By The Regulatory Orders And Will Need Significant Additional Capital To Meet These Requirements; The Bank's Regulators May Impose Additional Restrictions And Sanctions The Bank requires significant additional capital to meet the capital levels and capital ratios required in the Regulatory Orders. Although during the six months ended June 30, 2001, we contributed $12.2 million in cash to the Bank and purchased $36.0 million worth of a new series of noncumulative perpetual preferred stock of the Bank (the "Series B Preferred") constituting Tier I capital in exchange for cash and the retirement of subordinated debt of the Bank held by us, the Bank did not meet the increased capital levels it was ordered to meet by March 31, 2001 and June 30, 2001. The Bank still needed to obtain approximately $45.3 million of additional Tier I capital to meet the capital requirements set forth in the Regulatory Orders that were required to have been met by June 30, 2001. Further, additional capital contributions will be required during 2001 in order to meet the increasing capital levels required under the Regulatory Orders. See "Recent Developments--The Regulatory Orders--Actions Taken To Comply With The Regulatory Orders" for a more detailed description of the regulatory capital requirements set forth in the Regulatory Orders. Although we completed a private placement of $10.0 million of convertible subordinated debt on June 28, 2001 and we are seeking to obtain the additional required Tier I Capital, there is no assurance that we will be able to do so. We submitted an amended capital plan to the FDIC and DFI detailing how we intended to assist the Bank in complying with the regulatory capital requirements imposed by the Regulatory Orders by June 30, 2002. The FDIC and the DFI, however, requested an updated capital plan showing how the Bank would be able to comply with these regulatory capital requirements by December 31, 2001. During August 2001, we submitted an updated capital plan to the FDIC and the DFI that reflects the Bank achieving compliance with the capital 7 requirements set forth in the Regulatory Orders by December 31, 2001. Under this updated capital plan, the Bank plans to reduce the amount of its outstanding assets and will seek to obtain additional capital through various capital raising alternatives. No assurance can be given as to whether we and the Bank will be able to take the additional steps required to meet the regulatory capital requirements set forth in the Regulatory Orders by December 31, 2001 or be able to do so without incurring additional losses, or as to whether the Bank will be able to maintain the capital and capital ratios required for the Bank to continue at an "adequately" capitalized level. Further, no assurance can be given as to whether the FDIC and the DFI will impose any additional operating restrictions or sanctions on the Bank for having failed to meet the increased regulatory capital levels required to have been met by March 31, 2001 and June 30, 2001. If the FDIC or the DFI determines that the Bank is engaging in unsafe or unsound practices in conducting its business or violating any law, rule or regulation, each regulatory agency would have available various remedies, including enforcement actions and sanctions. If the Bank is unable to meet its regulatory capital requirements, or is determined to have other sufficiently serious regulatory or supervisory problems, the FDIC and/or the DFI may, among other sanctions, place the Bank in conservatorship or receivership, which would have a material adverse effect on our business and operations. Risks Relating To The Recapitalization Transactions Purchasers Of The Common Stock Will Experience Significant Dilution If The Convertible Securities Or Warrants Issued As Part Of Our Recapitalization Transactions Are Converted Or Exercised And If We Raise Additional Capital By Issuing More Shares Of Common Stock Or Convertible Securities We have issued a large amount of securities exercisable, convertible or exchangeable into our common stock pursuant to a Master Recapitalization Agreement, dated as of March 29, 2001, that we entered into with certain investors (the "Recapitalization Agreement"). Holders of our common stock may have a greatly reduced common equity interest in us if those securities are exercised, converted or exchanged into shares of common stock. We have 80,000,000 shares of authorized common stock and had 42,180,798 shares of common stock issued and outstanding as of August 28, 2001, including the 1,300,000 shares of common stock we recently issued to our former president, H. Wayne Snavely, as part of his severance arrangements. As part of our recapitalization transactions, we issued warrants (the "Debt Exchange Warrants") to purchase up to an additional 6,105,544 shares of our common stock at an exercise price of $2.15 per share (subject to anti-dilution adjustments), $10,000,000 in aggregate principal amount of 12% Convertible Subordinated Notes due 2005 (the "Secured Convertible Subordinated Debt") convertible after three years into our common stock at a conversion price of $1.25 per share (subject to anti-dilution adjustments) and $16,200,000 in aggregate principal amount of senior secured debt that, subject to satisfaction of certain conditions, will be automatically exchanged into $18,200,000 aggregate principal amount of Senior Secured Notes due 2005 (the "Exchange Notes"), 249,052 shares of our common stock and Debt Exchange Warrants to purchase up to an additional 871,681 shares of our common stock. The holders of these Exchange Notes will then have the right, through March 31, 2002, to exchange the $18,200,000 aggregate principal amount of Exchange Notes, together with the 249,052 shares of common stock and 871,681 Debt Exchange Warrants, into $18,200,000 aggregate principal amount of Secured Convertible Subordinated Debt. If all of foregoing securities are exercised or converted and the senior secured debt is ultimately exchanged into $18,200,000 aggregate principal amount of Secured Convertible Subordinated Debt, which is thereafter converted into common stock, a total of approximately 28,665,544 additional shares of our common stock will be issued and outstanding, representing approximately 40.5% of our then outstanding common stock (including the 28,665,544 additional shares of common stock that would be then outstanding). The ownership interest of a holder of common stock may be further diluted if we issue additional shares of common stock or securities convertible into common stock in the future, which we may determine to be necessary to raise the necessary capital to comply with the Regulatory Orders or other regulatory requirements. We are authorized to issue additional common or preferred stock without your approval. 8 There Would Be Significant Adverse Federal Income Tax Consequences To Us If The Recapitalization Transactions Were Deemed To Have Caused An Ownership Change Under The Internal Revenue Code And Such Tax Liability Would Adversely Affect Shareholders' Equity Although we believe that the recapitalization transactions will not cause an ownership change under Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), the interpretation of the applicable Code provisions and regulations is not clear as it applies to our facts and the Internal Revenue Service may disagree with our conclusions. In addition, an ownership change of the Company may occur on a date after the recapitalization transactions due to sales of stock, exercises of warrants or options or other events which may not be within our control. A change of ownership under Section 382 would materially restrict our use of our net operating loss carryforwards and unrecognized built in losses, each of which were approximately $110 million at June 30, 2001, and would substantially eliminate the value of those tax attributes. We May Be Required To Make Substantial Severance Payments To Senior Executive Officers Should These Officers' Employment Terminate And These Officers Therefore May Have An Incentive To Terminate Their Employment In January 1999, we entered into individual termination agreements with Messrs. H. Wayne Snavely, Irwin L. Gubman and Brad S. Plantiko which provide for severance payments to these senior executives in the event we undergo a change in control (as defined in the agreements). Pursuant to the Recapitalization Agreement, four directors were elected to our board of directors at our annual shareholders meeting on June 26, 2001. Their election constituted a change in control under the termination agreements. If Messrs. Plantiko and Gubman voluntarily terminate their employment upon the expiration of one year after the change of control or if they are terminated by us within three years, we will have to pay to each of these senior executives a lump sum payment of three times their respective base salaries and their highest bonus earned in any of the last three fiscal years preceding the change in control and a percentage of their respective bonuses for the year in which the change of control occurs. In addition, we will continue to provide these senior executives with medical, dental, life insurance, disability and accidental death and dismemberment benefits until the third anniversary of the termination unless the executive becomes employed by another employer, in which case these coverages will be secondary to those provided by the new employer. Any amounts payable to an executive will include additional amounts to cover certain taxes resulting from those payments. Mr. Snavely resigned as the Chairman, President, and Chief Executive Officer of Imperial Credit Industries, Inc. and the Bank on August 1, 2001. We resolved Mr. Snavely's contractual rights under his termination protection agreement, which were similar to those of Messrs. Plantiko and Gubman, by agreeing to (i) issue to him 1.3 million shares of our common stock, (ii) extend the exercise period of his existing stock options for up to four years and (iii) provide him with continued employee health and welfare benefits for a period of four years. We also have engaged Mr. Snavely as a consultant for compensation of $500,000 per year for a period of four years. There is a risk that in order to take advantage of the severance payments and other compensation granted under the termination agreements, Messrs. Plantiko and Gubman will terminate their employment with us. Departures of these senior executives may adversely affect our operations to the extent that we are not able to restaff these key positions expeditiously to avoid material disruption in our business and operations. Business And Other Considerations The Price And Liquidity Of Our Common Stock May Be Adversely Affected If Our Common Stock Is Delisted From The Nasdaq National Market System As of August 28, 2001, the closing bid price of our common stock for the preceding 25 consecutive business days had failed to comply with the minimum price requirement for continued listing set forth in the Nasdaq Marketplace rules. If the closing bid price of our common stock remains below $1.00 for a period of 30 consecutive business days, Nasdaq may notify us that we have a period of 90 calendar days from that notification to achieve compliance with the minimum price requirement. Compliance can be achieved by the closing bid price of our 9 common stock meeting or exceeding the $1.00 per share minimum price requirement for ten consecutive business days during that 90 day compliance period. If we were not to achieve compliance with the minimum price requirement, our common stock would be subject to delisting from the Nasdaq National Market. Our shareholders approved up to a 1 for 4 reverse stock split at our 2001 annual shareholders' meeting. Our board of directors may declare a reverse stock split in the future to attempt to achieve compliance with the minimum bid price requirement. However, even if our board does declare a reverse stock split, there is no assurance that the subsequent closing bid price of our common stock would necessarily equal or exceed $1.00, or if it did equal or exceed $1.00, the period of time that it might continue to do so. Delisting from the Nasdaq National Market could cause our common stock to become significantly less liquid, with a possible negative impact on its value. Also, if our common stock is delisted and is not thereafter traded as a "Bulletin Board Stock," our common stock would be classified as a "penny stock" which, if certain disclosure and broker or dealer qualifications are not met, could further restrict the market for resale of the common stock to only such persons as are deemed to be suitable investors of such stock, such as institutional investors, or directors, officers, or owners of 5% or more of our common stock. However, if our common stock is delisted, we will seek to qualify it for trading as a "Bulletin Board Stock". The Bank Is Prohibited By The Regulatory Orders From Paying Dividends To Us Without Regulatory Approval, Which Adversely Affects Our Ability To Pay Interest And Principal On Our Substantial Indebtedness Under the Regulatory Orders, the Bank is prohibited from paying cash dividends on its common and preferred stock without the prior approval of the DFI and the FDIC. Therefore, it is unlikely that the Bank will pay dividends to us in the near future and there is no assurance that the Bank will ever resume paying dividends to us. At June 30, 2001, the outstanding face amount of our ROPES, Senior Secured Notes and long term debt decreased by $36.0 million to $183.8 million, as compared to $219.8 million at December 31, 2000, due to the completion of our debt exchange and our repurchase of $1.9 million of ROPES, partially offset by our issuance of $16.2 million in senior secured notes, and our issuance of $10.0 million in secured convertible notes. At June 30, 2001, our total shareholders' equity was approximately $11.4 million and we had available cash and cash equivalents of $17.5 million (excluding cash and cash equivalents at the Bank), as compared to $18.4 million of cash and cash equivalents (excluding cash and cash equivalents at the Bank) at December 31, 2000. The Bank's inability to pay dividends to us would adversely affect our ability to make required payments of interest and principal on our indebtedness. Although we believe that we will be able to fund our liquidity and capital expenditure requirements through December 31, 2001, our ability to continue to make scheduled payments of the principal of, or to pay the interest on, our indebtedness will depend upon the ability of the Bank to obtain regulatory approvals necessary to pay us dividends, as well as upon our future performance and that of the Bank, which are subject to general economic, financial, competitive, legislative, regulatory and other factors that are not within our control. There is no assurance that the Bank will be able to obtain the regulatory approvals necessary to permit payment of dividends or that our business and that of the Bank will generate sufficient cash flow from operations or that future borrowings will be available in an amount sufficient to enable us to service our indebtedness. A failure to continue to make scheduled payments of the principal and interest on our indebtedness would likely have a material adverse effect on our business and operations and the price of our common stock. Further, the degree to which we are leveraged could have material adverse effects on us, including, but not limited to, difficulty in obtaining additional financing for working capital, acquisitions and general corporate purposes; greater proportions of our cash flow from operations being required for debt service, so that less of our cash will be available for other purposes. We will also be subject to a variety of restrictive covenants, the failure to comply with which could result in events of default that, if not cured or waived, could adversely affect our operations. 10 We Do Not Intend To Pay Dividends On Our Common Stock We are prohibited from paying dividends on our common stock under the terms of indentures relating to our outstanding indebtedness. We have never paid dividends on our common stock and would not anticipate paying dividends on our common stock in the foreseeable future even if we were not prohibited from doing so under the terms of indentures relating to our outstanding indebtedness. We Have Experienced Significant Operating Losses We reported a net loss of $39.5 million for the six months ended June 30, 2001 and had net losses of approximately $163.3 million, $2.8 million and $73.6 million for the years ended December 31, 2000, 1999 and 1998, respectively. For a further description of recent losses, see "Recent Developments--Recent Operating Performance." Our net losses have been primarily associated with our losses from operations, losses on impairment of equity securities, increased provisions for loan and lease losses, increased levels of nonperforming assets and costs incurred in maintaining and administering such nonperforming assets. Our ability to reverse the trend of these net losses is largely dependent on the operations of the Bank, including the amount and quality of its earning assets and reduction in the level of its nonperforming assets, the interest rate environment and the adequacy of the Bank's allowance for loan and lease losses. The real estate market and the overall economy in the Bank's primary markets will also have significant effects on the quality and level of its assets in the future. If we are not able to return to profitable operations in the near future, the value of our common stock will likely be adversely affected. The Bank Has Recorded Significantly Increased Provisions For Loan And Lease Losses And May Need To Record Additional Significant Provisions, Which Would Adversely Affect Our Results of Operations The Bank significantly increased its provisions for loan and lease losses during 1999 and 2000, as a result of the Bank's regulatory examinations, the Bank's internal credit review and deterioration in credit quality in our sectors of the banking industry. The Bank's assets classified as "non- performing" represented 4.47% of total assets at June 30, 2001, as compared with 4.19% at December 31, 2000. The Bank's allowance for loan and lease losses as a percentage of such non-performing assets was 76.07% at June 30, 2001, as compared with 79.47% at December 31, 2000. We recorded a $26.7 million provision for loan and lease losses for the quarter ended June 30, 2001 to provide for losses in the Bank's loan portfolio. As a result of the high levels of non-performing assets, our provision for loan and lease losses will be significantly higher than other banks of comparable size. The provision for loan and lease losses for the years ended December 31, 2000 and 1999 were $181.0 million and $35.3 million, respectively. Our allowances for loan and lease losses and the provisions we make to add to them represent estimates made by our management on the basis of the information available from time to time. They involve significant elements of judgement, are inherently uncertain and are affected by judgments made by the Bank's regulatory authorities from time to time as to asset quality and the credit quality in our sectors of the banking industry. There can be no assurance that the Bank will not be required by its regulators to make substantial additional provisions for loan and lease losses in the future, or that the actual loan and lease losses suffered by the Bank will not exceed the estimated allowances. In either event, an increase in provisions for loan and lease losses would adversely affect the results of our operations and the Bank's capital would be further impaired, thereby raising the possibility of further administrative actions by the FDIC and the DFI. 11 The Bank Has Experienced Significant Charge-offs And Losses On Its Syndicated Loan Investments And May Experience Additional Charge-offs And Losses The Bank through its LPIG and CBC divisions has invested in nationally syndicated bank loans for which it has experienced significant charge-offs. LPIG experienced charge-offs of $6.2 million during the six months ended June 30, 2001 as compared to charge-offs totaling $32.3 million and $3.9 million during years ended December 31, 2000 and 1999, respectively. LPIG also recorded a provision for loan losses of $1.0 million for the six months ended June 30, 2001 as compared to $39.3 million and $7.0 million during years ended December 31, 2000 and 1999, respectively. In addition to LPIG's nationally syndicated loan investments, CBC had $157.0 million of nationally syndicated loan investments at June 30, 2001. During the six months ended June 30, 2001, CBC experienced charge-offs of $12.2 million relating to its syndicated loan investments. These charge-offs of LPIG and CBC occurred primarily as a result of high default rates on these nationally syndicated bank loans. Neither LPIG nor CBC has direct control over the collection policies or procedures on these loans, as these functions are dictated and managed by third party lead syndicating banks. Additionally, certain charge-offs taken in the Bank's nationally syndicated loan portfolio were mandated by the federal banking regulatory agency for the lead syndicating bank as part of its annual review of these loans. In light of the increases in loan losses that the Bank has suffered recently and the fact that neither LPIG nor CBC has direct control over the management of these syndicated investments, we have decided to reduce the amount of the Bank's exposure to nationally syndicated loans, primarily at the Bank's LPIG division. LPIG's commitments and outstanding loan balances were $217.1 million and $80.1 million at June 30, 2001, as compared with $289.1 million and $123.5 million at December 31, 2000 and $459.5 million and $217.0 million at December 31, 1999, respectively. We anticipate that the outstanding loan balance of these loans will decrease over time as their portfolios run off. There is no assurance that either or both of LPIG or CBC will not continue to experience significant charge-offs and losses in their existing syndicated bank loan portfolios as a result of increasing loan defaults. As A Result Of Current Internal Revenue Service Audits We May Become Liable For Additional Federal Income Tax Payments, Which Would Reduce The Amount Of Cash Available To Us Our federal income tax returns for 1996 through 1999 are currently being audited by the Internal Revenue Service. Although to date no adjustments have been proposed relating to any deduction taken or other aspects of our tax returns for those years, there can be no assurance as to the ultimate outcome of this audit, and we could become liable for additional income tax payments if any of our deductions are disallowed. We May Become Liable For Additional California Tax Payments As A Result Of Current California Franchise Tax Board Audits Our 1995 and 1996 California Franchise Tax Returns are being audited by the California Franchise Tax Board, which has proposed to include the income from two of our former affiliates in our combined return. The total increase to our combined tax for the two years proposed by such auditors is approximately $2 million, of which all but $300,000 will be payable (to the extent such amount is assessed) by one of our former affiliates. Also, we intend to protest our portion of any such assessment. At this time, however, there can be no assurance as to the ultimate outcome of our intended protest of any such assessment. We Are Engaged In Significant Litigation Which Could Result In Substantial Liability And Expense To Us We are currently involved in a number of litigation proceedings, which could result in substantial liability to us, significant costs in defending those proceedings and a diversion of our management's attention and resources from normal business operations. We are defending an alleged securities fraud class-action lawsuit that arose out of the decline in the market price of our common stock (the "Class Action Lawsuit"). We and certain 12 of our executive officers and directors were granted summary judgment by the trial court in the Class Action Lawsuit. In addition, we are subject to other litigation including the following: (1) we and two of our directors are named in an adversary proceeding brought by the liquidating trustee representing the bankrupt estate of Southern Pacific Funding Corporation ("SPFC"), alleging certain losses suffered by SPFC were caused by our alleged breaches of fiduciary duties and negligence, (2) our wholly-owned subsidiary, Imperial Credit Commercial Mortgage Investment Corp. ("ICCMIC"), and three of its present or former directors are named as defendants in an alleged securities fraud class-action lawsuit arising out of alleged misstatements and omissions contained in ICCMIC's offering prospectus issued in connection with its initial public offering and (3) Steadfast Insurance Company has brought a lawsuit seeking damages in the amount of $27 million allegedly resulting from our subsidiary's alleged fraudulent inducement to enter into, and subsequent breach of, a motor vehicle collateral enhancement insurance policy. For further details on the Class Action Lawsuit and other litigation, see "Part II Item 1. Legal Proceedings" in our 2000 Form 10-K/A and our Quarterly Report on Form 10-Q for the Quarter ended June 30, 2001. Changes In Interest Rates May Adversely Affect Our Operating Results Our profits are derived principally from our lending activities. The principal source of our revenue is net interest income, which is the difference between the interest we earn on our interest earning assets and the interest we pay on our deposits and other interest bearing liabilities. During the recent period of falling interest rates, our net interest income has been adversely affected, and may continue to be adversely affected depending on the amount of any future decreases in interest rates, due to our interest-earning assets re-pricing more quickly or to a greater extent than our interest bearing liabilities. In an extreme interest rate environment, if our net interest spread were to become negative, we would be paying more interest on our borrowings and deposits than we would be earning on our assets and we could suffer significant losses. Additionally, the rates paid on our borrowings and the rates received on our assets have been, and in the future may be, based upon different indices (such as LIBOR and U.S. Treasury securities indices). If the index used to determine the rates on our borrowings increases faster or decreases more slowly than the index used to determine the rates on our assets, as has recently occurred, we will experience (and recently have experienced) a declining net interest spread which has had, and in the future will have, a negative impact on our profitability. Higher interest rates may discourage existing potential borrowers from refinancing or increasing existing credit facilities, or establishing new credit facilities and may lead to a reduction in the average size of loans and leases. This may decrease the amount of financing opportunities available to our operations and decrease the demand for repurchase facility financing provided by our repurchase facility lending operations to loan originators. If short-term interest rates exceed long-term interest rates, there is a higher risk of increased loan prepayments, as borrowers may seek to refinance their loans at lower long-term interest rates. Increased loan prepayments could lead to a reduction in the number of loans we service, the fees we receive for loan servicing, our loan servicing income and the value of our securitization related assets. On the other hand, if interest rates decline, our loans and investments may be prepaid, and recently have been prepaid, earlier than expected or earlier than the payment obligations we may then have outstanding under instruments with higher interest rates, which, in either case, has adversely affected, and in the future may adversely affect, the results of our operations. We are also subject to the risk of rising interest rates between the time we commit to purchase or originate loans at a fixed price and the time we sell or securitize those loans. An increase in interest rates will generally result in a decrease in the market value of loans that we have committed to originate or purchase at a fixed price, but have not yet hedged, sold or securitized. Because We Are Subject To Extensive Government Regulation, Our Business Operations May Be Adversely Affected By Regulatory Changes The Bank operates in a highly regulated environment and is subject to supervision by several governmental regulatory agencies, including the FDIC and the DFI. The regulations and supervision to which we are subject are primarily for the protection of our customers rather than our shareholders. For example, state laws and federal 13 laws require that the Bank maintain specified amounts of capital and meet specified capital to assets ratios. If we do not comply with applicable laws, the Bank's ability to do business could be restricted or suspended. Future legislation and government policy could adversely affect industrial banks, including the Bank. We cannot predict the full impact of such legislation and regulation. In addition, federal and state laws impose standards with respect to, and regulatory authorities have the power in certain circumstances to limit or prohibit, transactions between us and the Bank and between the Bank and our other affiliates, the growth of the Bank's assets and liabilities and the payment of dividends from the Bank to us, among other things. Risks Related To Our Commercial Lending And Servicing Activities We originate commercial business and mortgage loans and equipment leases through CBC, IPL, SPBC and LHO, each of which is a division of the Bank, and we provide master repurchase facilities through IWF, a wholly owned subsidiary of the Bank. We also service various equipment leases through our wholly-owned subsidiary, IBC. We are subject to various risks, including those described below, relating to such activities. Borrower Defaults May Result In Losses On Our Loans During the time we hold commercial business loans for investment or for sale we are subject to risks of borrower defaults, bankruptcies and losses that are not covered by insurance (such as those occurring from earthquakes). Commercial mortgage lending is generally viewed as involving greater risk than residential mortgage lending partly because it typically involves larger loans. Further, the repayment of commercial mortgage loans secured by income- producing properties is typically dependent upon the tenant's ability to meet its obligations under the lease relating to the property. A borrower default may subject us to a loss on the mortgage loan. Although our commercial business loans are often collateralized by equipment, inventory, accounts receivable or other business assets, the liquidation value of these assets in the event of a borrower default may be an insufficient source of repayment and the value we receive in liquidating such assets may be less than the expected or appraised value of such assets. Prepayments Of Commercial Business Loans Reduce The Amount Of Interest Income That We Expect To Receive Over The Life Of The Related Loans To reduce our exposure to loan prepayments, the Bank and our other lending subsidiaries generally discourage their commercial borrowers from prepaying their loans by requiring prepayment fees from the borrowers for early prepayment. Commercial business loan prepayment rates, however, vary from time to time, which may change the anticipated amount of our net interest income. Prepayments on commercial business loans are affected by the terms and credit grades of the loans and general economic conditions. If the loans are prepaid, the Bank and our lending subsidiaries may receive prepayment fees but would lose the opportunity to earn interest at the related loan interest rate over the expected life of the prepaid loan. Prepayment restrictions do not necessarily provide a deterrent to prepayments. In addition, the borrower on a commercial business loan may not be able to pay all or a portion of any required prepayment charges. This may occur where the prepayment results from acceleration of the commercial business loan following a payment default. At the time any prepayment charges are required to be made in connection with a defaulted commercial business loan, foreclosure or other collateral proceeds may not be sufficient to make such payments. We also do not know that the obligation to pay such prepayment charge will be enforceable under applicable law in all circumstances. 14 The Concentration Of CBC's Commercial Business Loan Portfolio In Small And Mid-Size Borrowers Exposes CBC To A Greater Risk Of Non-Performance, Higher Delinquencies And Higher Loan Losses CBC originates commercial business loans typically to small and medium-sized commercial businesses located primarily in California. Small commercial loans may entail a greater risk of non-performance and higher delinquencies and losses than loans to larger businesses. Since small to mid-size businesses are typically privately-owned, there is generally no publicly available information about such companies and CBC must rely on the diligence of its employees and agents to obtain information about these companies. As a result, CBC is subject to risks of borrower fraud or misrepresentation. Also, the success of small and medium-sized businesses depends on the management talents and efforts of a small group of persons. The death, disability or resignation of one or more of these persons could have a material adverse impact on that company. Also, small and medium-sized businesses: . frequently have smaller market shares than their competition . may be more vulnerable to economic downturns . often need substantial additional capital to expand or compete . may experience substantial variations in operating results. Any of these may have an adverse effect on a borrower's ability to repay a loan. The Significant Amount Of Credit Facilities Provided By CBC To Borrowers In The Telecommunications And Technology Industries May Adversely Affect Our Operating Results Due To The Significant Downturn In Those Industries And Industry Related Risks CBC has provided a significant amount of credit facilities to borrowers in the telecommunications and technology industries, which have suffered a significant downturn. The downturn in the telecommunication industry was largely due to a combination of capital overinvestment in the mid to late 1990's and unsuccessful business plans implemented by a number of companies in that industry. Further, the high yield bond market is no longer available for most companies in the telecommunications industry. The downturn in the technology industry was largely due to significant declines in the market valuations of technology companies and resulting increased difficulties in obtaining financing for those companies. As of June 30, 2001, CBC had provided approximately $171 million and $71 million, or approximately 9.9% and 4.1% of the Bank's total assets, of senior secured credit facilities to telecommunication and technology companies, respectively. CBC's credit facilities made to borrowers in the technology industry are spread over 29 different borrowing relationships, while CBC's credit facilities made to borrowers in the telecommunications industry are spread over 24 different borrowing relationships and are further allocated as follows: Paging: $41 million Long Distance Resellers: $29 million Fiber Optics: $22 million Payphone: $20 million Diversified Communications: $18 million CLEC Facilities: $15 million Wireless Communications: $15 million Cable: $ 8 million DSL Providers: $ 3 million
15 Additionally, in order to effectively market their products and attract and retain qualified personnel, businesses in the telecommunications industry or technology industry must respond more rapidly than businesses in many other industries to the following: . competitive developments . technological changes . new product introductions . changing client needs . evolving industry standards. The products and services of CBC's telecommunications or technology borrowers could be rendered obsolete and unmarketable by any of these factors and they may not be able to repay their loans. In addition, technology evolves rapidly and inventory, subscriber lists and other business assets could become obsolete, each of which may impair the value of the inventory securing these loans. A material decrease in these telecommunications or technology borrowers' sales or the value of their accounts receivable and inventory, their profitable operations or the value of their companies could impair their ability to repay their loans with CBC and our results of operations could be adversely affected. The Greater Difficulty In Appraising Collateral Relating To Our Small Business Loans Due To Less Information Being Available May Result In A Greater Risk That Proceeds Realized From Sales Of That Collateral May Be Less Than Our Related Apprised Values CBC's loans are underwritten in accordance with CBC's underwriting guidelines which permit borrowers to borrow up to a specified percentage of the value of their accounts receivable, inventory and other business assets pledged as collateral in connection with the loans. The value of the accounts receivable is derived from a formula based upon the age and collectibility of the accounts and their revenues and cash flows. Since small to mid-size businesses are typically privately-owned, there is generally no publicly available information about such companies. CBC must rely on the diligence of its employees and agents to obtain information about these companies. We cannot assure you that CBC's valuations actually reflect amounts that we could realize upon a current sale of the accounts receivable, inventory and other business assets. The liquidation value of these assets in the event of a borrower default therefore may not be a sufficient source for repayment of our loans. The Profitability Of The Properties Securing Our Commercial Mortgage Loans May Be Uncertain Profits of commercial properties that secure our commercial mortgage loans are dependent on the performance and viability of the property. The property manager is responsible for responding to changes in the local market, planning and implementing the rental structure, including establishing appropriate rental rates, and advising the borrower so that maintenance and capital improvements can be carried out in a timely fashion. Also, the ability of a borrower to meet its obligations under a commercial mortgage loan and to make timely payments on the mortgage loan are affected by several factors, depending on the type of commercial property, such as the ability to lease, renew and relet the space, regional and national economic conditions and increased costs of operating a property. All of the foregoing factors may affect the borrower's ability to make payments under the commercial mortgage loan, which may adversely affect the timing and amount of payments we receive with respect to the loan. There is no assurance that property underlying a commercial mortgage loan will produce a profit. 16 Additional Losses May Result From Our Foreclosure Of Collateral Some of our commercial mortgage loans may be non-recourse to the borrower. In the event of foreclosure on a commercial mortgage loan, we may experience a loss if the value of the property and other collateral securing the loan is less than the unpaid amount on the loan. Also, we may experience costs and delays involved in enforcing rights of a property owner against tenants in default under the terms of their leases. These factors may adversely affect the timing and amount of payment we receive on foreclosed commercial mortgage loans. We Have Loans With Balloon Payments Which Have A Greater Chance Of Defaults A certain percentage of our commercial mortgage loans have a balloon payment due at maturity. These loans involve a greater risk than loans which are paid off gradually in equal installments since the ability of a borrower to pay such amount will normally depend on its ability to fully refinance the commercial mortgage or sell the related property at a price sufficient to permit the borrower to make the balloon payment. Environmental Factors May Adversely Affect The Value Of Properties Underlying Commercial Mortgage Loans Contamination of real property may give rise to a lien on that property to assure payment of the cost of clean-up or, in certain circumstances, may result in liability to the lender for that cost. Such contamination may also reduce the value of the property. If we are or become liable, we can bring an action for contribution against the owner or operator who created the environmental hazard, but that person or entity may be bankrupt or otherwise judgment proof. If we become responsible, environmental clean-up costs may be substantial. IWF's Short-Term Master Repurchase Facilities Are Susceptible To The Volatile Economic Cycles Of The Mortgage Industry Through IWF, we offer short-term master repurchase facilities to third party mortgage bankers. These third parties use these facilities for their purchase of residential mortgage loans until they are able to sell the loans. Some of our borrowers rely on the secondary market to sell or securitize loans they originate. During 1999 and 2000, some of our borrowers had difficulty selling their loans on a profitable basis. If such borrowers are unable to make timely payments on their borrowings from us, we may incur losses. Recent Credit Downgrades On Our Debt Have Rendered IBC In Default Under The IBC Lease Receivables Trust 1997-2, Which May Adversely Affect IBC's Monthly Cash Flow As a result of the recent credit downgrades on our senior indebtedness by Moody's and Standard and Poor's ratings services, IBC is in default of the terms of the IBC Lease Receivables Trust 1997-2 ("1997-2 Trust"), which trust issued certain Class A, Class B and Class C certificates. Due to this default, the insurer of the Class A certificates may cause the 1997-2 Trust permanently to go into "turbo" amortization. Under turbo amortization, virtually all cash flows generated in the 1997-2 Trust would be used to pay off the outstanding balance of the Class A certificates, which was $99.2 million at June 30, 2001, while the Class B and C Certificates, a majority of which are owned by IBC, would receive virtually no cash flows for principal and interest payments until the Class A certificates have been paid in full. To date, IBC has received a monthly waiver of this default. However, the insurer of the Class A certificates recently requested that IBC distribute, and IBC agreed to distribute, cash flows under the "turbo" amortization schedule for the month of August, 2001 in order to bring subordination levels of the Class A certificates to levels acceptable to the insurer. The waiver may be renewed monthly by the insurer, at its option. There is no assurance, however, that the insurer will continue to grant the monthly waiver to IBC or will not make further requests that the 1997-2 Trust distribute cash flows under the "turbo" amortization schedule for temporary periods. If the waiver were not to be granted or in any month where the 1997-2 Trust distributes cash flows under the "turbo" amortization schedule, IBC's monthly cash flow would decrease by approximately $1.0 million per month. As a result, cash flow to us would decrease by approximately $500,000 per month, which could adversely affect our operations. The outstanding balances of the securities and retained interests in the 1997-2 Trust owned by IBC were $6.4 million and $3.7 million at June 30, 2001, respectively. 17 Loss Of Residual Value On Certain Assets Would Adversely Affect IBC And SPBC's Results Of Operations IBC and SPBC retain a residual interest in the equipment covered by certain of their equipment leases. The estimated fair market value of the equipment at the end of the contract term of the lease, if any, is reflected as an asset on IBC's or the Bank's balance sheet. Results of operations depend, to a limited degree, upon their ability to realize such residual value. Realization of residual values depends on many factors outside our control including: . general market conditions at the time of expiration of the lease, . unusual wear and tear on, or use of, the equipment, . the cost of comparable new equipment, . the extent to which the equipment has become technologically or economically obsolete during the contract term, and . the effects of any additional or amended tax or accounting rules. Risks Related to Our Asset Management Activities and Investments We May Be Adversely Affected By The Liquidation Of A Fund Managed By Our ICAM Subsidiary Or A Loss Of Its Management Fees Our wholly-owned subsidiary, ICAM, currently manages the CLO Fund and earns management fees for managing this fund. At June 30, 2001, we had invested approximately $51.3 million in the CLO Fund. For the years ended December 31, 2000 and 1999, ICAM generated management fee revenues of $3.1 million and $3.1 million, respectively, from managing the CLO Fund. Our primary risks relating to ICAM's management activities are that (i) the successful management of the CLO Fund and the resulting management fees anticipated therefrom are dependent upon the services of the existing officers of ICAM and in the event of the departure or death of such officers, ICAM's ability to manage this fund may be adversely impacted and (ii) the investors in this fund have the ability under certain circumstances to cause this fund to be liquidated (and such fund may be required to be liquidated in the event of a default of our management obligations for such fund). The result of such a required liquidation of the CLO Fund would be not only the loss of our management fees relating to this fund, but also substantial loss in the value of our investment in this fund on the accelerated sales of the assets of this fund. We Recently Incurred Significant Writedowns And Mark-To-Market Losses Related To Our Investments In Volatile Assets And There Is No Assurance That We Will Not Incur Additional Losses On These Assets Our investments in retained interests, subordinated bonds from loan securitizations, interest only securities and total return swaps were $3.7 million, $6.4 million, $3.8 million and $88.0 million, respectively, at June 30, 2001 as compared to $6.3 million, $21.0 million, $10.0 million and $92.8 million, respectively, at December 31, 2000. Additionally, the net assets of our discontinued operations of Auto Marketing Network included $9.8 million and $14.0 million of retained interests at June 30, 2001 and December 31, 2000, respectively. The valuations of these assets are impacted by many factors including, among others, interest rates, prepayments or defaults on loans and leases and volatility in the secondary loan markets. During the six months ended June 30, 2001 and the years ended December 31, 2000 and 1999, we incurred writedowns and mark-to-market losses primarily related to these assets of $4.0 million, $13.4 million and $29.2 million, respectively. There can be no assurance that we will not continue to incur additional writedowns or mark-to-market losses in future periods. 18 The Value Of Our Portfolio Of Securitization-Related Assets Is Subject To Fluctuation We have invested in asset or mortgage backed securities known as "interest- only" or "principal-only" residual interest and subordinated securities. These securities were generally created through our own securitizations, or securitizations by parties formerly affiliated with us. Investments in residual interest and subordinated securities are riskier than investments in senior asset-backed securities because these subordinated securities bear all credit losses prior to the related senior securities. On a percentage basis, the risk associated with holding residual interest and subordinated securities is greater than holding the underlying loans or leases. This is due to the concentration of losses in the residual interests and subordinated securities. We estimate future cash flows from these securities and value them utilizing assumptions concerning: . discount rates . prepayments and . credit losses. If our actual experience adversely differs from our assumptions, we would be required to reduce the value of these securities and record a non-cash charge to operations. The market for our asset-backed securities is extremely limited and we cannot assure you that we could sell these securities at their reported value or at all. Also, we may never recoup our initial investment in these securities. We also bear the risk of loss on any asset-backed securities we have purchased in the secondary market. If third parties had been contracted to insure against these types of losses, we would be dependent in part upon the creditworthiness and claims paying ability of the insurer and the timeliness of reimbursement in the event of a default on the underlying obligations. The insurance coverage for various types of losses is limited, and we would bear the risk of any losses in excess of the limitation or outside of the insurance coverage. In addition, we may not obtain our anticipated yield due to prepayments or we may incur losses if the credit support available within certain asset- backed securities is inadequate due to unanticipated levels of losses, or due to difficulties experienced by the credit support provider. Delays or difficulties encountered in servicing asset-backed securities may cause greater losses and, therefore, greater resort to credit support than was originally anticipated. This may also cause a rating agency to downgrade certain classes of our securities. We May Have Liabilities for Representations and Warranties Related To Our Asset-Backed Securities Asset-backed securities issued in connection with our securitizations have been non-recourse to us, except in the case of a breach of standard representations and warranties made by us when the loans are securitized. While we have recourse against the sellers of loans and leases, we cannot assure you that they will honor their obligations. In the past we have engaged (and may in the future engage) in bulk whole loan/lease sales pursuant to agreements that provide for recourse by the purchaser against us. In some cases, the remedies available to a purchaser of loans and leases from us are broader than those available to us against those who sell us these loans and leases. If a purchaser exercises its rights against us, we may not always be able to enforce whatever remedies we may have against our sellers. Our Preferred Share Purchase Rights Plan May Discourage Takeover Attempts In October 1998, we distributed preferred share purchase rights to our shareholders pursuant to the Shareholder Rights Plan. Each share of our common stock has a preferred share purchase right attached to it. The rights will become exercisable under certain specified circumstances involving the acquisition of or tender offer for 15% or more of our issued and outstanding shares of common stock (25% or more for any person or group that held 15% or more of our common stock as of October 1998). Our board may also reduce the ownership levels to 10%. The rights may discourage hostile attempts to take over our Company by causing substantial dilution to a person or group that attempts to acquire our company on terms that our board of directors has not approved. 19 USE OF PROCEEDS If the Settlement Warrants are exercised in full, we will receive aggregate gross proceeds of $9,000,000, before deducting our estimated expenses of $157,250. Any net proceeds from the sale of the Shares upon exercise of the Settlement Warrants will be used by us for working capital and other general corporate purposes. RECENT DEVELOPMENTS The Regulatory Orders Requirements Of The Regulatory Orders As a result the 2000 Examination, the Bank consented to the issuance of a Cease and Desist Order by the FDIC dated December 15, 2000 (the "FDIC Order") and a Final Order of the DFI dated December 27, 2000 (the "DFI Order"). As described under "Item 1. Business--Regulation--General" in our 2000 Form 10- K/A, the Regulatory Orders impose a number of requirements, principally including the following: . Under the FDIC Order, the Bank was required to increase its capital by $19 million by March 31, 2001, and must increase its capital by an additional $20 million in stages through December 31, 2001. The Bank was also required to attain a total risk based capital ratio of 10.50% and a Tier 1 capital ratio of 8.00% by March 31, 2001 and to increase those ratios, in stages through December 31, 2001, to 12.00% and 9%, respectively. Under the DFI Order, the Bank was required to increase its adjusted tangible shareholder's equity by $29 million by March 31, 2001 and by an additional $15 million by June 30, 2001. Also, by March 31, 2001, the Bank was required to attain an adjusted tangible shareholder's equity of at least 7.00% of its adjusted tangible total assets, and to increase this ratio by 0.50% each quarter to 8.50% at December 31, 2001. The DFI order limits the maximum amount of the Bank's deferred tax assets that may be included in the adjusted tangible shareholder's equity calculation to the lesser of (x) the amount of deferred tax assets that are dependent upon future taxable income expected to be realized within one year or (y) 10% of adjusted tangible shareholder's equity existing before any disallowed deferred tax assets. The Bank has not reached the capital levels it was required to meet on March 31, 2001 and June 30, 2001. . The required increases in capital stated above may be accomplished through capital contributions by us to the Bank, the sale of common stock or noncumulative perpetual preferred stock of the Bank, the exchange of Bank debt held by us for such preferred stock, or any other means acceptable to the FDIC and the DFI. The Bank was required to adopt and implement a capital plan acceptable to the FDIC and the DFI to achieve and maintain these capital requirements. As described below in "--Actions Taken To Comply With The Regulatory Orders," the capital plans submitted to the FDIC and DFI by the Bank have not been approved and, as directed by these regulators, we are preparing a further revised capital plan for their consideration. . The Bank may not pay any cash dividends, make any other shareholder distributions or pay bonuses to its executive officers without the prior approval of the FDIC and the DFI, nor may it engage in any new lines of business without their prior approval. . The Bank was required to eliminate all of its assets that were classified as "Loss" and one-half of its assets that were classified as "Doubtful" as of March 31, 2000 under the DFI Order, and by June 26, 2000 under the FDIC Order, and to reduce by June 30, 2001 its assets that were classified as "Substandard" or "Doubtful," as of June 26, 2000, to not more than $90 million. The Bank also must reduce by June 30, 2001 and September 30, 2001 its assets that were classified "Substandard" or "Doubtful" as of June 26, 2000, to not more than $70,000,000 and $50,000,000, respectively. The Bank has satisfied foregoing March 31, 2001 and June 30, 2001 requirements by charging off or collecting certain of its "Substandard" and "Doubtful" assets. 20 . Under the FDIC Order, the Bank may not extend additional credit to any borrower that has a loan or other credit from the Bank that has been charged off or classified "Loss" or "Doubtful," in whole or part, and is uncollected. With certain exceptions, the Bank is also restricted from extending additional credit to any borrower with a Bank loan or other credit that has been charged off or classified "Substandard," in whole or part, and is uncollected. . The Bank must revise, adopt and implement policies acceptable to the FDIC and the DFI regarding its lending and loan review procedures, transactions with insiders and affiliates, and its requirements for reporting lending practices and other strategies to the Bank's chief executive officer. The Bank's board of directors must also review the adequacy of the Bank's allowances for loan and lease losses and adopt a policy for regularly determining the adequacy of those allowances. . The Bank must develop and adopt a detailed business plan acceptable to the FDIC and the DFI to control overhead and other expenses and restore the Bank to a sound condition. . The Bank is required to have and maintain qualified management, including a chief executive officer and other persons experienced in lending, collection and improving asset quality and earnings. Further, during the effectiveness of the Regulatory Orders, the Bank must obtain the prior approval of the FDIC and the DFI to the appointment of any new director or senior executive officer for the Bank, and the DFI has the right to determine whether present members of the Bank's management are acceptable. . The Bank must provide quarterly progress reports to the FDIC and the DFI regarding its actions to comply with the Regulatory Orders. Actions Taken To Comply With The Regulatory Orders Following issuance of the Regulatory Orders, we have added credit and risk management personnel and have reduced the Bank's classified assets through collections and charge-offs. We have also begun to improve the capital of the Bank. In this connection, on March 30, 2001, we purchased $36.0 million of the Bank's Series B Preferred in exchange for $14.0 million in cash and the exchange of $22.0 million in aggregate principal amount of subordinated debt of the Bank held by us. Also on that date, we made a capital contribution to the Bank of $7.2 million in cash, consisting of the balance of the proceeds from the offering of our Senior Secured Debt. On June 29, 2001, we contributed an additional $5.0 million in cash to the Bank. The Bank has not to date, however, achieved compliance with the required increases in regulatory capital specified in the Regulatory Orders. As a result, after discussions with the FDIC and DFI in regard to the Bank's noncompliance, we submitted an amended capital plan to these agencies proposing steps by which the Bank would comply with these required regulatory capital increases by June 30, 2002. The FDIC and the DFI did not approve this amended capital plan and have directed that we provide a further revised capital plan showing how the Bank will comply with the required regulatory capital increases by December 31, 2001. During August 2001, we submitted an updated capital plan to the FDIC and the DFI that reflects the Bank achieving compliance with the capital requirements set forth in the Regulatory Orders by December 31, 2001. Under this updated capital plan, the Bank plans to reduce the amount of its outstanding assets and will seek to obtain additional capital through various capital raising alternatives. There is no assurance, however, that this amended capital plan, even if approved by the Bank's regulators and fully implemented, will be successful in complying with the Regulatory Orders. See "Risk Factors--Regulatory Considerations." Recapitalization Transactions In order to assist the Bank in complying with the Regulatory Orders, we entered into the Recapitalization Agreement with holders (the "Signatory Debtholders") of a majority in outstanding aggregate principal amount of our 10.25% Remarketed Redeemable Par securities, Series B (the "ROPES") and 9.875% Senior Notes due 2007 (the "Old Senior Notes") and with certain investors identified therein in our Senior Secured Debt (the "Secured Debt Purchasers"). The Recapitalization Agreement generally provides for the restructuring of our 21 outstanding senior indebtedness and the issuance of new equity and debt securities by us through certain recapitalization transactions. The following descriptions of the recapitalization transactions provided for in, and the descriptions of, the Recapitalization Agreement (collectively, the "Recapitalization Transactions") are qualified in their entirety by the corresponding terms and provisions contained in the Recapitalization Agreement and the First Amendment to Master Recapitalization Agreement, dated as of June 27, 2001, which are attached as Exhibit 20.1.1 to our 2000 Form 10-K/A and Exhibit 10.1 to the registration statement of which this prospectus is a part, respectively. Our Recapitalization Transactions are generally as follows: On March 30, 2001, we issued $16,200,000 in aggregate principal amount of 12% Senior Secured Notes due April 30, 2002 (the "Senior Secured Debt") to the Secured Debt Purchasers. On June 28, 2001, we issued $10,000,000 aggregate principal amount of Secured Convertible Subordinated Debt to accredited investors in a private placement. The Secured Convertible Subordinated Debt will be convertible after three years into our common stock at a conversion price of $1.25 per share, subject to anti-dilution adjustments. On June 28, 2001, our debt exchange (the "Debt Exchange") offer closed. Under the terms of the Debt Exchange, $39,995,000 of the $41,035,000 of our ROPES that were then outstanding, $144,352,000 of the $165,939,000 of our Old Senior Notes that were then outstanding, and $3,468,000 of the $10,939,000 of 9.75% Senior Notes due 2004 debt securities that were then outstanding (collectively, the "Old Notes") were exchanged for the following: (1) $127,479,000 aggregate principal amount of 12% Senior Secured Notes due 2005 (the "Exchange Notes"), (2) 1,744,437 shares of our common stock, (3) Debt Exchange Warrants to purchase up to an additional 6,105,544 shares of common stock at an exercise price of $2.15 per share, subject to anti-dilution adjustments, and (4) $79,800 in cash as payment for fractional Old Notes. On June 28, 2001, we issued 7.04 million shares of common stock to Imperial Holdings Group, LLC, 2.0 million of which shares are being held in escrow in connection with certain price protection provisions relating to the Exchange Notes issued to the Secured Debt Purchasers. Shortly prior to the effective date of the registration statement that we are required to file to register resales of the Exchange Notes held by the Secured Debt Purchasers, and further subject to our ability to provide notice to the Secured Debt Purchasers stating that neither the FDIC nor DFI has taken or threatened to take any action adverse to the Bank or us as a result of the Bank's noncompliance with the Regulatory Orders, all of the Senior Secured Debt will be exchanged for: (i) $18,200,000 aggregate principal amount of Exchange Notes, (ii) 249,052 shares of our common stock and (iii) Debt Exchange Warrants to purchase up to an additional 871,681 shares of common stock. The Senior Debt Purchasers will then have the right, through March 31, 2002, to elect to exchange all or a portion of their Exchange Notes and related shares of common stock and Debt Exchange Warrants into $18,200,000 aggregate principal amount of Secured Convertible Subordinated Debt. If we do not receive a notice of such election from a Senior Debt Purchaser during such period, that Senior Debt Purchaser will be deemed to have elected to retain its Exchange Notes and the related shares of common stock and Debt Exchange Warrants. Recent Operating Performance We reported a net loss for the quarter ended June 30, 2001 of $39.8 million, including an operating loss from discontinued operations of $961,000 and an extraordinary loss on the early extinguishment of debt of $2.2 million. Our net loss for the six months ended June 30, 2001 was $39.5 million, including an operating loss from discontinued operations of $1.2 million and an extraordinary loss on the early extinguishment of debt of 22 $1.5 million. Our operating results for the quarter and six months ended June 30, 2001 were negatively impacted by high levels of provisions for loan and lease losses, which totaled $26.7 million and $31.3 million for such periods, respectively. See --"Continued High Provisions for Loan and Lease Losses" below. Mark-to-market and impairment charges of $3.5 million and $4.1 million for the quarter and six months ended June 30, 2001, respectively, also negatively impacted our result of operations. These mark-to-market charges primarily related to our investments in interest only securities, which experienced increased prepayments and defaults. As a result of the level of our provision for loan and lease losses in the second quarter of 2001 and our resulting continued operating loss, we recorded income tax expense of $10.0 million during the quarter and the six months ended June 30, 2001. This expense was recorded during that quarter to establish an additional deferred tax asset valuation allowance to fully reserve our outstanding balance of deferred tax assets, after allowable offsets of certain deferred tax liabilities. We decreased our operating expense and recorded reductions during the second quarter of 2001 in all expense categories other than legal, professional and collection related costs. These costs are primarily associated with the our efforts to aggressively resolve our problem credits. Continued High Provisions For Loan And Lease Losses Our provision for loan and lease losses for the quarter and six months ended June 30, 2001 was $26.7 million and $31.3 million as compared to $63.2 million and $87.2 million for the same period in the year 2000, respectively. The increase in provision for loan and lease losses for the quarter and six months ended June 30, 2001 was primarily a result of $27.4 million and $30.1 million in net charge-offs in the CBC loan portfolio. CBC's charge-offs in the second quarter of 2001 primarily related to the bankruptcy of two of its borrowers in the telecommunications and technology industries, and the discovery of fraud related to one loan. The additional provision for loan losses related to these credits was $21.7 million. The LPIG loan portfolio suffered from net charge- offs of $6.2 million and $5.8 million for the quarter and six months ended June 30, 2001. LPIG's charge-offs were related to the deterioration of collateral supporting these credits. As a result of the high level of these charge-offs and non-performing assets, our provision for loan and lease losses is significantly higher than other banks of comparable size. Continued Listing Of Our Common Stock On Nasdaq We received a Nasdaq Staff Determination on April 20, 2001 stating that our common stock was subject to delisting from The Nasdaq National Market due to a failure to comply with minimum bid price requirements for continued listing. Nasdaq's staff subsequently terminated its proceedings for delisting our common stock because our common stock's closing bid price had increased. However, if our common stock fails to maintain a minimum bid price of $1.00 for a period of 30 consecutive business days, Nasdaq may notify us that we have a period of 90 calendar days from that notification to achieve compliance with the minimum price requirement. Compliance can be achieved by the closing bid price of our common stock meeting or exceeding the $1.00 per share minimum price requirement for ten consecutive business days during that 90 day compliance period. If we were not to achieve compliance with the minimum price requirement, Nasdaq's staff could institute new proceedings to delist our common stock. As of August 28, 2001, our common stock had failed to maintain a minimum bid price of $1.00 over the prior 25 consecutive business days. See "Risk Factors--Business and Other Considerations--The Price And Liquidity Of Our Common Stock May Be Adversely Affected If Our Common Stock Is Delisted From The Nasdaq National Market System." 23 Changes in Management On August 1, 2001, H. Wayne Snavely resigned as both the Bank's and our Chairman, President, and Chief Executive Officer and Michael R. McGuire was appointed our President and Chief Executive Officer and interim President and Chief Executive Officer of the Bank pending regulatory approval. Mr. McGuire has been one of our directors since April 2001. Michael S. Riley, who was initially elected to our board of directors at our 2001 annual shareholder meeting, was appointed as Chairman of our Board of Directors on August 1, 2001. James P. Stues recently resigned from our board of directors. Additionally, Brad S. Plantiko, the Bank's and our Chief Financial Officer, will assume additional responsibilities as the Bank's Chief Operating Officer pending regulatory approval. Mr. Snavely's contractual rights under his termination protection agreement were resolved by our agreement to (i) issue to Mr. Snavely 1.3 million shares of our common stock, (ii) extend the exercise period of Mr. Snavely's existing stock options for up to four years and (iii) provide Mr. Snavely with continuous employee health and welfare benefits for a period of four years. We also have engaged Mr. Snavely as a consultant for compensation of $500,000 per year for a period of four years. Settlement Of Class Action Litigation In connection with an agreement (the "Settlement Agreement") between us and the plaintiffs' counsel in the securities class action litigation identified as In re Southern Pacific Funding Corporation Securities Litigation, Lead Case No. CV98-1239-MA, in the U.S. District Court for the District of Oregon (the "Class Action Litigation"), a fairness hearing was held by that court on February 21, 2001 to evaluate the fairness of the terms and conditions of the Settlement Agreement, including the proposed issuance of the Settlement Warrants. Advance notice of that hearing was provided to prospective recipients of the Settlement Warrants, each of whom had the right to attend the fairness hearing and obtain to the terms and conditions of the Settlement Agreement and to opt out of the proposed settlement entirely. After the conclusion of the fairness hearing, the district court on the same day issued an order approving the terms and conditions of the Settlement Agreement. The Settlement Agreement became effective on March 23, 2001 after expiration of the period for any appeal of the court's order. Pursuant to the Settlement Agreement, we paid $3.0 million into a settlement fund and agreed to issue the Settlement Warrants referred to herein to purchase three million shares of our common stock of an exercise price of $3.00 per share, subject to certain anti-dilution adjustments. Under the terms of the warrant agreement pursuant to which the Settlement Warrants are to be issued, we agreed to file a registration statement with the Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the shares of common stock issuable upon exercise of the Settlement Warrants. This prospectus is a part of that registration statement. On May 2, 2001, we received notice that the United States District Court for the Central District of California granted our motion for summary judgment in another securities class action litigation, identified as In re Imperial Credit Industries, Inc. Securities Litigation, Case No. CV 98-8842-SVW. The district court has not yet issued a formal final order granting summary judgment. Reverse Stock Split At our annual shareholders meeting held on June 26, 2001, our shareholders approved a proposal to amend our Articles of Incorporation to effect a reverse stock split at a ration of 2:1, 3:1 or 4:1, as determined by the board of directors based on market conditions and other factors, but only if and when our board of directors in its discretion elects to effect a reverse stock split. Because the reverse stock split, if one is effected, will apply to all issued and outstanding shares of common stock, the reverse stock split will not alter the relative rights of existing shareholders. A reverse stock split would, however, effectively increase the number of shares of common stock available for future issuance by the board of directors because it would only affect our outstanding shares and would not decrease the number of shares the board of directors is authorized to issue. 24 Election Of Directors Pursuant to the Recapitalization Agreement, our board of directors has set the authorized number of our directors at seven. Also pursuant to the Recapitalization Agreement, four of the directors elected at our annual meeting of shareholders held on June 26, 2001 were proposed by Imperial Holdings Group, LLC, which is the only Signatory Debtholder (as defined in the Recapitalization Agreement). One of these persons, Mr. Michael R. McGuire, was elected by action of the board of directors on April 25, 2001 to replace one of the three directors, Messrs. Perry A. Lerner, Brad S. Plantiko and Stephen J. Shugerman, who resigned from our board of directors as provided in the Recapitalization Agreement. PLAN OF DISTRIBUTION The shares of our common stock offered hereby will be offered directly by us to the holders of the Settlement Warrants. No underwriter, broker or dealer will be involved in this offering and no underwriting, brokerage or dealer commissions will be paid in connection with this offering. In October 2000, we reached an agreement in principle with the plaintiffs' counsel to settle the Class Action Litigation. As a part of the settlement we agreed to issue the Settlement Warrants to purchase three million shares of our common stock at an exercise price of $3.00 per share, subject to certain anti-dilution adjustments. None of the recapitalization transactions that we have completed, or that we may complete, pursuant to the Recapitalization Agreement, will require any adjustment in the exercise price under the anti- dilution provisions of the Settlement Warrants. An appropriate adjustment will be made in the exercise price and the number of Settlement Warrants if we effect a reverse stock split of our common stock, which our shareholders have authorized our Board of Directors, in its discretion, to effect. The Settlement Warrants will be issued pursuant to the Settlement Agreement and the related Warrant Agreement, dated as of October 10, 2000 (the "Warrant Agreement"), between us and U.S. Stock Transfer Corporation, as warrant agent (the "Warrant Agent"). The Warrant Agreement provides, however, that Settlement Warrants may only be issued after the registration statement to which this prospectus is a part becomes effective. The Settlement Warrants will expire January 31, 2008 and have certain anti-dilution features. The Settlement Warrants also will have provisions that provide the holders thereof with specified rights upon specified change of control, reorganization or going private transactions (as defined in Section 3.4 of the Warrant Agreement) occurring after October 10, 2000. These rights will include the right to either (i) conditionally exercise the Settlement Warrants and thereby receive the difference between economic benefit of the change of control, reorganization or going private transaction, if any, in excess of the exercise price of the Settlement Warrants or (ii) receive $1.00 for each right to purchase one share of our common stock represented by the Settlement Warrants. However, none of the recapitalization transactions that we have completed, or that we may complete, pursuant to the Recapitalization Agreement will result in any of foregoing rights becoming available to any holder of the Settlement Warrants. The Settlement Warrants will be issued in fully registered, certificated form under the provisions of the Warrant Agreement. The holder of a Settlement Warrant may exercise the Settlement Warrant by surrendering the Settlement Warrant, with the attached purchase form properly completed and executed, together with payment of the exercise price at the office of the Warrant Agent or any successor warrant agent. Payment of the aggregate exercise price shall be made by wire transfer or by certified check, cashier's check or money order payable in United States currency to the order of Imperial Credit Industries, Inc. The Warrant Agent will return a certificate evidencing the number of shares of common stock issued upon exercise of the Settlement Warrant, together with a new Settlement Warrant certificate if less than all of the shares of common stock covered by the Settlement Warrant certificate are purchased. When delivered, shares of our common stock issued upon exercise of a Settlement Warrant will be fully paid and nonassessable. We are not required to issue fractions of Settlement Warrants or fractions of shares of our common stock or any certificates which evidence fractional Settlement Warrants or fractional shares of our common stock, or to pay cash in lieu of fractional interests. In lieu of 25 fractional Settlement Warrants and fractional shares of our common stock, we will round any fractional Settlement Warrant or fractional share equal to or greater than one-half up to the next full Settlement Warrant or share of common stock, as the case may be, and will eliminate any fractional Settlement Warrant or fractional share less than one-half. Under the terms of the Warrant Agreement, we agreed to file the registration statement of which this prospectus is a part to register the issuance of the shares of our common stock underlying the Settlement Warrants. We will use our commercially reasonable efforts to keep the registration statement and any registration or qualification required under state securities laws with respect to the shares of common stock offered by this registration statement in effect until the earlier of the date by which all the Settlement Warrants are exercised or redeemed or the Settlement Warrants expire. The Settlement Warrants may not be exercised during any period in which any such registration or qualification is required but is not in effect. Copies of the form of warrant certificate and the Warrant Agreement have been filed as exhibits to the registration statement of which this prospectus is a part and reference is made to the exhibits for a detailed description of the provisions summarized above. LEGAL MATTERS Mayer, Brown & Platt, Los Angeles, California, will pass upon the validity of the Shares offered by this prospectus. EXPERTS The consolidated financial statements of Imperial Credit Industries, Inc. as of December 31, 2000 and 1999, and for each of the years in the three-year period ended December 31, 2000, have been incorporated by reference herein and in the registration statement in reliance upon the report of KPMG LLP, independent auditors, incorporated by reference herein, and upon the authority of that firm as experts in accounting and auditing. WHERE YOU CAN FIND MORE INFORMATION We file reports, proxy statements and other information with the SEC. You may read and copy the reports, proxy statements and other information that we file at the Public Reference Room maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by telephoning the SEC at 1-800-SEC-0330. You may also access the reports, proxy statements and other materials that we file electronically over the Internet at the SEC's website at http://www.sec.gov. We have filed a registration statement with the SEC on Form S-3 relating to the shares of our common stock offered by this prospectus. This prospectus does not contain all of the information included in that registration statement. You may refer to the registration statement and the exhibits for more information about the shares offered by this prospectus. The statements we make in this prospectus regarding the content of any documents filed as exhibits to the registration statement are not necessarily complete, and you should refer to the filed copies of those documents for additional information. All of our statements about these documents are qualified in their entirety by the exhibits to the registration statement. The SEC allows us to incorporate into this prospectus the information contained in documents we file with the SEC by referring to those documents herein. This means that: . the documents incorporated by reference are considered part of this prospectus . we can disclose important information to you by referring to those documents 26 . information we file with the SEC automatically updates and supersedes the information provided in this prospectus We incorporate into this prospectus by reference the following documents filed by us with the SEC under our File No. 0-19861: (1) our Annual Report on Form 10-K/A for the year ended December 31, 2000; (2) our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2001 and June 30, 2001; (3) Proxy Statement on Schedule 14A for the 2001 annual meeting of shareholders of the Company; (4) our Current Reports on Form 8-K dated February 7, 2001, April 20, 2001, May 8, 2001 and August 1, 2001; (5) the section of our Registration Statement on Form S-1 (File No. 33- 45606), filed with the SEC on February 10, 1992, entitled "Description of Securities", as amended by Amendments Nos. 1, 2 and 3, filed with the SEC on April 20, 1992, May 7, 1992, and May 18, 1992, respectively; and (6) our Registration Statement on Form 8-A filed with the SEC on October 5, 1998, pursuant to Section 12 of the Exchange Act, for registration of our Series A Junior Preferred Share Purchase Rights. We also incorporate into this prospectus by reference each of the following documents that we will file with the SEC after the date of this prospectus, but prior to the termination of this offering: (1) all Form 10-Q, Form 10-K, Form 8-K and other reports filed under Section 13(a) and (c) of the Exchange Act; (2) definitive proxy or information statements filed under Section 14 of the Exchange Act in connection with any meeting of our shareholders; and (3) any reports filed under Section 15(d) of the Exchange Act. You may request a copy, at no cost, of any of the documents incorporated by reference in this prospectus, except for exhibits to those documents (other than exhibits specifically incorporated by reference therein), by contacting us at: Imperial Credit Industries, Inc., 23550 Hawthorne Boulevard, Building 1, Suite 110, Torrance, California 90505, telephone number (310) 373-1704. 27 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 3,000,000 Shares IMPERIAL CREDIT INDUSTRIES, INC. Common Stock ---------------- PROSPECTUS ---------------- , 2001 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 14. Other Expenses of Issuance and Distribution Registration Fee................................................ $ 2,250 Legal Fees and Expenses......................................... 75,000 Accounting Fees and Expenses.................................... 30,000 Printing Expenses............................................... 45,000 Miscellaneous................................................... 5,000 -------- TOTAL......................................................... $157,250 ========
Item 15. Indemnification of Directors and Officers Under Section 317 of the California General Corporation Law (the "CGCL"), the Registrant is permitted in certain circumstances to indemnify its directors and officers against certain expenses (including attorneys' fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with threatened, pending or completed civil, criminal, administrative or investigative actions, suits or proceedings (other than an action by or in the right of the Registrant), in which such persons were or are parties, or are threatened to be made parties, by reason of the fact that they were or are directors or officers of the Registrant, if such persons acted in good faith and in a manner they reasonably believed to be in the best interests of the Registrant, and with respect to any criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful. In addition, the Registrant is permitted in certain circumstances to indemnify its directors and officers against certain expenses incurred in connection with the defense or settlement of a threatened, pending or completed action by or in the right of the Registrant, and against amounts paid in settlement of any such action, if such persons acted in good faith and in a manner they believed to be in the best interests of the Registrant and its shareholders provided that the specified court approval is obtained. As permitted by Section 317 of the CGCL, the Articles of Incorporation and By-Laws of the Registrant provide that the Registrant is authorized to provide indemnification for its directors and officers for breach of their duty to the Registrant and its shareholders through bylaw provisions or through agreements with the directors and officers, or both, in excess of the indemnification otherwise permitted by Section 317 of the CGCL. The Registrant's By-laws provide for indemnification of its directors and officers to the maximum extent permitted by Section 317 of the CGCL. In addition, agreements entered into by the Registrant with its directors and its executive officers require the Registrant to indemnify such persons against expenses, judgments, fines settlements and other amounts reasonably incurred in connection with any proceeding to which any such person may be made a party by reason of the fact that such person was an agent of the Registrant (including judgments, fines and settlements in or of a derivative action, unless indemnification is otherwise prohibited by law), provided such person acted in good faith and in a manner he reasonably believed to be in the best interests of the Registrant and, in the case of a criminal proceeding, had no reason to believe his conduct was unlawful. The indemnification agreements also set forth certain procedures that will apply in the event of a claim for indemnification thereunder. The Articles of Incorporation of the Registrant provide that the personal liability of the directors of the Registrant for monetary damages shall be eliminated to the fullest extent permissible under California law. Under Section 204(a)(10) of the CGCL, the personal liability of a director for monetary damages in an action brought by or in the right of the corporation for breach of the director's duty to the corporation may be eliminated, except for the liability of a director resulting from (i) acts or omissions involving intentional misconduct or the absence of good faith, (ii) any transaction from which a director derived an improper personal benefit, (iii) acts or omissions showing a reckless disregard for the director's duty, (iv) acts or omissions constituting an unexcused pattern of inattention to the director's duty or (v) the making of an illegal distribution to shareholders or an illegal loan or guaranty. II-1 Item 16. Exhibits 4.1 Form of Common Stock Certificate (incorporated herein by reference to the Registrant's Registration Statement on Form S-1 (No. 33-45606) 4.2 Warrant Agreement dated as of October 10, 2000 between the Registrant and U.S. Stock Transfer Corporation* 4.3 Form of Warrant Certificate* 5.1 Opinion of Mayer, Brown & Platt* 10.1 First Amendment to Master Recapitalization Agreement, dated as of June 27, 2001** 10.2 Amended and Restated Collateral Agency and Security Agreement, dated as of June 28, 2001** 10.3 Indenture for the 12% Secured Convertible Subordinated Notes, dated as of June 28, 2001** 23.1 Consent of KPMG LLP** 23.2 Consent of Mayer, Brown & Platt (contained in Exhibit 5.1) 24.1 Power of Attorney (included on page S-1 of this Registration Statement)
- -------- *Previously filed. ** Filed herewith. Item 17. Undertakings (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post- effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (1)(i) and (11)(ii) do not apply if the registration statement is on Form S-3, Form S-8, or Form F-3 and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to Section 13 or Section 15(d) of the Exchange Act that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) of 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-2 (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Torrance, and the State of California, on August 23, 2001. Imperial Credit Industries, Inc. /s/ Michael R. McGuire By: _________________________________ Michael R. McGuire President and Chief Executive Officer We, the undersigned directors and officers of Imperial Credit Industries, Inc., do hereby constitute and appoint Michael R. McGuire, Brad S. Plantiko and Irwin L. Gubman, or either one of them, our true and lawful attorneys and agents, to do any and all acts and things in our name and behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys and agents, or either of them, may deem necessary or advisable to enable said corporation to comply with the Securities Act of 1933, as amended, and any rules, regulations, and requirements of the Securities and Exchange Commission, in connection with this Registration Statement on Form S-3, including specifically, but without limitation, power and authority to sign for us or any of us in our names and in the capacities indicated below, any and all further amendments (including post-effective amendment) to this Registration Statement on Form S-3, or any related registration statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended; and we do hereby ratify and confirm all that the said attorneys and agents, or either one of them, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Michael S. Riley Chairman of the Board and August 17, 2001 ______________________________________ Director Michael S. Riley /s/ Michael R. McGuire Chief Executive Officer, August 23, 2001 ______________________________________ President and Director Michael R. McGuire (Principal Executive Officer) /s/ Brad S. Plantiko Executive Vice President, August 23, 2001 ______________________________________ and Chief Financial Brad S. Plantiko Officer and Director (Principal Financial Officer) /s/ Robert S. Muehlenbeck Director August 17, 2001 ______________________________________ Robert S. Muehlenbeck
S-1
Signature Title Date --------- ----- ---- /s/ Theodore R. Maloney Director August 17, 2001 ______________________________________ Theodore R. Maloney Director ______________________________________ Charles E. Underbrink /s/ Paul B. Lasiter Senior Vice President and August 23, 2001 ______________________________________ Corporate Controller Paul B. Lasiter (Principal Accounting Officer)
S-2 EX-10.1 3 dex101.txt FIRST AMENDMENT TO MASTER RECAPITALIZATION AGMT. EXHIBIT 10.1 - -------------------------------------------------------------------------------- FIRST AMENDMENT TO MASTER RECAPITALIZATION AGREEMENT by and among IMPERIAL CREDIT INDUSTRIES, INC. and EACH OF THE INVESTORS REFERRED TO HEREIN Dated as of June 27, 2001 - -------------------------------------------------------------------------------- FIRST AMENDMENT TO MASTER RECAPITALIZATION AGREEMENT This First Amendment to Master Recapitalization Agreement, dated as of June 27, 2001 (this "Amendment"), is entered into by and among Imperial Credit Industries, Inc., a California corporation (the "Company"), and the respective Senior Secured Debt Purchasers and Signatory Debtholders named on the signature pages hereof on the basis of the following facts: A. The Company, the Senior Secured Debt Purchasers and the Signatory Debtholders (collectively, the "Investors") are parties to that certain Master Recapitalization Agreement, dated as of March 29, 2001 (the "Recapitalization Agreement"). All initially-capitalized terms not otherwise defined herein shall have the meanings set forth in the Recapitalization Agreement unless the context clearly indicates otherwise. B. The Company and the Investors desire to amend certain terms and conditions of the Recapitalization Agreement and related exhibits thereto as provided in this Amendment. C. In accordance with Section 6.3 of the Recapitalization Agreement, with respect to the Senior Secured Debt Purchasers, this Amendment shall be enforceable against all Senior Secured Debt Purchasers upon the approval of holders of a majority in aggregate principal amount of the Senior Secured Debt. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree to amend the Recapitalization Agreement as follows: AGREEMENT --------- 1. The following definitions are hereby added to Section 1.1 of the ----------- Recapitalization Agreement: "Convertible Subordinated Indenture" means the indenture relating to the Secured Convertible Subordinated Debt, which shall be substantially in the form attached as Exhibit D hereto, as amended, supplemented or otherwise modified from time to time with the consent of the Senior Secured Debt Purchasers. "Reverse Stock Split" means the proposed reverse stock split of the Company's Common Stock that is to be presented for approval by the Company's shareholders at the Company's 2001 Annual Meeting of Shareholders. "Reverse Stock Split Ratio" means a factor of four, three or two, relating to the number of shares of outstanding Common Stock, as determined by the Board of Directors, that will be combined into one share of the Company's Common Stock in the Reverse Stock Split. "Secured Convertible Subordinated Debt" means the Secured Convertible Subordinated Notes that are to be purchased by the Secured Convertible Subordinated Debt Purchasers pursuant to Section 2.3, which shall be in the form specified in and issued pursuant to the Convertible Subordinated Indenture. 2 "Secured Convertible Subordinated Debt Placement Closing" has the meaning set forth in Section 2.3(c). "Secured Convertible Subordinated Debt Placement Closing Date" has the meaning set forth in Section 2.3(c). "Secured Convertible Subordinated Debt Placement" means the private placement of Secured Convertible Subordinated Debt provided for in Section 2.3. "Secured Convertible Subordinated Debt Purchasers" means the Investors who will become parties to this Agreement after the initial effective date hereof, will be identified as such in Exhibit A hereto and will agree to purchase Secured Convertible Subordinated Debt in the Secured Convertible Subordinated Debt Placement, all as provided in Section 2.3. 2. The following definitions in Section 1.1 of the Recapitalization ----------- Agreement are hereby deleted in their entirety and replaced with the corresponding definitions above as follows: "Convertible Subordinated Debt" is deleted and all references to Convertible Subordinated Debt in the Recapitalization Agreement and related exhibits thereto shall be replaced with the term "Secured Convertible Subordinated Debt." "Convertible Subordinated Debt Placement Closing" is deleted and all references to Convertible Subordinated Debt Placement Closing in the Recapitalization Agreement and related exhibits thereto shall be replaced with the term "Secured Convertible Subordinated Debt Placement Closing." "Convertible Subordinated Debt Placement Closing Date" is deleted and all references to Convertible Subordinated Debt Placement Closing Date in the Recapitalization Agreement and related exhibits thereto shall be replaced with the term "Secured Convertible Subordinated Debt Placement Closing Date." "Convertible Subordinated Debt Placement" is deleted and all references to Convertible Subordinated Debt Placement in the Recapitalization Agreement and related exhibits thereto shall be replaced with the term "Secured Convertible Subordinated Debt Placement." "Convertible Subordinated Debt Purchasers" is deleted and all references to Convertible Subordinated Debt Purchasers in the Recapitalization Agreement and related exhibits thereto shall be replaced with the term "Secured Convertible Subordinated Debt Purchasers." 3. Section 2.2(b)(ii) of the Recapitalization Agreement is hereby amended ------------------ by adding the following sentence immediately prior to the end thereof: 3 "The amounts of Common Stock reflected in this Section 2.2(b) do not take into account the effect of the Reverse Stock Split. Notwithstanding anything herein to the contrary, if the Reverse Stock Split is approved by the Company's shareholders in accordance with applicable law and effected by the Company's Board of Directors prior to the consummation of the Debt Exchange, the numbers of shares of Common Stock issuable to exchanging holders of Old Notes and underlying the Debt Exchange Warrants issued pursuant to this Section 2.2(b) shall be reduced correspondingly by the Reverse Stock Split Ratio." 4. The first sentence of Section 2.2(g) of the Recapitalization Agreement -------------- is hereby amended to insert "(i)" before the first sentence thereof and to amend the two existing sentences thereof to read in their entirety as follows: "(i) Upon completion of the Debt Exchange, but in no event later than July 1, 2001, the Company shall issue an aggregate of 5.04 million shares of Common Stock to the Signatory Debtholders. If no additional Exchange Notes are required to be issued by the Company to any holders of Unexchanged Notes as provided in Section 2.4(c), the Company shall issue an aggregate of 2 million additional shares of Common Stock to the Signatory Debtholders on the earlier of (A) the date all Exchange Notes issued to holders of Senior Secured Debt in exchange for such notes are exchanged for Secured Convertible Subordinated Debt pursuant to Section 2.4(b) or (B) April 15, 2002." 5. Section 2.2(g) of the Recapitalization Agreement is hereby further -------------- amended by adding a new paragraph (ii) thereto, which new paragraph shall read in its entirety as follows: "(ii) The amounts of Common Stock reflected in this Section 2.2(g) do not take into account the effect of the Reverse Stock Split. Notwithstanding anything herein to the contrary, if the Reverse Stock Split is approved by the Company's shareholders in accordance with applicable law and effected by the Company's Board of Directors, the numbers of shares of Common Stock issuable to the Signatory Debtholders pursuant to this Section 2.2(g), if issued prior to the Reverse Stock Split being effected, will be reduced correspondingly by the Reverse Stock Split Ratio. If the nonconvertible promissory notes referred to in Section 2.2(g)(i) are required to be issued prior to the Reverse Stock Split being effected, the notes shall be issued in an aggregate principal amount equal to the product of (A) the number of shares not so issuable and (B) $3.00, increased correspondingly by the Reverse Stock Split Ratio, but subject to a maximum aggregate principal amount of such notes of $1.872 million." 6. Section 2.4(a) of the Recapitalization Agreement is hereby amended by -------------- adding the following immediately prior to the end thereof: "The amounts of Common Stock reflected in this Section 2.4(a) do not take into account the effect of the Reverse Stock Split. Notwithstanding anything herein to the contrary, if the Reverse Stock Split is approved by the Company's shareholders in accordance with applicable law and effected by the Company's Board of Directors prior to the exchange of Senior Secured Debt contemplated in this Section 2.4(a), the numbers of shares of Common Stock issuable to the Senior Secured Debt Purchasers and underlying the Debt Exchange Warrants issued pursuant to this Section 2.4(a) will be reduced correspondingly by the Reverse Stock Split Ratio." 4 7. The third sentence of Section 3.1(a) of the Recapitalization Agreement -------------- is hereby amended to read in its entirety as follows: "Immediately prior to each of the Senior Secured Debt Closing, the Debt Exchange Closing and the Convertible Subordinated Debt Placement Closing, the Company's outstanding Capital Stock will be as set forth in the preceding sentence, except for (i) any increases in outstanding Common Stock as a result of the transactions provided for herein or of the exercise of options or warrants referred to in the penultimate sentence of this Section 3.1 and (ii) any decreases in outstanding Common Stock as a result of the Reverse Stock Split." 8. Section 5.9 of the Recapitalization Agreement is hereby amended by ----------- adding the following immediately prior to the end thereof: "The amounts of Common Stock reflected in this Section 5.9 do not take into account the effect of the Reverse Stock Split. Notwithstanding anything herein to the contrary, if the Reverse Stock Split is approved by the Company's shareholders in accordance with applicable law and effected by the Company's Board of Directors, the numbers of shares of Common Stock issuable upon exercise of the stock options granted pursuant to this Section 5.9 will be reduced correspondingly by the Reverse Stock Split Ratio." 9. The Collateral Agency and Security Agreement attached as Exhibit B-2 ----------- to the Recapitalization Agreement is amended in its entirety and replaced by the "Amended and Restated Collateral Agency and Security Agreement" attached as Exhibit B-2 hereto. All references to the Collateral Agency and Security Agreement in the Recapitalization Agreement and related exhibits thereto shall be replaced with the term "Amended and Restated Collateral Agency and Security Agreement. " 10. In accordance with Section 7(a) of the Form of Debt Exchange Warrant Agreement attached as Exhibit C-2 to the Recapitalization Agreement, if the Debt ----------- Exchange Warrants shall be issued after the Reverse Stock Split, the Exercise Price referred to therein shall be adjusted to the price (calculated to the nearest 1,000th of one cent) determined by multiplying the amount of such Exercise Price immediately prior to the Reverse Stock Split by a fraction, the numerator of which shall be the number of shares of Common Stock purchasable upon exercise of the Debt Exchange Warrant immediately prior to the Reverse Stock Split and the denominator of which shall be the number of shares of Common Stock purchasable upon exercise of the Debt Exchange Warrant after the adjustment. 11. With respect to the Registration Rights Agreement attached to the Recapitalization Agreement as Exhibit E-1, the amounts of Common Stock ----------- registrable pursuant thereto and reflected therein shall be reduced correspondingly by the Reverse Stock Split Ratio. 12. This Amendment shall be deemed to be an amendment to the Recapitalization Agreement, and the Recapitalization Agreement, as amended hereby, is hereby ratified, approved and confirmed in each and every respect. All references to the Recapitalization Agreement in 5 any other document, instrument, agreement or writing shall hereafter be deemed to refer to the Recapitalization Agreement as amended hereby. 13. Except as expressly amended herein, the Recapitalization Agreement and related exhibits thereto, and all documents, instruments and agreements relating thereto or executed in connection therewith shall remain in full force and effect as currently written. 14. This Amendment may be executed in any number of counterparts, all of which together shall constitute one agreement. 6 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the day and year first above written. IMPERIAL CREDIT INDUSTRIES, INC. By: /s/ H. Wayne Snavely ----------------------------- Name: H. Wayne Snavely Title: Chief Executive Officer SENIOR SECURED DEBT PURCHASERS (HOLDERS OF MAJORITY IN AGGREGATE PRINCIPAL AMOUNT): AFFINITY BANK HOLDINGS, INC. By: /s/ Paul Schedler ------------------------ Name: Paul Schedler ---------------- Title: Vice President ---------------- /s/ Andris A. Baltins --------------------------- Andris A. Baltins SIGNATORY DEBTHOLDERS: IMPERIAL HOLDINGS GROUP, LLC By: /s/ Michael Riley ----------------------- Name: Michael Riley ---------------- Title: ---------------- EX-10.2 4 dex102.txt AMENDED AND RESTATED COLLATERAL AGENCY AND SECURIT EXHIBIT 10.2 AMENDED AND RESTATED COLLATERAL AGENCY AND SECURITY AGREEMENT This AMENDED AND RESTATED COLLATERAL AGENCY AND SECURITY AGREEMENT (as it may be amended, supplemented or otherwise modified from time to time, this "Agreement") is dated as of June 28, 2001 and is made by and between Imperial - ---------- Credit Industries, Inc. (the "Grantor") in favor of and for the benefit of ------- Wilmington Trust Company ("WTC"), acting hereunder not individually but solely --- as collateral agent (in such capacity, the "Collateral Agent") for the benefit ---------------- of (i) the Senior Secured Debt Purchasers, (ii) from and after the Debt Exchange Closing Date, Chase Manhattan Bank and Trust Company, N.A. ("Senior Debt ----------- Trustee"), not individually but solely as trustee for the holders of the - ------- Exchange Notes and (iii) from and after the Convertible Subordinated Debt Placement Closing Date, Chase Manhattan Bank and Trust Company, N.A. ("Subordinated Debt Trustee"), not individually but solely as trustee for the - --------------------------- Convertible Subordinated Debt Purchasers (the Senior Secured Debt Purchasers, the Senior Debt Trustee and the Subordinated Debt Trustee, together with any successors and assigns, are individually referred to herein as a "Secured Party" ------------- and collectively referred to herein as the "Secured Parties"). --------------- PRELIMINARY STATEMENTS Pursuant to that certain Master Recapitalization Agreement dated as of March 29, 2001 (said agreement, as it may hereafter be amended or otherwise modified from time to time, being the "Recapitalization Agreement"), the Senior -------------------------- Secured Debt Purchasers agreed to loan $16,200,000 to the Grantor and the Signatory Debtholders agreed to tender their Old Notes to the Grantor in exchange for Exchange Notes and certain other consideration pursuant to the Debt Exchange. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Recapitalization Agreement. It was a condition precedent to the closing of the transactions contemplated by the Recapitalization Agreement that the Grantor and WTC in its capacity as Collateral Agent shall have entered into that certain Collateral Agency and Security Agreement dated as of March 29, 2001 (the "Original Security ----------------- Agreement") and that the Grantor shall have granted the assignments and security - --------- interests and made the pledges and assignments contemplated thereunder. The obligations of the Grantor under the Senior Secured Debt and, from and after the Debt Exchange Closing Date, the Exchange Notes were to be secured pursuant to the Original Security Agreement. The parties to the Recapitalization Agreement have agreed that from and after the Convertible Subordinated Debt Placement Closing Date the Convertible Subordinated Debt should be secured by the collateral described in the Original Security Agreement and that the Original Security Agreement should be amended and restated to so provide. NOW, THEREFORE, in consideration of the premises and in order to induce the Convertible Subordinated Debt Purchasers to purchase the Convertible Subordinated Debt, the parties hereto hereby agree that the Original Security Agreement shall be amended and restated in its entirety as follows: SECTION 1. Grant of Security. The Grantor hereby assigns and pledges ----------------- to the Collateral Agent (i) for the benefit of the Senior Secured Debt Purchasers and (ii) from and after the Debt Exchange Closing Date, for the benefit of (x) the Senior Secured Debt Purchasers, the Subordinated Debt Trustee as trustee for the Convertible Subordinated Debt Purchasers (to the extent the Convertible Subordinated Debt is then outstanding) and the Senior Debt Trustee as trustee for the holders of the Exchange Notes for so long as the Senior Secured Debt is issued and outstanding and (y) from and after the payment in full or exchange of the Senior Secured Debt, the Subordinated Debt Trustee as trustee for the Convertible Subordinated Debt Purchasers (to the extent the Convertible Subordinated Debt is then outstanding) and the Senior Debt Trustee as trustee for the holders of the Exchange Notes, and hereby grants to the Collateral Agent for the benefit of such Secured Parties a security interest in, all of the Grantor's right, title and interest, whether now owned or hereafter acquired, in and to the following (collectively, the "Collateral"): ---------- (a) all of the following: (i) the indebtedness (the "Pledged Debt") described on ------------ Schedule I and owing to the Grantor by the issuers named therein and ---------- the instruments evidencing the Pledged Debt, and all interest, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Debt; (ii) all additional indebtedness from time to time owed to the Grantor by any obligor of the Pledged Debt or any other Person and the instruments evidencing such indebtedness, and all interest, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such indebtedness; and (iii) the shares of capital stock described on Schedule II ----------- (the "Pledged Securities"), together with any other shares, stock ------------------ certificates, options or warrants of any issuer listed in Schedule II ----------- that may be issued or granted to, or held by, the Grantor while this Agreement is in effect; and (b) all proceeds of any and all of the foregoing Collateral. The parties hereto have agreed, and by their execution hereof acknowledge, that the Grantor may request that any or all of the instruments evidencing any Pledged Debt be released from the lien of this Agreement upon the exchange thereof for (i) another instrument evidencing indebtedness from Southern Pacific Bank (which instrument shall, without any further action by any party hereto, become Pledged Debt for all purposes hereof) or (ii) any shares of capital stock of Southern Pacific Bank (which instrument shall, without any further action by any party hereto, become Pledged Securities for all purposes hereof). Similarly, the Grantor may request that any or all of the stock certificates evidencing the Pledged Securities be released from the lien of this Agreement upon the exchange thereof for (i) any shares of another class of capital stock of 2 Southern Pacific Bank (which shares shall, without further action by any party hereto, become Pledged Securities for all purposes hereof) or (ii) any instrument evidencing indebtedness of Southern Pacific Bank (which shall, without any further action by any party hereto, become Pledged Debt for all purposes hereof). By their acceptance hereof, the Senior Secured Debt Purchasers, the Senior Debt Trustee (acting solely pursuant to the authority granted in Section 11.01 of the Exchange Notes Indenture), and the Subordinated Debt Trustee (acting solely pursuant to the authority granted in Section 11.01 of the Subordinated Debt Indenture) authorize the Collateral Agent to release from the security interest hereof any Pledged Debt or Pledged Securities held by it hereunder upon the exchange of such Pledged Debt or Pledged Securities for other indebtedness or capital stock of Southern Pacific Bank so long as such indebtedness or stock is pledged to the Collateral Agent and is subject to the security interests granted hereby for all purposes. SECTION 2. Security for Obligations. This Agreement secures, and the ------------------------ Collateral is collateral security for, the prompt payment and performance in full when due, whether on a specified payment date, at stated maturity, by acceleration or otherwise (including, without limitation, the payment of amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code or any similar law) of all obligations of the Grantor under (i) the Senior Secured Debt, and (ii) from and after the Subordinated Debt Exchange Closing Date, (x) the Senior Secured Debt, the Convertible Subordinated Debt (to the extent outstanding) and the Exchange Notes for so long as the Senior Secured Debt is issued and outstanding and (y) from and after the payment in full or exchange of the Senior Secured Debt, the Exchange Notes and the Convertible Subordinated Debt (to the extent outstanding), including interest (including, without limitation, interest that, but for the filing of a petition in bankruptcy would accrue on such obligations) or any fees or other expenses related thereto (any and all such obligations being the "Secured Obligations"). -------------------- SECTION 3. Delivery of Collateral. All certificates or instruments ---------------------- representing or evidencing Collateral shall be delivered to and held by or on behalf of the Collateral Agent on behalf of the Secured Parties entitled to the benefit thereof pursuant to the terms hereof and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Secured Parties entitled to the benefit thereof pursuant to the terms hereof. The Collateral Agent shall have the right after the occurrence and during the continuance of an Event of Default (as defined in Section 6(a)(v)) beyond any --------------- grace period applicable thereto to transfer to or to register in the name of the Collateral Agent or any of its nominees any or all of the Collateral. In addition, the Collateral Agent shall have the right after the occurrence and during the continuance of an Event of Default beyond any grace period applicable thereto to exchange instruments representing or evidencing the Collateral, for instruments of smaller or larger denominations. SECTION 4. Representations and Warranties. The Grantor hereby ------------------------------ represents and warrants as follows: (a) The chief place of business and chief executive office of the Grantor is located at the address specified for the Grantor on Schedule -------- III. The Grantor's federal tax identification number is as set forth on --- Schedule III. ------------ 3 (b) The Grantor is the legal and beneficial owner of the Collateral free and clear of any lien. No effective financing statement or other instrument similar in effect covering all or any part the Collateral is on file in any recording office, except such as may have been filed relating to this Agreement. (c) Assuming continuous possession by the Collateral Agent on behalf of the Secured Parties entitled to the benefit thereof pursuant to the terms hereof, the pledge of each of the Pledged Debt and Pledged Securities pursuant to this Agreement creates a valid and first priority perfected security interest in the Pledged Debt and Pledged Securities, respectively. (d) All shares of capital stock described on Schedule II are duly ----------- authorized, validly issued, fully paid and non-assessable. (e) The Pledged Debt described on Schedule I constitutes 100% of the ---------- outstanding indebtedness of the Bank to the Grantor and its Affiliates (excluding any indebtedness arising from deposit accounts or bank accounts maintained by the Grantor and its Affiliates with the Bank) and the Pledged Securities described on Schedule II represent 100% of the total issued and ----------- outstanding shares of capital stock of the Bank. (f) The execution and delivery of this Agreement and the performance by the Grantor of its obligations hereunder are within the Grantor's corporate power, have been duly authorized by all necessary corporate action and do not and will not contravene or conflict with any provision of law or of the organizational documents of the Grantor or of any agreement, indenture, instrument or other document, or any judgment, order or decree, which is binding upon the Grantor. (g) This Agreement is a legal, valid and binding obligation of the Grantor, enforceable in accordance with its terms, except that the enforceability of this Agreement may be limited by bankruptcy, insolvency, fraudulent conveyance, fraudulent transfer, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and creates a valid and, after all appropriate financing statements are filed, first priority security interest in the Collateral and such security interest is entitled to all rights, priorities and benefits afforded by the Uniform Commercial Code in effect in the State of California (the "Uniform ------- Commercial Code"). --------------- SECTION 5. Further Assurances. ------------------ (a) The Grantor agrees from time to time that, at the expense of the Grantor, the Grantor will promptly execute and deliver all further instruments and documents, and take all further action required, or that the Collateral Agent may reasonably request, in order to perfect, protect and maintain the priority of any pledge, assignment or security interest granted or purported to be granted hereunder or to enable the Collateral Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. 4 (b) The Grantor hereby authorizes the Collateral Agent on behalf of the Secured Parties entitled to the benefit thereof pursuant to the terms hereof to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Collateral without the signature of the Grantor where permitted by law. A photocopy or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. SECTION 6. Voting Rights; Dividends; Payments; etc. --------------------------------------- (a) Until the occurrence of an Event of Default and the continuance thereof beyond any grace period applicable thereto: (i) The Grantor shall be entitled to exercise any and all voting or consensual rights and powers and stock purchase or subscription rights relating or pertaining to the Pledged Securities for any purpose; (ii) The Grantor shall be entitled to receive and retain any and all lawful dividends payable in respect of the Pledged Securities which are paid in cash by any issuer, but all dividends and distributions in respect of such Collateral or any part thereof made in shares of stock or other property or representing any return of capital, whether resulting from a subdivision, combination or reclassification of such Collateral or any part thereof or received in exchange for such Pledged Securities or any part thereof or as a result of any merger, consolidation, acquisition or other exchange of assets to which any issuer of Pledged Securities may be a party or otherwise or as a result of any exercise of any stock purchase or subscription right, shall be and become part of the Collateral hereunder and, if received by the Grantor, shall be forthwith delivered to the Collateral Agent on behalf of the Secured Parties in due form for transfer (i.e., endorsed in blank or accompanied by stock or bond powers executed in blank) to be held for the purposes of this Agreement. (iii) The Collateral Agent shall execute and deliver, or cause to be executed and delivered, to the Grantor, all such proxies, powers of attorney, dividend orders and other instruments as the Grantor may request in writing (upon which the Collateral Agent may fully rely) for the purpose of enabling the Grantor to exercise the rights and powers which it is entitled to exercise pursuant to subclause (i) ------------- above and to receive the dividends which it is authorized to retain pursuant to subclause (ii) above. -------------- (iv) The Grantor shall be entitled to (A) collect all regular payments made or proceeds received with respect to the Pledged Debt and (B) enforce and prosecute all rights and remedies available under any of the Pledged Debt. (v) For all purposes under this Agreement, "Event of Default" means (A) prior to the Debt Exchange Closing Date, an Event of Default as defined in the Senior Secured Debt, (B) from and after the Debt Exchange Closing Date and 5 so long as any Senior Secured Debt shall remain outstanding, an Event of Default as defined in the Exchange Notes Indenture or in the Senior Secured Debt, (C) after the Senior Secured Debt has been paid in full, an Event of Default as defined in the Exchange Notes Indenture and (D) after the Senior Secured Debt and the Exchange Notes have been paid in full, an Event of Default as defined in the Secured Convertible Subordinated Debt. (b) After the occurrence of an Event of Default and the continuance thereof beyond any grace period applicable thereto, all rights and powers which the Grantor is entitled to exercise pursuant to Section 6(a)(i) --------------- hereof, and all rights of the Grantor to receive and retain dividends pursuant to Section 6(a)(ii) hereof, and all rights of the Grantor to ---------------- receive payments pursuant to Section 6(a)(iv) hereof, shall forthwith ---------------- cease, and all such rights and powers shall thereupon become vested in the Collateral Agent which shall have, during the continuance of such Event of Default, the sole and exclusive authority to exercise such rights and powers and to receive such dividends and payments. Any and all money and other property paid over to or received by the Collateral Agent pursuant to this clause (b) shall be retained by the Collateral Agent as additional ---------- Collateral hereunder and applied in accordance with the provisions hereof. SECTION 7. Place of Perfection; Records. The Grantor shall keep its ---------------------------- chief place of business and chief executive office and the office where it keeps its records concerning the Collateral, at the location therefor specified on Schedule III or, upon prior written notice to the Collateral Agent, at such - ------------ other locations in a jurisdiction where all actions required by Section 5 shall --------- have been taken with respect to the Collateral. SECTION 8. Transfers and Other Liens; Additional Shares. Except as -------------------------------------------- otherwise permitted under the Recapitalization Agreement, the Grantor shall not (a) sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the Collateral, or (b) create or suffer to exist any Lien upon or with respect to any of the Collateral. SECTION 9. (a) Appointment and Authorization of Collateral Agent. By ------------------------------------------------- acceptance of the Senior Secured Debt or execution and delivery of the Exchange Notes Indenture or the Subordinated Debt Indenture, as the case may be, each Secured Party hereby irrevocably designates and appoints WTC as the Collateral Agent of such Secured Party under this Agreement and each Secured Party hereby irrevocably authorizes the Collateral Agent to execute this Agreement and (i) to take action on its behalf and exercise such powers and use such discretion as are expressly permitted hereunder and all instruments relating hereto and thereto and (ii) to exercise such powers and perform such duties as are, in each case, expressly delegated to the Collateral Agent by terms hereof and thereof together with such other powers and discretion as are reasonably incidental hereto and thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Collateral Agent shall not have any duties or responsibilities except those expressly set forth herein or therein or any fiduciary relationship with any Secured Party and no 6 implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Collateral Agent. (b) Delegation of Duties. The Collateral Agent may exercise its -------------------- powers and execute any of its duties under this Agreement by or through employees, agents or attorneys-in-fact and shall be entitled to take and to rely on advice of counsel concerning all matters pertaining to such powers and duties. The Collateral Agent may use the services of such persons as the Collateral Agent in its sole discretion may determine and all reasonable fees and expenses of such persons shall be borne by the Grantor. (c) Exculpatory Provisions. Neither the Collateral Agent nor any ---------------------- of its officers, partners, directors, employees, agents, attorneys-in-fact or Affiliates shall be (i) liable for any action taken or omitted to be taken by it or such Person under or in connection with this Agreement or any Collateral (except for its or such person's own gross negligence or willful misconduct), or (ii) responsible in any manner to any of the Secured Parties for any recitals, statements, representations or warranties made by the Grantor or any officer thereof contained in, or made or deemed to be made in connection with, any Senior Secured Debt, Convertible Subordinated Debt, Exchange Notes, or this Agreement or in any certificate, report, statement or other document referred to or provided for in, or received by the Collateral Agent under or in connection with, this Agreement or any Senior Secured Debt, Convertible Subordinated Debt or Exchange Notes, or for the due execution, legality, validity, effectiveness, genuineness, enforceability or sufficiency of the Senior Secured Debt, Convertible Subordinated Debt, Exchange Notes or this Agreement or any other document or instrument furnished pursuant thereto or for any failure of the Grantor to perform its obligations thereunder. The Collateral Agent shall be under no obligation to the Secured Parties to ascertain or to inquire as to the observance or performance of any of the agreements contained in, statements made in, or conditions of the Senior Secured Debt, Convertible Subordinated Debt, Exchange Notes or this Agreement or to inspect the property, including the books and records, of the Grantor. (d) Reliance by the Collateral Agent. The Collateral Agent shall -------------------------------- be entitled to rely, and shall be fully protected and shall incur no liability in acting and relying, upon any writing, resolution, notice, consent, certificate, affidavit, telegram, telecopy, telex or teletype message, statement, order or other document or telephone conversation reasonably believed by it to be genuine and correct and to have been signed, sent or made by the proper person or persons and upon advice and statements of legal counsel, including without limitation counsel to the Grantor, independent accountants and other experts selected by the Collateral Agent. Without limiting the generality of the foregoing, the Collateral Agent may treat the payee of any Senior Secured Debt, Convertible Subordinated Debt or Exchange Note as the registered holder thereof until it receives notice or otherwise has actual knowledge that such payee is no longer the registered holder of such Senior Secured Debt or Exchange Note. Notwithstanding anything to the contrary contained herein, the Collateral Agent shall be fully justified in failing or refusing to take action under this Agreement, including without limitation the exercise of any rights or remedies under, or the entering into of any agreement amending, modifying, supplementing, waiving any provision of, or the giving of consent pursuant 7 to, any provision of this Agreement, unless it shall first receive instructions of the Required Noteholders (as defined below) as contemplated by Section 10 hereof and it shall first be indemnified to its reasonable ---------- satisfaction by the Senior Secured Debt Purchasers, the holders of the Exchange Notes and/or the Convertible Subordinated Debt Purchasers against any and all liability and expense that may be incurred by it by reason of taking, continuing to take or refraining from taking any such action. For the purpose hereof, the "Required Noteholders" shall mean, at any time, -------------------- the holders of at least 51% of the outstanding principal amount of all Senior Secured Debt, until such time as no Senior Secured Debt shall be outstanding, at which time "Required Noteholders" shall mean the Senior Debt Trustee acting at the direction of the holders of a majority in principal amount of the then outstanding Exchange Notes as provided in Section 6.05 of the Exchange Notes Indenture, until such time as no Exchange Notes shall be outstanding, at which time "Required Noteholders" shall mean the Subordinated Debt Trustee acting at the direction of the holders of a majority in principal amount of the then outstanding Convertible Subordinated Notes as provided in Section 6.05 of the Subordinated Debt Indenture. The Collateral Agent shall in all such cases be fully protected in acting or in refraining from acting under this Agreement in accordance with the provisions of Section 10(e) hereof and in ------------- accordance with written instructions and any action taken or any failure to act pursuant thereto shall be binding upon all the Secured Parties and all other holders from time to time of the Senior Secured Debt and Exchange Notes. (e) Knowledge or Notice of Default and Event of Default. The --------------------------------------------------- Collateral Agent shall not be deemed to have actual, constructive, direct or indirect knowledge or notice of the occurrence of any Default or Event of Default unless and until the Collateral Agent has received written notice from a Secured Party or the Grantor describing such Default (as defined below) or Event of Default, setting forth in reasonable detail the facts and circumstances thereof and stating that the Collateral Agent may rely on such notice without further inquiry. The Collateral Agent shall have no obligation or duty prior to or after receiving any such notice to inquire whether a Default or Event of Default has in fact occurred and shall be entitled to rely, and shall be fully protected in so relying, on any such notice furnished to it. For the purpose hereof, "Default" means (A) prior to the Debt Exchange Closing Date, a Default as defined in the Senior Secured Debt, (B) from and after the Debt Exchange Closing Date and so long as any Senior Secured Debt shall remain outstanding, a Default as defined in the Exchange Notes Indenture or the Senior Secured Notes, (C) after the Senior Secured Debt has been paid in full, a Default as defined in the Exchange Notes Indenture and (D) after the Exchange Notes have been paid in full, a Default as defined in the Subordinated Debt Indenture. (f) Non-Reliance on Collateral Agent and Other Secured Parties. By ---------------------------------------------------------- acceptance of the Senior Secured Debt or execution and delivery of the Exchange Notes Indenture or the Subordinated Debt Indenture, as the case may be, each Secured Party expressly acknowledges that, except as expressly set forth in this Agreement, neither the Collateral Agent nor any of the Collateral Agent's partners, officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Collateral Agent hereinafter taken, including any review of the affairs of the Grantor, shall be deemed to constitute any representation or warranty by the Collateral Agent to any Secured Party. Except for notices, reports and 8 other documents expressly required to be furnished by the Collateral Agent hereunder, the Collateral Agent shall not have any duty or responsibility to provide the Secured Parties with any credit or other information concerning the business, operations, property, financial and other condition and credit-worthiness of the Grantor that may come into the possession of the Collateral Agent or any of its partners, officers, directors, employees, agents, attorneys-in-fact or Affiliates. (g) Indemnification. The Grantor agrees to indemnify WTC from and --------------- against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever that may at any time, including, without limitation, at any time following the payment of the Secured Obligations, be imposed on, incurred by or asserted against the Collateral Agent in any way relating to or arising out of its capacity as Collateral Agent or the Recapitalization Agreement or the Related Agreements or actions or omissions of the Collateral Agent specifically required or permitted by this Agreement or by written instructions of the Required Noteholders pursuant to Section 10(c) ------------- hereof, including without limitation, costs incurred in performance of its duties under Section 9(a), provided that the Grantor shall not be liable ------------ for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the Collateral Agent's gross negligence of willful misconduct. The agreements in this Section 9(g) shall survive ----------- the payment of the Secured Obligations and the termination of this Agreement. (h) Collateral Agent in its Individual Capacity. The Collateral ------------------------------------------- Agent and its Affiliates may generally engage in any kind of business with the Grantor as though such person was not the Collateral Agent hereunder and without any duty to account therefore to the Secured Parties. (i) Successor Collateral Agent. -------------------------- (i) The Collateral Agent may resign at any time upon 60 days notice to the Secured Parties and Grantor and may be removed at any time, with or without cause, by the Required Noteholders by written notice delivered to the Grantor, the Collateral Agent and the Secured Parties. After any resignation or removal hereunder of the Collateral Agent, the provisions of this Section 9(i) shall continue to inure to ------------ its benefit as to any actions taken or omitted to be taken by it in connection with its agency hereunder while it was the Collateral Agent under this Agreement and it shall be entitled to be paid promptly when due any amounts owing to it pursuant to Section 9.6. ----------- (ii) Upon receiving notice of any such resignation or removal, a successor Collateral Agent shall be appointed by the Required Noteholders, provided, however, that such successor Collateral Agent shall be (A) a Person having a combined capital and surplus of at least $50 million and (B) authorized under bylaw to assume the functions of the Collateral Agent. If the appointment of such successor shall not have become effective, as provided below, within such 60-day period after the Collateral Agent's resignation or upon removal of the 9 Collateral Agent, then the Collateral Agent may petition a court of competent jurisdiction for the appointment of a Collateral Agent. Such court shall, after such notice as it may deem proper, appoint a successor Collateral Agent meeting the qualifications specified in this Section 9(i)(ii). ---------------- (iii) The resignation or removal of a Collateral Agent shall become effective upon the execution and delivery of such documents or instruments as are necessary to transfer the rights and obligations of the Collateral Agent under this Agreement, including without limitation, the delivery and recordation of all amendments, instruments, financing statements, continuation statements and other documents necessary to maintain the perfection of the security interests held by the Collateral Agent under this Agreement. Copies of each such document or instrument shall be delivered to all Secured Parties. The appointment of a successor Collateral Agent pursuant to this Section 9(i) shall become effective upon the acceptance of the ------------ appointment as Collateral Agent hereunder by a successor Collateral Agent. Upon such effective appointment, the successor Collateral Agent shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Collateral Agent and the retiring Collateral Agent shall be discharged from its rights, powers, privileges and duties under this Agreement, but shall remain liable for its actions prior to and including such date of discharge. SECTION 10. Actions by the Collateral Agent. ------------------------------- (a) Duties and Obligations. The duties and obligations of the ---------------------- Collateral Agent are only those set forth in this Agreement. (b) Notification of Default. If the Collateral Agent has been ----------------------- notified in a writing conforming to the requirements of Sections 9 (d) and -------------- (e) by any Secured Party or Grantor that a Default or an Event of Default --- has occurred, the Collateral Agent shall promptly furnish, and in any event no later than three Business Days after receipt of such notice, to the Secured Parties a copy of such written notice (a "Default Notice"). The -------------- failure of any Secured Party having knowledge of the occurrence of a Default or an Event of Default to notify the Collateral Agent or any Secured Party of such occurrence, however, does not constitute a waiver of such Default or Event of Default by the Secured Parties. If the Required Noteholders have not given prior instructions to the Collateral Agent, the Default Notice may contain a recommendation of actions to be taken by the Secured Parties and/or request instructions from the Secured Parties and shall specify the date on which responses are due in order to be timely within Section 10(d) hereof. If the Required Noteholders have given ------------- prior instructions to the Collateral Agent, the Collateral Agent shall take the actions requested by the Required Noteholders and the Default Notice shall inform the other Secured Parties of such actions. (c) Exercise of Remedies. Except as otherwise provided in Section -------------------- 10(e) and Section 21, the Collateral Agent shall take only such actions ----- ---------- and exercise only such remedies under this Agreement as are approved in written instructions delivered to the Collateral Agent and signed by the Required Noteholders. If the Collateral Agent shall 10 determine in good faith that taking the actions specified in such instructions is contrary to law, it may refrain, and shall be fully protected in so refraining, from taking such action and shall immediately give notice of such fact to each of the Secured Parties. If instructions received by the Collateral Agent are in its good faith judgment ambiguous or conflict with other instructions received by the Collateral Agent, the Collateral Agent (a) shall promptly notify the Secured Parties of such ambiguity or conflict and request clarifying instructions, and (b) may either (1) delay in taking any such action or exercising any such remedy pending receipt of such clarifying instructions, and shall be fully protected in so delaying, or (2) take such actions as it is entitled under Section 10(e). ------------- (d) Instructions from Senior Secured Debt Purchasers. If any ------------------------------------------------ Senior Secured Debt Purchaser does not respond in a timely manner to any notice, including without limitation a Default Notice, from the Collateral Agent or request for instructions within the time period specified by the Collateral Agent in such notice or request for instructions, which shall be a minimum of five Business Days, the Senior Secured Debt held by such Senior Secured Debt Purchaser that would otherwise be included in a determination of Required Noteholders shall not be included in the determination of Required Noteholders for purposes of such notice or request for instructions. Any action taken or not taken without the vote of a Senior Secured Debt Purchaser under this Section 10(d) shall nevertheless ------------- be binding on such Senior Secured Debt Purchaser. (e) Emergency Actions. If the Collateral Agent has asked the ----------------- Secured Parties for instructions and if the Required Noteholders have not yet responded to such request, the Collateral Agent shall be authorized to take, but shall not be required to take and shall in no event have any liability for the taking or the failure to take, such actions, other than any action described or permitted under Section 21 hereof, with regard to a ---------- Default or Event of Default that the Collateral Agent, in good faith, believes to be reasonably required to promote and protect the interests of the Secured Parties and to maximize both the value of the Collateral and the present value of the recovery by the Secured Parties on the Secured Obligations and shall give the Secured Parties appropriate notice of such action, provided that once instructions with respect to such request have been received by the Collateral Agent from the Required Noteholders, the actions of the Collateral Agent shall be governed thereby and the Collateral Agent shall not take any further action that would be contrary thereto. (f) Other Actions. The Collateral Agent shall have the right to ------------- take such actions, or omit to take such actions, hereunder and not inconsistent with the written instructions of the Required Noteholders delivered pursuant to Section 10(c) hereof, including actions the ------------- Collateral Agent deems necessary or appropriate to perfect or continue the perfection of the liens on the Collateral for the benefit of the Secured Parties. Except as otherwise provided by the applicable law, the Collateral Agent shall have no duty as to any Collateral, the perfection, protection or maintenance of any pledge, assignment or security interest in the Collateral, the collection or protection of the Collateral or any income thereon, including any duty to ascertain or take action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not the Collateral Agent has or is deemed to have knowledge of such matters, nor as to the 11 preservation of rights against prior parties, nor as to the preservation of rights pertaining to the Collateral beyond the safe custody of any Collateral in the Collateral Agent's actual possession. (g) Cooperation. To the extent that the exercise of the rights, ----------- powers and remedies of the Collateral Agent in accordance with this Agreement requires that any action be taken by any Secured Party, by acceptance of the Senior Secured Debt or the Exchange Notes, as the case may be, such Secured Party agrees to take such action and cooperate with the Collateral Agent to ensure that the rights, powers and remedies of all Noteholders are exercised in full. (h) Distribution of Proceeds. All amounts owing with respect to ------------------------ the Secured Obligations shall be secured by the Collateral without distinction as to whether some Secured Obligations are then due and payable and other Secured Obligations are not then due and payable. Upon any realization upon the Collateral, by acceptance of the Senior Secured Debt or execution and delivery of the Exchange Notes Indenture or the Subordinated Debt Indenture, as the case may be, the Secured Parties agree that the proceeds thereof shall be applied, (i) first, to the amounts owing by the Grantor to the Collateral Agent solely in its capacity as Collateral Agent hereunder pursuant to this Agreement, (ii) second, ratably to the payment of all amounts of interest outstanding on the Senior Secured Debt according to the aggregate amounts of such interest then owing to each Senior Secured Debt Purchaser, (iii) third, ratably to all amounts of principal outstanding under the Senior Secured Debt according to the aggregate amounts of such principal then owing to each Senior Secured Debt Purchaser, (iv) fourth, ratably to all other amounts then due to the Senior Secured Debt Purchasers, including fees and expenses, (v) fifth, to all fees and out-of-pocket expenses owed to the Senior Debt Trustee and Subordinated Debt Trustee under the Exchange Note Indenture and the Subordinated Debt Indenture, as the case may be, (vi) sixth, ratably to the payment of all amounts of interest outstanding on the Exchange Notes according to the aggregate amounts of such interest then owing to each holder thereof, (vii) seventh, ratably to all amounts of principal outstanding under the Exchange Notes according to the aggregate amounts of principal then owing to each holder thereof, (viii) eighth, ratably to all other amounts then due to the holders of the Exchange Notes, including fees and expenses, (ix) ninth, ratably to the payment of all amounts of interest outstanding on the Convertible Subordinated Debt according to the aggregate amounts of interest then owing to each Convertible Subordinated Debt Purchaser, (x) tenth, ratably to all amounts of principal outstanding under the Convertible Subordinated Debt according to the aggregate amounts of principal then owing to each Convertible Subordinated Debt Purchaser, (xi) eleventh, ratably to all other amounts then due to the Convertible Subordinated Debt Purchasers, including fees and expenses and (xii) twelfth, the balance, if any, shall be returned to the Grantor or such other Persons as are entitled thereto. Upon the request of the Collateral Agent prior to any distribution under this Section 10(h), each Secured ------------- Party shall provide to the Collateral Agent certificates, in form and substance reasonably satisfactory to the Collateral Agent, setting forth the respective amounts referred to in clauses (ii) through (xi) above that each such Secured Party believes it is entitled to receive, together with such wire transfer information or other payment instructions as the Collateral Agent may reasonably request. 12 (i) Authorized Investments. Prior to any realization upon the ---------------------- Collateral, any and all funds held by the Collateral Agent in its capacity as Collateral Agent, whether pursuant to any provision of this Agreement shall, to the extent feasible, within a reasonable time, be invested by the Collateral Agent in Permitted Investments (as defined on Schedule IV). Prior to making such investment or to the extent it is not feasible to invest such funds in Permitted Investments, the Collateral Agent shall hold any such funds in an interest bearing account. By acceptance of the Senior Secured Debt or the Exchange Notes, as the case may be, each Secured Party authorizes the Collateral Agent to open such an account. Any interest earned on such funds shall be retained in such account until there shall be a realization on the Collateral, at which time such funds shall be disbursed to the Secured Parties in accordance with Section 10(h). The ------------- Collateral Agent shall have no duty to place funds held and invested pursuant to this Section 10(i) in investments that provide for a maximum ------------- return. The Collateral Agent shall not be responsible for any loss of any funds invested in accordance with this Section 10(i). ------------- SECTION 11. Priority of Notes. ----------------- (a) From and after the Debt Exchange Closing Date until all Senior Secured Debt shall have been paid in full, exchanged for Exchange Notes or otherwise retired, in the event of: (i) the occurrence of an Event of Default (as such term is defined in the Senior Secured Debt) and continuance thereof beyond any grace period provided in the Senior Secured Debt; (ii) any acceleration of the maturity of any other indebtedness of the Grantor, or (iii) the institution of any liquidation, dissolution, bankruptcy, insolvency or similar proceeding relating to the Grantor, its property, or its creditors as such, the holders of the Exchange Notes and the Convertible Subordinated Debt Purchasers shall not be entitled to receive and, by execution and delivery of the Exchange Notes Indenture or the Subordinated Debt Indenture, as the case may be, the Senior Debt Trustee and the Subordinated Debt Trustee, on behalf of the holders of the Exchange Notes and the Convertible Subordinated Debt Purchasers, agree not to accept, any payment of principal or interest until all amounts owing in respect of the Senior Secured Debt shall have been paid in full; and from and after the happening of any event described in clause (iii) of this subsection (a) of Section 11, all payments and distributions of any kind or ---------- character (whether in cash, securities or property) which, except for the provisions hereof, would have been payable or distributable to or for the benefit of the holders of the Exchange Notes or the Convertible Subordinated Debt Purchasers, shall be made to and for the benefit of the Senior Secured Debt Purchasers (who shall be entitled to make all necessary claims therefore) in accordance with the priorities of payment set forth herein until all Senior Secured Debt shall have been paid in full. In the event that any payment or distribution is made with respect to the Exchange 13 Notes or the Convertible Subordinated Debt in violation of the terms hereof, any Secured Party receiving such payment or distribution shall (and, by acceptance of the Exchange Notes or the Convertible Subordinated Debt, agrees to) hold it in trust for the benefit of, and shall remit it to, the Senior Secured Debt Purchasers in accordance with the priorities of payment set forth herein. (b) From and after all Senior Secured Debt shall have been paid in full, exchanged for Exchange Notes or otherwise retired, and until the Exchange Notes shall have been paid in full or otherwise retired, in the event of: (i) the occurrence of an Event of Default (as such term is defined in the Exchange Notes Indenture) and continuance thereof beyond any grace period provided in the Exchange Notes Indenture; (ii) any acceleration of the maturity of any other indebtedness of the Grantor, or (iii) the institution of any liquidation, dissolution, bankruptcy, insolvency or similar proceeding relating to the Grantor, its property, or its creditors as such, the Convertible Subordinated Debt Purchasers shall not be entitled to receive and, by execution and delivery of the Subordinated Debt Indenture, the Subordinated Debt Trustee, on behalf of the holders of the Convertible Subordinated Debt agree not to accept, any payment of principal or interest until all amounts owing in respect of the Exchange Notes shall have been paid in full; and from and after the happening of any event described in clause (iii) of this subsection (b) of Section 11, all payments and distributions of any kind ---------- or character (whether in cash, securities or property) which, except for the provisions hereof, would have been payable or distributable to or for the benefit of the Convertible Subordinated Debt Purchasers, shall be made to and for the benefit of the holders of the Exchange Notes (who shall be entitled to make all necessary claims therefore) in accordance with the priorities of payment set forth herein until all Exchange Notes shall have been paid in full. In the event that any payment or distribution is made with respect to the Convertible Subordinated Debt in violation of the terms hereof, any Secured Party hereof receiving such payment or distribution shall (and, by acceptance of the Convertible Subordinated Debt, agrees to) hold it in trust for the benefit of, and shall remit it to, the holders of the Exchange Notes in accordance with the priorities of payment set forth herein. SECTION 12. Status of Security Interests. ---------------------------- (a) From and after the Debt Exchange Closing Date until all Senior Secured Debt shall have been paid in full, exchanged for Exchange Notes or otherwise retired, the Collateral Agent, the Senior Debt Trustee, the Subordinated Debt Trustee, and, by acceptance of the Senior Secured Debt, the Exchange Notes or the Convertible Subordinated Debt, as the case may be, the Senior Secured Debt Purchasers, the holders of Exchange Notes and the Convertible Subordinated Debt Purchasers hereby agree that 14 (i) all of the Senior Secured Debt Purchasers' security interests, liens, and other collateral interests in the Collateral and all of the Senior Secured Debt Purchasers' rights and remedies, under law, agreement, or otherwise, exercisable pursuant thereto (all of which interests and rights are herein called the "Senior Rights") shall be senior and superior to (ii) -------------- all of the holders of the Exchange Notes', the Senior Debt Trustee's, the Convertible Subordinated Debt Purchasers' and the Subordinated Debt Trustee's security interests, liens and other collateral interests in the Collateral and all of the holders of Exchange Notes', the Senior Debt Trustee's, the Convertible Subordinated Debt Purchasers' and the Subordinated Debt Trustee's rights and remedies, under law, agreement or otherwise, exercisable pursuant thereto (all of which interests and rights are herein called the "Junior Rights"). ------------- (b) From and after all Senior Secured Debt shall have been paid in full, exchanged for Exchange Notes or otherwise retired and until the Exchange Notes have been paid in full or otherwise retired, the Collateral Agent, the Senior Debt Trustee, the Subordinated Debt Trustee and, by acceptance of the Convertible Subordinated Debt or the Exchange Notes, as the case may be, the Convertible Subordinated Debt Purchasers and the holders of Exchange Notes hereby agree that (i) all of the Senior Debt Trustee's and the holders of Exchange Notes' security interests, liens, and other collateral interests in the Collateral and all of the Senior Debt Trustee's and the holders of Exchange Notes' rights and remedies, under law, agreement, or otherwise, exercisable pursuant thereto (all of which interests and rights are herein called the "Senior Rights") shall be senior ------------- and superior to (ii) all of the Convertible Subordinated Debt Purchasers' and the Subordinated Debt Trustee's security interests, liens and other collateral interests in the Collateral and all of the Convertible Subordinated Debt Purchasers' and the Subordinated Debt Trustee's rights and remedies, under law, agreement or otherwise, exercisable pursuant thereto (all of which interests and rights are herein called the "Junior ------ Rights"). ------ (c) For purposes hereof, a party whose security interests are "senior and superior" (as described in Sections 12(a) and 12(b)) shall possess the -------------- ----- right, in its absolute discretion, (i) to make all decisions on the disposition of any Collateral in which such party's security interests are "senior and superior" (including, without limitation, foreclosing on such collateral or refraining from foreclosing), notwithstanding that any or all of the Grantor's obligations to the holders of the Junior Rights (as defined for purposes of Sections 12(a) and 12(b), as applicable) may be due -------------- ----- and owing or the Grantor may be in default in any other manner with regard to its obligations to the holders of the Junior Rights, (ii) to exercise or not exercise all rights granted to such secured party with regard to all or any of such Collateral, (iii) to act on behalf of the holders of the Junior Rights as their agent, not, however, at the direction of the holders of the Junior Rights, but with full right and authority to make the judgments and to take the actions such agent would be permitted to accomplish in its own right with regard to its own Collateral pursuant to clauses (i) and (ii) of this sentence and (iv) to apply all proceeds obtained from Collateral on account of the Senior Rights (as defined for purposes of Sections 12(a) and -------------- 12(b), as applicable), in such order as the holder of the Senior Rights ----- shall determine. SECTION 13. Agreement Available Only to Parties and Collateral Agent. -------------------------------------------------------- Notwithstanding anything to the contrary herein, the parties hereto have entered into this 15 Agreement solely for their own benefit and in order to establish solely with respect to each other and not with respect to the Grantor their respective rights to payment of the Secured Obligations, their respective rights to the proceeds of the Collateral and their respective rights and priorities with respect to certain other matters, all as more fully set forth herein. No person or entity other than the parties hereto shall have any rights, whether as third party beneficiary or otherwise, under this Agreement, and no agreement, statement or provision of this Agreement shall be deemed to be an admission by or against any of the parties hereto or be used by any person or entity, except the parties hereto, for any purpose whatsoever. SECTION 14. Rights Unaffected. The relative rights of the parties ----------------- herein in and to the Collateral set out in this Agreement shall be unaffected by any consent or waiver with respect to, or renewal or extension of, the Secured Obligations. SECTION 15. Collateral Agent's Fees, Costs and Expenses. Grantor agrees ------------------------------------------- to pay such fees to the Collateral Agent as mutually agreed from time to time and to pay all reasonable out-of-pocket costs and expenses of the Collateral Agent. SECTION 16. Remedies. If any Event of Default shall have occurred and be -------- continuing beyond any grace period applicable thereto: (a) The Collateral Agent may exercise in respect of the Collateral, in addition to all other rights and remedies provided for herein or otherwise available to it under applicable law, all the rights and remedies of a secured party upon default under the Uniform Commercial Code (whether or not the Uniform Commercial Code applies to the affected Collateral) and also may (i) require the Grantor to, and the Grantor hereby agrees that it shall at its expense and upon request of the Collateral Agent forthwith, assemble all or part of the Collateral as directed by the Collateral Agent and make it available to the Collateral Agent at a place to be designated by the Collateral Agent that is reasonably convenient to both parties, and (ii) without notice, except as specified below, advertisement, hearing or process of law of any kind, sell the Collateral or any part thereof in one or more parcels free and clear of all rights and claims of the Grantor at public or private sale, for cash, on credit or for future delivery, and upon such other terms as the Collateral Agent may deem commercially reasonable. The Grantor agrees that, to the extent notice of sale shall be required by law, at least 10 Business Days' notice to the Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. (b) All cash proceeds received in respect of any sale of, collection from, or other realization upon all or any part of the Collateral may be held by the Collateral Agent as collateral for, and/or then or at any time thereafter applied (after payment of any fees and expenses of the Collateral Agent) in whole or in part against, all or any part of the Secured Obligations. Any surplus of such cash or cash proceeds remaining after payment in full of all the Secured Obligations shall be promptly paid over to the Grantor or to whomsoever may be lawfully entitled to receive such surplus. (c) The Collateral Agent is hereby authorized to comply with any limitation or restriction in connection with any sale of Collateral as it may be advised by counsel is 16 necessary in order to (i) avoid any violation of applicable law (including, without limitation, compliance with such procedures as may restrict the number of prospective bidders and purchasers and/or further restrict such prospective bidders or purchasers to persons or entities who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Collateral) or (ii) obtain any required approval of the sale or of the purchase by any governmental regulatory authority or official. SECTION 17. Establishing Required Noteholders. In order to establish what --------------------------------- constitutes the Required Noteholders, the Collateral Agent may request from time to time, and, by acceptance of the Senior Secured Debt, the Senior Secured Debt Purchasers agree to provide, certificates setting forth the amount of the Senior Secured Debt held or represented by each Senior Secured Debt Purchaser, which certificates the Collateral Agent shall be entitled to rely on. SECTION 18. Amendments: Waivers; Etc. No amendment or waiver of any ------------------------ provision of this Agreement, and no consent to any departure by the Grantor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Collateral Agent and the Grantor, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 19. Addresses for Notices. All notices and other communications --------------------- provided to the parties hereto shall be in writing or by facsimile and addressed, delivered or transmitted to such party at its address or facsimile number set forth below its signature hereto or at such other address or facsimile number as may be designated by such party in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier service, shall be deemed given when received; any notice, if transmitted by facsimile, shall be deemed given when transmitted. SECTION 20. Continuing Security Interest; Assignments under the --------------------------------------------------- Recapitalization Agreement. This Agreement shall create a continuing security - -------------------------- interest in the Collateral and shall: (a) remain in full force and effect until all Secured Obligations have been paid in full, (b) be binding upon the Grantor, its successors and assigns and (c) inure, together with the rights and remedies of the Secured Parties hereunder, to the benefit of the Secured Parties and their respective permitted successors, transferees and assigns. SECTION 21. Termination. When all Secured Obligations have been paid in ----------- full, the security interest granted hereby shall terminate and all rights to the Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof shall revert to the Grantor. Upon the termination of any such security interest, the Collateral Agent shall promptly return to the Grantor, upon the Grantor's request and at the Grantor's expense, such of the Collateral (and, in the case of a release, such of the released Collateral) held by the Collateral Agent as shall not have been sold or otherwise applied pursuant to the terms hereof. The Collateral Agent will, at the Grantor's expense, execute and deliver to the Grantor such other documents as the Grantor shall reasonably request to evidence such termination or release, as the case may be. 17 SECTION 22. Governing Law; Terms. THIS AGREEMENT SHALL BE GOVERNED BY AND -------------------- CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO CONFLICTS OF LAW PRINCIPLES, except to the extent that the validity or perfection of the security interest hereunder, or remedies hereunder, in respect of any particular Collateral are governed by the laws of a jurisdiction other than the State of New York and except that the rights and duties of WTC shall be governed by and construed in accordance with the laws of the State of Delaware. Unless otherwise defined herein or in the Recapitalization Agreement, terms used in Article 9 of the Uniform Commercial Code are used herein as therein defined. SECTION 23. Severability of Provisions. Any provision of this Agreement -------------------------- which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 24. Counterparts. This Agreement may be executed in any number of ------------ counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by facsimile shall be as effective as delivery of a manually executed counterpart of this Agreement. 18 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. IMPERIAL CREDIT INDUSTRIES, INC. By: ------------------------------------- Name: H. Wayne Snavely Title: Chief Executive Officer Address: 23550 Hawthorne Boulevard Building 1, Suite 110 Torrance, California 90505 Facsimile: (310) 791-373-9955 WILMINGTON TRUST COMPANY, in its capacity as Collateral Agent on behalf of the Secured Parties By: /s/ Joesph B. Feil ------------------------------------- Name: Joesph B. Feil Title: Senior Financial Services Officer Address: 1100 N. Market St. Wilmington, DE 19890 Facsimile: 302-651-8882 EFFECTIVE ON THE DEBT EXCHANGE CLOSING DATE: CHASE MANHATTAN BANK AND TRUST COMPANY, N.A., as Senior Debt Trustee for the holders of Exchange Notes By: /s/ Hans H. Helley ---------------------- Name: Hans H Helley Title: Vice President Address: ---------------------- ---------------------- Facsimile: ---------------------- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. IMPERIAL CREDIT INDUSTRIES, INC. By: /s/ H. Wayne Snavely ------------------------------------- Name: H. Wayne Snavely Title: Chief Executive Officer Address: 23550 Hawthorne Boulevard Building 1, Suite 110 Torrance, California 90505 Facsimile: (310) 791-373-9955 WILMINGTON TRUST COMPANY, in its capacity as Collateral Agent on behalf of the Secured Parties By: ------------------------------------- Name: Dan Reser Title: Vice President Address: ---------------------- ---------------------- Facsimile: ---------------------- EFFECTIVE ON THE SUBORDINATED DEBT PLACEMENT CLOSING DATE CHASE MANHATTAN BANK AND TRUST COMPANY, N.A., as Subordinated Debt Trustee for the Convertible Subordinated Debt Purchasers By: /s/ Hans H. Helley ------------------------------- Name: Hans H Helley Title: Vice President Address: 101 California St. #3800 San Francisco, CA 94111 Facsimile: hanhhelley@chase.com Schedule I Pledged Debt ------------ 1. Subordinated Note, dated March 31, 1997, issued to Imperial Credit Industries, Inc. in the current principal amount of Twenty Million Dollars ($20,000,000), due and payable in full on March 31, 2007. Schedule II Pledged Securities ------------------
Class of Certificate Number Issuer Capital Stock Number of Shares ------ -------------- ----------- --------- Southern Pacific Bank Series B Preferred Stock PB-1 36,000 Southern Pacific Bank Series A Preferred Stock PA-1 50,000 Southern Pacific Bank Common Stock 6 75,000 Southern Pacific Bank Common Stock 5 125,000 Southern Pacific Bank Common Stock 4 8,334
Schedule III Chief Place of Business and Chief Executive Office: 23550 Hawthorne Boulevard Building 1, Suite 110 Torrance, California 90505 Federal Tax Identification Number: 95-4054791 Schedule IV Permitted Investments (a) Securities issued or guaranteed by the United States of America or any subdivision, agency or instrumentality thereof, or money market mutual funds that invest solely in such obligations. (b) Securities issued by any state or municipality within the United States of America rated Aa or higher by Moody's Investors Service, Inc. or AA or higher by Standard & Poor's Rating's Services, a division of The McGraw- Hill Companies, Inc. ("S&P"). (c) Deposits in or certificates of deposit issued by a commercial bank which has combined capital and surplus in excess of $1 billion and which has, or the holding company of which has, a bond rating of at least A from Moody's Investors Service, Inc. or A1 by S&P. (d) Open market commercial paper rated P1 by Moody's Investors Service, Inc. or A1 by S&P. (e) Bankers' acceptances from banks referred to in paragraph (c) above. EX-10.3 5 dex103.txt INDENTURE FOR THE 12% SECURED CONVERTIBLE SUBORDIN EXHIBIT 10.3 ================================================================================ ____________________________________________ IMPERIAL CREDIT INDUSTRIES, INC. 12% SECURED CONVERTIBLE SUBORDINATED NOTES DUE 2005 ____________________________________________ INDENTURE Dated as of June 28, 2001 ____________________________________________ The Chase Manhattan Bank and Trust Company, National Association Trustee ____________________________________________ ================================================================================ CROSS-REFERENCE TABLE
Trust Indenture Act Section Indenture Section 310(a)(1).................................... 7.10 (a)(2).................................... 7.10 (a)(3).................................... N.A. (a)(4).................................... N.A. (a)(5).................................... 7.10 (b)....................................... 7.10 (c)....................................... N.A. 311(a)....................................... 7.11 (b)....................................... 7.11 (c)....................................... N.A. 312(a)....................................... 2.05 (b)....................................... 13.03 (c)....................................... 13.03 313(a)....................................... 7.06 (b)(1).................................... N.A. (b)(2).................................... 7.07 (c)....................................... 7.06;13.02 (d)....................................... 7.06 314(a)....................................... 4.03;13.02 (b)....................................... 11.02 (c)(1).................................... 13.04 (c)(2).................................... 13.04 (c)(3).................................... N.A. (e)....................................... 13.05 (f)....................................... N.A. 315(a)....................................... 7.01 (b)....................................... 7.05;13.02 (c)....................................... 7.01 (d)....................................... 7.01 (e)....................................... 6.11 316(a)(last sentence)........................ 2.09 (a)(1)(A)................................. 6.05 (a)(1)(B)................................. 6.04 (a)(2).................................... N.A. (b)....................................... 6.07 (c)....................................... N.A. 317(a)(1).................................... 6.08 (a)(2).................................... 6.09 (b)....................................... 2.04 318(a)....................................... 13.01 (b)....................................... N.A. (c)....................................... 13.01
N.A. means not applicable. * This Cross-Reference Table is not part of the Indenture. Table of Contents
Page ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE.............................................. 1 SECTION 1.01 DEFINITIONS............................................................ 1 SECTION 1.02 OTHER DEFINITIONS...................................................... 7 SECTION 1.03 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT...................... 8 SECTION 1.04 RULES OF CONSTRUCTION.................................................. 8 ARTICLE 2 THE NOTES............................................................................... 9 SECTION 2.01 FORM AND DATING........................................................ 9 SECTION 2.02 EXECUTION AND AUTHENTICATION........................................... 10 SECTION 2.03 REGISTRAR AND PAYING AGENT............................................. 10 SECTION 2.04 PAYING AGENT TO HOLD MONEY IN TRUST.................................... 10 SECTION 2.05 HOLDER LISTS........................................................... 11 SECTION 2.06 TRANSFER AND EXCHANGE.................................................. 11 SECTION 2.07 REPLACEMENT NOTES...................................................... 16 SECTION 2.08 OUTSTANDING NOTES...................................................... 16 SECTION 2.09 TREASURY NOTES......................................................... 17 SECTION 2.10 TEMPORARY NOTES........................................................ 17 SECTION 2.11 CANCELLATION........................................................... 17 SECTION 2.12 DEFAULTED INTEREST..................................................... 17 SECTION 2.13 CUSIP NUMBERS, ETC..................................................... 17 ARTICLE 3 REDEMPTION AND PREPAYMENT............................................................... 18 SECTION 3.01 NOTICES TO TRUSTEE..................................................... 18 SECTION 3.02 SELECTION OF NOTES TO BE REDEEMED...................................... 18 SECTION 3.03 NOTICE OF REDEMPTION................................................... 18 SECTION 3.04 EFFECT OF NOTICE OF REDEMPTION......................................... 19 SECTION 3.05 DEPOSIT OF REDEMPTION PRICE............................................ 19 SECTION 3.06 NOTES REDEEMED IN PART................................................. 19 SECTION 3.07 OPTIONAL REDEMPTION.................................................... 19 SECTION 3.08 MANDATORY REDEMPTION................................................... 19 ARTICLE 4 COVENANTS............................................................................. 20 SECTION 4.01 PAYMENT OF NOTES....................................................... 20 SECTION 4.02 MAINTENANCE OF OFFICE OR AGENCY........................................ 20 SECTION 4.03 REPORTS................................................................ 20 SECTION 4.04 COMPLIANCE CERTIFICATE................................................. 21
-i- Table of Contents (continued)
Page SECTION 4.05 TAXES.................................................................. 21 SECTION 4.06 STAY, EXTENSION AND USURY LAWS......................................... 21 SECTION 4.07 OTHER COVENANTS........................................................ 21 ARTICLE 5 SUCCESSORS............................................................................ 22 SECTION 5.01 MERGER, CONSOLIDATION OR SALE OF ASSETS................................ 22 SECTION 5.02 SUCCESSOR CORPORATION SUBSTITUTED...................................... 22 ARTICLE 6 DEFAULTS AND REMEDIES................................................................. 23 SECTION 6.01 EVENTS OF DEFAULT...................................................... 23 SECTION 6.02 ACCELERATION........................................................... 24 SECTION 6.03 OTHER REMEDIES......................................................... 24 SECTION 6.04 WAIVER OF PAST DEFAULTS................................................ 25 SECTION 6.05 CONTROL BY MAJORITY.................................................... 25 SECTION 6.06 LIMITATION ON SUITS.................................................... 25 SECTION 6.07 RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.......................... 25 SECTION 6.08 COLLECTION SUIT BY TRUSTEE............................................. 25 SECTION 6.09 TRUSTEE MAY FILE PROOFS OF CLAIM....................................... 26 SECTION 6.10 PRIORITIES............................................................. 26 SECTION 6.11 UNDERTAKING FOR COSTS.................................................. 26 ARTICLE 7 TRUSTEE............................................................................... 27 SECTION 7.01 DUTIES OF TRUSTEE...................................................... 27 SECTION 7.02 RIGHTS OF TRUSTEE...................................................... 28 SECTION 7.03 INDIVIDUAL RIGHTS OF TRUSTEE........................................... 28 SECTION 7.04 TRUSTEE'S DISCLAIMER................................................... 28 SECTION 7.05 NOTICE OF DEFAULTS..................................................... 29 SECTION 7.06 REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES............................. 29 SECTION 7.07 COMPENSATION AND INDEMNITY............................................. 29 SECTION 7.08 REPLACEMENT OF TRUSTEE................................................. 30 SECTION 7.09 SUCCESSOR TRUSTEE BY MERGER, ETC....................................... 31 SECTION 7.10 ELIGIBILITY; DISQUALIFICATION.......................................... 31 SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY...................... 31 SECTION 7.12 MONEY HELD IN TRUST.................................................... 31 SECTION 7.13 RIGHT OF TRUSTEE IN CAPACITY OF REGISTRAR OR PAYING AGENT.............. 31 ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE.............................................. 31
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Page SECTION 8.01 OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE............... 31 SECTION 8.02 LEGAL DEFEASANCE AND DISCHARGE......................................... 31 SECTION 8.03 COVENANT DEFEASANCE.................................................... 32 SECTION 8.04 CONDITIONS TO LEGAL OR COVENANT DEFEASANCE............................. 32 SECTION 8.05 DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS......................................... 33 SECTION 8.06 REPAYMENT TO COMPANY................................................... 34 SECTION 8.07 REINSTATEMENT.......................................................... 34 ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER...................................................... 34 SECTION 9.01 WITHOUT CONSENT OF HOLDERS OF NOTES.................................... 34 SECTION 9.02 WITH CONSENT OF HOLDERS OF NOTES....................................... 35 SECTION 9.03 COMPLIANCE WITH TRUST INDENTURE ACT.................................... 36 SECTION 9.04 REVOCATION AND EFFECT OF CONSENTS...................................... 36 SECTION 9.05 NOTATION ON OR EXCHANGE OF NOTES....................................... 36 SECTION 9.06 TRUSTEE TO SIGN AMENDMENTS, ETC........................................ 37 ARTICLE 10 SUBORDINATION......................................................................... 37 SECTION 10.01 NOTES SUBORDINATED TO SENIOR SECURED DEBT.............................. 37 SECTION 10.02 PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC......................... 37 SECTION 10.03 PAYMENTS MAY BE PAID PRIOR TO CERTAIN EVENTS........................... 38 SECTION 10.04 SUBROGATION............................................................ 38 SECTION 10.05 OBLIGATIONS OF THE COMPANY UNCONDITIONAL............................... 38 SECTION 10.06 NOTICE TO TRUSTEE AND PAYING AGENTS.................................... 38 SECTION 10.07 RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT......... 39 SECTION 10.08 TRUSTEE'S RELATION TO SENIOR SECURED DEBT.............................. 39 SECTION 10.09 SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF THE COMPANY................................................................ 39 SECTION 10.10 NOTEHOLDERS AUTHORIZE TRUSTEE AND PAYING AGENT TO EFFECTUATE SUBORDINATION OF NOTES................................................. 39 SECTION 10.11 TRUSTEE'S COMPENSATION NOT PREJUDICED.................................. 40 ARTICLE 11 SECURITY DOCUMENTS.................................................................... 40 SECTION 11.01 COLLATERAL AND SECURITY DOCUMENTS...................................... 40 SECTION 11.02 APPLICATION OF PROCEEDS OF COLLATERAL.................................. 40 SECTION 11.03 RELEASE OF COLLATERAL.................................................. 40 SECTION 11.04 CERTIFICATES OF THE COMPANY............................................ 41
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Page 41 SECTION 11.05 OPINION OF COUNSEL..................................................... 41 SECTION 11.06 RIGHTS OF TRUSTEE UNDER SECURITY AGREEMENT............................. 41 ARTICLE 12 CONVERSION............................................................................ 41 SECTION 12.01 CONVERSION PRIVILEGE; INTEREST TO CONVERSION DATE...................... 41 SECTION 12.02 CONVERSION PROCEDURE................................................... 42 SECTION 12.03 FRACTIONAL SHARES...................................................... 42 SECTION 12.04 TAXES ON CONVERSION.................................................... 43 SECTION 12.05 COMPANY TO PROVIDE STOCK............................................... 43 SECTION 12.06 ADJUSTMENT FOR CHANGE IN COMMON STOCK.................................. 43 SECTION 12.07 ADJUSTMENT FOR RIGHTS ISSUE............................................ 44 SECTION 12.08 ADJUSTMENT FOR OTHER DISTRIBUTIONS OR CERTAIN ISSUANCES OF SHARES................................................................. 44 SECTION 12.09 CURRENT MARKET PRICE; TRADING DAY...................................... 45 SECTION 12.10 WHEN ADJUSTMENT MAY BE DEFERRED........................................ 45 SECTION 12.11 WHEN NO ADJUSTMENT REQUIRED............................................ 46 SECTION 12.12 NOTICE OF ADJUSTMENT................................................... 46 SECTION 12.13 VOLUNTARY REDUCTION.................................................... 46 SECTION 12.14 NOTICE OF CERTAIN TRANSACTIONS......................................... 46 SECTION 12.15 REORGANIZATION OF COMPANY.............................................. 47 SECTION 12.16 COMPANY DETERMINATION FINAL............................................ 47 SECTION 12.17 TRUSTEE'S DISCLAIMER................................................... 47 ARTICLE 13 MISCELLANEOUS......................................................................... 47 SECTION 13.01 TRUST INDENTURE ACT CONTROLS........................................... 47 SECTION 13.02 NOTICES................................................................ 47 SECTION 13.03 COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.......... 48 SECTION 13.04 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT..................... 48 SECTION 13.05 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.......................... 49 SECTION 13.06 RULES BY TRUSTEE AND AGENTS............................................ 49 SECTION 13.07 GOVERNING LAW.......................................................... 49 SECTION 13.08 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.......................... 49 SECTION 13.09 SUCCESSORS............................................................. 49 SECTION 13.10 SEVERABILITY........................................................... 50 SECTION 13.11 COUNTERPART ORIGINALS.................................................. 50 SECTION 13.12 TABLE OF CONTENTS; HEADINGS; ETC....................................... 50
-iv- Table of Contents (continued)
Page SECTION 13.13 LEGAL HOLIDAYS......................................................... 50 SECTION 13.14 NO RECOURSE AGAINST OTHERS............................................. 50 SECTION 13.15 DUPLICATE ORIGINALS.................................................... 50
EXHIBITS -------- Exhibit A Form of Note Exhibit B Form of Collateral Agency and Security Agreement Exhibit C-1 Form of Certificate for Exchange or Registration of Transfer of Definitive Notes Exhibit C-2 Form of Certificate for Exchange or Registration of Transfer from Global Note to Definitive Note Exhibit C-3 Form of Certificate for Exchange or Registration of Transfer from Definitive Note to Global Note -v- INDENTURE, dated as of June 28, 2001, between Imperial Credit Industries, Inc., a California corporation (the "Company"), and the Chase Manhattan Bank and Trust Company, National Association, as trustee (the "Trustee"). Each party agrees as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the 12% Secured Convertible Subordinated Notes due 2005 (the "Notes"): ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01 DEFINITIONS. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "Agent" means any Registrar, Paying Agent or co-registrar. "Agent Members" means members of, or participants in, the Depositary. "Applicable Procedures" means applicable procedures of the Depositary, Euroclear or Clearstream, as the case may be. "Bank" means Southern Pacific Bank, a California industrial bank that is a Subsidiary of the Company. "Bankruptcy Law" means Title 11 of the U.S. Code or any similar federal or state law for the relief of debtors. "Board of Directors" means, as to any Person, the board of directors of such Person or any duly authorized committee thereof. "Board Resolution" means with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person, to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means any day other than a Legal Holiday. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet of the lessee thereof in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership, partnership interests (whether general or limited) and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means (i) United States dollars; (ii) Government Securities (except that for purposes of this definition, Government Securities must have a remaining Weighted Average Life to Maturity of not -1- more than one year from the date of investment therein); (iii) commercial paper or other short-term corporate obligation that has received a rating of at least A-1 or AA from Standard & Poor's Corporation ("S&P"), P-1 or Aa2 from Moody's Investor Services, Inc. ("Moody's"), or F-1 or AA from Fitch, Inc. ("Fitch"); (iv) time deposits, certificates of deposit, bank acceptances or bank notes issued by any bank having capital surplus and undivided profits aggregating at least $500,000,000 (or the foreign currency equivalent thereof) and at least a high A rating (or the equivalent) from any two of the following: S&P, Moody's, Thomson Bankwatch, Inc. or Fitch; (v) money market preferred stocks which, at the date of acquisition and at all times thereafter, are accorded ratings of at least mid AA by any two of the following: S&P, Moody's or Fitch; (vi) tax-exempt obligations that are accorded ratings at the time of investment therein of at least mid AA (or equivalent short-term ratings) by any two of the following; S&P, Moody's or Fitch; (vii) master repurchase agreements with foreign or domestic banks having capital and surplus of not less than $500,000,000 (or the foreign currency equivalent thereof) or primary dealers so long as (a) such bank or dealer has a rating of at least mid AA from any two of the following: S&P, Moody's or Fitch; (b) such agreements are collateralized with obligations of the United States government or its agencies at a ratio of 102%, or with other collateral rated at least mid AA from any two of the following: S&P, Moody's or Fitch, at a rate of 103% and, in either case marked to market weekly and (c) such securities shall be held by a third-party agent; (viii) guaranteed investment contracts and/or agreements of a bank, insurance company or other institution whose unsecured, uninsured and unguaranteed obligations (or claims- paying ability) are, at the time of investment therein, rated AAA by any two of the following: S&P, Moody's or Fitch; (ix) money market funds, the portfolio of which is limited to investments described in clauses (i) through (viii); (x) with respect to Non-Domestic Persons, instruments that are comparable to those described in clauses (i), (ii), (iv) and (vii) in the country in which such Non- Domestic Person is organized or has its principal business operations; and (xi) up to $1,000,000 in the aggregate of other financial assets held by Subsidiaries. In no event shall any of the Cash Equivalents described in clauses (iii) through (viii), (x) and (xi) above have a final maturity more than one year from the date of investment therein. "Collateral" means, collectively, the Collateral as defined in the Security Documents that is from time to time subject to the Lien of the Security Documents, including the Liens, if any, required pursuant to the provisions of this Indenture. "Collateral Agent" has the meaning given to such term in the Security Agreement. "Company" has the meaning set forth in the preamble hereto. "Control" means possession by the applicable Person of the power to direct or cause the direction of the management and policies thereof, whether through the ownership of voting securities, by contract, or otherwise. "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 13.02 hereof or such other address as the Trustee may give notice to the Company. "Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default. "Default Rate" means 14% per annum. "Definitive Notes" means Notes that are in the form of the Note attached hereto as Exhibit A, that do not include the information called for by footnotes 1 and 2 thereof. "Depositary" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 hereof as the Depositary with respect to the Notes, until a successor shall have been appointed and become such pursuant to the applicable provision of this Indenture, and, thereafter, "Depositary" shall mean or include such successor. "Exchange Act" means the Securities Exchange Act of 1934, as amended. -2- "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the date of this Indenture. "Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America for the payment of which guarantee or obligations the full faith and credit of the United States is pledged. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Hedging Obligations" means, with respect to any Person, the net obligations of such Person under (i) currency exchange or interest rate swap agreements, currency exchange or interest rate cap agreements and currency exchange or interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency exchange rates or credit or other business risks, in any such case in the ordinary course of business and not for speculative or investment purposes. "Holder" means a holder of any of the Notes. "Indebtedness" means, with respect to any Person on any date of determination (without duplication), (i) the principal of and premium (if any) in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable, (ii) all Capital Lease Obligations of such Person, (iii) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (but excluding trade accounts payable and expense accruals arising in the ordinary course of business), (iv) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in (i) through (iii) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the tenth Business Day following receipt by such Person of a demand for reimbursement following payment on the letter of credit), (v) all obligations of the type referred to in clauses (i) through (iv) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable, directly or indirectly, as obligor, guarantor or otherwise, including by means of any Guarantee, (vi) all obligations of the type referred to in clauses (i) through (iv) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured and (vii) to the extent not otherwise included in this definition, Hedging Obligations of such Person. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date. Notwithstanding the foregoing, the term "Indebtedness" does not include deposit liabilities of any Subsidiary, the deposits of which are insured by the Federal Deposit Insurance Corporation or any successor agency or Indebtedness of any Subsidiary to the Federal Home Loan Bank of San Francisco or any successor thereto incurred in the ordinary course of business and secured by qualifying mortgage loans or mortgage-backed securities or other collateral permitted by the credit policies of the Federal Home Loan Bank of San Francisco. "Indenture" means this Indenture, as amended or supplemented from time to time. "Interest Payment Date" has the meaning set forth in the form of Note attached hereto as Exhibit A. "Leases" mean any and all agreements for the use, enjoyment or occupancy of the Real Property and all buildings, improvements and fixtures of every kind or nature situated thereon. -3- "Lien" means, with respect to any Person, any mortgage, pledge, security interest, encumbrance, lien or charge of any kind on the assets of such Person, including any conditional sale or other title retention agreement or lease in the nature thereof. "Master Recapitalization Agreement" means the Master Recapitalization Agreement dated as of March 29, 2001 between the Company and each of the investors named therein, as amended by that First Amendment to Master Recapitalization Agreement dated as of June 27, 2001. "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP, excluding, however, (i) any gain, together with any related provision for taxes on such gain, realized in connection with any asset sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) and (ii) any extraordinary gain or loss, together with any related provision for taxes on such extraordinary gain or loss. "Non-Domestic Person" means a Person not organized under the laws of the United States, any State or territory thereof or the District of Columbia. "Non-Recourse Debt" means Indebtedness: (i) as to which neither the Company nor any of its Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), or (b) is directly or indirectly liable (as a guarantor or otherwise); (ii) no default with respect to which would permit (upon notice, lapse of time or both) any holder of any other Indebtedness (other than the Notes being offered hereby) of the Company or any of its Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (iii) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of the Company or any of its Subsidiaries. "Notes" has the meaning set forth in the preamble hereto. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person. "Officer's Certificate" means a certificate signed on behalf of the Company by two Officers of the Company, one of whom must be the principal executive officer, principal financial officer or principal accounting officer of the Company. "Opinion of Counsel" means a written opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 13.05 hereof. The counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee. "Permitted Liens" means, with respect to any Person: (a) pledges or deposits by such Person under worker's compensation laws, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or deposits to secure public or statutory obligations of such person or deposits of cash or United States government bonds to secure surety or appeal bonds to which such person is a party, or deposits as security for contested taxes or import duties or for the payment of rent, in each case incurred in the ordinary course of business; (b) Liens imposed by law, such as carriers', warehousemen's and mechanics' Liens, in each case for sums not yet due or being contested in good faith by appropriate proceedings or other Liens arising out of judgments or awards against such Person with respect to which such Person shall then be proceeding with an appeal or other proceedings for review; (c) Liens for property taxes not yet subject to penalties for non- payment or which are being contested in good faith and by appropriate proceedings; (d) Liens in favor of issuers of surety bonds or letters of credit issued pursuant to the request of and for the account of such Person in the ordinary course of its business; provided, -4- however, that such letters of credit do not constitute Indebtedness; (e) minor survey exceptions, minor encumbrances, easements or reservations of, or rights of others for, licenses, rights of way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property or Liens incidental to the conduct of the business of such Person or to the ownership of its properties which were not incurred in connection with Indebtedness and which do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person; (f) Liens securing Indebtedness incurred to finance the construction, purchase or lease of, or repairs, improvements or additions to, property of such Person (but excluding Capital Stock of another Person); provided, however, that the Lien may not extend to any other property owned by such Person or any of its Subsidiaries at the time the Lien is incurred, and the Indebtedness secured by the Lien may not be incurred more than 180 days after the latest of the acquisition, completion of construction, repair, improvement, addition or commencement of full operation of the property subject to the Lien; (g) Liens on Receivables owned by the Company or a Subsidiary, as the case may be, (h) Liens existing on the date of this Indenture; (i) Liens on property or shares of Capital Stock of another Person at the time such other Person becomes a Subsidiary of such Person; provided, however, that such Liens are not created, incurred or assumed in connection with, or in contemplation of, such other Person becoming such a Subsidiary; provided further, however, that such Lien may not extend to any other property owned by such Person or any of its Subsidiaries; (j) Liens on property at the time such Person or any of its Subsidiaries acquires the property, including, any acquisition by means of a merger or consolidation with or into such Person or a Subsidiary of such Person; provided, however, that such Liens are not created, incurred or assumed in connection with, or in contemplation of such acquisition; provided further, however, that the Liens may not extend to any other property owned by such Person or any of its Subsidiaries; (k) Liens securing Indebtedness or other obligations of a Subsidiary of such Person owing to such Person or a Subsidiary of such Person; (l) Liens securing Hedging Obligations; (m) liens on cash or other assets securing Warehouse Indebtedness of the Company or its Subsidiaries; (n) Liens to secure any Permitted Refinancing Indebtedness as a whole, or in part, with any Indebtedness permitted under this Indenture to be incurred and secured by any Lien referred to in the foregoing clauses; provided, however, that (x) such new Lien shall be limited to all or part of the same property that secured the original Lien (plus improvements to or on such property) and (y) the Indebtedness secured by such Lien at such time is not increased to any amount greater than the sum of (A) the outstanding, principal amount of, if greater, committed amount of the Indebtedness, at the time the original Lien became a Permitted Lien and (B) an amount necessary to pay any fees and expenses, including premiums, related to such refinancing, refunding, extension, renewal or replacement; (o) Liens securing deposit liabilities of any Subsidiary, the deposits of which are insured by the Federal Deposit Insurance Corporation or any successor agency or Indebtedness of any Subsidiary to the Federal Home Loan Bank of San Francisco or any successor thereto incurred in the ordinary course of business and secured by qualifying mortgage loans or mortgage-backed securities; (p) Liens incurred to secure the Senior Secured Debt; (q) Liens on assets of Subsidiaries that secure Non-Recourse Debt of Subsidiaries; and (r) Liens incurred to secure Indebtedness of up to $25,000,000 in aggregate principal amount which is permitted under Section 4.10 hereof. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Subsidiaries; provided that: (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date no earlier than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness has a final maturity date no earlier than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iv) such Indebtedness is incurred either by the Company or by the Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (v) such Indebtedness may not include a Guarantee of indebtedness of a Person that is not a Subsidiary of the Company. "Permitted Warehouse Indebtedness" means Warehouse Indebtedness in connection with a Warehouse Facility; provided, however, that (i) the assets as to which such Warehouse Indebtedness relates are or, -5- prior to any funding under the related Warehouse Facility with respect to such assets, were eligible to be recorded as held for sale or investment on the consolidated balance sheet of the Company in accordance with GAAP, (ii) such Warehouse Indebtedness will be deemed to be Permitted Warehouse Indebtedness (a) in the case of a Purchase Facility, only to the extent the holder of such Warehouse Indebtedness has no contractual recourse to the Company and its Subsidiaries to satisfy claims in respect of such Permitted Warehouse Indebtedness in excess of the realizable value of the Receivables financed thereby, and (b) in the case of any other Warehouse Facility, only to the extent of the lesser of (A) the amount advanced by the lender with respect to the Receivables financed under such Warehouse Facility, and (B) the principal amount of such Receivables and (iii) any such Indebtedness has not been outstanding in excess of 364 days. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Purchase Facility" means any Warehouse Facility in the form of a purchase and sale facility pursuant to which the Company or a Subsidiary of the Company sells Receivables to a financial institution or investment bank. "QIBs" means qualified institutional buyers as defined in Rule 144A. "Real Property" means any interest in any real property or any portion thereof whether owned in fee or leased or otherwise owned. "Receivables" means consumer, mortgage and commercial loans, equipment or other lease receivables and other assets purchased or originated by the Company or any Subsidiary in the ordinary course of business; provided, however, that for purposes of determining the amount of a Receivable at any time, such amount shall be determined in accordance with GAAP, consistently applied, as of the most recent practicable date. "Responsible Officer," when used with respect to the Trustee, means any officer assigned to the Corporate Trust Administration office of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee assigned to perform the duties of Trustee hereunder and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Rule 144A" means Rules 144A promulgated under the Securities Act. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Security Agreement" means the Collateral Agency and Security Agreement, substantially in the form of Exhibit B hereto, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms hereof and thereof. "Security Documents" means, collectively, the Security Agreement and all other security agreements, mortgages, deeds of trust, pledges, collateral assignments or other instruments evidencing or creating any Security Interest in favor of the Trustee in all or any portion of the Collateral, in each case as amended, amended and restated, supplemented or otherwise modified from time to time in accordance with the terms hereof and thereof. "Security Interests" means the Liens on the Collateral created by the Security Documents in favor of the Trustee for its benefit and the benefit of the Holders of the Notes. "Senior Secured Debt" means the obligations of the Company under or in respect of the Company's Senior Secured Notes due 2002 and the Company's 12% Senior Secured Notes due 2005. -6- "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date of this Indenture. "Stated Maturity" means, with respect to any installment of principal or interest on any series of Indebtedness, the date on which such payment of principal or interest was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such principal or interest prior to the date originally scheduled for the payment thereof. "Subsidiary" means, with respect to any Person, (i) any corporation, limited liability company, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof) and (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or of one or more Subsidiaries of such Person (or any combination thereof). "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa- 77bbbb) as in effect on the date on which this Indenture is qualified under the TIA. "Transfer Restricted Security" means a security that bears or is required to bear the legend set forth in Section 2.06 hereof. "Trustee" means the party named as such in the preamble hereto until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Warehouse Facility" means any funding arrangement, including a Purchase Facility, with a financial institution or other lender or purchaser, to the extent (and only to the extent) funding thereunder is used exclusively to finance or refinance the purchase or origination of Receivables by the Company or a Subsidiary of the Company for the purpose of (i) pooling such Receivables prior to securitization, (ii) sale or (iii) investment, in each case in the ordinary course of business. "Warehouse Indebtedness" means the greater of (x) the consideration received by the Company or its Subsidiaries under a Warehouse Facility and (y) in the case of a Purchase Facility, the book value of the Receivables financed under such Warehouse Facility until such time as such Receivables are (i) securitized, (ii) repurchased by the Company or its Subsidiaries or (iii) sold by the counterparty under the Warehouse Facility to a Person who is not an Affiliate of the Company. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person. SECTION 1.02 OTHER DEFINITIONS.
Defined in Section Term ---------- - ---- "Additional Shares".......................................... 12.08 "Clearstream"................................................ 2.01
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"Conversion Date".................................................. 12.02 "Covenant Defeasance".............................................. 8.03 "Custodian"........................................................ 6.01 "DTC".............................................................. 2.03 "Effective Date"................................................... 12.06 "Euroclear"........................................................ 2.01 "Event of Default"................................................. 6.01 "Global Note"...................................................... 2.01 "Legal Defeasance"................................................. 8.02 "Legal Holiday".................................................... 13.13 "Note Custodian"................................................... 2.03 "outstanding"...................................................... 2.08 "Paying Agent"..................................................... 2.03 "Registrar"........................................................ 2.03
SECTION 1.03 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes; "indenture security Holder" means a Holder of a Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; "obligor" on the Notes means the Company and any successor obligor upon the Notes. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. SECTION 1.04 RULES OF CONSTRUCTION. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) provisions apply to successive events and transactions; -8- (6) references to sections of or rules under the Securities Act shall be deemed to include substitute, replacement of successor sections or rules adopted by the SEC from time to time; and (7) "herein," "hereof," "hereto" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. ARTICLE 2 THE NOTES SECTION 2.01 FORM AND DATING. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A attached hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. The Company and the Trustee shall approve the form of the Notes and any notation, legend or endorsement on them. Each Note shall be dated the date of its issuance and shall show the date of its authentication. The Notes shall be issued in minimum denominations of $1,000 and integral multiples of $1,000 in excess thereof. The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. (a) Definitive Notes. Notes shall be issued initially in the form of one or more Definitive Notes (the "Definitive Notes") which shall be substantially in the form of Exhibit A attached hereto (but without including the text referred to in footnotes 1 and 2 thereto). (b) Global Notes. The Notes may also be issued in the form of one or more Global Notes (the "Global Notes"), which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Depositary at its New York office (or with the Trustee as custodian for the Notes), and registered in the name of the Depositary or a nominee of the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of a Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee as hereinafter provided. Each Global Note shall provide that it shall represent the aggregate amount of outstanding Notes from time to time endorsed thereon and that the aggregate amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the amount of outstanding Notes represented thereby shall be made by the Trustee or the Note Custodian (as hereinafter defined), at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06 hereof. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" for the Euroclear System ("Euroclear")and the "Management Regulations" and "Instructions to Participants" of Clearstream Banking S.A. ("Clearstream") shall be applicable to interests in a Global Note that are held by the Agent Members through Euroclear or Clearstream. Except as set forth in Section 2.06 hereof, a Global Note may be transferred, in whole and not in part, only to another nominee of the Depositary or to a successor of the Depositary or its nominee. (c) Book-Entry Provisions. This Section 2.01(c) shall apply only to a Global Note deposited with or on behalf of the Depositary. The Company shall execute and the Trustee shall, in accordance with this Section 2.01(c) and Section 2.02, authenticate and deliver a Global Note that (i) shall be registered in the name of the Depositary or the -9- nominee of the Depositary and (ii) shall be delivered by the Trustee to the Depositary or pursuant to the Depositary's instructions or held by the Trustee as custodian for the Depositary. Agent Members shall have no rights either under this Indenture with respect to a Global Note held on their behalf by the Depositary or by the Trustee as custodian for the Depositary or under such Global Note, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices of such Depositary governing the exercise of the rights of an owner of a beneficial interest in a Global Note. SECTION 2.02 EXECUTION AND AUTHENTICATION. Two Officers shall sign the Notes for the Company by manual or facsimile signature. If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee shall, upon a written order of the Company, which may be delivered from time to time, signed by two Officers, authenticate Notes for original issue up to $75.2 million in aggregate principal amount of Notes for original issue. The aggregate principal amount of Notes outstanding at any time may not exceed $75.2 million except as provided in Section 2.07 hereof. The Trustee may, at the expense of the Company, appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate of the Company. SECTION 2.03 REGISTRAR AND PAYING AGENT. The Company shall maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency within the City and State of New York where Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company may act as Paying Agent or Registrar. The Company initially appoints The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Note. The Company initially appoints the Trustee to act as the Registrar and Paying Agent and to act as custodian with respect to the Global Note (the "Note Custodian"). SECTION 2.04 PAYING AGENT TO HOLD MONEY IN TRUST. Prior to each due date of principal and interest on the Notes, the Company shall deposit with the Paying Agent a sum sufficient to pay such principal and interest when so becoming due. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit -10- of Holders or the Trustee all money held by the Paying Agent for the payment of principal of and premium, if any, and interest on the Notes, and will notify the Trustee in writing of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company) shall have no further liability for the money delivered to the Trustee. If the Company acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee shall serve as Paying Agent for the Notes. SECTION 2.05 HOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA (S) 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Company shall otherwise comply with TIA (S) 312(a). SECTION 2.06 TRANSFER AND EXCHANGE. (a) Transfer and Exchange of Definitive Notes. When Definitive Notes are presented by a Holder to the Registrar with a request: (x) to register the transfer of the Definitive Notes; or (y) to exchange such Definitive Notes for an equal principal amount of Definitive Notes of other authorized denominations, the Registrar shall register the transfer or make the exchange as requested; provided, however, that the Definitive Notes presented or surrendered for register of transfer or exchange: (i) shall be duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by his or her attorney, duly authorized in writing and (ii) in the case of a Definitive Note that is a Transfer Restricted Security, such request shall be accompanied by the following additional information and documents, as applicable: (A) if such Transfer Restricted Security is being delivered to the Registrar by a Holder for registration in the name of such Holder, without transfer, or such Transfer Restricted Security is being transferred to the Company, a certification to that effect from such Holder (in substantially the form of Exhibit C-1 hereto); (B) if such Transfer Restricted Security is being transferred to a QIB in accordance with Rule 144A or pursuant to an exemption from registration in accordance with Rule 144 under the Securities Act or pursuant to an effective registration statement under the Securities Act, a certification to that effect from such Holder (in substantially the form of Exhibit C-1 hereto); (C) if such Transfer Restricted Security is being transferred to an Institutional Accredited Investor within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act, a certification to that effect from such Holder (in substantially the form of Exhibit C-1 hereof); or (D) if such Transfer Restricted Security is being transferred in reliance on any other exemption from the registration requirements of the Securities Act, a certification to that effect from such Holder (in substantially the form of Exhibit C-1 -11- hereto) and an Opinion of Counsel from such Holder or the transferee reasonably acceptable to the Company and to the Registrar to the effect that such transfer is in compliance with the Securities Act. (b) Transfer of a Beneficial Interest in the Global Note for a Definitive Note. (i) Any Person having a beneficial interest in the Global Note may, upon request, subject to the Applicable Procedures, exchange such beneficial interest for a Definitive Note. Upon receipt by the Trustee of written instructions or such other form of instructions as is customary for the Depositary (or Euroclear or Clearstream, if applicable) from the Depositary or its nominee on behalf of any Person having a beneficial interest in such Global Note, and, in the case of a Transfer Restricted Security, the following additional information and documents (all of which may be submitted by facsimile): (A) if such beneficial interest is being transferred to the Person designated by the Depositary as being the beneficial owner, a certification to that effect from such Person (in substantially the form of Exhibit C-2 hereto); (B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A or pursuant to an exemption from registration in accordance with Rule 144 under the Securities Act or pursuant to an effective registration statement under the Securities Act, a certification to that effect from the transferor (in substantially the form of Exhibit C-2 hereto); (C) if such beneficial interest is being transferred to an Institutional Accredited Investor within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act, a certification to that effect from the transferor (in substantially the form of Exhibit C-2 hereto), or (D) if such beneficial interest is being transferred in reliance on any other exemption from the registration requirements of the Securities Act, a certification to that effect from the transferor (in substantially the form of Exhibit C-2 hereto) and an Opinion of Counsel to the effect that such transfer is in compliance with the Securities Act, the Trustee or the Note Custodian, at the direction of the Trustee, shall, in accordance with the standing instructions and procedures existing between the Depositary and the Note Custodian, cause the aggregate principal amount of the Global Note to be reduced accordingly and, following such reduction, the Company shall execute and, the Trustee shall authenticate and deliver to the transferee a Definitive Note in the appropriate principal amount. (ii) Definitive Notes issued in exchange for a beneficial interest in the Global Note pursuant to this Section 2.06(b) shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Following any such issuance of Definitive Notes, the Trustee, as Registrar, shall instruct the Depositary to reduce or cause to be reduced the aggregate principal amount at maturity of the applicable Global Note to reflect the transfer. (c) Restrictions on Transfer and Exchange of the Global Note. Notwithstanding any other provision of this Indenture (other than the provisions set forth in subsection (e) of this Section 2.06), a Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. (d) Transfer and Exchange of a Definitive Note for a Beneficial Interest in the Global Note. A Definitive Note may not be exchanged for a beneficial interest in the Global Note except, subject to the -12- Applicable Procedures, upon satisfaction of the requirements set forth below. Upon receipt by the Trustee of a Definitive Note, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Trustee, and, in the case of a Transfer Restricted Security, the following additional information and documents (all of which may be submitted by facsimile): (i) if such beneficial interest is being transferred to the Person designated by the Depositary as being the beneficial owner, a certification to that effect from such Person (in substantially the form of Exhibit C-3 hereto); (ii) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A or pursuant to an exemption from registration in accordance with Rule 144 under the Securities Act or pursuant to an effective registration statement under the Securities Act, a certification to that effect from the transferor (in substantially the form of Exhibit C-3 hereto); (iii) if such beneficial interest is being transferred to an Institutional Accredited Investor within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act, a certification to that effect from the transferor (in substantially the form of Exhibit C-3 hereto); or (iv) if such beneficial interest is being transferred in reliance on any other exemption from the registration requirement of the Securities Act, a certification to that effect from the transferor (in substantially the form of Exhibit C-3 hereto) and an Opinion of Counsel from the transferee or the transferor reasonably acceptable to the Company and to the Registrar to the effect that such transfer is in compliance with the Securities Act, the Trustee shall cancel such Definitive Note in accordance with Section 2.11 hereof and cause, or direct the Note Custodian to cause, in accordance with the standing instructions and procedures existing between the Depositary and the Note Custodian, the aggregate principal amount of Notes represented by the Global Note to be increased accordingly. If no Global Note is then outstanding, the Company shall issue and, upon receipt of an authentication order in accordance with Section 2.02 hereof, the Trustee shall authenticate a new Global Note in the appropriate principal amount. (e) Authentication of Definitive Notes in Absence of Depositary. If at any time: (i) the Depositary for the Notes notifies the Company that the Depositary is unwilling or unable to continue as Depositary for the Global Note and a successor Depositary for the Global Note is not appointed by the Company within 90 days after delivery of such notice; or (ii) the Company, at its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of Definitive Notes under this Indenture; or (iii) there shall have occurred and be continuing an Event of Default or any event which after notice or lapse of time or both would be an Event of Default with respect to the Notes, then the Company shall execute, and the Trustee shall, upon receipt of an authentication order in accordance with Section 2.02 hereof, authenticate and deliver, Definitive Notes in an aggregate principal amount equal to the principal amount of the Global Note in exchange for such Global Note. (f) Legends. (i) Except as permitted by the following paragraphs (ii) and (iii), each Note certificate evidencing Global Notes and Definitive Notes (and all Notes issued in exchange therefore or substitution thereof) shall bear legends in substantially the following form: THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND, ACCORDINGLY, MAY -13- NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER"(AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT OR (C) IT IS AN ACCREDITED INVESTOR (AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT (AN "ACCREDITED INVESTOR")), (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS NOTE RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR IN COMPLIANCE WITH RULE 501(a) UNDER THE SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE, WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS NOTE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. (ii) Upon any sale or transfer of a Transfer Restricted Security (including any Transfer Restricted Security represented by a Global Note) pursuant to Rule 144 under the Securities Act or pursuant to an effective registration statement under the Securities Act: (A) in the case of any Transfer Restricted Security that is a Definitive Note, the Registrar shall permit the Holder thereof to exchange such Transfer Restricted Security for a Definitive Note that does not bear the legend set forth in (i) above and rescind any restrictions on the transfer of such Transfer Restricted Security upon receipt of a certification from the transferring holder substantially in the form of Exhibit C-1 hereto; and (B) in the case of any Transfer Restricted Security represented by a Global Note, such Transfer Restricted Security shall not be required to bear the legend set forth in (i) above, but shall continue to be subject to the provisions of Section 2.06(a) and (b) hereof; provided, however, that with respect to any request for an exchange of a Transfer Restricted Security that is represented by a Global Note for a Definitive Note that does not bear the legend set forth in (i) above, which request is made in reliance upon Rule 144, the Holder thereof shall certify in writing to the Registrar that such request is being made pursuant to Rule 144 (such certification to be substantially in the form of Exhibit C-2 hereof). -14- (iii) Upon any sale or transfer of a Transfer Restricted Security (including any Transfer Restricted Security represented by a Global Note) in reliance on any exemption from the registration requirements of the Securities Act (other than exemptions pursuant to Rule 144A or Rule 144 under the Securities Act) in which the Holder or the transferee provides an Opinion of Counsel to the Company and the Registrar in form and substance reasonably acceptable to the Company and the Registrar (which Opinion of Counsel shall also state that the transfer restrictions contained in the legend are no longer applicable): (A) in the case of any Transfer Restricted Security that is a Definitive Note, the Registrar shall permit the Holder thereof to exchange such Transfer Restricted Security for a Definitive Note that does not bear the legend set forth in (i) above and rescind any restriction on the transfer of such Transferred Restricted Security; and (B) in the case of any Transfer Restricted Security represented by a Global Note, such Transfer Restricted Security shall not be required to bear the legend set forth in (i) above but shall continue to be subject to the provisions of Section 2.06(a) and (b) hereof . (g) Cancellation and/or Adjustment of the Global Note. At such time as all beneficial interests in the Global Note have been exchanged for Definitive Notes, redeemed, repurchased or canceled, the Global Note shall be returned to or retained and canceled by the Trustee in accordance with Section 2.11 here of. At any time prior to such cancellation, if any beneficial interest in the Global Note is exchanged for Definitive Notes, redeemed, repurchased or canceled, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note, by the Trustee or the Note Custodian, at the direction of the Trustee, to reflect such reduction. (h) General Provisions Relating to Transfers and Exchanges. (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Definitive Notes and the Global Note at the Registrar's request. (ii) No service charge shall be made to a Holder for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 3.07 and 9.05 hereof). (iii) The Registrar shall not be required to register the transfer of or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. (iv) All Definitive Notes and the Global Note issued upon any registration of transfer or exchange of Definitive Notes or the Global Note shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Definitive Notes or Global Note surrendered upon such registration of transfer or exchange. (v) The Company shall not be required: (A) to issue, to register the transfer of or to exchange Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.02 hereof and ending at the close of business on the day of selection; or (B) to register the transfer of or to exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part; or -15- (C) to register the transfer of or to exchange a Note between a record date and the next succeeding interest payment date. (vi) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest and premium, if any, on such Notes, and neither the Trustee, any Agent nor the Company shall be affected by notice to the contrary. (vii) The Trustee shall authenticate Definitive Notes and the Global Note in accordance with the provisions of Section 2.02 hereof. The Registrar may rely on information set forth in a certificate substantially in the form of Exhibit C-1, C-2 or C-3 hereto, and other certificates and opinions received pursuant to this Section 2.06 and, in the absence of receipt of such a certificate or opinion, shall not be deemed to have knowledge of a transfer of an interest in a Global Note absent actual knowledge of such transfer. SECTION 2.07 REPLACEMENT NOTES. If any mutilated Note is surrendered to the Trustee or the Company and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon the written order of the Company signed by one Officer of the Company, shall authenticate a replacement Note if the Trustee's requirements and the requirements of Section 8-405(a)(1) of the Uniform Commercial Code are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the reasonable judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company may charge such Holder for its expenses and the expenses of the Trustee (including without limitation attorneys' fees and expenses) in replacing a Note. Every replacement Note is an additional obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. SECTION 2.08 OUTSTANDING NOTES. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note. If a Note is replaced pursuant to Section 2.07 hereof (other than a mutilated Note surrendered for replacement), it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. A mutilated Note ceases to be outstanding upon surrender of such Note and replacement thereof pursuant to Section 2.07 hereof. If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest. -16- SECTION 2.09 TREASURY NOTES. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that a Trustee knows are so owned shall be so disregarded. SECTION 2.10 TEMPORARY NOTES. Until Definitive Notes are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Notes upon a written order of the Company signed by two Officers of the Company. Temporary Notes shall be substantially in the form of Definitive Notes but may have variations that the Company considers appropriate for temporary Notes and as shall be reasonably acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate Definitive Notes in exchange for temporary Notes. Holders of temporary Notes shall be entitled to all of the benefits of this Indenture. SECTION 2.11 CANCELLATION. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall destroy cancelled Notes (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all cancelled Notes shall be delivered to the Company. The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation. SECTION 2.12 DEFAULTED INTEREST. If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, provided that no such special record date shall be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. SECTION 2.13 CUSIP NUMBERS, ETC. The Company in issuing the Notes may use "CUSIP", "CINS", "ISIN" or "private placement" numbers (if then generally in use), and, if so, the Trustee shall indicate the "CUSIP", "CINS", "ISIN" or "private placement" numbers of the Notes in notices of redemption and related materials as a convenience to Holders of Notes; provided that any such notice may state that no representation is made -------- as to the correctness of such numbers either as printed on the Notes or as contained in any notice of redemption and related materials. -17- ARTICLE 3 REDEMPTION AND PREPAYMENT SECTION 3.01 NOTICES TO TRUSTEE. If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 45 days (unless the Trustee consents to a shorter period) but not more than 60 days before a redemption date, an Officer's Certificate setting forth (i) the clause of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Notes to be redeemed and (iv) the redemption price. SECTION 3.02 SELECTION OF NOTES TO BE REDEEMED. If less than all of the Notes are to be redeemed at any time, the Trustee shall select the Notes to be redeemed on a pro rata basis from all Holders of Notes. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes and portions of Notes selected shall be in a minimum aggregate original principal amount of at least $1,000,000 or any larger integral multiple of $250,000; except that if all of the Notes of a Holder are to be redeemed, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $250,000, shall be redeemed. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. SECTION 3.03 NOTICE OF REDEMPTION. At least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address. The notice shall identify the Notes to be redeemed and shall state: (a) the redemption date; (b) the redemption price and the amount of accrued interest; (c) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Note; (d) the name and address of the Paying Agent; (e) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (f) that, unless the Company defaults in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date; (g) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; (h) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes; and -18- (i) if fewer than all the Notes are to be redeemed, the identification of the particular Notes (or portions thereof) to be redeemed as well as the aggregate principal amount of Notes to be redeemed and the aggregate principal amount of Notes to be outstanding after such partial redemption. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; provided, however, that the Company shall have delivered to the Trustee, at least 45 days prior to the redemption date, an Officer's Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. SECTION 3.04 EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption is mailed in accordance with Section 3.03 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. Upon surrender to the Paying Agent, such Notes shall be paid at the Redemption Price stated in the notice, plus accrued interest to the redemption date. Failure to give notice or any defect in the notice to a Holder shall not affect the validity of the notice to any other Holder. SECTION 3.05 DEPOSIT OF REDEMPTION PRICE. On or before 10:00 a.m. Eastern Time on the redemption date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of and accrued interest on all Notes to be redeemed on that date. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of, and accrued interest on, all Notes to be redeemed. If the Company complies with the provisions of the preceding paragraph, on and after the redemption date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption whether or not such Notes are presented for payment. If a Note is redeemed on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal from the redemption date until such principal is paid, and, to the extent lawful, on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof. SECTION 3.06 NOTES REDEEMED IN PART. Upon surrender of a Note that is redeemed in part, the Company shall issue and, upon the Company's written request, the Trustee shall authenticate for the Holder at the expense of the Company a new Note equal in principal amount to the unredeemed portion of the Note surrendered. SECTION 3.07 OPTIONAL REDEMPTION. The Notes may not be redeemed prior to September 30, 2002. Thereafter, the Company may redeem the Notes in whole or in part, in integral multiples of $1,000 only, at a redemption price equal to the principal amount of the Notes so redeemed, plus accrued and unpaid interest thereon to the redemption date. For purposes of this Article 3, a repurchase by the Company of the Notes in open market purchase transactions shall not be deemed to be a redemption. Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Section 3.01 through 3.06 hereof. SECTION 3.08 MANDATORY REDEMPTION. The Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes. -19- ARTICLE 4 COVENANTS SECTION 4.01 PAYMENT OF NOTES. The Company shall pay or cause to be paid the principal of, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest shall be considered paid on the date due if the Paying Agent (other than the Company or a Subsidiary), holds on that date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due. Such Paying Agent shall return to the Company, no later than five Business Days following the due date for payment, any money (including accrued interest, if any) that exceeds such amount of principal, premium, if any, and interest required for payment on the Notes. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the applicable interest rate on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace period) at the same rate to the extent lawful. SECTION 4.02 MAINTENANCE OF OFFICE OR AGENCY. The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03. SECTION 4.03 REPORTS. (a) Within 15 days after such information would be required to be filed (or is filed) with the SEC and whether or not required by the rules and regulations of the SEC, so long as any Notes are outstanding, the Company shall furnish to the Trustee (i) all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Company's certified independent accountants and (ii) all current reports that would be required to be filed with the SEC on Form 8-K if the Company were required to file such reports. (b) The Company will furnish to the Trustee promptly upon their becoming available, (x) each report, notice, proxy statement or other communications sent by the Company to its stockholders generally, and (y) each regular or periodic report filed by the Company with the SEC pursuant to thef -20- Exchange Act, and each registration statement and prospectus filed by the Company with the SEC under the Securities Act. (c) For so long as any Notes remain outstanding, the Company shall furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4). SECTION 4.04 COMPLIANCE CERTIFICATE. (a) The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year, an Officer's Certificate stating that a review of the activities of the Company and its subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether each has kept, observed, performed and fulfilled in all respects its obligations under this Indenture and further stating, as to such Officers signing such certificate, that to the best of their knowledge each has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in any respect in default in the performance or observance of any of the terms, provisions and conditions hereof or thereof (or, if such Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he may have knowledge and what action each is taking or proposes to take with respect thereto). (b) The Company shall, so long as any of the Notes are outstanding, deliver to the Trustee, within five days after becoming aware of (i) any Default or Event of Default or (ii) any event of default under any other mortgage, indenture or instrument as that term is used in Section 6.01(iv) which permits an acceleration that could become an Event of Default, an Officer's Certificate specifying such Default, Event of Default or event of default and what action the Company is taking or proposes to take with respect thereto. SECTION 4.05 TAXES The Company shall, and shall cause each of its Subsidiaries to, pay prior to delinquency all material taxes, assessments, and governmental levies except as contested in good faith and by appropriate proceedings. SECTION 4.06 STAY, EXTENSION AND USURY LAWS. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. SECTION 4.07 OTHER COVENANTS. (a) The Bank will not, and the Company will not permit the Bank to, consolidate with, merge with or into, or sell, lease or otherwise transfer all or substantially all of its assets (as an entirety in one transaction or a series of related transactions) to, any Person (other than a Wholly- Owned Subsidiary of the Company) unless, the surviving or acquired entity (if other than the Bank) (i) is an institution organized and existing under the laws of the United States of America or any state thereof or the District of Columbia, the customer deposit accounts of which are insured by the FDIC, (ii) at the time of such consolidation, merger, sale or transfer and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing, and (iii) the Company remains in Control of the surviving or acquired entity. (b) The Company will not and will not permit any Subsidiary to -21- (i) sell, transfer or otherwise convey any shares of the Bank's Capital Stock that are legally or beneficially owned by the Company or such Subsidiary, except the granting of the Liens securing the Notes and the Senior Secured Notes and Exchange Notes referred to in the Master Recapitalization Agreement as contemplated by the Security Documents or any sale, transfer, or other conveyance to the Bank, the Company or a Subsidiary; or (ii) incur, create, assume or otherwise cause or suffer to exist (directly, indirectly or contingently) any Lien on any shares of Capital Stock of the Bank that are legally or beneficially owned by the Company or such Subsidiary, except for (x) Liens for taxes, assessments, government charges or claims (I) that are being contested in good faith by appropriate proceedings, and with respect to which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made, or (II) that are not yet due and payable, (y) any Lien arising out of an attachment, judgment or award as to which an appeal or other appropriate proceeding or contest or review has been promptly commenced (and as to which foreclosure or similar proceedings shall not have commenced) or (z) the Liens referred to in clause (i) above. ARTICLE 5 SUCCESSORS SECTION 5.01 MERGER, CONSOLIDATION OR SALE OF ASSETS. The Company shall not consolidate or merge with or into (whether or not the Company is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another Person unless: (i) the Company is the surviving corporation or the entity or the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the entity or Person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the Obligations of the Company under the Notes, this Indenture and the Security Documents pursuant to a supplemental Indenture in a form reasonably satisfactory to the Trustee; and (iii) immediately after such transaction no Default or Event of Default exists. The Company shall deliver to the Trustee prior to the consummation of the proposed transaction an Officer's Certificate to the foregoing effect and an Opinion of Counsel stating that the proposed transaction and such supplemental indenture if applicable comply with this Indenture. The Trustee shall be entitled to conclusively rely and shall be fully protected in acting or refraining from acting upon such Officer's Certificate and Opinion of Counsel. SECTION 5.02 SUCCESSOR CORPORATION SUBSTITUTED. Upon any consolidation or merger, or any sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.01, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation and not to the Company), and may exercise every right and power of the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; provided, however, that the Company shall not be released or discharged from the obligation to pay the principal of or interest on the Notes. -22- ARTICLE 6 DEFAULTS AND REMEDIES SECTION 6.01 EVENTS OF DEFAULT. Each of the following constitutes an "Event of Default": (i) default for 30 days in the payment when due of interest on the Notes; (ii) default in payment when due, whether by acceleration or otherwise, of the principal of or premium, if any, on the Notes; (iii) failure by the Company for 30 days after notice to comply with any of its other covenants, agreements or warranties in this Indenture, the Notes or the Security Documents; (iv) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company (or the payment of which is guaranteed by the Company) whether such Indebtedness or guarantee now exists, or is created after the date hereof, which default results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness the maturity of which has been so accelerated, aggregates $5.0 million or more; (v) failure by the Company or any of its Significant Subsidiaries to pay final judgments aggregating in excess of $5.0 million, which judgments are notpaid, discharged or stayed for a period of 30 days; (vi) other than as permitted under the Security Documents or the terms of this Indenture, any of the Security Documents cease to be in full force and effect, or any of the Security Documents cease to give the Trustee the Security Interests, rights, powers and privileges purported to be created thereby, or any Security Document is declared null and void, or the Company shall deny or disaffirm any of its obligations under any Security Document or any Collateral becomes subject to any Lien other than Permitted Liens; (vii) the Bank shall (x) have a conservator or receiver appointed for it, or (y) become or be deemed by the FDIC to be "critically undercapitalized" within the meaning of Section 38(b) of the Federal Deposit Insurance Act (12 U.S.C. Sec. 1811 et seq.), any successor statute thereto, or any regulations promulgated thereunder; (viii) the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary pursuant to or within the meaning of Bankruptcy Law: (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a Custodian of it or for all or substantially all of its property, (D) makes a general assignment for the benefit of its creditors, or (E) generally is not paying its debts as they become due; or -23- (ix) a court of competent jurisdiction enters an order or decree in an involuntary case or proceeding under any Bankruptcy Law that: (A) is for relief against the Company or any of its Significant Subsidiaries in an involuntary case; (B) appoints a Custodian of the Company or any of its Significant Subsidiaries or for all or substantially all of their property; or (A) orders the liquidation of the Company or any of its Significant Subsidiaries; and the order or decree remains unstayed and in effect for 60 consecutive days. The term "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. SECTION 6.02 ACCELERATION. If an Event of Default (other than an Event of Default specified in clauses (vii) and (viii) of Section 6.01, with respect to the Company or any Significant Subsidiary) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in principal amount of the then outstanding Notes by written notice to the Company and the Trustee, may declare the unpaid principal of and any accrued interest on all the Notes to be due and payable immediately. Upon such declaration the principal and interest shall be due and payable immediately. If an Event of Default specified in clause (vii) or (viii) of Section 6.01 occurs with respect to the Company or any Significant Subsidiary, such an amount shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. In the event of a declaration of acceleration of the Notes because an Event of Default in Section 6.01(iv) hereof has occurred and is continuing, such declaration of acceleration shall be automatically annulled if the holders of the Indebtedness described in Section 6.01(iv) hereof have rescinded the declaration of acceleration in respect of such Indebtedness within 15 Business Days thereof and if (i) the annulment of such acceleration would not conflict with any judgment or decree of a court of competent jurisdiction, (ii) all existing Events of Default, except non-payment of principal and interest which shall have become due solely because of the acceleration, have been cured or waived and (iii) the Company has delivered an Officer's Certificate to the Trustee to the effect of clauses (i) and (ii) above. In accordance with the provisions of Section 6.04, the Holders of a majority in principal amount of the then outstanding Notes by written notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal or interest that has become due solely because of the acceleration) have been cured or waived. SECTION 6.03 OTHER REMEDIES. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal and interest on the Notes or to enforce the performance of any provision of the Notes, this Indenture or the Security Documents. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. Each Holder, by accepting a Note, acknowledges that the exercise of remedies by the Trustee with respect to the Collateral is subject to the terms and conditions of the Security Documents and the proceeds received upon realization of the Collateral shall be applied by the Trustee in accordance with the Security Agreement and Section 6.10 of this Indenture. -24- SECTION 6.04 WAIVER OF PAST DEFAULTS. Holders of a majority in aggregate principal amount of the Notes then outstanding by written notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under this Indenture (except a continuing Default or Event of Default in the payment of interest or premium on, or the principal of, any Note held by a non- consenting Holder or a Default in respect of a provision that under Section 9.02 cannot be amended without the consent of each Holder affected thereby). Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. SECTION 6.05 CONTROL BY MAJORITY. Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it hereunder or under the Security Documents. However, the Trustee may refuse to follow any direction that conflicts with law, this Indenture or the Security Documents or that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability. SECTION 6.06 LIMITATION ON SUITS. A Holder of a Note may pursue a remedy with respect to this Indenture, the Notes or the Security Documents only if: (a) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (c) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note. SECTION 6.07 RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder except to the extent that the institution or prosecution of such suit or the entry of judgment therein would, under applicable law, result in the surrender, impairment or waiver of the Lien of this Indenture and the Security Documents upon the Collateral. SECTION 6.08 COLLECTION SUIT BY TRUSTEE. If an Event of Default specified in Section 6.01(i) or (ii) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal and interest remaining unpaid on the Notes, interest on overdue principal and, to the extent -25- lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, including, but not limited to, all amounts owing to the Trustee under Section 7.07 herein. SECTION 6.09 TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any Custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.10 PRIORITIES. Subject to the provisions of Article 10 hereof, if the Trustee collects any money pursuant to this Article 6, it shall pay out the money in the following order: First: to the Trustee, its agents and attorneys for any amounts due under Section 7.07 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium, and interest ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium and interest, respectively; and Third: without duplication, to Holders of Notes for any other Obligations owing to the Holders of Notes under the Notes or this Indenture; and Fourth: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders. SECTION 6.11 UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. -26- ARTICLE 7 TRUSTEE SECTION 7.01 DUTIES OF TRUSTEE. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the duties, rights and powers vested in it by this Indenture and the Security Documents, and use the same degree of care and skill in its exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (i) the duties and responsibilities of the Trustee shall be determined solely by the express provisions of this Indenture and of the Security Documents and the Trustee need perform only those duties that are specifically set forth in this Indenture or the Security Documents and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any statements, certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture and the Security Documents. However, the Trustee shall examine the statements, certificates and opinions to determine whether or not they conform to the requirements of this Indenture and the Security Documents. (c) The Trustee shall not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section 7.01; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is conclusively determined by a court of competent jurisdiction that the Trustee was negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof or any other direction of the Company or Holders permitted under this Indenture. (d) Whether or not therein expressly so provided, every provision of this Indenture or the Security Documents that in any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section 7.01 and Sections 315 and 316 of the TIA. (e) No provision of this Indenture or the Security Documents shall require the Trustee to expend or risk its own funds or incur any liability whatsoever, financial or otherwise, in the performance of any of its duties hereunder or under the Security Documents or in the exercise of any of its rights or powers hereunder or under any Security Documents. The Trustee shall be under no obligation to exercise any of its duties under this Indenture or under the Security Documents at the request of any Holder, unless such Holder shall have offered to the Trustee security or indemnity satisfactory to it against any loss, liability or expense that might be incurred by it in compliance with such request or direction. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. (g) All indemnifications and releases from liability granted herein to the Trustee shall extend to the directors, officers, employees and agents of the Trustee and to the Paying Agent and Registrar. -27- SECTION 7.02 RIGHTS OF TRUSTEE. (a) The Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval or other paper or document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval or other paper or document, but the Trustee may, in its discretion, make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney. (b) Before the Trustee acts or refrains from acting, it shall be entitled to an Officer's Certificate or an Opinion of Counsel or both. Such opinion or certificate shall be full warranty to the Trustee for any action taken, suffered or omitted by it under the provisions of this Agreement upon the faith thereof, and the Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officer's Certificate or Opinion of Counsel. The Trustee may consult with counsel and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through agents, attorneys, custodians or nominees and shall not be responsible for the misconduct or negligence of any agents, attorneys, custodians or nominees appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers conferred upon it by this Indenture or the Security Documents; provided, however, that the Trustee's conduct does not constitute gross negligence or willful misconduct. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture or the Security Documents at the request or discretion of any of the Holders unless such Holders shall have offered to the Trustee Security or indemnity satisfactory to it against any loss, liability or expense that might be incurred by it in compliance with such request or direction. SECTION 7.03 INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or an Affiliate with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to Sections 7.10 and 7.11. Subject to the provisions of Section 310(b) of the TIA, the Trustee shall be permitted to engage in transactions with the Company and its Subsidiaries other than those contemplated by this Indenture. SECTION 7.04 TRUSTEE'S DISCLAIMER. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture, the Notes or the Security Documents. It shall not be accountable for the Company's use or application of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture or the Security Documents, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or the Security Documents or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. -28- SECTION 7.05 NOTICE OF DEFAULTS. The Trustee shall not be deemed to have notice of a Default or an Event of Default unless (i) the Trustee has received written notice thereof from the Company or any Holder or (ii) a Responsible Officer of the Trustee shall have actual knowledge thereof. Except as otherwise expressly provided herein, the Trustee shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements herein, or of any of the documents executed in connection with the Notes, or as to the existence of a Default or Event of Default hereunder. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders a notice of the Default or Event of Default within 90 days after it obtains knowledge of the existence of such Event of Default. Except in the case of a Default or Event of Default in payment of principal, premium, if any, and interest on any Note, the Trustee shall be protected in withholding such notice if and so long as the Trustee in good faith determines that withholding the notice is in the interests of Holders. SECTION 7.06 REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES. Within 60 days after each October 15 beginning with the October 15 following the date of this Indenture, the Trustee shall mail to Holders a brief report dated as of such reporting date that complies with TIA (S) 313(a) (but if no event described in TIA (S) 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA (S) 313(b). The Trustee shall also transmit by mail all reports as required by TIA (S) 313(c). Commencing at the time this Indenture is qualified under the TIA, a copy of each report at the time of its mailing to the Holders shall be filed with the SEC and each stock exchange on which the Notes are listed. The Company shall promptly notify the Trustee in writing when the Notes are listed on any stock exchange. SECTION 7.07 COMPENSATION AND INDEMNITY. The Company shall pay to the Trustee, and the Trustee shall be entitled to, compensation for its acceptance of this Indenture and services hereunder and under the Security Documents which shall be agreed to by the Company and the Trustee in a separate fee agreement. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services, except any disbursements, expenses and advances as may be attributable to the Trustee's negligence or willful misconduct. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel and other persons not regularly in its employ. The Company shall, jointly and severally, indemnify the Trustee for, and hold the Trustee, its officers, directors, employees and agents harmless against any and all losses, liabilities, damages, claims or expenses including taxes (other than taxes based on the income of the Trustee) incurred by it arising out of or in connection with the acceptance or administration or performance of its duties under this Indenture, the Notes and the Security Documents, except as set forth in the next paragraph. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld or delayed. The Company need not reimburse any expense or indemnity against any loss or liability incurred by the Trustee through its own negligence or bad faith. The obligations of the Company under this Section 7.07 shall survive the satisfaction and discharge of this Indenture and the resignation or removal of the Trustee. -29- To secure the Company's payment obligations in this Section 7.07, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal of and interest on particular Notes. Such Lien shall survive the satisfaction and discharge of this Indenture. The obligations of the Company under this Section to compensate and indemnify the Trustee and each predecessor Trustee and to pay or reimburse the Trustee and each predecessor Trustee for expenses, disbursements and advances shall constitute additional indebtedness hereunder and shall survive the satisfaction and discharge of this Indenture or the rejection or termination of this Indenture under any Bankruptcy Law. Such additional indebtedness shall be a senior claim to that of the Notes upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the Holders of particular Notes or coupons, and the Notes are hereby subordinated to such senior claim. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01 (vii) or (viii) hereof occurs, the parties hereto and the Holders by their acceptance of the Notes hereby agree that such expenses and the compensation for the services (including the reasonable fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 7.08 REPLACEMENT OF TRUSTEE. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 7.08. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of Notes of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10 hereof; (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a custodian or public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. If a successor Trustee does not take office within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of Notes of at least 10% in principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee, after written request by any Holder of a Note who has been a Holder of a Note for at least six months, fails to comply with Section 7.10, such Holder of a Note may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture and the Security Documents. The successor Trustee shall mail a notice of its succession to Holders of the Notes. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee. -30- SECTION 7.09 SUCCESSOR TRUSTEE BY MERGER, ETC. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall, if such resulting surviving or transferee corporation is otherwise eligible hereunder, be the successor Trustee (and the successor to the Trustee under the Security Documents). In case at the time such successor or successors by merger, conversion or consolidation to the Trustee shall succeed to the trusts created by this Indenture any of the Notes shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Notes so authenticated; and in case at that time any of the Notes shall not have been authenticated, any successor to the Trustee may authenticate such Notes either in the name of any predecessor hereunder or in the name of the successor to the Trustee; and in all such cases such certificate shall have the full force and effect that it is anywhere in the Notes or in this Indenture provided that the certificate of the Trustee shall have. SECTION 7.10 ELIGIBILITY; DISQUALIFICATION. There shall at all times be a Trustee hereunder which shall be a corporation organized and doing business under the laws of the United States of America or of any state thereof authorized under such laws to exercise corporate trustee power, shall be subject to supervision or examination by Federal or state authority and shall have (or in the case of a corporation included in a bank holding company system, the related bank holding company shall have) a combined capital and surplus of at least $10,000,000 as set forth in its most recent published annual report of condition. SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The Trustee is subject to TIA (S) 311(a), excluding any creditor relationship listed in TIA (S) 311(b). A Trustee who has resigned or been removed shall be subject to TIA (S) 311(a) to the extent indicated therein. SECTION 7.12 MONEY HELD IN TRUST. The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law and except for money held in trust under Article 8 of this Indenture. SECTION 7.13 RIGHT OF TRUSTEE IN CAPACITY OF REGISTRAR OR PAYING AGENT. In the event that the Trustee is also acting in the capacity of Paying Agent or Registrar hereunder, the rights and protections afforded to the Trustee pursuant to this Article 7 shall also be afforded to the Trustee in its capacity as Paying Agent or Registrar. ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE SECTION 8.01 OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE. At any time after September 30, 2002, the Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officer's Certificate, at any time, elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article 8. SECTION 8.02 LEGAL DEFEASANCE AND DISCHARGE. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be -31- deemed to have been discharged from their obligations (except as set forth below) with respect to all outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Notes to receive solely from the trust fund described in Section 8.04 hereof, and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and interest on such Notes when such payments are due, (b) the Company's obligations with respect to such Notes under Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.10, 2.12, 4.02, 4.07 and the whole of Article 12 hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's obligations in connection therewith and (d) this Article 8. Subject to compliance with this Article 8, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof. SECTION 8.03 COVENANT DEFEASANCE. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from its obligations under the covenants contained in Sections 4.03, 4.04 and 4.05 and Article 5 hereof and the Security Documents with respect to the outstanding Notes on and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Company and its Subsidiaries may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. SECTION 8.04 CONDITIONS TO LEGAL OR COVENANT DEFEASANCE. The following shall be the conditions to the application of either Section 8.02 or 8.03 hereof to the outstanding Notes: (a) the Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 7.10 who shall agree to comply with the provisions of this Article Eight applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Notes, (i) cash in U.S. Dollars in an amount, or (ii) non-callable Government Securities which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, cash in U.S. Dollars in an amount, or (iii) a combination thereof, in such amounts, as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge the principal of, premium, if any, and interest on the outstanding Notes on the stated maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the Notes are being defeased to maturity or to a particular redemption date of such principal or installment of principal, premium, if any, or interest; provided that the Trustee shall have been irrevocably instructed to apply such money or the proceeds of such non-callable Government Securities to said payments with respect to the Notes; -32- (b) In the case of an election under Section 8.02, either (i) (A) the Notes will become due and payable at their stated maturity within one year after the date of such election pursuant to Section 8.02 or, within one year after the date of such election, the Notes will be redeemable at the option of the Company and will be redeemed by the Company pursuant to irrevocable instructions issued to the Trustee at the time of such election for the giving of a notice of redemption by the Trustee for such redemption and (B) the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably satisfactory to the Trustee to the effect that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to Federal income tax in the same amount, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred or (ii) the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably satisfactory to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date hereof, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (c) In the case of an election under Section 8.03, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably satisfactory to the Trustee to the effect that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to Federal income tax in the same amount, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (d) No Default or Event of Default with respect to the Notes shall have occurred and be continuing on the date of such deposit or, in so far as Section 6.01(vii) or (viii) is concerned, at any time in the period ending on the 91st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period); (e) Such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (f) In the case of an election under either Section 8.02 or 8.03, the Company shall have delivered to the Trustee an Officer's Certificate stating that the deposit made by the Company pursuant to its election under Section 8.02 or 8.03 was not made by the Company with the intent of preferring the Holders over other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; and (g) The Company shall have delivered to the Trustee an Officer's Certificate and an Opinion of Counsel in the United States, each stating that all conditions precedent provided for relating to either the Legal Defeasance under Section 8.02 or the Covenant Defeasance under Section 8.03 (as the case may be) have been complied with as contemplated by this Section 8.04. SECTION 8.05 DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to Section 8.06 hereof, all money and Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium and interest, but such money need not be segregated from other funds except to the extent required by law. -33- The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article 8 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. SECTION 8.06 REPAYMENT TO COMPANY. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of and premium or interest on any Note and remaining unclaimed for one year after such principal and premium or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter, as a creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the written request and expense of the Company cause to be published once, in The New York Times or The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 8.07 REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any United States dollars or Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the obligations of the Company under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if either the Company makes any payment of principal of and premium or interest on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent and provided further that if such order or judgment is issued in connection with the insolvency, receivership or other similar occurrence with respect to the Trustee, upon the reinstatement of such obligations the Company shall be released from its obligations under Sections 4.03, 4.04 and 4.05 and Article 5. ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER SECTION 9.01 WITHOUT CONSENT OF HOLDERS OF NOTES. Notwithstanding Section 9.02 of this Indenture and subject to the next succeeding paragraph, the Company and the Trustee may amend or supplement this Indenture, the Notes or the Security Documents without the consent of any Holder of a Note: (a) to cure any ambiguity, defect or inconsistency; (b) to provide for uncertificated Notes in addition to or in place of certificated Notes; -34- (c) to provide for the assumption of the Company's obligations to Holders of Notes in the case of a merger or consolidation pursuant to Article 5 hereof, as applicable; (d) to make any change that would provide any additional rights or benefits to the Holders of Notes or that does not adversely affect the legal rights hereunder and under the Security Documents of any Holder of the Notes; (e) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA; or (f) to mortgage, pledge or grant a Security Interest in favor of the Trustee as additional security for the payment and performance of obligations under this Indenture and the Notes, in any property or assets, including any which are required to be mortgaged, pledged or hypothecated, or in which a Security Interest is required to be granted pursuant to the provisions of the Security Documents or otherwise. Upon the written request of the Company accompanied by a resolution of its Board of Directors of the Company authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 9.06 hereof, the Trustee shall join with the Company in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise. SECTION 9.02 WITH CONSENT OF HOLDERS OF NOTES. The Company and the Trustee may amend or supplement this Indenture or the Notes with the written consent of the Holders of at least a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for the Notes) and any existing Default (including, without limitation, an acceleration of the Notes) or compliance with any provision of this Indenture or the Notes may be waived with the written consent of the Holders of at least a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for the Notes). Upon the written request of the Company, accompanied by a resolution of its Board of Directors authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders as aforesaid, and upon receipt by the Trustee of the documents described in Section 9.06 hereof, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After a supplement, amendment or waiver under this Section becomes effective, the Company shall mail to the Holders of each Note affected thereby a notice briefly describing the supplement, amendment or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture, amendment or waiver. Subject to Sections 6.04(a) and 6.07 hereof, the Holders of a majority in principal amount of the Notes then outstanding may waive compliance in a particular instance by the Company with any provision of this Indenture or the Notes. However, without the consent of each Holder affected, a supplement, amendment or waiver under this Section may not (with respect to any Notes held by a non-consenting Holder): -35- (1) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver of this Indenture, the Notes or the Security Documents; (2) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to redemption of the Notes; (3) reduce the rate of or change the time for payment of interest, including default interest on any Note; (4) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on any Note (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the Notes and a waiver of the payment default that resulted from such acceleration); (5) make any Note payable in money other than that stated in the Note; (6) make any change in Section 6.04(a) or 6.07 hereof or in this sentence of this Section 9.02 or the rights of Holders of Notes to receive payments of principal of or premium, if any, or interest on any Notes; (7) waive a redemption payment with respect to any Note; or (8) make any change in the foregoing amendment and waiver provisions. SECTION 9.03 COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment or supplement to this Indenture, the Notes or the Security Documents shall be set forth in a amended or supplemental Indenture that complies with the TIA as then in effect. SECTION 9.04 REVOCATION AND EFFECT OF CONSENTS. Until a supplement, amendment or waiver becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder or subsequent Holder may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver or amendment becomes effective. An amendment or waiver becomes effective in accordance with its terms and thereafter binds every Holder. The Company may fix a record date for determining which Holders must consent to such amendment or waiver. If the Company fixes a record date, the record date shall be fixed at (i) the later of 30 days prior to the first solicitation of such consent or the date of the most recent list of Holders furnished to the Trustee prior to such solicitation pursuant to Section 2.05, or (ii) such other date as the Company shall designate. No such consent shall be effective for more than 120 days after such record date. SECTION 9.05 NOTATION ON OR EXCHANGE OF NOTES. The Trustee may place an appropriate notation about a supplement, amendment or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall authenticate new Notes that reflect the supplement, amendment or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. -36- SECTION 9.06 TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee shall sign any amendment or supplemental indenture authorized pursuant to this Article 9 if the amendment does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, sign it. In signing or refusing to sign such amendment or supplemental indenture, the Trustee shall be entitled to receive, if requested, an indemnity satisfactory to it and to receive and, subject to Section 7.01, shall be fully protected in relying upon, an Officer's Certificate and an Opinion of Counsel as conclusive evidence that such amendment or supplemental indenture is authorized or permitted by this Indenture, that it is not inconsistent herewith, and that it constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. The Company may not sign an amendment or supplemental indenture until the irrespective Board of Directors approves it. ARTICLE 10 SUBORDINATION SECTION 10.01 NOTES SUBORDINATED TO SENIOR SECURED DEBT. The Company covenants and agrees, and each Holder of the Notes, by its acceptance thereof, likewise covenants and agrees, that all Notes shall be issued subject to the provisions of this Article Ten; and each Person holding any Note, whether upon original issue or upon registration of transfer, assignment or exchange thereof, accepts and agrees that the payment of all Obligations on the Notes by the Company shall, to the extent and in the manner herein set forth, be subordinated and junior in right of payment to the prior payment in full in cash or Cash Equivalents of all Obligations on or in respect of Senior Secured Debt to the extent set forth herein; that the subordination is for the benefit of, and shall be enforceable directly by, the holders of Senior Secured Debt, and that each holder of Senior Secured Debt whether now outstanding or hereafter created, incurred, assumed or guaranteed shall be deemed to have acquired Senior Secured Debt in reliance upon the covenants and provisions contained in this Indenture and the Notes. SECTION 10.02 PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC. Until all Senior Secured Debt shall have been paid in full, exchanged for Notes or otherwise retired, in the event of: (a) the occurrence of an Event of Default (as such term is defined in the Senior Secured Debt) and continuance thereof beyond any grace period provided in the Senior Secured Debt; (b) any acceleration of the maturity of any other Indebtedness of the Company, or (c) the institution of any liquidation, dissolution, bankruptcy, insolvency or similar proceeding relating to the Company or its property, the Holders of the Notes shall not be entitled to receive and, by execution and delivery of this Indenture the Holders of the Notes agree not to accept, any payment of principal or interest until all amounts owing in respect of the Senior Secured Debt shall have been paid in full; and from and after the happening of any event described in clause (c) of this Section 10.02, all payments and distributions of any kind or character (whether in cash, securities or property) which, except for the provisions hereof, would have been payable or distributable to or for the benefit of the holders of the Notes, shall be made to and for the benefit of the Holders of the Senior Secured Debt (who shall be entitled to make all necessary claims therefor) in accordance with the priorities of payment set forth herein until all Senior Secured Debt shall have been paid in full. In the event that any payment or distribution is made with respect to the Notes in violation of the terms hereof, any Holder receiving such payment or distribution shall (and, by acceptance of the Notes, agrees to) hold it in trust for the benefit of, and shall remit it to, the holders of the Senior Secured Debt in accordance with the priorities of payment set forth herein and in the Security Agreement. -37- SECTION 10.03 PAYMENTS MAY BE PAID PRIOR TO CERTAIN EVENTS. Nothing contained in this Article Ten or elsewhere in this Indenture shall prevent (i) the Company from making payments at any time in respect of principal of and interest on the Notes, or from depositing with the Trustee any moneys for such payments, or (ii) the application by the Trustee or such Paying Agent, as the case may be, of any moneys deposited with it for the purpose of making such payments of principal of, and interest on, the Notes to the Holders entitled thereto (provided that, notwithstanding the foregoing, such -------- application shall be subject to the provisions of Section 10.02). The Company shall give prompt written notice to the Trustee and each Paying Agent of any event described in Section 10.02. SECTION 10.04 SUBROGATION Subject to the payment in full in cash or Cash Equivalents of all Senior Secured Debt, the Holders of the Notes shall be subrogated to the rights of the holders of Senior Secured Debt to receive payments or distributions of cash, property or securities of the Company applicable to the Senior Secured Debt until the Notes shall be paid in full; and, for the purposes of such subrogation, no such payments or distributions to the holders of the Senior Secured Debt by or on behalf of the Company or by or on behalf of the Holders by virtue of this Article Ten which otherwise would have been made to the Holders shall, as between the Company and the Holders of the Notes, be deemed to be a payment by the Company to or on account of the Senior Secured Debt, it being understood that the provisions of this Article Ten are and are intended solely for the purpose of defining the relative rights of the Holders of the Notes, on the one hand, and the holders of the Senior Secured Debt, on the other hand. SECTION 10.05 OBLIGATIONS OF THE COMPANY UNCONDITIONAL. Nothing contained in this Article Ten or elsewhere in this Indenture or in the Notes is intended to or shall impair, as among the Company, its creditors other than the holders of Senior Secured Debt, and the Holders, the obligation of the Company, which is absolute and unconditional, to pay to the Holders the principal of and any interest on the Notes as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of the Company other than the holders of the Senior Secured Debt, nor shall anything herein or therein prevent the Holder of any Note or the Trustee on its behalf from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, in respect of cash, property or securities of the Company received upon the exercise of any such remedy. SECTION 10.06 NOTICE TO TRUSTEE AND PAYING AGENTS. The Company shall give prompt written notice to the Trustee and each Paying Agent of any fact known to the Company which would prohibit the making of any payment to or by the Trustee or any Paying Agent in respect of the Notes pursuant to the provisions of this Article Ten. Regardless of anything to the contrary contained in this Article Ten or elsewhere in this Indenture, neither the Trustee nor any Paying Agent shall be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee or any Paying Agent unless and until the Trustee or such Paying Agent, as the case may be, shall have received notice in writing from the Company, or from a holder of Senior Secured Debt or a representative therefor, together with proof satisfactory to the Trustee or such Paying Agent, as the case may be, of such holding of Senior Secured Debt or of the authority of such representative, and, prior to the receipt of any such written notice, the Trustee shall be entitled to assume (in the absence of actual knowledge to the contrary) that no such facts exist. In the event that the Trustee or any Paying Agent determines in good faith that any evidence is required with respect to the right of any Person as a holder of Senior Secured Debt to participate in any payment or distribution pursuant to this Article Ten, the Trustee or such Paying Agent, as the case may be, may request such Person to furnish evidence to the reasonable satisfaction of the Trustee or such Paying Agent, as the case may be, as to the amounts of Senior Secured Debt held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article Ten. If such evidence is not furnished to the Trustee or such Paying Agent, as the case may be, the Trustee or such Paying Agent shall incur no liability and shall be fully protected in deferring any payment to such Person pending judicial determination as to the right of such Person to receive such payment. -38- SECTION 10.07 RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT. Upon any payment or distribution of assets of the Company referred to in this Article Ten, the Trustee, subject to the provisions of Article Seven hereof, each Paying Agent and the Holders of the Notes shall be entitled to conclusively rely and shall be fully protected in acting or refraining from acting upon any order or decree made by any court of competent jurisdiction in which any insolvency, bankruptcy, receivership, dissolution, winding-up, liquidation, reorganization or similar case or proceeding is pending, or upon a certificate of the receiver, trustee in bankruptcy, liquidating trustee, receiver, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or the Holders of the Notes, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Secured Debt and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Ten. SECTION 10.08 TRUSTEE'S RELATION TO SENIOR SECURED DEBT. The Trustee, each Agent and any agent of the Company, of the Trustee or any Agent shall be entitled to all the rights set forth in this Article Ten with respect to any Senior Secured Debt which may at any time be held by it in its individual or any other capacity to the same extent as any other holder of Senior Secured Debt and nothing in this Indenture shall deprive the Trustee, any Agent or any such agent of any of its rights as such a holder. With respect to the holders of Senior Secured Debt, the Trustee and each Agent undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article Ten, and no implied covenants or obligations with respect to the holders of Senior Secured Debt shall be read into this Indenture against the Trustee or any Agent. Neither the Trustee nor any Agent shall be deemed to owe any fiduciary duty to the holders of Senior Secured Debt. Whenever a distribution is to be made or a notice is to be given to holders or owners of Senior Secured Debt, the distribution may be made and the notice may be given to their representatives, if any. SECTION 10.09 SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF THE COMPANY. No right of any present or future holders of any Senior Secured Debt to enforce subordination as provided herein shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Secured Debt may, at any time and from time to time, without the consent of or notice to the Trustee, without incurring responsibility to the Trustee or the Holders of the Notes and without impairing or releasing the subordination provided in this Article Ten or the obligations hereunder of the Holders of the Notes to the holders of the Senior Secured Debt, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Secured Debt, or otherwise amend or supplement in any manner Senior Secured Debt, or any instrument evidencing the same or any agreement under which Senior Secured Debt is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Secured Debt; (iii) release any Person liable in any manner for the payment or collection of Senior Secured Debt; and (iv) exercise or refrain from exercising any rights against the Company and any other Person. SECTION 10.10 NOTEHOLDERS AUTHORIZE TRUSTEE AND PAYING AGENT TO EFFECTUATE SUBORDINATION OF NOTES. Each Holder of Notes by its acceptance of them authorizes and expressly directs the Trustee and each Paying Agent on its behalf to take such action as may be necessary or appropriate to effectuate, as between the -39- holders of Senior Secured Debt and the Holders of Notes, the subordination provided in this Article Ten, and appoints the Trustee and each Paying Agent its attorney-in-fact for such purposes, including, in the event of any dissolution, winding-up, liquidation or reorganization of the Company (whether in bankruptcy, insolvency, receivership, reorganization or similar proceedings or upon an assignment for the benefit of creditors or otherwise) tending towards liquidation of the business and assets of the Company, the filing of a claim for the unpaid balance of its Notes and accrued interest in the form required in those proceedings. If the Trustee does not file a proper claim or proof of debt in the form required in such proceeding prior to 30 days before the expiration of the time to file such claim or claims, then the holders of the Senior Secured Debt or their representatives are hereby authorized to have the right to file and are hereby authorized to file an appropriate claim for and on behalf of the Holders of said Notes. Nothing herein contained shall be deemed to authorize the Trustee or the holders of Senior Secured Debt or their representatives to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee or the holders of Senior Secured Debt or their representatives to vote in respect of the claim of any Holder in any such proceeding. SECTION 10.11 TRUSTEE'S COMPENSATION NOT PREJUDICED. Nothing in this Article Ten will apply to amounts due to the Trustee pursuant to other sections in this Indenture. ARTICLE 11 SECURITY DOCUMENTS SECTION 11.01 COLLATERAL AND SECURITY DOCUMENTS. In order to secure the due and punctual payment of the Notes, the Company has entered into the Security Agreement to create the Security Interests and for related matters. Subject to the provisions in the Security Agreement and this Indenture, the Notes shall be secured by the Collateral securing the Senior Secured Debt in accordance with the terms of the Security Agreement. Each holder of a Note, by accepting such Note, agrees to all of the terms and provisions of the Security Agreement, as the same may be amended from time to time pursuant to the provisions of the Security Agreement and this Indenture. Additionally, each holder of a Note, by accepting such Note, directs the Trustee to authorize the release, from time to time, from the security interest any Pledged Debt or Pledged Securities (as such terms are defined in the Security Agreement) as contemplated by and pursuant to Section 1 of the Security Agreement, and each such Holder (for itself and any person or entity claiming through it) hereby releases, waives, discharges, exculpates and covenants not to sue the Trustee for authorizing any such release. SECTION 11.02 APPLICATION OF PROCEEDS OF COLLATERAL Upon any realization upon the Collateral, the proceeds thereof shall be applied in accordance with the terms of the Security Agreement. SECTION 11.03 RELEASE OF COLLATERAL The Company shall have the right, at any time and from time to time, to obtain a release of Collateral upon the exchange of other Collateral for such Collateral in accordance with the terms of the Security Agreement. -40- SECTION 11.04 CERTIFICATES OF THE COMPANY The Company will furnish to the Trustee and the Collateral Agent prior to any proposed release of any portion or all of the Collateral (a) all documents required by the TIA, (b) an Officer's Certificate requesting a release of collateral and describing the property to be so released and (c) an Opinion of Counsel to the effect that such accompanying documents constitute all documents required by the TIA. The Trustee and the Collateral Agent may, to the extent permitted by Sections 7.01 and 7.02 hereof, accept as conclusive evidence of compliance with the foregoing provisions the statements contained in such instruments. SECTION 11.05 OPINION OF COUNSEL The Company shall deliver to the Trustee and the Collateral Agent: (a) Promptly after the execution and delivery of the Indenture, an Opinion of Counsel either stating that in the opinion of such counsel the Indenture has been properly recorded and filed so as to make effective the lien intended to be created thereby, and reciting the details of such action, or stating that in the opinion of such counsel no such action is necessary to make such lien effective; (b) Within thirty days of July 1 of each year, an Opinion of Counsel either stating that in the opinion of such counsel such action has been taken with respect to the recording, filing, recording and refiling of the Indenture as is necessary to maintain the lien of the Indenture, and reciting the details of such action, or stating that in the opinion of such counsel no such action is necessary to maintain such lien. SECTION 11.06 RIGHTS OF TRUSTEE UNDER SECURITY AGREEMENT The rights, protections, immunities and indemnities of the Trustee set forth herein shall apply, mutatis mutandis, to the Trustee under the Security Agreement. ARTICLE 12 CONVERSION SECTION 12.01 CONVERSION PRIVILEGE; INTEREST TO CONVERSION DATE. A Holder of a Note may convert it into Common Stock of the Company on any Business Day after June 29, 2004 and prior to the Stated Maturity of such Note, except that if the Note (or portion thereof, to the extent set forth below) is called for redemption at any time, the Holder may convert it on any Business Day before the close of business on the fifth Business Day prior to the Redemption Date. The number of shares issuable upon conversion of a Note shall be determined by dividing the principal amount to be converted by the conversion price in effect on the Conversion Date and rounding the result to the nearest 1/100th of a share. The conversion price is $1.25 per share, subject to adjustment in certain events as provided in this Article. A Holder may convert a portion of a Note if such portion is $100,000 or an integral multiple thereof. Provisions of this Indenture that apply to conversion of all of a Note also apply to conversion of a portion of it. Each Note surrendered for conversion shall bear interest (i) if such Note has been called for redemption, to the date fixed for redemption, (ii) if the Conversion Date therefor is an Interest Payment Date, to such Conversion Date or (iii) otherwise, to the Interest Payment Date next succeeding such Conversion Date, in each case payable on the date to which interest so accrues to the Holder surrendering such Note or, if such conversion is made during the period from the close of business on a record date to the close of business on the immediately succeeding Interest Payment Date, to the Holder of such Note on such record date, in each case whether or not such interest is punctually paid or duly provided for; provided, however, that the delivery of such Note for -------- ------- conversion -41- shall (unless the Conversion Date is an Interest Payment Date) have been accompanied by payment by the Holder thereof in next day funds or other funds acceptable to the Company of an amount equal to the interest which accrues on the principal amount of such Note for the period from the Conversion Date to the next succeeding Interest Payment Date (or, if such Note has been called for redemption, to the date fixed for redemption). SECTION 12.02 CONVERSION PROCEDURE. To convert a Note, a Holder must (1) complete and sign the conversion notice on the back of the Note, (2) surrender the Note to the Company at the office or agency of the Company maintained in accordance with Section 4.02, (3) furnish appropriate endorsements and transfer documents in blank if required by the Company, (4) pay any transfer or similar tax if required by applicable law and (5) pay any interest to the extent required by Section 12.01. The date on which the Holder satisfies all these requirements is the "Conversion Date". As soon as practicable, the Company shall deliver a certificate for the number of full shares of Common Stock issuable upon the conversion and a check for the amount representing any fractional share. A conversion pursuant to this Section 12.02 shall be deemed to have been made immediately prior to the close of business on the Holder's Conversion Date. The Person or Persons entitled to receive shares of Common Stock upon such conversion shall be treated for all corporate purposes as the holder or holders of such shares of Common Stock as of the close of business on the Holder's Conversion Date; provided, however, that -------- ------- any such surrender on any date when the stock transfer books of the Company shall be closed shall constitute the Person or Persons in whose name or names the certificates are to be issued as the record holder or holders thereof for all purposes on the next succeeding day on which such stock transfer books are open, but such conversion shall be at the conversion price in effect on such next succeeding day on which such transfer books are open. No payment or adjustment will be made for dividends on any Common Stock issued upon conversion of a Note. If a Holder converts more than one Note at the same time, the number of full shares issuable upon the conversion shall be based on the total principal amount of the Notes converted. Upon surrender of a Note that is converted in part, the Company shall issue and the Trustee shall authenticate for the Holder a new Note equal in principal amount to the unconverted portion of the Note surrendered provided that such Note shall be in an authorized denomination. If the last day on which a Note may be converted is not a Business Day, the Note may be surrendered to the Company on the next succeeding day that is a Business Day. In any case in which this Article 12 shall require that an adjustment be made retroactively immediately following a record date, the Company may defer (but only until 15 days after the adjustment becomes effective) issuing to the holder of any shares converted after such record date (i) the shares of Common Stock issuable upon such conversion over and above (ii) the shares of Common Stock issuable upon such conversion computed solely on the basis of the conversion price prior to such adjustment. SECTION 12.03 FRACTIONAL SHARES. The Company will not issue a fractional share of Common Stock upon conversion of a Note. Instead the Company will deliver its check for the current market value of the fractional share. The current market value of a fraction of a share shall be determined by multiplying the current market price on the Holder's Conversion Date of a full share by the fraction and rounding the result to the nearest cent. The current market price of a share of Common Stock is the closing price of the Common Stock on the last trading day prior to the Conversion Date. In the absence of such a quotation, the Company shall determine the current market price on the basis of such quotations as it considers appropriate. -42- SECTION 12.04 TAXES ON CONVERSION. If a Holder of a Note converts it, the Company shall pay any documentary, stamp or similar issue or transfer tax due on the issue of shares of Common Stock upon the conversion. However, the Holder shall pay any such tax which is due because the shares are issued in the name other than the Holder's name and no such issuance shall be made unless and until the person requesting such issuance has paid to the agent of the Company appointed pursuant to Section 4.02 or to the Company the amount of any such tax, or has established to the satisfaction of the Company that such tax has been paid. SECTION 12.05 COMPANY TO PROVIDE STOCK. The Company shall at all times have reserved out of its authorized but unissued Common Stock or its Common Stock held in treasury enough shares of Common Stock to permit the conversion of the Notes at the Conversion Price then in effect. All shares of Common stock which may be issued upon conversion of the Notes shall be fully paid and non-assessable. As promptly as practicable on or after the Conversion Date, the Company shall issue and deliver a certificate or certificates for the number of shares of Common Stock issuable upon conversion. The Company will endeavor to comply with all securities laws regulating the offer and delivery of shares of Common Stock upon conversion of Notes. SECTION 12.06 ADJUSTMENT FOR CHANGE IN COMMON STOCK. If the Company: (1) pays a dividend or makes a distribution on its Common Stock in shares of its Common Stock; (2) subdivides its outstanding shares of Common Stock into a greater number of shares; (3) combines its outstanding shares of Common Stock into a smaller number of shares; (4) makes a distribution on its Common Stock or evidences of indebtedness of assets of the Company (other than cash dividends or distributions from retained earnings), or rights or warrants to purchase the same; or (5) issues by reclassification of its Common Stock any shares of its Capital Stock; then the conversion price in effect at the close of business on the record date for such dividend or other distribution on the record date for such dividend or other distribution or the effective date of such subdivision, combination, reclassification or other action (the "Effective Date") shall be adjusted so that the Holder of a Note converted after the close of business on such Effective Date may receive the number of shares of Capital Stock of the Company which he would have owned immediately following such action if he had converted the Note immediately prior to such time. The adjustment shall become effective, in the case of a dividend, on the payment date retroactive to immediately after the opening of business on the Business Day following the record date for shareholders entitled to receive such dividend or distribution and, in the case of a subdivision, combination, reclassification or other action, immediately after the opening of business on the Business Day following the Effective Date, subject in each case to the provisions of Section 12.11. If after an adjustment a Holder of a Note upon conversion of it may receive shares of two or more classes of Capital Stock of the Company, the Company shall determine the allocation of the adjusted conversion price between the classes of Capital Stock. After such allocation, the conversion privilege and the conversion price -43- of each class of Capital Stock shall thereafter be subject to adjustment on terms comparable to those applicable to Common Stock in this Article. The Company may also make such adjustments in the conversion price, in addition to those required above, as it considers to be advisable in order that an event which otherwise would be treated for federal income tax purposes as a dividend of stock or stock rights shall not be taxable to the recipient. SECTION 12.07 ADJUSTMENT FOR RIGHTS ISSUE. If the Company distributes any rights or warrants to all holders of its Common Stock entitling them for a period expiring within 60 days after the record date mentioned below to purchase shares of Common Stock at a price per share less than the current market price per share on that record, the conversion price shall be adjusted in accordance with the formula: O + N x P ------- C' = C x M ---------------- O + N where C'= the adjusted conversion price. C = the current conversion price. O = the number of shares of Common Stock outstanding on the record date. N = the number of additional shares of Common Stock offered. P = the offering price per share of the additional shares. M = the current market price per share of Common Stock on the record date. The adjustment shall be made successively whenever any such rights or warrants are issued and shall become effective retroactively immediately on the opening of business on the Business Day next following such record date for the determination of stockholders entitled to receive the rights or warrants (herein called the "record date") subject to the provisions of Section 12.11. If at the end of the period during which such warrants of rights are exercisable, not all warrants or rights shall have been exercised, the conversion price shall be immediately readjusted to what it would have been if "N" in the above formula had been the number of shares actually issued. SECTION 12.08 ADJUSTMENT FOR OTHER DISTRIBUTIONS OR CERTAIN ISSUANCES OF SHARES. (a) If the Company distributes to all holders of its Common Stock any of its assets (excluding any cash dividends or cash distributions from retained earnings not exceeding the total net worth of the Company), or debt securities or any rights or warrants to purchase debt securities, other securities of the Company or such assets (excluding cash dividends or cash distributions from retained earnings not exceeding the total net worth of the Company), the conversion price shall be adjusted in accordance with the formula: C' = C x M - F ------- M where C'= the adjusted conversion price. -44- C = the current conversion price. M = the current market price per share of Common Stock on the record date mentioned below. F = the fair market value on the record date of the assets, securities, rights or warrants so distributed applicable to one share of Common Stock. The Board of Directors shall determine the fair market value and such determination shall be conclusive. The adjustment shall be made successively whenever any such distribution is made and shall become effective on the opening of business on the Business Day next following the record date for the determination of stockholders entitled to receive the distribution. (b) If the Company shall issue or sell Additional Shares (defined below) or options, or warrants or other securities or rights to acquire Additional Shares without consideration or for a consideration per share less than the Conversion Price, then the Conversion Price shall be reduced, concurrently with such issue or sale, to a price determined by multiplying such Conversion Price by a fraction: (i) the numerator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to such issue or sale (including any shares of Common Stock issuable upon conversion of all outstanding shares of preferred stock and issuable upon exercise of outstanding options, warrants or other convertible securities) plus (2) the number of shares of Common Stock that the aggregate consideration received by the Company upon such issuance or sale would purchase at such Conversion Price; and (ii) the denominator of which shall be the number of shares of Common Stock outstanding immediately after such issue or sale. "Additional Shares" means all shares of Common Stock, whether or not subsequently reacquired or retired by the Company, other (x) than shares of Common Stock issued or to be issued to directors, officers, employees and consultants of the Company or any Subsidiary pursuant to any bona fide qualified or non-qualified stock option plan or agreement, stock purchase plan or agreement, stock restriction agreement, or employee stock ownership plan or employment, severance, or termination agreement, or (y) an issuance of stock as contemplated under the Master Recapitalization Agreement, including issuances of stock upon exercise or conversion of securities issued pursuant thereto. SECTION 12.09 CURRENT MARKET PRICE; TRADING DAY. In Sections 12.07 and 12.08, the current market price per share of Common Stock on any date is the unweighted average of the closing price of the Common Stock for 30 consecutive trading days commencing 45 trading days before the date in question. In the absence of one or more such quotations, the Company shall determine the current market price on the basis of such quotations as it considers appropriate. SECTION 12.10 WHEN ADJUSTMENT MAY BE DEFERRED. No adjustment in the conversion price need be made unless the adjustment would require an increase or decrease of at least 1% in the conversion price. Any adjustments that are not made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article shall be made to the nearest cent or to the nearest 1/100th of a share, as the case may be. -45- SECTION 12.11 WHEN NO ADJUSTMENT REQUIRED. No adjustment need be made for any transaction referred to in Section 12.06, 12.07 or 12.08 if the holders of Notes participate in the transaction on a basis and with notice that the Board of Directors determines to be fair and appropriate in light of the basis and notice on which holders of Common Stock participate in the transaction. If the Company shall take a record of holders of its Common Stock for the purpose of entitling them to receive any dividend, for any subscription or purchase rights or any distribution and shall, thereafter and before the distribution to stockholders of any such dividend, subscription or purchase rights of distribution, legally abandon its plan to pay or deliver such dividend, subscription or purchase rights or distribution, then no adjustment of the conversion price shall be required by reason of the taking of such record. No adjustment need be made for a change in the par value or no par value of the Common Stock. To the extent the Notes become convertible into cash, no adjustment need be made thereafter as to the cash. Interest will not accrue on the cash. SECTION 12.12 NOTICE OF ADJUSTMENT. Whenever the conversion price is adjusted, the Company shall promptly mail to the Holders a notice of the adjustment. The Company shall file with the Trustee a certificate from the Company's independent public accountants briefly stating the facts requiring the adjustment and the manner of computing it. The certificate shall be conclusive evidence that the adjustment is correct. SECTION 12.13 VOLUNTARY REDUCTION. The Company from time to time may reduce the conversion price by any amount for any period of time if the period is at least 20 days and if the reduction is irrevocable during the period; provided, that in no event may the -------- conversion price be less than the par value of a share of Common Stock. Whenever the conversion price is voluntarily reduced, the Company shall mail to the Holders and the Trustee a notice of the reduction. The Company shall mail the notice at least 15 days before the date the reduced conversion price takes effect. The notice shall state the reduced conversion price and the period it will be in effect. A voluntary reduction of the conversion price does not change or adjust the conversion price otherwise in effect for purposes of Sections 12.06, 12.07 and 12.08. SECTION 12.14 NOTICE OF CERTAIN TRANSACTIONS. If: (1) the Company engages in any transaction that would require an adjustment in the conversion price pursuant to Section 12.06, 12.07 or 12.08, and if the Company does not permit the Holders of Notes to participate in such transaction pursuant to Section 12.11; or (2) there is a liquidation or dissolution of the Company; the Company shall mail to each Holder of Notes and the Trustee a notice thereof stating (if applicable) the proposed record date for a dividend or distribution or the proposed effective date of a subdivision, combination, reclassification, consolidation, merger, transfer, lease, liquidation or dissolution. The Company shall mail the notice at least 15 days before such date. Failure to mail the notice or any defect in it shall not affect the validity of the transaction. -46- SECTION 12.15 REORGANIZATION OF COMPANY. If the Company is a party to a consolidation or a merger which results in the reclassification of the Company's Common Stock, upon consummation of such transaction the Notes shall automatically become convertible into the kind and amount of securities, cash or other assets which the Holder of a Note would have owned immediately after such transaction if the Holder had converted the Note immediately before the effective date of the transaction. Concurrently with the consummation of such transaction, the corporation formed by or surviving any such consolidation or merger, shall issue replacement Notes, or shall enter into a supplemental indenture, so providing and further providing for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article. The successor issuer shall mail to the Holders a notice briefly describing the supplemental indenture. If the issuer of securities deliverable upon conversion of Notes under the supplemental indenture is an affiliate of the formed or surviving corporation, that Company shall join in the supplemental indenture. If this Section applies, Sections 12.06, 12.07 and 12.08 do not apply. SECTION 12.16 COMPANY DETERMINATION FINAL. Any determination that the Company or the Board of Directors must make pursuant to Section 12.03, 12.06, 12.07, 12.08, 12.09 or 12.11 is conclusive. SECTION 12.17 TRUSTEE'S DISCLAIMER. The Trustee has no duty to determine when an adjustment under this Article 12 should be made, how it should be made or what it should be. The Trustee has no duty to determine whether any provisions of a supplemental indenture under Section 12.15 are correct. The Trustee makes no representation as to the validity or value of any securities or assets issued upon conversion of Notes. The Trustee shall not be responsible for the Company's failure to comply with this Article 12 or for any action or omission of the Company in connection with any conversion of Notes. Each conversion agent other than the Company shall have the same protection under this Section as the Trustee. ARTICLE 13 MISCELLANEOUS SECTION 13.01 TRUST INDENTURE ACT CONTROLS. If any provision of this Indenture or the Security Agreement limits, qualifies or conflicts with the duties imposed by TIA (S) 318(c), the imposed duties shall control to the extent they cannot be disregarded, pursuant to TIA (S) 314(d). SECTION 13.02 NOTICES. Any notice or communication by the Company or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the others' address: -47- If to the Company: Imperial Credit Industries, Inc. 23550 Hawthorne Boulevard Building 1, Suite 210 Torrance, CA 90505 Telephone: (310) 791-8040 Telecopier No.: (310) 791-8230 Attention: General Counsel If to the Trustee: The Chase Manhattan Bank and Trust Company, National Association 101 California Street Suite 2725 San Francisco, CA 94111 Telephone: (415) 954-9506 Telecopier No.: (415) 693-8850 Attention: Corporate Trust Department The Company or the Trustee by written notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if sent by registered or certified mail; when answered back, if telexed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA (S) 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. SECTION 13.03 COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES. Holders may communicate pursuant to TIA (S) 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and any other Person shall have the protection of TIA (S) 312(c). SECTION 13.04 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee, at the request of the Trustee: (a) an Officer's Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 13.05 hereof) stating that, in the opinion of the -48- signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 13.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. SECTION 13.05 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture and the Security Agreement (other than a certificate provided pursuant to TIA (S) 314(a)(4)) shall comply with the provisions of TIA (S) 314(e) and shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied. SECTION 13.06 RULES BY TRUSTEE AND AGENTS. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. SECTION 13.07 GOVERNING LAW. The internal law of the State of New York shall govern and be used to construe this Indenture and the Notes (without regard to conflicts of law provisions). Each party hereto irrevocably submits itself to the non- exclusive jurisdiction of the state and federal courts of New York for purposes of this Indenture and agrees and consents that service of process may be made upon it in any legal proceeding relating to this Indenture by any means allowed under federal or New York law. The parties hereto hereby waive and agree not to assert, by way of motion, as a defense or otherwise, that any such proceeding is brought in an inconvenient forum or that the venue thereof is improper. SECTION 13.08 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 13.09 SUCCESSORS. All agreements of the Company in this Indenture and the Notes shall bind their respective successors. All agreements of the Trustee in this Indenture shall bind its successors. -49- SECTION 13.10 SEVERABILITY. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 13.11 COUNTERPART ORIGINALS. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 13.12 TABLE OF CONTENTS; HEADINGS; ETC. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. SECTION 13.13 LEGAL HOLIDAYS. A "Legal Holiday" is a Saturday, a Sunday or a day on which banking institutions in The City of New York or at a place of payment are authorized or obligated by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. SECTION 13.14 NO RECOURSE AGAINST OTHERS. No director, officer, manager, member, organizer, employee, incorporator or shareholder of the Company, as such, shall have any liability for any obligations of the Company under the Notes or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. This waiver and release are part of the consideration for issuance of the Notes. SECTION 13.15 DUPLICATE ORIGINALS. The parties may sign any number of copies of this Indenture. One signed copy is enough to prove this Indenture. [Signatures on following page.] -50- SIGNATURES ---------- Dated as of June 28, 2001 IMPERIAL CREDIT INDUSTRIES, INC. By: /s/ H. Wayne Snavely -------------------------------- Name: H. Wayne Snavely Title: President THE CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee By: /s/ HANS H. HELLEY ------------------------------- Name: Hans H. Helley Title: Vice President EX-23.1 6 dex231.txt CONSENT OF KPMG LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS The Board of Directors Imperial Credit Industries, Inc. We consent to incorporation by reference in Amendment No. 1 to the Registration Statement (No. 333-58728) on Form S-3 of Imperial Credit Industries, Inc. of our report dated March 30, 2001, relating to the consolidated balance sheets of Imperial Credit Industries, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations and comprehensive income (loss), changes in shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 2000, which report appears in the December 31, 2000 annual report on Form 10-K/A of Imperial Credit Industries, Inc. filed on June 11, 2001 and to the reference to our firm under the heading "Experts" in Amendment No. 1 to the Registration Statement. /s/ KPMG Los Angeles, California August 27, 2001 -----END PRIVACY-ENHANCED MESSAGE-----