Exhibit 10.1

EXECUTION COPY

 

Friedman, Billings, Ramsey Group, Inc.

FBR TRS Holdings, Inc.

1001 Nineteenth Street North

Arlington, VA 22209

 

Forest Holdings LLC

Forest Holdings (ERISA) LLC

c/o Crestview Capital Partners, L.P.

667 Madison Avenue

New York, NY 10021

 

1. Introduction    This letter (the “Letter Agreement”) confirms our agreement
with respect to the transaction among Friedman, Billings, Ramsey Group, Inc.
(“FBR Group”), FBR TRS Holdings, Inc. (“FBR TRS”), FBR Capital Markets
Corporation (“FBR” or the “Company”), Forest Holdings (ERISA) LLC (“Crestview
ERISA”) and Forest Holdings LLC (“Crestview LLC” and together with Crestview
ERISA, “Crestview”) and certain related matters. This Letter Agreement will be a
binding agreement when signed by each of FBR Group, FBR TRS, FBR and Crestview.
In connection with the execution of this Letter Agreement, Crestview Capital
Partners, L.P. is delivering an equity commitment letter to each of Crestview
ERISA and Crestview LLC with respect to the investment of the Invested Capital
(as defined below) and the Company shall be entitled to rely on such letter. 2.
Purchaser    Crestview LLC and Crestview ERISA or their affiliates
(collectively, “Purchaser”). 3. Transaction   

At the Closing (as defined below), the Purchaser will invest $100 million (as
such amount may be increased pursuant to the following sentence, the “Invested
Capital”) in the Company in connection with a broader equity capital transaction
described in Annex A (the “Transaction”). Purchaser shall have the right to
increase the amount of Invested Capital proportionately if the Transaction
(excluding the Invested Capital) raises more than $300 million. The Purchaser
will acquire common shares (the “Shares”) of the Company at a price of $17.50
per share or, if lower, at the price per Share in connection with the
Transaction (the “Purchase Price”). The Shares acquired by Purchaser with the
Invested Capital (including Shares issued in respect of, in exchange for or in
substitution of such Shares by reason of any reorganization, recapitalization,
stock dividend, stock split or any similar change in the capital structure of
the Company (a “Reorganization”)) are referred to herein as “Original Shares”.

 

At the Closing, the Purchaser will be granted options to buy, free and clear of
all liens and encumbrances (other than the agreements described below) 2.68
million Shares (the “Options”) from FBR. The Options will be exercisable at a
price of $20.00 per share (which price shall be subject to proportional
reduction in the event the Purchase Price is less than $17.50 per Share), will
contain a cashless exercise provision and will have a six-year expiration. The
exercise price of the Options will be reduced from time to time pursuant to a
methodology to be agreed to reflect dividends paid by the Company (or the
Company can pay an amount equal to the dividends on the Options on an
as-converted basis which (along with interest earned thereon) will be held in
trust until exercise of such Options) and will contain other customary
anti-dilution adjustments for stock splits, combinations and the like and for
issuances below the then-current exercise price of the Options.

 

The FBR Group and FBR will work in good faith toward the success of the
Transaction. Purchaser shall cooperate with FBR Group and FBR in connection with
the Transaction as reasonably requested by FBR Group and FBR.

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4. Conditions Precedent   

The investment of the Invested Capital and the issuance of the Options (the
“Closing”) will be conditioned on the following:

 

1. The completion (contemporaneous or immediately prior) of the Transaction as
described in Annex A.

 

2. Clearance under or early termination of the Hart-Scott Rodino (“HSR”) waiting
period, if applicable. The Parties will make all required HSR filings promptly
but in any event by 4 p.m. on Friday June 23, 2006, and will request early
termination of the waiting period. If the Closing occurs before this condition
is satisfied, Purchaser will acquire at the Closing as many Shares as it is
legally able to without requiring HSR clearance, and the remainder as soon as
practicable after satisfaction of this condition.

5. Definitive Agreements   

Upon the Closing, the parties will execute one or more agreements reflecting the
following provisions:

 

1) Board of directors.

 

(i) The board of directors of the Company (the “Board”) will initially consist
of nine members (it being understood that it may take some time following the
Closing until all of the members of the Board (other than the Crestview
designees who will be appointed at the Closing) are selected and appointed): (1)
one director nominated by Crestview ERISA and one director nominated by
Crestview LLC; (2) three directors nominated by FBR TRS and (3) four directors
who are independent (within the meaning of the rules promulgated by the SEC and
the exchange on which the Shares are listed). Each of the initial independent
directors shall be selected by FBR TRS and shall be reasonably acceptable to
Purchaser. Any party may remove and replace any or all of its designees, and FBR
TRS shall have the right to remove and replace (with respect to replacement,
after consultation with Purchaser) any or all of the independent directors, in
each case, at any time, and all parties shall cooperate in facilitating such
action. The definitive agreements will provide that for so long as Crestview has
the right to designate one director to the Board pursuant to this Section 5(1),
FBR TRS may not act to remove a director nominated by Crestview except for cause
(which will be defined to include serious matters such as conviction of a
felony) and in that event the relevant Crestview entity may nominate a
replacement for the director so removed.

 

(ii) Independent directors shall be paid compensation as set by the Board and
all directors shall be entitled to reimbursement of their expenses of service.

 

(iii) For so long as Crestview has the right to designate one director to the
Board pursuant to this Section 5(1), in the event of a vacancy created by the
departure (for any reason, including removal) of an independent director, FBR
TRS shall select a replacement independent director who shall be reasonably
acceptable to Crestview, provided that if FBR TRS and Crestview are unable to
agree on the replacement independent director, FBR TRS shall have the right to
designate the replacement independent director to serve until such time as FBR
TRS and Crestview can agree on a permanent replacement. If FBR TRS and Crestview
are unable to agree on a permanent replacement director within 45 days, the
remaining permanent independent directors, if any, shall select the permanent
replacement independent director after consultation with both parties.

 

(iv) For so long as Crestview has the right to designate one director to the
Board pursuant to this Section 5(1), each committee of the Board, to the extent
permitted by applicable law, rule or regulation, shall have as a member at least
one Purchaser designee and one FBR TRS designee and if not permitted by
applicable law, rule or regulation, such designee(s) shall be entitled to
observer status.

 

(v) If Purchaser sells, transfers or otherwise disposes of greater than (1) 33
1/3% of its Original Shares, Crestview LLC shall no longer be entitled to
designate 1 director and (2) 66 2/3% of its Original Shares, Crestview ERISA
shall no longer be entitled to designate 1 director, and upon either of the
foregoing, the applicable Purchaser’s designee shall be replaced by an
additional independent director nominated by FBR TRS, in the case of (1) above
only, reasonably acceptable to Purchaser. From and after such time as Purchaser
shall no longer own at least 66 2/3% of its Original Shares, (i) Purchaser shall
have no further approval rights with respect to independent directors and (ii)
Crestview ERISA shall have customary “soft” management rights for ERISA
purposes.

 

 

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(vi) If FBR TRS sells, transfers or otherwise disposes of greater than 50% of
its Shares (measured as of the Closing but including Shares issued in respect
of, in exchange for or in substitution of such Shares by reason of any
Reorganization), FBR TRS shall no longer have the rights described above to
select the independent directors. FBR TRS shall retain the right to nominate
three directors unless both (i) FBR TRS sells, transfers or otherwise disposes
of greater than 50% of its Shares (measured as of the Closing but including
Shares issued in respect of, in exchange for or in substitution of such Shares
by reason of any Reorganization) and (ii) none of Eric F. Billings, Richard J.
Hendrix or J. Rock Tonkel, Jr. remains with the Company in a senior executive
position.

 

(vii) Each of Purchaser and FBR TRS (and their respective affiliates) shall vote
all of the Shares under their control to implement the foregoing.

 

(viii) For so long as Purchaser has the right to designate one director to the
Board pursuant to this Section 5(1), Purchaser shall have the right to designate
one of such directors (or another representative reasonably acceptable to FBR
TRS) to sit on the board of directors of all subsidiaries of the Company other
than the direct and indirect subsidiaries of the Company that are registered
investment advisers (provided that if that would cause a violation of any
applicable law, rule or regulation, such person shall only have observer rights
on such board).

 

(ix) The parties acknowledge that when the Company becomes a public company, it
will have to comply with securities laws and exchange listing requirements, and
they will cooperate in good faith to ensure that it does so comply consistent
with the provisions of this Letter Agreement.

 

2) Affiliate Transactions. Transactions, agreements or arrangements (including
amendments, waivers or terminations of agreements or arrangements) between FBR,
on the one hand, and FBR Group and its affiliates, on the other hand, shall
require approval by a majority of the Board, other than the FBR TRS designees
(in other words, the Crestview designees and the independent directors).

 

3) Transfer Restrictions. Each of FBR TRS and Purchaser will agree not to sell
any of their Shares for 12 months after the Closing (for avoidance of doubt this
shall not restrict a merger or other business combination involving the
Company). Following the lock-up period, (i) FBR TRS shall have a right of first
offer in the event Purchaser intends to sell any Shares (other than in a public
offering, pursuant to Rule 144 (except in a privately negotiated transaction in
which the counterparty is known) or to certain permitted transferees), and (ii)
if Purchaser intends to sell Shares to any of the Restricted Entities for the
account of such Restricted Entity as principal in a privately negotiated
transaction (that is, in which the counterparty is known to be a Restricted
Entity), FBR TRS shall have a right of first refusal to purchase such Shares,
and if FBR TRS (or one of its affiliates) does not exercise that right within 10
business days of receipt of written notice including, in the case of clause (i)
the purchase price and in the case of clause (ii) all of the material terms of
the proposed sale, Purchaser may proceed with the sale on terms that are in the
aggregate no less favorable to Purchaser than those set forth in such notice.
Except as provided herein, each of Purchaser and FBR Group (and their respective
affiliates) may sell its shares subject to compliance with securities laws.
“Restricted Entities” means the entities set forth on Annex B plus up to five
additional entities proposed by FBR TRS prior to the Closing so long as such
persons are reasonably acceptable to Purchaser. The rights of Purchaser provided
herein (other than rights that flow to a buyer in its capacity of the owner of
Shares, such as the right to vote and receive dividends declared) are personal
to Purchaser and will not pass to any acquiror of Purchaser’s Shares. In the
event FBR TRS sells or otherwise transfers Shares representing at least a 10%
interest in the Company to any one party or group, FBR TRS will require such
person or group to be bound by the obligations of FBR TRS set forth in Section
5(1) of this Letter Agreement to vote for and otherwise support the provisions
of Section 5(1) for the benefit of Purchaser.

 

 

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4) General liquidity rights. The definitive agreements will provide for
customary tag-along sale rights. Purchaser shall also have customary demand and
piggyback registration rights to be reasonably agreed but in no event less
favorable to Purchaser than the registration rights given to FBR TRS and the
purchasers in the Transaction; provided that Purchaser shall have demand
registration rights for 2 underwritten offerings. The definitive agreements will
provide for customary legends and investment representations.

 

5) Disclosure obligations. The parties shall have reasonable rights to review in
advance and comment on all public disclosures relating to this Letter Agreement,
the documents referred to herein and the transactions and arrangements
contemplated hereby and thereby in any offering document relating to the
Transaction and in any other public statement (including in any document
furnished to the SEC) made regarding this Letter Agreement, the documents
referred to herein and the transactions and arrangements contemplated hereby and
thereby.

 

6) Placement and strategic advisory fees. In exchange for its ongoing strategic
value, advice, and assistance, an affiliate of the Purchaser (to be designated
by Purchaser) shall receive an initial placement fee equal to 7% of Invested
Capital, and an affiliate of the Purchaser will receive an annual strategic
advisory fee of $1 million (plus reimbursement of reasonable out-of-pocket
expenses), thereafter as long as Purchaser owns at least 50% of its Original
Shares. FBR shall reimburse Purchaser for its actual, documented out-of-pocket
expenses incurred in connection with the transactions contemplated by this
Letter Agreement, up to a maximum of $2 million.

 

7) Other Provisions. As long as Purchaser owns any Original Shares, (i)
Purchaser will have customary preemptive rights to enable Purchaser to remain at
the ownership level reflected by its Shares acquired pursuant to this Letter
Agreement (including any shares acquired through the exercise of its Options)
with respect to new issuances of Company securities (except for stock and option
grants to Company directors and employees), which shall be equivalent to (and no
less favorable to Purchaser than) the preemptive rights granted to FBR TRS or
its affiliates and (ii) Purchaser shall also have customary information rights.

 

8) Term. Unless otherwise provided herein or therein, the agreements providing
the rights and obligations specified in this Letter Agreement shall expire at
such time as Purchaser ceases to own less than 1% of the Original Shares,
provided that such termination shall not affect any Options that are then in
effect pursuant to Section 3 above

6. Governing Law   

This Letter Agreement will be governed by New York law without regard to the
conflicts of law rules of such jurisdiction. This Letter Agreement may be
executed in one or more counterparts and all such counterparts taken together
shall constitute one and the same instrument.

7. Representations and
Warranties   

Each of FBR Group, FBR TRS and the Company, on the one hand, and Crestview, on
the other side, represents and warrants to the other on the date hereof and on
the date of Closing as follows:

 

1. It is an entity duly organized and validly existing and in good standing
under the laws of the its jurisdiction of formation, with requisite power and
authority to execute and deliver this Letter Agreement, and to consummate the
transactions contemplated hereby;

 

2. The execution, delivery and performance by it of this Letter Agreement, and
the consummation by it of the transactions contemplated hereby and compliance by
it with the terms and provisions hereunder will not conflict with, or result in
any breach of or constitute a default under (nor constitute any event which with
notice, lapse of time, or both would constitute a breach of, or default under),
(i) any provision of its charter documents, (ii) any provision of any contract,
license, indenture, mortgage, deed of trust, bank loan or credit agreement or
other agreement or instrument to which it is a party or by which it or its
properties may be bound or affected, or (iii) any federal, state, local or
foreign law, regulation or rule or any decree, judgment, permit or order
applicable to it, except in the case of clauses (ii) or (iii) for such
conflicts, breaches or defaults which have been validly waived or would not
reasonably be expected to have a material adverse effect on it or result in the
creation or imposition of any material lien, charge, claim or encumbrance upon
any of its property or assets.

 

3. This Agreement has been duly authorized, executed and delivered by it and is
enforceable in accordance with its terms, except in each case as may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors’ rights generally, and by general principles of equity, and except to
the extent that the indemnification provisions hereof or thereof may be limited
by federal or state securities laws and public policy considerations in respect
thereof.

 

.

 

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In addition, Purchaser shall be entitled to rely on the Company’s
representations and warranties set forth in Section 4 of the Purchaser Placement
Agreement (in the form attached hereto as Annex C), which are hereby
incorporated by reference herein and which shall be made by the Company to the
Purchaser by officer’s certificate on the date of, and as a condition to, the
Closing; provided, however, that the references in the Purchaser Placement
Agreement to “this Agreement,” the “Transaction Agreements,” “the transactions
contemplated by this Agreement or the Transaction Agreements,” “Shares” and
other terms relating to the Transaction shall be deemed references to this
Letter Agreement, the agreements described in this Letter Agreement, the
transactions contemplated hereby and thereby, the Shares acquired hereunder or,
with respect to other terms, their equivalents hereunder, as applicable.
Purchaser shall have customary contractual indemnification rights with respect
to losses or damages suffered by Purchaser as a result of a breach by the
Company of its representations and warranties; provided that (i) such
indemnification shall be subject to a $25 million deductible and (ii)
Purchaser’s rights to indemnification shall terminate at such time as
Purchaser’s shares are covered by an effective registration statement filed with
the Securities and Exchange Commission.

 

8. Miscellaneous   

FBR Group and Crestview agree to use their reasonable best efforts to complete
definitive agreements with respect to the transactions described in this Letter
Agreement by the Closing Date. For the avoidance of doubt, in the event such
definitive agreements are not entered into by the Closing, this Letter Agreement
shall, automatically and without any further act being required, be deemed to be
the definitive documentation upon which such transactions will be consummated.

 

If and to the extent any provisions of the proposed articles of incorporation or
bylaws or agreements of the Company to be entered in to in connection with the
Company’s formation and the Transaction are inconsistent with the terms of this
Letter Agreement, appropriate changes or references shall be made thereto or
therein, as appropriate, to ensure that the terms of this Letter Agreement shall
control and that the articles of incorporation and bylaws of the Company shall
not be inconsistent with the terms hereof.

 

FBR Group hereby agrees that it will cause FBR TRS (and its permitted assignees)
to perform its obligations under this Letter Agreement.

 

The term of this Letter Agreement shall be as set forth in Annex A.

 

FBR Group and FBR TRS may assign their rights and obligations hereunder only in
connection with the right of first offer and right of first refusal described
above, and then only to another affiliate of FBR Group; provided that no such
assignment shall relieve FBR Group or FBR TRS of its obligations or liabilities
hereunder. If FBR Group or FBR TRS (or any of their assignees) transfers Shares
to its affiliates, such affiliates shall become bound by all the provisions of
this Letter Agreement pursuant to an agreement reasonably satisfactory to
Crestview.

 

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This Letter Agreement is accepted and agreed to on the terms set forth above as
of this 22nd day of June, 2006:

Forest Holdings LLC

By: Crestview Capital Partners, L.P., as Member

By: Crestview Partners, L.P., its General Partner

By: Crestview, L.L.C., its General Partner

 

By: /s/ Barry S. Volpert

Name: Barry S. Volpert

Title: Chairman and CEO

Forest Holdings (ERISA) LLC

By: Crestview Capital Partners (ERISA), L.P., as Member

By: Crestview Partners, L.P., its General Partner

By: Crestview, L.L.C., its General Partner

 

By: /s/ Barry S. Volpert

Name: Barry S. Volpert

Title: Chairman and CEO

Friedman Billings Ramsey Group, Inc.

 

By: /s/ Eric F. Billings

Name: Eric F. Billings

Title: Chief Executive Officer

FBR TRS Holdings, Inc.

 

By: /s/ Eric F. Billings

Name: Eric F. Billings

Title: Chief Executive Officer

FBR Capital Markets Corporation

 

By: /s/ Eric F. Billings

Name: Eric F. Billings

Title: Chief Executive Officer